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Alamos Gold Reports Fourth Quarter 2021 Production and Provides Three-Year Production and Operating Guidance

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Alamos Gold Reports Fourth Quarter 2021 Production and Provides Three-Year Production and Operating Guidance

 

 

 

 

 

High-return organic growth to drive production higher at significantly lower costs over the next three years

 

 

Alamos Gold Inc. (TSX:AGI) (NYSE:AGI) reported fourth quarter and annual 2021 production. The Company also provided three-year production and operating guidance.

 

“With stronger production in the fourth quarter, we met our revised full year 2021 guidance. This was driven by strong performances through the year from both Young-Davidson and Island Gold, with the former achieving record mining rates and free cash flow. This offset a challenging year at Mulatos as we work through a transitional phase with higher costs until La Yaqui Grande comes online in the second half of 2022. This temporary increase in costs at Mulatos and industry-wide inflation are the key drivers of higher consolidated costs in 2022, though we expect a significant improvement in costs in 2023 and beyond,” said John A. McCluskey, President and Chief Executive Officer.

 

“We are pleased to be providing our inaugural three-year guidance which outlines our strong outlook. Our key high-return growth projects remain on track and are expected to support higher production at substantially lower costs in the years ahead. The completion of La Yaqui Grande will be the key near-term driver of lower costs, and Island Gold will be the primary driver of significantly lower costs over the longer term with the Phase III expansion. These high-return reinvestments are fully funded and form a key part of our sustainable business model that can support growing returns to our stakeholders over the long term,” Mr. McCluskey added.

 

Fourth Quarter and Full Year 2021 Operating Highlights

  • Met 2021 annual production guidance: production of 457,200 ounces of gold in 2021 was in line with revised production guidance and represented a 7% increase from 2020. This included fourth quarter production of 112,500 ounces, an increase from the third quarter, with strong performances at Island Gold and Young-Davidson offsetting lower production from Mulatos
  • Costs expected to meet 2021 guidance: total cash costs and all-in sustaining costs for 2021 have not been finalized but are expected to be consistent with revised full year guidance of $790 to $810 per ounce and $1,120 to $1,140 per ounce, respectively
  • Record revenues: sold 112,966 ounces of gold in the fourth quarter at an average realized price of $1,797 per ounce for revenues of $203 million. Full year sales totaled 457,517 ounces of gold at an average realized price of $1,800 per ounce for record revenues of $824 million

 

