Good day, ladies and gentlemen, and welcome to the Dundee Precious Metals Q4 2018 analyst conference call. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star and the zero key on your touch-tone telephone. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Janet Reid. Please go ahead.
Good morning, everyone. I'm Janet Reid, the Manager of Investor Relations, and welcome to Dundee Precious Metals' Q4 conference call. With me today are Rick Howes, President and CEO, Hume Kyle, Chief Financial Officer, who will each comment on the quarter, as well as David Rae, Chief Operating Officer, Nikolay Hristov, SVP, Sustainable Development, and John Lindsay, SVP, Projects, who are here today to assist with answering any questions following our formal remarks. After close of business yesterday, we released our Q4 and annual results and hope you've had an opportunity to review our materials. All forward-looking information provided during this call is subject to forward-looking qualification, which is detailed in our news release and incorporated in full for purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non-GAAP measures.
These measures have no standardized meanings under IFRS and may not be comparable to similar measures presented by other companies. The definitions established and calculations performed by DPM are based on management's reasonable judgment and are consistently applied. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Please refer to the non-GAAP financial measures section of our most recent MD&A for reconciliations of these non-GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call have generally been rounded, and any references to 2017 pertain to the comparable period in 2017. On this morning's call, Rick will comment on our Q4 and annual operating results, as well as the progress being made on our capital projects and exploration programs for the quarter.
Hume will then provide an overview of our Q4 and annual financial results, as well as our guidance for 2019. With that, I'll turn the call over to Rick.
Thanks, Janet, and hello everyone, and thanks for joining us today for our fourth quarter and annual 2018 conference call. Pleased to provide you with an update on fourth quarter and annual results and progress on our key projects and initiatives. Overall financial results for the year were strong, with unadjusted earnings per share of $0.21 and cash flow per share excluding working capital changes of $0.55, reflecting the steady progress being made by our operating teams to advance our operational excellence, optimization, and cost reduction programs. We had record annual gold production from Chelopech and record annual volumes of concentrate smelted at Tsumeb. In addition, we continue to advance construction and commissioning of our Krumovgrad project, which is 92% complete at the end of the Q4 , with first concentrate still expected in Q1.
Our balance sheet remains strong with total liquidity of $255 million, including $17 million in cash and $238 million in undrawn revolving credit facility. Debt stands at $29 million, as most of the funding for Krumovgrad project has been coming from our free cash flow, which was $6 million in the quarter and $52 million for the full year. Metal prices remained relatively unchanged in the Q4 with an average realized gold price of $1,228 and copper price of $2.80. We have seen recent strengthening of the gold price above $1,300 so far in 2019, which we are poised to benefit from with the expanded gold production expected from Krumovgrad starting soon. I would also like to mention that all three of our active facilities achieved major safety milestones this past year.
Both the Krumovgrad project and the Tsumeb operation achieved 2 million lost time injury-free work hours, and Chelopech operation achieved 1 million lost time injury-free work hours. These are outstanding results and are a testament to the effort and commitment of our employees to work safely. Chelopech achieved another record year in gold production and exceeded guidance, producing 201,000 ounces of gold and 36.7 million pounds of copper. We saw a 10% year-over-year improvement in our all-in sustaining cost to $659 an ounce. Two main factors in the record gold production was the improved mill recoveries as a result of plant optimization efforts and the increased pyrite concentrate production.
Chelopech's Q4 revenues were negatively impacted by the buildup in copper concentrate inventory due to the timing of deliveries, as well as by a 5% lower mill throughput in Q4 due to being capped at 2.2 million tons per year by the government approved annual plan. We have a number of key improvement projects underway this year that will enhance revenues and decrease costs, including drill and blast optimization, autonomous drone surveying, further mill optimization, move to integrated dynamic planning and execution, and the introduction of digital smart center for improved decision making. We continue with our investment in exploration in and around Chelopech to increase resources and reserves. In 2018, a total of 21,618 meters of in-mine extensional drilling was completed to explore for new mineralization.
