Q4 2020 Alamos Gold Inc Earnings Call
This conference is being recorded so it of course the homes that don't have as you see.
All participants please stand by your conference is ready to begin.
Good morning, how and when I'd like to turn the meeting over to Mr. Jamie Porter Chief Financial Officer. Please go ahead Mr border.
Thank you operator, and thank you to everyone for attending Alamos fourth quarter and year end 2020 conference call and in addition to myself we have on the line today, John Mccluskey, President and CEO, Peter Macphail, COO, and Scott RG Parsons Vice President of exploration.
Dress any questions with respect to our reserve resource update we also have on the line Mr. Chris Bostwick, our vice President of Texas.
We will be referring to of presentation. During the conference call the available through the webcast and on our website I would also like to remind everyone that our presentation will be followed by a question and answer session. As we will be making forward looking statements. During the call. Please refer to the cautionary notes included and the presentation news release, and managements discussion and analysis as well as the risk factors set.
And our annual information form technical information. This presentation has been reviewed and approved by Chris Bostwick.
Our vice President of technical services and the qualified person also please bear in mind that all of the dollar amounts mentioned in this call are in U S dollars unless otherwise noted.
Now I'll turn it over to John to provide you with an overview of the quarter and year.
Thank you Jamie.
2020 was transformational for Alamos as we delivered on key catalysts and transition to strong free cash flow generation.
In July we completed the lower mine extension of young Davidson and.
Announced plans for the phase III expansion of island gold.
And commenced construction on the Liaqat Grande project.
These were all achieved while managing our operations through the COVID-19 pandemic.
Our health and safety protocols evolved through 2020 and by the end of the year. We had performed over 13000, COVID-19 tests on Alamos employees contractors and visitors as part of our enhanced workplace screening.
The testing programs that we implemented have been instrumental and identifying and preventing the spread of the virus out of our operations.
Our operations performed well and the fourth quarter and we met the full year production guidance for the sixth consecutive year.
Producing 427000 ounces of gold.
Total cash costs of $761 per ounce for the year were below our guidance range, while all in sustaining costs of $1046 per ounce met guidance.
In particular, our Canadian operations had a strong finish to the year.
Young Davidson is starting to hit its stride with mining rates ramping up to average a new record of 7000, and 650 tons per day, and the fourth quarter exceeding your in the guidance.
This drove record quarterly mine site free cash flow of $31 million.
Alan Gould had another record quarter with respect of production and another record year of mine site free cash flow generating $101 million of 57% increase from the previous record in 2019.
Our strong operating performance combined with the higher gold price drove another solid quarter financially, including the operating cash flow of 127 million and free cash flow of 58 million.
For the full year, we set a number of new financial records, including record record operating cash flow of $383 million.
We had another successful year from an exploration perspective, despite our programs being limited due to COVID-19 reserves and resources at island Gold increased an impressive 1 billion ounces across all categories and now total $4 7 million ounces.
Since we acquired out of and Golden November 2017 reserves and resources have increased nearly 3 million ounces net of depletion.
The millions of ounces, we added in 2020.
And the continued exploration success demonstrates the significant upside potential beyond what we detailed in the phase three expansion study last year.
Globally, our reserves increased slightly to just under 10 million ounces with growth of at island Young Davidson and Lynn Lake more than replacing mining depletion of last year.
Looking at slide four.
As outlined in December we expect young Davidson to drive of 15% increase and global production to a range of 470000 to 510000 ounces.
And the three per cent decrease in total cash costs to between 710 and $760 per ounce in 'twenty and 'twenty one.
All in sustaining costs are expected to remain in a similar range as 'twenty and 'twenty.
Reflecting higher sustaining capital and a lot of us for the pre stripping of the El Salto a portion of the pit.
Our capital budget is expected to increase from 'twenty and 'twenty, reflecting a larger exploration program and the <unk>.
<unk> of spending on the high return on La Yaqui Grande project and the phase III expansion at island gold.
Turning now to slide five.
The reinvestment into high return internal growth projects is a key component of our focus on operating of sustainable business model that can support growing returns over the long term.
As part of our balanced approach to capital allocation, we expect the fund this growth internally, while continuing to generate strong free cash flow, which will further strengthen our balance sheet and support higher dividends to shareholders.
Reflecting the strong outlook, we were pleased to announce a further 25 per cent increase of our dividend to an annual rate of 10 cents per share.
This marks our second consecutive quarterly increase for a combined increase of 67 per cent.
I'll now turn over the call to our CFO, Jamie Porter to review our financial performance.
Jamie Thank you John.
Moving on to slide six we ended the year on a very strong node from a financial perspective, we sold 424000 ounces of gold to record revenues of 748.002 million 20.
