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Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Kinross Gold Corporation Q4 and Year-End 2018 Financial Results Conference Call and Webcast. [Operator Instructions]At this time, I'd like to turn the call over to Mr. Tom Elliott, Senior Vice President, Investor Relations and Corporate Development. Mr. Elliott, you may begin your conference.
Thank you, and good morning. With us today we have Paul Rollinson, Chief Executive Officer; Tony Giardini, Chief Financial Officer; Lauren Roberts, Chief Operating Officer; and Paul Tomory, Chief Technical Officer.Before we begin, I'd like to bring to your attention the fact that we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual financial results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated February 13, 2019, the MD&A for the period ended December 31, 2018, and our most recently filed AIF, all of which are available on our website.I'll now turn the call over to Paul.
Thanks, Tom. Good morning, thank you all for joining us today. I'll begin with some of the highlights from yesterday's news release and some observations about the year ahead, before turning the call over to Tony, Lauren and Paul for additional details.I'm pleased to say that in 2018, Kinross has once again delivered on our core principles, operational excellence and financial discipline, as we met our guidance for production, costs and capital expenditures for the seventh consecutive year.2018 was a strong year for the company across a number of areas, including record annual production at two operations, continued financial strength as we ended the year with $1.9 billion of liquidity, achieved key milestones at our pipeline of growth projects and continued progress in our exploration programs.I'd like to highlight a few standout achievements. Paracatu had a record year, producing 522,000 ounces, while also reducing costs by 6% compared to last year. Bald Mountain, after doubling its output in 2017, achieved a new record for production this year of 285,000 ounces. And Tasiast ended the year very strongly and achieved a record quarterly production in Q4. Notwithstanding strong performance by the overall portfolio, we experienced a few operational challenges, particularly at Fort Knox, following a pit wall slide in an unseasonable amount of rainfall earlier in the year.One of the most significant achievements in 2018 was successfully completing the Tasiast Phase 1 expansion. I want to commend the projects and operations teams for completing the project and for executing both a seamless transfer and an impressive ramp-up of the new mill. Tasiast is performing better than ever with throughput averaging over 14,000 tons per day in the fourth quarter, almost 20% above nameplate capacity of the Phase 1 design. That strong performance has continued into 2019 with throughput and recovery continuing to exceed expectations.While we are very pleased with these results, continuous improvement is ingrained into our culture. Therefore, we are also undertaking a number of additional initiatives that are expected to result in meaningful cost and operational improvements at the mine. Lauren will have more details in a few minutes.As we think about the next steps for Tasiast, we are continuing to evaluate alternatives to optimize additional increases to throughput. Our objective is to continue to evaluate options that lower capital expenditures while preserving Tasiast's overall value proposition. We are now incorporating Phase 1's better than expected performance into our analysis. While we advance this work, Phase 2 continues to be a viable option. And considerations for moving forward include our evaluation of the throughput alternatives, acceptable project financing terms, other capital priorities across the portfolio and our ongoing discussions with the government of Mauritania. In regards to those discussions, it's important to highlight that throughout the process, Tasiast has continued to operate uninterrupted. In fact, as I just highlighted, the mine is running better than ever.I'd like to provide some context on the types of matters we are discussing with the government, without going into any confidential details. Discussions have included tax issues, work permits for expats and increasing opportunities for local suppliers. In addition, we're discussing customs and import duties and license conversions. Many of the matters under discussion are not uncommon in our industry and we are working to resolve them. I'd also point out that the -- that matters that we are not discussing with the government are equally important. For example, we are not discussing reopening the mining convention. And to-date, the government has not expressed a desire to do so.As well, you'll recall that we have a MIGA policy in place and that the IFC has signed a mandate letter in connection with the project financing, which is progressing well. I met with the IFC earlier this month and they are highly focused on advancing the project financing to conclusion, which is expected to be around mid-year. Both MIGA and the IFC are members of the World Bank Group and we see merit in their involvement with Tasiast to help drive an alignment of interest for all parties. In the interim, our focus will continue to be on operating and optimizing the mine, finalizing project financing and completing our throughput optimization studies.I'd like to turn now to the year ahead. As has become a trademark for Kinross over the past seven years, in 2019 we plan to keep focusing on our core strategic principles, namely, delivering strong, consistent operational results and maintaining our financial discipline. We are forecasting another solid year from our operations with production and cost of sales in line with 2018. We're expecting a slight increase in our all-in sustaining costs in 2019 as a result of higher sustaining capital. But total CapEx is in line with 2018 spending. Tony and Lauren will provide details in a few moments.We're also focused on advancing our pipeline of organic projects, which are expected to extend mine life or expand production at existing mines in the Americas with