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Allied Nevada Gold (NYSEMKT:ANV)

Q2 2011 Earnings Call

August 05, 2011 11:00 am ET

Executives

Scott Caldwell - Chief Executive Officer, President and Director

Hal Kirby - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Theresa Thom - Vice President of Investor Relations

Analysts

Mike Kozak - Cormark Securities Inc.

Steven Butler - Canaccord Genuity

Tara Hassan - National Bank Financial, Inc.

Brian Christie - Desjardins Securities Inc.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Allied Nevada Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Friday, the 5th of August 2011. I would now like to turn the conference over to Tracey Thom, please go ahead.

Theresa Thom

Good morning. Thanks for joining us, everyone. On the call today, Scott Caldwell and Hal Kirby will discuss the Q2 financial operating results which were released last night after the close of the market. The call will be answered by a question-and-answer session, or sorry will be followed by a question-and-answer session. Before we begin, please note that certain statements we may make during this call may contain forward-looking information. For additional information, I refer listeners to read the cautionary statement regarding forward-looking information contained in our press releases and on our website. I'd now like to turn the call over to Scott Caldwell.

Scott Caldwell

Thank you, Tracey. Well my opinion, Allied had another good quarter, real credit to the men and women that compose our team, both out in the field at Hycroft and in the exploration and the development side. We had an excellent, excellent performance in the health, safety and environmental front, no serious incidents during the quarter or for the year. As a matter of fact, the mine, Hycroft Mine has gone almost 2 years, it will be 2 years here this month without a lost time accident, so a real credit to the men and women out there.

We had good cost performance, producing gold for about $460 an ounce during the course of the quarter, and that's despite the impact, the adverse cost impact resulting from the delay in our first large, new hydraulic excavator. The tragic events in Japan, i.e. the tsunami that hit in March delayed that machine for several months. It is now on the water, not in the water like the first one, but on the water due to arrive in Long Beach on the 18th of August. We believe that, that shovel will be operational the fourth of this year, further advancing our development plans on that oxide expansion. Hal will go through the impacts on the cost, but it affected us. We had to run the loaders, which are high-cost units, and the plan was actually to run the high-efficiency, low-cost shovel.

Gold production was expected. Silver production was greater than expected, and I'm, for one, really excited about how the silver is moving upwards. Our gold-to-silver ratio or silver-to-gold ratio is increasing. Our plan shows that we are on plan, the gold production will increase in the second half of the year. Again, not really a great impact, but a couple of things. The production increase is really due to: one, the Merrill-Crowe plant expansion, the first of several expansions that take place over the next year or 2. We expanded the plant from 3,500 gallon per minute processing rate to about 5,000 gallons per minute. That became fully operational this month, i.e. the month of August. And bottom line is, is we're increasing our gold production by 42%, again the whole guise or the whole game plan here with this expansion is mine more tons, get more surface area, more tons under leach, process more solution. It's not a great game. Hycroft is what it is, very consistent, very large low-grade, disseminated gold, silver deposit, so we're after the throughput, i.e. volume game here.

And we're implementing that, and things are proceeding as well, again despite the delay in that shovel.

The mining rate is the other thing that is increasing here, and when we lost that shovel, i.e. it got delayed, we scrambled and found a used machine out of the state of Washington, a smaller machine of 3,500. We rebuilt that machine and that became operational this month as well, or late last month, late in July, and that will further enhance our production rate, and so we're starting to see our mining rate come up, and it will increase to about 4 million tons, from present levels to about 4 million tons per month.

I mentioned the silver-to-gold ratio. You can do the arithmetic as well as I can, but right now, it looks like last quarter, we produced 4 ounces of silver for every ounce of gold. Pick a silver price, put the price we realized, it's operating cost credit to a reduction on operating cost of well over $100 an ounce. So I'm excited about where that silver is going, going to head. We're really focused, not only gold production of course, but really trying to push our silver production up by operating the heap with additional cyanide, really targeting the silver. So we're quite pleased that silver is starting to move in the direction we hoped it would move. And now it sure looks like we were right.

Earnings of $0.04 a share. During the quarter, we continued the very aggressive exploration drill program at Hycroft and Hasbrouck, spending approximately $8 million -- $9 million. So that was all expensed. And so you can see the effect on earnings that's discretionary spending. We realized the impact on earnings, but we think that the results out at Hasbrouck are quite encouraging and pretty exciting in the continued successes at Hycroft. So we believe it's the right decision and we will continue to do that as the year advances. Discretionary, expensed, exploration spending will affect earnings.

As I just mentioned, we're really pushing at Hasbrouck and Hycroft. The exploration results at Hasbrouck were particularly exciting to me, as I believe that we may have a second development project there, and time will tell on that.

Going forward, we revised guidance downward right after we realized the impact of the tragic events in Japan, the tsunami. We believe we're going to make anywhere from 115,000 to 125,000 ounces of gold at a cash cost of $450 to $490. And that does not reflect an improvement or the radical improvement or the dramatic improvement in our gold or silver-to-gold ratio. So there's some opportunities there, partially offset by what's going to happen to fuel and oil prices and other commodity prices. But I think we're in a good position to achieve those, that production level and the cash cost per ounce.

Mind you again, the trend shows that Q3 and Q4, the mine plan has always shown that we mine more tons, hence we produce more ounces in the second half of the year than the first half of the year, and we're on track to do that. The expansion is proceeding well. I mentioned the Merrill-Crowe, 42% improvement in expansion, and that is running very, very well. It's fully commissioned now. We had a little issues with the instrumentation there, but we got it up and running and it's performing well. I was out there yesterday -- the day before yesterday, and it was looking good. It's a very simple expansion. Most of you have been around the Merrill-Crowe plant. This is a press and another aeration tire [ph], another clarifier. So going well.

Again, as we go forward, we intend to redeploy drills from Hycroft to outside expensed exploration programs. I think we're going to spend about $10 million for the rest of the year on those expensed exploration programs, primarily Hasbrouck. We may start drilling on our second project outside Illipah. We'll see how things go, but we're excited about Hasbrouck. We continue to push forward on that, and we fully understand what this decision will do to our earnings. It's discretionary. We don't have to do it. We think it's the right path forward for the company.

At Hasbrouck, we hope, we plan to define a development scenario for this project no later than first quarter of next year. And then we can really talk about where we see Hasbrouck going as we continue to invest money in its growth. And I really like that Hasbrouck project, how can you not when you see the grades that are coming out of that exploration effort?

With that, I'll turn it over to Hal, and he'll go into more detail on our financials and our costs.

Hal Kirby

Thanks, Scott. During the quarter, we did report net income of $3.6 million or $0.04 per share for the same period last year. We reported net income of $20.8 million or $0.26 per share. Our total revenue during the quarter were $33.6 million compared to $37.1 million last year. We sold 20,293 ounces of gold and 85,092 ounces of silver. As Scott mentioned, it represents a 4.2:1 silver-to-gold ratio, which is higher than what we've been using in our projections.

Total cost of sales was $13.9 million in the quarter compared to last year, same quarter, $15.2 million. Included in our cost of sales are depreciation expenses of $1.6 million. Those depreciation expenses are in line with our expectations. Adjusted cash cost per ounce, we reported $459 per ounce, as Scott mentioned, primarily related to the increased silver production and the price of silver.

At the mine. Our mining costs were $1.82 per ton, higher than expectations because of the effects of the delay in the shovel -- the 5,500 shovel delivery. Processing costs were $1.58, $1.58 per ton and admin costs were $0.47 per ton of ore, both of those are in line with our expectations.

Total exploration and landholding costs were $8.9 million in the quarter. Last year, they were $5 million for the same quarter. Year-over-year, the big difference is the $4 million of exploration spending at our Hasbrouck Mine.

Total corporate, general and admin spending was $5.5 million in the quarter. Last year it was $4.6 million. The current quarter spending is in line with expectations. Year-over-year, the increase primarily relates to the engineering and metallurgical work that's associated with our initial feasibility study that we're looking to complete in the third quarter.

Income tax expenses were $1.5 million this quarter. Same quarter last year, we actually had an income tax benefit of $6.4 million. The current period income tax expense represents about $1 million of noncash adjustments related to our accounting for deferred taxes, and the remainder is alternative minimum taxes. As I mentioned, during the quarter, we reported net income of $3.6 million or $0.04 per share.

Moving on to the statement of changes in financial position or cash flow statement. During the quarter, our net cash from operating activities was $4.1 million compared to last year, where we generated $11.6 million. We did have some planned working capital movements, which would include both an increase to our work-in process inventories as we ramp up production and also an increase in our accounts payable balances, which is actually a decrease in working capital that's related to additional spending, both at the mine site and on our exploration program.

During the current quarter, we used $18.4 million of cash in investing activities compared to last year where we consumed $8.5 million of cash. In the current quarter, we added $12.3 million of property, plant and equipment expenditures. These expenditures were associated with the heap leach construction, Merrill-Crowe expansion. We constructed a maintenance shop out of the mine, and we also purchased additional mine equipment associated with our accelerated oxide program.

During the quarter, we also added $6.1 million to our mine development expenditures. These costs are associated with our EIS related costs for our proven and probable ore reserves and mine development condemnation drilling at Hycroft.

In the current quarter, we used $1.5 million in cash from financing activities, while last year, after completing an equity offering, we actually provided cash flows of $257 million in the quarter.

On the current quarter, we repaid principal of $1.3 million on our outstanding capital leases, and we had roughly $500,000 of loan-related costs related to the closing of a $30 million revolving credit facility. During the quarter, we consumed $15.8 million of total cash, and we ended the quarter with $305 million in cash and cash equivalents, which we believe is a very strong position to help us through the next development phase of Hycroft and at Hasbrouck. With that, I'll turn back to Scott.

Scott Caldwell

Thanks, Hal. With that, I'll open it up to, if there's any questions and try to answer those questions for you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Mike Kozak with Cormark.

Mike Kozak - Cormark Securities Inc.

A few questions for me. The first one is how advanced would you say you are on negotiating a larger debt financing package for the Hycroft mill expansion? And could you provide any color at this time on what the terms are lining up to be?

Scott Caldwell

Yes, we are advancing that, our financing strategy as a whole, and we're looking at several elements, including a larger debt facility, possible silver stream transaction, other various items on the platform. And in our -- we intend to issue a feasibility study this quarter. And in that study, we're going to give the details of that plan, and if we've advanced to the point of indicative term sheets and that kind of stuff, we'll disclose it in the study. But we are looking at various financing options, including the revolver. Hal, do you want to add to any of that?

Hal Kirby

Sure. I think one thing of interest that's relatively new in the debt market is kind of availability of higher yield debentures. So that's something we're considering in addition to the normal project financing, as well as other debt options that we have. There appears to be a lot -- there is a lot of interest in providing us with debt related to our expansion plans. And as Scott said, we're kind of in the process of finalizing a financial plan or strategy that we can include in the initial feasibility study.

Scott Caldwell

That plan, I might add, Mike, that plan does not include equity. So you'll see that laid out.

Mike Kozak - Cormark Securities Inc.

Okay. And my second question is, the silver grades in the June quarter, at north of 12 gram a ton. Is that positive grade reconciliation or were you in just a higher silver grade area of the pit?

Scott Caldwell

It's a positive grade reconciliation. I'll just talk through the model. I have the year-to-date numbers in front of me, not the project today. On gold, essentially, we're spot on as far as slightly fewer tons, slightly higher grade on the gold, but basically the model versus the actual and actual being blast holes. On silver, we've underestimated, the model is underestimating, so we're seeing more silver over a 30%, 30.2% or a 33% increase. So we're seeing 30% more silver than we expected. I don't know if that trend is going to continue or not. What we really focus on is the gold and silver grades and solution, i.e. what we're going to eventually recover -- the solution, we can get it into the way [ph] and that's what I'm excited about. If you look at for the quarter, if you look at the production rates, but we're watching those solutions trend upward day-over-day, week-over-week on the silver-to-gold ratio, last quarter 4:1. So a combination of better-than-expected grade, and better-than-expected recovery, I guess.

Mike Kozak - Cormark Securities Inc.

Okay, that's great. Just maybe just one really quick follow-up to that is -- so you're doing the reserve and resource recalculation in the third quarter. Do you think before the silver is in you're going to move to a kriging instead of an inverse distance then to kind of correct that reconciliation issue?

Scott Caldwell

Yes. They may well indeed move to kriging. It's again up to our independent consultant where he goes. As we get more and more drill information, more silver data, eventually, whether it's this go around or the next one, they will move to kriging on silver as well as gold. We'll see what the guys decide -- what he decides to do. It's an independent fellow that does all of our ore reserves. We monitor it and review it, but it's ultimately his decision, and we'll just see what he decides to do based on the data.

Operator

Our next question comes from the line of Brian Christie with Desjardins Securities.

Brian Christie - Desjardins Securities Inc.

Scott, maybe -- can you touch on where you're at on the permitting for the potential mill study?

Scott Caldwell

Sure. The permitting for the mill is the expansion, we call it, we're moving along with that. We've had several public hearings. Our next set of public hearing -- and they went very well. There was no opposition voiced in those hearings that was in May. Our next set of hearings is in the fall. I think it's November that they're scheduled for. So we're moving forward with that. So we still are anticipating receipt of the permits on the milling option early 2013. We've made a decision and you'll see this in the feasibility study. We've moved the mill location to patented ground. So claims that we own, essentially the Bay Area, but that's immaterial. The real moves is on patented ground. Why we've done that, Brian, is if the permits were to slip, we have no reason to think they're going to, we believe we'll be allowed to begin construction prior to receipt of operating permits. The tails dam is on federal ground, so you couldn't operate without final permits. So we think that this is going to create some flexibility for us to allow us to begin construction when we need to based on equipment delivery as opposed to the final permit to operate. So we'll just see how it all shakes out. But we're still optimistic that we'll have receipt of permits as per plan, which is early 2013, 18 months to build it and 6 months to commission it.

Operator

Our next question comes from the line of Steve Butler with Canaccord Genuity.

Steven Butler - Canaccord Genuity

Guys, a question for you on the info drilling that you've been doing year-to-date, Scott, at the same kriging method or the squared method on resource modeling, would you expect any potential uptick to the silver grade based on extra amount of your own data, if you will, into the mine model, reserve model?

Scott Caldwell

I don't think you're going to see the silver grade increase this go around. Again, I don't know if the consultant's going to move to kriging or stay with his ID cubed, we'll see. I don't expect it to increase. We're reluctant at this stage of the game. We're seeing, as we just talked about, a very -- the model is way understating silver grades up high. We'll definitely debate that, but I don't know, I'm not so sure we're going to say, "Hey we think that trend is going to continue to depths on this thing," because it is so large. I personally believe we're understating silver grade, but that's a personal belief. And we certainly are in the current oxide mining, as you can see from the results. But it's a debate that we're going to have with him over the next couple of weeks, and see where we go from there. But I don't think you're going to see the silver grade dramatically increase this go around.

Steven Butler - Canaccord Genuity

Great. Scott, on the same study, that's coming reserves spending for the expansion study, if you will. Are you still going to be stuck with your very conservative $814 price assumptions or will you at least give a sensitivity to a higher price step?

Scott Caldwell

We're going to use $814 as our base metal -- as our base case reserve price. But yes, we are going to give you -- so at $814, there will be a detailed annualized mine plan, whole profiles, the whole 9 yards. And obviously, recoveries and all of that on an annualized basis. And then for the larger pits, for the higher numbers, we're running little runs. We will run little columns. We won't have the detailed annualized mine plan for the outyears, but yes, we are going to sensitize it up and down essentially on middle run [ph], so it has economic supply to it. So to give you a very good idea of what our reserve would look like if we added to the trailing 3-year average. And we'll make sure the trailing 3-year average is in that. But we also want to sensitize it downwards for you. One of the things that I think you need to see is at what point does this milling thing not make any sense, right? And so we'll write downwards as well. And then the normal operating capital costs, sensitivities plus and down, and so you'll get a real good feel for it and a really good feel what the reserve would look like at a higher metal price. I'll just say it gets real big real quick when you raise the metal price.

Steven Butler - Canaccord Genuity

Sure. Scott, on the accelerated oxide plant, is there much material level of CapEx remaining? How on the accelerated oxide plant?

Hal Kirby

In our press release, I think we mentioned -- we do mention that we have incurred about $50 million of the $212 million. So there is a substantial amount that's still to follow. Most of it is related to the continued delivery of trucks, and we're just starting to get the larger shovels in. So that's kind of the major capital expenditures that are remaining.

Steven Butler - Canaccord Genuity

When will you have expended most of that dollars, into sort of middle of next year, kind of time line?

Hal Kirby

Yes, kind of through the middle of next year is the main spending. Because a lot of the spending is actually in 2012 just because of equipment deliveries.

Steven Butler - Canaccord Genuity

On the -- you guys maintained your guidance for the year. Of course it does imply a pretty robust Q3 or second half, if you will, Scott. Are we going to see a pretty abrupt increase in production or should it be a bit more of a, take the midpoint, if you will, but like Q3 will be less than the Q4, sort of impact in terms of production of ounces?

Scott Caldwell

Yes. Q3 will be less than Q4. And so it's sort of a midpoint as it goes up, and the reason for that is that we will only have gone 2 months out of 3 production with the throughput increase on the Merrill-Crowe. In other words, that started really full production with this month, August. So we'll see it August, September and all of the fourth quarter. And so if you'd like, if you want to look at the increase, 2/3, simplistically 2/3 this quarter, 3/3 next quarter if you're looking at the bump, right? I don't know if that was confusing as mud.

Steven Butler - Canaccord Genuity

That's fine, Scott. But we can model that one easily enough.

Operator

[Operator Instructions] Our next question comes from the line of Tara Hassan with National Bank Financial.

Tara Hassan - National Bank Financial, Inc.

Quick question on your cost here, Hal, you mentioned that mining costs are a bit higher than what you were looking for due to the lack of the larger equipment, what are you expecting for the rest of this year and into next year on mining costs?

Scott Caldwell

From the mining cost -- this is Scott, I happen to have the table in front of me, but our mining costs declined to about $1.30 a ton. And just for this quarter, the effect of the loaders was $2.04. So you're looking at about in my math, so it's about $0.76 increase. And it was solely that we had to run loaders and maintain loaders because we didn't have that big shovel. So we expect them to decline. It's a function, really a function of a loading unit.

Tara Hassan - National Bank Financial, Inc.

Okay. And then, Scott, you mentioned you are expecting a development scenario for Hasbrouck for Q1, what would that entail or are we talking preliminary economic internal or just what the path forward is for the project?.

Scott Caldwell

What we intend to issue is a PEA. So a preliminary economic assessment, and it would show the processing tech -- if you recall, we nearly, essentially had a PEA nearing completion. It was within weeks of completion on Hasbrouck. And it was a heap leach scenario, small heap leach, moving Hycroft equipment up and that kind of -- we didn't issue that because we started to hit these interesting intercepts with visible gold. And it obviously starts to make you think of a mill, and so this will be a PEA, showing what we believe is the best way to exploit this resource out there, no heap leach, just a heap leach system mill, but we'll put that together, and that's what we intend to issue in Q1 and it will have a revised resource, obviously associated with it.

Tara Hassan - National Bank Financial, Inc.

And will you -- given that you've discovered this new Franco Zone, will there be enough information to start to look at including a portion of that in the PEA?

Scott Caldwell

Yes. There will be all 3 other zones, the higher grade zones, the Franco, the Cross Roads and the first which is the Saddle. All 3 of those will be included in the resource. Now our drilling is relatively wide spaced, so we're not anticipating a bunch of proven and probable with any proven and probable out there, we're anticipating it all be M&I and inferred if you like, because we're trying to get our arms around the project as a whole, not necessarily develop ore reserves. And so the drilling is not designed to give us proven and probable. It's relatively wide-spaced. In particular, on these high grade zones, when you see those kind of grades and the nuggety nature, i.e. visible gold in it. We know the drilling is far too wide spaced to be proven and probable.

Tara Hassan - National Bank Financial, Inc.

Okay. And one final question on the silver. You mentioned that you were increasing the cyanide on the leach, and that was helping to increase the recoveries. Is there -- is that sort of built into your Q2 cost and in terms of your processing?

Scott Caldwell

Yes. It's always been in our cost. That would be -- if you were to look historically at their cyanide per ton use, the application rates for Brimstone in particular, but anywhere, they were not try to recover silver. It has a longer leach curve. So after a year, or thereabout, they would stop adding cyanide to a particular section of the heap. And because they want -- they wouldn't keep it under this leach as long with cyanide. And so we are continuing to add cyanide to recover that silver. Simplistically, our silver recovery, which is deplorable, it's 15% if we crush it, 10% if we don't. That's on the heap. If you go into a mill, it of course gets into the high 70s, low 80s, but in the heap. So we're still seeing those kind of recoveries, maybe perhaps a little bit better, but certainly better grades and better performance. And so we're adding the cyanide, always have and we'll continue to do so.

Tara Hassan - National Bank Financial, Inc.

But it's not above and beyond what you were expecting in terms of consumption?

Scott Caldwell

No.

Operator

Our next question comes from the line of Steve Butler with Canaccord Genuity.

Steven Butler - Canaccord Genuity

Just to follow up. Scott, as it comes up with the reserve update on the milling projects study or initial feasibility study, if you will. On recoveries of gold and silver, I recall gold, 77% once you have your autoclave or roaster working I guess autoclave, 77% gold, 81% silver. Has there been any more test work along the way that gives you more confidence in those numbers to either maintain them or to influence them higher?

Scott Caldwell

Yes, there has been more test work and lock cycle testing, et cetera. Essentially, it's showing us that the recoveries are the same or very similar. We believe, and that's part of going into -- what we're hoping to do is present the study to the board. The board will approve the funding necessary to do the detailed engineering design to construct essentially. And there's a met testing that we want to do in the next -- really focusing on the first 7 years, if you'd like, 5 to 7 years of production, which is primarily Brimstone and Central. We're really focusing on that, but we believe that we're going to be able to -- we're optimistic that results are starting show us that we could see recovery enhancements, that will really be the next phase of met testing between now and when we start to construct this thing. So really, the recoveries are the same for all intents and purposes. I think you're going to like the plan. It's an interesting plan.

Steven Butler - Canaccord Genuity

Yes. So you call this an initial feasibility study. So what would succeed your -- at a later date, would your final feasibility study at some point next year and would be based on, again more met work or sharper defined CapEx numbers, et cetera?

Scott Caldwell

Yes. So the final, the 2 construct feasibility studies, the final, the bankable, as the OSC says, the feasibility study, would be a document that would have enough engineering that you could actually begin construction. And you would expect your capital cost estimate to go from where it sits today, which is roughly plus or minus -- the last I saw, believe it or not, was around 20 or 18, so plus or minus 18, to about plus or minus 10. So you get a further refinement on your capital and operating cost estimates. A lot of our capital costs -- and this will be disclosed in the study, but we have quotations from the suppliers, the vendors on a lot of the mills, the mining equipment et cetera. So we have a lot of this stuff. I mean, we're very, very far advanced for this stage of the game. And its engineering, it's well advanced. We've got a very optimized operating strategy for the plant. We've got an excellent mine plan, that is trying to maximize cash flow. We're not focusing on gold or silver production. We're focusing on cash flow at today's prices, as well as our base case, which is $814. So with the plan we've come up, we think people will like because even at today's prices, it maximizes, it generates the best cash flow. So we'll see. I'm sure you'll let me know if you like it or not.

Operator

[Operator Instructions] We have a follow-up question from the line of Tara Hassan with National Bank Financial.

Tara Hassan - National Bank Financial, Inc.

Scott, just a follow-up on your comments on the capital cost estimates from suppliers. We've seen recently a number of the majors and mid tiers increase their capital cost estimates for development projects. Have you seen any cost creep in discussions with them or in sort of iterations of the estimates that you're getting?

Scott Caldwell

The estimates that we have now that will reflect in this study are essentially, like as of a couple of weeks ago, as far as the mining equipment, the milling guys were still talking to them. FLSmidth looks like they'll be the low cost on the mills. So we're not seeing any real cost creep on that. We've got a real good handle on today's cost for concrete and steel. We are part of this expansion. We just poured, I want to say, a couple thousand yards of concrete, a couple thousand cubic meters of concrete for the truck shop, a couple thousand tons of steel in the shop, fabricated steel, it's up and erected now. So we've got some pretty good costs, and we're not seeing the huge escalations. Part of that is logistics. So I mean, if you look at what Cisco was able to do, [indiscernible] and a lot of it is logistics for us. We're right on the rail line. We're right on a county-maintained gravel road. So we're not seeing the huge escalations. And our costs are would be today's dollars, and they would not be inflated. However, delivery of things like the shovels. It's a quotation on delivery, freight, taxes, erected at site, for a date in the future. So if it's January 1, 2013, that's the price they're saying for January 1, 2013. We would like to place orders for long-lead items, and so we intend to start detailed discussions, with like the shovel manufacturers, about firm pricing. And you could see some movement then from the quotes we've got now and the final negotiated price. But you're talking a couple of, I would imagine, a few percentage points one way or the other, not doubling or anything like that or having the cost.

Operator

Management, there are no further questions in the queue. Please proceed.

Scott Caldwell

Well in conclusion, really thanks to the hard work of the Hycroft team, the men and women working out at the mine site. Allied had another good quarter on the health, safety and environmental front. And production and costs, we're pleased with the results there as well, and really looking forward to having for the rest of the year. The exploration team continues to find exciting gold mineralization at Hycroft and Hasbrouck. And again, I'll reiterate, we recognize the adverse impact to our earnings by continuing with this expensed exploration, but we intend to do that for the second half of the year. The development group, we talked a little bit about that, plans to issue a resource reserve update in the third quarter of this year and followed closely by shortly thereafter by a milling feasibility study. And like I mentioned to Steven, I'm sure you'll let me know if you like it or not. And I for one, am looking forward to what develops over the next few months and the rest of the year and then beyond for Allied. And finally, I'd like to thank you for taking time out of your busy schedule and probably what is a beautiful afternoon wherever you're sitting right now, or perhaps morning if you're out on the West Coast. Anyway, thanks again for your time, and if you have any more questions, you know where to reach us.

Operator

Ladies and gentlemen, that concludes the Allied Nevada second quarter earnings conference call. You may now disconnect. Thank you for using AT&T Conferencing.

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Source: Allied Nevada Gold's CEO Discusses Q2 2011 Results - Earnings Call Transcript
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