Q3 2020 Equinox Gold Corp Earnings Call
[music].
Thank you for standing by this is the conference operator.
Welcome to the Aquinox school to third quarter 2020 results conference call and webcast.
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I would now like to turn the conference over to Roland Bailey, Vice President Investor Relations for Aquinox Gold. Please go ahead.
Thank you very much and thank you very much everybody for joining us on the call. This morning, we will of course, you, making a number of forward looking statements. Today. So please do take the time to visit our continuous disclosure documents on our website on SEDAR and Edgar I will now turn the call over to our CEO Christian be allow for opening remarks.
Thanks, Roland and welcome everyone today to our third quarter results webcast.
Heck of a day Friday in today, and certainly the world's not adult place so.
Stay tuned.
You had a very solid quarter overall in quarter, three and pleased to present that to you today starting on slide number three here.
Health and safety record again for the quarter was very good and strong we had two lost time injuries and over three over 3 million hours worked so good performance again by the team.
Terms of cobot impacts.
There were no co led related restrictions during the quarter. So so all the mines did operate.
Quarter, two is only had our disruptions Los Filos was ramping up during the first part of this quarter quarter three.
And we really put in place a strong protocol and we've been proactively testing in each of our sites or even instituting labs.
Where needed or accessing private labs. So we can make sure that we're proactively testing our workforce and we've seen the caseload come down very significantly both.
Both Ross and Doug and I had a chance to visit most of the operating mines actually in the last few weeks here. So we were very pleased with the protocols we saw in place.
The teams have really stepped up and operate in a very safe and positive manner. During this difficult operating environment.
And in terms of the the operating results. We sold 120000 ounces produced just under 125000 ounces, a very respectable quarter, considering we didnt have any production from Los Filos in September.
And as as alluded to in the press release and all the mines were operating in line with guidance, except for Los Filos, Los Filos was temporarily suspended due to a community blockade, which we announced in early September and I'll discuss that a bit more ink give bit more color on that later.
Other things that are happening Corporately here, we did get board approval and announced official construction satellite lose you know it really continues a trend that we've had of of internal growth sort of.
It's measured external growth, we've built one mine per year over the last few years or Zona came into production 19 Castle. This year in 2020 and sent a loose you know should be constructed close to the end of 2021. So we're really pleased with being able to continue to deliver on that clear strategy. We set a few years back.
And also you know as I mentioned, we did core first gold Council mountain and kudos to the team Tom Doug and the guys in California. They.
They did a good job in a challenging environment with coated really kicking in in the height of construction and they were able to deliver that mine basically on time, so really well done.
As well.
Really pleased to see muskie mineral reserves and resources increased very nicely with the results recently and again kudos to the team Scotts and also the guys in California, we were able to deliver that and we'll talk about that a little bit later and.
And also congratulations Doug Reddys promoted to COO and September 1st so.
He'll be talking to you about settle lose a bit later in this call after Peter already as well talks about our financial results and also our board we continue to evolve the board Sally Air joined the board just a basically a just over a week ago actually at the end of October and she brings some technical experience and lots of experience also in the Americas, So really pleased to see.
Joining the board and so welcome to her.
I'll turn it over to cover the next couple of slides like Peter Hardie on the financials.
Thanks, Chris and so we're moving to slide four where we highlight our Q3 financial results.
Despite the issues at Los Filos, Aquinox had a strong financial quarter succeed in the Q2 results.
Finally every financial metric, including revenue.
Earnings from mine operations profitability and cash flow.
Revenue for the quarter with $244 million on the sale of 128000 ounces of gold, which is an increase of almost 30 million over Q2 revenues and the key driver for the company's financial performance gold price.
We had an average realized price per ounce in Q3 about $1900 an increase of almost a $190 over Q2 1700 $12 an ounce.
Earnings from mine operations for the quarter were 98 million EBITDA $71 million and on an adjusted basis $99 million.
We improved our profitability, we had income of $12 million.
On an adjusted basis $39 million.
This translates to earnings per share of five cents and 16 cents on an adjusted basis.
He also had good cash flow.
Cash flow from operations before changes in working capital was $90 million, that's a million dollars a day in Q2, it was $61 million.
So that's a strong performance by the company for the quarter and those strong financial operating results for Q3 further strengthened our balance sheet as of September Thirtyth, we had $311 million in cash.
After paying down 200 million on the revolving credit facility that leaves the company with over $500 million of liquidity.
Net debt was $232 million at the end of the quarter and that includes convertible notes convertible notes that are well in the money with an average exercise price of U.S. 650, a share.
If you assume those notes are converted to shares as of September Thirtyth, we actually have a net cash position of 22 million.
Our investments are also strengthening our balance sheet.