This program was very successful and produced many significant drill intersections that extend known mineralization and identify new zones, particularly in the upper levels of the mine. This will be included in our annual update of mineral resources and reserves. In 2018, we also completed 18,000 meters drilling in our regional exploration program around Chelopech on several targets. We completed drilling 9,700 meters in the Southeast Breccia Pipe Zone, which was successful at identifying two new mineralized zones within 300 meters of existing mine development. This program will continue in 2019. In addition, at the Klasta prospect, approximately two kilometers northeast of main Chalifex ore bodies, 4,220 meters of drilling outlined a new zone of shallow copper-gold mineralizations over a strike length of 300 meters between 130 and 400 meters below surface.
This will be further tested in 2019 to determine the uptick extent towards surface as a potential open pit resource. At Tsumeb in 2018, we had record concentrate smelted of 232,000 tons, which was a six percent year-over-year increase. This is primarily due to increased availability of all plants, increased process stability, and oxygen enrichment in the Ausmelt furnace, which helped to mitigate the impact of the converter reliance on the Ausmelt throughput. The quantity smelted in Q4 was 63,000 tons, which was below the record smelted of 68,000 tons in Q3, mainly due to off-gas system restrictions. These restrictions are being addressed to ensure higher smelting rate targets can be achieved consistently.
The cash cost per ton concentrate processed for the full year was $445 per ton, which is a three percent improvement from 2017, benefiting from the higher throughputs as well as cost reduction efforts, largely through reduction in the use of contract or outside services. We continue to make progress reducing the secondary copper inventories that accumulated during the construction and commissioning of the new acid plant and copper converters. This reduction will continue through 2019 and will result in a reduction in stockpile interest and allow higher throughput capacity for fresh concentrates. We continue to advance the smelter expansion project to increase the throughput of complex concentrate smelted to as much as 370,000 tons per annum. The feasibility was completed in the Q4 of 2016 and confirmed the robust project economics with an estimated implementation capital cost of $52 million.
The scope of the project includes the rotary holding furnace, additional cooling, and other upgrades to the Ausmelt furnace, as well as upgrades to the slag mill area. Work to secure the necessary permits to support this planned increase in production is ongoing. An ESIA is underway on the project. Public access to the draft ESIA was provided during the Q2 of 2017. We are finalizing an update of certain technical studies as a result of the feedback received from the public consultation process and are planning to submit an updated ESIA for approval during the first half of 2019. The Krumovgrad construction project is 92% complete versus the plan of 99% complete to the end of December. We still expect first concentrate production later this quarter. The schedule slippage is a result of delays caused by the concrete contractor delivery issues early on in the project.
Additional construction personnel have been added to accelerate completion of the remaining work. Spending of $139 million has been incurred to the end of December, with an additional $25 million-$29 million forecast of spending in 2019 to complete. The aggregate cost of the project is still expected to be between $164 million and $168 million, compared to the original estimate of $178 million. A number of key milestones were achieved in Q4. The final construction permit for the discharge waterline was issued in October. Grid power to the site was completed. Dry commissioning of the jaw crusher and slag mill was completed. Two main water reservoirs are lined and ready for use. The integrated waste cell is constructed, lined, and ready for thickened tailings. The thickener area construction was completed and commissioned. We have mined a stockpile of 158,000 tons of ore and 186,000 tons of waste from the pit.
Planned grade control drilling for the first phase of the pit was completed. Grade control model has been completed. The outstanding items remaining are mainly the piping installations and the electrical and instrumentation work in the mill. We expect wet commissioning of the grinding section to begin shortly and full commissioning of the entire plant to start in March. The operating team is fully staffed, trained, and ready for handover. Commercial production is still expected to be achieved in the second quarter. Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad. We completed phase two drilling program for the Cernak satellite deposit, located approximately four kilometers to the west of Krumovgrad open pit in Q4. We drilled 5,000 meters and 37 holes, and the results are now being compiled into a measured resource estimate. Metallurgical test work is also underway.
We expect to complete this work and release the results in Q2. Drilling on the other satellite deposits will continue in 2019 to look to extend the life of the Krumovgrad project. On September 24th, 2018, we announced the results of the updated mineral resource estimate for the Timok gold project in Serbia. This included total indicated mineral resources of 46.9 million tons at 1.3 grams for a total of 1.996 million ounces. Included oxide indicated mineral resources of 21.8 million tons at 1.06 grams gold for 742,000 ounces and transitional indicated mineral resources of 9.2 million tons at 1.15 grams gold for 338,000 ounces.
