Q3 2021 Alamos Gold Inc Earnings Call
Yes.
Uh huh.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Oh.
Okay.
[music].
Okay.
Okay.
Okay.
Thank you.
Okay.
Yes.
Okay.
Okay.
Okay.
[music].
Mhm.
Yes.
Yes.
Yeah.
This conference is being recorded so it goes to the homes that don't have as you see.
All participants please standby your meeting is ready to begin.
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 thank you everyone for attending Alamos third quarter 2021 Conference call. In addition to myself, we have on the line today, John Mccluskey, President and CEO and Peter Macphail, Chief operating officer.
We will be referring to a presentation. During the conference call that is available through the webcast and on our website.
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 form.
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 bear in mind that all the dollar amounts mentioned in this conference 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.
Thank you, Jamie and good morning, everyone.
I'd like to start with slide three.
Our third quarter was marked by strong ongoing performances at our Canadian operations offset by short term challenges at mulatto says it enters a transitional period.
<unk> gold production of 104700 ounces was lower than guided.
While total cash costs and all in sustaining costs were broadly in line with expectations.
Both were above our initial full year guidance and reflecting the impact of stronger than budgeted Canadian dollar.
A key highlight in the quarter with young Davidson, averaging record mining rates of 8000 tonnes per day.
Producing 50000 ounces of gold and generating 29 million in free cash flow.
The mine is performing very well and we expect it to be a strong free cash flow generator for a very long time.
A lot of us had a challenging quarter with an above average rainy season and slower than anticipated recoveries from stockpile door affecting both production and costs.
With several Cologne winding down stockpiles will make up a larger proportion of.
Production from a lot of us until the Yaqui Grande start supplying low cost production in the third quarter of 2022.
Given the higher costs associated with processing stockpiled ore, we expect costs to increase in the fourth quarter and through the first half of next year.
A lot of those costs are expected to decrease in the second half of 2022 and will be significantly lower in 2023, I was late Yoki Grande ramps up.
Looking to the fourth quarter, we expect production to increase at each of our operations, reflecting higher grades at young Davidson and operational improvements up mulattoes, Nevertheless, with a third quarter production shortfall of them a lot of US we are reducing our annual production guidance at the operations by 15000 ounces or 3% on a consolidated.
<unk> to a range of 455000 to 495000 ounces production.
Production guidance for young Davidson and island gold remain unchanged with both operations continuing to perform well and on track to achieve full year guidance.
Given the ongoing impact of the stronger Canadian dollar and higher than planned cost them. A lot of US were also increasing our consolidated total cash cost guidance to a range of 790 to $810 per ounce and all in sustaining costs to a range of 1120 to $1140 per ounce.
Yeah.
Excluding the impact of the stronger Canadian dollar costs through the first three quarters of this year are consistent with our initial guidance.
Moving to slide four.
While we encountered some challenges in the third quarter, our strong long term outlook remains intact.
At Lee Aki Grande construction is advancing well and remains on budget and on schedule to achieve commercial production in the third quarter of 2022.
At Island Gold the phase III expansion is progressing with a focus on permitting detailed engineering and contract tendering.
We also continue to have success growing the deposit and adding value through the drill bit with another exploration update planned in the fourth quarter.
Finally 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 constructed construction decision thereafter.
Collectively these high return organic growth projects support our strong outlook with production potential of 750000 ounces per year by 2025.
Significantly lower all in sustaining cost of around $800 per ounce.
Given our solid balance sheet and ongoing cash flow generation. We can fund all of this growth internally, while supporting strong ongoing returns to shareholders through our dividend and share buybacks.
I'll now turn the call over to our CFO, Jamie Porter to review our financial performance Jamie.
Thank you John.
Moving on to slide five we sold 110500 ounces of gold at a realized price of $1792 per ounce for revenues of $198 million in the quarter.
Gold sales were approximately 5800 ounces more than gold produced with some ounces produced in the second quarter being sold in the third quarter.
Third quarter costs were broadly in line with guidance provided in the second quarter and higher than initial annual guidance total cash costs of $788 per ounce and all in sustaining costs of $11 52 per ounce continue to be impacted by the stronger than budgeted Canadian dollar as well as higher than expected costs and allows.
Our previous 2021 guidance was based on a Canadian dollar foreign exchange rate of 75 as compared to the actual rate of 79 cents in the third quarter and 80 year to date.
