Q1 2024 Alamos Gold Inc Earnings Call
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This conference is being recorded so it's going to stay home if they don't go as you see.
Good morning, and I'll now like to turn the meeting over to Scott Parsons Alamos Senior Vice President of Investor Relations. Please go ahead.
Scott Parsons: Thank you operator, and thanks to everyone for attending Alamos first quarter 2024 Conference call. In addition to myself we have on the line today, John Mccluskey, President and Chief Executive Officer, Greg Fischer, Chief Financial Officer, and Luc Yvonne cheap.
Luc Guimond: Chief operating officer.
Speaker Change: We will be referring to a presentation. During the conference call that is available through the webcast as well as on our website.
Also like to remind everyone that our presentation will be followed by a Q&A session.
Speaker Change: We will be making forward looking statements during the call. Please refer to the cautionary notes included in the presentation news release and DNA as well as the risk factors set out in our annual information form.
Scott Parsons: Technical information in this presentation has been reviewed and approved by Chris <unk>, Our senior VP of technical services and a qualified person also please bear in mind that all the dollar amounts mentioned in this conference call are in U S dollars unless otherwise noted now John will provide you with an overview.
John A. McCluskey: Thank you Scott.
John A. McCluskey: We had a strong start to the year across a number of fronts.
John A. McCluskey: Following up on record performance in 2023.
John A. McCluskey: Production of 135700 ounces exceeded quarterly guidance.
John A. McCluskey: Led by record production from La Yaqui Grande.
John A. McCluskey: Costs were consistent with the guidance for the quarter and are expected to decrease through the remainder of the year, we are well positioned to achieve our full year production guidance and cost guidance.
John A. McCluskey: With solid operational performance.
John A. McCluskey: Higher gold prices, we generated record quarterly revenue of $280 million and free cash flow of $24 million net of $45 million in cash tax payments in Mexico.
John A. McCluskey: We continued to generate strong ongoing free cash flow, while funding the phase III plus expansion at island gold.
John A. McCluskey: In addition to delivering operationally and financially we are also creating value in a number of ways, most notably through our acquisition of Argonaut gold.
John A. McCluskey: Turning to slide four.
John A. McCluskey: Yeah.
John A. McCluskey: In March we announced a friendly acquisition of Argonaut, and it's but you don't mind.
John A. McCluskey: Hated adjacent to our island goldmine.
John A. McCluskey: Given the close proximity will be combining the operations to create one of the largest lowest cost and most profitable gold mines in Canada.
John A. McCluskey: Gration after two mines is expected to unlock significant value.
John A. McCluskey: Pretax synergies of $515 million.
John A. McCluskey: In addition to the synergies the acquisition is accretive across all financial and operating metrics through the expansion of a single optimized milling complex. There's also significant longer term upside potential at both operations.
John A. McCluskey: The addition of the Gino will make Alamos, a stronger company and enhance our unique position as a growing Canadian focused intermediate producer with declining costs and one of the lowest political risk profiles in the sector.
John A. McCluskey: Slide five highlights the close proximity of the two operations.
John A. McCluskey: Two deposits are less than 300 meters apart.
John A. McCluskey: Incremental haul distance from Alan Gould shocks to the Virginia mill as two kilometers.
John A. McCluskey: Utilizing the larger centralized mill, a tailings facility at Pacino.
John A. McCluskey: Tailings expansion at island gold will no longer be required providing capital savings of $140 million.
Speaker Change: I'm fine.
Speaker Change: The larger and more efficient centralized mill, well results lower processing costs as well as lower consolidated G&A for the combined operations.
Speaker Change: We expect this to provide annual savings of $25 million or 375 million over the life of the mine with further upside as both deposits growth.
Speaker Change: With three operations in northern Ontario in close proximity to each other we expect to realize increased purchasing power for consumables. We also expect to benefit from our significant tax pools that can be used to defer any meaningful cash taxes payable in Canada by three years to 2028.
John A. McCluskey: Over to slide six.
John A. McCluskey: The addition of Latino complements our existing asset base and enhances our strong outlook, but Juno will increase our current rate of production by more than 20% to over 600000 ounces per year.
John A. McCluskey: The phase III plus expansion at island Gold was completed in 2026 will drive our annual production closer to 700000 ounces and help decrease all in sustaining cost below $1100 per ounce.
