Silver Standard Resources' (SSRI) CEO Paul Benson on Q4 2016 Results - Earnings Call Transcript

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Silver Standard Resources, Inc (NASDAQ:SSRI) Q4 2016 Earnings Conference Call February 24, 2017 11:00 AM ET


Stacey Pavlova - Manager of Investor Relations

Paul Benson - President and Chief Executive Officer

Greg Martin - Chief Financial Officer

Alan Pangbourne - Chief Operating Officer

Carl Edmunds - Chief Geologist

John DeCooman - Vice President of Business Development and Strategy

Kelly Stark-Anderson - Vice President of Legal and Corporate Secretary


Craig Johnston - Scotiabank

Chris Terry - Deutsche Bank

David Midlek - Macquire Capital

Dan Rollin - RBC Capital Markets


Good morning, everyone and welcome to Silver Standard’s Fourth Quarter and Year-End 2016 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Stacey Pavlova, Manager of Investor Relations. You may go ahead.

Stacey Pavlova

Thank you, operator. Good morning, ladies and gentlemen. Welcome to Silver Standard’s fourth quarter 2016 conference call, during which we will provide an update on our business and a review of our financial performance.

Our Financial Statements and Management’s Discussion and Analysis have been filed on SEDAR and EDGAR, and are also available on our website. To accompany our call, there is an online webcast, and you will find the information to access the webcast in our news release relating to this call.

I would like to let you know that the service provider for our webcast is experiencing some problems, which may cause slower advancement of the slides, you can download the presentation as a PDF from the webcast site. Apologies for additional difficulties.

Please note that all figures discussed during the call are in U.S. dollars unless otherwise indicated. All references to cash cost and all-in sustaining costs are per payable ounce of metal sold. We will be making forward statements today, so please read the disclosures in the relevant documents.

Joining us on the call this morning are Paul Benson, our President and CEO; Greg Martin, our CFO; Alan Pangbourne, COO; and Carl Edmunds, Chief Geologist; also present are John DeCooman, Vice President Business Development and Strategy; and Kelly Stark-Anderson, VP Legal and Corporate Secretary.

Now I would like to turn the call over to Paul for opening remarks.

Paul Benson

Thanks, Stacy. Good morning, ladies and gentleman. I’m very pleased to welcome you to our call to discuss our strong operating and financial achievements in the fourth quarter and during 2016. 2016 was a significant and successful year for the company. We have continued to deliver on our strategy to create value for our shareholders.

Obviously the most important single event during the year was a successful acquisition and integration of Claude Resources adding the Seabee gold operation to our portfolio and positioning Silver Standard as an intermediate precious metals producer with scale and margin.

Our continued focus on maximizing the value of each of our assets through our operational excellence program drove strong operating performance and a record annual production of over 390,000 gold equivalent ounces at reduce costs, while maintaining higher safety standards.

With this, we marked the fifth consecutive year of meeting or exceeding our production in costs guidance. Pleasingly each of our mines performed well with record or new record production at lower costs.

At Marigold fourth quarter production of nearly 60,000 ounce of gold with the strongest for the year and resulted in annual production of 205,000 ounces, just under last year’s records. The Seabee Gold Operation produced nearly 20,000 ounces of gold in the fourth quarter at all-in sustaining costs of $833 per ounce demonstrating the high margins this mine can deliver.

Full-year production of just over 77,000 ounces was a record production level in 2016 history of the mine. Importantly the mill achieved an average milling rate of 990 tons per day during Q4 demonstrating our operational excellence program is off to a good start at that mine.

At Pirquitas annual production of 10.4 million ounces of silver was at the higher end of our improve guidance range and is not only a new annual record for the mine, but it also represents the third year in a row of record production. Record low cash cost is $9 per ounce were also at the lower end of our improved guidance for the year.

Importantly, we are not just focused on today, but continue to invest in the future with impressive expressions success at both Marigold and Seabee. These are reflected in our new Mineral Reserves and Resource statement, which we released yesterday.

We saw significant increases at both Marigold and Seabee, which is a testament to the robust in this, the ore bodies [indiscernible] and is all the more impressive considering both mines have been in continues operation in more than a quarter century.

At Marigold, mineral reserves and resources increased by 31% and 12%, respectively, while reserve grade remain unchanged. This result was primarily due to positive exploration results and addition through the SA program.

