Pretium Resources Inc.
Q3 2019 Earnings Call Transcript

Published: 31 Oct 2019

[Operator:]

All participants please standby. Your conference is ready to begin. Thank you all for joining us this morning. Welcome to the Pretium Resources Third Quarter 2019 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. 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. Joseph Ovsenek, Pretium's President and CEO. Please go ahead, sir.

[Joseph Ovsenek:]

Good morning, everyone. Welcome to our third quarter 2019 operating and financial results call. Participating on the call with me today is our CFO, Tom Yip. First, and foremost, I again want to thank everyone at Brucejack, Smithers and here in Vancouver for their hard work that contributed to another profitable quarter. On today's call, I will comment on our production ramp up and its impact on near-term gold production. I will then turn the call over to Tom to comment on our third quarter 2019 financial performance. I will follow up with comments on longitudinal long-haul stoping, reserve definition and expansion drilling and exploration efforts so far this year, both grassroots and drilling at depth below the Brucejack mine. I will close off with a look ahead to the remainder of 2019 and then open up the call for your comments. Before we begin, note that our statements contain forward-looking information and future oriented financial information based on certain assumptions. I refer you to the cautionary language included in our news release issued 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 U.S. dollars unless otherwise noted. In the third quarter, the Brucejack mine produced 88,227 ounces of gold and we sold 90,713 ounces at an all-in sustaining cost of $878 per ounce of gold sold. We generated a $132.7 million in revenue in the quarter, resulting in $34 million in adjusted earnings, equivalent to $0.18 per share. Operations generated a record $77.8 million in cash this quarter, our ninth consecutive quarter of profit and positive adjusted earnings. Discontinued cash generation allowed us to reduce our debt by $143 million in just nine months. This includes the $62 million we paid as a first installment on the repurchase of the offtake agreement. As planned at the outset of 2019, the production ramp up is expected to supply the mill at 3,800 tons per day on a consistent basis by year end with steady state production expected in 2020. Steady state gold production of Brucejack requires the development of stope inventory. Stopes that are drilled off and available for mining, not counting those that are being mined. As we do not have a stockpile, the availability of stopes representing a range of grades allows us to blend multiple stopes for consistent production and provides alternative stopes for mining if circumstances require.

[Tom Yip:]

Thank you, Joe, and good morning everybody. There are key takeaways this quarter. Our third quarter financial results were significantly better than the second quarter, primarily due to a 13% or $167 per ounce increase in the gold price and we sold over 90,000 ounces of gold, approximately 4,700 more ounces than the second quarter. We have strong financial leverage to increases in the gold price. Our earnings from mine operations of over $46 million, increased 56% and our operating cash flow of over $77 million increased 89% over the second quarter of this year. And during the quarter, we also repurchased 100% of the offtake obligation, which was the last piece of the original 2015 construction financing package and we made a payment of $62 million, our first installment at the end of September.

[Joseph Ovsenek:]

