Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Allied Nevada Gold Corp. (NYSEMKT:ANV)

Q3 2011 Earnings Conference Call

November 7, 2011 11:00 ET

Executives

Tracey Thom – Vice President, Investor Relations

Scott Caldwell – President and Chief Executive Officer

Hal Kirby – Vice President and Chief Financial Officer

Analysts

Tara Hassan – National Bank Financial

Steven Butler – Canaccord Genuity

David Brigham – Brigham & Associates

Sam Crittenden -- RBC Capital Markets

Adam Graf – Dahlman Rose

Ron Stewart – Dundee Securities

Shawn Campbell – Macquarie

Mike Kozak – Cormark Securities

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Allied Nevada Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session with instructions provided. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Monday, November 7, 2011 11.00 AM Eastern Time.

I would now turn the conference over to you Tracey Thom, Vice President of Investor Relations. Please go ahead.

Tracey Thom – Vice President, Investor Relations

Thank you, good morning. Thank you everyone for joining us this morning. On the call today is Scott Caldwell, President and CEO and Hal Kirby, Vice President and CFO will discuss the Q3 earnings and operating results which were issued this morning ahead of market open. The call will be followed by a question-and-answer session.

Before we begin, please note that certain statements we will make during this call may contain forward-looking information. For additional information, I refer listeners to read the cautionary statements regarding forward-looking information contained in our press releases and on our website.

I will now turn the call over to Scott Caldwell.

Scott Caldwell – President and Chief Executive Officer

Thank you, Tracey and good morning to everybody on the call. Thanks for taking time out of your day to listen to us. Third quarter, the company had another quarter in the health, safety, environmental front, no lost-time accidents or significant environmental incidents during the quarter. As a matter of fact, the company has gone two years have had a lost-time accident.

Its outstanding performance is a direct result of the men and women working in the field like I just can’t say enough good things about the performance in that area, especially on the safety front. With this dramatic expansion, we are undergoing all the training we are doing and to have that kind of a safety record is only a credit to Warren and the team out of Hycroft.

Bad news, gold production was lower than expected. I want to stress that the recoveries were as expected. The heap is performing as we thought it would perform. We are seeing slightly better silver recoveries, better silver grades in plant. Gold grade is spot on with the model on areas we have mined. Production was adversely affected really by late equipment deliveries the mining equipment that we talked to early in the year, primarily the shovels, but also a driller too took a while to get commissioned.

And then probably the most recent thing was some effects on the Merrill-Crowe plant that started to happen to us late in September or mid September. Pumps were laid – continued to be laid. They finally are operational now with the pumps are required to get adequate flows upon to the heap for the plant expansion that they were eight weeks late or a couple of months hence the drop in production.

Silver production is far greater than what we had expected. It continues to trend up to effective recovery and silver grade, recovery certainly appears to be a couple of percentage points higher than we thought and silver grade is about 30% better than the model so as it should be. I am not surprised by the silver grade side of things, because a lot of the model up high and the (indiscernible) in particular was not re-drilled for silver assays, historically never assayed for silver.

So, we don’t have a real solid model up high and so we are not surprised by that, but we are surprised, pleasantly surprised by the amount of silver we are making. For the quarter, we sold 4.6 ounces of silver for every ounce of gold and I mean even I can do that math, that’s a nice credit to costs, 30 bucks silver, nearly $150 an ounce. Again I keep telling people what makes this thing work, what makes it work on a heap leach, what makes it work on a milling expansion, its silver, silver, it’s a phenomenal credit to cost now. And once we get the mill built, it becomes a real cash flow generator making 20 plus million ounces a year.

Operating costs continued to look pretty good at $478 per ounce in the quarter. Year-to-date, we are sitting at right at $486 or so. So, certainly we believe that we are going to be within our guidance of $450 to $490 an ounce the upper end of that.

Mining costs are trending down unit costs. As the new mining equipment becomes online, we are starting to see those efficiencies with that large shovel, the tonnage goes up. Our cost per ton is trending downwards. We are starting to see that drop back to where we need as we are able to start to stand down the loaders which are high maintenance costs, high operating costs. Process plant, the costs continued to remain flat. I will remind you that forward-looking stuff we use 100 or fuel oil prices associated with $100 per barrel fuel oil. So, we still look that we are okay with fuel running, West Texas running about 95 or so.

On the growth front, as you all know or most of you should now, we have completed our feasibility study, had a very nice return, using a $1000 gold price and the silver price of 18, we are going to turn a rate of return of 30% plus and the mine is capable of producing 600,000 ounces of gold and 25 million ounces of silver for about 10 years at a really nice cash costs of sub 200 an ounce.

