Pan American Silver Corp.
Q4 2018 Earnings Call Transcript

Published: 21 Feb 2019

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver's Fourth Quarter and Full Year 2018 Earnings Review Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Siren Fisekci, Vice President of Investor Relations. Please go ahead.

[Siren Fisekci:]

Thank you, operator and welcome everyone to Pan American Silver's fourth quarter and full year 2018 conference call. We released our results after yesterday's market close and a copy of the news release and presentation slides for today's call are available on our website. In a few moments, I will turn the call over to Pan American's President and CEO, Michael Steinmann, who will provide a brief review of our results. We will then open the call to questions and answers. Joining us for the Q&A portion are Pan American's Chief Operating Officer, Steve Busby; Chief Financial Officer, Rob Doyle, Senior VP Project Development, George Greer, Senior VP Technical Services and Process Optimization, Martin Wafforn and VP of Business Development and Geology, Chris Emerson. Before we get started, I'd like to remind everyone that our news release and certain statements and information in this call constitute forward-looking statements and information. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent Form 40-F and Annual Information Form. I will now turn the call over to Michael.

[Michael Steinmann:]

Thank you, Siren. Welcome everyone joining us today to discuss our results for the fourth quarter and full year 2018. Quickly recapping our Q4 results, we generated $11.9 million of cash from operations impacted by lower prices for all metals and lower silver, gold and copper sales. The lower quantity sold reflected inventory build at San Vincente and La Colorada which represents approximately $8.4 million of revenue that should be realized in the next quarter. The net loss for the quarter was $63.6 million or a basic loss per share of $0.42. The adjusted loss was $2 million or a $0.01 loss per share. The most significant impact on Q4 earnings was the nearly $28 million impairment charge on our Manatial Espejo, COSE, Joaquin assets which resulted from the new Argentina export tax introduced in late 2018 combined with the decrease in short-term consensus metal prices. The other significant reductions to earnings included net realizable inventory adjustments, costs related to the toll transaction, tax expense from foreign exchange changes and an inventory write-off to the credit loss related to the third party refinery all of which totaled to $36.3 million. All-in sustaining costs in Q4 were $15.86 including $13.3 million of NRV adjustments. These costs net of NRV adjustments were $13.36 for the quarter and were impacted by the silver ounces sold partially due to the inventory built, as well as lower byproduct credits from lower prices from all metals in Q4. Sustaining capital expenditures of $31.3 million for the quarter reflect the tailings storage expansion and mine deepening process that were on as well as an increase in spending at the La Colorada for equipment rehabilitations and rice poring activities. For the full year 2018 our operations generated a healthy $155 million in cash flow. Operating cash flow before working capital changes, interest, transaction costs and taxes of $237 million in 2018 was more than sufficient to fund sustaining capital, taxes and dividends. Non-sustaining capital cash outflow of $45 million and $11 million repayment of short-term debt resulted in a cash and short-term investment balance at the end of the year of $213 million. Annual 2018 net earnings were $12 million or $0.07 per share adjusted earnings were $59.4 million, or $0.39 per share. We previously reported preliminary operating results which show that we met our production guidance for all metals except silver where we had a 200,000 ounces or 0.8% short of the low end of our guidance range. In 2018, we produced 24.8 million ounces of silver at all-in sustaining cost of $10.73. All-in sustaining costs are in line with our original guidance $9.30 to $10.80. All-in sustaining costs net of NRV adjustments were $9.68 well in line with our revised range of $8.50 to $10.00 provided in Q2 and $0.59 lower than in the year 2017. 