Oct 29, 2015
Executives
Cindy Burnett - IR Darren Pylot - CEO Jim Slattery - CFO Gregg Bush - COO Rob Blusson - VP Finance
Analysts
Mark Turner - Scotiabank Alex Terentiew - Raymond James Sasha Bukacheva - BMO Capital Markets Stefan Ioannou - Haywood Securities Gary Lampard - Canaccord Genuity
Operator
Good morning, ladies and gentlemen, and welcome to the Capstone Mining Third Quarter 2015 Financial Results Conference Call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question [Operator Instructions].
I would now like to turn the conference over to your host Cindy Burnett, 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 2015 third quarter financial results is available on our Web site, along with an updated corporate presentation, with summary information on the Company and our financial and operating results. Also on the Web site are webcast slides to accompany our commentary today.
With me today are Darren Pylot, Capstone's President and CEO; Jim Slattery, Senior Vice President and Chief Financial Officer; 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. 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
Thank you, Cindy, and good morning, everybody. Jim will lead off with a review of our financial performance, followed by Gregg, who will provide an update on our operations.
We will also provide an update on our development projects and corporate activities, followed by your questions. I'll now turn the call over to Jim.
Jim Slattery
Thank you, Darren. We recorded a net loss for the third quarter of $216 million which included a loss from mining operations of $23.8 million, non-cash impairment charges of $199.2 million, and restructuring cost of $2 million, all directly or indirectly a result of weaker metal prices.
The collars that we put in place to protect our capital program generated a gain of $11.1 million for the quarter, of which $5.7 million was realized. Operating cash flow before changes in working capital was $9.2 million for the quarter and $47.6 million year-to-date.
With copper prices deteriorating during the quarter, we took a number of additional steps in early September to preserve our financial flexibility and to ensure that we remain within our debt covenants. We reduced 2015 capital expenditures by about $20 million and reduced mine site operating cost by $20 million as well over the second half of the year.
We also took the decision to suspend development work on our Santo Domingo project in Chile downsizing our offices in Santiago and Diego de Almagro. These activities when combined with the no cost collars and price fixing that we implemented earlier this year will help ensure that we can maintain the value of our current operations and remain in compliance with all our covenants through 2015 at most conceivable prices for copper.
Now in a response to questions and requests from a number of analysts and investors, we’ve done some calculations to answer the question how low does copper has to go before you run into covenant issues. Now we’ve been reluctant to give a single definitive copper price because of the number of assumptions that are required in the volatility of the current market.
But having said that, we’ve used our corporate model and our cash cost and production as guided and can say that if the copper price averaged $2 per pound in the fourth quarter we would just hit our three times covenant at the end of Q4 2015. Now note that it’s been about $2.35 for the month of October, so for November and December we’d have to average something in the range of around $2.18 pound to run into any kind of covenant issue.
In 2016 using the same approach we expect to remain in compliance with all of our covenants, were copper to stay at current level during the last quarter 2015 and average only $2.20 per pound for the first half of 2016. In the second half of next year, we would remain in compliance down to an average price per copper per pound of $1.85 as we will be receiving a significant lift from the high grade Minto North production.
Now please note that these are directional indications only and are subject to all kinds of assumptions and disclaimers, but they should I think provide some assurance as to our financial position. Now in the event that the market gets worse and stays there for longer, we’ve outlined in the MD&A a number of other steps that we can take if required to get through the trough.
We don’t expect to have to take any of these steps but are making sure that we are well prepared if market conditions warrant them. If required we expect that we’ll have several quarters of visibility to put them in place before they become necessary.
And at this time, we’re confident this provides us with more than enough room to manage ourselves through this phases of the cycle. Now one point that I would like to make is that there is a difference in the disclosure relative to our debt covenants between the financial statements and the MD&A.
The MD&A contains reference to a tangible net worth covenant for purposes of the testing of our revolving credit facility, that covenant, that is an error and that will be corrected. When we renegotiated our revolving credit facilities beginning of this year, we eliminated the tangible net worth requirement so that the disclosed that’s in our financial statements is in fact the accurate disclosure.
There is no tangible net worth covenant for Capstone. So given the expected operating cost reductions for the second half of the year that Darren alluded to, we’ve lowered our 2015 C1 consolidated cost guidance to a range of $1.95 to $2.05 per pound of copper produced.
