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Edited Transcript of TMR.TO earnings conference call or presentation 22-Feb-19 3:00pm GMT

Full Year 2018 TMAC Resources Inc Earnings Call

TORONTO Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of TMAC Resources Inc earnings conference call or presentation Friday, February 22, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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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* Brock Salier

Sprott Capital Partners, Research Division - Analyst

* David Medilek

Macquarie Research - Analyst

* Raj Udayan Ray

Desjardins Securities Inc., Research Division - Analyst

* Cathy Hume

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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 Inc. Year-End 2018 Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Cathy Hume with CHF Capital Markets. Please go ahead, Ms. Hume.

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Cathy Hume, [2]

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Thank you, operator, and good morning to everyone. On behalf of TMAC Resources, I'd like to welcome everyone to our year-end 2018 conference call and webcast. I'd like to remind listeners that on this call, 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, February 21, after market closed and the MD&A for the year-end filed on SEDAR and posted on our website. 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 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, there will be available question-and-answer period. 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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Thank you, Cathy, and good morning to all. With the fourth quarter, we closed out a year that has demonstrated very significant progress for TMAC. By Q2, the executive, operational and technical teams have been fleshed out to their current form. We rightfully put a lot of pressure on ourselves to try to improve operational performance through targeted investment, organizational change and individual dedication. Like many stakeholders, I personally am inpatient at times with the pace of improvement, but every quarter in 2018 continues to be better than the previous quarter and the sum of our progress is impressive.

2018 was a year of implementing significant change, especially to address design flaws in the plant and underinvestment in the development of the mine. It was also a year of great success on the permitting, environmental, safety and social responsibility fronts that are foundational to the value of growth at Hope Bay. Remember, that Doris represents less than 15% of the resources of the belt. 2019 will be a year of completing the commissioning on 2018's investments with further smaller incremental but important optimization and then setting a strategy for continuing growth. We're excited to really begin exploring again, and our goal is to establish resource momentum growth.

In the fourth quarter, we completed installation of the additional 6 gravity concentrators in the plant. This is behind the schedule that we had originally set last summer, largely driven by delays in structural steel to site and some minor scope changes. As we discussed on our third quarter call, rather than the availability of those concentrators themselves with the installation execution, we began 2019 with the commissioning of these concentrators. The last part of the gravity concentrator project is the installation of surge bins. The first of which has been installed and the second of which will be installed in a couple of weeks. These surge bins provide stability to the plant which has an impact on recovery. The other important point is that these surge bins are important to dialing in the water balance of the plant which is important to achieving sustained net increases and overall recoveries as excess water in the concentrate treatment plant impacts gold solution losses.

Q4 plant throughput was 1,800 tonnes per day and we achieved 82% recovery. We achieved that 82% recovery in January as well, and the peak daily recovery achieved in December was 87% and then again in January, 87%. So on commissioning thus far, we haven't generated significant positive results on recoveries, but we also haven't taken any material steps backwards. We're seeing further improvement in February. But with the surge bin installation completion, we're really looking at the Q2 as a clean quarter to measure the initial plant retrofit impact. You will also see that the fourth quarter grade was relatively low at a bit less than 8 grams by design before returning to about 10 grams in January, and Gil is going to go through the details of the operations.

The mine produced 2,310 tonnes per day in the fourth quarter. Rebuilding stockpiles will be an important insurance for 2019 plant feed. The spike in mine production in the fourth quarter includes the benefit of the crown pillar recovery that was mined from surface. In 2018, we did a lot of development in the mine, and we are now set up with tonnes from the high-grade hinge zone for the first half of the year, the high-grade Doris North BTD and Doris Connector for the entire year and Doris Central development ore later in the year. And finally, we have in the 2019 plan beginning mining of the 283,000 tonne Naartok East crown pillar from surface in the second half of the year. We made great progress on permitting in 2018. We received for the Madrid-Boston project a project certificate in November and the Type A Water Licenses in January, both ahead of schedule. The permitting at Hope Bay continues to benefit from the excellent engagement and support of the Inuit communities of the Kitikmeot region, including the KIA which manages their landholdings at Hope Bay.

We recently released the last results from our 2018 Doris North BTD exploration program. They are great results in line with all the other great results from below the dyke. In 2019, we are going to have more news flow on exploration as we continue to explore at Doris, to extend life; at Madrid, to ready deposits for development; and finally returning to Boston, to begin driving resource growth that will inform future infrastructure decisions. We are also exploring regionally in proximity to our established and planned infrastructure prioritizing our 90-plus identified targets.

