Alamos Gold Inc. ($AGI)

Good morning, everyone. I'm Sathish. I'm part of the North American Metals and Mining Equity Research Team here at BofA. And I'm pleased to welcome John McCluskey, the CEO of Alamos Gold. So John has chosen a hybrid format, so he will start with a few slides, and then we'll jump into Q&A. John, over to you.

Thank you.

Thank you for being here.

Thank you. Thanks for having us. I'm just going to go over a few slides from our presentation deck. They help more or less orientate anybody, especially anybody new to the story. Alamos has an amazing track record for growth. We -- this company basically started in the early 2000s with an asset that we picked up when gold was under $300 an ounce. We secured an option to purchase our first asset, the Mulatos project. The company that had it, Placer Dome, they put about $50 million into that project over about a 6-year period. But as they were spending that money, the gold price was just going down and down and down, and they had several changes at the top. And by the time this new CEO had come in, in the early 2000s, he wanted to sort of get out of Mexico and shed noncore assets and Mulatos was sold at around CAD 10 million, roughly USD 7 million at the time. And we took that asset. And by 2005, we built the mine, and we had it producing. If you saw the way we did it, it was quite remarkable. We bought a secondhand truck fleet. We bought secondhand crushers out of Nevada. We bought an ADR plant from a bankrupt gold operation in the Yukon in Canada. And we stitched together that project in pretty solid. But we put it together for $72 million, and I've been talking to Placer Dome and said, we couldn't build that thing for $100 million, $150 million. And that's the capability and the initiative that smaller companies are willing to take, and that's why I think they've got a good place in this industry. Anyway, we had that mine up and running, and it's since generated over $1 billion in free cash flow. And it's never had a longer reserve life than it does today. When we first started it, it had a 6-year reserve life. That was 2005. We should have been out of business in 2011 on that basis. But here we are in 2026. The last 3 years have been 3 of its most profitable years, and the mine is now transitioning from an open pit heap leach operation into pit -- going from oxides to sulfides. So we're going underground to higher grades now. And we see in reserves right now, another 10 years of production out in front of us, and we think it goes much, much further than that. So that kind of template became our objective for growing the company. We wanted to do that again, if possible. And you can see we've managed to do it a number of times. We picked -- we didn't do anything really much between Mulatos and the acquisition of Young-Davidson. But when gold had pulled back from $1,900 back to about $1,100 an ounce in 2015, we did the first merger of equals in the mining space, combining Alamos with a company called AuRico, and that brought the Young-Davidson operation into Alamos. It had a big reserve, but it needed quite a bit of capital to finish the construction of the project. We finished that over the next few years. And since we completed it, it's managed to generate at least $100 million of free cash flow from 2020 on. The last couple of years, we've done in excess of $200 million free cash flow from the mine. It's, in other words, been a great acquisition for us. So if you look at our acquisition cost and then compare it to the free cash flow we've generated plus the consensus NAV, it's another example of value creation. And probably the most extraordinary example is what we've done at Island Gold, where in, again, the depths of the market, summer of 2017 with gold at about $1,250 an ounce, we took over a company called Richmont Mines because we really like this Island Gold project, even though it had a relatively small reserve at the time. It had less than 1 million ounces of reserves, another 1 million ounces or so of resources. But we saw a big potential there and most people didn't. So our -- the initial greeting of that deal was rather poor, but we've gone on to have tremendous exploration success. We've been ramping up the operation practically