Aya Gold & Silver Inc. (OTCQX:AYASF) Q2 2023 Earnings Conference Call August 11, 2023 10:00 AM ET
Company Participants
Ruth Hanna – Investor Relations and Communications Manager
Benoit La Salle – President and CEO
Ugo Landry-Tolszczuk – Chief Financial Officer
Raphael Beaudoin – Vice President, Operations
David Lalonde – Head, Exploration
Conference Call Participants
Justin Chan – SCP Resource Finance
Eleanor Magdzinski – SCP Resource Finance
John Sclodnick – Desjardins
Stephen Soock – Stifel
Don DeMarco – National Financial
Puneet Singh – Eight Capital
Operator
Good day. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aya Gold & Silver Second Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. Ms. Ruth Hanna, you may begin your conference.
Ruth Hanna
Thank you, Operator. Good morning, everyone. And welcome to Aya’s second quarter 2023 results conference call. My name is Ruth Hanna. I’m the Investor Relations and Communications Manager, dialing in with some of the Aya team from Montreal and Morocco this morning.
On the call today, we have Benoit La Salle, President and Chief Executive Officer; Ugo Landry-Tolszczuk, Chief Financial Officer; Raphael Beaudoin, Vice President, Operations; and David Lalonde, Head of Exploration. We’ll finish today’s event with a Q&A session with the team. Please contact our IR team directly with any follow-up questions that are not addressed during the call.
Before we begin, I’d like to remind listeners that today’s event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in our August 11th news release, as well as on SEDAR website and on our website.
With that, I’d like to turn the conference over to Aya’s President and CEO, Benoit La Salle. Benoit, please go ahead.
Benoit La Salle
Thank you. Thank you, Ruth. Good morning, everyone. Welcome to the Aya Q2 conference call. We had an excellent quarter. Q2 was an excellent quarter. We have given you a presentation that summarizes the results which you have for this call. I would ask you to go to slide number three.
On slide number three, we have highlights of operation. In Q2 2023, we produced 526,703 ounces of silver, which is clearly for us above budget. It was a very good quarter. It’s the second highest quarterly production after Q4 of 2022.
Our cash cost was at $10.98 per ounce sold. We generated $9.6 million in revenue and $3.7 million in cash flow. And we also closed the quarter with US$52 million in cash and cash equivalents. So very good quarter, very good cash position, strong financial position.
The growth pipeline, we have progressed the Zgounder expansion to 45% completion. As you see regularly on — with our videos, the construction is going very well and we will keep updating you regularly.
The extended Boumadine open-end strike to 3.8 kilometer. That was also disclosed this quarter in a press release and we’ve also discovered a new at surface northwest mineralized zone, which we will review later. Also, for some of you who have questions, David Lalonde is on the call with us from America. So you will be able to ask question to him directly. The — we also had some [Audio Gap] Zgounder regional play.
In the quarter, we’ve acquired seven permits the Tirzzit copper, the historical Tirzzit copper mine and 67.7 square kilometers property. Just for a bit of history, in 2020, when we started reviewing the assets of Aya and we have those Zgounder assets, we had identified those [Audio Gap] And these permits, when we’ve identified them belong to a family, we were able to acquire them in Q2 of 2023, which came after three years of us looking at those permits as being complementary to Zgounder and positioned in a very strong geological potential area.
The few things at the AGM in the quarter. We’ve increased the Board diversity. We have now more than a third female representation on the Board, which is aligned with Glass Lewis. We’ve also disclosed a lot of our ESG program and we’ve had our ESG report that was published.
Now going to slide number four on our presentation, that’s quite telling. You have a summary of Q2 and year-to-date and it’s quite interesting to see that with 526,000 ounces of silver production, we are now at a year-to-date of over 1 million ounces compared to our guidance of 1.7 million to 1.9 million. So we maintain the guidance for the time being at 1.7 million to 1.9 million, knowing that as of now, we’re at 1 million ounces.
The cash cost was excellent in Q2. It was good as well in Q1. So the average cash cost so far for the year is $12.87. Our guidance was $14.40. So we’re a bit ahead of our guidance, which is something that we understand quite well. It’s all a function of definition drilling and being more efficient at site.
