Pretium Resources' (PVG) CEO Joseph Ovsenek on Q4 2017 Results - Earnings Call Transcript
Pretium Resources (PVG) Q4 2017 Earnings Conference Call March 9, 2018 10:00 AM ET
Executives
Joseph Ovsenek - President and CEO
Tom Yip - CFO
Analysts
Rahul Paul - Canaccord Genuity
Ovais Habib - Scotiabank
Joseph Reagor - ROTH Capital Partners
Dan Rollins - RBC Capital Markets
Robert Reynolds - Credit Suisse
Justin Chan - Numis Securities
Operator
Thank you all for joining us this morning. Welcome to the Pretium Resources' Fourth Quarter and Year-End 2017 Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation there'll be an opportunity to ask questions. The conference call today is being webcast live along with the presentation slides on Pretium's Web site at pretium.com.
I will now turn the call over to Mr. Joseph Ovsenek, Pretium's President and CEO.
Joseph Ovsenek
Good morning everyone. Welcome to our fourth quarter and year-end 2017 earnings call, the first earnings call for Pretium Resources Inc. Participating on the call with me today will be our CFO, Tom Yip.
Before we discuss our results, I will start off with this comment on safety. On February 25th, there was an incident at one of the Brucejack Mine support camps located to the east of Brucejack and operated by our long-time First Nations partner, Tsetsaut Ventures Limited. The incident, which is still under investigation resulted in the death of one of their employees. We offer our sincere condolences to the family and to their community. Safety is our highest priority and we will continue to focus our energy and commitment to improve our health and safety performance, and ensure that Pretium employees as well as those of our contractors work in a safe and respectful environment.
Turning to our results now, we will begin with a review of the operational ramp up continuing at our Brucejack Mine. First, I refer you to the cautionary language included in our news release issued yesterday, as well as the management's discussion and analysis for the same periods. These are available on our website and have been filed on SEDAR.
Please note that all dollar amounts mentioned on this call are in US dollars unless otherwise noted. As of year-end 2017, we produced over 150,000 ounces of gold in our first full six months of production as an operating company. We ended 2017 with a healthy cash balance of $56.3 million, and earnings from mine operations were $52.8 million. We are on track to meet our guidance, reach steady-state gold production by mid-to-late 2018, and become a premier low-cost intermediate gold producer by the end of 2019.
To achieve this, we remain focused on execution at Brucejack. For the first part of my remarks today, I will walk you through what we are doing to achieve this; optimizing our mining operations, getting our grade control system up and running, and delivering on our guidance for the first six months of this year. I will then turn the call over to Tom, who'll comment on our fourth quarter 2017 financial performance and our balance sheet strategy. I will close off with a look ahead for 2018, then we'll take your questions.
First, a review of the ramp up of our mine operations at Brucejack. In the third quarter, our first full-quarter production, we produced 82,000 ounces of gold. For the fourth quarter we were on track to equal or exceed third quarter production, until late in the fourth quarter when we experienced operational setbacks which resulted in lower than planned gold production for Q4.
In December, two high-grade stopes slated to come online during the month did not make it to the mill. Both of our long-hole drills went down, and we couldn't get one of the stopes drilled off in time to impact our Q4 production. The second high-grade stope was drilled off and ready to go, but the slot hung up after blasting, and it was well into Q1 '18 before it could be rehabilitated.
Because of our limited stope inventory at that time we had no other high-grade stopes ready to mine, with the end result that we produced a total of 70,000 ounces of gold in Q4, a 12,000 ounce decrease from Q3. We took immediate action to address this issue and strengthen our operational resiliency. First, we mobilized an additional long-hole drill to site which is now operating.
So we now have three drills long-holing, which also helps us address the second part of our operational fix, which is to accelerate underground development and build up our stope inventory. Beginning in January, we increased our underground development rate for 2018 to 700 meters per month, up from the 420 meters a month contemplated by the feasibility study.
