MAG Silver Corp. (MAG) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to MAG Silver's presentation, 2023 Mineral Resource -- Minerals Reserve and initial life of mine plan for Juanicipio. Our 2023 resource reserve calculation, which we will call now the 2024 technical report. My name is George Paspalas, I'm the President and CEO of MAG. I'm joined by Fausto Trapani, our CFO; and Gary Methven, our VP of Technical Services. We're doing this presentation in person here in Toronto, but it's also a webcast. So maybe good afternoon or good evening assembling you on the webcast. As we move forward, we'll be making forward-looking statements. during this presentation. And I think a lot of you who have heard us speak at MAG before. At MAG, we have a reputation to turning forward-looking statements and facts. Hence the reserves -- inaugural reserves on initial mine plan for Juanicipio along with all the discoveries that we made at the Juanicipio property. And [ 2 to 4 ], we will continue to make forward looking statements today. So this is MAG, the principal asset and the focus of today's presentation, the Juanicipio property. So also have the Deer Trail exploration property in Utah and Larder, a gold exploration property in Ontario. We remain, we always have been focused on advancing high-grade district scale project in the Americas. Juanicipio, our flagship is at nameplate now, 4,000 tonne per day run rate, but we have organic growth potential at Juanicipio. There's good as Juanicipio is and as robust the cash flows from Juanicipio will be generationally. Please don't forget Juanicipio is still very much an exploration story. And obviously, there's organic potential for growth at Deer Trail and Larder. We're in great shape now, $69 million of cash on the balance sheet at the end of the year, we have no debt. And we have a $40 million revolver, which is currently undrawn. We returned $33.4 million of cash from Juanicipio back to MAG in Vancouver in the second half of last year. So we're all positioned for continued value creation. Focusing now on Juanicipio. Here you see in the red property map here, that's the joint venture ground in the Fresnillo Trail. The Fresnillo trail the preeminent silver district in the world, over $3 billion ounces of silver that we produced in this area. One of the sand bites is one of every 10 ounces of silver ever produced comes from this prolific area. And here we are [ mapping ] in the middle of the Fresnillo [ candidates ] that sit in the trend. As I said, Juanicipio is now up and operating. Last year, we mined 1.3 million tonnes at an average silver grade of 472 grams per tonne, produced 16.8 million ounces silver at an all-in sustaining cash cost for the second half of the year, of $9.18 per ounce. This is in a ramp-up here. As we look forward now, we're going from ramp-up into steady-state operations, consolidating operational efficiencies and improvements in cost control. At the bottom, you see what we've achieved for the year of last year, we started the plant in March. We got to commercial production in June, we achieved the 4,000 tonne per day run rate -- throughput rate in the third quarter, and we operated the fourth quarter at that run rate, and we are now in free cash flow generation. But here is a bit more of a focused look at last year. As I said, we ramped up in 6 months from pressing the start switch, the nameplate. You can see here in the right-hand side on the dark blue column graph, that's the mining rate. That was -- the plant was ramping up, commensurate with that, the underground mining rate was ramping up. On the next column graph on the right, there you see the light and the dark blue. The light blue represents material that was put through to adjacent Fresnillo plants. The Fresnillo and then the Saucito mine. This wasn't [indiscernible] because for the year of 2022, a plant was built ready to go, but we haven't had the power connected from the national regulator. A single asset producer. You've sunk the capital into the plant. You have the finalized paying for it. You can't get your plant connected. That would typically cathartic. We made $120 million of operating cash flow during that year. And that's what those light blue bars represent on that column graph. The dark blue, you see the Juanicipio plant coming in and starting to ramp up. And now as we go forward, exclusively, unless there's major shutdowns on the Juanicipio plant, which we can offset by pulling through the Fresnillo plants, we will be running the Juanicipio plant. So you see the silver production down there in the lower left column graph. Again, the silver coming from the Fresnillo plant in the light blue, the Juanicipio plant in the dark blue. As we turn to steady-state operations now, one of our focus areas is improving the metal recoveries. Now we're enjoying 88% -- up to 89% silver recovery at the moment. We'd like to get that number into the low-90s, if possible. incremental revenue for us, it just increases the profitability of the mine. And their balance sheet is growing. In the second half of last year, in that ramp-up year, we made $103 million of free cash flow or recurring $33.4 million back to MAG. We've got $88 million in working capital at the joint venture level and $43 million of cash on the end at the joint venture level. What drives