Nov 8, 2012
Operator
At this time, I would like to turn the conference over to George Paspalas, President and CEO. Please go ahead, sir.
George Paspalas
Thank you operator, good morning everyone and welcome to the Aurizon Mines Third Quarter 2012 Conference Call and Webcast. We'll be making some forward-looking statements today and I'll draw everyone’s attention to the forward-looking statements and cautionary note to you as listeners in the presentation.
Participating on the call with me today will be Ian Walton, Executive Vice President and CFO, and Martin Bergeron, Vice President of Operations. Also on the call in the in the room here in Vancouver is Julie Kemp, Corporate Secretary and Jennifer North, Manager, Investor Relations and Chris McLean our controller.
We start our presentation on slide five. We face some one of challenges in the third quarter at Casa Berardi we encounter three stops in August that returned uncharacteristically poor grade reconciliation which adversely impacted the realized gain for the quarter.
I would say uncharacteristically as we have enjoyed very good accounts reconciliation at Casa for the past six years and in fact this year we are travelling at a 105% reconciliation, announces between what we know and back to the block model. We also had an extended shut down for the hoisting system when we encountered technical issues with the new hoist cable we were installing during a scheduled shutdown.
Martin will be talking more about these two items in more detail later in the presentation. These two events adversely affected gold production for the quarter.
Below Q3 gold production have just done the 30,000 ounces has resulted in as revising at 2012 annual guidance to a 137,000 ounces. With the revised production we are now guiding to total operating costs of $695 per ounce compared to $645 per ounce previously.
Despite the lower production for Q3 the operating margin was almost $900 per ounce. And we realize EBITDA of 18.9 million and a net profit of $5.5 million or $0.03 a share.
We have maintained cash balances of approximately $200 million. Despite the lower Q3 production and heavy CapEx spent at the mine.
This speaks to the quality of the Casa Berardi asset, which even in a difficult quarter returned to solid operating margin. Higher production for Q4 will see us continuing the self funded our spending requirements as we transition from the existing mining areas out to the future areas, and implement the efficiency projects we are installing while still maintaining a solid cash position moving forward.
Change to slide six during the quarter we realized initial results estimates what we released in the initial results estimates from the Marban and Fayolle properties, as well as some encouraging explorations results from the Heva area and Hosco West extension areas. In mine exploration at Casa Berardi is continuing to expand to one two three zone with some interesting high grade intercept at depth in this zone.
There will be more detail later in the presentation on these opportunities. We successfully transitioned the Casa Berardi workforce from contractor to employee during the quarter.
And then now implementing the systems and culture for the future. So as an introduction that’s it, I will hand over to Ian Walton our Chief Financial officer now for more detail review of the Q3 financials.
Over to Ian.
Ian Walton
Thank you George, look at the first line item on the financial highlight slide you will see that our third quarter revenues from Casa Berardi operations declined 27% to $49.8 million from the sale of 30,134 ounces of gold. In fact $68.1 million revenues from the sale of 40,257 ounces of gold second quarter of 2011.
Our average realized gold price for the third quarter was $1653 per ounce somewhere to realized prices of $1695 per ounce in the same quarter of last year and the average London p.m. fix for the quarter of $1652.
Gold sales in the third quarter 2012 closely matched gold produced in the quarter whereas in the same quarter 2011 gold sales were 9% lower than production. If we look at the second line in the slide you will see a 25% decline in both ounces of gold sold and operating profit margins per ounce resulted in net profits of $5.5 million or $0.03 a share in the third quarter compared to net profits of $13.1 million or $0.08 per share in the same period of 2011.
Turning to the cash flow line on the slide you will see that lower operating profits have resulted in cash flow or changes in non-cash working capital of $18.6 million in the third quarter compared to cash flow of $34.7 million in the same period last year. To adjust for the changes in non-cash working capital operating activities resulted in cash flow of $11.9 million in the third quarter this year compared to cash flow of $34.7 million in the same period last year.
A reduction of cash flow from changes in non-cash working capital is primarily attributable to the production of income and resource tax liability. If we look at the total cash cost lines on this slide you will see that our total cash costs were US$759 per ounce in the third quarter higher than the US$497 per ounce cost realized in the same quarter last year as a result of a combination of higher operating cost on a per ton basis together with lower than expected ore grades.
The average ore grade in the third quarter was 6.1 grams per ton compared to the 7.95 grams per ton achieved during the quarter last year. Daily ore throughput of 1836 tons per day was achieved resulting in unit operated cost of Canadian $145 per ton compared to the $117 per ton in the quarter last year.
