Alamos Gold Inc

370,000-400,000 ounces of gold projected

By Gregory Reynolds

Alamos Gold Inc. expects significant free cash flow growth in 2017, driven by a combination of lower costs and capital spending.

Total capital spending in 2016 is expected to decrease over 20% from 2015. Capital spending on the company’s development projects has been scaled back significantly in 2016 and will be focused on the highest priority targets. The company has three producing mines, Young Davidson in Northeastern Ontario and Mulatos and El Chante in Mexico. Among its six development projects are Lynn Lake in Manitoba and Kirazli in Turkey. Priorities include completing the permitting process at Kirazli and advancing Lynn Lake towards a feasibility study. “The second quarter marked a significant turning point for Alamos, with all three operations generating positive free cash flow. This included Young-Davidson, with underground mining rates ramping up to average a new record in the quarter.

We expect higher production and lower costs to drive strong free cash flow growth in the second half of this year, and are well positioned to achieve full year guidance,” said John A. McCluskey, president and CEO on Aug. 10.

In the second quarter Alamos: Generated positive free-cash flow at each of the company’s operations for total mine-site free cash flow of $13.4 million in the quarter, net of all capital and exploration spending; Reported quarterly production of 92,464 ounces of gold, including 42,644 ounces from Young-Davidson, 33,000 ounces from Mulatos and 16,820 ounces from El Chanate. The second quarter of 2016 marked the second highest quarterly production for Young-Davidson in the company’s history; Sold 95,866 ounces of gold at an average realized price of $1,253 per ounce for revenues of $120.1 million, including record quarterly sales at Young-Davidson of 44,024 ounces; Achieved total cash costs in the second quarter of $775 per ounce of gold sold and all-in sustaining costs (AISC) of $1,037 per ounce of gold sold. AISC included higher share-based compensation charges of $62 per ounce, reflecting the impact of the company’s higher share price on its outstanding non-cash share-based compensation instruments; Realized a quarterly net loss of $11.8 million, or $0.04 per share, reflecting higher non-cash share-based compensation expense of $5.9 million ($0.02 per share) and an unrealized foreign exchange loss of $3.3 million ($0.01 per share); Reported cash and cash equivalents, and available-for-sale securities of $284.9 million as at June 30, 2016, an increase of $2.3 million from March 31, 2016.

The company’s core focus in 2016 is continuing the ramp up of underground production at Young-Davidson and development of the Cerro Pelon and La Yaqui deposits at Mulatos. The company is on track to achieve full year guidance of between 370,000 and 400,000 ounces of gold in 2016.

The company does not anticipate spending significant capital on the Kirazli and Lynn Lake projects until the ramp up at Young-Davidson and development of La Yaqui and Cerro Pelon has been completed and both operations are generating substantial free cash flow.

Alamos is increasing its exploration efforts and budget by 60%.

This, following up on a very successful 2015 drill campaign which we believe has only started to unlock the potential of these deposits, McCluskey added. Young-Davidson is one of Alamos’ flagship operations and among Canada’s largest underground gold mines. With growing production and a large mineral reserve base, Young-Davidson is a long-life gold mine that will serve as the company’s foundation for growth for many years to come.

Young-Davidson is located near the community of Matachewan, approximately 60 km west of Kirkland Lake in Northern Ontario, within the southwestern part of the Abitibi Greenstone Belt. The mine is centrally located between Timmins, Kirkland Lake, North Bay and Sudbury and accessed by paved highway.

Open pit mining operations commenced in November 2011 and the first gold pour was achieved in April 2012. In October 2012, the first two underground stopes came into production and on October 31, 2013, the underground mine achieved commercial production following the commissioning of the shaft hoisting system. The mine has a 15 year reserve life based on year end 2015 reserves with a large resource base and exploration potential to support mine life extension.

The mine met 2015 guidance producing 160,358 ounces of gold at AISC1 of $986 per ounce and is expected to produce between 170,000 and 180,000 ounces in 2016 at AISC1 of $825 per ounce. The company continues to ramp up underground mining rates to 8,000 tpd having achieved its target of 6,000 tpd by the end of 2015.

At Young-Davidson, underground mining rates increased to average over 6,300 tpd in April 2016, and the mine is on track to achieve the year-end target rate of 7,000 tpd. The previously announced transition to 100% owner-development is complete, resulting in significant savings in per metre development costs. In addition, the company completed commissioning of the MCM shaft in the first quarter and is benefiting from increased productivity with the more efficient movement of personnel and materials underground.