Sibanye Stillwater Limited (SBSW) Q3 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Stillwater Mining Company third quarter 2016 results conference. At this time, all participant are in a listen only mode. A question and answer session will follow the formal presentation. [Operator Instructions] as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mick McMullen, President and CEO for Stillwater Mining. Thank you Mr. McMullen you may begin.

Thank you very much and thank you everyone for joining us this morning. I'm joined here by our CFO Chris Bateman, our VP Legal Brent Wadman, and Mike Beckstead our VP of IR. There is an earnings deck, which has been loaded up on the website and I'll refer to that and specifically we will try to refer to the page numbers as we turn through this. So if we go do that deck and look at Slide 2 the forward looking statements, I would like people to read that and in particular understand some of the assumptions and analysis that management's made to arrive at some of the content of this presentation. Moving on to Slide 3, the third quarter highlights, I would say that this quarter was an another solid quarter for us and it was very much characterized by another strong year-on-year improvement to their safety track record and it looks like we will improve on our 2015 year safety, which in itself was a record. And I think this is very important for us seeing that we continue to demonstrate that you can have safe production and they actually go hand-in-hand and that you don't need to sacrifice safety in order to get strong production. We believe that there are still further opportunities in safety, we are continuing to push forward on many initiatives and I'll talk about some of those as we go through the Slide deck. You can see our mined sales ounces was up significantly on the previous year to just under a 132,000 ounces, and not unsurprisingly our cost of metal sold was also down quite significantly compared to the previous year just under $500 of PGM ounce. As we often say PGM ounce we define as a mix of platinum and palladium broadly in a ratio of 3.44 palladium to 1 platinum. Our mine production was just under a 139,000 ounces. It was our strongest quarter of the year, well up on the previous year, but also up on that two preceding quarters. Our all-in sustaining cost was 624 PGM ounce ounces that was down about 8% from the prior year, up slightly from the previous quarter and I'll talk about some of the radiant’s for that in a few Slides. But overall it’s still a very good result I think. We have processed a record 175 ounces of recycle material, again another record for us, we seem to have a very strong performance in the recycling business, we made it clear a couple of years ago that we wanted to grow this business, we see it is a core business for us. And the emphasis that our team have made in terms of securing this material are really starting to pay dividends down. We ended the quarter with cash and cash equivalents, plus highly liquid investments of around about $440 million and we had net income attributable to stockholder of about just over $12.5 million or $0.10 diluted share. The major thing that we have done during the quarter as we have done a complete redesign of our Blitz project and we now anticipate production from Blitz to be in the range to 270,000 to 330,000 ounces a year, when we fully ramp that up by 2021 to 2022. I'm going to spend quite a large amount of this presentation talking about Blitz, we think it’s a sort of a fairly major project for the company and I’ll come back for that later. Moving on to Slide 4, you can see in the third quarter highlights again in the table format, we have covered some of the top-lines, our all-in sustaining cost as I said was down just under right 8% year-on-year. SG&A continues to trend down, our sustaining capital trending down, but not coming down in a large amount 6.5% down year-on-year. Project capital spend down slightly and so total capital spend down about 6%. Again, you can see just under a 9% increase in our recycle assets over the period. As we have said before, we believe that we can continue to gradually reduce our sustaining capital and really that comes about through reduction in units rights as appose to stopping or cutting back on our essential activities. We think it’s important for us to get our sustaining capital spend down by reducing unit rates, whilst maintaining the activities that are necessary to maintaining the developed side of the operations. Going to Slide 5, to the Stillwater Mine specifically, again a pretty strong results compared to the previous year. production was up not 9%. Cost of metal sold was down about 16% again cash cost was down as well. Really we have seen a big improvement in safety over the Stillwater Mine, this was very much driving the overall company result down almost 30% year-on-year and we actually have seen a big step up in our development footage. We are 19% ahead of plan for Q3 and so I would say that much of the improvements in the last 12 months in the company has come about at the Stillwater Mine and we thinks there are some further opportunities in it. I will now march just providing a bit a notice to people is that, we have a fairly significant infrastructure project at the bottom of the mine which relates the improving our Haulage System. We are going to turn off one of our high drives stopes towards back end of this year and into early next year. We do anticipate just a slight dip in production, probably mostly in Q1 I think from the Stillwater Mine, and just like in 2014 when we turned off some of the stopes in order to get infrastructure in place. We then turned those back on and then we saw a lower cost profile coming out of that. So we are just giving people a bit of a heads up that we expect to see Q1 a little lower in production from the Stillwater mine. We are doing our best to schedule around that and we don't expect it to be a material impact, but it will have some impact. Turning to Slide 6of the East Boulder Mine another very solid quarter from East Boulder. Again, you can see production up 7% year-on-year, you can see cost of metal sold down by about 14%, You can see cash cost down about 14% as well. And again, one of the key metrics we look at is how many ounces per employee per month did we mine. And you can see year-to-date we are setting records, you can see for the three quarters so far, again yet another record and also the ore tons fed per day year-to-date through Q3 yet another record. Again, all done with very good safety, the East Boulder Mine just seems to continue to set record after record, quarter after quarter and we continue to push. We think that there is some other areas that we can do some further improvement on here, and we see further potential to make a few improvements. Turning to Slide 7 in the mid complex, you can see from that graph there that we have seen really over the last two years quite a strong increase in our recycle volumes up from sort of a Q4 of 2014 when the 110,000 the 120,000 ounce range up to the 175,000 ounce range for the quarter. We did continue to see a shift back to purchase material from tolled in Q3. That has had an impact in terms of our working capital going up and the recycling profits typically lag the physical volumes by two to three months. We did see some pretty strong profit from this business in the last few months and we saw a record total number of ounces fed to the smelter in the third quarter. All this was a record month for ounces fed to the smelter. And not unsurprisingly September was therefore a record month for total ounces shipped to our external refinery. Those facilities continue to operate well, we have a lot of excess capacity in those facilities, at this stage until Blitz fully ramps up, but we can expand this recycling business for virtually no capital cost. And so whenever we have a facility that's not fully utilized you know we want to try and utilize our infrastructure. We have been able to expand this business for virtually no capital. We think there is still further potential there, overall we think this recycle market grows at 5% to maybe 10% CAGR probably close to the 5% to 7% I suspect and our stated goal is that we want to at least maintain our market share. Over the last few years we have grown our market share, but our sort of stated goal is that we want to grow our business at the rate that the market grows at. We do see some opportunities in certain types of material where there is a bit of mismatch in terms of the material that's becoming available and the installed smelter capacity globally. There is quite an issue coming up in Europe with the diesel catalysts which are high in silicon carbide. There is very limited ability for others smelters to take this material. We have seen a lot of volume growth has come from this material. We do have ability to take it given the style of smelter we have and the volumes that we have for blending and actually the peak of material probably doesn't hit the market for seven to eight years. So we think this is a good business opportunity for us to continue to expand our volume. And that's typically high grade material, which again if you look at our average grade material we have seen the grades of material increasing as we take more and more of that material. So overall, outside of mid complex and the recycling business is performing pretty well and we don’t believe that we have topped out in terms of our ability to grow there. I'll turn over to Chris Bateman our CFO for the next few Slides to talk about the financials.

