Golden Star Resources Ltd.
Q1 2019 Earnings Call Transcript

Published: 3 May 2019

[Tania Shaw:]

Good morning and thank you for joining us today to discuss Golden Star's Q1, 2019 Financial and Operating Results. I'm Tania Shaw VP of IR and I'd like to introduce Andrew Wray, who's been appointed President and CEO of Gold Star as of yesterday May 1st. Andrew joins us from La Mancha where he was previously President and CEO brings with him a strong background in finance and corporate development and extensive experience in the mining sector. On behalf of the entire team of Golden Star, we'd like to extend a very warm welcome. I'll now turn the call over, Andrew.

[Andrew Wray:]

Many thanks, Tania and good morning, everybody. It's a pleasure to be taking on this role and pleasure to be talking to everybody on the call today. As you may know this is day two in the new job for me so nothing like getting the round the ground running and straight into the first quarter results, fortunately in that I've got a strong team around me at the table today. So in addition to Tania, we've got Martin who's our CTO, Mitch VP, Exploration, Daniel COO and André, CFO and you will hear from several of those during the call and I think between us. We'll be happy to take questions once we're through the presentation materials. Just turning on to government sounds shut snapshot of Golden Star. As you know we've got two operating mines currently in Ghana, pretty extensive land holding along that belt. In terms of 2019, our production guidance 220,000 to 240000 ounces broadly in line with 2018 and AISC of 875 to 955 an ounce and we've got a strong balance sheet with just under $82 million of cash at the end of the first quarter. Turning on to Slide 5 and the Q1 results, I think before going into any of the numbers themselves the first bullet points worth bearing in mind and for me taking on the role. From my perspective and also part of the ethos of the company is safety. And it gives me great pleasure to see that focus throughout the operation and that's reflected in the numbers that we are presenting in terms of safety statistics and that will not change. So that focus remains and we must ensure that that's everyday top priority for us. Turning to the numbers themselves, I think they really illustrate pretty well where this business is at the moment. As you've seen at a consolidated level, we're tracking fully in line with where we expect it to be, where we set guidance to be, but that's made up too quite different levels of performance of the two assets and clearly Wassa continued to perform strongly and ahead of forecasts and expectations and a disappointing quarter from Prestea and we'll say a little bit more during the presentation about what our plans for Prestea are and how we're going to address those issues there. As I said, Wassa, the mining rates have continued to ramp up and that's very encouraging to see. And that's driven the production of just around 43,000 ounces and 43,000 low cost ounces. I think that's encouraging for an asset that is ramping up but still able to deliver strong cash flow first quartile costs and exciting growth. So Wassa will continue to drive the business. At Prestea tons were somewhat below where we wanted them to be. Grade was below where we wanted it to be and that said through to that 10,000 ounce production for the quarter. And that's not a sustainable situation. That's not a sustainable number. We will address that. What I would draw your attention to on the overview slide is the exploration results that this business has had and I think everyone would agree that drives long term value in any mining company. And the way that the Wassa deposit has been delineated and continues to grow is a testament to the team's expertise there. We've got some exciting potential that we're working through at Father Brown and at Prestea still further optionality there and that's success through the drill bit is something where I think rightly proud of. During the presentation Mitch will say a little bit more about that. Daniel I'll talk more about the operations, but first I'll hand over to André to give a bit more detail on the financials. André?

[André van Niekerk:]

