Alamos Gold Reports Third Quarter 2022 Results
Alamos Gold Inc.
Brookfield Place, 181 Bay Street, Suite 3910, P.O. Box #823 Toronto, Ontario M5J 2T3 Telephone: (416) 368-9932 or 1 (866) 788-8801
All amounts are in United States dollars, unless otherwise stated.
Alamos Gold Reports Third Quarter 2022 Results
Toronto, Ontario (October 26, 2022) - Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported its financial results for the quarter ended September 30, 2022.
“We had a solid third quarter overall, including our highest production in nearly two years. Our operations performed well with production near the top end of quarterly guidance and representing a 19% increase from the second quarter. Our costs were also down significantly from the first half of the year, coming in below full year guidance. With the strong year-to-date performance and even stronger results expected in the fourth quarter, we remain on track to achieve full year production and cost guidance,” said John A. McCluskey, President and Chief Executive Officer.
“La Yaqui Grande was the key driver of our operational and financial performance with an excellent first full quarter of operations. Its low-cost production growth more than offset the lower gold price to drive stronger cash flow from operations. This is a trend we expect to continue with La Yaqui Grande contributing higher production and lower costs over the next few years and Island Gold continuing that trend over the longer term through the Phase 3+ Expansion. Given our growing cash flow from operations, we can fund this growth internally while generating strong free cash flow and supporting solid ongoing returns to shareholders,” Mr. McCluskey added.
Third Quarter 2022
- Produced 123,400 ounces of gold, a 19% increase from the second quarter and near the top end of the range for quarterly guidance. This represented the highest quarterly production in nearly two years driven by a solid first full quarter of production from La Yaqui Grande in Mexico
- With year-to-date production of 326,200 ounces of gold and a further increase in production expected in the fourth quarter, the Company remains on track to achieve full year guidance of 440,000 to 480,000 ounces
- Mulatos District production totaled 42,700 ounces, more than double the second quarter at substantially lower costs driven by low-cost production growth from La Yaqui Grande
- Young-Davidson continued its strong operational performance, producing 49,300 ounces and generating minesite free cash flow1 of $23.3 million. Year-to-date, Young-Davidson generated $77.3 million of mine-site free cash flow and is on track to generate $100 million for the second consecutive year
- Construction activities on the Phase 3+ Expansion ramped up at Island Gold, including the start of the pre-sink of the shaft in August
- Sold 122,780 ounces of gold at an average realized price of $1,740 per ounce, for revenues of $213.6 million. The average realized gold price was $11 per ounce above the London PM fix
- Total cash costs1 of $868 per ounce, and AISC1 of $1,178 per ounce per ounce decreased 8% and 7%, respectively, from the first half of the year and were both lower than annual guidance, reflecting low-cost production growth at La Yaqui Grande, and the weaker Canadian dollar. The Company remains on track to meet full year cost guidance
- Realized adjusted net earnings1 for the quarter of $26.9 million, or $0.07 per share1. Adjusted net earnings includes adjustments for a non-cash, after tax inventory net realizable value adjustment at Mulatos of $7.7 million and unrealized foreign exchange losses recorded within both deferred taxes and foreign exchange of $23.0 million, partially offset by other gains totaling $2.4 million
- Reported a net loss of $1.4 million
