Good morning, and welcome to the Newmont 2019 Guidance Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note 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's 2019 Guidance Webcast. Joining us on the call today are Gary Goldberg, Chief Executive Officer, Nancy Buese, Chief Financial Officer, and Tom Palmer, President and Chief Operating Officer. They will be available to answer questions at the end of the call. Turning to Slide two. 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 newmont.com. Now I'll turn it over to Gary on slide three.
Thanks, Jess, and good morning, and thank you for the opportunity to provide an update on Newmont's 2019 and longer-term outlook. Before we go further, I'd like to take a moment to acknowledge the loss of our colleague, Romney Natapu, that occurred last month in a tragic accident at our Pete Bajo underground mine in Nevada. This serves as a heartbreaking reminder that nothing is more important than safety. We're conducting an in-depth investigation into the root causes so we can apply lessons learned across our operations and share these more widely across the mining industry in order to prevent this type of accident from ever happening again. Turning to slide four. Our proven strategy has delivered sustainable long-term value for our shareholders. In 2018, we commissioned three new projects with Northwest Exodus, Twin Underground, and Subika Underground.
We planted the seeds for the future with an investment in Galore Creek. We maintained our leading sustainability performance. Going forward, we'll continue to improve and differentiate Newmont's performance by delivering superior operational execution, by managing safety risks to reach zero harm, continually improving operational performance, and meeting commitments without fail. Sustaining a global portfolio of long-life assets by executing profitable expansions and investing in early-stage prospects to grow margins, reserves, and resources. Leading the sector in profitability and responsibility by consistently generating superior returns, demonstrating our values, and leading in environmental, social, and governance performance. This strategy is being applied globally. Turning to slide five. Newmont is anchored in four regions where we have the stability and the proven operating model we need to create value over the long term.
We began transforming our business six years ago and remain very proud of the team for the work they've done to set our business up for success over the longer term by optimizing the portfolio through monetization of non-core assets, advancing profitable growth in four regions, adding more than 2 million ounces of gold production at all-in sustaining costs of about $750 per ounce. Investing in exploration across the cycle to support a stable production profile, with approximately 70% of our production and reserves located in the United States and Australia. Restoring our balance sheet to provide us the financial flexibility to invest in our most promising projects and prospects. All these attributes give us optionality and the ability to stay disciplined in how we pursue value creation and generate returns for shareholders. Turning to our latest projects on slide six.
Newmont has a solid track record of delivering on our projects. The projects shown here are expected to generate an average internal rate of return above 30% at a flat $1,200 gold price. We built our two newest mines, Merian and Long Canyon, on time and 20% below budget. In 2017, we reached commercial production at our Tanami expansion. This year, we completed three profitable expansions, including Twin Underground and Northwest Exodus, where both projects extended mine life and added lower- cost production in the prolific Carlin District in Nevada, and most recently, Subika Underground, which was completed on schedule and within budget, adding higher- grade, lower- cost gold production at the Ahafo mine in Ghana. Looking forward, we are currently executing three projects that will be completed before the end of 2019.
In South America, we're extending oxide production through our Quecher Main project, where we placed first ore on the leach pad in September, and mining continues on schedule. This project creates a bridge to developing Yanacocha's extensive sulfide deposits in the years ahead. In Africa, we continue to make good progress in the Ahafo Mill Expansion, which, together with Subika Underground, will extend profitable production until at least 2029. In Australia, our Tanami Power Project is on track to lower costs and emissions and facilitate future growth beginning in the first quarter of 2019. It's worth noting that when we use a flat $1,000 gold price, the projects shown here are still expected to generate an average internal rate of return of over 15%. Looking further ahead at our project pipeline on slide seven.
Our pipeline is among the best in the gold sector in terms of depth and capital efficiency. It gives us the means to maintain steady production while growing margins and reserves. Projects that are included in our outlook are the current and sustaining capital projects that you see here: Quecher Main in Peru, the Ahafo Mill Expansion, and Awonsu Layback in Ghana, and the Morrison starter it and Tanami Power projects in Australia. Two midterm projects that will improve our outlook are Ahafo North and Tanami Expansion 2. Both of these are shown here in green. We expect to reach a decision to fund these projects in the second half of 2019. We continue to invest in progressing our longer-term projects shown in dark blue.
