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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Hecla Mining Company Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to your host Vice President of Investor Relations, Mr. Mike Westerlund. Sir, you may begin.
Thank you, Operator. Welcome everyone and thank you for joining us for Hecla’s first quarter 2018 financial and operations results conference call. Our financial results news release that was issued this morning before market open, along with today’s presentation are available on our Hecla’s website.
On today’s call, we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Larry Radford, Senior Vice President, Operations; and Dean McDonald, Senior Vice President, Exploration.
Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law, as shown on Slide 2. Such statements include projections and goals which are likely to involves risks detailed in our Form 10-K, Form 10-Q, and in the forward-looking disclaimer included in the earnings and at the beginning of the presentation. These risks could cause results to differ from those projected in the forward-looking statements.
In addition, during this call we may disclose non-GAAP financial measurements. You could find reconciliations of these measurements to the nearest GAAP measurements in the accompanying presentation which is available on our website at www.hecla-mining.com.
Finally, in our filings with the SEC, we are only allowed to disclose mineral deposits that we can reasonably expect to economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated, and inferred resources, which are not reserves, and we urge you to consider the disclosures that we make in the SEC filings.
With that, I will now pass the call to Phil Baker.
Thanks, Mike, good hello everyone.
I’ll start with Slide 3. This was a good quarter starting in similar fashion to what you seen and Hecla do for the past few years consistent yet improving it performance which I think is in part a function of our strategy and culture. Strategy of focusing on long-lived low cost mines and I’ll talk about culture in a moment.
At Greens Creek this quarter was a near record throughput where they processed about 30% more tons then when we first acquired it in 2008. And since most of the costs are fixed unit costs are driven down and in this base metals price and treatment charge environment we get negative cash costs.
At Casa Berardi we’re doing the same thing, but have an even greater increase in throughput because of the ability to mine open pits there and the fact the mill was oversized for the underground production.
We have ideas at San Sebastian do the same as we start the development for the sulfide bulk sample. All is consistent with our strategy of large geologically perspective land packages with long-lived low cost operations. And I’m more convinced that if our talented people have assets that have margin and a long enough future they’re going to figure out how to make the more consistent and generate even better returns.
It’s clear to me then our company’s culture there is a desire to figure out how to do things better. So for the past four years Hecla has been talking about the opportunity to innovate the minds to solve problems and take advantage of the opportunities that our teams identify. We’re still doing that and still making improvements to our operations Lindsay going to talk about some of the things we’re doing.
But it’s not just operations that benefit from having these long-lived low-cost properties. On Tuesday we issued our exploration update which shows that even a property like Greens Creek where we have explored for 30 years we’re still finding more. Specifically the upper plate which we mentioned last year and now appears to be growing it still not large, but it’s very high in the mine so it provides good balance to deeper discoveries.
Casa has a wealth of discovery some in the mine some near surface and some like Lac Germain 4.5 miles away. These going to have more to say about these and on San Sebastian and in the second half of the year we expect to be talking about exploration that is not at our current operations.
So, in this understanding of the importance of the hit the right ground and a lot of it that’s what led us to Klondex. When we looked at Klondex we saw things similar to what we see at Green Creek and Casa.
We saw three large in this case Nevada properties as big as those that we already have and we saw extraordinary grades similar to what we see at Green Creek. We saw the likelihood of converting the Fire Creek resources that are identified at a higher grade as we develop it. And we saw numerous operational improvement possibilities and we sell properties where the exploration team at Klondex seems to crack the core geologically for making further discoveries.
But there is still a lot to learn and we expect the deal to close around the end of June everything is on track. So we will revise our guidance for the company for Hecla, incorporating these assets and taking into account the lower cost per ounce that we’ve seen in the first quarter as a result of the throughput and the higher base metals prices we’ll do that in the second half of the year.
So now I’ll pass the call over to Lindsay for review of our financial performance.
Thanks Phil.
We are really pleased with the first quarter financial results. Our revenue from sales of product was $139.7 million in line with revenue over the same period of 2017, while gross profit increased 11% due to lower cost of sales of $5.8 million, so all in all very good and consistent results for our mines. We reported net income of $8.2 million for the quarter which was some $18.6 million less than 2017.
You’ll recall in 2017 we’re under different tax regime in the United States and we booked a non-cash income tax recovery amount of about 20 million in the quarter so that accounts for most of the difference in the reported net income quarter-over-quarter.
