Alamos Reports Fourth Quarter and Year-End 2018 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 Reports Fourth Quarter and Year-End 2018 Results
Toronto, Ontario (February 20, 2019) - Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported its financial results for the quarter and year ended December 31, 2018.
“Alamos closed 2018 on a high note with record production from Island Gold and a stronger performance from Young- Davidson driving production higher and costs lower in the fourth quarter. This contributed to an 18% increase in full year production to 505,000 ounces, meeting guidance and achieving a new record. We expect similar production in 2019 at lower costs contributing to stronger margins and financial performance,” said John A. McCluskey, President and Chief Executive Officer.
“We also advanced various growth initiatives at our existing operations. This was highlighted by the completion of the Phase I expansion and the addition of nearly one million ounces of mineral reserves and resources at Island Gold, which will support future expansions. We also advanced construction of the lower mine expansion at Young-Davidson. Combined with declining costs at Mulatos, we expect these initiatives to drive strong free cash flow growth starting in the second half of 2020. Aligned with our strong outlook and focus on returning value to shareholders, we have doubled our annual dividend and have been active in buying back stock,” Mr. McCluskey added.
Fourth Quarter 2018 Highlights
- Produced 125,600 ounces of gold, an increase from the third quarter reflecting a stronger performance from Young-Davidson and record quarterly production from Island Gold
- Sold a record 131,161 ounces of gold at an average realized price of $1,244 per ounce, $17 above the average London PM Fix, for revenues of $163.1 million
- Total cash costs1 decreased to $770 per ounce, the lowest in 2018 reflecting improved performance at Young- Davidson; all-in sustaining costs ("AISC")1 of $983 per ounce also decreased from the third quarter
- Cost of sales of $1,579 per ounce were higher than guidance reflecting a non-cash inventory impairment charge at El Chanate of $64.0 million, or $488 per ounce
- Reported adjusted net earnings1 of $4.3 million, or $0.01 per share1, which includes one-time adjustments for a $64.0 million ($49.9 million after-tax) non-cash inventory impairment charge at El Chanate, as well as unrealized foreign exchange losses recorded within both deferred taxes and foreign exchange of $15.8 million, and other items totaling $10.1 million
- Realized a net loss of $71.5 million, or $0.18 per share
- Generated cash flow from operating activities1 of $47.4 million ($52.8 million, or $0.14 per share, before changes in working capital1), an increase from the third quarter primarily reflecting lower costs, higher gold sales and a higher realized gold price
- Ended the quarter with no debt and cash and cash equivalents of $206.0 million
- Announced a Normal Course Issuer Bid permitting Alamos to purchase for cancellation up to 25,513,043 common shares, representing 10% of the Company’s public float
- Received the Schedule 2 Amendment from the Federal government for a new tailings facility at Young- Davidson, securing tailings capacity for all existing Mineral Reserves and Resources
- Successfully obtained permits for the high return Cerro Pelon project in Mexico and commenced full scale construction
Full year 2018 Highlights
- Met the mid-point of guidance with record production of 505,000 ounces of gold, representing an 18% increase from the previous record in 2017
- Achieved increased production guidance at both Island Gold and Mulatos, with guidance having been revised higher twice at both operations in 2018
- Sold a record 509,879 ounces of gold at an average realized price of $1,278 per ounce for record revenues of $651.8 million
- Total cash costs1 of $802 and AISC1 of $989 per ounce were in line with revised cost guidance. Cost of sales of $1,254 per ounce were above guidance reflecting the non-cash inventory impairment charge at El Chanate
- Reported adjusted net earnings1 of $19.6 million, or $0.05 per share1 which includes one-time adjustments for the El Chanate non-cash inventory impairment, as well as unrealized foreign exchange losses recorded within both deferred taxes and foreign exchange of $33.2 million, and other items totaling $9.1 million
- Realized a net loss of $72.6 million, or $0.19 per share
- Reported record cash flow from operating activities1 of $213.9 million ($211.7 million, or $0.54 per share, before changes in working capital1), a 15% increase from 2017
- Generated positive free cash flow at each of the Company's operations for total mine-site free cash flow of $56.4 million1
- Continued exploration success at Island Gold, driving a 14% increase in Mineral Reserves, 76% increase in Measured and Indicated Mineral Resources and 73% increase in Inferred Mineral Resources at Island Gold, compared to the end of 2017
- Successfully commissioned the Phase I expansion at Island Gold on schedule in the third quarter, increasing mill capacity to 1,100 tonnes per day
- Liquidated the Company's equity positions in AuRico Metals and Corex Gold, generating proceeds of $24.9 million and realizing a gain of $14.3 million reported in retained earnings (deficit)
Subsequent to Year-End
- The Company re-purchased and canceled 2,444,352 common shares at a cost of $10.0 million, or $4.07 per share under its Normal Course Issuer Bid
- Announced a doubling of the annual dividend, with a $0.01 per share dividend to be paid quarterly in 2019 (up from $0.01 semi-annually previously). The first quarterly dividend of $0.01 per share will be payable to shareholders of record on March 15, 2019, to be paid on March 29, 2019
.
