Q2 2020 Coeur Mining Inc Earnings Call
Welcome to the co we're mining second quarter 2020 financial results Conference call.
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I'd now like turn the conference over the pole deeper to please go ahead.
Thank you and good morning, welcome to <unk> core mining second earnings second quarter earnings Conference call. Our results released after yesterday's market close in a copy of our press release slides are available on our website.
To remind everyone that our press release flights in some of our comments today includes forward looking statements from which actual results may differ.
His review the cautious cautionary statements included in our press release.
Isn't station as well as the risk factors described in our second quarter 10-Q, 2019, 10-K, I'll turn it over to match.
Thanks, Paul and good morning, everyone.
Thanks for joining our call.
I'd first like to introduce everyone to make Routledge, who joined US last month as our Chief operating officer.
As we show on slide three in today's presentation make isn't accomplish leader and brings a lot of great experience to the company.
We will help us improve our operational planning and execution later in the call he'll give you. His initial thoughts on the operations touch on some of the highlights from the quarter and summarize the key operational priorities looking ahead.
Terry Smith is also on the line and has now transition to his new role as Chief Development Officer, where he has overseen our major projects and helping to advance our longer term growth pipeline.
And in addition to making Terry Tom Whelan and several other members of the management team are also on the line.
Second quarter cash flow was stronger than the first quarter, despite losing 45 days of production and cash flow from Palmarejo, our largest operation.
Due to the Mexican government mandated suspension of mining activities as a result of the cobot 19 pandemic.
However, the rest of our operating portfolio all located in the U.S. continued operating and two of them Kensington at wharf delivered strong quarters.
And allowed us to generate some solid overall results and achieved several meaningful accomplishments that all I'll quickly highlight and are summarized on slide four.
We successfully and safely restarted palmarejo.
And expect it to generate strong free cash flow during the remainder of the year.
As I mentioned, our wharf and Kensington Gold operations, both had very strong quarters, Kensington free cash flow more than tripled.
And the worst free cash flow increased nearly nine fold on the back of a higher gold price and 60% increase in production.
We expect both assets will continue delivering strong gold production and free cash flow throughout the second half of 2020.
Out in Nevada, we're set to break ground at Rochester next month on the P. away 11 expansion.
Construction is scheduled to be largely completed in late 2022 at which point Rochester should become the largest primary silver mine in the U.S.
More importantly, we expect rochester's free cash flow to exceed $100 million annually post completion.
Which is a major step change over the past three year average free cash flow of about two and a half million dollars.
We remain focused during the quarter on carrying out the largest exploration program in the company's history that is targeting new discoveries and resource growth to further extend our mine lives.
Quarterly exploration investment increased 60% quarter over quarter, and nearly doubled year over year and we're excited to share the results of the program. So far this year with you next month.
Tom will cover our liquidity position and balance sheet in a few minutes.
With cash up quarter over quarter debt down and adjusted EBITDA continuing decline.
We feel really good about our financial flexibility as we move into the second half of the year.
Before handing the call over to Mick I want to quickly call your attention to a set of slides that highlight our best in class corporate governance proactive U.S.G. programs and priorities.
And our focus on fostering diversity and inclusion and our company and in our communities starting on slide 15.
Finally, I want to highlight a few upcoming disclosures were planning for the rest of the year. The first one is the exploration update that I touched on earlier, which we plan to publish in mid August.
And then later this fall we'll have the results of the updated technical report for the Rochester expansion.
And finally, we plan to end the year with a virtual investor day to provide you with a more fulsome overview and outlook.
We're all very excited about we how we have positioned the company and we look forward to updating all of you on our progress along the way.
With that I'll go ahead and turn it over to Mick.
[noise] make if you can hear me I'd be I'm not there you are good.
Good morning, everyone.
Before going through operational results I'd like to start off by share My perspective on the company. After Bcf would you say about 60 days.
First I want to highlight what a strong bombs team I've joined.
We want to cool worked extremely hard and Calabria, well to make a company strategy the workforce.
With strong alignment across the leadership team.
No and in particular.
I want to mention quotes health and safety standards.
The company has grip grade and taking care of its people.
I look forward to building on this platform working closely with leadership in the field.
When we get health and safety right strong production performance falls.
[noise] from outside the company before starting with cool.
I couldn't even see upside potential.