The average grade is aligned with the reserve model. Q2 was at 265 for up to now, we’re around 250 million. The guidance was at 264 million. You recall that deposit has these very high-grade pockets that we hit in Q4 of last year. So right now, it’s more the grade is steady and — but the important thing is, we’ve also been adding to the stockpile, which we did not have historically. Now we are mining more than we’re processing and that’s quite important.
The two plants have good recoveries. So the average mill recovery is at 87%. The guidance was at 86%. So we’re doing quite well. The availability which you don’t have on page four, but the availability is in the MD&A for the two plants, it was at 95%. So that was really, really excellent.
So the quarterly production is expected to remain steady throughout the mid of the year and we — based on our mine plan, we should even have better grade going forward. Cash costs are expected to remain stable and the exploration budget, of course, is something that will be coming back to you shortly as we are getting very, very good results at Zgounder and at Boumadine.
Just turn to slide number five, it’s interesting to see the bar charts. The top left one shows the production. And as you can see, except for Q4, which as you recall, an excellent quarter due to very, very high grade. This is our second best quarter at 526,000 ounces. So it’s very good.
The grade you see below on the left-hand side, below the production, it is steady and it is where it should be around 250 to 260. So it’s really where it should be.
The recoveries on the right-hand side at the top, again, except for Q4, which was a normal quarter, if you look at the recoveries at 87%, that’s really aligned with where we want it to be. And the ore process at 72,000 tonnes, it’s the second highest. And actually, we are right now around 800 tonne a day with a design capacity of 700 tonne a day.
So in the industry, we always say you have about a 15% potential to go higher than the design capacity while we are 15% above the design capacity right now of the two existing plants, and that’s why we’re building a third plant right now.
Slide number six. On a cash flow basis, top left, you see at $3.7 is again aligned with where we need to be. Of course, it’s affected by sale, and currently, as you know, we have approximately half of our production is concentrate and half is ingot. The concentrate is a bit more difficult on the timing of the sale, because the timing of the sale is when it reached destination. So based on transport. So we don’t — not always — we don’t control the timing of the sale on the concentrate. We do on the ingot, but not on the concentrate. So that has a direct effect, obviously, on our revenue, which has been a direct effect on the financial statements.
The gross margin at $2.8 million during the quarter is good. It’s aligned with where based on our cash cost, where it should be. Cost of sales at $6.9 million. Cost of sales at $6.9 million is a little high. We have been acquiring a lot of equipment for the plant expansion. We’ve been hiring more people. And as we indicated in the previous quarter, this is not business as usual. This is business going into a very large expansion. So you have amortization is more than what it should be, because we have more trucks than we should have. We have more employees. So, yes, it’s a very, very good quarter. It’s a very good cash cost, but also remember that we’re getting ready to quadruple the production this time next year. So we don’t hire all the people a week before we get going. So it’s we’re little — we know we’re a little bit overstaffed over equipped and all of that, but that — we understand this.
The cash cost was excellent at $10.98. One of the reason is that, why it’s a little bit lower as there was less definition drilling, we had done quite a bit of definition drilling at the beginning and we were ahead of the curve on that. So we have a good cash cost at a $10.98.
Moving to slide number seven and on the sustainability. Again, Look, to me, that is pretty straightforward. We have $100 million ESG loan with EBRD. We follow some very strict guidelines with them, which we’re very happy to have. We had them on site in July. They came and they — which is part of the process of the loan agreement that we have and we went through with — we have obtained a path, which is what we need to obtain. So everything is aligned correctly.
So you have a major effort that’s been put in health and safety, major effort, which we now are pleased to say that we’re becoming international standard. We’ve also put in a mine rescue plan, which did not exist when we arrived. Now we have a mine rescue plan, which is very important and that’s coming along very well.
The other important aspect is Scope 2 Emission. You recall that we have a power line that’s being built at the moment, which will bring green energy to site for the new client expansion and for all of the equipment that we have. So that is going extremely well. Any question on that, you have Ugo and Raphael with us today, but that power line is coming along very, very well.
The Task Force on Climate-Related Financial Disclosure is about 70% completed. This is something that we’re doing with EBRD as well. And the Environmental and Social Action Plan is 31% completed, but that’s also something that we follow closely, which is part of our ESG financing.
