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

So good afternoon, everyone, and thank you for joining us today. Our next presenting company is Alamos Gold. I'm pleased to introduce John McCluskey, President and CEO of the company. And today's presentation will be in a hybrid format. So John, the stage is yours.

Thank you very much, Harmen. And a big thank you to Bank of America for inviting Alamos Gold. This is, I think, our ninth year attending the conference, and it's always a pleasure to attend. I'm going to go through a few slides just to open the presentation and then, of course, we'll have a brief discussion on Alamos. Alamos is a North American-focused mid-tier gold producer. We're producing from 3 operating mines, 2 in Ontario, Canada and 1 in Mexico. We have 500,000 ounces of production scheduled for 2023. And we have a growth pipeline based on the development of our Island Gold asset, a big expansion that's underway, plus the development of a new project called Lynn Lake, that will take us to 800,000 ounces of production. Meanwhile our costs are declining, we're effectively replacing high-cost production with new lower-cost production. So this year, for example, our costs are around $1,150, which is down from where they were last year. But ultimately, they're declining to around $1,000 an ounce and that will be in conjunction with the development of the shaft at our Island Gold operation. 86% of our net asset value is in Canada. This is based on an initiative that we took going back to 2014 when we were a single asset producer and that single asset was in Mexico. And we set the objective of focusing on Canada and starting to develop Canadian production. And by -- within 5 years, we were producing from 2 Canadian gold mines and effectively building most of our value in Canada. And that will continue to be the case as we develop our Lynn Lake project. Our average mine life for our operations is 16 years, and they will also continue to grow. So with respect to ESG, which is a very important topic for all mining companies presenting at this conference, we tend to have a very low carbon footprint, among the lowest in our peer group, and we're going to further reduce our carbon footprint over the next few years as we bring on the shaft operation at our Island Gold project. And ultimately, we'll see another 30% reduction in our greenhouse gas emissions. We also recycle roughly 71% of the water used in our operations. And in each of the jurisdictions where we operate -- each of the mines that we operate, we're in an environment where we have more water that arrives on site than actually used by the operation. So that would be in contrast to a mine say, operating in a desert where there would be a shortage of water, and they rather bring water in or they're getting it through wells. This is a big advantage for us. And I think you're going to see this become an ever more important topic in the mining sector as the world in various places where the important mining runs ever shorter of water. So here is a slide that illustrates one of the points I was making on our overall -- our introductory slide. You can see that from 2022 through 2027, our production is going to grow from -- we were producing at 450,000 ounces in 2022. That's going to grow in step-by-step fashion with the big catalysts being the shaft at Island Gold, which will bump production from Island Gold from roughly 140,000 ounces a year up to roughly 300,000 ounces a year, and the ultimate addition of our Lynn Lake operation, which will take us into the 800,000 ounce a year range. And the line running across the top of the bars is our costs, and you see how our costs have come down from $1,200 an ounce, currently just over $1,000 an ounce at $1,150. But ultimately, we're heading below $1,000 an ounce with the various initiatives that we're undertaking. Another important point is that we're able to finance all of our growth. That includes the big expansion underway at Island Gold right now. It's all being funded out of our free cash flow and -- out of our cash flow. And net of the cash flow that is going into our expansions, we're generating free cash flow over and above that. And it will be in excess of $100 million in 2023. And depending on your gold price assumption, the yellow bar chart, for example, is essentially in $1,950 gold, and you can see we can generate up to $150 million in free cash flow over and above all the costs.related to our expansion. And of course, that takes off even further in 2026 when the Island Gold expansion is completed, and we're starting to experience the cash flow generated from that operation that we'll be generating 300,000 ounces a year at sub-$600 all-in sustaining costs. So it's been a story that has really resonated with investors over the last year or so as the reality of what we were defining and about to build at Island Gold started to really come into focus and the success that we've been having with the drill bit, not just in Canada, but in Mexico as well, where we have a brand-new discovery underway at PDA, which has added 1 million ounces over the last year and continues to expand. So you can see from the chart on the right-hand side of the slide that our share price has outperformed the GDX, the GDXJ and virtually all the companies in our in our peer group. And this type of outperformance is something that we were -- we really have been aiming for, for quite some time as we focused on building value through acquisition and through exploration. And we're going to be able to sustain that as we bring on new low-cost production. So that more or less completes my summary remarks. And now I'd look forward to taking some questions.

[Audio gap] The presentation. I think on Slide 7, you've had a very nice chart up there, and Alamos has obviously been a very notable outperformer in the sector. Can you sort of talk about what you attribute the company's share price outperformance to over the last year?

Yes, there was a number of very key catalysts that went to contributing to that. One was, of course, the ongoing success that we've been having at our Young-Davidson operation. I think that was a project that, again, was discounted by the market for some time until we proved for 2 consecutive years that we could operate that mine at 8,000 tonnes a day, and it was generating $100 million in free cash flow from that operation. That -- the market becoming comfortable with that asset was a big catalyst. Secondly, we completed the Phase 3+ study at Island Gold, which demonstrated we'd actually reduced the capital intensity by building a bigger operation that was going to yield more production at a lower cost. That was a big surprise for the market in the context of the strong inflationary environment that we were in by that time. And then thirdly, we completed the construction of our La Yaqui Grande mine in Mexico, and we completed it about 6 weeks ahead of schedule, and we completed it on budget, which was also remarkable given what had been happening with costs. And it's gone on to -- right now, it's generating extremely good profit. We did $48 million in free cash flow in the first quarter from La Yaqui Grande, and it's going to do well in excess of $100 million in free cash flow for 2023. So getting that done on time and the profitable outlook for that operation, I think all those things contributed to the share price performing really well.

Absolutely. And just looking ahead to sort of your growth opportunities in the future. Lynn Lake looks like it's on track to be your -- perhaps your next mine that you end up building. Can you talk about why Lynn Lake and some of the positives about this project that make you feel inclined to go ahead and build?