Mr. John McCluskey reports
ALAMOS GOLD REPORTS SECOND QUARTER 2023 RESULTS
Alamos Gold Inc. has released its financial results for the quarter ended June 30, 2023.
"We delivered a record performance in the second quarter on multiple fronts. Operationally, we produced a record 136,000 ounces, exceeding quarterly guidance, at costs consistent with annual guidance. This was driven by another excellent quarter from La Yaqui Grande which contributed to the highest production and free cash flow from the Mulatos District in more than 10 years. With the solid first half, we are well positioned to achieve our full year production and cost guidance," said John A. McCluskey, President and Chief Executive Officer.
"The strong production growth and margin expansion led to a record quarter financially across a number of metrics including record revenue and operating cash flow. We also generated record free cash flow of $62 million while continuing to advance our growth initiatives that will in turn support further free cash flow growth. The Phase 3+ Expansion at Island Gold remains on track with construction of the shaft surface infrastructure well underway, and the updated Feasibility Study for the Lynn Lake project is in the final stages of completion. Both projects are key components of our strong outlook, with the capacity to nearly double our rate of production in Canada at significantly lower costs," Mr. McCluskey added.
Second Quarter 2023
- Produced a record 136,000 ounces of gold, exceeding quarterly guidance of 120,000 to 130,000 ounces. This represented a 31% increase from the second quarter of 2022 and 6% increase from the first quarter of 2023 driven by strong production growth from the Mulatos District. The Company remains well positioned to achieve 2023 annual guidance
- Record free cash flow1 of $61.6 million reflecting strong operating results and margin expansion, as well as benefiting from the collection of sales tax receivables in Canada that had been temporarily delayed in the first quarter. The Company expects to continue generating strong free cash flow over the next several years while funding the Phase 3+ Expansion at Island Gold
- Generated record cash flow from operating activities of $141.8 million ($138.3 million, or $0.35 per share, before changes in working capital1)
- The Mulatos District produced 60,300 ounces, a 19% increase from the first quarter of 2023, and the highest level in 10 years, reflecting another solid quarter from La Yaqui Grande. The strong performance drove a 28% increase in mine-site free cash flow from the first quarter of 2023 to $47.0 million, bringing the first half total to $83.8 million
- Young-Davidson continues to perform well, producing 45,200 ounces, consistent with the first quarter of 2023, and generating record mine-site free cash flow1 of $35.4 million. Through the first half of the year, Young-Davidson generated $51.7 million of mine-site free cash flow and remains on track to generate over $100 million for the third consecutive year
- Island Gold produced 30,500 ounces and continues to self-finance the majority of the Phase 3+ Expansion. The Expansion is progressing well with the construction of the hoist house largely complete, the headframe well underway, and shaft sinking on track to start in the fourth quarter of 2023
- Sold 131,952 ounces of gold at an average realized price of $1,978 per ounce, for record quarterly revenues of $261.0 million. The average realized gold price was $2 per ounce above the London PM fix for the quarter
- Total cash costs1 of $847 per ounce were consistent with annual guidance, and all-in sustaining costs ("AISC"1) of $1,112 per ounce were below the low end of guidance and down 5% from the first quarter of 2023, reflecting low-cost production growth from La Yaqui Grande and lower sustaining capital
- Realized adjusted net earnings1 of $59.3 million, or $0.15 per share. Adjusted net earnings includes adjustments for unrealized foreign exchange gains recorded within both deferred taxes and foreign exchange of $13.4 million, and other gains totaling $2.4 million. Reported net earnings were $75.1 million, or $0.19 per share
- Paid a quarterly dividend of $9.9 million, or $0.025 per share (annualized rate of $0.10 per share)
- Cash and cash equivalents increased to $188.6 million, up from $133.8 million at the end of the first quarter, reflecting strong free cash flow. The Company remains debt free
- Completed the acquisition of Manitou Gold on May 23, 2023, adding significant exploration potential across the Michipicoten Greenstone Belt by more than tripling the regional land package adjacent to and along strike from Island Gold
- Provided an exploration update at Mulatos, further extending high-grade mineralization beyond Mineral Reserves and Resources at Puerto Del Aire ("PDA") and intersected a wide interval of significant gold mineralization at the Capulin regional target
- Provided an exploration update at Island Gold, extending high-grade mineralization across the deposit including within recently defined hanging wall and footwall zones in proximity to existing underground infrastructure