2018 sustaining capital was $105.2 million compared with our forecast of a $100 million to $105 million reflecting higher tripping and lease pad expansionary activities at Dolores largely offset with lower capital spending at infrastructure operates, equipment procurement, exploration and tailing facility expansion mostly as a result of timing. Project capital was $41.3 million compared with the revised forecast provided with our Q3 2018 results of $40 million, and was directed to the COSE and Joaquin mine developments in Argentina, as well as investments at Dolores and La Colorada. Cash costs of $3.35 per ounce in 2018 were the lowest on record since 2006. We beat the original guidance issued in January 2018 of cash costs between 360 and 460 and were within the revised range provided with our Q2 results. Silver productions in 2018 reflect shortfalls at Dolores and San Vincente. At Dolores above-average rainfalls during the third quarter hampered our ability to make up open pit tonnages following the security related road closures in June resulting in a shortfall of tons placed on the heap and excess lead solutions dilutions. In addition, slower cement deliveries due to logistical challenges not related to past securities issues required lower solution applications and reduce lead rates. During Q4, we installed two expansion kits in the pulp agglomeration plant at Dolores which has resulted in achieving nameplate throughputs on most days. We plan to install the third and final filter expansion kit during the first half of this year in order to maximize throughput and sustain overall rates at the heap leach of 20,000 tons per day. At San Vincente, narrow mechanization efforts required additional operative training resulting in lower throughput and increased dilution. Operations at La Colorada and Morococha performed better than expected partially offsetting the impacts from Dolores and San Vincente. La Colorada sets and annual production record for silver and zinc and record low cash costs of $2.02 per ounce. We provided 2019 production and costs guidance on January 21, with annual silver production expected to be between 26.5 million to 27.5 million ounces at an all-in sustaining costs of $10.80 to $12.30. We expect to produce between 162,500 to 172,500 ounces of gold. Our latest start-up of our COSE mine due to change in mining method pushed up some of the silver and gold ounces we were expecting in 2019 into 2020. Project capital is estimated that $30 million in 2019 which will be directed by completely construction of the underground declines at COSE and Joaquin mines to bring production on stream in the third and fourth quarter of this year, as well as development of the underground mine at Dolores to achieve the targeted 1,500 tons per day. Please keep in mind that this guidance does not include any production from the Tahoe assets. We will issue revised GAAP in Q2 after we start the integration of these new assets. Yesterday, we also released our year-end 2018 mineral reserve and resource report. Proven and silver mineral reserves at year end were 280 million ounces and gold metal reserves were 1.7 million ounces. Successful near site exploration programs replaced large parts of the silver mine in 2018 especially at our high-returns assets La Colorada, Huaron, and Morococha where we replaced 132%, 115% and 220% of the silver mine. Again, reserves and resources yesterday reported do not include the Tahoe assets. On October 23, 2018 we announced the major new discovery of La Colorada with wide zones of polymetallic mineralization below our current productions levels. This is a very exciting development and without doubt the largest discovery Pan American has ever made. 2018 with over 12,600 meters on this current target. Even the very early stage with this remarkable discovery none of the intersecting counter are included in the year-end 2018 reserves or resources. I would encourage you to take a look at the news release we issued yesterday for more information on this impressive results. The sections have already been posted in our website under La Colorada. Intersects of up to 308 meters containing 6.5% less zinc combined with 46 grams silver and 0.2% copper or intervals in the 12 to 90 meter range carrying over 8% to 13% led zinc combined are more than outstanding. Silver is more available in this ore body but returning over 100 grams in many samples. In 2019 we are planning 42,000 meters of drilling in the Skarn discovery with the aim of releasing initial mineral resource estimation later this year. For the company as a whole, the total expiration budget for 2019 is approximately $20 million and we plan to complete about 122,000 meters of diamond drilling. This does not include any exploration spending on the Tahoe assets. In closing, I would like to congratulate Matt Andrews and Monica Moretto for receiving to Robert R Hedley award for excellence in social and environmental responsibility from the Association of Mineral Exploration. This is a strong endorsement of the leadership within Pan American for social and environmental responsibility. Pan American is at its pivotal point in its history and I am very excited by the many prospects and opportunities that lie ahead of us. Our transaction with Tahoe is expected to close tomorrow. Our focus will be on integrating the new assets and capturing valuable synergies. We are entering 2019 in a strong financial position enabling us to take a careful, thoughtful approach to executing on our growth opportunities. These growth opportunities are among the best in the sector with the potential to unlock substantial value for our shareholders. With that I would like to open the call for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Chris Thompson of PI Financial.