This has increased total cash costs by $30 per ounce and all in sustaining cost by $45 per ounce relative to our initial guidance.
Reflecting the ongoing strength in the Canadian dollar and higher cost of models. We have increased our 2021 total cash costs and all in sustaining cost guidance.
Also reflect some of the inflationary pressures being felt across the sector and globally. We have manage these well through the first three quarters of the year, but do expect more of an impact in the fourth quarter and into 2022.
Operating cash flow before changes in noncash working capital decreased 21% year over year to 102 million or <unk> 26 per share in the third quarter, reflecting lower production and lower realized gold price net earnings were $25 million or <unk> <unk> per share excluding the unrealized foreign exchange loss of $13 million adjusted net earnings were 30.
$8 million or <unk> 10 per share.
Capital spending totaled $89 million in the third quarter, including $31 million of sustaining capital and $51 million of growth capital and $7 million of capitalized exploration.
Capital spending is expected to increase in the fourth quarter, reflecting the ramp up of capital spending on the phase III expansion at island gold and at La Yaqui Grande.
With significant capital expenditures scheduled for late in the year, we do see the potential for some fourth quarter capital to be deferred to early 2022.
Free cash flow in the third quarter was negative $8 million, reflecting higher capital spending at La Yaqui Grande at island gold as well as lower than anticipated production.
In addition to our quarterly dividends of $10 million. We also repurchased 600000 shares at a cost of $4 5 million.
Or $7 50 per share in the third quarter.
Year to date, we have returned more than $35 million to shareholders in the form of dividends and share buybacks. We are on track to return more than $45 million for the full year.
We remain debt free and ended the quarter with $211 million in cash $23 million of equity securities and $500 million of Undrawn credit capacity.
Combined with strong ongoing cash flow generation, we remain very well positioned to fund our growth projects internally.
I'll now turn the call over to our Chief operating officer, Peter Macphail to provide an overview of our operations for the quarter.
Thank you Jamie.
Moving to slide six.
Since the completion of the lower mine expansion at young Davidson mid last year underground mining rates have consistently met or exceeded the target rates.
Trend continued in the third quarter with underground mining rates, increasing to average a record 8000 tonnes per day.
This drove gold production higher to 50000 ounces and costs lower contributing to $29 million of mine site free cash flow in the quarter.
Total cash cost of $810 per ounce and mine site, all in sustaining costs $1051 per ounce decreased 14% and 9% respectively from the second quarter, reflecting increased operating efficiencies.
Young Davidson is well positioned to meet its full year production guidance.
With consistent mining rates of 8000 tonnes per day and higher grades expected to drive another strong result in the fourth quarter.
Given the impact of the stronger Canadian dollar we have increased full year total cash cost guidance to approximately $850 per ounce and all in sustaining costs to around $1060 per ounce.
Excluding this impact costs were in line with initial guidance through the first three quarters of this year.
With $70 million of mine site free cash flow year to date and higher production expected in the fourth quarter Young Davidson remains on track to generate mine site free cash flow of approximately $100 million in 2021.
Over to slide seven island gold produced 28000 ounces of gold in the quarter, 16% lower than the second quarter.
Reflecting lower tonnes processed this was due to eight days of downtime for unplanned maintenance in the mill early in the quarter. These onetime maintenance issues were resolved in July with the mill operating at full capacity in August and September.
Additional maintenance protocols have been put in place along with an increase in spares critical spares to mitigate future unplanned downtime.
As previously guided grades mined and processed were similar to those in the second quarter.
Rates are expected to increase slightly in the fourth quarter to average reserve grade of approximately 10 grams per tonne for the full year.
Cash costs and mine site all in sustaining costs were both higher than initial guidance, reflecting the stronger Canadian dollar and unplanned mill downtime.
Given the strong performance year to date Island gold remains on track to meet full year production guidance.
With young Davidson, we have increased full year total cash cost guidance to approximately $525 per ounce and mine site all in sustaining cost of about $865 per ounce, reflecting the stronger Canadian dollar.
Work continues to ramp up on the phase III expansion with the precinct of the shaft expected to begin in mid 2022. The current focus remains on permitting detailed engineering of the shaft and associated infrastructure as well as the paste plant.