that is the bottom right hand graph. Best in class margins, all-in sustaining cash costs around $9 an ounce of silver. And as you'll see, as we go forward with our technical report and reserves in our new life of mine plan, this margin continues at Juanicipio. You can see in that graph, we're looking at just over $60 million per quarter in operating margins. Cost are a focus for us, like anyone particularly coming off a ramp-up year. Now 2023 was, okay, let's get the rock from the start to the finish. Let's do whatever we can to make a concentrate. Let's just push things through. The mine and the process plant is now prudent. It's derisked. Now we turn our hands to operating efficiencies. So turning into the technical reports now, and I'll start with a recap of the 2017 PEA. And I think it's important here just to pause and understand the nature of Juanicipio. A lot of people in the room here, you know MAG for many, many years. You've probably heard this a lot. Juanicipio Vein from the Buchanan model is a boiling zone. In epithermal vein systems in boiling challenge you a typically silver rich at the top and more base metal dominant at depth. We see that in the 150 years of Fresnillo mining in this area. And we definitely see that at Juanicipio. The other thing that you will know about Juanicipio is it's a fluid upwelling zone, it's one of those rare found geological occurrences, where the metals came from deeper and precipitated or deposited, neither surface where we can mine them. And what that means is that any permeable structure around the fluid upwelling zone, will be mineralized. Now because of the nature of this boiling zone, multiple mineralized structures, we have maintained the 2017 PEA is our technical report until we got into production because so much of the mineralization is in the inferred category. It is not economic for us to go and drill off the inferred category. We know it's there. One of the important elements to remember from this presentation and as you read the technical report, there exists almost half the mineralization of Juanicipio is existing inferred. And we will when prudent convert that inferred. So you see here -- and again, the people who know us, remember the shaft to nowhere, when we did our PEA, we had a, sub-vertical shaft going in, but we couldn't talk about the economics of the inferred. This is why the regulator saying, you should keep a PEA which a technical report, so you don't mislead people by ignoring a bunch of the mineralization in your economics. So as we've got into production, we have real-life data. We now have a technical report that has reserves. Please, I draw your attention. Don't forget the inferred. The inferred here is very important. So our operating history of last year has confirmed that Juanicipio, the Tier 1, high margin asset which are one of those forward-looking statements turning into facts from the PEA. You see at the bottom of the screen here, the PEA identified Juanicipio, it's a high-margin Tier 1 -- Tier 1 asset. You can see here, we've got the 12 million tonnes, almost 13 million tonnes in M&I, average silver grade of 427 grams per tonne. A lot's happened since then. We've done another 194 kilometers of drilling, 286 holes, and we've converted a good portion of the M&I now into reserves. We develop the mine. We built it during COVID. We built the mine essentially on time and when we were ready to plug it in, December of 2021, the regulator said we're not ready. You plug it in, in December 2022. A few of you, who have been to the mine recently. I think, Craig we will verify. This is a standout asset that's been built. It's been built to long haul, the generational asset in it's geological endowment. It's a generational asset in the infrastructure that's being embedded at the facilities. As I said, the commission, we've got the nameplate in 6 months, we now have an optimization pathway moving into 2024 with our -- looking at recoveries, looking at underground efficiencies, looking at these efficiencies in the plant and obviously cost control. Up until the date of our reserve calculation, we had mined 1.5 million tonnes at an average grade of 477 grams per tonnes. Again, derisking, verifying that Juanicipio is a high-grade, high-margin Q1 asset. And we have so much room to grow down there, it's amazing. I'm going to take us through those growth potentials a little later in the presentation. The Juanicipio here is confirmed Tier 1 high-margin asset. It's aligned with our strategic objectives of having a cash flowing asset that generates capital that we build a robust balance sheet and fund our exploration decisive [indiscernible] trial and at Larder. Returning to the 2024 technical report few of the highlights. We've seen a 33% growth in M&I from the 27 [indiscernible]. If you take out that 1.5 million tonnes that we mined, it's actually a 51% growth in M&I after depletion. A 16% growth -- my apologies, missed the pointer, 16% growth in inferred resources, 406 contained silver equivalent ounces in M&I up 24% from the previous technical report. Our inaugural mineral reserve, 319 million equivalent ounces of silver. We make on average over the life of mine 18.5 million payable ounces of silver which is -- you see our annual production used over 20 million ounces of silver equivalents produced the payables 