Mark Sander - President and Chief Executive Officer and Director

Benjamin Asuncion - Haywood Securities Chris Thompson - Raymond James Michael Parkin - Desjardins Securities

Good morning, everyone. Thanks for joining us.

I’ll just make a few introductory remarks and then take questions. In summary for the second quarter, our operational results were broadly similar to the quarter year ago, yet due to higher metal prices, the revenue, EBITDA and pretax operational income all rose about $4 million.

The after tax results however were slightly lower in the current quarter and this is due to first of all Costerfield having come out from under its tax loss carry forwards and it’s now paying full tax rates on its income. We also have a special item to include the differed tax impacts of the purchase of the Cerro Bayo royalty at the end of Q1.

These results were composite obviously for three operations. Costerfield continued it’s excellent performance, and we do receive still about $5 million a quarter in cash generations from that month.

And Björkdal, a great control program is continuing to show results, we’ve processed the tight [indiscernible] rates in the quarter since we’ve owned the mine for the last year and a half, almost two years and produced the record number of gold ounces. Costerfield ounce increased a bit, that was due to both higher strip and more operating development leaders than in the previous year.

The operating leaders will continue in a high rate and deliver the higher credit material to the mill, but the cost should come down as we have begun our efforts now to reduce the size of the underground openings and create other efficiencies around chart creating and loading equipment will allow us some reduced costs. While maintaining at the time, development rate of about 200 meters a month.

As the ore sorting experiment is now nearing its completion at Björkdal with quite good results, we don’t have the integrated milling results with the sorting results to share each day but that should be available within the next few weeks, and we are working on the design of how to integrate ore sorting into our day-to-day ore flow. And finally at Cerro Bayo, the production continued a bit short there in terms of both gold and silver and that is based on the development limitations that we’ve been talking about all year long.

We did in the second quarter mobilize a contractor to site and by in the middle of August now that kind of tractor is up and running and producing meters of capital development events at just about the needed rate to be able to catch up and structurally real production results in Q4 and then on into more or less our typical production results starting in Q1 of next year. So we’re pretty happy that we’ve gone at the bottom of that issue and are comfortable that we’re doing right things to get back on track.

Now, we’ve note that with the equity issue of earlier this quarter, we are now in a net cash positive position just under $15 million that is quite a good place to be since next year we do start putting aside money each quarter for repaying the gold amount in 2019. Now we’ve also used the additional cash to approve about $4 million each of first of all, meteorological improvements, expanding the floatation plant to Björkdal as well as accelerating exploration in all of our sites.

This new exploration will – have two focuses, one is making sure we get the highest possible reserve increases this year. It only have a couple of months to drill and time to produce results that will impact the end of the year reserve update, and after those cutout days are reached they’re actually going to step out and especially Björkdal start really trying to gauge the limits of that system with some big stones.

So I think with that point it’s time to stop and take questions from – well I guess Ben is first.

Hello Ben.

Good morning, guys, and congratulations on the quarter. I just had two real questions there.

In regards to Björkdal, could you just walk us through what the expectations should be from the flotation improvements in terms of what we can see from recoveries? And when you think you’ll be at a position to potential expense, just related to that ore sorting process.

Right, so good questions. The flotation expansion at this point is actually entirely just heading conventional intermediate particle size flotation and resolving other bottlenecks around concentrate technique and filtration.

We expect in this first phase of floatation expansion to get about a 1.7% increase in gold recovery, total gold recovery. There will be a Phase II, we have two options for it and this is – and then really what’s really going is kind of appreciable amount of our gold losses in the course traction of particle size, and there are a couple of different proposals to either derived the course particle size finer in a regrind mill or introduce what’s called hydro float which is a new technology that focuses on kind of actually floating the course particles.

We don’t know which one is optimum and at any rate we have to do the conventional intermediate particle size expansion which will – it will take about a year to complete that, but approving it now allows us to go over to the long lead time equipment and get it started. As far as the floatation of the ore sorting goes, the processing of the last of the sorted material will be complete later this month and we have preliminary designs and capital estimates for what it will take to install it.

We will likely – since it will need new building instruction probably start the installation next spring, but I can – well I’ll stay and correct it on that as a refinement if you like.

Perfect. And then just it might be a little bit – but just kind of broad strokes order of magnitude in terms of capital size, what will be the kind of the ranges that we can maybe look forward for that ore sorting upgrade?

It will be I believe somewhere – it’s a really broad between $5 million and $10 million, don’t know – I don’t have it on the table by time, and we have a lot of optimization [indiscernible] something like $7 million or $8 million including all the [indiscernible] modifications and so on.

Perfect. And just the last question here on Cerro Bayo, looking at the quarter I guess two things first, you mentioned that we should certainly see things improve in Q4 and into 2017.

Should we be looking for kind of a similar performance in the third quarter? And then the second part of that was just looking at the – if you look at the cost per ton, you’re able to deliver an improvement on the cost per ton in Q2 versus Q1, could you kind of give us some indication of where those savings came from or how you’re able to drive cost down on a per ton basis?

Yes. So actually the first thing that’s most noticeable, it’s not the biggest effect but what is noticeable is that we’ve actually wind plant commissions.

And there is about $0.05 or $0.06 cost reductions relative to our traditional [indiscernible] diesel power generation. So that is present, we haven’t started to be building yet for that power but we are accruing for it.

So there is a bit of a power cost reduction. We are now through the particularly challenging ground conditions and Delia Southeast but some of the ground control costs are reducing and in fact, we’re getting better at it as our people get more experience.

