Alamos Gold Inc.

This conference is being recorded.

Good morning. I'll now like to turn the meeting over to Scott Parsons, Alamos Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for attending Alamos' first quarter 2024 conference call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer, Greg Fischer, Chief Financial Officer, and Luke Guimon, Chief Operating Officer. We will be referring to a presentation during the conference call that is available through the webcast as well as 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 Senior VP 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 unless otherwise noted. Now, John will provide you with an overview.

Thank you, Scott. We had a strong start to the year across a number of fronts, following up on record performance in 2023. Production of 135,700 ounces exceeded quarterly guidance, led by record production from the Aki Grande. Costs were consistent with the guidance for the quarter and are expected to decrease through the remainder of the year. We are well positioned to achieve our full year production guidance and cost guidance. With solid operational performance and higher gold prices, we generated record quarterly revenue of $280 million. and free cash flow of 24 million, net of 45 million in cash tax payments in Mexico. We continue to generate strong ongoing free cash flow while funding the phase three plus expansion at Island Gold. In addition to delivering operationally and financially, we are also creating value in a number of ways, most notably through our acquisition of Argonaut Gold. Turning to slide four. In March, we announced the friendly acquisition of Argonaut and its Vagino mine, located adjacent to our island gold mine. Given their close proximity, we'll be combining the operations to create one of the largest, lowest cost, and most profitable gold mines in Canada. The integration of the two mines is expected to unlock significant value, including pre-tax synergies of $515 million. In addition to the synergies, the acquisition is accretive across all financial and operating metrics. Through the expansion of a single optimized milling complex, there is also significant longer-term upside potential at both operations. The addition of Magena will make Alamos a stronger company and enhance our unique position as a growing Canadian-focused intermediate producer with declining costs and one of the lowest political risk profiles in the sector. Flight 5 highlights the close proximity of the two operations. The two deposits are less than 300 meters apart, and the incremental haul distance from the Island Gold shaft to the Maginot Mill is 2 kilometers. By utilizing the larger centralized mill and tailings facility at Maginot, the mill and tailings expansion at Island Gold will no longer be required, providing capital savings of $140 million over the life of the mine. The larger and more efficient centralized mill will result in lower processing costs as well as lower consolidated G&A for the combined operations. We expect this to provide annual savings of $25 million, or $375 million over the life of the mine, with further upside as both deposits grow. With three operations in Northern Ontario, in close proximity to each other, we expect to realize increased purchasing power for consumables. We also expect to benefit from Maginot's significant tax pools that can be used to defer any meaningful cash taxes payable in Canada by three years to 2028. Over to slide six. The addition of Maginot complements our existing asset base and enhances our strong outlook. Maginot will increase our current rate of production by more than 20% to over 600,000 ounces per year. The Phase 3 Plus expansion at Island Gold, once completed in 2026, will drive our annual production closer to 700,000 ounces and help decrease all-in sustaining costs below $1,100 per ounce. Longer term, through the development of Lynn Lake and PDA, we have the capacity to increase our rate of production to over 900,000 ounces of gold a year, We will also be evaluating additional upside potential at both Island Gold and Maginot through a larger expansion of the Maginot Mill. This represents nearly 80% growth from current levels, providing Alamos with one of the best growth profiles in the sector. Nearly all of this growth is coming from Canada, it's lower cost, and it's sustainable, given the long-life mines, which average 15 years. We continue to demonstrate our long-term track record of value creation through exploration and M&A during the quarter. Maginot is an excellent example of our near-term value creation. The acquisition of Orford Mines and its Kickavik Gold project located in Quebec is also a good example of our focus on longer-term value creation opportunities. The transaction closed earlier this month, providing us with an attractive exploration stage project in a great jurisdiction. In February, we announced our updated reserve and resources with growth across all categories as we continue to add value through exploration. Reserves have now increased for five consecutive years to nearly 11 million ounces for a combined increase of 10%, with grades also increasing 9% over that timeframe. With our largest exploration budget ever planned for 2024 at $62 million, We see excellent potential for that track record of success to continue with multiple exploration updates expected throughout the year. We expect to deliver on several other catalysts through the year, including completing development plan for the growing higher-grade PDA project later this quarter. We are also working on a study incorporating the burnt timber and liquid satellite deposits into the Lynn Lake project. These deposits represent upside to the 2023 feasibility study that we expect to outline towards the end of the year. I'll now turn the call over to our CFO, Greg Fischer, to review our financial performance.

