SSR Mining Inc

NASDAQ:SSRM

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, everyone, and welcome to SSR Mining's Fourth Quarter and Year-end 2018 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Stacey Pavlova, Manager, Investor Relations.

[Stacey Pavlova, IR]

Thank you, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining's fourth quarter and year-end 2018 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 that 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; Kevin O'Kane, COO and Carl Edmunds, Vice President Explorations. Also present is John DeCooman, Senior Vice President, Business Development and Strategy.

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

[Paul Benson, President & CEO]

Thank you, Stacey. Good morning, ladies and gentlemen, and welcome to our call to discuss our operating and financial results for the fourth quarter and full year 2018. It's important to note 2018 was a year of transition for the company as we processed stockpiles at Puna while we brought the new team chiefs deposit online. Pleasingly, it was another successful year as we continued to deliver on our strategy of creating value for our shareholders. As we start 2019 we are pleased to have three strong operations each providing near-term production growth, good mine life and significant exploration upside.

In 2018 our continued focus on operational excellence resulted in our seventh consecutive year of achieving production and cost guidance. The strength of our portfolio and performance is reflected in our balance sheet where after capital investments in Puna and are successful strategic investment in Silver Crest, we ended 2018 ended nearly $420 million in cash. At Marigold, strong results in the second half of 2018 drove production to 205,000 ounces the second highest in the mines nearly 30-year history eclipsing the top end of our revised production guidance. The impact of an expanded whole fleet and increased truck availabilities continues to drive record material movement as evidenced in the second half of 2018 which positions as well for growth in 2019 and beyond.

At the Seabee Gold Operation, we had another record-breaking year benefiting from higher mine grades and OE initiative that increase mill throughput producing nearly a hundred thousand ounces of gold. Of note, the fourth quarter, we produced 20,000 ounces of gold at the margin of approximately $500 per ounce due to a robust grade of 10.2 grams per ton. At Puna operations we declared commercial production at the Chinchillas mine on December 1, 2018. The development of the Chinchillas mine represents a high return low capital project that extends Puna's operating life just as precious metals prices are beginning to tick up. Importantly, all three operations had significant mine lives and we are continuing to invest in the upside potential we see.

In 2018 we once again had exploration success at both Marigold and Seabee and built on our track record and mineral reserve growth. At Marigold we converted 460,000 ounces of gold to mineral reserves from Red Dot Phase 1 and Mackay. We continue to evaluate the equipment replacement study and expect to release an update by mid-year. Seabee, we increase mineral reserves by nearly 40% and have now increase our reserves by over 100% since we acquired the mine in 2016 while mining over 225,000 ounces during this period.

In 2018 we also executed our first strategic investment in Silver Crest Metals. The elasticity of this project represents exposure to an exciting high-grade development project with significant exploration upside in a favorable mining jurisdiction. We look forward to participating in Silver Crest development progress and exploration success over coming quarters. So in summary, 2018 was another successful year for us as our mining and I'd like to thank our employees for delivering these great results that has positioned us for a year of growth in 2019.

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

[Kevin O'Kane, COO]

Thank you, Paul. Firstly, we continue to ensure that the safety of our people is the highest priority across all our operating sites and the rest of the company. We remain committed to driving progress in the implementation of effective controls for critical safety risks and this remains a key focus for SSR Mining. We are working to reduce the number of accidents at our operations and we have reduced the severity of the accidents that did occur. Operationally, 2018 was a successful year across all three sites as we achieved overall company production and costs guidance for the seventh consecutive year.

In total, we produced over 345,000 gold equivalent ounces with a cash cost of $736 an ounce. At Marigold, we produced over 205,000 ounces of gold surpassing the upper end of our revised production guidance and representing the fourth consecutive year of production over 200,000 ounces. Cash costs were $723 per ounce. As expected, gold production in the second half of 2018 was stronger than the first half of the year as we benefited from increased our stocking rates and faster leaching kinetics. During the quarter, production total 54,000 ounces of gold and cash costs were $760 per ounce, predominantly reflecting longer haul distances. During Q4 [inaudible 00:06:36] a total of 17 million tons of material, a decrease as compared to the record achieved in Q3 as mining rates were impacted by plan electric shovel maintenance completed in October and weather delays in December, but these were partially offset by improved whole check availabilities.

