Alamos Gold Inc

TSX:AGI

Earnings Call Transcript 2018-Q3

[Operator]

Good morning. I would now turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead.

[James R. Porter, Chief Financial Officer]

Thank you, operator, and thanks, everyone, for attending Alamos' Third Quarter 2018 Conference Call. In addition to myself, we have on the line today John McCluskey, President and CEO; and Peter MacPhail, Vice President and Chief Operating Officer. I'd like to remind everyone that our presentation will be followed by Q&A session. On this call, we'll be making forward-looking statements. Please refer to the disclaimer on the forward-looking statements in our news release and MD&A as well as the risk factors set out in our annual information form. All forward-looking statements on this call are qualified by these cautionary statements. There can be no assurance that our forward-looking statements, even though considered reasonable by management and based on the information on hand, will prove to be accurate. Future results and events could differ materially. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Vice President of Technical Services and a qualified person. Also, please bear in mind that all the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted.Now I'll turn it over to John to provide you with an overview.

[John A. McCluskey, President, CEO & Director]

Thank you, Jamie, and good morning, everyone. We made good progress in the third quarter on a number of our near and long-term strategic objectives. We produced 124,000 ounces of gold in the quarter, near the top end of our quarterly guidance. Through the first 3 quarters, we produced a record 379,400 ounces, marking a 23% increase from last year, and we are on track to exceed 500,000 ounces of gold for the year. Consolidated total cash costs and all-in sustaining costs were higher than planned in the quarter and year-to-date. This has been driven by higher than budgeted costs at El Chanate and Young-Davidson, with the latter impacted by lower mining rates. We do expect improvement in the fourth quarter and into 2019. However, given the high costs through the first 3 quarters, we're anticipating total cash costs of $810 per ounce and all-in sustaining costs of $990 per ounce for the year. Longer term, we're making solid progress on various growth initiatives and nearing the turning point where this translates into significant and sustained free cash flow. At Island Gold, we completed the Phase I expansion of the operation to 1,100 tonnes per day. Combined with higher grades, we expect this to drive a 30% increase in production and significant free cash flow into 2019 and beyond. In less than a year, under our stewardship, Island Gold has exceeded expectations on all fronts. Mineral reserves increased by 28% to just under 1 million ounces, with reserve grades also increasing 17% to 10.7 grams. Beyond reserves, mineral resources have increased across all categories to now allow a combined 1.4 million ounces. We see excellent potential for this growth to continue, which we'll be detailing in other exploration update next week. This ongoing success will be incorporated into further expansion of the operation. At Young-Davidson, work on the lower mine expansion continues, while the operation had a difficult year with mining rates impacted by unscheduled maintenance and constraints of the upper mine. We only have a limited time remaining operating from this infrastructure. In the first half of 2020, we'll be transitioning to the lower mine infrastructure, which will unlock the full capacity of the operation for the long-term. The infrastructure will be designed to operate at 8,000 tonnes per day, which will drive production rates higher, costs lower and combined with lower capital spending, significant free cash flow growth. In the meantime, the operation continues to self-fund the lower mine expansion and has generated nearly $50 million of mine-site free cash flow beyond that over the last 2 years.In Turkey, construction activities at Kirazli are expected to ramp up through till the end of the year with initial production on track for the second half of 2020. Combined with the completion of the lower expansion at Young-Davidson, this will mark the transition from a phase where we have been investing in our operations to a period where we expect to generate significant free cash flow.I'll now turn the call over to our CFO, Jamie Porter, to comment on our financial performance. Jamie?

[James R. Porter, Chief Financial Officer]

