Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Schools Corporation Q3 2018 Financial Results Conference Call and Webcast. All participants are in a listen only mode to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
At this time, I'd like to turn the call over to Mr. Tom Elliott, Senior Vice President, Investor Relations and Corporate Development. Mr. Elliott, you may begin your conference.
Thank you and good morning. With us today, we have Paul Rollinson, Chief Executive Officer Tony Giardini, Chief Financial Officer Lauren Roberts, Chief Operating Officer and Paul Tomory, Chief Technical Officer. Before we begin, I'd like to bring to your attention that we will be making forward looking statements during this presentation for a complete discussion of the risks, uncertainties and assumptions, which may lead to actual financial results and performance being different from estimates contained in our forward looking information. Please refer to Page 2 of this presentation, our news release dated November 7, 2018, the MD and A for the period ended September 30, 2018 and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul.
Thanks, Tom, and good morning and thank you to everyone for joining us today. Before I turn to the Q3 results, I'd like to start off by highlighting the Board changes announced in yesterday's release. John Oliver, who has served as the Chair of our Board since 2002 and has been a long standing member of the Board will be retiring from his role as Chair at year end. On behalf of the Board and Kinross Management, I'd like to extend a sincere thank you to John for his leadership and deep commitment to Kinross. I'm also very pleased to report that Catherine McLeod Seltzer has been appointed the new independent chair of Kinross effective January 1.
Catherine has extensive and proven leadership in the mining industry and we look forward to her guidance and stewardship as we continue to execute on our strategy. Let's now turn to our results. Overall, our portfolio of mines has delivered solid results in the 1st 9 months of the year. We saw continued strong showings at most of our operations during the Q3. I'd like to mention a few highlights.
First, Paracatu is having a great year, a result of strong operating performance and improved recoveries. 2nd, our mines in Nevada and Russia have all continued to deliver consistent operating results throughout the year. And 3rd, Toronto continues to be a good news story for us. We have reduced the cost structure and the mine has delivered good production and cost performance. However, we have also experienced a few operational challenges in the quarter.
At Tasiast, there was a strong focus during the Q3 on the commissioning and ramp up of the SAG mill, which I'm pleased to say is now complete. However, there were some challenges on the mining side as we were delayed in accessing a higher grade portion of the ore body. Lauren will speak more to this in a few moments, but the challenges have been addressed and we are now transitioning into better material. With commissioning now complete, the expanded mill running at nameplate capacity and better grades, Tasiast delivered record production in the month of October. Looking forward, these factors should also contribute to a strong Q4 for the operation.
At Fort Knox, as many of you who toured the site back in July are aware, the pit wall slide that occurred in late March has impacted production and costs, a challenge that we are continuing to work through. Despite the challenges at Tasiast and Fort Knox, our overall portfolio performance has been strong year to date. I'd now like to provide an update on Mauritania, where we have continued to advance our discussions with the government. We have a senior team leading our efforts on the ground with oversight from myself and our senior leadership team. The Minister of Petroleum Energy and Mines has appointed his Director General to facilitate a discussion on behalf of the government.
In parallel, the mine has continued to operate uninterrupted as evidenced by the record production month we achieved in October. We are also advancing the project financing. Tony will have more details for you, but I want to highlight that we have now signed mandate letters with both the IFC and EDC and continue to see strong interest from certain commercial banks. In addition, our work to analyze alternative scenarios to incrementally expand throughput above 12,000 tons per day is ongoing. I'll now turn to our other development projects.
Notably, we commenced production at the Maroshka satellite deposit in October. This high grade satellite deposit will contribute ore feed to the Kupol Mill, which is located approximately 4 kilometers away. In October, I visited the site to celebrate this milestone as well as the 5 year anniversary of Devoinoy and the 10 year anniversary of Kupol. Also, while in Russia, I had a constructive dialogue with the highest level of government officials at the annual meeting of the Foreign Investment Advisory Council. I was among 31 global executives from 15 different countries.
Interestingly, the combined total investment in Russia of the FIAC member companies is over $160,000,000,000 Also, we continue to make good progress on our other development projects, which include the Phase W expansion at Round Mountain, which is expected to extend production to 2027 at one of our largest U. S. Operations The Vantage Complex at Bald Mountain, which is well advanced and will initiate production in the south area of the large Bald Mountain property. The Gilmore project at Fort Knox, which is a low cost brownfield expansion that is expected to extend mine life 2,030. DuVoisnois Zone 1, which is another high grade satellite deposit that we are developing.
And the La Coipa restart project at Lobo Marte, which are future development opportunities that we are studying to evaluate a potential return to production in Chile. To wrap up, our overall portfolio of mines generated solid results in the 1st 9 months of the year despite some operational headwinds in the quarter at 2 of our sites. We are on track to meet our 2018 guidance. We are making good progress in advancing our development pipeline and our balance sheet and liquidity remain very strong. I'll now turn the call over to Tony.
Thank you, Paul. I'd like to begin with a review of our financial results. We produced 586,000 gold equivalent ounces in the 3rd quarter at a production cost of sales of $7.77 per ounce. Sales exceeded production largely due to Bald Mountain and Maricunga with 618,000 ounces sold during the quarter. Our operations generated approximately 140 $3,000,000 of adjusted operating cash flow and our adjusted net loss was $48,000,000 or $0.04 per share.
