Oct 30, 2014
Executives
Cindy Burnett – Vice President, Investor Relations and Communications Darren Pylot – President and Chief Executive Officer James Slattery – Senior Vice President and Chief Financial Officer Gregg Bush – Senior Vice President and Chief Operating Officer
Analysts
Tom Meyer – CIBC World Markets Inc. Ralph Profiti – Credit Suisse Alex Terentiew – Raymond James Ltd.
Mark Turner – Scotia Capital Inc. Sasha Bukacheva – BMO Capital Market Oscar Cabrera – Bank of America Merrill Lynch Cliff Hale-Sanders – Cormark Securities Inc.
Stefan Ioannou – Haywood Securities, Inc. Peter Campbell – Jennings Capital Inc.
Operator
Good morning, ladies and gentlemen, and welcome to the Capstone Mining's Third Quarter Results Conference Call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) This call is being recorded on Thursday October 30, 2014.
I would now like to turn the conference over to Cindy Burnett, Vice President of Investor Relations. Please go ahead.
Cindy Burnett
Thank you. I'd like to welcome everyone on the call today.
The news release announcing Capstone's 2014 third quarter financial results is available on our website, along with a PowerPoint presentation that contains summary information on the company and our financial and operating results. This quarter we are introducing webcast slides to accompany our commentary today, which can also be done on our website.
With me today are Darren Pylot, Capstone's President and CEO; Jim Slattery, Senior Vice President and CFO; Gregg Bush, Capstone's Senior Vice President and Chief Operating Officer; and Rob Blusson, Vice President of Finance. I would like to advise you that this call is being recorded for replay through our conference call provider, and is being broadcast live through an Internet webcast system.
Comments made on the call today will contain forward-looking information. This information by its nature is subject to risks and uncertainties, and actual results may differ materially from the views expressed today.
For further information on these risks and uncertainties, please see Capstone's relevant filings on SEDAR. And finally, I'll just note that all amounts we will discuss today will be in U.S.
dollars, unless otherwise specified. Now I'll turn the call over to Darren Pylot.
Darren Pylot
Thanks, Cindy, and good morning, everybody. First, Jim will review our financial results for the third quarter, followed by Gregg, who will update you on operations.
We will also update you on our development projects and corporate activities, followed by your questions. I'll now turn the call over to Jim.
James Slattery
Thanks, Darren. Earnings from mining operations at $31.4 million were 130% higher than the comparative quarter one year ago.
Profitability at Pinto Valley continued to be the major contributor, where we posted earnings from mining operations at $23 million, with Cozamin contributing $16.3 million from mining operations. Strong performances at both these mines were partially offset by an operating loss at Minto, a result of an inventory write-down as well higher depreciation and amortization charges.
Our adjusted EBITDA for the quarter was $70 million, or $0.18 a share, an increase of $48.7 million, are almost – or over two-time as compared to the $21.3 million in the third quarter of 2013. For the year-to-date period adjusted EBITDA was $191.2 million or $0.50 a share as compared to $74.1 million, or $0.20 a share in the comparable period for 2013.
Operating cash flow before changes in working capital represented a new high of $57.1 million, or $0.15 a share for the quarter, and $162 million, or $0.42 a share year-to-date. Now turning to operating costs, both Cozamin and Minto are running below their cash cost guidance from year-to-date, with both of mines well positioned to meet or beat their respective full-year cost guidance for 2014.
At Pinto Valley, our C1 cash cost per pound was $1.90 for the third quarter, an improvement of $0.23 from 2013 realized in the second quarter, bringing our year-to-date cash cost at Pinto Valley to $2.03 per pound. The third quarter performance is starting to reflect the results of the programs we are implementing to stabilize the operation and continue to transition to Capstone’s operating model.
We expect to coming at the high-end of Pinto Valley’s full-year guidance of $1.90 per pound to $2 per pound. Turning to our balance sheet and cash position, we ended the quarter with $176.1 million of cash and $295.2 million of total debt, reducing our net debt – and reduced our net by almost $60 million during the quarter to $121 million.