While our feasibility study calls for five to six stopes available for mining at any given time to feed the mill at 2,700 tons per day, our target is to have an inventory of 10 to 12 stopes available for mining. An increased stope inventory will provide backup stopes of comparable grades ready and available to bring online should we need them. This more optimal level of stope inventory is a key factor in reaching steady state mining, which we plan to achieve by mid-to-late year. The goal here is to give ourselves optionality because the sooner we can open up the Valley of the Kings and gain ready access to a range of gold grades across stopes the better we can manage the grade to the mill.
The other key to achieving steady state production is having a robust grade control program. We see grade control as critical to our ability to define our mining stopes and meet our production guidance for the life of mine. So, first, a look at the variability of gold grade at the Valley of the Kinds and how we're mining it. The mineral resource estimate for the Valley of the Kings is a bulk estimate. This is based on the block model shown on slide seven.
This is a view of our Valley of the Kings block model looking to the north. Each of the colored blocks is 10X10 meters. The legend in the lower-right shows the gold grade. The green represents five grams per ton, yellow represents 10 grams per ton, orange represents 15 grams per ton, and red represents 20 grams per ton plus.
Our underground mining to date is showing us that the location of the best grade mineralization is highly variable. It is important for us to be mining high grade where we have the highest drill definition. For this deposit our work is concluded at 7.5 to 10 meter drill spacing as required. You can see over right on this slide, our reserve grade for the proven reserve is 14.5 grams per ton, and reserves are contained within that dotted line box you see outlined within our block model. The one thing that jumps out is that there is a lot of green and yellow within that box. So in order to be mining at 14.5 grams per ton, with all the green and yellow below 14.5 grams per ton, we need to blend in a number of red blocks and brighter orange blocks to achieve the reserve grade.
All in all, it requires a well-coordinated mining operation with significant lead time to develop the required stopes. It is not just a tonnage-moving exercise. So to sum up optimizing our mining operations we will develop underground at a rate of 700 meters a month throughout this year to build up our stope inventory. Once we have our stope inventory in hand, if we run into operational issues, as we did in Q4, we'll have a backup stope in inventory, which we'll be able to bring online quickly to maintain steady-state production for any given quarter.
The other factor for achieving steady-state gold production at Brucejack is developing and integrating the grade control program. Grade control is critical, both to inform the daily mining cycle and to optimize the definition of stopes as we progress with our mine plan. Although we were expecting to have our grade control up and running in Q4, we were not successful. We now have our grade control program operational. We are getting our assays out of our development grounds and our long-hole stope grounds, and the data is beginning to feed back into our production management. Our RC drilling program is underway and is supported by diamond drilling where necessary.
As the RC drilling has just started up recently it will take a few weeks for the results of the grade control drilling to feed into the short-term modeling and short-term mine planning. Come late-March and as we move into April, grade control will help us to refine the shape of our stopes to allow us to better capture high grade. We will then we better positioned to limit internal [dilution] [ph] and boost grade to the mill so we can deliver on our H1 guidance.
As I mentioned, the grade control program has been operating for a few weeks now. Even over that short time period our experience with mining combined with the grade control data is giving us a markedly improved line of sight into the stopes which to date have been planned solely on the basis of bulk resource model. The new local data is doing the job. It's showing us more accurately where the high grade is and where the high grade isn't. This has allowed us to adjust our mine designs accordingly. We see this grade control strategy as imperative to achieving our goals as the best strategy is to leverage the data and to establish the best practice to mine to account for the variability of the deposit.
I'd like to take a moment to comment on grade reconciliation for our initial months of production. We reported in January that grade reconciliation to the reserve model for the period August 1, 2017 to December 31, 2017 was approximately 75% to 80%. This is attributed to three factors. First, the small, relatively unrepresentative sample size of production that was analyzed; secondly the rudiment level of grade control and practice during the period; and thirdly, a lack of drill density in the significant area that's contributing stopes. More specifically on the last point, approximately 25% of the mill feed during this five-month timeframe of initial mining came from stopes mined from the 1,200 meter level still established as part of the long-term mine plan; stopes that were not well drilled.
With the Great Control program now operational and mining moving up from the 1,200 meter level into areas with higher drill density, reconciliation is expected to be more robust. Going forward, we'll report great reconciliation on an annual basis.
