Q4 2022 Alamos Gold Inc Earnings Call
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This conference is being recorded.
The homes that don't have as you see.
Please standby your meeting is about to begin.
I would like to turn the meeting over to Mr. Jamie Porter Chief Financial Officer. Please go ahead.
Thank you operator, and thanks, everyone for attending Alamos fourth quarter and year end 2022 conference call.
In addition to myself, we have on the line today, John Mccluskey, President and CEO Lewke Mall, Chief operating Officer, and Scott RG Parsons Vice President of exploration.
To address any questions with respect to our reserve resource update we also have on the line today, Chris Bostwick, our senior Vice President of technical services.
We'll be referring to a presentation during the conference call that is available through the webcast and on our website I would also like to remind everyone that our presentation will be followed by a question and answer session.
As we will be making forward looking statements during the call. Please refer to the cautionary notes included in the presentation news release, and managements discussion and analysis 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 senior Vice President of technical services and a qualified person.
Also please bear in mind that all the dollar amounts referred to on this conference call are in U S dollars unless otherwise noted.
That's it on to John to provide you with an overview of the quarter. Thank you Jamie.
And good morning, everyone.
I'm, starting with slide three we.
We had a strong finish to the year with record production of 134000 ounces and Cogs, it's coming in at the lower point of the year and the fourth quarter.
All of our operations performed well, including a standout performance from our lighthouse and the low cost Lee Aki Grande operation ramped up and operating at full capacity Liaqat Grande was a key contributor to our stronger consolidated free cash flow generation in the quarter of 18 million along with a steady ongoing.
For the full year, we produced 460000 ounces of gold in line with the midpoint of guidance all three operations had a strong year, beating their respective production guidance.
Total cash costs of $884 per ounce and all in sustaining costs of $1204 per ounce also met guidance and were both below the midpoint a solid performance given the industry wide inflationary pressures.
As outlined in our reserves and resources update as early this week.
We continue to add value through exploration mining.
Mining depletion was more than replaced with a 2% increase in our global reserves to $10 5 million ounces of gold along with a 3% increase in grades driven by higher grade additions Island gold and <unk>.
This is mark the fourth consecutive increase in our year end reserves with grades also increasing over that time frame as we continue to improve the quality of the overall reserve base.
I look at slide four.
Last month, we released our updated three year production and operating guidance.
Afflicting stronger outlooks at island gold and <unk>, we increased our production guidance for 2023 and 2024, we expect production to increase 9%. This year to approximately 500000 ounces of gold and.
And remain at similar levels in 2024 and 2025.
Our 2025 guidance excludes the higher grade PDA project, which as we outlined earlier. This week now contains 70% larger reserve of 728000 ounces.
This represents potential production upside and a lot of which we expect to outline in the development plan for P. D. A to complete to be completed in the second half of this year.
All in sustaining costs are expected to decrease 4% to 2023 and 17% by 2025 to approximately $1000 per ounce driven by low cost production growth from new Yoki Grande and island gold.
Our declining cost profile helps us stand out in a sector that is battling industry wide inflationary pressures.
A further increase in production and improvements in cost is expected in 2026. Following the completion of the phase III plus expansion at island dog. This expansion will be a game changer for the operation and for the company.
Grow our annual production to over 600000 ounces of gold per year, what's the shaft is complete.
Longer term through the development of the Lynn Lake project, we have the potential to increase our annual production to approximately 800000 ounces per year.
Now looking at slide five.
We demonstrated in the fourth quarter, we can more than fund our growth internally, while generating solid free cash flow.
We're taking a disciplined and balanced approach to growth by focusing on island gold such that at current gold prices, we expect to generate more than $100 million of free cash flow per year, while funding the phase III plus expansion.
With that I'll turn the call over to our CFO , Jamie Porter, who will review our financial performance.
Thank you John moving on to Slide six we sold 133164 ounces of gold in the fourth quarter at an average realized price of $1741 per ounce $15 per ounce above the London PM fix price for record revenues of $232 million total cash cost of $810 per ounce and all in sustaining.
Cost of $1138 per ounce were below full year guidance and the lowest level of the year benefiting from higher grades at island gold and low cost production growth from La Yaqui Grande.
For the full year, we sold 456006 hundred ounces of gold at a realized price of $1799 per ounce for revenues of $821 million.
Operating cash flow before changes in noncash working capital increased 14% from the third quarter and grew for the fourth consecutive quarter to $109 million or 28 per share for the full year operating cash flow before changes in noncash working capital was 362 million or <unk> 92 per share.