Thank you, Andrew and welcome on board. Gold revenues for the first quarter of 2019 totaled just over 67 million from gold sales of approximately 53,500 ounces at an average realized gold price of $1257 per ounce. This represents a 5% decrease in revenues compared to the first quarter 2018, largely as a result of a decrease in gold revenue generated from Prestea, which was partially offset by an increase in gold revenues from Wassa. Compared with the same period in 2018, gold revenues from Prestea decreased by 48% resulting from the planned decrease in the production from the Prestea open pits and a slower than expected ramp up at Prestea underground. At Wassa, gold revenue increased by 19% as a result of the increased mining rates at Wassa underground. Cost of sales excluding depreciation for the quarter decreased 26% to approximately $44 million, mainly due to the reduction in mine operating costs, a reduction in severance charges and a reduction to the drawdown of metals inventory. The consolidated mine operating margin increased to $16.6 million for the first quarter 2019. Wassa’s mine operating margin was approximately $23 million for the quarter. This is 140% higher than Q1 of 2018. Offset by a $6.3 million mine operating loss incurred at Prestea in the quarter. Income before tax was $4.5 million for the first quarter 2019 compared to$ 2.5 million in 2018. At Wassa, income before tax was $21 million resulting in income tax expense of $7.2 million for the quarter compared to income before tax of $8 million and income tax expense of $2.9 million in Q1 of 2018. At Prestea, the net loss before tax was $6.7 million and was similar to that of 2018.The loss before tax for corporate and other was approximately $11 million for the quarter mainly due to a $9 million non-cash loss on the fair value of financial instruments and higher G&A expense due to higher non-cash share based compensation recorded for the quarter. This resulted in net loss attributable to Golden Star shareholders of $1.9 million compared to net income of $1 billion in Q1 of 2018 and then adjusted net income attributed to Golden Star shareholders of $9.4 million compared to adjusted net loss of $2.1 million in the same period last year. Now let me briefly walk you through the cash flow for the quarter. The opening balance for the quarter was $96.5 million. Now starting with cash flow from operations. Wassa’s operating margin contributed an additional $27 million of cash this quarter while Prestea incurred a mine operating loss of approximately $4 million. Exploration and reclamation expense were $1.5 million, G&A excluding non- cash share based compensation was $3.2 million and interest expense was $2.8 million. The decrease in accounts payable used $10 billion of cash,6.3 of which is attributable to Prestea, who paid $5.3 million in severance accrued in December last year. The other large payment was $1.8 million for the semiannual interest payment on the convertible debenture. The remainder being normal course payments for year-end accruals. The buildup of inventory and an increase in receivables used a further $5.5 million which together with a decrease in accounts payable totals the change in working capital of $15.5 million. The net cash used in operating activities then totaled $600,000 you see on our cash flow statement. Investment activities – investing activities $11.5 million on capital expenditures during the quarter, of which the majority was spend at Wassa 5.4 on exploration drilling,2.1 on capitalize underground development costs,1.3 on mobile equipment and $1.1 million on bank rates being some of the larger items. Then finally financing activities use $2.8 billion in the quarter on principal payments of the Eco bank loan resulting in a cash balance at the end of the quarter of $82 million. I will now turn it over to Daniel to talk more about operations.

[Daniel Owiredu:]

Thank you, André. I'll begin by talking about Wassa we now consider this our flagship asset and it continues to exceed our expectation. Production at Wassa was 42,110 ounces for first quarter which this represents a 21% increase over the same period last year. We saw a 43% increase in production from Wassa underground resulting from an increase in mining rates as total tonnes mined and processed increased compared to the same period in 2018. Mining rate at Wassa underground continues to exceed our forecast approximately for the first quarter it was processed 3,600 tonnes per day on average representing a 52% increase compared to the same time last year. And this surpasses the 2019 target average money rate of 3,500 tonnes per day. We are pleased to report our cash operating cost has gone down at Wassa by 19% compared to the same time last year and we seen a 20% increase in gold sold. Grade of the underground or in the first quarter of 2019 decreased by 5% to 4.3 ounce per tonne compared to the first quarter of 2018 however, this was anticipated. Approximately 98% of Wassa production was attributable to Wassa underground. Consequently the Wassa complex delivered its lowest cash operating cost around of $552 per ounce. This was primarily a result of increasing gold sold and decrease operating costs for metals inventory offset partially by an increase in mine operating expenses. Underground ore processed increased 53% over 326,000 in the first quarter of 2019 compared to 213,000 tonnes in the same period of 2018. Now turning over to Prestea gold production from the Prestea complex was 10,324 ounces in the first quarter of 2019 which represents a 53% decrease compared to the same period in 2018. While money and rates increased by 19% we still not at our targeted rate of 650 tonnes per day. Prestea reported a cash operating cost per ounce of 1463 note per ounce. The increase from the same time last year was found due to the lower gold sales in the period offset partiality by lower mine operating expenses and operating costs for metals inventory. Several factors that affected performance during the quarter due lower than planned or tonnes on plan with zones within the scope increased dilution and long haul drilling efficiency issues. A broad review of operations is underway and a number of initiatives used have been put in place to – in the short-term to stem the losses we’re making there and we already seen improvements in the metrics coming up in the month of May get started and towards the end of April. Prestea underground produced 7,344 in the first quarter of 2019 compared to 7,400 in the same period in 2018. The Prestea open pits produced 3,000 ounces in the first quarter of 2019. This decrease was planned as the Prestea open pits [indiscernible] complete gold production in 2018. Mining has continued into the first quarter of 2019 with additional of being sourced from the pit close to Prestea in order to help mitigate a lower production from Prestea underground. Should I add that we already making arrangements to bring in independent consultant to review have a broad review of our Prestea operations including technical and operations. And we will that next quarter I have informed you of our results. I will now turn over Martin who will talk about exploration.