Three Year Guidance Overview1 – Operating Mines

  • Stable production in 2022 with 4% growth expected in 2023: production is expected to be between 440,000 and 480,000 ounces in 2022, consistent with 2021, and increase approximately 4% (based on the mid-point of guidance) to between 460,000 and 500,000 ounces in 2023 and 2024. The completion of the Phase III expansion at Island Gold is expected to drive a further increase in production in 2025 with additional growth potential from Lynn Lake
  • Total cash cost guidance of $875 to $925 per ounce in 2022, improving substantially to $650 to $750 per ounce in 2024: costs are expected to increase in 2022, reflecting industry-wide cost inflation and temporarily higher costs at Mulatos. Costs at Mulatos and on a consolidated basis are expected to decrease starting in the second half of 2022 with the commencement of low-cost production from La Yaqui Grande. Island Gold is expected to contribute to lower costs in 2024, along with a further reduction in costs following the expected completion of the Phase III expansion in 2025
  • All-in sustaining cost (“AISC”) guidance of $1,190 to $1,240 per ounce in 2022, improving to $950 to $1,050 per ounce in 2024: consistent with total cash costs, AISC are expected to decrease approximately 18% from 2022 to 2024 (based on the mid-point of guidance), reflecting lower costs at Mulatos and Island Gold. AISC are expected to decrease further in 2025 with the completion of the Phase III expansion at Island Gold
  • Total capital guidance, excluding capitalized exploration, of $305 to $345 million in 2022: this includes $290 to $330 million of capital at producing mines and is down slightly from 2021 guidance with lower capital at La Yaqui Grande and Young-Davidson more than offsetting the ramp up in spending on the Phase III expansion at Island Gold. Capital spending for producing mines is expected to decrease approximately 23% in 2023 to between $220 and $260 million, reflecting the completion of construction of La Yaqui Grande, and remain at similar levels in 2024. Total capital is expected to decline further following the completion of the Phase III expansion at Island Gold in 2025. The total capital budget for 2022 includes:
    • Sustaining capital guidance of $90 to $105 million: down approximately 17% from 2021, reflecting lower sustaining capital at Mulatos. Sustaining capital is expected to remain at similar levels through 2024
    • Growth capital guidance for producing mines of $200 to $225 million: consistent with 2021 with the majority related to the Phase III expansion at Island Gold and completing construction at La Yaqui Grande
  • Exploration budget of $40 million: with more than half allocated to following up on ongoing exploration success at Island Gold
  • Fully funded growth: the Phase III expansion at Island Gold and La Yaqui Grande are expected to be funded through ongoing cash flow and existing cash. The Company expects to generate positive free cash flow in the second half of the year as costs and capital spending decrease with the start of production at La Yaqui Grande
  • Strong ongoing returns to shareholders: including the existing $0.10 per share annualized dividend (paid quarterly) and planned share repurchases under the Normal Course Issuer Bid. In 2021, the Company returned approximately $51 million to shareholders between dividends and share repurchases, representing a combined yield of approximately 1.8% at current share prices

1 Guidance statements in this release are forward-looking information. See the Assumptions and Sensitives section of this release along with the cautionary note at the end of this release.

 

Upcoming 2022 catalysts

  • 2021 year-end Mineral Reserve and Resource update: February 2022
  • La Yaqui Grande commercial production: Q3 2022
  • Island Gold Phase III expansion updated mine plan: mid-2022. This will incorporate the significant growth in high-grade Mineral Reserves and Resources since the completion of the July 2020 study into an optimized mine plan which is expected to enhance already attractive economics and the value of the operation
  • Lynn Lake completion of permitting and construction decision: H2 2022

 

Fourth Quarter and Full Year 2021 Operating Results

 

  Q4 2021 Q4 2020 2021 2020(2) Revised 2021
Guidance
(1)
Gold production (ounces)                  
Young-Davidson 51,900   48,000   195,000   136,200   190,000 – 205,000
Island Gold 37,500   41,200   140,900   139,000   130,000 – 145,000
Mulatos 23,100   31,200   121,300   150,800   135,000 – 145,000
Total gold production 112,500   120,400   457,200   426,800   455,000 – 495,000

(1)  2021 production guidance for Mulatos was revised lower on October 27, 2021. Production guidance for Young-Davidson and Island Gold was unchanged from initial 2021 guidance.
(2)  2020 total production included 800 ounces from El Chanate.

 

2022 Guidance

 

                                  2022 Guidance 2021 Revised
Guidance
 (5)
             
  Young-Davidson Island Gold Mulatos Other (2) Total Total
Gold production (000 oz) 185 – 200 125 – 135 130 – 145   440 – 480 457 (actual)
Cost of sales, including
 amortization   ($ millions)(3)
        $610  
Cost of sales, including
 amortization ($/oz)(3)
        $1,325  
Total cash costs ($/oz)(1)(5) $850 – 900 $550 – 600 $1,225 – 1,275 $875 – 925 $790 – 810
All-in sustaining costs ($/oz)(1)(5)         $1,190 – 1,240 $1,120 – 1,140
Mine-site all-in sustaining costs
($/oz)(1)(4)(5)
$1,125 – 1,175 $850 – 900 $1,325 – 1,375    
Capital expenditures ($ millions)            
Sustaining capital(1) $50 – 55 $35 – 40 $5 – 10 $90 – 105 $110 – 125
Growth capital(1) $5 – 10 $145 – 160 $50 – 55 $15 $215 – 240 $210 – 225
Total Sustaining and Growth Capital(1) $55 – 65 $180 – 200 $55 – 65 $15 $305 – 345 $320 – 350
Capitalized exploration(1) $4 $20 $3 $27 $34
Total capital expenditures and capitalized exploration(1) $59 – 69 $200 – 220 $55 – 65 $18 $332 – 372 $354 – 384

