Q2 2020 Pan American Silver Corp Earnings Call
In American sober second quarter results 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After your presentation, there will be an opportunity to ask questions. He joined the question Q you May Press Star then one when your telephone keypad. She didn't need assistance during the conference call in Michigan, Olin, operator by pressing star and zero.
I would now like to turn the conference over to Syria is a key VP Investor Relations. Please go ahead.
Thank you operator, and welcome everyone to Pan American Silver second quarter, 2020 conference call media and other participants on the call are invited to participate in listen only mode.
We released our results after yesterday's market close and a copy of the news release Mdna and presentation slides for today's call are available on our website.
Material and today's call contains certain statements and information that constitute forward looking statements and information.
Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent form 40 F and annual information form.
We'll now turn the call over to Pan American's, President and CEO, Michael Steinmann, who will provide a brief review of our results. We will then open the call two questions and answers.
Thank you everyone for joining us today to discuss our second quarter result.
The Blue coli 19 pandemic had a significant impact on our operations over the second quarter.
Despite strong government measures introduced in many of the countries, where we operate to control the spread of the virus infection rates are climbing on health care systems are struggling to cope.
Our operations in Mexico, Peru, Argentina, Bolivia.
Also spend that for various iterations during Q2 in order to comply with the mandatory national Quarantines imposed in response to call the 19 pandemic.
Silver on base metal production, where most impacted has limited gold production continues from the heap Leach operations, such a window larina Antelope, Chris I'm from dependents operation, which continued to produce goals at about 90% of capacity since the pandemic was declared.
But you wouldn't first all over operations were Bakken production, except for what on a moral culture in Peru.
Well those mines, we started in June the returns to care and maintenance on July 20-F, following several workers testing positive for the Koby 19 virus.
The reduced workforce is conducting care and maintenance activities are those mines until it is determined the normal operations can safely every issue.
Across all our operations, we have introduced comprehensive protocols to safeguard health and safety of our workforce on communities.
The slides accompanying this call and posted on our website provided channel description of those protocols.
We have limited to remobilization off the workforce in order to allow time to adult and refine these protocols.
Our minds are currently operating at lower capacities, we introduced staffing levels to accommodate the coffee 19 related protocols, particularly physical dispensing and diverse place comps cafeterias and transport system.
Revenue in Q2 of $249 million reflects the impact on sales volumes from the mine suspensions.
Oh actually offset by higher realized precious metal prices.
Mine operating earnings of $48.4 million are similar to last years Q2, as lower cost of sales largely offset lower revenues. Both on account of Koby 19 suspensions in Q2.
That's well production costs in Q2, 2020 benefited from devaluation of local currencies and lower energy costs.
Not to income in Q2 was $19.4 million or 10 cents per share, which includes 52.2 million in care and maintenance costs and $47.5 million in investment income.
Investment income largely reflects the realized gains on the parcel sales of our interests in Mavericks metals, and new Pacific metals, and the Mark to market fair value adjustments are now remaining interest in new Pacific.
We continue using the equity method to account for our remaining interest in Mavericks and does the mark to market adjustment for metrics is not included in our net income.
Adjusted earnings in Q2, there $58.4 million, what 28 cents per share.
Investment income is included in adjusted earnings fell $46.5 million of coverage related care and maintenance costs were removed.
Cash flow from operations in Q2 totaled $62.8 million.
Working capital changes during the quarter provided roughly $31 million.
Source of cash, which is mostly due to the release of inventories from the continued leaching I traveled three heap Leach operations.
Yeah now replenishing these inventories I know setups expects to draw down in Q2 to be reflected thing a larger to use of cash working capital adjustment in Q3.
Excluding working capital changes Q2 cash flow of us more than sufficient to cover sustaining capex taxes, and dividends and then that $60 million repayment on our credit facility.
At the end of the quarter, our cash and short term investment balance increased by about 22 million to $262 million.
We made a further repayment of $40 million an hour credit facility in August reducing the amount currently drawn to just one on that on $60 million.
During Q2, we sold 10.35 million shares of Mavericks, and 10 million shares of New Pacific. He also exercised 8.25 million Mavericks warrants, which added to our share position.
We now hold an approximately 19.9% I'm dilute that interesting Mavericks, and then approximately 9.96% on dilute that interest in new Pacific.
The other notable divestments, we made in a quarter, what's the sale of the to be and neither exploration properties in Ontario, but we had acquired as part of the tower transaction you.
So those properties for $10 million had retained a 1% NSR royalty.
These transactions largely accounted for the 81.1 million in cash proceeds we realized from divestitures and the quarter.
Parcel sales of our interest in Mavericks, a new Pacific do not change overview of those companies.
