Q3 2022 Alamos Gold Inc Earnings Call

October 27, 2022

This conference is being recorded.

Sales at all or as you see.

All participants please standby your conference 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 thanks to everyone for attending Alamos third quarter 2022 Conference call. In addition to myself we have on the line today, John Mccluskey, our President and Chief Executive Officer, and Luc EMR Chief operating officer.

We will be referring to a presentation during the conference call that's available through the webcast and on our website I'd also like to remind everyone that our presentation will be followed by a question answer session.

As 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 senior 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 with that I'll turn it over to John to provide you with an overview of the quarter.

Thank you Jamie.

To start off the call.

I wanted him to do slip came on who was appointed Chief operating officer in September .

Luke has a long history with Alamos.

Deep knowledge of our operations and an excellent track record leading to the development and operation of a diverse range of gold mines.

Luke has hit the ground running as can be seen by a solid third quarter operational results.

And we expect to continue with even stronger results as we approach the fourth quarter.

I'd also like to recognize Peter Macphail for his leadership and invaluable contributions to the company as our former Chief operating officer.

Peter oversaw our growth at twin either intermediate producer, while driving significant improvements across our operations such that our outlook has never been stronger.

Peter retired in September , but will be staying with the company as a consultant to ensure a seamless transition.

Behalf of the entire Alamos team I'd like to thank Peter and I look forward to his ongoing contributions over the next year.

Starting with slide three.

We had a strong third quarter led by another solid performance from young Davidson and the standout results some of the Yaqui Grande in its first full quarter of operation.

Production of 123400 ounces of gold was near the top end of guidance and represented a 19% increase from the second quarter.

Total cash cost of $868 per ounce and all in sustaining costs of $1178 per ounce were both below our annual guidance and down approximately 77% from the first half of the year.

Young Davidson continues to be a steady performer generating 23 million of mine site free cash flow in the quarter and on pace to generate 100 million for the second consecutive year.

Lee Aki Grande is wrapping up having doubled production from a lot of district quarter over quarter and that's the key driver of our consolidated production growth and decreasing cost.

Looking at slide four.

We expect this strong performance to continue into the fourth quarter with La Yaqui Grande driving another increase of our production to a range of 125000 235000 ounces.

Despite industry wide inflation, we also expect a further decrease in our cost in the fourth quarter, reflecting the ramp up of low cost production at La Yaqui Grande higher grades at island gold and the weaker Canadian dollar.

With our stronger our strong year to date performance, we're on track to achieve our full year production and cost guidance.

We're not immune to the inflationary cost pressures being felt across the industry.

But do have several key things working in our favor the first being the nature and location of our operations approximately 770% of our production is coming from underground mindset, Ontario, which are less energy intensive.

Have smaller mobile fleets that.

They're connected to clean grid power, meaning we are less reliant on fossil fuels.

Given the majority of our production is coming from Canada.

Also benefiting from the weaker Canadian dollar.

Lastly, all of the production growth, we are bringing on is lower cost.

Looking at slide five well Yoki Grande will be a key driver of higher production and lower costs over the next few years Island gold is going to continue that trend over the long term through the phase III expansion.

I was on site last week and saw the progress firsthand with work in the shaft area are really starting to take shape.

The shaft has been colored.

Precinct of the shop is more than 90% complete and the concrete foundation work and the surface infrastructure is well underway.

This expansion will be a game changer for the operation and the company following completion of the shaft in 2026, we expect our annual production to increase about 600000 ounces per year with a further decrease in costs.

Longer term, we have the capacity to increase our annual production to approximately 800000 ounces per year with the development of Lynn Lake.

We're taking a staged approach to developing our growth projects and currently.

We're focused on island gold such that we can continue to fund this growth internally, while generating solid free cash flow over the next several years.

I'll turn the call over to our CFO , Jamie Porter to review our financial performance.

Thank you John .

Moving on to slide six weeks.

We sold 122000, and 780 ounces of gold at a realized price of $1740 per ounce $11 above the London PM fix price for revenues of $214 million in the quarter total cash costs averaged $868 per ounce and all in sustaining costs were $1178 per ounce.

