Alamos Gold Inc.

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

Thank you, Operator, and thank you, everyone, for attending Alamosa's third quarter 2021 conference call. In addition to myself, we have on the line today John McCluskey, President and CEO, and Peter McPhail, Chief Operating Officer. We will be referring to a presentation during the conference call that's available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A 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. Now I'll turn it over to John to provide you with an overview of the quarter.

Thank you, Jamie, and good morning, everyone. I'd like to start with slide three. Our third quarter was marked by strong, ongoing performances at our Canadian operations, offset by short-term challenges at mulattoes as it enters a transitional period. Consolidated gold production of 104,700 ounces was lower than guided, While total cash costs and all-in sustaining costs were broadly in line with expectations, both were above our initial full-year guidance and reflecting the impact of stronger-than-budgeted Canadian dollar. A key highlight in the quarter was Young-Davidson averaging record mining rates of 8,000 tons per day, producing 50,000 ounces of gold and generating $29 million in free cash flow. The mine is performing very well, and we expect it to be a strong, free cash flow generator for a very long time. Mulatto's had a challenging quarter, with an above-average rainy season and slower-than-anticipated recoveries from stockpiled ore, affecting both production and costs. With Cerro Palon winding down, stockpiles will make up a larger proportion production for mulattoes until La Yaqui Grande starts supplying low-cost production in the third quarter of 2022. Given the higher costs associated with processing this stockpile door, we expect costs to increase in the fourth quarter and through the first half of next year. Mulattoes costs are expected to decrease in the second half of 2022 and will be significantly lower in 2023 as La Yaqui Grande ramps up. Looking to the fourth quarter, we expect production to increase at each of our operations, reflecting higher grades at Young-Davidson and operational improvements at Mulattoes. Nevertheless, with the third quarter production shortfall at Mulattoes, we are reducing our annual production guidance at the operations by 15,000 ounces, or 3% on a consolidated basis, to a range of 455,000 to 495,000 ounces. Production guidance for Young-Davidson and Island Gold remain unchanged, with both operations continuing to perform well and on track to achieve full-year guidance. Given the ongoing impact of the stronger Canadian dollar and higher-than-planned costs at Mulatto's, we are also increasing our consolidated total cash cost guidance to a range of $790 to $810 per ounce and all-in sustaining costs to a range of $1,120 to $1,140 per ounce. Excluding the impact of the stronger Canadian dollar, costs through the first three quarters of this year are consistent with our initial guidance. Moving to slide four, while we encountered some challenges in the third quarter, our strong long-term outlook remains intact. At Liaki Grande, construction is advancing well and remains on budget and on schedule to achieve commercial production in the third quarter of 2022. At Island Gold, the phase three expansion is progressing with the focus on permitting, detailed engineering, and contract tendering. We also continue to have success growing the deposit and adding value through the drill bit with another exploration update planned in the fourth quarter. Finally, at Lynn Lake, we continue to advance permitting and expect this to be completed by the middle of next year, which would enable us to make a construction decision thereafter. Collectively, these high-return organic growth projects support our strong outlook with production potential of 750,000 ounces per year by 2025, a significantly lower all-in sustaining cost of around $800 per ounce. Given our solid balance sheet and ongoing cash flow generation, we can fund all this growth internally while supporting strong, ongoing returns to shareholders through our dividend and share buybacks. I'll now turn the call over to our CFO, Jamie Porter, to review our financial performance.

