Taseko Mines' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Aug.12.12 | About: Taseko Mines (TGB)

Taseko Mines Limited (NYSEMKT:TGB)

Q2 2012 Earnings Call

August 9, 2012 11:00 AM ET

Executives

Brian Bergot – IR

Russ Hallbauer – President and CEO

Peter Mitchell – CFO

John McManus – SVP, Operations

Analysts

Orest Wowkodaw – Canaccord

Mark Turner – Scotiabank

Steve Parsons – National Bank Financial

Tom Bishop – BI Research

Operator

Good day ladies and gentlemen, and welcome to Taseko Mines Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to hand the conference over to Mr. Brian Bergot from Investor Relations. Sir, you may begin.

Brian Bergot

Thank you, Dave. Good morning ladies and gentlemen, and welcome to Taseko Mines Second Quarter 2012 Results Conference Call. My name is Brian Bergot and I am the Director of Investor Relations for Taseko. With me today in Vancouver is Russ Hallbauer, President and CEO, Taseko; John McManus, Senior Vice President, Operations; and Peter Mitchell, Taseko’s Chief Financial Officer.

After opening remarks by management, which will review the second quarter business and operational results, we will open the phone lines to our analysts and investors for question and answer session. The Company and management’s discussion today will be presentation slides for our webcast participants. Alternatively the presentation can be found on the homepage of our website.

Before we get started, I would like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Please refer to the bottom of our latest news release for more information.

I would now turn the call over to Russ for his remarks.

Russ Hallbauer

Thank you, Brian. Good morning everyone. Thank you for joining us today to discuss our second quarter results as well as the ongoing status of the Company’s business activities.

Continuing with the formula that we developed for this call last quarter as Brian indicated, we have a slide presentation to help you understand as best as possible where we are technically with our ongoing operations at Gibraltar. Gross profit from our mining operations came in at CAD16 million for the quarter, generating CAD0.02 per share in earnings. Peter will speak in greater detail during his overview about particulars of our financial results in that regard.

Our operating metrics, we are pleased with in terms of where we found ourselves three to four months ago with the mine operating issues. We worked our way through those and are certainly in a better position understanding what went wrong that affected our mine throughput so dramatically and certainly the fact that we have produced over 9 million pounds in July indicates we’re back on track. If you have our slide presentation in front of you, I would like to walkthrough some of the highlights for you.

As discussed last quarter, the SAG Mill Throughput graph, slide one, indicates in a chronological manner how we performed over the last year. Ups and downs heading towards our ultimate goal and targets of achieving 2,450 tons per operating hour. Effectively if we look at the last year, we have cycled through a whole pit development sequence over the year and you can easily see encountering and dealing with various ore types, their hardness, how they react in the recovery circuit and how they ultimately are dealt with in our concentrator in terms of throughput has been challenging.

But for every down, there has been an up and generally an overall general and sustained improvement. We have this huge ore body with all its variables and we’ve been fine tuning our concentrator to deal with all its irregularities. And we believe we’re about 98% there. Now that we believe we finally figured out the guts of our SAG Mill and its mechanisms, we are now aggressively focusing on our mine to mill optimization initiatives.

As you can see from about the third week of June, at the right side of the chart when we began working on our mine to mill optimization plans, along with new mill liners and ports incorporating all of that, we’ve learned over the past year we’ve moved back up towards 2,450 tons per hour. Some of you may say that we were there at mid-December, early February and we were in terms of mill tonnage, but we were not entirely sure why we were getting the throughput we were. Was it the pit or the concentrator?

While we found out shortly thereafter our enthusiasm at hitting design targets was more about ore characteristics overall than mechanical modifications. We felt we had that under control at year-end but different rock type and other operational issues pushed us back. And even though we cut larger pebble ports at the end of May, because we were still dealing with ore that was blasted two or three months prior, we did not see immediate results.

In slide two, you can see that the 3.75 inch ball that we are now rejecting. You can see that in the circle, the yellow circle on the right side of the picture, but an important note is that re-circulating load that’s coming off the top of the screen decks. That is a very good indication of the performance of the mill. These 3.75 inch balls are both 70% spent so now with the discharge ports that we manually cut into our grates, we are now beginning to see the impact on those changes. The mill is more efficient and that is certainly evident in the re-circulating load.