In addition, on (inaudible) payment of $22 million was made reducing our total debt down to $273 million. We also tested the high yield market with an opportunistic notes offering for $300 million during the quarter.
So, now I’ll turn the call over to Gregg to talk about our operations.
So, now I’ll turn the call over to Gregg to talk about our operations.
So, now I’ll turn the call over to Gregg to talk about our operations.
So, now I’ll turn the call over to Gregg to talk about our operations.
Gregg Bush
Thanks, Jim. From an operational perspective we had another solid quarter and are on-track to meet our full-year production and cost guidance.
We continue to improve the operational continuity at Pinto Valley and have increased throughput each quarter. Our team systematically moving through those for improvements and changes we like to make in priority order.
Bringing our operating cost in the line with our guidance, and Pinto Valley was a major priority for us this quarter. With all of the one-time transition and adjustment cost out of the way we’re much closer to having all of our processes and procedures in line to Capstone’s operating model.
The team at the site has succeeded in implementing good maintenance routines for most of the key operational components in the plant and are well on our way to achieving target availabilities. The mine has removed the remaining water from the bottom of the pit and are implementing systematic pit dewatering and water management programs that will ensure safe and predicable operations in the mine moving forward.
While there had been important improvements in all areas, we still have a lot of hard work in front of us. In the coming quarter we will continue to optimize maintenance procedures in the plant and mine.
We will focus on continued improvement in fleet productivity. Another big push for Pinto Valley in the third quarter was the rebuilt of the molybdenum circuit in order to take full advantage moly by-product credits.
So far, we have only been getting about 20% of the moly production that we had planned. We took the decision to shut down the plan for two months during the quarter and re-commissioned it by quarter end.
So with the plant now refurbished and with smoother operations coming from the copper circuit we expect significantly better performance out of the moly plant going forward. Also in the quarter we took delivery of first of two new hydraulic shovels identified in the PV2 mine plan.
That shovel was fully operational in September and second shovel is expected to be up and running by mid-2015. These shovels will increase productivity and reduce mining costs at Pinto Valley.
At Cozamin we had another solid quarter with both cost and production on plan and we continue to forecast mining meeting full-year production – or guidance on production and meeting or beating cost guidance. We placed particular emphasis on bringing all the working areas in the mine up to our new rock support standards, which is reflected and slightly lower grade during the quarter, but was offset by higher throughput.
This push is now been completed and we rapidly catching up on grade that coming into the fourth quarter. At Minto, we are seeing some cost efficiencies, we’re innovating underground methods has it have allowed us to move to long haul mining in underground areas, where we anticipated room and pillar mining.
This is expected to result conservative around 10% to 15% savings in underground mining cost over the entire life of the mine. The water use license for the next stage of mining in Minto including the Minto North Deposit is awaiting a hearing date.
Recent discussions with representatives from the water board staff indicate that we could expect the amendment in the first quarter of 2015, which will be followed by approximately seven months of stripping. This is consistent with the timeline anticipated in our September news release from Minto.
I will now turn the call back over to Darren.
Darren Pylot
Thanks, Gregg. The most significant milestone for us this quarter was reducing costs at Pinto Valley.
We had a good quarter there, positioning us to coming at the high-end of our full-year guidance at Pinto Valley of the $1.90 per pound to $2 per pound. We still have opportunities before us, implementing some in the third quarter such as continuing to optimize the moly circuit to capture the full by-product credits there.
We are also moving forward on the PV2 mine plan activating one of the two hydraulic shovels, which will increase productivity in the mine. We’ll continued to work through other cost reduction opportunities in Q4 and beyond.
We recognized that we must continue on the path for improvement that we’ve set for ourselves at Pinto Valley and are working closing with team there on continuous improvement and change management. Within the quarter both Cozamin and Minto continued to operate according to plan.
