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Executives

Roger S. Hendriksen - Vice President of Investor Relations

John Edward Andrews - Interim Chief Executive Officer, Director, Chairman of Health, Safety & Environmental Committee and Member of Compensation Committee

James M. Roller - Chief Financial Officer and Treasurer

Analysts

David Epstein - CRT Capital Group LLC, Research Division

Steven J. Green - TD Securities Equity Research

George Caffrey - GMP Securities, LLC

Tara Hassan - National Bank Financial, Inc., Research Division

James O'Malley

Jaguar Mining (JAG) Q2 2012 Earnings Call August 15, 2012 12:00 PM ET

Operator

Good afternoon, and welcome to the Jaguar Mining Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Roger Hendriksen. Please go ahead, sir.

Roger S. Hendriksen

Thanks, Rocco, and good morning, everyone. Thank you for taking the time to participate in our call today. We appreciate your continuing interest in Jaguar Mining. As you know, we distributed our second quarter earnings press release and filed our second quarter 2012 financial package last evening. If any of you have not had a chance to view these materials, they are available through the Investor Relations page of our website and on SEDAR and EDGAR.

The members of our management team who are participating on the call this morning are John Andrews, our interim Chief Executive Officer; and Jim Roller, our Chief Financial Officer.

Before we begin, I need to remind you that the statements made in this presentation which are not historical in nature are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on current factual information and certain assumptions which management currently believes to be reasonable.

Financial assumptions which management currently -- financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control.

Information concerning those factors is available on the company's annual report and other periodic public filings on SEDAR and EDGAR. With those formalities out of the way, I'll now turn the call over to John Andrews. John?

John Edward Andrews

Thanks, Roger. Good afternoon, everybody. Thank you for joining us today. As most of you probably already know, I first became involved with Jaguar when I was appointed as a director in November of last year. I have to tell you that my time here has been somewhat different than I had anticipated, and certainly, there was no expectation on my part of taking on the CEO role, interim though it be, when I first joined.

In January this year, I visited our operations in Brazil and was asked to begin an evaluation of the operational challenges we were facing at all the mines. Let me talk about safety first.

The best indicator of the effectiveness of operating management is the company's safety performance, and one of the metrics that can be used to measure that performance is the lost time incident rate. While every operation should commit itself to the objective of 0 harm, a lost time incident rate of 2 per million man-hours is typical for operations of this type. The incident rate at the Jaguar mines has been in the range 4 to 5 with 1 exception, 2009, when it was 2.6.

The major issue with such a high lost time incident rate is the message that this sends to the workforce, that being management is not concerned about your personal safety. This message is understood by the workforce and is reflected in poor productivity. Productivity at the Jaguar mines has declined at a compound rate of 14% per year for the past 3 years. All other things being equal, we would normally expect productivity's gains of 2% to 3% per year. So we are falling behind our competitors at the rate of nearly 20% per year.

During the January visits, I identified a number of serious concerns that impacted employee safety as well as productivity and profitability. Of most critical importance were ground control issues that were creating a hazardous work environment and greatly hampering productivity because of the need to support and then resupport the same excavation 2 or 3 times over. Accordingly, we engaged the best practical geo-mechanical expert I know to assist in developing a remediation plan, and together, we established the systematic geo-mechanical and support programs that we began to implement in May.

The next issue was the size and shape of the excavations. Ore -- the ore bodies tend to be on the order of 2 to 3 meters in width, but the development ends in the ore horizon were being driven 5 meters wide. The size of the development headings is being reduced from 5 meters to 3.5 meters, and thereby we will reduce our dilution in these ends from 100% to 40%. Additionally, the shape of the development ends in the ore horizon has been changed from square insection to trapezoidal to conform with the depth of the ore bodies, thereby eliminating the past practice of compromising the integrity of the hanging wall of the ore body during stope development. Compromising the hanging wall during the development phase leads in turn to ground control and support issues throughout the stoping phase.

In summary, the remediation plan begins with a focus on employee safety. The roof and ground support issues were creating a hazardous work environment, which, in my judgment, makes it difficult to motivate a productive workforce. This was the first issue we had to resolve.

The less-than-desirable roof and ground conditions are directly related to the mining techniques which were employed, which employed very large and inappropriately configured excavations in the ore zone. These excavations not only made it more difficult to establish proper ground support but also creating excessive dilution. Thus, we get a double whammy, impacting productivity and profitability. As we move forward, the focus will absolutely be on improving safety and work conditions.