So the — we are in a very good position, and locally, things are going very well. We have local cooperation. This is a very important project in country and in the region where we are, and we also have, as you saw, mobile clinic on different health topics and we are — we have a great success with all of this.
Slide number eight is, of course, it’s just a picture. I know you’ve all seen the videos that we circulate about once a month and it’s going very well. The construction that you’re seeing here is where the — where we are as of the end of the quarter, but the construction is going quite well.
On slide number nine, you see that we have the percentage of completion for the process plant we’re at 40%, the underground and open pit mining at 47%. We — you saw pictures and the video of the open pit mining, all the drilling that occurred there. Tailings, you also see that at 55%, water management at 74%, electrical infrastructure, that’s the new power line that’s being built right now at 27% and on-site infrastructure at 55%.
So look, globally, as Raphael will tell you on time and on budget. We are 90% committed on our cost and we are on budget. And then now we’re getting into the erection part of the program, which is where it’s something that we’re going to follow closely.
A couple of pictures on page 10 of the leach tanks, the ore silos and then a view of the water management system. As we all know, water is key to mining, water is key to Morocco. We’re lucky that we have mountains around us that are up to 4,000 meters high that bring in water from snow melting and from the rainfall. So we will be capturing — we need to capture less than 1% of the water that runs by our territory, less than 1% to have water for the full year.
On page 11 is our portfolio of assets, the Atlas Fault in Morocco. Morocco is becoming an extremely busy part of the world right now in mining, in industrial construction, in automobile, in batteries. You’ll see — I’m sure you see a lot of news flow coming out of Morocco these days.
So we have a very good portfolio at Boumadine again [ph]. This is the second portfolio in the country, of course, not taking into account the phosphate. We have Zgounder and we keep acquiring ground around Zgounder. We have Tirzzit hat we’ve just acquired. We have Boumadine and we are also there looking to acquire additional ground at Boumadine. And we have exploration going on at all of our projects as Zgounder — Boumadine. Of course, not at Azegour and Amizmiz right now, but we will — these are assets that we maintain in the portfolio.
So on slide 12, you just have something you’ve seen many, many times is the mine — Zgounder mine. We need to drill all the way down to the granite and we need to extend it to the East. We are accelerating this drilling as we speak. And the reason is, because we needed to complete the development of the Level 1950 and 1925, and in order to start drilling, not from the top of the mountain, but from a gallery that has been developed, which is now in place and we are drilling now extensively trying to go all the way down to the granite and so this hasn’t changed. It’s continuing and we keep drilling. So there will be lots of drill results from now until the end of the year coming from Zgounder, the main zone.
On slide 13, it’s the region of Zgounder, what we — we call Zgounder Regional. There’s ongoing drilling there. We’ve done 8,000 meters so far. There’s more coming and we have many targets. David has seen some structures. We’ve seen some silver, gold, copper grades and vein mineralization. So this is an ongoing process.
We are also working on Zgounder West. There’s also potential on Zgounder East and South. And so it’s an ongoing process. It’s something that we will spend a lot of time, because for us, the best discovery possible is in Zgounder, and we know that, that’s something that we’re looking for on top of increasing Zgounder main zone. So that’s page 13.
On page 14, that takes us to Boumadine. Now as of the end of the quarter, we were at 20,000 meters approximately of drilling done. If I’m not mistaken, I say, 20, but now we’re all done. So now — as of now, we’re 36,000 meters done. We’re waiting for results. We should be getting most of them in the next few weeks. There will be a press release summarizing the drill program and the drill campaign before we all go to Beaver Creek and that’s something that we will be putting together.
We’ve had very good results in Q2 that we’ve put out 192 grams per tonne over 129 meters and many that, I won’t repeat them. You have them on slide 14 and you’ve seen them. So, all in all, Boumadine is now 3.8 kilometer long, so very impressive.
You see it on page 15 as well on the longitudinal section is it has routes. So we’ve tested it down to 600 meters, but it’s clearly a strong system, so on 3.8 kilometers. And what’s really important, as you see on page 16 is — and you see the structures that are in Rhyolite is to the North in pink, purple, you see that there is a new structure. That’s what we call the cross-section, North 70, which is where we’ve seen silver mineralization crossing the main structure.