Costs in the third quarter were $1.98 per pound and $2.05 year-to-date. So we’re closing in production back on track, the higher scheduled Q4 graded Pinto Valley and throughput at Pinto Valley moving up, we’re comfortable with this new full year range.
Now I’ll turn the call over to Gregg for our operational update.
Gregg Bush
Thanks Jim. Production for the quarter met our expectations and we made excellent progress at Pinto Valley where we believe we have fully turned the corner.
In September we set a monthly throughput record of 52,400 tons per day and so far in October our mill throughput is averaging 55,000 tons per day. We had some challenges in August, but we identified and corrected the root causes and lingering issues that were plaguing us in the primary crusher and the core short [ph] and vein system.
While we did not have the crushed inventory to take us through back to back outages that occurred early and that we experienced early in August, the quarter saw significant advances in both maintenance planning and plant compliance. Also a number of chronic problems in the fine crushing plant were addressed during July and August as well that have enabled us to both build stock pile inventory to sustain the mill throughput during planned maintenance days in the crushing plant as well as to recover inventory from unplanned outages which are occurring much less frequently.
These improvements and modifications were all completed as operating expenditures during the quarter and are reflected in elevated cash cost of Pinto Valley for the quarter compared with our expectations going forward. The asset reliability program is progressing as planned and we are now pushing these initiatives into lower priority areas of the plant to target optimization opportunities and better process control and flotation performance.
In addition, the improvements realized in the maintenance reliability have been accompanied by improvements in the operations team understanding of the plant’s capabilities. This success is achieved thus far in improved reliability and efficiencies have led us to the conclusion that our initial expectations of sustaining 52,000 tons per day were conservative.
This has been part of what’s contributed to our plant to reassess the best path forward with PV3 expansion opportunity. At Cozamin we’re also back on track catching up from the development shortfall we were experiencing earlier this year and making good progress with grade control.
At quarter end we had approximately two months of long hole stope ore developed and ready for drilling. Our target is to reach and maintain 10 to 12 weeks of developed inventory in multiple areas to allow for higher flexibility and continuity of mill feed in higher grade but less predictable footwall zone.
At Pinto we outperformed our plan for the third consecutive quarter as a result of significantly outperforming our plant throughput and better than expected grade from underground ore. And finally with receipt of the water use license in August we immediately began stripping the Minto North pit and are well on track to have work to the mill starting in December.
High grades start to hit in the second quarter of next year with grades significantly ramping up in the second half of 2016. In the meantime, the mill will continue to process stockpiled and underground ore which will carry us through the transition with grades averaging slightly above 1% in the fourth quarter and steadily ramping up through Q1 and Q2 of 2016 and averaging over 2.5% for the second half.
I’ll now turn the call back over to Darren.
Darren Pylot
Thanks, Gregg. Our focus this quarter was to look critically across the Company and take the necessary steps to get through this period of low copper prices.
We made cuts and deferred spending in a way that doesn’t impact our existing operations and preserves the value and optionality of our development project for when market conditions improve. Along with the actions we have taken thus far to ensure compliance with our debt covenant.
We have significant additional levers that we can pull should they be required. As mentioned in our MD&A, we’ve had preliminary discussions with our lending syndicate to obtain temporary covenant relief should that need arrive.
Secondly, we’re exploring the option of arranging a prepayment financing on off-take commitments for copper. At any given time, we have in the range of $50 million worth of concentrate inventory moving throughout our system.
That could be borrowed against allowing us to move a portion of our debt from senior secured to unsecured where we have considerably more covenant room. And finally, while we don’t want to take this step, we could if necessary extend the silver stream at Cozamin beyond its current expiry date of April of 2017, which will generate an upfront cash payment in the range of $60 million to $80 million based on the current spot silver price.
We had much rather not because in 2017 when the stream expire we would receive the benefit of the full spot price for silver relative to the $4 -- roughly $4 that we get currently. However, even with the stream on Cozamin remains a very low cost mine on both C1 and on a total cost basis.
I also want to be clear on the copper price as it relates to our covenant. When we talk about copper having to average 2.20 per pound for the first half of 2016 for example I want to reiterate that this refers to an average copper price over the entire period.
The price can fall below 2.20 or any given day or period as well as the average for the quarter is at least $2.20. This quarter we also made some decisions around the best way to proceed with Pinto Valley PV3 expansion.