A close -- the close relative of a safe work environment is good housekeeping. My considered opinion is that the housekeeping, particularly in the maintenance department, is poor. Not surprisingly, lost time incidents and treatment [ph] return incidents in the maintenance department are high relative to other departments where we have already established that the record is poor. The rest of our operational improvements will stem from a focus on addressing these 2 issues. Smaller scale excavations will enable us to dramatically improve ground and support costs in the mines, creating a safer work environment. We are already beginning to see the benefits of these changes even in the early stages of implementation.

The next step in our restructuring and turnaround plan will be to focus on productivity by aligning our manpower levels with production levels. Last week, we announced the completion of the first phase of this process, which included the reduction of our total workforce by more than 650 people, including placing the Paciência operation on care and maintenance. The resulting cash savings from these changes are estimated at more than $31 million annually.

Phase 2 of our program will focus on the levels of production personnel at Turmalina and Caeté. We believe that the new mining methodology that we are employing in both operations will enable us to maintain or increase production levels with fewer people.

Getting the staffing levels right will be an iterative process which will not be complete until sometime mid- to late next year, but we have made -- we will have made substantial progress by the end of this quarter. Likewise, the full implementation of the smaller scale mining methodology across all our operations will not be complete until mid-next year as we await delivery of new equipment from vendors, which we are attempting to accelerate.

At present, there is no definitive time frame for the re-engineering and recommencement of production at Paciência. The mines and plant will remain on care and maintenance until such time as Turmalina and Caeté are generating sufficient free cash flow to make further investments at Paciência practical.

As our results in the second -- as for our results in the second quarter, there are a couple of highlights that I think are worth mentioning. At Turmalina, our average cash cost per ounce declined by 16% when compared to the first quarter of the year. This was driven mostly by reduced dilution, which is a direct result of implementing the new mining methodology as we developed 6 Level in Ore Body A.

Average cash cost per ounce at Caeté decreased by 15% when compared to the first quarter of this year. The improvement, again, was driven by reduced dilution and increased ore production, both of which were largely attributable to the implementation of the new mining methodology.

We recognize that one quarter of improvement does not constitute a trend. We also acknowledge that we have a long way to go before we reach our cost reduction targets. But the early stages are encouraging, especially in the light of the early stage of the implementation. The early results, I mean, are encouraging.

Now let me turn the call over to Jim for a discussion of the highlights of our financial results, and then I will return and discuss a little further where we go from here. Jim?

James M. Roller

Thanks, John. Good afternoon, everyone. For the second quarter of 2012, Jaguar reported a net loss of $16.4 million or $0.19 a share. This result includes: a $57 million unrealized noncash gain on the conversion option embedded in convertible debt; a $7.7 million loss from a change in foreign exchange rates between the dollar and the real, primarily; and a $47.7 million impairment charge on the assets of Paciência. Excluding these items, Jaguar's second quarter results would have been $18.4 million or $0.22 per fully diluted share.

The loss was driven largely by lower production volume while headcount levels remained high through most of the quarter.

During the quarter, our operations consumed $18 million of cash, leaving a balance of $32 million at the end of June. It is notable that we were able to reduce the cash consumption rate significantly during the quarter as compared to the prior 3 quarters, and this has continued in July. We are, of course, monitoring all our cash expenditures very carefully. Based on our current forecasts, we expect to reduce the rate of cash consumption even further in Q3 and to be slightly cash flow positive in Q4. We're forecasting a cash balance of approximately $20 million at year end. We have no major debt repayments required until late in 2014.

The year-end -- the forecast of year-end cash at December 31, 2012, that I mentioned previously of $20 million is lower than we had projected at the end of Q1, largely as a result of the lower forecast production and gold sales for the year as a result of the shut -- the -- of putting Paciência on temporary care and maintenance.

While we do not presently believe we need financing, we are looking at a number of ways to raise short-term cash as a backstop in case we experience an unforeseen event. These are the major issues I wanted to cover, so now I'll turn the call back to John. John?

John Edward Andrews

Thanks, Jim. I guess to wrap up, I would like to say that our operations did not get into such difficult circumstances in just a quarter or 2, so it would seem unreasonable to expect that the turnaround could be effected in just a couple of quarters. What I can tell you is that we have identified the major issues facing the company. We have developed sound plans to fix the problems, and we are well on our way to implementing the turnaround plan.