During the quarter, the Board approved moving directly into detailed engineering required for construction and that is the detailed engineering for the gyratory crusher to the tails down. So, that would be for the mill. The Board also approved ordering long-lead equipments such as the mining shovels and you saw us talk about that more trucks, the gyratory crusher of the mills, the pebble crushers.

We have ordered over the last quarter, we have ordered the shovels and the gyratory crusher and committed to more trucks, got financing in place from Komatsu and Caterpillar for roughly $300 million of capital equipment leases. So, that’s a nice little chunk on the start of our financing plan. The detailed engineering is underway and that is the detailed engineering as I mentioned required for construction, but more importantly, we began the detailed engineering on the heap leech crushing project and if you recall we are advancing the gyratory crusher and the pebble crushers or cone crushers to enable us to crush 100% of our heap leach ore at these metal prices certainly and even down as low as $800 gold, that makes a lot of sense to crush and convey 100% of our oxide material rather than continuing to run a mine.

So, we have ordered the crusher. We are beginning the detailed engineering work on that as far as the excavation, foundation works etcetera. It will improve our silver recovery. It will improve our gold recovery and it has a nice little return. That gyratory crusher will be converted to feeding the mill. Once the mill is constructed, we will construct a second crusher later in the mine life to handle the remaining heap leach ore.

In the exploration front, Hycroft, the drilling has really been focused on engineering work, obtaining net samples for optimization test work or hardness, I believe the mills are oversized or the throughput is low. We will see how that work comes out fine grind, etcetera. Geotech drilling, that’s for the pit slope stability work. We have very, very conservative slope angles and we are quite confident that we will be available to steepen those angles with this additional drilling and enhance the economics of the project, perhaps even add a few silver and gold ounces to the reserve, but it’s nothing else lower the strip ratio. We are also working on condemnation work. We are trying to locate our southern waste dump. The Hycroft is still wide open to the West and to the Southwest. The Silver Camel area those of you that have been out there, it’s wide open. So, we are drilling right now trying to figure out where to put our south waste dump, that’s part of the drill program as well.

Hasbrouck, I for one and I believe the entire company is very excited about Hasbrouck. We believe that at reasonable gold prices and by reasonable I am saying $800 that’s the price we use in our ore reserves and really are some of our projects go, no-go decision-making price that it’s going to be our next mine. Drilling has gone well. We are struggling with assay turnaround time on all of our outside exploration stuff, that’s upwards of 12 weeks now. So, it’s really hampering us. So, Hasbrouck we are basically done drilling for all intents and purposes for the year. We intend to have a PEA out in the first quarter of 2011 and obviously a resource announcement with that. So, you will see what we think we have there and the direction where to go with that. We are going to fast-track that project. As soon as we can, we are going to move right into the permitting process.

What I am talking about is submit a plan of operations and continue permitting. We have already started on the baseline work. We believe we can get a permit on this thing in two years and then begin construction on a heap leach. We could have it running at less than 12 months, so we are excited about getting this thing moving forward by our mill. We will talk about it in February.

Illipah, another outside exploration target, we are drilling. Illipah is a sediment-hosted Carlin-type target. It’s really only Battle Mountain trend, or excuse me, the Bald Mountain trend. The closest property that you would remember or recognize is Alligator Ridge, just about 40 kilometers north of Illipah. We are drilling on the project now again looking for a sediment-hosted Carlin-type target awaiting assays but we will see what happens there.

In the portfolio, we are starting to have the funding and the time and the resources, the people and the drill rigs to begin working on the outside exploration projects. So, Hasbrouck was the first, Illipah is our second. We probably will be working on Wildcat sometime next year, but we’ll continue to drill on these projects and see if we can find a third development project on our portfolio.

With that, I will turn it over to Hal and he will go over the financials.

Hal Kirby – Vice President and Chief Financial Officer

Thanks, Scott. We do have a very good quarter financially. Net income for the quarter was $14.7 million, which is $0.16 per share. This compares to $3.1 million or $0.03 per share in the same quarter last year. Total revenues in the quarter were $49.6 million, up roughly $10.7 million from the same quarter last year. Gold revenues were $45.4 million, representing 26,971 ounces of gold sold at a realized price of $1,684 per ounce.

