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

Hi, and thank you for joining us today. My name is Jimmy Connor, and I'm with Bloor Street Capital, which is a corporate access firm based in the city of Toronto. Today, I have the pleasure of introducing you to John McCluskey. John is the CEO and also Founder of Alamos Gold. But before John begins his presentation, I want to say a few words first on the format of this presentation. We're going to keep it to 45 minutes. And in order for us to meet that time line, I'm going to be asking questions on behalf of attendees. A number of attendees have already submitted questions. So I'm going to be asking those questions throughout the presentation. But if you would like to submit a question, please send us an e-mail to [email protected]. The second thing I want to remind you of is that we're going to have an edited version of this webinar on our YouTube channel, which is called Bloor Street Capital within the next 48 hours. And I would just draw your attention to the fact that it will have chapters on it. So if you do not want to watch the webinar in its entirety, you can run your mouse along the play line, and you will see where we ask specific questions or topics of discussion. The third point I want to make before John begins is at the end of this webinar, I will be sending out a feedback e-mail asking you for your comments on this presentation and on Alamos Gold. And I encourage you to take 2 minutes of your time to give us some feedback, what did you like, what did you not like? And please be frank because this information is given to Alamos Gold anonymously. And with that, I'm going to hand things over to John. John, I want to thank you very much for joining us today.