At Seabee not only have mineral reserves increased by 50%, but also average grade increased by 7% to 8.2 gram per ton showing the quality of the newly converted reserves. When we acquired Seabee, we set ourselves a target to impressively convert resources by increasing the exploration investment about historical levels. So these immediate results are both the credit to the exploration team and support our acquisition phases.

In Argentina, the team at Pirquitas has done a fantastic job delivering record production in the final two years of mining. With the completion of mining in January, we will process stockpiled ore for at least the remainder of 2017.

Additionally, at the Chinchillas project we continue with the engineering studies to determine the economic viability of the project to extent the operating loss of our Pirquitas mine. Our option agreement requires the notice of exercise in regard to the forming of the joint venture by March 30, 2017, and all technical work is scheduled to completion in advance of that date to enable our decision.

We continue to focus on simplifying our business model to ensure focus on the projects hat make a difference to our market value. During the year and subsequent to year-end, we announced as sale of a number of our properties including Parral in Mexico and Diablillos in Argentina, Berenguela in Peru, Candelaria in the U.S. and two smaller properties in Chile.

With these non-core project transactions, we have demonstrated once again, our commitment to realizing value through all parts of our portfolio, while maintaining exposure to the future success of these projects.

As I stated at the begin of my remarks. Our strategy is focused on creating value for our shareholders and we see that in the bottom-line and the bank balance. We finished the year with record cash from operations of $171 million and increase our cash position compared to year-end 2015, or $115 million to $327 million.

We achieved this while investing $43 million in our operations and exploration activates and adding to the reserve base of both Marigold and Seabee. Additionally, at today’s prices, we continue to hold just over $200 million in marketable securities, with the majority reflecting only 10% interest in Pretium.

So 2016 was an excellent year across all parts of the business and I would like to thank and congratulate our employees for delivering these great results. With that, I will turn the call over to Alan, who will discuss our operational performance in more detail.

Alan Pangbourne

Thank you, Paul. This year was significant for us as we became a three mine company and delivered a record gold equivalent annual production of 393,000 ounces. Record annual production was delivered from both Seabee and Pirquitas.

Overall, the year showed that we can consistently deliver on target and improved our operations by the application of our operational excellence program at each side. For the fourth quarter, overall gold equivalent production was similar to Q3 at 110,000 ounces.

So moving on to each operation and starting with Marigold. Where we met our increased production guidance for 2016, as we produced almost 60,000 ounces In the quarter. A significant increase from Q3 and bringing the annual production to just over 205,000 ounces. Our cash cost continue to reduce with Q4 dropping to $585 per ounce and this allows us to achieve our annual cash cost of $647 per ounce in 2016 which was a further 7% reduction from 2015.

Early in the year we added three trucks to the fleet and this allowed us to mine the record tonnage in the year and the last quarter was also record at over 19.5 million tons moved. This was despite weather impacts related to the harsher winter experience in Nevada for 2016 we were able to further lower our mining cost on average by $0.06 a ton to achieve our targeted mining cost of the $1.50 a ton moved.

Over the year the grade and the material mines was the same as in 2015 at 0.45 grams per ton. So at Marigold we delivered the plant gold production of lower cash cost and our guidance for 2017 is in line with the five year outlook we delivered in Q3, 2016.

Moving on to Seabee where we had a successful quarter and have made a step forward with the introduction of our operational excellence program. Our initial focus was on achieving a safe smooth and successful integration into Silver Standard and this is now been achieved. During the quarter Seabee produced 19,711 ounces of gold which allowed to exceed the top-end of our guidance. Also the Seabee operations delivered a record annual production of 78,000 ounces.

The production focus in Q4 was in the long haul stopes with the first series of full height long haul stopes in Santoy Gap providing the majority of the ore. Generally, Q4 production and costs were in line with Q3. Over the quarter the mill processed 84,526 tons which averages approximately 920,000 per day slightly above the previous quarter and recovery is increased to slightly to 97%.

During the quarter we continued work on a long-term mine plan to support a higher mill throughput and the first step in the plant is to have a larger reserve base, which was announced yesterday in our mineral reserves and resource statement. So at Seabee we completed our integration process and are working on our operational excellence program to allow us to move towards a sustainable operation at higher throughput based on the larger reserves.

Moving on to Pirquitas where we continue to see strong production and cost performance. We produced an annual record of 10.4 million ounces of silver at a record low cash cost of $9 an ounce. At the top end of improved production guidance and the bottom end of our improved cash cost guidance. Q4 saw a lower total tonnage mined at 1.7 million as the pit became smaller and tighter as we have reached the final benches. Mine grades also dropped in the last benches.

