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Edited Transcript of TMR.TO earnings conference call or presentation 1-Nov-19 2:00pm GMT

Q3 2019 TMAC Resources Inc Earnings Call

TORONTO Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of TMAC Resources Inc earnings conference call or presentation Friday, November 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David King

TMAC Resources Inc. - VP of Exploration & Geoscience

* Gilbert John Frederick Lawson

TMAC Resources Inc. - COO

* Jason R. Neal

TMAC Resources Inc. - President, CEO & Director

* Lisa Wilkinson

TMAC Resources Inc. - Director of IR & Strategic Development

* Marthinus Wilhelmus Theunissen

TMAC Resources Inc. - CFO

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Conference Call Participants

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* Anita Soni

CIBC Capital Markets, Research Division - Analyst

* Gabriel E. Gonzalez

Echelon Wealth Partners Inc., Research Division - Analyst

* James Huntington

Scotiabank Global Banking and Markets, Research Division - Associate

* Thomas Gallo

Canaccord Genuity Corp., Research Division - Associate Analyst

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Presentation

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Operator [1]

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Welcome to the TMAC Resources Inc. Third Quarter 2019 Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Lisa Wilkinson, Director, Investor Relations and Strategic Planning. Please go ahead, Ms. Wilkinson.

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Lisa Wilkinson, TMAC Resources Inc. - Director of IR & Strategic Development [2]

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Thank you, operator, and good morning, everyone. On behalf of my colleagues, I'd like to welcome everyone to our third quarter 2019 conference call.

I'd like to remind listeners that on this call, we will be making forward-looking statements. We refer you to our cautionary statements in the news release issued on October 31, after the market closed, and in the MD&A for the quarter filed on SEDAR and posted to our website. All forward-looking statements on this call are qualified by these cautionary statements. Also, please note that all dollar amounts mentioned in this conference call are in Canadian dollars, unless otherwise stated.

On the call today, we have Jason Neal, President and Chief Executive Officer; Gil Lawson, Chief Operating Officer; and Maarten Theunissen, Chief Financial Officer. Following the prepared remarks, they will be available to answer questions. This conference call is being webcast and will be available for replay on our website.

I'll now turn the call over to Jason.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [3]

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Thank you, Lisa, and good morning, everyone. On this call, we're going to cover quarterly operations and financials as well as provide an update on the status of our PFS that will be released in the first quarter of 2020. I will provide an overview of my introductory comments and then hand over to Gil and Martin for elaboration.

In the third quarter of 2019, we reported the third consecutive quarter of earnings with net profit of $0.07 per share and revenue of $72.8 million with an average realized gold price of USD 1,469 per ounce. EBITDA improved to $35.1 million from $26.2 million in the previous quarter, and cash flow from operations before working capital changes improved to $30.1 million from $19.9 million. Quarter-end cash balance was $76.8 million, which included $47.4 million of unrestricted cash. Our cash liquidity has never been stronger since we began operations.

Third quarter plant recoveries increased from 80% to 82%. However, quarterly production did not improve as plant feed was lower. Quarter-over-quarter cash costs were unchanged at USD 729 per ounce. And all-in sustaining costs increased to USD 1,155 per ounce from USD 1,081 per ounce in the second quarter, up USD 74, attributed to an USD 89 increase in sustaining capital per ounce to USD 343 from USD 254 related largely to the annual sealift capital items. Q3 should always be the highest capital quarter because of the sealift.

Gil will provide more color on operations, but I have a few comments to highlight our progress. We have seen operational improvements in the plant quarter-over-quarter. The availability of the gravity concentrators improved considerably as we progressed through the quarter. As you would recall, this is a significant issue as we had ended the previous quarter with poor availability. The scavenger columns are being installed and commissioned during the fourth quarter to improve current resin absorption capacity. This is a significant step in improving plant performance and reducing the volatility of recoveries.