A significant improvement from the first half of the year, reflecting strong ongoing results from our Canadian operations and the benefit of a full quarter of production from La Yaqui Grande as well as a weaker Canadian dollar we expect a further decrease in costs in the fourth quarter to the lowest levels of the year driven by higher grades at island gold and additional low cost production.

Growth from La Yaqui Grande.

Operating cash flow before changes in noncash working capital increased to $96 million or 25 cents per share in the third quarter. This marked the highest level in a year. Despite the lower gold price we.

We reported a net loss of 1 million, which included a noncash after tax inventory adjustment of $8 million and a lot of unrealized foreign exchange losses of $23 million recorded within deferred taxes and foreign exchange.

We offset by other gains of $2 million.

As was the case in the second quarter given the further decline in the price of gold during the third quarter, a review of the carrying value of them allowed us as leach pad inventory was undertaken and this resulted in $8 million inventory adjustment, which the noncash reduction.

Excluding that's another noncash items, our adjusted net earnings were $27 million or seven cents per share.

Capital spending totaled $73 million in the third quarter similar to the second quarter with the ramp up of spending on the phase III plus expansion offsetting the decrease in capital models with construction of La Yaqui Grande now complete.

We expect the rate of our capital spending to increase on the phase III plus expansion in the fourth quarter through our full year. So our full year spending is likely to be lower than guidance at island gold with some of the construction capital deferred into the next few years.

Our balance sheet remains solid with no debt, a $117 million in cash and $500 million of Undrawn credit capacity.

Combined with growing cash flow from operations, we remain well positioned to fund our growth projects internally in any gold price environment, while supporting ongoing returns to shareholders. This includes returning $38 million year to date through our dividend and share buyback.

Now I'll turn the call over to our COO Newquay malls to provide an overview of our operations.

Thank you Jamie This is my first quarterly call I'm looking forward to working with the team in this new role in supporting our continued growth as a company.

Moving to slide seven young Davidson produced 49300 ounces in the quarter and generated mine site free cash flow of $23 million.

Despite some operational challenges gold production was 6% higher than the second quarter and the operation remains on track to achieve full year guidance mining.

Mining rates averaged 7000 tons per day and were impacted by downtime to replace the head roads at the Northgate shaft.

Schedule changes underground conveyor belt, and a higher than typical number of shutdowns during periods of peak electricity demand in Ontario, as part of our energy management plan.

Mining rates have increased and are expected to average 8000 tonnes per day in the fourth quarter.

This downtime was offset by the underground stockpiles, we had built up on surface for the last several quarters, we're mining rates had exceeded.

This allowed us to run the mill at 7800 tonnes per day and maintained strong production rates.

Given the solid performance year to date young Davidson remains on track to meet full year production and cost guidance the.

The operation is also on pace to generate $100 million of mine site free cash flow for the second consecutive year.

Over to slide eight island gold produced 31400 ounces of gold down from the second quarter, reflecting slightly lower grades processed and lower than planned recoveries.

No recoveries were below guidance due to calibration issues with the newly installed automated line application system.

The issue was rectified and recoveries returned to budgeted levels prior to the end of the quarter end in October .

The new system is performing well and recoveries are expected to be at budgeted levels in the fourth quarter.

With grades expected to improve in the fourth quarter and gold recoveries back to budgeted levels. We.

<unk> on track to achieve full year production guidance.

Over to slide nine.

Construction activities on the phase III plus expansion of ramping up following the start of the shop precinct in August .

The shaft is now down to a depth of 40 meters and nearing its final depth of 42 meters.

Concrete foundation work on the shop surface infrastructure, including the hoist and hoist House is also underway.

Tailed engineering on the paste plant began in September .

Lateral development to support higher mining rates with the phase III plus expansion remains ongoing.

We have made significant progress on the expansion to date and expect to start thinking the shops next year.

As noted previously this is a lower risk expansion with the majority of the earthworks completed the tailings facility already expanded and far less unknowns with this being an operating mine.

Once the expansion is completed island gold will be among the largest lowest cost and most profitable gold mines in Canada.

Moving to slide 10.

Production from them lot of district increased considerably to 42700 ounces in the third quarter.

