SSR Mining Inc

NASDAQ:SSRM

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, everyone, and welcome to SSR Mining's First Quarter Financial Results Conference Call. This call is being recorded.

At this time, for opening remarks and introduction, I would like to turn the call over to David Wiens, Director of Corporate Finance.

[David Wiens, Director, Corporate Finance]

Thank you, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining's First Quarter 2018 Conference Call, during which we will provide an update on our business and a review of our operational and financial performance. Our financial statements and management's discussion and analysis have been filed on SEDAR and EDGAR and are also available on our website.

To accompany our call, there is an online webcast, and you will find the information to access the webcast in our news release relating to this call. Please note that all figures discussed during the call are in U.S. , unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metal sold. We will be making forward-looking statements today, so please read the disclosures in the relevant documents.

Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; Alan Pangbourne, COO and Carl Edmunds, Chief Geologist. Also present is Jon Gilligan, Vice President, Business Development and Strategy.

Now I would like to turn the call over to Paul for opening remarks.

[Paul Benson, CEO]

Thank you, David. Good morning, ladies and gentlemen. And welcome to our call to discuss our first quarter 2018 operating and financial results. We are off to a solid start to the year. We produced over 78,000 gold equivalent ounces, all three operations performed well and development of the Chinchillas project continues on track. At Marigold we produced nearly 43,000 ounces with gold in line with our guidance and within our expectation of increasing production through 2018. Material movement increased compared to the fourth quarter and we expect further increases through the year as we introduce the four additional haul trucks to the fleet in the third quarter. Importantly, we expect near record 7.1 million tons of ore in the first quarter.

At Seabee, we had another excellent quarter building further on the team's record and accomplishments from last year. We achieved record average mill throughput of 1,036 tons per day while recording the lowest quarterly cash cost since we acquired the operation in 2016 of $481 an ounce. In fact, it went for a temporary build up in- circuit inventory for the nearly commissioned gravity circuit at the end of the quarter, we would have set another quarterly gold production record.

Ore extraction has now transitioned to the high grade Santoy mine supporting high production levels moving forward. At Puna, we produced nearly 940,000 ounces of silver from lower grade stockpiles, a stronger performance that puts us well on track to delivery our first half guidance of 1.6 million ounces of silver.

Development at Chinchillas project continues to progress with several important milestones achieved as Alan will detail later. We look forward to delivering first ore to the Pirquitas mill later this year.

From an exploration perspective, as Carl will speak to shortly, 2018 program at Marigold and Seabee are well underway. And we look forward to providing results as the year progresses. We were also pleased with our financial performance. We added cash to the balance sheet for the 10th consecutive quarter including from the sale of 4 million shares of our stake in Pretium.

At quarter end, we held $473 million of cash and $44 million of marketable securities, maintaining a rock solid balance sheet with our strongest operating quarter in 2018 still to come.

Before turn I turn the call over to Alan who will discuss our operational performance in more detail, I wanted to speak to his retirement. Most of you will have seen the news released last week that Alan will be retiring from the company at the end of this month. Alan joined the company in 2013 and added immense value. He has made the most obvious contribution through his leadership of the assets and in particular the introduction and development of our operational excellence program. Alan has also played a key role in our successful M&A strategy being heavily involved in the analysis, due diligence and integration of both Marigold and Seabee.

He was also a key in reviewing all the opportunities we have not pursued. But while it is always disappointing to see a valuable member of the team leave, I fully understand Alan's motivations. And the COO role requires a lot of travel and therefore time away from family, particularly given the geographic spread of our operations. I'm sure Alan will enjoy not being on a plane as often and being able to spend more time with his family. In the same announcement we're pleased that Kevin O'Kane is joining the company on June 4th as our new COO providing us a smooth transition. Kevin is a mining engineer with more than 30 years industry experience and is currently in charge of BHP northern Chile and copper mines.

