Alamos Gold Inc. Q1 2023 Earnings Call
This conference is being recorded physical sales, it's always you see.
All participants thank you for standing by the conference is ready to begin good morning.
Like to turn the meeting over to Mr. Scott Parsons Senior Vice President Investor Relations. Please go ahead.
Thank you operator, and thanks to everybody for attending Alamos as first quarter 2023 Conference call. In addition to myself we have on the line today, John Mccluskey, President and Chief Executive Officer, Jamie Porter, Chief Financial Officer, Luke Chemo.
Chief operating officer, and Greg Fisher Senior Vice President of Finance.
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 Q&A.
Yeah.
As we will be making forward looking statements during the call. Please refer to 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 <unk>, Our senior VP technical services.
And a qualified person.
Also please bear in mind that all of the dollar amounts were up.
<unk> mentioned in this conference call are in U S dollars unless otherwise noted now John will provide you with an overview. Thank you Scott.
I'd like to welcome everyone to our call.
I'll start off by thanking Jamie Porter for his invaluable contribution to Alamos for nearly 20 years.
Jamie joined almost in 2005, and it's been our Chief Financial Officer since 2011.
He has been instrumental part of our leadership team, helping oversee our growth from a single operation to a diversified intermediate producer with financial discipline that has allowed us to maintain one of the strongest balance sheets in the sector.
Jamie on behalf of the entire team. We wish you continued success in your future endeavors.
I also want to congratulate Greg Fisher on his promotion to Chief Financial Officer.
Greg has been an integral part of our senior management team for the past 13 years over that timeframe. Greg has led our finance team and helped instill the same financial discipline that has kept out of the house on the right track throughout its history.
We are in excellent hands with Greg and look forward to his ongoing leadership and financial stewardship as we deliver on our strong outlook.
Now starting with slide three.
We had a strong start to the year.
With costs in line with annual guidance with production of 128400 ounces exceeding our first quarter guidance. This was driven by solid performances in all three operations, including an exceptional performance from Lee Aki Grande in its third full quarter of operation.
We are well on our on track to achieve our full year guidance.
Revenues increased to a new quarterly record of 252 million and cash flow from operations increased for the fourth consecutive quarter to $127 million.
We also generated $11 million of free cash flow.
This marked the fourth consecutive quarter of positive free cash flow and we expect stronger results in the second quarter and on an ongoing basis over the next few years, while we fund the phase III expansion at island gold.
Now turning to slide four.
We continue to advance our various growth initiatives during the first quarter.
The phase III plus expansion is progressing well.
With the hoist house now up in the call away to be used for the shop think now on the site. We also announced the acquisition of Mad two gold, which will more than triple our land package adjacent to it along strike from island gold.
Significantly adding to the regional exploration potential.
Additionally.
We achieved a significant permanent milestone at our Lynn Lake project with the approval of its environmental impact statement.
We expect to have an updated feasibility study completed on Lincoln way towards the middle of the year.
We also expect to complete a development plan for the ports the Larry deposit.
Later part of the year, which will incorporate results from an expanded exploration program currently underway.
We've already to find 1 million ounces of higher grade reserves and resources at P. D. A.
Over the past two years and see excellent potential for that growth to continue.
Supporting what we expect will be a significant mine life extension at <unk>.
Now turning to slide five.
These projects.
Are all contributors to our short our strong short and long term outlook.
We are expecting a 9% increase in production this year to approximately 500000 ounces and a 17% decrease in our all in sustaining costs to approximately $1000 per ounce by 2025.
The completion of the island gold Phase III expansion in 2026 will be a game changer for the operation and the company and we will grow our annual production to over 600000 ounces per year and further reduce our costs.
Longer term, we have the capacity to increase our annual production to approximately 800000 ounces per year through the development of our Lynn Lake project.
Over to slide six as we continued to demonstrate we can fund this growth while generating solid ongoing free cash flow at current gold prices, we expect to be generating well over $100 million in free cash flow per year, while funding the phase III expansion and that will grow considerably once the expansion is completed in 2026.
I'll now turn the call over to our CFO , Jamie Porter for the final time to review our financial performance Jamie.
Thank you John .
This will be my last quarterly conference call as part of all of Us and although I'm sad to be leaving the company and the team are very proud of what we've accomplished together.
But for all of US has never been brighter the team has never been stronger.
