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

Good afternoon, ladies and gentlemen, and welcome to the Annual General Meeting of Shareholders of Alamos Gold. My name is Paul Murphy, and I am the Chairman of the company, and I will also serve as Chair of this meeting. Due to the ongoing COVID-19 pandemic and for safety of our employees and shareholders, the Annual General Meeting of Shareholders is being held entirely online through the Lumi virtual platform. The platform allows Alamos shareholders and duly appointed proxy holders to participate, to submit questions and to vote on matters before us today. Shareholders and proxy holders and submit questions or comments at any time by clicking on the Messaging icon on the top of your screens. Management will address any questions submitted following Mr. McCluskey's corporate presentation. I declare that voting is now open, and I will explain the voting procedure for the virtual meeting. If you have already voted or sent in a proxy, there is no need for you to vote during the meeting unless you would like to change your vote. Registered shareholders and duly appointed proxy holders, who have not already voted in advance of the meeting, can cast their vote by using the voting panel on the screen. You may choose to submit your votes immediately or you may choose to wait until each resolution has been read prior to casting your vote. Voting will remain open throughout the meeting until the last item of business has been put to a vote, and I declare the voting closed. In the interest of time, I have asked Jamie Porter, Chief Financial Officer and shareholder; and Scott Parsons, Vice President, Investor Relations and a shareholder, to move and second motions where required. I also should note that management have received sufficient proxies to carry all material put forward by management at this meeting. The purpose of today's meeting is to: first, receive and consider the consolidated financial statements of the company for its financial year ended December 31, 2020, and the auditor's report thereon. Next item is to elect 9 directors who will serve until the next meeting of shareholders; three, to appoint auditors that will serve until the next Annual Meeting of Shareholders and authorize the directors to set their remuneration; and lastly, to considering a themed appropriate to pass with or without variation a nonbinding advisory resolution on the company's approach to executive compensation. Each of these matters is detailed in the management information circular dated April 7, 2021, has made available to our shareholders and on SEDAR. I will simply refer to this document as the circular throughout the meeting. I now call the meeting to order and Nils Engelstad, Alamos' Vice President and General Counsel, will act as Secretary of the meeting, and I appoint Computershare Trust of Canada to act as scrutineers. The notice and proxy materials for the meeting were mailed to shareholders and we have received affidavits from Computershare and Broadridge as to their mailing. Unless anyone objects to the reading of the notices, we shall dispensed with. The preliminary report of the scrutineers indicates that a quorum is present. The results of the final scrutineer's report will be incorporated in the press release filed on SEDAR and EDGAR properly following -- promptly following today's meeting. The first order of business of the meeting is the receipt of the audited consolidated financial statements of the company and the auditor's report for the fiscal year ended December 31, 2020, with comparative figures relating to the previous fiscal year ended December 31, 2019. I propose that the reading of these financial statements be dispensed with. If anyone has any questions on the financial statements, I ask that they submit them now and they will be dealt with during the general question-and-answer period of the meeting. Thank you. Before I proceed with the election of directors, I would like to take this opportunity to express my sincere thanks to Ron Smith for his outstanding contribution and dedication to the Board's work. I speak for all of us when I say that we are grateful to have worked with him, his counsel and his vice were invaluable and his work as Chair of our Audit Committee was above and beyond. We look forward to keeping in touch with him, and thank you very much, Ron. For the next item of business, the election of directors, each of management's proposed nominees have consented to act as a director of the company. We have not received any further nominations in accordance with the company's bylaws. The nominees are Elaine Ellingham, David Fleck, David Gower, Claire Kennedy, John McCluskey, Monique Mercier, and myself, Paul Murphy, Robert Prichard and Kenneth Stowe. I propose to ask for a single motion approving the election of each of the 9 individuals named as directors of the company. I will ask Jamie Porter for a motion.

I move that the 9 persons nominated, as set out in the circular, be elected as directors of the company to hold office until the next annual meeting of the shareholders or until their successors are elected or appointed.

Thank you. I now ask for Scott Parsons to second the motion.

I second the motion.