The mine degrade increased in the quarter 2.34 grams per ton, a 6% improvement over Q3 due to mining deeper in the current phase of the Mackay pit that remains below the average reserve grade. Looking ahead, we remain focused on delivering near-term production growth at Marigold as outlined in our 2019 guidance while evaluating upside through the equipment replacement study.

Moving on to Seabee; the site's performance for the year was exceptional achieving strong results in multiple areas, demonstrating the team's dedication and focus. For the year, the site achieved its fifth consecutive annual production record producing over 95,000 ounces of gold. In Q4 we produced 20,000 ounces of gold, a decrease as compared to Q3 due to gold ounces contained in circuit and timing of gold pores at year-end. The mine continued to deliver excellent margins as cash costs for the quarter were $502 per ounce in line with our annual cash costs of $505 per ounce.

The mill grade of 10.2 grams per ton in Q4 continued to benefit from increased development or from the high-grade Santoy 8A zone. In 2018 we processed a record of over 350,000 tons, averaging 964 tons per day, 6% higher than last year. Mill feed graded improved to 9.2 grams per ton representing an 11% increase as compared to 2017 with the mine now being the limiting capacity we will increase the mining fleet this year by adding two underground haul trucks and two scoops to be delivered over this year's ice road, which remains within the plan we set out in the 2017 PEA. Additionally, given the strong exploration results, which Carl will talk to later, we are investing in an expansion of tailings capacity in excess of that contemplated in the 2017 PEA. So we are very optimistic that Seabee will continue to improve its performance and set new records again this year.

At Puna operations, we successfully transitioned to Chinchillas ore and declared commercial production for the Chinchillas mine on December 1, 2018. For the year, Puna operations produced 3.7 million ounces of silver, 8.8 million pounds of zinc and 3.1 million pounds of lead. In Q4, silver production was 1.2 million ounces, an increase of 79% compared to the third quarter as the operation benefited from increased tonnage of higher grades Chinchillas ore. It is worth noting that in January with or sourced exclusively from the Chinchillas mine, we achieved a 3,910 per day milling rate.

In the first quarter, the transition from the processing of Pirquitas Stockpiles to higher grade Chinchillas ore resulted in cash costs of $15.02 per ounce silver. Annual cash costs were $1,591 per ounce as byproduct credits were lower than expected due to timing of concentrate sales that were sold subsequent to year-end. Having declared commercial production, our focus now shifts to steady state operations and optimization efforts at Puna. While there remains some Chinchillas project scope to be completed in the first quarter of 2019, including completion of various infrastructure at both the Chinchillas and Pirquitas sites, the project remains on track to be completed on budget.

Turning to projects, during 2018 we completed studies looking at a potential Pirquitas underground to supplement Chinchillas feed and a potential underground mine at Pizzeria in Durango, Mexico focused on the higher grade deeper sulfites. The studies showed both projects were viable at spot prices but offered single digit IRRs. We will reassess both projects in the short term for ways to improve project economics. At the Pirquitas underground, as Carl will discuss, we have allocated an exploration budget to test possible extensions to the mineralization that could improve the project's economics at Pizzeria. We are reviewing the geological model to determine if there are areas with potential to define higher grade.

So in summary, all of our operations finished the year delivering solid production and cost performance and we achieved our annual guidance. 2019 will also be a very significant growth year for us with expected record production at both Marigold and Seabee and the ramp-up to steady state operations at Puna. This is expected to drive growth to nearly 400,000 ounces of gold equivalent production and $700 per ounce cash costs.

I will now hand over to Carl who will take you through our exploration activities.

[Carl Edmunds, VP, Explorations]

Thank you, Kevin. Our 2018 exploration activities at both North American Operations successfully expanded mineral reserves over and above mine depletion reflecting our primary focus on conversion for the year.

At Marigold, we converted, inferred and augmented, measured and indicated resources through infill drilling and made advancements towards our ultimate goal of converting Red Dot's 1 million ounce resource to reserve by mid-year 2019. At Seabee, we successfully converted resources to reserves at Santoy while continuing to generate and drill-test early stage targets on the Fisher property. Initially, I will discuss our year-end 2018 mineral reserves and mineral resources estimates followed by a summary of our 2019 exploration activities. Note that we report our resources inclusive of reserves.

