Dundee Precious Metals Inc

TSX:DPM

Earnings Call Transcript 2018-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Dundee Precious Metals Fourth Quarter 2018 Analyst Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Janet Reid. Please go ahead.

[Janet Reid, Manager of Investor Relations]

Good morning, everyone. I'm Janet Reid, the Manager of Investor Relations, and welcome to Dundee Precious Metals fourth quarter conference call. With me today are Rick Howes, President and CEO; and Hume Kyle, Chief Financial Officer, who will each comment on the quarter; as well as David Rae, Chief Operating Officer; Nikolay Hristov, SVP of Sustainable development; and John Lindsay, SVP Projects, who are here today to assist with answering any questions following our formal remarks. After close of business yesterday, we released our fourth quarter and annual result and hope you've had an opportunity to review our material. All forward-looking information provided during this call is subject to the forward-looking qualification, which is detailed in our news release and incorporated in full for purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non-GAAP measures. These measures have no standardized meanings under IFRS and may not be comparable to similar measures presented by other companies. The definitions established and calculations performed by DPM are based on management's reasonable judgment and are consistently applied.These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Please refer to the non-GAAP financial measures section of our most recent MD&A for reconciliations of these non-GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call has generally been rounded and any references to 2017 pertain to the comparable period in 2017.On this morning's call, Rick will comment on our fourth quarter and annual operating results as well as the progress being made on our capital projects and exploration programs for the quarter. Hume will then provide an overview of our fourth quarter and annual financial results as well as our guidance for 2019.With that, I'll turn the call over to Rick.

[Richard Allen Howes, President, CEO & Director]