Moving forward on slide three, you can see this is the consistency of the material in the pit we want to present to the concentrator, and that is often not always achievable because it changes in blasting design, ore hardness and a number of other parameters. We’ve managed to generally achieve this type of muck. And if we move to slide four, you can see how the combination of all these initiatives are affecting mill throughput. For the last month or so, in fact longer than a month or so, a month and a half, the daily throughput is very good and sustained, and as you can see, we’ve had periods in slide four of well over 2,450 tons per hour but certainly the average is where we want it to be.

So what we look in slide five, at the end of April, you can see where we’ve done some changes. We’ve started to move up, and certainly as indicated in our last presentation, the general trend line is where we wanted to be. Looking at slide six, where we are at the end – in the early part of August, you can see that we moved back up to where we effectively were in December of last year and we think now that with the mill modifications that we are in a very good position to continue to produce like we have over the last six to eight weeks.

Next week we will be changing the grates again, so these are new grates and a new design and will have engineered 3.75 inch pebble ports which will allow better operating efficiencies, as we’re going from those approximately 10 ports that we cut in manually to over 30 of these engineered ports. Along with that, we’ll have changed grate design and we expect to up the re-circulating load and push more through our overall SAG Mill and towards designed capacity.

So I think the results speak for themselves and that we believe we have the majority of our plant issues behind us, and we will work on our pit issues and that bodes well as we head to commissioning of our GDP3 and how we believe that ramp up will go, because we’ve basically done all the technical work in their present mill. If we move to the next picture, speaking of GDP3 in slide seven and eight, you’ll see somehow an idea of how we are progressing on our SAG and ball mill construction on GDP3. And it is going as planned and as scheduled and we’re very happy with what we’ve seen to this date.

If we go to slide nine, that gives you some idea of the expenditures and this is pretty similar except more dollars have been allocated since our last quarterly update, and you can see really that we’re completely within our budget parameters. And if anything, the only area as I illustrated in the last quarter, the only area that we could get a little out of block maybe on the contract side in terms of the labor component of it, but we feel that we have enough in our indirect and our contingencies to solve any of those issues and come in on budget and certainly we’re on time.

Stepping forward, with respect to Prosperity, we’ve submitted our draft EIS on Prosperity a few weeks back, and the government has sent us back their comments. We have reviewed and nearing completion on those, responding to them and we expect to final our final Environment Impact Statement sometime in the next or so after we finalize those responses to those questions. The panel will then take 30 days to decide if the EIS is satisfactory, then proceed through the regulatory process, respective public comment and public opinions.

Presently, if you go on their website, you will see their notifications if you’re interested. And we expect that final report will be complete before Christmas and submitted to cabinet sometime after the New Year, and then we’ll see where we go from there. We are continuing to work Aley, doing environment background study in advanced engineering and metallurgy, and we are approximately 40%, 50% through our metallurgical testing and we have not experienced any showstoppers. The metallurgy is performing the way we think it should and we believe that by the New Year, we’ll have all the technical data clear as well as project economics on cost and capital, and then we would put out a reserve statement and we would – if all of that falls into place, we would anticipate beginning the permitting process shortly thereafter.

We believe that this will be a process that will be not a federal process but will be completely covered by the provincial government in terms of the provincial environmental assessment process. The project at this juncture is meeting our expectations and if all goes according to plans, I would expect we would in the position to make a development decision sometime in mid-2013.

Aluminum prices have remained steady throughout this period of reduced overall metal volatility, even in the light of reduced steel production and reduced iron ore prices and met coal prices. And if you look at the results release from Anglo’s South American niobium mine recently, a mine that is less than half of the anticipated production capacity of Aley, one can appreciate what kind of impact Aley will have on this company.

So all things considered, we are in a very good place. Our capital projects are moving forward on time, in our budget. We’re well financed. We have a strong balance sheet. By the end of this year, Gibraltar will be operating in one of the largest copper concentrators in North America. I’ve been doing a little research, I think we’ll only surpassed by Highland Valley Copper and Kennecott’s Bingham Canyon in terms of costs of daily concentrated throughput. And it will have been built on time and on budget, so we’re pretty happy with that.

It seems that’s a rarity today. My general view as a professional mining engineer, when the capital overruns at most of the projects, it’s a serious reflection on the professionalism and quality of management, and frankly just amazes me that its occurred as a catapulting all of us who actually think we know what we’re doing in this business and it affects not those companies that screw their projects all up but tarnishes us all.