As John mentioned Island Gold was the highlight once again generating a record $101 million and mindset of free cash flow.
Young Davidson and also demonstrates strong free cash flow growth and the second half of the year of following the completion of the lower mine expansion.
<unk> generating a record $31 million of free cash flow and the fourth quarter.
The fourth quarter revenues were a record $227 million from sales of 122000 ounces at an average realized price of $1860 per ounce total cash costs were 733 per ounce below the low end of full year guidance and all in sustaining cost of 1030 per ounce were at the low end up guidance for the full year.
Our total cash costs and all in sustaining costs matter of where were better than guidance.
Operating cash flow before changes in noncash working capital improved 55% year over year to a near record of $127 million of 32 per share on the fourth quarter.
For the full year operating cash flow before changes in noncash working capital was a record of 383 million or <unk> 98 per share of 31% increase from the prior record set in 2019.
Our reported net earnings of $77 million and the fourth quarter or <unk> 20 per share included unrealized foreign exchange gains of $16 million, which were recorded within deferred taxes and foreign exchange and other onetime gains of $2 million.
Excluding these items, our adjusted net earnings were $58 million or <unk> 15 per share our.
And our full year adjusted net earnings were $157 million or <unk> 40 per share representing an 87% increase from 2019.
Capital spending totaled $73 million, and the fourth quarter, including $28 million of sustaining capital and $42 million of gross capital and $4 million of capitalized exploration gross capital increase with the ramp up of construction activities at La Yaqui Grande and the phase III expansion of island gold for the full year.
Capital expenditures of 246 million were slightly above guidance, primarily due to higher capital of young Davidson and reflecting the COVID-19 related delays and completing the lower mine expansion.
We returned $31 million to shareholders and 2020 through dividends and share buybacks double the amount returned in 2019.
With the further 25% increase of the dividend to an annual rate of <unk> 10 per share starting this quarter. We're on track to returned $40 million and dividends from 2021.
Yes.
As previously announced we repaid the $100 million drawn on our revolving credit facility and the fourth quarter and are once again debt free and we ended the year with $221 million of cash of $44 million of equity securities and $500 million of Undrawn credit capacity, we are well positioned to fund our internal growth projects, while continuing to grow our cash position and return.
The shareholders.
And I will turn the call over to our Chief operating officer, Peter Macphail to provide an overview of our operations.
Thank you Jamie.
Moving on to slide seven.
Young Davidson and continues to perform well producing 48000 ounces generating record mine site free cash flow of 31 million of its first full quarter operating some of the new lower mine infrastructure.
With the strong finish all of your production totaled 136000 ounces in line with revised guidance.
Mining rates increased the average a record 70 650 tons per day, and the quarter exceeding the year and target.
We expect mining rates to average about 7500 tons per day and the first half of 2021 and increase the the design rate of 8000 tonnes per day in the second half of the year.
Total cash costs of $792 per ounce and mine site all of the sustaining cost of $934 per ounce and the fourth quarter.
And were both down significantly from earlier in the year, reflecting efficiencies of operating from the new low on buying infrastructure.
On a full year basis, sportswear and language revised guidance.
And as previously guided we expect 2021 production of between 190, and 205000 ounces of 45% improvement compared to 2020.
Total cash costs and mine site all in sustaining costs are expected to.
Decrease to between $790 and $840 per ounce and 1000 and $1050 per ounce respectively.
We also expect capital spending to decrease significantly to approximately 75.002 million 21 and trend down to the long term rate of $50 million per year over the next few years now that the law of mine expansion is behind us.
With higher production lower costs and more of capital, we expect record mine site free cash flow of $120 million and 2021.
Moving to slide eight island Gold's set another quarterly production record producing 41000 ounces of gold and the fourth quarter and total cash cost of $481 per ounce and mine site all in sustaining cost of $676 per ounce.
Record production and strong margins the operation generated $32 million of night on site free cash flow and the quarter, bringing the full year of two new record of $101 million.
Full year production of 139000 ounces was in line with guidance of total cash cost of $451 per ounce and mine site all in sustaining costs of 660 per ounce gross well below guidance.
Work on the phase III expansion continued to ramp up and the fourth quarter with activities focused on permitting and detailed engineering of the shaft and associated infrastructure and.
Okay Ehrman of long lead items.
Looking forward to 2021, we expect the island gold to produce 130 to 145000 ounces and total cash cost of between 430 and $480 per ounce and mine site all in sustaining cost of between 750 and 800 per ounce.
Yeah.
Exploration results at island continue and press the fee.
These three extension study released last July it was based on the reserves and resources at the end of 2019.
A million ounces of high grade reserves and resources added in 2020 and ongoing exploration success clearly highlight the significant upsides to already attractive economics.