The mining rate for the third quarter was significantly higher at 1,450 tonnes per day, which does not include the benefit of surface mining at Madrid North Naartok East crown pillar. We have set a new quarterly record for development rates at 2,140 meters, 20% higher than the rate in the first half of the year. We are still recovering from decisions in 2017 to suspend underground mine development. But the 2 things that will help us reestablish a comfortable gap between the timing of development and production are increased underground development rates and the opening of the second underground mine at Madrid, which we will also address today. So these improvements in development rates are very important to reducing operational volatility.

The mine grade in the third quarter was lower at 9.2 grams per tonne, given that we have now completed mining of the higher grade Doris Hinge zone, that was the largest tonnage contributor, and the largest tonnage contributor now is the Doris Connector zone. First production tonnage from Doris BTD Extension will, however, be a positive since going forward. As well as we will discuss later, there will be some influence from the Doris BTD East Limb in the fourth quarter, but this area will be mined out in the first quarter of 2020.

Last week, we announced that construction has started on the Madrid North underground portal. The portal and underground development is targeting the Naartok West zone, enabling access to the first production stopes in late 2020. Breaking ground on the Madrid underground portal is an important milestone that will provide both near-term operational flexibility and enable medium-term potential growth alternatives at Hope Bay.

In the release of our operating results on October 15, we spoke to the need to produce 45,000 ounces in the fourth quarter to meet the full year guidance. At that time -- at the time of that release, we believe this is within our capability, but also went through the areas where we need delivery to achieve those targets. We are now, however, forecasting 25,000 to 35,000 ounces significantly as a result of recent rescheduling of the BTD East Limb production to maintain and reestablish a safe-working environment. While the Doris Mine is characterized almost uniformly by outstanding ground conditions, the Doris BTD East Limb is unique as it is in contact with the underside of the diabase dyke, and we have had to undertake significant rehabilitation work after initial development. The highest grade portions of the BTD East Limb are at the end of the sequence and are now scheduled to be processed in the first quarter of 2020. As with the last stopes of the Doris Hinge zone, which was mined and processed earlier this year. The highest grade areas of the BTD East Limb also need to be blended for processing over a reasonable period and cannot be rushed through the plant. With far less high-grade BTD East Limb material available in the fourth quarter, we'll process lower grade stockpile and/or more Naartok East crown pillar material. We take our guidance very seriously. So I'm very disappointed to not be able to meet the initial annual production guidance. Practically, how we manage our businesses is maximizing cash flow between seamless, so the business value is not impaired by an ounce produced in January rather than December, for example. But obviously, I would prefer all other things being equal to produce those ounces in December, but we cannot deviate from the prominence of safety in the mine or risks sterilizing any of the best or in the Doris mine by resequencing to try and get more ounces in the fourth quarter.

I'm going to hand the call to Gil to cover operations, followed by Martin, who will discuss the financial results and the revised 2019 guidance, before concluding with a brief discussion, which will include progress on our PFS and then Q&A.

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [4]

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Thank you, Jason, and good morning to all. I'll start with an update on plant performance this quarter. In the third quarter of 2019, the plant processed an average of 1,710 tonnes per day at a grade of 8.8 grams per tonne, and achieved an average recovery of 82%, which resulted in production of 36,290 ounces.

Installation and commissioning of the surge bins between the crushing and grinding circuits were completed during the third quarter. The plant processed an average of 1,860 tonnes per day in August and September combined, including an 11-day period that averaged nearly 2,200 tonnes per day.

The availability of the gravity concentrators improved over the third quarter, with utilization ranging from 79% to 94% in September for the individual concentrator units. Poor resin performance led to an increase in the solution tails due to the resins not being able to sufficiently absorb all the gold from solution. The scavenger columns are being installed and commissioned during the fourth quarter to improve on current resin absorption capacity.