So it’s becoming apparent bigger is certainly not better in terms of both capital discipline and operating acumen. And certainly we think that in that context, for ourselves, our capital discipline and our operating experience and acumen will be reflected in our return on investments and our return on capital employed as we move forward. So we think we’re in a pretty good place here as a company.

We have two great projects in Aley and Prosperity in our pipeline, and we have shown to our shareholders, we have capital discipline that won’t destroy their capital. And we figure we’re pretty good operators and both of these will hold us to good step going forward as we continue to develop this company’s assets in a time of market volatility.

I’d like just turn the call over to Peter now to discuss our financials.

Peter Mitchell

Thanks Russ. Revenue for the second quarter was CAD74.4 million, a 54% increase over the second quarter of last year of CAD48.4 million. And that’s the result of increased volumes, offset by reduced copper unit prices relative to the 2011 period. Finished goods inventory was reduced to CAD5 million as a result of clearing out our concentrate inventory at quarter end. Gross profit was CAD16 million for the second quarter as a result of higher production costs, lower selling prices and the cost of sales adjustment related to the inventory reduction from the end of the prior quarter.

G&A costs were CAD4 million compared to CAD4.9 million last year and that’s the result of lower stock-based compensation costs this year. As Russ talked about, our two projects new Prosperity and Aley, our spending on those two projects in the second quarter was CAD4.9 million and all of those costs continued to be expensed.

Other operating income of CAD0.8 million includes an unrealized gain from our hedge mark-to-market, partially offset by an unrealized loss on the hedge position. The unrealized component is subject to quarterly fluctuations and doesn’t affect cash position. Finance expense at CAD3.9 million includes bond interest and accretion on our provision for environment rehab. We’re capitalizing a portion of the bond interest because it was raised for the construction of GDP3.

Income tax expense for the quarter of CAD3.6 million, reflects an effective tax rate of 52% and the net earnings for the quarter were CAD3.3 million or CAD0.02 per share. Adjusted earnings for the usual things, unrealized losses, foreign currency translation and other gains, losses yields adjusted earnings of CAD4 million for the second quarter and adjusted earnings of CAD0.02 per share versus CAD0.01 last year.

Cash and networking capital were CAD246 million and CAD259.5 million respectively at the end of the second quarter. In addition to cash and longer term money market investments in other financial assets, we have an additional CAD20 million. In addition, the capital spending for GDP3, we’ve continued to buyback Taseko shares under our NCIB and spent CAD18.9 million on a year-to-date basis to buyback over 5.5 million shares. We also extended our hedge position in late June with the purchase of CAD3 puts for 2,500 tons per month, which is approximately 50% of Taseko’s estimated share production during that time. The cost of the puts was slightly more than CAD0.18 per pound.

In conclusion, Taseko remains in a strong financial position in a period of continued uncertainty with over CAD250 million in cash, long-term capital in place and GDP3 fully funded and our hedge position extended into next year. There is a few slides that I’d like to show on the issue of our capital structure. The first one being, identifies when Taseko actually issued our high yield debt. We managed to capture very good window to issue our CAD200 million issuance to finance our GDP3 expansion. And that’s the point made on that slide, Taseko was the first Canadian mining company to access that market which has become a very significant market for capital projects for mining companies.

Relative to our peers, coupon at issue for us was 7.75%. We’ve traded very close to that level in the after-market as well. And this identifies where we were at the end of June in 2012 at 8.64% and you can see that some of our other mining brother [ph] have not been quite as fortune in terms of where the yield has moved and all the reflection of the perceived risk of the property in Taseko obviously in that market is that risk price pretty favorably for the company.

The next slide again just tracks graphically where the trading is going and you can see in the gold bar towards the bottom that the yield for Taseko has moved pretty steadily along the lower grounds of this graph compared to several of the other in the high risk peer group. So again pretty favorable in terms of high yield issuance in a market that we would certainly contemplate accessing again with the necessary outcomes in the – with Aley or Prosperity, but of course managing our leverage levels very conservatively as well would be a focus of ours.

So with that, I’d like to open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Orest Wowkodaw from Canaccord.

Orest Wowkodaw – Canaccord

Hi, good morning. Couple of questions for me, obviously a very good grade in the second quarter, 0.33% copper. Do you expect that to continue into Q3 and Q4? And can you tell us what the grade was for that 9 million pounds produced in July?

John McManus

Hi Orest, this is John here. That grade in the second quarter was actually 0.32%. Now, it is at 0.31% ore body. And it varies by 5% or 10%.

