Calibre Mining Corp

TSX:CXB

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen, and welcome to the Calibre Mining Q2 2020 Earnings Results and Multiyear Outlook Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to turn the conference over to your host, Mr. Ryan King, Vice President, Corporate Development and Investor Relations. Please go ahead, sir.

[Ryan C. King, Vice President of Corporate Development & IR]

Thank you, operator. Good morning, everyone, and thanks for taking the time to join the call this morning. Before we get started, I'd like to direct everyone to our forward-looking statements on Slide 2.Our remarks and answers to your questions today will very definitely contain forward-looking information about the company. Although forward-looking statements are based on what management believes to be reasonable assumptions, actual results may turn out to be different from these forward-looking statements.For a complete discussion of the risks, uncertainties and factors which may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to our 2019 annual MD&A and AIF available on our website as well as on SEDAR. And finally, all figures are in U.S. dollars unless otherwise stated.Present today with me on the call are Russell Ball, Darren Hall and John Seaberg. We will be providing comments on our Q2 2020 operating and financial results, but we'll be spending most of this morning's call discussing our multiyear outlook and the related Libertad Complex PEA. We will take questions at the end of the call. The slide deck we will be referencing during the call is available on our website at calibremining.com under the Events section. You can also click on the webcast to join the live presentation.With that, I'll turn the call over to Russell.

[Russell David Ball, CEO & Director]

Thanks, Ryan, and good morning, everyone, and thank you for joining us on the call this morning. As Ryan noted, we're not going to spend a lot of time on Q2 given we were shut down for 10 weeks of the roughly 12-week quarter.But firstly, I would like to express my sorrow and extend our heartfelt condolences to the family, friends and coworkers of a contractor we lost in a vehicle accident on Friday night, July 31. I'm disappointed we failed to send one of our extended Calibre family member safely home from work that day. All accidents are avoidable, and this one was no exception. We simply have to raise our safety performance, and you have this collective management team's word that we will.Turning to Slide 3. Briefly on the second quarter, we produced 6,010 ounces and sold 9,426 ounces of gold. Costs were obviously elevated on a per ounce basis, reflecting the fixed cost nature of the business. After we restarted operations, we provided revised 2020 production and cost guidance on the 24th of June. You can see those numbers on the slide if you're following in the deck.On the exploration front, we increased our near-mine drilling program by approximately 30% to 60,000 meters. And after reviewing the geological models as part of the multiyear outlook, we added an unbudgeted 20,000 meters of infill drilling to this year's drilling program at a cost of approximately $2.5 million. The infill program is targeted to provide additional data to allow us to upgrade a significant portion of inferred resources to indicated resources when we report year-end 2020 reserves and resources.With that brief overview of the quarter, I'll turn it over to Darren to provide more details on the operations.

[Darren Hall, Senior VP & COO]

Thank you, Russell. Turning to Slide 4. Firstly, I would like to take a moment to recognize our employees and business partners who come to work every day focused and give 110%. Your commitment and ability to deliver during this globally-challenging time has truly been inspiring.As Russell touched on the second quarter physicals, I will focus on a few of the team's achievements since our first quarter call. Leveraging off rigorous COVID health and safety protocols, we successfully recommenced operations. I'm particularly proud of the work the team has done with our community awareness campaigns. As an example, we have had 2,700 COVID awareness infomercials across 3 TV stations.Utilizing the hiatus in drilling during the temporary suspension, we worked with our drilling contractors reviewing our commercial arrangements, resulting in a 12% reduction in our contracted per meter drilling costs. Demonstrating the importance of developing effective external stakeholder relations, we have received all required approvals and commenced construction of the 4-kilometer Pavon Norte access road, which is currently 30% complete.We've received all required approvals to commence drilling on the 1,300-hectare Natividad mineral concession on which the Pavon Norte, Central and Sur deposits are located. It is worth noting that there has been no active exploration on this concession since 2014, and our exploration team sees significant upside potential.We've received the Ministry of Environment approvals for the development and operation of the Pavon Norte open pit. Additionally, we have progressed the Pavon pre-feasibility study, which is scheduled to be completed during the fourth quarter.We recommenced operations at Jabali underground on August 2, for which I would like to acknowledge the efforts and supportive engagement by the Ministry of Energy and Mines and the local community at Barrio Jabali.Integral to unlocking value with our hub-and-spoke strategy is the ability to responsibly transport ore to the Libertad. And I'm pleased to update that, during July, we safely delivered an average of 800 tonnes per day at a cost of $26 per tonne from Limon. Without reducing in-circuit inventories, we closed July with 15,879 ounces of production, a strong month after the temporary suspension and a positive start to the third quarter.With that, I'll turn it over to John to review our financial results.

