Sierra Metals Inc.
Q2 2015 Earnings Call Transcript

Published: 17 Aug 2015

[Operator:]

Good morning, my name is Mellissa and I will be your conference operator today. At this time I would like to welcome everyone to the Sierra Metals Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Mike McAllister, Director of Corporate Development. You may begin your conference.

[Mike McAllister:]

Thank you, operator and good morning everyone. Welcome to Sierra’s second quarter conference call. On the call today we are joined by Mark Brennan, President and CEO, Ed Guimaraes, CFO, Matt Wunder, Vice President, Exploration and Andrew Dunlop, Corporate Controller. Today’s call will be followed by a question-and-answer period. Today’s presentation is available for download both through the webcast and through the home page of the company’s website at www.sierrametals.com. [Wednesday’s] press release is also posted on the company’s website for your review. Before we start, I would like to remind everyone about our disclaimer that certain statements made by the executive management team today may contain forward-looking information. Anything not historical is considered forward-looking. For more information, please refer to our detailed cautionary notes in [Wednesday’s] press release and the disclaimer on slide 2 of today’s presentation. With that, I will now turn the call over to Mr. Mark Brennan, President and CEO.

[Mark Brennan:]

Thank you, Mike and good morning ladies and gentlemen. It is my privilege to be hosting this call today. I’d like to begin with introductions to the new management team and highlights of the new management team’s activity since we’ve joined Sierra followed by an overview of the second quarter results for the company. Following my remarks Ed Guimaraes will take us through our financial results for the second quarter followed by Matt Wunder giving us an exploration update for the second quarter as well as an outlook of what can be expect in the second half of 2015. Sierra has seen quite a few changes in the management team in the last six months, which complement the strong management that was already in place. We believe, we now have assembled a great team with the breadth of experience, skill and knowhow to bring Sierra to the next level. Introducing the new management, I joined Sierra in April 2015, my background is 30 years in financing and operating in North America and Europe in junior mining entities. I most recently served as President and CEO of Largo Resources. We’ve built the world’s highest-grade, richest vanadium deposit, lowest cost producer and commenced production in 2015. I spent my early career as an investment banker in London, largely focused on Canadian equities covering both London and continental Europe. We brought in, in July 2015, Gordon Babcock, our new Chief Operating Officer, Gordon has over 34 years of experience in the mining production management, he is a second generation miner with extensive experience in Peru and his specialty is in project development, engineering and mine consulting and precious base metals and aggregate operations in the Americas. Most recently Gordon was at Jaguar as a Chief Operating Officer and previously worked for Nyrstar, Breakwater Resources, Coeur Mining, Milpo, The Hochschild group in Peru and Muscocho [Explorations] as well as Noranda. He is an extensively experienced operator and coming into the company to focus on modernizing our operations. As our VP, Exploration we brought in Matt Wunder in July as well. Matt is a professional geologist with over 25 years of international experience in exploration. Previously Mr. Matt held the position of Vice President, Exploration with Rubicon Minerals, where he has recognized as co-recipient of the Colin Spence award for Excellence in Global Mineral Exploration. Matt has gained extensive experience in ore deposit exploration with various companies including Noranda and Aur Resources. We’ve also brought in Mike McAllister as our Corporate Developments Manager, Director Mike has 10 experience in working with public companies, five as a mining specialized Investor Relations Professional, with company such as Avion, Savary, Alder and Black Iron. Mike previously worked with BMO Capital Markets in the mining and metals group. During the last six months the new management has come into the operation and have really done their own due diligence as to the strength and weaknesses of the company. What we’ve found is that the assets of Sierra are very strong and we’re expecting steady production increases and resource growth. The assets or the quality to be low cost producers that will continue to make money even at depressed prices. We see very strong organic growth potential coming to resources which are very close to existing operations. This will be a theme in terms of the company moving forward. In the short term, we expect to bring a number of new resources immediately adjacent to our very close existing miner operations into the production schedule. We will also see new mining practices, which will further expedite and further provide greater returns with existing operations. Turning to Sierra’s second quarter result, slide 7, in the second quarter we saw production of 3.1 million ounces of silver equivalent ounces, this represents the second consecutive quarter of record silver equivalent production. We also saw a record silver production of 911,000 ounces which was a 21% increase over Q2 14’s numbers due to higher plant throughput at all three mines and higher silver grades at Yauricocha and Cusi. We also saw record tonnage throughput of 483,000 tonnes in Q2 2015. We saw a 14% increase in copper production for a total of 6.5 million pounds over Q2 2014 the increase is due to increased copper oxide production at Yauricocha and the milled ramp at Bolivar to 2500 tonnes per day which in par was due to the new power line connection in March 2015 which resulted in 22% higher throughput for Bolivar in Q2 2015. Lead production decreased by 7%, zinc by 12% and gold by 13% compared to Q2 of '14 due to lower head grades at all three mines. Decreases in lead oxide production at Yauricocha and lower recoveries at Cusi, but our base metal production still provided healthy byproduct credits which kept cash costs low. The quality of our assets operated by our skilled teams has enabled us to continue on the path towards meeting our 2015 production guidance. Negative cash cost per ounce of payable silver decreased from 1967 to 1442 at Yauricocha and cash cost increased from 529 to 846 at Cusi. Increased costs were mainly due to the reduction of byproduct credits due to lower metal prices and lower head grades. Cash cost per payable pound decreased from 151 to 137 or 9% due to increased copper payable pounds and lower production cash cost. Cash flow generated from operations before movements in working capital was 18.8 million for the quarter compared to 21.3 million in Q2 2014, again mainly due to lower commodity prices. Investments made at Bolivar and Cusi have helped to increase the company's metal production during the first half of 2015. Investment in Yauricocha today will help increase production over the next 24 months. Consistently strong performance in Yauricocha as well as growth at Bolivar and Cusi have resulted in the company achieving a solid first half for 2015 with strong metal production and consistently lower operating costs. With that I would like to turn over the mic to Ed Guimaraes for the financial overview.