Underground mine production in the third quarter of 2019 was 1,450 tonnes per day of ore at a grade of 9.2 grams per tonne, containing some 39,200 ounces of gold. This production includes 121,700 tonnes of ore at an average grade of 9.7 grams per tonne produced from longhole stoping and sill development. Sill development contributed a further 11,300 tonnes at a grade of 3.6 grams per tonne, which is considered to be incremental ore.

Mine development productivity improved to 23.2 meters per day during the third quarter of 2019 compared to 20.2 meters per day achieved during the second quarter and 18.4 meters per day achieved in the first quarter. Development is getting closer to achieving our daily productivity targets. Several productivity improvement programs have been initiated and further improvements to development rates are expected during this fourth quarter.

Production ore from the Doris BTD East Limb that was expected to be mined in the fourth quarter will now be split between the fourth quarter of 2019 and the first quarter of 2020, with the highest grade areas of the BTD East Limb now scheduled for the first quarter of 2020. The highest grade sections of the BTD East Limb ore is at the end of the mining sequence, similar to Doris Hinge ore mined in the first half of 2019. The BTD East Limb is right at the underside of the diabase dike and the mining sequence progressed towards the dike and changed the ground stress environment of the stope. The ground conditions deteriorated and this zone is now requiring significant rehabilitation work after initial development to make this a safe working environment.

The Doris BTD Extension now has ore development sills on 5 levels and a sixth recently commenced. Initial ore production from the longhole stopes is commencing in the fourth quarter of 2019. The Doris BTD zone is expected to be mined with a combination of longhole and drift-and-fill techniques, which is being defined through ore selling and definition drilling. Given the value of the high-grade ore here, we are balancing the objectives of ramping up tonnage quickly with efficiency and dilution control of a complex vein system.

First ore production from the Madrid Naartok East Crown pillar started in October 2019. Mining of the Crown pillar is estimated to produce 91,875 tonnes of ore at a grade of 6.3 grams per tonne in the first phase in 2019. The remainder will be mined in the first half of 2020. Plant feed from the Doris mine has been supplemented with the available stockpile material during the first 9 months of 2019 and will be supplemented further with material from the Naartok East Crown pillar mining during the fourth quarter.

Slide 7 has a summary of operating statistics for the quarter. This is the data I have just gone through with a comparison of that same detail over prior quarters. You can see that we demonstrated improvements in some of our operating metrics this quarter, and we remain focused on strengthening our performance going forward.

I'll now turn the call over to Maarten to touch on the financial results in the quarter.

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [5]

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Thank you, Gil, and good morning, everyone. Cash cost in the quarter was USD 729 per ounce sold, which is 12% lower than the third quarter of 2018, and in line with the second quarter of 2019. Our all-in sustaining costs increased to 5% to USD 1,155 per ounce sold during the third quarter, due to lower gold production sales resulting from lower grade process while processing more tonnes as well as the usual increase in sustaining capital in the third quarter related to the equipment for end of the sealift and sustaining capital projects incurred during the summer months.

As Jason discussed, with the change in the fourth quarter production range to 20,000 -- 25,000 to 35,000 ounces, full year production guidance is now estimated to be between 140,000 to 150,000 ounces, down from 160,000 ounces to 130,000 ounces previously. As a result, full year cash cost guidance is now USD 725 to USD 775 per ounce sold, up from previously USD 650 to USD 700 per ounce sold. And all-in sustaining cost count is now up USD 1,100 to USD 1,175 per ounce sold, up from USD 950 to USD 1,050 per ounce sold. The reduction in production guidance requires an adjustment to the cash cost and all-in sustaining cost guidance, as the same expenditures are expected to be incurred with fewer ounces produced.

In the second quarter, the Board approved the purchase of $4 million of equipment required to commence underground development at Madrid. The equipment was brought up on the sealift. However, the Board has not approved the commencement of the underground portal development at that time. Without committing to capital equipment for the sealift, we would not reasonably had the option to begin the portal until after the 2020 sealift. The Board approved the commencement of the poll in Q3, requiring additional $6 million of expenditure to be incurred in Q4. The additional expansion of capital was added to the 2019 capital guidance. As a result, the 2019 expansion capital guidance is now $42 million.

