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Kirkland Lake Gold Ltd. (KL)
Q3Â 2019 Earnings Call
Nov 6, 2019, 4:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Kirkland Lake Gold Third Quarter 2019 Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to Mark Utting Presenter Vice President of Investor Relations. Please go ahead sir.
Mark Utting -- Vice President of Investor Relations
Thanks very much operator and good afternoon everyone. That's good afternoon for everyone in North America whereas good morning for us. We're doing the call from our new offices in Melbourne today. With me are many members of the Kirkland Gold goal management team. Those presenting will include Tony Makuch our President and Chief Executive Officer; David Soares our Chief Financial Officer; Ian Holland our Vice President Australian Operations; and Nitasha our Vice President of Technical Services; Eric Kallio our Senior Vice President of Exploration; and Troy Fuller our Director of Exploration for Australia. As I mentioned there are several other members of the management team in the room as well. Today we'll be providing comments on the results for the third quarter and first nine months of 2019. After the presentation we'll open the call to questions. The slide deck that we'll be referring to is on the webcast. It also is posted to our website at www.klgold.com. Before we get started I'd like to draw your attention to the forward-looking statement slide -- which is slide two on the deck. Our remarks and answers to questions may and likely will contain forward-looking information about future events and the company's future performance. Please refer to the detailed cautionary note on the slide as well as the forward-looking information set out in the news release announcing our third quarter results. Also during today's call we'll be making reference to non-IFRS measures. A reconciliation of these measures is available within the third quarter and first nine months of 2019 MD&A which is posted on our website as well as SEDAR. Finally please note that all figures discussed today will be in U.S. dollars unless otherwise stated. With that I'd like to turn the call over to Tony Makuch our President and Chief Executive Officer.
Tony Makuch -- President and Chief Executive Officer
Okay. Thanks Mark and thanks everyone for being on the call. As stated in our release today the company had a very solid third quarter and the company continues to deliver industry-leading results. But before we start the presentation to explain the performance in the quarter maybe this first take the time to acknowledge the people at Kirkland Lake Gold including the families our suppliers service providers and the communities that support us. We get to talk about our accomplishments and they are the ones that make things happen for us. So thank you very much and I look forward to a continued safe working in Q4 and finishing off the year.
Now turning to slide three. The company reported record results in Q3 2019. In production unit costs earnings and cash flow production for the quarter was 248000 ounces. Cash cost of $287 an ounce and all-in sustaining costs were $562 per ounce. Earnings per share for the quarter was $0.84. Operating cash flow in the quarter was $317 million or $1.33 per share before changes in working capital. And very importantly we added $146 million of cash internally funding our growth. Looking at year-to-date on slide four. Results for the first nine months of 2019 were very strong also. Production is just 600000 700000 ounces year-to-date. Costs are tracking well in our industry-leading with cash costs of $296 per ounce and all-in sustaining cost of $5.84 per ounce. Earnings per share year-to-date is $1.86. Free cash flow sits at $330 million. And on a year-to-date basis we've increased our cash by over $280 million or 85%. Cash at the end of September 30 2019 totaled $615 million and continues to grow in Q4.
Turning now to slide five. Something of what happened in the quarter our 2 high-grade low-cost mines performed very well. Fosterville continues to deliver exceptional results had record production of 158000 ounces driven by continued improvements in the average head grades as well as higher tonnage compared to the previous quarter. In Holland will get more into the details of this later. Macassa also had a strong quarter in Q3. Tonnes process increased 18% from Q2 and grades improved from both Q3 last year and last quarter. Fosterville and Macassa continued to demonstrate to us that they are exceptional lines with significant growth ahead of them. Now turning on to our guidance line on slide six. And looking at our guidance we continued to target 950 to 1 million ounces of consolidated production for the year. We have reduced our production guidance for both complex.
We have or we expect both Fosterville and Macassa to have strong final quarters of the year which will allow us to end the year comfortably in our guidance range. Looking at Holt. We announced in early October that we are reviewing future plans at the whole complex. We have royalties to continue with that Holt that limit willingness to invest here. We need to resolve those issues and do a lot more drilling at all 3 mines. As mentioned we are looking at best -- at the best way to proceed here. Looking at some of our other guidance. We have revised our capital expenditure guidance sustaining capital will be higher largely due to additional development at Fosterville and Macassa to support growth. This is which included adding equipment and enhancing infrastructure at the mines. Growth capital expenditure guidance has increased also mobilly relates to the advanced expenditures as the #4 shaft project at Macassa.
Basically what we're talking here is taken over from the general contractor on-site doing our self performing put himself outperformed the development of the shaft ourselves. And as a result we had -- we purchased the Syncing Platinum related equipment from the contractor. And that purchases now as opposed to spreading it over the life of the project on a rental basis. We don't expect this to have any impact on the planned capital cost estimate and or schedule as we go forward. Also exploration guidance is higher and that relates to the progress in the northern territory. We have started to test processing at the Union reach smell and and expect to produce over 10000 ounces this quarter. This will not be commercial production it is fair to say however that we are making good progress toward the research decision in NT 32.
