Alamos Gold Inc

TSX:AGI

Earnings Call Transcript 2019-Q3

[Operator]

Good morning. I would like to 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 to everyone, for attending Alamos' Third Quarter 2019 Conference Call. In addition to myself, we have on the line today both, John McCluskey, President and CEO; Peter MacPhail, Vice President and Chief Operating Officer. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. 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. We reported another strong quarter, both operationally and financially, driven by a particularly strong performance from our Canadian operations. We produced 122,000 ounces of gold at significantly lower costs from a year ago. Total cash cost of $730 per ounce were down 11% from the third quarter of 2018, while all-in sustaining costs of $950 per ounce were down 9%. With a solid performance in the first 9 months of this year, we remain well positioned to achieve our full year production and cost guidance. Potentially, the combination of lower costs and higher gold price drove our operating cash flow before changes in working capital to a new record of $80 million. Our internal growth projects continue to advance, which will drive further improvements in our financial performance. We're now about 8 months away from starting to see the full potential of the Young-Davidson operation with the lower mine expansion on track for completion in the first half of 2020. This will be a significant driver of free cash flow starting in the second half of 2020. Island Gold continues to produce at a record pace and is well positioned to meet or exceed the high end of production guidance. The operation also generated record free cash flow of $27 million in the quarter, bringing the year-to-date total to $55 million. We continue to see positive exploration results, particularly in the area of new focus between the main and eastern extensions. We've already seen a substantial increase in the mineral reserves and resources since we acquired the operation in 2017. Based on the ongoing success we're seeing this year, we expect the reserves and resource growth to continue, and this will be incorporated into a Phase 3 expansion study. In Mexico, we completed commissioning of the Cerro Pelon crusher and conveyor circuit earlier this month and have started stacking ore. We expect initial production later in the fourth quarter, ahead of schedule. We're disappointed by the delays we are experiencing in Turkey, but we are confident that our mining concessions will ultimately be reviewed. I'll discuss this in further detail during the call. But I believe the recent share price underperformance has been overdone. I'll now turn the call over to our CFO, Jamie Porter, to review our financial performance.

[James R. Porter, Chief Financial Officer]

Thank you, John. We had another very strong quarter from a financial perspective, with near-record revenues and record operating cash flow before working capital changes. Performance at our Island Gold mine continues to surpass expectations with record free cash flow of $27 million in the third quarter and $55 million in the first 9 months of the year. Since we acquired Island Gold at the end of 2017, the mine has generated $72 million free cash flow, and that's net of all capital spending in the $32 million investment in exploration. Revenues for the third quarter were $173 million from the sale of 119,400 ounces at average realized price of $1,448 per ounce. Gold sales were 2,500 ounces lower than our production in the quarter, with those sales to benefit the fourth quarter. Total cash costs of $730 per ounce and all-in sustaining costs of $950 per ounce were both in line with guidance. With similar costs expected in the fourth quarter, we've remained well positioned to achieve our full year cost guidance. Operating cash flow before changes in noncash working capital was a record $80 million or $0.20 per share, marking the second consecutive quarterly record. This was driven by an 18% increase in gold price and an 11% decline in total cash costs year-over-year. Our reported net earnings of $18 million or $0.05 per share included unrealized foreign exchange losses of $7 million, partially offset by other onetime gains totaling $1 million. Excluding these items, our adjusted net earnings were $23 million or $0.06 per share for the quarter. Capital spending totaled $66 million in the third quarter, this included $18 million of sustaining capital, $44 million of growth capital and $4 million of capitalized exploration. Capital spending is expected to increase in the fourth quarter of 2019 primarily driven by the deferral of surface infrastructure projects at Island Gold originally planned for earlier in the year. Given lower spending at Kirazli, we have reduced our full year capital guidance by $50 million to between $240 million and $265 million. We ended the quarter with no debt and approximately $202 million in cash and equity securities, up slightly from the previous quarter, reflecting positive free cash flow generation. We expect significant free cash flow growth starting in the second half of 2020. We doubled our dividend earlier this year and expect further increases as we start generating higher levels of free cash flow. In the meantime, we remain well positioned to fund our internal growth initiatives. I'll now turn the call over to our COO, Peter MacPhail, to provide an overview of operations.

