Alamos Gold Inc. (AGI) Earnings Call Transcript & Summary

Good morning. I'll now turn the call over to Scott Parsons, Alamo's, Senior Vice President of Corporate Development and Investor Relations.

Thank you, operator, and thanks to everybody for attending Alamos' Third Quarter 2026 Conference Call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer; Greg Fisher, Chief Financial Officer; and Luc Guimond, 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 -- as we will 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, Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview of the quarter.

Thank you, Scott. We produced 119,000 ounces of gold in the third quarter, in line with quarterly guidance with record production from the Island Gold District offsetting lower planned production from Davidson. The Island Gold District continues to perform well with both underground mining rates and the geno mill throughput rates setting new quarterly records. Underground mining rates increased to average nearly 1,800 tonnes per day in the quarter, and the [Magino] mill averaged over 10,000 tonnes per day. We expect a further increase in Island Gold underground mining rates as well as higher grades to drive a 26% increase in consolidated production in the fourth quarter, putting us on track to meet our revised annual guidance. As previously guided, all-in sustaining costs increased from the second quarter due to lower production and timing of sustaining capital spending. With the Island Gold District expected to drive costs lower in the fourth quarter, we are well positioned to achieve our full year consolidated cost guidance. Financially, we generated strong free cash flow of $76 million this quarter, net of our reinvestment in high-growth and exploration. We are on pace for another year of record free cash flow while continuing to advance our growth projects. Turning to Slide 4. During the quarter, we returned $22 million to shareholders through our quarterly dividend and ongoing share buybacks. We remain active on our buyback, repurchasing an additional $17 million worth of shares in October thus far, bringing our year-to-date shareholder returns to $123 million. We continue to eliminate gold hedges inherited from the Argonaut Gold transaction, having repurchased 36,000 ounces of the remaining 50,000 ounces of forward contracts since the second quarter. Since our acquisition of Argonaut in 2024, we have bought back 96% of the legacy gold hedges, substantially increasing our exposure to higher gold prices. Earlier in October, we received $160 million anniversary payment related to the sale of our Turkish assets, which further strengthened our balance sheet with a solid net cash position of over $400 million and strong ongoing cash flow, we remain well positioned to self-fund our growth initiatives and support our increased shareholder returns. Turning to our growth initiatives. We continue to make progress across our assets. Construction of the Live Lake project is ramping up as planned and work on the shaft and mill expansion at Island Gold's advancing. With the Shop zinc completed earlier this year, our focus is on the shop autumn infrastructure. During the excavation of the bins, the or waste handling system at Island Gold, we encountered a die that will require additional ground support. As a result, shop commissioning has been delayed by approximately 1 quarter is now scheduled for completion in mid-2027 with ramp-up of mining rates to 2,400 tonnes per day expected in the second half of the year. Turning to Slide 5. Delay does not change our strong long-term outlook. We expect the completion of the shop expansion at Island Gold in 2027, no expansion at Magino in 2028 and Lynn Lake production in 2029 by significant growth over the coming years. We remain on track to nearly double our rate of production of approximately 1 million ounces annually by 2030 at substantially lower costs. We have 1 of the best growth profiles in the sector. This growth is all located in Canada, lower cost is expected to support significant free cash flow growth over the coming years. I'll now turn the call over to our CFO, Greg Fisher, to review our financial performance.