As you recall, we’ve needed very, very little ground support everywhere at Cerro Bayo until we got into Delia Southeast, and while they’re not terrible by industry standard they were a bit more challenging [indiscernible], particularly of the cost receives by doing safely. You always have to think about the lower petroleum prices in lower mining costs and drilling costs there because we do generate our own power.

Okay, perfect. That’s it from me, I’ll hop back in the queue and add if I have any other questions.

Thanks, and congratulations on the quarter again.

Chris?

Hi, good morning – good morning guys. Just a follow-on question I guess from Ben here, just on those operating costs at Cerro Bayo, I mean they were a little lower than what we’re anticipating as well.

Are they sustainable at these sort of levels Mark, is this the run rate we should be using?

I would – yeah, I think so. And again the impact of the wind plant will be sustainable and in fact the power rates that we pay there are steady at about $0.22 or up $0.30 by power for five years, and then it drops significantly to $0.07.

So in the longest term the power costs are headed now steeply, they’ll be above what they are today now for the next five years. Obviously with petroleum price variations, now your gas is as good as mine.

We do have – we are in the, I believe the second year down of our, I believe our contract so that’s well embedded down. And yes, the cost per ton should be sustainable.

We are, as you know, the greatest user are largely because we aren’t in a sustaining balance between development in stoping and as the proportion of stoping goes up actually the mining cost should – per ton should come down a little bit.

Okay, that’s good news. Just moving on quickly to Björkdal, excuse me.

Also cost issue, obviously you mentioned the high costs and the key to there, by my calculations the Q1 is about $31 per ton mill, Q2 was about $37, so again a forward-looking question what’s the run rate here, I mean are we expecting the cost somewhere between Q1, Q2 on a sustainable basis?

I – we’re targeting more like Q1 costs.

Okay, all right. And then just finally, give us a sense of underground head grades Mark?

So the development head grades you’ll see this in the investor presentation that was posted this morning. Over five out of the last seven months we’ve had development head grades underground between about 1.6 and 3 gram a ton, so there were two months in the cycle where they couldn’t quite keep that up but from well over half the time we’re meeting our projections what we need in the development grades.

And those would you say that the projections are obviously closer to the 3 gram mark there, Mark?

No, no. Our target really is for the whole mine open to underground sort of material and so on.

Our overall target is to get to about 1.8 to 2 grams head grade, and at that point we’ll be producing close to 70,000 ounces at $700 an ounce. If we keep the Q1 kinds of [indiscernible].

So we’ve only made a small down payment on that, we had a record average grade with 1.43 grams a ton in the second quarter but it’s only a tiny variance above the normal 1.3, but yes, we’ve got ways to go and again three ways to get there. One is, we are reducing the size of the underground openings, and this is happening as we speak and we’ll continue until we replace some of the larger underground equipment with low profile equipment over the next few months.

The second thing is, we’ve initiated a whole new level of rate controls in the open pit of where we’re actually substantially cleaning each [indiscernible] as we knock them out and talent sampling the [indiscernible] as much as using underground to make sure you know exactly where the gold grades are, that has not really showed up yet in Q2 results, it’ll show up in Q3. And then there is the ore sorting where, just to give you an idea, we’re getting 2 to at least 2x of creating uplift on the lower grade material that we put through, and right now we are processing the higher grade test, so I can tell you what it does on higher grade material until probably September.

That’s good to know. I mean obviously you’re still at mining transition, but I mean have you got a sense of timeline before you meet those objectives Mark?

Well, I think the way I put it, we’re really comfortable that every technical innovation that we’ve implemented in the quarter are experimented with has delivered what we expected it to. Right now there is lead time now in terms of the [indiscernible] time that will take to put in the flotation upgrade, put in the ore sorters.

And really there is an main issue there going forward is culture, how do all these new ways technically solving problems can get put together until a new set of operating protocols that everybody understands and it’s in control. And again when we started this project we said it will take three years, and it’s actually we’re just in October of 2017 that we planned to commission with flotation upgrade which would be just three years now.

And we do need the recovery improvements to make our target ounces and costs there. So I’d say we’re right on track in a three year quarter.

Okay, all right. Thanks Mark.

Hey Mark.

Hey Mark, how are you doing?

Good.

Just a question on Cerro Bayo, in terms of the third quarter it sounds like the tonnage could be a bit low and would we expect the grades kind of similar to Q2, and would it be under a 100,000 tons of mind ore there?

Yeah, Q2…

Sorry, Q3.

Yeah Q3 will be broadly similar to Q2, yes, maybe a little lower. We are dependent really on the contractor performance and so far they are ramping up acceptably, so they continue to perform and we’ll have broadly similar results.

Okay.

The real turning point is the end of the third quarter September and to October is really what the bottom of the cycle – development cycle in terms of working phases producing more than the target created.

And then one question on Challacollo, your expiration update there was quite interesting on that one. What would be kind of the timeline we should kind of watch for, for like the first results of the drill program on those new targets that are covered?

Despite understanding they are basically within just a couple of weeks of being able to start. The drill platforms are partially already there, and the [indiscernible] are already.

This phase of exploration did not leave any permitting, we had selling platforms left that we could construct now with – so they’re likely to come in fairly quickly and if there are obviously startling results that are material we would announce them as we get them. Otherwise we would wait and give the entire update for the whole company in our traditional end of year exploration update.

Okay. My other questions have been answered, thanks for the call.

Okay.

Okay. So thanks for joining me and I hope to see you all in the coming weeks and months and really be able to keep you posted on how things are coming as we are on our journey towards the great 2016.

Thanks.