I've known Kevin for over 15 years when we both worked at BHP having done Escondida, the largest copper mine in the world for a time, and coming from the same schooling of continuous improvement as Alan and myself. I have no doubt Kevin will continue to drive to maximize the value of our portfolio.

With that I'd like to thank Alan for his efforts and drive and enthusiasm over the last five years. And will now hand over to him for the last time.

[Alan Pangbourne, COO]

Paul, thank you for those kind words. And I just like to add there's been a great five years here at SSR, an incredible journey under the leadership of both you and John Smith. We took this company single operation Pirquitas turned it around and increased silver production from 7 million ounces to over 10 million announces, while significantly reducing operating costs. We then purchase Marigold four years ago, integrated the operation into SSR and increased reserves resources and production from about 150,000 to 160,000 ounces of gold per annum to consistently over 200,000 ounces of gold per annum, whilst maintaining an eight year mine life and lowering costs as well.

More recently with Seabee, we've done it again. We have been able to increase production and lower costs with the expectation to exceed a 100,000 ounces of gold next year, as we continue to ramp up with minimum capital expenditure. When you look back at the change in the company, it has been an amazing journey and truly a lot of fun turning SSR Mining into a successful mid tier precious metal producer.

So now to the details of Q1 performance. Overall operationally Q1 was a successful quarter across all three sites, achieving the expected quarterly company production and we remain on track to deliver annual production and cost guidance. In total, we produced over 78,000 gold equivalent ounces with a cash cost of $766 per ounce. In Q1, Marigold and Puna operations were in line with expectations, and Seabee delivered the strong quarter.

Starting with Marigold, in Q1 we produced almost 43,000 ounces of gold within our expected range of quarterly production. Q1 cash costs increased to $720 per ounce. Production and costs were predominantly impacted by the few ore ton stacked and increased costs of inventory from Q4. Mining rates recovered in Q1 and a near record 7.1 million tons of ore at the grade 0.37 grams per ton was stacked. The grade was similar to Q4. Total tons moved also improved in Q1 to 16 million tons. As tons moved increased we saw a reduction in mining costs now down to a $1.80 per ton.

We expect the trend of increased total tons move to continue in Q2 and in the second half of 2018 when the four new trucks arrive to start working in Q3. Moving on to Seabee. The operations performance for the quarter was strong and continued to show improvements as a result of the operational excellence initiatives on site. In Q1, we produced 23,700 ounces of gold. The approximately 2,400 ounces of in-circuit inventory build was due to the recent commissioning of the gravity circuit, and we expect it to return to normal levels in the current quarter.

Cash costs for the first quarter were $491 per ounce; significantly lower than the fourth quarter last year's $605 per ounce, primarily due to the high throughput leading to increase gold production and in circuit inventory at similar operating costs. The mill feed grade of 8.95 grams per ton in Q1 was similar to Q4. The last of the ore from the original Seabee mine was extracted in Q1 and decommissioning and rehabilitation work commenced. The mill performed well in the quarter and continued to ramp up now achieving a 1,036 tons per day in Q, a quarterly record.

Our best day in the quarter was 1,300 tons per day, which we feel is close to the maximum mill capacity and so we are now focusing on mill stability and availability and maintaining over a 1,000 ton a day averages. These results reinforce our confidence in delivering the results contemplated in the PEA over the next few years. This year's ice road restocking was completed without incident and included an additional truck and scoop for the Santoy mine. We also took delivery of several refurbished camp units to replace older parts of the cap.

So we're optimistic that Seabee will perform well and continue to set new records this year. At Puna operations, we continue processing stockpile material at the Pirquitas plant, while also developing the Chinchillas pit and construction of infrastructure and plant modifications related to the Chinchillas project. Pirquitas plant continued to operate well with the lower throughput rate of 4,144 tons per day for the quarter. The lower throughput was a result of planned crusher shutdowns to allow for the construction of the stockpile dome and was also impacted by various heavy rain events experienced during this wet season.