18.5%. Industry-leading all-in sustaining cash costs, $12.35 per equivalent ounce of silver and significant exploration upside. Our reserves are calculated at $20 silver and $1,750 gold. A point to note about the inaugural reserve and this technical report, this is our first full year of production, 2024. The inputs to the technical report were done in May of 2023. We only turned the plant on in March of 2023. So our view internally is that our reserves statement this technical report represents a cautious representation of what Juanicipio is. But this technical report continues to confirm Juanicipio is a high-grade Tier 1, high-margin assets. If you look at the update in the mineral resources, we see a significant uplift from the PEA up to the current technical report. In indicated, significant jump we add in. So measured in the indicator category, and there's an increase in inferred as well, a 33% growth in measured and indicated after extraction of the 1.5 million tonnes, a 90% conversion of M&I into reserves very consistent with the historical conversion of these epithermal mines in the Fresnillo trend. With what we've mined and what we see in front of us, we've confirmed the high-grade nature of this deposit. And we now have an increase in confidence in the future here with the infill drilling that we've done, since 2017. Again, we've got to remember, in 2015, we put 4 sterilization holes under the Bonanza zone. Just to prove that it was like every other epithermal vein in this system, that's 300 or 400 meter high. We wanted to sterilize it, so we can go and look at some other targets. And that's when we found the Deep Zone. So as we went into our 2017 PEA, which has input data from 2016, it was very raw. We had wide spacings, we had inferred. A lot of the work since then on the drilling has been deep proving out that Deep Zone. The Deep Zone is very important. Because it has what's called [ daylighting ] zone where one of the walls of the vein falls apart, and it goes from an average 5, 6 meters with the 30, [indiscernible] upside down mine in terms of mining costs as you get deeper, your mining costs go down. We wanted to be sure of this. We wanted the infills. We wanted to understand it. But what has happened in the process of seeing this significant increase in mineral endowment between technical reports, a lot of what's driving the growth is drilling deeper in the system. I take it back to member [indiscernible] own nations. These epithermal veins are silver rich at the top, more base metal dominant at the bottom. So if you have a look at the comparison between the 2017 PEA and where we are now with the 2024 technical report, because of that Deep Zone infill drilling, we've seen significant increase in lead and zinc. We've seen a reduction in silver grade because down deep the silver grade is lower and we actually report here, this is before that 1.5 million tonne depletion, right? So this is a big bias to the low side, but we see a 27% reduction in silver grade globally. We see hardly any change -- we see hardly any change in the silver equivalent grade, which you can see there, only down 6% for a substantial increase in the reliability of the data and the growth in the resource package. So this shows our mineral resources now. You can see here in the circle graph on the left, our 17 million tonnes of M&I have converted to about 15 million tonnes of reserves, about a 90% tonnage conversion, which is typical, as I said, for the area. We put conservative mine recovery assumptions in here, a conservative dilution factor because again -- a 15 million tonnes of reserves, grading 1.6 grams of gold, 250 grams silver and a significant lead and zinc. This is the global reserve package. I think what's important to focus on here though is more granular year-by-year. And here, you see the historical story and what happens at Juanicipio. You see here in the blue columns, that's the tonnage and we've ramped up the nameplate. And for the sake of this technical report, we've assumed a table top here, where we continue running the 4,000 tonnes per day and a 91% operating time. Up in the green circles, you see the silver grade, which shows that typical zonation that we all know about in these epithermal vein systems year-on-year, the silver grade goes down as you get deeper in the mine. What has come out of this infill drilling is conversion to reserves, the equivalent grade didn't change. That means the value of the rock you mine on a daily basis is not changing, which is great for ensuring reliable, consistent cash flow. And look at the table in here, as you get deeper, some of those base metal grades really pop. But this isn't the full story. The reserves that we're reporting now in the technical report are a function to the 190 kilometers of drilling that was done primarily deep in the system. Remember, the Bonanza Zone, remember those high grades of silver, they're not in this because they're sitting inferred and we can't apply any economics that the inferred, but I'm going to talk about it because the inferred is in the complete global resource package, the technical report. So here's our metal production. As we go forward now, you see a relatively flat profile of metal production. You do see in the dark columns a reduction in the contribution from silver, that is by virtue