Q1 2021 Alamos Gold Inc Earnings Call
Once again, please continue to standby we thank you for your patience.
Now some of them yeah for lapped a silty duckenfield they'd be touched soup. The NIM for pre owned at the end of Hulu I had thought about getting because that stuff and you wouldn't see one of the best guilty.
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No one else seemed to be honest, we lapped a silty duckenfield it'd be tough super simple pre owned EBITDA, who I had thought about getting because that's the new for them at some of the best guilty.
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This conference is being recorded so it calls for homes that don't have as you see.
All participants please standby your conference is ready to begin <unk>.
Good morning, I would now like to turn the meeting over to Mr. Jamie Porter Chief Financial Officer. Please go ahead.
Thank you operator, and apologies to everyone on the line for a few minutes late getting started giving some some issues with.
For the operator, there, but we're ready to go now.
Thank you for attending Alamos since first quarter 2021 conference call. In addition to myself we have on the line today will John Mccluskey, our president and CEO and Peter Macphail, our CLO.
We will be referring to a presentation. During the conference call debt is available through the webcast and on our website.
I would also like to remind everyone that our presentation will be followed by a Q&A session.
We will be making forward looking statements during the call. Please refer to the cautionary notes included in the presentation news release and MD&A as well as the risk factors set out in our annual information for them.
Technical information in this presentation has been reviewed and approved by Chris Bostwick, Our Vice President of technical services and a qualified person also please keep in mind that all the dollar amounts mentioned in this conference call are in United States dollars unless otherwise noted.
That I will turn it over to John to provide you with an overview.
Thank you Jamie.
We've had a solid start for the year, producing 125800 ounces of gold in the first quarter at total cash costs of $757 per ounce and all in sustaining costs.
$1030 per ounce.
Our cost for in line with guidance well production exceeded the high end of our first quarter guidance. This was driven by particularly strong performances at island gold, which set another quarterly record for production and young Davidson, which exceeded this target with underground mining rates, achieving a new record.
We remain well positioned to meet our full year production and cost guidance.
This drove another good quarter financially.
Operating cash flow for $120 million increased 46% from a year ago supporting strong ongoing free cash flow, even with the ramp up of development activities.
Grande Phase III expansion at island gold.
Moving to slide four.
This past week, we announced we will be filing a $1 billion investment treaty claim against the Republic of Turkey.
For expropriation of unfair and equitable treatment with respect for our Turkish development projects.
For the 18 months since our mining license expired.
We've received all permits required to build Crossly, we were well into construction and we've met all legal and regulatory requirements for the renewal of our licenses.
We've attempted to work cooperatively with the Turkish government, Yes, we have not received a reason for the non renewal.
Nor have we received a timeline for when our licenses will be renewed.
We're optimistic that the arbitration process will bring about a positive resolution.
Now looking at slide five.
We continue to advance our strong pipeline from North American growth projects development activities are ramping up for the phase III expansion at island Gold, where we recently announced a 1 million ounce increase in <unk>.
High grade reserves and resources.
This growth and ongoing exploration success highlight significant upside potential to.
For the already attractive economics outlined in our phase III expansion study published last year.
Construction activity certainly Yaqui Grande continue to wrap up with a project on track to get low cost production in the third quarter of 2022.
For being at Lynn Lake is advancing and expected to be completed around the middle of next year, putting us in a position to make a construction decision for the latter part of 2022.
We've had a good we've had good exploration success over the past few years, we've increased reserves by 27% to $2 1 million ounces, we see excellent for the potential around the existing deposit and regionally across from 80 kilometer long greenstone belt that we have consolidated for.
Wrapping up our exploration efforts accordingly.
These projects are all key components of our strong outlook with 50% production growth potential for approximately 750000 ounces per year by 2025 at significantly lower all in sustaining costs of around $800 per ounce.
This will support substantial free cash flow growth those are for long term debt.
Meantime, we can more than fund this growth internally, while continuing to generate strong ongoing free cash flow and support our recently increased dividend.
