Good morning, and welcome to Newmont Goldcorp's Second Quarter 2019 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Jessica Largent, Vice President of Investor Relations.
Please go ahead.
Thank you, and good morning, everyone. Welcome to Newmont Goldcorp's Q2 2019 earnings conference call. Joining us on the call today are Gary Goldberg, Chief Executive Officer Tom Palmer, President and Nancy Bezey, Chief Financial Officer. They will be available to answer questions at the end of the call along with other members of our executive team. Turning to Slide 2.
Please take a moment to review the cautionary statement shown here and refer to our SEC filings, which can be found on our website at newmontgoldcorp.com. And now, I'll turn it over to Gary on Slide 3.
Thanks, Jess, and thank you for joining our call. We delivered strong performance in the Q2 and continued our work to establish Newmont Goldcorp as the world's leading gold business. Highlights for the quarter included closing the deal to acquire Goldcorp with the overwhelming support of our shareholders, making steady progress on integrating assets and aligning teams with our proven strategy, completing an historic joint venture with Barrick to create the world's largest gold producing complex and meeting our ongoing commitment to deliver The first pillar of our strategy is to deliver superior operational execution. In the second quarter, we produced 1,600,000 ounces of gold and delivered all in sustaining costs of $10.16 per ounce and continued to improve costs and efficiencies across the portfolio. We're on track to achieve a run rate of $365,000,000 in annual improvements from the Goldcorp acquisition by early 2021, And we launched our full potential continuous improvement program at Penasquito and Cerro Negro.
This program has delivered more than $2,000,000,000 in improvements since 2013. The second pillar of our strategy is to sustain a global portfolio of long life assets. During the Q2, we approved the Awansu layback to extend the life at Ahafu's open pit mine. We supported the completion of the Nevada Gold Mines joint venture, and we continued to advance profitable projects, including the Ahafo Mill Expansion, Quecher Main and Borden, all of which will reach commercial production later this year. The 3rd pillar of our strategy is to lead the gold sector in profitability and responsibility.
In the second quarter, we returned $590,000,000 in dividends to our shareholders, maintained a strong balance sheet with an investment grade credit rating and nearly 5 $1,000,000,000 of liquidity, and we were recognized as one of the top companies in the world for our leading social, environmental and governance performance. This performance starts with running safe operations. Turning to Slide 5. While our combined safety performance improved in the 2nd quarter, we remain focused on achieving 0 harm across our portfolio. That focus includes reporting and sharing significant events that hold the potential to impact safety and embedding our fatality risk management program to test the controls we have in place to prevent accidents and injuries.
Over the last 6 months, we've also been driving efforts to eliminate live maintenance work as another effective way to protect our people from injuries. We were honored to be recognized as one of the world's leading corporate citizens by Corporate Responsibility Magazine and the only mining company to make the list for our performance. This recognition is a tribute to the commitment our teams bring to leading sustainability performance and a key measure of how well we run our business. Turning to a look at our global portfolio on Slide 6. Our operations are based in 4 regions and managed under our proven operating model.
Taken together, Newmont Goldcorp offers investors an unparalleled portfolio of mines, projects and reserves in favorable jurisdictions. In fact, 90% of our reserves are based in the Americas and Australia. Sustainable gold production targeting between 6000000 ounces per year with another $1,500,000,000 of annual revenue from copper, zinc, lead and silver production, and the financial flexibility needed to continue investing in profitable growth and delivering an industry leading dividend. Finally, we offer strong leadership and a wealth of technical expertise to make the most of these assets. I visited Eleonore and Porcupine last week, and I was pleased to see the progress the teams are making to align and integrate these operations, and the ongoing work by the combined teams to make the Nevada Gold Mines joint venture a success.
With that, I'll turn it over to Tom on Slide 7 to discuss our operational performance and recent integration work.
Thanks, Gary. Before reviewing our operational performance and integration work, I'd like to take a moment and welcome Rob Atkinson, our new Chief Operating Officer, who you will hear from next quarter. Over the past 25 years, Rob has delivered step change improvements in safety, productivity and sustainability in the mining sector. We are excited to have Rob on board as he brings a demonstrated commitment to building strong safety cultures and to leading and empowering teams to achieve meaningful business results. With his capability and experience, Rob's addition to our leadership team will help to drive the delivery of value we have identified through our combination with Goldcorp.
Now beginning with a review of our regional performance on Slide 8. Our North American operations were impacted by near term challenges in the 2nd quarter. The performance is expected to improve in the second half as we work to fully integrate the Goldcorp assets and set them up for sustainable future success. At Penasquito, operations safely ramped back up in June and concentrate inventories are almost back to normal levels. During the shutdown, the team brought forward maintenance on various plant and equipment.
The remainder of 2019 and into 2020, grades are expected to steadily improve as we complete the stripping campaign in the main Penasco pit. And we also launched our full potential program at that operation and I'll touch a bit more on that later. On June 17, we began good faith dialogue with the trucking company and the Cedros community. In just last week, the team hosted a session on-site, the stakeholders were able to see firsthand the focus we have on environmental compliance, water efficiency, social development and long term community water plans and more. At Musselwhite, the rehab at the conveyor ramp is around 70% complete.
