Q4 2021 Alamos Gold Inc Earnings Call
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This conference is being recorded so it goes to the homes that don't have as you see.
All participants please standby your conference is now ready to begin good morning.
I would now like to turn the meeting over to Mr. Jamie Porter Chief Financial Officer. Please go ahead Mr. Porter.
Thank you operator, and thanks to everyone for attending Alamos is fourth quarter and year end 2021 conference call. In addition to 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.
To address any questions with respect to our reserve resource update we also have on line today, Chris Bostwick, Our senior Vice President of technical services, we will be referring to a presentation. During the conference call 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.
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. 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 United States dollars, unless otherwise noted with that I'll turn it over to John to provide you with an overview.
Thank you very much Jamie.
And good morning, everyone and thank you for attending the call.
Starting with slide three.
We close 2021 with strong performance at our Canadian operations Young Davidson had a record year, achieving record mining rates and generating 100 million of free cash flow.
Island Gold had another solid year operationally generating 53 million of free cash flow, even with the ramp up in spending on our phase III expansion.
This offset a challenging Europe bilaterals with you operate it operation working through a temporary period of lower production and higher costs until the Yaqui Grande It comes on in the third quarter.
With a stronger fourth quarter, we met revised full year guidance.
Producing 457000 ounces of gold at a cash cost of $794 per ounce.
All in sustaining costs of $1135 per ounce.
Our production increased 7% from a year ago, and combined with a higher gold price and strong operating margins, we generated record operating cash flow of $411 million for the year.
Yeah.
We had a strong year from an exploration perspective as detailed in our reserve and resource update earlier this week.
Reserves increased at all three of our operations driving a 4% increase in our global reserves to $10 3 million ounces.
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Island Gold continues to grow and achieve achieved a key milestone.
With high grade reserves and resources, increasing 8% to $5 1 million ounces net of depletion.
Since we acquired island.
In 2017 reserves and resources have increased $3 2 million ounces net of depletion.
<unk>, one 4 million ounces since the publication of the Phase III expansion study in 2020, highlighting the significant ongoing growth and upside to this operation.
This growth will be incorporated into an updated phase III mine plan to be released midyear.
And we expect that this will demonstrate a significantly more valuable operation.
Now turning to slide four.
As outlined in our inaugural three year guidance released in January we expect stronger production.
At substantially lower costs in the years ahead.
We are expecting similar production of approximately 460000 ounces in 2022 with a temporary increase in all in sustaining costs to approximately $1215 per ounce we.
We expect Lee Aki Grande to drive lower costs in the second half of 2022.
Yeah.
By 2024 at La Yaqui Grande.
Excuse me.
Yeah.
If you'll just bear with me for a second.
By 2020 for Lee Yoki Grande.
And higher grades at island gold are expected to drive a 4% increase in production and an 18% decrease in all in sustaining costs to $1000 per ounce.
Combined with a 23% decline in capital spending at our operating mines and 2023 with development of La Yaqui Grande completed.
We expect growing profitability from our operating mines over the next three years.
Turning now to slide five.
Looking beyond 2024, we expect a further increase in production and decreasing cost.
Between the completion of the phase III expansion at island gold and.
And development of Lynn Lake, we have the capacity to increase our rate of production to approximately 750000 ounces.
At substantially lower all in sustaining costs of $800 per ounce by 2025.
With our strong balance sheet and ongoing cash flow generation. We can fund all of this growth internally all the while providing solid ongoing returns to shareholders.
Between our debit to dividend and share buyback, we returned $51 million to shareholders in 2021.
While we remain focused on our long term growth objectives. We also expect to deliver on several key catalysts in 2022.
Mid year, we expect to provide an updated mine plan for the island gold operation.
That will showcase a significantly more valuable.
Operation that was outlined in the phase III study.
Well Yoki Grande remains on track to achieve commercial production and start driving our costs lower in the third quarter.
Finally.
We look forward to the Lynn Lake E I S approval and subsequent construction decisions.
In the second half of the year.
I'll now turn the call over to our CFO , Jamie Porter to review our financial performance Jamie.
John .