Thanks, Tom. Turning to Slide 25, we completed testing of longitudinal long-haul stoping as a mining method at the Valley of the Kings. Based on our understanding of the geology and controls on gold mineralization, longitudinal long-haul stoping mining along the direction of mineralization rather than perpendicular to it was tested as a more effective method of mine. With test stoping completed the decision has been made to implement longitudinal long-haul stoping as the mining method and areas of the mine where corridors of high grade gold mineralization are defined. In making the decision to adopt longitudinal long-haul stoping to mine the corridors of high grade gold mineralization of the Valley of the Kings, we assess the number of things including our ability to drift along the high-grade corridors, test stope grade profiles from our long-haul drilling to gauge internal dilution, geotechnical considerations to ensure the safety of our people and our ability to mine along the corridors with our existing mining fleet. We expect this transition in mining method to reduce the amount of in-stope waste dilution and help us manage grader variability. We also expect to reduce development costs as we will were developing an ore as opposed to waste. As a result of incorporating the longitudinal long-haul stoping in certain areas of the mine we will release an updated life of mind plan along with an updated resource and reserve estimate in the first quarter of next year. Extensive resource definition and expansion drilling commenced early in 2019 with the objective to improve reserve definition ahead of mission and to expand the current mineral reserve with the Valley of the Kings adding gold ounces to the life of mine. Turning to Slide 27, this is the section view of the Valley of the Kings looking to the North. The dark blue lines represent the current underground development. The green dash line represents the current mining horizon. The grey area in the background represents the existing measured and indicated resource. The two shaded areas represent a rough outline of infill drilling at the Valley of the Kings. The purple shaded area, the first phase of the drill program which is focused on resource definition at depth below the 1,200 meter level is now complete. The second phase of the drill program in beige which focused on reserves definitions westward towards the Brucejack fault is now over 95% complete. A total of 89,380 meters of drilling for 1,483 holes has been completed today in these first two phases. An updated resource estimate is currently underway based on the results from these first two phases of the drill program with an updated reserve estimate to get underway shortly. An updated life of mine plan incorporating longitudinal long-haul stoping will be completed following the completion of the updated reserve estimate. We plan to release the updated resource and reserve estimates and updated life of mine plan in the first quarter of 2020. Opportunities for expansion are located at depth to the West, to the East and to the Northeast of the currently defined mineral reserve, where previous drill programs have indicated the continuation of high grade gold mineralization. The third and fourth phases of the drill program illustrated in green and orange targeting resource expansion at depth and to the East of the current mineral reserve are set to begin shortly and we'll continue into next year. Stepping back now, on slide 30 this is a wider section view of the Brucejack Property looking to the North but the Valley of the Kings in the top left corner. In the center of the slide went 1,000 meters to the East of the Valley of the Kings exploration drilling in 2015 intersected the high grade gold below the float home zone. Mineralization below the Flow Dome Zone is the same mineralization we see at the Valley of the Kings. You will also see a number of drill holes in the slide emanating beyond the Valley of the Kings. Each one of these drill holes has encountered Valley of the Kings style mineralization outside the existing resource envelope. There are two main takeaways from this slide. First reserve potential of the Valley of the Kings is significant. We expect to be mining in the Valley of the Kings much longer than our current 14 year mine life. For the second key take away. Take a look at the drill holes going down to a significant depth. We have a substantial amount of high grade gold in the Valley of the Kings and we've intercepted high grade gold in the Flow Dome Zone. We believe there's a significant gold copper appropriate depth, sitting below the Brucejack mine which we are systematically targeting. Our six-hole targeting the source porphyry is underway. If we are successful and intersect the high grade gold to copper porphyry we expect to create significant value for our shareholders. Stepping further out, we have over 12,000 square kilometers of mineral claims in the golden triangle in British Columbia. On Slide 31, the Brucejack mine is on the top left corner of the property. The 2019 grassroots exploration program on the Bowser Claim surrounding the Brucejack Mine is now complete. In total 19,942 meters of drilling was completed with four drill regs. The drill program focused on further evaluating several distinct areas that have the potential to host Eskay Creek style VMS deposits and Brucejack style high-grade epithermal gold systems. At the A6 Zone, approximately 14 kilometers northeast of Brucejack Mine, drilling is testing an area in the Iskut River Formation that holds the same stratigraphy as the Eskay Creek Mine. Of assays received to date for the A6 Zone drilling intersected high-grade silver plus copper mineralization within the overlying mudstones. We encountered 2,890 grams per ton silver and 1.81% copper over 1.5 meters, 187.5 meters downhole. Additional drilling and downhole geophysics were undertaken to locate the core of the system and the associated polymetallic mineralization. We will be following up on A6 in the spring. We believe the best value for our shareholders along with paying down debt is to invest a portion of our cash flow in exploration of our existing claim package. Let me conclude with a summary and a look ahead at the remainder of 2019. We remain on track to achieve a sustainable production rate of 3,800 tons per day by end of this year, with steady-state production in 2020. Though gold production did not meet our expectation this quarter, we posted a solid financial performance in Q3. We expect another quarter of robust cash flow in Q4. And with the repurchase of the offtake agreement, we remain on track to repay $180 million of debt in 2019 surpassing our initial target of $140 million. We are drilling to expand our reserves with excellent potential to extend our mine life. We are continuing to systematically explore the porphyry potential at depth below the Brucejack Mine. Our regional grassroots exploration is still in early phase, but we believe the greatest return would be in discovering another mine on our existing claims. Finally, in the first quarter of next year, we will have an updated resource and reserve and a new Life of Mine Plan, which will include the results of 90,000 meters of infill drilling and longitudinal long-haul stoping. Thank you. That concludes the formal presentation. I will now turn the call over to the operator, who'll open the lines for your questions. Operator?

