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Edited Transcript of SGI.V earnings conference call or presentation 12-May-20 2:00pm GMT

Q1 2020 Superior Gold Inc Earnings Call

TORONTO May 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Superior Gold Inc earnings conference call or presentation Tuesday, May 12, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher John Bradbrook

Superior Gold Inc. - President, CEO & Director

* Keith Boyle

Superior Gold Inc. - COO

* Paul B. Olmsted

Superior Gold Inc. - VP of Finance, CFO & Secretary

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Conference Call Participants

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* Ian T. Parkinson

Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst

* Philip Ker

PI Financial Corp., Research Division - Precious Metals Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Superior Gold's First Quarter 2020 Results Conference Call. (Operator Instructions) As a reminder, this conference call is being broadcast live on the Internet and recorded.

I would now like to turn the conference call over to Chris Bradbrook, President and Chief Executive Officer. Please go ahead, Mr. Bradbrook.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [2]

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Good morning, and thank you for joining us to discuss Superior Gold's first quarter 2020 results. I hope you and your families are all well.

Before we get started, as a reminder, I would like to ask everyone to refer to Slide 2 of our presentation, which is posted on our website, to view our cautionary language regarding forward-looking statements.

I will now discuss the details of the quarter. During the first quarter, we produced 16,351 ounces of gold, exceeding our quarterly guidance despite a number of onetime unexpected events that impacted the Plutonic Gold Operations. We sold 16,850 ounces of gold at a record realized gold price of USD 1,570 per ounce. Total cash costs during the quarter were $1,291 per ounce, and all-in sustaining costs were $1,416 per ounce. All numbers will be U.S. unless otherwise stated.

During the quarter, we announced positive drill results from the area between the Indian and Baltic Zones, which continues to demonstrate the potential to expand mineralization. Finally, as a result of the progress made with the global resource recalculation, we've decided to include it as part of our 2019 year-end reserves and resource estimate. And this will be available later in the second quarter, together with the details on the plans for the open pit operations.

I will now turn the call over to our Chief Financial Officer, Paul Olmsted, to discuss our financial results for the quarter and full year.

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Paul B. Olmsted, Superior Gold Inc. - VP of Finance, CFO & Secretary [3]

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Thank you, Chris.

For the first quarter, we generated revenue of $26 million, a slight decrease from revenue of $29 million generated in the first quarter of 2019. Lower gold revenues resulted from 5,654 fewer ounces being sold, partially offset by an increase in the realized gold price to $1,570 from $1,305 per ounce. The reduction in ounces sold was due to fewer ounces being produced as a result of decreased mill feed from Hermes and lower recoveries, partially offset by other low-grade stockpiles and higher grades from underground operations.

Cost of sales were $23.7 million for the quarter, a decrease of $7.3 million from the first quarter of 2019. Cost of sales were lower in the current period versus the same period in 2019 predominantly due to a reduction in mining costs at Hermes of $9 million following its suspension, partially offset by higher payroll and maintenance costs at the underground operations. In comparison to the first quarter of 2019, general and administrative expenses increased marginally at $44,000 in the quarter, largely due to higher payroll costs as a result of the addition of the company's Chief Operating Officer.

Adjusted net loss for the first quarter amounted to $115,000 or $0.00 per share compared to an adjusted net loss of $2.6 million or $0.03 per share in the same quarter of 2019, primarily due to the higher operating loss in the comparative prior period.

For the quarter, cash from operating activities before working capital was $1.2 million or $0.01 per share, and that includes the repayment of $1.9 million under the Auramet gold loan. At quarter end, we had an excess of $16 million in cash and cash equivalents. The decrease in cash and cash equivalents at quarter end relative to year-end 2019 is a result of a combination of the effect of foreign exchange movements, the timing of payables relative to quarter end and the repayment of a portion of the Auramet gold loan.

As Chris mentioned, the Plutonic Gold Operations produced and sold 16,351 ounces and 16,850 ounces of gold, respectively. Total cash costs of $1,291 per ounce sold and all-in sustaining costs of $1,416 per ounce sold were below the realized gold price of $1,570 per ounce for the quarter. In comparison, 22,474 and 22,504 ounces of gold were produced and sold, respectively, in the first quarter of 2019. Total cash costs of $1,145 per ounce sold and all-in sustaining costs of $1,246 per ounce were below the realized gold price of $1,305 per ounce for the first quarter of 2019.

Total cash costs and all-in sustaining costs increased over the prior period primarily as a result of no contribution of tonnages milled from the Hermes Gold Mine for the period and slightly lower underground tonnes milled, offset in part by an increase in underground grade and the processing of other low-grade legacy stockpiles. The lower underground tonnage resulted from limitations imposed on the operation as a result of power outages and heavy rains experienced in the quarter.

The increase in underground grade from the prior period was a result of targeting higher-grade areas of the underground mine, where available, as we focused our efforts on the development and sequencing necessary as part of our long-term plan.

I will now turn the call back to Chris to continue with the rest of the presentation.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [4]

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Thanks, Paul.