Net changes to the 2017 mineral resource estimate showing 35% increase in tons and a 16% increase in ounces. The increase in indicated mineral resources compared to the 2017 mineral resource estimate is attributable to the updated interpretations of the oxide and transitional weathering domains, and better recoveries indicated from the vertical column leach test, processing oxide and transitional mineralization. The inclusion of oxide and transitional mineralization within the conceptual pit optimization study has lowered cut-offs, which in turn has increased constrained mineral resources. Based on the updated mineral resource estimate, we have initiated a scoping study for Timok, and depending on the results of the scoping study, we expect to release a preliminary economic assessment in the first half of 2019.
These studies will focus on the initial economics of the oxide and transitional material to be constrained in separate open pit shells, as well as the potential for subsequent development of the sulfide resource. Development of permitting and approvals plan incorporating the ESIA process and approvals as well as additional permits and approvals, was initiated in the Q4 of 2018. Following the positive result from the metallurgical test work program conducted on the Timok oxide and transitional samples during the Q1 of 2018, further samples were collected from the various domains and submitted for metallurgical test work during the fourth quarter of 2018. Results from this test work program will be available during the first quarter of 2019 and included in the scoping study. Exploration plans for 2019 are being developed to identify additional high-quality targets to expand near-surface oxide resources.
At the Bigar Hill and Korkan deposits, the results from near-surface resource drilling during the second and third quarters of 2018 indicated good potential for additional resources outside the new resource model. Results of holes drilled to the west of Bigar Hill mineral resource intersected 28 ms at 3 g per ton gold from 85 m downhole. On the northeast side of Bigar Hill, we intersected 35 m at 2 g gold from 246 m downhole in oxidized and strongly brecciated Cretaceous limestone. At the Korkan deposit, located 25 - 50 m northwest of the mineral resource, we intersected two intervals, including 16 m at 1.7 g gold in an oxidized section between 65 and 81 meters downhole, followed by 21m of 0.7 g from 93 m - 114 m in a transitional section. These drill results will be followed up with the drill program in 2019.
In the Q4 of 2018, following up on a gold target at the northwest extent of Bouzoulougues prospect, one hole returned 34 m of 2 g gold over a depth of 23 m downhole, which will also be followed up in 2019. In 2018, we met our first-year exploration expenditure commitments on the Malartic joint venture in Quebec with Pershimex Resources. Promising results were achieved from the 1,900-m scout drilling program that was completed in the beginning of 2018 on various targets within the Blake River Group. These include hole three, which hit five and a half grams over 2 meters at 95 meters from surface, located 300 meters northwest from the historic Revelard gold showing. Additional anomalous shear zones were intercepted in the Blake River Group and demonstrate that mineralization continues along strike for over 750 meters.
Hole seven intersected 7.2 grams over 3.3 meters, 28 meters from surface, including a high-grade intersection of 11.6 grams over 1.9 meters, and a second intersection of 38 meters from surface of 2.3 grams over 6 meters. Other exploration activities included in 2018 include the 1:5,000 scale mapping, 4.2 line kilometers of IP surveying, project-wide till sediment sampling, and also during the Q4 , 1,000 line kilometers of high-resolution heli-borne magnetics was flown along the marlbornite and bornite shear zones, and B soil geochemistry program was conducted to follow up on these anomalous till sediments. Exploration plans for the first quarter of 2019 include a 5,000-meter drill program to follow up on these first two holes and test other targets from the 2018 exploration program. We see great potential with our investment in MineRP, a unique new enterprise integration digital platform designed for the mining industry.
We ourselves are adopting MineRP as well as many other digital technologies to transform our business. The intent we have with MineRP is to introduce new mine planning enhancements and enable the intelligent use of data. Key benefits expected from this initiative are data unification to a single platform, rapid parametric life-of-mine planning and sequencing, and real-time monitoring of performance versus plan with faster response to interruptions and better decision-making. MineRP is making good progress in introducing this unique platform that marries the science of mining to the business of mining through the industry with good industry interest and uptake. Six major international mining companies have already signed on to this new software platform, and the company is in advanced discussions with at least another 12 other companies currently. Based on this rapid market penetration, we expect significant revenue growth beginning in 2019.
