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Alamos Gold Inc (NYSE:AGI)
Q3 2019 Earnings Call
Oct 31, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. I would like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead.

Jamie Porter -- Chief Financial Officer

Thank you, operator and thanks everyone for attending Alamos Third Quarter 2019 Conference Call. In addition to myself, we have on the line today both John McCluskey, President and CEO; and Peter MacPhail, Vice President and Chief Operating Officer. We will be referring to a presentation during the conference call, it is available through the webcast and on our website. I would also like to remind everyone the presentation will be followed by a Q&A session.

As we will be making forward-looking statements during the call, please refer to the cautionary note included in the presentation, news release and MD&A as well as the risk factors set out in our Annual Information Forms. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Vice President of Technical Services and a qualified person. Also please bear in mind that all of the dollar amounts mentioned in this conference call are in US dollars, unless otherwise noted.

Now, I'll turn it over to John to provide you with an overview.

John A. McCluskey -- President and Chief Executive Officer

Thank you, Jamie. We reported another strong quarter, both operationally and financially, driven by a particularly strong performance from our Canadian operations. We produced 122,000 ounces gold at significantly lower costs from a year ago. Total cash cost of $730 per ounce were down 11% from the third quarter of 2018, while all-in-sustaining costs were $950 per ounce were down 9%. With a solid performance in the first nine months of this year, we remain well positioned to achieve our full-year production and cost guidance.

Actually the combination of lowers costs and higher gold prices drove our operating cash flow before changes in working capital to a new record of $80 million. Our internal growth projects continue to advance, will drive further improvements in our financial performance. We are now about eight months away from starting to see the full potential of the Young Davidson operation with the lower mine expansion on track for completion in the first half of 2020. This will be the significant driver of free cash flow starting in the second half of 2020.

Island Gold continues to produce at a record pace and is well positioned to meet our, or to exceed the high end of production guidance. The operation also generated record free cash flow of $27 million in the quarter, bringing the year-to-date total to $55 million. We continue to see positive exploration results, particularly in the area of new focus between the Main and Eastern extensions. We've already seen a substantial increase in the mineral reserves and resources since we acquired the operations in 2017. Built on the ongoing success we're seeing this year, we expect the reserves and resource growth to continue and this will be incorporated into a Phase III expansion study.

In Mexico, we completed commissioning of the Cerro Pelon crusher and conveyor circuit earlier this month, and it started stacking ore. We expect initial production later in the fourth quarter, ahead of the schedule.

We're disappointed by the delays we are experiencing in Turkey. But we are confident that our mining concessions will ultimately be renewed. I'll discuss this in further detail during the call. But I believe the recent share price had a underperformance [Indecipherable] time.

I'll now turn the call over to our CFO, Jamie Porter, to review our financial performance.

Jamie Porter -- Chief Financial Officer

Thank you, John. We had another very strong quarter from a financial perspective with near record revenues and record operating cash flow before working capital changes. Performance at our Island Gold mine and [Indecipherable] surpassed expectations with record free cash flow of $27 million in the third quarter and $55 million in the first nine months of the year. Since we acquired Island Gold at the end of 2017, mine has generated $72 million free cash flow and that's net of all capital spending and the $32 million investment exploration.

Revenues for the third quarter were $173 million from the sale of 119,400 ounces at average realized price of $1,448 per ounce. Gold sales were 2,500 ounces lower than our production in the quarter with those sales to benefit in the fourth quarter. Total cash cost of $730 per ounce and all-in-sustaining cost of $950 per ounce were both in line with guidance. With similar cost expected in the fourth quarter, we remain well positioned to achieve our full-year cost guidance. Operating cash flow before change to the non-cash working capital was a record $80 million or $0.20 per share, marking the second consecutive quarterly record. This was driven by an 18% increase in the gold price and 11% decline in total cash costs year-over-year.

Our reported net earnings of $18 million or $0.05 per share included unrealized foreign exchange losses of $7 million, partially offset by other one-time gains totaling $1 million. Excluding these items, our adjusted net earnings were $23 million or $0.06 per share for the quarter.

Capital spending totaled $66 million in the third quarter. This included $18 million of sustaining capital, $44 million of growth capital and $4 million of capitalized exploration. Capital spending is expected to increase in the fourth quarter of 2019, primarily driven by the deferral of surface infrastructure project that Island Gold originally planned for earlier in the year.