relatively low execution risk. We made excellent progress on this front in 2018 and we have a number of key milestones planned for the year ahead. In the first quarter, we expect to begin commissioning the Vantage project and complete the Lobo-Marte scoping study. In the second quarter, we expect to commission the Phase W processing circuit. And in the third quarter, we plan to ramp up stripping at Gilmore and complete the La Coipa feasibility study.To wrap up, I'm very pleased with how the company is performing across both our existing operations and our development projects. Over the past seven years, we've proven ourselves to be strong dependable operators who deliver on our targets, fiscally disciplined with the financial strength and liquidity to invest in our future, an effective process managers who deliver our projects on time and on budget. We will continue to be a steady, reliable, mining company, and I hope all of our stakeholders will benefit from these strengths.Before I hand the call over to Tony, as a company with a large mine in Brazil I want to reflect for a moment on the tragic events of the Brumadinho Dam collapse. I'd like to express, on behalf of Kinross, our sympathy and support for the people in the community who have been affected by this.Lauren will provide additional details on the engineering and technical side, but I want to reassure our stakeholders, our tailings facilities at Paracatu, like all of our tailings facilities worldwide, are designed, constructed and maintained to the highest engineering standards. They meet or exceed regulatory and international requirements and standards of best practice. And we have rigorous monitoring systems in place. Technical excellence is ingrained into our culture, not only in how we build and operate our mines, but also how we construct, manage and reclaim our tailings facilities.I'll now I turn the call over to Tony.
Thanks, Paul. I'd like to begin with a few financial highlights for 2018. Our operations generated approximately $874 million in adjusted operating cash flow, compared to $1.2 billion in 2017. Our adjusted net earnings were $128 million for the year, or $0.10 per share, compared with $179 million or $0.14 per share in 2017. Reported net loss was $24 million or $0.02 per share compared with net earnings of $445 million or $0.36 per share in 2017. The change was primarily a result of decreased operating earnings, a reversal of impairment charges related to the sale of Cerro Casale n 2017 and an increase in 2018 income tax expense.Capital expenditures for 2018 were approximately $1 billion, at the low end of our guidance. This included approximately $665 million of growth capital, mainly related to our organic projects at Tasiast, Round Mountain, Bald Mountain, and Fort Knox. During the quarter, we continued to advance $300 million for project finance we are targeting for Tasiast. You will recall that mandate letters were signed with the IFC, a member of the World Bank Group and Export Development Canada earlier in the year. During the first fourth quarter, we conducted a due diligence site visit, which included meetings with relevant Mauritanian government ministers and officials. In addition, two commercial banks have also expressed interest in the financing and are engaged in the due diligence process, along with the IFC and EDC. We are targeting completion of the project financing for midyear.Turning to 2019, we are looking forward to another strong year. We once again expect production of 2.5 million gold equivalent ounces with cost of sales expected to be $730 per ounce, plus or minus 5%. Our capital expenditures are expected to be in line with 2018 at approximately $1 billion, plus or minus 5%. This includes approximately $65 million of capitalized interest. Our sustaining capital guidance has increased compared to 2018. This is essentially due to stripping at Bald Mountain, as we complete the Vantage project and we begin production in the South Area of the mine. As a result, we expect all-in sustaining cost to be $995 per ounce, plus or minus 5%.Our guidance for both overhead and exploration expenditures are in line with 2018 and can be found in yesterday's news release, along with our guidance for other operating costs and tax. For 2019, we're budgeting $65 per barrel for oil, an exchange rate of RUB 60 to the U.S. dollar and BRL 3.5 to the U.S. dollar. These assumptions and the sensitivities we provided in the guidance section of yesterday's news release take into account FX and oil hedges we have in place. Our strategy in this regard is aimed at managing near-term risk related to fluctuation in these inputs. For example, over 50% of our 2019 exposure for oil at Tasiast and our U.S. site has been hedged at approximately $50 per barrel, compared with our budget assumption of $65 per barrel.In terms of our balance sheet, our cash position at the end of the year reflects the strategic investments we have made. This includes investments in our development projects of approximately $665 million during the year, as well as other transactions to add value to our portfolio, such as a $254 million power plant acquisition in Brazil. We funded this deal with cash and continue to consider debt financing alternatives.In 2018, we also bought out JV partners at two of our properties, consolidating our ownership in projects or land packages where we see significant potential. These include the Phase 7 deposit at La Coipa where we now own 100%. And the Bald Mountain Central Zone, which was previously a 50-50 JV with Baird. We continue to maintain a strong financial position as we enter 2019 with total available liquidity of $1.9 billion. With every $100 per ounce change in the gold price above our budget assumption of $1,200, we expect to generate approximately $200 million of additional cash flow for the year, positioning us well at current spot gold prices.To sum up, with $1.9 billion of liquidity and no debt maturities until 2021, we continue to be in a strong financial position. Our focus on disciplined capital management and the strength of our liquidity position will continue to be priorities for 2019.I now turn the call over to Lauren.
