Allied Nevada Gold Corp. (NYSEMKT:ANV)
Q2 2014 Earnings Conference Call
August 5, 2014 11:00 ET
Executives
Tracey Thom - Vice President, Investor Relations and Corporate Communication
Randy Buffington - President and Chief Executive Officer
Steve Jones - Executive Vice President and Chief Financial Officer
Analysts
Brett Levy - Jefferies
Kevin Cowen - Imperial Capital
Dave Forster - Merrill Lynch
Brian Quast - BMO
Ross Carden - Polygon
Operator
Good day, ladies and gentlemen. Welcome to the Allied Nevada Second Quarter Results 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Tracey Thom. Please go ahead, Ms. Thom.
Tracey Thom - Vice President, Investor Relations and Corporate Communication
Thank you. Good morning, everyone. Thank you for joining us today, as Randy Buffington, President and CEO and Steve Jones, Executive Vice President and CFO, will be discussing our second quarter 2014 financial and operating results. The press release for the second quarter financial results was issued after market yesterday and is posted on our website. Before handing the call over to Randy, let me remind you that this call is being webcast and a replay of the webcast will be made available on our website shortly after the call.
I will also remind listeners that some information provided during this call may include forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties have been materialized or the assumptions proven correct, these results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking. A discussion of some of the risks, uncertainties and assumptions are set forth in more detail in our press releases and SEC filings including the most recently filed Form 10-K and 10-Q. We assume no obligation and do not intend to update any such forward-looking statements.
I will now turn the call over to Randy Buffington.
Randy Buffington - President and Chief Executive Officer
Thank you, Tracey, and thank you everyone for joining us today. We have now hit four consecutive quarters of meeting or exceeding our operating targets at the Hycroft mine. Operationally, we are comfortably at a steady state with the mine moving approximately 300,000 tons of material per day. The operating team is getting more proficient with the new equipment, the Merrill-Crowe plant and the crusher and we are seeing much more consistency in our operating performance of the mine.
We are also seeing good cost control with the mining cost for the year ranging from $1.35 to $1.45 per ton and we can now say comfortably that the oxide expansion is complete and we should see improved operating performance with those components. Silver production has exceeded past performance as a result of operating a new Merrill-Crowe plant. A new Merrill-Crowe plant has higher silver recoveries from solution and the carbon columns that we are operating. Operating a new Merrill-Crowe has also been successful in pulling down solution inventories that built up as a result of the carbon columns.
We are currently averaging approximately 8:1 silver to gold ratio compared to about half of that at this time last year. Some of that is due to the mining operation as we transitioned into some higher silver ores. The crushers have been operating since mid-June. The manufacturer was able to repair the secondary and tertiary crushers at their expense and get the system backup and running to achieve our desired pressing capacities. We intend to selectively crush higher grade ore to the rest of the year, but still expect to crush 1.5 million tons to 2 million tons per month. The decision on the tonnage is metal price driven and not due to the crusher capacity. Manufacturer has also engineered a permanent fix. And once all the parts are constructed and shipped, they will be installed at Hycroft to replace these crushers at no cost to Allied Nevada. I would like to clarify that the permanent fix isn’t required for a heap leach plant, but is required for the mill once it is operating.
There have been many other operating developments during the quarter and I would like to highlight some of those today. We have improved the balance sheet with the sale of the 75% interest of the Hycroft project or the Hasbrouck project for $20 million and increased our revolver from $40 million to $75 million. They also continue to look for ways to monetize idle assets to continue to improve short-term liquidity. In May, we filed a technical report for the mill pre-feasibility study. We are very happy with the outcome of this study, but still feel there are some opportunities to improve on these results as we complete the feasibility.
We continue to work towards completing the feasibility on time and expect to issue the results in October of this year. In connection with the issuance of the pre-feasibility which provided us with a better understanding of our capital needs for the mill expansion, we initiated a process with Credit Suisse and Scotiabank to identify financing partners for the mill build. We are working through that process and given the confidential nature have been unable to update the market on any developments. We are moving the process along and as soon as we are able to provide you with an update we will. Our goal is to be completed with this process by the end of the year.