It's my pleasure, and thank you very much for that introduction, Jimmy. Welcome, everyone, to the presentation. I'm very happy you've decided to dial into the call. I'm glad to be back with Bloor Street Capital after 8 months. We made a presentation last fall. Since then, we've announced -- well, at that time, actually, we had announced the Phase 3 expansion at Island Gold. We let everyone know that we were under construction at our La Yaqui Grande project and that we were completing the lower mine development at Young-Davidson. And at that point, we were just more or less starting to put that in motion. Third quarter was our first full quarter, utilizing our new underground infrastructure. And it was the beginning of starting to generate some really serious free cash flow from that operation. And now 8 months later, we've really progressed on all fronts. Young-Davidson achieved record mining rates in its first 2 quarters, that was Q4 and Q1 of this year. Construction of La Yaqui Grande is well underway. And of course, Island Gold continues to just surprise us on every front. We added 1 million ounces of gold, which we announced in Q1. That was from our exploration program during 2020. We also hit record production in revenues from the mine, so it just did extremely well. We generated $150 million in free cash flow over the last 3 quarters. And we've used that to increase our dividend, build our balance sheet and of course, we remain a very well-funded company with over $240 million cash and over $700 million in liquidity. So I draw your attention to forward-looking statements. I'm confident everybody is familiar with the format, and we'll review those as required. Moving to the next slide. Let's start with an overview of Alamos Gold. We're a diversified intermediate gold producer. We have a very clear strategy, and we have a very strong outlook. We expect it to produce around 500,000 ounces of gold in 2021, which is up 15% from 2020. And the majority of that growth is driven by the completion of the lower mine at Young-Davidson. With the Phase 3 expansion at [indiscernible] Island Gold and with development of our Lynn Lake project, we see the potential to grow to about 750,000 ounces a year by 2025. That's a 50% increase from where we are this year. At the same time, our all-in sustaining costs are expected to decrease by 24% from current levels around $1,050, down to about $800 an ounce in 2025, and that's driven by higher margins, increased profitability and strong free cash flow growth. Our strategy as a company is to minimize risk where we can. You can imagine that the mining business is risky enough. And so we have a real focus on that issue. We're very focused on creating long-term value. And this includes focusing on operating in safe jurisdictions, with 100% of our production coming from North America, and the majority of that coming from Canada, we produce about 500,000 ounces of gold a year, 350,000 ounces of that is coming from Canada. We run a conservative balance sheet with no debt and $240 million cash, as I mentioned, We build at a pace that we can afford. A strong cash position and growing cash flow from operations, we can afford to fund all of our initiatives internally. This reinvestment in growth is an important component of operating a sustainable business model that can support growing returns over the long term. This includes taking a balanced approach to capital allocation, focused on generating strong ongoing free cash flow while reinvesting in high-return organic growth projects and supporting higher returns to shareholders. On the latter, we continue to demonstrate our commitment to dividends, having increased dividends by 70% over the past 3 quarters. So I'm going to talk a little bit about ESG. This is a hugely important topic, not just for the mining industry, but for all businesses, really. And -- but as a mining company, you have to have this right into your DNA. I mean, how important is the environment when you operate out in the environment the way a mine does, and everything is on full view. So you have to be very conscious of the way you operate. And we're not an old gold mining company. We're a company that started production in 2005, and it's not an exaggeration to say that this is built right into our DNA. We've been focused on environmental issues right from the start. We have to be involved with the community right from the start. We built our first mine in Mexico in a relatively improvised area. And we brought in nearly $100 million of investment to that area. All the communities around us had never seen a project like this. And so we had to be sensitive to their needs. We had to be sensitive to the impact that we were making on the environment and onto the culture. And so we had to give that a lot of thought before we began building the mine. So this is a real part of who we are as a company. It's a very important issue for our industry, and I'm happy to say we've been operating for 16 years in that area, and we've seen a huge improvement in the quality of life in those communities. And we've developed in a sustainable way. And the lasting impact that we're going to leave behind is going to be a tremendous benefit, not just for this region of Mexico, but frankly, for the whole country, where by now, we've paid over $300 million in taxes from this operation. Moving to the next slide. We reported our Q1 operating results at the end of April, delivering on a strong overall performance, producing 126,000 ounces of gold, exceeding first quarter production guidance at a cost in line with annual guidance. This was driven by strong ongoing performances at our Canadian mines, both which set records. Island achieved another record for production and Young-Davidson achieved another record for mining rates with the new lower mine infrastructure performing very well. It drove another strong financial performance, with operating cash flow increasing nearly 50% from a year ago to $120 million, supporting strong ongoing free cash flow generation even with the ramp-up of capital spending on La Yaqui Grande and the Phase 3 expansion of Island Gold. We expect to continue to generate solid ongoing free cash flow with both of these high-return growth initiatives being self-financed by their respective operations. Next slide. That reinvestment in growth is an important component of our focus on operating a sustainable business model that can support growing returns to shareholders over the long term. We take a balanced approach to capital allocation, with our free cash flow roughly split between strengthening our balance sheet, reinvesting in high return internal growth opportunities and paying higher dividends to shareholders. On this slide, you can see a good representation of this. With the completion of the lower mine expansion at Young-Davidson in July of 2020, we've now generated nearly $150 million in free cash flow over the past 3 quarters. Over that time frame, we've used that free cash flow to strengthen our cash position to $240 million, including paying off $100 million that we had drawn down on our revolver. We increased our dividend twice by nearly 70%. And we doubled our exploration budget and started construction on La Yaqui Grande and the Phase 3 expansion of Island Gold. These are all high-return investments that will, in turn, support free cash flow growth in the future. Turning to the next slide. Being a conservative run company, we try to minimize risk where we can, as I've said, a big part of this means focusing on high-quality, long-life assets in great jurisdictions. And that's the case with our asset base, as you can see from this slide. We're diversified with 3 operating mines, 100% of our production is in North America and 70% of that is from Canada. All of our operations have relatively long mine lives, averaging 12 years between them, and it's anchored by a large 10 million-ounce reserve base. On top of that, we have a strong portfolio of attractive growth projects including Lynn Lake, a project in Northern Manitoba. And it's, in my opinion, presenting investors with one of the fastest-growing growth opportunities in our sector.

John, I have a few questions on Lynn Lake, but we'll get to that later in the presentation. But I want to highlight Turkey here. You also have a development project in Turkey. You recently announced a $1 billion investment treaty claim against Turkey. Can you just tell us what led up to that and what changed in the past year that resulted in these actions?

Sure, Jimmy. We had a lengthy tenure in Turkey, we were there for 10 years. By the time 2020 rolled around, our Kirazli project was fully permitted, and we've been in construction for over a year. We built a water reservoir. We built the road that we needed, a 13-kilometer long road. We built a power line into the site, and we had cleared all the trees, and we were in the process of excavation. And at that point, our licenses came up for renewal. They actually come up for renewal every 7 years. And it's generally a very routine thing for those licenses to be renewed as long as you've met all the criteria under the license, which, of course, we did. But the licenses were not renewed. So we waited approximately 18 months for Turkey to get around to doing that. We were engaged with them over that period of time. We understood some of the political pressures that they were under. But the reality is they're obliged to renew those licenses if we've met all the criteria which we had. And we've decided after waiting 18 months and seeing no action from Turkey and frankly, getting no indication of when those licenses might be renewed, we took the step to essentially take them to an International Court of Arbitration in the Hague, which was our right to do. And this -- we saw as the only means of going forward.