It was simply a timely opportunity for us to further strengthen our balance sheet.
We retain exposure to further growth at Mavericks vials remain committed to the future of new Pacifics exciting say listen discovery.
To be used in early exploration stage property, which for us not to fit with our portfolio.
It will continue to look for opportunities to divest of other early stage smaller exploration assets within our portfolio. That's our exploration efforts are focused mainly on reserve replacement up existing mines.
Large scale projects.
Well normal operations very significantly disrupted in Q2, we were able to progress some of our key sustaining capital approach us.
This includes work on underground ventilation system at our luck without operation in Mexico.
We expect to complete work under ventilation raise from 345 to 528 level and install an underground boost to find and a third quarter of 2020.
Uncompleted the mine will be able to increase production from the high grade sulfide rains in the eastern part of the mine.
In line with our previous rates before facing the ventilation restriction in Q1 2020.
He also advancing well under long term surface to 345 level ventilation raise which we expect to complete by yearend.
In Argentina, we resumed underground work at <unk> and working in early May and expect to begin processing orders from those assets. So that there might have failed is painful processing plant during Q3.
We also progressed wonder if our key catalyst for growing future shareholder value.
Exploration drilling at our luck, let us Garen discovery has enabled us to increase do you estimate for the inferred mineral resource to 100.4 million tons containing 141 million ounces of silver.
Please see our news release issued on August four and our of upside for further details.
Yeah, we're continuing with drilling and environmental and metallurgical studies to advance development of this exciting deposit.
There are also investigating alternatives to access the ore body options are to decline from the bottom of the existing saf decline from surface or develop and new shaft.
I'm looking forward to discussing this alternatives in more detail into coming quarters.
Regarding another capital is in our portfolio you Escobal operation in Guatemala, We continue to evade progress on the government's Aiello 169 consultation process.
Obviously the process has been disrupt that given the current cobiz restrictions on curfews.
What im all as being severely impacted by covert 19.
Like many other countries in Latin America, Guatemala is working hard to balance the health risks and the economic impact I.
Our team continues to work closely with our employees and local communities to coordinate numerous requests for support.
Escobal remains in care and maintenance and we currently have no timeline for the consultation process order reopening of the mine.
Yesterday, we also provide at the annual corporates reserve and resource update so the last 12 month of exploration and production I.
So you May remember, we moved our reserve update from year end to meet here in order to work with the latest reserve estimate in developing our annual budgets a process that will begin in September.
Over the past year, we replaced 76% after silver and 107% off the goals mind, adding 22.1 million ounces of silver and 719000 ounces of gold to proven and probable mineral reserves.
A detailed is provided in our August 5th news release.
With the release of our Q2 results yesterday, we also provided revised guidance for 2020.
Even through the guidance previously provided for 2020, because we were unable to determine the impact from the government mandated suspensions at that time.
Well the situation regarding the probably 19 pandemic is still very fluid and uncertain. We feel we're in a better position to provide guidance with most of our operations now having resumed.
In 2020, we are expecting a total silver production of 19 to 22 million ounces and gold production of 525 to 575000 ounces.
All in sustaining cost for the silver segment are expected to be between $10.50 to 12050 cents per ounce.
For the gold segment, the all in sustaining costs are expected between 1050 to $1125.
Capital expenditures are estimated to totally between to underpin pan to $215 million, including 25 to 26 million dollar for approach our capital.
Again, there remains significant uncertainty in the second half of the year due to the potential impact of Colgate 19 on production and cost.
The past few mom has been a most challenging in Pan American's 26 year history due to the global coli 19 pandemic.
I'm very proud of our team has been managing this crisis, which gives me confidence that our business is for sale in and can navigate these extra ordinary challenges.
The unprecedented economic impact of the pandemic has forced governments to unleash monetary measures to scale of which we have never seen before.
Gold and silver have responded with prices rising significantly over the course of the year.
They should generate marching expansion and improved financial performance over the remainder of 2020.
And with that I would like to open for questions.
Thank you.
We will now begin the question answer session.
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The first question comes from Chris Terry of Deutsche Bank.
Please go ahead.
[laughter] Oh tomorrow.
Well she courses for me just wanted to start on the on the balance sheet, you're obviously in a really strong position after that quarter, particularly the asset sales. So just wondering if you could talk through how you plan to allocate some of the the capital maybe in the context of dividends. Thank you.
Sure Good morning, Chris.
Look really nothing has changed in our.
Capital allocation plan here as I always said number one is always our balance sheet that suits very de are an important to us. So we'll keep aggressively paying back at that I'm sure you've seen that we obviously pay back to the $80 million. It that way that we took from our line of credit at the very beginning of the pen.