Thank you, Tony. Overall, our portfolio delivered strong operating results in the fourth quarter and we achieved our full year guidance targets for 2018. Our success this year is a credit to the teams across the company. For me, this is highlighted by our strong safety record with 2018 being one of the safest years in company history.Our mines in the Americas performed well, producing 1.5 million ounces in 2018 at a cost of sales of $740 per ounce. Paracatu was a standout performer, achieving record production of 522,000 ounces while reducing cost per ounce by 6% year-over-year. The mine's performance reflects records tons mined and moved, strong throughput as a result of increased efficiencies in the mill, the highest recovery achieved since 2005, the benefits of our water mitigation measures and significantly improved rainfall compared to the previous year, and lower power costs and favorable foreign exchange movements. We're looking forward to another strong year from Paracatu in 2019.While the rainy season started strong at the end of 2018, rainfall was lower through January. However, with the successful implementation of our mitigation measures, we feel the risk of a potential impact due to lower rainfall is significantly lower than in previous years.Before I move on to the results from the rest of our portfolio, as Paul mentioned, I'd like to provide some details on our tailings facilities. Paracatu's tailings facilities are engineered, compacted and zoned [ near ] dams that were constructed using a center-line design. We routinely monitor and assess these facilities, both with our internal teams and independent experts and we have not identified any areas of concern at Paracatu.I'd now like to move to our operations in Nevada. Bald Mountain delivered another record year with production of 285,000 ounces. Cost of sales performance was also very strong at $547 per ounce, representing a 15% reduction year-over-year. This made Bald our lowest cost mine in 2018. As we anticipated, production in the fourth quarter was lower and costs were higher than the previous quarter due to timing of ounces recovered from the heap leach pads. We are expecting another strong year at Bald Mountain as the Vantage project comes online and we initiate mining in the south area of the property.Round Mountain continued to deliver consistent results. Production was lower year-over-year, which was in line with our expectations. This was the result of fewer ounces recovered from the heap leach pads. We mentioned on our last call that there was a wall failure in the southwest corner of the pit. Portions of the failure remain moderately active and mitigation plans are underway. At this time, we don't expect a significant impact to 2019 production, but we are continuing to monitor the situation and have reflected some risk in our 2019 guidance.Turning to Fort Knox, the site continued to experience headwinds in the fourth quarter as we worked through the challenges associated with the wall slide that occurred early in 2018 and restricted access to the higher grade material. As well, the site experienced significantly higher than average rainfall during the spring and fall, which further affected geotechnical stability. As a result, in 2018, production was down and costs were up compared to prior periods.Mill-grade ore release is expected to be low in the first quarter of 2019. In order to preserve tailings capacity for the best grade material, we plan to operate the mill at a reduced rate in Q1. As a result, we expect production to decrease in Q1 compared to Q4 and then increase as the year progresses. In 2019, we expect our Americas region to produce approximately 1.44 million ounces at a production cost of sales of $750 per ounce, which represents almost 60% of our gold production for the year.Turning now to our operations in West Africa. Tasiast has had an excellent fourth quarter, achieving record production of approximately 92,000 ounces. As Paul mentioned, the Phase 1 expansion has performed better than expected with throughput averaging above 14,000 tons per day and recovery averaging 94% during the quarter. For the full year, Tasiast produced 251,000 ounces. While production was strong, cost of sales increased year-over-year by 30%, resulting from higher fuel and maintenance costs and an increase in operating waste mined.We have accelerated our continuous improvement initiatives as the site transitions from a large capital project to a steady state operation. Areas we are targeting include, operational improvements in the areas of mining, milling and maintenance, our overall approach to maintenance of the site and a review of all existing contracts. It's too early to quantify the impact, but we are targeting meaningful operational and cost improvements. Overall, at Tasiast, the strong performance we saw in Q4 has continued and we are expecting a strong year in 2019.Production at Toronto was slightly lower year-over-year, mainly due to anticipated lower grades. However, cost of sales decreased by 4%, a result of lower overhead maintenance and power costs. Over the past two years, we have made great strides at Toronto, improving mine performance and rightsizing the cost structure. As a result of this strong performance, we are planning to reinitiate open pit mining at Mamnao in 2019. This year we expect our West Africa region to increase production to 560,000 ounces at a production cost of sales of $800 per ounce.And finally, our Russia region continues to deliver strong and consistent performance, producing approximately 490,000 ounces at a cost of sales of $582 per ounce. Production was lower year-over-year, a result of planned decreasing grade, as well completion of mining of September Northeast at the end of 2017.As we noted last quarter, we commenced production at the Moroshka satellite deposit on October. While the veins are narrower than at the Kupo ore body, mining has gone well and is meeting our expectations. Development of Zone 1 satellite deposit, located near Dvoinoye is continuing on schedule and we expect to begin production mid-year.Looking ahead, we expect 2019 to be another consistent year at our Russian operations with the region expected to produce approximately 500,000 ounces at a cost of sales of approximately $600 per ounce. Looking at the portfolio as a whole, our priorities continue to be safety, delivering strong, consistent operating results and managing our costs.I'll now turn the call over to Paul.