Total silver revenues were $4.2 million, up from $1.3 million last year representing the higher silver production and sales of the mine. We did sell 121,856 ounces at a price of $38 per ounce. Total production costs were $17.1 million for the quarter compared to $19.1 million from last year. Adjusted cash costs, as Scott mentioned, were $478 per ounce which is clearly in line with our previously stated guidance. Total depreciation expense $2.2 million virtually unchanged from last year. Exploration expense was $6.1 million with most of this exploration expense being associated with the work at the Hasbrouck property.

Corporate G&A was $4.5 million, down roughly $1.2 million from last year. There was a decrease in stock-based compensation which was offset by the additional staff we have hired in order to work on the accelerated outside program and the development of the milling scenario. During the quarter, we recognized a $1.2 million gain on the sale of our contact properties, which is included in other income on our income statement.

Total income tax expenses for the quarter were $6.1 million, which currently represents a non-cash charge associated with deferred taxes and the recognition of alternative minimum taxes that would be payable in the current year. The effective tax rate for the quarter was 29.4%, which represents the statutory rate of 35%, plus the allowance for percentage depletion and the recognition of alternative minimum taxes. Net income for the quarter, as I mentioned was $14.7 million or $0.16 per share.

Moving on to the cash flow statement, net cash provided by operating activities was $15.5 million, up approximately $4 million from last year. Total cash used in investing activities was $21.8 million during the quarter. In December, it included $8.9 million of property, plant and equipment additions. These additions were associated primarily with the construction of the maintenance shop at the mine. The current year’s leach pad expansion and additional mobile equipment related to the oxide expansion program.

In addition, we had mine development expenditures of $13.2 million in the quarter included in these costs is approximately $7.3 million of capitalized mine development, that’s associated with the pre-production development of our Cut-5 Pit. Included also is the capitalized drilling related to our old reserve development drilling and condemnation drilling in that number.

Net cash used in financing activities was $1.2 million with most of this amount being associated with the principal repayments on our existing capital leases. During the quarter, our total cash balance will reduce by $7.5 million and we ended the quarter with cash and cash equivalent balances of $297.7 million basically $300 million of cash.

With that, I’ll turn it back to Scott.

Scott Caldwell – President and Chief Executive Officer

Thank you, Hal. I guess we’ll open up the floor to any questions. We are glad to try and answer them and if we can’t answer them now, we can certainly talk later.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now conduct a question-and-answer session. (Operator Instructions) Your first question today comes from Tara Hassan with National Bank Financial. Please go ahead.

Tara Hassan – National Bank Financial

Good morning, guys. Few quick questions here on the operations side and then on the permitting, can you just provide some clarity on your net operating costs in Q3 and your expectations as hub or mining costs will come down into Q4 and into Q1 of next year?

Hal Kirby

I’ll start and then maybe Scott can talk about the trending of the cost, mining costs in the quarter were $60.6 million total, so roughly $2.02 per ton of ore – total ton (indiscernible) reflected – additional costs associated with the shovel delays and also the fact that trip and Cut-5 is a little more expensive than normal because of the narrow mining widths. Total processing costs were $8 million and total segment costs were $2.1 million.

Scott Caldwell

On the processing side, the cost per ton, the unit cost basis is pretty flat, i.e., flat, in other words we don’t. We have used very little electricity. It’s really we are pumping water around. Cyanide for us has remained very stable so as line. Those are our major two components of labor.

On the mining side as the 5500 Hitachi shovel came into operation its first full month was actually October, we got about three quarters of a month in September and our mining costs for September were about a $1.90 a ton. So, it just shows you what happened. So, above 2 to below 2, we expect them to continue to trend down, where we think once we have all of our and this is at a $100 fuel oil, so the commodity pricing associated with $100 West Texas, we believe our mining costs will be $1.25 range, so $1.25 or so once all three of the new shovels are running. And we can stand down all of our loaders in the small 3,500 excavators other than for a support during maintenance. So this time, not this time next year but our next shovel will be operational we hope in December. It is actually on the water, on not in the water this time. And so, it's on its way, it's supposed to ride on Long Beach in another 10 days or so. It will be at site, we're hoping to have it operational before the end of the year.

The third shovel won’t be operational until 1 April. So, Q2 next year is when we should finally be at our $1.25 or so operating cost and we'll just see what happens. That’s a unit cost, so obviously we'll be grinding more tons, but we finally get back to an acceptable mining cost per ton.

Tara Hassan – National Bank Financial

Okay. And are you expecting the continued delays on the equipment side to impact your 2012 production at all?

