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Edited Transcript of TMR.TO earnings conference call or presentation 9-Nov-18 3:00pm GMT

Q3 2018 TMAC Resources Inc Earnings Call

TORONTO Dec 18, 2018 (Thomson StreetEvents) -- Edited Transcript of TMAC Resources Inc earnings conference call or presentation Friday, November 9, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Elizabeth Ann Wilkinson

TMAC Resources Inc. - Former VP of IR

* Gilbert John Frederick Lawson

TMAC Resources Inc. - COO

* Jason R. Neal

TMAC Resources Inc. - President, CEO & Director

* Marthinus Wilhelmus Theunissen

TMAC Resources Inc. - CFO

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Conference Call Participants

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* David Medilek

Macquarie Research - Analyst

* David Haughton

CIBC Capital Markets, Research Division - MD & Head of Mining Research

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the TMAC Resources Third Quarter 2018 Results Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I'd now like to turn the conference over to Ms. Ann Wilkinson, Vice President, Investor Relations.

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Elizabeth Ann Wilkinson, TMAC Resources Inc. - Former VP of IR [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 2018 conference call.

I'd like to remind you -- I'd like to remind listeners that, on this call, we will be making cautionary -- we will be making forward-looking statements. We'd like to direct our listeners to refer to our cautionary statements in the news release issued yesterday, Thursday, November 8, after the market closed and in the MD&A for the quarter filed on SEDAR and posted to our website. All forward-looking information -- all forward-looking statements on this call are qualified by those cautionary statements. There can be no assurance that our forward-looking statements, even though considered reasonable by management and based on information on hand, will prove to be accurate. Future results and events could differ materially.

Also, please bear in mind that all dollar amounts mentioned in this conference call are in Canadian dollars, unless otherwise noted.

On the phone 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. Yesterday's news release and the accompanying financial statements and MD&A are posted on our website and filed on SEDAR.

I will 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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Good morning, everyone, and thank you, Ann. Our team has made a lot of progress this year. Every quarter in 2018 has been better than the previous quarter, and there is a plan for how we take the next steps in an improved performance.

In the third quarter, we achieved record operating performance in tonnes mined, tonnes processed, gold production and gold sales as well as the financial metrics this drives. More importantly, we expect our planning, investment and hard work to continue driving improvement, including in the fourth quarter. Of great importance is the completion in Q4 of our project in the plant to improve recoveries through additional gravity concentrators and other plant modifications. And there is much to like about the first month of operating performance in Q4 which we have concurrently released.

Gil and Maarten will take us through the details of the operating and financial performance. I have a few accomplishments that I would like to go through and highlight before I pass the call to Gil.

First is the plant performance. Back in Q4 of 2017, we were processing about 750 tonnes per day at 69% recovery, and we were struggling to reach 1,000 tonnes per day capacity and struggling to improve recoveries. Plant enhancement initiatives and the ramp-up of the second concentrator line, which started this summer, have brought us down to 1,900 tonnes per day at 82% recovery in the month of October. The throughput ramp-up has exceeded expectations, especially considering ongoing construction activities in the plant.

Of equal focus is the Doris mine. Again, back in Q4 of 2017, mine production was a bit under 600 tonnes per day. In the just-completed third quarter, our mine production was approximately 1,125 tonnes per day, but we are also very active in development. And by the middle of October, we had access to the Doris Hinge, Doris BTD and Doris Crown Pillar production areas, in addition to development still active in the Doris Connector. That drove increased mine production to 1,975 tonnes per day in October.

We have made great progress on permitting this year as well. In June, we announced that the Nunavut Water Board had provided a positive recommendation for the Madrid-Boston project. And in October, we had federal ministerial acceptance of this recommendation. The final Nunavut Water Board hearing concluded October 25, and the NIRB conducted their project certificate workshop on November 1. Based on this schedule, we expect to receive the project certificate this month and the Type A Water Licenses in the first quarter of 2019, which is a quarter in advance of what we have been communicating to stakeholders, including shareholders.