I will now turn the call over to Steve Jones to speak for the Q2 financial results.
Steve Jones - Executive Vice President and Chief Financial Officer
Thank you, Randy and good morning everyone. I appreciate you being on the call this morning. Let me start with the balance sheet you all have seen our cash balance at June 30 was $13.6 million. We do have an additional $10 million that’s now included in restricted cash as Randy mentioned we had increased our revolver from $40 million to $75 million and one other requirements of that new revolver of that increase is that we maintain a minimum cash balance of $10 million. As a result of that requirement we are now required to show that $10 million in restricted cash and no longer show it as “cash” on our balance sheet. Last, if you are looking at the financials and you are looking at any of your prior forecast, the equivalent balance is really $23.6 million and not $13.6 million.
We did defer some of capital spending during the quarter and I would talk about future capital spending here in a minute. If we move over to ore on the leach pads, we had $320 million in current and long-term inventory ore on the pads just under 250,000 ounces or $1298 per ounce obviously that excludes the silver value. This $323 million includes $50 million that we have reclassified from in process inventory of $50 million at 44,600 ounces in it. Those ounces were previously showed as – shown as a separate category in inventory we have not combined them, so that we carry all of the solution – all of the ore that’s in the pads in two lines either current or non-current.
If you look at the overall ounces in the pads as Randy mentioned we have decreased them some. We decreased Q2 by 2840 ounces, Q1 by 6380. If you go back to the fourth quarter last year we were still increasing, actually increasing in Q4 last year by over 14,000 ounces. We can now process all the flows and so you can expect to no longer see us increasing the inventory, but you should see us slightly decreasing early inventories staying pretty flat as we are basically in steady state production at this stage. We placed the ounces in the second quarter at a cost for recoverable ounce again ignoring silver values of $1146 that was in line with our internal budget and was $63 less than what we had achieved in Q1 which was $1209 per ounce.
Moving on to the balance sheet, we are showing assets held for sale of $46.6 million. We had no significant sales in the second quarter although we did have quite a few inquiries on the shovels that’s the one electric rope shovel that we have in storage, four haul trucks and the three drills. Overall, we have $28.8 million of capital leases that are related to the $46.6 million all of those are specifically related to the shovels, the trucks and the drills specifically $18.8 million to the shovel, $4.8 million to the haul trucks and $5.2 million to the drills. So net-net we have got $17.8 million of unencumbered assets held for sale.
We did write down during the quarter an additional $4.8 million to fair market value. We did that write down on the basis of the conversations that we were having on the different pieces of equipment. And we think we believe we have got a pretty good feel for what the fair market value is for those major pieces of equipment and consequently that’s now reflected on our balance sheet.
If you look at our debt at the end of June we ended up with total capital leases of $195 million, that’s down from $209.6 million at March 31 and over $223 million at year end. So, we have made significant reduction to our capital leases in the first half of the year. We look forward principal payments over the next four quarters of just over $50 million. So, again, you can expect to see us continue to bring our capital leases down for successful selling of those major pieces of equipment, you see another significant drop in those capital leases as well.
We show the current portion of debt at $73.7 million. That includes the full $28.8 million above for the debt related to the shovel, drills and trucks. Given that we are showing the assets held-for-sale as current assets, we need to show all of that debt as current. Although obviously it’s not current, it has its own amortization life in the case of drills and trucks, it’s five-year, case of the shovel it’s 7. So, the actual current portion as I indicated just a minute ago going forward is $50 million.
As we have already mentioned, we did grow the credit facility to $75 million. It continues to be a borrowing base facility utilizing the inventory on the pads and the other metal inventory that we have at the end of any given month as the basis for availability. The availability participation at 06/30, we had $178.4 million available. The terms of the revolver requires us to have $25 million more available in that calculation than what we have borrowed. So, if we were to draw on all of it, we would need to have $100 million available. Obviously, we have significantly more than that. We did not have anything drawn on the revolver at June 30. We did have $9 million of LCs that reviews to support the out of money swaps with the two banks that are no longer lending banks under revolver. You may recall that we have got two banks that have $90 million. They have swaps for $90 million of face value of our $400 million senior notes. And at June 30, we had $9 million of LCs placed at collateral to support the out of the money swaps.
