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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the Newmont Mining, First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.
I would now like to turn the conference over to Jessica Largent, Vice President of Investor Relations. Please go ahead.
Thank you. Good morning and thank you for joining Newmont's first quarter 2018 conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer; Nancy Buese, Chief Financial Officer and Tom Palmer, Chief Operating Officer. They and other members of our executive team will be available to answer questions at the end of the call.
Turning to slide 2. Before we go further, please take a moment to review the cautionary statement shown here and refer to our SEC filings which can be found on our website at newmont.com.
And now, I'll turn it over to Gary on slide 3.
Thanks, Jess, and thank you, all for joining us this morning. Newmont delivered some strong results in the first quarter of 2018. Our costs and production remain in line with our global guidance, we're building seven profitable projects on four continents, and we advanced the next generation of Newmont mines to the next stage of development. We also generated $644 million in adjusted EBITDA and declared a dividend of $0.14 per share, making it the strongest among the senior gold producers. This performance, however, was overshadowed by a tragic accident at our Ahafo Mill Expansion that resulted in six fatalities.
Turning to slide 4. As a background, construction contractors were in the process of pouring concrete for an elevated slab on April 7 when the roof collapsed. Emergency response teams were deployed immediately, but our efforts were not successful. And six men, whose names you see here, lost their lives. Tom and I traveled to Ghana to join our regional leadership team in reaching out to their families, our employees and government and traditional leaders to offer our heartfelt condolences.
We have assembled an expert investigation team and are supporting the government's investigation to understand exactly what happened. Operations in Ghana were temporarily suspended in the wake of the accident so we could review safety standards and conduct risk assessments prior to resuming operations. Both Ahafo and Akyem are now up and running, but certain work on the Ahafo Mill Expansion has been suspended until we and the authorities are satisfied that work can resume safely. This loss has had a profound impact on the entire Newmont family, and it is with great humility and resolve that we renew our commitment to working safely. Nothing is more important.
Turning to more details on the quarter on slide 5, we continue to deliver our strategy, starting with superior operational execution. This includes producing 1.2 million ounces of gold at all-in sustaining cost of $973 per ounce, in line with guidance and continuing to improve cost and productivity through our full potential program. For instance, we're launching our first centralized process control hub in Australia, which allows experts at each site to collaborate on resolving problems and raising performance.
We also continued to strengthen our portfolio in the first quarter. We remain on track to complete Northwest Exodus, Twin Creeks Underground and Subika Underground later this year. We also advanced Ahafo North, Yanacocha Sulfides and Long Canyon Phase 2 to the next stage of development study and added Chaquicocha Oxides to our project pipeline. And we progressed our near-mine exploration programs, as well as promising greenfields prospects on four continents.
We delivered leading financial performance in the first quarter by generating adjusted EBITDA of $644 million, a 12% increase over the prior year quarter, declaring a dividend of $0.14 per share, nearly three times higher than the first quarter of 2017, and maintaining one of the strongest balance sheets in the gold sector.
Finally, we met sustainability targets to uphold human rights and lower water use and greenhouse gas emissions. I invite you to read more about our performance in our Sustainability Report, Beyond the Mine, which is posted on our website.
Turning to our cost performance on slide 6. While our track record shows a steady trajectory of improvement, our cost rise temporarily in 2018, as we undertake stripping campaigns at Carlin, Boddington, Ahafo and Twin Creeks. Our profile also reflects increased investment in exploration and projects, in keeping with our focus and creating long-term value. Cost will come back down, as we reach higher grades and bring on new lower cost production at Subika Underground later this year.
Looking at the first quarter of 2018, we remain in line with guidance and we continue to improve cost and efficiency, by enhancing ore body modeling and mine planning, increasing mill throughput and recovery and leveraging technology based on its value and its viability.
Turning to production on slide 7. We're also maintaining a steady production profile. Our outlook reflects productivity gains in mine planning and mill performance, as well as success in bringing new mines and extension into production. We expect to deliver between 4.9 million and 5.4 million ounces of gold on an attributable basis in 2018 and we're on track to meet that commitment with 1.2 million attributable ounces of gold produced in the first quarter.