Thanks Mick. Income for the quarter was $12.6 million and from the blue line on the graph you will see that prices recovered Q3, 2016 that $764 per combined PGM ounce that compares to a Q2 prices $665 and Q3 last year was around $693. So good price deployments. That deployments came on lower sales volume, we sold 131,800 mined ounce compared to 150,900 in Q2. So we did see a small mined inventory build with production of 138,800 compared to 137,100 the prior quarter. Moving on to the balance sheet. We finished the quarter with $439.4 million in cash and cash equivalents in short-term investment. The real driver of the reduction was the build in working capital as we saw a stronger recycling segment. In total we have around about 150,000 ounces in our inventory from the Columbus complex through the Johnson Matthey and that's up from about 125,000 last quarter. Part of the build was difference in mined production to sales, but the vast bulk of the build was with the strengthening recycling segment. We continue to sell fund the investment in our business and with Mick touched on the suspending capital numbers. Our total cash capital in the quarter went up, we spent just under $24 million cash capital this quarter compared to just under $20 million cash capital in the prior quarter. So the drive in the cash position was good operating performance, continued investment in the capital programs and a build in the recycling working capital.

All right. Thanks Chris. Going to Slide 10, this is one that we have put in really for analysts if they want to build a model. So looking at our cash cost per ton milled. You can see there, there is a couple changes that I just want to talk about. At the Stillwater Mine you can see our mining cost per toned milled went up, if you look at the very bottom line you can say our tons milled was down a bit from the previous quarter. We did see a little bit of an inventory build on the mining side, so we mined more tons than we milled and therefore we therefore we spent the dollars, but because the denominated here is tons milled. You saw a slight increase in cost per ton and similarly at days followed we saw a bit of drawdown in inventory, so we did say a bit of reduction in tons milled. But in general, pretty solid performance across the board from our total ton stocks and we think that again, if you look at the quantum of the numbers, clearly the biggest opportunity for us is to continue to drive that mining cost down, maybe a little bit of opportunity administration cost. But the quantum of the mining cost means that that’s where we will continue to focus our efforts. Going to Slide 11 and I found this to be a very useful graph, I talk a lot about productivity and people say why does it matter and I point them to this graph, because you can clearly see a very strong inverse correlation between productivity and all-in sustaining costs per ounce. This is about one of the metrics that we use to measure productivity, which is ounces per employ per month. And you can see here that it sort of continue to improve slightly, but sort of flattened out and you can see that our all-in sustaining costs was actually up slightly. So we still see opportunities to improve productivity. Our goal continues to be get all-in sustaining costs down into sort of mid to high 500s in the medium-term. And I'm going move into the next few Slides and sort of talk about where do we see those opportunities still to come. Typically, we have seen grades pretty flat actually over the whole period of that graph, flat to down, it was slightly. So I have been asked, well how we manage to get the ounces per employee up by high grading the operations and answer is no, in fact, what we found when we analyzed. All of the stopes was that actually some of our very high grade stopes were in fact actually the ones that were costing us the most amount of money. So we are very focused on what does it actually costs us to get that ounce up and we have not gone the sort of high grading route, we have kept that grades consistent to down slightly over that period. So let’s move on to Slide 12 and again this graph really is a very good indicator of sort of some of the drivers of what has driven those ounces per employee per month improvements. And you can see at East Boulder there when we brought Grham Creek on, you can see the volume that we saw and East Boulder has very much driven a big step change and productivity there. And you can also see in green as we did the reorganization and sort of changed the incentive system, but Stillwater Mine last year ran about this time. Again, you could see another big step change there in the productivity per mine. As I said earlier, flattening out somewhat over the last couple of quarters, but again, we have got a couple of levers where we can still pull to continue to gradually improve our productivity we would say. So that brings us to Slide 13 and so some of the things people often ask is what can we do, what is the next thing that we can do. We have talked somewhat about innovation and technology. I think it’s fair to say that we would not be passed at the leading edge of innovation and technology where we stand today. We think that there is significant improvement to be had here and when we go and tour with some other operations in other jurisdictions and try to explain why they are more productive than us, this appears to be a fairly substantial component of it. And these are not massive dollars that we need to spend, but there is some