Coeur Mining, Inc. (CDE) Q3 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Coeur Mining Third Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul DePartout, Director of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Coeur Mining’s third quarter earnings conference call. Our results were released after yesterday’s market close and a copy of the press release and slides are available on our website. I’d like to remind everyone that our press release, slides and some of our comments today include forward-looking statements from which actual results may differ. Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our recent 10-Qs and 2020 10-K. Now, I’ll turn it over to team.

All right. Thanks, Paul, and good morning, everyone. Overall, the third quarter reflected a continuation of our strategy of investing in our North American assets to further reposition the Company with lower costs, sustainable free cash flow, and solid returns over longer mine lives. Starting off on slide 3 in today’s presentation, I’d like to highlight a few key points before turning the call over to the rest of the team. As you can see, it was a quarter with several significant developments and decisions. Results were in line with our internal forecast and were set up to deliver a strong finish to the year and achieve our original production guidance. Mick will go through the operations in more detail shortly, but I’ll quickly touch on a few main points. Wharf led the pack and achieved its second highest operating cash flow and free cash flow since we acquired the operation 6.5 years ago. Palmarejo and Kensington were largely on plan and are on track to deliver strong four quarters, and Rochester’s results reflect steady progress, despite devoting 38.5 days or about 45% of the quarter to crushing and hauling over-liner material to the new Stage VI leach pad before winter. It’s worth pointing out that Rochester’s year-to-date results reflect 2.5 months of essentially no stacking on the legacy Stage IV pad as they prioritize activities to support the POA 11 expansion. On the exploration front, results continue to validate our ongoing commitment to these higher levels of investment. We invested $20 million in exploration during the quarter alone. This commitment to drilling has led to double-digit reserve and resource growth over the past few years, and we look forward to hopefully delivering further growth again at the end of this year. If you turn to slide 7, you can see that exploration continues to be a real differentiator for Coeur. We anticipate investing $70 million in exploration in 2021, which is nearly 40% higher than the record we set last year, and is one of the largest programs in our sector. We remain on track to achieve our full year drill footage targets, yet investing slightly less than originally anticipated, which reflects efficiencies we are realizing from these larger programs. We will plan to provide another exploration update before the end of the year that will focus on exciting new results that our assets in Nevada, both at Rochester and from the Crown district in Southern Nevada, where there continues to be a lot of activity. Switching over to our expansion projects, I want to walk through some updates starting with the Rochester POA 11 expansion. This project remains our top priority and is a transformative well-funded source of production and cash flow growth for the Company. Things are moving right along. Overall progress stood at 42% complete at the end of the third quarter. In addition to completing the crushing of over-liner for the new Stage VI leach pad, the team also kicked off foundation work for the Merrill-Crowe plant and the crusher corridor during the quarter. As we mentioned on our last conference call, we’re experiencing the impact of inflation on remaining unawarded work, like most companies are reporting. Overall, we’re fortunate to have had the vast majority of our contracts locked in prior to the current spike in costs and supply and labor disruptions. We’re trying to mitigate some of these impacts by re-scoping and rebidding unawarded contracts. But, we currently estimate that we’re likely to see a 10% to 15% overall increase to the POA 11 construction costs. Thanks to the ongoing test work and operating experience taking place at Rochester, our technical team has identified an opportunity to create additional operating flexibility by installing pre-screens into the new crushing circuit. We have kicked off detailed engineering and we’ll be evaluating the merits of implementing this process improvement over the coming months. Assuming we elect to pursue this opportunity, it could potentially extend the timetable for completion and commissioning of the crusher by three to six months. In the meantime, we plan to install pre-screens on the existing crusher during the first half of next year to give us some full scale runtime and experience that we can potentially incorporate into the new crusher configuration. Now, switching over to Silvertip, given the current inflationary environment, and pandemic driven supply and labor disruptions, it’s not an ideal time to be kicking off a new capital project on an accelerated timetable, despite multiyear high zinc and lead prices. Fortunately, Silvertip expansion and restart is still in the early innings, which gives us a lot of flexibility. Despite the uncertain macro environment, which contributed to higher than expected capital estimates for an accelerated expansion and restart, one thing we are certain of is the quality and prospectivity of the Silvertip deposit. The exploration results, along with the knowledge and new discoveries the team is generating, have led us in the direction of evaluating a larger Silvertip expansion and restart on a potentially slower timetable. To take advantage of such a high grade and significant resource, a 1,750 ton per day processing facility isn’t likely large enough to maximize Silvertip’s value. We’re going to take some additional time to evaluate what a larger design and footprints could represent in terms of economics and overall flexibility. This approach will give us time to continue drilling and hopefully keep growing the resource, allow for the dust to settle on many of these current macro economic factors, and allow us to focus on delivering POA 11, while not shrinking the balance sheet. Finishing out the highlights, we’re pleased to announce that we entered into an agreement with Avino Silver & Gold to sell them the La Preciosa project in Durango, Mexico. This transaction offers some real potential synergies to unlock value from that asset with their nearby Avino mine. Strategically, the transaction checks a lot of boxes for us with respect to further enhancing our geopolitical risk profile, our metals mix and the timing of our development pipeline. We can deploy some of the fixed cash consideration into the Rochester expansion and into our highly prospective exploration programs. The transaction provides a lot of upside to the asset through the equity ownership we will have along with contingent payments and two royalties, we will retain. Shifting gears, I want to quickly bring your attention to a set of slides, starting on slide 17 that highlight the great culture and diversity efforts we have at Coeur. To be a high-performing organization, a company’s culture, strategy and capabilities need to be aligned, something that I believe we’ve achieved over the past few years. To that end, I want to recognize our Head of Human Resources, Emilie Schouten, for her efforts on DE&I and for recently winning the industry’s Rising Star Award from S&P Global Platts. We continue to integrate our ESG efforts into our strategy and overall decision-making. Before having Mick provide an overview of our operations, I’d like Hans to follow up on my Silvertip comments by providing a brief overview of the Silvertip exploration results and why we are so positive about its potential. Hans?