Turning now to our production guidance, in January we guided the gold production of Brucejack for the first half of 2018 is expected in the range of 150,000 ounces to 200,000 ounces of gold. All-in sustaining cost for the first half of 2018 are expected to range from $700 per ounce gold sold to $900 per ounce gold sold. We provide six months guidance only at this stage as we are still ramping up at Brucejack. Our production results today and from our great control program shows that we are on track for achieving H1 guidance overall but here in Q1 we're still in ramp up mode with respect to be able to benefit from great control.
Once we've achieved steady state gold production which is targeted for mid to late this year. We will be positioned to provide longer term production guidance. Just a couple of notes on all-in sustaining costs it does include all site and head office costs. And importantly, it includes the increased cost of the underground development to improve access and build stope inventory, which amounts to approximately 10% of the all-in sustaining costs.
We also have a number of cost control initiatives underway at Brucejack. As we drive operational efficiency to reduce costs. We're optimizing mining operations, reducing binder usage for pace back filled, establishing long-term material and supply contracts and assessing the potential to increase grand size. We have robust margins throughout our guidance range of current gold prices. We are in positive territory at either end of the range but we see this metric in terms of our ramp up success and how quickly we can get to steady state at the mine. We will provide guidance for 2019 at the end of this year.
I'll turn the call over now to Tom to review our fourth quarter 2017 financial performance and to talk about our balance sheet strategy for 2018 in consideration of our constructions financing facilities. Tom?
Tom Yip
Thank you, Joe, and good morning everybody, and this is our second quarter of operations. On the financial side of the house we were wrapping up our gold sales after working out the logistics of getting our gold rate and concentrate to market in the previous quarter.
In the fourth quarter, we sold 86,514 ounces of gold and increase from the 55,413 ounces sold in the third quarter. For a total of 141,927 ounces sold during the last six months of the year. Our average realize price for the quarter were $1,211 per ounce and the average realized price for the six months was $1,239 per ounce yielding revenues of $107 million for the quarter and a total of $177.9 million for the six months. These revenues were reduced by the TCRCs related to our concentrate sales.
The total cash cost per ounce sold averaged $700 for the fourth quarter and $683 per ounce for the six months. Our cost of sales which includes production cost depreciation and increase in royalties and selling cost as well as share based compensation average $927 per ounces sold in the fourth quarter and $881 per ounce sold for the six months. This yields the earnings from mine operations up $26.9 million for the quarter and a total of $52.9 million for the six months of operations.
Our corporate administrative cost for the quarter was $5.7 million and for the year $18.8 million. Included in this annual expense is share based compensation of $4.8 million and the onetime charge of $4.5 million for our retirement allowance accrued pursuant to the Executive Chairs employment agreement, when excluding these two items the G&A cost were $9.5 million for the year.
Operating earnings for the quarter was $21.2 million and for the year was $34 million which includes the full year's corporate G&A cost. Two significant non-operating items on our P&L related to our project financing. The first is accrued interest of $15.4 million for the quarter and $30.1 million for the year.
Prior to July 1, the date of commercial production this was capitalized but now as expense for the last six months of 2017 and the second item is a loss on our financial estimates at fair value. The fair value of these items are based on the future gold and silver prices interest rates and production profiles that adjustment totaled $8.5 million for the quarter and $26.4 million for the year. This mark-to-market adjustment has been significant since September of 2015 and we expect that this may continue to cause volatility in our reported results as long as the off taken and stream obligations are outstanding.
Debt loss for the quarter was $2.7 million or $0.01 of share, $16.5 million or $0.09 per share for the year. The adjusted earnings was $12.7 million or $0.07 per share for the quarter, $17.4 million or $0.10 per share for the year when adjusting for items we believe are not reflective of the underlying operations of the company. These are primarily non-cash items such as the mark-to-market of our financial instruments, amortization of discounts on the credit facility, convertible note accretion and the related deferred taxes. Our All-in sustaining Cost which exclusive sustaining capital TCRCs, corporate G&A, restoration called stock-based compensation totaled $893 per ounce for the quarter and $852 per ounce sold for the year.