Companywide cash cost after byproduct credits per silver ounce improved to negative 335 and the all in sustaining cost after byproduct credits also improved to $5.66 from $7.60 in the same period of 2017.
The majority of the favorable variance due to higher pricing this quarter for our byproduct lead and zinc resulting an industry leading margins. Cash, cash equivalents and short-term investments totaled $247 million for the quarter ended March 31 which included the proceeds from Ressources Quebec loan of some $31 million. So with the cash and the undrawn revolver we’re in good shape to finance the cash portion of the pending Klondex transaction.
Turning to Slide 6, the first quarter provided operating cash flow of $16.4 million, 57% lower than the first quarter of 2017 due to several one-time items. The actual cash flow from the mines was right where we thought it should be. The nonoperational cash items that negatively impacted our operating cash flow have nothing to do with cash flows coming from the mining operations themselves.
These items include timing of incentive compensation. Last year we made the payments in April well this year we made the payment in late March was about 10 of the variance. Unrealized hedging losses resulting from our normal base metals and foreign exchange hedging programs basically offset the difference in deferred taxes and $3.4 million of higher working capital due to higher product inventory led at Green’s Creek awaiting shipping.
In addition we have Lucky Friday suspension costs of $2.9 million higher than last year given a strike was it for full quarter this year. Also on our higher exploration cost of $2.8 million or greater this year’s we put our cash to work at increasing our reserves and resources, plus we incurred $2.5 million of cost in connection with the pending fund acquisition.
Adding these items together they account for the difference in the cash provided by operating activities this quarter compared to last quarter’s.
Turning to Slide 7, silver operations continued to deliver one of the highest silver cash margins in the industry and was about 120% of sales or $20.19 per silver ounce through the first quarter. The gold cash margin was 38% of sales or $505 per gold ounce.
On Slide 8, you can see we maintain a diversified revenue stream with gold at 49%, silver at 24%, and lead and zinc at combined 26%. Green Creek continues to be the dominance supplier of revenue as you would expect.
So in summary, the operations are performing well, cash costs and all in sustaining costs after byproduct credits are much lower and margins and liquidity are strong. We’re optimistic about the potential for 2018 and beyond as we turn our attention to the acquisition and integration of the Klondex Nevada mines.
I will now pass the call on to Larry to talk about the operations.
Thanks Lindsay.
On Slide 10, you can see Green Creek had another excellent quarter. The silver production was about the same as the first quarter of 2017 with 11% higher throughput offsetting lower grade. Our byproduct production and prices improve the cost per ounce after byproduct credits. The mine did an excellent job of increasing the number cut-and-fill stopes, development phases, equipment and mill availability.
The tele-remote LHD you can see on Slide 11 is now in operation allowing and marking to continue during what would - in the past of been idle time during shift change. The ventilation on demand study is progressing, we have installed variable frequency drives on 14 or 54 or fans. We estimate a savings of $23,000 per fan and we’re in the process of confirming the assessment. Once confirmed we expect to continue with the installations and anticipation of annual savings of about $1 million a year.
On Slide 12 Casa Berardi gold production increased 12% over the prior year. And the cash cost and all in sustaining after byproduct credits are coming down as well. Why the strong performances?
As you can see on Slide 13 at first big story Casa was the improved consistent in operation after we acquired it. And now it is the increased throughput that made possible by introducing open pit material, making an increase of over 100% in throughput since we acquired the mine in 2013. But we’re not stopping there the team continues to look into increasing the throughput further being mindful that recoveries don’t fall.
Something that we really proud of is the success we’re having with the automated truck at Casa as shown on Slide 14. The truck is running great although we’ve had to do a little more slashing work on the ribs of the principal drift in a couple of areas so that now the truck can operate even faster. In total there is more than two kilometers of fully automated travel. In fact it’s working so well we expect the second automated truck to arrive in late summer which should enable annual operating savings of $7 million per year, operating, maintenance and personnel costs.
Moving on to San Sebastian on Slide 15 production from underground oxide ore is progressing well. We did have ramp up issues in the first quarter related to contractor performance, insufficient power in the mine and variance in our ore block model. We anticipated that there could be a slower ramp-up then projected and we started the year with a healthy stockpile of multi-tenant operations.
