Goldcorp Inc. (GG) CEO David Garofalo on Q2 2018 Results - Earnings Call Transcript
EPS of $0.02 misses by $-0.06 Revenue of $793M (- 3.5% Y/Y) misses by $-81.14M
Goldcorp Inc. (NYSE:GG) Q2 2018 Earnings Conference Call July 26, 2018 1:00 PM ET
Executives
Shawn Campbell - IR
David Garofalo - President and CEO
Todd White - EVP and COO
Brent Bergeron - EVP, Corporate Affairs and Sustainability
Paul Harbidge - Senior Vice President, Exploration
Analysts
Greg Barnes - TD Securities
David Haughton - CIBC
Carey MacRury - Canaccord Genuity
Tanya Jakusconek - Scotiabank
Steven Butler - GMP Securities
Operator
Good morning, ladies and gentlemen. Welcome to the Goldcorp Inc. Q2 2018 Results Conference Call. Please be advised that this call is being recorded.
I would now like to turn the meeting over to Mr. Shawn Campbell, Director, Investor Relations of Goldcorp. Please go ahead, Mr. Campbell.
Shawn Campbell
Thank you, operator and welcome to the Goldcorp second quarter 2018 conference call. Before we begin, I would like to remind you that during today’s presentation, we’ll be making comments containing forward-looking information. I invite you to read this slide, which describes some of the risks and uncertainties that may affect Goldcorp’s performance in the future and as such, actual results may differ materially from the views expressed here today. For further information on these risks and uncertainties, please consult our most recent annual information form.
For the formal portion of the call today, we have David Garofalo, President and Chief Executive Officer; Todd White, Executive Vice President and Chief Operating Officer; Brent Bergeron, Executive Vice President, Corporate Affairs and Sustainability and Paul Harbidge, Senior Vice President, Exploration. Also joining us are Jason Attew, Executive Vice President and Chief Financial Officer and Charlene Ripley, Executive Vice President and General Counsel. For those of you participating on the webcast, we have included a number of slides to support today’s discussion.
With that, I’ll turn the call over to David Garofalo. Dave?
David Garofalo
Good afternoon and thank you all for joining us today. With the ongoing successful ramp-up of the Éléonore and Cerro Negro mines, on plan gold production across the portfolio, and our pipeline of gold projects being advanced on budget and on schedule, we continue to execute on the delivery of our 20-20-20 of growing production and reducing all-in sustaining costs by 20% by 2021. In addition, the strong exploration results achieved during the quarter highlighted by the results at Musselwhite and Cerro Negro demonstrate our exploration team's ability to find new discoveries within Goldcorp’s under explored and highly prospective land packages in order to achieve 20% reserve growth by 2021.
We remain on track to produce 2.5 million ounces of gold plus or minus 5% at all-in sustaining cost of $800 per ounce plus or minus 5% for the full year 2018. With the continued acceleration of the Peñasquito pyrite leach project, now two quarters ahead of the original plan, the production plan for the third quarter has been modified for lower mill throughput and mill acreage exclusively from the surface stockpile to accommodate the commissioning of a new major circuit. A re-sequencing to higher grades and mill tonnage into the fourth quarter of Peñasquito subsequent to this commissioning will result in projected overall gold production for the company in the third quarter to be in line with that of the second quarter.
The fourth quarter is forecasted to see a significant increase in gold production and lower unit operating costs, as we benefit from first gold at the new pyrite leach circuit and Éléonore and Cerro Negro continue to ramp up and attain optimum gold production levels. We expect fourth quarter gold production to be in line with average quarterly production levels anticipated in 2019, our first year of major gold production growth.
At Musselwhite, our materials handling project is progressing just as well, now 76% complete. During the second quarter, all major excavations were finished, including the hoist room, [indiscernible], the project continues to track 10% below our initial $90 million budget. The commissioning remains on schedule for the first quarter of 2019. At Coffee, Goldcorp signed a collaboration agreement with Tr'ondëk Hwëch, which traditional territory covers 100% of the project footprint.
The adequacy review process is advancing as planned, with the submission of responses to the second round of clarification questions from the Yukon permitting authority. Engineering on the project continues to advance with 19% completed at the end of the second quarter. This denouncing the program to achieve $250 million in annual sustainable efficiencies in 2016, we embarked upon numerous cost reduction and productivity improvement initiatives across the portfolio. At the end of the second quarter, we successfully executed these productivity and cost optimization programs and achieved $250 million in annual sustainable efficiencies.