Jamie. Thank you, John. Moving on to slide five, we sold 110,500 ounces of gold at a realized price of $1,792 per ounce for revenues of $198 million in the quarter. Gold sales were approximately 5,800 ounces more than gold produced, with some ounces produced in the second quarter being sold in the third quarter. Third quarter costs were broadly in line with guidance provided in the second quarter and higher than initial annual guidance. Total cash costs of $788 per ounce and all in sustaining costs of $1,152 per ounce continued to be impacted by the stronger than budgeted Canadian dollar as well as higher than expected costs at Mulatto's. Our previous 2021 guidance was based on a Canadian dollar foreign exchange rate of 75 cents compared to the actual rate of 79 cents in the third quarter and 80 cents year to date. This has increased total cash costs by $30 per ounce and all in sustaining costs by $45 per ounce relative to our initial guidance. Reflecting the ongoing strength in the Canadian dollar and higher costs in mulattoes, we have increased our 2021 total cash costs and all in sustaining cost guidance. This also reflects some of the inflationary pressures being felt across the sector and globally. We have managed these well through the first three quarters of the year but do expect more of an impact in the fourth quarter and into 2022. Operating cash flow before change to the non-cash working capital decreased 21% year-over-year to $102 million or $0.26 per share in the third quarter, reflecting lower production and a lower realized gold price. Net earnings were $25 million or $0.06 per share. Excluding the unrealized foreign exchange loss of $13 million, adjusted net earnings were $38 million or $0.10 per share. Capital spending totaled $89 million in the third quarter, including $31 million of sustaining capital, $51 million of growth capital and $7 million of capitalized exploration. Capital spending is expected to increase in the fourth quarter, reflecting the ramp-up of capital spending on the Phase 3 expansion at Island Gold and at Layaki Grande. With significant capital expenditures scheduled for late in the year, we do see the potential for some fourth quarter capital to be deferred to early 2022. Free cash flow in the third quarter was negative $8 million, reflecting higher capital spending at Layaki Grande and Island Gold, as well as lower than anticipated production. In addition to our quarterly dividends of $10 million, we also repurchased 600,000 shares at a cost of $4.5 million, or $7.50 per share, in the third quarter. Year-to-date, we have returned more than $35 million to shareholders in the form of dividends and share buybacks. We are on track to return more than $45 million for the full year. We remained debt-free and ended the quarter with $211 million in cash, $23 million of equity securities, and $500 million of undrawn credit capacity. Combined with strong ongoing cash flow generation, we remain very well positioned to fund our growth projects internally. I'll now turn the call over to our Chief Operating Officer, Peter McPhail, to provide an overview of operations for the quarter.

Thank you, Jamie. Moving to slide six. Since the completion of the lower mine expansion at Yonge-Davidson mid last year, underground mining rates have consistently met or exceeded the target rates. This trend continued in the third quarter, with underground mining rates increasing to average a record 8,000 tons per day. This drove gold production higher to 50,000 ounces and costs lower, contributing to $29 million of mine site free cash flow in the quarter. Total cash costs of $810 per ounce and mine site-owned sustaining costs of $1,051 per ounce decreased 14% and 9% respectively from the second quarter, reflecting increased operating efficiencies. Young-Davidson is well-positioned to meet its full-year production guidance, with consistent mining rates of 8,000 tons per day and higher grades expected to drive another strong result in the fourth quarter. Given the impact of the stronger Canadian dollar, we have increased full-year total cash cost guidance to approximately $850 per ounce, and all in sustaining costs to around $1,060 per ounce. Excluding this impact, costs were in line with initial guidance through the first three quarters of this year. With $70 million of mine site free cash flow year-to-date and higher production expected in the fourth quarter, Young-Davidson remains on track to generate mine site free cash flow of approximately $100 million in 2021. Over to slide seven, Island Gold produced 28,000 ounces of gold in the quarter, 16% lower than the second quarter, reflecting lower tons processed. This was due to eight days of downtime for unplanned maintenance in the mill early in the quarter. These one-time maintenance issues were resolved in July, with the mill operating at full capacity in August and September. Additional maintenance protocol has been put in place, along with an increase in critical spares to mitigate future unplanned downtime. As previously guided, grades mined and processed were similar to those in the second quarter. Grades are expected to increase slightly in the fourth quarter to average a reserve grade of approximately 10 grams per ton for the full year. Total cash costs and mine site oil and sustaining costs were both higher than initial guidance, reflecting the stronger Canadian dollar and unplanned mill downtime. Given the strong performance here today, Island Gold remains on track to meet full year production guidance. As with Young-Davidson, we have increased full-year total cash cost guidance to approximately $525 per ounce, and mine site-owned sustaining costs to about $865 per ounce, reflecting the stronger Canadian dollar. Work continues to ramp up on the Phase 3 expansion, with the precinct of the shaft expected to begin in mid-2022. The current focus remains on permitting, detailed engineering of the shaft, and associated infrastructure, as well as the PACE plant. Contract tendering is ongoing with key contracts now in place for the shaft sinking, headworks, shaft site, surface works. Growth capital spending totaled $14 million in the third quarter. While spending is expected to increase in the fourth quarter, some of the planned 2021 capital could be deferred to early 2022. Moving to slide eight, Mulatto has produced 26,700 ounces in the third quarter. That total cash cost and mine-out site fall in sustaining costs $927 and $1,124 per ounce, respectively. The third quarter was impacted by the above-average rainy season and slower-than-anticipated recoveries from stockpiled ore stacked in the quarter. The heavier rainfall and wet ore limited stacking rates to about 1,700 tons per day, which is about 20% below our guidance. With Cerro Palon winding down, we're also stacking a higher proportion of previously mined and stockpiled ore until La Yaqui Grande comes online in the second half of 2022. The leach cycle for their stockpiled ore has been longer than anticipated and processing costs higher than expected, given the additional reagents required. We are expecting higher production from Milatos in the fourth quarter. However, given the weaker third quarter, we are reducing full-year production guidance by 15,000 ounces. Given the higher processing costs associated with the stock-foiled ore, we're expecting total cash costs and all unsustaining costs to increase in the fourth quarter and have revised our 2021 guidance accordingly. We expect higher costs to persist through the first half of 2022 before decreasing in the second half of 2022 as Laiake Grande ramps up production. Mine site free cash flow was negative 20 million in the quarter, reflecting 23 million of growth capital and capital advances related to Laiake Grande. Moving to slide nine, Construction of La Iacogrande remains on track, as can be seen in the photos. The projects really come along nicely. Pre-stripping of the open pit continues to ramp up, with over 6 million tons of waste mined in the quarter. The haul roads are now completed, solution ponds are lined, and the crushing circuit and ADR plant are advancing well. The project remains on schedule for commercial production in the third quarter of 2022 and on budget with $70 million of growth capital spent and $18 million advanced to contractors towards the initial $137 million capital estimate. We expect cost to decrease at Milatos in the second half of 2022 and more significantly into 2023 with Layaki Grande representing the majority of production from the Milatos district. With that, I'll turn the call back to John.