[John Seaberg, Senior VP & CFO]

Thanks, Darren. Turning to Slide 5. Revenue for the second quarter of $15.9 million was derived from sales of 9,426 ounces at an average realized gold price of $1,688 per ounce. There was only a small amount of gold forward in June as the company restarted operations using lower-grade ore. Mine operating income was $5.8 million. The company also incurred care and maintenance expenses of $7.1 million. This, combined with G&A and other expenses, resulted in a net loss for the quarter of $5.4 million or $0.02 per share.Consolidated total cash costs and all-in sustaining costs were $955 and $1,426 per ounce sold, respectively. In the current gold price environment and a positive start to Q3 operations, we expect to generate significant operating and free cash flow in the second half of the year.With that, I'll turn it over to Russell and Darren to discuss our multiyear outlook.

[Russell David Ball, CEO & Director]

Thanks, John. So before jumping into the details of the multiyear outlook, I wanted to take a couple of minutes to reflect on how far we have come as an organization since taking control last October. Over the last 9 months, we have accomplished a number of key milestones. The hub-and-spoke operating philosophy has become a key value creation story, and during the first quarter of this year, approximately 20% of Libertad's metal production came from Limon and Pavon, demonstrating the value of this strategy is already delivering to the bottom line.As you will hear in more detail from Darren, we have significantly extended the mine life at the Libertad Complex. Remember, when we bought the assets last summer, the consensus view on Libertad was that the operation was headed at the closure and reclamation in the second half of this year.As Darren mentioned earlier, we've recommenced blasting and mining activities at our high-grade Jabali underground mine, providing additional mine plan flexibility. In addition, we're currently drilling at Jabali underground, and we see excellent opportunities to expand the current resource.Without any additional drilling, we're taking a different approach to developments and operation. We announced a 318% increase to the Pavon resources and filed the related updated 43-101 report in January this year. We recently received the environmental permit for the development of the Pavon Norte open pit mine less than a year after starting the consultation and permitting process.And finally, as part of our hub-and-spoke approach, we recognized the opportunity at Limon with the mill being the key constraint to maximize near-term production, cash flow and net asset value by trucking mill feed mine at Limon to the Libertad Complex. Overall, another significant accomplishments in our first 9 months, and we see significant opportunities ahead of us.With that, I'll turn it over to Darren to dive into some of the details in respect of the multiyear outlook.

[Darren Hall, Senior VP & COO]