Forward to <unk> continued growth and know the company is in great hands with Greg Fischer as Chief Financial Officer.
On to slide seven.
We sold 132700 ounces of gold in the first quarter at an average realized price of $1896 per ounce, which was $6 per ounce of Buffalo, London PM fix price for record revenues of $252 million.
Total cash costs of $821 per ounce well below the full year guidance range at all in sustaining costs of $1176 per ounce were at the top end.
We were one of the few companies to meet our cost guidance in 2022 and are on track to do the same in 2023 with a solid start to the year.
Our reported net earnings of 48 million in the first quarter 12 cents per share included unrealized foreign exchange gains of $4 million recorded within deferred taxes and foreign exchange, partially offset by other losses of $1 million. Excluding these items. Our adjusted net earnings were $45 million or <unk> 12 per share.
Operating cash flow before changes in noncash working capital increased 16% from the fourth quarter and grew for the fourth consecutive quarter to $127 million 32 per share.
Capital spending totaled 84 million in the quarter with a similar run rate expected to the rest of the year with construction activities on the phase III plus expansion well underway.
This included $27 million of sustaining capital and $52 million of growth capital and 5 million of capitalized exploration.
Our free cash flow of $11 million in the first quarter was understated, reflecting a temporary buildup of sales tax receivables in Canada.
Receivables normalized in April with the collection of $20 million, which will contribute to much stronger free cash flow in the second quarter and through the rest of the year.
Our balance sheet remains strong with no debt $134 million in cash $26 million of equity securities and $500 million of Undrawn credit capacity with stronger production and cost trending lower over the next several years, we remain well positioned to continue generating solid free cash flow, while funding our high return growth projects and supporting ongoing returns to shareholders.
I will now turn the call over to our COO Lewke malls to provide an overview of our operations.
Thank you Jamie moving to slide eight.
Excuse me young Davidson continues to be a consistent performer with grades and mining rates of 8000 tonnes per day, both in line with guidance driving production of 45000 ounces.
Total cash costs were within the full year guidance range and all in sustaining costs just above the top end of the range.
Grades mined are expected to be in a similar range in the second quarter, an increase in the second half of the year driving production higher costs lower putting the operation on track to meet its full year guidance.
Mine site free cash flow totaled $16 million in the first quarter and with stronger free cash flow expected through the remainder of the year Young Davidson is on pace to generate another $100 million in 2023 and annually over the long term.
Over to slide nine island gold produced 33000 ounces in the quarter with grades mining rates and cost all consistent with full year guidance.
So with the solid start and similar results expected through the year Island gold is well positioned to achieve full year guidance.
With the ramp up of construction activities on the phase III plus expansion the operation used $21 million of cash during the quarter.
Exploration spending and the delay in collecting sales tax receivables Island Gold continues continues to largely self finance the expansion.
Over to slide 10.
As III plus expansion continues to progress with the installation of the 44 kv power line from the existing operation to the shop area substation construction of the hoist House building steel and external cladding completed the fabrication of steel for the headframe and color house underway.
Detailed engineering for the paste plant is ongoing as well as basic engineering for the mill expansion and lateral development to support higher mining rates with the expansion.
Installation of the hoist and erection of the headframe were expected to start in the second quarter and as you can see in the photo on the lower right corner of the slide the Galloway that will be used in the shaft sinking arrived on site last week.
The shaft sinking is expected to start in the fourth quarter, putting an expansion putting the expansion on track to be completed in 2026.
Once completed island gold will be among the largest lowest cost and most profitable gold mines in Canada.
Moving to slide 11.
A lot of district production totaled 50500 ounces up slightly from the fourth quarter with total cash cost and all in sustaining costs coming in below full year guidance.
Mine site free cash flow increased to $37 million the highest level in 10 years.
This was driven by a very strong quarter for la Yaqui Grande with grades and throughput rates above annual guidance.
Production from the <unk> district will be first half weighted with the main <unk> pit, including El Salto is expected to be depleted in the third quarter.
Great stack at La Yaqui Grande are expected to decrease the rest of the year to be consistent with.
As with our other operations <unk> is well positioned to meet full year guidance given the strong start to the year.
Slide 12.
The Yaqui Grande delivered exceptional results in its third full quarter of operation with production increasing to 38400 ounces.
Asking rates averaged 11 11300 tons per day above design levels for the second consecutive quarter and great stock average well above reserve grades and guidance driving the record quarter.