We sold 37,580 ounces during the quarter, with proceeds of $72.8 million at an average price of USD 1,469 per ounce. Gold sold decreased modestly from the second quarter, while revenue increased with higher margin due to higher gold prices. The net profit was $8.4 million or $0.07 per share on a basic and fully diluted basis. The accounting for the Maverix Metals Royalty Agreement included a net profit of $5.5 million on the side of the low interest.

Cash flow from operating activities before working capital changes of $30.1 million and adjusted EBITDA of $38 million for the quarter was higher than the previous quarter, mainly due to higher revenue from high gold prices. Cash flow from operating activities of $12 million was lower than the prior quarter due to the investment in consumable supplies and spare parts brought in with the annual sealift. Capital expenditures was $34.8 million and was high in the previous quarter due to equipment being brought into the Doris and Madrid and the sealift, and capital project activity increasing during the summer months.

We ended the third quarter of 2019 with a cash balance of $76.8 million, of which $47.4 million was unrestricted, an increase of $32.8 million from the second quarter of 2019. The restricted cash balance, which is restricted as it is posted as collateral for environmental rehabilitation obligation and future royalties to Inuit organization was $29.4 million at the end of September. During September, $6 million of the demand bonds were transferred to the insurance company that requires 50% collateral. The insurance company further reduced the collateral to 40%, resulting in the release of $1.6 million of the restricted cash balance. There is an opportunity to release additional funds as TMAC sites improve operational performance and an improved financial position by reducing the amount of collateral required for demand bonds.

I'll now turn the call back over to Jason.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [6]

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Thank you very much, Maarten. The first priority remains to build our cash flow margins, and the first pillar supporting that objective is, therefore, continued focus on operational improvements in the plant. Our targets are intact, but the pace of improvements have been much slower than expected. The initiation of the Madrid North underground portal is a very important milestone. The second underground mine will produce important operational flexibility. And as we approach targets that relate to revenue generation, throughput, recovery, grade, we have a greater ability to address unit cost performance.

Our investment in drilling has nearly doubled in 2019 to 60,000 meters, resource and reserve growth is essential to value creation potential at our company. Our exploration strategy in 2019 is a combination of BTD focused exploration at Doris, a targeted program at Madrid to make better near-term development decisions, regional exploration programs, including the results of our published -- that we had published near Doris, but after -- on various targets across the belt. And then Boston is revitalization of projects that many believe is the crown jewel for bay. We are very close to our first Boston results, and very excited to share that with you in the New Year.

Ultimately, we generate the best value for our shareholders through long-term investment and strategic planning across the belt. While we drive near-term improvements, we are with equal vigor looking for the future. We are now scheduling the release of the lease for the PFS concurrently with their updated year-end mineral reserves and resources. The PFS assumptions are an important input to the mineral resources and reserves statement and vice versa, so concurrent release is required. Therefore, we expect both disclosures to come in the first quarter of 2020. The purpose of the PFS is to define the potential for improved shareholder value through future expansion at Hope Bay. We've been evaluating 2 cases internally for increased processing rates in parallel to compare against the approach of our 2015 PFS. One of those approaches is focused on integrating an open pit with the underground plan, and the second is seeking to maximize underground mine production through greater concurrent rather than sequential mine development.

Our 2020 PFS will be based on the preferred single scenario. I'm looking -- really looking forward to the ability to be able to discuss this with our shareholders. It would be backwards to think that the replacement of the Gekko plant is driving that strategy. But when we review expanding our production, we are evaluating both plant expansion and building a new larger conventional processing plant.

Our main objective is to generate free cash flow and shareholder value through disciplined investment, risk assessment and operating flexibility and does not displace the primary focus we have now on improving current operations.