And in terms of a time line, I know you can't speak for a foreign government, but is this something that could be resolved in the year? Or is it 5 years?

It is actually possible for it to be resolved in a year's time. In fact, the way this arbitration is designed is that the parties are supposed to engage with each other. And within the first 12 months of this process, they're supposed to do just that with the idea of resolving the issue before it goes to a tribunal. But if they're not successful in coming up with a resolution, then you effectively move to the next stage. And ultimately, it can take 3 years to go to that stage and another year to get a decision. So at the very outside, you're looking at perhaps 5 years, but we're hopeful that we can get a resolution well before that.

And also in the past, you mentioned that you were seeking out a Turkish partner to help you with this mine. Is that something that's still on the table? Is that something you can still pursue during this process?

Well, we had very strong expressions of interest, but the problem, of course, was the fact that our licenses were not renewed and that became quite a difficult issue as time went on and the licenses were not renewed. We were getting expressions of interest that were more contingent on the renewal of the licenses themselves. So that was really an untenable position for us to be in. So in effect, it's still possible somebody might decide to buy out our interests as they stand right now. But I don't see that as a strong likelihood.

Great.

So I'll just move to the next slide and talk a little bit about our Young-Davidson operation, which is up near Kirkland Lake in Canada. Young-Davidson is -- it's the biggest of our 3 core mines. And it's one of the largest underground gold mines in Canada. We completed a multiyear expansion of the operation in July of 2020, and we're now seeing the benefits with mining rates driving production higher and costs lower. As shown in the chart in the lower right, this included record underground mining rates of 7,800 tonnes per day in Q1, exceeding our first half target of generating another $22 million in free cash flow in the quarter. In the first 2 full quarters of operating from the new lower mine infrastructure, Young-Davidson has generated $53 million in free cash flow. This is a good indication of what comes -- what's to come in 2021. We expect production to increase 45% to about 200,000 ounces a year for this mine, and total cash cost to decrease about 20%. And our capital is -- our ongoing sustaining capital is going to decrease by about 25%. Collectively, we expect that to drive free cash flow to more than $100 million for 2021 from this mine. And with a 14-year reserve life, excellent exploration potential, and with the deposit open at depth and to the West, Young-Davidson is going to be a strong free cash flow generator for a very long time to come.

And John, you already mentioned the area where Young-Davidson is. It's very active. Kirkland Lake has a big mine there, and there's a number of exploration projects and also development projects. Do you see somebody maybe Alamos Gold for, maybe, but do you see somebody consolidating this area at some point?

There is quite a number of junior companies that are active in the area. I won't be surprised to see some of those companies ultimately being part of a consolidation movement. We're certainly keeping a very open mind. As you know, we've done a number of deals with juniors around our Island Gold mine. We haven't done anything similar around Young-Davidson. I think where it makes sense, you're going to see deals. And of course, we're not the only big company in the area. You've mentioned that Kirkland Lake Gold is also active there. And I think between the 2 of us, we're going to keep a very close eye on what's going on within the district. So with that, I'll move on to Island Gold to talk a little bit about Island Gold. It's -- this mine is one of our -- it's one of the highest grade gold mines in the world. As with YD, it's an underground mine. It's located about 6 hours away from where I am here in Toronto. It's about -- you can actually drive between Island Gold and Young-Davidson in about the same amount of time. Having mines in Ontario for me is a big plus because I've operated all over the world that I've been involved in projects in Chile and Peru. Brazil, Mexico, I've had to travel pretty far corners of the world in order to be in the mining business. So it's a real pleasure to have operating gold mines here in Ontario, where they can be reached very quickly. Since we acquired Island Gold in 2017, it's just grown in every sense. We completed a Phase 1 expansion in 2018, taking the mine from 900 to 1,100 tonnes per day and then a Phase 2 expansion in 2019, which took it to 1,200 tonnes a day. This has driven production higher. And when we acquired the mine, it was producing between 90,000 and 100,000 ounces a year, and currently, it's producing around 140,000 ounces a year. With that rise in production, we've also driven cash lower, and that's driven pretty strong free cash flow. And Island Gold, it's -- last year it was over $100 million. And there's more growth to come. Last July, we announced a Phase 3 expansion and it's going to take the operation to 2,000 tonnes a day, and we're going to actually change the way that we're mining at Island Gold. Up till now, we've mined it through a ramp system. The plan going forward is to sink a shaft and operate it through a shaft system. That's going to keep that mine at a very, very low-cost for many, many years to come. If you continue on a ramp system, the deeper you go, ultimately, the higher the costs get. And that's why not only is a ramp immediately beneficial to the operation, but it keeps it a low-cost mine for the very long term. Ultimately, we can see free cash flow growing at that mine to something like $200 million a year by the time we get to our Phase 3 expansion completed, and that would help mining rates up around 240,000 ounces a year.