Thank you. The next order of business of the meeting is the approval of KPMG Limited -- KPMG LLP as auditors of the company for the following year. I move that KPMG be appointed auditors of the company for the ensuing year at a fee to be fixed by the directors, and I ask Jamie Porter to second the motion.

I second the motion.

Thank you. The next and final order of the business of the meeting is the approval of the company's approach to executive compensation. Details of this advisory resolution regarding the company's approach to executive compensation is set forth in the circular. The advisory resolution must be approved by a majority of the votes cast by shareholders present in person or represented by proxy at the meeting. I move that the advisory resolution approving the company's approach to executive compensation, as set forth in the circular of the company, be passed as a nonbinding advisory resolution of Alamos Gold. I ask Jamie Porter to second the resolution.

I second the motion.

Thank you. I ask that both shareholders and duly appointed proxy holders, who have not yet voted in advance of this meeting, to submit their votes using the voting buttons on the screen. I will take a brief pause to give you time to submit your votes, after which I will declare the voting closed on all voting items. [Voting]

Thank you. Voting for all items of this meeting is now closed. I have been advised by the scrutineers that based on the votes submitted in advance of today's meeting, there are a sufficient number of votes submitted in favor of each of the resolutions presented at the meeting. I, therefore, declare each of the motions carried. The scrutineers will tabulate the results of the meeting, and the final report on the vote will be furnished by the scrutineers subsequent to the meeting and will be incorporated in the press release and posted on SEDAR and EDGAR promptly following today's meeting. That completes the formal business for today's meeting. If there is no further business to be brought before the meeting, I'll ask Jamie Porter and Scott Parsons for a motion to terminate.

I move that the meeting terminate.

I second the motion.

Motion carried. Ladies and gentlemen, thank you for your attention. I will now hand the meeting over to John McCluskey, President and Chief Executive Officer of Alamos Gold.