Thanks very much, Lauren. As Paul mentioned earlier, 2018 was a significant year for our project and exploration teams, as we completed Phase 1 at Tasiast, advanced execution of the Phase W and Vantage projects, completed the Gilmore FS and added the project to a development pipeline, initiated studies in Chile at La Coipa and Lobo Marte and continued to advance our exploration programs at our priority targets.Let me start by giving an update on Phase W, which is progressing well and remains on time and on budget. Pre-stripping is advancing well, we've encountered initial low grade Phase W ore ahead of schedule and are placing material on the existing heap leach pads. Construction of the mine infrastructure, such as a truck shop, warehouse, wash bay and fuel island are all proceeding as planned and approximately 35% complete. Construction of the new leach pad is now approximately 80% complete and construction of the process circuit, the vertical carbon-in-column plant is approximately 50% complete. We expect to start commissioning of the process circuit in the second quarter.At the vantage complex project, Bald Mountain, construction is proceeding well with the new heap leach pad approximately 85% complete. The new VCIC plant, similar in design to the one at Round Mountain, is approximately 30% complete. Supporting infrastructure, including the truck shop, warehouse and wash bay is now about 25% complete. Stacking of economic, but previously leached ore on the new heap leach pad is underway with approximately 50% of the material moved onto a segregated portion of the pad. Mining activities at Vantage have commenced and initial ore is now being stockpiled in preparation for completion of the new heap leach pad. Project has experienced a few challenges, particularly with the very tight labor market in Nevada and severe winter weather. However, we remain on track to be in commissioning by the end of the first quarter.At the Gilmore project at Fort Knox, we have completed final engineering of the Barnes Creek heap leach pad. Grading for the new pad was completed in the fourth quarter. We expect construction activities to ramp up in the spring and continue through 2020. Expansion in the dewatering system will continue throughout the year in anticipation of stripping which is expected to commence in the third quarter of 2019. Overall project is off to a good start and is on budget and on schedule to begin stacking ore in the late portion of 2020.As for our future development opportunities in Chile, the feasibility study for the La Coipa Restart project and the scoping study for Lobo Marte are both proceeding well. We expect to be able to share high level results of the Lobo Marte scoping study with our first quarter results in May and to complete the La Coipa FS in the third quarter. All necessary permits for La Coipa are in hand and we started planning our permitting strategy for Lobo Marte.I'd like now to share a few aspirational highlights from the update we provided in the last year's news release, particularly focusing on Russia, Toronto and Bald Mountain. We had a very strong year on the exploration front in Russia where we added ounces to partially offset depletion, including additions of 325,000 gold equivalent ounces of proven and probable reserves, 50,000 gold equivalent ounces to measured and indicated and approximately 420,000 gold equivalent ounces to inferred.Over the past few years, we've been working on a hypothesis that there was potential along the north and south of the main Kupol trend. This has yielded a number of targets, in addition -- to additions to reserves and resources. This coming year the primary objective of the drilling will be to test the depth of North extensions on the main Kupol vein, and thus far we've been pleased with the results. Drill intercepts continued to confirm high grade narrow vein mineralization, extending northward in a depth below the Kupol mine workings.Our mines in Russia have a good track record of adding ounces and extending production. Through a combination of exploration success at Kupol-Dvoinoye, as well as engineering optimization, we've extended mill production at Kupol until the end of 2023, which is yet another 1 year addition at this high grade, high margin, world-class asset. As you can see from the chart, when we first acquired Kupol, mine life was expected until 2017, based on 5 million contained ounces of gold equivalent. Since then Kupol and Dvoinoye have produced over 7 million ounces, and have a combined 2.1 million gold equivalent ounces of reserves remaining and we continue to be encouraged by what we are seeing at our exploration results for future