since we acquired it. Right now, we're in the process of sinking a shaft and expanding milling capacity and so forth. So we're on our way at Island Gold to turning that into a mine that will produce about 535,000 ounces a year at all-in sustaining costs of around $1,100 per ounce. That's another great example of value creation. The market consensus value today on that asset is just over USD 11 billion. So relative to where we acquired it, if you look at the success we've had in exploration plus the capital we've invested to expand it, it's just been another great example of how we create shareholder value. And I love talking to that slide. Each one of those projects is near and dear to my heart, and each one of them -- they're going to provide tremendous free cash flow generation. And with the gold price environment that we're in today, it's just dramatic when you consider where we're going once we've built out the whole platform, we'll be generating $1.5 billion in annual free cash flow at gold price assumption of about $4,500 an ounce. Another place where we've really driven value is through the drill bit. We've had a tremendous track record of exploration success, and particularly at Island Gold, as I said, when we took it on, it was -- we had about 700,000 ounces of reserves. And this was back in 2017, not many people observing the gold market at that time. I think in a meeting room like this, we might have 6 to 8 people, not a joke. And we basically took the view that if you're going to acquire countercyclically, you've got to invest countercyclically. And we started to heavily invest in exploration because we knew if that mine was going to turn into what we wanted it to be, we were going to effectively have to sink a shaft. Well, to justify the investment of upwards of CAD 1 billion to sink a shaft, you've got to have a strong-enough reserve platform to justify that investment and 1 million ounces just wouldn't cut it. So we invested quite heavily through those years when most of the peer group was really paring back expenditures on exploration. We invested heavily in exploration. And that's driven our reserve growth from sub-1 million ounces to over 5 million ounces at Island Gold, net of depletion. And across the board, we've added 9 million ounces to our operations over the last 6 years at a finding cost of roughly $33 an ounce. So this is a great example of why you might want to invest in a gold equity, for example, rather than buying an ETF or buying the physical itself. ETFs have to go into the market, and they have to pick up an ounce of gold at a prevailing market price, where we're identifying ounces in the ground at $33 an ounce. And if you consider we have to spend another $1,100 all-in sustaining cost to extract that gold, it's still an extremely attractive proposition. And all of these assets that we're drilling still have further scope for growth. But when you look at the track record over time, we've depleted roughly 4 million ounces over those years, but we've added significantly not only replacing the gold that we're mining every year, but actually growing our production, growing our reserves. And as far as production is concerned, we're in a heavy capital investment phase right now. And you can see where it's going to take us. This is very heavily driven by a major expansion we're undertaking at Island itself, but it also envisions the construction of the Lynn Lake project, which is a fully permitted operation in -- a fully permitted project in Northern Manitoba. And we have about 200 people on site right now, and the full construction is underway there. And we'll have it completed by the end of 2028 and into production in 2029, and it will generate about 200,000 ounces a year at sub-$1,000 all-in sustaining costs. So in addition to the fact that we're growing production from our current rate, we're forecasting about 600,000 ounces this year. We're growing it to over 1 million ounces by 2030. We're doing so at the same time as we're bringing down our costs. And that's just driven by productivity, and it's driven by the fact that we're bringing on more valuable ounces. And I think that's a good place to end the presentation and open it up to some questions. So I'll just leave that there.