Given advanced permitting, moving towards production at Madrid is important, especially considering the pace of improvement in plant performance. Our decision-making at Madrid is supported by exploration success in 2018. The objective of exploration here has been to focus on near surface zones. We concurrently released exploration results today from 75 drill holes at Madrid. Results from Naartok East and Naartok West at Madrid were very good. In particular, recent shallow drilling at Naartok East has delivered grade and strike extent materially beyond what was predicted in our current model of the near surface expression.

We also released exploration results at Doris BTD. As has been typical, we have a collection of positive intercepts intercept with some grades that support extending the mineralization. With additional BTD development, we are positioned for an aggressive 2019 program that will test a further 100 meters of strike length to the north of -- from underground drill platforms.

I'm going to hand the call to Gil Lawson to cover operations, followed by Maarten who will discuss our financial results and including the equities we completed before concluding a brief -- with a brief discussion of our path forward. Over to you, Gil.

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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 the progress on our plant commissioning and performance. Commissioning of the second concentrator line with the second Falcon SB400 concentrator was significantly smoother than the commissioning of the first concentrator line. The plant as a whole exceeded 2,000 tonnes per day for the first time on July 15, about 6 weeks after CL2 was first started, whereas CL1 took more than 50 weeks to reliably process 1,000 tonnes per day.

We had continuous improvement in throughput the quarter with each passing week. And in September, CL1 and CL2 combined for average production of just under 1,700 tonnes per day with 8 days of production over 2,000 tonnes per day. While the plant had a rough start to the quarter with 75% recoveries in July, we quickly recovered, and we're able to average 80% for the third quarter as a whole.

During the third quarter, the plant processed 127,400 tonnes of ore, equal to 1,385 tonnes per day at an average grade of 10.1 grams per tonne with an average recovery of 80%, producing a record 33,100 ounces of gold.

October provided an additional step forward, averaging 1,900 tonnes per day for the month while maintaining 82% recovery. Within the month, we operated for 17 days in excess of 2,000 tonnes per day, for 7 days in excess of 2,200 tonnes per day, and peak throughput was 2,333 tonnes. The second concentrator line actually averaged more than 1,000 tonnes per day for the month, demonstrating a ramp-up that exceeded our expectations. Management is now confident that CL1 and CL2 can process at its nameplate capacity of 2,000 tonnes per day.

In previous calls, I have talked about the progress we have made from a year ago when the plant operated as a single line and there were many alterations required to be able to realize stability and demonstrate the 1,000 tonne per day capacity of the single line. This was achieved in Q1 of this year and permitted us to conduct deportation studies to get to the root cause of the recovery issues of the plant, which was an abundance of very fine gravity-recoverable gold that required intense gravity concentrator effort to recover and significant alteration of the circuit design.

The first Falcon SB400 was installed in late April. We commenced construction of the second concentrating line in January of this year, which included the addition of the Falcon SB400 concentrator, and this commenced commissioning in June, as I have described last call. As a result of the integration of the 2 concentrator lines into the concentrate treatment plant, the plant as a whole experienced greater downtime in June than what's expected, which continued into July, affecting throughput and recoveries early in the third quarter.

The second line was key for Hope Bay to have the economies of scale to achieve profitability. Notwithstanding the challenges in July, during the month of August and September, the plant processed 45,300 tonnes and 50,600 tonnes, respectively, or an average of 1,461 tonnes per day and 1,688 tonnes per day. And in October, we demonstrated an average of 1,900 tonnes per day, which has surprised many at the pace of this success.

With the improvement in the recovery of gravity-recoverable gold by the Falcon SB400 units currently in operation, the company designed and procured during the third quarter 6 additional larger gravity concentration units for installation within the primary grinding circuit and the regrind circuit. The 6 gravity concentrators installed as 3 pairs, 1 for each line, allow for the continuous scavenging of very fine gold, which was being missed by flotation and the targeting of fine gold that is being liberated within the regrind circuit. Installation of the gravity concentrators is significantly advanced and is expected to be complete in November.

The first Knelson XD20 came online as part of the CTP regrind circuit in early October, and the second was added in mid-October. This installation included the reconfiguration of the in-line pressure jigs and spinners to the concentrator side of the plant, and those changes were complete by the end of October.

Falcon SB1350s are being installed as an upgrade to the Falcon SB400s, which enables the gravity treatment of the entire flow within the primary grinding circuit rather than solely a portion of the recirculating load. The Falcon SB1350s and the 2 Falcon C2000s are expected to be completely installed by the end of November. These efforts are designed to drive recoveries to 90% by the end of the fourth quarter.

In conjunction with the installation of gravity concentration units, engineering studies commenced in April 2018 to address certain issues, including the need for surge capacity between the crushing and grinding circuits. The critical lack of surge capacity was highlighted in July. The greater instability of the plant led to the need for multiple restarts while integrating CL2, which had an adverse impact on recoveries in that month. We are in the process of fabricating the surge bins, and they will commence installation closer to year-end.

The execution of the project has gone smoothly, and disruption to the plant has been limited to only a few operating hours, driving outstanding October performance despite being the peak construction period. We recognize that after the volatility in the plant in July during the ramp-up of the second concentrator line, this was a key concern for shareholders. Importantly, the plant had, by far, the most consistent recovery within a month of starting up CL2. The average feed grade for October was 6.7 grams per tonne, which has, in part, been purposely kept low given the expectation of increasing recovery as the remaining gravity concentrators are installed in the plant and commissioned in the near term.

While project execution has been excellent, completion of the project is several weeks behind schedule, primarily as a result of delays in the third-party fabrication and delivery of structural steel at the site.

I'll now switch to the Doris mine operation. The mine is positioning to feed an increasingly hungry mill. In the third quarter and October, underground infrastructure and development, including vent raises and escape ways, were completed to provide access to the 3 production areas beginning in the quarter -- in the fourth quarter being the hinge zone in Doris North; Doris North below the diabase dyke; and the crown pillar at Doris, which we are mining from surface and the ore development areas in Doris Connector. Earlier in 2018, production volumes from the Doris mine were limited by the concentration of production from Doris North above the diabase dyke before we sequenced to the thicker, high-grade Doris Hinge.

The strategy for extracting the Doris Hinge is changing from drift and fill to longhole extraction. And with the benefits of greater ore recovery, lower costs and higher extraction rate is now underway. Initial development work and detailed stope design in the Doris Hinge was completed in the third quarter, and production commenced in October. Stopes in the Doris Hinge are 2 to 3x wider, unlocking higher production rates. To illustrate this, 1,000 tonnes per day are planned from this area alone for the remainder of the year.

The Doris Crown Pillar recovery development program commenced in September, while ore production began in October. Approximately 16,000 tonnes grading 17.2 grams per tonne was initially targeted to be mined. And after stripping overburden, an additional 59,000 tonnes of lower-grade mineralization grading approximately 6.2 grams per tonne are expected to be mined from the Doris Crown Pillar. This is currently classified as inferred mineral resource, and we will be upgrading its classification as we conduct further sampling while mining.

Underground mine development activities progressed in Doris Connector and Doris BTD as well as the ramp to Doris Central, which was required to support the planned ramp-up of the plant to design throughput of 2,000 tonnes per day and allow for future exploration. During the third quarter, 103,300 tonnes of ore were mined, including 92,300 tonnes of ore mined at an estimated grade of 9 grams per tonne and 11,000 tonnes of additional incremental ore with an estimated average grade of 3.1 grams per tonne that was produced from mine development.

Dilution was less in the third quarter compared with the dilution experienced during the second quarter of 2018. The effects of dilution mitigation plans focusing on quality control, on blast hole drilling and drill hole pattern changes are taking effect. In Doris BTD, production mining has started, and dilution has been higher than expected. This area was developed during 2017 using 30-meter stope pipes rather than the conventional and recommended 20-meter stope pipes. The height of the stopes and the amount of swapping in the ore body poses an ongoing challenge. We are using a strategy to minimize drill hole deviation, which has resulted in over break. The same mitigation plans used at Doris North have been implemented in Doris BTD but with less successful results to date and is, therefore, an ongoing focus.

During October 2018, the mine produced 61,200 tonnes of ore composed of 34,500 tonnes of ore at a grade of 8.1 grams per tonne and 5,400 tonnes of incremental ore at a grade of 3 grams per tonne from underground operations. The Doris Crown Pillar produced 21,400 tonnes of ore at a grade of 7.2 grams per tonne. The combined mine production averaged 1,975 tonnes per day in October.

Slide 6 has a summary of operating statistics for the quarter. As Jason opened with, through targeted investment and the efforts of our operating team, we are consistently delivering better performance each quarter and most often, month over month. I'm looking forward to adding the next call into this table for our next conference call.

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. We have been working on various initiatives during the year to fix our balance sheet due to the prolonged ramp-up of the plant. These included the diesel purchase agreement that reduced cash flows to $21 million during the [cash-contained] sealift period and the design of demand bonds that released $15 million of our restricted cash during the quarter. We expect to release another $10 million by the time we report our year-end results through the demand bond structure.

We also successfully completed the 2018 sealift and received an entire [order] for the season. We completed a $90 million equity financing on the 3rd of October for net proceeds of approximately $88 million. USD 27.7 million from the equity financing proceeds were used to make a voluntary prepayment on the 31st of October against the debt facility. In addition to the regularly scheduled USD 6.5 million scheduled principal payment, the voluntary payment had no fees associated with it and will reduce the principal payment of USD 36.5 million scheduled for the 31st of January 2019 to USD 8.8 million. The interest payment savings on the voluntary prepayment is approximately CAD 800,000.

We sold a record of 32,140 ounces during the quarter for proceeds of $50.3 million at an average price of USD 1,201 per ounce. The profit from mining operations was $300,000, and the net loss was $3.3 million or $0.04 per share on a basic and fully diluted basis. EBITDA for the quarter was $15.7 million.

Cash cost in the third quarter of USD 825 per ounce sold were 11% lower than the previous quarter as gold sales continued to increase quarter-over-quarter due to increased recoveries and throughput and costs decreasing as economies of scale were achieved. Gold sales increased by 25% in the quarter, while gross cash costs, excluding a USD 47 per ounce net realizable value adjustment, increased by only 6% in the same period. This is a good illustration of the economies of scale in our business. The net realizable value adjustment was proceeds against gold and stock bond inventory and is expected to be nonrecurring as profitability increased.

The reported all-in sustaining costs of USD 1,456 per ounce sold in the third quarter were 11% lower than the previous quarter.

Cash flow from operating activities was $6.1 million for the quarter, offset by cash flows in investing activities of $17.3 million, which related to $30 million of capital expenditures offset with the release of $13 million of restricted cash through the issuance of demand bonds.

We ended the quarter with a cash balance of $13.6 million or a decrease of $10.6 million from the second quarter. The restricted cash balance was $27.7 million at the end of September. This is, of course, before the impact of the equity issues that we closed in October.

Cash cost has decreased over the quarter during the year as plant throughput and recoveries increased. With continued improvement in recoveries expected in the fourth quarter of 2018, combined with it being the first full quarter running both concentrating lines, the unit costs are expected to decline even further as economies of scale are achieved. If the nonrecurring net realizable adjustment of USD 47 per ounce is excluded, cash cost in the third quarter would have been USD 778 per ounce.

All-in sustaining cost includes the cost incurred for site infrastructure project, which mainly consists of onetime initiatives to improve life-of-mine production rather than just sustaining current production. [With the] distance sequencing and initial plant design, these would have been part of the regional construction capital at Doris.