So John, because it's only 6 hours from Toronto, does that mean if you have a site visit I have to drive there?

Well, frankly, I was factoring in. What I've done in a number of times is I've flown into Sault Ste. Marie and it's about a 3.5 hour drive. In fact, on 1 or 2 occasions when I've gone in, I've been able to fly directly into Wawa which takes an hour, and then it's only a 1-hour drive. So you can effectively reach it in 2 hours. But probably of the half a dozen times I have gone out to the mine, I've only been able to do that on one occasion. So but you can -- I'll make sure that the air is -- that the clouds are all clear, Jimmy, when you're coming in, and we'll get into the mine in 2 hours' time.

That's great. Just one question before we move on. Island Gold is situated very close to Argonaut's Magino mine, and the properties are virtually on top of one another. Can I assume that they're part of the same ore body?

No. They're not part of the same ore body at all. Crossing from effectively where the boundary is between our 2 projects and then going east, is a unit called Goudreau fault. And we are a high-grade fault hosted underground deposit. But by the time you cross the boundary onto the Magino ground, the fault basically opens up into what's known as the Webb Lake stock. And the ore body Magino is hosted within the Webb Lake stock so it's near surface, low grade. It's basically going to be an open pit mine. So these are very, very different deposits, hosted in a very different way. There's a lot of gold there. And I think they should do very well at these gold prices running an open pit operation. But as far as the similarities between the projects, they're really not similar at all. Very close by, that can often be the case, where you can have 2 deposits side-by-side but just completely different in nature. So just continuing with Island Gold. So what's the driver behind these various expansions that we've been doing at Island Gold? Well, the primary driver has just been the tremendous success that we've had in exploration, which you can see looking at the bar chart to the left. When we acquired Island in 2017, the deposit contained about 1.8 million ounces of reserves and resources. Since then, we've added nearly 3 million ounces of reserves and resources, and it's grown to about 4.7 million ounces. That's where it ended by our cutoff in October of last year. We still continue to drill, and we expect that this orebody is ultimately going to grow to exceed 5 million ounces. But these additions all represent upside to Phase 3. So that 1 million ounces that we added over the course of our 2020 drilling, that was not included in our Phase 3 expansion. So you can just imagine the additional potential that we're adding with all the additional exploration success that we're having here. And just to put that into context, our finding cost per ounce at Island Gold last year was $11. So that means the hit rate we had, the number of holes we drilled versus the number of holes that actually hit the zone was probably in the range of 90%. And that really drives your finding costs down. That means we're drilling a really well-defined relatively predictable target. And we've just had incredible results. So I'd like to say it's just because we're geniuses, and our geologists are just the best in the world. They are amazingly good guys, but it's really all about the ore body. It's just really lent itself to -- it's been so predictable where we anticipate the mineralization is going, that's where it was going. And that's why we've been able to grow reserves and resources at such a rapid rate. Yes, go ahead.

John, you recently bought Trillium Mining for $25 million, which is a large land package surrounding Island Gold or close to it. What are your plans there?