In terms of liquidity and cash flow with the production sales in the last six months of 2017, we generated $73 million of operating cash flow and ended the year with $56 million in cash. Now turning to our balance sheet strategy, the focus for us is the refinance at 7.5% credit facility by the end of 2018. Although we have the option to extend the due date one year to December 2019 by paying a 2.5% extension fee on the principle and accumulated interest at December 31 of 2018.
We'll also look to extinguish the existing 8% stream that is due to start in January of 2020. We have two opportunities to take out the stream once that the end of 2018 for $237 million and again at the end of 2019 for $272 million. So as mine continues to ramp up production throughout 2018 attain operational steady state. We will see sequential quarterly improvement increase our cash balance and look to refinance the project debt by year end.
Now back to you Joe.
Joseph Ovsenek
Thank you, Tom. So 2018 is going to be a busy year for Pretium while executing the chief guidance remains our focus. There are few other catalysts this year which I'd like to highlight.
First, we announced in late December that we submitted an application to provincial regulators to increase our production rate at Brucejack at 3,800 tons per day from the current rate of 2,700 tons per day. We began the application process earlier last year during commissioning when we saw an opportunity to leverage the capacity of our conservatively designed mill. For a nominal investment of $25 million, we will get a 40% increase in run rate, increase production and reduce all-in sustaining costs. The permit application timeframe is expected to be six to 12 months. So we plan to come over the gate January 1, 2019 as of 3,800 ton per day operations.
I'll sum up with a few comments on our exploration activities underway. We're drilling two deep holes; the shallower of the two holes is underway and nearing target length of 1,600 meters. The holes serve two purposes; first, they will provide us with the information required to plan our 2019 reserve expansion drilling to the east of the valley of Kings.
Second, they're testing first source Porfiry for the Valley of Kings in the Flow Dome Zone. The results will be released once all of the data is in. Looking further to the east, we will continue with our grass-roots exploration program on Bowser Claims. In 2016 and 2017 we completed a fair bit of mapping and sampling on our Bowser Claims, 20 to 25 miles east of Brucejack. We have identified three zones today. The Boulder zone is in its early stages for VMS deposit with plenty of potential.
The American Creek zone and Koopa zone are well defined with good drill targets. Once the snow comes off which for us is using mid to late June, we'll start drilling some holes in selected targets. We have roughly $2 million of flow through leftover from what we raised last year, so we'll kick things off and see what we hit early days by great potential for another mine or existing claims. Finally on our near term catalyst for success there are a number of opportunities ahead of us, but it comes down to execution at Brucejack. We are fully focused on execution and delivery, optimize our mining, get our grade control system working, deliver on guidance. This is our focus this week, this month, and this year.
We look to forward to providing our next operations update on April 11th at our Investor's Day in Toronto, which will also be webcast. Thank you. That concludes the formal presentation. And I will now turn the call over to the operator who will open the lines for your questions. Operator?
Question-And-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Rahul Paul of Canaccord Genuity.
Rahul Paul
Hi, Joe. Just wanted to follow-up on one thing, I think you answered most of my other question. You indicated that your preference is to refinance the existing credit facility with a possibly better one now that you are a producer. But, I understand the existing facility comes at the option of one year extension for a 2.5% fee. Now is the extension option available at any time for you? Any time between now and expiry? Is it contingent on anything?
Joseph Ovsenek
Good morning, Rahul. If you look at the agreement, it's filed on SEDAR back in October. I think October 22, 2015, we have a notice period. I believe it's between 90 and 30 days in advance of yearend which we have to elect to extend the facility. We then provide that notice and then deliver our 2.5% fee with a certificate -- fairly standard banking certificate to extend the facility. So, fairly straightforward I don't see any issues with extending it.
Rahul Paul
Okay, thanks. Thank you. That's all that I have.
Joseph Ovsenek
Thank you.
Operator
Our next question comes from Ovais Habib of Scotiabank.