Building upon this momentum, the company is extending the program, targeting additional improvements of $100 million to be achieved by the end of 2019. Along with the results from the initial efficiency program and an ongoing focus on costs in every location, these initiatives are expected to position the company to achieve its 20-20-20 strategy. Our 20-20-20 plan not only positions Goldcorp as the only growth story among our global gold peer group, but the continued success of our efficiency program has now positioned us as the senior with the lowest all-in sustaining cost per ounce. This competitive advantage will only be enhanced to deliver on our production growth objectives and our costs fall further with additional economies of scale.
Turning to the second quarter financial results, gold production of 571,000 ounces at all-in sustaining costs of $850 per ounce compares to 649,000 ounces at all-in sustaining cost of $800 per ounce during the second quarter of 2017. The planned production variance comes from Peñasquito’s stripping phase, resulting in lower grade ore being processed and also from the disposition and closure of non-core mines over the last year, as we optimize the portfolio. This was positively offset by both Éléonore and Cerro Negro, which delivered on their planned ramp up, as they move towards their long term sustainable gold production levels. The net loss for the second quarter was $131 million or $0.15 per share.
Net earnings were impacted by non-cash foreign exchange losses of $178 million or $0.20 per share, primarily arising on deferred tax balances. Adjusted operating cash flows were $310 million for the quarter, in line with the same period in 2017, despite a buildup of approximately $40 million of unsold zinc and lead concentrates at Peñasquito at the end of the second quarter of 2018. All-in sustaining costs per ounce are on target and we expect to achieve the full year 2018 guidance of $800 per ounce plus or minus 5%, as gold production ramps up in the fourth quarter as discussed.
Our 20-20-20 plan of growing production and reserves by 20% and reducing all-in sustaining costs by 20% by 2021 remains on track. Éléonore and Cerro Negro’s ramp up to sustainable production rates and Peñasquito’s completion of the pre-stripping campaign at Peñasco and Chile Colorado along with Borden will drive strong production and will be key contributors to achieve 3 million ounces of gold production by 2021. Our extension of sustainable efficiency program as well as increased production will help driver our costs lower in order to achieve $700 an ounce of all-in sustaining costs by 2021.
Finally, the systematic exploration program, driven by Paul and his team, providing new discoveries such as the exciting extension at Musselwhite PQ Deeps and the Silica Cap at Cerro Negro will contribute to growing reserves by 20% by 2021.
With that, I'll turn it over to Todd to discuss our operational performance during the quarter.
Todd White
Thanks, David. As you mentioned, we've delivered another strong and consistent quarter of operational performance. Second quarter performance was supported by continued ramp up at Cerro Negro and Éléonore, offset by a reduction at Peñasquito, as it enters its planned stripping phase. Éléonore began active mining on horizon five during the month of May as planned, opening new mining fronts and providing greater flexibility for the mine. The additional mining fronts allowed Éléonore to process an average of 5600 tonnes of ore per day over May and June, which is expected to reach an average of over 6000 tonnes per day in the second half of the year. The mine is expected to exit 2018 at a sustained, annual gold production rate of 400,000 ounces per annum.
Cerro Negro had another strong quarter, driven by higher grades as a result of the planned sequence. Mariana’s Norte development continues, with ramp breakthrough expected at the end of the month of July. With breakthrough achieved, Mariana’s Norte will have secondary egress and production related development can’t commence. Development of [indiscernible] will also continue throughout 2018. Both development projects will supplement Eureka production, which is expected to decline in 2019. The mine expects to achieve run rates of 4000 tonnes per day to the mill by the end of 2018.
With the definition of the east district, based on [indiscernible] concept studies to define optimization scenarios for the mine continues on schedule, while various combinations of mine and mill expansion undergo tradeoff studies. Gold production at Peñasquito was lower, as a result of the planned transition from higher grade ore in Phase 5D at the bottom of the Peñasco pit to lower grade ore from stockpiles and the remnants of Phase 5D. As expected, production in Phase 5D was completed during the second quarter and equipment was refocused on accelerating stripping activities in phase 6D and in the Chile Colorado pit.