TMAC is in a unique position. We have an established Doris underground mine. We are beginning development of our second underground mine at Madrid, and we're improving the existing processing plant. Any brownfield expansion opportunity is an option, not a commitment. And therefore, has a very different value and risk dynamics than a greenfield project. The strength of being fully permitted for up to 6,000 tonnes per day of production across the Hope Bay belt versus the 2,000 tonnes per day at Doris, with substantial established infrastructure, 21 years of reserves currently, with extraordinary potential to expand the established deposit and find new ones. And of course, currently being in production makes the ambitions that we have more achievable than otherwise.

With that, I'll turn the call over to the operator for the question-and-answer session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes Tom Gallo with Canaccord Genuity.

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Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [2]

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I have 2 questions here. Firstly, can you please elaborate on what you call significant rehabilitation? And what exactly is involved there? And then maybe more importantly, sort of what happened to trigger that? And the second question, on Page 3, you talked a little bit about the BTD Extension and how definition drilling is taking longer than expected due to the complexity of the vein system. Can someone talk through the vein system and perhaps how it differs from the rest of the deposit?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [3]

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Okay. Gil here. Good morning, Tom. In terms of the rehabilitation now, we say it's significant. What we mean by significant is more of a time aspect. The standard ground control remediation is being applied for our screening and bolting with a bolting machine. So when we're talking about investment dollars, let's say this would be tens of thousands of dollars. But it's really a matter of time of having to go in, cut out the previous ground support, scale the ground to safety and then re-supporting it with standard ground control. So significant means time and related to our goal of achieving our guidance.

Now the dynamic of what caused the condition, I'll speak to that a little bit. I'll put my mining engineer side on here. So what we had with our stope mining sequence moving up towards a flat line diabase dike. And in creating that, as the stope mined up, we created a receiving pillar of the ores in the pillar, obviously. And what we ended up, I think, happening, we don't have a complete rock mechanics, back analysis done yet. But just from my experience, what I would say is that, we put the area into a zone of relaxation and the rock started falling apart and the previous ground support -- if the ground start unraveling around the previous ground support, making it unsafe to enter the stoping area. So that would be my assessment of what drove it.

And the one thing I'll make as a common kind of theme is, this particular event is really related to the geometry and the situation of this particular stope. This is the only area in our entire life of mine, where we're going to be mining up underneath a diabase dike, dike like this. So it's just unfortunate for us in terms of the timing of when this happened and trying to close off the year in a good fashion. So in general, if you look at our mine throughout -- if you go down to the DCM -- DCO areas, all through the Doris complex, the ground conditions are generally very good in the mine. And then going out towards the BTD Extension where we have new, really important abating system emerging, and I'll speak to that a little bit about the complexity. But the ground conditions out there are looking very good also. And there's no concerns. We do have -- now I'll leap more into the complexity of the veining. The dip -- the veins are flatter than what we see in the Doris mine, where, in general, we see veins that are either dead vertical or about 80-degree dip. And what we're seeing is a veining system that is much flatter in the 30 to 40-degree range, with M-folds happening and Z-folds; that are more of a geological terms. But we see a lot of folding -- minor folding within the vein system. And within a broader package, let's say, 30 to 40 degrees dip. So it's also characterized by vertical faults that offset the vein several meters that make it difficult to follow, because you have to interpret where the fall circuit. So the veins are complex in their shape. And -- but however, the matrix that we're mining within is extremely competent ground. So I'm not expecting or forecasting at all if there's any big change in the ground conditions that we're undertaking as we chase out these new veins. I'm expecting this to be a singular story in our history at Doris.

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David King, TMAC Resources Inc. - VP of Exploration & Geoscience [4]

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So the 1 thing I would add to that is important qualification from Gil was in our current life of mine. But we have 2 exploration areas, which you could see on the cross section. The BTD Connector and the BTD Central, which are -- if you have the picture in your mind, they're both below the dike, but below current reserves in the Connector and Central. We're going to be exploring those in 2020 to get the exploration platform set up. If those areas enter our mine plan in '20 -- I don't know, maybe 2023, I am just speculating as to what is their exploration areas, please recognize. We could have this situation again in the future. And we'd be better prepared for it, and we would support the ground in a different way, so that we have less unexpected impact from it.

