Alamos Reports Third Quarter 2017 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 Third Quarter 2017 Results
Toronto, Ontario ( November 2 , 201 7) - Alamos Gold Inc. (TSX:AGI; NYSE:AGI ) (“Alamos” or the “Company”)
today reported its financial results for the third quarter ended September 30, 201 7 and reviewed its operating,
exploration and development activities.
“Alamos achieved several milestones in the third quarter including record gold production and our lowest costs and
best financial performance in years. This was driven by a breakout quarter from Young-Davidson, which set several
new records. We expect this strong performance to continue into the fourth quarter and remain on track to achieve
full year production and cost guidance,” said John A. McCluskey, President and Chief Executive Officer.
“Within our development portfolio, we achieved initial production at La Yaqui ahead of schedule and commenced
early stage construction activities at our Kirazlı project. We also announced the acquisition of Richmont Mines
through which we are building a stronger and more profitable company. With a growing production base, low cost
profile and excellent exploration potential, we believe the Richmont acquisition will be a significant source of value
creation for shareholders,” Mr. McCluskey added.
Third Quarter 2017 Highlights
Announced the proposed acquisition of Richmont Mines Inc. (“Richmont”) and its Island Gold mine, a high -
grade, low cost, long life asset in Ontario, Canada
Produced a record 107,000 ounces of gold at cost of sales of $1,000 per ounce, total cash costs 1 of $720
per ounce and all -in sustaining costs ("AI SC")1 of $884 per ounce. This included record gold production of
55,800 ounces at Young-Davidson, 36,300 ounces at Mulatos and 14,900 ounces at El Chanate
Sold 100,551 ounces of gold at an average realized price of $1,281 per ounce, $3 above the London PM
fix, for revenues of $128.8 million
Reported net earnings of $28.8 million, or $0.10 per share, the strongest quarterly earnings since the
Company's merger with AuRico Gold in July 2015. Earnings in the quarter included unrealized foreign
exchange gains o f $12.8 million ($0.04 per share) recorded within both deferred taxes and foreign
exchange
Generated cash flow from operating activities of $43.4 million ($51.3 million before changes in working
capital1), driven by lower cash costs resulting in stronger operating margins
Significantly reduced mine-site AISC at Young-Davidson to a record low level of $744 per ounce, a 17% or
$151 per ounce decrease compared to the second quarter of 2017
Generated $20.9 million in free cash flow from the mine sites, including a record $13.3 million at Young-
Davidson
Ended the quarter with $167.7 million in cash and cash equivalents and equity securities
Enhanced liquidity with an amendment to the Company's undrawn revolving credit facility, increasing the
size of the facility to $400 million with an expanded syndicate of eight banks on peer-leading terms
Completed construction of La Yaqui Phase I on budget and ahead of schedule, with the first gold pour in
August 2017
Announced a semi-annual dividend of $0.01 per share, or $3.0 million in September 2017, payable on
October 31, 2017
Completed a flow -through financing for gross proceeds of $11.7 million in July 2017, at an average issue
price of CAD$11.52 per share
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(1) Refer to the “Non -GAAP Measures and Additional GAAP Meas ures” disclosure at the end of this press release for a description and calculation of these
measures.