The cost savings we identified in our press release last week are just the beginning. The real benefits from our remedial plans will come when we fully implement the smaller scale mining methods at Turmalina and Caeté and ultimately reopen the mines at Paciência using the same approach.

Following our weak production in the first half of the year, we now expect full year production in the range of 110,000 to 120,000 ounces of gold. We are expecting average cash costs of the -- in the range $900 to $1,000 per ounce for the full year, which would imply significantly improved costs in the second half of the year. In 2013, we expect even further cost improvement with average cash cost per ounce forecast in the $600 to $700 per ounce range when our cost reduction program and new mining methodologies are fully implemented.

As Jim said, we are forecasting a year-end cash balance of approximately $20 million. Of course, we'd like to have more cash on hand, and we'll move toward that objective by imposing a tight and ruthless fist. I can assure you that we are doing everything we can to conserve cash while we restore profitability in our operations. I am personally reviewing every expenditure, and we'll not spend $1 without proper justification and my approval. The good news is that we believe we will be in a position to generate positive cash flow in each quarter of next year.

Now this concludes our prepared comments. And now I would be happy to address any questions which you might have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from David Epstein of CRT Capital.

David Epstein - CRT Capital Group LLC, Research Division

Did you indicate that as -- there were delays in getting some of your small-scale equipment from vendors? And what would be the cause of such delays?

John Edward Andrews

The delay is that most equipment manufacturers have an order book on hand, and we join the queue at the back of it when we place an order. Our leverage is that we have quite a few items of equipment which we wish to purchase, so we have the opportunity to discuss with the equipment vendors the opportunity to jump the queue. But it's -- all equipment vendors, it doesn't matter who, all equipment manufacturers, whether it's a Caterpillar or anybody else, they have an order book and, just the same as Boeing, has an order book which goes out for 4 or 5 years. And we join the queue to start with, and then we negotiate our way up the queue.

David Epstein - CRT Capital Group LLC, Research Division

Okay. The other question is -- well, back to that question. When you originally sort of announced your plans, did you expect the order books to be a little shorter or that you'd have a little bit more leverage? Did that contribute in a big way?

John Edward Andrews

We actually expected the order books to be longer. We're already getting -- we're getting deliveries of some items of equipment already. And some of the equipment manufacturers have reconditioned equipment on hand, which we were able to take and use, and then we'll give that back to them when they have a new equipment available for us.

David Epstein - CRT Capital Group LLC, Research Division

Okay. All right, so if that wasn't necessarily a major contributor to any sort of rebound in production delays relative to maybe what you expected in May, maybe you could just go over some of the other things that caused you to revise your 2013 forecast. And then I'd also like to ask, you sort of indicated in your press release that longer term, you'd like to get back to 150,000 ounces. So separate from the 2013 reduction in guidance, why even longer term at 150,000? Are we lower than, I think, 170,000 to 190,000 that you were given in May?

John Edward Andrews

Let me answer the second piece of that first. My assessment of the productive capability of the Paciência mine is somewhat lower than some previous forecasts you might have been provided with. Paciência ore body is different from Turmalina ore bodies as it different than Turmalina and Caeté. In as much as at those 2 operations the depth is on the order of 70 degrees, so you have gravity working substantially with you. The depth at Paciência is on the order of 40 degrees, which means that you don't have gravity assisting you with your mining operations to the same extent. We also have a situation at Paciência where the variability of the ore body is greater than at either of the other 2 operations. So that requires more drilling, and it also provides for a -- less production per unit of stripping [ph]. So my best judgment is that the productive capability of the Paciência operation is somewhere on the order of 30,000 to 35,000 ounces per year. The productive capability of the other operations is on the order of 50,000, 55,000 ounces per year.

David Epstein - CRT Capital Group LLC, Research Division

What were you guys previously -- no, that's a good answer. What were you previously assuming in May for Paciência?

John Edward Andrews

All 3 operations -- well, I wasn't assuming anything, by the way. The previous projections were that these -- all 3 operations could deliver on the order of 50,000 to 70,000 ounces per year, which would, in the longer term, give you a productive capability of 200,000 ounces per annum. I believe that those estimates are robust.

Operator

Our next question comes from Steve Green of TD Securities.

Steven J. Green - TD Securities Equity Research

To start off, this quarter, you had a $6.3 million cost of goods sold adjustment, which, I guess, was partially related to Paciência inventory and idle capacity. I wonder if you can tell us if you expect any of those charges going forward.

