Alamos Gold Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 9 speakers on the call.

Operator

Good morning. I will now turn the call over to Scott Parsons, Alamo's Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and thanks to everybody for attending Alamos' Q3 2023 conference call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer Greg Fischer, Chief Financial Officer Luc Guillemang, Chief Operating Officer and Scott R. G. Parsons, Vice President of Exploration. We will be referring to a presentation during the conference call that is available through the webcast and on our website.

Speaker 1

I would also like to remind everyone that our presentation Will be followed by a Q and A session. As we will be making forward looking statements during the call, please refer to our cautionary notes included in the presentation, News release and MD and A as well as the risk factors set out in our annual information form. Technical information in this presentation has been Reviewed and approved by Chris Boswick, our Senior Vice President, Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U. S.

Speaker 1

Dollars unless otherwise noted. Now, John will provide you with an overview.

Speaker 2

Thank you, Scott. Starting with Slide 3. We delivered another strong quarter With production of 135,400 ounces exceeding quarterly guidance At costs near the low end of annual guidance. This reflected a solid quarter from Island Gold and another excellent quarter from LIHE GRANDE. With year to date production of 400,000 ounces, we are on pace to achieve a new annual record driven by an outstanding year from the Mulatos district.

Speaker 2

Given the strong performance, we are increasing our production guidance by 5% to a new range of 515,000 To 530,000 ounces. We are also on track to achieve our cost guidance for the year with total cash costs and all in sustaining costs Both below the midpoint of guidance year to date. It was also a solid quarter financially, putting us on pace for a record year Across a number of metrics, including revenue and cash flow from operations. This is giving us the capacity to both grow as a company And generate solid free cash flow, including $37,000,000 in the quarter $109,000,000 year to date. Now looking at Slide 4.

Speaker 2

We continue to create value from within our growth projects. In August, we released an updated feasibility study on the Lynn Lake project with a 44% increase in reserves, supporting a larger Longer Life Low Cost Operation with attractive economics. As part of our balanced approach to growth, Our current focus is on the Phase 3 plus expansion at Island Gold, but Lynn Lake remains a key part of our longer term growth plans As another long life low cost project in Canada with significant exploration upside, which we expect will further enhance the economics of the project. In September, we provided another exploration update from Mulatos, where we continue to extend high grade mineralization at PDA. We expect this exploration success will drive a further increase in higher grade reserves and resources as the deposit beyond The 1,000,000 ounces defined at the end of last year.

Speaker 2

This growth is being incorporated into a development plan to be completed later this year, Which we expect will outline another attractive project and significant mine life extension at Mulatos. Construction of the Phase 3 expansion at Island Gold is advancing well with the headframe substantially complete and shafts sinking on track to start by year end. The project remains on schedule and on budget and we expect to be operating from the shaft and expanded mill in the Q1 of 2026. These projects are key drivers of our strong outlook, supporting growing production, declining costs and increased profitability. I'll now turn the call over to our CFO, Greg Fischer, to review our financial performance.

Speaker 2

Greg?

Speaker 3

Thank you, John. On Slide 5, during the Q3, we sold 133,000 ounces of gold At an average realized price of $19.32

Speaker 4

per ounce,

Speaker 3

dollars 4 above the London PM Fix for revenues of 256,000,000 Total cash cost of $8.35 per ounce and all in sustaining cost of $11.21 per ounce were both towards the low end of full year guidance. We are on track to once again achieve full year cost guidance. Our reported net earnings of $39,000,000 in the Q3 or $0.10 per share Included unrealized foreign exchange losses of $12,000,000 recorded within deferred taxes and other non cash losses of $3,000,000 Excluding these items, Our adjusted net earnings were $55,000,000 or $0.14 per share. Operating cash flow before changes in non cash working capital was 133,000,000

Speaker 4

Or $0.34 per share. Given our solid production growth

Speaker 3

and margin expansion this year, we are on pace for a record year in terms of revenue, Earnings and cash flow from operations. This is driving strong free cash flow generation at a time that we are also investing in growth. This includes $37,000,000 of free cash flow in the quarter and $109,000,000 year to date. We expect the strong free cash flow generation to Continue while funding the Phase 3 plus expansion. Capital spending totaled $75,000,000 in the quarter and included $27,000,000 of sustaining capital, $42,000,000 of growth capital $6,000,000 of capitalized exploration.