[Martin Raffield:]

Thanks Dan. Good morning everybody. I’m going to open up just with a brief overview of what we've been doing it's been a busy quarter for us. We've been actively drilling at Warsaw, Father Brown and Prestea underground. Warsaw on surface, we currently have seven drill rigs there. We've completed over 20,000 meters in the quarter. For 25 drill holes, Father Brown has been active with two rigs that we had busy there since 2018 and I'll talk a little bit about that later and the results we're getting there. And Prestea underground where we actively have two drill rigs working there one on exploration and one still definition. This is not to mention the drill rigs we have turning in Wassa underground we have an additional five drill rigs that are stepping out and adding confidence to our indicated resources to bring them into a measured category by the end of the year. So we're working quite diligently with a lot of drill rigs turning right now. Just to zip into the Wassa talk about what our drilling program is here. You'll see a slide it’s a long section with an updated wireframe that we've got showing there. The deeps as well as the continuation of the B shoot down towards the south. As mentioned there we've got roughly 20,000 meters drilled with seven rigs in the first quarter and the remaining drilling that we've got there. We’ll focus on both indicated to or inferred to indicated conversion drilling as well as some definition drilling in the deeper material which is inferred. Breakdown is roughly around 22,000 meters for the inferred indicated category conversion drilling there, in which we've been quite successful in adding additional ounces as well as conversion from inferred to indicated and we have a remaining of about 6,500 meters that will continue to step out testing the deeper zone towards the south, as well as infill towards the north and testing between some of the downstream demonstrate continuity. Moving on to Father Brown, Father Brown, as mentioned we've drilled started the programs here in 2018 and roughly completed 17,000 meters in drilling there. Just to revamp on what Father Brown is it’s roughly 85 kilometers to the south of Wassa plant. We historically have mined open pits there and do have infrastructure down there as well as a haul road that goes from the Wassa plant to the Father Brown add firm deposits that we’re looking at down there. We're trying what we're trying to do there is we've been actively drilling I could say for two years. We probably got a limited program that be completed in Q2,we will then pause to remodel take a look at the resource that we have at Father Brown [indiscernible] try to determine the controls on the high grade mineralization. So either lithological or structural controls on that and we will look at that closely and then report on that sometime in the second half of the year. So drilling is going well down there and we will be looking at that a little bit closer. Now to jump over to Prestea, and I we know we've been looking at the Prestea area for some time now. What we've been trying to do is get some infrastructure in for drilling. We were successful in doing that in January this year, where we started drilling, testing the extensive mineralization towards the north which is closer towards the central shaft from the 262 drill cut and have had some successful drill holes out in that area and you'll notice on the slide that we have there that would be the area off by the north over there towards the left hand side of the areas that we're currently stooping on there where you see the S1 through S6 stoops that have been currently mined. All of the drilling results that we do have here for Wassa, Father Brown and for Prestea will be released this quarter. So we'll be putting some releases out to the market this quarter on drilling results and explaining that going forward. In light of that I'd like to hand it back to Andrew who is going to wrap up with conclusions for us here, so over to you Andrew.

