Good morning, and welcome to the Newmont Mining First Quarter 2018 Earnings Conference Call. All participants will be in listen only mode.
After today's presentation, there will be an opportunity
to ask questions. 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. Good morning, and thank you for joining Newmont's Q1 2018 conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer Nancy Beasley, Chief Financial Officer and Tom Palmer, Chief Operating Officer. They and other members of our executive team will be available to answer questions at the end of the call. Turning to Slide 2.
Before we go further, 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. And now, I'll turn it over to Gary on Slide 3.
Thanks, Jess, and thank you all for joining us this morning. Newmont delivered some strong results in the Q1 of 2018. Our costs and production remain in line with our global guidance. We're building 7 profitable projects on 4 continents and we advanced the next generation of Newmont mines to the next stage of development. We also generated $644,000,000 in adjusted EBITDA and declared a dividend of $0.14 per share, making it the strongest among the senior gold producers.
This performance, however, was overshadowed by a tragic accident at Arajafo Mill expansion that resulted in 6 fatalities. Turning to Slide 4. As a background, construction contractors were in the process of pouring concrete for an elevated slab on April 7 when the roof collapsed. Emergency response teams were deployed immediately, but our efforts were not successful and 6 men whose names you see here lost their lives. Tom and I traveled to Ghana to join our regional leadership team in reaching out to their families, our employees and government and traditional leaders to offer our heartfelt condolences.
We've assembled an expert investigation team and are supporting the government's investigation to understand exactly what happened. Operations in Ghana were temporarily suspended in the wake of the accident, so we could review safety standards and conduct risk assessments prior to resuming operations. Both Ahafo and Achim are now up and running, but certain work on the Ahafo Mill expansion has been suspended until we and the authorities are satisfied that work can resume safely. This loss has had a profound impact on the entire Newmont family and it is with great humility and resolve that we renew our commitment to working safely. Nothing is more important.
Turning to more details on the quarter on Slide 5. We continue to deliver our strategy starting with superior operational execution. This includes producing 1,200,000 ounces of gold at all in sustaining cost of $9.73 per ounce, in line with guidance, and continuing to improve costs and productivity through our full potential program. For instance, we're launching our 1st centralized process control hub in Australia, which allows experts at each site to collaborate on resolving problems and raising performance. We also continued to strengthen our portfolio in the Q1.
We remain on track to complete Northwest Exodus, Twin Creeks Underground and Subika Underground later this year. We also advanced the Haafo North, Yanacocha Sulfides and Long Canyon Phase 2 to the next stage of development study and added Chachacocha Oxides to our project pipeline. And we progressed our near mine exploration programs as well as promising greenfields prospects on 4 continents. We delivered leading financial performance in the Q1 by generating adjusted EBITDA of $644,000,000 a 12% increase over the prior year quarter, declaring a dividend of $0.14 per share, nearly 3 times higher than the Q1 of 2017, and maintaining one of the strongest balance sheets in the gold sector. Finally, we met sustainability targets to uphold human rights and lower water use and greenhouse gas emissions.
I invite you to read more about our performance in our sustainability report Beyond the Mine, which is posted on our website. Turning to our cost performance on Slide 6. While our track record shows a steady trajectory of improvement, our costs rise temporarily in 2018 as we undertake stripping campaigns at Carlin, Boddington, Ahafo and Twin Creeks. Our profile also reflects increased investment in exploration and projects in keeping with our focus on creating long term value. Costs will come back down as we reach higher grades and bring on new lower cost production at Subika Underground later this year.
Looking at the Q1 of 2018, we remain in line with guidance and we continue to improve costs and efficiency by enhancing ore body modeling and mine planning, increasing mill throughput and recovery and leveraging technology based on its value and its viability. Turning to production on Slide 7. We're also maintaining a steady production profile. Our outlook reflects productivity gains in mine planning and mill performance, as well as success in bringing new mines and extension into production. We expect to deliver between 4,900,000 and 5,400,000 ounces of gold on an attributable basis in 2018.