That make us a precautionary method, we did not need the money. We also paid back and additional 60 million dollar during the quarter on the line of credit and actually were able to pay already another $40 million an hour line of credit after the quarter here just just a last week or early this week so.
Our drawn the line of credit is town and right now as of today to 160 million dollar and we will continue to focus on that though would have done next you know month and quarters for sure.
Number two always important to us our high quality accretive projects.
We have a few in our portfolio I'm sure you saw the incredible a reserve resource update on our discovery at a local let out of it over 100 million pounds now in hours Kong Polymetallic discovery, there so high quality projects that will require capital or that's where we assign a the SEC.
Bucket a from our from our you know free cash and I'm capital available to us and a number three as you mentioned this dividend and if they look at it we increased the dividend actually just at the beginning of the year actually they are probably the last three years at the beginning of the year and Oh definitely a look at that again, we you know they're very happy to read.
Turn money to shareholders to be paying dividends since 2000, then pan.
We have been are returning to shareholders I think since then about five or $470 million and I will definitely continue to do so.
Great. Thanks, I'll go and then just in terms of me operations that are on care and maintenance, so rather than a matter coach a give me just give an update might be on on thoughts around what you what has to change to get started back online just just wondering I know its arms.
But anything you can put <unk> no nurse.
Yes, it's definitely uncertain right now I mean, we see like in many many many countries in the world. We see an increase of cases in Peru, especially in Santyl, Peru, as well around the operations or you know there might there may be additional restrictions as well from the government into future, which we don't know so it's pretty uncertain.
But we just you know defined it does when when we deemed does it say for us to restart Google for sure restarting operations down as quick as we can.
Okay. Thank you and then.
Yeah, I see the strong results coming through on those just gone deposit.
Our Colorado, maybe if you can just give it Tom on at the upcoming events or you know what you're doing now on drilling when the next update will be when you might get a reserve just just the Tom one of those bad so look for that project. Thank you.
Sure Yeah very strong results there looking in my view. This is obviously a world class deposits its very large.
They they can grow all around its open and in most of the directions or.
I think we will focus on infill drilling from now on I mean, we can you know who knows me if it can spend a long time or make this much much bigger but at the end up today I think you have to focus on on a increasing geological confidence here on past Thompson doesn't indicate it done done due the technical studies that we need to do on that deep.
They do move it into into our reserves as you indicated so timeline still still to be the early to say Chris for sure I will have would be more information on that or the next quarter under one after a we are discussing actually internally right now how to best access the top part of.
The Skarn, we're looking at the ramping down from existing underground levels are ramping down from surface way that with a large around forget AXOS or the third alternative front, there's maybe a combination of those three as well I will be a large shaft from surface. So as you can imagine there's a lot of technical stuff.
I just needed for that but are you should you know plan on that you're gonna see updates really on infill drilling from now on and a increasing confidence on on the geology. So we can move forward with the technical work.
[noise], but thank you and then just a small one I'm on the second quarter. There what's the difference between sales and production just thinking about food God and she's provided for the rest of the year, maybe you could just comment on expectations for sales versus production should we assume that pretty close to each.
Other in Threeq and hope you.
Hi, Chris Good morning, interrupt go out here and yeah, you're right. We didnt have some benefit in Q2 of drawing down inventory and selling previously produced.
Production and and a even in Q3, we expect to to rebuild that inventory, but it should even out of it I visit quotas and are we expecting the second half sales to to be virtually in line with with with production Pepsi a small AG just to build.
At the inventories as we as we ramp up the particularly at the heap Leach operations.
Thanks, Thanks, Charles Frischer, what you're well just one final question for me I know Mark we normally have some good insights on the silver market I'm, just wondering whether you whether you're wanted to comment at all on what you're saying I'm always says when supply disruptions investment the man.
And improving except Troy good just wondered if you wanted to comment at all on some other things you're saying the silver market.
Oh for sure Larcher disruption on the on the production side or.
In Mexico, a cross the line, obviously not only from Panama, but that's just due to call. It a same in Peru and other countries. So there will be disruption I don't have an estimate that I haven't seen a number yeah.
How much disruption on the mine production for the year, but I would I expect that it's quite Bacon and thus you Rick recall the last a year I'd say two years, it's actually a that's already declining without calling it the mine production.
At the same time or kind of found limit that money supply as every country is really struggling here too to a kick start their economy again.
Which is obviously that wants to main reason why we see that strong reaction in gold and silver prices, we have not seen really a big increase in an uptake of silver for on the on the industrial side, So I'm I'm I'm a bit torn down to see what's what's going to happen normally visas, we see a bit.