Orest Wowkodaw – Canaccord

John, if I could stop you there, I can’t here you very well. I don’t know, if it’s possible to get close to the phone.

John McManus

Sorry Orest, I’ll try again.

Orest Wowkodaw – Canaccord

That’s better.

John McManus

We got the 0.32% grade for the second quarter. Gibraltar is 0.31% ore body. It varies on 5% to 10% as you move through the ore body so that wasn’t unusual grade. And for the July grade, we actually had 0.34% so again not really particularly unusual, better than average, but not super high or anything like that.

Orest Wowkodaw – Canaccord

And how do you see that playing out for the rest of the year in terms of grade percentages [ph]?

John McManus

It’s a 0.31% ore body, so first half of the year – first quarter we’re bang on that, second half of the year we’ll probably average 0.31% – we’ve got next month or so is decent grade and then it drops back to about 0.30% [ph].

Orest Wowkodaw – Canaccord

Okay. And then the strip ratio was very high by historic standards in the quarter at 3.4. How do you see that playing over the rest of the year?

John McManus

Well part of what we’re doing there Orest, is we’re preparing for GDP3.

Orest Wowkodaw – Canaccord

Okay.

John McManus

So we’re getting more ore faces opened up, so that’s actually going to affect our costs through the last half of this year too as we up our strip ratio.

Orest Wowkodaw – Canaccord

Okay.

John McManus

When that mill comes on, we want to be able to make sure that we’re feeding it 85,000 tons.

Orest Wowkodaw – Canaccord

Okay. So that should continue then through the back half of the year and then we should see unit costs remain relatively high as well. Is that correct?

John McManus

Yes, they are going to be similar to what you’re seeing now. I mean we’re still working on a lot of things to bring our unit costs down. We get our copper production up, that will help but we are going to be stripping more than the deposit average for the last half year.

Orest Wowkodaw – Canaccord

Okay. And I think during the last conference call, Russ had given kind of unofficial guidance, production guidance for 2013 of a 160 million pounds for Gibraltar. Do you still think that’s a realistic target given kind of where we are today?

John McManus

Absolutely.

Orest Wowkodaw – Canaccord

Okay. And am I correct based on your language around the hedging for the first half of 2013 that you’re guiding for, I think my mount is right here, at least I am hoping it is, basically 74 million pounds of production in the first half of the year on a 100% basis?

Peter Mitchell

We really, I mean if you do the 2,500 metric ton from mine Orest [ph], divide with that, that is the number that you come out with. But yes, I see candidly be derived more from what our expected costs are and what kind of revenue we need to generate to cover our share of costs. So that already used John and Russ’s overall guidance then that’s exactly where we hedged and I’d say an analogy for that [ph].

Orest Wowkodaw – Canaccord

Okay. And just a final question for me. You previously guided to around CAD30 million of exploration expenses mostly related to Aley. We’re not really seeing that come through the statements as of the end of Q2. Should we expect then all that to come in the second half of the year or is that been somehow capitalized or deferred?

Peter Mitchell

Nothing is capitalized, it’s all being expensed and we’re tracking to that number. There is a time lag associated with invoicing things.

John McManus

Well it’s also – where Aley is, right now is the time that we could get in the field.

Orest Wowkodaw – Canaccord

Okay.

John McManus

So and then the analysis happens in the fourth quarter. The Prosperity, a lot of that expense is going into the environment assessment panel.

Orest Wowkodaw – Canaccord

Okay. So that we should be anticipating something around CAD20 million of exploration then in the back half of the year?

Peter Mitchell

Yes.

John McManus

I think we’re CAD10 million [ph] now.

Peter Mitchell

Yes.

Orest Wowkodaw – Canaccord

Okay, thank you very much.

John McManus

Thanks Orest.

Operator

Thank you. Our next question comes from Mark Turner from Scotiabank.

Mark Turner – Scotiabank

Yes, good morning gentlemen. Thanks for taking my call. Few questions here, first on the throughput that we’re, I guess currently seeing in July under GDP2 and sort of maybe some of the costs associated with that. I was hoping you could give us a sense of some of the additional costs if there is any in terms of generating extra fines in the muck, and then just relating that to when you get the new grates in the mill with the 30 ports that are designed. Do you expect to see any sort of change in what you need to produce from the mine there, i.e., maybe or this is going to be variable I mean from the ore type and hardness, I mean you see that sort of come down and what sort of sense that we could get in terms of actual increase in costs in order to achieve the throughput going forward?

