Detour Gold's (DRGDF) CEO Paul Martin on Q2 2016 Results - Earnings Call Transcript

| About: Detour Gold (DRGDF)

Detour Gold Corp. (OTCPK:DRGDF) Q2 2016 Earnings Conference Call July 28, 2016 9:00 AM ET

Executives

Paul Martin - President and CEO

Pierre Beaudoin - COO

Jim Mavor - CFO

Laurie Gaborit - IR

Analysts

Andrew Quail - Goldman Sachs

Dan Rollins - RBC

Kerry Smith - Haywood Securities

Mike Parkin - Desjardins Capital Markets

Anita Soni - Credit Suisse

Operator

Thank you for standing by. This is the conference operator and welcome to the Detour Gold Second Quarter 2016 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Paul Martin, President and CEO of Detour Gold. Please go ahead, sir.

Paul Martin

Thank you, operator, and good morning, everyone. Today on the call, we have myself, Pierre Beaudoin, our Chief Operating Officer, Jim Mavor, our Chief Financial Officer and Laurie Gaborit, who is the keeper of all of us. And it’s going to be a busy day today with so many companies reporting today and yesterday, so we’ll get this off quickly.

Please note that certain statements to be made today by the management team may contain forward-looking information. The related material for this call is posted on our website homepage and in addition, all dollar amounts mentioned in this call are in U.S. dollars unless otherwise noted.

So, let's get underway and I’d like to start by commenting on our safety performance during the quarter. The commitment and efforts of our leadership team and workforce towards improving safety are generating positive results. Our safety performance measured on total recordable injury frequency rate for the first half of the year and 12 month rolling average is now at 1.4 and 1.8 respectively, compared to an average of 2.3 for 2015 or a 20% improvement on a 12-month rolling basis. And there is much more we still need to do because we reported five recordable injuries, including two lost time accidents in the second quarter, compared to 6 in the first.

Following a number of proactive programs, which included third-party audits and active coaching of supervisors and front-line staff about living safely, we are getting ready to roll out our committed to zero harm program across the company in August. This is in conjunction with launching of a new mission statement for the company, getting it right and our core values, which we commenced rolling out in July. And being one of the largest gold mines in Canada, we want to ensure we are laying the foundation to achieve our aspirational goal of being a great company.

Quarter-over-quarter, gold prices increased by 6.3% with a new high of $1,366, set on July 6, followed by the recent pullback to around $1,340. It's interesting to note that over the period of gold moving higher, the US dollar has remained strong at the same time, and it'll be interesting to see how long this new paradigm continues. And as a result, the gold price in Canadian dollars is currently well over CAD1,700.

Going forward, a number of macro events remained positive for gold, the continued economic uncertainty in the EU, the impact of negative interest rates and closer to home, the uncertainty around the path of US interest rates and the upcoming US election. These factors combined with fundamental demand from global physical gold ETFs and central bank purchases should continue to support the rally in the gold price over the next several years.

For Detour Gold, higher gold prices give us the opportunity to exceed our debt reduction targets earlier, either through the repurchasing of debt or the stockpiling of cash, in advance of the note maturity date of November 2017. And I will repeat on this call what I have said many times. At these goals and FX levels, the company has no interest in accessing additional capital. So let’s put those petty rumors to rest here now.

And as at the end of June, we have a surplus cash position of $60 million and that's the amount above which we need to run the business and which we could use to further bring down our debt levels to an attractive level of 360 million. And this is only $60 million above our stated maximum amount to refinance at the note’s maturity. So we are well ahead of plan and now have the flexibility to reduce our debt even lower if we so chose. And although the recent share price appreciation in associated note value have increased, having it increased to 105, the economics for repurchasing the notes in advance have become less attractive.

The average gold price realized during the quarter was $1230 per ounce sold, which resulted in record revenues for the company. Gold production of 139,359 ounces was slightly higher than the guided midpoint, although slightly lower than planned, while gold sales were at targeted levels for the quarter. Our total cash costs and all-in sustaining costs were higher than the first quarter $691 and 1,030 per ounce sold respectively, mainly as a result of the timing of sustaining capital expenditures, which we expected and higher G&A related to long-term compensation costs and a less favorable foreign exchange rate with having a 1.29 exchange rate average in Q2 versus 1.37 in Q1.