We look at the operating profit margins on the slide are higher operating cost together with lower realized gold prices resulted in operating profit margins of just under $900 per ounce in the third quarter compared to 1198 per ounce in the same period last year. Now turning to the last mine item on the slide.
Our cash balances at the end of Q3 were $199 million compared to the $213 million that we started with at the beginning of the year. Our cash balances for the first nine months were positively impacted by net cash inflows of $54 million from operating activities before taking the account movement and cash working capital, reduced by a $17 million increase in our non-cash working capital, and reduced by nearly $55 million of capital investments at Casa Berardi mine.
Our working capital at the end of Q3 increased to $202 million compared to our year end working capital balance of $198 million. Aurizon continues to have no debt.
That concludes my financial review of the third quarter results and now I will pass the call back to George.
George Paspalas
Thank you, Ian. Martin Bergeron, our vice president operations will now take us through the Casa Berardi ops in detail.
Martin Bergeron
Thank you George and good morning everyone. Production at Casa Berardi as mentioned by Ian resulted from the process of 169,000 tons equivalent to an average daily tonnage of 1836.
Average grade process much lower than anticipated at 6.1 grams per ton with recoveries of 90.8%. As George mentioned in his introduction two events have adversely impacted production during the third quarter.
The first one during the month of August saw grades coming from three stopes significantly lower than mine plan, resulting in 4600 fewer ounces produced. These stopes were located in 113, the lower end there, and particularly in 115 zone where the difference in grade between what was planned and the reality at the mill was 25 grams coming down to 5 grams per ton.
This was determined to be an isolated occurrence as tonnage and grade reconciliation prior to and after these events were well within acceptable range and reconciliation of ounces in 2012 is well within acceptable range as well close to 100%. A technical issue during the replacement of the hoist cable, the scheduled replacement of the hoist cables at Casa Berardi resulted in four days lost of production.
It was decided after consulting with the technical team of the supplier that we could install the cable to reach 1010 level once the deepening of the shaft was completed. That means that the section of the cable was left on the drum without much tension.
Not long after the cables were replaced we discovered that a kink had developed in one of the cables resulting in the necessity in replacing those cable again in the short term and as I mentioned four days of production had been lost. Exploration and definition drilling continued during the quarter with the objective of renewing reserves and resources at the end of 2012.
Moving on to slide 9 we have entered into a transition phase at Casa Berardi. While we install the required infrastructure to start mining the new areas east of the production shaft, these new areas will be the foundation of future production at Casa in the mid and long term.
The shaft sinking and other development although moving slower than expected the 118 and 123 zones are in progress and the operation will transition from the existing mining areas over the next 18 months. The change over to the 810 level is scheduled and planned for January of next year.
The decision was made to develop the principal area from the 2HE [ph] level in 2013 with development expected towards the end of year. Evaluation of the open bid options has been accelerated during the course of this year and depending on permitting, excavation could begin the middle of next year.
During transition some mining flexibility may be lost but following transition Casa Berardi should return to historical production levels. Other projects that we have underway, the wet shop pre-planned will be commissioned in Q1 of next year while the base back-fill plant is expected to be commissioned during the second quarter.
George Paspalas
Thank you Martin. Now, moving on to development projects, on slide 10 we show the location of the Eber [ph] and Hosco areas.
Very well positioned in the town of Rouyn-Noranda and the essential infrastructure such as road, rail and power supply. We have completed the 2012 drill program on Heva and have confirmed that the mineralization is non-refractory on all the samples we have analyzed so far.
Slide 11 shows some of the better results with 7.5 grams per ton over 15 meters with a depth of 129 meters being one of the highlights. This year’s drilling has confirmed the high grade rate potential and continuity of the Heva zone.
And the section on slide 12 shows where we have now defined three distinct mineralized areas within the Heva zone. We have also continued to define high grade refractory oil at the Hosco west extension area.
We have now determined that there is a geological feature that splits the mineralization just to the west of Hosco and that the mineralization to the east is predominantly refractory I have seen that [inaudible] hosted primarily and that the mineralization to the west or the Heva side is non-refractory. Our objective here is to endeavor to define sufficient non-refractory gold mineralization that could lead to a stage development for the Hosco mineral reserves.
The non-refractory start-up component that we improved the overall economics of the Hosco feasibility study completed in June 2012. Turning now to our two most advanced exploration projects, Marban and Fayolle.
We have shown Marban here on slide 13. This property is the historic Malate [ph] gold camp where approximately 600,000 ounces of gold have been produced.
This property is owned by NioGold Mining Corporation and we are earning in through drilling and making an option payment for ounces at the end of the earnings to get at 50%. Feasibility study and arrangement of financing takes us to 65% ownership.