For the 1st 9 months, production was over 1,800,000 gold equivalent ounces at a cost of sales of $7.31 per ounce on sales of approximately 1,900,000 ounces. Adjusted operating cash flow was $738,000,000 during the 1st 9 months and adjusted net earnings were $115,000,000 or $0.09 per share. Capital expenditures were $276,000,000 for the quarter and $770,000,000 for the 1st 9 months of the year, which is in line with our full year guidance of $1,075,000,000 plus or minus 5%. We have revised our guidance for other operating costs which we now expect to be approximately $130,000,000 compared with our previous guidance of $100,000,000 This is mainly the result of tax related items at Tasiast and costs associated with the pit wall slide at Fort Knox. As Paul mentioned, during the quarter, we continue to advance the project financing of approximately $300,000,000 that we are targeting for Tasiast.
You will recall that a mandate letter with the International Finance Corporation, a division of the World Bank was signed last quarter. During Q3, we also signed a mandate letter with Export Development Canada indicating their interest in the financing subject to further due diligence. Meetings with EDC, IFC and their technical advisors were conducted during the quarter which was followed by a due diligence site visit in early October. We have also continued to receive interest in the financing from commercial banks. In terms of a balance sheet, our cash position at the end of the quarter reflects the strategic investments we've been making.
This has included $495,000,000 of investments in our development projects year to date as well as other transactions to add value to our portfolio such as a $254,000,000 power plant acquisition in Brazil. We funded this deal with cash and we continue to consider debt financing. This year, we have also bought out JV partners at 2 of our properties, consolidating our ownership of projects or land packages where we see significant potential. This includes the Phase 7 deposit at La Coipa, which we now own 100 percent of and which has advanced to a feasibility study and the Bald Mountain JV Zone, which was previously a fifty-fifty joint venture with Barrett, which was completed in October. With $2,000,000,000 of liquidity and no debt maturities until 2021, we continue to be in a strong financial position and financial strength and discipline continue to be core principles.
I'll now turn the call over to Loren for a review of our operations.
Thank you, Tony. Overall, our portfolio delivered good operating results and we are on track to deliver our full year company wide guidance targets despite some temporary headwinds at Tasiast and Fort Knox. I'd like to begin with a review of Tasiast's performance during the Q3. The main focus of the operating team in Q3 was successfully completing commissioning of the Phase 1 expansion. I'm pleased to say that the ramp up of the new SAG mill went extremely well, one of the fastest ramp ups of a SAG mill this size that I've seen.
However, as I mentioned last quarter, the ramp up in the mining rate and completion of the SAG mill construction were slower than planned and these factors impacted performance in the Q3. The slower than expected mining ramp up was largely the result of the rebuild of shovel main frames, which has been taking place throughout the year and the delay in the delivery of new haul trucks. Those new trucks are now in service. The final frame rebuild has been completed and as a result, the mining rate has increased. We are now into a higher grade area of the ore body and have averaged grades above 2 grams per tonne over the month of October.
Combined with the performance of the new mill, which is fully commissioned, Tasiast delivered a new record for monthly production in October of 29,000 ounces. Our Fort Knox mine in Alaska is having a challenging year following the pit wall slide that occurred in the Q1. While the size of the slide is relatively small, its location is restricting access to higher grade material. This continued to impact production and cost during the Q3. In addition, as those of you who attended our mine tour in July can attest, Fort Knox experienced an unseasonable amount of rain during Q3, which created some minor operational and geotechnical challenges that affected mining.
We continue to work through these issues and expect performance from Fort Knox in the 4th quarter to be similar to Q3. Let's turn now to some operating highlights from the rest of our portfolio, starting with our Nevada mines, both of which have delivered strong consistent results in the 1st 9 months of the year. At Bald Mountain, areas where we are mining have been outperforming our expectations, delivering more ore tonnes with better recoveries. As a result, production year to date has increased compared with the same period last year. Bald's performance in 2018 has continued to be strong, but cost increase in the Q3 compared with Q2 as a result of higher operating waste.
Round Mountain performed well in the 3rd quarter with production mainly in line with the 2nd quarter at a slightly lower cost of sales, a result of lower operating waste and the timing of ounces processed through the mill. There was a wall failure in the southwest corner of the pit. We currently do not expect any significant impact to production or to the Phase W project, but as we do with all of our large open pits, we are monitoring the situation closely. I visited Round Mountain a few weeks ago. The Phase W project is looking great.
And while I was there, the mine produced its 15th millionth ounce, a rare achievement among gold mines in the world. Our Paracatu mine in Brazil is having a great year. The mine's performance in 2018 reflects strong throughput as a result of increased efficiencies in the mill, improved recoveries, significantly improved rainfall compared to last year, favorable foreign exchange movements and we are starting to see lower power costs as a result of the power plant acquisition we completed during the quarter. Rainfall in October, which is the start of the rainy season was better than historical average. Combined with the benefits of our aqua mitigation projects, we do not expect a production curtailment for the balance of the year.
