Allied Nevada Gold Corp. Q1 2010 Earnings Call Transcript

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Allied Nevada Gold Corp. (NYSEMKT:ANV) Q1 2010 Earnings Call Transcript May 11, 2010 11:00 AM ET


Tracey Thom – VP, IR

Scott Caldwell – President, CEO and Director

Hal Kirby – EVP & CFO

Dave Flint – VP, Exploration


Brian Christie – Desjardins Securities

Mike Kozak – Cormark Securities


Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Allied Nevada first quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Tuesday, May 11, 2010 at 11.00 A.M. Eastern Time.

I will now turn the conference over to Ms. Tracey Thom, Vice President, Investor Relations. Please go ahead.

Tracey Thom

Good morning, everyone and thank you for joining us today for Allied's first quarter update conference call. Before we begin this call, I would ask listeners to go to our website at, click on the button on the left-hand side of the homepage titled Q1 2010 Earnings and Conference Calls and download a presentation which will accompany today's discussion.

On the call, Scott Caldwell, President and CEO; Hal Kirby, Executive Vice President and CFO; and Dave Flint, Vice President, Exploration will discuss the results of the first quarter press release issued May 10th and explain recent events at Allied Nevada, which have been discussed in previous press releases in the last few weeks and in the company's most recently filed NI 43-101 Technical Report dated April 1st and filed with CEDAR and located on our website. All of these documents can be accessed on our website at and have been filed with CEDAR.

Following the presentation, we will open up the call for any questions. Please note that certain statements we may make during this call may contain forward-looking information. For additional information, I refer listeners to the cautionary statements regarding forward-looking information contained in our press release dated May 10th and on slide two of the presentation given today.

I'll now turn the call over to Scott Caldwell.

Scott Caldwell

Thanks, Tracey. I'm going to spend a few minutes talking about the first quarter on the production side of things. Basically, we had a pretty good quarter, very happy with the performance, the credit to the General Manager out there, Warren and his team and the men and women in the field. Slightly exceeded our expectations on gold production and silver production for the quarter, producing about 23,000 ounces and selling a little over 20,000 ounces of gold.

Some interesting notes that are mentioned in our press release, but our gold grade continues to be higher than what we expected; the same with our silver grades. And that's not we are mining where we said we are going to mine, it's just that the function of the model appears to be understating both gold and silver grades, hence contained metal.

Silver, we are not really surprised, because silver, we only have assays on about 50% of the material we are mining right now, i.e., the entire resource proven and probable. So the grade has been a pleasant surprise and we expect that trend to continue for the rest of the year.

On to slide five, probably the most important thing and the thing that we watch is how is the pad performing, how are our solution grades behaving, and our solution grades are averaging a little bit better than what we thought, about 5% higher than what we thought for year-to-date; that means more gold. So the pad is performing the way we thought, recovery looks like it's going to be right around 56.6% for gold and something north of 10% for silver.

Silver leach curve takes twice as long, so almost two years to get the ultimate silver recovery and we've only been leaching for about a year now on a commercial production basis. So silver is going to be a while before we really know how it's behaving, but it's certainly going to be about 10% or greater.

Cost per ounce, $387. Can't say how pleased we are with that number, a function of short hauls, et cetera, better efficiencies than we planned. I mentioned the gold and silver grades are a little higher than what we thought, which is great. Lean pumping system, essentially that's allowing us to start stacking solutions. We have enough surface area under leach now. Stack solutions, you improve your solution grades; higher solution grades means more metal.

A result of a continuous improvement effort out there at site was a minor modification to the Merrill Crowe plant. Basically, installing a larger vacuum pump allowed us to increase the throughput rate of the plant from 2,900 to 3,400 gallons per minute. We are hoping that that will help us draw down inventories, i.e., produce more metal.

Leach pad is on expansion. The first – the leach pad expansion is on schedule and budget, should be completed, and we should be stacking ore on it, we hope in June, somewhere near the end of June. The mobile crushing unit, the first of three, perhaps four, arrives in early June and will begin crushing ore sometime later in the month of June.

