Oct 25, 2018
Executives
Anne Day - Vice President, Investor Relations Renaud Adams - Director, President and Chief Executive Officer Paula Myson - Executive Vice President and Chief Financial Officer
Analysts
Rahul Paul - Canaccord Genuity Inc. Dan Rollins - RBC Capital Markets Jacques Wortman - Eight Capital Steven Butler - GMP Securities Josh Wolfson - Desjardins
Operator
Good morning. My name is Krista, and I am going to your conference operator today.
At this time, I would like to welcome everyone to the New Gold Inc., Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.
And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].
Thank you. I will now turn the call over to your host Anne Day, Vice President, Investor Relations, you may begin.
Anne Day
Thank you, operator and good morning everyone. We appreciate that you join us today for New Gold's 2018 third quarter earnings results conference call and webcast.
On the line today, we have Renaud Adams, President and CEO; as well as Paula Myson, our CFO. Other members of the management team have also joined us and will be available during the Q&A period at the end of the call.
Should you wish to follow along with webcast, please sign in from our homepage at www.newgold.com. If you are participating in the webcast, you may type your questions online through the interface.
Before the team begins the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found on Slide 3 of the presentation. Today's commentary includes forward-looking statements relating to New Gold.
In this respect, we refer you to a detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements.
Slide 3 provides additional information and should be reviewed. We also refer you to the section entitled “Risk Factors” in New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ.
In addition, at the conclusion of this presentation there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Renaud Adams.
Renaud Adams
Thank you, Anne. Good morning, everyone, and thank you for joining us for our third quarter 2018 review.
I'm very pleased to join this company. I've joined the company on September 12, but the very critical time as the company is repositioning itself as a leading Canadian focused gold producer.
With nearly 14 million ounces and nearly 1 billion pounds of copper, two operating assets and one exceptional optionality in the Blackwater project, the company is well positioned in Canada to turn the corner and readdress value creation for our shareholders. Keep this repositioning is showing the addition of Mr.
James Gowans to our Board of Directors, enhancing significantly our technical expertise at the board level. In the short term, the sale of Mesquite Mine improved significantly our short term liquidity and financial flexibility, while simplifying our operational structure and supporting our new vision of repositioning new goal as Canadian focus based on long life assets.
Using our improved performance in September at the Rainy River as a new baseline, we are now more than focused and committed to continue to improve the performance to eventually meet to spec of Rainy River. New Afton delivered not exceptional quarter and it's surely well positioned to meet our even exceed our guidance in 2018.
The short term focus is to complete and optimizing the new - the B-3 and the seasonal development scenarios focusing on a potential internally funded while supporting a strong cash flow over the next short term. The decision is expected in the late 2018 to potentially advance the development in early 2019.
We are also actively engaged in improving the outcome of our Blackwater technical study. We call it the de-risking opportunity where potentially the use of technology and our phased approach would improve the economics.
On a positive note, the company is expecting an environmental assessment approval in 2019. I will now turn it back to - turn the car to Paula for the third quarter operational and financial highlight and result.
Paula?
Paula Myson
Thanks Renaud and good morning, everyone. We'll be starting on Slide 4 of the slide deck.
And on production, first we'll talk about it on a continuing basis. On a continuing operations basis, the consolidated production was 77,500 ounces significantly above the prior period.
That's because on a continuing basis, New Afton would have been the primary contributor to gold production in the 2017 comparative period. So the large differential is due to the fact that Rainy River was not commercial in Q2 2017.
On a total production basis for the quarter that would include Mesquite, our total gold production would have been 114,025 ounces. Breaking down the consolidated production a bit, total production at Rainy for the quarter was 55,538 ounces, which included a five day shutdown we took for some mill modifications.
Post the shutdown, Rainy had its best ever monthly production of 25,500 gold ounces in September. That operation is well positioned to meet the lower end of the revised 2018 production guidance.
During the quarter, New Afton produced 19,916 ounces of gold and 21.7 million pounds of copper, slightly lower than the prior period but that was due to a plan decrease in the ore mined. Finally at Cerro San Pedro, it produced 279 ounces of gold in the quarter.
That too was a plan decrease and resulted from the mine finishing active mining late in the second quarter of 2016 and transitioning to residual leaching. At the end of Q3, we discontinued to cyanide addition to the heap leach pad and a staged closure process is underway.
Therefore, we took a write down of inventory at Cerro San Pedro of $12 million and that was included in the operating expense of that operation for the quarter. Consolidated operating expense was $644 an ounce that was up from $527 in the prior year quarter, mainly due to the inclusion of the operating expenses at Rainy and its ramp up here and the $12 million on heap leach write-down at Cerro San Pedro I mentioned earlier.
