Alamos Gold Inc. (AGI) CEO John McCluskey on Q1 2019 Results – Earnings Call Transcript

Alamos Gold Inc. (NYSE:AGI) Q1 2019 Earnings Convention Name Might 2, 2019 11:00 AM ET

Firm Individuals

Jamie Porter – CFO

John McCluskey – President & CEO

Peter MacPhail – VP & COO

Convention Name Individuals

Cosmos Chiu – CIBC

Kerry Smith – Haywood Securities

Mike Parkin – Nationwide Financial institution Monetary

John Tumazos – John Tumazos

Howard Finker – Finker & Firm

Operator

Good morning, women and gents. I might now like to show you over to Mr. Jamie Porter, Chief Monetary Officer. Please go forward.

Jamie Porter

Thanks, Operator, and thanks, everybody, for attending Alamos’ First Quarter 2019 Convention Name. Along with myself, we have now on the road right now each John McCluskey, President and CEO; and Peter MacPhail, Vice President and COO.

I would prefer to remind everybody that our presentation shall be adopted by Q&A session. On this name, we shall be making forward-looking statements. Please confer with the disclaimer on the forward-looking statements in our information launch and MD&A in addition to the danger elements set out in our annual data type.

All forward-looking statements on this name are certified by these cautionary statements. There might be no assurance that our forward-looking statements, although thought of affordable by administration primarily based on the knowledge readily available, will show to be correct. Future outcomes and occasions may differ materially. Technical data on this presentation has been reviewed and authorized by Chris Bostwick, our Vice President of Technical Providers and a certified particular person.

Additionally, please keep in mind that the entire greenback quantities talked about on this convention name are in U.S. except in any other case famous.

Now, John will offer you an outline.

John McCluskey

Thanks, Jamie.

Now we have a robust begin of the 12 months, producing 125,300 ounce in gold within the first quarter, a considerably decrease value from 2018. All of our websites carried out nicely, lead by Island Gold which achieved data for each quarterly manufacturing and free money move. Consolidated complete money value was $732 per ounce and all-in sustaining value of $957 per ounce have been each higher than budgeted and represented a 5% and three% lower from the fourth quarter respectively.

We’re anticipating manufacturing in complete money prices to be in the same vary within the second quarter, adopted by the additional enchancment in our value within the second half of 2019. With a robust begin to the 12 months, we’re nicely on-track to attaining our full 12 months manufacturing and price steerage.

We proceed to advance our varied inner development initiatives and are nearing the turning level the place we are going to see the profit within the type of vital free money move development. At Younger-Davidson, we met budgeted underground mining charges for the quarter whereas persevering with to work on the decrease mine growth.

If you have not already performed so, I might encourage you to try our web site the place we lately added digital excursions of each the Younger-Davidson and Island Gold mines. There are some nice pictures of the decrease mine building at Younger-Davidson which helped illustrate the spectacular scale of the operation. The work on the decrease mine growth and the tie-in of the higher and decrease mines stays on-track to be accomplished throughout the first half of 2020.

Island Gold continues to shine with increased grades and throughput, driving new report of the operation for each manufacturing and free money move. We imagine there are lots of extra data to come back at this operation via Section 2 and Section three expansions. We’re additionally seeing good ongoing outcomes from our giant exploration program of Island Gold — a few of which we shall be together with in an exploration replace we plan to launch later subsequent week.

Alamos produced its two millionth ounce of gold in March, a major milestone which additionally marked the tip of a 5% royalty that the operation had been paying because the begin of the manufacturing in 2005. At present gold costs and manufacturing charges, this may save us roughly $10 million per 12 months. We additionally celebrated the completion of the voluntary relocation of the city of Mulatos in March. As a part of the relocation, we invested in a number of tasks together with the development of 21 new houses, a brand new schooling middle, a neighborhood corridor, a church and a medical clinic. We’re pleased with these investments and the long run advantages these new services will present for the neighborhood.

Final, however actually not least, we acquired the working allow for Kirazli in March and now have all the main permits required to begin our full-scale building. We shall be ramping up building actions via the 12 months and anticipate preliminary manufacturing at Kirazli within the latter a part of 2020, contributing to the robust manufacturing and free money move development in 2021.

