Good day, and welcome to the Coeur Mining third quarter 2021 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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 would 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 the 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 six and a half years ago. Palmarejo and Kensington were largely on plan and are on track to deliver strong fourth quarters.
Rochester's results reflect steady progress despite devoting 38.5 days, or about 45% of the quarter, to crushing and hauling overliner material to the new stage six 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 four pad as they've prioritized 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 at 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 overliner for the new stage six 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 rescoping and rebidding unawarded contracts, but we currently estimate that we're likely to see a 10%-15% overall increase to the POA 11 construction cost.
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 will 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 3-6 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 multi-year high zinc and lead prices. Fortunately, our 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 footprint 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 macroeconomic factors, and allow us to focus on delivering POA 11 while not straining 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 wanna 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 wanna recognize our head of human resources, Emily 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 had 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 ore body 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 thick mantle ore zones, and more recently, vertical feeder structures under the Discovery South zone. These structures represent significant resource tonnage potential and demonstrate 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 in the 1.5 km gap between Southern Silver and Tour Ridge zones. With a larger drill budget this year, we expect to continue significant growth at Silvertip, which will give our development team confidence to rightsize the future operation to fit the potentially increased scale of the ore body. One final note. The team reported last week they have cut the best hole ever with 11 mineralized mantle 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 now pass the call over to Mick. Mick?
Thanks, Hans. Before diving into operational results, I wanna recognize the team for continuing to prioritize health and safety and driving continuous improvement in this area. Flipping to slide 24, I'm proud to report that we recently received the NIOSH Mine Safety and Health Technology Innovations 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 well-being of our people. Now turning to slide 5 to cover the operations, and starting off with Palmarejo. The team did an excellent job maintaining higher throughput levels and maximizing recoveries to offset some of the lower grades that we've been experiencing with our resequenced mine plan. 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 remain 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 overliner for the new stage six leach pad during the quarter, completing the necessary requirements for POA11. It's important to note when we are generating overliner, we were not crushing material to stack on the legacy stage four 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 overliner 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 Jualin material 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 a tremendous achievement. On October 3, the team at Wharf celebrated one year without a recordable safety incident. Truly an amazing accomplishment. From a results 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 non-cash adjustments that impacted our third quarter earnings. We wrote off $26 million of Mexican VAT refunds, to which we strongly believe we are entitled. 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 four, 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, which 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. 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. With 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.
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 wanna 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.
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. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mark Reichman with Noble Capital Markets. Please go ahead.
Good morning. Well, this question may be.
Hi, Mark.
For my roles. I've been getting more questions about sustainability reports, and so I was just kinda hoping you might be able to elaborate on Coeur's 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 an eventual path to net zero emissions by 2050. Just your general thoughts on your efforts and trade-offs would be helpful.
Yeah, sure. Very relevant question. Thanks for asking it. I have Casey Nault here in the room with us, who's our general counsel and leading our ESG efforts here. You know, on the website, our responsibility report is available, which we've done now for the last two years. That's a great place I'd suggest for you to refer any inbounds that you get. As well as, you know, 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.
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. I think you know is a good indication of just how serious we are about doing our part, and it's consistent with our overall kinda strategy and priority that we place on our ESG initiative here. 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.
No, that'd be helpful. I think that the focus is really focused on the climate change portion of it and the pathway. Then just a second question is, do you think the support agreement associated with Victoria Gold will get extended, or what are your thoughts on that?
Yeah. Well, good question. The expiration date is the thirty-first. You will maybe note, 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 assign 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.
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, the IRRs, you know, timing relative to, you know, enhanced or lengthening life or cash flow through the project?
Yeah, 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 wanna go a layer deeper on pre-screens?
Yep. For sure. You know, very typical in a mine as the ore body develops, and we see a little bit of veins. Very typical in other mines, you pop a pre-screen in there to pull those veins off. That does a few things, of course. That manages the veins at the back end that we put to the heap leach, which is a good positive thing, helps us manage the PSD. It also helps with throughput at times. We haven't finished the design on that yet, though, we're busy working through that. We'll certainly update as we go forward. For the moment, we're taking a deep look at that.
We're gonna look to put some kind of pilot into the X pit to make sure that the technology that we put in there matches the ore body that we'll have, and that we get good learning ahead of any kind of possible implementation at Limerick.
We'll have that work, Mike, wrapped up here in the fourth quarter.
Yeah, expectation is that we'll have some information.
Understood. Then looking out at the rebid and reconstituted requirements for the remaining capital allocation on Rochester, could you talk a little bit about timing and some of the dynamics? Obviously, you've talked about some of the dynamics, but is it just, you know, contractor, material, timing? It's just everything's so tight. Has COVID been an issue relative to working in North Central Nevada, getting the folks on board?
