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Edited Transcript of MOC.V earnings conference call or presentation 8-Aug-19 2:00pm GMT

Q2 2019 Ascendant Resources Inc Earnings Call

Vancouver Sep 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Ascendant Resources Inc earnings conference call or presentation Thursday, August 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Raymond Buncic

Ascendant Resources Inc. - Co-Founder, President, CEO & Director

* Katherine Pryde

Ascendant Resources Inc. - Director of Corporate Communications & IR

* Neil T. Ringdahl

Ascendant Resources Inc. - COO

* Rohan Hazelton

Ascendant Resources Inc. - CFO

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Conference Call Participants

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* Dalton Baretto

Canaccord Genuity Corp., Research Division - Analyst

* Gabriel E. Gonzalez

Echelon Wealth Partners Inc., Research Division - Analyst

* Matthew Dennis O'Keefe

Cantor Fitzgerald Canada Corporation, Research Division - Research Analyst

* Stefan Ioannou

Cormark Securities Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the results conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Katherine Pryde, Director of Investor Relations.

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Katherine Pryde, Ascendant Resources Inc. - Director of Corporate Communications & IR [2]

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Thank you, operator. Good morning and thank you for joining us today for the Ascendant Resources Second Quarter 2019 Operational and Financial Results Conference Call. On the line today is Chris Buncic, President and CEO; Neil Ringdahl, COO; and Rohan Hazelton, CFO, who will review the quarterly results and subsequently will be available to answer any questions. The press release and associated documents being discussed today are available for viewing on SEDAR and the company's website at www.ascendantresources.com.

Before we begin, I'd like to note that certain remarks today by management may contain forward-looking statements and/or information. Forward-looking statements and information are based on, among other things, opinions, assumptions, estimates and analysis and are subject to known and unknown risks, uncertainties, contingencies and other factors that may cause actual results to be materially different from those expressed or implied. For more information, I'll refer you to the detailed cautionary note within yesterday's press release or in any of the company's documents hereby. Please note, all dollar amounts mentioned on this call are expressed in U.S. dollars, unless otherwise specified.

I will now turn the call over to Chris Buncic, who will begin discussion of the results.

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [3]

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Thanks, Katherine, and good morning to everyone on the call today. I'll start today with an overview of the second quarter, and then I'll pass the call on to Rohan Hazelton, our CFO, who will review the financial results in detail, and then Neil Ringdahl, our COO, who will provide a more detailed look into our operational performance. After this, I'll close with a few additional comments, and then we'll open the call up for questions.

I'd like to start by reflecting on the fact that we're living through very difficult markets right now. The current U.S.-China trade war and the implications for global growth rates are taking a toll on commodities prices, and most sharply in the past week as the rhetoric has escalated as we are all aware. Ascendant, like most of our competitors, has been impacted directly on our top line, flowing through the cash flows. And like everyone else, we're very concerned.

In the first half of the year, we were concerned about getting to the higher-grade material in the mine that we are now in Q3 producing from. And we did a great job of managing through that uncertainty. Per our announcement last evening, we anticipate these higher grades in our mine plan will directly benefit our all sustaining costs so that we are averaging $1.10 per payable pound zinc equivalent at the mine for the balance of the year, based on the investments made in development in the first half of the year.

With zinc prices where they are today, this is still concerning. Managing our liquidity is an ongoing major focus for our team, and I'm glad to say that with our current resources and available options, we are confident that we're in good shape for the balance of the year. We are addressing our short-term liquidity needs at El Mochito with several of our financing partners, and we are continuing down several paths to fund our optimization and expansion program at the mine per our PEA from October, which highlights a decrease in all sustaining costs to below $1 per pound zinc equivalent. We expect to have more information on these initiatives imminently and are currently expecting to begin construction before the end of this year.

The current zinc price levels are unsustainable, and I believe few miners are making much money down here. Should they persist, the industry as a whole will face serious problems. We're addressing our liquidity, as I said, and I believe the current weakness should be short-lived.

Our operational performance in the second quarter was exemplary, with our total cash cost per payable pound flat versus previous quarters, despite rising power and wage costs. The flip side of this shows that the progress our team has made to reduce costs elsewhere as well as improving head grades has been phenomenal.