And we're on track to meet that commitment with 1,200,000 attributable ounces of gold produced in the Q1. As a reminder, production is weighted to the second half of the year when we'll recoup production from the Silver Star Mine at Carlin in Nevada, reach higher grades in South America and Africa and bring the Subika Underground project online. Turning to more on our current projects on Slide 8. As I mentioned, we remain on track to reach commercial production at the Subika Underground later this year. We began to restart construction work at the Ahafo Mill expansion as we performed detailed risk assessments on the various tasks involved.
In North America, Northwest Exodus and Twin Underground remain on track to reach commercial production later this year. We also began shipping concentrates from Cripple Creek and Victor for processing in our Nevada Mills in early 2018 and Tom will have more on our results to date. In South America, Quecher Main is well underway. This project is designed to extend oxide production and bridge to developing Yanacocha's extensive sulfide deposits. Finally, in Australia, we're progressing the Tanami power project, which will lower costs and emissions and facilitate future growth.
These 6 projects will generate an average internal rate of return above 20%, helping to improve our outlook. Turning to Slide 9. Newmont's 5 year outlook calls for steady gold production at competitive costs with ongoing investment and profitable growth. We've not changed our global guidance, but Tom will talk about a few regional and site changes during his remarks. Turning to our longer term growth prospects on Slide 10.
Our ability to pursue growth on 4 continents is a distinct competitive advantage and one that builds on our established infrastructure, proven operating and project experience and strong regional relationships. In North America, we've advanced Long Canyon Phase 2 to pre feasibility study and continue to pursue multiple underground expansions at Carlin. We're working with Goldstrike to further explore the plateau property in the Canadian Yukon. In South America, we continue to see favorable drilling and process test results in Peru at the Anacocha Sulfides project and have included a new project, Chachacocha Oxides that Tom will review in more detail. We're partnering with Continental Gold to support the safe and efficient development of the high grade Baritica project as well as nearby exploration assets in Colombia.
And we're also excited about Esperance, an early stage exploration property in French Guiana. In Africa, we're advancing studies to develop underground deposits at both Ahafo and at Achim, and we're working with a local partner, Ezana, to explore greenfields opportunities in Ethiopia. Finally, in Australia, we're pursuing our second expansion at Tanami and advancing greenfields exploration prospects in Western Australia, New South Wales and the Northern Territory. With that, I'll turn it over to Nancy to discuss our financial performance.
Thank you, Gary. Turning to Slide 12 for 1st quarter financial highlights. Compared to the prior year quarter, revenue improved 8% to over $1,800,000,000 driven by higher realized gold price. Adjusted net income increased 36 percent to $185,000,000 or $0.35 per diluted share. And adjusted EBITDA increased 12 percent to $644,000,000 Cash from continuing operations was $266,000,000 primarily due to higher working capital outflows and increased investment in exploration and advanced projects.
Turning to Slide 13 to review our earnings per share in more detail. 1st quarter GAAP net income from continuing operations was $0.32 per diluted share, up 146% from the prior year quarter. Primary adjustments included a $0.01 loss related to restructuring costs and a $0.02 loss primarily due to valuation allowance on deferred tax assets. Taking these adjustments into account, we delivered adjusted net income of $0.35 per diluted share. Turning to capital priorities on Slide 14.
We have one of the strongest balance sheets in the sector with total liquidity of $6,000,000,000 and a net debt to EBITDA ratio of 0.4x. We continue to invest in the next generation of Newmont operations in order to improve mine life and build a stronger reserve base. We also remain focused on returning cash to shareholders. Earlier this week, we declared a 1st quarter dividend of $0.14 per share, reflecting an increase of $0.09 over the prior year quarter. Based upon an annualized $0.14 per share quarterly dividend plus the share buyback program executed in the Q1 of this year, we're on track to return more than $350,000,000 to shareholders this year.
Looking forward, our balance sheet strength and strong free cash flow allow us to continue executing our strategy. And now, I'll hand it over to Tom for a discussion of our operations starting on Slide 15.