John A. McCluskey: Longer term through the development of Lynn Lake and PTA, we have the capacity to increase our rate of production to over 900000 ounces of gold a year.
John A. McCluskey: We will also be evaluated additional upside potential at both island gold and the Juno through a larger expansion of the Merino mail.
John A. McCluskey: This represents nearly 80% growth from current levels, providing almost with one of the best growth profiles in the sector nearly all of this growth is coming from Canada. It's.
John A. McCluskey: It's lower cost and it's sustainable given the long life mines.
John A. McCluskey: Which averaged 15 years.
John A. McCluskey: We continued to demonstrate our long term track record of value creation through exploration and M&A during the quarter.
John A. McCluskey: Juno is an excellent example of our near term value creation.
John A. McCluskey: The acquisition of Orford mines.
John A. McCluskey: Covid Gold project located in Quebec.
John A. McCluskey: It's also a good example of our focus on longer term value creation opportunities. The transaction closed earlier this month, providing us with an attractive exploration stage project in a great jurisdiction.
John A. McCluskey: In February we announced our updated reserves and resources.
John A. McCluskey: With growth across all categories as we continue to have probably a through exploration.
John A. McCluskey: Reserves now increased for five consecutive years to nearly 11 million ounces.
John A. McCluskey: For a combined increase of 10%.
John A. McCluskey: With grades also increasing 9% over that time frame.
John A. McCluskey: With our largest exploration budget ever planned for 2024 at $62 million, we see excellent potential for that track record of success to continue with multiple exploration updates expected throughout the year.
John A. McCluskey: We expect to deliver on several other catalysts through the year, including completing development plan for the growing higher grade PDA project later this quarter.
John A. McCluskey: We're also working on a study incorporating the FERC temporary delinquent satellite deposits into the Lynn Lake project.
John A. McCluskey: Deposits represent upside to the 'twenty two 'twenty three feasibility study that we expect to outline towards the end of the year.
John A. McCluskey: I'll now turn the call over to our CFO, Greg Fisher to review our financial performance.
Greg Fisher: Thank you John.
Greg Fisher: On slide eight in the first quarter, we sold 132800 ounces of gold at an average realized price of $2069 per ounce for record quarterly revenue of $278 million.
Greg Fisher: Total cash cost of $910 per ounce and all in sustaining cost at $1265 per ounce were both above annual guidance, but consistent with our guidance for the quarter.
Greg Fisher: All in sustaining costs were also impacted by higher share based compensation, reflecting the increase in our share price during the quarter.
John A. McCluskey: Costs are expected to trend lower through the year to be consistent with full year guidance, reflecting lower costs at both young Davidson and island gold.
John A. McCluskey: Our reported net earnings of $42 million in the first quarter or 11 cents per share included unrealized foreign exchange losses of 5 million recorded within deferred taxes, and foreign exchange and other adjustments net of taxes of $5.
John A. McCluskey: Excluding these items, our adjusted net earnings were 51 million or <unk> 13 cents per share.
John A. McCluskey: Operating cash flow before changes in noncash working capital was 135 million or 34 cents per share.
John A. McCluskey: Free cash flow totaled $24 million, an impressive performance. Given this was a 45 billion in cash taxes as well as ongoing spending at the phase III plus expansion at island gold.
John A. McCluskey: The majority of the $45 million of cash taxes paid in the quarter related to the 2023 year end tax payment in Mexico, given the strong profitability of a lot of this last year.
John A. McCluskey: We expect cash tax payments to decrease to approximately $10 million per quarter through the rest of the year related to 2020 for tax installments.
John A. McCluskey: With lower cash tax payments, starting in the second quarter combined with declining costs, we expect stronger company wide free cash flow through the remainder of the year, while continuing to fund our growth initiatives.
John A. McCluskey: Capital spending totaled $85 million in the quarter and included 27 million of sustaining capital and $52 million of growth capital. The majority of which was focused on the phase III expansion.
John A. McCluskey: Our balance sheet continues to strengthen in the quarter with a cash balance growing 7% from year end to $240 million and we remain debt free.
John A. McCluskey: Following the expected closing of our acquisition of Argonaut in July will be inheriting approximately $275 million of their debt.