potential resource additions. We've increased our budget for exploration in 2019 for Russia to approximately $20 million to continue exploring and delineating high potential targets at these two assets.At Toronto, exploration of depth extensions at the Akwaaba, Paboase and Tano deposits increased mineral reserves by 50,000 ounces and added approximately 20,000 ounces to measured and indicated, and 170,000 ounces to inferred. This has extended Toronto's mine life also by one year, as the mine is now expected to produce through 2021. Following the success of the 2018 program, we are increasing the budget of Toronto to drill depth extensions at both Akwaaba and Paboase. In addition, we've started an exploration drift from the Paboase underground to Tano, another underground deposit, where economic gold mineralization was encountered at depth.And finally, at Bald Mountain, our drill program was focused on near-mine opportunities that were expected to increase the resource base, as well as provide a direct impact on operational planning and sequencing. Drilling in the north area added 260,000 ounces to inferred mineral resource estimates.In 2019, we will be focusing our efforts on infill programs with the goal of upgrading mineral resources at Top, Redbird, Saga, Winrock and Yelland. Exploration will also focus on other target areas for resource growth, including targets in the central zone, which we now own 100% and where we are focused on higher grade intrusion-related mineralization.To wrap up, we've got a strong pipeline of organic projects and promising exploration opportunities with a potential to extend mine life and to add value to our portfolio.And with that, I'll turn the call back over to Paul.
Thanks, Paul. In closing, I want to thank our employees worldwide for their dedication and hard work and our shareholders for their continued support. Overall, I'm pleased with where we are as a company. Our portfolio includes operating mines delivering solid results in 2018. We are looking forward to another strong year in 2019. We remain in a strong financial position and we continue to advance our numerous development projects.With that, operator, I'd now like to open up the call to questions.
[Operator Instructions] And our first question comes from the line of Fahad Tariq from Credit Suisse.
In your release, you mentioned that the discussions with the Mauritanian government around Tasiast have centered on taxes, work permits, increasing opportunities for local suppliers. My question is, from what you know today, how wide is the delta between what the government is looking for and what Kinross won? And what would be the timeline for deciding whether to go with the original Phase 2 expansion or to pursue alternative measures?
I'll take that. Look, I think again here context is important. We -- as you know, we received a letter last May, it was somewhat vague and as a result we suspended activity on the Phase 2 while we got a better resolution and an understanding of where the government was coming from. Since then a lot of good things have happened. I believe we're in a better place today than we were with that uncertainty back last May. We've had lots of meetings, and as we indicated, it is those sorts of topics, which I believe are not uncommon and we see those sorts of questions in other countries. So we're working through it. I would say, again, I'd just repeat what's also very important is what we're not discussing, which is reopening our mining convention. So I think as well the silver lining here is, as we've continued to complete the Phase 1 on time, on budget and had really an excellent transfer and ramp-up, we've learned a bunch of things, both in what we were doing on the Phase 1 and how the mill is performing. And that's given us the benefit of time to modify our thinking and analysis on the Phase 2 and how we might improve from our base case Phase 2. As to timing -- as -- look, again, as I indicated, those studies we expect to complete towards mid-year. Our project financing is going very well and I expect that'll be completed around mid-year. So I think the tone I would leave with you is lots of good things happening, good discussions and it's all leading us towards a midyear kind of decision timeline.
That's really helpful. And just as a follow-up to switch gears a little bit. On the M&A front, which is the hot topic in mining now, can you describe what Kinross' investment criteria would be as it looks to some of these assets that are being divested by some of your peers? Maybe just touch -- some color on how you're thinking about what would make a good investment or a good asset to add to the portfolio?