I'm going to hand the call to Gil Lawson to cover operations, followed by Maarten who's going to discuss financial results. After that, I'm going to go through our guidance for 2019, which will add a bit of length to this call versus previous calls, but I will do my best to leave time for Q&A. 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. I'll start with an update on progress on our process plant operations and performance. Jason has highlighted some of the significant achievements in the fourth quarter, and I'll add some further detail.

Our quarter-over-quarter performance in the process plant throughput and recovery continues to improve. We averaged 1,800 tonnes per day of throughput in the quarter compared to just under 1,400 tonnes per day in the third quarter. And this improvement occurred with significant construction activities related to our plant retrofit project around the 2 operating concentrator lines. Recovery has steadily improved with recovery averaging 82% compared to 80% in the third quarter.

The fourth quarter recovery performance did not benefit from the 6 additional gravity machines as the installation extended into December and only preliminary commissioning steps occurred in late December on these new machines. We continue to have an operating philosophy of prioritizing stability of throughput, so the team can focus on recovery as opposed to targeting maximum throughput right now.

Some of you are going to have to forgive the level of detail I'm going to go through, but I know we have investors and analysts that are keen for a detailed update. Our expectation is we don't need a slide on the plant this time next year at all. But for now, it's a big focus for the short-term performance. Certain aspects of commissioning of the gravity concentrators and related equipment have been more challenging than expected. Nothing highly concerning for our commissioning and nothing that we don't believe we have solutions for. Several challenges with piping and pumping of concentrate material are being addressed, including the plant experiencing higher-than-expected wear on newly installed piping and several pumps and pump boxes requiring resizing. Piping wear has been improving and rubberized replacement joints are being installed to further reduce the wear rates. We are confident that the circuit will operate as per the design and achieve performance targets once we have fully commissioned the units, including resolution of the wear and concentrate pumping issues.

The water balance in the plant is important to recoveries because of the impact on the concentrate treatment plant. With the installation of the gravity concentrators, there is more water entering the plant on the concentration and flotation side upfront. We are only able to completely address water balance once the surge bin installation is complete in a few weeks. So while we are confident in our ability to manage water balance at completion of the project versus what it had been before during installation and commissioning, we have to actively manage this aspect of the plant.

While all of the 6 gravity concentrators were installed, the Knelson XD20s have been receiving a single-pass of material and will only be reconfigured to the designed recirculating load in February 2019. The configuration of the XD20s into the recirculating load is considered a key factor for full impact of these units and successful diversion of the gravity recoverable gold in the regrind mills to the batch intensive leach reactor and higher recovery overall. Removal of gravity recoverable gold by the XD20s also should improve leaching performance in the continuous leach reactors and resin recovery cells, as the gold loading on this part of the circuit reduces as gravity gold gets diverted to the batch intensive leach reactor.

The 2 in-line pressures, jigs and spinners which have been turned off within the concentrator line circuit are being assessed as to whether they should come back online in conjunction with the other gravity concentrators. Thus far, an incremental increase in gravity recoveries, which was experienced during January 2019, has been essentially offset by solution losses in the CTP. These solution losses are expected to decrease once the full impact of the gravity concentrators are realized and water balance restored. We are seeing singular days with recovery near our target, and as Jason noted, of up to 87%. However, we are not yet consistently getting the components of the circuit to work in harmony, which is the best way to describe the commissioning process.

Overall plant recovery is a factor of: firstly, the recovery achieved through the gravity and flotation efforts in the concentrating lines; and secondly, the recovery achieved in the concentrate treatment plant, or CTP. The best recovery achieved from gravity and flotation since the beginning of December on a single day has been 94%. The best recovery achieved in the CTP since the beginning of December on a single day has been 96%. The objective is, with the completion of commissioning of the additional gravity concentrators and the stabilization of the plant, including following the addition of surge bins to achieve at least 94% at the front of the plant and 96% in the back to deliver approximately 90% overall recovery. That is the product of 94% multiplied by 96% is 90%.

There is potential to optimize beyond 90% in the future. And the company has specific incremental optimization projects identified. One example is scavenging gold from the solutions leaving the resin circuit to provide insurance against performance volatility in the resin circuit, which impact daily CTP recoveries.