Slower increases that when metal prices are high for obvious reasons on you know the higher metal prices are pushed by by the investment demand, but I could also I imagine here with a really strong desire to kickstart economists are saying that it wouldn't have stand up a big impact.
The metal price to the industrial offtake this time, but.
Time will tell I'm I don't have a crystal ball for that one either.
Okay. Thanks, Thanks, Robert Thanks, Robert appreciate all you have to stress.
Thank you.
Your next question, yes from Cosmos Chiu, let's see IBT. Please go ahead.
Hi, Thanks, Michael and team and then first off congratulations on a very solid Q2.
All things considered.
You know maybe my first question is on your reserves update I'm very robust update or replacing silver increasing gold I see that you've used an assumption of 18 dollar announced silver 1300 dollar announced gold I'm clearly lower than where we are today in terms of spot. So I guess my.
My question has in two parts of my call maybe first off how did you arrive buddies, you know gold and silver and price assumptions. What did you consider and then number two what's your sensitivity in terms of a these reserve ounces to potentially higher.
You know gold and silver prices, especially for a lower grade mine like Dolores.
Yes.
How did you got to these prices for dumped forgot that this is the reserve as and off June 2020. So we obviously have to define price was quite a bit in advance metal prices. Some forgot I've been substantially lower at that time already that that was a big increase just over the last a couple couple of months.
ER. So that's one reason why to pick their friends, but the main reason for it is really you have to be very careful.
And you see this big rounds in metal prices, which you know can kinda can provide or something so some really attractive returns to shareholders and you have to be very careful not to run up to metal price and on that in a lot of follow what a great reserves. So what we are focused on is to really add real.
Reserves, not just marching no additional ounces to increase our reserves booked which provides a solid margin.
And even a bigger March and obviously today with the higher metal prices.
Sorry about the let's stay other question.
Yeah in terms of like you know I didn't have any additional ounces yeah, yeah, well the sensitivity that you pointed out of course in in a place like Lockwood out of our we have very high grades. There is not a lot of sensitivity I think if you run that that nearly any metal price to reserve slow probably pretty similar.
Of course, there's a different story at Dolores and when you look at materially inside the pit that are suddenly it wouldn't be way spending more and definitely then we go through the budgets on mine plans, we will very carefully look at that material I make decisions done work, but the place that's material. So.
You're obviously not just blindly move everything to the to the base down if it if it makes money at 14 on a dollar once we go to the Trued up to the mine planning to mind like like the Lotus specialty areas I asked me sitting on very high gold prices here I'm cuts create potentially big marching from that material, so you're absolutely right.
Much bigger sensitivity on on.
Lower grade I subs, you will also CV provided an entire Paypal love metal prices Hughes in the back of our reserve update I'm a firm believer that does not just a one number if it's all a each mine, it's a little bit their friend or not huge differences, but they're all of its difference and a that just makes sense why do we have mindspeed charter mine life.
Sorry can be much more aggressive fit the metal prices because you have lost risk and RV, probably you know.
All pretty pretty bullish on gold and silver prices over the next few years.
Mindset very very long metal prices matter, we now have been Oh, probably a bit more conservative fund on when we chose to metal price. So if you look at the table in the back of our reserve civil Tivo prices, we use but.
If I'm not mistaken I think it's all somewhere around 1300 to certain 50, maybe sometimes 14 on a dollar several years <unk>.
<unk> <unk> and maybe a bit more you know good to see that lack arena you were able to replace production.
And your latest reserve update.
You know clearly not Florida oxides in terms of reserves, that's likely find night, but is it you know too optimistic for me to believe that you know year. After year you can actually replace production and then you know on bad where are you finding more ounces to put into reserves.
Yeah look I couldn't I couldn't.
Be more happy about the reserve replacement that the geology team are provided a lot in a short window and tenants I think we really have to mentioned those three assets.
Of course, we know that Theres, a very long life at south window, but but do you know, adding over 400000 ounces off of Ah.
Ounces of reserves and of course, we mined probably around 200 campaign, but are you know, adding a adding actually two years of production. It's it's a it's amazing just in the short time that we own Diasa and there is definitely on nothing Kosmos we've talked about that tend to pass a lot of exploration outside the round that asset.
Long long life on the long long time to explore and throw so I'm not worried about that at all but a lot of people have been quite worried about the reserve sub.
A lot in a and a 10 minutes a couple of years ago and you know every year, we replace basically reserves pushing and pushing production out another year another yet another year or at some point that will come through the nine for sure but at the moment in only a very positive exploration results on the and of course there money.
Look at the metal prices and that's a set out shorter life mine study, though are the more inclined to use a little bit higher prices to look at a I think there's there are still a lots to do there. So a lot of upside that are still see as well.
