Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported its financial results for the quarter ended June 30, 2020.
“The second quarter of 2020 will be remembered as one of the most challenging times in our history given the COVID-19 pandemic. We started the quarter with two of our operations being temporarily suspended, but we adapted well and by June both Island Gold and Mulatos had safely returned to normal operating levels,” said John A. McCluskey, President and Chief Executive Officer.
At the same time we made good progress on several catalysts that form key parts of what is a transformational year for Alamos. These include the completion of the lower mine expansion at Young-Davidson earlier this month, the announcement of a Phase III expansion of Island Gold, and a construction decision on the La Yaqui Grande project. These have greatly enhanced the long-term outlook for each of our operating mines. We look forward to creating additional value for our stakeholders in the second half of 2020 with higher production and lower costs expected to drive strong free cash flow growth,” Mr. McCluskey added.
Second Quarter 2020
- Produced 78,400 ounces of gold, a 37% decline y-o-y, with production impacted by the previously guided downtime of the Northgate shaft at Young-Davidson and temporary suspension of operations at Island Gold and Mulatos due to COVID-19. Mulatos and Island Gold resumed operations in May with both returning to normal operating levels in June
- Mulatos produced 35,900 ounces of gold and generated mine-site free cash flow1 of $19.3 million, with the operation benefiting from the ongoing recovery of gold from the leach pad during the temporary suspension
- Island Gold produced 19,400 ounces of gold and generated mine-site free cash flow1 of $9.2 million. Production was lower than previous quarters due to the temporary suspension of operations which began the last week of March. After a phased ramp up in May, mining and milling rates increased to average more than 1,200 tpd for the month of June
- Advanced the tie-in of the upper and lower mines at Young-Davidson, successfully commissioning the Northgate shaft and new lower mine infrastructure in July. Underground mining rates increased to 6,500 tpd by the end of July and are expected to ramp up to 7,500 tpd by the end of 2020
- Sold 74,605 ounces of gold at an average realized price of $1,692 per ounce for revenues of $126.2 million
- Generated cash flow from operating activities of $49.6 million ($44.7 million, or $0.11 per share, before changes in working capital1)
- Consolidated total cash costs1 of $933 per ounce and all-in sustaining costs (“AISC”)1of $1,276 per ounce were both temporarily higher, due to higher costs at Young-Davidson during the lower mine tie-in. AISC were higher than usual as a result of the impact of the 79% increase in the Company’s share price on the revaluation of outstanding stock-based awards. In addition, sustaining capital was allocated to lower ounces of gold sold given the above noted temporary suspensions. Total cash costs and AISC are expected to decrease significantly in the second half of 2020
- Realized net earnings of $11.7 million, or $0.03 per share
- Reported adjusted net earnings1 of $9.8 million, or $0.03 per share1, which includes adjustments for unrealized foreign exchange gains of $10.3 million recorded within deferred taxes, partially offset by COVID-19 costs of $6.5 million related to the suspension of operations at Island Gold and Mulatos, and other one-time losses of $1.9 million
- Ended the quarter with cash and cash equivalents of $201.3 million and equity securities of $30.2 million
- Paid a quarterly dividend of $5.9 million and repurchased 527,100 common shares at a cost of $2.6 million, or $5.05 per share, under the Company’s Normal Course Issuer Bid (“NCIB”). To date in 2020, the Company has returned $17.3 million to shareholders in the form of dividends and share repurchases
Subsequent to the Second Quarter:
- Reported results of the positive Phase III Expansion Study conducted on Island Gold, which is expected to drive a 72% increase in average annual production to 236,000 ounces and a 30% decrease in mine-site AISC to $534 per ounce at the operation
- Announced a construction decision on the high-return La Yaqui Grande project, which generates a 58% after-tax internal rate of return (“IRR”) at a $1,750 gold price and is expected to significantly reduce Mulatos District AISC starting in 2022
(1) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
(1) Cost of sales includes mining and processing costs, royalties, and amortization expense. For the three months and six months ended June 30, 2020, cost of sales also includes COVID-19 costs of $6.5 million
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures
(3) Includes growth capital from operating sites and excludes the Island Gold royalty repurchase of $54.8 million in March 2020
(4) Includes capitalized exploration at Mulatos and Island Gold
(5) Comparative cash and cash equivalents and Long-term debt balance as at December 31, 2019
Management’s Response to the COVID-19 Pandemic
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. The Company responded rapidly and proactively to COVID-19 and has implemented several initiatives to help protect the health and safety of our employees, their families and the communities in which we operate.
Specifically, each of our operating mine sites has activated established crisis management plans and developed site-specific plans that enable them to meet and respond to changing conditions associated with COVID-19. The Company is adopting the advice of public health authorities and adhering to government regulations with respect to COVID-19 in the jurisdictions in which it operates.
The following measures have been instituted across the Company to prevent the potential spread of the virus:
- Medical screening for all personnel prior to entry to site for symptoms of COVID-19
- Testing of personnel at Mulatos and Island Gold prior to starting their rotation at the camp
- Training on proper hand hygiene and social distancing
- Remote work options have been implemented for eligible employees
- Social distancing practices have been implemented for all meetings, huddles and transportation
- Mandatory use of personal protective equipment for employees where social distancing is not practicable
- Rigid camp and site hygiene protocols have been instituted and are being followed
- Elimination of all non-essential business travel
- Required 14-day quarantine for any employees returning from out of country travel
Impact on Operations
In order to protect nearby communities and align with government requirements, two of the Company’s mines were temporarily suspended, but resumed normal operations during the second quarter.