Second quarter production was again above anticipated budget levels with the mine achieving record throughput in metal production since Ascendant acquired the mine with contained metal production of 24.6 million lbs zinc equivalent at an average head grade of 6.7% zinc equivalent.

At our Lagoa Salgada project in Portugal, the exploration program that began in April has been very successful. Subsequent to the quarter's end, we released the first set of drill results, reporting significant intervals with zinc equivalent grades well above that of our current mineral resource estimate, highlighting the highly prospective nature of this project.

The 2019 program have been focused primarily on the North Zone and proving an economic case for the deposit, which we plan to provide through an updated NI 43-101 Mineral Resource Estimate in the third quarter and a PEA before the end of the year. We are very confident in the future potential of this project to significantly enhance shareholder value and provide additional optionality as we achieve these milestones and advance the project.

I will now pass on the call to Rohan to discuss further the financial overview of the quarter.

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Rohan Hazelton, Ascendant Resources Inc. - CFO [4]

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Thank you, Chris, and hello, everyone. As Chris mentioned, while the company saw production rates that exceeded expectations, short-term investment and development to access higher-margin areas of the mine as well as increased input costs, higher treatment and refining charges or TC/RCs and lower byproduct metal prices impacted overall profitability this quarter. Going forward in the second half of the year, we expect to reduce our underground development and mitigate the cost pressures with improved grades, which will lower unit costs.

Revenues in Q2 2019 were $18.03 million from the sale of 19.1 million pounds of payable zinc equivalent metal, comprised of 12 million pounds of payable zinc, 5.3 million pounds of payable lead and almost 296,000 ounces of payable silver with average provisional metal prices of $1.25 per pound zinc, $0.86 per pound lead and $14.95 per ounce silver. Revenues this quarter are down 20% over Q2 2018 as a function of substantially lower metal prices as compared to last year. Revenues in the second quarter were in line with Q1 despite a higher payable metal sold, as Q2 revenues reflected the first full quarter that 100% of the company's sales were made under the significantly higher 2019 benchmark TC/RCs.

The net loss for the quarter was $4.18 million or a loss per share of $0.05 compared to net income and basic and diluted earnings per share of $4.58 million and $0.06 in Q2 2018, and a net loss of and basic and diluted per share in Q1 2019 of $2.41 million and $0.03 a share. Income from mining operations in Q2 was $860,000. Adjusted EBITDA for the quarter was $510,000 compared to adjusted EBITDA of $7.38 million in Q2 2018 and $1.45 million in Q1 of this year.

Operating cash flow for the quarter was negative $5.48 million compared to $6.49 million in Q2 2018 due primarily to negative changes in working capital, consisting of a buildup in concentrated inventory and reductions in accounts payable and accrued liabilities. Operating cash flow is down from $8.22 million reported in Q1 2019. As in Q1, the company received $7.5 million of inflow from its silver stream arrangement.

Cash flows going forward will benefit from the VAT exemption received from the Honduran Tax Authority on July 24, 2019. This is expected to improve 2019 cash flow by approximately $1 million and have an ongoing benefit of approximately $2 million per year, as exemption is renewable annually.

Capital expenditures totaled $4.92 million for the quarter. That's down from $8 million in Q2 2019 and slightly higher than the $4 million in Q1 2019. Capital expenditure in the first half of 2019 is relatively higher-than-anticipated for the second half of the year as the company significantly invested in development works to access the higher-grade ore bodies now in the mine plan.

Direct operating costs in Q2 were $81.79 per tonne milled, 7% higher than the $76.61 per tonne milled in Q2 2018 and 2% higher than $80.53 in the first quarter. The increase over the same quarter in the previous year is a result of a 15% increase in national power rates imposed back in September 2018 as well as the 6% increase in labor costs that occurred in October 2018 as per a collective bargaining agreement with the unionized workforce at El Mochito. During Q2, a further 10% increase in power rates was imposed in April, retroactively applied to March. Given power is approximately 20% of overall operating costs, a 10% increase results in a 2% increase to operating costs and explains virtually all of the cost increase quarter-over-quarter.