In summary, the strong 2018 results reflect the exceptional progress our team has made to improve the performance of our operation and advance our growth projects. 2018 was a year in which we demonstrated the potential for Tsumeb to contribute to the free cash flow of our business with further upside possible by increasing throughput further and reducing costs, which will be the focus for 2019 and beyond. In 2019, with our significant near-term growth in free cash flow beginning this quarter from our Krumovgrad project, adding to our strong earnings and free cash flow from Chelopech, we represent a real growth and value investment opportunity for investors. Thank you. I will now turn the call over to Hume, who will review the financial results and the 2019 guidance, following which we will open the floor to questions.
Thanks, Rick. As Rick noted, 2018 was a good year, both operationally and financially, with DPM reporting adjusted net earnings of $0.16 per share, up from $0.09 per share in 2017, and adjusted EBITDA of $100 million, up from $92 million in 2017. These increases reflected record operating financial results from Tsumeb and continued strong performance from Chelopech, partially offset by weaker sales growth from MineRP, and were primarily driven by the following factors. Increased complex concentrates melted, higher realized copper prices, and lower TCs, partially offset by lower volumes of payable gold and concentrates sold, due primarily to the timing of copper concentrate deliveries that resulted in an increase in inventory in 2018 compared to an inventory drawdown in 2017, as well as lower grades and lower third-party toll rates at Tsumeb and a weaker US dollar.
Relative to our annual guidance, gold production of 201 ounces exceeded our original guidance, while payable gold sold of 164,000 ounces was at the high end of our range. Copper production of 37 million pounds, copper sold of 34 million pounds, and complex concentrates melted at 232,000 tons were all in line with our guidance or in the upper end of the original guidance that we issued. For the fourth quarter of 2018, we reported an adjusted net loss of $0.02 per share compared to an adjusted earnings of $0.02 per share in 2017, an adjusted EBITDA of $13 million compared to $22 million in 2017.
These decreases were largely in line with our Q4 forecast and our annual guidance and were driven entirely by lower copper concentrate deliveries as a result of there being two copper concentrate deliveries in the Q4 of 2018 as planned, compared to three copper concentrate deliveries in the corresponding period in 2017. From a cash flow perspective, funds from operation during the Q4 and 12 months of 2018 were $6 million and $87 million respectively, compared to $20 million and $90 million in 2017. Free cash flow during the Q4 of 2018 was negative $4 million compared to $15 million in 2017, and for the year was $54 million compared to $46 million in 2017. These changes were driven primarily by the same factors affecting adjusted EBITDA, as well as higher 2018 sustaining capital expenditures and lower 2018 debt service obligations.
From a cost perspective, our cash cost per ton of ore processed was $39 in the Q4 , up seven percent from 2017, due primarily to higher labor rates and the timing of maintenance activities. Cash cost per ton for the year was $36, up six percent from 2017, due primarily to a stronger euro and higher labor and electricity rates. All-in sustaining cost per ounce was $864 in the Q4 , up $62 from 2017, due primarily to lower gold grades and lower byproduct credits as a result of lower volumes of copper sold, partially offset by lower treatment charges. All-in sustaining costs for the year was $659, down $70 from 2017, due primarily to higher byproduct credits and higher realized copper prices, lower treatment charges, and lower cash outlays for sustaining capital expenditures, partially offset by lower gold grades and concentrates sold.
At Tsumeb, our cash cost per ton in the Q4 was $413, and for the year was $445, up two percent quarter-over-quarter and down three percent relative to 2017. Year-over-year, the decrease was primarily driven by higher throughput and Tsumeb's cost reduction program, partially offset by higher labor, electricity rates, and a stronger ZAR. From a capital expenditure standpoint, sustaining capital expenditures and growth capital expenditures in the Q4 were $10 million and $14 million respectively, for an aggregate spend of $24 million, down from $29 million in 2017. Sustaining capital expenditures and growth capital expenditures for 2018 were $27 million and $8 million respectively, for an aggregate spend of $107 million, up from $96 million in 2017, due primarily to the Krumovgrad construction activities.
Relative to 2018 guidance, sustaining and growth CapEx came in below the original guidance that we issued, principally due to the timing of expenditures relating to the Krumovgrad mine construction and Chelopech's TMF raise. At December 31st, our cash resources stood at $255 million, including $238 million under our revolving credit facility and $17 million of cash, as well as a 10.5% interest in Sabina valued at approximately $30 million. From a risk management perspective, we had also entered into a series of hedges in the second half of 2018 to reduce Tsumeb's exposure to foreign currency movements and lock in a rate that supports free cash flow generation.