of the construct. This technical report, which is focused on deeper drilling, the global reserve statement. There is the potential to positively impact those dark blue bars or the conversion of inferred into reserves. But this is outstanding. I mean this is 20-plus million ounces of equivalent to the end of the mine life. A mine life that is 13 years based on reserves which is about half of the known mineral endowment at the moment. And you see over there in the circle graphs on the inner circle up until 2028. The silver from the reserve package contributes on average over those years, 53% of the revenue. It's higher in the first year. As you can see here, the -- sorry, my pointer stop working. So I can't actually point to the data. But you can see it's much like where we are now, we're 70% silver by revenue. The conversion of inferred will bump that 53% up. And over the complete life of mine, you can see the contribution of the base metals coming from depth starting to really bias the cash flow and the revenue towards the base metals. Here is the capital expenditure. That's flat lined, starting to taper down now. This year, in the first half of next year are the last big spend years. This is the technical report. I see you're looking at it, Craig. And it's slightly different from what we're saying because the technical report doesn't have the cost for the conveyor, and the costs for the current tailing sale in there. So there's -- at the course of the next [ 18 ] months is about [ $40 million ] more CapEx in there. But this gives you an idea of what the capital profile is going forward. Underground development, underground infrastructure, equipment rebuilds underground mining equipment rebuilds consigned to coming in that green graph, but essentially, the spend is over, and we're starting to get into a normal sustained capital spend rate around $35 million, $40 million. Okay. We have a fund cash flow. Do you see by year the cash flow from the reserves of Juanicipio? Dark blue is the cash flow calculated at $22 silver. The green increment on top is cash flow at spot current spot prices. So you can see with that high margin, we're very leveraged with the silver price. But we're looking here at $148 million average cash flow for the next 5 years or maybe $135 million over the next 10 years at that $22 silver. That cranks up to $180 million over the next 5 years or $163 million for the next 10 years at $25 silver. Robust cash flow is the key at Juanicipio, driven by these high margins. And it's poly-metallic cash flow we can take advantages of swings and roundabouts. We can offset a single commodity depressed price with the other commodity prices that are in our mix. And here you see the NPVs that come in at $22 silver, we have an NPV of $1.2 billion take it to [ $25 ] $1.4 billion. So Juanicipio now has arrived. It is a robust long life, high-margin property that's going to generate a lot of cash, is a forward-looking statement becoming a fact. We've been saying that for a long time. Now I want to turn to the inferred because this is a very important. This is the understanding of what Juanicipio is, but inferred obviously, doesn't figure in the economics of that current technical report. What's really important, Is there another pointer Goris, -- because is there another pointer. It's important to point to the picture and talk about it. But what you see up here is a long section of Juanicipio -- I'm sorry, of the Valdecanas Vein mineralized envelope, that's something I've been going to say today. Since 2013, all we've been able to talk about it Juanicipio is mineralized material. By virtue of [ 43101 ] and the fact that is PAE, we can now talk about ore. I can't wait to start using that word again, I'm a producer, I'm an operator. So what we see here in this section? What we see here in this section is outlined with the mineralized envelope of Valdecanas and then in here, the silvery material is the mined-out stopes and easy infrastructure. So what's in blue here are the reserves as per the 2024 technical report. So the technical report will talk to the production and the cash flow from the blue bits. Important stuff here are the organgy red bits, which is the inferred. Valdecanas the main Vein in the Valdecanas Vein System is the priority focus. It's where all the reserves are, it's the massive system. And we believe that we can target a 3- to 5-year mine life extension from the inferred that we know exists currently at -- in Valdecanas and that's most likely to increase as we step out. But we also have other systems, which is part of the Ramal 1. And in fact, this table here shows the breakdown of the individual structures that comprise the inferred. These are the exciting ones. If we go and look at Anticipada and Ramal, what we see? The red and the orange inferred is higher in the system. Remember, higher in the system on that zone nation means higher silver grade. This isn't in the technical report other than in the global resource number. And so our intention moving forward now and we've commenced the discussions with Fresnillo in January is we need to start to target infill drilling higher up in the mine to bring these high-grade silver inferred categories into production into the mine plan. Ramal here is the supply of Valdecanas. But all you have to do is toggle