Following my remarks on the operations, Scott Parsons, Vice President exploration, who will provide a summary of the ongoing.
Exploration success.
Moving on to slide nine a lot of these 31000 ounces in the fourth quarter down from earlier on the year, reflecting planned lower grades just the minute while they have the glass of water.
Full year production of 151000 ounces exceeded the revised guidance.
Total cash cost increased to 986 per ounce and the quarter reflected the lower grades but were below guidance for the whole year, averaging 816 per ounce.
On slide all in sustaining costs also increased its of 1400 and 26 per ounce in the quarter, reflecting the higher total cash costs and capitalized stripping at El Salto.
Well after the expected to produce 150 to 160000 ounces in 2021, and total cash cost of 840 to 890 per ounce.
The mine site all of the sustaining costs are expected to increase to 1062, 1100 and $10 per ounce and.
And will be higher during the first half of 2021, reflecting $25 million to complete the pre stripping of the all sorts of debt area.
Over the slide 10 and <unk>.
Section of La Yaqui Grande continues to ramp up with 8 million spent on the quarter in the quarter as we focused on clearing the project area early mining activities construction of the camp detailed engineering and procurement.
Restricting activities are ramping up as we speak with the project on track for initial production and the second half of 'twenty 'twenty, one 'twenty two sorry.
With my site all in sustaining costs expected to average slide 80 per ounce La Yaqui Grande is expected to significantly reduce mulatto combined cost profile.
I'll now turn the call over to Scott Parsons to discuss the reserve and resource update.
Thank you Peter on Slide 11, we had an excellent year with respect of exploration and even with smaller than planned programs due to COVID-19 global.
Global reserves increased to $9 9 million ounces and $9 7 million ounces the increases at island Gold Young Davidson and Lynn Lake and more than offsetting depletion of 555000 ounces.
Global measured and indicated resources were down 3% of $6 9 million ounces, reflecting some conversion to reserves at young Davidson and the Lake.
Most impressively referred resorts and increased 16% the 7 million ounces driven by another exceptional year of growth of island gold.
Moving on to slide 12.
The gold once again was the main driver of our combined reserve and resource growth and 2020.
Despite only completing about 60 per cent of a planned drilling in 'twenty and 'twenty due to COVID-19 reserve and resources increase by a combined 1 million ounces across all categories net of depletion.
<unk> increased 8% to $1 3 million ounces with additions of 239000 ounces and island main and east areas more than offsetting mining depletion of 144000 ounces.
On slide 13, the primary focus of island gold remains on defining new near mine resources and that is where we continue to see the bulk of our growth inferred resources increased 910000 ounces of 40% of $3 2 million ounces the largest annual increase the date great.
<unk> also increased 9% of $14 four grams per ton with the average grade of the addition of significantly higher at 18.6 grams per tonne.
Most of the additions were and island east, including of 95000 ounce increase and the middle portion of island East effectively closing the gap between island main and east.
The largest and highest grade increases and the lower portion of the island East where inferred resources increased 590000 ounces the significantly larger and for resorts block now contains a total of $1 3 million ounces grading 18, three grams per tonne and proximity to the plant shop, we say ex.
On the exploration results and this area and the latter part of 'twenty and 'twenty and with Yours should open laterally up and down plunge with area one of them and a key focus in 'twenty and 'twenty one.
On slide 14.
The combined reserves and resources at island Gold now total $4 7 million ounces, nearly 3 million ounce increase from the $1 8 million ounces at the time of the acquisition and 2017.
Since acquiring the island gold and 2017 inferred resources of converted to reserves at a rate of more than 83 per cent.
Top of that we have grown inferred resources by the additional $2 2 million ounces. The overall discovery costs, averaging $8 per ounce over the past year and $11 per ounce over the past three years we.
We see excellent potential for the schools to continue with our largest exploration budget to date planned in 2021.
We've increased the global exploration budget of $50 million in 'twenty and 'twenty one double of what we spent in 2020 half of the 2021 budget is allocated the island gold, where our focus will remain on adding new near mine resources as well as evaluating regional targets.
We've also increased our exploration budget them, a lot of the $9 million and 7 million in each of young Davidson and a little late.
We are encouraged by early exploration, except the young Davidson, having intersected higher grade mineralization below the existing deposit and the Olin.
And lake ore reserves of increased 9% given the success, we're having around the Mcclellan and deposit.
With that I'll turn the call back over to John.
Thank you very much Scott the.
So that concludes the form of presentation I'll now hand, the call back to the operator to open your open the call to your questions.
Thank you.
We will now take questions on the telephone lines. If you have the question and you are using a speakerphone. Please pick up the handset before making your selection.
And if you have the question. Please press star one on your devices and keep it.
