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

Good afternoon, ladies and gentlemen, and welcome to the Annual and Special Meeting of Shareholders of Alamos Gold. My name is Paul Murphy, and I'm the Chair of the company, and I will also serve as Chair of this meeting. Due to COVID-19 and for the safety of our employees and shareholders, the annual general and special meeting of shareholders is being held entirely online through the Lumi virtual platform. This platform allows shareholders and duly appointed proxy holders to participate to submit questions and to vote on matters before us today. Shareholders and proxy holders can submit questions or comments at any time by clicking on the messaging icon at the top of your screens. Management will address any questions unrelated to the formal portion of the meeting following Mr. McCluskey corporate presentation. I declare that voting is now open, and I'll 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. Registered shareholders and duly appointed proxy holders who have not already voted in advance of the meeting may 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 fellow shareholders, Jamie Porter, the Chief Financial Officer; and Greg Fisher, Senior Vice President of Finance, to move and second motions where required. I should also note that management has received sufficient proxies to carry all matters to put forward by amendment at this meeting. The purpose of today's meeting is to: one, receive and consider the consolidated financial statements of the company for its fiscal year ended December 31, 2021, and the auditors' report thereon. Item #2 is to elect 9 directors who will serve until the next annual meeting of shareholders. Number 3 is to reappoint auditors that will serve until the next annual meeting of shareholders and to authorize the directors to set their remuneration. Item #4 is to approve the unallocated awards under the company's long-term incentive plan as well as revisions to the plan's amendment provision. Item 5 is to approve the unallocated shares under the company's employee share purchase plan as well as revisions to the plan's amendment provision. Item 6 is to approve the company's amended and restated shareholders' rights plan. And Item 7 is, if deemed 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 company's management information circular dated April 7, 2022, as made available to our shareholders and on SEDAR and EDGAR. The notice and proxy material for the meeting were mailed to shareholders, and we have received affidavits from Computershare and broad share (sic) [ Broadridge ] as to their mailing. Unless anyone objects to the reading of the notice, the notice shall be dispensed with. The preliminary report from the scrutineers indicates that a quorum is present. The results of the final scrutineer's report will be incorporated in a press release filed on SEDAR and EDGAR promptly following today's meeting. The first order of business of the meeting is the receipt of the audited financial statements of the company and the auditors' report for the fiscal year ended December 31, 2021, with comparative figures related to the previous fiscal period ended December 31, 2020. I propose that the reading of these financial statements be dispensed with. If anyone has any questions regarding the financial statements, I ask they submit them now and they will be dealt with during the general question-and-answer period of this meeting. Thank you. The next item of business is 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. As the scrutineers have advised that each of the persons nominated have received sufficient votes in order to be elected. I declare that the following individuals have been elected as directors of the company: Elaine Ellingham, David Fleck, David Gower, Claire Kennedy, John McCluskey, Monique Mercier, Robert Prichard, Ken Stowe, and myself, Paul Murphy. I would like to thank the nominees for agreeing to stand for election as directors and I look forward to working with each and every one of them through the year to come. The next order of business of this meeting is the approval of KPMG LLP as auditors of the company for the following year. I move that KPMG be appointed auditors for the company for the ensuing year at a fee to be fixed by the directors. I will ask Jamie Porter to second the motion.

I second the motion.

Motion carried. Thank you. The next order of business of the meeting is approval of the unallocated awards under the company's long-term incentive plan as well as revisions to plan's amendment provision. In order to be adopted, the resolution must be approved by a majority of the votes cast by shareholders present or by proxy. Does anyone have any questions with respect to the resolution approving the unallocated awards under the company's long-term incentive plan or revisions to the plan's provision? I move the resolution approving the unallocated awards under the company's long-term incentive plan as well as revisions to the plan's amendment provision as set forth in the circular be passed as a resolution of Alamos. May I have it seconder?

I second the motion.

The motion is carried. Thank you. The next order of business is the approval of the unallocated shares under the company's employee share purchase plan as well as revisions to plan's amendment provision. Amendments to the previously approved employee share purchase plan and the full text of the employee share purchase plan resolution is set forth in the circular. In order to be adopted, the resolution must be approved by a majority of the votes cast by shareholders present or represented by proxy at this meeting. Does anyone have any questions with respect to the resolution approving the unallocated shares under the company's employee share purchase plan as well as revisions to the plan's amendment provision? I move that the resolution approving the unallocated shares under the company's employee share purchase plan as well as revisions to the plan's amendment provision is set forth in the circular of the company be approved.

