Alamos Gold Inc. (NYSE:AGI) Q3 2022 Results Conference Call October 27, 2022 10:00 AM ET
Company Participants
John McCluskey – President and Chief Executive Officer
Jamie Porter – Chief Financial Officer
Luc Guimond – Chief Operating Officer
Conference Call Participants
Cosmos Chiu – CIBC
Kerry Smith – Haywood Securities
Trevor Turnbull – Scotiabank
Michael Perkin – National Bank
Operator
Good morning. I would now like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead.
Jamie Porter
Thank you, operator, and thanks, everyone, for attending Alamos’ Third Quarter 2022 Conference Call. In addition to myself, we have on the line today John McCluskey our President and CEO; and Luc Guimond our Chief Operating Officer.
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. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form.
Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Senior Vice President of Technical Services and a qualified person. Also, please bear in mind that all the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted.
With that I will turn it over to John to provide an overview of the quarter.
John McCluskey
Thank you, Jamie. To start off the call, I want to introduce LucGuimond, who is appointed Chief Operating Officer in September. Luc has a long history with Alamos, a deep knowledge of our operations and an excellent track record leading the development and operation of a diverse range of gold mines. Luc has hit the ground running as can be seen by a solid third quarter operational results and we expect to continue with even stronger results as we approach the fourth quarter.
I would also like to recognize Peter MacPhail for his leadership and invaluable contributions to the company as our former Chief Operating Officer. Peter oversaw our growth into an intermediate producer while driving significant improvements across our operations such that our outlook has never been stronger.
Peter retired in September, but will be staying with the company as a consultant to ensure seamless transition. On behalf of the entire Alamos team, I would like to thank Peter and I look forward to his ongoing contributions over the next year.
Starting with Slide 3, we had a strong third quarter led by another solid performance from Young-Davidson and a standout result from La Yaqui Grande in its first full quarter of operation. Production of 123,400 ounces of gold was near the top end of guidance and represented a 19% increase from the second quarter, total cash costs of $868 per ounce and all in sustaining costs of $1,178 per ounce were both below our annual guidance and down approximately 7% from the first half of the year.
Young-Davidson continues to be a steady performer generating 23 million of mine site free cash flow in the quarter and on pace to generate a hundred million for the second consecutive year. La Yaqui Grande is ramping up having doubled production from the Mulattos district quarter over quarter and it is the key driver of our consolidated production growth and decrease in costs.
Looking at Slide 4. We expect the strong performance to continue into the fourth quarter that will La Yaqui Grande, driving another increase in our production to a range of 125,000 to 135,000 ounces.
Despite industry wide inflation, we also expect a further decrease in our costs in the fourth quarter, reflecting the ramp up of low cost production La Yaqui Grande, higher grades at Island Gold, and the weaker Canadian dollar. Combined with our stronger our strong year-to-date performance, we are on track to achieve our full year production and cost guidance.
We are not immune to the inflationary cost pressures being felt across the industry, but do have several key things working in our favor, the first being the nature and location of our operations. Approximately 70% of our production is coming from underground mines in Ontario, which are less energy intensive, have smaller mobile fleets, and are connected to clean grid power, meaning we are less reliant on fossil fuels. Given the majority of our production is coming from Canada, we are also benefiting from the weaker Canadian dollar. Lastly, all of the production growth we are bringing on his lower cost.
Looking at Slide 5, La Yaqui Grande will be a key driver of higher production and lower costs over the next few years. Island Gold is going to continue that trend over the long-term through the Phase 3 expansion. I was on site last week and saw the progress firsthand with work in the shaft area really starting to take shape.
The shaft that has been colored precinct of the shop is more than 90% complete and the concrete foundation work and the surface infrastructure is well underway. This expansion will be a game changer for the operation and the company. Following completion of the shaft in 2026, we expect our annual production to increase about 600,000 ounces per year with a further decrease in costs.
Longer term, we have the capacity to increase our annual production to approximately 800,000 ounces per year with the development of Lynn Lake. We are taking a staged approach to developing our growth projects. And currently, we are focused on Island Gold such that we can continue to fund this growth internally while generating solid free cash flow over the next several years.
I will now turn the call over to our CFO, Jamie Porter to review our financial performance.
Jamie Porter
Thank you, John. Moving on to Slide 6. We sold 122,780 ounces of gold at a realized price of $1,740 per ounce $11 above the London PM Fix price for revenues of $214 million in the quarter. Total cash costs average $868 per ounce and all in sustaining costs were $1,178 per ounce.
A significant improvement from the first half of the year, reflecting strong ongoing results from our Canadian operations and the benefit of a full quarter production from La Yaqui Grande as well as a weaker Canadian dollar.
We expect a further decrease in costs in the fourth quarter to the lowest levels of the year, driven by higher grades that Island Gold and additional low cost production growth from La Yaqui Grande.
Operating cash flow before changing the non cash working capital increased to $96 million or $0.25 per share in the third quarter. That is marked the highest level in the year despite the lower gold price.
We reported a net loss of $1 million which included a non-cash after tax inventory adjustment of $8 million and Mulatos unrealized foreign exchange losses of $23 million recorded within deferred taxes and foreign exchange partially offset by other gains of $2 million.
As was the case in the second quarter given the further decline in the price of gold during the third quarter review of the carrying value of molasses leach pad inventory was undertaken and this in $8 million inventory adjustment, which is the non-cash production. Excluding this and other non-cash items, our adjusted net earnings were 27 million or $0.07 per share.
Capital spending totaled 73 million in the third quarter similar to the second quarter with the ramp up of spending on the Phase 3 plus expansion, offsetting the decrease in capital allowed us with construction of La Yaqui Grande now complete.
We expect the rate of our capital spending to increase on the Phase 3 plus expansion in the fourth quarter through our full year spending is likely to be lower than guidance that Island Gold, with some of the construction capital deferred into the next few years.
Our balance sheet remains solid with no debt 117 million in cash and 500 million of undrawn credit capacity. Combined with growing cash flow from operations, we remain well positioned to fund our growth projects internally in any gold price environment, while supporting ongoing returns to shareholders. This includes returning 38 million year-to-date through our dividend and share buyback.
I will now turn the call over to our COO, Luc Guimond to provide an overview of our operations.
Luc Guimond
Thank you, Jamie. This is my first quarterly call and I’m looking forward to working with the team in this new role in supporting our continued growth as a company.
Moving to Slide 7, Young-Davidson produced 49,300 ounces in the quarter and generated mine-site free cash flow of 23 million. Despite some operational challenges, gold production was 6% higher than the second quarter, and the operation remains on track to achieve full-year guidance.
Mining rates averaged 7,000 tons per day and were impacted by downtime to replace the head ropes at the Northgate Shaft, a scheduled change of underground conveyor belt and a higher than typical number of shutdowns during periods of peak electricity demand in Ontario as part of our energy management plan. Mining rates have increased and are expected to average 8,000 tons per day in the fourth quarter.
This downtime was offset by the underground stockpiles we had built up on surface for the last several quarters were mine rates had exceeded. This allowed us to run the mill at 7,800 tons per day and maintain strong production rates.
Given the solid performance year-to-date Young-Davidson remains on track to meet full-year production and cost guidance. The operation is also on pace to generate 100 million of mine-site free cash flow for the second consecutive year.
Over to Slide 8, Island Gold produced 31,400 ounces of gold down from the second quarter, reflecting slightly lower grades processed and lower than planned recoveries. No recoveries were below guidance due to calibration issues with newly installed automated line application system.
The issue was rectified and recoveries returned to budgeted levels prior to the end of the quarter and in October. The new system is performing well and recoveries are expected to be at budgeted levels in the fourth quarter. With grades expected to improve in the fourth quarter and gold recoveries back to budgeted levels, we remain on track to achieve full year production guidance.
Over to Slide 9, construction activities on the Phase 3 plus expansion are ramping up following the start of the shaft precinct in August. The shaft is now down to a depth of 40 meters and nearing its final depth of 42 meters.
Concrete foundation work on the shop surface infrastructure including the hoist and hoist house is also underway. Detailed engineering on the pace plant began in September, and lateral development to support higher mining rates with the Phase 3 plus expansion remains ongoing. We have made significant progress on the expansion to date and expect to start syncing the shops next year.
As noted previously, this is a lower risk expansion with the majority of the earthworks completed the tailings facility already expanded and far less unknowns with this being an operating mine. Once the expansion is completed, Island Gold will be among the largest, lowest cost and most profitable gold mines in Canada.
Moving to slide 10, production from the Mulatos district increased considerably to 42,700 ounces in the third quarter. This was double what we produced in the second quarter and at significantly lower costs driven by the first full quarter of production from La Yaqui Grande.
Mining and stacking rates had been impacted at both sites by heavy rainfall during the quarter, which temporarily limited the transportation of consumables to the site. This was more than offset by a strong quarter from La Yaqui Grande.
Over to Slide 11, La Yaqui Grande produced 25,300 ounces in the quarter at mine site, all in sustaining costs of $699 per ounce. In addition to the production growth, this reduced Mulatos district cost to $1,137 per ounce, a 34% decrease from the first half of 2022.
Stacking rates at La Yaqui Grande averaged 8,700 tons per day in the quarter, nearing the design rate of 10,000 tons per day. With the rainy season now over and mining and stacking rates at La Yaqui Grande continuing to ramp up, we expect a further increase in production from LaYaqui Grande in the fourth quarter at lower costs. Overall, the Mulatos district is on track to meet its full year production and cost guidance.
With that, I will turn the call back to John.
John McCluskey
Thank you, Luc. That concludes our formal presentation. I will now turn the call back to the operator who will open the call for your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question is from Cosmos Chiu with CIBC. Please go ahead.
Cosmos Chiu
Thanks, John, Jamie, and congratulations, Luc. Maybe my first question is on the Canadian assets. You know, as you talked about Island Gold some ore was transported to YD for processing about 10,000 tons in the quarter. Can you maybe touch on some of the additional costs? I don’t think there’s a lot. And then more importantly, longer term, you know, any kind of synergies that you can take advantage of, of the two operations that you can speak to or that you might be exploring at this point in time?
Luc Guimond
Yes, I can take that Cosmos. I mean we, and thanks for the congratulations by the way. Yes, I mean, you know, the cost of running that ore over to Young-Davidson is, you know, it is running about a thousand dollars an ounce, so it is certainly still profitable in this, this gold market.
And as any, we have mentioned in the past, it is a stock pile that is been sitting there for a number of years, so there is revenues sitting in the yard, and this was an opportunity to unlock some of that revenue and generate it earlier.
We still plan to process some of that material in Q4. It is all been trucked now over to the site as far as what we were planning to send over for this year. But we will continue the milling process of that ore through the Q4 period and finish that up.
Cosmos Chiu
And then, longer term, anything you can speak to or?
Jamie Porter
Yes, Cosmos, it is Jamie. I would say, you know, we have benefited from a number of synergies just from having two mines, you know, a six hour drive apart in Northern Ontario, especially with respect to personnel. I mean we have been able to take, you know, our key – certain key technical people move them back and forth between the sites.
A great example of that is this, we just took our mill superintendent from Young Davidson and transitioned him over to Island Gold. So we benefit from that, there is other obviously purchasing and operational synergies as well. But yes, from a workforce perspective, there is meaningful synergies there.
Cosmos Chiu
Maybe a question on La Yaqui Grande, you kind of mentioned that you kind of touched on it, but as you said, you are targeting 10,000 tons per day, that is your design capacity. Are you going to get there in Q4? Can you comment on that?
John McCluskey
Yes. Our expectation is that we will be there in Q4 Cosmos with regards to that stocking rate.
Cosmos Chiu
Okay. So at the end of Q4, or could you actually average 10,000 tons per day?
John McCluskey
We will average 10,000 tons per day through the quarter.
Cosmos Chiu
Great. And then also La Yaqui Grande, as you mentioned, you are stacking 1.23 grams per ton, meeting expectations. Can you touch on good consistency of the grade at this point in time, what you are seeing, as you open up the pit?
John McCluskey
Yes, I mean our expectation is to continue with that sort of stalking grade through the fourth quarter. I mean, it is we are in the early stages, but we had seen a little bit of over performance in Q3 with regards to the to the model versus what we did start, but moving forward, we are certainly expecting at least reserved, great, as far as stacking rate.
