💙 🔷 Not impressed by Big Tech in Q3? Explore these Blue Chip Bargains insteadUnlock them all

Earnings call: Alamos Gold reported a record $107 million in free cash flow

Published 2024-08-01, 03:48 p/m
© Reuters.
AGI
-

Alamos Gold Inc (TSX:AGI) . (NYSE:AGI) announced robust second-quarter results for 2024, buoyed by record gold production and the strategic acquisition of Argonaut, which led to the formation of the Island Gold District. The company celebrated a record production of 139,100 ounces of gold, surpassing its guidance, and generating a record $107 million in free cash flow. Alamos Gold's acquisition of the Magino mine is set to further increase production in the third quarter, with estimates ranging between 145,000 and 155,000 ounces. The earnings call also outlined Alamos Gold's future growth initiatives, including the Phase 3 expansion at Island Gold, the PDA project in the Mulatos District, and the Lynn Lake project, all underpinned by a strong cash position and solid cash flow generation.

Key Takeaways

  • Alamos Gold completed the Argonaut acquisition, forming the Island Gold District.
  • Q2 gold production reached a record 139,100 ounces, with revenue, cash flow from operations, and free cash flow all hitting record highs.
  • The company expects Q3 production to increase further, potentially setting a new record.
  • Future growth plans include the Phase 3 expansion at Island Gold, the PDA project in the Mulatos District, and the Lynn Lake project.
  • The Island Gold mine's underground ventilation infrastructure upgrade was completed, supporting future development and mining rates.

Company Outlook

  • Alamos Gold remains well-funded for its growth initiatives with a strong cash position.
  • The company plans to release updated three-year guidance in September, reflecting the Magino acquisition and PDA study results.
  • In 2024, Magino and Island Gold will operate under separate mills, but in 2025, operations will consolidate into an integrated mill.

Bearish Highlights

  • The Phase 3 Plus expansion at Island Gold has incurred 60% of its total initial capital of $756 million, with updated estimates potentially showing a modest increase over the original budget.
  • Costs associated with expanding the Magino mill are anticipated, despite savings from not expanding the Island mill.

Bullish Highlights

  • The Magino mine production increased by 36% in Q2, with future improvements expected to positively impact production and costs.
  • Exploration successes include the discovery of higher-grade gold at Young-Davidson and multiple high-grade intercepts at Island Gold.
  • Operational improvements and increased production are anticipated for the latter half of the year and beyond.

Misses

  • There were no significant misses reported during the earnings call.

Q&A Highlights

  • Luc Guimond discussed the positive impact of fleet replacement on cost and productivity.
  • Scott Parsons (NYSE:PSN) highlighted the discovery of high-grade mineralization at Young-Davidson, now a focus for exploration.
  • The existing plant at Young-Davidson can handle the new zone from a metallurgical perspective, and there is sufficient capacity in the TSF permit and design for potential reserve upside.
  • No concerns were raised regarding the treatment of the newly discovered high-grade zone at Young-Davidson.

Alamos Gold's second-quarter achievements and strategic moves point to a company in a strong position for continued growth. With the successful integration of new assets and the ongoing development of existing projects, Alamos Gold demonstrates a commitment to operational excellence and exploration success, setting the stage for a promising future in the gold mining industry.

InvestingPro Insights

Alamos Gold Inc. (AGI) has showcased a strong financial and operational performance, aligning with its strategic growth objectives. Here are some insights from InvestingPro that may provide additional context to the company's recent achievements:

InvestingPro Data indicates that Alamos Gold is trading with a P/E Ratio of 34.58, which is considered high, but this is counterbalanced by a PEG Ratio of just 0.28 for the last twelve months as of Q1 2024, suggesting potential for earnings growth relative to its share price. The company's solid revenue growth of 18.15% over the last twelve months further underscores its upward trajectory.

In terms of stock performance, AGI has experienced a significant price uptick, with a 6-month price total return of 34.76% and a 1-year price total return of 44.39%, reflecting investor confidence and market recognition of the company's progress and profitability.

An InvestingPro Tip that resonates with the article's positive outlook is AGI's high return over the last year, which complements the record gold production and financial results reported. Additionally, with analysts predicting profitability for the year and the company trading near its 52-week high, currently at 94.78% of the peak, it's clear that Alamos Gold is garnering attention for its financial strength and operational success.

