Primero Mining's (PPP) CEO Ernest Mast on Q2 2016 Results - Earnings Call Transcript

| About: Primero Mining (PPP)

Primero Mining Corp. (NYSE:PPP)

Q2 2016 Earnings Conference Call

August 4, 2016 10:00 AM ET

Executives

Ernest Mast - President and Chief Executive Officer

Wendy Kaufman - Chief Financial Officer

Analysts

Rahul Paul - Canaccord Genuity

Jeff Killeen - CIBC World Markets

Dan Rollins - RBC Capital Markets

Michael Parkin - Desjardins Securities Inc.

Steven Butler - GMP Securities L.P.

Operator

Good morning, ladies and gentlemen. Welcome to the Second Quarter 2016 Financial Results Conference Call for Primero Mining. After the completion of management’s presentation, we will open the lines for question-and-answer. [Operator Instructions] I would now like to turn the meeting over to Mr. Ernest Mast, President and Chief Executive Officer.

Ernest Mast

Thank you, operator, and good morning to everyone on the line and joining us from the webcast. Welcome to our second quarter 2016 financial results conference call. Please note, our forward-looking information slide, I’m sure you’re all familiar with this. And the risks associated with some of the forward-looking statements that we might make during this call. Also note that all dollar amounts in this presentation are U.S. dollars, unless otherwise specified.

On Slide 3, joining me on today’s call is Primero’s Chief Financial Officer, Wendy Kaufman and a portion of the remainder of our senior management team. Our second quarter operating results were materially improved over Q1 with San Dimas improving production by 50% while fully implementing the new ground support standards.

At Black Fox, we saw higher underground throughput also 50% higher than in Q1. We completed an equity issuance during the quarter which improved our balance sheet and improved financial flexibility. And a very important strategic concession was added to Jason to San Dimas adding an additional 30,000 hectares of highly prospective land outside the silver purchase agreement and associated tax challenge in Mexico.

Slide 5, subsequent to the quarter although we have encountered a number of operational challenges at both of our operations. San Dimas we encountered labor disruptions in July associated with the local union seeking to increase their short-term production bonuses beyond what had been agreed to. These disruption impacted production during July and delayed development work, resulting in some high-grade areas being pushed into 2017.

At Black Fox we experienced delays in accessing the Deep Central Zone in early July due to poor ground conditions which also pushed some high-grade production into 2017. As a result of these challenges the Company did not make the silver threshold with the silver purchase agreement with Silver Standard and had with Silver Wheaton and has reduced its production guidance for 2016.

The Company now expects to produce between 195,000 and 215,000 gold equivalent ounces at total cash costs between $775 and $825 per gold equivalent ounce with all-in sustaining costs of between $1,200 and $1,250 per gold ounce. The Company has also reevaluated its capital budget and as a result 2016 capital expenditures have been reduced to $73.7 million including $42.4 million at San Dimas and $29 million at Black Fox.

Slide 6, we show our consolidated operating costs for the second quarter. It showed a 37% production increase over Q1 at lower cost. Primero produced a total of 49.5 gold equivalent ounces at an all-in sustaining cost of $1,300 and10 ounces. As we have high development costs at Black Fox.

Slide 7, San Dimas produced 34,000 gold equivalent ounces during the second quarter, a 50% increase over Q1, 2016. Mining throughput rates increased to an average of 2,541 tons per day slightly above plan. But grades were impacted by lack of availability of high-grade stopes mainly as a result of lower development during Q1, 2016 and some ventilation and mine service issues.

Slide 8, Black Fox produced 15,000 ounces of gold, 14% increase over Q1 and Q2, 2016 the majority of production ounces came from the underground mine and remnant areas where in Q2, 2015 gold production was largely sourced from the open-pit mine. The second quarter of 2016 the underground mine achieved increased production rates averaging 636 tons per day, representing a 50% improvement over Q1, 2016 production levels.

