Pan American Silver Corp. (PAAS) Q3 2011 Earnings Report, Transcript and Summary

Hello. This is the conference operator. Welcome to the Pan American Silver Corporation's Third Quarter 2011 Results Conference Call and Webcast. [Operator Instructions] and the conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mrs. Kettina Cordero, Coordinator, Investor Relations. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Joining me here today are our President and CEO, Geoff Burns; our Chief Operating Officer, Steve Busby; our Executive Vice President of Geology and Exploration, Michael Steinmann; and our Chief Financial Officer, Rob Doyle. I would like to start today's call by reminding our listeners that this call cannot be reproduced or retransmitted without our consent and by indicating that certain of the statements and information in this call will constitute forward-looking statements and forward-looking information within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements reflect the company's current views with respect to future events, and they are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many known and unknown factors could cause actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, and the company has made assumptions and estimates based on or related to many of these factors. We encourage investors to refer to the cautionary language included in the most recent news release dated November 8, 2011, and as well as those factors identified under the caption Risks Related to Pan American's Business in the company's Form 40-F and annual information form. Investors are cautioned against attributing undue certainty or reliance on forward-looking statements, and the company does not intend or assume any obligation to update these forward-looking statements or information, other than as required by law. With that, I will now turn the call over to Geoff Burns, President and CEO.

Thank you, Kettina. Good morning, ladies and gentlemen, and welcome to Pan American Silver's 2011 Third Quarter Earnings Conference Call. This morning we will be discussing our third quarter operating and financial results that were released yesterday evening, provide you with our outlook for the remainder of 2011 and update you on our exploration programs as well as the progress of our development projects. As has become our custom, I will begin with some general remarks before passing the call to Steve, Michael and Rob, who will provide more detailed commentary. I would like to start by letting you know that yesterday, our Board of Directors approved the distribution of our fourth cash dividend for this year in the amount of $0.025 per share. The payment will be made effective on or about Monday, December 5, to holders of record of our common shares as of the close of business on Monday, November 21. In addition, return -- in addition to returning cash to our shareholders directly through our dividends, we have also been returning cash by way of a normal course issuer bid, which we announced on August 26, wherein we could buy up to 5% of our issued and outstanding shares. As Rob will describe in a few moments, we have been actively repurchasing some of our common shares. It is our opinion that the market price of our common shares doesn't fully reflect the underlying value of our mining operations and our future growth prospects, and as such, our shares represent an appealing investment for a portion of our excess cash flow. While we have significant capital requirements ahead of us with the pending development of Navidad, our major growth project, we remain very comfortable that we can meet this need as well as continue to directly share in our good fortune with our shareholders through dividends and our share repurchase program. Now let's recap what we accomplished during the third quarter. We produced 5.6 million ounces of silver at a cash cost of $9.58 per ounce, net of by-product credits, which was slightly lower than we had planned. Our Mexican mines, La Colorada and Alamo Dorado, continue to perform extremely well during the third quarter, a trend that they have been on all year, as did our San Vicente mine in Bolivia and our Manantial Espejo mine in Argentina. However, as Steve will discuss in more detail, we made some operational decisions in Peru which will help our productivities in the long term but have come with some short-term production and cost pain. From a financial perspective, our performance was very respectable and quite an improvement over the same period a year ago. We generated adjusted net earnings of $45.6 million or 42% -- $0.42 per share, a 66% increase as compared to the third quarter of 2010. Our mine operating earnings rose to $106.2 million, which represented an increase of 73% from the same period a year ago, and our operating cash flow before changes in working capital was a very healthy $100 million or $0.93 a share. The sharp decline in the price of silver and base metals as well as the rapid strengthening of the U.S. dollar right at the end of the third quarter resulted in us having to recognize a foreign exchange loss of $12.5 million predominantly on our Canadian dollar bank balances, as well as requiring us to have to record a negative adjustment on our concentrate sales of approximately $5 million, both of which obviously didn't help our earnings. Having said this, we have subsequently seen silver rebound to almost $35 per ounce and the U.S. dollar has weakened again, and a large proportion of the negative adjustments I just described have already been reversed. We ended the quarter with nearly $0.5 billion in cash and working capital of over $625 million. Both our cash balances and our working capital have been consistently and steadily growing throughout the year. The third quarter wasn't the best production quarter we've ever had, but we've never been in better shape financially. Now, over to Steve, who will run us through our operations and development projects. Steve?