Thank you, John. On to slide 8, in the first quarter we sold 132,800 ounces of gold at an average realized price of $2,069 per ounce for record quarterly revenue of $278 million. Total cash costs of $910 per ounce and all-in-sustaining costs of $1,265 per ounce were both above annual guidance, but consistent with our guidance for the quarter. All-in-sustaining costs were also impacted by higher share-based compensation, reflecting the increase in our share price during the quarter. Costs are expected to trend lower through the year, to be consistent with full-year guidance, reflecting lower costs at both Young-Davidson and Island goals. Our reported net earnings of $42 million in the first quarter, or $0.11 per share, included unrealized foreign exchange losses of $5 million recorded within deferred taxes in foreign exchange and other adjustments net of taxes of $5 million. Excluding these items, our adjusted net earnings were $51 million, or $0.13 per share. Operating cash flow before changes in non-cash working capital was $135 million, or $0.34 per share. Free cash flow totaled $24 million, an impressive performance given this was net of $45 million in cash taxes, as well as ongoing spending at the Phase 3 Plus expansion at Island Gold. The majority of the $45 million of cash taxes paid in the quarter were related to the 2023 year-end tax payment in Mexico, given the strong profitability of Milados last year. We expect cash tax payments to decrease to approximately $10 million per quarter through the rest of the year related to 2024 tax installments. With lower cash tax payments starting in the second quarter combined with declining costs, we expect stronger company-wide free cash flow through the remainder of the year while continuing to fund their growth initiatives. Capital spending totaled $85 million in the quarter and included $27 million of sustaining capital and $52 million of which was focused on the Phase 3 Plus expansion. Our balance sheet continued to strengthen in the quarter, with our cash balance growing 7% from year-end to $240 million, and we remained debt-free. Following the expected closing of our acquisition of Argonaut in July, we will be inheriting approximately $275 million of their debt. We have more than sufficient capacity for this debt within our currently undrawn $500 million credit facility at significantly better terms. Given our existing cash position, we will maintain one of the strongest balance sheets in the sector. Combined with our strong ongoing cash flow generation, we will have more than enough financial capacity to continue to internally fund our growth plans, including the Phase 3 Plus expansion and development of both PDA and Linn Lake. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations.