Moving on to the income statement, we had revenues of $83.1 million in the second quarter on the strength at gold sales of 57,050 ounces at an average price of $12.92. That compares with Q2 2013 of 41,512 ounces at a price of $13.48. As Randy mentioned significant improvements in our silver grade, we had sales of silver of 474,800 ounces at $19, an average price of $19.82, that’s 225% of what we sold on Q2 2013. We had 8.32 split ratio in the second quarter and we are continuing to see higher silver come out here in the third quarter.
Our adjusted cash costs for the quarter were $806 an ounce. That was lower than our internal budget on the strength of lower mining costs. If you look at some of the components of that $806, we had a silver credit of $165 an ounce. That compares to $139 in the first quarter and our selling costs were $26 an ounce compared to $43 in the first quarter as a result of lower carbon sales.
As Randy indicated, we had significantly lower mining costs in the quarter at $1.35 per ton. We were at about $58 in the first quarter. We mined 25.5 million tons that’s about 0.5 million more than we mined in the first quarter. $1.35 a ton is probably the low point. We took advantage during the quarter some good shorter haul profiles and we had good availability in the utilization on our big shovels. Expect to see a little bit higher mining cost as we move forward into the second half of the year. Our strip was higher in the second quarter as was the plan we are at 1.31 versus 0.93 in the first quarter. That obviously drives our cash costs per ore turn or per gold ounce higher and we expect as we move into the second half of this year we will increase our strip even further to over 2 to 1 as we are mining through some ways to open up new areas for 2015.
The processing costs were $2.21 for ore ton that’s compared to $2.38 in the first quarter and that’s inclusive of crusher costs of about $700,000. We did a much better job of utilizing both Merrill-Crowe plants in the second quarter. We averaged to the new plant as we got the North Merrill-Crowe plant 18,700 gallons a minute in the second quarter versus 15,200 in the first quarter. And again only 9% of our production was on permit.
We increased the flows to the top of the plant on average in the quarter almost 1,000 gallons a minute. We are at 25,500 gallons a minute in the second quarter. And in the latter part of the second quarter we were in the high 27,000 to low 28,000 average gallons per minute. You will note that a $19.5 million gain on the sale of our interest in Hasbrouck, you will also see higher interest expense out of the $11.3 million for the quarter with only $640,000 capitalized as we are capitalizing interest on only a minimal amount of work. We are no longer capitalizing interest on the vast majority of the work that we are doing and we would expect our level of capitalized interest to remain the same in the $600,000 range until we restart the mill expansion.
If you look at our income tax you will see that we used an effective tax rate of 33.9%. We projected, that’s our projected tax rate for the full year 2014 we forecast no utilization or depletion in 2014. We did have an additional $600,000 of discrete items for the first six months, those are related to stock based compensation. For tax purposes the valuation of the stock-based compensation is based on when the share is vested, the value at that time. For book purposes it’s based on the value at issuance and in this case the tax vesting was lower and therefore we had to recognize some additional taxes. We are not a current tax payer from a cash standpoint and we don’t expect to be in 2014. Overall, we had net income of $4.4 million or $0.04 a share.
If you look at our cash flow statement you don’t see this on a statement but I am going to start with EBITDA we have $23.7 million of EBITDA in the second quarter. We had $12 million of interest that gives us $11.7 million of cash from operations prior to working capital changes. We did have a use of cash flow from working capital changes of $18.5 million. It’s primarily two items, we paid the senior note interest during the quarter that reduced our accrued interest payable by $8.2 million and we had production inventory increase of $9 million during the quarter. Overall, we had a use of cash from ops of $6.8 million.
