SSR Mining Inc

NASDAQ:SSRM

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, everyone, and welcome to SSR Mining's Fourth Quarter and Year-end 2017 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, Corporate Finance.

[Unknown Executive]

Thank you, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining's Fourth Quarter and Year-end 2017 Conference Call, during which we will provide an update on our business and a review of our 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. dollars, 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 John DeCooman, Vice President, Business Development and Strategy.

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

[Paul Benson, executive]

Thank you, David. Good morning, ladies and gentlemen, and welcome to our call to discuss our strong operating and financial results for the fourth quarter and full year 2017. This was another successful year for the company as we continue to deliver on our strategy of creating value for our shareholders. Importantly, in addition to our strong operating and financial performance, which I'll come to shortly, we defined the growth strategy and long-term future for 2 of our 3 operations. With the release of the PEA at Seabee and the signing of the joint venture to develop the Chinchillas project, we are pleased to have 3 strong operations, each with at least a 7-year mine life and significant exploration upside.

Our name change to SSR Mining also marked an important milestone in our company's proud history, officially marking our transformation to a growing intermediate precious metals producer, with approximately 80% of our revenue coming from our 2 North American gold mines.

Sadly, we experienced the first fatalities in our 70-year history and the first in the life of the Marigold mine. It was an extremely tragic and upsetting event that impacted the families of those involved, our leadership team, our employees at all our operations and the communities we partnered near Marigold. As we move into 2018, our highest priority remains the safety of our people.

Now I want to discuss our operations. Our continued focus on operational excellence resulted in our sixth consecutive year of meeting or exceeding our production and cost guidance, producing over 370,000 gold equivalent ounces at a cash cost of $703 per gold equivalent ounce. The strength of our portfolio and performance is reflected in our balance sheet, where we increased our cash position for the ninth consecutive quarter to $460 million.

At the Seabee Gold Operation, we had both a record-breaking fourth quarter and year, with 2017 benefiting from higher mine grades and operational excellence initiatives that expanded mill throughput. Of note, in the fourth quarter, we produced a record 24,227 ounces of gold at a margin of approximately $500 per ounce, and achieved record mill throughput of 970 tonnes per day. As Alan will discuss later, we've continued to see improvements in throughput in this current quarter, and we're looking forward to another production record in 2018.

At Puna Operations, annual production of 6.2 million ounces silver was above our improved guidance range, reflecting an outstanding effort by our operations team to maximize the value from the remaining Pirquitas stockpiles. We were pleased to form the Puna Operations joint venture earlier in 2017. Puna Operations will develop Chinchillas, a high-return, low-capital project that will extend the operating life of that joint operation by at least 8 years. We received approval of the Environmental Impact Assessment for the Chinchillas project at the end of 2017, and we expect to bring Chinchillas into production later this year.

Importantly, all 3 operations have significant mine lives, and we are continuing to invest in the upside potential we see. In 2017, we once again had impressive exploration successes at both Marigold and Seabee and built on our track record with Mineral Reserves and each operation increasing by 12% and 21% after depletion, respectively.

Importantly, the increased reserve at Seabee is at a 21% higher average grade compared to last year. This is reflected in our Mineral Reserves and Resources statement released yesterday.

As I stated at the beginning of my remarks, our strategy is focused on creating value for our shareholders, and that can be seen with consistent cash flow generation and in the strength of our balance sheet. We finished the year with cash from operations of $145 million and increased our cash position by $133 million to $460 million year-on-year.

With respect to our marketable securities position, through the early part of the first quarter of 2018, we resumed the sale of a portion of our remaining stake in Pretium, and market conditions will dictate the pace and timing of further sales. With Pretium having now transitioned to operator status, we believe crystallizing the value it provides our shareholders with certainty regarding this asset and the flexibility to deploy capital to other parts of our business.

So in summary, 2017 was another successful year for SSR Mining, and I'd like to thank and congratulate our employees for delivering these great results.

With that, I'll turn the call over to Alan, who will discuss our operational performance in more detail.

[Alan Pangbourne, executive]

Thank you, Paul. Overall, operationally, 2017 was a successful year across all 3 sites, achieving overall company production and cost guidance for the sixth year in a row. In total, we produced over 370,000 gold equivalent ounces with a cash cost of $703 per ounce. Unfortunately, the success was marred in October with the tragic incident that resulted in 2 fatalities at the Marigold mine. In 2018, we're working hard to make this our safest year for all of our employees across all of our operating sites. 2018 will also be a very significant year for us, with expected record production at Seabees and the commencement of ore delivery from the Chinchillas mine. At Marigold, in 2017, we produced over 202,000 ounces of gold, and this was the third year in a row with over 200,000 ounce production. This is all the more impressive considering that the average production for the 3 years before we acquired the mine was 153,000 ounces per annum. Cash cost was $647 per ounce, similar to 2016. As expected, the gold production in Q4 was significantly stronger as we rectified the clay issue and produced almost 53,000 ounces of gold, a 36% increase over Q3. Q4 cash costs increased to $699 per ounce, predominantly due to the higher inventory costs from the lower ounces stacked in Q2 and Q3.