Speaker 3

Through the 1st 9 months of the year, capital spending totaled 239,000,000 Consistent with our annual guidance. We paid cash taxes of $3,000,000 in the quarter at Mulatos with a similar payment anticipated in the 4th quarter. We expect significantly higher cash tax payments in Mexico in 2024, reflecting the strong profitability of Mulatos in 2023 The $115,000,000 of free cash flow generated from the operation year to date. Our balance sheet continues to improve with our cash balance growing to 2 $15,000,000 a 14% increase from the previous quarter and a 66% increase in the start of the year. We remain debt free Well positioned to fund our growth initiatives.

Speaker 3

I will now turn the call over to our COO, Luc Guillemant to provide an overview of our operations.

Speaker 4

Thank you, Greg. Moving to Slide 6, Young Davidson produced 45,100 ounces in the quarter, Consistent with the previous few quarters with record milling rates of 8,200 tons per day offsetting slightly lower grades. Costs were in line with annual guidance both in the quarter and year to date. Grades are expected to increase in the 4th quarter as we Mine higher grade stopes that have been deferred from the Q3. This is expected to drive production higher in the 4th quarter, Putting the operation on track to achieve full year production and cost guidance.

Speaker 4

The operation continues to be a consistent performer with mine site free cash flow of $31,000,000 in the quarter $83,000,000 year to date. For the 3rd consecutive year, Young Davidson is on track to deliver more than $100,000,000 in free cash flow. Over to Slide 7, Island Gold produced 36,400 ounces in the quarter, a 19% increase over the 2nd quarter, Reflecting both higher grades and tons processed. It was a strong quarter operationally with mining and milling rates both increasing to exceed annual guidance 1200 tons per day. This helped drive costs down from the Q2 towards the low end of annual guidance.

Speaker 4

Given the strong year to date performance, including production of 100,000 ounces, the operation is well positioned to achieve full year production and cost guidance. Over to Slide 8. Work on the Phase 3 plus expansion continues to progress with the focus on completion of the remaining shaft site surface infrastructure. Construction of the headframe is substantially complete as is construction of the shaft area substation. Pre commissioning tests on the E House electrical systems have commenced And construction of the warehouse is well underway.

Speaker 4

Outfitting of the Galloway to be used in the shaft sinking is over 50% complete, Putting the shop sync on track to start by year end. Over to Slide 9, a total of $35,000,000 of capital related The Phase 3 plus expansion and capital development was spent in the quarter. The expansion remains on budget with 45% of the total initial capital of $756,000,000 spent and committed to the end of September. With the shaft site surface infrastructure nearing completion, Spending will shift towards the shaft sinking later this year and the mill expansion and paste plant into next year. The overall expansion remains on track to be completed in 2026, transforming Island Gold into one of the largest, lowest cost And most profitable mines in Canada.

Speaker 4

Moving to Slide 10, at Mulatos, Production of 53,900 ounces was down from the Q2 as guided, reflecting the return to design mining rates of La Yaqui Grande And end of mining within the main Mulatos pit. La Yaqui Grande continued to outperform with grades exceeding guidance due to positive grade reconciliation. Mine site free cash flow was $31,000,000 in the quarter and an impressive $115,000,000 year to date. As previously guided, production is expected to decrease in the 4th quarter, reflecting the end of the Mulatos pit and a decrease in grades guided To guided levels at La Yaqui Grande.

Speaker 2

With year to

Speaker 4

date production of 164,700 ounces, Mulatos is on track to exceed its full year guidance driven by the strong outperformance from La Yaqui Grande. Costs are expected to increase in the 4th quarter but Remain within guidance for the full year. Moving to Slide 11, as John noted, the updated feasibility study on the Linden Lake project outlined a bigger, longer life and more attractive operation relative to the 2017 study. The updated study incorporates 44% larger mineral reserve and a 14% larger mill at 8,000 tons per day. Production over the 1st 10 years is $6.99 per ounce.