In general, many of the cost improvements implemented by the company, such as Esperanza bypass ramp, have been somewhat offset by rising costs, energy and labor cost pressures. The company has been actively looking at alternatives to reduce power costs over the long run and is in advanced discussions with several third-party producers to provide a more cost-effective source of power going forward.

Also contributing to higher costs of last year's increased proportion of labor-intensive conventional mining required to mine the higher-grade ore bodies that has been positively reflected in the improved grade profile of the mine and a reduction to operating costs on a per payable pound basis due to higher grades. Direct operating costs are expected to lean towards the higher end of the guidance range due to the increased proportion of conventional mining methods used to mine the higher-grade ore as well as the aforementioned cost pressures.

In light of these pressures in the second quarter, the company has been successful at offsetting such increases in terms of payable pounds through grade improvements and increased contained metal production as cash operating costs per zinc equivalent payable pounds sold for Q2 was $0.76 per pound, as Chris mentioned, in line with both Q2 2018 and Q1 2019. It should be noted that throughout 2018 and '19, the company has maintained a reduced cash operating cost per payable pound as a result of the continued success with metal production growth.

The all-in sustaining cost for El Mochito mine in Q2 was $1.32 per zinc equivalent payable pounds sold as compared to $1.31 in Q2 2018 and up from $1.22 in Q1 of this year. The increase this quarter is primarily attributable to the ongoing increases in energy costs, a full quarter application of the higher TC/RCs, which totaled $0.26 per zinc equivalent payable pound sold as compared to $0.16 in Q2 last year and $0.19 in Q1 of this year.

In addition, sustaining capital expenditures totaled $0.25 per zinc equivalent payable pound sold in Q2, which represented a decrease from the prior year comparable period of $0.31, but was a relative increase to the $0.21 in Q1 2019 due to the higher rates of underground development as well as minor mobile equipment purchases.

On a consolidated basis, AISC was $1.43 per zinc equivalent payable pound, up 3% from $1.39 in Q2 and 10% from $1.30 in the prior -- in the previous quarter due to the higher TC/RCs, higher sustaining CapEx as well as a nonrecurring charge of $0.03 per zinc equivalent payable pound with respect to financial advisory fees.

The company expects to see material improvements with all-in costs in the second half of 2019 as a result of the investment in the development work in the first half of the year. The expected higher grades to be mined in the latter half of the year will help reduce mine site AISC to approximate $1.10 per zinc equivalent payable pounds sold and the consolidated AISC to $1.15 per zinc equivalent payable pound. This improvement is expected to be weighted towards the fourth quarter, in line with expected improvement in the overall grade profile.

The company is actively progressing on additional non-dilutive funding in light of the current weaker metal price environment. We are currently finalizing an increase to our bank credit facility and expect to be able to complete this shortly.

I'll turn the call over to Neil for further details on the operating side.

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Neil T. Ringdahl, Ascendant Resources Inc. - COO [5]

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Thanks, Rohan, and good morning, everybody. As Chris mentioned, we're very happy with this year's mine performance on a production basis so far, especially in the second quarter as we achieved the highest production levels since we took over operation of the mine. On a tonnage or metal production basis, we have seen pretty much 10 consecutive quarters of improving performance now as our Honduran management team continues to mature in their management style and approach.

I'm particularly proud of the underground mining team's safety performance over the last year, who achieved over 300 days or 1.5 million hours without the loss time injury. Contained metal production for the second quarter was 24.6 million zinc equivalent pounds, up 8% over 22.9 million pounds produced in Q2 2018 and up 5% of the 23.4 million pounds produced in Q1 2019, which is mainly a function of the higher overall grades and especially in silver.

We've assembled a specialized, experienced team of miners who have been reevaluating historical resources locked up in pillars of unmined stopes in the upper levels of the mine. These upper levels typically run around 10% zinc, 10% lead and north of 300 grams per tonne of silver, that's about 6 or 7x of average head grade. So mine remains, I'd say 1,000 tonnes, for example of this material in a single month would be the same as adding another 3 days of metal production in any normal production month, which has the impact of dramatically driving down our cost of pounds of metal produced. The challenge, of course, is identifying and confirming these resources and then mining them safely. And to this end, we have introduced remote controlled micro scoops, which are able to operate inside the older areas without putting our people at risk. The size of the pillars are quite small. And sometimes, we find they have already been mined or inaccessible for some reason, or some other reason. And it is a bit hit-and-miss, but based on what we have found so far and being somewhat prudent, we have confidence that the extraction will have a material positive impact on our cost forecast over the next 2 quarters, as Rohan mentioned.