For those interested in a deeper dive into Alamos Gold's potential, InvestingPro offers additional tips and metrics, with 10 more InvestingPro Tips available at: https://www.investing.com/pro/AGI. These insights could provide valuable perspectives for investors looking to make informed decisions based on the latest data and market analysis.

Full transcript - Alamos Gold Inc (AGI) Q2 2024:

Operator: Good morning to all participants. I will now turn the call over to Mrs. Scott Parsons, Alamos' Senior Vice President in Investor Relations. Please go ahead, Mrs. Parsons.

Scott Parsons: Thank you, Paul, and thanks to everybody for attending Alamos' second quarter 2024 conference call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer, Greg Fisher, Chief Financial Officer, Greg Fisher, Chief Operating Officer, and Scott R.G. Parsons, Vice President of Exploration. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Boswick, our Senior VP of Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars, unless otherwise noted. Now, John will provide you with an overview.

John McCluskey: Thank you, Scott. We recently announced the closing of the Argonaut acquisition, and I'll start off by welcoming all of the Magino employees to the Alamos family. The uniting of the Magino and Island Gold mines to form the Island Gold District is a pivotal moment for the company. Together, we are building an even brighter future by creating one of the largest and lowest-cost operations in Canada, led by an even stronger workforce. We delivered an outstanding second quarter marked by numerous records. This included record production of 139,100 ounces, exceeding guidance for the quarter. Our costs also declined from the first quarter, and combined with rising gold prices, we generated record revenue, cash flow from operations, and free cash flow of $107 million. With a solid first half of the year, we are well positioned to achieve full-year production and cost guidance. Now turning to Slide 4, with the closing of the Argonaut acquisition three weeks ago, the integration of Magino and Island Gold is well underway. The combination of the two mines will create one of the largest operations in Canada with annual production of more than 400,000 ounces of gold at first quartile costs once the Phase 3 expansion is complete. The two deposits host over 11 million ounces of gold, and given the exploration success we are seeing, we expect the reserve and resource base to continue to grow. Given the proximity of the two operations, the utilization of one centralized mill and tailings facility will result in a considerable amount of capital and operational synergies, totaling $515 million. The combined operation also unlocks significant longer-term upside opportunities through the further expansion of the Magino Mill to accommodate the large and growing reserve and resource base and other near-mine opportunities such as the North Shear. With the inclusion of Magino, we expect production to increase to a new record of between 145,000 and 155,000 ounces in the third quarter. We will produce additional details in September on our second half outlook as part of our updated consolidated guidance incorporating Magino. Now turning to Slide 5, the addition of the Magino mine has increased company-wide gold production to a rate of approximately 600,000 ounces per year. In 2026, the completion of the Phase 3 plus expansion at Island Gold is expected to drive annual production closer to 700,000 ounces per year and at lower costs. We expect the PDA project in the Mulatos District to take us to over 700,000 ounces per year. The Lynn Lake project provides additional growth as early as the second half of 2027 and will take us to a long-term rate of around 900,000 ounces per year. All of this growth can be funded internally and all of this growth is lower cost. Beyond that, there is a considerable amount of upside, both on the expiration of funds through a potential longer-term expansion of the Island Gold District. In addition to the planned expansion of the Magino mill to 12,400 tons per day in 2026, we started evaluating a longer-term expansion scenario to between 15,000 and 20,000 tons per day. Ultimately, this could increase our consolidated production to closer to 1 million ounces per year. Now turning to Slide 6, we continue to add value in the second quarter. In addition to the Argonaut acquisition, we also completed our acquisition of Orford Mines through which we added the highly prospective Qiqavik project in Quebec. We have our largest exploration budget ever planned in 2024 at more than $60 million and we are seeing the benefits with exceptional results across our operations. In May, we announced the discovery of a new style of higher-grade gold mineralization in the hanging well of Young-Davidson. More recently, we outlined the broad-based exploration success we are having across the Island Gold main structure and within the hanging well and foot well. We expect this will drive another year, another increase in high-grade reserves and resources at Island Gold for the ninth consecutive year. Last month, we released our 2023 ESG report outlining our progress on several key metrics. This included an 8% decrease in Scope 1 and Scope 2 greenhouse gas emissions and a 5% reduction in our total recordable injury frequency rate. We have a number of catalysts coming in the second half of the year. We expect to release our PDA development plan and provide updated consolidated guidance incorporating the Magino in September. We also expect to provide additional exploration updates outlining the success we are having at Mulatos and other operations. Towards the end of the year, we plan on releasing the results of a study incorporating Burnt Timber and Linkwood into the Lynn Lake project, outlining another value driver as upside to the 2023 feasibility study. I'll now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg.

