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Kirkland Lake Gold Ltd. (KL) Q2 2019 Earnings Call Transcript

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Kirkland Lake Gold Ltd. (NYSE: KL)
Q2 2019 Earnings Call
July 31, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. My name is Julie and I will be your conference operator today. I would like to welcome everyone to the Kirkland Lake Gold second quarter 2019 conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press * then the number one on your telephone keypad. If you would like to withdraw your question, you may press the pound key.

With that, I would now like to turn the call over to Vice President of Investor Relations, Mark Utting.

Mark Utting -- Vice President of Investor Relations 

Thanks very much, Operator, and good morning, everyone. Welcome to our second quarter 2019 conference call and webcast. With me today are most of the members of the Kirkland Lake Gold senior management team, including Tony Makuch, our President and Chief Executive Officer, David Soares, our Chief Financial Officer, Eric Kallio, our Senior Vice President of Global Exploration, Ian Holland, our Vice President of Australian Operations, Duncan King, our Vice President of Mining, Kirkland Lake, Natasha Vaz, our Vice President, Technical Services, and we also have Troy Fuller, who's our Director of Exploration in Australia with us today. There are also several other members of the management team in the room as well.

As indicated, today we'll be making remarks on the results for the second quarter and first half of 2019. After the remarks, we'll then open the call to questions. The slide deck that we'll be referring to is available on our website, both on the homepage and in the events section.

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Before we get started, I'd like to direct everyone to the forward-looking statements on slide two of the slide deck. Our remarks and answers to questions may contain and likely will contain forward-looking information about future events of our company. Please refer to slide two as well as the forward-looking information section in our MDNA dated July 30th for the three and six months ended June 30th, 2019.

Also, during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available in the Q2 press release and MDNA. Finally, I'll emphasize that all figures, numbers given today will be in US dollars unless otherwise stated.

With that, I'll now turn the call over to Tony Makuch, President and CEO of Kirkland Lake Gold.

Tony Makuch -- President and Chief Executive Officer

Thanks, Mark. Thanks, everybody for being on the call. We really had a solid quarter in Q2 this year. Maybe it wasn't quite as good as Q1, which we really a good quarter, but it was still a very strong quarter. We expect the next two quarters this year to continue to be significant improvements and really strong quarters, especially when you get a sense of where our guidance is.

Before I get into saying too much here, again, I want to thank the people at Kirkland Lake Gold. They're the ones who did all the work. We just get to sit here and talk to you about the accomplishments. So, it's what everybody does, especially working safely that really makes the company move ahead and makes it profitable for our shareholders.

Again, just getting into Q2, we had production of 215,000 ounces. Cash cost was 312,000 ounces, all in sustained cost 638 ounces for the quarter. Again, these are industry-leading, one very strong earnings per share, $0.50 per share for the quarter, and we have demonstrated our company can demonstrate a lot of cash flow and we did it again in Q2, operating cash flow of $178 million or $0.88 per share before changes in working capital. Very importantly, we added $53 million in cash on the balance sheet while internally funding our growth.

Turning to slide four, looking at year to date, it was a record half-year. We had production of 446,000 ounces, cash cost just above $300.00 per ounce and all in sustaining costs just under $600.00 per ounce. Earnings per share for the first half of the year, $1.04 and that's the adjusted earnings per share. We had free cash flow of $146 million. We increased our cash by 41% in the first half of 2019. Cash is now sitting at about $470 million by June 30th.

Slide five, this can give you a sense of what the production growth has been quarter over quarter and where you see improvements. Slide six gives you a sense of our guidance at the halfway point. You get a sense we're on track for key operating parameters for our KPIs for 2019. We're ahead of plan at Fosterville and with higher production, we expect to be at the top end of our 570,000 to 610,000-ounce target. We are tracking very well against cash cost guidance here. Macassa is very well-positioned to achieve its production guidance and it currently sits better than guidance on cash costs.

We fully expect to achieve our consolidated guidance of 950,000 to 1 million ounces this year at cash cost of $300 per ounce and sustaining costs between $520 and $560 per ounce. You get a sense based on where we see it's going with our guidance the second half of the year. Our next two quarters are going to be extremely strong quarters.