Turning to slide seven. With strong financial results and a growing cash position we are continuing to increase the amount of capital we returned to shareholders. We announced that a 50% increase in the common share dividend to $0.06 per share effective the Q4 2019 dividend data. This will be the fifth increase in the dividends since it was introduced in March 2017. Higher dividend payments support our efforts to generate strong returns for shareholders. We continue to have considerable success with our share price also up about over 70% year-to-date in 2019. With that I'll turn the call over to our CFO David Soares.
David Soares -- Chief Financial Officer
Thanks Tony. Good morning everyone. As Steve mentioned we had record earnings in Q3 2019. Net earnings totaled $176.6 million or $0.84 per share. Earnings increased over 200% from $55.9 million in Q3 2018 and were 69% higher than the previous quarter. By far the most significant factor driving earnings growth was increased revenue driven by higher sales and an increase in the gold price. We also had a foreign exchange gain of $13.7 million pre-tax in the quarter which reflects the weakening of the Australian dollar to the U.S. dollar. In addition we had lower expense exploration costs compared to Q3 2018. And this is because we are capitalizing more of our exploration costs than we did in the past. If you look at our per share earnings quarter-over-quarter. We closed Q2 at $0.50 a share and closed the third quarter at $0.84 a share. The sales volume a positive variance of $0.19 a share was the main factor driving that increase as well we had $0.14 a share improvement in oil price and $0.06 a share in the foreign exchange gain. Turning to revenue. We achieved significant revenue growth against both prior periods revenue of $381 million increased 71% from Q3 2018 and 36% from the previous quarter. The most significant factor driving revenue growth was the large increase in sales in Q3. Total gold sales were 256000 ounces up 39% and 21% from Q3 2018 and last quarter respectively. We also benefited from a higher average realized gold price in Q3. The average price was $1482 per ounce this was up $278 per ounce from last year's third quarter and $162 per ounce from Q2 2019. You can see on slide 10 the contributions to revenue growth of volumes and price but the changes from last year's third quarter and Q2 this year. Both had a significant factor in driving revenue higher. Turning to EBITDA. Q3 2019 EBITDA totaled $296.4 million more than double the level in Q3 2018 and 60% higher than last quarter. The key driver of growth in EBITDA was the increase in net earnings depletion and depreciation costs were higher reflecting increased production volumes. Turning to the year-to-date review. Our net earnings were $390 million or $1.86 per share. That was 134% higher than $167 million or $0.84 a share for the first nine months of last year. Revenue growth of 52% was the key driver of the increase in year-to-date profitability year-over-year. Again that was a function of both higher sales and gold prices. We also benefited from improved unit cost and lower expense exploration costs with small contributions also from net finance income and other income. These factors will be partially offset by higher depletion and accretion cost -- depreciation costs and increased corporate G&A reflecting our continued growth. The next slide looks at growth in our cash. During Q3 2019 we increased our cash position by $146 million during the quarter. There are a few things on this slide that I want to point out. Our operating margin really drove the growth in cash a combination of record sales higher gold prices and improved unit costs were key factors in contributing to the higher margins. As you can see on slide 13 the various uses of cash we had. Not surprisingly the most significant is our capital expenditures. What the slide really highlights is the fact that we're funding all of our growth and still rapidly building our cash position. With that I'll turn the call over to Ian Holland Vice President of Australian Operations.
Ian Holland -- Vice President of Australian Operations
Thanks David. Starting with slide 14. I just wanted to provide some comments on the quarter 4 if possible. The operation had a strong headline results with production of just over 158000 ounces. It was a new quarterly record. This was built on exceptional grade performance for the quarter of 41.8 grams per tonne with 10s of million recovery essentially aligns as planned. The grade performance was driven by Swan production during the quarter. The image on the right-hand side of the slide shows a long section highlighting the sources mind. There were 11 stokes in total 9 for the quarter on a slump ore body over 9 different levels. Combined with development the contribution from Swan was approximately 59% of the tonnes containing 94% of the ounces produced over Q2. The strong production result translated through to exceptional unit cost performance operating cash costs of $115 per ounce and all-in sustaining costs of $289 per ounce. And earnings and operations for the quarter came in at $199.5 million. Investment continues at Fosterville with sustaining capital of $23.8 million and growth capital of $11.3 million for the quarter.