We're continuing with the stockpile dome construction and we'll be executing a significant plant shutdown for major plant maintenance and other modifications related to future introduction of Chinchillas ore. Rate continue to drop as expected and we produced 0.9 million ounces of the 1.6 million ounces sold production guidance for the first half of this year. Recoveries in concentrate grades continue to exceed expectations. The combination of lower tonnage and lower grades led to higher cash costs of $17.07 per ounce, as production levels declined. However, it is important to note the cash costs include the accrued costs associated with the stockpiles of approximately $5.75 per ounce in first quarter.

At the Chinchillas project with permission had construction and mine development commenced in earnest in Q1. Contractors have mobilized and infrastructure earthworks are almost complete, and prefabricated buildings are starting to arrive at site. During the quarter, all the required equipment to start mining was transported to the Chinchillas site almost a 100% of the new employees for the mining operation were hired from the local communities, and training of the various groups is in progress.

Mining operations have commenced and we've just switched to continuous 24/7 operations. During the quarter 172,000 tons of waste was moved allowing the establishment of the two key mining areas at the Pirquitas site, concrete works for the dome were completed and the structural erection work commenced. That works and concrete installation continued for the tailings pumping system and the majority of the pipe and electrical cable was received. So now with construction activities moving along, we remain confident that Chinchillas will deliver ore in the second half of 2018.

Operationally, SSR delivered a strong quarter and we expect to deliver to guidance. I'll now hand over to Carl who takes you through our exploration activities.

[Carl Edmunds, Chief Geologist]

Thank you. Alan. For 2018, we increased our exploration budgets at Marigold and Seabee order to step up the pace of reserve and resource addition and to give us exposure to early-stage exploration discovery. At Marigold, we completed approximately 17,000 meters of drilling in 48 holes in the lower northern portions of the Mackay pit, and on test sections in the Red Dot resource area. Our fazed concept of Red Dot is to drill off two sections at a spacing that satisfies our indicated resource classification criteria for phase one, and if that work meets expectations we will then proceed to phase two, which completes the drill offset indicated spacing over the entire Red Dot area.

We should complete the phase one drilling by end of the second quarter. Drilling in the northern sections of the Mackay pit has encountered high-grade mineralization at just outside the resource pit with results such as 22.9 meters grading 4.6 grams per ton gold. We expect this mineralization to add to the resource. A the Seabee gold operation, underground drilling amounted to approximately 10,000 meters exploring the resource areas of Santoy 8 and 9 and the gap hanging wall target. Drilling rates were down from previous years as we focused on Stoke definition work.

We are now at full capacity with recent access to the drill bay on the 46 level which provides a platform for the conversion of the 8A inferred resource. Notable results since our last update, our 8.1 grams per ton gold over 2.2 meters from the 8A located 150 meters below inferred resources and 11.3 grams per ton gold over four meters from the gap hanging wall target, which currently has no resources ascribed to it. Staying Seabee but moving away from the mining infrastructure, surface based exploration drilling was active on the Carr Santoy 3, CRJ and Fisher targets during the quarter, with work that amounted to approximately 10,000 meters and 16 holes. Four holes were completed on the Carr target where geologic results have de-emphasized the priority of the area. Best result was 4.6 grams per ton gold over 2.8 meters.

And we have reallocated approximately 4,000 meters of the planned drilling to the CRJ Santoy 3 area. Drilling at CRJ encountered visible gold in two of the holes, with one of the holes having a significant result of 7.2 grams per ton gold over 6.3 meters. Follow-up work is underway. At Fisher by quarter's end we had only completed two holes for just over 1,100 meters on the extension of the Santoy shear, an assay results are pending. With the changeover from winter ice drilling to summer land drilling rates will pick up midway through the second quarter.

At the SIB exploration project in British Columbia, we are in the final stages of planning this year's $3.2 million exploration program including approximately 9,000 to 10,000 meters of drilling supported by EM and IPG physical surveys. We plan to begin the geophysics in May followed by drilling in late June depending upon snow levels.

