Q4 2020 Gold Resource Corp Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the gold resource Corporation's year end 'twenty 'twenty conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the prepared remarks, there will be an opportunity to ask questions. If at anytime you have any questions. You May press star one on your phone to join the queue. We do ask that if you were listening on a speakerphone. Please pick up your handset to ensure optimal sound quality.
I'd now like to turn the conference call over to Anne Wilkinson, Vice President Investor Relations and corporate Affairs. Please go ahead.
Thank you Kate and good morning, everyone.
On behalf of the gold resource team I would like to welcome everyone to our year end 2020 results conference call before we begin the call there are certain housekeeping matters I would like to cover.
Please note that certain statements to be made today by the management team.
Looking in nature, and as such are subject to numerous risks and uncertainties.
Scribed in our annual report on form 10-K, and other SEC filings.
On the call today, we have Allen Palmieri, President and Chief Executive Officer.
Well as Kim Perry Chief Financial Officer.
Following their prepared remarks, they will be available to answer your question.
This conference call is being webcast.
Those of you joining us on the webcast you can download a PDF copy of the conference call slides from the materials tab under the ask a question tab.
You bet, we will also be available for replay on our website later today.
Yesterday's news released following the close of the market and the accompanying financial statements and MD&A contained in our 10-K have been filed with the SEC on Edgar also please note that all amounts mentioned in this call are in U S dollars unless otherwise stated I will now.
Turn the call over to Alan.
Yeah.
Thank you, Rob and good morning, everyone.
I want to thank all of the listeners for taking the time to join US and look forward to outlining some of the results of the company from 'twenty to 'twenty.
Following my opening remarks, Tim Perry, our CFO will describe our financial results I will then provide you with a high level view of our plans for 2021 and a few closing remarks, and then we'll take your questions.
On December 31st 2020 Gold Resource Corp completed the spinoff of the.
Nevada mining unit, two Fortitude Gold Corporation, a separate public company.
The separation was completed by way of a pro rata distribution of the outstanding shares of a newly created subsidiary to our shareholders on December 31 2020.
I took over as CEO of following Jason reads departure to run Fortitude and early in the new year, we added three new independent directors.
Just lie on the mass of Murphy, Mr. Joe Driscoll and Mr. Ron Little to the board of directors.
These additions to the Companys leadership, the expertise necessary to focus on unlocking the value of our Mexican assets, while implementing best in class governance.
Turning to our Mexican operations I'm pleased to report the gold resource.
Produced approximately $20 from 500 ounces of gold, one 2 million ounces of silver.
About 1600 tonnes of copper 7700 tons of lead and 19700 tons of zinc. Despite the two month mandatory shutdown in 2020, but Don David Gold mine in response to the COVID-19 pandemic.
2020, and Mark two milestones 10 years of production and over 1 billion in revenues to date.
During the fourth quarter, we processed ore at an average rate of seven 700 tons per day compared to 2000 tonnes per day in 2019, largely because of lost workdays related to COVID-19 protocols and safety measures to keep our workforce safe.
As expected overall recoveries declined in 2020 by approximately 5% due to the impact of the plant being shut down in the second quarter due to the pandemic, which accounted for 80% of the drop and the nature of where we are mining in the deposits accounted for the balance of the decline.
During the year, we realized about $3 3 million in cost savings from reduced diesel fuel consumption by close to 69%.
As a result of connecting to the power grid for cheaper more efficient electricity.
The project to connect to the power grid also improved local infrastructure and allowed access to electricity for approximately 25000 families along mature transmission road per.
First time.
The Batesville plant, which was completed in 2019 processed 136000 tonnes of tailings.
<unk> tailings are an effective method of recycling.
We primarily provide additional ground support to ensure future mining operations occur in a safe and uninterrupted manner.
Construction of the dry stock tailings filtration plant continue during the year.
These facilities are expected to be complete by mid year 2021.
The dry stack facilitate.
And we'll accelerate reclamation of certain areas of the open pit mine as well as allow for the efficient and safe storage of tailings.
Finally, I want to note that the dawn David Gold mine earned.
I'm going to just give the English version of the socially responsible enterprise award for the sixth consecutive year.
That is an accomplishment that were very very proud of.
With that I will turn the call over to Kim.
Thank you Alan and good morning, everyone.
So performance from a bomb David Gold mine ensured we closed the year with a strong balance sheet, consisting of just over 25 million cash.
No doubt.