On the all-in sustaining costs, consolidated all-in-sustaining cost increased compared to the prior year and that was primarily due to an increase in operating expenses and sustaining capital at Rainy as construction of certain of the infrastructure on the site continue during the quarter. The impact of Rainy on AISC at New Afton where they benefited from both higher copper price and lower all-in-sustaining costs.
If we move to Slide 5 and look at the financial highlights for the quarter, revenue of $147 million was with $54 higher than the prior year quarter and this reflected higher gold sales volumes and the higher copper prices. If there was a net loss of 2 or no per share on a continuing basis during the quarter, if there is a net loss of $166 million or $0.29 per share, if we included the impairment loss for Mesquite that would be net of tax of $162 million and again was related to the sale of the Mesquite Mine.
During the quarter, we entered an agreement for this sale in late September, which means that the Mesquite Mine met the qualification of a discontinued operation at the end of the period. The proceeds from the sale and the closing adjustments then compared to the carrying values and resulted in the 162 million impairment loss.
For clarification, the write-down actually appears in the discontinued operations lined on the income statement. There was an increase in the operating cash flow per share that corresponded to the higher gold production and operating cash flow for the quarter was $0.12 per share that was up from $0.08 in the prior year period.
That again reflects the addition of Rainy operating margin to the very steady operating margin we achieved at New Afton. Moving to the capital slide on Slide 6.
Rainy River's sustaining capital expenditures for the quarter primarily relate to capital stripping and the construction of certain site infrastructure and that includes the tailings dam. Rainy River growth capital was related to the payment of working capital for project development and advancing the underground.
We're trending below what we estimated the 2018 capital at Rainy would be on the sustaining side, the slower spending is due to a combination of three factors, deferrals, reclassification basically from CapEx to OpEx and a slower drawdown on working capital. At New Afton, sustaining capital primarily related to tailings dam raises and equipment purchases.
New Afton growth capital primarily relates to the study costs related to the season. Moving to Slide 7, on the capital resources and quiddity.
We ended the quarter in a very comfortable liquidity position with $129 million of cash and $124 million of capacity under our credit facility for total liquidity of $250 million. During the quarter, we took steps to strengthen our balance sheet and enhance the financial flexibility of the company.
That strength flexibility will mainly be bolstered by the sale of Mesquite for proceeds of $158 million which is expected to close in the fourth quarter. Mesquite is part of our security package for our $400 million revolving credit facility.
And upon closing of the sale, Mesquite will be removed from the security package and Rainy River will be added. And the term of the $400 million facility will be extended one year to August 2021.
We'll direct about $60 million of those proceeds to reduce the outstanding balance on the credit facility. And until the Rainy River security is perfected, which - it's a process we expect to take until late 2018 or early 2019, the maximum draw on the facility will be 225.
We are very comfortable with that since we have a healthy cash balance currently which will at the close of the transaction of Mesquite sale will be further supplemented by the cash proceeds from the sale. And with that I'll turn the call back to Renaud.
Renaud Adams
Thank you, Paula. I am on Slide number 8 and I like to make to take some time here to go through the two main asset and discuss some more specific about the results of the Q3.
At Rainy River, the third quarter results were fairly positively impacted by a notable improvement in September, and August mills shutdown. In September, we have achieved an improved mill availability and throughput resulting in a best ever 25,500 ounces produced.
So based on this new improvement productivities, and focused on the cost drivers and a very disciplined capital allocation, we see ourselves meeting the low end of the production guidance while meeting our all-in-sustaining cost guidance. As we continue to improve the milling performance, will come the need to improve the mine performance, so we are not - we are on time with the preparation of the next phase, while the ore mine will meet our objective to support desegregation strategy, maximizing the grade at the mill.
So as we improved the mill, increase the throughput, will come the need to also increase the ore mine to support this strategy. We will focus on the mobile equipment availability but more important is the need to track and improve the efficiencies and the use of our equipment.
And we have launched this approach and they will become a priority in the fourth quarter. In the short term, we also evaluating the Near-mine exploration potential.
Rainy River has a mine with four million plus pounds of reserve. But as we move forward, will come to need as well to improve our midterm pushing in the future the need to reclaim their low grade stock pile and improve our view on why it is beyond the current reserve.
So I'll speak more about this in a minute. On Slide number 9, grade reconciliation.
I thought it would be important to pause here and take the time to really looking out at the greater conciliation. As I was following the story of New Gold and part of the second quarter disclosure was an important conversation about the great reconciliation.
In Q3, I'm very pleased to show you that when it comes to the resource model versus our blast hole, the result where reconciling and assets were surely reconciling very well. As you could see on the Slide number 9, taking the result of the grade control, the overall grade at 103 the most important are the high grades at 154 were reconciling very well with the resource model.