Scott Caldwell

We are just finishing. The answer is yes. We are just finishing the mine plan. It’s been difficult to say the least and a lot of people, a lot of different companies experience this to get realistic estimates out of the manufacturers as to when equipment will actually arrive and be serviceable. So we’ve taken their estimate and we added 90 days to it for our third shovel. And so we're analyzing the plan, but right now our indications are we're going to be some place close to what's in the 43-101 which was 227,000 ounces of gold. We are going to adjust our silver production to reflect what we’re seeing happen in the heap now. So in the 43-101 it doesn’t show nearly the kind of silver that we’re seeing come-off of this thing, so we will be adjusting our silver production upwards and gold something around 220, 225, 227 and that’s exact number. So, that was the last volume plan we did with the estimates that the manufacturers gave us. The shovels that really hurt us, we've got the trucks.

Tara Hassan – National Bank Financial

Okay. And just on the permitting side, can you provide a quick update as to where things stand?

Scott Caldwell

Sure. Our next real milestone on permitting will be this month. Actually, we have a series of public hearings or second round of public hearings and quite frankly that if you give me or (Chris) a call later in the month and I don’t remember exactly when they are, I know they are this month or towards the end of the month. We can then let you know what we hear from people that might be not in the favor of a project or first set of public hearings. We got absolutely no negative feedback.

We are anticipating this is our last set of public hearings so I’ll just go around and so we are anticipating now as when the opposition will let us know what they think what needs to change in the project. It’s going very well in our eyes and that’s talking with the regulators as well, it's a partnership and I'd say our permit it's actually a permit issued by the DLM and state.

On the air quality side we believe that we will have approval to operate and begin construction or begin construction and then operate the gyratory crushing system I'm talking the oxide thing eight months from this month. So, you’re looking at the middle of next year, our target is hopefully to begin construction on the thing, the middle of next year and be ready when the crusher shows up in first part of January of 2013 to get it installed. So, all-in-all, we think it’s so far we haven't seen any major roadblocks. So, we think we are still on track, give us a call in three weeks and we can tell you how the hearings went. I will attend most if not all of them. And so who knows I may get some stuff thrown at me.

Tara Hassan – National Bank Financial

Okay, thanks guys.

Operator

Your next question comes from Steven Butler with Canaccord Genuity. Please go ahead.

Steven Butler – Canaccord Genuity

Hello Scott, good morning guys. : Scott, you mentioned potential for the geotech drilling to look at may be steepening the pit volume ghost, do you have a sense for what that might do potentially to the strip ratio if successfully able to steepen it up?

Scott Caldwell

Yeah, I believe it’s going to reduce our strip ratio by upwards at 20%, in other words we are sitting at I think it’s 136 to 19 now , I think it will come down to about 11, where it was before. A couple of things, a very, very conservative, and then it was we know it was conservative, when we put it in the study, we knew we could optimize it, we just didn’t have the time to do some additional drilling to, on a couple of things, one to test some rocks, some very weak rock, that was assumed to extend for quite. We now know that it is not true. So, to be able to steepen the slopes, reduce the strip ratio and we’re hoping that we will also be able to go several benches deeper in the pit. The pit actually bottoms in some very, very high grade silver mineralization in the Vortex, well over an ounce 1.75 to two ounce material and obviously if we can lower the pit several benches we can grab that. So, we’re hoping that both of that will happen, but I know the strip ratio is going to come down, stay tuned if we’ll be able to leach in the pit.

Steven Butler – Canaccord Genuity

Okay. Potentially, Scott, you’re saying add some life, add some at a year or two or…?

Scott Caldwell

Yes, at a year or two and hopefully if we can steepen it. I mean, we have a roll on this thing, it’s a 20 degrees right now, right about 50% of the pit is a 20 very, very conservative and it looks like it only needs to be one small sector in up high and actually all gets mined out we now know that because of the additional drilling we did, but which are going to conservative approach and it was what the geotech guys were comfortable with coal and nickels out at Tucson. So, it’s going to help our costs, steepen it up and what we’re hopeful is not only can we add to the life but maybe get some of the silver move forward and further improve the economics and this thing.

Steven Butler – Canaccord Genuity

Scott, when do you come out with that analysis or end or does it muddy up the permit application. So, when would you disclose that if any to the market?

Scott Caldwell

If it’s significant, we will disclose it as soon as the work is done. It looks like it will be right around year end. So, I’ll say February of next year. The geotech work will be completed then we will take a look at the oil reserve, but we’ll disclose the results of the pit slopes study because it is going to be a lot of dollars on the waste front at the very least and we’ll let people know about that so February or so.