I second the motion.

Thank you. The motion is carried. The next order of business is the approval of the company's fifth amended and restated shareholder rights plan. The full text of the company's fifth amended and restated shareholder rights plan resolution is set forth in the circular. The shareholder rights plan is the same as was adopted and approved by shareholders in 2019. In order to be adopted, the resolution must be approved by a majority of the votes cast by shareholders present or represented by proxy at this meeting. Does anyone have any questions with respect to the resolution approving the restatement of the company's fifth amended and restated shareholder rights plan? I move that the resolution approving the fifth amended and restated shareholder rights plan as set forth in the circular past as resolution of Alamos. May I have a seconder for this resolution?

I second the motion.

The motion is carried. Thank you. The next and final order of 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 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 will ask Jamie Porter to second the motion.

I second the motion.

I ask that those 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 your screen now. I will take a brief pause here to give you time to submit your votes, after which I will declare voting closed on all voting items. [Voting]

Thank you. Voting for all items of this meeting is now closed. Based on the votes submitted in advance of today's meeting, there is sufficient number of votes submitted in favor of each of the resolutions presented at this meeting. I, therefore, declare that each of the motions is carried. The scrutineers will tabulate the results of the meeting and a final report on the vote will be published by the scrutineer subsequent to this meeting and will be incorporated into a press release and posted on both SEDAR and EDGAR, promptly following today's meeting. This concludes the formal business for today's meeting. If there is no other business to be brought before the meeting, I will ask Jamie Porter and Greg Fisher 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.