At December 31st, we had a hedge approximately 83% of Tsumeb's 2019 Namibian operating exposures for operating costs using a zero cost option structure that provided for, on average, a minimum and maximum exchange rate of ZAR 14 and ZAR 15.46. 2019, DPM will continue to focus on increasing the profitability of its business and optimizing its assets, including delivering the first gold out of Krumovgrad in the Q1 . This is all set out in the material released yesterday, including our 2019 operational and cost guidance, which I'll touch on now. 2019, mine production at Chelopech is expected to be between 2.1 million-2.2 million tons, consistent with 2018, and reflects annual production being limited at 2.2 million tons per year, pending an increase in mineral reserves. At Krumovgrad, mine production is expected to be between 440,000-590,000 tons, reflecting 2019 as the start-up year for the mine.
Gold production is expected to increase by as much as 30%, based on a range of 210,000-262,000 ounces, reflecting 55,000-75,000 ounces coming from Krumovgrad, which is expected to achieve commercial production in the Q2 , as well as lower Chelopech gold grades, which are in line with the published grades contained in Chelopech's 43-101. Total gold sold is expected to be between 191,000-237,000 ounces. Copper production is expected to be between 33 million-39 million pounds, with copper sold expected to be between 32 million-37 million pounds, largely in line with 2018. At Tsumeb, throughput is expected to be between 225,000-250,000 tons, representing an increase of up to eight percent over 2018.
From a cost perspective, our all-in sustaining cost of gold is expected to be between $675-$820, compared with $659 in 2018, due primarily to lower grades at Chelopech and higher sustaining capital expenditures, partially offset by the low-cost gold coming from Krumovgrad. Cash cost per ton of complex concentrates melted, net of by-product credits, is expected to be between $380-$450, compared with $445 in 2018, due primarily to higher forecast throughput and a weaker ZAR, partially offset by higher labor and electricity rates. On the capital expenditure front, sustaining capital expenditures for 2019 are expected to be between $38 million-$46 million, up from $27 million in 2018.
This increase is due primarily to increased spending at Chelopech, due to the raise of its tailings management facility to extend the life of the facility, the start-up of Krumovgrad, and ongoing capital costs associated with its tailings management facility and several corporate digital initiatives. Growth expenditures for 2018 are expected to be between $29 million-$34 million, of which $25 million-$29 million relates to the capital associated with completing the Krumovgrad project, which we expect to come in between the $164 million-$168 million guidance that we had previously issued. The balance of approximately $45 million relates to resource development, drilling, and margin improvement projects at Chelopech.
Exploration for 2019 is expected to be between $12 million and $14 million, compared with $12 million in 2018, and will be directed at drilling activity at Chelopech, Krumovgrad and the Timok gold project, metallurgical test work for Cernak prospect, as well as greenfield projects in Bulgaria, Serbia, and the Malartic project in Quebec. Based on this guidance and current market prices, we would expect to exit 2019 with no debt and a growing cash position. In closing, the first gold production from Krumovgrad expected in the Q1 of 2019, and the achievement of commercial production expected in the Q2 .
2019 will mark the beginning of significantly higher gold production as well as free cash flow, which we firmly believe will continue to support further increases in our share price and provide the opportunity to prudently invest our free cash flow into high return growth opportunities and/or return it to our shareholders based on a disciplined approach to capital allocation. With that, I'll turn the call back over to the operator.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Cosmos Chiu with CIBC. Your line is now open.
Hi. Thanks, Rick and Hume, for the presentation and the call today. My first question is on Tsumeb. Back on the Q3 conference call, Hume, you were able to tell us that in Q3, Tsumeb generated over $12 million in free cash flow. I'm just wondering if you can give us the same number for Q4. Clearly, it's likely lower than what happened last quarter, but that would give us a good sense as well. Then on top of that, if you can give us some kind of guidance in terms of what we should be expecting in terms of free cash flow for 2019 from Tsumeb. Yeah. We don't give guidance on a quarter-over-quarter basis. Sure.
