SSR Mining, Inc. (NASDAQ:SSRM) Q1 2022 Earnings Conference Call May 3, 2022 4:30 PM ET
Alex Hunchak - Director, Corporate Development & IR
Rodney Antal - President, CEO & Director
Alison White - EVP & CFO
Stewart Beckman - EVP & COO
Conference Call Participants
Cosmos Chiu - CIBC Capital Markets
Ovais Habib - Scotiabank
Michael Parkin - National Bank Financial
Steven Green - TD Securities
Levi Spry - UBS
Hello, everyone, and welcome to SSR Mining's First Quarter 2022 Conference Call. This call is being recorded.
At this time, for opening remarks and introductions, I would like to turn the call over to Alex Hunchak from SSR Mining.
Thank you, operator, and hello, everyone. Thank you for joining SSR Mining's first quarter 2022 conference call, during which we will provide an update on our business and a review of our financial performance.
Our first quarter 2022 consolidated financial statements have been presented in accordance with U.S. GAAP. These financial statements have been filed on EDGAR, SEDAR, the ASX 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. Please note that all figures discussed during the call are in U.S. dollars, unless otherwise indicated.
Today's discussion will include forward-looking statements. So please, read the disclosures in the relevant documents. Joining us on the call today are Rod Antal, President and CEO; Alison White, CFO; and Stew Beckman, COO.
Now, I will turn the call over to Rod for his opening remarks.
Thanks, Alex, and hello to everyone, and thanks for joining us today. The first quarter of 2022 featured a number of positive and significant milestones, and I want to take this opportunity to recognize and thank everyone at SSR for all their extra efforts enabling a smooth transition to becoming an SEC filer. Already this year, we released our inaugural 3-year production guidance. And then as a function of our transition to an SEC filer, we released technical reports for all 4 of our producing assets, which led to a material increase in mineral reserves by 14%.
Those reports not only supported our 3-year guidance, but also outlined a clear pathway to maintaining a stable production platform in excess of 700,000 ounces annually for at least the remainder of the decade. A terrific result when you consider the ongoing exploration efforts across the business that did not make it into the technical report refresh. This solid long-term production outlook will support our goals for maintaining excellent free cash flow generation, reinvestment in high-yielding projects within our business and capital returns going forward.
At the start of the year, we increased our base dividend by 40%, further reinforcing our capital returns commitment. In addition, during the quarter, we released our 2021 ESG and Sustainability report. We announced the accretive sale of our Pitarrilla project. And subsequent to the quarter, we have closed the Taiga Gold acquisition. And finally, we received Board approval to progress 60% IRR C2 development project through to the PFS stage. Definitely, an impressive list of achievements in a short period of time.
Now, diving into our operating results. I'm once again proud to note our continued track record of outperformance through delivering on our commitments. Gold equivalent production of over 173,000 ounces at an all-in sustaining cost of $1,093 per ounce, was in line with our expectations. These results included a record quarter from Seabee, which produced 53,000 ounces of gold at an all-in sustaining cost of $596 per ounce.
Seabee's outperformance helped offset some of the inflationary impacts we encountered during the quarter, particularly with respect to fuel and consumables. Coupled with our previous commentary that our full year production is second half weighted, we remain well positioned to deliver against our full year guidance of 700,000 to 780,000 ounces of gold at an all-in sustaining cost of $1,120 to $1,180 an ounce. Overall, we're off to a really strong start.
Moving on to Slide 4. And on this slide, I want to highlight our ESG performance and priorities. The ESG is and has long been a core value and focus for SSR Mining as it firmly underpins the success of our business. We released our fourth annual ESG and Sustainability report in April, which highlighted a number of achievements during 2021 and some of the new initiatives for our company.
During 2021, amongst other things, we progressed our efforts to establish a science-based action plan to support our commitment of net zero greenhouse gas emissions by 2050. In 2022, we will complete the rollout of our EHS&S integrated management systems with full implementation expected this year. Furthermore, we will complete third-party closure reviews across all operating assets to ensure a positive post-mining future for our stakeholders and are also developing a water stewardship strategy as we seek to continually reduce our environmental footprint going forward.
So, moving on to Slide #5. I'll take a moment to highlight our outperformance across key metrics and the impressive returns our shareholders have enjoyed as a result. In '21, we realized a free cash flow yield of 12%, well exceeding our peer group and that strong performance translated to peer-leading capital returns. Subsequently, and as I mentioned, we have increased our base dividend by 40% to $0.28 annually and continued to evaluate further share buyback programs and/or further dividend increases.