Thank you, Peter. We'll now open the lines for Q&A session and I'll turn the call to the operator to get that going. Thank you.

Thank you, Mr. McCluskey. We will now take questions from the telephone lines. If you have a question and you're 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. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question There will be a brief pause while participants register for questions. Thank you for your patience. And the first question is from Cosmos Chu from CIBC. Please go ahead.

Good morning. Thanks, John, Jamie, and Peter. Maybe my first question is on mulattoes. You know, if I look at your mDNA, I see that, as you mentioned, the mDNA recovery was 49% in Q3. Year-to-date, it was 55%, so it's come down. Last year, it was over 70%. I think in part due to the stockpile ore. If I remember correctly, the stockpile ore, if it is the stockpile material from day one since 2005, I seem to remember that the recovery of that material is lower. I guess my question as going around this is ultimately, you know, I know the leash cycle is longer, but ultimately... What kind of recovery should we be expecting from this new mix that has more of the stockpiled material in it on the leach pad these days?

Yeah, hey, Cosmo, this is Peter. Hi, Peter. The recovery, if you look at just the ounces on versus off, recovery in the quarter of 49%. So part of that is because of just a delay, really, for two things. The rainy season dilutes things on us. It was a particularly wet, rainy season. And so those ounces are coming out in the fourth quarter. And longer leach curve associated with that stockpiled ore. You know, what we carry for that stockpiled ore in our recovery model is something in the order of 50%. However, it tends to be higher grade, and it's already been mined, so it's ore because, you know, the costs of mining have already been incurred. So, yeah, that would be... That would be my answer to those questions.

Okay. And then maybe as a follow-up, Peter, you know, how much of this stock power material do you have? And I'm just trying to get a clearer picture in terms of how the mix of the different ore types is, you know, going to be as you transition to Layaki Grande. In the meantime, there's also El Salto, I believe that's been now stripped maybe. And that should be coming in as well. So how should we look at it in terms of the mix of ore that's being stacked on the leach pad?

