Q3 2024 Alamos Gold Inc Earnings Call
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Speaker Change: All participants please continue to standby the conference will begin momentarily.
Speaker Change: This conference is being recorded so it's close to home that don't go as you see.
Speaker Change: All participants please standby your conference is ready to begin good morning, I'll now turn the call over to Scott Parsons all of them as senior Vice President of Investor Relations. Please go ahead.
Scott Parsons: Thank you operator, and thanks to everybody for attending Alamos third quarter 2024 Conference call. In addition to myself we have on the line today, John Mccluskey, President and Chief Executive Officer, Craig Fischer, Chief Financial Officer, Luke Chemo, Chief operating Officer, and Scott RG Parsons Vice.
Speaker Change: Exploration, we will 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 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 said M DNA as well as the risk factors set out in our annual information form.
Speaker Change: Technical information in this presentation has been reviewed and approved by Chris Bostwick, Our senior VP technical services and a.
Speaker Change: Qualified person.
Speaker Change: Also please bear in mind that all the dollar amounts mentioned in the conference call are in US dollars unless otherwise noted now John will provide you with an overview.
John McCluskey: Thank you Scott.
John McCluskey: The third quarter marks the first quarter with the Juno mine under our ownership having completed the acquisition of Argonaut Gold in July.
John McCluskey: Reflecting the addition of but you know as well as strong performances from island gold and <unk>.
John McCluskey: This district, we delivered record production in the quarter of 152000 ounces of gold.
John McCluskey: As guided all in sustaining costs of $1425 per ounce increase earlier in the year, reflecting the inclusion of higher cost production from a gino with the operation undergoing a transition period.
John McCluskey: With year to date production of 427000 ounces, we remain on track to achieve our full year production guidance, which was increased by 13% in September reflecting the inclusion of Latino and outperform it took a lot of us.
Speaker Change: We are also on track to meet our full year cost guidance with a marginal decrease in costs expected in the fourth quarter.
Speaker Change: We achieved a number of new financial records in the third quarter, driven by record production and gold prices.
Speaker Change: We concluded our third consecutive quarter of record revenue.
Speaker Change: As well as record cash flow from operations before working capital of 193 million.
Speaker Change: We continue to generate strong ongoing free cash flow, including $88 million in the quarter and $219 million year to date, while funding our high growth high return initiatives.
Speaker Change: These include our latest exploration, but art excuse me largest exploration budget ever and the phase III expansion at island gold, which will be a driver of significant free cash flow in the years ahead.
Speaker Change: The third quarter was a transition quarter, but genome wide as we implemented a number of improvements and advance the integration of the operation with island gold.
Speaker Change: The combination of the two lines is expected to create one of Canada's largest lowest cost and most profitable gold mines with significant long term upside opportunities.
Speaker Change: This includes a centralized mill that can be expanded to support the significant exploration potential across the island Gold district.
Speaker Change: In July we provided a comprehensive exploration update at island gold highlighting the potential.
Speaker Change: Based on our ongoing exploration success at island Gold, we expect high grade reserves to expense.
Speaker Change: And the resource to increase for the ninth consecutive year.
Speaker Change: We were all sort of finding opportunities to expand the machida open pit and other near mine targets like the north sheer which could serve as a source of additional mill feed within an expanded milk.
Speaker Change: Yeah.
Speaker Change: In September we announced the development plan for PTA outlining.
Speaker Change: And attractive.
Speaker Change: Low cost high return underground project that is expected to triple to mine life.
Speaker Change: There's a lot of district to at least 2035.
Speaker Change: Given the significant exploration upside at P. D a.
Speaker Change: And the nearby surplus target.
Speaker Change: We see excellent potential to further extend the mine life and improve already robust economics.
Speaker Change: Scott will go will delve into the details.
Speaker Change: Of the upside potential later in this call.
Speaker Change: Yeah.
Speaker Change: We were also recognized as a top performer by the Toronto stock exchange with inclusion into the T. S X 30, reflecting a 134% increase of our share price over the trailing three year period.
Speaker Change: Given the number of catalysts, we have coming up over the next year. We expect this strong performance to continue.