[Ed Guimaraes:]

Thanks, Mark; good morning everyone. I would like to start by announcing that subsequent to quarter-end the company has successfully refinanced the remaining 48 million due on the Corona acquisition credit facility with Banco de Credito del Peru or BCP. This was a very successful refinancing for the company for almost $20 million of debt principal repayments and $4 million of dividends payments through our non-controlling interest shareholders in Corona are no longer due for the remainder of 2015 and 2016. Additionally, quarterly principal repayments thereafter have been reduced from $3.4 million to $1.25 million. The new facility provides the company with increased financial flexibility during these difficult times of continued declining metal prices, and allows for the completion of the company's capital expenditure programs which will benefit the company with potential production increases and reduced risk exposure. Now I would like to review our cash flows, which is on slide 10, which provides the clearest perspective on our financial performance. I have summarized our changes in cash for Q2 2015 on slide 10. During Q2 operating cash flow before movements in working capital was $18.8 million. We incurred $11.9 million on capital expenditures in Mexico and Peru and we paid $4.2 million of income tax in Peru, and realized negative working capital adjustments off $4 million. We paid $6.2 million of interest in principal repayments on our debt as well as $0.9 million of dividends to our non-controlling interest shareholders in our Corona subsidiary. This reduced our cash balance from $38 million at March 31, 2015 to approximately $30 million as at June 30, 2015. Of note, the company received $6 million in payments for concentrates on July 01, 2015; which was the main reason for the decrease in cash and increase in trade receivables as at June 30, 2015. On slide 11, we show the same build-up to our cash flow for the first half of 2015. Our operating cash flow before working capital adjustments was $33.5 million. We incurred $20.2 million on capital expenditure in Mexico and Peru, $6.8 million on income tax in Peru and had negative working capital adjustments of $12.4 million. We paid $12.3 million on interest in principal repayments on our credit facilities, received proceeds of $8 million from the FIFMOI loan in Mexico and $0.9 million in dividends to our non-controlling interest shareholders. This reduced our cash balance from $41.3 million at the end of 2014 to $29.8 million for the six months ended June 30, 2015. The $20.2 million of capital expenditures for the first half of 2015 have been focused on key development projects and processing plant expansion. Total expenditures at Yauricocha were $7.3 million and included tunnel and shaft construction, mine development and exploration. At Bolivar, we have spent $4.2 million on mine development and exploration, including completion of the power line project. Capital expenditures at Cusi totaled $8.7 million and were mainly directed towards shaft construction, mine development, exploration and increasing the mill processing capacity. Slide 12; turning to the financial highlights, despite declines of 18%, 12%, 7% and 9% in realized silver, copper, lead and gold prices respectively during the second quarter of 2015 compared to the second quarter of 2014, the company reported revenues of $45.9 million consistent with $45.6 million for the same period in 2014. Revenues of $80.6 million for the first half of 2015 decreased 7.5% compared to the same period for 2014. The decline in revenue is due to the declining metal prices was mitigated by increased throughput at all three mines, along with the increase in silver and copper grades and recoveries of all metals except copper at Yauricocha. Additionally, a build-up inventory of concentrate at the end of the first quarter was sold in the second quarter resulting in higher revenues during the quarter. The adjusted EBITDA for Q2 2015 was $18.3 million compared to $21.3 million in Q2 2014. Adjusted EBITDA for the first half of 2015 was $32.2 million down 16% compared to the same quarter in 2014. The decrease in adjusted EBITDA is due to the decrease in metal prices and increase in operating and general and administrative costs. Turning to the balance sheet and liquidity on slide 13; we have ended the first half of the year in a strong financial position with $30 million of cash and $52 million of undrawn credit facilities which combine gives the company total liquidity of $82 million. The company’s net debt was increased by 22% during the first half of 2015 to $49.7 million at the end of Q2 compared to 2014, mainly due to the decrease in cash on hand at June 30, 2015. The company has principal payment, obligations on its loans and credit facilities of approximately $7.3 million to be paid in 2016; $11.8 million to be paid in 2017 and 2018 and $8.1 million to be paid in 2019. Metal prices continue to weaken during Q2 2015. We continue to monitor the price environment and its potential impact on long-term cash flows and we’ll set initiatives to protect our cash balances. I would also like to highlight the sensitivity of our profit to changes in the exchange rates. Approximately 70% of our costs at Yauricocha are denominated in Peruvian Nuevo Soles, and approximately 60% of our costs in Mexico are denominated in Mexican Pesos. At December 31, 2014 the Sol to U.S. dollar exchange rate was 2.98 and the Mexican Peso to U.S. dollar exchange rate was 14.77. Thus far in 2015, the Sol and Peso have weakened further against the U.S. dollar by 6% in both cases. A 10% decrease in the value of the Sol and Peso against the U.S. dollar would result in an increase of $2.7 million and $1.6 million in the company’s net income respectively assuming that our operational performance during 2015 is consistent with 2014. We are confident that our financial position together with future cash flow from our three producing mines and available credit facilities will be sufficient to support the company’s financial commitments for the remainder of the year and beyond. With that, I will now turn the call over to Matt Wunder for an exploration update.

