Ramon Barua - CFO

James Bell - BofA Merrill Lynch Dan Major - UBS Dan Shaw - Morgan Stanley

Hello, everyone. Thank you very much for attending Hochschild's 2016 results. First of all, let me tell you that Ignacio couldn't be here, unfortunately, today; he's had a runner's related injury. He's doing fine. He should be up and running again pretty quickly. So, he sends his regards, to everyone. I think this year, we have a fantastic set of results, driven primarily by the first full year of production of our Inmaculada mine. In 2016, it was the record production ever at Hochschild Mining, which produced 35.5 million silver equivalent ounces. This year, 2017 our intention and our guidance is to beat that record, and produce 37 million silver equivalent ounces. Costs performed also much better than expected. I think, we reviewed guidance twice during the year. We started with a guidance of $12 to $13 in of all in sustaining costs. We reviewed that to $12 to $12.5. We reviewed that again to $11 to $11.5; and we ended in $11.2. From a cost perspective, I think it was also a fantastic year. Notably, it's the fifth consecutive year in which we have been able to reduce all in sustaining costs. We started, in 2012, with around $21.7, and every year we've been able to drop that number. Those cash flows have allowed us to reduce debt also quite aggressively. We'll show you some charts. But really the headline there the headline there is that, right before Inmaculada started production in June 2015, we had a net debt to EBITDA ratio of 5.8 times. Since then, we have also been able to repay that debt quite quickly and we have a ratio, today, of 0.6 times. So, investment grade levels very much early improvement on that front. Then, we're going to talk also in this presentation a lot about Brownfield. As, Brownfield has become our main source of growth going forward. We're very pleased with the strategy. For the first time, also in the history of the Company, we not only have a five-year mine plan, but we also have a five-year exploration plan, with very defined targets and, of course, with a full financing of that plan. We'll talk a lot about that, and where are the targets on each mine, and what are we thinking on doing, going forward. We have announced a dividend, we're not forgetting about that. Again, the first priority of the Company remains repaying debt continuous through the Brownfield program, but also returning cash flow to shareholders. So, during the first half of the year, we announced $7 million of dividend. We're announcing $7 million more. That brings the dividend to a dividend yield of approximately 0.8% or 0.9%, and it represents very close to 30% of net income. This is the summary of our P&L. Again, revenue significantly increased. There's a little bit of an increase due to prices, 5% or 6%. But most of the increase is related to higher production of gold and higher production of silver. Cost of sales, unit costs very much under control. Higher depreciation related, of course, due to the fact that we are now fully depreciating the investment in Inmaculada; driving gross profit to 29%, compared to only 13% in 2015. Admin expenses have been going up by $10 million. But this has to do almost exclusively, due to the fact that there are some extraordinary bonuses for staff that are related to the performance of the share price. They are evaluated every three years, so we have to mark to market the three-year programs every year. They are very much in the money after the 2016 increase in our share price, and that is reflected in our admin expenses. Selling expenses coming down substantially, mainly having to do with the fact that export taxes were eliminated in Argentina. Exploration very much in line with what we had last year. We're going to talk also about increases in our exploration budget from those $9 million to around $25 million, which is the budgeted amount for 2017. Within others, which is also a very important number there, we have the Patagonian port credit. It's a credit we were receiving in Argentina for exporting through this remote port, but it's a credit that we will no longer have, going forward, unfortunately. Financial cost $29 million. Again, the largest number there comes from the interest that we pay on our senior notes. The senior notes are due in 2021. But there is something very important. Although they mature on that date and that year, we have a call feature, and we can start calling those bonds, partially or in full, starting in January of next year. So, in less than a year, we'll have the ability to fully call on those bonds. Again, we're paying a coupon of around 7.75%. We will have cash on hand at that time. For the balance, we could take on short-term lines in Peru. Right now, we have around $175 million of short term lines in Peru, for which we pay around 1%. Once we call those bonds they are going to be material savings north of $20 million per year, that are going to start going through the P&L of the Company. We reach a net profit of $69.3 million; $53.2 attributable to our shareholders, after discounting the portion that we do not own in Argentina, representing $0.11 per share. The EBITDA, also very important number, reached almost $330 million for the year. A big improvement from the $139 million that we achieved in 2015. I like this chart very much because it shows the waterfall of our cash flow. You can see how important Inmaculada is now for us; Arcata, also with very positive generation; as well as San Jose. Pallancata is all about transitioning to Pablo and we'll talk also about that. But you should expect, going forward, that Pallancata represents a much more important percentage of our cash flows. Hedges. We lost in hedges around $19 million. Important to note that going forward we have no hedges at all. Admin expenses, we already talk about that. That basically has to do with our corporate offices. We repaid $127 million in debt. We paid $26 million on interest. We paid $18 million to McEwen. Remember, last year we took around $36 million out of Argentina, approximately half of that corresponds to a portion that McEwen mining owns. We paid $7 million at the half year. We paid some taxes and there have been some important improvement in working capital as well. The Patagonian port credit, important to note, it's around also $18 million/$19 million. We have not collected that amount during this year, it is -- sorry, during 2016; it's expected to be collected starting 2017. Hopefully, we'll start collecting it in the next coming months. So, we ended up the year with $140 million in cash. In terms of cost, again, we're very proud to say that underlying costs are very much under control, both in 2016 and in 2017. We'll see the projection later. This only evaluates our performance compared to the previous year. There is a higher cost in Inmaculada, basically due to a fact that, in 2015, we had some free material that came out from the mine development and that was capitalized at that time. In the case of Arcata, there was an important reduction. We have been doing lots of initiatives in Arcata that have to do with improving the mine cycle. We have been improving also --we have increased the length of the bars that we use for blowing the mineral during the production cycle. We have changed the supplier of energy. You will see within the exceptional items that there's a penalty that we had to pay upfront, in order to change the supplier. But that is resulting in important cost savings going forward. Pallancata. You see the costs are relatively high and they went higher, because the production is relatively low. We have started to do investing in mining infrastructure to access Pablo, so that has a particularly high impact in the all-in sustaining cost. But the expectations in Pablo going forward is that the all-in sustaining cost is going to be highly, highly competitive. Hopefully, challenging or approaching levels of Inmaculada. So, the total number -- sorry, and San Jose was particularly benefited again by the elimination of export taxes and by the Patagonian port credit. We've lost the Patagonian port credit, so going forward we should expect that a little bit over $1 should be added to that all-in sustaining cost. But overall, the $11.2, I believe, is a