Detour Gold Corp. (OTCPK:DRGDF) Q1 2016 Earnings Conference Call April 28, 2016 10:00 AM ET
Laurie Gaborit - Director of Investor Relations
Paul Martin - President and CEO
Gabriel Duane - Chief Operating Officer
James Mavor - Chief Financial Officer
Kevin Chiu - CIBC
Kerry Smith - Haywood Securities
Dan Rollins - RBC Capital Markets
Ross Carden - Polygon
Andrew Quail - Goldman Sachs
Anita Soni - Credit Suisse
Thank you for standing by. Welcome to the Detour Gold First Quarter 2016 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator instructions]
At this time, I would like to turn the conference over to Laurie Gaborit, Director of Investor Relations of Detour Gold. Please go ahead.
Thank you, operator, and good morning, everyone. I'm pleased to welcome you today to Detour Gold's 2016 first quarter results conference call and webcast. Paul Martin, President and CEO, will review our Q1 results and following this, Gabriel Duane our Chief Operating Officer and James Mavor, our Chief Financial Officer, will also be available to answer questions at the end of the call.
Today's presentation is available for download both on this webcast and on the company's Web site on our home page. Yesterdays related press releases, there were two are also posted on the company's Web site.
Please note that certain statements to be made today by the management team may contain forward-looking information. Forward-looking statements are subject to known and unknown risk, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. For more information, we refer you to our detailed cautionary note in yesterday's press release. Please note that all dollar amounts mentioned in this call are in U.S. dollars unless otherwise noted.
I will now turn the call over to Paul for the first quarter results.
Thank you Laurie and good morning every. And before I review the key highlights for the first quarter and subsequent debt buyback, I would like to first provide comments on the April 21st news release announcing that the corporations that are charged by the OPP with criminal negligence causing death and that the Ministry of Labor has until June 2016, to determine if they will deliver additional regulatory charges.
Nothing can by more impactful than the loss of life and our thoughts continue to be with the family. And Detour Gold continues to fully cooperate with the authorities and is taking these charges seriously. And as you can appreciate we cannot comment beyond what was stated in the news release or in the OPP statement pending review of the evidence supporting these charges.
Outside of this unexpected tragedy our safety performance measured on total recordable injury frequency improved during the quarter to an average of 1.6, our best quarter to date in our 12 months rolling average has decreased to 2.15. This is a positive trend and we will continue to focus on improving our safety practices.
A strong gold price for the quarter resulted in record revenues, despite gold production being at the lower end of our quarterly guidance range. The Company did benefit from more ounces being sold and produced just over 10,000 ounces as a result of the fourth quarter 2015 high grade fee resulting in the buildup of gold inventories at year end.
With the continued favorable foreign exchange rate and attractive input cost for diesel and electricity, our total cash cost and all in sustaining cost continued to decline through our lowest levels to date, $637 and $824 respectively which are below the low end of our 2016 guidance.
Let's move to the first quarter operating highlights which can be described as a bit short of our expectations from a production standpoint while exceeding targets on the financial side. Gold production totaled 127,000 ounces as we processed approximately 300,000 tons of ore less than planned. Head grade despite higher dilution and recovery were both within our range of expectations. During the quarter we operated at 5% below the plant design throughput rate. Although planned operating time averaged 88% for the quarter which is still the best we have done to date milling rates had to be reduced primarily due to limited power drop from one of the SAG mills due to pinion [ph] vibration and secondly due to Coarser material being processed. This segment was now back to full power and the issues leading to Coarser are now largely behind us.
We mined a total of 21 million tons for the quarter and this was lower than expected mainly due to lower availability from the rope shovels although this did not impact ore delivery as reflected in our run-of-mine stockpiles levels that increased by 27% quarter-over-quarter and now stands at approximately 125,000 ounces in the pad.
Phase 2 stripping progressed at a slower rate than projected as a result of the challenges around the removal of the concrete infrastructure from the old plant and we’ve proven to ourselves we are not experts in removing old plant facilities. And pioneering conditions around the Campbell pit.
With the spring fall almost behind us we are now expecting better conditions in around the pioneering areas which should enable us to catch up. In the first half of April, we successfully completed the most important planned shutdown since start up. I am pleased to report that our site team and many thanks to them have successfully completed the new 410-conveyor design. The 410-conveyor has now been split into two separate conveyors which will reduce the time needed to replace the belts. The speed has also been increased which will now allow for higher crushing rates.