dollars and as we highlighted on last earnings call there would be some money spent over the back half of this year and into next year, and this is really those things here. Lining the waste dump at the Stillwater Mine, this allows us to go to a different type of explosive, which we have done at the East Boulder and we saw a significant improvement in productivity there. On the back of that, we expect to see the same sort of jump in productivity at Stillwater. This 32 E infrastructure development, this is an area where I said we would shut down one of our better stopes at the Stillwater Mine to do this. This will reduce our haulage cost, we will see this go through in Q1. Mechanize Bolter developments, so this is an area where historically we have done a lot of hand held bolting and mining. We are not really doing much hand held mining, but some bolting, quite a bit of bolting still. This will allow us to significantly reduce the hand held bolting, it's got we think large safety benefits, but also it will allow us to get better productivity and also maintenance tracking and optimization. Again, I would say that we are not at the leading edge of maintenance tracking and optimization by any stretch of the imagination. We think there is an absolute cost reduction potential here, but we also think there is a productivity improvement, because when you look at our fleet availability, it is not good and I think through better maintenance tracking and optimization we can get our fleet availability up and therefore our productivity up. So these are all great things to do. We did say last quarter we would spend some money on this and we did spend some money on it. So during Q3 we spent approximately $16 an ounce on these activities, initiatives and realistically we didn't see any benefit in Q3. We will start to see some benefit a little bit of it in Q4 but probably we won't see the benefit of to start really until Q1 next year onwards. So we have to spend the money on these things upfront to get the benefit, we are spending the money, it does partly explain why we saw our all-in sustaining cost go up slightly quarter-on-quarter. So that brings me on to Blitz on Slide 14 and obviously this is going to be subject of much discussion and Blitz is our key development project and this graphic here I think outlines a couple of important points. One is the scale of it, this is a very large project, you can see we have put a Golden Gate bridge on the top there, so people can see just how big this thing is in relation to the Golden Gate bridge. We have also now reengineered the project to include what we use to call Lower Blitz. So when we historically talked about Blitz, it was just that thing called Upper Blitz and there was an arbitrary line at the 5000 foot elevation which was just arbitrary that the Blitz project was everything above that to service. We have now included Lower Blitz as part of the Blitz project, because if you look on that graphic there you can see in the old Stillwater mine to all intents and purposes we have been mining that on the left hand side of it there and again there was an arbitrary line that just said well, we will come back and redefine the Lower Blitz project at some later date. The ore body continues through there, we have been mining it at the Stillwater Mine and there is no realistic reason why you wouldn’t mine up and down at the same time. And so the new scope of the project includes the Lower Blitz area down to the 3500 foot level. We now anticipate production out of Blitz to be in the order of 270,000 to 330,000 PGM ounces a year when we fully ramp it up, and we expect to fully ramp this up by 2021 to 2022. You can see that various personal stope block there, we are developing downward at the moment. The grade is good, I mean I'll talk about this in the next Slide, but a lot of the focus in the last three to four months of our engineering teams both internal and external and operations team has been about on optimizing the Blitz project for shareholders and accelerating it as quickly as we can. Moving to Slide 15, we expect this to be realistically all growth production for the decade of its life. We now expect capital spend to be $250 million which is up from the previous estimate of $205 million and that's really because we have expanded the scope of it. We now expect capital spend to first production to be in the range of $175 million to $195 million, again because we have expanded the scope of this. And really that extra capital that we are seeing is, capital that was always planned to be spend but in lighter periods. Because we are now executing this project in parallel as appose to in series. What we have done as dragged forward activities that we were going to done in lighter years into the period that’s closer. Now we are out of the period between now and 2021. We still expect first production to be in late 2017 or early 2018. We expect this Blitz project when it's fully ramped up to bringing our company average AISC down in the low to mid 500s. And we are continuing to see very favorable drill results and what we doing each quarter is we release a new series of drill results as we drill out a new block - the entire lock. So we can get the full interpretation done we are releasing the new drill was out. There should be a table at the back of this deck with the full appendix there with all of the drill results. but you can see in that block 11.1 that 28 foot at 2.34 ounces at the terminal 15.68 or 8.3 feet to 1.24 ounces. Again, similar