At Island Gold, operations were suspended on March 25, 2020 given the unique set up of the operation with a large portion of the workforce operating on a fly-in, fly-out basis and being housed within a camp located directly within the local community. The Company restarted operations in a phased approach at the beginning of May 2020 and ramped up to budgeted mining and milling rates of 1,200 tpd in the month of June. The Company incurred $4.5 million in COVID-19 costs at Island Gold in the quarter, mainly related to labour costs for idle employees and additional transportation and lodging costs.
Operations at Mulatos were suspended in early April following a mandate by the Mexican government to suspend all non-essential businesses in response to the COVID-19 crisis. The suspension period was lifted in May and mining, crushing and stacking ore on the leach pad was restarted. Although mining activities were suspended for part of the quarter, the Company continued to recover gold from the leach pad given the significant amount of contained ounces stacked in the first quarter. The Company incurred $2.0 million in COVID-19 costs at Mulatos in the quarter mainly related to labour costs for idle employees and additional transportation costs.
To date, operating activities at Young-Davidson have not been significantly impacted with mining and processing activities and construction and commissioning of the lower mine ongoing throughout the quarter. Completion of the lower mine expansion was delayed slightly but was completed on July 8, 2020.
Revised 2020 Guidance
|Gold production (000’s ounces)|
|Young-Davidson||135 – 145||145 – 160|
|Mulatos||140 – 150||150 – 160|
|Island Gold||130 – 140||130 – 145|
|Total gold production||405 – 435||425 – 465|
|Cost of sales per ounce of gold sold (includes amortization)(4)|
|Total||$ 1,160||$ 1,103|
|Total cash cost per ounce of gold sold(1)|
|Young-Davidson||$990 – $1,030||$910 – $950|
|Mulatos||$840 – $880||$840 – $880|
|Island Gold||$480 – $520||$480 – $520|
|Consolidated total cash cost per ounce of gold sold||$780 – $820||$757 – $797|
|Mine-site all-in sustaining costs per ounce of gold sold(1)(3)|
|Young-Davidson||$1,180 – $1,220||$1,110 – $1,150|
|Mulatos||$940 – $980||$940 – $980|
|Island Gold||$740 – $780||$740 – $780|
|Consolidated all-in sustaining costs per ounce of gold sold (1)||$1,030 – $1,070||$1,007 – $1,047|
|Capital expenditures (sustaining) (1)|
|Young-Davidson||$30 – $35||$30 – $35|
|Mulatos||$15 – $20||$15 – $20|
|Island Gold||$35 – $40||$35 – $40|
|Total Capital expenditures (sustaining)||$80 – $95||$80 – $95|
|Capital expenditures (growth) (1)|
|Young-Davidson||$45 – $50||$45 – $50|
|Mulatos||$15 – $20||$5|
|Island Gold||$35 – $40||$15 – $20|
|Total Capital expenditures (growth)||$105 – $120||$75 – $85|
|Capital expenditures (capitalized exploration) (1)|
|Total capital expenditures (capitalized exploration)||$ 20||$ 25|
|Total consolidated capital expenditures and capitalized exploration (1)||$205 – $235||$180 – $205|
(1) Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this MD&A for a description of these measures.
(2) Includes growth capital and capitalized exploration at the Company’s development projects (Turkey, Lynn Lake, Esperanza and Quartz Mountain
(3) For the purposes of calculating mine-site all-in sustaining costs at individual mine sites, the Company does not include an allocation of corporate and administrative and share based compensation expenses to the mine sites.
(4) Cost of sales includes mining and processing costs, royalties, and amortization expense, and is calculated based on the mid-point of guidance.
The Company is providing revised 2020 production, cost, and capital guidance. Guidance was withdrawn in April 2020 following the temporary suspension of operations at Island Gold and Mulatos in response to COVID-19. With operations at Mulatos and Island Gold having both been suspended for more than a month and the completion of the lower mine expansion at Young-Davidson delayed into July due to COVID-19, consolidated 2020 production guidance has been revised to 405,000 to 435,000 ounces. This represents a 6% decrease from the mid-point of previous guidance. Total cash cost guidance has also been revised to $780 to $820 per ounce and all-in sustaining cost guidance to $1,030 to $1,070 per ounce, a 3% and 2% increase, respectively. This reflects higher costs at Young-Davidson in the second quarter due to the COVID-19-related delay in the completion of the lower mine expansion. With Island Gold and Mulatos both returning to normal operating levels in June and the lower mine expansion completed at Young-Davidson in July, the Company expects higher production at significantly lower costs in the second half of 2020.
Consolidated 2020 capital guidance of $205 to $235 million has increased by $25 to $30 million with all of the increase related to the Phase III Expansion at Island Gold and the La Yaqui Grande project following the recently announced construction decisions, partially offset by lower exploration spending.
At Young-Davidson, full year production guidance has been revised to between 135,000 and 145,000 ounces and cost guidance increased due to the previously announced COVID-19-related delay in the completion of the lower mine expansion. Despite the full year revisions, the second half outlook remains strong with the lower mine expansion completed in July. Production is expected to increase in the second half of 2020 at significantly lower costs, with total cash costs expected to decrease to a range of $800 to $840 per ounce and mine-site all-in sustaining costs to a range of $990 to $1,030 per ounce.
The Company’s liquidity position remains strong, ending the quarter with $201.3 million of cash and cash equivalents and no debt other than $100.0 million drawn on its $500.0 million revolving facility. The Company expects to transition to strong free cash flow generation in the second half of 2020 and remains well positioned to fund its internal growth initiatives.