For 2020, our guidance currently remains unchanged. However, in order to minimize the risk of exposure to COVID-19, we have been and we still are only allowing site access to employees, contractors and suppliers that are deemed essential. As a result, access to the open pit contractors required for open pit development has been delayed. We are now targeting commencement of production from the open pits in the second half of 2020, and as a result, expect to be at the lower end of our production guidance for the year.

As previously indicated, the first quarter always was anticipated to be and will be the weakest quarter of the year due to a number of onetime unexpected events at the Plutonic Gold Operations. However, with a continued emphasis on improved underground development rates and execution of our mine plan, we anticipate a progressive improvement in our quarterly production results over the course of 2020, where production in the second half of the year will be higher than the first half of the year.

For the second quarter, we anticipate production of between 16,500 and 18,500 ounces.

During the quarter too, we announced results from drilling that targeted the potential extensions of the gold mineralization of the Indian Zone. The drilling was focused on the areas of northwest of the Indian Zone within an area which extends approximately 500 meters between the Indian and Baltic Zones, which has not been tested. As a reminder, the Indian and Baltic Zones are key components of our longer-term underground mine plan. And consequently, these results illustrate the potential to extend the mine life.

As illustrated on Slide 7, actually, the key drill results were noted -- it's actually maybe Slide 9. 27.9 grams per tonne gold over 4.1 meters, 57.7 grams per tonne over 0.8 meters and 22.2 grams per tonne over 2.6 meters all previously released. The drilling was completed over a strike length of more than 150 meters and a vertical extent of more than 100 meters. Mineralization remains open both up and down dip and along strike. We are very pleased with these drill results, which we believe illustrate the potential to connect the Indian and Baltic Zones.

Our goals for 2020 include executing on our underground mine plan. Improvement in the underground stope grade will lead to increased production at lower costs. Our short-term goals consist of filling the mill at the best possible grade and updating the resource and reserve estimation. We will continue to investigate ways to fill our second mill, which is currently on care and maintenance.

In the near term, late Q2, we plan to provide our year-end 2019 reserve and resource update, which will include the results of the global resource calculation, and we'll also provide an update for the open pit operations at the Plutonic Gold Mine. In July, we will report our second quarter detailed production results, followed by our full second quarter financial results in August. As we've done in the past, we will provide ongoing exploration updates.

With that, we conclude the presentation part of the call. Operator, you can now open the line 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 Phil Ker of PI Financial.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [2]

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Chris, just a couple of questions. First question, could you just touch on the scheduling of payables on this quarter and then maybe moving forward and how you expect them to impact cash flow?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [3]

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Okay. There was a second question?

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [4]

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The second question is related to any capital costs related to the open pit.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [5]

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Okay. I'll answer the open pit one now because -- then I'll pan it over to Paul Olmsted.

Capital costs with the open pit, we're taking to manage and schedule so that we don't incur those. So the plan is when we release the reserve and resource, we'll provide color on that.

And then in terms of payable timing, I think you're better off listening to Paul Olmsted.

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Paul B. Olmsted, Superior Gold Inc. - VP of Finance, CFO & Secretary [6]

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So it's Paul now. Just on the payables. At each quarter, we evaluate the payables. And for the end of the first quarter, we determined that it was appropriate to reduce the number of payables that we had at the end of the year. So payables from year-end are down $5 million. So I think just from a cash flow perspective, this will fluctuate from quarter-to-quarter, but there was a significant decrease from December to March.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [7]

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I think it's fair to say, Paul, the fact that we did that RMF financing gave us the flexibility to do that.

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Paul B. Olmsted, Superior Gold Inc. - VP of Finance, CFO & Secretary [8]

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Great. That's correct.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [9]

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Yes, which was the goal of doing the financing in the first place. Does that help, Phil?

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [10]

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Sure, yes. And then what are your expected costs related to exploration?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [11]

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Well, I mean, we still say the budget is -- I think it was USD 6.5 million is what we stated. We still actively explore with a third rig underground. We've continued to do that pretty much ever since we've owned the mine, and we're currently putting together a sort of a longer-term plan for surface for the back end of the year. I think we've made significant progress with our upgraded geological team in terms of understanding what it is we should be looking for. So yes, we're still very much focused on looking for the next thing, and exploration is still a big part of our future, for sure.

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Operator [12]

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(Operator Instructions) Your next question comes from the line of Ian Parkinson of Stifel.

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Ian T. Parkinson, Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst [13]

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Chris, can you give me a bit more color on the schedule for the open pits? Basically, if you start work and get the all-clear, how long will it take before we start seeing ore hitting the mill?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [14]

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Well, I've got Keith Boyle on the line with us. He's probably a better place, the leader. Actually, [I hope so that]. So Keith, do you want to give some color on the start-up period? Keith? Hello? Well, I guess...

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Keith Boyle, Superior Gold Inc. - COO [15]

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Sorry, I had -- no, no, I had my phone on mute. I'm sorry, I was talking away there. Yes, okay. The start-up of the open pit will be quite quick. We have -- we're looking at early -- sorry, in the third quarter there to do that, provided the COVID lifting and everything works well the way Western Australia is going. But because we're permitted, we have our permits ready to go, we're in discussions with contractors now and really just waiting to pull the trigger.