We equity account for our investment in Forest resources. It has a book value in our financial statements of $9 million.
On Friday, the market value of the 26 million shares we hold in solar was 109 million U.S. or 142 million Canadian.
Another item that Mike that can contribute to our liquidity going forward or warrants that expire in October 2021. They have a 15 dollar strike price and are exercisable into 60 million shares could bring in up to another $180 million out of the balance sheet.
So we had a good quarter and we retain a very strong balance sheet on.
And our next slide.
We start our operational results by mine.
Generally speaking with the obvious exception of Los Filos, we're very much on track in our minds.
Ore zone or was the star of the quarter, producing and selling 33000 ounces of gold at a lower although at low cash cost and at an all in sustaining that's well on plan.
The low cash cost for the quarter is attributable to higher volumes better grade and favorable foreign exchange.
The increase in all in sustaining was expected with a plan tails lift and planned stripping and Oh.
No, it's actually still lower than what our guidance is for the year.
The other Brazilian operations are stable and performing right on plan.
Mosquito itself.
Produced and sold 31 ounce 31000 ounces of gold.
Which is a little bit which is lower than the prior quarter, but plan as we started stacking non oxide material, which has a longer leach cycle and Chris will speak to that I believe in a moment, but the cash cost and all standing costs are on track. The increase over Q2 is actually due to water well improvements for pumping they're going to aid in increasing our irrigation volumes for the leach pad.
So on the year we.
We produced 30, 30 341000 ounces of gold sold 337000 ounces of 590 million in revenues our year to date.
Total cash cost across the company is $854 and our all in sustaining cost of $993 an ounce.
So all in all performing right on plan for what we were hoping.
Los Filos.
I'm going to turn the presentation back over to Christian to discussion to continue the discussion of operational results by mine.
Yeah. Thanks, Peter I, just wanted to walk everyone through each of the mines briefly here and give you a flavor for what we've seen and what we plan to see in the upcoming near term here, so starting with Los Filos on slide number six.
Yes, it was suspended for quarter two due to the government restrictions and co bid. It was ramping up in July and August and then we obviously went onto suspension on September threerd.
So it's been down for almost you know maybe just over six months of this year and I just want to give you a bit of color on the situation at Los Filos here. So that was announced in September force mining activities have been suspended since the third as a result of the blockade by members of the carriers the legal community one of the three primary communities that we draw workforce from.
We've had a land access agreement and social collaboration agreement in place.
Both of which were signed last year and run until 2025 with the community is now asking for increase to their benefits under the social collaboration agreement and more control over employment contracts.
We continue to have regular respectful meetings with the community to understand to discuss the grievances and concerns that they raised.
Fortunately to date blockade is still in place we continue to seek a resolution to the blockade solus fields can resume normal operations continue to provide substantial benefits to all its stakeholders.
It really are seeking a long term solution here not a quick fix does not have.
Does not have picked our ability to operate effectively meet all our health safety and government our governance obligations.
As background here just remember last feel this is a significant employer an economic contributor in the region, including almost 2000 people and using more than 100 local businesses to support mine activities.
[noise] over its production life, Los Filos since provided significant benefits to carries a leo and the other neighboring communities.
Social collaboration agreements for education medicines, healthcare cultural programs and infrastructure improvements.
Now, while we believe we can accommodate some or many of the communities requests others would potentially affect health safety and proper contracting processes or impacted good corporate governance practices.
In particular, we must be able to screen potential employees for standard health and safety checks vision hearing et cetera I can.
Conduct background checks ensure they have adequate training before as we hire people and send them underground or operate large equipment leases.
Just normal procedures that we expect to have in place at all or locations and we'll we'll put the same standards in place here.
We also use local businesses bunch as possible, we support local contractors and equipment suppliers, but we cannot bypass requirements under the losses is it's a new trade agreement between the U.S., Mexico, and Canada. The prohibit certain types of sole sourcing and monopoly services and pricing mechanisms, we must be able to effectively operate controller operate.
Revenue and abide by our corporate governance policies.
Any amendment any amendments to the existing social agreement must result in a solution that is fair long term all our community partners, we're choosing to be patient here and resolve this in the right way rather than rushing to get in get back into operations and ending up with issues again down the road.
In short, we really do believe that all stakeholders and supportive of the return to operations and we remain optimistic and open to constructive dialogue.
Our preference is to achieve a resolution through face to face discussions with the community as we believe this is the best way to build a long term positive relationship with the community partners and.
And also we've been keeping informed the governor Union leaders other communities. The secretary of interior, who all are important stakeholders as well. So we appreciate your patience of everyone as we work through this.
Work to get a long term resolution with the community.
Despite that Los Filos has produced just under 50000 ounces. This year and we did withdraw guidance as Peter mentioned earlier.