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release for a description of these measures.
(2)  Includes growth capital and capitalized exploration at the Company’s development projects (Lynn Lake and Esperanza).
(3)  Cost of sales includes mining and processing costs, royalties, and amortization expense, and is calculated based on the mid-point of total cash cost guidance.
(4)  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.
(5)  2021 production and cost guidance revised on October 27, 2021.

 

Gold production in 2022 is expected to remain at similar levels as 2021 and weighted towards the second half of the year (55% of total production) given the anticipated start of production at La Yaqui Grande mid-year. Total cash costs and AISC are expected to decrease through the year and be significantly lower in the second half of 2022, reflecting the start of low-cost production from La Yaqui Grande.

 

Full year AISC are expected to increase approximately $85 per ounce, or 8% from 2021 (based on the mid-point of guidance). The primary driver of the increase is approximately 5% cost inflation, which is being experienced industry-wide, and a temporary increase in costs at Mulatos as the operation transitions from mining of higher-cost Mulatos and stockpiled ore, to the higher grade and lower cost La Yaqui Grande mine. This temporary increase in costs at Mulatos is partially offset by lower sustaining capital at the operation with the stripping of the El Salto portion of the main Mulatos pit largely completed in 2021.

 

Cost guidance continues to include COVID-19 testing and other related health and safety costs across all three operating mines. Full year production and cost guidance assumes no significant operational interruptions due to COVID-19.

 

Capital spending is expected to be higher during the first half of the 2022 and trend lower during the second half of the year following the completion of construction of La Yaqui Grande. Approximately 60% of the 2022 capital budget is expected to be spent during the first half of the year.

 

2022 – 2024 Guidance: Operating Mines

 

    2022 2023 2024
Gold Production        
Young-Davidson 000 oz 185 – 200 185 – 200 185 – 200
Island Gold 000 oz 125 – 135 115 – 125 140 – 155
Mulatos 000 oz 130 – 145 160 – 175 135 – 145
Total gold production 000 oz 440 – 480 460 – 500 460 – 500
         
Total cash costs(1) $/oz $875 – 925 $775 – 875 $650 – 750
All-in Sustaining costs(1),(2) $/oz $1,190 – 1,240 $1,075 – 1,175 $950 – 1,050
Sustaining capital(1),(3) $ millions $90 – 105 $95 – 110 $95 – 110
Growth capital(1),(3) $ millions $200 – 225 $125 – 150 $135 – 160
Total sustaining & growth capital(1),(3)
(Operating mines; ex. Exploration)
$ millions $290 – 330 $220 – 260 $230 – 270
         

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release for a description of these measures.
(2)  All-in sustaining cost guidance for 2023 and 2024 includes the same assumptions for G&A and stock based compensation as included in 2022.
(3)  Sustaining and growth capital guidance is for producing mines and excludes capital for Lynn Lake and other development projects, and capitalized exploration.
(4)  2023 and 2024 Cost of sales guidance has not been provided given amortization charges are based on reserves and resources at the end of each of these years and cannot be reasonably estimated at this time.

 

Gold production is expected to increase approximately 4% in 2023, driven by higher production from the Mulatos District given a full year of production from La Yaqui Grande, as well as ongoing production from the main Mulatos operation. Company-wide gold production is expected to remain at similar levels in 2024 with higher production from Island Gold offsetting lower production from Mulatos.