On top of our operating performance, we have delivered material value creation across the portfolio through operational improvement initiatives, project development strategies and exploration success. This includes the recently announced reserve growth at Ardich and Seabee's Gap Hangingwall. The consolidated outcome of all the new technical reports provides an impressive increase of 2.5 million ounces of production against the prior technical reports. And we feel like we're a long way from being both done or satisfied.
We have a number of new growth projects moving along through the various stages of development and exploration continues across each operation on a number of exciting targets. The operational outperformance and value creation has translated directly into our share price performance as we have outperformed both our peers and the GDX by more than 30% over the last 12 months. With the catalyst-rich year we did, we fully expect this to continue. I'll speak to some of the catalysts on the next slide as well as some of our key achievements in the year-to-date.
As noted, we have had a busy start to 2022, delivering a multitude of positive milestones. Looking ahead, we continue to focus on our operational excellence, including supply chain management initiatives aimed at limiting the impacts of inflation, supply chain weaknesses and global disruptions on our operations. It is fortunate that we don't have any large capital projects on the books at the moment as they seem to be most prime to material cost increases. As you are aware, our capital projects are relatively modest in terms of capital costs that feature some of the best returns in the industry.
We continued to progress Ardich towards first production in 2023. And in the CDMP21 released earlier this year, Ardich featured a 1.2 million ounces of gold production, adjusted to $69 million in development CapEx and that production number could grow with continued exploration success. We have also approved the C2 project to move into a PFS study where the CDMP highlighted another 1 million ounces of gold production for approximately $220 million in CapEx to at this stage, beginning 2025.
Now, just moving on to the next slide and our first quarter results in more detail. A few of the highlights that are relevant to consider for the quarter. Operationally, another strong quarter with 174,000 ounces of gold, production at an all-in sustaining cost of $1,093 per ounce. Financially, we delivered adjusted EPS of $0.30 in the quarter. And as previously guided, our first quarter cash flows were impacted by timing and increased tax and royalty payments.
Despite that, we delivered operating cash flow of $62 million and free cash flow of $28 million. We announced the inaugural 3-year production guidance, showcasing a stable production -- showcasing a stable production above 700,000 ounces and increased our quarterly dividend payments by 40%. We also highlight our long-term production platform with the updated technical reports, demonstrating our ability to maintain a 700,000 ounce a year baseline for the remainder of the decade.
We continued with our positive portfolio rationalization with the sale of Pitarrilla, now realizing over $240 million in total consideration to non-core assets over the last 4 months. And then finally, and subsequent to the quarter, we closed the acquisition of Taiga Gold, which expands our exploration platform at Saskatchewan to 131,000 hectares. So, moving on to Slide 8. As we continue through 2022, it is worth highlighting our impressive track record of growth and execution.
As noted, following a solid first quarter, we remain well on track against our full year guidance and expect our production will remain second half weighted as Marigold's performance improves, especially in quarter 4 this year. Overall, we start the year with momentum on the back of a host of positive news and are in great position to again meet or exceed our commitments.
So with that, I'm going to turn the call over to Alison, who's going to discuss our financial performance in detail, starting on Slide #9.
Thanks, Rod, and hello, everyone. I'm happy to see 2022 is off to a good start for both our operating and financial results. In the first quarter, we produced nearly 174,000 gold equivalent ounces, in line with our expectations for a back half weighted production profile as we had communicated with our guidance. Gold equivalent sales of nearly 180,000 ounces were supported by higher silver sales at Puna, as sales divert from end of 2021 were executed this quarter. Revenue was $355 million, supported by strong first quarter commodity prices. Attributable net income for the quarter was $69 million or $0.31 per diluted share and adjusted attributable net income was $66 million or $0.30 per diluted share.
First quarter operating cash flow of $62 million and free cash flow of $28 million were both impacted by timing and increased tax and royalty payments during the quarter, as previously noted and expected. We continue to anticipate a second half weighted free cash flow profile and are keeping our eyes on inflationary pressures that have trust in across the business. While we have thus far maintained low cost, we acknowledge the headwinds. We've previously talked about pervasive inflationary pressures and how our continuous improvement programs have helped to offset some of the headwinds across the globe. Those improvement efforts continue in earnest to help offset what we are experiencing in price escalation.