fantastic number. It's highly competitive and, again, it has continued a five-year trend of further lowering costs at our operations. In terms of sustaining CapEx the guidance that we're giving is between $120 million and $130 million, which is very much in line with what we had last year. The biggest difference is that we're spending less in Inmaculada. In 2015, we needed to continue investing in finishing the plant. That is completed now. The $45 million of 2017 does include $15 million for increasing the tailings dam capacity at that operation. In Pallancata you can also see an important number of $25 million. Of course, most of it has to do with building a new ramp and accessing the Pablo vein. At the bottom of the slide, you see the new brownfield number. Again, as I mentioned, we're increasing it quite substantially. You can see that most of that amount is expected to be invested in Inmaculada. We have some charts to show you where we are planning on spending that: Arcata and, in a lesser extent, Pallancata and San Jose. Finally, moving into the debt situation of the Company. I think I've mentioned most of these points. Earlier this year we paid the last stop of short term debt that we have, $25 million of short term debt. The only debt that we have outstanding in the balance sheet are the bonds that are due 2021. In the chart, you can see very nicely how the leverage ratio came down, both as a result of cash flows generated by the business, as well as the rights issue that we completed in October of 2015. That finishes the explanation of the 2016 results. We're going to move now into the rest of the presentation. Typically, this is a part that Ignacio would have done. Starting with strategy and we're going to talk a little bit about each operation and then the exploration plans also in each of the properties. So, our strategy continues to be the same as the one we have been following for the past few years, and it's supported in three pillars. The first one is our core assets, where we mostly focus on cost controls and extending the life of mine. You know that we have spare capacity at certain operations. Our intention is to try to bring forward as much NAV as we can. So, we're working on that front. In terms of exploration, that is mostly Greenfield exploration. The strategy there is we already have a couple of drill ready projects that we plan on following in Peru during this year both of them are in Peru. The idea is to continue our staking process. For us the opportunity right now to acquire high value properties throughout the country and we're working on that as well. Again, this strategy, at this point, is mostly focused in Peru. The second part, which is acquisitions, as we have stated repeatedly, our interest is in early stage type of projects. We continue to believe that most of the value for a company like ours is generated by discovering resources or by putting projects into production. So, we're looking for early stage projects that have significant geological potential and that can allow us to obtain results on capital of between around 12% to 15% in the future. Based on that strategy, we have been able to achieve these results. Again, since 2012, we have been increasing production. We started with gold and silver split of around 75% between them, 75% silver. This year well, sorry, 2016, the split was almost exactly 50% gold and 50% silver; record year. As I mentioned earlier, 2017 we're going to go even beyond that number. At the same time, we have been able to reduce costs also quite dramatically. You can see the trend there. This year, 2016, I think in your presentation, you have an $11.3, but it has been updated in the presentation. The number is $11.2. Notably, also in 2017, that all in sustaining cost is increasing a little bit, and let's go to the following slide, to explain where that increment is coming from. Mostly, that is a result of putting through a higher exploration budget at our operations, in order to increase life of mine at them. That growth investment that you see listed there is a reflection of the brownfield investment and some of the investment in Pablo that we consider is a one-off capital to put Pablo into operation. You see here in the bars how much is the cost without that growth investment and you can see that the underlying numbers continue to be very much under control. Arcata is a little bit higher than the rest. Last year, we had a very good year. Again, we have several cost reduction initiatives in Arcata, but we believe that for a material change or structural change in the cost of the Company, we need to be successful also in the brownfield program. I'll now show you in the map what is it that we're trying to do. Pallancata again, the number continues to be relatively high. It will come down as Pablo begins full production. San Jose has gone up primarily as a result of not having the Patagonian port credit. We're also working on several cost reduction initiatives there. Very important also, there is a macroeconomic upside potential in Argentina, because since Macri became president there was a lot of devaluation in the country. Inflation has been catching up, not creating any differential. Going forward, we believe that this differential should be created. I don't know if you have seen, but Argentina has been going out to the capital markets to ask for money in their roadshow presentations. They have the commitment from the government to bring inflation down from around 40% per year to 10% per year. If they're able to achieve that and maintain that evaluation rhythm that they have right now, that would create additional competitiveness to the country and, of course, better margins for Hochschild Mining. Going to the detail of the assets now. In the case of Inmaculada, our objective is to repeat the performance of last year, produce 17 million ounces of silver equivalent. Now, remember that Inmaculada is mostly gold. Remember, also, that Inmaculada is very close to the first decile of the world's gold all-in sustaining curve. You can see how competitive this asset is and our intention, of course, is to try to maintain the cost at that competitive level. We're expanding the tailings dam there for another three years. That is costing around $15 million. We're improving the logistical access. That means that for those of you who have been already Inmaculada, you know how far Inmaculada is from Lima. In order to get there, you have to fly to Cusco or Arequipa, and there is a long, a very long, car ride to get there. So, that is preventing us, we believe, from accessing to the best people possible in Peru. By improving this, we're improving access to the Andahuaylas Airport, which is only five hours away. We're putting bridges over certain areas that will help us have full access to the operation, but in the quickest way possible, thus allowing us to attract more talent to the operation. And, we have activated the backfill and detox plans. This is going to result also in a little bit higher cost, because we will have to treat the cyanide before it goes back to the plant. But it's a very important feature because, with that, we can also put the paste back in the mine; thus, improving the mine cycle of the operations. We're going to resume exploration. In the past few years, after securing a resource that allowed us to build the project, the attention of the Company had been in putting Inmaculada into production and ramping up efficiency. Now, that we are where we want, most of the attention is going to move towards exploration and trying to find ways in which we can increase our resources and potentially increase the capacity of Inmaculada. In the case of Arcata, we have a goal of trying to bring the costs down to a 2016 level, which was around $13.5. We're dealing mainly here with a very large number of narrow veins. The fight against dilution is daily. We don't require any major projects; the tailings dams are fine. The aim is, again to bring capacity up to 2,500 tonnes per day that we have at that operation. If we're able to do that, and if we're able to find veins that are a little bit wider than the ones that we're extracting right now, we are going to be able to reach this ambitious goal of bringing the costs down to $13.5. Here, we put