Given lower spending at Kirazli, we have reduced our full-year capital guidance by $50 million to between $240 million and $265 million. We ended the quarter with no debt at approximately $202 [Phonetic] million in cash and equity securities, up slightly from the previous quarter, reflecting positive free cash flow generation. We expect significant free cash flow growth starting in the second half of 2020. We doubled our dividend earlier this year and expect further increases as we start generating higher levels of free cash flow. In the meantime, we remain well positioned to fund our internal growth initiatives.

I'll now turn the call over to our COO, Peter MacPhail, to provide an overview of operations.

Peter MacPhail -- Chief Operating Officer

Thank you, Jamie. Our Canadian operations performed very well in the quarter. Starting with Young Davidson, production increased to 50,000 ounces of gold reflecting higher grades, consistent mining rates of 6,600 tonnes per day. This marked a 10% increase in mining rates from year ago, and 7% improvement year-to-date reflecting much stronger and steadier performance in 2019. The increased grades mined at lower unit costs totaled 6% decrease in our total cash costs to $781 per ounce, and a 11% decrease in our mine-site all-in-sustaining costs is $960 per ounce from the first half of the year. Both were in line with our annual guidance.

Also we made excellent progress of a lower mine development since we hosted multiple investor tours for the operation in June. The crusher room excavation is complete along with the installation of the chutes, steel, and crane. Physical installation of the crusher is expected in December of this year. The ore passes from the upper mine which will feed the coarse ore bin and crusher are over 60% complete with 100% completion expected by the end of the fourth quarter.

And work around the 840 [Phonetic] level loading pocket is now largely complete, including the Shaft bottom steel, as well as ore and waste bins at Northgate shaft. With excavation work complete and mechanical installations under way, the construction schedule has been due [Indecipherable].

As previously guided, the tie-in of the upper and lower mines will require Northgate shaft down for approximately three months starting in March 2020, and ending in June. While the Northgate shaft is down, ore from the upper mine will be trucked to surface for processing at a reduced rate. Once completed, we expect mining rates to ramp up to 7,500 tonnes per day by the end of 2020. Given the lower throughput rates during the first half of the year, our expected productions decreased to approximately 150,000 ounces in 2020.

Island Gold produced 36,700 ounces, 67% increase compared to the third quarter of 2018. Milling rates of 1,115 tonnes per day were higher than mining rates as mill feed was supplemented with surface stockpiles. Total cash cost of $503 per ounce were at the upper end of guidance and down 25% from a year ago, reflecting higher grades mined. Mine-site all-in sustaining costs of $693 per ounce remained below annual guidance reflecting lower sustaining capital in the quarter and year-to-date. We expect capital spending to increase in the fourth quarter, resulting in higher mine site all-in sustaining costs.

We continue to see excellent [Indecipherable] results with our large exploration program at Island Gold since we acquired the operation in 2017, we have discovered initial additional 1.2 million ounces of reserves and resources to the end of 2018. Giving the ongoing successes we're seeing this year, particularly in the new area of focus between the Eastern and Main extensions, we expect our resources to go further with our year-end update.

We are excited about the potential of this new area for a number of reasons. First, every hole we have drilled thus far is a gold mineralization, there is some very high results -- great results, including 103 grams per tonne over 4 meters. The area close to existing infrastructure including the 840 level exploration drift, which will allow us to start growing from this area underground next year.

Also drilling is confirming, this is all part of the same zone as we continue to close the gap between the high grade resources in the Eastern and Main extensions. Exploration success and resources growth we expect to see here and elsewhere, will be incorporated into the Phase III expansion study of the operation. Results of the study are expected to be released in the first half of 2020.

Mulatos produced 32,700 ounces and total cash costs of $866 per ounce, and mine site all-in sustaining costs of $979 per ounce. Production and costs were impacted by the winding down of production from La Yaqui Phase I, as well as abnormally high rainfall in September over a very short period, which temporarily restricted mining activities in the main Mulatos pit. The lower contained ounces stacked during the third quarter and the end of mining at La Yaqui Phase I are expected to impact the fourth-quarter production with production expected to be in the same range as the third quarter.