 

Total cash costs and AISC are expected to decrease 8% and 7%, respectively, in 2023, reflecting significantly lower costs at Mulatos with La Yaqui Grande ramped up and operating for the full year. A more significant improvement in costs is expected in 2024 with a further decrease in costs at Mulatos, with La Yaqui Grande providing the majority of production, and lower costs at Island Gold, reflecting the mining and processing of higher grades. Total cash cost and AISC are expected to decrease 22% and 18%, respectively, between 2022 and 2024. Both are expected to decrease further following the completion of the Phase III expansion at Island Gold in 2025.

 

A chart accompanying this announcement is available at

https://www.globenewswire.com/NewsRoom/AttachmentNg/c1757217-445c-4cde-847c-8aecafe86687

 

Capital spending at existing operations (excluding Lynn Lake and other development projects) is expected to decrease 23% in 2023, primarily driven by lower capital at Mulatos following the completion of construction at La Yaqui Grande in 2022. Capital spending at existing operations is expected to remain at similar levels in 2024 and decrease substantially following the completion of the Phase III expansion at Island Gold in 2025. Sustaining capital spending at existing operations is expected to remain relatively stable over the next several years at approximately $90 to $110 million per year.

 

A chart accompanying this announcement is available at

https://www.globenewswire.com/NewsRoom/AttachmentNg/81e26392-a0b5-4f2c-bc6c-453074c60155

 

Young-Davidson

 

Young-Davidson   Q3 YTD
2021
Q4 2021 2021A 2021 Revised
Guidance
 (3)
2022 Guidance
Gold production 000 oz 143 52 195 190 – 205 185 – 200
             
Total cash costs(1) $/oz $873 ~$850 $850-900
Mine-site AISC(1),(2) $/oz $1,093 ~$1,060 $1,125-1,175
             
Tonnes of ore processed tpd 7,912 7,861 7,899 7,500-8,000 8,000
Grade processed g/t Au 2.25 2.47 2.31 2.20-2.65 2.15-2.35
Average recovery rate % 92% 91% 91% 90-92% 90-92%
             
Sustaining capital(1) $ millions $31 $40-45 $50-55
Growth capital(1) $ millions $29 $25-30 $5-10
Total sustaining & growth capital(1)
(ex. exploration)
$ millions $60 $65-75 $55-65
             
Capitalized exploration(1) $ millions $4 $7 $4

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release and the Q3 2021 MD&A for a description and calculation of these measures.
(2)  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.
(3)  2021 cost guidance was revised on October 27, 2021. Production guidance was unchanged

 

Gold production at Young-Davidson in 2022 is expected to be consistent with 2021, reflecting similar grades and mining and processing rates. Following the completion of the lower mine expansion in July 2020, underground mining rates increased to average a record 7,889 tpd in 2021, including a record 8,128 tpd in the second half of 2021. Mining and processing rates are expected to average design rates of 8,000 tpd going forward.

 

Grades mined and processed are expected to range between 2.15 and 2.35 grams per tonne of gold in 2022 and remain at similar levels through 2024. Grades mined are expected to increase thereafter, as YD West becomes more of a significant contributor to production.

 

Total cash costs and mine-site AISC are expected to increase from 2021, primarily reflecting industry-wide cost inflation, partially offset by operational improvements. Costs are expected to remain at similar levels over the next three years.

 

Capital spending in 2022 (excluding exploration) is expected to range between $55 and $65 million, a decrease from 2021 with construction of the new life of mine tailings facility (“TIA 1”) completed in the fourth quarter of 2021. Capital spending is expected to remain at similar levels in 2023 and decrease slightly in 2024.

 

Young-Davidson is expected to generate record mine-site free cash flow of approximately $100 million in 2021, driven by higher production, lower costs and lower capital with the completion of the lower mine expansion. At a $1,750 per ounce gold price, the operation is expected to generate similar mine-site free cash flow in 2022 and over the long term.

 

Island Gold

 

Island Gold   Q3 YTD
2021
Q4 2021 2021A 2021 Revised
Guidance
 (3)
2022 Guidance
Gold production 000 oz 103 38 141 130 – 145 125 – 135
             
Total cash costs(1) $/oz $512 ~$525 $550-600
Mine-site AISC(1),(2) $/oz $860 ~$865 $850-900
             
Tonnes of ore processed tpd 1,174 1,247 1,193 1,200 1,200
Grade processed g/t Au 10.29 10.51 10.35 9.0-11.0 8.8-10.8
Average recovery rate % 96% 96% 96% 96-97% 96-97%
             
Sustaining capital(1) $ millions $36 $40-45 $35-40
Growth capital(1) & capital advances $ millions $43 $80-85 $145-160
Total sustaining & growth capital(1) (ex. exploration) $ millions $79 $120-130 $180-200
             
Capitalized exploration(1) $ millions $14 $20 $20

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release and the Q3 2021 MD&A for a description and calculation of these measures.
(2)  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.
(3)  2021 cost guidance was revised on October 27, 2021. Production guidance was unchanged

 

Gold production at Island Gold is expected to decrease slightly in 2022, reflecting lower planned grades which is consistent with the Mineral Reserve grade and the Phase III expansion study released in 2020 (“Phase III Study”). Mining and processing rates are expected to be consistent with 2021 and average 1,200 tpd. As outlined in the Phase III Study, grades mined are expected to decrease below the average Mineral Reserve grade in 2023 followed by an increase above the average Mineral Reserve grade in 2024 driving production higher.

 

Total cash costs and mine-site AISC are expected to increase in 2022, reflecting slightly lower grades and industry-wide cost inflation. Costs are also higher than outlined in the Phase III Study, reflecting inflation and the stronger Canadian dollar. The study assumed a USD/CAD foreign exchange rate of $0.75:1 compared to a rate of $0.80:1 assumed in the 2022 budget. Costs are expected to increase slightly in 2023, followed by a decrease in 2024, reflecting higher grades. A more substantial decrease is expected following the completion of the Phase III expansion in 2025.

 

Capital spending at Island Gold (excluding exploration) is expected to be between $180 and $200 million in 2022. As outlined in the study, construction activities and capital spending on the Phase III expansion are expected to increase in 2022. Permitting for the expansion is expected to be completed during the first half of the year. Shaft site surface works, construction of the hoisting plant and preparation of the shaft sink will be a major focus with the pre-sink of the shaft expected to start mid-2022. Consistent with the study, capital spending is expected to decrease slightly in 2023 and 2024 before decreasing closer to sustaining levels following the completion of the expansion in 2025.

 

Mulatos District

 

Mulatos   Q3 YTD
2021
Q4 2021 2021A 2021 Revised
Guidance
 (3)
2022
Guidance
H1 2022 H2 2022
Gold production 000 oz 98 23 121 135 – 145 130 – 145 45 – 50 85 – 95
                 
Total cash costs(1) $/oz $913 ~$1,000 $1,225-1,275 ~$1,500 ~$1,125
Mine-site AISC(1),(2) $/oz $1,097 ~$1,235 $1,325-1,375 ~$1,675 ~$1,175
                 
Tonnes of ore stacked – Mulatos crusher tpd 19,500 19,100 19,400 21,000 17,000    
Tonnes of ore stacked – La Yaqui Grande tpd           10,000
Grades stacked g/t Au 1.04 0.85 0.99 0.8-1.2 0.7-1.0    
Combined recovery ratio % 55% 48% 54% 60% 65-70%    
                 
Sustaining capital(1) $ millions $15 $30-35 $5-10    
Growth capital(1) & capital advances $ millions $79 $95-100 $50-55    
Total sustaining & growth capital(1) (ex. exploration) $ millions $93 $125-135 $55-65    
                 
Capitalized exploration(1) $ millions $1    

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release and the Q3 2021 MD&A for a description and calculation of these measures.
(2)  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.
(3)  2021 guidance was revised on October 27, 2021.

 

Combined gold production from the Mulatos District (including La Yaqui Grande) is expected to be between 130,000 and 145,000 ounces in 2022. This represents a 13% increase from 2021 (based on the mid-point of guidance) as the second half of 2021 was impacted by longer than anticipated recovery times from stockpiled ore stacked in the latter part of the year. With the Cerro Pelon deposit depleted during the fourth quarter of 2021, stockpiled ore will be a more significant contributor to gold production during the first half of 2022.

 

Given the longer leach cycle and additional reagents required to process this ore, as well as lower grades from the El Salto portion of the Mulatos pit early in the year, gold production is expected to be lower during the first half of 2022 at significantly higher costs. With the start of production from La Yaqui Grande in the third quarter and increasing grades from El Salto, approximately 65% of 2022 production is expected in the second half of the year at substantially lower costs.

 

Grades stacked are expected to range between 0.7 and 1.0 g/t Au and trend higher through the year, reflecting the contribution of higher grade La Yaqui Grande ore in the second half of the year.

 

Total cash costs and mine-site AISC are expected to be well above annual guidance during the first half of 2022 and trend significantly lower during the second half of the year, driven by low-cost production growth from La Yaqui Grande.

 

Gold production is expected to increase to a range of 160,000 to 175,000 ounces in 2023 with costs decreasing significantly from 2022, driven by a full year of production from La Yaqui Grande. La Yaqui Grande is expected to be the primary source of production in 2024 with combined production in the range of 135,000 to 145,000 ounces and resulting in a further improvement in costs.

 

Capital spending is expected to total $55 to $65 million in 2022 with the majority being growth capital to complete construction of La Yaqui Grande. Development of La Yaqui Grande remains on track to achieve commercial production in the third quarter of 2022. Capital spending is expected to decrease closer to sustaining capital levels in 2023 and 2024.

 

2022 Global Operating and Development Capital Budget

 

  2022 Guidance 2021 Guidance
  Sustaining Capital(1) Growth Capital(1) Total Total
Operating Mines ($ millions)        
Young-Davidson $50-55 $5-10 $55-65 $65-75
Island Gold $35-40 $145-160 $180-200 $120-130
Mulatos $5-10 $50-55 $55-65 $125-135
Total – Operating Mines $90-105 $200-225 $290-330 $310-340
Development Projects ($ millions)        
Lynn Lake $11 $11 $6
Other $4 $4 $4
Total – Development Projects $15 $15 $10
Capitalized Exploration(1) ($ millions)        
Young-Davidson $4 $4 $7
Island Gold $20 $20 $20
Mulatos      
Lynn Lake $3 $3 $7
Total – Capitalized Exploration(1) $27 $27 $34
Total Consolidated Budget $90-105 $242-267 $332-372 $354-384

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release for a description and calculation of these measures.

 

2022 Capital Budget for Development Projects

Capital spending on the Company’s development projects, excluding exploration, is expected to total $15 million. This includes $11 million for Lynn Lake focused on advanced stage engineering and completing the permitting process. The majority of the remainder is focused on community engagement and permitting activities at Esperanza. An additional $27 million has been budgeted for capitalized exploration including $20 million for Island Gold and the remainder split between Young-Davidson, Mulatos and Lynn Lake.

 

Lynn Lake Development Budget

The total capital budget for Lynn Lake in 2022 is $14 million, including $11 million for development activities and $3 million for exploration. Development activities will be focused on environmental work in support of permitting, detailed engineering and other site access upgrades. The approval of the Environmental Impact Statement (“EIS”) for the project is expected in the second half of 2022 following which the Company expects to make a construction decision. Assuming a positive construction decision, development of Lynn Lake is expected to take approximately two years.

 

Other Projects

Total capital of $4 million has been budgeted across the Company’s other development projects with the majority at Esperanza. Additionally, holding costs for the Turkish assets and legal fees associated with the investment treaty claim, are expected to total approximately $3 million which will be expensed as incurred.

 

2022 Exploration Budget

The global exploration budget for 2022 is $40 million. Island Gold continues to account for the largest portion of the budget at $22 million, followed by $7 million at Mulatos, $5 million at Young-Davidson and $3 million at Lynn Lake. Approximately 70% of the 2022 budget will be capitalized.

 

Island Gold

A total of $22 million has been budgeted for surface and underground exploration at Island Gold in 2022, down slightly from 2021. The exploration focus remains on defining additional near mine Mineral Resources across the two-kilometre long Island Gold Main Zone (Island Main, West, and East), as well as advancing and evaluating several regional targets.

 

The 2021 exploration program was successful in extending high-grade mineralization across the Island Gold Main Zone, particularly in Island East. This included the best hole drilled to date at Island Gold (71.21 g/t Au (39.24 g/t cut) over 21.33 m true width), extending high-grade mineralization down-plunge from existing Mineral Resources. High-grade mineralization was also intersected in a 300 m step out hole, the deepest drilled to date, confirming that high-grade mineralization extends well beyond Mineral Resources to a depth of more than 1,700 m. These results highlight the significant potential for further growth in Mineral Reserves and Resources.

 

The 2022 surface and underground exploration drilling program will continue to test the lateral and down-plunge extensions of Island East as well as an increased focus on Island Main and West. This includes 30,000 metres (“m”) of surface directional drilling, 30,000 m of underground exploration drilling, and 480 m of underground exploration drift development to extend drill platforms on the 620, 840, and 980-levels.

 

A regional exploration program including 6,500 m of drilling is also budgeted in 2022. The focus will be on evaluating and advancing exploration targets outside the Island Gold Deposit on the 14,929-hectare Island Gold property.

 

Mulatos

A total of $7 million has been budgeted at Mulatos for exploration in 2022. This includes 17,000 m of drilling focused on regional targets including Carricito, and Halcon, Halcon West, and Refugio.

 

Further work including drilling and mapping is planned at Los Venados to follow up on low sulphidation mineralization identified in 2021.

 

Several regional exploration targets have been identified from a property-wide VTEM geophysical survey that was completed in late 2018. A focus of the 2021 regional exploration program will be to further evaluate these targets through systematic mapping, sampling, and ground geophysics with the objective of defining drill targets.

 

Young-Davidson

A total $5 million has been budgeted for exploration at Young-Davidson in 2022. The focus will be following up on the success in 2020 and 2021 programs which extended gold mineralization below existing Mineral Reserves and Resources and intersected higher grades in the hanging wall and footwall of the deposit. The drilling completed in 2021 was the first significant exploration program at Young-Davidson since 2011 and highlights the significant potential below the existing deposit which remains open at depth and to the west.

 

The 2022 program includes 21,600 m of underground exploration drilling, and 500 m of underground exploration development to extend drill platforms on the 9220, 9095, and 9025-levels. The focus of the underground exploration drilling program will be to expand Mineral Resources in six target areas that have been identified within proximity to existing underground infrastructure.

 

In addition, 3,500 m of surface drilling is planned to test near-surface targets across the 5,600 hectare Young-Davidson Property.

 

Lynn Lake

A total of $3 million has been budgeted for exploration at the Lynn Lake project in 2022. This includes 5,000 m of drilling focused on continuing to test exploration targets in proximity to the Gordon and MacLellan deposits with the goal of adding to Mineral Resources. The exploration program will also further evaluate the Burnt Timber and Linkwood deposits, including defining and testing exploration targets with the objective of expanding Mineral Resources at both deposits. The Burnt Timber and Linkwood deposits contained Inferred Mineral Resources totaling 1.6 million ounces grading 1.1 g/t Au (44 million tonnes) as of December 31, 2020 and represent potential upside to the 2017 Feasibility Study.

 

The other key area of focus for 2022 is the continued evaluation and advancement of the new greenfields discovery, Tulune (see Press Release December 16, 2021), and a pipeline of prospective exploration targets within the 58,000-hectare Lynn Lake Property.

 

Assumptions and Sensitivities

Assumptions & Expenses   2022
Gold price $/oz $1,750
Canadian dollar USD/CAD $0.80:1
Mexican peso MXN/USD 20.0:1
Amortization $/oz $425
General & Administrative(1) $ millions $25

(1) Excludes stock-based compensation.

 

The 2022 to 2024 production forecast, operating cost and capital estimates are based on a gold price assumption of $1,750 per ounce, a USD/CAD foreign exchange rate of $0.80:1 and MXN/USD foreign exchange rate of 20.0:1. The three year forecast assumes no significant operational interruptions due to COVID-19. Cost assumptions for 2023 and 2024 are based on 2022 input costs and have not been increased to reflect potential inflation in those years. These estimates may be updated in the future to reflect inflation beyond what is currently forecast for 2022. Capital expenditures forecasts for 2023 and 2024 are exclusive of construction capital for the Lynn Lake project, as that project remains subject to permitting and a construction decision.

 

Amortization expense in 2022 is expected to total approximately $425 per ounce, an increase from 2021, reflecting higher amortization charges at Mulatos. General and administrative expenses in 2022 are expected to total $25 million (excluding stock-based compensation), consistent with 2021 spending and an increase from initial 2021 guidance, in part reflecting the stronger Canadian dollar.

 

Sensitivities 2022 Operating Sites Foreign
Currency Exposure
Change Free Cash Flow
Sensitivity 
(1)
Gold price $1,750 $100 ~$37-47 million
USD/CAD $0.80:1 95% $0.05 ~$10-25 million
MXN/USD 20.0:1 40% 1.00 ~$1-4 million

(1)  Free cash flow sensitivities include the impact of foreign exchange and short term gold hedging arrangements noted below.

 

Current foreign exchange and gold hedging commitments

The Company has entered into the following foreign exchange and short-term hedging arrangements to date:

  • Canadian dollar: approximately 65% of Canadian dollar-denominated operating and capital costs for 2022 have been hedged, ensuring a maximum USD/CAD foreign exchange rate of $0.80:1 and allowing the Company to participate in weakness in the USD/CAD up to a rate of $0.77:1.
  • Mexican peso: approximately 65% of Mexican peso-denominated operating and capital costs in 2022 have been hedged, ensuring a minimum MXN/USD foreign exchange rate of 20.9:1 and allowing the Company to participate in weakness in the MXN/USD up to a rate of 23.7:1.
  • Gold collar contracts: The Company also periodically enters into short term gold hedging arrangements. Currently, the Company has hedged 110,700 ounces in 2022, ensuring an average minimum gold price of $1,762 per ounce and participation up to an average gold price of $2,039 per ounce. This represents approximately 24% of 2022 production (based on mid-point of guidance), slightly higher than in previous years as additional hedges were added to ensure the profitability of Mulatos production during a temporary higher cost period until the operation transitions to lower cost production from La Yaqui Grande.

 

Qualified Persons

Chris Bostwick, Alamos’ Senior Vice President, Technical Services, who is a qualified person within the meaning of National Instrument 43-101 Standards of Disclosure for Mineral Projects, has reviewed and approved the scientific and technical information contained in this press release.

 

About Alamos

Alamos is a Canadian-based intermediate gold producer with diversified production from three operating mines in North America. This includes the Young-Davidson and Island Gold mines in northern Ontario, Canada and the Mulatos mine in Sonora State, Mexico. Additionally, the Company has a significant portfolio of development stage projects in Canada, Mexico, Turkey, and the United States. Alamos employs more than 1,700 people and is committed to the highest standards of sustainable development.

 

Posted January 18, 2022

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