Thank you, Geoff, and good morning. The third quarter of 2011 brought us a wealth of challenges that we are successfully confronting with our projects advancing very well and our operating teams adapting our business to the ever-changing political environments where we operate. As Geoff mentioned, our consolidated third quarter silver production, the 5.6 million ounces at a cash cost of $9.58 per ounce, was about 8% below our production expectation and 13% above our cash cost target. The largest contributor to our production shortfall and cost overrun came from a decision we made at our Morococha and Huaron mines in Peru to immediately demobilize roughly 25%, or 500, of our inefficient and ineffective contract miners in favor of enhancing our own employment with well-trained, safe and productive miners, whom we will develop ourselves using first-class miner training facilities that we have established at both of these sites. We had found that the quality and efficiency of the contract miners had severely degraded in the highly competitive environment that exists in Peru right now, and we were not accomplishing the production and advances needed to sustain our operations productively. Our idea is to focus quality contractors on major long-term development headings while developing trained and productive employees for stope mining that we will systematically convert as much as possible to more productive mechanized methods over the next few years. We will use our training facilities not only to recruit and develop new miners from the surrounding communities, but also to enhance the capabilities of our existing workforce. Despite suffering some production setbacks following this decision, we are extremely confident it is the right decision to maximize the long-term profitability of the Huaron and Morococha mines. These mines have both been in operation for nearly 100 years, and we see absolutely no reason they will not continue for at least 25 years or more. During Q3, we produced 383,000 ounces of silver at Morococha and 667,000 ounces at Huaron at a cash cost per ounce of $18.78 and $15.07 for Morococha and Huaron, respectively; collectively, falling about 0.5 million ounces short of our forecasted production in Q3 for these 2 mines. This is a significant and vitally important production enhancement initiative to adapt to the changing environment, and we expect it will take 6 to 12 months to mobilize new equipment and get our new workforce fully trained to maximize the profitability available at both of these long-life mines that hold significant reserves and resources. Our Manantial Espejo mine in Argentina produced 1.1 million ounces of silver at a cash cost of $6.56 per ounce during Q3 compared to 1 million ounces at a cost of $3.65 in Q3 of 2010. We were able to increase our production, even though facing delays in getting our accelerated open pit mine plan into place as we adapted the operation to the heightened importation restrictions put into place by the Argentine government. These heightened restrictions have caused considerable delays in the delivery of our important spare parts and material supplies, resulting in a decrease in our equipment availabilities and an increase in costs as we find alternatives, which in several cases included temporary mobilization of contract or rental equipment to overcome some of our critical equipment shortfalls. We are in the process of increasing our on-site warehouse stock of spares and materials to adapt our business to the added delays caused by the sudden heightening of the importation restrictions and expect our cost will eventually return to levels that we had been experiencing in the first half 2011. Moving on to Bolivia. Our San Vicente mine produced 751,000 ounces of silver at a cash cost of $14.39 per ounce during Q3 compared to 712,000 at a cost of $8.54 the year before. San Vicente has proven to be a productively stable operating mine for us, although our costs have been creeping upwards, largely fueled by external costs associated with offshore smelting and refining of our copper concentrates, as well as the high metal price effects on our government royalty payments. Our Mexican mines continue to deliver exceptional results, with Alamo Dorado producing nearly 1.4 million ounces of silver at a cost of $4.73 per ounce and La Colorada produced 1.1 million ounces at $7.84 per ounce during the third quarter, both ahead of our expectations. Last year in Q3, Alamo Dorado produced 1.8 million ounces at a cost of $2.98, and La Colorada produced 870,000 ounces at a cost of $8.67. Our Alamo Dorado leach tank expansion project is on track for a Q1 2012 completion, after which we expect silver recoveries to improve by about 2%. Our Phase 3 drilling is progressing well at Alamo Dorado, and we will be looking to secure additional open-pit mine equipment to allow us to begin pre-stripping Phase 3 during 2012. Although our analysis is not yet complete, we are confident the Phase 3 pit is economic at today's prices, and we will add at least one year of life to our mine plan. I would also like to comment that our exploration on deepening the main mineralized Candelaria structure at La Colorada continues to excite us, and we have developed an astonishingly productive and highly profitable systematic mine advanced scheme that is expected to provide us continued solid operating performance for the next 7 years and beyond. On the project front, the company released a positive Preliminary Economic Assessment for the La Preciosa joint venture project. On 100% basis, the PEA estimates an average annual production rate of 6.8 million ounces of silver and 11,800 ounces of gold at a cash cost of $11.84 per ounce, net of by-product credits, for 12 years with remaining exploration potential that could extend the mine life. The 100% basis after tax net present value at a 5% discount rate is expected to be $315 million, with a project internal rate of return of 24.3%, using prices of $25 silver and $1,250 gold. The project exists in our backyard, and it is a style of development our team in Mexico knows well how to build and how to maximize profitability. We feel that given our attraction to this style of project, along with the results of the PEA, it is justified to complete a feasibility study, and that is what we have undertaken to complete during 2012. Down in Argentina, our Navidad project continue to make good progress on the development of the feasibility study, which is expected to be completed before year end. The mine and concentrate production schedules for the feasibility study were completed, and work continues on finalizing the project capital and operating cost estimates. The 15,000 ton per day ore production plan will produce an average of nearly 19 million ounces of silver and 32,600 tons of lead per year for a 16-year life with ample opportunity to expand resources both near the existing 8 deposits as well as the potential for finding additional deposits on the site. A draft of the tailing stand design and cost estimate was received during the quarter, and the 2011 infill drilling campaign was completed just in the previous month. Work continues on the refinement of the project's environmental impact statement, which will be immediately available for submittal once the law which bans open-pit mining is reformed. We are pleased with the results of the federal and provincial elections, which solidly puts President Cristina Kirchner in power for another term both nationally and, for the first time, provincially in Chubut, along with the new governor of Chubut, Martin Buzzi, who has indicated he will align with the President's policies and objectives. The new provincial governor and legislatures take control in mid-December, and we feel confident the mining law reform debate is a high priority on their agenda as they look to bring productive industry to a very needy area of the province. Elsewhere, I'm pleased to -- with the progress we have achieved on constructing our new shops, offices and camps at Morococha to allow for the relocation of these facilities during 2012 and make room for Chinalco's Toromocho mine development. These are first-class, state-of-the-art facilities and will no doubt play a significant role in our productive mine transition initiative. So to finalize, I'd like to mention that, given our decisions to launch contractor demobilization initiative that we're on in Morococha as well as adapting our Manantial Espejo mine to the heightened importation restrictions in Argentina, we are reducing our full year consolidated silver production guidance to 22.5 million ounces from our previous estimate of 23 million to 24 million ounces, and are also reducing our consolidated base metal production guidance for zinc, lead and copper to 35,000, 12,000 and 4,500 tons, respectively. We are maintaining our previous increase in full year consolidated gold production guidance at between 80,000 and 85,000 ounces, and we now expect to come in at the higher end of our previously released cash cost guidance of between $8.25 to $8.75 per ounce. With that, I'll now turn the call over to Michael Steinmann for the exploration update.