Thank you, Greg. Moving to slide nine, Young-Davidson produced 40,100 ounces in the quarter with total cash costs and all in sustaining costs both above annual guidance. Production and costs were impacted by a temporary downtime to replace the head ropes at the Northgate shaft, which had been scheduled for replacement in the second quarter. Mining rates were also impacted by delays in receiving two production scoops. With completion of the head rope change and receipt of the two new hybrid production scoops, mining rates were back to design capacity of 8,000 tons per day in March. Grades mined were also impacted by the lower mining rates, which delayed access to higher grade silts from March into April. Grades mined are expected to return to guided levels in the second quarter and through the rest of the year. Mine site free cash flow totaled $15 million in the quarter. With higher production, lower costs, and stronger free cash flow expected through the remainder of the year, Young-Davidson is well positioned to meet its full year guidance and generate over $100 million in mine site free cash flow for the fourth consecutive year. Over to slide 10. Island Gold produced 33,400 ounces in the quarter, with total cash costs and mine site all-in sustaining costs above annual guidance. Grades mined were in line with guidance, while tons mined and processed were slightly below guidance. Both mining rates and grades are expected to increase in the second quarter, and with higher production and lower costs expected through the rest of the year, Island Gold remains on track to meet its full year guidance. Mine site free cash flow was negative $14 million in the quarter, as the operation continues to fund the majority of the Phase III Plus expansion. as well as a significant ongoing exploration program. Over to slide 11, we continue to make progress on the phase three plus expansion. The shaft sinking is well underway, having increased to a rate of 2.5 meters per day in March and reaching a depth of 185 meters by the end of the first quarter. We expect the ramp up to the ultimate sinking rate of over three meters per day during the second quarter and are on track to reach a depth of a thousand meters by year end. Detailed engineering of the Pace Plant is now 85% complete, with construction activities expected to begin in the second half of the year. One of the attractive aspects of the Maginot acquisition is gaining access to an already constructed larger mill. As such, work on the Island Goal Mill expansion is no longer required, further de-risking the Phase III Plus expansion and contributing to the $140 million in capital synergies we expect to realize. Over to slide 12. As of March 31, approximately 57% of the total initial capital of $756 million had been spent and committed, and we remain on track to complete the expansion during the first half of 2026. Capital spending for the work completed to date is tracking well. However, we are continuing to see some cost pressures through the ongoing labor inflation. Following the expected closing of the Maginot acquisition in July, we will provide updated capital estimates with the Island Gold Mill expansion no longer required and incorporating our planned upgrades to the Maginot Mill. Moving to slide 13, we will continue to use our current mill to process Island Gold Ore for the remainder of this year. In parallel, we will continue to ramp up and optimization of the Maginot Mill to a targeted rate of 11,200 tons per day by year end. which will be sufficient to handle ore from both Maginot and Island Gold. At that point, we plan on shutting down the Island Gold mill and processing Island Gold's higher grade ore through the Maginot mill at significantly lower processing costs. In 2025, we will work on further optimizing and expanding the Maginot mill to 12,400 tons per day to accommodate the higher throughput rates from Island Gold once the phase three plus expansion is complete in 2026. As in the case with the Island Gold Mill, we will no longer need to expand the Island Gold tailings facility. The tailings facility at Maginot has a permitted capacity of 150 million tons, which is more than sufficient to accommodate Maginot's reserves and Island Gold's growing reserve and resource base. In addition to the significant synergies, the larger centralized milling complex will create longer term opportunities for further expansions of the combined island gold and magino operations the magino processing facility has a name plate capacity of 10 000 tons per day however expansion scenarios to increase capacity to between 15 000 and 20 000 tons per day are being evaluated over to slide 14 production from the mulattos district total 62 200 ounces exceeding expectations driven by record production of 50,000 ounces from Layaki Grande. The outperformance was driven by higher stacking rates of 10,800 tons per day and recovery rates well above annual guidance as the operation benefited from the recovery of higher grade ore that was stacked in late 2023. Cost came in below the annual guidance range due to the higher contribution of low cost production from Layaki Grande. With lower grades expected of Layaki Grande through the remainder of the year, Costs are expected to increase to be consistent with annual guidance. Mine site free cash flow totaled $50 million in the quarter, an impressive result considering this was net of $45 million of cash tax payments. With that, I will turn the call back to John. Thank you, Luke.

That concludes our formal presentation. I'll now ask the operator to open the call for your questions.

Certainly. Thank you. So 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 pause while participants register for questions. Thank you for your patience. The first question is from Mike Parkin from National Bank. Your line is open. Go ahead.

Hey, guys. Thanks, and congrats to the strong start to the year. On Lynn, or sorry, the Yaki Grande, I get that your stacking rates are exceeding budget, but are you also continuing to see any sort of positive grade reconciliation that's leading to these really impressive numbers?

Hi, Mike. It's Luke here. Yes, we are still seeing some positive reconciliation with regards to the model relative to our actual results. We have actually provided, we have done more detailed drilling within the reserve base as well to be able to tighten up that prediction on the basis of what we expect to get versus what we're actually getting. So we are still seeing some positive variation on the grade, but not as significant as what we were seeing last year.

Okay. Are you seeing additional positive tonnage reconciliation to the block model as well?

Yes, we are also experiencing that as well. Bench by bench, we are picking up a little bit more ore relative to what we had modeled. So that's also providing a positive as far as the results to La Yaqui Grande.

Okay. And then in the same jurisdiction there, I remember correctly kind of putting the legacy sulfides stockpiles on the heap on pause. But with Gold's lift, is there any thought towards potentially restarting that?