Looking at some of our other guidance, we are tracking ahead of guidance with our capital. We are doing a lot of advancements as a [inaudible], but we remain ready to get sinking. Duncan will give you a little bit color for that a little bit later. We expect to see some numbers come down and believe we will end the year at close to our current target ranges in all areas. Then from a capital point of view, we'll review our guidance, again, in Q3.

With that, I'll introduce David Soares, our CFO.

David Soares -- Chief Financial Officer

Thank you, Tony and good morning, everyone. Looking at Q2 2019, our net earnings totaled $104 million or $0.50 a share. Earnings increased 69% from Q2 2018 and were slightly lower than the record level we achieved in Q1 this year. Adjusted earnings this quarter were similar to net earnings at $105 million, also $0.50 per share.

The key drivers of earnings growth compared to last year were strong revenue growth and improved unit cost. We also had lower expense exploration costs year over year. These factors more than offset a slightly higher G&A costs and other loss of $5.4 million pre-tax, largely related to foreign exchange, which compared to other income of $4.3 million in Q2, 2018. We're now capitalizing more of our exploration costs and I will discuss that in a few minutes in more detail.

Moving on to the next slide, looking at revenue for Q2 2019 in more detail, we have total revenue of $281 million for the quarter, a 31% improvement from the $215 million in Q2 2018, mainly driven to higher gold sales. The gold sales totaled 212,000 ounces, 29% higher than the 164,000 ounces for the same period last year. The increase in sales had a $62 million favorable impact on revenue year over year. There was also a small favorable impact from slightly higher gold price, but for the most part, the gold price was similar for all three periods covered on this slide.

Moving on to looking at EBITDA, for Q2 2019, EBITDA totaled $185.8 million, a 50% increase from Q2 2018. The key driver of growth in EBITDA was the increase in net earnings. Depletion and depreciation were largely unchanged as the impact of higher production volumes was offset by lower depletion and depreciation costs on a per ounce basis. That reflects an increase in our base of depletable assets with our last reserve update.

Our effective tax rate for the quarter was 31.6%, unchanged, really, from Q2 2018. We did see an increase in the current income tax expense, given that we had tax loss carry forwards that were utilized in last year's second quarter that we do not have in this quarter in 2019.

Moving on to the next slide and turning to the year to date numbers, our net earnings of $214 million or $1.02 per share increased 92% from $111.5 million or $0.53 per share in the first half of last year. Revenue growth of 42% was the key driver of the increase in year to date profitability year over year. We also benefited from an improved unit cost and lower expense exploration. These factors were only partially offset by higher depletion and depreciation costs, slight increases in corporate G&A, reflecting our continued growth and supporting the same, and we did have another loss in Q2 2019, mainly related to foreign exchange.

Moving on to the last slide, the cash position -- so, this slide looks at our growth in cash during Q2 2019. We increased our cash position by 53 million since the end of Q1 since the close of Q2. At the same time we increased our cash position, we invested in our capital expenditures and we also bought back stock.

There are two items here in this waterfall that I'd just like to draw your attention to. One is the fairly low level of expensed evaluation and exploration. In Q2 of this year, we took a look at our exploration programs and our policies around accounting and exploration that determine that. Given the significant amount of drilling that we are doing in close proximity to our existing mining areas, the drilling that's being done for the purposes of extending these mining areas, we decided to capitalize more of these exploration costs. This is a trend that is likely to continue.

The other area I'd like to draw your attention to is cash taxes paid. So, our cash tax payments this year are fairly low and they're based on installments that are being made for 2019 based on 2018 taxable income levels. We expect that these cash tax installments being made in 2018 to remain relatively low and would catch up cash taxes paid for 2019 tax returns to be made in the second quarter of next year.

With that, I'd like to turn the call over to Ian Holland, Vice President of Australian Operations.

Ian Holland -- Vice President of Australian Operations

Thanks, David. Starting with slide 12, I'm trying to provide some comments on the quarter for Fosterville. The operation had a strong headline result with production of around 141,000 ounces, which is a new quarterly record for the operation. This builds really on exceptional grade performance for the quarter of nearly 40 grams per ton with tons milled in recovery essentially aligned with plan.