Thank you, John. On to Slide 6. We sold 118,400 ounces of gold in the third quarter at an average realized price of $4,258 per ounce for quarterly revenues of $510 million. Total cash costs were $1,375 per ounce and all-in sustaining costs were $1,956 per ounce. Operating cash flow before changes in noncash working capital was $235 million in the quarter or $0.56 per share. This was a decrease from the second quarter due to lower production and margins. . Included in cash flow from operations was the use of $86 million or $0.21 per share of cash to repurchase and eliminate 33,000 ounces of legacy Argonaut Gold hedges that were scheduled to mature in the first half of 2027. We repurchased and eliminated a further 3,000 ounces in October and expect to eliminate the remaining 14,000 ounces prior to their maturity in 2027. Our reported net earnings were $166 million in the quarter or $0.40 per share, and our adjusted net earnings were $184 million or $0.44 per share. This includes an after-tax adjustment for net loss on commodity hedge derivatives of $10 million. Adjustments for net unrealized foreign exchange losses recorded within deferred taxes and it exchange of $7 million and other adjustments of $1 million. Capital spending in the quarter totaled $227 million, consisting of $50 million of sustaining capital, $164 million of growth capital and $13 million of capitalized exploration. We expect capital spending to decrease -- sorry, capital spending to increase in the fourth quarter, in line with guidance as we continue to ramp up construction activities at van Lake and PDA. Our growth continues to be funded internally while generating strong free cash flow. All of our sites generated positive free cash flow during the third quarter for a total of $76 million. Through the first 3 quarters of 2026 net of significant capital spend to support our growth, we have generated $321 million of free cash flow, all of which has been allocated to increase returns to our shareholders and the repurchase of legacy Argonaut hedges. Year-to-date, we have utilized $228 million to eliminate the majority of the remaining legacy hedges and returned $123 million to shareholders through dividends and share buybacks. This included another $17 million of shares repurchased in October. Given our strong financial position and outlook, we expect to continue to be opportunistic on our share buyback. We ended the quarter with a strong net cash position of $397 million. Earlier in October, we received the first anniversary payment of $160 million related to last year's sale of our Turkish development projects with the final payment of $150 million to be received in October 2027. I will now turn the call over to our COO, Luc Guimond Mall, to provide an overview of our operations. Luc?