And rather than surrounding it, it was actually the ground to the east of us. And it really expanded our landholdings in this district taking it to about 15,000 hectares. So that was pretty substantial. But more importantly, I mentioned earlier the Goudreau fault and while it really doesn't go much to the West, it does go to the East, and it crosses directly across Trillium ground. So we knew this fault unit was the key unit to hosting high-grade mineralization within the district. And that's primarily why we were interested in it. There's also a couple of past producers that back in the day, they were very similar mines to what Island Gold looked like about 15 years ago, they were mining lower-grade material near surface. So we think there's very good potential at depth on that ground. And we can also tell that the Island Gold ore body itself, by the time you project it down another 500, 700 meters or so, it was going to cross directly onto that ground. So from that point of view, it was very valuable for us to acquire that. And that's why it was worth us being $25 million to pick that ground up. We think it gives us a huge amount of exploration upside for the future. So I'm going to move on and talk a little bit about our Mulatos operation now. This is our founding asset, and it's 1 of our 3 core operations. We started production in 2005. And at that time, we had about a 6-year mine life ahead of us. 15 years later, Mulatos has produced more than 2 million ounces of gold. It's generated $460 million of free cash flow for Alamos and it still has 7 years of production ahead of it. This has been just a phenomenal asset for us. A big part of the story at Mulatos has been exploration success. We found that we were able to expand the ore body near the main Mulatos pit itself, but we've also found 4 ore bodies adjacent to the main pit. And in the case of Cerro Pelon and La Yaqui and La Yaqui Grande, those are each about 5 kilometers and 9 kilometers away from the ore body along different vectors. So the district itself has proven to be very, very prospective for us. And we continue to explore there. Generally, we've made a discovery every 4 or 5 years or so. And that's what's kept us going from that initial 6 year production horizon to. If we didn't find another ounce, we'll have mined there for about 23 years. So it's really been exceptional in that regard. But we still think there's a lot of potential left at Mulatos, and we're going to continue to explore there aggressively in the next few years. Just going to. Yes.

John, before we go on, I just want to ask a quick question about Mexico. You operate in the state of Sonora, which is arguably the best state in Mexico to mine in. But Mexico itself has changed quite a bit in the last 10-plus years, especially in terms of policy and in terms of security. Maybe you can just touch on that -- on the changes that you've seen in the last 10 years and how it's going to impact your investment decisions going forward?

I would have to see. Mexico was a lot more mining-friendly 20 years ago when I first went there looking for opportunities. And frankly speaking, I think life's become more difficult for miners in Mexico. And the current policies make it more difficult to operate there, and that's policies regarding taxation, policies regarding, for example, you can't stake any new claims in Mexico right now. You can acquire an existing concession, but the country has not allowed for any new claim staking there. So suffice to say the mining business has been kind of put on hold by the Mexican government there. And as a result, we've seen better opportunities elsewhere, hence, about 7 or 8 years ago, I started to really focus on Canada. And over that time, we've built more production in Canada and more future production in Canada than what we currently have in Mexico. So while I still see a lot of prospectivity within our Mulatos district, and we're very, very comfortable operating there, we have really good neighbors. We've been operating with the ejidos and the ranchers there now for going on 20 years. We get along there very well. But outside of that, we've been sort of just keeping our powder dry. And I suspect Mexico is going to continue to be a very important mining country, but I think it's going to take a change in policy in order to attract more investment and more consolidation within the country.

And are the workers at Mulatos are they unionized and have -- they've ever had a strike?

We have had a union there since the beginning. We have never had a strike. We have great labor relations. Look, there's a reason why we've continued to build there. We're spending $140 million building La Yaqui Grande. That's going to be a great mine. It's going to be low cost. It will give us La Yaqui Grande alone, another 6 years of production at very low cost, essentially around $600 all-in sustaining costs. I mean, those are the kind of things that you could find in Mexico. There's great opportunities there. And Mexican miners are first rate. Our operating personnel have been among the best people that I've ever worked with. So from that point of view, I see a lot of potential within Mexico. It's just that for the time being, I think we have better places to invest where we feel our capital is going to be much more safely invested. And that's why we're very focused. We're going to spend $500 million over the next few years on this expansion at a Phase 3 at Island Gold, we're going to spend roughly $345 million building the Lynn Lake project. But that gives us production, low-cost production from what I would argue is the best mining jurisdiction in the world. And that's why you're seeing us allocate our investment into Canada rather than allocating it more into Mexico. And that's why our M&A strategy for the last 6 years was solely focused on Canada. Hope I answered the question.

Thank you.

