Q2 2021 Alamos Gold Inc Earnings Call
[music].
This conference is being recorded so it's of course the holes at the all of US you see.
Please standby your meeting is about to begin.
Good morning, I'd like to turn the meeting over to Mr. Scott to Mr. Jamie.
Jamie Porter Chief Financial Officer. Please go ahead.
Thank you operator, and thank you and everyone for attending Alamos is the second quarter 2021 conference call.
In addition of myself, we have on the line today, John Mccluskey, President and CEO, Peter Macphail, Chief operating Officer, and Scott RG Parsons, our vice President of exploration.
We will be reported.
Patients 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 and.
We will be making forward looking statements during the call. Please refer to the cautionary notes included and the presentation that news release MD&A as well as the risk factors.
<unk> set out and our annual information form 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 mentioned in this conference call or in the U S dollars unless otherwise noted with that I'll turn it over to John to provide you with an overview.
Yeah.
Thank you Jamie and welcome everyone.
And reflect the slide 3.
We had a solid first half of 2021 and highlighted by strong operational performance at young Davidson.
The main well positioned to achieve our full year guidance.
And the second quarter, we produced the.
14200 ounces of gold and.
Total cash costs of $791 per ounce and all of that sustaining costs of $1136 per ounce.
As previously communicated.
And we're above annual guidance and the quarter, reflecting the stronger Canadian dollar.
It's been years.
100, and suite of completed the lure of mine expansion at young Davidson and the infrastructure continues to perform well.
Meeting or exceeding targeted mining rates each quarter.
Looking ahead, we expect them Davidson to ramp up to its design from 98000 tons per day, and the third quarter contributing to stronger companywide.
Production and the second half of 'twenty 'twenty 1.
We generate the company wide operating cash flow of $97 million and the second quarter of 117% increase from a year ago.
The prior year impacted by COVID-19 related downtime.
Young Davidson and island Gold continues.
And to generate solid ongoing free cash flow, which offset the increase and capital spending and the quarter primarily at the Aki granted.
And we expect stronger company wide free cash flow and the second half of the year, reflecting higher gold production and sales.
Moving on to slide 4.
We're making good progress on our strong pipeline of North American projects.
Construction is in full swing at La Yaqui Grande and on track to achieve commercial production net of third quarter of 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 a construction decision thereafter.
Exploration activities and make also ramped up and the quarter focusing on drilling and proximity of the known deposits.
And as well as to regional targets.
Development activities continue to ramp up on the phase III expansion at island gold.
And the surface infrastructure permitting and detailed engineering.
In February we announced the 1 million ounce increase and high grade reserves and resources.
Yes, so of the end of 2020.
All of which is upside to the phase III expenses study published last year.
Focus and we followed that up in June with another exploration update which included the best hole drilled to date.
The downhole plunged from the existing resources and property and proximity to our plant shock.
These results from going and.
And the.
These results represent ongoing.
<unk> success and the clearly demonstrate the deposit will continue to growth.
And highlight the significant upside potential.
And I think the the market is beginning to appreciate.
The products' underpin our strong outlook and the 50% production growth potential to the approximately 750.
Going ex and ounces per year by 2025.
At significantly lower all in sustaining costs of around $800 per ounce.
This will support peer leading free cash flow growth over the long term.
We have more than ample capacity to fund this growth internally, while continuing to generate solid free cash flow.
Returned more capital to shareholders from our ongoing dividend.
Which we have increased by nearly 70% over the past year.
And with that I will conclude my comments and turn the call over to CFO, Jamie Porter, who will give you a brief update on our financial performance for the quarter.
And thank you John.
Moving on to 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.
Gold sales were approximately 6600 ounces lastly would produce due to the timing of shipments.
And with those ounces sold in July to be realized as revenue and the third quarter.
Total cash costs of $791 per ounce and all of them all in sustaining cost of <unk>.
$1136 per ounce were higher than annual guidance, mainly reflecting the stronger the budget the Canadian dollar.
As we've previously noted our 2021.
Guidance was based on the Canadian dollars and foreign exchange rate of <unk> 75.
Compared to the actual rate of 81, and the second quarter and.
And the first half of 2021, the stronger Canadian dollar increase our total cash cost by approximately $30 per ounce and.
It seems that Mr. Parker has disconnected from the call.
Okay.
And should we wait for him to get back.
And our yes, I will just give jamie of moment to try and get back on the line.