Thank you very much, Paul. And I'd like to now walk everyone online through a corporate presentation. Frankly, I'm very pleased to do so. It's been just really magnificent transformational year for Alamos Gold. I would ask that you recognize by making forward-looking statements. Please review the cautionary notes. And now I'd like to proceed to the first slide. We persevered through 2020, delivered on several key catalysts despite the challenges that arose with COVID-19. We announced the Phase 3 expansion at Island Gold, started construction of La Yaqui Grande, we completed the multiyear lower mine expansion at Young-Davidson. Following temporary COVID-19 shutdowns at Island Gold and Mulatos, those mines resumed operation. And with the ramp-up of the lower mine in Young-Davidson, strong operating results led to a year of records from a financial perspective. Now before we get into the details of that, we cannot review performance without first taking a look at our safety record because safety, frankly, is one of our core values, an area where we're always serving to do better through our Home Safe Every Day program, which we've had in place since 2015. In 2020, we saw a 28% improvement year-over-year in our annual recorded injury frequency rate and an 18% improvement in our lost time injury frequency rate. We continue to strive to maintain a strong safety culture where everyone is reminded to keep themselves injury-free and healthy. With the health and safety of our employees being paramount, we acted swiftly when the World Health Organization declared COVID-19 a pandemic in March of last year. Each of our sites activated established crisis management. And we instituted strict measures to prevent the potential spread of the virus, social distancing and masking, to screening. We temporarily suspended operations at Island Gold and Mulatos and resumed normal operating levels in the second quarter. Our heightened safety measures continue to evolve through 2020. And by the end of the year, all 3 of our operations were testing employees, contractors and visitors for COVID-19. We performed over 13,000 tests in 2020, and are continuing this practice through 2021. We've also looked for opportunities to support our local communities in areas where they need help. This has included sponsoring meal services and donating medical supplies, safety equipment, time and money to help combat the effects of spread of the virus. Our health and safety practices and our COVID-19 response are part of a larger focus on ESG, which has been core to our culture since the company was founded in 2003. We look for continuous improvement with respect to ESG, which I think is evident in our track record and many of the initiatives we have underway. Our greenhouse gas emissions and water usage intensity are already well below the intermediate near producer averages. These are metrics we aim to improve with initiatives underway at all 3 of our operations, as part of our ongoing focus on minimizing our environmental impact, reducing our footprint. With respect to the social, we invest in the communities in which we work, in ways that will provide ongoing benefits well beyond the life of our operations and have been recognized with awards over the years the work that we're doing. Last, with respect to governance, we maintain a diverse and independent Board and have built and continue to refine a framework through accountability to all of our stakeholders. More detailed review of our many ESG initiatives will be available in our 2020 ESG report to be published and available on our website shortly. Our operating and financial performance is being reviewed here on Slide 7. We met production guidance for the fifth consecutive year, producing 427,000 ounces of gold in 2020. We also met our cost guidance. Production was lower and costs higher compared to 2019, due to the planned temporary shutdown of the Northgate shaft at the Young-Davidson operation. This allowed us to complete the tie-in of the lower mine first half of 2020. Both were also impacted by the temporary downtime at Island Gold and Mulatos during the second quarter. Stronger gold price contributed to our record financial performance, generating record revenues of $750 million and record operating cash flow of $383 million. On a per share basis, cash flow was up 31% year-over-year continuing with the strong long-term growth trend. Next slide. Our strong operational and financial performance continues with a solid first quarter of 2021. Production exceeded Q1 guidance, and costs were in line with annual guidance contributing to a 46% year-over-year increase in our operating cash flow. This included record quarters at Young-Davidson and Island Gold making good progress on our growth initiatives, which I will discuss in the next few slides. In April, we announced we'd be filing a $1 billion investment treaty client against Republic of Turkey for expropriation and unfairness and inequitable treatment with respect to our Turkish development projects. It has been 18 months since our mining licenses had expired. We've received all the permits required to build our Kirazli mine. We were well into construction and met all legal and regulatory requirements for the renewal of our licenses. We've attempted to work cooperatively with the Turkish government, and we have not received a reason for the nonrenewal of our license nor have we received a time line for when they would be renewed. We're optimistic now that the arbitration process will bring about a positive resolution. Next slide. In early 2020, Young-Davidson was in the final stages of completed lower mine expansion. As planned, we shut down the Northgate shaft in February to complete the tie-in and completed the expansion in July. By the fourth quarter, mining rates had ramped up to an average 7,650 tonnes per day, it was a record. Young-Davidson delivered another record in the first quarter of this year, with mining rates increasing to average 7,800 tonnes per day. In its first 2 full quarters operating from the new lower mine infrastructure, Young-Davidson generated $53 million of free cash flow. This is a good indication of what is to come in the remainder of 2021. We expect production to increase 45% to 200,000 ounces of gold for 2021. Total cash costs decreased roughly 20% and total capital to decrease roughly 25%. Collectively, we expect this to drive record free cash flow of more than $100 million for the year. With a 14-year reserve life, excellent exploration potential, Young-Davidson will be a strong free cash flow generator for a very long time to come. Turning to the next slide, I'll talk briefly about Island Gold. Our Island Gold operation had an excellent year, meeting production guidance, beating