Newly added projects include the Cripple Creek & Victor, and Saddle underground projects in North America, Golden Mile growth in Australia, which Tom will touch on later, and Apensu Underground in Africa. In our most recent presentations, the Ahafo Underground was shown as a single long-term project. Now with the many expansion options that we have in Ghana, we've separated the Apensu Underground and the Subika Underground growth projects as we continue to evaluate and prioritize each of the region's projects on a value versus risk basis. This pipeline lays the foundation for steady long-term production and profitability. Turning to slide eight. Here's a look at our production profile for the next seven years out through 2025. Annual gold production is forecast to remain around 5 million attributable ounces, and our share of global mine production is also projected to grow over this period.
This profile includes production from existing operations as well as sustaining and current projects that are included in our guidance. The green layer shows production from Ahafo North and Tanami Expansion 2, both midterm projects, which are not yet included in our 5-year production guidance. The dark blue layer shows longer-term projects, which include the Yanacocha Sulfides, Chaquicocha Oxides, Long Canyon Phase 2, and Akyem Underground, all of which represent further upside to our guidance. If approved, the midterm and long-term projects will require an average attributable development capital spend of approximately $500 million per year. This investment, together with our sustaining capital guidance, positions Newmont to maintain approximately 5 million ounces over the long term. Overall, Newmont's stable asset base and robust project pipeline represent a distinct competitive advantage. Turning to a detailed look at our guidance, beginning with costs on slide nine.
Before jumping in, I'll take a moment to highlight that we've revised our all-in sustaining costs definition to better align with the World Gold Council guidance note issued last month, which we believe will be more helpful to our stakeholders. The guidance note provided additional clarity around the exclusion and reclassification of non-sustaining costs related to activities such as exploration, advanced projects, and R&D, resulting in a decrease in our all-in sustaining costs of approximately $30 per ounce. Although it does not change the way we manage the business, we have historically taken a more conservative approach when reporting AISC. This update makes our cost basis more comparable to our gold industry competitors. Turning back to the trends. In 2018, costs increased due to stripping campaigns at Carlin, Boddington, and Twin Creeks.
Continued outperformance across our portfolio allowed us to improve our 2018 all-in sustaining costs guidance by $25 per ounce in October. Looking forward, we expect 2019 all-in sustaining costs to be $935 per ounce as we bring on lower cost production at Subika Underground, reducing operating expenses at Tanami with the transition to natural gas, which helps to offset headwinds such as increasing input cost pressures for key items such as oil and addressing geotechnical challenges at Carlin and KCGM. Our 2019 guidance includes improvements from our Full Potential program and an increased investment to advance and implement our most promising digital initiatives. In 2020, costs are expected to increase temporarily from lower production at KCGM, Yanacocha, and Ahafo, then improve longer term with higher grades at Boddington and lower sustaining capital spend at various sites.
Further Full Potential improvements represent upside for 2020 and beyond, as we only include savings for currently defined initiatives. Turning to our production guidance on slide 10. Our 2019 production is expected to be approximately 5.2 million ounces, driven primarily by higher grade at Subika open pit, along with a full year of production at Subika Underground and the completion of the Ahafo Mill Expansion, which offsets lower grades in North America and ongoing stripping at Boddington. In 2020, we expect to produce 4.9 million ounces with the continuation of lower grades in North America and Australia and the completion of Subika Phase 3 at Ahafo. Longer term, we expect production to be added in the outer years with projects that have yet to be approved and are not currently included in this guidance. We're also maintaining capital discipline.
Turning to slide 11. Our outlook includes stable sustaining capital expenditures to cover infrastructure, equipment, and ongoing underground mine development. 2019 and 2020 sustaining capital includes investment in tailing storage facility expansions at Boddington and Ahafo, and the VLF2 leach pad expansion at CC&V. Our development capital guidance includes existing projects such as Tanami Power, Ahafo Mill Expansion, Quecher Main, and our portion of the third shaft at Turquoise Ridge. As I previously mentioned, we expect additional investment as projects move into execution. Up for approval next are Tanami Expansion 2 and Ahafo North in the second half of 2019, followed by Yanacocha Sulfides in 2020. In addition to advancing profitable projects, we also remain focused on progressing our highest value exploration targets. Turning you now to slide 12. Our ability to pursue growth on four continents is a distinct competitive advantage.