I'll now turn the call over to our CFO, Jamie Porter to review our financial performance.
Thank you John.
Moving on to slide six.
We sold 126500 ounces of gold at a realized price of $1798 per ounce for record revenues of $227 million in the first quarter.
Total cash costs of $767 per ounce and all in sustaining costs of $1030 per ounce were in line with guidance. Despite the impact of the stronger Canadian dollar and Mexican peso.
Our 2021 guidance provided last December was based on a Canadian dollar foreign exchange rate of 75.
At the current Canadian dollar foreign exchange rate of approximately 81.
Our total cash costs and all in sustaining costs would increase by approximately $30 per ounce with a similar impact realized in the first quarter.
Operating cash flow before changes in noncash working capital improved 46% year over year to $120 million or <unk> 30 per share in the first quarter. Our reported net earnings for the first quarter were $51 million.
Adjusted net earnings of 49 million or <unk> 13 per share represented a 63% increase over the prior year period.
Looking ahead for the second quarter. The decision to proceed with a bilateral investment treaty claim against the Republic of Turkey is an impairment trigger for accounting purposes.
We expect to incur an after tax impairment charge of approximately $215 million in the second quarter, representing the full carrying value for Turkish assets.
This is a non cash charge. So we expect to exclude from our adjusted earnings.
Capital spending totaled $73 million in the first quarter, including $24 million of sustaining capital $44 million of growth capital and $6 million of capitalized exploration.
We also incurred $17 million of capital advances related to work in equipment for La Yaqui Grande and the phase III expansion at island gold.
The aggregate increase in spending in the quarter is consistent with full year capital guidance of between 354 and $384 million and reflects the ramp up of development activities on our growth projects.
Net of all capital spending and capital advances, we generated $10 million of free cash flow. This was also net of $18 million of cash tax payments in Mexico, the majority of which related to the 2020 year.
We paid a quarterly dividend of $10 million in the first quarter, representing a 25% increase from the prior quarter and were active under our share buyback repurchasing $1 5 million worth of shares in total we've returned more than $11 million to shareholders in the first quarter and are on track to return more than $40 million for the full year.
We ended the quarter with $238 million in cash $27 million of equity securities and $500 million of Undrawn credit capacity, we remain well positioned to fund our internal growth projects, while continuing to grow our cash position and returns to shareholders.
With that I'll turn the call over to our COO, Peter Macphail to provide an overview of our operations.
Thank you Jamie.
Moving to slide seven we had another excellent quarter at young Davidson, producing 48000 ounces generating mine site free cash flow of $22 million.
This was the second full quarter operating for the new lower mine infrastructure. The operation continues to demonstrate its potential mining rates increasing to average a record 7800 tonnes per day exceeding our targeted rate of 7500 tonnes a day.
We continue to expect mining rates to 7500 tonnes a day in the second quarter with another mining horizon being added in the second half of 2021 that will enable us to increase mining rates for sustained 8000 tonnes a day.
Mill throughput also increased average a record.
$81 50 tons per day, this exceeded mine mining rates, reflecting the processing of additional ore that was mined and stockpiled for your fourth quarter of last year.
We expect milling rates to match mining rates going forward.
Total cash cost of $873 per ounce and mine site all in sustaining costs of $1075 per ounce were both down significantly from a year ago with the northgate shaft for shutdown to complete tie in for lower mine.
Costs were above annual guidance for the first quarter due to the strong for Canadian dollar as well as the planned mining somewhat lower grades than you earlier in the year.
Grades mined are expected to increase through the year and combined with higher mining rates. This is expected to drive production higher costs lower from the second half of 2021.
Higher production and lower costs lower capital spending are all expected to contribute to record mine site free cash flow of more than 100 million from young Davidson in 2021.
Over to slide eight island gold generated $26 million mine site free cash flow from record production of 42200 ounces driven by higher grades mined.
As previously guided grades mined and processed are expected to decrease through the year and average approximately 10 grams per tonne for the full year.