Based on our mine plan, head grades are expected to average around 8% zinc equivalent in the second half of 2019, weighted towards the fourth quarter as we bring the higher-grade sweetness from these past historical levels. Milled throughput for the quarter was 195,706 tonnes, demonstrating a 2% improvement over Q2 2018 and a 1% improvement over Q1 2019. And this is also the first full quarter of operations benefiting from the completed Esperanza tunnel, which shortens the haulage distance from the Esperanza ore body to the underground crusher. As touched upon, the higher head grades, especially the silver grades, as discussed, enabled us to exceed our metal production expectations. The average head grade for Q2 of 6.7% zinc equivalent represents a 7% increase over the Q2 2018 average grade at 6.3% zinc equivalent and is in line with Q1 grades. Zinc processing recoveries of 86.4% in Q1 showed improvements of 3% over the previous quarter, albeit 4% lower than 89.7% in Q2 2018, mainly due to the complicated metallurgy of Esperanza, which currently constitutes a large portion of the mill feed. We are still working very hard as a result of the zinc recovery in difficult ores, and it's been great to see that there's been at least some success.

Similarly, we have been working on other metals, and we saw a 3% higher lead and silver recovery of 81.5% and 81.9%, respectively, in Q2 this year versus last year. The lead and silver recoveries for the quarter were also higher by 2% to 4%, respectively, than Q1 2019. The first in silver recoveries, thanks to the introduction of a silver collector early in the process circuit and we can expect this improved recoveries to be maintained going forward.

Finally, we are imminently commencing with the resource modeling process at our Lagoa Salgada polymetallic project in Portugal. And that's based on our new drilling program, and we'll have a new resource upgrade soon. We also have the metallurgical test program underway, which will support a Preliminary Economic Assessment for a new mine plan during the year.

I will pass the call back to Chris for some closing comments.

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [6]

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Thanks, Neil. To summarize, we're very pleased with the performance of El Mochito in the second quarter. The investments made in developments in the first half of the year has positioned the mine for substantially improved second half, and we expect to see higher grades in the second half, averaging around 8% zinc equivalent with continued growth in metal production and a reduction in all-in sustaining costs to approximately $1.10 a pound zinc equivalent at the mine and $1.15 on a consolidated basis, weighting towards the fourth quarter, as mentioned.

Let me reiterate that we are confident in our financial liquidity and note that we are in advanced stage discussions for the funding of our expansion and optimization project at El Mochito, which will bring our costs down to below $1 per zinc equivalent pound once completed, which we expect to be able to discuss imminently. As I touched on the beginning of the call, the exploration work at Lagoa Salgada, which began in April, has been very successful.

On July 24th, we reported the results of 15 holes focused on the North Zone, intersecting high-grade mineralization in the massive sulfide and gossan zones over significant true widths, extending the normal mineralization at depth and along strike. The North Zone makes up the majority of the current mineral resource estimate on the project, and these results are expected to greatly contribute to the updated estimate expected in the third quarter. The remaining assay results are also expected to be imminent and will be incorporated into that updated report. We are extremely excited for the future of Lagoa Salgada as we believe it has the potential to be a great driver of value for the company, especially given the characteristics it shares with other projects located within the Iberian Pyrite Belt, which has been transformational for large-scale miners like Trafigura and Lundin. As mentioned, we expect to provide an economic case for Lagoa Salgada with a PEA on the project before the end of the year.

With that, we've reached the conclusion of our second quarter 2019 results discussion, and we'll now open our call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Heiko Ihle from H.C. Wainwright.

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Unidentified Analyst, [2]

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This is [Marcus Janey] calling in for Heiko. In regards to treatment and refining charges, I know we had spoken about these issues in the past, maybe 2 calls ago. Have these problems have been ongoing since then? Or have they worsened? And can you quantify the impact currently phased in dollar terms? And maybe provide some color on what you've been seeing so far in the third quarter?

