Pan American Silver Corp.
Q4 2017 Earnings Call Transcript

Published: 21 Feb 2018

[Operator:]

Welcome to the Pan American Silver Fourth Quarter and Year End 2017 Results Conference Call. As a reminder, all participants are in a 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 Ms. 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 year-end 2017 conference call. We released our results after yesterday's market close, and a copy of the press 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 some quick highlights for the quarter. We will then open up 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 Vice President, Technical Services and Process Optimization, Martin Wafforn; and Vice President of Business Development and Geology, Chris Emerson. Before we get started, I'd like to remind everyone that our press release and certain statements and information in this call constitute forward-looking statements and information. Please review the cautionary statements included in our press 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 Q4 and full year 2017 results. Pan American posted another strong year in 2017 with revenue of roughly $817 million, up 5% from 2016. Revenue in the fourth quarter of $226 million was up 19% over Q4, 2016. Earnings in Q4 2017 were impacted by an accounting adjustment for the reversal of certain impairments we booked on our Morococha mine in 2015. The $60 million impairment reversal contributed to 2017 annual net earnings, which came in at just under $50 million or $0.32 a share. Adjusted net earnings in Q4, 2017 which excludes the impairment reversal and other adjustments were $19.2 million or $0.13 per share. Annual mine operating earnings were about $169 million down 15% from 2016. The decrease was largely driven by a 55 million non-cash NRV inventory adjustment variance, as well we had higher cost of Manantial Espejo associated with severance payments and wage inflation and at Dolores where we see higher cost for the addition of the pulp agglomeration plant and the underground mine. Customer from operations of roughly 225 million was 5% higher than 2016. We generated enough cash flow in 2017 to fully fund sustaining and protect capital, our acquisitions of COSE and Joaquin and the dividend plus we reduced our debt by $32.7 million and increased our cash on short term investment balance. In fact, 2017 was the third strongest year of operating free cash flow with record cash flows at La Colorada, Dolores, Huaron, and Morococha. As of December 31, 2017 our cash and short-term investment balance was $228 million, an increase of $41 million over Q3, 2017. We have $10.6 million of debt outstanding, mostly related to finance lease liabilities. Yesterday the board declared a 40% increase in the quarterly dividend to $0.035 per share. The increase is consistent with our approach of enabling shareholders to participate in the cash flow generation of the company through dividends. Based on our strong financial position and diversified portfolio of cash generating assets, we are able to return dividends to shareholders while pursuing new opportunities for growth. Turning now to consolidated operating results, we produced 6.6 million ounces of silver in Q4 2017 bringing total annual silver production of 25 million ounces. 2017 production was essentially flat with 2016 as the ramp up from La Colorada to Dolores offset the production loss from the completion of mining at Alamo Dorado. Silver production was in line with the original guidance we issued in January 2017. Gold production in Q4 of 2017 was 43,700 ounces, bringing annual gold production to 260,000 ounces also in line with original guidance. As expected, gold production was down from the roughly 184,000 ounces produced in 2016 due to the conclusion of operations at Alamo Dorado and planned lower grades at Dolores think of the production Zinc and lead production reached record levels while copper production beat our original guidance. Cash cost in Q4, 2017 came in at $3.18 per ounce. Full-year 2017 cash costs were at a decade low of $4.55 per ounce well below our original guidance. Similarly all-in sustaining cost came in better that expected at $10.79 for the year. Q4, 2017 all-in sustaining cost of $10.86 includes negative and the readjustments of $0.83 per ounce. Mine operating results were highlighted by the impressive throughput at La Colorada