(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.
2 | Alamos Gold Inc
Highlight Summary
| Three Months Ended December 31, | Years Ended December 31, | ||
|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 |
Financial Results (in millions)
| Operating revenues | $163.1 | $161.7 | $651.8 | $542.8 |
| Cost of sales(1) | $207.1 | $136.6 | $639.4 | $456.8 |
| Earnings from operations | ($51.3) | $17.1 | ($22.6) | $56.0 |
| Net earnings (loss) | ($71.5) | ($4.7) | ($72.6) | $26.6 |
| Adjusted net (loss) earnings(2) | $4.3 | $0.3 | $19.6 | $38.9 |
Cash provided by operations before working capital and $52.8 $52.7 $211.7 $183.3 cash taxes(2)
| Cash provided by operating activities | $47.4 | $48.6 | $213.9 | $163.5 |
| Capital expenditures (sustaining)(2) | $21.4 | $11.5 | $63.8 | $42.7 |
| Capital expenditures (growth)(2) | $36.4 | $25.6 | $139.2 | $111.8 |
| Capital expenditures (capitalized exploration)(3) | $3.7 | $2.1 | $18.5 | $8.0 |
Operating Results
Gold production (ounces) (4) 125,600 120,300 505,000 429,400 Gold sales (ounces) 131,161 126,786 509,879 430,115
Per Ounce Data
Average realized gold price $1,244 $1,275 $1,278 $1,262 Average spot gold price (London PM Fix) $1,227 $1,275 $1,268 $1,257 Cost of sales per ounce of gold sold $1,579 $1,077 $1,254 $1,062 (includes amortization) (1)
Total cash costs per ounce of gold sold (2) $770 $753 $802 $770 All-in sustaining costs per ounce of gold sold (2) $983 $902 $989 $933
Share Data
Earnings per share, basic ($0.18) ($0.01) ($0.19) $0.09 Adjusted earnings per share, basic (2) $0.01 $— $0.05 $0.13 Weighted average common shares outstanding (basic)
390,540 337,178 389,816 305,521 (000’s)
Financial Position (in millions)
Cash and cash equivalents (5) $206.0 $200.8
(1) Cost of sales includes mining and processing costs, royalties, and amortization expense. For the three months and year ended December 31, 2018, cost of sales includes a $64.0 million non-cash inventory charge at El Chanate.
(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 capitalized exploration at Mulatos and Island Gold.
(4) Gold production from Island Gold has been included in this table for the period subsequent to November 23, 2017 only. Gold production from Island Gold for the three and twelve months ended December 31, 2017 was 22,100 and 98,600 ounces respectively.
3 | Alamos Gold Inc
| Three Months Ended December 31, | Years Ended December 31, | ||
|---|---|---|---|
| 2018 | 2017(1) | 2018 | 2017(1) |
Gold production (ounces)
| Young-Davidson | 50,900 | 56,500 | 180,000 | 200,000 |
| Mulatos | 35,600 | 42,700 | 175,500 | 160,000 |
| Island Gold(1) | 29,000 | 9,000 | 105,800 | 9,000 |
| El Chanate | 10,100 | 12,100 | 43,700 | 60,400 |
Gold sales (ounces)
| Young-Davidson | 51,944 | 52,475 | 185,593 | 197,937 |
| Mulatos | 38,819 | 50,006 | 175,104 | 159,276 |
| Island Gold(1) | 30,199 | 11,720 | 105,520 | 11,720 |
| El Chanate | 10,199 | 12,585 | 43,662 | 61,182 |
Cost of sales (in millions)(2)
| Young-Davidson | $61.5 | $58.1 | $235.0 | $213.4 |
| Mulatos | $38.4 | $47.7 | $173.1 | $153.0 |
| Island Gold(1) | $28.7 | $13.4 | $106.5 | $13.4 |
| El Chanate(2) | $78.5 | $17.4 | $124.8 | $77.0 |
Cost of sales per ounce of gold sold (includes amortization)
| Young-Davidson | $1,184 | $1,107 | $1,266 | $1,078 |
| Mulatos | $989 | $954 | $989 | $961 |
| Island Gold(1) | $950 | $1,143 | $1,009 | $1,143 |
| El Chanate | $7,697 | $1,383 | $2,858 | $1,259 |
Total cash costs per ounce of gold sold (3)
| Young-Davidson | $764 | $690 | $822 | $658 |
| Mulatos | $793 | $762 | $786 | $775 |
| Island Gold(1) | $570 | $401 | $589 | $401 |
| El Chanate | $1,304 | $1,311 | $1,289 | $1,188 |
Mine-site all-in sustaining costs per ounce of gold sold (3),(4)
| Young-Davidson | $974 | $859 | $1,017 | $834 |
| Mulatos | $881 | $798 | $855 | $835 |
| Island Gold(1) | $834 | $546 | $781 | $546 |
| El Chanate | $1,333 | $1,335 | $1,317 | $1,218 |
Capital expenditures (sustaining, growth and capitalized exploration) (in millions)(3)
| Young-Davidson | $23.1 | $17.0 | $86.6 | $80.3 |
| Mulatos(5) | $11.8 | $9.0 | $35.3 | $43.9 |
| Island Gold(1),(6) | $16.8 | $4.8 | $66.1 | $4.8 |
| El Chanate | $0.1 | $0.2 | $0.6 | $1.4 |
| Other | $9.7 | $8.2 | $32.9 | $32.1 |
(1) Operating and financial results from Island Gold are included in Alamos’ consolidated financial statements for the period subsequent to November 23, 2017. Gold production from Island Gold for the three and twelve months ended December 31, 2017 was 22,100 and 98,600 ounces respectively.
