Alamos Reports Second Quarter 2017 Results
Alamos Gold Inc.
Brookfield Place, 181 Bay Street, Suite 3910, P.O. Box #823 Toronto, Ontario M5J 2T3 Telephone: (416) 368-9932 or 1 (866) 788-8801
All amounts are in United States dollars, unless otherwise stated.
Alamos Reports Second Quarter 2017 Results
Toronto, Ontario (August 3, 2017) - Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported its financial results for the second quarter ended June 30, 2017 and reviewed its operating, exploration and development activities.
“We made significant gains in the second quarter with record production and lower costs driving the highest combined free cash flow from our operations in years. We expect this trend to continue in the second half of the year with stronger production and lower costs driving strong free cash flow growth from our operations,” said John A. McCluskey, President and Chief Executive Officer.
“We continue to advance one of the strongest portfolios of growth projects in our peer group. La Yaqui Phase I is on track for initial production later this year and we are building out our team in Turkey in preparation for early stage construction activities at Kirazlı. We also expect to deliver a feasibility study on Lynn Lake later this quarter, marking our third feasibility study this year. With a strong cash position, no debt and growing cash flow from our operations, we are well positioned to fund this growth,” Mr. McCluskey added.
Second Quarter 2017 Highlights
- Produced a quarterly record 105,900 ounces at cost of sales of $1,053 per ounce, total cash costs1 of $784 per ounce and all-in sustaining costs ("AISC")1 of $942 per ounce. This included record gold production of 47,300 ounces at Young-Davidson, as well as continued strong performance at Mulatos with production of 41,000 ounces
Sold 104,023 ounces of gold at an average realized price of $1,262 per ounce, $5 above the London PM fix, for revenues of $131.3 million
- Reported net earnings of $2.4 million, or $0.01 per share, which included a one-time pre-tax charge of $29.1 million (after-tax $21.8 million, or $0.07 per share) incurred on the retirement of the senior secured notes (“Notes”), as well as unrealized foreign exchange gains of $10.9 million ($0.04 per share) recorded within both deferred taxes and foreign exchange
- Stronger operating margins drove cash flow from operating activities to $51.4 million, a 156% increase from the first quarter of 2017
- Generated $18 million in free cash flow from the mine sites, including $10.7 million at Mulatos (excluding development capital for La Yaqui Phase I)
- Construction of La Yaqui Phase I continued to advance on budget, with initial production on track for later this year
- Completed the repurchase of $315 million senior secured notes in April 2017. As at June 30, 2017, the Company is debt-free, with approximately $150 million in cash and cash equivalents and equity securities
- Paid a semi-annual dividend of $0.01 per share, or $3.0 million in April 2017
- Purchased and cancelled a 2.0% net smelter return (“NSR”) royalty on certain concessions at the Company's Lynn Lake project for $6.7 million (CAD $9 million)
Subsequent to the Second Quarter 2017
- Produced a monthly record of approximately 20,000 ounces of gold in July at Young-Davidson, driven by underground grades averaging in excess of 3.0 grams per tonne of gold ("g/t Au")
(1) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release for a description and calculation of these measures.
- Completed a Canadian Development Expense ("CDE") flow-through financing for gross proceeds of CAD $12.0 million and Canadian Exploration Expense ("CEE") flow-through financing for gross proceeds of CAD $3.0 million
Highlight Summary
| Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 |
Financial Results (in millions)
| Operating revenues | $131.3 | $120.1 | $252.3 | $224.4 |
| Cost of sales(1) | $109.5 | $106.0 | $219.6 | $205.5 |
| Earnings from operations | $15.8 | $2.9 | $18.0 | $0.6 |
| Net earnings (loss) | $2.4 | ($11.8) | $2.5 | ($2.1 ) |
Cash provided by operations before working capital and cash $45.1 $40.3 $79.3 $67.9 taxes(2)
| Cash provided by operating activities | $51.4 | $36.9 | $71.5 | $60.7 |
| Capital expenditures (sustaining)(2) | $11.1 | $13.9 | $20.4 | $24.4 |
| Capital expenditures (growth)(2),(3) | $40.4 | $24.6 | $64.7 | $47.4 |
Operating Results
Gold production (ounces) 105,900 92,464 202,100 187,095 Gold sales (ounces) 104,023 95,866 202,778 186,855
Per Ounce Data
| Average realized gold price | $1,262 | $1,253 | $1,244 | $1,201 |
| Average spot gold price (London PM Fix) | $1,257 | $1,260 | $1,238 | $1,217 |
| Cost of sales per ounce of gold sold (includes amortization)(1) | $1,053 | $1,106 | $1,083 | $1,100 |
| Total cash costs per ounce of gold sold(2) | $784 | $775 | $805 | $778 |
| All-in sustaining costs per ounce of gold sold(2) | $942 | $1,037 | $977 | $1,012 |
Share Data
Earnings (loss) per share, basic and diluted $0.01 ($0.04) $0.01 ($0.01 ) Weighted average common shares outstanding (basic) (000’s) 299,189 264,464 292,008 263,431 Financial Position (in millions)
Cash and cash equivalents $133.7 $273.4 Total debt and equipment financing obligations $5.2 $316.9
(1) Cost of sales includes mining and processing costs, royalties, 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 capitalized exploration and La Yaqui Phase I development.