And then maybe two quick questions on your on your guidance here good to see that you you know reinstated guidance a at least you know in line with my expectations.
I guess first off you know likewise, you talked about the Peruvian underground mines. They are a it's a fluid situation. There currently on care and maintenance, but in terms of your 19 to 22 million ounces in terms of silver production. You know what have you kind of factored in in terms of potential restart date adults.
Peruvian underground mines, and then on that or are these two mines and the potential start up the biggest sort of variable and you hitting your target for 2020.
Well just think general there's obviously a lot of uncertainty in here, but we're getting a guidance and time of Corvair done I'm sure everybody appreciates that we did actually not just include certain restart page, but more like look that kind of factors our estimates.
Corporate wide or how the production could look like and I'll I'll have Steve giving you. Some more details yeah. Good morning, Kosmos or afternoon, Hi, Steve I'm, sorry, Yeah, I would say that you know when we look at restarting the operations that were on a more coach or the issue to us is more at what rates do we re.
Start and at what rates to ramp up over the rest of the year, there's probably going to drive that that more so than the exact data born we restart. So we've got some flexibility built into this gardens sits re guidance that we've issued to allow for that so we don't have a specific target date that.
That we we put into that what's more just a sense of restart rates were going to start slowly we know that we're going to ramp them slowly because they are fairly large workforces. These are labor intensive mine. So we have large workforces and we just have to easier way into it we can't just jump right on it so.
So to me the big driver store silver production are obviously lot, Colorado and getting that ventilation raise done this quarter is going to be opening up some some good opportunities for us there.
Also at Dolores I would say depending on the range that are just starting now Oh and 10 say our goal will allow us deep in the period or not that can drive more silver production or not I think those are the big drivers as to what we have control and what we'll see for the full year silver production in the company.
[music].
HM.
And then Steve on Dolores you know as you mentioned I believe in though Mdna underground restart it a in July the pulp agglomeration plant restarted in mid June how's that going so far it's not going to help you in terms of it'll getting that production in the second half as well.
Absolutely a the pulp agglomeration plant came up really well actually so did the underground is up and running now and and both are running well. It's just a monitoring the workforce monitoring the the pandemic and the virus around where we operate and making our shift changes is.
Smoothly as we can each time, we bring new crews and those are really the risky periods for us. So that's what we're managing and right now the operations you're running pretty smoothly.
<unk>.
And then the last part of my question here is you don't in terms of guidance I see that sustaining capex guidance. There's no 180 $589 million previously it was 225 to 240 million how should we look at that difference is it you know is they're gonna be something that will likely be caught up later on does that mean.
You know that difference will likely potentially reappear in your 2021 lots more deferral, how how should we look at it yeah, absolutely cosmos its most definitely a deferral.
Particularly on Leach pad construction.
So we'll have to do those him 2021.
Okay perfect. Thanks, a lot of those other questions I have thanks, once again, Andrew Thanks Carlos.
Thank you.
Your next question comes from Boston, and there is back and then that huh.
Hi.
Hey, operator, thank you Linda Thank you everyone for taking a call.
I would like to follow up on some of the reserve questions as well and.
And also make the comment that Oh, I'm very glad to hear you say that.
Your goal is to add real reserves as opposed to chase the price how higher I think that's definitely what investors are looking for China, and obviously I was very impressed to see that you guys added a lot of reserves and <unk> and did so with only very minor increases in the prices are no no increases at all in the case of but something that.
Gold assets. So I just wanted to better understand where some of those increases were coming from the one on learning a lot arena in the past.
They see what's happened is.
It's really without with sulfide just turned out to be oxide is that what's happening here and then what's the outlook for that to continue to happen. Thanks.
Yes, sure can hide Crimson here.
You know that the Georgia teams across across the company did an exceptional jump this year and a very.
Difficult circumstances ways.
Yes, I'll starting over his efforts off process, yeah through sort of.
February March April and then on the season and then it coming in I mean, it took a huge effort from from one of our teams across the company and some ready ready sector successful results without yep, I cannot the prices or anything and keeping it very very real.
Arena as Mike alluded to just steady run to the previous question was infill drilling from from that I ran a pit which put into tilts the structures, which will have great structures. We focused on those and there was some upside that we gained from the bottom of the pit and to the west. So that was that was a nice increase that through Lorraine or 160000 ounces coming in.
Easy, replacing production shell window, we saw more infield drilling at the back back end of last year in into Q1. This year I don't see got suspended through through the pandemic, but that gave us some really nice results outside of what was that long term life of mine pit. So we add it didn't fit resources into reserves increased.
In that.
Tons that and we've we've had in a good positive reconciliation across shall wind I say all in all right nice glad I'm, a 400000 ounces of reserves in gold actual window and Tim in sake as Mike again said they they company every year on year.