Secondary egress has been successfully established allowing us to recommence both development activities and work on the materials handling project earlier this month. The focus for the remainder of 2019 will be on replacing the conveyor system and using this period as an opportunity to get ahead on development work. At Elianore, we've begun accessing higher grade in the Horizon 5 zone and preparations are underway to launch full potential in the 4th quarter. We also continue to advance materials handling project to improve productivity from lower levels of the mine. At Porcupine, the Bodrum project remains on schedule to reach commercial production in the Q4.
And at Red Lake, production at Cochineur was ramping up in the Q2. However, in early July, we proactively paused the underground operations in order to strengthen our controls following an in-depth review of an historical underground area. Partial underground operations resumed a few days later and have signed a toll milling agreement with Nevada Gold Mines to continue processing concentrate in Nevada. In the Q2, our Nevada operations performed as planned with Carlin safely completing its annual shut on Mill 6. And on July 1, we closed the Nevada joint venture and Barrick assumed operatorship of Nevada Gold Mines.
We look forward to working together and supporting the joint venture's efforts to unlock significant value over the years ahead. Turning to South America on Slide 9. Yanacocha delivered another solid quarter with continued higher grades from the Tapado Estate pit and drawdown of Laquinoa leach pad. And at Merian, continued productivity improvements helped offset seasonal wet weather. At Cerro Negro, 2nd quarter performance was in line with our expectations and we anticipate a stronger second half as we reach higher grades from the Eureka and Mariana Norte.
We launched full potential earlier this month with a focus on improving development and mining rates, maximizing recoveries and applying our asset management methodologies at that operation. Looking forward, Quecher Main continues on schedule with commercial production expected in the Q4. Turning to Australia on Slide 10. Tanami delivered another solid performance coming off higher grades in the Q1 and we are starting to see the cost benefits from the transition to natural gas fired power. Boddington continues to progress the stripping campaign in the South pit and expects to reach higher grades in Q4.
We recently advanced our autonomous haulage study with the potential to reach a full funds decision later this year. If approved, the project is expected to improve costs and mining productivity by converting the fleet of 39 haul trucks to autonomous operation using the cat command system. At KCGM, geotechnical remediation work on the east wall of the Fimersen pit is ongoing. We're starting to see production from the Morrison starter pit and expect to reach higher grades in the second half. And Tanami Expansion 2 continues advancing towards a full funds decision in the second half.
Engineering works are ongoing and shaft sinking has progressed beyond 150 meters. Turning to Africa on Slide 11. Achim again delivered strong quarterly production on the back of high grades associated with optimizing grinding and improving recoveries. At Ahafo, we continue to benefit from high grades in both the Subika open pit and underground. We recently approved funding for further laybacks of the Awansu pit.
While we anticipate first goal from these laybacks in the Q4 of this year, the majority of the benefits flow from 2024 to 2029. These laybacks extend the life of Ahafo surface mines by another 4 years. And the Ahafo Mill expansion is nearing completion with commissioning expected to start next month and commercial production in the Q4 keeping us on course for a record year in Africa. Following our review of geotechnical assumptions at the Subika Underground Mine, we are assessing mining methods for the lower levels of that mine. As we conduct this review, we are mining more laterally and as a consequence have reduced our 2019 outlook by approximately 40,000 ounces.
Looking forward, at Ahafo North, we continue to work through the permitting process, engaging with the relevant government agencies and building upon our relationships with traditional leaders and local communities. So putting it all together, we delivered 1,600,000 ounces and all in sustaining costs of approximately $1,000 per ounce in the 2nd quarter. With our global and balanced portfolio allowing us to overcome headwinds at select sites with continued solid execution across the rest of our operations. Turning to review of our operational outlook on Slide 12. Our 2019 guidance includes a full year for the Newmont operations including a full year for our Nevada sites and a partial year for the former Goldcorp operations from April 18 to December 31.
Our outlook has been updated to include the impacts from the blockade at Penasquito, the conveyor fire at Musselwhite, the installation of additional safety controls at Red Lake and the impacts from the slip in the gold quarry pit at Carlin in late 2018. 2019 is second half weighted as we ramp up our half a mill expansion and important projects and reach higher grades at Cerro Negro, Penasquito and Eleonore. Sustaining capital of $985,000,000 includes investments in tailage storage facilities, expansions at Ahafo and Penasquito, BLF2 leach pad expansion at CC and V in addition to infrastructure equipment and ongoing underground mine development throughout the portfolio. Development capital of $575,000,000 includes spend on a half a mill expansion, Quecher Main, Borden and conveyor remediation works at Musselwhite. In summary, we expect to deliver 6.5000000 ounces of gold, an all in sustaining cost of $9.75 per ounce in our 1st partial year as a combined company.
This operational outlook does not include any of the benefits that will flow from our full potential work at Penasquito and Cerro Negro or from supply chain improvements where we are actively progressing work. Turning to Slide 13 for a look into our early successes. We've made excellent progress in the 1st 90 days of integration. On the G and A front, we recently completed our organizational design work to resize the Vancouver office from a corporate headquarters to a regional office. This work has already captured $40,000,000 per annum in labor savings to date.