Well, summary, really good quarter on the operating side, no safety incidents, no environmental incidents, so a real credit to the men and women out there. Things are starting to fire on all cylinders.

And with that, I'll turn it over to Hal and Hal is going to talk a little bit about financials for the first quarter.

Hal Kirby

Thanks, Scott. I will be talking to the income statement, which is on slide number seven to start.

Total revenues were $23.5 million on sales of 20,439 ounces of gold and 50,937 ounces of silver. During the quarter, we realized a gold price of $1,108 per ounce, which is virtually the same as the three-month average on the London markets.

Cost of sales per ounce of gold sold for the quarter was approximately $430 before the byproduct credit and $387 once we consider the silver byproduct credit. These costs were lower than our – than we had expected for the reasons Scott mentioned, but also due to the 8% gold gain that we are experiencing when we compare it to our block models and the sale of lower markdowns [ph] from our heap leach and metals inventories.

Stripping costs were $517,000 for the quarter and we are in line with expectations. These stripping costs relate to a small pushback that we did in the Brimstone open pit during the quarter.

Depreciation and amortization expenses of $1.3 million in the quarter were in line with our expectations. With the release of our new reserve update at the start of the second quarter, the portion of our depreciation that is counted on a units of production basis is going to decrease going forward as it will be amortized over a – the larger reserve.

During the quarter, we spent $6.2 million in total on exploration activities, $3.9 million of this amount being expense. The remainder of the exploration spending was capitalized because there was mine development drilling that was associated with our proven and probable reserves.

Corporate general and admin expenses were $3.7 million for the quarter. The year-over-year increase is associated primarily with the addition of people that we are adding to our Technical Services group and the related spending to start the engineering, planning, and permitting of future expansions.

Income tax expenses for the quarter were $1.8 million. $1.6 million of this total is related to deferred taxes, which is the use of our net operating loss carryforwards and the remaining $200,000 is alternative minimum taxes. For the quarter, we reported net income after taxes of $3.7 million, which represents $0.05 per share on both the basic and fully diluted basis.

Continuing on to the cash flow statement, which is on slide number eight, cash flow from operations before accounting for changes in working capital was $7.4 million. After factoring in the working capital changes that resulted from the buildup of the metals inventories and the leach pad inventories, our cash flow from operations was $842,000.

Investing activities during the quarter required $6.5 million of cash. Included in this balance were total additions to plant and equipment of $3.2 million. The majority of this spending related to the construction of the current year's leach pad expansion.

As I discussed, we incurred mine development costs of $2.4 million related to mine development drilling to further delineate our proven and probable ore reserves, and also included in the investment activities is a $918,000 increase in restricted cash that's required to post additional bonding for our current mine operations.

Cash flow from financing activities was virtually unchanged with inflows from the exercise of stock options being offset by normal outflows of cash related to payments on our capital leases. At March 31st, we ended the quarter with $85.9 million in cash. None of this balance is invested in asset-backed commercial paper.

With that, I would like to turn the call over to David Flint for our exploration update.

Dave Flint

Good morning, all. Please turn to slide 10. Approximately 78,000 feet of drilling in 100 holes were completed during the first quarter of 2010.

Please turn to slide 11, which is a plan view of the Hycroft project area. The first quarter drilling was directed towards completion of the Bay Area resource infill and metallurgical sampling program, Vortex phase 2 step-out holes, Brimstone resource infill holes, and exploration north of the Cut 5 zone. Drilling was primarily designed to convert and expand the known resources.

Silver assays, as Scott mentioned, are lacking over approximately 50% of the total area as shown in orange on this map. Holes have also been designed and drilled therefore to solely increase the silver data set.

Highlights of the first quarter exploration results include identification of a zone of oxide and sulfide mineralization at a depth of approximately 350 feet in the east wall of the central pit. This zone is just north of the Cut 5 label that's shown on the map. Also, we intersected additional high-grade gold and silver mineralization in the Vortex zone as reported in the press release last week. These intercepts are in proximity to the high-grade mineralization reported in our January press release.