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Ian T. Parkinson, Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst [16]

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Okay. And will it be done with contractor equipment as well or is it your own rolling stock?

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Keith Boyle, Superior Gold Inc. - COO [17]

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No, no. The open pit material will be contractor gear.

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Ian T. Parkinson, Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst [18]

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Okay. So just whatever time it takes for them to mobilize...

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Keith Boyle, Superior Gold Inc. - COO [19]

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Well, yes. We've got to hire people to do the grade control, so we have to start the grade control drilling while they're mobilizing, and then away we go. Yes.

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Ian T. Parkinson, Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst [20]

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Okay. And what's -- what are things like in Western Australia this week? I know it's a dynamic world situation we're dealing with. But is the industry moving towards getting back to full capacity with contractors and everybody sooner rather than later? Or is it stuck in the mud like other areas?

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Keith Boyle, Superior Gold Inc. - COO [21]

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In Western Australia, the mining didn't actually -- well, it slowed down a little bit but not like it did here in Canada where operations actually shut down. Some did slow down, but generally, in Western Australia, it kept going. We did have restrictions in terms of changing rosters to social distance and add planes and whatnot. But other than that, it's pretty much on a phased approach and similar to around the world. And we're right in the phase 2 now where groups of 20 or more are starting to be allowed and restaurants are being opened with social distancing, et cetera. So that too, we're looking at getting ready to go back to our regular roster at the beginning of June.

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Ian T. Parkinson, Stifel Nicolaus Canada Inc., Research Division - Director & Mining Analyst [22]

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Okay. Great.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [23]

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Yes. And Ian, just to put it in perspective, I mean, West Australia has taken a hard line in terms of shutting down its borders. But there's been only, I say only because, obviously, for the people affected is there's not an only, but there's been 9 deaths in Western Australia associated with COVID-19. So they've managed to control it pretty well, I think.

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Operator [24]

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Your next question comes from the line of [Ashif Lalwani] of -- he's a private investor.

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Unidentified Participant, [25]

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I was curious, it's been a long period of time now where we sort of underperformed our expectations, and our equity value, as a result, has stayed relatively low versus our earnings potential and resource and reserves. How worried are you about a hostile bidder? There's been some step-up in M&A activity, and obviously, if someone can execute properly, then Superior could produce a lot of cash flow. So what are your thoughts on that?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [26]

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Well, that's a good question. I mean, I think, typically, hostile bids, if they were to surface, they generally don't succeed. So if that happens, it happens, but I would not expect it to happen. I mean, you have seen the case recently with the Guyana Goldfields, where a second hostile bid has been triggered by a friendly bid. But really, at the end of the day, the best thing we can do is just turn this operation around and expose its value. So even if someone does want to express their interest, then they've got to recognize the value. So the best thing we can do is to try and run the business the best we can, and that's what we're doing.

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Unidentified Participant, [27]

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Do you think that if there was someone who was interested and was pursuing a friendly transaction, had more capital and cheaper cost of capital, that you would consider a premium takeover bid?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [28]

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Well, my job as a CEO is to look after the interest of the shareholders. So if someone came with a bid that met those criteria, then clearly, it would be my responsibility to bring it to shareholders. But to date, that hasn't happened.

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Unidentified Participant, [29]

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Where do you -- do you have an idea of where intrinsic value is now in your mind?

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [30]

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Well, I think every CEO thinks their stock's undervalued, so it's always higher. It certainly isn't where we are now. Although having said that, we've outperformed our peers year-to-date. I think that's correct, right, Paul?

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Paul B. Olmsted, Superior Gold Inc. - VP of Finance, CFO & Secretary [31]

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Correct.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [32]

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Yes. So despite our low value compared to where we all think it should be, we've actually done okay year-to-date, but...

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Unidentified Participant, [33]

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You actually did very poorly last year, right? I mean, that's a little...

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [34]

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Yes. No, that is part of it, for sure. But anyway, so it really all comes back to us delivering on what we think we should do. That's how we surface the value. So we are focused on doing what we can control. We can't control anyone else's view of us, but we can control how we perform.

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Operator [35]

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(Operator Instructions) Mr. Bradbrook, there are no further questions at this time. Please continue.

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Christopher John Bradbrook, Superior Gold Inc. - President, CEO & Director [36]

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I understand we have no webcast questions. So since there are no further questions, I would like to thank everyone for joining us today. And we are pleased to have exceeded our first quarter production guidance despite a number of onetime unexpected events that impacted the Plutonic Gold Operations during the quarter. Excuse my voice.

We remain focused on improving grade in addition to continued improvements of the underground development rates and the execution of our underground plan. As a result, we expect to see a steady increase of our quarterly production -- or improvement of our quarterly production results over the course of the year.

Thank you again for joining us on the call, and please continue to stay safe. Have a great day.

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Operator [37]

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Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.