- Generated cash flow from operating activities of $74.0 million ($96.1 million, or $0.25 per share, before changes in working capital1)
- Free cash flow1 was $1.4 million in the quarter; despite the lower gold price in the quarter, the Company continues to fund its growth initiatives, including the Phase 3+ Expansion, through cash flow from existing operations
- Paid a quarterly dividend of $9.8 million, or $0.025 per share (annualized rate of $0.10). On a year-to-date basis, $37.5 million has been returned to shareholders through dividends and share buy backs. This includes the repurchase of 1.1 million shares at a cost of $8.2 million ($7.41 per share) under the Company's Normal Course Issuer Bid ("NCIB")
- Ended the quarter with cash and cash equivalents of $116.7 million, equity securities of $15.3 million, and no debt
- Released its 2021 Environmental, Social, and Corporate Governance ("ESG") Report, which outlines the Company’s progress on its ESG performance and initiatives
- Zero lost time injuries recorded across the Company's operations in the quarter
- Announced the appointment of Luc Guimond as Chief Operating Officer effective September 1, 2022
.(1) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
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Highlight Summary
| Three Months Ended September 30, | Nine Months Ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Financial Results (in millions)
| Operating revenues | $213.6 | $198.0 | $589.3 | $620.5 |
| Cost of sales(1) | $168.1 | $129.5 | $455.5 | $395.7 |
| Earnings (loss) from operations | $29.9 | $57.3 | $49.9 | ($34.9) |
| Earnings (loss) before income taxes | $33.9 | $56.3 | $49.8 | ($41.3) |
| Net (loss) earnings | ($1.4) | $25.1 | ($3.5) | ($96.2) |
| Adjusted net earnings(2) | $26.9 | $37.6 | $74.2 | $125.4 |
| Earnings before interest, depreciation and amortization(2) | $96.4 | $100.0 | $251.3 | $314.0 |
Cash provided by operations before working capital and $96.1 $102.3 $252.3 $319.1 cash taxes(2)
| Cash provided by operating activities | $74.0 | $82.4 | $196.2 | $268.4 |
| Capital expenditures (sustaining)(2) | $26.0 | $30.9 | $68.7 | $81.2 |
| Capital expenditures (growth)(2) (3) (5) | $39.8 | $52.7 | $141.7 | $166.8 |
| Capital expenditures (capitalized exploration)(4) | $6.8 | $6.9 | $18.5 | $18.8 |
| Free cash flow(2) | $1.4 | ($8.1) | ($32.7) | $1.6 |
Operating Results
123,400 104,700 326,200 344,700 Gold production (ounces)
Gold sales (ounces) 122,780 110,488 323,410 344,551
Per Ounce Data
Average realized gold price $1,740 $1,792 $1,822 $1,801 Average spot gold price (London PM Fix) $1,729 $1,790 $1,824 $1,800 Cost of sales per ounce of gold sold (includes $1,369 $1,172 $1,408 $1,148 amortization) (1)
Total cash costs per ounce of gold sold (2) $868 $788 $914 $778 All-in sustaining costs per ounce of gold sold (2) $1,178 $1,152 $1,231 $1,102
Share Data
Earnings (loss) earnings per share, basic and diluted $0.00 $0.06 ($0.01) ($0.24) Adjusted earnings per share, basic and diluted(2) $0.07 $0.10 $0.19 $0.32 Weighted average common shares outstanding (basic)
391,794 392,742 391,882 392,755 (000’s)
Financial Position (in millions)
Cash and cash equivalents(6) $116.7 $172.5
(1) Cost of sales includes mining and processing costs, royalties, and amortization expense. For the three and nine months ended September 30, 2022, cost of sales includes a $11.6 million and $33.9 million non-cash inventory net realizable value adjustment, respectively, at Mulatos District.
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
(3) Includes growth capital from operating sites.
(4) Includes capitalized exploration at Island Gold, Young-Davidson and Mulatos District.
(5) Includes capital advances of nil for the three and nine months ended September 30, 2022 ($1.3 million and $21.5 million for the three and nine months ended September 30, 2021).
(6) Comparative cash and cash equivalents balance as at December 31, 2021
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Gold production (ounces)
| Young-Davidson | 49,300 | 50,000 | 147,600 | 143,100 |
| Island Gold | 31,400 | 28,000 | 93,200 | 103,400 |
| Mulatos District(7) | 42,700 | 26,700 | 85,400 | 98,200 |
Gold sales (ounces)
| Young-Davidson | 49,218 | 48,625 | 147,405 | 141,931 |
| Island Gold | 31,342 | 28,331 | 91,507 | 101,845 |
| Mulatos District | 42,220 | 33,532 | 84,498 | 100,775 |
Cost of sales (in millions)(1)
| Young-Davidson | $63.9 | $58.5 | $188.3 | $181.8 |
| Island Gold | $29.0 | $24.5 | $85.2 | $79.2 |
| Mulatos District | $75.2 | $46.5 | $182.0 | $134.7 |
Cost of sales per ounce of gold sold (includes amortization)
| Young-Davidson | $1,298 | $1,203 | $1,277 | $1,281 |
| Island Gold | $925 | $865 | $931 | $778 |
| Mulatos District(1) | $1,781 | $1,387 | $2,154 | $1,337 |
Total cash costs per ounce of gold sold (2)
| Young-Davidson | $870 | $810 | $858 | $873 |
| Island Gold | $651 | $586 | $650 | $512 |
| $1,028 | $927 | $1,298 | $913 |
Mulatos District
Mine-site all-in sustaining costs per ounce of gold sold (2),(3)
| Young-Davidson | $1,134 | $1,051 | $1,087 | $1,093 |
| Island Gold | $944 | $1,077 | $941 | $860 |
| Mulatos District | $1,137 | $1,124 | $1,426 | $1,097 |
Capital expenditures (sustaining, growth, capitalized exploration and capital advances) (in millions)(2)
| Young-Davidson(4) | $15.1 | $22.3 | $50.9 | $63.8 |
| Island Gold(5) | $40.7 | $33.8 | $103.4 | $92.5 |
| Mulatos District(6) | $9.9 | $29.1 | $57.2 | $94.2 |
| Other | $6.9 | $5.3 | $17.4 | $16.3 |
(1) Cost of sales includes mining and processing costs, royalties, and amortization. For the three and nine months ended September 30, 2022, cost of sales includes $11.6 million and $33.9 million non-cash inventory net realizable value adjustment, respectively, at Mulatos District.
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4) Includes capitalized exploration at Young-Davidson of $1.2 million and $3.5 million for the three and nine months ended September 30, 2022 ($1.3 million and $3.8 million for the three and nine months ended September 30, 2021).
(5) Includes capitalized exploration at Island Gold of $4.7 million and $13.9 million for the three and nine months ended September 30, 2022 ($5.2 million and $13.6 million for the three and nine months ended September 30, 2021).
(6) Includes capitalized exploration at Mulatos District of $0.9 million and $1.1 million for the three and nine months ended September 30, 2022 ($0.4 and $1.4 million for the three and nine months ended September 30, 2021).
(7) The Mulatos district includes both the Mulatos pit, as well as La Yaqui Grande.
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Environment, Social and Governance Summary Performance
Health and Safety
- Total recordable injury frequency rate1,2 ("TRIFR") of 2.08, a 39% increase from the second quarter of 2022
- Lost time injury frequency rate1 ("LTIFR") of zero
- Year-to-date TRIFR of 1.74 and LTIFR of 0.06, a decline of 15% and 71%, respectively from 2021
During the third quarter of 2022, the TRIFR increased with 25 recordable injuries, seven more than the prior quarter. Zero lost time injuries were recorded in the quarter. On a year-to-date basis, the Company has significantly improved its TRIFR and LTIFR compared to 2021.
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.
Environment
- Zero significant environmental incidents in the third quarter of 2022 and year-to-date
- Information sessions held on the Company’s cyanide management practices with the communities of Yécora, El Trigo and Matarachi in Mexico, within the framework of the International Cyanide Management Code
- Island Gold received additional construction permits for the shaft site haul road and site powerline
- Continued to advance federal and provincial permitting of the Lynn Lake project
- Completed the transition from propane to compressed natural gas at Young-Davidson, which will reduce greenhouse gas emissions at the site by an estimated 15% for mine underground heating
One reportable spill occurred during the third quarter at Island Gold when 200 litres of thickener slurry leaked due to a pinhole in a pipeline. The spill was identified and all material collected and moved back into the containment area. The area was cleaned and remediated with no anticipated long-term effects. 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
Ongoing donations and medical support being provided to local communities, including:
- Donation of an ambulance to the Sahuaripa municipality,
- Establishment of an online high school for Matarachi residents through an agreement with Tec de Monterrey,
- Commissioning of two freshwater pumping stations in Matarachi
- New scholarship committees established in Matarachi, Sahuaripa and Yécora as part of the Company’s continued support for local students
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. Ongoing investments in local infrastructure, health care, education, cultural and community programs have continued through the COVID-19 pandemic, with appropriate health and safety protocols.
Governance and Disclosure
- Published Alamos’ 2021 ESG Report and 2021 ESG Summary Tables, outlining the Company’s progress on its ESG performance across its operations, projects and offices
- Recipient of the Ethics and Values Award by the National Confederation of Industrial Chambers (CONCAMIN) for the third consecutive year at Mulatos
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
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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.