These were major impediments to achieving more consistent plant performance and we are optimistic moving forward. Already we are seeing the new design showing better capacity and over the next few months we will further increase the crushing and conveyance rates to a peak capacity of upto 5000 tons per operating hour versus the 3,800 tons per operating hour we were previously limited to.
As Paul mentioned the 410-conveyor limitation has now been lifted. This major plant shutdown was completed in parallel with the complete relying of all wells [ph]. Together, we invested nine equivalent days that was four days for the realign and five additional days for the 410-conveyor. This is no doubt that big investment in downtime but we are very confident that the payback is an absolute no brainer. Over the last week, that’s the last coming week the plant has been back to the Q4 levels with average well not of 60,000 tons per day.
With the new design we expect to realize several benefits. First, we expect the substantial reduction of re-handling as the primary crusher will now better match the shovel capacity. At 5000 tons an hour, this is a much better fit to the production from the two 60, 60 [ph] shovels as they both operate at 2,500 tons an hours each and it’s the same with the 7495 because the [Indiscernible] also operate at 5000. So the math between 26060 [ph] or 17495 is now much better than it was before. So this actually will reduce the re-handling.
It also leaves much more time for preventive maintenance and on at this end we expect a minimum to gain a minimum of two hours per day and possibly upto four hours per day. But that’s not the main benefit. The main benefit will come from the dome inventory which is expected to be far more consistent with the substantial benefit of increased milling rates.
This alone will pay for the shutdown and not only for the downtime but the cost of it. But this is not the end of the story, because thirdly in 2017 we plan to complete the design by adding a take up conveyor. This take up conveyor will add further flexibility and also allow the operation of the dry well for other duties such as [Indiscernible] or even screening and this at a much much reduced cost.
At this time this project is still under development but I am very keen to see it get the thumbs up. So Paul back to you.
Thanks Peter and again congratulations to the site people. That was a long time in coming or it felt like a long time in coming to get that conveyor fixed and now its behind us. So onto mining cost, mining cost were higher than planned during the quarter mainly as a result of lower ex pit tonnage, while processing unit cost continued to benefit from favorable electricity rates.
Total cash costs and all-in sustaining costs with further weakness of the Canadian dollar during the quarter averaging 1.37 were lower than planned while also benefitting from lower prices for electricity and fuel. Now to the key financial highlights of the quarter.
The Company generated an operating profit of $30.8 million in Q1 and adjusted net earnings of $11.3 million, our best performances to date. The increase over the last quarter was the result of higher realized gold price, $63 per ounce and lower total cash cost $57 per ounce with the benefit of slightly higher gold sales and inclusive of the favorable exchange rate.
Sustaining capital expenditures for the quarter totaled $14.8 million with the majority components being related to the mine $7.1 million and the TMA $6.1 million and there was no deferred stripping incurred in the quarter.
We closed the quarter with a strong cash position of $214 million and a fully undrawn $85 million Canadian revolving credit facility. Our cash balance benefitted from $7.4 million from the flow through financing and $9.3 million from the proceeds of stock option exercises.
During the quarter the company closed its last 2015 currency contract at a loss of $1.4 million and almost at the peak of the weakness in the Canadian dollar. As at March 31, 2016 the company had no outstanding for an exchange hedges. The company lost approximately $1.3 on its gold hedges during the first quarter, which resulted in realizing an average sales prices of $11.72 per ounce or $11 per ounce lower than spot.
As at the quarter end the company had hedged approximately 30% of its projected gold sales for 2016 using the midpoint of our guidance. At a gold price of $1,250 per ounces in example the company would realize the gold price of $12.35 per ounce for the remainder of 2016.
The company continues to monitor the exchange rate and may enter into contracts for the remainder of the year based on market sentiment and financial need. And as the balance sheet gets stronger the necessity to hedge gold diminishes as demonstrated by our 30% coverage for the remainder of 2016.
The combination of a stronger gold price environment and the strong cash flows projected to be generated in the near term we proceeded with the first repurchase of our notes from available cash resources being a total of $75 million at a small premium. The transaction was privately negotiated and closed yesterday afternoon. With this repurchase we have now reduced our total debt payable from $681 million at December 31, 2013 to $425 million at the end of April.
We will continue to reduce our total debt prior to maturity of the notes and we would now expect to be below out stated objective of $300 million for this refinancing.