The growth capital was focused on the 3 main projects: Relation upgrade paste plant and mindwire treatment plant. The pace plant and mindwire retreatant plant on track to be completed this year with the ventilation upgrade to be completed in Q1 next year. Turning to slide 15 and the projection for the remainder of the year. We expect to be in line with current guidance of 570000 to 210000 ounces of gold produced and operating cash costs of $130 to $150 per ounce. We expect tonnage mill in Q4 to be similar to the previous quarter with a further increase in production driven by higher grade as we continue to advance the stoking sequence of Swan into the higher grade areas of the resource. Moving to the northern territory on slide 16. We continue our work across a range of projects in the Northern Territory. The most advanced of these is the land and deposits immediately adjacent to the Cosmo mine where we continue to drill and develop to assess the mineralization. The image to the right-hand side of the slide shows the development and trial mining in Latin and Cosmo that occurred during Q3. We have also commenced trial processing early in October and expect to produce over 10000 ounces of gold for the quarter which will be credited against the capital expenditure. It's important to note though that our vision for the Northern Territory is a larger multi-mine operation feeding a central mill. And to that end we've continued work in a range of other areas during the quarter which Troy will describe a little later. With that I'll pass over to Natasha Vas to discuss the Canadian operations.
Unidentified Speaker
Okay. Thanks Ian. Good morning everyone. As Tony mentioned we have had a strong quarter in Q3. Production from the mine was 53000 ounces which was 13% higher than in Q3 2018 and 28% higher from the previous quarter. Year-to-date we produced 185000 ounces so we are well positioned to achieve the guidance of 240000 to 250000 ounces this year from Macassa. 10 process in Q3 increased 18% quarter-over-quarter averaging about 930 tonnes per day. So you may recall that in Q2 our tonnes were impacted by excess water in the mine related to the spring run off. This is what limited our voicing capacity in the second quarter. As of the average grade in Q3 this improved to 23.3 grams per tonne. Here we see continued success with solid performance in our still around to around 57 level on the South Mine complex. And now looking at costs. We continue to be well positioned relative to our guidance. Operating cash costs from Macassa were $425 per ounce for the quarter and averaged $397 ounce for the year versus a guidance of $400 to $425 per ounce for the year. As for all-in sustaining costs they improved in Q3 to $689 from $788 in Q2. The improvement reflected both lower cash cost per ounce as well as with a reduction in sustaining capital expenditures. The capital expenditures were about $3 million lower in Q3 and this is a function of timing for capital development and mobile [Indecipherable]. Okay. And with that I'll turn the call over to Eric Kallio our Senior Vice President of Exploration.
Eric Kallio -- Senior Vice President Exploration
Thanks Natasha and good morning everyone. For today's presentation I'll start with slide 18 and with exploration in Canada and then pass over to Cary Puller for some comments on Australia. In describing the program for Canada I believe it's fair to say that the work has been strongly focused on Macassa and working on building up resources to support the new number 4 shop on its completion. The slide at hand is an overview showing one of the main work areas on the 53 level at the mine along with locations of recent drilling. As indicated there were approximately 200 new holes drilled during the quarter and with most of these being designed to test the East-west and just extension of the SMC complex and the Amalgamated Break. Although work is still in progress we did release some initial results earlier in the quarter and by all accounts because very positive.
Turning to the next slide which is 19. We now see some more details on drilling which were done to the west side of the level and testing both the westward extension of the SMC and the Amalgamated Break. Shown on this slide is long section view of the area looking across the 2 zones to the north and displaying new intercepts for each zone with color coding. Key results from the SMC are color-coded in blue. And as indicated includes some very significant assays in almost every drill hole which -- and with some of the most important holes being located up to about 275 meters less than the current resource. Key results for the Amalgamated are color-coded in pink and again includes multiple high grade intercepts which both confirms and slightly extend the previously find zone to the web. This is above we're also noticing some other very important observations about the Amalgamated.
And with one of these being that a lot of the intercepts that seem to be occurring with deeply different structures which trans parallel to the Amalgamated Break rather than shallower and more parallel to the SMC. Many of the values are also located within a broad zone of alteration which contains porphyries and increased sulfides. Also important is that much of this structure remains untested outside recent results. So leading a lot of upside for the future. So now turning on to the next slide which is number 20. We will see some additional details for the east side of the level. And as indicated the drilling here also indicates the very good results with the several cases showing multiple zones and high-grade out these. A key part of this from my perspective is that some of the best asses again are located up to 250 meters east of the current resource.
So in areas with very little drilling and demonstrating that the zone is still open to the east for further expansion. Considering above we believe we are extremely encouraged by the results and continued -- especially the future potential to continue expanding these product. And now we are working on additional opportunities to accelerate and optimize this process. As part of this we've already increased the number of drills on the level by 2. So we now have 6 and looking at new opportunities to even expand the amount development as we go forward to create new platforms. So all in all things are looking good. And we're feeling very confident about the future.
So with that I'll now pass on to Troy Fuller our Director of Exploration for Australia.