Total cash costs of $466 per ounce and mine site all in sustaining costs of $732 per ounce were both consistent with annual guidance. Despite the stronger Canadian dollar.
Following up on a very successful 2020 exploration campaign.
Wrapped up our exploration efforts at island gold in the first quarter.
The majority of the results remain pending given the longer turnaround times for assays being seen across the industry, but we're expecting that to improve in the second quarter.
Work on the phase III expansion is ramping up with the focus on advancing permitting and detailed engineering of the shaft and associated infrastructure and the procurement of long lead items.
Capital spending totaled $12 million in the first quarter isn't expected to increase through the rest of the year consistent with annual growth capital guidance of $80 million to $85 million.
Moving to slide nine <unk> produced 35006 hundred ounces in the first quarter. The total cash cost and mine site all in sustaining costs of 915, and 1039 ounce per ounce respectively.
Mining activities in the first quarter for focus on Cerro Polone, which along with existing surface stockpiles supplied the majority of explore stocked in the quarter.
Mining activities within the minimum allowed us pit, we're focused on pre stripping the el Salto portions of the pit.
With the $18 million.
Cash tax payments, mostly related to last year and the ramp up of spending a lot Yaqui Grande.
For us as a mine site free cash flow was negative $24 million.
Excluding the $30 million of growth capital and capital advances related to La Yaqui Grande Bilaterals would've generated $6 million of mine site free cash flow.
Moving to slide 10.
As you can see in the photo construction of La Yaqui Grande is well underway.
<unk> facilities are nearly complete and we now have approximately 800 employees and contractors on rotation.
Capital spending was focused on advancing earthworks for the waste rock dump heap Leach facility and the water treatment plant and pre stripping of the open pit.
Over 3 million tons of waste were mined during the quarter.
With the contract to reach a mining rates of about 48000 tonnes per day by the end of March.
The project remains on track to achieve commercial production in the third quarter of 2022.
With mine site, all in sustaining costs expected to average $850 for $580 per ounce La Yaqui Grande is expected to significantly reduce the cost profile.
Laughter operation.
With that ill turn the call back to John.
Thank you very much Peter.
No we're going to open the culture.
To your questions. So now I'll turn the call over to the operator.
We'll get that started.
Thank you.
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The first question is from Tyler Langton of Jpmorgan. Please go ahead. Your line is now open.
Morning, and thanks for taking my question I guess just to start with Crosby I mean, it's for recognizing that the the process can take them from time to kind of run its full course, but I guess are there.
Any sort of near term milestones.
Milestones that we should be looking for.
Not particularly.
Going into this.
With.
Okay.
And expectation that it may well just run the.
For the full course go go through a full arbitration, but theres always the possibility that.
Sometime over the next year, we come up with some sort of negotiated settlement. So that's the way this arbitration processes designed.
It's designed to bring the parties together under the auspices of the tribunal with.
Expectation of the intent at least.
To come to some sort of negotiated settlement and if that's not achievable then it goes for the next stage. So we'll just have to follow the process.
Okay, and then right.
I guess, you called out sort of I guess the impacts.
That exchange rates could have on costs. This year, but are you seeing sort of I guess, just any signs of inflationary pressures from labor or materials to sort of in the day to day operations and then.
The more I guess with them you know the phase III expansion at island gold and <unk>.
You kind of remind US you know sort of how much capex is left to be spent and are there any sort of potential are you sort of pressures there for that for that capital budget.
It's Peter here I, you know on the inflationary pressures certainly not labor you know labor rates have been.
No.
Relatively stable.
You know a few things a few inputs steel a little bit higher but it looks like it's it's a.
It's a it's a temporary thing.
So it really hasnt really hasnt.
Our bottom line at this point and you know I.
I guess, who knows but we are not expecting it to materially impact us.
Got you okay. Thanks, so much.
Thank you.
The next question is from Fahad Tariq of Credit Suisse. Please go ahead. Your line is now open.