[Peter K. MacPhail, Chief Operating Officer]

Thank you, Jamie. Our Canadian operations performed very well in the quarter. Starting with Young-Davidson, production increased to 50,000 ounces of gold, reflecting higher grades and consistent mining rates of 6,600 tonnes per day. This marked a 10% increase in mining rates from a year ago and a 7% improvement year-to-date, reflecting much stronger and steady performance in 2019. Increased grades mined at lower unit costs drove 6% decrease in our total cash cost to $781 per ounce and an 11% decrease in our mine all-in sustaining costs to $960 per ounce from the first half of the year. Both were in line with our annual guidance. Also we made excellent progress on our lower mine development since we hosted multiple investor tours of the operation in June. The crusher room excavation is complete, along with the installation of the chutes, steel and crane. Physical installation of the crusher is expected in December of this year. Ore passes from the upper mine, which will feed the coarse ore bin at the crusher are over 60% complete with 100% completion expected by the end of this fourth quarter. And work around the 8940 level loading targets now largely complete, including the shaft's bottom steel as well as ore and waste bins of the Northgate shaft. With the excavation work complete and mechanical installations underway, the construction schedule has been derisked. As previously guided, the tie-in of the upper and lower mines will require the Northgate shaft to be down for approximately 3 months, starting in March 2020 and ending in June. While the Northgate shaft is down ore from the upper mine, where we tried to surface processing at a reduced rate. Once completed, we expect mining rates to ramp up to 7,500 tonnes per day by the end of 2020. Given the lower throughput rates during the first half of the year we are expecting production to decrease to approximately 150,000 ounces in 2020. Island Gold produced 36,700 ounces, a 67% increase compared to the third quarter of 2018. Milling rates of 1,115 tonnes per day were higher than mining rates as mill feed was supplemented with certain stockpiles. Total cash cost of $503 per ounce were at the upper end of guidance and down 25% from a year ago, reflecting higher grades mined. Mine-site all-in sustaining costs of $693 per ounce remained below annual guidance, reflecting lower sustaining capital in the quarter and year-to-date. We expect capital spend to increase in the fourth quarter, resulting in higher mine-site all-in sustaining costs. We continue to see excellent drill results with our large exploration program at Island Gold. Since we acquired the operation in 2017, we have discovered initial additional 1.2 million ounces of reserves and resources to the end of 2018. Given the ongoing successes we're seeing this year, particularly in the new area of focus between the eastern and main extensions, we expect our resources to grow further with our year-end update. We are excited about the potential of this new area for a number of reasons. First, every hole we have drilled thus far has hit gold mineralization with some very high-grade results, including 103 grams per tonne of over 4 meters. Areas close to existing infrastructure, including the 840 level exploration drift, which will allow us to start drilling through this area underground next year. Also drilling is confirming this is all part of the same zone as we continue to close the gap between the high-grade resources and the eastern and the main extensions. The exploration success and resources growth we effectively see here and elsewhere will be incorporated into the Phase 3 expansion study of the operation. Results of the study are expected to be released in the first half of 2020. Mulatos produced 32,700 ounces and total cash costs of $866 per ounce and mine-site all-in sustaining costs of $979 per ounce. Production and costs were impacted by the winding down of production from La Yaqui Phase I as well as abnormally high rainfall in September over a very short period, which temporarily restricted mining activities in the main Mulatos pit. The lower contained ounces of stock during the third quarter and the end of mining at La Yaqui Phase I are expected to impact the fourth quarter production, with production expected to be in the same range as the third quarter. Offsetting this will be new production from Cerro Pelon where we have completed commissioning of the crusher and conveyor circuit and have commenced stacking ore. Cerro Pelon is our next higher grade, high return deposit of Mulatos after La Yaqui Phase I. La Yaqui Phase I was a great success, having produced 60,000 ounces over a 2-year period and generated $35 million of free cash flow, net of its initial capital of only $13 million. At our fully permitted La Yaqui Grande project, we continue to focus on completing detailed engineering in support of project design and economics. I'll now turn the call back to John for an update on the Kirazli project.