Troy Fuller -- Director of Exploration, Australia
Yes. Thanks Eric and good morning. Growth drilling in Australia over the quarter has been focused on drilling at Fosterville and in the Northern Territory. At Fosterville we will update 100 round rigs and 6 surface drill rigs have been operational growth projects over the quarter. Drilling has continued extensional drilling on the lower Phoenix gold system planning the down plant projections of the lower Phoenix mineral resources. Drill results indicate significant quantities of sulfide mineralization assisting to depth and we expect to see significant expansion of inferred mineral resources in the sign for the end year model update. Continuity of mineralization has now been established over approximately 900 meters down plunge from the Swan Mineral Reserve block. And infill drilling is under way immediately down plunge of the Swan mineral reserves after the establishment of a hanging drill platform in the quarter.
In the [Indecipherable] planning system we have also continued to undertake drilling into the open up plunge extensions of the Signet structure which lies sub parallel and approximately 110 meters footwall to the Swan. Drilling into this structure has returned some encouraging results to date including multiple currencies of visible gold and sulfide mineralization. We fully expect to see expansion of mineral resources on this structure with our end of the year model updates based on the drilling we've undertaken today. Carrier drilling continued to focus on the down plunge extensions of the Harry & Mineral Reserve block and has now defined content of mineralization approximately 500 meters down plunge of the Harry & Mineral reserves. Extensional drilling from the 200-meter exploration group established a target anticline offsets and debt also commenced during the month. At the end of the quarter 2 holes have passed through the projected position of the Harrier structured debt which showed localized core spending and sulfide mineralization.
Further outline drilling sections on the Eastern Lamontaigne that despite core continue on this reminder with some visible gold and sulfide mineralization. There's a lot more drilling required in this zone to obtain a full assessment of the anticline target and drilling will continue on this for the remainder of the [Indecipherable]. Surface drilling with 6 rigs at Robin Seal target continue to return encouraging results with drill holes returning sulfite and visible gold bearing mineralized intercepts. Okay here in Sinomine has been defined. The fund is in a suddenly direction to a depth of approximately 600 meters below surface. In addition exploratory step-out drilling between Fosterville and Robbins Hill has commenced to better understand the geological framework and mineral resource growth potential in this zone. Initial results indicate that sulfide mineralization exists at a distance of approximately 1.9 kilometers south along the strike of the existing Robbin's Hill mineral resources.
In the Northern Territory 3 underground and 2 surface rigs have been in operation at 3 main target areas. Underground drilling has been focused on the infill and extension drilling at Lantin which is returning encouraging results including several appearances of visible gold. The drilling for the remainder of the year is focused on infill to increase resource confidence ahead of mining but the system remains open at depth and extensional drilling campaigns will continue into 2020. Surface drilling at Union Reefs and Pine Creek continued to return positive results and demonstrate the growth potential with the mineralized systems over a long strike in that depth. We are confident that with further drilling we will be able to establish significant mineral resources in close proximity to the Union Reefs mill. Drilling will continue on these targets for the remainder of the year. In addition permitting for the prospect decline Union Reefs is under way as we work toward commencing this development in mid-2020.
I'll now hand over to Tony to round out the presentation.
Tony Makuch -- President and Chief Executive Officer
Thanks Troy and thanks everyone. Now turning to slide 23 when we did the sum up what you see for the quarter and what you're seeing from Kirkland Lake Gold. We had record results in Q3 2019 and we ended the first month -- first nine months of 2019 also well positioned to achieve our full production and unit cost guidance. Our earnings so far in 2019 -- '19 are very strong and carrying position as the industry leader. We're generating substantial amounts of cash flow and are building our financial strength. We use that financial strength to invest in our assets and also to return value to shareholders. We are increasing our dividend for the fifth time to six cents per share starting in Q4 of this year. Our stock continues to perform well being up close to 70% so far in 2019. And we are looking to forward to a very strong finish to the year with another solid quarter expected in Q4. We expect to continue to have catalyst also to -- other catalysts to drive shareholder value including experts -- exploration results and update lines for 2020 over the next while. So thanks again for participating in today's call and we'll be happy to take any questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Cosmos Chiu from CIBC. Your line is open.
Cosmos Chiu -- CIBC -- Analyst
Thank you Tony David in Natasha Eric Troy of course Mark. Maybe first off on Fosterville here. Ian as you mentioned Q4 grades will likely be once again better quarter-over-quarter. I don't know how much you can tell us at this point in time. But are these higher grades that we've seen in Q3 and Q4 sustainable into 2020?
Ian Holland -- Vice President of Australian Operations
Yes thanks Cosmos. I guess from our perspective we've been really happy with the performance of the the resource model first one. It's behaved in line with expectations or maybe -- or maybe on average a little better. We do expect to see a little higher grade in Q4 as we've foreshadowed. At this stage for 2020 I wouldn't want to be giving any sort of firm numbers but I think it's safe to say that we're seeing results that would look like similar what we've previously put out in our guidance. We're not seeing at this stage any significant deviation from that.