Hi, Good morning. Thanks for taking my question you had mentioned the cost impact for potential cost impact at different you know foreign exchange rates and the sensitivity, particularly on the Canadian U S exchange rate.
Maybe talk about kind of the hedging strategy.
Over the past year and also going forward I know some peers for example cut to lock in more favorable rate in 2020, I just wanted to get your thoughts on hedging.
Yeah.
Thanks, It's Jamie here.
We look for opportunities over the course of the past nine to 12 months to cause it to lock in more of our Canadian dollar exposure, but the way that the Canadian dollar has been strengthening and more or less.
Straight line over that period, there wasn't much in the way of opportunities to do so so I think we have 8% of our remaining 2021.
Those you're hedged at well below 80.
We'll look for opportunities to do more if if there's weakness in the Canadian dollars, but as I said, we haven't seen that.
Of late Unfortunately, we are very well covered it in Mexico, we've got about 80% of our exposure.
Hedged between 'twenty, one 'twenty for which.
Our contracts are very favorable relative to current spot. So so that's where we're at currently what we will continue to look for opportunities to do more but there's certainly non currently.
That's helpful. Thank you.
Thank you.
The next question is from Lauren Mcconnell of paradigm capital. Please go ahead. Your line is now open.
Good morning, John Jamie and Peter Congratulations on a good quarter I just had a question on island I know, there's a history of positive reconciliation.
I just wanted to know what that 13, two grams per ton that you mined this quarter was that in line with what you were expecting on the reserve model or are you still seeing positive reconciliation that island.
Now that that is in line with what we were expecting it reconciled quite well we've you know.
Over the years debt.
We've owned it made changes to the reserve model.
We don't really see.
Significant positive reconciliations.
For the last couple of years, it's behaving quite well.
Okay, great. Thank you.
Thank you.
The next question is from Cosmos <unk> of CIBC. Please go ahead. Your line is now open.
Hi, Thanks, John Jamie Peter and team.
Maybe first off on young Davidson here as.
As you mentioned.
To see that you were able to get to almost 7800 tons per day. When you were targeting 7500 tonnes per day in terms of mining rates underground at all on that point could you give us some key highlights in terms of how you are able to come to a a throughput that was higher than what you had targeted and then the second part of.
My question is it sounds like it's not yet repeatable yet in Q2, you're still targeting 7500 tonnes per day.
In Q2, and why is it not repeatable.
Okay.
Okay.
Louis striving to do better than that and then our plan.
You know a few things would've lined up in Q1 debt that helped us beat it. We just you know we had a good quarter.
We actually beat it in Q4, if I'm not mistaken is well served.
500 tonnes a day.
We plan.
We're planning for 7500 tonnes a day for Q.
Q2, and ramping up to two 8000 tonnes a day for the rest of the year.
To facilitate that we're bringing on another mining horizon, which will which will help us do that.
Can we do better.
I wouldn't expect 8000.
I'm, just I'm still expecting 7500.
Okay.
I get what you mean, but I guess, Peter you know how did you beat it in Q1 day could you tell us.
One or two key highlights for you know.
It kind of surprised you or or.
What what happened.
You know it's it's.
It's just.
They are being there and it continues to be there. So it's just being able to moving getting getting familiar with the new infrastructure. It takes a while to to trusted and and.
Figure it all out so.
The difference between 7800 tons, a day and 7500 tonnes a day in.
It's not that huge a difference frankly, so I wouldn't I wouldn't say, we knocked it out of the park. It's a it's nice to be on the higher side of that we might be maybe it will be.
At quarter.
I had a couple of hundred tonnes a day below our target. It's it's it's always going to vary up and down within.
Little bit at least.
Gotcha, Thanks, Peter and then maybe as you touched on it the new mining horizon here can.
Can you talk a little bit more about you know maybe the location you know, whereas this new mining horizon and then can you remind US you know how many areas of your mining and at this point in time.
Yeah, I mean, yeah.
So yeah, we have a couple of mining horizons in the in the upper part of the mind that we're continuing to mine and this one actually is another one that would be at the upper part of the mine more to the on the western Western flank. We've got a couple of mining horizons in the lower part of the mine. So it varies from time to time between.