I'll start, and then Tom, you can pick up where I leave off. Your 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%-15% range that we mentioned, timing and dynamics like Mike asked about.
Yeah, sure. Both of the two SMPE&I contracts were bid out with fixed prices in mind to mitigate our risk. What happened was, as part of that mitigation, given the labor supply shortages as well as some other cost inflation pressures that are absolutely real and we continue to read about, we saw, you know, some bids that were much too high. We've decided to go back, talk, rebid all each of the two contracts, widen the scope of who we're talking to, and most importantly is to modify the commercial approach. Instead of a fixed price, to go with a reimbursable cost with a sharing of the commercial risk.
Again, that work is busily underway, and hope to get that awarded here in the near future. You know, I would suspect we'll have a lot more to say during the February year-end call.
Mike, just shape of remaining capital, if that's a part of your question. You know, I think as we go into 2022 and 2023, you could expect sort of 70% of the remaining capital next year and the remainder then in 2023, as we wrap things up. Mick, I wanna give you a chance to add in anything, if there's anything Tom or I didn't touch on that you wanna make sure Mike hears.
We have some great partnerships, like the one that we have with Kiewit up at Silvertip, of course. 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 3A, 3B. Those negotiations are going well, and we'll update everybody after that. 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.
Yeah, sure. Thanks.
Our next question comes from Joseph Reagor with ROTH Capital Partners. Please go ahead.
Hey, Mitch and team. Thanks for taking the questions.
Hi, Joe.
Yeah. Hi. Thanks.
Two things. First one, on the cost side. You know, 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, you know, for existing operations to keep, you know, cost inflation at a minimum over the next, you know, year or two?
Yeah. The word transitory, I guess it depends on what your definition is of transitory, right? 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. We are, you know, 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 wanna-
Sure.
talk a little bit more about some of the inflationary aspects, and then maybe Mick, you can touch on some of the things we're trying to do.
Yep.
operationally to mitigate the impacts.
Yep.
The two biggies for us have been labor and consumables. Again, you know, some of the consumables like diesel, for example, we're seeing 35% increases across our U.S. operations, 20% in Mexico. Fortunately, diesel is only in that 7%-8% range. On labor, kind of across the board, particularly at Kensington, we've seen some pressure. All of that kind of has us in that 5% range increase in costs. Again, we're not anticipating. We're in our budget cycle right now. We are not anticipating that pressure to come off in 2022 at all. You know, we're doing lots of things to do our best to maintain those costs.
We're pretty pleased that we're able to maintain our cost guidance. I think a lot of the efforts that Mick can touch on here in a second are contributing to being able to hold our costs flat in this inflationary environment.
Yeah. On the efforts front, we have a really strong BI business improvement continuous improvement program. We have various projects we're working through last year, this year, and we 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 cost 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.
Okay. Thanks for that color. Then, Mitch, you know, 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, you know, 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. You know, any thoughts there?
Yeah. It's a provocative question, and one that, you know, with all the the attention on some of these other rare earths, battery metals, you know, you can't help but think about things like that. You know, for us in the near term, you know, we have an awfully full plate, and delivering on those priorities, that's our focus. You know, I guess you raise an interesting point there in terms of the ESG angle. You know, with the significant amount of silver that we do continue to produce, you know, even though it's down to, you know, 30% or less of our revenue, you know, it's got such a great ESG story to it.
The end uses, solar and electrification, battery storage, et cetera, et cetera, you know, that is a. We're pleased to have that as our sort of critical metal contributor. But as far as extending into any of the other rare earths or battery metals, you know, for us, that's just not a priority, at least in the near term. You know, never say never, but no plans to look at anything like that.
Okay, fair enough. I'll turn it over.
Yeah. No. Thanks, Joe. Good question.
Again, if you'd like to ask a question, please press star then one. Our next question comes from Michael Siperco with RBC Capital Markets. Please go ahead.
Hi. Thanks very much, guys. Just going back to the Rochester expansion and the timing of capital spend. If I do the math on the revised guidance for Rochester CapEx in 2021, I get to a number of about $60-$70 million in Q4, and then about $300 million through completion based on that 10%-15% cost inflation. Am I right in my math in thinking about around $200 million in 2022 and $100 million in 2023? Is that the ballpark?
Yeah. I think your numbers sync up with that 70%, 30%.
70, 30? Right.
Yeah. Yeah.
Okay, great. Just wanted to make sure on that. 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?