(2) The classification of medical treatment injuries was updated retroactive to 1 January 2020 to align with OSHA standards, resulting in changes to previously reported recordable injury rates.
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Outlook and Strategy
| 2022 Guidance | |||||
| Young- | Island Gold | ||||
| Davidson | Mulatos | Other (2) | Total |
Gold production (000’s ounces) 185 - 200 125 - 135 130 - 145 440 - 480 Cost of sales, including amortization (in millions)(4) $610 Cost of sales, including amortization ($ per ounce)(4) $1,325 Total cash costs ($ per ounce)(1) $850 - $900 $550 - $600 $1,225 - $1,275 — $875- $925 All-in sustaining costs ($ per ounce)(1) $1,190 - $1,240 Mine-site all-in sustaining costs ($ per ounce)(1)(3) $1,125 - $1,175 $850 - $900 $1,325 - $1,375 —
Capital expenditures (in millions)
| Sustaining capital(1) | $50 - $55 | $35 - $40 | $5 - $10 | — | $90 - $105 |
| Growth capital(1) | $5 - $10 | $145 - $160 | $50 - $55 | $15 | $215 - $240 |
| Total Sustaining and Growth Capital(1) | $55 - $65 | $180 - $200 | $55 - $65 | $15 | $305 - $345 |
| Capitalized exploration(1) | $4 | $20 | — | $3 | $27 |
| Total capital expenditures and capitalized exploration(1) | $59 - $69 | $200 - $220 | $55 - $65 | $18 | $332 - $372 |
(1) Refer to the "Non-GAAP Measures and Additional GAAP" disclosure at the end of this press release and associated MD&A for a description of these measures.
(2) Includes growth capital and capitalized exploration at the Company's development projects.
(3) For the purposes of calculating mine-site all-in sustaining costs at individual mine sites, the Company does not include an allocation of corporate and administrative and share based compensation expenses to the mine sites.
(4) Cost of sales includes mining and processing costs, royalties, and amortization expense, and is calculated based on the mid-point of total cash cost guidance.
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 reinvesting in high-return internal growth opportunities and supporting higher returns to shareholders.
The Company delivered on two key long-term objectives this year which have solidified its strong outlook. This included achieving initial low-cost production at La Yaqui Grande and announcing the Phase 3+ Expansion of Island Gold, which will create a larger, more profitable and valuable operation.
La Yaqui Grande performed well during its first full quarter of operation, driving a 19% increase in consolidated production from the second quarter, at significantly lower costs compared to the first half of the year. The Company expects this strong performance to continue in the fourth quarter with consolidated production increasing to between 125,000 and 135,000 ounces, driven by further low-cost production growth at La Yaqui Grande. Despite industry-wide inflationary pressures, total cash costs are expected to decrease in the fourth quarter to the lowest level of the year with the ramp up of low-cost production at La Yaqui Grande, higher grades at Island Gold, and the weaker Canadian dollar.
With production through the first nine months of 326,200 ounces and higher production and lower costs expected in the fourth quarter, the Company is well positioned to achieve full year production and cost guidance.
Young-Davidson continues to perform well, generating $23.3 million of mine-site free cash flow in the quarter, bringing year-to-date mine-site free cash flow to $77.3 million. With production of 147,600 ounces through the first nine-months, Young-Davidson is on track to meet full year production and cost guidance, and is expected to generate $100 million of mine-site free cash flow for the second straight year.
Island Gold produced 93,200 ounces through the first nine months of the year, and with higher grades expected in the fourth quarter, the operation is well positioned to achieve full year production guidance. Construction activities on the Phase 3+ Expansion are ramping up with pre-sinking of the shaft having started in August. Capital spending rates are expected to continue to increase with the ramp up of activities on the Phase 3+ Expansion; however, full year spending is expected to be lower than guidance with capital deferred to subsequent years.
The Phase 3+ Expansion of Island Gold will result in a step change in production, with mining rates increasing to 2,400 tpd from the current rate of 1,200 tpd. This is expected to more than double gold production to average 287,000 ounces per year at industry low mine-site all-in sustaining costs of $576 per ounce starting in 2026 upon completion of the shaft. Given strong ongoing cash flow from operations, the majority of the Phase 3+ Expansion capital over the life of the project is expected to be self-funded by Island Gold.
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Combined production from the Mulatos District totaled 85,400 ounces through the first nine-months of 2022. This included 42,700 ounces in the third quarter, at significantly lower costs than the first half of the year driven by the ramp up of low cost production from La Yaqui Grande. Total production from the Mulatos District is expected to increase further in the fourth quarter at lower costs, and is on track to meet full year production and cost guidance.
At Lynn Lake, the Company continues to focus on environmental work in support of permitting, detailed engineering and other site access upgrades. Spending in 2022 has been focused on both development and exploration activities, with $17 million spent through the first nine-months of the year. The approval of the Environmental Impact Statement (“EIS”) for the project is expected by the end of 2022 or early 2023, following which the Company expects to release an updated feasibility study.
The Company's liquidity position remains strong, ending the quarter with $116.7 million of cash and cash equivalents, $15.3 million in equity securities, and no debt. Additionally, the Company has a $500 million undrawn credit facility, providing total liquidity of $616.7 million.
As part of the Company's balanced approach to growth and capital allocation, the current focus of growth capital is the Phase 3+ Expansion at Island Gold. With no significant capital expected to be spent on developing Lynn Lake until the Phase 3+ Expansion is well underway, the Company remains well positioned to fund this growth internally while generating strong free cash flow over the next several years. The Company expects significant free cash flow growth starting in 2025 as production rates ramp up at Island Gold.
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Third Quarter 2022 results
Young-Davidson Financial and Operational Review
| Three Months Ended September 30, | Nine Months Ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Gold production (ounces) 49,300 50,000 147,600 143,100 Gold sales (ounces) 49,218 48,625 147,405 141,931
Financial Review (in millions)
| Operating Revenues | $85.6 | $87.1 | $269.7 | $255.3 |
| Cost of sales(1) | $63.9 | $58.5 | $188.3 | $181.8 |
| Earnings from operations | $20.9 | $28.6 | $77.4 | $73.5 |
| Cash provided by operating activities | $38.4 | $51.2 | $128.2 | $133.7 |
| Capital expenditures (sustaining)(2) | $13.0 | $11.7 | $33.6 | $31.0 |
| Capital expenditures (growth)(2) | $0.9 | $9.3 | $13.8 | $29.0 |
| Capital expenditures (capitalized exploration)(2) | $1.2 | $1.3 | $3.5 | $3.8 |
| Mine-site free cash flow(2) | $23.3 | $28.9 | $77.3 | $69.9 |
| Cost of sales, including amortization per ounce of gold sold(1) | $1,298 | $1,203 | $1,277 | $1,281 |
| Total cash costs per ounce of gold sold(2) | $870 | $810 | $858 | $873 |
| Mine-site all-in sustaining costs per ounce of gold sold(2),(3) | $1,134 | $1,051 | $1,087 | $1,093 |
Underground Operations
| Tonnes of ore mined | 644,000 | 737,554 | 2,122,820 | 2,121,573 |
| Tonnes of ore mined per day | 7,000 | 8,017 | 7,776 | 7,771 |
| Average grade of gold(4) | 2.28 | 2.30 | 2.29 | 2.26 |
| Metres developed | 2,589 | 3,031 | 8,933 | 9,251 |
Mill Operations
| Tonnes of ore processed | 719,050 | 738,646 | 2,161,792 | 2,159,994 |
| Tonnes of ore processed per day | 7,816 | 8,029 | 7,919 | 7,912 |
| Average grade of gold(4) | 2.31 | 2.30 | 2.31 | 2.25 |
| Contained ounces milled | 53,290 | 54,640 | 160,734 | 156,310 |
| Average recovery rate | 92% | 92% | 91% | 92% |
(1) Cost of sales includes mining and processing costs, royalties and amortization.
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4) Grams per tonne of gold ("g/t Au").
Young-Davidson produced 49,300 ounces of gold in the third quarter of 2022, consistent with the prior year period reflecting similar tonnes and grades processed. With production of 147,600 ounces for the first nine-months of 2022, the operation is on track to meet full year production guidance.