Speaker 4

Over the last several years, we have completed an extensive amount of additional engineering, geotechnical and other work, Including obtaining approval of the environmental impact statement back in March. This work has significantly de risked the project, Provides us with a high degree of confidence in the capital and operating cost estimates. These estimates support attractive base case economics for And our current gold prices represent a 22% after tax internal rate of return. We also see significant upside potential given several near mine and regional exploration opportunities that could be incorporated into the project. Under the current mine plan, the McClellan and Gordon deposits will be mined over the 1st 11 years.

Speaker 4

For the remaining 6 years, we will be processing lower grade stockpiles. With our fleet of mining equipment available from years 11 onward, We are evaluating several nearby targets such as burnt timber and liquid as additional sources of mill feed. These deposits represent upside to the feasibility study as they would help sustain higher rates of production well beyond the 1st 10 years. To review that upside in more detail, I will turn the call over to our VP of Exploration, Scott RG Parsons. Thank you, Luke.

Speaker 3

Over to Slide 12. In August, we provided an exploration update of Limb Lake, highlighting the significant upside potential across a number of near mine This includes burnt timber and liquid, 2 deposits in proximity to the planned mill at McClellan that could potentially be incorporated into the mine plan. Are located approximately 28 kilometers away from the McClellan site and are connected by an all by existing all season road. The 2 deposits contain 1,600,000 ounces of inferred resources that were not factored into the feasibility

Speaker 4

study. Updated geological models have

Speaker 3

been completed on both deposits, Demonstrating the potential for a smaller, higher quality mineral resource. We see excellent potential to truck this to McClellan Mill Infrastructure after the McClellan deposit This would not only help sustain higher rates of production well beyond the 1st 10 years, but also extend the mine life and enhance the project economics. Maynard is a similar stage target with similar potential as another satellite deposit located 20 kilometers by road from the planned mill. All 16 holes drilled and made to date have intersected gold mineralization over 700 meters strike length and to a depth of 280 meters. This includes higher grade intercepts such as 5.9 grams per ton over 12 meters.

Speaker 3

These are just a few examples of the potential that we see across the Lynn Lake Greenstone Belt, A large under explored district. We'll be starting with a 17 year reserve life based on the updated study. However, given the opportunities we Across our 58,000 hectare land package, we fully expect to be mining in the district well beyond that. Over to Slide 13. September, we announced the 2nd exploration that's updated here in Mulatos, where we continue to have success, both regionally and near mine.

Speaker 3

At PDA, Step Out Drilling has further extended high grade mineralization beyond reserves and resources, which will support additional growth beyond the currently defined 1,000,000 ounces. We are currently working on an updated reserve based on drilling at the end of July and we'll be incorporating that in an updated development plan be completed towards the end of the year. We expect that we'll outline another significant mine life extension at Mulatos. Based on the success of the program to date, we've increased our exploration budget of models for the 2nd time this year to $25,000,000 This includes drilling at PDA through the rest of this year with 50,000 meters planned, up from the original budget of 16,000 meters. We are still in the early stages of testing the potential within the broader PDA area.

Speaker 3

Based on success to date and with the deposit open in multiple directions, We see excellent potential for PDA to continue to grow in the years ahead. We also released additional results from the Capital One regional target located 4 kilometers Heath of the Mulatos Pit. Depot drilling continues to intersect wide intervals of significant oxide and sulfide mineralization Within Abrecha along the Kaplan Fault. This included 2.7 grams per ton over 121 meter core length, the best hole drilled to date at Kaplan, Highlighting the significant potential in this area and within the broader Mulatos District. With that, I'll turn the call back to John.

Speaker 2

Thank you, Scott. So that concludes the formal presentation. I'll now ask the operator to open the call Open the lines for your questions.

Operator

Thank Our first question is from Cosmos Chiu. Please go ahead. Your line is open.

Speaker 5

Thank you, John, Greg, Duke, Scott and Scott. Congrats on a very strong Q3 and good to see that you were able to increase your guidance for the year On production, not cost, in production. Maybe first off in Mexico, as you mentioned, Yaki Grande has done really well year to date, positive grade reconciliation. But at the same time, you say that grade will likely I'll turn back to more normal levels. So I just want to know what happened here?