This project is well positioned by Hosco and Heva in the golden highway between Val-Dor [ph] and [inaudible] but at least about 15 kilometers from Val-Dor. We released an initial results estimate on the property comprising the phase I Bill program during the quarter.
This is shown of slide 14 and in the section on slide 15. The results returned a slightly greater than 1 million ounce pit at an average grade of 1.6 g/ton gold in the M&I category.
A corporate entered metallurgical test rate programs confirmed that the mineralization in the regional shelf is non-refractory and delivers better than 90% recoveries on the direct cyanaidation [ph]. We are currently conducting an upgraded results model that will incorporate all of the Phase II dealings, which we will then review and then determine the next bips on the project in early 2013.
Slide 16 takes us to Fayolle located north of Heva and Hosco. This property is owned by Typhoon Exploration and we are earning in through drilling in equity prices for 50% and ultimately 65% with a feasibility study.
Fayolle sits on the desktop porcupine fault, and has the potential to host a number of small high grade deposits. We have completed the first phase of drilling and released an updated in results during the quarter shown here on slide 17.
This result has been generated from the results of their drilling on the one central area and incorporates data only from the upper 200 to 250 meters of the mineralized zone. A number of similar signature footprints have been identified on the property.
This work is shown – this is always non-refractory and it is most likely that there could be a potential combination with Tiva [ph] should exploration success be maintained at both properties. Moving on to that project pipeline in slide 18, we continue to refocus our resources under the advanced stage projects.
Drilling the Heva and Hosco west extension areas, completing the price to resource estimate whilst conducting full grade reviews of the remaining properties where we conducted significant exploration work over the past 18 months. We conclude today’s presentation on slide 19.
As mentioned previously we are enter a transition period at Casa Berardi, which will position us well into the future once the current initiatives have been implemented into the operations. We remain well positioned, operating in a low risk jurisdiction, good cash flow and cash balances looking over at our hedging.
The transition to the new areas of the market and the incorporation of the deepened shaft, price back sale and development into the principal areas from underground well of course in short term loss of mining flexibility, affecting 2013 production. However these initiatives are embedding long term efficiency gains for the future operation of Casa Berardi.
The foundation we are building now and over the next 18 months will provide a sound platform to grow future production for us. In fact some short term improvements in mining efficiency will be realized if [Unable] is sequentially commissioned.
This will assist to de-bottleneck the material handling constraints currently experienced for ore and waste underground during the transition period. We are advancing the permitting prices for the East Mine Crown Pillar open pit, as we examine the potential for this deposit to deliver supplemental ounces to the underground operation.
We have completed a preliminary technical evaluation to mine the lower levels of the principal pit and adjacent areas from underground and expect to commence rehabilitation of the existing infrastructure to enable development of this area in 2013. So as we move out of the transition period there is the potential to realize some additional ore sources for the mill at Casa Berardi which will definitely assist in elevating the production profile and provide some potential to complement production from the existing west mine and the new mining areas of zones 1-1-8 and 1-2-3 into the future.
We remain active on the evaluation side as well, looking at the potential transactions that can complement our organic growth profile, and in particular fill the period between now and bringing that organic projects online. Our first target is an incremental producer to derisk us from a single cash flow asset which is how we currently configured.
However, good operations [inaudible] are rare. We are also looking at ready-to-build opportunities or advanced stage exploration opportunities that will dub highly your overall development pipeline, and we also continue to see encouraging results in mine at Casa Berardi, Heva and the hostile west extension.
Ladies and gentlemen that concludes the formal remarks of today’s presentation. I thank you for your time to listen in and I would now like to turn it over to the operator for any questions that you have.
Operator
Thank you sir. We will now begin the question and answer session.
[Operator Instructions] our first question today comes from Heiko Ihle of Euro Pacific Capital.
Heiko Ihle
Hey George.
George Paspalas
Good morning Heiko.
Heiko Ihle
Can you maybe talk a little bit about the – quantify the way that you think the [indiscernible] plant is going to save you guys money in the future, especially given the lower production estimates our first question today come , just so we can maybe make this run through a model.
George Paspalas
Sure. I mean, we currently back-fill the mine using cemented waste.
It’s waste that is mined underground it’s cut into the surface, it’s then mixed with cement and taken back down and placed in the stopes and that’s the way we back-fill mining areas before we can come in and mine adjacent areas to that and may not – I say this a lot when people talk about my views of Casa Berardi. The reason we’ve been successful, mining around that Casa Berardi fault is the fact that we are diligent on the way we put this back-fill in and it’s one of the few mines that I’ve ever seen, underground mines that has the back-fill actually that’s very close to where we should be.