[Operator:]

Certainly sir. And the first question Justin Chan of Numis Securities. Please go ahead, sir.

[Justin Chan:]

Hi guys, thanks very much for hosting the call. Just my first question is on stope inventory. I understand the current focus is on level development, but could you give us a sense of when that starts to transition to stope development? And does the transitional longitudinal change that at all in terms of your flexibility of stopes sequence? Do you need to get more development ahead of – or upfront? And then I guess, overall, what I'm driving towards is, when do you think your self-inventory will give you more flexibility probably to be you a bit more selective about what goes through the plan?

[Joseph Ovsenek:]

Good morning, Justin. Well, first off, on stopes, we're currently mining from six stopes. We're comfortable with six stopes in operating that we can service the mill at 3,800 tons per day on a consistent basis. In order to have sufficient inventory, we still feel this is same as last year, six to eight stopes in inventory of various grades will allow us to keep the mine running and production going at a consistent basis. Looking ahead, I can't give you the timing on that right now, since we're updating our Life of Mine Plan with longitudinal long-haul stoping, which we expect will reduce the amount of development meters required because we're developing an ore. So when we get that plan out, it will be in the first quarter of next year. It's tracking well. We will come up a – we will show you in our results the plan to get up to that inventory level and with timing at that point in time.

[Justin Chan:]

Okay. Thanks a lot Joe. And just a follow-up on that, with the transition to longitudinal, does that – it reduces overall development meters, but do you need more access upfront? I mean, overall, the meters go down, but do you need more access to ensure you have the stope sequence in place? Or is that not the case?

[Joseph Ovsenek:]

No. We're good with access. It's not going to be any different for us in transverse because we're not stubbing in all the stopes. We're just drifting along the high-grade corridors then long-hauling them and then setting up our stopes along those corridors. So we don't need to stub in for each individual transverse stope. So it shouldn't impact us there.

[Justin Chan:]

Okay. Great. Thanks. Just one more on the mining and then a couple on costs.

[Joseph Ovsenek:]

Go ahead.

[Justin Chan:]

I recall you had a small – yes, I remember you had a small amount of material this year planned for closer to the Brucejack Fault, so higher grade material. Is that still the plan for the year? Has that mined already? Can you just give us an update on where that is? And did the grades come in as you expected? And then just on costs, I recall that Tom was saying that you expected higher unit costs in the second half. That hasn't really happened. Was that just conservatism? Or is there anything left to come? Or have any cost been deferred? Can you just give us an update on that?

[Joseph Ovsenek:]

Okay. Let me jump in on the Brucejack Fault question. So we have not opened up yet at the Brucejack Fault. We've increased our drill density out there. We now have drilling at 15-meter centers for most of the – if not all of the indicated resource, out towards the Brucejack Fault. We are currently developing over there, but we have not started mining yet. We'll be getting into that in 2020 and we'll show you that in our updated Life of Mine Plan coming out in Q1. Tom?

