Q2 2021 Alamos Gold Inc Earnings Call

And.

[music] all the participants please continue to standby the conference will.

This conference is being recorded.

Gold sales at all of as you see.

Please.

And by your meeting is about to begin good morning, I'd like to turn the meeting over to Mr. Scott to Mr. Jamie Porter Chief Financial Officer. Please go ahead.

Thank you operator, and thank you and everyone for attending Alamos and second quarter 2021 conference call.

In addition of myself, we have on the line today John Mcphee.

<unk>, President and CEO, Peter Macphail, Chief operating Officer, and Scott RG Parsons, our vice President of exploration.

We will be referring presentation. During the conference call that is 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 that news release and M. DNA as well as the risk factors set out of our annual information for technical.

Technical information and this presentation has been reviewed and approved by Chris Bostwick, Our Vice President of technical services and a qualified person.

Also please bear in mind that all of the dollar amounts.

As mentioned in the conference call or in the U S dollars unless otherwise noted with that I'll turn it over to John to provide you with the overview.

Yeah.

Thank you Jamie and welcome everyone.

I'll begin with slide slides free.

We had a solid first half of it was 2021 and highlighted by the strong operational performance.

Young Davidson.

And we remain well positioned to achieve our full year guidance.

And the second quarter, we produced 114200 ounces of gold and total cash cost of $791 per ounce and all in sustaining cost of $1936 per ounce.

As previously communicated.

Cost were above annual guidance in the quarter, reflecting the stronger Canadian dollar.

It's been a year since we completed the lower mine expansion at young Davidson and that infrastructure continues to perform well.

Meeting or exceeding targeted mining rates each quarter.

Looking ahead, we expect every.

<unk> is the ramp up to its design for mining for 8000 tonnes per day, and the third quarter contributing to stronger company wide production and the stack.

And I suppose in 2020.1.

We generate the companywide operating cash flow of $97 million and the second quarter of 117% increase from a year ago.

With the prior.

Prior year impacted by COVID-19 related downtime.

Yes, and data Center and island gold continues to generate solid free cash flow, which offset the increase and capital spending and the.

Primarily at the <unk> Grande.

And we expect stronger company wide free cash flow and the second half.

Davidson, you're reflecting higher gold production and sales.

Moving onto slide for.

We're making good progress on our strong pipeline of North American projects.

Construction is in full swing of Liaqat Grande and.

And on track to achieve commercial production and the third quarter.

For a 2022.

At Lynn Lake, we continue to advance permitting and expect this to be completed by the middle of next year, which would enable us to make the construction decision thereafter.

Exploration activities and make also ramped up and the quarter focusing on drilling and proximity of the known deposits as.

As well as to regional targets.

Develop activities continue to ramp up on the phase III expansion of island gold.

Focusing on the surface infrastructure permitting and detailed engineering.

In February we announced the 1 million ounce increase and high degree of reserves and resources.

Yes as of the end of 2020.

All of which is upside for the phase III expansion study published last year.

We followed that up in June with another of our exploration update which included the best hole drilled to date.

The downhole plunge for.

The existing resources and property and proximity to our plants.

I'm shocked.

Okay.

These results from going and and.

And as these results represent ongoing exploration success and they clearly demonstrate the deposit will continue to grow.

And highlight the significant upside potential.

And I think of the market is beginning to appreciate.

With the projects underpinned our strong outlook for 50.

And 50% production growth potential to approximately 750000 ounces per year by 2025 are.

And at significantly lower all in sustaining cost of around $800 per ounce.

This will support peer leading free cash flow growth over the long term.

And they are more than ample capacity to fund the sports internally, while continuing to generate solid free cash flow and returned more capital to shareholders for our ongoing dividend, which.

Which we had the increased by nearly 70% over the past year.

And with that I will conclude my comments and turn the call over at Stifel and Jamie border.

<unk>, who will give you a brief update on our financial performance for the quarter.

Thank you John.

Moving onto the slide 5 we sold 107006 hundred ounces of gold at a realized price of $1814 per ounce for revenues of $195 million and the quarter.

Sales were approximately 6006 hundred ounces less and gold produced due to the timing of shipments with those ounces sold in July to be realized as revenue and the third quarter.

Total cash cost of $791 per ounce and all in sustaining cost of $1136 per ounce were higher than annual guidance mainly.