What I see no. It was part of the team are exciting long term opportunities. We are developing into were robust executable five years strategic plan.
No along with the team we have a tone of excitement about the assets in our portfolio and the potential to generate meaningful bug.
We have worked to do and we're confident in all slip in our ability to execute those plans.
The goal of unlocking all about volume for stockholders.
Now turning to the operational results on slide six beginning with Palmer.
The team did an excellent job shutting down and then ramping up in a safe manner.
Starting with little bit stockpile, all the buttons to process.
We have now been Kim solid performance in good results over the past few weeks.
A workforce could possibly could be limited in fact that said we have some goodman guidelines.
To protect our mobile noble employees.
Right No. We are running just over 4600 tonnes per day through the mill, which is close to 5000 tons, but be normal run rate.
We intend to follow the mine plan and partially offset the lot tonnage with higher grades and better recoveries.
This is expected to drive production in line with full year guidance ranges and generate strong free cash flow.
Turning to watch us though.
Dilution impacted our results however.
Designed and implemented new stuck and plan to help coming up on the fed would.
As highlighted on slide it.
You plan utilizes an IND lift liner.
I was just a place or close to plastic shortening the the recovery cycle and giving us good visibility of our improved performance from HPG all.
We're also leverage separate collection systems to better monitor the solution grids coming off the pod.
All of the it or expectations for this new plot.
The team brought in some of the best heap Leach experts in the world.
There continues to be helping was to provide though models.
We are already beginning to see encouraging results after having to do like that.
A few weeks.
We are confident in our ability to increase production and the second half and tell you this momentum into 2021.
Going back to slide six I'm looking at Kensington.
Production remains strong as we continue to see positive grade reconciliations from the Kensington main deposit.
We also my mode, you out with material during the quarter most about material development.
Providing access to high agreed stope or would you in the second half of the.
We expect Kensington to finish the year strong and be the largest free cash flow mine in our portfolio.
At Wolf Gold production increased significantly during driven by improved improved weather conditions I agree.
We also had much better crucial performance during the quarter, as we announced a bit and strategies.
Impressively the team was able to start maybe 50% more terms quarter over quarter.
With this strong performance, we are now quarter bump placement rates and have demobilize, the third party course or contract.
Before passing the cold weather tome I want to thank the team for continuing to operate see if you're doing a pandemic.
Let's stay disciplined.
People, but good work.
Finish the with a very strong second half.
So.
Thanks, Nick.
Looking looking at slide five our second quarter financial results reflect strong performances from Kensington him work, which helped to partially offset the 45 days of production we locked at Palmarejo.
Together with the higher gold price this led to $154 million of revenue and $42 million of adjusted EBIT da both of which were down only 10% quarter over quarter.
Hi, sustaining higher margins, our LTM EBITDA has increased nearly 80% to over $200 million versus 116 million just 12 months ago.
We incurred $6 million of incremental operating costs associated with cobot 19 during the quarter and expect these costs to total approximately $10 million to $12 million for the year.
Despite losing Palmarejo for 45 days operating cash flow was $18 million higher and free cash flow improved by over $20 million quarter over quarter.
We expect though we expect both operating and free cash flow to be construed considerably stronger during the second half of the year consistent with our updated production and cost guidance.
Before moving on I want to hit on something that we discussed during our last call our decision not to defer any of our capital projects, including the expansion of Rochester, or our significant investments in exploration.
In the wake of the uncertainty related to covert 19th.
The combination of improved financial results in anticipation of a strong second half makes us confident this was the correct decision.
Turning over to slide 11, we continued job very sound balance sheet, but no near term maturities and over $240 million of liquidity.
If you recall, we took a precautionary revolver draw of $100 million.
In April as a result of our downside scenario planning for carbon 19.
I'm happy to report that we repaid $90 million before the end of the second quarter.
We expect to repay their revolver in full by year end and hopefully sooner at current gold and silver prices. Additionally, we have not utilize the ATM and it remains in place for now during this unprecedented time volatility and uncertainty.
Total net debt leverage ratios at quarter end were 1.7 times 1.3 times, respectively. We expect our leverage ratios to continue trending downward over the remainder of here.
For the last 18 months with increased liquidity materially reduce debt and significantly lower leverage, leaving us very well positioned for upcoming growth initiatives.