Our reported net earnings of 41 million in the fourth quarter or <unk> 10 per share included unrealized foreign exchange gains of $12 million recorded within deferred taxes and foreign exchange, partially offset by other losses of $5 million. Excluding these items. Our adjusted net earnings were 34 million or nine cents per share our full year adjusted net earnings were $108 million or 28.
That's for sure.
With the ramp up of construction activities on the phase III plus expansion at island capital spending increased to $85 million in the fourth quarter. This included 27 million of sustaining capital $50 million of growth capital and $8 million of capitalized exploration for the full year capital expenditures of $314 million came in below the.
<unk> range with some capital for the phase III plus expansion deferred into the next few years.
Free cash flow increased to $18 million in the fourth quarter up substantially from earlier in the year driven by the ramp up of low cost production from La Yaqui Grande and a strong ongoing contribution from young Davidson. This included $29 million of free cash flow in the quarter from <unk> and another 24 million from young Davidson for the second consecutive year Young Davidson as <unk>.
<unk> more than $100 billion of free cash flow.
We remain debt free and ended the year with $130 million in cash and $19 million of equity securities and $500 million of Undrawn credit capacity with higher production and lower costs expected over the next several years, we remain very well positioned to continue generating solid free cash flow, while funding our high return growth projects and supporting ongoing returns to shareholders.
This included returning $47 million in 2022 through dividends and share buybacks with that I'll turn the call over to our C. O O look them on to provide an overview of our operations for the quarter and year.
Thank you Jamie moving to slide seven young Davidson produced 44600 ounces in the fourth quarter and 192000 ounces for the full year in line with the midpoint of guidance.
The operation generated another 24 million mine site free cash flow in the quarter, bringing the full year total to more than 100 million for the second consecutive year.
Total cash cost of $942 per ounce and mine site all in sustaining costs of $1284 per ounce in the fourth quarter were up from from earlier in the year, but both are in line with guidance on a full year basis.
As previously guided we expect similar production in 2023 of between 185000, and 200000 ounces with a similar rate of capital spending and slightly higher costs, reflecting industry wide cost inflation.
With a strong outlook and a 15 year reserve life Young Davidson is well positioned to generate $100 million and free cash flow per year in 2023 and over the long term.
Over to slide eight island gold had a strong finish to the year producing 40500 ounces in the fourth quarter at a total cash cost of $605 per ounce and mine site all in sustaining cost of $863 per ounce.
This brought full year production to 133700 ounces near the top end of guidance.
Full year costs were slightly above guidance in large part, reflecting the processing of lower grade stockpile ore at young Davidson well.
While very profitable these ounces carried a higher cost structure contributing to the higher than guided costs.
The operation used $15 million of cash in the quarter and $9 million for the full year, given the ramp up in capital spending on the phase III plus expansion.
Excluding $24 million of exploration spending during the year Island gold more than self funded the expansion.
In 2023, we expect island gold to produce 120000 to 135000 ounces consistent with what was outlined in the phase III study.
With young Davidson all in sustaining costs are expected to increase slightly from 2022, reflecting industry wide cost inflation.
Over to slide nine.
Work on the phase III plus expansion continues to ramp up with significant progress made in the quarter. This included completing the chef precinct down to its final depth of 42 meters. In November we also completed shop site earthworks and critical path concrete foundations.
You can see in the photo to the right. We are now in the process of erecting structural steel for the hoist house and hoist drive cooling building.
Our focus during the first half of 2023, we'll be on construction of the hoist house and headframe.
The sinking of the shaft expected to commence in the latter part of the year.
We are making solid progress in what 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.
The expansion remains on track to be completed in 2026, after which island gold will be among the largest lowest cost and most profitable gold mines in Canada.
Moving to slide 10, the mulatto district produced 49100 ounces in the fourth quarter.
15% increase from the third quarter with all in sustaining costs decreasing 19% to $922 gross <unk>.
Collectively the mulatto district generated sharply higher cash free cash flow of $29 million in the quarter with La Yaqui Grande being the driver.
Full year production of 134500 ounces was in line with guidance while costs were below guidance again, given strong performance from La Yaqui Grande in the second half of the year.
With a full year of low cost production from La Yaqui Grande in 2023.
A lot of models district production is expected to increase 34% to between 175000 and 185000 ounces, a 21% lower mine site all in sustaining costs.
Over to slide 11.
Well Yoki Grande produced 37300 ounces in the fourth quarter, a 47% increase from the third quarter at 22% lower all in sustaining cost of $545 per ounce.
The operation is fully ramped up and performed extremely well during the second full quarter of operations with stacking rates increasing to average 11100 tonnes per day for the full quarter above the design rate of 10000 tons per day.