[Matt Wunder:]

Thanks Ed. Moving to page 15. This illustrates a simplified regional geology map of Sierra Metals land position in the Yauricocha area. The regional targets outside the mine area are highlighted in red and are currently being advanced through geology mapping and surface sampling. These targets have the potential for similar polymetallic replacement style mineralization as well as large-scale epithermal mineralization. We turn to page 16; this is a portal looking to the Southeast over the Yauricocha area you can see the central mine area highlighted in red in the central left or east, central right side of the photo, in the upper right we have the La Fortuna target area and you have the new discoveries of the Mascota West and Mascota East areas just on the left side of the photo. This photo demonstrates the relatively ease in which it is defined new discoveries in the mine area through low little work with the continued surface exploration on the property. If we turn to page 17, 17 is a simplified geological map over the Yauricocha mine area. The dark blue represents marble replaced lime stones in the area with the main target highlighted in black dashed ovals. There are many targets available for exploration along this Contacto areas and the main targets have not seen significant updated technology applied to the mineralized zones. So the ability to explore and discover new mineralization should be relatively easy with the application of IP, magnetics, geochemistry, landsat and various other mapping tools available to us at this date. If we turn to page 18. 18 is a, we are moving to Bolivar mine. This is a simplified cross section through the Bolivar mine area with the El Gallo superior and interior mandates [indiscernible] demonstrated on the left side of the photo. You can see the size of the mineralizing system represents over 2 kilometers down depth of potential strike extent and the system is open to the north, on the new developments at the El Fierro mine area is that in the underlying area in El Fierro, we have got a cross cutting mineralized structure crossing the underlying intrusion which represents a feeder to the overlying mineralization. These feeders represent very strong mineralized target that has previously been unrecognized in the Bolivar mine area and may point to a large mineralized deep intrusive related skarn mineralization underlying at the main skarn. If we now turn to slide 19; slide 19 is a schematic cross section of Lilly west of the Bolivar mine target area. You can see the Lilly brachia off to the west which represents a tourmaline intrusive brachia which again may represent a [indiscernible] mineralization down depth from the main [indiscernible] over 2 kilometers west of the main Bolivar mine area. This target has relatively seen very limited drilling and represents a significant target west of the mine area. The Bolivar mine camp in itself has seen relatively little mineral exploration with modern technology and the application of recent geophysics airborne and remote sensing, we feel that the ability to discover additional resources at depth and in new areas at Bolivar is very strong. If we now turn to page 20, 20 represents a flat map of the Cusi project. The areas that we’re currently following up with exploration at Cusi are illustrated in black on this map. Cusi represents an Epithermal vein system associate with a resurgent dome complex on this map the orange represents the southeast zone research and portion of the southeast zone, the interesting developments at Cusi is that as we go deeper in the mineralizing system, we’re seeing an increase in polymetalic mineralization which will have a significant impact on the valuation of the cash flow as we move forward. That's it for the exploration update, I’ll pass it back to Mike.