As a reminder, production is weighted to the second half of the year when we'll recoup production from the Silverstar mine at Carlin in Nevada, reach higher grades in South America and Africa and bring the Subika Underground Project online.
Turning to more on our current projects on slide 8. As I mentioned, we remain on track to reach commercial production at the Subika Underground later this year and we've begun to restart construction work at the Ahafo Mill Expansion as we perform detailed risk assessments on the various tasks involved.
In North America, Northwest Exodus and Twin Underground remain on track to reach commercial production later this year. We also began shipping concentrates from Cripple Creek & Victor for processing in our Nevada mills in early 2018 and Tom will have more on our results to-date. In South America, Quecher Main is well underway. This project is designed to extend oxide production and bridge to developing Yanacocha's extensive sulfide deposits.
Finally, in Australia, we're progressing the Tanami Power project, which will lower cost and emissions and facilitate future growth. These six projects will generate an average internal rate of return above 20% helping to improve our outlook.
Turning to slide 9. Newmont's five-year outlook calls for steady gold production at competitive costs, with ongoing investment and profitable growth. We've not changed our global guidance, but Tom will talk about a few regional and site changes during his remarks.
Turning to our longer term growth prospects on slide 10. Our ability to pursue growth on four continents is a distinct competitive advantage and one that builds on our established infrastructure, proven operating and project experience and strong regional relationships. In North America, we've advanced Long Canyon Phase 2 to prefeasibility study and continue to pursue multiple underground expansions at Carlin. We're working with Goldstrike to further explore the Plateau property in the Canadian Yukon.
In South America, we continue to see favorable drilling and process test results in Peru at the Yanacocha Sulfides projects and have included a new project, Chaquicocha Oxides that Tom will review in more detail. We're partnering with Continental Gold to support the safe and efficient development of the high grade Buriticá project as well as nearby exploration assets in Colombia. And we're also excited about Esperance, an early-stage exploration property in French Guiana.
In Africa, we're advancing studies to develop underground deposits at both Ahafo and at Akyem and we're working with a local partner, Ezana, to explore greenfields opportunities in Ethiopia. Finally, in Australia, we're pursuing our second expansion at Tanami and advancing greenfields exploration prospects in Western Australia, New South Wales and the Northern Territory.
With that, I'll turn it over to Nancy to discuss our financial performance.
Thank you, Gary. Turning to slide 12 for first quarter financial highlights. Compared to the prior year quarter, revenue improved 8% to over $1.8 billion, driven by higher realized gold price. Adjusted net income increased 36% to $185 million or $0.35 per diluted share and adjusted EBITDA increased 12% to $644 million.
Cash from continuing operations was $266 million, primarily due to higher working capital outflows and increased investment in exploration and advanced projects.
Turning to slide 13 to review our earnings per share in more detail. First quarter GAAP net income from continuing operations was $0.32 per diluted share, up 146% from the prior year quarter. Primary adjustments included a $0.01 loss related to restructuring costs and a $0.02 loss primarily due to valuation allowance on deferred tax assets. Taking these adjustments into account, we delivered adjusted net income of $0.35 per diluted share.
Turning to capital priorities on slide 14, we have one of the strongest balance sheets in the sector with total liquidity of $6 billion and a net debt to EBITDA ratio of 0.4 times. We continue to invest in the next generation of Newmont operations in order to improve mine life and build a stronger reserve base. We also remain focused on returning cash to shareholders. Earlier this week, we declared a first quarter dividend of $0.14 per share, reflecting an increase of $0.09 over the prior year quarter.
Based upon an annualized $0.14 per share quarterly dividend plus the share buyback program executed in the first quarter of this year, we're on track to return more than $350 million to shareholders this year. Looking forward, our balance sheet strength and strong free cash flow allow us to continue executing our strategy.
And now, I'll hand it over to Tom for discussion of our operations starting on slide 15.