I am going to now flip the decision over to our CFO, Jamie Porter to assessment our monetary efficiency. Jamie?

Jamie Porter

Thanks, John. Gold income from the primary quarter of 2019 have been $156 million, primarily based on the sale of roughly 120,00zero ounces at common realized worth of $13.04 per ounce. Gold manufacturing within the first quarter was 5,600 ounces, greater than what we offered with these ounces benefiting our second quarter monetary outcomes.

General, we had a superb first quarter with world gold manufacturing value and capital, in-line with steerage. Complete money value of $732 per ounce and all-in sustaining value of $957 per ounce have been in-line with steerage and forward of what we budgeted for the primary quarter, reflecting increased value to the Younger-Davidson, offset by considerably decrease prices at Mulatos. We expect related consolidated complete money prices within the second quarter, whereas all-in sustaining prices are anticipated to extend, reflecting a catch-up of sustaining capital expenditures.

Working money move earlier than modifications in non-cash working capital was $62 million or $zero.16 per share. A reported internet earnings of $17 million or $zero.04 per share included unrealized overseas change and different good points totaling $6.5 million. Excluding these good points, our adjusted internet earnings have been $10 million or $zero.03 per share.

Amortization expense was $39 million within the quarter or $329 per ounce, barely under full 12 months steerage of $345 per ounce. Company G&A expense of $5.5 million was per steerage and stays amongst lowest in our peer group.

Capital spending totaled $53 million within the first quarter together with $15 million of sustaining capital, $34 million of development capital and $three million of capitalized exploration. This was decrease than budgeted with some spending at each Mulatos and Island Gold deferred into the second and third quarters of the 12 months. Mixed with ramp-up of spending at Kirazli, we anticipate increased capital spending within the subsequent few quarters and preserve our full-year steerage of between $290 million to $315 million for the 12 months.

We have been lively below our share buyback program throughout the first quarter, repurchasing a complete of two.6 million shares at a median worth of $four.40 per share, for a complete value of $11 million. We additionally paid a quarterly dividend of $four million or $zero.01 per share in March after asserting the doubling of the annual dividend at February. In complete, we returned a report $15 million to shareholders via our share buyback and dividend program within the first quarter.

We closed the quarter with no debt and $181 million of money and money equal with our stability sheet. Moreover, we have now roughly $18 million in fairness securities having lately closed gross sales of varied non-core royalties for $eight million. We stay within the interval of considerable funding in development capital to increase our operations for Younger-Davidson, Island Gold and in Turkey. We anticipate the transition to a interval of robust free money move development beginning within the second half of 2020. Within the interim, we’re absolutely budgeted for our account development initiatives with present money and money move.

I am going to now flip the decision over to our COO, Peter MacPhail to supply an outline of operations.

Peter MacPhail

Thanks, Jamie. Our websites carried out nicely throughout the board within the first quarter with every on-track to realize annual steerage.

At Younger-Davidson, underground mining charges of 6,500 tons per day and gold manufacturing of 45,00zero ounces have been each per the annual steerage. Mill throughput of 6,800 tons per day was under the first-half steerage of seven,800 tons per day as we deferred processing of frozen, low-grade floor inventory pileups to the hotter months. We anticipate mill throughput to extend via the spring and summer time months till the low-grade stockpiles are depleted someday within the third quarter.

Complete money value of $839 per ounce and mine website all-in sustaining prices of $1,068 per ounce have been increased than annual steerage on account of deliberate decrease grades to mine and better underground upkeep prices. Prices are anticipated to lower via the 12 months, reflecting increased grades at a decrease sustaining capital spending, per annual steerage.

Work on the decrease mine growth continues and we stay on-track to finish the tie-in of the higher and the decrease mines within the first half of 2020. As beforehand guided, this tie-in would require roughly three months of downtime on the North Gate shaft, which can impression throughputs and manufacturing charges. As soon as accomplished, we anticipate mining charges to extend to about 7,500 tons per day within the second half of 2020 and towards eight,00zero tons per day in 2021.