With that I'll turn the call over to Greg for a discussion of our financial results.

[Greg Martin, CFO]

Thanks Carl. Operationally and financially no surprises in the quarter as each mine track somewhat better than expected, combined with gold prices trending positively. As anticipated in our guidance discussion early in 2018, the first half of the year is solid, setting us up for a strong second half as Puna operations ramps up and Marigold gets into a better part of its sequence. For the quarter, we generated revenues of $98 million, and income from mine operations of $17 million. Margins were generally as expected considering higher depreciation charges across all three assets impacted income from mine operations relative to previous periods.

G&A and exploration were right on track as were financing expenses and income. As we advance the closure of the Seabee mine at Seabee Gold Operation, we expense the remaining residual value of $2.8 million. We reported a minor loss in the period of $2.3 million or an attributable negative $0.01 per share. Normalizing for the non-cash Seabee expense and other items adjusted net income was $5.7 million or $0.05 per share. Importantly, cash flow generated by our operations remains strong. As discussed at year end, the first quarter consumes working capital due primarily to Seabee ice road restocking of consumables and delivery of full-year capital items.

We generated $33 million of operating cash flow before working capital, moratorium payments and taxes. So the operations continued to deliver strong cash. In the first quarter, we also had one of our semi-annual interest payments due on our convertible notes. So I am pleased considering the seasonal and other impacts that we reported $11 million of operating cash flow. Capital spending and capitalized development were consistent with guidance with investments in our operating assets totaling $14 million. As noted earlier, we have a concentration of capital for Seabee as equipment and materials came in over the ice road. We also invested $11.7 million in Chinchillas, a portion of which was funded by cash on hand in Argentina and a portion from contributions from our joint venture partner.

We continued our program of disciplined divestment of Pretium in the quarter realizing pretax cash of $28 million. And subsequent to quarter end we fully divested of our interest realizing additional pretax cash of $35 million. We finished the quarter with a cash position of $473 million. Our cash continues to build forming the bulk of our working capital position that now totals $686 million allowing us to drive our strategy of discipline growth.

In addition, our $75 million credit facility remains completely undrawn and provides flexibility should we require it. Looking forward, I want to reiterate the comment Alan made of the shutdown at Puna operations in June to prepare the plant for Chinchillas ore. The shut was considered in our first half guidance of 1.6 million silver ounces at Puna, but will marginally impact Q2. As we move later into the second quarter, we get into the Seabee summer construction season and at Marigold the start of the pad build and initial payments on the new haul trucks.

So we will see some concentration of capital spending through that period. Of course, we will also see the bulk of the remaining Chinchillas capital spend in Q2. I also want to note that the divestment of our Pretium interest is taxable under capital gains, and we will start making installment payments in the second quarter. Finally as part of the restructuring of our Argentina business as anticipated upon the formation of Puna operations, we are advancing on merging the two Argentina business units into one Argentina company that will hold both the Chinchillas and Pirquitas properties. This merger will simplify the business model significantly by eliminating inter-company charges and duplication of administration and provides a stronger consolidated company to pursue development of the Pirquitas' underground and other opportunities.

The reorganization remains subject to regulatory approvals, but we will need to book a one-time tax expense likely in the second quarter of approximately $7 million in order to affect the merger. So to conclude, the first quarter puts us marginally ahead of where we expected to be. We are tracking well to guidance with Seabee continuing to show the opportunities we saw when we acquired that operation. We have mindful of pressures in the cost structure with commodities particularly diesel tracking higher. We have some protections through our hedge positions and fortunately had locked in many items to long -term contracts over the last few years. That being said continuing to apply our operational excellence strategies to drive efficiencies remains essential.

With those comments, I'll turn the call back to Paul.