Underground mining rates were lower than the prior year period, averaging 7,000 tpd in the third quarter. Mining rates were impacted by downtime to replace the head ropes within the Northgate Shaft, a scheduled replacement of an underground conveyor belt, and an increased frequency of energy reductions during periods of peak provincial electricity demand in the summer months. Underground mining rates are expected to increase in the fourth quarter and average 8,000 tpd. Grades mined averaged 2.28 g/t Au, within the annual guidance of between 2.15 and 2.35 g/t Au.
Mill throughput averaged 7,816 tpd in the third quarter at an average grade of 2.31 g/t Au. Milling rates were consistent with the first half of 2022, though slightly lower than the prior year period and guidance, reflecting the above noted energy reduction program. Milling rates exceeded mining rates during the quarter with underground ore mined and stockpiled in previous quarters supplementing mill feed. Mill recoveries averaged 92% in the quarter, in line with guidance and the prior year period.
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Financial Review
Third quarter revenues of $85.6 million were 2% lower than the prior year period reflecting a lower realized gold price. Year-to date revenues of $269.7 million were 6% higher than the prior year period, primarily driven by more ounces sold.
Cost of sales (which includes mining and processing costs, royalties, and amortization expense) of $63.9 million in the third quarter were higher than the prior year period, due to higher unit mining costs, partially offset by the weaker Canadian dollar. Underground unit mining costs were CAD $50 per tonne in the quarter, higher than the prior year and previous quarters, primarily due to the lower mining rates, as well as inflationary cost pressures. Cost of sales of $188.3 million in the first nine months of 2022 were higher than the comparable period given higher input costs and more ounces sold.
Total cash costs of $870 per ounce in the third quarter were 7% higher than the prior year period driven by the higher unit mining costs in the quarter, partially offset by the weaker Canadian dollar. Mine-site AISC of $1,134 per ounce in the third quarter were 8% higher than the prior year period, consistent with the increase in total cash costs. Total cash costs and mine-site AISC for the first nine months were both lower than the comparable period as a result of higher production. Given the strong operational performance to-date, Young-Davidson remains well positioned to meet full year total cash cost and mine-site AISC guidance.
Capital expenditures in the quarter included $13.0 million of sustaining capital and $0.9 million of growth capital. In addition, $1.2 million was invested in capitalized exploration in the quarter. Capital expenditures totaled $50.9 million in the first nine-months of 2022, a 20% decrease from the prior year and in line with annual guidance.
Young-Davidson has consistently generated strong free cash flow since transitioning to the lower mine infrastructure in mid-2020, which has driven production higher and unit mining costs lower. This included mine-site free cash flow of $23.3 million in the third quarter of 2022 and $77.3 million for the first nine months of 2022, putting the operation on track to generate $100 million of mine-site free cash flow for the second consecutive year.
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Island Gold Financial and Operational Review
| Three Months Ended September 30, | Nine Months Ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Gold production (ounces) 31,400 28,000 93,200 103,400 Gold sales (ounces) 31,342 28,331 91,507 101,845
Financial Review (in millions)
| Operating Revenues | $54.8 | $50.8 | $167.3 | $183.4 |
| Cost of sales(1) | $29.0 | $24.5 | $85.2 | $79.2 |
| Earnings from operations | $24.4 | $25.5 | $78.1 | $101.0 |
| Cash provided by operating activities | $32.1 | $31.5 | $109.0 | $129.9 |
| Capital expenditures (sustaining)(2) | $9.1 | $13.9 | $26.4 | $35.5 |
| Capital expenditures (growth)(2) (5) | $26.9 | $14.7 | $63.1 | $43.4 |
| Capital expenditures (capitalized exploration)(2) | $4.7 | $5.2 | $13.9 | $13.6 |
| Mine-site free cash flow(2) | ($8.6) | ($2.3) | $5.6 | $37.4 |
| Cost of sales, including amortization per ounce of gold sold(1) | $925 | $865 | $931 | $778 |
| Total cash costs per ounce of gold sold(2) | $651 | $586 | $650 | $512 |
| Mine-site all-in sustaining costs per ounce of gold sold(2),(3) | $944 | $1,077 | $941 | $860 |
Underground Operations
| Tonnes of ore mined | 104,565 | 108,241 | 319,757 | 329,190 |
| Tonnes of ore mined per day ("tpd") | 1,137 | 1,177 | 1,171 | 1,206 |
| Average grade of gold(4) | 9.67 | 8.59 | 9.37 | 10.04 |
| Metres developed | 1,664 | 1,708 | 5,005 | 5,566 |
Mill Operations
| Tonnes of ore processed | 121,571 | 99,425 | 336,668 | 320,608 |
| Tonnes of ore processed per day | 1,321 | 1,081 | 1,233 | 1,174 |
| Average grade of gold(4) | 9.38 | 8.90 | 9.25 | 10.29 |
| Contained ounces milled | 36,661 | 28,443 | 100,119 | 106,062 |
| Average recovery rate | 93% | 95% | 95% | 96% |
(1) Cost of sales includes mining and processing costs, royalties, and amortization.