[Mike McAllister:]

Thank you operator. We would like to now open up the line to questions from the participants.

[Operator:]

[Operator Instructions] Your first question comes from the line of Lee Cooperman from Omega Advisors. Your line is open.

[Lee Cooperman:]

First let me compliment you on a very comprehensive report, very professionally done. But I have a question, 51% of the equity is owned by Arias Resource Capital and I believe that is own within a private equity fund that has to distribute to dissolve next year? I’m just curious whether the board management have focused on this and if you have any comments about the likely outcome?

[Mark Brennan:]

Hi Lee, my friend. Thank you for your comments Lee. With regard to the Arias 51%, they have two funds that own the 51%, fund number one has 31%, fund number two 18%, now the exploration of fund number one concludes at the end of October 2016, we have learnt that the fund does not have to liquidate that position to at least October 2018. So it’s something we’ve obviously focused a lot of our attention on for two purposes, one is obviously for the event that we may see requirement for liquidity of that position. And two because it has, we are generally concerned that level of liquidity in the company in general. So we don't see that 31% having to be sold till October 2018. So from that perspective that issue really doesn’t seem to be on the horizon. However, we are still very concerned with the overall liquidity for Sierra shares and that something we’re working on very aggressively to remedy.

[Operator:]

Your next question comes from the line of Alec Meikle from Cormark Securities. Your line is open.

[Alec Meikle:]

I was just wondering if you could actually breakout a little bit of the cost savings at Yauricocha and how much of that is due to FX and how much of that is due to just change in the mine plant. I notice that in the mine plant that cost around $50 to $58 at time and it’s simply its coming and below that. I beg your pardon on color and just how we should following that going forward? That will be very helpful.

[Mark Brennan:]

I think $58 in terms of modeling is appropriate going forward. I think you should see that costs come down over the next 12 to 24 months as we continue to modernize the mine and introduce operational efficiencies. In terms of FX, there is about roughly, I believe $2.6 million, $2 million would be FX related in the costs, in that number for Yauricocha. I hope, I answer your question.

[Alec Meikle:]

That’s helpful. I was just, I’m assuming that if you should reconcile the cost in the last three, four quarters versus looking in the month, it seems your consistently under and almost $10 a tonne, I appreciate it. There is something we should be adjusting compared to the mine?

[Mark Brennan:]

Historically the mining costs have tend to be around $50 and then your mill costs, sorry $40, your mill costs are about $10 and we’ve seen that the mining costs creep up a little bit. And then you’ve got selling costs of about $4 a tonne. So your plant costs really, they’ve been pretty steady at 10 and just been increase in the mining costs.

[Operator:]

Your next question comes from the line of John [indiscernible] Independent Solution. Your line is open.

[Unidentified Analyst:]

Congratulations again on very good results and very admirable cash position and cash flow and favorable financing terms. As we waiver through historic downturn and metals prices similar or worst to 2009 averages. In terms of your big picture strategy, should we expect an emphasis on reinvestment to pursue exploration and expansion opportunities in the existing suited mines, versus acquisitions where so many companies weaker than Sierra Metals, versus opportunistic share buybacks if blocks are available such as with -- metal or it is too early?