Cosmos Chiu -- CIBC -- Analyst
For sure. And then I guess again at Fosterville or around Fosterville here. I noticed in the MD&A that some exploration tenements expired earlier on in 2019 and are now up public bidding. EL I believe 3539. I guess my question is twofold. Number one was there anything that you could have done in terms of spendings and whatnot that could allow you to keep those tenements. And number two since you were the previous operators of those tenements do you have an inside track to renewing and getting those tenements back?
Ian Holland -- Vice President of Australian Operations
Yes thanks. Thanks Cosmos. In terms of retaining the tenements. No there was nothing that we could have done in terms of expenditure. This was in line with the systems and processes that govern the regimen in Victoria. What's happened in late October is there was a ground release announced by the Victorian government and includes 4 blocks between 350 to 500 square kilometers each. One of those blocks is essentially the X scale 3539. From our perspective we're interested in the potential of all 4 of those lots. We certainly believe we're well placed to participate in how -- in that it will be -- it will be a relatively lengthy process in terms of evaluation. But we believe we're reasonably well placed and particularly so -- particularly so for the block that surrounds the mining lifts given it's contiguous in nature. And we would see that as one of the factors that will govern the selection process.
Cosmos Chiu -- CIBC -- Analyst
Yes. I guess I asked those questions because I noticed in your technical report I guess there's other tenements that could right now could expire in year 2022. So I guess when that happens much like DL 4937 Yankee Creek for example. So I guess from 2022 you have to go through the same process potentially as you're currently undergoing for EL 3539
Ian Holland -- Vice President of Australian Operations
Correct Cosmos. I guess the other point I'd really like to stress though is the mine lease expansion that occurred and was approved earlier in this year. Where the mine leases went from 17 square kilometers to 28 square kilometers that really for us the Q is the life of mine as we see it currently. And for and/or without bringing an exact number on it for perhaps 20 years into the future. These adjacent explorational licenses are important to us because we clearly see the potential but they're not critical to that life of mine plan.
Cosmos Chiu -- CIBC -- Analyst
For sure. And I'm happy you brought that up as well. And because I know that the deposit plan just to the self. And if I were to do an extension in terms of where the mining tenement is going into those exploration tenements. By then it could be fairly deep. Right? So I guess taking a step back as you mentioned what is the true sort of exploration potential in some of this exploration ground?
Ian Holland -- Vice President of Australian Operations
So the exploration potential is high. But coming back to the mining lease we see multiple lines of mineralization not just the line that plunges south beyond was the one was the former mine lease boundary into the extension. We see more -- for example we see more shallow mineralization at Robbin's Hill which Troy has spoken about. Plus we see other lines as well. And what I will say is that we're looking at again an aggressive exploration program in 2020 that won't be just focused upon the extension of Phoenix and Harrier it will be looking at testing these other systems as well. Yes. And sorry Cosmos worth going to be this process of exploration in our ground. The license is going back and it's a normal process that throughout the country is happening to all mining companies in any given day throughout the year. It just happened to be exasperated because it happened to us at Fosterville. And on the other side it hasn't -- having someone come out come in and do some exploration and come up with a discovery there. That's not something that we look at on it being negatively if it would happen.
Cosmos Chiu -- CIBC -- Analyst
Yes of course. Maybe switching gears a little bit here in terms of Macassa. I noticed that you've taken over from the general contractor with shafts sinking. Was that always the plan? And I guess the second part of my question is you mentioned Tony that it's not going to impact on cost. It's not going to impact on schedule. It was great. But I thought if you're switching over to your own sort of shaft sinking I would have thought if you cut out that contractor cost there could be potential positive impact on cost.
Ian Holland -- Vice President of Australian Operations
Well so when you answer to your first question no it was never our intent at the beginning we awarded a contract and then we had a contractor. It's just as we progress through the project we just felt that would be probably in our best interest to take it over and do it ourselves. And for the most part the crew doing the work with the same crew that would have been working there for the contractor. And people we have working for us prior to this Gilbert the honest for example was really a shaft leader he's done numerous shafts throughout Canada and North America and he was the one with some of the shafts for us I make sure west. So we got a lot of capable people here. And in terms of how that affects the cost and the schedules going forward. There's a lot of moving parts. But again we see no upsets. And we see some opportunities as we go forward.
Cosmos Chiu -- CIBC -- Analyst
And then Tony I guess to give us an update here. So the hoist is in place the galleries in place. Right now you're doing full face sinking of the shaft.
Tony Makuch -- President and Chief Executive Officer
Yes we're actually down below, you know probably just hit 700 feet. So we're 1/10 of the way down to final completion and things are really starting the -- they're starting to get on getting on to the cycle and things move well and they're just getting battened now ready for winter.