Additionally, we restarted open pit production in the North Vein pit early in the first quarter a few months earlier than we plan. With our underground contractor we’ve addressed insufficient manpower and equipment we have fixed the power supply shortfall.
Our underground ore reserve model is generally showing lower tons at a higher grade with the metal content slightly higher than projected. In summary, we ramped up slower, but we are approaching our design tonnage output. We maintain our 2018 guidance for San Sebastian.
Moving to Lucky Friday on Slide 16 production at Lucky Friday was down due to strike of United Steel since March 13, 2017. We continue to do necessary maintenance and limited production while we do necessary development work in preparation for the arrival of the remote vein mine. Before I pass the call to Dean I would like to talk about the Klondex transaction and share with you some of the strengths opportunities from my perspective.
Having worked 14 years at Goldstrike and I can assure that Nevada is great place to have an operation and to conduct exploration. To start with I was very impressed with the quality of the teams at the mines they’re very good miners for they are focused on productivity measures and safety. We can add value by putting together comprehensive life-of-mine plan that unite the three operating mines the one mill and the Hatter Graben project.
I see opportunities to improve recoveries of Hollister or the completion of the CIO installation, in concert with the Fire Creek management team I believe that the tonnage of fire Creek be ramped up as might us depletes the existing reserve. The Fire Creek reserve was - cutoff grade of 0.288 ounces per ton which implies cost of about $320 per ton. So there is likely opportunity to improve cost and reduce the cutoff rate.
It is also important that we maintain a good relationship with the Shoshone tribe which Klondex has done a good job with. We will push the construction of a new tailings of facility this season as there is little overlap between the filling of the old facility and the commissioning of the new facility.
I will now pass the call over to Dean.
Thanks Larry.
Following on the highest levels of silver, gold and lead reserves in our 127 year history Hecla continued with aggressive drill programs in the first quarter at San Sebastian, Casa Berardi and Green Creek. A list of drill intersections is provided in the appendix of the exploration release which was issued on Tuesday. This will give insight into the high-grade resources we’re confirming and expanding. We’re getting a good start in replacing reserves and resources.
At San Sebastian as shown in Slide 19, we’ve clearly defined mineralized structural trends providing multiple opportunities to find new high-grade resources to extend both cyanide circuit milling and a separate recently leased sulfide flotation circuit. You can see the current Middle, North and Francine Vein pits in yellow outlines, the surface projection of the new Middle Vein reserve, the new underground ramp under development in black, and the green ellipsis where drilling is defining new reserves and resources.
Let’s highlight some of the recent drilling successes. Slide 20 shows a longitudinal section of the Francine Vein. Drilling has now defined polymetallic mineralized containing precious metals and substantial quantities of base metals zinc, lead and copper for over 5000 feet strike length. Interesting new intersection include 35 ounce per ton silver, 7% copper, 23% lead and 17% zinc over 4.5 feet. Infill drilling in an effort to upgrade shallower portions of the resource to indicated a category has begun an underground development for a bulk sample is expected later this year.
A substantial oxide resource is being defined to the East of the San Ricardo fault on the right of the image as drilling evaluates large gaps between the high-grade pods of mineralization. Interesting intersections on the East Francine Vein include 38 ounces per ton silver over 5 feet. The longitudinal section in the Middle Vein in Slide 21 shows the new high-grade polymetallic resources of the 97 zone that have been defined to the West and below oxide mineralization that is currently being mined.
Drilling is defined to high-grade areas below the underground ramp development and there’s a good chance that step-out drilling will continue to expand this resource in several directions. Drilling at San Sebastian is plan to expand these targets an additional drilling is also planned for the Professor, Esperanza and North Veins.
At Casa Berardi we had considerable drilling success again along the main trends particularly near surface as shown on Slide 22. Underground drilling along multiple high-grade lenses of the 118 and 123 zones expanded reserves and resources down plunge and extend resources below the current workings.
The red arrows in the longitudinal project the extension of many mineralized zones down plunge throughout the mine and show the significant potential to extend the mine life. The plan view of the Casa Berardi mine shown in Slide 23 shows the current and proposed open pits and the areas of recent surface drilling were expanded near surface mineralization of the West pillar Principal East Mine Crown Pillar and 160 zones to delineate their open pit potential.