grade in which to what we have seen in the previous drill results we have announced and in fact this block will be accessed from the deep line that is being pushed out now to access the first stope in that 10,000 stope block. So we are pretty excited about where Blitz is at the moment, an enormous amount of works that’s underway to really make sure we optimize this thing and continue to accelerate it. And on that high there that little graphic you can see on Slide 15. You can really see why incorporating lower Blitz into the Blitz project makes a lot of sense. Because realistically the yellow line that's on 5,000 level is TBM level. The green line is 56. There is no real reason why you wouldn't mine Lower Blitz and Upper Blitz exactly at the same time. And in fact, there is lot of advantages from mining both of it because from a capital intensive point of view, you can get a significant increase in your production rates for relatively small amount some extra capital. So it makes a lot of sense and that's the way we are going. So going on to S1lide 16. The other component of Blitz we talked about, we talked about the three key components begin the TBM drive, the 56 and now the 53 to fund and the Benbow end which is the deep line coming in from the far end. This is critical path not for first production, but for our ability to ramp up production, because we need to get this to break through to the other declines to get full ventilation. So we have more or less completed the surface works. We have a contract up Redpath who is mobilized either side. You can see that image there on the top of Slide 16 which is been building surface facilities. You can see the image on the bottom of the page, which is the portal. We started the portal during the end of Q3. We have spent in total $101 million on this project to the end of Q3. We are looking to accelerate this spend. The 56 grade is ahead of plan. And we keep looking for ways to push that ahead, because that is the critical path. The decline that comes off that down to the first production level is the 53 decline that now becomes the critical part of this production. And so we are focusing a lot of attention on that. We now as we look at our plans, the new bottleneck is now the Stillwater Mine concentrator. We are doing a series of studies at the moment to see what we can expand that to for what dollars. And we are costing out those expansion scenarios, and we think that there is further opportunity to do some expansions, but it’s just going to come down to what’s the most capital efficient. When we look at the limiting factors for us at Blitz, as we sit here today, it’s the Stillwater Mine concentrator, ventilation requirements, or ability to ventilate, and our water treatment capacity. So we have parallel studies on the way, engineering studies on the way, to look at each of those to see how we do bottleneck in this operation. And so, we think there is opportunity certainly on the vent and water. We don’t have the answer on the Stillwater Mine concentrator and just how large we can make that. It's probably fair to say that the Blitz project, the mine end of it could probably produce more than what we are currently planning. However, we have these other constraints that we need to do bottleneck for. That work is underway as we get the answers, we will come back and update you. Moving on the Slide 17, we have talked about the Lower East Boulder project. Again, we are doing a similar exercise here where we are looking at what are the bottlenecks. We have talked about what the design concept looks like here. Again, we think there is potentially opportunity to do better than what we have been thinking. But we needed to go through the exact same processes here, look at all of the bottlenecks, get the engineering work done, and then we will come back and update the market as and when that information comes ahead. Slide 18, the guidance, we haven’t updated our guidance at this stage. And we are tracking outside very favorably against this guidance. And we will always - our goal is to do at least as well as the guidance if we can. And that will bring me on to Slide 19, which is the summary. So as I said at the start. Look, I summarize really is that the quarter is being a pretty strong quarter. We continue to deliver on everything that we have said we’d deliver on. Our safety is very good, which I’m very pleased about. We are continuing to see records falling across the operation, whether it’s the safety or production, or cost, or recycle volume. As Chris had indicated, we have kept a very, very strong balance sheet, lot of liquidity even we are funding $22 million increase in working capital as the recycling volume business volume grew even as we funded everything on our project capital. We have I think made some significant improvements in the way Blitz is going to be built. We continue to look for ways to accelerate that. And underpinning all of that is, we still see pretty robust PGM fundamentals. We did see a pretty strong recovery in the prices. During Q3, we've seen the pull-back a little bit since then. But again, over the medium to long-term, we do continue to see that the strong fundamentals underpin the business in its current format, and also the investment decisions we're making as we go forward. And so with, I'd be happy to turn the floor over to any questions if anyone's got any.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Andrew Quail from Goldman Sachs. Please proceed with your question.