Thank you, John. We sold 119,400 ounces of gold in the third quarter at an average realized price of $1,229 per ounce, $16 above the London PM Fix price, for revenues of $147 million. This is lower than the second quarter reflecting lower gold sales and a sharp decrease in the realized gold price, which was down $78 per ounce.Total cash costs of $817 per ounce and all-in sustaining costs of $1,048 per ounce were both higher than budget in the third quarter. This reflected higher costs of both Young-Davidson and El Chanate as well as the timing of sustaining capital spending at Island Gold, which caught up from lower spending during the first half of the year. We expect higher grades and throughput at Young-Davidson and Island to drive cost lower and production higher in the fourth quarter.Operating cash flow, before changes in noncash working capital was $42 million or $0.11 per share. Our reported net earnings of $7 million or $0.02 per share included unrealized foreign exchange gains recorded within both deferred taxes and foreign exchange of $9 million.Excluding these gains, our adjusted net loss was $2 million or $0.00 per share. Amortization expense was $40 million in the third quarter or $335 per ounce, consistent with the second quarter and full year guidance. Our corporate G&A expense of $4.9 million was also consistent with guidance and remains among the lowest in our peer group.Capital spending at our operating mines remains on track with $55 million invested in the third quarter. This included $20 million of sustaining capital, $31 million of growth capital and $5 million in capitalized exploration.Our 2018 capital budget for Kirazli has been reduced to approximately $25 million owing to delays in finalizing the mining services and earthworks contracts. In September, the Turkish government issued amendments to decree 32 that required certain service contracts be denominated in Turkish Lira. We've since assessed these amendments, expect the impact to be minimal, and are now in the process of finalizing the contract.With no debt, and cash and cash equivalents of $225 million at the end of the third quarter, we retained one of the strongest balance sheets in our peer group and are fully funded on our internal growth initiatives, including development of Kirazli. I'll now turn the call over to our Chief Operating Officer, Peter MacPhail, to provide an overview of operations.

[Peter K. MacPhail, Chief Operating Officer]

Thank you, Jamie. Young-Davidson produced 49,000 ounces, 25% increase from second quarter, driven by higher milling rates and grades processed. Total cash costs of $824 per ounce and mine-site all-in sustaining costs of $1,029 per ounce were both higher than budgeted, largely due to lower than planned mining rates. Underground mining rates of 6,000 tonnes per day, remained below budget. We lost the equivalent of 5 days of production due to smoke from forest fires in the region, which impacted air quality and weather-related power outages. This impacted mining rates by approximately 400 tonnes per day over the quarter. Mining rates improved in the latter part of the quarter and into October averaging approximately 6,500 tonnes per day. We expect higher production and lower costs in the fourth quarter with underground mining rates and grades both expected to increase. The operation is off to a good start with 18,000 ounces produced in October and is on track to meet revised full year guidance of between 180,000 and 190,000 ounces. As John noted, the short-term challenges that Young-Davidson has faced should not cloud the long-term outlook for the operation. Our near-term focus has been on maximizing the efficiency of the upper mine infrastructure, while completing development of the lower mine. The upper mine was designed for 6,000 tonnes per day. We pushed this as high as 7,200 tonnes per day in the fourth quarter of 2017. But are averaging closer to 6,500 tonnes per day over the past few years. In the first half of 2020, we'll be transitioning to the lower mine infrastructure, which is designed for 8,000 tonnes per day. This infrastructure will be used for the next 20-plus years. We will be using skips that have 30% greater capacity. We'll have significantly more fine ore bin capacity, which means no downtime during blasting and shift changes. And we'll be conveying ore and waste instead of trucking it. This is going to be a much more automated and productive operation. The increase in mining rate is going to drive ounces higher and costs lower. Combined with a significant reduction in capital spending, this will drive substantial free cash flow growth starting in the second half of 2020.In the meantime, we expect gold production cost and capital to remain at similar levels as seen in the past 2 years. Young-Davidson continues to more than pay for the lower mine expansion, nearly $50 million of mine-site free cash flow generated over the past 2 years.Island Gold produced 22,000 ounces during the third quarter at total cash cost of $671 per ounce, and mine-site all-in sustaining cost of $1,051 per ounce. As expected, cost increased in the second quarter in part reflecting the timing of sustaining capital spending, but are expected to come down in the fourth quarter. The operation remains on track to meet full year production and costs guidance.The Phase I mill expansion to 1,100 tonnes per day was completed on schedule in September, with October averaging over 1,100 tonnes per day. Underground mining rates of $814 tonnes per day were impacted by scheduled 1 week shutdown of the ramp and lower -- low contractor production drilling performance. Mining rates improved later in the quarter, averaging 1,100 tonnes per day over the last 2 months. Combined with higher grades, we expect the higher throughput to drive a 30% increase in gold production and corresponding free cash flow growth in 2019. Mulatos had another strong quarter producing 43,300 ounces at total cash costs of $771 per ounce and mine-site all-in sustaining costs of $846 per ounce. As was the case in the second quarter, this reflected higher recoveries from heap leach operations and continuing mill production from San Carlos, which lasted 6 months longer than originally expected. With San Carlos having now reached the end of its mine life, we expect production to decrease in the fourth quarter consistent with full year guidance.Similarly, with no further mill production, we expect production from the Mulatos district to return to previously guided levels of 150,000 to 160,000 ounces in 2019. El Chanate produced 9,700 ounces at mine-site all-in sustaining cost average $1,332 per ounce. Mining activities have now ended at El Chanate, but we'll continue to benefit from ongoing production at declining rates with residual leaching. Looking to 2019, we expect some consolidated production to be at a similar rate of approximately 500,000 ounces with consolidated costs coming down reflecting lower cost production from Island Gold replacing higher-costs production from El Chanate. We expect Kirazli to take annualized production to over 600,000 ounces per year. With that, I'll turn the call back to John.

