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Alamos Gold Reports Third Quarter 2021 Results

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Alamos Gold Reports Third Quarter 2021 Results

 

 

 

 

 

Alamos Gold Inc. (TSX:AGI) (NYSE:AGI)  reported its financial results for the quarter ended September 30, 2021.

 

“We had a challenging third quarter at our Mulatos mine which offset strong performances at our Canadian operations. The challenges at Mulatos are temporary with the operation transitioning to low-cost production from La Yaqui Grande in 2022; however, given the weaker quarter, we reduced 2021 guidance at the operation by 15,000 ounces. We have also increased our consolidated cost guidance for the year given the stronger than budgeted Canadian dollar and higher than planned costs at Mulatos,” said John A. McCluskey, President and Chief Executive Officer.

 

“We expect higher production in the fourth quarter with our Canadian operations continuing to perform well. This has been led by Young-Davidson which achieved a new record for underground mining rates in the third quarter. We are also making good progress on our growth initiatives including the Phase III expansion at Island Gold and construction of La Yaqui Grande. Both are key drivers of our strong outlook with production potential of 750,000 ounces per year by 2025 at significantly lower all-in sustaining costs of approximately $800 per ounce,” Mr. McCluskey added.

 

Third Quarter 2021

 

  • Production of 104,700 ounces of gold, an 11% decrease from the third quarter of 2020, with lower than anticipated production from Mulatos more than offsetting a strong performance at Young-Davidson
  • Gold production at Mulatos of 26,700 ounces was well below expectations due to an above average rainy season in Mexico which impacted stacking rates, and a longer than anticipated leach cycle for stockpiled ore stacked in the quarter. With Cerro Pelon winding down, stockpiled ore will represent a larger proportion of stacked ore at Mulatos until production from La Yaqui Grande ramps up in the second half of 2022
  • Given the lower production at Mulatos in the quarter and longer than anticipated leach cycle for stockpiled ore, the Company has revised production guidance lower by 15,000 ounces at Mulatos. Production guidance for Young-Davidson and Island Gold remains unchanged with both operations continuing to perform well
  • Young-Davidson achieved record mining rates of 8,017 tonnes per day, driving production of 50,000 ounces of gold and mine-site free cash flow1 of $28.9 million. With a further increase in production expected in the fourth quarter, Young-Davidson is expected to generate approximately $100 million in mine-site free cash flow in 2021
  • Consolidated total cash costs1 of $788 per ounce, all-in sustaining costsof $1,152 per ounce and cost of sales of $1,172 per ounce were higher than annual guidance reflecting the stronger than budgeted Canadian dollar, and higher costs at Mulatos. The USD/CAD foreign exchange rate averaged $0.79:1 in the third quarter and $0.80:1 year-to-date relative to the budgeted rate of $0.75:1 which has increased total cash costs by $30 per ounce and AISC by $45 per ounce. In addition, Mulatos costs increased in the third quarter and are expected to increase further in the fourth quarter, reflecting higher reagent costs associated with processing stockpiled ore
  • Given the stronger than budgeted Canadian dollar, and higher than planned costs at Mulatos, the Company has revised its 2021 total cash cost guidance to $790 to $810 per ounce and all-in sustaining costs to $1,120 to $1,140 per ounce
  • Construction of La Yaqui Grande is progressing well and remains on track for commercial production in the third quarter of 2022. La Yaqui Grande is expected to significantly reduce the cost profile at Mulatos as production ramps up towards the end of 2022. Despite inflationary cost pressures and other challenges related to COVID-19, capital spending for La Yaqui Grande remains on budget
  • Sold 110,488 ounces of gold at an average realized price of $1,792 per ounce for revenues of $198.0 million, a 9% decrease compared to the third quarter of 2020
  • Generated cash flow from operating activities of $82.4 million ($102.3 million, or $0.26 per share, before changes in working capital1), a decrease from the prior year period due to lower realized gold prices and less ounces sold
  • Free cash flow1 was negative in the quarter, driven by higher capital spending mainly related to La Yaqui Grande and the Phase III expansion at Island Gold
  • Realized adjusted net earnings1 of $37.6 million, or $0.10 per share1, which includes adjustments for unrealized foreign exchange loss of $12.8 million recorded within deferred taxes and foreign exchange, and other gains of $0.3 million
  • Recorded net earnings of $25.1 million, or $0.06 per share
  • Ended the quarter with cash and cash equivalents of $211.4 million, equity securities of $22.9 million, and no debt
  • Paid a quarterly dividend of $9.8 million, or US$0.025 per share (annualized rate of US$0.10 per share), bringing total dividends through the first nine months of 2021 to $29.4 million
  • Repurchased an additional 600,000 shares in the quarter at a cost of $4.5 million under the Company’s Normal Course Issuer Bid (“NCIB”) bringing the total amount repurchased year-to-date to $6.0 million
  • Reported results from the underground exploration drill program at Young-Davidson which has successfully extended gold mineralization below existing Mineral Reserves and Resources and intersected higher grades in the hanging wall and footwall of the deposit

(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.

 

 

 

Highlight Summary

 

  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021    2020   
Financial Results (in millions)        
Operating revenues $198.0   $218.4   $620.5   $521.5  
Cost of sales (1) $129.5   $122.6   $395.7   $346.2  
Earnings (Loss) from operations $57.3   $88.0   ($34.9 ) $146.3  
Earnings (Loss) before income taxes $56.3   $85.9   ($41.3 ) $132.4  
Net earnings (loss) $25.1   $67.9   ($96.2 ) $67.3  
Adjusted net earnings (2) $37.6   $56.9   $125.4   $96.2  
Earnings before interest, depreciation and amortization (2) $100.0   $130.5   $314.0   $248.1  
Cash provided by operations before working capital and cash taxes (2) $102.3   $130.0   $319.1   $256.4  
Cash provided by operating activities $82.4   $130.8   $268.4   $237.0  
Capital expenditures (sustaining) (2) $30.9   $22.7   $81.2   $54.6  
Capital expenditures (growth) (2) (3) $51.4   $29.2   $145.3   $109.3  
Capital expenditures (capitalized exploration) (4) $6.9   $2.9   $18.8   $8.8  
Free cash flow (2) ($8.1 ) $76.0   $1.6   $64.3  
Operating Results        
Gold production (ounces) 104,700   117,100   344,700   306,400  
Gold sales (ounces) 110,488   116,035   344,551   302,494  
Per Ounce Data        
Average realized gold price $1,792   $1,882   $1,801   $1,724  
Average spot gold price (London PM Fix) $1,790   $1,909   $1,800   $1,735  
Cost of sales per ounce of gold sold (includes amortization) (1) $1,172   $1,057   $1,148   $1,144  
Total cash costs per ounce of gold sold (2) $788   $681   $778   $772  
All-in sustaining costs per ounce of gold sold (2) $1,152   $949   $1,102   $1,052  
Share Data        
Earnings (Loss) per share, basic and diluted $0.06   $0.17   ($0.24 ) $0.17  
Adjusted earnings per share, basic and diluted (2) $0.10   $0.15   $0.32   $0.25  
Weighted average common shares outstanding (basic) (000’s) 392,742   391,553   392,755   391,325  
Financial Position (in millions)        
Cash and cash equivalents (5)     $211.4   $220.5  

 

  • Cost of sales includes mining and processing costs, royalties, COVID-19 costs and amortization expense.
    (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. 2020 growth capital excludes the Island Gold royalty repurchase completed in March 2020 for $54.8 million.
    (4)  Includes capitalized exploration at Island Gold, Young-Davidson and Mulatos.
    (5)  Comparative cash and cash equivalents balance as at December 31, 2020.