[Andrew Wray:]

Excellent thanks Mitch. So in summary the first quarter it’s a solid to the year for Golden Star and as a result of that we're maintaining full year guidance. But I think it's fair to say there's certainly more to come from the assets Wassa as you've seen continues to move ahead of forecast ahead of expectations. And we will continue to push that both in terms of our understanding of the ore body. But also in terms of mining it out pushing development enabling underground access to better understand how we can increase the rate of extraction. And ultimately utilize the processing capacity that we have there. At Prestea as Daniel mentioned there's several short-term measures that we're taking to look to improve the performance there to improve some of the mining efficiencies which will hopefully address the great issue to continue to step up the tonnage extraction and to help stem the capital outflow that we've seen at that asset which as I said is not sustainable. But beyond that we are going to undertake a broader operational review. And I asked Martin and Daniel yesterday to scope that. And move ahead and as Daniel said we'd hope then at the next quarter to have more information and give you a better stare as to what that implies for the asset. In terms of exploration as Mitch has just set out I am continuing to see success there throughout the portfolio and we'll be releasing further results in the second quarter. And then looking forward, we're clearly driving the two existing operations to ensure that we deliver the value from them. And then we'll assess additional potential within the portfolio be that Father Brown be it elsewhere. And then what else we could do in terms of potential value enhancing external opportunities given the platform that we've got within the existing business. So I think at that point we will stop and over to you Tania.

[Tania Shaw:]

Okay. So our first question comes from Heiko. Heiko, ahead please.

[Heiko Ihle:]

So conceptually you have one really good asset and one more mediocre asset. So I just went through your MD&A into liquidity outlook this morning and you're currently at $82 million of cash but you also have 40. Can you guys hear me?

[Tania Shaw:]

Yes, we can hear you.

[Andrew Wray:]

We heard you through the point of 82 million of cash and also….

[Heiko Ihle:]

Okay, perfect. So I went through your MD&A in the liquidity this morning. You're currently at $82 million of cash and you're at $49 million of CapEx plans. Then there is a $32 million of debt and $6.4 million for the settlement of best performance share units. And yes, then there was also a normal course issue a bit but my gut feeling is that there isn't too many purchase under this right now. I mean, so looking at your cash costs you're all sustaining costs there is a good margin but I mean there is quite a bunch of transitions going on with the company some of which were actually touched on earlier in this call. And then we got the thing that in mining things tend to go wrong rather than right and take longer than we want things to take and then gold at 1267 today. So then summing all this up, I started wondering at, what gold price would you guys look into potentially raising some more funds this year?

[Andrew Wray:]

Heiko, I'll start on that and probably hand over to André. I guess the thing I would say is I'd say conceptually we've got two very good assets. In reality we've got one that's performing very well and one that's not performing very well, but that's what we're addressing. You're right, in terms of the current cash balances we've got $82 million of cash and we've got some debt repayments coming up this year, and we're looking at whether it makes sense to look at consolidating some of those facilities and André can say a little bit more about that. But I think given where the assets are, we're not looking at this point in time at any requirement even on lower sensitized gold prices to raise any more capital. I think for everyone in the industry there will be a point at which everyone would need some more capital but in terms of any realistic sensitized assumptions that’s not something that you see as necessary at this point. But maybe I'll pass to André to say a little bit more about what we're doing with the balance sheet.

[André van Niekerk:]

Hi, Heiko. Yes and Andrew is right to be we are looking at some opportunities now that the balance sheet has improved dramatically from where we were last year. And there's been quite a number of interest in us refinancing the current debt that we have. And we have progressed quite a ways on that and we've seen some very competitive term sheets and look forward to doing something that would not, not only reduce the cost of capital, but potentially defer some of that principal repayments that we're looking at in 2019.

[Heiko Ihle:]

Now, again conceptually and I know we have seen on this call know La Mancha quite well. Do you guys think La Mancha would be willing to invest in the firm some more or they tapped out or maxed out on their investment? I mean I can't believe you brought this question up to somewhat $80 million in the bank. It just - again like going through liquidity analysis and all the transitions at the company I thought it would be pertinent?