With the commissioning schedule of the pyrite leach project accelerated into the third quarter, the production plan for the third quarter has been modified, lower than planned mill throughput and low mill head grades, which we expect to range between 0.2 and 0.25 for the quarter. These low grade stockpiles are the preferred material to be processing during the commissioning phase, where we do expect lower recoveries and throughput. A re-sequencing to higher grades and mill tonnage in the fourth quarter subsequent to the commissioning is expected to allow the mine to meet its full year gold production objectives.
At Porcupine, current operations delivered on target, while both the Borden project and Century were advanced. At the Borden project, development reached the area of the bulk sample and extraction will begin in August. At Century, trade off studies were concluded on the single preferred option, including optimization of the Dome and [indiscernible], a 50,000 tonne per day mill as well as the final flow sheet. Conclusions from the tradeoff studies suggest there is approximately a 15% improvement in operating costs compared to the base case pre-feasibility study. A series of optimizations in the areas of ore sorting and autonomous haulage to add further value to the project remain ongoing. The optimized pre-feasibility study is expected to be completed in the fourth quarter of 2018 as planned.
As Dave said earlier, we achieved our goal of 250 million in annual sustainable efficiencies by the end of the second quarter. Building upon this momentum, we are extending the program, targeting additional improvements of 100 million to be achieved by the end of 2019. As an example, we are leveraging our investment in technology, in fact the fiber optic networks in our underground mines. We're looking to increase the tonnes of ore mucked remotely from 500 to 2500 tonnes per day at Musselwhite. The remote mucking personnel are located in Thunder Bay, which is over 500 kilometers away from the mine site.
We have been achieving higher productivity and lower mining cost by moving this work away from the mine site. Additional productivity initiatives such as decreasing stope cycle time at Red Lake, increasing mill, mine to mill efficiencies at Peñasquito and improving underground equipment and operator productivity at Cerro Negro have already been identified and are expected to contribute to the additional 100 million in sustainable efficiencies to position the company to achieve its 20-20-20 strategy.
Across our portfolio of operations and projects, 2018 was planned to be a catalyst rich year. We have achieved every significant milestone, either on or ahead of schedule year to date and we remain on track to achieve all our operational and project objectives throughout the rest of the year.
With that, I will turn it over to Paul for an update on our exploration program. Paul?
Paul Harbidge
Thanks, Todd. With the first half of our 2018 exploration program behind us, we are pleased to report that the momentum continue to build on the results generated in the first quarter throughout the second quarter, in particular, very positive results will return from the extensions of the known loads at Musselwhite and from the Silica Cap target at Cerro Negro. At Red Lake, both Cochenour and HG Young advanced on schedule, the diamond drill results continued to support the prospectivity of both targets. New targets within the mine complex were also tested, and generative programs highlight follow up targets within the Red Lake Greenstone belt.
At Norte Abierto, we turned first drill results from the first quarter drill program at Cerro Casale from the geological model and block model results. Progress is on track to update mineral resource models for the project to prioritize targets for follow-up drilling. At Peñasquito, Goldcorp finalized the joint venture with Minera Frisco to jointly explore key regional targets in the Mazapil Valley. By the end of the second quarter of 2018, drilling commenced on the first target, Santa Cruz under the terms of this agreement. At Santa Rosa, drilling continued to return broad intersections over low grade gold mineralization. The results received during the quarter continue to confirm our belief that our core assets are under explored and offer great potential, aiding our confidence in our ability to reach our targeted 20% increase in reserves by 2021.
At Musselwhite, we continuing continued evaluating near mine targets and initiated generative exploration programs on an expanded land holding throughout the North Cariboo Greenstone Belt, where an additional 500 square kilometers of claims will state by Goldcorp. This brings our combined land holding to 770 square kilometers in Bay and new explored Greenstone belt, which is house to the multi-million ounces Musselwhite deposit.
In the second quarter, five drills completed infill drilling as well as tested extensions on main mineralized loads from underground infrastructure. Border mine targets zones overperformed in terms of grade and size as a result of infill and expansion drilling. A C block of PQ deeps in particular continued to return results that exceeded expectations in all key metrics, including increased width, height and grade. Mineralization remaining open, down plunge.