The next slides will focus on the Vortex zone, which is located in the southeast sector of the property. So please turn to page 12, which is a plan view of the Vortex zone. The orange area on this map shows the subsurface distribution to the Vortex rock package, the red area is the general projection of greater than 1 gram per ton gold equivalent mineralization, the blue zones are the interpreted projections of high-grade mineralization, and the yellow zone to the east outlines the Vortex near-surface gold mineralization that occurs along the East Faults.

The drill holes shown in this view are those that have intersected high-grade mineralization. Results for all 2010 drilling have recently been posted to the ANV website. I'd like to point out hole 3848, which was discussed in the press release issued last week. This hole is important as it extends known Vortex-style mineralization at least 250 meters northward. The 440 – the 41 meter intercept includes 14 meters grading 5.54 grams per ton of gold equivalent. 3659, the second hole discussed in last week's release, is located in the northwest sector of the Vortex zone. The three holes with high-grade intercepts released in January, 3768, 3708, and 3656, are also shown on this map.

The line for the cross-sections that follow cuts through the middle of the view as noted. This cross-section to the Vortex zone has the same color coding and approximate scale as the plan map we just reviewed. Mineralized intercepts for the hole shown on this section are tabulated to the right.

I'd like to highlight hole 3659, which is located in the western half of this section. I believe that 3659 is the best drilled in the property and that it validates the significance of the Vortex zone to Hycroft. The hole has a 172-meter primary interval mineralization, grading 3.4 grams per ton gold equivalent. The primary interval includes two high-grade intercepts, which are enclosed by 0.5 to 2 grams per ton equivalent mineralization and there is an additional 150 meters of lower-grade mineralization of the hole. You can see that 3659, along with holes 3708 and 3656, define a region of significant Vortex mineralization.

Hole 3258 located to the west intersection was also drilled in the first quarter. The 3258 results are important as there is now sufficient data to define the Vortex package of rocks in the structural block between the Break and Albert Fault zones. Drill results in this block include that for 3768, for which high-grade mineralization was reported in the January press release. Recognition of mineralization in this structural block opens up significant exploration potential along strike to the north and south.

Please turn to slide 14. This slide is the same drill section, now displaying the higher-grade intercepts. The primary 3659 intercept includes a 32-meter interval grading 9.11 grams per ton gold equivalent. This intercept, along with the high-grade intercepts in 3708 and 3656, show a zone of high-grade mineralization in the hanging wall of the East Fault, shaded in blue. An upper zone of high-grade stratigraphically controlled mineralization has also been interpreted. High-grade exploration potential is apparent, along strike in down dip of the East Fault and along the Albert and Break Fault zones. These targets are shown in pink on the section.

The exploration program going forward will utilize the four drills currently on-site. Drilling will be focused towards expanding the Vortex general and high-grade mineralization, conversion of oxide and sulfide resources in other zones, and increasing the density of the silver assay data set.

I'll turn it back over to Scott.

Scott Caldwell

Thanks, Dave. I'm on slide 16 where we talk about the resource, a little bar chart there. The story it tells, if you look in between each bar, roughly about 100,000 feet of drilling or 30,000 meters between each bar.

You can see, when we started in May, about 1.4 million ounces of total gold, all types, all categories, and where we are now is right around 10 million ounces of gold. The decline between the March 2007 – 2009 and April 2010, Dave touched on it, really it's – it was because our drilling was focused primarily on resource conversion. We are trying to – and successfully, I might add, doubled our oxide proven and probable from 1.1 million to 2.4 million ounces.

We lost some on the oxide M&I resource, that was a function of reclassification in just drilling. But we still have about 4.5 million ounces of gold contained in the oxides in the M&I and that's the number that you really kind to need of keep in your mind as we walk through the rest of this presentation is why are we expanding the oxide, why did the Board approve the expansion to the oxides, because we feel that 2.4 million ounces is about half of what we are going to see in our overall oxide resource or reserves once we complete our engineering and drilling.