The last installation component to update on are the surge bins. The surge bins are designed to provide continuous feed to the grinding circuit and eliminating the impact of stops and starts that are typical in a crushing circuit. This allows the grinding gravity concentrators and flotation to have a more stable operating environment to be able to function efficiently. Stops and starts of feed to grinding cause waves of instability in the flow and pulp densities of the entire circuit which negatively affects recovery performance. A controlled feed from the surge bin also benefits water balances overall in the concentrator circuit. The surge bins are being fabricated currently and are expected to be completed in March. The surge bins have had the most significant schedule slippage, largely as a result of delivery delays of the steel components.

Now looking at key operating metrics. The plant processed 164,900 tonnes of ore with a grade of 7.8 grams per tonne at an average rate of 1,800 tonnes per day and achieved an average recovery of 82% during the 3 months ended December 31, 2018, bringing the total for the year to 464,000 tonnes of ore processed or approximately 1,275 tonnes per day at a grade of 9.4 grams per tonne and an average recovery of 79%.

In January 2019, we processed 45,400 tonnes of ore with a grade of 9.9 grams per tonne at an average rate of 1,470 tonnes per day. We maintain recoveries at 82% and did have a peak daily recovery of 87%, but throughput in January was impacted by 5 days of unplanned maintenance related to the detox filter press and compounded by extreme cold weather beyond what has been experienced in prior years that impacted the primary crusher. Many of you experienced the polar vortex in North America in January and that added a bit to the chill in Nunavut as well. January throughput was approximately 1,750 tonnes per day excluding our unplanned maintenance period.

I'll now switch to the Doris mining operation. The mine production plan for 2018 was sequenced so that mining higher-grade ore from Doris Hinge, Doris BTD and the Doris Crown Pillar only started in the fourth quarter of 2018. Less high-grade Doris Hinge ore was mined during the fourth quarter than originally budgeted, and therefore the remainder is sequenced to be mined out during the first half of this year. Given the commissioning of the gravity concentrators, we were in less of a rush to get to the high grade regardless and did not pursue resequencing to hit the originally planned grades.

We currently have stoping fronts in the Doris high-grade hinge, hinge ore beneath the crown pillar recovery trench and the stopes in Doris below the dyke. Development is currently focused in the Doris Connector ore cells and waste development, advancing the decline to the Doris Central area and preparing access declines and drifts into the new high-grade Doris North below the dyke mineral reserve that was drilled in 2018 and being prepared for a drift and fill mining method in 2019.

During the fourth quarter, 212,400 tonnes of ore was mined at an estimated grade of 7.4 grams per tonne, which included 110,200 tonnes grading 8.9 grams per tonne of underground production, 90,200 tonnes grading 5.9 grams per tonne from the Doris Crown Pillar surface trench and an additional 12,000 tonnes which was classified to the incremental stockpile from sill development and grade estimated at 4.9 grams per tonne. The Doris Surface Crown Pillar recovery mining was completed in the quarter. Backfilling operations have since commenced. The mine production for 2018 from all sources totaled 475,800 tonnes of ore at a grade of 8.1 grams per tonne containing 123,700 ounces of gold.

Dilution at the Doris Hinge remained consistent with design expectations in the fourth quarter and was comparable to results seen so far in the mine life. This has been an area of focus for the mining team and adjusting drill and blast patterns to the geological structural conditions and stopes have tended to break to the undercut or drift width with the sloughing cascading along structures parallel to the vein. The widest though not highest grade section of the hinge zone was mined and substantially backfilled by year-end and dilution is expected to improve as the hinge mining front continues on strike, with the designed sill height continuously reducing as the plunge of the zone reduces the stope height as mining moves from south to north.

Dilution in the longhole stopes at Doris BTD continues to be higher than experienced at Doris North. The area being mined had been developed during 2017 using 30-meter stope heights rather than the conventional 20-meter stope heights. The height of the stopes and the amount of sloughing in the orebody at Doris BTD, despite using an uphole and downhole strategy to minimize drill hole deviation, is resulting in a significant amount of wall over-break and resultant dilution. The same drill and blast design changes as at Doris North have been implemented but with less successful results to date.

All development in the Doris Connector and Doris Central zones are now designed at a nominal 20-meter interval to minimize dilution of future stoping in these areas. And this has been demonstrated to contribute to reduce dilution in areas where a 20-meter stope height is prevalent.

The block model reconciliation for ore produced from sill development at Doris Connector to date is more variable, both positive and negative, than seen at Doris North. Experience to date shows certain sill development produced less ore and more incremental ore than planned. However, it has been fully offset by areas where higher grades were achieved within the zone. This has been the experience so far, and we'll be closely monitoring this trend as further development is completed in this area.

