U.S. Markets closed

Edited Transcript of PG.TO earnings conference call or presentation 8-May-19 2:00pm GMT

Q1 2019 Premier Gold Mines Ltd Earnings Call

Thunder Bay May 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Premier Gold Mines Ltd earnings conference call or presentation Wednesday, May 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brent Kristof

Premier Gold Mines Limited - SVP of Operations

* Ewan Stewart Downie

Premier Gold Mines Limited - President, CEO & Director

* John A. Begeman

Premier Gold Mines Limited - Executive Chairman

* Steven J. Filipovic

Premier Gold Mines Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Andrew Rostislav Mikitchook

BMO Capital Markets Equity Research - Analyst

* Eve Hurowitz

CIBC Capital Markets, Research Division - Equity Research Associate

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Premier Gold Mines Q1 2019 Financial Results Webcast and Conference Call. (Operator Instructions) Thank you.

Mr. John Begeman, Executive Chairman of Premier Gold Mines, you may begin your conference.

--------------------------------------------------------------------------------

John A. Begeman, Premier Gold Mines Limited - Executive Chairman [2]

--------------------------------------------------------------------------------

All right. Thank you. Thank you for participating in today's call. I'm John Begeman, the Executive Chairman of Premier Gold. Today, we will provide you with the company's 2019 first quarter financial and operational results. An update on mine operations and projects will also be provided. With me today on the call are Ewan Downie, our President and Chief Executive Officer; Steven Filipovic, our Chief Financial Officer; and Brent Kristof, our Senior Vice President of Operations.

For those of you that haven't already accessed the presentation, the presentation materials for today's call have been posted and are available on the company's website. Before we get started, I first want to direct you to Page 3 of the presentation and the associated disclaimer regarding forward-looking statements. I don't see Slide 3 yet, but I presume it's there. Steve and Ewan will provide a discussion summary, but first a few points.

Turning to Slide 4. This describes our mine and project locations. We are delivering a production pipeline. We're 100% North American focused within world class mining districts. We do have sensible partnerships with many of the major mining companies. We have 2 mining operations and 4 advanced stage projects; 3 of these advanced stage projects are in Nevada and one in Ontario with the 2 mining operations being in Mercedes in Mexico as well as South Arturo in Nevada. We've a strong treasury. We stand at $43.5 million at the end of the quarter U.S. And we also have a $50 million undrawn revolver. We've a focus on exploration, to grow our reserves and resources in the future. Our pipeline of growth remains on track. The Greenstone joint venture, I'm happy to say, has now had positive responses from both federal and provincial governments. We've received the EA and EIS approvals from them. Progress with the First Nations continue to advance as well. Optimization on mine plans, resource and reserve updates and the exploration of financing opportunities continue to be a focus for the Greenstone team during 2019. We expect to see some further good news on this project throughout the remainder of the year.

Turning to Page 5 now. This is an indication of the reserve and resource growth and replacement that your company has developed over the past 3 years. You can see we've substantially grown our reserve base as well as the inferred category of ounces to our company's account. Again we'll be reviewing additional reserves and resources at Greenstone over the year and hopefully we'll be able to increase that further.

Turning to Page 6 now. Operational and financial highlights for Q1. This will just be a few highlights and Steve will further go into the details. But we added $18.3 million into our treasury through the equity and silver stream financing with Orion. We secured the corporate revolver with Investec of $50 million. We met our quarterly production expectations at the Mercedes mine. We further expect that higher production will be weighted towards the second half of the year at Mercedes due to the development work that we're involved with during the first quarter.

Our production costs at Mercedes were below budget for this first quarter. We also continue to advance construction at the projects at South Arturo and while Phase 1 potential heap leach material is being stockpiled in the efforts to potentially have the leaching material available later.

We've seen some successes in exploration including the announcement of a new discovery at McCoy-Cove and Ewan is going to talk a little bit about that later on.

With regard to safety and environment, we had no lost time accidents. We had 2 minor medical recordable incidents companywide with no environmental recordable incidences.

Further on Mercedes, as mentioned, we will be heavily weighted towards the second half of the year. We've been working on the development of additional working phases and building a stockpile to add to our flexibility. New development phases at Lupita, Rey de Oro and Diluvio are in progress with also a view to have new access available to Aida and Marianas zones.