The one thing that will be impacting to think about in the future is we were providing.
Providing or doing work to access the higher grades in Guadalupe open pit Burma. All underground those were supposed to be worked on for a bulk of this year and accessing those higher grades in the last part of this year, but it looks like those will be pushed into sort of mid 2021 or a little bit later, so it's a bit of a delay in that process.
And then turning on to turning to Arizona in Brazil.
As Peter said strong quarter really see pleased to see the mill, averaging almost 9000 tonnes per day, that's almost 10% above nameplate.
During this dry season, which is ongoing at the moment, we're working on stockpiling ore to prepare for the rainy season, which comes in the early new year, we've probably got.
Targeting about six to 700000 tons that you want to have in the stockpile are probably about two thirds of the way there.
As well exploration has been ongoing we've really had a focus on both the underground and sanctions along strike.
We've also started the pre feasibility study, which we hope to issue publicly next year as well on the underground deposit.
And mesquite in California, again, performing well you know it really has exceeded our expectations since the acquisition in late 2018.
As Peter said its transition to non oxide material, so slightly lower quarter in quarter, three we should see that increase in quarter four.
Really pleased with the mineral reserve increase of almost 30% and the and I resource increase of almost 100% and you know really thanks to the team Scott and the team in California for.
We're focusing on that weve allocated the dollars to drill and we've seen the results come through and we expect to see continuing results from drilling as move forward here.
I remember when we bought this mine to 2018 and had about a two and a half maybe three year mine life, we're almost that far into it now and we still have visibility to another three years plus of mine life. So we're going to continue investing in this site will continue allocating exploration dollars and we expect to see results from that and we plan to start investing in the new fleet next year as well so we're really.
Building the confidence in this asset.
Turning back to Brazil, and presented on the next slide.
Again strong quarter quarter, three as Peter mentioned.
It will get more and more attention in terms of exploration. There is a real district belt between present and sent to lose that we plan to explore over the next few years.
RDM had another strong quarter as well recoveries were improved.
We have sufficient water to operate continuously throughout the year, even when the Ross, Doug and I were down there. It was raining. So we're pleased to see that in the water reserves were filling up.
The other key milestone that we achieved in the quarter was received the permit for the pit pushback in that was an important milestone the allowance to access higher grade ores in the next sort of 18 to 24 months.
There will be elevated scripting over the next 18 to 24 months as we work to.
Move that waste and access the ore.
And then people are had another good quarter, you know again higher mining volumes and good performance by the mine overall.
Turning on to slide number eight in terms of guidance again Pete's comment on this as we know slumps HEALOS is a guidance has been withdrawn delta all the other numbers, we expect to achieve this year and please note that all the legal assets that are in here only for March 10th onwards, because the acquisition closed in March So it's really three quarters of it.
Sure for those assets.
And when we look at the growth and development projects on slide number nine just a quick update castle mountain poured gold October 15th congrats to the team.
Expect to do five to 10000 ounces this year and 2020 and then it will be about 40000 ounces per year on average from 2021 onwards.
The pre feasibility study for phase number two.
Should be available in quarter. One next year, we're just working on the optimizations at the moment and that'll.
Demonstrate a 200000 plus per year producer for many years to come. So we're really excited about the Cascade Mountain project and long term.
And then Los Filos expansion in Mexico.
This has potential to take this mine to about 350000 ounces per year on average as I said, we are opening up the new open pit and underground mine there.
Those are slightly delayed due to the current suspension, but could.
Could be in place as early as mid next year.
The new study will be released as soon as its available that'll indicator 8000 tonne per day, CIO plant, which could process the higher grade ores and we've also been able to reschedule the mine plan and hope to increase the reserves as well.
Study update.
You know at the moment with expansion obviously, there's no further investment as we speak today, but as we get a resolution certainly would be like to look at reinvesting again in this project.
And now I will turn it over to Doug just to run you through the San Luis update.
Thank you Christian.
Go to page 11.
The sample lose as a construction period of 14 months first.
First gold scheduled for Q1 of 2022.
The project will involve mining 1.3 million ounces in reserves at a rate of just over 1.3 grams per tonne they'll be buying by open pit using contractor mining.
The strip ratio is 4.7 to one and we'll be mining at 7400 tons a day.
About 15, and a half million tons per year for a total of ore and waste.
Looking at the base case that $1500 per ounce.
Average gold production for the first five years is just over 110000 ounces per year, an average annual gold production of 95000 ounces per year.
Gold recovery.
84% and the initial mine life, nine and a half years initial capex $103 million.
And our cash cost will be $776 per ounce and own sustaining cost life of mine of $877 gross.
The after tax NPV at 5% discount is 305 million and an $1800 per ounce it would be 475 million.
