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Alamos Gold delivers value to shareholders and benefits to Northern Ontario communities

Aug 12, 2021

Stability and an enviable risk profile. Any time you can use those words in a sentence it spells confidence for investors. That was one of the highlights of a presentation given by Alamos Gold Chief Financial Officer Jamie Porter at the recent Mining the Abitibi Virtual Conference.

“We do have diversified production from our three operating mines, two of which are located in Northern Ontario, and our third, our Mulatos Mine is located in northwest Mexico,” said Jamie Porter. “We’ve grown considerably since our founding in 2003. In fact, just five years ago we were a single asset producer with our Mulatos Mine in northwest Mexico being our only producing gold operation.
Since that time Alamos has completed two significant acquisitions. They’ve acquired the Young-Davidson and the Island Gold Mines, both in Northern Ontario which brought their production level up to approximately 500,000 ounces per year.
“Over two-thirds of our production and revenues now come from our Young-Davidson and Island Gold Mines. We directly employ over 1,800 people globally, with over a thousand of those employees and certainly more contractors coming from Canada, primarily again based in Northern Ontario.”
The company’s core values are safety, teamwork, environmental sustainability, integrity, and commitment which form the foundation for everything that they do as a company.
“In growing Alamos into what it is today, we have focused on high quality, long life assets in safe jurisdictions. We’re on track to produce approximately 500,000 ounces of gold this year, again with 70% of that production coming from Canada.”
What sets Alamos apart from its peers is that their mines have relatively long lives, averaging 12 years between them. “And that 12-year average mine life is anchored by an almost 10-million-ounce mineral reserve base. This really positions us as a stable, diversified gold producer with an enviable political risk profile.”
On top of that, Alamos has a strong portfolio of attractive growth projects with the Lynn Lake Project in Northern Manitoba being next in the queue for development.
Our pipeline of organic growth projects is expected to contribute to 50% production growth between now and 2025. We will be able to demonstrate strong growth while the rest of the industry is facing declining mine lives and rates of production.”
While Alamos is focused on 50% production growth over that period, margins and profitability will also improve dramatically. The company is anticipating over a 20% percent reduction in all-in sustaining costs.
“Our corporate strategy has always been very conservative and low risk. We focus, as I said, on safe jurisdictions on high quality assets and we’re very financially conservative. Maintaining a conservative balance sheet is what has enabled us to take a counter-cyclical approach to mergers and acquisitions. We have had the financial strength to acquire companies at the bottom of the market, but many of our peers can’t. We have a sustainable business model that supports increasing returns over the long term and the results really speak for themselves, as we’ve delivered a 14 annualized return for shareholders over the course of our 18-year history,” said Porter.

Young Davidson Mine
Young-Davidson Mine located in Matachewan, Ontario

Alamos’ Young-Davidson Mine is located in Matachewan, about 60 kilometers west of Kirkland Lake, and it’s one of Canada’s largest underground gold mines with a design capacity of 8,000 tons per day. “90% of the workforce at Young-Davidson is local and we’re a very important employer in the region, accounting for approximately fifteen percent of total mining employment.”
Young-Davidson also contributes significantly to the local economy, with over $17 million of economic benefit in terms of spending to the regional economy on an annualized basis. Porter says the Young Davidson has a 14-year reserve life with significant exploration potential beyond that will ensure that the operation continues to be a very significant employer and contributor to the local economy for decades to come.
“In 2020, we had a very important milestone at Young-Davidson. We completed construction of the lower mine infrastructure which has enabled us to increase our daily mining rates from 6,000 tons per day where we’ve been operating for the last four or five years to approximately 8,000 tons per day. This expansion has made Young-Davidson far more efficient, far more productive even because the mine and the infrastructure is more automated, and it will enable us to consistently produce in excess of 200,000 ounces of gold per year; and at current gold prices, that means in excess of $100 million of annualized free cash flow.”
The Island Gold Mine is located in in Dubreuilville, Ontario near Wawa, just north of Sault Ste. Marie. “This asset has really been a tremendous success story for us since we acquired it through the acquisition of Richmont Mines in November of 2017,” said Porter. “When we initially bought Richmont and acquired Island Gold, we had approximately 1.8 million ounces in total mineral reserves and resources. Since that time, we’ve added an additional 3 million ounces. At the same time, we’ve increased production by about 50% going from what they were operating in 2017, 800 tons per day to our current rate of production of 1,200 tons per day.”
Island Gold is now approaching 5 million ounces of mineral reserves and resources. It’s one of the highest grade and most profitable gold mines located anywhere in the world. Island Gold’s also a very important employer in the region, accounting for 22% of total mining employment in the Algoma Region, and also, much like Young-Davidson contributes significant leaks of local economy with nearly $12 million of economic benefit accruing to the region on an annualized basis.

Island Gold Mine
Alamos Gold`s Island Gold Mine located in Dubreuilville, ON.

“We’ve had phenomenal exploration success at Island Gold. And as a result of that in the expanding ore body, that’s positioned us to be able to expand the operation. We’re looking at investing and sinking a shaft and expanding the mining operation from 1,200 to 2,000 tons per day. This will bring average annual gold production from our current rate of around 140,000-150,000 ounces a year to approximately 240,000 ounces per year while driving all sustaining costs from current levels of around $750 an ounce down to closer to $500 an ounce. These are industry low leading costs, 500 all in sustaining costs and the gold price well north of $1,800 an ounce we’re generating tremendous margins at this operation.”
And while Alamos’ existing phase three expansion plans for growth at Island are very exciting, they believe there’s more growth to come. “With the best highest grade drill intercepts that we’ve ever reported at this project that adapted to the east. We believe we will continue to benefit from this exploration success and that this deposit is going to continue to grow and the value of the Island Gold mine will certainly grow with it.”
The company is always looking for ways to minimize the impact and reduce its environmental footprint. Their greenhouse gas emissions and water usage per ounce of gold produced are already well below both the intermediate and the senior peer average. These are metrics that Alamos continues to look to improve with initiatives at each of their operations.
“From a social perspective, we’re focused on a culture of safety first, and we’re certainly seeing results with a 59% reduction in our lost time injury rate since 2018. We have a program we call ‘Home Safe Every Day’, and this drives everything that we do from a health and safety perspective. It’s an area where again, our focus is continuous improvement we’re always looking to do better. Within our host communities, we’re always looking for ways to invest that will provide ongoing benefits well beyond the life of our operations. And we’ve been recognized in both Mexico and Canada for our efforts in this regard,” added Porter.
With the success of the mining industry comes a competition for talent. Alamos is always looking for people. “We’re always on the hunt for more.  We had pretty significant turnover across all of our operations. As you know, the gold market generally started to improve, we found more competition for especially our senior roles. I think we’re very satisfied I mean with the quality of the workforce in Northern Ontario. But the key is keeping your good people. We offer very competitive compensation packages, leadership training, skills development training.”
Porter says what keeps their best people at Alamos is just the culture of the company. “It’s really a meritocracy. Everyone is certainly encouraged to be proactive and to take ownership and work together to achieve the best possible outcomes, so it’s really a great place to work. I’ve been with Alamos since 2005. I never thought I’d be with one company for more than five years and I’m going on 16, as has the majority of our senior management team and many of our employees down through the ranks.”
Will Alamos look for other mines as well as new talent?
“As we’ve seen the gold price run up and valuations increase, that’s typically when we kind of stand back and let others get involved in M&A. I alluded to it in the presentation. We’ve tried to take a counter-cyclical approach, we’re very conservative from a financial perspective. We did our merger of equals between Alamos Gold and AuRico that brought in the Young-Davidson Mine. We did that in 2015 when the gold price was around $1,100 an ounce. In 2017, we acquired Richmont Mines, the gold price was just over $1,200 an ounce,” said Porter.
“We’ve always favored the approach of having a strong net cash balance so that if the market takes a turn, the gold price dives, we’re in a position to be acquisitive and that’s worked out really well for us. So given that, we are not on the hunt currently. I mean we’ve got a 50% growth and a 20% reduction in costs over the next five years with our organic pipeline. So there’s really no need for us to look outside the company to do anything at this point.”

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