Thanks, Russell. Moving to Slide 8. Calibre being exclusively focused on the Nicaraguan assets presents an excellent opportunity as I believe that the key to unlocking value is looking at the assets from a different perspective. A fresh set of eyes, if you will, a good example of which is the value being realized from our hub-and-spoke strategy of integrating the assets, for which the value will continue to grow as our understanding of these assets increase with current and future drilling programs.The underlying principle is quite simple. Stop thinking about the assets as unique operations, but as a single business entity with a combined 2.7 million tonnes of processing capacity split between 2 mills connected by paved infrastructure. As Limon gold production is mill-constrained and the Libertad processing facility has significant excess capacity, the value proposition is clear: improve the utilization at Libertad by processing ore from Limon, Pavon and potentially other sources.Let's commence with an overview of the Limon Complex. Turning to Slide 9. As mentioned earlier, Limon gold production is mill-constrained. So consider a simple plan, whereby only open pit ore is processed at Limon, allowing the known underground resources to be mined and transported to Libertad. It's important to keep in mind that this snapshot is based on B2Gold's deposit models, which do not incorporate any drilling post-2018.Based on current open pit mineral reserves and expected conversion of the mineral resources, the 10-year outlook for the Limon Complex processing 500,000 tonnes annually is anticipated to deliver between 50,000 to 70,000 ounces of gold at an all-in sustaining cost of between $900 to $1,100 per ounce.It is also worthy of note that this snapshot is mine-to-mill balanced and does not consider advancing stripping, processing higher-grade ores, ore sorting or hauling open-pit material to Libertad.As Russell mentioned previously, we recently commenced an infill drilling program which is expected to convert a significant portion of the inferred mineral resources indicated when we update reserves and resources at the end of the year.Moving to Libertad on Slide 10. Firstly, I'd like to acknowledge the team at SLR Consulting, led by Grant Malensek who worked diligently with Bill Patterson and the Calibre team in preparing the Libertad Complex PEA. Appreciated, guys. Thanks very much.It is important to note that of the mineral resources reviewed for this plan, only 60% of the indicated mineral resources and only 40% of the inferred mineral resources were included in the PEA, an overall inclusion of less than 50%. The mineral resources considered in the plan include Veta Nueva and the Santa Pancha mine complex from Limon, Jabali underground, Jabali Antenna and San Antonio from Libertad and Pavon Norte and Central. Considering the conservative approach to resource inclusion, this initial snapshot is very encouraging, with the Libertad Complex now estimated to generate 120,000 ounces per year at an all-in sustaining cost of $906 per ounce over the next 3 years. Additionally, over the next 5 years, the plan generates $319 million of after-tax free cash flow at $1,800 gold.As Russell mentioned, when Calibre was completing the due diligence to acquire these assets, no value was attributed to Limon -- sorry, to Libertad or Pavon.Turning to Slide 11. This initial snapshot is based on an average mill throughput of 723,000 tonnes per annum, leaving 1.5 million tonnes of surplus annual capacity as a significant opportunity for organic production growth through plant optimization, conversion of mineral resources, exploration success and toll milling. It is important to note that the surplus is 3x the installed capacity at Limon.Turning to Slide 12. This slide provides at-a-glance summary of this initial Libertad Complex PEA. Over the next 3 years, only 45% of the installed processing capacity is utilized to generate an average 120,000 ounces per year at an all-in sustaining cost of $906 per ounce. I see this as a strong foundation from which to build, as our understanding of the assets continue to improve, coupled with updated deposit models incorporating drilling since 2018 and our 2020 80,000 meter resource expansion and infill drilling programs.Turning to Slide 13. The value in a fresh set of eyes is clear when we consider that Libertad was headed for closure this year and is now estimated to generate $319 million in after-tax free cash flow at $1,800 gold with significant upside potential.I'll now pass it back to Russell for the summary and Q&A.

[Russell David Ball, CEO & Director]

Thanks, Darren. In conclusion, I feel very good about where we are as an organization as we head into the second half of 2020. Clearly, we're in a strong gold market, notwithstanding this morning's selloff, and the price is helping drive significant free cash flow generation. We're focusing on the aspects of the business that are within our control.I would like to note the following: I believe we are set up nicely to deliver on our 2020 guidance, and I would like to recognize Darren, in particular, and his broader operations team that have done and continue to do an outstanding job in these challenging times.This initial multiyear outlook snapshot addresses one of the biggest concerns we heard from investors last summer when we were doing the equity raise, namely that the [indiscernible] we had Libertad was that it was headed into closure and reclamation in the second half of this year. Ironically, the processing facility at Libertad provides significant opportunity for additional near-term growth, cash flow generation. And in my view, all our people represents one of the most valuable assets that the company has today.The snapshot we provided today on the call and the associated release and the detail will be provided in the upcoming technical report that will be filed later this month or early in September. What we intend to do is update the snapshot with a view in the second quarter of 2021 with the work we have been doing since we acquired the assets last October.On the exploration front, we have committed to an 80,000 meter program for 2020 and currently have 14 drill rigs turning. We anticipate receiving assay shortly from the core we shipped post restart, so it is too early to comment in any more detail, but we will be providing results and updates as they become available.That brings us to the end of the formal presentation. And with that, operator, we'd be happy to take any questions.