Thanks, Janet, and hello, everyone and thanks for joining us today for our fourth quarter and annual 2018 conference call. Pleased to provide you with an update on the fourth quarter and annual results and progress on our key projects and initiatives. Overall, financial results for the year were strong and with unadjusted earnings per share of $0.21, and cash flow per share excluding working capital changes of $0.55. Reflecting the steady progress being made by operating teams to advance our operational excellence, optimization and cost reduction programs. We have record annual gold production from Chelopech and record annual volumes that concentrate smelters at Tsumeb. In addition, we continue to advance construction and commissioning of our Krumovgrad project, which is 92% complete till the end of the fourth quarter with first concentrate still expected in Q1.Our balance sheet remains strong with total liquidity of $255 million, including $17 million in cash and $238 million in undrawn revolving credit facility. Debt stands at $29 million as most of the funding for Krumovgrad project has been coming from our free cash flow, which was $6 million in the quarter and $52 million for the full year.Metal prices remained relatively unchanged in the fourth quarter with an average realized gold price of $1,228 and copper price of $2.80. We have seen recent strengthening of the gold price above $1,300 so far in 2019, which we are poised to benefit from with the expanded gold production expected from Krumovgrad starting soon. I would also like to mention that all 3 of our active facilities achieved major safety milestones this past year. Both the Krumovgrad project and the Tsumeb operation achieved $2 million lost-time injury free work hours, and Chelopech operation achieved $1 million lost-time injury free work hours. These are outstanding results and are a testament to the effort and commitment of our employees to work safely.Chelopech achieved another record year in gold production and exceeded guidance producing 201,000 ounces of gold and 36.7 million pounds of copper. We saw a 10% year-over-year improvement in our all-in sustaining cost to $659 an ounce. Two main factors in the record gold production was the improved mill recoveries as a result of plant optimization efforts and the increased high rate concentrate production. Chelopech fourth quarter revenues were negatively impacted by the build-up in copper concentrate inventory due to the timing of deliveries, as well as by a 5% lower mill throughput in Q4 due to being captive, 2.2 million tonnes per year by the government approved annual plan. We have a number of key improvement projects underway this year that will enhance revenues and decrease costs, including drill and blast optimization, autonomous drill and surveying, further mill optimization, move to integrated dynamic planning and execution and the introduction of digital smart center for improved decision making.We continue with our investment in exploration in and around Chelopech to increase resources and reserves. In 2018, the total of 21,618 meters of in-line extensional drilling was completed to explore for new mineralization. This program was very successful and produced many significant drilling restrictions that extend known in mineralization and identify new zones, particularly, in the upper levels of the mine. This will be included in our annual update of mineral resources and reserves. In 2018, we also completed 18,000 meters drilling in our regional exploration programs around Chelopech on several targets. We completed drilling 9,700 meters in the Southeast Breccia Pipe Zone, which was successful at identifying 2 new mineralized zones within 300 meters of existing mine development. This program will continue in 2019.In addition, at the Krasta prospect, approximately 2 kilometers northeast of main Chelopech ore bodies, 4,220 meters of drilling outlined a new zone of shallow comparable mineralization over a strike length of 300 meters between 130 and 400 meters below the surface. This will be further tested in 2019 to determine the up -- extent towards surface as a potential open pit resource.At Tsumeb in 2018, we had record concentrate smelted of 232,000 tonnes, which was a 6% year-over-year increase. This is primarily due to increased availability of all plants, increased process stability, and oxygen enrichment in the Ausmelt furnace, which helped to mitigate the impact of the converter reliance on the Ausmelt throughput. Quantities smelted in Q4 was 63,000 tonnes, which was below the record smelted at 68,000 tonnes in Q3, mainly due to off-gas system restrictions. These restrictions are being addressed to ensure higher smelted rate targets can be achieved consistently. The cash cost return concentrated process for the full year was $445 per tonne, which is a 3% improvement from 2017, benefiting from the higher throughputs as well as cost reduction efforts largely through reduction and the use of contract for outside services. We continue to make progress reducing the secondary copper inventories that accumulated during the construction and commissioning of the new asset planning copper converters. This reduction will continue through 2019 and will result in a reduction in stockpile interest and allow higher throughput capacity for fresh concentrates. We continued to advance the smelter expansion project to increase the throughput of complex concentrate smelted to as much as 370,000 tonnes per annum. The feasibility was completed in the fourth quarter of 2016, in [indiscernible] the robust project economics with an estimated implementation capital cost of $52 million. The scope of the project includes the rotary holding furnace, additional cooling and other upgrades to the Ausmelt furnace as well as upgrades to the SAG mill area. We're [ to ] secure the necessary furnace to support this planned increase in production is ongoing. And the ESIA is underway on the project. Public access to the draft ESIA was provided during the second quarter of 2017. We are finalizing an update of certain technical studies as a result of the feedback received from a public consultation process and are planning to submit an updated ESIA for approval during the first half of 2019. The Krumovgrad construction project is 92% complete versus the plan of 99% complete to the end of December. We still expect for its concentrate production later this quarter. The schedule slippage is a result of delays caused by the concrete contractor deliveries used early on in the project. Additional construction personnel have been added to accelerate completion of the remaining work. Spending of $139 million has been incurred to the end of December with an additional $25 million to $29 million forecasted spending in 2019 to complete. The aggregate cost of the project is still expected to be between $164 million and $168 million compared to the original estimate of $178 million.Number of key milestones were achieved in Q4. The final construction permit for the discharge water line was issued in October. Grid power for the site was completed, dry commissioning of the jar pressure and SAG mill was completed. Two main water reservoirs are lined and ready for use. The integrated waste facility will sell as constructed, mined and ready for pick and tailings. The pitting area construction was completed and commissioned. We have mined this stockpile, 158,000 tonnes of ore and 186,000 tonnes of waste from the pit. Planned rig and oil drilling for the first phase of the pit was completed, and grade control model has been completed. The outstanding items