And moving forward we’re advancing on internal PV3 study, which is a potential extension of operations at Pinto Valley beyond the current 12-year mine life. We’re evaluating a number of throughput scenarios and tailings configurations, which we will narrow down and select an option or options by year-end to take forward into a pre-feasibility study next year.
At Santo Domingo we responded back in July to the approximately 650 questions that we received from authorities as the first addendum to the EIS. In September, we received the second request which was reduced down to about 175 questions with a submission deadline of December 15.
So this reduction in questions keeps us on track for approval in early 2015, which is the next stage gate to advance the project. The core concession remains tending and a challenge by a third-party was overturned in the third quarter, clearing the way for final granting of our concession which we expect by the end of this year.
On the power side, we’re seeing more and more blocks of power become available and the projected long-term marginal crisis continuing to decline. We are continuing to negotiate the power purchase agreement with a single power provider.
Also in the quarter we advanced our construction strategy, the tender packages going out and bids for both EPC and EPCM options due back in the fourth quarter. We plan to complete the process and award a notice to proceed with the next stage focused on advancing engineering and permit application development in the first quarter of 2015.
But there has been no change though in our plan to advance Santo Domingo in very measured and disciplined stages, continuing to balance the advancement with the appropriate amount of risk for the company. I’ll take a minute to provide an update on the Kutcho sales process.
You will note that we took an $8.6 million write-down on the value of the asset in the quarter to align our carrying value with our assessment of market price. While the process remains ongoing we do expect it to be delayed, pending further clarity around the plumbing requirements in DC as a result of the recent Mount Polley tailings dam failure.
To address questions we’ve been hearing on the high yields, I want to take a moment to elaborate on Jim’s comments about the high yield bond that we announced and subsequently discontinued. I’ll reiterate that this was being pursued purely on an opportunistic basis.
We have always said that we would only issue high yield bonds under optimal conditions. Market conditions deteriorated during the week following our launch and conditions were definitely not optimal, so we decided, the best course of action at that point in time was not to proceed.
We continue to believe that it makes sense to term out the debt used to acquire Pinto Valley, aligning it – align the maturity more closely with the extended 12-year mine life but not at any price. We will continue to monitor the high-yield market, as well with other debt options and if the appropriate window opens up we will take advantage of it.
We’ve also heard from some investors that they are concerned about issuing equity, we want to clearly state that equity is not being considered as an alternative to the high-yield financing. With our current liquidity, very low cost of financing that’s already in place, availability under our existing credit facilities, strong operating cash flow and no immediate use of proceeds we are under no compulsion to access either debt or equity markets at this time.
In closing the major milestones for us this quarter was the progress we made on operating cost at Pinto Valley. Looking forward for the balance of the year our focus is on: one, continuing to optimize on lower cost at Pinto Valley; two, advancing the permitting of Minto North; and three, advancing the EIS, core concession and power at Santo Domingo.
Operator, that concludes my prepared remarks. We’re now ready to take questions from the floor.
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
(Operator Instructions) Your first question is from Tom Meyer, CIBC. Tom, please go ahead.
Tom Meyer – CIBC World Markets Inc.
Thank you. Good morning.
My question is on Pinto Valley and with the commissioning of the new shovel. I’m just thinking what are – what bottlenecks will there be with this new shovel.
Are you still constrained or – not to say constrained, I’m just trying to word, but are you mine limited or is it still mill limited in your ability to increase throughput?
Gregg Bush
The shovels are intended to increase productivity and reduce cost in the mine are the bottleneck at Pinto Valley. It has been and continues to be the mill throughput capacity.
Tom Meyer – CIBC World Markets Inc.
And that relates to more for just keeping maintenance and consistent operations is that the issue with the mill throughput?
Gregg Bush
Well, I mean, that the plant – that it’s a fairly – it’s a fairly old plant. And in over the years it’s been systematically debottlenecked.
The plant is running reasonably well right now and that obviously we like the availability to be a bit higher but we are approaching, we’re approaching the number that we anticipated we’ll be getting for throughput. So…
Tom Meyer – CIBC World Markets Inc.