Highlight Summary
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Financial Results (in millions)
Operating revenues $128.8 $125.6 $381.1 $350.0
Cost of sales (1) $100.6 $102.2 $320.2 $307.7
Earnings from operations $20.9 $17.2 $38.9 $17.8
Net earnings $28.8 $4.8 $31.3 $2.7
Cash provided by operations before working capital and
cash taxes(2) $51.3 $46.1 $130.6 $114.0
Cash provided by operating activities $43.4 $36.7 $114.9 $97.4
Capital expenditures (sustaining) (2) $10.8 $12.5 $31.2 $36.9
Capital expenditures (growth) (2),(3) $27.4 $24.7 $92.1 $72.1
Operating Results
Gold production (ounces) 107,000 99,228 309,100 286,324
Gold sales (ounces) 100,551 94,791 303,329 281,646
Per Ounce Data
Average realized gold price $1,281 $1,325 $1,256 $1,243
Average spot gold price (London PM Fix) $1,278 $1,335 $1,251 $1,261
Cost of sales per ounce of gold sold
(includes amortization) (1) $1,000 $1,078 $1,056 $1,093
Total cash costs per ounce of gold sold (2) $720 $785 $777 $780
All-in sustaining costs per ounce of gold sold (2) $884 $979 $946 $1,002
Share Data
Earnings per share, basic $0.10 $0.02 $0.11 $0.01
Weighted average common shares outstanding (basic)
(000’s) 300,448 266,969 294,853 264,619
Financial Position (in millions)
Cash and cash equivalents $149.0 $273.9
Total debt and equipment financing obligations $4.3 $307.6
(1) Cost of sales includes mining and processing costs, royalties, and amortization expense.
(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 and La Yaqui Phase I development.
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Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gold production (ounces)
Young-Davidson 55,800 43,629 143,500 125,338
Mulatos 36,300 38,500 117,300 109,100
El Chanate 14,900 17,099 48,300 51,886
Gold sales (ounces)
Young-Davidson 55,267 44,287 145,462 128,045
Mulatos 30,330 33,562 109,270 101,159
El Chanate 14,954 16,942 48,597 52,442
Cost of sales (in millions)(1)
Young-Davidson $53.4 $45.7 $155.3 $139.6
Mulatos $29.0 $37.0 $105.3 $107.8
El Chanate $18.2 $19.5 $59.6 $60.3
Cost of sales per ounce of gold sold (includes amortization)
Young-Davidson $966 $1,032 $1,068 $1,090
Mulatos $956 $1,102 $964 $1,066
El Chanate $1,217 $1,151 $1,226 $1,150
Total cash costs per ounce of gold sold (2)
Young-Davidson $572 $607 $647 $654
Mulatos $785 $888 $782 $819
El Chanate $1,137 $1,045 $1,156 $1,014
Mine-site all-in sustaining costs per ounce of gold sold (2),(3)
Young-Davidson $744 $849 $824 $887
Mulatos $864 $965 $852 $909
El Chanate $1,164 $1,062 $1,187 $1,032
Capital expenditures (growth and sustaining) (in millions)(2)
Young-Davidson $22.0 $22.8 $63.3 $72.0
Mulatos(4) $8.9 $9.8 $34.9 $23.4
El Chanate $0.3 $0.2 $1.2 $0.6
Other $7.0 $4.4 $23.9 $13.0
(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) Includes capitalized exploration and La Yaqui Phase I development.
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Outlook and Strategy
2017 Guidance
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) (5) $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 and associated MD&A for a description of these meas ures.
(2) Excludes capitalized exploration.
(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
(5) Excludes revised capital budget for Turkish projects approved in April 2017
The Company's objective is to maximize cash flow from its operations through increased production, margin
expansion, and capital discipline, while advancing its portfolio of low -cost development projects. The Comp any
continues to deliver on these objectives, with record production in the third quarter of 107,000 ounces of gold at
significantly lower AISC of $884 per ounce driven by record performance at Young -Davidson. Reflecting this strong
performance, the Company generated $43.4 million in operating cash flow, and $20.9 million of mine -site free cash
flow. In addition, the Company completed construction of La Yaqui Phase I in the quarter, on budget and ahead of
schedule. La Yaqui Phase I will generate low-cost production and strong cash flow for approximately three years.
With gold production of 309,100 ounces for the first nine months of 2017, the Company is well positioned to achieve
full year guidance of 400,000 to 430,000 ounces. All -in sustaining costs improv ed significantly in the third quarter,
driven by the strong performance of Young Davidson, bringing year -to-date AISC to $946 per ounce. All -in
sustaining costs for the year are expected to be consistent with full year guidance of $940 per ounce.