In North America, we continue to pursue underground expansions at Carlin and are progressing pre-feasibility studies for Long Canyon Phase 2. We've begun scoping the Galore Creek pre-feasibility studies with Teck Resources. We're also exploring in areas of Mexico and the Yukon. In South America, we continue to see favorable drilling and process test results at the Yanacocha Sulfides and Chaquicocha Oxides projects in Peru. We continue working with Continental Gold to support development of the Buriticá project , and we're pursuing a range of other promising exploration prospects in Colombia, Chile, Suriname, and French Guiana. In Africa, we're advancing studies for Ahafo North and to develop underground deposits at both Ahafo and Akyem, and we're working with a local partner, Ezana, to explore greenfields opportunities in Ethiopia.
Finally, in Australia, we're advancing our second expansion at Tanami, which Tom will touch on further, and continue to explore greenfield targets across the continent. For 2019, we expect to increase exploration spend by 8% to approximately $250 million, which is inclusive of expense and capital, with around 75% dedicated to brownfield expansions and 25% to greenfield prospects. We are one of the few gold companies that continued to invest in exploration across the last cycle and are further increasing our focus on growing reserves and resources to fill our longer-term project pipeline. With that, I'll turn it over to Nancy on slide 13 to discuss our financial outlook.
Thanks, Gary. Turning to slide 14 for the highlights. As you mentioned, we continue to invest in our future to secure the long-term stability of our business. For 2019, we expect to hold our support costs flat while our interest expense increases slightly to $215 million due to higher interest from the Tanami Power Project lease and lower capitalized interest. Our outlook for depreciation and amortization is expected to increase as we bring Subika Underground and the Tanami Power Project into service. Investment in exploration and advanced projects is expected to be $430 million, with increased near- mine and greenfield exploration investment across all regions and higher advanced project spend as we progress the next phase of project studies.
Our consolidated adjusted tax expense is expected to be approximately $210 million in 2019, using a $1,200 gold price, which is a decrease compared to 2018, with a reduction in realized gold prices, higher depreciation expense, and increased investments in exploration and advanced projects. Turning to our planning process on slide 15. Given our revenue and margin sensitivity to different commodity cycles, we use fairly conservative economic assumptions in our planning process. For 2019, we're assuming a $1,200 gold price, a $2.50 copper price, a C$0.75 exchange rate, and a $65 per barrel price of oil, which is $10 per barrel higher than our previous guidance. We begin our planning process by running mine plans at $800 per ounce and then layering in profitable ounces as we build up to conservative, base, and growth scenarios.
Building our plan using conservative assumptions allows us to focus on execution, with additional upside coming from ongoing Full Potential efforts, including the implementation of digital initiatives. We anticipate nearly half of our cost applicable to sales to be labor and services, while one-third are driven by materials such as chemical reagents, explosives, consumables, and maintenance parts. We've shown our free cash flow sensitivities to movements in these underlying assumptions, with the largest sensitivity being to gold price, as you would expect. Turning to our capital priorities on slide 16. Newmont has one of the strongest balance sheets in the gold sector, with liquidity of $6 billion and a net debt to adjusted EBITDA ratio of 0.4x .
We are very well positioned to continue to execute our capital priorities, including maintaining an investment-grade credit profile, investing in the next generation of Newmont operations to improve mine life and build a stronger reserve base, and returning cash to shareholders. For 2018, we're on track to deliver nearly $400 million to shareholders through dividends and our share buybacks. Subject to board approval, we expect to maintain an industry-leading dividend of $0.56 per share next year. We also plan to maintain a constant share count, and the board recently approved the 2019 share repurchase program, which offsets potential dilution from the vesting of our annual equity compensation. In 2019, we have $626 million of debt due, and the current plan is to pay the debt with cash on the balance sheet as it comes due in the fourth quarter.
With that, I'll turn it to Tom on slide 17 for a discussion of our regional outlook.
