Nov 6, 2014
Executives
Bridget Freas – Director, IR Mitchell Krebs – President and CEO Peter Mitchell – SVP and CFO Frank Hanagarne – SVP and COO
Analysts
Matthew Vittorioso – Barclays Capital Chris Thompson – Raymond James Jorge Beristain – Deutsche Bank Andrew Kaip – BMO Capital Markets Brett Levy – Jefferies & Company
Operator
Good morning. My name is Shawn I’ll be your conference operator today.
At this time, I would like to welcome everyone to the Third Quarter 2014 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).
Thank you. Director of Investor Relations Ms.
Bridget Freas. You may begin your conference.
Bridget Freas
Welcome to our third quarter earnings conference call. There are slides available on our website to accompany today’s remarks.
Please review the cautionary statements and the risk factors in our latest 10-K and 10-Q for risks and uncertainties that could cause actual results to differ from any forward looking statements made during today’s call. Mitch, please go ahead.
Mitchell Krebs
Thanks Bridget. Good morning, everyone thanks for making the time during a busy reporting day.
We reported solid third quarter operating results back on October 6th, in that release we reiterated our full year silver production guidance and we raised our full year gold production guidance due to the solid year, our Rochester mine out in Nevada is having. I’d like to quickly mention a few of the highlights from our third quarter results we released yesterday.
We’ve now reduced our full year operating cost guidance by about $40 million compared to where we started the year, our all in sustaining costs per ounce dropped by over $1 an ounce compared to the second quarter. And with less than eight weeks left in the year we’re confident that Rochester is on track to deliver double-digit increases in both silver and gold production for 2014, at materially lower unit cost compared to last year.
As many of you will recall Rochester was a big question mark entering this year, and with each passing quarter I think we’re putting that question to rest. The development of the Guadalupe deposit at Palmarejo is advancing well ahead of schedule, which represents the beginning of a higher grade future at that operation.
Coming into 2014 that future was also a big question mark. We expect to be mining 500 tons per day on average from Guadalupe in December and we ramp that up to about 1,500 tons per day in the third quarter of next year.
Cost at Kensington declined to $937 an ounce, like we said they would during the second of half of the year due to higher grade ore in the mine plan. They were actually below $900 an ounce, when you back up the one time inventory adjustment.
Also at Kensington during the quarter, we announced new high grade structures containing mineralization with grades well in excess of the current reserve grade of 0.15 ounces per ton. The addition of this new material at Jualin and in Zones 10 and 20 located in the main Kensington mine is expected to lead to unit cost declines and cash flow increases there.
We will incorporate this material into an updated mine plan and provide it to you during the first quarter next year. Our cash balance declined by $21 million during the quarter to $295 million, it declined because we spent $12.4 million to repurchase a portion of our outstanding 7.875% notes at a discount to par and because we acquired two royalties during the quarter for a total of $13.8 million.
Without these two units we were net cash flow positive in the quarter. Also G&A cost for the quarter dropped significantly again this time by 9%, after being down 32% in the second quarter to $8.5 million.
We held two investor days in early October many of you on this call attended or hopefully listened to the webcast or reviewed the materials that are available on our website. I want to take a few minutes to highlight what we feel were the main takeaways from those two days, because they do a good job I think of reflecting where we’re trying to go with the company and how we’re trying to get there.
The first is that three of our four mines have unique high return expansion opportunities that we’re currently pursuing. We’ll use some of our existing liquidity to fund those initiatives, which we expect will drive cost down and help to make our company more durable and resilient at lower prices and those opportunities exist at Rochester, at Palmarejo and at Kensington.
So first at Rochester, we’ve put a lot in to getting Rochester on solid footing over the last couple of years. And I mentioned a couple of minutes ago what 2014 is shaping up to look like, and looking ahead to next year we anticipate Rochester increasing its silver and gold production by double-digits again and lowering its unit cost by double-digits again, due to higher crushing rates, greater efficiencies and higher grades.
If you’re looking at the slides we have posted you should check out the cost per ton information on slide 13 for Rochester, to get a better sense of the progress we’ve made there. Looking into 2015, we also expect to receive permits during the second half of the year, that will allow us to expand leach pad capacity yet again in 2016, so we can extend Rochester’s growing production and free cash flow profile.