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Yeah.
Please press star one at this time, if you have the question there will be a brief pause and all the participants and I guess you for questions. Thank you for your patience.
Yeah.
The first question is from Tyler Langton from Jpmorgan. Please go ahead. Your line is now open.
Good morning, and thanks for taking my questions I guess just to start it at young Davidson I guess kind of looking at Q4 results kind of annualized production what kind of gets you to the low end.
Of 'twenty 'twenty, one guidance and then the cash costs for the quarter were kind of below the.
And the low end of your guidance for 'twenty 'twenty, one I guess does that give you maybe some confidence that you could kind of hit the higher end of production in 'twenty and 'twenty, one and the sort of the low end of cash costs or was there anything I guess sort of unique about Q4.
And it's Peter here and Thanks, Tyler I guess, I mean, Q4, we werent yet running at I mean.
Yes, we did.
We did 7400 7600 tonnes a day.
We expect 7500 tonnes a day in the.
And the first half of a of 2021 and 8000 and in the second half.
So I think.
I think Q4 is.
Might be might be a decent proxy ah it it it could be a bit it could be a bit low given the fact that we aren't quite up the full kind of chat and we will be and the second half of the year.
Okay, and then just with them I guess, the the phase III expansion at island Gold and then at La Yaqui and a lot of just what those what those projects are you seeing any signs of.
Of cost inflation, just given kind of on the recent run up and you know steel prices and oil and diesel you know sort of any any concerns there.
So I'll start with lay out the Grande and Mexico, I mean, most of that cap. The project I mean, a big chunk of it is pre stripping and the.
And those costs are pretty locked in.
It's just basically mining costs, which were.
Haven't escalated.
Theres, not a lot of steel or or anything like that and called in and that project Theres. Some earthworks.
And so we haven't we haven't seen anything there yet and and we've made a lot of.
A lot of our orders of you know things like crusher parts of my daughter Alright.
Alrighty behind us so.
And on Phase III, you know we're just.
You know I wouldn't expect anything significant pair of theirs.
There'll be there'll be a normal sort of in place and over the course next three or four years as we because we bring that into interpret into.
Start spending more money on it but I think I think we're in good shape with our with our estimates there.
Okay perfect. Thanks, so much.
Thank you. The next question is from Kerry Smith from Haywood Securities. Please go ahead. Your line is now open.
And separately.
And just for the for Y D. A.
And you are suggesting 70 510, a day on it.
For the first half of this year you did 70 650 tons a day and Q4 is there.
Perhaps two mill shut downs and maybe you could just tell me how many days of that mill shut that you've got in that first half.
There'll be aligner change and the first half I think we're expecting it to happen and in and <unk>.
April but we do we do run that Nellix U.
Absorbed goes and how that would be like three or four day shutdown to absorb those shutdowns you run out of higher rate.
And the and the days of our operating and expect to be down for those three or four days and it wouldn't impact or you know 7500 kind of day for the H one target.
Okay and I guess my question is why why wouldn't it be a little bit higher and you already out of the day.
750, I think I've said based on kind of it seems pretty doable.
Yeah, we're we're hoping it's pretty doable.
We expect it to be pretty doable.
Okay, Okay and.
Or maybe Scott can answer the question just on the island the exploration budget of 25 million how much of that today as a percentage might be spent on the regional targets, which you haven't done much work on and obviously now you've got the traveling down maybe just as a percentage because of giving you a sense.
Yeah of the of the $25 million, we're budgeting about 6 million per the regional exploration program.
But it's focused on targets across the broader property that we've developed from.
Building out the geological model of Donlin gold deposit and testing several and several targets we've identified as a result of the.
Yes, I think you had said that it's probably not likely to be much because you've just got that volume and as what we've got in there before you start drilling.
Yes, we're going to build the of the Casper.
And of exploration Foundation on the petroleum ground in 'twenty and 'twenty, one and will be of more actively exploring the drilling and 'twenty 'twenty two and beyond.
Okay, Great and Jim can you just remind me what your Mexican peso assumption was today I know I shouldn't have instead of I forget.
Share carry yes, I believe we budgeted 20 to one we've got we've got about 45% of our exposure hedged between 'twenty, one and $25. So we're pretty well.
Well protected and in terms of both of our operating costs and our capital spending at La Yaqui Grande.
Okay, Okay, great and the Peter just one last question on on young Davidson and the $44 Canadian and country of mining costs and Q4 would that be.
Pretty good number for sort of go forward number of Thursday, 2021 and 2022.
Yeah.
Yeah, I mean, that's where we're heading to I think once we get the 8000 tonnes a day and excuse me this year, where we're heading into the into that kind of range. I mean, we will take it takes a few quarters to see.