[Andrew Wray:]

Maybe I think you're referring to me possibly there Heiko.

[Heiko Ihle:]

Maybe possibly.

[Andrew Wray:]

Yes possibly, and my former and a highlight former employer. Listen, La Mancha made a significant investment six months ago in the business which as you say is reflected on the balance sheet. And they sit currently at 30% I don't think there's any desire to move from that percentage certainly not to move up at this point in time. And the view with sizing that then was that that would be sufficient capital to carry out what needs to be done in the business and in the analysis at the time. Looked at various different scenarios over the coming year was fully aware of the tenor of the debt, the repayments necessary on that debt, as well as plans to look at consolidating and terming some of that out. So there was a fair bit of work done on that, and that didn't necessitate anymore capital from La Mancha and didn't necessitate anymore capital as far as I can see from any shareholder. So my sense is they remain a supportive shareholder, they can see the potential in this business. They know that there is some work to be done and are supportive of doing that. But hopefully you can see we're getting on with that and that will entail some potentially tough decisions, but that will be made. We believe the balance sheet and the support potential financing partners is there to see us through that period. So I think we're in a position where we know what needs to be done, we know what capital that will require, we know the gold price can be a little bit volatile, but we believe that we're in a position to deal with all of those.

[Tania Shaw:]

Next question comes from Raj Ray of Desjardins. Raj?

[Raj Ray:]

Thanks Tania. Good morning Andrew and team and Andrew congrats on your appointment. So a few questions from me, first up on Wassa underground so, the 3600 tonnes per day that you averaged in Q1 do you think it's sustainable for the remainder of the year and do you see potential to increase that towards the 4,000 tonnes per day target for next year when the paste backfill plant or the paste backfilled will be implemented.

[André van Niekerk:]

The simple answer to that is yes we see the potential to maintain it 3600 and above but under 4,000 sustainably through the current year.

[Raj Ray:]

So even before the paste backfilled is there right.

[André van Niekerk:]

Yes.

[Raj Ray:]

And what's the timing for the paste backfill to be in place?

[André van Niekerk:]

Maybe Q3, 2020 yes.

[Andrew Wray:]

Martin - we got Martin on the call we discussed at the board yesterday, if you want to say a little bit more Martin sort of where we are in that process currently.

[Martin Raffield:]

In the paste fill process?

[Andrew Wray:]

Yes.

[Martin Raffield:]

So we finished the feasibility for the paste fill plant Raj. We are in the process of tendering that now, we expect to be done with the tendering process. So within the next three weeks or so and they get into the ordering of the major equipment and the construction over the next three months or so. We expect to finish at some point in the second half of 2020. At the moment we're looking probably mid second half to the end of Q3. And as Daniel said there's this potential for us to increase the tonnage above where we are now, before the paste fill plant is completed as we get into Panel 2 and as we open up new stooping areas.

[Raj Ray:]

And then at 3600 tonnes per day can you give some color on the unit costs on a per tonne basis specifically mining processing and G&A for Wassa underground?

[Andrew Wray:]

Yes, on the mining side we're sitting at about $37 a tonne at the moment, that's mine that's per tonne of all mines. So that's all the cost per tonne of all mine. As we get into paste, we expect to add about $6 a tonne to that cost. So in the in the fourth quarter of 2020 that'll go by $6 a tonne. But obviously with that $6 a tonne of costs, we get a huge benefit in terms of improving the efficiency of the underground operation, ventilation and haulage. On the processing side, we're at around $10 a tonne and on the G&A side at about $5.

[Raj Ray:]

And then quickly moving over to.

[Martin Raffield:]

I'm sorry I gave you the wrong number it's $15 a tonne on the processing side. Apologies.

[Raj Ray:]

Okay. Thanks. And then on Prestea, we did say that they are going through a review right now, just to get some visibility on the aramaic method and your understanding of the ore body over the last two years. Like do you think it's the right method given the variability you're seeing in the ore body and is that something that's up for consideration as well.

