Q2 2020 Alamos Gold Inc Earnings Call
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All participants please standby your conference is ready to begin.
Good morning, I wouldn't like to think that meeting where it comes to GE border Chief Financial Officer. Please go ahead Sir.
Thank you operator, and thanks, everyone for attending Alamosa second quarter 2020 conference call.
In addition to myself, we have on the line today, both John Mccluskey, President and CEO and Peter Macphail COO.
We will be referring to a presentation. During the conference calls is available through the webcast and on our website.
I would like to remind everyone that are presentation will be followed by Acuities session.
As we will be making forward looking statements during the call. Please refer to the cautionary notes included in the presentation news release and Mdna as well as the risk factors set out in our annual information form.
Technical information. This presentation has been reviewed and approved by Chris Bostwick, Our Vice President of technical services in a qualified person also please bear in mind that all of the dollar amounts mentioned in this conference call or in us dollars unless otherwise noted.
With that I'll turn the call over to John to provide you with an overview.
Thanks, very much Jamie.
Good morning, everyone and welcome to the call.
We had a reasonably good second quarter, despite having to adjust to operating in a challenging cobot 19 environment.
Importantly.
We advance several of our key growth initiatives, which culminated in the completion of the lower mine expansion at young Davidson.
You now spent at the phase three expansion at island gold.
And the Yaki grounded construction decisions earlier this month.
With respect to our operations, we produced 70400 ounces of gold in the second quarter production was impacted by temporary suspensions at island gold and allowed us for more than a month.
It's a cobot 19.
Consolidated total cash cost $933 per ounce following sustaining costs of $1276 per ounce were also affected.
Given the impact of Cobot 19 on our second quarter results. We've revised our full year 2020 production guidance slightly lower to 405000 buses to 435000 ounces.
We also made minor revisions to our cost guidance with total cash cost guidance increasing 3%.
To range between $780 to $820 per ounce and all in sustaining cost guidance increasing 2%.
To 1030 to $1770 per ounce.
This primarily reflects higher cost at young Davidson and the second quarter due to the delay and completing the tie it.
With mulatto Sun Island gold resuming operations in May and returning to normal operating levels in June.
And the lower mine expansion at young Davidson completed earlier. This month, we expect much stronger production significantly lower cost in the second half of this year.
Moving to slide four.
As previously discussed on our quarter call, we implemented increasing increasingly strict.
Health and safety protocols across the company with the emergence of covert 19.
Ranging from medical screening pro personnel prior to site entry to social distancing processes across our operations.
At the beginning of May we began.
Safety wrapping up operations at island Gold and did the same as molotovs towards the end of the month.
All of our minds are now operating at normal levels, albeit under strict health and safety protocols.
These protocols continue to evolve as we look for the best ways to keep our workforce communities safe.
Our strong outlook is detailed on slide five.
We started the year working towards several significant catalysts as part of a transformational year for animals.
Earlier this month, we delivered on three of these catalysts.
The completion at the lower mine expansion at young Davidson will be a step change for that operation, meaning higher production lower costs and lower capital going forward.
This will be a big driver a strong company wide free cash flow growth in the second quarter second half of 2020 and beyond.
At Island Gold the phase three expansion will double the mine life and give us a bigger lower costs and even more profitable operation.
Finally, the Lee Aki Grundy project.
At low cost high return production to the Molotovs complex.
But I haven't Golden Bolanitos operating at normal levels Young Davidson wrapping up to 7500 tonnes per day, we expect higher production and much lower cost costs to just to drive strong free cash flow growth in the second half of this year.
I'll now turn the call over to our CFO, Jamie Porter to review our financial performance Jamie.
Thank you John.
Moving on to slide six in the presentation, we sold 74600 ounces of gold at a realized price of $1692 per ounce for revenues of 126 million in the quarter.
Total cash cost of $933 per hour were temporarily higher primarily reflecting the cobot 19 related delay we completed the lower mine expansion at young Davidson.
All in sustaining costs of $1276 per ounce were also impacted by sustaining capital being spread across lower production and all of our operations.
As John mentioned, we expect cost the decrease significantly in the second half of 2020.
Despite the downtime at lower production and Mike at lots and island gold during the quarter, both operations performed well generating 19 million and 9 million of mine site free cash flow respectively.
Operating cash flow before changes in noncash working capital was 45 million or 11 cents per share in the second quarter. Our reported net earnings of 12 million or three cents per share included unrealized foreign exchange gains of 10 million recorded within deferred taxes, partially offset by cobot 19 cost and 6.5 million at island gold at mulatto and other onetime.
Losses of 1.9 million.