And it get dialed in I think it all of it does bounce around a little bit depending on how much capital development, we do versus operating development. So theres, some always some noise and it because of that but it's you know, it's it's definitely trying to get to there.
Okay.
And as a reminder, we're budgeted for a low $50 for the first half of the year dropping to kind of of the mid 40 percents of where we were and the second half of 'twenty and 'twenty. We think we'll get back there for the second half of 2021.
Okay perfect. Thanks, very much that's all my questions.
Thank you. The next question is from Cosmos <unk> from CIBC. Please go ahead. Your line is now open.
Thanks, John Jamie Peter and Scott for the conference call here, Great to see you get all of the increase in reserves and resources and also the increase on the dividend.
And maybe my first question is on the Island Gold Inc.
The increase in inferred resources.
Seems like it's a lot of as you mentioned coming from island East could you remind.
And to me you know how tight is the spacing in terms of drilling right now to get into inferred and you know what kind of drill spacing and do you need it to be to get it into a M.
And I and later on the reserves.
Scott do you want to take that at least the start of it yeah I can take the start of it sort of typically for inferred resources were anywhere between 30 and 75 meters depending on on where we're drilling out the average I would say it's around lets say between 50 and 75 meters.
And again you know these inferred resources of defined in the geologically constrained structure. So you know there, it's predictable and and you know the strong understanding of the controls on on mineralization on the island and we have high confidence and in the classifying those of inferred resources at that spacing on which is.
I think of realistic for sure.
Mhm.
And you know as a follow up you know its great to see the island East Youre looking at $18 five nine gram per tonne and it was certainly higher than reserve grade at this point and time of island, but again.
And heard I would imagine mining dilution wasn't factored in.
You know maybe still early stage at this point in time, but could you remind me you know what kind of mining dilution of assumption and you put it into your reserves.
And you know can that be potentially even at this early stage be applied if I want to compare apples to apples here.
Okay.
Maybe I'm just curious yeah.
Yeah, Hi, Chris we've got a variable.
The dilution factor and depending on the scoping types of the area and the.
Past experience and it ranges anywhere between 25 and 50% of it but I think overall of good average to use the would be about 35 per cent.
And based on your knowledge right now that's still and it seems kind of you know reasonable if I were to apply that the island East I've got and you know.
The early stage, but yeah.
Yes, that's reasonable.
Okay sounds good and.
And then bigger picture here John as you mentioned you know some of these exploration results at island gold could potentially add to the value of the of the new shaft.
I would imagine right now you know the mine plans of fairly flexible.
The kind of change things around potentially to maybe you know get to some of the higher grades first again very early stage right now but is that is that a possibility. It's certainly a possibility.
And there's a lot of flexibility and the and the way we're approaching this this project.
And we still have really another two years of exploration and.
And that we can get under our belt before we.
Start to you know.
And make make decisions that that limit our options. So we still have a fair amount of flexibility for the next.
The next 24 months anyway so.
And that that puts us in a very comfortable position.
And interesting thing about the overall global resource that Ah I think isn't always.
Zeroed in on very quickly and it's the fact that we've been over the last couple of years, you know we've been depleting.
Higher costs.
The lower recovery ounces and.
And.
And our of open pit operations, and we're effectively replacing them with.
With high grade low cost ounces, and our and our Canadian operation, particularly.
Particular to.
Two of island gold, so while the U C and incremental increase and the overall.
The reserve picture and the reality is that we're replacing them with the with far better ounces.
You'd rather have ounces with and 95% recovery as opposed to announce with the 70% recovery.
And and down for Us and Canada and.
And our opinion of our.
And are a lot of.
A lot more favorable than anywhere else.
So from the overall quality of the reserve I think we've made a real and wherever.
Real improvement.
Yeah, that's that's great to hear.
Again, the on island gold as you I think you or Scott had mentioned the Trillium mining previously how does that you know you know you just made the acquisition here. So again the fairly early but how does that sort of fit into the whole picture here and and I haven't looked at I haven't seen the rocks here of Trillium mining yet.
So is it.
To the East of Ireland. So is this potentially on trend with it all island East is it the same type of rocks.
And how should we look at it at this early stage.
No I can't tell you can click on one yeah, yeah, I can think of that one so the trillium is essentially a.
Two main strategic reasons for the acquisition one of the most important is.
As we've been drilling off island east to the eastern down plunge we weave.
Obviously been interpreting the the strike and dip of the deposit isn't been going and it does appear that eventually you will crowd or come close to the crossover the the the property boundaries and so what the acquisition did for US it would remove any sort of land tenure of risk that we'd be worried about from an exploration perspective, and the long term. So it's the long term long term strategy and really opens up the deposit.
Oh down plunge and and along strike to the east and the second part of that is.