[Chris Thompson:]

Hi, good morning guys. Congratulations on a good year. Transformational. Just my questions relate very much to Dolores. The first question, I am wondering if you can just give us a sense of how the underground ramp-up is going there.

[Michael Steinmann:]

Thanks. I will pass it on to Steve.

[Steven Busby:]

Hi, good morning Chris. As we kind of alluded to-- we took a major disruption on that ramp-up during 2018 to address a couple of items. One was to address the access road security shutdown that we faced for a month. We demobilized all the underground personnel and contractors and we decided over that month that there was shut down, it was an opportunity for us to kind of change direction. We've been using our primary underground mine development contractor in Mexico. And we decided it was time ahead of time, what we had planned to do to bring our own people on board. So we decided not to bring back the contract to bring our own people on and start training and that disrupted that whole ramp up quite significantly. So we're sitting here today and we are feeling pretty good about getting our people trained. We got the crews working; we still need some additional personnel. We are trying to get on board as we speak, but we are mining at rates of around 500 tons a day. We are starting to push above that now. We are going to be opening up the south zone, so we will have a central zone and south zone that we will be mining towards the middle part of the year and we are feeling pretty good that would be able to ramp up towards the latter part of the year to the 1500 tons a day.

[Chris Thompson:]

We should be basically just I guess modeling 500 and then a slow ramp up to 1,500 in Q4?

[Steven Busby:]

Yes, I think that would be accurate.

[Chris Thompson:]

Okay. Thanks for that. Obviously you mentioned inflation in the final filter kit in H1, again what should we be modeling by way of throughput rights to the leach pad in H1 this year?

[Steven Busby:]

Well, throughput to the leach pad was still-- we are still maintaining 20,000 ton a day total rate. We are currently seeing right around-- we are right around design tonnage right now even with just the two expansion kits on the filters; maybe a slightly below. So I would say we were probably going to be in 5,200 to 5,600 tons a day range for the first half of the year and probably 5,600 tons a day thereafter which is a design rate.

[Chris Thompson:]

Great. Thanks for that Steve. And then the final question, more exploration more than anything else, just looking, can you maybe just talk through the exploration upside and potential for reserve growth at Dolores?

[Steve Busby:]

Sure, Chris. I mean we drilled around 8000 meters last year. That was really sense on the underground and expanding-- you saw a little increase in the inside regions of Dolores. The pit into the north is pretty well defined. We, per se, are looking at some on surfaces and some more regional stuff going into 2019. So at the moment there is not a huge possibility to increase that research-- reserve base outside of what is in result for the moment.

[Michael Steinmann:]

I think it's fair to say Chris that all the outside exploration at Dolores on the underground. As Chris mentioned, as, it's a little bit difficult to push back the pit further, there's a geographical or topographical, but as I said constraint to the pit, so that won't be possible. So all the upside will go probably refer to south as I can see in the underground.

[Chris Thompson:]

So I guess really, you're only going to get a better handle on that when you start ramping up production on the underground and maybe positioning drills underground to drill off opportunity?

[Christopher Emerson:]

That's correct. Yes, I mean to be fair, we did have some success in 2018, there are two structures there and we did - we were able to put into resource and reserve some of our --. So sure, I mean as where would a ramp down and then we'll get some better accesses and be able to maybe expand that.

[Operator:]

Our next question comes from John Tumazos of John Tumazos Independent Research.

[John Tumazos:]

Thank you very much. We admire your strong balance sheet and net cash position. And if I could ask about three financial alternatives with the strong balance sheet. First, at low silver prices, would you hold back and not sell some of your production, you in mining out back some gold production this past year for example? Second after the transaction closes, some of the Tahoe shareholders might move on. Would you repurchase Pan Am stock or could you update this as to whether you have a buyback authorization? And thirdly will you have a buyback authorization for the continuing contingent valuation right, where some people might just sell that like it's a dividend or something?