We saw some excellent grades with good width in our Marianas explorations that we've been developing and working on thus far. As soon as possible, we'll be working this into our mine plant to take advantage of the higher grades that we've seen at Marianas. But right now we maintain our production guidance of 75,000 to 85,000 ounces of gold for 2019. Ewan will discuss these and other topics further after Steve's financial presentation.

So at this time, I'll turn the call over to Steve Filipovic, Chief Financial Officer. After Steve's discussion, Ewan will provide further operations update followed by a time for questions. Thank you.

--------------------------------------------------------------------------------

Steven J. Filipovic, Premier Gold Mines Limited - CFO [3]

--------------------------------------------------------------------------------

Thank you, John, and good morning, everyone. I guess we'll have everyone turn to Slide 7 here. It's a slide entitled Q1 2019 operating results. During the first quarter of 2019 we produced a total of 17,600 ounces of gold and 57,600 ounces of silver. That compares to a total of 30,500 ounces of gold and 59,800 ounces of silver in the first quarter of 2018 where gold production was split almost exactly 50-50 between South Arturo and Mercedes.

The decrease in total production period-over-period is due to the completion of the mining in Phase 2 pit itself, Arturo in 2017 and subsequent reductions in production quarter-on-quarter from Phase 2 stockpiles where last year we produced around 15,000 ounces of gold during the first quarter.

Total production during first quarter of 2019 was entirely from Mercedes and although the 17,600 ounces of gold produced in Mercedes this past quarter is up 17% from the 15,000 ounces produced during the first quarter in 2018, production at Mercedes during this past quarter represented less than a full quarter of the 80,000 or so ounces that we guided for Mercedes -- for the Mercedes mine in 2019.

As John indicated, production at Mercedes during the quarter is, however, in line with our 2019 mine plan where production profile for 2019 is weighted towards the second half of this year.

Our unit operating cost on a coproduct basis reported for the first quarter were cash costs of $806 and all-in sustaining cost of $1,105. That compares to consolidated cash cost of $701 and all-in sustaining cost of $818 in the prior year during Q1. Unit cost for the first quarter of 2019 were, however, related entirely with Mercedes as the company did not report production from South Arturo during this first quarter. This is in contrast to Q1 2018 where consolidated cash costs were representative of the 50-50 split in production between South Arturo and Mercedes where cash costs of around $400 or just under $400, $397 and all-in sustaining cost of around $435 relating to South Arturo drove our consolidated unit cost lower overall last year.

If we compare unit cost for Mercedes during this first quarter to those of Mercedes for the first quarter of last year, we see a period-over-period reduction in cash costs of around $108 per ounce and a small increase in all-in sustaining cost of around $17 per ounce. While all-in sustaining cost reported by Mercedes for this first quarter exceed annual all-in sustaining cost previously guided for 2019, cost at Mercedes are tracking for 2019 mine plant where mine development is weighted heavily towards the first of the year and gold production towards the second half.

During the first quarter the company incurred capital sustaining cost of $4.2 million. This represents over 40% of the annual sustaining cost budget for Mercedes in 2019. So with gold production and unit operating cost of Mercedes tracking in line with the 2019 mine plan, we're pretty comfortable that the company is currently on pace to meet its annual production and unit operating cost guidance of 75,000 to 85,000 ounces of gold and cash cost $730 to $780, all-in sustaining costs of $900 to $950 for this year.

We turn now to Slide 8. During this past quarter, the company reported revenue of $23.1 million on sales of 17,500 ounces of gold and that's at an average realized price of around $1,271 per ounce and we reported 62,500 ounces of silver and average realized price of $16. This compares to prior year where we reported revenue of $39.2 million on sales of 29,000 ounces of gold at a realized price of $1,300 per ounce and 66,000 ounces of silver at a realized price of $17.

This is where prior year gold revenues were split between Mercedes and South Arturo with South Arturo contributing around $16 million of the total $39 million in revenue compared to the current year where revenue flowed entirely from our Mercedes mine.