Speaker Change: This includes ongoing exploration updates are burnt timber and linked with study later this year.
Speaker Change: Our mineral reserve and resource update early next year.
Speaker Change: This will be followed by updated mine plan for the island Gold District, mid 2025, and a larger mill expansion study outlining upside scenarios for the district later in the year.
Speaker Change: Turning to slide five.
Speaker Change: The addition of Juno complements our strength or our pardon me our strong growth profile and has opened up longer term term upside opportunities as outlined in our three year guidance in September but Gino has increased our production rate by approximately 20% to 600000 ounces per year.
Speaker Change: Our all in sustaining costs have also increased approximately 11%, but remained well below the industry average and are expected to decrease by more than 10% over the next several years.
Speaker Change: In 2026 completion of the phase III expansion is expected to push our annual production rate close to 700000 ounces of gold per year.
Speaker Change: And decrease our all in sustaining costs to 1150 per ounce.
Speaker Change: Lynn Lake is expected to provide additional growth.
Speaker Change: Makes us to a longer term rate of 900000 ounces per year, while helping to drive all in sustaining cost below $1100 per ounce.
Speaker Change: All of this growth is fully funded.
Speaker Change: And all of this growth is lower cost.
Speaker Change: What is not illustrated in this graph is the potential to further expand the <unk> mill to between 15020 thousand tons per day, which could support additional growth and take consolidated production closer to 1 million ounces per year.
Speaker Change: I'll now turn the call over to our CFO, Greg Fischer, who will review our financial performance right.
Greg Fischer: Thank you John.
Greg Fischer: On to slide six we sold a record 145200 ounces of gold in the third quarter.
Speaker Change: Average realized price of 2000 and $458 per ounce for record quarterly revenue of 361 million.
Speaker Change: Our gold sales were approximately 4% lower than production in the quarter due to timing with the sale of these ounces to benefit future quarters.
Speaker Change: Total cash cost of $984 per ounce and all in sustaining costs of $1425 per ounce were both up from earlier in the year, reflecting the inclusion of higher cost production from as you know.
Speaker Change: All in sustaining costs were also impacted by higher stock based compensation driven by the increase in the share price during the quarter.
Speaker Change: Excluding the Juno, our total cash cost for the quarter would've been up $118 per ounce lower and all in sustaining costs of $184 per ounce floor.
Speaker Change: We expect our consolidated costs and decreased in the fourth quarter, reflecting a significant improvement from as you know.
Speaker Change: Given our strong year, they performance with costs well within the range of guidance, we remain on track to meet our full year cost guidance.
Speaker Change: With the closing of the argon acquisition on July 12, It was a complex quarter from a financial perspective.
Speaker Change: This included a number of nonrecurring items related to the transaction and retirement of Argonaut desk and near term gold hedges.
Speaker Change: As part of the acquisition, we inherited 330000 ounces of gold forward sale contracts between 'twenty 'twenty, four and 2027 hedged by argonaut at prices ranging from $1821 to $1860 per ounce.
Speaker Change: In July we completed the goldfield prepayment agreement for the delivery of 49400 ounces in 2025 and use the proceeds of 116 billion received to eliminate all of the Argonaut hedges in 2024, and 2025, which totaled 180000 ounces.
Speaker Change: This eliminated more than half the hedge book and has provided us with significantly higher exposure to rising gold prices.
Speaker Change: We continue to review opportunities to eliminate the remainder of Argos hedge book, which is comprised of Gulfport contracts totaling 150000 ounces in 2026 and 2027.
Speaker Change: Our reported net earnings of $85 million or <unk> 20 per share included an impairment reversal on young Davidson of 39 million net of taxes.
Speaker Change: Unrealized losses on hedge derivatives of 21 million net of taxes unrealized foreign exchange losses of $2 million and other adjustments net of taxes totaling $9 million. Excluding these items. Our adjusted net earnings were $78 million or <unk> 19 per share.
Speaker Change: Operating cash flow before changes in noncash working capital increased to a record 193 million or 46 cents per share.