So, obviously, the permits to the North of this becomes important and we are in discussion with the state on that, the permit to the South. But — and all of what you’re seeing here is requires additional drilling. But we’ve drilled the whole program, 36,000 meters. It’s been, as you saw, very, very good. We’ll have more results in a couple of weeks. That permit and that project is a key asset of Aya and will continue to be.
On page 17, you have the location of the new permit of Tirzzit. So you have the — you have our as Zgounder permit at the top, you see them. We see there is Zgounder mine. You see the boxes around or the permits around.
And look, every time you see that pink color is the granite and always close to the granite, touching the granite is where we have the mine as Zgounder and it’s where we see the anomalies and to the North, that’s where we also get reserve.
And if you look to the West on those permits, they’re showing very good anomalies there to the West as well. And that’s why in 2020, we had identified the Tirzzit as being extremely interesting, because they were also touching the granite, but South of the granite that we’re like North and East and the West as well, because we cover so much ground and we like those permits quite a lot.
So we have just obtained them. Elias and the team are completing the transfer of ownership. David is gathering the data. They did the geophysics. They did somewhere. They did drilling. There’s about 50 drill holes. They had intercept up to 3.5% copper. They — and they also had silver anomalies.
So it’s a very interesting group of permits. We just, again, we’re starting — we don’t even have all the data yet, but it’s a very interesting group of permits. So that was acquired in Q2 and its part of our results for the period.
So on page 18, you just have a summary of what we’ve done, good silver production and meeting cost guidance and meter — meeting production guidance. You have the plant expansion, the 2,700 tonne per day plant expansion, that’s going very, very well.
Actually, the start of the construction of the TSF is starting in Q1. You see the progress in the videos. It’s going very well. We’ve completed the detailed engineering. We’re receiving the ball mill in Q2. If some of you saw our Twitter account or our LinkedIn account, you saw picture of the ball mills coming in on the deck of a ship being shipped over to Morocco. So we’re awaiting them at the port and we’ll bring them up to site. So it’s coming extremely well.
As I said, the drilling at Zgounder Regional is ongoing. The drilling at Boumadine as of now is completed. We didn’t talk much about Tijirit in Mauritania, but we are completing feasibility. It will be done by the end of August. And then we will see how to maximize value on this project. And in the second half, then of the year, we will launch fieldwork on Tijirit, of course, and we will continue the exploration on all of our other assets.
So that completes the official, I would say, portion of the presentation. Again, you have to go, you have Elias with us, you have David Lalonde and Raphael. Any question specific to the operation, we will answer with great pleasure.
Operator, back to you please.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] One moment, please, for your first question. The first question comes from Justin Chan of SCP Resource Finance. Please go ahead.
Justin Chan
Thank you, Benoit and team. Congrats on another great quarter. I guess, my first question is just regarding the second half of the year and your overall CapEx plans. Is it right in doing the math from today that you have roughly $105 million left in your budget to spend and I’m just curious how much do you think is this year versus how much is next year?
Ugo Landry-Tolszczuk
Hi, Justin. You’re talking more about our CapEx for construction, I’m assuming?
Justin Chan
Yes.
Ugo Landry-Tolszczuk
Yeah. So we — of course, at the beginning of the project, it’s a lot of deposits and civil work and earthworks. So I think today right now in our budget, we’ll have about half of that that will be done this year and about half of that will be the next year.
Justin Chan
Okay. Got you. That’s — okay. That makes sense. Thanks for that. And then just on — I guess, your expectations on grade for the rest of the year. Do you expect something pretty similar to this quarter, which I think would imply that you’re going to beat guidance as you normally do, but I’m just maybe asking the question to confirm what you think?
Raphael Beaudoin
This is Raphael speaking. So for the grade, we need to understand that we are mining right now about 50% higher mining rate than we are milling rate. So we are stockpiling and we are processing.
For commissioning next year, we need ore and we certainly won’t pass the best ore we need to for commissioning the plant. So to answer your question, we’re mining at around 230-gram per tonne right now, but we are milling around 250-gram and we are stockpiling a bit lower grade. So we do expect to continue processing this slightly higher grade of the mail than we stockpile for the rest of the year.