2 | Alamos Gold Inc
| Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 |
Gold production (ounces)
| Young-Davidson | 47,300 | 42,644 | 87,700 | 81,709 |
| Mulatos | 41,000 | 33,000 | 81,000 | 70,600 |
| El Chanate | 17,600 | 16,820 | 33,400 | 34,786 |
Gold sales (ounces)
| Young-Davidson | 46,368 | 44,024 | 90,195 | 83,758 |
| Mulatos | 40,265 | 34,865 | 78,940 | 67,597 |
| El Chanate | 17,390 | 16,977 | 33,643 | 35,500 |
Cost of sales (in millions)(1)
| Young-Davidson | $51.6 | $52.0 | $101.9 | $93.9 |
| Mulatos | $36.3 | $36.3 | $76.3 | $70.8 |
| El Chanate | $21.6 | $17.7 | $41.4 | $40.8 |
Cost of sales per ounce of gold sold (includes amortization)
| Young-Davidson | $1,113 | $1,181 | $1,130 | $1,121 |
| Mulatos | $902 | $1,041 | $967 | $1,047 |
| El Chanate | $1,242 | $1,043 | $1,231 | $1,149 |
Total cash costs per ounce of gold sold (2)
| Young-Davidson | $677 | $738 | $693 | $679 |
| Mulatos | $735 | $757 | $780 | $784 |
| El Chanate | $1,185 | $907 | $1,165 | $1,000 |
Mine-site all-in sustaining costs per ounce of gold sold (2),(3)
| Young-Davidson | $895 | $965 | $874 | $907 |
| Mulatos | $777 | $883 | $847 | $882 |
| El Chanate | $1,208 | $931 | $1,198 | $1,017 |
Capital expenditures (growth and sustaining) (in millions)(2)
| Young-Davidson | $22.7 | $25.2 | $41.3 | $49.2 |
| Mulatos(4) | $14.6 | $9.2 | $26.0 | $13.6 |
| El Chanate | $0.3 | $0.3 | $0.9 | $0.4 |
| Other | $13.9 | $3.8 | $16.9 | $8.6 |
(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 capitalized exploration and La Yaqui Phase I development.
3 | Alamos Gold Inc
Outlook and Strategy
| 2017 Guidance | ||||
| Young- | Mulatos | El Chanate | Development | |
| Total | ||||
| Davidson |
Gold production (000’s ounces) 200-210 150-160 50-60 — 400-430 Cost of sales, including amortization (in millions)(4) $215 $157 $70 — $442 Cost of sales, including amortization ($ per ounce)(4) $1,050 $1,015 $1,265 $1,065 — Total cash costs ($ per ounce)(1) $625 $815 $1,200 $765 — All-in sustaining costs ($ per ounce)(1) $940 — Mine-site all-in sustaining costs ($ per ounce)(1),(3) $775 $890 $1,200
- —
Capital expenditures (in millions)
Sustaining capital(1) $30-35 $8-10 $2 $40-47 — Growth capital(1) (5) $40-45 $25-30 (2) $35 $100-110 — Total capital expenditures(1) $70-80 $33-40 $2 $35 $140-$157
(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) Excludes capitalized exploration.
(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.
(5) Excludes revised capital budget for Turkish projects approved in April 2017.
The Company's objective is to maximize cash flow from its operations through increased production, margin expansion, and capital discipline, while advancing its portfolio of low-cost development projects. Significant progress was made on several fronts in the second quarter with record production of 105,900 ounces of gold, generating $51.4 million in operating cash flow, and over $18 million of mine-site free cash flow driven by strong performances from both Young-Davidson and Mulatos. This marked the highest level of quarterly mine-site free cash flow since the merger of Alamos Gold and AuRico Gold in July 2015.
With gold production of 202,100 ounces in the first half of 2017 and stronger production expected in the second half of the year, the Company is on track to meet full year guidance of 400,000 to 430,000 ounces. All-in sustaining costs are expected to decrease in the second half of the year, consistent with guidance.