[Michael Steinmann:]

Thank you, John. Interesting questions. I'll go start with the first one, holding back silver production. Obviously, we're continuously selling silver and gold production completely unhedged as you know; we have some hedges on our base metals. The idea is really to provide to our shareholders full exposure to the silver price, and that's how we achieve. We have, as you saw in the press release, sitting on a very, very large reserve of 280 million ounces. We will add another probably 280 million ounces around there I think from the Tahoe side. We mentioned that we will do a reserve update midyear and includes all these assets in our reserve base. So if you look at our reserve base of far over 0.5 billion ounces of silver and then over 1 billion ounces in the resources as well. There's a lot of silver available to us to mine at different metal prices and that higher metal prices as well. So there's really not a need for us to hold back and kind of hedge the silver as we want to be un-hedge and provide exposure to silver price at any time in the market. Regarding return to our shareholders, we started paying a dividend in 2010, strong return to our shareholders of silver for over $400 million since then. There was some kind of share buyback in there in the past, but at the moment we are opting really on returning value to our shareholders through dividend and our share buybacks. And then your last question was, I believe on the CVR and look we will close the transaction tomorrow and then we'll see how the CVR trades and what happens over the next years if people actually willing to sign that CVR or not and what kind of activity will see around there. So we'll just see invite on that.

[Operator:]

Our next question comes from Mark Mihaljevic of RBC Capital Markets.

[Mark Mihaljevic:]

Hi, thanks and good morning, everyone. First question for me, obviously we've seen some pretty bad weather down in South America in particular. Have you seen any impact of that on the operations?

[Steven Busby:]

Good morning Mark, this is Steve. We are seeing some disruptions in the transport routes along the central highway, but our operations themselves have been reasonably stable. We haven't seen the heavy rain falls any of our operations at this time. So we're not worried about the operation but we are worried about the transport routes. If you remember, I believe it was two years ago we had to look at alternative routes and more coaching was on that added about 18 hours to the trip. We may be facing that again this year if this heavy rain persists, but we're not saying is that up at the mine site themselves at this point.

[Mark Mihaljevic:]

Okay, so probably something we would expect to see more on maybe a bit of a higher cost and maybe some lags with sales the not likely anything on the production side is probably a fair assessment.

[Steve Busby:]

Yes, correct.

[Mark Mihaljevic:]

Okay. Were there any issues with the trucking strike there? I think there's been some noise out of Peru on that front, so did that actually have an impact of with logistics as well.

[Michael Steinmann:]

At this point, no. We have not seen impact from a strike the trucker strike.

[Mark Mihaljevic:]

Okay then moving over to like Colorado again continues to be the work forces of this company and nice growth to the reserve. Just the one caveat there being I guess the grade did come down a bit kind of more in line to where you guys have been mining over the past few years. So this kind of a reset given some reinterpretations there and kind of what you're actually able to deliver or are it just that you added some of the tonnage that came in with this lower grade.

[Michael Steinmann:]

Mark, we did kind of rationalize some of the reserves at these higher production rates. We did that a little bit of dilution to our reserve base. But in addition to that, the biggest effect is the new areas that came in are a little bit lower grade as well. But we're as you can tell we're very happy with Colorado with the additional production rates it is the workforce of the company and it's doing a great job. Just to add, Mark, add a few statements to this. We sell over 100 million ounces of proven and probable reserves. La Colorada producing over 8 million ounces of reserves of production this year that's the plan. Just with the proven probable reserves that to continue for the next 12 years, we have a strong resource base as well at La Colorada. Of course, we're going deeper down in the asset so the resource the deeper we go down will have a bit lower silver grades in the veins as well and higher base metal grades. And obviously don't forget the really massive discovery there I think obviously every quarter we got some results, Chris is drilling lot of meters this year, I believe, it's like 40,000 meter.

[Christopher Emerson:]

Yes, that's 42 and 10,000 from a carry over, as I say.

[Michael Steinmann:]

So 50,000 meters just on this current target, which I'm sure you've seen the very impressive results of course there's lower silver grade but keep in mind that's kind of on the side. So the way that does not the fact that we're mining of our reserve and resources in the vein that's just an additional discovery for at La Colorada.