So we are very diligent on this. But what we plan to do is improve what we are doing by using paste back to where we take piling on service, we mix that with cement, it goes down a pipe and it feeds directly into the stope as soon as we mine it.
The first thing that happens there is you have very efficient filling of the stope. You fill that stope that mined out stope right after the phase of where you are going to mine next.
It also sets extremely hard. You can fill it very quickly and that’s going to give us some opportunities in terms of mining possibility of being able to get into adjacent stopes quicker than we can now.
But I think the greatest efficiency, this is a very hard thing to model and measure, but the greatest efficiency on paste back-fill operation is what we currently do with rock and cement gives you a jagged phase, a non-continuous sort of area that you need to mine your adjacent stope out to, which means you leave behind some of the ore in the adjacent stope. With the post back-fill you are mining up against a concrete place so to speak.
Our highest grade stopes are generally in the areas of forest ground conditions, and with the paste back-fill we are going to be able to mine those stopes out completely. So, we are going to – the paste back-fill is going to increase our recovery of ore from the high grade stopes by being able to mine more ore from those stopes compared to the current fill regime.
We have an efficiency in filling and mining flexibility in being able to bounce around the stopes quicker than the current fill methodology, but we are also going to have a higher recovery than the current fill methodology, but we are also going to have a higher recovery of ore from these stopes, and in particular that is significant on the high grade stopes. That was a long answer, did you get it?
Heiko Ihle
I certainly did, but I’m still waiting for you to sort of quantify it in dollar terms.
George Paspalas
It’s a hard thing to quantify. I mean what it gives you is the flexibility in mining means that if you have an issue where you may lose a stope while you are mining, you can jump into another stope quicker.
Now, we know that important. That means that you don’t have the interruption to your production that we would have currently.
It’s hard to put a number on that. The recovery an extra 2% or 3% of high grade material is significant at Casa Berardi.
I mean I can tell you that payback period on the project is quite short, in the order of a couple of years. But, again, it’s quantifying things that are more subjective than hard dollars.
The reason we didn’t put these into the mine from day one was that we were conscious of not over capitalizing the mine initially on a six year mine life, and it’s only when we got the 10 years out that we made the strategic decision to put these in.
Heiko Ihle
Got you, fair enough. Can you maybe just talk also a little bit more about your 2013 guidance, I guess what I’m saying is what could go wrong, what could go right, what would make you – swing those numbers a little bit higher, what sort of grades, just elaborate a little bit more than what you have in the release?
George Paspalas
The guidance we are issuing for 2013 now reflects a lot of the experience we’ve seen on the sharp sinking project this year, and in particular it reflects what we are seeing on the construction of the shaft versus interacting with the operations. So, in our guidance for next year we have certainly factored in a lot of the – I guess experience we’ve seen on this construction operations facing 2011 and 2012.
We’ve also been a bit more conservative. I mean we would like to release a higher number for next year but we want to be real about it and we want to make sure we hit the number that we deliver, and so that’s why the guidance is one of these now.
But, it reflects the grades as per the mine plan coming through. Now, if they over perform we’ll do better, if our underground development right increases we’ll do better.
If we can get into the principal from underground earlier than we plan again we’ll do better and even if we can bring some East Mine Crown Pillar or we will do better. But there will be what if scenarios and we would rather not factor those in, WE would rather deliver those and then tell you we got a better number.
Heiko Ihle
That’s very fair. And then last question I promise, and you sort of touched on it earlier in your prepared remarks, you have all this money, you keep on trading at a discount for being a single asset producer and then we have a quarter like the one we just had or perhaps the one that’s coming up, how far along in the process of buying another producing asset or – I mean I was going through my numbers, between the $200 million in cash you have got sitting around, you could even leverage this going up seeing as you would have cash flow from both assets, you could spend what $300 to $400 million on acquisition?
When should we see something like that?
George Paspalas
I mean we don’t – our strategy on M&A hasn’t changed here. I mean, we still believe and that’s why we talk a lot about our positioning.
We are in a good jurisdiction, we have got good cash balances and we have got ongoing cash flow. Even in the lean years and if you just look at the third quarter, $900 margin, right.
So we have a good business. But we know we have to de-risk from having just the one asset.
So we are active, we are involved in doing due diligence and yeah we are looking at a number of options. Our preference is incremental.
We don’t want to over stretch the balance sheet in doing an acquisition. One of the nice things about buying a producing asset is its all upfront.