Moving to our Russia region, Kupol and Devoinoy continue to be consistent performers. While production increased slightly compared with Q2, cost of sales was higher quarter over quarter, mainly due to higher reagent costs, partially offset by favorable foreign exchange movements. As Paul highlighted, we have completed the Maroska project, which commenced production in October. Development of the twin declines continues to advance as planned. At the Devoinoy Zone 1 deposit, surface infrastructure is nearly complete and development is advancing as scheduled.
We continue to expect production at Zone 1 to commence in mid-twenty 19. Last but not least, our Toronto mine in Ghana has consistently delivered strong performance in the 1st 9 months of the year. Production and costs were in line with the Q2 as strong mill performance offset slightly lower grade. Over the past year and a half, we've made great strides at Toronto, improving mine performance and rightsizing the cost structure. As a result, we've been able to drop our cutoff grade by 0.5 gram per tonne, which is opening up opportunities as we continue exploration activities focused on potential incremental additions to mine life.
In summary, we are moving in the right direction at all of our operations. Our overall performance in the 1st 9 months of the year has been solid and we continue to be on track to meet our company wide guidance for the year. I'll now turn the call over to Paul Tomory for
a brief review of our projects. Thanks, Lauren. It continues to be an active year for our project portfolio and in the past quarter we've advanced construction for our Nevada projects at Round Mountain and Bald Mountain. We've completed the feasibility study and begun initial construction activities at the Gilmore project in Alaska. We have initiated project studies at La Coipa and Lobo Marte and we continue to advance our exploration program.
I'll start with progress at the Phase W project at Round Mountain, which is advancing on schedule and on budget. Construction for the vertical carbon and column plant is proceeding well with supporting concrete work nearing completion. We've commenced construction of new heap leach pad, which is now approximately 20% complete. Construction approach to infrastructure including the truck shop, warehouse wash bay fueling area is also proceeding as planned. Pre stripping is advancing well and we continue to expect to encounter the initial Phase W ore in the middle part of 2019.
We're also making great progress at the Bald Mountain Vantage Complex project, which is also on schedule and on budget. We've begun stripping the Vantage pit and have started stacking on the new heap leach pad using economic but previously leach material. Initial construction and concrete work has begun for the vertical CIC plant, truck shop and wash bay. We expect to begin commissioning the new heap leach pad and processing facilities in the Q1 of 2019. Bald additionally has been one of our exploration priorities this year.
And as Tony mentioned, we purchased the remaining 50% of the JV zone at Bald Mountain for consideration including $15,500,000 and a 1.25 percent NSR. We now own 100% of the Bald Mountain property and continue to be encouraged by the exploration potential at what is the largest private mining land package in the United States. At the Fort Knox Gilmore project, engineering is now essentially complete. Preparations for major construction of the new Barnes Creek heap leach pad including grading proceeding well. Drilling and expansion of the GE Watering system has begun as we prepare to start stripping in the middle part of next year.
In addition to our execution projects, we're also continuing to look at additional future development opportunities that exist within our portfolio, particularly the La Coipa restart and Lobo Marte projects in Chile. We are evaluating both projects for potential return to production in the country as we assess opportunities to share resources and leverage synergies between the projects, which are located about 80 kilometers apart. The La Coipa feasibility study and the Lobo Marte scoping study are both on schedule to be completed in the second half of twenty nineteen and the first half of twenty nineteen respectively. In addition at La Coipa, we received the final sectoral permit in August and we are now fully permitted for the project. In summary, we're making good progress on all our projects and we look forward to updating you on a number of important milestones in February.
And with that, I'll turn the call back over to Paul.
Thank you, Paul. To wrap up, I'd just reiterate that our portfolio of 8 operating mines delivered solid results in the 1st 9 months of the year and we are on track to meet our 2018 guidance. We continue to advance our numerous development projects and we remain in a strong financial position. Operator, Michelle, I'd now like to open up for questions.
Okay. Your first question comes from Fahad Tariq from Credit Suisse. Your line is open.
Hi, good morning. Thanks for taking my question. On Fort Knox, you mentioned ongoing geotechnical issues, perhaps maybe worse by the rainfall in the quarter. And then the expectation that Q4 will be similar to Q3. What is the timeline to return to more normal grades and throughput?
Maybe just some more color on what's being done to address some of the geotechnical issues and the pit wall slide issues there? Thanks.
Sure. Thank you, Podd. This is Lauren. I just I guess I'd start with a couple of things. We had a very wet Q3.
We got like 13 inches of rain, which is half of the annual average in a very short period of time. And as you would appreciate that complicates things from a geotechnical perspective, takes time to draw water out of the structures. And that heavy rain period reactivated a small historic area where we've had some problems in the pit. So it's not the slide that happened in Q1. It's a small area that moved.
But like the slide that happened in Q1, we have a very restricted mining area from which we're accessing our ore right now. So any little hiccup in that area has an impact. And consequently, we expect Q4 to look much like Q3. I would remind you that when we first had the incident in Q1 with the larger failure, we discussed that we were going to have a difficult 2018 relative to the TR and that we expected 2019 to be roughly flush and 2020 to recover the ounces that have been deferred because of the high wall movements. It is a deferral, it's not a condemnation of ounces because these aren't final walls.
So we are anticipating that we start to see better mill grades in 2019. It's going to take us some time to work into those grades and we are right now looking at the mine plan to optimize the production sequence see if we can pull that forward quicker. But again, I would expect 2019 to be roughly similar to the TR and to recover the ounces in about 2020.