Reflecting the stronger the budget of Canadian dollar.

As we've previously noted our 2021 guidance was based on the Canadian dollar foreign exchange rate of 75.

Compared to the actual rate of 81 and the second quarter.

And the first half of 2020, 1 and the stronger Canadian dollar increased our total cash cost by approximately $30 per ounce.

Gold.

Okay.

All of it seems that Mr. Parker.

He has disconnected from the call.

And should we wait for him to get back on line are yeah, we'll just get for Jamie of moment to try and get back on the line.

Okay.

It seems as though Jamie is having trouble of getting back on so I will I will step in here his portion of the the call.

So just to finish off his thought there we expect a similar impact and the second half of this year should the Canadian dollar remain at 80 cents. This is expected to keep cost at similar levels and the third quarter before declining and the fourth quarter.

Operating cash flow before changes in noncash working capital increased 117% year over year to $97 million.

Or 25 cents per share and the second quarter.

We reported a net loss of 187 or 173 million and the quarter, which included a noncash after tax and.

The charge of $214 million related to our Turkish projects as a result of the previously announced decision to proceed with the bilateral investment treaty claim against the Republic of Turkey.

The $214 million represented the full of carrying value of our Turkish assets.

And the noncash impairment charge Amy.

Impairment if you can.

You hear me sorry, My my line, but I'm I'm back now so all I can keep going.

Please go ahead Jamie.

Thanks, Scott, excluding that non cash impairment charge foreign exchange gains and other losses. Adjusted net earnings were 39 million of 10 cents per share and the quarter.

Capital spending totaled 84 million and the second.

Quarter, including $27 million of sustaining capital.

The millions of growth capital and 6 million of capitalized exploration. Additionally, we paid $3 million of capital advantages for work and equipment largely related to La Yaqui Grande.

Capital spending is expected to increase into the second half of the year consistent with full year capital guidance of between 354 and.

And $384 million.

And this reflects the ramp up of development activities of La Yaqui Grande as well as debt.

With the phase III expansion of island gold.

We were free cash flow neutral and the second quarter net of the increase in capital spending the gold sales that we've previously discussed the were deferred for the third quarter as well as the $6 million.

Cash tax payment and Mexico, which we do not anticipate the continue and the second half of the year.

We expect increased free cash flow and the second half of 2021, driven by higher production and gold sales.

We paid our quarterly dividend of $10 million and so far and 2021, we've returned more than $21 million to shareholders and the form.

<unk> of dividends and share buybacks, we are on track to return more than $40 million for the full year.

We remain debt free and ended the quarter with $234 million and cash $22 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.

Turning to the shareholders.

I know Peter.

And what's dropped off the call as well so I'll see if I'm Peter Yeah.

I'm back on now John or Jamie.

And I'll turn it over to our COO, Peter Macphail to provide an overview of our operations for the quarter.

Yeah.

Thank you Jamie.

Moving on to slide 6.

And as John mentioned, we completed the lower mine expansion at young Davidson, 1 year ago, and since then underground mining rates and consistently met or exceeded targeted rates and.

The second quarter mining rates average 7500 tonnes per day, right on target and and the first half of the year mining rates averaged 70.650 tons per day exceeding targets.

And the other mining horizons, and currently being added and will enable underground mining rates to increase for the long term rate of 8000 tonnes per day, starting from the second half of this year.

And the second quarter, we produced 45100 ounces of gold generating $19 million of mine sites and mine site free cash flow.

Total cash cost of 941.

Dollars per ounce and mine site, all in sustaining cost of 1100 and $57 per ounce.

The annual guidance and the second quarter did the the stronger Canadian dollar plan and money and floor grades and lower mining rates and the first half of the year.

Grades mined and underground mining rates are expected to increase over the remainder of the year, providing driving production of higher.

<unk> and cost floor, and the second half 2020.1.

With the $41 million of mine site free cash flow through the first half of the year and strong results expected in the second half young Davidson remains on track to generate record mine site free cash flow of more than 100.002 million 21.

Over the slide 7 island gold.

Produced 33200 ounces of gold and the quarter generated $14 billion of mine site free cash flow.

Previously guided grades mined and processed decreased from the first quarter.

Grades are expected to remain at similar levels in the third quarter for increasing in the fourth quarter average reserve grade of approximately 10 grams per tonne for the full year.