Thank you, Nancy. Turning to Africa on slide 16. Our priority in Ghana is to look after people, starting with those who lost family members in the tragic accident at our Ahafo Mill Expansion and extending to our team who have demonstrated extraordinary leadership under very difficult conditions. We're working to understand what went wrong, so that we can make sure it never happens again. Not only at Newmont, but in the broader mining community.
Turning to operational performance. Both Ahafo and Akyem delivered strong results in the first quarter. This is largely due to ongoing mill throughput and recovery improvements, which helped to offset the impacts of harder, lower grade ore at both operations. We were also pleased to reach an agreement, representing fair wages and benefits with the Ghana Mineworkers Union.
The Subika Underground continues on course. We're currently developing our seventh stope and expect to reach commercial production later this year, driving outlook for an even stronger second half. And we approved funding for definitive feasibility studies at Ahafo North, where we are focused on optimizing the project, securing permits and engaging stakeholders. Finally, we continue to advance longer-term development of our underground resources at both Ahafo and Akyem.
Turning to North America on slide 17. North America also turned in a solid quarter. At Carlin, work to improve ground control and stope design has allowed us to ramp-up production, with improved development rates and higher grades in our underground mines. We continue to de-weight the Silverstar pit and expect to reach ore later this year. Mill 6 is performing well. We're processing the first shipments of concentrates from Cripple Creek & Victor and seeing higher than expected recoveries. But we expect lower production in the second quarter, as we undertake our annual planned maintenance shutdown on Mill 6.
CC&V's production was impacted by the timing of leach recoveries and the stockpiling of concentrates during the first quarter. But we expect full-year cost to improve, with higher recoverable leach ounces and higher than expected recoveries on concentrates sent to Nevada. At Phoenix, mine plans and sequencing have been reconfigured to improve value. We are focused on gold zones in 2018 and we'll shift to higher grade copper zones beginning in 2020.
Finally, we have revised guidance for Twin Creeks to reflect slightly lower production and higher costs for 2018. This is result of exiting a layback earlier than expected last year to manage geotechnical issues and shifting focus to our next stripping campaign at the Mega pit. The team is actively pursuing opportunities to offset these impacts and our North America production outlook remains unchanged.
Turning to growth. We remain on track to reach commercial production at the Twin Creeks Underground and Northwest Exodus later this year and Long Canyon Phase 2 studies have advanced to the prefeasibility stage, paving the way for potential production by 2024.
We also recently executed a purchase agreement with Agnico Eagle for the joint venture interest in land near Long Canyon, securing future growth optionality and potential resource extension into this highly prospective district.
Turning to South America on slide 18. Merian continues to deliver solid mill performance with ongoing improvements in mine productivity And we commenced mining in the Maraba pit, providing high grade separate light ore (00:15:16) to the mill. Our primary crusher installation is advancing on course and will be completed in the second half of the year as we reach fresh rock.
Medium-term expansions at Sabajo and longer-term exploration at Amazonia is also underway in Suriname. Production at Yanacocha is slightly delayed due to the timing of leach recoveries, but we do not expect any changes to production guidance. However, Yanacocha's cost guidance is improving on the back of optimized or blending strategies at the gold mill. Stripping has begun at Quecher Main and we remain on track for first production in early 2019. And we continue to see promising drill results at Chaquicocha where we are dividing two underground oxide deposits to the south and north of the existing pit.
You can see this shown in yellow at the bottom of the slide. This successful exploration work has given us the confidence to add Chaquicocha Oxides to our project pipeline at the prefeasibility stage and we expect to convert some of this oxide deposit to resource at the end of 2018. As Gary mentioned earlier, we advanced Yanacocha Sulfides to feasibility study in the first quarter, and we continue our work to optimize our technical approach.
Turning to Australia on slide 19. At Boddington, we optimized our mill maintenance strategy to reduce the total number of plant shuts per year from four to three. This change delayed some production in the first quarter, but we expect to recover those ounces over the course of the year. Mine sequencing at Boddington resulted in higher copper and lower gold production in Q1. We expect to reach high gold grades during the second quarter and remain on track to achieve our full year targets.