All right, so what measures or the bigger impact projects to get to where you ultimately want to be and perhaps a little bit beyond in development?
Gregg Bush
Well, I mean, we’ve been kind of systematically grinding through a number of – I would say, maintenance or reliability related issues. And they gotten through – yes, I’d say they gotten through most of those, particularly with the larger – with the larger compound that’s in the plant.
So the – I think the rock in our shoe right now is probably cyclone pump availability. We’ve had a number of issues with some aftermarket and colors.
So getting very poor life out of those and I would say the other thing is the conveying systems. We had a lot of reliability issues around those and – those are a matter of working through and getting the right wear parts in place and the maintenance routine.
So we’re pleased with where things are going.
Tom Meyer – CIBC World Markets Inc.
Okay. Thanks.
I’ll leave it there.
Gregg Bush
Thank you. Your next question is from Ralph Profiti, Credit Suisse.
Ralph, please go ahead.
Ralph Profiti – Credit Suisse
Jim, with respect to your comments on debts, and equity, and funding, has there been any thought given to extending the silver stream agreement at Cozamin. Is that something that you are open towards a potential source of funds?
I don’t see you’re needing it but there is a potential valuation arbitrage to realize.
James Slattery
Ralph, the silver stream I believe expires in April of 2017. So at this point in time, yes, there is no – we’re not contemplating at all extending any stream at Cozamin for further credit.
And obviously mines get older and you go deeper in the ore-body, costs are going to increase. So we see that silver stream coming in as a major contributor to revenue at Cozamin as we get into the deeper mine life there, so not contemplating to extend that stream.
Ralph Profiti – Credit Suisse
Okay. Great, thanks for that.
And if I can ask a question regarding within the stage-gate decision process at Santo Domingo, where do you see fitting in an agreement to find a counter-party to take on the port and iron ore off-take agreements?
Darren Pylot
Dealing with the port it is not – we don’t think that that is something that’s going to be pivotal in the project decision making. The port itself right now is – it doesn’t exist and in order to get a partner in there you might create some of the capital.
But there is a significant valuation difference between what you can get to the port today with the (inaudible) project risk, single customer risk and in unproved market versus say three years after you’ve launched the project and you dealt with all those risks, I think you get significantly higher value at that time. So we don’t really think that there’s going to be a lot of – that there’d be a great value accretion by trying to enter into a partnership on the core at this particular point.
It isn’t to say that we aren’t continuing to explore that opportunity but it’s not something that’s going to make or break the project.
Ralph Profiti – Credit Suisse
And what about the iron ore, kind of same thing in terms time-line, later dated?
Darren Pylot
Well, the iron ore is obviously something we need to have and we will want to have iron ore off-take agreements for most, if not all of the iron ore that’s produced from Santo Domingo before we make a go decision on construction. We do not expect that there will be – there are going to be – if any streaming opportunities with iron ore the amount of iron that we’re suggesting is very small, that will be produced very small in the global context.
So it’s – what we will have (inaudible) is probably – and it would be a critical point in taking a decision to go forward, it’s not something that’s going to have an impact on the financing.
Ralph Profiti – Credit Suisse
Understood, got it. Thanks very much.
Operator
Thank you. Your next question is from Matt Murphy, UBS.
Matt, please go ahead. Mr.
Murphy, your line is unmuted. Moving on to the next participants, Alex Terentiew, Raymond James.
Alex, please go ahead.
Alex Terentiew – Raymond James Ltd.
Hi, guys. It’s nice to see cost at Pinto Valley come down substantially from the previous quarters.
Do you think there is room to get cost on the dollars per tonne basis, at least, beyond that numbers lower than the $11.15 you had in Q3, and if so what's your target there?
Gregg Bush
Going forward that’s – I think, that number is, our target, we are expecting to see great declines somewhat in the future from where they were in this quarter. So I would say, we still have a bit of work to do on the costs, but if you look into this unit cost curve, Q3 looks like what we are looking for longer-term.