We have realized a further $10,000,000 per annum in non labor G and A synergies through the consolidation of insurance and benefit programs, real estate and other quick wins. We have commenced the next phase of this work, which shifts the focus from Vancouver to target duplication across the operating businesses. Turning to our supply chain work, Newmont's experienced supply chain team is actively chasing value across several fronts. Quick wins are being achieved through the extension of best pricing and rebates and we are also leveraging our increased scale and volume to seek improvements on some of our input costs. Our full potential program is well underway at Penasquito, recently kicked off at Cerro Negro and we're preparing to launch at Eleonore in the 4th quarter.
At Penasquito, full potential began in early June and we have our key subject matter experts on the ground working with the site team focused on opportunities in the areas of mining, processing, asset management, G and A and external spend. Another example of applying our technical expertise to turn these former Goldcorp assets around is our strategic resource development program. This program lays the groundwork for future business plans by testing an extensive set of mine plan options across a wide range of interrelated variables. The output from this work ensures that we are pursuing the optimal development and value path for our operations. At Musselwhite, our strategic resource team is working with the site to understand the entire value chain and review critical trade offs in physicals, financials and risk to develop the best value for that operation.
In summary, our structured approach to delivering value has us well on our way to achieve the cash flow improvements of $365,000,000 per annum. We expect 40% of the improvements to be realized this year, ramping up to 80% next year and 100% by 2021. Looking further ahead at our project pipeline on Slide 14. Another key value proposition in our combination with Goldcorp is our industry leading project pipeline. Leveraging our project delivery track record, it provides the opportunity to establish a foundation for steady production and cash flow for decades to come.
This pipeline gives us significant flexibility and we will continue to advance only those projects that meet our minimum hurdle rate of 15% at a $1200 gold price. As previously mentioned, we recently approved the Awansu layback and this project is now shown in execution. Along with Musselwhite Materials Handling and the 3 projects we expect to complete in the Q4 of this year. The half of mill expansion, Quecher Main and Borden. It's also worth noting that we shifted the Coffey project from definitive feasibility to pre feasibility as we take a step back to perform further exploration, confirm the resource, advance permitting activities and improve our understanding of the asset.
As part of our integration and annual planning work, we will continue to evaluate all projects through our rigorous and disciplined investment system. I look forward to providing updates on our project portfolio as well as our optimization work on the 6 former Goldcorp assets to deliver long term value as we move ahead. With that, I'll hand it over to Nancy on Slide 15.
Thanks, Tom. Turning to Slide 16 for the financial highlights. Before we jump in, it's important to note that results reflect performance of Goldcorp assets from April 18 until June 30. In the second quarter, we delivered revenue of $2,300,000,000 which increased 36% over the prior year quarter with the additional sales from Goldcorp assets and higher realized gold prices. Adjusted net income of $92,000,000 or 0 point 12 $679,000,000 a 25 percent increase over the prior year quarter.
Cash from continuing operations was $301,000,000 a decrease of 25% driven by lower net income and higher accounts receivable at Boddington and Penasquito, with Penasquito concentrate shipments recommencing in mid June and port congestion at Boddington that delayed shipments near quarter end. Outstanding concentrate receivables at these two operations was more than $150,000,000 which we expect to collect in the 3rd quarter. Those movements also contributed to a free cash flow decrease of approximately $220,000,000 over the prior year quarter, along with higher investments in development projects. We have collected $45,000,000 of insurance proceeds related to the conveyor fire at Musselwhite, of which $14,000,000 was recorded as an offset to cost applicable to sales in the Q2. As you will see in our detailed results, there are specific accounting and policy differences for the newly reported Goldcorp assets, including a reset in the basis of assets and liabilities to fair value.
And there are changes to reporting for differences between IFRS and U. S. GAAP and the adoption of Newmont accounting policies. Some of these items include differences in the classification of certain investments as sustaining or development capital, the exclusion of resources and the calculation of depreciation expense and the impact on cost applicable to sales without deferred stripping costs. Other notable differences include co product accounting at Penasquito, changes to the accounting for the mine Silverstream contract and inclusion of Cerro Negro's Argentinian export tax in our AISC calculations.
Turning to Slide 17 for a review of earnings per share in more detail. 2nd quarter GAAP net income from continuing operations was $1,000,000 Primary adjustments included $0.16 comprised of $0.14 related to transaction and integration costs from the Goldcorp acquisition such as severance payments, legal and banking fees and consulting costs and 0 point 0 $2 related to the Nevada joint venture transaction including costs related to defense. $0.04 related to reclamation and remediation charges at legacy Newmont sites. Dollars 0.05 related to a change in the fair value of equity investments and $0.04 related to gains from the sale of exploration properties in North America. Taking these adjustments into account, we reported adjusted net income of $0.12 per diluted share.