Thank you, Steve. Good morning. I'm sure you are eager to hear about the exploration results from explorations and projects. Like every quarter, I would like to start with some drill statistics. The last 3 months have been very productive. We passed the 100,000-meter mark in September and ended the quarter with 101,000 meters of drilling for our reserve and replacement program. We are at 76% completion, right on track of our plan, and have more than recovered from the shortfall we experienced at the beginning of the year. Including the project drilling at Navidad as well as the greenfield programs, we finished the first 9 months of the year with a total of 144,650 meters drilled or 84% of our 171,000-meter plan program. Now we have ended the quarter with nearly 19,500 meters, an impressive performance, which was topped by even more impressive results. The second largest program was executed at Manantial Espejo, our brownfield drilling and greenfield exploration around the mine, returned some spectacular results. Morococha and Huaron added another 12,900 meters or 9,000 meter, respectively. Due to the positive results we have encountered at La Colorada so far this year, we decided to expand the program by over 7,000 meters. There were plenty of reasons to increase drilling at La Colorada. During the quarter, the western end of our main structure in Candelaria returned many impressive results. For example, the hanging wall vein in level 535 where our drilling intersected 1.6 kilogram of silver over a width of 6.45 meters. The NC2 vein on the sulfide reported intersects of 8.89 meters at 685 grams of silver and 9.45 meters at 766 grams of silver, both with additional 3% to 9% lead and 5% to 6% zinc. The deeper we go, the more hanging and footwall splits appear in our drill holes. Hanging wall splits at the NC2 vein are highly economic; for example, 2.3 meters wide with 1,922 grams of silver, together with nearly 12% combined lead and zinc, or 1.25 meters at the 858 grams of silver and over 13% base metals. La Colorada is underway to accomplish another spectacular reserve replacement this year. I'm really looking forward to report the final numbers to you in February of 2012. Early on, I mentioned that drilling results from Manantial Espejo have also been extremely positive, so let's straight go down to Argentina. Our greenfield program advanced very well in the last 6 to 8 months thanks to mild winter. We met on some but large parts of our plus 25,000 hectares land holdings around the mine and identified 32 exploration targets. So far, we started detailed work on 11 of them, and many returned very positive results, which will be followed up during the Southern Hemisphere summer. We have had another spectacular year with our reserve replacement drilling at Manantial Espejo, culminating with the discovery of a stockwork in the footfall of Karina/Union vein. You might recall Karina/Union is one of our main open pits at Manantial. I guess, spectacular is the right word to describe intersections of 1.8 meters at 2,830 grams silver and 71 gram gold, or 13 meters at 714 grams silver and 2.17 gram gold, or another 2 meters at 896 grams of silver and 5.5 grams of gold, just to mention a few. Maria Central also kept expanding the drill results of 5.75 meters at 506 grams of silver or 5.7 meters at 252 grams of silver and over 13 grams of gold. These are results to be proud of, and I'm confident we will more than replace the reserves mined during 2011. Now we are focused to infill extension on delineation drill program on Calcite Northwest, Galena Hill, Navidad Hill and Loma de La Plata deposits, finalizing 180 holes during the third quarter. Infill drilling at Galena Hill pits returning large intersects with very high grades, for example, 77.7 meters at 308 grams silver and 6.43% lead. This includes 22 meters at 827 grams silver and 18.6% lead. Another spectacular hole returned 156 meters at 155 grams silver and 2.33% lead, including 67.5 meters at 205 grams silver and 3.05% lead, starting only 46 meters below surface. But I think the biggest surprise came from Calcite Northwest, the deposit further to the northwest. 16 meters at 385 grams of silver, 10 meters at 1.6 kilograms silver or 27 meters at 137 grams silver, just to mention a few. This also indicates that resources at Calcite Northwest will be increased substantially. Our Mexican greenfield efforts focused on our large land holdings on the Lucita project in Zacatecas, which contains a large number of epithermal silver and gold veins. Surface sampling and mapping kept us extremely encouraged that the first 3,000-meter drill program started last week. I'm looking forward to share with you some of the results at the end of the fourth quarter. The year is advancing in front of us and reserve estimation panel will start soon. December and January will be a very busy time for our site geology teams in order to compile all these positive results and include them in the annual report estimation. I'm looking forward to give you a detailed report on our reserves and resources in February and to discuss our exploration plans for 2012. Now to Rob for the financials.