[John A. McCluskey, President, CEO & Director]

Thank you, Peter. That concludes the formal portion of our presentation. I will now turn the call back to the operator, who will open the lines for your questions.

[Operator]

[Operator Instructions] The first question is from Cosmos Chiu from CIBC.

[Cosmos Chiu]

I guess, my first question -- first number of questions on Young-Davidson here. In terms of Young-Davidson, the tie-in of the lower mine, has there been slippage in terms of timing? Now I guess, last night, you were talking about mid-2020 and, previously, when we had talked on the conference calls, you were getting the hoisting cables installed in the second half of 2019. I'm just trying to reconcile that timing.

[Peter K. MacPhail, Chief Operating Officer]

Yes, Cosmos, it's Peter. We've been guiding to Q4 2019 for the last 3 years really since the merger with AuRico. And as we get closer to that time, we still expect frankly to finish the construction by the end of next year, but to actually tie it in, you could look at over 3 years, it may have slipped by a quarter. That's really the impact.

[Cosmos Chiu]

And so in terms of timing because Peter in the past we had talked about, I think, there was a little bit of shutdown that was needed when the hoisting -- new hoisting cables were put on the hoist in Q4 2019. Is that -- should we still consider that shutdown? And then is there potentially a further shutdown sometime in 2020 as you do the actual "tie-in" of the lower mine?

[Peter K. MacPhail, Chief Operating Officer]

The tie-in will be that shutdown, so we now expect that tie-in or that shutdown to not occur in 2019, but will happen in 2020 -- first part of 2020. Yes, that's when that will happen.

[Cosmos Chiu]

Okay. And then, I guess, talking about going back up to the upper mine here, Peter. As you said, the upper mine was always designed for 6,000 tonnes per day, but you've been able to push it to over 7,000 tonnes per day. How were you able to do it? And why isn't that -- why hasn't that materialized in 2018?

[Peter K. MacPhail, Chief Operating Officer]

We've had a number of one-time things here in 2019. But the reality is, things have to go pretty well to get it over 7,000 tonnes a day which has happened. There's very little redundancy built into that kind of upper mine sort of temporary infrastructure and way more redundancy in the lower mine. So we only have, for instance, 500 tonnes of fine ore after the crusher in the upper mine infrastructure. And if the crusher goes down you've got 500 tonnes, you empty that out for instance in a half an hour off the skips. Or -- yes, sorry, looking forward to the lower mine, we'll have 6,000 tonnes of fine ore capacity between the crusher and the skips. Skips are going to be bigger. They're -- we get 18 tonnes into a skip now, we'll get 24.5 tonnes into the skips once we're tied in, conveying ore versus trucking it. It's just the -- it's, frankly, designed for 8,000 tonnes a day, very robust and lots of redundancy. So I'm not concerned about being able to do that, but it is -- when things go perfect, we can get over 7,000 tonnes a day, but things don't always go perfect.

[Cosmos Chiu]

Yes. So it's not the bottleneck here isn't stope availability, nothing like that?

[Peter K. MacPhail, Chief Operating Officer]

No, not typically. It can happen and probably has happened this year a little bit. We're in good shape currently. If you look at longer term, 2/3 of the -- if you look at the original resource and reserve for Young-Davidson, 2/3 of the tonnes are actually below where the current mid-mine infrastructure is. So it's generally wider, below us, and where we're building out. And frankly, things are going really well with construction in the lower mine. We're on track. You can think of slippage maybe of a quarter over 3 years, but -- and maybe we're just being conservative a bit and looking forward to next year's budget, we could have really tried to push it for Q4 next year. But to be on the safe side, we're guiding a little past that right now.

[Cosmos Chiu]

And how many stopes do you need right now to support your 6,000 tonnes per day underground? And how many stopes would you need to support your 8,000 tonnes per day underground as you go to the lower mine?

