Pretium Resources Inc.
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Operator:]

Thank you all for joining us this morning. Welcome to the Pretium Resources Fourth Quarter 2020 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. The conference call today is being webcast live and available along with the presentation slides on Pretium's website at pretivm.com. I will now turn the call over to Mr. Jacques Perron, Pretium's President and CEO.

[Jacques Perron:]

Thank you. Good morning, everyone. Welcome to our fourth quarter and 2020 year-end operating and financial results conference call. 2020 has been an unprecedented year with exceptional challenges. I want to thank our team for their continued hard work and dedication. However, the new year is considered a success, unless it is accomplished safely. And in 2020, a fatality provided a tragic reminder of the importance of keeping safety at the forefront of everything we do. On today's call, I will briefly highlight some of our key achievements from 2020. I will then turn the call over to Patrick Godin, our Chief Operating Officer to provide some insights into our production and operating results. Following that Matthew Quinlan, our Chief Financial Officer will review financial highlights of 2020. Finally, I will provide an overview of our near-mine exploration results and the recently announced underground exploration drilling results before closing off with a look ahead. At the end of the presentation, we will open the call to your questions. Before we begin, note that our statements contain forward-looking information and future-oriented financial information based on certain assumptions and subject to risk factors. I refer you to the cautionary language included in our news release yesterday, as well as the management discussion and analysis for the same periods. These are available on our website and have been filed on SEDAR. Please note all dollar amounts mentioned on this call are in US dollars unless otherwise noted. Despite the challenges faced in 2020, we achieved our annual production guidance for the first time in the company's history. Nearly 348,000 ounces of gold were produced at Brucejack and we generated a record free cash flow of $369 million. This allowed us to significantly reduce our debt by $227 million. After debt repayments, we ended the quarter with a cash balance of nearly $175 million. Other objectives achieved in 2020 include accelerated underground development, ramped up production to an average processing rate of 3,800 tons per day, increased drill build stope inventory, completed 147,000 meters of in resource definition diamond and RC drilling. as well as 28,000 meters of resource expansion drilling and announced the discovery at the Hanging Glacier Zone just 4 kilometers from the Brucejack mine. We have refocused our efforts in terms of health and safety and we are implementing changes to improve our safety culture. We will do everything we can to avoid the repeat of the tragic event that occurred at the beginning of the third quarter. The well-being and safety of our workforce remains our most important core value. On February 10, 2021, BC Northern Health declared a COVID-19 outbreak at the Brucejack mine.

[Patrick Godin:]

Thanks, Jacques. Turning to operations on Slide 7, in the fourth quarter, we process approximately 310,000 dry tons of ore through the mill, equivalent to 3,366 tons per day and for the full year we process approximately 1.3 million ton of ore which average out to 3,572 tons per day. The mill operated below the permitted level of 3800 tons per day due to scheduled and unscheduled maintenance and our focus on lateral development and stope availability. By the end of the quarter, we successfully ramped up to an average processing rate, slightly above 3,800 tons per day in the month of December. Production costs were $217 per ton milled in the fourth quarter and was $195 per ton milled in the full year of 2020. Production cost increased due to the additional lateral development and definition drilling and cost associated with COVID-19 safety protocols mainly related to employee salaries and travel costs. These protocols have increased costs by $5 per ton milled in the quarter and $6 per ton milled in the full year of 2020. In the fourth quarter, we produced just over 88,000 ounces of gold. The mill feed averaged 8.9 grams per ton and the recovery rate was 97.4%. Over the full year, we produced nearly 348,000 ounces of gold at an average grade of 8.5 grams per ton at a recovery rate of 97%. When you look at the quarterly gold production for the year, you see that we have maintained our production level within plus or minus 5% of the midpoint of our guidance range. It is broadly understood that Brucejack is a high-grade variable deposit, we'll continue to see fluctuation in production on a quarterly basis but hope to smooth that out over time. Going forward, our objective is to optimize production, reduce the quarter-to-quarter fluctuations and at the same time look for opportunities to increase our production. The 2020 mineral reserve reconciliation was completed by evaluating the 2020 mineral reserves against the 2020 mineral actuals. In 2020, ore was mined from 69 stopes over 11 levels standing in a horizontal distance of approximately 540 meter east to west and 310 meters north to south. The 2020 milled actuals contain approximately 4% more ton than 2020 mineral reserve primarily due to the mining - to mining out of reserve material determined to be economic by the grade control program as well as greater and plan dilution.