We're also re-sequencing our mine plant at KCGM as we take a considered approach to remediating the west wall slip in the Fimiston pit. As a consequence, we have reduced our production outlook for 2018 by 40,000 ounces. Despite this short-term setback, we're well positioned to access high-grade ores over the longer term. At Tanami, we've launched a refresh of our full potential program with a focus on increasing mine productivity to match already strong mill performance and we continue to progress our second Tanami expansion.
We've started raise bore drilling a pilot hole to guide our approach to sinking a shaft that will allow us to maximize value from the deeper ore body. We expect to reach a funding decision on the project in the second half of 2019 and for construction to take around two years.
And finally, we have begun construction on the Tanami Power Project which involves building a pipeline and two power stations that will allow us to switch from diesel fuel to natural gas as our main energy source. We expect the project to be commissioned during the first half of 2019 and to lower energy costs and emissions by 20%.
Looking to the remainder of 2018 on slide 20, our global cost production and capital outlook for 2018 remains unchanged, despite lowering our cost guidance in North America and South America and reducing our production guidance at Twin Creeks and KCGM. We continue to expect back-half weighted results in 2018, reflecting higher stripping and maintenance shutdowns in the first half and higher grades and new lower cost production from the Subika Underground in the second half. And we expect to achieve our highest production and lowest costs in the fourth quarter. So we're on course to meet our commitments in 2018, but we will continue to challenge ourselves and learn lessons to improve safety, costs and productivity at our operations and projects.
With that, I'll hand it back to Gary on slide 21.
Thank you, Tom. Turning to slide 22. Newmont is anchored in four regions where we have the stability and the resources we need to continue investing over time. More than 70% of our production and about the same amount of our reserves are located in the United States and Australia. We continue to fund high-return projects to sustain future production and improve our return on capital employed. These factors position us to maintain stable returns over the next decade and beyond. Our portfolio is also differentiated by our near-mine growth prospects.
Turning to slide 23, our pipeline is among the best in the gold sector in terms of depth and capital efficiency and it gives us the means to maintain steady production while growing our margins and our reserves. The newest addition to our pipeline is Chaquicocha Oxides, which Tom presented earlier. Projects included in our outlook are the current and sustaining capital projects you see here. Northwest Exodus and Twin Underground in Nevada, Morrison and the Tanami Power Project in Australia, the Subika Underground and Ahafo Mill Expansion in Ghana, and Quecher Main in Peru. A mid-term project that will improve our outlook is Ahafo North, shown here in green. We expect to reach a decision to fund this project in the second half of 2019. Finally, we continue to invest in progressing our longer-term projects, shown here in dark blue. This pipeline lays the foundation for steady long-term production and profitability.
Turning to slide 24. Here's a look at our production profile over the next seven years. Our gold production is forecast to remain at about 5 million attributable ounces. And our share of global mine production is projected to grow from 4.4% in 2015 to 5% by 2024. This profile includes production from existing operations, as well as sustaining and current projects that are included in our guidance.
The green layer shows production from our mid-term Ahafo North project which is not included in our guidance and the dark blue layer shows two longer-term feasibility projects, Tanami Expansion 2 and Yanacocha Sulfides, which represent further upside. Overall, Newmont's stable asset base and robust project pipeline represent a distinct competitive advantage as does our leading reserve profile.
Turning you to slide 25. One of the practices that distinguishes Newmont is that we never stopped investing in exploration across the price cycle. And in 2017, that investment paid-off as we replaced reserves depletion at a constant gold price and increased resources. The value and risk profile of our reserve base also compares favorably to the gold sector average. We offer 128 ounces per thousand shares and an operating reserve life of about 12 years and more than 70% of our reserves are based in the U.S. and Australia.
Another distinction is that our mine grade is about the same as our reserve grade. Our focus on quality reserves has helped sustain top quartile total shareholder return since 2014. Putting it all together, we continue to deliver strong results and position the business to generate more value over a longer time horizon.