[Paul Benson, CEO]

Thanks Greg. In summary, we're pleased to be off to a solid start to the year. Our operations perform well. We continue to execute on our growth strategy and we added cash to the balance sheet. Looking ahead to the rest of the year, we have an increasing production profile and key catalysts are still in front of us including delivery of the Chinchillas project continuing to ramp up at Seabee and our ongoing exploration program. This concludes the formal remarks of our earnings call. I'll now pass the line over to the operator to take any questions you may have. Thank you.

[Operator]

[Operator Instructions]

Your first question comes from Matthew MacPhail with Canaccord Genuity.

[Matthew MacPhail, Canaccord Genuity]

Hi, guys thanks for taking my call. My first question revolves around Seabee and the kind of impressive cost we saw that quarter, $59 a ton underground mining, a pretty decent step change from Q4 as well as Q3 of last year. Is there -- can you provide any color on that? The reasoning behind the impressive cost and also is there any chance of us seeing that continue through the rest of the year?

[Paul Benson, CEO]

I'll let Alan go first and Greg can follow up with anything else.

[Alan Pangbourne, COO]

Yes, sure. It's a combination of things Matt, but one of the significant ones is as we've shut down Seabee we've moved the equipment and the miners over to the other areas in Santoy and the four bodies wider and we get more tons for vertical meter and that helps us get our costs down. So and Greg if there's anything else on the cost side?

[Greg Martin, CFO]

No. That was a comment I would have made.

[Matthew MacPhail, Canaccord Genuity]

Okay, that's great. So it is now that Seabee is shut down, Santoy is the primary source of ore that's just kind of a run rate we can see going forward? In terms of my --

[Alan Pangbourne, COO]

Matt, all of the ore will be coming out of Santoy going forward. They've started rehabilitation and pulling out all of the old equipment and stuff out of the Seabee mine and so all ore going forward will come out of Santoy. I mean over time you'll see variation in quarters as you moved from thicker than thinner parts of the all body. So it's not a straight line but certainly Santoy is a cheaper operation to run.

[Matthew MacPhail, Canaccord Genuity]

Great and then my second question moving to Marigold, you mentioned in the release that you'll be issuing-- you intend to issue an updated NI43101 report on Marigold before the end of Q3. Is that in order to kind of capture some of the new drilling that you've undertaken at Red Dot and the other targets on the property? Or is there -- is there other sort of efficiencies you wanted to get it into a report?

[Alan Pangbourne, COO]

Yes, no, it's before Red Dot. We're drilling that this year. It's really to capture the drilling up to the results we put out earlier plus encapsulating the additional trucks, and we'll use that as a base case going forward. We then said we'll look at the drilling results this year from Red Dot and we're doing that in a two-phase program. And if the results from that are promising that would then be the expansion scenario that we said we'd look at next year. So really this would be the base case and then we'll evaluate whether there's any potential next year to expand that fleet.

[Operator]

The next question comes from the line of [Nick Surovo with Macquarie]

[Unidentified Analyst]

Good morning Paul and the team. Just two questions on mine and on fuel could you please provide some more color on what percentage of fuel has been hedged? The total expected fuel consumption and what percentage of the operating costs are fuel related?

[Paul Benson, CEO]

Alan? Greg you get this.

[Greg Martin, CFO]

Yes, sure. For calendar year 2018 we have about 35% of our fuel exposure hedged provides protection generally at oil prices that exceed kind of $55 a barrel. So we're certainly benefiting from those positions currently. I don't have the volumes of diesel at my fingertips, but at Marigold the percentage of cost structure that fuel is about 15%, and at the other two operations it's approximately 10% obviously Puna operations it's been fairly limited over the last number of months, but as pre strip now has commenced and is ramping up it should return to approximately the 10% level going forward. The other comment I'd make is obviously for Seabee, we have purchased all our fuel for the year and it's now on site. And we purchased those and had locked in some advanced purchase agreements late last year and through the early part of this year. So we're relatively neutralized at Seabee to price movements positively or negatively till the next restocking season.

[Paul Benson, CEO]

And just remember the hedging programs are zero cost color. And so it's not locked in a single price, we have the upside and downside protection.