during the second half of the year. In Q4 2017, La Colorada produced 1.9 million ounces of silver at cash cost of $0.43 per ounce. Full year production was about 7.1 million ounces at cash costs of $2.08 per ounce. Zinc and lead production were up 35% and 47% respectively over 2016. We are also beginning to see production ramp-up at Dolores, Q4 2017 silver production of 1.3 million ounces was up 40% over the same period in 2016, and cash cost came in at negative $3.93 per ounce. We are continually commissioning activities on the pulp agglomeration plant to bring processing rates for the design of 5600 tonnes per day. The increase in Q4 production cost reflect in part the cost additions from the new pulp agglomeration plant and addition of the underground mine where we completed a total of 4,720 meters of development in 2017. And through our Morococha and Huaron mines posted their strongest operating free cash flow years on record, due to improved productivity from the mine mechanization. Siver production at Morococha in Q4 was up 25% over Q4 2016 with cash cost of negative $7.42 per ounce, while Huaron produced 950,000 ounces at a cash cost of $2.08 per ounce. As expected, San Vicente from higher grades during Q4 producing 1.1 million ounces of silver at a cash cost of $9.40 per ounce, while developing to deeper levels on the main union structure encountered lower silver grades than unexpected, stopping at these lower grade levels will continue during the first six months of 2018, after which we expect to move back into higher grades for the reminder of the year to reach our projected production for 2018. Development of the COSE underground mine is proceeding well with 184 meters advanced on the underground decline in Q4 2017 and we filed a technical report on the working property in January, which is available on SEDAR and on our website. Capital expenditures in 2017 totaled $145 million compared with just under $200 million in 2016. The reduction reflects lower project capital spending with the La Colorada expansion largely finalized at the end of 2016 and the Dolores mine expansion completed at the end of 2017. Sustaining capital expenditures of $84.4 million were in line with our guidance. Last night we released our year end and reserves. We more than replaced silver reserves ending 2017 with approximately 288 million ounces of silver, and 1.9 million ounces of gold. We also recorded an increase in the reserve silver grade of 13% due in part to the high grade additions from our Joaquin and COSE properties in Argentina. The major additions in silver reserves came from our Peruvian mines, [Indiscernible] while La Colorada fully replaced the reserves depleted during mining. Inferred resources increased by 10 million ounces, all attributable to La Colorada. We reduced our gold resources by 800,000 ounces mostly due to the sale of the La Colorada property in 2017. During 2018, we are planning to invest approximately $19 million in exploration drilling directed towards 89 km of mine and nearside exploration and approximately 26 km of selective regional exploration targets. Our guidance for 2018 and our three year outlook has not changed from the information we provided in January. We are expecting to produce 25 million ounces to 26.5 million ounces of silver in 2018 at cash costs between $3.60 and $4.60 per ounce. We expect all-in sustaining costs to be between $9.30 and $10.80 per ounce. Sustaining capital is estimated to be between $100 million to $105 million in 2018 including investments in the tailings storage at La Colorada which is expected to result in about $15 million in cost savings over the life of mine. 2008 sustaining capital also reflects ways pre-treatment activities at Dolores, which will decline significantly beginning 2020. Our three year outlook has silver production growing 30.5 to 33 million ounces with cash cost up between $4.75 and $6.75 an ounce in 2020. All-in sustaining cost in 2020 are expected to be $8.50 to $11 per ounce. That outlook positions us as a growing silver producer with further improving operating margins as we completed our two mine expansions during the low part of the metal price cycle allowing us to take advantage of these added economy of scale. That concludes my formal remarks, please operator could you open the call for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Cosmos Chiu of CIBC.