Good morning, ladies and gentlemen. As Geoff mentioned, while Q3 was not the record-breaking quarters we have delivered in Q1 and Q2 of this year, from a financial perspective, it was still another extremely solid quarter. In addition to declaring another quarterly dividend, we generated adjusted earnings of $45.7 million after subtracting gains and derivatives, which translated to adjusted basic earnings per share of $0.42 compared to $0.26 for the corresponding period in 2010, a 62% increase. Mine operating earnings of $106.2 million, 73% higher than the mine operating earnings in the comparable period of 2010 and an implied gross margin of 48%. Cash flow from operations before working capital changes of $99.9 million, a 74% increase from the $57.6 million in the comparable quarter last year. Revenue increased by 34% to $220.6 million from Q3 2010 due to higher realized metal prices despite the significant reduction in quantities of silver sulfide [ph] . Base metals accounted for 86% of the sales during the quarter, up from 81% a year ago. Good results for Pan American but some way off what we delivered in Q2, so I'd like to mention several of the factors that prevented us from getting closer to our record mine operating earnings of $118.6 million and the record adjusted earnings per share of $0.71 that we saw in Q2. Firstly, earnings for Q3 were negatively impacted by a $12.5 million FX loss, which equates to $0.12 per share, predominantly on the portion of our treasury that we hold in Canadian dollars as the loonie declined sharply against the U.S. dollar in the latter part of September. Most of that move has subsequently reversed, and we continue to believe in our strategy to diversify up to half of our treasury in currencies other than the U.S. dollar. Secondly, we sold 440,000 less ounces of silver than we did in Q2, which was the principal reason that sales declined by $11.3 million in Q3 compared to Q2 and why mine operating earnings were lower. Similar to the first 2 quarters of the year, we ended up selling significantly less silver than we produced during Q3, mostly as a result of timing of shipments. In fact, we grew our silver inventories by 0.5 million ounces, which was the largest contributor to the 6.9 million increase in inventories during the quarter that can be seen on our balance sheet. Had these ounces being sold at $32 per ounce during the quarter, additional after-tax earnings of approximately $6.2 million or $0.06 a share would have been reported. We should see the benefits from the sale of these additional ounces in the fourth quarter as we will attempt to reduce our dore inventories before year end. Thirdly, we recorded negative sales adjustments in Q3 of $5.2 million as a direct consequence of the decline in silver and base metals in September, as we are required to mark-to-market previously reported sales that are still subject to open quotational periods under our concentrate contracts. These adjustments directly impacted sales and therefore mine operating earnings, and ultimately had an after-tax effect of around $3.5 million or $0.03 per share in Q3. In total, these 3 items negatively impacted our Q3 earnings by about $0.21 per share. Lastly, an additional reason that mine operating earnings in Q3 led Q2 levels was the treatment of $3.4 million margin related to dore stolen from Alamo Dorado mine in July. While we have recovered the lost margin through an insurance claim, accounting convention dictates that this amount is reflected in other income and does not flow through mine operating earnings as it would in a normal course. Our effective tax rate in Q3 jumped up to 43%, double the rate we calculated in Q2. We would expect something like 35% effective tax rate in the long term, so Q3 was higher than average. The primary factor that pushed up the effective tax rate in the quarter were an FX loss on intercompany loans in Argentina, withholding taxes on intercompany dividends and interest payments and our continuing assumption that exploration expenses at Navidad and La Preciosa will not be tax effective. Detailed reconciliation of our effective tax rate can be found in Section 5 of our Q3 MD&A. In late August, we announced our intention to make a normal course issuer bid to purchase up to approximately 5.4 million of our common shares, representing 5% of Pan American's issued and outstanding shares. We commenced the share buyback program during Q3 and, to date, have purchased around 2.2 million shares at an average price of $27.43 for a total consideration of $61.2 million. From a cash flow perspective, Q3 was pleasing. Cash flow from operation before working capital movements was a healthy $99.9 million or $0.93 per share. We used $30.6 million of that to buy our shares back and pay dividends, invested $32.3 in capital programs and still banked $24.1 million. Working capital increased by $47.5 million to $625.7 million at the end of Q3, primarily on account of strong cash flow from operations and the reclassification of certain Argentine value-added taxes to current receivables due to improved collections history. September, Peru's parliament approved new laws to change the scheme of royalty payments and to introduce a new special mining tax, which are effective from October 1, 2011. Under the previous tax schemes, royalties were based on net sales. Under the current law, royalties are based on operating profit and royalty rates that vary depending on operating margins. In the case that the calculated royalty payments are less than 1% of net sales, then the company will pay a minimum royalty of 1% of net sales. Additionally, a new special mining tax has been introduced, which is also based on operating profits and a tax rate that varies depending on operating margins. The company's calculations of the change in the royalty and the new tax indicate that no material impact is expected on the results of the company's Peruvian operations. With that, I'll hand it back to Geoff for some closing comments.