Okay, great. And just one more from me. On Tasiast Phase 2, last I think last time you guys spoke about it, you were looking at potential debottlenecking efforts. Any progress on finding ways to increase the throughput now that Phase 2 in its original form has been paused? How is that de bottlenecking effort progressing?
Yes. I'll just maybe I'll take the lead Fahad and then hand off to Paul Tomory. The key here is we never sit still on this stuff. We're always looking at optimization and trade offs. It's as you would expect, it's all about capital and what we can do and how we might increase efficiency with a lower capital number.
Paul, maybe you can give a couple of examples, the kind of things we think about when we look at these alternatives.
So like we mentioned last quarter, we're thinking of staging the Phase 2 project on how we get to 30,000 tons a day with an interim step. And one of the big questions is do we put the ball mill in at the beginning. And there is an option, a first step that doesn't involve the ball mill. So that's one example of how we're looking at it. Another one is on the water supply system, are there more efficient ways to leverage what we have as an interim step to get up to the ultimate requirement.
So in short, we're making really good progress and then we're putting better definition on the potential capital costs and the potential elements of scope that would be involved in the first stage of Phase 2 as well as the subsequent stage to get to 30 ks.
Thank you.
Your next question will come from Mike Parkin from National Bank. Your line is open.
Hi. Thanks, guys. With Tasiast, like the OpEx jumped up a fair bit there in 1,000,000 of dollars versus the run rate in 2017. Is that should we see that easing a little bit? Is that was a bit of that impacted by the commissioning of the SAG?
Yes, Mike. I think that's a fair assessment. There's a lot of activity that has to go on in a commissioning. And as you would appreciate, occasionally things don't go quite the way you expect and you incur additional costs associated with, for instance, clean up, turning things on, shutting them down, ramp up, ramp down affecting recovery. But I want to emphasize that those issues are well and truly behind us at this point.
The mill is running brilliantly. The projects team delivered a wonderful product to ops and the ramp up went extremely well. And we're just nailing it in that plant right now. So we should expect things to improve in Q4.
Okay. So it sounds like you had a bit of an influx of typical kind of contractors on-site and those are largely demobilized now?
Yes. I mean, we have been in the process of demobilizing the construction contractors. It would be more things like the local maintenance guys and other things that you use for cleanup and buttoning up little odds and ends. Just operational inefficiencies associated with the commissioning is how I would look at that.
Okay. And you mentioned earlier there that you're north of 2 grams. Is that fair to kind of assume for a grade for the Q4 something north of the 2 gram mark?
Yes. I think that's very fair. You'll recall that we had some delays in the ramp up of the mining rate and that put us about a month behind where we expected to be spatially in the pit. And so now we're entering the higher grade zone. Q3 for instance averaged about 1.7 grams per ton.
October was north of 2 and November December are looking to be better than October. So I think the combination of the mill hitting its mark and us being where we need to be in the pit spatially should set us up well for Q4.
Okay. And then on mining rates there, can you give us a sense of where they're tracking in October and where you That's correct. So the shovel frame rebuilds are all complete.
That's correct. So the shovel frame rebuilds are all complete and we have a spare frame now, a swing frame. So I don't anticipate that being difficult for us in the future. The trucks are all up and commissioned and we are squared up in the bottom of the pit. That's important because we were advancing a phase down to the bottom of the pit.
We have more space to work now. And so the combination of those things has really improved mining efficiency and we're not having any difficulty delivering the required tonnage. So we're looking forward to next year. Right now, we're putting the finishing touches on a mine plan, but circa 80,000,000, 85,000,000 tons to move next year and we have no concerns about doing that. We moved about 7,000,000 tons in October for reference.
And then on the other expenses, you mentioned it's gone up by 30,000,000 dollars Can you give us a sense of what portion of that was related to Fort Knox?
Yes, Mike. It's Tony. I can handle that. So it was $21,000,000 that was the impact. And what we did was we really looked at the gold price at the end of the quarter, which was around $11.87 and use that as a basis for assessing the net realizable value of the material that was on the heaps.
And the adjustment that came through was related to that. And we booked it through other costs simply because of what Lauren had indicated earlier with respect to what's happening at Fort Knox. Although we've been putting material through the mill and on the heap, you'll see from the table that's attached to the press release that the grades of that material is quite a bit lower than what we typically seen going through the mill and on the heaps. And we would have otherwise had access to higher grade material. And as a result, we felt that it was appropriate to adjust it out through other operating costs.
And given that we'll likely experiences for the next couple of quarters, we would expect to do the same, but I can't at this point quantify the impact because we've seen a slightly higher gold price. So it will be somewhat less hopefully than what we saw in Q3.
Okay. And sorry, is that all can you is that any of that non cash expense?
It's all non cash now.
But essentially the calculation is what's our cost to complete against the spot price. And as I said, the spot price at the date we did the calculation was $11.87 So assuming that we're correct on the cost to complete, we're looking at current spot prices, it would have had impact of roughly $60 per ounce just based on the spot price difference of what we have today.
Okay. And just maybe one last question. You mentioned at Serrano, you're lowering your cutoff grade. Is that something that we could read into in terms of a potential reserve growth being impacted or being the benefit when we come into Q1?