Marigold probable mineral reserves are 3.3 million ounces of gold representing an increase after depletion is compared to 2017 ended a higher average reserve grade. The increase is due to mineral resources conversion success of the western phases of the Mackay fit and Red Dot Phase 1. At Mackay and Red Dot infill drilling activities collectively added 460,000 ounces of gold while a miner pat inventory changed, accounted for a further 50,000 ounces. Finding depletion amounted to 320,000 ounces while model assumptions reduce low value reserves, a further 80,000 ounces resulting in a net year-over-year edition of 110,000 ounces. It is worth noting that the 80,000 ounces labeled as model assumptions on the accompanying slide were removed due to better long-term mine planning.

Our 2017 mine plan correctly identified this as ore albeit at a very low margin, were completed in 2018 combined improved planning, sequencing and the effect of time value of money which removed these marginal ounces while increasing the NPV at Marigold by tens of millions of dollars. Indicated mineral resources total 5.56 million gold ounces while inferred mental resources total 400,000 ounces reflecting our successful conversion focus.

Now, I'd like to bring your attention to the next slide, which shows a cross section through Mackay and Red Dot. Approximately 350,000 ounces are attributable to the partial conversion of the eastern portions of Red Dot while the remainder is from the western phases of Mackay. Pleasingly, results from the 2018 drilling along with a revised mine planning sequence, converted the eastern portion of Red Dot resources to reserves using current model assumptions. We refer to this added reserve as Red Dot Phase 1. We are currently completing geotechnical drilling to the West on this cross-section to understand final Red Dot slope designs. This drilling and the equipment replacement study will determine if and how much of the remaining Red Dot resources convert to reserves.

We remain on-scheduled to complete the equipment replacement study by mid-year. At our Seabee gold operations, proven and probable mineral reserves increased by nearly 40% compared to 2017 now totaling 608,000 ounces of gold and underscoring a successful year of exploration, conversion, and development. Importantly, the added reserves are maintaining Santoy's higher grades at 9.2 grams per ton gold. Much of our success resulted from infill drilling it Santoy 8 which has confirmed the higher grades that were present in the previous year's inferred resources. Seabee's measured and indicated mineral resources increased 856,000 ounces of gold. The resources increased due to infill drilling of inferred mineral resourcesa at Santoy 8 and lower Santoy gap. This work converted or add a 283,000 ounces from those two zones outpacing mining depletion and the exclusion of the old Seabee mine's 47,000 ounces of resources due to its closure.

Seabee Gold Operations inferred resources now stand at 483,000 ounces reflecting our focus on conversion for the period and importantly, our inaugural 87,000 ounces of discovery gains at Santoy Gap hanging ore. At Puna, proven and probable mineral reserves total 38.7 million ounces of silver, reflecting Chinchillas mining depletion starting in the second half of 2018 and Pirquitas Stockpile depletion throughout the year. Measured an indicated mineral resources total 89 million ounces of silver within an open pit underground and Stockpile inventory at both sites. Inferred resources total 31.1 million ounces of silver and are unchanged from 2017.

Turning now to our 2019 exploration objectives. At Marigold, we will return to a focus on resource growth with 60,000 meters planned for Volmi [ph], East Basalt and around Red Dot, as well as completing the first series of drill fences across the recently acquired 32 hectors of land south and adjacent to Red Dot. At the Seabee Gold Operation, 2019 exploration will similarly focus on converting and extending inferred resources at Santoy 8, Santoy Gap and Gap hanging wall through a combination of surface and underground diamond drilling that amounts to 68,000 meters. We are also maintaining our efforts to discover new inferred resources with 8,000 meters of surface drilling at Fisher and strong field programs in certain areas of our control tenures.

The 2019 exploration activities are already underway with four surface drills and three underground thrills turning. Currently, we are drilling on Santoy 8A, Santoy Gap, Gap hanging wall and extensions to the Santoy Shear and at the Mac target on Fisher. At Puna, there is still potential to identify additional high-grade mineralization at the interpreted intersection of the [indiscernible] at depth which could improve the Pirquitas underground economics. We have included $1 million in our budget to drill-test this and any targets generated by the drone magnetic surveys currently nearing completion. We would expect that drilling to be completed in the second half of the year.

Now, over to Greg for a discussion of our financial results.