cost guidance, generating a record $101 million free cash flow, even with the operating being suspended for 6 weeks due to COVID-19. The operation in deposit has grown significantly since we acquired it in 2017. And in July 2020, we announced the results of a Phase III expansion study. We considered 5 options to rightsize the operation going forward and determine that an expansion to 2,000 tonnes a day using a shaft was the best scenario in every respect. It carries the strongest economics, will result in the smallest carbon footprint, and provide the highest exposure to future exploration upside that we continue to see. The expansion is under winning, and it's expected to drive production 70% higher to approximately 240,000 ounces annually at industry low mine site all-in sustaining costs of $534 per ounce earning in 2025. As outlined in the Phase III study, the asset's after-tax net present value has increased to $1.5 billion for further upside to comp given our ongoing exploration success. Turning to the next slide. I'd like to highlight here that Phase III expansion economics were based on reserves and resources of [ 3.5 ] million ounces as of the end of 2019. Despite completing only 60% of our planned exploration drilling in 2020, we still increased combined reserves and resources by 1 million ounces net of depletion. This included a 900,000 ounce increase in inferred resources at significantly higher grades of nearly 90 grams per tonne, the majority of which is located in proximity to the plant shaft. These additions and future exploration potential represent upside to already what are very attractive economics both line to Phase III. Island Gold resources now totaled 4.7 million ounces. This is up from 1.8 million ounces when we acquired it in November of 2017. Given our ongoing exploration success, we see exploration potential -- the exploration potential for this operation in line to continue to grow well beyond 5 million ounces. Moving to Slide 12. I'll talk briefly about Mulatos. This operation also had a great year in 2020, meeting production guidance, generated free cash flow of $68 million, even with the downtime that we experienced in the second quarter due to COVID-19. Big driver of that strong free cash flow was Cerro Pelon, which we built in 2019 for roughly $25 million. We expect similar high returns for La Yaqui Grande, which we started construction on in the third quarter of fiscal year in review. As you can see in the photo, pre-stripping activities are well underway. The project remains on track for commercial production in Q3 of 2022. La Yaqui Grande is expected to keep combined production from Mulatos at around 150,000 ounces per year, but at significantly lower costs given that La Yaqui Grande's costs coming in at sub $600 per ounce in terms of all-in sustaining costs. Now let's turn to Slide 13. Reinvesting in high-return growth projects like La Yaqui Grande and the Phase III expansion at Island Gold are important components of operating a sustainable business model. We think a balanced approach to capital allocation, with our free cash flow roughly split between strengthening our balance sheet, reinvesting in high-return internal growth and paying higher returns to shareholders. This slide is a good representation of this. With the completion of the lower mine expansion at Young-Davidson in July 2020, we've now generated nearly $150 million of free cash flow over the past 3 quarters. Over that time frame, we've used that strong free cash flow to strengthen our cash position to $240 million, having paid off $100 million that we've drawn on our revolver, we increased our dividend twice by nearly 70% and we doubled our exploration budget, started construction on our La Yaqui Grande project, Phase III expansion at Island Gold. These are high-return investments that will return -- that will, in turn, support further free cash flow and higher returns to shareholders that are sustainable over the long term. And our outlook is also very bright, as shown here on Slide 14. Our operating mines provide a solid, long-life production base of 500,000 ounces of gold per year, growing to 600,000 ounces in 2025 with the completion of the Phase III expansion study at Island Gold. The improvements and expansions at each operation are also driving costs lower, such that we expect all-in sustaining costs to decrease by about 24% to $800 per ounce by 2025. With the development of our Lynn Lake project in Manitoba, we have the capacity to take our production to 750,000 ounces of gold a year by 2025, of which 600,000 ounces of gold would be coming from Canada. This represents a potential 50% increase from our 2021 production horizon. On top of that, we have other value-creation opportunities within our development projects, and we look forward to outlining those in the future for our shareholders. As we achieved several key milestones over the past year, our share price has started to reflect our strong outlook. We were a solid outperformer in 2020 with our share price up 42% outpacing both the price of gold and the TSX Gold Index. Additionally, as part of our long-term commitment to returning capital to shareholders, we returned $31 million in 2020 through dividends and share buybacks. We expect this to increase further to more than $40 million in 2021 at our current dividend rate. Our dividend is up nearly 70% in the last 2 quarters and has increased 400% since 2018 with an annual rate of $0.10 per share. We expect this dividend to be sustained while funding our organic growth projects. In closing, we've taken a long-term view in building and operating this company. We focus on creating sustainable long-term value. We have a good track record of doing so with an average annualized return of 14% since 2003, outperforming the TSX Gold Index and the price of gold. With our strong outlook, we believe Alamos Gold stands out as one of the attractive opportunities in the gold sector right now. Given our high-quality and long-life assets, growth, our low political risk, our clean balance sheet, strong free cash flow outlook, Alamos possesses all the attributes needed for a premium valuation. We expect our share price will ultimately reflect this. That concludes our formal presentation. I will now turn the call over to Scott Parsons, VP, Investor Relations, for any questions that you may have that we will answer after this. Scott?

Thank you, John. We do not have any questions at this time. So I will turn the meeting back to yourself for your closing remarks.

All right. With that, I'll just thank you, Scott, and say to everyone, that concludes our 2021 Annual Meeting of Shareholders. Please stay safe and healthy, and I look forward to speaking with you all again in the future.