Young-Davidson produced a record 55,800 ounces of gold in the third quarter, an 18% increase from the previous
record. Strong production is expected to continue in the fourth quarter driven by higher underground mining rates
with the completion of the MCM waste pass in August. In addition, the installation of a pebble crusher to the mill
circuit was completed in October, which will support higher mill throughput and further contribute to strong free cash
flow in the fourth quarter.
Capital spending at Youn g-Davidson totaled $22.0 million in the third quarter and $63.3 million year -to-date. The
Company expects capital spending to decrease in the fourth quarter, and is tracking to the top end of 2017
guidance of approximately $80 million.
Mulatos produced 36 ,300 ounces in the third quarter, bringing cumulative year -to-date production to 117,300
ounces. Mulatos is tracking to meet the top end of the full year guidance of 150,000 to 160,000 ounces. Mine -site
AISC remained below budget in the third quarter at $8 64 per ounce ($852 per ounce year -to-date), and are
expected to be below guidance of $890 per ounce for the year.
El Chanate produced 14,900 ounces of gold and generated positive mine -site free cash flow in the third quarter.
The operation is on track to m eet the top end of its production guidance of 50,000 to 60,000 ounces of gold in 2017
at mine -site AISC below guidance of $1,200 per ounce. As a mature, higher cost operation, the Company has
hedged El Chanate’s 2017 and 2018 production through gold colla r contracts which ensure a minimum gold price of
$1,270 per ounce and participation up to $1,444 per ounce in 2018. The Company expects the operation to
generate stronger free cash flow through residual leaching at the conclusion of its mine life.
Development spending for the remainder of 2017 remains focused on capital spending at Kirazlı to complete
detailed engineering, site clearing and commence construction activities on longer lead time items, such as the
water reservoir. In addition, a feasibility s tudy for the Lynn Lake project is ongoing and is scheduled for completion
later this year.
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In November, the Company plans to complete the acquisition of Richmont, which owns the Island Gold mine. Island
Gold is a low -cost, high -grade, long -life asset in Canada with excellent exploration potential. The acquisition
strengthens the Company's asset base, with the addition of a third core, producing asset. Richmont recently
released an expansion scenario PEA, which supports near -term production growth, declining costs, and cash flow
growth. The acquisition will further strengthen Alamos' balance sheet through diversification and financial
flexibility and delivers corporate, tax and other synergies with two underground mines in Ontario. The transaction is
subject to shareholder approval and scheduled to close on November 23, 2017.
With the completion of the bought deal equity financing in February and subsequent repayment of the $315
million Notes in April, the Company is debt free and has significantly de -risked its balance sheet. With a substantial
cash position, $400 million of liquidity available under the expanded credit facility, and growing cash flow from its
operations, the Company is well positioned to fund its strong pipeline of growth projects.
Third Quarter 2017 Results
Young-Davidson Operational and Financial Review
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gold production (ounces) 55,800 43,629 143,500 125,338
Gold sales (ounces) 55,267 44,287 145,462 128,045
Financial Review (in millions)
Operating Revenues $70.8 $59.2 $182.9 $160.7
Cost of sales (1) $53.4 $45.7 $155.3 $139.6
Earnings from operations $17.4 $13.5 $27.6 $21.1
Cash provided by operating activities $35.3 $24.4 $81.1 $72.4
Capital expenditures (sustaining) (2) $9.4 $10.7 $25.4 $29.5
Capital expenditures (growth) (2) $12.6 $12.1 $37.9 $42.5
Mine-site free cash flow, before changes in working capital (2) $15.1 ($1.9 ) $23.5 ($4.2 )
Mine-site free cash flow (2) $13.3 $1.6 $17.8 $0.4
Cost of sales, including amortization per ounce of gold sold (1) $966 $1,032 $1,068 $1,090
Total cash costs per ounce of gold sold (2) $572 $607 $647 $654
Mine-site all-in sustaining costs per ounce of gold sold (2),(3) $744 $849 $824 $887
Underground Operations
Tonnes of ore mined 602,072 502,953 1,758,442 1,585,756
Tonnes of ore mined per day ("tpd") 6,544 5,467 6,441 5,787
Average grade of gold (4) 2.89 2.82 2.69 2.59
Metres developed 3,344 2,677 10,011 9,336
Unit mining costs per tonne $34 $34 $34 $33
Unit mining costs per tonne (CAD$) $43 $45 $45 $44
Mill Operations
Tonnes of ore processed 694,900 628,640 2,018,994 1,934,279
Tonnes of ore processed per day 7,553 6,833 7,396 7,059
Average grade of gold (4) 2.65 2.37 2.43 2.19
Contained ounces milled 59,230 47,889 157,623 136,173
Average recovery rate 93 % 93 % 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.