Hi Mick, Chris and team. Thanks very much for the update congratulations on another strong quarter. Just wanted to get some comments around the likely impact of, obviously, U.S. scrap steel prices moving up on your recycling business, I know you commented, Mick, about keeping the market share constant. But can you just give us what you are seeing and any trends, especially from a destocking point of view on the U.S. autos?

Andrew, there is - for North America, there is a pretty close correlation in their volumes to U.S. scrap steel prices, less so for other markets actually. And so, as we see, if we see scrap steel prices strengthen, which we did see through Q3. Although, they’ve actually been weakened a little bit, so they seem to have flattened a bit now. There's a pretty close correlation between our volumes and scrap steel prices. So if we see scrap steel prices go up then we're going to see our U.S. North American volumes go up in result.

Just on your guidance, it obviously looks very achievable. Just looking into next year on something like G&A. Obviously, you have done a lot of work restructuring over the last couple of years. Is that 30 million to 40 million, something, that we can model out for next couple of years or is there further downside to that?

I think, we'd be comfortable staying within that 30 million to 40 million. Obviously, we haven’t given guidance for next year just yet. But we don't see anything that will materially change G&A at this point.

I'm always looking to save a few extra dollars here or there Andrew. But again we have made a pretty significant cut in, and I don't - you're not going to see how we did significant thing.

And Chris, maybe one for you again on tax, just as we do our models going forward and more steady-state for you guys. And prices, it looks like stabilized. What are you guys paying in tax going forward, and what's the reasonable effective tax rate?

I think, low to mid 20s is a reasonable effective tax rate with the mix of business that we've got at the moment. We're obviously able to take percentage deflation on the mining income, and that lowers our effective tax rate at that level.