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

Thank you, Peter. Earlier this month, we suspended construction activities at Kirazli pending renewal of our Turkish planning concessions, which expired on October 13. We met all regulatory requirements for the concessions to be renewed, and we expected the renewal before the expiration date. In the preceding months, we've received all major outstanding permits required to build Kirazli, increased our workforce in early 300 and commenced major earthworks. We're disappointed with this delay, and we are disappointed that it will cause a delay in our construction schedule, but we believe that ultimately, the reaction to this has been overdone. Our mining concessions have not been revoked nor have our permits. It is not uncommon for mining concessions to be reviewed after the expiration date in Turkey. In fact, of the 550 mining concessions renewed since February of this year, nearly 60% were renewed after the exploration day. We believe the delays in the concession renewal is related to the recent protests, which followed a misinformation campaign on social media. We've been successfully correcting this information by outlining the facts. Alamos operates in an open and transparent manner, doing right by all stakeholders wherever we operate is part of our core values. We recently received the Best Corporate Social Responsibility Practice award in recognition of our long-standing commitments to building and supporting communities in Mexico. We're proud to have been the only mining company in Mexico to have received this award. We've made similar commitments in Turkey, where we have worked for 10 years to earn the support of the local communities and the federal government. In that time, we have invested $25 million in the local communities with one of the most significant investments being the construction of the recently completed water reservoir, which will provide clean drinking and irrigation water for the nearby communities well beyond the life of a mine. The local communities have remained supportive of our business in Mexico, and partly in Turkey, even staging a counterprotest in September in support of the Kirazli project. The government has also remained supportive, and we continue to engage with Canadian and Turkish government officials to work towards a positive resolution. We're confident our mining concessions will be renewed, given the ongoing support of both government and local communities. We have been granted all major permits required to build Kirazli, and we have met all the conditions for the concessions to be reviewed. Following the renewal of the concessions, resumption of construction, we will provide updated guidance on the construction schedule and budget for Kirazli. I'd like to close the presentation by highlighting where we stand on valuation, given our recent share price underperformance. Today, delay at Kirazli is more than priced into the stock. If you were to remove the entire average analyst value for all of our Turkish assets from our valuation, we are still trading at a 30% discount to our peers. Given the quality of our existing mining operations in Canada and Mexico, which support the majority of our math valuation, we believe this discount is unwarranted. This concludes the formal portion of our presentation. I will now turn the call back to the operator, who will open the line for your questions. Thank you.

[Operator]

[Operator Instructions] And the first question is from Fahad Tariq from Crédit Suisse.

[Fahad Tariq, Research Analyst]

On Kirazli, what are the discussions -- like what are the topics of discussions with the Turkish Department of Energy and Natural Resources? And I'm just trying to get a sense of the -- maybe the sticking points? Is it a matter of the government waiting until some of these protests and challenges to the mine cool off? Or is there something more that the government is asking Alamos to do, for example, maybe more environmental commitments or something to do with the reclamation after the mine closes? Any color on that would be really helpful.

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

Thank you, Tariq. The government isn't asking any more from the company than we've already done. And it's important to note that at this point, we've paid in excess of $10 million in forestry fees, which is substantially more money than it would take to reclaim the area. So the government is more than satisfied that we've been meeting all of our commitments. And frankly, the bar is set very high in Turkey. It's also worth noting that years before we even started the earthworks on the project, we've been involved with planting trees in the area. We complete -- we planted in excess of 14,000 trees in this area. So I think the government is satisfied that we have a strong commitment to the environment. So there's nothing additional being asked of the company. They are indeed monitoring the whole -- all the activity going on in social media. And I'm happy to report that we pushed back a long, long way from where we started in August in terms of setting the record straight. And by this point, there is as much social media commentary in favor of the company if there is against it -- you'll never get rid of the negative commentary altogether. So this is actually quite a strong comeback from where we started, where when the campaign was initially kicked off, virtually all social media comments was running against the company, and that was because so much of the information coming from the NGOs and the opposition parties were just based on false allegations. It takes some time to put a genie like that back in the bottle once the accusations have been made and widely spread, it takes some time to push back on that. But by this point, it's clear we've had a great deal of success on that front. And as far as activity in Canakkale itself, that has really come way, way back from where it was in August. So they are monitoring these kind of things, and it has been their intention to sort of time the renewal of our concessions with the winning of this protest.

[Fahad Tariq, Research Analyst]

Okay. And just a quick follow-up. The counterprotest that you cited in late September, who kind of organized or led that? Like was it -- like who was really involved, was it community members, another NGO, government members?