Offsetting this will be new production from Cerro Pelon, where we have completed commissioning of the crusher and conveyor circuit and commenced stacking ore. Cerro Pelon is our next higher grade, high return deposit to [Phonetic] Mulatos after La Yaqui Phase I.

La Yaqui Phase I was a great success having produced 60,000 ounces over a two-year period and generated $35 million of free cash flow, net of its initial capital of only $15 million. At our fully permitted La Yaqui Grande project, we continue to focus on completing detailed engineering and support project design and economics.

I'll now turn the call back to John for an update on the Kirazli project.

John A. McCluskey -- President and Chief Executive Officer

Thank you, Peter. Earlier this month we suspended construction activities across the pending renewal of our Turkish mining concessions, which expired on October 13. It met all regulatory requirements for the concessions to be renewed and we expected renewal before the expiration date. In the preceding months, we received all major outstanding permits required to build Kirazli, increased our workforce to nearly 300 and commenced major works. We're disappointed with this delay and that -- and we are disappointed that it will cause a delay in our construction schedule. So we believe that ultimately the reaction to this has been overdone. Our mining concessions not been revoked nor have a permit. It is not uncommon for mining concessions to be renewed after the expiration date in Turkey. In fact, the 550 mining concessions renewed since February of this year, nearly 60% were renewed after the expiration date,

We believe the delays in the concession renewal is related to the recent protests, which followed a misinformation campaign on social media. We've been successful in correcting the misinformation by outlining the facts. Alamos operates in an open and transparent manner, doing right by all stakeholders, wherever we operate is part of our core values. We recently received the Best Corporate Social Responsibility practice award in recognition of our long-standing commitments to building and supporting communities in Mexico. We're proud that we're the only mining company in Mexico to receive this award.

We made similar commitments in Turkey, where we have worked for 10 years, earned the support of the local communities and the federal government. In that time, we have invested $25 million in the local communities with one of the most significant investments being construction of the recently completed water reservoir, which will provide clean drinking and irrigation water for the nearby communities well beyond the life of the mine. The local communities have remained supportive to our business in Mexico -- pardon me, in Turkey, even [Indecipherable] a counter protest in September in support of the Kirazli project. The government has also remained supportive and we continue to engage with Canadian and Turkish government officials to work toward a positive resolution. We are confident our mining concessions will be renewed, given the ongoing support from both government and local communities. We've been granted all major permits required to build Kirazli and we've met all the conditions for the concession to be renewed. Following the renewal of the concessions and resumption of construction, we will provide updated guidance on the construction schedule and budget for Kirazli.

I'd like to close the presentation by highlighting, where we stand on valuation given our recent share price underperformance. Today the delay at Kirazli is more than [Indecipherable] to the stock, if you to remove the entire average analyst value for all of our Turkish assets from our valuation, we are still trading at a 30% discount to our peers. Given the quality of our existing mining operations in Canada and Mexico, which support the majority of our net valuation, we believe this discount is unwarranted.

This concludes the formal portion of our presentation. And I'll now turn the call back to the operator, who will open the lines for your questions. [Indecipherable]

Questions and Answers:

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] And the first question is from Fahad Tariq from Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse -- Analyst

Hi, good morning. Thanks for taking my question. On Kirazli what are the discussions, like what are the topics of discussions with the Turkish Department of Energy and Natural Resources. And I am just trying to get a sense of the -- maybe the sticking points. Is it a matter of the government waiting until the -- some of these protests and the challenges to the mine cool off or is there something more that the government is asking Alamos to do, for example, and maybe more environmental commitments or it's something to do with the reclamation after the mine closes, any color on that would be really helpful? Thank you.

John A. McCluskey -- President and Chief Executive Officer

Right. Thank you, Tariq. The government isn't asking any more from the Company then we've already done. And it's important to note that at this point we paid in excess of $10 million in forestry fees, which is substantially more money than it would taken to reclaim the area. So the government is more than satisfied that we've been meeting all of our commitments and [Indecipherable] we see the bar is set very high in Turkey. Both are worth noting that years before we even started the inputs [Phonetic] on the project. We've been involved with planting trees in the area. We recently planted in excess of 14,000 trees in this area. So I think the government is satisfied that we have a strong commitment to the environment.