This was double what we produced in the second quarter and at significantly lower costs driven by the full first full quarter of production from La Yaqui Grande.

Mining and stacking rate had been impacted at both sites by heavy rainfall during the quarter, which temporarily limited the transportation of consumables to the site.

This was more than offset by a strong quarter for La Yaqui Grande.

Over to slide 11.

He Aki Grande produced 25300 ounces in the quarter at mine site, all in sustaining costs of $699 per ounce.

In addition to the production growth this reduced Balado district cost to $1137 per ounce, a 34% decrease from the first half of 2022.

[noise] stacking rates at La Yaqui Grande averaged 8700 tonnes per day in the quarter nearing the design rate of 10000 tons per day with the rainy season now over in mining and stacking rates of La Yaqui Grande continuing to ramp up we expect a further increase in production from La Yaqui Grande in the fourth quarter.

Costs.

Overall, the millennials district is on track to meet its full year production and cost guidance.

With that I will turn the call back to Jonathan.

Thank you Luke.

That concludes our formal presentation I will now turn the call back to the operator, who will open the call for your questions.

Thank you 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.

Have a question. Please press star one on your deflation I just keep that you may cancel your question at any time by pressing star too. Please.

Please press star one at this time, if you have a question there will be a brief pause while the participants register thank you for your patience.

The first question is from Cosmos <unk> with CIBC. Please go ahead.

Thanks, John Jamie and congratulations Luke.

Maybe my first question is on the Canadian assets.

You know as we talked about.

Island Gold some ore was.

Transported to why depot, probably start thinking about 10000 tons in the quarter can you maybe touch on some of the additional cost I don't think there's a lot and then more importantly longer term.

You know any type of synergies that you can take advantage of the two operations.

That you can speak to or that you might be exploring at this point in time.

Yeah, I can I can take that Cosmos I mean.

And thanks for the congratulations by the way Yeah I mean.

The cost of running that all over to.

Young Davidson as you know, it's running about $1000 an ounce. So it's certainly still profitable in the physical market and then as I think we've mentioned in the past it's a stockpile that's been sitting there for a number of years. So there's revenue sitting in the yard and this was an opportunity to unlock some of that revenue and generated earlier.

We still plan to process some of that material in Q4.

It's all been truck now over to the site as far as what we were planning to send over for this year, but we will continue the milling process of that or through the Q4 period and finish that up.

And then the.

Longer term I mean anything you can speak to or.

Yes, Cosmos its Jamie I wouldn't say, we've benefited from a number of synergies just from having two minds six hour drive a part in northern Ontario.

Especially with respect to personnel I mean, we've been able to take our keep certain key technical people move them back and forth between the sites.

Example of that is as we just took our mill superintendent from young Davidson and transition them over to to island gold.

So we benefit from that Theres other.

Obviously purchasing and operational synergies as well, but yeah.

Yeah from a.

A workforce perspective, there's there's meaningful synergies there.

Maybe a question on La Yaqui Grande you know you kind of mentioned that you kind of touched.

Touched on it but.

As you said, you're targeting 10000 tonnes per day design capacity or you're going to get there in Q4 can.

Can you comment on that yes.

Our expectation is that we will be there in Q4 cosmos with regards to that the stacking rate.

Okay. So at the end of Q4 or could you actually average 10000 tons per day, we will average we will average 10000 tonnes per day through the quarter Greg.

Great and then also on La Yaqui Grande you know as you mentioned, you're stacking 123 gram per tonne.

You know meeting expectations, but can you touch on you don't get the consistency of the grade at this point in time, what you're seeing as you.

Opening up the pit.

Yeah, I mean, our expectation is to continue without sort of stacking grade through the fourth quarter. I mean, it's we're in the early stages, but we haven't seen a little bit of over performance in Q3 with regards to the to the model versus what we did stock, but you know moving forward you know, we're certainly expecting at least reserve grade as far as stocking.

Stacking grades.

Great and then maybe one last question on the financial side, Jamie as you mentioned there was a $500 million of Undrawn line of credit could you remind us what's the interest rate on that Undrawn line of credit and you know would you need to tap. It to you know if we have development projects and if you do you know what sort of the timing on that.

