We've delivered another solid round of operating and financial results in quarter 3. And as you can see from this slide, the transformation of Alacer has been incredible. Our annual production will be above 380,000 ounces, which is a significant step change from where we were this time last year. But the best part of this transformation, of course, is the material cash flow generation from the low-cost ounce production at Çöpler that is in the first quartile of All-in Sustaining Costs across the industry. With all of this, we clearly have the foundation set: a balance sheet we will utilize to grow in the future through internally generated capital resources; a track record of delivery; and, of course, what is most important to us, a long-life asset.
So before we get into the quarterly results, I'm going to spend a few minutes on how we're going to leverage this excellent foundation to continue to execute on the highly attractive organic growth pipeline we have created. As we plan for the future, the objective for our strategy is simple. We want to maintain yearly gold production in the range of 300,000 to 400,000 ounces for at least the next 10 years. The delivery of this strategy will come from 2 areas: optimize our existing sulfide operations; and concurrently improve oxide gold production through new discoveries.
So let me provide just a little bit more detail starting with the sulfides. With the sulfide plant in operation for almost a year, we are very pleased with the progress of the ramp-up, and you will start to hear us talk a lot more about the opportunities to optimize the sulfide plant above design rates in the future. Stew is going to talk more about this in just a moment.
The concurrent objective is to improve the oxide gold production profile where we have been making excellent progress to grow our oxide reserve base from existing and new mines. In order to facilitate this growth, we have just begun construction on the first phase of a 25 million tonne heap leach pad expansion. We have also reviewed the spectrum of oxide opportunities that have been organically created and have categorized those in near, medium and long term that you will see later in the presentation.
In the near term, we will mine the current oxide reserves, while supplementing the oxide gold production profile with additional oxide from our in-pit exploration program that has been very successful to date. Our success is evidenced by today's announcement to again increase oxide gold production guidance for 2019.
In the medium term, we will look to materialize our ongoing exploration success with new mines at Çakmaktepe, Ardich and, of course, the Çöpler Saddle. In these regards, we'll be issuing an update interim resource at Ardich very soon.
Exciting times indeed for us as a company as we continue to deliver, evolve and grow. So I'm going to turn to Slide 3 and just talk about the year-to-date highlights.
Our safety performance has been excellent. Unfortunately, at the end of August, and after many years, we had our first lost-time injury, the result of which is refocused our energy to ensure we continue to provide a safe workplace for all. You can see on this slide a number of the year-to-date highlights, and I want to just mention a few.
The operations continue to deliver with production of 290,000 ounces at consolidated All-in Sustaining Costs of $714 per ounce in the first 9 months of the year. The ramp-up of the sulfide plant is on track, and our exploration program is delivering opportunities to grow on all fronts. As I mentioned, we increased oxide gold production guidance and expect sulfide plant production to be within the guidance range, which is a great outcome when you consider we've been in a ramp-up year and still are.
We continue to strengthen the balance sheet with a net debt of $110 million at the end of September, and this has been further reduced to below $90 million year-to-date. At the end of quarter 3, our balance sheet had a net debt to EBITDA of less than 0.5, which is an amazing position we have worked really hard to deliver.
So with that, I'm going to hand this call over to Mark to provide an update on the financials, which start on Slide #4.
--------------------------------------------------------------------------------
Mark E. Murchison, Alacer Gold Corp. - CFO [4]
--------------------------------------------------------------------------------
Thanks, Rod, and hello, everyone.
I'll focus my comments on this slide to the year-to-date numbers. 290,000 ounces of gold were sold year-to-date, generating $396 million in proceeds. Operating cash flows year-to-date of $161 million were generated as reflected in the cash flow statement. As a reminder, this does not include the positive operating cash flow of approximately $50 million from the sulfide plant for the first 5 months of the year prior to the declaration of commercial production. As required by the accounting standards, this amount was capitalized to the construction cost of the sulfide plant.
Year-to-date, attributable net profit or earnings was $43 million or $0.15 per share. However, included in the earnings is the impact of various unrealized noncash items. In order to provide an accurate picture of the underlying earnings of the corporation, we have shown a reconciliation of the attributable EPS of $0.15 to a normalized attributable earnings per share of $0.26 on the right-hand side of the slide. The adjustments relate to the noncash impact arising from the Gediktepe sale, unrealized noncash losses arising from the devaluation of the Turkish lira, incentive tax credits recognized from the spend on eligible projects and unrealized noncash share-based compensation expense.
A couple of other items to note. Firstly, DD&A. The declaration of commercial production on the sulfide plant on 31 May triggered the start of depreciating the plant. As a guide, we forecast DD&A for each plant going forward will be for the oxide plant around $150 per ounce of production and for the sulfide plant around $300 per ounce of production.
Tax. We expect the accounting effective tax rate going forward will normalize as the recognition of incentive tax credits generated will diminish with completion of the sulfide plant construction. However, we are currently undertaking a detailed review of the incentive credits recognized from the almost $700 million investment on the sulfide plant with the potential for additional credits to be recognized. We will provide an update of this review in future quarters. In regard to the effective cash tax rate, we forecast the rate to be around 5% going forward after factoring in the outcomes from the significant investment we have made in the sulfide plant.