Total cash cost of $502 per ounce and mine site all in sustaining cost of the $830 per ounce were both slightly higher than annual guidance, largely reflecting the stronger than budget Canadian dollar.

Phase III expansion work continues to ramp up with the precinct of the shaft expected to begin the mid next year.

Both.

The focus remains on permitting and detailed engineering of the shaft and associated infrastructure and procurement of long lead items.

Growth capital spending totaled 14 million in the second quarter and included completing the expansion of the tailings facility.

Capital spending is expected to increase and the second half of the year consistent with annual growth capital.

Little guidance of $80 million to $85 million.

We received our first batch of 2020.1 exploration results in June and island did not disappoint returning the best of all drilled to date.

And few moments Scott Parsons VP exploration will discuss these results in more detail as well as the encouraging early results were seeing at young Davidson.

Moving to slide 8 a lot of US produced 35900 ounces and the second quarter total cash cost and mine site all in sustaining cost of 893, and 1100.44 per ounce respectively.

They are blown and existing surface stockpiles continued the supply most of the ore stacked and the quarter with my net.

Activities and the name of lots of us focus on pre stripping of the El sell for a portion of the pit.

Gold production is expected to increase and the second half of the year consistent with full year guidance.

Mine site free cash flow was negative 12 million and the quarter, reflecting the $6 million tax.

Tax cash payments as well as growth capital and capital advances related.

And do La Yaqui Grande of $25 million.

Leading the way Yoki Grande capital a lot of us would've generated might say true parcel of $12 million.

Moving to slide 6 construction of La Yaqui Grande is progressing well with more than 1 million ounces.

1 million hours worked and the first half of 'twenty 'twenty 1.

Weighted 2 lost time injuries.

Pre stripping activities continue to ramp up with over 5 million tons of waste mined during the quarter.

Leach pad construction is now over 60% complete and concrete was poured and the crusher area, where all the major components of the crushing circuit are now on site.

La Yaqui Grande remains on track to.

1 of the playing low cost production and the third quarter of 2022.

I'll now turn the call over to Scott to provide an overview of exploration activities during the quarter.

Theater and the successful quarter from an exploration perspective with excellent results for young Davidson and island gold, which I'll discuss briefly.

Starting with young Davidson.

And on slide 10.

Focus over the last several years as of completing the lower mine expansion that complete and more cost effective access the drill from underground now available for the $7 million budgeted for exploration. This year is the first significant exploration program at young Davidson since 2011.

Over to slide 11, and the success we're having.

And he was on 2 fronts drilling has been successful.

Successful and are intersecting Goldman and renovation downplayed and from existing reserves and resources within the cyanide for those of the young Davidson deposits.

The drilling of the began in 2020 of extended mineralization 220 meters below resources at that time and for the first half of 2021 drilling extended mineralization of further 100.

And meters below our 2020 of drilling.

We've also intersected the other styles of Goldman organization outside of the syenite hosted and the high grade structures within the hanging wall mafic ultramafic stratigraphy of the Tisdale assemblage and also within structures developed and the footwall to misgiving sediments.

This includes the intersection of high grade structured 200 meters south.

Third and fifth wall contact of the syenite with the within the Tuesday, well beyond the limits of any previous drilling as soon as separate turned and 5.8 grams per tonne over $13.7 meters, which included 24 grams per tonne of over $1.9 meters.

The results to date and highlight the significant geologic potential that exists and the property not only to add reserves and.

The resources within the cyanide and with the deposit open at depth and a long strike for the west, but also of a potentially higher grades associated with other styles of mineralization that are common across the abitibi.

Moving on to slide 12, and.

In addition to the good results, we're seeing at young Davidson, we had an excellent start for the year on the exploration of funds of island gold and.

And the second quarter.

And we drilled the best hole and the deposit to date, because it's out of a total of over 7000 drill holes and $1.3 million meters of drilling.

For the whole image twenty-five elite intersected 71 grams per tonne for 39 grams per tonne cut over 21 meters true width down plunge from the large inferred resource block and the lower portion of the portion of island East.

Intercept at significantly higher grade with true with approximately 4 times greater than the average weight of the resource block and its within proximity to the planned shop and.

For the resource block and already grown to include $1.3 million ounces grading 18 grams per tonne and at the end of last year.