Our next question comes from the line of Dave Gagliano from BMO Capital Markets. Please proceed with your question.

I wanted to focus-in on Blitz a little bit more. I wanted to drill down a little bit on a couple of things. First of all, can you give us a sense of, given the expanded scope of the project, any early read on sustaining CapEx after it's up and running? That's my first question.

Not really, yes, although we have said that it will get our all-in sustaining cost down to that low to mid 500s. So, it's it will be a little bit, if you took out current sustaining CapEx per ounce and reduce that slightly, that's probably the best indications I could give you at this point. And the reasons are that the design we have for Blitz, the newer design, is a little bit more capital efficient. And the ounces the grade is high, so you get more ounces out at the same amount of development.

And then I just want to get a sense as to, in terms of ground conditions and any other issues that we should be thinking about as this project - obviously the scope has expanded significantly. In your view, what are the major risks associated with execution now that the project has expanded?

I don’t really see any risks, new risks that arise because of the scope expansion. Because it's the same, basically the same start that we're doing. But I think the risks associated with delivery of the project are the following. In terms of, first, production; its development rates on the 53 declined and associated infrastructure. So that will determine the timing of when we get there. And then the next risks if we look into first production, we will be ground brand conditions. If you recall at the Stillwater operations that when you get the very high price and the wider ore-body, which is what we've got. You typically get worst ground condition. So we will be using cemented rock field for the first start. So it's just - it's really more of the timing risk, just in terms of getting all of that in place in time. In terms of the broader ramp-up on overall project execution, I would say the risks then become really the key risks then becomes the timing or breakthrough of the Benbow decline into either the 56 or the QDM grade, effectively whichever gets there first. Because that really limits you in terms of how quickly you can ramp-up to full production. Because there is only so much ventilation you can get in from the portal end. And until you get some sort of ventilation breakthrough that’s your key risk in terms of being able to ramp-up the full production. And as I alluded to in my presentation, there is a lot of work underway in terms of how do we optimize that vent and either derisk that further or come up with alternative plans that would allows us to actually accelerate in further, Because quite frankly that actually is the determining factor for ramping up to that 370,000 to 330,000 ounce a year production.

Okay, that's helpful. Thank you. And then just…

And the last risk that I'll talk about actually is water. We have hit probably more water than what we expected there. And so we can mine through the water. However, we can't just let the water come out then we have to treat that water. So a part of, a small part of, but a part of the increase in capital is we are actually going to spend some additional money next year on expanding our water treatment plant, which then allows us to derisk that more and push on a bit quicker hopefully.

One last one, I didn't hear the word labor in this discussion. And I'm wondering, and historically that has been an issue with regards to expanding and labor becoming a bit of a challenge. And so can you just comment a little bit about the labor situation moving forward with again the increased project scope and things like that?

We have not exhausted our recall list from the layoff that we had in August of last year, which means that there is still people that we laid-off that would still be available to come back and work for us. And our attrition rates are running very low, I would say off the top of my head 6% to 10% per annum, which if you go back to times past when the companies have challenges securing labor, the attrition rates have been 15%, 20% and 25%. And so at this stage, labor doesn’t appear to be a significant challenge for us. However, if we continue to ramp-up faster, that might become a challenge. But I would say this is that as we improve productivity, we can execute more activities with the same workforce.

Our next question comes from the line of Daniel McConvey with Rossport Investments. Please proceed with your question.

Mick, it will be historic to have the Stillwater plant as a constraint for production. When you look at your non-Blitz production going forward for the next decade or so, in your plans, it's stable. So the question, so everything we're going to get from Blitz is pretty much for that time period of the increment. Is that fair?

That is correct. The plan is for both operations flat to up slightly.

Okay.

Over that, actually 10 to 15-year period…

When is we've got the pre-fees. When is the feasibility coming on Blitz completed?

Well, we are not doing a separate feasibility study given that we are actually building it. We will be in production of this thing in just over 12 months time. So, we are not updating the market for a separate feasibility study on that.

And how much is ventilation challenged going forward? If I remember rightly - are you allowed to build more vents, more over-the-top?