The IR our cat.
And after tax is 50% or 85% $8900 per ounce.
And the payback period is 1.6 million one.
1.6 years.
On slide 12.
This is a brown brownfields project. Therefore, we do have a low initial capital with the majority of infrastructure already in place. So that includes grid power. There was 138 kv power line coming into site.
And we have tailings storage facility in water storage facility already in existence at the site as well as a CIO.
Plants. So the plant alterations in the Capex totaled 37, and a half million dollars to convert the plan from Seattle to resin and Leach.
We will be doing a tailings and water storage facility raise this year, so $7 billion and pre stripping at $20 million.
Totals up to $103 million on his initial capital cost.
The water storage facilities have already 3 million cubic metres avail.
Available for when the the project startup.
Operating costs, you're mining, it's $2 or 41 cents per ton mined processing costs to 13 43 per tonne processed.
And gene is 275 per tonne processed.
So the plans will include two stage crushing.
We'll be Joel and cone crushing excuse.
Tuesday's grinding Sag mill in combination with the ball mill.
Putting in a gravity circuit and we will have a resin leach circuit.
And importantly, the ore feed will be blended to maintain 0.6% total organic carbon.
With a fee from day, Citic and carbonaceous ores.
And that will be to achieve the 84% recovery so.
So if we go to page 13.
The project sensitivities its most sensitive obviously to gold price.
But also to operating costs foreign exchange and capital costs and you can see the base case has been done at $1500 an ounce.
When we provide the $1800 grounds as the upper end on the sensitivity to showing the NPV going from three to five to 475 million and they are going from 58% to 85% based on the gold price alone.
If you turn to page 14.
There are additional opportunities outside to lose.
We can look at the development of the C. One deposit which is the main deposit being mined at Santa Lucia and going down dip. There is a P.A. that's already been prepared on the underground deposit I'll talk about in a moment, but.
But as Christian mentioned, we are doing a large exploration program in the sand to lose to for us and for them. The belt. It's about 70 kilometers of greenstone belt between the two mines.
Scott Heffernan and Carlos perennials are embarking on a multi year program that will.
Work on on several targets in that that greenstone belt and could not only benefit by extending life that tend to lose but it could also add into resources and reserves for them. So we're excited about that program. That's beginning this year.
On the underground preliminary economic assessment it was done as an update at port $1500 per ounce.
Total potential production is over half a million ounces.
Mining rate 2500 tons a day.
That's what the gold grade of 2.6 grams per tonne an initial life is nine and a half years in the P.A., where the preproduction capital of 74 million.
Net cumulative cash flow that's for tax would be 289 million after tax NPV of 178 million with an iron ore for the project a 39%. So we've got some more work to do on balancing that particular opportunity.
If you look at page 15.
So our board has approved construction the budget is $103 million of Capex $10 million will be spent in 2020.
We've already been doing the early works when Weve commenced with plant site clearing of leveling.
Process plant detailed engineering is 99% complete.
We have already begun working on the engineering for the tailings and water storage facility expansions and that's nearly complete.
I mean, most of the major equipment is already on site and additional a long lead time equipment has been ordered.
Park owners team has already mobilized to site.
Contractors will be mobilizing in November.
The first gold pour is targeted for Q1 of 2022 and as you can see in the chart down below we have a nine and a half your initial life of mine and we look forward to being able to extend that through additional exploration and the opportunity in the underground.
And with that I'm going to hand, it back to Christian.
Yeah. Thanks, Doug just concluding on slide number 16.
Focusing on our near term catalysts, obviously at a number of things have been achieved this year at no really pleasing to see the gold pour castle getting a construction started at San Luis and this is a really low capex intensity project, so really in our sweet spot to complete over the next 15 months here at.
And also commenced the ore zone underground pre feasibility study, which we're very excited about the underground potential their doors on it.
The upcoming catalysts and things we want to focus on the near term here, obviously get Los Filos back and.
Restarted after we resolve things, but we'll certainly take or time to do that right expansion study for Los Filos is another thing to follow on in the new year and as well the Castle Mountain Phase two feasibility study should be out early in the new year as well.
On the exploration front again were sort of building momentum right now we've had a focus on mesquite ore zone over the last sort of your so but were certainly building up our multi year sort of mid term plans and will focus on the shorter life mines to continue to extend the mine lives. We think most of the lines that we have are actually quite prospective so they.
They need some attention starting in 2021.
Corporately, we've achieved a lot. This year you know the vehicle merger integration has gone well, despite the covance situation, but including a number of indices.
We started to get her yesterday reporting.
Disclose more publicly we started to harmonize and combine the actual reporting that we have and you'll see more and more information on our website as we move forward.
Continue to look at accretive M&A on a sort of disciplined basis, we've got a lot of internal growth that we're focusing on at the moment, but we'll certainly keep our eyes open for good opportunities in the market, whether it be producing mines or whether it be development projects that are going to fill our pipeline as we continue to deliver on building and putting lines into operations sort of one off on an annual basis.
Yeah.
Asset something you'd be interested in obviously would add diversity and diversification to our portfolio fit our pipeline of development enhance the portfolio quality quality of assets. So you know eyes are open on that front, but we certainly got a lot of growth internally that we can focus on as well.
So overall I'd say, we've had a strong operating performance in Q3, we've got a rock solid balance sheet coming out of the quarter as Peter outlined earlier, and we will continue to focus on our disciplined growth as we continue to deliver on our strategy of becoming the premier Americas gold producer.
Now with that I'd like to thank you for your time and open the floor to questions.
Thank you operator can you please remind people how to ask a question.
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Thank you we do have a few questions from people online and one thing I've been getting a lot of over the last couple of months is people wondering why we havent been providing more regular updates about last Cmos and also responding to some of the things that have been said in the press.
Yeah. Thanks Roland.
Certainly, we'll we'll update the market when there's any material changes both positive or negative but.
But we do believe really pretty strongly that you know we don't want to be negotiating in the press or media you know, it's not part of our strategy now.
We'd much prefer respectful dialogue face to face discussions with the community as we work through this this challenge it.
Los Filos and certainly a believe that's been the most effective method so far and we continue to be optimistic on work on those those discussions locally and we won't be negotiating the press so you'll see things as they changed materially both positive and negative.
We've also had lots of questions about the allegations that there is on water contamination at Los Filos can you address that.
Yeah sure I mean, historically here you know there is a water source that was moved for the local community. It's about three kilometers away from the mine site. It's 150 meters above our current elevation and that's and originally.
Originally I think goldcorp put in place the actual system to to access that water probably need some updating right now and certainly we've agreed to do that and actually that was in the social collaboration agreement last year to upgrade the system. So basically once we're able to get back to work here, we'll continue on with that process. The community has grown quite significantly and we.
Plan to be put in place any upgrades that allow that community to access the water for years to come in and there's been a couple of allegations I guess in the press as well related to arsenic in the water. It's obviously not something that we're involved in we do not.
Use arsenic in any of our processes as we close the doors.
As well, it's naturally occurring in call it trace amounts in the local local rock and.
Area. So there is probably naturally a little bit of arsenic in the water, it's safe to drink.
So no we're pleased with all the standards, we've put in place and obviously with our operating permits and health and safety requirements, we have regular reporting to the regulators.
We monitor it on a very regular basis, and obviously, we want to make sure that all our communities are accessing good clean healthy water. So.
We'll make sure that we continue to work with them on upgrading that system, but the water sources in place right now are safe.
Thank you operator, well take some questions from the phone lines. Please.
Certainly our next question comes from Dalton Barreto of Canaccord. Please go ahead.
[laughter] everybody question I'm sure, you're not going to be surprised but I'm going to start with husky stock at as well.
And I appreciate the commentary you provided in the scripted comments there, but there is another thing is there is still unclear to me, but maybe my first question can be what what triggered this.
Well, it's it's always hard to know exactly certainly with the change in ownership and there was a change in senior leadership down there or maybe it disrupted some of the communication channels.
I can't speak on behalf the community on what their desires are certainly they're looking for and hence social collaboration benefits and maybe it's an opportunity with the change in environment here with Covidien change in management will not down there that this has been triggered and so.
Certainly we want to make sure that we have a dialogue here to resolve its long term manner and we have no members our team from up here in Vancouver, as well as senior leadership down there working on it right now as we speak.
You know, it's probably the flavor on it.
Okay, and then you mentioned some of their assets and it sounds like they're incremental to the current contract.
But it sounds like there's stance is that you're not living up to the current contract.
Is this just posturing.
I think there's there's.
So pretty standard grievance mechanism that's in all the contracts with all the communities and it's pretty normal cross across the world really but certainly I know what's in place there in a regular sort of monthly review there.
There can be differing views and opinions on.
Whether certain clauses are being.
The Mets and managed things like numbers scholarships or.
Mountain medicines et cetera, being provided but I believe there is a very strong mechanism for resolving that so it's a bit disappointing to see this go to the point of asking for inch incremental benefits and and take it outside of that grievance mechanism for resolution, but we'll work with them on that we believe in supporting the communities as well. So we do think it's good to see.
People get education to get extra benefits if it makes sense.
Okay, and then maybe just one last one from me on this topic here.
On the assumption that you're still meeting with them regularly what needs to happen to move forward or are they fairly entrenched choice. There you kind of gave on both side.