[Matthew Quinlan:]

Thanks, Patrick. We continued our track record of positive cash flows again in 2020 as we have every year since achieving commercial production in 2017. For the year, we realized gold price of $1,799 per ounce, an increase of 28% over 2019. Revenue increased by a similar 27% due to consistent production across periods. In 2020, we sold approximately 348,000 ounces of gold. Net loss of $0.21 per share for the year was impacted by the sale of Snowfield in the amount of $0.80 per share. Adjusted earnings per share for 2020 increased by 72% to $0.95 per share and were $0.28 per share in the fourth quarter of 2020. Adjusted earnings per share exclude the effect of the loss on sale of Snowfield as well as deferred income tax expenses both of which are non-cash items. You may note from our financial statements, but the net loss for the year was due to a large deferred tax expense in excess of our earnings before taxes. The sale of Snowfield gave rise to a non-cash deferred tax expense even though a loss on sale was recognized as Snowfield did not have any tax basis. Therefore no reduction in the loss could be accrued. In addition, the proceeds received from the sale reduced our tax pools, giving rise to a further deferred tax expense. I would like to stress that no cash taxes will be payable on the proceeds from the sale of Snowfield and as we have stated before, we are not in a cash taxable position due to capital expenditure pools and tax loss pools arising from the development of Brucejack. We don't anticipate paying cash taxes for federal and provincial income taxes for three to four years at current gold prices. And once we are in a tax payable position, we anticipate paying taxes at a combined rate of 36.5% of mine operating earnings. Turning to Slide 16, the year-over-year increase in revenues of $133 million to $617 million helped drive cash flow from operations to $317 million for the year, an increase of 41%. Operating cash flows reflect the COVID-19 costs as well as higher year-over-year production costs, a component of all-in sustaining cash costs. Total capital expenditures of $49 million in 2020 include approximately $27 million of sustaining capital expenditures, $12 million of expansion capital and $10 million of additions to exploration and evaluation assets in the year. Free cash flow reached a record of $369.2 million for the year, double the level of 2019. In terms of quarterly results, operating cash flow and free cash flow in the fourth quarter of 2020 were $89 million and $170 million respectively.

[Jacques Perron:]

Thank you, Matt. Stepping further out from the Brucejack mine, we hold over 1,200 square kilometers of mineral claims in the Golden Triangle in BC. The 2020 regional exploration program on the company's Bowser Claims included drilling at the Hanging Glacier Zone and other zones. The highlights from the program with the discovery of epithermal-style gold mineralization in the Hanging Glacier Zone, located just four kilometers northwest of the Brucejack mine. The new zone of gold mineralization demonstrates the district-scale potential at Brucejack. We continue to believe the best value for our shareholders is to invest a portion of our cash flow in exploration of our existing claims and in particular near the Brucejack deposit.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Heiko LA of HC Wainwright. Please go ahead.

[Heiko Ihle:]

Hey, thanks for taking my questions. It's nice to see everything you've accomplished throughout 2020 especially noting here your balance sheet. I'd also highlight that the guidance uses gold prices of $17 an ounce and so it's actually 2% below right now. Can you walk us a little bit through the travel restrictions at Brucejack, the issues that you've had and how your labor force is currently reacting? Are there any lapsing issues have there been any longer-term changes? What are you seeing, what are you hearing on the ground place?

[Jacques Perron:]

Good morning, Heiko. Thank you for your question. I'll give you a better color and Pat can add to what I'll provide, but we were fortunate in 2020 to be able to operate the mine without any COVID cases at site and positive cases at site. Unfortunately, we were worried that after the holiday period that we might get some impact from people traveling and coming back to site and bringing the virus to site and that happened to us, so we started to manage cases, monitor the situation and the number of cases increased quite rapidly because it was contained into a cluster of employees that were working together and not necessarily following all the proper rules and protocol. And as you know it - I know we've been repeating worldwide for a year now that it's important to wash your hands and wear your mask and be diligent and we found out that through all the tracing that we've done that a small number of our employees were not or contractors were not following the rules and, on that note, I want to say that the majority of our employees, the vast majority of our employees are following their rules and are doing a great job. But in - it only takes a few to start to spread the virus and we started to isolate people to a point where BC Northern Health decided that we had to control the situation by locking down the site, so preventing people from traveling in and out and testing everybody to understand the extent of the various people that are - that were infected. I think, it took about two days to test everybody and we got the results fairly quickly. Definitely during that period the employees were concerned and were worried, but I can tell you when we lifted the travel restriction on the 17, morale shot up thousands of percent because as you can imagine being stuck at site and not knowing when you're going to be able to leave and being afraid that the virus is around you. And that's - it was a very uncomfortable situation for a lot of people, but it's much better right now. And with that, we have worked closely with our indigenous partner to implement new protocols and new rules, and I'll let Patrick explain what - how we're managing the situation now and what's the process to mitigate the risk of having another outbreak.

[Patrick Godin:]

Yes. So, in addition, to respect the rule because it's where, it is basically the main issue is when we're not respecting the rules. We are now testing all the employees, when they are coming in five days after their arrival and before to let them leave the site. So basically it helps us to have a better control of what we are doing. We are also looking to actually improve the testing protocols with taping and we are in discussion with the authorities about that and also we had some additional protocols, because as you know at Brucejack we have three camps, one camp at the entry, one camp at the beginning of the glacier, and one at the main camp at the operation, so we have additional protocols to control the access with the suppliers and contractors and also in addition to that, we create what we call bubbles, is mainly now for our quarters who are living in Northern Territories before to when they are shifted to the site immediately. They are leaving the site together in a specific vehicle and they are going back to their community. So we're just making sure that they are not exposed on the way to a potential - to a person who is potentially infected. So we improved a lot and a lot in this manner. I think the employees are pretty satisfied by this and we will apply all these protocols up to the moment that probably the authorities will advise that we don't have to.

[Heiko Ihle:]

Okay. So a very comprehensive and good answer. I appreciate that. Thank you. The other one I think I'm just trying to clarify something with your corporate administrative costs, two quick things there, they went up 13.6% or $2.5 million to $21.2 million, looks like this is pretty much an increase in salaries and benefits due to a variety of termination expenses, but it was also offset by some share-based comp. Nonetheless, you're still looking at $18 million to $22 million for 2021, so the midpoint of that is 20 million. First of all, is the cash versus non-cash, is that an offsetting thing or is that an accounting thing, or what am I missing?

[Matthew Quinlan:]

I don't think you're missing anything, you are bang on that. It's Matthew Quinlan here. In 2020 you're right, there were certain termination expenses pursuant to those employment contracts countervailing that was - when those officers left there was a certain forfeiture of their RSUs and deferred comp. So there was a much lower non-cash component. Going forward, we've obviously have guided net for this year in 2021 of $18 million to $22 million of G&A, there'll be higher component of RSUs into deferred comps, because that is a, there is no forfeitures, but commensurately there's a lower cash expense. Does that help answer your question?

[Heiko Ihle:]

Yes, yes, it does. And it actually answers my next question as well. And then I just have, just to follow-up on that. Why do you still expect $20 million because presumably, that termination stuff was a one-time thing?

[Matthew Quinlan:]

You're right, but the forfeitures were actually quite, quite large. And on Page 27 of our MD&A, there is some further details as to the quantum. So the, just looking at that page right now the several million dollars was the effect of the - on the RSU expense

[Heiko Ihle:]

Got it. Okay, perfect. Thank you very much. I'll get back to you. I appreciate your answers.

[Jacques Perron:]

Thank you.

[Operator:]

Our next question comes from Anita Soni of CIBC World Markets. Please go ahead.