Thank you, Nancy. Turning to Africa on Slide 16. Our priority in Ghana is to look after people, starting with those who lost family members in the tragic accident at our half o mill expansion and extending to our team who have demonstrated extraordinary leadership under very difficult conditions. We're working to understand what went wrong so that we can make sure it never happens again, not only at Newmont, but in the broader mining community. Turning to operational performance.
Both Ahafo and Acheam delivered strong results in the Q1. This is largely due to ongoing mill throughput and recovery improvements, which helped to offset the impacts of harder lower grade ore at both operations. We were also pleased to reach an agreement representing fair wages and benefits with the Ghana Mine Workers Union. The Subika Underground continues on course. We are currently developing our 7th stope and expect to reach commercial production later this year, driving outlook for an even stronger second half.
And we approved funding for definitive feasibility studies at Ahafo North, where we are focused on optimizing the project, securing permits and engaging stakeholders. Finally, we continue to advance longer term development of our underground resources at both Ahafo and Achin. Turning to North America on Slide 17. North America also turned in a solid quarter. At Carlin, work to improve ground control and stope design has allowed us to ramp up production with improved development rates and high grades in our underground mines.
We continue to deweight the Silver Star pit and expect to reach ore later this year. Mill 6 is performing well. We're processing the 1st shipments of concentrates from Cripple Creek and Victor and seeing higher than expected recoveries. But we expect lower production in the Q2 as we undertake our annual planned maintenance shutdown on Mill 6. CC and V's production was impacted by the timing of leach recoveries and the stockpiling of concentrates during the Q1, but we expect full year cost to improve with higher recoverable leach ounces and higher than expected recoveries on concentrates sent to Nevada.
At Phoenix, mine plans and sequencing have been reconfigured to improve value. We are focused on gold zones in 2018 and will shift to higher grade copper zones beginning in 2020. Finally, we have revised guidance for Twin Creeks to reflect slightly lower production and higher costs for 2018. This is a result of exiting a layback earlier than expected last year to manage geotechnical issues and shifting focus to our next stripping campaign at the mega pit. The team is actively pursuing opportunities to offset these impacts and our North America production outlook remains unchanged.
Turning to growth, we remain on track to reach commercial production at the Twin Creeks underground and Northwest Exodus later this year. And Long Canyon Phase 2 studies have advanced to the pre feasibility stage, paving the way for potential production by 2024. We also recently executed a purchase agreement for the Agnico Eagle with Agnico Eagle for the joint venture interest in land near Long Canyon, securing future growth optionality and potential resource extension into this highly prospective district. Turning to South America on Slide 18. Merian continues to deliver solid mill performance with ongoing improvements in mine productivity.
And we commenced mining in the Maraba pit, providing high grade saprolite ore to the mill. Our primary crusher installation is advancing on course and will be completed in the second half of the year as we reach fresh rock. Medium term expansions at Ceballo and longer term exploration at Amazonia is also underway in Suriname. Production at Yanacocha is slightly delayed due to the timing of leach recoveries, but we do not expect any changes to production guidance. However, Yanacocha's cost guidance is improving on the back of optimized ore blending strategies at the gold mill.
Stripping has begun at Quecher Main, and we remain on track for first production in early 2019. And we continue to see promising drill results at Chaquicocha, where we are divining 2 underground oxide deposits to the south and north of the existing pit. You can see these shown in yellow at the bottom of the slide. This successful exploration work has given us the confidence to add Chaquicocha Oxides to our project pipeline at the pre feasibility stage, And we expect to convert some of this oxide deposit to resource at the end of 2018. As Gary mentioned earlier, we advanced Yanacocha's sulfides feasibility study in the Q1, and we continue our work to optimize our technical approach.
Turning to Australia on Slide 19. At Boddington, we optimized our mill maintenance strategy to reduce the total number of plant shuts per year from 4 to 3. This change delayed some production in the Q1, but we expect to recover those ounces over the course of the year. Mine sequencing at Boddington resulted in higher copper and lower gold production in Q1. We expect to reach higher gold grades during the Q2 and remain on track to achieve our full year targets.