I’ll now turn the presentation over to our CFO, Wendy Kaufman to discuss our financial results. Wendy?

Wendy Kaufman

Thanks, Ernie. Primero recorded $59.4 million of revenue in the second quarter, 12% lower than last year’s second quarter mainly as a result of selling 23% less gold ounces. Despite a 6% higher average realized gold price. In the second quarter, we sold 43,000 ounces of gold at an average realized price of $1,241 per ounce. As you’re all aware silver produced at San Dimas is subject to a silver purchase agreement, and as a result 1.4 million ounces of silver were sold to Silver Wheaton at a fixed price of $4.24 per ounce during the quarter.

As of June 30, the Company has delivered 5.6 million ounces of silver under the purchase agreement. The silver purchase agreement 6 million ounce annual contract threshold, which runs from August 6 to the following August 5. As a result, we expect minimal spot silver sales in 2016. These lower spot silver sales compared to our original guidance had the effect of reducing our revised gold equivalent production guidance and increasing our cash cost guidance.

The Company incurred a net loss of $19.4 million or $0.12 per share in the second quarter, compared with the net loss of $6.7 million or $0.04 per share for the second quarter of 2015. The Adjusted loss was $2.4 million or $0.01 per share compared with adjusted net income of $1.1 million or $0.01 per share in Q2 of 2015. The main adjustment to net income in the second quarter of 2016 is a $13 million non-cash tax expense in relation to the devaluation of the Mexican peso relative to the U.S. dollar on San Dimas’ tax shelter assets in the quarter.

The Company’s total liquidity position at June 30 totaled $79.5 million, comprised of $54.5 million in cash and $25 million available under our revolving credit facility. During the second quarter, we completed a Canadian $52 million bought deal financing, which positively contributed to our June 30 cash position.

The $50 million we have drawn on our revolving credit facility matures on May 23, 2017. And we expect to renew this facility, but in the event full repayment is required, cash generated by operations may not be sufficient to repay amounts outstanding under the revolving credit facility in full at maturity.

As Ernie will describe, we have a plan to improve production at San Dimas and we will focus on cost and capital reductions at both of our operations to increase cash flows and at the same time evaluate other financing alternatives such as the potential divestiture of assets.

Ernest Mast

Thanks, Wendy. On Slide 11, San Dimas remains Primero’s platform asset. It is a high-grade underground mine consisting of numerous epithermal veins in the Sierra Madre Occidental Mountains located on the border of Sinaloa and Durango states in Mexico. As mentioned, we saw significant improvement in production during Q2 compared to Q1.

However, following the labor issues in July, we now expect 2016 production of 135,000 ounces to 145,000 ounces of gold equivalent production at all-in sustaining cost of $952,000 per gold ounce. In fact, we will be working hard to improve grades and productivity in order to continue to increase production and productivity.

Slide 12, Q2 production at San Dimas was impacted by delay in mining high-grade areas due to localized ventilation and services issues. Following the labor disruptions in July, lower grades than initially planned will be mined throughout 2016. This is a result of key development work being delayed.

The Company initiated a mine optimization program in conjunction with third parties. A seven point action plan has been implemented to focus on technical and administrative improvements such as improving services, improving the mining cycle, reducing dilution, decreasing operating costs, and improving labor productivity. The Company expects to provide an update on this optimization program at the end of the quarter and it will form the basis for optimization of the San Dimas asset going forward.

Slide 13, in June 2016, we acquired a new 30,192 hectare concession in the San Dimas district called Lechuguilla. This concession is not covered by the San Dimas silver purchase agreement and is outside of the tax challenge we face in Mexico, so it’s a very important strategic addition for us. San Dimas is a world class epithermal vein system from the Verdosa vein in the south to the Jessica vein in the north, representing 11 kilometers of the mine central block. There have been 22 productive vein identified. That’s an average interval of approximately 500 meters between each vein.