The largest components of 1 plant site infrastructure project are the construction of the south dam in tailings impound area, the marine outfall pipeline and the gravity-concentrated project in the plant. The total contribution to the all-in sustaining cost by these items totaled USD 240 per ounce in the third quarter. The all-in sustaining cost before these ones-off items and excluding the net realizable value adjustment, totaled USD 1,169 per ounce, and believe -- and we believe it is more representative of the cost per product operation at the efficiency levels experienced during the third quarter. The all-in sustaining cost per ounce sold is expected to decrease as production from the plant increases and improvement and construction type capital expenditure decrease.

The following slide shows the trend of unit cost reducing as production increases are achieved through increases in plant throughput and recovery. The blue lines indicate the cash cost and all-in sustaining cost, excluding the onetime site infrastructure project and net realizable value adjustment discussed on the previous slide. The unit costs are expected to decrease further in line with what was experienced in the past, and the fourth quarter will be the first full quarter running both concentrating lines that's increasing the throughput, while pass-through costs are expected to only increase marginally. The sustaining capital expenditures in the fourth quarter, which will include approximately half of project gravity project budget and about $3 million to $4 million for the ocean discharge project, will be about $15 million, a decrease from $22 million incurred in the third quarter.

With that, I'd like to 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. Our highest near-term priority is completion of the gravity project in the plant to deliver 90% recovery and further pushing throughput improvements. Concurrently, we are focused on ramping up mine production with a keen focus on grade. Ounces not tonnes are the priority. And then it's all about doing the right things to deliver on the potential of the Hope Bay belt. There is a high focus on Doris performance, obviously, and it's a highly important foundation for us, but it is a small minority of our defined resources. As always, our focus remains the balance between near-term execution at Doris and a significant investment in enabling the development of our second, third and fourth mines. It is the latter which ultimately has the potential to generate very significant value for our stakeholders.

As Maarten outlined, we completed a significant equity issue this quarter. I would like to thank again our shareholders that supported this capital raising and investments at Hope Bay this will fund. A key component of the financing was $15 million of flow-through dollars to be applied to exploration, which I know is a use of proceeds that is very broadly supported by our stakeholders.

The last thing I want to say is that in this quarter, I had the opportunity to accept, along with Maarten, the invitation of the Kitikmeot Inuit Association to their AGM in Cambridge Bay. It is great to be able to spend time in the community and with the Inuit leadership. Given my earlier comments on the successes of our permitting efforts, I would be remiss in not thanking our Nunavut hosts for their input and support.

I'm looking forward to communicating in early 2019 our detailed exploration strategy and updating our Madrid development strategy.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of David Medilek with Macquarie.

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David Medilek, Macquarie Research - Analyst [2]

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I have 3 questions. Number one, with October now at near run rate throughput levels of both the mine and the mill, could you provide color on how the unit operating cost per tonne have performed versus PFS?

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

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Okay. Maarten?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [4]

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David, this is Maarten. So if you look at our unit operating cost per tonne in the PFS, our mining and surface cost has been in line, sometimes a little bit better, on the mining side because we are using more longhole stoping, which is cheaper on a cost per tonne basis. And if you look at the plant costs, it is not at the level that we've seen in the PFS yet, but it is definitely moving in the right direction.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [5]

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The other thing that I would just add is that as I think people would appreciate, we've had a significant revenue problem with the company historically, and that's been our greatest focus. And we are seeing the economies of scale in the unit cost in the plant. But we're going to also start tightening the screws a bit on costs. And we haven't yet had a normal operating environment in the plant. We'll have that in early 2019, and we'll have more of a balance between revenue and cost focus.

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David Medilek, Macquarie Research - Analyst [6]

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Right, right. And then my second question, related to throughput rates in October, what are the bottlenecks to increase your throughput further both the mine and the mill, overall plant availability percentage, if you have that at hand, and also the expected impact of the doing the surge bins installed in the fourth quarter?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [7]

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Yes. It's Gil here, David. In terms of -- it would be operating time overall. So we -- there's a lot of moving parts on these plants with a lot of maintenance associated with operation of the plant. And we have -- month over month, we identify areas where we improve operating hours. So we're just continuous focus on our maintenance practices in that area and turning the plant over to the operators, and they have demonstrated they can put rock through the ore through the plant.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [8]

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And I'd say that we have confidence in the 2,000 tonnes per day. We're not yet at the point where we are -- we're ready to set a target above that for the market.