Okay.
Yes.
It seems as though Jamie is having trouble getting back on and so I will I will step in and hear his portion of the call.
And 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.
This is expected to keep cost of similar.
On the 1 third quarter before declining and the fourth quarter.
Operating cash flow before changes in noncash working capital increased to 117% year over year to $97 million or.
125 cents per share and the second quarter.
We reported a net loss of 187 sort of 173 million and the.
The quarter, which included a noncash after tax impairment 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 carrying value of our Turkish assets.
Hey, Scott and the noncash impairment charge Amy.
If you can hear me sorry, my line of side, but I'm back now so I'll keep going.
Please go ahead, Jamie thanks.
Thanks, Scott, excluding that non cash impairment charge foreign exchange gains and other losses adjusted net earnings were $39 million of <unk> 10 per share and the quarter.
Capital spending totaled $84 million, and the second quarter, including $27 million of sustaining capital $50 million 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.
Capital guidance of between 354, and 384 million and.
This reflects the ramp up of development activities of La Yaqui Grande as well.
With the phase III expansion at 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 that were deferred.
Full year 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 2020, 1 driven by higher production and gold sales.
We paid our quarterly dividend of $10 million and so far and 2021.
And the third more than $21 million to shareholders and the form 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.
<unk>, while continuing to grow our cash position and returns to shareholders I know Peter.
<unk> dropped off the call as well so I'll tell you I'm Peter yes.
And back on now Jamie.
I will turn it over to our COO, Peter Macphail to provide the overview of our operations for the quarter.
Thank you Jamie.
Moving on to slide 6 as John mentioned, we completed the lower mine expansion at young Davidson and 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 target.
And the other mining horizons currently being added and will enable underground mining rates to increase to 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 costs of $941 per ounce and mine site all in sustaining cost of $157 per ounce were above annual guidance and the second quarter to the the stronger Canadian dollar the planned mining of lower grades and lower mining rates from 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 and costs lower and the second half 2021.
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 million 2021.
Over to slide 7 island gold produced 33200 ounces of gold and the quarter generated $14 million 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 and the third quarter for increasing and the fourth quarter average reserve grade of approximately 10 grams.
<unk> per ton for the full year.
The 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.
And the mid next year current 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 and second quarter and included completing the expansion of the tailing facility.
Capital spending is expected to increase and the second half of the.
The year consistent with annual growth capital guidance of $80 million to $85 million.
We received our first batch of 2021 exploration results in June and island did not disappoint returning the vessel drilled to date.
And few moments Scott Parsons VP exploration will discuss these results in more detail as well as the encourage.
<unk> early results were seeing at young Davidson.
Moving to slide 8 <unk> produced 35900 ounces and the second quarter of total cash costs and mine site all in sustaining costs of 893 and 144 per ounce respectively.
They are blown and existing surface stockpiles.
The continued to supply most of the ore stacked and the quarter with mining activities and the main lots of us focus on pre stripping of the El Salto portion of the pit.
Gold production is expected to increase from 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 cash.
Payments as well as growth capital and capital of advances related to La Yaqui Grande of $25 million.
The leading la Yaqui Grande capital mulatto sort of generated might say free cash flow of $12 million.
Moving to slide 6 construction of La Yaqui Grande is progressing well with more than 1 million ounces.
And 1 million hours worked and the first half of 2021 with no 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.
Uh huh.
La Yaqui Grande remains on track to begin supplying low cost production and the third quarter 2022.
I'll now turn the call over to Scott to provide an overview of exploration activities during the quarter.
Peter.
And the successful quarter from an exploration perspective with excellent results of a young Davidson and island gold.
Site, which I'll discuss briefly.
Starting with young Davidson and slide 10, our focus over the last several years and completing the lower mine expansion that complete and more cost effective access the drill from underground now available the $7 million budgeted for exploration this year with the <unk>.
First significant exploration program at young Davidson since 2011.
Over to slide 11, and the success, we're having is on 2 fronts drilling has been.
The successful intersecting Goldman and renovation down plunge from existing reserves and resources within the cyanide the host the young Davidson deposits the.
Drilling the began in 2020 of extended mineralization and 220 meters below resources at that time and to the first half of 2020.
Gulf of drilling extended mineralization of further 150 meters below our 2020 of drilling.