Yes, Mike, thank you for noticing that. We're really, really proud of the work that the team has done at Toronto. We have a new GM in there and he's very aggressively managing that site and we are anticipating sustained improvement of this nature. And to your specific question, yes, we believe it has some opportunity for us in the future. And I think Paul would like to comment on that.
Right. So the lowering of the cutoff grade Toronto is instrumental to potential reserve extension because we have a fair amount of low grade stockpile and open pit material that if with the lowering of the cutoff grade and some exploration success in the underground portions, we can continue to run a full mill. So we've had a great year in exploration at Toronto and we're just going through the calculations now as the quantum of the reserve and resource addition at year end of which there will be some and we expect at least a modest lengthening of mine life there with more potential down the road.
Okay, super. That's it for me guys. Thanks so much.
Your next question will come from David Houghton from CIBC. Your line is
open. Good morning, Paul and team. Thank you very much for the update. Perhaps for Paul, it's encouraging to see at least you've now got a process with the Mauritanian government with regards to moving your stand off forward. Previously, you'd mentioned that you'd put a proposal to the government.
I'm just wondering, has that been considered or are you looking at another basis of negotiation going forward?
Yes. Thanks, David. Yes, I don't know if I'd use the word standoff. Just I want a context here. I think we should all take a step back and look at the situation.
Again, I'd reiterate, we've been operating in this country for 8 years essentially without any incident. Things time from time to time, things will arise in any jurisdiction you operate and you work through it. And so in context, this is how I look at this situation. We are in a discussion. We've had meetings.
We've actually got meetings scheduled for next week, but it's a discussion. I personally believe there's a strong alignment of interest here. Obviously, we would like to proceed with an expansion for all those logical reasons about optimizing the ore body and enhancing cash flows and lowering costs and all those sorts of things. I also really believe that the company wants to see this expansion and everything that it can bring to the country. Mauritania, as you know, is a country that is actively trying to attract foreign investment.
Right now their focus is very much on the offshore oil and gas and a number of licenses have been awarded. We are also working as you know very closely with, I would say, enthusiastic multilateral agencies. We just signed up the EDC as well as the IFC and you know there's AMIGA in place and everyone's aligned to get to a successful scenario where there's an expansion. So I think and as well, I think Mauritania wants to be a country that is IFC endorsed through the project financing process. So look, I think it's a situation where we just we don't want to rush.
We want the mine is completely unaffected. We just had a Phase complex project essentially on time and on budget. We've just ramped up. We've had a record production. The site is firing on all cylinders and we'll just continue the discussion and I'm confident we'll get to a successful resolution.
Okay. So move it forward slowly and patiently.
Exactly.
Whilst we're still on Tasiast, maybe over to Lauren, if that's okay with you, Paul. You'd mentioned 85,000,000 tons to be moved next year. The tech report was quite a bit higher than that. And I presume that there's some equipment availability that's kind of holding you back a little bit. And also on the grade for next year, we've been looking for something very much knocking on the door of high 2 grams and wondering how we should recalibrate our thoughts into 2019 given what we're seeing so far?
Yes, David, it's Paul here. So the Tecmo port had 110,000,000 tons for 2019. So you're quite correct to point that out and we're going to do 85,000,000 next year. That's driven really by the deferral in Phase 2 allows us to pull back a little bit on the stripping versus what was in the technical report. So that's a pretty simple answer to that one.
The total tonnages in the life of mine plan remain unchanged. In 2019, we do expect to get into better grades. Just a step back here on what Tasiast is. It's not a homogeneous ore body and that we expect the same grade, same kind of material year in, year out. We are just now getting into a high grade portion of the granodiorite, the GDI.
And Tasiast and its mine life will have high grade years, low grade years depending on where we are in the mine plan. You're right in the Techno portfolio we had grades around 2.7, 2.8 for the year. Now it will be a little bit lower in 2019 as a result of a couple of things. One is the delay in the mining ramp up Loren talked about in the commensurate reduction in high grade material. The other is we start to focus on grade control practices and dilution management because as we get into high grade GDI as you could appreciate in some of those edge zones we're focused on just managing waste creeping into the ore blocks.
So it remains a focus of CI activities, but we definitely expect to realize fairly significantly higher grades as we get into the next couple of months and in the early part of next year.
Okay. So a bit of a fine tune on the plan, but it's more a deferral than anything else?
Yes. On the tons, it's definitely a deferral that lines up with where we are right now in the Phase 2 project deferral.
Okay. Whilst I've got you just looking at Bald Mountain, the stacking rates there are very robust, over 70,000 tons a day. And just wondering what we should be thinking going forward because the offset there is what we can see at current reserve life. How should we be thinking about the stacking rates going forward and the potential to extend life at BALD?
Hi, David, it's Lauren. Yes, you're quite right. As you'll recall, Bald is an assemblage of many smaller pits. So depending on what combination of pits we're mining and where we are in the stripping process and in the ore release, the stacking rate can vary considerably over time. I would say right now we've had a very good run coming out of poker.