This increase of $15 million from 2019, and after providing the Nevada mining unit with over $20 million in cash during the year, including a $10 million of pilot and off capitalization.
Cash from operating activities was just over $21 million in working capital from continuing operations was nearly $71 million at December 31 2020.
A year over year increase of 22 per cent.
For the year, we reported net income of $4 4 million.
Our revenue from our Mexican operations was approximately $91 million, resulting in a mining gross profit of $12 5 million.
Net sales decreased by $29 6 million for the year as compared to 2019.
This decrease is primarily related to two factors.
Production volumes were impacted by the government mandated suspension of operations related to the global pandemic and second a 34% decrease in total concentrate treatment charges, which are netted against concentrate sales within revenues.
Lower average realized prices for zinc and lead were slightly offset by higher average realized prices for gold silver and copper.
Total production cost of $60 6 million for 2020 were 16% lower than the production cost for 2019.
The decrease is directly related to the lower sales volumes.
Production cost per ton milled.
We're $107.
Or 3%.
Higher than 2019 production cost per ton milled of $104. This increase reflects the impact of inflation on labor rates and transportation costs.
Treatment charges for the 12 months ended December 31, 2020 were $21 1 million as compared to $13 8 million for the same period in 2019.
This equates to $729 per tonne of concentrate produced in 2020.
First is $403 per ton in 2019.
An approximate 80% increase free for each ton of concentrate produced.
The treatment charges for 2021 are expected to decrease by about 30% to between 525 and $550 per ton of concentrate produced.
This expected decline in concentrate treatment charges as a result of recent negotiations, but it's also dependent on the spot treatment market for zinc, which can be volatile.
John David Gold mines total cash cost after byproduct products with $784 per gold equivalent ounce sold.
In total all in sustaining costs were $1365 per gold equivalent ounce sold.
We expect these costs to decline in 2021, especially with the expected decrease in treatment charges for zinc concentrates and Alan will provide a few more details shortly.
During the year, we also returned dividends of $2 8 million.
Shareholders switch since 2010 had total over $115 million.
With that I will turn the call back over to Alan.
Thank you Kim.
Turning to 2021 per.
Our focus is on unlocking the value of the mine existing infrastructure at large property position.
Accordingly, we plan to invest approximately $29 million in infrastructure and exploration in the Dawn David Gold mine in 2021.
Of the $29 million approximately 75% of the total will be focused on capital net initiatives to sustain the operation and improved recoveries with them with the balance focused on exploration.
Gold and silver production will remain in line with 2020, as we focus on operational excellence and improved margins, which we expect to be reflected in lower cash cost per ounce. After byproduct credits in the range of 210 to $225.
We anticipate our all in sustaining cost after byproduct credits per gold equivalent ounce to be in the range of eight to $900.
In closing our dawn David Gold mine located in Oaxaca, Mexico delivered solid production results during a demanding twenty-twenty amid the COVID-19 global pandemic.
COVID-19 is expected to remain a challenge in the short to medium term. Our team has done a truly excellent job managing the situation and I would like to take this opportunity to thank all of our employees and contractors for their hard work and resilience.
I recently had the opportunity to visit the Dawn, David Gold mine and see firsthand the operations, including the projects that covered in my opening remarks.
Notwithstanding the operation has accomplished a lot there is a lot more to do we.
We intend to take a holistic approach to understanding and capitalizing on the foundations laid in the areas of safety community relations environmental stewardship operational excellence and organic growth in order to unlock the value in our highly prospective ground package.
I want to repeat Tim's comment that the company finished the year with a strong balance sheet, which provides us with flexibility as we move forward to reinvest capital in Mexico to increase the mines productivity and delightful day operations.
Thank you for taking your time to listen in this concludes our prepared remarks, and I will now turn the call back over to the operator for questions.
Thank you.
We will now begin the question and answer session. If you have any questions or comments. Please press star one on your phone at any time, we do ask that if you are listening via speakerphone. Please pick up your handset for optimal sound quality. Once again, if you have any questions or comments. Please press star one on your phone now please hold them.
While we pull for questions.
Well Pete polling for questions I have a question thats come in on the on the webcast.
And it's from Richard a private investor.
After so many years of mining at Arista have you gone deep enough to determine whether or not there is scoring potential at the Arista site. This is Ben referenced previously and he's.
Interested in the potential if viasat.
Starting with determined to exist.
Richard.
Okay.