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Rohan Hazelton, Ascendant Resources Inc. - CFO [3]

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Thanks, [Marcus]. This is Rohan. The -- really, what you see in this quarter is what will continue through the end of the year, in that we are subject to benchmark terms for both our zinc and lead offtake agreements. And the reason there was a difference Q1 to Q2 -- and these are, as you're aware, renegotiated annually, and we follow the benchmark in Q1. Some of our sales were still under the prior year benchmark terms as it was a carryover. And so now we felt the full impact. So as I mentioned, on a per pound basis, this quarter was $0.26 per pound with our treatment and refining charges total. And it was just a very large increase over the prior year in treatment charges alone were up 50% or more -- actually more than 50% from the prior year. Our expectations, obviously, we're committed to that through the end of this year. We hope to see those reduce in next year's round of negotiations.

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Unidentified Analyst, [4]

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Okay. Got you. And then in the release, you mentioned that lower metal production was anticipated during the first half of 2019, followed by a stronger second half. This has been preceded by operational performance to-date has exceeded those expectations, and the mine remained well-positioned for stronger performance in the second half of 2019. Should we read into this as factors are even better now and you actually expect the second half to outperform your prior expectations? It seems pertinent given you're now talking about the fourth quarter outperforming the third.

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Neil T. Ringdahl, Ascendant Resources Inc. - COO [5]

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It's Neil speaking. Yes, I think we see an increasing head grade right through to the end of the year. And so obviously, the fourth quarter will probably be our strongest quarter, based on our projections. There will still be -- and that's why we reaffirmed our guidance, and we'll be within those limits.

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Unidentified Analyst, [6]

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Okay. Great. And then lastly, in regards to the second phase drill program at Lagoa Salgada. Can you elaborate on the number of holes and possibly the meterage and pricing for the contractors?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [7]

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So with respect to the first drill program -- or sorry, the program in 2019, we've put out 15 holes. We're expecting another 6 very shortly. And 3 of those 6 will be in the North Zone, which will be added to the upcoming resource update. In terms of meterage, it's approximately 5,200 meters. And we're expecting that the combination of both -- the holes have been planned in such a way that they will be both additive to the overall resource base, but also increasing category from inferred into M&I. So this should be a high-quality resource upon which we can build this PEA.

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Operator [8]

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Your next question comes from the line of Matt O'Keefe from Cantor Fitzgerald.

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Matthew Dennis O'Keefe, Cantor Fitzgerald Canada Corporation, Research Division - Research Analyst [9]

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Just a question on -- I mean, operating quarter was obviously very good, but -- oh boy, some of those treatment charges, that's kind of shocking. Can you elaborate on what you've seen or -- and with talking to those guys what's really on the smelter in driving that? That's my first question. And then my second question is just on the working capital. How are you -- you have a negative working capital position here. How do you plan on addressing that in the near term?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [10]

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Sure. So with respect to the concentrates market, going into the year, what was evident that there was a bit of a glut in concentrate supply. And so smelters were a little bit in the driving seat. And these negotiations happen through the first quarter and only get resolved around March or April. So they -- it's not that long ago that they were finalized but they are retroactive to January 1. So on the concentrate market, with additional supply coming on from other miners ramping up production, in addition to the other projects you would have heard about coming on stream, whether they're meeting up to their performance expectations or not, has resulted in this supply glut. So it's still a pretty sloppy market out there.

So we're paying benchmark, but those that are paying spot TCs and RCs -- so on the treatment charges for zinc, for example, the spot rate is around $275 to $325 a tonne, where the benchmark is $245. And so -- and that's if you can find a home for your concentrate. So that's been a challenge for the market, generally speaking. But the expectation is that in Q4 this year and Q1 of next year, this will start to tighten up again on the concentrate side. From what we understand, there are some of these smelting companies that are relatively full up in the immediate term in terms of concentrate supply. And that starts to come off in the fourth quarter and the first quarter of next year. And so -- that's what I'll say about the concentrate market.

With respect to our liquidity, we've got a number of things that we've been working on that we're advancing quite quickly and we're feeling very strongly that we'll get there. It's unfortunate that it didn't line up with the announcement of our quarterly results because we were hopeful that it would, but I expect that we'll be able to talk more specifically with details very, very shortly. And again, those are nondilutive measures. Rohan mentioned, one of them is the expansion of our current credit facility. That's already in place. And again, with respect to the funding of the project and the expansion, we're very advanced with that as well. As you know, and we press released that we were talking to the Overseas Private Investment Corp back in February, and we have been advancing those discussions. We also have other tracks in process, and they are also very advanced as well. So I hope to be speaking about that soon.

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Matthew Dennis O'Keefe, Cantor Fitzgerald Canada Corporation, Research Division - Research Analyst [11]

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Okay. So good clarity on the [chief graphic] season. Then on that liquidity, just to clarify, so you will have -- we should expect some announcements in the near term on that?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [12]

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Yes.

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Operator [13]

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Your next question comes from the line of Dalton Baretto from Canaccord.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [14]

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Nice job on the operating side, Neil. I just want to circle back on the funding and liquidity questions, again. So just very quickly, where are you guys now in the OPIC financing?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [15]

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Well OPIC is -- so again, that's one of several paths. OPIC, it's been a little bit delayed because of what we'll call White House issues. And so we've made -- and OPIC has made a request directly that this project be included in the package of a number of projects that they would like to advance. And so that is sitting, waiting for that exemption to be granted. And so we've been told to sit tight and they had confidence that, that will make its way through the process. That doesn't stop us, certainly from going and trying to look for other sources of financing for advancing this project, which is, of course, something that we very much want to proceed with. And so OPIC is advancing. It's in advanced stage. We are sitting, waiting to be able to post our [EFIA], which is complete. And OPIC is satisfied with that, it would be ready to post provided that the wheels start to turn again. That said, we've got other things in the works that -- that will likely come to pass sooner than that process.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [16]

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So you don't really have a sense of timing at this point in time? And has -- I mean, have they given you a sense -- 3 months, 6 months?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [17]

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There's no -- it's difficult for them to give that timing because this request for the exemption is in. However, it's not really -- they can't give us a concrete time line.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [18]

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Okay. And then so just maybe touching on some of the other sources like you're looking at right now. And I appreciate you can't get into details here, but how much money are you looking for?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [19]

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Well, the PEA, including contingencies, is $32.8 million, and we're looking to fund the full construction of the project.

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Dalton Baretto, Canaccord Genuity Corp., Research Division - Analyst [20]

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Okay. I see. So you're actually looking for the full $32 million from other sources as well. It's not just kind of bridge financing until you get [chief graphic].

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [21]

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Correct. We're looking for the full package to get us to that stage.

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Operator [22]

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Your next question comes from the line of Stefan Ioannou from Cormark Securities.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst [23]

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I'm just wondering just in the near term, just given where the zinc price is right now. Obviously, the grade is expected to improve over the next quarter or 2. Are there any other sort of really near-term levers, even if they're short-term levers you can pull just to sort of rein in some of the near-term operating costs, even if they're not sustainable over, let's say, a year or 2 year sort of period?

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Neil T. Ringdahl, Ascendant Resources Inc. - COO [24]

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Yes. Neil here. So we've got a number of initiatives which we didn't really allude to, profit improvement projects, cost reduction projects. For example, reducing the development cross-section of our tunnels, which basically reduces the amount of waste that we need to mine for the same meterage of a development, linear development. And those things all have an immediate impact. We've also been looking at a mine plan very carefully. We obviously have to keep up a minimum amount of development to ensure sustainability in the medium and long term. But there's always room for further improvements, and we should see some of those working through our costs in the next -- in the coming quarters. I think it's prudent to say that on a all-in cost per -- a total cost basis, we've been able to keep our costs fairly fixed over the last 10 quarters, really, if you look at it, with increasing metal production. And so we'd like to keep that at the minimum fixed against things which that we can't control like power increases. But all things being equal, if we don't see any more power increases and we continue to work on all these other profit improvement projects and cost reduction projects, we should see our cost per pound coming down on a cash cost per basis and all-in cost as well.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst [25]

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Okay. Great. That's helpful. And then just wondering in Portugal. It looks like the overall drilling budget between '19 has come down a bit in terms of just the number of holes and, I guess, meterage. Will that impact the ultimate scope of the resource update and/or the PEA going forward? Or do you still sort of have the same sort of targets in mind?

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Christopher Raymond Buncic, Ascendant Resources Inc. - Co-Founder, President, CEO & Director [26]

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No. I think that we've done a good job of managing that budget. And a number of months ago, we really decided to focus in on that North Zone as the key resource to develop and focus our efforts on the PEA. That said, the opportunities that are still there are pretty amazing and bear following up on the future at other areas in the mine. So the North Zone is one of -- well, it's one BMS target that we are expanding on and we intend to show that it will support a mine and its construction. But with a further exploration program down the road, we're hoping to expand on that North Zone, the South Zone which has had a limited number of holes into it in the second drill program this year. And then down the road, that 8-kilometer gravimetric anomaly, which we've done a full IP study on across that 8 kilometers and are awaiting those results. That has the potential to show a huge number of targets as well. And maybe we're looking for additional BMS [pods] there. So I think this first resource update will be a great lead into that PEA. But I think in the long-term scope of this project, it may be just the beginning.

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Operator [27]

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(Operator Instructions) Your next question comes from the line of Gabriel Gonzalez from Echelon Partners.

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Gabriel E. Gonzalez, Echelon Wealth Partners Inc., Research Division - Analyst [28]

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My question is, in terms of all-in sustaining costs expected in the second half of 2019. Can you help us quantify approximately what proportion your expected reduction in cost comes from reduced underground development that you spoke about? And what comes from potentially lower cost per tonne, say, from less conventional mining? And this is compared to the first half, more or less?

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Neil T. Ringdahl, Ascendant Resources Inc. - COO [29]

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Neil, here. Thanks for the question. I don't have the exact split for you here, but I would say -- I mean, revenue is your biggest driver. And if you look at the percentage increase in average growth that we think we can get versus what we've been producing to-date, that all -- when you do simple calc you should get to close to our numbers and be able to work out that percentage. So I'd say, a larger part is definitely a result of the grade. But the -- as I said, there's all these other little things we're doing as well.

Some of them are harder to quantify and need time to work through the system. Some of them are our policy related stuff and those things like our safety performance has improved over time. It's taken us the better part of 2.5 years to get our safety levels to where we are now. And so it's a similar thing on operations basis. So I think they will be material, but then it's difficult to put a number on those. So we're leaning more towards the impacts of the grade.

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Gabriel E. Gonzalez, Echelon Wealth Partners Inc., Research Division - Analyst [30]

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Okay. And just finally to elaborate a little bit more on the working capital position for Q3 or Q4 of this year. First to say that you're expecting a reversal in some of the working capital [range] you saw in Q2, i.e., will you be drawing down inventories and increasing payables? Would this be a material benefit to what you're looking at in terms of the potentially additional credit lines, just to help deal with liquidity?

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Rohan Hazelton, Ascendant Resources Inc. - CFO [31]

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Sure. Thanks, Gabriel. This is Rohan. Yes. Certainly, those -- working capital is certainly a lever to a quick one that we can look at. And it's an important one as far as -- so we can -- I mean, we've built up our inventory a little bit in the past 2, possibly 3 quarters, and we'll be looking to sort of try to lower that to -- somewhat on sales timing and that -- and then also on an accounts payable basis that are -- we do have some room to move, start moving the other direction. But yes, as far as in the materiality as I mentioned, we're very shortly, hopefully, can say something about our bank credit facility, and that's probably a bit more material than the working capital changes which we make.

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Operator [32]

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I am showing no further questions at this time. I would now like to turn the conference back to Katherine Pryde.

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Katherine Pryde, Ascendant Resources Inc. - Director of Corporate Communications & IR [33]

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Okay. Thank you, operator. That concludes our call today. On behalf of the management team, I'd like to thank you all for joining us. All materials in today's call can be found on our website at www.ascendantresources.com. A recorded playback of this conference call can be accessed on the company's website under the Investors section as of this afternoon. If you've any further comments or concerns, you may reach out to us at any time. Our contact information can be found on the website. Thank you, everyone.

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Operator [34]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.