Ovais Habib
Hi, Joe. Hi, everyone. Thanks for taking my question. Couple of questions from me, Joe, first of all, in terms of the RC drilling that you were looking to commence, has that commenced? And kind of what level are you guys going to be looking to start drilling at?
Joseph Ovsenek
Okay. So, good morning, Ovais. On the RC drilling, we are drilling already. We are going to be in the middle of the ore body. I believe we are at the 13.20 to –13.50 meter level to start with. Still running that one rig making sure that it fits in with the mine well, making sure we are have dust under control and all the other issues that we have to look at longer term before bringing additional rigs.
Ovais Habib
And is that initial results that you are getting from RC drilling is that according to what you are looking for?
Joseph Ovsenek
Yes, no. It's going according to plan, Ovais. It's going well. We are happy with it. You have to work a few bugs out in getting it up and running. But we've got things running smoothly now and we will just keep pursuing that.
Ovais Habib
Awesome, okay. And then just moving on to the sampling splitting station, you had mentioned on the press release as well that it's kind of coming according to plan. It's moving along fine. So in terms of now the grade control drilling and the sampling splitting station that the information that you are getting, is that kind of reconciling well with your expectations with your block model as well or is there kind of deviations that you are working around as well?
Joseph Ovsenek
Well, what it's doing is informing our mining. So, as we get the data from the sample splitting station as well as the RC drilling, we feed that back into our short term mine planning which helps us refine our stope shapes. And as I noted, we are mining off that bulk model. So, it's a bulk model looking at the entire underground. So with the RC drilling and the sample splitting station data, we are allowed to get into more of a localized area and more localized data which helps us refine our stope shapes.
Ovais Habib
Okay. And just going forward, Joe, like I mean in terms of releasing that information to the public, are you guys going to be doing any sort of kind of monthly or kind of any updates on that front? Or, is it just going to be more the Investor Day that we should be looking forward to, any updates on that?
Joseph Ovsenek
Yes, look forward to the Investor's Day. We will have a good contingent out in Toronto for the Investor's Day and run through a fair number of things. And I expect we will answer all your questions there.
Ovais Habib
Okay, okay. That's great. That's it from me for now, Joe. Thanks.
Joseph Ovsenek
Thanks, Ovais.
Operator
Our next question comes from Joseph Reagor of ROTH Capital Partners.
Joseph Reagor
Hi, Joe. And thanks for taking the questions. First thing, given the expanded work you are doing to underground advancement and the extra drilling, can you give us rough number of what CapEx should look like for the year, or at least maybe for the first six months?
Joseph Ovsenek
Good morning, Joe. The way we look at things, we have given our guidance on our own sustaining cost and we’ll work within that. So, we are going to work to our own sustaining cost range which is the $900 to $700 per ounce gold sold depending on and it will come down to how may ounces we sell. But that own sustaining cost includes all the extra underground development to get ahead of the curve for stope inventory.
Joseph Reagor
Okay, fair enough. Then, of the 75% to 80% grade reconciliation you saw in Q4, can you kind of give us a breakdown of how much of that shortfall you would assign to dilution and how much you would assign to the grade falling short of expectations, if you can? I know that will be …
Joseph Ovsenek
The way we look at it. I appreciate that, Joe. The way we look - it comes down to mining, right? So, getting the right stope shapes, getting things well defined. Because we are mining off a bulk model, drill density all those issues came into play. So, it's a mining issue and refining that stope shapes. So as we get our grade control system ramping up, which is underway now, and operational, get our RC program as part of that grade control going. Those stope shapes will become more and more refined which will allow us to zero in more on the grade and be able to deliver better grade to the mill. So going forward, we expect grade reconciliation to be far more robust than based on that first five months where we didn't have grade control and we are running just off the bulk model.
Joseph Reagor
Okay. Would it be fair to say that you guys are optimistic that with the new grade control and with the additional work you are doing as far as drilling and stope development that you guys think you can get to a one to one reconciliation from the model by the end of this year?
Joseph Ovsenek
Well, that's the target. We are focused on getting that reconciliation up to parity. And we need to get the grade control really humming. We get the stope design working. So, that's the plan. So, we will execute on it. That's why we are focused on execution for the next -- well, throughout the year, right? We have got to execute and deliver.