The second quarter operating highlights can be described as neutral, although we processed a record 5.3 million tonnes of ore of during the quarter, and this is inclusive of a nine-day shutdown in April, which included the successful installation of the new 410-conveyor system. We mined a total of 21.9 million tonnes for the quarter on an average of 241,000 tonnes per day. We are expecting improvements in the second half, as it was only in late June that we transferred a large rope shovel into waste mining.

And as mentioned in our news release, we are targeting mining rates between 250,000 to 275,000 tonnes per day for the second half of the year. Our run-of-mine stock pile levels remained at similar levels as the first quarter and stand at 130,000 ounces on the pad.

So Pierre will now add further details on the second quarter operational results and provide an update on our medium grade fines test.

Pierre Beaudoin

Thanks, Paul. As you mentioned, following the April planned shutdown where we installed a new 410, we monitored positive operational improvements, higher throughput rates and better fragmentation in the business. These are very positive news for the long-term. Together, these improvements have resulted in the plant averaging nearly 65,000 tonnes per day for May and June. This is an early indication that the plant can process 23 million tonnes, ahead of our 2019 target in our life-of-mine plant.

However, in May and June, this positive outcome combined with operational issues in the backend of the circuit has also induced some pressure on gold recovery. We will continue to improve the recovery, but it becomes increasingly clear that we need to accelerate the introduction of lead nitrate into the lead circuit. This was planned for 2018. We now plan to having this implemented in 2017.

At the mine, our dilution has improved significantly over Q1, but the combined effect over both quarters have been a loss of approximately 10,000 ounces. To tackle this, we’ve started a dedicated program in four parts of the mining operation. The recent transfer of a rope shovel to Phase 2 will certainly help here, but still, this is not a silver wallet and hard work will be needed to get to the desired outcome.

Before we return to Paul, I need to explain that we decided to remove some 900,000 tonnes of high-grade ore. This explains why we have shared the higher end of the guidance. And this is simply the right thing to do. As a result, our average grade will be lower than initially planned as we will replace this deferred tonnage with run-of-mine stockpile ore. These higher grade tonnes are updated around the Campbell pit area and the access would require better progress from the north.

The option to mine from the south was also contemplated, but we have created stacking issue and induced pressure in 2017 and ‘18. So, no easy way out here as we’re focused on the long-term and after careful review, our mining team concluded that the best approach was to properly retain access from the north and this will result in pushing this high-grade into 2017. Now, we will offset this change by accelerating the processing of medium grade fines in the second half of the year. To this end, the company has already on bid and plans to start in Q3. This will be an extremely good fit for the long-term viability of this process.

And Paul back to you.

Paul Martin

Okay, thanks, Pierre. Mining unit costs improved quarter-over-quarter, mainly as a result of higher expected tonnage, while processing unit costs were slightly higher due to the April scheduled shutdown, which was partially offset by higher throughput. Total cash costs for the second quarter totaled $691 per ounce sold. The increase quarter-over-quarter is due to higher production costs approximately $6 million and that’s inclusive of the adverse foreign exchange impact.

All-in sustaining costs for the quarter totaled $1030 per ounce sold. So let's understand this one a little bit better. Sustaining capital expenditures totaled $27.6 million, $18.5 million for the mine, $4.4 million for the processing plant and $4 million for the TMA construction. And in addition, cash deferred stripping costs totaled $1.1 million for the quarter. While we expected a higher capital profile in the second quarter, the planned April shutdown exceeded budget by about $1 million. And we also had a CAT 795 haulage truck hit the profile in Q2. So these contributed to the increase in ours cost of $95 per ounce sold.