During Q4, mining rates were impacted by the accident on the 31st of October. The subsequent suspension of operations for the [ M shore ] investigation and the gradual restart. A planned track change on the rope shovel also impacted the tonnes moved. Only 14 million tonnes were moved, and the cost increased to $1.98 per tonne. Tonnes moved are expected to return to normal in Q1. The grade mine increased in the quarter to 0.37 grams per tonne, a 16% improvement over Q3, but still under the average reserve grade. As mentioned in the production press release, we've been addressing the clay issues discussed in Q3. As a result of a combination of ore bending, addition of surfactants to improve percolation and better control on ripping of the ore, we've been able to increase the solution application rates back to normal levels. This was partially responsible for the increased gold production in the quarter.

As announced yesterday, at Marigold, we'll be adding 4 new 300-tonne class haul trucks. This investment decision was taken for 3 reasons. First, exploration success in 2017 led to added reserves that identified a wider, deeper ore body. Second, the -- to maximize efficiencies of the loading equipment already at site, our data continues to show that we need additional trucks. Finally, to maintain access to the added ore tonnes, we need to offset the longer, deeper haul distances attributable to current and future leach pad locations.

Although these trucks will not increase production in the near term, they will facilitate production capacity increasing to over 250,000 ounces in 2022 and support mining the expanded reserves identified in 2017.

Moving on to Seabee. The site's performance, both for the quarter and the year, was exceptional, achieving record results in multiple areas, demonstrating the team's dedication and focus on OE and showing the results that can be achieved. In Q4, we produced over 24,000 ounces of gold, a quarterly record for the operation and 6,000 ounces or 34% increase over Q3. Also, on an annual basis, we achieved record production at almost 84,000 ounces. Cash costs for the quarter was $605 an ounce, 5% lower than Q3, and on an annual basis was $602 per ounce.

At the Santoy mine, the ventilation system upgrade was implemented in Q3, allowing higher quantities of fresh air to be directed to the lower levels of the Santoy mine, which resulted in us being able to increase development in Q4 by 55% over Q3, thereby improving our access to future mining areas. The mill feed grade of 8.9 grams per tonne in Q4 was significantly higher than Q3 and 0.6 grams per tonne higher than the annual average. This was mainly due to the sequence of stopes and the higher percentage of total ore being mined at Santoy. The mill performed well in the quarter and continued to ramp up, now achieving 970 tonnes per day in Q4, another record. In 2017, we processed a record of over 330,000 tonnes.

In January 2018, we continued to increase mill tonnage to try and determine the mill bottleneck. We were able to achieve several days in a row with over 1,200 tonnes per day, reinforcing our confidence in delivering the results contemplated in the PEA that was released in Q3.

Additionally, as shown in the PEA, we'll increase the mining fleet this year by adding 1 truck and scoop that will be delivered over this year's ice road. So we're very optimistic that Seabee will continue to improve its performance and will set new records this year.

At Puna Operations, we continued to successfully process medium- and low-grade stockpiles at the Pirquitas plant, while development of engineering and purchasing activities continues for the Chinchillas project. The Pirquitas process plant continued to operate well at close to 5,000 tonnes per day for the quarter, processing a total of [ 452,000 ] tonnes. Grades continued to be higher than expected, and this led to positive impacts that allowed us to produce 1.2 million ounces of silver for the quarter. As per our plan, the mill grade this quarter continued to drop as the medium-grade stockpiles were consumed and lower-grade stockpile processing commenced.

On an annual basis, we exceeded our upwardly revised guidance, producing 6.2 million ounces of silver. As expected, recoveries in concentrate grades in Q4 were lower than Q3 as we continued to process lower-grade stockpiles, leading to higher cash cost of $16.36 an ounce, as production levels declined. Cash costs include the incurred costs associated with the stockpiles of approximately $5.30 per ounce in the fourth quarter. Annual cash costs were $13.07 per ounce at the lower end of our lowered cost guidance.

At the Chinchillas project, the focus during the fourth quarter was on finalizing the EIA approval and the land access agreement, with these all being completed in December. On the construction side, the installation of the stockpile [ dome ] foundations commenced in Q4 at the Pirquitas site. The project execution is well under way, with purchase commitments completed on all the critical long-lead items for the Pirquitas area of scope. Commitments associated with the Chinchillas site, including all the mining and support mobile equipment, were also completed this quarter.