Thanks, Nancy. Turning to slide 18, starting with North America. We are set to maintain approximately 1.9 million ounces of production at average all-in sustaining costs of less than $950 per ounce over the next three years. Newmont has been operating in Nevada for more than 50 years, and we continue to maintain our competitive position. This year, we completed both the Twin Underground and Northwest Exodus projects, adding high-grade, lower-cost production and extending mine life. We expect to deliver lower grades in 2019, as we deplete Silvers tar ore at Carlin and continue stripping. Mine sequencing moves to higher-grade copper ore at Phoenix. Stripping at Twin Creeks continues, and we draw down the remaining ounces from the first valley leach facility at CC&V.
Costs improve in 2020 and 2021 as we reach higher grades at Long Canyon and with higher production at Twin Creeks, as the Turquoise Ridge Joint Venture third shaft comes online. At Carlin, we continue to assess the impacts of the gold quarry slip and work to optimize the mine plan. These impacts are not included in our guidance, but we anticipate production could be lowered by around 60,000 ounces in 2019. However, we expect to be able to recover some of these ounces over the medium term. It is also worth noting that gold quarry was only expected to contribute 5%-10% of total Carlin production over the next three years. Our Full Potential program continues to offset inflationary pressures, and in North America, we're advancing several technology initiatives in 2019, including automated underground loaders and automated drill rigs on both the surface and underground.
SmartMine, which is focused on creating value from revenue-based ore control by utilizing software to enhance ore delineation, increase recovery, and reduce waste. We have already implemented this technology at Phoenix and Long Canyon, and will implement it across all of our sites globally through 2019. At our asset health support hub in North America, where we recently integrated Merian's mobile fleet, we are currently evaluating options for connecting Yanacocha's mobile fleet by mid-2019. Having connected North and South America, we're also planning to stand up an asset health support hub in Perth for our Australian and African operations by early 2020. Looking forward, the North America region continues to advance our next wave of growth opportunities with studies for Carlin Underground, Long Canyon Phase 2, and CC&V Underground underway.
Our teams are also working with Teck to progress the pre-feasibility study of our newest asset, Galore Creek, in British Columbia. Turning to South America on slide 19. The region remains focused on advancing our most promising growth opportunities and, in the near term, delivering profitable production. In 2019, we expect to maintain production of around 650,000 ounces at all-in sustaining costs of $800 per ounce as Yanacocha delivers high grades from the Tapado Oeste pit and Quecher Main reaches commercial production in the second half of the year. These are partly offset by higher labor and mill maintenance costs at Merian. In 2020 and 2021, production decreases and costs increase as Yanacocha reaches the end of its current oxide life and Merian transitions from saprolite to harder rock.
Drilling within the Yanacocha footprint is ongoing. We continue to advance study work for the Sulfides project with a focus on optimizing our tailing storage strategy and completing the associated engineering. We expect to move into definitive feasibility in the first half of 2019, with a full funds decision expected in 2020. We'll provide an update on this project in February. At Merian, we recently commissioned four new haul trucks, improving mine productivity, and completed construction and commissioning of the primary crusher, which will help sustain mill throughput and enable the processing of fresh rock beginning in 2019. Earlier this year, we launched our Full Potential program at Merian. In 2019, the operation is focused on enhancing mine productivity through increased payloads and reduced shift change delays, along with continued improvements at the mill.
Our team is also focused on increasing saprolite production through expansions of both existing pits and additional satellite pits in the medium term. Finally, we continue to pursue exploration prospects across the region, including Colombia, the Andes, and the Guiana Shield. Turning to Australia on Slide 20. The Australia region is set to deliver 1.5 million ounces of gold per year at an average all-in sustaining cost of under $900 per ounce over the next three years. As the largest gold producer in Australia, Newmont maintains a distinct competitive advantage with our highly capable teams focused on improving profitability.
In 2019, we expect Tanami to deliver another year of strong performance, producing nearly 500,000 ounces. The Tanami Power Project is on track to come online in the first quarter of 2019, improving costs and reducing emissions by 20%, as well as supporting future expansions, which I'll touch on in a moment. At Boddington, our optimized mill maintenance strategy has improved our cost structure. However, stripping will continue through 2020 as we complete the S05A and S09 laybacks in the south pit. We'll reach higher grades again in 2021. The operation has also seen significant improvements in mill performance. In 2019, our team will continue to implement asset management strategies to reduce plant downtime and lower contracted service costs.