[Operator]

[Operator Instructions] And your first question comes from Farooq Hamed with Raymond James.

[Farooq Hamed, Director & Equity Research Analyst]

That was pretty close. It's Farooq here. I hope everyone's well. My question was just related actually to a little bit of the outlook in the PEA. But maybe more specifically, Darren, if you could provide us some details on the exploration program. How that's restarted after being shut down in Q2? And maybe just some early indications on some of the areas you're targeting maybe this year and into next, if you can give us kind of a pre look at kind of areas that you're focused on.

[Darren Hall, Senior VP & COO]

Yes, sure, Farooq. No, we recommenced drilling here in June, and we had a good ramp-up during June and into July. We haven't seen any results come available yet because between drilling the hole and getting a compliant set of data back to the release, it's about a 6-week to 8-week turnaround. So we would anticipate starting to see some interesting results back over the next month or so.With the split, as Russell has talked about, is we're looking about 80,000 meters for this year, of which 20,000 meters is focused on infill and 80 -- and 60,000 meters on resource expansion. The focus in the early part of the drilling program is actually on conversion. So a critical part of this whole PEA process has been identifying the fact that we have a mix of resources and reserves split at Limon and predominantly resources at Libertad. And it becomes very difficult for us to be able to provide a consolidated outlook until we can get them on to an even keel on a consistent basis.So a big focus for us for the balance of the year is to get us with 2 integrated -- or sorry, 2 separate reports, 1 for Limon and 1 for Libertad Pavon, at the end of the year, which include all of the drilling and all of the information through the end of 2020, which will allow us then to be able to provide a more comprehensive outlook in the early part of 2021.The focus for infill at this point is to be able to convert inferred to indicated. As we kind of alluded to in the plan here, about 60% of the indicated resources are considered in the plan and about 40% of the inferred resources are included in the plan. Interesting of note, within the PEA, of the ounces mined within the plan, about 60% happened to be indicated and about 40% happened to be inferred. Of the inferred ounces included in the plan, about 60% of those ounces happened to be from Jabali underground. So a big focus for us over the next few months is to complete the infill drilling at Jabali underground to be able to upgrade that resource base to an indicated base at the end of the year, which allow to upgrade significantly the confidence within these plan estimates.So if I think about the infill drilling, it's upgrading at Jabali underground. It's extensional and upgrading within the Limon open pit complex. From memory, I think we're about 30% inferred and about 70% indicated within the resource base at Limon. We would anticipate this drilling taking us to a significant increase in indicated at the end of the year at Limon.So that's kind of where the focus is on the short-term from a drilling perspective and then the extensional drilling that we talked about within the corporate deck that we've covered previously.

[Farooq Hamed, Director & Equity Research Analyst]

And maybe just one follow-up. So this PEA was based primarily on a cutoff of December 31, 2018. So when we think about the next reserve and resource statement at the end of 2020, and obviously, the 80,000 meter drill program this year plus what was done in 2019, what are we looking at in terms of total drilled meters difference between the 2018 cutoff and the 2020 cutoff?

[Darren Hall, Senior VP & COO]

With what we've drilled in 2019 and what B2Gold drilled 2019, I think by the time we're all said and done, it will be probably just over 100,000 meters.

[Farooq Hamed, Director & Equity Research Analyst]

Okay. And that would be primarily at Libertad and Limon? Or would that also include some -- maybe some other satellites that you're looking at?

[Darren Hall, Senior VP & COO]

Predominantly, it would be Limon and Libertad, but now we have permits in place for Pavon, which we covered earlier. We'll commence drilling at Pavon here within the next month with the focus being on combination and geotechnical drilling in support of the pre-feasibility study, which we'll issue in Q4, and also commencing some infill drilling to be able to upgrade inferred to indicated, albeit a significant portion of Pavon is already at indicated status and commence the resource expansion drilling at Pavon as well.So -- but the majority of the drilling, from a volumetric perspective, will be Limon and Libertad, and we'll start the program at Pavon.