The PV3 PFS was originally targeted for completion in Q3. However as we advance the engineering work and obtain further production data, we believe the mill can run in excess of 52,000 tonnes per day for a little or relatively low capital.
We have determine that it makes the most sense to continue to optimize the operation and determine a maximum throughput that can be achieved prior to committing any capital. As a result, we have postponed the completion or release of the study until Q1 of next year, while we determine the baseline mill throughput in order to evaluate the best use of capital.
Regardless of the ultimate PV3 configuration, a significant mine life extension is anticipated and permitting work for an updated tailings facility has commenced. In closing, I’d like to say that we had a challenging start to the year with Cozamin behind on development and Pinto Valley struggling to achieve plan throughput rate.
But with improvements made both throughout 2015 both at Cozamin and Pinto Valley combined with the strong yearly performance to date at Minto we are setup well to achieve an operationally strong Q4. For the balance of the year or operating focus will be on sustaining the improvements in mill throughput at Pinto Valley and determine the operations full potential there.
Stripping the high grade Minto North on time and on budget and continuing with improvements at Cozamin. We remain focused on the careful management of our financial resources as our number one priority is to sustain our operations to this downturn.
While still allowing us to advance high priority items in our 2015 capital program in order to position the company for the future. We have manage our revenue well through our copper collars, take an actions to preserve our financial flexibility, have a contingency plan in place should copper prices fall further and remain confident about the ability of the company to withstand the current market.
Operator that concludes our prepared remarks and we’re now ready to take questions.
Operator
Thank you. Ladies and gentlemen, we will now begin a question-and-answer session.
[Operator Instructions] Your first question comes from Mark Turner, Scotiabank. Mark, please go ahead.
Mark Turner
Maybe Jim I’ll just start with some of the I guess the balance sheet and covenant questions, thanks for the disclosure I guess or update on the tangible network in the MD&A and then also the copper price work. One thing that I guess sort of surprised me a little bit was that you had drawn 25 million from the revolver in the quarter.
Even though, if you hadn’t drawn that your cash balance still would have been sort of above the 85 or around 80 million and net debt the same. Just wondering if there is anything I should be reading through on to why that was actually drawn down in the quarter?
Jim Slattery
No there is nothing specific to be read through that if we, as you said, as you pointed out, we’ve got -- it added to our cash balance so from an actual net debt perspective, which is what’s relevant for the covenant, it is though we didn’t drawn at all. And the amount of capital cash that we keep in the system is just mostly to ensure the efficient management of our treasury function.
Mark Turner
Okay. So nothing to retrace in terms of potential liquidity or changes to the revolver.
Second question, in terms of the EBITDA calculation, is there anything that maybe significantly different and how it’s calculated for the covenants and then maybe sort of financial analyst would be estimating EBITDA adjusting. Is there like the write-down in the quarter or excluded out of that.
Is there anything that we should be considering that might not be so traditionally, in that the banks so trying to look forward to get back to maybe the EBITDA as a cash flow metric?
Jim Slattery
No, it’s a pretty standard calculation for amongst most debt agreements, it’s on SEDAR incidentally and the definition is there, it’s on page 16 if you’re interest, but it’s very straight forward, there is nothing unusual and at all.
Mark Turner
Okay. My recollection was that there wasn’t anything -- now just I guess, I’ve heard some sort of concerns this morning on that.
Last sort of question, I guess on the balance sheet and then the cash management. Is there any view on [indiscernible] belt lined, I guess sort of potential longer term or medium term solutions if you require additional liquidity.
But what about additional short-term hedging in terms of copper puts and I guess and I guess I’m thinking more for the first half of next year, yes, it feels like 2.20 copper, but I guess that also assumes that every single smoothly with the ramp up and the stripping at the Minto North pit, just if something had been or maybe slightly delay therefore whatever reason, that’s your experience expression, to perform that type of thing. What sort of thought process around that?
Jim Slattery
We definitely would consider that we’re looking, we’re watching the market very carefully and to the extent that there was similar to in May this year that the copper jumped up to 2.80 and we pounced, and protected it at the value of 2.60 which was interesting for us to the extend, that if the copper were to spike up again and we were -- and the possibility of hedging, or putting in new cost collars at an attractive protection price, we would definitely consider that. It’s not something that we want to do on a longer term strategy basis, but to get through this period we would definitely consider it.