Now turning to Palmarejo, as we’ve talked about before we are transitioning from a mine there that was historically focused on quantity of ounces produced to one that is focused on quality ounces and on maximizing free cash flow. We anticipate that open pit production will end in mid-2015, and that’s a process that’s already underway and we expect to complete underground production from the 76 and 108 Clavos at Palmarejo that we’ve been mining since the mine started in early 2016.
We’ve reduced the headcount there since the beginning of the year by 75 people or over 8%. Without a doubt the future of Palmarejo lies to the South, where development of the Guadalupe deposit is well ahead of schedule.
Guadalupe contains a large reserve and resource and will be the source of much higher grade feed back to the Palmarejo processing plant going forward. It contains a total of 10.5 million tons of reserves and M&I resources and an additional 4 million tons of inferred resources.
And the mine plan we provided in July includes less than 30% of that material, and reflects the average grades from Guadalupe that are expected to be 25% higher for silver and over twice the average gold grade compared to what we are seeing currently in 2014. That same July plan showed us producing about 1,500 tons a day from Guadalupe by next September.
We estimate the development cost in 2015 to achieve this production level will be in the $10 million to $15 million range, and that’s on top of the $10 million or so that we expect to spend here in 2014 on Guadalupe development. And don’t forget the Franco-Nevada is funding $22 million of Guadalupe’s development cost as part of the recently renegotiated gold stream that closed early in the third quarter.
We’re currently drilling some of the higher grade inferred resources at Guadalupe to bring this material into reserves and we’re actively pursuing ways we can expand and extending mining at Guadalupe beyond the initial plan we provided back in July. And we expect to have more to say about this in the first quarter.
And the goal is to increase the production and cash flow profile coming from Guadalupe’s higher grade or over longer period of time, while we work to advance other high grade underground structures located near Guadalupe. The best example of this is the Independencia structure located just to the North of Guadalupe, where we are having very good results.
We expect to have an initial resource at Independencia year end and anticipate expanding the size of Independencia during 2015. And then at Kensington, we are drilling and developing those higher grade structures I mentioned earlier and getting them into an updated mine plan.
We expect drilling next year will further expand the size of this higher grade mineralization and allow us to really reshape what the future looks like at Kensington. The third quarter served as another reminder of the impact a slightly higher head grade has on Kensington unit cost and cash flow.
The second big takeaway from our investor days is the fact that the initiatives that I just walked through at those three mines are expected to significantly reduce our cost profile over the next few years. If you look back at last year our all in sustaining cost were around $20 an ounce and we’re targeting a 15% to 20% reduction as we get into 2017, which will dramatically shift this company down the industry cost curve compared to where it has been historically.
The third big takeaway is the fact that we have more than sufficient liquidity to support these strategic priorities and withstand lower silver and gold prices. At the end of the third quarter we had $295 million of cash and equivalence, about half of that cash is year marked to fund these strategic priorities that I mentioned.
And the rest is available for us to provide us with flexibility and with the cash buffer. As you all know and as we’re obviously aware we carry about $437 million of senior notes on our balance sheet and those have a 2021 maturity, and they’re unsecured and very flexible no maintenance covenants.
So we have a long runway there in terms of how to deal with those notes and we’ll seek to de-lever over the coming years especially after 2017 on the back of higher expected free cash flow. And then the final takeaway from our investor days is we’re really starting to see I think the benefits of the significant amount of organizational change that has taken place here, over the past couple of years.
Without a doubt, we have greater visibility, better planning, much better consistency, many of you have told us that we have industry leading transparency and disclosure and ISS has validated our leading Corporate Governance, by awarding us the highest rating that give companies. I think a great example of the value of these enhanced capabilities is the process we went through to renegotiate the Palmarejo gold stream agreement with Franco-Nevada.
I have no doubt that we would have never gotten that done, if it wasn’t for the people and the planning capabilities that we now have here at Coeur, that allowed Franco to get comfortable with the future of Palmarejo and Guadalupe. Now as we’re all aware silver has dropped over 20% and gold has fallen over 11% since our last quarterly results call three months ago.
$15 silver and $1,150 gold are levels that cause everyone in this sector to carefully think through the implications of these sustained lower prices and reassess priorities. From our prospective the initiatives I described at Rochester, at Palmarejo and at Kensington are expected to position Coeur as a much lower cost Company capable of generating solid free cash flow over long mine lives.
Our challenge and our opportunity is to use our liquidity, to accelerate the execution of these strategic priorities in order to push the Company down the cost curve as quickly as we can. With that we’d be happy to take your questions now.