[Farooq Hamed, Director & Equity Research Analyst]

Okay. Great. That's everything from me. And great to see the PEA.

[Operator]

Your next question comes from Geordie Mark with Haywood Securities.

[Geordie Mark, Co]

Yes, if I may extend on some of those questions. Just for, say, Pavon, the feasibility coming up versus the data in the PEA, do you see much of a potential difference in terms of the production cost structure coming up between the feasibility and today's release?And then also maybe an extension on Libertad. Obviously, the greatest latent capacity in that plan so far is the near-term capacity for '21 in particular. Has that delta in latent capacity been optimized on a fixed cost basis in terms of modification and components being used in the plant? Or do you see further optimization potential going forward?

[Russell David Ball, CEO & Director]

Darren?

[Darren Hall, Senior VP & COO]

Okay. Geordie, I guess I cover the Pavon question first. We've got WSP doing the pre-feasibility study at Pavon, and they've been working very closely with SLR or a.k.a. RPA, as RPA will be providing the technical report at the end of the year for the consolidated DESMINIC assets, which now include the Libertad concessions and also the Pavon concessions. So that communication has been very close during this PEA process, so I wouldn't expect significant level of surprise between the PEA and the pre-feasibility. But of course, the team are still working through the pre-feasibility study, and those numbers will vary around a little. And we'll have those numbers tight by the end of the fourth quarter.In terms of looking forward at Libertad and the capacity issue, no, we've touched on this before. I think there's still good opportunity to be able to optimize our fixed costs as we look at operating that plant. We've talked about some of this before in terms of when we have the lower throughputs, we idle out the oxygen plant because we can increase retention time in the wet end of the circuit. So we play those sort of games.So there's plenty of opportunity to finance these costs. And I think it's probably worthwhile just mentioning, we talk about that the unit costs that are in the pre-PEA, they're based on historical unit cost performance, and they don't reflect the operating improvements that we've seen since October nor the commercial opportunities that we've generated in the last 6 months and, in particular, during the temporary suspension in Q2. And we've touched on some of this before into the cyanide savings and diesel cost savings.I mentioned the drilling cost, we will reduce drilling costs around 12% on a cost per meter basis compared to what we contractually had before. So those sort of estimates will more than likely be reflected in the end of the year estimate, but they weren't included in the PEA. So I think there's still some upside there and some, I'll call it, conservatism in the unit cost basis.

[Geordie Mark, Co]

Okay. Great. And maybe an extension on to Limon. I see there's a sort of a range over the 10 years of 50,000 to 70,000. Is that any particular -- I guess we'll see the detail in the PEA, but it's just mine playing grade distribution or maybe sort of fronted grade for 70,000 ounces per year? Or can you give us any more detail in terms of how that looks in terms of the overall shape of that production curve?

[Russell David Ball, CEO & Director]

Yes. No, it's -- the Limon plant, per se, the Limon open pit plant per se won't be included within the Libertad Complex PEA. The Libertad Complex PEA will be singularly focused on the ore that's processed through the Libertad mill, which will include the underground product from Limon, but not the surface product. The reason for the wide range is because of the nature of the way we've reported it to maintain compliance. We've -- as we've kind of highlighted there, we've got a mix of reserves and resources in that plant, so that makes it very difficult from a regulatory perspective to come out with absolute tightened specific guidance.And also, that in generating those ranges of numbers, what we've assumed is an open pit-only plan, which is on a constant strip ratio basis. So to generate 500,000 tonnes a year of mill feed, what we've done is we've mined between 8 million to 8.5 million tonnes a year of waste in order to be able to keep that strip ratio constant over life of mine. So there's a really big opportunity within the Limon complex to optimize that open pit plan to be able to accelerate waste stripping, looking at scalping out higher-grade fractions and ore sorting, scheduling within the pits and sequencing. There's a serious volume of work that we can look at when we get these updated models and look at resequencing and rescheduling those deposits.And that's part of the reason why we took a relatively conservative view on both of the [ non-look ahead ], but also the PEA. Because the work, the basis for all of these plans, is the deposit models, which we've done a good review of and we understand how well they perform, but they're reflective of data at the end of 2018. So to spend a lot of time really tightening up those trends and finishing it, it's probably not value-add. Would be more useful to wipe through the snapshot, incorporate the additional information we're going to see in 2020 and then re-crank the plans in Q1 of 2021.So in short, plenty of upside, I think, Geordie.