Okay. Thanks, John, for that excellent overview. There was a lot to unpack, but we can go into each of these operations. But maybe we can start with a bigger picture question. So when investors look at Alamos today, I mean, do we look at as a near-term Island Gold price inflection story? Or should we look at as a medium-term free cash flow inflection story or like a longer-term Canadian growth champion given that you have a target of 1 million ounces?

Frankly, I think you can look at it in every -- one of those perspectives. I mean we -- every operating company has an obligation to forecast what its production and costs will be and then meet those production and costs or exceed those production costs. So that's just -- that's your everyday business. But you can see that we've -- we have a long-term track record of doing just that. We had a few hiccups last year as we integrated the new Magino acquisition. There's just some elements of that project that -- the way it was designed, it wasn't perfectly suited for the Canadian climate, but nothing that we can't fix. And frankly, as part of the Island Gold expansion, we're taking the mill throughput capacity to 20,000 tonnes a day, and we're doing so by, first of all, getting rid of the whole front end where the real problems exist. We're going to be putting in a gyratory crusher there. It will have 25,000 tonnes of capacity. We'll direct dump into that gyratory crusher and then feed 2 10,000 tonne per day mills. That more or less deals with the primary issues that we've been having at the Magino mill site. It's also powered right now by CNG, compressed natural gas. And that means the site is -- the mill is heavily dependent on gas deliveries. That doesn't sound like much of a problem, except in the -- in a deep Canadian winter, similar to the one we've just had, they close the roads and then you can't get the gas deliveries. So that was never meant to be a long-term plant. In other words, the previous operator that put it in place envisioned eventually bringing in grid power. Well, we've been working on a grid power project, getting it all permitted and moving it forward for the last 3 years. That grid -- pardon me, that power line is being constructed as we speak, and it will be completed by the end of this year and commissioned in the first quarter of next year. So the primary issues dogging that production in 2025 being ore stockpiles at the front end, basically freezing in the cold weather and slowing down the delivery of material into the mill and then delay in power deliveries, keeping the plant running, both those issues will be mitigated as a part of the expansion. So yes, medium term, we certainly have our job to do. But when you look at what we're doing in terms of driving production and driving reserve growth. It's extraordinary where we're going. There's very few companies that have a growth profile to match that one. And it's not just growth for the sake of growth. I mean we're bringing on more production at a lower cost. And I think that's kind of key to the overall message because it means if you've got even a fairly conservative gold price forecast, I was just speaking to your commodity analyst and he's looking at $6,000 gold. And I think that's a perfectly reasonable forecast to have on gold in the market that we're in. I'd love to hear his presentation on gold. But when you -- if you consider a $6,000 gold price, a company like ours generating effectively 1 million ounces will be just over 1 million ounces a year at around $1,000 all-in sustaining costs. That's massive free cash flow generation. I mean, relatively speaking, our current share price looks cheap on those economic assumptions.

You touched upon the massive free cash flow generation. So how should investors think about balancing the capital allocation priorities between your growth projects and capital return in terms of buybacks and dividends?

So we're in a heavy capital investment phase right now. In fact, this year is our -- probably our biggest year. We're spending about $1 billion across the various projects. We're building a new mill down in Mexico to process the high-grade ore from underground. We're in the process of starting construction at Lynn Lake. That will be a $900 million project between now and the end of 2028. And of course, we're still -- we're in the process of expanding on the expansion we were already working on at Island Gold because now it also involves the integration of the Magino open pit. And between the 2, ramping up the underground to 3,000 tonnes a day, bringing on the Magino open pit operation to about 17,000 tonnes a day. We're effectively going to be doing 535,000 ounces a year between those 2 operations. The interesting thing to consider, though, is that for the time being, that's a great mix because 3,000 tonnes a day is -- that's a reasonable rate to expect from the Island Gold underground operation for the time being. But we're developing across about a 2-kilometer strike and the shaft, it can actually handle more than the 3,000 tonnes a day that we're envisioning. But we also have a ramp system. And the ramp system goes through an area of the mine to the west where we've been having great exploration success over the last year, and we're continuing to drill quite aggressively this year. And what I envision is there are higher grade reserves being brought on in that west side that we'll be able to bring up through the ramp and at least 1,000, maybe as much as 2,000 tonnes a day coming up that ramp because it's only about 400 meters below surface there. You could easily do 2,000 tonnes a day of additional higher grade supplanting the low grade. So you more or less change the mix, 17.3 to say, 15.5. And by doing so, at a very nominal capital investment is basically development. You're driving your production up at that very low cost rate. And so I think that's where the really great opportunities lie in terms of ongoing expansion.

Yes. Maybe staying with Island Gold. So last year, you had some seismic events towards the end of the year, and then you had obviously the winter production issues. Looking at the ramp-up process, are you -- I mean, like the guidance implies a strong pickup in production from Island Gold in the second half. So what gives you confidence that you will be able to hit that run rate?