[Greg Martin, CFO]

Thanks, Carl. It was great to see the operations have a solid fourth quarter to round out 2018 ahead of plan. 2018 was a transition year for us with our Argentinian construction, so having Chinchillas has come online in December, positions Puna operations to return to be a contributor to our financial results, giving us a boost as we head into 2019. With Marigold and Seabee continuing their track record of earnings and cash flow contribution, adding Puna back in sets us up well to see sequential improvement in reported results. For the fourth quarter, we reported revenues of $104 million, an income from mine operations of $17 million. We reported in that lots in the quarter largely due to two items that were ironically both very positive for our shareholders. The first item relates to our purchase of Silver Crest shares.

Upon close, the price we paid was at a premium to market, so we recorded a $2.8 million loss to income on initial recognition. We paid $23 million for a 9.7% position, which is now worth approximately $30 million but that increase in value gets recorded through other comprehensive income. So what is looking so far like a great investment impacted Q4 earnings. The second item was that due to the strong absolute and relative price performance of our shares through the fourth quarter, non-cash share-based compensation expense in the quarter was $8.3 million, well above normal quarterly levels.

Our adjusted attributable net earnings were $4.4 million or $0.4 per share. We do not adjust for noncash stock-based expense in our adjusted earnings. However, we did adjust for the one of silver crest expense. For the year we generated revenues of $421 million in income from mine operations of $77 million. Reported earnings were break even with earnings attributable to our shareholders of $6.4 million or $0.5 per share. Full-year 2018 adjusted attributable net income was $28 million or $0.23 per share.

Turning to cash flow, we saw over $22 million increase in noncash working capital in the corner which was the combination of building generally finished goods in in-circuit inventory during the quarter at all 3 operations. The upshot to that is we're seeing a stronger metal price market to sell into as we move that inventory. As a result of that building working capital, we saw $3.7 million use of cash from operating activities. Capital spending across all 3 assets was $17.2 million. Both Marigold and CB closed out the year below their capital guidance amounts with Puna right a guidance as the site's continue to show good discipline with capital spending.

As mentioned earlier, we also invested $23 million in silver crest shares as we partner with them on their promising project in Mexico. Spending at the Chinchalla, as project total $19 million and as announced with the commercial completion decision, we expect the project to be completed in Q1 with approximately $9 million of further spend as the project finishes at or below budget.

Considering the strategic investments in our assets and third party opportunities and the $8 million loan extended to our partner, it is great to see us close 2018 with nearly $420 million of cash keeping our balance sheet strong as we enter our growth phase in 2019. We released our guidance in January which supports our expectations of growth with all 3 operations having a guidance midpoint higher in 2019 than in 2018 and if Puna significantly higher with the full year contribution from Chinchilla.

For 2019, we expect consolidated production of $395,000 gold equivalent ounces at approximately $700 cash cost per payable equivalent ounce. If I compare that to our initial 2018 guidance, production is higher by 16% or $55,000 equivalent ounces and cash costs are lower by 6% or $40 per ounce. If both Marigold and CB can hit guidance midpoints, they would each set a new respective production record. Items of note within capital spending are the acceleration of a leach pad builds it Marigold by approximately 6 months to add flexibility to the operation. And it's significant tailings expansion at CB to accommodate the growth in reserves and resources.

Our guidance supports all 3 operations being in a free cash generating phase in 2019 with free cash flow weighted towards the second half. In that regard a few items to highlight particularly through Q1 into Q2. I already mentioned the remaining Chinchalla spend of $9 million largely in Q1 but some payables may spill over into Q2. Also in Q1, we will make the payment of approximately $7 million for cash taxes payable on the premium [ph] dispositions.

The taxes have already been booked but remained as a payable at your end. We're in the process of wrapping up concentrate sales after the switch to Chinchalla ore [ph] which dramatically increases tonnages of concentrates produced. Due to the logistics of concentrate marketing which requires establishing agreements transporting internationally and third party smelting and refining. It will take a number of months to get out to a run rate that matches production so you will likely see sales like production through the early part of the year.

Finally, as with every year Q1 and into early Q2 seize the restocking of CB over the ice road leading to a high quarter of supplies, inventories, and capital stand for all goods being brought to the site. To wrap up 2018 concluded well and we maintained a strong financial position through a year of high investment and limited contributions from Puma [ph]. We come into 2019, the start of our growth phase with a stronger outlook internally and is welcomed by all in our sector stronger gold and silver prices with lower energy prices which should also support higher margins if they hold as I expect them to do.

I'll now turn the call back to Paul.