Thank you very much, Paul. I'd like to welcome everyone online to our meeting this afternoon. And I'm going to give a brief presentation, more or less an overview of 2021 and looking forward to 2022. We've characterized 2021 as a year of progress for the company. We continue to adapt to a challenging environment with respect to COVID-19 while advancing our various growth initiatives, all of which support a very bright future for the company. Our Young-Davidson mine had a record operating year from the new lower mine infrastructure. And gold reserves and resource base continue to grow and evolve to one of the best assets in Canada and one of the highest grade operations in the world. And we advanced construction of our La Yaqui Grande deposit, which is going to transform Mulatos in the second half of this year. Going to the next slide. As we grow as a company, we are ever more focused on reducing our environmental footprint. We're already an industry leader with our GHG emissions and water usage per ounce of gold produced, well below our peer group and well below the senior producer average. And we are working on improving this further. We have initiatives underway at all 3 of our operations, highlighted by the Phase II expansion at Island Gold, which is expected to drive a 35% reduction in our greenhouse gas emissions over the life of the mine. Over the past year, we updated energy management plans across our sites, and we've been working to identify and quantify emission reduction opportunities. I'm pleased to report that work is nearing completion and will form the basis of our greenhouse gas emission reduction targets that we'll be publishing in the middle of this year. Next slide, please. Safety remains and will always remain a core value of this company. We instill a safety-first mindset across our organization and through our Home Safe Every Day program. And we're seeing results with a 38% reduction in our lost time injury rate since 2018. Fostering a safe work environment and positive relationships with our local communities is critical to our success and both require long-term commitments. Our relationships with our local communities begin with, well, they begin well before we start construction on a project and they continue long after the project is concluded. That was the case with Mulatos, where we began operating in 2005, but we actually started our work on the project in 2000. And for 17 years, we've continued to be recognized for our work with the local communities. We've applied that same focus in Canada, where it will be operating -- where our operating lines such as Island Gold, where we recently signed a community benefit agreements with Michipicoten First Nation or at our Lynn Lake project, where we received the reconciliation work from the Manitoba Prospectors and Developers Association for our work with the Marcel Colomb First Nation. Wherever we operate, our focus is on creating a net benefit within our communities that lasts well beyond the life of the mine. Next slide, please. When it comes to governance, our focus is ensuring we remain accountable to all of our shareholders. That includes maintaining a strong, independent and diverse board, and we've been recognized for our good governance practices. This includes a top 15% ranking in the Globe and Mail's Board Games in 2021 of all Canadian listed companies and the third highest ranked company in the materials sector. Also, we were recognized for our work across the ESG spectrum. We are now ranked by key rating agencies well above the industry average in terms of our ESG performance, and we are seeing our ratings improve on an annual basis. This includes being ranked in the top 20 percentile as measured by Sustainalytics and top 5 for all gold mining companies as ranked by CDP. Turning to the next slide. Take a little look at our operations. We had a strong year at both of our Canadian operations, including a record year at Young-Davidson. This offset a challenging year at Mulatos as we work through a transition period until we bring in the low-cost La Yaqui Grande mine. Despite these challenges, we met our revised production and cost guidance for the year. Financially, we had another record year with operating cash flows of $411 million. This continued a strong long-term trend with another increase in our cash flow per share which has doubled over the past 4 years to $1.05 per share. And this is a trend we are going to build upon in the years ahead with our low-cost production growth expected to drive further increases in our profitability. Next slide. Young-Davidson was a standard operational in 2021. First, full year operating from our new lower mine infrastructure and it exceeded our expectations. Our mining rates ramped up through the year to average a record 8,240 tonnes per day in the fourth quarter of 2021. This helped drive a record year financially with the operation generating $100 million in free cash flow. Young-Davidson is now ramped up and consistently delivering on expectations. Given its 15-year reserve life, this is something we can expect for a very long time, providing a strong foundation for further growth. Turning to the next slide. We also made excellent progress on our growth initiatives over the past year. We continue to service the value through exploration with a successful year at our assets, including a 4% increase in reserves to 10.3 million ounces, with grades also increasing by 5%. Island Gold continues to be a key driver of this growth with reserves and resources increasing another 8% to surpass 5 million ounces of high-grade gold. This growth highlights the significant upside at the operations with this increase in reserves and resources going to support higher production, significantly lower costs and stronger free cash flow generation for a very long time. We also advanced La Yaqui Grande, such that we are now currently in the final stages of its construction. And we're going to see the benefits of all of this, which will be immediately evident through significantly lower cost production in the next few months. Turning to the next slide. This is a photo taken just over a month ago. It's the groundbreaking ceremony for the Phase III expansion at Island Gold, marking the beginning of a very bright future for that operation and for the company. It was well attended ceremony with key members of the federal, provincial and local governments, our First Nations partners and our local communities, showing the strong support for the expansion and the importance of the operation beyond our company. Next slide, please. Given our confidence in our strong outlook, we provided inaugural 3-year guidance earlier this year. This includes growing production with La Yaqui Grande expected to drive our production close to 500,000 ounces a year in 2023 and a nearly 20% decrease in our all-in sustaining costs of around $1,000 per ounce by 2024. Combined with lower capital, as La Yaqui Grande construction is completed, we expect to return to positive free cash flow in the second half of this year and increasing profitability over the next few years. La Yaqui Grande will be a major driver of the cost improvement. We're expecting the second half of this year and going into 2023 to be evident of that. Construction of the project is nearly completed. We're in the process of stacking and bleaching ore, and we expect to see first production by late June, early July. Given its higher grades and recoveries, La Yaqui Grande will be our lowest cost production over the next several years and a significant driver of lower cost at Mulatos and company-wide. Next slide. La Yaqui Grande is a key driver of our near-term improvements in costs, Island Gold will be a more significant driver of lower cost and production growth that is sustainable over the long term. Based on the Phase 3 expansion alone, Island Gold production is expected to increase 80% to the range of around 240,000 ounces a year with all-in sustaining costs decreasing well below $600 per ounce once the shaft is completed in 2025. Island is already a great story, and one of the best assets in Canada. And there's further upside to come with the 37% or 1.4 million ounce increase in high-grade reserves and resources since we completed the study in 2020. This growth is being incorporated into an updated mine plan and we plan to issue that probably towards the end of June, early July. And I think it's going to demonstrate that there's significantly more value at that operation than our current Phase III study demonstrates. Next slide. This slide is entitled growing, long-life North American production and declining costs, and this is what we're working towards. The completion of the Phase III expansion of Island Gold will drive our annual production above 600,000 ounces a year once completed in 2025, and further reduce our all-in sustaining cost to around $800 per ounce. And there is an additional upside from there with the development of Lynn Lake, the updated mine plan for Island Gold and the new higher-grade PDA zone, which will be an underground deposit that we intend to develop at Mulatos. We have a number of attractive growth assets and we control the pace of our own development. So we're never going to be in a position where we're spending so much capital that it's going to compromise our balance sheet or somehow limit us from achieving our goals. The Phase II expansion of Island Gold will always be our top priority. And from there, we'll develop our other growth opportunities in a conservative and staged approach that we can afford. Next slide, please. 2021 was a tough year from a share price perspective for Alamos and the industry as a whole. We can't control the market in the short term but the macro outlook for gold remains strong over the medium to long term. And by staying focused on the long term, we've been a consistent outperformer and we've put this company in the best position to succeed. Our outlook as a company has never been stronger given the quality of our assets, the type of high-grade return growth that we have in an industry severely lacking in good growth opportunities, and all of this growth and the majority of our assets are located in Canada at a time when the world is becoming an ever more challenging place in which to operate. In addition to outperforming over the long term, we have a strong track record of shareholder returns. We've paid a dividend since 2010 and returned over $250 million to shareholders since then through our dividends and share buybacks. This includes $51 million returned to shareholders in 2021, and we are on pace to exceed that this year through our ongoing dividend and recent purchases under our stock buyback plan. Next slide. 2022 will be a very exciting year for almost with a number of big catalysts coming up towards the middle of the year. We look forward to delivering on these catalysts and our strong outlook. This concludes our formal presentation. I'll now turn the call over to Scott Parsons, our Vice President of Investor Relations, for any questions that have come in through the webcast. Over to you, Scott.