I would like to draw your attention to the Lac Germain prospect about 4.5 miles East of the Casa Berardi mine lease on the right of the image. This appears to occur North of the projection of the Casa Berardi deformation zone. Recent drilling is confirmed mineralization in sheer zones that look very promising. Assay results are pending and will be released once the information has been assessed and put in context.
At Greens Creek is shown on Slide 24 definition and exploration drilling continue to have success at the East Ore an Upper Plate zones which are higher in the mine and in time are expected to become part of the life-of-mine plan. Lower in the mine we’re adding to resources along some existing trends in the Gallagher and deep 200 South zones. I’m very excited about the exploration opportunities in Northern Nevada once the acquisition of Klondex is concluded.
As shown in Slide 25, it is rare that you can acquire 110 square miles of exploration ground in Northern Nevada that lies within or at the intersection of prolific trends or refs. They have a great team of geologists with the significant understanding of the properties and we look forward to working together to realize the potential of this ground.
Elsewhere in the company we are preparing exploration programs at Kinskuch in Northern British Columbia, Little Baldy in Northern Idaho, and Heva and Opinaca/Wildcat in Quebec. So we’re going to have a busy summer.
And with that, I’ll pass the call back to Phil.
So it’s a good quarter across the Board and we’re well positioned for the rest of the year. So with that why not we - operator open the line for questions.
[Operator Instructions] And our first question comes from Heiko Ihle from H.C. Wainwright. Your line is now open.
Thanks for taking my question. It’s been quite a little run for Hecla stock you hold over the past 30 days. You’ve made what I still think is a very good transaction with Klondex acquisition decision. I mean the deal will close sometime next month, at that time is it fair to say that you’ll be willing and able to put your war chest back, you can look for another target. I mean on the one hand side, I guess the Klondex Nevada assets are between hard and impossible to replicate. But is it fair to say that if you find something comparable in size and grade et cetera, are you willing to do it or would you even be willing to venture outside and look in for Mexico for example?
Heiko the first order of business will be to bring this asset in and have it realize its potential. So we’ll be focusing on that. Having said that, we certainly have teams of people that are looking at assets outside and they look for things that are consistent with the strategy of large land packages with reserves, with the potential for long lived mines and low costs. So if we find those things then yes, we will act on them but first order business is going to be focusing on these Nevada assets.
Well I mean given what all you’ve got is that integrating Aurizon into the company and making it just the cornerstone of your operations today. I’m not too worried about the integration costs. You’ve spent 4.1 million on the suspension for Lucky Friday. I mean no one knows - no one likes what’s going on there including the unions, myself, yourself, anybody and I hope that the union flow will see a light sometime soon and allow for the mine to be reopened properly. But ignoring all that, assuming the strike does continue which again I’m not rooting for it can we trendline a $4 million figure for the rest of the year?
From a cash standpoint it’s about a $1 million to $1.5 million. So the difference between that and the depreciation and so the answer is yes, you can just assume it’s where at that sort of level. We will spend money on capital to position the mine to be able to bring the Remote Vein Miner in to test and that will happen toward the end of 2019. So the focus for 2018 and for the team of people that we have there is the development necessary to bring that machine and to test it.
And our next question from Laura Engel from Stonegate Capital. Your line is now open.
Just to follow-up to the previous question. Do you have any outlook on when the next meeting might take place related to Lucky Friday, and then once it is resolved how quickly can that mine be back up and running 100%.
There is an attempt to schedule another meeting. There’s actually has been a meeting recently though there is the attempt to schedule another meeting in the course of the next few weeks.
As far as restart it’s about a six month process to get the thing up and running. Larry anything to add to that?
The mine is in good shape. The salaried staffs have done a good job of keeping it in good condition. It’s really just a recall process and retraining that will take time.
And then just one last one, any update on the timing of the permitting and development work at Montanore and Rock Creek?
There is no update. We’re still waiting to get the permit for Rock Creek and then there’s the process in the court with Montanore. And then of course we have the issue of dealing with the state of Montana putting it - calling into question our ability to operate in Montana and I’ll have a meeting with the state later this month and I suspect that will take a period of time for that to all resolve. But I don’t know how long that might be.
And our next question comes from Anthony Sorrentino from Sorrentino Metals. Your line is now open.
Continuing with Lucky Friday, you had mentioned about the Remote Vein Miner arriving late in 2019 or those are the plans. Would you intend to offer training to the union employees using that Remote Vein Miner?