It's delivered more tons and better recoveries than we expected. So that's driving what you're seeing as a high stacking rate right now. There'll be other periods in time when we're mainly stripping and the stacking rates will go down. So overall, we'll settle into something that looks kind of circa 18,000,000 to 20,000,000 tons a year as a stacking rate,
but there will be considerable variability quarter to quarter. And also jump in there on the exploration potentially you referred to that in your question. Bald remains one of focus activities for exploration. In terms of total meters drilled it's second only to our Russian assets. And we're targeting a healthy reserve and resource at year end.
Again, like at Toronto, we're going through the calculations right now, but I would expect a number north of 500,000 ounces at year end from Bald in terms of resource adds.
Yes. Given the nature of the ore body and the scattered pits etcetera, it does look as though that's a pretty clear potential. Last
And one
other thing I'd jump in on there. As we look at our 2019 exploration program, we now have the central zone. So we have the entire land package and we're starting to treat it as a we have begun starting to treat it as an integrated exploration package. And this has brought forward a number of new priority targets and we continue to remain quite optimistic about the potential of Bald.
Last question for me, perhaps for Tony this time. I noticed that you had the $21,000,000 of the pit wall related costs as an abnormal item. Is there potential for any of that to be recouped through business interruption insurance?
We haven't looked at it. I think at the end of the day, it's probably unlikely. I think really the classification was really driven by the change in mine plan and the fact that we continue to put both material through the mill that would have otherwise gone on the heap. So I think the answer to your question is no, we're not pursuing any insurance claim.
Okay. Thank you very much everyone.
Your next question will come from Greg Barnes from TD Securities. Your line is open.
Yes. Thank you. Paul, Ronson, or Tomory, if you got the situation resolved for the Martin and government tomorrow, would Phase 2 proceed the way you previously planned? Or are you making changes given these studies that you're doing?
It's a
good question, Greg. We certainly could go immediately back to the Phase II that we've paused. And in fact, we've maintained the stripping rates that support that. But again, we are looking at some optimizations and trade offs. So I can't I don't want to speculate at this point, but I think we're always looking at scenario analysis and optimization.
And one step at a time, let's get our conversation finished and then we'll be back to you. And if there was a change, we'd explain why we think it's better. Anything to add there, Paul?
Only that as we go through additional optimization engineering, we continue to look for ways of reducing the capital spend on that Phase 2. And without getting into too much detail, we are finding savings. So we like what we're seeing in this pause, which has allowed us to optimize the CapEx and also apply a lot of lessons learned from Phase 1 as there were many. What did we do well? What could we have done better?
And how would that translate into a more capital efficient approach. So as Paul said, it's too early to get into the details on that, but definitely we're looking at that path to 30 and how we get there.
It sounds like it'd be
a more phased approach than one big bang.
Yes, it certainly could be. Either option remains out there, but the breaking Phase 2 up into 2A2B as we're calling it certainly has its merits.
Okay. Paul Rollinson, you're 7 months into this process with the Martinian government now. We really don't know any details or any ballpark ideas of what the government is looking for. Can you give us some color where this is heading?
Well, again, I think it's context, Greg. I can't I don't want to get into the details today because it is a confidential discussion between us and the government. But I think the context matters. The mine continues to operate. We've had no issues.
Is no escalation. There has been no demands. It's really a request for a discussion. I come back to my alignment of interest point. The government to be fair was highly preoccupied really right through to the end of September where the elections took place and there was a reset on the cabinet.
And subsequent to that preoccupation, we're back and forth and we're talking. Our multilateral agencies like the IFC have been in country. Tony maybe elaborate maybe can elaborate. They're in country talking to the government, doing their due diligence. Everything is proceeding.
But at the same time, we're disciplined and we got a request to have a conversation. We're going to just pause things until we know exactly where these guys are coming from. We have also pointed out we have a mining convention. That's a legal agreement that spells out our fiscal terms. There's been no suggestion of reopening that.
So we're marching on, we're producing gold and we'll have our conversation. And as I say, I think, again, that alignment of interest will get us to the right place. This is a country that wants to attract foreign investment and they know the world is looking at us.
But this can't go on indefinitely, Paul. I know you've got a process in place. There must be some timeframe.
Look, it's a priority for us, Greg, but I can't sit here today and say we're going to be done by date X. And we're not in a point where we're at this point, we're not willing to draw any lines in this hand.
Okay, fair enough. Thank you.
Thank you.
Your first question or your next question comes from Carey MacRury from Canaccord. Your line is open.
Hi, Good morning, guys. Just another couple of questions on Tasiast. The government originally was asking you to propose something to them. Is it still at that level where you're proposing something or is it more of a back and forth dialogue at this point?
It's more of a this is really following a process here that they've asked. As I indicated on the opening remarks, the Minister of Petroleum and Mines has designated his Director General of Mines and we're meeting with him and we're having a conversation. And so it's not a high pressure escalating situation. It's a conversation. We've got a very senior team in country and our global GR team.
And we're going to just continue to have this discussion. I don't again, I don't want to speculate on outcomes, but there's certainly been no impact at site. It's situation as normal.
And then maybe secondly, Tasiast has been obviously you're getting through the Phase 1 CapEx. Assuming that Phase 2 is sort of indefinitely on the shelf, how should we think about sustaining capital into 2019 assuming a steady state 12,000 ton a day operation?