We've also intersected other styles of Goldman organization outside of the cyanide hosted and the hybrid structures within the hanging wall mafic ultramafic stratigraphy of the Tuesday of assemblage and also within structures developed and the footwall to misgiving sediments.
This includes the intersection.
21 of high grade structured 200 meters south of the hanging wall contact of the syenite within this is bill.
And the limits of any previous drilling the sooner.
Is that return of $5.8 grams per tonne over $13.7 meters, which included 20 programs per tonne of over $1.9 meters.
The results to date and highlight the significant geologic potential that exists.
And second of the property not only to add reserves and resources within the cyanide with the deposit open at depth and along strike to the west, but also potentially higher grades associated with other styles of mineralization that are common across the abitibi.
Moving on to slide 12.
In addition to the good results, we're seeing at young Davidson, we had an excellent start of the year on the exploration.
<unk> front of island gold.
And the second quarter, and we drilled the best hole and the deposit to date and does that of a total of over 7000 drill holes and $1.3 million meters of drilling doable.
<unk> <unk> 25 of 8 intersected 71 grams per tonne of 39 grams per tonne cut over 21 meters true width down plunge from the large inferred resource block and the lower.
A portion of the portion of the island East.
It's intercepted significantly higher grade.
With approximately 4 times greater than the average width of the resource block and is within proximity to the planned shops and.
For the resource block and already grow and to include $1.3 million ounces grading 18 grams per tonne and at the end of last year.
These ongoing results.
And let's take the potential for oil and gold deposits to continue to growth respiration.
Over the slide 13.
And gold reserve and resource base has grown dramatically since we acquired it in 2017.
By the time, we completed the phase III expansion study last year.
<unk> and resources of double to $3.7 million ounces.
Since then we've got another 1 million ounces of high grade 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 deposits open laterally and down plunge, we expect further growth and island gold reserve and resource base, highlighting the significant upside potential.
And with that I'll turn the call back over to John.
Thank you very much Scott that concludes the formal part of our presentation I'll now ask the operator to open the line for your cost.
Thank you.
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And if you have a question. Please press star 1 on your devices keypad. If at any time you wish to cast. Your question. Please press Star 2 please press star 1 at this time, if you have a question there'll be a brief pause of participants register and thank you for your patience.
Once again please press.
The star 1 at this time, if you have a question.
And the first question is from Cosmos <unk> from CIBC. Please go ahead.
Thanks, John Jamie Peter and and Scott.
I guess my first question is.
The Canadian dollar here 2 parts.
The number 1 we all know that are you know 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.
And so far it's been closer to the 0.8, maybe a question for Jamie.
And when would you consider updating your guidance for the actual foreign exchange.
Change rate that's been realized so far.
Yes, Thanks, Cosmos, yes, I mean that of that.
<unk> bin 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.
Year to date basis, we're pretty close I mean, our operations have done a really good job.
Keeping costs low despite the Canadian dollar strength and.
Inflation and in some areas.
On a year to date basis, we're running at 773 total cash cost relative to the top end of our guidance of 760.
And.
Any and all of a sustaining costs were running at 10.79 relative to the top end of our guidance of 10.75. So we're within you know of $4 or within 1% on both cash costs and all in sustaining costs. So we are expecting similar cost and the third quarter and.
And much lower costs and higher grades at the Y D and Q.
And so I think we'll reevaluate at the end of Q3.
And we don't get a chance to despite the the impact of the Canadian dollar strength I think we've still got a shot at that.
That being within the like the top end of our guidance range.
Of course, and and Jamie as a follow up on you and I have talked about this and the past.
<unk>.
You have talked about potentially being opportunistic and opportunistic in terms of hedging your C dollar exposure.
We've seen and Canadian dollar sort of weaken a little bit of strengthened again today very volatile and how.
Shall we take a look in terms of of your hedging program.
Have you and tried to be opportunistic in terms of adding to it.
Yeah, Yeah, we absolutely have I mean, if you go back and look at the Canadian dollar up until recently and had been on.
Pretty much.
Straight line up.
We put our budgets together last the last September October so we have taken advantage of the recent.
<unk> weakness, but the recent dip to increase R.
Our coverage.
A spectrum of of our hedge program I think going into.
And going into the end of the second quarter, we only had 10% of our Canadian dollar exposure hedged and we're now up to 45%.
And about 77 of the half and 81 and so we are we are working to.
Try to protect.
Somewhere within that range for the second half of the year.