remaining are mainly the piping, installations and the electrical and instrumentation work in the mill. We expect wet commissioning of the grinding session to begin shortly and full commissioning of the entire plant to start in March. The operating team is fully staffed, trained and ready for handover. Commercial production is still expected to be achieved in the second quarter.Exploration has identified a number of satellite deposits within a few kilometers of Krumovgrad. We completed phase 2 drilling program for the Surnak satellite deposit located approximately 4 kilometers to the west of Krumovgrad open pit in Q4. We drilled 5,000 meters and 37 holes. And the results are now being compiled into a major resource estimate.Metallurgical test work is also underway. We expect to complete this work and release the results in Q2. Drilling on the other satellite deposits will continue in 2019 to look to extend the life of the Krumovgrad project.On September 24, 2018, we announced the results of the updated Mineral Resource estimate for the Timok Gold Project in Serbia. This included total mineral -- indicated mineral resources of 46.9 million tonnes at 1.3 grams for a total of 1.996 million ounces. Included off-site indicated mineral resources of 28 million -- 21.8 million tonnes at 1.06 grams gold or 742,000 ounces and transitional indicated Mineral Resources of 9.2 million tonnes at 1.15 grams gold for 338,000 ounces.Net changes to the 2017 Mineral Resource estimate showing 35% increase in tonnes, and a 16% increase in ounces. The increase in indicated Mineral Resource compared to the 2017 Mineral Resource estimate is attributable to the updated interpretations of the oxide and transitional weathering domains, and better recoveries indicated from the vertical column leach test, processing oxide and transitional mineralization. The inclusion of oxide and transitional mineralization within the conceptual pit optimization study has lowered cut off, which in turn has increased constrained Mineral Resources.Based on the updated Mineral Resource estimate, we have initiated a scoping study for Timok and depending on the results of the scoping study, we expect to release a preliminary economic assessment in the first half of 2019. These studies will focus on the initial economics of the oxide and transitional material to be constrained in separate open pit shells as well as the potential for subsequent development of the sulfide resource.Development of permitting and approvals plan incorporating the ESIA process and approvals as well as additional permits and approvals was initiated in the fourth quarter of 2018. Following the positive results from the metallurgical test work program, conducted on the Timok oxide and traditional samples during the first quarter of 2018, further samples were collected from the various domains and submitted for metallurgical test work during the fourth quarter of 2018. Results from this test work program will be available during the first quarter of 2019 and included in the scoping study.Exploration plans for 2019 are being developed to identify additional high-quality targets to expand near surface oxide resources. At the Bigar Hill and Korkan deposit, results from near surface resource drilling during the second and third quarters of 2018 indicated good potential for additional resources outside the near resource model. Results are pulled -- drilled to the west of Bigar Hill mineral resource intersecting 28 meters at 3 grams per tonne gold from 85 meters downhole. On the northeast side of Bigar Hill, we intersected 35 meters at 2 grams gold from 246 meters downhole in oxidized and strongly brecciated cretaceous limestone. At the Korkan deposit located 25 to 50 meters northwest of the mineral resource, we intersected 2 intervals including 16 meters at 1.7 grams gold in an oxide section from 65 -- between 65 and 81 meters downhole. Followed by 21 meters of 0.7 grams from 93 meters to 114 meters in a transitional section. These real results will be followed up with the drill program in 2019.In the fourth quarter of 2018, following up on a gold target for Northwest extent on [indiscernible] prospect, 1 hole return 34 meters of 2 grams gold over a depth of 23 meters downhole, which also be followed up in 2019.In 2018, we been on our first year exploration expended our commitments on a Malartic joint venture in Québec with Pershimex resources. Promising results were achieved from a 1,900 meters scope drilling program that was completed in the beginning of 2018 on various targets within the Blake River Group. These include all 3, which hit 5.5 grams over 2 meters at 95 meters from surface, located at 300 meters northwest from the historic Revillard gold showing.Additional anomalous shear zones were intercepted in the Blake River Group and demonstrate that mineralization continues along strike for over 750 meters. All 7 intersected 7.2 grams over 3.3 meters, 28 meters from surface, including a high-grade intersection of 11.6 grams over 1.9 meters. And a second intersection of 38 meters from surface, up 2.3 grams over 6 meters. Other exploration activities included in 2018, include 1,000 to 5,000 scale mapping, 4.2 line kilometers when IP survey, project wide till sediment sampling and also during the fourth quarter, 1,000 line kilometers of high-resolution helium-worn magnetics was formed on the Marbenite and Norbenite shear zones. And B soil geochemistry program was conducted to follow up on these anomalous still sediments.Exploration plans for the first quarter of 2019 include a 5,000 meter drill program to follow up on the holes -- on these first 2 holes. And test other the targets from the 2018 exploration program.We see great potential with our investment in MineRP, a unique new enterprise integration digital platform designed for the mining industry. We, ourselves, are adopting MineRP as well as many other digital technologies to transform our business. The intent we have with MineRP is to introduce new mine planning enhancements and enable the intelligent use of data. Key benefits expected from this initiative are gaining unification to a single platform, rapid parametric life-of-mine planning and sequencing, and real-time monitoring of performance versus plan with fast to response to interruptions and better decision making. MineRP is making good progress in introducing this unique platform that marries the science of mining to the business of mining through the industry with good industry interest and uptake. Six major International mining companies have already signed on to this new software platform, and the company is in advanced discussions with at least another 12 other companies currently. Based on this rapid market penetration, we expect significant revenue growth beginning in 2019.So in summary, the strong 2018 results reflect the exceptional progress our team has made to improve the performance of our operations and advance our growth projects. 2018 was a year in which we demonstrated the potential for Tsumeb to contribute to the free cash flow of our business with further upside possible by increasing throughput further and reducing cost, which will be the focus for 2019 and beyond.In 2019, with our significant near-term growth and free cash flow beginning this quarter from our Krumovgrad project, adding to our strong earnings and free cash flow Chelopech, we represent a real growth and value investment opportunity for investors.Thank you. I will now turn the call over to Hume, who will review the financial results and the 2019 guidance, following which we will open the floor for questions.