[Tom Yip:]

Yes. Hi, Justin. Thanks for the question. You know that the third quarter cost per unit has been trending up slightly from our prior quarters. We came in at about $181 per ton in the third quarter and we're averaging $178. So you'll see that there's a slight increase in the third quarter and in the fourth quarter we'll see maybe a little bit higher and that's just because of just winter months, right. We have a little offset on that in terms of just sort of per unit basis because we'll be pushing through a little higher volume as we ramp up to the 3,800 ton a day level in the fourth quarter.

[Justin Chan:]

Okay, thanks. And just one last from me on the offtake, can you Tom, perhaps could you give us any sense of – is there any – I guess, what impacts on realized gold prices should we expect it to have?

[Tom Yip:]

Yes. So the way we account for that, Justin, is that that's really treated as a financing vehicle. So the differential between the realized price is really a reduction in the offtake obligation where you really see the impact is on our cash. And that without the offtake, we'll see our increase in our realized or the actual cash that we get in from each and every sale.

[Justin Chan:]

Okay. And is there, I guess, a margin that we can put through our numbers or is there any guidance on how to treat that?

[Joseph Ovsenek:]

Yes, it depends on the gold volatility when gold is performing with fairly limited volatility. It's about 1% of the gold price. During volatile times that pricing window would skew things higher.

[Tom Yip:]

Yes. So, for example, in the third quarter, we charged $1.3 million to the obligation. And if you worked that out, it roughly amounts about $20 per ounce impact.

[Joseph Ovsenek:]

This gives the volatility in that quarter. Thanks.

[Justin Chan:]

Okay, I see. Thanks very much. That's very clear. Thanks. Thanks very much for taking the questions.

[Joseph Ovsenek:]

Thanks Justin.

[Operator:]

The next question comes from Anita Soni of CIBC. Please go ahead.

[Anita Soni:]

Good morning guys. Thanks for taking my question. So my questions are with regards to cost. So when we look at per ounce sold, year-to-date you're at $896, you're guiding to $900 to $950. And I'm just trying to understand what – if you look at the total cash costs, you basically have about $70 million to spend versus your sort of 58, 60 run rate in the prior quarter. I'm just trying to understand why the costs are going up so much in the fourth quarter?

[Tom Yip:]

Yes. So, basically, in the fourth quarter we're running a little more tons ramping up to 3,800 ton a day. So, in the whole dollar basis, you'll see a little ramp up there. So, there's probably about $6 million or $7 million of increased cost just for the additional tonnage. And the rest of it is really a sustaining capital and the other items that we have below the cash cost item.

[Anita Soni:]

All right. And then, secondly, just this quarter you delivered, I think it was 21 on the processing per ton. And given that you had some processing challenges this quarter. I'm wondering why that number went down by $10 per ton unit costs.

[Tom Yip:]

Soni, I…

[Anita Soni:]

When you reported your unit costs, the processing is $21 a ton and in the prior quarter, I believe, it was somewhere closer to $30 a ton. And I'm just wondering why exactly that number went down so substantially.

[Joseph Ovsenek:]

It's just higher throughput.

[Anita Soni:]

Okay. I think you had higher throughput in the prior quarter. That's where I think the challenges for me to understand that, but you can get back to me on that one. And just moving onto to next year, given that you – that you've had some challenges delivering grade to the mill this year, I think 10.6 or 10.4 was the average. That was in the guidance, 10.4 in the guidance and 10.6 in the life of mine plan. And it looks like we're going to be running closer to 9. How confident are you in that 12 gram per ton material for next year and 13 in 2021?