Summing it all up on slide 26, our performance in the first quarter was strong but indelibly marked by the six fatalities our team suffered at Ahafo. The best thing we can do for our team and our shareholders is to learn from that loss and recommit to our strategy, which is to deliver steady gold production safely and at competitive costs over a longer term time horizon, continue to invest in the next generation of mines, leaders and technology across our portfolio and stay at the head of the pack in terms of the value we create and the standards we uphold.
Thank you for your time. And with that, I'll open the floor for questions.
Thank you. We will now begin the question-and-answer session. And our first question comes from Chris Terry of Deutsche Bank. Please go ahead.
Hi, Gary and team. Thanks for taking my questions. First one is probably for Nancy. Just in terms of the working capital moves during that quarter, do we think about those as a one-off for this year or is there something to look for in the other quarters?
Sure. Great question and just a reminder, we don't give guidance on free cash flow. I would think of it more of timing differences and a couple of drivers for that is really timing of shipments created a bit of an AR build at both Merian and Phoenix. There was also a bit of build on leach pads and con inventory as we prepare to ship from CC&V over to Nevada. And then, in this particular quarter, there was a bit of timing around accounts payable just mostly at North America and Boddington. So I would consider those to be just a bit of anomalies for this particular quarter.
Okay. Thanks, Nancy. And just maybe this one's for Tom, in terms of the maintenance during 2Q, you talked a bit about Mill 6 at CC&V. Can you just run through the other operations and the impact on the production in 2Q specifically that you've allowed for as a result of that? Thanks.
Thanks, Chris. The major maintenance work, it's our annual – every second quarter we do the annual shutdown on Mill 6. So that's typically a three-week shutdown and so that's the major maintenance impact on production at across the business in the second quarter. Now, Mill 6 is now taking concentrates from CC&V. So again, you'll see the impact in terms of stockpiling some of those concentrates and then they'll come through the mill as we come out of that shutdown. So just commenced that shutdown and it runs for about three weeks.
Okay. Thanks, Tom. And then, just in terms of the overall M&A environment at the moment, has anything changed there? You've obviously got a great pipeline of organic opportunities. But are you looking at anything on the other divestment or investment side outside of the organic opportunities?
No. I think, Chris in terms of – as you put it, we've got a great pipeline of organic projects and we really remain focused on those. We do continue to scan the horizon and look at things and kick the tires as we've done over the years. CC&V having been the only one that we actioned over the last five years. We'll continue to look but really see the production and the potential of the projects we have and from the exploration work that we do. And we're focusing on some of these earlier stage areas like I mentioned in my comments in South America, in Africa, in North America, and in Australia. And we keep focusing on those.
Okay. Thanks. Thanks, Gary. Then the last one for me is just the talk about Northern Territory and the royalty hike. Have you got any thoughts on that? I think it's reasonably small but just some comments if you don't mind.
Yeah. I think I'll hand that one over to Nancy. I think, I mean, it's been talk primarily in Western Australia that has been where the focus has been. We've been through a couple of rounds. Our key focus has been on getting the facts out in terms of what the true impacts are on royalties and working with other gold producers in that region. In regards to Northern Territory, I'll hand over to Nancy where that's at.
Sure. We have been watching that one very carefully. There have been movements in that area from a legislative perspective and our tax department and our gov-rel people, as well as our operations people have been very closely tied to that. We understand generally the thinking around a royalty-based profit or an ad valorem-based, either of which we've evaluated and have considered the impacts on our plan. So as we build our business plan into 2019, we'll figure out the best way to incorporate those and that will also be represented in our guidance that we gave later this year. We don't expect significant changes, but we are certainly watching that and will reflect our guidance as appropriate.
Okay. That's it for me. Thanks for all the answers.
Thanks, Chris.
Our next question comes from David Haughton of CIBC. Please go ahead.
Good morning, Gary and team. Thank you very much for the update. My first question, maybe it's for Tom, if you don't mind. Chaquicocha, what's required to get that into production from what you can see now?