Alex Terentiew – Raymond James Ltd.
And I guess from a cash costs perspective, grades come down to costs, other improvements can that at $1.90, but you mentioned the additional shovels intended to increase productivity and reduce costs. And I just wondered if those things that are still that you can do to combat the decline in grade and keep cost on a, I guess on a dollar per pound basis of plus 90, so…
Darren Pylot
Well, Alex, as you mentioned, to shovel those, one thing is going to create lower cost in the mine. And the second one, we talked about in the call was the optimizing that moly circuit.
We're really getting 20% of what we budgeted for the moly credit, so we have had to make that up on reduction of cost. So if we get the full moly credit, and we keep as Greg, mentioned, we keep unit costs at or below expected to grow with the shovels, where we're standing, we think we will be obviously in – moving in the right direction.
I mean, there is always room to lower cost and not worried of that, we are always going to continue to do so.
Alex Terentiew – Raymond James Ltd.
Darren Pylot
Well, there’s not a lot we can see around the negotiations, but what I can say is, typically it has been a three-year geo at Pinto Valley, which expired – was due to expire last year, right after we took in July of 2013, when we took over the mine, so we extended it for one year. So we are in negotiations now, they are going as expected.
There is a number of other negotiations that the same unions are dealing with at other mines. So we are kind of dealing with the other mines as well.
So things – but I want to reiterate, things are going as expected and things are going very well in Pinto Valley.
Alex Terentiew – Raymond James Ltd.
Okay, thanks. And just one last quick question if I may, on the high-yield offering that wasn’t completed due to, when you say, suboptimal terms available in the market.
Can you give us a bit of color on, what sort of terms you are looking for?
Darren Pylot
I think that, I guess, the way to describe that, Alex, is, we were into that that weeks of operating that with a price stock in the very low seven range, and within three or four days, it was a lot closer to the eight. So it increased so much in a short amount of time that, we obviously felt it was an optimal amount, where the market is going forward is obviously is the reality of what's going on today.
So we obviously evaluate that as we move forward, but I think, we are looking at somewhere between – somewhere lower than a 8% coupon rate for sure.
Alex Terentiew – Raymond James Ltd.
Okay, great. Thank you.
Operator
Thank you. Your next question is from Mark Turner, Scotiabank.
Mark, please go ahead.
Mark Turner – Scotia Capital Inc.
Yes, thank you. I guess, most of my questions have been answered.
So just maybe quickly back on the Pinto Valley with the shovels coming on, just want to make sure that I sort of understand it correctly. With the shovel coming on sort of this year and then early next, obviously, efficiencies in the mining, but that’s not going to be offset on a like per tonne moved or per tonne mine basis with like longer haul distances or waste business, is there anything like that?
I mean, obviously all ore price and everything else equal?
Gregg Bush
No, it’s – I mean, there are – there is a peak in movement in the mine over the next couple of years as we do this pushback. So I think some of those savings you see is kind of eaten up by higher tonnes moved in the near-term.
Mark Turner – Scotia Capital Inc.
But generally all else equal we should see, it actually translates to a lower per tonne for mine cost?
Gregg Bush
Yes. But this eaten mines, the numbers was published in the PV2 study contemplated the shovels.
Mark Turner – Scotia Capital Inc.
Right. Right now I guess those trend to compare more to like the $2.75 sort of average so far this year, but it looks like you did in Q3 here.
And I guess, most of my other questions are on the costs at PV had been answered, just more of a general cost or general question, lots of weather occur you talked about given the market now that whether it’s – so capital cost deflation in terms of the inputs for fuel or just on the engineering cost of work side, given that you are in the early stages of the EPC and EPCM, so tender process at Santo Domingo. Are you actually seeing any of those directly comes through and maybe some of the bids coming back versus where Santo Domingo was priced at?
Gregg Bush
Yes, I'm glad, you asked, I’m glad somebody noticed the cost barrel may be changing. We're kind of routinely up there, our capital estimates for Santo Domingo.