345 mining horizons.
We.
Would cycle through as many as 100 stopes in a year and and.
And have at any given time 30 stopes online. So that's that's kind of the mix.
Okay, Great got it and then Peter as you talked about you know you're still trying to trying to.
I understand I understand you're getting familiar with it.
Lower mine infrastructure as you as you mentioned.
You know at this point in time any areas that you think might be limiting factors as it orbits to conveyor or everything's running fairly.
As you would have expected.
This is so much.
So much better than what we had at the mid mine that was frankly built for 6000 tons a day and it can also frankly put in as a sort of an interim measure to get to the lower mine.
I think we have something like 10 times more bin capacity, we have additional skipping capacity, we have conveying instead of trucking all of those things help.
Help us make our numbers.
We're in good shape.
Mhm.
Great maybe.
Maybe switching gears a little bit at la.
<unk> grown day, you know what I think.
You know there's already been some discussions in terms of.
No inflationary factor and potential or maybe not no issues in terms of.
The impact on cost could you comment on La Yaqui Grande you know any kind of inflationary factors that we should be aware of that we should be concerned about in terms of capex.
We haven't we haven't seen any we're well into construction I mean, most of the capex associated with La Yaqui Grande is earth, moving really pre stripping building leach pads.
Putting liner down we ordered the lack of the liners on site came in on budget.
And you know our mining contract is a fixed rate per ton. So.
Sort of diesel moving around a lot.
Don't really see much opportunity for.
Inflationary pressures.
And that's a that's good and that leads me to my second question here I guess it all as these can you remind me I guess you know when is the rainy season in Mexico, I think that's coming up and are there any key things that you want to wrap up and finish.
Head of the rainy season or is the rainy season, not really an impact not an issue in the northern part of Mexico.
No we do have a rainy season and it was kind of.
August September can start in July a little bit.
And.
You know you try not to do certain things you try not to be doing quaint liner on your leach pad during the rainy season, that's about the only thing that you use the underlying or if that's the only thing we try not to do and we're well ahead of that and it's not going to I'm not going to be an issue.
Sounds good and maybe one last question or just to wrap things up.
I guess you know your Capex budget for the year is 320 million to $350 million you did about $73 million in Q1 could you maybe give us a bit more granularity in terms of you know the.
The remainder on how that's going to be distribute it throughout the remainder of 2021.
Cosmos, it's Jamie here, Yeah, I can tie Jamie.
Hey.
B pretty evenly distributed.
You will note, we had $16 8 million zone.
What we classify as capital advances in the first quarter as well. So that's audits on long lead items are there contract or advances. So if you factor that in.
The actual cash spending was a bit higher in Q1, but overall I would expect that capital debt capital to be incurred pretty evenly.
Great. Thanks, a lot guys. Those are all the questions I have thank you.
Thank you.
The next question is from Mike Parkin of National Bank. Please go ahead. Your line is now open.
Hey, guys. Thanks for taking the questions and congrats from certainly a solid start to the year.
Following up on Cosmos question's on young Davidson.
Just with respect to the stopes I know they always kind of been massive but is there any movement to using larger stopes are in the underground now or is it pretty much you know similar sizes to what you've been.
Extracting for the last year or so.
Yeah, Mike I guess, it's it's Peter here in the upper mine.
Our stope height was 30 meters and in the lower mine gone to 35 meters.
And.
The lower mine tends to have wider zones as well so thickness into the page. If you like I think we would have.
I can't remember the numbers exactly but we might've been averaging 20 meters in the upper mining more like 30 meters and in the lower mine.
So the stopes tend to be or are on average bigger and so more tons per per stope on average.
So generally you're you're set up well to have that as a tailwind for you as you open up the.
The lower mine them.
In terms of productivity, Okay, that's great.
Most of my questions were answered just one more on island I know you guys were planning to do a bit of regional exploration last year that got delayed due to COVID-19 plans are to do it this year.