Well I'd say, there's a lot more given our side and there's regular meetings I've told them quite intense and ongoing as we speak.
You know.
There are certain areas like I sort of alluded to that we can't give in on that have any impact on health and safety or certain governance policies. You know we have to make sure people are vetted before their employed when theyre operating big equipment or other underground it has to be a health and health and safety for first focus and we have to do background checks et cetera. So.
Those kind of areas, we can't compromise on to a certain level and also just around sourcing contracts and that we certainly need to be very careful around how we source contracts and we need to have full control of the operation some of the other social collaboration benefits, obviously, there's more flexibility on they tend to be some good things will be provided the community.
Okay.
Understood. Thank you I'll jump back in queue now.
Thanks So.
Our next question comes from Aaron <unk> of TD Securities. Please go ahead.
Hi, guys. Congratulations on your quarter minor Arkutun mosquitoes stuff I'm, just two quick ones for me on.
You talked about M&A and what you guys might look for just wondering how you're thinking about that portfolio otherwise in the sense that.
Would you look to potentially does that maybe some of the smaller assets.
At the same amount of time larger onsite or at these prices are you kind of just happy with the free cash flow generation that they all Gerry.
I guess I guess, thanks, I know it gets in this environment. There is a bit of a luxury is you know all the assets are performing pretty well, you're even the small and so.
We're pretty happy to see that cash flow generation and contribution to the portfolio certainly over time as the portfolio diversified grows enhances could look to disposal of an asset or two but at this stage certainly we are pretty happy with the performance of all of them on all of them, even the small ones, but you know overtime.
I think you could see that happen.
Great and just a quick one on.
Were just kind of ran up a little bit is now underway over 100 million to you guys on your position just comment if the plan is still on that longer term I know the balance sheet as kind of got got free would you look to see his future Oh, we look to commit to that these prices.
Oh, no we're pretty happy shareholder right now Richard and Dan are doing a great job with it and we were really pleased to in the last six months or whenever they took over so.
To see it go into hands with a focus on it and certainly.
Certainly we believe that could turn into what it already has but we still have a lot of belief in the upside to that single asset there in Ecuador being renewed but also it's got four more assets in the portfolio. We're really excited about a couple of the other ones as well so.
We have no plans to be divesting. We're also committed our shares to Oscar.
So I think for couple of years at least so we're certainly very committed to them right now.
Great. That's it from me and hope to get lost due to report the results are not currently yeah. Thanks.
Our next question comes from Kerry Smith of Haywood Securities. Please go ahead.
[noise] hi separate question.
Christian for the the underground at tennis Channel is did you only just update the gold price assumption in that P.A. <unk>.
We didn't update the cost.
I'll, let Doug do you want to take that one I'm.
Sure It was updated with.
The economics on on the project so yes.
Gold price and costs, but it's something that we'll need to do more work on essentially we were updating the rest of the studies. So we asked are paid to go back and then do an update on that as well. We know we have to do more work we want to do drill program. There and then revamped the whole the whole thing in light of.
Oh, the opportunity that it can add Meanwhile, we're operating the open pit.
Okay and guys just just maybe on that underground PDH. The 511000 ounces of recoverable gold what percent of that would have been incurred is that all occurred or is there any indication at all.
I'd have to go back and check I will check Carey and I will get back to you okay.
Okay. Okay. So I guess my second question was what is the plan going forward and are you planning to complete I'd infill drill program to try and convert a bunch of inferred and then complete some sort of further economic setting the t. era PFS, let's say.
Yeah, I think when we're not interfering with the construction we would look at doing an infill drill program.
One was designed.
A while back I've had it all that over to Scott Heffernan, So Scott and his team will have to review that for Oh, the logically do the follow on drill program. So that we can move it towards doing a PFS, but.
At the moment and we'll wait while they're in the midst of of construction. So we don't interfere with the site.
Okay. Okay.
Okay, because I guess the timing that you said it was a couple of years of development to get into the ore body. So it sounds like you didn't get another.
Maybe 18 months have drilling and engineering work before you can even make that decision to start that in common would that be fair that.
Yeah that would be fair, but there's also lots of additional opportunities for open pit targets on the site as well so while it would it would be nice to to bring the underground on and have it dovetails <unk> for the nine and a half years with the open pit.
There are other low hanging fruit in nearby to the the process facility that we would look for open pit opportunities as well.
Okay, Okay great.
Just maybe maybe Peter a question what is the holding cost.
Per quarter for Los Filos, while you're on honestly okay.
Peter do you want to pick up.
Yes, Peter here, it's about 750000, U.S. a week Kerry.
Okay, and that's for just the asset protection.
Think you still paying salaries, I guess or the the wage city employees as well is that correct.