Operator
(Operator Instructions) Your first question comes from the line of Matt Vittorioso from Barclays. Your line is open.
Matthew Vittorioso – Barclays Capital
Yes, good morning guys, and thanks for taking my question. I guess just on liquidity and looking into 2015 you talked about you’re marking half of your cash for these internal growth initiatives and initiatives that get you down the cost curve.
I guess as we look out into 2015 at these commodity prices it looks like you will be burning cash, can you just talk about how you’re thinking about liquidity, cash burn next year and also investing to try to get down the cost curve? Just what are your options to maybe increase liquidity and how you are thinking about that for 2015?
Mitchell Krebs
Yeah, I’ll start Matt and then Peter will chime in or anybody else for that matter. But I think it’s important to first start up by saying that our cost structure will not stay static in 2015, compare to 2014, because of the fact that we’re saving here with lower prices.
So, you’ll see our cost structure come down in 2015. The – our goal and we’re obviously going through the budget process right now is for our operations just to generate sufficient operating cash flow to cover G&A, to cover our interest and to cover most if not all of the sustaining capital.
And then we would be dipping into our cash to funds some of these strategic priorities, that will drive good things in terms of our overall cost profile over the long-term. So, we don’t see there would be any need to increase liquidity, where it will come from is off the balance sheet and from a lower cost profile and that’s operating cost, that’s CapEx, that’s non-operating cost to get us to a point where we minimize that cash decline in 2015.
And there will be a similar story in 2016 and then 2017 is when we really start to see the benefits of these initiatives in terms of the lower cost, higher margins, higher grades and higher free cash flow.
Peter Mitchell
Yes, I guess, Matt, the only – it’s Peter, the only thing is that I would add to that are it’s a very dynamic process actually, down draft in since over prices into a lesser degree gold prices has been more extreme certainly since the end of the third quarter and our planning process is in the levers so we are pulling that Mitch alluded to in his presentation. That’s an ongoing process and suffice it to say there is a lot of things that we can do to adjust that cost position and really extend our liquidity though this next couple of years is critically important to get to that period where we’re generating significantly more free cash flow.
Matthew Vittorioso – Barclays Capital
That’s very helpful. And understanding that you are going to the budgeting process now, but maybe for the benefit of everybody on this call as we think about looking at your silver equivalent production and your cost applicable to sales on that silver equivalent production on a per ounce basis I mean you’ve been running into $14 to $15 an ounce on the cost front, I mean is there any sort of big picture target you could provide for the next 12 to 18 months where could those cost per ounce on the cost applicable to sales go, I mean, what is the opportunity there?
Mitchell Krebs
Yes on a high level, it’s Mitch again, production directionally next year on a company wide basis probably won’t be that far off of where we look to be heading for 2014. In Kensington it will be flattish, San Bartolome will be pretty flat, we’ve already said how Guadalupe and Palmarejo are transitioning and then Rochester will be higher.
So you kind of net that all together and you won’t see widely different silver equivalent production out of us next year, but you will see those costs come down again meaningfully, I think there is a slide in there today where we highlighted a few of the different buckets of reductions we’ve made this year that total something like $85 million, $86 million. What we need to do is keep up on those efforts and try and do the same next year.
In terms of capital, that’s obviously a big component to the equation next year, you won’t see anything that’s widely different than the levels we’re guiding to this year with some of that being just maintenance and some of that being the funding of some of these priorities designed to drive cost down, does that help?
Matthew Vittorioso – Barclays Capital
Yes no, that’s very helpful. And just remind us so what’s the good CapEx number to use for full year ‘14?
And then you’re saying it will be similar in ‘15 is it still the sort of $65 million or?
Mitchell Krebs
Yes the range is $65 million to $80 million and that’s the range.
Matthew Vittorioso – Barclays Capital
Okay. And just one last quick one from me, I guess you did buyback some bonds in the quarter obviously you’re looking to conserve some liquidity, but given the move-in metals prices those bonds have traded off, and would you continue to look at those depending on where they are trading, would you continue to potentially repurchase some of those in the open market?
Peter Mitchell
Yes it’s Peter again, not a precise answer Matt, but certainly balancing our needs for liquidity our needs to fund the capital projects that we have in front of us to move our cost position down, but being opportunistic on the margin with our bonds such as we demonstrated in the third quarter with the $12 million of bonds we bought back is certainly something that we would entertain going forward as well, it just make sense. We are extremely conscious of the leverage levels that we have currently.