[Paul Benson, President & CEO]

Thanks, Greg. So in summary, it was particularly pleasing that even in a transition year, we delivered solid operating results across the portfolio, having met or exceeded that production in-costs guidance for the seventh consecutive year. We are well positioned to execute that growth strategy for 2019 production passed to grow to nearly $400,000 gold equivalent ounces as all the three operators increased output including our newest mine Chinchalla that is ramping up to steady-state operations. By 2021, our production profile is expected to grow to $440,000 equivalent ounces. Not including potential upside Marigold or success from our brownfields expiration programs.

We also continue to invest in our long term through [ph] expiration with strong results of both Marigold and CB. This continues our track record of creating value by increasing mineral reserves and resources each year and we expect to do the same this year. We continue to maintain our financial discipline. We said we would only go ahead with [indiscernible] underground projects if they offer double digit returns and spot prices. We have no doubt both projects will move forward at some time in the future.

Looking ahead, 2019 is the year full of cavilers [ph] business. At Marigold, it is important to highlight that we've already added over 2 million ounces of gold to reserve since the end of 2014. In 2018, with a focus on mineral resource conversion of red dot, we successfully added 460,000 gold ounces to mineral reserves. We continue to evaluate the optionality of this asset with the equipment replacement study which we expect to provide an update on by midyear. In CB, we're expecting another record production year in 2019 with the addition of new mining equipment traveling to site on the issues [indiscernible] this continues to support increased mill throughput. Our Expiration program at CB remains focused on discovery and conversion.

Looking ahead presses on mining as strategy remains consistent focusing on delivering site production while investing in our assets executing on a growth strategy to create value for our shareholders. We did this again in 2018 and now i look to 2019 and beyond remains bright [ph]

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

[Operator]

[Operator Instructions] Your first question is from Michael Gray with Macquarie.

[Michael Gray, Macquarie]

Few questions on CB to start out with on the resource increase that center -- the first resources center gap paying all the 87000 ounces. What was the grade and average sickness and is it open in all directions?

[Greg Martin, CFO]

We haven't given out the grade but I'll let Carl talk to the sickness Exeter.

[Carl Edmunds, VP, Explorations]

Yes it's between 2 meters and-- 2 meters and 4 meters. There are some -- be them in some of the drill results we got. There is some more detail in that. There are some intercepts that are wider Mike. There is potential to expand an up and down plunge and we did have indications from the drilling last year that we're really supporting that so we're -- we feel pretty bullish about it.

[Michael Gray, Macquarie]

And then on CB, what was the driver of the reserve grade reduction was more about mining in the stop designs?

[Carl Edmunds, VP, Explorations]

Well, it's not -- I would say the grade hasn't fallen by a large amount and it's really just reflecting the, you know the design of the reserve and stop outlines I mean what's in front of us.

[Paul Benson, President & CEO]

Certainly, yes. When you go from insert [ph] into M&I yes you're getting more definition so obviously, you know the math sets up and you see a slight reduction in the growth.

[Michael Gray, Macquarie]

Okay fair enough and then the mac target Fisher, is this conceptual target Carl or is it really under penned by mineralization and something here you know really expecting good results from?

[Carl Edmunds, VP, Explorations]

I -- if there is -- there's gold mineralization its surface that's exposed and our crop and we've been following up on that with drilling and I -- all I can say right now is you'll hear a little bit more about it next quarter.

[Paul Benson, President & CEO]

Yes, I think the thing to remember up there. Yes when you go to the site visit you know we talked about the regional outcrop of sand toy you know it was not spectacular at all was a couple of played across with just a few grams in it so it's always, yes if you see some channel -- get some channels sampling gold on surface you've got ties into depth and yes keep your fingers crossed.

[Michael Gray, Macquarie]

Yes, no, fair enough and last question just on -- Paul you're well positioned for M&A you've been messaging discipline approached outside opportunities. Are you starting to feel increased pressure to do a deal and to what extent are you focused on these potential noncore senior mining assets coming out of to the market this year and finally are you still primarily focused on North America?

[Paul Benson, President & CEO]

Yes, I mean I read the globe the mine this morning making sure they didn't name us Yes obviously we continue to look for opportunities it's good to see you know that the activity is increased. Yes, there is consolidation, they should be consolidation and there used to be consolidation. We will look at opportunities as I come up with respect to the majors you know I think every bank is been through with the list of the 500 old mine site expect to be sold. We look through and obviously, they're a couple that we're interested in yes and will -- that will be disciplined yes we'll look at whatever process and you know if we think we can acquire a mine and still add value for our shareholders we will otherwise we'll sit on the sidelines.