Steven Butler – Canaccord Genuity

Okay. And then – and Scott elaborate if you don’t mind on the – you see the mills potentially being oversized. Can you elaborate on one, what the implications are of that suggestion?

Scott Caldwell

We have 36 foot diameter mills in the study right now. If they are oversized we may be able to do one of two things, i.e. leave then at 36 and improve throughout by something like 5% to 10%. So in other words same size mills or go at a smaller mill obviously reduce your capital cost and maintain the 130. The way that we took our samples on the feasibility study very conservative way. We ended up with probably the hardest material that we could find, both on the bulk test which was of course rejects from the crusher ore, crusher now as well as the core type stuff. So we selected very, very hard material and now we’re getting a more uniform composite if you like and I think you're going to see the throughput.

But the other factor that’s not in our study that we assumed – we’re actually going to be installing four or five cone crushers for this gyratory expansion program and its four, if it’s Nuremberg crusher, it’s five if it’s say a Fuller-Traylor crusher and that would increase our pebble crushing capacity dramatically. They are going to be installed in the pebble location. So rather than having one pebble crusher we may have two on each site i.e. of course and of your pebble reject and get you throughout that way. So that’s a kind of optimization stuff. We’re working on a detailed engineering and again, the detailed engineering is to construct. So we’re doing drawings or will be doing drawings for to begin construction on those things, starting with the gyratory obviously.

Steven Butler – Canaccord Genuity

Okay, thanks. Last Scott, I’ll let you go with your next Q&A, but recovery been a couple of percentage points hurt, can you sort of elaborate on, it’s not always hard to nail down what the exact recovery was in the quarter, but where are you seeing silver recoveries right now. I think you said 2% better, is that partly because of better silver grades? And then secondly do you expect these better silver grades to potentially propagate into 2012 as you may be eluded to is Brimstone, the bulk of production next year and that’s where we’re getting a bump in the sliver grade at the moment?

Scott Caldwell

Yes, the silver recovery, if you looked at all of our column test, so we’ll start with the column test, about 11% and those test were cut off if you like when we were testing, we were really looking at gold, so we would run them for the for the gold leach cycle 180, 300 days and then turn them off, break them down. What we believe we’re seeing on silver is depending on the deposit with Brimstone, we’re seeing recovery as high as 15% it looks like on the silver and so what we are doing and have been doing now for a over a year we’re not ready to break them down now as we’re running columns for silver recovery.

So, in other worlds, obviously, testing for gold and also testing for silver, but we think silver recovery is going to be 3 to 4 percentage points better in the run-a-mine than what we thought and we know the grade is much higher than what the model said. Again the model being not really representative, but we are really intrigued with what’s happening with silver now. We, historically, they did not try to recover silver, so they didn’t continue to add cyanide to the rock, silver comes out slower in our deposit. It takes about twice as long to leach and takes about twice as much cyanide so we continue to hit it with the water and cyanide. So, that’s why we are seeing better silver recovery, but it’s really performing quite well, and at 4.6 to 1 it’s a nice ounce of silver for per ounce of gold, it’s a nice credit.

Steven Butler – Canaccord Genuity

Yeah okay. Thanks Scott.

Operator

Your next question comes from David Brigham with Brigham & Associates. Please go ahead

David Brigham – Brigham & Associates

Good morning gentlemen. I am trying to make sure I understand this correctly about the Hycroft feasibility study. You are talking about in 2015 perhaps reaching 600,000 ounces of gold per year, and is that right?

Scott Caldwell

That is correct.

David Brigham – Brigham & Associates

Okay. And at the present moment you are producing north of 100,000 ounces for the year?

Scott Caldwell

Yes.

David Brigham – Brigham & Associates

So that’s huge. Isn’t that huge?

Scott Caldwell

Yeah, what it is – it’s a couple of things that are happening in the expansion. The first phase of the expansion is a heap leach expansion. Right now and it’s a pretty simple, I say that and then you meet with equipment deliveries and everything else, certainly easy for me to say, I am not the guy making it happen, it's Warren. But the first stage of the expansion is the heap leach. Right now today, we mine about 10 million tons of ore per annum and about 20 million tons of waste. We’re going triple that rate. We’re going to mine 30 million tons of ore and so total material of roughly 100 million tons per year, and that is what we’re doing right now. We’re adding equipment. You heard me talk about the shovel delay and the Merrill-Crowe expansion delay with the pumps.