the jumbo for 10 seconds and you're now mining Ramal from where you were mining Valdecanas. We actually started mining this recently. And on the weekend, we had a [ 6 meters, ] 966 grams per tonne silver, right? So when we look at the global reserve statement of Juanicipio, please consider that with the inferred in the back of your mind. Because the inferred is silver grade upside for us. This just shows a breakdown of what we see in Ramal and Anticipada and as much as the base to Valdecanas is a significant 132 million ounces of silver equivalent. You add Ramal and Anticipada together, you're getting a similar volume. So I'll go back to this for a minute. This doesn't require exploration. This is there. We know it. We see it. The crosscutting the [indiscernible], they've done across where we're mining, right? It's there. It's just a matter of either mining it. We're doing a little bit of infill drilling to bring it into our reserve base. No exploration required as there is infill drilling. This is the exploration story. We all understand now the importance of an upwelling zone, very unique, high-grade, multiple structures, [indiscernible] vein systems, not a vein, but a system of veins. It's very compelling reasons to believe that there are potentially 3 more of these upwelling zones on the joint venture ground surrounding this long-lived magmatic setter. And our exploration intention over the next few years is to start to actively explore these 3 areas to look for another upwelling zone that will be a significant value creating step at Juanicipio. When we talked about the upside potential in Valdecanas years ago or maybe back in your time Trevor and other people. It was -- we made a footprint from second plant to put more of Valdecanas. What we've learned during 2022 with our plant shut down, but the mine operating, we can make very, very accretive cash flow by putting Juanicipio material through our partners' plans. That talks a lot to the way we're working together. That's a win-win for both of us. I would think it'd be highly unlikely even if we could expand Juanicipio, the Valdecanas mining rate by 20%, 30%, that we would spend any capital on expansions of Juanicipio, we put it through their plants. We find another Valdecanas, another upwelling zone, that's where the second plant comes. That's when you really crack up the capacity of this facility. Remember, 5%, this corner, the joint venture [indiscernible], the only considered exploration done on the property. So in conclusions, as conclusion, the 2024 Technical Report has shown enhanced economic value at the Juanicipio project. You can see in the balloons over here. We've taken the 2017 PEA, and we've increased the NPV of that study by 8% we get to that increased NPV in 60% of the time, we get there quicker. Juanicipio has arrived, stable and consistent cash flow, poly-metallic gives us protection on single commodity swings and we've just started. As we get into 2024 and moving forward, there's a lot of opportunities to enhance and optimize, talk about recoveries incrementally increasing, as we talk about turning our heads to operating cost now that we've finished the ramp-up phase. We're looking to work with Fresnillo to try and innovate the mining rate. We think our plant will do more. Let's fill it. Let's continue to increase the mining rates, because if we exhaust the Juanicipio plan. There's a little bit of capacity available on the Fresnillo side. We can put incremental material through there as well. So it's an incredible story, becomes a success startup of the high-grade Tier 1 high-margin asset that has the opportunity to be refined long life, let's see where we go. And then as we get deeper in the mine, if you remember in the 2017 PEA, we showed copper grades, particularly at depth, we've kept copper out of this technical report, as we're going into reserves now, getting into operations, we feel we need a little bit more around copper in terms of surely, we drill the [indiscernible]. Forward-looking statement what's the copper story at Juanicipio. So this takes us to another first for us. We can talk about ore now. We can talk about reserves and we're going to talk about guidance. And so there's been a preliminary release of guidance together with Fresnillo, where we released the grade at Juanicipio for 2024 being between the range of 380 to 420 grams per tonne. What we wanted to declare today is that our expected production for Juanicipio for 2024 will be between 14.3 million ounces and 15.8 million, which yields 13.2 to 14.6 payable ounces and all-in sustaining cash costs between $9.50 and $10.50 per ounce of silver sold. So that's where we're at our guidance for this year. The technical report 2024 versus our guidance or our mine plan for 2024 is similar except we have slightly elevated CapEx. And we've taken an assumption operationally in our operating cost guidance this is going to take us a little longer to get to the runway of operating costs of the technical reports assuming. So again, our guidance is perhaps a little bit reflective of a first year of operation, that's been a little bit more conservative around here, and let's make sure we have that capital for the conveyer built and the tailings stay in 2 built in. So that's it for the presentation. I'd like to open it up for questions, please.