[Anita Soni:]

Hi, good morning everyone. My first question is with regard to the reserve reconciliation that you guys provided versus what was milled in 2020. Can you give us a breakout of what was, what was attributable to mining outside of the reserve envelope, and what was attributable to stope dilution - excess stope dilution and then secondly on that would be the amount of excess stope dilution. So what are you seeing in terms of dilution and what are your targets?

[Jacques Perron:]

In terms of dilution, in the reserve, we plan 90% - 94% of mining recovery and 12% of dilution. For 2020, in terms of mining recovery we are at 88.3 and in term of dilution we are 18.2, so basically, the increase in dilution is explaining a part of it.

[Anita Soni:]

Okay. Yes. And then, and so, yes that's explaining, I mean, so would you say it's more stope dilution and mining outside of the reserve. And what was the cause of 6% off on the grade?

[Jacques Perron:]

I will say 50-50.

[Anita Soni:]

50-50, okay. And then in terms of go forward, do you expect that similar types of like dilution, I mean going forward in 2021, is that what you guys are factoring in when you took down. I mean the prior life of mine plan had 8.6 for this year. And then when you guys put out guidance and thank you for this call because it's the first opportunity where you have talked about the guidance here. The grade went down from 8.6 to 7.5 to 8.5. So I'm just trying to get to understand --an understanding of the implications of that beyond 2021.

[Jacques Perron:]

So, I can say to you that for the dilution we are still forecasting an ounce at $12 because I don't want to lower the bar in terms of quality. So it's, we are working really hard actually to improve the dilution that trend is in that way, but we are still planning 12% of dilution going forward.

[Anita Soni:]

Okay. So then, why was there a change in the reserve grade from what the Life of Mine plan had sort of given us as what we should be looking for in 2021?

[Patrick Godin:]

It's mainly sequencing, Anita and when we, I have repeated this a few times. There is a difference between guidance and the reserve. The reserve is one thing, but the guidance we always, we have a variable to ore body, so we guide 7.5 to 8.5 last year, it was 7.5 to 8.6, why not 8.6, so we could have used 8.6 this year, but we said 7.5 to 8.5 because we know we're going to have variability and I've learned in this business over the years that it's better to underpromise and over-deliver. So. I wouldn't link the guidance to the reserve. Those are two different things in my mind.

[Anita Soni:]

Okay. We do have to have something out just try to put my models and usually the 101 is what you look to you, but I'll leave that point. And second question and final one, then I'll leave it for some of the other people ask questions. In terms of cost, in Q4 the costs were up quarter over quarter. And is that the kind of unit cost range, you're looking for in 2021. And again, are those the types of things cost, unit cost and like the 210, 215 level that you are forecast, that you expect to see out in 2022 and beyond or is there some kind of improvement that you're seeing versus 2021.

[Patrick Godin:]

So for Q4, we have the main aspect is - the main one is that we process that . So it's impact - it impacts the unit cost per ton for sure, no matter, the grade was as expected and also, we have the seasonal effect on a quarterly basis from the quarter to do a one in winter we're putting or higher than in summer. In the year we averaged 181-195. So basically, we are more or less trending this year between 215 and 195.

[Jacques Perron:]

I think if you do, if you do the math, Anita, and you look at the cost, we had in the fourth quarter, you will remember that we had a 10-day maintenance shutdown to replace the feeder on the crusher underground. So if we had operated the full quarter at 3,800 tons per day, if you take that, you would have had very, slightly increased variable costs for reagents and ball mill - balls and whatnot in the mill. But at the end of the day, the costs would have been closer to 195 to 200. So if you look at the - the average - the average between the quarter and the year, that's probably where we're going to set for 2021 at this point. Now that being said, it's going to, it's going to, definitely depend on COVID like in the first quarter, we were impacted for a few weeks, we had to reduce throughput because we had people in isolation and we were running out of operators or people to feed the mill. So we had to reduce the throughput and that's going to have an impact on our unit costs, if we probably, if we don't process the 3,800 tons per day. The mill that we have, we have the ability to catch up. So, Q1, we might be a little lower in Q1 and will be better in the other quarters and also in Q1, we have seasonality. I think last time I checked; we were up now to about 14 meters of snowfall at site. Last year we got 17 meters. So we have about 90 temporary employees shoveling snow in the winter. So that's an additional cost that we don't have in the summer months, so seasonality has an impact and also tonnage. But like I said, we had a slight impact in the last couple of weeks because of COVID, if we get back and we're not impacted by COVID, anywhere between, if you take the average between 195 and 217, I think you're going to be in the ballpark.