[Peter K. MacPhail, Chief Operating Officer]

We look to have kind of 1 stope per 1,000 tonne per day. So for instance, we would have kind of 7 stopes on the go right now. And for 8,000 tonnes a day, we might have 8 or 9 stopes on the go. It's not a step change.

[Cosmos Chiu]

Great. And then maybe to wrap up on Young-Davidson here. Certainly, the milling rate is higher than your mining rates -- your underground mining rates, so you're drawing on your stockpiles? And you're saying that underground mining rate will likely not incremental -- or increase by that much until you get the lower mine tied in. I'm just wondering how much more of the stockpiles do you have. And is that sufficient for you to be running the mill at over 7,000 tonnes per day in the sort of gap period from now until you're tying into lower mine?

[Peter K. MacPhail, Chief Operating Officer]

Yes, I think, we're going through our budgeting right now. We'll provide some guidance in January, but we will likely -- we may well exhaust those stockpiles before we do the tie-in. And -- but when that tie-in, we'll still be operating -- we'll still be able to transport ore to surface up the ramp and also up the MCM shaft. So it's probably looking like there will be a quarter there in 2020, likely the first quarter, where -- or it might be a quarter that stretches 2 quarters where we'll be kind at 1/3 production, and I think that hasn't changed for what we've been telling the market for the last year or so.

[Cosmos Chiu]

And Peter, do you have the actual number in front of you in terms of stockpile and the grade -- tonnage on the grade?

[Peter K. MacPhail, Chief Operating Officer]

I have to get that to you. I don't have.

[John A. McCluskey, President, CEO & Director]

Cosmos, I don't think that's going to make a material impact on our production in any case.

[Peter K. MacPhail, Chief Operating Officer]

Yes, it's...

[John A. McCluskey, President, CEO & Director]

It's a relatively small number when -- that you're trying to grasp at there.

[Cosmos Chiu]

Yes. But in that case, this past quarter, that accounted for what, 1,000 tonnes per day? And so it's still a number that we need to have, right?

[Peter K. MacPhail, Chief Operating Officer]

Yes, it's about, call it, 1,000 tonnes a day.

[Cosmos Chiu]

But if you don't have it in front of you, you can always get back to me later on.

[Peter K. MacPhail, Chief Operating Officer]

Yes, we'll get it to you, Cosmos.

[Cosmos Chiu]

Okay. And just, maybe one last question on Island Gold here. Your year-to-date head grades what 9.27 gram per tonne. When I go back to your guidance that was put out earlier this year, the head grade was 8.3 to 8.9. I'm just trying to get a bit more color in terms of what that means for Q4? Does that mean that grades are going to come off quite a bit?

[Peter K. MacPhail, Chief Operating Officer]

No. I keep -- for grade. We'll be kind of in around there between that and reserve grade. I don't think we're expecting anything drastically different. Maybe -- yes. I don't have the numbers in front of me, Cosmos. We are guiding to be at in guidance range and running the mill at 1,100 tonnes a day. So that will back-calculate to the grade.

[Operator]

Next question is from Mick Sroba from Macquarie.

[Michael Sroba, Research Analyst]

A couple of questions from me. The first, were the ore passes that kind of restricted production in 2Q rectified in the quarter? Or was the need to truck some of the material to the crusher contributing to some of the higher mining costs?

[Peter K. MacPhail, Chief Operating Officer]

Yes, I think -- so we continue to truck ore from the passes to the crusher, which does impact our mining costs. The passes themselves -- we have 4 passes there and there was a period in Q2 where we had 3 out of 4 -- trouble with 3 out of 4 of them. Typically, we have -- that hasn't -- thankfully, it hasn't been the case in Q3 where typically 3 out of 4 of them are operating at any given time. So -- but we are trucking.

[Michael Sroba, Research Analyst]

Okay. And is the critical path for the shaft tie-in, would you say the development rate is crucial for that and that's a driver of the revision as well?

[Peter K. MacPhail, Chief Operating Officer]

Maybe over a course of 3 years it will be. We -- like I mentioned, we are expecting to actually be done the construction by end of next year. And then the tie-in is blasting the [ fence as ] reroping, doing some steel work, things like that. There's 13 ropes in that shaft. It's a rope-guided shaft. So there's a fair bit of work just around, taking out the old ropes and then reroping.

[Michael Sroba, Research Analyst]

Okay. And on Island, can you just outline some of the operational excellence initiatives going forward noting that still got some quite high mining costs so implied underground mining costs?