The Doris Connector zone received a substantial amount of the delineation drilling in 2018 as the average drill spacing was wider than either Doris North, Doris North BTD or Doris Central zones. Definition drilling in Doris Connector will continue throughout 2019. Mine development achieved 1,620 meters during the 3 months ended December 31, averaging 18 meters per day.

Stockpiles are segregated by grade to allow blending strategies to maximize value and manage risk. Stockpiles are composed of a primary stockpile that contains ore above the 4-gram per tonne mining cutoff at Doris and a secondary stockpile that contains incremental ore produced from mine and stope development that is below the mining cutoff of 4 grams per tonne.

At December 31, 2018, the primary stockpile contained an estimated 68,600 tonnes of ore at an average grade of 6.7 grams per tonne or 14,700 ounces of contained gold. Included in that balance is a segregated high-grade stockpile that contained 1,000 tonnes of ore at an estimated grade in excess of 15.7 grams per tonne.

Also at December 31, the secondary stockpile contained an estimated 52,200 tonnes at a grade of 3.7 grams per tonne containing 6,200 ounces of gold. This incremental ore has been accounted for as development in prior periods and carries 0 cost on the books. At 3.7 grams per tonne, this ore has a gross in-situ value of more than $200 per tonne and has a significant positive margin against remaining incremental processing costs. This incremental ore will be fed through the plant, where there is excess plant capacity in the future or as management determines to include it in its blending strategies.

January 2019 underground mining produced 39,770 tonnes of ore at a grade of 10.5 grams per tonne containing 13,370 ounces. That includes 37,970 tonnes of ore at a grade of 10.8 grams per tonne and 1,810 tonnes of incremental ore at a grade of 3.2 grams per tonne for a total underground production rate of 1,290 tonnes per day. The extreme cold weather noted before also impacted the mining of the underground in the Doris Crown Pillar trench, as this scope effectively blue skies to surface into the trench. The extraction sequence had to be changed to drilling off the entire stoping block after the cold air overwhelmed our ventilation fans and caused brine drill water to freeze and stop our stope drilling efforts. The area was backfilled and temperatures restored and then the entire stope sequence drilled off; however, delaying the mining into February. The area is now back mining successfully in February.

I'll now turn the call over to Maarten to review 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. We sold 31,380 ounces during the fourth quarter for proceeds of $51.4 million at an average price of USD 1,233 per ounce. The profit from mining operations was $7.1 million and the net loss was $13.5 million or $0.12 per share on a basic and fully diluted basis. Adjusted EBITDA for the quarter was $15.7 million. Cash cost in the quarter of USD 752 per ounce sold were 9% lower than the previous quarter as production continued to increase quarter-over-quarter due to increased recoveries and throughput and cost decreasing as economies of scale were achieved.

Gold sales decreased by 2% in the quarter, while gross cash costs, excluding the previous quarter's net realizable value adjustment, decreased by 5% in the period.

All-in sustaining cost is calculated using the updated guidance from the World Gold Council in November of 2018. And as a result, certain of the capital projects previously classified as sustaining capital has been reclassified as expansion capital. Using the adjustment -- the adjusted amount for sustaining capital, all-in sustaining costs in the fourth quarter was USD 1,112 per ounce sold, which was 9% lower than the previous quarter using the apples-to-apples all-in sustaining cost calculation.

As Gil discussed, our grade in the fourth quarter was materially lower than either the third quarter or January. And if we had processed the same high grade, our production would have been 25% higher and our cash costs and all-in sustaining costs about 25% lower. Cash flow from operating activities before working capital changes for the 3 months ended December 31, 2018, totaled $11.9 million. Cash flows used in operating activities after working capital changes for the 3 months ended totaled $10 million.

The fourth quarter had a significant working capital payment related to the annual sealift that accounts for most of the working capital changes. Adjusted EBITDA for the 3 months ended totaled $15.7 million. Capital expenditures totaled $19.2 million and included sustaining capital expenditures of $10.3 million and expansion capital of $8.9 million and were higher than expected due to increased investment in underground development that resulted in additional $2 million of expenditures and additional costs incurred on the gravity concentrator installation.

The cash balance at the end of the year was $52.5 million, including $24.8 million of unrestricted cash. $88 million of net proceeds were received from the $90 million equity financing that was completed on the 3rd of October. The use of proceeds was $57 million for debt repayment, $15 million for exploration programs that will be carried out in 2019 and $16 million for capital expenditures that were mostly incurred in 2018. The debt principal has been reduced to USD 117 million by the end of January as a result. The Canadian dollar equivalent at the end of December was $166.7 million, a reduction of $35.5 million from the previous quarter.