Yeah, 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 that, you know, the accelerated timetable was definitely a large contributor in terms of, not only, you know, squeezing construction activities into what is a fairly short construction window, but then, you know, needing to accommodate large numbers of contractors to do that, well in excess of, you know, current capacity. The fixed costs, those indirect costs, you know, were 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. You know, our thinking here is that with a little bit of time, obviously, we keep drilling and growing the resource. We can see if these macro factors calm down a bit. We can take a little bit more 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 you'd call them, that we saw in the feedback that we received there late in the third quarter.
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 helped 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?
Yeah. 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. Then, we optimize that as we learn more about the resource. Real great opportunity for us. You know, the early works has gone very well, so we're de-risking the project as we go. That site cleanup has gone very well. The decontamination has gone very well. Overall, I think we're well-positioned.
Tom, you wanna add on to that?
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. You know, this is sort of another bow in that statement to support that we're gonna have a strong and flexible balance sheet throughout the Rochester expansion. Ed, if you don't want to add, I'd mention.
No, that's. Does that help?
Yeah, that makes sense. 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? 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?
Now, two fair questions. Mick, I'll ask you to talk about schedule.
Yep.
Tom, I'll ask you to talk about spend. Do you wanna go first?
Yep. On the technical report schedule, you know, 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. That's highly likely schedule for TR. 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. 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.
Tom, you wanted to cover again?
Again, kind of depending on if we go down the staged or the step change approach, that's gonna impact the level of care and maintenance that we'll be out with our budget here early in February. Again, I think the other piece of it is we're obviously very excited about the exploration potential. I think, you know, you'll continue to see the levels of exploration to help support that growth in the resource. Sorry, I can't be more specific at this stage, Mike.
No, 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?
Yeah. It's gonna continue to be an element. Again, the testing is coming along, continues to be really positive, and the level of interest is high. Obviously, the timing has now been pushed out, but no change that would be a big piece of the strategy to help fund Silvertip.
Okay, great. I promise, last question from 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?
Yeah, yeah. You know, 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 company has been consistent with how we compensate everybody, regardless of what entity they in which they work. There's really no meaningful impact to our costs, our labor costs, wages, compensation, between what we used to do and what we'll do going forward. It was largely more of an administrative exercise that wrapped up in July. There's been no fallout or issues since then.
Okay, great. Thanks very much for all the answers.
No, thanks for all the good questions.
Our next question comes from Brian MacArthur with Raymond James. Please go ahead.
Hi, Brian.
Hi. Good morning.
Hi
I think Mike was asking a lot of my questions about timing at Silvertip and ongoing expenditures for care and maintenance, which I guess we can't get yet. Maybe if I ask this differently, conceptually, are we thinking, you know, to slot in with Rochester, that we're gonna drill 2022, 2023, and we're trying to hit the construction season for some sort of plant in 2024 with production in 2025, and I realize some of this may be drilling dependent. Are we now talking about something that we're gonna drill for two or three more years and aim for 2026?
Because I guess where this comes out is what's the carrying cost as we wait for all this, notwithstanding the fact that I totally see what you're doing in trying to sequence this with Rochester.
Yeah. Well, I'll go first. My preference is door number one.
Okay. Well, that's,
You know, we'll let the work sort of dictate the schedule and, you know, just again, you used the word, Brian, conceptually. Conceptually, the idea of a staged approach makes a lot of sense, you know, where you could start maybe a little sooner and smaller and allow the operation to kind of self-fund its own expansion over time. As permitting and continued drilling
Right
sort of lay out the runway, you know, for the future. Again, that's a concept slash preference at this point. Now the work is underway to see if that's the viable way or not. Mick, anything you wanna-
Yeah
Add to that?
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 wanna go for a big plant, then we have to reevaluate those permits and the footprint and then get those things in place before we'd make those changes. Certainly a preference to look at a modular approach, but we'll look at the best value proposition for Silvertip, and then we'll make that decision when we're ready.
Balancing that with balance sheet.
Exactly
Preserving the flexibility there. Yeah. Good. Does that help, Brian?
Yeah. Then I assume you just, as you go through this, you just continue to aggressively drill and to try and figure out what you actually have here to decide whether you wanna build the bigger plant.
Exactly.
Okay. That's great. Thanks very much.
Yeah, thanks, Brian.
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 the impetus behind the sale of La Preciosa. I mean, I've heard some criticism, but you've known David Wolfin a long time, and it seems like that you know, Avino will probably try to make the most of this asset, and you've retained you know, some interest. Just kinda your thoughts about that transaction and why now.
Yeah. Well, thanks for the question. La Preciosa we've been trying to determine the best path for unlocking some value there for a while. You know, that was acquired in a 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 kinda 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. out West and then to a lesser extent up in Canada. You know, there were some of those thoughts going into this.