Guidance remains the same. We need to do a bit of maintenance at the end of the year. We want to make sure that we do guidance, that we do our stockpile that we are ready for next year. So we don’t expect much change — much — we don’t expect any change in our strategy. So head grade should remain similar.
Justin Chan
Got you. Thanks. And just on Tijirit in Mauritania. I guess, what are your current thoughts on that? I suppose we’ll know more when the TFS comes out. But strategically, do you see it as a project within Aya or perhaps maybe a standalone opportunity. Just curious how you view that right now?
Benoit La Salle
Well, we’re finishing — Justin, we’re finishing the feasibility that will be done for the end of August. You will see some drill results in the next few days, because we did 25,000 meters. So, obviously, we had a lot of results. The feasibility will be done at the end of August and then we’ll make a decision.
Look, it’s a robust project. It’s a good grade. We know that it’s a grade around 3.5 gram per tonne. It’s open pit. It’s easy. It’s closed by Tirzzit. So it’s an easy project. So it’s a project that’s easy to do.
Is it part of our main strategy? No. It’s not because we want to focus on Morocco, but we have it. We — it’s something that we’ve known for many years. We will decide in September if we — how we approach this.
That project is going to get built. Is it by us, by somebody else. I mean we don’t have an answer yet, but we’ll maximize the value for our shareholders. It’s a very nice asset, but it probably be best fit with a pure play — gold play. But again, this market is this market. We don’t know where we’re going to be with. So we’ll make a decision.
But it is a nice asset. I mean it’s got a good — and a lot of potential in geology. So, again, it’s part of — it’s a small asset for us. It’s a little bit like Amizmiz and the other assets that we have, which we’re not spending a lot of time on, but this one is — it’s big. It’s ready to go to construction in three months, three months.
Justin Chan
Got you. Well, it sounds very good and we look forward to those results. Thanks, guys. I’ll free up the line. But congratulations again on being where you normally are midyear, which is above your guidance rate and below your cost looking down at it? Cheers.
Benoit La Salle
Thank you, Justin. Thank you
Ugo Landry-Tolszczuk
Thank you.
Operator
Thank you. The next question comes from Eleanor Magdzinski from SCP Resource Finance. Please go ahead.
Eleanor Magdzinski
Hi, Benoit and team. Great work this past quarter. I have a bit more detailed questions just kind of on the mining side of things. The first question I was just wondering is, how many jumbos you currently have operating [Technical Difficulty]
David Lalonde
Okay. So we currently have four jumbos on site. That being said, we operate full-time two of them. The two others are either on support work. One thing we need to understand here is that we are on ramp up. So there’s a bit of a sequencing between the equipment we receive and how the mining rate follows. So we want to make sure we have enough equipment on site to sustain that mining rate. So right now, we have two jumbos in operation and two in stand by that will be put to work towards the end of the year and early next year.
Eleanor Magdzinski
Okay. Great. And then do you also have some Jackleg headings as well for your development?
David Lalonde
No. We use Jackleg for definition drilling punctually. But we do not have any stopes that are operated with Jackleg.
Eleanor Magdzinski
Okay. Great. And then the second question is about raising, so just for vertical development. Just curious what was, I guess, what was developed in Q1 versus Q2? And if it’s primarily to do with ore passes and waste passes or ventilation or kind of a combination of both.
Benoit La Salle
Sure. In this project, we have four raises. We have four raises on our plan. The first one we did and we finished it in Q1, commissioned it in Q2, is the ventilation raises. So we are installing our primary ventilation. So that’s the first raise.
We have two other raises that we are working on, one for waste and one for ore or vice versa, we can interchange them. And finally, the fourth raise will be a ventilation raise also for the sub-levels lower than Level 1,000.
So we’re about halfway through our vertical development, but the pace continue to improve and now we are cruising. So we have — to answer your question we have four raising this project, two for ventilation, two for or in waste.
Eleanor Magdzinski
Okay. Great. And is it a combination of Alamac [ph] and drop raising?
David Lalonde
Only Alamac.