A 992 front-end loader was delivered, assembled and is now ready for work. All the rebuilds and maintenance on the existing mining equipment were completed and the equipment is ready to be transferred to Chinchillas by year-end. With the receipt of permits, we've commenced hiring operators for the mining operation and started transferring equipment from Pirquitas to Chinchillas. We expect to commence pre-stripping and road building on the site this quarter and are maintaining the momentum with the objective of having the first ore feed to the Pirquitas mill in the second half of 2018. It is worth noting that there have been heavy rains and localized flooding in Northern Argentina in January as the wet season has been wetter than normal. At this stage, we did not expect these weather events to impact the project. But of course, if they were to continue, it could delay site access and construction, especially of works.

So in summary, all of our operations finished the year strongly and delivered strong production and cost performance, and we achieved our annual production and cost guidance.

I'll now hand over to Carl, who'll take you through our exploration activities.

[F. Carl Edmunds, executive]

Thank you, Alan. Our 2017 exploration activities successfully extended the reserve life at Marigold and the Seabee Gold Operation, while completion of the Chinchillas option has extended the operation of Pirquitas with the addition of silver reserves delineated during the earn-in. During the year, we also gained exposure to early-stage discovery through work on the SIB project in B.C. and the Fisher project located adjacent to the Seabee Gold Operation.

First, I will discuss our year-end 2017 Mineral Reserves and Mineral Resources estimate, followed by a discussion of the 2018 exploration activities. In summary, in 2017, we increased reserves at each of our 3 operations to 4.28 million gold equivalent ounces on a combined basis, representing a 28% increase from 2016. Marigold probable Mineral Reserves are 3.19 million ounces of gold, representing a 12% increase compared to 2016. The increase is due to Mineral Resources conversion success at Mackay and East Basalt and modeling improvement, whereby we incorporated long-standing positive tonnage variance.

At Mackey and East Basalt, exploration activities collectively added 360,000 ounces of gold, while modeling changes accounted for a further 210,000-ounce addition. Mining depletion amounted to 220,000 ounces, which was more than offset by reserve additions with a net gain year-on-year of 350,000 ounces of gold.

At our Seabee Gold Operation, proven and probable Mineral Reserves increased by more than 20% year-on-year to 437,000 ounces of gold, reflecting successful exploration, conversion and development drilling during the year. And importantly, and for the fourth year in a row, the added reserves come at higher grades compared to the previous year, a 21% increase in 2017. This resulted from infill drilling at Santoy 8 and lower Santoy Gap and mineralization that is higher grade than the previous average of reserves.

Seabee's Measured and Indicated Mineral Resources increased to 681,000 ounces of gold and are inclusive of Mineral Reserves. The resources increased due to infill drilling of Inferred Mineral Resources at Santoy 8 and lower Santoy Gap. These work converted or added nearly 200,000 ounces from those 2 zones, outstripping depletion by a significant margin. Importantly, since 2016, the resource gold grade has increased from 8 grams to 10.7 grams per tonne. The majority of this reflects conversion of areas that are of higher-than-average grade as well as for minor increases for the removal of dilution previously embedded in the resource estimation process.

Seabee Gold Operation's inferred resources now stand at 674,000 ounces, a 34,000-ounce increase from 2016. So conversion to Measured and Indicated has been more than offset through discovery. Exploration activities for 2018 at Marigold will involve drilling at an increased pace over 2017 as we embark on a staged $9.3 million program to convert the Red Dot area to reserve. Experience on the property has repeatedly demonstrated that with increased drilling density on mineralized zones, we find incrementally more gold as the controlling higher-grade structures become better defined. At Red Dot, where approximately 25% of the resource is inferred, we plan to convert and realize these additional ounces through targeted infill drilling. This phased program is aimed at initially confirming expectations for conversion and addition, and then if successful, upgrade the entire resource to indicated. This work will mostly preclude any other exploration on the property, but has, as its ultimate objective, the conversion of 1 million ounces to reserve.

Looking ahead to the rest of 2018. At the Seabee Gold Operation, exploration will continue to focus on resources to reserves conversion at Santoy Gap and Santoy 8 through surface and underground diamond drilling. We are also planning an active year targeting the discovery of additional inferred resources at Carr, CRJ, Santoy 3 and along the Santoy Shear trend on the Fisher property. I'm pleased to report that these exploration activities are already under way, with drills turning at Carr and Santoy 3, and drilling is expected to commence at Fisher in March.

Finally, we are also planning another season of work at the SIB property, where between 9,000 and 10,000 meters of drilling will be completed in this high-grade gold volcanogenic massive sulphide camp in British Columbia.

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

[Gregory Martin, executive]

Thanks, Carl. It is certainly pleasing to finish 2017 on a strong note with very positive quarterly financial performance. The quarter tops off a successful year as it continued to demonstrate the positive impact our acquisitions of Marigold and Seabee have made to our financial performance. This was coupled with meaningful contribution from Puna operations, even though 2017 was a transition year from Pirquitas mine operations to Chinchillas development.