This is the Q3 result. And as we advance, we will continue to be very transparent and demonstrate the importance of the fact that we don't see a significant issue or even an issue with the resource model.
The key here is how do we take the resource model and make it a very efficient mining approach while with minimizing the dilution sources. On that blasting movement, the narrow shades on the large mining shovel, the sub-optimal mining directions, all those contribute to a higher than planned delusion.
And this will be the focus starting in 2014 - in the fourth quarter 2018, while we would be working actively and minimizing the source of dilution. Another very important aspect as well is if you compare the R shape and grade control from the geology compared to the milling.
As you could see the mill process 1.6 tons at 1.21 grams a ton and this reconcile very well with the high grade mine of the 1.26 grams of ton. So in short, in the third quarter, we have not seen a difference between the assets from the black model compared to the grade at the blast hole.
In the short term, we have brought to site an RC drilling and we're using this approach to improve on the few aspect. One of the limitation we have is the lack of information that had of drilling inventory.
So the RC drill will be serving in the short term and the low, medium and high grades to validate and improve the grade control practices while they would serve to improve our near term mine plan. We have about 10,000 meters planned for 2018 and we will report in the next quarter on a significant result out of this drilling program.
On Slide number 10, mill performance. There is really three aspect of the mill performance, throughput, recovery and availability.
What we have seen in September post and the August shutdown where the SAG was relined, elution circuit was upgraded, the carbon elution circuit screen were replaced, we've seen a significant improvement in the overall availability. All those issues that we were dealing with were contributing to the very low availability prior to the shutdown.
We've seen as well an improvement in the overall recovery in September, and as we move forward, the importance will be to reconcile and to improve in a three front. I'm also very pleased to say that from October 1 to October 14, the plan has operated at an average of 24,000 tons at an average availability of 95%.
So the question, if the mail has the capacity to support 24,000, the answer is yes. But as we move forward, it is important as well to understand that maintaining 24,000 tons a day, at the same time of maintaining the target of 93%, we're not quite there yet.
We have identify the main issues and we're working on improving. As an example, we are working with experts and relooking at the configuration of the lining - conflagration of the SAG mill, we believe that configuration could be improved, which will contribute at a better operation of the SAG mill, where we would be maximizing the throughput, operating the crushing plan as well and better setting and operations and where we would also focus on the overall growing.
So as a result, we will continue to word in the back end of the circuit as well continue to improve. But overall we do not see any issues with the capacity of the mill, is how do we optimize, take the back end optimization and the front end optimization where we would be maximizing that throughput, but also very important is the need to maintain the overall grind in the 75 microns or lower.
All that are part of our short term priority and again I am pleased to say that we feel very comfortable, we have identified all issues and Q4 will be a priority to address those. On Slide number 11, I just want to show a bit of the potential of the Near mine when it comes to exploration.
What we're showing on Slide 11 is the intrepid zone. One example of potential new resources that could be added.
Why interpid zone? Well, first of all, this is the first zone that will be intercepted in the underground strategy.
We have over one kilometers to the north are favorable geology that are very similar to the intrepid zone itself. The limited drilling to the north might have protests or claim on her and now we do own those claim and we believe that it existed bigger potential to extend the interpid zone further to the east.
So as we are looking at the Rainy and extend the life of mining improve and the short, mid-term will come to need as well to return to a strategy of the drill bit. My experience in the past has been that more than 50% of improvement in organic growth and value creation come from the drill bit and I believe that it's time for a new go to return to this fundamental strategy.
On Slide number 12, on the New Afton. What an exceptional quarter again in New Afton with already nearly 59,000 ounces produced and 64 million pounds of copper.
The New Afton asset is very well positioned to meet or even exceed the production guidance. Our cost remain extremely good and we're trending to meet or even in below on the all-in-sustaining cost guidance.
The whole focus in the New Afton Mine is to really work in solidifying our future. This season is a near term future of the New Afton and the focus is ready to complete the best scenario, unlock and execute and potentially start and execution in 2019.
As we continue to manage our cash flow will come the importance of how we would execute and pay for the season. We see a scenario, potential scenario where it would be internally funded from the asset itself, while potentially maintaining an interesting cash flow in '19, '20 the time that we complete the turnaround of the Rainy River.
Just as we do in our Rainy River, will come the importance as well to return to the fundamental strategy and the exploration potential. And on that on the next slide, I'll speak about it.
Very pleased as well to see that the gravity of jig installation is in progress, well on time for commissioning in the Q4, which will support our strategy to maintain a high recovery at the time that we will be dealing for a short period of time with the supergene ore coming from the east. On Slide number 13, we're showing again the short term potential of how we could extend the resources at New Afton.