Before handing the call back to match I wanted to quickly touch on our hedging program highlighted at the bottom of the slide.
We continue to utilize zero cost collars to achieve downside price protection targeting up to 50% of expected gold production in 2021, and 2022 with a minimum price for of at least $1600 Prouse. We believe it it's prudent to underpin cash flow generation during the construction appeal.
Evan.
Now I'll pass the call back to Mitch Thanks.
Thanks, Tom.
Slide 12 outlines our key objectives for the second half of the year.
First and foremost it's essential that we maintain our rigorous health and safety protocols to continue protecting our workforce their families and members of our communities.
Secondly, we need to develop the future of our business by sustaining or higher level of investment in exploration.
And by successfully executing on our internal growth projects.
And finally, it's critical that we execute our plans to deliver a consistent operating and financial results.
From each of our assets.
We see a very compelling future for our company and we'll get there by continuing to pursue a higher standard and by executing our strategy to protect develop and deliver from our north American based precious metals assets.
With that let's go ahead and open it up for questions.
We will now begin the question answer session to ask the question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
This time, a pause momentarily to assemble our roster.
Our first question comes from Mark we held your Butt with RBC. Please go ahead.
Okay, perfect. Thanks, and good morning, everyone.
Hi, Mark burst.
Hey.
I'll start with Nick and obviously kind of new to the rule here just a you know what kinda give us a few highlights what you think you know you might change your things you might you know opportunities for improvement that you see in your birthday month on the job.
Good question Mick you want to go ahead and take that.
Well sure you know I'm really excited Oh, you know to couple of the sites already and obviously with Colgate restrictions that trouble is a challenge, but well look and I would hope to how to do that but what I see is strong teams already damn good asset.
What im in this initial fees were joking about strong exploration.
Work that homes and his team are doing.
And were laid them out of strategic plan and then we have to get on next Q, but I see a seed aren't being.
The best opportunity for US is to go about picture of longer and then execute well in the short game and I think we'll have the team do that and we certainly have the assets to use to do that and that's a little bit of upside in the in the process or in the process also from the and the equipment Insoo.
I think it's a great opportunity going board.
Okay, and then I guess digging in to some of the results here Oh.
Obviously, Rochester, you got some some challenges in Q2 and are making some changes but can you just give us.
Since a really what was different to plan I mean, I guess you guys were expecting to be stacking at these higher lists are.
Higher areas of the had so kind of what was different than what you're expecting in the actual performance.
Yes.
I'll start marketing mix, maybe you can jump in on the heels of a couple couple of comments for me you go back to rewind to the first of the year.
Probably a priority number one it was really dialing in that new crusher configuration and getting that.
Running consistently which which we've been able to do and then kind of transitioning into the second quarter. The real focus turn to that stage for Leach pad.
Got a model calibration to align with with the past six months and then starting to make some adjustments.
To this new stacking plan and putting this interstates liner into place obviously get ounces out faster and further validate the HPG are so it's kind of been a step by step learning.
Process, and then making adjustments as we go and I feel like you know we've learned a lot over the last few months.
I think now we feel we gain the knowledge that we can apply to set us up well for this expansion phase that we'll be going into now. The next next 24 months or so but make do you want to go into a little more detail in terms of some of the the learnings and tweaks that we've made here.
Mid year through the year.
Yeah for sure so, particularly pod fall when we look at how long the pod, it's been an operation it's been quite a period and so it's never gave it for a long time and was a particularly exhausted. So when we put the material on the toll.
And we certainly expect that some dilution, but didnt quite expect as much as we saw in the end of the models, we hod didnt predict aren't as well as we'd like but now the new models all predict not well.
And that's encouraging with.
With a new plan to install or even potentially additional lift.
Lane as to support the one we haven't played the right now and that allows us to implement short interval control an optimized or production process. All the way back from the mine in Boston through the crushing circuits and niche BG, all and onto the heat and then to find choose not to get the best recovery that we can get from.
I'm not come up so yes it was.
It was not as predictable isn't thought but no much more predictable and the view going forward is this still more.
Okay, perfect and I think.
I'll give the answer already but just to confirm.
The entire lift liners mission, given where you're placing them, we shouldn't assume that you're losing any material pod inventory that you won't be able to irrigate anymore, you're only kind of stocking on a portion of it in and it already largely done under leach for a long time, so not much inventory left is that the way to think about it.