Furthermore, this area remains under explored to the south on the Lechuguilla concession and to the north under the post mineralization volcanic capping layer. We are very positive on our ability to find new economic veins in this highly perspective camp, given our strong history of discovery which includes nine new veins in five years. During the quarter, our best exploration results were from the Victoria vein in an area 150 meters to the east and below the current working with intercepts averaging over 10 grams per ton gold.

Slide 13, initial geological reconnaissance conducted by Primero’s geologists has obtained preliminary grab samples from the Causitas window area where three veins were outcropping. It is located on relatively flat terrain close to the main road between Durango and Tayoltita, surface samples returned approximately 1 gram per ton gold, providing an indication of potential mineralization.

The main Causitas vein has been measured to be between 1 and 5 meters wide and has been traced over 200 meters of strike length. Based on these early results, Primero’s geologists will begin a program of detailed vein mapping and channel sampling in order to identify drill targets. Primero’s geologists have also noted anomalous precious metals values in preliminary grab samples taken from the identified Sara Costanza and Cinibas veins. It is early days with this large land package and we expect to continue to identify new target.

Slide 14, discovery of the Jessica vein in late 2014, started to push to look outside of the original San Dimas property. The Jessica vein has no surface outcropping and is totally obstructed by the regional upper volcanic capping. Based on the dates of the mineralization and volcanic deposition, our geologists always believe that volcanic capping was a post mineralization event, but it couldn’t be fully confirmed until proven by the discovery of Jessica.

As result, we’re counting to explore areas under the capping and look for other veins that can be found from surface. We will see areas around [Paris] and Jessica is very prospective despite being covered by the volcanic capping. As I mentioned, the Lechuguilla concession exists outside of the silver purchase agreement with Silver Wheaton. So we would realize full value on any gold and silver production from this area.

Significantly, the Lechuguilla concession contains what we call the geological window and in fact numerous geological windows. That is an area of erosion through the upper volcanic capping exposing the lower volcanic sequence which host San Dimas’s veins. Primero’s geologists are conducting initial field exploration of this window.

Slide 15, the Company continues to vigorously defend its advanced pricing agreement from the legal claim initiated by the Mexican tax authorities in February this year. As part of this defense, the Company has filed the procedural and substantive responses to the SAT-initiated legal claim. The procedural response is a challenge against the admission of the SAT’s claim. The substantive response contains the Company’s response to the SAT’s claim.

While the resolution of the procedural challenge remains pending and the substantive matters are ongoing, the Mexican District Court recently issued a final order mandating that no resolution may be issued in connection with the substantive matters until the procedural challenge against the admission of the SAT’s claim is finally decided. As consideration of these matters continues in parallel, the Company does not expect the order to delay the resolution of the substantive case.

The Company believes that it is entitled to rely on the APA which is legally binding in respect of the Company’s 2010 through 2014 taxation years. The Company obtained the ruling transparently and in good faith. Primero believes the APA should not be the subject of challenge by a government administration installed upon the change of government after the APA was duly issued.

On June 2, 2016, the Company notified the Government of Mexico that the measures taken by its tax authority the SAT and judicial proceeding seeking to nullify the APA, breached several provisions of Chapter 11 of the NAFTA Agreement because these measures are arbitrary, discriminatory, unfair and inequitable. As such, the Company informed the Government of Mexico that, absent amicable resolution within 90 days, it intends to commence international arbitration proceedings pursuant to Article 1119 of the NAFTA.

Now, we will move to Canada on Slide 16, our Black Fox mine is located near Timmins, Ontario. We have had to lower our 2016 production guidance as result of delays and accessing high-grade ore in the Deep Central zone and this occurred during July. Our focus at Black Fox is to develop into new zones and get away from the low productivity remnant mining area.

Daily underground production rates are expected to increase through the remainder of 2016, principally from a ramp up in contribution of ore from the Deep Central zone. Development of the Deep Central zone progressed during the second quarter. The Company is developing along the 640, 660 and 680 meter levels.