Exactly yeah.
But sorry go ahead no go ahead.
Okay, I was going to say Terry we've we've actually suspended payroll to certain people that obviously can't access site can't work et cetera.
You know so we've slowly started to reduce that.
Payment, obviously over time, we would reduce that further if necessary.
So there is some flexibility in that number that you gave as well we could eventually they sort of bit more but oh, that's kind of a reasonable carrying cost.
Okay. So so that 750000, a week then what how much of that would actually be payroll there if I can ask it that way.
I don't know Pete if you remember that number off stop your head.
I don't think Harry I'll have to get back on that one.
Okay, I mean event, I guess, 50% to 60% of that but yeah, we should verified.
Okay. Okay. How did you decide what's happening what's how many people are not on the payroll I guess is it half of that employees are now off the payroll in or how what is that number.
Well certainly as you know most of the actual people who work in the operations can access site at the moment. So you know those would not be working and not pay it at this stage. There are certain groups that have to keep the site safe, which are obviously she is key to having them on site no security.
I'm certain other management numbers, obviously involved in the process is ongoing at the moment as well.
Okay. So the only people that are being paid or people that are able to access the site everyday and effectively.
Yeah, and that have a meaningful job to do right now yeah right right I got you okay.
And what is the timing on the PFS for younger Guy at ore Zone that you mentioned 2021 does that is that second half or Q4, Q3 that can you sort of be a bit more specific there.
The drill programs, Justin just being finished up right now and so we will be digging into it with the new drill data in the coming months.
PFS wise.
Probably in two too but.
So that.
So I would say I'm not 100% certain on that I think thats a target date at the moment, but we've got a lot of work to do on it now that we've got the drill program results rolling in.
Yes by the way carry your question about.
<unk> percent inferred on sent to lose and the underground.
If you look at the exclusive.
Oh resources the indicated underground is so.
About 484000 ounces the inferred underground resource is 461000 ounces so.
I'll say, a big chunk of its inferred, but also could be as much as 50 50 between between the two but I'd have to go back and check, but just noting that there is a essentially over 950000 ounces of indicated and inferred in the underground potential is yeah.
Okay. Okay. Thank you that [noise] cats.
Okay. That's it thanks very much I appreciate it.
Thanks, Ken.
Okay, I'm not going to take a question on the line us from an investor in the United States. It's great to see Santyl isn't moving ahead, how do you expect to see Quinn I love the growth projects in your portfolio. How many active projects you have the bandwidth to manage.
Yeah, I think the way, we're managing them as there is a a project team and a country heads that's in each country. So we certainly have a lot of bandwidth in each country to manage almost a project at each time, but you know we're certainly like the idea of sequencing sequencing them like we've done So castle mountain gets done phase one side of lose gets going.
King and then will be.
Didn't wrapping up towards the end of next year.
You know central Los Filos expansion may overlap a bit with that but obviously a different country a different project team that could happen some overlap, but kind of will happen a lot will happen at the end of the sante lose.
Build so it's been really nicely sequenced over time here and obviously that's helpful. On the capital management front as well is just people management front.
Great operator, we can take dalton's calls.
Certainly our next question is a follow up from Dalton bread with Canaccord Genuity. Please go ahead.
Thanks [laughter].
I wanted to ask a little bit about cash them out and just really two questions. So it sounds like you're putting the final touches on the study there what's the latest on the water situation and has your permitting situation changed in the context of the Biden government [laughter].
[laughter] well, let me start with the water 'em, we continue to drill.
Various water sources, we were doing the study so we've been drilling on our property on the claims that we have close closest to the plant site as possible. We've had good results from that so you have your geologists are actually doing some of them pump test them.
Recharge rates, they're checking it out, but weve tidewater and every cold. So that's along the southern end of our property. So we've got some really positive indications coming out of that so really some of the water will certainly come from there.
Maybe even up to a thousand gallons per minute and then we've also been testing a few other locations. One key one is obviously off site wants a private land stay about 30 miles away I believe it is and.
We'd be able to piped water in along the sort of right away where power life would go as well so.
We're pretty confident that amongst various water sources, including the existing well field and as well the west well field, which is a historical wellfield you know between those sort of four areas that there's multiple sources of water and we want as much flexibility as possible. So.
We're feeling pretty good about that so far not completed all the test work so that'll come with the study.
Then in terms of permitting.
Model I don't know for sure what the change will be like but one thing I do know is that this is an operating mine now it's got existing permits than it's been in operation now twice.
No because huge differences have a brownfield site when it goes to amending permits were not looking for a brand new permits we plan to stay within our sort of yes boundaries that we already exist. So we'll be looking to amend those.