[Michael Gray, Macquarie]

And primarily North America or are you willing to...

[Paul Benson, President & CEO]

I mean we definitely have focus on the America’s you know we love the fact that have two key assets are in North America and in very, very psyched jurisdictions and yes that does differentiate us so yes I certainly focus on the Americas and have a bias in North America we currently have but you know ultimately you do have to go where the mineralization is.

[Operator]

Our next question is from Mike Parkin with the National Bank Financial.

[Mike Parkin, National Bank]

I got it thanks for taking my question. With regard to the CB in the expansion how -- you've shown in a number of presentations that the through put up the mill. Seems that continually exceed your expectations was calm and I think it was in your January Corp Our presentation that you know kind of a feeling it'll vary alternately the mill could kind of sustain through put. Can you just give us a bit of color in what your current thinking is and is that expansion pretty much completed now and -- or is it still just a tiny bit of work left to do on that?

[Carl Edmunds, VP, Explorations]

I'll comment and then pass that the Kevin. You know if you look back in any of our recent presentations we showed that daily plot graph which shows that you have really significant increase in throughput through the plant for I think around 860 tons per day on average, the year before we bought it and the fairly steady increase and our peak day I think is around 1440 but that's a one off, that's not a you know what you can do day in and day out. The important thing is we have you call it an expansion but it's really just you know operating the plant caught [ph] up there's been minimal capital and that it just focus on continuous improvement. In terms of you know what is the steady state, look the other point is when you look at graphs are a lot of down dies that's because the bottle neck has moved back from the plant back to the mine. And as Kevin mentioned, yes, we've got the new equipment coming in so hopefully you'll see fewer down days as we get that equipment into the system you know in terms of you know what sustainable going forward Kevin, your thoughts?

[Kevin O’Kane]

Yes. We -- I mean in the PA the rate in the plant was 1250 -- this year okay about the ultimate but as Paul mentioned the limiting capacity here is in the mine we are doing work to understand what the limiting capacity might be overall in the plant but the focus is on the mine we have two scoops and two trucks on the road now to come in. We're increasing our development capital development rates in the mine to access more stops faster. And that will be what allows us to ramp up the plant it'll be the limiting capacity of the mine.

[Mike Parkin, National Bank]

And when do you expect that new mining equipment to be commissioned and operational?

[Kevin O'Kane, COO]

During Q2, it's -- some of it actually today may already be across the ice road.

[Mike Parkin, National Bank]

All right, that's it for me and no other questions or answers. Thanks so much guys.

[Operator]

The next question is from Dan Rollins with RBC Capital Markets.

[Dan Rollins, RBC Capital Markets]

Paul just on the theme of the M&A, not non-core asset sales but obviously you've been extremely prudent and how you approach M&A value to the acquisition target but I should hope value for your investors and your shareholders to benefit from. Based on what you've been looking at sort of out of the noncore assets even if the process has started there are you seeing anything of high quality beyond you know what the obviously you'd like to sell investment but outside of that are we seeing anything of really high quality nature? And two, if you are, are you seeing an environment where those management teams are willing to engage in constructive dialogue realizing that you can probably bring less pollution to that company and their shareholders give your significant cash bounds and I would assume that based on your track record and the fact that you run a company as minors and not financiers that you could actually develop these projects quicker or are you seeing anyone actually wanting to engage or they still looking at too high a bit verses your ask?

[Paul Benson, President & CEO]

Yes, I think just as a generalization. Everyone's sort of talking more than they have in the past. You'll always have that you know problem that firm social issues whenever people start talking about deals you know I think it was great the Berwick Randall deal was great you know got people talking about you know zero premium merges, that's great and I I haven't read the article yet today but my interpretation of one of the broken as it was a zero premium hostile that people are talking about which is really exciting. So yes it’s that thing you've got to have those conversations and yes we'll see where that leads to it but you know I'm sure they will be continued and ongoing consolidation particularly in that intermediates both.

[Dan Rollins, RBC Capital Markets]

Have you -- are you interested in a merger of equals, at this point in time?

