Dec 2, 2015 (Thomson StreetEvents) -- Edited Transcript of Alamos Gold Inc earnings conference call or presentation Thursday, November 12, 2015 at 5:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jamie Porter Alamos Gold Inc. - CFO * John McCluskey Alamos Gold Inc. - President, CEO and Director * Peter MacPhail Alamos Gold Inc. - COO ================================================================================ Conference Call Participants ================================================================================ * Rahul Paul Cannacord Genuity - Analyst * Adam Melnyk National Bank Financial - Analyst * Mike Parkin Desjardins Securities - Analyst * Dan Rollins RBC - Analyst * Kerry Smith Haywood Securities - Analyst * Anita Soni Credit Suisse - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- All participants, thank you for standing by. The conference is ready to begin. Good afternoon. I will now turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead, sir. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [2] -------------------------------------------------------------------------------- Thank you, operator, and thanks everyone for attending Alamos' third-quarter 2015 conference call. In addition to myself, we have on the line today John McCluskey, President and CEO, and Peter MacPhail, Vice President and COO. I would like to remind everyone that our presentation will be followed by a Q&A session. On this call, we will be making forward-looking statements. Please refer to the disclaimer on forward-looking statements in our news release and MD&A as well as the risk factors set out in our annual information form. All forward-looking statements on this call are qualified by these cautionary statements. There can be no assurance that our forward-looking statements, even though considered reasonable by management based on information on hand, will prove to be accurate. Future results and events could differ materially. Technical information in this presentation has been reviewed and approved by Chris Bosley, our VP Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in US dollars unless otherwise noted. Now John will provide you with an overview. -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [3] -------------------------------------------------------------------------------- Thank you, Jamie, and good afternoon, everyone. The third quarter was notable on many fronts. It marked our first quarter reporting consolidated financials post merger. We achieved new milestones at Young-Davidson, and we strengthened our development pipeline through our proposed acquisition of Carlisle Goldfields. We also reported excellent results from our ongoing exploration at Cerro Pelon and La Yaqui, with step-out drilling indicating the potential to add to their reserve base. Operationally, we produced 88,000 ounces of gold in the quarter, bringing consolidated production through the first nine months of 2015 to 275,000 ounces. Our operating costs were higher in the quarter, reflecting the seasonally weak period at Mulatos, though on a year-to-date basis costs are tracking in line with guidance. We remain on track to achieve our full-year consolidated cost guidance and expect to meet the lower end of the range of our production guidance, roughly 375,000 ounces. Young-Davidson continues to hit its key operational targets and achieve new milestones, including averaging underground mining rigs of 5,400 tons per day in September and a new record of 5,600 tons per day in October. We remain on schedule to achieve our target of 6,000 tons per day by year end. Reflecting the ongoing productivity improvements and the weaker Canadian dollar, we also achieved a new low in terms of unit mining costs at US $32 per ounce -- pardon me -- per ton. Production of 38,200 ounces was flat in the second quarter as we mined through low grades as part of our stove sequence. However, we expect higher underground throughput to drive stronger production in the fourth quarter. Mulatos had a challenging quarter with production of 27,500 ounces, reflecting both the heavy seasonal rains and lower high-grade production as commissioning of the mill was slower than anticipated. We made the conscious decision in the third quarter to pull back mill throughput and not process the high-grade San Carlos ore until we improved recoveries. This work is now complete, and we are processing our high-grade stockpiles and expect this to contribute to a strong rebound in production in the fourth quarter. El Chanate had another strong quarter with production of 21,900 ounces. The operation has generated positive free cash flow followed through the first three quarters of this year and is on track to surpass full-year guidance. We have been aggressively exploring at Mulatos, with up to 8 rigs and nearly 20,000 meters drilled at Cerro Pelon and La Yaqui during the third quarter. This has yielded excellent results at both deposits, including high-grade intercepts at Cerro Pelon in the order -- example, 14.5 grams over 50 meters, in the new zone of mineralization, about 100 meters north of the existing reserves. We've also discovered a new zone of mineralization at La Yaqui, 500 meters along the strike from the existing reserves, with highlight intercepts including 1.36 grams over 117 meters. Ore grade intercepts have been encountered a further 750 meters along the strike, highlighting the growth potential of the deposit. Cerro Pelon and La Yaqui will be our lowest-cost ounces at Mulatos, so any growth that we can add to these deposits will have a significant impact. We're in the process of acquiring Carlisle Goldfields consolidating 100% ownership in the Lynn Lake project in Manitoba. This is a good transaction for both sets of shareholders. Carlisle shareholders received a generous premium and the ability to participate in Alamos' future upside, while Alamos will acquire full ownership of an attractive project and a jurisdiction on favorable terms. In Turkey, the recent majority win by the AK party was a strong vote of confidence for the country's economic future. The AK party's success has been rooted in strong economic development. We believe the emphasis on economic development is a positive for the entire mining industry, including for our projects. The ongoing goal price volatility has put pressure on balance sheets and share prices across the entire industry. Alamos is among the best positioned to not only weather the current environment but to outperform. We have a diversified North American production base with growing production and declining costs. We have a diverse portfolio of growth projects where we control the pace of development. And we possess one of the strongest balance sheets of our peer group, which affords us significant flexibility in the current environment. And with that, I'll ask our CFO, Jamie Porter, to comment on third-quarter 2015 financial performance. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, John. As John mentioned, with the merger having closed on July 2, this represents our first quarter reporting consolidated financial results for the combined Company. As a reminder, though our transaction was structured as a merger of equals, accounting rules require that an acquirer be defined. AuRico was determined to be the acquirer for accounting purposes, which means that AuRico's financial statements have formed the basis of the newly merged Alamos' go-forward financial results. Accordingly, you'll see that the financial and operating results (technical difficulty) Mulatos have been included from July 2 onwards. Revenues for the third quarter totaled $104 million based on the sale of 92,200 ounces gold at a realized price of $11.23 per ounce. Consolidated total cash costs of $8.50 per ounce and all-in sustaining costs of $11.55 per ounce were higher in the third quarter than what we expect going forward, largely due to the seasonally weak quarter from Mulatos. All-in sustaining costs at both Young-Davidson and El Chanate were consistent with annual guidance. We expect to benefit from higher production and corresponding lower costs in the fourth quarter and envision full-year 2015 consolidated all-in sustaining cost to be within our guidance range. We reported a loss in the third quarter of $33.4 million, or $0.13 per share. This being the first quarter as a merged Company, there were a number of adjustments impacting this result. Transaction costs related to the merger of approximately $3.5 million were included in addition to a $2.5 million write-down of non-core exploration projects and a $4 million foreign exchange loss. These adjustments totaled $0.04 per share. In addition to the adjustments just noted, we started expensing deferred stripping costs at El Chanate in the third quarter, and this had a $4 million or $0.02 per share impact on earnings. Going forward, you will know minimal differences between total cash costs and all-in sustaining costs at El Chanate as its capital stripping is expensed. Operating cash flow before change to the non-cash working capital was $6.1 million or $0.02 per share. Cash flows in the quarter were heavily impacted by the payment of transaction-related costs and other working capital items. Capital spending in the third quarter totaled $49 million, consisting of $17 million in sustaining capital and $32 million of developments or growth capital. On a Companywide basis, year-to-date capital spending is consistent with expectations. Amortization expense was $31 million in the third quarter or $345 per ounce. This is down from a year ago on a per-ounce basis for Young-Davidson in El Chanate, reflecting the impairment charges in the second quarter along with the inclusion of Mulatos, which carries a lower per-ounce amortization charge. Our G&A costs in the third quarter totaled $6.1 million. Comparing to the combined G&A of Alamos and AuRico previously, this is substantially lower than $8.9 million in the second quarter of 2015 and $7.6 million in the third quarter of 2014. We expect to see further improvements on corporate G&A costs, and we continue to realize synergies from the merger, which we forecast being substantially greater than the $10 million we had initially identified. Our balance sheet remains a key area of strength in the current gold price environment. We ended September with approximately $320 million of cash and available-for-sale securities. Our cash balance declined significantly in the third quarter, reflecting the cash payments of $21 million of transaction costs, working capital changes and negative cash flows from Mulatos. We are forecasting improved cash flow performance from our operations in the fourth quarter and beyond in 2016. We remain fully funded on our near-term, highest-return growth opportunities, which includes the ramp-up of underground mining at Young-Davidson, and developing Cerro Pelon and La Yaqui in Mulatos. We expect both operations to self finance this growth and expansion, driving strong free cash flow growth within the next two years. At this point, I'll turn the call over to Alamos (technical difficulty) Peter MacPhail to provide an overview of operations. -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [5] -------------------------------------------------------------------------------- Thank you, Jamie, and good afternoon. As John mentioned, Young-Davidson continues to achieve its key operational targets. We've met our budgeted meters for underground development, achieved a new record for underground mining rate of 5,600 tons a day in October and realized a new lull in terms of unit mining costs at $32 a ton. Underground mining rates averaged 5,100 tons a day in the third quarter, up 35% from a year ago, reflecting ongoing productivity improvement. By September, we achieved 5,400 tons a day, and October set a new record of 5,600 tons a day. We remain on track to achieving 6,000 tons a day by year end. With the ongoing productivity improvements and favorable weakening of the Canadian dollar, we achieved a new record for unit mining costs which decreased to $32 a ton, down from $41 a ton a year ago and $33 a ton in the second quarter. We expect further improvement in our costs as we continue to undergo the ramp-up. Young-Davidson produced 38,200 ounces of gold in the third quarter, down slightly from