John A. McCluskey: We have more than sufficient capacity for this debt within our currently Undrawn 500 million credit facility.
John A. McCluskey: Significantly better terms.
John A. McCluskey: Given our existing cash position, we will maintain one of the strongest balance sheets in the sector.
John A. McCluskey: With our strong ongoing cash flow generation, we will have more than enough financial capacity to continue to internally fund our growth plans, including the phase III plus expansion and development of both PTA Edwin Mike.
John A. McCluskey: I will now turn the call over to our COO, Jim I'll provide an overview of our operations.
Jim: Thank you Greg.
Jim: Going to slide nine young Davidson produced 40000 to 100 ounces in the quarter with total cash costs and all in sustaining costs both above annual guidance.
Jim: Reduction in costs were impacted by temporary downtime to replace the headroom at the Northgate shaft.
Jim: Which had been scheduled for replacement in the second quarter.
Jim: Mining rates were also impacted by delays in receiving two production screws with completion of the head bolt change and receipt of the two new hybrid production scoops mining rates were back to design capacity of 8000 tonnes per day in March.
Jim: Grades mined were also impacted by the lower mining rates, which delayed access to higher grade stopes from March into April.
Jim: Grades mined are expected to return to guided levels in the second quarter and through the rest of the year.
Jim: Why do you say free cash flow totaled $15 million in the quarter with higher production lower cost and stronger free cash flow expected through the remainder of the year.
Jim: Young Davidson is well positioned to meet its full year guidance and generate over $100 million in mine site free cash flow for the fourth consecutive year.
Jim: Over to slide 10.
Jim: Island Gold produced 33400 ounces in the quarter with total cash costs and mine site all in sustaining costs above annual guidance.
Jim: Grades mined were in line with guidance while tonnes mined in protest was slightly below guidance.
Jim: Many rates and grades are expected to increase in the second quarter and with higher production and lower costs expected through the rest of the year Island gold remains on track to meet its full year guidance.
Jim: Mine site free cash flow was negative $14 million in the quarter as the operation continues to fund the majority of the phase III plus expansion as well as a significant ongoing exploration program.
Jim: Over to slide 11.
Jim: We continue to make progress on the phase III plus expansion the shaft sinking is well underway, having increased to a rate of 2.5 meters per day in March and reaching a depth of 185 meters by the end of the first quarter.
Jim: We expect the ramp up to the ultimate thinking rate of over three meters per day during the second quarter and are on track to reach a depth of 1000 meters by year end.
Jim: Detailed engineering of the paste plant is now 85% complete with.
Jim: Construction activity is expected to begin in the second half of the year.
Jim: One of the attractive aspects of the Latino acquisition is gaining access to an already constructed larger mill.
Jim: Work on the island Gold mill expansion is no longer required.
Jim: Further derisking the phase III, plus expansion contributing to $100 million to $140 million in capital synergies, we expect to realize.
Jim: Over to slide 12.
Jim: As of March 31, approximately 57% of the total initial capital of 756 million.
Jim: <unk> spent and committed and we remain on track to complete the expansion during the first half of 2026.
Jim: Capital spending for the work completed to date is tracking well. However, we are continuing to see some cost pressures through the ongoing labor inflation.
Jim: Following the expected closing of the Medina acquisition in July.
Jim: We'll provide updated cost capital estimates with the island gold mill expansion no longer required.
Jim: Incorporating our planned upgrades to the machine or mill.
Jim: Moving to slide 13, we will continue to use our current mill to protest island gold ore for the remainder of this year in.
Jim: In parallel we will continue to ramp up and optimization of the genome mill to a targeted rate of 11200 tonnes per day by year end.
Jim: Which will be sufficient to handle or from both Marino and island gold.
Jim: At that point, we plan on shutting down the island gold mill and processing Island, Gold's higher grade ore through the machine or mill at significantly lower processing costs.
Jim: In 2025, we will work on further optimizing and expanding the Latino mill to 12400 tons per day to accommodate the higher throughput rates from island gold once the phase III plus expansion is complete in 2026.
Jim: As in the case with the island Gold mill will no longer need to expand your island gold tailings facility.
Jim: Facility are as you know as a permitted capacity of 150 million tons, which is more than sufficient to accommodate the gino's reserves and I haven't goals growing reserve and resource base.