Thanks, that's really helpful. You noted that there is an additional CapEx for the conveyor that's not captured in the tech report. So is it fair to assume too that any kind of positive impact on operating costs is also not captured in the tech report? Do you have any kind of sense on a dollar per tonne basis, what that could be?

Well, incrementally, I think we need to see how it runs. We're currently tracking everything to surface, right? So there's probably the order of maybe dollar a tonne saving at least in operating costs from that. We started tracking up the conveyor tunnel with a tunnel that was built for a conveyor belt in it. So I'm probably conservative on that dollar because there's a lot of maintenance to MAG. Well, you've been down there, you've driven down that road, and you know what it's like as well there's a lot of maintenance on that.

Okay. That makes sense. And I guess the other one is just on exploration for the regional land package. I mean now that there's incredibly significant cash flow coming out of the JV operation. Is it -- are we likely to see that ramp up to explore kind of the other 95% more?

Yes. We really want to see that. It's very tempting just tip with a couple of drill rigs, where you're mining and keep hitting on every hole and adding to your resource package. Together with Fresnillo, that we've made a conscious decision for this year 2024 to continue to do that to some degree, but also step out and look at the new targets. There's one target that we MAG from surface south of the Juanicipio Vein. We're going to drill that this year. So grassroots exploration. And then there's the potential to perhaps use some of the Fresnillo operational synergies further to the south, where they're mining underground to do some test exploration down there on that upon target. So yes, we want to see that expenditure increase with time on the Juanicipio property.