- Completed an Impact Benefit Agreement and signing ceremony with Marcel Colomb First Nation for the Lynn Lake project in Manitoba, Canada
- Publication of Alamos' inaugural Climate Change Report, outlining corporate governance around climate-related risks and opportunities
( 1) Refer to the "Non-GAAP Measures and Additional GAAP Measures" disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
Environment, Social and Governance Summary Performance
Health and Safety
- Total recordable injury frequency rate1 ("TRIFR") of 1.23 in the second quarter, down from 1.56 in the first quarter of 2023
- Lost time injury frequency rate1 ("LTIFR") of 0.09 in the second quarter, up from 0.00 in the first quarter of 2023
- Year-to-date TRIFR of 1.40 and LTIFR of 0.05
During the second quarter of 2023, the TRIFR decreased with 13 recordable injuries, four less than the prior quarter. One lost time injury was recorded in the quarter involving a hand injury to an exploration drilling contractor at Mulatos. Alamos strives to maintain a safe, healthy working environment for all, with a strong safety culture where everyone is continually reminded of the importance of keeping themselves and their colleagues healthy and injury-free. The Company's overarching commitment is to have all employees and contractors return Home Safe Every Day
Environment
- Zero significant environmental incidents and zero reportable spills in the second quarter and year-to-date
- Detailed design works completed for the reclamation of the Cerro Pelon, El Victor and San Carlos open pits within the Mulatos District
- Completed site visits with Alamos' Independent Tailings Review Board to Young-Davidson and Island Gold
The Company is committed to preserving the long-term health and viability of the natural environment that surrounds its operations and projects. This includes investing in new initiatives to reduce our environmental footprint with the goal of minimizing the environmental impacts of our activities and offsetting any impacts that cannot be fully mitigated or rehabilitated.
Community
- Completed an Impact Benefit Agreement and signing ceremony with Marcel Colomb First Nation for the Lynn Lake project, with the goal of providing long term socio-economic benefits to the community and collaboration on economic development, jobs, training and environmental stewardship of the project
- Held a ceremonial signing to celebrate the Definitive Agreement announced earlier in the year between Alamos and Batchewana First Nation for the Island Gold mine
- In addition, ongoing donations, medical support and infrastructure investments were provided to local communities, including:
- Eye health, dental health, and sexual education campaigns with residents of Matarachi
- Various contributions within the Temiskaming and Algoma districts of Ontario, including donations to the Temiskaming Hospital Foundation, rejuvenation of the Elk Lake playground, funds to support the Matachewan community garden, and sponsorship of various local events
- Island Gold hosted its second 'Mining Showcase' event for high school students at Ecole St. Joseph in Wawa Annual clean-up in Dubreuilville with participants from Island Gold, the township and local students
The Company believes that excellence in sustainability provides a net benefit to all stakeholders. The Company continues to engage with local communities to understand local challenges and priorities. Ongoing investments in local infrastructure, health care, education, cultural and community programs remain a focus of the Company.
Governance and Disclosure
- Publication of Alamos' inaugural Climate Change Report, outlining corporate governance around climate-related risks and opportunities; the Company's processes to identify, assess and manage climate-related risks; alignment to Task Force on Climate-related Financial Disclosure recommendations; and further details on Alamos' 30% absolute greenhouse gas emission reduction target by 2030
- Publication of Alamos' 2022 Report on conformance to the World Gold Council's Responsible Gold Mining Principles and independent assurance report
- Publication of the annual report outlining payments to governments under Canada's Extractive Sector Transparency Measures Act
The Company maintains the highest standards of corporate governance to ensure that corporate decision-making reflects its values, including the Company's commitment to sustainable development. During the quarter, the Company continued to advance its implementation of the Responsible Gold Mining Principles, developed by the World Gold Council as a framework that sets clear expectations as to what constitutes responsible gold mining.
(1) Frequency rate is calculated as incidents per 200,000 hours worked.
The Company's objective is to operate a sustainable business model that can support growing returns to all stakeholders over the long-term, through growing production, expanding margins, and increasing profitability. This includes a balanced approach to capital allocation focused on generating strong ongoing free cash flow while re-investing in high-return internal growth opportunities and supporting higher returns to shareholders.