(2) Cost of sales includes mining and processing costs, royalties and amortization. For the three months and year ended December 31, 2018, cost of sales includes a $64.0 million non-cash inventory impairment charge at El Chanate.
(3) 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.
(4) 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.
(5) Includes capitalized exploration at Mulatos of $0.6 million and $2.9 million for the three and twelve months ended December 31, 2018 ($1.0 million and $6.9 million for the three and twelve months ended December 31, 2017).
(6) Includes capitalized exploration at Island Gold of $3.1 million and $15.6 million for the three and twelve months ended December 31, 2018.
4 | Alamos Gold Inc
Outlook and Strategy
| 2019 Guidance | |||||||
| Young- | Mulatos | Island | El Chanate | Total | |||
| Davidson | Gold | Turkey | Other (2) |
Gold production (000’s ounces) 180-190 150-160 135-145 15-25 480-520
Cost of sales, including
$226 $165 $123 $26 — — $540 amortization (in millions)(4),(5)
Cost of sales, including
$1,220 $1,065 $880 $1,300 — — $1,080 amortization ($ per ounce)(4),(5)
Total cash costs ($ per ounce)(1),(5) $750-790 $820-860 $460-500 $1,200 $710-750
- —
All-in sustaining costs — — $920-960 ($ per ounce)(1),(5)
Mine-site all-in sustaining costs $940-980 $860-900 $730-770 $1,200 — — — ($ per ounce)(1),(3),(5)
Amortization costs $450 $225 $400 $100 — — $350 ($ per ounce)(1)
Capital expenditures (in millions)
Sustaining capital(1) $35-40 $5.0 $35-40 — — — $75-85 Growth capital(1) $45-50 $45-50 (6) $15-20 $75 $35 (2) $215-230 —
Total capital expenditures(1) $290-315 $80-90 $50-55 $50-60 — $75 $35
(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 capitalized exploration at all operating sites and development projects (excluding Turkey which is separately disclosed).
(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 guidance.
(5) Company-wide cost of sales, total cash costs, and all-in sustaining costs guidance have been updated from original guidance. The Company has not revised guidance for cost of sales, total cash costs, and mine-site all-in sustaining costs at individual mine sites.
(6) Includes capital spending at Cerro Pelon and La Yaqui Grande of approximately $33 million
The Company’s long-term strategic objective is to generate increasing cash flow through low-cost production growth from its existing operations and portfolio of development projects. In 2018, the Company produced a record 505,000 ounces of gold, an 18% increase from 2017, driven by strong operational performances from both Island Gold and Mulatos. Since 2014, Alamos has transformed from a single asset producer with 140,000 ounces of annualized production to producing 505,000 ounces from four operating mines. This transformational growth has been accomplished while also improving margins through lower operating costs. Looking forward, the Company anticipates a substantial reduction in growth capital in 2020 and beyond and a further reduction in costs, which will lead to strong free cash flow growth.
In 2018, the Company continued to execute on its various internal growth initiatives. This included advancing the lower mine expansion at Young-Davidson, as well as the successful completion of the Phase I expansion at Island Gold while also delivering a significant increase in Mineral Reserves and Resources which will support future expansions. Within the development pipeline, the permits for the Cerro Pelon project in Mexico were received in 2018 and construction has now commenced. In addition, the GSM permit for the Kirazlı project in Turkey was received with full scale construction anticipated to commence following the receipt of the Operating License.
The Company expects a similar level of production in 2019, relative to 2018, with total cash costs and all-in sustaining costs expected to decrease 9% and 5%, respectively (based on the mid-point of guidance) driven by operational improvements at Young-Davidson and low-cost production growth at Island Gold. Costs and capital are expected to decline through the year driving stronger mine-site free cash flow in the second half of the year.