[Andrew Wray:]

I think --deal with that element was identified as the appropriate mining method. Clearly the targets have not been hit in terms of mining rates, for a number of reasons. That doesn't necessarily mean that it's because aramaic the wrong method. But part of the point to taking a bit of a step back and reviewing every element including mining method is to answer just that question, so if I can ask if you don't mind just bear with us for a little bit whilst we do the work and then we can come back and give you a considered answer to that.

[Raj Ray:]

And on the open pit at Prestea, how much additional tons do you expect for this year? Because I assume that wasn't considered in the guidance or was it?

[Andrew Wray:]

So initially that wasn't considered in the guidance and we're fortunate in that, we do have the ability to access certainly quick ore tonnes there that give us some margin and help us to offset the under delivery we're seeing on the underground, in terms of the tonnage that I know Daniel says, anything you want to say about that.

[Daniel Owiredu:]

Yes. For what we know now, we expect to be still going on till the end of the second quarter. But as we've done in the past, we've always had an expansion lined up and they might extend well beyond that.

[Raj Ray:]

One last question if I may for André. André at Wassa what’s the remaining tax losses you have and do you expect to pay any cash taxes this year?

[André van Niekerk:]

I think at the beginning of the year if I remember correctly it was around that, I'll get back in that number. I don’t want to give you the wrong number there, but to answer your question. We do expect to pay cash taxes in 2019. We are going to utilize all the underutilized losses at the beginning of the year and then we will be totally reliant on the capital allowance that, we get every year which is 20% of the capital spent. So yeah we will be in tax taxable position.

[Tania Shaw:]

Our next question comes from Justin Chan of Numis.

[Justin Chan:]

Just my first question is on Prestea and in terms of just scoping, what we're looking for here. For it to in your view and what you want to see continue with it. I mean do you have given in terms of all in sustaining, where you want them to get to in the study. What the long term potential is I guess. Do you have all in sustaining cut off or conceptually, what does that asset look like?

[Andrew Wray:]

Justin I think it sounded like you were calling in from the Apollo land there. We didn't pick up everything that you said but if we heard correctly, I think the question was really relating to Presteaand what we believe, it could be capable of what sort of AISC is acceptable. We didn't hear the remainder of that. Look I think we're not going to presuppose the outcome of the work because the point of the work is to answer that question. You know as I said earlier in terms of the cost basis of this business, if you look at Wassa, Wassa Tier 1 cost base and hopefully a Tier 1 producing assets in due course. But it's certainly low cost operation and that is certainly a target to be maintained. I would say we don't want to dilute that unnecessarily which we're doing at the moment. Now at Prestea going to be at that cost base, potentially not that as close as we can get it, would certainly be a target. However ,the answer to that really is in the study work we're doing. What we need Prestea to be as a cash generator for this business not a cash consumer. And to be certain that, that's achievable on a sustainable basis. So that's where we need to get it to. The precise metrics I think will work out in the coming weeks and months. I don’t know if your back Justin or not or if maybe you got cut off but hopefully that answered the question.

[Tania Shaw:]

Yes due to connectivity Justin will reschedule another call with you later. Our next question comes from Bryce Adams at CIBC.

[Bryce Adams:]

So one observation is that, the underground grades from Wassa were very strong in Q1. I was wondering how that reconciled to the block model that I mean you're expecting to be in high grade loans in Q1 or was it positive reconciliation there?

[Andrew Wray:]

Daniel?

[Daniel Owiredu:]

Yes, the reference in there was compared to same to your last year but the grades we obtained was close to what we expected to be. We expect to hit the budgeted grades to 2019.

[Bryce Adams:]

Sorry, can you say the last piece a bit again?

[Daniel Owiredu:]

We're on track in 2019 in terms of the budget, we will be variability quarter-to-quarter. First quarter was broadly in line with what we expected from Wassa.

[Bryce Adams:]

Good reconciliation and then for the rest of the year is there an outlook on grading but as a model forecasting for the rest of year?

[Andrew Wray:]

Daniel and Martin I don’t know if you've got the detail of that. If you look at the forecast production then you know you've got to tell pretty well from that sort of tonnage rates were at what that implies for greater you know it's pretty variable quarter-to-quarter. But you know there won't be significant shifts in that.