At KCGM, we expect to draw down stockpile ore in 2019, as we continue remediation efforts following the wall slips, which reduced mining activity in the Fimiston pit earlier this year. Our current guidance includes the recently approved Morrison starter pit, which opens up an additional mining area and allows us to maintain operations whilst we continue to work through optimizing the longer term mine plans. First production from Morrison starter is expected in the first quarter of 2019, with total production of 150,000-200,000 ounces from 2019 to 2021. We plan to recover the remaining Morrison resource as part of KCGM's broader Golden Mile growth study, which focuses on future potential in the open pit, underground, and processing plant. The Australia region continues to deliver Full Potential improvements and is leading the way in piloting new digital initiatives.
In Perth, I recently had the opportunity to see our new processing support hub, which we've implemented to sustain benefits from our advanced process control initiative. By centralizing supporting process operations, the team in Perth can analyze data, make recommendations, and actively collaborate across sites to deliver best-in-class performance.
At Tanami, we have partnered with Cat and Minetec to pilot an industry-leading underground dispatch system. MineStar Underground provides an integrated platform for real-time fleet and task management, people tracking, and proximity detection, enabling the operation to further improve safety performance while increasing productivity and cost efficiency. At Boddington, we have recently commenced feasibility studies into converting our fleet of 39 haul trucks to autonomous operation using the Cat Command system. Turning to slide 21 for more on Tanami Expansion 2. We remain excited about the long-term growth opportunities at Tanami and the potential upside from a second expansion.
Tanami is a highly productive mine, capable of delivering stable production of approximately 500,000 ounces per year well into the future. In the third quarter of 2017, we completed Tanami Expansion 1, adding an incremental 80,000 ounces per year from 2018 to 2020. The Tanami Expansion 2 project includes a production shaft and supporting infrastructure, along with plant improvements to maximize value at depth and enable processing of 3.2 million tons of ore per year. In October, we advanced the project to definitive feasibility and expect to reach a full funds decision in the second half of 2019. The project will be a staged investment in the range of $650 million-$750 million over a three-year construction period. Tanami Expansion 2 has the potential to extend mine life to 2040, reduce operating costs by approximately 10%, and add an incremental 100,000 ounces per year from 2023 through 2027.
Wrapping up the regional overviews with Africa on slide 22. We expect Africa to produce an average of 1 million ounces per year at all-in sustaining costs of approximately $780 per ounce over the next three years as Ahafo delivers both expansion projects. In 2018, Ahafo and Akyem delivered solid performance on the back of higher grades and improved mill performance. In 2019, Ahafo is expected to achieve record production with improved costs driven by higher grades from Subika open pit, a full year of Subika Underground, and the completion of the Ahafo Mill Expansion, which I'll cover more on the next slide. At Akyem, we continue to drive efficiency improvements in productivity and mill performance, with Full Potential helping to offset the impact of mine sequencing. We also continue to advance growth studies across the Ahafo district.
As Gary mentioned, our teams are in the fortunate position of working to prioritize our many opportunities on a value versus risk basis. Turning to more details on our Ahafo projects on slide 23. Last week, we announced commercial production at Subika Underground, delivering the project on schedule and within budget for approximately $185 million. Beginning in 2019, Subika Underground will add average annual gold production of between 150,000- 200,000 ounces per year for the first five years, and has an initial mine life of around 10 years.
As our newest mine, Subika Underground features autonomous loading, proximity detection for vehicles, personnel tracking, and the planned installation of a ventilation on-demand system. Combined with the completion of the Ahafo Mill Expansion project, expected in the second half of 2019, Ahafo will improve production by 70%. All-in sustaining costs by $250 to $350 per ounce compared to 2016.
