Alamos Gold Reports First Quarter 2021 Results

TORONTO, April 28, 2021 (GLOBE NEWSWIRE) -- Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported its financial results for the quarter ended March 31, 2021.

 

“We had a strong start to 2021 with gold production exceeding guidance for the quarter. Our Canadian operations performed particularly well, with Young-Davidson ramping up to record mining rates and yet another quarterly production record at Island Gold,” said John A. McCluskey, President and Chief Executive Officer.

 

“We also made good progress on our internal growth initiatives while continuing to generate solid free cash flow. Development activities are ramping up at La Yaqui Grande and on the Phase III expansion at Island Gold, and we continue to advance permitting of our Lynn Lake project. All are key components of our strong outlook with approximately 50% production growth at significantly lower costs supporting substantial free cash flow growth over the long-term,” Mr. McCluskey added.

 

First Quarter 2021

 

 

Environment, Social and Governance Summary Performance

 

Health and Safety

 

 

During the first quarter of 2021, the Company improved its overall health and safety performance by reducing its recordable injury frequency rate, with 22 recordable injuries reported (26 in the first quarter of 2020). However, the Company experienced three lost time injuries (two in the first quarter of 2020) resulting in an increase to the 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. 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 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 of 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 throughout 2021.

 

Environment

 

 

The Company’s mine sites operated in compliance with applicable environmental regulations, with zero incidents or spills that triggered reporting to external agencies in the first quarter of 2021. 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

 

 

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

 

 

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.

 

(1) Frequency rate is calculated as incidents per 200,000 hours worked.

 

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.

 

Despite a challenging environment with COVID-19, operations remain essentially unaffected and the Company continues to deliver on its key objectives. This included a strong start to the year with production of 125,800 ounces in the first quarter, exceeding quarterly guidance, and marking a 14% increase from the first quarter of 2020. The strong performance was driven by another record quarter of production at Island Gold, and record underground mining rates at Young-Davidson for the second consecutive quarter. Total cash costs and all-in sustaining costs in the quarter were both in line with annual guidance despite the stronger than budgeted Canadian dollar in the quarter.

 

In addition to the strong ongoing operational performance, the Company continues to advance its high-return organic growth initiatives. Development activities on the Phase III expansion at Island Gold are ramping up in parallel to an expanded exploration effort following up on the successful 2020 program which drove another significant increase in high-grade Mineral Reserves and Resources. Construction of the higher grade La Yaqui Grande project is also ramping up and remains on track for commercial production in the third quarter of 2022. The Company expects to generate strong ongoing free cash flow while funding these high return growth initiatives and supporting the recently increased dividend. The Company generated $9.9 million of free cash flow1in the first quarter, net of capital advances of $16.8 million for the La Yaqui Grande project and the Phase III expansion at Island Gold, and $18.2 million of cash taxes paid in Mexico, mainly related to 2020 income and mining taxes.

 

Gold production in the second quarter of 2021 is expected to be between 115,000 and 120,000 ounces, a slight decrease from the first quarter, reflecting lower planned grades at Island Gold. Total cash costs and all-in sustaining costs in the second quarter are expected to be slightly above annual guidance assuming the Canadian dollar and Mexican peso remain at current levels. Full year cost guidance was based on a USD/CAD foreign exchange rate of $0.75:1 and a MXN/USD foreign exchange rate of 21:1. At current Canadian dollar foreign exchange rates of approximately USD/CAD $0.80:1, total cash costs and all-in sustaining costs would increase by approximately $30 per ounce for the remainder of the year.