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

As we said in the commentary, the counterprotest was organized by the local communities themselves that had -- there was no involvement by the company and there was no involvement from anyone outside of those local villages. And that's very different from the protests that were held by our gate, which was essentially all from outside. In fact, the majority of people from outside of the Province of Canakkale. The leaders of the local communities have been strongly supportive of our project. We've been hiring many, many people, hundreds of people, in fact, from those local communities. And we've been engaged with them for the last 10 years. We just didn't show up last week. We put a lot of effort into building and maintaining a relationship based on trust. We've spent a great deal of time educating them on exactly what this project entails and how we would go about developing it, mining it and ultimately reclaiming it. Their support was very hard one. It was several years of effort before they were confident enough and comfortable enough to give us their support. But once we secured it, I'll say that they have stood by in a very steadfast manner against a tremendous sort of influx of outsiders and media, both social and more broadly speaking, the press and television and so forth coming into their area and really causing quite an upset to their daily lives. And these community leaders managed to get about 300 people to travel about 40 kilometers to set the capital and to hold a protest at the city hall, and they presented a condition with, I think it was over 1,000 names on -- that signed that petition, all from the local communities, asking the mayor to essentially back off from the protest that he decided. So this is the source of the support, and it's very strong support. And I think it goes a long way to convincing the federal government that the company has been doing the right thing for a long, long time, and we're on the right track as far as developing projects.

[Operator]

The next question is from Cosmos Chiu from CIBC.

[Cosmos Chiu]

Maybe moving on to Canada here. Good to see that Young-Davidson, you've been able to get to 6,600 tonnes per day in terms of throughput underground, higher than what you had targeted. Maybe Peter, could you remind us how you're able to get to that higher throughput, the underground mining rate? And does that -- is there any kind of read through to the lower mine and the potential of the lower mine?

[Peter K. MacPhail, Chief Operating Officer]

Yes, Cosmos, thanks for the question. Yes. We spent a fair bit of time over the past 1.5 years or so improving the operation, looking at efficiencies of ore movement through the pass system. We've added some passes, if you recall, 1.5 years ago, we had some challenges with those of the upper mine passes. And really, it's just executing on all of those operational improvements put in place over the course of last year. So it's all come together, and it's -- you can see it in the kind of steady performance, we see on a quarter-by-quarter basis, but also on a one-by-one basis. We don't see any fluctuations.

[Cosmos Chiu]

And then in terms of the lower mine, you're saying that, that will get you to about 7,500 tonnes per day exit rate in year 2020. How should we look at it? Is it going to be some kind of a straight line ramp-up at the second half of 2020? Can you remind us how we should model it?

[Peter K. MacPhail, Chief Operating Officer]

Yes, I think that would be right. We probably come out of back up to again, where we left off and ramp up to that 7,500 tonne a day rate by the end of the year.

[Cosmos Chiu]

Yes. Okay. And then maybe turning to Island Gold here. You did about slightly less than 1,000 tonnes per day in underground mining in Q3. There was a change in contractor and whatnot. Could you remind us again in terms of now that you have the permit for 1,200 tonnes per day at the mill. What would you need to do to get to 1,200 tonnes per day down underground to get up to that kind of mining rate?

[Peter K. MacPhail, Chief Operating Officer]

Yes. I guess we -- if you look at where we were last year, we're about 850 tonnes per day, so we're up to just over 1,000 tonnes a day year-to-date now, but a 15% increase. And we see that kind of rate of increase continuing through here through the fourth quarter of this year and into next year. Absolutely, 1,200 tonnes a day is what we're permitted for, and we would expect to get there in pretty short order.

[Cosmos Chiu]

And I know you're working on the Phase 3 expansion and the different alternatives. Is there anything else you can share with us at this point in time in terms of what you might be looking at to get beyond the 1,200 tonnes per day?

[Peter K. MacPhail, Chief Operating Officer]

Yes. I mean we -- so first of all, there's a number of moving parts. One is at the resource we keep finding more gold, which is an interesting problem to have in the middle of all of this. And where it is, and it's actually helpful because it's higher up in the mine than the stuff that we would have reported on a year ago. So it's a pretty exciting new area for us. We ramped up from -- if you go back a couple of years, they were about 800 tonnes a day, and they went to 900, but we're at 1,100, 1,000, heading to 1,200. The next step would be a step. And we'll -- were looking at a number of different options, and we'll see where it takes us. I hate to give you a number because we're working through it.