And we are seeing that, I would say, they are not seeing a great deal of retrenchment yet, but certainly the inflation seems to come to the haul.
Mark Turner – Scotia Capital Inc.
Great, thanks. Look forward to the update on that – on that progress.
Operator
Thank you. Your next question is from Sasha Bukacheva, BMO Capital Market.
Sasha, please go ahead.
Sasha Bukacheva – BMO Capital Market
Thank you. Just one item in Pinto Valley, noticed there was inventory adjustment of negative $2 million, which is quite high, because it’s about 20% of the production cost.
So just wondering, what's driving and how should we think about the methodology of calculating that going forward?
James Slattery
Sasha, that inventory adjustment just relates to a drawdown in some of the concentrate inventory balance that it builds up previously over the course of the year. So it’s getting back to, I guess, a first-year of operations and understanding what our shipments will looks like.
And so that’s certainly something that we will normalize over time, and I wouldn’t expect it would see a large inventory adjustment going forward.
Sasha Bukacheva – BMO Capital Market
So do you still expect, I mean, should we expect further adjustments in Q4, or has that been normalized?
James Slattery
No, I suspect, it’s actually been normalized at this point.
Sasha Bukacheva – BMO Capital Market
Okay. Thank you.
That’s it from me.
Operator
Thank you. Your next question is from Oscar Cabrera, Bank of America Merrill Lynch.
Oscar, please go ahead.
Oscar Cabrera – Bank of America Merrill Lynch
Thanks, operator. Good afternoon, everyone.
I'm interested in your comments coming from Santo Domingo with respect to power, you talked about more blocks available, could you just provide more description on what you mean all around it please?
Gregg Bush
Well, I guess, what we're seeing is that, some blocks of conventional power have become available over the last, I would say, six months, that – something we hadn’t seen since we started working on the project. So just to further indicate, I think, it’s – I think what we are seeing is, an expectation that the marginal costs are – come in the line with what we assumed long-term.
Oscar Cabrera – Bank of America Merrill Lynch
Okay. And with respect to the questions that you got on the second submission, is there any common themes or any new things that now could be your concern?
Gregg Bush
Oscar Cabrera – Bank of America Merrill Lynch
Okay. And then just a couple more quick things on the same, but you talked about probably better availability in skilled labors in A team as opposed to the C team and some of the subcontractors and construction companies?
How – in your estimates previously now what sort of effective tax rate are you seeing in – do you see any meaningful differences in – for the work that you’ve done so far?
James Slattery
The effect tax rate now ensures that the Tier 1 tax is 27%, and the Tier 2 was 35% minus 27%, so it’s – that’s been promulgated into lot. The DSS that we published as we estimated that was going to be 25%, that that was the best estimate at that time.
The impact is relatively minor in the – on the NAV of the project, but that’s where the taxes are right now.
Oscar Cabrera – Bank of America Merrill Lynch
I mean, does your 27%, that does include withholding tax, correct?
James Slattery
Well, that’s the in-country tax. It does not include withholding tax, no.
Oscar Cabrera – Bank of America Merrill Lynch
Okay, great. Thanks very much.
Operator
Thank you. Your next question is from Cliff Hale-Sanders, Cormark Securities.
Cliff, please go ahead.
Cliff Hale-Sanders – Cormark Securities Inc.
Hi, good day. Just a couple of quick questions, most of them have been answered.
But at Pinto Valley, just wondering, if you could give us a little color on what level of improvement you really expect from the moly circuit, if it was running at 20%, given the issues that you’re encountering, should we expected to go to 50% to 60% relative to initial expectations or perhaps better? And the second question just on Minto year-to-date, you’re well under guidance as you alluded to, do you really expect a significant uptick in Q4, or would Q3 be a good guide just that we know where you stand there?
Darren Pylot
Okay. Well, with respect to the moly plan, we expect it to ramp up to 100% of what our expectation was.