Cash costs and all-in sustaining costs has decreased quarter-over-quarter during the year as plant throughput and recoveries increased. With continued improvement in recoveries in the fourth quarter of 2018, albeit smaller, combined with record throughput, the unit cost declined further as economies of scale were achieved, even with materially lower process grade. The capital expenditures in the fourth quarter is also generally lower than the third quarter due to the sealift that also contributed to the lower all-in sustaining costs.

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. I'm just going to walk through our outlook now. This is the first year that TMAC is providing guidance on key operating metrics. Our guidance is achievable, but I also want to make sure that our stakeholders understand the risks and opportunities that are in our business. As a single-asset company, operational volatility is a key concern for all of our stakeholders.

We broadly think that about the low end of the guidance has been driven by levels of operating performance that we've already demonstrated and the high end being consistent with the ongoing ramp up to our targets that are -- that have been established. We are guiding to production of 160,000 to 180,000 ounces of gold production at a cash cost of $625 to $700 an ounce and an all-in sustaining cost of $900 to $1,000 per ounce. All-in sustaining cost includes $64 million of sustaining capital, the most significant portion is underground development at Doris of approximately $9 million per quarter which is materially larger than the approximate $5.5 million per quarter in 2018, driven by the addition of a third equipped development crew and the near-doubling of our planned develop -- sorry near 50% increase in our development meters. Also included are $12 million in equipment and infrastructure and $6 million in delineation drilling.

Expansion capital is $20 million. This includes the completion of the ocean discharge line, completion of the installation of the surge bins and the commissioning of the gravity concentrators, expanding the camp to support future operations at Madrid, the development work required to commence surface mining at Naartok East Crown Pillar and the installation of additional fuel -- diesel fuel storage capacity at Roberts Bay. Exploration and evaluation is $25 million, which includes exploration at Doris, Madrid and Boston as well as work on our 2019 prefeasibility study to be released at the end of the year.

The plant and the mine are both in far better shape than they were close to 2017, but they are also a derisk. Again, the high (inaudible) achieving ramp-up to the target on the lower left side, that I've described below the left side of the slide. We're still commissioning on the gravity concentrators of the plant and, therefore, are still ramping up to a target of 2,000 tonne per day minimum throughput and are targeted 90% (inaudible) recovery. Our guidance incorporates the ramp-up to those metrics, not those levels as an average for 2019. Variance up or down of 50 tonnes per day on average plant throughput for -- throughout the year means about 4,500 ounces of production. A 1% variance in full year average recoveries means about 2,000 ounces impact.

Our one area of insurance for TMAC is that beyond our gravity concentrator project, there are several small investments in the plant that have been identified and will be implemented by priority and these small projects have a potential impact incrementally both recovery and throughput. One example that Gil went through is the column to scavenge for gold from solutions coming off of resins and serves as an insurance policy against resin performance.

In the mine, we are targeting continued ramp up to more than 1,500 tonnes per day of mining consistently. It is ounces, not tonnes that are ultimately required, so we also have to realize our reserve grades. Our updated mineral reserve and resource statement released yesterday has the assumptions for mining methodology, mineability and dilution that are in our current planning at Doris. The insurance against the ramp up on the Doris mine is established stockpiles and the crown pillar recovery at Naartok East, which provide for more than our base case -- what would be required for a base case in 2019. If this material is used more than planned, it would be for the time being displace one of underground mine ore with lower grade ore and the underground ore which shift to 2020.

It is also important that we achieve our targets on development to provide access needed to hit our underground mining targets. While we are comfortable with our assumptions based on the additional crew dedicated development, this is a rate which has not been executed historically. With success, we will have reestablished proper underground mine development that was lost with the decision in 2017 to suspend development towards 2018 -- towards Doris Central and we talked about what we had achieved in 2018 in this regard.

The Doris mine, this is a slide that we've been using in investor communications for the second half of 2018 that provides transparency on our mining plant. In 2019 versus 2018 and certainly versus performance prior to that, we have built strength in being able to access multiple areas concurrently to provide more consistent production and buffer against operational volatility. We are currently very active in the high-grade hinge zone and generating good tonnes and strong grades. We will be here for the first half of the year. By mid-year, we'll have completed mining of reserves.