[Cosmos Chiu]

For sure. Maybe switching gears a little bit, maybe a question for Jamie here. I'm just trying to reconcile the CapEx guidance for 2019 versus what you've done so far year-to-date. I seem to be getting numbers that are running at a higher or even like over the highest end of your guidance here. For example, Young-Davidson, I think you were saying $73 million in terms of what's been spent the first 9 months. Your full year guidance is $80 million to $90 million. When I'm seeing that from Mulatos and Island Gold, what am I missing here? Because I think in your commentary later on, you say Island Gold's got to ramp up in terms of CapEx in Q4. Is it capitalized exploration? What -- could you help me reconcile the 2 numbers?

[James R. Porter, Chief Financial Officer]

Yes, I think capitalized -- when it comes to Island, it's slightly capitalized exploration. That's the difference. If we go on an asset-by-asset basis, YD has invested about $73 million year-to-date. Our guidance range was $80 million to 90 million for the year. We've seen some overruns. So I'd expect we'll be just north of that $90 million by the end of the year. Island has way underspent their capital this year. And so we are expecting, and that's part of the reason why you've seen our all-in sustaining costs come in well ahead of guidance throughout the first 3 quarters of the year. We will see that increase in Q4. And I'm not sure that we'll actually be able to get all that capital spending done this year. Some of it is likely to bleed into Q4.

[Peter K. MacPhail, Chief Operating Officer]

Q1.

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

Q1.

[James R. Porter, Chief Financial Officer]

Sorry, likely to bleed into Q1. At Mulatos, we've been building a new mine in Cerro Pelon. So I think we remain effectively on schedule there, which should be, if anything, I think we're ahead of schedule in terms of our capital spending in Cerro Pelon.

[Cosmos Chiu]

So how should I look at it, Jamie, in terms of -- because on Page 3 in your MD&A, it's $44.2 million for Island Gold. As you said, the full year guidance is 50 to 60. So what number should I use to compare to your 50 to 60 guidance for 2019?

[James R. Porter, Chief Financial Officer]

So the number that you're referring to in the MD&A, yes, the $44.2 million includes $11.7 million of capitalized exploration. Just -- be comparing apples-to-apples.

[Cosmos Chiu]

So drag down to $11.7 million, I should be able to get to a number that I can compare to your 50 to 60?

[James R. Porter, Chief Financial Officer]

That's right. Yes. Yes, that would show us. So sustaining we've spent $18.4 million and growth, $14.1 million. So a little shy or just -- sorry, just north of $32 million to date, and that's what you're comparing to the 50 to 60.

[Cosmos Chiu]

Great. And then maybe one last question here. Moving to Mexico. Clearly, there's been some impact in terms of heavier-than-expected rain. I just want to confirm, this is more like a deferral of ounces say, like if I look at it, you're saying it's stocking. There's a leach curve. So if I, again, look into, say, 2020 and Q1 2020, it's maybe -- can I say it's a deferral of ounces from 2019 into potentially higher ounces in year 2020?

[Peter K. MacPhail, Chief Operating Officer]

Yes. It's a deferral of ounces, Cosmos. It's really -- we got pushed around a little bit in our mine plan. We had to go mine plan in other places because of some -- to bottom of pit got -- we can access the bottom of the pit for a period of couple of weeks. So it moved us around, but those ounces are still there, and we're mining them now.

[Operator]

The next question is from Kerry Smith from Haywood Securities.

[Kerry Smith, VP & Senior Mining Analyst]

Peter, just on Island, the last 4 quarters, you've been running about 1,100 tonnes a day mined underground and obviously milling consistently more than that. So how much do you have left in the stockpile? Like how long can you continue to mill more than you mine? Or are you expecting in Q4 that the mining rate is going to push up enough to actually meet the mill requirement?

[Peter K. MacPhail, Chief Operating Officer]

All right. We -- so I think in the third quarter, we may be milled just over 100 tonnes a day more than what we mined, and that really -- that actually brought the stockpile to pretty close to its end. So it's -- and we expect to build the mill from the underground mine and always would.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. Okay. So the stockpile is basically done on a go-forward basis, the mine and then back to the mill.

[Peter K. MacPhail, Chief Operating Officer]

Yes. Yes.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. Great. That's helpful. And just on the hedging, maybe John or Jamie. Is there any -- I know you have some hedges now through the first 6 months of 2020. Is there any plans to add any more hedging through the course of Q4 into Q1? Or have you kind of got to the point where you're happy with the hedge book?