In addition to extending mine life to 2029, both these projects provide us with a platform to expand as we identify upside potential in our adjacent underground ore bodies near Subika and progress our studies of Ahafo North. Turning to slide 24. Ahafo North is located 30 km north of our existing Ahafo operation. This potential surface mine is centered on nine deposits along a 14-km strike length and contains 3.4 million ounces of reserves and more than one million ounces of resource. Our current plan includes building a standalone mill to process 3.5 to 4 million tons of ore per year. We expect to make a decision in the second half of 2019 with a three-year development timeline. The government approved the mining area last year, and the project has been registered with the Environmental Protection Agency.
All of the required baseline studies have been completed, and engagements with neighboring communities are underway. If approved, the project is expected to deliver approximately 250,000 ounces per year, starting in 2022, over a 13-year life for an investment of approximately $700 million to $800 million. In summary, each of our four regions will produce over one million ounces on a consolidated basis in 2019, demonstrating our ability to sustain a truly global portfolio. I hand it back to Gary to wrap up on slide 25.
Thanks, Tom. Turning to slide 26. As we approach 2019, we are well-positioned to continue leading the gold sector in profitability and responsibility and lay the groundwork for an even stronger future. We will continue to execute our long-term strategy, which is to deliver steady gold production safely and at competitive costs over a longer time horizon, invest in the next generation of mines, technology, and leaders across our business, and to lead the gold sector in terms of the value we create and the standards that we uphold. Thank you for your time. 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. To ask a question, you may press star, then one on your touch- tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Matthew Murphy of Barclays. Please go ahead.
Hi. Just a question on slide eight. The production profile looks a little bit better than your prior one in 2021-2023. You used to have a bit of an uptick, staying close to four million ounces just from existing assets in 2024. Just wondering if you can provide any color to what's going on out there in the longer-term end of the profile on existing assets.
Matt, Gary here. Just to be clear, you're talking about the slate color, the existing assets and sustaining projects-
Right
That comparison?
Yeah.
I'd have to look at it in detail and we can get back to you, but I'm assuming a bit of that's going to be the KCGM reduction because of the change in production profile going out. I think the other part is, well, I think that's the main one that I can think of right offhand.
Okay. Thanks a lot.
We'll take a look, and we can come back and let you know.
Okay.
Our next question comes from David Haughton of CIBC. Please go ahead.
Good morning, Gary, Nancy, and Tom. Thank you very much for the update. I've got a few operational questions for Tom, if that's okay, and then a couple for Nancy. Tom, just having a look at Merian. You've enjoyed the softer ore throughput up until now, and throughput has well exceeded the nameplate of 12 million tons per annum. I recall that going to fresh, it goes down towards 8 million tons per annum. I'm wondering if you could give us a bit of a guideline going forward when we get into 100% fresh.
Yes, thanks, David. We've opened up both the Maraba pit and Merian 2 pit. We are seeing a bit more saprolite material coming through. I'm expecting we're going to see a mix of saprolite and hard ore, certainly through, we'll see the first of the fresh rock coming through next year. Certainly, some of that transitional rock is breaking up quite nicely. We're getting the benefit of that. I think we'd expect to see the benefit of a mix of saprolite and some of the fresh rock through 2019 and 2020, then probably starting to see more of the impact of the fresh rock coming through in 2021 and then into 2022, probably full fresh rock by 2022. It's really seeing the benefit of additional saprolite over the next two or three years.
Okay. Just a gradual drift down in throughput from, I'm just thinking about 13 million tons in 2019, then kind of making my way towards 8 million tons in 2022, sort of thing.
Yeah, maybe the sort of the 10%-15% reduction as you go through there.
Okay. Having a look at Subika Underground. Can you remind us what your expectation is of throughput there? I had in mind something in the order of one to 1.5 million tons per annum. Is that accurate?
That's about right. You're talking short tons or metric tons? I'm a metric kid.
Metric. Don't understand short tons.
Me neither. Yes. They're about the right numbers from Subika Underground.
With the expansion, you plan to get the throughput up to 10 million tons per annum, of which the open pit makes the difference between the underground feed?
That's right.
Having a look at CC&V, I'm kind of surprised to see a pretty decent step up in expected production in 2019. I'm just wondering what we should be thinking about there. Is it a higher stacking rate or better grade? We're just wondering how I should be thinking about that.