[Peter K. MacPhail, Chief Operating Officer]

Yes. Well, the mining costs for the quarter were impacted by the fact that the tonnes were lower. We are comfortably running at 1,100 tonnes a day for the last couple of months. Mining rates, things are going very well there currently. And yes -- no, we have ongoing initiatives around continuous improvement, costs ventilation, truck availability, scoop availability, all of those sorts of things -- be tough to -- we could sit down and do a presentation on it, but it's tough to spell them out on a conference call.

[Michael Sroba, Research Analyst]

Okay, fair enough. And finally, are you able to just give us an idea of what percentage of remuneration for the guys on sites linked to performances? Do you have a percentage number for that?

[Peter K. MacPhail, Chief Operating Officer]

If the pay of various levels have various -- obviously, if production bonus is attached to them, I don't think I'll go into it in detail on the call though.

[Operator]

The next question is from Lawson Winder from Bank of America Merrill Lynch.

[Lawson Winder, Associate]

Just back to YD on the CapEx, you suggested that, that could be a little higher for a little bit longer. Would it be possible to get some specific guidance on exactly what those levels would be in 2019, 2020? And then basically, what you've said is starting in 2021, we'll just be at a much lower level going forward. What is that sort of sustaining CapEx run rate?

[James R. Porter, Chief Financial Officer]

Lawson, this is Jamie. So the sustaining CapEx rate '20, '21 and beyond really hasn't changed since. We've talked about it post-merger in 2015, that's USD 40 million to USD 50 million a year. Between now and then, our capital for this year is trending towards [ about ] USD 90 million. You could see our capital being as high as that in 2019. And I think, in 2020, we'll still have that elevated capital for the first half of the year, but it'll dry up certainly in the second half. So bring it down to $60 million to $70 million. So call it $90 million for 2019, $60 million to $70 million for 2020, $40 million to $50 million per year after that.

[Lawson Winder, Associate]

Okay, that's very helpful. And then similar question, I guess, with Cerro Pelon. I don't think you guys have provided any guidance on initial CapEx for that and it sounds like there'll be some spending on Cerro Pelon in -- potentially in 2019. Do you have a sense right yet as to what that initial CapEx might be?

[James R. Porter, Chief Financial Officer]

So we're just in the middle of our budgeting process now. We are on track in terms of permitting there at Cerro Pelon. We've submitted the MIA earlier this year and expect to have it approved by the end of this year. So we'll provide a full update on -- and that's what we've said all along. Once we get that permit, the environmental approvals for Cerro Pelon, at that point, we'll put out the full financials. But we do expect to be a building Pelon through 2019 and start seeing production from it in 2020.

[Operator]

[Operator Instructions]The following question is from Trevor Turnbull from Scotiabank.

[Trevor Turnbull, Analyst]

Just, I guess, another question on the satellite deposits down in Mexico, Cerro Pelon, and Yaqui Grande. How does that production dovetail with what you're currently doing at Yaqui. Like how long do you expect Yaqui to produce relative to seeing the first production come out of, I guess, Pelon first. And then Yaqui Grande?

[James R. Porter, Chief Financial Officer]

Trevor, it's Jamie. So it actually -- it all fits together nicely as if we planned it. So Yaqui Phase I will be depleted by the first quarter of 2020. And we expect production from Cerro Pelon to have started then. Yaqui Grande production will come online in 2021. So we've -- it's -- we're managing Mulatos so that we've got a consistent production rate of 150,000 to 160,000 ounces now over the remaining 7-year mine life.

[Operator]

The following question is from John Tumazos from John Tumazos Very Independent Research.

[John Charles Tumazos, President and Chief Executive Officer]

Young-Davidson mine where the pit opened in 2012 and the underground in 2015 was planned near the peak of gold prices when there were 10 or more projects along the Destor-Porcupine belt and a lot of competition for miners, resources, et cetera. In hindsight with 6 years of near $1,250 gold, is it worth depleting the resource? It seems like it makes enough money to keep it open, but not enough money to earn your cost of capital or rate of return. Is there an argument just for idling it, waiting for better gold price? Or restaffing it on better terms that's other than the peak of the market a few years ago?