Yeah go ahead Mick.
Yeah, So, yes, and but that's the correct assumption and maybe some slight impact, but we're working on those clients.
As well to ensure that we can recover not material overtime and the material that we already had on the pod that wasn't the irrigation.
Already seen some.
Some benefits from bonds coming in the food.
And but it's just going to take a little bit longer for that historic and more recent material to give us the metal, but it is there on a it'll just take a little bit longer come out.
And ER and we're optimistic that that will support the second go forward.
Okay, perfect and then I guess not much commentary around silvertip on the call today that kind of any updated thoughts and kind of how do the current silver prices or you know.
Just your thinking on the asset or kind of where do you sit on it right now.
Yeah Yeah.
Fair question second quarter, there was a lot of heavy lifting done Rochester on that expansion.
Third quarter will be a lot of heavy lifting I think on the silvertip PFS kind of pulling the different pieces together, we're starting to get different components of the work that's been going on since February and so we'll be kind of fitting those different pieces together, whether it's you know on the metallurgy.
Flow sheet.
The potential expansion of that have that milling facility.
That work starting to to come to an end. Meanwhile, we're continuing to drill a the exploration program. There that's intended to give us confidence in a much larger longer mine life to support any potential restart that we'll have more to say about doing that exploration update.
Eight here in a couple couple of weeks.
And then you know the third piece to that sits outside of our control obviously is the.
The zinc and lead concentrate markets primarily in the you mentioned the silver price that obviously.
We'll be one factor that will go into the the analysis, but I want to make sure that we you know.
Despite all of our strong desires to to get silver tip.
Right that we don't rush to fast that we you know adhere to a disciplined process. We go through those steps we assessed the business case thoroughly that the underlying technical fundamentals you know and then look at the returns look at the timing how does it fit in or not with our other priorities and then make up.
Sober you know clear right decision.
On silvertip once we have more more bits of information so.
Not not a lot to say at this point more to say on in the coming months and we'll obviously keep you posted.
Okay, Perfect and then I guess just last one for me and.
Obviously, you guys are going to be putting out a bigger a more comprehensive exploration update next month, but are there any highlights you'd like to share with us today and im kind of what parts are really going to be the most exciting data we should be watching out for.
Oh Man I wish Han's was in my in the room with me right now so I could pull the rains in on him because he would love to talk a lot about I think I'm expecting.
Silvertip.
We'll be a big a big FEMA Big story.
Rochester, and the drilling that's going on to support this updated.
43, one or one that will have finalized later this year along with you know updated capital updated mine plan and hopefully you know more tons as a result of this drilling a and then you know down in southern Nevada, There's a lot going on there at the crown.
Project.
Busy neighborhood down there, there's a lot of excitement a lot of activity and so we're looking forward to.
Highlighting that as well those are the ones that stick out to me tons that I leave any.
Any off.
Without stealing.
Under completely [laughter].
[laughter] Mark Thanks for the question like like Mitch said, I'm jumping up and down exciting about our program this year.
Even though we did have a slowdown at Palmarejo, we're still seeing excellent new results. There are two for growth. A this is a year for resource growth and discovery.
With.
80% of the budget focused on that and one of our largest budgets hours. So news release will will demonstrate that we had been successful at achieving not with a few new discoveries that will be discussed in the news release.
You've gotten a taste of one of them.
From courses release on July 16.
One of our holes cut some mineralization on their property adjacent cars, which gives you a taste of a part of our project called Seahorse at Crown, where we have 18 holes drilled and that's one of them.
For the news release will only have six back from a wide but.
Yes Super exciting year.
And and pretty much all sites are delivering on their programs. It's almost like we had to a bunch of pent up demand in geologic targets and once we got approval from aboard can drill this year.
The drills are putting right place.
Perfect that's a great to hear and looking forward to the update.
August.
That's it for me and.
Thanks, a lot.
Yes, thanks Mark.
Our next question comes from Michael Dudas with vertical Research partners. Please go ahead.
Hi, Good morning, German and welcome aboard Mick.
Hey, Mike Thanks.
Maternity could fruits your you talked about cobot sure. Some comments on your how successful the ramp up had been apparel memorial, but you're looking internally and as you all your operation I'm sure. The covert political store as you mentioned are still in place how.