Thanks, Mitch, and good morning, everyone. We bought Silvertip in late 2017 with the recognition that the asset has excellent growth potential. We now have almost 3.5 kilometers of potential growth defined, based on step-out drill holes or more than triple what we knew in 2017, as highlighted on slide 8. This year, we are completing the largest exploration program in the history of the project. Impressively, Silvertip accounts for roughly 25% of our $70 million overall budget at Coeur. The site team, led by Ross Easterbrook, has done an outstanding job managing the 100,000 meter drill program. Drilling from underground has given us the ability to conduct exploration year round, and test different parts of the orebody from different angles, which has been a crucial part of the Silvertip growth story. Underground drilling in early 2021 has led to the discovery of the Southern Silver zone vertical feeder structures and fixed manto or zones, and more recently, vertical feeder structures under the Discovery South Zone. These structures represent significant resource tonnage potential and debit straight excellent upside. We now have two rigs active underground with plans to add a third rig early next year. We also expect to continue with three surface rigs testing resource growth to the south, and the 1.5 kilometer gap between Southern Silver and two rig zones. With the larger drill budget this year, we expect to continue significant growth at Silvertips, which will give our development team confidence to right size the future operation to fit the potentially increased scale of orebody. One final note, the team reported last week they had cut the best hole ever with 11 mineralized manto horizons. The hole is located under Silvertip Mountain about 500 meters or 1,500 feet south of the Southern Silver and Camp Creek zones in an area with no resource shapes at this time. This new step-out hole is a significant indicator of the growth potential we expect for 2022 and beyond. I’ll pass the call over to Mick. Mick?

