Alamos Gold Inc.

Good morning. I would like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead.

Thank you, Operator, and thank you to everyone for attending Alamos' second quarter 2021 conference call. In addition to myself, we have on the line today John McCluskey, President and CEO, Peter McPhail, Chief Operating Officer, and Scott R.G. Parsons, our Vice President of Exploration. We will be referring to the presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a question and answer session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Boswick, our Vice President of Technical Services, and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars and less otherwise noted. With that, I'll turn it over to John to provide you with an overview.

Thank you, Jamie, and welcome, everyone. I'll begin with slide three. We have a solid first half of 2021 highlighted by a strong operational performance at Young-Davidson and remain well positioned to achieve our full-year guidance. In the second quarter, we produced 114,200 ounces of gold, a total cash cost of $791 per ounce, and all its sustaining costs of $1,136 per ounce. As previously communicated, costs were above annual guidance in the quarter, reflecting the stronger Canadian dollar. It's been a year since we completed the lower mine expansion at Yelda Davidson, and that infrastructure continues to perform well, meeting or exceeding targeted mining rates each quarter. Looking ahead, we expect Young-Davidson to ramp up to its designed mining rate of 8,000 tons per day in the third quarter, contributing to stronger company-wide production in the second half of 2021. We generated company-wide offered cash flow of $97 million in the second quarter, 117% increase from a year ago, with the prior year impacted by COVID-19-related downtimes Young Davidson and Island Gold continued to generate solid, ongoing free cash flow, which offset the increase in capital spending in the quarter, primarily at the Aki Grande. We expect stronger company-wide free cash flow in the second half of the year, reflecting higher gold production and sales. Moving on to slide four, we're making good progress on our strong pipeline of North American projects, Construction is in full swing at Liaki Grande and remains on track to achieve commercial production in the third quarter of 2022. At Lynn Lake, we continue to demand permitting and expect this to be completed by the middle of next year, which would enable us to make a construction decision thereafter. Exploration activities at Lynn Lake also ramped up in the quarter, focusing on drilling in proximity to the known deposits, as well as two regional targets. Development activities continue to ramp up on the Phase 3 expansion at Island Gold, focusing on surface infrastructure, permitting, and detailed engineering. In February, we announced a 1 million ounce increase in high-grade reserves and resources as of the end of 2020, all of which is upside to the Phase 3 expansion study published last year. We followed that up in June with another exploration update which included the best-hold drill to date, the down-hold plunge from existing resources in proximity to our planned shaft. These results represent ongoing exploration success and they clearly demonstrate that this deposit will continue to grow and highlight the significant upside potential that I think the market is beginning to appreciate These projects underpin our strong outlook with a 50% production growth potential to approximately 750,000 ounces per year by 2025. That significantly lowered all its sustained costs of around $800 per ounce. This will support peer-leading free cash flow growth over the long term. We have more than ample capacity to fund this growth internally while continuing to generate solid free cash flow and return more capital to shareholders through our ongoing dividend which we have increased by nearly 70% over the past year. And with that, I will conclude my comments and turn the call over to CFO, Jamie Porter, who will give you a brief update on our financial performance for the quarter.

Thank you, John. We've found in slide five, we sold 107,600 ounces of gold at a realized price of $1,814 per ounce for revenues of 195 million in the quarter. Gold sales were approximately 6,600 ounces less than gold produced due to the timing of shipments, with those ounces sold in July to be realized as revenue in the third quarter. Total cash costs of $791 per ounce and all-in-sustaining costs of $1,136 per ounce were higher than annual guidance, mainly reflecting the stronger-than-budgeted Canadian dollar. As we've previously noted, our 2021 guidance was based on a Canadian dollar foreign exchange rate of 75 cents compared to the actual rate of 81 cents in the second quarter. In the first half of 2021, the stronger Canadian dollar increased our total cash cost by approximately $30 per ounce.