If you look at investing used during the quarter we had a use of $14.2 million. We did generate $20 million from the Hasbrouck sale. We had a use of $10 million because we had to move the cash from cash on the balance sheet to restricted cash. And then we had PP&E additions of $24.2 million. So net we had invested use of $14.2 million. We had a capital lease repayments along with debt issuance cost of total $14.5 million for a quarterly tax reduction of $35.5 million resulting in the cash balance of $13.6 million.
If we look it ahead, our full year cash projections are consistent with the comments that I made since the beginning of the year. So, specifically focusing on the last half of the year, we can expect to have EBITDA of $40 million to $50 million using $12.50 to $13.50 gold price, interest expense of $21.5 million, capital expenditures of $20 million, that’s all the remaining capital that we expect to spend this year for both the oxide expansion, some of the commitments that we have previously discussed on the mill expansion as well as our sustaining.
And then we have debt repayments of about $25.1 million. That results in a use of anywhere from $16.6 million to $26.6 million. So, with a starting cash balance of $13.6 million, we are showing cash balance at the end of the year of anywhere from a negative 3 to a negative 13. Again, that ignores $10 million, that’s now sitting in restricted cash. We do have additional sources of liquidity as we continued to minimize the use of carbon we have receivable collections, where we do have the unencumbered $17.8 million in assets held-for-sale. We are working on restructuring our surety arrangements, which will generate $1.6 million of cash for us and of course we have the revolver of $75 million.
With that, let me turn it over to the operator and we will open it back up for questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions) And your first question will come from the line of Brett Levy from Jefferies. Please go ahead sir.
Brett Levy - Jefferies
Hey, guys. Assuming the project isn’t pushed forward, what do you think CapEx without the project would be for 2015?
Randy Buffington - President and Chief Executive Officer
Yes, Brett, this is Randy. CapEx will be quite low. We have a small expansion to the south of the Brimstone pad. And we are expecting that to be somewhere between $2 million and $4 million. Start of the equipment, there will be no equipment needs and no expectation. So, we expect sustaining capital for 2015 to be quite low.
Brett Levy - Jefferies
And what’s maintenance?
Randy Buffington - President and Chief Executive Officer
Yes. We are still in the middle of the fleet that’s fairly new. So there will be minimum maintenance capital. We are going through a lot of exchanges and rebuilds that will hit operating cost that shouldn’t impact CapEx.
Brett Levy - Jefferies
And then can you talk about sort of the elements and I know you can’t talk exactly of what we are going to do fund this really high IRR project. But is there sort of a debt and equity component, is there going to be more equity like I don’t know, which direction does this seem to be going and so forth?
Randy Buffington - President and Chief Executive Officer
Yes. I mean, Brett, we really can’t comment too much on that. I mean it is more debt like or sorry equity like. I think we have said that, we really need to be really careful with what we say about it for obvious reasons.
Brett Levy - Jefferies
Thanks very much guys.
Operator
And your next question will come from the line of Kevin Cowen, Imperial Capital. Please go ahead.
Kevin Cowen - Imperial Capital
Good morning and thanks for taking the questions. I guess in terms of asset sales when you look at the rope shovel, you mentioned there were several inquiries in that front, I guess, what’s the sort of obstacle to monetizing it? It would seem like it’s a non-productive asset, even if the bid is theoretically a bit that low from the company’s advantage, but any color on that?
Steve Jones - Executive Vice President and Chief Financial Officer
Well, I think it’s just making sure that we understand what the market is, Kevin and that we get something that we feel is truly fair market value. I mean, we very much want to monetize it, but we don’t want to give it away. I mean, we have been pretty close on at least one occasion. And we just – we want to make sure that we are giving fair value for it. If we look ahead and I know it’s looking ahead a little far, but we would use that shovel when we startup the second phase in the expansion. So, again, we just want to make sure that we are not giving it away. We think we have a pretty good idea of what its value, not just based on the conversations with potential buyers, but also based on conversations with Caterpillar and where they are with their shovels in selling those as well.
Kevin Cowen - Imperial Capital
And then I guess in terms of the sort of minimum liquidity, the company needs to operate what sort of day-to-day in terms of cash on hand, how do you view that figure?