We're also resequencing our mine plan at KCGM as we take a considered approach to remediating the Westwall slip in the Fimmiston pit. As a consequence, we've reduced our production outlook for 2018 by 40,000 ounces. Despite this short term setback, we're well positioned to access high grade ores over the longer term. At Tanami, we've launched a refresh of our full potential program with a focus on increasing mine productivity to match already strong mill performance. And we continue to progress our second Tanami expansion.
We've started raised board drilling a pilot hole to guide our approach to sinking a shaft that will allow us to maximize value from the deeper ore body. We expect to reach a funding decision on the project in the second half of twenty nineteen and for construction to take around 2 years. And finally, we've begun construction on the Tanami Power project, which involves building a pipeline and 2 power stations that will allow us to switch from diesel fuel to natural gas as our main energy source. We expect the project to be commissioned during the first half of twenty nineteen and to lower energy costs and emissions by 20%. Looking to the remainder of 2018 on Slide 20.
Our global cost, production and capital outlook for 2018 remains unchanged. Despite lowering our cost guidance in North America and South America and reducing our production guidance at Twin Creeks and KCGM. We continue to expect back half weighted results in 2018, reflecting high stripping and maintenance shutdowns in the first half and higher grades and new lower cost production from the Subika Underground in the second half. We expect to achieve the highest production and lowest costs in the Q4. So we're on course to meet our commitments in 2018, but we will continue to challenge ourselves and learn lessons to improve safety, costs and productivity at our operations and projects.
With that, I'll hand it back to Gary on Slide 21.
Thank you, Tom. Turning to Slide 22. Newmont is anchored in 4 regions where we have the ability and the resources we need to continue investing over time. More than 70% of our production and about the same amount of our reserves are located in the United States and Australia. We continue to fund high return projects to sustain future production and improve our return on capital employed.
These factors position us to maintain stable returns over the next decade and beyond. Our portfolio is also differentiated by our near mine growth prospects. Turning to Slide 23. Our pipeline is among the best in the gold sector in terms of depth and capital efficiency, and it gives us the means to maintain steady production while growing our margins and our reserves. The newest addition to our pipeline is Chacacocha Oxides, which Tom presented earlier.
Projects included in our outlook are the current and sustaining capital projects you see here. Northwest Exodus and Twin Underground in Nevada, Morrison and the Tanami Power Project in Australia, the Sabika Underground and Ahafo Mill expansion in Ghana and Quecher Main in Peru. The mid term project that will improve our outlook is Ahafo North, shown here in green. We expect to reach a decision to fund this project in the second half of twenty nineteen. Finally, we continue to invest in progressing our longer term projects shown here in dark blue.
This pipeline lays the foundation for steady long term production and profitability. Turning to Slide 24. Here's a look at our production profile over the next 7 years. Our gold production is forecast to remain at about 5,000,000 attributable ounces and our share of global mine production is projected to grow from 4.4% in 2015 to 5% by 2024. 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 our mid term Ahafo North project, which is not included in our guidance and the dark blue layer shows 2 longer term feasibility projects, Tanami Expansion II and Yanacocha Sulfides, which represent further upside. Overall, Newmont's stable asset base and robust project pipeline represent a distinct competitive advantage, as does our leading reserve profile. Turning you to Slide 25. One of the practices that distinguishes Newmont is that we never stopped investing in exploration across the price cycle. And in 2017, that investment paid off as we replaced reserves depletion at a constant gold price and increased resources.
The value and risk profile of our reserve base also compares favorably to the gold sector average. We offer 128 ounces per 1,000 shares and an operating reserve life of about 12 years and more than 70% of our reserves are based in the U. S. And Australia. Another distinction is that our mine grade is about the same as our reserve grade.