Jim, would you like to comment further.
Sure, Paul. The buyback of the $75 million notes that we announced yesterday is the continuation of the delivery gene [ph] of the balance sheet which started two years ago. And for those of you who follow the company you will remember we repaid about $125 million of debt last year from the proceeds of an equity offering. And that was very easy for us to repay as was held by our bank group and our equipment lease provider catthorpe [ph]. So once we raised that equity proceeds we closed and repaid the debt within a week or so.
So last year we ended the year with $160 million of cash on our balance sheet which then grew to $214 million at the end of March. And when the same situation that many of you were earnings ultra low interest on our cash balances. So we felt that this excess cash and the confidence in the operation and a healthy growth rate that we could entertain the opportunity to retire debt early and we concluded this deal with a single note holder at an agreeable price which also represented the amount of liquidity that we wanted to use. So you will see in our second quarter our cash balance will go down by about $79 million representing the principle and the premium and the accrued interest that we paid yesterday.
So this is one tranche of the notes and we do not go forward with the other two. The $250 million is publicly held by note holders in Canada, U.S. and outside of North America and due to security rules we haven’t been able to offer a buyback to this tranche of debt yet but will look for opportunities later this year subject to having excess liquidity.
Back to you Paul.
Okay, thank you Jim. On our guidance we are reaffirming our guidance of 540,000 to 590,000 ounces at total cash cost of between $675 to $750 per ounce sold and all in sustaining cost of between $840 and $940 per ounce sold. Sustaining capital expenditures remain on target between $60 and $70 million and with Q2 and Q3 having the highest percentages related to our tailings activities during the summer period.
On the exploration front, the company has now completed its winter drilling program in the Lower Detour area and will resume this program this summer when conditions are drier. We have completed nearly 37,000 meters of infill drilling at zone 58 north. And as you know we are testing the continuity of the extent of the gold mineralized system at a 25 meter drill spacing above 250 meters and at a 50 meter spacing below 250 meters down to a depth of 700 meters.
The assay results received to date mainly from the center of the mineralized zone are consistent with prior results. And the company expects to have all of the results of the winter program by the end of the second quarter.
Initial metallurgical test to work on mineralized material from zone 58 are underway and we expect the results to show amenability to the current plant design. As mentioned in the news release we have contracted an independent firm to proceed with the preliminary infrastructure design and cost estimate of an underground exploration program. The development of a decline would allow for the access, exploration and bulk sampling of the mineralized zones.
Initial environmental base line work in the area of zone 58 is expected to start this summer in preparation for a submission of an advanced exploration permit. On the Lower Detour trend the company has completed an additional 10,000 meters of exploration drilling. This program will resume this summer with an additional 5000 to 7000 meters of drilling to test targets on the Lower Detour trend and in the area of the tailings facility.
And just a quick note on West Detour, we are expecting to file an environmental assessment with the Ontario Ministry of Natural Resources in the third quarter of 2016. Our operational permits will largely include amendments to the existing approvals as well as consultation with our aboriginal [ph] partners.
And while having a few operational challenges in the first quarter which are now behind us, we realized a record operating profit of $31 million and we continue to make positive strides. That reduction by 15% successful commission of the new 410-conveyor system and continuing to advance work on our prospect of zone 58 target. We are also benefitting from the recent higher gold prices and increasing our margins. But more importantly we certainly expect operational improvements for the remainder of the year. And as stated our guidance for the year remains unchanged.
We are not defining ourselves as simply a play on the gold price but rather a quality play. Along like mining asset with low cost structure, sustainable free cash flow, organic growth upside and a strong balance sheet. We continue to focus on the optimization of the Detour Lake mine and I know our team is dedicated to delivering on this.
And just a reminder that our AGM is next week on May 5th and at the AGM we’ll take the opportunity to discuss in more detail the work that is underway to advance zone 58.
And operator, with that I’ll now turn the call over to you to open up the line for questions.
Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question is from Kevin Chiu of CIBC. Please go ahead.
Hi good morning Paul and team. Just a few questions. First it sounds like the lower processing issues are largely behind you now. But could you maybe provide a bit more color on the power dry issue in the first quarter. You know what was the cause and is this something that you could experience again?