Oh, it seems that Mr. Porter has disconnected from the call.

Should we wait for him to get back online or? Yeah, we'll just give Jamie a moment to try and get back on the line.

Seems as though Jamie's having trouble getting back on, so I will step in for his portion of the call. So just to finish off his thought there, we expect a similar impact in the second half of this year should the Canadian dollar remain at 80 cents. This is expected to keep costs at similar levels in the third quarter before declining in the fourth quarter. Operating cash flow before changes in non-cash working capital increased 117% year-over-year to $97 million. or 25 cents per share in the second quarter. We reported a net loss of 173 million in the quarter, which included a non-cash after-tax impairment charge of 214 million related to our Turkish projects as a result of the previously announced decision to proceed with a bilateral investment treaty claim against the Republic of Turkey. The $214 million represented the full carrying value of our Turkish assets.

Excluding the non-cash impairment charge. If you can hear me, sorry, my line just died, but I'm back now, so I'll keep going. Yeah, please go ahead, Jamie. Thanks, Scott. Excluding that non-cash impairment charge, foreign exchange gains and other losses, adjusted net earnings were $39 million or $0.10 per share in the quarter. Capital spending totaled $84 million in the second quarter, including $27 million of sustaining capital, $50 million of growth capital, and $6 million of capitalized exploration. Additionally, we paid $3 million of capital advances for work and equipment largely related to La Yaqui Grande. Capital spending is expected to increase into the second half of the year, consistent with full-year capital guidance between $354 and $384 million. This reflects the ramp-up of development activities at La Yaqui Grande as well as with the Phase 3 expansion at Island Gold. We were free cash flow neutral in the second quarter. Net of the increase in capital spending, the gold sales that We previously discussed that we're deferred to the third quarter, as well as a $6 million cash tax payment in Mexico, which we do not anticipate to continue in the second half of the year. We expect increased free cash flow in the second half of 2021, driven by higher production and gold sales. We paid our quarterly dividend of $10 million, and so far in 2021, we've returned more than $21 million to shareholders in the form of dividends and share buybacks. We are on track to return more than $40 million for the full year. We remained debt-free and ended the quarter with $234 million in cash, $22 million of equity securities, and $500 million of undrawn credit capacity. We remain well-positioned to fund our internal growth projects while continuing to grow our cash position and returns to shareholders. I know Peter was dropped off the call as well, so I'll see if... Peter, are you... Yeah, I'm back on now, Jamie. Okay, I'll turn it over to our COO, Peter McPhail, to provide an overview of our operations for the quarter.