John Edward Andrews

Thanks, Steven. I am going to hand that question straight to Mr. Jim Roller, our CFO.

James M. Roller

No, we don't expect those types of charges going forward. Of course it's possible, but we believe that we have taken -- we've gone through everything very carefully, especially at Paciência, given that it was going to care and maintenance. So we don't expect any of those charges going forward.

Steven J. Green - TD Securities Equity Research

Okay, great. And then secondly, I appreciate the candid disclosure we've got on this call in terms of operations summary. I think we've rarely had in the past. Well, looking at your projections, you're looking at having $20 million by the end of the year, which I guess is possible, but this is a mining business and things are unpredictable. Jim, you mentioned you were looking at -- so you have financing in case you needed it, and it's very -- I think very possible in my mind that, that happens. Can you elaborate on what that financing would be?

James M. Roller

Well, we're looking at a number of alternatives, Steve, and we don't have -- we haven't identified the alternative of choice at this stage. We've got a number of institutions and potential financing partners that we're talking to, and we're -- as a practical matter, we're looking at something to the order of $20 million to $40 million in terms of a range of financing. But going back to the potential optimism of our estimate at -- of $20 million at the end of the year, we think that that's realistic and not optimistic because of the amount of focus we've put on our cost reduction program and our turnaround program, both -- starting at the admin cost level, where we expect to achieve reductions by $11 million to $12 million over what we spent in admin in 2011, as well as nondirect operating costs in the operations as well as direct costs in the operations, which, as we've said earlier on the call, we'll take -- some of which we'll take all the way into next year. But the admin, we expect to achieve the admin reductions all within this year. As we had said in our press release earlier this week, we've already achieved 1/3 of the admin cost reductions and another third of those in admin. And then another third of those reductions will be -- are almost done. They'll be done within the next couple of weeks, and then the final third of those reductions will be done end of third quarter or early fourth quarter. So -- and the efficiencies and great improvements, together with further cost reductions on the operating side, we believe that it is realistic that we will have a cash cost of somewhere around an average in the second half of the year of $800. We think that that's realistic. But we don't see the $20 million as being optimistic. But to be cautious and conservative, we are looking at the backup plan. I hope that answers your question, Steve.

Steven J. Green - TD Securities Equity Research

Yes. No, that's fair enough. I -- there certainly already has been some progress on reducing overhead costs, and we see that clearly. Lastly, on the debt -- the current, I guess, bank indebtedness that you have, can you describe what that is and if there's any short-term payments coming from that? And is there any scope to potentially increase that, the size of that?

James M. Roller

Most -- that debt is Brazilian-based debt, which has a short tenor and generally rolls over. We're looking -- that is certainly one of our focuses, is on whether we can extend that and use that as one of the -- as a financing alternative. We're also looking at other options, which are over -- which would be in North America as opposed to Brazil.

Steven J. Green - TD Securities Equity Research

Okay. And what's the approximate interest rate on that debt?

James M. Roller

It varies, but it's somewhere -- I think it's about 7%, 7% or 8%.

Operator

Our next question comes from George Caffrey of GMP Securities.

George Caffrey - GMP Securities, LLC

Relative to raising additional liquidity and the like, have you given any thought to selling certain assets? Is that part of your scope of opinion? Scope of what you're looking at?

John Edward Andrews

I'll deal with that. Thanks, Jim. We have had several approaches on the -- our group here since -- and we will consider them as we move through time. The interest level in the group, we guess, it is quite high, specifically given the increase in resource, which we have just published not 2 weeks ago, I think. So my answer to your question is yes, and we are taking note of expressions of interest from third parties, and we will diligently review them and then make a decision.

George Caffrey - GMP Securities, LLC

Also, getting back just for a moment to the number of restructuring items that you've -- that you're putting in place. I understand that you expect to be at a run rate of somewhere in the neighborhood of $800 operating cash cost per ounce by the end of the year and then further reducing that by $200, $300, or $200. And it's -- and that being the case, could you perhaps break out where precisely those improvements are coming from?