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 produced a record 55,800 ounces of gold in the third quarter of 2017, 28% higher than the same
period of 2016 and 18% higher than the previous record set in the second quarter of 2017. The substantial increase
in production reflects higher underground grades mined, higher mining rates, and an increase in mill throughput
during the quarter.
The Company mined 602,072 tonnes of ore from underground in the third quarter of 2017, or 6,544 tpd, a 20%
increase from the prior year period. The increa se in underground mining rates accelerated further in September,
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averaging 6,900 tpd following completion of the MCM waste pass. Higher mining rates and mill throughput are
expected to continue in the fourth quarter, which will drive strong gold production and free-cash flow.
Underground grades in the third quarter were 2.89 g/t Au, higher than the second quarter of 2017 and the prior year
period as higher grade stopes were mined during the quarter. The Company expects underground grades to
average the reserve grade of approximately 2.7 g/t Au for the full year.
During the third quarter, 694,900 tonnes or 7,553 tpd were processed through the mill with grades averaging 2.65
g/t Au, higher than the prior year period due to higher underground grades mined. Mill throughput increased
compared to the second quarter of 2017, reflecting improvements in the reprocessing of mill scats. With the recent
commissioning of the pebble crusher, mill throughput is expected to reach steady state levels of 8,000 tpd during
the fourth quarter. Mill recoveries of 93% were consistent with expectations and the prior year period.
Financial Review
For the three months ended September 30, 2017, revenues of $70.8 million were $11.6 million higher than the prior-
year period reflecting hig her ounces sold, partially offset by a lower realized gold price. For the first nine months of
2017, revenues of $182.9 million was $22.2 million higher than the prior year period, attributable to both higher
ounces sold and a higher realized gold price.
In the third quarter of 2017, cost of sales of $53.4 million were higher than the prior year period reflecting higher
gross costs as a result of additional tonnes mined and milled. Cost of sales reflects mining and processing costs,
royalties, and amortizat ion expense. For the first nine months of 2017, cost of sales of $155.3 million were $15.7
million higher than the prior-year period, also as a result of more tonnes mined and milled.
Total cash costs in the third quarter were $572 per ounce, representing a 6% decrease from the third quarter of
2016. The decrease was attributable to higher grades mined and processed. Underground unit mining costs were
$34 per tonne in the third quarter, in line with the prior year period as the benefit of higher undergroun d mining rates
was offset by a stronger Canadian dollar. Further strengthening in the Canadian dollar is not expected to adversely
impact costs in the fourth quarter as the Company has hedged the majority of its operating and capital costs at
CAD:USD of 1.29:1 or better. Mine-site AISC were $744 per ounce, 12% lower than the prior year period reflecting
a lower level of sustaining capital across more ounces sold. For the nine months ended September 30, 2017, cash
costs were $647 per ounce and mine -site all-in sustaining costs were $824 per ounce, compared to $654 and $887
per ounce, respectively in the comparative period. The decrease was attributable to improved grades, higher
underground mining rates and lower sustaining capital expenditures.