[Paul Benson, President & CEO]

We'll consider anything that we think is in the best interest of our shareholders yes so if you look at any of those sorts of deals you've got a say our shareholders better off you know on certain metrics. And then just you evaluate it that way but then you have to -- you should be open to that for the benefit of your shareholders

[Dan Rollins, RBC Capital Markets]

And then just off the there's opportunities that there are right now and you wouldn't want to put in your cashed to hold your cash back right now but is there a point in time where there's too much cash on the balance sheet and you look at providing bit of return of capital to investors obviously it’s probably not 2019 but just wondering if you started to think about that from a management level where there's just too much cash on the balance sheet.

[Paul Benson, President & CEO]

We definitely talk about capital allocation yes it is a regular discussion both at management and board level you know what we said, we have a number of potential catalysts internally coming up from obviously Marigold expansion study. we'll see what comes out of that and yes at a point in time if we don't say a good ways to spend the money then you look at what is the most efficient way to give it back to shareholders but I think one thing that is interesting yes you've seen an evolution in the market over recent years with the investment banks on funding the industry at the -- saw it coming from companies that have cash or the streaming companies or some private equity. We are in a very good position we can fund ourselves and it can open doors to new opportunities. we can only grow the company credit value by adding units and you get any idea by drilling or buying so we look at price we're investing heavily in expiration we continue to look externally and that puts us in a great position but absolutely you know, we won't to do anything stupid to me why do it for the sake of doing it so in a period of time we think yes we haven't got a better use we will return it to shareholders.

[Dan Rollins, RBC Capital Markets]

Okay, great; glad to see the market paying attention to your stock after last couple of years, it's been -- share performance is great and I think it validates how you've -- your management team run the company. So congrats on that, that's nice to see.

[Paul Benson, President & CEO]

And it validates that while you put on such a long time ago well done.

[Operator]

Our next question comes from Chris Thompson with PI Financial.

[Chris Thompson, PI Financial]

Yes, the stocks done really well; I think it does well than a lot of things especially the way you're running the company. Just a couple of quick questions here, just looking at Marigold and the grades the stack rates at the moment it as I think you indicated running below reserve grade can you give us a sense of how we should be modeling this?

[Paul Benson, President & CEO]

I think the best -- have a look at the technical report which went out last year, that's got everything on a year-by-year basis. Both, ride and strip where I show you year-in and year-out and you get a feel for what our thinking is in terms of late times. So yes, look at that and that will give you a good handle.

[Chris Thompson, PI Financial]

Just moving on to CB quickly; obviously gold locked in second in the fourth quarter, we're going to see a benefit of that coming out in the first quarter?

[Paul Benson, President & CEO]

Absolutely. It was just -- we didn't put in the last couple of weeks, so it flushed out in January.

[Chris Thompson, PI Financial]

And then just finally, just moving to Argentina, little bit of color, maybe a comment on any cost pressures -- either fiscal regime down there, what was happening?

[Greg Martin, CFO]

In terms of the fiscal regime, no significant changes, we feel very comfortable with the way the government continues to operate the economy and navigate through some challenges if they have but from an operation, as an export, where one could shape to kind of manage through that stuff. Certainly, in the fourth quarter we saw the pace will stabilize and inflation was carrying forward, so quarter to quarter we're going to see some potential disjoint between inflation and the FX rate; so that resulted in some marginal cost pressures in the fourth quarter because of that but our view still is over a reasonable period of time those two things will offset each other and will stay in a competitive position. If you look at any chart on the Peso, it holds for a while and then it goes through a period of fairly rapid devaluation and that holds for a while, we're in that holding phase right now, but I still have confidence through the year we'll see those two factors offset each other.

[Operator]

Our next question is from Michael Sroba with Macquarie Capital Markets.

[Michael Sroba, Macquarie Capital Markets]

A couple of questions on Marigold; given that you have a new leach pad [ph], what percentage of the production in 1Q is being stacked close to the plastic there?

[Kevin O'Kane, COO]

We have stacked to-date about 3 million tons, so I -- it's difficult to say what percentage of production will come from that but a significant proportion in Q1 because there is production coming from all of the pads.

[Michael Sroba, Macquarie Capital Markets]

That's good to know. And just on the G&A costs, they are about 20% lower than the 2018 technical report at the moment. You see that is being sustainable in the near-term?