That scarring potential is certainly there. We're currently in the process of developing two exploration drifts underground one to the northwest one to the South East.
Part of the drilling objective once we complete the trip to the northwest.
Is to test for the number one existence and location of that Sky arm, where we hit it I don't know it's exploration, but that is part of the current drilling program for this year.
And I have a second question coming in on the web site.
The company.
Considering listing on the venture exchange change in Canada, or the senior listing board.
And.
What about attendance at trade shows like the PD AC.
Listing on the venture or the PSX.
Something that is a possibility.
At this stage it could be a secondary listing and it would only be to enable us.
To access <unk>.
Research and <unk>.
Investors that trade primarily on Toronto.
It's something that.
We're thinking about however, one of the things that often occurs is that our secondary listing does not necessarily in gender much in the way of trading volume so.
It's not an automatic conclusion, it's a good exchange or mining companies, but it's not necessarily an automatic.
In terms of attending conferences. This year, obviously is a unique unique here much like a good portion of last year, we are going to be in attendance.
Conferences virtually this year.
Can't give you all of them but.
There are already about half a dozen on the schedule.
P D C specifically.
Not going to be attending this year, we have got a conflict with another conference, but certainly it is our intent to be presenting the story to as many people as possible.
And again from the webcast James from in the RAF Research.
You said, if we examine the 2021 guidance it appears that while gold production is expected to remain below below pre pandemic levels, you were expecting higher levels for silver and the other base metals is that based on reduced grades of gold or specifics.
Targeting can you elaborate further.
Absolutely James the nature of the mineralization that we're dealing with growth.
What's termed as pepper thermal.
At the thermal deposits.
Somewhat interesting the higher you get are the further away you get from the original heat source.
The higher the precious metals are closer to the original heat source.
The higher the base metals.
Right now where we're operating in switchback.
We're in an area that has lower down on the system.
Base metals have picked up.
Now I will point out that we issued a press release, a few weeks ago about drilling.
From our exploration development that Reis.
It resulted in very high gold grades and very high silver grades.
Those drill holes were located in what we believe to be the upward extension of switchback.
Should that continue to prove out.
You will see in the future gold and silver grades increasing because we will be mining higher in the system.
I think that answers your question.
Uh huh.
A follow up question from James the assumption used for estimating the byproduct credits assumed base metal prices that are significantly below current prices ranging from 17% to 32%.
If those rates continue to hold is it fair to expect significantly lower all in sustaining costs.
Yeah.
Quick answer is yes on.
On our budgeted numbers, we're looking at all in sustaining as I indicated earlier in the <unk>.
Patients $800 to $900 obviously.
The base metal prices are byproducts.
Increase in value, our all in sustaining cost decreased proportionately.
Absolutely a fair assumption.
From the webcast again, a gentleman named Greg Marino.
Do you have plans to reduce head count operations and staff.
On the other hand are there any investing plans outside of Oaxaca.
In terms of head count I was down there I spent 10 day style in the Mexico in January and I will be going back down in the near future.
What we have in Mexico is a very very high quality workforce.
<unk>.
Technical team is as good as you are going to find anywhere.
The underground workforce are very very competent.
Is the workforce higher than you would typically expect to see in North America, Yes.
Is that unusually high for Mexico, and Latin America no.
I'm, not particularly concerned about our level of workforce. If you look at our total labor cost.
Percentage of total operating cost it runs.
<unk>, 32% to 35%.
And the rule of thumb is its one third labor one third consumables and one third the power of our energy and that holds pretty much anywhere in the world.
So.
Our labor cost as a percentage of production are in line.
Are we looking at investing outside of Oaxaca, I will say that in the mining industry.
We're always looking you have to.
Do we have.
A focused corporate development programme now and I will tell you that my philosophy on corporate development is that it is by definition opportunistic.
If something is presented to you.
Looks as though it has merit you will follow it up.
Okay.
Just by virtue of being in the industry. There are opportunities presented on a continual basis and 99% of those are not something that we would choose to follow up but.
You never know something May come along that were extremely interested in and then we would look at investing outside of blocker.
Currently our focus is on the dawn, David and the very very highly prospective land position that.
Gold resource has already put together.
Next question can you describe the service agreement with Fortitude and will you still be going.
Hmm.
Will you still be.
How is that going to be.
Treated going forward that's from trickle research.
Well as part of the spinoff of Fortitude.
Gold resource.
<unk> entered into a service agreement to acquire Bai.