Our focus on quality reserves has helped sustain top quartile total shareholder return since 2014. Putting it all together, we continue to deliver strong results and position the business to generate more value over a longer time horizon. Summing it all up on Slide 26. Our performance in the Q1 was strong, but indelibly marked by the 6 fatalities our team suffered at AHVO. The best thing we can do for our team and our shareholders is to learn from that loss and recommit to our strategy, which is to deliver steady gold production safely and at competitive costs over a longer term time horizon, continue to invest in the next generation of mines, leaders and technology across our portfolio and stay at the head of the pack in terms of the value we create and the standards we uphold.
Thank you for your time. And with that, I'll open the floor for questions.
Thank you. We will now begin the question and answer session. And our first question comes from Chris Terry of Deutsche Bank. Please go ahead.
Hi, Gary and team. Thanks for taking my questions. First one is probably for Nancy. Just in terms of the working capital moves during that quarter, do we think about those as a one off for this year? Or is there something to look for in the other quarters?
Sure. Great question. And just a reminder, we don't give guidance on free cash flow. I would think of it more of timing differences. And a couple of drivers for that is really timing of shipments created a bit of an AR build at both Merritt and Phoenix.
There was also a bit of a build on leach pads and con inventory as we prepare to ship from CC and V over to Nevada. And in this particular quarter, there was a bit of timing around accounts payable, just mostly at North America and Boddington. So I would consider those to be just a bit of anomalies for this particular quarter.
Okay. Thanks, Nancy. And just maybe this one's for Tom. In terms of the maintenance due in 2Q, you talked a bit about Mill 6 at CC and V. Can you just run through the other operations and the impact on the production in 2Q specifically that you've allowed for as a result of that?
Thanks.
Thanks, Chris. The major maintenance work, it's our annual every second quarter we do the annual shutdown on Mill 6. So that's typically a 3 week shutdown. And so that's the major maintenance impact on production at across the business in the Q2. Mill 6 is now taking concentrates from CC and V.
So again, you'll see the impact in terms of stockpiling of those concentrates and then they'll come through the mill as we come out of that shutdown. So we just commenced that shutdown and it runs for about 3 weeks. Okay.
Thanks, Tom. And then just in terms of the overall M and A environment at the moment, has anything changed there? You've obviously got a great pipeline of organic opportunities, but are you looking at anything on the divestment or investment side outside of the organic opportunities?
No. I think, Chris, in terms of, as you put it, we've got a great pipeline of organic projects and we really remain focused on those. We do continue to scan the horizon and look at things and kick the tires as we've done over the years. CC and V having been the only one that we actioned over the last 5 years, We'll continue to look, but really see the production and the result I'm sorry, the potential of the projects we have and from the exploration work that we do. And we're focusing on some of these earlier stage areas like I mentioned in my comments in South America, in Africa, in North America and in Australia, and we keep focusing on those.
Okay. Thanks, Gary. Then the last one for me is just the talk about Northern Territory and the royalty hike. Have you got any thoughts on that? I think it's reasonably small, but just some comments, if you don't mind.
Yes. I think I'll hand that one over to Nancy. I think I mean it's been talked primarily in Western Australia that has been where the focus has been. We've been through a couple of rounds. Our key focus has been on getting the facts out in terms of what the true impacts are on royalties and working with other gold producers in that region.
In regards to Northern Territory, I'll hand over to Nancy where that's at.
Sure. We have been watching that one very carefully. There have been movements in that area from a legislative govrel people as well as our operations people have been very closely tied to that. We understand generally the thinking around a royalty based profit or an ad valorem based, either of which we've evaluated and have considered the impacts on our plan. So as we build our business plan into 2019, we'll figure out the best way to incorporate those and that will also be represented in our guidance that we give later this year.
We don't expect significant changes, but we are certainly watching that and will reflect our guidance as appropriate.
Our next question comes from David Houghton of CIBC. Please go ahead.
Good morning, Gary and team. Thank you very much for the update. My first question maybe it's for Tom, if you don't mind. Chaky Kocha, what's required to get that into production from what you can see now?