I'll close to replacing that the production, which really comes from mainly from Bell Creek, where we replaced over 100% in production and that is a deepening of the that they structures and add some getting into inside them converts in fed into reserves, that's still a there's still room to to increase so from from.
The gold assets that gold segment that is where the real drive came from I'm on the silver certainly like Colorado water on and and money on T. Atlas that gave us some good.
Good dances back into reserves.
Which was which was really pleasing.
Yes, that's just throw out here at <unk> to be clear a lock let out or not only on this current side, which is obviously the resource, but I'm sorry, if anything the in the press release actually had a 10 million ounces of silver just from the producing part of Lockwood auto from domain. So a very strong result, there as well.
Yeah, I'm actually glad you guys brought up a lot of Colorado, the very impressive increase in the silver.
Though the.
Base metal base metals went down gold slightly but but it was more of the Oh.
Let in things that decline is that just geology driving that or is there is their economics getting involved here as well.
Well I can.
Well, Chris you can take it [laughter] nice certainly <unk>, I mean, like Colorado or over the past couple of years, yet, we've obviously been moving more to mechanized that is increasing across the board.
<unk> decision from that technical side was taken to slightly increased the wet.
The minimum mining went from 2.4 to 2.6 that did adding some tons some slightly low grade material. That's what you did see a slight decrease in those those grades.
And on the on the base metals sorry the.
Am I understanding to the base metal great went down so so some fell out of reserves I was asking more about how the base. It just how the base metals once wrote replaced as well obviously the silver was it just depends how much of yeah, Dan on the oxide side and on the sulfide side, obviously, a for the base metals it depends in which area beyond a mine.
As you can imagine it's a very large my now and Theres a so nations after based models or so in any given year I would expect you know to add in warm, saying on later on probably more copper. That's just you know make sounds while the geology shows shows to us.
Gotcha, Yeah, so geology, okay, that's what I had suspected.
No no Michael just.
I wanted to ask you on a.
Cost inflation, obviously every year there there is some cost inflation, but I'm curious are you seeing any early and so.
It's inflation beyond what you've seen over the past several years, whether it be on label it like labor or a inputs.
Well, we definitely see some slightly higher cost because theres a call, but cost a attached to it and that will stay obviously as long as we deal with this spend that make a you know just just much more efforts on 'em work, there and up a bit less lost productivity. So you'll see a an increase there. It's a you know it's not dramatic.
I think they're very strong tailwinds, obviously that we deal with of course number one metal prices are not that that help us a lot on the on the by product or done you know even on the base metal side or slow, but steady increases terrorists, while the that'll help us into the into future. We see also.
So two other very important things.
I have seen past ones still do is a.
Local currencies. So we see advantages there on the exchange rates and definitely lower energy costs across the board. So I, maybe I'll pass it onto Steve for his comments, but I don't think that we see no dramatic increase this yet no. The only thing over dad Lawson is is that our normal collective bargaining with the unions.
We'd be pretty far progressed on many of those this time of year normally lot of those have been disrupted because with the pandemic situation. So we don't have a good sense yet how those are going to fall out relative to our our forecasting that right now we don't sense that they're gonna be weight.
Blind, but but I don't really have any progress on the actual negotiations to really make any statements in that respect no, but definitely control of cost will be one of our main focus Oh. This hospital and unveil would remain to be are going to future.
Hey, if covert das or you're only going concern right now I think that's a that's.
That's a good situation.
Yeah, I'm ventilation installation at like Colorado, well that have any impact on a throughput over the coming quarters or is that are the events being installed a out away from current production.
Yeah, I'm going to let Martin more important news on the line our senior VP of Tech services, a dress up Martin do you Wanna took though.
Yes, sure Dave Good morning Allison.
No. The ventilation is more impacting our access to some of the higher grade areas in the eastern part of the mine right now so.
So far we've been able to.
Get the production from from other parts of the mine.
You see the alright slightly lower grades.
I think one of the things that we're seeing perhaps with production is some of the code 90 protocols are are you. There there are constrained for sure on production. So they may impact things, but Uh huh.
But so far we've been able to get around to ventilation and by producing from other parts of the mine.
[laughter].
Okay, that's great.
Now, what we might asking about Guatemala, thanks for addressing in your comments, Michael <unk>. It sounds like you're a social license athletes at continue helping the community through covert.
How would you describe the progress progress you guys have made a today on.
Sort of the in improving the situation around social license, just putting aside entirely to the Ilo Onesix Tonight, but.
Well look obviously a lot of worked up that that went in there are no big change of our team are having a big local very strong local team there.
Of course, the pandemic changed everything out a short term or I'm, not only in Guatemala, but anywhere on the planet and.