So there is nothing additional being asked with the Company. They are indeed monitoring the whole, call the, activity going on in social media, and I am happy to report that we pushed back a long, long way from where we started in August in terms of setting the record straight, and by this point there is as much social media and commentary in favor of the company as the [Indecipherable] You'll never get rid of the negative commentary altogether. So this is actually quite a strong comeback and we started where [Phonetic] -- and when the campaign was initially kicked off, virtually all social media comments was running against the company, and that was because so much of the information coming from the NGOs and the opposition parties were just based on false allegations.

It takes some time to put a genie like that back in the bottle once the activations have been made and widely spread. It takes some time to push back on that. But by this point, it's clear we had a great deal of success on that front. And as far as activity in Chanate [Phonetic] itself, that has really come way back from where it was in August. So they are monitoring these kind of things and it has been there intention to sort of timing the renewal of our concessions with the waiting of this protest.

Fahad Tariq -- Credit Suisse -- Analyst

Okay. Thank you. And just a quick follow-up. The-counter protest that you cited in late September, who kind of organized or led that like it -- was it -- like who is really involved, was it community members or another NGO, government members?

John A. McCluskey -- President and Chief Executive Officer

No. As we said in the commentary, the counter protest was organized by the local communities in south [Indecipherable]. There was no involvement by the Company and there was no involvement from anyone outside of those local villages. And that's very different from the protest that were held by our gate, which was essentially all from out side. In fact, majority of people from outside of the Province of Chanate [Phonetic], And the leaders of the local communities have been strongly supportive of our project. We've been hiring many, many people, hundreds of people, in fact, from those local communities. And we've been engaged with them for the last 10 years. We just didn't show up last week. We've -- we put a lot of effort into building and maintaining a relationship based on trust. We've spent a great deal of time educating them on exactly what this project entails and how we would go about developing it, mining it and ultimately reclaiming it. Their support was very hard one.

It was several years of effort before we were confident enough and comfortable enough to give up their support. But once we secured it, and I'll say that they have -- they stood by in a very steadfast manner against that, and tremendous sort of influx of outsiders and media, both social and more broadly speaking, the press and television and so forth coming into the area, and really causing quite an upset to their daily lives.

And these community leaders managed to gather about 300 people to travel about 40 kilometers to, that's the capital, and to hold protest at the City Hall. And as they presented of the conditions with -- I think, it's over 1,000 names that signed that petition, all from the local communities asking the Mayor to essentially [Indecipherable] from the protest that he is inside. So this is the source of this support. And it's very strong support. And I think it goes a long way to convincing the federal government that the Company has been doing the right thing for a long, long time, and we're on the right track as far as solving the protests.

Fahad Tariq -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

Thank you. Your next question is from Cosmos Chiu from CIBC.

Cosmos Chiu -- CIBC -- Analyst

Hi. Thanks, John. Jamie, and Peter. Maybe moving on to our Canada here, good to see that Young Davidson, you've been able to get to 6,600 tonnes per day in terms of throughput underground, higher than what you had targeted. Maybe Peter, could you remind us how you were able to get to that higher throughput, the underground mining rate? And does that -- is there any kind of read through to the lower mine and the potential of the lower mine?

John A. McCluskey -- President and Chief Executive Officer

Yeah. Hi, Cosmos.

Cosmos Chiu -- CIBC -- Analyst

Hi, Peter.

John A. McCluskey -- President and Chief Executive Officer

Thanks for the questions. Yeah. We spent a fair bit of time on like past year-and-a-half or so improving the operation looking at our efficiencies of ore movement through the pass system. We've added some positives. If you recall, a year-and-a-half ago, we had some challenges close to the upper mine passes. And really it's just executing on all of those operational improvements we've put in place over the last year. So it's all come together, and as you can see it in the kind of stable performance we see on a quarter-by-quarter basis, but also on a month-by-month basis, we don't see any fluctuations.

Cosmos Chiu -- CIBC -- Analyst

And in terms of the lower mine, you're saying that that will get you to above 7,500 tonnes per day exit rate in year 2020. How should we look at it, is it going to be some kind of straight line ramp up at -- in the second half of 2020? Can you remind us how we should model it?

John A. McCluskey -- President and Chief Executive Officer

Yeah. I think that would be right. We probably come out of back up to again where we left off and ramp-up to that 7,500 tonne a day rate by the end of the year.

Cosmos Chiu -- CIBC -- Analyst

Yeah. Okay. And then maybe turning to Island Gold here, you did about slightly less than 1,000 tonnes per day in underground mining in Q3. There was a change in contractor and what not. Could you remind us again in terms of now that you have the permit for the 1,200 tonnes per day at the mill. What would you need to do to get to 1,200 tonnes per day down underground to get up to that kind of mining rate?

John A. McCluskey -- President and Chief Executive Officer

Yeah. I guess we've -- if you look at where we were last year, we're about at 850 tonnes per day. So we're up to just over 1,000 tonnes a day year-to-date now for the 15% increase. And we do that kind of rate of increase continuing through here, through the fourth quarter of this year and into next year. Absolutely 1,200 tonnes a day is what we permitted for and we would expect to get there in pretty short order.

Cosmos Chiu -- CIBC -- Analyst

And then I know you're working on the Phase III expansion in a different alternatives. Is there anything else you can share with us at this point in time in terms of what you might be looking at to get beyond the 1,200 tonnes per day?

John A. McCluskey -- President and Chief Executive Officer

Yeah. I mean, we've -- so first of all there's a number of moving parts. One is that the resources we keep finding more gold, which is an interesting problem to have in the middle of all of this. And where it is, it is actually [Indecipherable] because it's higher up in the mines, then [Indecipherable] that we would have reported on a year ago. So it's pretty exciting new area for us. We ramped up from, if you go back a couple of years ago, about 800 tonnes a day. We went to 900 tonnes, and we are at 1,100 tonnes -- 1,000 tonnes, heading to 1,200 tonnes. The next -- that would be a step and we'll -- we're looking at a number of different options and we'll see where it takes, as I'd hate to give you a number, because just we're working through it.

Cosmos Chiu -- CIBC -- Analyst

Okay. Sure. Maybe switching gears a little bit, maybe a question for Jamie here. I am just trying to reconcile the capex guidance for 2019 versus what you've done so far year-to-date. I seem to be getting numbers that are running at a higher or even like over the highest end of your guidance. So for example, Young Davidson, I think you were saying $73 million in terms of what's been spent the first nine months. Your full year guidance is $80 million to $90 million. When I am seeing that for Mulatos and Island Gold, what am I missing here? Because I think in your commentary later on, you said, island Gold has got a ramp up in terms of capex in Q4. Is it capitalized exploration? What -- could you help me reconcile the two numbers?

Jamie Porter -- Chief Financial Officer

Yeah. I think capex is more -- when it comes to Island, it's like we capitalized the exploration, that's the difference If we go on asset-by-asset basis, why we've invested about $73 million year-to-date and guidance range was $80 million to $90 million for the year. We've seen some overruns. So I'd expect will be just north of that $90 million by the end of the year.

Cosmos Chiu -- CIBC -- Analyst

Okay

Jamie Porter -- Chief Financial Officer

Island has way under spend their capital this year. And then, so we are expecting and that's part of the reason why you've seen our own sustaining cost come in well ahead of guidance throughout the first three quarters of the year. We will see that increase in Q4. And I'm not sure that we'll actually be able to get all that capital spending done this year. Some of it is likely to bleed into Q4 -- sorry, it is likely to bleed into Q1. That's a lot of we've been building at new mines in instead of wells. I think we remain effectively on schedule. There we shouldn't be -- if anything, I think we're ahead of schedule in terms of our capital spending in [Indecipherable]

Cosmos Chiu -- CIBC -- Analyst

So how should I look at it, Jamie, in terms of -- because on Page 3 in your MD&A, it's $44.2 million of Island Gold. As you said, the full-year guidance is $50 million to $60 million, so what number should I used to compare to your $50 million to $60 million guidance for 2019?

Jamie Porter -- Chief Financial Officer

So there's a number that you're referring to in the MD&A. The $44.2 million includes $11.7 million of capitalized exploration.

Cosmos Chiu -- CIBC -- Analyst

I got you. Okay.

Jamie Porter -- Chief Financial Officer

We're comparing apples to apples.

Cosmos Chiu -- CIBC -- Analyst

So correct out the $11.7 million, I should be able to get to your number, then I can compare to your $50 million to $60 million.

Jamie Porter -- Chief Financial Officer

That's right.

Cosmos Chiu -- CIBC -- Analyst

Yeah. Perfect.

Jamie Porter -- Chief Financial Officer

How that would show so us -- meaning we've spent $18.4 million, on our growth $14.1 million. Yeah, so, and then little shy or just north of $32 million today. And then that's what you're comparing to the $50 million to $60 million.

Cosmos Chiu -- CIBC -- Analyst

Great. Then maybe one last question here. Moving to Mexico clearly there has been some impact in terms of heavier than expected rain. I just want to confirm, this is more like a deferral of ounces. Say, like, if I look at it, you're saying it's stocking, there is a leach curve. So if I -- again, looking to say 2020, in Q1 2020, it's -- maybe can I say, it's a deferral of ounces from 2019 into potentially higher ounces in year 2020?

John A. McCluskey -- President and Chief Executive Officer

Yeah. It's a deferral of ounces, Cosmos. It's really -- we got pushed around a little bit in our mine plan. We had to go mines and these places because of some a bottom pickup. We can access the bottom of the pit for a period of a couple of weeks. So it moved us around, but those ounces are still there and we're mining them now.

Cosmos Chiu -- CIBC -- Analyst

Great. Thank you. That's all I have. Thank you.

John A. McCluskey -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith -- Haywood Securities -- Analyst

Thanks, operator. Peter, just on Island, the last four quarters, you've been running about 1,100 tonnes a day mined underground, then obviously milling consistently more than that. So how much do you have left in the stock of it? How long can you continue to mill more than you mine? Or are you expecting in Q4 that the mining rate is going to push up enough to actually meet the mill's requirement?

Peter MacPhail -- Chief Operating Officer

All right. We -- so I think in the third quarter, we might be mill -- sort of 100 tonnes a day more than what we mined and that really -- that actually brought the stockpiles pretty close to its end. So it's -- and we expect to build the mill from the underground mine and always would.

Kerry Smith -- Haywood Securities -- Analyst

Okay. So stockpile is basically done in -- on a go-forward basis, this -- you might take a mill, OK.

Peter MacPhail -- Chief Operating Officer

Yeah.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay, great. That's helpful. And just on the hedging, maybe John and Jamie, is there any -- I know you have some hedges now through this first six months of 2020. Is there any plans to add anymore hedging through the course of Q4 and Q1 or have you kind of got to the point where you're happy with the hedge book?

Jamie Porter -- Chief Financial Officer

Kerry, it's Jamie. We -- if you look, I mean, we had an impact in the third quarter, reduced the realized price by about $24 an ounce. So we'd expect about the same in Q4. These were hedges that we put on early part of the year. We have less than 10% or it is slightly more than 10% of our production hedged for 2020 at a floor of $14.33 and with upside to $16.35. We might look to put on a bit more, but we've been talking about 20,000 to 40,000 ounces, then we'd be talking about a caller range that's nowhere near where we are currently that with the upside being $100 to $150 higher than the current spot.

Kerry Smith -- Haywood Securities -- Analyst

Okay. And so that's likely to happen before -- you expect sometime this year or that be a next year event?

Jamie Porter -- Chief Financial Officer

We haven't decided yet, Kerry. But we look at it on a daily basis based on the price.

Kerry Smith -- Haywood Securities -- Analyst

Yes. Okay.

Jamie Porter -- Chief Financial Officer

Yes. I mean the key thing is that we've -- our hedging strategy is all short term inside of 12 months and the majority of it fall within six to nine months.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Got you. Okay. So I was trying to get or is it going to be pushed out further or not. Okay. And just on, maybe Peter can answer this, just on the La Yaqui Grande, when would you actually expect to have the Board approved construction and actually start construction, Peter, have you got there yet?

Peter MacPhail -- Chief Operating Officer

I think, we'll be able to say something in our -- probably in our guidance release about that.

Kerry Smith -- Haywood Securities -- Analyst

Okay. It should be in January. I guess, then.

Peter MacPhail -- Chief Operating Officer

Yeah, then -- yeah, when we put it out.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay, that's great. Thanks very much.