Capital expenditures totaled $22.0 million in the third quarter, slightly lower than the same period of 2016 as the
reduced capital spending was offset by a stronger Canadian dollar. For the first nine months of 2017, capital
expenditures of $63.3 million were 12% low er than in the same period in 2016. Capital spending in the third quarter
was focused primarily on lateral development in the upper and lower mine, pebble crusher installation, and
completion of the MCM waste pass. Total capital expenditures in the third quarter included $9.4 million of sustaining
capital and $12.6 million of growth capital. Capital spending at Young -Davidson is expected to be approximately
$80 million in 2017, a significant reduction from 2016 levels.
Young-Davidson generated positive oper ating cash flow of $35.3 million and record mine -site free cash flow of
$13.3 million in the quarter, driven by stronger production and operating margins. For the nine months ended
September 30, 2017, Young-Davidson generated $17.8 million of mine -site free cash flow compared to $0.4 million
in the prior year period driven by lower capital spending and higher production. Higher underground mining rates
are expected to drive strong production and free cash flow through the remainder of 2017.
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Mulatos Operational and Financial Review
Financial and operating results at Mulatos for the third quarter of 2017 include La Yaqui phase I, as commercial
production commenced in September 2017.
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gold production (ounces) 36,300 38,500 117,300 109,100
Gold sales (ounces) 30,330 33,562 109,270 101,159
Financial Review (in millions)
Operating Revenues $38.9 $44.7 $137.4 $126.5
Cost of sales (1) $29.0 $37.0 $105.3 $107.8
Earnings from operations $7.6 $7.0 $27.2 $17.4
Cash provided by operating activities $13.1 $14.9 $42.0 $40.1
Capital expenditures (sustaining) (2) $1.1 $1.6 $4.6 $6.8
Capital expenditures (Mulatos growth) (2),(6) $6.1 $8.2 $17.8 $16.6
La Yaqui Phase I construction cost (2) $1.7 — $12.5 —
Mine-site free cash flow, before changes in working capital
and excluding La Yaqui construction capital (2) $6.1 $5.7 $25.5 $15.3
Mine-site free cash flow, excluding La Yaqui construction
capital (2) $5.9 $5.1 $19.6 $16.7
Cost of sales, including amortization per ounce of gold sold (1) $956 $1,102 $964 $1,066
Total cash costs per ounce of gold sold (2) $785 $888 $782 $819
Mine site all-in sustaining costs per ounce of gold sold (2),(3) $864 $965 $852 $909
Open Pit & Underground Operations
Tonnes of ore mined - open pit (4) 2,340,817 2,052,784 5,910,627 5,239,416
Total waste mined - open pit 1,461,098 2,040,007 4,723,985 6,569,658
Total tonnes mined - open pit 4,217,795 4,092,791 11,050,492 11,985,708
Waste-to-ore ratio (operating) 0.62 0.99 0.80 1.25
Tonnes of ore mined - underground 19,694 27,958 77,463 97,377
Crushing and Heap Leach Operations
Tonnes of ore stacked 1,748,328 1,574,272 5,050,642 4,843,396
Average grade of gold processed (5) 0.96 0.82 0.92 0.81
Contained ounces stacked 53,690 41,523 149,980 125,991
Mill Operations
Tonnes of high grade ore milled 30,769 38,287 101,879 99,853
Average grade of gold processed (5) 10.05 9.80 9.81 11.73
Contained ounces milled 9,938 12,067 32,140 37,665
Total contained ounces stacked and milled 63,628 53,590 182,120 163,657
Recovery ratio (ratio of ounces produced to contained ounces
stacked and milled) 57 % 72 % 64 % 67 %
Ore crushed per day (tonnes) - combined 19,300 17,500 18,900 18,000
(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").
(6) Includes capitalized exploration, of $1.2 million and $5.9 million for the three and nine months ended September 30, 2017.
Mulatos produced 36,300 ounces of gold in the third quarter of 2017, including production from La Yaqui Phase I.
Production in th e quarter was slightly lower than the prior year period due to an increase of leach pad inventory.
This is typical for the third quarter rainy season in Mexico and production in the fourth quarter will benefit as this
inventory is drawn down. In the month of October, Mulatos produced approximately 13,000 ounces and is expected
to come in near the top end of its annual production guidance of 150,000 to 160,000 ounces for the full year.
Total crusher throughput averaged 19,300 tpd, well above the same period of 2016, supplemented by La Yaqui
Phase I for the months of August and September. A total of 1,748,328 tonnes were stacked in the third quarter, at a
grade of 0.96 g/t Au, both higher than the same period of 2016 due to a combination of mine sequencing, po sitive
grade reconciliation and the addition of higher grade tonnes from La Yaqui Phase I. The waste -to-ore ratio of 0.62:1
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was lower than the prior year period and 2017 guidance due to mine sequencing and the addition of La Yaqui which
has a minimal waste-to-ore ratio.
La Yaqui Phase I construction was completed in the third quarter, ahead of schedule and on budget. In the third
quarter, approximately 170,000 tonnes of ore were stacked on the La Yaqui Phase I leach pad and at average
grades of 1.4 g/t, for a total of approximately 7,500 contained ounces. Approximately 2,800 ounces were produced
during the third quarter, supplementing Mulatos' production. La Yaqui Phase I is expected to contribute annual
production of approximately 25,000 ounces at significantly lower cash costs.
Underground tonnes mined from San Carlos during the quarter were lower than the same period of 2016 and the
second quarter of 2017 as the deposit approaches the end of its current mineral reserve life. In the third quarter,
30,769 tonnes were milled at an average grade of 10.05 g/t Au. The Company expects production from San Carlos
to continue at reduced levels for the remainder of 2017, with stockpiles continuing to supplement mill feed. At the
end of September, the Company had a pproximately 35,000 tonnes remaining in high grade stockpiles. The
Company continues to explore at San Carlos with the objective of extending its mine life into 2018.
The ratio of ounces produced to contained ounces stacked and milled (or recovery ratio) was 57% in the quarter
compared to 72% in the prior year period, reflecting the third quarter rainy season and the ramp -up of operations at
La Yaqui Phase I. The Company expects recoveries to increase in the fourth quarter.
Financial Review
For the three months ended September 30, 2017, revenues of $38.9 million was $5.8 million lower than the prior -
year period reflecting lower ounces sold. A combination of lower production and the timing of both dore and
concentrate sales impacted revenues for the quarter , and are expected to be caught up during the fourth quarter.
For the first nine months of 2017, revenues of $137.4 million was $10.9 million higher than the prior year,
attributable to both higher ounces sold and a higher realized gold price.
Cost of sales in the third quarter of $29.0 million were lower than the prior -year period as gross costs decreased as
a result of a lower waste-to-ore ratio and depreciation. Cost of sales reflects mining and processing costs, royalties,
and amortization expense. For the first nine months of 2017, cost of sales of $105.3 million were $2.5 million lower
than the prior-year period as a result of lower depreciation per ounce.
Total cash costs of $785 per ounce in the third quarter were lower than $888 per ounce in the pri or year period,
reflecting higher grades stacked, a lower waste -to-ore ratio, and the addition of lower cost La Yaqui Phase I
production. Mine -site AISC in the quarter were $864 per ounce, $101 or 10% lower than the prior year period
reflecting lower total cash costs and lower sustaining capital. For the nine months ended September 30, 2017, cash
costs were $782 per ounce and mine -site AISC were $852 per ounce, reflecting higher grades stacked, lower
waste-to-ore ratio and lower cost La Yaqui Phase I ounces.
Mulatos had another strong quarter from a cash flow perspective, generating $5.9 million in mine -site free cash
flow, excluding $1.7 million of construction capital at La Yaqui Phase I ($12.5 million year -to-date). Mulatos' free
cash flow reflects stron g earnings from operations, an increase in Value Added Tax ("VAT) refunds and lower
sustaining capital. The Company expects free cash flow growth in the fourth quarter of 2017 as production from La
Yaqui Phase I increases.