[Hume D. Kyle, Executive VP & CFO]

Thanks, Rick. As Rick noted, 2018 was a good year, both operationally and financially with DPM reporting adjusted net earnings of $0.16 per share, up from $0.09 per share in 2017. And adjusted EBITDA of $100 million up from $92 million in 2017.These increases reflected record operating financial results from Tsumeb and continued strong performance from Chelopech, partially offset by weaker sales growth from MineRP and were primarily driven by the following factors: increased complex concentrate smelted, higher realized copper prices and lower TCs, partially offset by lower volumes of payable gold and concentrate sold due primarily to the timing in copper concentrate deliveries that resulted in an increase in inventory in 2018 compared to an inventory drawdown in 2017. As well as lower grades and lower third-party toll rates at Tsumeb and a weaker U.S. dollar.Relative to our annual guidance, gold production of 201 ounces exceeded our original guidance, while payable gold sold of 164,000 ounces was at the high end of our range.Copper production of 37 million pounds. Copper sold 34 million pounds. And complex concentrate smelted of 232,000 tonnes were all in line with our guidance or in the upper end of the original guidance that we issued. For the fourth quarter of 2018, we reported an adjusted net loss of $0.02 per share compared to an adjusted earnings of $0.02 per share in 2017. And adjusted EBITDA of $13 million compared to $22 million in 2017. These decreases were largely in line with our fourth quarter forecasts and our annual guidance and were driven entirely by lower copper concentrate deliveries. As a result of there being 2 copper concentrate deliveries in the fourth quarter of 2018 as planned, compared with 3 copper concentrate deliveries in the corresponding period in 2017. From a cash flow perspective, funds from operations during the fourth quarter and 12 months of 2018 were $6 million and $87 million, respectively, compared to $20 million and $90 million in 2017. Free cash flow during the fourth quarter of 2018 was negative $4 million compared to $15 million in 2017. And for the year, it was $54 million and compared with $46 million in 2017. These changes were driven primarily by the same factors affecting adjusted EBITDA as well as higher 2018 sustaining capital expenditures and lower 2018 debt service obligations.From a cost perspective, our cash cost per tonne of ore processed was $39 in the fourth quarter, up 7% from the 2017 due primarily to higher labor rates and the timing of maintenance activities. Cash cost per tonne for the year was $36, up 6% from 2017, due primarily to a stronger euro and higher labor and electricity rates. All-in sustaining cost per ounce was $864 in the fourth quarter, up $62 from 2017 due primarily to lower gold grades and lower by-product credits as a result of lower volumes of copper sold partially offset by lower treatment charges.All-in sustaining costs for the year was $659, down $70 from 2017 due primarily to higher by-product credits and higher realized copper prices, lower treatment charges and lower cash outlays for sustaining capital expenditures, partially offset by lower gold grades in concentrate sold.At Tsumeb, our cash cost per tonne in the fourth quarter was $413 and for the year it was $445, up 2% quarter-over-quarter and down 3% relative to 2017. Year-over-year, the decrease was primarily driven by higher throughput and Tsumeb's cost reduction program, partially offset by higher labor and electricity rates and a stronger ZAR.From a capital expenditure standpoint, sustaining capital expenditures and growth capital expenditures in the fourth quarter were $10 million and $14 million respectively for an aggregate spend of $24 million down from $29 million in 2017.Sustaining capital expenditures and growth capital expenditures for 2018 -- for 2017 -- $27 million and $80 million respectively, for an aggregate spend of $107 million, up from $96 million in 2017 due primarily to the Krumovgrad construction activities.Relative to 2018 guidance, sustaining growth capital -- CapEx came in below the original guidance that we issued, principally due to the timing of expenditures related to the Krumovgrad mine construction and Chelopech's TMF raise. At December 31, our cash resources stood at $255 million, including $238 million under our revolving credit facility and $17 million of cash. As well as 10.5% interest and Sabina valued at approximately $30 million. From a risk management perspective, we had also entered into a series of hedges in the second half of 2018 to reduce Tsumeb's exposure to foreign currency movements and walk in a rate that supports free cash flow generation. At December 31, we had hedged approximately 83% of Tsumeb's 2019 Namibian operating exposures -- operating costs using a 0 cost option structure that provided for on average, a minimum and maximum exchange rate of 14 and 15.46.For 2019, DPM will continue to focus on increasing the profitability of its business and optimizing its assets including delivering the first goal at Krumovgrad in the first quarter. This is all set out in material release yesterday, including our 2019 operational and cost guidance which I'll touch on now. For 2019, mine production at Chelopech is expected to be between 2.1 million and 2.2 million tonnes, consistent with 2018 and reflect annual production being limited at 2.2 million tonnes per year and an increase in mineral reserves. The Krumovgrad mine production is expected to be between 440,000 and 590,000 tonnes, reflecting 2019 as the start-up year for the mine. Gold production is expected to increase by as much as 30% based on the range of 210,000 and 262,000 ounces, reflecting 55,000 to 75,000 ounces coming from Krumovgrad, which is expected to achieve first -- achieve commercial production in the second quarter as well as lower Chelopech gold grades, which are in line with the public grades contained in Chelopec's 43-101.Payable gold sold is expected to be between a 191,000 and 237,000 ounces. Copper production is expected to be between 33 million and 39 million pounds with copper sold expected to be between 32 million and 37 million pounds largely in line with 2018. At Tsumeb, throughput is expected to be between 225,000 and 250,000 tonnes representing an increase of up to 8% over 2018. From a cost perspective, our all-in sustaining costs of gold is expected to be between $675 and $820, compared with $659 in 2018, due primarily to lower grades at Chelopech and higher sustaining capital expenditures, partially offset by the low-cost gold coming from Krumovgrad. Cash cost per tonne of complex concentrate smelted, net of by-product credit is expected to be $380 and $450 compared with $445 in 2018, due primarily to higher forecast throughput and a weaker ZAR partially offset by higher labor on electricity rates.On a capital expenditure front, sustaining capital expenditures for 2019 are expected to be between $38 million and $46 million, up from $27 million in 2018. This increase is due primarily to increased spending at Chelopech due to the rise of its tilling management facility to extend the life of the facility. The start-up of Krumovgrad and ongoing capital cost associated with the tillings management facility and several corporate digital initiatives.Growth expenditures for 2018 are expected to be between $29 million and $34 million of which $25 million to $29 million relates to the capital associated with completing the Krumovgrad project, which we expect to come in between the $164 million and $168 million guidance that we had previously issued. The balance of approximately $45 million relates to resource development, drilling, and margin-improvement projects at Chelopech. Exploration for 2019 is expected to be between $12 million and $14 million compared with $12 million in 2018 and will be directed at drilling activity at Chelopech, Krumovgrad and the Timok Gold Project, metallurgical test work for Surnak prospect as well as greenfield projects in Bulgaria, Serbia, and the Malartic project in Québec.Based on this guidance and current market prices, we would expect to exit 2019 with no debt and growing cash position. In closing, our first gold production from Krumovgrad expected in the first quarter of 2019, and the achievement in commercial production expected in the second quarter of 2019 will mark the beginning of significantly higher gold production as well as free cash flow, which we firmly believe will continue to support further increases in our share price and provide the opportunity to prudently invest our free cash flow into high-return growth opportunities. And we'll return it to our shareholders based on a disciplined approach to capital allocation.With that, I'll turn the call back over to the operator.