I think on the Q3 call, what we had said is you shouldn't expect Q3 EBITDA generation out of Tsumeb to be reflective of what would be sustainable on a go-forward basis. What we said is, on an overall basis, what we would expect is Tsumeb should be able to generate somewhere in the mid to low 20s of EBITDA, and we expected that its sustaining CapEx would be somewhere in the $15 million, give or take. For a year, both for 2018 and for 2019, that's what we're guiding to. We had indicated that Q3 2018, in terms of that free cash flow generation, was a little bit of an anomaly, not something that anybody should be forecasting going forward. For sure.
Those numbers, I assume that those will be for the full year. Your $20 million EBITDA, that's for the full year, and the $15 million sustaining CapEx, that's for the full year as well.
Yeah. That's what we have said to people that on a go-forward basis-
Yeah
we believe somewhere in the high 20s could be possible and around $15 million of sustaining CapEx. I recognize that 2018 and 2019 is a little bit higher than that in terms of the CapEx, that's really just to catch up on some projects that we had backlogged in our sustaining capital pipeline backlog.
Of course. Maybe sticking with Tsumeb at this point in time, I know there's plans to switch from an 18-month sort of maintenance cycle to 24 months. Maybe more a question for David here. There's going to be a shutdown. The current 18-month cycle is going to end in Q4 2019. At that point in time, are you ready to switch over to a 24-month maintenance cycle?
At this point, the difference between the old cycle, which was around six - nine months, and the current cycle at 18, and the envisaged move to 24 months, the big difference there is around stability of operation of the furnace. There's not a change in the engineering of the furnace. There's not a change in the refractory design. It's purely down to stability and control.
At this point, information is telling us that 18 months is definitely possible, and what we're doing is continuing to focus on those areas of continuity which will allow us to take that next step. At this point, we feel confident we can do that in the next cycle. From Q4 this year, basically we will skip the year in 2020 on maintenance and carry that through. Having said that, it's not to say that the oven continues right the way through without any maintenance. There are intervals where we will need to, for instance, replace the furnace roof.
At this point in time, that's, say, every seven months and takes about six - seven days. In fact, we've just replaced the furnace roof at the start of this year.
Great. Maybe switching gears a little bit and taking a step back here in terms of the guidance that you've put out there for 2019. You've given us a range, 210,000 ounces-262,000 ounces, including 53,000-72,000 ounces for Krumovgrad. I'm just wondering, what can drive you higher and reach that upper end for both Krumovgrad and also Chelopech? Is it throughput, or is it grade, or is it recovery, or is it a combination of each?
Yeah. Rick here, Cosmos.
Hi, Rick.
I would say, mainly from a Krumovgrad perspective, it's obviously a ramp-up year, how well that ramp-up goes will be a factor in that to get to the higher end. If the ramp-up goes as planned, I think we'd be in the higher end. We do have some flexibility on grade, I think, with Krumovgrad this year just because we've built a large stockpile in front of the mill, and we have different grades in that stockpile which we can blend in. I think early on, the real big indicator will be how well we come into that ramp-up phase, how well we were able to ramp up, how quickly, et cetera, how quickly we get to a stabilized mill performance. Those would be the biggest factors.
As you know, it's been very consistent, reliable, and historically, maybe I'll say, on the upside normally of our guidance range. I think that trend is likely to continue. If that happens again this year, we're on the upside of the guidance range. For Chelopech, that would certainly put us at the upper end of the total guidance range.
That's another factor.
Of course.
Yeah.
Thanks, Rick, for talking about the stockpile. That was my next question as well. You talk about in the MD&A flexibility during the ramp-up of Krumovgrad, given the various grades in terms of current stockpiles. I'm just wondering how much stockpile have you built up so far ahead of the mill and ahead of the ramp-up or the commissioning, and what kind of grade is that stockpile?
Yeah, we got about 156,000 tons at the end of the Q4 stockpiled. It's made up of four stockpiles. There's a super high grade, high grade, medium grade, and low grade. The range of that is super high grade being north of 10 grams.
That's really the key one that allows us to drive that grade in the feed up quite a bit.
Mm-hmm. Thanks. Maybe one last question from me. This is more an accounting question once again. You came in adjusted earnings for Q4 at negative $0.02. The Street was at positive $0.03. Certainly, the copper concentrate shipments, or lack thereof, in Q3 or Q4 didn't help and contributed to the, let's call it, the lower earnings. The other part to me is, at least compared to my model, would be the cost related to MineRP. Could you help me in terms of, I know it was $11 million that was included in cost of sales back in 2018. I'm just trying to better model it for 2019 in terms of what's the cost that's going through cost of sales, what's the cost that's going through G&A, any kind of associated costs as well?