Look, I -- that's a pretty wide question. We do look, we have a team, it's the same DNA as our operation and technical folks, so we come at any opportunity with a lot of technical rigor. At the end of the day, it's about creating value for shareholders, where we think we have strengths that we can bring to bear. When we look at opportunities is obviously technically, can we improve the operation, can we perhaps do a better job and obviously, financially. There are certain instances where maybe be on the smaller end the companies have run out of capital or are capital constrained. I think, again, the point I want to leave with you is discipline. Do you have a team we do look, but -- clearly the only acquisition of significance that we've done in the past several years was the Bald and Round Mountain and that's been a great deal for us. We've improved both those assets considerably and they've been good performers in our portfolio. So that's the kind of thing we try to look for when opportunities present themselves.
Our next question comes from the line of Steven Butler from GMP Securities.
Lauren, a question for you, if you don't mind, Paracatu had a whopping recovery of 81% in Q4. How comfortable are you with the sustainability of near 80% recovery going forward?
So yes, we had an excellent recovery, best in many years through the plant and it's the culmination of a lot of work by the operating team there to better understand the performance of the plant and how it reacts to different ores. So we've got a lot more control over what we're feeding to the plant, how we feed it to the plant and how it responds in the plant and how we react to it. So I would say, it's safe to say that we are going to see recoveries at a higher level than we saw in the past several years. But one of the things that contributed in Q4 to the high recoveries, we're mining in the southwest corner of the pit, an area we call Tank C. It's the main part of the ore body, so it's thicker mineralization, it's more consistent, less edge effects and generally higher sulfide. So we tend to see better recoveries from that. So I wouldn't bank on that level of Q4 recovery always, but I would say we are going to see higher recoveries going forward.
Paul Tomory, on Chile, of course, La Coipa was a bit of a problem child back when you guys decided to sort of mothball it several years ago. What confidence do you have in Phase 7 restart, or is that just a stepping stone to the bigger prize, maybe in Lobo Marte and you expect -- I can't remember how much ounces you were talking about in Phase 7, I thought that you can clarify that. And any just high level thoughts you have towards La Coipa/Lobo?
Yes, Steven, so when we shut down La Coipa we are still in the process of drilling the Phase 7 deposits, so at the time it wasn't available for mining. So it was the right decision from a capital discipline point of view to shut La Coipa down. Since then, and this is going back four, five years, we drilled out Phase 7 and added close to a million ounces there of equivalent reserves between gold and silver. And the feasibility study is focused on mining out Phase 7. But we're also assessing the opportunities for potentially mining a couple other remnant ore bodies there, though the focus of the FS will be Phase 7. But as you quite correctly pointed out, our strategy in Chile is to use La Coipa as the start of a longer-term return to production in Chile where we would hope to roll from La Coipa into Lobo Marte, we're treating them as sequential projects. But the FS is focused on refurbishment of the mill there, mining of Phase 7 and in parallel, assessing other potential opportunities at La Coipa. We're pretty happy with how things are going, and as Paul mentioned, we're refinishing that in the third quarter.
Paul Senior, Rollinson. Paul, do you have a view -- so just to clarify, your talks with the Mauritanian government, there is no -- and you're not an interested in reopening the mining convention. And are they also not interested in specifically reopening the mining convention? It's just around the edges of these other requests?
That's correct. That is what they have told us, is that they have no intention of reopening that convention. And these are -- again we've tried to give a flavor for the kinds of things we're discussing. They're important to us and we want to resolve them and we think we'll get there. It takes time, but again, it's -- as I say it's as important as to what we're not discussing with them, which is there's been no suggestion of wholesale change with respect to what's protected under that convention.
Our next question comes from the line of Greg Barnes from TD Securities.
Just on the success you've had with Phase 1. How far can you push throughput? I know you've got a very large SAG mill, but I assume floatation capacity kind of backs you up there.
Yes. So we are really, really pleased with the rapid ramp-up and subsequent throughput that we're achieving in the plant. And I would say that the kind of performance we saw in the fourth quarter is certainly something that we think we can sustain going forward. In terms of the ultimate capacity of the plant, we're still working through that. We've got a number of debottlenecking projects, small scale things that we'll make incremental gains and we'll keep banging away on those things over the course of the year. I don't want to guess where we'll end up. But it's -- I would liken it to rebuilding an engine. We're just getting the ring seated and we're going to step on the throttle here and see what we can do.
So in terms of the Phase 2, Phase one and a half, is the focus now more just adding a little bit more grinding capacity and then some flotation rather than going to the whole scale bigger expansion?