At Young-Davidson, production increased to a record 47,300 ounces of gold in the second quarter, and is expected to range between 200,000 and 210,000 ounces for the year, driven by stronger underground mining rates and higher underground grades in the second half of the year. The third quarter has started strongly, with higher grade stopes mined in the month of July averaging over 3.0 g/t Au, driving production to approximately 20,000 ounces, a monthly record. In addition, the MCM waste pass system is nearing completion which will support higher underground throughput rates in the second half of 2017. Finally, the installation of a pebble crusher to the mill circuit is expected to be complete by the end of the third quarter driving increased mill throughput. All of these are expected to contribute higher production, lower costs, and stronger free cash flow in the second half of the year. Capital spending at Young-Davidson totaled $22.7 million in the second quarter and $41.3 million for the first half of the year. The Company expects a lower rate of capital spending in the second half of the year, and is tracking to full year 2017 guidance of $70 to $80 million.
Mulatos had another strong quarter, producing 41,000 ounces of gold. With production in the first half totaling 81,000 ounces, Mulatos is well positioned to meet full year guidance of 150,000 to 160,000 ounces. Mine-site all-in sustaining costs decreased to $777 per ounce in the second quarter, down more than $100 per ounce from a year ago, benefiting from higher grades stacked on the leach pad and lower sustaining capital spending. These improved margins contributed to Mulatos generating $10.7 million of mine-site free cash flow, net of capital and exploration spending (excluding La Yaqui Phase I development).
Development of La Yaqui Phase I is on budget, and is on schedule for initial production later this year. Development activities in the second quarter were focused on construction of the independent heap leach pad, pre-stripping activities, and stockpiling ore from the open pit.
In parallel to the development of La Yaqui Phase I, the Company continued its exploration program at La Yaqui Grande and surrounding deposits in the Mulatos district. The Company remains focused on expanding its footprint at Mulatos, with up to $17 million budgeted for exploration in 2017.
El Chanate produced 17,600 ounces of gold and generated $2.9 million of mine-site free cash flow in the second quarter. The operation is on track to meet its production guidance of 50,000 to 60,000 ounces of gold in 2017 at mine-site all-in sustaining costs of $1,200 per ounce. As a mature, higher cost operation, the Company has hedged
4 | Alamos Gold Inc
El Chanate’s 2017 gold production through gold collar contracts which ensure a minimum gold price of $1,242 per ounce and participation up to a price of $1,409 per ounce. The Company expects the operation to generate significant free cash flow through residual leaching at the conclusion of its mine life.
Development spending in 2017 remains focused on the Company's highest priority targets. The Company received the Forestry Permits for Kirazlı in the first quarter, and is pursuing the GSM (Business Opening and Operation) permit. In April, the Company's Board of Directors approved an increase to the 2017 capital budget of up to $30 million for Kirazlı in order to complete detailed engineering and commence construction activities on longer lead time items, such as the water reservoir.
The Company is also in the process of completing a feasibility study for its Lynn Lake project, which is scheduled to be completed in the third quarter of 2017. During the second quarter, the Company purchased and canceled a 2.0% royalty interest on certain of the Lynn Lake concessions for consideration of $6.7 million (CAD $9 million). This removes certain royalty obligations on the Lynn Lake project, which will improve project economics.
With the completion of the bought deal equity financing in February and subsequent repayment of the $315 million Notes in April, the Company is now debt free and has significantly de-risked its balance sheet. With a substantial cash position, additional liquidity available under its revolving credit facility, and growing cash flow from its operations, the Company is well positioned to fund its strong pipeline of growth projects.