[Joseph Ovsenek:]

Hey, Anita. Joe here. Look, we're going to get that life of mine plan out and that will help you with guidance on where we are going forward. Look, during the quarter, we were running well, in July, September we were in the double digits on grade. And as I say, our big issue is stope inventory. And the way we manage that, our strategy to manage dilution within our stopes is to have a stope inventory. And that allows us to blend stopes multiple grades to hit that grade. So, nothing has changed on that front. That is still our strategy and we're still focused on limiting internal dilution. So as we come up with our updated life of mine plan next year that will help guide you on things and that will also will lay out exactly what we're doing to limit internal dilution and what we need for stope inventory going forward.

[Anita Soni:]

Okay. But I mean – this quarter, I mean, I think you were saying that the stope inventory that you have with sufficient to deliver and yet it didn't. So I'm just wondering, would there be more development required next year? Or I mean don't you feel that you need some more flexibility going into next year?

[Joseph Ovsenek:]

No, no, look – look at, I think I said, unless I am mistaken was, look we didn't have sufficient stope inventory.

[Anita Soni:]

Okay.

[Joseph Ovsenek:]

That – and our big issue here was we underestimated the time required to ramp up sufficient stope inventory. That's the bottom line. And so, we needed longer – more time to get to that stope inventory. So we did not have sufficient stope inventory during the quarter.

[Anita Soni:]

Okay. And then the last question on the issues this quarter. I think you said you had a couple of hang-ups in stope – in stope sequencing and one in a specific, I can't remember what the reason was, but I'm just wondering why that specific grade like a high grade stope isn't coming in Q4 and why has to be delayed until 2020…

[Joseph Ovsenek:]

The stope that we had hang-up with a blast, we're still looking at how we can get at that within our thing. So we blasted over half of the stope is hung and still there. And so, we have to see whether we can get back at it or whether we're going to have to just leave it behind. So we're working at that now. Our engineers are looking at it and we'll see how we get through, but it doesn't come well here in mining engineering, but it takes a while to get back online and that's the big issue there.

[Anita Soni:]

Yes. And if I can ask for just one last question, what was the – in terms of double-digit grade, what was the grade in October? Can you give us that?

[Joseph Ovsenek:]

No, we're not giving a grade going on the current quarter. We don't give our grades until the end of the quarter.

[Anita Soni:]

Okay.

[Joseph Ovsenek:]

But we're tracking comfortably with our guidance.

[Anita Soni:]

All right, thank you very much.

[Operator:]

The next question comes from Ovais Habib of Scotia Bank. Please go ahead.

[Ovais Habib:]

Hi, good morning, Joe. Just a couple of questions only, a lot of the questions had been answered. But just in terms of longitudinal mining in terms of the test works you guys have done, and you've talked about longitudinal mining will be implemented in certain areas. Can you give us a sense as to, in terms of percentage wise, how much a longitudinal mining will be implemented 10%, 15%, 20% within what you're going to be mining over the life of mine?

[Joseph Ovsenek:]

I don't have that number for you right now. I need to get the life of mine plan to you, Ovais, which will be in the first quarter, but let's just say where we're opening up the mine below the 1,080 level to the west towards the Brucejack Fault and up above the 1,410 meter level. Those areas have not had the transverse infrastructure put in place yet. So you could see a significant amount of longitudinal longhole stoping in those areas, which – so I expect that it will be well north of that 15% to 20% amount.

[Ovais Habib:]

Got it. And just moving on to the drilling that you guys have done in the probable reserve area, what kind of spacing was before and what's after with this infill drilling program?

[Joseph Ovsenek:]

Okay. Going into the drill program, it's going to be in excess of 20 meter drill spacing, 20 meter to 40 meter on the indicated and we're bringing that all down into that 15 meter or less spacing. It’s the target from the drilling.

[Ovais Habib:]

I see. And I mean, in terms of the drills also just to get an idea as to what to expect for the reserves? I mean I'm not looking for specifics, but do you have a sense of how the drilling went in terms of was this according to expectations in terms of grades and wits?

[Joseph Ovsenek:]

Until we get the resource and reserve update, I can't really tell you anything there. But I can say we saw a fair amount of visible gold and we're hitting gold where we expect to hit gold. How's that?