[Mark Mihaljevic:]

Yes, perfect, definitely exceptional asset that's - its current target looks very interesting. So looking forward to that evolving over the next couple years. I guess just kind of one follow up to La Colorada kind of as you look forward, what kind of throughputs do you think you can actually push out of that now that you've stabilized that the - call it one or 0.19 million tons per quarter. Is that kind of a steady stay, or should we expect you to continue to block and tackle that higher?

[Michael Steinmann:]

Great question Mark, we're extremely pleased with the deep bottlenecking efforts that have taken place there. And obviously, these 2,100 ton of day rates that we're seeing are very pleasing. It's far beyond what we thought we did achieve, even though that infrastructure we put in place we knew was pretty robust. We got a resourceful group down there and I'm not going to hold them back. They're doing some things are looking at ways to tweak some more out, but obviously as they deep bottleneck, they've taken the lower hanging fruit as days go on, so it gets harder and harder. I would not at this point project we're going to see increases there, but I am cautiously optimistic that over the long run, we're going to squeeze a little more on that thing.

[Mark Mihaljevic:]

Perfect. And then just kind of shifting gears a little, wondering if there been any updates with Shiloh Pike. I guess you guys have the free carry interest there. And I guess you previously outlined that is potentially non-core. So is that project still advancing and kind of either with any updates on the process there?

[Michael Steinmann:]

Yes, it's definitely a non-core asset for us. It's the same project, very large same project in Peru, which is run by Nexa. And we only 25% free current to production on the asset. I would really refer to us to look at the Nexa public statements they made, I think, was last week or this week, and also their presentations that I've seen where Shiloh Pike is in their development pipeline somewhere in the early 2021, 2022 somewhere around there. But have a look in their presentations please it's all they're talking about. But as I said, this is definitely one of the non-core assets on the Pan American side.

[Operator:]

Our next question comes from Lucas Pipes of B. Riley Financial.

[Lucas Pipes:]

Hey. Good morning, everyone. I wanted to first ask a kind of a question on Escobar as we look forward to the combination of these two companies, what are some of the milestones that the market should be kind of having on the radar as you look to integrate this asset would appreciate your thoughts on that. Thank you.

[Michael Steinmann:]

Sure, I'll take that Lucas. I think they have to shift a little bit here on the thinking and I know that always obviously announced the milestones on the consultation process which will continue. But as you said, the transaction will close tomorrow. And we are looking forward to advance our plans and engage especially engage with the communities in the region. And so our goal is really to establish the trust through a fair transparent and honest and respectful dialogue. So that's really important to get going right now with regional communities. We do not believe that this is a unilateral solution and we have always pursued dialogue, consensus and mutually beneficial relationships with the stakeholders. So we'll continue to do that at Escobar. And this takes time. I think from the beginning on I was very clear that this will take time. We will take the time necessary to get this right and build long lasting trust with the communities. So while that's going on obviously with the communities inside the communities the consultation process is advancing through the Ministry of Mines. But at the moment that's really how it works. So we will take our time, stay tuned. I will give updates, let's first close tomorrow. And then start the integration we will give updates obviously every quarter.

[Lucas Pipes:]

So do you have a guesstimate at this point kind of how quickly Escobar could come back to full capacity?

[Michael Steinmann:]

No. Lucas I don't have. And obviously the deal structure that we have here with the CVR reflect exactly that the CVR will be paid out once we have to first shipment of concentrate from the site. So that reflects the fact that there is no fixed timing on it. As I said, it is very important here to get this right and take the time necessary to do that right.

[Lucas Pipes:]

And while you do that, is there a sense of kind of what the capital spend expenditures, and the OpEx at Escobar are, while you take your time?

[Steve Busby:]

Yes. Lucas, this is Steve. We're going to be spending the next month very closely with our team down in Guatemala as we integrate and prepare budgets and get into details on the strategy. We are as Michael alluded to, we are focusing the strategy in the communities, it's going to change kind of the way things have been doing recently. So we need to get on the ground. We need to understand that strategy better put the budgets together. I don't have a number that I'm willing to share at this time. Our goal is to come out in May with a new kind of care and maintenance budget for that as we launch on that strategy to work with the communities so at this to time, this point other want to give a number you.