[Operator]

[Operator Instructions] And our first question comes from Cosmos Chiu with CIBC.

[Cosmos Chiu]

Rick and Hume. My first question's on Tsumeb, back at -- on the Q3 conference call, Hume, you were able to tell us that in Q3, Tsumeb generated over $12 million in free cash flow. I'm just wondering if you can give us the same number for Q4. Clearly, it's likely lower than what happened last quarter. But that will give us a good sense as well. And then on top of that, if you can give us some kind of guidance in terms of what we should be expecting, in terms of free cash flow for 2019, from Tsumeb?

[Hume D. Kyle, Executive VP & CFO]

Yes. So -- like we don't give guidance on a quarter-over-quarter basis. And I think on the Q3 call, what we had said is, you shouldn't expect Q3 EBITDA generation at Tsumeb, to be reflected by what would be sustainable on a go forward basis. And what we said is on an overall basis, what we would expect is Tsumeb should be able to generate somewhere in the mid-to-low 20s of EBITDA. And we expected that it's sustaining CapEx would be somewhere in the $15 million, give or take. And so for a year, both for 2018 and for 2019, that's what we're guiding to. We had indicated that 20 -- Q3 2018, in terms of that free cash flow generation was a little bit of an anomaly. But not something that anybody should be forecasting going forward.

[Cosmos Chiu]

For sure. So those numbers that Hume -- those will be for the full year, so your kind of $20 million EBITDA, and that's for the full year. And the $15 million sort of sustaining CapEx, that's for the full year as well?