For the first quarter, we reported mine operating income of $3.7 million and a net loss of $0.9 million or earnings per share of 0, after taking into account $6.2 million in exploration and development during the period. This compares with the prior year where we reported mine operating income of $9.6 million with $7.1 million or roughly 75% of that generated by our South Arturo mine. Last year we reported net loss of $2.1 million or loss per share of $0.01 for the first quarter.

This change in period-to-period operating income is due to the absence of production from South Arturo and lower realized gold prices this quarter as compared to the prior year. This was partially offset by increased production from Mercedes period-over-period and increased other income resulting from gains associated with the reevaluation of certain of our financial instruments.

During the quarter, we reported just under $5 million in cash used in operating activities. And this was again after taking into account over $6 million in exploration and development, and around $4 million in working capital adjustments. We also reported just over $13 million in capital expenditures during the period.

After taking into account the $18 million in proceeds received from the equity financing, the silver stream amendments that John mentioned, we closed the year with $43.5 million in cash and inventory of around $18 million. That's essentially unchanged from the balances that we reported December 31, 2018.

With the cash on hand and our $50 million credit facility, we're focused on the completion of those near-term development initiatives at Mercedes, South Arturo and Cove, which we expect will translate into increased production as we move into 2020. We remain focused on long-term growth, and therefore, we will continue to invest in those exploration and development programs across our portfolio that support our longer term objectives of increased annual production over the next 3 to 5 years. We will, however, only do so if our balance sheet permits and conditions within the market are supportive of such investments.

At this point, I'll turn your attention to Slide 9, that's the project update slides, and I'll turn your attention to Ewan. Ewan will now take it from here and give us project by project update, quarter for quarter. Over to you, Ewan.

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [4]

--------------------------------------------------------------------------------

Thank you, Steve. Thank you, John. Good introduction. As I think you can see, we've fully stabilized our operations at Mercedes and expecting a very strong operations going forward, especially with some of the new developments that we're having on site. We're having some considerable early exploration success at Marianas. Marianas is a pretty important part of Mercedes' future and I'm happy to say that the underground drill program is underway and is immediately returning some very good intercepts as we announced yesterday.

Companywide, we're going to have a very active year in 2019. Q1, we've seen several exploration successes around our various projects and highlighted most recently by our partnership with Barrick in Nevada, where we've announced a new discovery off of McCoy-Cove. I'll provide a bit more detail on that.

Going forward, this year we expect to have some pretty substantial exploration programs being carried out at McCoy-Cove, Rye-Goldbanks in Nevada, Rodeo Creek, Mercedes and at South Arturo where we are drilling not only a new zone, but hoping to expand the underground resources and reserves through drilling this year. Some underground drilling at South Arturo was completed during the quarter.

In terms of corporate development, we have secured an option to acquire 100% interest of San Felipe, the high grade project located in close proximity to Mercedes that it could have some significant synergies with the property as we move that project forward for development, hopefully in the not too distant future.

Moving to Slide 10, I'll give a brief overview of what South -- what's happening at South Arturo this year. As most people on the call probably know, South Arturo is a joint venture in the Carlin Trend between ourselves and Barrick. Barrick is a 60% owner and operator. It's a joint venture that has really led to a lot of additional opportunities for ourselves with Barrick. We formed this partnership several years back through the acquisition of the Dee property from Goldcorp and have since forged what I believe is a very strong relationship with the Barrick operating and exploration teams.

We have gone from this joint venture to working with them at McCoy-Cove. That's led to some success with our strong relationship between our geological teams. We have acquired the Rodeo Creek property and Barrick has been very cooperative in providing information that will help us explore that property later this year. And we also are acquiring the Rye property, which we believe is a highly perspective, high grade opportunity in Nevada that we'll be drilling starting here in the second quarter.

In terms of South Arturo, currently there are 2 new mining projects in construction, El Nino and Phase 1. Both of those projects are contained within the blue outline, which is the joint venture and immediately tied on to the -- what will be a pretty major joint venture between Barrick and Newmont immediately to the southeast of our property.

The run-of-mine heap leach material is being stockpiled as John mentioned earlier and the Phase 3 open pit is being assessed for future potential production. We are permitted to put heap leach pad onsite and are currently working through the economics of that prior to making a decision. There could be some synergies with the larger joint ventures to the south that we're hoping perhaps we could capitalize on in the future.