Operator

Thank you. The next question is from Mike Parkin from National Bank Financial. Please go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Hi guys. Most of my questions have been answered, just one on Island, meters developed that came down a little bit with Q3 at 1,200. What do you see that kind of -- I've known historically there is always more development being done then was really necessary in the amount of tonnes kind of coming up the ramp that was developed versus or meant for the mill. It was more heavily weighted toward development, if I recall, correctly. Where is that going to -- does that going to sustain at around 1,200 or potentially drop off a little bit more as you open up the deeper portion of the mine more.

John A. McCluskey -- President and Chief Executive Officer

Yeah. We are little later in the quarter. Mike, we, I don't -- you notice we changed out our development contract [Indecipherable] into that in the press release. And while we've -- one was evolving, and the other one was moving in, we -- there is period of probably six weeks, where we had no contract development going on, it's just our own forces. We do -- we did two-thirds of the development with our own workforce and we have a contractor that -- you can turn them on and off. And that's why you we have a contractor to get the peaks and deal with the valley. So we would expect development, we need to continue to develop that. Just kind of our -- the rates you would have seen in the first half of the year, so that will come back up a bit.

Mike Parkin -- National Bank Financial -- Analyst

Okay. Fair. And also explain why some of the capex will be a little higher in Q4?

John A. McCluskey -- President and Chief Executive Officer

Yeah. That would drive some of that. Correct.

Mike Parkin -- National Bank Financial -- Analyst

Okay. That's it from me guys. Thanks very much.

Operator

Thank you. [Operator Instructions] And your next question is from Lawson Winder from Bank of America. Please go ahead.

Lawson Winder -- Bank of America -- Analyst

Hey. Hello everybody. Thanks for taking my questions. John, thank you for your comments on Turkey. Those are very helpful. Just two sort of small follow-ups on that for me. I mean, one, you may not want to do this a bit risky, but I mean could you maybe handicap what sort of timeline you're thinking before this gets resolved? Are you thinking any day now, months or quarters? And then just as a follow-up to it. What should we think of roughly in terms of holding costs. Well, there is no construction activity happening at the site? Thanks.

John A. McCluskey -- President and Chief Executive Officer

Just your last question first. I would then -- right now, our cost, holding [Phonetic] costs at -- in Turkey about $1 million a month. We would love to start bringing back those costs to some extent. If we don't see any progress with respect to the license is getting renewed. It's almost impossible to guess when our licenses will be renewed. Anything I would like to say would be a guess. It's a political decision. It's nothing other than that. So, and it's really quite binary. Well, they haven't reviewed it. There is nothing we can really do. And when they do renew it, we can get back to work [Indecipherable] and for us. So it really doesn't help anybody to make a guess, because it's just a meaningless comment I would be making. But we are looking very closely at our holding costs. And if we don't see some movement in the next weeks with respect to getting -- allowing them to get back to work, it will be taking steps to reduce costs from the current levels.

Lawson Winder -- Bank of America -- Analyst

Okay. I appreciate you being so candid there. And then, Jamie, just one question from me for you. The tax rate, at least, first, I mean, it was a little high in Q3. Can you provide any guidance for Q4 as to what you might be expecting there on the effective tax rate like to the income statement?

Jamie Porter -- Chief Financial Officer

Yeah. Effective tax rate is highly dependent on foreign exchange rates, so that has an impact on the deferred, the net deferred tax liability. All else equal, you'd assume a 35% to 40% effective tax rate. But again, highly variable depended on where the Canadian dollar Mexican peso set at the end of the year.

Lawson Winder -- Bank of America -- Analyst

Okay. Fair enough. Thank you.

Operator

Thank you. The next question is from Sherry Deng from Scotiabank. Please go ahead.

Sherry Deng -- Scotiabank -- Analyst

Good morning guys. Thanks for taking my call. Most of my questions are already answered. Maybe just one follow-up on Turkey. So in relations to the NGOs and opposition parties, since you've halted the construction. do you see them gaining momentum or dying down? Or -- and since you've made effort to educate them about the asset, and how has the reception been? Also what are they demanding and is there a chance to meet them in the middle?