Yeah, I’ll answer that one. The vibration was induced by a misalignment from one of the two opinions [ph] on the crown gear of that SAG mill. And this is not -- this is not rare. Actually everytime, every time we are at the SAG mill changes conditions like you have a new liners or every old liners, the mill used to [Indiscernible] most of the time the topography [ph] is going to change on opinion. But in this case, it got a little worse and it began to vibrate and we wanted to play it safe, so we limited the power drawn on that SAG mill by 1.5 megawatt down to something like a maximum of 12.7. And so, since then the mill has been realigned and that’s going very well. You know I was watching it the other day and we were almost at 14.3 megawatt. So this is behind us and we don’t expect this to -- well we fully expect that to see vibration in the future, but not to the point where we need to do that.
Okay, so it sounds like it was mostly precautionary early.
It was absolutely precautionary.
Okay. And then maybe turning to the mining activities. You know you were a bit lower than planned for the first quarter. Do you anticipate that you will be making or touching up on that difference in the remaining quarters for this year?
Yeah, first of all you know the -- where we were behind is not in the main phase of the pit. And I said that a number of times last year. As you know we finished the pioneering of Phase 1 you know essentially the pit is opened and ready to be mined and this is exactly what we are seeing. Despite the fact that our mining rate was lower in this quarter we are absolutely where we need to be with our Phase position in most of Phase 1. With the exception I would say of the Phase that is around the Campbell pit.
But the Phase around the Campbell pit is not expected to be an issue quite honestly before the middle of Q3. So we are very comfortable with that part of the situation, and you know going forward you know the challenge we faced during the quarter were really associated with the watering and [Indiscernible] around the Campbell pit and also the tough condition to mine around some of the concrete infrastructure that were left behind with the previous operator as we begin to dig in the overburden we discovered you know some surprises that we had to cope with, and some of them are not simple. You know we need essentially not to dig dirt, but essentially we move concrete foundation that we were surprised by their size and the amount of steel [ph] or predecessor used to put in their plant.
So very tough conditions for the guys but you know Phase 2 is I was looking at it yesterday and it’s coming together quite nicely so our expectation is, especially I would say in the second half of May or maybe the beginning of June when we can finally transfer one of our 7495 into Phase 2 then we will see this phase really bump up in production because it’s going to be obviously Phase 2 with close to surface. Phase 2 is close to the downside [ph] and it’s going to be a very big shovel with very short hauling cycle as opposed to a deep pit with long cycle. So it’s pretty clear that our mining rate is going to improve.
But again, I want to reemphasize the fact that when we look at mining rates we have to separate between what is Phase 1 and what is Phase 2, because Phase 1 we’re exactly where we want to be. In fact, I would suggest that given the stockpile we have we’re a little bit ahead of ourselves actually in Phase 1.
So basically the perspective is that this is all stuff that’s really further way down the runway?
Phase 2’s impact is in 2019, but you know we have to develop it now because we want to be ready by then.
It doesn’t preclude anybody from sleeping from a go-production standpoint to put it that way.
Right. Okay. And just I guess my last question. With the planned shutdown in Q2 or April, which is basically done, how should Q2 stack up to Q1? I think you guys have said that you’re expecting to process somewhere around 5 million tonnes. And can you remind us of what you’re looking for in terms of grade for this year?
The grade for the year, I don’t think we’ve provided the grade for the year. By memory, what we’ve provided is 540,000 to 590,000 and what we’ve said is that the production from the plant is going to be north of 20 million tonnes. And, you know, it’s fairly easy for you guys to define the grade, but we have not provided per se what the grade is going to be for the entire year and we know it’s just a simple math that you can conclude by yourselves. Okay?
Okay. Fair enough. Okay, thank you. That’s all from me.
Okay. Thanks a lot.
Our next question is from Kerry Smith of Haywood Securities. Please go ahead.
Thanks operator. I had a couple of questions. One for [indiscernible] this lower availability on the 7495 seems to be a problem that you haven’t been able to kind of sort of. I just wonder what your thinking is in terms of how you’re going to resolve it or are we going to have to live with these lower availabilities?
We have certainly not accepted lower availability, Kerry. We have a team at sight that is very, very keen to get to the kind of level that we need to be. But let’s face it, during the quarter, we were not successful. And I’ll say that we don’t measure that quarter-by-quarter quite honestly. Our measure of success with 7495 is more on a six or nine months’ moving average. And we still want to be above 82% with this shovel and possibly up to 85%. We’re establishing these KPIs now and we’re establishing exactly where we want to be going-forward. But I can assure you that nobody is satisfied with this performance of our 7495. And so don’t expect us to accept this situation, we won’t.