From the season drilling exercise, we know that D-Zone remained open a depth. So in 2019, one of our short term objective and using the underground approach, we have angles and positioning from underground, we will be testing the extension of the C-Zone to potentially put together what we would call the D-Zone.
Its earliest stage, but I'm very pleased to say that the zone remain fully open, the assays are below the C-Zone as we know it today are high strong or better and the C-Zone at what we see in the main zone of the B-Zone. So as we continue to unlock the value, work on exaggeration of the C-Zone will come the importance to work for the future and prepare the future.
So, just as we do at Rainy River, we will return in the fundamental of the drill at New Afton, creating a longer future. And on that I'll turn it back to the operator for the question.
Operator
[Operator Instructions] Your first question comes from the line of Rahul Paul from Canaccord Genuity. Please go ahead, your line is open.
Rahul Paul
Hi, everyone. Renaud, at Rainy, you spoke about the reconciliation with the resource model, but I just wanted to clarify, there was a concern previously that the overall ounces and grade were fine but the distribution seemed to be more uniform i.e.
less high grade, more low grade. Is that not the case?
And if that's the case, do you see any signs to suggest that you could effectively carry out the segregation and stock piling strategy to maximize create to the mill?
Renaud Adams
Well, thanks, Rahul. And this is really a key item hear.
And the way I look at it moving forward is ready to go step by step. The first thing here that is very important is, is there any major issue or any issue at all with the resource model per se.
This is very key obviously. Our strategy is to segregate from the medium and low grade and benefit as much as possible you know in the short term and mid-term to operate the mill using the high grade.
So what I see here is I know they've been some concern. We did not see in the Q3 any area of where we were mining where they were a disconnect on the high grade zone from the resource model to the actual grade control.
As I have a mansion, beyond the resource model comes the mining and the actual grade mine versus the great control. So in the Slide 9, you see that on the high grade for example - for instance, we had like nearly 1.6 million ton mine, average grade at 1.4 - 1.54 and then the overall result of the mining is 1.8 million at 1.26.
So important to understand here that the more times and lower grade is not a result of the resource model per se, but as a result of the mining out of the resource model. So the key here is the dilution control, as I mentioned.
I do not see we have not experience in Q3. I know that have been mentioned in the past, but obviously if you take a resource of 1.5 and if you do not control your dilution sources, you would not reproduce a reserve model that it's considering 5% across the board of dilution.
So we need to optimize this. And to optimize this in information ahead of you.
So as I joined the company, they were about like call it like very short-term drilling inventory, how could you maximize if you don't know what is ahead of you. So you'd plan always and the short-term using only the resource model.
So there RC drilling and the ability to put the drill at work and create a drilling inventory will maximize your all line patterns, your mining practices control of your blasting hole. All this is key to reproduce an overall dilution and the mining practices that meet the reserve model.
But the fundamental here of the Q3 finding is when it comes to the resource model, we have not seen difference in the high grade, mid-grade and the low grade. So it's optimization role that I see down the road is creating drilling inventory ahead of us, so we could maximize our plans and practices and working on source of the dilution.
But the fundamental of an asset is the resource base. And the most important here is there anything wrong with the resource model or what we call total tons and grades.
And what we see and - what we saw in the Q3 as we have not experienced that variance between the actual and the resource model. This is the first step that is extremely important.
Could we maintain this in the future? We would again continue to be very transparent as we move forward, but the resource model is one thing and what you deliver to the mill is another thing.
And as you could say on the high grade from 1.5 down to 1.26, there is room there to continue to improve on the mining dilution and practices. So you maximizing your high grade delivered to the mill.
So that's what I can say at this stage. This is a priority.
This is something we're working actively on to minimize the grade and be as close as possible to the resource once is blasted and delivered to the mill.
Rahul Paul
Okay. That's great.
Thanks Renaud. And then one more question.
You provided a leverage ratio at 3.3 at the end of Q3, presumably that would be before the Mesquite sale, can you tell us what that number would be if you were to take into account the sale of Mesquite?
Paula Myson
The actual impairment get adjusted out of that calculation, so it doesn't have an impact.
Rahul Paul
So what I was trying to get at is I know it's on an LTM basis, would you just out the EBITDA contribution from Mesquite as well and...?
Paula Myson
Yeah, you can. I have to get to that number, I don't have the isolated Mesquite EBITDA, but we can get you that.
Rahul Paul
Thanks. Thanks a lot, that's all I had.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Dan Rollins from RBC Capital Markets. Please go ahead, your line is open.