Throughout the year, we will be active in the high-grade BTD zone. There is greater dilution here than in the hinge based on ore body geometry but also based because of the mine being developed at 30-meter sublevel intervals, again something that Gil had went -- gone through quite a bit in detail. In 2019, we get into more of the areas that are at conventional 20-meter maximum, and we are able to switch to a drift and fill mining method that will decrease dilution as well.

We had significant development ore from Doris Connector 2018. And now in 2019, we get a higher proportion of production ore, which will likely employ transfer stoping that will reduce dilution and increase productivity and potentially reduce costs. Later in the year, we'll reach Doris Central and begin developing -- development ore and really setting this up to be a very key contributor for 2020 production.

There's a new slide we've put in here on the Naartok East Crown Pillar. Our permits received in January provided the ability to recover from surface the crown pillars at both Naartok East and Naartok West, essentially this is the outcrop of each deposit. While we did this at Doris in the second year production, we have the flexibility to do that earlier at Madrid North. In the 2019 plan, we begin mining the 283,000 tonne Naartok East Crown Pillar from surface. In the second half of the year, we are forecasting about 175,000 tonnes will be mined in 2019 and the balance in early 2020. The probable reserve is at a 4.8-gram per tonne grade. But as it is recovered from surface, it is a lower mining cost and generate equal or better margin to the reserve grade underground at Doris. The activity at Madrid will also benefit future development, including the evaluation of starting the underground ramp at Madrid North potentially in second half of the year. The benefit of including this project is providing insurance against operational volatility at the Doris underground mine as it continues to ramp up. Or if we're fortunate, enable to achieve higher than forecasted throughput for the plant by building additional profitable stockpiles.

The exploration strategy. We are excited to pick up our exploration activities in -- at Hope Bay in 2019. Earlier this week, we had research analysts from most firms following our company spend several hours with our VP Exploration Dave King on the details of our plan. Given the challenges, we're ramping up operations at Hope Bay. The value of the belt has been a secondary concern by many stakeholders. Our aim is to earn value again from the potential, once we regain confidence -- full confidence in operations from stakeholders. We will spend $6 million in exploration at Doris underground. This is different than the $6 million of delineation drilling that supports production. This is focused on extending the high-grade BTD and potentially BTD connector. We will spend $3 million at Madrid North to advance these deposits toward production. We're about 12 holes into our Suluk and Naartok East program already, which will be focused on defining higher-grade zones and generating core for metallurgical testing and to define and expand the Naartok East Crown Pillar.

We are very excited about Boston. Many people, including Newmont geologists that work this property, see Boston as having the most potential for growth of the currently known deposits. We are back at Boston. There is what we believe is an initial indicated resource -- so there is what we believe in the initial 1 million ounce resource define -- indicator resource defined above 325 meters of surface, a tremendous potential for growth. This has been demonstrated by historic drilling, with results including 56.6 grams per tonne, over 8.7 meters at a depth of approximately 1 kilometer.

This summer, we will begin to define the near-surface high-grade B3 zone new fault intersection, which has successful high-grade drill holes as deep as 800 meters. And we'll also begin exploring along the 6-kilometer alteration of which Boston sits at the north end, and we have successful drilling on the other end of this belt. And we've had 10-gram per tonne grab samples along that belt. In the winter, we'll step onto the ice and drill the same structure from depth. For the summer of 2020, we will be evaluating based on the outcome of exploration between now and then removing the ice cap to reopen the portal to more than 2,500 meters of underground development that was completed by BHP. This is a huge asset measured in development cost and time and likely more than 2 years of development time and $25 million of expenditures were replicated today.

We need to complete some regional work to fulfill our license obligations, but we're very happy to have this commitment as it forces us to evaluate other targets away from the 3 deposits. In addition to the trend in which Boston lies, we will explore targets representing the lateral extension of Doris and south of Madrid on what will be the future road route to Boston. We have several prioritized targets, 2 of those targets are currently judged to be our next best projects, called Pogey and Kamik and they're about 10 kilometers south of Madrid.

Anyways, we will have a lot more to talk about on exploration throughout the year and we'll look forward to the opportunity to start growing the resources. The foundational strength of TMAC is that we have an outstanding amount of raw material from which we can build value.