Thanks, Rob. Before opening up the call to questions, I wanted to provide some comments on some of the recent events in Argentina. On October 23, Argentina held its federal elections and Cristina Fernandez de Kirchner secured a second term as President with a landslide victory. In addition, her FPV party, Frente para Victoria, also won the majority in the legislature. Three days later, on October 26, through a presidential decree, she announced that all oil, gas and mining exporters were going to be required to repatriate 100% of their sales receipts into Argentina. While we are still assessing the implications and the procedures we will have to follow under these new regulations and, ultimately, what impact they will have on our Manantial Espejo mine and our Navidad and Calcatreu development projects, at present, there are no new restriction placed on the repatriation of profits out of Argentina. Consequently, we currently believe that the likely impact will be in the form of some additional transaction fees, around 2% in total, on the conversion of our sales receipts into Argentine pesos and then on our net profits back into U.S. dollars before repatriation back out of Argentina. Perhaps more importantly, I view this development and other actions that have recently been announced as positive steps for the country. With her new and stronger mandate, Ms. Kirchner is starting to take the actions that are necessary to reign in an inflation rate that has been frankly -- or frankly been out of control over the last several years. It may take some time and some additional actions, but if she is successful in getting Argentine's inflation rate under control, it will be a hugely positive result long term for both our Manantial Espejo mine and for the development of our Navidad project. Lastly, there is no doubt that Cristina is pro-development, and with her FPV party in control nationally as well as in Chubut, we see this as an extremely favorable environment for the change in the mining law we need to see in Chubut for us to proceed with Navidad. We have and we will continue to keep the local communities around Navidad as well as the provincial government in Chubut completely informed of our progress, and I remain confident that our transparent approach and willingness to work with all the local stakeholders will be rewarded. With that, I'd now like to ask the operator to open the lines for questions and answers. Thank you.