[Unidentified Analyst]

Okay, thanks. And just on Seabee as well could you comment on how well the stokes have been performing underground vis-à-vis dilution and grade reconciliations as per the plan?

[Paul Benson, CEO]

Alan?

[Alan Pangbourne, COO]

Yes, sure. I mean Seabee the stokes are performing extremely well. We get nice clean cuts against the contacts, our grade reconciliations within half a gram of what we're expecting. So it's going really well from that point of view.

[Operator]

The next question comes from line up Chris Thompson with P I Financial.

[Chris Thompson, P I Financial]

Good morning, guys. Congratulations on a great quarter. Alan sorry to see you going away. Just want -- I'll start off with Marigold very quickly. Two real questions, one relating to leach pad kinetics. I think we're forecasting obviously a stronger second half of the year. Are we going to see that very much of that sort of kicking in the third quarter?

[Alan Pangbourne, COO]

Sure. It's partly third quarter predominantly fourth quarter, and it's all related to new ore close to plastic on a new pad that we're currently constructing.

[Chris Thompson, P I Financial]

The T2 will be higher than Q1

[Alan Pangbourne, COO]

Yes, no, Q2 production's higher than Q1, the biggest quarter will be Q4 and that's all related as I said new ore, new pad close to plastic and fast kinetics.

[Chris Thompson, P I Financial]

Great stuff, those costs $1.80 again you're telegraphing maybe a lowering of those costs on the back of some more trucks there. How should we be modeling that and a gain more in the Q4 than the Q3 the benefit wise?

[Alan Pangbourne, COO]

I'd expect to see benefit from those trucks in Q3 for sure.

[Chris Thompson, P I Financial]

Okay, perfect. Just moving off to Puna very quickly. You mentioned that you spent $11.7 million on the quarter I guess and the bulk of the remaining CapEx is going to come in the Q2. Can you put a figure on that for us?

[Paul Benson, CEO]

You have to do some work.

[Greg Martin, CFO]

Yes. So we have -- as of the end of March about $20 million has been spent certainly a significant more of that has been committed. So our share about 15 so in rough terms remaining there's kind of 55 to 60 to in total of which our share would be approximately $45 million.

[Chris Thompson, P I Financial]

Perfect.

[Alan Pangbourne, COO]

A big part of that is pre stripped so the mining fleet operating. We're moving muck, it tends to be a fixed cost initially because there's just people and fuel and stuff but as the efficiencies go up, the unit costs go down but there's a significant cost per month now that operation as it ramps up, and we're paying everybody their wages and things.

[Chris Thompson, P I Financial]

Perfect. My final question obviously we're seeing a bit of a peso devaluation in Argentina, increasing inflation, is one offsetting the other as far as your expected expenses are concerned. Can you comment on that?

[Greg Martin, CFO]

Yes. Obviously the last couple of weeks the peso has been quite volatile devaluing significantly as you noted. So its early days I think to make any concrete prediction. Certainly our expectation over time is that those two things would offset. So I think fortunately as a US dollar exporter, we're largely immune to the inflation piece as long as the devaluation matches and that's what we've seen traditionally. And we do see and have seen historically these periods where the peso moves and then stabilizes so over time it comes into line. All in all, it's beneficial to our moratorium liability that we book, so we're getting some significant benefit from the devaluation through that. And it should have some short-term benefits and we'll continue to evaluate the longer-term benefits on both the operation and the project.

[Operator]

Our next question is from Dan Rollins with RBC Capital.

[Dan Rollins, RBC Capital Markets]

Thanks very much. Two questions, one just on them the mining cost at Marigold, you didn't have the hedges in place, do you happen to have an estimate of what the mining cost would have been during Q1? Just trying to gauge how much you're benefiting right now from the hedges in place.

[Greg Martin, CFO]

In Q1 it won't have been significant, Dan, obviously a prices were kind of moving up through the quarter and have moved up since the quarter. I mean to give you in rough terms the mark-to-market on our positions is around a $1 million. So if you take that over a couple 100,000 ounces it's about $5 an ounce.