And as mentioned earlier, the FX rate reversed somewhat in Q2, resulting in a negative $45 per ounce variance quarter-over-quarter. What we did not consider in our annual all-in sustaining cost guidance was an increase in G&A costs, solely related to a rising share price and in our case, our shares rose 58% during the quarter, and this has a direct impact on the mark-to-market valuation of our long-term incentive awards. So that would include RSUs, PSUs and DSUs. And this aspect has added $36 per ounce in Q2 and approximately $30 per ounce year-to-date to our all-in sustaining costs. So going forward, a further increasing share price will increase all-in sustaining costs, while the opposite, of course, will occur for decreasing share price.

On the key financial highlights for the quarter, the company generated an operating profit of $34 million in Q2 and adjusted net earnings of 3.9 million. Despite a higher realized gold price over the last quarter of approximately $58 per ounce, gold sales were lower by approximately 6000 ounces quarter-over-quarter due to the quarter end inventory buildup, which will flow through in to Q3. We closed the quarter with a net cash balance of nearly $154 million, after reflecting the buyback of $82 million of debt, 75 that we have previously announced, plus 7 million that we acquired in the open market and we benefited from $21.5 million of proceeds from stock option exercises. And the company has a wholly undrawn CAD85 million revolving credit facility at its disposal.

During the quarter, the company put in place zero-cost collars to hedge $65 million of the Canadian dollar at a rate of no worse than 126 and can participate at a rate up to 134. The company realized the loss of $4.4 million on its gold hedges during the second quarter, which resulted in an average sales price of 12.30 or $30 per ounce lower than spot. And as at the quarter end, the company had a total of 105,000 ounces hedged through a combination of go forward and zero-cost collars for the remainder of this year. And as our current hedging program is limited to the 2016 calendar year and we have no decision yet as to whether we will extend that into 2017.

As Pierre mentioned, the company has removed the upper end of its original production guidance and now guides to 542,000 to 570,000 ounces, based on the progress in the first half, expectations of performance in the second half after assessing milling throughput rates hit development and resulting grades and recoveries. Conversely, the lower production and higher sustaining capital expenditures planned for the remainder of the year, all-in sustaining costs are now forecast to be slightly above the high end of our original guidance at $920 to $960 per ounce. And some of this result is, of course, from accelerating the lead nitrate system to assist in improving recoveries sooner and we now expect to be between $70 million and $80 million where we previously guided $60 million to $70 million for capital.

Now, I need to make a second comment on our capital guidance, we have made a, I’ll call it an accounting geography change, where we previously included major component repairs in TCCs, whereas in the financial statements, those items have been determined to flow through the capital line. So we’re classifying $30 million out of TCCs, so you can see our total cash costs have decreased from the prior guidance and those $30 million is still into our sustaining capital and for the impact on all-in sustaining castes, it is absolutely zero.

On the exploration front, as press released simultaneously, we obtained continued good results from the infill drilling at Zone 58 in the lower Detour area. The second phase of the infill program targeting a total of 25,000 meters has just resumed. The work underway by an independent engineering firm is confirming good gold grade continuity in the upper 250 meters where we will drill at a 25 meter interval. We expect to have a preliminary infrastructure design and cost estimate of an underground exploration program in the fourth quarter.

Potential development of a decline would allow for the access, further exploration and bulk sampling of the mineralized zones. An initial environmental baseline work in the areas Zone 58 has also started. And we remain extremely encouraged by the results to date and look forward to the end of the year as cost and time lines become clear on our potential next mine.

On the larger 25 kilometer lower Detour trend, the company completed nearly 10,000 meters of drilling last winter in its first path on this underexplored area. With a number of holes intersecting anomalous values up to 5 grams per tonne over narrow width and the IT surveys now completed, we remain confident in the potential of identifying other high-grade structures. On West Detour, we are continuing our discussions with the provincial government and our aboriginal partners and finding to file a draft environmental assessment prior to year-end.

So, in closing, with the 410-conveyor retrofit behind us and realizing a record profit of $34 million, we continue to make positive strides on reducing debt from cash flow and generating positive results from our exploration targets. And, of course, benefiting from the stronger gold price and strong US dollar where we budgeted originally at $1,075, these levels of gold prices are obviously extremely welcome. In addition, we have generated positive cash flows for the past three quarters, averaging approximately $30 million per quarter after CapEx. And while we narrowed our guidance to factor in our expectations in the second half, it’s important to note that the midpoint change in gold production between the two guidance is near 2%. The decision to increase our capital spend is prudent to ensure we accelerate capital, where it will have the largest economic impact.