You want us to provide you, going forward, some guidance around the MineRP cost of sales?
Yeah, that would help. You can just Is it going to go up? Is it going to go down? Understanding that you might not be able to give us that kind of detail.
Well, we haven't really provided any guidance on MineRP simply because, A, it's not material. B, there probably is a reasonable range around the revenue growth that it could hit for the year. On a bottom-line basis, I wouldn't expect it to generate, probably in 2019, any more than, call it, $5 million of EBITDA, would be a realistic bottom-line number to project. In terms of the cost of sales, maybe I could come back to you with that and give you a range for your model.
Yeah, of course. That's great. Maybe one follow-up, just an accounting question here, Hume. In terms of Krumovgrad, production is expected in Q1, but I'm just wondering if there's a lag between production and shipment and eventual recording of revenue. When should we start recording modeling revenue from Krumovgrad? Then the other part is, what's your criteria for commercial production in Q2?
Well, first production, we're expecting at the end of the quarter. Sometime in Q2, we'll reach commercial production. It won't be until we reach commercial production that we'll actually start recognizing revenue. Any material that we sell before that time will just be credited towards the capital cost of the project.
Okay.
At this stage, in terms of the guidance that we've issued, it's expecting that we'll hit that somewhere in the middle, I would say, of Q2. That's what we're sort of guiding to in terms of commercial production. There could be some slippage around that. The commercial production criteria is basically getting to design capacity and a targeted level of recoveries.
Great. Thanks, Rick. Thanks, Hume and team. That's all I have. Thanks a lot.
You bet.
Thank you. Our next question comes from Trevor Turnbull with Scotiabank. Your line is now open.
Yeah, thanks, guys. Actually, a bunch of my questions are probably just follow-ups to what Cosmos was asking. With respect to Krumovgrad, you've talked about commercial production. I might have missed it. In terms of the lag between actually getting your commercial concentrate production and actually starting to see the revenues come back, if you have commercial production in Q2, would we expect to see revenues recognized as early as Q2, or is that really most of the revenue going to be in Q3 and Q4 for this year?
Yeah, I would expect most of the revenue for sure will be Q3 and Q4. It's possible that some revenue will come in Q2. I wouldn't put much in the model in terms of it hitting the revenue line in Q2.
Okay. With respect to the guidance figure you provided, that's guidance for commercial production, or is that just total production inclusive of the pre-commercial?
Total production.
Okay. With respect to Chelopech, just on the cost per ton, I can't remember if you touched on this, Rick, but certainly Q3 cost per ton at Chelopech was really good and then quite a bit higher this past quarter. We are looking at the guidance for this year seems it's a bit closer to what happened in Q4, a bit higher than, say, you had in Q3. What's driving those higher costs per ton at Chelopech?
At Chelopech in Q4, keep in mind that the tonnage is limited by an agreed maximum that we can produce. What happens is we do curtail. It's not a very large amount, but it is a difference between Q4 and Q3. There's obviously upside pressures to costs, and we are capped in terms of tonnage. We are grade faults, we are susceptible to that. You are asking $ per ton. We obviously have labor increases. We've got other cost increases. The mitigations to those, we are doing some things which I don't know that we've fully factored in yet around the operating center, around drilling and blasting in particular, where there's potential to make some material differences to those costs. As you've seen in the last number of years, we've been very successful in capping and reducing those costs. We are continuing to do that.
We're just recognizing that there are some upside pressures in 2019. Our efforts are obviously to reduce that and to actually hold these numbers back towards the yearly average rather than Q4.
Okay. Thank you, David. My last question, I guess maybe circling back one more time on the MineRP. I realize, Hume, you did give Cosmos a bit of guidance with respect to EBITDA. I guess it isn't material to you guys, but at the same time as was noted, it does contribute, I think, to the company not always hitting the consensus guidance. Because of that, it certainly can be a drag on your earnings. Do you have a sense of when these contracts that are being taken up, when MineRP might turn profitable? Is that a realistic expectation for this year, or is that still a bit further out?