Greg Fisher: Thank you, John. On to Slide 7. In the second quarter, we sold 141,000 ounces of gold at an average realized price of $2,336 per ounce for record quarterly revenues of $333 million. Total cash costs of $830 per ounce and all in sustaining costs of $1,096 per ounce were down 9% and 13% respectively from the first quarter. We remain well positioned to achieve our full year production and cost guidance given the solid first half performance. Our reported net earnings of $70 million in the first quarter, or $0.18 per share, included unrealized foreign exchange losses of $16 million recorded within deferred taxes and foreign exchange and other adjustments net of taxes of $11 million. Excluding these items, our adjusted net earnings were $97 million, or $0.24 per share. Operating cash flow before changes in non-cash working capital increased to a record $191 million, or $0.48 per share. Free cash flow totaled a record $107 million, a significant increase from the first quarter. All three operations generated solid mine site free cash flow including a record $40 million from Young-Davidson. The impressive free cash flow generation occurred while continuing to fund the Phase 3 plus expansion at Island Gold and is net of $15 million in cash taxes paid in Mexico in the quarter. Capital spending totaled $88 million in the quarter and included $21 million of sustaining capital and $59 million of growth capital, the majority of which was focused on the Phase 3 Plus expansion. With the acquisition of Magino completed in July and the Island Gold Mill expansion no longer required, we are in the process of updating capital estimates which will also include required upgrades to the Magino Mill as well as the impact of ongoing inflationary pressures. Our balance sheet continued to strengthen in the quarter with our cash balance growing over 30% to $314 million. At quarter end, we remained debt-free. However, subsequent to quarter end, we withdrew $250 million on our credit facility to pay off Argonaut's term loan and revolving credit facility that were inherited through the acquisition. With a strong cash position, more than $550 million of total liquidity and solid ongoing cash flow generation, we remain well-positioned to fund our organic growth initiatives including the Phase 3 Plus expansion, optimization of the Magino Mill, and development of PDA and Lynn Lake. In July, we completed a gold sale prepayment agreement for the delivery of 49,400 ounces in 2025 based on forward curve prices of $2,520 per ounce. We used the proceeds to eliminate gold cord contracts inherited from Argonaut totaling 180,000 ounces that were hedged at an average gold price of $1,840 per ounce. Through this transaction, we have eliminated all the hedges we inherited from Argonaut in 2024 and 2025 and significantly increased our exposure to rising gold prices on attractive terms. We continue to review opportunities to eliminate the remainder of the Argonaut hedge book, which is comprised of gold forwards totaling a combined 150,000 ounces in 2026 and 2027. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations.