[Hume D. Kyle, Executive VP & CFO]

Yes. And I believe that's what we have said to people that are like on a go forward basis, we believe somewhere in the $20 million -- and even the high 20s could be possible and around $15 million of sustaining CapEx. Now I recognize that 2018 and 2019 are -- is a little bit higher than that. And that's in terms of the CapEx and that's really just to catch up on some projects that we had backlogged in our sustaining capital of pipeline backlog.

[Cosmos Chiu]

Of course. Maybe sticking with Tsumeb at this point in time, I know there's plans to switch from a 18 months of maintenance cycle to 24 months. Maybe more a question for David here. But there is going to be a shutdown -- or the maintenance shutdown is going to -- the current 18-month cycle is going to end in Q4 2019. At that point in time, are you ready to switch over to a 24 month maintenance cycle?

[David Rae, Executive VP & COO]

So at this point, the difference between the old cycle which was around 6 to 9 months and the current cycle of 18 and the envisaged to move to 24 months. The big difference there is around stability of operation of the furnace. There is not a change in the engineering, the furnace, there's not a change in the refractor design, it's purely down to stability and control. And this point, information is telling us that 18 months is definitely possible. And what we're doing is continuing to focus on those areas of continuity, which will allow us to take that next step. At this point, we feel confident we can do that in the next cycle or so. From Q4 this year, basically, we will skip the year in 2020 on maintenance and carry that too. We've said that -- let's not just say that the Ausmelt continues right the way through without any maintenance. There are intervals where we will need to, for instance, replace the furnace with -- so at this point in time, I'll say, every 7 months and takes about 6 to 7 days. And in fact, we've just replaced the furnace room at the start of this year.

[Cosmos Chiu]

Great. Maybe switching gears a little bit and taking a step back here in terms of the guidance that you've put out there for 2019. You've given us a range, 210,000 ounces to 262,000 ounces, including 53,000 to 72,000 for Krumovgrad. I'm just wondering what can drive you higher and reach that upper end for both Krumovgrad and also Chelopech? Is it throughput? Or is it grade? Or is it recovery? Or is a combination of each?

[Richard Allen Howes, President, CEO & Director]

Yes, it's Rick here, Cosmos. Yes, I would say mainly from a Krumovgrad perspective, it's obviously a ramp up year. So how well that ramp up go will be a factor in that to get to higher end. If the ramp up goes as planned I think we'll be in the higher end. We do have some flexibility on grade I think with Krumovgrad this year, just because we built a large stockpile in front of the mill. And we have different grades in that stockpile which we can blend in. So I think early on, it really -- the real indicator would be how well we come into that ramp up phase, how well we were able to ramp up, how quickly, et cetera, how quickly we get to a stabilized mill performance, those will be the biggest factors. Chelopech, as you know, it's been very consistent, reliable and historically, maybe I would say on the upside normally of our guidance range. So I think that trend is likely to continue. So if that happens again this year. We're on the upside of the guidance range, where Chelopech, that would certainly put us on the upper end of the total guidance range. So that's another factor.

[Cosmos Chiu]

Thanks, Rick for talking about the stockpile. And that was my next question as well. You talk about in the MD&A flexibility during the ramp up of Krumovgrad, given the various grades in terms of the current stockpiles. I'm just wondering how much stockpile have you built up so far ahead of mill and ahead of the ramp up or the commissioning? And what kind of grade is that stockpile?

[Richard Allen Howes, President, CEO & Director]

Yes. We've got about 156,000 tonnes at the end of this fourth quarter stockpile. And it's made up of 4 stockpiles. There's super high grade, high grade, medium-grade and low grade. So that -- the range of that is super high grade being north of 10 grams. So that's really the key one that allows us to drive that grade in the feed up quite a bit.

[Cosmos Chiu]

And maybe one last question for me. This is more of an accounting question once again. You came in adjusted earnings for Q4 at negative $0.02. The Street was at positive $0.03. Certainly, the copper concentrate shipments or lack thereof in Q3 -- or Q4 didn't help and contributed to the, let's call it like the lower earnings. But the other part to me is -- at least convert to my model would be the cost related to MineRP. Could you help me in terms of -- I know it's $11 million that was included in cost of sales back in 2018. I'm just trying to better model for 2019 in terms of what's the cost that's going through cost of sales, what's the cost that's going through G&A? Any kind of you other associated costs as well?

[Hume D. Kyle, Executive VP & CFO]

You want us to provide you like going forward some guidance around the MineRP process sale?

[Cosmos Chiu]

Yes, that would help. Or you can just, is it going to go up? Is it going to go down? Understanding that you might not be able to give us that kind of detail.