John McManus

Well Mark, you’ve pretty much explained it. We are – the grates are going in the next week to get the pebble ports but we’ve also opened up the grates themselves to 2.5 inch in order to be able to reduce what we’re doing in the pit, that’s what Russ was talking about continuing to optimize the mine to mill. Our blasting cost right now to take and reduce the 65% less than 2 inch is an expensive project to get that mill throughput. We believe the grates will let us back off that significantly. At the same time though, as I shared in our operating costs because of the additional haulage to keep the strip ratio up going into GDP3 is going to pretty much balance that out.

But what you’ll see is on an operating day basis we’re going to be hitting that 2,450 tons an hour in the mill which is the target and that’s where we need to be at going forward.

Russ Hallbauer

And I think we’ve got some extraneous costs Mark, some of the issues that we had in the winter time, we’ve had to spend considerable amount of more money on our deep well pump systems.

Mark Turner – Scotiabank

Right.

Russ Hallbauer

Systems to help dewater the pits, so we don’t get into the same situation we got into last year so that will be a onetime thing. We’ve like to have advanced the delivery of our production drill that would have helped with (inaudible) part of GDP3, so we’re stripping more where we don’t have the drilling capacity, so we’ve had to bring in some outside drill contracts help us break that muck because we got to keep moving. We’ve got to like John said, we’ve got to get our strip advanced so that when that hungry 30,000 ton a day mill comes up we’ve got to get (inaudible).

So there are some sort of – you don’t want to call them one-time event, because they are there for a while, and that are affecting our unit costs but we don’t believe that ultimately and that unit costs in terms of our cost per ton mine, we don’t believe those will be ongoing, it will be able to reduce those significantly into 2013. Do you want to say anything [ph], John?

John McManus

Yes.

Mark Turner – Scotiabank

Okay, perfect. Thanks for the detail. And I guess just my second question still really need to, I guess one line comment I think made in the MD&A just saying that you’ve given the guidance of 9 million tons to 9.5 million tons in process in the second half of the year with allowance for tie-in for GDP3. Just wondering if you could give us a sort of any sense of what’s actually being tied-in because I know there are separate concentrators obviously there is going to be some link between the two, but I am just A, if looking for a little bit of clarity, more just getting in the way of GDP or the current concentrator while you’re starting up in GDP3 or is that something more than that?

John McManus

No, the major time is, right now we’ve got two crushers and conveyor systems which feed the existing mill and we have to split that up so we’ve got one crusher/conveyor system for each mill and that’s going to take us upon a week to do that change over. The rest of it is separate.

Mark Turner – Scotiabank

Okay, perfect.

John McManus

It comes together again at the tails end but that’s a minor delay.

Mark Turner – Scotiabank

All right, okay, perfect. Still got a week for that. And then my last question, sort of entirely different here. In the quarter, you’ve made about CAD10 million investment into a private company, I guess looking at a copper moly project. Given that it’s private, are you able to get any sort of more details on that at this time?

Russ Hallbauer

No.

Mark Turner – Scotiabank

Okay. Thanks for address.

Russ Hallbauer

You’re welcome [ph].

Mark Turner – Scotiabank

And that’s all I had. Thanks gentlemen.

Russ Hallbauer

Thanks Mark.

John McManus

Let me know about that next year sometime.

Operator

Thank you. (Operator Instructions) Our next question comes from Steve Parsons from National Bank Financial.

Steve Parsons – National Bank Financial

Hi good morning, thanks for taking my call. In fact most of my questions have been asked, but a couple of things, just one the ramp up of GDP3, could you explain and maybe this question is for Peter, just what the plan is for I guess commissioning production on that and I guess when you would look to go commercial on that additional production, what’s the plan for accounting for the GDP3?

Peter Mitchell

Continuing to capitalize all of the existing costs as well as the pre-strip and all the stripping is going on right now as John talked about is being expensed at this point. So really it’s analogous to a large capital project, but not a sort of new startup type situation. So the commissioning process, we’re not going to be capitalizing initial costs related to that at this point Steve, or anything along those lines if that’s what you’re sort of wondering.

Steve Parsons – National Bank Financial

Yes, right. I mean it’s actually the question was what would the milestones be for recognizing revenue on the P&L, but it sounds like once you flip the switch, you’re going to be recognizing revenue and costs. Is that correct?