Finally, and most importantly, cash. Underlying the earnings are robust cash outcomes. Operating cash flow year-to-date was $161 million. And as noted, this does not include the approximately $50 million from the sulfide plant for the first 5 months of the year prior to the declaration of commercial production. We had unlevered free cash flow year-to-date of $138 million, and the strong free cash flow generated the Q3 closing consolidated cash balance of $188 million with outstanding debt at the end of Q3 was $298 million, resulting in net debt at the end of the quarter of $110 million. As Rod noted, the net debt position continues to reduce at pace with the current net debt position today reducing further to below $90 million.
And please turn to the next slide. A brief overview of our key operating highlights. We produced 290,000 ounces of gold at the end of Q3 with 161,000 ounces from the sulfide plant and 129,000 ounces from the oxide plant. We are on track to meet the increased consolidated production guidance for the year of 380,000 ounces to 430,000 ounces. The consolidated All-In Sustaining Cost year-to-date of $714 per ounce is in the lowest quartile for the industry, and we're on track to meet consolidated guidance for the year of between $675 per ounce to $725 per ounce.
As noted on the previous slide, cash generation is strong. There has been a step-change in cash generation in Q3 with operating cash flow of $101 million and an unlevered free cash flow for Q3 of $73 million. This step-change is the result of successful completion and close-out of the sulfide plant construction, successful ramp-up of the sulfide plant, higher oxide plant production and lowest quartile All-In Sustaining Cost profile. We expect this strong cash generation to continue and further strengthen the corporation's financial position.
I'll now hand the call over to Stew for an overview of the operations.
--------------------------------------------------------------------------------
Stewart J. Beckman, Alacer Gold Corp. - COO [5]
--------------------------------------------------------------------------------
Thanks, Mark. As always, I want to start with HSEC. We have a stellar safety performance run with more than 22 million hours achieved LTI-free, including through more than 13 million hours of the sulfide plant construction. Unfortunately, in August, we had our first incident in a long time where stationary truck toppled over while dumping, injuring the driver, resulting in an LTI. He will make full recovery.
We've also seen an increase to our total recordable injury frequency rate to about 2 per million hours worked. The increased TRIFR is somewhat related to our big step-up in exploration fieldwork in 2019. Our team is absolutely committed to improving what is still a very good HSEC performance. We believe strongly that HSEC is a foundation of good ethical and productive business performance.
Our new sustainability development program is starting to get some real traction with over 30 groups participating in the first round and some already showing positive financial returns. We are reviewing the second round of applicants now. And due to the success of the first round, we have nearly 400 applications. By the end of this year, we'll have committed about $1 million to this development fund. Programs such as this, along with others aimed to training, developing and supporting a local community are an important part of maintaining our harmonious, engaged community with diverse livelihood options.
Now please move to the next slide and we'll discuss the sulfide plant performance. Ramp-up of the sulfide plant has been excellent. And it is now operating routinely at design throughputs and for periods, above design. Recoveries for the quarter were about 93%, which is within 2% to 3% of design. We have not identified any major issues in the plant to require redesign or significant works.
When we completed the shutdown for the first autoclave earlier this year, we found it in the outstanding condition with very little scale and almost no wear. This bodes well for the future. The immediate results of the lengthening of the shutdown frequencies was to push out the major plant shutdown for autoclave 2 into early 2020. We are closely monitoring autoclaves and doing some shorter shutdowns to undertake routine maintenance to the autoclave's external piping and valve.
We have started work from taking the sulfide plant to above design rates. You might remember that we have 2 autoclave trains and that they are both designed to do 75% of total plant flow. That is, when both of them are running, they are designed to be able to do 150% of plant flow.
We have also found plenty of spare capacity in our grinding circuit. Grinding and the autoclaves are very capital-intensive areas of the plant, and so their apparent spare capacity provides us great opportunity to increase plant throughput at a relatively low cost. We are not yet ready to promise this improvement, but will of course keep you informed of our progress.
Now let's talk about the oxide performance, another success story and please turn to the next slide. Oxide performance continues to be outstanding, delivering 33,000 ounces of gold production and 45,000 ounces stack for the quarter. Production benefited from better than originally estimated performance of our blended ore program, the in-pit exploration success and some positive reconciliation. Processing of Çakmaktepe ore, our first satellite mine, has been highly successful. And just last month, we completed mining of Phase 1. We had a positive reconciliation in Phase 1 and have gone back in the Çakmaktepe exploring with gusto, drilling 58 diamond holes in just 2 months for about 4,200 meters. Using what we've learned from mining of Phase 1 of Çakmaktepe and the recent intensive exploration effort, we are very confident that we will add even more ounces to what is in the current reserve. We are in the process of completing this stage of exploration, ready for modeling and preparation of the mining schedules.