Joseph Reagor
Okay, thanks. I will turn it over.
Joseph Ovsenek
Thanks, Joe.
Operator
Our next question comes from Dan Rollins of RBC Capital Markets.
Dan Rollins
Yes, thanks so much. Joe, just -- why don't you give a little bit of color for us with the grade control system just sort of ramping up, the RC program just starting up, when do you think you will be in a position to have all your stopes fully operational under the new regime? Is that will be -- would be all Q2 or you have I guess yourself a planned up sort of stopes which are less refined coming into the production in Q2 and then really Q3 element, is that what your timeframe is?
Joseph Ovsenek
Yes, I think that sums it up well, Dan. It'll start to shape up in Q2 and evolve into Q3 because we have already got development underground. So we can modify some development as we move into Q2 and the data starts feeding into our short term mine planning. But fully implement on it, yes, you are going to be Q3 -- late Q2 - Q3 before it's fully implanted.
Dan Rollins
Okay, perfect. And then, is there any components of either the grade control sampling or the RC drilling that still need to arrive on site to be implemented?
Joseph Ovsenek
Grade control is working and working well. RC drilling is going. But the one thing on the RC drilling is we are going to ramp up that RC drilling once we finish the trial program and get additional RC drills in. So, we haven't done that yet. We are still running off the one RC rig, but it's advancing. We are getting comfortable with it. As we move long through the month, you should see us pushing further.
Dan Rollins
Okay, perfect. And just one last question just to confirm.
Joseph Ovsenek
Yes.
Dan Rollins
All dollar spent beyond a potential expansion are currently in the ISE, correct?
Joseph Ovsenek
Correct.
Dan Rollins
Great, thank you. Appreciate it.
Joseph Ovsenek
Yes, thanks Dan.
Operator
Our next question comes from Robert Reynolds from Credit Suisse.
Robert Reynolds
Good morning, Joe and Tom. My question I guess goes back to the comment in your press release that you anticipate to see more momentum towards the achievements of the first-half production guidance and steady-state production in Q2. I just want to know how much we should read into that in terms of the sort of split of ounces that you are looking for between Q1 and Q2 especially given that we are about 75% through the first quarter. If you can provide any color on that would be helpful?
Joseph Ovsenek
Yes, there is a little bit of color not much Robert. Look we are -- for the first quarter, we are just giving the great controls come on sort of mid February. We are getting our RC going. So we are just ramping up on that. So if you look at it sort of splitting in half or for the Q1 we will be sort of targeting the low-end and that's what that we are targeting. And then, as we get the benefit of the great control, the RC and everything factoring in, we look to move up through Q2, that's the backend loaded.
Robert Reynolds
Okay. And then, just on the realized gold price in Q4, the 1211 that look to be above 5% below the average for the quarter. How much of that is related to the Offtake Agreement terms? If you can quantify or just provide some commentary around that? And then, just versus the timing of your sales during the quarter?
Joseph Ovsenek
Thanks, Robert. The differential was primarily due to the TC/RCs that are related to our constant sales. So in the quarter, we have about $5.7 million related to that. So if you factor that back in, we will be pretty well on spot, right? With respect to the Offtake, there is approximately $1.5 million for the year that's related to that Offtake Agreement, but that's really charged against our obligation, which is on the balance sheet.
Robert Reynolds
Okay, so just so I'm clear. I guess this might be a little bit different than how I have seen other companies do it. You are taking the TC/RCs off of your realized gold price instead of including that in your total cash cost, is that right?
Joseph Ovsenek
Correct.
Robert Reynolds
Okay, that's all my questions. Thanks.
Joseph Ovsenek
Thank you.
Tom Yip
Thanks, Rob.
Operator
Our next question comes from Justin Chan of Numis Securities.
Justin Chan
Good morning, Joe and Tom. My question is…
Joseph Ovsenek
Good morning.