[Anita Soni:]

Okay. Well, likely backend loading with this gold price environment in Q1 will be such a bad thing. So, anyway, I'll leave it at that.

[Jacques Perron:]

Thank you.

[Operator:]

Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.

[Joseph Reagor:]

Hi guys, thanks for taking my questions.

[Jacques Perron:]

Good morning.

[Joseph Reagor:]

Good morning. So, kind of following on a little bit of what Anita was asking, maybe she asked in a different way, looking at this year's guidance the 7.5 to 8.5 grams per ton is that another way of looking at that, that you would expect something between 85% and 100% reconciliation, looking back at that you said 94 for last year or is that kind of what the guidance is based on or is it 80 to 95, like how would we think about that in a reconciliation kind of way.

[Jacques Perron:]

Then, as I said, the 7.5 to 8.5 guidance is not base - it's based more on sequencing, it's based more on-site that stope is ready to be mined because the other one is what I feel up, so it's more a question of sequencing. I think if you look up to me, the reconciliation of 94% is for this year is excellent. This is in the range of the reserve. If you, it can be in the range of 5% of procurement for reserve it's excellent and we have a whole body that is having a negative effect, the variability is very significant. So in this regard, we're not expecting, actually, I think we are in the if I can say that the sweet spot in terms of reconciliation in thermostat, in terms of grade and I think the trend is to maintain more or less and we expect next year, we're going to be better, but I think we are, where we are, it's not based on the guidance or not based at all on the reconciliation factor.

[Joseph Reagor:]

Okay. So that you're not like discounting a flat percentage either. It's just one - that's what's in the mine plan depending on which stopes you open.

[Jacques Perron:]

Yes.

[Joseph Reagor:]

Okay.

[Patrick Godin:]

So that we mined 69 from this year. It's a lot of stope for the lower tonnage of 3,800 tons per day. So it can happen and next year, we will at year-end or beginning of the year, we will shift some stope installed from one quarter to another one and it will affect. So it's more sequencing then factored and something else.

[Joseph Reagor:]

Okay. And then, on the debt front; any goals for this year for further debt reduction specifically or any thoughts about refinancing, what's left while rates are low?

[Patrick Godin:]

Matt can give you some more color. But as we mentioned last year, one of our priority is to reduce the debt. But we want to work in the first half of this year to come up with a good plan, which is not finalized right now, but we want to build our plan and Matt can give you a little bit of color on that.

[Matthew Quinlan:]

Thanks, Joe. Yes, we have a very strong bank group, very supportive bank group. We have a largely undrawn revolver as you'll see in our financial statements that matures in 2022. So we are going to be looking to refinance that revolver and we also have the convert due in March that we need to address as part of that strategy. But we are certainly not being complacent about refinancing. We have an action plan and we'll update the market when that's done.

[Joseph Reagor:]

All right, thanks. I'll turn it over.

[Jacques Perron:]

Thank you.

[Operator:]

Our next question comes from Ovais Habib of Scotiabank. Please go ahead.

[Ovais Habib:]

Hi, Jacques and Pretium team and thanks for taking my questions.

[Jacques Perron:]

Good morning, Ovais.

[Ovais Habib:]

Good morning. Just a couple of questions have been answered, so just a follow-up question on maybe on Heiko's question on COVID impacts. That was great to hear that you guys have reiterated your 2021 year on guidance despite the COVID challenges that you guys faced in February. Now, are you noticing any impact to your drill campaign or underground development, kind of going into the next couple of quarters based on what you saw in February?