In West Pit, mining reached the ore zone during the quarter. The expansion of this pit was a result of our in-pit exploration program. We released a press release for the Çöpler Saddle in September, which showed some holes around the West Pit. I will talk more about the release later. So far, we've been delighted with the pit outperforming our expectations. Exploration is currently accessing the back of the pit to see if we can push the pit wall back and access even more of the mineralization. As a result of the exploration success generating lots of extra oxide ore is that the heap leach capacity is steadily being filled. We completed engineering work, approved and have started Phase 1 of the heap leach expansion, which will provide approximately 6 million tonnes of additional capacity for about $12 million. Engineering of the subsequent phases, which will provide a total of about 25 million tonnes, is well advanced and will be completed in time to avoid any chance of delay to oxide processing.
As you can see, our strategy to find, develop and deliver extra oxide ounces, additional to that declining reserve, has been highly successful. So much so, as Rod mentioned, we have, for the second time this year, increased our guidance for oxide production. We plan to make this trend continue, and I'll talk more about our strategy on the next slide.
Please move to Slide #8. I wanted to take a few minutes to discuss our pathway to increase the oxide ounces materially beyond our current reserve. Our strategy is to pursue with tenacity, multiple prospects for extra ounces across each of the time horizons. In the current near term, you can see we have 5 areas, some are already delivering extra ounces and others are looking highly perspective. These areas, some already with resources and reserves, all have current mining permits that allow us to deliver supplemental tonnes immediately and through the next couple of years. In the medium term, we have areas that we already have discoveries in and that abut the existing mining permitted areas. This allows us to modify the existing permits to facilitate access and also lowers the cost and build time to gain access. We have 4 areas of focus: Ardich North; Ardich South; Çakmaktepe; and the Çöpler Saddle. Our aim is to try and access these areas in the next 2 to 3 years.
We are blessed to have so many outstanding prospects on our doorstep. The beauty of this is that should we -- is that we should be able to deliver all from one or more of the prospects within each of the time horizon, even if one of the areas is delayed in development for some unforeseen reason. This bolsters our confidence in being able to increase oxide ore production.
I should also point out that all of the near- and medium-term targets also have a component of sulfidic ore. Ore from these areas, if higher grade, will replace or supplement Çöpler ore to feed the sulfide plant and so increase the sulfide plant production.
Let's finish off the operations and development section with a quick review of our recent exploration releases to the Çöpler Saddle and Ardich on the next couple of slides. Please move to Slide 9 for Çöpler Saddle. This was our first release of exploration holes for the Çöpler Saddle. The exploration area for Çöpler Saddle is quite big, abutting the Western flank of the Çöpler Mine. So far, our exploration focus has been on the shear zone, which runs for about 2 kilometers, in part through the edge of the already permitted mining areas. As mentioned earlier, we are already mining some of the shear zone in the West Pit, delivering extra ounces from outside of our reserve. We will include some ounces expected from West Pit in our guidance for next year and are working feverishly to expand the pit and its contribution.
The Northern and Southern areas of the shear, and the figure on Page 9, are outside the currently permitted mining area. I would like to point out the impressive holes of the Southern extent of the exploration drilling, 774 and 786. We're drilled in an angle intended to intersect the shear at 90 degrees in an attempt to measure true mineralization thicknesses. This is a great prospect. And even though a small portion of it extends into an operating area, it is in the, most part, very early in the exploration process.
Please jump to Slide 10 for a quick update on Ardich. We updated the resource in April, increasing the indicated resource by 117% to over 600,000 ounces. We released more drill results in August, which showed that the mineralization now extends over 1.2 kilometer with some really impressive new holes, including 50.6 meters at 2.73 and 29 meters at 4.8 grams per tonne. Drilling continues at Ardich, both step-out and infill. While the strike length is already impressive, our field mapping leads us to believe that Ardich strike length could be more than 2 kilometers long. The Ardich deposit is adjacent to Çakmaktepe and only 6 kilometers North of the Çöpler Mine. As we did with Çakmaktepe, we are aiming to fast track Ardich, leveraging off the existing infrastructure.
We will update the resource estimate this quarter. This updated resource will, of course, be another interim resource as we will only be able to include areas with high enough drill density. We are making big step-outs and so some of the areas will only have couple holes in them, and we'll have to wait for more drilling and subsequent resource updates for those to be included. We are now focusing exploration activities on the Southern area to bring it in line with the fidelity of work done in the discovery area to the North. The Southern area, though being behind in exploration status, may be quicker and easier to develop given that it abuts the Çakmaktepe mining area. As I've discussed earlier, this is part of our strategy to pursue multiple development opportunities. Our development team is already working on Saddle pit options and permitting for the areas where we have enough depths to do so.
I'll now hand the presentation back to Rod.
--------------------------------------------------------------------------------
Rodney P. Antal, Alacer Gold Corp. - President, CEO & Executive Director [6]
--------------------------------------------------------------------------------
Well, thanks very much, Stew and Mark. It's clear we have the potential to grow from the existing portfolio. And I'm sure, by now, you all have a sense of the programs that we're currently advancing to achieve this objective. With our strong balance sheet and our exploration delivering results, all the pieces are in place to advance our growth strategy.
AQG Price at posting:
$7.15 Sentiment: Buy Disclosure: Held