Excluding these items, our adjusted net earnings were 10 million or three cents per share.
Okay.
Capital spending totaled 55 million in the second quarter, including $14 million maintenance capital 39 billion of growth capital and 1 million of capitalized exploration majority of the growth capital was spent on completing the lower mine expansion at young Davidson advancing work on the tailings facilities at both young Davidson and island gold and other infrastructure projects that I was.
Yes.
With the announcement of the phase three expansion at island gold and the positive construction decision for light Yankee Broad day, we're increasing our capital guidance for 2020, we now expect to spend between 205 at 235 million. This year, an increase of 25 to 30 million from our previous guidance. This includes an expected 20 billion an increase in growth capital.
What islands, and a 10 to 15 million increase that mulatto for the development of lack of growth.
This was partially offset by lower capitalized exploration at island gold with exploration activities, having been suspended for that part of the second quarter.
We repurchased an additional 527000 shares under our share buyback program early in the quarter at an average price of Usfive dollars and five cents per share more than 50% below our current share price.
We also paid a quarterly dividends at $6 billion in June.
Total we've returned 9 billion shareholders in the second quarter and 17 million year to date.
We ended the quarter with half of $201 million 30 million of equity securities and $400 million of additional liquidity. This includes the 100 billion drawn on our 500 million revolving credit facility, the first quarter to enhance our financial flexibility given cobot, 19th we have no additional debt.
With the completion of the lower mine expansion at young Davidson, we have transition from a reinvestment phase through a period of strong free cash flow growth.
We are well positioned to fund our internal growth initiatives will also growing or net cash position and returning additional capital to our shareholders in the form of higher dividends.
Ill now turn the call over to our COO, Peter Macphail to provide an overview of our operations Peter.
Hi, Thank you Jamie.
Moving to slide seven.
Davidson produced 23100 ounces in the second quarter total cash cost of 1500 $64 per ounce.
Mine site, all in sustaining costs of 1800 $9 per ounce.
Production and cost were impacted by the Northgate shaft being down for the entire quarter to complete the tie into the upper lower minds.
As previously announced this was delayed about a month into July due to covert 19 really related labor constraints.
During the downtime or was truck to surface from remnants stopes in the upper minded breed of approximately 2700 tonnes per day.
Given the delay we have revised our full year production guidance at young Davidson 235000, 245000 ounces and increased our cost guidance.
With the lower mine expansion now complete we are expecting a much stronger second half production increasing to a range of 83000 93000 ounces and total cash cost decrease in sharply to between 800 $840 per ounce mine site all in sustaining costs, increasing did between 990 and $1030 per annum.
Over to slide eight.
The completion of the lower mine expansion is a significant milestones game changer for the operation.
We're now operating from the new infrastructure that bigger more efficient and more productive.
Underground mining rates increased from approximately 2500 tonnes per day earlier. This month 6500 tonnes per day currently and are expected to continue to increased to 7500 tonnes per day by the end of 2020.
In addition to driving production higher to over 200000 ounces annually will also drive costs lower.
Furthermore, with the completion of the expansion or capital spending will trend lower going forward.
Collectively we expect this to drive strong free cash flow growth starting in the third quarter.
Moving to slide nine.
I would gold produced 19400 ounces during the second quarter total cash costs of $501 per ounce mine site on skin sustaining costs and $781 per annum.
Production was lower reflecting temporary suspension of operations from the last week of March to the end of April.
We began a phase restarted the operation in early May the operations performed well within the mines mining and milling rates, increasing average blunt 1200 tonnes per day in June.
Mine grades of 7.28 grams per tonne for the quarter were impacted by the deferral of high grade stopes into third quarter as such mine grades are expected increase in the second half the year.
Given the downtime to second quarter, we've tightened our full year production guidance to between 130 240000 ounces locate keeping cost guidance unchanged.
Looking to the second half of the year, we're expecting stronger production, reflecting higher grades in mining rates.
Moving to slide 10.
I don't gold is already a very profitable lines for the outlined in the phase three extension study, it's going to grow into need more profitable operation.
After an extensive review of multiple scenarios the shaft extension to 2000 tonnes per day was clearly the best option will take this operation forward, having the strongest economics being the most efficient and productive and far and away, having a lowest operating costs.
Over to slide 11.
Following the completion of the shaft in 2025 gold production will increase to averaged 236000 ounces per year and industry low all in sustaining costs pulp hone sustaining costs of $534 per hour.
Had a 70 850 gold price, which is starting to look conservative Bolton spot prices I will generate more than 200 million and free cash flow year.
Clearly the best option based on what we know now.
Furthermore, the shown on slide 12 shop gives us the greatest exposure to future exploration upside, particularly at depth.