Going on to slide six we sold 458000 ounces of gold for record revenues of $824 million in 2021, as John noted young Davidson had an excellent year generating a record $100 million in mine site free cash flow with the operation consistently operating at its expanded design capacity, we look forward to similar free.
Cash flow generation over its 15 year reserve life and beyond.
Fourth quarter revenues were $203 million from sales of 113000 ounces at an average realized price of 1798 per ounce.
Previously guided total cash cost of $843 per ounce and all in sustaining costs of $1237 per ounce. Both increased from earlier in the year, reflecting the temporary increase in costs them a lot of for the full year total cash costs and all in sustaining costs were in line with revised guidance.
Operating cash flow before changes in noncash working capital was $92 million or <unk> 23 per share in the fourth quarter. This was down 27% year over year, primarily reflecting lower gold price and lower gold sales for the full year operating cash flow before changes in noncash working capital was a record $411 million or $1 five per share.
7% increase from the prior record set in 2020.
Our reported net earnings of $30 million in the fourth quarter or <unk> <unk> per share included unrealized foreign exchange loss of $3 million recorded within deferred taxes, and foreign exchange and other losses of $4 million. Excluding these items. Our adjusted net earnings were 37 million or <unk> <unk> per share.
Our full year adjusted net earnings were 162 million or <unk> 41 per share representing a 3% increase relative to 2020.
Capital spending totaled $92 million in the fourth quarter, including $32 million of sustaining capital $51 million of growth capital and $8 million of capitalized exploration for the full year capital expenditures and advances of $358 million were at the lower end of our guidance.
Free cash flow was negative $4 million in the fourth quarter and effectively flat for the year, reflecting higher capital spending given the construction of La Yaqui Grande and the phase III expansion at island Gold, we expect lower capital spending in the second half of this year with completion of construction of La Yaqui Grande combined with lower costs, we expect stronger free cash flow starting in the third quarter.
There are this year.
In the fourth quarter, we also repurchased a net profits interest royalty for $16 million, which applied to the majority of the reserves and resources at island gold given the significant growth of the deposit over the last several years and the ongoing ongoing growth potential the repurchase of this royalty is significantly enhanced for long term value of the opera.
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We returned $51 million to shareholders in 2021, including $39 million through dividends and $12 million via share buybacks. These returns were up 63% from 2020 and represent a combined yield of one 8% at our current share price. We expect similar returns in 2022 to be underpinned by our ongoing dividend, which I'm.
Now to an annual rate of <unk> 10 per share we will continue to look for opportunities to be active on our share buyback.
We remain debt free and ended the year with $173 million in cash $24 million of equity securities and $500 million of Undrawn credit capacity strong ongoing cash flow generation combined with our solid balance sheet positions us well to fund our high return growth projects internally with that I'll turn the call over to our Chief operating officer, Peter Macphail to provide an overview of our <unk>.
Operations.
Thank you Jamie.
Moving to slide seven.
Young Davidson is performing to its potential and had a strong finish to the year producing 51900 ounces.
It already near record mine site free cash flow of 30 million in the fourth quarter.
Full year production totaled 195000 ounces in line with guidance generating record mine site free cash flow of 100 million.
Mining rates averaged a record 808240 tonnes per day in the fourth quarter and 7900 tonnes per day for the year the operations demonstrating it can consistently operate at.
<unk> rate of 8000 tonnes per day, and we expect this to continue.
So cash cost.
$775 per ounce and mine site, all in sustaining costs of $1017 per ounce in the fourth quarter.
The decrease through the year, reflecting higher grades and lower unit mining costs.
On a full year basis costs were in line with revised guidance.
As previously guided we expect similar production in 2022 up between 185, and 200000 ounces with total cash costs and mine site, all in sustaining costs, increasing 3% and 7% respectively.
Costs increased primarily reflects cost inflation, partially offset by operational improvements.
Sustaining and growth capital spending decreased 27% to approximately $60 million in 2022 with a big part of that decrease coming through the completion of construction of our new life of mine tailings facility in the fourth quarter of last year.
We expect young Davidson generate $100 million in free cash flow in 2022 and annually over the long term.