 

Gold production at Young-Davidson is expected to increase by 45% in 2021 (based on the mid-point of guidance), driven by significantly higher mining rates following the completion of the lower mine expansion in July 2020. Underground mining rates increased to average a record 7,791 tpd in the first quarter, outperforming the targeted rate of 7,500 tpd. Mining rates are expected to average 7,500 tpd in the second quarter with an additional mining horizon being added in the second half of the year which will support the increase to design rates of 8,000 tpd. Total cash costs and mine-site all-in sustaining costs are expected to decrease 20% and 16%, respectively, from 2020 (based on the mid-point of guidance), reflecting higher mining rates and productivity improvements with the transition to the lower mine infrastructure. Combined with lower capital spending, this is expected to drive record mine-site free cash flow of approximately $120 million in 2021 assuming an $1,800 per ounce gold price.

 

Island Gold delivered another record quarter of production reflecting higher grades mined and processed. As previously guided, grades are expected to decrease through the year and average slightly above 10 g/t Au for the full year. Gold production and total cash costs for the full year are expected to be in the same range as 2020 and consistent with the parameters outlined in the Phase III expansion study released in July 2020. A total of $25 million has been budgeted for exploration at Island Gold, a significant increase from $12.9 million spent in 2020. The larger program will follow up on another extremely successful drilling campaign in 2020 whereby Mineral Reserves were more than replaced and now total 1.3 million ounces grading 9.71 g/t Au (4.2 mt) and Inferred Mineral Resources increased 40% to 3.2 million ounces with grades also increasing 9% to 14.43 g/t Au (6.9 mt).

 

The Mulatos District is expected to produce 150,000 to 160,000 ounces of gold in 2021, up 3% from 2020 (based on the mid-point of guidance). Cerro Pelon, the Mulatos pits, and surface stockpiles will supply all production in 2021. In parallel, the Company continues to advance construction of the high grade La Yaqui Grande project, which is expected to keep production in the Mulatos District at approximately 150,000 ounces per year at significantly lower costs.

 

The Company continues to advance permitting of the Lynn Lake project, with approval of its Environmental Impact Statement ("EIS") expected mid-2022. The 2021 capital budget for Lynn Lake is $13 million, including $6 million for development activities to support the permitting process and $7 million for exploration. The Company expects to make a construction decision following the conclusion of the EIS permitting process.

 

Subsequent to the end of the quarter, the Company announced that its Netherlands wholly-owned subsidiaries will file 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 will be filed under the Netherlands-Turkey Bilateral Investment Treaty, and is expected to exceed $1 billion, representing the value of the Company’s Turkish assets. 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 or a timeline for renewal of its licenses. As a result of the Treaty claim, Alamos and the Subsidiaries expect to incur an after-tax impairment charge of approximately $215 million, which will be recorded in the second quarter of 2021 financial statements. The non-cash impairment charge reflects the Company’s entire net carrying value of the Turkish assets.

 

The Company's liquidity position remains strong, ending the first quarter with $238.2 million of cash and cash equivalents, $26.7 million in equity securities, and no debt. Additionally, the Company has a $500.0 million undrawn credit facility, providing $738.2 million of liquidity. The Company expects strong ongoing free cash flow generation in 2021 while continuing to fund its high-return internal growth initiatives.

 

First Quarter 2021 Results

 

Young-Davidson Financial and Operational Review

 

Young-Davidson produced 48,000 ounces of gold in the first quarter of 2021, a significant increase from the prior period due to the shutdown of the Northgate shaft starting in February 2020 to complete the lower mine tie-in. Underground mining rates have steadily increased since the completion of the lower mine expansion in July 2020, averaging a record 7,791 tpd in the first quarter. This exceeded the targeted rate of 7,500 tpd, further demonstrating the expanded capacity of the lower mine infrastructure. Underground mining rates are expected to average approximately 7,500 tpd in the second quarter of 2021 while an additional mining horizon is being added to increase sustainable mining rates to the design rate of 8,000 tpd in the second half of the year.

 

The average mined grade was 2.25 g/t Au in the quarter, in line with guidance. Mill throughput averaged a record 8,147 tpd in the first quarter. Milling rates exceeded mining rates in the quarter with excess underground ore that had been mined and stockpiled in 2020 supplementing mill feed. Mill throughput is expected to equal underground mining rates moving forward. Mill recoveries averaged 91% in the quarter, in line with guidance and the prior year period.