Speaker Change: Free cash flow totaled $88 million in the quarter, excluding 29 million of one time payments related to the argonaut acquisition, including transaction costs and overdue payables incurred by argonaut, but paid by almost post close.
Speaker Change: Year to date.
Speaker Change: We have generated $219 million of free cash flow, while continuing to invest in high return growth.
Speaker Change: This strong performance has been led by them a lot of districts with mine site free cash flow of 187 million year to date at young Davidson, which is on track to generate record free cash flow of more than $100 million.
Speaker Change: Capital spending, including equipment lease payments totaled $112 million in the quarter and included $38 million of sustaining capital and $68 million of growth capital. The majority of which was focused on the phase III plus expansion.
Speaker Change: Our cash balance declined slightly quarter over quarter to $292 million, reflecting onetime costs related to the Oregon acquisition as well as the repayment of argonaut debt.
Speaker Change: In total we repaid all $308 million of debt and inherited from argonaut using existing cash and buy withdrawn $250 million from our credit facility I'm much more attractive terms.
Speaker Change: With a strong cash position more than $540 million of total liquidity and solid ongoing free cash flow generation, we remain well positioned to fund our high return growth initiatives with now what I will now turn the call over to our CFO Luke involved to provide an overview of the operations.
Luke Chemo: Thank you, Greg moving to slide seven.
Luke Chemo: Young Davidson produced 44200 ounces in the quarter, a slight increase over the previous quarter with all in sustaining costs coming in above the top end of the annual guidance range.
Luke Chemo: Mining rates were impacted by lower scoop availability as well as reduced pace of paste availability during the mill downtime in July.
Luke Chemo: [noise] for our plan liner change and other maintenance.
Luke Chemo: The lower mining rates impacted access to higher grade stopes, which have been deferred into the fourth quarter.
Luke Chemo: Mining and milling rates improved in August and September and we're back to guided levels of 8000 tonnes per day by the end of the quarter.
Luke Chemo: We expect higher mining rates and grades to drive production higher and costs lower in the fourth quarter.
Speaker Change: Young Davidson continues to be a significant free cash flow generator, delivering $36 million in the quarter and $91 million year to date.
Speaker Change: The operation is on track to deliver record free cash flow and more than 100 million for the fourth consecutive year.
Speaker Change: Over to slide eight island gold produced 40500 ounces in the quarter, our costs consistent with annual guidance.
Speaker Change: Solid performance with significantly higher grades offsetting lower mining rates.
Speaker Change: Mining rates were impacted by scheduled downtime in July to upgrade the underground ventilation infrastructure.
Speaker Change: The ventilation upgrade was completed on schedule. However, the ramp up of mining rates post completion took longer than anticipated.
Speaker Change: Mining rates were back at planned levels by the end of August and increase to average 1200 tonnes per day in September and October where they are expected to remain through the fourth quarter.
Speaker Change: Grades increased to an impressive $14 six grams per ton, reflecting the increased contribution of higher grade stopes from the $10 25 mining horizon.
Speaker Change: And positive grade reconciliation.
Speaker Change: With mining rates, increasing in the fourth quarter rates are expected to return to guided levels.
Speaker Change: Given the strong year to date performance Island gold is well positioned to achieve its full year production and cost guidance.
Speaker Change: The operation generated positive mine site free cash flow for the second consecutive quarter, while continuing to fund the phase III plus expansion.
Speaker Change: At current gold prices we.
Speaker Change: We expect island gold to continue self funding all of the capital for the expansion, which is which will be a driver of significant free cash flow growth once completed in 2026.
Speaker Change: Over to slide nine.
Speaker Change: We closed the acquisition of Argonaut Gold on July 12, and the integration of the machinery and island gold mines is well underway.
Speaker Change: <unk> produced 16800 ounces in the third quarter down from the previous quarter, reflecting the partial reporting period as well as downtime to implement various improvements to the crushing circuit, including replacement of the secondary crusher.
Speaker Change: Given the downtime and build up the stockpile mining activities were focused on waste stripping, which will benefit future quarters.