We've also previously communicated that inflation and devaluation tended to offset each other and we are now seeing that inflation is outpacing devaluation by about 10% to 12%, thus causing additional cost pressures for us as a business. Given diesel, reagents and consumable parts are the categories where we're experiencing the most cost pressure thus far, we anticipate that this trend of rising costs will be something that will continue in the future. Again, we acknowledge that this is a headwind for us that we will aggressively and proactively work to mitigate, and we'll continue to update on any changes in this space as the year progresses.
On the right side of the Slide 9, I'd like to provide some commentary on our reported $0.30 in diluted earnings per share, that is calculated based on the company's definition of adjusted attributable net income per share. We start with our attributable net income of $0.31 per share and then make adjustments to exclude the after-tax impacts of specific items that are not reflective of the company's ongoing operations to arrive at the $0.30 in adjusted attributable diluted earnings per share. Each of those items is outlined in the waterfall chart on the right of the slide. Admittedly, the impacts were relatively muted this quarter.
We had minor adjustments for transaction and integration expenses that were associated with our SEC transaction that was completed earlier this year and stemming from the loss of SSR Mining's foreign private issuer status. Additional minor impacts included are for foreign exchange as the Argentinian peso and the Turkish lira devalued against the U.S. dollar in the quarter. And finally, a minor adjustment for the mark-to-market of our marketable security portfolio. The most notable discussion here involves an item that is no longer included in our adjusted attributable net income for the fair value adjustment at Copler. As we noted in February, this is an item that we are no longer adjusting for and is now incorporated into the operating cost profile at Copler.
Turning to Slide 10, we can talk about SSR's financial position. At the end of the quarter, the company maintained a cash and cash equivalent balance of over $1 billion, while net cash is nearly $700 million. With that strong cash position in mind, I would like to reiterate our priorities with respect to capital allocation within the business. First and foremost, we will continue to reinvest in growth, including our exceptionally high return Ardich and C2 projects, which will account for approximately $300 million in total growth capital through 2025.
Next, we are committed to maintaining a robust balance sheet to weather volatility in the commodity price environment and ensure all of our capital commitments, debt servicing requirements and base dividend payments are fully funded even in the event of a potential downturn in the gold price. Third, we remain committed to capital returns, as evidenced by the nearly $200 million, we returned through our NCIB and base dividend in 2021.
Already this year, we have increased our base dividend by 40% to $0.28 annually, and we will continue to evaluate supplemental returns to our shareholders in 2022, including another share buyback program and/or a further dividend increase. Most importantly, we will continue to be disciplined in our approach to these initiatives, while ensuring our returns appropriately reflect our company's strong free cash flow generation.
And with this, I'll pass it over to Stew for an operational update, starting on Slide 12.
Thanks, Alison. As usual, I'll start with EHS&S. At the last call, Rod talked about the fatality that occurred at Puna in Q1. Molina's passing rocked the business and actions arising from this incident are impacting all parts of our business. After a record load low TRIFR, total recordable injury frequency rate in 2021 of 2.47, we had an increase in Q1 of 2022, which we are addressing. Our ongoing improvement programs in all elements of ESG continued, and Rod has already discussed the release of our updated sustainability report. Safety and the care for our teams, communities and the environment are core values and we believe are also fundamental and foundational to business performance.
Before I dive into the details of the quarterly results for each asset, I'd like to comment on our consolidated production profile from last quarter's technical reports, which you see on Slide 12. The key message in this is that the mine plans establish a baseline production platform where we see clear opportunity to deliver plus 700,000 ounces of gold equivalent production annually through 2030. This solid foundation, coupled with the abundant growth targets being progressed across the portfolio means that this is just a baseline and that we expect to build on.
As mentioned before, we had a very active start to the year with production from Seabee and the sulfide throughput records at Copler. While the results were somewhat softer at Marigold and Puna, we expect that both mines will demonstrate much stronger second quarters and second halves. We remain on track for full year guidance of 700,000 to 780,000 gold equivalent ounces at an AISC of $1,120 to $1,180 per gold equivalent ounce, which remains weighted to the second half of the year, particularly due to the expectations for big fourth quarter at Marigold.
We manage the things that are in our control. And so all of the sites are focused on operational excellence, which includes both productivity improvement and cost control. Some of the improvements were built into our plans and budgets for 2022, helping to offset some of the inflationary pressures. Our supply chain transformation project, which started in 2021, is gaining momentum and has put us in a better position to be able to deal with the supply chain issues that are now plaguing the industry and the whole world.