Speaker 5

Why were you able to have very positive rate of reconciliation? Is there potential for it to continue?

Speaker 4

Hi Cosmos, it's Luke here. Yes. Our expectation is that we will be more in line with our grades as we move forward. We won't necessarily see that over What's really happening as we get deeper into the benches of Bahia Grande, the drill density gets tighter. So we expect to see more consistent Performance actual versus our model moving forward.

Speaker 5

Understood. And then maybe sticking with Mexico, quite a bit of noise these days in the country of Mexico, Either the security issues for some of your peers or the ongoing potential changes to mining law, Could you maybe talk about is there any potential impact to or has there been any potential impact to Alamos?

Speaker 4

Hi, Cosmos, it's John.

Speaker 5

Hi, John.

Speaker 2

I would say that you can never rule anything out just given It could happen in Canada. I think everybody recalls we had a big gold heist at our airport here at Pearson. So I don't think you could ever rule anything out from that point of view. But I would say that we've been operating in Mulatos for a long, long time. We've significantly increased security over the last 5 years.

Speaker 2

And on top of that, The Mexican government has stepped up security in the region quite significantly. There's a lot of mining operations in this part of Mexico. And I would say the Mexican Government cares a great deal about that. So I don't see anything Particularly unusual about where we're operating. I think it's Okay.

Speaker 2

As secure as it's ever been, we've been operating there for about we've been there 22 years now. We've been in production for 19 of those years. And We've only ever had one real incident. So I would say looking forward, We're pretty confident that our site continue to operate without any unusual impacts.

Speaker 5

Okay, sounds good. Maybe switching gears a little bit to Island Gold, it sounds like the Phase 3 plus expansion is going well. It sounds like all the surface infrastructure is almost complete. Now comes the As we moved into shaft sinking, maybe could you talk about some of the key deliverables, Even key risk in terms of what the next sort of stage of the project entails. Clearly, it's not your first rodeo, John.

Speaker 5

You've done the shop sinking thing I've done this in the past. Does that help? I guess that was raised for and this is a bit different, But does that help? Can you talk about what we should expect with the next stage of shop syncing with The expansion of some of the key factors you're looking at?

Speaker 4

Yes, Cosmo, Luke here. So we're in the final stages of actually getting The requirements for gearing up of the shop to be able to start the sinking, our expectation is that we will start that through Near the end of Q4 and getting the shaft on a consistent basis, obviously and continue with the benching aspect. I mean, We're using a reputable contractor, Redpath Mining have done shafts all over the world, certainly in Canada, but all over the world. So we're not obviously With them being able to deliver on what their expectations are. Once they get

Speaker 6

the setup completed and

Speaker 4

they get the cycle going, our expectation is that we would be Thinking at about 3 meters per day over the next couple of years until the shaft is completed late 2025.

Speaker 5

Great. And then maybe one last question. Greg, as you mentioned, very profitable in Mexico this year, which also means a Larger tax bill next year. Could you remind me when does that large payment come out? When would it come out?

Speaker 5

How can we potentially estimate what that payment is going to be?

Speaker 3

Yes, Cosmos, it's Greg here. So yes, the Year end tax filing is due in March. So the payments to for the 2023 tax bill would be due in the Q1 Of 2024 and that would relate to both income taxes and mining taxes, we have paid about $3,000,000 this year. We're going to in The Q3 and about $3,000,000 in the 4th quarter, but given our profitability, there will be a pretty significant catch up when we Filed that final tax bill in March of 2024.

Speaker 5

Great. Thank you. Those are all the questions I have. Congrats again on a very strong Q3.

Operator

Thank you. Our next question is from Mark Parkin. Please go ahead.

Speaker 7

Thanks guys and congrats on a great quarter. Could you just speak to the Island project? What is the critical path And what's kind of budgeted in there for it? And do you have any kind of flexibility to I'd add a night shift gear it up if it did prove to show any signs of falling behind schedule.

Speaker 4

Hi Mike, Luke here. As I mentioned earlier with the previous question, right now our main focus has been around the shop setup Shaft sinking in preparation for that. And certainly the head frame and everything is well advanced and we're in the final stages of preparing to commission for the shaft So our expectation is late Q4 we'll start that process. As I mentioned, we've got a reputable contractor that's got a Lot of expertise and skill set to complete that on time and on budget. We fully expect them to be able to do that.