Steve Jones - Executive Vice President and Chief Financial Officer
I think right now, we are sort of in a transitional period. I mean, we are working through the process. And so we are – in the short-term, we are looking to the revolver to help us I am going to call it kind of bridge the process. Once we are beyond that process, I think we would want to have $50 million in liquidity.
Kevin Cowen - Imperial Capital
And to the extent, the company drops below that $50 million figure, what is the sort of plan B if you will assuming the $1.3 billion capital raise doesn’t materialize?
Steve Jones - Executive Vice President and Chief Financial Officer
Yes. I mean, plan B what you know we would have to go out and raise some capital, Kevin.
Kevin Cowen - Imperial Capital
Anything you can elaborate on in terms of that potential capital ratio, but from the expansion, just to maintain liquidity or?
Steve Jones - Executive Vice President and Chief Financial Officer
Yes. Not at this point, I mean, we are really more focused on the bigger process.
Kevin Cowen - Imperial Capital
And then just to sort of reconfirm, when you think about streaming capital as the source of capital, do you kind of view that as more of a debt like obligation equity or it’s somewhere in the middle just from your perspective?
Steve Jones - Executive Vice President and Chief Financial Officer
Yes. I mean, it’s somewhere in the middle, but I generally don’t call it, we would call it, more equity like. I know the rating agency viewpoint, but if you just I will say talking with the commercial bank guys, they view it as equity like and aside yes, that’s my perspective as well.
Kevin Cowen - Imperial Capital
That’s very helpful. Thanks a lot and good luck with everything.
Steve Jones - Executive Vice President and Chief Financial Officer
Thanks, Kevin.
Operator
And your next question will come from the line of Mr. Dave Forster from Merrill Lynch. Please go ahead.
Dave Forster - Merrill Lynch
Good morning. So, on the past conference call, we said that the silver embedded in the inventory was a proxy for the cost remaining to get the inventory to final product. Is that still the case right now?
Steve Jones - Executive Vice President and Chief Financial Officer
Yes, Dave, yes. And it’s actually – I mean it’s a good proxy or maybe a little bit, maybe a slightly little bit more and we have got a lot – and quite a lot of silver coming out.
Dave Forster - Merrill Lynch
Okay. And just you talked a little bit about the reclassification of some of the inventory to the ore on leach pads, what is the difference between what you classified as in process inventories and ore on leach pads? And what changed with your view of the inventory in order to drive that re-class?
Steve Jones - Executive Vice President and Chief Financial Officer
Nothing really changed. So, we showed in process inventory of that 44,600 ounces, that I mentioned as inventory in a way reason that we have shown as inventory in the past. We had as we were stacking solution – we were showing some of that stack solution as production, this goes back a couple of years and so we are being shown as – and so it’s being shown as a different item in current assets as inventory. In an actual fact, it’s obviously the solution is in the pad, that it always lies we looked when we calculate it current versus non-current 70:30. I mentioned when we did that calculation, we always included that same in-process inventory. So, in actual fact as we were looking at it this quarter, we said why don’t we just put it all on the same line item and it will just make it a lot clearer? And if you go back several quarters, we have had some different discussions about this. So, really just trying to make it more clear to everybody that exactly where it is and it didn’t change current assets, it didn’t change long-term assets, didn’t change the P&L, it just moved from one line item on current assets to another.
Dave Forster - Merrill Lynch
Okay. So no change in what you expect for the recoveries within that inventory?
Steve Jones - Executive Vice President and Chief Financial Officer
No, no.
Dave Forster - Merrill Lynch
Can you talk a – sorry, can you talk a little bit about the recoveries and how they have been coming in the gold recoveries that is procedure expectations, what was outlined in the most recent 43-101?
Randy Buffington - President and Chief Executive Officer
Yes. David we are seeing the gold recoveries tracking right on targets with the modeling, with the projection as we started the gold on to the pad. That’s really looking at the north pad store where some of the historic inventories on Brimstone and Lewis we continue to bring those down as we stack on them, but the recoveries were in line. We are seeing a little bit higher silver recoveries than what the model is projecting and that’s really just a function of the cyanide solubility of the silver which varies throughout the deposits. D we are working through that right now to be able to predict that a little bit better. But we are seeing no surprises on the recoveries.