Cosmos Chiu -- CIBC -- Analyst
Good stuff. There. Thanks
Operator
Our next question comes from Mike Parkin from National Bank. Your line is open.
Mike Parkin -- National Bank -- Analyst
Just a couple of questions. I'll start with one just following up on the exploration license at Fosterville. If you look at slide 21 of the presentation. The purple area of the Robbins Hill is that mineralization not -- looks like it's going north. Is that get impacted by the order of the mining license and the exploration license?
Tony Makuch -- President and Chief Executive Officer
Yes. Thanks Mike. It would have with the previous mine lease but the mines lease extension that we that we got was also to the north in early granted earlier this year. So that includes that extension potentially to the north.
Mike Parkin -- National Bank -- Analyst
Okay. So good there. Good. Then just a couple of kind of housekeeping items. On the accounts payable that's been picking up since early 2018 quarter-over-quarter consistently. Where should we kind of expect that to go going forward? Is that going to kind of start to level off? Is there any potential reversal?
Tony Makuch -- President and Chief Executive Officer
Yes. Look we -- thanks for the question. We had a year -- 2017 was a year where we have a lot of projects both at Fosterville at Macassa and so we have -- we -- that's the reason for what the uptick. I suspect that as we move into next year and a lot of the projects that we had at Fosterville for example are going to be completed by the end of this year or early Q1 next year. We should see that come back down to sort of the normal run rate for what you would expect.
Ian Holland -- Vice President of Australian Operations
Yes. So getting off of that. Year-over-year we've increased our production from 2017 to 2019 right? From 600000 ounces of close to $1 million. But we've increased our exploration expenditures from $40 million to now well over $120 million $130 million and other costs and capital development sustained capex etc. growth capex. So they all lead to an increase in accounts payable or working capital right?
Mike Parkin -- National Bank -- Analyst
Yes. No naturally it would rise with that. And then with the Northern Territory spend you've spent about $32 million on it that was capitalized. In Q3 quite a bit of activity. It seems like with the third quarter should that be kind of coming down in the fourth quarter now that the bulk sample seems to be done?
Tony Makuch -- President and Chief Executive Officer
Yes. Thanks Mike. So I mean the activity that's occurring is -- I hope I mean lots of drilling as as Troy indicated before but also really importantly underground development. And so for us we've been developing with 3 development drills and really testing the ore body and understanding that. So very much we would consider a trial mining phase. We've commenced trial processing. So we would expect expenditure to remain pretty similar. But we will have the advantage of having some of that gold production credit back against capital because we're at commercial production in advance of a decision to go into commercial production. So from our end we are working through our 2020 budgets as we speak. We're pretty optimistic with what we see. But we've had no end of the year approval or commitment for commercial production as yet.
Mike Parkin -- National Bank -- Analyst
Okay. And then in terms of the level of development you've done about 7 kilometers if I read it right. And is there kind of a target completion amount before you make a full go ahead restart instruction decision whatever you want to call it?
Tony Makuch -- President and Chief Executive Officer
We would expect to make a decision by the end of the year or thereabouts really for commercial production. I mean we're pretty optimistic with what we see. Clearly we've turned Mila. We're hurrying up quietly but we're pretty comfortable and clearly what we see. Despite my stress we haven't made a full commercial decision as yet.
Mike Parkin -- National Bank -- Analyst
Okay. And then with Fosterville we've been getting good exploration updates in Macassa. I haven't seen anything from Fosterville for a while. What's the thinking in terms of an update on that front?
Tony Makuch -- President and Chief Executive Officer
Yes Mike. We've been drilling in 3 main areas in the Phoenix Harrier and Robbin's Hill areas. And we expect mineral resource growth in all those areas. We're just waiting to get more complete sets of data before releasing results but I anticipate that there will be news flow on our drilling projects before the end of the year.
Mike Parkin -- National Bank -- Analyst
Okay. Great
Operator
Our next question comes from Greg Stanley from 8 Capital. Your line is open.
Craig Philip Stanley -- Eight Capital -- Analyst
Just a few quick ones for me. First off is the 2.75% Victoria's state royalty. Is that going ahead? And if so when? Is it in 2020?
Ian Holland -- Vice President of Australian Operations
Yes yes. Thanks Craig. Ian Holland. So as it stands now it's -- the royalty is going ahead. There is work. So from -- both from a -- an individual company stance plus our industry body the Minerals Council there have been lots of discussions with the government on various potential modifications to the royalty. Those discussions continue. There's some potential for some changes. But from our point of view we see -- the likelihood is that it goes ahead on January 1 effectively at that sort of rate.
Craig Philip Stanley -- Eight Capital -- Analyst
Okay. Swan was 59% of the tonnes. Is that pretty much -- are you guys getting the sort of the upper limit of how much you can mine out of there?