[Mark Brennan:]

Thanks for the question John. With respect to the -- we were just coming off of a fairly extensive CapEx program for the company. We have probably spent in last three years including this year we have spent about $120 million, on fairly extensive CapEx particularly at Yauricocha, we have drilled in two shafts, where the process is completing those new shafts. We are building 4 kilometer tunnel that's just coming to its conclusion. I would hope that these programs will be concluded by the end of the year if not they make slip into the first quarter, but I do not see much room beyond that. What we are looking at is we have really been setting ourselves up, or the Company has been setting themselves up to be in a position to really look at expanding production particularly at Yauricocha. We have seen consistent growth at both Cusi and Bolivar. But what I was saying is, looking at the potential exploration opportunities, and they are various, and they are several, and they are numerous, and they are extremely exciting; but we will look to be feathering our own nest I guess, in terms of bringing in our own resources and dramatically increasing the potential which will have a direct impact on the modernization process and the mining process as it will be -- we are only looking for new resources that will be able to be brought into the mining plan within the next couple of years. So the first focus will be to grow our own operations and the focus on maximizing the utility from our own operation which we hope will provide greater value to our corporate shares. But beyond that I think in terms of -- we are in an enviable position, we are very strong from a liquidity position; I think we would consider looking at other opportunities. But I think initially it's really to focus, get our own house in order, get everything shaped, drive strong margins and then move on from there. And we will opportunistic if the right event or the right opportunity arises.

[Unidentified Analyst:]

Do you think your equipment resources or management resources are enough to have a fourth operation or venture outside if you are core in Peru? If you said on this call, you are looking for acquisitions you might get [indiscernible] metals in the next week, so I know there is a lot of stuff going around.

[Mark Brennan:]

We probably have [indiscernible] in last week John, so we feel that we’ve got as you can see by the very strong second quarter results that we’ve generated, we feel we have high quality assets that are best of breed assets. It’s based to the quality of the deposits to the resilience of the deposits to how well they’ve been able to produce in certain circumstances using what I would deem is less than best of breed mining and older stock mining which bring important -- we will certainly modernize the facilities through technology, through techniques, through equipments; so I think we’re going to see a tremendous increase in yield just from the existing deposits and so long story short, we will not venture and we will not dilute the quality of our assets for the sake of growth. We will look in, and if there are opportunities that happen to fall in the wheel house, whether they are in close proximity to our existing operations, whether they are best of breed assets that we can find at a very advantageous pricing, or frankly could be an operation where and I put this as the greatest outliner, where perhaps you’ve got an extremely strong group who perhaps have been cash deprived, who can drive an operation; but that certainly is not going to be our focus. Our focus is certainly the driver in existing operations and we will be opportunistic only if we can find the best of combination of items.

[Operator:]

Your next question comes from the line of Jim Young from Morgan Stanley. Your line is open.

[Jim Young:]

Hi, in your August 12, press release you stated you are on track to meet 2015 production guidance but in the MD&A on page eight, its states that the company is on pace to exceed 2015 production guidance for all metals, I’m just wondering which case is this for from a production perspective?

[Mark Brennan:]

Well, I guess in terms of -- thank you Jim, it’s nice to hear your voice. With respect to the -- if you look at our production guidance, we’re actually looking for -- we put out production guidance between 10.8 million ounces and 12.6 million ounces of silver equivalent production. We’re now running at 6.2 million ounces, and so as of just today we are at the higher end of our expectations of the guidance placed there. So I think we’re very extremely comfortable to say that we will meet that guidance, but our hope is that we will exceed the guidance.

[Jim Young:]

And, then secondly with respect to the production numbers you got an approval for the [indiscernible] at Yauricocha to expand from 2500 to 3000 tonnes a day. How long is it going to take to ramp up that production? And then secondly at the Bolivar, with the power line in place, what is the outlook for the production tonnes per day for the second half of the year?

[Mark Brennan:]

I would say Yauricocha, with Gordon’s coming into the operation, I think you’re going to see perhaps consistent production that we’ve seen for the earlier part of the year. I think what we’re looking at is we want to bring in, we need to bring in new systems, new technologies, new equipment, new methodologies; we want to focus on safety. There is a lot of cleaning up that we want to do here. And as a consequence, I think what you will see is, you’ll see some let’s call it some re-jugging of the existing operations and re-modernization that I don’t necessary think you’re going to see an immediate impact. I think what will happen is that will all come to floor in the next 9 to 12 months, where we will see what of my belief will be is to see a surge coming out towards the first, second quarter of next year. But until that time, we’ll be focusing on bringing this new modernization and I think we’ll probably see things fairly stable, although we will focus on cost reduction and rationalization as we go forward. With regard to Bolivar, Bolivar just continues to ramp up and obviously brining the transmission line was tremendous accomplishment. What you are seeing with Bolivar, if you look at 2012, we are producing 900 tonnes per day, 2013 at 1000. We’re now producing at 2500 plus per day. We’re hitting days over 2700 tonnes per day. We’ll continue to drive Bolivar not only through existing operations; again I think that we can improve significantly the operations at Bolivar, however, I think they are probably in the better state than -- they are more advanced perhaps than Yauricocha. But again we are seeing just as Matt tried to highlight in a very distinct fashion, we are seeing just tremendous opportunity for exploration upside. And again I think that I am hopeful that in the next year Jim that we will see a transformation of Yauricocha and Bolivar in terms of their capabilities, in terms of their scope and scale that would be very significant. So that's the focus. I think if we can continue to see Bolivar trusting ahead approaching that 3000 tonne level. Yauricocha again, I would just put expectations to be consistent as we modernize the facilities and techniques up until, let's call at the end of the first quarter next year.