So I'm sort of getting to the end of the presentation. I hope it hasn't been overly long for the listeners. But as I conclude, I just want to make a point that collectively our operating mines provide a solid long life production base of about 0.5 million ounces a year, and we can grow it -- by adding Lynn Lake, as this slide illustrates, we can grow that effectively. Through expansions at Island Gold and through adding Lynn Lake, we can take this from that 500,000 ounce a year level, essentially to 750,000 ounces a year. And as the slide points out, our costs are going to drop to do it because we're replacing higher cost production with lower cost production. And the net effect of that is to bring our overall all-in sustaining costs down by about 24% between now and 2025. So our investment is very, very well thought through. It's not just growth for growth's sake. It's growth that effectively extends mine life. We take, for example, Island Gold from a roughly 7 year mine life to a 15-year mine life, through Phase 3, and we lower cost there, and we keep costs down over the entire life of the operation through sinking a shaft. So all the capital expenditures that we're putting in place, all of it is accretive. All of it has a net benefit to the shareholders. And it's an exciting story when you can point to 50% production growth and a greater than 20% cost reduction in the meantime. It means that by -- if you were to just use current gold price assumptions, $1,850 gold price, for example, you're effectively looking at over $500 million in free cash flow being generated by our operations by 2025. And that to me is it's one of the most exciting things about running this company now. These aren't things that we're hoping for on a wing and a prayer, we own these assets. We have the money to build those assets. They're effectively self-funded. The only thing that we have to put capital into from our cash flow generation from the cash we have on the balance sheet will be the construction of Lynn Lake. And at $345 million that's a very modest project with a very attractive 30% payback. So we have a really exciting future ahead. I could talk to you a little bit about the Lynn Lake project. It's probably one of the most underappreciated assets in that it's one of the newer things that we acquired, and it was an advanced exploration project when we acquired it. We did a feasibility study on it in 2017 based on the known resources at the time. And effectively, it had a $1,500 gold and IRR of about 22%. And since then, we've added roughly another 500,000 ounces of gold. We've taken it from roughly 1.6 million ounces to 2.1 million ounces. And we continue to explore there. And we think there's considerable upside potential. As you can see from the slide, we have about an 80-kilometer long strike lane of mineral claims and within it, there's already 2 additional deposits that were found by the previous operators, they're called Linkwood and Burnt Timber. They're somewhat lower grade than our McClellan and Gordon deposits. Those are roughly 2 grams open pit. So that's why that's such a low-cost operation. Those 2 pits are basically we could operate those at roughly $750 per ounce all-in sustaining costs. So it's going to be a very low-cost producer for us. But we see potential at Burnt Timber and Linkwood. There's about 1.5 million ounces between the 2 of them grading about 1 gram. But that's based on an inferred resource and there's a lot more drilling that needs to be done. And it's just indicative of the prospectivity of this very long mineral trend that we've been able to tie-up. We're currently flying it with a very sophisticated airborne. It has about 20x the airborne resolution that was available in the 1990s when this district was last flown. So we have a feeling that with new techniques and the new approach that Alamos can bring to exploring in a district that there's more discoveries to be made in the future. So that's why we're very excited about Lynn Lake. It represents another 170,000 ounces of Canadian production, low-cost production for us. We think we can have it up and running by 2025. We're currently permitting it. We expect the permit to be in hand late next year. And that will get us -- give us plenty of time to have it built by 2025. So I'm going to talk a little bit about our balance sheet. I've been mentioning it throughout the talk. We're very well positioned, as I've said, to fund all our growth on an internal basis, with roughly $240 million in cash. And the fact that we're debt free, the fact that our operations are generating tremendous cash flow. It gives us the ability not only to pay for our growth but also to continue to pay dividends. We've paid out effectively $200 million in dividends and share buybacks over the past 12 years, we've been consistently paying dividends now for 12 years. And that's something that I think is important for investors to look at, look at track record, look at our M&A track record, look at our operating track record, look at our dividend policy. Companies can talk about their commitment to paying dividends, but we've been doing it. We've been consistently doing it. So I think for that reason, we're a company that investors ought to keep their eye on. I mean when I'm talking about getting mines built and getting new production on and generating free cash flow, this is not my first rodeo. This is not our teams first rodeo. We've been together for a long time, and we've been very successful at building mines on time and on budget bringing them into production and making money for our shareholders. And I think that really counts. And so with that, I'm going to conclude the presentation. I think there's an opportunity for us to have a little more Q&A in that case. I'll turn it back to you, Jimmy, and thank you for giving me the time to talk to your investors.

Yes, I do have a few questions. Why don't we just start with -- first of all, in December of 2020, you said you were going to continue on with the buyback. I'm not sure if you could tell me this, but have you implemented the buyback since it was reinitiated?