Okay. Perfect. And sorry, last one for me. Notice the cash balance at the JV level was quite high as of the end of the year at $43 million. So I mean that's a fair bit higher than I think we were expecting at least. Can you maybe speak to that being held there and then maybe the timing of return back to MAG? I think we kind of expected $20 million to $30 million of the JV. So the fair bit more there.

Yes. So Fresnillo is set up with Fresnillo, CFO very good working relationship, a pretty constant suite of cash coming out. And we'd like to see that sort of number there, let's say, it's $30 million on average. One of the things I've in this business is certainly the mine isn't money because I'll spend it. So get that stuff out. I think going into the election year, tax, bills payable coming up, there was a decision to maybe keep just a little higher cash at the joint venture level for year-end and into this quarter. But I think you can expect to see pretty regular distribution of free cash flow coming back to MAG during the course of this year and on average, maintaining that [ $30 sort of million ] level at the JV.

Okay. And maybe just -- sorry, a follow-on then the timing of the use of that for at the MAG level then once that starts to pile up in your bank account, how are you thinking about that and the timing of distributions, are they are back to shareholders or [indiscernible] or kind of use of proceeds there?

Well, we've got $69 million of cash at the end of the year. We can see we've got good margins coming through now. So we have -- there's an expectation that we will build that cash on the balance sheet. And the objective for us this year is to get that cash balance up around, say, $90 million to $100 million mark. We like that number because it gives us 3 years of runway to do what we need to do at MAG, which is explore Larder, explore Deer Trail, run the company. And when you're not in total control in your cash flow, I think you have to have a more robust balance sheet. But look, we're in the process of filing an NCIB, getting that together to go. We will make decisions based on valuations at the time on allocating capital as we go forward. But I think the next -- say 6 months from now we're still building that fortress balance sheet, making ourselves strong and then we'll turn our heads to allocation, but get ourselves opportunistic should the occasion rise that -- maybe it's a good time to buy some shares back because we feel really undervalued, we'll do that.

Can you just -- the one thing from the Technical Report, you didn't really talk about the changed a fair bit was recoveries. I mean saying from silver, I mean they're down a fair bit. So has that just been super conservative in the report? Or can you maybe talk about that a little bit because they're down a fair bit?

Sure, Brian. Thank you, Brian. The data input for the technical report was made. So Fresnillo provide the data to the independent engineers for the technical report as the operator, but that has 1 or 2 months of operating. So those sort of recoveries went in. The short answer Brian is I believe the recoveries are quite conservative. At that time, we were running the pyrite circuit. We're now running the pyrite circuit. We have a commercial outcome for that, and that's going to add a couple of percent of the silver recovery in 5% to 6% of gold recovery. So it's conservative, but it's a good place to be on your first technical report, in your first year of production in your inaugural reserves. There's a little bit of daylight to be seen on recovery. Just talking to that, Mike, we...

Maybe just on the base metal side, as obviously, it becomes more base metal, those recoveries become critical at the back end -- I think, you use 72% for zinc or something?

Yes, and that's running a lot higher in real world. But at the time, it was just parting up for those numbers within. So recoveries are conservative, right?

Can you just talk about your tailings infrastructure, some of the bottlenecks there and how you plan to address it? I know you still need to get a certain area permitted and you're shipping some of that over to the neighboring facilities?

Thanks, Craig. Yes, that's a good point. When we started up, we had built what we call Cell 1 tailings, which is a starter cell. And that gives us capacity true [indiscernible] May of this year. And we were applying for permits an adjacent cell, which someone actually setting a lot of the infrastructure is compatible for Cell 2, which we still receive the permit for that. So given we saw our permit delay coming, what we did during the course of 2023, it was construct a tailings pipeline completely in case in a culvert across to the Saucito plant. And so once we exhaust Cell 1, we'll start to pump tailings to Saucito until we get the permit and start construction of Cell 2. The methodology of the construction of Cell 2 though will be to construct it in a manner, where you don't have to wait until you reach the ultimate high for tailings deposition. And so you'll be able to fill as you build on that Cell. But until we have law on the site for the permit, which I'm told is close -- but told the power was close too for about 6 months. We needed to have a contingency plan that had integrity, and this is the best outcome.