I want to take a moment to thank the Newmont Goldcorp Finance team and all the work they've accomplished to support the successful integration of the businesses and coordination with Barrick to successfully transfer ownership of our Nevada assets to the joint venture. As a reminder, our results for the Q3 will proportionally consolidate Newmont Goldcorp's ownership interest in Nevada Gold Mines for the terms of the joint venture agreement. We will present these results as a separate segment in our financial statements, including the various elements of the P and L disclosure purposes. Turning now to Slide 18. We remain well positioned to execute our capital priorities, including maintaining an investment grade balance sheet, investing in the next generation of mines to improve margins and build a stronger reserve base and return cash to shareholders.
Newmont Goldcorp has one of the strongest balance sheet in the gold sector, supported by a cash balance of $1,800,000,000 even after paying off $1,250,000,000 of outstanding Goldcorp debt at closing and returning approximately $590,000,000 to shareholders in the 2nd quarter. After the completion of several key financing activities in April, including a reset of our 5 year $3,000,000,000 revolving credit facility and a successful exchange of Goldcorp notes, we maintained financial flexibility with a net debt to adjusted EBITDA ratio of 1.5 times. We also demonstrated our continued commitment to returns through a special dividend of $0.88 per share and a common dividend of $0.14 per share. Wrapping up with our 2019 corporate outlook on Slide 19. We continue to invest in our future to secure the long term stability of our business.
For 2019, our support cost outlook is $325,000,000 which includes a portion of synergies from the Goldcorp combination, but also contemplates managing the Nevada operations from our Elko regional office through June 30. We are on track to deliver an annualized run rate of $85,000,000 in G and A savings for 2020. Our interest expense is expected to be $280,000,000 from our new debt profile. And our depreciation and amortization outlook is just over $2,000,000,000 Investment in exploration and advanced project is expected to be $450,000,000 with near mine and greenfield exploration occurring across all regions and ongoing investments in advanced projects as we progress the next phase of future growth. Finally, our consolidated adjusted tax rate is forecast to be in a range of 34% to 39% using a $1200 gold price.
Going forward, Newmont Goldcorp is well positioned to continue a trajectory of industry leading financial performance by executing our capital priorities and staying focused on long term value creation. And now I'll hand it to Gary to wrap up.
Thanks, Nancy. Turning to Slide 21. Newmont Goldcorp delivered a strong first half in twenty nineteen. We are well positioned to build on that performance in the second half and for decades to come. We will continue to focus on generating long term value for our shareholders by executing our strategy, which is to deliver superior operational excellence by focusing on safety and a culture of continuous improvement sustain a global portfolio of long life assets by investing in the next generation of mines, technology and leaders across our business and to lead the gold sector in profitability and responsibility by maintaining high standards and living up to expectations of how a leading business should operate.
I'll end by saying thank you to our team and to our investors for your support. It has been an honor to lead Newmont Goldcorp. I'm proud of what we've accomplished together over the last 7 years and I'm excited about the future for the business. I have great confidence in Tom and his new leadership team as he takes over the reins as CEO on October 1. And I have great confidence in this team's ability to build on a strong foundation and advance Newmont Goldcorp's position as the world's leading gold company.
Thank you for your time. And with that, I'll turn it over to the operator to open the line for questions.
We will now begin the question and answer session. And our first question comes from John Bridges of JPMorgan. Please go ahead.
Thanks. Good morning, Gary, Nancy, Tom. It's been great working with you, Gary. Best of luck in your new endeavors. I was just wondering with the new accounting, Nancy, that you spoke of, how much of the lower earnings are related to that, the change in or loss of deferred stripping and the more conservative accounting.
Have you thought about the impact that we've seen with these results as a result of the accounting?
Yes. Thanks, John. And absolutely, that's something we wanted to telegraph very early on because we knew there would be some significant differences. I would say the difference between IFRS and U. S.
GAAP is probably the most material piece, and we'd be happy to walk you through those in a bit more detail. And then certainly, some changes between policies. And as we've talked about the difference between development versus sustaining CapEx is probably the key piece of it as well as the co product versus byproduct accounting at Penasquito. So yes, that's probably a fairly material difference in the way you would have seen things reported at the Goldcorp level And we're very comfortable walking folks through the details of those to help make sure you're bridging to the way we'll be accounting for those going forward. But yes, that's our goal was not to surprise the market with that, but we've tried to telegraph that there would be some fairly material changes.
And then one of the things that seems a little bit counterintuitive is the switch from being able to depreciate underground mines against the reserve and resources. Now I understand that just using reserves as per GOP is a more conservative way of working, but it seems impractical particularly as you and other miners become more focused on underground mines. What's your thoughts on that? And would it be possible to lobby the SEC to change that?
Yes, totally understand the request there and we don't disagree with you. However, we are settled a bit by the requirements of U. S. GAAP. So that might take more than just Newmont's desires to turn that around.
But we totally understand the thoughts, but U. S. GAAP really requires us to only use reserve life to calculate depreciation.
Right. And then just if I may, Subika, you mentioned that there's been a change to the mining plan there. What's going on?
John, it's Tom here. I'll pick that one up. As we look at some of the ongoing work and looking at some of the stresses as you move into the depths deeper into that mine, we're seeing higher stresses. So we're taking a step back to look at our mining method, particularly the type of backfill we might need for that. So as we step back and understand that we've just moved out of mining laterally, so we can work through that mining plan mine planning process through the course of the business planning process this year.