In the process plant we further improve mill performance as we increase milling rates in Q4, however as the ore available from the pit reduced the percentage of medium grade ore are reclaimed from stockpiles increased lowering the mill feed grade and silver recovery.

So Pirquitas completed a strong year with record production and low costs. Following the year end Pirquitas has successfully seized mining operations as planned and completed a significant reduction in the workforce and will now focus on processing stockpiles for 2017.

So in summary all of our operating teams delivered strong quarterly and annual production with several operational records and I would like to thank them for the tremendous effort and what has a been a year significant change for the company.

I’ll now hand over to Carl, who will take you through our exploration activities.

Carl Edmunds

Thank you, Alan. Our 2016 exploration activities successfully extended the reserve life at our Marigold and Seabee mines. Equally as important, 2016 was a transformative year for resource development at Silver Standard with the acquisition of the Seabee mine and the addition of nearly 1 million ounces of indicated resources at Marigold. As a result, we are well position to upgrade and increase our resource base in 2017.

First, I will discuss our year-end 2016 mineral reserves and mineral resources estimate followed by discussion of 2017 exploration activities. Marigold probable mineral reserves 2.84 million ounces of gold representing a 31% increase compared to 2015.

The increase is due to mineral resources conversion success, primarily at Mackay North and Valmy where exploration activities collectively added 1 million ounces of gold to realize in net gain year-on-year of 680,000 ounces of gold as shown on the presentation chart.

It is worth noting we completed the SA program mid-year 2016, which contributed 110,000 ounces of gold to the 2016 reserve based, sorry reserve increased. Marigold indicated mineral resources increased to 5.15 million ounces of gold and our inclusive of mineral reserves.

We enhanced our resource based in 2016, due to a combination of successful exploration again at Mackay North, Valmy and the SA program. Inferred mineral resources now stand at 700,000 ounces of gold representing a 27% year-on-year increase.

At our Seabee Gold operation proven and probable mineral reserves increased year-on-year to 360,000 ounces of gold demonstrating and improved reserve life due to successful conversion and development drilling during the quarter. Importantly, the added reserves come at higher grades compared to the previous year, as confirm by infill drilling at Santoy eight where tonnage increased substantially and grade double from 5.3 to 10.6 grams per ton gold.

Seabee is measured an indicated mineral resources increased to 570,000 ounces of gold and our inclusive of mineral reserves. The resources increased due to upgrading of inferred mineral resources at Santoy eight and Santoy Gap. The reserve increase at the operation reflects our continued push for infill drilling of the large Inferred Resources present at Santoy eight acquisition.

This opportunity was recognized over a year ago by the operation. Following the acquisition, we completed the full work program that saw an excess of 65,000 meters of underground drilling completed to realize this reserve gain. Exploration activities for 2017 at Marigold will involve drilling at a similar pace to 2016 on target across the property.

The objectives here are to extent upgrade or convert existing mineral resources to reserves and this work accounts for about 80% of our activity. The remainder will be allocated towards early stage in conceptual targets such as Battle Cry at the South end of the property, as well as the continued exploration for high grade sulfide mineralization with the objective of defining new inferred resources.

Looking ahead, in 2017 exploration will focused efforts on two main activities at the Seabee Gold operation. Number one is resources to reserves conversion at Santoy Gap and Santoy eight through underground diamond drilling and number two targets the discovery of additional inferred resources in three areas adjacent to the Seabee mine along the Santoy shared trend and at multiple targets on the existing Seabee claims. I'm pleased to report these exploration activates are already underway.

Finally in the second half of 2017 we plan to initiate surface exploration on the Fisher project which is contiguous to Seabee and where we hold an option to acquire up to an 80% interest.

Now over to Greg for a discussion of the company's financial results.

Greg Martin

Thanks Carl. The fourth quarter continued showing our track record over 2016 with strong operating and financial performance and significant free cash flow generation despite the down trended metal prices through that quarter.

Revenue showed strong growth over the comparative periods for both the quarter and the year. quarterly revenue increased 41% to $127 million while annual revenue was up at impressive 31% to $491 million. Quarter-on-quarter through 2016 we saw all three operations delivered at or above planned, which combined with the acquisition of Seabee drove strong revenues and significantly improved financial results. As such fourth quarter income from mine operations increased by 234% over the comparative quarter to $27 million.