John Edward Andrews

George, the -- we were -- Jim has already talked in some detail about the reduction in -- through G&A costs. We've also got G&A noses, or had at the beginning of the quarter, of 231 from the operations. These are chaps who don't actually move any bit whatsoever. That number, we have identified a reduction spend on the order of 120 already, and I believe it's going to go further than that. I also had talked about, earlier on, the loss in productivity, which we have seen over the last 3 years, and the growth in the workforce for no additional production. Now we can contemplate increases in manpower as depth of the operations increases. And this increase in manpower would be people like truck drivers and maintenance personnel to service those trucks. But the increase which we've seen in headcount has been way out of proportion to the increase in depth. So it's my judgment that we can reduce the manpower at each of the operations by -- on the order of 20% and see no decrease in production whatsoever. So that's one source of cost reduction. The second source is in our materials costs. The cost of supporting an excavation goes up as the square of the width of the excavation. And so reducing from a 5-meter-wide excavation to a 3.5-meter-wide excavation, well, you can do the math, and the cost goes down in that proportion. And secondly, supporting excavations in the fashion that we have done historically, where we support them and they collapse and we re-support them and they collapse and we re-support them again, leads to massive productivity debits as well as increases in costs. So these are areas where -- and I believe, envision, that we'll see a reduction in materials costs of approximately 20%, partly because of reduced support costs and partly because of reduced labor costs. Because when you have people on the payroll, they spend money just by the virtue of the fact that they're sitting and breathing every day. So I don't think a reduction in -- of 20% in materials costs on the mine is -- on the mines is unreasonable. So that's where we're going to get our savings from. And as we said earlier, this is an iterative process, and we'll reevaluate it after we've gone through this -- the first 3 rounds, and thus see where we go from there. Does that help, George?

George Caffrey - GMP Securities, LLC

Very much. So a significant component is the overstaffing, as -- it's not all coming from recoveries, increased recoveries.

John Edward Andrews

You mean recoveries? Okay, perfect.

George Caffrey - GMP Securities, LLC

To improve recovery.

John Edward Andrews

Yes, thank you.

Operator

Our next question comes from Tara Hassan of National Bank Financial.

Tara Hassan - National Bank Financial, Inc., Research Division

In terms of Paciência, you noted in the MD&A it's about $1.6 million a quarter for care and maintenance. Are there any additional costs to complete your review for the drilling and updated mine planning that we should be modeling over the next 18 months?

John Edward Andrews

Okay, let's -- Tara, that's a -- hit the first one -- the first number off the bat. $1.6 million is a number which I haven't had the opportunity to take an axe at yet. I believe that, that is a wee bit on the fat side. So that's subject to review. Paciência was mining from hand to mouth when we put it on care and maintenance, what I call mining by Braille. We were feeling our way around the ore body using tunnels rather than having a clearly identified program of drilling ahead of development and then drilling from development to identify where the ore body is, its width, its configuration and its grade. We have done some engineering work on what it would cost in order to bring that up to snuff. And I think we reported in the MD&A a number of -- $20 million in order to do the necessary drilling and necessary development in order to have a sufficient quantity of resources available for mining so that we can get production at a sustainable rate once we start up again. But at the moment, at Paciência, we are doing none of that work, and we won't do that work until we have the cash available from current operations to fund it.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay. And just turning to Turmalina and CTX, you -- there is a comment about normal sustaining CapEx for these projects. What do you think is a reasonable assumption to make to cover your development costs and other sustaining costs?

John Edward Andrews

Jim, you want to take a hack at that?

James M. Roller

Yes, I'll try to take a hack at that. Our sustaining capital costs are -- excuse me, Tara, are about 50% of our CapEx that we've reported.

Tara Hassan - National Bank Financial, Inc., Research Division

In Q2, you're saying?

James M. Roller

In the numbers that we have projected for the balance of the year.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay. And that's a steady level that you'll be needing on an annual basis, then?

James M. Roller

Yes. That's a -- that's the best forecast I can do.

John Edward Andrews

You'd -- sorry, you've got a number of components which go into that sustaining capital. One of them really isn't sustaining capital at all, it's development, which is required in order to sustain operations. When I look at development, I regard it really as an operating cost. It's something you have to do in order to maintain a reasonable level of developed reserves ahead of your operations. Then the next component of sustaining capital is what you need in terms of equipment replacement. And the sum of those 2 at the moment, I think -- what have we got, Jim? $20 million for the second half of this year?

James M. Roller

Yes. $20 million -- well, we said $20 million to $25 million.