that, the spare capacity that we have at the operation at this point; it's operating at around 70%. Also, we wanted to include Ares here, because Ares is an operation that is relatively close to Arcata. We are going to be putting exploration money in Ares this year. For those of you who remember, Ares is an operation where we produce one year we produced at 26 grams of gold plus 350 grams of silver. It was that rich. We're not throwing the towel on Ares. We're putting exploration money, if we're able to find some we can put it very quickly through this plant. It's fully permitted, so that's also an important optionality that the Company has. Pallancata is all about ensuring that Pablo ramps up. Very important, very important to know our guidance for the year of 37 million ounces is going to be heavy weighted towards the second half of the year as Pablo ramps up during those last two quarters. Important to keep in mind as you see our production coming from the first quarter, and then it's not necessarily going to be a fourth of the guidance for the year. There are certain permits that we need to obtain. It's a very curious situation in Pablo, because within the same vein, there are certain areas which are permitted and certain areas which are not. There we can start production, but, at the same time, we're working on fully permitting the whole area in order to be able to extract all the mineral that we have identified. In the case of San Jose, also San Jose is at a very strong production of 14 million ounces. The costs are competitive. For the first time in years the conversations in San Jose are not about politics or the government or new taxes. They're about full production. We're talking a lot about exploration as well. We have a highly promising property there. I'll show you the map very close to Goldcorp's Cerro Negro and we have a couple of important projects there. One is also to change the field process on the plant, bringing tailings back into the operation to improve the mine cycle and, also, or control to further control dilution in San Jose. Before going into the detail of exploration, there is also an adjustment that we have made this year to our reserves and resources that I would like to explain before going into further detail. There are two important adjustments. Of course, on top of the addition of the Pablo resources, there are two important additions, sorry, adjustments. The first one has to do with lowering the price of silver that we use to cap both our reserves and resources. We have kept gold at $1,200, but silver is being adjusted from $20 to $16.5. Last year, when we reported, we had a sensitivity table published as well saying that the potential change in that direction would have very limited impact, and that's exactly what has happened. So, the adjustment is very limited due to that change in prices. Then there is a second effect, which has to do with making sure that the resources that we publish to you are the most realistic possible. We also have claimed that our resources have a very high conversion ratio into reserves and we want to keep it that way. This year what we did is we looked at our resources, trying to find resources that had a very low probability of converting into reserves. We found two different categories. One, in the case of Arcata and San Jose, there were some inferred resources that had either very low grade or were relatively far from the existing mine infrastructure and, as such, had very low probability of being taken out from the ground, so we had decided to eliminate those. In the case of Pallancata, remember the old Pallancata vein that we are no longer mining, there are certain areas that had bridges and pillars that were never taken out. During 2016, we continued to try to take out as much as possible, because those were relatively high-grade areas, but we have reached a point in which we believe it would probably imply complicating the structural support of the whole area, and we have decided to leave those bridges and pillars there. As such, as have decided to eliminate them also, eliminate those resources from our statement. With that in mind, the reserves have been reducing around 9% and the resources in 16%. The resource number continues at a very important number of 475 million ounces of silver equivalent. This number does not include our projects like Azuca, Crespo and, most importantly, Volcan, where we have around 10 million ounces of gold ounces. This also does not affect, actually it makes it look a little bit harder to reach the goal that we stated in the capital market. Sorry, not gold, but the ambition that we expressed during last year's Capital Markets Day of trying to have five years of reserves, plus five years of high-quality resources. We want those resources not to be any resources, but resources that could be converted into reserves. So, in total, trying to offer you around 10 years of very credible and sustainable life of mine. Important to mention also that when we have done our mine plans and used those mine plans to give you the guidance on production and on costs, these ounces that we have eliminated from reserves and resources were already not included. The impact of this elimination, of this adjustment into our mine plans is zero. Moving into exploration. The purpose of this very busy slide is just to tell you that in the past, we have been very successful in exploration. In Argentina, when we started in 2006, we had three veins. Right now, we have close to 160 veins. How we have been able to do this? Well, during this process, we have as, most of our veins are underground and are under cover, so it's very hard to tell from surface where to explore. Now, during all these years, we have developed several techniques, most importantly, trying to find a correlation between the geophysics that we can do on surface with what's going on underground. We have worked very hard in finding correlations between the two. We believe that we have a very solid model right now to try to identify and understand what's happening underground. With these techniques, we are now applying with these techniques that were very successful in Argentina, we're extrapolating now and we're using it at all of our operations. In the case of Inmaculada, all the resources that we know at this point are coming from this red area of the Angela vein. We have identified other smaller ancillary veins, but the stronger part of the resource and reserve and all of the reserves are coming from the Angela resource from the Angela vein. We know now from geophysics that the Angela vein could even double or triple in size, again based on geophysics. Why haven't we followed on this area so far? As you can see here, this is the Angela vein as well, it outcrops on this end, on the other end as the vein does plunge. I don't know if you can tell by the scale, but this is around 400 meters under the surface. Our idea is that as we move forward in mining the vein, it is going to be easier to try to follow the vein from the inside. At the same time, we have identified other veins in the area. Most notably, let me explain a little bit about Millet. In Millet, we already have a lot of good intercepts. These are intercepts not from 2016 or 2015, but before when we were trying to locate a major vein in the area, and we have very good intercepts. At that time, geologists thought that Millet had a north south orientation and that eventually, it will converge with Angela. Now, we know from the geophysics that Millet might have a different direction; more of an east west direction and that is a hypothesis that we are going to prove this year. We have part of our budget is going to be dedicated to following on this idea. If we are successful in Inmaculada, as you can see, in Inmaculada we are not necessarily trying to find additional ancillary veins; we are trying to find another vein as important as Angela, in order to have a very material and new resource. If we are able to do that, given that we're already operating at full capacity at Inmaculada, that mineral would go to the end of the life of mine; thus, increasing that life of mine. However, we do have the possibility of expanding Inmaculada. The bottleneck right now is this tank that you see here, this flotation tank. But