Thanks, Hans. Before diving into operational results, I want to recognize the team for continuing to prioritize health and safety, and driving continuous improvement in this area. Moving to slide 24, I’m proud to report that we recently received the NIOSH Mine Safety and Health Technology Innovation award for our cross-functional COVID-19 response efforts. I’m truly honored to be part of such a great team that is relentless in its efforts to work together and look after the wellbeing of our people. Now, turning to slide 5 to cover the operations and starting off with Palmarejo. The team did an excellent job maintaining highest throughput levels and maximizing recoveries to offset some of the lower grades that we’ve been experiencing with our resequenced mine plant. We’ve also continued advancing development, while focusing on increasing rehabilitation rates across the mine, which helps ensure that we’ve appropriately prioritized the health and safety of our workforce. Quarterly operating costs remained within guidance, helping to counterbalance lower realized prices and generate $15 million of free cash flow. We expect a strong finish to the year at Palmarejo, and we’re excited to see how much production growth we can achieve here in this fourth quarter. Switching over to Rochester. We crushed just under 1.3 million tons of over-liner for the new Stage VI leach pad during the quarter, completing the necessary requirements for POA 11. It’s important to note when we were generating over-liner, we were not crushing material stack on the legacy Stage IV leach pad, which had a knock-on effect for production during the third quarter. Despite the near-term production impact, all the time, energy and resources used to finish crushing over-liner was an important step towards completing this highly anticipated expansion project. Now, turning to Kensington. Production was slightly higher during the quarter as better grades helped to offset lower mill throughput caused by stope sequencing and drill parts availability. The good news is that we anticipate more high grade drilling materials over the coming months and have already received the necessary spare parts for our stope drills, leaving us very well positioned for strong production growth in the fourth quarter. The Kensington team did an excellent job balancing multiple priorities and maintaining solid cost controls throughout the quarter, which helped generate nearly $15 million of free cash flow. Finishing with Wharf, I want to start by acknowledging the tremendous achievement. On October 3rd, the team of Wharf celebrated one year without a recordable safety incident, truly an amazing accomplishment. From a result standpoint, Wharf put together yet another great quarter, which marks back to back periods of strong performance. Gold production was up 17% and cash flow figures were the second highest since Coeur’s acquisition back in 2015. With that, I’ll pass the call over to Tom.

Thanks, Mick. First, I wanted to add a bit of color on the noncash adjustments that impacted our third quarter earnings. We wrote off $26 million of Mexican VAT refunds to which we strongly believe we are entitled, but like many other multinational companies, doing business in Mexico, we have experienced significant challenges from SAT and the Mexican courts in obtaining these payments. We also had a mark-to-market adjustment on our equity investments, primarily related to Victoria Gold. However, the carrying value of the investment remains above our original cost. Turning over to slide 4, I’ll quickly run through our quarterly consolidated financial results. Revenue of $208 million was driven by relatively stable metal sales and a lower average realized silver price versus the second quarter. Operating cash flow totaled $22 million. This was lower than last quarter, but also negatively impacted by changes in working capital. Removing working capital, operating cash flow improved by more than 10% quarter-over-quarter. Like most companies, we’ve seen cost pressures related to consumables and labor across all of our operations, but thanks to our strong cost control focus, we have maintained our CAS guidance at all sites, except for Rochester where we guided a modest increase. The stronger expected Q4 production, we anticipate operating cash flow levels to continue climbing as we finish out the year. Turning over to slide 12 and looking at the balance sheet. We ended the quarter with approximately $330 million of liquidity, including $85 million of cash and $245 million of availability under our revolving credit facility. Also, it’s worth highlighting that these numbers do not include the $140 million of equity investments on our balance sheet. While we did draw down modestly on the revolver, we ended the period with a net debt to EBITDA leverage ratio of 1.4 times. We will continue adhering to our disciplined capital allocation framework and remain focused on our goal of keeping net leverage below 2 times and maintaining liquidity of at least $100 million throughout the entire Rochester construction period. The incremental capital costs at Rochester will put pressure on this goal. However, we expect the revised timeline for Silvertip along with the current robust metals price environment will leave us well positioned to maintain a strong and flexible balance sheet. I’ll now pass the call back to Mitch.

Thanks, Tom. Before moving to the Q&A, I want to quickly highlight slide 13 that outlines our near-term priorities as we approach the end of the year. With production guidance reaffirmed and a strong expected fourth quarter underway, we’re feeling confident about our 2021 results and in our ability to carry this momentum into next year. We’ll continue pursuing a higher standard and execute at a high level to deliver consistent results and industry-leading organic growth from our balanced portfolio of North American based precious metals assets. With that, let’s go ahead and open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mark Reichman with Noble Capital Markets. Please go ahead.

I’ve been getting more questions about sustainability reports. And so, I was just kind of hoping you might be able to elaborate on course framework for limiting GHG emissions. I mean, a lot of companies are saying, well, we’re looking to improve on our current path, others are aligning with the Paris agreement, others are putting out plans for path to net zero emissions by 2050. So, just your general thoughts on your efforts and trade-offs would be helpful.