Dan Rollins
Yeah, thanks very much. Renaud, just on the throughput improvements that you saw during September, how has that translated into October, obviously we know when you have these ramp ups you get a couple good months and then you have a setback and these on a straight line up but how was October performing relative to September so far?
Renaud Adams
So, as I mentioned, the most important thing is like when I came on board was like okay, so we just talk about the great control. The second thing, the second noisy item if you well coming out of the second quarter disclosure of the company is what about the capacity, if you're not meeting your average 24, what is it that?
Is that the mill capacity or it's actually the incapacity to maintain the mill running at or above 93%. In October, from October 1 to October 14, the mill did average slightly above 24,000 tons a day at an availability of 95.
So at this stage, what I can say is, there is no capacity issue, the mill is capable to do the 24. And quite frankly, once it's optimized, it would do more than that.
I'm very confident of that. Why?
Because we're not using properly the full power in the graining circuit. We have a pebble crusher that hasn't been even commission.
So you have the SAG mill that does not produce pebble that already produced 24 and growing 24,000, 25,000 tons. But the issue here is because what we believe is a configuration issue you know of the lining system, so we're cheating a bid in the short-term, we're operating the crusher, you now and the close setting, it works, but this mission is not designed to operate at that setting.
And as a result of that you have the higher downtime and the crushing which impact the overall. The SAG mill is not meant to operate at a lower throughput.
And it's also contributing you know to more downtime around like fixing and changing liners and grades. So what we see down the road will be the need to maximize the lining configuration.
I can tell you by experience and by comparison with our asset in Canada and what I've worked overseas, the lining conflagration is way different of the standard here. So I think a lot of opportunities to modify the lining configuration, improve the use of SAG mill, use the pebble crusher as it should be used, optimize around the mill and very, very importantly of course is to meet this spec at what the size the grind that we're sending to the leach.
So yes, the capacity is there, but we haven't been able to maintain the 93 and above, which is key. So to your question, yes we've 24 average in October but we also after that had to stop and correct a few issues around the crusher and that will be the situation.
We know the capacity is there but we need to be sustainable. And we need to be sustainable and cost as well.
There is no point in trying to do 24 the short-term, if we operate at $3 above our turn. So it's all element has to match, but I'm very, very positive.
And I think as we optimize, we're going to show actual like capacity exceeding this. There's nothing wrong but the capacity of the mill, is conflagration and optimization which would allow to operate properly within the cost and at a decent availability.
And I considered that a SAG milling operation should be in the range of the 93%, and this is what we've been struggling to maintain. So it requires some optimization.
Optimization equal, if you change the lining configuration, well then you're going to have to order this new liners and that would take probably 10, 12, 14 weeks to receive the new liners and changed. But the fundamental of having operating for 14 days consecutive at 24,000 tons is key here.
So to me box, you know is checked on the capacity. It's not checked yet on the availability and he's not checked yet on the recovery because it all have the all enter loop, you know it's all together, but very positive.
And you know as we move forward, we would deliver the very, very efficient milling operation. And I'm just talking about the mining as well.
It's a work in progress.
Dan Rollins
If you would have been benchmarking yourselves right now obviously September, October, would you say you're probably at steady state 85% availability, 88% and therefore that incremental will come overtime? Just try to figure what you think?
Renaud Adams
I think it's fair - I think it's fair to say that at this stage, we have to look at ourselves on the sustaining basis that we're not at the 90 plus. We have reproduce it, but not under sustainable.
I think it's a fair approach to say that at this stage, I see ourselves still you know towards the 87, 88 recovery overall at if we push a throughput, availability is not there yet, I think your range is fair. You know as we advance in the Q4 will be like the key priority is we need to be about to clear articulate before the month of Q4 what are exactly we are going to do to address early in '19 and it's on the sustainable basis recovery throughput and availability.
And I am very positive we could achieve, but as you said, we are not there yet, we just increase significantly the knowledge about what has to be done.
Dan Rollins
Okay. And just one last for me.
Could you just - what's the rough amount of capital that still needs to be invested to be B3 Zone up and running and the C-Zone fully develops?
Renaud Adams
I have to refer you back to the technical study. I mean like the last discloser of the company, we first with nearly $400 million for the B3, there have been some inflation but on the other hand, we have also work within that range.
Dan Rollins
But basically the spending really needs to start next year to get this thing to nicely fit in?
Renaud Adams
There is there key element funded [Technical Difficulty] spending is there any optimization, but when it comes to control as cave, this is not where we see technically the issue.
Dan Rollins
Okay. And you still thinking you need a better year to get Rainy to where you want it, are you feeling more encouraged with having more kind of weeks under your belt?