Dave Forster - Merrill Lynch
Okay, thanks for that. That’s it for me.
Operator
And your next question will come from the line of Brian Quast from BMO. Please go ahead.
Brian Quast - BMO
Hi everybody good morning. Just wanted to get a bit more granularity on the grades and strip ratios going forward into the back end of the year here. We go through the most recent technical reports the strip ratio is expected to be 1.8 and materially south of that for the first half of the year, has there been a change in mine plan as a result of the crushers being somewhat delayed or are there any other reason or what should we expect going forward and also the grades are a bit lower, but I would expect those to come up as higher grade fee to send to the crusher?
Randy Buffington - President and Chief Executive Officer
Yes. Brian this is Randy. First quarter was 0.9, second quarter was 1.3. We expect to see higher strip ratios we outlined in the press release in the second half of the year which is more driven by an opportunity to improve 2015 with excess equipment hours that we have right now as the crusher stabilizes the production. So we will see a higher strip ratio but not associated with the crusher it’s actually associated with improving 2015. And the grades that you said, the grades would stay fairly consistent with the silver grades being probably the biggest driver.
Brian Quast - BMO
Would you say that you are still on track for your sort as guided 1.8 strip ratio or was it going to be a bit lower than that?
Randy Buffington - President and Chief Executive Officer
Yes, we will be right in there Brian.
Brian Quast - BMO
Okay. Just one other quick question here, your language in Note 4 on the inventory, I know we have done a lot of talking about inventory, it seems like you are telegraphing towards if gold prices were at or below current levels, there is an enhanced chance or a chance of a write-down, have you guys done any internal work on that to see what the size of that write-down would look like at year end or if there is a write down or maybe just give us a little bit more granularity around that too?
Steve Jones - Executive Vice President and Chief Financial Officer
It’s yes, Brian I think we have given some information in the notes and actually in MD&A we have specifically talked about the potential for a write down. Given the current prices I would say if you – it’s hard to say but just as a ballpark comment I guess I would say sort of at current prices we could have a write-down of as much as about $20 million.
Brian Quast - BMO
And so that getting down to the $100 million at a level isn’t really on the (indiscernible)?
Steve Jones - Executive Vice President and Chief Financial Officer
Say again sorry.
Brian Quast - BMO
So, I mean in order to sort of quasi securitized your revolver there you need minimum of $100 million if you are at $175ish million, (indiscernible) that?
Steve Jones - Executive Vice President and Chief Financial Officer
That actually won’t have any – that’s a different calculation that won’t have any impact on that.
Brian Quast - BMO
Alright.
Steve Jones - Executive Vice President and Chief Financial Officer
That borrowing base is based on ounces at times of price. So it’s not a book value type calculation. So it’s a different calculation. But you are right the write-down I mean it’s not insignificant but it’s as I said probably about $20 million like if the borrowing based calculation is a totally separate calculation, it’s not a book basis calculation, it’s own calculation.
Brian Quast - BMO
Yes. Thanks a lot. That’s it for me.
Operator
And your next question will come from the line Ross Carden from Polygon. Please go ahead.
Ross Carden - Polygon
Hi guys. Thanks for taking my question. I just wanted to talk about recoveries and just on a bit better what is the current recovery level that you are achieving now and how is that compared to the historical level. And at any point what was the – what as the price in a sense and maybe just as going forward as I have implications on things like the inventory value in the borrowing base constellation and so on?
Randy Buffington - President and Chief Executive Officer
I will speak to the recoveries. We don’t expect any change to the recoveries and we expect the recoveries to track us along with historic recoveries. All of the work that we done, all of the work that we have seen now, we have got good data collection and we have got good controls on the North pad coming online and watching that. We don’t expect anything to change on the recoveries from historic recoveries. The run-of-mine recoveries will be consistent with historic as well as the pressure recoveries, so no change expected.