Well, first of all, we didn't have a single seismic event. Every single day, every underground operation in our industry basically experienced the seismicity. That's just the reality. It's just rare from time to time, you might get a higher seismic reading than what you typically get. You want a certain amount of seismicity because that's the rock settling, and that means you're not getting any buildup of stress. The seismic event you're referring to wasn't really much of an event. I mean it was a 0.27 measure on the scale, and that's relatively low. It just happened to hit at a fairly critical point that affected our ability to mine in the particular stopes that were key to the mine plan. Normally, we would never have even announced something like that, except that by limiting our ability to access those stopes, it was going to mean we're going to miss our guidance for production from that mine. So that's the reason why we announced. But I think that our ability to handle seismicity is very, very good. And we've been operating that mine since 2017. And in all that time, we just had that one relatively minor event. I mean we continued mining elsewhere underground. We've gone in, and we've rehabilitated that area, and it's completed now. It's not really part of the current mine plan, but we're going to be getting back into it probably early next year. It's just part of mining that you have to accept. But in terms of our forecasted production for this year, we've built in a lot of conservatism to our forecast. You could argue that we might have been a little too -- maybe a little too aggressive. And we're probably experiencing that level of confidence because we've gone 14 straight quarters without a miss. We either met or exceeded guidance for 14 quarters in a row. And then we had a couple of things happen and it threw us off. But it doesn't mean that suddenly we don't know what we're doing anymore. So we're more or less -- we're back on track. This year, we were scheduled to have our lowest production quarter in Q1, and it continues to ramp up over the course of 2026. We're going to exit the year with our best quarter, and we'll achieve record production this year of 600,000 ounces, and it should be a year of record cash flow generation as well. But the interesting part of it all is, as we go through the balance of this year, we've already finished the -- we've already taken the shaft down to shaft bottom. We'll have finished building all the shaft infrastructure. So we go into Q1 of '27, transitioning from a ramp operation at Island Gold to a shaft operation at Island Gold, and that allows our throughput to start to scale up and our cost to come down. So it's a pretty exciting year.

We have less than 5 minutes. So I wanted to give the opportunity to anyone to ask any questions.

To what degree do you look at per share metrics in terms of reserve growth, production growth? And then secondly, over time, you've been -- you've timed your acquisitions well. What gold price would make you think about selling something if there was a gold price?

Well, explicitly start selling off all our assets. We're not in the gold mining business anymore. So I would rather consider expanding on our assets through further investment in exploration. I think one thing that's been really overlooked by investors, and I've been in this job long enough to see fashions come in and fashions go out again. And so for example, in the 1980s and 1990s, reserves, reserves, reserves, investors are really focused on reserves and on per share metrics as well. In the current market environment, there just hasn't been that much investor focus on reserves. And yet, if you were to ask the average CEO, what he worries about most, that would be a depletion of reserves. And if you look at the big mining companies and where they were in the early 2000s relative to where they are now, I mean, there is a mad dash for reserves. They've been depleting the reserves at some of their best assets and where they have reserve growth, it tends to be in some of the riskier assets, in riskier jurisdictions. So there's no doubt that, that's a concern for the industry. And I think it's going to be something that will be more of a focus for investors going forward. We have heavily invested in that. I learned very on in my career that they're absolutely key to the value creation for our company. So we have virtually, nearly 20 years of reserve life across all of our operations. That's probably best-in-class. And that really matters. And if you wonder where I think further valuation is going to come from, it's maximizing that reserve profile by making sure you match it with a production profile that takes full advantage of what you've created. So we created most of those reserves when nobody was really paying attention to the gold market at all. And now there is a focus. Just watch how they're going to start to underpin the value of our shares. Now we have another slide in our deck. I didn't include it in this presentation. I was able to keep it to just a few slides. But it shows how we've added value per share in terms of reserves per share, cash flow per share. We basically show how we've created value on per share metrics. like we've never done an M&A transaction that didn't result in an increase in value on per share metrics. So again, I think that track record is very hard to match. And if anybody wants to see that slide, I'm sure Scott can pull it up for you on his laptop. But I think this is absolutely key. It's something that we've been focused on. It's why we tend to do M&A on a countercyclical basis. We were extremely active between 2015 and 2017. We did something relatively unusual in making an acquisition in 2024 with the gold price at about $2,200 an ounce. But that was a completely unusual circumstance where the next-door mine became available. Their share price had gone from $4 a share down to $0.22 as they struggled with execution on that project. And we took full advantage of that. So even though the gold price had gone that way, their share price had gone down. And so there was an opportunity. There will always be anomalous opportunities. And if you're in a good position to take advantage of them, then so much the better. But we're never going to just grow for the sake of growth. We're never going to add a project just because it makes us bigger, then we can say we're bigger than the guy next to us. I don't think that's the name of the game. I think the name of the game is value creation for shareholders, and that's the one we're focused on.

Any other questions? We are actually out of time. I think we can stop there. And thank you, John, for your time, and I appreciate you.

Thank you.