The answer is yes. We certainly would and its - it’s going to be a process for us to figure out exactly how to properly deploy that if it’s operates successfully. Remember it’s in the construction process now. I think in the month of June we’ve got some people that are going to go over and take a look at where it is. So we would expect next quarterly call to be able to maybe show some pictures of it under construction.
But then once it’s built, it will be tested in Epiroc’s test mine and make sure it works as expected then we’ll bring it - disassemble it bring it over here and test it again and then after that is when you’ll go through the process of bringing people in to operate it.
And with regard to San Sebastian, I believe you’re also you’re testing Excellon’s mill. You want to see how well that goes. And would that be used to process sulfide or at just San Sebastian?
Yes, so we’ll be starting the development to access that ore later this quarter and will actually be in a position to access it in the fourth quarter and will then test it going through that mill and what we’re hopeful for is that we have the same thing happen - continue to happen at San Sebastian that’s happened over the last couple of years where we’ve had this very short mine life.
We’re hopeful that with success both exploration wise and with the success of the test that will actually have both oxide material as well as sulfide materials being processed at two different mills.
And our next question comes from Eliot Glazer, a Private Investor. Your line is now open.
This is Eliot Glazer. Up recently I was running analysts of 49 years. Could you give us a little bit of color on the RVM, Remote Vein Miner? What is your long term guesstimates on its effect on production levels and cost.
The view is that the assumption that we’ve made is that we’re not going to see any real benefits relative to our current production costs and rate of production. However theoretically there is a huge upside when you’re running this thing continuously it be a 24/7 operation.
So we’re hopeful that it will materially improve the economics of the Lucky Friday but we’ve not assumed that in making the investment and developing this. Larry anything to add to that?
The real principal goal of Remote Vein Miner out of the stopes as they’re called, and we’re not relying on productivity gain to justify the fabrication of a machine. However, we will probably see one. And this is cutting edge stuff. This will be the second machine in the world to go to work. There’s one machine running now in South Africa. We’re keeping tabs on that machine and we think this - our machine will be successful but we have to make some assumptions.
For instance, how many 24 hour a day - how many of those hours well the Remote Vein Miner actually be operating. We’ve taken a very conservative, I think it’s 40% view of how many hours will operate but we see a lot of upside in that and should we see upside that’s when the machine really starts to pay back.
So the first machine is one of two that we intend to order but obviously the second machine will be - will order any success of the first machine.
My next and final question, at Lucky Friday when the strike first started 14 months ago, I believe the miners did not have deep pockets. How they survive and how they’re putting foot on the table after 14 months?
Well certainly miners are very capable people and hardworking people and so most of them are working elsewhere. Some working at other mines, some in other industries waiting for the strike to end and then there’s also support that’s being provided by the steelworkers to pay for some expenses.
And our next question comes from Lucas Pipes from B. Riley FBR. Your line is now open.
You were very complimentary of the Klondex assets in your prepared remarks and the release and at the same time on Slide 17 of the presentation today you identified a long list of optimization opportunities. I wondered if you could maybe elaborate on maybe three or four greatest ones of that list and maybe put some numbers around it and then also how quickly we could see those benefit flow through. I would appreciate your perspective. Thank you.
Look I think - I’ll let Larry sort of delve into that but let me just say a couple of things. I mean I think the first one is when we look at the resource grade, it’s lower than what the reserve grade is and we look back historically what’s happened is as the they do the development, as they mine it the grade actually increases and increases in a range of roughly 100% to 300%, 400%.
So it’s a dramatic change that happens and we don’t see anything that would suggest that will not happen going forward and when we’ve looked - when we’ve done our assumptions on what would happen it’s - we’re quite conservative relative to what they’ve done in the past.
We also just see the ability to take our team of people that do an excellent job of planning and being able to help these guys do more short and long range planning and then when you look at the cutoff grade and you think okay, you’ve got to cutoff grade that’s 0.25 ounce, 0.75 ounce is there the opportunity through better planning, through better materials handling to actually lower that cutoff grade and make even more material economic and/or improve the margins on what you do mine. So those in my mind those are the things that strike me. Larry what else or amplify those.
I found to highlight out of this strength and opportunities list to things that really stand out for me as you suggest. On the strength side, I think there are good teams at the mines they’re very expert at very narrow vein, long haul mining and a few other stoping techniques that aren’t used commonly because most mines just don’t have this super narrow high grade veins.