In terms of exploration, we continue to seek to grow reserves and resources with underground drilling having commenced at El Nino and expectations are that that drilling from both surface and underground will ramp up during the year. The project is one of the last projects not owned by the Barrick-Newmont joint venture in the north part of the Carlin Trend. And it's a pretty, in my opinion, enviable land position that we own in that district with significant upside potential.

I'll turn into Slide 11, just a brief overview of what's happening at the project. The upper image on the left is a computer generated conceptual model of what the project will ultimately look like. We mined Phase 2, which is on the right of that image. The mining and processing continued in 2018. The first quarter of this year there was no processing of remaining stockpile material, but there is some low grade stockpile remaining from the Phase 2 mine.

However, the Phase 2 pit was partially backfilled, as you can see in the lower image on the right, and there are 2 portals that have been colored and Barrick is currently driving the underground to access mineralization. According to our current plan, we're expecting late Q3, early Q4 to access the first part of the deposit at El Nino. And for the remainder of this year, we expect to have an underground and surface program to hopefully grow the resource base there and grow our reserves going into year-end.

Also in construction in the upper right image is the pre-strip of the Phase 1 pit. That pit does have some heap leach -- potential heap leach material that is being -- currently being stockpiled. In addition, this year we will be carrying out drilling on the East Dee target that occurs immediately beside the Phase 1 pit wherein 2018 we had some pretty exciting results that will be following up with drilling this year. The El Nino project is targeted as a multi-year mine. It remains open on strike and at depth, and we expect that will contribute years of production for our company as it gets developed this year.

On to Slide 12, an overview of Mercedes. Mercedes is a deposit that we process approximately 2,000 tons a day from underground mining methods. There are several production centers, the main Mercedes trend on the Slide 12 on the image on the left, it is the -- where you see Mercedes, Barrancas, Lagunas, and on strike is a deposit that we call Marianas. We are now drilling underground at Marianas with the expectation that some of Marianas will be moved into reserves by year-end and our hope is that we begin mining Marianas next year. The significance of Marianas is that based on surface drilling, it appears to be significantly higher grade than our current reserve, overall reserve and hasn't been mined at all in the past. So it offers a pretty significant upside for our company and our early results are demonstrating the potential of this zone.

In total, we expect to complete about 42,000 meters of drilling this year at Mercedes, not only to expand resources and hopefully replace reserves, but also testing new targets like San Martin and Margarita, Oso Negro. And we've recently seen some good looking vein systems intersected in some of these earlier exploration targets we hope to report on in the not too distant future.

In terms of production, as Steve and John both mentioned, we're running on budget for the year. We came in right at about our budget for Q1 and the costs were slightly below what we expected in terms of our budget for Q1. And our hope and expectations are that this continues during the year. And with the increased level of sustaining capital that went in Q1, hopefully see our all-in sustaining cost drop to below 1,000 for the balance of the year.

On Slide 13, provides an overview of the Marianas zone. Marianas is located down-plunge of the main Mercedes trend. It is being accessed by a ramp from the Lagunas mine workings and we are now drilling from the first 2 drill bays underground. You can see some of the highlight intercepts that we show on the image MR19-007 and MR19-011 where we intersected significant with much wider widths than were expected from the surface drilling in that area with grades that are at or above our current reserve grade.

We are continuing to do some drilling in that area and we are transitioning as we move to the northwest, which is to the left in the image, where we expect to get into the heart of the deposit and expecting some -- a good series of releases during the year as we continue to delineate this deposit. We're expecting to do approximately 15,000 meters of our drilling will be at Marianas, both from surface on the western part and from underground.

Slide 14, an overview of our recent or our near acquisition opportunity that we have signed an option for. The San Felipe property is located south, about 55 kilometers in a straight line from Mercedes. It is a permitted project with an existing portal and decline. It is close to accessing ore. The decline was not quite put into ore when it was constructed, but is quite close. We identified this as a good opportunity for the company given the grades and widths on a dollar basis because the San Felipe deposit is more of a poly metallic deposit and just gold. It is approximately on a per ton dollar basis about twice the grade of our reserves at Mercedes and the widths that about 5 meters are also about twice the grades at Mercedes.