Yeah, it's Rick here, Trevor. This is the year that the penetration of this new platform, we expect to start happening, and signs are already there. New contracts or new agreements with, I mentioned, six companies. These are all fairly recent. They have a bit of a lag timing from signing these deals to actually getting the revenue growth that comes from those deals. They tend to be fairly large deals in terms of dollars. Conservatively, if just the six new customers or six customers that are signed onto the new platform revenues come in, we still expect the number that Hume mentioned, maybe $3 million-$5 million EBITDA in 2019. That's just on sort of the existing contractual agreements with customers. The upside to that is that they add even more new customers this year.
Again, some lag effect to the signing dates of the deals to receiving revenues. If you just look at the big picture, they seem to be on a fast track to revenue growth now. The first few years have been marketing and trying to get attention paid to their product, and now they seem to have gotten that, and now I think the benefits are starting to come in. It's not material today, but you could argue that if they keep on this trend 2019 and beyond and the growth is fast, it'll have a significant EBITDA contribution to our bottom line.
Okay. I appreciate that. Thanks, Rick. That's all I had.
Yep.
Thank you. Our next question comes from Don MacLean with Paradigm Capital. Your line is now open.
Good morning, guys. Just following up from Costos and Trevor's comments on the Krumovgrad. I know it's really early days, Rick, but can you give us any color as to how the grade and the tonnes coming out of the pit are reconciling to the reserve model?
I'll let David answer that. He's closer to it a little bit.
I think what the answer was not given as to what the grade was in the overall stockpile. We referred to just the high grade. I think we're at the numbers that we expected. Just one thing to keep in mind is that from the point of view of what we can expect going forward on reconciliation, we need to run material through the mill first in order to fully understand that. At the moment, everything is based on drilling and core sampling and this type of thing. To this point, everything looks fine, but in terms of a reconciliation, it's only going to be after we've run the mill and we've been able to confirm the information on a mill process point of view. That will be more precise. At this point, no evidence of any concerns.
Great. The 92% versus 99%, what is it that's left and what was lagging and what's left to be done?
Morning. John Lindsay here. Basically what's left to be done, I think, as Rick said, is mainly sort of electrical and instrumentation, as it always is on these projects. Electrical instrumentation comes at the end. That work's ongoing. Then we're sort of starting to go through the commissioning process. A lot of the plant has been cold commissioned. We should be able to start putting some material through the grinding circuit in the next week or so. Once we get that bedded down, then sort of first half of March, we'll bring in the flotation circuit, and that's when we'll start to generate some concentrate. The short answer to your question, it's the old story. It's electrical and instrumentation work that is ongoing.
Right. You have a relatively quick ramp up in Q2. Can you give us a little color as to where you see the risks and maybe why that's a good quick ramp up considering we're at 92% at the end of 2018?
I think at this point, we're just starting up the major equipment. It's going to be down to, is there anything out of the ordinary around the milling and flotation circuits? Often you can have some very practical issues that you need to contend with. As Rick has mentioned and what was alluded to is we do have the opportunity to ramp quickly if everything runs well into higher grades and see those through quickly. Alternatively, we can continue to run lower grades while we're resolving any situations and then run the higher grades later once we release those constraints. I would say primarily it's around the mill flotation, and probably the combined storage facility, the waste storage facility. We're not anticipating any particular problems, but if they're likely to be anywhere, it's in those areas.
The mining we've been operating now for seven months, we have no concerns there.
Right. Just on the mine costs, how are they compared to what you would have expected sort of on a productivity basis?
Well, I think as you'll understand, we've basically set to start up the plant later than expected. As a consequence, we haven't had a clean run on the mining to really see what's going on. At this point, everything looks to be fine in terms of what we anticipated. We're not recognizing that there's anything that's missed in terms of our cost estimates. Productivities, grade control, these types of things have all shown to be good. We've brought in some new technologies we hadn't originally envisaged to help take opportunity on things like grade optimization. To this point, no particular issues on costs. I think our guidance, we're confident in that at this point.
Great. Yeah, it's good to hear you have that flexibility that you were talking about earlier. Okay, thanks, guys.
Thank you.
Thank you. Again, if you have a question, please press the star then the one key on your touch-tone telephone. It is at this time I'm not showing any further questions on the phone line. I would now like to turn the call back to Rick Howes for any further remarks.
Okay, thank you very much. Thank you for joining us today on our conf call. I wish everybody a good rest of the week. Thanks.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.