[Cosmos Chiu:]

Hi, Michael, Steve, Rob and Siren, thanks for the call and congratulations on a very strong 2017 and a record low cost. Maybe a few questions from me, first off on Dolores and also maybe La Colorada, maybe more a question for Steve. You know previously there had been some issues that Dolores with the filter clause at the agglomeration, pulp agglomeration plant. And at La Colorado, there was a bit of a shortfall in terms of sand fill, have you made any progress on those issues?

[Steve Busby:]

Yeah, hello Cosmos, thank you for the questions. This is Steve. Yeah with regards to the [filter clause] at Dolores during Q4, we did run out of supply of filter clause during November and December specifically which affected our throughput through the plant and our commissioning of that plant. We are able to get additional supply clause in place by the end of the year. We have a pretty good supply on hand now moving into the New Year we are back up getting pretty good throughputs on our commissioning today. We have noticed that these clause that we’ve been using are not of the highest quality, not of the highest durability, I’ll put it that way or the clause available. So we are testing some clause that are more durable that hopefully we can get a little bit longer life on, but the clause problems that we did experience in Q4 are behind us now and we’re back on full commissioning trying to bring these filters up to the full 5600 ton per day capacity. I will add that we have decided to procure and install some expansion kits on these filters which should give us about 10% additional capacity. We don’t have to change the physical layout of the filters, they’ve got enough with within the filter that we can add these additional plates. We’re hoping to do that project around April maybe end of May, and once those are in place, we are hoping that will get about a 10% boost of production with those. And [just as another] contingency and to make sure we can get up to the throughputs. Relative to La Colorado, we did find during 2017 as I reported, as we started to increase throughputs, we did realize that we didn’t have adequate amount of fills to allow us sufficient backfill cycles in an efficient cycling of the underground mining sequencing and we do have available to us what we call a sandfill plant on the surface, where we take tailings from the sulphide plant, and we separate the sand fraction of those tails, and we can put them back on the ground. We’re upgrading that circuit to give us more efficient distribution of the sands and getting them into the key stopes and specifically the high grade stopes of the [lower deep Candelaria] portion which will get the grades back up and we are hoping to have most of that central plant kind of in place and running efficiently into Q2, towards the middle part of this year. Meanwhile, we are getting the tonnage, it’s just a matter of location within the mine where we get the tonnage, and we got to stay to our developments otherwise we got these really long cycles of waste trying to get waste fill back into the high grade portions of the mine. So this will really help us as we get into the middle part, the latter part of this year.

[Cosmos Chiu:]

Of course. And then maybe on grade, you know in your reserve resource statement yesterday I was quite happy to see that the Dolores grade increased for an old looking at the proven here. I guess the gold grade increased to 30 gram per tonne – or the silver went upto 30 grasm per tonne, the gold went to 0.93 gram per tonne, which is not a insignificant increase. You know good to see, could you maybe talk a bit more about that?

[Martin Wafforn:]

Hi, Cosmos, it’s Martin here.

[Cosmos Chiu:]

Hi, Martin.

[Martin Wafforn:]

The grade increases are primarily related to the low grade stock pile that we took a portion of the low grade stockpile out of the reserves. It’s very marginal in terms of adding economic benefit, so what happened last year is that processing cost incremented up slightly, which knocked out some of the low grade right stockpile and some of the very marginal material [Indiscernible] material within the pit. So taking that material out, have the impact of increasing the grade and you’ll see the [Indiscernible] went down as well because of that.

[Cosmos Chiu:]

Yeah, but I guess the most important part is it looks like the ounces didn’t go down.

[Martin Wafforn:]

Exactly, but not by much. That slight deflection and there were some gains that we had as we were mining during the year as well.

[Cosmos Chiu:]

Okay. And then maybe one last question on the earnings here. I guess, earnings somewhat missed consensus estimates, mostly due to a higher non-cash tax rate, it was 52% on Q4, Rob, I remember you know there is a cycle in terms of the taxes and when it will get accrued, when it will get paid. Is that the reason why and could you remind us again how that works?

[Rob Doyle:]

Sure, Cosmos. You’re right there was a large non-cash companion to our tax expense in Q4, mostly related to how the FX flows through our provisional, deferred tax provision. In addition to that we did have a very high withholding tax payments during Q4 related to some repatriation of intercompany funds which triggered some tax on interest and dividends. So those were really the two main drivers behind the slightly elevated tax rate for the quarter coming in a little bit about 40%. For the year, the tax rate of around – effective tax rate of around 32% is more reflective of where we expect to be in the longer term.

[Michael Steinmann:]

Cosmos, like every year obviously we’ve all seen the biggest cash taxes outflow on our cash will be mostly first quarter and early second quarter.

[Rob Doyle:]

That’s right through the way that the tax payments work in each of the countries we work in its Q1 is really where we – catch up from the year before, so we do expect Q1 and a little bit of Q2 to be more intensive from a cash tax point of view.