With a record second quarter performance, the Company continues to successfully execute on this strategy on all fronts. Production increased to a new record of 136,000 ounces, exceeding second quarter guidance, while AISC decreased below the low end of full year guidance. This was driven by another strong quarter from the Mulatos District with La Yaqui Grande contributing to the highest production and mine-site free cash flow from the operation in more than 10 years. With the strong start to the year, the Company remains on track to achieve annual production and cost guidance.
Financially it was a record quarter on a number of fronts reflecting the strong operational performance and higher gold prices. The Company generated record quarterly revenues, cash flow from operations and free cash flow. The significant increase in free cash flow to $61.6 million was achieved while continuing to advance a variety of growth initiatives that are expected to support growing production, declining costs, and further free cash flow growth in the years ahead. This included substantial progress on the Phase 3+ Expansion at Island Gold. Construction of the hoist house is largely complete, the erection of the headframe is well underway, and shaft sinking is on track to begin in the fourth quarter of 2023.
After achieving a significant permitting milestone earlier this year at the Lynn Lake project with the receipt of a positive Decision Statement for the Federal Environmental Impact Statement ("EIS"), work on the updated Feasibility Study is nearing completion. The Company expects this to outline another attractive, low-cost, long-life growth project in Canada with significant exploration upside.
The Company continues to have broad based success adding value through its exploration programs. This includes extending high-grade mineralization beyond Mineral Reserves and Resources at Island Gold and PDA, demonstrating ongoing growth potential at both assets. This will be incorporated into a new development plan for PDA to be completed in the fourth quarter of 2023 which is expected to outline a significant mine life extension at the Mulatos District.
As outlined in the three-year production and operating guidance provided in January 2023, the Company expects higher production at significantly lower costs over the next three years. Refer to the Company's January 12, 2023 guidance press release for a summary of the key assumptions and related risks associated with the comprehensive 2023 guidance and three-year production, cost and capital outlook. Production is expected to range between 480,000 and 520,000 ounces in 2023, a 9% increase from 2022, and remain at similar levels in 2024 and 2025. Company-wide AISC is expected to decrease 4% in 2023 and 17% by 2025 to between $950 and $1,050 per ounce.
The Company is well positioned to achieve 2023 guidance with production through the first half of the year totaling 264,400 ounces and total cash costs and AISC both in-line with guidance. In the third quarter, production is expected to be between 120,000 and 130,000 ounces, at AISC near the upper end of the annual guidance range. Third quarter guidance reflects lower planned production from the Mulatos District with the end of mining in the main Mulatos pit and the return to guided grades and stacking rates at La Yaqui Grande.
Young-Davidson had another strong quarter with mining rates exceeding targeted rates, averaging 8,089 tpd in the second quarter and 8,050 tpd through the first half of the year. This contributed to first half production of 90,200 ounces and mine-site free cash flow of $51.7 million. With higher grades expected to drive stronger production in the second half of the year, Young-Davidson is on track to achieve full year production guidance and generate more than $100 million of mine-site free cash flow for the third consecutive year.
Island Gold produced 63,400 ounces in the first half of the year, and with higher mining and processing rates expected in the second half of the year, the operation is on track to meet full year guidance. As outlined in the Phase 3+ Expansion study released in June 2022, grades mined are expected to increase in 2024, driving production higher. A further increase in grades and an increase in mining rates toward the latter part of 2025 is expected to drive an increase in production and a reduction in costs. As demonstrated in the quarter and through the first half of the year, Island Gold continues to generate strong cash flow from operations allowing the operation to self-finance the majority of capital spending on the Phase 3+ Expansion.
Combined gold production from the Mulatos District (including La Yaqui Grande) increased to the highest level in more than 10 years in the second quarter to 60,300 ounces at total cash costs and mine-site AISC below annual guidance. Through the first half of the year, the operation produced 110,800 ounces, more than double the prior year, and generated $83.8 million of mine-site free cash flow driven by low-cost production growth from La Yaqui Grande. As previously guided, production is expected to decrease in the second half of the year reflecting the end of mining within the main Mulatos pit as well as the return to guided stacking rates and grades at La Yaqui Grande. Given the excellent start to the year, the Mulatos District remains well positioned to meet full year guidance.