So finding ways to de-lever obviously growing EBITDA, but and buying back the bonds from time-to-time is a great opportunity for us frankly.
Matthew Vittorioso – Barclays Capital
That’s helpful, thank you.
Operator
Your next question comes from the line of Chris Thompson from Raymond James. Your line is open.
Chris Thompson – Raymond James
Hi guys, thanks for the call. I’ve got a bunch of questions here, we’ll start with the Palmarejo, I wonder if you can just comment very quickly on the underground grades I think at Palmarejo deposit, I think we’ve got a pretty good read on the Guadalupe, but for the underground grades for next year what should we be modeling?
Mitchell Krebs
Frank you want to take that?
Frank Hanagarne
Sure, hi Chris this is Frank. We are underground looking at the grades that should range between 170 and 190 grams per ton underground next year.
Chris Thompson – Raymond James
Okay. And on the gold?
Frank Hanagarne
We’ll be in the range of 2 to 3 grams per ton.
Chris Thompson – Raymond James
Okay perfect, alright. Non recoveries at the moment I noticed that you’ve achieved 83% recoveries on the silver for the quarter is this sustainable on an ongoing basis that amount?
Frank Hanagarne
Yes it’s actually not only sustainable, but we’re doing things that help to see improvements ahead still although it’s getting those incremental improvements become a bit smaller through our efforts going forward, but it is sustainable Chris. I think we’ve talked before the flowsheets so that we can campaign different ore types through haven’t had a chance to test that yet, but we’re ready to do so as soon as we encounter some additional oxide material little later in the year and into next year.
We’ve expanded the Merrill Crowe circuit giving us the capacity to treat a lot more solution and refinery and we have converted a carbon circuit over into just a standard agitation lead circuit. All these things in aggregate have added up to the kind of recovery increases that we’re seeing right now, and still looking to improve upon that further as we go ahead.
Chris Thompson – Raymond James
Great Frank, thanks. Just maybe onto Rochester, just a read I guess in the near-term obviously you’re enjoying obviously lowering unit cost based on sort of economic scale here.
Can we expect cost to continue to track lower than $15 per ounce silver equivalent?
Mitchell Krebs
That’s certainly the goal, it’s Mitch Chris, for exactly the reason you’re talking about a lot of what we did – have done in 2014 we’ve only really seen the benefit of in the back half of the year. So extrapolating that into a full year across higher crushing rate we can expect to see those cost on a per silver equivalent ounce basis come down further next year.
In fact I think we’re looking at something greater than a double-digit decline there, next year.
Chris Thompson – Raymond James
Great. Okay and then finally at Kensington, obviously the big question for me at the moment is those grades, good grades I guess in the Q3, are we going to see a continuation of that next year?
Frank Hanagarne
Well this Frank, Chris what we saw in the third quarter was according to the mine plan that we’re executing this year. There will be periods next year with the same thing will fall out I don’t have all those plans finalize at this point.
But we have opportunities and where a lot of that’s coming from is that narrow drain system that we developed and started to mine in this Raven Zone, which is going to be similar to what we would do at Jualin in the future. But there is some good high grade material in there and it’s a good offset to some of the ore grades from the main area of the mine where it’s in the upper-teens per ounce type grades.
In the month of August in that quarter we really benefited from that Raven just through the mining cycle that was taking place and you can see the kind of results that come out of that. So we’re trying to maintain that Raven and grow that further into next year and then expand on it little further out with what we might do with Jualin.
Chris Thompson – Raymond James
Great, okay. And then finally at Kensington, I know we spoke in the past about potential for maintaining or even increasing that I guess in those throughputs, have you got any comments on that?
Frank Hanagarne
Yes we have the capacity to mill into the 1,900 ton per day range. We do saw quite often but we’ll moderate that throughput up and down based on grade, which we wouldn’t manage that, we wouldn’t try to mill at that rate we get into these high grade availability to higher grade ores.
If you do want to maintain your recovery not over swap your mill out. But we have ample capacity and a lot of flexibility in what we can do with that mill.
Peter Mitchell
We’re permitted to go up to what 2,000?
Frank Hanagarne
2,000 tons per day.
Chris Thompson – Raymond James
Right okay. Perfect guys, thank you very much.