The grade performance was driven by Swan production during the quarter. The image on the right-hand side of the slide shows a long section highlighting the sources mined. There are 11 spokes in total mine for the quarter over seven different levels. Combined with development, the contribution from Swan was approximately 50% of the tons returning 90% of the ounces produced over the quarter.

The strong production result translated through to exceptional unit cost performance, operating cash cost of $120 per ounce or sustaining cost of $318 per ounce and earnings and operations for the quarter, which came in at around $140 million. Investment continues, strong levels of investment continue at Fosterville with capital of $22.9 million and growth capital of $14.1 million for the quarter. The growth capital is focused on the three main projects, ventilation upgrade, pace plant, and mine water treatment plant, all of which remain on track for completion this year.

Turning to slide 13 and the projection for the remainder of the year, we expect to be in line with current guidance of 530,000 to 610,000 ounces of gold produced and operating cash costs of $130 to $150 an ounce. We expect tonnes milled and H2 to be pretty similar to H1, with the increase in production driven by higher grade as we continue to advance the sequence of Swan into the higher-grade areas of the resource.

With that, I'll pass over to Duncan King.

Duncan King -- Vice President of Mining for Kirkland Lake

Good morning. As Tony mentioned earlier, Macassa had some challenges in Q2 following its record performance in Q1. The most significant impact was from the water related to the spring runoff getting into the mine and flooding our lower loading pocket. We expected it to be resolved by June. It ended up going right through the quarter. We will have our 5,700-level loading pocket back in use very soon and I can tell you that we had a strong July with an average grade of over 25 grams to the ton.

Looking at the numbers for Q2, we produced 49,000 ounces at cash cost of $456 and all-in sustaining costs of $788. On a year to date basis, we are right in line with expectations, largely driven by the strong grade performance in Q1. We are on track to produce 240,000 to 250,000 ounces at cash costs around $400 per ounce. In terms of the number four shaft project, work is advancing and we will begin sinking within the next couple of weeks. That will be a significant milestone for the project.

The surface construction is largely complete and the key infrastructure is in place and we are in the process of transitioning to the sinking phase of the project. Capital year to date for the shaft is about $42 million.

With that, I'll turn the call over to Eric Kallio, Senior Vice President of Exploration.

Eric Kallio -- Senior Vice President of Exploration

Thanks, Duncan. Good morning, everyone. Today, I'll start with slide 15 and an update on recent work in Macassa, where I believe we continue to make very strong progress on our exploration program. As indicated on the slide, most of our new work was focused on areas surrounding the SMC complex near the 5,300 level and included substantial new drilling and development following up on new extensions for the SMC and new discoveries on the Amalgamated in Q1.

In terms of drilling, we completed over 21,000 meters in Q2, bringing our total year to date to 38,000. In terms of development, we completed almost 200 meters with most of the new development used to advance key exploration drifts on 5,300 level to the east and west.

In addition to the development, I'd like to mention the significant amount of work done on new drill platforms with five new platforms installed during the quarter, which I believe will allow faster and better angles for drilling, especially for the Amalgamated Break. Three of the platforms on the 5,300 level and allow testing the SMC up to 200 meters east and 500 meters west, the other two on 5,600 and 5,700 level are specifically designed to test for extensions of the Amalgamated.

In terms of results, we continue to be very encouraged by what we see, with many new holes reinforcing the previous results, suggesting further opportunities for expansion. Considering new work in progress, we believe we are on a very good track to replacing resources and reserves by year end.

Turning to my next slide, No. 16, I'd just like to briefly discuss some of our plans going forward. Shown here is a long section looking north over the SMC complex with the key exploration targets highlighted in red. As expected, the key focus for us going ahead will remain on the east, west, and depth extent of the SMC. If we look to the east and west, we see the structure being open for at least another 500 to 1,000 meters. The result now initiated long-term drifts in both of these directions to test both the SMC and Amalgamated Break in the most efficient fashion.

One of the interesting things about the area to the west is it's already identified some older drilling just south of the three shaft, which appears to line up with and has similar character to the west part of the SMC. If we're right about this, it could potentially extend the structure by up to about 2,000 feet.