So we are looking at potential synergies this may have with the Mercedes site or in addition to that we could, if the deposit grew to be large enough, look at a standalone operation. We do expect to operate the exploration, the near-term exploration and development with our team out of the Mercedes mine.

Moving on to the McCoy-Cove property on Slide 15. McCoy-Cove is a large property package that we assembled over a 8-year term through acquisitions of deals that we did with Victoria Gold and then Newmont to acquire 100% of a very substantial and perspective land package in the Battle Mountain Trend of Nevada.

The image that you see on Slide 15 in blue is the overall land package. Within that in white is what we call the Cove Carve-out. The Cove Carve-out contains the Cove deposit. It currently has an indicated resource of about 342,000 ounces of gold at 11.2 grams with an additional 1.3 million ounces, 11.24 grams per ton making it one of the highest grade undeveloped plus 1 million ounce deposits in the United States.

The project we are -- we are moving that project towards a, what we hope will be an ultimate production decision with the full term being fully permitted and currently working on the hydrology flow testing and completed a PEA, looking to start underground development later this year in advance of a full feasibility study.

So we owned 100% of the carve-out area in white surrounding that given our good experience of working with our partner Barrick in at South Arturo, we decided to work with them again on this project and their strong exploration team with the success of finding large gold deposits in Nevada. We thought they could bring a lot to the McCoy-Cove property. I'm happy to say that our teams have worked quite closely together. We're currently the operator of the joint venture portion where Barrick is currently spending $22.5 million over 4 years to earn in. We have worked closely with both teams, both the Barrick team and our geological team, to arrive at a number of targets that are currently being tested on their property.

And really highlighted by the early 2019 success of our recent announcement of the Antenna discovery with a very impressive nearly 120 meters of mineralization intersected in the first hole that tested that target with 2 high grade sections within that. Importantly that hole ended in mineralization and we are core pointing it as we speak to assess what exactly the true width of that discovery is and we'll be doing -- expecting to do a fairly significant follow up drill program as we move forward.

Slide 16 just gives an overview of the target. The Antenna area, you can see the white outline of the significance soil anomaly in that area, is when you couple that with Windy Point and Alpha trend areas comprises the most extensive soil Geochem target on the property that spans over several kilometers.

Importantly, in the Antenna area, the proposed potential northwest striking structure very similar to what you see at the Helen Gap CSD/2201 zone where our resources is an important potential structural target. And in the Antenna area, that structural target intersects with northeast striking faults that are believed to be the feeder faults for the mineralization in both the Cove and McCoy pits.

So the Antenna hole is the first hole that tested in that structural corridor into the Favret formation. If you look in the lower image to the left, the Favret formation is shown in purple and the historic drilling in this area did not drill far enough to intersect this rock unit. Back when the Cove and McCoy mines were being mined, most of the mining was not the Carlin style mineralization that we're focused on.

And little was known about the potential of that deeper limestone unit at the Favret. In that corridor, what we call the potential Alpha trend, PB19-03R, the discovery hole in the Antenna, is the first hole in that corridor to have ever been drilled into the Favret.

We've recently completed holes at Alpha, approximately 1 kilometer to the northwest and Windy Point further 500 to 800 meters to the northwest and have seen in those holes similar alteration that we saw in 03R and are expecting assays on those holes in the near future. So it's just showing the alteration system is pretty extensive in that area and we are embarking on a larger program.

We have been notified by Barrick that they intend to exercise their right to take over as operator of the project, but I'm very confident that based on our relationship, we will continue to work closely together at the targeting in these areas going forward.

Also drilling the Lighthouse target where we are targeting a potential extension of a 2201 zone the Carve-Out property. So there's several other targets that are or that have been or will be targeted during the current program as we move forward.

Stepping to Slide 17, overview of Greenstone. John gave a pretty wholesome update of what's been going on there. The project continues to be sole-funded by our partner Centerra. We have received our EA approvals importantly from the federal and provincial governments leading to our ability to start working on the advanced engineering and the permitting process for this project.

We've also completed in 2018 and 2019 fairly significant RC and core drill programs that will result in the new reserve and resource estimate planned to be released in the third quarter of this year.