Contract tendering is ongoing with key contracts now in place for the shafts sinking head works shaft site surface works.
Growth capital spending totaled $14 million in the third quarter.
Spending is expected to increase in the fourth quarter. Some of the planned 2021 capital could be deferred into early 2022.
Moving to slide eight <unk> produced 26700 ounces in the third quarter at total cash costs and mine site all in sustaining cost 927, and 1100 $24 per ounce respectively.
The third quarter was impacted by the above average rainy season and slower than anticipated recoveries from stockpiled ore stacked in the quarter.
Heavier rainfall and wet or limited stacking rates to 700 tonnes per day, which is about 20% below our guidance.
We sell Cologne winding down we're also stacking a higher proportion of previously mined and stockpiled ore until late hockey Grande comes online in the second half of 2022.
The leach cycle for their stockpiled ore has been longer than anticipated and processing costs higher than expected given the additional reagents required.
We are expecting higher production from a lot of us in the fourth quarter. However, given the weaker third quarter, we are reducing full year production guidance by 15000 ounces.
Given the higher processing costs associated with the stockpiled ore, we're expecting total cash costs and all in sustaining cost to increase in the fourth quarter and have revised our 2021 guidance. Accordingly, we expect higher cost persist through the first half of 2022 before decreasing in the second half of 2022 at La Yaqui Grande ramps up production.
Mine site free cash flow was negative $20 million in the quarter, reflecting $23 million of growth capital and capital advances related to La Yaqui Grande.
Moving to slide nine.
Construction of La Yaqui Grande remains on track as can be seen in the photos.
Projects really coming along nicely pre stripping in the open pit continues to ramp up with over 6 million tons of waste mined in the quarter. The haul roads are now completed solution ponds are aligned and the crushing circuit in ADR plant are advancing well.
The project remains on schedule for commercial production in the third quarter of 2022 and on budget with $70 million of growth capital spent and $18 million advanced contractors towards the initial $137 million capital estimate.
We expect costs to decrease at <unk> in the second half of 2022 and more significantly into 2023 with La Yaqui Grande representing the majority of production from the mulatto district with that I'll turn the call back to John.
Thank you Peter.
We will now open the lines for Q&A.
Session and I'll turn the call to the operator.
To get that going thank you.
Thank you Mr. Mccluskey, we will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices Keypad you may cancel your question at any time by pressing Star two please press star one at this time.
A question there will be a brief pause while participants register for questions. Thank you for your patience.
And the first question is from Cosmos <unk> from CIBC. Please go ahead.
Good morning, Thanks, John Jamie and Peter.
Maybe my first question is on both autos.
You know if I look at your MD&A I see that as you mentioned the MD&A recovery was 49%.
In Q3.
Year to date it was 55% so it's come down last year. It was over 70% I think in part due to the stockpile or.
If I remember correctly, the stockpile or if it is the stockpile material from day, one since 2005 I seem to remember that the recovery.
Materials lower.
I guess my question is going around this is ultimately you know I know the leach cycles longer about ultimately what kind of recovery should we be expecting from this new mix that has more of the stockpile material.
The Leach pad these days.
Yeah, Hey, Cosmos, Peter Hi, Peter.
The recovery if you look at just the ounces on versus off recovery in the quarter of 49%. So part of that is because of.
Just a delay really put two things there the rainy season dilute things honest it was particularly wet rainy season.
And so those ounces are coming out in the fourth quarter.
And and.
And longer leach curve associated with that stockpiled ore.
What we carry for that stockpiled ore in our recovery model is.
Something in the order of 50%.
However, it tends to be higher grades. So then and it's already been mined so it's it's or because the cost.
The cost of mine that have already been have already been a big.
<unk> so.
Yeah that would.
That would be.
That would be my answer to those questions.
And then maybe as a follow up Peter.
You know how much of that stockpile material do you have.
And I'm, just trying to get a clearer picture in terms of how the mix of the different ore types as you know.
We're gonna be as we transition to our La Yaqui Grande in the meantime, there's also El Salto I believe that's been now stripped maybe and that should be coming in as well. So how should we look at it in terms of the mix of ore that's being stuck.
That's on the Leach pad, yeah. So I mean as always sent them a lot of times, we have a number of our sources theres still some victor or is there still some San Carlos open pit ore.