Yes, sure, very relevant question. Thanks for asking it. And I have Casey Nault here in the room with us, who’s our General Counsel and Leading our ESG efforts here. On the website, our responsibility report is available, which we’ve done now for the last two years. And that’s a great place. I suggest for you to refer any inbounds that you get, as well as every quarter I think we do a really good job in these quarterly slide decks that accompany these calls, of highlighting different elements of our ESG priorities and efforts. I’d consider us and I think, third parties consider us a real leader among our peers. And even I think we punch above our weight when it comes to our ESG priorities. We just are now into the first year of having a GHG emissions intensity target that we’ve gone out with, which we’re proud of, and I think is a good indication of just how serious we are about doing our part. And it’s consistent with our overall kind of strategy and priority that we placed on our ESG initiative here. So, we’d be happy, Mark, to set up any detailed call with you one-on-one, with any of your interested people to go deeper into ESG, if there’s any interest.

That would be helpful. I think that the focus is really focused on the climate change portion of it and the pathway. And then, just a second question is, do you think will the Support Agreement associated with Victoria Gold, do you think that will get extended or what are your thoughts on that?

Yes. Good question. The expiration date is the 31st. You will maybe know it if you really dug through last night in all your spare time, our disclosures, there’s an embedded derivative tied to that Support Agreement that we assigned a value of zero to in our disclosures, which is maybe an indirect long-winded and maybe wonky way of answering your question of the likelihood that we assign to there being any value associated with that agreement.

Okay. Well, thank you very much. I’ll quit while I’m behind.

Thanks, Mark.

Our next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Good morning, Mitch and gentlemen.

Good morning. Hi.

So, Mitch, can you maybe elaborate a little bit more on Rochester and the pre-screening capital that may or may not go in? What are some of the trade-offs, IRRs, timing relative to enhanced or lengthening life or cash flow through the project?

Yes. Good question. I’ll ask Mick to cover that. It’s something that we’ve zeroed in on here over the last few months as we’ve done a whole lot of test work out there, and as we have continued to operate the existing operation, especially as it relates to some of that softer ore that we’ve talked about on prior earnings calls. This pre-screen concept is something we think that could provide a lot of flexibility for handling that softer ore type in the coming years. Mick, do you want to go a layer deeper on pre-screens?

Yes, for sure. So, very typical in a mine as the orebody develops and we see a little bit of signs and very typical in other mines, you pop up pre-screen in there, pull those veins off. But that does a few things, of course. That manages the sings at the back end that we put to the heap leach, which is a good positive thing, helps us manage the PSD. And then, it also helps with throughput at times. We haven’t finished the design on that yet though. And so, we’re busy working through that. And we’ll certainly update as we go forward. But for the moment, we’re taking a deep look at that. We’re going to look to put some kind of pilots into the X-pit to make sure that the technology that we put in there matches orebody that we’ll have and that we’ll get good learning ahead of any kind of possible implementation of Limerick.

And we’ll have that work, Mike, wrapped up here in the fourth quarter.

Yes. Expectation is that we’ll have some…

Understood. And then, looking out at the rebid and reconstituted requirements for the remaining capital allocation on Rochester. Can you talk a little bit about timing? And some of the dynamic --- obviously you’ve talked about some of the dynamics, but is it just contractor, material, timing? It’s just that everything’s so tight, and is COVID been an issue relative to working in North Central Nevada, getting the folks on board?

Yes. I’ll start, and then Tom, you can pick up where I leave off. Last point there, Mike, COVID is definitely exacerbating the labor challenges for contractors, just in terms of available people. That’s not helping for sure. That has I think found its way a bit into some of the preliminary proposals that we received on some of this remaining unawarded work. Tom, maybe from here, you can take over and talk a little bit about the 10% to 15% range that we mentioned, timing and dynamics, like Mike asked about.

Yes, sure. So, both of the two SMPEI contracts were bid out with fixed prices in mind to mitigate our risk. And what happened was as part of that mitigation, given the labor supply shortages, as well as some other costs inflation pressures that better are absolutely real and we continue to read about, we saw some bids ever -- much too high. So, we’ve decided to go back, talk -- rebid each of the two contracts, widen the scope of who we’re talking to, and most importantly is to modify the commercial approach, so instead of a fixed price to go with a reimbursable cost with a sharing of the commercial risks. And so, again -- so that work is visually underway and hope to get that award here in the near future. I would suspect we’ll have a lot more to say during the February year-end call.