What im all the has been really severely impacted by by that and the government is working on to minimize just for sure but you know like like any other countries. There are really working hard on balancing the health risk on anti economic impact of stuff. The pandemic. They do a lot of work there Ah I would team really works closely.
I have it together with our employees I'm the communities to coordinate actually a huge amount of off a request for support and how that's part of why not only in Guatemala, but really across a across many jurisdictions. We are so we're very very active there a lot a lot of work has been done but I'm sorry I was.
Hold on top of timing for the Aiello Onesix nine a process, especially has we have to wait to advance of it photo through disciplined Dominic.
Okay. Thanks.
And then maybe a Michael some <unk>.
An additional question on the capital allocation framework that you.
Provided and continued put consistently provide for sometime.
So in the past ending.
Yes dividends have been number three on the alone but in the past you've also used to buyback as a way to supplement.
The Dan.
And you know of course debt is and your main goal right now, but you know at current prices they won't be long before year.
Debt is gone and that's how do you think about a buyback muses the or your current dividend going forward.
Uh huh.
Sure on behalf of course, and I have made a lot of investors discussions on buyback versus dividends. All the time, it's a pretty good or discussion actually do have not only in high middle of price, but in low metal prices. When you actually this call is how we returned money to to shareholders. That's obviously different views, depending a much on tax regimes in different countries as well.
Well I'm prefer and self all shareholders for me personally I, absolutely believe that the fast return our high quality projects and are being able to finance them from from a cash flow on the hand on free cash flow like a an expansion or as current development that Lakota isn't amazing opportunity.
D., so definitely a focus on that and I think that's will provide a much better return to shareholders on Oh done buying back a lot of to shares just as a general statement a that's my personal view that a lot of companies start share buyback. So obviously, if I know how.
After because cash flow that means normative on there is the highest medlar price that means fund, they're looking at the highest chair prices fall.
ER. So a if you do share buybacks normally I think it's a you know it's better to shore up your balance sheet and maybe two that's a bit later on.
That makes a lot aside from just one final question for me and on the capital allocation.
The like Colorado, Skarn seems like the obvious next sort of larger project with which to.
He was that cap or on which to use that capital I'm curious are are there any other potential a project that might be in the pipeline, though that we're not seeing right now like any potential expansions at the existing assets.
Hum along those lines. Thanks.
Hi, obviously, nothing indecisive Lockwood out or this is just though obviously overwhelming everything as it's such a large deposit down.
Well be the largest or amount required for for that development a in capital or you know I'm sure Steve from marketing to always come up at some really clever ideas how to squeeze a little bit more left and right, but you know that won't be a material numbers already or on the capital allocated.
One of <unk> for those assets just to keep optimizing them, but of course, there's still a still and I read out there in Argentina.
Which you know, it's probably about the similar similar statement that I'm done done in Guatemala, none of it but call. It. There's you know kind of a holding pattern right now on on that that's obviously a bit further out there, but I know that could be another large project that would require capital of course, Guatemala is already built so.
A couple of requirements therapy quite modest.
Thanks, very much guy and give us your summer.
Uh huh.
Thank you.
Your next question comes from Chris Thompson T.I. financial Please go ahead.
Hey, good morning, guys. Thanks for asking a answering my questions are hey, Michael that must be a little frustrating whatsoever I fully ramped up the silver side of the business looking at silver this morning at a $28.
Just a just a lot of my questions have been or B notes, but just a little bit more detail I guess on hardware or how you're doing what a low rates by way of the underground and then the pulp agglomeration just remind us what are the or what are the goals by way of ramp up and then maybe sort of the timing for that to on both components.
Yeah. Good morning, Chris Steve here regarding the pulp agglomeration plant I mean, we we kind of targeted at about 5500 ton a day throughputs. This year before the cobot endemic in the restart go to say you know we kept everything in really good shape during care and maintenance and we're basically.
We started about 5000 tonnes a day I only caution you know the uncertainties of these shift changes that's what we monitor and we've extended shifts we're very careful about how we do the shift changes, but that's where we're seeing or biggest rules. So the the uncertainty is whether or not each ship.
Change will have enough personnel to run at full capacity rates during each of change right. Now today, we are in a underground mining we just got the first shifts in nerve. During this month <unk>. This last month July its ramping up well I'm, we're probably <unk>.
We're probably just near the thousand tonnes a day Mark we were hoping to ramp up by the end of year to 1500 tonnes. A day, we did kind of knocked that back with Covidien, we're kind of in a thousand tonnes a day range for the rest of the year.