Cosmos Chiu
Great. And then maybe one last question on the financial side. Jamie, as you mentioned, there is $500 million on drawn line of credit. Could you remind us, what’s the interest rate on that undrawn line of credit? And would you need to tap it to, for your development projects? And if you do, what sort of the timing of that?
Jamie Porter
Yes, so the rates just based on, obviously, it varies depending on financial ratios, but given the fact that we have no leverage right now, it is a little under 2% over LIBOR. We have no plans in the near-term to draw on the facility.
I think I mentioned through my part of the script that at current gold prices were well funded to complete the Phase 3 plus expansion at Island Gold without needing to draw on the facility. So it remains there as a backup for us. But we are in great shape with our cash flow from our existing operations, financing that the growth and production at Island.
Cosmos Chiu
Great to hear and those are all the questions I had. Thanks a lot.
Operator
Thank you. The next question is from Kerry Smith with Haywood Securities. Please go ahead.
Kerry Smith
Jamie or Luc, could one of you just explained to me how the energy management program works and YD and I assume, because you don’t need much power at Island that it doesn’t get impacted. But is this something that we will likely see on a go forward basis where you will have periods of time where you won’t be able to run the facility at the rate you would like to run because of this program? We are just trying to understand how it might impact your production going forward.
Luc Guimond
Yes, hi Kerry, Luc here I can take that. I mean, this energy management plan that we talked about with regards to the peak periods we have been in Young Davidson has been involved in that since 2016 and Island Gold is now part of that as well.
What typically happens is the way that works is that usually you need to monitor the peak load in the province of Ontario when that occurs in a specific one hour window. We need to have the facility down for that one hour and in order to get that cost benefit. So typically, we need to shut the facility down for about four hours.
And it is not the entire facility. It is the non-process, the hoist and the paste bind in the YD case and at Island, it is the mill. So you need four hours to be down in order to get that one hour peak period. Typically, we need to shutdown and probably anywhere from 10 to 15 times in the period to be able to get those peaks.
In this case, we had more shutdowns required in order to capture the peaks, and they were longer in duration, meaning the local file in the province in that period was pretty flat line. So typically, it is a four hour window shutdown, we had a couple of them this year that were about six hours as a result of that, in order to capture that peak.
But I mean that is something that we plan for and it is part of our business plan or an annualized basis. The bigger impact really in Q3 was the head ropes having to be changed out, with that job that is really what would lead to the mining rates being at 7,000 versus 8,000.
John McCluskey
Yes. The other point to make there Kerry is the benefit of shutting down during those peak periods is significant. I mean, we save millions of dollars every year and our power costs, if we are able to capture those the five peaks, and we have been successful, most years in doing so. So this is nothing new is it is just we had to be shutdown. But more than what we had budgeted this quarter, but it is still worth doing. So we save, again, millions of dollars of power costs.
Kerry Smith
And are you seeing even doing this since 2016, you said, Right?
Luc Guimond
In YD’s case, yes.
Kerry Smith
And so over that period of time, let’s call it six years, have you seen, the frequency of these energy management shutdowns increasing over time, because obviously, we have got GDP growth in Ontario, and I’m not sure what hydro one is doing with the power infrastructure, but I can only assume that it is a disaster. And I’m just wondering if there might be a situation where you are seeing a gradual trend, higher in terms of the number of shutdowns that you have to implement. And if that might sort of impact your milling throughput on a go forward basis more than what you are already kind of budgeting for?
John McCluskey
Yes. I mean, like I said, typically, they have been 10 to 15-year, and it is by choice. I mean, we manage that decision. I mean, we don’t see the cost benefit there that we would not necessarily shutdown. But at this point, based on market conditions, we see the benefit of taking that shutdown and realizing the benefit on our power bill.
Kerry Smith
Okay that is helpful. And then just this was kind of the first full quarter of YD, pardon me other La Yaqui Grande. Are you kind of planning to use this reporting, this reporting formatting that you have used in the Q3 article for bases where you split out, the La Yaqui Grande from the rest of the operation there?
John McCluskey
Yes. Kerry, I think we will continue to do that for the next several quarters. So while we are still getting significant production from the Mulatos leach pad, I think, this time next year, we will reevaluate that. I mean, we do have the underground PDA deposit that will be coming online at some point, so we will likely look to report that separately as well. But yes, I think for the near-term, we will keep the formatting presentation similar to what we had this quarter.
Kerry Smith
Okay and then, just one last question. I think I know the answer. But when you drop your from Island over to YD, I’m assuming that those tonnes and those grades are captured in the Island reporting table, and then you capturing the extra cost to track it over as well, is that correct John?
John McCluskey
Yes. Everything gets attributed back to Island, absolutely. So those are stripped out of the YD results and included in the Island results where they belong.
Kerry Smith
Okay, perfect. Thank you.
Operator
Thank you. The next question is from Trevor Turnbull with Scotiabank. Please go ahead.
Trevor Turnbull
Yes. Thank you, Luc. You mentioned that at Island those stockpiles have been sitting there for a long time and that you just took advantage of that capacity window at YD. I was just wondering if you expected those stockpiles to grow again, or if you could maybe remind me what the mining rate is at Island and also when that permitted capacity increase at Island is expected.
Luc Guimond
Yes, so, I mean the typical mining rates at Island currently are 1200 tons per day. And that stockpile’s been sitting there really since we acquired the property back in 2017. Yes – so sorry, I missed, the other part of that question, Trevor.
Trevor Turnbull
Well, it is kind of moot. I was kind of wondering if you expected those stockpiles to kind of grow again. And my follow up to that was when you expect that permitted increase in capacity for the Island plant, but it doesn’t sound like those stockpiles are really going to be an issue before phase three is ready.
Luc Guimond
No. Correct. Correct. I mean, we will through the permitting process we are working through that obviously to ramp up for, you know, 2026 when the shaft comes online and then gets a full production at 2,400 tons per day in early 2027. But I mean we typically will always have a bit of a stockpile sitting in the yard at Island Gold similar to what we do at YD.
In the case of this quarter where we just had YD, where we did have, you know, some downtime with regards to the head rope replacement, we are able to continue to run the mill at full capacity. So we would have that same benefit with Island Gold.
Trevor Turnbull
Yes, no, that makes sense. And obviously the metallurgy works out that you can use either facility. Then just my only other question was about Lynn Lake. The EIS approval expected here fairly soon, next couple of months, and you said there would be a feasibility study coming out following that. I’m just wondering if the feasibility really comes out very quickly after the EIS or if there is a bit of work that you guys need to do so that we might have to wait a bit longer to see those numbers.
Jamie Porter
Trevor, yes, I think the feasibility study would follow pretty closely after the receipt of the provincial and federal permits like within a quarter certainly. And, yes, that would likely be after, I mean, the feasibility study would be after the release of our updated reserves and resources, so it, you know, the end of 2022 numbers so we can incorporate the exploration work that we have done this year.
Trevor Turnbull
Okay, great. Thanks Jamie. That is all I had.
Operator
Thank you. [Operator Instructions] The next question is from Mike Perkin with National Bank. Please go ahead.
Michael Perkin
Hi guys. Congrats on the quarter and congrats to Peter on his retirement. And Luc welcome to the team. One quick question. Back down to lot folks with the legacy stockpiles, is that something that is kind of temporarily on hold in terms of aggressively putting that back or putting that back into stacking in terms of like consumable prices being elevated? Would you look to be opportunistic and look to capture a greater margin assuming consumable prices soften in the near term or just keep going at the rate you are going?
Jamie Porter
Yes, Mike, it is Jamie. Yes, absolutely. I mean, our business plan for the rest of this year and into 2023 is focused on, on mining the El Salto the bottom part of the Mulatos set, and that is the basis for our production guidance.
The stockpile, we will continue to evaluate that and look for opportunities, when it makes sense based on the gold price and consumables prices to process it, but there is optionality associated with that is not entirely factored into our existing near-term outlook.
Michael Perkin
And is it something that you can blend easily with the oxide or do you tend to try to separate the stack that on a pad and be more as it consumes more consumables? So is it something that makes sense to try to isolate versus mix with the oxide at El Salto?
Jamie Porter
Yes, we tend to I mean, when we are processing through the stockpile, we certainly can blend it. We tend to stack the stockpile of material separately. It is the almost batch process, but we can blend that as well.
Michael Perkin
Alright that is it for me guys. Thanks so much.
Operator
Thank you. There are no further questions at this time. This concludes this morning’s call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932 extension 5439.
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