[Operator]

Your next question comes from Garrett Goggin with Gold Stock Analyst.

[Garrett Goggin;Gold Stock Analyst]

Good call so far. I've got a question. You mentioned July, the hub-and-spoke ounces were up. Could I have more detail on that?

[Russell David Ball, CEO & Director]

Darren?

[Darren Hall, Senior VP & COO]

Yes. Sure, Garrett. No, we had a very successful restart after the suspension without any contributions at all from Jabali underground. We delivered just under 16,000 ounces without pulling in inventory. Net year-to-date, we've actually built some inventory, in-circuit inventory. So we've built a little bit of a production bank there, if you will, to provide us some contingency in the back half of the year.But no, we had a successful start, good grades, solid. And if you look at the performance in July versus what we saw in Q1, it's pretty consistent, maybe a little higher run rate on a quarterly rate. But no, let's see how the balance of the quarter plays out. And I'm sure we'll be having an interesting conversation in early October.

[Garrett Goggin;Gold Stock Analyst]

Was it higher grades that was run off as well? Or…

[Darren Hall, Senior VP & COO]

Predominantly, it's a grade factor. Yes. Our tonnages at Limon is fixed and we did see a few extra tonnes through the Libertad mill because of the 800 tonnes per day from Limon. So -- but it's predominantly a grade manifestation as opposed to a throughput. As we add additional sources in vis-à-vis Jabali underground in the second half of the year, that will obviously have a positive impact on our production profile as well.

[Garrett Goggin;Gold Stock Analyst]

Right, right, right. Now you've got a -- there's a multiple of sources. You've got Jabali underground, you've got -- when is Pavon going to start hitting? In 2022?

[Darren Hall, Senior VP & COO]

No. We pushed out of first production from Pavon in -- well, Q1, I think, of 2021, as currently disclosed.

[Garrett Goggin;Gold Stock Analyst]

Got you. And then you've got a lot of near-mine drill targets that are progressing well as well, right?

[Darren Hall, Senior VP & COO]

Absolutely, absolutely. And if you look at what's coming down the hopper, there's a plethora of opportunities and targets that need to be dressed up. If we look at the sources for 2021, the majority of the sources for 2021 are well known, and we know what it's going to be. It's really going to be about plant optimization efficiencies and looking at maximizing efficiencies to get tonnes out of the mine to be able to maximize utilization at the Libertad mill. Introducing Pavon Norte.

[Garrett Goggin;Gold Stock Analyst]

Right. Pavon Norte. And then I see the forecast, it's -- you're looking at Libertad and you're estimating about 800,000 tonnes processed. First quarter 2020, you processed 400,000 tonnes. So are you expecting a step down a lot from there?

[Darren Hall, Senior VP & COO]

Yes. And part of it, Garrett, is that we talked about when we had the site visit, we had a large lower-grade resource from the spent ore that we're processing as well. That material would ostensibly be depleted in 2020. So our focus will be on profitable production going forward, and we'll be looking at those sort of 3 to 4.5 gram average feeds from run-of-mine sources.So we'll see less tonnes, but at a higher margin. So we'll see less dollars spent to produce the same amount of metal, which will obviously close through a very positive impact on all-in sustaining costs.

[Garrett Goggin;Gold Stock Analyst]

Right. Exactly. Correct. Okay. That's good. Thanks a lot for your information, and good luck.

[Operator]

Your next question comes from Justin Stevens with PI Financial.

[Justin Stevens, Research Associate]

I think most of my questions have been hit on already, but a couple left. Just to confirm, you guys said the sort of the delivered cost per tonne for the trucking seen to date was, what, $26 a tonne. Is that about what we can expect going forward? Like is that -- I'm assuming that's contractor rate?