Those are those are going to wind down towards.
The coming months.
Several Malone is winding down salto is going to be ramping up starting early next year.
And it will come online.
More.
As the year progresses, and and and the stockpiled ore so between now and I would say mid next year when La Yaqui Grande is on stream.
About 50% of our ounces would be coming from.
From the stockpiled ore.
Hum.
And can you would you be able to tell me how much of the stockpile or do you still you still.
It's a it's in the range of.
It's in the range of five or 6 million tonnes. I think we had 9 million tons at the beginning of this year and we've been processing it through the year and I have to get the exact number cosmos, but we still have quite a quite a stack of it.
Okay for sure and then maybe switching gears to cost here.
As you mentioned the leach pad now needs.
<unk> has experienced.
Experienced an increase in cost due to higher reagent usage and cost.
Maybe breaking it down how.
How much more reagent does do you stockpile or need and how much core.
Cost increase are you anticipating for this <unk>.
Agent, which ones a larger portion of that cost increase so it requires more alignment finite to be specific and that those are the ria and caustic as well. So just about everything we put on there is increased for this.
Stockpiled ore and it's different zones of the stockpiled ore has different requirements, but you know.
And we're going through our planning.
<unk> planning process for next year now so I mean, we'll come out with guidance.
In due course, but what we're seeing is those ounces are probably coming in at.
Somewhere in the range of an all in sustaining costs of maybe maybe in the 1500 outs for <unk>.
Range for that 50% of our production for the next.
Six to eight months.
And.
But part of that cost is.
It's noncash because of the associated cost of building a stockpile. So I think theres a couple of hundred dollars or thereabouts that is noncash. So I mean, they still make good money.
But there you go.
Hum.
And maybe you know in terms of a broader question here following up on that.
Jamie as you mentioned you know you've managed costs really well in the first three quarters, but there are inflationary pressures on operating costs in the industry and so we should be expecting.
Some increase and some impact in Q4 and into 2022, we've just talked about a.
Laterals in some of the reagent costs, but where are you seeing somebody.
Inflationary pressures is it in Mexico, and Canada is it in the reagent costs is it in labor or is it is it just everything.
Yes Cosmos.
It's Jamie we've just gone through our budgeting process and I think it is really across the board I mean.
Across all of our operations, we're seeing slightly higher.
<unk> labor.
Kris has been what we would've had in past years, obviously the diesel prices has increased.
And certain consumable costs grinding media and anything to do with steel has gone up in some cases significantly so a lot of our input costs have been subject to multi year purchase contracts that are expiring and so we are seeing an uptick I think across the industry from an operating cost perspective, it's in.
The 5% to 7% range and I'd say, our experience has been consistent with that.
Great.
Thanks, a lot are those are all the questions I have thanks again for the call.
Thank you.
Next question is from Mike Parkin from National Bank Financial Please go ahead.
Hey, guys. Thanks for taking my questions, one going back to Mexico syrup alone, you're indicating that it'll be depleted in the fourth quarter is it expected to kind of be a full quarter of tonnage or kind of a half quarter.
We're it'll.
It'll be at some time in November that we wind up mining there, but the answer is we'll continue to come off pad.
Through the corner.
Right Okay.
And then just kind of revisiting inflationary kind of comments.
As you're kind of ramping up the phase three expansion can you just remind us in terms of like what additional manpower you have to bring on through contractors.
And how you're finding that availability, we're hearing a bit of labor market tightness in them in Canada and are you seeing any signs that the higher diesel price is starting to kind of revive.
<unk> of the oil patch or for people and increasing competition for staff there.
Yeah on the contractor side, I mean, yes, I would say.
Yes.
As everyone is the labor labor market is tightening up it hasnt hurt our offer.
Our Canadian operations Hasnt heard any of our operations frankly.
Our turnover rate hasn't hasn't gone up appreciably kind of year over year for the last number of years.
<unk>.
As we need to bring on contractors for various things.
Things I mean.
Sinking of shaft is not a lot of people, there's a lot of time.
So.
We've now we've now awarded that contract to Redpath I think we can say that I don't think that's that's confidential.
<unk>.
And.
They haven't they haven't.
Good supply of contractors and a lot of them Canadian based on a like to.
I'd like to work in their home country and close to home. So I think I think that'll be fine.