How do you think productivity how well it's worked out for the organization in Mexico, certainly there's been some concern about two that could come by and how labor. The community. The government officials are sitting in thinking about it relative.
To that potential as you look to a panel rails, you will ramp up and hopefully.
Thing, it's a it's output during this year.
Yeah sure obviously, it tough as top area of focus for us and theirs as everyone on the on the call.
Ken can attest to the lot of lot of layers lot of complexities a lot of lot of moving parts.
And Tom maybe if best after I give some comments Tom if you want you can talk more about the the financial impacts as we see it.
Starting with just the footprint of our assets has served us well for the most part with three of our four operating mines being in the U.S.
Under the department of Homeland Security.
Designation of mining is being an essential are critical business has really given us kind of that license to continue operating.
Obviously with a lot of new protocols and procedures in place here in the U.S.
Some adjustments some more adjustments at Kensington and then maybe the other sites just given the.
The location up there the in southeast Alaska, a a requirement to corn team coming in from the lower 48.
Before going out to the mine. So you know we've had to adjust some rotations and work schedules and things like that Mexico has been probably the not only because of the 45 days that we lost at Palmarejo, but just the logistics there of of our workforce you know camp set up people.
Coming from all over Mexico, some of <unk>, some of whom live in higher risk areas and not able to travel back a mix Mexico as Mick mentioned has a has de designated this you know vulnerable section of their population, whether its age or or Preqin preexisting conditions and that's.
That's kept us about 120 people short of a full roster. There. So you know we've been.
Managing through that and doing the best that we can with what we have and I'm I'm, particularly proud at the fact that we have I think been very proactive in in the testing infrastructure that we put in place the technology that we've put in place weve.
We now tested 100% of our population PCR test other than a couple of rotation to have yet to come to site I think when it Kensington maybe one at Palmarejo. So we've we've been very I'm very proud of what our team has been able to put together in a short period of time to get that testing.
None for.
Thousands of people, we have had some positive.
Tests, almost all of them with I think its with the exception of one have been asymptomatic.
But the important thing is we're catching these cases through our test a proactive testing through those procedures and protocols that we have in place before anybody enters a site and we've got robust contact tracing and all the other things that everyone talks about around the screening and this.
Sanitizing and the distancing.
Here in Chicago, we're still mostly remote people can't can come back to the office or under certain set of of criteria and and health procedures.
But for the most part you know where we're maintaining our productivity.
At the headquarters despite everybody, mostly everybody being remote I think just that it goes without saying, probably but just not letting our guard down and with Covidien fatigue may be setting in you know we needed resist that urged to take our our foot off the gas and continue.
To maintain the discipline that we've had around you know these these these procedures and protocols that seem to have served us well so far.
I don't know, Mike if that helps.
Yes. It does just how do you think from the Mexican government standpoint, and how they're thinking about you know if things were to get worse.
Is there more since the ability of a more central aspect to the mining versus what we had an early indications are any any sense or any observations on that.
You know the.
If you like it took took Mexican government a little while they're in in late March April.
As they were you know kind of quickly putting in place you know some some mandates some decrease but then in may when they when they came out and designated mining to be an essential industry or an essential business. Since then things have been.
Pretty pretty straight forward, obviously, it we're putting a lot of effort into you know implementing the kinds of.
Requirements that they that they that they issued in conjunction with that designation of our industry being essential and so yeah, we want.
We want them obviously maintain.
A safe and healthy workforce, we've got very.
Very strong screening and testing procedures down there complying with everything that the government has has rolled out but since that designation was put in place in may we have had a much more straightforward experienced down there and it's allowed us to get back up and.
And going with with those obvious restrictions still still in place.
I appreciate it was I was there. Thank you Mr., Mike one follow up.
You know walking see these higher gold and silver prices for sure.
Certainly this is going to improve cash on balance sheet metrics dramatically as you're assuming base maintain these levels.
Are you is that how you guys are thinking about just trying to you know you know setting up a me having better position to implement the spending program at the Rochester or are you change thinking we're beginning to think about other things that might be mitigated or enhance the you know if things start to you know.
Continued to be at a reasonable rate going forward and then they would be going on hedging policy or how do you how that mean changes now versus what it was <unk> six weeks ago.
Yeah sure I'll I'll take a shot Tom Phil feel free to chime in on anything I Miss.
We have that capital allocation framework I think that slide is in the deck today and.