Great. And what was it in Q1 then just to put into context with the 82-85% target?
Unfortunately in our very big eagerness to reduce cost, we dealt with a supplier which had issue with its foundry and obviously we installed a part that failed very, very early on and that part was to be lasting much, much longer. We ended up with no spare, and it cost us dearly on the operating time of that trouble. So we’ve learned our lesson and certainly the supplier was very pleased to help us out for obvious reasons. But nevertheless, the supplier is not going to pay for all the downtime that we incurred. Their warranty is going to be limited to the failed part that they provided.
Right, okay. So was that [indiscernible] or what was it then?
That was a part in the drivetrain that was just installed brand new. And I’m just going by memory, I think it failed four days after installation and this part should have gone for years.
Yeah. Okay. And then maybe Jim could answer this one. You mentioned Jim that on the notes, portion of the notes that are held publicly not by Paulson, there is some sort of regulation that will allow you not to be able to bid for them. Can you just explain to me exactly what that relates to and how you actually get around that?
So, Kerry, we have a situation where although they’re generally held by institutional note holders, we do have to comply with certain securities regulations here in Ontario and Canada. We can’t do one-offs. We haven’t at least we know will give the green light to do one-off buybacks to the whole 250 million tranche without offering it to everyone. And so that would be too much of a use of our liquidity but it’s something we hope to be able to work through over the coming months.
I got you. But you could do a pro rata offer to everybody though, correct?
I think so. It just would be -- you won’t be sure how much we’d be taking it.
Right. I got you. Okay. Okay. And then maybe just the last question. The 36 holes, Paul, that you did along the trend in Q1. When might we see results from that? Will they come in the summer as well or you going to wait until you finish the rest of that regional program and put them all out to get?
We were looking to get them all by the end of June. So, you could see something in July likely we are working on. And the next phase of the program will start until July.
Right. Right. I got you. Okay. Okay. That’s great. Thank you.
The next question is from Dan Rollins of RBC Capital Markets. Please go ahead.
Yeah. Thanks very much and congratulations on four quarters of growing free cash flows. It’s nice to see. Jim, just following up on Kerry’s questions, given the limitations, if you wanted to make an offer for the $250 million would it be possible to increase your line of credit temporarily draw on that and then look to use that line of credit with more flexibility to pay down debt over the next year, is that something you are looking at or is there something else that needs to happen?
So, Dan, that’s a good question and unfortunately, we can’t do that yet because the notes that we are trying to retire and which we will retire in about 18 months time preclude this from putting in place a larger bank facility to take them out. So at some point there will be attention where we will either have extra cash and we will continue with some sort of buyback program or just sit on the cash and then all the notes that we can retire at the end of maturity will be paid out at par or otherwise we will put in place a credit facility that can take deal with the whole maturity of the notes and we think that will be no more than 300 million and just have that in place for fall of 2017.
Okay. Perfect. And then I remember about two quarters ago, even last quarter there was talk about when you are looking to refinance debt that’s outstanding at, I think at 17 which does not pay full of your cash that you are going to generate. You were talking potentially a combination of short-term and long-term debt, is that something you are still looking at or is it more of a short-term and just pounding down all the cash and getting this company debt free?
Yeah. I don’t think we’ll -- if we could be debt free that would be wonderful. But there will be certain amount of debt that we will want to carry on a long-term or at least the medium to long-term basis. And to that end we will be approaching our bank group to see if there will be support of let’s say a term loan as opposed to sort of a short-term credit facility what we have to last a couple of years.
Dan, I would just add onto that that the stronger we perform the less the requirement to have a longer term tranche in there. So, we were pretty flexible on whatever direction we can go and let’s just see how much cash we can generate.
Okay. Perfect. Just on your cost structure on the G&A per tonnes mills it’s bounced up here quarter-over-quarter. I’m assuming that’s related to non-cash stock-based compensation at the mine site, which will drop back to normalized levels to Q2, 3 and 4.
The answer to that is yes. That’s a very valid point and obviously the economy of scale loss by some throughput.
Okay. That is great. Thanks very much and congrats on a good start.
The next question is from Ross Carden of Polygon. Please go ahead.