Island Gold produced a report 35,600 ounces throughout the first quarter, up 23% from the earlier report of 29,00zero ounces within the fourth quarter of 2018. The rise was pushed by the next mine grade of 11.four grams per ton, increased mining and milling charges, which each averaged round 1,100 tons per day within the quarter, per our annual steerage.

Complete money prices of $497 per ounce have been per steerage and down 15% from 2018 ranges. Mine website all-in sustaining prices of $649 per ounce have been decrease than annual steerage, reflecting the timing of sustaining capital spending. Wanting forward, we anticipate to allow the Section 2 growth of the operations to 1,200 tons per day by the tip of this 12 months and are engaged on a examine of the way to finest method the Section three growth of the operation past 1,200 tons per day.

We have seen above-average rainfall at each Younger-Davidson and Island Gold up to now a number of weeks as you could have seen within the information. To alleviate any considerations, this has not impacted our operations, nor will we anticipate it to.

Mulatos had a robust quarter producing 38,900 ounces and complete money value of $743 per ounce and mine website all sustaining prices of $809 per ounce. Manufacturing was per annual steerage. All prices have been nicely under plan reflecting the next grade of stack, a decrease weight to order ratio and the restoration of two,00zero ounces and focus within the mill. Complete money prices and mine-site all-in sustaining prices are anticipated to return to steerage ranges from the tip of the 12 months. At we would like [ph], we’re working to finalize and up to date feasibility examine on the challenge incorporating the reserve development over the previous 12 months, in addition to different worth engineering initiatives designed to enhance the economics. We anticipate to have the up to date examine accomplished mid-year.

After receiving the working allow for Crowley [ph] in March, we finalized a number of key contracts together with the mining companies and Earth’s Works contract anticipated to start pre stripping the open pit inside the subsequent month, with building actions ramping up via the 12 months. We stay on-track for preliminary manufacturing in the direction of the tip of 2020 which we predict will consolidate the productions over 600,00zero ounces per 12 months in 2021 whereas considerably reducing the fee profile.

With that, I am going to flip the decision again John.

John McCluskey

Thanks, Peter. I am now going to ask the operator to open the strains and began the Q&A session.

Query-and-Reply Session

Operator

[Operator Instructions] Our first query is from Fahag [ph] from Credit score Suisse. Please go forward. Your line is now open.

Unidentified Analyst

Just some questions from me. First, on the buybacks, are you able to present some extra steerage on perhaps the remainder of the 12 months? Are the Q1 stage of the buyback, name it 2.5 million shares. Is that type of a cadence or that what we ought to be anticipating for the remainder of the 12 months each quarter?

Jamie Porter

Our buyback method might be opportunistic. There are downturns within the share worth and we will purchase at a reduction. We will proceed to do this, however we’re actually not offering steerage on our buyback program. I do not know anyone who would try this.

Unidentified Analyst

Let me rephrase then. The extent of purchase backs in Q1, was that opportunistic or is that one thing — like some corporations will do it extra on a scheduled foundation. Is that one thing…

Jamie Porter

No, we’re not scheduling our buyback. That is the purpose I am making an attempt to make. We will buyback once we see alternatives to buyback in. It isn’t on some kind of plan or a schedule or anything. We would by zero shares, in different phrases, between now and the tip of the 12 months or we’d purchase rather a lot. It ought to be guided by our view of the market.

Unidentified Analyst

Simply switching gears; on Island Gold, any colour on the Section three? I do know it is early phases, however what stage of throughput is type of within the work that like order of magnitude away from the 1200 tons per day?

Jamie Porter

Our Section 2 growth is absolutely simply allowing train to began with that. The mill is able to doing 1200 instances a day as mine is at present able to doing 1200 tons a day. We’re — and so, that is a easy one and can value us something. However for Section three, we’re trying on the varied choices that come to thoughts with the thoughts like this simply preserve extending the ramp, do you do a shot? Every of these have totally different final throughputs. I feel we stated within the investor day that we had earlier this 12 months that actually someplace round 1500 tons a day can be an affordable kind of a goal that we might be approaching with this and relying on the choices it could possibly be extra.