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [5]

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Yes. If we see this condition in the future, we would change to more of a tension ground support, knowing that we would trigger a zone of relaxation. So we've chalked this up in the lesson learned column, and we would react appropriately in the future if exploration leads us towards the dike again.

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Operator [6]

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The next question is from Anita Soni with CIBC.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [7]

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So first off, in terms of the sealift, how much is there remaining to be spent this year on that?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [8]

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All of the expenditures have been recorded in the quarter, and most of the payments have been made as well. So it's been done in Q3.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [9]

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All right. And what is the total amount for that, for the sealift alone?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [10]

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We've spent about $40 million on the sealift this year for materials and supplies and shipping costs.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [11]

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And that's exclusive of the diesel, which was done with the Macquarie transaction again.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [12]

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And then moving on to the grades. I'm kind of a little confused as to what's going on for next year at this stage, given the grade up and down the tonnage as well. So some of this material, higher grade into next year, so is that safe to assume that we can expect higher grade next year than we had previously anticipated?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [13]

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So let me start off with this, and then Gil can address it. So the areas that we're talking about moving from Q4 to Q1 is a period that is going to get mined out in Q1. So it was -- we had almost the entire day of it expected to be mined in Q4, and now it's going to be split between the 2. But it's a zone that's going to be done in Q1. And it is in the context of the mine. It's a very, very high-grade zone. So it will be an influencer in Q1, but not beyond that. The lower grade areas that will be in the plan, and lower grade in the context of what we are at Doris Connector. And then at the end of the year, probably, we've got some Doris Central that will be coming in. The Naartok East crown pillar material, which is been mined now, and some of that goes into the plant this quarter will also be processed through at least 3 and maybe 4 quarters of next year. And that material, again, is I think we have about a 4.8-gram per tonne, last time we talked about a reserve type number there. And it's cheaper to mine, and it has the economic equivalent of something that's materially higher if we were underground. But that material will be in the plant throughout the year.

And then the high-grade area, in addition to coming from Q1 BTD East Limb, the high-grade area for the year is the BTD Extension. And what we're going through right now, and haven't provided guidance, but certainly will on what we expect for next year, we'll talk in more detail about it. We're going through the planning right now as to the tonnes that we'll take out of the BTD Extension, what the rates will be. And what we're talking about in the quarter -- this quarterly release is we're talking about the complexity of the veins, which doesn't have a negative impact when thinking about ground condition risks or whatever. But also means that as we're in a new zone, we're being careful to develop it in a way that we get the most productive ounces out of there. We are being a mix of longhole and drift-and-fill there. So the tonnage on the longhole should be pretty good. We're also -- we also have a strategy in having a tighter selling in there to make sure we have an ability to control dilution, given how extraordinary the grade is, make sure that we have the appropriate controls there. So we're not in a position right now to guide to grade. We're trying to outline how we're thinking better. And when we put our guidance out for 2020, which will come early in the New Year. I don't expect we are going to say this is our expected grade, et cetera, but we're going to -- we will talk through where the grade comes from and potential tonnage, so that we can give you the best understanding of that.

The other thing, obviously, is the updated reserve and resource statement that comes out in Q1 will be updated to include some of the exploration success that we've had throughout the year in the BTD Extension. So I know that isn't fully answering the question as much as it is exposing into the thinking of how we're coming up with the answer. And obviously, we're in our budget season over the next month or so.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [14]

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Okay. Could you just remind me what the grades of the Connector and the Central are as an average?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [15]

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They're closer to reserve grade averages.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [16]

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Meaning I guess, 7 grams per tonne material for Doris? Is that...

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David King, TMAC Resources Inc. - VP of Exploration & Geoscience [17]

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Yes, in the 7s.