These guys are really good at it. They have great safety record, good teams there and then the other thing on the strength side is obviously the assets themselves, the grade the exploration potential. It’s just I think somebody said it earlier in the call that you know you can’t carbon copy this stuff it’s kind of a one of a kind opportunity to pick up these assets.
Going over the opportunities, I think a couple things that I really stand out for me, the development of a comprehensive life-of-mine plan is our first order of business and we hope to have it done before closing. So there’s three mines here they’re very different in terms of how many years of life they have left and then there’s the Hatter Graben project which is a very long term, very prospective project and all of this has to be tied into a development plan that makes sense.
So I see that as just job one, it see it as huge opportunity. It may very well lead us to development of Hatter Graben, development of further development of Fire Creek so that we can ramp up tonnage at Fire Creek and ensure that it’s a long lived operation. So those are the things that really stand out from me.
Maybe a quick question just in terms of capital allocation. There was a question earlier on more M&A, how does that compare to maybe reducing leverage a little bit or also capital return to the forms of dividends or buyback?
First order of business is making these assets operate like we’ve been able to make Greens Creek in Casa. If there’s anything we’ve been trying to do is in our discussions with people it’s been to emphasize the process that we’ve gone through with Greens Creek and with Casa and the belief that we can apply that to these Nevada assets.
And so when we think about capital allocation, it’s going to be to our Greens Creek, Casa, San Sebastian and to the Nevada assets. That’s job one. Going beyond that as far as the balance sheet where we’re comfortable with the level of indebtedness that we have, I think you can anticipate in the next few years that we will refinance the indebtedness that we have. Remember it comes due in 2021. We won’t wait till the very last minute to do that. So we’re talking to rating agencies to make sure they understand what Hecla looks like with these assets.
And then next would come - bring new assets into the fold that’s in my mind when I have the prioritization. With respect to doing stock buybacks and special dividends that’s really becomes a question for the board from my perspective. While there’s times that I would do that, it wouldn’t be my first priority Lucas.
And our next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is now open.
The many gold occurrences you’re describing in Casa Berardi underground and on surface are very exciting, the mill throughput last year I guess was around 3,800 tons a day and you probably apportions some of it for the underground and some of it for the surface. The reserve life was around 9 years and various other resources are about 14 more. Will you be incrementing the mill capacity? How will the balance between underground and surface ores go? Or will you just enjoy a much longer mine life for you put some higher grade first to produce more gold?
Well John I appreciate your recognition of what’s happening at Casa and all that’s true where we’ve been able to increase the throughput and we’ve been able to make this mine really be a different mine than what it was prior.
When we think about further increases and throughput, we’re going to continue to push that and we’ll push that until we see the recovery is declining or we see the capital investment that we need to make to not have it make sense. I realize that that mill was already had certain overcapacity debate internally as to exactly what had overcapacity was but we’re clearly filling that mill up and at some point we’re going to get to where we have put more capital into it in order to increase it even further.
But to the extent that that makes sense to do that we will certainly do that because we believe that we’re going to find a lot more beyond what you indicated beyond the mine life that you indicated. Larry anything to add?
The mill at Casa Berardi right now is permitted. Just have a permit limit on it at 1.4 million tons a year. We can obviously solicit a higher throughput if we think it’s necessary. As far as the economics and the practicality of ramping up further, we’ve been running very high tonnage and for reference John last year the open pit feed was about a third of the total feed.
But we’ve been ramped up for quite a while now and we’re starting to understand what the backend losses are as tonnage increases and so we really have - we’re really running the math right now with our cutoff grade should be both in the open pit and the underground and it’s kind of dynamic as it floats with the throughput.
So we’re trying to understand that right now before we ramp up further. That said well what would allow us to ramp up even more, two pits running simultaneously. And we believe once the 134 pit is permitted, it shouldn’t be a huge, we believe we’ll have the permit for the 134 pit this year. If we can run two pits simultaneously then we can ramp up even.
Thank you. And that concludes today’s Q&A session. I would now like to turn the call back over for any closing remarks to Mr. Phil Baker.
Okay, thanks very much. Appreciate everyone being on the call. As usual if there’s any questions please feel free to give Mike Westerlund or myself a call and have a good safe day. Thanks very much.
Thank you. Ladies and gentlemen this does conclude the program. You may all disconnect. Everyone have a wonderful day.