Operator

Thanks. Our subsequent query is from Cosmos Chiu from CIBC. Please go forward.

Cosmos Chiu

Thanks, John, Jamie, Peter and group. Thanks for the convention name. Perhaps first off on the Younger-Davidson right here. it, there was some frozen stockpiles in Q1. I simply need to get a greater understanding right here when it comes to for the remainder of the 12 months, on condition that the stockpiles and decrease grade stoppiles will get processed in Q2 and Q3 on the mill, we will expect increased throughput however doubtlessly decrease grade on condition that part of that shall be comprised of the decrease grades stockpiles. So, that is going to occur in Q2 and Q3 and This fall you are going to return to kind of the mill throughput matching the underground throughput, however with increased grades?

Jamie Porter

Sure, that is proper. 6,500 tons a day from the underground shall be processed on the grades that we received Q — actually the low grade stockpiles which can be round or they’re each — we high up the mill with that materials and we try this via the 12 months. However actually it provides perhaps a pair thousand ounces to our output on any quarter. It does not actually transfer the needle in any respect.

Cosmos Chiu

Sure, for positive. After which Peter you talked about gaining efficiencies within the higher mine and that is been a goal up to now quarter and positively final 12 months as nicely. What have you ever realized within the higher mine you’ll be able to actually apply to your decrease mine when that connection occurs in 2020?

Peter MacPhail

I imply the decrease mine is, as you’ll have seen in our Investor Presentation and the video and the animation we have now on our web site is kind of a distinct animal, it is designed to be at eight,00zero tons a day, it is 50% rigorous [indiscernible] are better, shall be conveying or greater than trucking or determine skip capability. The bins are additionally huge. That would not be the largest factor that we have realized with the higher mine as nicely and it is high of all of that. I imply we do have type of restricted bin capability within the higher mine, which type of limits us to that 6,500 to 7,00zero tons vary with a decrease mine we will have two days of horse guards in entrance of us always.

Cosmos Chiu

Perhaps switching gears a bit of bit right here, going to Island Gold, Peter, you talked about getting the allow to stand up to 1,200 tons per day. Proper now you are restricted to 1,100 tons per day. May you perhaps remind me how issues work once more as a result of in Q1 you averaged about 1,133 tons per day at Island Gold?

Peter MacPhail

So, we have now an annual allow that limits us to about 100 tons per day. That is the way it works.

Cosmos Chiu

So, does that imply that someday in Q3 and This fall you may should be below 1,100 per day except the allow’s retroactive? Provided that in your Q1 you have been barely over.

Peter MacPhail

I feel our efforts right here shall be to get that allow safety and in time that we do not have to be below 1,100 tons per day at any time throughout the 12 months.

Cosmos Chiu

Okay, I received it. And perhaps a fast query for Jamie right here. Carozzi and Turkey, actually you have a look at the Turkish lira [ph], it has been far and wide. I am simply questioning the way you’re mitigating that threat when it comes to overseas change and what have you ever put in place?

Jamie Porter

So, I imply our steerage for this 12 months, I feel it is $75 million spending a crossly. We solely simply began that within the first quarter so we’re ramping up spending now. However the overwhelming majority of our spending this 12 months is definitely U.S. vendor base that we have now been negotiating a mining contract that is been in U.S. with no actual clause the place we’re uncovered to the Turkish lira [ph]. So, our TL publicity this 12 months it is about 20 million. And we’re methods to handle that when it comes to edge once more.

Cosmos Chiu

And perhaps one final query, leaping again to Peter right here, sorry about that. In Mulattoes, 66% restoration in Q1, you are trying to goal 70% restoration in 2019. May you perhaps speak about that when it comes to how one can enhance on that restoration? Is it simply a mixture of totally different sources of oil coming from the totally different pits?

Peter MacPhail

Sure, it is actually simply timing. We stacked our higher grades in the direction of the tip of the quarter and people homes will come out in Q2.