In the quarter, we reported revenues of $108 million and income from mine operations of $21 million. Reported net income was $17 million or attributable $0.14 per share. The extraordinary items impacting the quarter were the reversal of mobile equipment-related supplies inventory write-down of $6.3 million at Puna operations, and the impacts to deferred taxes due to the tax rate changes in the U.S. Adjusting for these and other items, adjusted attributable earnings were $2.9 million or $0.02 per share. We had elevated depreciation in the fourth quarter, largely related to the Seabee mine at Seabee Gold Operations as we depreciate the remaining mine asset balance in advance of the planned closure in mid-2018. We do not adjust for these impacts.

For the year, revenues of $449 million drove income from mine operations of $113 million. Net income was $71 million or $0.58 per share, and adjusted attributable earnings were $40 million or $0.34 per share, all strong results.

Fourth quarter cash from operating activities was notable at $45 million despite sales at Puna operations lagging production due to timing of concentrate shipments. Capital spending at our mines was consistent to guidance and quite modest, totaling $17 million, including deferred stripping and development. Chinchillas' capital spending totaled $8 million, bringing cumulative investment on the project to $11.4 million at year-end. The project remains on budget with committed capital totaling $19.1 million at the end of January.

With proceeds from the divestment of Pretium shares early in the fourth quarter of $14 million, we generated an impressive $36 million of cash. The Pretium shares we divested in Q1 2018, as mentioned by Paul earlier, are incremental to those sales that show up in our year-end financial statements. As of February 20, we have realized approximately $25 million from the sale of 6 million shares (sic) [ 3.6 million ] of Pretium in 2018.

For the full year 2017, cash from operating activities totaled $145 million, with cash added totaling $133 million, again, standout results. As a result of our continued generation of free cash flow, our cash balance ended the year at $460 million, with our working capital totaling $728 million.

Our balance sheet remains among the strongest in the sector. Early in 2018, we released our guidance, which supports our expectations of another solid year for SSRM. Our midpoint of production guidance is 340,000 gold equivalent ounces at a cash cost per ounce sold of between $715 and $770. Midpoint of attributable production guidance totals 325,000 gold equivalent ounces.

With the continued strong performance at Marigold, our cash cost guidance is materially better than that published in the 5-year outlook. Marigold will continue to see quarter-to-quarter variation, driven by tonnes of ore mined, grade and placement on leach pads as the mine moves through normal pit and heap sequencing. We noted the first quarter is expected to be towards the low end of the quarterly guidance range of between 40,000 and 60,000 ounces, with the fourth quarter toward the high end of the range as a new leach pad comes online.

At Seabee, we expect another record production year from higher tonnes milled, and its low-cost structure enables the mine to generate impressive free cash flow.

At Puna operations, the mine will process increasingly declining stockpile grades before ore delivery from Chinchillas in the second half of the year. We have guided to production at Puna of approximately 1.6 million silver ounces in the first half of the year.

I also reiterate that through quarter 1 and into early quarter 2, we see the ice road restocking at Seabee, which results in purchasing of full year inventories and capital items through that period, impacting both working capital and reported all-in sustaining costs. The first half of the year is also a high exploration spending period at Seabee, as much of the regional drilling is done off the ice, and we will also see the bulk of the remaining Chinchillas project spending being incurred through the first and second quarters.

So to conclude, the fourth quarter closed out a strong year on a positive note. We go into 2018 from a position of strength with $460 million of cash. Marigold is a strong foundation asset, Seabee growing and Puna Operations emerging through the year with a new mining operation at Chinchillas. With the backdrop to metal prices remaining positive, I look forward to another year of financial delivery.

I'll now turn the call back to Paul to wrap things up.

[Paul Benson, executive]

Thanks, Greg. So in summary, another successful year for the company. We delivered strong operating results across the portfolio, further strengthened our financial position and defined a growth strategy underpinned by increased production at all 3 sites over the coming years. In fact, even before any gains from our OE improvements, brownfield exploration success or expansions, our base case forecast will see a 27% increase in production from this year to over 410,000 gold equivalent ounces in 2021.

We also continued to invest in our long-term future through exploration, with strong results at both Marigold and Seabee. The highlight being a more than 20% increase in Seabee reserves and a 21% increase in the average grade. This continues our track record of creating value by increasing mineral reserves and resources year in, year out, and we expect to do the same this year.