In the midst of a cotton greenstone belt, which is where the island gold deposits located and seen 100 years of kind of off and on exploration.
I'm going back to kind of the same showings and have been defined over the years and and we feel you know.
With the approach we're taking in terms of the systematic exploration of quote approach across the the broader belt that there are significant opportunities that can be of lock so from a regional exploration perspective, but it fits well with our strategy of consolidating around our operations and Keith Island gold and and applying a systematic approach to understanding of the controls on mineralization and and target.
And exploring and from there.
Mhm true of course.
Maybe you know of financial question here.
You know as you talked about and the MD&A, you know, you're making a deposit of $20 million in terms of taxes payable in Q1, and that's how it is I know given the timing of these tax payments, but I guess my question is with all of the money you're spending on La Yaqui Grande in 'twenty and 'twenty, one Oh, what's that.
The capex be able to offset some of your you know profit laterals in 'twenty and 'twenty, one and you know what should we make us and assumption here.
Yes, absolutely cosmos.
We have seen that we generated $68 million and free cash flow models and 2020. So that's.
And that's the reason behind the big $20 million plus the tax installments of two.
This quarter, we can absolutely deduct the majority of of that the stripping costs and other construction costs of La Yaqui Grande against our 2021.
Cash flow, so we'd expect a substantially lower tax.
Tax installment and Q1 of 2022.
Great and then one last question on on Foreign Exchange here, you know where the Canadian dollar has strengthened quite a bit of year to date.
And you know if I go back to you and DNA I think right now you're assuming <unk> 75 to one in terms of.
The C dollar U S. Dollar exchange rate every five cents changes of $30 million difference and free cash flow I think only a small portion of it is hedged at this point and time, Jamie could you remind me of what your hedging strategy is and how you look at it given the.
Current strengthening of the Canadian dollar.
Sure, Yeah, and I mean, we've been looking for opportunities obviously to increase.
Our hedge position over I'd say, probably the last six months.
And <unk> seen some pretty significant strength. So we haven't been able to do as much as we'd like I think we've got about 10% of our of our 2021 exposure cover between.
76% and 72 cents. So it is a small portion of it if we do see a pretty dramatic weakening and the Canadian dollar and we'd be aggressive.
In terms of hedging or otherwise will be will be price takers for the time being and it does have an impact on.
And currently at.
<unk> relative to our budget of $30 million impact on our free cash flow for the year.
Great. Thanks, a lot of everyone does all the questions I have and I look forward to the remainder of 2021.
Thank you.
The next question is from Fahad Tariq from Credit Suisse. Please go ahead. Your line is now open.
Hi, Thanks for taking my question I apologize if I missed this but did you think about.
Capital allocation and maybe in the medium term.
If you were to get the of permit approval of the renewal of crowds and is it fair to think that Lynn Lake competes for capital with Crosby is there a preference for one project over the other and.
Any color there would be helpful. Thanks.
Yeah, I I can the filled out the eye.
I would suggest that Lynn Lake is still a 18 to 24 months off before we start spending any significant capital and and getting it going because we we've just got to go through the north of the normal permitting process, whereas crossly is.
It's fully permitted at this point so theoretically.
If we were to get our or other licenses.
Renewed if we would we'd be able to get back to back to work there fairly quickly, but it's the.
The approach that we're taking right now is.
Is one one of them.
Talking to Turkish.
Mining companies.
We've been approached by them by several and were talking to surface mining companies about coming out of alongside of the.
All of us and the partnering on that project so.
Since we're sort of talking theoretically anyway.
Theoretically I would envision as we take the next significant step going forward and Turkey were likely to do that with the partner which would.
The significantly offset our capital commitment there.
Okay.
Okay, Great and maybe just as a follow up there and so theoretically if you were to get a partner at gradually then is it the idea that the partner would help with maybe some of the permitting issues or is it more of that and would free up capital to then.
And then do and like as well.
Oh of both.
Probably both of them clearly are one of the.
One of one of the reasons to bring on the partners that Theyre going to help you in some way shape or form and since we have all of the tech the technical expertise, we require and and we have all the all the money that we require in order to build that project.
And we're gonna need the most help is it just sort of navigating.
And the Turkish politics, and not forgetting that side of it so.
Hopefully the.
If we were smart enough to bring on a partner that can the legitimate.
Legitimate Atlanta hand on that front.
So.
Certainly any of any capital that they would put up and in terms of.
Purchasing and interest and the project that would go some way to.
Giving us additional capital that we could redeploy and Canada.
Got it thanks, that's the best.
Very clear thank you.
Thank you once again the please press star one on your telephone keypad. If you had the question well.
And have a question from Matt and Mike Parkin from National Bank. Please go ahead. Your line is now open.