Yes. I think, again, it's a good question. Right now, as I indicated, we have the Phase 12. It's firing on all cylinders, but we are still keeping the stripping rates. We are still stripping at a rate that supports the Phase 2.
So part of the answer to the question will be is, if for some reason we decided to just stick with the Phase 1, whether or not we choose to gear back on the stripping. I think that's really the only hinge point that I would think is relevant on a 2019. Right now, we're in the middle of our budgeting process and we will obviously put the pin in all of this when we come out with our guidance in the New Year.
But the technical report for Tasiast for 2019 was still a 12 ks mill and the numbers in there on sustaining CapEx are pretty good. But with the caveat and that is not sustaining because we're treating it as growth CapEx with a lower slightly lower mining rate than the TR. But the remainder of the sustaining is in line with the TR.
And the stripping rate you'd need to maintain the 12,000?
Well, we talked about it earlier. So the technical report had 110,000,000 tons for 2019 and the budget as Laurence said is around 80 to 85. We're still finalizing the budget. So there is a slight slowdown in the stripping and that's essentially to align with the pause in the Phase 2. And so if your question is what stripping is required to maintain the 12, it's something a little bit less than the 80, 85 but not an awful lot less.
Okay. And then maybe one last question. I know it's obviously early days on Phase 1. Prior to Phase 1, the mill was running 10% above nameplate. Do you see opportunities to do the same sort of outperformance with what you have in place?
Or is it too early to tell?
Okay, this is Lauren. As I said earlier, we're really happy with the performance of the mill. It's an excellent product from the projects team. We've ramped it up very quickly. But we've only been running it really at nameplate here for about a month.
And we need a bit of run time under our belt before we can really predict where we'll finally land on throughput through that system. But as we do with all of our big mills, we will maximize the benefit we get from that capital investment and that is done through maximizing the throughput and maximizing the cash flow generation that comes out of it. So while it's early days, I would say we're optimistic and we'll do everything we can to push that throughput up as far as we can.
Just another point on that and I think it's an important one on how we looked at the studies on throughput for Tasiast both in Phase 1 and Phase 2 and how we continue to look at it. As we alluded to when we were at site with a group of several of you, we do believe that there's latent throughput capacity to expand throughput in both the 12 and the 30. However, we did that deliberately so that we can get to a better understanding of managing grade control dilution and feed coming out of the pit. So I wouldn't run to the bank with a higher number on throughput even if we achieve it because we want to keep that in the back pocket in the event that we have dilution concerns. But like I said earlier, we are focused on dilution, we're focused on grade control.
And we believe that the overall business case on risk and opportunities remain balanced there.
Okay. And maybe one final question on Paracatu, cost came down pretty well this quarter. I know the power plant was only partially in there. Do you have a sense of what that cost would have looked like if you had the power plant for the whole quarter? And is that kind of going towards what you expected?
Yes, Kerry, I can take that. In fact, if you look at our financial statements, we have a pro form a number of earnings for the full 9 months. Have we had the power plants from beginning of the year and it's $22,000,000 So effectively it assumed that we would have realized based on the economic analysis about $60 per ounce so far year to date. The life of mine number that we based our acquisition on was $80 per ounce and there's nothing that we've seen so far that would suggest that that is not going to be the case. But I would just point out that it's early days.
We really just took control of those power plants in the Q3. And so we'll start to have a better sense obviously in the Q4 in terms of what the contribution is, but so far so good. I think the other things that Paracatu that we benefited from is we've been doing a very extensive achieving excellence program, which is really focused on continuous improvement options, which is starting to bear fruit. And we're also getting some benefit from the weaker currency.
Great. Thanks very much.
Your next question comes from Tanya Jakusconek from Scotiabank. Your line is open.
Great. Good morning, everybody. I have a technical question and then a financial question for Tony. So maybe just on the technical first. Actually, it's 3 technical questions.
Maybe, Lauren, can you chat a little bit about Round Mountain and the slide there and how much has actually gone into the pit that we need to move?
Sure, Tanya. How are you this morning?
Good. Thank you.
Excellent. So Tanya, the failure is in the southwest corner of the pit. It's not an area that we're actively mining. It is scheduled for mining with Phase W. And so what will happen as we do the strip for Phase W and it advances in that direction, we'll mine through the failure and clean it all up at that time.
It has had some impact on decommissioned infrastructure. That infrastructure was decommissioned in anticipation of the Phase W expansion and scheduled for demolition in Q1 of next year. So right now, because of where it's located, there is no material effect expected from the slide either in this year's production or next, then it should not have an effect on Phase W assuming that it doesn't move beyond where it is now. And it has slowed down dramatically here in the last week or so and it looks like it's achieving a relatively stable configuration. So at the moment, I would say not a big cause for concern, but like all of our big pits, we're monitoring it very closely.
Yes. I'm just wondering if it was part of waste that needed to be removed anyway or is this additional that we're going to have to take on?
No, good question. No, it's material that was going to get moved anyway.
Okay. So it was part of the okay.
Yes. And a lot of it was alluvium above the rock, which is all free digging. And a little bit of it There is a little bit of rock movement at the base, which now we don't have to blast. So take that for what it's worth, but we'll have a little bit of cost savings on the excavation side and maybe a little bit of offset on the haulage side.
Okay. Okay. So I don't have to add any more material move to that. Okay.