[Lucas Pipes:]

No. That's appreciating it. And maybe one last question on Escobar then I'll switch topics quickly. But when I looked at some of the historical data. It appears to me that Escobar never reached design levels of kind of below $100 per ton for work. So do you have a sense where operating costs per ton should be shaking out down the road? Any updated views on that?

[Steve Busby:]

Yes, Lucas, I do not. We have not had a chance to really get into that level of budgeting. As Michael says, I mean, we are anticipating a lengthy process here with the communities and that's kind of where our focus is right now. We do have a crew and the mine doing care maintenance quite capable, quite competent group and we'll get our hands around that understand better as we bring that up to operations what the cost would be. But we haven't even started the process.

[Lucas Pipes:]

Got you. Now that's helpful. Thank you. And then turning it over to Navidad. Any progress on that front? I know that, it's a pretty difficult - just regulatory backdrop in Argentina, but would appreciate any updated thoughts on progress there? Thank you.

[Michael Steinmann:]

Yes, sure. Just to give an update what happened in the province of Chubut. The elections in Chubut like in - I believe 9 or 10 other provinces in Argentina have been advanced. So they will happen earlier primaries will be in the first week of April and then the final election the first week of June. That's a bit different and the federal type of the election will open in October this year as well. So we'll go with - there's an election process going on right now in the province obviously. And decide that, I think nothing changed from what I said and stated before. I think everybody is working diligently towards a solution here at Navidad. And we are supporting those efforts obviously in the province. And I hope that there will be a solution which will be a law and amended law that does the some implication and allows some zones of mining and some zones of non-mining in the province to go forward. And I think it's incredibly good project that would provide a lot of support, a lot of jobs not supported the province on for many years ago.

[Operator:]

[Operator Instructions] Our next question is the follow-up from Chris Thompson of PI Financial.

[Chris Thompson:]

Hey, guys. Just a quick follow-up question, Argentina again. Any comments on cost pressures, inflationary pressures in Argentina right now?

[Michael Steinmann:]

I have taken the inflationary part and then I'll refer to Steve for the cost. Yes, it was - for Argentina not any easy year last year. I think we ended up somewhere to high 40s on the inflation. I saw there was a big evaluation phase that happened Argentina was a short episode was very abrupt time and I believe August, July or August. And that's was not an easy year. So I think the protection right now are our lower inflation rates for the years to come here, encourage you obviously to read information from the Argentina federal government, but definitely the year end and buzz around I think high-end higher 40, somewhere into 45% to 47%, which for sure the devaluation helped us on the cost. But then there's obviously pressure there to reclaim part of that and I will pass it on to Steve to give some more details on that.

[Steven Busby:]

Yes, Chris, it's Steve. And as Michael says, we come out of 2018 in really good condition; our costs have actually been reduced with that significant devaluation that took place. But we are facing the clawbacks as we suggested and what we have planned for this year is kind of a 10% if you will clawback of costs starting right out of the blocks in January. We think we're saying that and then what we're planning from there on is kind of a balance. I mean it's a crystal ball; it's a balance between inflation and devaluation, to where we're kind of projecting a modest 5% increase in US dollar terms overall being the offset of the devaluation to the inflation. That's what we're planning this year and that's the best we can do right now.

[Operator:]

Our next question comes from John Bridges, JP Morgan.

[John Bridges:]

HI, Mike, Steve. I was just wondering following on from the previous question. The write-down in Argentina the extra taxes, the windfall taxes there were only supposed to be going for a year or two. And have you taken a more conservative stand since that what led to the cut, volume cut?

[Rob Doyle:]

John, hi, good morning. It's Rob Doyle here. You're right that the law has currently written is through to the end of 2020. So it is a relatively short term law export text. And the reason why it really hits the projects that we have in Argentina is because of the relatively short term nature of those projects, COSE, Joaquin are significant producers, but really right over this period, 2019, 2020, 2021. So it really does impact the carrying value of those assets.