Thanks, David. Sofia, I'm not sure if you can still see Slide 18 in your deck. But as we've drifted in and we drifted in underneath that pit exploration drifts to understand and define the sulfides deposit, but we those exploration drifts we sized as production drifts, so we have that capacity there. So now as we identified and defined that oxide deposit, those exploration drifts will enable us to further define those. And then we'll have, as through the exploration drift, a fair bit of that mine infrastructure and ready if we can prove them up to develop the stopes and mine that ore.
So the exploration risk provides some of that infrastructure. The oxides then provide a further bridge from Quecher Main to the sulfides. That ore is mill grade, so it can process through our current mill at Yanacocha. And the work we do to bring it on will actually provide synergies in terms of infrastructure for underground sulfides out of Chukakocha.
So having a look at Slide 18, you're referring there to the blobs called South Oxide, I presume. So it's hard to tell where it's sitting relative to the pit, but it's accessible only by underground. You wouldn't be able to lay back the pit?
We certainly looked at those options, but the one we're taking to pre feas is to access those underground mining through the exploration drift that you can't see in that picture that are sitting in underneath that deposit. And then the little blobs you see on the north side is where we're drifting out to further explore those. So we're pretty excited about what that might present over the coming months as well.
Okay. Just a higher level question here. Looking at your development CapEx guidance for the year, it's around about $600,000,000 Your run rate for the Q1 was well below that. Is there either a, a big catch up for the balance of the year or is there a risk of some of that CapEx sliding into 2019? And is there any implication of that lower spend in the Q1 on the delivery of the various projects that we see in the pipeline?
I'll let Tom cover that.
Thank you.
Thanks, David. The run rate is predominantly driven by our spend on Tanami Power. So you'll see that as we've got pipe being delivered. We're into the right
now in the Northern Territory. We'll have, I think, it's
5 work fronts sinking that pipeline and the power stations at Tanami.
Okay. And back to Nancy. Chris had asked about the working cap and thank you for the answer. But just so that I understand it, can we expect an unwind of some of that $350,000,000 incurred this quarter through the balance of the year?
Yes. Some of that will begin to unwind for sure. Again, we don't give guidance on free cash flow, so it's kind of hard to give you a view as to exactly how that will unwind, but we'll try to provide some transparency to that as the year goes on.
Okay, great. Thank you very much.
And our next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.
Yes. Good morning, everybody. I've got a few questions, probably for Tom on the technical side. Tom, the Morrison decision on the timing there, I thought we were supposed to get an update with that in Q1. What's going on with Morrison?
Thanks, Tanya. So Morrison, we're scheduled to start that layback in the Q4. We had talked previously about approving it in the Q1.
But we
made a decision to combine the final permits for Morrison with some other permits associated with the road out to the tailings facility into a single application. That's now with the government and being processed, and we'd expect to see that permit come through probably in the 3rd quarter in line with starting that layback on schedule in the Q4.
Okay, okay. Thank you. So it's just being put into another permit and moving forward still on the same timeline?
That's correct.
And then maybe just looking and I appreciate and sorry to hear about the fatalities of the miners in Ghana. And obviously, number one focus is safety and making sure that everything's in line to reopen safely. Can you just let us know what exactly is being done at the Ahafo Mill expansion? And at what point, if we're down for a while, do we start slipping in the schedule?
Yes. Thanks, Tanya. So our focus over the last 2 weeks, as I talked about, is really making sure that we're providing support to the families impacted by the tragic accident and ensuring that our teams are getting the support they need to ensure that they're focused on doing the work safely. In terms of the mill expansion itself, the status of it, it's we're about this accident happened in around the civil construction, and we're about 70% through that work for the project and very much moving into the structural mechanical piping phase of the project. So that's the status of the project.
We're reasonably well advanced. And if you recall, commercial production is in the second half of next year. So we're going through a process as we look to ramp up of inductions, refreshes and doing robust risk assessments on all the work fronts we have across that project as we bring it up to speed. And then we'll assess what impact that ultimately has on the timetable. But into the structural mechanical piping stage of the project and second half of next year for commercial production.
And is there any point at which if we're down and of course safety is number 1 and making sure that that mine can come up safely. Is there a point in time that if we're not up and running, let's say by Q3 or Q4 of this year that we flipped? I just don't know the time line in terms of slippage.
Thanks, Tanya. So the Ahafo surface mines and the existing mill at Ahafo were all back up and running 24 to 48 hours after the accident. The Sobeeka underground was up and running in the similar time frame. So the Ahafo operation is running as per normal. So this is really then the extension to the mill.
And we've got we're working as I say, we're working through that process. As Gary said in his talk, we're actually working through those restart activities and risk assessments now. We're not anticipating any change to our guidance as we work through this process.
Okay. And then maybe my just my last question, just on the and you mentioned that we have the roaster down for maintenance for 3 weeks in Q2. Is it safe to assume that Q2 operationally maybe just a bit slightly weaker than Q1 because of the downtime at the roaster and then obviously picking up into Q3 with a strong operational quarter for Q4. Is that how you see the year panning out?
I think that's pretty reasonable, Tanya. It's certainly going to see pretty flat through the Q2. Your costs will be up because of the maintenance work. You'll start to see Q3 come up a bit, but certainly going to be Q4 as we get into the we actually get the Subika Underground starts to ramp up, but you will be into Silver Star ore into higher grades at Merian.
Okay. And then what Nancy said, the unwinding of the working capital adjustment will help with the free cash flow generation. Okay, perfect. Thank you very much.
Thanks, Tanya.
Our next question comes from Carey MacRury of Canaccord Genuity. Please go ahead.
Hi, good morning.
Good morning.
You've moved Long Canyon Phase 2 into the pre feasibility stage. I'm just wondering at a high level, can you talk about what you're targeting there in terms of production level and potential mine life?
Yes. I'll hand over to Tom. Usually, we don't get into the big details at this stage until it moves a little further along, but I'll have Tom cover where we stand with that.
Thanks, Gary and Kerry. As Gary said, we're still in the fairly early stages of this study, just moving into pre fees. So the and the project is really about extension of the open pit moving into underground and moving below the water table. So a key part of the pre feasibility study work is working with the various state and national agencies to advance our water models and do the field work associated with understanding the impact of dewatering. So it's really at that stage as we work through probably that work over this year and into next year.
If that all proceeded well, you'd be looking at starting stripping in 2021 and moving through to 2024 and your first production would be out to 2024. And we're looking to line it up as we come out of the current Phase 1 that that would then be a seamless transition into Phase 2.
So is it more about maintaining Phase 1 production levels or is production expected to go up?
At this stage, I'd be saying it's probably more maintaining current levels. But we're still it's early stages in the pre phase. We've got a fair bit of work to do on the understanding that whole water balance.
Okay. And then secondly on Ajo North, you've completed the pre feas on that. Just a similar question. Is there any details you can share on that?
Yes. So really as we move into definitive feasibility, it's really about now optimizing on that project as we move forward for full funding. It's we're looking at around an annual production of 250,000 ounces out of a standalone mine. It's about 30 kilometers north northeast of the existing operations. We've got about 3,300,000 ounces of reserves and around 1,000,000 ounces of resource.
We're looking at a 13 year mine life, an investment in the range of $750,000,000 and we're working towards a decision in the second half of next year and around about a 3 year development schedule.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Gary Goldberg for any closing remarks.
Thank you all for joining our call this morning and I appreciate the questions. Newmont had some solid first quarter results. We produced 1,200,000 ounces of gold at all in sustaining costs of $9.73 per ounce in line with guidance. We advanced profitable projects and exploration projects on 4 continents and we increased our dividend while maintaining a strong balance sheet, but we also experienced a terrible loss. Please join me in keeping the families of our fallen colleagues in your prayers and in renewing your commitment to work safely above all else.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect the line.