[Cosmos Chiu:]

That’s all I have. Thank you Michael and team and congrats once again.

[Michael Steinmann:]

Thank you, Cosmos.

[Operator:]

Our next question comes from Chris Terry of Deutsche Bank.

[Chris Terry:]

Hi, guys and well done on a good 2017. So I have a couple of questions, mainly related to costs and then one on the operations as well. On some of the other costs the other companies have had that have reported already, we had some mention of some inflation creeping back into the costs on the consumable side, and just various other crates on the cost side. When you look at your 2018 guidance versus 2017 on cash cost, and then 2019 and 2020, you obviously given your assumptions around the price on the various currencies there, but what have you assumed or what are you observing on the cost side and how do you think about maybe conservatism or where that outlook goes against maybe the broader macro conditions? Thanks.

[Steve Busby:]

Yes. Good morning, Chris. This is Steve. Good question. And we're in a pretty unique situation because we’re just coming off of our two major expansions in Mexico as you know which bringing us some economies of scales with higher volumes. So that gives us a really good edge if you will in terms of combating potential cost escalations and inflations. So we’re feeling pretty good. And during the second half of 2017, we did have some unusual costs that came into our books relative to decommissioning of the open pit of Manantial. We did have some severance payments and things that come through, they’re kind of one-offs. And we are still in the real significant commissioning at Dolores and some of the sand-fill plant at La Colorado. So were observing some commissioning startup cost that will go away as the things smoothed out and then we capture real economy into scale moving into 2018 with these expansions. With that said, we are keeping a very close eye on cost increases and we are seeing as everybody sees in the world, the energy prices are moving north. We are seeing wage pressures, wage pressures are moving higher in our jurisdictions that we operate in, we’re forecasting fairly with the exception of Argentina, fairly flat exchange ratios for the currencies. So we’re saying some wage pressures that are kind of matching the inflation pressures that we’re seen in those jurisdictions. So we’re monitoring that real closely and we’ll keep a close eye on that. We think we've made a pretty good production going into 2018 that we can stand behind as we move through our wage negotiations and supply negotiations for our materials. So today we feel pretty confident with the costs that we projected out.

[Chris Terry:]

Okay. Okay. Thanks Steve. And for 2018, I mean, when you look at prior year, you’ve usually done a good job at reassessing the costs as you go through the year and usually betting those, so you’re signing 360 to 460 announce that you’ve got it towards that that's the fair assessment, but there a chance if things going well that you again look to be at the low end of that or probably that you as that you goes on is that or is that --- how conservative is that estimate I guess to what I’m trying to say?

[Steve Busby:]

Yes. I think it's a really realistic estimate, Chris. I think the potential upside to that is going to be hover around our byproduct metal pricing. We think there may be some upside there, but I think relative to our based cost I think those are realistic estimate.

[Chris Terry:]

Okay. Okay. And perhaps another for you, Steve; just on the operations, can you just talk a little bit about, I know sometimes you gave some commentary on the quarter-by-quarter progression. Can you just talk a little bit about [that's odd], how you see 2018 shaping out some of the puts and takes on some of the operations just some things to look out further in 1Q or further on in the year? I think Michael mentioned a couple things first half on second half, but if you got any comments on things we should be looking out for on the quarterly progression during the year? Thanks.

[Steve Busby:]

Sure. And Michael did reference some couple of them, but certainly in the case of San Vicente we've had to ramp down to the bottom of our main high-grade structure Union. At the bottom of that structure it's still pretty good grades, but it's not the super high grades that we see higher up on the structure. So we’ll be mining in that lower part of the structure, that’s lower grade during the first probably half of the year moving up in the higher grades in the second half. So definitely backend loaded at San Vicente on production. Dolores likewise we’re in this commissioning into this Pulp Agglomeration plant and these filters. We haven't achieved the tonnage. We want to see through that filter plant yet. We are getting overall tonnage of 20,000 tons of data, the heap. So the impact isn't as significant as you might think, but we will kind of see not a significant backend loading at Dolores, but we will see it backend loading at the Dolores as well for that reason. And then at La Colorado we were talking about the back to our plant and once we get the distribution network in place in the mine that will allow more efficiency in terms of mining in the high-grade zone that we haven't been able to mine at a consistent efficient rate since the expansion work has been completed. So again that's going to push higher grades probably off into the latter part of the year. So those I think are the three most significant. Apart from those I think we’re fairly level through the year.