Jim: In addition to the significant synergies the larger centralized milling complex will create longer term opportunities for further expansions of the combined island gold and Latino operations.
Jim: Imagine a processing facility has a nameplate capacity of 10000 tons per day.
Jim: However expansion scenarios to increase capacities at between 15020 thousand tons per day are being evaluated.
Jim: Over to slide 14 production from them a lot of district totaled 62200 ounces exceeding expectations driven by record production of 50000 ounces from La Yaqui Grande.
Jim: This performance was driven by higher stacking rates of 10800 tonnes per day.
Jim: Recovery rates, well above annual guidance as the operation benefited from the recovery of higher grade ore that was started in late 2023.
Jim: Costs came in below the annual guidance range due to the higher contribution of low cost production from La Yaqui Grande.
Jim: With lower grades expected at La Yaqui Grande through the remainder of the year costs are expected to increase to be consistent with annual guidance.
Jim: <unk> free cash flow totaled $50 million in the quarter. Unimpressive result, considering this was net of 45 million of cash tax payments.
Jim: With that I will turn the call back to John.
John A. McCluskey: Thank you Luke.
John A. McCluskey: That concludes our formal presentation I'll now ask the operator to open the call for your questions.
Operator: Sure. Thank you. So we will now take questions from the telephone lines and if you have a question on using a speaker phone. Please lift your handset before making a selection.
Jim: And if you have a question. Please press star one on your devices keypad and they can't take your question on at any time by pressing Star two please press star one at this time. If you have a question there will be a plausible participants register for questions. Thank you for your patience.
Jim: Yeah.
Jim: Our first question is from Mike Parkin from National Bank. Your line is open go ahead.
Michael Parkin: Hey, guys, thanks, and congrats on the strong start to the year.
Michael Parkin: And then Oh, sorry, yeah.
Michael Parkin: The Yankee Grande.
Speaker Change: I like it.
Michael Parkin: I get that Youre stacking rates are exceeding budget.
Michael Parkin: Continuing to see any sort of positive grade reconciliation, that's leading to these really impressive numbers.
Michael Parkin: Hi, Mike It's looked here, yes, we are still seeing some positive reconciliation with regards to the model relative to our actual results. We have actually provided what we have done more detailed drilling within the.
Michael Parkin: Our reserve base as well to be able to tighten up that prediction on the basis of what we are.
Michael Parkin: We expect to get versus what we're actually getting them. So we are still seeing some positive variation on the grade, but not as significant as what we were seeing last year.
Michael Parkin: Okay.
Michael Parkin: Seeing additional positive tonnage reconciliation to the block model as well.
Speaker Change: Yes, we are also experiencing that as well bench by bench, we are picking up a little bit more a bit more or relative to what we had modeled so that's also providing a positive as far as the results of La Yaqui Grande.
Michael Parkin: Okay.
Michael Parkin: And then.
Michael Parkin: In the same jurisdiction, there I remember correctly, you're kind of putting the.
Michael Parkin: Legacy sulfide stockpiles on the heap on pause.
Michael Parkin: Gold's lift is there any thought towards.
Michael Parkin: Until we reach starting this.
Michael Parkin: Yes.
Michael Parkin: Sorry.
Michael Parkin: Think about the SaaS stockpiled.
Michael Parkin: Was that through the so as of the end of last year, we had processed all the SaaS stockpile.
Michael Parkin: So other than that it will just be running out the residual leaching of the leach pad.
Michael Parkin: Okay.
Michael Parkin: And then just can you give us a sense of like what labor costs have increased that.
Michael Parkin: Island wide area year over year.
Michael Parkin: Okay.
Speaker Change: Yeah, I mean, we have seen some inflationary pressures with regards to the labor we bottle.
Michael Parkin: 6% and our business plan with regards to labor inflation.
Michael Parkin: Cross across the business units.
Michael Parkin: Okay.
Michael Parkin: And are you seeing that more for like more pressure on the construction side of things versus the operating side of things or is it a bit at the St.
Michael Parkin: Some of it some of the pressures on the construction side as well I would say it's in that similar range of about 6%.
Michael Parkin: Okay.
Arnaud: And then Arnaud.
Arnaud: You're already in Q2.