[Patrick Godin:]

Not really because when we pre-authorized - as Jacques explained - we were short of manpower because few are in installation and some others were not available reach the site. We pre-authorize in our strategy the production drilling and the development, mainly because if you are in an underground mine and you losing opportunities and development and production drilling, you're going to catch-up. So basically, actually, we maintain the accelerator and the pace for the development and the production drilling and we slowed down the mill. As Jacques explained, this mill is really efficient. We can process slightly more than 4,000 tons per day easily. So we will be in the possibility to catch-up going forward. So basically, we position ourselves, we mitigate our risk to keep the development and keep the production and the production within the forefront and we did not slow down more than expected the exploration drilling, too, because it's critical and crucial for us, but we know that we can process more going forward and we can catch up on a timely manner.

[Ovais Habib:]

Okay, that's good to hear. And just my second question is on - I believe you completed about 72,000 meters of infill drilling in 2020. Can you provide some color if this campaign was kind of in-line with your expectations? And has that campaign provided any improved visibility?

[Jacques Perron:]

Yes. We did another drilling in the second half of the year and so far, the results match our expectations. What I can tell you is one of the challenges that we have right now is when we drill and we take a sample, because our lab at site is basically too small to handle all the samples we generate, we have to send samples to outside lab and right now, it takes anywhere between 10 and 13 weeks for us to get the assays back, which a big challenge when you have to make decisions on where you're going to develop and where you're going to mine. So, that's one of the reasons this year. We are investing money in building a new lab and a proper lab that will be able to handle all our samples and give us the results within the one to two weeks instead of 10 to 13 weeks. So, we did quite a bit of drilling in 2020. But we only got results for maybe, let's say, half of what we drill. We're still waiting for the other half. So, the labs in Canada right now, in Vancouver, there is labs, processing samples from Quebec, and Ontario and some of our samples go down as far as Peru to get to get analyzed. So, it's a real challenge. Good to see the gold price that high, but everybody is drilling right now. So it puts a lot of pressures on lab. So, we expect to have our new labs operational at the beginning of the third quarter. So when we get there, we'll have a much better turnaround and be able to digest the information faster and that's one of the reasons that we decided not to update our resource and reserves this year because we drilled a lot last year but we didn't really have the results from the drilling. So, we'll be in a much better place at the end of this year and that's why we were planning to update our mineral resource and mineral reserves in 2022.

[Ovais Habib:]

Got it. Okay. Thanks for that, Jacques, and that's it for me.

[Jacques Perron:]

Thank you, Ovais. Have a good day.

[Ovais Habib:]

You, too.

[Operator:]

Our next question comes from Don DeMarco of National Bank Financial. Please, go ahead.

[Don DeMarco:]

Oh, thanks so much for taking my call. Hi Jacques and team. Some great Phase 1 expansion drilling results released yesterday morning. You mentioned those from the North Block, impressive grades, over 2,500 grams per ton. How accessible are these high-grade zones? We know that they're within 300 meters of the pit shell?

[Jacques Perron:]

Yes, Don, if you look at the sections and the little drawings that are available with the release that we issued yesterday, it's right there. It's right next to the development. The North Block is drilling outside of the resource shell but basically what we're drilling there are extensions of the domains of the VOK, and we're starting to see new domains appearing and it's the same style of mineralization; so the results that we're getting so far are very much in-line in what we get at the VOK; so it's early days, it's only a few holes. We're going to get the results of the second phase in Q2, and then - no, no, no, we're going to do a third phase of drilling which has already started, but it's exciting. When you see numbers like that and you see that you're very close to your existing infrastructure, it's an area we could access and fairly easily. First thing we have to do before we rush into the zone with a 5 meter by 5 meter diamond drill hole, we're going to drill. We're going to try not to repeat the mistakes of the path and we're going to drill, understand what we have and then we're going to go in there and position ourselves properly and get going with mining. But I'm pretty confident this is going to turn out into a very good zone for us

[Don DeMarco:]

Okay. That's great and maybe just continuing on that. Certainly the grades are high. What about the width? What are your thoughts on the intercept widths? Are those also consistent with some of what you found within the reserve area ?