Ian Holland -- Vice President of Australian Operations
Pretty much yes. It's about 50% of the reserve. So that's about the right sort of number. Clearly it's because of the grade. It's the highest priority area to be mining from but that's pretty much the limit.
Craig Philip Stanley -- Eight Capital -- Analyst
Okay. The Amalgamated Break mineralization that you guys have been hitting. The more that you look at it so looking more like the SMC? Or is it more like O4 type mineralization?
Ian Holland -- Vice President of Australian Operations
It has probably a lot of similarities to some of the mineralization in SMC even the mineralization in SMC can vary depending on whether it's posted in the for free or in the volcanic post.. But generally it's looking more like what you would see in the volcanic took there's goals with the carbonate serial erasion. And there's some inclusion nearby. So it's -- I would say probably very similar to some parts of the SMC.
Craig Philip Stanley -- Eight Capital -- Analyst
Thanks. And last question for me. The exploration license that surrounds Fosterville that 3539. Are you thinking any indication of how much it might cost to renew? Are we talking hundreds of thousands of dollars millions tens of millions?
Ian Holland -- Vice President of Australian Operations
Yes it's not a function of of our cost to renew. Essentially there's a licensing regime where you would pay a certain amount for the license by area but that's fixed -- it's really around the competitive part of the process is really around what the company brings to the table in terms of their license to operate. So the social safety environmental performance. Their technical ability their financial capacity. And their ability to develop resources from that area. So ultimately returning value to the state. So that's -- it's really on those sort of areas that the assessment process is on.
Craig Philip Stanley -- Eight Capital -- Analyst
Okay. Thanks very much.
Operator
Our next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open.
John Charles Tumazos -- John Tumazos' Very Independent Research -- Analyst
Pinching myself twice. I'm talking to a company with a 36% ROE. And I'm talking to a company that hasn't blown the money. Thank you. As it relates to reserves that are currently about 6 million ounces or a six year life. As you increase output in the Northern Territories and with the Macassa shaft there is a chance that production rises faster than the reserves or the reserve life falls a little bit stays the same doesn't go up a lot. Some investors don't understand the high-grade and underground mine reserves that are proven out like a big porphyry. Would you slow down the production to sort of keep in line with reserves or which buy in stock because people don't understand the outlook.
Ian Holland -- Vice President of Australian Operations
Well I think John good valid points. But I mean reality is we got to -- we mine as effectively as we can at our operations. And we explore aggressively because we see the opportunity to continue to grow value. But the lead ounces sit in the ground that's not meaning our DNA. We got our operating plants and we're going to go to work them to that that they create value today for our shareholders. There's a lot of ways we create value. One is like costs and earnings and low-cost and earnings and higher revenues. That certainly but we also create value for shareholders with the non drill bit by discovering new deposits and and extending reserves and resources. And there'll be some highs and lows over time. But I mean fundamentally I think we're working on how we maximize value all the time.
John Charles Tumazos -- John Tumazos' Very Independent Research -- Analyst
So we might want to just be comfortable with a short reserve life if the miners get it out of the ground faster than you can document things on 43-101.
Ian Holland -- Vice President of Australian Operations
It's underground gold mine. I member years ago working up at Royal Palm back in '95 '96 where the 2 geologist game community is all upset at the end of the year we produced 170000 ounces and half a million put it the reserve statement. Since then that line produced over 3 million ounces of gold. So it's the nature of underground gold mine in a lot of these areas. We do 1 in Vero we do recognize the importance of of building up the resource and the research to region comfort to the shareholders and that's why we are a very aggressive explorer in terms of our drilling. So we call that an asset.
John Charles Tumazos -- John Tumazos' Very Independent Research -- Analyst
If I can ask another question. I'm a little confused that the business -- the discussion about claims expiring around Fosterville and other companies picking them up. You have an extremely complicated sophisticated brilliant milling process combining many techniques for the courts versus the refractory ore and bio leaching and the zones you're drilling are kind of deep in places. Is there a big rush to stake claims all around you for people who don't have any idea how to mill the ore.
Ian Holland -- Vice President of Australian Operations
So thanks John. I mean clearly there's a lot of level of interest in the area given the high-grade nature of the discoveries and the production that's occurred well I think your point you make is a really valid one. There's only 1 place that that material is going to be milled and anatase Fosterville mill. So from our end we don't have anything to fear from others discovering anything in the area it would only be to our benefit I think.
John Charles Tumazos -- John Tumazos' Very Independent Research -- Analyst
So these books are going to do high-risk wildcatting and if they hit something the best they can do is throw it to you for a royalty
That could be [Indecipherable]
Operator
Our next question comes from Steven Butler from GMP Securities. Your line is open.
Steven Howard Butler -- GMP Securities -- Analyst
David a quick question for you. Obviously you guys printed a heck of a lot of EBITDA but you didn't print or pay a lot of taxes. Maybe if you explain your tax situation in the quarter you paid such a minimal level of cash tax will that catch-up to? Or is it a timing thing? Or can you explain that?