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [18]

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That sort of number. And then again, throughout the mine, we have grade variability. So like when we're in those areas, we find stopes that are materially higher than that, but then we also have some lower grade stopes. And one of the things you find in our disclosure is that we have something that we define as incremental or so. Often, we're developing in ore, but it's below cutoff rate and have to come to surface regardless. And so that material gets included in our mineral estimates. And in that, we have a stockpile of that, that averages like 3.5 grams. That's our blending material that we use. It wouldn't come to surface if it didn't -- if it wasn't part of development.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [19]

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Okay. Then the last question from me, I guess, is the PFS that's into Q1 now in 2020. I think you mentioned that one of the options was building conventional plant given that you're going to have release the PFS in, I guess, 3 months or so. Do you have any parameters around how much that would cost?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [20]

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Not yet anything that we're ready to talk about. And we have internal numbers because we went through a process where we're doing sort of scoping level numbers internally to properly direct our resources because we didn't want to take all the way to PFS more than one full scenario. So I have some internal ideas, but nothing we're quite ready to talk about. We -- say, we're looking at whether you'd expand the plant or put a new plant. I would tell you, there's a bias in the -- probably what we would guess that a new plant infrastructure were going at higher tonnage, and the higher tonnage is probably at a minimum 2x what we're at now. There's been an advantage to that in lower operating costs and just having a stronger foundation for it. I mean, one of the things that we say about the plant that's established now is, I don't think anybody would disagree that it's been a weak foundation for our company. And if we expect to be here for multi decades, you have to think about what foundation you build upon.

The other thing that's really important I probably should have put it in the script directly, is just to emphasize for everybody that we are not going to build anything or propose to build anything off of a PFS. So the operation that we have now was built on the 2015 PFS. There is additional work that we will do and take things to a higher level of engineering, probably some more metallurgical work. And ultimately, it's a feasibility study that we intend to get to. So -- the PFS could be an important -- maybe a very important checking point with people.

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Operator [21]

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The next question comes from James Huntington with Scotiabank.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [22]

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Just 1 -- a couple from me. Firstly, just in this slim zone, what's your sort of -- what's your current percentage rough completion of the entire zone? Is this, like -- this troubled area, is this towards the end, like you're finishing up the zone? Or is this sort of early on for the area?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [23]

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So it's -- we're finishing it up. And in fact, the original plan was that it would all be mined, not necessarily 100% of the process. Most of its process, but would be fully mined in Q4. And the visual that you should have is we're mining, sort of, bottom to top, getting closer to the diabase dike. And it's -- as we approach the diabase dike, then we started having issues. And then as we went into the last sills, that's really where we had it. So this is a zone, which is not really -- we're not going to be talking about it much, much longer because it's going to come early. The high-grade that we had in the Doris Hinge, and that was in the first half of the year, is very similar in dynamics to it, but you're mining it for a long period of time. And then as we get to the end of it, that's when the super high-grade stuff comes through.

We've also talked about previously that this is an area that some of the original developments went into this area and [decisions] made several years ago, in 2017. And this is the area that we talked about having 30 meters zone areas. And because we've taken longer through the year to get this done and part of it is because the silling was put in too wide, we're more careful with it to try and manage dilution. So it's low maybe we have to be we didn't know that we're going to have this ground control sill. So when we report our Q4, we could be more precise as to how much that we're actually able to get done, but we'll be able to tell you with some finality as to when it's going to be done. Don't expect it to go beyond Q1 of next year.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [24]

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Okay. Perfect. And then just sort of what was the, sort of estimated tonnes to come from this area for the Q4? Could you break it down, just in percentage, roughly?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [25]

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Yes. So rough -- and I don't think we want to go through what the tonnes are in the ounces. When we had an expectation that was within our capability, they hit 45,000 ounces, and we said 25,000 to 35,000. So you should -- what we're saying is that we infer that at least 10,000 ounces of what was going to be in Q4, and saying at least 10,000 ounces was related to it. So it was a very high proportion of the ounces, and it would be a much lower proportion of the tonnes because essentially it was the foley what went through the plant in Q4 previously. So it's a big -- it's a high percentage of the ounces, 25-ish -- more than 25% of the ounces.