We have. We're very opportunistic with respect to the buyback. We think the place to be consistent is with respect to the dividend. So our dividend has been tied to cash flow, and as our cash flow has been growing, you've been watching us increase the level of our dividend. And right now, we're sitting at about a 1.2% dividend yield, which I think relative to a 10-year bond is actually pretty attractive, considering our focus is primarily on growth, and we've been very successful in our growth objectives. To get both growth, free cash flow and the dividends to get that whole package, there's not too many companies that I believe are delivering on that basis. But where we're implementing the share buyback is when we see dislocation in the market. If we see, for example, the market is going through a really volatile week, and our share price comes off for whatever reason, maybe it's because the gold price has dropped on a particular day or the whole market tends to be down over the course of the day or a week. That's generally when you'll see us step in and start to buy aggressively. And we have done that on virtually every occasion over the last 3 years, and that's the way we're going to continue to run it.

I'm glad you touched on this because you just mentioned that you're very opportunistic when it comes to implementing the buyback. And you've also done that when you acquired assets with Young-Davidson and also Island Gold, both of which were acquired at or near the bottom of the cycle. Now gold is at $1,800 or $1,900, not too far away from its all-time high, what can shareholders expect in terms of M&A going forward? Does this mean you're just going to sit back and wait until it's up.

As far as M&A is concerned, there's no reason for us to rush headlong into M&A. Right now, everything is quite highly valued relative to valuations that were on projects back in 2014, '15, '16, '17, for example, when we were actively involved in M&A. Those were when gold prices were down around $1,100, $1,200 an ounce. The highest the gold price was when we did our last transaction, that was Island Gold, it was $1,285 an ounce. That's a long way from $1,850, where gold is now. You've got to acknowledge that there's going to be fewer opportunities when the gold price is higher. Competition is going to be more intense. The valuations put on the assets that you're looking to acquire are going to be quite a bit higher. And so the opportunity is vastly reduced in this kind of market. I'm not saying there is no opportunities, but you've just got to place your risk somewhere. Where we see the risk better placed now is looking at earlier stage explorers, and investing in equity in those explorers, buying 15%, 20% of those companies, giving them the cash to do the exploration work that might yield new discoveries. And for that way, we can -- in that direction we can kind of leverage our way into something potentially very significant. And we've made an investment in a few companies, as you've seen, some of them are having some drilling success already. So there are companies that we think are well run. They're spending the money on the exploration, which we think is very important. And we think that's the best leverage for our shareholders at this point. In the meantime, you see we have a great pipeline of projects and between the fact that we're building La Yaqui Grande, expanding Island Gold, building Lynn Lake, we have a lot on our plate over the next few years. So there's nothing to really tell us that our cookie jar is empty and we've got to go out and do another cookie run here. I don't think we're in that position.

Let's talk about cost inflation. We saw CPI numbers out of the U.S. last week, the highest in 12 years. Oil is up significantly, the price of steel, the price of lumber. Are you starting to see any of these higher prices creep into your costs? And do you think that's going to impact you in the coming quarters?

It really hasn't affected us yet. For example, our labor costs were up about 2.5% last year, which is very typical. We see potentially some pressure coming from the higher cost of steel. So for example, that might be -- that might impact our costs for acquiring steel for our Phase 3 expansion at Island Gold. But we've already built an inflation factor into our contingency. So when we came up with a $500 million budget for that project, you can imagine that, that's well built in. So we're quite confident that at this stage anyway, that inflation is really impacting us in a very significant way. But let's face it. I think we're moving into an inflationary environment between all the quantitative easing on behalf of the Fed and the huge stimulus that has been implemented not only by the American government but by governments all over the world. They're trying to move the world into an inflationary phase. They're effectively intending to inflate their way out of debt as far as I can see. And that being the case, that could ultimately mean you see costs of everything going higher. The things that you would expect to go up first have been going up. For example, with ultra-low interest rates and people getting lots of money into their bank accounts, you've seen real estate prices go up. Prices for fine art have gone way up because wealthy people have more money to spend on fine art. These are the -- I think, those are the early markers that have been showing us for well over a year, it's more like 2 or 3 years that we're going to be moving into an inflationary environment. Ultimately, that's going to bode very, very well for gold. So we may see higher costs, but I think along with that, we're going to see considerably higher gold prices that will more than offset those costs.