On the next slide, we do continue to have an exploration pipeline that we continue to advance as we call it. We are hoping to define our mines of the future. Mining companies continue -- need to continue to replace reserves and resources and sometimes that needs to come from new sites and we recognize it for the success of our company for many years to come. We will need to continue to explore. And I'd say that our -- we have a world class exploration team in Premier and we are -- have achieved many successes and look for that to continue.

Red Lake, our last drilling in the sea zone as we call it at the Hasaga project, intercepted approximately 23 meter true width of 5.7 grams and it remains open down-plunge. Currently, we're not planning any exploration at Red Lake. However, that could continue as we go forward. Most of our early stage exploration this year will be at our Rye Goldbanks property with the drilling of Rye vein targeted for late Q2 and starting up drilling at Goldbanks in the coming weeks. So we should see or hoping to see a lot of exciting results coming out of that going into the second half of the year.

So with that as a summary, Premier is a company that continues to focus on growing our production. We expect to achieve that in 2019, 2020 through the 2 new mine developments underway at South Arturo. And we continue to look at growing our production profile in the future through the development of Cove and Hardrock which are being -- currently being permitted. We also put a lot of effort into growing our reserves and resources. There will be updates either in or after 2019 from South Arturo, Mercedes and Hardrock. The new discovery at McCoy-Cove offers significant upside opportunity and we're quite excited by this project going forward as the expectations are this drill program will not just be what we're doing now, but a potential substantial increase going forward.

We continue to sustain our exploration effort across our portfolio to ensure that we continue to grow our reserves and resources well into the future. And with the growing production, we expect to grow our cash flow.

So I thank everybody for attending today's call and we'll open up the floor for a couple of questions if there are any. And if you don't want to ask them on the line, feel free to contact myself, John, Steve McGibbon or Matt, and we can deal with any of your -- the items you may have questions on.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And your first question is from Andrew Mikitchook from BMO Capital Markets.

--------------------------------------------------------------------------------

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [2]

--------------------------------------------------------------------------------

I just wanted to see if we could get a little bit of guidance on the Mercedes, I guess, trajectory here as this largely would -- should we interpret Q2 would be similar to Q1 before there would be a marked improvement in the second half of the year or would it just be kind of a more incremental step up quarter over quarter?

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [3]

--------------------------------------------------------------------------------

I think may be John could answer this better. My expectations is that Q2 we should see probably incrementally better than Q1 and then our expectations are for the 20,000 ounces or more in both Q3 and Q4. Our guidance is 75,000 to 85,000 and we're quite comfortable we're going to meet that. And our goal is to meet the midpoint of our guidance for the year. Our cost so far have been below budget and if all goes well, hopefully we can continue that throughout the year.

--------------------------------------------------------------------------------

John A. Begeman, Premier Gold Mines Limited - Executive Chairman [4]

--------------------------------------------------------------------------------

Yes, Ewan, just on top of that, what I'll add and hopefully also Brent can time in. But second quarter is going to be slightly -- should be slightly better than Q1. We're looking at some higher grade remnant areas that'll help compensate some of the grades while we're developing the work in the other higher grades zones. So Q2 not a huge difference from Q1, but will -- definitely the second half is where the higher production is going to be expected.

--------------------------------------------------------------------------------

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [5]

--------------------------------------------------------------------------------

Okay. Maybe just a follow up, the -- as you guys set up more working phases and open up new areas -- I guess, Marianas will help as well -- do you expect more of a stabilization of the production profile here or is this just the nature of this mine that it will have phases, development phases where there will be higher production and lower production quarters?

--------------------------------------------------------------------------------

John A. Begeman, Premier Gold Mines Limited - Executive Chairman [6]

--------------------------------------------------------------------------------

Historically, it has and again, I'm going to let Brent weigh in. But ever since we've taken the mine over, we've seen various areas of grade variances from the model some widths and it is variable. We mine from several different areas. We have up to 20 different working phases at a time. We're going to continue to see variability with this epithermal deposit.

--------------------------------------------------------------------------------

Brent Kristof, Premier Gold Mines Limited - SVP of Operations [7]

--------------------------------------------------------------------------------

Yes, this is Brent. That's exactly correct. We will see variability because of the grade variances and the width variances that we find in the different zones.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Your next question is from Eve Hurowitz from CIBC.