[Ovais Habib:]

Okay, it sounds good. I think that's it from me and I'll pass it on to other people. Thanks.

[Joseph Ovsenek:]

Thanks, Ovais.

[Operator:]

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

[Joseph Reagor:]

Good morning guys. Thanks for taking the questions. I guess just kind of following on some of the other questions about the stope inventory. Going forward how do you solve that problem? Is it just a matter of adding additional shifts? Do you need additional equipment? Is it a just throw more money at a kind of thing? Like how do we get from not enough stope inventory to enough that you can be flexible?

[Joseph Ovsenek:]

Joe, good morning. It's just a question of time. We're developing at a good solid rate, 1,000 meters per month. We just need time to get out ahead. We don't need more equipment. We have sufficient equipment. We have the budget we need. We just need time. We're underground. We can only go in any one direction and roughly 5 meters a day. So it takes us a while to get things opened up and that's why we're prioritizing opening up the mine, so that when we do get it opened up, we have access to a significant number of areas to mine at any given time. We're not constricted at lower mining and that will allow us to have access to a number of stopes and allows us to blend the way we need to blend ore.

[Joseph Reagor:]

Okay, fair enough. And then on the stope that got hung-up on the blast, can you give us a rough idea of – if you had to leave it behind what that's going to – what the tons and grade are there? Or maybe just the contained ounces you think are still stuck in that stope?

[Joseph Ovsenek:]

There are a significant number of ounces. I won't get into the specifics. We're still – we've got our LiDAR scope of the stope and everything else, but I can't give you the exact numbers. But it's hung-up and it's not going to impact the life of mine. Well, there's a lot of gold. We have a huge mineralized system. It's just looking at it and whether it's worth putting the extra cost into recovering what's left of that stope that's hung-up or is it better just to backfill what's been blasted out and move along. So we're looking at that now and we're going to do it on a cost benefit basis.

[Joseph Reagor:]

Okay. And then as far as next year goes, based on what you've learned so far this year, is it fair to say that the life of mine plan that you guys provided the three year update is under review again for like a new three year plan that's going to come out in Q1? Or should we still take the – I think it was roughly 12 grams expected next year, is that still gospel or is there some change coming there?

[Joseph Ovsenek:]

Well, look it's going to be an updated life of mine plan completely. So this is going to be not just three years, it's a life of mine going forward from 2020 – beginning of 2020 onwards. So we will have that plan out. And so we will have tons grade, stope inventory, things like that laid out for you all out in Q1.

[Joseph Reagor:]

Okay. And then when do you think we'll get guidance then for next year?

[Joseph Ovsenek:]

We'll have guidance when we have our updated life of mine plan. Let's get it up together. So look we'll push hard to get that out as early in the quarter as we can, but there is a lot of work involved. So we're working on it and we'll get it to you as soon as we can.

[Joseph Reagor:]

Okay, thanks. I'll turn it over.

[Joseph Ovsenek:]

Yes, thanks Joe.

[Operator:]

The next question comes from Mark Mihaljevic of RBC Capital Markets. Please go ahead.

[Mark Mihaljevic:]

Hi and good morning everyone. I guess, first question, can you just give a breakdown or kind of some of the delta that you've seen on the grades this year between how much of that was just a deferral of the high grade stopes? How much of it was not getting high grade in some of the areas you were expecting and any reconciliation you can provide?

[Joseph Ovsenek:]

Okay. What I can tell you is we're comfortable with our resource. It's reconciling well. It's really a question of dilution and how best the mine is in limit dilution. And as I've said, the way we do that is through having – mining multiple stopes at a time since we don't have a grade control program – the stockpile, we have a grade control program. So, I can't tell you exactly what grades come from which stopes because at any given time, six, seven stopes are hitting the crusher and then that's all being blended and coming out in the mill. So, I can't get into specifics on that, but I can say overall we're comfortable with the way our resources reconciling.