And with our debt declining ahead of schedule, we have flexibility in our capital allocation that previously we did not have. Our asset remains extremely robust, even if we had a speed bump with the guidance revision and you have our continued commitment to getting it right by managing this mine for the long-term and not focusing solely on short-term results. And for those of you who are following the slide presentation throughout this call, I would like to wrap things up with a brief nod to the young gentleman featured on the opening slide and this closing slide.

[indiscernible] came to Detour through mining essentials, which is a 12-week work readiness training program for aboriginal pieces. Eric was originally placed as the Detour Lake Mine as a mechanic helper and has since been hired for a full time permanent position as a light duty mechanic at our maintenance shaft and this is just one small example of the benefits that mining can bring to our northern communities.

And operator, with that, I’ll now turn the call over to you to open up the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question today comes from Andrew Quail with Goldman Sachs. Please go ahead.

Andrew Quail

Yes. Good morning, Paul and team. Thanks very much for the updates. Just a couple of quick ones. You guys talk about the throughput rates in May and June being pretty impressive above or nearly 65,000 tonnes per day. Do you see going forward into the second half, you guys can sort of achieve around the 60,000 tonnes per day and achieve recoveries over 90%, given -- taking into account any planned shutdowns?

Pierre Beaudoin

Yes. I think these numbers are not out of reach for us, you mentioned 60,000, it’s 90%. I think these are reasonable numbers and they are certainly within the numbers that we’re using for our forecast.

Andrew Quail

Great. Thanks, Pierre. And then again you talk about pretty impressive numbers on the mining rates, 250 to 270 for the second half. Is that something Paul you expect to do, maybe, in 2017 to maintain that rate?

Pierre Beaudoin

Yes. I'm going to answer this one. Well, if you look at the life of mine, we need to get above 250 and even above 270 going forward. Even if we look at 2018, we need to be with the introduction of West Detour, we need to be roughly 50,000 tonnes about that and this is going to be done with additional equipment.

So going forward, we absolutely need to see these higher mining rates and as we said in the past, they are now -- we’re now much better set up to do that, because we have equipment now in Phase 1 and in Phase 2. In Phase 1, we have one rope shovel and two smaller shovels and in Phase 2 now, we have one rope and 166 to be sold. We’re now better balanced, we now need to make sure that the sequencing with drilling glasses is angled on properly on both sides and we have no reasons to believe at this point that we cannot maintain these higher mining rates.

Andrew Quail

Okay, thanks very much for the update.

Operator

The next question is from Dan Rollins with RBC. Please go ahead.

Dan Rollins

Thanks very much all team, I was wondering if you could provide a little bit more color on the 30 million reclassified from cost to CapEx. Obviously, this is I’m assuming it's all mining on the mining cost side. But, what should we assume going forward; your life of mine plant had 263 a tonne moved, in the next three years it's going to be 274, where should we expect those numbers to drop if this is a steady-state reclassification going forward?

Jim Mavor

So Dan, it’s Jim here, so the 30 million of components that we took a look at, these are major components for trucks and shovels, and I guess the accounting rules would say that anything that has a useful life of even the shortest more than one year but he use a two year threshold anything in excess of that you should capitalize. So when we had a closer look at those components, they need to be taken out of operating costs and booked in capital cost and therefore you should be able to reconcile lower - our guidance is a little bit more closely. Those type of components would have been included in our operating costs for the life of mine. So, with this - if this continues then you would expect a certain component or certain amount to come out of operating costs and into capital going forward in the life of mine profile.

Dan Rollins

Maybe just to give a little bit of clarity on that, then that 30 million you're referring to for this year is that for Q3, Q4 or is that you reclassified from Q1 to Q4?

Jim Mavor

It’s for the full year Dan.

Dan Rollins

Full year, okay perfect. And then maybe just comment, what’s the other 5 million for on sustaining capital beyond the lead nitrate?