[Jacques Perron:]

Well, it's fairly typical. What we emphasize is the high grade, but around this high-grade zone, there is a large halo of lower grade material between, I don't know 2 gram and 5 gram per ton. So when you blend everything, you can develop significant size stopes. But the first thing we have to do is do all the drilling, understand what we have, do the interpretation and then we can start to build the corridor that we want to mine it within those domains.

[Don DeMarco:]

Okay, great. And when I look at the scope of your 2021 program. I don't see North Block listed. Like in light of these results that you released yesterday, will you modify your 2021 program to go back and do a little bit more drilling there?

[Jacques Perron:]

No. There is a section that we show in the presentation and you can see that's all the areas that will be active in 2021 for the 195,000 meters of drilling. We're going to do North Block as part of that and so we drill Phase 1 and Phase 2 in 2020 and we have started the Phase 3 now in North Block, which is higher fans and longer holes. That's going to be done this year as part of the program with all the other zones that we're going to be drilling in 2021.

[Don DeMarco:]

Okay, great. Maybe just shifting gears onto obviously your strategy this year is to increase the drilled off inventory. How do we know if you're making progress on your objective here? Something that's just looking at maybe reduced production in grade volatility quarter-over-quarter? Is it going to take several quarters to really know if you're progressing? From our standpoint, what should we look for?

[Jacques Perron:]

Yes. There are two aspects to this. I think the first one is to look at our drill inventory. At the end of Q3, I think we were 150,000 or 153,000 tons of inventory?

[Patrick Godin:]

At the end of the year, we have 256,000.

[Jacques Perron:]

So, we went from 150,000 to 256,000 at the end of the year. And we're going to continue to grow that inventory and our objective, as Pat said, is to get to 400,000 tons by the end of Q3. As we build that inventory, I think what's going to be different for you guys in particular is we're going to be able to - and we're not quite there yet - but we're going to be able, when we do these earnings calls, to give you a very a good understanding of what's coming for the following quarter. And that's when you're going to see that we can shoot, we can predict, we can forecast what's coming for the following quarter a lot more accurately.

[Don DeMarco:]

Okay. Great. And just maybe my final question perhaps related to this. So like as you drill off this inventory and you've got this mill that can run above nameplate, what about making a more substantial increase to the mill throughput? What are the bottlenecks there? I think it was related something to the tailings, but if you could remind me what that is?

[Jacques Perron:]

Well there are two major items that we need to think about. Number one, it's our permit. Were capped at 1,387,000 tons per year. So if you divide by 365 is 3,800 tons per day. But the cap is not a daily cap, it's a yearly cap. In order to increase throughput we would have to go for a permit amendment and in order to do that, we want to make sure that the late will be able to handle additional volume. So we're going to do technical studies this year. On the flip side of that, it's to make sure the mine can supply. We have one ramp, we have limited number of vehicles we can put in the ramp. So we need to think about all the logistics and the productivity and whatnot to see how far we can push the mine to be able to increase throughput. So, those are the two major criteria permitting and the mine capability of supplying additional tons. As Patrick mentioned, the mill is not an issue for us at this time.

[Don DeMarco:]

Okay. Thanks so much for that. That's all from me.

[Jacques Perron:]

Okay. Thank you, Don.

[Operator:]

Our next question comes from John Tumazos of John Tumazos Very Independent Research. Please, go ahead.

[John Tumazos:]

Good morning, Jacques.

[Jacques Perron:]

Good morning, John. I have a hard time to hear you, John.

[John Tumazos:]

I'll shut off the other call, please. I'm sorry. Jacques. I'm doing my best. Jacques, with your buyback stock, you're doing great in your stock is 10x earnings. It's like Centurion, Kyrgyzstan almost.

[Jacques Perron:]

John, that's a good that's always a good question. Our priority right now with our cash is to focus on our debt and focus on all the nice things we want to do to improve the value of the project and the drilling and whatnot. We're not just there yet at the point where we can start to make decisions on buyback stock or dividend. First, it's a Board decision, it's for the Board to make that call. But I would say definitely, that's something for this year. It's going to be something maybe where maybe we're going to start to think in 2022.