Year-on-year income from mine operations increased 717% to $154 million. These drove net income and adjusted net income for the fourth quarter to $12 million or $0.10 per share and to $30 million or $0.26 per share respectively. Annual net income totaled $65 million or $0.63 per share with adjusted net income totaling an impressive $100 million or $0.97 per share.

Year-over-year will note from our disclosures that our fourth quarter net income was impacted negatively by a few items. Revenues were negatively impacted by $9.2 million due to mark-to-market charges on outstanding concentrate sales contract with the December 31 silver price of $16.24 per ounce being a recent low point.

Expenses were impacted by non-cash adjustments at Pirquitas related to the closure of mine operations totaling $9.4 million and tax expense was impacted by $4.9 million due to the payment of withholding tax as we were pretreated significant cash from Argentina due to the strong outperformance of the mine in 2016.

With the rebound in metal prices we have seen through this quarter, if they hold it will help us call back some of the fourth quarter mark-to-market losses we settle those sales.

We are pleased to report the strong earnings results and how they translated into free cash flow. Cash from operating activities was $74 million for the quarter an increase of 261% from the comparative quarter with annual cash from operations up 130% to $171 million.

investments over the quarter and the year were in line with guidance and remain at relatively modest levels relative to the scale of our operations. Therefore cash growth was strong with all assets free cash flowing as we generated $50 million of cash in the fourth quarter and $150 million over the year.

Due to this free cash flow, we end the year at cash position of $327 million. Our 10% interest in Pretium and other investments complement our liquidity position and were valued of $149 million at year-end and had approximately $200 million today.

We ended the year with the working capital position of $560 million, up $219 million from the end of 2015. So we continue to not only build cash today, but also enhance our current asset position for cash generation in future periods.

So financially 2016 was a strong year, but we have now turned out attention forward to 2017. We published our guidance in January, which shows our expectation of our mine portfolio continuing to operate effectively and efficiently. The midpoint of our guidance range shows production of 355,000 gold equivalent ounces at cash costs of $735 million per equivalent gold ounce sold.

Capital investments and exploration spending remain at levels similar to 2016. Well capitalized stripping Marigold decline by about 45% to $17 million with capitalized development at Seabee staying at a study run rate as we systematically advanced to Santoy decline.

So on an all-in sustaining cost basis of the operating level, we would expect to be around $950 per equivalents ounce giving us the basis for continued strong financial performance. Our expectation show Marigold and Pirquitas having strong first half 2017 performance with Seabee more backend loaded through the second half.

As I look forward into the first quarter, I remind you that Seabee will be largely through the winter restocking were by most consumables and capital items for the year well have been purchased hitting working capital.

So to conclude 2016 was a great year operationally and financially. We continue to improve our balance sheet to give us the capability to stay on strategy through market swings and finance growth from the portfolio or through external opportunities.

The acquisition of Seabee and a strong cash generation builds our foundation and we are pleased with how it is performed out of the gate and also with the opportunities the asset presents to improve on the current stage. In 2017, we look to continue to differentiate Silver Standard through our operating and financial discipline.

I’ll now turn the call back to Paul to wrap things up.

Paul Benson

Thanks, Greg. So in summary, a very please new for the company. We increased our scale and margin profile as we delivered record operating and financial performance. Our robust financial position is driven by record annual production at lower costs, which has resulted in a significant increase in our cash, further strengthening our balance sheet.

We continue to invest in the future and 2016 was no different with strong results throughout our Brownfield exploration program updated five-year Marigold production outlook, successful operation of excellence programs at our mines and our portfolio optimization.

Looking ahead, our focus continues to be on delivering free cash flow and looking for opportunities both internally and externally to create value for our shareholders.

With this, our formal presentation concludes and I'll pass the line over to the operator to take any questions you may have. Thank you.

Question-and-Answer Session


Thank you Mr. Benson. We will now begin the Question-and-Answer Session. [Operator Instructions]. Our first question comes from Craig Johnston with Scotiabank. You may go ahead.

Craig Johnston

Yes hi guys thanks for taking my call and yeah congrats on the very impressive reserve update. My questions are going to surround the big reserve updates Marigold and Seabee. I will start with Marigold, just with you guys putting out your five year guidance earlier I guess in September last year.

Wondering, one, if there is any change to that project guidance as a result of your reserve update. And then secondly and more importantly I think as with Mackay North additions and Valmy additions where to those fit into the mine plan? Are they six plus years out or could they be added sooner? And how much capital is required to bring those deposits into the mine plan?