And then, Mike, just shape of remaining capital, if that’s a part of your questions. I think as we go into 2022 and 2023, you could expect for 70% of the remaining capital next year, and the remainder then in 2023 as we wrap things up. But, Mick, I want to give you a chance to add in anything if there’s anything, Tom or I didn’t touch on that you want to make sure Mike hears.

Just we have some great partnerships, like the one that we have a keyword [ph] with Silvertip, of course, and that work went really well. And so, we’re talking to those kinds of organizations now around that rebid and that new strategy around execution on 3b. And those negotiations are going well, and we’ll update everybody after that. But so far, we’re seeing some opportunity there to rethink those packages.

Does that help, Mike?

Yes. That’s great. Very helpful, Mitch, Tom, Mick. Thank you very much.

Our next question comes from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Hey Mitch and team. Thanks for taking the question. So, two things. First one, on the cost side, there’s a lot of debate over whether or not the current inflationary environment will hold, whether it’ll accelerate et cetera? What are you guys doing to kind of plan for existing operations to keep, cost inflation at a minimal over the next year or two?

Yes. The word transitory, I guess it depends on what your definition is of transitory. I mean, we don’t really see there being some near-term point -- inflection point here of where things start to ratchet back down necessarily. So, we are making plans and pursuing opportunities to try and offset some of those impacts that could be around for a very long time. Tom, do you want to share a little bit more into some of the inflationary aspects and then maybe Mick you can touch on some of the things we’re trying to do operationally to mitigate the impacts?

So, the two biggies for us have been labor and consumables. And again, some of the consumables, like diesel, for example, we’re seeing 35% increases across our U.S. operations, 20% of Mexico. Fortunately, diesel is going in that 7% to 8% range. And then, on labor kind of across the board, particularly at Kensington, we’re seeing some pressure. So, all of that kind of has us in the 5% range, increase in costs. And so, -- and again, we’re not anticipating -- we’re in our budget cycle right now, we are not anticipating that pressure to come off in ‘22, at all. So, we’re doing lots of things to do our best to maintain those costs. And again, we’re pretty pleased that we’re able to maintain our cost guidance. And I think a lot of the efforts that Mick touch on here in a second are contributing to being able to hold our costs flat in this inflationary environment.

Yes. And on the efforts front, we have a really strong BI, business improvement, continuous improvement program. So, we have various projects that are working through last year, this year, and we’ll have a good focus on next year’s portfolio as well to hold costs and improve costs, and then particularly, where we have areas of high fixed costs to drive productivity. At the same time, we’ve seen some really good progress this year in some of that space, particularly at Palmarejo and at Rochester.

And then, Mitch, kind of following on the sustainability question earlier. And given that you guys tend to be a bit active on the M&A front, have you guys given any thought to diversifying the Company into battery minerals, given, one that would really help your ESG focus, to have a critical mineral like that for the change in the economies of the world? And two, just because that sector seems to have plenty of technical people but not necessarily the most mining experience, any thoughts there?

Yes. It’s a provocative question and one that with all the attention on some of these other rare earth battery metals, you can’t help, but think about things like that. For us, in the near term, we have an awfully full plate and delivering on those priorities, that’s our focus. And I guess, you raise an interesting point there in terms of the ESG angle with the significant amount of silver that we do continue to produce, even though it’s down to 30% or less of our revenue. It’s got such a great ESG story to it, and the end uses, solar and electrification, battery storage, et cetera, et cetera. That is a -- we’re pleased to have that as our sort of critical metal contributor. But, as far as extending into the other rare earth or battery metals, for us, that’s just not a priority and at least in the near term. Never say never, but no plans to look at anything like that.

[Operator Instructions] Our next question comes from Michael Siperco with RBC Capital Markets. Please go ahead.

Could you -- just going back to the Rochester expansion and the timing of capital spend. So, if I do the math on the revised guidance for Rochester CapEx in 2021, I get to a number of about $60 million, $70 million in Q4, and then about 300 or so million through completion, based on that 10% to 15% cost inflation. So, am I right in my math and thinking about it around $200 million in 2022 and a $100 million in 2023, is that the ballpark?

Yes. I think your numbers sync up with that 70%, 30%.