John A. McCluskey -- President and Chief Executive Officer

Right. First of all, we're not educating the opposition or the protesters [Indecipherable] they were then with this -- into this with their eyes wide open. Their efforts at misinformation were really quite deliberate. They knew the fact, they publish something else. So the effort to reach out to correct that narrative and put back them to the public discourse. It was really to reach beyond those efforts, committed to this sort of anti-mining stance. And we'd see the greater public within Turkey who were picking up on this misinformation either true wherever they sorts it online or through the press will get out fully filtered into the popular press. Once people started to realize that all those allegations that they've been hearing earlier, we're just having involved, and of course, many of the -- the worst of those could be verified by simply looking at [Indecipherable].

Once that starts to happen, then the -- that broad-based support that the opposition initially enjoyed, it rapidly waned. So there is nowhere near the level of protest against our project that there was initially. The government has always feared that this was just the tip of the iceberg that the opposition was really going after something much broader, that is all natural resources and forestry within the country. And it's rather -- it's a point in time where the ruling party was coming off some pretty serious losses in the [Indecipherable] elections in the spring. And they were feeling quite vulnerable. And so politics in Turkey is a really rather topsy turvy world. It's something that you can find yourself in a [Indecipherable] pulled into that and it is -- and not around by, and but that's just for a period of time. I think ultimately the federal government has a serious policy for seeing natural resource development and that is very responsible natural resource development within Turkey. And they see that as a key way of helping diversify and expand the Turkish economy. And they never back off from that. So from that perspective, we feel we're part of a much bigger story with respect to the ongoing growth development of the Turkish economy. And we think ultimately that will be the story that prevails. Kirazli will eventually go into production. There's no doubt in my mind.

Sherry Deng -- Scotiabank -- Analyst

Right. Thank you for the color. That's all from me. Thank you.

Operator

Thank you. The next question is from Kerry Smith, Haywood Securities. Please go ahead.

Kerry Smith -- Haywood Securities -- Analyst

Thanks, operator. Jamie, maybe I can just follow-up, or John just on Turkey, as I remembered when you put out the press release on the renewal of the permit. I think at the time you'd said that you thought you'd spend $5 million to $6 million in Q4 and then the holding costs would be $1 million a month thereafter. But John's comment was sort of suggesting it was $1 million now. So I was just wondering if you've accelerated the $5 million to $6 million, it's all been spent or maybe that number was a bit conservative and that wasn't really the real number.

John A. McCluskey -- President and Chief Executive Officer

I suspect we were being a bit conservative, but I'm trying to give you an accurate assessment [Phonetic] as I could -- I can provide on the call here. But I don't think there is any material difference between the assessment I've provided and what's actually happening.

Jamie Porter -- Chief Financial Officer

Yeah. I think the only difference there, Kerry, would be we would have had some carryover accounts payable outstanding from construction of the reservoir, then we would put in that $5 million, $6 million for ongoing kind of operating costs, for salaries and then maintenance for operations. They are about $1 million cost.

Kerry Smith -- Haywood Securities -- Analyst

Okay. And so how is that $5 million to $6 million number actually been spent already then, Jamie?

Jamie Porter -- Chief Financial Officer

No. That was the forecast for the entire fourth quarter. So the $1 million in our operating cost per month plus an incremental $1 million to $2 million in carryover accounts payable.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Got it. Okay, I understand. And just maybe if I could follow-up again on the contractor that you've got into at Island is, I'm not sure how long he's been there. It sounds like you've got him in the quarter. Has he been there long enough to get a sense whether he is going to be able to deliver the meters that you need or how is he performing?

John A. McCluskey -- President and Chief Executive Officer

Yeah. They always start a little slower than we like, but they are ramping up, and they're making the meters now, Kerry.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay, that's great. Thank you very much.

Operator

Thank you. There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered please feel free to contact Mr. Scott Parsons at 416-368-9932, Extension 5439. [Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Jamie Porter -- Chief Financial Officer

John A. McCluskey -- President and Chief Executive Officer

Peter MacPhail -- Chief Operating Officer

Fahad Tariq -- Credit Suisse -- Analyst

Cosmos Chiu -- CIBC -- Analyst

Kerry Smith -- Haywood Securities -- Analyst

Mike Parkin -- National Bank Financial -- Analyst

Lawson Winder -- Bank of America -- Analyst

Sherry Deng -- Scotiabank -- Analyst

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