If we keep kind of preaching that here that we got to follow follow the framework you know fund.
Fun things according to returns.
And stay stick to the plan you know organic growth exploration.
To the extent, there's excess free cash flow and there's debt further debt reduction opportunities. They don't capital can excess capital can flow there and if there is still excess capital beyond that which is probably going to be more likely on the back of of the expansion at Rochester, then you know returning any excess.
Back to stockholders becomes a very.
Relevant discussion and and topic and so we're not deviating from from that framework.
You know, maybe we spend more on X a little bit more on exploration for example, as long as there are good.
Good business cases made to justify it but that's how we're continuing to to think about how how do these higher prices.
Impact our decision, making and then I'd just say around the hedging question.
Look our rationale there is is that this rochester expansion is a very is for us. It's a large project. It's an important project in 2021 and 2022 is the capital spend we think it's going to generate a really great return and fundamentally change the company.
And and in that process, we think it's going to unlock a bunch of value for for stockholders.
And we don't want to fund that thing.
With external you know issuing shares or dilution or anything like that it's important to us that we self fund.
Project and that means relying on free cash flow and.
Bye bye relying on free cash flow and it's important to have.
Floor or you don't have that underpinned with a minimum price you know as we think about at the risk reward the downside versus upside is almost like a it's almost asymmetric like.
What what Rochester should deliver in terms of fundamental cash flow and value.
Should far outweigh any you know should we should we give up a few dollars an ounce gold price on the upside ensuring that we've got funding.
Sufficient from internal sources is is are you know kind of our first and highest priority.
And then just the last one thing I'd say is yeah, we talk about up to 50%.
Of 21, and 22 gold production.
Remember gold is.
70, 70, 75% of our total revenue so that's up to 50% of of that portion.
Not not doing anything with silver that's still.
The volatile awfully awfully expensive and you know letting silver do what it's going to do is still our our frame of mind as it relates to it to silver and any kind of hedging but.
That's that's how we are thinking about about that Tom did I Miss anything or anything you want to add no no I'd just say.
90 days ago, we.
Confidently stated we plan to plan to fund a picoway 11, with the with our existing operating cash flow and and if the existing debt capacity that we've got and you know and we are 90 days, let it later feeling that much more positive around it.
And.
We've got that downside protection underpinned and are ready ready to roll. So and you know I think we're feeling really comfortable with the balance sheet and you know that.
The entire team knows this capital allocation framework is in our DNA with actually change there are long term incentive to have return on invested capital. So this is Mike there.
More than just something you see on applied went live in at every day at core.
That's what that's welfare gentlemen, thanks for your thoughts pressure.
Thanks, Mike.
Our next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.
Hi, Good morning, guys. Thanks for taking the questions.
I.
I guess a car following on the questions about the free cash flow.
You know given current gold and silver just have a rough estimate where you know what you think you can generate for free cash flow for the rest of the year.
Hi.
Good question, a tricky went to answer without any kind of.
You know what the guidance that we have out there the new the revised guidance.
I doubt I should say undoubtedly but positive I can point to that Tom do you want to give anymore general yeah, direct but again, we try and be pretty transparent with with the guidance to give you what the they kaz is and.
We kind of leave it to everyone on the for themselves to figure out what what gold price they want to punkin, there, but certainly as we did our.
Our second quarter forecast, we we used actually 16, 50 and 60 50.
Keep it simple fixing 50, Golden 16, 50 silver to two to plan out our updated forecast, where we had an upside which shows that.
We intend to repay our revolver threat threats. The here. So it's really up we'll leave it to the analysts to figure out what side they want.
What price they want to use to figure out free cash flow, but where we feel confident that we'll have the revolver page that gets at least some indication of how much free cash flow, we expect to generate.
Okay, and can you remind us what's remaining on that.
60 million.
Okay.
And then.
Switching gears, a so at Palmarejo cash costs, the first half of the urban low I realize it's really a quarter and a half not two full quarters.
But they kind of suggests either higher costs in the second half the year or that the cost guidance is.
A little bit higher than maybe it could be.
Can you give me any additional color there.
Yeah Mic do you want to.
Take a crack at that one.
Yep Yep and so.
Overall the team have worked very hard to maintain cost then of course with us being at 85% for the workforce will have to what's that really closely and I'm confident about will maintain were current trajectory certainly will.