Going to slide 17 and a couple of comments on the silver. You can see, it continues to grow despite of being in-filled this year, but most of you noted that our grade dropped dramatically from last year to this year. That's a function of we've now moved to what I call a net smelter return model or, if you'd like, a revenue model that combines the gold and silver values. And as Dave mentioned, over 50% of our gold mineralized envelope has no silver values assigned to it and that's a function of no drilling. Historically, 3,500 holes or so were drilled in the exploration programs and none of those holes were assayed for silver.

So if you look at the way we calculated our resource, essentially a little over 50% of our tonnage has a grade of zero silver assigned to it, not because we believe it's zero, but what other number could we use when we did the calculation? So a conservative assumption, we know that the silver grades will increase with drilling because we know it's greater than zero, I can't tell you how much until we do the work. But that's a primary focus of our drill programs this year is to infill that silver, get these ounces up, and more importantly, get the grade up.

So anyway, we will be working on that this year. That will take the remainder of the year, it's about 100 holes that we'll need to drill and get assays. So it will take the remainder of the year to get this – get the tonnages aligned, if you'd like, and we'll see what the silver grade is, but we know it's going to go up. So that's something to keep in mind when you look at our silver grades. We certainly internally talk about it quite a bit.

Going on to the next slide, which should be slide 18, this is simply the current P&P pit for oxide, which is in our 43-101 and it shows you the facilities, the leach pads, the dark blue color on the north and south, and the waste dumps.

But a few comments on the mine plan. We have eight distinct mining areas, represented by each of the colors there and they are all named. They're shallow pits, low-strip ratios. The overall strip ratio has declined, but we are now sitting at 1.15 to 1; last year, we were at 1.27 to 1. So a very, very low strip ratio. At any one given time – given period of time, we are mining three – in three of these pits. So a lot of flexibility; if you would have a pit wall failure or something like that, you can move to another pit. So lots of flexibility, a pretty – I'll just say, a very achievable expansion program and we'll talk a little more about that. But eight mining areas, shallow pits, low strip ratio.

Moving on to slide 19, the Board just approved the expansion to our mining rate, which essentially we are going to increase our mining rate from right now where we mine about 25 million tons combined ore and waste, about 12 million ore and 13 million waste. We've announced the expansion plans that basically triples that rate; we peak at about 80 million tons per annum combined ore and waste. So your ore tons go to roughly 35 million, 36 million tons per annum, 50 million or so of waste.

What that does for you, you mine more tons, you make more gold; you pump more water, you make more gold. And so we'll expand our leach pads, we'll expand our – increase our mining rate, and basically we'll triple our ounce production. We spent a lot of time trying to select the optimum mining rate doing – maximizing MPVs for a given capital deployment, mining rates, operating costs, and it really charted – if you looked at the analysis we used, $800 gold and $14 silver for our economics, you target – that's how we picked the rate, which is essentially tripling our current rate.

We are going to go larger equipment to reduce our operating costs, big hydraulic shovels, 300-ton trucks, we now run 200-ton trucks. And despite tripling our mining rate to roughly 80 million tons per annum, it's still a small fleet, we only have – we peak at 16 trucks and three shovels and we hit that rate 2013, 2014. So we peak at 16 trucks, so really it's not a huge fleet. We'll have three to four mobile crushers, we crush about 30% of the total ore tons. Again, that's a cutoff grade strategy. You – give me a metal price and we can tell you how many tons we crush. But at $800 gold and $14 silver, we crush about 30% of our tons.

A couple of optimization things we are looking at. The base case that's been presented in the Technical Report approved by the Board is current pit slope angles, all truck haulage, we are now looking – and no in-pit dumping. We are now looking at shortening our waste haul by in-pit dumping, i.e., backfilling behind ourselves in places like the Bay Area, et cetera where there is no appreciable sulfide resource, so we wouldn't dump on top of the sulfides.

We are also looking at conveying our ore as opposed to truck haulage, especially the material that’s crushed. And then we are also looking at pit slope angles, fairly flat slope angles out there and we see a real opportunity in steepening the angles up, either further reducing the strip ratio and/or increasing the amount of ore reserve available for a given pit.