Paul Benson

Yes. I will pass it over to Alan you get this.

Alan Pangbourne

Good morning Craig. Great questions, the additional ounces are predominantly outside of the five year update that we put forward last year and that's impacted partially by the permitting process we currently in. so Valmy is I think we have said several times before we need to go back into the permitting process after we get the next permit to bring Valmy into the mine plan. So all of the ounces are beyond the five to six year range, but they do add life to the overall project.

Craig Johnston

Okay. And then so that's for Valmy and Mackay North?

Alan Pangbourne

Mackay north is in a similar situation, again it's beyond the five year outlook that we put out. And regarding your capital it's really up from deferred striping depending on what the strip ratios are like. It's ongoing sustaining capital and adds life to the mine and we will be replacing trucks and equipments as required on a sustaining basis.

Paul Benson

I think just also we believe there are still good potential in both of those areas. So part of focus this coming years is continuing drilling there. so I hopefully we will continue to add.

Craig Johnston

Now for sure that the recent drilling has indicated that. But so on the capital there is no big say infrastructure changes, you have to move leach pads or there is nothing major?

Alan Pangbourne

Nothing that isn't already included either in the permit permission or in the five year outlook if it's impacted. And as I said most of the tons and ounces are beyond that.

Craig Johnston

Okay. And then any sense of the strip ratios for those two deposits?

Alan Pangbourne

It varies depending on where it is Craig. I mean some of the stuff in basil is in the wall, but moved into the new mud ground we now own. Some of it is where things have come together and it's lowered the strip ratio and that's why it now comes into reserves. So it's very hard to generalize.

Craig Johnston

Okay. And then with respect to just using, the decision to use higher metal prices for the reserve update. If you were to go back and use, I know it’s always trying to do. But if you were to go back and use the $1,100, you used last year would Valmy and the Mackay North deposits where they still come into the mine plan or are those somewhat dependent on higher prices.

Paul Benson

If you look at the presentation, there is a slide on water fall chart which shows the impact of model assumptions. There is not a massive increase and one of those things that when you start doing these calculations and setting new parameters is last year when price was about what it is today has had a bit of a roller coaster that I see today with backup there again. So it’s not a significant impact.

Craig Johnston

Okay. Okay, thanks guys. Moving on to Seabee. I think no big surprises with respect to the increase at Santoy Gap. My question, I guess is more on Santoy eight and how you plan to access those additional ounces from Santoy eight?

Alan Pangbourne

So the additional ounces in Santoy eight will come after the rest of the infrastructure, it’s already installed in Santoy eight.

Paul Benson

Now if you look in the long section, there are couple of places depending where it is. But it will come up existing infrastructure.

Craig Johnston

So the reserve addition, you have a long section showing where the reserve additions from Santoy eight are, how those are?

Paul Benson

You will see, I think next week we will put a presentations out for certain conference in Florida. Not that, I think any think- . But that will on the website at the same time, obviously, I think there are couple of loan sections, I hope you understand that.

Craig Johnston

Okay. And when do we expect Santoy eight material to come into the mine plant?

Paul Benson

Towards the tail end of that reserve time I think.

Craig Johnston

Yes. Okay.

Paul Benson

Its spreads through Craig and as I said earlier. It’s part of the ongoing five year plan we are trying to develop for the mine. So first, we needed to get a larger reserve, so we knew where it was. And now we are working through what is the capital development schedule as far as strives and decline, ventilation, equipment all of that stuff against the production schedule.

So now we have got the bigger reserve, we now know where it is, we can work out how we got and get to it and we are still working through all of that. So it spread through the reserve over the next three to five years.

Craig Johnston

Okay. And I think it was mentioned in the press release just that the driver of the increasing grade was Santoy eight. Are you guys able to disclose what that grade of those ounces at Santoy eight is?

Carl Edmunds

Craig, its Carl here. I made a reference in the discussion, it almost doubled, it went from 5.6 grams to 10.8. So that’s really reflecting the starting point of what the reserve was last year, which was from a tonnage basis quite small, it’s almost gone up by an order of magnitude on the tons.

Craig Johnston

Okay. Got it. That’s great, thanks Carl. And I will stop asking questions, here just one quick one. Just curious as to the reason for the drop in G&A in Q4. I thought you guys had a good deal, I would have thought you pay yourselves. Just back haul, but it seem like G&A fell off a cliff in Q4.