[Mark Mihaljevic:]

Okay. And then, again, you mentioned higher dilution. Can you give – can you put some numbers around kind of where are you running versus where are you – where you’ve budgeted and kind of where you hope to get to?

[Joseph Ovsenek:]

Well, look our dilution on – the periphery of the stopes is in line with our budgets. We're about a meter around it. Really, it's how we control dilution within stopes and so limit them the amount of low grade tons going to the mill. And so, I can't really give you a number on that. But what we do is you've been on the site, so we long-haul our stopes, we use our grade control program, our long-haul drills to give us the estimated grade for rings. And that sets up our mining of individual stopes. And by having those significant stope inventories on hand, that's allowed us to keep working with our grade. As we run out of stope inventory, we take away that flexibility that we can use to optimize grade. And so, it comes down that we need to control internal dilution. And our strategy to do that is to have multiple stopes online and multiple stopes as backup in inventory.

[Mark Mihaljevic:]

Okay. I guess following up on that, I guess, when we had been to say there have been quite a bit of – or you've spent a bit of time on the updated grade control program, are you happy with how that's performing? Again, excluding the constraints from stope inventory, but how has that actually been giving you the intel you're hoping for and allowing you in the absence of stope – or stope inventory challenge is a better plan around that internal dilution. Are you now happy with this program?

[Joseph Ovsenek:]

Absolutely. The grade control program and just for everybody’s sake that's the sampling of the long-haul drill cuttings and we now have an RC drill, doing the work and getting more on, is working very well. It's reconciling well to the mill. So we're pleased with the way the grade control program is going.

[Mark Mihaljevic:]

Okay. That's a good. I guess just one last one. I guess you mentioned you'd gone into double-digit grades in I guess July and September. I don't know if you meant July and August because you mentioned issues in September previously. But can you just give us a sense of kind of how high you have been able to get this and just kind of – again give us a sense of in the absence of operational challenges what you're able to deliver?

[Joseph Ovsenek:]

Well, if I did say September, apologies, yes, July and August we were in double-digits. We were in the tens. We were pretty close to where we wanted to be, pretty much bang on where we wanted to be for those months. And so on a monthly basis that's how we look at our grade because on a daily basis grades up and down.

[Mark Mihaljevic:]

Okay. That's perfect. And I think that's it for me. Thank you.

[Joseph Ovsenek:]

Thanks, Mark.

[Operator:]

The next question comes from Steve Emerson of Emerson Investment Group. Please go ahead.

[Steve Emerson:]

Well, thank you for taking my call. I'm having trouble getting my hands around the two stopes that are damaged. I guess I understand the blast problem basically destroyed the stope and makes it at this point too expensive to recover. And I don't quite understand what happened to the second high grade stope and to what extent that may be coming on soon.

[Joseph Ovsenek:]

Okay. Good morning, Steve.

[Steve Emerson:]

Good morning.

[Joseph Ovsenek:]

So with the blast hang-up, I haven't said it's too expensive to recover yet. We're looking into it. We're going to see what we can do to cover some of that ore, but essentially when it blasted it hung. So it's in place. It didn't drop, so we couldn’t muck it out. And so, we have to make sure look at it hard, make sure safe to go back and drill it and everything else. So that's what we're looking at now. And…

[Steve Emerson:]

What does it mean when you say it hung?

[Joseph Ovsenek:]

It didn't fall. So we blasted it. Usually, if you blast the rock, it drops. We then get in, muck it out and so on, right. So we blasted it and it didn't drop. So had an issue with the blast and we’re investigating that still. It's a safety issue. We can't just go in there. On the other stope that was a sequencing issue. We have process that stoped now in October. That's been through the mill. It's just we couldn't get it in to the mill during the third quarter.

[Steve Emerson:]

Excellent. So this means you have now a high grade stope that is in your inventory, in one of those stopes you're picking ore from?