During July 2016, a planned initial long-hole stope of the Deep Central Zone was delayed due to poor ground conditions in a footwall development drift that required the development of an alternative route. That alternate route has been implemented and has already mined 3,220 tons of development ore grading at 9.8 grams per ton using a top cut of 30 grams per ton confirming the existence of high-grade ore at the 660 level as planned.

As a result, initial stope production from the Deep Central Zone is now expected to commence before the end of Q3 2016 and will be the single biggest contributing ore source during the rest of the year. Additionally, we continue to evaluate the nearby Grey Fox deposit which was put on hold given our 2016 budgeted gold price of $1,050 per ounce. However, the project shows improved returns and could become a viable source of additional ore for Black Fox mill at today’s gold prices.

Slide 18, will discuss the Froome project. Primero continues to evaluate the potential of the Froome Zone located approximately 800 meters west of the Black Fox mine. Following the announcement of positive drilling results in Q1 2016, Primero continued to delineate and expand the deposit and commenced an internal economic evaluation of the Froome Zone.

An initial mining plan has been developed and preliminary engineering and geotechnical studies have begun with the focus on accessing the ore body via an underground drift from the Black Fox pit, expediting the permitting process and timeline to initial production. Optimization studies will continue in Q3 2016, with the focus on reducing capital cost and de-risking the project. The Company’s regional exploration program will now focus on the discovery of Froome-like targets along the mineralized trend.

Slide 19, the Black Fox complex is in a strategic central location in the Timmins mining camp. We believe there remains significant exploration upside across the Black Fox complex with resources currently extending only 800 meters below surface. While the average depth of mines in the region is below 1.2 kilometers.

The Company will continue to drill at depth below 800 meters and to the west of the Deep Central Zone in plans to release these exploration results in the second half of the year. Recent acquisitions in the region indicated that the region remains a key focus for intermediate in senior mining companies.

Slide 20, looking at catalysts for the Company we completed the expansion of the crushing circuit at San Dimas on time and on budget before the rainy season in mid-June. We continue to evaluate in advance the engineering associated with the recently discovered Froome Zone and we’ll update the market on this progress. Look for an exploration update Q3 with exploration results for both San Dimas and Black Fox.

And finally, we are targeting Black Fox to deliver 850 tons per day production from the underground mine in Q4 from non-remnant mining areas. We also continue to provide the market with updates on the Mexican tax authorities legal claim and our progress in defending our position.

So finally, although Primero has faced several challenges in 2016. The Company remains an emerging mid-tier gold producer with operations in established mining jurisdictions. During the quarter we improved our balance sheet and financial flexibility and improved upon the results from Q1. There remains operational improvement in exploration upside in my opinion offers a compelling valuation opportunity.

Thank you for joining us on the call today. We’ll now open the phone lines to any questions you may have.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question is from Rahul Paul of Canaccord Genuity. You may proceed, sir.

Rahul Paul

Hi, everyone. Ernie could you talk a little more about the poor ground conditions you encountered at Black Fox in July and I’m just wondering based on the work you’ve done and what you see in the drill core? Do you consider this to be a localized issue or is this more reflective of the ground conditions you would expect to see going forward in the Deep Central Zone.

Ernest Mast

Thanks, Rahul. We believe there’s - I can answer your question in two ways; one we believe it is a localized issue there’s some [indiscernible] ore in the footwall which we progress through and we found an alternative route with a different rock type. And also it’s the measures we take if we’re encountering poor ground conditions where we’ve implemented much more strict controls after this incident and therefore if we were to encounter something similar we believe we could manage it.

Rahul Paul

Okay. That’s good to hear. And now you spoke about some tonnage mine from the Deep Central Zone at pretty good pace. Now I know a large part of the planned ramp up to 850 tons a day from the underground is the expected mining productivity from the Deep Central Zone has anything that you’ve seen so far suggest that it maybe a challenge to get the planned throughput from the Deeper zone?