Arnaud: The idea is to have this P D a beaten.
Arnaud: This quarter can you give a little bit of.
Arnaud: Like is it a main thing a junior thing.
Speaker Change: But there are.
Speaker Change: Our expectation would be by the end of June on that Mike and we'll come up we'll come out of the development of a plan with regards to our our mining process as well as our metal milling process.
Speaker Change: Okay and would you guys be doing like any kind of.
Speaker Change: Teaching conference call around that.
Speaker Change: No we were not expecting to do.
Speaker Change: Anything on with with regards to that with regards to P. D. Okay.
Speaker Change: That's it for me guys. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Once again, please press star one on your devices keypad, if you have a question.
Speaker Change: The next question is from Kerry Smith from Haywood Securities. Your line is open go ahead.
Kerry Smith: Okay. Thanks, a lot.
Kerry Smith: Look on the expansion targeted at Virginia, you talked about 15 to 20000 tons.
Kerry Smith: What was the Capex for that can you give me a rough estimate as to what do you think that might be if you were going to go to 20000 tonnes, a day and what it might involve.
Speaker Change: I couldn't I couldn't give you a number on that at this point Gary.
Speaker Change: It's really too early I mean, I know ergonomic, we're already in a process to start looking at it but there was very very preliminary and obviously post close and Thats something that will take a harder look at and be able to provide more firmer numbers down the road.
Speaker Change: Okay, Okay, and then when you.
Speaker Change: I think over the operation, who you want to expand up to 12400 tons a day.
Speaker Change: What was the rough capex to do that and where that money gets spent this year.
Speaker Change: No our estimate on bringing the plants to 12400 tons per day is about 40 million in capital required.
Speaker Change: That's an expenditure that would start to occur in 'twenty five in early 2026 that are to tie into the phase III plus.
Speaker Change: Expansion being completed and coming online.
Speaker Change: Okay. So most of them I would guess that 2025, and 26 as well, but for the most part yeah.
Speaker Change: Okay. Okay got you and then you were saying.
Speaker Change: In the press release, you were getting two and a half two years now on the shaft sinking in.
Speaker Change: You're trying to get to three meters a day a day by the end of Q2 is that.
Speaker Change: Yes answers that you're budgeting.
Speaker Change: Okay.
Speaker Change: Or is there another incremental step up in that.
Speaker Change: No no other incremental step up when they get to roughly it's about $3 two meters per day were expecting.
Speaker Change: And when they achieve that in the second quarter. That's the right thing with sustained for the rest of the shaft project.
Speaker Change: Okay.
Speaker Change: Okay and.
Speaker Change: R&D and G&A it was a bit higher this quarter you had given a 20.
Speaker Change: 28 billion guidance for the year.
Speaker Change: Just wondering great.
Speaker Change: Are you still thinking you'll be in that range with Q1 slightly higher because there were some costs associated with some one off costs associated with Juno or something else. Yeah. There was some one off costs. So I think it will be anywhere between 28 and 30 million for the year on G&A.
Speaker Change: Okay and that 20 to 30 would not include the costs associated with the acquisition of Argos.
Speaker Change: Correct the transaction costs would be separate from that.
Speaker Change: Okay. Okay perfect that's great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Once again, please press star one on your device to keep had if you have a question.
Speaker Change: Okay.
Speaker Change: You have another question from Kerry Smith Haywood.
Speaker Change: <unk> Securities. Your line is open go ahead.
Speaker Change: Okay. Okay. Okay.
Speaker Change: Mike just on the transaction costs great.
Speaker Change: When do you think those would be expense, which quarters or in just one quarter like how would it come through the income statement.
Michael Parkin: It would come through the income statement combined in the second quarter and in the third quarter, a majority of it would probably be in the third quarter after close.
Michael Parkin: Because we expect to close in July, but we're estimating about $20 million expense between the two quarters with the majority being in the third quarter.
Speaker Change: Okay. Okay. That's super helpful. Thank you I appreciate it.
Speaker Change: Thank you.
Speaker Change: And no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered please feel free to contact Mr. Scott Parsons at 4163.
Speaker Change: 368.
Speaker Change: 9932 extension 5439.
Speaker Change: Yeah.
Speaker Change: Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
Speaker Change: Okay.