[Hume D. Kyle, Executive VP & CFO]

Well, we haven't really provided any guidance on MineRP, simply because: a, it's not material; and b, there probably is a reasonable range around the revenue growth that it could hit for the year. On a bottom-line basis, I wouldn't expect it to generate, probably in 2019, any more than call it $5 million of EBITDA would be a realistic bottom-line number to project. In terms of the cost, the sales, maybe I could come back to you with that and give you a range for your model.

[Cosmos Chiu]

Yes. Of course, that's great. And maybe one follow up, just an accounting question here, Hume. In terms of Krumovgrad, the production is expected in Q1. But I'm just wondering if there's a lag between production and shipment? And eventual recording of revenue. When should we start recording modeling revenue from Krumovgrad? And then the other part is, what's your criteria for commercial production in Q2?

[Hume D. Kyle, Executive VP & CFO]

Well, first production, we're expecting at the end of the quarter. That -- in some time in Q2, we'll reach commercial production. And it won't be until we reach in commercial production that we'll actually start recognizing revenue. So any material that we sell before that time will just be credited towards the capital cost of the project. At this stage, in terms of the guidance that we've issued, it's expecting that we'll hit that somewhere in the middle I would say of Q2. And that's what we're sort of guiding to in terms of commercial production. But there could be some slippage around that. And the commercial production criteria is basically getting to design capacity and a targeted level of recoveries.

[Operator]

And our next question comes from Trevor Turnbull with Scotiabank.

[Trevor Turnbull, Analyst]

Actually a bunch of my questions are probably just follow ups to what Cosmos was asking. With respect to Krumovgrad, you've talked about commercial production. And -- but I might've missed it, in terms of the lag between actually getting that -- your commercial concentrate production and actually starting to see the revenues come back. If you have commercial production in Q2, would we expect to see revenues recognized as early as Q2? Or is that really most of the revenue going to be in Q3 and Q4 for next year -- for this year?

[Hume D. Kyle, Executive VP & CFO]

Yes, I would expect that most of the revenue, for sure, would be Q3 and Q4. It's possible that some revenue will come in Q2. But I wouldn't put much in the model in terms it hitting the revenue line in Q2.

[Trevor Turnbull, Analyst]

Okay. And then with respect to the guidance figure you provided, that's guidance for a commercial production? Or is that just total production inclusive of the precommercial?

[Hume D. Kyle, Executive VP & CFO]

Total production.

[Trevor Turnbull, Analyst]

Okay. And then with respect to Chelopech, just on the cost per tonne. And I can't remember if you touched on this, Rick. But certainly Q3 cost per tonne at Chelopech was really good. And then quite a bit higher this past quarter. And then we're looking at the guidance for this year, it seems a bit more -- it's a bit closer to what happened in Q4, bit higher than say you had in Q3. Kind of what's driving those higher cost per tonne at Chelopech?

[David Rae, Executive VP & COO]

So in Chelopech, in Q4, keep in mind that the tonnage is limited by an agreed maximum that we can produce. So what happens is we do good sales, it's not a very large amount but it is a difference between Q4 and Q3. There's obviously, upside pressures to cost and we are packed in terms of tonnage. So we're grateful, as we are susceptible to that and that you're asking dollars per tonne. So we obviously have labor increases. We've got other cost increases. The mitigations to those -- we're doing some things which, I don't know that we fully factored in yet around the operating center, around drilling and blasting, in particular where there is potential to make some material differences to those costs. So as you've seen in the last number of years, we've been very successful in capping and reducing those costs. We are continuing to do that. We're just recognizing that there are some upside pressures in 2019. So our efforts are, obviously, to reduce that and to actually hold these numbers back towards the yearly average rather than Q4.

[Trevor Turnbull, Analyst]

And then my last question I guess, maybe circling back one more time on the MineRP. I realized Hume, you did give Cosmos a bit of guidance with respect to EBITDA. When it -- I guess it isn't material to you guys but at the same time as was noted, it does contribute I think to the company not always hitting the consensus guidance. And because of that, it certainly can be a drag on your earnings. Do you have a sense of when these contracts that are being taken up -- when MineRP might turn profitable? Is that a realistic expectation for this year? Or is that still a bit further out?