Speaker 4

The other components that we've been certainly working on with regards to the Phase 3 plus expansion is the detail engineering for the mill expansion as well as the base plant. So those have been ongoing over the course of this year and we'll start to get into more serious aspects of the construction into next year and 2025 with regards to both of those components. And the other component that's required for us is obviously an upgrade to our Existing power distribution to the site, we will be basically doubling our load from where we are today. And we are certainly currently working on that as well to have Structuring timeline to have that all in place as well. Once all the other components of the Phase III Plus expansion are completed to start up in Q1, end of Q1, 2026.

Speaker 4

Great.

Speaker 7

A follow-up for Greg. Can you just remind me what was the budgeted Canadian dollar? And are you guys Looking to take advantage of the current weaker, I would assume, weaker Canadian dollar versus budget to just help Give you a bit of additional tailwind on that project?

Speaker 3

Yes, we had budgeted at $0.75 So the The weaker Canadian dollar will help from a CapEx perspective, but also on our operating costs through our existing operations.

Speaker 7

And can you just remind me roughly like what percentage of the CapEx would be Canadian? I guess probably all your labor And contractor would mostly be CAD, I imagine it's pretty high.

Speaker 4

Mike, I'll have to get

Speaker 3

back to you on that. I don't have the Right now, but I'll take that offline.

Speaker 7

All right. Thanks. And then, obviously, some pretty exciting news coming out later this quarter with PDA. Can you just give me is there any ability to talk about like you're already at 1,000,000 ounces of total resource You bumped up the budget on the drilling a couple of times already this year, recognizing that you've got the July cutoff. But it seems like things are going really well there.

Speaker 7

Do we have an idea of what we should be kind of thinking of in terms of scale? Like it seems like it's getting bigger and bigger and bigger. Is it going to be possibly a project that you would phase, like do a Phase 1 and then as it opens up, Adding a second processing line in the mill, what is there anything you can kind of talk to?

Speaker 4

Mike, it's Luke here again. Yes, so I mean still kind of early stages. I mean we've just recently completed some of the geotech drilling required for the mine design aspect The operation and in that mine design we'll put a mine plan together. We've also in conjunction in parallel been working through some technical Studies with regards to the metallurgy and the mill design. So our expectation is we will have a Development study completed by the end of the year with some preliminary numbers with regards to mining rates and supporting milling rates.

Speaker 4

I mean, high level at this point, I mean, we've been kind of targeting 2,000 tons per day based on what we've seen so far with regards to the success we've had with the exploration And some early review of what we've been seeing with regards to the mine design and mill design. But I mean there's always opportunity for expansion. I mean we Certainly start on that basis with the mining rates, but mining rates can certainly increase over time if it's supported based on the geometry of the ore body and the strike length of the ore body. And obviously with regards to expanding the mill to support a higher mining rate, that opportunity also still exists. I mean, you can always add Components to that mill circuit to be able to expand to a higher milling rate if required.

Speaker 7

And Do you guys have power to site now or you would have by the time you would build TDA?

Speaker 4

We're currently still on diesel generation, but We're in the process of doing a conversion from diesel generation power to the site to grid power and the expectation on that would be by the end of this year. So that will provide obviously further upside for the longer term with Yaki, but also with PDA and any other opportunities to develop within our Volatos district. Okay.

Speaker 7

So the PBA study would assume grid power connection?

Speaker 3

Correct. Okay.

Speaker 7

That's it for me, guys. Thanks so much.

Operator

Thank you. Our next question is from Ove Abib. Please go ahead.

Speaker 6

Hi, John and Alamo, Steve. And congrats on the Q3 fleet and increased production guidance. Just a couple of questions for me. Number 1, in regards to the parallel structures that was discovered at Alangol. At the site trip in midsummer, you mentioned that you had already started to mine some of these structures.

Speaker 6

Now are we expecting to see some of these ounces from these structures in Q4 and going in 24. Essentially, what I'm trying to ask is, are these ounces expected to come into the Highland Gold Mine Plan in the future?