Gold resource agreed to provide certain services in support of Fortitude.
That was but that only made sense because it's the gold resource team that was providing all of that while fortitude, which is a wholly owned subsidiary the.
The underlying intent of the service agreement is to provide fortitude with sufficient time to build up their own team and while we never really talked about.
Finite limit to the service agreement I do know that towards the truth is moving quickly to establish their own team.
And at some point I would expect the service agreement will fall away.
I can't tell you timing I need to talk to Jason Reid at some stage about that but I do know that he has been quite successful in building is on management team.
So related question and this is from.
Back to James in the RAF research the guidance for the 2021 G&A was between $6 six and a half versus eight in half in 2020 can you clarify what drove that reduction.
Kevin do you want to take that one.
Sure Alan half of sales.
Thank you for the question. So there were several opportunities to reduce G&A and just.
Part of day at the spinoff so there were certain Ren.
There were some salaries that came through that.
Moving outside of Fortitude, So a lot of it related to first the fortitude stem off but then by nature of us being a bit of a smaller company. This year were able to realize the benefits to some of our servicer arrangements.
I think it's also important to note that the 6% to $6 5 million it excludes the.
Share based compensation.
Yes.
So on the capital investments 2021 guidance can you clarify which items are already embedded in all in sustaining costs and which would be incremental.
Some of the we've got a number of different projects underway.
Some of which will go into all in sustaining and some go into growth capital.
Specifically, our exploration related expenditures not in mind, but our external.
Around mine exploration all go into growth capital.
The re grind circuit, we are putting in into the plant is not a.
Modification to the circuit, it's additive to the circuit and it will potentially increase recovery by 6% to 10% gold recovery by 6% to 10%.
That is not in all in sustaining that is in growth.
The.
Two other major projects, while there is one other major projects underway that address and that is the.
Filtration on dry stack initiative.
That's analogous to building a completely new tailings facility, which would be growth capital not sustaining.
Sustaining.
As we move forward there will be additional costs associated with the dry stack as we prepare new areas for deposition and the like that would potentially be sustaining but the initial projected growth.
We've got approximately $9 $8 million and our capital budget for underground development.
That is all mine related.
That is all sustaining capital.
And we have.
Directionally two to $2 5 million for underground exploration and that is definition drilling not exploration drilling.
The intent of that type of drilling is to upgrade your.
The resources to reserves and minable reserves that is all in sustaining.
I think I've addressed most of them.
The definition really revolves around whether or not it is additive to core whether it's maintenance and.
Underground development is all maintenance you have to do it to develop your resource exploration as an example.
Attempt to grow the resource long term increase the life so that goes in growth capital.
Alan I think from day.
One more from the webcast and then we'll.
Well Keith I think we'll go to the people on the phone if we'd likely have people waiting quite patiently to ask questions over there.
Yes.
So Mr Carter on the webcast.
Asking will the dividends continue and are there prospects for a dividend increase.
Current plans are for the dividends to continue as they have been for the last several years.
Prospects for.
Increase is not something that we're considering at this point we have.
A reasonable balance sheet.
We are in fact, anticipating increased capital spending and it comes down to a capital allocation decision and that will be reviewed on an ongoing basis I will say that currently there is no intent to increase it but.
Metal prices hold and we ended up with a large balance sheet with our large cash position you'll never know.
Thanks, Alan Kay do we have people.
Waiting in the wings on the phone.
Yes, we do.
Our first question today is coming from <unk> <unk>. Please announce your affiliation and then pose your question.
Hey, Alan Kim and welcome to the team I'm truly looking forward to working with all of you.
Good to hear from you Michael.
So the electrification.
<unk> and.
And the local community can you just walk me through what all that cost your previous spending and to be clear I mean, we won't see any more spending on that for the remainder of 2021 its on David at all correct.
In fact the.
The transmission line was completed in 2019 2020, we received the benefit of it.
There was no capital associated with it in 2020, nor nor will it be in 2021.
Quantum of the project was not particularly significant and im going by memory now Heiko, So bear with me, but it was only in the order of one $5 million to $2 million.
The issue associated with the transmission line was more one of gaining.
Access to the right of way for installation and I know the company took several years to come.
Altogether, the right of way to enable them to construct the line.
Once they were able to do so.
The line was constructed very efficiently very quickly.
Spin off benefits with local communities was really very remarkable if you think of 25000 people who've never 25000 families who've never had electrical power before.