On completion, the mineral reserve and resource conversion drill campaign, [indiscernible] moved to test several new exploration targets within the mine infrastructure. Highlights include a 300-meter down plunge extension to the Redwing area, which lies within the Southern Iron formation and returned 4.2 meters at 7.1 grams per ton. The step out drilling expands a known mineralize of the Red Wing load to approximately 900 meters in length, and additional drilling is planned to connected it to the Thunder Wolves zone, utilize an additional 1.7 kilometers down plunge. The first 2018 deep drill hole in the north shore of the lake, six kilometers northwest of the mine portal is currently underway and is targeting a 1.2 kilometer step out from known PQ Deeps reserves. It has also located some 350 meters step out from the mineralization intersected in the 2017 program.
A second deep drill rig on the north shore due to commenced drilling shortly would test the equivalent down plunge projection of the West, stepping one kilometer northwest of known West mineralization. Additional near mine exploration is also underway to test the campaign in West come by and West Anticline zones.
Finally, well construction is nearing completion and the first diamond drill rig is being mobilized for the target. We will commence drilling in the next few weeks. Pull back to you with progress in quarter 3.
At Red Lake, underground mineral reserve and definition and next regime was completed on three keys zones, including the R56, PLM, and hanging wall seven zones, the principal aim of replacing mine depletion. Exploration commenced during the second quarter on several new targets, but in focus continues to shift eastwards towards portions of the mine containing favorable geology and structure, but which remain under explored. The aviation complex, the was the first target identified during this generative phase, and drilling has recently commenced. The first core holes are ticking the boxes in terms of house lithologies, structural setting with a sheared structure propagating a fold, flooding, strong sulfide mineralization and visible gold. Gold assay results are pending and we'll update you in quarter three.
An additional concept to a target is currently being drilled tested to high grade offset target, which is a calculated 300 meter offset along that. Drilling to date has confirmed that lithology sequence, which supports a set theory and carbonate was sulfide mineralization has been intersected in the target area. More assay results are pending.
Finally, expiration activity has recently extended to encompass generative exploration programs over a highly prospective 385 square kilometer Red Lake land package with four high priority top targets identified to date.
During the second quarter 2018, exploration development was completed at HG Young, allowing the project to deploy four drills underground along with an additional drill from surface and approximately 18600 meters of core drilling was completed. Gold assay results continue to return high grade intercepts in line with the geological model and support the geological estimate of 827,000 tonnes at 20 grams per tonne, which was presented last January's Investor Day. The HG Young project remains on track for completion of the mining concept study and development of a start of mine plan by late 2019.
Over at Cochenour, underground exploration drilling during the second quarter of 2018 has continued to focus on converting and expanding mineralization, up and down dip as well as a long strike, with the principal aim for 2018 of doubling the mineral reserve estimate ahead of commercial production in 2019.
Moving to Cerro Negro, where drilling during the second quarter focused primarily on completing a 50-meter by 50-meter infill program at the Silica Cap complex with the objective of moving the target into mineral resources when the update is released with Goldcorp’s 2018 third quarter results.
Additionally, mineral resources and reserve drilling was completed at the zone deep and San Marcos extension targets, while exploration drilling commenced on new targets at Eureka North, Mariana 249
At Silica Cap, which is composed of three main veins as well as ancillary hanging wall and footwall zones, the 500 vein has now been defined along a slight extent of approximately 1800 meters, the 600 vein over 1100 meters and the 601 vein 1500. Mineralization is generally combined vertically, generally confined vertically between 450 and 850 meter level. Within the 500 vein, pictured at the top left of the slide, a 400 meter by 100 meter high grade shoot plunging roughly 30 degrees to the south east been defined. Similarly, within the 600 vein, the bottom left of this slide, a 700 meter by 100 meter higher grade area has been defined, average gold grades of the system are in line with our current reserve profile for the mine.
Initial metallurgical studies have returned average recoveries of 93% for gold and 65% for silver, which again is consistent with our current operation. The drill program at Norte Abierto completed a total of 41 holes for 24624 meters in the second quarter. Drill results have been received to defer 7 Casale holes and confirm the new geological model, gold grade intercepts correspond well to the current resource model. Drilling has now stopped due to the southern hemisphere winter and work is now underway, collating the data collected to join the field season, finalizing the geologic models and updating the mineral resource models for both the Casale and Caspiche deposits as well as completing a project wide targeting exercise prioritize targets for follow up in the 2018/2019 field season.
And with that, I will now turn it over to Brent Bergeron for an update on our sustainability program. Brent?