--------------------------------------------------------------------------------

Eve Hurowitz, CIBC Capital Markets, Research Division - Equity Research Associate [9]

--------------------------------------------------------------------------------

Just want to clarify the comment on the press release referring to better grades expected in the first half of the year at Mercedes. This is referring to 2020, correct?

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [10]

--------------------------------------------------------------------------------

The better grades that we're expecting will come from the Rey de Oro zone which is one of the deposits that we are mining now. And in the second half from Aida which is another higher grade vein. Our real expectation is to see real grade improvements once we bring Marianas online. And that's targeted for 2020.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question is from John Tumazos from John Tumazos Very Independent Research.

--------------------------------------------------------------------------------

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [12]

--------------------------------------------------------------------------------

When in your capital atlas at South Arturo do you expect to begin to borrow and roughly how much do you think will be the peak borrowing and how quickly do you hope to pay the debt back? We're conservative and we just want to make sure every thing's on a strong footing.

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [13]

--------------------------------------------------------------------------------

I'll answer this and maybe Steve can chime in as needed. Our expectation is for building the 2 current operations which is the Phase I and the El Nino underground. We would not need to dip into our facility. However, in addition to that, we're expected to start development in Q3 or Q4 at Cove and at that point we'll have 3 ongoing development programs with only 1 mine producing money so that we could dip into that. But maybe I'll let Steve give a more fulsome response on when and if we would and obviously, John, the expectation would be to pay it off much like our previous debts, immediately.

--------------------------------------------------------------------------------

Steven J. Filipovic, Premier Gold Mines Limited - CFO [14]

--------------------------------------------------------------------------------

Yes, I think, Ewan, just really I think you've covered it there. The reality is that with the other projects, Cove in particular and of course with San Felipe in the mix here now, we do expect that we will be into the facility by the end of the year. That could be upwards of, I would say, $15 million, perhaps $20 million depending on the speed at which obviously there is some element of -- a large element of control that's in the hands of Barrick. So we watch that very closely. We would be into that facility by the end of the year maybe to that extend. We would continue to draw on that in the coming year. I think with our current projections and really it's based on what we see from a modeling perceptive from Barrick so far, we would be in a position to have that paid back within the subsequent 2 years. And that's based on the modeling we have so far as you've seen, I think as everyone has seen. Our experience so far with Arturo is that things have performed much better than the planning that we've built into our models, so.

--------------------------------------------------------------------------------

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [15]

--------------------------------------------------------------------------------

If I could ask a second question. As you add San Felipe and Rodeo, do you consider perhaps dropping one of your projects, whichever excites you least so you don't spread yourselves too thin financially or from a personal standpoint?

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [16]

--------------------------------------------------------------------------------

Yes, obviously we -- as you've seen and I mentioned earlier, we've already decided to put Hasaga on the side. So we are currently being quite focused on our balance sheet making sure that we don't get stressed. In terms of exploration teams, we are sequencing our projects this year so that we'll do Goldbanks, then Rye, then Rodeo Creek. So our geological team in Nevada is running that project, but not running 3 different projects at once. So we're -- I'd say we're quite well handled, John, in that regard.

--------------------------------------------------------------------------------

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [17]

--------------------------------------------------------------------------------

Finally, with the Barrick Newmont cooperation in Nevada, I guess your primary South Arturo and McCoy-Cove or with Barrick, so this should have no effect on you?

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [18]

--------------------------------------------------------------------------------

Expectation is no. We've had a very positive working relationship with Barrick. There are going into the joint ventures some additional processing facilities that we believe could have some good synergies with, say, Cove. So we think that the new joint venture just opens up opportunity for us, is -- would be the internal feeling here.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Thank you. There are no further questions at this time. You may proceed.

--------------------------------------------------------------------------------

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [20]

--------------------------------------------------------------------------------

All right. Well, thank you everybody for attending. As always, please call our -- any of the people listed in the presentation including Brent. We're quite open to take calls and we're quite excited to tell you about the developments going forward as we continue to grow our business. So thanks again for attending and we'll talk to you all soon.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.