That is something that the company is rightfully very proud of.
I wish I wish you could see my computer because my my very next question actually was.
One would assume community feedback to this is beyond excitement and have you seen any change to your social license in the area based on that.
Well I will tell you that the company.
Over the last 10 years has established a very very good relationship with the local community.
Now we're dealing in a part of Mexico, where you've got a number of <unk> that we deal with because we've got a 55 kilometer strike length properties.
Our relationship with some of those Idose is not what we would want it to be but in the immediate community. We have a great deal of support.
They are working very very closely with us what.
What we need to do going forward is to leverage off of the good work that has been done with respect to.
Working on infrastructure and the local community that transmission line is a notable accomplishment.
We need to leverage that to obtain or improve our social license further to the north. So we can continue with our exploration programs and hopefully expand our resources.
Okay, and then just one last one from me and this might be a Kim question I'm not sure just as a clarification on your guidance that your G&A does not yet include restructuring expenses I mean, we're two thirds through Q1.
How much in restructuring expenses should we expect to see for the remainder of this calendar year. It looks like you had 132 million in 2020 for severance and the <unk> spinoff. This per your 10-K.
Tim do you want to take that.
Yes. Thank you Alan Thank you for the question.
It's not going to be significant.
There's still a couple of unknown as we.
And as separating systems, and so forth, but it would be less than $1 million.
That is yet to be incurred.
Some of it has been incurred all of that will be incurred by the end of the first quarter yes.
All of them will be incurred by the first quarter about 1 million Bucks from maybe a bit less excellent less yes, yes excellent.
Thank you guys. So much Lisa thanks, Michael.
Alan it's good to see you made at the site.
So I'll be going back again next month.
Stay well take care.
Thanks, Michael.
Thank you.
Our next question today is coming from Harvey Bohlen. Please announce your affiliation then pose your question.
Good morning, I'm, a longtime investor private investor.
<unk>.
Gosh, it seems like almost forever.
In any event I.
I have a couple of questions first of all I noticed that the guidance for this year.
Has production basically flat from last year, if I understand it correctly, yet last year you were affected significantly by the Covid shutdown. So I'm wondering why production for 2021 isn't greater than 2020.
Harvey first off I am glad to meet you as a long term shareholder.
If you look at the production profile of non debit mind going back over history 2019 was the highest level of production mine has ever achieved.
But what.
Drove that.
I'm going to.
Step into geology, right now but.
Not too much.
What we're mining at the Dawn David of two mineralized zones the per.
First one that was ever developed as a REIT stuff.
And the rest of us.
Predominantly narrow veins a cluster of narrow veins.
Beginning in 2016, 2017, and non peak into 2019.
We develop the switchback.
<unk>.
Switchback is different in that it has one particular ban solodyn.
Is much much wider than anything that we have found on the property before.
I think last year, the average mining width was something in the order 10 meters.
When you have a vein such as the solar died you can adopt different mining methods effectively you can long haul it and you can get higher levels of productivity.
We.
The company focused on solar died all of 2019 part of 2018 and part of 2020.
This year.
We are continuing to operate and Salvador.
In Switchback, we're also re emphasizing the narrow vein and a restart.
Now what that is going to mean as our production is going to decline.
<unk> is actually higher grade so your metal content isn't going to be suffering dramatically.
What we're doing now is taking advantage of pre existing resources, we don't want to leave it behind.
So while it is a bit flat.
The level of production in 2019 was not sustainable primarily because it almost exclusively coming out about $1 billion over and switchback, we want to utilize the entire resource and we're mining at a rate that allows us to sustain our operations on a long term basis.
Does that mean, we won't increase production now but.
In order to do so we need success in our infill and our near mine exploration and that is one of our primary focuses for this year.
Hopefully, we can take it back up to 2000 tons going forward.
But we need additional resources and good mining width to enable us to do that.
Yeah.
I hear you and on that same topic I noticed that reserves.
Or less.
At the end of 2020 than they were at the end of 2019 so.
How are you addressing that.
I talked about.
A little bit earlier, what we're doing as.
We budgeted $7 $5 million for just exploration this year.
Up from about two and a half last year.
Last year was a very very difficult year.
Covid hit hard.
And we were not able to do our underground development.
We could do underground exploration.
It was really an atypical year now I'm going to put it in context for you. These type of epic thermal deposits are.
Very difficult to build a long term resource out in front of you.