Thank you, Jamie. Moving on to slide six, as John mentioned, we completed the lower mine expansion at Young-Davidson one year ago, and since then, underground mining rates have consistently met or exceeded targeted rates. In the second quarter, mining rates averaged 7,500 tons per day right on target, and in the first half of the year, mining rates averaged 7,650 tons per day exceeding target. Another mining horizon is currently being added, and we'll enable underground mining rates to increase to the long-term rate of 8,000 tons per day starting in the second half of this year. In the second quarter, we produced 45,100 ounces of gold, generating $19 million of mine site-free cash flow. Total cash costs of $941 per ounce, mine site oil and sustaining costs of $1,157 per ounce, were above annual guidance in the second quarter due to the stronger Canadian dollar, planned mining of lower grades and lower mining rates in the first half of the year. Grades mined and underground mining rates are expected to increase over the remainder of the year, driving production higher and costs lower in the second half of 2021. With the $41 million of mine site free cash flow through the first half of the year and strong results expected in the second half, Young Davidson remains on track to generate record mine site free cash flow of more than $100 million in 2021. Over to Flight 7, Island Gold produced 33,200 ounces of gold in the quarter and generated $14 million of mine site free cash flow. As previously guided, grades mined and processed decreased from the first quarter. Grades are expected to remain at similar levels in the third quarter before increasing in the fourth quarter, an average reserve grade of approximately 10 grams per ton for the full year. Total cash cost of $502 per ounce in mine site oil and sustaining costs of $830 per ounce. were both slightly higher than annual guidance, largely reflecting the stronger-than-budget Canadian dollar. Phase 3 expansion work continues to ramp up, with the precinct of the shaft expected to begin mid-next year. Current focus remains on permitting detailed engineering of the shaft, associated infrastructure, and procurement of long-lead items. Road capital spending totaled $14 million in the second quarter and included completing expansion of the tailings facility. Capital spending is expected to increase in the second half of the year, consistent with annual growth capital guidance of $80 to $85 million. We received our first batch of 2021 expiration results in June. An island did not disappoint, returning the best whole drill to date. In a few moments, Scott Parsons, VP Expiration, will discuss these results in more detail, as well as encouraging early results we're seeing at Young-Davidson. Moving to slide eight, Milatos produced 35,900 ounces in the second quarter, a total cast costs and mine site all in sustaining costs of 893 and 1144 per ounce respectively. Third blown and existing surface stockpiles continued to supply most of the ore stacked in the quarter with mine activities in the main Milatos pit focused on pre-stripping the El Salto portion of the pit. Gold production is expected to increase in the second half of the year consistent with full year guidance. Mindsight free cash flow was negative $12 million in the quarter, reflecting the $6 million tax cash payments, as well as growth capital and capital advances related to La Iaquigrande of $25 million. Excluding La Iaquigrande capital, Milagros would have generated Mindsight free cash flow of $12 million. Moving to slide six. Construction of La Yaqui Grande is progressing well with more than 1 million hours worked in the first half of 2021 with no lost time injuries. Pre-stripping activities continue to ramp up with over 5 million tons of waste mined during the quarter. Reach pad construction is now over 60% complete and concrete was poured in the crusher area where all major components of the crushing circuit are now on site. La Yaqui Grande remains on track to begin supplying low-cost production in the third quarter of 2022. I'll now turn the call over to Scott to provide an overview of exploration activities during the quarter.

Peter, we had a successful quarter from an exploration perspective, with excellent results for Young-Davidson and Island Gold, which I'll discuss briefly. Starting with Young-Davidson on slide 10, our focus over the last several years was on completing the lower mine expansion. With that complete and more cost-effective access to drill from underground now available, the $7 million budgeted for exploration this year is the first significant exploration program at Young-Davidson since 2011. Over to slide 11, the success we're having is on two fronts. Drilling has been successful in intersecting gold mineralization, down-plunge from existing reserves and resources within the cyanide that hosts the Young-Davidson deposits. The drilling that began in 2020 extended mineralization 220 meters below resources at that time, and to the first half of 2021, drilling extended mineralization a further 150 meters below our 2020 drilling. We've also intersected other styles of gold mineralization outside of the cyanide, hosted in the high-grade structures within the hanging wall mafic-ultra-mafic stratigraphy of the Tisdale assemblage, and also within structures developed in the footwall temiscaming sediments. This includes intersecting a high-grade structure 200 meters south of the hanging wall contact of the cyanide within the Tisdale, beyond the limits of any previous drilling. This intercept returned 5.8 grams per ton over 13.7 meters, which included 24 grams per ton over 1.9 meters. The results to date highlight the significant geologic potential that exists in the property, not only to add reserves and resources within the cyanide, with the deposit open at depth and a long strike to the west, but also at potentially higher grades associated with other styles of mineralization that are common across the Abitibi. Moving on to slide 12, in addition to the good results we're seeing at Yonge-Davidson, we had an excellent start to the year on the exploration of Front Island Gold. In the second quarter, we drilled the best hole in the deposit to date. This is out of a total of over 7,000 drill holes and 1.3 million meters of drilling. Drill hole MH2508 intersected 71 grams per ton 39 grams per ton cut over 21 meters true width down plunge from the large inferred resource block in the lower portion portion of island east this intercept is significantly higher grade with true width approximately four times greater than the average width of the resource block and is within proximity to the planned shaft inferred resource block had already grown to include 1.3 million ounces grading 18 grams per ton at the end of last year These ongoing results demonstrate the potential for Island Gold deposits to continue to grow through exploration. Over to slide 13. Island Gold's reserve and resource base has grown dramatically since we acquired it in 2017. By the time we completed the Phase 3 expansion study last year, reserves and resources had doubled to 3.7 million ounces. Since then, we added another 1 million ounces of high-grade reserves and resources, which is all upside to the already attractive economics outlined in the study. With the recent exploration results being among the best ever, and with the deposits open widely and down plunge, we expect further growth in Island Gold's reserve and resource base, highlighting the significant upside potential. With that, I'll turn the call back over to John.