It’s – the reason it was 20%, the highest, there were two factors, but by far the largest was the plan simply didn’t operate that often, because of the mechanical issues in the plan. So we’ve got that result now, the remainder of the improvement will just – will come as they primarily through steadier operations in the copper circuit.
The moly plan takes time to build an inventory, so it operates properly. So if you have lots of interruptions in the circuit feeding and then we have a hard time making products (inaudible).
So – and sorry, could you repeat the question on Minto?
Cliff Hale-Sanders – Cormark Securities Inc.
Just before you – I guess just what I want to make sure at Minto, there is no real issues that you saw was really just the mechanical operate that needs to be addressed?
James Slattery
Yes, yes.
Cliff Hale-Sanders – Cormark Securities Inc.
Okay. At Minto, I just wanted to get a little color on where you expect cost going, obviously, you are well below your guidance range for the year, again, where you saw in Q3, and you talked about us 10% to 15% cost savings using long haul versus room and pillar.
Should we expect that to be sustainable in Q4, or is there just a little bit of upward creep.
James Slattery
Well, I think, the savings in the underground mining costs, we expect to be able to maintain those. But our mine plan now for Q4 looks different than what we had originally anticipated, and I would expect it to be somewhat higher costs than what we originally planned.
Cliff Hale-Sanders – Cormark Securities Inc.
Okay. In other words don’t extrapolate Q3?
James Slattery
Yes.
Cliff Hale-Sanders – Cormark Securities Inc.
Okay.
Operator
Thank you. Your next question is from Stefan Ioannou, Haywood Securities.
Stefan, please go ahead.
Stefan Ioannou – Haywood Securities, Inc.
Thanks so much, guys. I guess, most of my questions have been answered as well.
But I could see cost down on PV. I'm just wondering (inaudible) maybe just a follow-up on question just on the moly circuit, you mentioned in the MD&A just sort of alluded to the fact that you’re going to keep an eye on the moly price, and obviously the head grade as function as to whether or not, you keep in moly circuit actually going.
Do you have a feel yet sort of moly price might be the break-even moly price required to keep that thing going?
Gregg Bush
Not all the time. No, it’s not something that we considered – we haven’t considered shutting it down.
Stefan Ioannou – Haywood Securities, Inc.
Okay, okay. And then just in the Cozamin, as you go into next year, how much drill gas you plan to do from service in terms of the exploration step out, you have this additional ground now, is it going to be a big program, or what should we expect there?
Gregg Bush
Well, we are still working on our budgets for next year.
Stefan Ioannou – Haywood Securities, Inc.
Okay. Thanks so much, guys.
Operator
Thank you. Your next question is from Peter Campbell, Jennings Capital.
Peter, please go ahead.
Peter Campbell – Jennings Capital Inc.
Good morning, everybody. Thanks for taking my phone call.
I'll be brief, just two really quick questions here. The first one is, with the move towards long haul at Minto away from room and pillar mining, is there any risk of additional dilution?
Gregg Bush
No, no, it’s a – it's actually – it’s kind of a neutral effect on dilution just because of the orientation that they were buying.
Peter Campbell – Jennings Capital Inc.
Okay, that’s helps me, fine. Thank you.
And then my final question is, I guess, it’s for Jim. Deprecation in the quarter seemed higher than what we were expecting, were there any special circumstances that might account for this.
James Slattery
Other than that related to Pinto Valley, there is a depreciation and completion associated with Minto, but no special circumstance, nothing that we had anticipated.
Peter Campbell – Jennings Capital Inc.
Okay.
James Slattery
They are based on what was produced during the quarter.
Peter Campbell – Jennings Capital Inc.
I see, I see. Okay, that’s all that I have.
Thank you very much.
Operator
Thank you. (Operator Instructions) There are no further questions at this time.
Please proceed.
Darren Pylot
Great. Thanks, operator, and thank you everybody for joining us on the call today, and obviously please don’t hesitate to contact us with any additional questions you may have.
Thank you.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.