Hi. Thanks for taking my questions. I just had a question relating to the mining rates. Just to get a better feel for what’s happening there. I guess I’m curious to know what mining rates you are seeing today and also when we look at Q1, the issue that you had, when should the mining rate tonnes per day, where should that have been, what level should we expect to see in let’s say Q2 and Q3 and how different is that to the original plan? I guess I’m just trying to get a better sense for maybe what we should expect to see just so we can track something and really when we should expect to see a ramp up? Thanks.
A - Gabriel Duane
Obviously, we cannot give numbers from Q2 but what I can say though is that what we’ve seen lately is a big pick-up on mining rates. But I don’t think that we will sustain these very high mining rates for -- consistently. I think there is going to happen more when we transfer one of the big shovels in Phase 2. So it should happen in the middle of this quarter I would suspect maybe towards the beginning of June something like that. But again, I want to reiterate a very important fact here is that whatever you are looking at in terms of mining rates, please keep in mind to separate what is needed for the gold production over the next three years, which is just a fraction of what we are reporting even today. And the overall mining rates because more and more of the mining rates associated with Phase 2 is going to increase and more and more of the mining rates required to deliver the gold production that we are forecasting is going to diminish.
So it’s very important to keep this in context. As an example, we could shut down. It’s not that we want to do that but we could shutdown Phase 2 completely and still have the same gold production. So this number needs to be used in context. But to answer your question I would say that we are going to pick-up on mining rate I would say starting in the middle of May, in the middle of this quarter.
Right. Okay. When I look back at the new lifeline pan that you had at earlier in the year and you look at the three year average guidance. And look at 16 to 18 and you look at the tonnes per day. It’s quite a bit higher than what you did in Q1, something like 290 that sort of area versus the 230 that you were doing. And how close are you to that and that’s what I’m wondering like when should we expect to see you get anywhere close to that and how should we really be thinking about it? Can you talk whether it’s going to have an impact further down the line?
A - Gabriel Duane
Sure. Mining rates is going to come from essentially three sources -- availability of the equipment, productivity and more equipment. Obviously, when we are talking about the years that you are describing, we’ve got West Detour Incorporated in there and we made very clear in the life of mine project that, release that we would increase the amount of equipment. So it’s not only coming from availability and from productivity. It’s also going to come from new equipment.
But maybe to give you a sense of how close we think we are, let me just go back in Q2 of last year where we had a situation that is coming very close to where we are approaching now. In Q2 of last year, we averaged for the full quarter 280,000 tonnes per day. Okay. Not with new equipment just with the gear we had. And so we are approaching the time where we are going to have a very similar overall scenery at the mine site where we are going to have equipment that can be very, very productive close to the stockpile exactly like we had last year. So, we are going to be far more balanced between the long hauls and the short hauls. And we believe that this is going to help a lot to bring all these numbers up for the benefits of three years down the road.
Okay. And if you did a bridge from the Q2 2015 rate to 80-ish versus you where in Q1 ’16, how much was explained by let’s say availability and equipment failure and things like that versus the issues that you had in certain areas of the pit or moving infrastructure, things like that if you have to break it out?
Well, it’s a fairly complex question and I’m just going to be dump sucking some of these numbers, so just keep that in mind. But you lose -- we lost some of our production in Q1 due to 74, 95 not being available, I’d say probably one-third of it, lost some productivity around Campbell pit. I’d say probably one-third of it and lost some productivity around these concrete infrastructure, probably one-third of it.
And quite honestly, obviously we can build these numbers from first principal and arrive at a very exact number because we have all of this information available. But I don’t have this readily available to disclose.
I appreciate you trying to give some color on that and then the last one and I will get off the floor. Just from a grade profile, it’s variability during the year, how variable will the grade be for the remainder of the year?
The variability of…?
We have not provided numbers overall on the grade for obvious reasons. We don’t want to be looking at the grade on a quarter-by-quarter. It just doesn’t make sense for us. What is important for us quite honestly is that we are where we need to be in the pit. It’s our phase position with our gold production. And what I can say so far is that when we are at the right place in the pit, what we have seen since the beginning of this operation and I’m going to provide you a couple of numbers here.