And just can you talk about the mining rates as well, what would take to kind of get up to that more closer to that 4,000 tonnes a day on an average basis?

One of the challenges that we've had in terms of mining rate is I think a lot of you are familiar. But with the Valdecanas Vein, it was like 2 humps in the mineralization with a saddle with no mineralization in the middle. So for the first few years, we were mining both humps. We've only just now got to a point where we can mine the complete strike link of Valdecanas and that's going to start to give us some mining efficiencies. We're also starting to performance manage the KPIs from contractors and our own team underground, and I think there's some efficiencies to be gained from there. So we're currently at the point where the mine just matches the mill. And our objective over the course of the next -- I don't know how long it will be, it will be 12, 18 months is to try and make the plan -- the limitation, the throughput not the mine. But it's basically the maturity of operations, greater efficiencies, analyzing downtime, that sort of stuff.

Okay. Just one last question for me. Just on the operating cost, $86 a tonne, seemed to be better than I'm forecasting. How quickly we'll take to kind of get to that number, is that a couple of years out? Or is that sort of 2024 or 2025?

I think it will take us a lot of this year to start to really get it there with trend on those costs. I think it would be more like '25, mid-25 before you start to really see those numbers come in.

Any more questions from anybody?

You like the microphone [indiscernible]...

Just been on the other end of these listing so many times. Not being able to hear the question. I know this is done in Mexican peso exchange rate of 19:1. So peso is obviously much stronger than that right now. What's sort of the overall sensitivity if you look at 17:1 or kind of [ 16:5 ]?

Yes, there's a little bit in there, but a lot of the like Fresnillo, they were big companies, we've got corporate purchasing. A lot of the stuff is U.S. dollar denominated. Labor costs is probably the biggest component that's local. So there's probably a 10% or 15% exposure to Pesos in the cost those [indiscernible] appreciable as you would think.

The total operating cost of that, about 10% to 15% is?

Well, 10% or 15% would be labor and then there's [indiscernible] or whatever. I don't know exactly the -- probably the order of the quarter and the operating cost is peso and say that maybe 30%.

[Operator Instructions] You do you have a question here from Don from National Bank.

Congratulations. You had a pretty robust NPV. Just wondering, so in calculating the NPV, the starting point, I guess, is in [ Mexico ] if we kind of include the '23 limited production going forward. Is that right?

Yes, that's correct. The time 0 is May 2023.

And so we see that the May NPV is bigger than the 2017 PEA by a little bit, 1.2 versus 1.1. But of course, the 2017 PEA has like different costs and then a number of other different variables. Do you have a sense of what the Street consensus NPV is recognizing they could all be different metal prices is going to?

It's a big range, right? It goes -- like it's up to like 2.5 time range in the Street consensus NPV. And I think that's why it was so important on to get updated technical report out -- everyone's working off the 2017 PEA with different cost structures, et cetera. So here comes a real-world truth technical report now that I think we can start to get some alignment and coalescence around the NPV as the Street consensus.

Okay. And in your comments a few minutes ago, you mentioned cost guidance for 2024. I think you mentioned, I might have missed it. Just wondering if you could just repeat that what was total cash or ASIC cost guidance for 2024?

Yes, sure. We have a -- in fact, I'll put it up on the screen for everyone again. So what we're saying, Don, is the all-in sustaining cash costs of $9.50 to $10.50 per ounce of silver sold.

Okay. And this will be net of byproduct credits, correct?

Right. All right, everyone. Looks like the question queue is finished. So thank you for your time. I know it's a busy morning. I know there's a lot going on, but I hope that you were happy that you came here, not just the coffee and the muffins. We believe this is a great story and it's now derisk. It's arrived, but there's a lot of upside for the future. Thank you, everybody, and have a great day.