And it's difficult because of the cost of drilling most of your exploration is underground so youre drifting and drilling from underground it as expenses in.
And they are constrained by your ability to develop.
I'll put it in context for you, though I was involved with.
With a company that had a similar type of mineralization located in Latin America.
The mine was started at $19 52.
It's operating today and its never had more than three years resources ahead of it.
I use that as an example, only because these type of mines seldom have.
Along the resource ahead of it.
However.
History would suggest that we will continue to develop resources as we go.
Primary example of bad or the drill holes, we released a few weeks ago.
Those are not included in our resources, but it's already.
Indicative of a continuation of switchback, but we're very excited about whether it proves into or it's a bit premature.
But the holes were very very good there were some of the higher grade gold and silver holes that we've pulled on the property.
And that is giving us a great deal of optimism that we will be able to not only replace reserves this year, but just expand on that.
Sounds good sounds good of course.
I hope that all of this happens.
Obviously theres.
There is two major factors here, one that's mining and one that's exploration.
But we are in fact in a very very impressive mineralized zone.
And.
We've had a lot of success in the past and I anticipate that continuing in the future I really I'm not overly concerned about our resources.
So the exploration is that is that is some of the extra day or is any of the exploration taking place in areas that you've not been in before or is it.
Kind of sticking to the places that you've been and expanding on that.
I think it's more of the latter than the former we are drilling outside of.
The <unk>.
Direct mine site to the south.
East.
It's a continuation of the mineralized zone that we're exploring.
It's still relatively close to the mine.
But it is in an area, where we have not drilled in the past.
We are drilling underground and that is very much near mine drilling, but we are drilling further to the east to explore for a potential new mineralized zone, we're drilling up dip.
Of the switchback and we're drilling along.
Along strike both directions for a restart and switchback. So the answers this bit of a hybrid but we are focusing primarily on.
In mine and near mine exploration this year with a specific focus of increasing our minable resources.
Got it.
Well Alan Thanks for thanks for your commentary and I look forward to meeting you sometime in the near future.
I would look forward to at Hardy good talking to you, yes. Indeed, thank you.
Thank you once again, ladies and gentlemen, if you have any questions or comments you May press star one on your phone now.
Our next question today is coming from John Bair. Please announce your affiliation and then pose your question.
Thank you John Bair with ascend wealth advisors.
From a shareholder.
From client shareholder for number of years here so.
<unk>, you're taking my call and actually had three and you've touched on.
All of them to some extent.
Let me start with a real simple one.
Going back to Heico's question in regarding the electrical grid.
Is there any do you don't have any ongoing costs.
Related to that.
I understand correctly and I'm also wondering.
How reliable is that.
Electrical source.
Far way as is the power being generated.
Okay.
Number one it's got to meet John a quick response to that is that the.
There is no more capital associated with the transmission line.
We have on site six standby generators.
That we used to use from power generation and the only time. They returned on last year I think it was for a total of four hours outside of normal.
Running.
The grid has been very very stable and very reliable.
It is not a line just to the mine what.
What makes us particular transmission lines, so attractive as it was something that the power authority wanted to build anyway and it completed a port of circuit within the grid.
It is their primary transmission line and we have been very very happy with the stability and continuity of supply.
We do maintain the generators because if there were to be a problem.
We need to keep running so we have our generators standby, but last year there was virtually no.
Shutdowns due to the polar power availability.
Okay great.
The <unk> previous question about some exploration I was looking at this as well can you kind of differentiate.
You've got 3 million budgeted for surface exploration versus.
$1 6 million for exploration development can you kind of.
Elaborate.
What your differences that simply where you are.
Locating the.
The drill rig.
One under underground versus being physically on the surface.
And maybe doing a directional.
Borehole.
Okay, the $1 6 million for <unk>.
Development is just that what we're doing there as I talked earlier that we're driving.
An exploration drift once of the northwest and one to the southeast.
One 6 million just deals with the cost of driving those drips that's it.
The approximately $3 million for surface drilling that is very much traditional.
<unk> drilling we've got identified targets and we're poking holes into it to see what we come up with.
In addition to that there is.
I don't have the number at my Fingertips I'm sorry, John.
But directionally there is another couple of million dollars for drilling underground and what we'll be doing on that is.
We go drive those exploration drifts will be slash out drill stations and then we actually drill from underground exploration drilling from underground as well.
Does that answer your question John Yes, yes, okay.
And.
So so you are going to poke some holes over and the magnetic anomaly area to the northwest.
As well as as going East and South East.
I'm looking I have your.
Page 18 pulled up from.
One of your.
Presentations on your website, so that's what I kind of look surfactant.
The.
Part of the objective of that drifts going to the northwest is.
Test the halo around that magnetic anomaly, you're absolutely right okay.
But the other objectives of that drift going to the northwest is to look for an.
An extension to both switchback and Arista.
Going to the southeast it's <unk>.
Along strike for both of those mineralized zones, and we'd be looking at that.
The drift to the northwest also has one of its objectives pushing.
Few holds further to the.
East because there is some indication that there might be a additional.
Mineralized zone beyond switchback. So we're also testing that so we've got a multitude of targets for this program.
Yeah.
Yes that was the other the other aspect of that.
The additional parallel vein system.
Net.
It has been talked about.
In previous years and presentations and so forth.
How many how many boreholes do you think will be targeted that way or maybe better asked what percentage of your exploration.
Budget wood.
Target that.
That particular potential.
Potential.
We only we only have about three drill stations that would get us close enough to the zone to test it.
So there won't be a lot of holes in there.
We are lucky enough to find something.
And then we will probably end up drifting in that direction to expand the drilling over too.
With that potential new zone, I say its potential John because we really don't have.
Any hard indicators with their surface expressions that would lead us to believe there might be something there and the only way to test it is from underground so.
It will be limited this year.
Probably on the normal than half a dozen holes if we get some joy then we will plan on following that up next year and then in subsequent years.
Okay, Great and my last question.
Kim touched on it in her comments about.
Base metals and.
Processing fees and so forth. So my question was going to be can you share how significant pricing improvements with.
The various products lead and zinc.
We all kind of see every day, the price bouncing around for gold and silver pretty more readily.
Put out on.
News feeds and so forth.
Can you can you talk about that a little bit more and <unk>.
It sounds like we're still on a variable maybe month to month processing schedule, rather than a say a one year fixed processing for.
I believe it was zinc was the one that kind of.
Net.
From a couple of years.
Okay, what you're referring to John does the smelter contracts from the Tcs was charged for having a material.
Smelter smell.
Smelters.
Last year, there was very very.
Big squeeze on smelter space and prices went through the roof. The smelters, where we were able to charge almost anything they wanted and they were near historic highs that hit us very hard.
They've come back to normality this year Kim talked about it in her remarks.
But zinc because we do produce a lot of zinc hit us pretty hard but the indications are right now based on our current contract and spot.
We will be reduced on a per ton of concentrate basis.
About 30% and our Tcs.
That is a very significant number.
No.
<unk> indicated to us that we.
Looking directionally.
19% or 20000 tons of.
Zinc and if you have a.
A 30% reduction.
Cost associated with that level of production the math is pretty straightforward, it's a significant savings.
What we've done for our guidance and our budgeting purposes, we've taken a very very conservative position for our pricing.
Yeah.
All of our byproducts.
Just for example reviews direction they.
Just under $3 per copper copper is now north of four.
I think we used 102 in zinc is trading 120, <unk> hundred 30.
Led we were.
Hi, <unk>.
That is a bit higher again right now.
We were conservative on our numbers for silver.
And for gold now Gold's I'm going to make a comment on because we've seen a lot of volatility in price recently, who knows where that goes.
But certainly our byproducts are.
Looking very very secure in terms of providing the cash flow and we're anticipating if anything will get excess cash flow out of it.
Does that address it Jonathan yeah.
They said that you're you're.
Realized prices for copper lead and zinc have been going up gold has been tough the last few months silver has moved higher and with all this focus on renewables and so forth Youre byproducts are used in that as well obviously as silver so.
So if your processing costs are going down per zinc.
And your realized price per zinc is going up that's really.
Our positive double edged sword, I guess, it really isn't a double edged sword.
It's a good boost it sounds like.
That's a nice multiplier and they could have already plus call. It a good tailwind I guess is the way it should be.
Okay very good that that.
That.
<unk>. Thank you very much appreciate the time and thank you for.
Taking my call look forward to me.
The conference Okay. Thank you bye bye.
Bye now.
Alan and Ken.
There are a couple more questions on that on the webcast as we approach the top of the hour and for anybody Who's question I Didnt get answered we will follow up with you.
We are trying to bucket the questions in general categories. So specifically.
<unk> for Ken how are you getting prepared in relation to the labor reform on 2021.
I'm, assuming in Mexico and what.
What it could be the financial impact what could be the financial impact.
Thank you for that question so from the Labor reform perspective.
The vote was originally supposed to happen in early February and.
Postponed now that the.
There are some other big tickets at the Congress I think and I think Dave alluded on this week.
So we think the reform might be voted online before the election, that's going to occur in June our Congress.
Because we thought the election or the thought it was going to occur in early February we actually had everything ready to go at that point. So when when the vote occurs we will be ready to go we had a lot of discussions with our union. Our union is very favorable basically it will be a substitution.
All employees will maintain their tenure and all of their current benefit.
The impact to sales is going to be pretty much cost neutral. So we did have a markup that you're paying to our service provider and then there's also the flip side. We're now there will be some component of profit sharing.
Really kind of wash out, especially given the lines that we have ali compensated or.
I am pleased with <unk>.
So the cost impact really should be about neutral.
And Alan is.
Do you have any concerns with the government of Mexico, considering that it could appear anti mining.
Not.
Not particularly I think that.
Virtually every country in the world goes through.
Periods, where.
It seems to be popular to be anti mining, but if you look at the economy of Mexico and the degree of the percentage of the GDP generated by mining activities.
I really do not believe that the government is going to do anything thats going to jeopardize effectively the cash pile that funds a great deal of their expenditures.
Will there be changes, absolutely, but do I think that theyre going to be so comprehensive.
All per base of too as to.
Really compromise our operations no I don't.
I think that there will be and it's happening in every country in the world movement too.
Fifth in environmental controls I think there will be potentially increased taxation, but oftentimes when you see.
Nameplate increases in taxation, there is offsetting deductions. So the net result is not particularly significant.
At this point I don't see any any cause for concern and I don't anticipate any going forward.
Yeah.
Let me just check here.
Okay.
From James Thompson.
Research in the rough research I understand girl historically was pursuing a potential refund or adjustment, resulting from the guilty tax was there any resolution on that.
Tim do you want to talk a lot one.
Yes, Im happy too.
James That's a good question. So there was some reform that came through in 2020 that basically allowed us to review whether or not we were considered in high tax.
Our section.
So in 2002 2019, and most investors will recall, we had about a $2 million impact and expense related to guilty for 2018 in 2019.
We went back and we evaluate in 2018 in 2019 and 2018 that did not qualify for a high tax exemption because at that time, we were receiving credits from the diesel fuel we were using from the diesel generator as Alan mentioned earlier.
So those credits did bring our tax down to <unk>.
Range that was not considered a high tax jurisdiction.
2019, we did not have that benefit from those diesel credits. So it did qualify for a.
I hesitate to call. It a refined basically reduce the exposure for 2020 net in 2019 day impact with tax affected approximately $800000. So we did receive back some of that 2 million that was recorded in 2018, our 2019.
I think we have time for one last question.
It comes in from Craig on the webcast. So Allen as the new CEO, Carl what encourages you and excites you most about the prospects and opportunities of the company going forward.
Really that goes to the reason I joined the company in the first place.
I view that as a unique opportunity you have got.
A very very very strong technical team at the mine with excess bandwidth. So that we can accommodate any new opportunities.
We have got a very impressive property position that is highly perspective.
Little bit of exploration was done to the north.
Eight years ago.
Never followed up because of the focus was on a restart.
I think the opportunities for exploration are extremely attractive.
We have no debt.
Directionally a year end, we had $25 million in cash.
No reason to go to the capital markets, we will be generating.
Free cash flow in excess of our requirements this year by a significant margin.
The company is very well positioned to take advantage of opportunities for organic growth and if something comes from outside.
By way of M&A.
It's very seldom you got an opportunity to take over a company that has no.
Real issues.
It's about challenges, but it is an operating company by definition of those challenges, but it really is a very attractive platform on which to unlock value by which to unlock value associated with the people and the properties in Oaxaca.
Thanks Alan.
That brings us to the top of the hour, but we wanted to thank each and everyone of you for tuning in and for attending our call.
For any of you who pose questions on the webcast that we didn't get to we will be circling back around with you.
And we will talk to you again in the on.
On the next quarter conference call.
Thank you.
Thanks, everyone.
Yeah.
Thank you ladies and gentlemen, this does conclude today's event.
You may disconnect at this time and have a wonderful day, we thank you for your participation.