Following the startup of operations in June the Yaqui Grande produced 67600 ounces at industry low all in sustaining cost of just under $600 per ounce.
With a similar performance expected in 2023 and over a full year.
Lac La Yaqui Grande is expected to be a key driver of strong ongoing free cash flow from them a lot of district.
I'll now turn the call over to Scott Parsons, our VP exploration to discuss the reserve and resource update.
Thank you Luke over to slide 12, we continue to have broad based success with our exploration programs with reserves, increasing 2% to $10 5 million ounces more than replacing 591000 ounces of depletion.
Grades also increased 3%, reflecting a higher grade additions island gold them a lot of more than offsetting a slight decrease at young Davidson.
Total reserves has now increased for four consecutive years of 8% over that time frame.
<unk> also increased 8% as we continue to add higher grade ounces and improve the quality of our reserve base.
Global measured and indicated resources also increased by 14% to $3 9 million ounces at slightly higher grades reflecting additions at all of our operations.
And a new resource at our Golden Arrow project will get a new young Davidson.
Similarly, inferred resources increased 2% to seven 1 million ounces.
Over to slide 13.
Island Gold continues to grow with high grade reserves and resources, increasing across all categories for a combined 4% increased to $5 3 million ounces net of depletion.
This marks the seventh consecutive year, the combined reserves and resources abroad with grades also increasing over that time frame.
Reserves increased 9% to $1 5 million ounces net of depletion the 10th consecutive year of growth grades also increased 6% to 10.8 grams per tonne.
Moving to slide 14.
The main driver of the increase in reserves in grades was the conversion of higher grade mineral resources in the middle portion of island East.
As shown in the long section and a further 204000 ounces right. It doubling the reserves in this area to 410400 ounces at similar higher grades averaging $12 five grams per tonne, 15% above the average reserve grade.
As can be seen in the very high grade inferred resource block below it. We also replaced the majority of resources converted the mineral reserves and its island East area.
Naturally higher grades.
First blocks now contains 1.9 million houses with grades increasing 10% from a year ago to average 17 grams per tonne.
Several of the best hole ever drilled at island gold to come from this high grade ore shoot over the past few years contributing to the significant increase in resources and grades.
These resources have been converting to reserves are greater than 90%. We just don't open laterally and down plunge, there's excellent potential for continued growth and higher grade reserves and resources.
Over to slide 15.
A lot of growth with higher grade underground reserve, the PDA more than offset depletion of horror lower grade open pit ore driving a 9% increase in total than the water district reserves and a 19% increase in grades.
The BDA increased by 70% to 728000 ounces.
Also increasing 4% to four eight grams per tonne.
Since declaring an initial reserve of PTA last year combined reserves and resources are growing rapidly to now total 1 million ounces, a 71% increase from a year ago.
Was it because it opened in multiple directions and it expanded exploration program planned during the first half of 2023, we expect the PTA will continue to grow.
The higher grade ore competing is expected to be processed through the existing mill or a lot of which will be expanded to accommodate the significantly larger reserve.
The development plan for PTA, incorporating the growth in reserves and resources is expected to be completed in the second half of this year.
Excluding Cta remaining mineral reserve life of them a lot of district is approximately five years.
We expect the PDA will more than double this.
Globally, we have a $47 million budget for exploration in 2023.
More than half allocated to following up on the significant ongoing potential them a lot of island gold, we see excellent potential to continue adding higher grade ounces to our reserve base.
With that I'll turn the call back over to John .
Thank you Scott.
I'll now ask the operator to open the line for your questions operator.
Thank you.
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The first question is from Mike Parkin from National Bank. Please go ahead.
Hi, guys.
Congrats on the quarter, a nice results across the board.
Hum, but Yankee Grande.
That certainly seems to be performing extremely well can you just give us some sense on what 2023 guidance is assuming relative to where it's kind of a for me on slide 11. It's noted there that you're exceeding design capacity rates.
Is.
The design rate of 10000 tons per day, what guidance is based off of.
Yeah, I might get a look here yeah look we've had we've had a bit of over performance certainly to start Ah in 2022, but our long term design readers to average 10000 tonnes per day out of La Yaqui.
Okay, you know what.
Can you give any color on what's driving that performance.
Just early stages of our of the pit operations. So we've just been a bit more productive, but as we continue to advance with the benches, we expect to be able to sustain a more reasonable 10000 tonnes per day on average.
Okay. Thanks, that's it for me.
Thank you.
The next question is from Terry.
Smith from Haywood Securities. Please go ahead.