Yeah. So the the rate just based on.

Obviously, it varies depending on financial.

Financial ratios, but given the fact that we have no leverage right now, it's a little under 2% over LIBOR.

We have no plans in the near term to draw on the facility I think I mentioned through.

My part of the script that at current gold prices, where we're well funded to complete the phase III plus expansion at island without needing to draw on the facility. So it remains there as a as a backup for us, but we're in great shape with our cash flow from our existing operations financing that the.

Growth in production at island.

Great that's great to hear and those are all the questions I have thanks a lot.

Thank you. The next question is from Kerry Smith with Haywood Securities. Please go ahead.

Thanks, operator.

Jamie.

Why don't you just explain to me how does he energy management program works and why D and I assume.

Don't need much power, Rhode Island, but it doesn't get impacted but is this something that we'll likely see.

On a go forward basis, where you will have periods of time, where you won't be able to run the facility at the rate you'd like to run because of this program I'm just trying to understand how it.

It impact your production going forward.

Yeah, Hi.

Hi, Kerry its look here I can I can take that I mean this this center to meet its energy management plan that we talked about with regards to the peak periods. We've been in young Davidson has been involved in that since 2016.

And Ireland Island Gold is now part of that as well.

What typically happens is the way that.

Works is that usually you need to.

Monitor the the peak load in the province of Ontario, and when that occurs in a specific one hour window.

We need to have the facility down for for that one hour in order to get that cost benefit. So typically we need to shut the facility down for about four hours and its not the entire facility. It's it's the milling process the hoist and the paste plant in the White D case in Rhode Island, if its the mill so.

Do you need four hours to be down in order to get that one hour peak period, typically we need to shut down and probably anywhere from 10 to 15 times in a in the period to be able to get those peaks.

In this case, we had more shutdowns required in order to capture the peaks and they were longer in duration, meaning the low profile in the province in that period was pretty flat line. So typically it's a four hour window shut down we had a couple of them. This year, where there were about six hours as a result of that in order to capture that peak, but I mean, that's something.

We planned for and it's part of our business plan on an annualized basis, the bigger impact really in Q3 was the head ropes having to be changed out.

You know with without job, that's really what would lead to the the mining rates being at 7000 versus 8000, yes, yes, the other point to make their carriers the benefit of shutting.

Shutting down during those peak periods as insignificant I mean, we save millions of dollars every year in our power costs by Kay if we're able to capture those are the five peaks and then we have been successful most years and do it yourself. So this is nothing new it's just we had to be shut down but more than than what we budgeted that this quarter, but it's it's a it's still a.

Worth doing because we save again millions.

Millions of dollars in power cost.

And are you seeing ive been doing this since 2016, you said right.

In <unk> case, yes.

So over that period of time, that's you know call. It six years have you seen.

You know the frequency. These are these energy management shutdowns, increasing overtime, because obviously, even got GDP growth in Ontario, and I'm not sure what hydro one is doing with the power infrastructure, but I can only assume that it's a disaster.

You know what I think it might be a situation, where youre seeing a gradual trend higher in terms of.

The number of shutdowns that you have to implement in that and if that might impact you or your milling throughput on a go forward basis more than what you're already kind of budgeting for it.

Like I said typically they've been 10 to 15 year and it's by choice I mean, we manage that decision I mean, we don't see the cost benefit. There then we would not necessarily shut down but at this point.

Based on market conditions, we see the benefit of taking that that shut down and are.

Realizing the benefit on our power Bill.

Okay I got you okay. Okay. That's helpful. And then just this is kind of a first full quarter out of Y D. Oh pardon me.

<unk> are you kind of planning to use this reporting reporting format.

Using the Q3 on a go forward basis, when you split out.

Yeah, Randy from the rest of the operation there.

Yeah Kerry I think we'll continue to do that for the for the next several quarters as well, where we're still getting significant production from them a lot of leach pad I think.

At this time next year, we'll reevaluate that I mean, we do have the underground of E D.

Deposit that will be coming online at some point, we'll likely look to report that separately as well, but yes, I think for the for the near term, we'll keep the form adding presentation similar to what we had this quarter.