Please jump to Slide 13, and we can talk about Copler. The Copler sulfide plant delivered another record quarterly throughput of 645,000 tonnes and the flotation circuit started to ramp up production. Localized or reconciliation is having a negative impact on production, but we expect this to improve. Our first scheduled major autoclave shutdown with re-bricking of phased courses, were started subsequent to the quarter on the 1st of April. The shutdown was successfully completed within schedule and with no nasty surprises. Kudos must go to the Copler for this achievement.
As you recall, the flotation plant ramp-up began following the receipt of the final operating permits very late in December. The flow plant allows us to take advantage of the late capacity in the sulfide plant and increase overall plant throughput. It will also help to reduce reagent consumption, which in turn helps offset some of the inflationary pressures we are seeing with respect to consumables.
We continue development work at Ardich as we progress towards first gold production in 2023. As highlighted in the CDMP, the last technical report, Ardich is expected to contribute more than 1.2 million ounces of gold production for an initial capital spend of about $69 million. Since 2017, we spent a total of $18.5 million on exploration drilling at Ardich, translating into an impressive discovery cost of just $6 an ounce.
Permitting is the critical path for the development of Ardich and it remains on track with the EIA being received for the start pit area. The other item of note for the is Copler Mine is our C2 project, were continued on C2 through the quarter, and the Board approved the project to proceed to the Pre-Feasibility Study level. This is another high return, low capital intensity brownfield project for the company. We seek to expect it to deliver approximately 1 million ounces of production for $220 million of capital and an impressive IRR of 60%. C2 continues to progress towards first production target in 2025.
Move to Slide 14, and I'll talk about Marigold. As expected, Marigold had a soft start to the year with mine scheduling driving quarterly production of 34,000 ounces with about 46,000 ounces being stacked at the heap leach. Timing of the heap leach placements, along with final ore from the north pit with slow leach kinetics caused the increase to gold inventory in the quarter.
Drawdown of the inventory, along with higher grade ore later in the year, results in a strong finish to 2022, landing production within guidance. We had guided that Marigold would be back half weighted. Work to drill and equip the dewatering bores continued and the water table drawdown rates are as planned. This will provide us access to high-grade ores from the Mackay pits in the coming months.
We are taking a more structured approach to building out Marigold's future, which we framed through the Marigold District Master Plan. Work on the many components of this ramped up during the quarter. We expect to convert ounces into reserves -- resource and reserve at the end of this year. And in 2023, we'll issue an updated technical report to communicate our plans for the next steps in the ongoing development of Marigold.
Our aggressive exploration and resource definition programs at Marigold continued in the quarter with drilling at New Millennium, where we are targeting additional ore close to the existing pits, high grade oxide of course, as well as concurrently drilling at Buffalo Valley and Trenton Canyon to define best resource development pathway for these deposits. The exploration team drilled more than 20,000 meters in the quarter and is in the process of increasing the number of exploration drills from 5 to 6. We are seeing some exciting results and we will share them as we consolidate the programs.
Now, move to Slide 15, and we'll talk about Seabee. Seabee delivered a record quarter of production driven by exceptionally high grades of nearly 18 grams a tonne. I am very pleased that the continuous improvement programs at Seabee are also really starting to guide, reflected in improved mine operational performance that led to record quarterly mine production rates of 1,150 tonnes per day. This reinforces the base assumptions made in the Seabee's SK1300 and supports Seabee's potential as a plus 120,000 ounce producer going forward. We believe that there is further upside to Seabee's operational performance, which we're obviously chasing with some vigor.
The grades were so high at times that we had slow the mill down to ensure optimal gold recoveries. We ended Q1 with a modest stockpile ore in front of the mill that will be processed in this quarter. Exploration at Seabee is also ramping up. We currently have 2 drills, drilling the Shane prospect from surface and 4 exploration drills underground at Santoy. The Shane targets sits just off the mine haulage road between Seabee plant site and the Santoy Mine. We expect Seabee will return closer to full year budgeted grades for the remainder of 2022.
However, we have developed an exploration chamber and are now drilling to try and define and further extension to the ore some high-grade zone. Seabee is now tracking to the upper end of its 2022 production guidance. And before I finish, just a final note on Seabee. We've just completed the ice road restocking of the mine for 2022, which went extremely well. So, we're set for the rest of the year.
Now, let's jump to Slide 16, and I'll talk about Puna. Puna produced 1.3 million ounces of silver in the first quarter as the operation was impacted by heavy rains, which limited access to higher grade ore at the bottom of the pit, forcing us to process lower grade ores that were scheduled for later in the year. The weather has cooperated better in the second quarter, and the mine remains well on track to reach its full year guidance. Puna has a fantastic continuous improvement culture and their operating metrics continue to improve, building on a new baseline production level of 4,500 tonnes per day.
On all of our assets, we are seeing challenges with respect to inflation further exacerbated by challenges with the Argentinian peso. At all of the sites I have been improving discrete increases in consumables and spares inventories to reduce operational risk and mitigate the potential impact of slower and potential disruptions to supply chains. The team from our supply chain transformation program has been supporting this work.
Please jump to 17, Slide 17. And lastly, before we turn it over for questions, I wanted to highlight some of the other exploration initiatives that progressed during the quarter. In Turkey, we continued to drill at Ardich as we target further resource growth and conversion as well as new mine drilling around the main Copler pits, drilling at [indiscernible] target to the south of Copler will commence in the summer months, and we're also preparing to start our summer drilling campaign at our greenfield Copper Hill project in the Black Sea region.
In the Americas, new mine drilling continues at Marigold, as I've already noted. And we're also progressing some exploration in the Great Basin that included the staking of about 1,700 hectares of new claims in Nevada in the quarter. We also completed some soil geochemistry programs at our Toy and NT Green leases in Nevada with some interesting results for the geos to follow-up.
At Seabee, resource development continues at the Gap Hangingwall of the Santoy Hangingwall, while we also progressed the drilling programs at Santoy, Shane, Porky West and the Joker since the start of the year. We aim to complete the work to define the maiden mineral resource for Santoy Hangingwall, which we'll of course, incorporate into an update of the Seabee technical report early in 2023.
The exploration team also completed a winter drilling program at our Amisk exploration project in Saskatchewan. We will share the results of the program when the analysis in QA/QC is completed and compiled. At Puna, we are preparing to restart the drill testing of targets after a long hiatus. The exploration team are pretty excited and we've just added a second drill to the program to accelerate the testing of some highly prospective targets they've identified at Chinchillas over the last few months.
Finally, I'm very proud of the operations and development teams. They have a diverse skill set with real depth. We're one of the few companies with a proven contemporary track record of successfully exploring, defining, constructing and operating mines. This team is more than capable of dealing with the operating challenges in 2022 and to concurrently deliver on our ambitious growth plans.
Thank you very much, and back to Rodney to close.
Great. Thanks, Stew, and thanks, Alison. As you've heard, there's certainly a lot going on, and we've had a great start to the year, particularly in light of the external challenges that are facing the industry. We remain on track to deliver our full year production and cost guidance and have a number of potentially positive catalysts ahead, including the advancement of key growth initiatives and updates from our expanded exploration programs across the portfolio.
So with that, I'm going to hand the call over to the operator for questions and answers. Thank you very much.
[Operator Instructions]. The first question is from Cosmos Chiu with CIBC.
Thanks, Rod, Alison and Stew, for a very good presentation. And congrats on a very good start to 2022. Maybe first off on Seabee. As you mentioned, Q1 head grade was very high, very good. I appreciate Stew, as you mentioned, you expect it to go back down to closer to 9 gram per tonne for the remainder of 2022. But I still have to ask the question. You've hit this high-grade zone starting in Q2 2021 last year, you were drilling it. I think I asked a question at that point in time as well in terms of continuation of the high grades. And you weren't sure at that point in time. Clearly, it's exceeded your expectations. Now that you've done more drilling, do you now have a better understanding of the geological structures? What drove some of these higher grades? And ultimately, can this continue?
Okay. So, I'll start at a high level, and then I'll drill down. So, we did talk when we did the SK 1300, you see the ounces tail off in the latter years as we deplete material from Santoy 8 and 9. Santoy 8 and 9, we believe, continue to extend that depth. And that's one of the main focus areas that we're drilling at the moment. We do see a slight increase as we go with depth at both of those. And so we are chasing both of them deeper. But we don't have drilling at depth at this stage. We drilled -- we've processed what we've drilled out in front of ourselves and we hope that it extends further.
We do find these from time to time these jewelry boxes and they are very high grades. The current drilling, we've got the drill chamber that we've built in front of ourselves. So, we've got drill holes in there at the moment. We can see structure, but we don't know what the grade is. So -- and they don't -- the holes that we've got don't extend too far in front of ourselves. We will extend that drilling over time. So, it is a focus, and we do want to get more of this in front of us, and we are hopeful. If the grades are high, there is a chance that we will be able to get another stope in there by the end of this year. But it depends whether it continues or not, so I cannot promise you.
Maybe a bigger picture at Seabee here. You've closed a transaction on the Taiga Gold land package only recently. But anything you can share with us in terms of your plans for that big land package on a go-forward basis? Have you formulated any preliminary plans at this point in time?
Yes. So, it was part of our considerations ahead of buying that. We developed our strategy for exploration of the package over the next 10 years, which we shared with the Board as part of the approval process of acquiring the land. The obvious, of course, is Fisher where we're already exploring. And then there are some other areas that we've got highlighted to start exploring and we're very interested in. But as you say, Cosmos, it's still pretty early days.
Maybe just two questions on Copler -- on Copler here. As you said, the flotation ramp-up is going as planned. As you mentioned, the sulfide plant had a record 645,000 tonnes in Q1. Could you remind us, is that what you had targeted? Or could you go even higher now with the ramp up of the flotation circuit?
Yes. So, that -- our expectation is that we will go higher and we're budgeting to go higher. I think if you're looking for a guideline for numbers used, what's in the technical report that we've just completed because it remains pretty accurate. It's pretty early days in the commissioning of the flotation plant. And we haven't put a lot of the different war types through and it's really only been a couple of months. So far, so far, we're seeing better recovery of gold into a bit more volume and we're seeing good performance. We also, the guys to their credit also, managed to increase the performance of the autoclave, the underlying performance of the autoclaves as well. So, we're pretty -- we're pretty positive and optimistic about the performance of the autoclaves with the lifetime.
And then that leads well to my next question, Stew, as you mentioned, recovery. I know that that recovery was 87% in the quarter, slightly lower than last year, like I think it was plus 90% last year. As you mentioned, was that higher than what you had expected? I know you're still feeding different ore types into the flotation. I'm just wondering if the lower 87% is due to the flotation circuit coming in? And is that a good number?
Yes. It is in part due to the flotation plant coming on. And our strategy for bringing the plant up was first to bring the plant up and get it stable at tonnage, so bring the tonnage up and then to chase the recovery. We also had just leading into the shutdown that started on the 1st of April. We did have a couple of issues in the back end of the plant that caused us some problems with recovery as well that contributed to that. I know it will take us a quarter or 2 really to settle down as flotation plant start to tune up.
And then my last question, maybe bigger picture for Rod. As you mentioned, Rod, very good free cash flow in Q1. We'll get even better in the second half with higher production. You've returned capital back to investors with the increase in dividend, normal course issuer bid and everything else, but your cash keeps going up and you've sold off some of your noncore assets. Could you maybe make a general comment in terms of where you're going to spend all that cash? And what are your plans in terms of capital allocation?
Yes. I think what you paint out there, Cos is a really good problem. But I think it actually is one of the differentiators for us as you should think about. I mean the business just goes from strength to strength. And it's really been built on great performance and all of our assets are contributing to it. So look, I think the initial step last year that we took around our capital returns and the strategy around our capital returns played out and we delivered like you said, nearly $200 million back to shareholders in some shape or form.
We continue to assess those opportunities and Alison and the team are busy coming up with a plan for the remainder of this year that we'll take to our Board to talk about here in the next month or 2 to address the increase in cash position, which, again, is a good problem to have. And part of the efforts around keeping that cash for us is obviously looking into the portfolio. And if you think about us post merger, the progress that we've been able to make, not only rationalizing non-core assets from the portfolio.
But adding more assets to the portfolio, Taiga acquisition, et cetera, et cetera, as well as the first really good start that we've had with the tech reports coming out for all of the assets, which remains very much a work in progress as we think about it. Having the ability to keep on investing into the business is really, really important to us, particularly if you get conversion rates at $6 an ounce for exploration success, as Stew highlighted in his discussion.
So it's a bit of everything. Cos, we're looking at opportunities internally to reinvest. It's looking at opportunities to distribute excess cash to our shareholders and having a balance sheet with some strength in it during a volatile time is actually a good position to be in. So, I think that's sort of where we are at the moment. And as a position -- to launch from a position of strength is really what the other company will be known for and I quite kind of like the position that we're in.
The next question comes from Ovais Habib with Scotiabank.