Ian Holland -- Vice President of Australian Operations
Sure sure. Thanks for the question. It is. And it is something to think about for a year for 2019 and really is -- really based on the fact that our installments for 2019 taxable income were very low. Because in 2018 our taxable income after utilizing the losses was very low. So our installments are sort of artificially low compared to what our actual tax obligation is for 2019. So we will start and file our 2018 tax reserves in Australia recently and so we will start making higher installments on what we own beginning in November. So you could see somewhere in the neighborhood of $12 million to $16 million on a monthly basis right up through the first half of next year with a large catch-up payment at the end of June once we file our tax terms next year.
Steven Howard Butler -- GMP Securities -- Analyst
Okay. So is it a 12-month lag or effectively a six month lag? Is that sort of what you're saying?
Ian Holland -- Vice President of Australian Operations
More or less a 12-month lag.
Steven Howard Butler -- GMP Securities -- Analyst
More or less a 12 months lag. Okay got that. And Troy just coming back to you -- slide 21 which you showed those very long section views of that development drift that's been driven above the Phoenix and Signet zone. With those several drill bays with indicative drill holes off them. Is this planned drilling or drilling that's been already undertaken I would assume it's still planned drilling?
Troy Fuller -- Director of Exploration, Australia
Yes Steven. So that drill development is in and we currently have 4 drill rigs positioning in that development targeting those down pan extensions of the Swan mineral reserves so drilling is in progress and the results from those drilling -- from that drilling will be or more grinding at updates.
Steven Howard Butler -- GMP Securities -- Analyst
Okay, gotcha understand
Operator
And our final question comes from over Habib from Scotiabank. Your line is open.
Ovais Habib -- Scotiabank -- Analyst
Just a couple of questions from me. Most of the stuff has been answered. On Harrier. Obviously you guys have been developing into Harrier. When do you guys start expecting to see ore kind of coming out? Where I'm basically heading toward is how should we kind of look at 2020 in terms of ramp up and throughput. Is some of that material coming in 2020?
Tony Makuch -- President and Chief Executive Officer
Thanks Ovais. So in terms of -- without providing detailed numbers we'd expect that contribution from Harrier to still be quite modest in 2020 and then increasing beyond that point. One of the key drivers for that is the completion of the key infrastructure projects the ventilation upgrade with associated power upgrade etc. So the volume increase which is the additional contribution from Harrier is a little bit beyond that really. So I would expect -- I would expect that we'll see pretty similar volumes in 2020 to what we've seen this year.
Ovais Habib -- Scotiabank -- Analyst
Okay got it. And just moving on to Cosmo as well. Obviously you guys are looking to make some sort of decision by the end of the year on commercial production. But can you give us kind of just what should we expect over the next couple of months just in terms of updates from you guys. Is there any kind of -- once you do make a decision to the mine plan expected to be released? Or how should we look at this?
Tony Makuch -- President and Chief Executive Officer
Yes. What we would expect to do is the potential for some exploration drill results to be released. We'll see where that stands. But in terms of framing a guidance for 2020 then clearly from our end we want to be talking about production levels and in cost metrics. In terms of what we're looking for here as it's clearly in operation of significant scale or at least a pathway to that in that sort of plus 100000 ounce per annum production profile with cost metrics that make sense to us and the ability to generate cash flow. So they're the criteria that we're looking for and we're working through our own internal processes around to that now.
Operator
Thank you very much. That concludes the questions. I'll turn the call back over to Mark Utting for closing comments.
Mark Utting -- Vice President of Investor Relations
Thanks very much again to everybody who took time today participating in the call. As you heard we had a record third quarter. And very encouragingly expect to have a very strong finish to 2018. We're generating industry-leading earnings for building our financial strength make very good progress with our projects and have a lot of exciting things going on from an exploration standpoint. We expect to continue to have a lot to say and look forward to updating the market again in the weeks and months ahead. So thanks again enjoy the rest of your day.
Operator
[Operator Closing Remarks]
Duration: 55 minutes
Call participants:
Mark Utting -- Vice President of Investor Relations
Tony Makuch -- President and Chief Executive Officer
David Soares -- Chief Financial Officer
Ian Holland -- Vice President of Australian Operations
Unidentified Speaker
Eric Kallio -- Senior Vice President Exploration
Troy Fuller -- Director of Exploration, Australia
Cosmos Chiu -- CIBC -- Analyst
Mike Parkin -- National Bank -- Analyst
Craig Philip Stanley -- Eight Capital -- Analyst
John Charles Tumazos -- John Tumazos' Very Independent Research -- Analyst
Steven Howard Butler -- GMP Securities -- Analyst
Ovais Habib -- Scotiabank -- Analyst