So I'd expect as we move through to provide our longer term guidance the latter part of this year that we can provide more insight into that. But it's how we manage higher stresses in that mine as we move into some deeper parts of it.
Okay. Great. Thanks. Best of luck Tom in the new role and best of luck Gary in any new endeavors. Thank you.
Thanks, John.
Our next question comes from Chris Terry of Deutsche Bank. Please go ahead.
Hi, Gary, Tom and Nancy, and all the best for you, Gary and Tom, in your new role. A couple of questions from me. Just starting on the new guidance, the 6,500,000 ounces for 2019, taking into account the from April on the Goldcorp assets. How do we think about that number you provided in the context of the ongoing full potential program from here and as you transition into 2020 and moving forward? Is that a number you've largely reset as such and then you'll build from that with any optimization on full potential?
Or can we still think about 2020 beyond is still pretty fluid depending on the outcomes of your view of the assets in the coming 6 months? Thanks.
Thanks, Chris. Tom here. I'll pick that one up. The approach that we take with all of our operations and the full potential approach we take in coming in and running full potential at those operations is to start with previous best demonstrated performance and understand what you've done in the past and then building a plan on that basis that's underpinned by a robust resource model that's been feeding a mine plan. Then we start to build some stretching that in terms of improvement.
That's the starting point that full potential has as it comes into Penasquito and Cerro Negro and Eleonore as well as our existing former Newmont operations. So that's the basis of which we have worked with our 14 operations to develop our guidance for this year. And that's the process that we're using to build our business plans 2020 beyond for Newmont Goldcorp. What we do with full potential is when we have a full potential program, we go through a diagnosis phase and then a development phase. Coming out of the development phase, you then have a series of projects that have clear value delivery linked to them, resources and accountabilities and a timeframe.
It's only when we have those clearly defined projects in place that we build them into our plans and our guidance. And as I said in my comments, you won't see full potential benefits built into 2019 guidance because that work is only just starting at Penasquito and Cerro Negro. We would expect see some of those benefits for those two sites flowing into our 2020 business plan and our 2020 numbers. So we're very disciplined and rigorous in the way we look at our mine plans and the way we apply our full potential program.
Okay. Thanks, Tom. And then just thinking about the medium term, so should we expect updated guidance on forward years from late this later this year? And what's the sort of updated timing on any divestments in that prior sort of 6000000 to 7000000 ounce range that you talked about on the last quarter? Thanks.
Thanks, Chris. I'll pick up the first part of your question and pass across to Gary for the second part. We're right in the middle of our normal annual business planning process at the moment. That's the standard process we run through. As we work through that process and present our business plan to our board, in the latter part of this year for approval, we'll then follow-up with longer term guidance and we're currently targeting our standard timeframe of December to be sharing that with you.
And just to follow-up on the divestment question, just a reminder, there was no need to do any divestments as part of this acquisition and the whole process that we've gone as we've worked with Barrick to support and develop the Nevada joint venture. So we want to make sure we get in, get a good look at all the operations and projects that we've brought in with the Goldcorp acquisition to make sure, as we did with Newmont 5 years ago, well, 5 to 6 years ago in terms of going through all the assets to make sure they're delivering as strongly and as well as possible before we move forward with that process. So that's where we're focused.
Thanks, Gary. And the last one for me just on a couple of assets specifically on Musselwhite and pushing out the timeline on the repair work there. Should we assume that that can ramp up pretty quickly in 2020? Or is it too early to say what the impact might be on that year? And then for Penasquito specifically as well, did the blockade have I was just wondering if you could go through a few more details on the impact that that had on perhaps mining inventory levels, other factors around the mine as well just to think about the second half and going forward?
Thanks.
It's Chris, Tom again. I'll pick both those up. So at Musselwhite, the fire damaged the full 2.5 kilometer conveying system. So it's a process of rehabbing. So you have to remove all the damaged structure and rehab the ground control in a 2.5 kilometer decline.
We are well advanced, 70% complete on that rehab work. I was at Musselwhite a few weeks ago, able to see that work in progress and they're doing an excellent job in terms of ensuring that they're setting up that rehab for the long term in a mine that has a very long life. We're right in the throes now of assessing bids for the fabrication installation of new conveyor. So ultimately, our timing will be determined by those bids coming in. So we'll gain greater understanding of that in the coming weeks.
It will be into 2020 though before that that combined system is commissioned and up and running. We are back in working on the materials handling project. That project was well advanced when it was paused because of the fire. So it's we're very much getting into the final stages of that project. We'll be moving through commissioning in the latter part of this year and having it ready and available in the New Year as that conveying system comes up.
Our focus at Musselwhite is to ensure that there is the appropriate level of development work. We have the appropriate number of stopes open and then we have the drifts out to do the exploration work to map out the future of that mine. So that when we have that conveying system up and running, we have the appropriate number of open stopes and the ability to be able to maintain the appropriate number of open stopes going forward. So I fully expect that when that mine comes back up, when that conveying system comes back up, it will come up very smoothly and we'll be able to hit our whatever the appropriate rate is out of that mine very smoothly and quickly. In terms of Penasquito, as a result of that blockade, there were no impacts on the operation itself.