Mexico in general, you know, it has become a more challenging environment for mining, at least that's been our experience in terms of permitting security, kinda corruption, rule of law. Not that the VAT write-off drove the La Preciosa decision, but it was certainly a, you know, our ongoing disappointment and challenges with SAT down there around these VAT refunds, which goes back, you know, several years now, that's been a, you know, another headwind. Just tax rates in general in Mexico relative to-
Mm-hmm
... to other jurisdictions, and for us, in particular, here in the U.S., where we have a lot of tax loss carryforwards. You know, there were a lot of aspects to this, you know, including, you know, that's a primary silver asset. You know, I we're comfortable with kind of our metals mix as we have it currently. I think, you know, leveraging that infrastructure next door there at Avino makes a lot of sense and is 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.
Yeah, sure.
Our next question comes from Ryan Thompson with BMO. Please go ahead.
Hi, Ryan.
Back.
Hey, Mitch. Thanks for the update. Just a question on Rochester. Just kind of looking at recent run rates, you know, you're producing, call it between 700,000-900,000 ounces of silver and, say, 70,000-80,000 ounces of gold over the past few quarters. You know, you mentioned that you've been using the crusher for the overliner material of 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, I don't know, medium term before the expansion is in?
Yeah. I'll start and then, Mick, you can follow up. In the very near term, here in the fourth quarter, despite some recent, you know, record rains out in Northern Nevada and California from that bomb cyclone, you know, we're excited about this fourth quarter at Rochester, just because there's not any overliner being generated and diverted over to stage six. You know, it should be a fairly clean quarter relative to recent ones. Then, you know, going into early next year, you know, the only thing that pops up on my radar screen here in response to your question, Ryan, is putting those prescreens in to the legacy X pit crusher there. You know, there'll be a little downtime associated with that.
I'm thinking early second quarter, spring.
Yep, exactly.
Um-
2022, yes.
Otherwise, then we'll be able to have some you know, higher sustained throughput rates, crushing rates, stacking rates, with hopefully, you know, continued better improvement with these interlift liners that we put in, with the MP1000 that we put in earlier this year. With those screens that we'll be putting in there earlier in April of 2021. Long-winded answer. I don't know if I gave you any good color there. Mick, do you wanna add anything to that or?
Yeah. For sure, right? We'll continue to use the X pit as really a large scale pilot for the Limerick, and so we're learning a lot of things. We will continue through 2022 to optimize the PSD and look for the balance between throughput and recoveries. 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. With that, we expect to see some variability through 2022. Overall, it should be more stable now that we've got the infrastructure in place other than that prescreen that we'll put in 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. Maybe if you could just give us an update on what your latest thinking is with that investment.
I remember saying that last quarter, but I'm open to the question.
Yeah.
Ryan. No, thank you. Look, since May, when we made that investment of $117 million that we in the form of share consideration to Orion, it's been a good investment. You know, it's up to, I think, current value $160 million or so. So it's generated a nice return, a nice gain for us. You know, their stock price has increased significantly, whether you look back over the last three years, you know, over the last year to date, I think it's up 50%. It's up almost 30% since we bought the 18%.
You know, they have definitely benefited from, I suppose, a combination of the ramp up there at 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, you know, despite having an 18% ownership and a genuine interest. You know, we continue to view Victoria as an attractive opportunity. It's on strategy. We noted, you know, they put out some solid third quarter production results recently. The ramp up seems to be progressing well. Those are at least some thoughts and reaction in response to your question. Does that answer it?
Yeah, no, that, yeah, that's great. That's some good color. Thanks for that. Maybe I'll just sneak one more quick one in.
Sure.
Can we get an update on the Southern Nevada property? There's been some sort of activity in that region as well, lately. Just if you could update what the latest thinking and activities are there.
Yeah. Hans, you're still on, so if I don't hit anything that you wanna make sure that we say to Ryan, feel free to chime in. We'll keep drilling there. We love our land package. We think it's great that Anglo has kinda helped to validate the enthusiasm in the region there by acquiring Corvus. You know, that's all one big system that we're drilling on. We'll continue to prioritize the drilling, but we are, of course, very interested in finding ways to work with neighbors to make the pie as big as possible to, you know, share infrastructure, to do whatever we can to maximize value. You know, 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. You know, suffice to say, we remain really excited and there's a lot of potential down there. 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 you know, we look forward to having that sort of become a clearer part of our future pipeline.
Perfect. Thanks for that, Mitch. That's all I had. Thanks.
Okay, good. No, thank you, Ryan.
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. We will have another call like this, I guess, early next year. I can't believe I'm saying that. Happy holiday season to everybody. That doesn't seem right, but I guess that's where we are on the calendar. 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.