Brent Bergeron
Thanks, Paul. I wanted to mention that on June 28, 2018, Goldcorp released its 2017 sustainability report, detailing the company's economic, environmental and social performance during the year. New additions to the 2017 report include an overview of our Sustainability Performance Index and an introduction to our short, medium and long term sustainability milestones. Goldcorp’s dedication to continuous improvements elevated our sustainability performance once again in 2017. Innovation, consultation and partnerships are cornerstone of our sustainability strategy and underscore sustainability initiatives that are fully integrated with our business drivers.
We are pleased to see that ongoing efforts to build trust and constructive working relationship with our host communities are delivering sustainable value, long-term social and economic benefits that make a positive difference in areas where we operate. We will be holding a conference call for socially responsible investors and environmental social governance analysts on September 6, 2018 at 11 AM Eastern Time or 8 AM Pacific time to discuss our ESG practices and sustainability milestones, described in our 2017 sustainability report.
With that operator, we would now be pleased to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] First question is from Greg Barnes from TD Securities.
Greg Barnes
Todd, I was wondering if you could give us some kind of sense of the options you're looking at the Cerro Negro in terms of expansion, mining rates, mill throughputs, potential output scenarios that you're looking at for the asset.
Todd White
Yeah. So, clearly I mentioned that, we're starting to view this as sort of an east and west district with say, about a couple of million ounce sort of opportunities on both of those. And so, clearly, we're looking at probably opening up two sort of -- two districts of mining, which certainly pushes our mine throughput up into the say 5000 tonne a day range. So that's sort of the base case there, but we are also looking at perhaps mill expansion beyond that. So I would say anywhere ranging from current 4000 up to perhaps say 6000 depending on the scenario that we choose.
Greg Barnes
And CapEx, my understanding is you don't need a lot of CapEx to do this?
Todd White
Yeah. It would actually be -- it would be very low CapEx depending on where we go, even if we had a slight mill expansion, because the design was there with leach expansion and everything in place, we would see it as a low CapEx option. So clearly, we're looking at everywhere from low CapEx to a bit more CapEx, but in any scenario, we would see this as a pretty -- not very intensive relative to new capital, with the exception of the mine development.
Greg Barnes
Sure. And timeframe?
Todd White
Again, we're going to be done at the end of the year with this study and then we're probably looking at a few years down the road before you start to see some of that.
Operator
The next question is from David Haughton from CIBC.
David Haughton
Thank you for the update. Again to Todd, you described the ramp up at Éléonore going to exit this year at 6000 tonnes a day, 400,000 ounces per annum, 2019 and on. Is there scope to move it up higher than the 6000 or should we be thinking about it kept at that right for now?
Todd White
I think, you should be thinking about it as, that 400,000 tonnes per annum is really what we're targeting there. And, we see that as a sustainable rate as it is and no further notice. That's where I would see it.
David Haughton
And that's even with the addition of Horizon 6 that’s anticipated a couple of years from now? Would that give you sufficient phases to be able to think about something more throughput than 6000 tonnes a day?
Todd White
Again, I mean, as one horizon is coming on, clearly, other horizons are depleting. And so, the mine flexibility starts to limit down there, but even with that, I would say that that's where we sit right now, given the rock mechanics and what it is able to do given our mine sequence, we think the 6000 is a good number.
David Haughton
Okay. And then with the cost savings, it's pretty encouraging that you've met the $250 million per annum saving and you've got ambitious goals beyond that now. To what extent, do you think that's simply offsetting potential inflation and to what degree would we see those savings actually coming through and improving cash flow and earnings.
David Garofalo
Yes. So, again, I guess, we look at that as somewhere around 3% to 4% improvement a year is really what we sort of target to offset that inflation. So, again, it's hard to actually say, but it certainly will be, some of it is an offset, but you will see that wrap in that portion of that.
David Haughton
Okay. Well, I guess we'll get a bit of a sense of that when we have updated guidance into the years ahead. Just changing to a different topic, [indiscernible] for the last few years, we've had zero visibility on this asset. We no longer see throughput tons, production is just a single line entry obviously, it’s equity accounted but noted with interest that you are now looking to extend life of [indiscernible] with the potential for a significant underground operation. What's driving that thinking and how should we be looking at that asset?