We are, at the moment, the design for Blitz is for the bulk of the ventilation to come basically through connecting the two declines up, the one coming in from the Benbow end and the one coming in from the portal end, or the two coming in from the portal end. And that’s still the plan. However, that limits your ability to ramp-up before that happens. And so the work that’s underway at the moment is, is there a better plan for the period between now 2021, 2022, that would allow you to drag pull that ramp-up to full production. And that we don’t have the answer for all of that, we are working on at the moment. So the plan that we currently have is effectively the original plan, but that limits the time frame at which you can ramp-up the full production. So, I’m always a continuous improvement kind of guy. So if there’s a better plan that allows us to ramp-up the full production before that, we should be looking at that.

[Operator Instructions] Our next question comes from the line of Lawson Winder from Bank of America, Merrill Lynch. Please proceed with your question.

Hi Mick and team, thanks for doing the call and congratulations on the results, very-very nice. Just a couple of questions, first of all, maybe a little color around the slowdown you highlighted at Stillwater. Are you expecting to see tonnage come off, or is it just grade that'll be coming off? And I'm referring to Q4 and Q1 '17.

You won't see much of it in Q4. It's really going to be Q1. It's a bit of a grade and maybe a little tonnage. We use one of our better stopes, and we just - we have to take it offline, because basically we got to put the haulage infrastructure in place there, and it's probably for a quarter. And it's not going to be a material impact, but it'll be a few thousand ounces, I think.

So you expect to be done the work by the end of Q1 '17.

Half the way through Q2, I suspect. It depends on how quickly the work goes, and we will bake that into our guidance for next year. I'm not saying that it's going to be a hugely material impact. But I also like to - I also don't want people to get surprises, I'd rather give you a little heads up and say you know Q1 next year might see a few thousand ounces off relative to where we are. But also Q3 we've just delivered a very strong quarter. I like to give people a heads up anyway.

Well, that's much appreciated. Also, I noticed there is no Slide this quarter on the advanced rates the 56 East. Are you able to share that with us, I think the last update was June.

Yes, it's flat to down slightly. We haven't seen any big improvements there. Part of the reason is that we actually took those guys off onto the 53 and the 59. So again we - as I said earlier, the critical path, the first production six months ago was the 56. Now that we've got the 56 up, past where we need to go down to the first stope, the critical path to production is the 53. And so, we actually took the crew up there and pushed them from the 1st of August down under the 53. So we're continually looking at what is the critical path to get first production. And so while that was a 56, we pushed that hard. Then it became the 53. So now we're pushing that hard. And then it's going to become the 59. And so some of the capital that we have said that we have added in or dragged forward here is that we're going to spend about an extra $10 million on ramp up to the 59, which was previously scheduled for four or five years out, when they're going to - actually, we've already started it. And we're also going to spend another $10 million on our dedicated fleet for that 53, 59 and 56, which again we think will allow us to speed up a bit more.

So it sounds to me like the limiting factor in going full out on both 56 and 53 at the same time, there's just the amount of equipment that's available to you, is that fair?

That's one off.

And then the other I guess would be spending, or just how much you wish to spend?

When you got $440 million in the bank, I don't think that's a constraint. I think it’s also designed like - if you go back a year ago to today, the plant for bleach looks very different, which is fine. But you actually want to have that plant in place before you start making those changes. So we have been able to make some changes. But you’ve got to get the plant in place before you actually make those changes.

And then in the past or often in the past, you've guided to Blitz’s average grade being somewhere in the range of 0.6 to 0.7 ounce per ton. How would lower Blitz compared to that, may be like on a percentage versus the mid-point of that range?

It would be in the same range. I mean what we had said is that if you look at the drilling results from the first stope block that we have drilled out and we are now getting closer, having to do on the second stope block. The drilling we are seeing at the moment is at or above the top end to that grade range. I am not so sure put my hand and my heart and say the entire things got to be like that yet. But the first block will too look like being higher than that range.

You recently said in an interview, actually it was in September. You had indicated that you'd be looking to initiate a dividend. I think you’d said that it could be as early as 2017. I guess, in light of the additional spending you guys will be doing to increase the production at Blitz. Does the thinking on that timing changed at all? And then also, have you put any thought into potential levels?