[Bryce Adams:]

Despite Q1 was a good quarter, right.

[Andrew Wray:]

Yes.

[Bryce Adams:]

Good to see throughput improving in the quarter as well. 3,600 tons a day, are you able to provide that the split between production and development more tons?

[Andrew Wray:]

Probably about 90. Split about 90% come from production. What we’re also seeing is some of the benefit. We've seen more on the levels than some other development areas which we could deal which is coming into all as well.

[Bryce Adams:]

Because it's my understanding that guidance is based on 3,500 tons a day but that's only the production or from stops excludes development. That's still correct.

[Andrew Wray:]

No total.

[Bryce Adams:]

Guidance is based on 3,500 tons a day total.

[Andrew Wray:]

Yes.

[Bryce Adams:]

Okay. I think I might have had a different conversation previously. Good to know there. On Prestea just on the long haul drilling efficiencies wanting to get go into that in a little bit more detail. What was the issue there?

[Andrew Wray:]

We are achieving the long haul drilling rig at the moment. What we are focusing on is the accuracy in terms of their angle is as important and the depth the QA QC in getting that going. So to try and prove the quality [indiscernible].

[Bryce Adams:]

So the drilling rate is not an issue but drilling accuracy?

[Andrew Wray:]

The drilling rate is now that we've got them up skilled to getting the drilling rates what we turning our attention on is the drilling accuracy.

[Bryce Adams:]

And so then drilling accuracy then led to the dilution issues?

[Andrew Wray:]

Yeah. Correct.

[Bryce Adams:]

Okay. I see the connection now. And then on the internal waste is that something you've experienced previously or is this a new occurrence?

[Mitch Wasel:]

You're referring to internal waste within the stock, this is Mitch speaking.

[Bryce Adams:]

Yeah I think that's right Mitch. So the great dip down to 6 grams 6.3 grams in the - for underground.

[Mitch Wasel:]

Yeah it's more related to like Dan mentioned, we have some dilution issues in there. We are seeing areas that are faulted out within the raisins but we're currently doing that stock definition drilling in order to predict where these are going to be and we can mitigate that by stock design. And Dan and the guys have actually been playing around with the actual the height of the raises and sub levels in order to minimize the dilution. But what you're seeing is that where we do have these zones that were previously modeled as part of a contiguous body but they did have no grade in them so they had an overall effect of reducing the grade of the ore body as a whole. Now when we're looking at it now, we remove these from the actual as a separate domain. We do see the grades jumping up in the areas where that the reef has been duplicated up and those particular areas, so we just have to work around the mining plan in order to limit the amount of the effect of these pinched out zones.

[Bryce Adams:]

So the impact wouldn't be significant enough to change our reserves segment?

[Mitch Wasel:]

No

[Bryce Adams:]

But it creates a little bit of complexity in terms of when you draw the stoke, it goes from ore to waste and back to ore again?

[Mitch Wasel:]

Yeah. Generally speaking, in most cases we're seeing now these zones are occurring at the top of the stock. So you're able to deal with it just by not raising as high up and putting a sub level in

[Bryce Adams:]

And in terms of the operational view I know you want to wait to discuss certain detail but at a high level. Is that an independent review something you do in-house?

[Mitch Wasel:]

Independent

[Bryce Adams:]

Independent. And in terms of the worst scenario and the blue sky scenario, I assume that the downside scenario would be pulling the pin and then maybe you can talk to the blue sky potential a little bit?

[Mitch Wasel:]

I think as you said the stock price. Let's do the work, let's figure out what that shows for the - at the same time there are other initiatives which hopefully improves some of that drill and blast accuracy some of the mining productivities, better understanding of the ore body but that it will then feeds together to what is the asset capable of. Is s that the existing target that we had at 650 high grade tons a day. Is it something different? We'll see and we'll come back to you once we know a bit more.

[Tania Shaw:]

At this time there are no more questions. I'd like to thank everybody for joining us on the call and we look forward to updating you for Q2 in early August. Thank you.