Ernest Mast

No, we don’t believe so because we’re going to have a few different levels operating, we will have the 660 level in operation, we will commence with the 680 level in operation, and plus we found some new zones in the mine which are above the Deep Central Zone, but they are new zones, so they’re not remnant mining such as the 520 Central Zone and with the balance of those areas we should be able to achieve the productivity.

Rahul Paul

Okay. And then the last question on Black Fox, again I mean the 9.8 grams that you mined looks like it was capped at 30 grams a ton. Do you have sufficient data to establish that capping factor? Or is it just a conservative estimate at this point?

Ernest Mast

Yes. That capping factor was a conservative estimate and we obtained the grades via two methods. We took channel samples as we were developing and also we took muck samples, and both of those samples averaged in the high 9s. And so we believe that number is very robust and we believe the 30 grams per ton cap is a conservative cap. If we looked at the number uncapped it would be running about 15 grams per ton, but we need to get more tonnage and more data and then do the reconciliation with the mill prior to understanding exactly what the grade is in that development stope.

Rahul Paul

Okay. Thanks a lot, Ernie. That’s all that I had.

Ernest Mast

Thank you.

Operator

Thank you. The next question is from Jeff Killeen of CIBC. You may proceed

Jeff Killeen

Hi, good morning. Thanks for your time, Ernie. Maybe wanted to start with Black Fox, just wondering on this seven point optimization plan, like where has this come from. Because I think we by and large got the impression that the mine was working well over the last few years, you’re able to creep up the throughput understanding that you’ve taken this change in view on ground control, so that’s throttling back to throughput a bit, but what has changed at the mine now that you see that requires all this re-optimization for such an old asset?

Ernest Mast

Well, we’re always looking to improve and we always have improvement plans and we decided to formalize it believing that we believe we can get more from the mine, the implementing the new ground support. Although we’re able to work through that and get our 2,500 tons a day and able to get that going forward. We just feel that the mine can do more, San Dimas is better potential. And so we decided to formalize our efforts and share that with the market and come out and share that at end of Q3 of all the good improvements that we’re going to implement.

Jeff Killeen

Okay, thanks. And then with respect to some of the smaller items like you mentioned services and ventilation issues, are those just optimization issues or they something that has cropped up recently that has caused you to change your viewpoint on some of those aspects?

Ernest Mast

No. Those are really optimization issues and one of the issues is in order to maximize productivity from the mine. We should have mining phases close to each other and then optimization is – and that would improve the utilization of our equipment and the utilization of our personnel. So improving the ventilation and service is in a few key stope areas, we feel will help us access ore cheaper and more consistently.

Jeff Killeen

Okay. Thank you. Then on the labor side of things, you noted a bit of a disruption with some bonuses being a topic. Is that all been rectified now? Is that conversation been done with the entire labor force and how long have your agreements been set for going forward?

Ernest Mast

So last weekend actually that those discussions were terminated and an agreement was obtained with the union and the agreement is good for one-year and there’s no other outstanding points at this moment?

Jeff Killeen

Okay, thanks. And last question for me just on Froome. I think the Company previously indicated you would be thinking about making a decision on development of that in the third quarter. Now, it sounds like that’s getting delayed. Is that delay being brought from a technical standpoint, to other questions that you feel you still need to ask or is it just a managing your balance sheet because of what the production has been like so far this year?

Ernest Mast

I do believe still during Q3 will be able to come to a production decision on Froome.

Jeff Killeen

Okay. Very well. That’s it for me. Thank you.

Operator

Thank you. The next question is from Dan Rollins of RBC Capital Markets. Please proceed.

Dan Rollins

Yes. Thanks. Ernest, I’m wondering if you can maybe just touch a little bit more on San Dimas. One, I was wondering if you can confirm how many of your mining crews or your labor force underground now is working on the new schedule and how does that compare from the beginning in the year and where we stood in Q1? Are you actually seeing progression of people being put on the longer shift or you now starting to see pushback from the union on the change of the shift?