you see also how there has been room left available for these additional tanks and, also, for the CCD tanks, there is additional room. So, at a very low cost of around $10 million, we could expand the capacity from 3,850 tonnes, at which it's currently operating and go to 4,200 tonnes again at a cost of $10 million and expand all the way to 5,000 tonnes per day at a cost of around $50 million. Again, we are not going to do this unless we have the resources. The resources have to be pretty material, because if they are only marginal, they would just go into the tail of reserves and resources of the operation. Moving into Pablo. Many of you have noticed that we have changed the names or -- well, the geologists have changed the names of the Pablo Piso and have started to give them proper names like Juan, Pedro, Simon and Tomas. Notably, in Pablo, look at this. In December of 2015, we had almost 23 million ounces with 368 grams of silver equivalent grade. That number has increased by 78% to 40 million ounces, and the grade has increased by 44% to 529 grams. So, you can tell that in order to achieve this increase in grade, the additional mineral that we have brought in is of very high grade. We are very optimistic about the future of Pablo. It's still a structure that remains open. We are going to continue to chase it. We have identified other structures, like this one, Explorador Marco. That area is fully permitted and that is one area where we are going to be putting additional drill holes also this year to try to pursue. Going into a more regional map of Pallancata; hope I can explain this well. This is the old Pallancata vein. We were working on this Yurika vein when we discovered Pablo on this end. Now, Pablo was found in an area that there wasn't supposed to be any mineral there, so that has also changed and adjusted the model that we have and has brought up a new series of hypotheses that we would like to develop. One of the things that we are doing is we are going to be working this year and trying to see if there is an extension of the Pallancata vein on this side that eventually converges to Pablo. The other thing that we are going to be looking for more regionally, at Pallancata, is to follow this Cochaloma structure together with this Palca structure. And you don't see it here, but underneath Pallancata, remember, we have Immaculada, and there's also a Puquiopata structure here that our geologists think that they could be related. So, this could be 14 kilometers of a structure that does outcrop and we can see in surface that it's around 10 meters wide in certain areas. So, we're excited about this because it is very, very promising. The idea is also to obtain the permits and try to drill these as quickly as we can. In the case of Arcata, it's a little bit different. In the other operations, I have mentioned trying to find very large structures as a primary objective of the exploration campaign. In the case of Arcata, given the spare capacity that we have and the goal of trying to reduce the all-in sustaining cost, the exploration is happening much closer to the current mine infrastructure, with the aim of trying to put resources through the plant as quickly as possible. The idea, in Arcata, for this year is pretty innovative. What we, what our geologists have in mind is they want to put a drill holes that are parallel to the ground for an extension of around 2 kilometers. That has never been done in Peru, nowhere, using a Canadian company for this. In the past, the longest drill holes had only 600 meters. We're going 2 kilometers now. It is not that expensive; it's around $95 per meter. So, we're excited about those possibilities, and we're going to be putting them up here to try to follow on this Paralela structure. Marion is, was the richest vein in Arcata, and we're going to pull it here trying to see if there is potentially an extension of Marion somewhere. Here is the famous tunnel area which fed most of the production in 2015 and 2016 in Arcata; the good production that allowed us to have the lower grade. The idea is to put one of those 2 kilometer drill holes also in this area. So, we're excited. We have a plan. We don't need permits for that, that's another positive, and that is going to happen this year. In the case of San Jose, I like this chart very much because it shows the amount of property that we have in the joint venture with McEwan, and it shows also what Goldcorp has in this area. In the middle, there's a Coeur property, but this is highly prospective, highly prospective ground in Argentina. What we have been mining is these red dots; these are our existing veins. This in blue are the inferred veins that have been made using, again, geophysics, and the ideas and the target that we plan on pursuing, not only in 2017, but also in the years to come. We have started already. Again, this red chart is the same that you see on the chart on the left, these are the red veins that we are currently exploring. We have started the drilling in the northern end in an area called Agua Vivas. We've had already some positive results, which is very encouraging. We believe that the plan here is going and moving in the right direction. Finally, just a quick note on our early-stage projects. You remember that we have Crespo and Azuca in Peru. Azuca is also going to receive some exploration dollars. Again, based on recent results in all operations, our geology team believes that there might be that a mineralization in Azuca might be on a higher level than we had previous anticipated. So, we're going to be putting some drill holes to see if this hypothesis is true. If it is, you know Ayacucho is a deposit with a very large amount of vein, so this could be revealing. Crespo again continues to be fully permitted, but we are not moving it forward at this stage. And Volcan, I think when we purchased it we knew it was a long-term project. It had basically two important challenges. The first one was energy. Energy people were paying around $180 per megawatt in the area. That situation has changed quite dramatically, because of the reduced cost of solar panels and this part of Chile is known as the Saudi Arabia of radiation. So, the cost of energy has dropped quite dramatically. Now, people are paying around $40/$45 per megawatt, and there's a trend there that continues to be going only in one direction. So, that problem is kind of solving out. The second issue is water. That problem, on the other end, has become even more difficult. This project had the water rights already in place. But, as the Government of Chile is making it tougher for the mining industry to access the water from the water table. Eventually, the solution will have to come in the way desalinating water and pumping it up to the mines. But, of course desalinating and pumping is energy. With the energy costs dropping, we hope to see better alternatives and solutions for that problem going forward. In summary, record year in 2016; hopefully, a new record in 2017. Underlying costs have performed very well. They will continue to do so, but we are going increment them a little bit on purpose going forward, just to make sure that we have the appropriate budget, to pursue the aggressive exploration plan in which we are supporting our growth going forward. Very excited about Pablo; the grades and the resources that are coming from there are really impressive. So, we remain very optimistic about the possibility of further expanding the operations there. At the same time, the balance sheet has also improved a lot, with the expectation of almost reducing fully reducing debt early next year, but for certain reduce the cost of financing in an important way in the near future. With that I thank you for your attention and open it up for questions. Q - James Bell: James Bell, BofA Merrill Lynch. Just a couple of quick questions, firstly on the debt, can you talk about what the targeted interest rates you're looking at, and what split you'd expect to be, in terms of are you going to look at doing another bond, or are you going to look at just using your local credit lines? Then, secondly, just remind us what your conversion rates are and resources historically, and what you think you can get to now that you've recut your current resource package?