[Operator Instructions] Our first question today comes from Profiti, Ralph of Credit Suisse. Ralph M. Profiti - Crédit Suisse AG, Research Division: Steve, in your prepared comments, you mentioned competition as one of the backdrops of seeing the decision to go with a more localized -- or sorry, a more company-specific labor force. Just wondering where that competition for labor is coming from. It's been well documented about, sort of, Peruvian growth and mining projects, but those are a number of years away. I wonder if you can expand on that little bit.

Yes, sure, Ralph. What we're seeing there is really from our neighboring mines, the primarily zinc and base metal mines. There has been some expansions. There have been one new zinc mine that I'm aware of, and they're really in the surrounding areas of where our workforce sits. And that's been our major competition there. Ralph M. Profiti - Crédit Suisse AG, Research Division: And can we get the current split between contract workers and company workers at both those operations? And maybe secondly, where does labor sit as a proportion of total costs at both those mines? And how do you see that evolving, say, in 2011 and '12 versus 2010?

Sure. Right now the split between contractors -- before we made these demobilization moves, the split was probably about 50% -- 50-50 to 60% contractors, 40% employees. Now where we see the costs? I mean if you look back over the last years, our labor costs in Peru were typically around 55% of our overall cost. As we start to mechanize and become more efficient in our operation, we anticipate that number to come down somewhat. But generally speaking, on narrow vein mines like this, that's the style of cost distribution we see with labor, and that labor includes contractors and our own labor.

The next question comes from Chris Lichtenheldt of UBS.

First, just wanted to touch base on costs. If we look at the cash cost guidance for the year, I think in the fourth quarter you'll have to beat third quarter significantly to get still even into the top end. So I know it's a bit of a noisy number with byproducts and everything, but can you give us some sense of where -- what will cause cash costs in the fourth quarter to be lower? Will it be better pricing, better byproducts or actual relief on mining costs?

Yes, Chris, I think the 2 -- well, 3 primary areas, the one is we did incur some costs to demobilize these contractors in Peru. We anticipate that cost to go away in the fourth quarter. We're still trying to assess -- they're still -- how much of that we actually incurred as a demobilization costs versus remobilizing and recruiting costs that were coming in, but we do anticipate a reduction there. Likewise, in Argentina, we incurred some costs, as I mentioned, for having to mobilize some contractors and some rental gear during the Q3 to overcome some equipment availability issues we've had. We're starting to see some relief from that. We are going to see some cost reductions there. And the third area that's probably the most important area is increase of gold production that we're forecasting down in Manantial Espejo, which obviously contributes a lot to our cash cost.

Okay, that's great. That's very helpful. Just secondly, I had another, maybe a disclosure question for Rob, and if this is too hairy for the call, you can always follow up with me after. But I'm just trying to understand, the earnings are probably still a little bit lighter than I would have expected even with the cash cost in production you reported, and just as an example, if I look at your mine-by-mine disclosure at Morococha, for example, cash costs were high at 18.78 fully loaded costs -- total costs per ounce were 22.56, but still well below what I would think the realized silver price is. Yet, that mine, you disclosed a net loss there. Is there any -- do you have any guidance to help me understand how you ended up realizing a loss there? Is that just timing of sales? You have any thoughts initially on that?

Yes. Sure, Chris. We're happy to go through it in detail. Just to point out that, of course, the financial results are based on sales, as you say, as opposed to the operating results, which are on a production basis, so there could well be a timing difference with inventories there. Of course, the Peruvian mines were also hit particularly heavily with price adjustments in the quarter because of their concentrate production and exposure to the base metals, which came off with silver in the latter part of September. So the negative price adjustments certainly impacted the Peruvian operations more than our others.

[Operator Instructions] There appears to be no further questions at this time. I'll turn the call back over to Mr. Burns for any closing comments.

Thank you, Operator, and thank you everyone for joining us again this morning for our earnings conference call. We look forward to talking to you in early 2012 when we're ready to release our final annual 2011 numbers. Thanks again.

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