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Operator [26]

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The next question comes from Gabriel Gonzalez with Echelon Partners.

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Gabriel E. Gonzalez, Echelon Wealth Partners Inc., Research Division - Analyst [27]

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My question is, in respect of the exploration conducted in 2019 and the expected updated reserve and resource estimate to come in Q1, can you give us a sense of what areas of Doris that have -- recently reported very good exploration results may or may not be included in the resource update and potentially extend the Doris life of mine? And what would a reasonable life of mine extension of Doris be?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [28]

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Yes. Okay. So let me answer that definitely. We didn't pull, Dave into this call. But thanks for the question, Gabriel. So when you think about what the next years -- what the year-end internal resource statement is going to be versus the previous? What will come out would be stockpilings that got consuming, which included some high-grade stockpiles. And then the Doris North area, which is a high-grade area came out. That's what we're thinking about grade. The BTD Extension and now a portion of BTD East Limb will remain or grow in the reserves. The exploration that we believe is doing in the mine has been really focused on the BTD Extension. So we haven't grown other zones. And it was just an allocation of the best resources. And given the 2020 plan and beyond are getting the heaviest weight gain on tonnes as the BTD Extension is part of how we maximize available grade, that's where the resources went.

We -- as far as the extension of the mine and how many years you add to it, and my own expectation is that we've got many years beyond. What is there, is going to depend on the exploration below the dike. So we talked about the BTD Connector and BTD Central as areas. Once we get the exploration platforms there, we'll do some work during 2020. And then at some point, there is going to be a ramp. And if you think about the cross-section that we usually show, there's a ramp that will go from around the area of the BTD East Limb going south and dipping towards the BTD Connector. We already have some material in that area that's defined, but not so much that we say it's time to invest in that plant. That's the volumes of materials there. And we're only talking -- the depth there would be like 400 meters.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [29]

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Yes, 300, 400 meters.

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [30]

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300 to 400-meter range. So we're not kind of the deep part of the mine. There's -- it's really untested as to how much further that goes. Then what we have is other areas for potential expansion. In August we released a hole. That was a 325-meter step out from where our last exploration was in the BTD Extension and it hit pretty good material, which says that for -- should be -- continue to be successful in -- as we chase that. But we also have the potential that there's other lenses that may be there. And so that could be a part of the future for. And then we really haven't turned the exploration guys to do some trying to figure out if there's parallels structures nearly. So I -- as I think about Doris is that it had great high-grade core to it. And the PFS that we had in 2015, the only reserves were above the dike. And there's only so much that you drill from surface. Once we get closer to some of these areas for upside, we'll put in the budget the exploration that's there and -- mean if it's like any other teams don't underground mine it could be defined by decades rather than the 3 years of reserves that had opened with. So I know that's not answering the question exactly as to how many years I expect there to be there. But there's lots of areas for us to work to add very material to it.

One of the things that I'll tell you for the PFS that comes out in 2020 is -- it's likely to have -- it'll only have reserves around our deposits. So the Doris mine in that PFS will die out within 3 years or something plus or minus, like that. But that's not really the expectation. And if Doris perpetuates beyond that, we provide another source of feed and another component that gives us operational flexibility as we build out other mines on the belt.

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Operator [31]

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(Operator Instructions) This concludes the question-and-answer session. I will now turn the conference back over to Ms. Wilkinson for any closing remarks.

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Lisa Wilkinson, TMAC Resources Inc. - Director of IR & Strategic Development [32]

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Thank you, operator, and thanks to everyone for joining us today. If you have any further questions, feel free to reach out, and have a great day.

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Operator [33]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.