[James R. Porter, Chief Financial Officer]

Kerry, it's Jamie. We -- yes, if you look at -- I mean it has an impact in the third quarter reduced our realized price by about $24 an ounce. We'd expect about the same in Q4. These were hedges that we put on early part of the year. We have less than 10% or slightly more than 10% of our production hedged for 2020 at a floor of 1,433 and with upside to 1,635. We might look to put on a bit more, but we've been talking about 20,000 to 40,000 ounces, and we'd be talking about a caller range that's nowhere near where we are currently, with the upside being $100 to $150 higher than the current spot.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. And so that's likely to happen before you -- like sometime this year or would that be a next year event?

[James R. Porter, Chief Financial Officer]

That we haven't decided yet, Kerry. But we look at it on a daily basis based on the price.

[Kerry Smith, VP & Senior Mining Analyst]

Short term?

[James R. Porter, Chief Financial Officer]

Yes. I mean the key thing is that we've -- our hedging strategy is all short term inside of 12 months, and the majority of it is all within 6 to 9 months.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. Got you. Okay. That's what I was trying to get, was it going to be pushed out further or not. Okay. And just on -- maybe Peter can answer this. Just on the La Yaqui Grande, when would you actually expect to have the Board approve construction and actually start construction, Peter? Or have you got there yet?

[Peter K. MacPhail, Chief Operating Officer]

I think we'll be able to say something in our -- probably in our guidance release about that.

[Kerry Smith, VP & Senior Mining Analyst]

Okay, which should be in January, I guess, then?

[Peter K. MacPhail, Chief Operating Officer]

Yes. Yes, when we put it out.

[Operator]

The next question is from Mike Parkin from National Bank Financial.

[Michael Parkin, Mining Analyst]

Most of my questions have been answered. Just one on Island. Meters developed that came down a little bit with Q3 at 1,200. Where do you see that kind of -- I've known historically, there's always more development being done than was really necessary in the amount of tonnes kind of coming up the ramp that was developed versus ore meant for the mill was more heavily weighted towards development, if I recall correctly. Where is that going to kind of -- is that going to sustain at around 1,200 or potentially drop off a little bit more as you open up the deeper portion of the mine more?

[Peter K. MacPhail, Chief Operating Officer]

Yes, we were a little lighter in the quarter, Mike. We -- I don't know if you noticed, we changed out our development contractor. We make the -- we linked to that in the press release. And while we -- one was demobing, the other one was mobing in. We -- there's a period of probably 6 weeks, where we had no contract development going on, just our own forces. We do 2/3 of the development with our own workforce, and we have a contractor that you can turn them on and off, and that's why you have a contractor to get the peaks and deal with the valley. So we would expect development. We need to continue to develop that kind of our -- the rates you would have seen in the first half of the year. So that will come back up a bit.

[Michael Parkin, Mining Analyst]

Okay. So that also explains why some of the CapEx will be a little higher in Q4.

[Peter K. MacPhail, Chief Operating Officer]

Yes, that would drive some of that correct.

[Operator]

[Operator Instructions] And the next question is from Lawson Winder from Bank of America.

[Lawson Winder, VP & Research Analyst]

John, thank you for your comments on Turkey. Those were very helpful. Just 2 sort of small follow-ups on that for me. I mean one -- I mean you may not want to do this a bit risky, but, I mean could you maybe handicap what sort of time line you're thinking before this gets resolved? Are you thinking sort of like any day now, months or quarters? And then just as a follow-up to -- what should we think of roughly in terms of holding costs while there's no construction activity happening at the site?

[James R. Porter, Chief Financial Officer]

And to address your last question first, I would -- right now our cost -- overhead cost at -- in Turkey are about $1 million a month. We would love to start to bringing back those costs to some extent if we don't see any progress with respect to the license is getting renewed. It's almost impossible to guess when our licenses will be renewed. Anything I might say would be a guess. It's a political decision. It's nothing other than that. So -- and it's really quite binary. Well, they have to review it. There's nothing we can really do. And when they do renew it, we can get back to work at full force. So it really doesn't help anybody for me to guess because it's just a meaningless comment I would be making. But we are looking very closely at our holding costs. And then if we don't see some movement in the next weeks with respect to allowing us to get back to work, we'll be taking steps to reduce costs from the current levels.

[Lawson Winder, VP & Research Analyst]

Okay. I appreciate you being so candid there. And then Jamie, just one question for me for you. The tax rate, at least versus being was a little high in Q3. Can you provide any guidance for Q4 as to what you might be expecting there on the effective tax rate into the income statement?