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David Medilek, Macquarie Research - Analyst [9]

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Right, right. I follow you. And with the plant availability in terms of the maintenance, is it still kind of quite heavy on the DSI in the crushing circuit? Is that still a bit of a culprit for some of the delays here then?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [10]

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Yes. There's a -- the ore has a high component of quartz with a high wear on our moving parts. So that's an area where we're going to continue optimizing. So that -- yes, the answer would be significant amount of maintenance around the concentrator side, and we're working with the suppliers, identifying liners and all the parts that touch the ore to reduce that amount of time that we need to replace wear points. So that -- like I said, we continuously focus on improving this, and it's a matter of just working with our suppliers and our tradespeople identifying these wear points and just keep improving that area.

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David Medilek, Macquarie Research - Analyst [11]

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Okay. And the other part of that question also had to do with the mine. Where would you see the bottlenecks in terms of the mining cycle?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [12]

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The bottlenecks prior to -- we -- I talked about the unlocking of some ventilation raises and some escape ways. That really unlocked more mining fronts. So that was our bottleneck up until October. And we're now starting to see the benefits of having more mining fronts. We've also moved the mining front of Doris above the dyke into the hinge area where, as I highlighted, at significantly wider stopes, and that provides opportunity to increase tonnage. So really, we're through the major bottlenecks that we are facing in terms of infrastructure. And now we're just focusing on the efficiencies of loading trucks, blasting, the normal mining cycle that every mining company faces.

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

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And the one major mining area that we haven't got access to yet is Doris Central, and we're ramping towards that. It will be towards the back end of 2019 that we had access there. And given the widths there and the improved grades, that will be an important production area for us as well.

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David Medilek, Macquarie Research - Analyst [14]

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Okay, okay. And my last question related to the Knelson XD20 performance. In October, have you seen a notable impact in the CTP already with more gold reporting to the batch leaks and less of the continuous leach for better overall performance? Or is it too early to comment?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [15]

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Yes. I'm going to take the too-early-to-comment right now. I'd like a little more operating time with lots of sampling and feedback from the metallurgist before I start trying to put flavor around the impact that's had.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [16]

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Yes. And Gil's other comments earlier was that some of the other modifications that came with the installation of the XD20 has only got done at the very end of October, the moving of the spinners, for example.

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Operator [17]

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Our next question comes from the line of David Haughton with CBIC -- CIBC.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [18]

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I've got a number of questions. And you were talking about the mining rates and the ramp-up and access to other portions. When can we expect the mining rate to achieve a consistent 2,000 tonnes per day to be able to get the mine to match the mill?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [19]

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In terms of timing, the next couple of quarters, we're going to be in the tonnage rates that we've been talking about between the surface mining at the crown pillar and the mining in the hinge. And then I'll characterize next year. We haven't put out guidance of what next year looks like, so I don't want to kind of go into those type of details. But the tonnage rates that we saw on October are more in line with what my expectation is over the next 2 quarters.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [20]

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The one other thing I'd add, David, is that one of our objectives is to get access to more mining areas, so we have more flexibility in where the production comes from. And it is a little bit too soon to put forward the plan as to how we're going to do that. But Madrid is also going to be an important part of that. And I think we're going to have more to say on our next conference call about that. We certainly understand that if we have a plant does 2,000 tonnes per day and perhaps, something they can do a bit more, we need to feed it.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [21]

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Yes. And I guess, in the near term, some of the crown pillar is being access from the surface, so that certainly helps getting the feed to mill and take some pressure, I guess, off the underground with its ramp-up as you access additional areas. Is that a reasonable way to look at it?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [22]

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Yes. The pillar -- the crown pillar has outperformed expectations. I mean, certainly, when you and others were on a site visit, we didn't expect it would be as significant as it is now. In fact, it's given us a little bit of extra flexibility. The grades are good, and the tonnages have been better. I mean, there's basically areas that we thought would be potentially waste that turned into ore. And we just weren't comfortable enough at that time to sort of give the picture that we now see.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [23]