Hey, Greg, we're looking at two things. So the objective of the studies right now, first, is to look at what steps we can take on incremental debottlenecking, so exactly what you said, where can we add capacity to incrementally increase throughput. The second objective of the studies is to make a reduction of capital in the 30K design and we're progressing on both of those. So we have both incremental development, as well as capital reductions in the ultimate 30K design that we're working on. And one of the benefits over the last year in the operations over the last quarter and a bit, has given us more confidence in what the plant can do and it's allowing us to target capital reductions, like I said, in the ultimate 30K design.
So the 30K design is still ultimately where you want to get to?
It is our reserve, it is where we ultimately are planning from a project perspective.
And Paul Rollinson, just a follow-up again on this Mauritanian issue. There's a presidential election coming up I believe in June in Mauritania. Is that going to slow this process down and it'll be well into the second half of the year before you think you can get something done?
Yes. Good point, Greg. There is going to be an election process. Our experience from last summer, this is a presidential election as you point out. Last summer there was more of a regional election process. There's no question it can be distracting. Our ability to get meetings and have discussions most likely will be more challenged candidly, as they're more focused on the electoral process. But again, I believe we'll be able to keep moving things forward. And I don't think we're looking for game-changing outcomes here. We'll continue to work with the government. But absolutely there'll be some distraction on their part.
Our next question comes from the line of Carey MacRury from Canaccord.
Just another question on Tasiast. I noticed in the growth CapEx you've got about $60 million of growth capital, not including the stripping. I'm just wondering is that related more to Phase 1, work related to Phase 1 or is that kind of moving the ball forward on an ultimate expansion for Phase 2 or one and a half.
Hi, Carey, it's Tony Giardini. It's really related to the ongoing stripping activities that we have at Tasiast. So as we've highlighted, we have about $180 million of stripping that's going to be happening this year. So it relates to equipment associated with that stripping and rebuilds associated with that and then incrementally there's approximately $10 million related to alternative studies that we're looking at that are focused primarily on throughput. That's really what makes up the bulk of it.
Okay, and then maybe on cash cost at Tasiast. You mentioned they were high in the quarter. Ultimately, I think with Phase 1 you're expecting to get that down into the $500 range. Is there anything that you've earned on the cost side or cost inputs have gone up that you think that is -- you think you're still able to get to that sort of level?
Yes, I think one of the things that -- maybe I'll start and if Lauren or Paul wants to chime in they can. I think one of the things that we highlighted in our release was just what was happening with respect to the purchase of fuel in Mauritania. And so we're entitled to a tax exemption on fuel as part of our mining convention. Unfortunately, the government hasn't been processing the paperwork that relates to our fuel purchases. And we've had to purchase what we would call non-exonerated fuel to maintain operations. In other words, we're paying duties on fuel that we would have otherwise expected not to pay. And this really relates to the government expressing concerns about whether all the fuel is being used in our mining activities and we've done our own studies and accounted for the bulk -- for the use of fuel in our activities. Now these issues have arisen in the past and they've eventually been resolved and our hope is that. Obviously, we started discussing this with the government in '18 and we'll hopefully get to a reasonable resolution. But I would say that, that is a big contributing factor on the operating cost side in terms of the additional costs that we incurred in the fourth quarter.
What would be the sort of level of duties that you'd be paying?
Yes. So for 2018, the cumulative cost of duties were about $30 million and it's probably split equally between amounts that would've been capitalized as capital stripping $15 million and the balance would have gone through the P&L as operating costs.
And then maybe one other question on Bald Mountain. We've got Vantage ramping up this year. Can you talk a little bit about how we expect that production to evolve over the year between the north and the south?
Sure, happy to do that. This is Lauren here. So we will be transitioning mining from the north area operations to the south area operations in the first quarter of the year. So we're kind of in a bit of a wind down mode in the north and a wind up mode in the south. So the way I would look at this is we will see lower Q1 production as we make that transition. Q1 will probably be about 15% of the full year and then it'll ramp up from there and we should be roughly evenly weighted between north and south -- I'm sorry, between first quarter and -- first half and second half, assuming the ramp-up goes as expected. It might be a little bit heavier towards the second half.
Our next question comes from the line of Mike Parkin from National Bank.
With the fairly significant capital spend at Tasiast for stripping, is that something that could continue into 2020 or does that largely kind of get cleaned up this year and could stay up well for the near term?
As per the FS, we capitalize the stripping until mid-2020.
So could we expect kind of a similar turn, like roughly in the 90-ish million for first half for 2020?
Yes. Divide the number by two, yes. That's about right.
Alright. And you've already indicated to expect a slightly softer Q1. Is there any major outages planned at your core assets throughout the year that we should kind of take into account?