Luc Guimond: Thank you, Greg. Moving to Slide 8, Young-Davidson delivered a strong quarter with production of 44,000 ounces, a 10% increase over the first quarter on higher mining rates and grades processed. Costs also improved with total cash costs down 13% and mine site all-in sustaining costs down 19%, quarter-over-quarter. With grades expected to continue to increase in the second half of the year and milling rates expected to remain at 8,000 tons per day, the operation is on track to achieve full year guidance. In the second quarter, the operation delivered record mine site free cash flow of $40 million and $55 million for the first half of the year. Young-Davidson is well positioned to generate over $100 million in free cash flow for the fourth consecutive year, as well over the long-term given its 15-year mineral reserve life. Over to Slide 9. Island Gold delivered a solid quarter with production increasing 25% from the first quarter to 41,700 ounces and mine site all-in sustaining costs decreasing 27% to $805 per ounce. This was driven by higher grade mine and process. Mine grades averaged 14 grams per ton in the quarter, above the annual guidance range, reflecting the planned mining of higher grade stopes as well as positive grade reconciliation. This more than offset lower mining rates earlier in the quarter as we focused on maximizing the extraction of significantly higher grade ore within the 1025 mining horizon. In addition, we experienced lower haul truck availability from older units in the fleet that are being phased out. Mining rates improved in the latter part of the quarter following the receipt of the two new haul trucks. Mining rates are expected to average similar levels in the third quarter, reflecting planned downtime in the latter part of July to upgrade the underground ventilation infrastructure. The ventilation upgrade was successfully completed earlier this week with mining rates expected to increase to average 1,200 tons per day in August and through the rest of the year. The upgrade to ventilation capacity was completed as part of the Phase 3 Plus expansion and will support increased development rates in the near term and higher underground mining rates over the longer term following the completion of the expansion. With the strong operational performance, Island Gold generated 15 million of mine site free cash flow while continuing to fund the phase three plus expansion. Given the strong performance in the first half of the year, the operation is well positioned to achieve annual guidance. Over to Slide 10. While the Magino mine was not under our control in the second quarter, the operation continued to show improvements. Production increased 36% quarter-over-quarter to 22,700 ounces. Average mining rates increased to 53,200 tons per day in the quarter, including 16,300 tons per day of ore, up 24% from the first quarter. Mill throughput also increased 33% to 8,400 tons per day relative to the first quarter and recovery is improved to 94%. We expect similar production in the third quarter reflecting downtime to implement various improvements to the grizzly, crushing and conveying ore flow and mill liner design. These improvements are expected to positively impact the fourth quarter and ongoing production and costs. As John noted, we will be providing more detailed guidance on Magino as part of our updated consolidated guidance to be released in September. Moving to Slide 11. The Phase 3 ree plus expansion continues to move along with the shaft sink advancing to a depth of 403 meters as of June 30 and tracking towards the 1,000-meter level by year end. During the second quarter, we made considerable progress including completion of the buried services of the shaft area, commissioning of the upgraded voltage regulation facility and we commenced construction on the bin house. Detailed engineering for the paste plant is now 90% complete and earthworks are currently underway with construction activities expected to ramp up in the second half of the year. Over to Slide 12. As of June 30, approximately 60% of the total initial capital of $756 million had been spent and committed on the project. With the acquisition of Magino now complete, we no longer need to expand the Island Gold mill or Argonaut facility. The expansion remains on track for completion during the first half of 2026 but will be a significant driver of our expected production growth and declining costs over the next several years. Over to Slide 13. The Mulatto's district had another solid quarter with stronger than expected production of 53,400 ounces at costs below full year guidance. This was once again driven by La Yaqui Grande which benefited from both grades and stacking rates coming in at or above the top end of guidance. With the onset of the rainy season, stacking rates are expected to decrease to average 10,000 tons per day in the second half of the year. Grades stacked are also expected to decrease slightly through the remainder of the year leading to declining production and costs increasing to be consistent with guidance. Given the very strong first half of the year, the Mulatto's district is well positioned to achieve annual guidance. Mine site free cash flow increased to $70 million in the second quarter, net of $15 million of cash tax payments. For the first half of the year, Mulatto's generated $120 million of mine site free cash flow, an impressive performance considering this was net of $60 million of tax payments. Work on our development plan for the Puerto Del Aire deposit is advancing and we plan to release that in September. We expect this will outline another attractive project and significantly extend the mine life of the Mulatto's district. I will now turn the call over to our VP of Exploration, Scott R.G. Parsons, to review our exploration success through the first half of the year.

Scott Parsons: Thank you, Luc. Moving to Slide 14. In May, we announced the discovery of a new style of higher grade gold mineralization within the hanging wall of Young-Davidson. This mineralization is hosted in conglomerates, whereas the majority of the current reserves and resources at Young-Davidson are hosted within [Indiscernible]. The zones are located 10 to 200 meters south of existing infrastructure with grades intersected well above the current reserve grade. Drilling is ongoing and is focused on testing the extent of the conglomerates and to evaluate the controls and continuity of this higher grade mineralization. Additionally, we are re-lobbying a sampling core that was historically drilled through the hanging wall zones from surface, which had limited sampling for gold outside of the [Indiscernible]. Given the proximity to existing infrastructure and higher grades, these zones could potentially provide meaningful production upsides. Moving to Slide 15. Last week, we provided a comprehensive exploration update at Island Gold where we highlighted the broad-based exploration success we're experiencing across the district. This included an extensive list of exceptional intercepts which have extended high grade mineralization across the main deposit and within multiple hanging wall and foot wall structures. Some of the highlights within the main Island Gold structure include 37 grams per ton over 7 meters in Island West and 17 grams per ton over 10 meters to the east, both beyond existing reserves and resources. Within the hanging wall and foot wall, we continue to define new zones of higher grade mineralization and expand upon recently defined zones across the main Island Gold deposit. This included multiple intercepts from recently defined zones grading above 70 grams per ton over 2 meters. These zones represent significant opportunities to continue to grow near mine reserves and resources, which are low cost to develop and produce given their proximity to existing infrastructure. In the 2023 reserve and resource update, we added 1 million ounces before depletion, with additions in the hanging wall and foot wall zones accounting for approximately 70% of this growth. Given our ongoing success, we expect these zones to be a significant factor in Island Gold's continued growth. Within our delineation drilling program, which is focused on resource conversion in Island East, we've defined a significantly wider and higher grade zone than typically seen within the deposit, over an 18 by 130-meter area. Highlights from this zone include 102 grams per ton over 17 meters and 135 grams per ton over 8 meters. Collectively, these exploration results are expected to drive further growth in high grade reserves and resources with the year-end update for what continues to be one of the highest grade and fastest growing deposits in the world. With the Island Gold main structure open laterally and down plunge and an increasing number of high grade zones being defined in the hanging wall and foot wall, we see excellent potential for this growth to continue well into the future. Moving to Slide 16. We are also starting to define longer term upside opportunities through the integration of Island Gold and Magino. One of those opportunities is the expansion of the Magino open pit. Gold mineralization has been intersected east of the Magino open pit reserve, supporting the potential for extension of the Magino deposit to the east beyond the previous property boundary. The North Shear is another near mine opportunity as a potential source of additional mill feed for an expanded Magino milling complex. The North Shear corridor is located on the northern limb of an aquafarm within and along the northern portion of the Webb Lake stock. The North Shear corridor is 20 to 30 meters wide near surface, appears to widen its depth to 60 meters, and has been interpreted to be over 1,000 meters in strike and has been drilled to a depth of 600 meters and remains open at depth. Higher grade mineralization has been intersected within the North Shear both this year as well as historically, and we plan on following up with additional drilling and modeling to continue to evaluate the potential for underground bulk mining. Given the larger capacity of the Magino mill with further expansion potential, the North Shear will be one of the many opportunities we'll be evaluating as sources of higher grade feed for the centralized mill. With that, I'll turn the call back to John.

John McCluskey: Thank you, Scott. That concludes the formal presentation. I'll now turn the call over to the operator who will take your questions.

Operator: Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Ovais Habib from Scotiabank (TSX:BNS). Please go ahead. Your line is open.

Ovais Habib: Thanks, operator. Hi, John and the Alamos team, and congrats to you and your team on really a great quarter in the first half. John, a couple of questions from me. At Island Gold, it was great to see grades improve over 30% quarter-over-quarter. What was the average grade you were expecting in Q2? I mean, I'm trying to figure out what was expected and how much was actually positive rate reconciliation. And the second part of that is also, are these higher grades expected to persist in the second half?

Luc Guimond: Yeah. Hi, Ovais. Luke here. I can take the first part of the question. I think I missed the second part. So I'll get you to repeat that. But as far as the forecasted grades for Island in Q2, we were looking to be about 12 to 12.5 grams in the quarter. I didn't catch your second question. Maybe if you can repeat that for me, please.

Ovais Habib: Sure. Hi, Luc. So, yeah, so I just wanted to understand, are these grades expected to persist going into the second half?

Luc Guimond: Our grades in the second half of the year are going to be more in line with our reserve grades. So about 11 grams is what our expectation is in the second half of the year.

Ovais Habib: And would you be in the same zones that you're currently mining in? And I'm trying to, again, figure out if there would be any sort of potential positive reconciliation going into the second half as well.

Luc Guimond: Similar mining areas, yes. I mean, there's a high-grade complex at 1025 that we're mining in. We'll continue to mine there in the second half of the year. But, the positive reconciliation we have seen has been not just specific to that high-grade zone, but some of the other areas that we're mining with some of the other mining fronts as well.

Ovais Habib: Okay, got it. Thanks, Luc, for that. And just a second question from me. Again, very early days regarding Magino. Have there been any surprises so far, either from an operating or financial standpoint?

Luc Guimond: No, from an operating standpoint, based on our due diligence, no surprises. I think, as we mentioned on the call, through Q3, we're looking to make some continual improvements, certainly through the mining operations as well as milling operations. And then looking to obviously pick up production as we move into the latter half of the year, and then as we move forward into 2025.

Ovais Habib: Sounds good. Again, that's it from me, guys. Thanks for taking my questions, and I look forward to the PDA study.

Operator: Thank you. The next question is from Kerry Smith from Haywood Securities. Please go ahead. Your line is open.

Kerry Smith: Thanks, operator. John, I may have missed it in the release, but you had mentioned that the Phase 3 Plus expansion was still on schedule. Is it still on budget as well with the CapEx, the $7.56 million, knowing that that's going to be adjusted once you incorporate the Magino mill and mill tailings?

Greg Fisher: Hi, Kerry. It's Greg here. I'll grab that question. Yeah, obviously there's savings that we expect as a result of not needing to expand the island mill. We do have costs that we will need to incur to expand the Magino mill to hit that 12,400 tonnes per day by mid-2026 when we complete the Phase 3 expansion. But we've also seen inflationary pressures, especially around labor over the last couple of years, and we expect that to persist. So overall, we're looking at the updated estimates, but I suspect that, if anything, we'll have a modest increase compared to the $750 million that we had released a couple of years ago.

Kerry Smith: Okay, and that modest increase, that would not reflect the $140 million savings, obviously, for no mill expansion, the tailings, though, right? Just on an apples-to-apples basis, it would be modestly higher.

Greg Fisher: No, no. On an overall basis, including the savings that we have on the mill, but also including the additional capital that we need to spend on the Magino mill, we'll come in somewhere around the original budget of $750 million, and potentially a modest increase.

Kerry Smith: Okay, got you. Okay, perfect. That's helpful. Thanks. And then you had kind of guided earlier in the year that production would be second-half weighted. With the better first half than I guess you were expecting and you were guiding, are you still expecting second-half production to actually be higher than first-half production?

Greg Fisher: The biggest driver of the higher production in the first half was in Mexico, but with the onset of the rainy season in Q3, as well as we're expecting some lower grades in the second half of La Yaqui Grande, we're going to see a potential decrease in Mexico. So, overall, we're comfortable with the guidance that we have. That said, we're releasing an updated three-year guidance in September, and we'll continue to monitor that.

Kerry Smith: Okay. Okay, that's helpful. And just so I'm clear, let's call it $756 million CapEx. It might be slightly higher than that. Will that number, when you update it, will it include the cost to expand the Magino Mill to the 15,000 to 20,000 ton per day rate? I assume not, but just to be sure.

Greg Fisher: No, it will not. It will include the cost to expand to 12,400 tons per day, which is inclusive of bringing the Island ore into the Magino Mill.

Kerry Smith: Got you. Okay, perfect. And then while I've got you, what is the rough interest rate that you -- just remind me the interest rate on the debt on your facility that you drew down?

Greg Fisher: It's based on SOFR, but right now we're paying just over 7% of the interest rate on the credit facility.

Kerry Smith: Okay. Okay, perfect. And then just one for Scott R.G. How many holes at YG do you have in that hanging wall conglomerate so far?

Scott Parsons: We've drilled from two drill bays. We're about 5,000 meters of drilling in approximately 15 holes, and it's ongoing. And, the first objective is defining the extent of the conglomerate, which we're making good progress on, and then those holes will be -- continue to be targeting the continuity and the plunge of the mineralization within the conglomerate. So it's looking positive. It's still early days. And we're continuing to evaluate, but about 15 holes in 5,000 meters.

Kerry Smith: Okay. That's perfect. Thank you very much, and congratulations on a great quarter.

Operator: Thank you. The next question is from Cosmos Chiu from CIBC (TSX:CM). Please go ahead. Your line is open.

Cosmos Chiu: Thanks, John, Greg, Luke, Scott, and Scott. Again, congrats on a very strong quarter, and congrats on closing the Magino deal. Maybe my first question is on guidance again. Just to confirm, I guess I heard it. So in September coming up, you're going to be putting out three-year guidance. Is that on production, cost, and in CapEx?

Greg Fisher: That is correct, Cosmos. I mean, the main triggers being the fact that we've obviously acquired Magino and need to incorporate that over the next little bit, as well as the PDA study that we plan to put out in September. So those two items are the main triggers for putting out that updated three-year guidance.

Cosmos Chiu: Perfect. And then I guess a broader scenario, [Technical Difficulty] do you need to get comfort [Technical Difficulty].

Greg Fisher: Sorry, your phone is breaking up.

Cosmos Chiu: Can you hear me now?

Greg Fisher: Yeah, we missed the question. Yeah, we missed the question. Apologies.

Cosmos Chiu: Yeah, sorry. Okay. I'm just wondering which you'll need to get comfort on ahead of the September update. Is it the cost? Is it the grade? Is it milling, mining? Like, which key areas to the extent they can shrink?

Luc Guimond: Luke here, Cosmos. I think I got your question there. It's a little bit difficult to hear you. But, with regards to Magino, certainly through the second half of the year, there's a continuous improvement with regards to mining operations. I mean, there was increased performance from Q1 to Q2. We expect that as we continue to move through Q3 and Q4 to get to our ultimate mining rates by the end of the year at about 64,000 tons per day, which is ore and waste combined. On the milling side, as we've mentioned in the call, there's some improvements that we're going to continue to make through the course of Q3. So we look at that from a processing and gold production point of view to be pretty flat line relative to Q2 results, but then looking to increase that as those improvements are completed in Q3 to see better performance in Q4 towards the end of the year. And our ultimate objective, as we've talked about since we announced this deal, was to we think with these improvements that we're going to make with the grizzly arrangement, the crushing conveying arrangement, and some configuration changes to the mill liner design with pulp lifters and operating parameters of that mill itself, we'll get it to 11,200 tons per day by the end of the year or early into 2025 at the latest.

Cosmos Chiu: And maybe just talking about the reporting here, how are you going to be presenting guidance in terms of for Magino slash Island Gold? Is it going to be as an integrated basis? Is it going to be one number, or are you going to be giving us separate numbers for the different operations in terms of Island Gold and Magino separate?

Luc Guimond: Yeah, I mean, we're still working through that. I think the thought process is for 2024, it would be separate because they're running under separate mills. As we move into 2025 and it's operating out of an integrated mill, we'll look at it as one operation.

Cosmos Chiu: Great. And maybe quickly on Island Gold, just to follow up, I saw that I guess the throughput was lower in Q2 as part of the equipment refresh. I think two haul trucks had to be renewed or replaced. So Luc, maybe if you can talk a little bit more about your refreshment cycle here in terms of machinery and equipment on site at Island Gold, is there anything else planned for Q3 and Q4? And how has that plan changed now with Magino?

Luc Guimond: Well, in relation to Magino, no change. Our fleet replacement is really based on operating hours of that equipment. So as those haul trucks reach their maximum operating hours over their lifecycle, then we actually change them out and replace them as part of our fleet replacement strategy with new units. So the two new units that we were expecting earlier in the quarter ended up arriving later in the quarter, which is what affected the overall mining rates in the quarter. But we did receive those in early June. We do have two more trucks that are scheduled to arrive this year in the second half of the year, which was also part of our fleet replacement strategy. And that would be the full replacement as far as our requirements for 2024. But obviously as we move forward in ’25-‘26, as these older units age out based on operating hours, then we would have new units coming into the mix to replace those older units as part of our fleet replacement strategy. So it's always an ongoing thing, Cosmos, year-over-year, depending on the operating hours of the equipment.

Cosmos Chiu: And then maybe one last question at YD. I see that you started using some hybrid production scoops. Is that a transition you think you're going to bring on more hybrid scoops and it seems like they're working out pretty well so far? Is that what I'm reading and would it be a full transition later on, you think?

Luc Guimond: Yeah, I mean, it's the new phase obviously with the technology coming in with that equipment. We did get two new units this year. They've been actually performing very well. Availability has been very high on them, plus 80%, which is what we would expect as far as availability on those units. They've been very productive for us. So as we continue to move forward again with our fleet replacement strategy for our production scoops at Young-Davidson, we would start to probably lean more towards these hybrid units moving forward.

Cosmos Chiu: And does that help on cost as well? I guess it does because efficiency, if it's going up, that could help with cost as well.

Luc Guimond: Correct, Cosmos. I mean, you know, obviously as these older units start to get aged out from our point of view of operating hours, there's more costs to maintain these units. There's less availability on these units, which obviously affect the overall productivity of the operation. So by replacing them with new units with higher availability and lower maintenance costs, it improves the overall cost profile of the business.

Cosmos Chiu: Great. Thanks once again, John and team. Those are all the questions I have. Thank you.

Luc Guimond: Thank you.

Operator: [Operator Instructions] The next question is from Mark -- sorry, from Mike Parkin from National Bank. Please go ahead. Your line is open.

Mike Parkin: Hi, guys. Thanks for taking my question. Congrats on the big quarter. Starting at YD, can you just revisit what made you look for that conglomerate zone? Was that a fluke extending a hole and you hit it? Or was there something from like a mag survey or something like that that kind of indicated something might be there? Like what prompted that initial discovery hole?

Scott Parsons: Hi, Mike, it’s Scott. What initially prompted it, I mean obviously the search for higher grade in and around Young-Davidson is a key objective for our exploration group. So we basically compiled all historic exploration results and recognized opportunities from limited sampling that occurred in 2008 surface drilling to the deposit in the hanging wall. And there was high grade mineralization intersected not followed up on. So we had drill bays available from underground to initially follow up on that intersection in the hanging wall and sampled from top to bottom of the hole. And sure enough started getting high grade mineralization in conglomerate. It wasn't obvious. I mean it's associated with pyrite and not quartz vein like you typically see, but certainly high grade. So that's initially what led us into targeting in the hanging wall.

Mike Parkin: Okay. And is that kind of taking precedence over, like the YD West? I remember that was kind of a bit of a higher grade zone, but obviously down near the bottom of the reserve. Is this, given the grades and the proximity to infrastructure, it would seem like you would allocate more resources there versus chasing something at depth?

Scott Parsons: That's a correct assumption. I think we're taking a balanced approach to, continued expansion of the resource, but obviously given the grades and the proximity of this gold mineralization in the conglomerate to our existing infrastructure. It has now shifted to more of an area of focus for us for the balance of the year.

Mike Parkin: Okay. And then one last question might be a little too early for this one, but obviously it's just a recent discovery, but any thoughts towards metallurgy? Would there be mill modifications required to bring that material into the mine plan or is the way the mill is set up actually good for that different style of mineralization?

Luc Guimond: Hi, Mike. It's Luc here. No, I mean, certainly early, early stages, but I mean based on the early results that we've seen, no, we don't expect any real challenges from a metallurgical point of view to be able to treat that, treat that new zone from within the existing plant that we have at YD currently.

Scott Parsons: What we're seeing is free gold associated with that pyrite. So it's a pyrite in the matrix of the conglomerates with gold around the margin. So I don't anticipate it being an issue from a metallurgical perspective.

Mike Parkin: Okay. And just one last question there. Your current TSF permit and design, is that in excess of your current reserves? Just kind of getting at, could you either make it bigger or would you have -- if this additional zone proved to be a size, would you have to look for potentially another TSF site to store the added potential reserve upside here? Good problem to have obviously, but kind of wondering longer dated future, what things might look like?

Luc Guimond: Yeah. Mike, you're still referencing YD I assume, right?

Mike Parkin: Yeah.

Luc Guimond: Yeah. So with regards to, yeah, these new finds, I mean, we would certainly have capacity under the existing footprint that we have for the new construction facility that we built a couple of years ago. It certainly handles all of our reserve and resource space and we have some upside to that as well. So capacity wise, we would be okay.

Mike Parkin: Okay. Great. Okay. That's it for me. I had something else. I forgot what I was going to ask. I'll jump back in and see if I remember.

Operator: Thank you. There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.