What could or you know timeframe in terms of news flow around that be obviously, you're having great success at the actual island mine just wondering.
Now if you stumble upon something else that's interesting when could we maybe see initial results.
Yeah, I guess as the year progresses I mean, we we we do have one drill let's say that's gonna be.
Poking around more regional targets, but you know.
Continue to have.
For the half or three on surface in a couple of underground as well drilling so.
Yes, we've got lots of exciting things to look at in the regional setting and.
I can't I can't give you a timeframe on when you will see results.
Currently waiting for assays on some of those holes. So there you go.
Alright, well that's it for me guys. Thanks, so much.
Thank you.
The next question is from John Tumazos of John Tumazos very independent research. Please go ahead. Your line is now open.
Thank you for taking my question.
With a de emphasis of the Turkish projects.
How you reallocate.
Management time and resources.
Does this mean, a little more attention for Lynn Lake.
Does this mean, a little more exploration budget or potentially a property acquisition.
Separately I just wanted to commend you for your adherence.
Foreign corrupt practices act not caving into troubles in the third world.
And if you need to commemorate several thousand genocides. In addition to the I mean genocide My family can help you with that content in history.
Yeah.
Hum.
I'm kidding, a little bit, but I commend for what Youre doing.
This is.
John Maslowski I'll take your question just to say that we were.
Not.
We were not sacrificing our budget or or.
Management time.
On the back of what we were involved within Turkey essentially everything.
Everything going onto the company was.
Being.
Well managed.
In addition to Turkey, So I would say that given the fact that we werent doing any work.
In Turkey.
Over the last year the bulk of the.
Of the responsibility for what was going on was really being handled by.
The Turkish team, we have about 16 people employed in Turkey.
We will be reducing our team of course going forward.
Given the fact that they were they were the ones responsible for what was going on for that.
For the vast majority of the work.
There's going to be really no no big change to the way we manage things.
Yeah.
Good for sticking up for you right.
Thank you.
Thank you.
The last question is from Kerry Smith of Haywood Securities. Please go ahead. Your line is now open.
Thanks, operator, John when does the claim.
For Cherokee actually get filed how long does it take to file that claim.
Just generally.
Within a couple of weeks when you announce.
That you are going to be filing a claim.
You you would actually for.
While the actual claim.
It starts out with effectively something like this with the news release and our notice and then you.
And then you move it for it so it's something that.
Do a fair amount of preparation on.
And so we were well prepared going into the announcements so it won't be too long.
Okay, great. Thanks, and Peter in Q2 or are there any large maintenance no maintenance shutdowns planned debt.
Whiting.
I mean, we had maintenance shutdowns every quarter, but nothing that they can.
Okay.
I think net.
Would impact the numbers.
Right. So nothing extraordinary basically no no okay gotcha.
And when does the pre strip that helps also actually finish and we will.
The ore that's last day, not paid actually running through to the start up probably I can grande.
I'm sorry, when does the when does the pre strip at El Salto finishes.
Yes.
Towards the end of this year.
And yes, we haven't obviously, you know we have enough or between <unk> and <unk>.
In excess.
Between pit molecules.
And the SaaS stockpiles and sharp along all.
All three of those sources to well take us to the start of.
Like I could Grande.
Gotcha Okay.
Then just the last question on the new hedges that you added post the end of the quarter, Jamie is 46000 ounces.
True to the end of this year would that kind of be evenly spread over the course of the next nine months standard that's the way to model it.
Yes, that's right Gary.
Okay. Okay. That's great. Thanks, very much guidance.
Thank you.
There are no further questions at this time. 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 for 163689932 extension five for three nine.
Please disconnect your lines at this time and we thank you for your participation.
Okay.
Okay.
[music].
Materially.
Once again, please continue to standby we thank you for your patience.
Well enough to know that you have for lapped a silty duckenfield they'd be touched soup. The NIM for pre owned EBITDA of Hulu I had thought of it get it because that's the new for them at some of the best guilty.
[music].