Eleanor Magdzinski
Only Alamac. Okay. Okay. Great. Yeah. Your rates are pretty great, especially considering it’s Alamac, so it’s good to see. That’s all the questions I had. Thank you very much.
Benoit La Salle
Thank you.
Operator
Thank you. The next question comes from John Sclodnick of Desjardins. Please go ahead.
John Sclodnick
Yeah. Thanks, guys. Yeah. I’m going to get it back on the detail a little bit here, but a very good quarter and impressive cash costs, obviously, tracking well below guidance. With you leaving guidance in place, do you think that kind of back half of the year cash costs are going to be above the guidance level or just above kind of year-to-date numbers so far?
Ugo Landry-Tolszczuk
Hi, John. This is Ugo. Listen, we try to do our best on cash cost every quarter. There is a little bit of stuff associated to mining that don’t push to mining costs and some development and some ground support that’s gotten pushed a little bit into the second half. And so for now, we’re not changing guidance on cost. But, obviously, it’s a target we try to beat.
John Sclodnick
Fair enough and a very diplomatic answer. On the exploration budget, I know you kind of touched on it and alluded to maybe going up back half of the year. Zgounder Construction still on budget, and on my numbers, it looks like you’ll have a bit of a cash buffer. Just kind of wonder if you can provide a bit of color on kind of what buffer you’d like to have there as you’re ramping up Zgounder and kind of how you see that exploration budget tracking in that light?
David Lalonde
Yes. So far, I think, Benoit mentioned, right, at Boumadine, we’ve basically done the meters that we want to do or that we had budgeted for the year. And so we’re kind of waiting on some results and some feedback for that midyear and then we’ll see what we want to do with the budget associated to that.
On Zgounder, we’ve done the majority of our surface drilling. Now we’re really focused on a lot of the drilling that had to be done from underground. We have two drills operating now and a few others coming in here towards the end of the month.
So we’re on track in terms of budget and in terms of meters we want to do the costs associated to that and same thing with Regional, we’re pretty much on track with where we want it to be. We’re a little bit ahead of what we had budgeted with RC drilling to define the open pit. We finished that basically six months early on what we had budgeted. So that’s pretty much completed.
And so for exploration, I’d say, right now, we’re on budget on what we want to do. We’ll see what we do going forward here. We’re just — that was always our plan, right, kind of do the first half year, go all out with what we could kind of look at our results and make a decision from there and so we’re there now.
And on Zgounder construction, we’re on budget. I think Justin had a question about that. We have about half the amount of spend of about the $100 million that’s left or a little bit less than $100 million, about half this year, about half next year.
And so, anyway, all of that money is — and we’ll start to see it here. We’re going to do our first drawdown of the debt probably towards the end of this month and so we’ll start seeing a more restricted cash on our balance sheet as per our loan agreement. And so that’s kind of put aside work with Zgounder and self-contained in restricted cash and so that’s following track.
And so in terms of, in general, what kind of cash buffer we want, obviously, we monitor when we’re going to — when we plan to finish and the ramp up of Zgounder expansion. But I think we don’t want to fall below probably something around $15 million of cash in the bank. But if our geology team comes up with great results and we feel like that’s something we should continue to invest in heavily then we want to make decisions moving forward.
John Sclodnick
Okay. No. That makes sense, Ugo. I appreciate that. And last one for me, I’m not sure if you can provide any details, but just on that NPI, as I recall, you weren’t paying it as it didn’t seem like yet. Just curious kind of what the resolution was if you can provide any details and then, I guess, specifically, if there was a cash or share component there.
Benoit La Salle
Yeah. John, absolutely. So the NPI, you remember when we came in, we immediately said that we didn’t like it. We didn’t think it made any sense at the time. We felt it was not the right thing to have. And so we went and we started discussion with the former CEO. We were accounting for it, but we never paid it. And — but we were accounting for it.
And in Q2, after months of discussion, we finally came to an agreement with the former CEO, whereby we would pay him a portion of what was owed to him, which was even prior to our time, but then also for 2020 and 2021. And so there was a payment made of $1.6 million, which was accounted for. It wasn’t the payable. It was there and we made that payment to the former CEO.