70%, 30%? Right.

Yes.

Okay, great. Just wanted to make sure on that. And then on Silvertip, are you able to separate the delta in costs versus your expectations in terms of how much was related to the accelerated timeline, and how much was general cost pressure? Or maybe in other words, how confident are you in a more reasonable number while pushing out the project, if inflationary pressures remain?

Yes, good question. Let me take a crack at it. And then I’m looking at Mick and Tom, and you can both chime in if there’s anything that I didn’t cover or that I made a mess of. But, I think, the accelerated timetable was definitely a large contributor in terms of not only squeezing construction activities into what is a fairly short construction window, but then, needing to accommodate large numbers of contractors to do that well in excess of current capacity. So, the fixed costs, those indirect costs, we’re only going to grow significantly under that accelerated timetable. There was also a factor there that related to just the design of several of the key infrastructure components and placing them into the existing footprint, which were less than optimal and drove costs higher as well. And our thinking here is that with a little bit of time, obviously, we can keep drilling and growing the resource. We can see if these macro factors calm down a bit. We can take a little bit more of patient approach to footprint and how we might ideally lay out the site in a way that could alleviate some of those restraints, I guess, we call them, that we saw in the feedback that we received their late in the third quarter. So, I’m not giving you a real black and white answer, but I’m trying to give you some additional context to some of the drivers that helps kind of lead us in the direction that we’re now going. Mick or Tom, is there anything you’d want to add to that?

Yes, I mean, with the timeframe being in our hands, we can look at the technology selection, make sure the health, safety, environment and hygiene factors are best practice levels. And then, we optimize that as we learn more about the resource, and so real great opportunity for us. The early work is going very well. So, we’re de-risking the project as we go, and that site cleanup has gone very well, the decontamination has gone very well. So, overall, I think we’re well positioned.

Tom, do you want to add on to that?

Yes. And just, again, a staple of what we’ve been saying all along is the importance of a strong and flexible balance sheet during the entire Rochester construction. And, this is sort of another bow in that statement to support that we’re going to have a strong and flexible balance sheet to have the Rochester expansion.

Does that help?

Yes. That makes sense. And maybe following on that last point, are you able -- realizing that this is a bit in flux. And I guess, part A of this question is, when should we expect an updated technical report or more color on how the project will be progressing? And part B is, can you give us a sense of the quantum of spending at Silvertip in 2022, 2023, before you would actually embark on the actual construction?

Yes. Two fair questions. Mick, I’ll ask you to talk about schedule. And then, Tom, I’ll ask you to talk about spend.

So, on the technical report schedule, it’s highly likely to be around the middle of next year. But, we have to determine that as we now reset a little bit and look at the new schedule and this opportunity, then we’ll talk about that as we go forward. But that’s highly likely and scheduled for TR. And then, overall, for the project, it’ll depend on the technology selection and the strategy that we look to implement. As an example, there’s potential for a staged approach compared to a step change approach. And then, we have to look at the permit requirements for each of those options. And we’ll lay that all out in that future technical report.

And again, kind of depending on if we go down the stage or the step change approach, that’s going to impact the level of care and maintenance that we’ll need to have. And so, we’ll be out with our budget here early in February. And, again, I think, the other piece of it is we’re obviously very excited about the exploration potential. So, I think, you’ll continue to see the levels of exploration to help support that growth in the resource. So sorry, I can’t be more specific at this stage.

No, makes sense. Sorry to go on, just another one. You mentioned last quarter you were looking at offtake options for funding. Is that still ongoing? Is that still a consideration?

Yes. It’s going to continue to be an element again. The testing is coming along as we -- continues to be really positive and level of interest is high. Obviously, the timing has now been pushed out and so -- but no, no change that that would be a big piece of the strategy to help fund Silvertip.

Okay, great. And I promise last question for me on a different topic. Can you comment on how, if at all, the new contractor laws in Mexico have affected operations or costs or if it will, in the future?

Yes. For us, Mike, that was a process that we completed in July when we transferred employees out of a service company, really without any big challenges. The way we have historically compensated employees in that service companies has been consistent with how we compensate everybody, regardless of what entity in which they work. And so, there was really no meaningful impact to our costs or labor costs, wages, compensation between what we used to do and what we’ll do going forward. So, it’s largely more of an administrative exercise that wrapped up in July. And there’s been no fallout or issues since then.