The near-term focus at Young-Davidson remains on maximizing efficiency from the upper mine infrastructure, while completing development and construction of the lower mine. Gold production at Young-Davidson is expected to increase slightly in 2019 to a range of 180,000 to 190,000 ounces, compared to 2018 production of 180,000 ounces. Total cash costs and mine-site all-in sustaining costs are expected to decrease 6% compared to 2018, driven by higher underground mining rates and grades mined. Young-Davidson’s 2019 guidance for production, mining rates, operating costs and capital are all consistent with its average performance over the past two years.
Capital spending at Young-Davidson is expected to total $80 to $90 million, consistent with 2018. Spending will be focused on completing development and infrastructure of the lower mine as well as starting construction of a newly permitted tailings facility (“TIA 1”). The Company successfully completed permitting of TIA 1 during the fourth quarter of
5 | Alamos Gold Inc
2018 with receipt of the Schedule 2 Amendment from the Federal government. TIA 1 will provide sufficient capacity for the remaining Mineral Reserves and Resources at Young-Davidson at substantially lower costs than the current facility. Gold production from Young-Davidson is expected to decrease in 2020 reflecting approximately three months of downtime of the Northgate shaft to complete the tie-in of the upper and lower mines. This will temporarily limit underground throughput and impact three months of production during the first half of 2020. Following completion of the tie-in, underground mining rates are expected to ramp up above 7,500 tpd in the second half of 2020 and towards the long-term target of 8,000 tpd in 2021. This is expected to drive annual gold production above 200,000 ounces per year in 2021 and beyond. Combined with declining costs and capital spending, the Company expects strong free cash flow growth from Young-Davidson starting in the second half of 2020.
Island Gold is expected to produce between 135,000 to 145,000 ounces in 2019, a 32% increase relative to the previous record in 2018, reflecting higher grades and throughput with the completion of the Phase I expansion last year. Combined with an expected 19% decrease in total cash costs and 4% decrease in mine-site all-in sustaining costs, Island Gold is expected to generate strong free cash flow growth in 2019, net of a continued significant investment of $19 million in exploration to further expand Mineral Reserves and Resources.
Capital spending at Island Gold is expected to total $50 to $60 million in 2019, consistent with 2018. This includes $35 to $40 million of sustaining capital with underground development being accelerated to bring the significant growth in Mineral Reserves and Resources into the mine plan as well as support mining rates above 1,100 tpd. Lateral exploration development has also been increased to support the expanded exploration program.
The Phase I expansion at Island Gold was completed in September 2018, expanding the mill to a design capacity of approximately 1,200 tpd. The current mine infrastructure can support similar mining rates; however, the operation is currently permitted to operate at an average annual rate of 1,100 tpd. With a mine and mill that can support higher throughput rates, the Company is in the process of permitting an amendment to 1,200 tpd which is expected to be received by the end of 2019 as part of a Phase II expansion. In parallel, the Company has started an evaluation of a potential Phase III expansion of the operation beyond 1,200 tpd.
Total production from the Mulatos District is expected to be between 150,000 to 160,000 ounces of gold in 2019, consistent with long term guidance provided in January 2018. Mulatos significantly outperformed this production range in 2018 reflecting higher than expected recoveries at La Yaqui and Mulatos, and extended production from the highgrade San Carlos underground deposit which reached the end of its mine life in the third quarter of 2018. Mine-site all-in sustaining costs are expected to decrease relative to 2018 guidance of $900 per ounce reflecting the end of the 5% royalty early in 2019. Mine-site all-in sustaining costs are expected to increase slightly from 2018 with the operation having outperformed in 2018 given the above noted factors.
Capital spending across the Mulatos District is expected to total $50 to $55 million in 2019 including $5 million of sustaining capital. This increased from 2018 reflecting $25 million budgeted in 2019 for development of the Cerro Pelon project. Cerro Pelon is higher grade, higher return project and is expected to start contributing low cost production in 2020.
Mining activities ceased at El Chanate in the fourth quarter of 2018 and the operation has transitioned to residual leaching which will result in a declining rate of production through 2019. Mine-site all-in sustaining costs are expected to average $1,200 per ounce in 2019, with approximately 25% of those costs having been already incurred.
Development capital spending in 2019 will be primarily focused on the construction of the Kirazlı project, with the bulk of the remainder comprised of capitalized exploration at Island Gold and exploration, permitting and development activities at Lynn Lake.
The 2019 global exploration budget is $33 million, down slightly from the 2018 budget reflecting lower exploration spending at Mulatos. Island Gold continues to be the main focus of exploration with $19 million budgeted, an increase from the 2018 initial budget of $15 million. Mulatos and Lynn Lake remain the other two areas of focus with $6 million budgeted for each.