Thank you very much, Scott. That concludes the formal part of our presentation. I'll now ask the operator to open the line for your calls.

Thank you. We will now take questions from the telephone lines. If you have a question and are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. If at any time you wish to cancel your question, please press star 2. Please press star 1 at this time if you have a question. There will be a brief pause for participants to register. Thank you for your patience. Once again, please press star 1 at this time if you have a question. And the first question is from Cosmos Chu from CIBC. Please go ahead.

Thanks, John, Jamie, Peter, and Scott. I guess my first question is on the Canadian dollar here, two parts. Number one, we all know that there's been a lot of strength in the Canadian dollar. As you mentioned, your guidance is based on an exchange rate of 0.75%. So far, it's been closer to 0.8. Maybe a question for Jamie. When would you consider updating your guidance for the actual foreign exchange rate that's been realized so far?

Yeah, thanks, Cosmos. Yeah, I mean, that has been. I mean, if you adjust for $80 strength, we're well within our guidance range. And if you look at it on a year-to-date basis, we're pretty close. I mean, our operations have done a really good job of keeping costs low despite the Canadian dollar strength and inflation in some areas. On a year-to-date basis, we're running at $7.73 total cash costs relative to the top end of our guidance of $7.60. And on all and sustaining costs, we're running at $10.79 relative to the top end of our guidance of $10.75. So we're within $4 or within 1% on both cash costs and all and sustaining costs. So we are expecting similar costs in the third quarter. and much lower costs with higher grades at YD in Q4. So I think we'll reevaluate at the end of Q3. But we've still got a chance to, you know, despite the impact of the Canadian dollar strength, I think we've still got a shot at being within the top end of our guidance range. Of course.

And then, Jamie, as a follow-up, and you and I have talked about this in the past, you know, you have talked about potentially being opportunistic in terms of hedging your C dollar exposure. We've seen, you know, Canadian dollars sort of weaken a little bit. It's strengthened again today, very volatile. How should we take a look in terms of your hedging program? Have you tried to be opportunistic in terms of adding to it?

Yeah, yeah, we absolutely have. I mean, if you go back and look at the Canadian dollar up until recently, it's been pretty much a straight line up. since we put our budget together last September, October. So we have taken advantage of the recent weakness, the recent dip to increase our coverage perspective of our hedge program. I think going into the end of the second quarter, we only had 10% of our Canadian dollar exposure hedged. We're now up to 45%. between about 77.5 and 81 cents. So we are working to try to protect somewhere within that range for the second half of the year.

And then, Jamie, you mentioned the I word, inflation, and that appears to be a concern for a lot of investors for the mining space. Could you talk about, you know, are you seeing any kind of inflationary pressure around be it on labor or other input costs, and how should we look at it?

Yeah, so I think my reference to inflation, it's topical industry-wide. I think a lot of companies are reporting cost inflation. I think we've done a good job here today. Canadian dollar terms at both Young-Davidson and Island Gold were actually ahead of our

Hello?