The deposit is open latterly down plunge and we're confident that reserve and resource grade base will go further.
The shop gives us the future flexibility to ensure we capitalize on that growth.
For additional information on the shaft expansion in the benefits that will bring I encourage you to visit our website to review the webcast. We held on July 15th.
Moving on slide 13.
Molotovs produced 35900 ounces in the second quarter total cash cost of $750 per ounce minds, I don't see any costs of $890 per ounce.
Despite the temporary suspension of operations in April and through most of May launch was performed well benefiting from a large inventory of ounces stacked on the leach pad prior to the shutdown.
Well the lower tons mined in stacked during the downtime not have a significant impact on the second quarter is expected to have some impact on production second half of the or as a result, our full year production guidance and street decreased.
I wasn't ounces to 140 to 150000 ounces well cost guidance remains unchanged.
Moving to slide 14.
Looking ahead Lucky brand they will be a big part of the future Blocos significant driver of lower cost.
Earlier this week, we announced results of the positive internal economic study unlikely Grundy highlighting is as our next low cost high return projects in the modules district.
At our base case gold price assumption of 1400 $50 per ounce La Yaqui ground. They had an after tax IR, 41%.
17, 50 per ounce the return increases to 58%.
This follows similarly high returns for our La Yaqui Phase one can circle loan operations and highlights the type of potential in lots of district.
They actually Grundy is fully permitted and expected to produce 123000 ounces.
Per year, starting the third quarter 2022, and mine site also state sustaining costs of $578 Brown.
This will replace higher cost production from the main Milan spit.
Keep in combined production at around 150000 ounces per year, but at substantially lower costs.
Initial capital of 137 million is expected be spent over the next two years starting in the second half between 20.
We expect Meloxicam self financed developments of light Yaki ground.
With that I'll turn the call back to John.
Thanks, very much Peter time, we'll now open the lines.
To your question and without I'll ask the operator two.
To take over the call operator.
Thank you.
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The first question is from a cost most Q from CNBC. Please go ahead. Your line is now.
Hi, Thanks, John Jamie and Peter for the conference call. Maybe first off my question is on La Yaqui grown day good to see the positive decision that was made two days ago and a very strong.
But to Chris could you remind us in terms of no. The capex profile. The timing I think you touched on it and how that kind of fits in in terms of the capex needs for island gold phase three.
Cosmos its its Jamie here I guess I can take that.
We announced in the press release this the total capital for the project is that a 137 million U.S. I believe we should spend between 10 and 15 million of that this year and that's the reason for the slight increase in brought on capital guidance for the remainder for the second half was 2020, and we spend up to 100 million.
That in 2021 so.
I mean at these gold prices mulatto is able to entirely self finance that so if you look forward into 2021 young Davidson at these prices is generating 140 150 million in free cash flow melodic or islands and Molotovs are both generating about 50 million in free cash flow net of all their capital related to.
The phase three expansion at island at La Yaqui grounding construction Apple autos.
And how does I saw that you know the bulk of that Capex is going to come before getting to say any kind of money on island gold.
Thanks, that's right I mean, we'll we'll start next year, we have some capital related to phase three ASM growth capital in our island budget for 2021, but net of that islands still generating 50 60 million of a a free cash flow once like Yaqi grown day as Phil you've got both young Davidson and Molotovs generating well north of 100 million to Europe.
Free cash flow and island able to sell finances as the majority of the phase three expansion. So we're very well positioned we're not going and easy to use much if any of our balance sheet, rather that this growth will be entirely self finance.
And then.
Nothing is going to happen but.
Well, certainly Turkey, what if that comes back and what if you need to restart sort of construction and Turkey.
How does that kind of fit into the picture in terms of capital allocation.
Yeah, I think from a spending perspective, it would be you don't forget the permit reinstated it would be six to 12 months before we start to heavily ramping up spending and you know the project has that north of 100% higher are at the school prices. So it's obviously something we'd want to go ahead with with.
Minimal additional capital, where we're talking about a 130 million U.S. of incremental capital. So we'd have we definitely have the ability to move forward with that as well.
And that maybe a bit more on the hockey grown day here as you mentioned your press release, you know a lot of that or is going to be replacing higher cost production coming from a models, but is there any kind of scenario whereby it will be in addition to you know bolanitos main pay production whereby you know instead of underpinned.
2000 ounces you could say you know the pushing upwards to 200000 ounces, which you know I believe that would autos, that's where it was one point in time, you know many years ago, but is there a scenario whereby that could happen.