In terms of other targets we're looking at, we are now looking at also being a lot more focused on the Amalgamated Break and especially the central and west portions of this, which has had very little testing in the past. As mentioned, we are very encouraged by what we've seen in recent drill holes and now set up at least three new areas where we can do further testing with this so we hope to be able to announce a lot more results from this soon.

Other areas we're very optimistic about are shown with circles in the upper part of the mine near the number two shaft and near surface east of number three shaft. The zones in the number two shaft seem to show a strong potential for new flat zones similar to the SMC near the 3,000 level and the zone number three shaft, potential for other mineralization near the Amalgamated Break. Both of these areas are ones that have very little drilling in the past, but we're now looking at ways to accelerate some more drilling on these, with one of the possibilities being from surface.

In terms of the zone's number two shaft, we're also looking at plans for a new development ramp from 34 level to gain access so we can do detailed sampling and drilling. In summary, we're very pleased with progress on current exploration work to date and looking forward to continuing to test all of these new targets.

With that, I'll pass the call over to Troy Fuller, our Director of Exploration for Australia and he'll give an update on recent work at Fosterville.

Troy Fuller -- Director of Exploration, Australia

Thanks, Eric and good morning. Grade fueling at Fosterville over the quarter has been focused on the Lower Phoenix, Phoenix, Harrier, and Robbin's Hill targets. Five underground rigs have been dedicated to growth programs targeting extensions of the Harrier and Phoenix and Lower Phoenix systems and four rigs ramping up to six rigs over the year have been focused on the infill and expansion of Robbin's Hill resources in the northern part of the mine lease, approximately 4 kilometers northeast of the Fosterville resources.

Harrier drilling in Q2 focused on the downtime to extensions of the Harrier minimal reserve block and results returned today indicate significant extensions of sulfite mineralization, while drilling will continue to define extensions of mineralization associated with the offset position in H2. Drilling will also target a prospective and declined offset zone at depth, which now could be drilled following the recent completion of a 200-meter exploration drift extension, which can be seen on slide 17.

This is an exciting exploration target, as we have observed increasing grades of sulfite mineralization at depth, including an occurrence of visible gold, as we approach the anticline target. In the new platform development provides a drill position to effectively target the anticline offset target at depth with drilling to commence shortly.

In addition, we have continued extensional drilling into the Lower Phoenix gold system at depth during the quarter, covering the downtime to projections of the Lower Phoenix mineral resources. Drill results today indicate that significant quantities of sulfite minerals, mineralization persist to depth and we expect to see significant expansion of inferred mineral resources in the same end of year model updates. Preliminary modeling indicates we have established continuity of mineralization approximately 900 meters south of current Lower Phoenix mineral reserves.

Further to these results, we have undertaken step out drilling into the open extension of the signet structure, which lies sub-parallel and approximately 110 per wall to the Swan. The drilling has yielded some very encouraging results, including multiple occurrences of visible gold mineralization and sulfite mineralization. H2 drilling will be focused on infill drilling these zones with a view to increase confidence and expand mineral resources on the signet structure for end of the year updates.

Robbin's Hill programs continue to return encouraging results with a coherent zone of sulfite mineralization, now defined to a depth of approximately 600 meters below surface. Several occurrences of visible gold also occur within the sulfite high-level mineralization at depth, driving an increase in grade profile and the system remains open for further expansion.

Drilling for the remainder of the year will focus on continued extensional drilling of Robbin's Hill mineral resources at depth, coupled with step out programs to increase geological understanding and investigate resource growth potential between Robbin's Hill resources and Fosterville mine resources, which include the Phoenix and Harrier resources approximately 4 kilometers to the southwest.

I will now turn over to Ian Holland to talk through developments in the Northern Territory.

Ian Holland -- Vice President of Australian Operations

Thanks, Troy. So, just looking at slide 18, we continue our exploration initiatives across a range of projects in the Northern Territory, the most advanced of these is the Lantern deposit, immediately adjacent to the Cosmo mine. Whether we continue to drill and develop to assess the mineralization, the image to the right-hand side of the slide shows the developments and trial mining in Lantern that we are planning for H2, with this advanced exploration also planned to include trial processing to aid our assessment work.

