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Edited Transcript of HTI.H.V earnings conference call or presentation 6-Nov-19 4:00pm GMT

Q3 2019 Leagold Mining Corp Earnings Call

VANCOUVER Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Leagold Mining Corp earnings conference call or presentation Wednesday, November 6, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adriaan Almero Roux

Leagold Mining Corporation - COO

* Douglas Reddy

Leagold Mining Corporation - SVP of Technical Services

* Harpreet Kaur Dhaliwal

Leagold Mining Corporation - VP of Finance & CFO

* Neil Woodyer

Leagold Mining Corporation - CEO, President & Director

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Conference Call Participants

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* Andrew Weekly;SmithWeekly Research

* Steven Howard Butler

GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Leagold Mining Corporation Third Quarter 2019 Results Conference Call and Webcast. (Operator Instructions) For those of you on the webcast, please be advised that the slides are viewer-driven. (Operator Instructions)

I would now like to turn the conference over to Neil Woodyer, CEO. Please go ahead, Mr. Woodyer.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [2]

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Thank you, operator, and welcome, everybody, and thank you for joining us on this call. With me today, I've got Doug Reddy; Doug Bowlby; Harpreet Dhaliwal; Attie, of course; and also Meghan, Investor Relations.

So in the results -- I'll go through the summary. Attie will take us through the operations. Doug will go through some of the exploration, and then we'll finish off with the question-and-answer session.

Coming to the Page #3. Our gold production in the month was 84,000 ounces. Our all-in sustaining cost was $1,042. For the year-to-date, our all-in sustaining cost is at $978. Our earnings from operations for the quarter were $22 million, $66 million for the 9 months. And our EBITDA was $35 million in the quarter and $102 million for the 9 months to date.

At the end of September, we had a cash balance of $55.9 million. And we're pretty much on track to meet the low end of our production guidance for the year.

If we go to the next slide. I'll hand over to Attie, who'll take us through the mine-by-mine results.

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Adriaan Almero Roux, Leagold Mining Corporation - COO [3]

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Okay. Thanks, Neil. Let's move to Slide #5. Los Filos mine. Quarterly production was 41,000 ounces with a year-to-date of 150,000 ounces at an all-in sustaining cost of $888 per ounce. The mining section performed really well, with especially the open pit ore delivering a large number of ounces to the pads. Gold production was affected by lower recovery from the (inaudible) portion of the underground ore, by lower overall grade from the underground tonnes and the longer leach time of the large volume of the open pit [material stack] during the quarter.

[Steps] on the heap leach pad optimization continued, with the inclusion of a portable crusher to crush the underground ore finer to improve the overall recoveries.

Underground ore continues to be stacked separately on a (inaudible) to reduce the solution flow lag time. Another initiative is the compaction of previously leached areas to improve the initial flow -- solution flow to the ADR plant. The chemical conditioning of lime for pH control and optimize cyanide control is still giving good results.

If we talk about Fazenda. Another steady quarter, producing 19,000 ounces, with a year-to-date of 55,000 at $905 per ounce all-in sustaining cost. The focus at Fazenda was on cost management, plant throughput and recovery optimization. This is specifically in relation to The Canto carbonaceous material, the campaign and treatment of kerosene and the sulphidic material being treated with high oxygen and lead nitrate. It's giving good results. The underground drilling program is ongoing to continuously replace the resources and the reserves.

And of note is that the (inaudible) successfully being completed.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [4]

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Attie, it's Neil. Could I just -- Attie, can I just interrupt you for a second? We are certainly getting a bit of break up on this line. If you could speak slower that may be clearer for everybody. The line is breaking.

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Adriaan Almero Roux, Leagold Mining Corporation - COO [5]

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Let's move to Slide 6. Talking about RDM. Quarterly production was 15,000 ounces with the year-to-date of 46,000 ounces at $1,215 per ounce all-in sustaining cost. Quarter 3 started well with improved grades and improved performance on the mining contractor. This was further assisted by the (inaudible) from the [newly] installed grid power line. Quarter 3 production was affected by a temporary suspension of operations by the regional environmental agency which placed (inaudible) on the placement of (inaudible) by advancing construction method, which was different from the center line construction method we're currently in operating license. In mid-October, the suspension was lifted after consultation with the authorities and the deposition resumed towards the amendment of the operating license being conducted. Of note is that RDM (inaudible) rain of the season and without the normal rainy season, basically, water for the operations. We still produced a number of water conservation initiatives (inaudible) in the plant. And we've also started looking at alternative sources such as [wells] and the efforts are continuing.

Talking about Pilar.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [6]

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Attie, can I hold a sec? Attie, sorry. It's Neil, again, I do apologize. It is very difficult and we've also had -- it's not just us, other people are having difficulty [listening to] your line. Would you mind if Doug takes over from this end? He'll just take people through Pilar and also Los Filos, and you could try and add to that. It's a bad line you're on unfortunately.