With over $600 million of cash and available liquidity, no debt, and growing cash flow from its operations, the Company is well positioned to fund its internal growth initiatives.
6 | Alamos Gold Inc
Fourth Quarter and Full Year 2018 Results
Young-Davidson Financial and Operational Review
| Three Months Ended December 31, | Years Ended December 31, | ||
|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 |
Gold production (ounces) 50,900 56,500 180,000 200,000 Gold sales (ounces) 51,944 52,475 185,593 197,937
Financial Review (in millions)
| Operating Revenues | $64.4 | $66.8 | $236.3 | $249.7 |
| Cost of sales(1) | $61.5 | $58.1 | $235.0 | $213.4 |
| Earnings from operations | $2.9 | $8.7 | $1.3 | $36.3 |
| Cash provided by operating activities | $23.6 | $33.4 | $97.5 | $114.5 |
| Capital expenditures (sustaining)(2) | $10.8 | $8.7 | $35.8 | $34.1 |
| Capital expenditures (growth)(2) | $12.3 | $8.3 | $50.8 | $46.2 |
| Mine-site free cash flow(2) | $0.5 | $16.4 | $10.9 | $34.2 |
| Cost of sales, including amortization per ounce of gold sold(1) | $1,184 | $1,107 | $1,266 | $1,078 |
| Total cash costs per ounce of gold sold(2) | $764 | $690 | $822 | $658 |
| Mine-site all-in sustaining costs per ounce of gold sold(2),(3) | $974 | $859 | $1,017 | $834 |
Underground Operations
| Tonnes of ore mined | 588,956 | 664,847 | 2,280,399 | 2,423,289 |
| Tonnes of ore mined per day ("tpd") | 6,402 | 7,227 | 6,248 | 6,639 |
| Average grade of gold(4) | 2.71 | 2.70 | 2.51 | 2.69 |
| Metres developed | 2,975 | 2,776 | 12,009 | 12,787 |
Mill Operations
| Tonnes of ore processed | 745,567 | 716,273 | 2,683,962 | 2,735,267 |
| Tonnes of ore processed per day | 8,104 | 7,786 | 7,353 | 7,494 |
| Average grade of gold(4) | 2.39 | 2.59 | 2.31 | 2.47 |
| Contained ounces milled | 57,192 | 59,561 | 197,701 | 217,184 |
| Average recovery rate | 92 % | 92 % | 92 % | 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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(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 met revised production guidance with strong fourth quarter production of 50,900 ounces of gold. This was lower than the comparative quarter of 2017; however, a 4% improvement from the third quarter of 2018 and the highest quarterly production of the year reflecting higher underground mining rates and grades. Full year production of 180,000 ounces decreased 10% from 2017 primarily due to unscheduled downtime encountered in the first half of 2018 to both the Northgate hoist and the mill.
Underground mining rates increased to 6,402 tpd in the fourth quarter, a 7% increase from the third quarter and in-line with revised near-term guidance of 6,500 tpd until the tie-in of the lower mine in the first half of 2020 is completed. For the full year, underground mining rates were below prior year rates at 6,248 tpd due to temporary ore pass challenges experienced in the first half of the year, and eight days of downtime to the Northgate shaft in the second quarter. Underground mining rates are expected to increase substantially in the second half of 2020 following completion of the lower mine tie-in.
Underground grades mined also improved significantly to 2.71 g/t Au in the fourth quarter, a 5% increase from the third quarter and the highest grades of the year. Underground grades mined of 2.51 g/t Au for the year were slightly below guided levels and reserve grade of 2.69 g/t Au, due primarily to mine sequencing.
Mill throughput increased to a record 745,567 tonnes, or 8,104 tpd, in the fourth quarter, an 11% increase from the third quarter, bringing full year mill throughput to 7,353 tpd. Mill throughput is expected to average 7,800 tpd in the first half of 2019 before decreasing to match underground mining rates in the second half of the year once lower grade surface stockpiles have been depleted.
Mill recoveries of 92% in the quarter and year-to-date were in line with expectations and the prior year period.
7 | Alamos Gold Inc
Fourth quarter revenues of $64.4 million were consistent with the comparative prior year quarter, and 12% higher than the third quarter of 2018 reflecting higher ounces sold and a higher realized gold price. Revenues of $236.3 million in 2018 were $13.4 million lower than the prior year due to a 6% decline in ounces sold, partially offset by a higher realized gold price.
Cost of sales, which reflects mining and processing costs, royalties, and amortization expense of $61.5 million were higher than the comparative quarter of 2017 reflecting higher per tonne underground mining costs and processing costs. For 2018, cost of sales were $235.0 million, an increase of $21.6 million due to higher underground mining costs, primarily attributable to increased maintenance and input costs.