Renaud Adams
No, I didn't say, surely not the year for the milling, I mean like I said by Q4, I would be pretty, pretty good you know in understanding what would be the final touch. And I think it goes really around completing and operating the backend like fully automation and training, a lot of training on our personnel as well.
I mean this is not a surprise we have a bit of an experienced team. I mean we have a lot of operators that join us you know, we're focusing on creating a local workforce, so we've got to be strong in training and developing our people and making sure we transfer knowledge.
This is key. People, you know me, I'm very strong on upon the people side of the business.
So we need to maybe do a little bit of a better job you know on the training side and transferring knowledge and training our personnel. That's one thing.
But when it comes to understanding the technical and execution, now I don't see a year of completing but they will need maybe I need to reorder some different liner but Q4 will definitely set the bar to be Q4 strong, surely stronger than Q3. And as you advance and then you would meet your spec and hopefully is one take, like you are seeing a year and we're going to see within a couple of quarter hopefully.
Dan Rollins
All right. Thanks very much.
All the best.
Renaud Adams
Thank you very much.
Operator
Your next question comes from the line of Jacques Wortman from Eight Capital. Please go ahead, your line is open.
Jacques Wortman
Thanks, Operator. Okay, good morning.
I've got three different separate questions. The first is the strip ratio in Q3 at Rainy River was 2.36, again that increased in September to 3.78 and we do have a higher strip in 2019.
I'm just wondering where you think the strip ratio might be in Q4? The next question, just go through quickly.
Rainy River CapEx, the guidance previously said I think in July was $245 million for sustaining plus project CapEx. Year-to-date, you're at about $139 million, so I just want to get a sense of what the planned CapEx is for Q4 Rainy River and is any of that CapEx that hasn't been spent could be deferred into 2019 or later?
What is the new sort of CapEx roughly speaking guidance for 2019? And then last question is with respect to New Afton and supergene ore.
You're expecting supergene to come into the mill feed starting next year to 2022 and peaking at 40% 2020, you've got a gravity recovery circuit pressure jigs, magnetic separator, you're looking at commissioning. I guess the question is what's the potential impact to gold and copper recoveries with the increase in supergene ore and what's the CapEx of all this new equipment and I guess what's the CapEx for 2019 as well?
Renaud Adams
Okay. Let's address the first on this strip ratio Q4.
As I mentioned, in the other to support - the most important thing here is to support cash flow, support productions cost, so mining the ore at the minimum level to support desegregation strategy as good. As because the mine - the mill has not delivered on the overall year of the total tons of ore required because as you know were delayed, so now, not to look at the mining to date has an issue of the strip ratio not have been at the average 3:7.
We expect more in September, I'm not concerned about the preparations of the next phase but we need to start. So, I think September is maybe more representative of what we would like to reproduce in Q4.
And the average strip of this asset is about 3.7, you obviously cannot be at 2 all the time. In September, we've seen an increase.
And as we slow down on the activities on the tailings and the need of using will have a better use of equipment in the mine as we move forward in the short term and slow down the activities on that drilling. We need to do a minimum of 2.5, to not delay on the strip ratio.
If we could do at 3 you know and catch up a bit and even be a little bit ahead on the preparation of the next phase as long as you deliver the level of ore that support a strategy, I will be happy and I would support our strategy. In term our CapEx, this I will turn it back to Paula, but I would say yes of course, but beyond those numbers are we're not spending the capital.
Paula would explain where and what potentially could be transferred to 2019. But also more than ever, we need to be extremely disciplined on how we are allocate capital.
There is a human factor making sure we have the proper infrastructure in place. There is a real true sustaining way is absolutely require you know to operate an asset in the sustaining basis and there is also the value creation.
And the value creation we need to secure that the dollar spend creates a return to shareholders. So I will turn back to you Paula to talk a bit more on the variation here.
Paula Myson
Sure. So you are correct.
In July, we talked about the Rainy River CapEx on a sustaining side being roughly 2.10 and the remainder on the growth side. So let's talk about sustaining first.
The two primary elements of that are really the cap stripping and what we call the infrastructure spending, so that would be everything relating to tailing and sediment ponds that type of activity. That is approximately 65% of our spent.
We haven't - on the trailing side, we still have until mid-November to really work on the down. At that point generally under normal weather conditions that's when we have to start.
So we're not quite through that process yet. But if I was to characterize, we're definitely going to trend below the 2.10 guidance, I would say deferrals in that amount primarily on TMA and I'm taking a bit of a flyer on when we'll see activity, is probably about $10 million to $15 million that will be a deferral.
There's also in the year-to-date and where we'll end up for the year, there's a bit of reclassification of CapEx to OpEx. And that primarily relates to mobile equipment maintenance and basically the work that was done didn't make the asset componentization threshold for capitalization.