Remember that in the ski pads on and off operations for 30 years Castle was producing for about 10 or 12 years in the Ninetys early two thousands and is now producing again and I don't remember all the government's during that period, but there were certainly a mix of Democrats and Republicans and how we can work with both sides and both parties and you know again, we bring good jobs too.
Eastern California, there and we've had great support from San Bernardino County, as well as Imperial County, more where mosquitoes. So you know maybe it'll change slightly but I actually don't expect a ton of change in terms of permitting process you tend to deal with the BLM and the local regulators.
More than the federal government and so I.
I expect sort of almost business as usual it really.
Okay, Great and then maybe just one last one from me the gold collars and swaps, they're looking pretty Canada right now anyway.
Anyway.
In terms of offsetting Canada than yesterday.
That's fair [laughter]. It did at the moment those have they run in so I think its mid 2022, it's only like 10 or 12% of production. So I think we'll just let those run out deliver into them on a quarterly basis. You know there historically from the legal merger were put in place related to the financing they did so it's.
We have to live with and we'll just deliver into it may become smaller and smaller every quarter in terms of impact and.
There was a big run up polishing the gold price in the last six to eight months, where we did have a quite a negative impact on the p. and l., but obviously with these current gold price environment seems more sort of stable or around these sort of higher.
17 to 2000 dollar levels, there's less and less of an impact on a quarterly basis and we'll just like most run out to a termination in 2022.
Okay. Thanks, guys all the best.
Thank you.
Our next question is a follow up from Kerry Smith of Haywood Securities. Please go ahead.
Thanks, operator.
Question just on the block.
You actually currently.
Regulatory risks with the Canadian if you are what is the frequency of those discussions are they weekly or quarterly or how do you have you schedule. This.
You know again, I don't want to give too much detail, but over the last week I think we've been meeting almost every day and continue to do so including today.
Okay. Okay. So its pretty free okay, quite yet and Oh, you had talked about and you are committed to that you see that Muskegon 2021. When you say you from decide haul truck sand and loading loading here or just the truck fleet.
Now, let's see there's an old Terex fleet there for those that have visited that actually are coming towards the end of their life and you're starting to look at big engine rebuilds and.
Quite a lot of investment to keep them going you know and they always were planned to run right through to the end of the mine life. When we acquired it but now its mine life seems to be double what it originally was and we still see some upside beyond that its certainly time to be looking at investing in the trucks at the moment. So the cat cat fleet instead of the old Texas.
Yes.
And the rest Capex next year for that equipment Upgradable can you give me a rough number yeah, we'll put that out in our guidance, but probably more in that sort of $30 million to $40 million range, but we'll give you more exact numbers and the guidance.
Okay. Okay.
And then we'd also talked about our exploration budget for Scott, that's how loose or along the greenstone belt to fund their test for them to what what might that number be then just so I can sort of quantify is it 5 million bucks a year or less.
I might let Scott comment on that.
I mean, how much will it will we'll give them [laughter] right now than it was the budgeting and planning process for 2021, but as Christian mentioned, we have started the with the regional program is a thousand square kilometers to explore there and.
Lots of lots of good work to do so we've got to go to completion.
Completion synthesis work underway.
Cruiser doing the surface works at the mapping prospecting sales anything target fuel target.
Definition.
Were they will follow up with next year. So I hope would be that significant program. Several millions of dollars in middle East and Theres lots is Lewis.
Moving to chase, both near mine symptoms enters into as well as the district. So it's we're going to put a big emphasis on it and the teams really digging into the data right now.
The thought is that fair to say I can say is that fair to say, that's probably good $5 million to $10 million worth of exploration could do there. It's just a matter of how much your get allocate next year revenue.
I did not quite yet.
Right, Okay, but it's like 2021 would not be a drill program it would be more reconnaissance prospecting and target generation that.
No we're moving we're moving as fast as we can to.
Drilling we will have some modest amount of drilling going on this year and we expect to drill as aggressively as we can next year.
On this matter.
Building of the pipeline of your targets in advance of the drills chasing the field crews, but that is sufficient to drill ready targets already that we can start on in a pretty comfortable that we'll be able to keep.
A significant number of Joe's turning throughout the year.
Moving through the year.
45, 50 expirations in this.
Okay. Okay, that's great thanks very much.
Thanks, Gary.
Okay. Thank you Christian were nearly out of time, so I'm going to turn it back to you for closing remarks.
Yes, Thanks, Roland and thanks, everyone for your time and lots of good questions today and exciting are exciting future here lots of catalyst coming so please keep an eye on the space you know we've got a number of projects on the way the lots of exploration ongoing and.
No we hope to get to a resolution here on Los Filos. So you know please keep it on the space and you know look forward to speaking to you at the year end.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
HM.
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