You don’t have ongoing capital spend other than sustaining and we can probably take acquisitions in the $200, $300 million range there. For development projects we like a smaller entry price because you have then got the execution capital following that.
Heiko Ihle
Fair enough. Well it’s a good answer.
Thank you very much.
George Paspalas
Thank you, thanks for your question.
Operator
The next question comes from Jeff Wright of Global Hunter Securities. Please go ahead.
Jeff Wright
Hey good morning George.
George Paspalas
Hi Jeff.
Jeff Wright
A couple of questions. If you could elaborate a little bit more on the transitional phase around grade or maybe not an average grade should we anticipate 15%, 20% grade variability, there is going to be some volatility in grade or throughput or maybe an average daily tonnage number we could get our arms around?
George Paspalas
Yeah sure, now our planning is – we have planning still in progress but you are looking at – if you want rules of thumb you are looking at somewhere around 7.3 grand per ton grade, which is typical Casa Berardi stuff where the ultimate numbers influence next year reaching the tonnage and we believe based on the interaction that we go to have tying in the shaft, doing the development, getting out there and all of the things that are going to happen, we are not going to routinely deliver 2000 tons per day. And so the number that we are looking at is on average more like 1800.
There would be lots we are actually at 1000. But the biggest issue for us next year is we are going to have to shut down the operation for a significant period in quarter one to actually tie into the new shaft and that’s what drives that average rate for the year down to 1800 as well.
But in terms of modeling, we are not guiding on a quarter by quarter basis but quarter one will be a low quarter for us in 2013 and then it will pick up through the year. So if you go with 1800 tons a day its 7.2, 7.3 grants per ton.
I am hoping that number is 124,000 to 130,000 ounces.
Jeff Wright
I understand that and should we also anticipate higher sustaining capital costs through that period as well and…
George Paspalas
No. The development capital is going to be comparable to what we spend.
We are moving – next year we are going to be spending $26 million to complete the shaft and a lot of the development capital leveraged stuff is also in that shaft. But we talked inevitably about the shaft.
So this is not with just the shaft but there is lots of development numbers in that $26 million and we developed $6 million spend next year to wrap up the patient [inaudible]. You are going to see a much lower spend next year than this year.
It’s just getting the work done and the most important – the real driver to the guidance for next year is the loss of efficiency while you are building a new mine and operating it and the interaction between operations and tying the shaft and what have factored in lots of downtime for that because that’s been our experience.
Jeff Wright
Then lastly, on the back end of this process could you further elaborate on what you think the goal to get back to 130, 140 or is the goal to get back to 155, 160,000 also like you saw in 2011?
George Paspalas
Well, certainly the latter. Our objective is to, as soon as we can get back to 2000 tons above from underground.
We believe that in 2014 the company will achieve that. We will be operating the new line.
So I think it’s one we are not getting into zones one, two, three. We will be still having the opportunity to mine some of the older stopes from the west mine.
And we anticipate being able to pull out good grade material from the principal zone from underground. And if we are fortunate and if things work out we may be able to bring in the East Mine Crown Pillar Pit, it’s a mouthful.
That pit is the – but that’s what it is. And let’s say we get back to 3000 tons per day at the average grade and the old grade went back to 150, 160 grade.
Maybe we have been bedded some flexibility into the operation now by having two new additional underground zones plus a potential pit coming in. where that goes to, I wouldn’t like to guide to that yet Jeff because it’s a bit premature.
But certainly in our house here we are anticipating coming back to the 150, 160 mark.
Jeff Wright
And a final question, I know most of the focus that is on Casa but with Heva we should still anticipate a – there is no resource calculation I think in Q2 next year?
George Paspalas
Yeah we are doing that now. We are doing that in house and we have completed the drill program on the property and we are coming out at now – looking at what – as I have said we have defined three different zones of mineralization within what we just thought initially was Heva, and that’s created some opportunities to look at this from a modeling point of view with the Balkan pit.
Maybe there is an underground component we have to tie in. so that will take us a little while but we certainly want to get it out as early as we can in 2013 because that then ties the next stage of development for us.
Jeff Wright
Okay, thanks a lot.
George Paspalas
Yeah thanks Jeff. Thanks for your questions.
Operator The next question comes from Cosmos Chiu of CIBC. Please go ahead.
Cosmos Chiu
Good morning guys.
George Paspalas
Good morning Cosmos.
Cosmos Chiu
George, I just have a question in terms of the long term view it has in terms of how you will be able to sustain say product as you mentioned at 150,000 to 160,000 now? My understanding is that the newer zones coming in, the 118, the 123 as you have disclosed they have a lower reserve grade and as you mentioned today when the east line open deck comes in my understanding is that that grade can further drop the [inaudible] at the mill.
So considering – I am just wondering how you can get back to the 7.5, 8 gram per ton that we got used to seeing I would say in previous years to get you up to on a sustainable basis 150,000 to 160,000?
George Paspalas
Sure, thanks Cosmos. The grades that we have disclosed so far on zones one, two, three, 118, are slightly lower than what we have seen in the west mine.
However our growing results for the last 12 months, particularly in the low levels of one, two, three had shown a lot of high grade. So that could come up anyway.
The grade from the east mine, Crown Pillar, is about a full grain pit. But that tonnage is incremental to what's coming up from underground.
Now we are pretty confident that we are going to get at least 2000 tons a day from underground. So perhaps rather than looking at grade, look at total gold input to the mill.
And we are anticipating mining that this wide Crown Pillar probably 400, 600 ton of that. Actually the incremental tons go into the mill and then the real kicker is the future at Casa in the near term, right.
If we are successful, we are doing the engineering on it now and we are very excited about this as the potential to pull out. A lot of the high grade material that sits in the base of that principal pit and then the area below, where that pit reserves are at the moment, heading down into and then below the 290 drift level.
We think that grade base come at an average of at least eight. Most important – which is very important but equally importantly it’s a completely independent mining system within the Casa underground mine.
And that gives you a lot of flexibility and then the stock to crank the tons.
Cosmos Chiu
George, can you remind me again what's your throughput capacity at the 2500?
George Paspalas
The nine playing on the middle is 2400 tons per day, right. We have a permit, the permit to run the 2800 tons per day which we have on the rare times in the past.
So we have stockpiled the assets. And the hoisting capacities guide them 2000 tons per day.
The bottleneck at Casa Berardi always has been the material handling of ore waste from current mining areas into the shaft. And that’s why we say when we start to sequentially commission the shaft we are going to get a new pit early next year into the shaft.
That’s going to release some of that pressure and then ultimately we are going to have a number of points on this deepened shaft where we can access the shaft at all. We stop at the bottleneck in the material handling.
The limitations to production are mining rights. We are going to change that by bringing in the pit and opening up the principal from underground.
Cosmos Chiu
And George you mentioned that you found high grade at sort of the 118, 123. My understanding is that at the 113 lower and as you got deeper the ground conditions got more difficult.
Do you kind of see the same thing at 118, 123 or is it…
George Paspalas
That’s a good question. Actually thanks for that.
The 118 is close to the Casa Berardi Fault. But the bulk of the mineralization, say in the new area is on 123 and it’s off the fault.
It’s on the bright, the self – what's that going to be – southeast break that comes off the Casa Berardi Fault. It’s about 800 meters from the shaft.
So we are anticipating better ground conditions for sure out there. What extend that factors were into being able to help us on mining costs in terms of ground control and support.
We haven’t factored that in. we will determine that when we get there.
But we don’t expect to see the same challenges in 118 and 123 that we have seen in 113. However, the mine had done some trial mining and in the last six months we have developed a new mining technique for those areas of 113 and we have mined our first large stope from that area quite successfully.
So we have ameliorated some of those issues with the lower levels of 113 to a modified mining technique for the balance of what's going to come out of there anyway.
Cosmos Chiu
And then if I can, moving to the east, open pit east [indiscernible] but in terms of permitting do you foresee any issues in terms of the contacts that you know in the past, or has been a lot of historic at the east ground? Is that going to translate into any kind of issues in terms of permitting [inaudible]?
I would imagine none.
George Paspalas
No. I mean the nice thing about these mine Crown Pillars is it’s completely within our lease.
And the areas of disturbance are going to be completely within our ways and the expected ultimate capacity is within our permitted allowance. So the permitting process always is an iteration between questions and consultation etc.
But other than the timeframe we don’t expect any issues.
Cosmos Chiu
Have you done any trade-off study in terms of the [inaudible] versus the deposit that you have at the east line? Does this precludes or makes it more difficult in the future for you to line up [inaudible].
George Paspalas
No – I mean, yes we have done these studies and no it doesn’t. We have – we’ve got north of a 100.000 ounces in these Mine Crown Pillar.
Underground, at the ace mine we have got about 40,000. We have been drilling around there to try and find more ounces.
That’s a mine that’s been indicted with water and the costs to rehabilitate the ace mine require a far more significant endowment of reserves than what we have today. We are looking to find that.
If we find it we will bring the underground back on there but also these mine Crown Pillars are relatively shallow pit. We don’t intend – unless we have a lot of success at the bottom of the pit we don’t intend going much deeper than say 100 meters.
So we are not really going to impact any future underground production from the ace mine if we had exploration success there anyway.
Cosmos Chiu
Okay great, that’s all I had. Thank you.
George Paspalas
Thanks Cosmos.
Operator
The next question comes from Brian Christie of Desjardins Securities. Please go ahead.
Brian Christie
Yeah good morning guys. A couple of quick ones George.
Looks like Casa Berardi recovery a little bit lower than say maybe historic. Just wondering what's going on there.
And have you got a strip ratio on the Marban pit that’s used in the resort?
George Paspalas
Thanks Brian, good morning. The recovery at Casa is purely a reflection of grade.
For the quarter we are in 6 gram versus 7 or an 8 and that just drives the – it’s a direct correlation, but that’s what that is. Marban, well the resource itself doesn’t require the calculation of the strip ratio but due to the space of the drilling that we have done on Phase I there are gaps between mineralized zones within that old body at the moment and that’s why we are very interested to see what Phase II will show.
But in the indications are that the strip at Marban at the moment is high but it is a Phase I fitted data. It’s not tightly drilled and we are hoping that Phase II is going to reduce it for us.
Brian Christie
Okay, thanks George.
George Paspalas
Yeah a pleasure Brian. Thanks for your questions.
Operator
Next question is from Derek Macpherson of National Bank Financial. Please go ahead.
Derek Macpherson
Good morning guys.
George Paspalas
Good morning Derek.
Derek Macpherson
So I just have – the first question I have is with respect to the shaft transition. You mentioned taking a significant downturn earlier in Q1.
Can you quantify that a little bit? Are we talking two weeks?
Are we talking six weeks?
George Paspalas
It’s tough, it happens on a daily basis. And it’s not like a scheduled shut down.
You will just – you would be in a situation where you need to bring all waste from the shaft and you stockpile it for a while because you are running good grade all up and then all of a sudden you find that your waistband on the shaft is sinking. So then you have to sort of back down your whole production while you clean that out, you know, it aggregated up into probably a two month loss of efficiency on the project.
I’m not trying to – I can’t really answer because it’s not a directly measurable number, it’s just that interface is a play between development and ore production for making gold. You try it up and you try it up and we just want to factor that in, in terms of just a global efficiency factor for 2013, and that’s why we have ended up with the Garden suite.
Derek Macpherson
So I guess – but there is going to be a shaft – at some point you are all going to have to tie in the deeper shaft. When is that expected to be and…
George Paspalas
Okay. That’s a specific scheduled shutdown, and that’s going to be in the first quarter.
At the moment planning and scheduling around that has a two week shutdown. Which is why I mentioned earlier, I think it was Jeff’s question that quarter one of 2013 will be low on a year average quarter because of that major shutdown.
Derek Macpherson
All right. I guess my last question is with respect to sort of capital or development cost.
Obviously you guys are developing with principal underground and the ground pillar open pit, what kind of development CapEx are you guys sort of budgeting for that or have been associated with that?
George Paspalas
Okay. With the East Mine Crown Pillar we are still working up that number.
We are working with contractors to get prices on mining, have a burden – you know, we don’t know that number yet, but we have made a decision to advance the permitting while we are working it up. With the principal again we’ve done the engineering study from – ahead of the all body hold together in higher grade zones, can we access, yes we can.
And now we are doing the engineering going forward on that. That’s one of the reasons why we’ve released the guidance number, because we believe that’s a prudent number that’s put out there now.
But we haven’t released CapEx and cost because we are still working that up, and we don’t actually finish this process until the end of the year.
Derek Macpherson
Okay. That’s all I have, thank you.
Operator
Your next question comes from Mike Parkin of Bank of America/Merrill Lynch. Please go ahead.
Mike Parkin
Just following up on the East Mine Crown Pillar, on the analyst day you mentioned you guys were still doing a bit of work looking at the soft clay and also being close to your professed water pond. Are you comfortable with where things are or is that still in the kind of the budget in process as to exactly what has to be addressed there.
George Paspalas
We are comfortable but we need to do a lot more diligent to fully understand the costs, and yeah, we need to do some seismic and geological work to make sure that we are absolutely safe with the embankments, and we need to work with miners to get a feel for what it takes to remove these overburden. We are fortunate there is another pit relatively similar to this in Ontario which we have visited, so, yeah, we are getting the data Mike, but being a full grown pit on your lease is obviously is attractive, but we just don’t want to jump in there and get a surprise.
We want to do a fully quantified – what it’s going to take and we are not complete on the technical evaluations yet and once we understand that we can then do the costing.