No, in terms of the debt, we have $300 million of debt, the bond is actually $295 million, but we will need to pay $103.875, so that's another $10 million let's call it, $305 million. We have right now $140 million in cash. The idea is that this year probably at these similar prices we are going to be generating probably between $75 million and $100 million of free cash flow that we could add to that number. In general, our expectation could be that around two thirds of that money of that debt, could be repaid with existing cash, and one third with additional debt. Now, given that during 2018, we expect again to generate important cash flows, hopefully short term debt will be enough. Short term debt, again, we are playing close to 1% in Peru. That will be the top alternative. In the meantime, hopefully there will be some more projects to invest. In which case, we'll have to figure how we finance that. If we were to access longer credit lines in Peru or internationally, we have been quoted recently for five-year debt around LIBOR plus 2, LIBOR plus 2.5, so that would be around my expectation if we wanted to do anything further. Conversion rates, historically all the way from inferred and measure indicated into reserves, has been between 60% and 70%, I would say. Our expectation going forward is probably going to end towards the higher end of that range.

Hi, Dan Major from UBS. A couple of questions. In terms of your $25 million exploration budget, where do you see the biggest risks around that, I think particularly with respect to permitting, in terms of being able to deploy that capital? The second is around a bit more detail on the reduction in your resources, how much of that was price-orientated, and how much of it, you said it was as small amount, can you give us a sense of the percentage on that? Then just a quick reminder now earnings have normalized where you expect effective tax rate across the Group to come out at in 2017 and medium term?