So, we are going to mine more one tons and more waste tons, stack more ore, pump more solution around and we’ll make more gold and silver and roughly three times our current rate. So the heap leach would take us to about 300,000 ounces per year gold, some in the 2013. We could stay at that rate for a period of time until the oxide or heap leach ore is depleted and so if we never build the mill. The second phase of the expansion and this is the big capital program that's talked about in the press release. This is $1 billion plus program that requires the construction of a mill, tails pond. So, it's a totally new process stream and that would allow us to go from the 300,000 rate to the 600,000 ounces of gold and from about 1 million ounces of silver, again, our silver recovery is so low, if you grind our silver, our silver leaches very, very well if you grind it and if you grind it we flow the concentrate for the gold and silver and then we leach it.

Your silver production goes up by recovery. In other words the recovery goes from 15% to 85% and that's where your silver really starts to pop and at depth as you get deeper and deeper in this deposit, our gold grade remains fairly constant increases slightly, but silver grade goes up dramatically as we get deeper into the deposit. So, it's really expanding the heap leach which is in progress now and then constructing a mill and again we assume that we have receipt of all of our permits.

Our plant is located or the future plant is located on private ground or patented mining claims. We believe that that will allow us to begin construction, when the equipment deliveries dictate we should begin construction. We will not be able to operate our tails facility until we have all of our approvals from the Bureau of Land Management and the State. So, we believe that we have a schedule that makes sense. Again it assumes receipt of permits 1 January 2013, but even if we don't have all of our operating permits, we still can begin construction on the gyratory crusher, the mill, the floatation cells, it is all located on private ground. So, yes, it's a big expansion to the capital dollars, $1 billion of that billion we have secured about $300 million through equipment financing to-date that is vendor financing, manufacture financing. So, and we have about $300 million in cash. So, we've got a big program in front of us and we're diligently working on a non-dilutive financing program, more equipment leasing, perhaps some more debt of the different type. So, that's kind of chorus notes.

David Brigham – Brigham & Associates

And I am going to just assume that with all this equipment you won’t be paying any income taxes in the foreseeable future I guess?

Hal Kirby

Yeah, we will actually be paying income taxes. It’s more on magnitude, the function is that at these gold prices our cost per ounce to produce is roughly $500 before depreciation at $1500 plus. We will definitely be taxable. We do have some tax loss carry forward that will basically diminish our future tax liabilities by about $40 million to $50 million in total, but we will be paying taxes at approximately 29% of the recorded income will be our effective tax rate.

David Brigham – Brigham & Associates

Well, it sounds like it's going to be a much bigger and more profitable bigger story pretty soon though?

Scott Caldwell

Yeah. We certainly hope the gold price ranks in there. We need $800 to make this thing make sense. $800 gold anything south of that its tight.

Operator

The next question comes from Sam Crittenden with RBC Capital Markets.

Sam Crittenden – RBC Capital Markets

Good morning, everyone. So just following up on some previous questions, what percentage of detailed engineering do you think you guys have done now on the mill?

Scott Caldwell

Now, as far as construction drawings and now I'm talking, the detailed engineering, so you could actually go up for a concrete, very little. I don't know I am guessing here. I should now, well they are probably 50%, 45% something like that.

Sam Crittenden – RBC Capital Markets

And then do you think will get a bit of an update in February as well on the sizing of SAGs and everything else you are just talking about?

Scott Caldwell

Yeah, absolutely. Anything that changes is deemed material and I would think the change in the SAG mills if capital moves up or down appreciably, we would let you know. If it’s a pit slope reduces, improves the economics and adds to the resource we would. So anything that's material whether we like the story or not, absolutely we would update you just as soon as we know. And I would think February to be a good time, if we're going to release or revise 43-101 with the resource change, that's when we'd get down and give you a full estimate of where the engineering is and how it’s moving forward.

Our focus right now on the engineering, is the gyratory crusher for the heap leach, so the gyratory, of course doesn't move, it's there for the mill. But right now, our focus is the gyratory, the associated conveyors and cone crushers, and that would be the first, we want to get that engineering complete just as quickly as we can.

Tracey Thom

Sam and the very least we will provide ongoing updates as to the construction and development of the both the heap leach expansion and mill expansion in our quarterly updates.

Sam Crittenden – RBC Capital Markets

Okay. So and then just back to the heap leach performance, what sort of latency times are you guys seeing through the pad now, and is that expected to stay fairly consistent through next year?

Scott Caldwell

Yeah, it varies as far as we call it break through. The lifts are typically 10 meters in thickness and I say typically because the pads slope, so they are 10 meters thick, the first lift for example, is 10 meters thick on the lower end of the pile. You keep the surface level that might be 3 meters thick on the shallow end of the pile.