These ongoing results demonstrate the potential for island gold deposits.

Did the growth through exploration.

Over to slide 13.

Island Gold reserve and resource base has grown dramatically since we acquired it in 2017 for the.

Time, we completed the phase III expansion study last year reserves and resources, the double to $3.7 million ounces.

Since then and we got another 1 million ounces of high grade.

Great of reserves and resources, which is all upside to the already attractive economics outlined and the study.

With the recent exploration results being among the best ever and with the deposit open and widely and down plunge, we expect further growth and island gold and reserve and resource base, highlighting the significant upside potential.

And with that I'll turn the call back over to John.

Continued thank you for your Mike Scott that concludes the formal part of our presentation and I'll now ask the operator to open the line free of cost.

Thank you.

We will now take questions from the telephone lines. If you have a question and using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star 1 on your devices.

Life of keypad, if at any time he wished accounts for your question. Please press Star 2 please press star 1 at this time if you have the question there'll be a brief pause for participants register thank you for your patience.

Once again, please press star 1 at this time, if you have a question.

And the first question is from the Cosmos Shue from CIBC. Please go ahead.

Thanks, John Jamie Peter and Scott.

Yes. My first question is on the Canadian dollar here are 2 parts.

The number 1 we all know that are you know there's.

There's been a lot of strength and the Canadian dollar.

As you mentioned your guidance is based on a exchange rate of <unk> 7 and 5.

So far it's been closer to the 0.8.

And maybe a question for Jamie when would you consider updating your guidance for the actual foreign exchange rates.

We realized so far.

Yeah. Thanks, Cosmos, yes, I mean that all of that has been I mean, if you adjust for 80 and dollar strength, we were well within our guidance range and if you look at it around the year to day basis, we're pretty close I mean, our operations have done a really good job.

Keeping cost low display.

By the the Canadian dollar strength and you know.

And inflation and in some areas.

On a year to day basis, we're running at 773 total cash cost relative to the top end of our guidance of 760.

And an all in sustaining cost were running at 10.79 relative to the top end of our guidance of $10.75, and so were within.

That's been for dollars or within 1% on both cash costs and all in sustaining cost. So we are expecting similar cost in the third quarter and a much lower cost with higher grades at the Y D and in Q4, and so I think we'll reevaluate at the end of Q3.

And we don't get a chance to you know despite the the.

The impact of the Canadian dollar strength I think we've still got a shot at the.

That being within the like the top end of our guidance range.

Of course, and then Jamie as a follow up and you and I have talked about this and the past.

Oh, you have talked about potentially being opportunistic.

It's interesting in terms of hedging.

You know for all of our exposure. We've seen you know Canadian dollar sort of weaken a little bit of strengthened against a very volatile and how should we take a look in terms of your hedging program have even tried to be opportunistic in terms of adding to it.

Yeah, Yeah, we absolutely have I mean, if you go back in and.

And look at the Canadian dollar up until recently and it's been a pretty much of a straight line up since we put a bunch of together plus the last September October. So we have taken advantage of the recent weakness, but the the recent debt to increase R.

Our coverage.

A spectrum of of our.

And our CEO Graham I think going into <unk>.

Going into the the end of the second quarter, we only had 10% of our Canadian dollar exposure hedged, we're now up to 45% between about 77 and the half and an 81 sense. So we are we are working to to try to protect.

Hedge from R. R.

There's the somewhere within that range for the second half of the year.

And then Jamie you mentioned, the I word inflation and that appears to be of concern for a lot of investors.

For the mining space could you talk about you know and you've seen any kind of inflationary.

And the pressure be.

Be it on labor or other input cost.

And you know how and how should we look at it.

Yeah. So I think my reference to inflation at it it's a it's topical at the industry wide and think a lot of companies are reporting cost.

Cost.

Inflation.

I think we've done a good job year to date I mean, the Canadian dollar terms at the at both young Davidson and island Gold, where we're actually ahead of our.

Hello.

And it looks like and it sounds like it sounds like.

And where he has dropped off again can you hear me Cosmos Peter.

Yes, Hi, Peter Yeah, I know I think the finished with the Jamie's thought there you know.

Where we're managing it and we have some you know for most of our consumables, we have longer term contracts. So thus far that has and it isn't really impacting us.

Uh huh.

As we go forward hopefully this is this is temporary.

Of.