Second Quarter 2017 Results Young-Davidson Operational and Financial Review
| Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 |
Gold production (ounces) 47,300 42,644 87,700 81,709 Gold sales (ounces) 46,368 44,024 90,195 83,758
Financial Review (in millions)
| Operating Revenues | $58.5 | $55.5 | $112.1 | $101.5 |
| Cost of sales(1) | $51.6 | $52.0 | $101.9 | $93.9 |
| Earnings from operations | $6.9 | $3.5 | $10.2 | $7.6 |
| Cash provided by operating activities | $27.3 | $26.2 | $45.8 | $48.0 |
| Capital expenditures (sustaining)(2) | $9.9 | $9.8 | $16.0 | $18.8 |
| Capital expenditures (growth)(2) | $12.8 | $15.4 | $25.3 | $30.4 |
| Mine-site free cash flow, before changes in working capital(2) | $4.5 | ($0.3) | $8.4 | ($2.3) |
| Mine-site free cash flow(2) | $4.6 | $1.0 | $4.5 | ($1.2) |
| Cost of sales, including amortization per ounce of gold sold(1) | $1,113 | $1,181 | $1,130 | $1,121 |
| Total cash costs per ounce of gold sold(2) | $677 | $738 | $693 | $679 |
| Mine-site all-in sustaining costs per ounce of gold sold(2),(3) | $895 | $965 | $874 | $907 |
Underground Operations
| Tonnes of ore mined | 580,351 | 557,206 | 1,156,370 | 1,082,803 |
| Tonnes of ore mined per day ("tpd") | 6,377 | 6,123 | 6,389 | 5,949 |
| Average grade of gold(4) | 2.60 | 2.40 | 2.58 | 2.48 |
| Metres developed | 3,425 | 3,168 | 6,667 | 6,658 |
| Unit mining costs per tonne | $33 | $34 | $34 | $33 |
| Unit mining costs per tonne (CAD$) | $44 | $44 | $46 | $43 |
Mill Operations
| Tonnes of ore processed | 629,470 | 637,503 | 1,324,094 | 1,305,639 |
| Tonnes of ore processed per day | 6,917 | 7,006 | 7,315 | 7,174 |
| Average grade of gold(4) | 2.45 | 2.12 | 2.31 | 2.10 |
| Contained ounces milled | 49,619 | 43,524 | 98,393 | 88,284 |
| Average recovery rate | 92 % | 92% | 91% | 91% |
(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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(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").
5 | Alamos Gold Inc
Young-Davidson produced a record 47,300 ounces of gold in the second quarter of 2017, 11% higher than the same period of 2016 and 17% higher than the first quarter of 2017. The increase reflects higher underground grades mined, improved mill recoveries and a drawdown of approximately 1,500 ounces of gold in inventory within the mill circuit that built up in the first quarter. Strong production has continued into July, with higher underground grades driving gold production to a new monthly record of approximately 20,000 ounces.
The Company mined 580,351 tonnes of ore from underground in the second quarter of 2017, or 6,377 tpd, consistent with the first quarter of 2017 and a 4% increase from the prior year period. Underground mining rates are expected to increase in the second half of 2017 after the MCM waste pass is completed in August. Increased mining rates, combined with higher underground grades are expected to drive second half gold production higher and total cash costs and mine-site AISC lower.
Underground grades in the second quarter were 2.60 g/t Au, slightly higher than the first quarter of 2017. Higher grade stopes are now being mined in the third quarter with underground grades averaging over 3.0 g/t Au in the month of July. The Company anticipates mining higher grades throughout the second half of the year and expects to average the reserve grade of approximately 2.7 g/t Au for the full year.
During the second quarter, 629,470 tonnes, or 6,917 tpd were processed through the mill with grades averaging 2.45 g/t Au. Mill throughput was lower than what was achieved in the first quarter of 2017 but higher than the same period of 2016. In the second quarter, mill scats were recirculated instead of supplementing mill feed with lower grade surface stockpiles. This drove processed grades 12% higher, more than offsetting the 10% decrease in mill throughput, resulting in lower costs and stronger mine-site free cash flow.
The Company expects to continue operating the mill in this manner until the pebble crusher is installed and commissioned late in the third quarter of 2017, at which point mill throughput is expected to reach steady state levels of 8,000 tpd. Mill recoveries were consistent with expectations at 92%.
Financial Review
For the three months ended June 30, 2017, revenue of $58.5 million was $3.0 million, or 5% higher than the prioryear period reflecting a higher number of ounces sold. For the first half of 2017, revenue of $112.1 million was $10.6 million higher than the prior year, attributable to both higher ounces sold and realized gold price.
In the second quarter of 2017, cost of sales of $51.6 million were consistent with the prior year period. Cost of sales reflects mining and processing costs, royalties, and amortization expense. For the first half of 2017, cost of sales of $101.9 million were $8.0 million higher than the prior-year period as a result of a higher number of ounces sold. Total cash costs in the second quarter were $677 per ounce, representing an 8% decrease from the second quarter of 2016. The decrease was attributable to higher underground grades mined in the second quarter of 2017. Underground unit mining costs were $33 per tonne in the second quarter, 3% lower than the prior year period as a result of increased mining rates. Mine-site all-in sustaining costs were $895 per ounce, 7% lower than the prior year period reflecting the above noted lower costs and a similar level of sustaining capital spread across higher gold production and sales in 2017. Both total cash costs and mine-site all-in sustaining costs are expected to trend lower in the second half of 2017 as gold production increases reflecting a combination of higher underground mining rates and higher-grade ore being mined.
Capital expenditures totaled $22.7 million in the quarter, a decrease of $2.5 million relative to the same period of 2016. For the first six months of 2017, capital expenditures of $41.3 million, were $7.9 million lower than in the same period in 2016. Capital spending in the second quarter was focused primarily on lateral development, pebble crusher installation, and completion of the excavation of the Northgate shaft to a depth of 1,500 metres. Total capital expenditures in the second quarter included $9.9 million of sustaining capital and $12.8 million of growth capital. Capital spending at Young-Davidson is expected to total between $70 and $80 million in 2017, a significant reduction from 2016 levels.
Young-Davidson generated positive operating cash flow of $27.3 million and mine-site free cash flow of $4.6 million. For the six months ended June 30, 2017, positive operating cash flow of $45.8 million was generated, $2.2 million lower than the prior-year period. Higher underground mining rates and grades are expected to drive stronger production and free cash flow growth through the remainder of 2017.
6 | Alamos Gold Inc
Mulatos Operational and Financial Review
| Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 |
Gold production (ounces) 41,000 33,000 81,000 70,600 Gold sales (ounces) 40,265 34,865 78,940 67,597
| Operating Revenues | $50.9 | $43.9 | $98.5 | $81.8 |
| Cost of sales(1) | $36.3 | $36.3 | $76.3 | $70.8 |
| Earnings from operations | $12.9 | $7.3 | $19.6 | $10.4 |
| Cash provided by operating activities | $19.8 | $18.2 | $28.9 | $25.2 |
| Capital expenditures (sustaining)(2) | $0.9 | $3.8 | $3.5 | $5.2 |
| Capital expenditures (Mulatos growth)(2),(6) | $8.2 | $5.4 | $11.7 | $8.4 |
| Capital expenditures (La Yaqui Phase I growth)(2) | $5.5 | — | $10.8 | — |
Mine-site free cash flow, before changes in working capital and $10.6 $10.9 $19.4 $9.6 excluding La Yaqui capital expenditures (2)
Mine-site free cash flow, excluding La Yaqui capital $10.7 $9.0 $13.7 $11.6 expenditures (2)
| Cost of sales, including amortization per ounce of gold sold(1) | $902 | $1,041 | $967 | $1,047 |
| Total cash costs per ounce of gold sold(2) | $735 | $757 | $780 | $784 |
| Mine site all-in sustaining costs per ounce of gold sold(2),(3) | $777 | $883 | $847 | $882 |
Open Pit & Underground Operations
| Tonnes of ore mined - open pit(4) | 1,759,168 | 1,678,596 | 3,569,810 | 3,186,632 |
| Total waste mined - open pit | 1,372,143 | 2,272,266 | 3,262,887 | 4,529,651 |
| Total tonnes mined - open pit | 3,131,311 | 4,127,496 | 6,832,697 | 7,892,917 |
| Waste-to-ore ratio (operating) | 0.78 | 1.35 | 0.91 | 1.42 |
| Tonnes of ore mined - underground | 29,414 | 32,961 | 57,769 | 69,419 |
Crushing and Heap Leach Operations
| Tonnes of ore crushed and placed on the heap leach pad | 1,649,330 | 1,671,844 | 3,302,314 | 3,269,124 |
| Average grade of gold processed(5) | 0.97 | 0.79 | 0.91 | 0.80 |
| Contained ounces stacked on the heap leach pad | 51,564 | 42,243 | 96,290 | 84,468 |
Mill Operations
| Tonnes of high grade ore milled | 35,346 | 22,667 | 71,110 | 61,566 |
| Average grade of gold processed(5) | 10.56 | 9.49 | 9.71 | 12.93 |
| Contained ounces milled | 11,998 | 6,912 | 22,202 | 25,599 |
| Total contained ounces stacked and milled | 63,562 | 49,156 | 118,492 | 110,067 |
Recovery ratio (ratio of ounces produced to contained ounces 65 % 67% 68% 64% stacked and milled)
Ore crushed per day (tonnes) - combined 18,300 18,600 18,500 18,300
(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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(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) Includes capitalized exploration, of $2.2 million and $4.6 million for the three and six months ended June 30, 2017.
Mulatos produced 41,000 ounces of gold in the second quarter of 2017, a 24% increase from the prior year period, driven by higher production from both the heap leach operation and the mill.
The open pit operations continued to perform well during the second quarter. Total crusher throughput averaged 18,300 tpd, slightly lower than the same period of 2016. A total of 1,649,330 tonnes were stacked at a grade of 0.97 g/t Au in the second quarter. The waste-to-ore ratio of 0.78:1 was consistent with guidance and down sharply from a year ago.
Underground tonnes mined from San Carlos during the quarter were slightly lower than the same period of 2016 with the deposit expected to reach the end of its current mineral reserve life in the third quarter of 2017. The Company is continuing its underground exploration program to the east of San Carlos, with the objective of delineating additional mineral reserves.
7 | Alamos Gold Inc
In the second quarter, 35,346 tonnes were milled at an average grade of 10.56 g/t Au. Both tonnes and grades milled increased from a year ago driving stronger mill production in the second quarter of 2017. Tonnes processed through the mill exceeded tonnes mined from underground as high grade stockpiles were drawn down to supplement the mill feed. The Company had approximately 35,000 tonnes remaining in high grade stockpiles at the end of June to supplement underground mining rates. Based on currently known mineral reserves and stockpiles, mill production is scheduled to cease in the fourth quarter of 2017.
The ratio of ounces produced to contained ounces stacked and milled (or recovery ratio) was 65% in the quarter compared to 67% in the prior year period, as higher recoveries from the mill circuit were offset by a lower recovery ratio from the heap leach pad. The Company stacked the highest grades late in the quarter, which resulted in a lower recovery ratio.
Financial Review For the three months ended June 30, 2017, revenue of $50.9 million was $7.0 million, or 16% higher than the prioryear period with the increase reflecting higher ounces sold. For the first half of 2017, revenue of $98.5 million was $16.7 million higher than the prior year, attributable to both higher ounces sold and a higher realized gold price. Cost of sales in the second quarter were $36.3 million and unchanged from the prior-year period as increased sales were offset by a lower cost of sales per ounce. Cost of sales reflects mining and processing costs, royalties, and amortization expense. For the first half of 2017, cost of sales of $76.3 million were $5.5 million higher than the prioryear period as a result of higher ounces sold and longer haulage distances, partially offset by a lower depreciation per ounce in 2017.
Total cash costs of $735 per ounce in the second quarter were lower than $757 per ounce in the prior year period, reflecting higher grades and a lower waste-to-ore ratio. Mine-site all-in sustaining costs in the quarter were $777 per ounce, $106 or 12% lower than the prior year period as a result of lower sustaining capital.
Mulatos had another strong quarter, generating $10.7 million in mine-site free cash flow, excluding $5.5 million of construction and development spending at La Yaqui Phase I ($10.8 million year-to-date). Mulatos' free cash flow reflects higher gold sales and lower sustaining capital. The Company expects free cash flow growth in the second half of 2017 with initial production from La Yaqui Phase I.
8 | Alamos Gold Inc
El Chanate Operational and Financial Review
| Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 |
Gold production (ounces) 17,600 16,820 33,400 34,786 Gold sales (ounces) 17,390 16,977 33,643 35,500
| Operating Revenues | $21.9 | $20.7 | $41.7 | $41.1 |
| Cost of sales(1) | $21.6 | $17.7 | $41.4 | $40.8 |
| Earnings (loss) from operations | $0.3 | $3.0 | $0.3 | $0.3 |
| Cash provided by operating activities | $3.2 | $3.7 | $2.2 | $2.7 |
| Capital expenditures | $0.3 | $0.3 | $0.9 | $0.4 |
| Mine-site free cash flow, before changes in working capital(2) | $0.9 | $2.4 | $1.3 | $0.4 |
| Mine-site free cash flow(2) | $2.9 | $3.4 | $1.3 | $2.3 |
| Cost of sales, including amortization per ounce of gold sold(1) | $1,242 | $1,043 | $1,231 | $1,149 |
| Total cash costs per ounce of gold sold(2) | $1,185 | $907 | $1,165 | $1,000 |
| Mine site all-in sustaining costs per ounce of gold sold(2),(3) | $1,208 | $931 | $1,198 | $1,017 |
Open Pit Operations
| Tonnes of ore mined | 1,048,435 | 1,680,322 | 1,954,350 | 2,908,038 | ||||
| Total tonnes mined | 5,739,576 | 7,254,439 | 13,298,901 | 15,176,882 | ||||
| Waste-to-ore ratio (operating) | 4.47 | 3.32 | 5.80 | 4.22 | ||||
| Average grade of gold(4) | 0.41 | 0.57 | 0.47 | 0.58 |
Crushing and Heap Leach Operations
| Tonnes of ore crushed stacked on the heap leach pad | 789,938 | 1,415,064 | 1,537,892 | 2,431,734 | ||||
| Average grade of gold processed(4) | 0.60 | 0.63 | 0.61 | 0.66 | ||||
| Tonnes of run-of-mine ore stacked on the heap leach pad | 301,151 | 254,696 | 472,441 | 492,903 | ||||
| Average run-of mine grade of gold processed(4) | 0.21 | 0.20 | 0.21 | 0.20 | ||||
| Total tonnes of ore processed | 1,091,089 | 1,669,760 | 2,010,333 | 2,924,637 | ||||
| Average grade of gold processed(4) | 0.49 | 0.57 | 0.51 | 0.58 |
Ore crushed and run-of-mine ore stacked per day (tonnes) - 12,000 18,300 11,100 16,100 combined Recovery ratio (ratio of ounces produced to contained ounces 102 % 55% 101% 64% stacked)
(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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(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").
El Chanate produced 17,600 ounces of gold in the second quarter compared to 16,820 ounces in the prior year period. The scheduled pit pushback was completed during the first half of the year, but did not impact production in the quarter due to the long leach curve at El Chanate.
Given the lower contained ounces stacked during the pushback, quarterly production rates are expected to decrease in the third and fourth quarters of 2017 consistent with full year production guidance. Contained ounces stacked on the pad are expected to increase in the second half of 2017 with a corresponding reduction in waste mined. This will benefit gold production in 2018.
During the second quarter of 2017, the Company mined 1,048,435 tonnes of ore at an average grade of 0.41 g/t Au. Tonnes of ore mined were lower than the prior year period due to a higher proportion of run-of-mine material being mined in the quarter, and negative grade reconciliations for a few benches that have now been fully mined. The Company stacked 1,091,089 tonnes of open pit ore on the heap leach pad, including run-of-mine material, during the second quarter at an average rate of 12,000 tpd. Consistent with lower mining rates during the quarter, tonnes stacked were lower than the prior year period. Mining and stacking rates are expected to improve in the second half of the year.
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Financial Review
For the three months ended June 30, 2017, revenue of $21.9 million was $1.2 million or 6% higher than the prior year period, reflecting higher ounces sold as well as higher realized gold prices. For the first half of 2017, revenue of $41.7 million was consistent with the prior year, attributable to higher realized prices, offset by lower ounces sold. For the second quarter, cost of sales were higher than the prior-year period, increasing by $3.9 million to $21.6 million as a result of a higher waste-to-ore ratio in 2017. Cost of sales reflects mining and processing costs, royalties, and amortization expense. For the first half of 2017, cost of sales of $41.4 million were consistent with the prior-year period.
Total cash costs of $1,185 per ounce and mine-site all-in sustaining costs of $1,208 per ounce in the second quarter increased from the same period of 2016 due to a higher waste-to-ore ratio, and lower grades stacked.
El Chanate generated positive free cash flow of $2.9 million after changes in working capital. Given El Chanate's higher cost structure, the Company has executed a hedging strategy to preserve free cash flow, ensuring a minimum gold price of $1,242 per ounce and participation up to a price of $1,409 per ounce.
Second Quarter 2017 Development Activities La Yaqui Phase I
Development of La Yaqui Phase I remains on track and on budget, with initial production expected in the second half of 2017. There were a number of significant development and construction milestones achieved during the first half of 2017, including:
- Receipt of all significant permits for construction and operations, including the explosives permit
- Development of pit access and haul road
- Pre-stripping activities and stockpiling of ore at the crusher, totaling over 120,000 tonnes of ore grading 1.3 g/t
- Installation of the crushing circuit
- Construction of the heap leach facility and process ponds completed
- Fabrication and installation of carbon columns
Below is an overview of the progress made to date at La Yaqui Phase 1:
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During the second quarter of 2017, the Company spent $5.5 million on construction and development activities ($10.8 million year-to-date), and expects to spend an additional $3.0 million to complete construction. The Company expects construction to be completed and commissioning to begin in the third quarter of 2017. Once completed, La Yaqui Phase I will contribute annual production of approximately 25,000 ounces at significantly lower cash costs than production at the Mulatos complex.
Lynn Lake
The Company owns 100% of the Lynn Lake development project, in Manitoba, Canada.
The Company is currently working towards completion of a feasibility study expected to be completed in the third quarter of 2017. During the second quarter, $5.1 million was spent at Lynn Lake ($6.4 million, year to date) focused on the following:
- Submission of the Project Description in July 2017
- Environmental baseline studies
- Geotechnical trade-off studies and pit slope recommendations
- Mine planning and equipment requirements
- Completion of site layouts for the MacLellan and Gordon deposits
In addition, the Company purchased a 2.0% NSR royalty on the project for $6.7 million (CAD$9 million). The royalty covers production on the Gordon deposit, as well as a portion of the MacLellan deposit and other exploration targets surrounding these deposits. The repurchase of the royalty eliminates the only significant royalty obligation on the project and improves its economics.
Turkey
The Company received Forestry Permits for the Kirazlı gold project at the beginning of the year and has applied for the GSM (Business Opening and Operation) permit, which is granted by the Çanakkale Governorship.
In April, the Company increased its planned spending in 2017 to up to $30 million. This will include pre-construction activities such as construction of the water reservoir for the Kirazlı project, detailed engineering, as well as community relations efforts. Additionally, the Company hired a project director during the quarter that will directly oversee construction and development of the Kirazlı project, and is ramping up hiring activities.
For the three and six months ended June 30, 2017, total development expenditures in Turkey were $7.8 million and $8.2 million respectively, which includes a forestry permit fee of $5.1 million that was paid in the second quarter of 2017.
Other
The Company capitalized $0.5 million to the Esperanza Project ($1.1 million, year to date) and capitalized $0.3 million to Quartz Mountain ($0.7 million, year to date) during the second quarter.
Second Quarter 2017 Exploration Activities Mulatos District
The Company has a large exploration package covering 28,777 hectares which has historically had the majority of its exploration efforts focused around the Mulatos mine. Using knowledge and understanding gained from the successful exploration programs at La Yaqui and Cerro Pelon, a detailed review and ranking of all prospects in the district was undertaken in 2016, with multi-year exploration plans outlined. These programs commenced in 2017 with a number of new prospects currently undergoing initial exploration.
La Yaqui Grande
The Company continued drilling at La Yaqui Grande during the second quarter, with a total of 9,577 metres (“m”) of drilling undertaken in 57 holes. The majority of the drilling was conducted over Zone 3 with first pass drilling also completed to the northeast of Zone 1. Additional drilling was also conducted to the northeast of Zone 2.
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Mineralization has been intersected throughout Zone 3 with the best intercepts in the south-western part of the zone, which was the main focus of drilling in the second quarter. Previously unreleased highlight intercepts received to date in 2017 from Zone 3 are:
- 17YAQ053: 18.00 m at 3.52 g/t Au
- 17YAQ055: 7.20 m at 9.21 g/t Au
- 16YAQ230: 17.70 m at 3.03 g/t Au
- 17YAQ048: 33.50 m at 2.12 g/t Au
- 17YAQ065: 23.10 m at 2.81 g/t Au
- 17YAQ012: 39.60 m at 1.54 g/t Au
- 17YAQ016: 25.00 m at 1.71 g/t Au
True widths for these intercepts are estimated at approximately 80-90% of drilled width. Further highlights from the 2017 drill program at La Yaqui Grande are presented in Table 1 at the end of this press release.
The plan for the third quarter is to complete the infill drilling on Zone 3, and compile 3D geological models.
Los Bajios
Exploration scout drilling commenced during the second quarter with 7,207 m drilled in 24 holes. The geology intersected indicates structural control on mineralization with oxide material located along and adjacent to faults. In the third quarter, the Company plans to complete the scout drilling program, compile the geological understanding, assess results and plan further exploration accordingly.
El Refugio
Mapping and sampling progressed well over the El Refugio prospect during the quarter. The geological understanding has evolved considerably with drill planning underway and expected to commence in the third quarter. Mapping has outlined the apparent controlling and bounding structures to the surface geochemical anomalies while selective grab sampling has returned results of up to 53.7 g/t Au (from a fault structure).
Lynn Lake
Exploration drilling continued at Lynn Lake during the second quarter of 2017 with 2,980 m drilled in 12 holes focused primarily on testing geophysical anomalies directly along strike from the MacLellan deposit. The main focus was to the northeast of the deposit where additional mineralization has been intersected. Drilling is ongoing and will continue to step out further to the northeast and test continuity of this zone.
Previously unreleased highlight intercepts received to date in 2017 include the following, which are adjacent to the MacLellan deposit, and outside the current mineral resource:
- 17MCX003: 10.50 m at 1.49 g/t Au and 39.00 m at 1.78 g/t Au
- 17MCX012: 18.50 m at 3.67 g/t Au
- 17MCX013: 13.50 m at 2.58 g/t Au
- 17MCX014: 38.00 m at 2.03 g/t Au
- 17MCX019: 7.00 m at 3.57 g/t Au and 16.00 m at 6.68 g/t Au
True widths for these intercepts are estimated at approximately 80-90% of drilled width. Further highlights from the 2017 drill program at Lynn Lake are presented in Table 2 at the end of this press release.
Review of Second Quarter Financial Results
During the second quarter of 2017, the Company sold 104,023 ounces of gold for proceeds of $131.3 million, a 9% increase compared to the prior year period. This reflected higher ounces sold (a $10.3 million benefit), and a higher average realized price of $1,262 per ounce compared to $1,253 per ounce in the prior year period (a $0.9 million benefit). The Company's realized gold price in the second quarter was $5 above the average London PM fix of $1,257 per ounce.
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