 

  Three Months Ended September 30, Nine Months Ended September 30,
  2021    2020    2021    2020   
Gold production (ounces) (1)        
Young-Davidson 50,000   36,400   143,100   88,200  
Island Gold 28,000   39,600   103,400   97,800  
Mulatos 26,700   41,100   98,200   119,600  
Gold sales (ounces)        
Young-Davidson 48,625   35,548   141,931   86,893  
Island Gold 28,331   39,322   101,845   97,009  
Mulatos 33,532   41,165   100,775   118,592  
Cost of sales (in millions) (2)          
Young-Davidson $58.5   $50.5   $181.8   $140.5  
Island Gold $24.5   $28.1   $79.2   $78.2  
Mulatos $46.5   $44.0   $134.7   $127.5  
Cost of sales per ounce of gold sold (includes amortization)          
Young-Davidson $1,203   $1,421   $1,281   $1,617  
Island Gold $865   $715   $778   $806  
Mulatos $1,387   $1,069   $1,337   $1,075  
Total cash costs per ounce of gold sold (3)        
Young-Davidson $810   $923   $873   $1,145  
Island Gold $586   $394   $512   $438  
Mulatos $927   $746   $913   $772  
Mine-site all-in sustaining costs per ounce of gold sold (3),(4)            
Young-Davidson $1,051   $1,196   $1,093   $1,370  
Island Gold $1,077   $575   $860   $653  
Mulatos $1,124   $928   $1,097   $928  
Capital expenditures (sustaining, growth and capitalized exploration) (in millions) (3)            
Young-Davidson (5) $22.3   $25.6   $63.8   $82.2  
Island Gold (6) $33.2   $15.9   $89.1   $53.9  
Mulatos (7) $28.4   $9.1   $76.1   $21.6  
Other $5.3   $4.2   $16.3   $15.0  

 

(1)  Production for the three and nine months ended September 30, 2020 included nil and 800 ounces, respectively, from El Chanate which transitioned to the reclamation phase of the mine life in 2019. There was no production from El Chanate for the three and nine months ended September 30, 2021.
(2)  Cost of sales includes mining and processing costs, royalties, COVID-19 costs, and amortization.
(3)  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.
(4)  For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(5)  Includes capitalized exploration at Young-Davidson of $1.3 million and $3.8 million for the three and nine months ended September 30, 2021 ($nil for the three and nine months ended September 30, 2020).
(6)  Includes capitalized exploration at Island Gold of $5.2 million and $13.6 million for the three and nine months ended September 30, 2021 ($2.9 million and $8.1 million for the three and nine months ended September 30, 2020); Capital expenditures exclude the Island Gold royalty repurchase for $54.8 million for the nine months ended September 30, 2020.
(7)  Includes capitalized exploration at Mulatos of $0.4 million and $1.4 million for the three and nine months ended September 30, 2021 ($nil and $0.7 million for the three and nine months ended September 30, 2020).

 

Environment, Social and Governance Summary Performance

 

Health and Safety

 

  • Recordable injury frequency rate1 of 2.37 in the quarter and 2.35 year-to-date, a 7% increase from 2.20 in 2020
  • Lost time injury frequency rate1 of 0.33 in the quarter and 0.20 year-to-date, consistent with 0.20 in 2020
  • Performed over 65,000 COVID-19 tests to-date on employees, contractors and visitors as part of an enhanced screening program

 

During the third quarter of 2021, the recordable injury frequency rate decreased with 29 recordable injuries reported, down from 35 in the second quarter of 2021. Four lost time injuries were reported in the quarter, up from one in the second quarter of 2021, resulting in an overall increase to the Company’s lost time injury frequency rate. Alamos strives to maintain a safe, healthy working environment for all, with a strong safety culture where everyone is continually reminded of the importance of keeping themselves and their colleagues healthy and injury-free. At Mulatos, where three lost time injuries occurred in the quarter, safety teams increased communications, meetings and safety huddles to reinforce site safety standards and procedures and underscore that all injuries are avoidable. Throughout the quarter, the Company continued to advance implementation of its Sustainability Performance Management Framework, which includes standards specific to safety leadership and managing higher-risk activities. The Company’s overarching commitment is to have all employees and contractors return Home Safe Every Day.

 

The World Health Organization declared COVID-19 a pandemic on March 11, 2020. The Company responded rapidly and proactively and implemented several initiatives to help protect the health and safety of our employees, their families and the communities in which we operate.

 

Specifically, each mine site activated established crisis management plans and developed site-specific plans that have enabled them to meet and respond to changing conditions associated with COVID-19. The Company has adopted the advice of public health authorities and is adhering to government regulations with respect to COVID-19 in the jurisdictions in which it operates.

 

The following measures have been instituted at sites to prevent the potential spread of the COVID-19 virus:

  • Medical screening for all personnel prior to entry to site for symptoms of COVID-19
  • Testing of personnel at all operating sites prior to starting their work rotation
  • Vaccinations offered at Island Gold for employees
  • 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
  • In addition, since the COVID-19 pandemic began the Company’s teams in Canada, Mexico, and Turkey have donated their time, medical supplies, and funds to help combat the effects and spread of the virus

 

COVID 19 – Impact on Operations

 

Given the significant precautionary measures taken by the Company, and thanks to the dedication of its employees, contractors and stakeholders, operations remain relatively unaffected by COVID-19. All the Company’s operations continue to incur additional costs related to testing of personnel, lodging and transportation, which have been included in mining and processing costs. These incremental costs have increased total cash costs globally by approximately $25 per ounce and are expected to be incurred through the remainder of 2021.

 

Environment

  • Zero significant environmental incidents in the third quarter and year-to-date
  • Completed independent reviews of cyanide management practices at all operations in accordance with the International Cyanide Management Code
  • Completed independent reviews of energy and greenhouse gas management practices at all operations in accordance with the ISO 50001 Energy Management Systems Standard, to develop and/or improve site energy management plans
  • Advanced permitting of the Lynn Lake Project and the Phase III expansion of Island Gold – a project that will significantly increase automation and reduce fleet diesel usage resulting in 35% lower life-of-mine greenhouse gas (“GHG”) emissions
  • Nearing the completion of the power line which will connect the Mulatos Mine to grid power and eliminate the need for site diesel power generation, reducing GHG emissions by 12% annually

 

Seven minor spills occurred during the third quarter, including one at Young-Davidson, one at Island Gold and five at Mulatos. All spills were immediately cleaned and remediated with no anticipated long-term effects. The Company is committed to preserving the long-term health and viability of the natural environment that surround its operations and projects. This includes investing in new initiatives to reduce our environmental footprint with the goal of minimizing the environmental impacts of our activities, and offsetting any impacts that cannot be fully mitigated or rehabilitated.