Yeah, so, I mean, as always at Mulatto's, we have a number of ore sources. There's still some Victor ores. There's still some San Carlos open pit ore. Those are going to wind down in the coming months. Cerro Palon is winding down. Salto is going to be ramping up starting early next year, and it will come online more soon. as the year progresses and, and, and the stockpile door. So between now and, uh, I would say mid next year when Layaki Grande is on stream, uh, about, about 50% of our ounces, uh, would be coming from, uh, from the stockpile door.

And can you let me, uh, would you be able to tell me how much of the stockpile or do you still, you still, it's, it's, uh, it's in the range of, uh,

It's in the range of five or six million tons. I think we had nine million tons at the beginning of this year, and we've been processing it through the year. And I have to give the exact number, Cosmos, but we still have quite a stack of it.

Okay, for sure. And then maybe switching gears to cost here, as you mentioned, the leach patent now needs, you know, will experience an increase in cost due to higher reagent usage and cost. You know, maybe breaking it down, How much more reagent does the stockpile ore need, and how much, you know, cost increase are you anticipating for this reagent? You know, which one's a larger portion of that cost increase?

So, I mean, it requires more lime and cyanide, to be specific, and caustic as well. So just about everything we put on there is increased for this reagent. stockpile door. Different zones of the stockpile door have different requirements. We're going through our planning process for next year now. We'll come out with guidance in due course. What we're seeing is those ounces are probably coming in at somewhere in the range of maybe in the 1500 ounce range for that 50% of our production for the next year. six or eight months. Um, and, uh, but part of that cost is, is, uh, is non-cash because of the, you know, associated cost of building that stockpile. So I think there's a couple hundred dollars or thereabouts that's non-cash. So, I mean, they still make good money, uh, but there you go.

Great. Um, and maybe, you know, in terms of, uh, a broader question here, following up on that, um, Jamie, as you mentioned, you know, you've managed costs really well in the first three quarters, but there are inflationary pressures on operating costs in the industry. And so we should be expecting some increases, some impact in Q4 into 2022. We've just talked about, you know, mulattoes and some of the reagent costs. But where are you seeing some of the inflationary pressures? Is it in Mexico? Is it in Canada? Is it In the reagent cost, is it in labor or is it just everything?

Yeah, Cosmos, it's Jamie. We've just gone through our budgeting process, and I think it is really across the board. I mean, across all of our operations, we're seeing slightly higher expected labor increases than what we would have had in past years. Obviously, the diesel price has increased and certain consumable costs, you know, grinding media and anything to do with steel has gone up in some cases significantly. So a lot of our input costs have been subject to multi-year purchase contracts that are expiring. And so we are seeing, you know, an uptick. I think across the industry, from an operating cost perspective, it's in the, you know, 5% to 7% range. And I'd say our experience has been consistent with that.

Great. Thanks a lot. Those are all the questions I have. Thanks again for the call.

Thank you. The next question is from Mike Parkin from National Bank Financial. Please go ahead.

Hi, guys. Thanks for taking my questions. One, going back to Mexico, Sierra Paloma, you're indicating that will be depleted in the fourth quarter. Is it expected to kind of be a full quarter of tonnage or kind of a half quarter?

Yeah, it'll be at some time in November that we wind up mining there, but the ounces will continue to come off the pad through the quarter.

Right, okay. And then just kind of revisiting inflationary kind of comments. As you're kind of ramping up to phase three expansion, can you just remind us in terms of what additional manpower you have to bring on through contractors and how you're finding that availability? We're hearing a bit of labor market tightness in Canada, and are you seeing any signs that the higher diesel price is starting to kind of revive demand of the oil patch for people and increasing competition for staff there?

Yeah, on the contractor side, I mean, yeah, I would say we are, you know, as everyone is, the labor market is tightening up. It hasn't hurt our, you know, our Canadian operation, hasn't hurt any of our operations, frankly. You know, our turnover rate hasn't gone up appreciably kind of year over year for the last number of years. as we need to bring on contractors for various, you know, things. I mean, you know, sinking a shaft is not a lot of people. It's a lot of time. And so, you know, we've now awarded that contract to Redpath. I think we can say that. I don't think that's confidential. And, you know, they have a, you know, good supply of contractors, a lot of them Canadian-based that like to like to work in their home country and close to home. So I think that'll be fine. Building a paste plant or expanding a mill, those will also be contractors and we'll be contracting with outfits that will supply those folks. So we haven't, if it's tougher to get people, the costs associated with that may go up a little bit. So we're not quite there in our contract letting yet, but we have We have secured the shaft-sinking portion of this, and we're not seeing any concerns with that.