Over to slide eight island gold had another solid quarter, producing 37500 ounces at total cash costs of $575 per ounce and mine site all in sustaining cost of $871 per ounce.
Full year production of 141000 ounces was in line with your initial guidance and total cash costs and all in sustaining costs were in line with revised guidance.
The operation generated $60 million of mine site free cash flow in the quarter and 53 billion for the full year net of a significant not a significant ongoing exploration spend and the ramp up in spending on phase III expansion.
Looking forward to 2022, and we expect the island gold to produce 125 to 135000 ounces.
System with what we outlined in the phase III study.
As with young Davidson, we are expecting an increase in costs from 2021, primarily reflecting cost inflation and slightly lower planned grades.
Work on the phase III expansion is expected to continue to ramp up in 2022 with a corresponding increase in capital spending as outlined in the study permitting is expected to be completed in the first half of the year with construction activity is focused on surface works in preparation for the chassis.
Appreciate it thank expected to start mid year.
Also working on an updated mine plan to be released midyear, which will incorporate the significant increase in reserves and resources since the phase III study is completed.
This updated mine plan will include an optimization of the mining sequence given the higher grade additions in the island east and proximity to the current infrastructure and the plant shaft.
Moving on to slide nine laterals produced 23100 ounces in the fourth quarter as the operation continued to be impacted by longer Leach times for stockpiled ore stacked and lower production tariff alone, which was completed in the quarter.
As a result full year production of 121 321300 ounces was lower then revised guidance.
Costs were up sharply in the quarter, it's pretty close to the guidance. We were in line with revised guidance on full year basis.
A lot to us is expected to produce 130 to 145000 ounces in 2022 with approximately 65% coming in the second half of the year at substantially lower cost to start with low cost production from La Yaqui Grande.
We expect all in sustaining cost decreased 30% from the first half of the year to $1175 per ounce in the second half.
Continued improvement in 2023, reflecting a full year from La Yaqui Grande.
Over to slide 10, as you can see from these photos la Yaqui Grande construction is progressing very well and remains on schedule and capital spending was 26 million in the fourth quarter, bringing the full year spend to 102 million.
All required major components are now on site pre stripping of the Pip is well advanced heap leach facilities at 85% completion and the crushing circuit is more than 90% complete.
We expect to begin commissioning the circuit and stacking of ore in the second quarter with the operation on track to achieve commercial production in the third quarter of this year.
As we saw with La Yaqui phase one this is a higher grade at significantly lower cost project that will dramatically improve the production and cost profile a mulatto starting in the second half of this year.
I'll now turn the call over to Scott Parsons, our VP exploration to discuss the reserve and resource update.
Thank you Peter.
We had another excellent full.
Full year with respect to exploration reserves were more than replace that each of our three operations driving a 4% increase in global reserves, the $10 3 million ounces.
582000 ounces of depletion.
The overall quality of this reserve also improved with grades increasing 5%, reflecting higher grade additions at island gold a lot of.
The growth was driven by a 5% increase in reserve to young Davidson extending its reserve life of 15 years, a 10% increase island gold with grades increasing 4% and a 14% increase with them a lot of with grades increasing 32%.
The higher grade additions in Malawi reflect a new underground reserve and PDA, which is located adjacent to the made him a lot of debt.
Global measured and indicated resource resources decreased to $4 5 million ounces from $6 9 million ounces, reflecting the conversion to mineral reserves at P. D. A young Davidson and reduction of non Pip constrained resources from the models means that.
Global inferred resources were relatively flat at 7 million ounces with grades increasing 6%, reflecting high grade additions at island gold.
On Slide 12 Island gold continues to grow and achieved a key milestone with combined reserves and resources, increasing 8% to $5 1 million ounces of high grade gold.
Reserves increased for the ninth consecutive year to one 3 million ounces net of depletion.
With grades also increasing 4% to over 10 grams per tonne. The additions were achieved through both the discovery and conversion of resources and the gap between the high grade reserve and resources in the upper and middle portions of Island East.
This new reserve block contains over 200000 ounces grading 12, six grams per tonne.