Jim Mavor

The sundry items it would be overages that we mentioned, there is a camp that we’re looking at potentially making a deposit on is included in the life of mine in 2017.

Pierre Beaudoin

I would classify that as an opportunistic capital, it is capital that quite honestly we could differ by, you know, would be the wrong decision, it’s - the market decides for some equipment and we want to take advantage of this, while the timing is right, initially we were not planning to do that but there is a feel that it cannot be postponed at that point.

Dan Rollins

Okay, that's fine. Because others may have classified that as non-sustaining because really a right off there. On the grades, should we expect basically just a push of one to two quarter on the current great profile outlined in the mine plan earlier this year or do you expect maybe given the challenges getting into the Campbell pit earlier this year, we’ll start to see those grades may be towards the mid to second-half of ‘17?

Pierre Beaudoin

What we expect is that these ounces that we - these high grade ounces that we need to be benign, they will impact a grade in Q3 and Q4, so we’re going to see a reduction there compared to our initial plan and we have yet but obviously these ounces will become all available in probably in Q1 of 2017. But we have to start a detailed plan for 2017, this will start actually early in August and my $0.02 worth of - there is a part of phase 1 that is a level ahead that part of phase, the Campbell pit part of phase 1 is a little behind. I think we’re, you know, one for the other are probably equivalent, we have no reason to believe at this point that the ounces profile for 2017 is going to change materially but the detailed plan [indiscernible] we find that right and I don't have this at this point.

Dan Rollins

Okay, so it's really just a temporal push we’re just going over a calendar year on the grades. Okay, that's great thanks guys.

Operator

The next question is from Kerry Smith with Haywood Securities. Please go ahead.

Kerry Smith

Pierre, just in general terms, is the grade of the 900,000 tonnes that you’re losing this year is that grade higher the average grade that you had in the plan for next year or lower?

Pierre Beaudoin

It’s actually higher, if you do the math you're going, you know we put 900,000 tonnes there Kerry and you're going to see 900,000 tonnes and I think we talk about 18,000 to 20,000 ounces impact there. And when we’re talking about the impact, we’re talking about the differential grade between this and what we have on the wrong, right. And is grade for the moment is the reserve grade of 1.2 gram a tonne and we plan to replace that roughly 0.65, so this is where the differential is coming from. So, much better grade than the average grade that we’re planning for next year. But I would not then correct your number for next year. It’ way too early to see the real impact of either of these for 2017.

Kerry Smith

Then just on the million cost per tonne, they were sort of, I think it was 860 a tonne was the number in Q3 of last year, so almost a year ago and then they've sort of pushed up. And part of that of fall related to the shutdowns and that sort of stuff, but is that kind of 850, 875 a tonne cost something that we might see achieved in the back half of this year?

Pierre Beaudoin

It’s not within reach for sure. Some of the challenge we’re facing with the plant at higher throughput is and especially in summer time is that it puts a fair bit pressure on the leach system and as you know to have a proper leach you need oxygen and you need cyanide and when the more we push the leach system the more the oxygen becomes start and then at times a guy needs to compensate with cyanide. These are I would say temporary measure until we improve the robustness of the leaching or we return the robustness of the leaching circuit, let's not forget that we are processing at almost 20% more than the design. And so the way we're going to return the robustness to the leach system is to have this lead nitrate. And so therefore there is going to be cost pressure in the plant until we actually return with the system. And then the leach profile is going to change a fair bit, it’s going to allow the guy to reduce their cyanide consumption and I believe that by then you're going to see a return to much lower operating cost Kerry.

Kerry Smith

And then just on the timing of the lead nitrate implementation, how long will that take to you that up and running, Pierre?

Pierre Beaudoin

For now the mandate we've given the team is to be finished by Q2 of next year but let's say between Q2 and Q3 that should be finished. Normally it shouldn't be too long but a part of this program is actually to fix some of the issue we have with the oxygen system so that the lead nitrate can work properly. Once we've note this and the test work we do is that if we overdose oxygen and add lead nitrate is adding a detrimental impact and so it's important that before we add lead nitrate that we have a better control on oxygen concentration in our leach tank. So it’s a bit technical, but it’s very important that we spend the money on oxygen first; otherwise the money we're going to spend on lead nitrate is not going to be effective. Our test work has proven this in and out, so this year we’re going to begin to spend the money on oxygen and as we implement that then we’re going to follow up with the implementation of lead nitrate.