Mark Turner
Okay. Perfect, and just maybe switching gear and just one last set of question here, for Gregg the Pinto Valley throughput obviously it’s strong end to Q3 and then so far in October it hasn’t been really strong as well, so you’re mentioning the fine crushing circuit being able to build stockpile ahead of sort of downtime there, planned or unplanned.
Has that been the main bottleneck or I guess contributor to sort of the underperformance in the first three quarters of the year, I guess I’m just trying to look for more comfort that you feel, like you now nowhere know where [indiscernible], so you know that what you are dealing with in terms of trying to improve stability, whereas the pull is to, I think at the beginning of the year it was just sort of unclear, where or what to expect next from the operations?
Jim Slattery
Yes, Mark the -- I wouldn’t say that was the primary reason for the core performance in the first quarters of the year, but certainly it was -- there were sort of a negative synergy there between our the maintenance issue so we have poor reliability and then on top of that when it was running, it was running often times, not at full capacity with because of one problem or other. So we were unable to build up the inventory that we need in the system in order to do planned maintenance without interrupting our mill throughput.
So and then that was built on because we had so many unplanned outages, so that's why I think we’re very confident on where this is going to go going forward. It -- because they’re able to -- we’re able to follow the maintenance program very tightly and the capacity we’ve got now with the circuit, we can -- we go over the every planned outage with very high stockpiles, so we don't feel the impact in the grinding circuit.
Mark Turner
It seem like the more gains have been not just availability and online time, but then also been able to increase sort of the capacity while find crushing or other part of the circuit are actually running, you’ve been able to squeeze additional tonnes per hour suppose average tonnes per days?
Jim Slattery
Yes, certainly the crushing plants making much better product and it was as well, there were some issues there were, it was running and we were running at more or less the design tonnage, but it wasn’t producing an ideal feed for our grinding circuit, so there is a whole lot of thing, that kind of came together all at the same time, so that's why we’ve see such a dramatic increase in a short time.
Operator
Thank you. Your next question comes from Alex Terentiew, Raymond James.
Alex please go ahead.
Alex Terentiew
My first question is just a follow-up to one of Mark’s earlier ones, on the RCF drawing down the quarter, can I read through to this that maybe 100 million cash is kind of the -- your comfort level, as the money -- cash you like to have on the balance sheet?
Jim Slattery
That's a reasonable assumption, yes.
Alex Terentiew
Okay. Second question is more for Gregg, I guess, you noted the elevated cash cost or onsite cost at Pinto Valley during the quarter, due to some maintenance and repairs and some of the earlier work that happened, causing the cost to go up.
What do you expect cost if you can give it to me on per tonne basis, just to go down to going forward, I think at the end of last year there was kind of a $11 per ton target, I’m just wondering if that still the right number?
Gregg Bush
Yes, I believe slightly under that, I tend to think in unit cost per pound, so we’re targeting, for Pinto Valley we’re targeting number well below $2.
Alex Terentiew
Okay. So all right so that's like with all the treatment refining and byproducts?
Okay.
Gregg Bush
Yes.
Alex Terentiew
Okay. Well that's good, next question Kutcho, I saw that you removed that from the list of assets for sale.
I don't know if you can give us a little bit of color on this, but if you could I’d appreciated it. I just was wondering if there is a -- was there is a lack of interest in the asset or were the offers that you may have been getting just at an insufficient price, that you decide to keeping on hold, keep it on hand rather.
Darren Pylot
Yes, Alex, it’s Darren. There was some interest prior to the tailings failure in BC earlier in the year and then obviously the commodity market declined significantly over the summer.
So we decided to take it out of the process and not have it up for sale until the environment improves, so that was the reason behind it.
Alex Terentiew
That makes sense thanks and just one last question, if I may, this is on your write-down at Santo Domingo. Is your valuation for that asset still based on the original plan, or were you looking at the revised smaller plan?
I am just wondering with the write down, you still got a carrying book value of I believe around $429 million. So I am just trying to gauge what the prospects of additional write down on that asset in 2016 are?
Darren Pylot
The impairment calculation was based on the DFS or so on that published statement.
Alex Terentiew
And I think you’re using a $71 or so per ton iron ore, and I mean, I would guess your iron ore price forecast is the main driver behind your any sort of valuation write-down on that asset, am I correct?