[Chris Terry:]

Okay. Thanks. Appreciate that Steve. And then maybe one for Michael, the last question. Just given the balance sheet strength, what are you thinking in terms of – I guess company is still at this stages the balance sheet for most of the companies have been repaired and they starting to think about what their dividend policies might be some sort of variable component and then a base load component, you’ve obviously listed that dividend recently. But how do you think about whining that up against your organic profile in the next year or so what sort of return metrics you’re looking at?

[Steve Busby:]

Well, balance sheet is incredible state has been already for quite a few years and its getting better obviously by the month. Look at the results from 2017 and thus it's the best proof of that of the strong increase in our cash on hand, short-term investment, even though we had a fairly significant capital expenditures last year on the expansion purchase projects and repaid basically all of our debt, so, really in good shape. And as I mention in the call that was the reason for the 40% increase that the board decided yesterday on our dividend, so just an increased that happened yesterday. The board is always looking up at the dividend. As you know we’re paying dividend since 2010. We like very much that our shareholders can participate in our strong cash flow generation and on top of it, it induces a lot of discipline in the management team to have a dividend that is kind of a part of our business. We see it and paid about in a constant way. So the Board will look at this dividend very hard. Obviously during the years there’s a lot way in not only our cash flow generation, but there is expansion opportunities maybe other ones that come along that the projects in Argentina, COSE and Joaquin. Any other opportunities in the further growth opportunities have to be weight in here. In general obviously adding accretive project is the best return for our shareholders, but we are very happy that we are able to return cash through dividends our shareholders in a constant way.

[Chris Terry:]

Okay, great. Thanks Michael. Thanks everyone else. Thanks.

[Operator:]

Our next question comes from Dalton Baretto of Canaccord Genuity.

[Dalton Baretto:]

Hey, good morning, guys. Michael, I’d like to pick up on last part of your answer to Chris there, and talk a little bit about growth on capital allocations. And I guess my first question is outside of Joaquin and COSE do see or are you studying any other potential organic growth opportunities that your assets right now expansion on such?

[Michael Steinmann:]

You know that we always look for opportunities, I think there’s a little one that I mentioned there that is the change of the tailings facilities, changeover from the [Indiscernible] La Colorado, which is you know a small capital and pretty nice return on that project of $15 million over the life of mine. So we’re constantly looking at additional opportunity to save money, to increase return on all our operations obviously the big step functions that we took at Dolores and La Colorado, we don’t see them right now in Mexico. We just have them behind us. So bringing them up to full speed is first priority, obviously the throughput of the pulp agglomeration which improved the lot and I have no doubt that we will reach what we plan there and La Colorado with backfill, I think we have seen just a glimpse right now what this mine is able to do with only read into second half of the year having available with the full expansion La Colorado and already producing 7.1 million ounces for 2017 at the very low cash cost. So that just the beginning, I think what is mine is able to do. I think there's a lot of improvements we can look at. San Vicente, of course we looking at further mechanization as you note there we had some issues with San Vicente during the year, some were grade driven, some were driven by the mining methodology I would say, so which created some cost pressures and looking at further mechanization like we did in Peru obviously should have kind of hopefully similar impact at San Vicente, so we look at that. So, call it on the tag on our Brownfield side, there’s constant lookout for opportunity, and you will see more coming through, but although right now I don’t see like one in the size of La Colorado just around the corner.

[Dalton Baretto:]

Understood. Okay. So then given where your balance sheet at, is there more pressure and let’s say, internally to do something transformation in terms of acquisition? Or you guys happy with bolt-on acquisitions? And if you do something transformational how much can you willing to risk your balance sheet to do that?