Frank Hanagarne
Thanks Chris.
Operator
Your next question comes from the line of Jorge Beristain from Deutsche Bank. Your line is open.
Jorge Beristain – Deutsche Bank
Hi, good morning guys. Just to kind a get an update on the Guadalupe project, I have a presentation in front of me that’s putting NPV of that project that $25 million, but that was based on a $20 ounce silver assumption and $1,300 gold.
If we would kind a mark those to market $15 silver and $1,100 gold, what would the NPV be?
Mitchell Krebs
We have a few offsets there Jorge, obviously lower prices would be negative, but I don’t know what if it’s our presentation, that is a plan like I mentioned in my comments, it’s got about only 30% of the total material from Guadalupe in it, it assumes that 1,500 ton a day rate starting next September and staying flat throughout the remaining years out to 2021. In reality that’s not going to be the case, but we’re trying to do and what I was trying to telegraph in my comment is we’re going to get that 1,500 ton a day rate up higher than that we just don’t have it in the plans and in the position yet to share it with you.
But as we get into the first quarter and we can demonstrate that to you based on the basis of a well-engineered plan, you will see higher tonnages and higher production levels and higher cash flow that would probably more than offset a mark to current spot prices. Frank can you get.
Frank Hanagarne
Yes I would just add, Jorge this is Frank. We have a little solid base case it was developed at higher prices and that’s not going to slow us down in terms of how we want to take advantage of that resource.
The real key at Guadalupe is to develop additional ore zones underground and that’s what we are working towards through our development efforts and that’s what’s currently being planned and closed to new plants and to look at to see what that does, but even at the lower prices I mean we’re not going to be satisfied with what we estimate in our base case, we are going to improve on that.
Jorge Beristain – Deutsche Bank
Okay. And if I could maybe just have a follow-up with Peter.
I guess one of the difficulties in valuing precious metals companies in this current environment is you are looking for something to latch onto, whether it’s price earnings or price to cash flow or enterprise value and book value and looking at you guys book value you’re still are carrying about a $1.6 billion equity value on book. Your stock is trading at about one-fifth of that amount, but we look back at what you are using in terms of your assumptions for silver and gold prices and maybe I’m off here, but I read that your resources are calculated at $29 silver, your gold at 1,600 and I am just wondering at what point do you have to make the executive decision with your accountants to kind of mark to market a more realistic number and take these book value write downs that are required to reflect the current asset values in this current market?
Peter Mitchell
Yes. That was a pretty leading way to ask a question, but in any case let’s separate reserve resource pricing, we’ll go through that exercise independently and obviously reserve and resource prices will track something closer to where the market has taken us over the course of the year, but as you know that’s a very inexact science.
Last year, we booked an $800 million impairment charge on Kensington and Palmarejo we go through our process through the year, but certainly with a finer point at year-end and this year will be no exception in terms of reviewing the carrying value of our assets on the balance sheet and we’ll draw conclusions at that point, but certainly directionally your comment is well taken and fair it’s an issue that we’ll look at and draw a conclusion at the appropriate time. But carrying value of assets in a period where silver prices are half what they were two years has a significant and we look for triggering events price in isolation is not a triggering even, but it’s something we have to take account of in that process so.
Jorge Beristain – Deutsche Bank
Right. And you guys did say earlier that of your senior notes there are no covenants, which I am interpreting would be more a flow covenants, but are there any net tangible book value covenants or if your tangible book was to come down significantly, could there be any collateral impacts on secured or unsecured debt access?
Peter Mitchell
Jorge, no impact, it is a maintenance covenant package only no tangible book value or any such test that would have an impact on our bond covenants.
Jorge Beristain – Deutsche Bank
Okay, thank you.
Operator
Your next question comes from the line of Andrew Kaip from BMO. Your line is open.
Andrew Kaip – BMO Capital Markets
Hi guys. I am going to just a follow a bit on what Jorge was talking about, and you have shown good capacity to improve grade at Kensington, Palmarejo is a plant that is moving in that direction and I am just wondering with the contemplation of looking at reserves at year end at lower metal prices, which project do you see being more sensitive my sense is that it’s going to be Rochester but I’m wondering if you can provide any more details?
Mitchell Krebs
Hey, it’s Mitch. We have been looking at some sensitivities based on a year ago reserve levels.