[Jim Young:]

Okay. And then with respect to the capital expenditure budget that you had, you mentioned you spend almost 120 million bucks over the last three years, could you just clarify when the tunnel is going to be completed and how much in CapEx is going to spend for the tunnel? And then secondly when are the two shafts going to be completed and how much of that 120 million has been spent on the two shafts? And our goals, both the tunnel and shaft, are they going to be coming on time and on budget?

[Mark Brennan:]

Maybe I will just address just with respect to the tunnel, I really wanted at the last week, we are expecting that we will see that tunnel completed by the end of the year, it could step a little into the new year and again I think Gordon is bringing in some very needed and very positive change in terms of how we are progressing with that, I think these changes are having the impact of substantially increasing the productivity of the advancement. So I would target Jim, the end of the year early in the first quarter for the tunnel. And for the shaft, the shafts are -- they have made substantial progress, the Cachi Cahi shaft and likewise the Yauricocha shaft I would hope to be completed by year-end. And then probably Yauricocha will have the hoistened by October and will be operating through the hoist system in October.

[Jim Young:]

And how much has been spent on those three, have they come in on budget?

[Mark Brennan:]

Jim, I don’t have the exact details because these projects have been ongoing over the last two and half years, they have been on budget for the most part. The Yauricocha tunnel is anywhere from $10 million to $15 million and then you’ve got your shafts at roughly about $8 million to $10 million each, but I don't have the specifics, I could provide that at a later date.

[Matt Wunder:]

What’s very interesting Jim is that with the completion of the shaft in the tunnel are going to have a very long impact in terms of the productivity of Yauricocha in Cachi Cachi and as the consequence that 40 million a year that we’ve been spending in CapEx that program going to ’16 is going to decline very significantly. And so obviously we’re moving into a very-very difficult commodity environment and what will happen, is that we will able to have more cash flexibility moving forward and our inclination is to be tightening up as much as we can, but being very opportunistic with any projects have making sure that they’ve got a definitive ROE prior to their implementation.

[Jim Young:]

Okay. Then lastly with respect to your exploration program, in 2015 that there then, very few announcements about exploration progress and results and I appreciate that there has been a change in management but compared to 2014 there was significant announcements in enhancements in reserves and resources from your exploration program, so the question is what is the outlook that we can expect this year in the second half of 2015 and out in the 2016 with respect to your exploration program?

[Mark Brennan:]

Well the exploration program continues, we’re expanding and continuing drilling, we feel that we need to have significant number of intercepts and data to be able to provide a rational resource update. Internally what we’re planning on doing is bringing on internal resource specialists to do internal resource modeling to work with our third parties and once we have that we’ll be in the position to revise some updates at that time.

[Matt Wunder:]

The just maybe elaborate little bit Jim is, we have a -- in our geological programs, historically have really focused on near production growth and really just making sure that the pipeline was full for as we approaching drilling, what we’re seeing is that very close to these, very near to the mines and where the operations are ongoing, there is a very-very significant potential but it’s going to take time for us to collate the data, it’s going to take time for us to build the models. But I would expect that between now and year-end you’ll see some very good evidence of the potential substantially and significantly improved and increased our reserves base.

[Operator:]

[Operator Instructions] There are no further questions at this time. I’ll turn the call back over to management for any closing remarks.

[Mark Brennan:]

Thank you everyone for joining us today. We appreciate your time and if there is any follow-up questions or contact information is available on the website as well as the conference call webcast replay details and PowerPoint all information is available on the investors page on our website at www.sierrametals.com. Thank you everyone for joining us and have a great day.

[Operator:]

This does conclude today’s conference call. You may now disconnect.