Hum.
And then Jamie you mentioned, the I word inflation and the.
Here's to be of concern for a lot.
And investors from the mining space could you talk about.
Are you seeing any kind of inflationary pressure.
Be it on labor or other input costs and.
And you know how.
How should we look at it.
Yeah, So I think my reference to inflation.
It's it's topical at industry wide and I think a lot of companies are reporting costs.
Through inflation.
We've done a good job year to date and meet the Canadian dollar terms that 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 Jamie has dropped off again can you hear me Cosmos Peter.
Yes, Hi, Peter Yeah, No I think the finished with Jamie's thought there.
Where we're managing it and we have some for most of our consumables we have longer.
And contracts, so thus far it hasn't it isn't really impacting us.
You know.
As we go forward hopefully this is this is a temporary.
Kind of.
Yeah.
Cycle that we're seeing and the supply chain.
And that debt.
And we'll revert to normal I guess time of Greg Yeah. It's good that you jumped and Peter because I have the question for you as well.
Talk about where you.
Talked about the short term impact here.
The impact on the inflation how are you managing some of the potential longer term impacts here on the inflation on your projects.
Yeah and Grande.
Longer term the <unk>.
<unk> at Island gold.
How should we think about it.
Yes, I think la Yaqui Grande and I'm, not I'm not really concerned at all.
Sure.
Uh huh.
We're on budget on target halfway through and we're getting close to halfway through that project.
Good day, and we're mining out of rate of 55.
Thousands of 60000 tonnes, a day pre stripping at La Yaqui Grande and where we're right on budget that's of concur.
Contract mining rate.
And we haven't seen we haven't seen cost pressures are in Mexico, and Mexico yet.
Yet.
But I mean.
<unk>.
Really don't.
Really not seeing anything and we're projecting right on right on schedule right on.
And budget there.
The more longer term once we're just getting going at and at island.
Shaft sinking project is this largely.
Labor based and you know the labor rates.
<unk> Havent havent.
Skyrocketed, and and and Ontario.
We're still.
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 big changes.
Great and then 1 last question.
And maybe for Peter as well the grade in Q2 at island Gold and young Davidson and both at the lower end of the full year sort of guidance.
Could you comment is it all due to mine sequencing and how does it reconcile the back to your block commodity here.
Yeah. Thanks for asking that question yeah. It is it is a sequencing.
<unk>.
We get really good.
The Asian at both of those operations.
Within the industry standard you know kind of 3% or so historically and in the quarter. So it's sort of minor CECO.
<unk>.
The debt.
And that.
Put us at the low end of 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.
Don.
Recipe that you happen to be mining.
Great. Thanks.
All the questions I have thanks again.
Thank you.
Thank you 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.
And Mexico has that had any real impact on the construction I know you've got a lot of value.
Just coming back and forth on the construction side is that from an issue for you Ed.
You know the guys are managing it extremely well we have a lot of people at site and sometimes you know you look at our entire population there of.
Employee.
And the contractors and other and all of their at the same time, but it's approaching 2000.
With well over 1000, and they're at any given time.
We instituted testing full of PCR testing.
The early on and this COVID-19.
The pandemic.
At all 3 of our.
<unk> and <unk> and we continue with but all 3 of our operations. So.
We are able to screen the people that would be otherwise positive, which we're able to screen. The moat tired of getting to site and are running longer rotations with them that site. We've had a few along the way cases slipped through and then we.
No.
Employees, we keep pizza and segregated and ship them back and they are back and whats 2 weeks past the 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.
And then there was a comment and the.
M D and a about a $45 a ton of Canadian target at 8000 tonnes, a day for the mining costs and Y D is that.
Is that 40 high dollar number of the number that you can kind of expect to be at when.
When you actually of 2021 would that be.
Okay. Good 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 targeted rate and that is our targeted right at 8000 tonnes a day so.
I think.
We are there.
We'll be at book.
We should well average 8000 tonnes a day for the for the rest of the year.
And we'll see where the unit costs come in and but that is the target.
And.
Yeah.
Okay, Okay, great. Thanks, very much Peter.
Yes.
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 the mornings call.
Do you have any further questions that have not been answered please feel free to contact Mr. Scott Parsons.
For 1 and 6.3.
300, 689, and 9.3 to extension of 5439.
Thank you for your patience. Thank you fruit assist.
Assisting all of the call today and have a great day.