It's important to note that our vision for the Northern Territory is a larger multi-mine operation feeding a central mill. To that end, we've continued work on a range of other areas as well during the quarter, including permitting work at Union Reefs and north for the prospect [inaudible], drilling programs at Union Reef South on the Miller's Line and drilling in the Pine Creek area. We continue to be encouraged by the results that we see.

With that, I'll pass back to Tony.

Tony Makuch -- President and Chief Executive Officer

Thanks, everyone. Thanks, Ian for finishing up there. I'll go to slide 19 here. We see ourselves -- we certainly continue to have superior performance and we have strong value creation for our shareholders throughout the year and we see you as the year progresses continue to value creation. We definitely are on track to achieve our 2019 guidance of 950,000 to 1 million ounces, operating cash cost of $285 to $305 per ounce and sustaining cost of $520 to $560 per ounce. We have industry-leading earnings and earnings per share.

We continue to build our cash position while we internally fund our growth. We've increased our dividends and have been buying back our shares, so, focus on shareholder return and a number of other areas and that's resulted in a share pricing increase of over 70% year to date. As Ian and Troy and Eric gave you some color on the exploration side, we continue to be aggressively exploring.

We have identified a number of new targets. We have the mineralization and new exciting deposits happening in the Northern Territory and definitely developments at Fosterville and at Macassa with the new mineralization system at the Amalgamated Break. So, we see some exciting new developments coming up in the company as we go into the second half of the year combined with solid operating performance.

So, with that, I'll end the call and be happy to take some questions.

Questions and Answers:

Operator

We will now begin the question and answer session. If you have a question, please press * then the number 1 on your telephone keypad. If you wish to be removed from the queue, you may press the # key. Once again, that's * followed by the number 1.

Your first question comes from Stephen Walker from RBC. Please go ahead. Your line is open.

Stephen Walker -- RBC Capital Markets -- Analyst

Thank you. Tony, just sort of a higher level question, first of all, at Fosterville and then follow up with some more detailed questions -- when you look at the throughput, obviously given the higher grades and the visible gold, the throughput at Fosterville through the plant has been between 1,200 and 1,300 tons a day. That plant has produced between 2,200 and 2,400 tons a day and clearly, there's that potential to increase throughput once you've completed the infrastructure between Harrier and the Phoenix deposits.

Can you talk a little bit about when you expect to see the ventilation and the mining infrastructure, water and power completed to allow you to at least get access to greater tons from a mining perspective? And then as a follow-up, when could we see the plant optimized to allow greater throughput? Just from an infrastructure perspective, give us a sense on sort of how you see that unfolding here over the next couple of years.

Tony Makuch -- President and Chief Executive Officer

Yeah. Good question, Stephen. I can let Ian give a little bit more color on things, but as we mentioned, we have a number of capital projects happening this year, the ventilation project which we expect to get done some time in Q4. We've had a little bit of issues with the -- the contractor had his rod stuck in the hole to try to tie the hole to the surface part. We're trying to get through that. We still feel on track to get the ventilation done before the end of the year.

We have our paste-fill plant that we're actually planning to begin commissioning now in August and September and we expect to actually pour paste underground in Q4 in October and November of this year, which will definitely help in terms of mining as we go deeper. And then we have a few other projects that are ongoing with development.

For the most part, in terms of the mill, we do have the 2,400 tons a day of the larger capacity on tons per day in the plant, but these kinds of grades, we have some projects in the mill to adjust that. We're looking at now adding a second gravity circuit to the plant. We're getting 75% to 80% gravity recovery on gold and at 600,000 ounces a year, it gets overwhelming. We don't want to be losing gold. We want to be efficient there. So, that's one project.

We are looking at automated sampling systems throughout the plant to get a better handle on where gold is moving. We're really pushing our tonnage up and we have to build a new refinery. So, we have a number of these projects which are all coming in Q4 of this year, which will help us. Then tied to that, in terms of getting throughput up at Fosterville, the exploration program is ongoing with the exploration funds both at Harrier or some other locations within Lower Phoenix. Ian, did you have anything else to add to that?

Ian Holland -- Vice President of Australian Operations

You covered it well, Tony. We would see as per our three-year guidance, pretty similar production levels in 2020 and 2021 as to this year. Perhaps at the back end of that, there are some volume increases, but it's fairly stable. It really is a longer-term play for us here in terms of the drilling and development and the infrastructure that allowed us to really optimize the operation and looking at long-term material movement and that sort of thing. So, it's actually a work in progress, but we'd expect in the short to medium-term to see similar levels we're seeing now.

Tony Makuch -- President and Chief Executive Officer

Stephen, going through the exercise of adding some lower grade material into the plant, first off, some of it would take away from us being able to mine in some of the areas we are currently because as we say, we had limited ventilation. We are five development crews and doing an aggressive exploratory development program. We don't want to take away from any of these lower grade mineralization's into the mill. So, really focusing on optimizing the operation and not mining stuff that potentially would not be worth in the current forms.

Stephen Walker -- RBC Capital Markets -- Analyst

Thank you for that. That's very helpful from a longer-term basis. Now, maybe a more specific question for Troy if I might -- Troy, is there sufficient infrastructure in place here currently and I guess over the next quarter to allow you to do the detail drilling in and around a down plunge of Swan and in and around the down plunge of Eagle and Phoenix? Are you going to be able by year end to clearly delineate those deposits or have they been clearly delineated, the Swan, the Lower Eagle, and Lower Phoenix?

Troy Fuller -- Director of Exploration, Australia

Yes. We have all the infrastructure in place providing platforms for drilling to the extension of the Lower Phoenix system. So, that's all there. We're currently drilled out with the system down-plunged to about 100-meter spacings. So, we're fairly confident by end of year we'll have a solid deferred mineral resource established on that system.

Stephen Walker -- RBC Capital Markets -- Analyst

And does the Swan in fact continue to depth and Eagle continue to depth? Are those geological features the folding features and intersections with the structures? Does that continue beyond the existing resource identified?

Troy Fuller -- Director of Exploration, Australia

Yeah. The Swan extensions we'll need to undertake some infill drilling down plunged directly from the mineral reserve block. That drilling will happen in the back half of this year. That information will be incorporated into the end of year [inaudible].

Stephen Walker -- RBC Capital Markets -- Analyst

Thank you very much. That's very helpful.

Operator

Your next question comes from Cosmos Chiu from CIBC. Please go ahead. Your line is open.

Cosmos Chiu -- CIBC World Markets -- Analyst

Hi, thanks, Tony and team. Maybe first off on Fosterville here, looking at Q2, it was good, 39.9 gram per ton. I guess Ian talked about 11 stopes, about half the tonnage coming from Swan. On that, though, you're expecting an even better second half for 2019. Is that going to be based on grade? Are you planning on more stopes coming out of Swan with an even higher than average grade in the second half or is it partially based on tonnage?

Tony Makuch -- President and Chief Executive Officer

Go ahead, Ian.

Ian Holland -- Vice President of Australian Operations

Thanks. It's almost entirely grade, as I touched on volume in H2. It's expected to be pretty similar in H1. So, it's really grade. The proportion of Swan is expected to be similar. So, it is that we're mining into some higher grade areas of the resource and some of the uniform distribution of grade. There are higher and lower zones and in the second half, we expect to be mining through some higher zones. So, that really drives the increase in H2.

Cosmos Chiu -- CIBC World Markets -- Analyst

Yeah. So, you're expecting similar number of stopes but higher grade in Swan?

Ian Holland -- Vice President of Australian Operations

Correct. Yeah.

Cosmos Chiu -- CIBC World Markets -- Analyst

And then on the exploration front, I guess Troy kind of mentioned it, but more specifically, you've been targeting -- you're right now in a position to target some of the Harrier deeps, especially the anticline offsets. Those were some of the results we had been expecting earlier on in 2019 but you had to put the drift in. Now that you're targeting it, could we see some results coming out from those anticline offsets at Harrier deeps before the end of 2019?

Ian Holland -- Vice President of Australian Operations

Yes, we certainly can. We're commencing some of this drilling from the extension platform in the next week or two. We should have several hauls down to depth in the anticline offset position by the end of the year.

Cosmos Chiu -- CIBC World Markets -- Analyst

I guess the current theory behind it is the anticline offsets could yield higher grades at Harrier deeps.

Ian Holland -- Vice President of Australian Operations

That's correct. Certainly, if we look at the Phoenix system, our highest grades are in an anticline offset position, whereas historically, the lower grades are on this incline offset position. The current Harrier reserves are on this incline offset position. So, we're quite optimistic that Harrier offset has a lot of potential.

Cosmos Chiu -- CIBC World Markets -- Analyst

Moving up north now in Australia, talking about the Northern Territories, it looks like you spent quite a bit of money on exploration and development or what you call exploration in the northern territories, $29 million in Q2 and overall about $50 million in the first half of 2019. You did some bulk samples here, 31,000 tons. I'm just wondering if you've given a go ahead in terms of development of Northern Territories. If not, how should we look at the potential return here given all the money that you've put into the Northern Territories?

Ian Holland -- Vice President of Australian Operations

Yeah. I'll cover that one. We're taking a really measured approach here, to be completely frank. We do see the really significant potential in the Northern Territory, but we're not at the go ahead production stages yet. So, as you say, what we've done is do a significant amount of drilling and some development in mining over the course of H1. That's going to continue over H2 and if anything, accelerate, but another important step there will be to do some trial processing as well so we can truly gauge the performance of the land.

Parallel to all of that is the work we're doing on the other projects in the Northern Territory because we really see some scale potentially. Again, there are no guarantees in this and we're hurrying up quietly, but that's really the intent. We're aiming for a large integrated multi-mine operation fitting a central mill. That's our intention.

Cosmos Chiu -- CIBC World Markets -- Analyst

I guess you're doing all this work, but is there any sense in terms of timing of when you might be able to make a decision in terms of -- is it a go or no go or how should we look at it?

Ian Holland -- Vice President of Australian Operations

We're lucky to be doing some trial processing in Q4 and our budget process will be the critical next step in that assessment phase. So, whatever our schedules show us for next year and how is the business aimed together?

Tony Makuch -- President and Chief Executive Officer

The fact that we're starting to do test mining, the fact that we're turning on our mill, we're working toward going, we're just taking baby steps right now. We're all in. We're not just pussyfooting around there. We're moving ahead. We're moving ahead in stages.

Cosmos Chiu -- CIBC World Markets -- Analyst

For sure. Maybe a quick question for David here -- it sounds like with the taxes, there are installments and what not. It sounds like there's going to be a true up in Q2 2020 based on the profitability in 2019. So, should we be expecting like a big tax number in Q2 2020 and if that's the case, how can we beforehand sort of calculate that number? Should I just take 2019 profitability multiplied by, say, 30% or 35% and then figure out what the installments were actually in 2019 and come up with that number? Could you give us a bit more detail?

Tony Makuch -- President and Chief Executive Officer

That's right. So, basically, you take the effective tax rate for 2019, which is close to the statutory rate. Really, the large impact is in Australia, although Canada will be impacted similarly. If you did that, you'd get pretty close to what the installment should be in Q2 2020.

Cosmos Chiu -- CIBC World Markets -- Analyst

Could you remind what the statutory rate is again in Australia and Canada?

Tony Makuch -- President and Chief Executive Officer

It will be about 30% in Australia and Canada, just slightly lower than that.

Cosmos Chiu -- CIBC World Markets -- Analyst

Maybe one last question coming back to Canada -- the Holt complex -- the guidance for the year is 140,000 to 150,000 ounces. You've done about 55,000 ounces so far. I know Holloway is coming in and that should be an incremental 20,000 ounces in the second half, but you still need, if my mathematics is correct, you still need Holt and Taylor to improve in the second half to meet that guidance. Can you maybe run through some of the issues Holt and Taylor -- we're now sort of into Q3 now -- have you seen any good turnarounds so that it would give you confidence in terms of what's happening at those two operations?