Darren Pylot
Copper obviously has an impact as well, but yes like you said [multiple speakers], we used consensus prices and consensus assumptions.
Operator
Thank you. Your next question comes from Sasha Bukacheva, BMO Capital Markets.
Sasha, please go ahead.
Sasha Bukacheva
Jim if I start with you if I may. So is that correct to assume that after you negotiated tangible net worth covenant release, there are no other balance sheet covenants right now?
Jim Slattery
We didn’t -- there is no release per se, it was when we moved from the second amended restated revolving credit facility to the third amended restated credit facility in January this year, the negotiations with the banks, we eliminated the tangible net worth. So there is no negotiative relief in view of any current conditions.
It was just not in our agreement. There are no balance sheet tests other than as we said earlier, there is the interest coverage and the two leverage test and that’s it.
Sasha Bukacheva
That helps in terms of further impairments. The other question I had just to understand a little bit how you recognize the benefit of hedging?
Because from what I understand it doesn’t get included in your EBITDA line because I saw you reporting realized gains below, and then you credited the $7.3 million in actual cash proceeds in the financing cash flow. So I just wanted to understand if that’s what we should be expecting going forward and also if there might be an adjustment for EBITDA calculation for the purposes of covenant tests?
Jim Slattery
Best to my knowledge the calculation does not take into account derivative gains or losses.
Sasha Bukacheva
So EBITDA is as calculated assuming copper price at approximate spot?
Jim Slattery
That’s correct.
Sasha Bukacheva
And then I had a question for Gregg. I’ve read in your disclosure on Pinto Valley that you are looking to commence permitting for the dealings facility for mine life extension.
So I was just wondering where is the -- where -- have you already picked the location for the new dealings then?
Gregg Bush
We looked at a number of different locations, we’ve then settled on the best option as an expansion of the current TSF4, the main tailing stand that’s in use right now.
Sasha Bukacheva
And so how much volume do you think realistically you could accommodate there in terms of annual production, like how many years of production could you deposit there?
Gregg Bush
I think, I want to say it could take maybe another 250 million tons after the end of PV2.
Sasha Bukacheva
And then the other question I had since you did a lot of stripping because I guess you were planning on potentially getting ready for PV3, would that mean that we could see a lot less waste movement next year and therefore your operating cost could be below $11?
Gregg Bush
Well, an eventual PV3, the stripping for PV3 would really start to -- assuming we went forward with it, it would start to pick up in 2019-2020. But you always try to smooth your fleet requirements out, so some of it maybe -- could be pull forward.
Sasha Bukacheva
I guess what I am trying to get at, you haven’t really than any of the incremental work this year that might give you incremental benefit next year compared to the technical report that has been released?
Gregg Bush
No, I mean right now we’re essentially following our PV2 mine plan as it was published.
Operator
Thank you. Your next question comes from Stefan Ioannou, Haywood Securities.
Stefan please go ahead.
Stefan Ioannou
Most of my questions have been answered. But just maybe just curious just looking at Santo Domingo, there is still your share of capital cost this year and for Q4 is still $4.9 million.
Just wondering what that being spent on versus the steady state run rate of $2 million a year thereafter?
Jim Slattery
Stefan, that was more around just downsizing the office and restructuring and severance payments and just all around downsizing to be able to have that holding costs average that 2 million a year, next year. So it’s a one-time
Stefan Ioannou
Okay. So you had the costs obviously in Q3, but you expect more of those sort of costs in Q4 than, is what you’re saying?
Jim Slattery
No, they’ve all been expensed in Q3.
Stefan Ioannou
Okay -- because your guidance in the MD&A says that there is another 4.9 million to come in Q4, I read that correctly?
Jim Slattery
Okay. The cost of that studies that we had underway that we absolutely need to finalize before we get going, metallurgical studies.
We’ve got [indiscernible] plant studies going on. So things that just need to be wrapped up before we get to into that holding period, so it’s that.
Stefan Ioannou
Sure, okay. Fair enough that makes sense.
Maybe just when going back to Pinto Valley. Just I mean obviously talking about how things have improved a lot, which is great to see.
I mean I know one of the issues really on was to, which is a lot of restructuring and the labor early in the year getting more skilled people onsite. How is that going and then also how our things going with the unions in general?
Gregg Bush
Well we completed the restructuring in at the end of Q1. We haven’t had any issues related to that.
We’re gradually building a stronger team there, got some very good new people in. I would say that we’re still struggling I think a bit on some of the skilled crafts, we have been since the beginning and that I would expect to continue for a while.
But we’re managing around it, we’re tweaking our internal training programs and the way we’re structuring some of our support contractors. So that there is a training component to what they do.
So I think we have a plan to work through it. And as far as the relationship with the union or I should say more of the employees, with both I guess is good.
We’re not in a tense relationship with either the workforce or towards the new workers.
Stefan Ioannou
Okay. How are things going, is one of the contracts or multiple contracts still up for negotiation right now like, I mean that team that goes on process that was way past the dead line, but that was sort of norm anyways?
Gregg Bush
Well, yes, our contract is expired and we’re in a process, there are six constituent unions there, but they’re all consolidated under one barging unit.
Stefan Ioannou
Okay, great. Thanks very much guys.
I appreciate it.
Operator
[Operator Instructions] Your next question comes from Gary Lampard, Canaccord Genuity. Gary please go ahead.
Gary Lampard
My first question it refers to the $1.85 copper price that you gave for covenant comfort hit to next year. You didn’t quite say this, but by expansion of what you did say, is it fair to assume that that relies on current spot prices between now and June 30?
Jim Slattery
Well no, what I said that if you had current spot prices approximately through to the end of this year and then you ran 2.20 to the end of June, you could do -- you would be -- you would stay under the 3. Then it could drop to as lows as 1.85 in the second half of the year and you’ve been under 3.
Gary Lampard
Okay, got it. Thanks for the clarification that’s clear.
Second question is that issue of whether or not the hedging gains or losses impact debt covenants. Jim you said you didn’t think it made any difference to the EBITDA calculation.
But dies that make any distinction between whether the gains are realized or unrealized?
Jim Slattery
What’s the EBITDA calculation definition is it basically comes from new debt agreement so it’s basically take net income, you add back interest expense, you add back tax expense, you add back consolidated depreciation and amortization and then you add back any unrealized derivative financial gain instruments -- gains or losses of subject entity. So the actual -- what is realized, is realized that we’ve included -- is included in EBITDA, whereas unrealized is not.
Gary Lampard
Okay, perfect. That’s what I would have expected, but it’s not what I understood.
But that’s great, thank you.
Jim Slattery
No I think I may have spokes so your confusion is completely warranted.
Gary Lampard
Okay. And finally I believe you gave some grade guidance for Minto for next year during the opening at [indiscernible] which I’m afraid I missed.
Would you be able to run through that again?
Jim Slattery
Yes. So ramping up in the first half of the year staying over 1% in the second half of the year with average over 2.5%.
Gary Lampard
Okay, perfect. All right, thanks very much.
Operator
Thank you. Your next question comes from Mark Turner, Scotiabank.
Mark please go ahead.
Mark Turner
So thanks for the follow-up here. Just a quick question in terms of the EBITDA and the stripping from next year.
So I guess I’m a little bit confused by the answer of Sasha’s question. So you have been stripping above the life of mine strip ratio rate now and I believe are going to be for early next year.
So benefiting beyond just that period, so there is going to be a portion of that I imagine that would be capitalize next year. Is there any sort of disclosure or coloring you can give at this point, because obviously that will -- I guess how we choose to allocate between capitalized and what actually goes through the P&L has going to have an impact on our estimate of EBITDA and I guess the potential for that how we calculate the metrics on the covenant.
Gregg Bush
[indiscernible] We are striping above the average next year, but I don't believe this, it’s not pre-striping because the push back will be, we’ll be producing more.
Jim Slattery
That's correct.
Mark Turner
Okay. So should be minimal than capitalized striping through that period, so it will mainly go through the P&L?
Jim Slattery
That's correct.
Operator
Thank you. Ladies and gentlemen there are no further questions at this time.
I will now turn it back to Mr. Pylot for closing remarks.
Darren Pylot
Thank you everybody for joining us today. And please don't hesitate to contact us with any additional questions you may have.
Thank you, operator.
Operator
Thank you. Ladies and gentlemen this concludes your conference call for today.
We thank you for participating. And ask that you please disconnect your lines.