Total cash costs decreased to $764 per ounce in the fourth quarter, down 7% from the third quarter and the lowest quarterly costs in 2018. Total cash costs were 11% higher than the fourth quarter of 2017 due to lower grades processed and a higher mining cost per tonne. Mining costs of CAD $51 per tonne in the quarter were above budget, reflecting the impact of lower mining rates on fixed costs, as well as higher diesel and maintenance costs. Total cash costs of $822 per ounce for 2018 were 25% higher than the prior year period reflecting 7% lower grades mined, and a 16% increase in mining cost per tonne.
Mine-site AISC also decreased to $974 per ounce in the fourth quarter, down 5% from the third quarter. For the full year, mine-site AISC averaged $1,017 per ounce. Mine-site AISC were 13% and 22% higher than the prior year quarter and prior year, respectively, reflecting higher total cash costs and higher sustaining capital. Total cash costs and mine-site AISC are both expected to decrease by approximately 6% in 2019.
Capital expenditures were $23.1 million in the fourth quarter, higher than the same quarter of 2017. This included $10.8 million of sustaining capital and $12.3 million of growth capital. Major capital spending in the fourth quarter was focused on lower mine development and lateral development in the upper and lower mines. Capital expenditures of $86.6 million for the twelve-month period were higher than the prior year period and guidance reflecting increased spending on tailings and water management.
Young-Davidson generated mine-site free cash flow of $0.5 million in the fourth quarter and $10.9 million for the full year, lower than the same periods of 2017 due to less ounces sold, lower gross margins and higher capital spending.
8 | Alamos Gold Inc
Island Gold Financial and Operational Review
| Three Months Ended December 31, | Years Ended December 31, | ||
|---|---|---|---|
| 2018 | 2017 (1) | 2018 | 2017 (1) |
Gold production (ounces) (1) 29,000 9,000 105,800 9,000 Gold sales (ounces) (1) 30,199 11,720 105,520 11,720
| Operating Revenues | $37.5 | $14.9 | $135.1 | $14.9 |
| Cost of sales(2) | $28.7 | $13.4 | $106.5 | $13.4 |
| Earnings from operations | $7.8 | $1.5 | $27.2 | $1.5 |
| Cash provided by operating activities | $16.3 | $11.8 | $75.9 | $11.8 |
| Capital expenditures (sustaining)(3) | $8.0 | $1.7 | $20.2 | $1.7 |
| Capital expenditures (growth)(3) | $5.7 | $2.0 | $30.3 | $2.0 |
| Capital expenditures (capitalized exploration)(3) | $3.1 | $1.1 | $15.6 | $1.1 |
| Mine-site free cash flow(3) | ($0.5 ) | $7.0 | $9.8 | $7.0 |
| Cost of sales, including amortization per ounce of gold sold(2) | $950 | $1,143 | $1,009 | $1,143 |
| Total cash costs per ounce of gold sold(3) | $570 | $401 | $589 | $401 |
| Mine-site all-in sustaining costs per ounce of gold sold(3),(4) | $834 | $546 | $781 | $546 |
Underground Operations
| Tonnes of ore mined | 102,692 | 94,407 | 344,336 | 374,962 |
| Tonnes of ore mined per day ("tpd") | 1,116 | 1,026 | 943 | 1,027 |
| Average grade of gold(5) | 8.95 | 9.44 | 9.07 | 9.42 |
| Metres developed | 1,560 | 1,667 | 6,477 | 6,906 |
Mill Operations
| Tonnes of ore processed | 105,432 | 84,559 | 369,767 | 338,603 | |
| Tonnes of ore processed per day | 1,146 | 919 | 1,013 | 928 | |
| Average grade of gold(5) | 9.02 | 8.46 | 9.20 | 9.36 | |
| Contained ounces milled | 30,621 | 23,005 | 109,414 | 101,842 | |
| Average recovery rate | 96 % | 96 % | 96 % | 97 % |
(1) Financial results from Island Gold are included in Alamos’ consolidated financial statements for the period subsequent to November 23, 2017. Gold production from Island Gold for the three and twelve-months ended December 31, 2017 was 22,100 and 98,600 ounces.
(2) Cost of sales includes mining and processing costs, royalties and amortization.
(3) 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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(4) 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.
(5) Grams per tonne of gold ("g/t Au").
Island Gold produced a record 29,000 ounces in the fourth quarter and a record 105,800 ounces for the full year, a 7% increase from 2017. Island Gold exceeded expectations in 2018 with full-year production meeting the mid-point of revised guidance, which had been increased twice during the year.
Underground mining rates increased to 102,692 tonnes, or 1,116 tpd in the fourth quarter. This marked a 37% improvement from the third quarter as mining rates were increased to match the expanded mill capacity. For the fullyear, 344,336 tonnes were mined, or 943 tpd, with mining rates in line with milling capacity prior to completing the mill expansion. Underground mining rates are expected to average 1,100 tpd in 2019, a 17% increase from average mining rates of 943 tpd in 2018. Underground grades mined averaged 8.95 g/t Au in the fourth quarter and 9.07 g/t Au for the full year, the latter above guidance reflecting a positive grade reconciliation.