So we are doing that work right now, but the project looks attractive with some conservative assumptions in it and we are moving forward with that. Don't quite know the equipment delivery yet, we are in discussions with various manufacturers and that would of course affect what we do this year and beyond if we can accelerate. Right now, we are assuming that the equipment will start working in 2011. If we can get it sooner, we will and we will put it to work right away.

One last thing we are looking at is we did a lot of met testing on – really on our crushing work on the oxides. And that met testing shows, as one would expect, the finer the particle size, the better your recoveries. We are starting to get interested in "can you mill the oxides" and the real price is not only the gold recovery will improve like who knows, we are doing the test work and that will be completed in another couple of months, but the silver recovery is what's really getting exciting. We are sitting at silver recovery, if you crush it anywhere from 15% to 30% and if you mill it, perhaps you can get that recovery up substantially higher than that.

So that's really what the milling option is doing for us is "what does it do to our silver recoveries," so stay tuned for that. We are excited about it and we'll see what happens in the next couple of months with the met test, and we got about 20 samples – 20 composites out right now throughout the property in the lab for met testing on the oxides.

Slide 20, you can read the numbers as well as I, but essentially the whole premise of the study is one, don't forget, we believe that the proven and probable will increase on the oxides from 2.4 million ounces containing gold to something north of 4 million ounces, who knows, got to drill it.

But we think the majority of the M&I material will come across the line with the P&P with further met testing and engineering work. A little bit of drilling on some of the (inaudible) stuff. But the whole premise is you are moving out just forward and become a 300,000-ounce producer for a lot of money, $212 million, but to gain 200,000 ounces of production for $200 million is a pretty good expansion in our mind.

Slide 21, just a little carton showing you – again, you really start to mine more tons in 2011, you see the impact in 2012, you are peaking at 300,000 ounces and this is P&P only, proven and probable only. The blue bar, of course, is the base case staying at 100,000 ounces. And we are looking at how to smooth the production profile, how to move ounces further forward and to get that peak and the cost down in 2013. But the project looks good as it sits and we are looking on how to optimize it.

Slide 22, sulfide scoping study. With the – with our – with the growth in the oxides, people are sometimes asking, why the sulfides. If you look at the – a typical cross-section or a typical drill hole, for every ounce of gold we are discovering on the oxide, we are finding about 2 ounces of gold in sulfide. So eventually, someday the sulfides are going to be quite a bit larger, the resource in the sulfides will be quite a bit larger than the oxides. And so you want to – we want to see what that price really is and typically grades increase with depth. So deeper the oxide, the grade is slightly higher, the sulfide is higher-grade. So we are interested in the sulfides.

Our assumptions are, and again the scoping study is in the 43-101, is that you would grind the – crush the material, grind it, float the concentrate, and ship the concentrate off-site for final refining. We assume the concentrate and the initial test work is showing us that this is the correct assumption that the concentrate is refractory.

We do know that it makes a good concentrate, at a 20 to 1 concentration ratio. Your gold and silver – your gold goes for about 10 grams per ton contained in the con and your silver goes to about 600 grams per ton in the con. Your overall gold recovery to concentrate is in the high 70s and silver is in the high 70s. You then leach the tails, and that pushes your gold and silver recovery up into the 80s, so your overall recoveries are about 80, strip ratio is still low at 1.62 to 1.

So preliminary scoping study shows that the project is economic and the reason we completed the scoping study is, "Okay, we are spending money on this. Should we keep spending money on it"? And we are still excited about it and will keep pushing forward with the sulfide study. The goal is to have feasibility study, a milling option study, oxide/sulfide milling option completed in the first half of 2011.

Kind of covered slide 23, talked about this, a couple of other points, relatively coarse grind at 100 microns. Concentrate, the concentrate is clean con, and you can read what it's composed of. What's interesting about that con is we now know that it's an exothermic concentrate. By that I mean if you get it hot, it creates more energy than it consumes. So it's actually a fuel if you are to put it in either a roaster or a smelter or a pressure oxidation circuit.