David Garofalo
Sure. This is Dave. That underground program is being initiated upon the completion of open pit mine at the end of July. It will be self-funding. There was a couple of hundred million dollars of cash with the joint venture structure, which will fund the construction of the underground development. [indiscernible] I would characterize [indiscernible] as non-core within our portfolio and probably see it as a broader consolidation play within that district, with some of the other developed properties and be happy to participate in a sale if that came to pass.
David Haughton
Okay. And do you think you’d get any learnings from the development of the sub-level cave for application elsewhere within your business or is it strictly governed by Glencore and you don't really participate other than just getting the dividends?
David Garofalo
Yeah. I think you probably characterized it right there. I mean, clearly that we have the option to take a look at what they're doing and how some of that may apply to some of our more core JVs, but we're quite passive in that asset.
Operator
[Operator Instructions] And the next question is from Carey MacRury from Canaccord Genuity.
Carey MacRury
Just had a question on Peñasquito. You mentioned with the PLP circuit commissioning in Q3, what sort of throughput rate should we expect there?
Todd White
Yeah. Again, so obviously on the lower grade, which we're fortunate to have the stockpile, because it's actually the exact material you want to do this, so lower grades and I would expect the throughputs to probably range from say 80 up to that sort of 100 tonne by the end of the three months period here, so kind of starting out at 80000 and variable that upto -- we would expect to exit the quarter in sort of normal Peñasquito by 110 range.
Carey MacRury
And then secondly going back to your Investor Day, you had grade for silver and lead and it looks like those are lagging 20%, 30% year to date. Is that just changes in the mine plan so far or is that grade going to pick up in the back of the year for silver and lead particularly.
Todd White
Yeah. We do expect that to pick up in the back half of the year, as we exit the commissioning and start to see higher grades come in, but it is a little bit back end loaded.
Operator
The next question is from Tanya Jakusconek from Scotiabank.
Tanya Jakusconek
Todd, now that I have you online, I just wanted to come back just on Peñasquito again and then Éléonore and Cerro Negro, just on Peñasquito, the previous guidance had been that we would be in that 110,000 tonnes a day at 0.35 grams per tonne for both Q3, Q4. Clearly, you’ve made a change now in the 80,000 to 100000 or 110,000 tonnes a day, 0.2 to 0.25 grams per tonne. Then we are commissioning the pyrite leach circuit, so that's coming in in Q4. So what does our grade profile look for Peñasquito now with that in Q4? And are we back to 110,000 tonnes a day?
Todd White
So the grade in Q4 does pick up very similar to say Q2 grade. And we do expect, depending on how the commissioning goes that we would be in that 110 range in Q4.
Tanya Jakusconek
Okay. And then as we mentioned, the silver and the lead picks up, you said, mainly in Q4, is that correct?
Todd White
Correct. We're very much processing the stockpile material this quarter, later in Q4 as Chile Colorado begins to deliver ore, we start to see that lead and it’s been a great pickup.
Tanya Jakusconek
Okay. And what does zinc do? Just the byproducts are a big portion of your revenue right now, yeah.
Todd White
Yeah. So Zinc actually comes in, in Q4. It is trending a little bit higher in the quarter.
Tanya Jakusconek
A bit higher than this quarter.
David Garofalo
Correct. I mean, our grades that we’ve guided quite specifically for the year are going to remain intact. We don't expect to change our guide, so definitely back end loaded, the fourth quarter. The stockpile material, we’re close to see in Q3 is quite low in byproduct. So Q4 is where we make up that grade to get back into material from both pits, Chile Colorado and Peñasco.
Tanya Jakusconek
And maybe just on Cerro Negro, on our previous conference call, we had talked about throughputs of about 3700 tonnes per day in Q3 and then 39,000 tonnes today, average for Q4 and exiting at 4000. Do those still stand as we talked about in the last quarter?
David Garofalo
In looking to Q3 now, I would expect very consistent, very similar sort of throughput ranges in Q3 as Q2. Looking at -- the catalyst year is bringing Mariana’s Norte online late in the year and we then sort of average 3400 for Q4 and exit on the higher end of that, on the high side average.
Tanya Jakusconek
I'm sorry, you broke up. Sorry, for Q4, you would average for the quarter.
David Garofalo
Would average right around 3500 for the quarter. So we do expect towards the back end is when we start to see that -- those 4000 tonne per day rates as we begin the mining in Mariana’s Norte.