Greg Martin

Craig hi it's Greg here. As you know and basically every quarter we have to revalue outstanding stock based compensation and as like most in the fourth quarter with the drop in metal price the share price decline.

So there was a effectively a reduction in G&A due to the credit that came through on that basis. As I said on a cash basis G&A is very steady quarter-to-quarter and one of the things with bringing in Seabee effectively we added no G&A to the organization as we brought in that operation.

Craig Johnston

Okay awesome. That makes a lot of sense. Okay, thanks guys.


Our next question comes from Chris Terry of Deutsche Bank. You may go ahead.

Chris Terry

Hi guys. Most of mine around Chinchillas and where that mud fit in. I guess it seems like there has been a few delays potentially on that just. Just with the little bit - can you just give a bit more detail around the engineering studies and where you are at exactly and what are you finding. Is it just a matter of buying a bit more time on the drilling or is it still with commodity prices that is quite sensitive or what is the critical path I guess to making a decision on that?

Paul Benson

Yes there is nothing super-significant in there. It's not a major project from a capital point of view. It's slightly unusual in part of that capital estimate requires third-parties to get involved. We had some minor [indiscernible] and they involve government departments both at the national and provincial level. And you need to get them involved to basically come up with the design that they want, you then go at the third-party quotes on that to make their stand.

So that's probably something slightly unusual on that. Also as are you well aware options had value in terms of time and we only have to make a decision by the end of March. So yes from our perspective, there is no point in rushing it, it's all come together well and we will be in a position by that exercise time of March 30 to make a decision on that.

Chris Terry

Okay thanks Paul. And just overall strategically making decision on Chinchillas or not. How do you feel with the company if you were to hypothetically have two operations running, do you like to have third or would you be happy to run two and it just still comes down the value? I guess put in other way, does decision on Chinchillas have a direct implication for what M&A might be?

Paul Benson

No it doesn’t. We obviously will make a decision on Chinchillas on its own merits in terms of it doesn’t add value to our company. We obviously are large enough and have enough capacity both financially and technically to look at things in parallel. So that's an internal investment decision. We will continue to look externally at opportunities.

What we have said is by having that nice solid production base of two or three assets in production does allow us to look earlier stage and that involves both looking at existing opportunities that are advanced externally, but also Greenfields explorations as well.

Chris Terry

Okay that make sense. And that makes sense. Any sense on the Pretium package still, you have the holding it until, you find a better use for the cash?

Paul Benson

Absolutely, we think the team at Pretium had done a fantastic job, you see it’s more than doubled in value over the year and gone up since then. They have done a great job both financially, financing the project and then building it and bringing it towards production. I think they recently announced an earlier than expected commissioning. So yes, we are very comfortable holding it, but as we have said, it’s not a core long-term strategic assets, so if we find a better use of proceeds then we could exit.

Chris Terry

Okay. And then the last one for me just around Seabee. You have talked to lot about the exploration and what you have delivered on that side. But just from on higher level I guess compared to when you did the due-diligence on the asset probably coming after a year ago and when you have taken to cadence such. What have you found or where else outside of exploration? Can you find improvement and perhaps maybe just make a few comments on what the throughput opportunities you see now long-term, I think you commented on that before, but just a little more detail?

Paul Benson

Yes. We are very pleased with what we have seen. And I think as a generalization, any of the improvements we have announced so far, we saw, but we may be able to book them or achieve them probably a bit quicker than we expected, so that’s placing. We certainly see good potential both in terms of operational improvements, but particularly with respect to the exploration potential of that existing property, but also the Fisher property to the South.

We don’t wants to make wild sort of ambit goals and how to achieve them, we tend to give our guidance. So the guidance for this year is certainly got a higher throughput right in last year. We are going through that five-year plan at the moment as Alan referred to it. And I think once we have completed that and have a good feeling for what is sustainable there.

I mean, you could obviously run the plan for thousand ton a day for a while, but you want to be all to do it consistently and to do that you need to have the mine plans in place. So I would expect later in the year once we complete that five-year planning process we will be able to give some more color about what we think is a achievable longer term.

Chris Terry

Okay, okay. Thanks Paul. And actually, sorry so one other one just on Marigold. You touched on this a little bit already, but during the course of 2017. I guess reflect on 2016 that was definitely some up and down quarters based on the leaching times I guess. What do you say is potentially the better quarter and maybe the worse quarter during 2017 on that progression?