And for that we — just we did agreed to kill the agreement, the NPI, so it was done with him and it was, I won’t say, friendly, because it’s a big discussion. But at the end, it was and he agreed that that thing was done at times that was different. And so we paid $1.6 billion, which was accounted for in the payables. So the payables are down US$1.6 million and the NPI has been canceled.
John Sclodnick
Nice. Okay. Yeah. No. That seems like a win-win. I’m sure he prefers that money than nothing. So, yeah, I know it seems like a good solution. That’s it for me for questions. So, yeah, again, congrats on a great quarter and thanks for taking my questions.
Benoit La Salle
Thank you.
Operator
Thank you. The next question comes from Stephen Soock of Stifel. Please go ahead.
Stephen Soock
Hi, guys. I like to echo John’s sentiment. Great quarter. Great to see everything on track here. Most of my questions have been answered, but I was just wondering if you could provide a little more clarity on the costs here quite low for Q2 and it’s great to see, you mentioned some of the development in ground support work has been pushed in the second half of the year. So I guess we should expect a bit of an uptick. But is there any other — you’re starting to recognize efficiencies from the scale up of the underground mining activities or any additional color on kind of why those costs were so low quarter-over-quarter? Thanks.
Raphael Beaudoin
So this is Raphael again here. Like Ugo said, we obviously try to do our best every quarter. Indeed, there is a bit of timing thing here. We did not have any mill maintenance shutdown this quarter, very high availability, just 95%. That’s one thing.
Also, we have quite a bit of brand new equipment. We did a lot of maintenance last year. We are in ramp-up. We have brand new equipment. Things are going well, because we mine at the higher rate, we do have the flexibility of putting good ore through the mill. So we benefit from that. Not much more to say than this. This was a particularly good quarter. We do have maintenance to do towards the end of the year and guidance the number we want to beat.
Stephen Soock
Perfect. Makes sense. No. I appreciate that. That’s it for me. Thanks.
Benoit La Salle
Thank you.
Operator
Thank you. The next question comes from Don DeMarco of National Financial. Please go ahead.
Don DeMarco
Thank you, Operator, and good morning, Benoit and team. Just a couple of questions here. First off, just focusing on Zgounder construction. I think previous caller mentioned maybe the remaining CapEx on the order of about $105 million. Would that be correct in your estimate?
Ugo Landry-Tolszczuk
We’re a little bit.
Benoit La Salle
Yeah. About there. About there, Don.
Don DeMarco
Okay. And if we split that between H2 and H1 next year, I guess, it works out to maybe all things equal $26 million a quarter. But just wanted to confirm a few time lines then, are you expecting first ore maybe late Q1 and then can I assume commercial production sometime in Q2 next year?
Ugo Landry-Tolszczuk
Are you talking about budget or construction time line, Don?
Don DeMarco
I’m talking about the Zgounder expansion milestones. So with respect to first quarter, would that be tracking late Q1 next year and then commercial production in Q2 sometimes. Just trying to think about how to assign the remaining development CapEx before, say, commercial production?
Ugo Landry-Tolszczuk
Yeah. So kind of our payment milestones and if you will the completion milestones or maybe like they’re not exactly perfectly timed. And so probably costs will come a little bit like as things move forward, especially with the plant, a lot of it is paid and then there’s kind of a retention until commercial production. If you look at the MD&A, we have a simplified game chart that’s there. We have…
David Lalonde
We have some…
Ugo Landry-Tolszczuk
Right. We have somewhere like first ore kind of late Q1, early Q2 kind of thing and then commercial production sometime between Q3 and Q4 is kind of and then ramp-up and commissioning between that.
And so like we’re still — we’re pretty much stick to that. That’s what we had — that’s what we’ve kind of had from the beginning. That’s what we’re kind of sticking to right now. There’s nothing that really indicates that it will be different, but payments will be earlier than that because most of the work is going to be done.
Don DeMarco
Got it. Okay. Thank you for that. Okay. Just shifting to the operations. I seem Q2 that open pit mining of ore commenced in July. Is that a contributor to the increase in mining rates that we saw in Q2 and looking ahead to Q3, Q4, are you going to expect to see those mining rates really increase as open pit accelerates?