Ernest Mast

At the present time, the same number of people are working on the longer shift as at the beginning of the year. During this round of discussions, an agreement was made with the union in terms of adding another long-hole machine to the current three we have operating to bring it up to four.

So we do expect the number of people working on that 12-hour shift to increase, but we’re also looking at the rest of the crews that the people working on the longer shift are on the long-hole machines, but we’re looking at other crews and seeing how to improve their productivity as well. And these are the crews working on say cut-and-fill and development.

Dan Rollins

And how you are seeing the productively gains being made, obviously it’s unions wanting more money, do you think you can get the cost benefit with the increased bonus payment versus the productivity that you originally anticipated or that been negated here by stronger negotiations by the union?

Ernest Mast

We believe we will see the productivity improvement in a big part of that, seven point plan is related to productivity in terms of increasing utilizations, worker training, standardization of equipment and a whole host of things which we will share in full at the end of next quarter.

Dan Rollins

And then just with – obviously you can fill the mill at ore, but how was the development moving along? Are you actually keeping pace with development or you know getting ahead of development post the July shutdown like the slowness? Or are you still trailing that given the change over the mining sequencing?

Ernest Mast

Well, we believe we’re holding firm now. However, what we do is we really want to get ahead of it.

Dan Rollins

And what do you need to do to get ahead of it? Getting ahead of it means flexibility with grades, we start to see the reserve grades which we haven’t seen yet come to life?

Ernest Mast

That’s correct. Yes. So we know by getting and the way to get ahead of it is in improving productivity. Okay and that goes back to that seven point plan which we’re implementing.

Dan Rollins

And if you may just jump into Black Fox, if you make decision on Froome here, production decision positive in Q3. When do you think the balance sheet allows you to start putting money into that asset?

Ernest Mast

It’s related to the discussions on the line of credit next year. However, we could probably find financing for Froome independent of the current balance sheet issues.

Dan Rollins

Okay. All right. And then just given you’ve know been in the new sequencing for the mining side relative to what you saw last year, trying to maybe get rid of some of the noise that’s happened here in Q1 in July. How much more do you think it’s costing you on a per ton basis to operate San Dimas?

Ernest Mast

It looks like it’s about $10 dollars a ton more with the new sequence, $5 to $10 more with the new sequence, but we will be able to find productivity improvements to capture that back.

Dan Rollins

Okay. Perfect. Thanks very much.

Ernest Mast

Welcome Dan. Thank you for the call.

Operator

Thank you. The next question is from Mike Parkin of Desjardins Securities. Please proceed.

Michael Parkin

Few questions at Black Fox, is your dilution tracking the plan, are you experiencing any heavier dilution I guess the Deep Zone you’re not really into stoping, you’re still doing development work, but just relative to plan for the year, how’s that going?

Ernest Mast

Yes. In the remnant mining areas the dilution was over planned and our grades were a little lower during Q2 then we had planned, because of that dilution. And it’s a function of mining the remnant areas where general small and difficult to get the perfect mining shape.

Michael Parkin

Okay. And what are you planning for do dilution factor for the Deep Zone?

Ernest Mast

The Deep Zone we’re planning 20%.

Michael Parkin

Okay. And then in terms of your all-in sustaining cost guidance that’s picked up quite a bit I assume I didn’t see like kind of an exploration of all the pieces that go into the increased on a per ounce basis I am guessing the silver production guidance drop that would obviously play a factor, but could you give us a sense of like what were the kind of two or three biggest contributing factors there?

Ernest Mast

Yes, the main driver was the lower ounces and not getting the silver equivalent back into gold was one of the main - was definitely one of the main drivers. Our cost structures at both sites are consistent and predictable and so it really nothing to do with cost issues really that are out of control.