Building, a paste plant or or expanding a mill.
Those were also be contractors will be contracting with outfits that will supply those folks so.
We haven't.
If it is tougher to get people the cost associated with that May go up a little bit.
So we're not quite there and in our contract letting yet, but we have we have we have secured the.
The shaft sinking portion of this and we're not seeing any any concerns with that.
Alright, thanks very much.
And then just one more down in Mexico.
We'd be kind of modeling for a re handle cost of the stockpiles there.
On a dollar per ton basis.
Yes, it's around it's around one $1 a ton U S.
Okay and can you.
Hmm.
It's been awhile since than visitors, but.
Diesel prices used to be kind of independent of spot market in Mexico is that still the case, where the government still dictate.
You know how prices kind of change year to year.
Do you want to take that James Yes, Yes, no I think.
Youre right I mean, we pay to Pemex the state monopoly, but I think the the current rate we are paying is more consistent with market prices.
Okay, Alright, that's it for me guys. Thanks very much.
Thank you once again, please press star one on your devices keypad. If you have a question. The next question is from Kerry Smith from Hayward's Haywood Securities. Please go ahead.
Thanks, Operator, hi, the.
The first question I had maybe for Peter.
With this slower leach cycle, and the higher reagent costs for that stockpiled aren't bilaterals.
Is there any concern that that maybe the ultimate recovery on that material won't get to what you're targeting and maybe they'd reagent costs will actually be higher on average over the course of time or are you thinking it's still going to be.
Kimberly recovery to what you tried to expect it just going to take longer.
Yeah there's.
So a couple of things going for us I mean, yeah. So the reagent costs are higher on that stuff as.
It's been sitting there longer for physical or need to put more lyme on it more cyanide on up to two weeks the gold.
It is also a higher grade so that's going for US recoveries are also maybe not as bad as when we put it down there. So there's there's a lot of things at play there.
Of that of that.
Whenever we have seven or eight 606 or 7 million tons left of stockpiles are there is there is there a portion of that that you know its.
Two low grade or a loan recovery of our high reagent costs two to process, there's a chance of that.
But we'll work through that and we won't put it on the part of it doesn't make sense.
Okay, So you're not you're not really that concerned about it it is a bit slower, but you're not worried that you're going to look at it.
It's forward because its sulfide its lower recovery because its sulfide.
It is higher cost because its sulfide.
Hi.
Yeah, I mean, it's just it's going to be it's going to cause us a lumpy couple of quarters, but then it will be lumpy in the other direction with the La Yaqui Grande, it's going to be booming. So.
Right.
Okay. Okay. That's helpful. Thanks, Peter and then maybe Jim just on the $157 million of Capex that Big Hockey Bobby can you remind me how much of that was that pre strip and how much of that pre strip is actually done as of today I think.
Given the close and how many tons of moving I'm, just one percentage wise, how much of that pre strip is actually done.
So yes, so the 75% of the total capital cost of La Yaqui Grande was.
Was pre strip.
And in terms of our percentage completion on that I don't have that number in front of me carry but we're on track and on schedule as Peter said now, let's play Yoki Grande comes online.
We'll be <unk> production is going to increase pretty dramatically and our costs are going to be cut in half and we remain on schedule and even better we remain on budget like well work with consistent with our with our capital budget. There, we're not seeing any cost overruns.
Okay. Okay. That's awesome. Thank you and then.
Can you elaborate a bit more on what the issue was with the mill.
Yeah, So I mean, a couple of power bumps.
<unk>.
Fried motors and standard of CIL tanks that take days too.
Sand by Jose.
Followed by getting it back up and running burning out pumps.
Waiting for new pumps to show up it was just it was unfortunate and we are now we have like many spare pumps on site to deal with any similar thing in the future. So it is a.
I mean that building was built in 1985.
And it's been expanded a few times and we're gonna expanded again.
But we're we'll expand it really good at this time.
Okay. Thanks, very much Gary if I have anything to say about it we're not going to extend it again.
Just because it's going to make that clear, we're debating that right now and we're waiting for the numbers to come in by the end of this quarter and I'd like to thank our it.
It's going to go a lot better than that right.
Okay, great. Thank you John I appreciate it.
Okay.
Okay.
Yeah.
Operator are there any further questions.
My apologies 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 4163689932.
Yes.