So far the model, the reserve, phases that we should have, 53.2 million tonnes at 0.88 grams a tonne. Okay. So far so what the reserve says, so far what we have processed is 53.5 million tonnes at 0.86 [Indiscernible] is that since we started this mine and I’m including even the work we did in the early days. Our additional dilution on the reserve has been 2%. On top of that the model has performed better, providing what it is that we have on the plant, 125,000 ounces. So, grade wise, you can see right that by essentially what we said. But in terms of grade quarter-by-quarter, I’m not able to get into that kind of detail. That would be an error for us to do that because a grade is the results of where are in the bids. If we go faster, it's going to change very quickly.
Okay. I appreciate the color and we're looking on the good results. Thanks.
The next question is from Andrew Quail of Goldman Sachs. Please go ahead.
Morning, Paul and Jim, just a couple of questions, lot of them have answered among the APO [ph] line. Paul, you don't have to be generous to put through spot prices through [Indiscernible] you guys deliver pretty quickly over the next – at 18 months obviously you fight back some debt this current quarter. I think it’s a great idea, Jim. What would you guys be doing with the cash, the excess cash and if you look forward 12 months, if we do see spot prices, obviously you got I think Jim said you got to be debt free. That will be nice. But you mentioned about capital structures in your release. Can you give us some color on a long term basis Detour and they've been looking forward potentially -- dividend?
Okay, Andrew, bunch of things there. So, let's clarify one comment in there. We are not targeting to be debt free. We believe that there should be an amount of debt in the capital structure that would be considered the de minimis amount relative to the size of the corporation and the operation and that's probably closer to $200 million than it is to $300 million.
So, we have that flexibility. Obviously, if coal prices continue to go up, we have many more options in front of us. But, so where we're going on our cash, we are even very clear where it’s going right now, we invest in the project, invest in the organic growth so, we're spending relatively small amount of money on Zone 58 right now. But that could lead to us having something very perspective where we need to invest $30 million, $50 million, so that's why we're doing the cost estimate to see what we can – what we may need for that.
We also have to develop West Detour which is in our plan to start stripping in 2018, and further debt reduction. So, that's sort of take cares of the next this year and next year. What we are doing on a go forward basis is evaluating prospective, opportunities outside of claim block and we are focusing on early stage development projects either very, very early or advance stage exploration, that's where we're targeting first to see what we like and what we don't like. And we're doing our homework now in advance to being in position to deploy this cash that is going to come available from this operation.
The second part is and on the dividend side it's something that we are just beginning to discuss. I'm not a fan. It's my personal opinion of a fixed dividend particularly for a single asset company I think you need to have a very large balance sheet to be able to deploy that, but there are other ways to distribute money to shareholders and that's what we're working through.
Good. I loved to hear that. Last one is on currency hedging. Obviously you said it rolls off. Is there any sort of point that if [Indiscernible] does wake into a point that you would put something in price again?
Andrew, yeah, so when you say weaken, obviously go in our favor, so it does – we got the tailwind last year, the benefit of being significantly on hedge and gave it all back in the last two months. Yes, I think a number of people in the market are surprised with just the volatility sort of $0.20 up and $0.20 down. But I would think on weakness even if we got close to our budget rates we would be locking in a significant amount.
Great. Thanks very for the update, guys.
Appreciated. Thanks Andrew.
The next question is from Anita Soni of Credit Suisse. Please go ahead.
Hi. Most of my questions have been asked and answered. I think we just going to ask about the budget around 58 north had been asked. The only other question I have is around the strip ratio for the remainder of the year. You're running pretty low this quarter, so do you expect that to reverse and in the usual pattern are you guys going to be doing more sort of over burden striping work in Q2 and Q3 versus Q4?
Yes. Anita, to be consistent with your answers we've provided so far obviously the strip ratio cannot stay at 2.5 forever, right. And the reason why the strip ratio is not – we were not expecting 3.5, but nevertheless we were expecting figure higher than what we've achieved and the reason for that is obviously because of what we said, the progress around the Campbell pit mainly and progress on Phase 2 has been slower.
So, obviously the divider changed and strip ratio is much lower. So, we are not interested to keep that strip ratio for the long term dilutive [ph] but in the short term again over the next three years it's having absolutely no impact on our gold production, because the gold production is for the next three years is all going to be coming from Phase 1, all of it.
Okay. All right. Thank you very much.
Thanks a lot.
This concludes the question and answer session. I would like to turn the conference back over to Paul Martin for closing remarks.
Okay. Thank you operator, thanks everyone for participating today. We are making great progress. We are pleased with where we are and we are looking forward to the remainder of the year. So with that, we will call the call off. Thank you.\
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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