All right. Thanks very much. And then just one more down in Mexico. What should we be kind of modeling for a re-handle cost of the stockpiles there on a dollar-per-ton basis?

Yeah, it's around $1 a ton U.S. Okay. And can you...

It's been a while since I've visited, but diesel prices used to be kind of independent of spot market in Mexico. Is that still the case where the government still dictates how prices kind of change year to year?

You want to check that, Jamie? Yeah, yeah. No, I think you're right. I mean, we pay to Pemex, the state monopoly, but I think the current rate we're paying is more consistent with market prices.

Okay. All right. That's it for me, guys. Thanks so much.

Thank you. Once again, please press star 1 on your device's keypad if you have a question. The next question is from Carrie Smith from Haywood Securities. Please go ahead.

Thanks, operator.

The first question I had maybe for Peter, just with this slower leach cycle and the higher reagent costs for that stockpiled or mulattoes. Is there any concern that that maybe the ultimate recovery on that material won't get to what you're targeting? And maybe the reagent costs will actually be higher on average over the course of time? Or are you thinking it's still going to be similar recovery to what you sort of expected just going to take longer?

Yeah, there's a couple of things going for us. I mean, yeah, so the reagent costs are higher on that stuff as it's been sitting there longer. It's sulfitic or you need to put more lime on it, more cyanide on it to, you know, leach the gold. It is also higher grade, so that's going for us. Recoveries are also, you know, maybe not as bad as when we put it down there. So there's a lot of things at play there. You know, of that, you know, whatever we have, $700, of stockpiles or there is there, is there a portion of that, that, uh, you know, it's too low grade or low recovery or high reagent costs to, to process. There's, there's a chance of that. Um, but, uh, you know, we'll work through that and we won't put it on the pad if it doesn't make sense.

Okay. Okay. So you're not, you're not really that concerned about it. It is a bit slower, but you're not worried that you're going to lose.

It's lower because it's sulfide. It's lower recovery because it's sulfide. Uh, it's higher costs because it's sulfide. Uh, Yeah, I mean, it's going to cause us a lumpy couple of quarters, but then we'll be lumpy in the other direction with the Layaki Grande. It's going to be booming.

Okay, that's helpful. Thanks, Peter. And then maybe for Jamie, just on the $137 million of CapEx Layaki Grande, can you remind me how much of that was the pre-strip and how much of that pre-strip is actually done as of today? I think you've you gave them the disclosure, how many times you've moved them, just one percentage-wise, how much of that pre-strip is actually done?

So, yeah, about 75% of the total capital cost of La Yaqui Grande was pre-strip. And in terms of our percentage completion on that, I don't have that number in front of me, Kerry, but we're on track and on schedule. As Peter said, once La Yaqui Grande comes online, uh, we'll be, you know, production is going to increase pretty dramatically and our costs are going to be cut in half and, uh, we remain on schedule and, you know, even better, we remain on budget. Like we're, we're, we're consistent with our, with our capital budget there. We're not seeing any cost overruns.

Okay. Okay. That's awesome. Thank you. And then Peter, can you elaborate a bit more on what the issue was with the mill?

Uh, yeah. So, I mean, a couple of power bumps, uh, and, uh, fried motors and uh sanded out cil tanks that take days to unsand by hosing them out followed by getting it back up and running uh burning out pumps and waiting for new pumps to show up it was just was unfortunate and you know we we are now you know we have like many spare pumps uh on site to deal with any similar thing in the future so it is a I mean, that bill was built in 1985, and it's been expanded a few times, and we're going to expand it again. But we'll expand it really good this time.

Okay, thanks very much. I appreciate that.

Kerry, if I have anything to say about it, we're not going to expand it again. We're just going to make that clear. We're debating that right now, and we're waiting for the numbers to come in by the end of this year, and I'd like to think it's... It's going to go a lot better than that.

Okay, great. Thank you, John. I appreciate it.

Operator, are there any further questions?

My apologies. There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 368-9932.