 

Community

  • Donated time, medical supplies, food supplies and funds across select operations and projects to help combat the effects and spread of COVID-19 in local communities
  • Organized several community health initiatives during the third quarter in collaboration with the Matarachi community, located near the Mulatos mine. These included ongoing COVID-19 vaccination clinics, nutrition health programs, improvements to local water network infrastructure, and installation planning for solar-powered street lighting
  • In partnership with local educational organization Educatón, we introduced a program at Mulatos to support local youth and adults to finish their intermediate level studies
  • Supported the construction of new military barracks and facilities in Yécora
  • Partnered with Tech Manitoba and the Northern Manitoba Sector Council to deliver digital literacy classes in Lynn Lake. The DigitALL initiative targets Indigenous youth, low-income earners and seniors to improve their skills and confidence with computers and the internet through hands on training courses, creating opportunities for further education, employment and overall participation in the online world

 

Alamos believes that excellence in sustainability provides a net benefit to all stakeholders. The Company continues to engage with local communities to understand local challenges and priorities, and to offer support during the COVID-19 pandemic. Ongoing investments in local infrastructure, health care, education, cultural and community programs has continued through the COVID-19 pandemic, with appropriate health and safety protocols.

 

Governance and Disclosure

  • Received the Socially Responsible Company Award by CEMEFI, the Mexican Center for Philanthropy, for the 13th consecutive year at Mulatos
  • Received the “Award for Corporate Ethics and Values in Industry” by CONCAMIN, the Industrial Chambers Confederation of Mexico, for the second consecutive year at Mulatos. The award is in recognition of strong progress and maturity in corporate social responsibility
  • Received the “Award for Outstanding Practice in Action for Climate” by CONCAMIN, in recognition of strong practices supporting the UN Sustainable Development Goals at Mulatos. The award recognized strong performance in four categories: Good Health and Well-Being, Gender Equality, Decent Work and Economic Growth, and Climate Action.
  • Completed the Carbon Disclosure Project’s 2021 Climate Change Questionnaire

 

Alamos maintains the highest standards of corporate governance to ensure that corporate decision-making reflects its values, including the Company’s commitment to sustainable development. During the quarter the Company continued to advance its implementation of the Responsible Gold Mining Principles, developed by the World Gold Council as a framework that sets clear expectations as to what constitutes responsible gold mining.

 

  • Frequency rate is calculated as incidents per 200,000 hours worked.

 

Outlook and Strategy

2021 Guidance  
  Young-Davidson Island Gold Mulatos Other (2) Revised Guidance Previous Guidance
Gold production (000’s ounces) 190 – 205 130 – 145 135 – 145   455 – 495 470 – 510
Total cash costs ($ per ounce)(1)(5) ~ $850 ~ $525 ~ $1,000 $790 – $810 $710 – $760
All-in sustaining costs ($ per ounce)(1)         $1,120 – $1,140 $1,025 – $1,075
Mine-site all-in sustaining costs ($ per ounce)(1)(3)(6) ~ $1,060 ~ $865 ~ $1,235    
Capital expenditures (in millions)            
Sustaining capital(1) $40 – $45 $40 – $45 $30 – $35 $110 – $125 $110 – $125
Growth capital(1) $25 – $30 $80 – $85 $95 – $100 $10 $210 – $225 $210 – $225
  Total Sustaining and Growth Capital(1) $65 – $75 $120 – $130 $125 – $135 $10 $320 – $350 $320 – $350
Capitalized exploration(1) $7 $20 $7 $34 $34
Total capital expenditures and capitalized exploration(1) $72 – $82 $140 – $150 $125 – $135 $17 $354 – $384 $354 – $384

(1)  Refer to the “Non-GAAP Measures and Additional GAAP” disclosure at the end of this press release and associated MD&A for a description of these measures.
(2)  Includes growth capital and capitalized exploration at the Company’s development projects (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.
(5)  Total cash cost guidance for Young-Davidson has been revised from between $790 – $840 per ounce to approximately $850 per ounce; for Island Gold, revised from between $430 – $480 per ounce to approximately $525 per ounce; and for Mulatos, revised from between $840 – $890 per ounce to approximately $1,000 per ounce
(6)  Mine-site AISC guidance for Young-Davidson has been revised from between $1,000 – $1,050 per ounce to approximately $1,060 per ounce; for Island Gold, revised from between $750 – $800 per ounce to approximately $865 per ounce; and for Mulatos, revised from between $1,060 – $1,110 per ounce to approximately $1,235 per ounce

 

The Company’s objective is to operate a sustainable business model that can support growing returns to all stakeholders over the long-term through growing production, expanding margins, and increasing profitability. This includes a balanced approach to capital allocation focused on generating strong ongoing free cash flow while re-investing in high-return internal growth opportunities and supporting higher returns to shareholders.

 

The Company continues to deliver on its key long-term objectives while managing temporary challenges at Mulatos as the operation transitions to the higher grade, low-cost La Yaqui Grande deposit. The Company expects stronger production in the fourth quarter at all three operations; however, given the challenging third quarter at Mulatos, the Company has reduced full year production guidance at Mulatos. Production guidance at the Canadian operations remains unchanged with both operations continuing to perform well and on track to achieve full year guidance. This included another strong quarter from Young-Davidson with mining rates increasing to average 8,017 tpd for the quarter, a new record for the operation.

 

Total cash costs and all-in sustaining costs in the third quarter and through the first nine months of the year were above initial annual guidance reflecting the impact of the stronger than budgeted Canadian dollar. Full year cost guidance was based on a USD/CAD foreign exchange rate of $0.75:1 compared to the actual USD/CAD rate of $0.79:1 in the third quarter and $0.80:1 average year-to-date. This has increased Company-wide total cash costs by $30 per ounce, and AISC by $45 per ounce relative to initial guidance. Excluding this impact, total cash costs and AISC through the first three quarters of 2021 are consistent with initial annual guidance. Given the ongoing impact of the stronger Canadian dollar and higher than planned costs at Mulatos, the Company is increasing full year consolidated total cash cost guidance to a range of $790 to $810 per ounce and AISC guidance to a range of $1,120 to $1,140 per ounce. Although the Company has managed inflationary pressures on operating costs through the first nine-months of the year, price increases for certain consumables are expected to start having more of an impact on costs in the fourth quarter and into 2022.

 

The Company continues to advance its high-return organic growth initiatives. Construction of the higher grade La Yaqui Grande project remains on budget and on schedule to begin supplying low-cost production in the third quarter of 2022. Development activities on the Phase III expansion at Island Gold are also advancing while ongoing exploration success continues to highlight the significant potential for further high-grade Mineral Reserve and Resource growth and additional operational upside to what was outlined in the July 2020 study. Both projects are key contributors to the Company’s strong outlook with consolidated production potential of approximately 750,000 ounces per year by 2025 at substantially lower AISC of approximately $800 per ounce.

 

Young-Davidson continues to perform well having consistently met or exceeded expectations following the completion of the lower mine expansion in July 2020. Mining rates increased to average a record 8,017 tpd in the third quarter driving production higher, costs lower, and strong mine-site free cash flow. The operation remains on track to achieve full year production guidance and generate mine-site free cash flow of approximately $100 million in 2021.

 

Production at Island Gold decreased slightly in the third quarter reflecting unplanned maintenance in the mill. This was completed early in the third quarter with additional critical spares now on site to mitigate future unplanned downtime. Given the strong production through the first three quarters of the year and with higher production expected in the fourth quarter reflecting higher milling rates, the operation remains on track to achieve full year guidance. Exploration success continued in the third quarter following up on the best hole drilled to date at Island Gold as announced in the second quarter at 71.21 g/t Au (39.24 g/t cut) over 21.33 m (MH25-08), down-plunge from Mineral Resources in Island East. Drilling activities were limited by drilling contractor availability constraints; however, this improved later in the quarter with another exploration update expected in the fourth quarter.