I think you’re right, Rochester is the most sensitive to lower price reserve and resource assumptions, obviously we’ve added a lot there over the last couple of years, but it’s fair to say we’ll give a lot of that back here at the end of this year.
Andrew Kaip – BMO Capital Markets
And then just looking at your operating cost reduction plans, I mean you’ve done quite a bit of work at reducing cost and I’m just wondering how much more of the cost reduction you’re contemplating is really going to be reducing base costs, unit costs on a per ton basis versus an improving grade that is going to reduce your overall cost on per ounce basis?
Frank Hanagarne
I’ll take that one, this is Frank Andrew. The fact of the matter is that for the last two years we’ve been very focused on cost reductions and have achieved a lot roughly 8% direct mining cost reductions being achieved and last year and that’s sort of what we’re on target to get to this year.
That’s not going to go away, at the end of the day as we look forward it all comes back to the your operating plans and what are the key features of that, in terms of how the cost will be shed and in some cases some of them might be quite significant. For instance we plan to see some open pit mining at Palmarejo next year the people that are currently mining, the equipment is being used and maintained and all the diesel that is used to run that equipment.
A lot of these things will drop off of milestone points and you’ll see shifts down. But that focus on cost reductions in all the different areas that we are focused in will not stop.
And can I say that 8% reductions are possible year-over-year for an indefinite period of time I’d say no, but we’re going to approach it like it is.
Andrew Kaip – BMO Capital Markets
Okay. And then just speaking on diesel prices I mean sure part of the release that you’re going to see at Rochester is in fuel prices and I’m just wondering if you’re starting to see that flow through on the operating level?
Frank Hanagarne
We are, we’re very pleased with where those prices have gone, and we’ve been quite happy with cyanide cost this year, expect to reap those benefits as we go into next year.
Andrew Kaip – BMO Capital Markets
Okay, thank you very much.
Frank Hanagarne
Via reduction of consumption and also prices helping a lot.
Andrew Kaip – BMO Capital Markets
Great, thanks very much.
Operator
Your next question comes from the line of Brett Levy from Jeffries. Your line is open.
Brett Levy – Jefferies & Company
Hey guys. Would you consider monetizing any of the various external growth or strategic investments that you guys have at this point?
I mean it seems like difficult time to try to shale low here, but many of you needed to raise some money would you consider doing that?
Mitchell Krebs
Well yes, I think the short answer is yes and you I think hit the nail on the head, it’s not necessarily a sellers’ market right now and I think the assets that we do have, especially the big four we need to make progress on these initiatives more progress in order for someone to really I think get comfortable, to pay us the kind of value that we see at these assets. So as we progressed on our plans, hopefully that bid/ask spread would narrow and maybe if the right kind of opportunity came along, we would certainly take a look at it.
But I think it’s just raising capital through monetization of assets, you got to have a good plan for what you’re going to do with the proceeds and not just sell to sit on cash but…
Frank Hanagarne
So the plan is to spend a little bit of money, de-risk some of the projects and then potentially flip.
Mitchell Krebs
Well, I don’t know if that’s the plan to flip anything, our plan is to improve them and run them and extract even more value, but if someone wanted to come along and pay us what we thought was full value, we would certainly consider it.
Brett Levy – Jefferies & Company
Alright, thanks very much guys.
Mitchell Krebs
Thanks Brett.
Operator
Your next question comes from the line of David [inaudible] from Wells Fargo. Your line is open.
Unidentified Analyst
Hi guys, thanks for taking my question. Just looking at Kensington for the quarter, it looks like sales was quite a bit ahead of production and looks like we might have some of that fall off in Q4, can you just kind of talk about what’s going on there and what should we expect for production to be higher than sales in the fourth quarter?
Mitchell Krebs
Frank go ahead.
Frank Hanagarne
This is Frank. There was a catch up of sales in that particular quarter, which [inaudible] on the revenue side and with concentrate shipments there is a kind of cyclic ebb and flow.
We are working at all time trying to always minimize the gap between what we produce and what we sell. We’re doing a very good job at that in most quarters, but there are things that can happen that would delay the shipment or delay its processing on the other end and these things happen, but you’ll continue to see a little bit of ebb and flow in how the revenues are coming in produced versus sold.
We’re just trying to keep that gap as tight as possible.
Peter Mitchell
I think there are always issues around revenue recognition and timing of shipment around the quarter end and when we actually can book that revenue we try and minimize it obviously as Frank suggested, but it’s a continuing challenge for us always.