[Dan Rollins, RBC Capital Markets]

Okay, perfect. And then just given the balance sheet continues to grow which is always nice to see. Any thoughts about doing installing a dividend policy any time soon just maybe that would be another incremental note to the street and the market that you're generating free cash flow although you have higher ore and sustaining cash costs because you fully -- maybe demonstrating that free cash flow is now going to start to see return a couple because you are building quite a bit of a war chest here.

[Paul Benson, CEO]

Yes. A couple of points to that. It's something we obviously consider but in discussions with the board. At the moment, we haven't decided to go down that path. We know that there are a couple of internal growth projects that we've indicated we'll have a view on with more clarity to by the end of the year. So potential underground of Pirquitas and we're reviewing Pitarrilla project in Mexico this year. We said we'd have some studies there and also next year the potential expansion at Marigold. So it would be nice to be in a position to fund any or all of those if they happen to go ahead. So at the moment I wouldn't expect a change in that in the short term, but obviously at some point, yes, that is a logical thing to do, but we've shown discipline investments. I think shareholders can take comfort that we spend the money wisely.

[Dan Rollins, RBC Capital Markets]

So maybe just to follow up. I have three conference calls at the same time so I wasn't sure if you talked about it but what are you envisioning for pit area right now? Obviously it originally was going to be a large open pit which didn't make it the cut and then it was going to be an underground which didn't seem to work out. How are you envisioning pit area now going forward?

[Greg Martin, CFO]

Yes. So if you think back to the original feasibility study sort of made sense in the price environment, which it was done so silver was over $30. It's a huge low-grade resource. The initial concept was a large plant that could handle all three ore types at once, low-grade oxide and high-grade sulfide and intermediate material. And it ended up with very large CapEx that looked attractive it was US $750 million at the time. Luckily for our shareholders, we didn't build it because the silver price obviously dropped significantly, and we wouldn't have got a return on capital. So it's being parked there for a while and we've gone back to have a look. We did a back of the envelope and saw that there were some changes particularly if you focus on the higher grade underground sulfide, we think we can reduce the CapEx of the plant. The other thing that's moved in our favor is the currency. When we did the original studies it was around 10 to 1, today is closer to 20 to 1. So those things, it looked to indicate that there could be a project that focused on the sulfide and the nice thing is that doesn't sterilize the oxide. That's still a cool option on a higher silver price. So you could always come back and redevelop that. So that's what we're doing. It's not our absolute highest priority but we will complete a study by the end of the year. And at that time we'll update the market on it.

[Dan Rollins, RBC Capital Markets]

Okay. Was there an issue with water as well, getting access to needed water.

[Paul Benson, CEO]

For the larger open, larger open pits that was a constraint but for the smaller underground that's not an issue.

[Greg Martin, CFO]

That's not an issue. The water rights I think that you're referring that we had applications and probably at that time have now been approved in.

[Dan Rollins, RBC Capital Markets]

Okay, perfect. And then just the decision to start talking about pit area more often and some of the other growth opportunities which typically have a bit of a better bang for your buck. Does this sort of imply that it's very tough right now to find any accretive acquisitions space?

[Alan Pangbourne, COO]

It's always tough to find accretive acquisitions. At this point in time I don't know if it's particularly any harder than before. We continuously look, if we see something we'll try and move forward with it but we're disciplined with it. So, yes, it's always tough. I don't know if today it's any tougher than other times.

[Dan Rollins, RBC Capital Markets]

But still a bit of a question on this, there's a good quality asset, the task is too high and then the other problem is there's probably not enough quality assets.

[Alan Pangbourne, COO]

Yes that's it.

[Operator]

Thank you. This concludes the question-and- answer session. I will turn the call back to Mr. Benson.

[Paul Benson, CEO]

Excellent, okay. Thank you very much everyone. Have a good day.

[Operator]

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