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.
(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.
(4) Grams per tonne of gold ("g/t Au").
(5) Includes capital advances of nil and $1.4 million for the three and nine months ended September 30, 2022 ($0.6 million and $3.4 million for the three and nine months ended September 30, 2021).
Island Gold produced 31,400 ounces in the third quarter of 2022, a 12% improvement from the prior year period reflecting higher grades mined and higher tonnes processed. Through the first nine months of 2022, Island Gold produced 93,200 ounces and remains on track to meet full year production guidance.
Underground mining rates averaged 1,137 tpd in the third quarter, with grades averaging 9.67 g/t Au. Mining rates were slightly below guidance as a result of production drilling availability, but have improved in the fourth quarter. Mining rates and grades mined through the first nine-months of the year were in line with guidance.
Mill throughput averaged 1,321 tpd, 10% above annual guidance of 1,200 tpd, reflecting the processing of approximately 10,000 tonnes of Island Gold stockpiled ore at the Young-Davidson mill. Given current permit limits at Island Gold, excess stockpiles were trucked to Young-Davidson during the second and third quarters and processed as capacity was available at the Young-Davidson mill, boosting production and cash flow.
Mill recoveries averaged 93% in the quarter, below annual guidance and the prior year period due to calibration issues with a newly installed automated lime application system. This issue was identified and rectified with recoveries returning to budgeted levels before the end of the quarter and into October. The new system is performing well with recoveries expected to be at budgeted levels in the fourth quarter.
Financial Review
Island Gold generated revenues of $54.8 million in the third quarter, an 8% increase compared to the prior year period, driven by 11% more ounces sold, partially offset by a lower realized gold price. For the first nine months of
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the year, revenues were $167.3 million, lower than the prior year period as a result of less ounces sold, partially offset by a higher realized gold price.
Cost of sales (includes mining and processing costs, royalties and amortization expense) of $29.0 million in the third quarter were 18% higher than the prior year period, reflecting both higher tonnes processed and unit mining costs, partially offset by a weaker Canadian dollar. Cost of sales of $85.2 million in the first nine-months of 2022 were higher than the comparable period given similar reasons.
Total cash costs of $651 per ounce in the third quarter were higher than the prior year period, due to higher mining and processing costs, partially offset by higher grades processed. Mine-site AISC of $944 per ounce in the third quarter were lower than the prior year period due to the timing of sustaining capital expenditures. Total cash costs and mine-site AISC for the first nine months were both higher than the comparable period as a result of lower grades processed and higher mining and processing costs.
Total capital expenditures were $40.7 million in the third quarter, including $4.7 million of capitalized exploration. Spending ramped up significantly on the Phase 3+ Expansion during the third quarter, including shaft site preparation and clearing, and the start of pre-sinking of the shaft. In addition, capital spending was focused on lateral development and other surface infrastructure. For the first nine-months of 2022, capital spending was $103.4 million, inclusive of capitalized exploration of $13.9 million, higher than the prior year period given the ramp up of construction activities on the Phase 3+ Expansion.
Island Gold generated negative mine-site free cash flow of $8.6 million in the third quarter given higher capital commitments related to the Phase 3+ Expansion, but had positive mine-site free cash flow of $5.6 million for the first nine-months of 2022. At current gold prices, Island Gold is expected to largely self-finance the Phase 3+ Expansion capital spending in 2022 and beyond.
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