Hi, guys. Thanks for taking my questions and congrats on the good quarter on most.
Most of my questions were answered.
But could you speak to why D. The the lower mine has been running now for several months are kind of of effectively two quarters to date can.
Can you give us some commentary in terms of how it's performing is it you know on a daily rate are you seeing.
Basically ex.
Exceeding expectations and can you just remind me on the permit there do you have of daily operating capped or is it and annual average.
Thanks, Mike.
And <unk>.
Yeah, I mean the.
The ability to the ability to operate.
At Y D with that with that Laura Martin infrastructures is it's kind of night and day from what we had and the after mind.
It is performing very well.
You know.
They'll buy our tonnages that were exceeding numbers, we don't think of you've ever exceeded R.
Or or very rarely exceeded our expectations and the past and and we're exceeding our.
Have been exceeding our expectations. So it continues to perform well and running since I guess mid mid July we've.
We've had daily rates I mean to the average 8000 tons. A day you need to have you know because you have to be down.
For maintenance.
These times you have to be you have to be skipping waste also I mean that that the.
Debt Chaffin each day.
But of 10000 tons a day.
And we do that right, some or somebody's ore and waste. Some days just or you are average 7500 tonnes a day so.
We see that.
No longer being an impediment to getting to our 8000 tonnes a day target, it's operating very well.
You know you have to develop all of the stopes in front of it and it would be in good shape, otherwise could have everything feeding of properly and and we were there.
I think the second part of your question was operating.
So you know what it boils down to a milling permit and it is a it is a per day number and it's.
It's quite high it's well above what we would we.
We we over permitted there I think we're permitted to 10000 tonnes per day.
And we don't have any plans to operate it at that level. So we are not in a situation where the the mill will slow us down.
Okay, and even take the.
Bill could do the milk and you can do 10000 tonnes per day, but where it currently I mean, yes sure you could do something to get it there.
But it has no problem doing on average 8000 tonnes a day.
Alright Super and then maybe a question for the Scott persons and the exploration side of things.
With why I D.
You you made the smart decision and kind of halt.
And further drilling at depth at why the until you kind of got down lower are you kind of established and set up the resume that you know and drilling to continue exploring deeper and to the Y D West the extension.
Yeah, absolutely so with the lower of mine infrastructure in place and we did start drilling in the <unk> and 'twenty and 'twenty with the limited program and really starting to test the opportunities down plunge of of the deposit both of the Y D. Western and the main part of young Davidson and but also I can't emphasize enough of the exploration of potential you know and the hangar.
Meanwhile, the football, but the positive re leasing and limited testing and we're sitting along the Cadillac water like a fault system.
No theres no significant opportunities there and that is the point I alluded to and the AR at the end of of by exploration update and we did intersect some higher grade mineralization and both the hanging wall and footwall and and this is going to require obviously a lot more work to.
The defined it you know the geometry of the structures and and any potential continuity of mineralization, but it just points of the upside so not only do I see upside and and expanding the existing reserve and resources within the syenite, but also other opportunities in different the different settings geological setting.
And then and we'll be ramping up as I mentioned to two of second drill underground drill.
And the next few months and and start evaluating some of those opportunities.
Super Thanks, very much that's it for me guys.
The next thing.
Thank you the.
Next question is from Lawson Winder from Bank of America. Please.
Please go ahead and your line is now open.
Okay.
Yeah.
Mr. Winder. Your line is open. Please proceed with your question.
Yeah. Thank you very much operator, and hi, guys. Thank you for taking my questions here today, Hello to you all.
I wanted to ask of the the stockpile at a at both island and Y D and particularly the islands and the underground has been running a little bit ahead of ahead of the mill.
Are you able to provide where that stockpile sits today.
Yeah, we've got a boat.
But.
And 30000 tons at around the five grams.
Okay, great. Thanks, and then and then it why D.
Uh huh.
Not a significant stockpile, it's it's maybe coming into the year we had.
Again, maybe on the 30000 tons.
And you know typical kind of reserve grade, but it doesn't last so long and why did the milling rates we have there.
Okay. That's great and then just Oh, we have the motor book.
We have some very low grade stockpiled, it's on the books as well, but to me and that's for.
Sometime we and the future.
Yeah No of course.
No Peter just in the similar vein it at the island. The no for Q4 I had expected you guys would be a lot closer to the 200 tonnes per day and I'm just curious.
Is the reason that you were and I apologize if you already touched on this I. Unfortunately and was on the call of a little bit late but it is the reason that you were a little below that 1200 tonnes.
Per day related to the Covid at all and and then looking forward into 'twenty and 'twenty one.
Is it fair to expect.
1200 tons of it to.
Per day to be achieved.