 

Grades mined and milled are expected to increase for the remainder of 2021, and combined with higher mining rates, production is expected to increase in the second half of the year.

 

Financial Review

 

First quarter revenues of $86.1 million were 88% higher than the prior year quarter, reflecting both a higher realized gold price and increased ounces sold. Sales in the prior year quarter were impacted by the temporary shutdown of the Northgate shaft to complete the lower mine expansion, which commenced in February of 2020.

 

Cost of sales (which includes mining and processing costs, royalties, and amortization expense) of $62.0 million in the first quarter were also higher than the prior year period, driven by an 80% increase in tonnes mined, partially offset by lower underground mining costs per tonne. Underground mining costs were CAD $48 per tonne in the quarter, significantly lower than the comparative period of 2020, driven by productivity improvements following the transition to the lower mine infrastructure in July. Per tonne underground mining costs in the first quarter of 2021 were slightly higher than in the second half of 2020, reflecting the allocation of operating and capital development, and are expected to decrease in the second half of the year.

 

Total cash costs of $873 per ounce and mine-site AISC of $1,075 per ounce were 20% and 13% lower, respectively, than the comparative period in 2020, driven by higher throughput and higher grades mined. Total cash costs in the quarter were above guidance due to the impact of the stronger Canadian dollar, as well as the sequencing of grades mined which were planned to be lowest in the first quarter. Total cash costs and mine-site AISC are expected to decrease in the second half of the year due to higher mining rates and grades mined.

 

Capital expenditures in the quarter included $9.5 million of sustaining capital and $11.4 million of growth capital. Capital expenditures in 2021 are expected to decrease to a range of $65 million to $75 million, compared to spending of $101.7 million in 2020, reflecting the completion of the lower mine expansion.

 

Young-Davidson has demonstrated a continuous increase in mining rates since completion of the lower mine expansion, driving strong free cash flow growth. This included mine-site free cash flow of $22.3 million in the first quarter of 2021, and $53.1 million in the first two full quarters operating from the new lower mine infrastructure. Higher mining rates and grades mined in the second half of the year are expected to drive production higher, supporting strong ongoing free cash flow generation for the remainder of 2021 and beyond.

 

Island Gold Financial and Operational Review

 

Island Gold achieved another record in the first quarter, producing 42,200 ounces. This represents a 9% increase from the comparative period in 2020, reflecting higher grades mined and processed.

 

Underground mining rates averaged 1,148 tpd in the first quarter, a 7% decrease from the prior year period. Mining rates are expected to increase to 1,200 tpd in the second quarter and for the remainder of the year. Underground grades mined averaged 13.29 g/t Au in the first quarter, above the Mineral Reserve grade as planned. As previously guided, grades mined and gold production are expected to decrease through the year with grades averaging slightly above 10 g/t Au for the full year.

 

Mill throughput of 1,214 tpd in the first quarter was consistent with guidance and higher than tonnes mined due to processing stockpiled ore. Mill recoveries averaged 96% in the quarter, in line with guidance and the prior year period.

 

Financial Review

 

Island Gold generated revenues of $71.5 million in the first quarter, a 16% increase compared to the prior year period, reflecting a significantly higher realized gold price.

 

Cost of sales (includes mining and processing costs, royalties and amortization expense) of $29.1 million in the first quarter were consistent with the comparative period of 2020. Mining and processing costs increased by 5%, reflecting additional expenses in the quarter primarily related to COVID-19 testing and related costs, as well as the impact of a stronger Canadian dollar. This was partially offset by lower amortization per ounce in 2021, resulting from the increase in Mineral Reserves and Resources in 2020.

 

Total cash costs of $466 per ounce in the first quarter were slightly higher than in the prior year period, due to the impact of the strengthening Canadian dollar on mining and milling costs, partially offset by higher grades mined. Mine-site AISC of $732 per ounce were 9% higher than in the prior year given higher sustaining capital spending. Total cash costs and mine-site AISC were in line with 2021 guidance.

 

Total capital expenditures were $27.4 million in the first quarter, including $4.5 million of capitalized exploration. Spending was focused on lateral development, surface infrastructure, and engineering of the Phase III expansion. This included $10.6 million of sustaining capital and $12.3 million of growth capital. In addition, Island Gold advanced $2.1 million for long lead time items supporting the Phase III expansion.

 

Island Gold generated mine-site free cash flow of $26.0 million in the first quarter, driven by strong ongoing operating margins. Since acquisition in November 2017, Island Gold has generated over $200.0 million of free cash flow.

 

Mulatos Financial and Operational Review

 

Mulatos produced 35,600 ounces in the first quarter, 16% lower than in the prior year quarter, reflecting lower tonnes and grades stacked on the leach pad.

 

Tonnes of ore mined in the first quarter decreased compared to the prior year period with mining activities within the main Mulatos pit focused on pre-stripping of the El Salto portion of the pit. Ore was primarily mined from the Cerro Pelon pit in the quarter. Total tonnes mined is exclusive of pre-stripping activities at La Yaqui Grande.

 

Total crusher throughput in the first quarter averaged 20,300 tpd for a total of 1,833,786 tonnes stacked at a grade of 0.93 g/t Au, consistent with annual guidance. Tonnes stacked in the quarter exceeded tonnes mined due to the processing of lower recovery surface stockpiles, which were mined in previous years. Grades stacked were 26% lower than in the prior year period, as the prior year benefited from higher grade ore from the Cerro Pelon pit. The recovery rate of 65% in the quarter was in line with guidance.

 

Financial Review

 

Revenues of $69.8 million in the first quarter were in line with the prior year as fewer ounces sold were offset by a higher realized gold price.

 

Cost of sales (includes mining and processing costs, royalties and amortization expense) of $48.2 million in the first quarter were higher than in the comparative period, primarily due to higher processing charges related to surface stockpiles and higher amortization of $334 per ounce in the quarter, due to a higher proportion of ore coming from Cerro Pelon which carries a higher amortization per ounce charge. Total cash costs of $915 per ounce were higher than in the prior year period as a result of lower grades stacked, and an increasing proportion of lower recovery surface stockpiles stacked in the quarter.

 

Capital spending totaled $18.8 million in the first quarter, of which $3.5 million was sustaining capital primarily related to capitalized stripping at El Salto. Additionally, $14.7 million of advance payments were made to vendors for equipment related to the La Yaqui Grande project. Mine-site AISC of $1,039 per ounce in the quarter was higher than in the prior year period, consistent with the increase in total cash costs.

 

Construction of the La Yaqui Grande project continues to progress with $15.0 million of growth capital spent in the quarter, mainly related to pre-stripping activities, in addition to the above noted $14.7 million of advance payments to vendors.

 

Mulatos generated mine-site free cash flow of $6.1 million, before spending of $29.7 million of growth capital and capital advances related to La Yaqui Grande. Including all capital spending, mine-site free cash flow was negative $23.6 million reflecting the ramp up of construction activities at La Yaqui Grande and the timing of cash tax payments. Mulatos paid $18.2 million in taxes in the quarter, mainly related to 2020 year end income and mining taxes.

 

First 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 over the past year 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. Project tendering and contract awarding remains ongoing, with procurement of long lead time items scheduled for later this year. Shaft expansion permitting is anticipated to be completed in 2022 with the sinking of the shaft expected to begin in 2023.

 

During the first quarter of 2021, the Company spent $12.3 million on advancing capitalized development, surface infrastructure and detailed engineering and permitting activities. Capital spending is expected to increase through the remainder of the year, consistent with full year growth capital guidance of between $80 to $85 million.

 

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 7 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. Construction activities commenced in the third quarter of 2020 and commercial production is expected in the third quarter of 2022.

 

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 the mid-point of 2021 guidance of $1,085 per ounce. 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.

 

With the mining contractor mobilizing to site late last year, construction activities ramped up significantly in the first quarter of 2021. Capital spending totaled $15.0 million in the quarter, and $25.1 million since the start of construction. In addition, the Company advanced $14.7 million to contractors which is reflected in other current assets on the balance sheet.

 

First quarter activities at La Yaqui Grande included:

 

 

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 $0.7 million in the first quarter of 2021 to support the ongoing permitting process.

 

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. will file an investment treaty claim against the Republic of Turkey for expropriation and unfair and inequitable treatment, among other things, with respect to its Turkish projects. The claim will be filed under the Netherlands-Turkey Bilateral Investment Treaty, and is expected to exceed $1 billion, representing the value of the Company’s Turkish assets.

 

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.

 

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 or a timeline for renewal of its licenses.

 

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.

 

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. If required, Alamos and the Subsidiaries are confident in the Subsidiaries’ ability to recover and enforce any favourable judgement pursuant to this Treaty, which will be rendered by three independent international arbitrators. Although timelines with respect to bilateral investment treaty arbitration can vary depending on procedural steps and delay tactics employed by nation states, it is estimated to have finality within five years. A portion of the cost of such an arbitral process is expected to be recovered as part of the arbitration process.

 

During the quarter, the Company spent $1.5 million at Kirazlı on holding costs and government, public and community relations initiatives. The Company expects ongoing holding costs will be approximately $1.0 to $2.0 million per year during the Treaty claim process.

 

First 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 four drill rigs operating in the first quarter. This included three surface directional rigs focused on mine exploration, and one focused on testing regional exploration targets. Three underground diamond drill rigs operated through the quarter, including one focused on underground directional drilling. A total of 3,728 m of surface directional drilling, 2,530 m of surface regular drilling, 1,913 m of underground directional drilling and 6,863 m of standard underground exploration drilling was completed in the first quarter of 2021. Assays remain outstanding on the majority of the drilling completed in the first quarter given longer turnaround times experienced throughout the industry. The Company has secured an arrangement with an alternate assay laboratory where turnaround times are expected to improve significantly.

 

Surface exploration drilling

 

A total of 3,728 m of surface directional drilling was completed in four holes during the first quarter as part of the surface directional drilling program. Directional drilling targeted areas peripheral to the Inferred Mineral Resource blocks below the 1,000 m level, with drill hole spacing ranging from 75 m to 100 m. The area that was targeted by the surface directional drill program extends approximately 2,000 m in strike length between the 1,000 m and 1,500 m elevation below surface. The regional diamond drilling program started in February and 2,530 m was completed in four holes within the first quarter.

 

Underground exploration drilling

 

During the first quarter of 2021, four holes totaling 1,913 m of underground directional drilling, and 48 holes totaling 6,863 m of underground standard exploration drilling was completed from the 740 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 214 m of underground exploration drift development was completed on the 490, 790, and 840 levels during the first quarter of 2021.

 

Total exploration expenditures during the first quarter were $5.1 million, of which $4.5 million was capitalized.

 

Young-Davidson (Ontario, Canada)

 

A total of $7 million has been budgeted for Young-Davidson for 2021, representing the first significant exploration program since 2011, with the focus of the last several years being on the completion of the lower mine expansion. Underground exploration drilling during the first quarter was focused on two target areas with a of 3,274 m completed in five holes. Drilling from the 8960-level exploration drill bay established in the lower mine infrastructure is continuing to target to the west and down-plunge of existing Mineral Reserves and Resources. Drilling is targeting syenite-hosted mineralization and is also continuing to test higher-grade mineralization in the hanging wall mafic-ultramafic stratigraphy. Drilling also commenced from the 9470-3580 drill bay, targeting to the east of existing Mineral Reserves and Resources, between the 9440- and 9375-levels. Exploration spending totaled $1.0 million in the first quarter, 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 first quarter of 2021, exploration activities were focused on the near-mine, Puerto del Aire trend with 2,054 m of drilling completed in five drill holes. Regional targets at Carboneras and Los Ciegos were also tested with eight holes completed totaling 2,096 m. Exploration activities also began on the Los Venados property, under an option agreement with Aloro Mining, including surface mapping and sampling, and the start of an initial drill program. During the first quarter, the Company expensed $1.8 million of exploration spending.

 

Lynn Lake (Manitoba, Canada)

 

In the first quarter of 2021, 2,373 m of drilling was completed in 11 holes at MacLellan. Drill program planning was also completed for the second and third quarters of 2021 at Gordon, as well as several advanced-stage and regional targets. Design and planning for the 2021 summer field season also commenced, with the focus on continuing to advance a pipeline of prospective regional exploration targets. Exploration spending totaled $1.0 million in the first quarter which was capitalized.

 

Review of First Quarter 2021 Financial Results

 

The Company sold 126,482 ounces of gold in the first quarter for record revenues of $227.4 million, a 29% increase from the prior year period driven by higher realized gold prices and more ounces sold. The 13% increase in ounces sold was primarily due to increased production at Young-Davidson. In addition, the average realized gold price in the first quarter was $1,798 per ounce compared to $1,582 per ounce in the prior year period.

 

Cost of sales were $139.3 million in the first quarter, an increase from $120.3 million in the prior year period.

 

Mining and processing costs increased to $92.7 million from $82.5 million in the prior year period. The increase in mining costs was driven by significantly higher mining rates at Young-Davidson in 2021, with reduced mining rates and production during the tie-in period of the Northgate shaft in the prior year period. In addition, the stronger Canadian dollar and Mexican peso and costs related to COVID-19 preventative measures at all three operations have increased costs compared to the prior year.

 

Consolidated total cash costs in the quarter were $757 per ounce compared to $759 per ounce in the prior year period. The slight decrease in total cash costs was primarily driven by lower unit mining costs at Young-Davidson, as well as higher grades mined at Island Gold in the quarter, partially offset by the impact of foreign exchange and COVID-19 preventative costs.

 

AISC of $1,030 per ounce was in line with the prior year period, with lower total cash costs offset by higher sustaining capital expenditures at Mulatos.

 

Royalty expense was $3.1 million, a 29% increase compared to $2.4 million in the prior year period, due to more ounces sold and a higher realized gold price.

 

Amortization of $43.5 million for the first quarter was higher than in the prior year due to more ounces sold. On a per ounce basis, amortization was $344 per ounce.

 

The Company recognized earnings from operations of $76.3 million, compared to $46.2 million in the prior year period. The increase in earnings from operations was driven by a 29% increase in revenues and stronger operating margins.

 

The Company reported net earnings of $51.2 million in the first quarter compared to a net loss of $12.3 million in the prior year period. The increase in net earnings from the prior year was due to higher earnings from operations and a lower effective tax rate. In the prior year period, the significant volatility in the Canadian dollar and Mexican peso resulted in a $36.8 million foreign exchange loss recorded in deferred tax expense, which increased the effective tax rate and negatively impacted net earnings. In 2021, the impact was a $2.5 million foreign exchange gain. On an adjusted basis, earnings of $49.1 million or $0.13 per share for the first quarter were 67% higher than in the prior year, driven by higher operating margins. Adjusted earnings reflect adjustments for one-time gains and losses, as well as foreign exchange movements recorded in deferred taxes and foreign exchange loss.

 

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. The Company’s shares are traded on the TSX and NYSE under the symbol “AGI”.

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

Scott K. Parsons

Vice-President, Investor Relations

(416) 368-9932 x 5439