[Richard Allen Howes, President, CEO & Director]

Yes. It's Rick here, Trevor. This is the year that the penetration of this new platform we expect to start happening and signs are already there, new contracts or new agreements with, and I mentioned 6 companies. So these are all fairly recent, they have a bit of a lag timing to -- from signing these deals to actually getting the revenue growth that comes from those deals there. They tend to be fairly large deals in terms of dollars. So conservatively, if just the 6 new customers or 6 customers that are signed onto the new platform, revenues come in we'd still expect that the number that Hume mentioned to be $3 million, $4 million, $5 million EBITDA in 2019. So that's just on sort of the existing contractual agreements with the customers. But the upside to that is, is that they have even more new customers this year. Again, some lag effect to the signing date of the deals to receiving revenues, but if you just look at the big picture, they seem to be on a fast track to revenue growth now. The first few years, I've been marketing and trying to get attention paid to their product and now they seem to have gotten that and now they think the benefits are starting to come in. So it's not material today, but we could argue that if they keep on this trend in '19 and beyond and the growth is fast, it'll [indiscernible] an EBITDA contribution to our bottom line.

[Operator]

And our next question comes from Don MacLean with Paradigm Capital.

[Don MacLean, Senior Analyst of Gold]

I'm just following up from Cosmos and Trevor's comments on the Krumovgrad. I know it's really early days, Rick, but can you give us any color as to how the grade and the tonnes coming out of the pit are reconciling to the reserve model?

[Richard Allen Howes, President, CEO & Director]

I'll let David answer that, he's closer to it a little bit.

[David Rae, Executive VP & COO]

So I think what the answer was not given us to what the grade was in the overall stockpile, we refer to just the high grade. I think we're at the numbers that we expected. Just one thing to keep in mind is that from a point of view of what we can expect going forward on reconciliation, we need to run material through the mill first in order to fully understand that. So at the moment everything is based on drilling and core soil sampling and this type of thing. So to this point, everything looks fine. But in terms of a reconciliation, it's only going to be after we've run the mill. And we've been able to confirm the information on a mill processed point of view that will be more precise. So at this point, no evidence of any concerns.

[Don MacLean, Senior Analyst of Gold]

Great. And then so the 92% versus 99%, what is it that's left? And what was lagging? And what's left to be done?

[John Lindsay, Senior Vice President of Projects]

Yes. It's John Lindsay here. Basically, what's left to be done, I think as Rick said, it's mainly sort of electrical instrumentation, as it always is on these projects, electrical instrumentation comes at the end so that works ongoing. And then we're sort of going -- starting to go through the commissioning process. A lot of the plant has been cold commissioned. We should be able to start putting some material through the grinding circuit in the next week or so. And once we get that bedding done then sort of second half -- first half of March, we'll bring in the flotation circuit and that's when we'll start to generate some concentrate. So the short answer to your question, it's the old story. It's electrical and instrumentation work that is ongoing.

[Don MacLean, Senior Analyst of Gold]

Right. And -- but you have a relatively quick ramp up in Q2. Can you give us a little color as to where you see the risks and maybe why it's -- that's a good quick ramp up considering we're 92% at the end of 2018?

[David Rae, Executive VP & COO]

Yes, I think at this point, we're just starting up the major equipment. So it's going to be down to -- if there's anything out of the ordinary around the milling and floatation circuit. Often, you can have some very practical issues that you need to contend with. As Rick has mentioned and what was alluded to, is we did have the opportunity to ramp quickly if everything runs well into higher grades and see those through quickly. Alternatively, we can continue to run lower grades, while we're resolving any situations and then run the higher grades like -- once we release those constraints. So I would say primarily it's around the mill flotation and probably the combined storage facility, the [ wedge ] storage facility. We are not anticipating any particular problems, so if they're likely to anywhere, it's in those areas. The mining, we've been operating now for 7 months. So we have no concerns there.

[Don MacLean, Senior Analyst of Gold]

Right. And just on the mine costs, how are they compared to what you would've expected sort of on a productivity basis?

[Richard Allen Howes, President, CEO & Director]

Well, I think -- as you'll understand, we've started up with -- basically, set to start up the plant later than expected. So the consequence, we haven't had a clean run on the mining to really see what's going on. So at this point, everything looks to be fine in terms of what we anticipated. We're not recognizing that there's anything that's missed in terms of our cost estimates. Productivity is great control these type of things have all shown to be good. And we've brought in some new technologies we haven't had originally envisioned to help take opportunity on things like great optimization. So to this point, no particular issues on cost. So I think our guidance, we're confident in that at this point.

[Operator]

[Operator Instructions] And it is at this time I'm not showing any further questions on the phone line. And I would now like to turn the call back to Rick Howes for any further remarks.

[Richard Allen Howes, President, CEO & Director]

Okay, thank you very much. And thank you for joining us today on our conference call. We wish everybody a good rest of the week. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may now disconnect. Everyone, have a great day.