It was managed in a very appropriately in a care and maintenance situation, and we did a lot of maintenance work through that downtime period. It also has ramped up very smoothly. We have been able to move concentrate to market very effectively although as Nancy indicated both Penasquito and Boddington have a little backlog of concentrate sales from the Q2 that will flow into the Q3. The concentrate inventory levels by now are back to normal. The mine is running well.
The plant is running well. The impact on the second half of this year will still move into higher grades for gold, silver and lead. Grades stay about the same for zinc. But as a result of the 50 day shutdown, we'll see some of those high grades that we're expecting in the Q4 to move into 2020. And so we'll see that in our 20 20 guidance as we bring that out later in the year.
Thanks, Tom. That's all for me. All the best to you and Gary. Thanks. Thanks, Chris.
Chris.
Our next question comes from Fahad Tariq of Credit Suisse. Please go ahead.
Hi, good morning. Thanks for taking my question. Just going back to the Goldcorp synergies for a second, can you clarify And if that's the case, this year, is it right to say that none of that 40% of the 365 would be full potential? It's all coming from G and A and supply chain. And just some clarity around that would be helpful.
Tom, again, I'll pick that one up. You're pretty much spot on. So a lot of the early quick wins are from G and A, which we're seeing now and what we're still more to pursue as we move from Vancouver out to the operating sites. There's the quick wins that come from supply chain in terms of rebates extensions for the Goldcorp equipment at Goldcorp sites. So you just see Quickwim some supply chain and G and A with G and A being the lion's share of that 40% this year.
You'll then start to see next year both supply chain improvements and full potential flow as we start to deliver on improvement projects at Penasquito and Cerro Negro. And then as we move through the other Goldcorp assets through the course of next year, you'll start to see the remainder of that flow primarily from full potential with some additional supply chain. So G and A, some supply chain, full potential really kicking in, in 2020, 2021.
That's helpful. Thanks. And just as a quick follow-up, any surprises or anything interesting you've learned so far from the full potential work at Penasquito and Cerro Negro? Anything that has been different than perhaps your initial assumptions when you first did the due diligence on the mines?
Thanks. No surprises from our due diligence. There is everything that I'd expect to see that we are seeing. And I think there's the real the value proposition of Newmont's operating model, sitting and having these 6 Goldcorp assets come into our operating model and seeing the journey that we've been on at places like Bonnington and Tanami applied to operations like Penasquito and Cerro Negro, absolutely high water and there's nothing's changed in my mind in terms of what we saw during due diligence and what we've seen over the 1st 90 days of running these operations. There's a need for technical rigor and discipline.
We bring that. We've got key technical expertise. We're seeing some real opportunities in the full potential space. I think in Penasquito, and I'm heading down there this afternoon, particularly the interface between the mine and the mill, which we see and have continued to pursue at Boddington. We see it the real opportunities there at Penasquito.
At Cerro Negro, it's going to be a real focus around mining and development rights underground. That's a real opportunity there. We believe we have skills and expertise to bring improvements in that space at Cerro Negro. So no surprises at all.
Thank you.
Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Thank you. Tom, just listening to
what you're saying about the development at Musselwhite and how the focus there is to get that ahead of where you have been, I suppose. Is that a continuing theme you're seeing across the Goldcorp operations? Is that just wasn't the development work done or stripping required to meet the needs of the mills? Is that the biggest problem in your mind?
To be
frank, Greg, yes. There was not the work done on exploration. There wasn't the work done on development and that's absolutely fundamental in either open pit or an underground mine. So as we look at Musselwhite, Musselwhite had one stope open before the fire. That's unacceptable.
We will not How many would it need, Tom? It depends. We have to do our work on understanding the value, but you'd expect to mine the size of Musselwhite with the size of their stopes to have 5 or 6 stopes open at any one time. So before we recommission that conveying system, we expect to have the development work done to not only have 6 stopes ready to go, but the stopes that come beyond those and the exploration drifts to to be understood. I mean, that's a real I mean, Musselwhite is a Tanami in Canada.
So we need to be out in front of the mining work to be doing, the exploration work to be mapping out that the future potential of that operation. So that's our focus is now that we've got secondary egress is to be in there doing the development work so that when the conveying system is ready, we can maintain the appropriate levels of throughput through that mine, but also be doing the work to understand its future life.
So was there similar lack of development at Cerro Negro and Eleonore as well?
It's a similar thing. The thing we saw through our due diligence was the opportunity for us to come in and apply our rigor and discipline and operating model to those operations.
How long time do you think it's going to take you to get these operations to where you want them to be?
Again, as we talked about as we marketed this transaction, there is 24 months, possibly at the 36 months for some of these operations to really get them to the level of performance that we would expect. It's a very similar journey. If you look back over Newmont over the last 6 or 7 years and where Boddington or Tanami was back in 2012 or 2013 to where it is today, there's a good 2 or 3 years of work to get those operations set up for sustainable long term value delivery.
That's very helpful. Thanks, Tom.
Our next question comes from Carey MacRury of Canaccord Genuity. Please go ahead.