Justin Chan
Around 38 ton a day plan and when you do scenario planning for that. At that point would 700 meters -- what's your development rates, and your 10 to 12 stope inventory levels be sufficient to give you great flexibility there, or would you look to increase that further when you plan for 3,800 tons a day. Should you get the permit to go ahead with that?
Joseph Ovsenek
Sure, Justin. So we are going to develop at 700 meters a month throughout the year. We feel that by midyear June, July in that range, we should have a 10 to 12 stope inventory sufficient for the 2700 tons per day. At the increase mill production rate, we probably need to add a couple of stopes. So maybe we are talking 13, 14 stopes total inventory for that and so as we build out through the year at 700 meters a day - sorry a month, we will have plenty of inventory build out through the year. So come 2019 I expect you will see a reduce development rate, but that we haven't got into that yet.
Justin Chan
Okay, great. Thanks very much. That's it from me.
Joseph Ovsenek
Yes, you are welcome.
Operator
The next question comes from Ovais Habib of Scotiabank.
Ovais Habib
Hi, Joe. Just a quick follow-up question, in terms of the stopes that you guys do have available right now and obviously you guys are ramping up in terms of how many liters you are developing. I mean, are you guys still kind of going almost hunt them out or are you guys progressing in terms of how many stopes you have so far?
Joseph Ovsenek
Look we are at still early days. So we got a couple of months in at the 700 meters a month. Things are going well, but yes you can only go in any one direction five meters a day pretty much so we are not building a big inventory yet. So yes a little bit of hunt them off, yes.
Ovais Habib
Sure, okay. Thanks. That's all from me. Thanks Joe.
Joseph Ovsenek
Yes, thanks, Ovais.
Operator
Our next question comes from Robert Reynolds of Credit Suisse.
Robert Reynolds
Hey, it's me again. Just another one on the mill throughput, so you are constrained right now by an annual throughput, I guess permit?
Joseph Ovsenek
Yes.
Robert Reynolds
How does that play into your strategy for where you are going to run the mill at throughout the year because you did 2950 tons per day in Q4? I believe the annual permit caps you out at 2700 tons, should we look at like a step down to 2700 tons immediately and also as a follow-up to that, is there any flexibility to go above that permit level by any percentage in the year or is that a hard cap?
Joseph Ovsenek
I'll answer the second part first. That's a hard cap 990,000 tons per annum. So we will work towards that, average is 2712 a day I believe to do the math. So we will keep running to that. We have some flexibility to move up and down depending on the grade we are getting in the mill in that. So we will just monitor and manage it as we go through the year. If all goes really smoothly, maybe we get our 3800 ton per day permit a little sooner, we can ramp up quicker, but we are not banking on that. The plan is 3800 tons per day for January 1, so we will just manage through that 2700 tons per day through the year. So you will see some fluctuation quarter-by-quarter. I will look to average it out over the 12 months.
Joseph Ovsenek
Okay, well, that's all the time we have booked for this call. I appreciate everyone showing up and calling in for our first earnings call. Much appreciate it. Thank you all and look forward to speaking with people on April at our Investors Day. Thank you.
Operator
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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Comments (18)
And while O said that he thought the recovered grade would get to the overall model grade number, that (1) seems inconsistent with the announced target production, which will hit “steady state” in H2 and (2) is meaningless unless the mined grade is reconciled to the model’s predicted grade for the same blocks as were actually mined.
What O seems to be saying is that not only are we going to salt in more high grade blocks than the original plan, but we have to test them first because we now know that some of them don’t have the high grade that the model predicted. But who knows, maybe the market will reward them if the production gets to 500k per year, even if to do that daily production has to be increased 30%, the mine plan high-graded and mine life shortened dramatically. But I don’t think so. Sooner or later they will have to come clean on the recovered versus model grades on the blocks mined.
The capital cost of this unit plus that of the extra drills for ring drilling must be beginning to look like serious money. There is clearly a lot of learning going on; I am confident the problems will be overcome in time. I continue to hold off buying into the situation again until we can see the road ahead with greater clarity.
It is probably not better than the 8.2 g/T grade of Q4. Keeping mum means no improvement to me.