Our next question comes from Brian MacArthur with Raymond James. Please go ahead.

I think, Mike has asked a lot of my questions about timing at Silvertip and ongoing tasks or ongoing expenditures for care and maintenance, which I guess we can’t get yet. But, maybe if I ask this differently, conceptually, are we thinking to slot in with Rochester that we’re going to drill ‘22, ‘23 and we’re trying to hit the construction season for some sort of plant in ‘24 with production in ‘25? And I realize some of this may be filling dependent? Are we now talking about something that we’re going to drill for two or three more years and aim for ‘26? Because I guess where this comes at is what’s the carrying cost as we wait for all this, notwithstanding the fact that I totally see what you’re doing and trying to sequence it with Rochester?

Well, I’ll go first. My preference is door number one. But, we’ll let the work sort of dictate the schedule. And just, again, you used the word, Brian, conceptually. Conceptually, the idea of a staged approach makes a lot of sense, where you can start maybe a little sooner and smaller and allow the operation to kind of self fund its own expansion over time, and as permitting and continued drilling sort of lay out the runway for the future. But again, that’s a concept/preference at this point. Now, the work is underway to see if that’s the viable way or not. Mick, anything you want to add to that?

Yes, for sure. It’s absolutely dependent on that. Of course, we have permits in hand already and amendments that we can make to those permits to allow us to build a smaller plant. If we want to go for a big plant, then we have to reevaluate those permits at the footprint, and then get those things in place before we make those changes. So, certainly, a preference, a little bit of modular approach, but we’ll look at the best value proposition for Silvertip. And then, we’ll make that decision when we’re ready.

And balancing that with balance sheet and preserving flexibility there. Does that help, Brian?

Yes. And then, as you go through this, you just continue to aggressively drill to try and figure out what you actually have here to decide where do you want to build a bigger plant?

Exactly.

Our next question is a follow-up from Mark Reichman with Noble Capital Markets. Please go ahead.

Thank you. Just lastly, I wanted to ask you about what’s the impetus behind the sale of La Preciosa? I mean, I’ve heard some criticism, but you’ve known Dave Wolfin a long time, and it seems like that Avino will probably try to make the most of its asset and you’ve retained some interest. So, just kind of your thoughts about that transaction, and why now?

Yes. Well, thanks for the question. La Preciosa, we’ve been trying to determine the best path for unlocking some value there, for a while. That was acquired in an environment where the silver price was sort of mid-30s, and that thing looked awfully attractive. Well, we’re not in that environment anymore. And when it comes down to kind of after tax risk adjusted returns, La Preciosa has a hard time competing with the other opportunities that we have, mostly here in the U.S., west, and then to a lesser extent and up in Canada. So, there were some of those thoughts going into this. And then, just Mexico in general, it has become a more challenging environment for mining. At least that’s been our experience in terms of permitting, security, kind of corruption, rule of law, and not that the VAT write-off drove the La Preciosa decision, but it was certainly our ongoing disappointment and challenges with SAT down there around these VAT refunds, which goes back several years now. That’s been another headwind, and just tax rates in general in Mexico relative to other jurisdictions. And for us in particular here in the U.S., where we have a lot of tax loss carry forwards. So, yes, there were a lot of aspects to this, including -- that’s a primary silver asset. We’re comfortable with kind of our metals mix as we have it currently. And I think, leveraging that infrastructure next door there at Avino makes a lot of sense. And it’s hopefully a pathway to realizing some value out of La Preciosa, sooner than we would on a standalone basis.

That’s very helpful. Thank you very much, Mitch.

Yes, sure.

Our next question comes from Ryan Thompson with BMO. Please go ahead.

Hi, Ryan.

Hey, Mitch. Thanks for the updates. Just a question on Rochester, just kind of at recent run rates, you’re producing, call it, between 700,000, 900,000 ounces of silver, and 7,000 to 8,000 ounces of gold over the past few quarters. You mentioned that you’ve been using the crushers for the over-liner material at the expansion and so on. Is it a safe assumption to assume that Rochester production over the next, call it, few quarters is going to pick up a little bit, now that that crusher is available? How should we be thinking about it over the next medium term before the expansion is done?