Hi, good morning. Just had a question on Cerro Negro and Eleonore. Cerro Negro, I think that tons throughput in the quarter is around 3,400 tons. I know Goldcorp was pushing 4,000 tons. And I think you've talked in the past about maybe that was too aggressive.
I'm just wondering, should we assume a run rate similar to Q2 or sort of what throughput expectation should we expect over the balance of the year and similarly on LNR?
Yes. Thanks, Kerry. So you won't hear us talk about tons per day out of the former Goldcorp operations. You'll hear us talk about it might be tonnes per year, but you're certainly going to hear us talk about what's the highest value or the best value out of those operations. In terms of the Cerro Negro, we are moving into a couple of high grade zones.
So you'd expect to see both high grade and increased volume coming out of those underground mines in the second half, which is going to contribute to a back half weighted Cerro Negro for 2019. Similarly for Elianor, you are moving into some high grade areas of Horizon 56 that will help back half white Eleonore for this year.
So should we assume that the rate of ore going into the mill will be more variable going forward or?
No, you'd expect you could expect the rate going through the mill to be consistent going forward. But what we'll be focused on is what's the combination of buying a mill that's going to deliver the best value for those operations. That will be a changing language you can expect to hear from Newmont Goldcorp.
And again for the balance of the year, is that going to be similar to Q2 or is it going to be different than Q2? Obviously, you've mentioned higher grades in the back half.
Yes. So
Essentially, one thing to remember, 2nd quarter didn't start with all these Goldcorp assets. We didn't start accounting for them till April 18. So that wasn't a full 3 months of production. So keep that in mind when you look at the numbers.
Okay. And then maybe one other question on 2019. Clearly, there's a lot of issues this year with the Penasquito and Musselwhite fire. I think your previous pro form a guidance for 2020, 2021, 7,400,000 to 7,500,000 ounces. Is there anything that you've seen so far that you think those numbers would change materially or more or less you think you can still get to those sort of numbers again barring any improvements from the full potential?
Gary, we are right in the middle of our planning process at the moment. And as I talked earlier in terms of we step back and ensure we understand the resource model that's underpinning mine plans, the resource risk, the investment in exploration we need to do to be managing resource risk and then building mine plans off the back of operating assumptions that are based on previous best demonstrated performance and then have improvement built into those. So we're going back to those technical fundamentals for all 14 operations across Newmont Goldcorp. And as we're building those production profiles and then starting to move into the costs and so on and so forth, we're seeing production profiles that would be consistent with what we expected coming into this transaction.
Okay. Fair enough. Thank you.
Our next question is from Tanya Jakusconek of Scotiabank. Please go ahead.
Good morning, everybody. I think that's me. Just wanted to yes, I have to shorten my name. I just wanted to Gary, first of all, good luck to you on your next adventure. It was really great working with you.
All the best. Just on just a few things for myself. Maybe, Tom, just coming back to Ahafo, just on the Subika underground, appreciate you're talking that you see additional more stresses than you were expecting as you go deeper. You just let us know that is this just in a certain portion of the ore body that this is occurring where you would have to adjust? Or is this a general for the whole ore body?
It's for the Sabika ore body, Sabika underground ore body, it is a general increase in stress as you move through depth. So it's then stepping back and saying, well, what's the mining method that best suits that stress condition and what's and associated with that, what's the appropriate backfill. So as we step back and look at that, we're starting to look like a mining method that might be more bulk type mining, which ultimately I think as we're working our way through that has the opportunity to extend the life of Subika Underground because it will give us access to more ore. So it's about working through understanding that stress mining method and then looking at the upside opportunity of that changing mining method. But it is generally as you move at depth in that ore body you're seeing higher stresses and therefore we have to think about how we what's the best mining method to match those.
Okay. And when will that work be done by?
We're doing that work now. It's being built into our business plans for this year and going forward. So you would expect to see that incorporated into our long term guidance that we come out within December.
Okay. And then just on so that was the change in half of guidance that we saw from your previous guidance. And is it safe to assume all of the change in the Nevada guidance was the gold quarry adjustment?
That's correct. So at Ahafo, we're mining laterally rather than heading down. So that's the impact there. And yes, the 70,000 ounces that we've been indicating from the gold quarry impact from the slip last year is what you're seeing us take up in that guidance for our Nevada assets that we've just issued.
Okay. And then maybe just on coming back on the Goldcorp assets. Clearly, your statement on the fact that this lack of underground development to sustain these assets at these longer term and this has to catch up. So Tom, if this is the case, how confident are you on the guidance that you gave us for 2019? Like do we have enough development to meet the guidance numbers you put out?
Yes, we do. And I'm very confident in the guidance numbers we put out. We've applied Newmont rigor to arriving at those numbers and I'm very confident in those numbers.
At those underground operations?
Yes. Okay. In some instances, Tanya, the development is there for now. But at Tanami, we have great control drilling out 3 years in front of us. We've got a 10 year life out in front of us.
That's the expectation that I have for these Goldcorp assets as well. So it's some the example I gave at Musselwhite's here and now, there are other examples where we need to make sure we're managing these assets for the long term.