Sorry, you're talking about the SAS stockpiles? We've processed all of that through the... So as of the end of last year, we had processed all the SAS stockpiles. So as of now, we'll just be running out the residual leaching on the leach pad.

Okay. And then just Can you give us a sense of what labor costs have increased at Island YD area year over year, like a percentage?

Yeah, I mean, we have seen some inflationary pressures with regards to labor. We modeled 6% in our business plan with regards to labor inflation across the business units.

Okay. And are you seeing... that more for, like, more pressure on the construction side of things versus the operating side of things, or is it about the same?

Similar pressures on the construction side as well. I would say it's in that similar range of about 6%. Okay.

And then obviously we're already in Q2. The idea is to have this PDA maintenance development plan out this quarter. Can we get a bit of, like I said, a May thing, a June thing?

Our expectation would be by the end of June on that, Mike, and we'll come up with a development plan with regards to our mining process as well as our milling process.

Okay. And will you guys be doing any kind of teach-in conference call around that?

No, we're not expecting to do anything with regards to that, with regards to PDA. Okay.

That's it for me, guys. Thanks very much.

Thank you. Once again, please press star 1 on your device's keypad if you have a question. The next question is from Kerry Smith from Haywood Securities. Your line is open. Go ahead.

Okay. Thanks, Alfred. Luke, on the expansion target at Maginot, you talked about 15,000 to 20,000 tons. Would With the CAPEX for that, can you give me a rough estimate as to what you think that might be if you were going to go to 20,000 times a day and what it might involve?

I couldn't give you a number on that at this point, Kerry. It's really too early. I mean, I know Argonaut were already in a process to start looking at it, but they were very, very preliminary. And obviously, post-closure, that's something that we'll take a harder look at and be able to provide more firmer numbers down the road.

Okay. Okay. And then when you... take over the operation, you want to expand up to the 12,400 tons a day. What would the rough capex be to do that, and would that money all get spent this year? No.

Our estimate on bringing the plant to 12,400 tons per day is about $40 million in capital required, but that's an expenditure that would start to occur in 2025 and early 2026. To tie into the phase 3 plus expansion being completed and coming online.

OK, so most would get spent 2025 I guess and then 2026 as well for the most part, yeah. OK, OK, gotcha. And then you were saying In the press release, you were getting 2.5 meters of advance now on the shaft sinking, and you mentioned you're trying to get to 3 meters a day by the end of Q2. Is that the advance rate that you're budgeting to complete the shaft at 3 meters, or is there another incremental step up in that advance?

No. No other incremental step up. When they get to roughly, it's about 3.2 meters per day we're expecting. And when they achieve that in this second quarter, that's the rate they would sustain for the rest of the shaft project.

Okay, okay, gotcha. Okay, and on the G&A, it was a bit higher in the quarter. You had given $28 million guidance for the year. So I was just wondering, Greg, are you still thinking you'll be in that range? Was Q1 slightly higher because there was some costs associated with some one-off costs associated with Magino or something else?

Yeah, there are some one-off costs. I think we'll be, yeah, between $28 and $30 million for the year on G&A.

Okay. And that $28 to $30 would not include the costs associated with the acquisition of Argonaut, right?

Correct. The transaction costs would be separate from that.

Gotcha. Okay. Okay. Perfect. That's great. Thanks, guys.

Thank you. Once again, please press star 1 on your device's keypad if you have a question. We have another question from Carrie Smith, Haywood Securities. Your line's open. Go ahead.

Okay, I'll take a follow-up if you don't mind. Just on the transaction cost, Greg, when do you think those would be expensed, like in which quarters or in just one quarter? Like how would it come through the income statement?

It would come through the income statement combined in the second quarter and in the third quarter. Majority would probably be in the third quarter after close. because we expect to close in July. But we're estimating about $20 million expense between the two quarters, with the majority being in the third quarter.

In the third quarter. Okay. Okay. That's super helpful. Thank you. Appreciate it.

Thank you. 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 416- 368-9932, extension 5439. Thank you. The conference is now ended. Please disconnect your lines at this time, and thank you for your participation.