Speaker Change: Mill throughput averaged 6900 tonnes per day in the quarter, but increased to 8900 tonnes per day in September.
Speaker Change: Rates are expected to increase further in the fourth quarter. Following the completion of additional mill optimization initiatives, including replacement of the grizzly and primary crusher.
Speaker Change: These improvements are expected to support higher throughput rates of 11200 tonnes per day in 2025.
Speaker Change: Sufficient to process ore from both Marino and island gold.
Speaker Change: Increased milling rates and grades are expected to drive production higher and costs lower in the fourth quarter.
Speaker Change: Ahead of the planned transition to a single optimized mill within the island Gold District in 2025, 5007 hundred tons of lower grade Island gold ore was blended with machine of war and process through the Merino mill.
Speaker Change: Batch tests was was successful with recoveries from island gold or consistent with expectations and annual guidance of 97%.
Speaker Change: Furthermore, recoveries from a Gino work continued to exceed expectations, averaging 95% in the quarter driven by the strong performance from the gravity circuit.
Speaker Change: With the upgrades to the crushing circuit are expected to be completed by year end.
Speaker Change: We're on track to begin processing island gold ore through the significantly larger and more cost effective Marino mill in early 2025.
Speaker Change: Moving to slide 10.
Speaker Change: Work on the phase III plus expansion continues to advance including good progress on the shops.
Speaker Change: The shaft is currently at a depth of 812 meters double the 400 meter depth at the end of the second quarter and more than halfway towards its ultimate planned depth of 1373 meters.
Speaker Change: They've been house Foundry Foundation has been completed and erection of the penthouse is ongoing piece.
Speaker Change: <unk> planned construction activities are wrapping up with detailed engineering and earthworks complete.
Speaker Change: And foundations more than 50% complete.
Speaker Change: Construction on the haul road to the Merino mill is underway and expected to be completed by year end.
Speaker Change: In addition, detailed engineering is advancing on the <unk> mill expansion to 12400 tons per day, which is expected to be completed in mid 2026 to coincide with the completion of the phase III plus expansion.
Speaker Change: Over to slide 11 in September we updated our initial capital estimate for the phase III plus expansion to incorporate the addition of <unk>.
Speaker Change: Overall initial capital has increased by 5% to $796 million from.
Speaker Change: From the initial estimate announced in the first half of 2022.
Speaker Change: This reflects ongoing inflationary pressures and scope changes to the project.
Speaker Change: Which were largely offset by synergies from them as you know acquisition.
Speaker Change: As well as the weaker Canadian dollar.
Speaker Change: [laughter].
Speaker Change: We are well past.
Speaker Change: [noise] excuse me, we are well past the halfway point on the project with approximately 62% of the total initial capital of 796 million, having been spent and committed at the end of the third quarter.
Speaker Change: The phase III plus expansion remains on track for completion in the first half of 2026 and will be a.
Speaker Change: Difficult driver of our expected production growth and declining costs over the next several years.
Speaker Change: Over to slide 12, the Malawi district delivered another excellent quarter with production of 50500 ounces slight decrease over the previous quarter as both tonnes and grade stacked at La Yaqui Grande declined as expected.
Speaker Change: Production is expected to decrease further in the fourth quarter with grades stacked towards the lower end of guidance.
Speaker Change: Reflecting the strong year to date performance of La Yaqui Grande.
Speaker Change: Lot of district production was increased.
Speaker Change: Production guidance was increased by 15% in September to between 185000 and 195000 ounces.
Speaker Change: The operation is well positioned to achieve the increased production guidance as well as cost guidance for the year.
Speaker Change: With another strong operational performance a lot of district delivered $67 million of mine site free cash flow in the quarter.
Speaker Change: And an impressive $187 million year to date.
Speaker Change: Net of $75 million of cash tax payments.
Speaker Change: Over to slide 13.
Speaker Change: In September we announced the PDA development plan outlining an attractive high return project that is expected to triple the mine life of them allowed us district to at least 2035.
Speaker Change: I had a $2500 per ounce gold price P. D. H I was an after tax net present value of nearly $500 million and an internal rate of return of 73%.