Thanks, David. So I don't know if you can still see slide 18 in your deck. But as we have drifted -- we drifted in underneath that pit exploration drifts to understand and define the sulfides deposit. But the exploration drifts we sized as production drifts. So we have that capacity there.
So now, as we'd identified and defined that oxide deposit, those exploration drifts will enable us to further define those. And then we'll have – as through the exploration drift (00:29:30) to that mine infrastructure and ready them up to develop the stopes and mine that ore. So exploration drifts provides some of that infrastructure. The upsides then provide a further bridge from Quecher Main to the sulfides. That ore is mill grade, so it can process through our current mill at Yanacocha. And the work we do to bring it on will actually provide synergies in terms of infrastructure for underground sulfides at the Chaquicocha.
So having a look at slide 18, you're referring there to the blobs called South Oxide, I presume. So it's hard to tell where it's sitting relative to the pit, but it's accessible only by underground, you wouldn't be able to lay-back the pit?
We certainly looked at those options, but the one we're taking a pre-feas is to access those through underground mining, through the exploration drifts you can't see in that picture that are sitting in underneath that deposit. And then, the little blobs you see on the north side is where we're drifting out to further explore those. So we're pretty excited about what that might present over the coming months as well.
Okay. Just a higher level question here. Looking at your development CapEx guidance for the year, it's around about $600 million. Your run rate for the first quarter was well below that. Is there either, A, a big catch-up for the balance of the year or is there a risk of some of that CapEx sliding into 2019? And is there any implication of that lower spend in the first quarter on the delivery of the various projects that we see in the pipeline.
I'll let Tom cover that.
Thank you.
Thanks, David. The run rate is predominantly driven by our spend on Tanami Power. So you'll see that as we've got pipe being delivered, we're into the right season now in the Northern Territory. We'll have – I think it's five work fronts sinking that pipe. You'll see that's been increased as we start to construct both the pipeline and the power stations at Tanami.
Okay. And back to Nancy, Chris had asked about the working cap and thank you for the answer. But just so that I understand it, can we expect an unwind of some of that $350 million incurred this quarter through the balance of the year?
Yes. Some of that will begin to unwind for sure.
Right.
Again, we don't give guidance on free cash flow, so it's kind of hard to give you a view as to exactly how that will unwind. But we'll try to provide some transparency to that as the year goes on.
Okay. Great. Thank you very much.
Thank you.
And our next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.
Yes. Good morning, everybody. I've got a few questions, probably for Tom, on the technical side. Tom, the Morrison decision on the timing there, I thought we were supposed get an update with that in Q1. What's going on with Morrison?
Thanks, Tanya. So Morrison, we're scheduled to start that lay-back in the fourth quarter. We had talked previously about approving it in the first quarter, but we made a decision to combine the final permits for Morrison, with some other permits associated with the road out to the tailings facility into a single application. That's now with the government and being processed and we'd expect to see that permit come through probably in the third quarter, in line with starting that lay-back on schedule in the fourth quarter.
Okay. Okay. Thank you. So, it's just being put into another permit and moving forward. It's still on the same timeline.
That's correct. That's correct.
And then, maybe just looking – and I appreciate and sorry to hear about the fatalities of the miners in Ghana and obviously number one focus is safety and making sure that everything is in line to reopen safely. Can you just let us know what exactly is being done at the Ahafo Mill Expansion and at what point, if we're down for a while, do we start slipping in the schedule?
Yeah. Thanks, Tanya. So our focus over the last two weeks, as I talked about is really making sure that we're providing support to the families impacted by the tragic accident and ensuring that our teams are getting the support they need to ensure that they are focused on doing the work safely.
Yeah, of course.
In terms of the mill expansion itself, the status of it, this accident happened in around the civil construction and we're about 70% through that work for the project and very much moving into the structural, mechanical piping phase of the project. So that's the status of the project.