I characterize that as between $15 million and $20 million, and the rest is just a slow - draw down on working capital about $5 million or $10 million. So you're looking overall in the range of probably $30 million to $40 million and less capital spend on the sustaining side for 2018.
Now…
Jacques Wortman
And of that how much is going be deferred, you say only about $10 million to $15 million?
Paula Myson
$10 million to $15 million is our current guess, it's the best estimate we have. On the growth side, I would suspect that we'll probably hit that guidance number, that's a combination of the two elements in the growth are the underground and basically the payment of capitalized working capital that we had for project development.
So that would have been the working capital prior to commercialization that was capitalized and we're now paying that off. So I don't expect that growth number to be that far off.
You asked for a 2019 estimate. We don't - we are working on that right now, we haven't provided that level of granularity and guidance but that should - that will be out in the normal timing in terms of the 2019 guidance but we just don't - we don't have that right now.
In preempts, I know I'll turn it back to Renaud on the supergene, you don't want me answering that question. But on the capital side, there really wouldn't be a lot of extra capital to deal with the supergene.
It's very minimal and it would have been included in all of this sustaining this here. We're pretty much prepared for it.
So that's not going to have an impact on the capital side. So Renaud?
Renaud Adams
Yeah. And on the supergene, I mean to make it like a very short story that basic that everyone would understand, with the completion of the mining and the east part of the cave and the current cave, let's call it maybe an average of 10% of the ore is classified as supergene, right.
So that means you need to add just a little bit of your methodology to make sure that you're not lowering your overall recovery as a result of be native the copper you know part of the order. So this is a very low capital and in order to maintain to me the recovery.
As the supergene will come, will come up as well potentially in some zone with maybe better grade. And whatever will be the outcome, it has to be seen here is more has a preventive more than that super big capital project.
And just want to make sure we've covered all of your point.
Jacques Wortman
Yeah, those are everything. Thanks very much, Renaud.
Thanks Paula.
Renaud Adams
Thanks you.
Operator
Your next question comes from the line of Steven Butler from GMP Securities. Please go ahead, your line is open.
Steven Butler
Good morning, Renaud. It's GMP Securities, operator.
Question Renaud, coming back to Rainy River again. You mentioned the pebble crusher not really performing an operation whatsoever, so what needs to be done to the SAG mill to enact the performance of the pebble crusher, do you have to wait for the relining et cetera for the pebble crusher to start up?
Renaud Adams
We're not really need at stage that pebble crusher. So to answer your question, I would say yes first.
So the most important thing here is let's go back here, let's start with your crusher, okay this machine should be operating more towards a 5, 6 inches like settings, so you are in the 60% to 80% performance curve of the machine and this is what it is designed for. If you would try to feed that size of ore through the current configuration, you would probably have some limitations.
So with the redesigning of the lining will come the opportunity to reopen the crusher and most likely you are going to start producing more pebble. And then look you have the machine that you're currently not using.
So I would say there is no certainty at this stage you know that it would be require. But should we start producing more pebble?
We have the machine in place. That's the way I look at it.
There is a lot of the opportunity as well to improve on the ball milling size probably more towards those charges, as the critical speed, the size of balls, as we improve on the SAG mill will come to need as well to adjust. But you looking at the October today, yes, we do some good throughput, we're capable, but this is makes sense if we are so maintain the proper grade.
And we know that this asset to meet their recovery requirement, you need to be grind at an average 80% of maximum 75 microns, not 90, not 100, 75. It's all optimization, it's not about to capacity, it's about fine tuning.
Steven Butler
Okay. And then lastly there on Rainy, your dilution percentage perhaps for September or for the Q3 versus the plan maybe you can give us a sense of actual versus plan dilution percent?
Renaud Adams
The planned dilution, I mean if you already talk about plan dilution, you have to refer back to the reserve model and the reserve model approach is basically taking your resource model and applying a bit an average you know like external dilution across, right. So now we're not there but on the other hand you know we're gaining more tons and we are improving.
So we're more always like 12%, 15% rather than 5%, there is kind of a 10% here optimization we could improve as we advance and we really control our practices. But this is what I can say at this stage.
This is what I see.
Steven Butler
Okay. Thanks very much, Renaud.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Josh Wolfson from Desjardins. Please go ahead, your line is open.
Josh Wolfson
Hi. I just had a question on unit cost expectations, maybe heading into the fourth quarter, there's any more information you can provide at least how the operation performed in September, when it I guess it would have been operating closer to steady state, and I guess in light of the capital changes what sort of unit cost would expect to see as a result?
Paula Myson
I can give you some general guidance on Josh. From on OpEx down point of course at Rainy, we expect to be above the high end of the guidance that Rainy and that's primarily going to be volume driven more than anything on the OpEx side.