[Darren Hall, Senior VP & COO]

Russell, do you want me to answer that one?

[Russell David Ball, CEO & Director]

Yes, go ahead. Sorry, Darren.

[Darren Hall, Senior VP & COO]

Yes, I -- yes, $26 a tonne is what we've seen year-to-date. There's some opportunity to improve on that cost. Again, this is from Limon. It is a business partner that will be developing. And again, it's early days with the business partner, but we are seeing an improved level of performance.But yes, our primary focus right now is not about trying to shave $1 or $2 or $3 off the unit cost. It's to ensure that they do it responsibly. We're working with them to ensure that they've got GPS tracking in the vehicles, they've got fatigue management programs. We want to make sure that we do the right thing socially as part of this program because it's pivotable to our longer-term hub-and-spoke strategy.But with that being said, as we get them to a more efficient operator, we will see, I think, positive impacts in terms of unit costs as well going forward. But at $26 a tonne, hauling over the 250 kilometers, is still a pretty attractive value proposition. And putting it in perspective, it's about a 0.5 gram equivalent in terms of head grade. So for example, if it starts out Limon at 4 grams, it's effectively a 3.5 gram feed as it gets into Libertad. So one.

[Justin Stevens, Research Associate]

Perfect. Yes. And just on that front, I guess, I mean, sort of a bit pie in the sky, but looking further down the road, so you made another discovery sort of Pavon scale. Would you guys potentially look at sort of, I guess, bringing the haulage in-house if it was going to be sort of a material amount compared to your underutilized mill capacity at Libertad?

[Darren Hall, Senior VP & COO]

Yes. No, absolutely, Justin. I mean any opportunities that we can see to optimize costs, we would look at. But if we look at the value proposition there, it's really about ensuring that we don't have any social issues rather than the cost per tonne. And we see it as a great opportunity here to engage with our local content as well as we started up Pavon. We'll be looking at leveraging off the resource base that's there at Pavon in order to be able to provide some of that support with the teams and our business partner on those haulage programs as well.So there's more to it than just purely just the unit cost basis. There's a real social element to this as well. And the more engagement we can have from those external stakeholders, the more attractive it will become and the more supportive the communities become of those programs. Because again, going forward, it is a cost in the business, but it's not a significant cost.

[Justin Stevens, Research Associate]

Yes, yes. And better to keep everyone happy and have everyone be -- have the same goals in mind.

[Darren Hall, Senior VP & COO]

Yes, absolutely. And if you look at where we've come from in effectively 4 months, we take out the second quarter, we started this program really in January. So we had a couple of months there in the first quarter, and we're at 800 tonnes a day on average in July without issue. Bodes well for the future.And that really is key. We want to make sure we can provide a quality product, keep all of our stakeholders happy as we expand this, because a year from now, we'll be talking about those sort of volumes coming in from Pavon and hopefully, expanding the web further afield.

[Operator]

[Operator Instructions]

[Russell David Ball, CEO & Director]

Operator, it looks like we're done. I guess a lot of people are looking at the rate on the screens and maybe hoping to digest some of our numbers. Again, I appreciate everyone taking the time, as I think we've painted here a snapshot that brings people current to roughly where we are today internally as far as looking at optimizing the assets and adding value.As Darren alluded to, this is based on data effectively at the end of 2018. There's a lot of work to be done internally, but also with our partners outside the business like RPA, WSP. So update this body of work for the data, drill data costs, et cetera, between now and early in 2021. And as we spoke to earlier on the call, we'll be providing an updated snapshot sometime in Q2 as we pull all of that together and hopefully provides an even clearer view into the assets and the opportunities in front of us.So with that, I just want to say thanks again for the time. If anyone has any questions, Ryan, myself, Darren or John are always available to dig into some more detail. As I said earlier, we'll be filing the updated technical reports of PEA here around the end of the month, probably the first week of September.So again, thanks for your time. Stay safe, and we'll be in touch here in the next quarter or so. Thanks, everyone.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.