Peter Mitchell

Correct, yes.

Steve Parsons – National Bank Financial

All right. I guess the next question is just looking out, I mean just follow on Orest’s question on ramp up and really my question more is about steady state costs, I guess you’re looking at getting daily 5,000 tons a day based on the cost profile, you’re seeing right now and input costs as you see them, where do you see steady state costs, onsite and total cash costs settling out?

Russ Hallbauer

Go ahead, John.

Peter Mitchell

When you became [ph] operator?

John McManus

Well we look at the total cash cost is vulnerable to the foreign exchange rate, so right now we’ve got a pretty much of par exchange in that, that pushes our total operating costs up but onsite, we should be CAD1.50, CAD1.60, leaves CAD0.40 to CAD0.45 offsite, take us to around CAD2 steady state. And then we’ve got – the copper price ups down, so do all of our input costs and foreign exchange adjusts so we maintain margin plus, with Peter’s hedging it’s more about maintaining the margin. We do everything that we can to control those things that we control.

Steve Parsons – National Bank Financial

Okay.

John McManus

Does that answer the question at all?

Steve Parsons – National Bank Financial

Yes, it sure does. Thanks a lot gentlemen, it’s good. That’s it for me. Thanks guys.

Operator

Thank you. Our next question comes from Orest Wowkodaw from Canaccord.

Orest Wowkodaw – Canaccord

My question has already been answered. Thank you.

Russ Hallbauer

Okay.

Operator

Thank you. Our next question comes from Tom Bishop from BI Research.

Tom Bishop – BI Research

Good morning.

Russ Hallbauer

Good morning, Tom.

John McManus

Hi Tom.

Tom Bishop – BI Research

I recognized that you’ve learned a lot by all the tinkering with Phase II and that you’re nearing getting that humming, but it’s hard to get my mind around the ramp up being that much more successful with GDP3 that you could produce a 160 million ton – 160 million pounds of copper with GDP3 up and running in the first year out of, I think that’s a possible 180 million. So am I missing something here or maybe not hearing it right or…

Russ Hallbauer

Well Tom, if you look at it, this was just a Greenfield and we were –GDP3 was just a Greenfield site which we were starting like in the top of GDP2 a year ago. And you see GDP2 to get to where we are today, it’s taken us a year. If you look at chronologically on that graph that we put out in terms of, we started out with I think 1.5 inch discharge port.

Tom Bishop – BI Research

Yes, that’s right.

Russ Hallbauer

(Inaudible) inch grates, the smaller discharge ports, there were different types of lifters and you go through that whole thing and that is – it’s a mirror image of what we’re going to be doing on GDP3 ramp up. So when John puts in his grates into the new SAG Mill, he is going to have 3.75 inch port. He is going to have the grates that we’re installing here next week. He is going to have the same type of lifters that we have in our present SAG mills than (inaudible) mill. We’re going to have all those things to a large degree complete, therefore we understand what we they mean.

So we think we’ve been pretty conservative in the ramp up. Are we not, John?

John McManus

Well the other thing too Tom, is this is an identical SAG mill to the one that’s in GDP2. We’re pushing 55,000 tons a day through that. We’re only going to ask 30,000 tons a day from the GDP3 mill for now. Until if we add another ball mill, that SAG mill is designed to take 55,000 ton a day also, while we’re putting at it 30,000 [ph] so, we don’t see any issue with this SAG on GDP3 right on top.

This is going to be more of making sure fine tuning all of the floatation ball mill circuits which is not as difficult.

Tom Bishop – BI Research

Okay. Well that’s very exciting, I guess I’m hearing it right and just to be sure, the 160 million pounds is your expectation for 2013 not an exit rate or anything, right?

Peter Mitchell

Yes, that’s our expectation.

John McManus

Yes.

Peter Mitchell

And that will put up over a 120 million pounds or accounting 75%, John?

John McManus

Yes.

Tom Bishop – BI Research

That’s a good point, yes. Well that’s very exciting. It looks like we may be catching up to this scale [ph] here. Thank you.

John McManus

Thank you.

Peter Mitchell

Thanks, Tom.

Russ Hallbauer

Thank you. Well operator, if there are anymore – I don’t think there is any more questions. So folks thanks for joining us today and have a nice rest of the summer and we’ll speak to you in the fall. Bye-bye.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect.

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