Thank you, Greg. Over to Slide 7. The Island Gold District had a record quarter from a number of perspectives, including record production of 68,700 ounces. The operation is on track to achieve its full year production guidance with higher underground mining rates and grades expected to drive additional growth in the fourth quarter. Underground mining rates averaged a record 1,790 tonnes per day, consistent with our ramp-up schedule. Grades mined of 8.69 grams per tonne were slightly below plan due to higher-than-expected dilution and within certain stopes mined in August. Underground grades mined are expected to increase towards the top end of our annual guidance range in the fourth quarter. Open pit operations continue to perform well as did the Magino mill with milling rates increasing to average a record 10,300 tonnes per day. This reflects improved performance and reliability driven by an enhanced maintenance program, which is supporting increased availability, and supplemental ore feed from the temporary crusher. Third quarter total cash costs and mine site all-in sustaining costs were $1,242 and $1,782 per ounce, respectively. Costs are expected to decrease significantly in the fourth quarter as underground mining rates and grades increased. The Island Gold District generated strong line set free cash flow of $72 million in the third quarter. net of the significant capital investment related to the Island Gold District expansion and a record exploration program. Moving to Slide 8. The ramp-up of underground mining rates to Island Gold is progressing extremely well. with any improvements over each of the last 3 quarters. This has and will continue to be a key driver of our production growth at the Island Gold District. This quarter's average of 1,790 tonnes per day is a new record and a 15% increase over the second quarter. We expect to exit the year at 2,000 tonnes per day with a further increase to 2,400 tonnes per day following the commissioning of the shaft in mid-2027. Moving to Slide 9. The Magino mill is also performing well, having average design rates of 10,000 tonnes per day since June. This included a 16% increase in the third quarter to a record 10,300 tonnes per day with a strong performance continuing into October. The higher throughput has been driven by the improvements that we made to the mill over the past 2 years including the addition of a temporary crusher earlier this year to maintain consistent ore feed. We will continue to run the temporary crusher until the mill expansion to 20,000 tonnes per day is complete in 2028. And the existing primary crusher is replaced with a larger and more robust gyratory crusher. In the meantime, we expect milling rates to remain at steady state levels of 10,000 tonnes per day. Moving to Slide 10. During the quarter, we spent $92 million in growth capital at the Angul District to advance both the Phase IIIs and nongold District expansions. Substantially, all capital for Phase III plus shaft expansion has been spent or committed. As John mentioned earlier, during the excavation of the bins within the ore and waste handling system, we encountered a dike that will require additional ground support. In addition, we are proactively enhancing ground support across the loading pocket and the broader ore and waste handling system to ensure geotechnical stability is maintained over the long term around our key underground infrastructure. As a result, commissioning of the shaft has been delayed by approximately 1 quarter and is now scheduled to be completed mid-2027. Given the additional work as well as ongoing inflation, we now expect the total Phase III plus shaft expansion capital cost to be 5% higher than the $835 million budgeted. Underground mining rates are still expected to continue increasing above 2,000 tonnes per day in the first half of 2027. However, we'll be lower than previously guided with the ramp-up to 2,400 tonnes per day expected not expected until the second half of 2027. Turning to the Island Gold District expansion. As of the end of the third quarter, 45% of the growth capital was spent are committed. Progress is being made across all the key components of the mill expansion to 20,000 tonnes per day, which is expected to be completed in the first quarter of 2028. This included advancing excavation and concrete works for the crushers and fine ore bins and structural steel and foundation work for the refinery. Once the shaft and process plant expansions are complete, the Island Gold District will produce over 500,000 ounces annually of low-cost production, making it one of Canada's largest and most profitable gold mines. Over to Slide 11. Young-Davidson produced 22,700 ounces of gold in the third quarter. As previously guided, this was down from the second quarter, reflecting lower planned mining rates after the seismic event in June. Mining rates averaged 5,135 tonnes per day, consistent with our guidance for the second half of this year. Grades came in slightly below plan this quarter due to the higher-than-expected dilution and but are expected to increase slightly in the fourth quarter. We continue to process low-grade stockpiles during the quarter. resulting in milling rates exceeding mining rates and averaging nearly 7,100 tonnes per day. As guided, costs increased from the second quarter, reflecting the lower mining and production rates. As well as costs related to the rehabilitation work and additional ground support measures. Reflecting the timing of sustaining capital spending, we expect it all-in sustaining costs to increase in the fourth quarter bringing full year buying site all-in sustaining costs in line with revised guidance. Despite the lower production rate, Young-Davidson generated mine-site free cash flow of $30 million for the quarter, with similar production expected in the fourth quarter, the operation remains on track to achieve its revised annual production and cost guidance. Over to Slide 12. Following the seismic event in June, we are making progress on our initiatives to begin increasing mining rates in 2027. Rehabilitation work on the [94-10] level is ongoing. As is the implementation of enhanced ground support throughout the lower portion of the mine. We also continued advancing work on an updated mine plan that will be designed to minimize stress through an optimized or extraction sequence. These initiatives are expected to support a gradual ramp-up in mining rates through 2027 and 2028, driving production higher and costs lower. We will provide an update on future mining rates and costs with our 3-year guidance in early 2027. Over to Slide 13. Production from the [Mulatos] district totaled 27,600 ounces, including 3,400 ounces from [La Yaqui Grande]. Production was 8% below the previous quarter driven by lower grades and tonnes mined. Mining rates were impacted by the rainy season and the constrained operating area at the bottom of the pit as [La Yaqui Grande] nears the end of its mine life. Recoveries increased quarter-over-quarter driven by recovery of ounces stacked in prior periods. Mulatos district remains on track to meet its annual production guidance with higher grades and stacking rates a expected to drive stronger production in the fourth quarter. Open pit mining at [La Yaqui Grande] is expected to be complete in the first half of 2027 with residual leaching to contribute to ongoing production through 2027. Costs during the quarter increased compared to the second quarter driven by lower production, but remained within our annual guidance range. The Mulatos district generated strong mine site free cash flow of $39 million, while funding construction of the PDA project and a significant exploration program. Over to Slide 14. A total of $25 million of capital development was spent at PDA during the quarter, mainly on underground development, mill structural work and construction of the crushing circuit. Spending is expected to increase further in the fourth quarter as the project progresses towards first production next year. Initial capital remains unchanged at $165 million, and mill construction is advancing well with targeted completion in mid-2027. Underground development rates have been slower than planned, and are expected to result in lower production from PDA during the second half of 2027. This is a result of the requirement for additional grass support as well as contractor performance. Development rates are improving, but given the performance to date, the ramp-up in mining rates is expected to be impacted through 2027. We Completion of the PDA mill will unlock a pipeline of higher grade near mine and regional exploration targets across the district. Exploration is ongoing at the Mulatos district when we view the PDA project is just the starting point for the district. Over to Slide 15. At [Lynn Lake], we spent $40 million in development capital during the quarter and advanced several key construction milestones. This includes commissioning the permanent camp foundation work for the process plant and site-wide infrastructure projects. The [Lynn Lake] project remains within budget and on schedule for completion in the first half of 2029, with production expected to average 186,000 ounces over its first 10 years, at first quartile costs, [Lynn Lake] will be a key contributor on our path to producing 1 million ounces annually by 2030 and at substantially lower costs. With that, I will turn the call back to John.

Thank you, Luc. I'll turn the call now over to the operator and we'll open the call for your questions. .

[Operator Instructions] And your first question comes from the line of Fahad Tariq with Jefferies.

On Island Gold, the delay by a quarter for the shaft commissioning, can you just talk about how we should be thinking about next year's production guidance for Island Gold? Is it safe to say that the previous range is no longer appropriate.

Yes. I mean I can take that, old. I mean our view is our previous guidance had expected that we'd be running at 2,400 tonnes per day from the outset. We're about months delayed on that overall compared to our original guidance. But we're still ramping up our mining rates to close to 2,000 -- I mean, over 2,000 tonnes per day by the end of the year and into 2027. So there's a shortfall of mining rates of upwards of 400 tonnes per day, but we're going to try to close that gap in the first half of the year. So you can quantify that, but I'll say that we're still going through our budgeting process to finalize that. But on a high level, that's the easiest way to look at it. It is around 400 tonnes per day for the first half of the year.

Okay. And then for the mill expansion, can you just maybe touch on any capital or CapEx inflation that you're seeing given that about 45% of the growth capital has been spent already?

Yes. Overall, we're seeing that when we put in our orders, it's in line with what we had expected with the budget, but there is inflationary pressures, especially around labor. So labor is where we're seeing the biggest pressure from both operations and capital, but it's probably a bit more profound on the capital project side.

Your next question comes from the line of Sathish Kasinathan with Bank of America.

Yes. My first question is on YD. So -- how should we think about the mined versus blended grades in Q4 given that you continue to expect processing the lower-grade stockpiles? And looking to 2027, with the mining recovery now expected to be more gradual? Should we assume stockpiles continue to be to supplement the mill feed. How much stockpile inventory do you currently have and at what grade?

Sathish, it's Luc here. Yes, look, certainly, moving forward, our expectation certainly for the rest of this year and Q4 is still running at about 5,000 tonnes per day coming from the underground grades on that are expected to be in the [1.7 to 1.8] range based on what we had communicated previously, there post the seismic event. We will continue to feed some low-grade stockpile as well for the remainder of the year. . And that grade is running around 0.3 to 0.4 grams typically. And overall, the mill plan would be running at about 7,000 tonnes per day, but the underground mine plan is running at about 5,000 tonnes a day. So you can see about a an additional 2,000 tonnes being fed from stockpile. We still have a fair bit of stockpile material there in the neighborhood of probably about 300,000 tonnes. So there will be an opportunity to actually continue to feed some of that in 2027 as well as we continue to ramp up of the underground mining rates from underground from YD.