Yep. David, that's mainly we're finishing out VLF 1. We're getting the drawdown of those ounces from VLF 1, is really what you're seeing there in next year. That drops off a bit in 2020, and we're largely done by VLF 1. You've got VLF2 coming through. There's also the impact of that concentrate going across to Nevada and getting the better recoveries as a result of that.
Righty. Maybe over to Nancy, if that's okay. I see that you've earmarked $430 million for exploration and projects. Just so I understand the impact on the P&L, is that 100% expensed? Will that all be expensed through the P&L in 2019?
Yes, absolutely it will.
Okay. The other thing to think about here is you've given us an adjusted tax number of $210 million, and then elsewhere in the text, you'd referred to an effective rate of 35%. Will we see then at the end of the year? Is it your expectation that the interest expense will be $210 million in the P&L?
Are we talking about tax or interest?
Oh, beg my pardon. Did I flip between the two? Talking about adjusted tax expense, you got $210 million?
Yes.
That's your best estimate at the moment, given all the other parameters, as to what you should have as an income tax expense for year-end?
Correct. That is correct.
Okay. All right. That's it for me for now. Thank you.
Thanks, David, and all the best to you in the future.
Again, if you have a question, please press star then one. Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Yes, thank you. Gary, in your discussion at the beginning, you talked about Apensu and Subika Underground and separating the two projects. I was a little bit lost on what that was all about.
I'm going to have Tom walk through the two separate underground locations, but I'll have Tom walk through and clarify my opaqueness.
Thanks, Gary, and good morning, Greg. We'd step back as we saw the potential of the underground at Ahafo. There's underground deposits beneath and around the Apensu pit underneath, and there's growth at depth and along strike at Subika. Through our investment system, we stepped back and reassessed the potential to grow Subika and the potential to develop Apensu as an underground mine. We call that Ahafo Underground. Through our investment system in the last month or so, we've just gated two studies, Subika Underground growth and Apensu Underground. Two separate projects coming forward now. One to explore the potential along strike and at depth for Subika, and then the other one to look at how we bring on the potential that sits underneath the Apensu pit. Two separate projects going forward.
We'll bring them through our investment system separately on the timelines that those studies define.
Okay, got you. That's clear then. Thank you, Tom. Just on Tanami, too, a look at the CapEx required and the incremental production. I'm just wondering, on an IRR basis, it doesn't look like a lot of production for a lot of capital.
The additional annual production. Largely, the work is to continue to efficiently mine at depth. A lot of that money is developing underground and our production shaft. You continue to get the additional benefit from being able to mine the operation at depth. There's a little bit of work on the processing plant, but the processing plant, we're pushing around that 3 million tons per annum. We'll take it to 3.2. We then get the benefit of the production shaft, which makes a more efficient operation. We're not relying upon a trucking fleet going up and down a pretty deep mine. We now get the benefit of moving material much more efficiently up a production shaft.
Greg, I'd just refer you back to slide 21, where we show the production profile. That 100,000 ounces is only for the front end of that results from that investment. This carries and helps extend the mine life out to beyond 2039. As Tom just pointed out, that reduction in operating cost is a big part of where we see the returns from this project. We'll give return details, but as you know, we've been really targeting a minimum of a 15% hurdle rate at a flat $1,200 gold price with investment. You can expect we're going to at least hit that hurdle rate.
Okay. Does this open up things as well beyond that 2039, 2040 timeframe? Does it open up more exploration potential?
Yes. Tanami is a fantastic deposit, Greg. It continues to be open to dip. We've also got the Liberator and Federation deposits that we continue to explore. Then there's the greater Tanami district. It's a very exciting region for us. There's plenty of opportunity at Tanami for a long time to come.
Okay, great. Thank you.
Our next question comes from Carey MacRury of Canaccord Genuity. Please go ahead.
Good morning. Just had another question on the production profile on slide eight. If I look at your 2021 guidance, it looks like something like 4.9 million-5 million ounces, then kind of drops off sharply. I think you mentioned about 4.4 million ounces on the existing projects by 2023. I am just wondering, between 2021 and 2023, what are the big mines that we should expect to come off in that timeframe?