Our first pass of this stuff, we were looking at pressure oxidation. In reality, with the silver concentration in this thing, you probably want to send it to a roaster. We'll let the experts tell us what it is, but moderate hardness, coarse grind and the most important aspect of the – our sulfides is they float. You can get a concentrate right on the railway line, you get it in a car – a railcar and ship it somewhere for final processing. Again, we expect to have a 43-101 feasibility study completed second half of 2011. I think I said the first half, but sometime June and July of next year.

Slide 24, kind of the same slide we saw before, highlighting the yellow area, which is the Vortex pit. In case you are wondering, all of our strip ratios include the rehandle cost or the rehandle tonnage of waste dump. So this sulfide pit, we'd assume that you have to rehandle that oxide waste dump because that's where the dump is sitting.

Obviously, if the sulfides are economic and we decide to go forward, we'd push that waste dump further to the south. You can see the tails pond. This is all on our property pad and just an idea of scale of what you can see there, but it’s a huge pit, it's three or four kilometers in strike length and three or four kilometers in width.

Oxides overlying this, and again, the strip ratio is slightly conservative, in as much as we took this topography – today's topography into that strip ratio, we didn’t assume you mined all of the oxides off of it, so it was a little cushion on the strip ratio. Our thinking being we are going to go forward with the sulfides and the couple of – a hundred million tons of waste kills the project; you really don't have a project. So we are trying to take a pretty conservative approach on it and so excited about the sulfides.

Slide 25, kind of going forward, metallurgical updates. We should have our next sulfide results there be out probably the next week and I don't know, it's 20-something samples – 24 composites on the sulfide, we call it variability analysis, but we'll work on the sulfides, again, confirming the flow sheet concept, which is grind, crush – crush, grind, float a concentrate and then what you do with the concentrate.

We'll be obviously updating exploration as the year goes by. The milling test results and a little scoping study should be out the third quarter of this year. The critical path on that is the met testing being done by outside labs, so we are kind of got to wait for it to get done. We'll have a midyear resource updates third quarter of this year, a year-end resource update in the first quarter of next year. Feasibility study, second half of '11. That would be an oxide/sulfide milling option. Obviously, the quarter results as we go through this and of course, we have our Annual Meeting July 13th in Toronto.

So a lot of news coming out and we are excited about what the rest of the year has in store for us. I'm very pleased with the way the operation is running right now. We are excited about getting some mining equipment and beginning this expansion. And really interested in how that silver is going to play out when we do that infill drilling.

So with that, I'll open it up to questions on anything you might want to talk about.

Question-and-Answer Session


Thank you. (Operator Instructions) Your first question comes from Brian Christie from Desjardins Securities. Please go ahead.

Brian Christie – Desjardins Securities

Yes. Good morning, guys. Thanks for a thorough update there, Scott. That's great. Just wondering, you've moved your CapEx to $45 million. Can you maybe give us a sense of how much exploration spending in there and then your $16 million on exploration, I assume a portion of that will be capitalized and just wondering, can you maybe touch base on the permitting activities here to move things along?

Scott Caldwell

Sure thing, Brian. I'll have Hal talk to the capital spending and then I'll talk about the permitting on the expansion.

Hal Kirby

As far as the exploration spending, the total spending will be about, as we said, approximately $16 million. We would expect that roughly between $6 million and $8 million of that will be capitalized. That is not in the $45 million capital expense, the capital number is just strictly for fixed asset additions.

Brian Christie – Desjardins Securities

Okay, great.

Hal Kirby

Primarily – yes. Primarily the previously announced capital program, plus the crusher, plus the expansion.

Brian Christie – Desjardins Securities

Okay, thanks.

Scott Caldwell

– is about $25 million.

Brian Christie – Desjardins Securities

Great. Scott?

Scott Caldwell

The expansion assumes mining equipment delivered this year, and it's $25 million. It's two trucks and a shovel.

Brian Christie – Desjardins Securities

Thanks. And permitting?