Again, I agree with Cosmos, congrats on a good quarter and a strong start to the year. A couple of my questions have been answered already, but just I think at the beginning of the presentation, you did talk a little bit about inflation, cost inflation. You really started on a good note on cost, but -- and I know you had added in a buffer in terms of inflation in your guidance as well. In terms of supply, in terms of reagents, explosives, where do cost sits according to your budgets currently? And where is the point where we feel or where you feel that you have to relook at guidance or basically your cost estimates?
Sure. Ovais, I'll let Alison actually take this one up and discuss it for you.
So, we are seeing -- we are definitely seeing inflation across a lot of our key consumables as well as diesel, explosive and other areas. So, the range of the cost increases that we're seeing is really particular to the region and the location of each of the sites. And beyond that, some of the cost fluctuations that we're seeing range anywhere really from 15% to 35%, depending on what the actual consumable or item is as well as where we are located in the world. But typically, from a diesel standpoint, we have seen a little bit of an increase across our AISC.
We have anywhere from say generally, a 10%-ish increase in diesel price, especially at a location such as Marigold, where we have longer haul, we typically see about $5 impact per ounce to AISC. So, we certainly are seeing it and we are managing through thus far, as you've noted, our costs are down so far for the year. However, we are keeping a tight watch on it and we are going to do our typical reforecasting for the year. And if we see that the additional increases in price are going to go above and beyond what we expected or anticipated including our original budget and in our guidance, we'll certainly come back out with that information.
I think Ovais, just to build on to it, general sense is that a huge amount of effort going on across the business to tackle what seems to be quite interested at the moment and hard to see a pathway to the end. I think what we're suggesting at the moment is, as Alison has outlined, we're actually in pretty good shape. However, there's a little bit of a cautionary statement they persist and if it gets worse, obviously, it won't be just us in that boat, it will be the industry, and I think you're seeing those pressures play through. Some are more rapid than others. But I think we've done a pretty good job so far to manage it. But I don't think we see any end in sight.
The next question comes from Mike Parkin with National Bank.
Congrats on a pretty stellar quarter, especially at Seabee. First question, can you give us a little more color on -- you mentioned finer ore at Marigold in the north pit. Is that just a function of lasting you're getting, is it actually like fines that are being generated above or like is it expected? Or is it a bit of a surprise? Just some additional color in terms of what you're facing up there.
Yes, Mike, it's Stew here. So, these are the [indiscernible] 1 and 2 and H pits. They're at surface, the new pits, the grades are slightly higher, but they're at surface. So, it's just fine-grained material. In fact, the first couple of benches we free dug the pit as a result. So, it's just less durable than the other material. And when we stack it on the heap leach, we blended with material coming from the Mackay pit, the more durable one to ensure that we get percolation but it does hold more water because it's finer.
And so when we irrigate it, it holds -- it holds both volume and it slows the water passing or the leach solution, it slows it down as it goes through the heap. When we build our leach models, we build the leach models into that, we've been churning our leach models. And what we're seeing coming out of the heaps does represent what we're seeing in our models, which is a slowing -- slowing as it comes out.
So, it's not an issue of like blockage in terms of fines generation. It's more just a slowing of the percolation?
Yes. Yes, that's more to it.
Just with respect to Turkey being a little closer to what's going on in Ukraine, are you seeing any of global inflationary pressures on consumables, whether it be diesel or other key consumables for Copler, just tied to the geological location a bit relative to Russia with it being a fairly significant supply over a number of commodities? Is that evident? Or are you finding the pressure there on consumables similar to that say of Marigold?
I don't think there's anything specific that you could overlay to what's happening up in Russia to Turkey. I think generally, as Alison sort of has outlined that we're seeing the cost pressures across the world at each one of their operations. And it does vary by region, depending on what it is, but I wouldn't suggest it's anything specific to do with Russia.
And then just last question for me. You mentioned the autoclave maintenance for Copler's planned for Q2 and Q4. Can you just give us a sense of how many days those outages are?
Yes. So, we just completed the autoclave #2 shutdowns. We did two, then we're going to do autoclave #1 in October. Autoclave 2 shutdown was 20 days, which was a pretty good performance. We had budgeted for a little bit for a couple of days longer than that. And then we also took a total plant shutdown during that 20 days that it was down of 5 days to do some work through the whole of the circuit. When we take one autoclave down, we do increase the throughput through the other one. So, it's not exactly a 50% impact when we take it down. The shutdown in Q4 will be approximately the same.
So you're doing number one in Q4?