[John Tumazos:]

I can ask another question, Jacques, and I might be overreacting to the phrase in the press release, improve the understanding of the ore body. But you've mined about 1 million ounces of gold and 4 million or 5 million ounces of ore and some development very close to the ore. So you have a pretty good bulk sample by now to understand the ore body. Is it really the case that the ore body is variable? It is the way god made it. May be god in heaven doesn't understand the ore body well. Should you state your reserves as a range of grade rather than a single point? I think the NI 43-101 rules are short of a fantasy. The deterministic single point numbers are often not realistic and given your annual guidance is a grade range and given your cash flow guidance is a great range. And just admit that it's hard ore body to estimate.

[Jacques Perron:]

Of everything you said, John, between God and the regulation, it is a difficult ore body to estimate. And yes, we've mine quite a bit in that ore body. We have a few years of mining so far and we're still learning about it. But we truly believe here that with the work we're going to be doing this year and all the drilling we're going to do - there's all kinds of other technical work that we're doing. We're not just doing drilling - looking at all the data and everything we've learned over the years, we feel strongly that when we do our 2022 update, we're going to have a much better understanding of the - we're going to be able to put together a much, much better resource reserve update than what was done in the past.

[John Tumazos:]

I have great confidence that you'll do as much as God could do.

[Jacques Perron:]

Thank you, John.

[Operator:]

Our next question is a follow-up from Anita Soni of CIBC World Markets. Please go ahead.

[Jacques Perron:]

Hello, Anita.

[Anita Soni:]

Sorry, I was on mute there. Just to follow-up in terms of the dilution targets that you have, can I get some color on - I know you're still targeting 12%, but can you talk about how you're going to get it from the current levels back up to the 12%? What will change over the course of this year?

[Patrick Godin:]

We have a lot of things that we are working on. Actually, we're working on the quality of the pace; so we can improve the pace. You have also the fact that you can mine over your base instead to mine under your base sale, we have the drilling that we are working on actually. We have the undercuts. Also what we will implement this year is we will monitor the precision of our blasting holes, though that's something that we initiate in the last days. So basically, it's all-in. Also, we are using high technology techniques for blasting. We're using electronic detonators. No matter of that, we will review the timing, so we are working. Where we stand, actually - and it's also in direct relationship, they found the majority of our stokes or I think a named wall but they are 80 degrees. We have some who are maybe more at 70 degrees; so we will investigate more on the cable bolting or the ING wall to reduce the dilution. We have an economic rationale to do this, it's what we will assess. And basically, it's what it is; there is another aspect too. We are working on this; we recently a purchased blockowner with a remote-jumbo to drill and blast them the big piece of rock that are to drill and blast the big piece of frag that are remaining in the stopes that we cannot extract because we remotely - we have remote school to finalize the cleanup of the stopes. So the fact that we have this new equipment improve, also the recovery on our site. So basically, it's not one-action. It's not a problem, it's a programmatic and its coming with a lot of combined solution and we are actively working on that actually. Because for us, to improve the recovery for us and reduce the diversion is essential, because we have as Jacques explained, we have a high-grade ore body. So we want to prone the quality before quantity and it's what is important in our case.

[Anita Soni:]

Yes. Thank you very much.

[Operator:]

Thank you. This concludes the question-and-answer session. I would like to turn the call back over to Mr. Perron for any closing remarks.

[Jacques Perron:]

Okay. Thank you, everyone, for dialing into our earnings call this morning. We appreciate all of the comments, questions and the more interesting ones. We look forward to updating you in the coming months. And I'd like to remind everyone that we're living under unprecedented times and it's important for everyone to follow the guidelines and the restrictions and to avoid any major health issues. So once again, we would like to thank our team for their dedication and hard work as we continue to operate Brucejack. Without everyone's effort, nothing would be possible. So stay safe and have a great weekend.

[Operator:]

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