David Lalonde
So happy to comment on that. Obviously, we go from 700 tonnes per day to 2,700 tonnes per day. This is quite a bit of a step-up and the open pit will be instrumental to succeed that. In 2023, our plan, our objective is to bring underground mining rate from 700 tonnes per day to 1,200 tonnes per day, which we achieved. So we’re already there. So good news.
For the rest of the year, we will focus on bringing up the open pit production to reach half the mining rate, so around 500 tonnes per day. So indeed, towards the end of — towards Q4, we will see a ramp-up in the open pit. Right now, we take our time. We finished definition drilling in Q1 and Q3 — Q1 and Q2, sorry. And we just started to open up the open pit. So we’re taking our time.
This is the first open pit at Zgounder. We are making sure to get the dilution right, to get the work bench right. So Q3 will be the start of the open pit. We had maybe 2,000 tonnes, 3,000 tonnes in July and we’ll accelerate that mostly in Q4 to reach 500 tonnes per day towards the end of the year and then continue to ramp up next year between underground and open pit to reach our target cruising rate of 2,700.
Don DeMarco
Okay. Excellent. Thanks so much for that great color. That’s all for me. Good luck on Q3, guys. Thank you.
Benoit La Salle
Thank you.
David Lalonde
Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from Puneet Singh, Eight Capital. Please go ahead.
Puneet Singh
Great. Thanks. Just one on strategy. Quite an extensive land acquisition out there with Zgounder Regional and now you make that new acquisition. I just wanted to ask, do you see yourself locking up more land in that area over time or would you first like to see what you have and then make a decision going forward? Thanks.
Benoit La Salle
Yeah. Puneet, this is Benoit. Look, we always look for ground always, always, always, because sometimes things have to be renewed and then we can get additional ground around. It’s a function of the results that we’re getting.
We have permits also to the Southeast that are also very interesting there. David has been working there and we may — look, if we see better things, we will get additional ground. We’re always, always on the lookout, because people have slowly started to come in when we were at Boca Raton two weeks ago at The Rule Conference. Some people came to me companies and said, oh, we’re looking into Morocco now your numbers are so good that we got to see if we can get some ground. I mean, they will — they may try. But I think Morocco is going to get busier. So we’re maximizing the real estate of — it’s got to make sense, obviously, but we’re maximizing the real estate.
Same at Boumadine, David has got its eyes on a few things and it’s normal. And same at Zgounder and Tirzzit, well, it came, it was an opportunity. And look, yeah, and — but we do look at things in Morocco regularly. People do come to us and we take a look, we decide yes or no, and David goes and he will visit it and it’s a function of what we see. But we’re absolutely open to take more ground, absolutely.
Puneet Singh
Okay. Sounds good. Yeah. Yeah. I think you definitely have an advantage being a first mover there. So great. Thanks very much.
Benoit La Salle
Thank you.
Operator
Thank you. There are no further questions. I will turn the call back to Benoit La Salle for closing remarks.
Benoit La Salle
Thank you, Operator. Thank you for the questions. Thank you very much to all of you present. Again, we had a very good H1, good Q1, good Q2. The team is — we’re fully staffed. We have a fantastic team on site here in Canada. We’re, as you know, developing two, three big projects, Zgounder main zones, Zgounder Regional, Boumadine and now Tirzzit. So we have a lot of work for the rest of the year. We also have guidance to meet, which we’re looking forward to and we believe that we will maintain the guidance that we have and we will be able to meet that, so currently, what we’re seeing.
So again, thank you very much. It will be a busy H2 because we have drilling going on extensively at Zgounder and Zgounder Regional. We have Boumadine that has just completed the 36,000 meters and that will be coming out. And obviously, as Ugo indicated and the team, we will sit down as soon as we have all the information and then make some decision on additional exploration going forward.
So also, we will see most — many of you at Beaver Creek. We will see some of you in Denver as well immediately after Beaver Creek. If any of you goes to the Denver Broncos game just make sure to let us know and we will be there.
And so look, it’s — thank you for being there. It’s been a great beginning of 2023 and we’re looking forward to discussing with you and working with you in — for the rest of the year. Thank you very much.
Operator
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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