We'll expect more tunes and through the second half the year to spend a little bit more but in the guidance that we've issued.
Is based on a solid forecast for the yet and I.
I think we'll deliver on that.
Okay.
So so that.
I guess.
Well I'm trying to get at though is.
For for for the analysts from modeling purposes, we should just.
Model, what we have to the kind of get within that guidance range for the costs or you know is it possible to come in below it for the year.
Now I'd say it's.
Sure it's possible.
We were very careful in setting those ranges to.
Set us up for you don't.
A high likelihood of of meeting or beating so that's that's the job that we have ahead of us here for the second half.
Okay Fair.
Fair enough bench.
One final thing.
With the exploration update your providing.
In August what you know what areas are.
Are we going to get you know drill results from I mean, besides I guess she has already touched on.
Six holes from from southern Nevada, but you know any other greenfield stuff.
Oh haunts do you want to.
I want to take that.
No other greenfields, specifically, but all the programs are reporting on Expensed exploration so resource growth.
Silver to we're doing some big step outs.
So that now he's got.
Holes.
With mineralization visual.
A kilometer north of our prior resources at a kilometers and a half so all of our prior resources now. So these are almost greenfield step outs at silver to.
We wanted to.
Start testing edges, and we still haven't found the edge [laughter].
Good news.
That's about it for the closer to Greenfields type.
A portion of the release everything else would be resource growth Expensed exploration discussions very little infill. This year just at Palmarejo that was it.
The only other thing I'd hop.
Hop into to say or not directly related to your question Joe but on.
On the Greenfields earlier stage side.
Not that will have any drilling to talk about in August but.
I look now at that Alipio gold transaction that we did and other similar things like that in the past few years when markets and sentiment were very different.
We have a ton of drilling and growth ahead of us on that earlier.
Earlier stage side of of exploration and I know hands and his team are out there on the ground developing those targets, but you go west of Rochester.
And there's a series of of projects in deposits there that we that we control when we when we did that deal with Valeo Inc., we more than doubled our land package there at Rochester off to the west and so there is.
A lot to do out there and then you know tons already talked about crown and and Seahorse and then we have sterling down there all of that down in southern Nevada others.
A lot of drilling ahead, and I hopefully lot, a new discovery and a lot of resource growth. So no shortage of exploration opportunity.
Okay, and if I could just on point of a prior transactions remind me a persio. So you don't get a lot of value obviously in the market for but with silver now you know and the approaching the mid Twentys.
Is there any opportunity into either you know.
We look at that or maybe even.
Vended out to somebody who could do some work on it and.
Capture some value there.
Yes, and yes really.
We have had a a process of kind of read.
Examining optimizing.
A press Jocosa kinda like late last year early this year, there's some ongoing work right now.
And then you know you plop in current silver price in that project.
As it sits today look starts to look pretty interesting now does it doesn't fit in.
To our.
No capital spend profile, how does that compete in terms of relative returns you know that that lies ahead, but your your other point there about you know what else could we do with Depressio. So it doesn't have to be 100% you know us a that's an a another angle that where we're considering and.
Anything we can do to they like some value there say I agree that you know we're not.
Probably for good reason leased up until recently haven't been getting a lot of.
Out of a 10 attention or value out of that a.
Big Silver resource sitting down there in Durango.
Okay. Thanks for the color I'll turn it over yeah Joe.
Our next question comes from Adam Graf with B. Riley FBR. Please go ahead.
Hey, guys.
Yeah. Thanks for taking my question welcome Mick Congrats on the on the strong quarter I think most of my questions have been asked.
And answered a quick question for Honda and he I know a Mitch is it's got your hands tied but.
Yes, the step outs that you guys are doing it silver chip.
What's a you know what's your feeling or what's your bad debt.
That that.
That.
That is contiguous with the with the main ore body there.
The Oh, one of a jump in that [laughter].
You got to make started Adam.
Visually the mineralization looks exactly the same at all these big step out holes and Stratigraphically. It's in the exact same horizon as the mineralization in the ore body. So all indications are it should be a continuation.
We.
Don't have really.
Any with zero holes in between in both cases of gross stuff Thats I mentioned.
So as result of these successes will fund a winter program that will include three rigs full time through winter on that northern piece that as a kilometer north of our bar discovery ore body and that will essentially the reason we're doing winners we want to do as much step out now as we can.