Okay. Okay, and then just one last question I think I know the answer but.

When you drop your from island over to Y D. I'm, assuming that those tons and those grades are captured in the island reporting.

The ball and then you're capturing the extra cost to truck it over as well that correction, yes, everything gets attributed back to two island absolutely. So those are stripped out of the <unk> results are included in the island results where they belong.

Okay perfect. Thank you.

Yeah.

Thank you.

Next question is from Trevor Turnbull with Scotiabank. Please go ahead.

Yeah. Thank you Luke you mentioned that at.

At island, those stockpiles had been sitting there for a long time and you just took advantage of that capacity window. It at Y D I b.

Just wondering if you expected those stockpiles to grow again or if you could maybe remind me what the mining rate is at island.

And also when that permitted capacity increase at island as expected.

Yeah. So I mean, the typical binding we said island currently are 200 tonnes per day.

Rockwell has been sitting there really since we acquired the property back in 2008 2017.

<unk>.

Yeah. So.

Sorry, I missed I missed the other part of that question Trevor well, it's kind of moved I was kind of wondering if if you expected those stockpiles to kind of grow again and my follow up to that was when you expect that permitted increasing capacity for the island plant, but it doesn't sound like those stockpiles are really.

To be an issue before before phase III ready no correct correct I mean, it will I.

I mean through the permitting process, we're working through that obviously to ramp up for 2026, when the shop comes on line and then it gets to full production of 2400 tons per day in early 'twenty 'twenty seven but I mean, we typically will always have a bit of a stockpile sitting in the yard at.

At our island gold similar to what we do at Y D. You know.

In the case of this quarter, where we just had Y D, where we did have some.

Some downtime with regards to the head bolt replacement, we're able to continue to run the mill at full capacity. We would so we would have that same benefit with island gold.

No that makes sense and obviously the metallurgy works out that you can you can use either facility.

Then just my only other question was about Lynn Lake the EIA approval expected here fairly soon next couple of months and you said there would be a feasibility study coming out following that I'm just wondering if the feasibility really comes out very.

Very quickly after the eas or if there's a bit of work that you guys need to do so that we might have to wait a bit longer to see those numbers.

Trevor I, yes, I think the feasibility study would follow it pretty closely after the receipt of the provincial and federal permits like within the within the quarter certainly.

And yes that that would likely be after I mean, the feasibility study would be after the release of our updated reserves and resources.

At the end of 2022 number so that we can incorporate.

The exploration work that we've done this year.

Okay, great. Thanks, Jamie that's all I had.

Yeah.

Thank you once again, please press star one on your devices keypad. If you have a question. The next question is from Mike Parkin with National Bank. Please go ahead.

Hi, guys congrats on the quarter and congrats to Peter in his retirement and Luke.

Welcome to the team one quick question.

The legacy so why does stockpile.

Is that something that's kind of temporarily on hold in terms of aggressively putting that back or putting that back into stacking.

In terms of like consumable prices being elevated would you look to be opportunistic in.

Look to capture a greater emerging assuming consumable prices soften in the near term or just.

Keep going at the rate you're going.

Yeah, Mike, It's Jamie Yes, absolutely I mean, our business plan for for the rest of this year and into 2023 is focused on mining the El Salto the bottom part of the <unk> pit and that's that's the basis for our production guidance.

<unk> pile, we will continue to evaluate that and look for opportunities.

Where and when it makes sense based on the gold price and consumables prices too to process. It but there's optionality associated with that that's a that's not entirely factored into our existing.

Near term outlook.

And is it something that you can blend easily with the oxide or do you tend to try to separate the stock that on a pad and be more.

Got it.

Consumes more consumables so is it.

Something that makes sense to try to isolate versus mix with the oxide zone.

Yeah, we tend to I mean, when we're processing the stockpile, we certainly can blend that we tend to.

Back to the stockpiled material separately almost batch process, but we can blend that as well.

Okay.

That's it for me guys. Thanks, so much.

Thank you.

There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered. Please feel free to contact Mr. Scott Park Parsons at 4163689932 extension 5439.

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