[James R. Porter, Chief Financial Officer]

Yes, effective tax rate is highly dependent on foreign exchange rates because that has an impact on our deferred -- our net deferred tax liability. All else equal, you'd assume a 35% to 40% effective tax rate, but again highly variable dependent on where the Canadian dollar and Mexican peso sit at the end of the year.

[Operator]

The next question is from Sherry Deng from Scotiabank.

[Sherry Deng, Associate]

Most of my questions are already answered. Maybe just one follow-up on Turkey. So in relations to the NGOs and opposition parties, since you've halted the construction, do you see them gaining momentum or dying down? And since you made the effort to educate them about the asset, how has the reception been? Also what are they demanding? Is there a chance to meet them in the middle?

[Peter K. MacPhail, Chief Operating Officer]

First of all, we're not educating the opposition or the protesters at all. They went in into this with their eyes wide open. Their efforts that misinformation were really quite deliberate. They knew the facts and they published something else. So the effort to reach out to correct that narrative and put facts into the public discourse, it was really to reach beyond those that we're committed to this sort of anti-mining stance. And in other words, the greater public within Turkey, who are picking up on all this misinformation, either through wherever they source it online or through the press, where it hopefully filtered into the popular press. Once people started to realize that all those allegations that they've been hearing earlier were just heavily false. And of course, many of the -- the worst of those could be verified by simply looking at a map. Once that sort of happened, then the -- that broad-based support that the opposition initially enjoyed, it probably waned. So there is nowhere near the level of protest against our project that there was initially. The government has always feared that this was just the tip of the iceberg, that the opposition was really going after something much broader. That is all-natural resources and forestry within the country. And it's at a point in time where the ruling party was coming off of some pretty serious losses in the elections in the spring, and they were feeling quite vulnerable. And so politics in Turkey is really rather top -- topsy-turvy world. It's something that you can find yourself quite inadvertently pulled into and knocked around by. That's just for a period of time. I think ultimately, the federal government has a serious policy for seeing natural resource development and that is very responsible natural resource development within Turkey. And they see that as a key way of helping diversify and expand the Turkish economy, and they've never back off from that. So from that perspective, we feel we're part of a much bigger story with respect to the ongoing growth and development of the Turkish economy. And we think ultimately, that will be the story that prevails. Kirazli will eventually go into production. There's no doubt in my mind.

[Operator]

The next question is from Kerry Smith, Haywood Securities.

[Kerry Smith, VP & Senior Mining Analyst]

Jamie, maybe I can just follow-up, or John, just on Turkey. As I remembered when you put out the press release on the renewal of the permit, I think at the time you had said that you thought you'd spend $5 million to $6 million in Q4 and then the all-in cost would be $1 million a month thereafter. But John's comment was sort of suggesting it was $1 million now. So I was just wondering if you've accelerated that $5 million to $6 million. That's all been spent or maybe that number was a bit conservative, and that wasn't really the real number?

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

I suspect we were being a bit conservative, but I'm trying to give you an accurate, an estimate, as I could -- I can provide on the call here. But I don't think there's any material difference between the estimate I've provided and what's actually happening.

[James R. Porter, Chief Financial Officer]

Yes. I think the only difference there, Kerry, would be, we would have had some carryover accounts payable outstanding from construction of the reservoir than we would have included in that $5 million to $6 million. So our ongoing kind of operating costs for salaries and then maintenance for operations, there are about $1 million above.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. So has that $5 million to $6 million number actually been spent already then, Jamie?

[James R. Porter, Chief Financial Officer]

No, that was the forecast for the entire fourth quarter. So the $1 million in our operating cost per month plus an incremental $1 million to $2 million in carryover accounts payable.

[Kerry Smith, VP & Senior Mining Analyst]

Okay. Okay. Got it. Okay. I understand. And just maybe if I could just follow-up again on the contractor that you got into Island is, I'm not sure how long he's been there. It sounds like he got in the quarter. Has he been there long enough to get a sense whether he's going to be able to deliver the meters that you need or how is he performing?

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

Yes, they always start a little slower than you like, but they're ramping up and they're making the meters now, Kerry.

[Operator]

Thank you. There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at [phone], extension 5439. Please disconnect your lines at this time, and we thank you for your participation.