Its proximity to the existing underground infrastructure there is potential to bring this higher grade ore into the mine plan in the next three years, providing further near term production upside.
Over to slide 13, our primary focus at island gold continues to be unexciting mineralization and defining new near mine resources and this is where we are we are having the most success.
The resources increased 8% to $3 5 million ounces with grades decreasing slightly to $13 six grams per tonne.
The majority of this increase came in the lower portion of island East, where we added 424000 ounces to high grade inferred block now it became 2 million ounces grading 15, five grams per tonne all of this in proximity to the plant shop.
We also added a new inferred resource blocks totaling 39000 ounces 130 meters down plunge from this large high grade inferred resource block.
Also extended high grade resources more than 270 meters to a depth of seven 750 meters with high grade block as part of the same <unk> zone remains open laterally and up and down plunge, which highlights a significant potential for further further resource growth at island gold.
On slide 14, combined reserves and resources at island have nearly tripled from the $1 8 million ounces at the time of acquisition to now total $5 1 million ounces.
This includes a $1 4 million ounce or 37% increase since the release of the phase III expansion study, which will be incorporated into an updated mine plan to be released midyear.
We expect this will demonstrate a further increase the value of the operation.
These are high margin high grade ounces, we're adding at a very attractive discovery cost, which has averaged $11 per ounce over the last three years.
Given our ongoing exploration success, we see excellent opportunities for that to continue with $40 million budgeted for exploration in 2022 more than half of which is allocated to island gold.
And with that I'll turn the call back over to John .
Thank you very much Scott.
That concludes our formal presentation and I'll now turn the call back to the operator, who will open the lines for your questions.
Thank you.
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Yeah.
The first question is from Kerry Smith from Haywood Securities. Please go ahead. Your line is open.
Oh yeah.
Maybe first question for Peter just on the New mine plan for island.
Yeah.
I'm, assuming you're going to still have that 2000 ton a day mill in that play.
So you're just basically going to be bringing forward some better grade that you're finding in the island is that correct.
Yeah that would yeah. We're looking at that carry we're also looking at it does it does it makes sense to.
Yeah.
To bump it up slightly you know so we're looking at all of those things.
Okay, Okay, and just on the lives on PDA, what is the status of bringing that underground underground reserve into the mine plan that like what is the timing on that.
Yeah, that's that's probably three years away you know.
Some further study work to do on it and and.
You know to get that to get that going.
Okay, and you had pretty good mining costs at Whiting in the corridor, but you had pretty good mining rates as well youre well over 200 tons. A day is that 40 to $42 a ton Canadian it's kind of at the number you think you could do at 8000 tonnes, a day or what would the going forward number look like.
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Yeah, I'm not sure I think we probably provided guidance on that.
You know I think if you go back three years, when we did that are kind of.
Learn in on Y E.
In person there.
I think we were predicting we were predicting at 8000 tonnes a day to be in the low forties.
With some inflation and whatnot that creeps up to like the mid Forty's.
But that's where I expect it to be.
Okay. Okay. That's helpful and just remind me the Capex for Lynn Lake.
Twenty-seven feasibility can you remind me what that number was.
Oh I don't have it in front of me.
Yeah.
It was roughly.
It was roughly $350 million.
Okay. Okay.
And what are you will you update that number.
When you make a construction decision or how are you sort of look at that.
Of course, yes.
We've got to make sure we put out an updated technical report.
On.
Making a positive construction decision and we would certainly provide an updated capital cost estimate.
Okay.
Okay.
Okay, that's great.
I think just maybe one last question if I could your exploration budget is basically down $10 million from this year versus last year.
And it seems like most of that I guess, there's probably an island.
That just a function of your ability.
You spend the dollars or is it like that but it might be a bit higher than this year.
I'm curious Scott I can take that the main difference from last year as an island, we ramped up the number of surface directional rigs, we have because we've removed the underground directional drilling from the 2022 budget. So that's about a $10 million delta between.
The 2021 budget as the switching over to surface drilling from the underground directional drilling and continuing with underground conventional.
Conventional drilling is planned.
Okay. Okay. That's great. Thank you.
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Yeah.