You know into higher trend higher elevations and then once the snow hits will be down closer to cap.
The higher elevation hits down south on silver Chip Mountain.
Our approaching a magnetic feature that I've always thought as the source of mineralization. So between now and when we shut this program down in mid September.
Probably because of snow.
We anticipate through formal holes in that area, including into that magnetic anomaly and we should have a pretty good idea that that is the source and we've got.
Next potential to grow based on that being the source in the future that's been in their ignoring the project ever since silver Corp. days, even what is the source of mineralization. So.
To answer your question.
I believe it will be continuous but we have no evidence yet because we have no controls.
You're not seeing a you know any any gradation in the in the alteration or the mineral assemblage that we'd like you believe you're moving in one direction or another you know you're moving closer or further from the source.
To the north we're seeing more pyrite.
Well, we've also seen more pyrite on their fingers of the discovery East zone. So.
That does her only clue that we may be getting closer to the northern edge up to the north which is still three to five kilometers.
From that southernmost whole now so quite large.
Quite a lot of infill to do on that that's about it because the whole to the so there were just hit looks very strong alteration around the massive sulfide looks very strong so.
Yeah, So and we're still waiting for assays to compare actual metal grades.
Oh, yes, well great. Thanks for that and you and I should follow up offline because I've got experience with similar systems.
Anyway, great. Congratulations again, guys from the strong quarter.
Thanks, Adam.
Our next question comes from Brian Macarthur with Raymond James. Please go ahead.
Hi, Good morning, I've two questions just first on Rochester, you made a comment you could make more than 100 million and free cash flow is that at the 16 50 gold price and 16 50 silver prices that sort of what you're assuming and I realized general number.
Yes, generally speaking yeah.
And then you know obviously you can.
Play with the model and see how.
How.
How much toward that.
Current prices, yes, exactly okay.
Okay. That's give you my second question minute, but just before I do that it does that assuming I assume that's using tax pools going forward and things like that or is that just purely on a you know fundamental P.A.R. sorry fundamental study basis.
Well that would be using our in a wells. So it's an after tax number.
But taking into consideration. The fact that we've got I don't know close to half a billion dollars of U.S. and a wells.
Perfect. That's why that no second part with I think where you're going with that let me philosophically in the past you have made a number of thing to balance the portfolio, but as you look for it and then you know when rochesters up and running it.
I could make the case, but it's a very significant asset and kind of dominates everything out how do you and I realize it's up in the future. How do you philosophically think about that is five mines are right.
Thing out then does it make more sense take advantage pipe prices that you know move something out right now realize value to fund this because it's so important or how are you just sort of.
Thinking about that are going forward, because obviously rochester kind of.
I would argue dominate the largest degree going forward or maybe that's philosophically wrong I just like your comments on that.
Yeah, no thinking about it the right way between the POS 11 expansion and then all that potential.
To the West Rochester is likely to be.
The dominant call it whatever you want quarter cornerstone or what else foundation for a long time and sitting there in northern Nevada is a great great place a place we've been for 30 years. So we've got you know very deep and meaningful relationships there with the.
The state with community and then you know you look down south and on an earlier stage basis, what we've got going down there with with Crown and and Sterling and this seahorse thing that Hans Hans mentioned.
The western U.S. kind of long life heap Leach gold dominant.
Type of assets worked well for us we know how to do that well I.
I think if we can have five to seven assets each of them generating in excess of $50 million of free cash flow a year, you know that sets us up nicely to be kind of an attractive call. It.
Senior intermediate or.
Somewhere in there in between the intermediate and senior space, where there I think is kind of a lack of good quality, especially U.S. centric U.S. domiciled.
And that's that's a pretty you know attractive looking company I think and that's kind of how we're we're thinking about it and where we're trying to.
Trying to take the company from from a high level perspective.
Great. Thanks, very much much.
Yes, Thanks, Brian.
This concludes our question answer session I.
I would like to turn the conference back over to Mitchell crabs for any closing remarks.
Okay, well he thinks we appreciate everybodys time, and look forward to that exploration a release here and in a few weeks. So hopefully wouldn't talk to you to you again, then in the meantime, or if we don't talk Dan I hope you'll have a great rest of the summer and stay healthy unsafe and thanks again for your time than and interest by.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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