Let me conclude just with our priorities for 2019. First, as much as we want to build the next deposits, expand our reserves and resources and find new deposits, we do have a laser focus in 2019 on delivering our targets at the plant with a minimum of 2,000 tonnes per day of throughput and minimum of 90% recovery. That means completing the installation of the surge bins as the last step of the gravity concentrator project and successfully completing the ongoing commissioning of those concentrators. Second, completing the ramp-up of the Doris underground mine. Third, excellence in execution of the Naartok East Crown Pillar surface mining. Fourth, efficiently executing our 2019 exploration strategy. And finally, by the fourth quarter, delivering an updated prefeasibility study for the development of the known deposits at the Hope Bay Belt.

With that, I'd like to turn the call over to the operator for a question-and-answer session. For those who don't hang on, thank you for participating in this call which, as I said upfront, is longer than we would typically run just to go through the detail of the quarter and our new guidance.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brock Salier of Sprott.

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Brock Salier, Sprott Capital Partners, Research Division - Analyst [2]

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There's quite a bit going on with the mining there. I just wanted to focus in on the first 2 quarters of this year. Am I correct in saying that your surface mining is now largely wrapped up? And in which case, what sort of grades should we be looking at for the first half? Should these be sort of at or around 10 grams again?

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

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I can answer that, Brock. The surface mining is wrapped up on the Doris Crown Pillar. The -- I think, I've disclosed very well the tonnes and grade that we got out of that program. There will be down in this year later on. And in Q3, we will be mining at the Madrid, very similarly on Naartok East our crown pillar recovery out there. So in terms of grades, we'll be targeting north of 10 grams per tonne, absolutely, in the -- out of the mine in the first half. We have the highest grade portion of the deposit remaining to come out in the hinge zone, which will substantially help us achieve that.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [4]

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The only thing I would add, Gil, is that in commissioning the gravity concentrators, we're targeting not necessarily a put through the highest grade possible, that kind of 10- to 12-gram per tonne grade stability in that range is probably -- is really our objective.

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Brock Salier, Sprott Capital Partners, Research Division - Analyst [5]

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Understood. And in terms of underground mining rights, again, lots of different things going on there. Are you comfortable that the underground now is sort of able to ramp up above that -- into that 1,500 to 2,000 tonnes per day tonnage in the first half?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [6]

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That's still in front of us. We have achieved over 1,500 tonnes on a singular month and now it's a matter of stringing the months together to take us over the 1,500-tonne average on a quarter. So that's still our target and our plans. We have detailed plans of how we're going to do that, and it's a matter of execution.

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Operator [7]

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Our next question comes from Raj Ray of Desjardins Capital Markets.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [8]

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First up, just going back to the mining question. So you have stockpile of around 120,000 tonnes. You said, Naartok East is going to be around 175,000 tonnes of the feed in 2019. For the remaining Doris tonnage, what sort of grade and also tonnes are you looking for?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [9]

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So we're not guiding on specific tonnes and grade. And one thing that I would also add is that we're not necessarily processing 175,000 tonnes of the Naartok East Crown Pillar. That's how much we expect to mine at the 283,000 tonnes. At that 175,000 tonnes, I mean, depending on the throughput that's achieved, we will build stockpiles as part of that 175,000 tonnes.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [10]

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Okay. Can you comment on what the Doris BTD Extension average grade is in your reserve?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [11]

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I don't have the reserve tables in front of me right now, Raj.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [12]

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Okay, I'll get it from you later.

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

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The other thing you'll see in our reserves, so our MR that we're now disclosing, we're disclosing an overall reserve and resource for Doris, not breaking it down into all the specific zones within Doris. So more typical of how our peers would report deposits.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [14]

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Okay. And then just quickly on the development rates in Q4 '18. I saw that it was down slightly from Q3 '18. For 2019, what sort of development rates are you budgeting currently to meet your guidance?

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

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We want to be in the above the 25-meter per day range.

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

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And again, the increase in development rates have come with putting additional resources into it. It's not simply a productivity stretch. It's -- we've put money and crews into doing it.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [17]

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Okay, understood. And then lastly, Gil, if you can comment on your material balance for the mill currently. I know you're still going through a lot of changes. But have you seen any drop in your free gold in the flotation circuit after putting in the SB1350?

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

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The -- a substantial drop, no, I wouldn't say that at all. Look, the 1350s are still going through their commissioning steps. I -- we haven't had the stability that I want to see to be able to give a really good measure of the impact they've had. So we will certainly disclose that as soon as we get our operational performance in a substantial amount of time that we can really talk about the impact they've had. But on singular days and periods when we do have stability, we see some very positive results, I can say that.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [19]

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I think we can also say that consistently we've been getting better gravity recovery on the front end of the plant. And the performance of the CTP, we had a few more losses on the solutions. And the CTP is impacted by the water balance that we are dealing with in -- during the commissioning period. So once we return the CTP to the sort of recoveries that we've had before, we should have a nice net increase that comes through. So we're seeing what we need to see to have confidence in the improvements that we're forecasting.