Yeah, I think I'd are under our existing plants I mean, we've got about six different sources of of Oracle autos between therapy alone Lackey broad day to various molotovs pets and the stockpiles. We have so our our plan is to have a relatively smooth production profile, averaging around 150000 ounces over the next.
Six years, we do have the flexibility to increase production, particularly at La Yaqui grown day bye.
Really just adding trucks and increasing the mining rates. So that's something we we could consider it made sense to do so but having a sustained.
Increase in production above 200000 ounces, a year would would require us to have some success on the exploration fronts.
Of course, and maybe maybe a question on the financial side here.
Certainly I don't know the forecast this but the U.S. dollar Canadian dollar nowadays it seems like the Canadian dollar strengthening against the U.S. dollar.
Maybe Jamie Cook, who it I'll remind us of the hedging strategy, how much is being hedged right now and how we should look at it on a go forward basis in terms of I don't want to call a risk mitigation on the foreign exchange a component, but I guess, that's what it is.
Yes, it's certainly so weve as of as of today, we've got about 50% of our Canadian dollar exposure hedged for the for the remainder of 2020 odd a pretty tight color range between 70 476 cents. So spot is right in the middle out of that that range currently and that's certainly what we try to do we use callers to try to approach.
It's made our our budget at Ray, which was 75 sets for the year. So is it it's short term in nature. We don't generally go out to two firework, we're starting to look into Q1 of next year.
But yes, it's a fairly conservative FX hedging program and we tend to keep it that way.
And then one last question about.
This covert 19, you know certainly.
Q2 was impacted but it sounds like you have a lot of protocols in place.
And you know you're in a good place, but based on observations up until now you know any kind of a permanent changes permanent impact that we could expect on a longer term basis, you know in terms of.
Costs in terms operations in terms of efficiencies anything on that front.
Yeah, I think from I mean, you would've seen it with our revised guidance or cost guidance is effectively flatly, a slight increase relative to what we what we published at the started the year.
The Kobe cost we reported in our Q2 financial statements of 6.5 million those were incremental related to the temporary suspension of operations at island Molotovs, We don't expect those to recur you're not going to see called the costs in our financials going forward in less we are required to said one of the operations again because of that because I know for.
Or something else.
The impact on our operations and productivity I think is fairly muted, we're saying less less than 5% and at least for 2020 as it's certainly been offset by the the weaker currencies and and then diesel prices that we've seen but we we wouldn't expects the changes that we've made to have a material impact on our cost structure at any.
All of our minds.
Great. Thanks, a lot those all the questions. Thank you.
Thank you.
Your next question is from Us.
Gary Smith from the Haywood Securities. Please go ahead. Your line is now open.
Hey, separator.
Peter if you say that you'll be at 7500 tonnes a day.
From the underground at why de by the end of the year, how long will take you to get to 8000 tenant day, roughly if that does it take another six months to get there so that would be the middle of next year.
Hey, Gary.
Oh.
I don't know we haven't we haven't entered into our budget setting yet, but you know I would expect it will be getting at 8000 at some point next year in 7500 tonnes a day.
And we'll see we'll see as we go through this.
The latter half of this year, but I mean.
Mine is currently really well positioned I would say, even with all that brand new infrastructure.
Lots of broken or underground lots of drilled off or undergo we're in pretty good shape right. Now so yeah, we'll see I don't want to give you a prediction.
Okay, and then just a second question on why Dean.
Do you plan to maintain any sort of a surface stockpiles from underground or you're just going to have that are the final Robbins underground the 6000 tons for access sort of or.
Yeah, I mean it could.
We could end up with the an underground.
Ore stockpile on surface it depends on on.
You know during they'll shutdowns and things like that would you put a little bit out into yard we have to be capability of doing that we wouldn't expect it to be significant though we've got lots and we've gone from as you know something like [noise].
Oh, very minimal Nada stories, like five 500 tons and storage in the in the upper might infrastructure to cheese, Yes, six 7000 times the storage currently skin in the lower might infrastructure. So we've got to.
Well we've got.
Reasonable amount of storage. He also of storage of course in in stopes and things like that so maybe we've got.
We're much better place than we've ever been okay, but it's I mean is is a day a day of storage capacity, Dave milling capacity is enough in terms of stores. It just seems like you'd probably want to have a bit more I guess is what I'm wondering yeah, we'll probably end up with a few days on surface to too.
To go to if we have to just to manage okay. Okay. That's great. Thanks.
Thank you once again, please press star one on your telephone bad if you have a question or comment.
Oh.
There are no further question at this time. This concludes this morning's call.
Any further questions that not have not been answered please feel free to contact Mr. Chicago person.
For 16368993 too.
3689932 extension aside for three nine.
Thank you for your participation.
Oh.
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