Sure. You're totally right on exploration. Permitting is going to be certainly the most challenging part. There are certain areas of our plan that are already permitted, the permits fall now in two different categories: one with the government and one with the community. From the government -- but they're highly interrelated, because the communities play a high role in areas where this famous previous consultation. But we know very well which areas are affected and which are not, and it's the Government's role to define that. Now, the government in Peru, as you know, mining is a very important activity for the country, and the country is not growing as expected. There is a lot of comment also in Peru at the highest levels that production might be falling going forward for the country. So, the government is reacting to this very proactively, at the level of the President of the country, of the Prime Minister, and for the Ministry of Energy and Mines, trying to make sure that they expedite permits. Our outlook is positive. There is, of course, work to do. But when you ask about the biggest risk that is certainly so. In terms of the adjustment to reserves and resources, what I can tell you is that the differential generated by the drop-in prices is less than 5%. Charlie, correct me if I'm wrong, but it's around 3%/4%. The rest is explained by -- We have very little charts. I didn't show them here, because they are a little bit busy, and it will take me around 10/15 minutes to go through them, but I'll be happy to go through those with you in detail after the presentation. You ask about normalized, sorry?

Effective tax rate.

The effective tax rate, well, you know in Peru we're paying around 30% taxes, that's the nominal rate; in Argentina it's around 35%. But there are two different impacts. The first one is that in the case of Peru we're paying royalties, we have always been paying royalties. But around six years ago, when Humala became President of Peru, I don't know if you remember what -- we, as an industry, renegotiated royalties. At that time, it was agreed that the royalties instead of being a flat rate and a percentage of sales, it changed to being a percentage of the operating income. The larger the operating income a company had, he needed to pay a higher rate. Right now, with Inmaculada performing so well, we are having a very good operating income and, thus, we are paying the highest rate. That number, in Peru we have paid around between $7 million and $7.5 million of royalties in Peru, which brings the overall tax rate to a relatively higher level. Note that in Peru we have also losses accumulated, and we are allowed to bring forward a depreciation in Peru. This, 2016 and 2017, our expectation is that we will pay zero taxes in Peru. The royalties we do have to pay, and in Argentina we don't have that benefit. We've had that benefit in the past, we've brought some of the depreciation forward. Right now, the expectation is that, in Argentina, we pay around $30 million in taxes during 2017, of income taxes.