But, the variable, typically it takes about 30 days to breakthrough one lift, so 10 meters. So if you are up high on the pad, you might have four or five lifts below you. So if you had five, it would be 50 meters, and so it would take a lot longer for the solution to break through. Now obviously you have the lower lifts are saturated, but typically we’re seeing on average about 60 days if you look at the stuffs that’s on the plastic to the stuffs that’s up higher about 60 days for solution breakthroughs.

So we’ll start to leach ore today, 60 days later you would see the gold from that new ore start to come out of the bottom. Silver is a lot slower. In other words, silver just about double it for the leach cycle, so gold is, we cut it off after 300 days, silver is more like 600 days. So, you add 60 days plus if you like on gold another 300, so it’s almost a year before we recover all of our gold and closer to two years on the silver.

Big pain in the neck when you are starting up, big pain in the neck when a pump doesn’t show up, but all in all once the flywheel gets turning, yeah it’s pretty consistent because you are always putting fresh ore on all over the place on the plastic up high, and the key to ore expansion. I talk about mining more tons and pumping more solutions its surface area. You’ve got to have -- right now we have about 4 million square feet under leach, that will slowly increase to about 10 million square feet under leach and that’s the key, i.e., it's a number of square meters or square feet that you’ve got under leach, not just the tonnage. So a year for gold to get 56.5% and couple of years for silver and it looks like silver is going to be above what we originally predicted of 11 something like 14%, 15%.

Sam Crittenden – RBC Capital Markets

Okay, thanks. And then just remind me with the large capacity shovels, as they arrive are you decommissioning the old shovels or will you have four shovels operating once the new one gets there in December?

Scott Caldwell

We will have, we are decommissioning the smaller shovels, meaning they will be there for standby so one on maintenance day, one was on new ones goes down you will run one or two of the smaller shovels, but we intend to decommission them. We would recondition them and then they are going to be shipped to Hasbrouck and so we will take the smaller 200 ton trucks, the smaller blast hole drills and the 3,500 Hitachi's and they will be shipped to Hasbrouck when we're ready to start mining at Hasbrouck and that's one of the reasons the capital cost down there is so low, we don't have to buy our mining fleet. I don't know what else going to do to me as far as transfer charges (indiscernible).

Sam Crittenden – RBC Capital Markets

Okay. Thanks guys that’s helpful.

Operator

Your next question comes from Adam Graf with Dahlman Rose. Please go ahead.

Adam Graf – Dahlman Rose

Hi everybody. I apologize I couldn't quite here all the numbers when you were talking about the operating cost per ton in the third quarter. So, I was wondering if you could go over those again and then also have you seen any impact on costs for the increase in cyanide costs. And what do you think the sensitivity is for the big project on cyanide?

Hal Kirby

I’ll start with just recapping the cost, totaling mining cost $16.6 million or $2.02 per total ton mine; total processing cost were $8.2 million and (indiscernible) cost were $2.1 million total. Total ore ton mines just to reference was roughly 5.041 million tons, so you can do the math there. On cyanide cost year-to-date our total cyanide cost per pound was $0.86. We consume about 1.6 million pounds of cyanide that's for the three to nine months so just over 2 million pounds of cyanide a year. In the quarter, our costs were $0.90 per pound, so not dramatically different than earlier in the year.

Scott Caldwell

We’ve also seen a slight increase or actually a decrease in our lime cost on a unit basis as we begin to, we've negotiated some obviously contracts as we use more lime and more cyanide the unit price should trend down or at least the quotes are trending down. So, our lime cost is down about a $0.01 a ton from $0.09 to $0.08. Diesel fuel, if you look at quarter-over-quarter we're actually down a little bit. Now what this quarter will look like with the movement with WTI I don’t know, but our diesel fuel and this is the (RAC) price delivered per gallon of diesel. We're $347 for the second quarter and $334 for the third quarter. Tracey can go through the detail with you Adam if you want.

Adam Graf – Dahlman Rose

Thanks guys.

Operator

Your next question comes from Ron Stewart with Dundee Securities. Please go ahead.

Ron Stewart – Dundee Securities

Hi, good morning Scott, good morning Hal, everyone. Most of my questions have effectively been answered. I guess still only thing that I’m curious about a few little things left, average grade for the quarter was a little lower than what I had expected. Looking into Q4 and then into next year do you see the gold grade going up a little bit, Scott?