Looking ahead in 2018, 2018 is a year full of catalysts for our business. At Marigold, it is important to remember we've already added over 1.5 million ounces of reserves since 2015. It's also important to consider the site's ambitious goal of converting another 1 million ounces of resources to reserves by the end of 2018. As a result, it became apparent late in 2017 that we had a near-term opportunity to deploy capital while preserving the mine's longer-term growth opportunity. Our plan to purchase 4 additional haul trucks will allow us to increase production capacity to over 250,000 gold -- ounces of gold by 2022, while maintaining our near-term production profile. This is a logical and disciplined approach to capital investment, which gives us confidence to push the equipment replacement study into 2019 since it focuses on our loader fleet. This, in turn, provides us with more time to properly contemplate the conversion of 2018 Mineral Resources and improve loader efficiencies from an optimal long-term mine configuration.

At Seabee, we're expecting another record production year in 2018 as the mine continues to support increased mill throughput. Our exploration programs at Seabee is focused on discovery, and we're excited to start drilling on the adjoining Fisher property. At Puna operations, we are, of course, focused on completing the Chinchillas project and seeing first ore delivered to the Pirquitas mill later this year.

So looking ahead for SSR Mining, our strategy remains consistent, focused on delivering safe production and free cash flow while investing in exploration and executing our growth strategy to create value for our shareholders. We did this again in 2017, and our outlook for 2018 and beyond remains bright.

This concludes the formal remarks of our earnings call. I'll now pass the line over to the operator to have any questions you may have.

[Operator]

[Operator Instructions] Our first question comes from Rahul Paul of Canaccord Genuity.

[Rahul Paul, analyst]

Alan, at Marigold, you've shown that you can attain mining rates of -- in excess of 80 million tonnes a year with the existing fleet. Now you did indicate that the 4 new trucks, you're not expecting an increase in gold production. But are you expecting an increase in mining rates, i.e. tonnes moved? Or is the impact going to be mostly offset in the near term by longer-haul distances and/or other factors? Or do you think you can actually achieve an improvement, but just difficult to quantify at this stage?

[Paul Benson, executive]

Rahul, the additional trucks are really to compensate for continually increasing haul distances. Again, with the new pad and the deeper pits, those haul distances are getting longer and longer, and we need to add additional truck hours into the system. That is really the benefit of we got extra ounces, just the geometry when you look at the ultimate pit design, it just increases the haul distance over what we had originally planned. So you don't see that -- any benefit compared to the 5-year production schedule, but it starts to have a positive impact after that. So we'll see production rise to over 250,000 ounces in the year 2022.

[Rahul Paul, analyst]

And maybe I missed it, so if that's the case, then what is the driver of the additional production in the year 2022? Because presumably, you'd be going a little bit deeper within the year the existing pit as well or -- so what would the key driver be for that increase?

[Alan Pangbourne, executive]

Its impact's on the haul distances, wider benches, some larger volumes of waste that need to come off the top first. And then by 2022, you get down into the heart of the improved resource that we've just released.

[Rahul Paul, analyst]

Okay. Fair enough. So that makes sense then. So I guess, in the near term, in addition to the increased haul, you're expecting to move more waste tonnes versus ore. And that would have an impact as well.

[Paul Benson, executive]

I mean, unless you actually go and look at detailed mine planning, you can't just have a simple summary. Basically, it's a combination of all the above. You end up taking longer to get down into the higher grade. Why? Because we found additional ounces, before we get to that area, we have to have wider benches. So it's a positive story, but you see the real impact in terms of extra ounces in production coming through in 2022.

[Operator]

Our next question comes from Mike Parkin of National Bank.

[Michael Parkin, analyst]

With the tax changes in the States, could you just speak about how -- if at all, how that changes the outlook for Marigold?

[Paul Benson, executive]

Sure. I'll pass that one over to Greg.

[Gregory Martin, executive]

Yes. Thanks, Mike. And if I can, just before I respond to your question, I just wanted to correct one statement in my comments. The number of Pretium shares that were divested were 3.6 million. I think I said 6 million on the script, so I just wanted to correct that. The U.S. tax reform I turned -- I think about as positive as it could be for us as an industry and certainly for us as a company. Marigold is our primary taxable asset. The tax reform really has 3 key parts: one is it removed AMT, which is positive both on a compliance basis, but also in terms of being able to balance your taxes sort of year-to-year. We retained percentage depletion as an industry, which is a very favorable credit that goes against your taxes and obviously, the tax rate coming down to 21%. So we see that tax reform as very favorable for Marigold and the taxable position coming forward. It still is going to be subject to Nevada net proceeds tax, which hasn't changed by those regulations. But the federal income tax rate on Marigold will decline significantly.

[Michael Parkin, analyst]

Okay. So what would be the total tax we should assume for 2018 going forward?

[Gregory Martin, executive]

Our effective tax rate will range likely in the 20% to 25% range, just depending on metal prices and profitability of the asset. But it should range within those kind of parameters, including the Nevada net proceeds tax portion.

[Michael Parkin, analyst]

Okay. Perfect. Other question is can we get a sense of how Marigold's stripping ratio would be throughout this year? And then what's the threshold you guys use to determine whether or not that -- what portion is expensed versus capitalized?