Yes. Yes. And we're just finishing -- we're just coming out of this shutdown. We're just doing some analysis, and then we'll go back and reschedule that one at the end of the year with the learnings that we had from this one. This was the first -- the reason that I called this out as a pretty impressive outcome is, we've been extremely fortunate at Copler that the wear on the bricks in the autoclaves, apart from doing autoclaves or some of the -- in the old days, some of the problems of some of the businesses happen with them. At Copler, we've had very little wear on the bricks and this is the first time that we've actually done a re-bricking to the autoclave. So, we did a re-brick of the phased courses in the parts of the autoclave, and it went very well.
Was that about three years since those bricks were originally put in?
Yes. Around about.
The next question comes from Steven Green with TD Securities.
Just another quick one on Copler. I think you've kind of answered this question already. But regarding the shutdowns, do you think that will result in a quarterly basis on Q2 and Q4 being the lowest production quarters?
And you do have in your mine plans, some scheduled material to be stacked on the heap leach. Can you tell us when you expect on a quarterly basis when that will come in?
We're redoing the schedule at the moment for the mine, but there's very little stack to the heap leach this year. So, if you looked at our forecast production, it's quite low.
So, this may mean residual leach then?
And just getting back to Seabee quickly. Again, I think you answered the question on grade profile expectations for the rest of the year. But you did mention that you are still kind of mining in one of those high-grade zones and you did a stockpile. You do have some stockpile material part of the mill. Do you expect some of these high grades to bleed into Q2 as well?
So we finished in Q1 mining in the high-grade zone. We do have some of that material on the stockpile. Like all good miners, we put the best grade in first, so the material that we have in the stockpile is not at 18 gram a tonne, I would like it to be so. There will be some bleed into this month, but not a lot of the sort of 18 gram a tonne -- or sorry, into this quarter.
So, reasonable to expect then that material would mostly be in the kind of 10 gram range?
Yes, it will tail back to where it's supposed to be. And then if we're successful with this exploration, there's a chance that we will be back into it at the end of this year or the beginning of next year. We'll be able to get better guidance on that at the next meeting. But at the moment, nobody can give you that guidance because we don't know. We haven't got the assays back. I can speculate, if you like.
No, that's fair enough.
[Operator Instructions]. The next question is from Levi Spry with UBS.
Maybe just on the -- maybe a question for Stew. The scope of the Marigold Master Plan, can you just tease out a bit of the detail there that we can expect that's feeding into, I guess, sort of the scope for it over the next 12 months? And maybe an update on where the deeper drilling the sulfides has got to?
Okay. So, as we did at Copler, we develop a -- at all of our sites we're building a master development plan, which is really some strategic development plan for the operations so that we can focus our development efforts on the key targets. What we actually had to put into the technical report that we share with the broader community is always sort of a redacted version of that because we can only put the things in that we've got the work far enough along. The work that we -- so we've had a series of workshops with the external experts and the rest of it there helping us. We've recently just engaged an engineering EPC company to give us some support.
We're going back and having a look at the Buffalo Valley and Trenton Canyon what the development pathway would look there -- look like there. And we are getting new drilling in both in Buffalo Valley, which we're pretty excited about and also on Trenton Canyon that look a little bit different than perhaps what we thought before. And so we will have to make a decision at some point when we start to generate the schedules and do the resource estimates on those because we're getting a better understanding of what might be there.
So -- and then in the more near term, the drilling that you saw in the exploration around the existing pits and in the new millennium, we expect that, that will convert at least some of it in this coming technical report will convert into -- will convert into resource and reserve. And we are focusing some drilling around there at the moment because we do have a bit of a gap in '26, '27 in the current mine schedule, which you would have seen in the SK 1300, which we talked about last time.
We're progressing the EIA and that will be completed with all of the permitting sort of in 2024. So, we would fill that gap. And so we are aiming to get at least part of that as much as we can define with the drilling that we've got done either the technical report, the next one you'll see and we should be able to give a much better definition of what we think is going to happen at Buffalo Valley and Trenton Canyon based on this new work that we're doing.
Just the timing on that resource update then?
Beginning of next year.
And the deeper drilling, what is the update there?
So, we're still pursuing that, but it's not at the top of our agenda with regards to exploration. So, we got it kicking along on the background, but we don't really have anything to update this quarter.
This concludes the question-and-answer session. I will turn the call back over to Mr. Antal.
Great. Thanks, everyone. I appreciate you participating today. Have a great rest of your day, and look forward to continuing on our grade efforts at quarter 1 later in the year. So, with that, we'll conclude the call. Thank you.
This concludes today's conference call, and you may disconnect your lines.