Paul Benson

We don’t give quarter-by-quarter analysis. What we have said quite openly is, there is an inherent volatility in Marigold and from a shareholder point of view, it makes more economic sense to allow that volatility than just smooth it, because we actively try and smooth it, you would end up pushing your costs up. The guidance we have given is that Marigold and Pirquitas will be in front half loaded so H1 should be stronger than H2, while it’s a reverse at Seabee and that’s just in terms of how we access grade at both.

Chris Terry

Okay. Thanks very much and well done on a great 2016.

Paul Benson

Thanks very much.


Our next question comes from David Midlek with Macquire. You may go ahead.

David Midlek

Hi. Good morning guys and thanks for taking my questions. I have three questions. First, at Seabee I noticed $2 million for capital budget for fan upgrades for higher mine rate. Were this more of an incremental upgrade to plant ventilation infrastructure development, or is this separate and sort of getting ahead on a potential expansion decision?

Paul Benson

Good morning David. I guess it's really related to be able to get up to that 1000 ton or more a day. I wouldn't say it's in advanced expansion, we need to improve the ventilation so as we can run the gear that we need to run there and Santoy is the production focus moves from Seabee over to Santoy as everybody knows we have been doing. And it's basically related to upgrading fans and heating requirements and moving the air around in a deeper decline.

David Midlek

Right thanks. and also at Seabee, in terms of the bulk stopes mined to-date at Santoy. What are the recent dilution factors been and how is this performed versus the mine plan?

Paul Benson

The reconciliation as we far as we have seen to-date, it is been very close to the mine plan. I wouldn't say that we had any surprises in either direction.

David Midlek

Okay thanks. And lastly at Marigold, with reserves drilling roughly 600,000 ounces. Is it at a level where you would consider incrementally scaling the operation up such as adding trucks which was done last year. And if so, where is the current bottleneck in the mining cycle.

Paul Benson

We as an ongoing exercise to Marigold. So the price has in any operation when you do in addition like that of additional trucks. You take a while to run them in and then see how they are performing.

We do a lot of very detailed data analysis and to see where that next bottleneck is. At the moment, it's still looks like there is bias towards truck limitation. So we might end up looking at whether we acquire new trucks or not.

But as I said, its iterative, you have also don't have to take into account new reserve and resource infraction and does that change anything. So it’s an ongoing process, but I think an important discipline to keep in mind, remember last year one broker criticized us taking so long to make up their mind on the trucks.

The first answer to everything is capital, it’s the easy answer you are much better to get your operation absolutely coming as best you can, which also includes maintenance, the availability of equipment, utilization of availability.

So you don't want to make a knee jerk easier decision to spend money. So we will do it in a very controlled and disciplined way and it might end up requiring the addition of trucks which would be great.

David Midlek

And also at Seabee with the current reserve and resource level, is it at a level that you are comfortable making an expansion decision or is it more contingent on how the exploration program goes through 2017?

Paul Benson

It's way too early for any sort of discussion around expansion. We believe there is good incremental potential to increase throughput. So you worry about that at first, add mine life. So there is no major capital expansion that we are considering but obviously from trial success in the exploration program we could always revisit that.

David Midlek

Great thanks for taking my questions and congrats on a strong quarter.

Paul Benson



Our next question comes from Dan Rollin with RBC Capital Markets. You may go ahead.

Dan Rollin

Yes thanks very much. Just circling back to Chinchillas. I was just wondering if you could provide a little bit color around the wording with respect to the political situation in Argentina and just on the taxes set up and how much of that is a concerned when going into making a decision on Chinchillas? And then my second part of the question is. Is there ability for you to push out the timeline on that option and if so, is there become a period in time where you basically come down to [indiscernible], we have to make a decision on Chinchillas, Pirquitas or start the reclamation process there?

Paul Benson

I mean obviously in any investment in any country that’s part of your evaluation. We are in ongoing discussions with the relevant authorities in country, because their ongoing, I won’t go into any data whatsoever on that. But at the moment, the option is to March 30th and we are comfortable with that, we are not considering moving that at the moment.

Dan Rollin

Okay, perfect. Thanks very much. I appreciate it.


This concludes the question-and-answer session. I will turn the call back to Mr. Benson.

Paul Benson

Okay. Thanks very much to everyone for joining today and we look forward to doing the next call corresponding quarter. Thanks very much.


This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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