At New Afton, we expect to be well below the guidance just given the performance at year-to-date. And at CSP or pay [ph], on a per unit basis, it'll be the OpEx will be higher just because of that $12 million write-down as the inventory on the pad.
But on a consolidated basis those are all they move in different directions, so we would expect to be within the consolidated guidance range of 630 to 670 on a consolidated basis for a lot. On AISC, again we have that give and take.
But Rainy would be - we would expect it to be in the middle of the guidance range again because it's any increase it has on a per unit cost basis is actually going to be offset or as the volume is going to offset the cost on a per unit basis or the CapEx is going to offset the volume. New Afton on an AISC basis, they're trending to be at the bottom to slightly below in the range but I would say at the bottom of the range on an AISC basis just that's because of their gold - sales volumes being a little bit up and byproduct revenue being quite strong in the year.
Now Cerro San Pedro, again due to its situation is going to be beyond its guidance range for the year. But that - it's got a minimum volume, so on the consolidated basis, its impact is quite muted.
So consolidated is probably to the low end of our guidance range for the year on the AISC side.
Josh Wolfson
Okay. Sorry.
And I guess maybe specifically for Rainy River on the per time unit cost, any sort of information you can provide on just mining costs, milling, admin something along those lines there?
Renaud Adams
What I can say about it of course volume is the main driver on the milling. And well two things on the milling side obviously is if you - you need to control you know the maintenance costs attached to the milling which has been really the big, because of tailing as well situation in the short term where we are not quite operating properly on the tailing side and in this the destructions, the use of more region there, the time we complete the tailing.
So there is a short term where if you compare like the tech report that refers more like towards like, let's call it like a $10 a ton mill and you're looking at our performance disclosed in the MD&A, so we are probably more towards like the 13, and that's a result of the way to high maintenance costs in the short term as I described and some operational practices that with time as we complete the tailings would improve as well. So Q4 definitely no shutdown, so probably last in the milling side on the maintenance, we're surely hope for a lower maintenance costs.
But you would remain above the tech report in the short term and so we are improved. On the mining side, we're already doing quite good and we continue to improve volume, would improve our dollar a ton as we improve the performances.
And the G&A a quite frankly this is not the main issue I think as we consider as well as a result of volume on the ton. So we are above the tech report, but we're surely training in the right directions to get to back in that within the spec.
So long story, short Q4, we see potential lower milling cost as a result of less maintenance. Mining will depends on the volume but the better volume could be at par of Q3 or better and G&A will should remain and improve as we mill more tons.
Josh Wolfson
Okay. Maybe just to be very specific, is other any specific numbers that you can provide on how those are operating just because even just looking at the mining cost which performed, mining operations from very well this quarter, looks like we're expecting roughly a dollar decrease fully over the next two years according to tech report, I am trying to just get a bit better understanding if possible?
Renaud Adams
Well, I can tell you that - I can tell you that the mining operations you know like the big, big thing comes from the efficiencies. So you have a mobile equipment availability that costs money on the maintenance side, when you fix that is a big part of that drop.
The second one is the operation and the need to improve the use of equipment. So we're currently lower than the specification.
So every hours, we use a machine is 80% of your variable cost, right. And if you're using the machine at a 20% use efficiency lower than the tech report, that's also the main contributor.
The third one is the analysis of our cost drivers, our cost drivers of anything that is a result of a consumption times of price. We're pretty good actually, we actually on the milling side and mining side with exception of the tire consumption where we need to improve the overall life of the tire, if tire is a result of improving road and pit conditions.
But in the overall actually and most of the cost driver, we are actually beating the tech report that was filed. The issue comes more on the procurement practices.
And we are addressing as we speak the situation where we're going to be partnering a little more, create volumes, create strategic approach and firming up position on strategic procurement contract. And this is like, I can tell you a lot, a lot of our procurement practices are not enough securing in all those main consumable.
So I am very pleased, I mean in my carrier, I have to deal mostly with consumption than about spec. We are actually doing very well on this.
So as we improve, our fix cost approach, the volume will be driven by better volume and then the variable cost is their practices. I don't see anything wrong with the tech report dollar a ton, but it reflects of course the proper efficiencies and use of our equipment and it reflects of course the proper procurement of how we buy or purchase those.
And it's all achievable.
Josh Wolfson
Understood. Okay, thank you very much for the additional discloser.
Renaud Adams
Thank you.
Operator
This concludes the question-and-answer portion of the call. I will now turn the call back over to the presenters for their closing remarks.
Anne Day
Yes, thanks everyone. If there is any further information you need, feel free to contact me.