Yeah, it looks like Jamie's dropped off again. Can you hear me, Cosmos? Peter? Yes, hi, Peter. Yeah, no, I think to finish what Jamie's thought there, you know, we're managing it. We have some, you know, for most of our consumables, we have longer-term contracts. So thus far, it isn't really impacting us, you know, And as we go forward, hopefully this is a temporary kind of cycle that we're seeing in the supply chain that will revert to normal. I guess time will tell.

Great. It's good that you jumped in, Peter, because I have a question for you as well. You know, as we talked about the short-term impact here or potential impact on inflation, How are you managing some of the, you know, potential longer-term impacts on inflation on your projects? Layaki Grande, the shaft at Island Gold. How should we think about it?

Yeah, I think Layaki Grande, I'm not really concerned at all. We're, you know, we're on budget, on target, halfway through, you know, getting close to halfway through that project. You know, we're mining at a rate of 55%. 60,000 tons a day pre-stripping at La Yaca Grande, we're right on budget. That's a contract mining rate. We haven't seen cost pressures in Mexico yet, I suppose. Really not seeing anything. We're projecting right on schedule, right on budget there. The more longer-term ones, we're just getting going at Island. A shaft-sinking project is largely labor-based, and labor rates haven't skyrocketed in Ontario. I think we had a 3% increase this year budgeted, and that's what we saw. I really don't see big changes.

Great. And then one last question, maybe for Peter as well. The grade in Q2 at Island Gold and Young-Davidson, both at the lower end of the four-year sort of guidance. Could you comment? Is it all due to mine sequencing? And how is it reconciled back to your block model here? Yeah, thanks for asking that question.

Yeah, it is sequencing solely. We get really good reconciliation at both those operations levels. you know, within industry standard, you know, kind of 3% or so historically and in the quarter. So if, you know, some minor sequencing that, you know, that put us at the low end of our guidance range for the quarter, it's just what you would expect to see running any mine. You get some fluctuations from quarter to quarter based on the, you know, the stoke recipe that you happen to be mining.

Great. Thanks. Those are the questions I have. Thanks again.

Thank you. Thank you. Once again, please press star one at this time if you have a question. And the next question is from Kerry Smith from Hayward Securities. Please go ahead.

Thanks, operator. Maybe Peter, just on the COVID situation in Mexico, has that had any real impact on the construction? I know you've got a lot of Now he's coming back and forth on the construction side. Has that been an issue for you there?

You know, the guys are managing it extremely well. We have a lot of people at site sometimes. You know, you look at our entire population there of employees and contractors. Now they're all there at the same time, but it approaches 2,000, probably with well over 1,000 there at any given time. We instituted testing, you know, full PCR testing early on in this process covid uh pandemic uh at all three of our operations and and we continue it at all three of our operations so we are able to screen these you know people that would be otherwise positive which are able to screen them out prior to getting to site and running you know longer rotations with them at site we've had a few along the way cases uh slip through and then we you know we keep keep them segregated and, you know, ship them back, and they're back, you know, once two weeks pass, they're back again. So there have been a lot of cases in Mexico, and there have been a lot of cases within our workforce at Mexico, but we've managed to screen them out, and the guys are doing a great job keeping it out of the, shipping it out of the camp.

Okay. Okay, good. And then there was a comment in the MD&A about the $45-a-ton Canadian ship target at 8,000 tons a day for the mining cost at YD. Is that $45 number the number that you kind of expect to be at when you exit 2021, or would that be sort of a target once you get things stabilized maybe into the back end of 2022?

You know, I guess we'll see. That is our target rate at 8,000 tons a day. So I think We're there. We should well average 8,000 tons a day for the rest of the year. We'll see where the unit costs come in, but that is the target. Okay, great.

Thanks very much, Peter.

Thank you. Once again, please press star 1 if you have a question. Ladies and gentlemen, there are no further questions at this time. This concludes the morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439. Thank you for assisting on the call today, and have a great day.