Ross Carden - Polygon
What is the recovery that you are seeing in the North pad and what was the recovery that you saw I guess inception to-date, excluding the North pad?
Randy Buffington - President and Chief Executive Officer
The recoveries changed throughout, remember there are six domains. Within those domains, there is four different recoveries, whether it be oxide transition for crushed material. So, it’s kind of a blended recovery. And when you look through it, it’s not a single number, because it depends on where we are mining at the time. But I can speak to some of that in the Brimstone material, which is some of our largest material. We are seeing our run-of-mine recoveries at expectations, which is in the I don’t have it in front of me, but it’s in the 56% of the fire, which is consistent with historic recoveries.
Ross Carden - Polygon
Okay. The reason I ask is when I look back, I try to look back from since the start of the whole operation. The implied recovery looks like mid 40s and that’s why I was wondering what level you are seeing now, is that mid 40s, is that the right number for the historical recovery or do you see it as a different figure?
Randy Buffington - President and Chief Executive Officer
Yes. I think it’s higher than that, but remember it’s difficult on a heap leach, when you are increasing the tons, because you are putting a lot of that recovery into solution. Also because of the process capacity the tail end that back half of your recovery is a very low grade solution. So, you are always pushing that forward. That comes basically at the end of the life of that heap leach where you are able to draw that solution down. And we are now moving into the process right now, where we have more solution processing capacity and we will see some of that solution inventory, but when you start to look at 100 million tons plus of heap leach and you start looking at just the poor water, you have 6% to 7% of your gold and silver that’s informal next year that has to be exchanged over time. So, at heap leach, the recoveries are going to be very cyclic and right now as we are increasing the inventory and we are going up on the heap, you will see more of that recovery tied up. So, I could talk through it in a lot more time as far as looking at the variable recoveries, but I think that the North pad is what we are focusing on. That’s where we are getting our data right now. And I think the point being is we are tracking very consistent with what the model and what the metallurgical recoveries expectations are.
Ross Carden - Polygon
Okay. And just to follow up on this one, when you prepare the accounts and you have that recovery assumption that determines how much is reflected, I am sure the cash cost is reflected in the P&L versus in the – I guess on the balance sheet. How does that recovery assumption compared to the recovery that you are seeing today on the pad? And is there any chance that you will have to I guess revise the inventory balance, because you are not going to achieve that historical assumption that you had on the company levels when you prepare the accounts over time and you capitalized a portion of the cash cost?
Steve Jones - Executive Vice President and Chief Financial Officer
Yes. Ross, we have an outside consultant that comes in and looks at it for us at least twice a year and reports to our Audit Committee. And we just went through that process and he made his report last week. And as Randy was saying it, it was based on – that’s based on the model that we have based on our expected recoveries. And I think the best way to answer your question is when you look at the historical data we are very comfortable that the answers around the pads, we are very comfortable that it’s appropriate to show 70% is current and 30% is non-current. And we do not expect here to have to take any sort of a write-down that you were referring to as a result of some sort of reevaluation of what’s out there on the past.
Ross Carden - Polygon
Got it. Okay, that’s been really helpful. Thank you for taking my questions. Thanks.
Randy Buffington - President and Chief Executive Officer
Okay.
Operator
And your next question will come from the line of James Hyder from (indiscernible). Please go ahead.
Unidentified Analyst
Hi, guys. Can you just repeat some of the figures you guys have provided in crusher, specifically how many times you are expecting to cross this year and when you expect the manufacturer to implement the permanent fix? Thanks.
Randy Buffington - President and Chief Executive Officer
Yes. Right now, as we go through the remainder of six months of the year, we will – or five months of the year now, we will be crushing between 1.5 million tons and 2 million tons per month of the higher grade oxide material. And of course, there is a cost of crushing. So, what we look in ore controlled as that ore comes out, we will push that ore through. On the manufacturer side, they have identified the problem. They have engineered the solution to the Raptor 1300s. Right now, engineering the final drawings are out to the foundries right now to have the parts and pieces built. And we expect that process to move along quite rapidly. We will have the crushers in as soon as we possibly can. It doesn’t matter in the oxide plan, but we do want to get them up and running in advance of the mill, so that we can test them to make sure that there is no further issues with them on the new design.