Speaker Change: DD&A is expected to produce 127000 ounces per year over the first four years.
Speaker Change: 104000 ounces per year over the current eight year mine life.
Speaker Change: Because the low cost profile with all in sustaining costs of $1000 per ounce.
Speaker Change: And low initial capital of $165 million, which can be funded from allowed us district free cash flow generation.
Speaker Change: We expect to start development next year, which would put first production as early as mid 2027.
Speaker Change: There is also excellent exploration upside in the district that could extend the mine life further and enhance the projects already robust economics.
Luke Chemo: I'll now turn the call over to our VP of exploration Scott Parsons to review the exploration success, we were having in them allowed US district. Thank you Luke moving to slide 14.
Scott Parsons: Over the past two years mineral reserves of PTA and more than doubled to 1 million ounces grades also increasing 20% to five six grams per tonne.
Scott Parsons: This growth to the end of 2023 was incorporated into the P. D development plan.
Speaker Change: I don't mind it in our exploration update in early September we see excellent potential for growth and higher grade mineral reserves and resources to continue with PTA and other targets like surf alone.
Speaker Change: We continue to extend the high grade mineralization beyond the existing mineral reserves and resources within a relatively untested area between the P D zones and GAAP Victor.
Speaker Change: This included multiple high grade intervals, such as five four grams per tonne over 18 meters and 23 six grams per tonne over three meters.
Speaker Change: Given our ongoing success of PTA.
Speaker Change: The deposit opened in multiple directions, we expect its mineral reserve and resource base to continue to grow which represents upside to the PDA development plan.
Speaker Change: The addition of a mill to process higher grade sulfide has also opened up other opportunities for growth within the district.
Speaker Change: One opportunity of syrup alone an open pit mine, we successfully operated between 2019 in 2021.
Speaker Change: Historically high grade mineralization was intercepted below the pit was not followed up on.
Speaker Change: Now there will be constructing a mill, we are targeting and successfully expanding high grade mineralization within multiple oxide and sulfide zones that setup alone.
Speaker Change: Step out drilling below the open pit was identified high grade feeder structures that range in size from 45 to 125 meters in width.
Speaker Change: And up to 170 meters vertically.
Speaker Change: Some of the highlights of tariff law and includes five five grams per tonne over 28 meters 12, five grams per tonne over $6 five meters and 418 grams per tonne over 15.8 meters.
Speaker Change: We expect the success to support initial underground mineral resource at surplus with a year end update.
Speaker Change: We're set up alone well within trucking distance of the planned P. D mill will ultimately look to utilize this as an additional source of high grade mill feed.
Speaker Change: Set up law and represents an opportunity to not only extend the mine life of Pizza PDA project, but also sustain higher rates of production well beyond the first four years.
Speaker Change: Over to slide 15.
Speaker Change: In July we announced one of the best exploration updates to date at island gold, reflecting the number of high grade intercepts across the deposit.
Speaker Change: To reiterate some of these exceptional results. We are seeing this included 37 grams per tonne over seven meters in island West 17 grams per tonne over 10 meters in island East.
Speaker Change: We're also seeing significantly higher grade results from a delineation drilling program and the lower part of Ireland East, including 102 grams per tonnes over 17 meters and 135 grams per tonne over eight meters.
Speaker Change: Since we acquired island gold in 2017, we've added more than 5 million ounces of high grade mineral reserves and resources, which currently totaled $6 1 million ounces.
Speaker Change: We've also seen reserve grades increased 12% to 10 three grams per tonne.
Speaker Change: And inferred grades increased 43% to nearly 15 grams per tonne.
Speaker Change: Based on the success were having in 2024, we expect another year of growth with a further increase in grades.
Speaker Change: So deposit open laterally and down plunge and multiple high grade zones being defined in the hanging wall and footwall, we see excellent potential for this pace of growth to continue.
Speaker Change: Its ongoing growth of island gold the exploration potential, we see them or geno and the near mine targets like the north sheer all support our longer term expansion opportunities of the island Gold district, there'll be evaluating over the next year.
John McCluskey: With that I'll turn the call back to John.