Scott Caldwell

And permitting, for the oxide – I’ll just talk on the heap leach, for the oxide expansion – and there was a slide, I think it's slide 20. But basically, we have to get – the reason the expansion takes two years is what we really have to do is expand the waste dump footprint, permit the waste dump footprint, and more importantly, the heap leach pad, primarily the heap leach pad to the south.

So we've begun that permitting effort, we started in January. We assume we'll have all permits and be able to begin construction in January of 2011 – 2012, so 24 months. To give you an idea, people say, "Well, how did your permitting go"? Our last permit that we had to get for expansion when we expanded our ore reserves from 600,000 to 1.2 million – 1.1 million took us about a year to get the permits to – again, to increase the size of our waste dumps and our leach pads.

So we think we can achieve the permitting goals in a couple of years. That's our assumption. If we missed it, what would you do? You wouldn't accept delivery of the equipment and the project would slip by whatever, a day or a month or a year. You wouldn't accept delivery of the equipment.

What we would be committed to is this first batch of iron, i.e., the shovel and the two trucks. If you didn’t need the additional capacity, you just stand down your – or not just, you would stand down your smaller units, reap the benefits of the lower operating costs and wait until you had the permits, accept your equipment deliveries and move on. So worst case, you defer the capital expenditures and you would defer the expansion. So two years is what we are saying, Brian.


Your next question comes from Mike Kozak from Cormark Securities. Please go ahead.

Mike Kozak – Cormark Securities

Hi, guys. Good quarter. Thanks for taking my call. Just a couple of quick ones. First, on the Vortex, would you consider ramping down into the feeder and drilling off from underground?

Scott Caldwell

Yes, we would, Mike. This is Scott. We are going to – we think we should get roughly 10 more – 10 pierce points, maybe 15. So say, 10 more pierce points in it to know where to put that decline and where we would come off of is the Cut 4, 5 and you've been out there to the west.

And we are working on that right now as into what would the cost of that would be. Obviously, there is no cost for that sort of decline in our exploration budget, but yes, you want to drill this off from down below to get closer to the target. And while you are there, get a sample on this stuff and really do some real – both met test or grinding, floatation work.

So yes, we are looking at that right now. Perhaps, finish drilling this year and then say, "Okay, yes, we can now lay out a decline.

Mike Kozak – Cormark Securities

Okay. That's great. Thanks. And then, just my last one is, the feasibility on the sulfide is now, I guess, second half of 2011 from the first half before. Is – I just wanted to make sure, the reason why time line slipped a little bit, is that because it's now going to incorporate the oxide milling scenario as well or is there something else going on there?

Scott Caldwell

Yes, that's correct. We put in the – we are excited about – and if you look at the Technical Report, you can see the exact same data I'm talking about. As – if you look at the oxide, the smaller it is, the more the recovery goes and it's almost like a hockey stick when you get out to the ten mesh and the scatterbox size, gold and silver recoveries just go through the roof.

And so yes, we added the oxide test work and that slipped us a couple of months. We added that – we began that work about a month ago and that's exactly what we did. We said, maybe we should be milling these oxides. Irrespective, if you build an oxide mill or not, you are going to still expand the mining rate to 80 million tons per annum. It's a sweet spot, we've looked at that every other way we could. And so you want to expand the mining rate, so you do that whether you build a mill or don't build a mill, you are going to expand that mining rate.

So we are moving down that path. In a future time, we may say, "Hey, we are going to build a mill, we are not going to continue with the heap leach." But right now, we are heap leach.

Mike Kozak – Cormark Securities

Okay. That's great. Thanks, guys.


(Operator Instructions) There doesn't appear to be anymore questions. Please continue.

Scott Caldwell

Thanks so much for listening to us. We had a good strong quarter, we got some interesting exploration results and expansion stuff that's taken place. So we are excited about what's going on and again, thanks for your support. And if you think of anything, give Tracey, Hal, or I a call and we'll be glad to talk to you about it. That's all I've got. Thanks a lot.


Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, please disconnect your lines.

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