Tony Makuch -- President and Chief Executive Officer

In terms of the Holt complex, we expect to be on track to meet our guidance for the year. We are expecting some improvements in the second half, definitely, you see coming on from Holloway. The issue and some of the challenges there relate to grade and we do have the high royalty structure at Holt, which we're assessing and we're not going to -- we're working at achieving our targets for the year.

We are facing, again, what is the grade and how does that deal with in terms of the royalties. We're not falling in love with our mines if we don't think we can get the cost structure and benefits of Kirkland Lake Gold, we'll do what we need to do with those assets. Our long-term goal is $950 an ounce for cash, all in sustained costs at $650 or under in cash costs in 100,000+ ounces a year in terms of production.

Cosmos Chiu -- CIBC World Markets -- Analyst

You brought up royalty -- hopefully I can have one more question here. Could you give us a quick update in terms of the state of Victoria and the proposed royalty and where it's at right now?

Troy Fuller -- Director of Exploration, Australia

I'll cover that one. So, it was announced in the budget presentation, the budget announcement. It was still being worked through. We're in discussion with the government. We're hopefully for some adjustment to that, but it's too early to say. So, it's really still a work in progress.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks, Tony and everyone else. Thanks again for the call.

Operator

As a reminder, if you have a question, please press *1 on your telephone keypad. Your next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead. Your line is open.

John Tumazos -- Very Independent Research -- Analyst

Thank you very much. If I can ask two questions about exploration expense -- first, from a purely accounting standpoint, how much of the outlays in dollars are not eligible to be capitalized, like Eric's salary or if he takes a plane to Australia or different technical services you might buy from consulting geophysicists or geologists? And then second, does the 85% capitalization rate suggest almost complete exploration success or could you give us a little color if there were one or two holes out of 1,000 or 2,000 that didn't hit gold?

Tony Makuch -- President and Chief Executive Officer

Good question. Thanks, John for the questions. I think most of the costs related to exploration are with the direct exploration costs themselves. So, Eric's salary would be a corporate cost, obviously allocated to the different areas where he does work, whether it's the Canadian operations or Australian operation, a portion of that would get sort of charged back.

But with regard to the actual exploration work that was done, looking at each drill hole, where we're doing the work, how close that work was to existing reserves. Our company's view on the benefit associated with that work or the future benefit associated with that work, we realized that really, it met the definitions for capitalization. Those are the adjustments that we made in Q2. I'm not sure if that answers the question.

John Tumazos -- Very Independent Research -- Analyst

For the work at Robbin's Hill, where you're tracing the old open pit to depth, and Harrier, where you're tracing the plunge to depth, is all that work being capitalized?

Tony Makuch -- President and Chief Executive Officer

Yes.

John Tumazos -- Very Independent Research -- Analyst

If I could ask one final more procedural question, just as I look at the stock price down a little bit this morning as you were off $0.02, what is the first day that you're eligible to buy back stock after reporting earnings over night? Is it tomorrow or Friday or Monday?

Tony Makuch -- President and Chief Executive Officer

Two full trading days, John.

John Tumazos -- Very Independent Research -- Analyst

Thank you. Some companies have third-party blank check blind authorizations, where it's a different rule. Thank you very much.

Tony Makuch -- President and Chief Executive Officer

Thank you.

Operator

We have no further questions at this time. I will now turn the call back over to Mark.

Mark Utting -- Vice President of Investor Relations 

Thanks very much, Operator. Again, thanks everyone for participating on the call this morning. As you heard, we're looking ahead to what we think would be two very good quarters to finish up 2019. It puts us on track to achieve our key operating guidance for the year and we look forward to updating you on our operating performance as well as our exploration and the other parts of the company as well. Thanks very much. Have a good day.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 48 minutes

Call participants:

Mark Utting -- Vice President of Investor Relations 

Tony Makuch -- President and Chief Executive Officer

David Soares -- Chief Financial Officer

Ian Holland -- Vice President of Australian Operations

Duncan King -- Vice President of Mining for Kirkland Lake

Eric Kallio -- Senior Vice President of Exploration

Troy Fuller -- Director of Exploration, Australia

Stephen Walker -- RBC Capital Markets -- Analyst

Cosmos Chiu -- CIBC World Markets -- Analyst

John Tumazos -- Very Independent Research -- Analyst

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