[Michael Steinmann:]

There is never pressure to do an acquisition. If you look at our history back we are very careful in doing acquisitions. There are far apart. They have to be accretive. I'm absolutely for growth obviously I like growth. I like growth to deliver growth to our shareholders beyond what we are able to do with our incredible asset-based. And if they are accretive by all means, for sure we have the technical and financial ability to tackle probably every silver project there is out there in the world, but we have to see an accretive way forward for our shareholders to do so.

[Dalton Baretto:]

Okay. And then maybe…

[Michael Steinmann:]

Looking at the balance sheet, Dalton, we have literally know that we have $227 million cash of short-term investment available. We have undrawn credit facility of $300 million. So, I mean, that sufficient firepower available there and hope for any kind of possible acquisition you could think of.

[Dalton Baretto:]

Right. Okay. And then maybe just last one. Outside of valuation and implied accretion, can you remind me what are some your key criteria as you’re looking around for assets?

[Rob Doyle:]

That's an interesting question and there’s not a simple answer to it. Sure, I would like to tell, it show us of 50 plus percent, but all depends for metal prices you plug-in in your model and long-term assumption, so with that you kind of create a very easy high or low return. So it all depends on where it's located, which jurisdiction, how close this project or additions would be located to some of our current asset that dictates the size that we’re looking for. Obviously within a new jurisdiction it has to be much larger than if just a tag on. I think COSE and Joaquin are very good example that we can look at very small projects if there to tracking distance to one of our operation. So unfortunately I don't have just a straight answer for you. I like the sound of 15 plus percent, but as I said you have to be very careful when you do your analysis not just plug-in very high metal prices and kind of create that return. So we are we are very carefully with that.

[Dalton Baretto:]

Okay. And just maybe just last one. Is your preference for a big Greenfield or do you want something up producing?

[Michael Steinmann:]

Again this depends what is available, what comes up and what we like. I mean you saw that we made the first investment of in New Pacific and Bolivia in December, having the opportunity I think right now we owning about 13% of the company and we’re holding a board sheet and we have the opportunity to go all the way up to about 18%, very interesting high-quality project there which has quite some drilling, would encourage you to have a look on the New Pacific website. They are very capable geologist, but their project obviously to run that project. We have a long experience in Bolivia. And if you look at the [width] and grades of those first [Indiscernible] will understand what that mean. So again, we are a mine builder, mine operator. We can tackle project from expiration stage to feasibility in building. As you know we are not a Greenfield Explorer, so we normally take on properties that have at least some resources or very high-quality drill holes on it. You probably won't see very very early stage Greenfield exploration from us, but everything else is fair game if it’s of high quality.

[Dalton Baretto:]

Perfect. That's all for me. Thanks, Michael. I’ll jump back in queue.

[Michael Steinmann:]

Thank you.

[Operator:]

Our next question comes from Lawson Winder of Bank of America Merrill Lynch.

[Lawson Winder:]

Hi, guys. Just to start for me on the San Vicente the reserves. You mentioned a geological reinterpretation of the Union Vein there. Maybe you could just elaborate a bit on what you're seeing there? What was driving that? Was it dilution continuity or there’s something else going on there?

[Chris Emerson:]

No. Sure, Lawson. Hi, it’s Chris. It’s a fair question. Obviously we took about ahead of San Vicente through depletion of mining, as well as you mentioned reinterpretation. As we’ve gone in low down in the Union Vein we've seen a change in the mineralogy. It is getting slightly tighter as we’ve described through the experiences of mining in San Vicente. So actually going into these blocks with development, we actually seeing the structuring in hands and things like changing mineralogy, yet we’ve seen plus kilo samples, but we’re getting half a kilo, so yes, ahead but still nice. And hopefully, more drilling at that, we’ve obviously got to tying up the drilling slightly, so we can get a better handle on how this goes down, but having said that we’re still drilling [one acre], we had some great results there. And Union Vein just off the 200 meters from Union, the Yesenia vein. So still upside, but it was a slight hit the shed we just have to take.