Okay. So meeting the 6,600 tonnes a day at Alunort 4000 at Sierra Negro, you have the stopes you need to make that for this year?
We have the development work required to meet our production guidance for this year out of those former Goldcorp assets.
Okay. And then maybe on Panasquito, just on the open pit, you said it ramped up nicely. Is the grade are you seeing improvement in grade in Q3 in the month of July? Are you starting to see that?
Yes. We'll start to see improvement in grade across gold, silver and lead coming through. Yes, we're seeing it in the Q3 and then you'll see a kick up more in the Q4. So you're going to see more of that in the Q4 than the 3rd. But yes, we are seeing that coming through from that mine as expected.
Okay. So no surprises right now for Penasquito? Absolutely. Sorry, I didn't ask on the throughput. Is the throughput back to 110,000 tonnes a day?
We will have the throughput to deliver our guidance for 2019.
Okay. Okay. Look forward to seeing that. Thank you.
Our next question comes from Anita Soni of CIBC. Please go ahead.
Hi, good morning everyone. Just in terms of the capital guidance, I think you've talked about it a bit, but I was just trying to figure out how do I think about 2020 given the guidance that you have for this year? So I guess my first question was and was somewhat addressed that with Goldcorp undercapitalizing, but it sounds like there needs to be a catch up in capital. So if I was looking at this, would it be fair to just basically annualize the numbers that you put out given that this is about 3 quarters of a year for the Goldcorp assets for 2019?
Anita, Tommy, that's a fair assumption.
All right. And then just moving on to so then Cerro Negro would be given that it's sort of $80,000,000 sorry, not $80,000,000 $70,000,000 going forward. For 3 quarters of the year, we're looking at 100,000,000 dollars per annum at Cerro Negro between development and sustaining capital?
Yes. I think Anita at this point in time that's a good estimate to make. As I say we're right in the middle of our planning process at the moment. So we'll be able to give you better guidance on that when we have our numbers later in the year. But for now, I think that's appropriate.
Sure. And then maybe Nancy, you could give me some clarity on the demarcation between development capital and sustaining capital. I understand Goldcorp was not as conservative as you guys are, but I'm just trying to understand what the $40,000,000 in development capital at Eleonore is related to. I mean, is that just catching up you're calling that catching up on underground development work? Is that what it is?
Anita, I don't have the details on that specific debt, but I will double check on that for you. I think it's really as you've captured it, it's a more conservative view from Newmont's view and things that we would consider sustaining CapEx versus development.
I'm just trying to get to understand what where you still draw the line though at that it's development capital. Is it I mean historically people would think of a development capital as gross related capital And it doesn't sound like you guys are forecasting any growth of the Goldcorp assets.
Right. So again, it's just it's a policy difference and we would be more conservative in that view and it would take under our definition of development capital, we probably have a bit more in terms of a hurdle to get through before we would call it that. So I think that's really the biggest difference. And again, we can walk you through some of the details of that offline, if that's helpful.
An example, Anita, Tom here, you do have in that development capital number for this year the material handling system at Musselwhite.
Yes. And I understand
Sorry, Eleonore. It's probably related
to Borden. Porcupine is probably related to Borden. I get the muscle white. I'm just trying to understand the Eleonore and Cerro Negro or presumably there's not a lot of growth coming down the pipe or there's no real big projects happening. It's just a matter of catching up on sustaining.
So just moving on to Penasquito. I'm and maybe you can help me out with this offline, but it does look like you already had pretty good grades going into this quarter. Throughput was obviously low and recoveries were obviously low at and I was just trying to understand on the recovery side of the equation, are you confident in the PLP and the guidance that they had put that Goldcorp put out for about 80% recovery rates coming out of gold in the PLP circuit considering that it only did 57 this quarter. I mean how much was that was related to the shutdown? How much will it rebound?
Yes. Anita, I wouldn't look at the numbers out of this quarter for those few days and draw any conclusions because in commissioning the facility it brings some low grade material, higher carbon material through that circuit to get it back up and running again. So a key part of my visit down there, heading down there this afternoon is just to understand how that whole circuit is performing including PLP and that they've got the plans in place to deliver on their commitments production this year from all circuits in the processing plant at Penasquito including PLP.
Okay. And I mean the grade already in the quarter though was I think was decent. I'm just kind of struggling through the ounces that change between ounces and short ton and your new methodology, but it does look like it was around 0.8 gram per ton material in the historical sense of the way Goldcorp reported it. So just I'm just wondering why you decided to put high grade materials through the mill when the recoveries were low?
Yes. I wouldn't look at a few days operation this quarter and draw any conclusions. It was really ramping up facility. So even now we're only a couple of weeks in with a big processing plant like that a couple of weeks July. I'd let things settle down and see what the Q3 numbers look like.
All right. Okay. Thank you very much.
This concludes the question and answer session. I would like to turn the conference back over to Gary Goldberg for closing remarks.
Newmont Goldcorp delivered solid second quarter results and we look forward to an even stronger second half as we continue to lead the gold sector in profitability and responsibility. Thank you for joining us and for your interest in Newmont Goldcorp.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.