Kerry Smith

And then just on the oxygen side, you need to improve the oxygen level or like does it require a lot of capital or what we actually have to do there?

Pierre Beaudoin

Well, it’s more of a control of - you see what's happening is it’s strength by that time there is too much oxygen if you want and at times there is not enough, so we need to find the balance between winter and summer on the addition of oxygen. We don't think that we’re short on oxygen, we just think that in winter months we need to reduce the consumption, so that lead nitrate can work and in summer exactly the opposite because of the warm weather we actually need to boost the oxygen within the system we have but the best way to do that is prevent the oxygen consumption by adding lead nitrate.

Kerry Smith

So just one last question on a mechanical availability on the shovels is that getting any better now on the rope shovels?

Pierre Beaudoin

We've seen much better availability in Q2 than in Q1. And as we expecting this to continue going forward, in Q3 we’re planning some PCRs on shovel 3 and shovel 4 but this is part of the plan and already included in our forecast.

Operator

The next question is from Mike Parkin with Desjardins Capital Markets. Please go ahead.

Mike Parkin

Hi guys, just wondering if there has been any thoughts or just bringing in the mining fleet you're looking to acquire for the Detour West - West Detour pit a bit early, are you feeling that you’re comfortable with the mining fleet, how it’s performing and kind of look for the main pit?

Pierre Beaudoin

We’re very seriously contemplating this and I would say probably in August we’re going to decide the size of the equipment, I'm just back from vacation and before I left, the guys at site where just about to make the decision or make the recommendation on the truck size, so I think that in office we’re going to have a better idea there. And it's not impossible that for 2017 we need sites to accelerate this a bit. There is a strong preference in this office to go with used equipment especially that West Detour is not a long life of mine, so it's just a well with the current market and so there is an essentially two trucks [indiscernible] I'm pretty sure that by the time August is over, we will have taken that decision.

Mike Parkin

Okay. And then in terms of the leach circuit, with additional tankage capacity allow you easier ability to kind of balance the whole system or is it more getting this oxygen concentration amount sorted out is kind of just a bigger kind of prized theme first?

Pierre Beaudoin

Intuitively one would think that adding tankage would fix the issue, but when we look at our profile, when the oxygen is under - the concentration is good. The leach profile is extremely quick, we have five leach tank for train, we have four leach train and most of the time even at high throughput we’re finished by the third tank. So it’s not a residence time issue it really is a recipe issue and what's happening at times the system that comes under pressure especially in warm weather and then the kinetics goes down when the oxygen level goes down. So it's really to return this we really need to prevent the oxygen from being consumed by the ore and we think we're going to fix that by properly introducing this lead nitrate. So it’s going to have a positive impact in winter and it's going to - we expect this to have a positive impact in the summer. But in the early days quite honestly we thought that when we push a throughput we would additional tankage but all our process guys at this point are suggesting that we should not do that and that it should be enough to just add the lead nitrate here.

Operator

[Operator Instructions] The next question is from with Anita Soni from Credit Suisse. Please go ahead.

Anita Soni

Just a question with regards to 58 North, have you guys - I know it's early stage with this deposit but have you considered open-pitting this, it seems like it goes to surface at pretty good rate?

Pierre Beaudoin

The first mandate of the team working on it is to look at underground. But as our understanding of the deposit improve, when you look at the section it’s getting quite obvious that there is a potential for open pit but at this point we’re not advanced enough to decide one way or the other and we think it's more likely to be underground but, Anita you’re spot on, if you look at some of, if you were to build a section, you would realize that there is a lot of structure in the top 250 meter and one need absolutely consider that option.

Anita Soni

And then second question is regards to Lower Detour zone, I think that’s coming in onstream in a couple of years or 2019. Could you just give us an update where you stand on the permitting and the timeline there?