I think the two big ones we have been pointing to the one at Tanami on slide 21. You see that production starts a little bit in 2022, but really in 2023. That comes forward for approval later in the second half of 2019. The other project I would point you to is the last one Tom was talking about there at Ahafo North, you see that production starting to come on after 2021. That project also comes forward for full funds decision at the second half of 2019.
In terms of what's coming off at that time, you start to see Yanacocha deplete its oxides. We continue to explore for oxides, but in that profile, we see the oxides coming off and the oxide mill at Yanacocha being shut down. There's a bit of contribution from Long Canyon and Akyem as well.
Maybe on Ahafo North, you're looking at a standalone mill there. What size of mill are we looking at?
It's about 3.5 to 4 million tons per annum.
Maybe one last one. Could you just give a little detail on the Boddington grade profile over the next couple of years as you work through the stripping there?
Yep. At Boddington, as we work through the stripping of the south pit, and we start to process more stockpiled ore as we do that work with the fleet going towards more waste stripping. Gold grades stay about the same. You really see the impact on copper grades dropping off through 2019 and 2020 by about the 15%-20% mark, then they're back to the same grades you've seen from 2021. We start to get into some better gold grades from 2021.
Okay, then maybe one last one. Just going back to the tax, that $1,200 an ounce. Is there a sensitivity if gold price goes $100 higher, what that tax number would look like?
No, we don't provide sensitivity around tax. It's just got so many elements that sometimes are counterintuitive. We're trying to give you our best estimate based on our plan at the $1,200 level.
Okay, fair enough. Thank you.
Thanks, Carey.
Our next question comes from Joanne van Ballegooie of Scotiabank. Please go ahead.
Good morning, everyone. Just a quick question on your development capital for the year. I was wondering if you could just provide a little bit more line-by-line detail. Thank you.
In our current development capital, you see us guiding. I'm just pulling some numbers together.
Hang on a second, Joanne. We're getting the numbers there.
I just have to remember what's in guidance and what's in my head. In terms of what you'll see in 2019, you'll see some money being spent on Yanacocha Sulfides and Chaquicocha Underground as we continue to develop those studies. You've got significant spend on Quecher Main. That's our big year on Quecher Main next year, and then that tails off through 2020, 2021, and a little bit in 2022. We've got study spend on Tanami Expansion 2, study spend on Ahafo North. You've got the completion of the mill expansion at Ahafo. You've got a spend on the Tanami Power Project. You've got our share of the spend on the Turquoise Ridge third production shaft. They're the big-ticket items. You've got, in execution, Quecher Main, TRJV shaft, Tanami Power Project, and Ahafo Mill Expansion.
Starting to see spend on our key studies that are getting close to full funds.
Okay, thank you.
Our next question comes from John Bridges of JPMorgan. Please go ahead.
Hi. Morning, everybody. Thanks for putting on the call. Thanks for the deep dive on the costs, all-in sustaining costs. I was just wondering, there's obviously small differences in the way that you've been treating costs. There's a big difference in that you are reporting to GAAP, and a lot of your peer group are reporting to IFRS. I was just wondering to what extent you'd thought about the impact of that on your all-in sustaining costs. Thank you.
Sure, John. The real impact is just due to the biggest piece is exploration and advanced project treatment. If we look at our historical costs, this has been an adjustment of around $30-$35 an ounce over time, and those are really the largest drivers. A little bit in R&D costs, the biggest drivers are exploration and advanced projects.
Right. You're reporting stripping more or less as it comes, whereas under IFRS, there's still much more flexibility, as I understand it, to report costs more applied to the gold that's produced and defer stripping to periods when that gold is reported.
Yes, that is true. Again, we are following US GAAP for SEC and inventory accounting purposes. There is that slight delta. Again, based on our restrictions around US GAAP, we believe the current definition in our consistent application of our methods is giving a better transparency, so we will be more comparable across the sector with AISC of other parties.
Okay. Thanks a lot.
Thanks, John.
This concludes the question and answer session. I would like to turn the conference back over to Gary Goldberg for closing remarks.
Thank you all for joining the call this morning. We look forward to updating you on our fourth quarter and full year 2018 results in February. Have a safe day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.