Operator

Thanks. Our subsequent query is a few Kerry Smith from Haywood Securities.

Kerry Smith

Peter, simply in your tailings facility in Northern Ontario, the 2 that you’ve; have you ever had any points with all of the rain? I do know among the corporations have needed to shut their mills down briefly whereas they take care of all the surplus water. I am simply questioning how your services are arrange.

Peter MacPhail

Sure. No, Kerry, we have not had any points in any respect actually. Our tailing services are designed for the type of climate that we see sometimes in northern Ontario. They’re each working at ranges nicely inside their outlined parameters and we do not anticipate that to — not the entire snow has melted but both however we nonetheless do not — we’re in fine condition there from a water stage perspective at each websites.

Kerry Smith

Okay. Okay, nice. After which only for Jamie, a second query on Kirazli. I do know you let the mining contract and you’ve got ordered a couple of different contracts. Are the prices that you’ve got awarded in these contracts type of consistent with what you had in your feasibility numbers or are they a bit of bit higher or a bit of bit worse? I am simply making an attempt to get a taste for the way the prices are coming in.

Jamie Porter

Sure, I would say they’re in line, Kerry.

Kerry Smith

They’re in line. Okay. Nice. Thanks very a lot.

Operator

Thanks. Our subsequent query is from Mike Parkin from Nationwide Financial institution Monetary. Please go forward.

Michael Parkin

Nice. One query with the tie-in on Younger-Davison. Do we have now a way of will or not it’s concentrated in Q1 of subsequent 12 months, type of equally break up between Q1 and Q2, or when may we anticipate extra definitive timing on it?

Peter MacPhail

We’ll most likely present some extra definitive steerage towards the tip of this 12 months because it comes nearer nevertheless it’ll be mainly three months sooner or later in H1 of subsequent 12 months.

Operator

Thanks. Our subsequent query is from John Tumazos of John Tumazos. Please go forward.

John Tumazos

Thanks very a lot for taking my query. At any time when the Kirazli mine turns from a money shopper to a money generator, perhaps the center of subsequent 12 months, per your steerage, how lengthy would be the time window when Alamos is flowing money earlier than the following main challenge, both Lynn Lake or Agi Dagi or a distinct one, begins to enter building to make use of money?

John McCluskey

Sure, that is John McCluskey talking. I do not suppose we will pin ourselves right down to a selected date. We will be watching the gold worth. Typically, the gold worth will let you know what the market is on the lookout for. If costs are very excessive and our operations are producing actually robust free money flows, then we’ll method it extra aggressively. But when the gold worth could be very weak and we need to simply produce free money and decelerate the expansion, we will try this. So, we’re in a lucky place the place we will really time our manufacturing pipeline. We are able to time our development pipeline. And we will take full benefit of that. We’re not going to go dashing headlong into one thing in a weak gold worth atmosphere. The concept is to stay versatile.

John Tumazos

There’s all the time totally different giant and small gold corporations placing issues up on the market however generally the issues which can be up on the market have their very own points. Simply for example, AngloGold is promoting one thing in Columbia, one thing in Argentina that the open pit goes underground, and 41% of one thing in Mali. Most likely these type of issues are irrelevant to Alamos. May you simply assessment what your acquisition standards are with regard to geography, measurement, so we’d get a taste as to how related or irrelevant among the different corporations’ divestitures could be.

John McCluskey

I might say they’re largely irrelevant to us proper now. And that is principally as a result of we have now completely no intention of doing any acquisitions. We have been very lively between 2014 and 2017. I feel that was the perfect time available in the market to be buying issues. The final time we acquired one thing, gold was sub-$1,200 an oz.. That is Richmond Mines. And even in these market circumstances, having purchased one thing that was — it is proving to be tremendously priceless — the acquisition was not well-received. In different phrases, it is actually robust, even if you’ve received a good suggestion and an excellent worth. It is actually robust to get shareholder help and market help if you go to make these sorts of issues, offers like that.