[James R. Porter, Chief Financial Officer]

Yes, so it's Jamie here. I'd say there is no argument that would support that. If you look at the growth capital that we'll be putting into Young-Davidson over the next 2 years, it about $75 million, $80 million; after which point, it's just sustaining capital and YD should generate $80 million to $100 million at $1,250 gold. So I mean, it's a deposit with 20-year mine life between reserves and resources. And for 18 of those, at current gold price, it will generate $80 million to $100 million a year in cash flow. So it has -- it's been a long slog in terms of investment, but thankfully, it's paying for itself. It's paying for all its growth capital and it generated $50 million of free cash flow for the past 2 years. So it'll hopefully continue to generate some free cash flow over the next 18 months, after which cost go down, growth capital disappears and the free cash flow from that mine really takes off.

[Operator]

The next question is from Dan Denbow from USAA.

[Dan Denbow, Assistant Vice President & Portfolio Manager]

So when Young-Davidson reaches 8,000 tonnes per day in 2020, what do you project cost per tonne will be?

[Peter K. MacPhail, Chief Operating Officer]

Yes, we'll be down in the -- on a -- yes, the -- on a Canadian basis the low $40 per tonne.

[Dan Denbow, Assistant Vice President & Portfolio Manager]

So maybe you can help me understand kind of what's happened at YD. Because I think, originally, when it was modeled in 2018, we were supposed to be 8,000 per day. And I think it was supposed to come in somewhere around $35 a tonne on a U.S. basis. Today, we're talking about maybe you can get it in 2020. So what has changed about the mine that it’s struggled to meet the goals that were laid out early on? And then 2, how can you really have confidence that it hits that 2020 goal of 8,000 tonnes per day when you've had trouble just getting into the operating rate in the upper mine?

[Peter K. MacPhail, Chief Operating Officer]

Yes. I guess, really, it boils down to the fact that, that mine was designed and built on a 6,000 tonne a day plan. And then changed partly through that build to an 8,000 tonne a day plan by putting in a piece of plants and being able to actually access more ore in the upper mine. That part has gone well. What hasn't gone as well is the midshaft sort of temporary loading and conveying aspect that while designed at 6,000 tonnes a day, we've operated above that. We've operated on average for the last few years at 6,500 tonnes a day and have hit as high as 7,200 tonnes a day in the fourth quarter of last year. There's just not a lot of redundancy in that infrastructure. And things have to go very well for it to get over 7,000 tonnes a day. That's just the reality of where we're at. And as far as...

[Dan Denbow, Assistant Vice President & Portfolio Manager]

Next year, what do you look for bringing that down to $54 a tonne now.

[Peter K. MacPhail, Chief Operating Officer]

Yes, we will be in kind of around the high 40s till we get the lower mine tied in. I would mention though the second part of your first question was how do we have confidence that it's -- once we have the lower mine built, we'll be there. We're putting in instead of trucking ore from the bottoms of ore passes to a rock breaker, we're putting the ore tonnes right to the rock breaker and to the crusher. Once you have it in the scoop from the stope, you put in an ore pass and you never touch it again, that's what we're getting with the lower mine designed at 8,000 tonnes a day. That's one part. The other part is the fact that we'll be putting in significant bin capacity. Right now, we've got, like I said, 500 tonnes after the crusher and we run through that very quickly, for instance, on a shift change or a blasting delay or some problem with the crusher. That handcuffs us currently and we'll have 6,000 tonnes of capacity built into the lower mine after the crusher. Bigger skips, so right now we -- because we're skipping from the midshaft, it's a friction hoist. And while the skips are big enough to handle more tonnes, you can only put from the midshaft 18 tonnes in the skip. From the lower mine, we'll be able to put 24.5 tonnes in a skip. So all those things give us lots of confidence and the fact that the lower mine has bigger stopes, wider stopes on average than the upper mine does. So just a more productive environment all around.

[James R. Porter, Chief Financial Officer]

If I can add to that, Dan. Just if you look at the sensitivity of the mining cost per tonne to, obviously, the tonnes mined per day. We were CAD 53 this quarter at under 6,100 tonnes per day mined. If you go back and look at Q4 of 2017, we are running at 7,200 tonnes per day and our mining costs were $44 a tonne, so almost $10 a tonne lower. I think, over the long term, as we approach that 8,000 tonne per day target, high 30s, low 40s, that's where we should be. And relative to what we would have guided back in 2015, I think, at that point, we were talking about $36 over the long term. There has been pretty significant increases in diesel and hydro costs over the past 3 years.

[Operator]

There are no further questions at this time. This concludes this morning's conference call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at [phone], extension 5439. Thank you.