We're reasonably well-advanced and if you recall commercial production's in the second half of next year. So we're going through a process, as we look to ramp up, of inductions, refreshers and doing robust risk assessments on all the work fronts we have across that project as we bring it up to speed. And then, we'll assess what impact that ultimately has on the timetable. But into the structural, mechanical piping stage of the project and second half of next year for commercial production.
And is there any point at which if we're down and of course, safety is number one in making sure that mine can come up safely. Is there a point in time that if we are not up and running, let's say, by Q3 or Q4 of this year that we slipped. I just don't know the timeline in term of slippage.
Thanks, Tanya. So the Ahafo surface mines and the existing mill at Ahafo were all back up and running 24 to 48 hours after the accident. The Subika Underground was up and running in the similar timeframe. So the Ahafo operation is running as per normal. So this is really then the extension to the mill. And we're working – as I say, we're working through that process. As Gary said in his talk we're actually working through those restart activities and risk assessments now. We're not anticipating any change to our guidance as we work through this process.
Okay. And then, maybe my last question and you mentioned that we have the roaster down for maintenance for three weeks in Q2. Is it safe to assume that Q2 operationally may be just a bit slightly weaker than Q1, because of the downtime at the roaster and then, obviously, picking up into Q3 with a strong operational quarter for Q4? Is that how you see the year panning out?
I think that's pretty reasonable, Tanya. It's certainly going to see it pretty flat through the second quarter, yet cost will be up because of the maintenance work. You'll start to see Q3 come up a bit. But certainly going to be Q4, as we get into the – we actually get the Subika Underground starts to ramp up, but you will be into the Silverstar or into higher grades at Merian.
Okay. And then, what Nancy said, the unwinding of the working capital adjustment will help with the free cash flow generation. Okay. Perfect. Thank you very much.
(00:37:13).
Thanks, Tanya.
Our next question comes from Carey MacRury of Canaccord Genuity. Please go ahead.
Hi, good morning.
Good morning.
You've moved Long Canyon Phase 2 into the prefeasibility stage. I'm just wondering at a high-level, can you talk about what you're targeting there in terms of production level and potential mine life?
Yeah. I'll hand over to Tom. Usually, we don't get into the big details at this stage until it moves a little further along, but I'll have Tom cover where we stand with that.
Thanks. Thanks, Gary and Carey. As Gary said, we're still in the fairly early stages of this study. Just moving into pre-feas and the project is really about extension of the open pit moving into underground and moving below the water table. So a key part of the pre-feasibility study work is working with the various state and national agencies to advance our water models and do the field work associated with understanding the impact of de-watering. So it's really at that stage as we work through probably, that work over this year and into next year. If that all proceeded well, you'd be looking at starting, stripping in 2021 and moving through to 2024 and your first production would be after 2024 and we're looking to line it up as we come out of the current Phase 1 that that would then be a seamless transition into Phase 2.
So is it more about maintaining Phase 1 production levels or is production expected to go up?
At that stage, I'd be saying it's probably more maintaining the current levels. But we're still – it's early stages in the pre-feas. We've got a fair bit of work to do on understanding that whole water balance.
Okay. And then, secondly on Ahafo North, you've completed the pre-feas on that. Just a similar question, is there any details you can share on that?
Yes. So really as we move into definitive feasibility, it's really about now optimizing on that project as we move forward for full funding. We're looking at around an annual production of 250,000 ounces out of a standalone mine. It's about 30 kilometers northeast of the existing operations. We've got about 3.3 million ounces of reserves and around 1 million ounces of resource. We're looking at a 13-year mine life and investment in the range of $750 million. And we're working towards a decision in the second half of next year and around about a three-year development schedule.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Gary Goldberg for any closing remarks.
Thank you all for joining our call this morning and I appreciate the questions. Newmont had some solid first quarter results. We produced 1.2 million ounces of gold at all-in sustaining costs of $973 per ounce in line with guidance. We advanced profitable projects and exploration projects on four continents and we increased our dividend while maintaining a strong balance sheet. But we also experienced a terrible loss. Please join me in keeping the families of our fallen colleagues in your prayers and in renewing your commitment to work safely above all else. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect the line.