Speaker 4

Hi. Yes, it's Luke here again. Yes, I mean, we have started mining some of those certainly some parallel zones in the North South zones that we've talked about previously. So we started some of that late in Q3. There's opportunity certainly to bring some more of that into Q4.

Speaker 4

But as we further Understand it and develop it, we'll actually start to yes incorporate that into the mine plan over the longer term.

Speaker 6

Okay. Sounds good. So there's eventually in terms of what you see in terms of

Speaker 4

the firewall structures, they're closer to existing infrastructure. So It's not like you'll have to do a lot more development to access these zones? No, because I mean, these are kind of running off of the east west Striking zones that we're currently mining and from a sequence perspective actually it makes more sense to incorporate these into the mine plan as we're in those areas. Just from a point of view of just following a proper sequence and being able to basically extract the zones and retreat In those areas based on our launch tool and retreat mining method.

Speaker 6

Thanks for the color on that, Luke. Just switching gears to PDA, just a Follow-up, Paul, to Mike's question. I believe the expectation is to release a new mine plan in Q1 next year. So in regards to the advancement of PDA, what kind of permits would be required and do you see any risk through those permits?

Speaker 4

Sorry, that was in relation to PDA?

Speaker 2

That's correct.

Speaker 4

Yes. So as I mentioned there, we're looking to have a development study out by the end of the year, End of Q4 to Q1 at the latest. With regards to permits, we've basically within our all of this, The mining and the milling operations will be all within our existing concessions. So it would be just a question of getting an amended Mia basically which is what it's Refer to in Mexico, because of the fact it's not new processes. We've done underground mining there in the past.

Speaker 4

So it's not new to the district. We had a milling process as well, a conventional milling process in the past as well. So that's not new to the district. And as a result of that, We would just be looking to get amendments to our existing NIS to be able to construct the new requirements for the mine and milling operations for PDA.

Speaker 6

Perfect. Thanks a little for that. And that's it for me, and thanks for taking my questions.

Operator

Thank you. Our next question is from Kerry Smith. Please go ahead.

Speaker 8

Thanks, operator. Luke, For the Phase 3 at Ireland, you have $162,000,000 for development underground And you've completed $64,000,000 Can you just remind me how many meters of development is included in that $162,000,000 number?

Speaker 4

I'd say it's at least a couple of kilometers plus on that one, Kerry. I'd have to get back to you to Get a more firm number, but that's in relation to all of the shaft access development, all the other development that's required to establish that Infrastructure as far as crushing rock breakers, loading pocket, everything associated with all of that infrastructure for the underground. But I'd have to get back to you with a firm number on that.

Speaker 8

Okay. And that's and you're doing that development with your own crews, correct?

Speaker 4

Correct. For the most part, I mean we do still have Redpath doing some of the development, the shaft ramp access Development, but starting next year, it will be 100% development crews.

Speaker 5

Yes, okay.

Speaker 8

And so those costs should be pretty much in line because you're using your own guys.

Operator

Okay. Thank you. And

Speaker 8

then maybe for, either you or Scott, the 444 meters of underground drifting that you had planned for the exploration underground at Island, Is that drifting all complete now or is there still some more of that to complete this year?

Speaker 3

Yes, Kerry, it's Scott. It's It's ongoing obviously throughout the year and sequenced into the development schedule. I mean, we were advancing laterally at the West and East side of the deposit, So multiple levels and then also on our Haney Wall exploration drift on 945. So we'll do it kind of systematically as we get Drill off the targets from that drill bay will advance the development as required. So it's kind of ongoing throughout the year.

Speaker 8

Okay. I got you. And then Greg, just so I'm clear, the $2,700,000 of cash taxes you paid At Mulatos in Q3 and then you're forecasting a similar amount in Q4, those will be prepayments against the taxes due in March of next year, correct?

Speaker 3

Correct. Those are installment payments with respect to our 2023 tax bill.

Speaker 8

Right. Okay. Okay, perfect. Thanks very much.

Operator

Thank you. There are no further questions at this This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416 3,689,932. You may now disconnect.

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Earnings Conference Call
Alamos Gold Q3 2023
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