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Okay. Lots of additions have been made during the course of this year as you try to improve the recovery at the plant and to have more innovative ways of dealing with your sealift. I'm kind of losing track as to where the CapEx should be targeted for 2018. Can you give us an idea as to what the CapEx goal is for 2018, split sustaining and project?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [24]

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So we -- for the remainder of 2018 in Q4, we expect to incur $15 million of sustaining CapEx. We don't have any additional expansion CapEx remaining for the year. The $15 million sustaining is split between $5 million for underground development, and the rest is on project, such as project gravity and ocean discharge line.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [25]

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For 2019, the underground development at Doris is likely to sit stay at about CAD 5.5 million per quarter. The larger projects will have come down a bit. We'll have a bit work on the ocean discharge. The Madrid-related CapEx, it's -- we're going to have to talk about that in our Q1 call because we're in the budgeting and strategic portion of what we're going to do there. So it's a little bit too early to discuss.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [26]

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And Maarten's number of $15 million, was that Canadian?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [27]

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Yes.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [28]

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Okay. And your goal here is really to exit 2018 and start 2019 at 2,000 tonnes a day and 90% recovery. Should we be modeling that consistently through 2019?

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

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I'd say that's certainly the objective that we're using right now. I don't want to tell you what to put in your model, David. Make a call based on what you think about our ability to deliver. But I'll tell you that that's the internal objective that we have.

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

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So David, this is your last TMAC conference call?

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [31]

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It is, indeed.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [32]

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All right. Well, I'd like to thank you for the coverage, and congratulate you on your retirement.

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David Haughton, CIBC Capital Markets, Research Division - MD & Head of Mining Research [33]

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Thank you, Jason.

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Operator [34]

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(Operator Instructions) Our next question comes from the line of (inaudible) with Sprott.

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Unidentified Analyst, [35]

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My question is regarding development in the connector zone. And the question is when should we expect the first stope coming out of the connector? And when do you expect, more importantly, to reach Doris Central?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [36]

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The first stopes, I don't have the detailed mine schedule sitting on the table in front of me, so I won't be able to pull that fact for you. But it will occur in latter 2019. We're currently and still in development right now, and there's a significant amount of ore selling to be done to set up for production there. So it'll be -- I'll just describe it as latter part of 2019 rather than trying to nail a month for you.

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Unidentified Analyst, [37]

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Yes. And just the second part of that question, when do you expect the development to hit the larger central zone?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [38]

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Yes, we'll be accessing -- again, our decline is heading down there right now. So we're not -- we're still on our way there. And our -- we'll be getting into ore in next year, earlier in the first half of the year, we'll be starting to fill into ore and again, very similar to what we are doing now in DCO, which is Doris Connector. We'll be starting to fill -- you will not see any production stopes out of the central area in 2019. That will be setting up for production stopes in 2020.

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Unidentified Analyst, [39]

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Okay. And then just regarding below the dyke. That looks like it's obviously going to add a lot of high-grade assets at Doris. Should we expect this to continue as an ore source essentially until Madrid comes online?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [40]

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Yes. We're quite excited by what we're seeing in the exploration results as we push our development to the north. And we will be moving whatever we convert in the resource and then ultimately to reserve through further exploration drilling. That will be funneled into our production plans as soon as possible given that the infrastructure is so close to where we're drilling. And so that will be an ongoing conversion as development pushes out.

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Operator [41]

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We've reached the end of our question-and-answer session. I'd like to turn the floor back to management for closing comments.

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Elizabeth Ann Wilkinson, TMAC Resources Inc. - Former VP of IR [42]

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We'd like to thank you for your participation on the third quarter 2018 conference call. And I think Jason had a couple of more things to say, so I'll turn the call back to him.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [43]

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No, just to say thank you, everyone, and look forward to talking to you on the next call in February. And I think we'll have a lot more to say about the going forward plan.

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Operator [44]

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