John Edward Andrews

Right. So that's as good an estimate as I can give you at the moment, Tara. But if -- on a go-forward basis, you -- we -- once we get these operations at what I call steady state, there will be a defined amount of development that you need to do on a regular basis to sustain your reserves at the 12 to 18 months of developed reserve in front of you. And then there'll be a defined amount of capital required in order to replace equipment, and we need to look at that in some detail once the operations get into a steady-state condition.

James M. Roller

Yes.

Tara Hassan - National Bank Financial, Inc., Research Division

And just touching on sort of CapEx that you saw in Q2, what drove the lower CapEx in the quarter, given that there's still quite a lot of work to do to get your operational improvements and get development headings ahead of you and correctly addressed in terms of geometry and ground support?

John Edward Andrews

There has been a campaign of examining every single proposed capital expenditure and making people justify it. And by justifying it, I mean an economic justification for the expenditure. What's the return going to be to the company? And when you interrogate expenditures in some detail, you will be surprised how many of them go away.

Tara Hassan - National Bank Financial, Inc., Research Division

Fair enough. But, I mean, it certainly sounds like you...

James M. Roller

Tara, excuse me. Just to supplement what John said, on the -- on your first question about stay in business, our mine development -- when you're modeling, our mine development would be something like 60% of stay in business, and -- like in general terms and planning purposes. But what John is saying is when you -- if you look at the second quarter and you look at our reductions in CapEx, they were at the improved -- what we call improvement replacements, like equipment and that type of stuff, which John was looking at every single item of spending and proving it on item by item basis. So the savings were in the improvement replacements and not in mine development.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay, perfect. I mean, it certainly sounds like you've gone over things with a fine-toothed comb, John, both yourselves and the guys of the operations. But I'm just having a hard time getting to how you can get to your $900 to $1,000 cost guidance for the year, assuming that's on a full year basis, which you indicated earlier. So given that Phase 3 isn't going to be into full effect until 2013, how else can you drive costs substantially lower? You'd have to be averaging costs of about $800 in the second half of the year here.

John Edward Andrews

Labor. The labor cuts will be done by the end of the third quarter.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay. And will you -- maybe...

John Edward Andrews

So we've got another 300 to 350 noses to come out of this thing. It's a...

Tara Hassan - National Bank Financial, Inc., Research Division

And what's the response at the mine level been, John, to those cuts?

John Edward Andrews

Well, you do what you have to do, and it's a matter of explaining it to the -- by the way, I'm going through this in Southern Africa as well, where we're also cutting noses. It is an interpersonal explanation with the workforce that these things are necessary in order to bring this operation to profitability. So you'd -- we have no choice in the matter. Also, let's face it, we perhaps haven't been as ruthless as we should have been with regard to increases in labor over the last couple of years. So it's -- every operation has to go through this sort of housekeeping every 2 or 3 years. It's just a part of the business cycle as far as running a mine is concerned.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay. And maybe a question for Jim on those reductions. Are there any forecasted charges that you'll be taking in the second half of the year related to the staffing reductions at both corporate and mine level?

James M. Roller

Yes, we've already taken a number of severance charges, and we anticipate -- especially with Paciência. And we anticipate future charges, but they're not as significant as what we've already taken.

John Edward Andrews

And Tara, they're not as bad as you were -- might expect if you work in a North American environment. We pay 30 days. We pay 30 days, and this is the law. It's very clearly defined in Brazil, what the law is, and it's 30 days. And you can either ask the employee to leave the property immediately or ask them to work out their 30-day notice period. Correct me if I'm wrong, Jim.

James M. Roller

That's correct, John.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay. And just one last question on the small scale -- addition of the small-scale equipment next year. What are your projections, John, on CapEx required for that?

John Edward Andrews

Well, I had that number off the top of my head and now I don't know it anymore. Can I get back to you on that?

Tara Hassan - National Bank Financial, Inc., Research Division

Yes, definitely.

John Edward Andrews

We do have a number and I'll get it to you.

Tara Hassan - National Bank Financial, Inc., Research Division

Okay, appreciate that.

John Edward Andrews

Unless you've got it off the top, Jim?

James M. Roller

No, I'm like you. Could we -- in trying to accelerate it, Tara, we've been changing which year we're expecting to pay. And then that's what -- that's where John and I are both kind of drawing an immediate blank. But we'll get back to you.

Operator

Our next question comes from Steve Green of TD Securities.