Pierre Beaudoin

You're talking with Detour, right?

Anita Soni

Yes.

Pierre Beaudoin

While we’re still progressing on this, the next step is the filing of the graph assessment to the regulator and this planned for Q3.

Anita Soni

And what will be the next step after that?

Pierre Beaudoin

Well, we need to let the process continue, we’re continuing with our discussion with the First Nations and typically the government needs one year and that’s - if we add that, if we file in Q3, then late in Q3 of next year we’d be in position to get our permits. And we think that by that time we will have progress on the other fronts with the equipment and the infrastructure that are needed and so on. So it’s still - it’s work in progress and we’ve got a team working specifically on this preparing the operation to be ready for the introduction of West Detour mining in 2018 and processing in 2019.

Anita Soni

And one final question. Am I correct in my thoughts of the debottlenecking to get that plant running at the sustainable rate that you were seeing in May and June of around 65,000 tonne per day, the main bottleneck is getting the mine running up at that level?

Pierre Beaudoin

I would say no because we are stockpiling a lot of medium grade metal and I would say that even as it is the mine could supplement more tonnes to the plant. You’re not without knowing that we‘re also using an elevated cut-off rate and that we could, if the plant outperform the mine even as it is today, we could essentially use the massive stockpile we have and we could add to the stockpile by reducing the total grade. Now, we’re going to get there when we get there, we have no obligation to try to accelerate the mine. We think that if we continue on the profile we have for the mine throughput increase, it’s going to match the plant pretty good and in the meantime, if the plant accelerates just a little ahead of the mine, we’re going to use the stockpile in winter.

Anita Soni

But there is no real bottlenecks to the mill at this point already, major fixes outside of the improving the recovering rates if you have there?

Pierre Beaudoin

I think that with this record throughput that we’re seeing, it’s pushing the bottleneck into another area and this bottleneck is the leaching circuit. We have to fix that and once this is fixed and we’re of in the races but the plant is really and it's not only the plant I must admit that the mine did an amazing job at improving the fragmentation, without the mine and the 410-conveyors combine and a bunch of operational improvement these throughputs wouldn’t have been possible, what we've seen recently is the plant can really get to 23 million tonne and we think that we can do that ahead of 2019. Now I must admit that we got to be careful there to push that and then create some other issue, so it’s a balancing act that we need to take now.

Operator

The next question is from [indiscernible]. Please go ahead.

Unidentified Analyst

I was wondering if you can provide some additional color on the infill drilling results at 58 and like for example are these some of the results are showing exceptional intercepts, are they within the range that you’re expecting at depth?

Pierre Beaudoin

Some of these are really, really impressive but we're kind of trying to reframe from being too optimistic quite honestly when we see this. What is important for us is beside the greatness we see there is to get the continuity and some people are more excited about the grade that we have and certainly we’re far more excited about the continuity of the deposit. Because that is it 5 grams to the plant or 7 grams to the plant what's important is that we have the continuity and make this minor - this deposit at the mine. And so we have had to finalize all the drilling as you know but we are very, very happy of course that we saw these high grades but more so that we saw the continuity.

Unidentified Analyst

And so, do you expect to establish that continuity with the second days of drilling or will there potentially be a third phase added in the fall?

Pierre Beaudoin

What we’re busy doing, while we need to finish the program right, it’s still ongoing and we've just resumed for the summer. And so, we'll see what these results bring to us but next phase of work is really going to be to access what an underground decline would bring to us in terms of defining the deposit even at a more level of accuracy. So at this point, it’s too early to say but we’re quite happy for the first 250 weeks but the bottom end of that - of this is not drilled enough for sure, so one day somehow we will need to drill that to another level that's for sure.

Operator

This concludes the question-and-answer session; I would like now to turn conference back over to Paul Martin for any closing comments.

Paul Martin

Thanks everybody for participating today, and just the last comment for those enjoying the upcoming Civic long weekend in Canada, please be sure not to drink and drive and have a safe holiday. Thanks everyone bye.

Operator

This concludes today's conference call, you may disconnect your lines, thank you for participating have a pleasant day.

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