Scott Caldwell

Yes, gold rate will increase. It was a function that we couldn't mine the tons. We started development of the Cut-4, Cut-5, the pits to the west and just weren't able to move the tonnage because we didn't have the equipment. But, yeah the gold grades have started to trend upward, well up about by 10% to 20%. Silver grades will trend up as well as we start to get deeper in the Cut-4, Cut-5 area. So, if you looked at the model reconciliation, where we mined compared blast hole to model it’s actually, the gold grades are basically spot on, silver grades or blast hole is quite a bit higher than what the model predicted, and I would expect those two trends to continue as we get caught up on our mining.

Ron Stewart – Dundee Securities

Yeah, that’s kind of what I expected, was that it was just a matter of scheduling it wasn’t a function of any kind of reconciliation issue at all. It was just simply a matter scheduling. Anyway all the other questions that I had in my mind were answered previously. So thanks a lot.

Scott Caldwell

Thanks, Ron.

Operator

Your next question comes from (Shawn Campbell) with Macquarie. Please go ahead.

Shawn Campbell – Macquarie

Hi, guys, I just really wanted to confirm something on the timing. Based on the permitting and construction you are saying that that you are hoping that the first crush material hits the heap in Q1 of 2013 and that’s when you are expecting to have those higher recoveries kick in and there will both triple the current rate of mining?

Scott Caldwell

Yes, Steve, the actual, and I may have misled the people a little bit, but we believe that we will the gyratory will be actually crushing ore now. By the end of this month, we will be crushing about little less than 600,000 tons a day a month and that’s through small portable crushers and so, we will be crushing material there and that’s about, you can do the math, 15% to 20% of our monthly fee will be crushed to obviously the higher grade increment. Those crushers will be stood down once the gyratory is operational. We believe we can begin construction, the excavation and such that would dovetail nicely with delivery. So, we’re anticipating construction starting sometime in the third quarter of next year being operational mid 2013. Hopefully, we can advance that, but right now if you look at the crusher delivery. It looks like we could have it installed in operational as early as June of 2013. So, if I led people to believe what was the first quarter maybe in my dreams, but way the equipment delivery is going, we sort of add 90 days to whatever anybody’s telling us. So, we’re going to do everything we can to get that crusher onsite when we're ready for it, but we will be ready to install it early first quarter of ‘13s.

Shawn Campbell – Macquarie

Okay and that was the only one question I had, thank you.

Operator

(Operator Instructions) The next question comes from Mike Kozak with Cormark Securities. Please go ahead.

Mike Kozak – Cormark Securities

Yeah, good morning guys. Just one quick one from me. So, with $300 million of cash in the balance sheet and your internal cash flow projections over the next few years which I know you guys are at very conservative metal prices and now with that equipment lease. How much debt are you looking at taking on and how advanced are you on those discussions, Scott you alluded to earlier in the call?

Scott Caldwell

Sure, we believe that first talking – when I talk to debt we’re talking to an increase in our revolving credit line or equipment fixed equipment leasing if you’d like. So, it’s I call it covenant light type debt, meaning the security is the – if someone we have the group interested in the Hitachi shovels for example, which are not under lease buying those and leasing them. We financing the truck shop which was $7 million or $8 million in capital cost, those items, and that will be the security. So, we’re looking at $100 million to $200 million there. So, if you want to take the number 150 to pick a number and we’re diligently working away on that both with our bank and another institution on the fixed equipment leasing and it would not be – it wouldn’t be 150 plus 150, the total would be 150. So, that will give us about 450 if you’d like on the equipment leasing and so with that kind of debt if you pick a high enough gold price we’re kind of there. Our conservative metal pricing we try that, we obviously we used the $1000 in the study. If you start to use those prices we got to come up with a little more and we are considering perhaps some different type of debt, now I’m talking project financing some other things like that. But stay tuned the first focus is this 150 of coming at light type stuff and how on these guys are working on that and we’ll announce it as soon as we get something signed.

Mike Kozak – Cormark Securities

Great, thanks so much guys.

Operator

We have no further questions at this time. Please continue.

Scott Caldwell – President and Chief Executive Officer

Well, first thanks very much to all of you for spending a few minutes with us today, and on behalf of the Board, the entire Allied team, just want to say that we’re all really excited about what’s going to develop over the next few months this year and early next year. Looking forward to really beginning construction on the mill, the team is coming together we’re putting together a construction group , owners’ team that will manage the project, starting with the crusher and obviously the heap leach we’re already managing. So, just really excited about the developments, we believe we’ve got another mine in Hasbrouck and trying to find that third mine. So, we’ll stay tuned and will be in touch. Thanks so much again.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Allied Nevada Gold Corp's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts