Q2 2021 Gatos Silver Inc Earnings Call
And then.
And in Japan.
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[music].
Good afternoon. Thank you for standing by and welcome to the got the Silver 2 Q2 thousand 21 and earnings conference call. At this time all participant lines are in a listen only mode and.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone again press star 1 to come into the question queue. Please be advised today's conference is being recorded if you require any operator assistance press Star and then zero I would.
Now I'd like to turn the call over ticked off the silver Chief Executive Officer, Steven or Sir I give it to you.
Thank you very much before.
Before I begin I would like to caution all of it can be good I'll be making forward looking statements and.
And these statements are not guarantees of future performance.
I'd like to start the presentation on slide number 3.
So we previously mentioned the 2021 is the year of Optimate optimization or got the silver.
Many of the initiatives that we have previously discussed focused on <unk> guidance, but most recently, we executed initiatives to strengthen the doctor of silver balance sheet and provide greater financial flexibility for the company and July we entered into a revolving $50 million debt facility.
With the bank of Montreal, and it has an accordion feature which will allow us to expand this up to a 100 million and.
And in mid July we completed a primary equity offering raising $125 million.
Proceeds from the equity offering along with a modest drawdown from the revolving debt facility and corporate cash allow gotcha of silver to retire at 70% share of the silver of Los Gatos from debt facility.
And cloud and currently our joint venture partner go of metals and mining retired their share of the term debt, thereby extinguishing the entire several low Scott of term debt facility.
This frees up additional cash flow from the operation to fund, our sustaining capital projects, which will further improve the operating performance and create additional value <unk> guidance.
And we will discuss all of this in greater detail later in the presentation.
And as previously released.
Hello, Scott.
Achieved record oil production exceeding its designed production rates from the mine and the processing plant achieved or exceeded design recovery for all 4 of our revenue metals.
Our exploration programs continued during the quarter with 19000 meters completed at the center of Los Gatos resource conversion program since its inception late last year.
This program has been successful beyond our expectations and we actually recently expanded the program.
The sense of malaria the.
The first phase of that program and Thats been completed and the exploration team is conducting data analysis from the design of a second phase.
And after.
In early phases of the program with 3100 meters of the planned 19000 meter program completed to date, and we're intersecting mineralization, where we expected and pleased with the results.
I'd now like to introduce Dale Andres precedent for lots of silver who will provide detail on our operating performance during the second quarter Dale.
Bill over to you.
Thanks, Steve and I'll start on slide 4.
At our share of Cerro loss GAAP those mine, we have a strong and unwavering commitment to safety and of the surround the communities.
We have robust systems and place to ensure we're working consistently to reduce our safety incidents and we continue our constant focus on strengthening our safety culture.
Our Covid management protocols are working well and our daily screening and testing program is still in place and the number.
<unk> of vaccinated employees are steadily rising as the rollout continues and Mexico.
Back today, we currently have over 40% of our employees with at least 1 chart.
We recognize that it is the central to conduct our operations and amount of that protects the environment and benefits of our local communities.
This is not only through employment opportunities, but also education and assistance medical care support and provision of sustainable clean water.
The priority, we hire our employees locally and over 20% of our employees are female.
We continue to focus on improving the lives of those within our area of influence from the project and this has been recognized by the government and importantly by the local communities.
Turning to slide 5 we are very pleased with our record setting performance and the second quarter.
And the mine, we had both record tonnes and grade delivered to the plant helping.
Helping to drive record metal production for the quarter.
We averaged 2600.38, what pumps per day of 13% improvement over the first quarter and the mine.
The mine has consistently delivered the expected feed rate to the plant since the shutdown and February caused by the storm related power outage event, we experience.
Contributing to this performance, we completed over 700 meters of development work underground.
And with the continued focus on accessing deeper and higher grade portions of the mine and both the northwest and Central Zone.
And to continue to build flexibility into the mine plan as we further optimize.
Turning to slide 6 we also had record setting performance at our plant operations and the quarter.
We processed an average of 2500.35 tons per day through the plant above design capacity and we know of the plant has capacity to do much more.
We achieved excellent metallurgical results.
The silver grade, which averaged a record 322 grams per tonne for the quarter.
And with recovery of silver and eating it at 89%.
Which is fantastic and we continue to focus on driving that even higher.
Recoveries for both lead and zinc were excellent as well.
We have lots of improvement initiatives underway, including the use of new reagents and further improve recoveries and there will be more initiatives to come as we move into the second half of this year.
The plan was put in place the makeup for the.
The shortfall and the first quarter after the power outage and we continue to execute very well against that plan.
We also continue to maintain the original guidance debt for the year.
<unk>, our cost guidance for both sustaining capital expenditures and.
All in sustaining costs on a unit cost basis.
Slide 7 we show some highlights of our record setting performance and the second quarter.
As we disclosed in our production release in July we produced $2.1 million ounces of silver as well as records for lead and zinc production.
To put the quarter's performance into perspective, it is worth noting that.
Our production was at an annual run rate significantly higher than the top end of our guidance. So we are making up for the first quarter shortfall.
Our cost performance was also excellent with our all in sustaining cost on a byproduct basis, averaging $12 and 63 per payable ounce of silver.
This was helped by the significant increase in production during the quarter.
<unk> <unk> byproduct volumes and prices as well as our efforts to control operating and capital costs.
Sustaining capital costs are back end weighted to the second half of 2021. So we do expect these all in sustaining unit costs to be higher for the next few quarters, but with the overall unit costs for the year is still anticipated and tracking towards the bottom end of our guidance range and.
The contracts, the way and scoring and will come in under.
On an operating cost basis unit cash costs. After byproduct credits were under $3 per payable ounce of silver.
And the cash generation potential of this high grade deposits as we finish some of our key sustaining projects and 2022 and as we continue to optimize the operation.
Turning to slide 8 the table.
Clearly shows the dramatic improvement and the second quarter compared to both the previous quarter.
And 2020 performance on key production and cost metrics.
The annualized rate of silver production achieved and the second quarter was double the rate from 2020 and the all in sustaining cost of $12.63 per ounce dropped by over a third from the first quarter of this year.
Steady feed from underground with much higher grades and the excellent performance for the record recoveries.
Been key to the success.
Looking at the bottom section of the table showing the breakdown of unit costs.
And can see the split between operating unit costs, the byproduct credits and the sustaining capital portion.
Our cash unit cost performance of poor sustaining capital as I said was under $3 per ounce and.
And a significant improvement and both operating costs and very strong byproduct credits and the second quarter and so you can see.
Our focus for the second half of 2021 is to complete our plans and sustaining capital projects that are currently in progress.
Such as the second refrigeration plant and the new underground the watering system.
Both of which will support and mine production and development work as we go deeper and the mine.
Together with the next lift of the tailings down to support future production and all of these projects will be complete by the end of the year.
And the paste plant project started construction of this month and.
This is the key project for several of those capsules, which will both improve flexibility and the mine plan and importantly, reduce operating costs and reduce the amount of tailings and sent to the storage facility.
The project is expected to be commissioned and the third quarter of 2022 next year.
And we are targeting to remain above 2500 tonnes per day through the plant and the second half of this year as we implement various improvement projects and continue to access lower levels and the mine, which gives us more flexibility.
With that I'll turn it over to Roger Johnson, our Chief Financial Officer.
Thank you Dale.
Looking at slide.
9.
And I also had record financial results to talk about.
For the first half of 2021 and got on silver had almost $12 million of net income or <unk> 20 per share and we had 23 per share for the first for the last 3 months period.
Exploration expenses were essentially and we had expected for the period and general and administrative expenses are higher in 2021 due to the higher public company costs in particular and noncash.
Stock option expenses the.
And the algae JV had record earnings and the second quarter, resulting in $21 million for our equity income and the JV for.
For the first half of the year.
We call our ownership increased from 51, 5% to 70% and mid March.
I am very pleased to discuss the LTE JV financial results on slide 10.
And the excellent operating performance.
Drove record financial performance, we had record sales of $75 million for Q2.
On higher metal prices and the increased production.
The higher metal prices continued to be favorable.
In early August the silver price was $25.58 checks only slightly below the $26.18.
Per ounce realized for Q2, and both of the zinc and lead prices are higher than where they were from what we and achieved for the second quarter.
And as the costs Dale already discussed operating costs, which were less and $3 per ounce of silver after byproduct credits as far expectations, we had slightly higher mining costs due on and cost and performance.
Professional services cost per ton that were offset by the higher grades and the materials.
As a result of the <unk> had net income of $36 million for the 6 month period.
Looking at cash flows on the right hand side.
For the first half of 2021 operating cash flows were exceptional at $56 million driven by the items I just mentioned.
Consistent with <unk> comments on the sustaining capital.
And almost $39 million of cash and line development and and other capital projects and the first half.
We also spent 17 million already and the financing financing activities of <unk>.
$60 million was the first payment on the Delta of term loan.
And as Steve mentioned as of July 26th day.
The LG JV and substantially debt free as of Delek terminal was extinguished the capital contributions to the LNG JV.
At the end of July.
I'll turn it back to you Dale.
Thanks Roger.
Slide 11 of insurers the 103000 contiguous sectors of mineral brands controlled by the loss cost of those joint venture.
This mineral rights package and the second largest of our operating tears and Mexico, and we also own the surface range over the sirona of the capital's deposits the ester resource and.
All of the resource all shown in Blue.
We initiated 3 separate exploration and resource expansion and programs and there are currently 5 active drill rigs turning.
3 of these drills are focused on expanding and upgrading the resources of the ceremony.
All of it.
With 1 drill currently on the resource expansion program and the adjacent escrow deposits.
And we also had 1 drill and conducting initial exploration at Gaslog silver and 100% on some of the malaria project near 2 but outside of the last couple of strong pressure.
The initial 5400 meter program that Steve mentioned earlier and it sounds simple area is not finished.
We are assessing the results, which will take the number of weeks before deciding next steps on this target.
We have tremendous upside potential with lots of drilling targets of mineralized zones already established as well and so.
So while we assess the thunder hilarity of drill results.
And on the move this drill to the other exploration targets identified on the horse.
And I'm just trying venture property.
The program at Starwood capital is being expanded the Steve mentioned from 27000 meters to the <unk>.
And 45000 meters with the focus continuing on both of the northwest and southeast zones.
We've completed about 19000 meters of this program to date on several of those cash flows at the end of Q2, and we will be releasing the preliminary results of this program very shortly.
Based on the expanded program, Sir I will let the cash flows and the 19000 meter program is still complete investor or only about 3000 meters and about where it's still pretty early days we.
We are also looking at bringing in additional drawings.
And the second half of this year, we will be completing a new resource model.
And the life of mine plan update.
1 set of work is complete.
We will Reinitiate studies, and early 2022, and look and various expansion scenarios.
And the studies targeting 3000 targeted.
And targeted 3000 tonnes per day from current operations and the expanded operations and we will be looking at options above this as well.
We have a strong team and a proven track record of delivering results.
Projects on time, and all of the budget for.
Which sets us up very well for executing on future growth options.
Can you to define the full district the potential.
And I do finally also on the reiteration.
We are with our record setting Q2 operating and financial results and.
And we look forward to providing further updates and progress through the year.
With that I will turn it over to Adam.
Thank you Dave This is Adam Davis the months.
Again like to thank you all for attending today's call. This presentation and the full of Q2 financials of Gotcha of silver will be available later today on our website now at this time I would like to open up the call for Q&A.
Thank you Andrew.
A reminder, if you would like to ask a question. Please press Star then 1 on your telephone keypad and once again that the star 1 to come into the question queue to withdraw your question simply press the pound key we will pause momentarily to compile the Q&A roster.
Okay.
Once again press star 1 to come into the question queue.
And our first question is going to come from the line of Cosmos <unk> with CIBC World markets.
Thanks, Steve Gail Roger and Adam.
And maybe my first question is on grade.
Looking at it certainly Q2 grades improved quite a bit quarter over quarter.
I guess the first part of my question is is it all due to mine planning or is it is there of some kind of positive grade reconciliations of the block model that you can speak to and.
The second part of my question is on sustainability, if I were to look at the technical report I think you were forecasting even higher grades on the annual basis, I think 368 gram per tonne for the year. So to confirm is there still room for you to improve.
On that on the grade as we look into the second half.
And is it coming from the scale as you mentioned of lower parts.
Of the deposits.
Yeah.
Yes.
And I can take that.
Thanks for the question Cosmos.
So the the grades are variable depending on the zones that were mining, but they definitely get higher as we go lower deeper and.
As we were able to advance the ramps both in the northwest zone, and the Central zone and in particular over the last 3 to 4 months debt has.
And the enabled these higher grades that we saw and in the second quarter. So we're going to continue to drive those around slower there is higher grades as we go lower.
Uh huh.
We will have the flag that.
And like any mining 1.
Sometimes they go up sometimes they go down but you can expect similar grades.
For the remainder of this year and that's what we're targeting and similar.
And as I pointed out.
Continuing to run above the 2500 tonnes per day.
Right now of the mine's operating really well and.
We think that debt.
Both the tons and the greed.
Our sustainable, but I, just do want to caution on a quarter by quarter basis. They can swing around at the margins put and but in general.
And it will be producing similar.
And on both tonnes and grade.
Of course.
Maybe moving on to cost and certainly or.
$12.63 per ounce and sustaining costs came in lower than what I had expected.
On that.
Roger has mentioned that.
Maybe on a unit cost per ton basis. It was slightly higher could you give us a bit more color in terms of.
And how that looks in terms of.
Cost per ton and what are you targeting for the year.
And again.
And I can just the offer some brief comments and Roger you may want to or Steve and they may want to follow up on the.
But yes, I mean, when we look at the significant drop a lot of that is due to the increased production and and that's why we decided to put of table to actually show of the breakdown of the site.
The operating costs as well as the.
Byproduct credits and the contribution of the sustaining capital sort of sustaining capital was fairly consistent it is going to go.
On a total dollar value basis, and the second half of this year, so that will drive.
Cost something as I mentioned in the third and fourth quarter.
But it really is tonnage and grade dependent and.
If we're able to continue to drive the kind of tonnage as we have and similar grades.
There'll be some impact with the higher sustaining capital costs going forward, but we're not sure we're quite please pick up.
When we and.
And I think we've maybe had mentioned it on previous calls there is some cost impact with COVID-19 related protocols.
We still have the majority of those costs in our cost profile.
And that we're spending to date.
With 40% of our workforce vaccinated and more.
And being vaccinated every day.
We do hope to be pulling back a significant portion of those costs towards the end of this quarter and I think you'll start to see that translated into our cost.
Performance going forward as well.
But obviously the more tons, we pull up the lower our cost per ton is on the tonnage basis.
And there is no significant.
The cost driver that is.
<unk> being introduced.
We're not a huge.
Fuel consumers so and.
In General I think we're doing fairly well I think theres more opportunities I would say than the pressures that were currently that were.
Let's face it.
Great.
And I guess Dale bigger.
Bigger picture it seems like.
Every conference call of these days there is.
That was the question on the inflation as you said you don't you're not a big consumer of feel but we're also hearing some cost pressures on other input costs.
Maybe labor as well could you make a comment on.
The potential inflationary impact what you've seen so far have you been impacted so far and do you see that as of risk.
Yes.
I think I would frame it that we're always going to have some cost pressures and with the.
I guess with the.
And with the market the way it is and I would say, it's not just on operating costs keeping on sustaining.
Cost as well I think were of lots of.
Focus on how we're managing those costs and.
And are doing so so we will continue to see some I don't think of significance that because of our labor costs on a per ton basis from a per ounce basis isn't that significant compared to other other more call. It from.
On the other other costs like supplies, but we're not we're not seeing a huge amount of.
Escalation.
The escalation that we will see I think we're targeting to offset that with our improvement projects, both and increased tonnage and production as well as just straight up.
Cost reductions things like peeling back the Covid costs, So I don't see.
Tremendous.
The risk on that front, if anything maybe there is.
And we're managing it well, but maybe some risk on long lead items for our sustaining capital projects and.
And.
We put the orders in and on the paste plant.
Things like the electrical gear and and.
And then the pumps.
And by getting those orders in right away I think we can mitigate any kind of risk on schedule on that from.
Oh, great. Thanks, a lot of for answering all my questions.
Roger This is Rob the revenue.
To that and maybe finish up on your cost per ton question.
We're running right around $100 per ton forward before 6 months period, we were slightly below that.
For the.
The 3 month period, and as we had the as.
As you know the the.
And.
Slight delay in the in February for the <unk>.
Our average so you can probably count on around the $100, Mark and maybe slightly below that.
Per ton basis.
Thanks, Roger and Thats really helpful and thanks again for answering all my questions. Thank you.
And our next question will come from the line of Michael the Perko with RBC capital markets.
Thanks, guys and thanks for taking my question.
If you could expand a little bit on the expansion scenarios, you're thinking about it for next year. You mentioned you had looked at 3000 tonnes per day.
And maybe looking higher than that while also running at higher than designed capacity now can you talk a little bit about what the major drivers would be in terms of I guess that first step of expanding to 3000 tonnes per day and the.
And what would really trigger of decision to go higher or would it be developing satellite operations or.
Executing more than you have to date on the resource conversion.
For both so maybe cash.
Yeah, Mike laid back and chunky and the sustain and then I'll turn it over to debt.
As you know, Mike when we contemplated going to 3000 tonnes per day, even as part of the feasibility study and so some of our capital investment we've made and the plan was to allow us to.
Very easily ramp the processing plant up and very pleased that we had the foresight to do that because as Dale mentioned in the year already the plant performed so efficiently.
It's been able to take everything in the mine can provide it. So it has given us great a great deal of comfort net without and much if any capital investment we can take the plant to 3000 tonnes per day.
And so our focus.
Has been a bond and the mine and getting its production rate up and up on a consistent basis and you can see we're achieving that now.
So we're going to keep pushing.
And this.
This thesis debt.
And with that without much capital investment, we can get close to 3000 tonnes per day.
And so that's something to watch and the corridors.
And the quarters, but.
The.
And resource conversion program and so on.
Of those Scott us with the key to this.
And we're having such good success converting the remaining $3.7 million tonnes of inferred resource into measured and indicated that we have decided and plus we've made new discoveries.
And you'll see some information on that soon.
The debt.
And that's the reason that we have made an internal decision to expand that program.
And depending on where we end up on that program that will kick.
Victor and on.
And where we could possibly take this operation to it won't be an issue on the processing plant better. It will always just be an issue on the mine.
And the help that hold the Q.
Yes, Thanks, David and maybe I'll just add.
And you've covered it really well.
And I'll just add I don't think.
Either the progressive steps that we're taking as Steve outlined with little to no capital towards that 3000 tonne Mark.
And then.
Or.
And what we'll call out of modest expansion decision to go to 3000 tons of something above that.
Doing.
To invest something if we needed to to make that sustainable is.
Is it dependent on other deposits sort of developing other deposits I think.
We have that and our sites for Cerro Los Gatos, I think as we progress of the programs faster and.
And the other deposits all of the other <unk>.
And the phone or.
New deposits that we hope to.
Progressive resources on and the future.
I think that just opens up the door for other opportunities.
I don't think the immediate expansion and all.
<unk> program and this.
Contingent on net.
Exploration and.
And I think as Steve pointed out.
We're hopeful that we'll be quite successful and the resource conversion on the share of Los Gatos deposit itself to support that.
Okay fair enough. Thanks for the answer maybe.
1 other I had some trouble getting on the call. So apologies if you have covered this but just on the guidance for the balance of the year heard of a bit of it but obviously you're about at the halfway point from from original guidance Q2 was obviously well above pace.
Given given that you haven't changed guidance, how should we be thinking about it the second half of it.
And just some conservatism about may be some variability or or is there something with respect to the the sustaining activities that you have going on in <unk> that we should be aware of in terms of the final number.
Yeah, and maybe I'll take that and scale.
I think it's both so we want to make sure we account for any quarter by quarter variability.
But but we you know our guidance sort of the sustaining capital is unchanged of the $65 million to $75 million.
We are just getting underway and are based upon which we hope to progress as quickly as we can.
But we've only spent.
Less than half of the.
The program on the sustaining program and the first half so it will be higher sustaining cost so on a per ounce basis.
You can expect the sustaining capital costs to go up.
I think for the first half of the average down for the first quarter and second quarter, we're in and around the $16 range and as I've mentioned and the previous remarks, we're trending even with that higher sustaining capital and the second half towards the bottom end of our range and that $17.
And ultra range, and obviously, we're going to try and do everything we can to beat that.
And on the production side I mean, if we see a repeat the plus.
Plus or minus of Q2, and Q3 and Q4.
My numbers anyway suggest that you'd be well above.
Well above guidance.
Yeah, So just sit and say.
Look at looking at silver on.
As an example, we've produced 3 point.
6 million ounces.
Sure.
Year to date to the end of June so.
I think if we did it would be comfortably within the guidance range.
Of 2 point to 1 or 2 to $2, 1 and the third and fourth quarters of this year would be comfortably within the guidance range.
Okay Fair enough, maybe maybe 1 more from me.
In terms of the increased flexibility on the balance sheet.
If the suggestion is that it wouldn't take much in terms of capital to increase throughput.
And on 2000 tonnes per day, and obviously you can look at a bigger scenarios.
Has there been any initial thoughts given to to what.
And you would look to do at the corporate level with the free cash flow.
Potential for a dividend cut.
The corporate strategy M&A all of those kinds of things can you can you talk about that a little bit.
I'll take that question.
Mike.
We haven't talked a great deal of about that yet on the.
The leasing is that.
And then.
We're really focusing on the sustaining capital projects and it's the for the Dale mentioned.
This presentation, because they do sell of much in terms of.
Giving us certain key the debt.
<unk> share of Los Gatos can consistently perform.
The expectations and actually beyond current expectations. So that's the first and foremost and that's our focus and secondly, the best way debt, we can add value we believe to shareholders.
And through exploration.
Now that the started in Los Gatos is performing.
Now that the deposits is performing I think it's given the market of break and confidence in me and.
Type of any of the asset itself.
We have so many more regional targets and of course, we're willing or on the Aster now we've just started that.
Dale mentioned that we and now considering expanding the number of journals, so that's true and and looking at that very seriously.
Because we want to generate information faster from Esther.
We're already getting good results from it and I think this will be of the market confidence the not only does sort of low Scott has had the integrity, but as the as the companies represented we have an entire district of the us with multiple zones of mineralization. So I think.
And the short channel certainly through the remainder of this year and you'll see cash flow directed to the.
Performance improvement initiatives and sustaining capital and exploration.
Very good thanks very much guidance.
Thanks, Mike.
Once again to ask a question press star 1 on and your telephone keypad. Our next question will come from the line of Brian Thompson of with BMO capital markets.
Hey, guys. Thanks for the update.
Cosmo, it's sort of already asked my question, So maybe I'll just ask.
A follow up maybe just looking a little bit further and it sounds like your kind of guidance.
<unk> screens and to Q3 Q4.
Is it possible can you give us a little bit of color as the sort of what you expect in the.
2022, I know that the the technical report is calling for the grades to move up into the 400 units how should we be thinking about that.
Yes, Ryan that's still at this stage.
The.
I think we will be giving 2022 guidance at the end of the year.
I think it's important to do the resource conversion and the new life of mine Spa and update.
Before we speak too much about that.
I think.
There is the focus obviously on accessing the deeper zones and the next level. So that we do access of higher grades.
But I don't want to put out any specific number at this stage and to lead.
And the way of potatoes.
Both of them with the resource model and the antibody micropump and and obviously the that'll feed into the 2022 budget and guidance.
Okay fair enough understood.
Maybe just 1.
The other quick question here and there.
And theres been some talk of new bonds, and Mexico and relating to.
Sort of outsourcing and and how contractors are paid and so on.
Can you just talk a little bit about that that new law and if there is.
Sort of any expected and.
And backs to the gases.
Do you want me to take the fever, Roger or do you want to do a profit.
Actually the rocket are ahead of them.
Can you just didn't go ahead, Roger 1 of talking about and that's the right. Let me let me take 1 of the App.
David.
And the response so the.
The new law.
Does it impact the ability to do outsourcing and how the how and maybe.
And that can be contractors I think debt.
And that good weighted.
And it is well Ryan.
And so this new law.
Has been actually extended and was supposed to take effect.
Now.
But its been extended however, we have made the changes and can modify whatever we choose to do so.
<unk> and compliance with the new law.
So that new law will require.
Certain amount of reorganization and our group to now.
Now the.
Place some employees who were in and then other entity that we had used it and internal sourcing outsourcing the environment.
And we will have it.
And that participate in the profit sharing and up to 25% of their annual salaries and additional compensation.
And we will see some higher costs from that at this point, but theyre not going to be significantly higher cash.
However, they could be and the range of $3 million annually all of those cost per hire.
The higher labor costs. So this kind of dovetails into the an earlier question about and we've seen inflationary impacts for wages and there should be 1 I'd say we are so if you are modeling.
And you could probably you should plan on but we'll be happy and higher costs beginning in.
The fourth quarter.
And we may implement this side of the earlier, but certainly in the fourth quarter and going forward and we'll have the higher cost of roughly $3 million annually and.
And our estimates.
Perfect.
Really helpful. Thanks, Thanks for that and Rob.
And maybe some of this is Adam.
Sorry, Ryan and thanks to Ed and.
And I just wanted to questions just 1 other item and Roger summarized it well the.
We were quite successful and actually completing our reorganization in July.
Mid July and prior to the August the original August 1st deadline, and 1.1 piece to note about that new outsourcing regulation as it doesn't eliminate all or eliminate the possibility of outsourcing any jobs. It's only the core services as defined and your company charter so as we've come through and update our charters there are still many outs.
Sourcing and Steve will be able to use those who have now met the new standard. So it's not a holistic now there is no outsourced and available that the Omega only certain specialties could be outsourced and individual company.
And.
Got it okay.
Added color there Adam.
And maybe just 1 last question just on the <unk>.
Tax Simon and modeling taxes going forward.
I think all of memory, you do have some sort of tax loss pools, but that can be applied.
If you have the number do you have any any guidance as to the.
When the sort of tax loss pools.
And what sort of the fully utilized and.
Should we just sort of think of U S taxes and general going forward.
I can take that 1 Roger.
And so there is some from some of our previous call. The appeal, you'll recall, we have 2 elements you're right. We do have some tax NOL carryforwards to be used at all.
Disposal of against taxable income and there's also a portion of the receivables that are available for offset against those same types of length of these relate to the more much more older receivables that we incurred during the construction phase of the mine.
While the.
Carryforward, that's the utilized first those will be.
From a modeling perspective.
It's the likelihood those will be fully utilized by the end of the year, especially given the as you've seen the robust production and certainly the record financial results. We just reported so it's reasonable to expect those would be absorbed and the and the primary operating entity of <unk>.
By the end of the year.
There is some tax carryforward losses with our other entities and Eric Lottery all of that will likely extend much past this year and into 2022.
The good news is that a lot of the B of T receivables that I just referred to that are also available to offset some of the taxable income are primarily on the operating entity of Rusty on ice. So those will then come into the frame and much more quickly and you should expect to see that those receivables, but then it starts to come down due to that.
Resulting offsets here.
Not 2021 certainly into 2020.
Perfect. Thanks.
Very helpful and.
Thats all I had the convert.
From the good quarter guys.
Thank you and with that I see no further questions I'd like to turn the conference call to Steven for closing comments.
Well, thank you very much.
Sure.
Thank you for attending the.
Our Q2 presentation, we're very very pleased with the performance of the operation and we fully expect debt will be within our guidance range for the remainder of the year.
Thank you again.
Thank you and with that we'd like to conclude today's conference call and once again, we do appreciate your participation you may now disconnect.
And.
And.
Sure.
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