Yes. I’ll start, and then Mick, you can follow-up. In the very near term, here in the fourth quarter, despite some recent record rains out in Northern Nevada and California from that cyclone bomb, we’re excited about this fourth quarter at Rochester, just because there’s not any over-liner being generated and diverted over to Stage VI, there’s not a swap out of a crusher. It should be a fairly clean quarter relative to recent ones, and then, going into early next year. Now, the only thing that pops up on my radar screen here in response to your question, Ryan, is putting those pre-screens in to the legacy X-pit crusher there. There’ll be a little downtime associated with that. And I’m thinking what’s -- early second quarter, spring.

Yes, ‘22. Yes.

But otherwise, then we’ll be able to have some higher sustained throughput rates, crushing rates, stacking rates, with hopefully, continued better improvement with these inner-lift liners that we put in with the MP 1000 that we put in earlier this year, and then with those screens in that we’ll be putting in there in earlier in April of 2021. Longwinded answer, I don’t know if I gave you any good color there. But, Mick, do you want to add anything to that?

Yes. So, for sure, we’ll continue to use the X-pit as really a large scale pilot for the Limerick. And so, we’ll learn a lot of things. So, we’ll continue to ‘22 to optimize the PSD and look for the balance between throughput and recoveries. And we’ll continue to learn things, so that we can optimize that Limerick project when we bring it up to de-risk that and the performance of it. So, with that, we expect to see some variability through ‘22 but overall, it should be more stable, now that we’ve got the infrastructure in place there, other than that pre-screen that we’ll put in Q2.

Got it. No, that’s very good to hear, and thanks for the added color on that. Maybe just one more for me. Mitch, I noticed that you didn’t say you wouldn’t be taking questions on Victoria in your prepared remarks. So, maybe if you could just give us an update on what your latest thinking is with that investment.

I don’t remember -- I remember saying that last quarter, but I’m open to the question. Look, since May, when we made that investment, I think it was $117 million that we -- of share consideration to Orion. It’s been a good investment. It’s up to I think current value $160 million or so. So, it’s generated a nice return, a nice gain for us. Their stock price has increased significantly, whether you look back over the last three years, over the last -- year-to-date, I think it’s up 50%. It’s up almost 30% since we bought the 18%. So, they have definitely benefited from, I suppose a combination of the ramp-up, their Eagle, as well as perhaps some speculation in their stock price since the May purchase of the 18%. I know they have said publicly that they are running a soft process. We’re not a part of that process, despite having an 18% ownership and a genuine interest. We continue to view Victoria as attractive opportunity. It’s on strategy. And we that noted they put out some solid third quarter production results recently. So, the ramp-up seems to be progressing well. So, those are at least some thoughts and reaction to -- or a response to your question. Does that…

Yes. That’s great. That’s some good color. Thanks for that. And maybe I’ll just sneak one more, quick one. Could we get an update on the Southern Nevada property? There’s been some sort of activity in that region as well. So, just if you can update what’s the latest thinking and activities out there?

Yes. Hans, you’re still on. So, if I don’t hit anything that you want to make sure that we say to Ryan, feel free to chime in. But, we’ll keep drilling there. We love our land package. We think it’s great that Anglo has kind of helped to validate the enthusiasm in the region there by acquiring Corvus. That’s all one big system that we’re drilling on. We’ll continue to prioritize the drilling, but are of course very interested in finding ways to work with neighbors to make the pie as big as possible, to share infrastructure, to do whatever we can to maximize value. And we look forward to having those discussions at the appropriate time. I think for now, the best thing we can do is keep drilling. I mentioned earlier that we’ll be putting out an exploration update still here this year that will contain some new results from down there. And suffice it to say, we remain really excited. And there’s a lot potential down there. So, it’s an active area. It’s probably the most exciting exploration district currently in Nevada. And that’s a great place to be. We know it well. And we look forward to having that sort of become a clear part of our future pipeline.

This concludes our question-and-answer session. I would like to turn the conference back over to Mitchell Krebs for any closing remarks?

Okay. Well, hey, thank you for all the good questions and for your time this morning. And we will have another call like this, I guess, early next year. I can’t believe I’m saying that. And happy holiday season to everybody. That doesn’t seem right. But, I guess, that’s where we are on the calendar. So, have a safe, happy and healthy holiday season. Thanks for your time today, and have a good rest of the day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.