Both are expected to decrease the guided levels through the remainder of the year supporting strong ongoing free cash flow generation.
At PVH.
We have an expanded drill program plan totaling 35000 meters during the first half of the year.
This follows a 71% increase in higher grade underground reserves and resources announced the PVA earlier this year.
The deposit is open in multiple directions, and we are continuing to see good results, which we expect will drive further growth.
These results will be incorporated into a development plan for the PVH be completed in the fourth quarter that we expect will outline a significant mine life extension uncle autos.
With that I will turn the call back to John .
Thank you Luke.
We've been a strong performer over the past year, which reflects our ongoing operational execution and unique attributes of the company.
With long life high quality assets high return fully funded growth.
Mining costs, driving increasing profitability and one of the lowest political risk profiles in the sector. We are uniquely positioned gold producer and our outlook has never been stronger.
We have everything we need to be successful and we believe all the attributes needed to continue that strong performance.
That concludes our formal presentation I'll now turn the call back to the operator, who will open the lines for your questions operator.
Thank you.
We will now take questions from the telephone lines question and using a speaker phone. Please state your handset before making your selection.
Please press star one on your device.
You may cancel your question at any time by pressing star.
The first question is from Kerry Smith from Haywood Securities.
Thanks, operator.
For from <unk>.
Specifically in the economy.
Yeah, the grade was significantly higher than even the high end of the guidance, which is 1.45 grams. So.
Is that a function of the <unk>.
And the model actually being better than what you predicted or you just happened to mine.
Much higher grade in that quarter and the model is still pretty accurate.
Kind of thinking about where the green might average out for the year I assume it's going to be closer to the high end of that guidance, but just wondering if you could give any guidance there.
Yep Alright Carey.
Yes look to start certainly with <unk>.
Bit of both I mean, the mining rates have been going a bit quicker than we had initially planned.
Certainly so from a sequence perspective, we're getting into some higher grade material a little bit quicker, but we've also been seeing some positive reconciliation of where we've been mining to date as well with regards to the extraction of the ore body, but I mean moving forward for the rest of the year, we expect to be more in line certainly with our with the reserve grade.
125.
Okay. Okay. That's helpful. Thank you.
And then the second question just on the phase III expansion.
And island I know, you're just kind of get going there, but so far or is everything kind of attractive landscape.
What you had expected.
Surprises one way or the other.
No I would say everything is tracking quite well there to be honest with you.
Certainly the main focus this year is really around the shop surface complex in the shop itself.
And.
The shaft surface infrastructure has certainly been progressing quite well with regards to our timeline as I think as I mentioned in my speaking notes.
We expect you to start thinking at the end of the year in the fourth quarter, which tracks quite well with our overall timeline and schedule could be up and running at the end of Q1 2026.
Okay.
And maybe John can answer. This question just on this first nations of Pls.
Yes.
What.
L accident pertaining to I'm, just trying to understand what that.
Well it's.
It's quite a bit unusual one.
I don't know, how well like illuminate Ted.
And what's already been said, but.
Generally.
When there is a.
On objections to the first nation, it's got something to do with.
A lack of consultation.
In this particular case they seem more concerned with.
The.
The compensation they are receiving under the IPA and whether or not theyre getting at.
Our fair share of them.
What.
What will ultimately be distributed to first nations through the ipas and.
That's something that has ever been brought before the court before and where.
Just as interested as everybody else.
What kind of as the quarter is going to take in front of this so.
It really remains to be seen.
Yes, Kerry I can just add a bit more to that as well I mean, we're building relationships there with two communities two first nation communities in Manitoba one's progressed.
Well I mean.
To the point of where.
We're at the head.
Fleet at the hand, shake phase and we're just kind of working through the legal documents with regards to <unk>.
Finalizing that.
<unk> impact benefit agreements, having pen to paper the other community, we continue to engage with and have open dialogue with and still working through that process.
Despite this judicial review.
Okay.
And just so I'm clear.
Jackson is coming from Paul first both of this legislation.
No just just the one first nation Kerry.
You haven't actually got a handshake deal okay I understand correct.
Okay. Okay. That's helpful. Thanks, and John and then just maybe for Scott or Jim I know you did a bunch of drilling in Q1, and helicon West and care Sito or if you feel is there anything there.
Can you talk about have you seen anything interesting.
Kerry Scott Scott is not on the call today, but.