 

Production from the Mulatos District was impacted by higher than average rainfall during the rainy season and longer than anticipated recovery times for stockpiled ore stacked during the quarter. The above average rainfall and wet ore impacted stacking rates during the quarter which were approximately 20% below annual guidance. Additionally, with the higher grade Cerro Pelon deposit nearly depleted, an increasing proportion of previously mined and stockpiled ore is now being stacked. The leach cycle for this ore has been longer than anticipated and is requiring the application of additional reagents resulting in significantly higher processing costs. Production is expected to increase in the fourth quarter; however, given the lower production during the third quarter, full year production guidance has been reduced by 15,000 ounces to a range of 135,000 to 145,000 ounces. Given the higher reagent costs associated with processing this stockpiled ore, total cash costs and mine-site AISC at Mulatos are expected to increase significantly in the fourth quarter and through the first half of 2022. Costs are expected to decrease into the second half of 2022 as production from the high grade La Yaqui Grande project ramps up. Mulatos District costs are expected to be sharply lower in 2023 with La Yaqui Grande supplying the majority of production.

 

The Company continues to advance permitting of the Lynn Lake project, with approval of its Environmental Impact Statement expected mid-2022. The Company expects to make a construction decision following the conclusion of the EIS permitting process.

 

In April 2021, the Company announced that its Netherlands wholly-owned subsidiaries would proceed with an investment treaty claim against the Republic of Turkey for expropriation and unfair and inequitable treatment, among other things, with respect to the Kirazlı, Ağı Dağı and Çamyurt gold development projects in Turkey. The claim was registered with the International Centre for Settlement of Investment Disputes (World Bank Group) under the Netherlands-Turkey Bilateral Investment Treaty on June 7, 2021, and is expected to exceed $1 billion. In its effort to secure the renewal of its mining licenses, the Company has attempted to work cooperatively with the Turkish government, has raised with the Turkish government its obligations under the Treaty, has sought to resolve the dispute by good faith negotiations, and has made considerable effort to build support among stakeholders and host communities. The Turkish government has failed to provide the Company with a reason for the non-renewal of its licenses. As a result, Alamos and the Subsidiaries incurred an after-tax impairment charge of $213.8 million in the second quarter of 2021. The non-cash impairment charge reflects the Company’s net carrying value of the Turkish Projects.

 

The Company’s liquidity position remains strong, ending the third quarter with $211.4 million of cash and cash equivalents, $22.9 million in equity securities, and no debt. Additionally, the Company has a $500 million undrawn credit facility, providing total liquidity of $711.4 million. Combined with strong ongoing cash flow generation, the Company’s high-return internal growth initiatives are fully funded, which have the capacity to increase production by 50%, and reduce AISC by over 20% by 2025.

 

 

Third Quarter 2021 Results

 

Young-Davidson Financial and Operational Review

 

  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021    2020   
Gold production (ounces) 50,000   36,400   143,100   88,200  
Gold sales (ounces) 48,625   35,548   141,931   86,893  
Financial Review (in millions)        
Operating Revenues $87.1   $66.7   $255.3   $150.1  
Cost of sales (1) $58.5   $50.5   $181.8   $140.5  
Earnings from operations $28.6   $16.2   $73.5   $9.6  
Cash provided by operating activities $51.2   $36.4   $133.7   $51.0  
Capital expenditures (sustaining) (2) $11.7   $9.6   $31.0   $19.3  
Capital expenditures (growth) (2) $9.3   $16.0   $29.0   $62.9  
Capital expenditures (capitalized exploration) (2) $1.3   $—   $3.8   $—  
Mine-site free cash flow (2) $28.9   $10.8   $69.9   ($31.2 )
Cost of sales, including amortization per ounce of gold sold (1) $1,203   $1,421   $1,281   $1,617  
Total cash costs per ounce of gold sold (2) $810   $923   $873   $1,145  
Mine-site all-in sustaining costs per ounce of gold sold (2),(3) $1,051   $1,196   $1,093   $1,370  
Underground Operations        
Tonnes of ore mined 737,554   617,551   2,121,573   1,252,300  
Tonnes of ore mined per day 8,017   6,713   7,771   4,570  
Average grade of gold (4) 2.30   2.24   2.26   2.27  
Metres developed 3,031   3,231   9,251   9,326  
Mill Operations        
Tonnes of ore processed 738,646   591,544   2,159,994   1,451,577  
Tonnes of ore processed per day 8,029   6,430   7,912   5,298  
Average grade of gold (4) 2.30   2.19   2.25   2.01  
Contained ounces milled 54,640   41,598   156,310   93,959  
Average recovery rate 92 % 93 % 92 % 92 %

(1)  Cost of sales includes mining and processing costs, royalties and amortization.
(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)  For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4)  Grams per tonne of gold (“g/t Au”).

 

Young-Davidson produced 50,000 ounces of gold in the third quarter of 2021, a 37% increase from the prior year period which had been impacted by downtime to complete the lower mine expansion in July 2020. With production of 143,100 ounces through the first nine months and strong production expected in the fourth quarter, Young-Davidson remains on track to meet full year production guidance of between 190,000 and 205,000 ounces.

 

Underground mining rates continued to perform extremely well, increasing to average a record 8,017 tpd in the quarter. Since the completion of the lower mine expansion in the third quarter of 2020, mining rates have met or exceeded targeted rates. The Company expects similar mining rates in the fourth quarter with the new lower mine infrastructure now operating at its design rate of 8,000 tpd.

 

Grades mined increased slightly in the third quarter to average 2.30 g/t Au. Grades mined are expected to increase further in the fourth quarter. Mill throughput averaged 8,029 tpd in the third quarter, consistent with tonnes mined. Mill recoveries averaged 92% in the quarter, in line with guidance and the prior year.

 

Financial Review

 

Third quarter revenues of $87.1 million and year-to-date revenues of $255.3 million were 31% and 70% higher than the prior year periods, respectively. This reflected higher gold production with the prior year impacted by the temporary shutdown of the Northgate shaft to complete the lower mine expansion. Revenues in third quarter of 2021 were the second highest in the history of the operation.

 

Cost of sales (which includes mining and processing costs, royalties, and amortization expense) of $58.5 million in the third quarter were higher than the prior year period, due to significantly higher mining and processing rates compared to the prior year. Similarly, cost of sales for the first nine months of 2021 were higher than the prior year given lower mining rates during the shutdown period. Underground unit mining costs were CAD $44 per tonne in the quarter, a significant improvement from the prior year and the lowest quarterly unit mining costs of the year driven by economies of scale with mining rates increasing to average a record 8,000 tpd.

 

Total cash costs of $810 per ounce and mine-site AISC of $1,051 per ounce in the third quarter were both 12% lower than the comparative period in 2020, and the lowest result in 2021 driven by higher throughput and lower mining and processing costs per tonne. The stronger than budgeted Canadian dollar has increased total cash costs by approximately $50 per ounce and mine-site AISC by $65 per ounce year-to-date. Excluding the impact of the stronger than budgeted Canadian dollar, year-to-date costs are in-line with initial annual guidance. With higher grades expected in the fourth quarter, total cash costs and mine-site AISC are expected to decrease further to the lowest levels of the year.

 

Capital expenditures in the quarter included $11.7 million of sustaining capital and $9.3 million of growth capital. In addition, $1.3 million was invested in capitalized exploration as part of the first significant exploration program at the operation since 2011. Capital expenditures totaled $63.8 million in the first nine months of 2021, a 22% decrease from the prior year reflecting the completion of the lower mine expansion in July 2020. Capital expenditures in 2021 are expected to be slightly higher than guidance due to the impact of the stronger Canadian dollar.

 

Young-Davidson has consistently met or exceeded expectations since transitioning to the new lower mine infrastructure in mid-2020, driving production higher, costs lower, and strong free cash flow growth. This included mine-site free cash flow of $28.9 million in the third quarter, and $69.9 million in the first nine months of 2021. With a strong fourth quarter, Young-Davidson is expected to generate mine-site free cash flow of approximately $100 million for the full year.

 

 

Island Gold Financial and Operational Review

 

  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Gold production (ounces) 28,000   39,600   103,400   97,800  
Gold sales (ounces) 28,331   39,322   101,845   97,009  
Financial Review (in millions)        
Operating Revenues $50.8   $74.1   $183.4   $167.4  
Cost of sales (1) $24.5   $28.1   $79.2   $78.2  
Earnings from operations $25.5   $45.9   $101.0   $88.7  
Cash provided by operating activities $31.5   $56.7   $129.9   $123.5  
Capital expenditures (sustaining) (2) $13.9   $7.0   $35.5   $20.7  
Capital expenditures (growth) (2) $14.1   $6.0   $40.0   $25.1  
Capital expenditures (capitalized exploration) (2) $5.2   $2.9   $13.6   $8.1  
Capital advances $0.6   $—   $3.4   $—  
Mine-site free cash flow (2) ($2.3 ) $40.8   $37.4   $69.6  
Cost of sales, including amortization per ounce of gold sold (1) $865   $715   $778   $806  
Total cash costs per ounce of gold sold (2) $586   $394   $512   $438  
Mine-site all-in sustaining costs per ounce of gold sold (2),(3) $1,077   $575   $860   $653  
Underground Operations        
Tonnes of ore mined 108,241   111,263   329,190   298,629  
Tonnes of ore mined per day (“tpd”) 1,177   1,209   1,206   1,090  
Average grade of gold (4) 8.59   13.68   10.04   11.33  
Metres developed 1,708   1,430   5,566   4,313  
Mill Operations        
Tonnes of ore processed 99,425   101,447   320,608   281,082  
Tonnes of ore processed per day 1,081   1,103   1,174   1,026  
Average grade of gold (4) 8.90   13.62   10.29   11.52  
Contained ounces milled 28,443   44,414   106,062   104,072  
Average recovery rate 95 % 97 % 96 % 97 %

(1)  Cost of sales includes mining and processing costs, royalties, COVID-19 costs and amortization.
(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)  For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4)  Grams per tonne of gold (“g/t Au”).

 

Island Gold produced 28,000 ounces in the third quarter of 2021, a decrease from the comparative period reflecting lower planned grades mined. Through the first nine months of 2021, Island Gold produced 103,400 ounces, and remains well positioned to meet full year production guidance.

 

Underground mining rates averaged 1,177 tpd in the third quarter, a 3% decrease from the prior year period. Mining rates through the first nine months of the year averaged 1,206 tpd, consistent with annual guidance of 1,200 tpd. As previously guided, underground grades remained at similar levels to the second quarter, averaging 8.59 g/t Au. Grades mined are expected to slightly increase in the fourth quarter, and average approximately 10 g/t Au for the year, in line with the Mineral Reserve grade.

 

Mill throughput averaged 1,081 tpd in the third quarter, a decrease from the first half of the year and below annual guidance of 1,200 tpd due to approximately eight days of downtime for unplanned maintenance in July. The mill operated at full capacity in August and September. To mitigate future unplanned downtime, additional maintenance protocols have been put in place as well as an increase in critical spare inventory. Excess ore mined during the quarter was stockpiled for future processing. Mill recoveries averaged 95% in the quarter and 96% year-to-date, consistent with annual guidance.

 

Financial Review

 

Island Gold generated revenues of $50.8 million in the third quarter, a 31% decrease compared to the prior year period, reflecting less ounces sold given the lower grades and lower processing rates in the quarter. For the first nine months of the year, revenues were $183.4 million, a 10% increase from prior year, primarily due to the higher realized gold price and more ounces sold.

 

Cost of sales (includes mining and processing costs, royalties and amortization expense) of $24.5 million in the third quarter and $79.2 million during the first nine months of 2021 were relatively consistent with the prior year periods. Higher mining and processing rates in 2021 were offset by lower costs per tonne mined and lower amortization charges.

 

Total cash costs of $586 per ounce in the third quarter were significantly higher than the comparative quarter, due to lower grades mined in the period and the impact of the stronger Canadian dollar on mining and milling costs. Mine-site AISC of $1,077 per ounce were 87% higher than in the prior year given higher sustaining capital spending. On a year-to-date basis, total cash costs and mine-site AISC are slightly higher than initial full year guidance, largely reflecting the stronger than budgeted Canadian dollar. This has increased total cash costs by approximately $30 per ounce and mine-site AISC by approximately $50 per ounce, relative to initial guidance.

 

Total capital expenditures were $33.2 million in the third quarter, including $5.2 million of capitalized exploration. Spending was focused on lateral development, engineering and early procurement for the Phase III project, and surface infrastructure. For the nine months ended September 30, 2021, capital spending was $89.1 million inclusive of capitalized exploration of $13.6 million. In addition, Island Gold advanced $3.4 million for long lead time items supporting the Phase III expansion in the first nine months of 2021. Capital spending is expected to increase in the fourth quarter, however there is potential for some capital to be deferred to early 2022.

 

Given the lower production in the quarter and higher capital spending related to the Phase III expansion, Island Gold generated negative mine-site free cash flow of $2.3 million in the third quarter. On a year-to-date basis, Island Gold continues to more than self finance the Phase III expansion, generating mine-site free cash of $37.4 million driven by strong ongoing operating margins.

 

Mulatos Financial and Operational Review

 

  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021    2020   
Gold production (ounces) 26,700   41,100   98,200   119,600  
Gold sales (ounces) 33,532   41,165   100,775   118,592  
Financial Review (in millions)        
Operating Revenues $60.1   $77.6   $181.8   $204.0  
Cost of sales (1) $46.5   $44.0   $134.7   $127.5  
Earnings from operations $11.2   $32.7   $41.4   $73.9  
Cash provided by operating activities $9.2   $40.0   $38.4   $85.9  
Capital expenditures (sustaining) (2) $5.3   $6.1   $14.7   $14.6  
Capital expenditures (growth) (2) $22.7   $3.0   $60.0   $6.3  
Capital expenditures (capitalized exploration) (2) $0.4   $—   $1.4   $0.7  
Capital advances $0.7   $—   $18.1   $—  
Mine-site free cash flow (2) ($19.9 ) $30.9   ($55.8 ) $64.3  
Cost of sales, including amortization per ounce of gold sold (1) $1,387   $1,069   $1,337   $1,075  
Total cash costs per ounce of gold sold (2) $927   $746   $913   $772  
Mine site all-in sustaining costs per ounce of gold sold (2),(3) $1,124   $928   $1,097   $928  
Open Pit Operations        
Tonnes of ore mined – open pit (4) 744,827   1,320,034   2,455,916   4,370,921  
Total waste mined – open pit (6) 1,675,335   2,130,232   6,563,305   5,621,000  
Total tonnes mined – open pit 2,420,162   3,450,266   9,019,222   9,991,921  
Waste-to-ore ratio (operating) 1.15   0.76   1.41   0.70  
Crushing and Heap Leach Operations        
Tonnes of ore stacked 1,580,707   1,894,725   5,313,831   5,338,725  
Average grade of gold processed (5) 1.08   0.91   1.04   1.17  
Contained ounces stacked 54,999   55,411   177,418   201,455  
Average recovery rate 49 % 74 % 55 % 59 %
Ore crushed per day (tonnes) – combined 17,200   20,600   19,500   19,484  

(1)  Cost of sales includes mining and processing costs, royalties, and amortization.
(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)  For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4)  Includes ore stockpiled during the quarter.
(5)  Grams per tonne of gold (“g/t Au”).
(6)  Total waste mined includes operating waste and capitalized stripping, but excludes tonnes mined at La Yaqui Grande.

 

Mulatos produced 26,700 ounces in the third quarter, significantly lower than the prior year quarter, due to the impact of an above-average rainy season on crushing and stacking operations, as well as longer leach cycles for stockpiled ore. For the first nine months of 2021, Mulatos produced 98,200 ounces, an 18% decrease from the prior year driven by lower grades mined primarily from Cerro Pelon, as well as the timing of gold recovery on ore stacked in the third quarter.

 

Tonnes of ore mined in the third quarter decreased compared to the prior year period, with mining activities within the main Mulatos pit focused on pre-stripping the El Salto portion of the pit. The majority of ore mined in the quarter was from Cerro Pelon and San Carlos, which are both expected to be depleted by the end of the year. Total tonnes mined is exclusive of pre-stripping activities at La Yaqui Grande, where an additional 6.3 million tonnes of waste was mined in the quarter.

 

Total crusher throughput in the third quarter averaged 17,200 tpd for a total of 1,580,707 tonnes stacked at a grade of 1.08 g/t Au. Crusher throughput was 17% below the prior year and nearly 20% below annual guidance with above average rainfall impacting crushing and stacking rates.

 

Tonnes stacked in the quarter exceeded tonnes mined due to the processing of surface stockpiles, which were mined in previous years. With mining rates at Cerro Pelon winding down as the deposit is depleted, a higher proportion of higher grade but lower recovery stockpiles are being stacked. This contributed to grades stacked being 19% higher than the prior year period.

 

The increased proportion of stockpiles stacked in the quarter, combined with ore being stacked on higher lifts on the leach pad, and a longer than anticipated leach cycle all contributed to a lower recovery rate of 49%. The Company expects higher production over the next two quarters as these previously stacked ounces are recovered; however, at significantly higher processing costs given the additional reagents required for processing stockpiles. Given stockpiles are expected to be a bigger contributor to production until La Yaqui Grande begins producing in the second half of 2022, Mulatos District total cash costs and mine-site AISC are expected to increase significantly in the fourth quarter and first half of 2022.

 

Financial Review

 

Revenues of $60.1 million in the third quarter were lower than the prior year period driven by fewer ounces sold. The number of ounces sold were higher than production, reflecting the catch up of ounces produced but not sold in the second quarter. For the first nine months, revenues of $181.8 million were lower than prior year, as fewer ounces sold were partially offset by a higher realized gold price.

 

Cost of sales (includes mining and processing costs, royalties and amortization expense) of $46.5 million in the third quarter were higher than in the comparative period, primarily due to higher processing costs related to surface stockpiles and higher amortization charges in the period. Amortization per ounce was higher in the quarter given the proportion of ore coming from Cerro Pelon which carries a higher amortization charge, as well as the impact of straight line depreciation on lower sales in the quarter. Total cash costs of $927 per ounce were higher than in the prior year period as a result of less tonnes stacked, and an increasing proportion of surface stockpiles processed which carry a higher cost per ounce given the increased reagents required to recover the gold. The surface stockpiles also include historical inventory costs of approximately $150 per ounce, which were incurred in previous years when these tonnes were mined. Mine-site AISC of $1,124 per ounce in the quarter was higher than in the prior year period, consistent with the increase in total cash costs, and further driven by pre-stripping costs at El Salto incurred in the period.

 

Capital spending totaled $28.4 million in the third quarter, of which $5.3 million was sustaining capital primarily related to capitalized stripping at El Salto. Growth capital of $22.7 million was primarily related to pre-stripping and construction activities at La Yaqui Grande. An additional $0.7 million of capital advances were made to vendors for equipment. During the first nine months of 2021, Mulatos incurred $76.1 million of capital spending primarily on the construction of La Yaqui Grande.

 

Mine-site free cash flow at Mulatos was negative $19.9 million, reflecting the ramp up of construction spending on La Yaqui Grande. Mulatos paid $2.5 million in taxes in the quarter related to 2021 installment payments, and $26.9 million in the first nine months of the year. The Company does not expect to make any cash tax payments in the fourth quarter given the level of installment payments made to date.

 

 

Third Quarter 2021 Development Activities

 

Island Gold (Ontario, Canada)

 

Phase III Expansion Study

 

On July 14, 2020 the Company reported results of the positive Phase III expansion study conducted on its Island Gold mine. Based on the results of the study, the Company is proceeding with an expansion of the operation to 2,000 tpd. This follows a detailed evaluation of several scenarios which demonstrated the shaft expansion as the best option, having the strongest economics, being the most efficient and productive, and the best positioned to capitalize on further growth in Mineral Reserves and Resources. The Phase III expansion is expected to drive average annual gold production to 236,000 ounces per year starting in 2025 upon completion of the shaft, representing a 70% increase from 2020 production. This will also reduce total cash costs to an average of $403 per ounce and mine-site all-in sustaining costs to $534 per ounce to starting in 2025.

 

The Phase III expansion study was based on Mineral Reserves and Resources at Island Gold as of December 31, 2019 and does not include the significant growth subsequent to the study as outlined in the 2020 year end Mineral Reserve and Resource statement. Incorporating this growth is expected to improve already attractive economics. This growth included an 8% increase in Mineral Reserves to 1.3 million ounces of gold (4.2 mt grading 9.71 g/t Au) and a 0.9 million ounce, or 40%, increase in Inferred Mineral Resources to 3.2 million ounces with grades also increasing 9% to 14.43 g/t Au (6.9 mt).

 

The Company is currently focused on permitting and detailed engineering of the shaft and associated infrastructure, including the hoisting plant and surface civil works, as well as the paste plant. Contract tendering and awarding remains ongoing, with significant contracts signed for the shaft sinking and headworks and shaft site surface works. In addition, procurement of long lead time items is underway. Phase III permitting is anticipated to be completed in 2022 with the pre-sink for the shaft expected to begin in mid-2022.

 

During the third quarter of 2021, the Company spent $14.1 million on surface infrastructure, capital development, detailed engineering and permitting activities. Growth capital spending through the first nine months of the year totaled $40.0 million. Capital spending is expected to increase in the fourth quarter, however there is potential for some capital to be deferred to early 2022.

 

Mulatos District (Sonora, Mexico)

 

La Yaqui Grande

 

On July 28, 2020, the Company reported results of an internal study completed on its fully permitted La Yaqui Grande project located in the Mulatos District in Sonora, Mexico. La Yaqui Grande is located approximately seven kilometres (straight line) from the existing Mulatos operation and adjacent to the past producing La Yaqui Phase I operation. As with La Yaqui Phase I, La Yaqui Grande is being developed with an independent heap leach pad and crushing circuit.

 

La Yaqui Grande is expected to produce an average of 123,000 ounces of gold per year starting in the third quarter of 2022 at mine-site all-in sustaining costs of $578 per ounce, significantly reducing the Mulatos District all-in sustaining costs from approximately $1,100 per ounce through the first three quarters of 2021. This will replace higher cost production from the main Mulatos pit, keeping combined production at approximately 150,000 ounces per year. Initial capital is expected to be $137 million to be spent over a two year period.

 

Construction activities progressed well in the third quarter, with the project on schedule to achieve commercial production in the third quarter of 2022. The Company has closely monitored capital spending against budget, and despite inflationary pressures, the project remains on track to achieve its original construction budget of $137 million.

 

Capital spending increased to $22.2 million in the quarter bringing total capital spent since the start of construction to $70.2 million. In addition, the Company has advanced $18.1 million to contractors during the first nine months of 2021, which will be applied against the construction budget.

 

Third quarter highlights at La Yaqui Grande included:

  • Over six million tonnes of waste mined with mining rates increasing 20% compared to the second quarter to average 68,000 tpd
  • Construction of crushing circuit, agglomeration system, and ADR process plant well underway
  • Structural fill placed and compacted for the heap leach facility
  • Haul roads complete, and both the pregnant and barren solution ponds have been lined
  • Delivery and installation of tanks and pumps for the water supply and distribution to be received in the fourth quarter
  • Purchase orders placed for the water treatment plant components

 

La Yaqui Grande – Pit

 

A photo accompanying this announcement is available at

https://www.globenewswire.com/NewsRoom/AttachmentNg/761e91f4-b0c8-442b-b927-24e0490ade06

 

La Yaqui Grande – Crusher area

 

A photo accompanying this announcement is available at

https://www.globenewswire.com/NewsRoom/AttachmentNg/e8aa5bb4-a6cb-40d3-ba7c-e8a4e631fc60

 

La Yaqui Grande – ADR Plant

 

A photo accompanying this announcement is available at

https://www.globenewswire.com/NewsRoom/AttachmentNg/adfb01e4-a9c9-4829-8f83-b74a68cf0a24

 

Lynn Lake (Manitoba, Canada)

 

The Company released a positive Feasibility Study on the Lynn Lake project in December 2017 outlining average annual production of 143,000 ounces over a 10 year mine life at average mine-site all-in sustaining costs of $745 per ounce.

 

The project economics based on the 2017 Feasibility Study at a $1,500 per ounce gold price include an after-tax IRR of 21.5% and an after-tax NPV of $290 million (12.5% IRR at a $1,250 per ounce gold price). During the second quarter of 2020, the Company filed the Environmental Impact Statement (“EIS”) with the federal government. The federal and provincial permitting process is expected to take approximately two years, with a construction decision planned for 2022.

 

Development spending (excluding exploration) was $2.0 million in the third quarter of 2021 to support the ongoing permitting process and engineering, and $3.3 million for the first nine months of 2021.

 

Kirazlı (Çanakkale, Turkey)

 

On October 14, 2019, the Company suspended all construction activities on its Kirazlı project following the Turkish government’s failure to grant a routine renewal of the Company’s mining licenses, despite the Company having met all legal and regulatory requirements for their renewal. In October 2020, the Turkish government refused the renewal of the Company’s Forestry Permit. The Company had been granted approval of all permits required to construct Kirazlı including the Environmental Impact Assessment approval, Forestry Permit, and GSM (Business Opening and Operation) permit, and certain key permits for the nearby Ağı Dağı and Çamyurt Gold Mines. These permits were granted by the Turkish government after the project earned the support of the local communities and passed an extensive multi-year environmental review and community consultation process.

 

On April 20, 2021, the Company announced that its Netherlands wholly-owned subsidiaries Alamos Gold Holdings Coöperatief U.A, and Alamos Gold Holdings B.V. (the “Subsidiaries”) would be filing an investment treaty claim against the Republic of Turkey for expropriation and unfair and inequitable treatment, among other things, with respect to the Kirazlı, Ağı Dağı and Çamyurt gold development projects in Turkey. The claim was filed under the Netherlands-Turkey Bilateral Investment Treaty (the “Treaty”). Alamos Gold Holdings Coöperatief U.A. and Alamos Gold Holdings B.V. had its claim against the Republic of Turkey registered on June 7, 2021 with the International Centre for Settlement of Investment Disputes (World Bank Group).

 

In its effort to secure the renewal of its mining licenses, the Company has attempted to work cooperatively with the Turkish government, has raised with the Turkish government its obligations under the Treaty, has sought to resolve the dispute by good faith negotiations, and has made considerable effort to build support among stakeholders and host communities. The Turkish government has failed to provide the Company with a reason for the non-renewal of its licenses.

 

Alamos has had an active presence in Turkey since 2010. Over that time frame, the Company’s Turkish operations have met all legal and regulatory requirements, complied with best practices relating to sustainable development including meeting the highest environmental and social management standards, created hundreds of jobs, and developed trusting relationships with the local communities. Alamos and the Subsidiaries have invested over $250 million in Turkey, unlocked over a billion dollars worth of project value, and contributed over $20 million in royalties, taxes and forestry fees to the Turkish government. Over the life of the project, government revenues alone are expected to total $551 million. Additionally, Alamos and the Subsidiaries have invested $25 million to date towards various community and social initiatives.

 

Bilateral investment treaties are agreements between countries to assist with the protection of investments. The Treaty establishes legal protections for investment between Turkey and the Netherlands. The Subsidiaries directly own and control the Company’s Turkish assets. The Subsidiaries invoking their rights pursuant to the Treaty does not mean that they relinquish their rights to the Turkish project, or otherwise cease the Turkish operations. The Company will continue to work towards a constructive resolution with the Republic of Turkey.

 

Alamos and the Subsidiaries are being represented by the leading Canadian law firm Torys LLP, with a team that includes John Terry and former Canadian Supreme Court Justice, the Hon. Frank Iacobucci. The Company is also being supported by its strategic advisor John Baird, former Canadian Minister of Foreign Affairs and Senior Advisor to Bennett Jones LLP.

 

As a result, the Company incurred an after-tax impairment charge of $213.8 million in the second quarter of 2021. The non-cash impairment charge reflects the Company’s entire net carrying value of the Turkish mineral property, plant and equipment and certain other current assets.

 

In addition, the Company incurred approximately $1.6 million in the period for severances, legal costs, and ongoing holding costs which have been expensed, with the majority incurred in the second quarter following the announcement of the Treaty claim. Going forward, the Company expects holding costs will be approximately $1.0 to $2.0 million per year during the Treaty claim process.

 

Third Quarter 2021 Exploration Activities

 

Island Gold (Ontario, Canada)

 

The 2021 exploration drilling program is focused on expanding high-grade mineralization in the down-plunge and lateral extensions of the Island Gold deposit with the objective of adding new near-mine Mineral Resources across the two kilometre long Island Gold deposit. The Company continued its strong track record of exploration success and Mineral Reserve and Resource growth in 2020, with an 8% increase in Mineral Reserves to 1.3 million ounces of gold (4.2 mt grading 9.71 g/t Au) and a 0.9 million ounce, or 40% increase in Inferred Mineral Resources to 3.2 million ounces with grades also increasing 9% to 14.43 g/t Au (6.9 mt).

 

Surface diamond drilling programs continued with three drill rigs operating in the third quarter focused on the surface directional exploration program. One underground regular exploration diamond drill operated at the beginning of the quarter and two diamond drill rigs were focused on underground directional drilling. A total of 4,741 m of surface directional drilling, 3,362 m of underground directional drilling and 1,761 m of standard underground exploration drilling was completed in the third quarter of 2021.

 

Year-to-date, approximately 60% of the 2021 planned drilling has been completed due to constraints on drilling contractor availability which has limited the pace of drilling. Contractor availability improved in the latter part of the third quarter. Ongoing exploration drilling has continued to extend high-grade mineralization with another exploration update planned in the fourth quarter.

 

Surface exploration drilling

 

A total of 4,741 m of surface directional drilling was completed in four holes during the third quarter. Surface directional drilling targeted areas peripheral to the Inferred Mineral Resource block in the Island East area between 1,400 m and 1,750 m below surface with drill hole spacing ranging from 75 m to 100 m.

 

Underground exploration drilling

 

During the third quarter of 2021, a total of 3,362 m of underground directional drilling was completed in four holes from the 620, 740 and 840 levels. A total of 1,761 m of standard underground exploration drilling was completed in 11 holes from the 340, 620 and 840 levels. The objective of the underground drilling is to identify new Mineral Resources close to existing Mineral Resource or Reserve blocks. A total of 222 m of underground exploration drift development was completed on the 490, 620, 790 and 840 levels during the third quarter of 2021.

 

Total exploration expenditures during the third quarter were $6.0 million, of which $5.2 million was capitalized. For the first nine months of 2021, $16.8 million of exploration expenditures were incurred, with $13.6 million capitalized.

 

Young-Davidson (Ontario, Canada)

 

A total of $7.0 million has been budgeted for Young-Davidson for 2021. This represents the first significant exploration program since 2011, with the focus of the last several years on completing the lower mine expansion. Underground exploration drilling during the third quarter was focused on two targets with 2,151 m completed in four holes. Drilling from the 8960-level exploration drill bay established in the lower mine infrastructure continued to target to the west and down-plunge of existing Mineral Reserves and Resources with three drill holes completed in the third quarter. Drilling is targeting syenite-hosted mineralization as well as continuing to test mineralization in the footwall sediments and in the hanging wall mafic-ultramafic stratigraphy. A second underground drill also completed one hole from the 9440-level exploration drill bay targeting an untested area to the west of existing Mineral Reserves and Resources.

 

As previously disclosed in a July 12, 2021 press release, the current drilling campaign has been successful in extending gold mineralization 150 m below existing Inferred Mineral Resources. This follows a 220 m extension of gold mineralization in 2020 which contributed to an increase in Inferred Mineral Resources in the 2020 year-end update. The 2021 campaign has also intersected high-grade mineralization 200 m outside of the syenite in the hanging wall, as well as in the footwall of the deposit highlighting significant near-mine exploration potential outside of the known ore body.

 

Exploration spending totaled $1.3 million in the third quarter and $3.8 million in the first nine months of 2021, all of which was capitalized.

 

Mulatos District (Sonora, Mexico)

 

The Company has a large exploration package covering 28,972 hectares with the majority of past exploration efforts focused around the Mulatos mine. Exploration has moved beyond the main Mulatos pit area and is focused on earlier stage prospects throughout the wider district.

 

During the third quarter of 2021, exploration activities were focused on the near-mine, Puerto del Aire trend with 1,481 m of drilling completed in six drill holes. Regional targets at Carricito were also tested with nine holes completed totaling 2,773 m. Drilling continued at the El Halcon targets with nine drill holes completed totaling 3,097 m.

 

Exploration activities also continued on the Los Venados property, pursuant to an option agreement with Aloro Mining, with five drill holes completed in the quarter for a total of 1,209 m, and additional surface mapping and sampling. In August, an option agreement was signed which will allow for exploration activities on the La Cumbre project located approximately 34 km south west of the Mulatos mine. During the third quarter, the Company incurred $2.8 million of exploration spending, of which $0.4 million was capitalized. For the first nine months of 2021, $7.1 million was incurred, of which $1.4 million capitalized.

 

Lynn Lake (Manitoba, Canada)

 

In the third quarter of 2021, 5,215 m of drilling was completed in twenty-two holes at the Gordon deposit and on regional targets. The 2021 summer field season also progressed, with the focus on continuing to advance a pipeline of prospective regional exploration targets. Exploration spending totaled $2.3 million in the third quarter, and $6.5 million year-to-date which was capitalized.

 

Review of Third Quarter Financial Results

 

During the third quarter of 2021, the Company sold 110,488 ounces of gold for revenues of $198.0 million, a 9% decrease from the prior year period driven by lower realized gold prices and less ounces sold. Ounces sold were higher than production in the current period due to timing of second quarter shipments at the Mulatos mine, which were caught up in the third quarter.

 

The average realized gold price in the third quarter was $1,792 per ounce, a 5% decrease compared to $1,882 per ounce realized in the prior year period. The average realized gold price was slightly above the average London PM Fix price of $1,790 per ounce.

 

Cost of sales were $129.5 million in the third quarter, 6% higher than the prior year period.

 

Mining and processing costs were $84.5 million, 11% higher than the prior year comparative period. The increase in mining costs was primarily related to increased mining activity at Young Davidson, where mining rates were 19% higher than the prior year, as well as higher processing costs at Mulatos. Further, additional costs have been incurred in 2021 related to COVID-19 preventative measures, and reported US dollar costs have been impacted by the stronger Canadian dollar in the period.

 

Consolidated total cash costs of $788 per ounce and AISC of $1,152 per ounce in the quarter were both higher compared to the prior year period due to higher processing costs at Mulatos, a stronger Canadian dollar, and lower grades mined at Island Gold, partially offset by lower unit costs at Young-Davidson.

 

Royalty expense was $2.6 million in the quarter, lower than the prior year period of $2.8 million due to lower ounces sold in the period.

 

Amortization of $42.4 million in the quarter was lower than the prior year period due to less ounces sold, partially offset by higher amortization charges on a per ounce basis at Mulatos. Amortization of $384 per ounce was 2% higher than the prior year reflecting higher amortization at Mulatos, driven by Cerro Pelon production which carries a higher amortization charge per ounce.

 

The Company recognized earnings from operations of $57.3 million in the quarter, a decrease from the prior year driven mainly by less ounces sold, a $90 per ounce lower realized gold price, and higher cash costs at Mulatos and Island Gold.

 

The Company reported net earnings of $25.1 million in the quarter, compared to net earnings of $67.9 million in the comparative period. The decrease in net earnings from the prior year quarter is mainly due to lower operating margins given the lower average realized gold price, higher cost of sales, and a higher effective tax rate driven by foreign exchange losses recorded within taxes. On an adjusted basis, earnings of $37.6 million, or $0.10 per share, were lower compared to the prior year quarter due to lower operating margins, but reflect adjustments to the foreign exchange losses recorded within deferred taxes.

 

Associated Documents

 

This press release should be read in conjunction with the Company’s interim consolidated financial statements for the three-month period ended September 30, 2021 and associated Management’s Discussion and Analysis which are available from the Company’s website, www.alamosgold.com, in the “Investors” section under “Reports and Financials”, and on SEDAR (www.sedar.com) and EDGAR (www.sec.gov).

 

Qualified Persons

 

Chris Bostwick, FAusIMM, Alamos’ Vice President, Technical Services, who is a qualified person within the meaning of National Instrument 43-101 (“Qualified Person”), 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 October 28, 2021

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