[Joseph Ovsenek:]

We've actually mucked it out and we're backfilling it shortly. So, now, we've – that's come and gone. It's been through the mill. We're working through ours what we have for stopes.

[Steve Emerson:]

Okay. And what is your guess as to when you will have other high grade stopes that you're able to take the ore from into your mix?

[Joseph Ovsenek:]

Well, no guessing, but we always have kind of high grade stopes and low grade stopes coming in online and then we blend. So it's constant. We're looking to open up the mine still and get out to where we have even more higher grade reserves out to the West, the Brucejack Fault and down below at depth. But we still mine high grade stopes as we move along through quarter.

[Steve Emerson:]

Okay.

[Joseph Ovsenek:]

It's just the proportion of them.

[Steve Emerson:]

Got it. Thank you very much.

[Operator:]

The next question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.

[Heiko Ihle:]

Hey, thanks for taking my questions. And building on Anita's question a little bit, can you just guesstimate the cash costs for July, August, September, and also for October? I mean it's the last day of October, so I assume you have some sort of idea. I'm not looking for a scientific answer. I'm just looking for a guesstimate. And if you can't disclose it, should we just extrapolate the midpoint of guidance with the prior midpoint takeout Q1 and Q2 and then that's sort of our answer.

[Tom Yip:]

Well, we – hi, Heiko. We sort of given you the whole number spending on that AISC chart that we showed in the presentation. So you'll see that we've got the range of 3.14 and 3.23. So, you can take the mid range as you know the best estimate at this point in time.

[Heiko Ihle:]

Okay. So the extrapolation works, but you're not willing to go into more detail. Is that a fair answer?

[Joseph Ovsenek:]

Well, Heiko, as we can't give you a guesstimate.

[Heiko Ihle:]

Okay, fair enough. And then just philosophically and I mean understanding that the stock is right now back to where it was in July. Has anything changed in regards to your plans for your balance sheet? I mean, you paid back a decent chunk of debt and I think you're doing a great job taking care of your balance sheet. But I mean just – is it fair to say that nothing has changed in regards to the balance sheet management?

[Joseph Ovsenek:]

Yes, I'd say that's a good way to sum it up. We were generating a lot of cash flow. We’ll continue to generate a lot of cash flow and we’ll continue to pay down the debt.

[Heiko Ihle:]

Excellent. Well, thank you guys.

[Joseph Ovsenek:]

Yes, thanks. Thanks, Heiko.

[Operator:]

The next question comes from Kevin MacKenzie of Canaccord Genuity. Please go ahead.

[Kevin MacKenzie:]

Good morning. I have a few quick questions here. So as we looked at Q4, it sounds like the one high-grade stopes, which has been accessed now, has been mined. What's impacting the grades now or projected grades in Q4? Does this hung stope or is that more of this stope design optimization or is it sequencing? What does it look like in Q4?

[Joseph Ovsenek:]

It's like you say, it's stope design optimization. We need a good stope inventory to be able to start optimizing our grade using our grade control program. We don't have that inventory. And so what we're doing is we're just taking every stope that gets done, that’s opened up and drilled off. We start mining it as long as it's above our cut off.

[Kevin MacKenzie:]

Okay, great. And then the other question I had was with regards to the longitudinal test hole mining that was done. Any idea what the total tons to date had been mined in that program?

[Joseph Ovsenek:]

Jeez, it's between 15% to 20% of our tonnage over the course of the first nine months, somewhere in that range.

[Kevin MacKenzie:]

Great, thanks. That's all for me.

[Joseph Ovsenek:]

Okay. Thanks, Kevin.

[Operator:]

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

[Joseph Ovsenek:]

Well thanks everyone for dialing in to our call this morning, appreciate all your comments and questions. Have a good looking ahead. Have a good weekend. Thanks everyone. Bye-bye.

[Operator:]

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