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Operator [20]

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(Operator Instructions) Our next question comes from David Medilek of Macquarie Capital Markets.

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David Medilek, Macquarie Research - Analyst [21]

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I have 3 questions. Number one, on the Naartok East Crown Pillar, could you provide some color on some of the key economic inputs, including operating costs, metallurgical recoveries and stripping ratio?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [22]

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Yes, okay. No just -- yes, I didn't come to this conference with all those details in front of me. So I'd be pulling numbers out of the air, if I did. I think we could probably do a subsequent call if -- and walk through some more details.

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David Medilek, Macquarie Research - Analyst [23]

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Yes, yes. That would be helpful. And my second question is...

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [24]

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So the overall guidance that we have for the year on all-in sustaining cost and cash cost, obviously, fully includes the economics on that pillar -- on that crown pillar recovery. And the other thing is the stripping is the overburden stripping will be entirely in 2019.

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David Medilek, Macquarie Research - Analyst [25]

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Okay, okay, that's helpful. And my second question, on the CTP optimization project with regards to scavenging gold from the solution discharge, are you planning to wait until surge bins and commissioning is completed? Or are you looking at events in this regardless as an additional factor of safety?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [26]

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So it's a project that has been -- that we've been working on for some time. It's not in response to anything that's going on in commissioning. So I think even back to the last summer, where we were doing a bit of work on this. You can imagine, given the amount of work that's been done in the plant right now, we didn't want to do all of our projects at once for fear of -- as I described it, taking 2 steps backwards to take a step -- to take 3 steps forward. So we've been happy that we've -- we haven't lost ground in the plant as we've been going through, what is, a pretty significant retrofit. So the work is ongoing on it. And I would say that if we hit our targets without having that in there, that's great. But I think we would -- these are things that we would still do just so that if we had, for any reason, spikes in solution losses because of some -- something that happens to the resins. We've talked about the resins extensively over the history of the company. There is an insurance policy there to catch it before it goes to the tail. So it's always been in the work. It's just been prioritized after the -- these smaller projects have been prioritized after the gravity concentrator project.

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David Medilek, Macquarie Research - Analyst [27]

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And is this something that you think you could implement quite promptly if need be? Or would you have to wait for, I guess, the next sealift?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [28]

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Oh, no, no, this isn't sealift stuff. This is -- these are small additions. And like it's got its own pace to it. It's independent of the gravity concentrator project and again it was all -- we're using it as an example of the little incremental products as the mill probably have a dozen things that they want to tweak here and there just to either improve recovery a little bit, improve throughput a little bit or just help manage just the operational volatility of it. It's just smart commissioning. I think probably a lot of companies wouldn't talk about all these sorts of things, but given the detail that we talked about our mill, we're using that as an example of what we're up to.

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David Medilek, Macquarie Research - Analyst [29]

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Right. And my final question is, just trying to understand the component of production that's coming from drift and fill in 2019. And to confirm, was much drift and fill implemented in 2018? One that I'm trying to understand is if there is a bit of a contingency in terms of meeting your development advance rates by essentially curtailing some of the drift and fill activities?

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

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The drift and fill is a component of the BTD area. And the BTD area is just under 40% of our ounce production out of the mining plant, and it's a component of it. I just have the general statistics on it right now. And again, I'd have to pull out the detailed mining plans to drive to more detail around that.

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David Medilek, Macquarie Research - Analyst [31]

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Okay. But is it fair to say that that's a bit of a contingency in terms of reallocating the jumbo in terms of making sure that the development is hit for your broader targets out to central, et cetera?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [32]

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Yes, if you just kind of -- on the bigger picture of how the jumbos will be allocated, is there's a waste jumbo allocated in the BTD area and then there is a jumbo allocated into the Doris Connector area. And then, of course, jumbo allocated to the -- heading out to the Central. And Central will have a significant amount of waste development completed during the year setting up for 2020. The 3 jumbo crews just imagine that could be allocation.

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Operator [33]

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This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Jason Neal for any closing remarks.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [34]

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Thank you very much. I just want to thank everybody for taking time with us today. I know it's a busy day. There's lots of interesting news out there. We -- our management team is available to do follow-up questions. And again, thank you. Thank you so much for your attention.

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Operator [35]

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