Sorry, just to be clear on that, so you're paying, you expect to pay $30 million of cash tax in Argentina?

In Argentina; zero in Peru; and we expect to pay in Peru only the royalties amount, which is around $7 million to $7.5 million.

Okay, but you still get a P&L tax charge, correct?

Of course.

What's the effective rate on that?

The effective rate for 2016, correct me if I'm wrong Charlie, somewhere between 20% and 30%. Sorry to give you such a large range, but we will clarify on that.

Great, thank you. Two questions, the first one on San Jose. What inflation and peso assumptions are you using for your cost guidance, just with how much it's moving around right now? Then secondly, at Pallancata, at Pablo, there's multiple veins. In terms of the widths of those multiple veins, as you look to convert that into reserves, how do you see the grade transferring across?

Yes. First, in terms of inflation and devaluation in Argentina, in our cost guidance, we're assuming a zero impact. I think the number for both of them is around 25% inflation and devaluation. But should there be a higher devaluation than inflation, it should be a benefit to us; and, of course, the oppose is also true. In the case of Pablo, the grade, I would say, should be very accurate and should be a very good reflection of what we expect the production rate to be. The grades in certain areas are just impressive. Curiously enough, it's not a net, the veins in Pablo are relatively wide all in all. Having said that, the veins that are narrower but they're still at a very good width, have the highest grade and the veins that are, especially the main Pablo vein, which is much wider, has a relative lower grade than the others. So, that's why we expect that the grade is going to transition very well into production.

Two questions. Just one on the dividend, I know you say that paying down debt is a priority, but once you've addressed that bond, are you looking at a different policy? It seems like the dividend to date was just a flat nominal amount. Maybe just comment on that?

Sure. We talk a lot about dividends, of course, at a Board level. But what we see, Ian, is that there is a lot of volatility in in our cash flow from operations, of course, as a result from the volatility of gold and silver. So, it's really hard for us to make very long term projections, but our first goal is going to be again fully repaying the debt, continuing with the Brownfield project. Continue paying dividends, I would say what we have been paying, now I think it's a good reference. It's not a policy, but it's a good reference. What I can tell you is that the Board keeps very much in mind the fact of how important it is for shareholders to receive its dividend. The intention is to maintain the policy not [Indiscernible] the policy, to maintain the payment without having a very explicit policy. But what I can tell you is that if we continue in this line of showing positive results, in all likelihood, the payment of dividends will certainly continue.

And then just secondly on your Brownfield exploration that's picking up, maybe just looking at the profile over the next few years to get to the 2020 target of 10 years for resource, how much does that figure need to go up by?

It's very interesting what you are asking, but here, the plan that we have put together is a plan that will also ramp up tend to ramp up towards the end of the period. The reason is because there is a lot of permitting work that needs to happen upfront. For example, very explicitly during 2017, it shouldn't be precisely one fifth of that goal. On the contrary, I would say, we should start, especially given that it is such an aggressive number, that we need to go find mineral in areas we are relatively outside of our existing mines. Thus, requiring new and different permits than the ones that we have already in place.

But maybe just to push you on that, what's the absolute figure you need to spend to get to that 2020 target? I know you gave some ranges in the Capital Markets Day last year, but maybe just flesh that out a bit more.

We believe that this $25 million, if we can maintain that number consistent during the next five years, that would be enough to obtain the potential resources that we need for the goal. Once we discover those potential resources, converting them into inferred and measured and indicated will require additional budgets. Those additional budgets will be related to, of course, the timing and the quality of those potential resources. But, all in all the estimation that we have given is that we should be spending around $0.30 per ounce of silver discovered and incorporated into inferred resources.

Dan Shaw, Morgan Stanley. Just one question on Pallancata. You said the target there is to get to 2,400 tonnes per day by the end of the year. Obviously, there's still a little bit of extra spare capacity there to take you up to 3,000 tonnes. Could you talk about what needs to happen to get up to that level? Thanks.

Yes. What needs to happen is we need to have the accesses of the mine. The bottleneck is going to be the mine. We started with 2,000 tonnes, but as Pablo has started to expand and you saw that chart on Pablo that there are several other veins, so if we can access them in parallel as long as we can access them in parallel, the restriction will be the access to the mine; that's why we're building especially a new ramp for this area, at a cost of around [$15 million], to try to broaden that bottleneck and allow for a production in parallel. I think that the goal is going to be 3,000 tonnes per day. For this year, we have brought it up to 2,400 tonnes. It seems that a higher number could be possible in the following years, but so far, we have not fine-tuned that number. But there is certainly the possibility, because we are doing everything possible to expand bottlenecks, to make sure that we reach that capacity. The bottleneck, again, is at the mine.