Thank you, John. There are no questions through the webcast at this time. So I'll turn the call back over to yourself for closing remarks.

All right. Thank you. Ladies and gentlemen, thank you for attending our Annual General Meeting. I was just remarking to my colleagues sitting around the table today that this is my 20th Annual General Meeting as the Chief Executive Officer of the company. It's been a great honor to be in this role. I've seen the company evolve from less than $15 million of market value when I was CEO of my first AGM. And today, we're sitting at roughly $4 billion of value. And it has been an incredible journey. I work with a tremendous team of colleagues in running this company, and I work with a very supportive and very competent Board of Directors that has given us tremendous guidance and oversight as we've grown through the years. We've taken some very bold steps to get from where we were to where we are. We've done some pretty creative M&A transactions over the years. Some of the things we did, had never been done before. For example, we did the first merger [indiscernible] that have occurred in the gold space. We tend to do deals when nobody else is doing deals, and that's sometimes controversial. It's certainly never welcome when you do a bottom-of-the-market deal. It just seems to put more pressure on the share price when you can generally least afford to have that pressure on your shoulders. But at the end of the day, the moves we've made have all been accretive. And not only have they had a tremendous value at the time that we did those deals but they've helped to build the company into what it is today. I'm really looking forward to seeing the company grow over the next 3 years. It's going to be one of the most significant growth periods the company has ever seen. Once we complete the expansion of Island Gold, we'll be generating substantially higher production than where we are today. We're heading towards 650,000 ounces of annualized production. That's assuming we don't build Lynn Lake over that time frame. We should achieve 650,000 ounces by the time we reach 2026. That's just around the corner in mining terms. And we're just going to be a largely Canadian company by then. That will be more than 80% of our net asset value and roughly 75% of our production coming out of Canada. I think that's going to be very important. I think geopolitical risk is one of the key issues confronting the industry and there's no better place in the world, I think, to operate than in Canada. We're very happy to own some of the best assets. We were looking at a table of mine producers in Canada a few weeks ago. And by the time we finish the Island Gold expansion, we are going to have the #6 and the #8 largest gold mines in Canada. And in terms of profitability, I'm certain Island Gold is going to rank in the top 3 or 4. So we're very proud owners of these very valuable assets. They're low cost, they're long life. They're the backbone of the company now, and they're going to sustain us for a very long future. And they'll give us opportunities to do more things over time. So with that, I'd like to conclude the meeting, and thank you very much to you all for your time and attention, and look forward to -- again, to addressing you at next year's Annual General Meeting.