Unidentified Analyst
Great. And then I know you kind of got it to flattish type CapEx next year, but what would you consider just base maintenance CapEx if we stripped out all kind of growth in the company?
Frank Hanagarne
Approximately $50 million David
Unidentified Analyst
Okay. And then just on the hedges just to make sure I am clear, you guys have had you have hedge production for Q4 this year and Q1 in next year but there are no hedges going beyond Q1 of next year, is that correct?
Frank Hanagarne
Yes that’s right David and not surprisingly there are put spreads on silver and gold 1.25 million ounces for silver in Q4 and Q1 and the put spread starts at 18 and goes down to 16. So that’s paying out a significant amount of money and it’s 25,000 ounces of gold for each for Q4 and Q1, but you’re correct they extend the end of Q1 of next year only and we would look at opportunistically extending those, but certainly in this price environment those are not the kind of opportunistic conditions that we’d be looking at extending.
Unidentified Analyst
Certainly understand. And then last question is just on like you said you bought back some bonds during the quarter, I believe you guys still have a stock authorization out there, I mean with your stock price where it is, how do you think about buying back stock versus bonds at this point?
Frank Hanagarne
It’s a capital allocation issue and we had lots of spirited discussion internally on that, but in this liquidity preserving environment that we’re in right now while our stock price looks extremely attractive, buying back bonds and pairing back that cash interest commitment at this point just seems like the prudent thing to do.
Unidentified Analyst
Great. Thank you.
Operator
(Operator Instructions) Your next question comes from the line of David [inaudible] from Jefferies. Your line is open.
Unidentified Analyst
Hey, good afternoon guys. You mentioned earlier in the call that you are looking to spend some CapEx dollars to try to reduce costs.
Just wanted to kind of get a better sense on how much of that CapEx plan relates to lowering costs and how much can you actually lower cost by on either a silver ounce equivalent basis or how you want to think about it?
Mitchell Krebs
I’ll take a crack at that. If you think about the three mines I talked about over the next couple of years Rochester, the capital to go in there would be primarily for expansion of leach pad capacity.
And a lot of the capital that has already been invested there to drive the kind of efficiencies that we’re seeing there on a unit cost basis. But Rochester – that would be for Rochester probably over the next couple of years of combined $70 million to support the kind of lower cost profile that we now are enjoying there.
At Kensington the cost to develop this higher grade material that we’ve talked about and get into the mind plan over the next couple of years is probably about $50 million and that’s designed into drive cost reductions from what has been kind of a plus $1,000 announced cash cost profile to something that starts with an eight on the cost. And then at down at Palmarejo I mentioned what we’re doing there is really the Guadalupe development over the next couple of years ‘15 and ‘16 you could earmark about $40 million for that and that’s designed to drive the cost down there along the lines that we’ve laid out even in that July mine plan that we’ve disclosed that can get ultimately I think in that plan we show cost on as per silver equivalent and ounce basis getting down into the single-digits there.
But when you kind of roll that altogether then I have made the comment about our goal is that in 2017 getting those all in sustaining cost down 15% to 20% from where they were say last year is what the objective is by deploying this capital in those ways. Does that help?
Unidentified Analyst
Yes, I think it does. So if I think about all in sustaining costs I think you guys are talking about some so in 2015 I don’t have the number in front of me, but I want to say something like $19 or $20 an ounce of that rate?
Mitchell Krebs
Yes it’s about right.
Unidentified Analyst
Okay. So that’s essentially shaving off 3 to 4 bucks an ounce.
Okay, that’s very helpful. And then with respect to the percentage of your book that’s hedged I mean it seems like it’s about a third for silver little bit more gold for the next couple of quarters.
Have you thought about potentially monetizing those hedges concerning where silver and gold are right now just potentially capture some upside or is that?
Frank Hanagarne
We have looked at that and bigger percentages are correct.
Unidentified Analyst
Okay. Perfect.
I think those are my questions. Thanks very much.
Mitchell Krebs
Thanks David.
Operator
There are no further questions at this time. Mitch Krebs I turn the call back to you.
Mitchell Krebs
Okay. Well thank you everybody.
Appreciate your questions and you’re take the time to dial in today. And we look forward to speaking with you I guess in early 2015 to discuss our fourth quarter results and our full year 2014 results.
So thanks again for your time.
Operator
This concludes today’s conference call. You may now disconnect.