And just one follow up. If I understood you correctly, the -- well, not all of the resource that's been increased at the Pablo is in permitted areas, is that correct? Can you give us an idea of how much sits within areas that are already permitted, and how much is outside that, or is that different to --?

Very broadly, I would say half and half. Yes, it's very curious because it doesn't show in that map, but where you see where we have our environmental impact study, because this is in an area where, as I showed you in Pallancata -- let me show you very quickly. Now, in the case of Pallancata, we had like secured, let's call it, all this area in terms of permit, and Pablo is right at the limit. The permits are cutting Pablo at around here. Also, the Pablo vein is in very good shape, I would say most of the Pablo vein is in very good shape. But these areas of the Pablo Piso, especially higher grade areas, need the permit -- for the permit to be updated. The things that we're working with the government are potentially that, because we're talking this is 5,000 meters above sea level, 200/300 meters underground, in the middle of nowhere, why is there a reason to have a super-complicated update of the permit? Of course, they understand that very well and they are working with us in trying to improve the permit. But even if they don't improve the permitting process, with the areas that are already permitted, it gives us enough room to achieve our production goals, as we have stated them. Hopefully, they -- if we receive the permits further, that will help, for example, in trying to expand capacity earlier on.

Thank you.

Just a quick question on medium-term capital structure of the business. Obviously, the immediate goal is to pay down the bond early, as early as possible. But in the context of net debt EBITDA 0.6 times, is there -- how do you think about medium-term capital structure of the business? Is there a comfortable level of net debt EBITDA that you target, or is it really just focusing on reducing net and paying for brownfield exploration?

Important question. Look, in terms of capital structure, we believe that we would prefer to have the lowest amount of debt possible. If we don't have a very specific use for that debt, then we don't see much point on having it. The problem, again, is the volatility of our cash flows. That prevents us from having a too aggressive amount of debt in the balance sheet. Of course, smaller amounts like keeping $50 million or $100 million in debt in the balance sheet, that's certainly fine. That can certainly work, especially if the debt is coming at such a low cost as the one that we describe. But certainly, nothing material, and we're not targeting a very specific goal in terms of capital structure or leverage ratios. It will be different if we have a project that we want to invest in, like it was the case of Inmaculada. For the case of Inmaculada, we decided to take on a lot of leverage, of course, and some part of equity. But that was because we felt very confident that this was a world-class project. So, we were prepared [indiscernible] project sitting on our backyard, with risks relatively managed. We know, you know, we know the authorities; we know the area; we have infrastructure. We know the geology of the place very well. So, we felt comfortable in taking that risk. Going forward, it has to be the same case. If it's a super-high quality project, then we'll probably also take advantage of the debt market. If not, there will, these things will need to be financed with either equity or cash flow. Cash flow, primarily, because we'll have an excess on that front.

Dan, UBS. A follow up on Dan's question, just around permitting again. After the $25 million exploration budget, if you assume, like, what's the split of actually permitted areas you can spend, and how much of that do you need to receive the permits to spend up to that amount?

Yes, it's a very good question. Unfortunately, it also has different degrees, because there are areas, for example, where we don't have the permit, but the permit is expected to be received in the next two or three months. There are others in which the permit is expected to receive up to a year. So, when we did the budget for this year, what we think is that we can spend that $25 million. What areas are permitted and which are not, let me show you, for example, what I have in mind. This is, we'll start with Pallancata. In the case of, sorry, Inmaculada. In the case of Inmaculada, one of the largest objectives is to explore the Millet vein. The expectation is that the permit is received in Q4 of this year. In the case of Pablo, this area, Explorador Marco, as I mentioned, that is fully permitted. We can go at it right now. But for this area, for example, Palca Cochaloma, probably it's going to be either Q4 or Q1 of next year. This area, we don't have it permitted. That is probably going to be pushed, have a larger potential of being pushed towards next year. In the case of Arcata, as I mentioned, at the core of our plan, we don't need the permit, because we are going to be exploring from underground with these parallel drill holes. So, that is in good shape. And in the case of Argentina, there is no major problem with permits. Again, it's a combination. Some of the areas we already have permits. In others, we don't need it. In others, we're expecting those in the second half of the year, with the risk of having to push them to early 2017. There are others where we believe it's a longer shot to have it this year. We still have it in the budget, but we're pushing really hard, as I mentioned, working hand in hand with the government, to try to bring them forward. It's in everybody's benefit to do it, actually; you're harming no one by bringing that forward. So, it doesn't make any sense. That's the plan.

Okay. So maybe 70%?

Let's call it 70%, that's fine. All right? Well, thank you very much for -- sorry, questions on the phone.

[Operator Instructions]. There are no questions on the line at this time.

Well, thank you very much for attending. Thank you very much for your questions and interest in the Company. We have a nice plan in place. Hopefully, update you with more positive results going forward. Thank you.