No, I don't think so.
Okay. That's helpful. And then just maybe on Bald Mountain, I mean, I know there's a variability, as you mentioned, quarter quarter, Lauren, on where you are in the pits and which ones you're deriving from. But it looks like Bald Mountain is doing quite well this year. Is there any guidance you can give us in terms of do we start to see the slowdown, this year, Q4 and into next year?
It's just really hard about knowing where the ore is coming from all these pits.
Right. So I think what's going to happen this year is we're going to be at the high end of guidance that you would have seen previously at Bald for this calendar year. And as we've mentioned before, we're still working on our budgets. So it's a little premature to say too much with respect to 2019, but it should be a pretty similar year, I expect.
Okay. Well, that's helpful. Thank you. And then maybe on Tasiast, and I don't know if Paul wants to jump in here. I mean, I'm following up really on Greg's question, which is, we're 7 months into this and don't really have much clarity.
And we appreciate that you're looking at having to resolve this with the government and then looking at Phase 2a, b. But from 35,000 feet for all of us just trying to understand, is it safe to assume that every month delay and I know you're still doing stripping for Phase 2, but every month delay really is a month of delay in this overall project, however, we want to model it out?
It's not exactly. I think and I'll let Tamara jump in here. But you have to I guess the difference is there's since we hit the pause button, you have to then add a remobe to that delay. So there will be some time and cost to remobilizing.
Right. So to be a bit more specific on that, we're now 7 months into it. Yes. That roughly equates to about a 1 year delay with respect to what was in the technical report on a ramp up. So if you're modeling it, I wouldn't model 7 month, I'd model a 1 year delay.
The other point is because we continue to strip at a rate not quite at the TR, but still in preparation for Phase 2, it likely means that the mining rate may never need to get up to what was in the TR to sustain feed. But of course, that'll be determined by the extent of the pause. So in some ways, we're taking a
little bit of the risk out
of the mine plan right now by maintaining an 85,000,000 tonne a year stripping rate.
Okay. So we should just think of that ramp up really, meet the mob and ramp up to where we demob and restart whatever as about 5 month period. Is that safe, Paul, to assume that? Yes.
I mean with respect to what's in
the TR, the easiest way to model it is just to move slide it out 1 year and then smooth out the mining rate between now and then to get to the same total rough tons in the intervening period.
Okay. That's helpful. Thank you.
For example, in 2019, we're probably going to mine $25,000,000 less than the TR and that gets spread over the added year.
Yes. Okay. Okay. And then just maybe Tony for you if I could. Closing of the project financing at Tasiast, I guess we didn't really see the closing, but are we still looking for the first half of twenty nineteen?
Yes, it's a good question Tanya. Thanks. So I think Paul had mentioned, well, we both mentioned actually the process with IFC and EDC and they were on-site and their site review is really focused on environmental, social and that went extremely well. So we're very pleased with how that's moved forward. The next step in the process is really about the review of the financial model and we're finalizing what we're going to be providing to them.
So they should be receiving that shortly. Once they have that review, we get into the detailed discussion of the term sheet and effectively the financing agreement. And then what they would have from an IFC point of view and given that EDC will be in there as well as possibly commercial banks. IFC will have a 60 day period where basically a comment period. So that probably takes us towards the latter part of Q1 or early Q2 in terms of timing.
And so the real gating item is going to be the review of the economic model, having those discussions with IFC and ensuring that they're comfortable with the parameters that we have in place. And then it's really going to be that comment period that will need to be factored in. But I think we're still pretty comfortable with the process. And I think to highlight a point that Paul had made, notwithstanding the discussions that commencing with the government, the feedback that we had from the agencies was that they certainly have good meetings with the governments and there continues to be a focus on their part to highlight the benefits to Mauritania of Phase 2 going forward.
But from a whole overall process, if we get through that 60 day comment period by the end of you said Q1 and early Q2, that technically we could close this by the end of Q2? It would
be sometime in Q2, yes.
Yes. Okay. And then just Tony, on the capital expenditures, I mean, you reiterated guidance there and we just want to try and understand if this is conservative or what's coming up in Q4 big ticket items that we need to be aware of?
Right. So right now, cumulative capital has been 7.70 year to date. If we look at the guidance, it was 10.75. So 305 would take you to the guidance number. It was plus or minus 5%.
There's
last year we had a fairly big spend in the Q4, which isn't out of line with that 3 0 5 number. So that's why we sort of kept it at guidance in terms of not adjusting it lower. But I would say we're comfortable with the 10.75 number as a guidance number at this point.
Okay. And in terms of big ticket items that we should be aware of?
Not really. I think we've already spent some money on Phase 2 that was primarily the power plant acquisitions that have been locked in prior to that. So there'll be some settlement of contracts that will be coming in Phase II. So cumulatively on Phase II, we spent roughly $95,000,000 approximately. But I don't anticipate any excuse me, big ticket items per se.
It's really going to be just what we've highlighted previously.
Okay. That's helpful. Thanks, Tony.
No problem.
At this time, I have no further questions in queue. I turn
the call back over to
the presenters for closing remarks.
Thank you, Michelle. Thanks everyone for joining us today and we look forward to speaking with you in the future. Thank you.
This will conclude today's conference call. You may now disconnect.