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Douglas Reddy, Leagold Mining Corporation - SVP of Technical Services [7]

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Attie, you can correct me if I make any mistake.

Pilar had quarterly production of just over 9,000 ounces in Q3. Year-to-date, just under 30,000 ounces. All-in sustaining costs of $1,200 per ounce sold. Dilution continued to affect the underground mine. This was partially offset by an increase from the tonnes being hauled from the underground to feed the plant. The additional capacity in the plant was filled by supplemental low-grade stockpiles. There are optimization programs that are continuing to be applied to Pilar.

If you move to Page 7, the expansion work at Los Filos mine complex, we focused on several areas. Bermejal underground. We've been doing the preparation work for awarding the main underground development contract. The preparation work has been going through the process of bidding and review of the contracts.

Lateral development to ventilation raises is nearing completion. The first pilot hole, and if you recall, this is at the end of a 1,300-meter, 5-by-5.5 meter ramp that goes down towards Bermejal underground. The first pilot hole is being completed and is ready to be reamed out. And then the second vent raise will be done by January of 2020. Lat ventilation is being put in place prior to doing all the next phase of development in Bermejal underground.

Guadalupe open pit. The access road from the Waste rock dump was completed in Q3. And mining of overburden on 2 faces is now underway. Mining of ore is scheduled to begin in Q4 of 2020. I'll encourage you to have a look at the image that's on the right-hand side of the page. The blue area from the bottom right of that image shows the open pit, starter pit for Guadalupe, and then surrounding that is the final open pit for Guadalupe. So we're focused on the starter pit at the moment.

We do have strong community support. We have a 6-year land access agreement in place. Local employment and procurement's being optimized for the work on the construction and production from these areas.

CIL plant optimization and engineering work is continuing.

If you go over to Page 8, as part of our work on Guadalupe, we started a drill program in the Guadalupe area. It's 24,000 meters of RC and diamond drill holes. It totals 130 holes. We're 13% complete at the end of Q3. Some of the highlights that were reported in September included 1.4 grams over 33 meters and 6.2 grams over 10.6 meters.

This is demonstrating the fact that Guadalupe has a very high-grade center to it and a broader, lower-grade zone mineralization. The drill program there was focused on testing some of the inferred resources to convert them into indicated so we can include them in reserves and also assessing the opportunity to steepen the north wall of the Guadalupe open pit. Drilling also is being done in areas of Waste that may have mineralization. And the opportunity lies in being able to add more reserves and reduce the strip ratio overall for Guadalupe.

Los Filos underground. We initiated the drill program of 12,750 meters. That's a step-out drilling program totaling 55 holes, aimed on -- at -- aimed at extending mine life. We're 27% complete in that drill program at the end of the quarter. And some of the highlights included just under 9 grams over 27 meters and 6.5 grams over 15 meters. Those were reported in September.

That program is focused on adding reserves. And the total drill program budget is at $7 million and the programs will be finished by the end of Q1 2020.

But during the quarter, we also announced that we were starting a multi-year, a multiphase exploration program on the southern part of the Bermejal intrusive. Since Leagold acquired Los Filos, we've more than doubled the reserves on this property. We saw excellent opportunities remain especially in the southern 2/3 of the Bermejal intrusive. On the figure shown on Slide 9, you'll see that there's a black line in the middle of the figure. So the north of that line, over 1,300 drill holes have been completed. But to the south, only less than 30 holes have been drilled. So there's 1/3 of that skarn/intrusive contact has been drilled, and it has reserves or mined out -- or reserves that have been mined out, a total of 6 million ounces of gold. So we see the south portion of the Bermejal's intrusive is being a very attractive exploration target and that we'll be testing over the next several years.

And one of the areas we're testing first is El Carmen. In the news release, we noted that at El Carmen, there are grades of 8 grams over 15 meters and just under 13 grams over 13 meters, and channel samples have been collected and workings. So we need the drilling, so we can get it delineated and see what's there because that's immediately to the south of the Guadalupe open pit, and it may impact the pit shape in that area.

I'm going to pass it back to Neil.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [8]

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Thank you, Doug. And I apologize to everybody for Attie's line. Hopefully, it's a bit clear when it comes to the Q&A session.

So this year, we've produced, so far, in the 9 months 281,000 ounces at an all-in sustaining cost of $978. We think we will be able to meet production guidance, the lower end for the year. And importantly, we now have Santa Luz -- sorry, Los Filos expansion underway. And as Doug has explained, we've got new exploration programs to extend and improve the mine life at Los Filos.

So that really is the formal part of the presentation. And if the operator could hand over for Q&A, we can hope Attie's line works as we go through that.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Arun Vohra] with [Leagold Mining].

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [2]

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[Arun]? Arun , are you there? You have a question?

Maybe there's a line problem (inaudible). I thought that maybe we should get (inaudible).

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Operator [3]

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[Arun Vohra] is live.

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Unidentified Participant, [4]

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Yes. I have 2 questions. The first one is with regards to your guidance, you would need to produce around 100,000 ounces in Q4. It will be interesting to understand how you will increase production with about 17% from Q4 -- from Q3 to Q4? And the other question is related to the working capital. In Q2 and Q3, most of the all-in sustaining cost margin has been eaten up by working capital changes with regards to cash flow. How this trend continue into Q4? That were the 2 questions I had.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [5]

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Let -- thank you. Let me take the first one, then I'll hand over to Harpreet to take the second one. I think in terms of Q4 production, what we're seeing is an improvement in Los Filos. Los Filos had a bit of a tough quarter. But we're seeing improvements coming through, and the mine plan would -- should give us more ounces that -- in this quarter. Also we had a temporary shutdown, a 4-week shutdown at RDM on the processing side. That's back and up and running. So we shouldn't have that problem, again, this quarter. So we're anticipating an improved quarter Q3 -- Q4 over Q3.

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Harpreet Kaur Dhaliwal, Leagold Mining Corporation - VP of Finance & CFO [6]

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Okay.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [7]

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Harpreet, did you have the same question?

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Harpreet Kaur Dhaliwal, Leagold Mining Corporation - VP of Finance & CFO [8]

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Yes, definitely. So just for the 2, what Neil is saying, based on the increased production for Q4, we do expect to have a positive impact for the inventory working capital in Q4. So that should -- we'll see a positive trend there. And then in addition, the supplier payables working capital, we did pay down a significant amount in Q3. So you'll also see a positive impact on working capital in Q4 for the supplier payables working capital.

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Operator [9]

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The next question is from Andrew Weekly with SmithWeekly Research.

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Andrew Weekly;SmithWeekly Research, [10]

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Two questions. Neil, with the current growth plans in motion, are you of the opinion that all annual production growth potentially to 1 million ounces per year within the next 3 to 4 years be obtained from existing asset expansion? Or do you see another acquisition or 2 is necessary before the market really gets going?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [11]

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I think our assets that we're -- we now have under expansion both in terms of Los Filos and Santa Luz, take us to the 650,000-, 700,000-ounce mark. And we feel comfortable that we're financed to do that. Beyond that, I see [that as the answer]. Our focus at the moment is get to that state where we develop and grow own assets. The asset base we have, unless we can find a lot more higher-grade material at Los Filos, it's not going to take us to another 200,000 or 300,000 ounces. So if we were to try and go that direction, we would have to look. We have never really targeted 1 million ounces as a target. What we're trying to target is an attractive, intermediate investment vehicle, with a reasonable portfolio, reasonable cost base, reasonable mine map. And that's a sort of developing situation. So our assets at the moment, over -- we might just have 650,000, 700,000. Does that sort of answer the question?

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Andrew Weekly;SmithWeekly Research, [12]

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Yes. No. I think it does. Now just with that, given where we are in the market and where the gold price is now, we're still fairly early stage. Are you looking actively at new assets now? And if you are, can you tell us what jurisdictions you're looking at?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [13]

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At the moment, we're getting over having started Los Filos development phase. We're getting over the fact that we've now started a new expansion exploration program. And that's our current focus. Obviously, we are aware of what's happening in the market, but we're digesting at the moment what we have at the plants we've just put into place and the refinancing that we've done.

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Operator [14]

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(Operator Instructions) The next question comes from [Philip Verstreet], a private investor.

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Unidentified Participant, [15]

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Okay. I do have a question, again, on Los Filos. Maybe it already has been answered. So this quarter was on the weak side. But you stated that you're going to reach the lower end of guidance, let's say, 200,000 ounces. But if you would only hit that number, I assume Q4 would be in the low 50,000s. Last year, you hit 58,000. So I wonder, is Los Filos underperforming? Or will it recover up to last year levels again? And what is the real reason for that? Is it due to recoveries? Grade? And on the cost side, have the costs going up in Mexico? Or is there something else we should track? Or we should worried about? Or will everything come back into place on that front?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [16]

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Let me take that, first of all, then Attie can add to that. Last year, we produced 198,000 ounces from Los Filos. That's the kind of number or maybe slightly above we expect to produce this year. So we're seeing a similar level of production. And last year, it varied significantly by quarter. And this year, it's varying significantly by quarter. That's the complexities of the large heap leach pad and multi-sources of material and the processing time various sources take. So the ups and downs are a fact of life. But overall, we expect to put the same old magnitude maybe slightly better for Los Filos. In terms of cost, a lot of cost improvements has gone on, a lot of management improvements have gone on. So we hope to see a lot of profile that we saw last year in terms of cost. We expect to be able to be in guidance for Los Filos both in terms of production and cost for the year. Like for the answer that was -- are we good? Yes?

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Unidentified Participant, [17]

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And regarding RDM, was that a full 3 or 4 weeks you were off-line? If that's the case, I think you would have a good -- a decent quarter into the low 20,000 ounces.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [18]

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We were beginning to have a good quarter in Q3 because if you recall, we got the power line in, in the first quarter. We were able to get more sustained production, we were able to get better grind and we're beginning to get a better achievement. We were seeing that cost improvement. I think we were forecasting $6 million a year cost reduction through the power line. And we are beginning to see that. So we were having a good quarter until we had this administrative hiccup, where we were doing the downstream pavings lift as approved by the Ministry of Mines, but it was not in compliance with our 2015 license, which referred to a center line. Not that anybody would want to build a center line today. So our documentation hadn't caught up with reality. So we're now back operating. So we lost about 4 weeks, maybe short a couple days. We were able to mine during that time, so we have a bit of head-start there. So we are now back up again. So we would expect to see an improvement in this last quarter.

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Unidentified Participant, [19]

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Okay. And the last one on the Brazilian assets. Pilar is still suboptimal. Is there any trigger or minimum level that you want to reach next 2 quarters or 3 quarters? When you will maybe take a decision in terms of production or cost front to do more drastic measures or to divest that asset?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [20]

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I think what we're doing now is we're trying to identify where the strategic steps are to make it into a more viable asset and what it would cost to do that, so we can really identify the potential. We've done a lot of work on the geology. We've done a lot of work in terms of mine planning and thinking about it. We're just trying to clarify our minds as to what strategic direction to take. I think that we're not measuring or viewing in terms of quarters, we have a shorter horizon to come to a view of what is the best thing to do.

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Operator [21]

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The next question is from Steven Butler with GMP Securities.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst [22]

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Los Filos, it -- just a question for you on Los Filos, again. Coming back to what you talked about lower gold recoveries on a portion of the underground ore. And I'm wondering [when there] -- in the past couple of years, of course, the ore usually crushes extremely well, or is already crushed to very fine nature, given the blasting underground and given the fine -- the fairly unendurable nature of the ore. So was there anything special in the ore? Was it a harder ore that didn't blast as well in the quarter? Or is it -- anything that explains it?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [23]

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We'll try and get Attie back online to answer that one. If we can't get him properly, then Doug will take it. Attie, can you have a go?

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Adriaan Almero Roux, Leagold Mining Corporation - COO [24]

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Okay, let me try. Just -- I don't know if you can hear me well. But what we find (inaudible) material is it's partially differently due to the (inaudible) in what we believe is mostly silicates. Casework that we've done suggests that we, if we go finer, it will improve the recovery. So that's why we've installed the portable crusher to crush the material from the normal minus 19 millimeters to minus 6, which is really the practical limit that you can crush to. And on the initial -- from the initial work that we've done, it seems to suggest that we could get anything up to an improvement of 5% in the recovery.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst [25]

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Sorry, how much improvement?

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Adriaan Almero Roux, Leagold Mining Corporation - COO [26]

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A possible 5%.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst [27]

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About 5%. Okay. And so it's hard to estimate your recovery, I guess because, obviously, it was a leach curve. So -- I mean is the recovery on this material? Or a portion of this material? I mean we're typically [ascribed] 80% recovery to the underground ores at Los Filos. But -- I mean is that still a good number to assume?

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Adriaan Almero Roux, Leagold Mining Corporation - COO [28]

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Prior to us crushing it finer, the recovery ranged in order of 60% natural (inaudible) crushing finer, we've done the first (inaudible) since we started crushing. So we hope you can see the recovery coming [into] effect very, very shortly now. And that's one of the reasons why some time ago, we started putting the underground [hydrant ore] onto a (inaudible) so that we could get fit the shortening of the leach cycle, getting the solution flow to the ADR plant very quickly.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst [29]

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Right. Okay.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [30]

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Do you need a translation of that, Steve? Or was that okay? Because...

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Steven Howard Butler, GMP Securities L.P., Research Division - MD of Equity Research & Gold Analyst [31]

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Well, we probably would need a follow-up on e-mail might be just as well.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [32]

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Okay. Excellent, excellent feedback.

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Operator [33]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Woodyer for any closing remarks.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [34]

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Thank you very much, everybody, for attending, we appreciate. And I think it's worth repeating that Los Filos is looking much stronger for the last quarter of the year, and we are happy with the guidance numbers. And we're very pleased that we have the expansion going ahead, particularly the access that we're able to get quickly to Guadalupe and bring forward that high-grade open-pit material to give us the cash flow that we need.

So that's the conference call. Ladies and gentlemen, thank you very much for attending. We appreciate it. Thank you, and thank you, operator.

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Operator [35]

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