[Gregory Martin, executive]

Yes, obviously, we provide guidance in our annual guidance of deferred stripping for Marigold. And you can see now, 2016 was quite high. It's come down in '17, and it's forecast to decline further in 2018. So we'll start to see the amortization of that reduce as we go -- as we see going forward. We have to comply with IFRS in our stripping. So on a phase-by-phase basis, where we're above the phase-strip ratio, we'll be deferring. And when we're below the phase-strip ratio, we'll be amortizing those through the P&L. So it really -- I would just have you look to the guidance we provide on capitalized stripping as the best indicator of where we're at on the overall stripping piece.

[Michael Parkin, analyst]

Okay. And will it be fairly consistent quarter-over-quarter through 2018?

[Gregory Martin, executive]

In our guidance, we indicated that the deferred stripping would be pushed out towards the second half of the year.

[Paul Benson, executive]

I mean, one thing to keep in mind, this is a long sort of not terribly deep pit. If it was a deep pit just going straight down, it would have some sort of consistency. But it varies with the different phases where we are in the pit, so it does move around year-on-year.

[Operator]

Our next question comes from Dan Rollins of RBC Capital Markets.

[Dan Rollins, analyst]

Congrats to the team for adding ounces through exploration this year to your existing assets. Nice to see. A good way to buck the industry trend. Just at Marigold, any change to life of mine strip here? Obviously, you've picked up more ounces. But with the pit changing, is the strip relatively consistent with the last technical report? Or should we assume a bit higher over the near term?

[Alan Pangbourne, executive]

There's been -- over the life of mine, there's little to no change because it's still all driven by economics. So grade versus depth versus the waste on top of it. So there's no major change.

[Dan Rollins, analyst]

Sorry, I wasn't here when the technical report came out. That was before the assay study, so that tended to have higher strip?

[Alan Pangbourne, executive]

It would have...

[Paul Benson, executive]

Yes, relative to what we're doing now. Yes.

[Alan Pangbourne, executive]

That's correct. I mean, compared to where we are now in that 2 to 3 range, it won't change beyond that.

[Dan Rollins, analyst]

Okay. And then with the fleet study being pushed out to '19, just given you've got a lot of extra ounces and you'll probably find more this year to work into that plan, is it -- are you still thinking this could go to 300,000 ounces from 200,000? Or you're sort of reviewing those assumptions based on the exploration success?

[Paul Benson, executive]

When we talked about it, I think we first started talking about it at the Investor Day, we put the 2 bookends; what we're currently doing, and this is what it looks like if you add another shovel. You buy shovels in integers, 1, 2 or 3. So if you add 1 extra shovel, that's what it looks like. So I think it would be that same sort of order of magnitude.

[Dan Rollins, analyst]

Okay. And just given the oil consumption at Marigold, have you changed your hedging strategy there to lock in oil prices deeper out in the curve? Or are you pretty comfortable with your hedging requirements right now?

[Paul Benson, executive]

Greg?

[Gregory Martin, executive]

Thanks, Dan. Yes, we have taken an approach really to take advantage of market opportunities when they exist. So we're certainly standing back right now, but we're fortunate that we'd protected about 35% of 2018 consumption last year when oil prices were significantly lower. So that provides us a good level of protection, and we'll monitor market conditions for opportunities going forward. But we don't see it as something we will continuously execute. We'll look for opportunities when they think they have long-term value for shareholders and to stabilize the cost structure at attractive levels.

[Operator]

Our next question comes from Cosmos Chiu of CIBC.

[Cosmos Chiu, analyst]

A few questions for me. Maybe first off, on Santoy-Seabee. Certainly, good to see that the reserves have increased. Could you remind us or could you tell us what the conversion ratio was from resources into reserves?

[F. Carl Edmunds, executive]

Some history of it? Is that the question?

[Cosmos Chiu, analyst]

What happened? I think historically, it was 70%, but what was the conversion ratio in 2017? Certainly, Carr looks pretty good because I think your grades increased as you infill drilled, but how about tonnage?

[F. Carl Edmunds, executive]

Yes, well, the -- I'd be guessing without looking at some figures on what that was with some accuracy. But the thing is, is that we focused on the areas that we could reach and the ones that were showing continuity in higher grades, and that's what you're seeing that converted.

[Paul Benson, executive]

I think generally, it's still a very high conversion rate.

[F. Carl Edmunds, executive]

It's a majority.

[Cosmos Chiu, analyst]

Okay. And then again, certainly good to see that the reserve grade has increased now to what, 9.88 gram per tonne. You're not quite there yet in terms of head grade. I guess in Q4, you did 8.89 gram per tonne. Should we be seeing your head grade sort of approaching the reserve grade in 2018? Or looking at the latest technical report, it looks like you weren't going to get to 10-gram per tonne until 2020 -- year 2020. Is that still sort of like the plan?

[Paul Benson, executive]

Yes. If you go back and have a look at the PEA, it clearly showed the grade increasing over coming years. And nothing has changed with that. But that higher grade that we've converted this year was inferred before and shown in the PEA. We've converted it into M&I. It's deeper. And so you can't race just to get down there. You're depending on development to get down to that ore body, so we don't see any change in that profile of increasing grade over coming years.

[Cosmos Chiu, analyst]

Okay. Maybe switching gears a little bit and going to Marigold here. In terms of that $22 million CapEx in 2018, is that going to be sustaining CapEx? I'm just trying to figure out if we should include that number in calculating our AISC.

[Gregory Martin, executive]

Yes. We don't obviously provide specific AISC guidance, Cosmo, as you know. We haven't really looked at that issue at this time. It was something we just discussed at the recent meeting, so we'll look at that and we'll advise as to how we expect to treat it.

[Cosmos Chiu, analyst]

Okay. And then in terms of the 300-tonne -- metric [ tonne ] payload trucks. Alan, could you remind me once again how that compares to your current truck size? Is that the same?

[Alan Pangbourne, executive]

Oh, yes. Yes, they're the same trucks, same models.

[Cosmos Chiu, analyst]

And then the -- so we've talked about this quite a few times in the past. The mine was sort of truck constrained. I guess, in part, that's why you're adding trucks. Again, you've talked about potentially the addition of trucks helping you get to 250,000 ounces someday in the future here. To get there, do you think you'll potentially need to add a rope shovel later on during the mine life?

[Alan Pangbourne, executive]

That, at the moment, is the base case with the equipment we have. And what we've said, I think we spelled it out at the Investor Day, the equipment replacement study -- there are 2 things. We have the big rope shovel, which will last for life of mine. We have 2 smaller hydraulic shovels. They need to get replaced at some point, and the current base case is replaced like-for-like. The alternative is that equipment replacement study is instead of getting 2 new rope -- hydraulic shovels, get another rope shovel, which requires more trucks. And that's what we said. We're going to push that out. It makes sense because we're pretty excited by the exploration opportunity. It's better to find out whether we can make Red Dot work, do the mine plan sequencing, et cetera, and we'll make a decision then. But -- so base case is no additional rope shovel, but if we go to an expansion, that would be the logical thing.

[Cosmos Chiu, analyst]

Okay. And then maybe turning to Puna here. Certainly, what we've heard on several other conference calls is some chatter about potential for inflationary pressure coming back into the mining industry. As it specifically relates to Puna, Chinchillas as you sort of build it out, are you seeing any kind of inflationary pressure into Northern Argentina?

[Gregory Martin, executive]

Thanks, Cosmo. I'll take that. Obviously, as you say, we're seeing commodity prices generally on an upward trend. We think we're quite fortunate in the position at Puna. We've seen a significant devaluation of the peso through December and January, so that certainly has more than offset in that time period local inflation. And with the Chinchillas project, I mean, it's a relatively limited scope, and we have preordered and locked in a number of the components to that project. And some of it was repair of existing equipment and things that Alan said have been completed. So we're very comfortable with where that project sits from our announced budget perspective, and we don't foresee any significant inflationary pressure coming in at this point.

[Alan Pangbourne, executive]

I'd just like to add to that. As I mentioned in the call, all of the major equipment that's being imported, all of the materials that are being imported have all been committed and locked in. And what really remains in these 2 quarters, 3 quarters is all local labor, earthworks, erection, basically construction-type activities. And as Greg said, the devaluation of the Argentine peso is going faster than inflation. So we don't see any real impact.

[Cosmos Chiu, analyst]

Great. And I guess, that sort of leads to my last question here. As you mentioned, Chinchillas' limited scope, it's not going to the cost a lot of money. If I look at the asset side of your balance sheet, you have $460 million in cash. And that increased subsequent to the quarter with the sale of more Pretium shares. Paul, have you thought about what you're going to do with that cash?

[Paul Benson, executive]

As a management team and a board, we obviously continuously review that. I think really where we see ourselves, where we stand out amongst our peers, I think we've probably got the strongest balance sheet amongst our peer group. That puts us in a great position. We can fund any opportunities we have internally. If the growth study at Marigold show that we're best placed to invest in expanding the fleet, we can easily fund that. If any of the internal growth opportunities come by, we can fund that. I think from a shareholder point of view, the people who suffered the most over recent years are those people who get themselves into a corner then have to go out and do a board deal and sell shares at a discount to new shareholders. So I'm proud of the fact that we've got a very strong balance sheet. We can fund our growth opportunities. It also puts us in a great position to look for new opportunities externally as well.

[Operator]

Our next question comes from Robert Reynolds of Credit Suisse.

[Robert Reynolds, analyst]

My question goes back to Seabee. I just wanted you to contrast the assumptions that were in the PEA that we got in the fall last year versus this increase now in global resource grade and reserve grade at Seabee. I think you mentioned the increasing grade profile is intact, but what do the higher grades mean for Seabee longer term? Is there -- should we look at it as a potential extension of that 700,000 ounce life-of-mine number? Or could it add ounces within the 7-year profile as well?

[Paul Benson, executive]

No, I think if you go back to the PEA, the basis of that study is including both M&I and inferred, given an overall picture of the potential of the operation. So this is converting the deeper material, which we always knew was higher grade, into reserves. The basis of that study, I think, was 1,000 tonnes per day this year then rising to 1,050 thereafter in the mills. And if you look at that profile, the rest of that increase going through to 2021 is an increasing grade. Obviously, if we can do better than 1,050, then you'll see more production. I think the best thing to do is just go back and look at the total ounces, the grade profile in the PEA, and you can obviously extend to mine life if you see more ounces there. But we're not guiding to any higher production at the moment.

[Robert Reynolds, analyst]

Okay. I guess, maybe to clarify my question, the global resources, so not just looking at the reserves, but the M&I and inferred at Seabee, the grade of those resources has also increased 26% versus last year. Did the PEA already reflect that work that you had done that was pointing towards the higher resource grade at 2017 year-end versus 2016 year-end?

[Paul Benson, executive]

No, that PEA was based on the previous year's Reserves and Resources statement. But Carl, just talk about the changes -- some of the changes in resource.

[F. Carl Edmunds, executive]

Yes. We had previously embedded. There were some dilutive components in the year-end 2016, so we moved to get some of those engineering pieces out of the resource determination. And so if you look back and compare, say, year-end 2016 reserve grade to resources, you don't really see much of a knock for the dilution. And with the current one, you do see it. So it's more accurately reflecting what's in the resource at the present grade that we've just released.

[Paul Benson, executive]

So to be clear on that, the old resource incorporated dilution, which technically it shouldn't. So that process is being clarified. So we're taking some of that dilution that you include when you go to reserve, we've taken that out. So that's also accounting for some of the increase in the resource grade.

[Robert Reynolds, analyst]

Okay. And what is the dilution that's typical when you would compare what you're reporting in the resources versus what dilution would get that to a reserve?

[Paul Benson, executive]

I think if you go back to the 43-101, which we released in September last year, that's got all the detail in it. That's quite a detailed [indiscernible] there. Dilution varies. Really, when you think about it, if it's an open stope, you think in a certain thickness of Hanging Wall dilution. So if it's 50 centimeters or something like that, the percentage of dilution depends on whether the vein's 2 meters or 20 meters. So it's hard to have an exact number.

[F. Carl Edmunds, executive]

I should also add that the changes in the grade, it's not -- the dilution contributes to it, but it's not a majority piece of it. It's -- we ended up converting and adding in higher-grade areas.

[Robert Reynolds, analyst]

Okay. And just on the dilution question, I think the reason I was asking was I wasn't able to find that number in the 43-101. So maybe I'll just follow-up with it.

[Paul Benson, executive]

We'll follow-up. We'll get back to you if we -- we'll go through and have a look at that, see if we can't find it ourselves. We'll come back to you.

[Operator]

Our next question comes from Michael Sroba of Macquarie.

[Michael Sroba, analyst]

Just 2 questions for me today. The first relates to Chinchillas. With the rainy season under way, when is it expected to conclude? And are certain months typically worse than others?

[Paul Benson, executive]

Alan?

[Alan Pangbourne, executive]

Yes. Michael, the wet season in Argentina is quite predictable. It's usually December through to late February or early March, and then it starts to clear up. So we're getting close to the end of February, so I expect it to start clearing up. We had just a couple of really bad storms come through and impacted, you probably saw in the news, Salta and Jujuy and other places. But we're moving stuff around. We're getting gear across to the site. We're getting earthworks started up and moving. So unless we get another massive storm come through, we're quite confident that we'll get into the end of it, and we'll be okay.

[Michael Sroba, analyst]

Okay. And my final question, for the fleet expansion study at Marigold, are you considering integrating automation? And if so, would you expect significant cost savings from that?

[Paul Benson, executive]

All the trucks that you buy now are capable of being set up that way. As part of the study, we're evaluating that. So we definitely haven't made up our mind. Certainly, we -- you see it around the world. It tends to be in the super large mines, so the iron ore mines of Northern Australia or the big copper mines in South America. You need a critical mass there to get it to pay for itself. So it's something we'll evaluate, but it's not laid down as of yet. It's not clear-cut at the moment.

Okay. Thanks very much, operator. We'll finish there. Okay. Thanks very much, everyone.

[Operator]

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