Tanya Jakusconek
And the grades, would it be similar, because you had really good grades there in Q2? Are we still holding those grades?
David Garofalo
Yeah. We still see those similar grades in Q4 as we did in Q2.
Tanya Jakusconek
Okay. And sorry about, I have to do Éléonore also, I think we talked about 5700 tons per day in Q3 and then about 6000 tonnes a day or thereabout in Q4. Do those throughput still stand in the 6% six to 6.5% gram per tonne range?
David Garofalo
Yeah. That's still on plan for Éléonore.
Tanya Jakusconek
And then just so that I understood correctly and Dave, I think what you mentioned was that Q3 production is going to be similar to Q2, which is about 570,000 ounces and that we are going to exit Q4 at the run rate of that 650 or 675, which was your 2019 annual guidance.
Is that a correct assumption I've made?
David Garofalo
Yeah. Exactly. So we would be somewhere in that 650 to 675 range into Q4 and that’s the average we expect to achieve over the course of 2019. There is obviously some variability quarter to quarter during the year and we’ll provide more specific guidance when we see the investment committee in January 2019, but that production levels really are sustainable production levels for the next year and half. We achieved step changes in production at Éléonore and Cerro Negro and Peñasquito starts to get back integrate.
Tanya Jakusconek
And is there any variability from any of the other Canadian operations like Mussel and Porcupine that are going to be either Q4 loaded versus Q3 or are they evenly distributed, because they were a bit weak this quarter?
David Garofalo
So I would say, Mussel, I do not expect a step change in the production levels really until the materials handling project is commissioned in the first quarter of next year. So we'll start to see. Now, that 20% incremental production rate from Musselwhite starting in Q2 next year, once that’s material handling, fully commissioned.
Tanya Jakusconek
And still nothing has changed on the ore coming in, it's going to be higher cost this year and then helping with the cost structure improvements into 2019, nothing changed there.
David Garofalo
No. 2019 is our expected commercial production for Cochenour, so nothing has changed on the schedule.
Tanya Jakusconek
Okay. Sorry about that. It’s just we’ve had a bit of a change, so really if I was to look at it holistically, it’s really Peñasquito that’s had the change for you for Q3 versus the previous guidance.
David Garofalo
You hit right on. That's really the only change in our previous views, the shift in the acceleration of commissioning of PLP we'll be ended Q3.
Operator
The next question is from Steven Butler from GMP Securities.
Steven Butler
Todd, a question for you Dome and Century, the ore sorting, maybe you could elaborate on perhaps what you found ore sorting applications so far? I think you were putting through old tailings from Dome and/or what's been the experience so far, any metrics you can share with us.
David Garofalo
Yeah. Absolutely. As you may know, we've got a pilot demo plant on the ground at Porcupine and we are putting waste rock from the original Dome pit as well as, some, let’s say, mineralized waste coming out of current. What I would say is look, we're certainly seeing the ability to upgrade, call it, scavenge the gold that is in there and we are seeing upgrades, I would say, very close to the levels that we expected based on our lab tests. Right now, we're in the process of really tweaking the algorithms on this and sorting at different levels here, but it's looking encouraging, but at this point we’re just in a point to add it into the Century flow sheet as of yet, but we certainly see that there is opportunity to do that. Very encouraged by the results today.
Steven Butler
So what are the -- you are saying you're getting indications that maybe 15% potential cost savings, is that driven more by the throughput and/or the inclusion of some component here of ore sorting or other things, it’s autonomous mining I think you mentioned.
David Garofalo
Yes. So both ore sorting and autonomous mining are not included in that. The real driver against the base case on that cost savings is in the design that we have for that milling circuit. We see significant savings in power versus, say, a conventional mill circuit, mill. And we're very, very excited about this because it's certainly a major cost driver of the power in the mill. That's right now predominantly where that is. So we see things like ore sorting, optimization through autonomous haulage or whatnot as further opportunities in the project.
Operator
There are no further questions registered at this time. I’d like to turn the meeting back over to Mr. Garofalo.
David Garofalo
Okay. Thank you for your kind attention. Of course, if you have any follow-up questions, please reach out to Shawn or anybody else from the rest of the team that might be able to help boat and we're looking forward to those of you that want to participate in our ESP call in September. Again, please reach out for details if you'd like them.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.
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