Great. Thanks for that Steve and then just finally, I guess switching gears to to the Tim and sets it to the Bell creek's expansion, maybe a little bit of color on ER I know that you were planning on expanding the I think that facility, 20% is that right I mean, where do we sit with that right now yeah. The expansion project, we define was more like us.
12, 12, 10% to 12% and there was a modest 5 million dollar investment five and a half million dollar investment that we scheduled for the year to do that covert has disrupted that to a degree we were hoping to have that done by the end of Q2, we did advance we're about 90% completing a lot of it.
She is upgrading pumps and and pipelines and things like that through the plant in a couple pieces of equipment bought for the mine I'm. So that's 90% completed at quarter end. It looks really good with that said we are restricted on personnel at 10 minutes in terms or how many people we can.
Bringing on and maintain the physical distancing ER restraints that where you have so unfortunately, we don't see that ramped up that 12% target or we don't see that happening for a while yet so the <unk> technically and mechanically won't be there probably during this quarter.
But from a personnel staffing standpoint, we'll probably be later to get to that point.
Great. Thanks, again to Steven Congratulations guys on a tough quarter.
Thanks, Chris Thanks, Chris.
Thank you.
The next question comes from Johnson, <unk> Johnson <unk> Navy Independent research. Please go ahead.
Thank you very much for your service as a company and tough times.
Thank you in terms of your business planning.
We would expect your future reserves to reflect three year average.
Battles prices per S.C.C. guidelines.
Good.
Will you plan to any of your minds.
Perhaps more conservatively at even lower metals prices.
Our how might you be changing mine plan says the metals prices rise.
We have all the same tough trouble figuring out yes.
Yeah, John that's it that's a very good question. This is Steve here as we look at our mine plans I mean, we do try to disciplined herself strictly to our long term reserve price outlooks and we try to run the operation that that there's times when metal prices fall below reserves, where we show.
Were up and an increase or cut off grades a bit there's times like now where metal prices have run way out ahead of us and it requires a lot of disciplined and to maintain kind of where we're at with that said. It also provides us opportunities. If there's some you know kind of squeeze point in the mine plan some kind of constraint.
There were facing it gives us some flexibility to kind of get over some of the home. So we do take advantage of that where we can but it does require there's any minor would tell you with these high metal prices. It does require some discipline to maintain your outlook because the overall.
All objective is is what is your average metal price over the life of the out. So that's really what we're focused on and you got to kinda look beyond these short term swings and that's what way we'd look at a one rebuild our mine plans.
So would you change your gold or silver price long term assumptions at all for his against 2019 to 20.
I mean, we just came out with the reserves at the end of June we did not I mean, where you've got me up that a little bit but not there was very modest and obviously, it's taken off after that I would say [laughter], it's hard to it's hard to say John until next year and where we're at we don't need to set that price untold.
Next June so.
I think the important part is also when you look at your mine plan that do you know down sterilize. If you don't sterilized material that do contacts outlays are wrong or on do you know this this runs the metal prices continue substantially into future. Here. Then you always have access to adapt to that material lay the wrong, but as Steve.
You know just metal price from Harris has been pretty recent Oh, the last two month actually Pos post itself and what we actually decide at 'em on prices.
So I can ask another.
Is it fair to view.
The one year extension to law or oxides, and two year extension in the life she window oxides.
That's giving you another year and another two years more time strategically to evaluate.
Divestiture, JV or optimization of the sulfides at each location.
Well I'm not talking about the sulfides, yet that thought child window, a and B R.
Yeah. This is this is coming down to future, but it's absolutely fair you view dare to say that that keeps us even another year to think what we're gonna do let the I've got you referred to are called bloody not to that it's all five to big copper gold deposit sitting below and on the side of the current lottery in a mine.
Oh, absolutely that gives us even another year, there and that gives us a lot of time due to think and work on what we want to do in the future Uh Huh.
That is out.
Hi can ask one more fine.
Is June Bes 4 million ounce divestiture, the only gold resource divestiture [noise].
You're contemplating or might there be more sorted out from the exploration assets in the next year too.
No. There is it does a large amount of protex early stage projects smaller protex I'd be happy now portfolio. Some for for a long time as you can imagine there's much more interesting in exploration assets.
And then there has been for a long time, so absolutely, but well try to optimize our portfolio here in the future on data you should expect that though that there won't be more to come.
Thank you and congratulations on everything thank you John.
Thank you.
This concludes the question answer session I would like you tend to conference back over to Mr., Michael Steinmann when it comes online.
Hi, thank everyone for calling in today I'm looking forward to give you an update on Q3, that's why on November already so enjoy the rest of the summer I'm, most importantly stay healthy and safe. Thank you.
This concludes todays conference call you may disconnect. Your lines. Thank you for participating in other places they [noise].
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