Mike, this is Lauren again. There's always certain outages that have to happen in the course of the year to maintain the primary equipment. And so where you would see that manifest itself most obviously is when we take a SAG mill down for a reline or a re-torque or whatever it might be. But those are built into our production schedule. So what you would see in guidance from us accounts for those kind of outages. So all the planned stuff is built in.
Okay. And then, just one last question. So you kind of mentioned that you're about to step on the gas at Tasiast. Can you give us an idea of what the 2019 guidance is based on in terms of the throughput for Phase 1?
Sure. So we took a look at Q4, which I think right now would be a pretty good proxy for a sustainable run rate. And then we accounted for some other things that we think are important and those other things are reflected in our guidance. And what are those other things? They are things like, as I just mentioned, we know we will need to take the mill down for three lines a couple of times this year, but what we don't have is a long operating history with that SAG mill. At our other big SAG operations, we have long operating histories. We understand how the ore interacts with the lining packages and that sort of thing. We don't have that history at Tasiast yet. We also have a big power system in place to support that large SAG mill. And again, we don't have a long operating history with that power system in its current configuration. So we've taken a somewhat conservative approach with respect to those maintenance activities and that's reflected in our guidance. A couple other things to keep in mind, we're operating at an elevated cutoff grade right now relative to the resource model. And so the consequence of that is, that there's some dilution coming into the system and that affects grade to the mill. And I think the last point I'd just draw your attention to is that you have a collective labor agreement coming up for negotiation this year and as is the case in any CLA, you know there's some potential for work stoppages. So we've taken all of that into consideration in our guidance and that's how we're looking at the year.
Okay. Can you remind me of top of your head how the last labor contract went, in terms of was there any kind of lost days of production?
Yes, I think it was -- I wasn't running the operation at that point in time, but my recollection it was about a month.
Okay. When was that do you know?
Would have been three years ago.
Our next question comes from the line of Tanya Jakusconek from Scotiabank.
Just wanted to ask a question on Mauritania and the presidential race and maybe someone can give us some insight in terms of what you're hearing in terms of the candidates and views on mining et cetera.
Look, I think we don't want to get too far ahead of ourselves in terms of speculating certainly about an election. All we can -- all we know at this point is the constitution indicates you can stand for President for two cycles. And the current President has indicated he'll be retiring. As you will recall perhaps that political party, the UPR party has won democratically the last two elections. And at some point, we suspect maybe later in March, there'll be a new representative from the UPR party that'll be put in place and that will start the process again for the election. But again -- I think we would say, we expect an orderly transition. But beyond that it's -- I guess our philosophy on these things is to just really try to stay out of the political side of things.
Now it wasn't more just -- it was more just some insights in-country in terms of some of the candidates and what they stand for et cetera?
I think they'll continue to be mining friendly to pick up on that point, Tanya. I mean it is a -- SNIM is a big component of the economy and they understand mining. And I think they'll be supportive of mining and foreign investment. I think as we've said on previous calls, there's been a strong push by the government to attract foreign investment, particularly in the offshore gas, and they've signed a few licenses. So I think in general Mauritania will continue to seek foreign investments in natural resources.
Our next question comes from the line of Lawson Winder from Bank of America Merrill Lynch.
So two for me. And I apologize to come back to this once again, but just on Mauritania, with the discussions that you are having, I'm just curious at what level are the meetings happening, both from the perspective of your side and the Mauritanian inside. And then I apologize I got on the call very late, but did you say that the project financing was dependent on the outcome of these discussions or not? And I'm sorry if that was already asked. Thanks very much.
Sure. Let's start with the project financing. It's proceeding well. I think there is an alignment of interest, the IFC would like to proceed, we'd like to proceed and I think from the point of view of the government, I think they would like to see a successful project financing, because I think from a government point of view, it's really an endorsement by the World Bank that you're project financeable, which is a good thing to advertise in terms of bringing more foreign investment into the country. In terms of the discussions, we have a senior team, we have an in-country team, we have a senior team and for the level of meeting and discussions, it's been primarily with the Minister of Mines. And that I think is the appropriate level. Minister of Mines and his deputy general, we call it the DG. And I think we've got the right level of engagement from both our side, as well as the government.
We have no further questions. Thank you. I'll turn the call back to Paul Rollinson for closing remarks.
Thank you, operator, and thanks, everyone, for joining us today. We look forward to catching up with you all in person in the coming weeks and months. Thank you.
This concludes today's conference call. You may now disconnect.