John McCluskey: Thank you Scott.
John McCluskey: We've been a strong performer over the past three years. The large part of this has been driven by the continued execution on our growth plans as well as our ability to consistently create value within our asset base through exploration success, and expanding and optimizing our operations.
John McCluskey: Given the catalysts, we have coming up over the next year, including a number of opportunities to continue to create value across our assets. We expect our strong performance to continue.
Speaker Change: This concludes the formal part of our presentation and I'll now turn the call back to the operator, who will open the call for your questions.
Speaker Change: Thank you we will now take questions from the phone telephone lines.
Speaker Change: If you have a question. Please press star one you may cancel your question at any time by pressing star two.
Speaker Change: Please press star one at this time, if you have a question.
Speaker Change: Okay.
Speaker Change: Your first question will be from Cosmos <unk> from CIBC.
Speaker Change: Please go ahead.
Speaker Change: Thanks, John right, Luke Scott and Scott.
Speaker Change: Maybe my first question is on Jamba Gino Vicki here the mill and the Geno was successful in processing some of the lower grade material coming from island Gold. My question is when will you start you know potentially testing out some of the high grade.
Speaker Change: Yeah.
Speaker Change: Yeah, Hi, Cosmos look here Oh, yeah. Our intent is obviously, we started with the lower grade feed with the blending process just to validate our obviously our assumptions with regards to a blended feed and not impacting any any recoveries, which we validated our in this quarter in Q4 were actually looking to actually introduce higher grade material also.
Speaker Change: We're not expecting any issues with regards to the blended process, but.
Speaker Change: We're gonna validate that from a plant perspective, it's about obviously, what we've seen from a lab perspective with regards to overall recoveries for the the blended ore streams.
Speaker Change: Oh of course.
Speaker Change: And on that as well no you kind of touched on it.
Speaker Change: In terms of 2025, but could you remind us in terms of the timeline for the integration.
Speaker Change: Oh, the single milling operation.
Speaker Change: You talked about 2025 also potentially early 2020, but I'm just trying to figure out when does this integrated single million operation.
Speaker Change: Happen and at that point in time would you just shut down the island gold with smaller island gold.
Speaker Change: Yeah.
Speaker Change: Yes, our plans have not changed from what we've communicated previously their causal.
Speaker Change: Early early 2025, we will we've just running the marginal facilities, so island or as well as in gene or will feed into the one mill complex in early 2025, once we start doing that the intent would be to just actually.
Speaker Change: Cut down the island gold mill, and just put it on care and maintenance basically.
Speaker Change: And then in terms of reporting wise I think I asked this question in the past as well, but I just want to confirm are you going to start reporting it as a single integrated operation from an accounting perspective, but I think guidance perspective.
Speaker Change: Starting in 2025.
Greg Fischer: Hi, Cosmos, it's Greg here, Yeah, that's correct local show we'll show it as one integrated operation. So production costs will all be shown as one integrated operation.
Speaker Change: Perfect.
Speaker Change: And since I have you here as well Greg.
Speaker Change: You know I guess today earnings reported earnings adjusted earnings were slightly below our street.
Speaker Change: Speaking in sensors I chalked that up is the fact that this is the quarter, where you acquired argonaut gold and you've kind of talked about that as well there were a number of onetime items that are what I would consider accounting noise in a one time item.
Speaker Change: My question is you know is this kind of like is this it excuse me is that it or you know could we expect any other items that you know we should consider.
Speaker Change: For that might be related to this transaction.
Speaker Change: Yeah.
Speaker Change: I mean with respect to the Argonaut acquisition, Yes, I'd say, we've accrued all the P&L related cost associated with that I mean, you're always going to have the movement on share based compensation, which we had a significant impact this quarter as the share price moves but.
Speaker Change: But with respect to Argos I think which is what your question was focused on yes, we've accrued the the costs associated with that acquisition and don't expect anything moving forward.
Speaker Change: Great. Thanks, once again those are all the questions.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Once again, please press star one if you have the question.
Speaker Change: 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 Parsons at 41636899.
Speaker Change: Three two extension 5439.