Unidentified Analyst
That’s great, Randy. Thanks. That helps.
Operator
And your next question comes from the line of (indiscernible) from Cowen. Please go ahead.
Unidentified Analyst
Hi, guys. Thanks for taking my question. Steve, I was wondering if you could please talk a little bit more about the cross currency swap?
Steve Jones - Executive Vice President and Chief Financial Officer
Sure. So, our senior notes are Canadian denominated. There is specifically 8.75%, $400 million Canadian. And at issuance, we swap those for U.S. denominated $100.4 million, just happened to be almost one to one at the time, 8.38%. And then we entered into a cross currency swap with three banks at the times, Scotiabank holding the majority of the three and then the other two banks that I referenced holding a 90. And those other two – so, in those – and the revolver secures not just any debt under revolver, but also secures any, let’s call it, credit or really anything odd under the cross currency swaps. So, when those two banks exited the revolver, they wanted to maintain some security and long story short, I guess, we negotiated that we would have to cash collateralize any out of the market position on those swaps. So, that as the U.S. dollar and Canadian dollar move around or maybe said another way, if the Canadian dollar weakens that collateralization gets larger.
Unidentified Analyst
Okay.
Steve Jones - Executive Vice President and Chief Financial Officer
So, at the end of June as I mentioned, we had $9 million of letters of credit. We can either give them cash or letters of credit to collateralize that swap. So, at the end of June, we had $9 million to collateralize that swap. Coincidentally, it’s $90 million. So, if you are wondering what the entire balance is, if you will, in the – to collateralize the whole thing, it’s $40 million obviously. It can do the math. We don’t – Scotia is the other primary holder. They are part of the revolver. Their security is – I will ask that – that they have is as a revolver. It is part of our borrowing based calculation of $178 million that I mentioned. We go through that borrowing base calculation. The value, I will call it uncollateralized value is subtracted from the calculation. And again that was already factored into the $178 million.
Unidentified Analyst
Okay. And just wondering if there were any additional covenants on the new revolver that maybe you hadn’t talked about or we should know about?
Steve Jones - Executive Vice President and Chief Financial Officer
I think I hit the key ones there is – the only other one that comes to mind it’s in our – it’s in the notes but there is a reserved scale, so basically we have to add 600,000 ounces of holding reserves on post April 2016. April 2016 is when the revolver matures. So that’s the only other what I would call new covenant.
Unidentified Analyst
Okay.
Steve Jones - Executive Vice President and Chief Financial Officer
Like we have the main one was a $10 million that I talked a bit about.
Unidentified Analyst
Right.
Steve Jones - Executive Vice President and Chief Financial Officer
I am pretty sure, pretty certainly I had mentioned that one actually on the previous call even though we hadn’t quite finalized the revolver.
Unidentified Analyst
Great. Alright. Thanks so much
Steve Jones - Executive Vice President and Chief Financial Officer
You bet.
Operator
Ladies and gentleman, this concludes the question-and-answer session. I would now hand the conference back over to Mr. Randy Buffington for closing remarks.
Randy Buffington - President and Chief Executive Officer
Thank you. Just to summarize the first half of 2014. The oxide expansion is pretty much behind us right now. The operations are doing well and now we are focused on improvements in efficiencies with the poise and the tools that they have right now. We have also been able to add to our team with some really paramount talented people over the first half of the year and that team continues to get better and more talent at the site in preparation for the mill expansion. We progressed a number of our co-productivities and more importantly we achieved all of our stated goals to this point. We expect last half of the year to be on target with guidance and we expect to complete feasibility study on schedule. We do accord to formalizing the financing options for the project. And we will be providing you with an update as we are able to do so. Thanks everyone for joining us. And we look forward to talking to you soon.
Operator
Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line. And have a great day.
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