Thanks, operator, good morning.
Luc just said island.
The unit cost the mining costs were I think 100.
Canadian in Q4, which was higher than the average for the year and then that 2022 average was higher than 2021 do you think.
We've kind of seen the peak in the unit costs at island here, obviously, they will creep up as you go deeper in the mine but.
Ah you're kind of expecting like 'twenty three 'twenty four made we're going to be around 145, $1 50, a ton or should we be thinking about a higher number than that.
So I think I mean, we've obviously had some cost inflation pressures on the business carry and so that's reflected a bit in that unit costs. I mean, what's also affected I guess the results for Q4 was a there was less tonnes mined overall in the quarter, which affected obviously the unit cost as well but.
Because we continue to go deeper and and obviously once we bring on the shop. The shop infrastructure is going to be centralized social from a unit cost basis, we're gonna be a lot more efficient than what we're doing currently with the Rab system falling out of the mine.
Okay, Yeah, no I was thinking more until the ramp comes in.
<unk> comes in and what we should think about for three units unit costs, but okay. That's helpful.
Yeah, I would just add to that I mean, I'd say similar to where we are currently I wouldn't expect significant increases like I said, some things will start to stabilize from a from an inflation point of view as far as some of our cost inputs for supplies.
Okay, Okay and at why you've been mining below reserve grades for a while I know the reserve grade came off a little bit with a higher gold price assumption this year, but when does that flip over and you actually start mining either reserve grades are slightly above reserve grades.
Well as we continue to move through the mine plan, we will start to be above reserve grades I mean, it's it's really secrets driven.
Sound geotechnical mining as far as the extraction of that ore body. So as a result of that.
The grades are what we see in front of us based on that sequence, but.
In the next couple of years, you'll start to see some higher grades above reserve grade.
Okay, Okay, and then I'm not sure I know Chris is on the call what was the dilution assumption that you assumed for the reserve calculation of P. D. A.
That $4 eight four grams, a tonne like how did they calculate the dilution, yes, Kerry we assumed a 20% dilution.
Which is similar to what we experienced previously at our San Carlos in the 90% to mining extraction.
Okay. Okay. That's great. Thank you guys.
Thank you.
Once again, please press star one at this time, if you have a question.
And the next question is from Herman Perry from Bank of America. Please go ahead.
Hi, good morning, Thanks for taking my question.
Competing with your capital over that three year period.
Yeah. Thanks for the questions Jamie here I think over the next two years I mean, the focus certainly is on is on an island phase III plus.
We are in great shape as we indicated throughout the.
The presentation. This morning, I mean, we're pretty much self funding that expansion with with cash flow from operations from Ireland.
And at current gold prices, you will end the year with.
The cash balance of close to 200 million. So I think our dividend is sustainable we'll be able to maintain and hold the dividend for the next couple of years, we'll look for opportunities.
To potentially be active on our NCI V, but yeah. The focus over the near term is certainly on phase III path longer term on Lynn Lake. So we'll be providing updates on that later this year.
And is there any color you can sort of provide on maybe the M&A outlook is there any interest in maybe transacting or if you're seeing opportunity of that.
All right.
Like most companies, we're always looking at what's going on in the market but.
At the moment there is no.
There's nothing imminent or actual.
We are looking at.
We're looking at we look at M&A in a variety of ways.
Internal to our our operations.
Approximately <unk> of our operations, we're always looking at opportunities there as.
As far as you know.
Bigger transactions are concerned.
If you look at our our our past.
From it's we tend to transact when the market is pretty much at its worst.
And.
Yeah, right now I would I wouldn't characterize the market that way at all I think it's it's doing reasonably well and were certainly not getting any pressure from our investors.
With respect to M&A with H C. We've got a pretty good growth profile out in front of us with the article the expansion of the opportunity to build blip.
Lynn Lake after that and of course, even.
The PDA is starting to come into view if you don't.
Obviously, you have anything on that quite yet, but as you know with nearly a million ounces, taking shape, there where we're getting ready to.
To gear up it.
A lot of us adding a.
A new source of mill production that carry us well into the 20 <unk>.
So I think our growth prospects prospects right now just for higher organic growth.
Look pretty attractive.
There's no pressure to do anything more.
That's great color. Thank you that's it for me.
Thank you.
There are no further questions registered at this time. This concludes this morning's call. If you have any questions that have not been answered please feel free to contact Mr. Scott Parsons at four Wednesday.
89932 extension.
5439.
Thank you. Thank you.
Assistance on the call today, you may now disconnect your lines.
Yeah.
Yeah.
Yeah.