[John Bridges:]

Okay. And then just as a follow up, I guess you've got enough call now for the metallurgies to play with. So I just wonder it like La Colorada if you have a better sense as to what the metallurgy is of that strong material.

[Rob Doyle:]

Yes, we're certainly, as we grow through nearly 13,000 meters at the end of 2018, we're going into 2019. We will start - we do have a lot of coal coming in now. And we will obviously start to review that with the technical services guys with Martin and Steve and yes, certainly I would expect through this year as we built towards that initial resource to have metallurgical testing completed.

[Michael Steinmann:]

Without going into very detailed geological descriptions here, but it looks to me at least looking at the core is very coarse poly metallic mineralization. So we'll see [Multiple Speakers]

[Steve Busby:]

I mean John, if I can add in on that as a metallurgist that at La Colorada and the veins we actually have wonderful sulphide metallurgy. I mean the flotation is very efficient; the selective flotation of lead and zinc is very efficient there. We're seeing coarse grain minerals of pyrites and galena in the veins and from what I've seen of the core of the Skarn it looks every bit as coarse grained even not cleaner and better. So I'm really excited to start doing some testing. And we haven't started that process yet but just visually looking at the core I'm kind of with Michael it looks really exciting.

[John Bridges:]

It feels as if you might be able to avoid the bulk concentrate to -

[Michael Steinmann:]

I think almost without a doubt, it's that clean yes and there's a bit of copper too which will be exciting to play with.

[Rob Doyle:]

And it really all seeing chuck of pyrites as well so again who knows you knows what could happen.

[Operator:]

Our next question is a follow up from Lucas Pipes of B Riley Financial.

[Lucas Pipes:]

Yes. Good morning again. And thank you for taking the follow up question. I wanted to ask what the throughput was at the lowest mill and how much came from underground versus open pit? Then if you have a sense for the average grades and recoveries at the Delaware mill again from under versus open pit. Thank you.

[Michael Steinmann:]

Yes, thanks, Lucas. Right now, the pulp agglomeration plan, as I alluded to earlier, we're running today, right around 5,200-5,300 tons a day up to the design 5,600 tons a day pretty regularly. Of those 500 tons a day is coming from the underground and the rest is coming from the open pit.And then we're going to be ramping that underground up as we mentioned through the end of the year up to the 1,500 tons a day. And that'll push some of that open pit lower grade of the high grade back to the low grade circuit, so that we maintain20,000tons a day to that.

[Lucas Pipes:]

Got it, okay. No, that's helpful. And then one last question here. Earlier this month there was a local news report about the court ruling regarding the Chinalco operations at Morococha, could you give us an update there and what the impact to Pan American might be of that court ruling?

[Michael Steinmann:]

Yes Lucas, we don't see that being an effect to us that dealt was some residents that remain in the old town in Morococha that has to relocate to allow that open pit to advance. It doesn't affect us; our operations are outside of that. We're working directly with Chinalco trying to determine the best timing for us to relocate our mill. Someday we'll have to relocate that mill. At this point, we do not have a date that we found fixed in stone as to when that's going to happen.

[Lucas Pipes:]

And when you have to relocate the mill is any financial impact to Pan American of that or how would that be worked out?

[Michael Steinmann:]

Yes, Chinalco will put up some of the money for that relocation. We had to relocate some of our offices and shop infrastructures back about 6, 7, 8 years ago. And they put up some money on that they will have to put up some money on the mill. We'll have to put up some as well. We'll probably put up the majority slight majority of that overall, depending on what it's going to cost to do that. We haven't really started the engineering studies on that yet.

[Operator:]

This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Michael Steinmann for any closing remarks.

[Michael Steinmann:]

Thank you, operator. As you all heard, Tahoe transaction will close tomorrow. And I would like to take the opportunity here to welcome all our new stakeholders to Pan American Silver. I intent to address our new members of the workforce, our new community members and indigenous groups around the operations and our new shareholders in the same open and honest manner as we always work and always will work at Pan American Silver. And looking forward to address everybody for our Q1 call in May, until then, have a good time everyone. Thank you.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thanks for participating. And have a pleasant day.