Mill throughput increased to a new record of 105,432 tonnes, or 1,146 tpd in the fourth quarter reflecting the completion of the Phase I expansion of the mill in September 2018. This marked a 13% increase compared to the third quarter and 25% increase compared to the prior year quarter. The Phase I expansion has increased the design capacity of the mill to approximately 1,200 tpd; however, the operation is currently permitted to operate at an average annual rate of 1,100 tpd. With a mine and mill that can support higher throughput rates, the Company is in the process of permitting an amendment to 1,200 tpd which is expected to be received by the end of 2019 as part of a Phase II expansion. Mill recoveries were 96% for both the fourth quarter and full year, in line with the prior year and budget. Milled grades of 9.02 g/t Au for the quarter and 9.20 g/t Au for the year were consistent with underground grades mined. Milled grades are expected to increase to between 10.50 and 11.50 g/t Au in 2019. Combined with higher mining and milling rates, this is expected to drive a 32% increase in gold production in 2019 (based on the mid-point of guidance).
9 | Alamos Gold Inc
With the Company acquiring Island Gold on November 23, 2017, financial information prior to the acquisition date has not been included in the comparative table above.
Island Gold generated revenues of $37.5 million in the fourth quarter reflecting record gold production and ounces sold. Revenues for the year were $135.1 million compared to $14.9 million in the prior year, which was a partial period. Cost of sales in the fourth quarter and for the full year were $28.7 million and $106.5 million, respectively. Cost of sales includes ongoing amortization charges related to the purchase price of the asset, which increases amortization to approximately $375 per ounce based on current Mineral Reserves and Resources.
Total cash costs were $570 per ounce in the fourth quarter, a 15% improvement from the third quarter of 2018, reflecting lower per tonne mining costs driven by higher mining rates. Full year total cash costs of $589 per ounce were slightly above annual guidance of $575 per ounce reflecting higher underground mining costs, partially offset by higher grades mined. Total cash costs are expected to decrease approximately 19% in 2019 driven by higher grades mined and mining rates.
Mine-site AISC of $834 per ounce in the fourth quarter were slightly above annual guidance of $825 per ounce primarily reflecting the timing of sustaining capital, as spending was below budget for the first half of the year. Full year mine-site AISC of $781 per ounce were below full year guidance reflecting higher production and lower sustaining capital. Capital expenditures totaled $16.8 million in the fourth quarter, with spending focused primarily on lateral development, mining equipment, and capitalized exploration. This included $8.0 million of sustaining capital and $8.8 million of growth capital (inclusive of capitalized exploration). For 2018, capital expenditures totaled $66.1 million, consistent with guidance. This included $15.6 million of capitalized exploration focused on increasing near-mine Mineral Resources. Mine-site free cash flow was negative $0.5 million during the fourth quarter due to timing of capital spending. For 2018, Island Gold generated mine-site free cash flow of $9.8 million, ahead of budget driven by stronger than expected production. Island Gold is expected to generate strong free cash flow growth in 2019 driven by higher production and lower costs.
10 | Alamos Gold Inc
Mulatos Financial and Operational Review
| Three Months Ended December 31, | Years Ended December 31, | ||
|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 |
Gold production (ounces) 35,600 42,700 175,500 160,000 Gold sales (ounces) 38,819 50,006 175,104 159,276
| Operating Revenues | $48.1 | $64.0 | $223.3 | $201.4 |
| Cost of sales(1) | $38.4 | $47.7 | $173.1 | $153.0 |
| Earnings from operations | $8.8 | $14.5 | $42.7 | $41.7 |
| Cash provided by operating activities | $14.7 | $22.3 | $71.0 | $64.3 |
| Capital expenditures (sustaining)(2) | $2.5 | $0.9 | $7.2 | $5.5 |
| Capital expenditures (growth)(2) | $8.7 | $7.1 | $25.2 | $19.0 |
| Capital expenditures (capitalized exploration)(2) | $0.6 | $1.0 | $2.9 | $6.9 |
| La Yaqui Phase I construction cost(2) | $— | $— | $— | $12.5 |
Mine-site free cash flow, excluding La Yaqui construction $2.9 $13.3 $35.7 $32.9 costs (2)
| Cost of sales, including amortization per ounce of gold sold(1) | $989 | $954 | $989 | $961 |
| Total cash costs per ounce of gold sold(2) | $793 | $762 | $786 | $775 |
| Mine site all-in sustaining costs per ounce of gold sold(2),(3) | $881 | $798 | $855 | $835 |
Open Pit & Underground Operations
| Tonnes of ore mined - open pit(4) | 2,118,300 | 2,575,306 | 8,479,211 | 8,485,933 | |