Capital spending, including capitalized exploration, totaled $80.2 million in the second quarter and $164.0 million though the first half of the year, consistent with annual guidance of $317 million to $357 million. The majority of this spending in 2023 is expected at Island Gold with the ramp up of construction on the Phase 3+ Expansion. Capital spending at Island Gold is expected to remain at similar levels in 2024 and 2025 and then drop considerably in 2026 once the expansion is complete.
The global exploration budget for 2023 is consistent with spending in 2022. The Mulatos District accounts for the largest portion with an increased budget of $21 million, followed by $14 million at Island Gold, $8 million at Young-Davidson and $5 million at Lynn Lake. The exploration focus in 2023 continues to follow up on a successful year in 2022, with Mineral Reserves increasing for the fourth consecutive year to 10.5 million ounces of gold, and grades increasing 3%.
The Company's liquidity position continues to strengthen with cash and cash equivalents increasing to $188.6 million at the end of the second quarter, while remaining debt free. Additionally, the Company has a $500 million undrawn credit facility, providing total liquidity of $688.6 million. As part of a balanced approach to growth and capital allocation, the current focus of growth capital is the Phase 3+ Expansion at Island Gold. With no significant capital expected to be spent on developing Lynn Lake until the Phase 3+ Expansion is well underway, the Company remains well positioned to fund this growth internally while generating strong free cash flow over the next several years. The Company expects a further increase in free cash flow in 2026 with the completion of the Phase 3+ Expansion.
Review of Second Quarter Financial Results
During the second quarter of 2023, the Company sold 131,952 ounces of gold for record revenues of $261.0 million. The 37% increase from the prior year period was driven by more ounces sold with the start of production at La Yaqui Grande in June 2022, as well as a higher realized gold price.
The average realized gold price in the second quarter was $1,978 per ounce, a 6% increase compared to $1,871 per ounce in the prior year period, and $2 per ounce above the London PM Fix price.
Cost of sales (which includes mining and processing costs, royalties, and amortization expense) were $157.8 million in the second quarter, 4% higher than the prior year period.
Mining and processing costs were $109.2 million, 22% higher than the prior year period. The increase primarily reflects a full quarter of production at La Yaqui Grande, having only been in production for one month during the prior year period, as well as the impact of inflation on mining and processing costs across the operations. Inflationary pressures on costs have been in line with expectations. The impact of the stronger Mexican peso relative to the Company's guidance has been mitigated by the Company's hedge position on the Mexican peso.
Total cash costs of $847 per ounce and AISC of $1,112 per ounce were lower than the prior year period given the low-cost production growth from La Yaqui Grande.
Royalty expense was $2.5 million in the quarter, higher than the prior year period of $2.2 million due to the higher average realized gold price.
Amortization of $46.1 million in the quarter was higher than the prior year period due to a full quarter of production from La Yaqui Grande. Amortization of $349 per ounce was 8% lower than the prior year period, given lower amortization expense per ounce associated with La Yaqui Grande.
The Company recognized earnings from operations of $88.6 million in the quarter, higher than the prior year period as a result of higher ounces sold and margin expansion. Earnings in the prior year period were also impacted by a non-cash net realizable value adjustment on the Mulatos heap leach inventory of $22.3 million.
The Company reported net earnings of $75.1 million in the quarter, compared to $6.4 million in the prior year period. Adjusted earnings (1) in the second quarter were $59.3 million, or $0.15 per share, which included an adjustment for an unrealized foreign exchange gain recorded within deferred taxes and foreign exchange gains on net monetary assets and liabilities, resulting from the strengthening of the Canadian dollar and Mexican peso.
(1) Refer to the "Non-GAAP Measures and Additional GAAP Measures" disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
Associated Documents
This press release should be read in conjunction with the Company's interim consolidated financial statements for the three-month period ended June 30, 2023 and associated Management's Discussion and Analysis ("MD&A"), which are available from the Company's website, in the "Investors" section under "Reports and Financials", and on SEDAR and EDGAR.
Reminder of Second Quarter 2023 Results Conference Call
The Company's senior management will host a conference call on Thursday, July 27, 2023 at 10:00 am ET to discuss the results. Participants may join the conference call via webcast or through the following dial-in numbers: