Alamos Gold Reports Fourth Quarter and Year-End 2016 Results
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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 Fourth Quarter and Year-End 2016 Results
Toronto, Ontario ( February 23 , 201 7) - Alamos Gold Inc. (TSX:AGI; NYSE:AGI ) (“Alamos” or the “Company”)
today reported its financial results for the quarter and year ended December 31, 2016 and reviewed its operating,
exploration and development activities.
“We demonstrated a significant improvement in our operations in 2016 on several fronts. Production increased to a
record 392,000 ounces and we delivered a substantial reduction in operating costs and capital spending. This
translated into strong free cash flow growth from our operations, a trend we expect to continue into 2017 with
further production growth and cost reductions,” said John A. McCluskey, President and Chief Executive Officer.
“The two feasibility studies provided over the past week highlight the strength of our development pipeline with two
of the most attractive undeveloped projects in the world. With our recently completed fin ancing, we’ve greatly
strengthened our balance sheet . We expect to be debt free come April and well positioned to support our portfolio
of attractive internal growth opportunities including La Yaqui Grande, our Turkish projects and Lynn Lake ,” Mr.
McCluskey added.
Fourth Quarter 2016 Highlights
Reported record quarterly production of 105,676 ounces of gold, including 44,662 ounces from Young -
Davidson, 44,900 ounces from Mulatos and 16,114 ounces from El Chanate
Underground mining rates increased to average a record of 6,675 tonnes per day ("tpd") in the fourth
quarter at Young-Davidson, and over 7,000 tpd in December, consistent with the year-end target
Sold 107,505 ounces of gold at an average realized price of $1,230 per ounce for record revenues o f
$132.2 million
Realized a net loss of $20.6 million, or $0.08 per share, which includes an unrealized foreign exchange loss
of $7.2 million ($0.03 per share), foreign exchange losses recognized within deferred taxes of $8.6 million
($0.03 per share) and various non -cash gains included in Other gains, totaling $1.9 million ($0.01 per
share)
Recorded cash flow from operating activities before changes in working capital 1 of $34.0 million, or $0.13
per share
Generated positive free-cash flow at each of the Co mpany's operations for total mine -site free cash flow1 of
$13.5 million, net of all capital and exploration spending
Total cash costs 1 in the fourth quarter were $842 per ounce of gold sold and all -in sustaining costs
("AISC")1 were $1,033 per ounce of gold sold
Cash and cash equivalents and available-for-sale securities totaled $266.3 million as at December 31, 2016
Full Year 2016 Highlights
Achieved guidance with record gold production of 392,000 ounces in 2016 at total cash costs of $797 per
ounce. AI SC were $1,010 per ounce , slightly above guidance due to higher stock -based compensation
charges driven by mark -to-market revaluation of long -term incentives, and higher mine -site AISC at Young-
Davidson
Sold 389,151 ounces of gold at an average realized price of $1,239 per ounce for revenues of $482.2
million
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(1) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release for a description and calculation of these measures.
Realized a net loss of $17.9 million, or $0.07 per share. This included an unrealized foreign exchange loss
of $10.9 million ($0.04 per share) and various non -cash gains included in Other gains, totaling $5.5 million
($0.02 per share)
Generated positive free-cash flow at each of the C ompany's operations for total mine -site free cash flow1 of
$35.4 million for the year, including $26.8 million from Mulatos, net of all capital and exploration spending
Returned $5.4 million in the form of dividends to shareholders
Obtained the EIA approval for Phase I of the La Yaqui project in Mexico
Closed the acquisition of Carlisle Goldfields Limited (“Carlisle”), consolidating ownership of the Lynn Lake
project for $20.4 million
Highlight Summary
Three Months Ended
December 31, Years Ended December 31,
2016 2015 2016 2015(1)
Financial Results (in millions)
Operating revenues $132.2 $115.7 $482.2 $355.1
Cost of sales (2) $121.6 $139.9 $429.3 $384.0
Earnings (loss) from operations $3.5 ($55.5 ) $21.3 ($492.6 )
Net loss ($20.6 ) ($60.5 ) ($17.9 ) ($508.9 )
Cash provided by operations before changes in working capital (3) $34.0 $17.0 $148.0 $65.3
Cash provided by operating activities $38.3 $23.3 $135.7 $60.0
Capital expenditures (sustaining) (3) $12.3 $19.0 $49.2 $68.2
Capital expenditures (growth) (3),(4) $25.2 $21.7 $97.3 $94.9
Operating Results
Gold production (ounces) (1) 105,676 104,734 392,000 380,000
Gold sales (ounces) (1) 107,505 104,419 389,151 382,772
Per Ounce Data
Average spot gold price (London PM Fix) $1,222 $1,106 $1,251 $1,160
Average realized gold price (5) $1,230 $1,109 $1,239 $1,148
Cost of sales per ounce of gold sold (includes amortization) (2) $1,131 $1,340 $1,103 $1,241
Total cash costs per ounce of gold sold (3) $842 $780 $797 $766
All-in sustaining costs per ounce of gold sold (3) $1,033 $1,073 $1,010 $1,091
Share Data
Loss per share, basic and diluted ($0.08 ) ($0.24 ) ($0.07 ) ($2.62 )
Weighted average common shares outstanding (basic and diluted) (000’s) 267,067 255,858 265,234 194,121
Financial Position as at December 31 (in millions)
Cash and cash equivalents $252.2 $282.9
Total debt and equipment financing obligations $304.9 $320.3
(1) The 2015 financial results from Mulatos are included in Alamos’ consolidated financial statements for the period subsequent t o the merger of Alamos Gold Inc.
and AuRico Gold Inc, on July 2, 2015. Gold production and gold sales from Mulatos have been included in this table for periods prior to July 2, 2015 for
comparative purposes. Gold production from Mulatos for the year ended December 31, 2015 was 140,330 ounces. Gold sales for th e year ended December 31,
2015 were 147,035 ounces.
(2) Cost of sales includes mining and processing costs, royalties, and amortization expense
(3) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release for a description and calculation of these
measures.
(4) Includes capitalized exploration.
(5) The comparative 2015 average realized price is exclusive of gold sales from Mulatos for the year ended December 31, 2015, as Mulatos sales were only included
from July 2, 2015 on-ward.
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Three Months Ended
December 31, Years Ended December 31,
2016 2015 2016 2015(1)
Gold production (ounces)
Young-Davidson 44,662 44,694 170,000 160,358
Mulatos (1) 44,900 41,830 154,000 140,330
El Chanate 16,114 18,210 68,000 79,312
Gold sales (ounces)
Young-Davidson 40,934 41,509 168,979 157,161
Mulatos (1) 50,178 44,135 151,337 147,035
El Chanate 16,393 18,775 68,835 78,576
Cost of sales (in millions)(5)
Young-Davidson $44.1 $41.0 $183.7 $182.6
Mulatos (1) $56.8 $47.8 $164.6 $83.2
El Chanate $20.7 $51.1 $81.0 $118.2
Cost of sales per ounce of gold sold (includes amortization) (2),(5)
Young-Davidson $1,077 $988 $1,087 $1,162
Mulatos(1) $1,132 $1,083 $1,088 $1,128
El Chanate $1,263 $2,722 $1,177 $1,504
Total cash costs per ounce of gold sold (2)
Young-Davidson $667 $617 $657 $683
Mulatos (1) $877 $843 $838 $869
El Chanate $1,171 $994 $1,052 $808
Mine-site all-in sustaining costs per ounce of gold sold (2),(3)
Young-Davidson $926 $980 $897 $986
Mulatos(1) $931 $958 $916 $1,047
El Chanate $1,190 $1,009 $1,069 $978
Capital expenditures (growth and sustaining) (in millions)(2)
Young-Davidson $22.6 $26.4 $94.6 $108.1
Mulatos (1),(4) $9.5 $8.8 $32.9 $45.0
El Chanate $0.2 $0.2 $0.8 $13.7
Other $5.2 $5.3 $18.2 $23.0
(1) 2015 financial results from Mulatos are included in Alamos’ consolidated financial statements for the period subsequent to Ju ly 2, 2015 only. Operating, cost and
capital metrics from prior ownership have been added for comparative purposes only.
(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release for a description and calculation of these
measures.
(3) For the purposes of calculating mi ne-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.
(5) Cost of sales includes mining and processing costs, royalties and amortization.
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Outlook and Strategy
Young-
Davidson Mulatos El Chanate Development Total
Gold production (000’s ounces) 200-210 150-160 50-60 — 400-430
Cost of sales, including amortization (in millions)(4) $215 $157 $70 — $442
Cost of sales, including amortization ($ per ounce)(4) $1,050 $1,015 $1,265 — $1,065
Total cash costs ($ per ounce)(1) $625 $815 $1,200 — $765
All-in sustaining costs ($ per ounce)(1) — $940
Mine-site all-in sustaining costs ($ per ounce)(1),(3) $775 $890 $1,200 — —
Capital expenditures (in millions)
Sustaining capital(1) $30-35 $8-10 $2 — $40-47
Growth capital(1) $40-45 $25-30 (2) — $35 $100-110
Total capital expenditures(1) $70-80 $33-40 $2 $35 $140-$157
(1) Refer to the "Non-GAAP Measures and Additional GAAP" disclosure at the end of this press release for a description of these measures.
(2) Excludes capitalized exploration.
(3) For the purposes of calculating mine -site all -in sustaining costs at individual mine sit es, 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
The Company's core focus remains on maximizing cash flow from its operations through increased production,
margin expansion, and capital reductions, as well as advancing its portfolio of low -cost development projects.
Gold production is expected to increase to a range of 400,000 to 430,0 00 ounces in 2017, a 6% increase from 2016
(based on the mid -point of guidance). All -in sustaining costs are expected to decrease 7% to $940 per ounce,
reflecting further cost reductions at both Young -Davidson and Mulatos. Excluding higher cost production from El
Chanate, all-in sustaining costs are expected to decrease to $890 per ounce.
Total capital spending for the Company’s operating mines is expected to decrease to between $105 and $122
million, a reduction from $128 million in 2016, even after factor ing in $12 million of development spending for La
Yaqui Phase I in 2017. Exploration remains a focus with a 2017 global exploration budget of $24 million of which
approximately $17 million will be spent at Mulatos.
The Company generated over $35 million in mine site free cash flow in 2016, a substantial increase from 2015
reflecting higher production and gold prices combined with significant cost and capital reductions. This trend is
expected to continue into 2017 with further production growth and cost reductions driven by the ramp up of Young-
Davidson and development of La Yaqui Phase I.
At Young-Davidson, gold production is expected to increase approximately 21% in 2017 to between 200,000 and
210,000 ounces. Underground mining rates are expected to increa se from an average rate of approximately 6,000
tpd in 2016 to a range of between 6,500 and 7,500 tpd in 2017.
Total cash costs at Young-Davidson are expected to average $625 per ounce of gold sold in 2017. Mine -site all-in
sustaining costs are expected to average $775 per ounce, a 14% decrease from 2016 levels reflecting higher
underground mining rates, ongoing productivity improvements and lower sustaining capital spending. Capital
spending of $95 million in 2016 was on budget and is expected to decrease a pproximately $20 million to a range of
$70 to $80 million in 2017, including $30 to $35 million of sustaining capital.
Mulatos is expected to produce 150,000 to 160,000 ounces of gold in 2017, a slight increase from 2016 production
of 154,000 ounces. Margi ns are expected to improve, with mine -site all-in sustaining costs expected to decline to
$890 per ounce. Capital spending is expected to total $33 to $40 million, which includes $12 million for the
development of La Yaqui Phase I and $8 to $10 million of sustaining capital.
Development of La Yaqui Phase I is on schedule for initial production in the second half of 2017. With contract
mining and crushing to be employed, construction activities are focused on completion of an independent heap
leach pad and carbon columns. In parallel to the development of Phase I, the Company is continuing with an
aggressive exploration program at La Yaqui Grande.
The Company remains focused on expanding its footprint at Mulatos, with approximately $17 million budgeted for
exploration in 2017. The majority of the Mulatos exploration budget will be focused on the La Yaqui and Cerro
Pelon deposits, with scout drill programs established at Los Bajios, El Refugio, and other targets within the Mulatos
district.
Mulatos benefited from significant cost improvements over the past year with AISC decreasing 13% in 2016
compared to 2015. A further reduction is expected in 2017 driven by low cost production growth from La Yaqui
Phase I starting in the second half of 2017. This trend is expected to continue beyond 2017 as La Yaqui evolves
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into a larger operation and with the 5% net smelter royalty at Mulatos expected to be eliminated within the next two
years.
El Chanate is expected to produce 50,000 to 60,000 ounces of gold in 2017 at m ine-site all-in sustaining costs of
$1,200 per ounce, with significant variability through the year. In light of the higher cost structure at El Chanate, the
Company has hedged approximately 75% of its 2017 gold production through gold collar contracts wh ich ensure a
minimum gold price of $1,225 per ounce and participation up to a price of $1,450 per ounce.
Development spending in 2017 remains focused on the Company's highest priority targets. This includes
completing a feasibility study for Lynn Lake in t he third quarter of 2017, and with the Environmental Impact
Assessment and Forestry Permits for Kirazlı approved by the federal government, pursuing the GSM (Business
Opening and Operation) permit for our Kirazli project.
With the completion of the equity financing in February 2017, the Company has increased its cash and available -
for-sale securities position significantly since December 31, 2016. The Company intends to use the net proceeds of
the financing of $239 million, along with existing cash, to rep ay all of its outstanding $315 million senior secured
7.75% high yield notes on April 1, 2017, resulting in annual interest savings of $24.4 million. Upon repayment of the
high yield notes, the Company will be debt -free with a substantial net cash and avai lable-for-sale securities position
and additional liquidity under its revolving credit facility, available for future growth projects.
Fourth Quarter and Full Year 2016 Results
Young-Davidson Operational and Financial Review
Three Months Ended
December 31, Years Ended December 31,
2016 2015 2016 2015
Gold production (ounces) 44,662 44,694 170,000 160,358
Gold sales (ounces) 40,934 41,509 168,979 157,161
Financial Review (in millions)
Operating Revenues $51.2 $46.2 $211.9 $182.1
Cost of sales (1) $44.1 $41.0 $183.7 $182.6
Earnings (loss) from operations $7.1 $5.7 $28.2 ($326.5 )
Cash provided by operating activities $26.0 $20.7 $98.4 $84.7
Capital expenditures (sustaining) (2) $10.5 $14.7 $40.0 $47.0
Capital expenditures (growth) (2) $12.1 $11.7 $54.6 $61.1
Free cash flow (2) $3.4 ($5.7 ) $3.8 ($23.4 )
Cost of sales, including amortization per ounce of gold sold (1) $1,077 $988 $1,087 $1,162
Total cash costs per ounce of gold sold (2) $667 $617 $657 $683
Mine-site all-in sustaining costs per ounce of gold sold (2),(3) $926 $980 $897 $986
Underground Operations
Tonnes of ore mined 614,101 543,825 2,199,857 1,851,492
Tonnes of ore mined per day 6,675 5,911 6,011 5,073
Average grade of gold (4) 2.40 2.58 2.54 2.67
Metres developed 3,044 3,769 12,379 14,586
Unit mining costs per tonne $32 $27 $33 $32
Unit mining costs per tonne (CAD$) $42 $35 $43 $40
Mill Operations
Tonnes of ore processed 694,753 701,983 2,629,032 2,753,893
Tonnes of ore processed per day 7,552 7,630 7,183 7,545
Average grade of gold (4) 2.18 2.17 2.19 2.02
Contained ounces milled 48,755 49,036 184,928 178,623
Average recovery rate 90 % 91 % 91 % 89 %
(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 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").
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Young-Davidson produced 44,662 ounces of gold in the fourth quarter of 2016, in line with the same period of 2015
and 2% higher than the third quarter. Fourth quarter gold production reflects record mining rates and highe r mill
throughput, partially offset by lower head grades. In 2016, Young -Davidson produced a record 170,000 ounces of
gold, a 6% increase compared to 2015, reflecting the higher proportion of underground ore feeding the mill as well
as improved mill recoveries.
Underground mining rates in the fourth quarter improved significantly following completion of the rehabilitation work
required on the ore and waste systems in the second and third quarters. The Company mined a record 614,101
tonnes of ore from underground in the fourth quarter of 2016, or 6,675 tpd. The month of December saw the highest
monthly average mining rates on record, exceeding the year -end target of 7,000 tpd. For the full year, underground
mining rates averaged 6,011 tpd, 18% above the sam e period of 2015, but below plan due to the above mentioned
rehabilitation work. Underground mining rates are expected to average between 6,500 and 7,500 tpd in 2017.
Mining rates are expected to trend higher through the year with the completion of the MC M waste pass by mid -
2017.
Underground mined grade in the fourth quarter of 2016 was 2.40 g/t Au, a decrease from the first nine months of
the year due to mine sequencing. In 2016, the underground mined grade was 2.54 g/t Au, a 5% decrease from
2015. Underground grades are expected to revert back to reserve levels in 2017 as higher grade stopes are mined.
During the fourth quarter of 2016, 694,753 tonnes, or 7,552 tpd were processed through the mill with grades
averaging 2.18 g/t Au. The Company completed testing of new liners designed to minimize wear and maintenance
and reduce costs in the third quarter, which resulted in a significant improvement in mill throughput in the fourth
quarter, with the month of December averaging close to 8,000 tpd. For the full year, mill throughput averaged 7,183
tpd, below 2015 mill throughput. The mill continues to exceed underground mining rates, with excess capacity in the
mill processing lower grade stockpiled ore. The Company expects mill throughput to be in the range o f 7,600 to
8,000 tpd in 2017.
Mill recoveries were in line with expectations at 90% in the fourth quarter of 2016 compared to full year results of
91%. Recoveries in 2016 benefited from changes implemented to the circuit at the beginning of the year, resu lting
in a 2% improvement compared to an 89% average recovery in 2015.
Financial Review
For the three months ended December 31, 2016, revenue of $51.2 million was $5.0 million or 11% higher than the
prior-year period due to higher realized gold prices. For the year ended December 31, 2016, revenue of $211.9
million was $29.8 million, or 16% higher than the prior year, attributable to both higher gold sales and higher
realized gold prices.
For the three months ended December 31, 2016, cost of sales of $4 4.1 million was $3.1 million higher than prior -
year period as a result of higher mining rates, maintenance costs and amortization. Cost of sales reflects mining
and processing costs, royalties, and amortization expense. For the year ended December 31, 201 6, cost of sales
of $183.7 million was consistent with the prior year as higher cost of sales associated with an increase in number of
ounces sold in 2016 were offset by net realizable value adjustments recorded in 2015.
Total cash costs in the fourth quar ter of 2016 were $667 per ounce, representing an 8% increase from the same
period of 2015. The increase was primarily attributable to higher maintenance costs and an increase in the number
of stopes mined during 2016 relative to the prior year. Undergroun d unit mining costs were $32 per tonne in the
fourth quarter of 2016, 19% higher than in the fourth quarter of 2015 as unit mining costs in the fourth quarter of
2015 benefited from a one -time hydro rebate. Mine -site AISC were $926 per ounce, or 6% below the prior year
period, reflecting lower sustaining capital and a higher number of ounces sold.
For the year ended December 31, 2016, total cash costs were $657 per ounce, representing a 4% decrease from
the same period of 2015. The lower costs in the year were driven by stronger production reflecting improved
recoveries in the mill and higher milled grades due to improved underground throughput, offset by increased
maintenance costs associated with the ore and waste pass rehabilitation work. Mine -site AISC of $897 per ounce
were 9% lower than the prior year, reflecting the above, as well as lower sustaining capital.
Capital expenditures totaled $22.6 million in the quarter and $94.6 million for the year, within the Company's capital
spending guidance range for 2016 and down $13.5 million from 2015. Spending in the year was focused on lateral
development, completion of the MCM shaft, underground equipment, and a tailings dam raise. Of the total capital
expenditures, $40.0 million related to sustaining capital and $54.6 million related to growth capital, both in line with
guidance. Capital spending at Young -Davidson is expected to total between $70 and $80 million in 2017, a
significant reduction from 2016 levels.
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With better control of capital spending in 201 6, Young-Davidson generated positive free cash flow of $3.4 million for
the quarter, the third straight quarter of positive free cash flow. Higher underground mining rates, improved mill
throughput and higher head grades are expected to drive stronger production and free cash flow in 2017.
Mulatos Operational and Financial Review
Three Months Ended
December 31, Years Ended December 31,
2016 2015 2016 2015
Gold production (ounces) 44,900 41,830 154,000 140,330
Gold sales (ounces) 50,178 44,135 151,337 147,035
Financial Review (in millions)
Operating Revenues $60.8 $48.6 $187.3 $81.9
Cost of sales (1) $56.8 $47.8 $164.6 $83.2
Earnings (loss) from operations $3.3 $2.9 $20.7 ($1.9 )
Cash provided by (used in) operating activities $19.6 $10.2 $59.7 ($0.7 )
Capital expenditures (sustaining) (2) $1.6 $4.1 $8.4 $8.4
Capital expenditures (growth) (2),(7) $7.9 $4.7 $24.5 $9.9
Free cash flow (2) $10.1 $1.4 $26.8 ($19.0 )
Cost of sales, including amortization per ounce of gold sold (1) $1,132 $1,083 $1,088 $1,885
Total cash costs per ounce of gold sold (2) $877 $843 $838 $869
Mine site all-in sustaining costs per ounce of gold sold (2),(3) $931 $958 $916 $1,047
Open Pit & Underground Operations
Tonnes of ore mined - open pit (4) 1,795,562 1,715,632 7,034,978 6,873,555
Total waste mined - open pit (5) 2,614,810 1,822,666 9,184,468 7,678,864
Total tonnes mined - open pit 4,410,372 3,538,298 16,396,080 14,552,419
Waste-to-ore ratio (operating) 1.46 1.06 1.31 1.12
Tonnes of ore mined - underground 25,139 41,455 122,516 138,159
Crushing and Heap Leach Operations
Tonnes of ore crushed and placed on the heap leach pad 1,709,346 1,583,928 6,552,742 6,260,917
Average grade of gold processed (6) 0.81 0.94 0.81 0.87
Contained ounces stacked on the heap leach pad 44,609 47,715 170,600 174,316
Mill Operations
Tonnes of high grade ore milled 33,867 40,512 133,720 110,136
Average grade of gold processed (6) 9.76 19.41 11.23 13.22
Contained ounces milled 10,623 25,214 48,284 46,744
Total contained ounces stacked and milled 55,232 72,929 218,884 221,060
Recovery ratio (ratio of ounces produced to contained ounces stacked and
milled) 81 % 57 % 70 % 63 %
Ore crushed per day (tonnes) - combined 18,900 17,700 18,300 17,500
(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 for a description and calculation of these measures. T otal 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) Excludes tonnes capitalized.
(6) Grams per tonne of gold ("g/t Au").
(7) Includes capitalized exploration.
Mulatos produced 44,900 ounces of gold in the fourth quarter of 2016, a significant increase from both the third
quarter of 2016 and fourth quarter of 2015. Production from the heap leach operation was strong reflecting the
recovery of deferred production from the third quarter rainy season, and higher recoveries of ore that was stacked
on new interlift liners in the fourth quarter. In addition, the mill circuit contributed to an increase in fourth quarter
production as h igher recoveries were realized from the mill through the production of concentrate. Production for
the full year totaled 154,000 ounces and exceeded the top end of production guidance. This marked a significant
improvement from 2015, reflecting stronger m ill recoveries due to the reconfiguration of the mill circuit to produce a
flotation concentrate.
The open pit, heap leach operation continued to perform well during the fourth quarter with total crusher throughput
averaging 18,900 tpd, significantly highe r than the third quarter of 2016 as the rainy season subsided. The grade of
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crushed ore stacked on the leach pad in the fourth quarter of 0.81 g/t Au was lower than the annual budget due to
mine sequencing in the El Victor pit.
Milled throughput in the f ourth quarter of 2016 was 33,867 tonnes at an average grade of 9.76 g/t Au. Tonnes
processed through the mill exceeded tonnes mined from underground as high -grade stockpiles were drawn down.
Stockpiles will continue to supplement underground ore production into 2017. The reconfigured mill circuit is
performing well with the mill expected to operate at approximately 400 tpd through 2017. The sale of gold
concentrate in the fourth quarter was higher than production as the mine reduced its inventory of concent rate from
8,000 ounces at the end of September to approximately 5,000 ounces by year -end 2016.
The ratio of ounces produced to contained ounces stacked and milled (or recovery ratio) was 81% in the fourth
quarter, well-above annual guidance, bringing the a nnual recovery ratio to 70%. This was above full year guidance
of 67% reflecting the higher recoveries achieved from the mill following the transition to concentrate production
Financial Review
For the three months ended December 31, 2016, revenue of $60.8 million was $12.2 million, or 25% higher than the
prior-year period. This increase reflects a higher number of ounces sold from concentrate, as well as the benefit of
higher realized gold prices. For the year ended December 31, 2016, revenue of $187.3 m illion was $105.4 million
higher than the prior year period, due to a full year of gold sales at Mulatos included in the financial statements in
2016, compared to only six months of gold sales at Mulatos included in 2015 subsequent to the July 2015 merger.
For the three months ended December 31, 2016, cost of sales of $56.8 million were higher than the prior -year
period due to a higher number of ounces sold in 2016, as well as higher mining costs, partially offset by a weaker
Mexican Peso. For the year end ed December 31, 2016, cost of sales were $164.6 million, higher than 2015 due to
the prior-year period reflecting only the six months of operations.
Total cash costs of $877 per ounce in the fourth quarter of 2016 were higher than the $843 per ounce report ed in
the same period of 2015, reflecting a higher waste -to-ore ratio and operating costs, partially offset by a weaker
Mexican Peso and improved combined recoveries. Mine -site AISC in the quarter were $931 per ounce, lower than
the same period of 2015 as a result of lower sustaining capital. For 2016, total cash costs and mine -site AISC were
$838 and $916 per ounce, respectively, which were below cost guidance and an improvement relative to 2015
reflecting lower sustaining capital spending and a weaker Mexican Peso throughout the year.
Mulatos had another strong quarter, generating $10.1 million in free cash flow, which is net of $4.8 million in
exploration and development spending at La Yaqui and Cerro Pelon. For the year ended December 31, 2016,
Mulatos generated $26.8 million in free cash flow, net of $18.4 million in exploration and development spending at
La Yaqui and Cerro Pelon. The site's free cash flow reflects improved concentrate production, lower costs, and
higher realized gold prices. The Co mpany expects strong production and free cash flow in 2017, even after
factoring in approximately $12 million for the construction of La Yaqui Phase I. and investing over $17 million in
exploration.