Yes, like a full year basis, yeah. So the mining the mining was that 1200 tonnes per day, I think you're referring to the milling rate, which which was just a bit below that did.
We did have some unscheduled.
Or challenges and in the fourth quarter, which had us down for.
Four of five days and.
Caused our caused our tonnage to be a debt off for the quarter. We were you know island has the benefit of.
Being able to juggle the high grade medium grade and low grade stockpiles and so we could still make our our ounces for the quarter.
But yeah. We you you should expect 1200 tonnes a day for 'twenty and 'twenty one.
Great Super helpful and then.
And just a question on the capital allocation and capital return you guys.
So last couple of quarters of clearly indicated a preference for the dividend, but just going forward.
Can we expect that to continue to be the case of visa the the buyback.
Yeah and lots of it.
And it's Jamie I can take that I think are our preferences and has always been.
And to return the majority of of what we're going to return to shareholders of the dividend rather than the buyback we use the buyback opportunistically when we see a pretty significant dislocation and the share price, but there's limitations associated with the normal course issuer bid and that we were blacked out of about 50 per cent of the time. So it's on.
Often hard for us to Uh huh.
The act on it when when when we'd like to so I think we like the discipline and.
And.
And.
The the discipline of associated with the dividend and I think we're comfortable with the with the level of the fact currently of about $40 million U S and annual I think that's the best.
That's a decent return and something that we can well of forward.
At the same time as investing in and our other growth projects.
Okay and.
I mean, it's actually below the the payout of percentage, where it's been historically, so I don't disagree with you on that.
And then just maybe one final conceptual question.
And Oh.
On on Mexico, and going forward.
Basically the history of Alamos since Ive been following and has been a transition away from Mexico and towards Canada.
And I mean would it be fair to think that you know the investment and you're doing now and La Yaqui is potentially the last big investment you do and Mexico or looking the other way do you see you know of.
Additional potential exploration upside and the molasses area or and that anywhere and the jurisdiction and how do you think about Esperanza and you know just how how do you think about alamos and being in Mexico, and the jurisdiction going forward.
Well, it's John I can take that we still are we still believe Mexico is.
On attractive jurisdiction, I think theres going to be lots of opportunity and the years ahead and Mexico.
They're going through a difficult time right now.
The country has been hit very hard by Covid.
And as everyone is aware of there is the ongoing issues with the with Narcotrafficking in that country and and it started to directly affect the mining industry.
Over the last couple of years is.
As the.
The criminal element of turned its.
And it's.
It's interest towards the mining industry and and started.
Started to Rob coal mining operations, including ours last April.
So those were certainly significant causes the cause for concern for for us.
But as things have been unfolding and Mexico.
You know Alamos has has benefited tremendously from the.
Continuing to explore and them a lot of Us district.
And as we as we made new discoveries we've extended mine life from what we had originally which would've seen us stopped production back and in 2012.
And here, we are still mining in 2021, and and we we have good sight lines of three.
2027.
It's it's.
The unfortunate for us that every couple of years, we've made a really good discovery.
And that and a lot of district, and and that's kept us going but.
It's just the fact that.
Earlier on it was easier because we knew we were going after the most obvious things most of the things we ended up developing they had pretty pretty good surface expression that we were able to follow up on but going for it and now the challenge is to be able to.
He's geophysics and other other geological exploration techniques too.
Effectively locked down, but he's cover and try to find the the more the more hidden deposits that are that may be of existing and that district, we've still only covered.
Maybe 20% of our.
And the Bilaterals.
The district, the other holdings that we have under claims so theres still a substantial amount of exploration upside there.
Oh no. We're under the current circumstances, you know, we're not particularly aggressive about about making further acquisitions and and Mexico and we do have a very strong preference for Canada for obvious reasons.
You know the.
The reality is of all of US has always been very opportunistic and and also very patient.
So when we see.
The opportunities evolve and.
If we see the country.
You need to evolve and and and.
And.
Turn it the attention to attracting and and encouraging.
But there again.
Respond but.
But for the time being I think are better opportunities lie in the Canada and that's why we've been heavily investing there and in the meantime.
And we'll continue keeping things going in and out.
A lot of district, where.
By any measure it's been a tremendous success project that we acquired for $10 million. Originally we've made well over $400 million from that project and that's.
So we wouldn't be where we are today without it. So we're we're very grateful for a lot of sun for the start of gave us.
That's great color John much appreciate it take care of guys. That's all from me.
Thank you.
And there are no further questions at this time. This concludes this morning's call.
If you have any further question debt to have not been answered please feel free to contact Mr. Scott Parsons at.
For one and 636899 and three two extension 5439416.
3689932.
Extension of 5439.
Thank you for your participation.
Okay.
Yeah.
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