Mike Parkin
Maybe I missed, sorry what’s your timing just generally kind of thinking of being able to bring that into production where you should be able to supply tons to the mail.
George Paspalas
You know, where we impacted on the permitting process now, if everything worked according to plan we probably would be able to bring some more from the East Mine Crown Pillar, very much like 20, 30, early 40. More likely early 40 in the way we are scheduling it at the moment.
On the permitting side of the 74 it’s fully contained on our leases. Nothing is every straight forward but we feel confident about the time.
But we won’t give ourselves a bit of time for the consultation involving that process. So, I think the best approach is to think about 2014 today.
Mike Parkin
Okay. On the phase back-fill plan, the current reserve, did that actually factor in your better word recovery or should we be looking at an essential increase in reserves with that adjustment.
George Paspalas
Yeah. What we have done is just say – let’s take this as status quo, and let’s see what it really means when we get it in.
So we haven’t factored anything in yet, because we don’t get too optimistic on it. We just know that the flexibility that’s going to give us in mining is just going to give us a lot assurance to what we are doing, right, and we are happy with that.
But ultimately we might realize some benefits and we will factor that in and disclose that when we see it.
Mike Parkin
Okay. And you are saying you are still working on a bit of completion on that into next year, thanks for the CapEx guidance from that.
When do you think you will have that online?
George Paspalas
The construction should finish and we will commission it up in the second quarter of next year. And once operating it’s a non-complex process because we are mixing tiling with some cement thickening and putting it down into a pie.
But it always takes a little while to commission systems but by midyear next year we should be running pretty well on that.
Mike Parkin
Okay. All right, thanks guys.
That’s it.
Operator
[Operator Instructions] Our next question comes from Andy Scholpik, a Private Investor. Please go ahead.
George Paspalas
Hello Andy.
Operator
Mr. Scholpik, your line is open.
Okay, we will move on to the next question. The next question is from Keith Giroux [ph] of KAPS Communications.
Please go ahead.
Keith Giroux
Good morning George and Ian and everyone else there.
George Paspalas
Good morning Keith.
Keith Giroux
As you know I am one of your regular listeners from the United States. And some months ago I think Ian had said – can you help us get better known in the United States and I have some news to report.
I have a very good contact with an office manager, one of Scott Trade’s brokerage offices. And I sat down and talked with him about Aurizon and of course he had never heard of you.
But I said some very nice things about them and he promised to look over the website very carefully and go through the numbers and I did tell him that it might be you are the best gold mining company in the world. So you are now Scott Trade’s horizon.
George Paspalas
Oh Andy we thank you for that.
Keith Giroux
Actually what I do, I write about housing markets in the United States, which is pretty depressing stuff. But I am a numbers guy and I live by specifics and I was just wondering do you have any idea when you expect the price for ounce costs to get back below certain $100 an ounce the way we had sort of gotten used to, we have gotten spoiled on?
Is that too tough to sort of pinpoint?
George Paspalas
No Keith, no that’s a good question. We reported over 700 for the third quarter primarily because the production was very low due to that grade issue and the shut down extension that we had.
But we are well below 700 to the fourth quarter and we have reporting for the year with forecasting to 695. Please don’t think we are going to be 700 moving into the future too much, we are aiming for 695 this year.
Keith Giroux
What about for 2013 are you able to project out four quarters?
George Paspalas
We are in that process now. All right.
We know what the production is but we still have to do a lot of work on the cost side so we probably ready to – we don’t know what it is and we might be ready until early next year.
Keith Giroux
Is it safe to say that you think the worst is over and in terms of higher cost for a arms productions rate.
George Paspalas
One of the issues that we fight at Casa Berardi a lot of the future mining is in smaller stopes than what we’ve had historically. So what that means Keith is we are going to have to spend more money that get to same amount ore out.
so we will it will – unless we can transform the production from the facility, it’s unlikely that it will go back those very low numbers of 400s we will be high moving forward than what we would being historically in the past. But we don’t believe we are going to be high cost producer.
I mean even the $700 number for an underground mine is quite a respectable operating cost.
Keith Giroux
That’s a fair answer and I thank you guys and keep up the good work.
George Paspalas
Well thank you Keith and thanks for your questions.
Operator
There are no further questions at this time I will turn the call back over to George Paspalas for any closing comments.
George Paspalas
Well thank you everybody, thank you operator. And appreciate your participation in the call today and wish you all the best and have a good day.
Operator
Ladies and gentlemen this concludes today’s conference call you may now disconnect your lines. Thank you for participating and have a pleasant day.