Let me clarify. I said, look, my goal is that I think it would be good for shareholder at some form of return out of the business. I am not so sure I actually gave the timeframe of when we might look to do a dividend. But I think it's certainly something feedback, some shareholders indicates that, not all of them but reasonable amount of them would like to see something. But no, we haven't settled on what we think that mine look like. Yes, we are spending more money on Blitz or I really actually. But I don’t think we are spending a lot more money on Blitz. We're just spending it faster, which is, I think, that's a better thing. Because the faster you spend the money the cheaper it usually costs you. And our goal has always been to self-fund everything through operations. So, I don’t see the plan for Blitz really changing out thinking in terms of shareholder return, one way or another.

Our next question comes from the line of Lucas Pipes from FBR & Company. Please proceed with your question.

Just a quick follow-up on Blitz. I think the one aspect that hasn't been discussed in detail is on the concentrator. When you mentioned that you will need additional capacity there or that would be the bottleneck as it currently stand. So, how quickly do you think you have to add the capacity at the concentrator? And what sort of zip code are we looking at in terms of capital required for that?

Well, I think, I’d like to get the study done before I start telling people what the numbers look like. On the current Blitz plan like you wouldn’t need it - you may be able to squeeze all of those expenses on the current capacity, it's tied I suspect. So you are looking three-four years out before you’d need to do anything on it.

Just kind of from your experience in the industry, I understand, and appreciate you want to get a study done. But if you we were to say kind of worst case scenario. What could we’d be looking at?

I think your comment about, I’d like to get the study done, first, is the correct comment. Let me get some numbers first before I start giving you numbers.

And then maybe to change the topic just slightly, Mick, how do you think about the value of the smelter? I think one could make the argument that it has unique attributes in terms of the cash flow that it generates. Do you think it could make sense on a standalone basis, or where you maybe sell a portion of that to the public? How would you think about the value of that business, and how it could fit in? And how quickly you could maybe crystallize the value if there is a discrepancy?

Look, I think those types of assets should and do trade at higher multiples than the mining assets, really because they are sort of more industrial type earnings. Particularly, the way we run the business, I think that business needs to get a little bit bigger first before we think more about it. But yes, I think that’s always an option. I’ve always said that we’d look at all options to increase shareholder value. And if one of those options was that you did something with that business, obviously we are always going to need access to the smelter because the whole point is that by having that smelter, we don’t have to go to a third-party smelter ourselves. But, yes, I think those types of businesses trade at pretty high types of earnings multiples. And if at some point thought that it may seems to do something with that, either the strategic or something, then we’d certainly consider, depending on the valuation, I guess.

And when you say size, is that defined by certain level of EBITDA?

Yes, probably, realistically. And if the next question is, what is that number then at this stage, I don’t have any answer for you.

I certainly didn’t mean to ask that question. But I appreciate your candor and thank you very much and continue the best, best of luck with everything.

Our next question comes from the line of Sam Crittenden with RBC Capital Markets. Please proceed with your question.

Just wondering if you could talk a little bit about the mining method in Blitz, and just really curious on how much is the narrow manual type mining with jacklegs and things like that versus the more automated methods?

It will be pretty identical to the Stillwater Mine now, which has almost no narrow jackleg mining, handheld mining. We, off the top of my head, I would say that we would get maybe 1% or 2% of our Stillwater Mine ounces from jacklegging and almost none over to East Boulder. The only jackleg activity we do is bolting in those narrow headings. And, again, as I said, we are moving towards away from it.] So the mining method over at Blitz will be ramp-and-fill under cemented rock-fill probably for the most part based on the ground conditions we see or the first stope block, which is identical to what they were doing in the old, what they call off-shaft area of the Stillwater Mine. So, it’s nothing new for us.

And then just curious on any permits you might require for an expanded concentrator, and then I guess presumably expanded footprint at surface. You might need for, for once Blitz gets up and running. Is there any significant permitting required?

No, not for what we're envisioning. And let's just be clear, you don’t need an expanded concentrator for really the bulk of Blitz. It just becomes a limiting factor. There's no doubt that mine can do more ounces than what we're currently seeing it can do. But you need to concentrate to treat those ounces through, so therefore we're looking at how do we expand that. We had a little bit of thermos required for Blitz, and the Stillwater concentrator runs 11 days on, three days off. So that's your first thing as you just - you actually run a 24/7 for stock. And then we have some other levers we can pull in terms of getting a bit more capacity out of it before we have to spend any or any material amounts of money.

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

Well thanks everybody for dialing in, and the good questions. We look forward to talking to you all again at the next quarterly results presentation. Thanks everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.