[Lawson Winder:]

Okay. And then, just on Mexico, coming back to kind of the whole theme on cost creep. I was just curious I don't think I’ve heard you commented all on the deregulation in the Mexico oil market. Maybe you can just comment on how that's impacted you into 2017? And how you see going forward whether sort of like concepts that you might have for dealing with that? Thank you.

[Michael Steinmann:]

Yes, very interesting question, Lawson. One of the big benefits that we brought to our operations in Mexico over the last couple years was just tap into the national grid power supply at the Doroles where previously we were running generators, diesel generators. We had significant cost savings by making that tap and we’re enjoying those cost savings now. And what's interesting is when we looked at that and then we saw -- we then set project back when oil prices were above $80, $90 a barrel. And oil prices as you know fell down below even $50 a barrel, we though well, that’s going to put some pressure on that decision, but in fact with that -- with the Mexican economy oil prices actually affect. There's a provision in the contracts for industrial power supply, so lower oil prices actually brings lower power costs as well. So we did actually enjoy the benefits we expected there. And its took a lot of pressure off the operation of trying to -- you can imagine trying to get as much diesel fuel up to the mountains of the Sierra Madre, so we had to do when we run those generator. So we’re really happy with that change that we made. It took the pressure off. With that said, we still use quite a bit of diesel fuel because of the large open pit mine in the large waste stripping, pre-stripping that we’re doing at that mine. So we do monitor that pretty closely. I do believe long-term as we see the competition, the open market if you will for energy supply in Mexico, I think we’re going to see some benefits. We’re seeing some of that improve today with the open competition for energy. We’re seeing incredibly low energy costs down there today. So we’re hoping to see the same, but I think it'll take many years to develop, I don’t think that’s something we’ll see in the short term. It will gradually change over the next probably five years or so, but I think it’s going to change in favor of the consumers like ourselves.

[Lawson Winder:]

Okay, that’s great. That’s all the questions from me. And thanks very much guys.

[Michael Steinmann:]

Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Mark Morgan of UBS.

[Mark Morgan:]

Hi, guys, just following up on the question earlier regarding sort of growth opportunities, what’s the latest with Navidad? Is that just stuck in a holding pattern or is there any further developments that might bring that a little bit closer to fruition?

[Michael Steinmann:]

Sure, as everybody knows I guess on this call Navidad, you know of the best and largest undeveloped solo deposit located in the province of Chubut in Argentina. We are holding the project already for many years due to a law that prohibits the open pit mining and the use of cyanide in the province of Chubut. This is a sulfide project, so flotation so but it is visibly, so we wouldn’t need time out really but we need the open pit mining for the project. In terms where we have seen very positive changes in Argentina over the last now 12, 13, 14 months with the new administration, obviously one of the reasons why we decided to have the project [goes in back end] to our portfolio because we have seen a lot of positive changes down there. Giving you a bit more details on Chubut, because a lot of things are moving there and swelling our discussion. That was actually like a public meeting held yesterday in the town of [Pelson] in the province of Chubut, the Argentine federal minister of energy and mines Mr. Aranguren was leading the meeting together with many political business and stakeholders from the province and with the aim of starting the debate relating the responsible mining activities in the province. And in general I just want to make it very clear that we are very respectful obviously of this important political and democratic process and welcome any open and honest discussion on the issue. Navidad would create many stable and long-term chops in the province and will be an important source of income and economic development for the entire region. So Pan American as you know and you have seen from the results we have absolutely the technical know-how and the financial strength to build and operate Navidad to the highest environmental standards and provide sustainable development of the province of Chubut as we do in many other of our operations in the Americas. So I said that the decision in the province is the decision in Chubut and we just have to wait but as you know from the technical point of view, it’s a incredible project.

[Mark Morgan:]

Thank you.

[Operator:]

[Operator Instructions] we currently have no callers in the queue for questions. I would like to turn the conference back over to Mr. Steinmann for any closing remarks.

[Michael Steinmann:]

Thank you everyone for calling in today. Looking forward to talk to you in May to discuss the Q1 2008 results. Have a good rest of the winter, thank you very much.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.