Steven J. Green - TD Securities Equity Research

So one more follow-up question in regards to management. Obviously, there was a press release out in June discussing the potential resignation of John, yourself, and Gil Clausen and Gary German. Just wondering where that process is if in fact the 3 expect to be leaving the board. And John, in your case, is it your intention to continue to be CEO if you do leave the board?

John Edward Andrews

Sorry, come with that last sentence again, Steve.

Steven J. Green - TD Securities Equity Research

Is it your intention to remain as CEO even under the circumstances where you resign from the board?

John Edward Andrews

Well, as you know, you started off the intro with the 3 directors who have tendered their resignation. As -- and as you know, I'm one of them as interim CEO, and I'm directing and will continue to direct the cost cutting and operational improvement program which I have outlined to you. The resignations of the directors have been tendered to the board, and the board has gotten 90 days to consider those resignations and presumably identify who should be qualified board candidates as possible replacements. And I'm not going to speculate on what might happen, but I shall continue to pursue the task which is in front of me diligently until the Board of Directors advises what their decision is with regard to the future composition of the board. But there's a 90-day period, and there's a process which the board is going through, and they will share that when they come to a conclusion. I'm afraid I can't be -- I'm not going to speculate about it, Steve, and that's the way it is.

Operator

Our next question comes from James O'Malley of Outrider Management.

James O'Malley

Just going back to the capital spending program, I see there's about $2.7 million of other spending. Where is that being used for the full year 2012?

James M. Roller

Yes, I...

John Edward Andrews

Sorry, come with that again, James? And it's probably a question for Jim, but come with it again. I didn't hear.

James O'Malley

It's about the capital spending program. You have other spending as one of the line items. And for the full year 2012 estimate, there's $2.7 million to be incurred. I was just wondering where that is actually being used. Is that the Pedra Branca project or...

James M. Roller

That's [indiscernible] -- Pedra Branca is in -- is not in there. There's some [indiscernible] -- there's a lot of small things. I could -- I'll have to send you a -- I'll send you a breakdown.

Operator

Our next question comes from Keith Bergler [ph] of KAB Sales [ph].

Unknown Analyst

Recently, the company received the letter for delisting from the exchange. And can you tell us what is the plan to either get the value of the stock up above the delisting amount? And even today, with the stock down from -- anywhere from 7% to 15%, what is the plan to get the share value up? Or is there a plan to do a reverse split? And then I have a follow-up after that.

James M. Roller

I can talk...

John Edward Andrews

The plan to get the share price up, Keith [ph], is to make reasonable forecasts of what we can do and then execute. We have a credibility to establish, and that's just what we'll do and the share price will follow when we perform. Exchange rules, if I'm not mistaken, require us to rectify this within 6 months, and I think there's no reason why our performance shouldn't justify a higher share price on a go-forward basis when the -- our results are clear to the investing public.

Unknown Analyst

Okay, I appreciate that answer. At this time, there's no movement to do a reverse split to get the share value up?

James M. Roller

I'll take that, John. There's -- that's an option that we have, but that's a second option. And the -- what the strategy that John described is -- that's our first approach. That's what -- and that's what -- we believe that will be successful.

Unknown Analyst

Okay. I hope so.

John Edward Andrews

As a general matter, Keith, I've never known a reverse split to be very successful.

Unknown Analyst

Neither have I. I hope that that's not the case. But the final question I have is there's been much speculation and rumors of potential buyouts and solicited and unsolicited offers. Are there any offers being solicited at this time for the sale of the company? Or are there any unsolicited offers that you're aware of that are coming forth?

John Edward Andrews

I think the so-called special process, which we went through between December and probably May, has been adequately documented in the press where -- but in our news releases. And I'm not going to speculate on anything which may or may not be out there. If anybody makes a proposal to us, we will evaluate it appropriately, and we will write -- make a recommendation to the shareholders depending on what we -- the results of our evaluation. But I can't speculate on who would, who should, who might be out there who might be interested in making -- that's a fruitless exercise, and we're not going to get -- go there.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any final remarks they may have.

John Edward Andrews

Thanks, Roçco. Ladies and gentlemen, I'd like to thank you for listening to us today, giving us the opportunity to explain to you what our plans are and how we intend to execute on them. And I look forward to -- well, maybe is it 3 months time? It's more 90 days, isn't it? Anyway, I look forward to helping to produce those results, and I firmly believe we will be successful. Thank you very much for listening.

Operator

And thank you for your time, sir. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

John Edward Andrews

Thanks, Roçco.

James M. Roller

Thanks, Roçco.

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