Honestly, we've been getting great results just about everywhere, we're drilling and we will be publishing a follow up news release on that in due course.
Okay. Okay, Okay, great, Thanks, guys and good quarter and congratulations to Greg on his new appointment.
Best of luck to Jamie.
Thanks Kerry Thank you Garrett.
Thank you. The next question is from Mike Parkin from National Bank. Please go ahead.
Thanks, guys.
First question would be with.
A bit of a follow up on the Yankee Grande.
You're obviously, you've already said you're mining.
A more elevated rates in the budget.
Is benefiting by about 10% in grades good.
Yeah.
With all of that.
Supporting an extremely low cost.
Operation are you seeing like looking at the resource is there isn't a huge amount, but do you see any potential where.
With the cut off grade being equal to be tweaked a bit to build in additional.
Tons or.
Youre still feeling pretty certain that.
As we know it today in terms of a reserve base, that's likely to be.
I'm sorry.
Yes, I might get flue cured.
I'd say as far as the reserve base that we have there at La Yaqui Grande is pretty well defined so certainly as we think.
The timelines, we're talking about as far as the mining phase of that project.
Oh.
We're pretty confident with what we have to find already that will.
Well, obviously complete all of the mining of what's required there and stocked out overtime, but.
At this point.
We're not looking at anything additional.
Okay.
And then switching over to PVA, where certainly the resource and reserve and growing quite a bit.
You've got an old.
Mini mill on care and maintenance.
<unk>.
Scale is.
Proving to be probably too small for the nearly 1 million ounces of resources.
I was thinking.
Yeah.
You need to build.
From a more meaningful sized our operations when it comes online is it still kind of a licensee and Carlo stays where you would use a mill and so our gold concentrate.
Yes.
We're still working through that process, but I mean, certainly based on the reserve base that we have currently we're looking at something bigger than we've done in the past there with regards to the mining rates from some of the previous underground mining.
We have done to them a lot of district as well as the smaller milling operation that we had that basically generated a flow con for us and then we ship it offsite.
So we're going to be working through our our mine plan.
And it looks to have that completed by the end of the year and then.
Accordingly, we will size the milling operation to whatever the mining rates can be supported but we are looking at something bigger probably in the neighborhood of.
Currently we're probably thinking around 500 tonnes per day, but again, we will we'll have a better handle on that by the end of the year.
Okay, Great. That's it for me congrats to Jim and his new job and congrats to Greg.
As new bigger role, thanks, again, guys and great quarter.
Thanks, Mike Thanks, Mike It's Mike.
Thank you as you remind you May press Star one question next.
The next question is from Carmen Perez from Bank of America. Please go ahead.
Hi, Thank you for the update.
I think earlier in the presentation, we alluded to you know the share price outperformance over the last year, which is obviously extremely impressive can you sort of talk about maybe how this might be impacting your capital allocation priorities and what I mean by that is.
Is there any change to weather.
You are contemplating buying back stock is that changed or.
Do you view, maybe your shares as a acquisition currency perhaps.
If M&A opportunities make sense.
Well the short answer is there's no change to our capital allocation plan everything is going to be on track as far as our.
Our purchasing of.
Of stock in the market goes we tend to be very.
As I say circumspect about cut when we see.
Sort of a natural decline in the share price heavy heavy selling generally accompanied by a lack of investor interest in this sector. It at those.
Those juncture as we tend to be active in buying stock but.
Were not active at the moment.
And as far as M&A concerns is concerned you can argue M&A always makes sense, but it really comes down to the opportunity.
You can make good deals in a bad market and you can make good deals and a good market and you can make bad deals.
Those various markets so.
We've tended to be.
Very active when when the market is soft.
We tend to pull back and focus on.
Sure.
On our growth internal growth.
And cash flow generation when the market is stronger and so that's what you see is doing now so theres less of a.
An emphasis on M&A, but if you recall a few years ago when the market wasn't so interested in M&A. That's when we were the most active.
So that's that contrarian approach is.
It's something that.
Has worked for us very very well.
But it doesn't mean you can't make.
You can't do an M&A transaction and the kind of market that we're in you just have to be.
Very particular about.
About what it is you're buying and what you are willing to pay.
That's very clear. Thank you that's it for me.
Thank you.
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.
Got.
At 406 three.
<unk> hundred 68, 90, 932 extension 539.
Please disconnect your lines at this time and thank you for your participation.