I really feel that what you are getting at is do we have now an acquisition technique. And, in reality, you’ll be able to see what our acquisition technique is simply by trying on the offers that we have performed over the past 5 years. And it has been buying issues in protected jurisdictions, issues which have relative measurement to make a relative impression on our manufacturing and on our development, and issues that in the end are going to be first quartile prices. So, that might nearly match each mining firm’s profile. They’re all looking for actually good property, plenty of life, protected location, low value. Everyone’s speaking from the identical tune sheet there. However the backside line is we have got 5 years of monitor report that exhibits that we have been doing simply that.

Operator

Thanks. Our subsequent query is from Howard Finker from Finker and Firm. Please go forward.

Howard Finker

Thanks. I’ve a query and a remark. The query is in all-in sustaining prices and CapEx, are these Canadian or U.S. . I did not hear clearly?

Jamie Porter

These are U.S. .

Howard Finker

Each?

Jamie Porter

Sure.

Howard Finker

And as to acquisitions, generally your perspective is extra worthwhile in the long term and clearer than these of buyers. So, simply to what you suppose is true and what’s going to make you an excellent price of return in the long term, not essentially by tomorrow morning. And by an excellent price of return, I do not imply what’s an excellent price of return within the gold mining enterprise, the place managers typically cheer their earnings and it comes out to a 5.5% price of return. Simply preserve doing what you suppose is true. And in the long run, it will work out. In the event you hearken to short-term buyers, you’ll be able to’t run your online business. That is my solely remark.

John McCluskey

Properly, we respect that. Thanks.

Howard Finker

You are welcome.

Operator

Thanks. [Operator Instructions]

Jamie Porter

I feel if there isn’t any additional questions. Operator?

Operator

We do have one other query from Thurman Willis [ph], a personal investor. Please go forward.

Unidentified Analyst

Properly, thanks for taking my query. Good quarter. I used to be listening to some feedback by the IAG president and CEO yesterday and he made feedback that he anticipated large consolidation within the mid-peer group. And with us promoting at such a reduction relative to our peer group, does that not trigger you concern? However how do you’re feeling about consolidation, as he acknowledged? And, once more, we’re thus far below our peer group the place, at one time, we have been above our peer group. So, may you touch upon that please?

John McCluskey

Properly, I assume I may touch upon it. I really feel that we have performed an excellent job over the past couple of years, actually remodeling ourselves from a single asset producer with roughly 150,00zero ounces of manufacturing and a robust stability sheet into an actual mid-tier mining firm with in extra of 500,00zero ounces of manufacturing and superb development. It was a really contrarian method to take. That is, frankly, the way in which you generate income in a commodity-based enterprise the place you’ve got received actual cyclicality underpinning the entire enterprise. Many of the trade was not lively. Solely a only a few corporations have been lively with regard to creating acquisitions. And so there’s a want for a lot of corporations on the market. They’re reductions of their reserves. They’re a scarcity of development. And there is going to be a necessity on their half to merge or purchase. And I might say, in giant measure, we’re not that . We expect that we’re buying and selling at a fairly vital low cost to our internet asset valuation. Our internet asset valuation continues to develop. And with the very thrilling developments that we have now within the firm which can be arising over the following two years, we’re actually trying ahead to our valuation normalizing.

Unidentified Analyst

And one follow-up there; are we roughly buying and selling at about zero.7 to our peer group’s 1.15? I imply, are we buying and selling at that a lot of a reduction? I imply, what I am making an attempt to say is the low cost, contemplating your prospects, seems to me to be overdone. Are my figures of about zero.7 to the peer group about in line?

John McCluskey

I feel so. Simply on the analysis experiences that I’ve learn over the past couple of months, I feel your estimates are pretty correct.

Unidentified Analyst

Thanks for taking my questions and proceed — I agree with the caller — proceed with what you are doing and you may serve the shareholders nicely.

John McCluskey

We respect that. Thanks very a lot.

Operator

Thanks. There aren’t any additional questions right now. This concludes this morning’s name. When you’ve got any additional questions that haven’t been answered, please be at liberty to contact Mr. Scott Parsons at (416) 368-9932, extension 5439. Thanks. The convention name ha now ended. Please disconnect your strains right now and we thanks on your participation.

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