[Paul Benson, President & CEO]

Yes, I mean we -- certainly there is nothing unusual going on in the G&A cost, so lot of it really comes down to the units. So, obviously we've seen an increase in total material mind which helps those unit cost numbers spread a bit, so that's really what I would drive you towards. In all material terms, it's a fairly fixed dollar spend operation and we'll see unit costs vary according to the order ton stacked or the total mine tons move depending on which unit metric we're looking at. So you will see those quarter to quarter variations but if you look on sort of where G&A costs for the year, we don't see anything materially unusual in that going forward.

[Operator]

Our next question is from Howard Flinker with Flinker & Company.

[Howard Flinker, Flinker & Company]

Using approximate numbers, what did it cost exploratory to add reserves and resources this year per ounce?

[Paul Benson, President & CEO]

Howard, do you want that sort of thing as that kind of result globally or it's between…

[Howard Flinker, Flinker & Company]

Just your numbers.

[Paul Benson, President & CEO]

Yes, the experience at Marigold has been in $20 to $25 an ounce range, and at CB it's mid-$40s.

[Operator]

Our next question is from John Tumazos with John Tumazos Independent Research.

[John Tumazos, John Tumazos Independent Research]

Looking at the 2.6 million ounces of non-reserved resources at Marigold and the over 500 million ounces at Pretoria, what gold price would or infill drill bring the Marigold ounces into reserves or the Pretoria silver ounces in the reserves if the engineering is always is detailed in nothing? Separately, am I dumb to look at the resources and ignore CB where the vein-type drilling makes it hard to find a resources? Maybe that one has more potential than the other two resources?

[Paul Benson, President & CEO]

I'll make a couple of comments and then see if Carl or Kevin want to add anything. At Marigold, the focus -- I mean no competitor tends to be easier to convert, so you normally have less in third but of the M&A [ph] not currently in reserves at Marigold, we focused last year on Red Dot because that had the largest single sort of volume of those ounces over a million. We did the drilling last year, pleasingly, we're able to convert Phase 1, the remaining 700 odd ounces, that's the focus of the equipment replacement study and we're doing the geo-tech [ph] drilling for that at the moment. We've said we'd have come out with a view on that by mid-year, say end of Q2 hopefully, and that will decide whether we're able to convert the remainder of that.

In terms of anything outside of Red Dot at Marigold, Carl, what else do you expect to sort of focus on?

[Carl Edmunds, VP, Explorations]

We're going to be looking through 2019 fairly hard at the [indiscernible] property, that's the southeastern quadrant of our land position there. There is already significant resource and reserve endowment there and we're looking to build on that. Onto your other point about with the narrow vein gold mining setting like what we have at CB, I would not infer -- I would not ignore the inferred resources that are on our table there. Our conversion experience has been quite reasonable, so yes, there is a lot of real ounces in those in inferred classification resource here.

[Paul Benson, President & CEO]

And just going on to Pretoria, yes, that's a silver project; what we said there, we did sort of a semi-data study last year on that to see -- our hurdle was, could it -- we come out with a project that was economic and spot price and we said we wanted a double-digit return, we're not going to build the mine just for the sake of building it. It was economic eye [ph] that positive MPV but we didn't get a double-digit IRI [ph], so we put it on the backbone of that now. But we know that there is some potential to increase the grade in certain areas, it was originally drilled as an open pit operations and that's the basis of the historic drilling. So we're going to go back and think about whether some focused drilling could increase the proportion of high grade which obviously would have a great -- or has the potential to improve the economics of the project but yes, we continue to work on the assumption our reserve priced silver is $18 per ounce; so they are the numbers we look at. We're not going to build something in the hope that it goes over $20 an ounce. Hopefully, that covered…

[John Tumazos, John Tumazos Independent Research]

So if your spot study was done at $18 a year or two ago, would you…

[Paul Benson, President & CEO]

No, the spot study this year was done lower than that. I just said for the reserves we calculate that that we use the spot price -- I think it was $16 or something at that time.

[John Tumazos, John Tumazos Independent Research]

So, to go forward on Pretoria, given it takes a couple of years to build something, you might need to hedge above $20 or $22, the first couple of years to get some of the money back for sure?

[Paul Benson, President & CEO]

You could and if you can sell me some hedges at $22, I'll buy them.

[John Tumazos, John Tumazos Independent Research]

I'm looking out a long way, right?

[Paul Benson, President & CEO]

Yes.

[John Tumazos, John Tumazos Independent Research]

Thank you.

[Paul Benson, President & CEO]

Okay, I think that's the end of questions. So thanks 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.