And what about the Canadian dollar, John, you have 2 operating mines in Canada. The Canadian dollar has been very strong versus the U.S. dollar. How is that going to impact operations?

Well, that has had an impact. The Canadian dollar is up roughly 8% against the U.S. dollar over the last year. Most of that's happened within the last 5 months, the American dollar is weakening. That's just a reality. But we have a natural hedge built in, in this regard. When the gold price is going down, that usually means the Canadian dollar is also going down and the U.S. dollar is going up, right? Well, similarly, when we see the Canadian dollar rising, that generally means the U.S. dollar is going down, which means the gold price is going up. So there in lies our built-in hedge. When the American dollar is high, we effectively get a lower Canadian dollar to go with a lower gold price. And when the Canadian -- when the American dollar is low, we get that higher gold price to go with a higher Canadian dollar. And by the way they typically move, the gold price will outpace the rise in the Canadian dollar. That has been the case over the last few months. In the last few months, the Canadian dollar has risen much more dramatically than the gold price has. But I think you're seeing the gold price starting to catch up, actually right now, it's up about -- I think that the gold price is up roughly $70 over the last 30 days or so. So it's starting to move.

And I want to wrap it up with one more question. I want to draw everybody's attention to the chart in the lower right-hand corner, the price to NAV. You are trading at a discount to your net asset value, and you're trading at a discount to a lot of your comps, what is the market missing?

I don't think the market is missing anything per se. It's just what is the market's favorite metric at the moment. And at the moment, it really has been focused largely on free cash flow generation. And I think that's a leftover from the very poor gold markets that we've been in for the last 6 years. So what's the most important thing to focus on, especially when producers are high cost producers, when they've got a tremendous amount of debt on their balance sheet and so on. Well, you want to focus on the ones that are generating lots of free cash flow. Well Alamos never had a lot of debt on its balance sheet. On top of that, we had a lot of cash. So we were able to go out and do some really important, really value creation acquisitions over the last few years, and now we're investing in those acquisitions. So our story hasn't been one of well, I look at Alamos compared to everybody else, they're only generating a small amount of free cash flow relative to these other companies. Well, the reason that is, is because we're focused on growth. We're invested in growth. It's not because we're trying to pay down debt or something like that. I think that you're going to see this switch. You're already seeing it. The primary metric has been who's generating the free cash flow. And if your free cash flow yield is high, we want to own that stock versus the company with a lower free cash flow yield. It's not that they're necessarily paying a higher dividend or anything else. It's not like they're building better mines because they've got that high free cash flow. Generally, it means they're not building anything at all. And they're typically not investing in their operations. A lot of these -- a lot of mines take up really high annual sustaining CapEx just to keep going. Well, you can gain that by cutting the money you put into your sustaining CapEx. You can cut it by putting -- look, we're spending $50 million annually in exploration. We don't have to spend a nickel on exploration. We've got one of the longest mine life measures of virtually any company within our peer group. So why are we the ones spending the most money on exploration? Well, guess why we have one of the longest life mine horizons out in front of us, it's because we spent the money on exploration. So you can't have your cake and eat it. You can't keep all your money on the balance sheet, and point to what a high-yielding company you are in terms of free cash flow goes and not be spending money on exploration, not be putting money into developing new projects, building new mines and so on. You can't have it both ways. Well, Alamos, in my opinion, represents probably one of the best balanced companies in the way we approach it. And we've got tremendous growth, really solid assets in safe locations. We're generating sufficient free cash flow to basically back a very strong dividend, and as the gold price continues to grow and our cash flows continue to grow, which company do you want to own, the one with the growth and that's going to be producing more gold at lower cost or the ones that are just generating a lot of free cash flow now. I think the one -- I think the companies that are going to benefit the most from the rising gold price are companies like Alamos.

Well, that's a great overview, John. And I want to thank you very much for sharing it with us today. And to all the viewers who took time out of their day to sign in and listen to the Alamos Gold story. I want to thank you. I know your time is valuable, and we do appreciate it. If I was not able to ask your question during this interview, I will make sure a member of the Alamos Gold team responds with an answer. And with that, John, thank you very much.

Much appreciated, Jimmy. Nice to talk to you again. Look forward to doing it again sometime. Thanks.

Thank you. Have a good day.

Yes. Bye-bye.