| Total waste mined - open pit | 1,081,811 | 1,719,986 | 6,037,427 | 6,443,971 | |
| Total tonnes mined - open pit | 4,270,049 | 4,515,673 | 17,267,699 | 15,566,165 | |
| Waste-to-ore ratio (operating) | 0.51 | 0.67 | 0.71 | 0.76 | |
| Tonnes of ore mined - underground | 0 | 23,238 | 48,772 | 100,701 |
Crushing and Heap Leach Operations
| Tonnes of ore stacked | 1,776,719 | 1,745,513 | 6,795,175 | 6,796,155 |
| Average grade of gold processed(5) | 0.92 | 0.91 | 0.90 | 0.92 |
| Contained ounces stacked | 52,296 | 51,242 | 195,606 | 201,222 |
Mill Operations
| Tonnes of high grade ore milled | 0 | 31,449 | 91,680 | 133,328 |
| Average grade of gold processed(5) | 0.00 | 8.15 | 6.70 | 9.42 |
| Contained ounces milled | 0 | 8,238 | 19,744 | 40,378 |
| Total contained ounces stacked and milled | 52,296 | 59,480 | 215,350 | 241,600 |
Recovery ratio (ratio of ounces produced to contained ounces 68 % 72 % 81 % 66 % stacked and milled)
Ore crushed per day (tonnes) - combined 19,300 19,300 18,900 19,000
(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. Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
(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 ore stockpiled during the quarter.
(5) Grams per tonne of gold ("g/t Au").
Mulatos produced 35,600 ounces in the fourth quarter, a decrease from the first three quarters of the year as mining from the San Carlos underground deposit ceased in the third quarter. For the full year, Mulatos produced 175,500 ounces meeting the mid-point of revised guidance, which was increased twice during the year. Mulatos outperformed initial guidance and budget with the San Carlos underground mine operating approximately six months longer than expected, as well as higher than budgeted heap leach recoveries from both Mulatos and La Yaqui Phase I. With no further production from San Carlos, the Company expects 2019 production to return to the previously guided long term range of 150,000 to 160,000 ounces.
Total tonnes mined in the fourth quarter were 6% lower than the prior year quarter, due to an unexpected pit slope movement in the El Salto area of the open pit which temporarily impacted access to the Mulatos pit. On a year-to-date basis, total tonnes mined were 11% higher than 2017 reflecting a full year of mining at La Yaqui Phase I compared to one quarter in the prior year. The waste-to-ore ratio of 0.51:1 was lower than the prior year quarter and guidance. Total crusher throughput averaged 19,300 tpd for a total of 1,776,719 tonnes stacked in the fourth quarter at a grade of 0.92 g/t Au, both in line with the prior year period. Total crusher throughput and grade for the year was also in line with the prior year period, and slightly above guidance.
11 | Alamos Gold Inc
The recovery ratio of ounces produced to contained ounces stacked and milled was 68% in the quarter compared to 72% in the prior year period. For the full-year, the recovery ratio of 81% significantly outperformed guidance of 75%, resulting in stronger production for the year. The Company expects a recovery ratio of 70% in 2019.
Financial Review Fourth quarter revenues of $48.1 million were $15.9 million lower than the prior year quarter, primarily due to lower concentrate ounces sold in 2018 with the completion of mining at San Carlos in September. Revenues for 2018 were $223.3 million, an 11% increase from the prior year due to higher realized gold prices and ounces sold.
Cost of sales of $38.4 million in the fourth quarter were lower than the prior year period, due to lower tonnes mined in the open pit and the completion of underground mining at San Carlos. For the full year of 2018, cost of sales of $173.1 million were higher than the prior year reflecting higher total tonnes mined and increased amortization related to mining at La Yaqui Phase I.
Total cash costs of $793 per ounce in the fourth quarter were higher than $762 per ounce in the prior year quarter, as a result of lower recoveries, partially offset by a lower strip ratio. Total cash costs averaged $786 per ounce in 2018, below full year guidance of $800 per ounce and consistent with 2017 costs of $775 per ounce.
Mine-site AISC in the fourth quarter of $881 per ounce were higher than the $798 per ounce reported in the prior year quarter, due to timing of sustaining capital spending and higher cash costs. Mine-site AISC averaged $855 per ounce in 2018, below guidance of $900 per ounce and consistent with the prior year period.
Mulatos generated mine-site free cash flow of $2.9 million in the fourth quarter and $35.7 million for the full year, driven by stronger than expected production, and increased operating margins. A portion of Mulatos' strong cash flow in 2018 was invested in permitting and early construction activities at Cerro Pelon, advancing permitting at La Yaqui Grande, as well as funding ongoing exploration activities.
12 | Alamos Gold Inc