Michael Parkin

Okay. And with - you mentioned that the increase on the union bonus at San Dimas was $90 in Q2. But you also say the short-term production bonuses were agreed upon in late July. So should we assume they’re going north of $90 an ounce for the remainder of the year? Can you give us a sense…

Ernest Mast

No the $90 per ounce was a one off and that’s related to 2015 performance and the short-term issue which is the one where we had the labor disruption was a modest increase from previous mining bonuses that we had before. So I think we saw the full impact during Q2 of those negotiations.

Michael Parkin

Okay. That’s it for me. Thanks guys.

Ernest Mast

Thank you.

Operator

Thank you. The next question is from Steve Butler of GMP Securities. Please proceed.

Steven Butler

Good morning, Ernie. At Black Fox in the Deep Central Zone where you talked earlier to Rahul about the 9.8 grams. Is it correct that the 9.8 grams itself was actually a top cut applied or is that the actual experience of the grade?

Ernest Mast

That was the top cut applied.

Steven Butler

Okay. And you said 15 or so uncut.

Ernest Mast

Yes.

Steven Butler

Okay. The Deep Central Zone overall Ernie, what’s the expected reserve grade or the modeled reserve grade for the Deep Central.

Ernest Mast

The modeled reserve grade for the Deep Central is approximately 6.5.

Steven Butler

Okay.

Ernest Mast

6.5 grams using the top-cut of 80 grams.

Steven Butler

Of 80 grams. Okay. So let’s see how you go, so could you – really you’re just into the top portion of it with this development heading correct?

Ernest Mast

That is correct. Yes. We did get some ore from the 640 level and there the grades were good. There were over 5 grams of ton, but we know that the 660 and 680 levels are the two largest and richest zones of the Deep Central Zone. So we’re in it now and the team is – in the next week we’ll start the long-hole drilling and then towards the end of August we’ll get our first stope production.

Steven Butler

Okay. On San Dimas are you – have you gone away from are you still doing some level of long-hole stoping as a percentage of and what percentage of the production is it long-hole, that’s it.

Ernest Mast

Yes. Those long-hole stoping actually at San Dimas set a record, during this last quarter 50% or 49% of our 2,500 tons were via long-hole and most of that contribution was from the Alexa vein. We’re in a nice part of the Alexa vein and it was our major contributor of tons during the quarter.

Steven Butler

Okay Ernie. And then question on just to clarify your all-in sustaining costs were you quote them in the quarter of [13.10] an ounce that is per gold ounce or per gold equivalent? Thanks.

Ernest Mast

Per gold ounce.

Steven Butler

Per gold ounce. Okay. Thanks that’s it.

Ernest Mast

Thank you. Thanks, Steve.

Operator

Thank you. The next question is from Rahul Paul of Canaccord Genuity. Please proceed.

Rahul Paul

Hi, guys. Just a follow-up looking at your revised guidance at San Dimas. I’m just wondering if you could talk a bit more about the expected underground throughput in grades in Q3 and Q4 at least a trend. If I were to assume a Q3 similar to Q2 and 2,500 tons in Q4. I would need to assume a meaningful improvement in grades in Q4. Is that realistic or should I be looking at something else?

Ernest Mast

Our projected grades are close to reserve grade for the remainder of the year.

Rahul Paul

Q3 and Q4?

Ernest Mast

Yes. The average I think in Q4 we’re going to be slightly higher than in Q3, but if we look at Q3, Q4 together, we’re at that 2,500 tons at a grade similar to reserve grade.

Rahul Paul

Okay. That’s good to hear. Thanks. Thanks, Ernie.

Ernest Mast

Welcome.

End of Q&A

Operator

Thank you. There are no further questions registered. At this time, I’11 now like to return the meeting back over to Mr. Ernest Mast. Please proceed, sir.

Ernest Mast

Yes. Thank you very much, operator, and thanks for everyone for calling and listening in and have a good day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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