Yeah.

Cycle that we're seeing and the supply chain.

Debt that will revert to normal.

Hi, Greg.

And it's good that you jumped and Peter because I have a question for you as well.

And you talk about you know when you talked about the short term impact here and what potential impact on the inflation. How are you managing some of the potential longer term impacts here on the inflation on your projects la.

And I can grown day.

And the shaft at our island gold how should we think about it.

Yea, I think la Yaqui Grande and I'm not I'm not really concerned at all are aware.

Sure.

You know.

We're on budget on target halfway through and you know, we're getting close to halfway through that project.

Mining out of rate of 55.

Thousands of 60000 tonnes a day pre stripping at line.

Sunday, where were right on budget.

The contract mining rate and you know we haven't seen we haven't seen cost pressures are in Mexico, and Mexico are yet and I suppose but I mean.

Really don't.

Really not seeing anything and we're projecting right on right on schedule right and.

At the garage it there and then.

More of longer term once you know, we're just getting going at and at island gold.

<unk> thinking project is this largely you know labor based and you know the labor rates Havent Havent.

Skyrocketed and and in and Ontario.

No we're.

And I think we had a 3% increase this year of our budgeted and that's you know that's what we that's what we saw.

And I really don't see.

The changes.

Great and then 1 last question maybe for Peter as well the grade in Q2.

And at Island gold.

Old and young Davidson and both at the lower end of the full year of sort of guidance.

Could you comment is it all due to mine sequencing and how does it reconcile all of the back to your block model here.

Yeah. Thanks for asking that question yeah. It is it is a sequencing solely.

Get.

Still the good reconciliation of both of those operations are you know within the industry standard you know kind of 3 per cent or so.

Historically and in the quarter. So if you know some minor of sequencing.

The debt.

And that.

Put us at the low.

Really our guidance range for the quarter. It's just what you would expect to see running anymore and you get.

And you get some fluctuations from quarter to quarter based on the.

The stope recipe that you happened to be mining.

Great. Thanks, those are all of the questions I have thanks again.

Thanks for thank you.

And once again please.

Press Star 1 at this time, if you have a question.

And the next question is from Kerry Smith from Haywood Securities. Please go ahead.

Thanks, operator.

And maybe Peter just on the Covid situation in Mexico has that had any real impact on the construction and I know you've got a lot of that is coming.

So and of course here on the construction side is that good and issue for you there.

You know the guys are managing it and extremely well we have a lot of people at site. Sometimes you know you look at our entire population there of our employees.

The employees and contractors and other and all of the at the same time, but it's approaching 2000 and.

Probably with with well over 1000.

And there at any given time.

We instituted testing for PCR testing.

The early on and this COVID-19.

The pandemic and all 3 of our operations and and we continue with that all 3 of our operation. So.

We are able the screen D C.

You know people that would be otherwise positive, which we're able to screen. The most tired of getting to site and are running you know longer rotations with them at the site. We've had a few along the way cases slipped through and then we you know we.

And we keep keep the segregated and ship them back and they are back you know wants.

Passenger back again, so there have been a lot of cases, and Mexico and there had been a lot of cases within our work force that Mexico, but we've managed the screening them out and and the guys are doing a great job keeping it under the drip and the noted the camp.

Okay. Okay. Good and then there was the comment in the.

N D and a about the $45 per ton.

TUI and target of 8000 tonnes a day for the mining cost at Y D is that.

And that's pretty high dollar number the number that you kind of expect to be at.

When you ask of 'twenty, 'twenty, 1 or would that be sort of of target. Once you get things stabilized maybe into the back end of 2020.2.

You know well.

I guess, we'll see that as our target rate and that is our targeted right at 8000 tonnes a day, so I think.

Were there.

We'll be at we should well average 8000 tonnes a day for the for the rest of the year.

We'll see where the unit cost come in and but that is the target.

And can eat.

And.

Yeah.

Okay, Okay, great. Thanks, very much Peter.

Yep.

Thank you.

Yeah.

Once again, please press star 1 if you have a question.

Ladies and gentlemen, there are no further questions at this time. This concludes the mornings call. If you have any further questions that have not been answered please feel free to contact Mr. Scott Parsons at for 1.6.

3689, and 932 extension 5 for 3.9.

Thank.

Thank you free.

It's just being on the call today and have a great day.

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