the previous quarter, reflecting lower underground grades partially offset by higher mill recoveries. Underground grades mined were at 2.56 grams per ton, slightly below the reserve grade of 2.74 grams per ton. And this was part of the planned stope sequencing. Grade reconciliations to the block model remain positive. Mill throughput averaged 7,700 tons a day in the third quarter at an average grade of 1.88 grams per ton. The ongoing ramp-up in underground mining rates will continue to drive mill grades and production higher and all-in sustaining costs lower. Total cash costs were $681 per ounce, down from $697 per ounce in the second quarter and $723 per ounce a year ago, reflecting ongoing productivity improvements and the weakening Canadian dollar. All-in sustaining costs were $979 per ounce, down from $1,008 in the second quarter and up slightly from a year ago. Both total cash costs and all-in sustaining costs are expected to continue to decrease as underground mining rates increase. With year-to-date production of 115,700 ounces at all-in sustaining costs of $988 per ounce, Young-Davidson remains on track to achieve full-year production and cost guidance. Mulatos had a seasonally weak quarter, with heavy rains impacting pressure throughput and causing leach pad dilution. Combined with the slower ramp-up of the newly optimized mill, this resulted in lower production for the quarter of 27,500 ounces, consistent with third quarter of 2014. Grades stacked on the leach pad were consistent with annual budgets. The recovery duration in the quarter was 57%, reflecting the impact of the rainy season. This is a timing issue, as heavy rains result in a buildup of gold in solution which is typically recovered in the fourth quarter. With respect to the high-grade mill, the vertical grinding mill was installed in the quarter. And while the mill was being commissioned, we operated at lower throughput rates until we saw an improvement in recoveries. As recoveries improved, continued to increase our rate of mill throughput, exiting September at approximately 500 tons per day, where it currently stands. Production from the mills is expected to improve in the fourth quarter, reflecting both higher throughput rates and recoveries. At the end of September, approximately 53,000 tons of high-grade ore had been stockpiled at grades in excess of the current reserve grade of 7 grams per ton. The stockpile will be used to supplement underground ore production from San Carlos. With the recovery of deferred leach pad production and better results from the mill, we are seeing stronger production from Mulatos in the fourth quarter. Total cash costs at Mulatos of $979 per ounce and all-in sustaining costs of $1,210 per ounce were higher in the quarter, reflecting the lower production. Both are expected to decrease in the fourth quarter. El Chanate had another very strong quarter with production of 22,000 ounces. The operation continued to benefit from higher-grade stacks in previous quarters and stronger recoveries. The operation remains on track to exceed the full year-end guidance, and it has been a good performer this year, having generated positive free cash flow through the first three quarters. With that, I will turn the call back to John. -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [6] -------------------------------------------------------------------------------- Thank you very much, Peter. That concludes the formal part of the presentation. I will now turn the call back to the operator, and we will open it up for your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Rahul Paul, Cannacord Genuity. -------------------------------------------------------------------------------- Rahul Paul, Cannacord Genuity - Analyst [2] -------------------------------------------------------------------------------- Questions at Mulatos -- you did see a pickup increase at San Carlos to 11.6 in Q3. I'm just wondering should we expect similar periods going into Q4? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [3] -------------------------------------------------------------------------------- Yes, we've been outperforming the reserve grades, Rahul, and we're milling that stockpile that sits there. And while we don't want to predict that it's going to continue forever, we are continuing to see positive grade reconciliation there. -------------------------------------------------------------------------------- Rahul Paul, Cannacord Genuity - Analyst [4] -------------------------------------------------------------------------------- Thanks. That's good to hear. And then just second question, have you decided on what gold price you would use for reserves at year end? If I recall, it was $1,250 for last year. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [5] -------------------------------------------------------------------------------- Rahul, it's Jamie. That's right. We used $1,250 last year. We haven't made that determination yet of what our price is going to be for this year end. Probably within $100, though, of last year's price, if that's any indication. -------------------------------------------------------------------------------- Rahul Paul, Cannacord Genuity - Analyst [6] -------------------------------------------------------------------------------- Okay, thank you. That's all that I had. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [8] -------------------------------------------------------------------------------- Thanks. I have two questions for Jamie and two questions for Peter. Peter, maybe starting with you, wondering what the timing of the satellite deposit is at at Mulatos. You've talked before, I think, about 2017, those coming online. Wondering with the ongoing permitting as well as ongoing exploration of those satellite deposits, if you can maybe fine tune that estimate for us a little bit in terms of when we should expect La Yaqui to come on, and then how long after that we should expect Cerro Pelon to come into production. -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [9] -------------------------------------------------------------------------------- Yes, thanks, Adam. Yes, we are permitting away there. That's going well. As you know, we got access to the ground about a year ago and done all of the geotechnical work, and that's progressing as planned. Currently, we're looking at first to second quarter of 2017 for La Yaqui to come online. We are permitting it as we know it now. We do -- we're certainly encouraged with the exploration that we're getting around there. But, you know, it's easier to expand and adjust the permits once you've got the thing up in operation. So we're just determining what we know we have, and then we will adjust and expand as we go. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [10] -------------------------------------------------------------------------------- So for that first, second quarter 2017, when would you need to start construction there? And stripping, et cetera? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [11] -------------------------------------------------------------------------------- There's almost no stripping at La Yaqui, so it's not a big deal. Probably we want to be -- we've already started realigning the road down there. We're poking around with what we can do. And once we get the full permits, we would want to be in construction roughly the year ahead. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [12] -------------------------------------------------------------------------------- Okay. When are those permits expected again? Can you remind me? Based on that timeline? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [13] -------------------------------------------------------------------------------- Be in next spring. Spring of 2016. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [14] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [15] -------------------------------------------------------------------------------- And you asked about -- Pelon would be roughly six months behind (multiple speakers). -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [16] -------------------------------------------------------------------------------- Okay, okay perfect. Okay. Okay. And then changing to Young-Davidson, grades for the second quarter were below reserve grade. I think six quarters in a row, six successively lower grades, so there seems to be some inertia there. I know you talked about the stoping plan as a cause for that, and you guided for reserve grade going forward. But wondering if you can, again, maybe fine tune that a bit for us, perhaps qualitatively in Q4 into 2016. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [17] -------------------------------------------------------------------------------- We are -- yes, the reserve grade is 2.74 grams per ton, and that's what -- and I expect it will mine the thing out at that grade or even perhaps slightly more as the -- it's been reconciling positively thus far. But to -- we were higher than that earlier on. And if you look at life of mine, we're probably still higher than reserve grade. If you look at year to date, our grade is 2.70 and which is pretty much close -- pretty much right on the budget and reserve grade. So, yes, that's what (multiple speakers). -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [18] -------------------------------------------------------------------------------- So maybe to ask a different way, if you were going to advise us on our modeling for the -- Q4 and into 2016, stick with reserve grade? Is that what you are comfortable with in terms of guidance at this point? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [19] -------------------------------------------------------------------------------- Yes, yes. That's what I would suggest you do. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [20] -------------------------------------------------------------------------------- Okay, okay. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [21] -------------------------------------------------------------------------------- Yes, just looking back, Adam, for 2014, we averaged 3.07, and year to date in 2015 we are 2.7. So we beat last year, and we are pretty close this year. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [22] -------------------------------------------------------------------------------- Right, okay, okay. -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [23] -------------------------------------------------------------------------------- If you look at how you start up a mine in the first year or so, it's pretty low production in terms of tonnage. And you are going to zero in on the higher-grade stokes that you can find. And then as you get up close to your long-term run rate, it's going to come closer to the long-term average. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [24] -------------------------------------------------------------------------------- Okay. Okay, thanks guys. Jamie, a couple for you here quickly. CapEx at Young-Davidson, about 33 million in the quarter, that was a little bit higher than we were looking for. So far, you've got about $82 million of capital there versus your budget of $85 million to $95 million, so you are starting to get close to that annual budget for CapEx at Young-Davidson. Wondering if you can again just give us a sense of how you see that in the fourth quarter on a run rate and as well into 2016. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [25] -------------------------------------------------------------------------------- Absolutely. Yes, I think you're right. Especially in Canadian dollar terms, we are over in terms of our spending at YD this year. In US dollar terms, we will likely be slightly over the top end. But that reflects some management decisions that were made post merger, things like, for example, AuRico had been financing a fair bit of equipment, paying 5% to 8% interest on that equipment. We're sitting with over $300 million in cash earning 0.4% interest, so we elected to buy that equipment outright. So there's been some conscious decisions on the part of management that just made economic sense, but (technical difficulty) increase their overall capital budget for the year. I think this is -- our capital spending and achieving our budget for 2016 is a key strategic priority. I think we position the budget, and we position YD for next year such that they will be able to self finance their CapEx. The operating cash flow will be sufficient to finance all of their growth and expansion spending. That's our plan for next year, and I think you'll see that when we release our budget in early 2016. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [26] -------------------------------------------------------------------------------- Okay. So maybe the follow-up there is, is underground development tracking relatively in line? You talked about maybe more CapEx on equipment, but is underground development tracking in line with what the 2015 budget was? Or are you above that as well? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [27] -------------------------------------------------------------------------------- I think we have been above in 2015, and that's because we have been using the contractor more than what was budgeted. But like I said, we've got a plan in place to address that for next year. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [28] -------------------------------------------------------------------------------- Okay, so we should expect lower capital in the fourth quarter relative to the third quarter is what it sounds like. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [29] -------------------------------------------------------------------------------- I would say you should expect lower capital in 2016 relative to 2015. The fourth quarter of this year, I think, is forecast to be a bit lower as well. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [30] -------------------------------------------------------------------------------- Okay, okay. And then last question quickly, I would be remiss without asking. Regarding the accounting change at Chanate, can you just give us some background there and logic as to why you are moving to expense stripping as opposed to capitalized stripping that was done previously? And what's the reasoning behind the accounting change there? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [31] -------------------------------------------------------------------------------- Sure. Yes, it's not so much an accounting change as it is a change in estimate. You'll recall, in Q2 we wrote off the capitalized mineral property balance associated with El Chanate because the expected future cash flows didn't warrant the value there. So that remains the case. If we were to continue to capitalize those stripping costs, we could just be writing them off at the end of every quarter. So that's the reason for that change. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [32] -------------------------------------------------------------------------------- Okay, okay. Thanks. That's it for me. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [33] -------------------------------------------------------------------------------- Just one last comment on that. Frankly, I think it makes the numbers more transparent there as well. You'll see their total cash costs are going to be in line with their all-in sustaining costs going forward, given that it is very little in the way of equipment or other sustaining capital there. So it will be fairly -- it's fairly easy exercise to predict what -- how Chanate is going to perform. -------------------------------------------------------------------------------- Adam Melnyk, National Bank Financial - Analyst [34] -------------------------------------------------------------------------------- Okay, yes, I agree with that. Thanks for taking my questions, guys. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Mike Parkin, Desjardins. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [36] -------------------------------------------------------------------------------- Maybe just a follow-up question to Adam's call. Would there not be a tax benefit, too, at El Chanate to going to fully expensed stripping on the EBITDA tax? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [37] -------------------------------------------------------------------------------- No, Mike. We -- accounting doesn't necessarily follow the tax. So in Mexico, even though we were capitalizing the cost previously, we still expense them for tax purposes. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [38] -------------------------------------------------------------------------------- All right. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [39] -------------------------------------------------------------------------------- And we are in a tax loss position at Chanate anyway. We've got some built-up losses there that we hope to be able to chew through next year and beyond. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [40] -------------------------------------------------------------------------------- Okay. And just maybe a comment on -- given that the rainy season hurt you guys in the fourth quarter of last year, is it over now? Are you finding you are getting back to stronger performance at YD -- I'm sorry -- Mulatos? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [41] -------------------------------------------------------------------------------- Yes, hi, Mike. It's Peter. Yes, the rainy season has ended. We did still get some rains in October, but it's -- for mid-October has dried up. So, ahead, we are seeing the production coming up as we would expect it to. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [42] -------------------------------------------------------------------------------- Okay. And then with San Carlos, a significantly better grade than the reserve grade. Is there a nuggety effect there that is driving that? Or can you give a bit more color on why you think you are getting a much better grade than your old estimated grade? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [43] -------------------------------------------------------------------------------- Yes, we are -- I think what we're seeing is we are mining it narrower than we were planning on mining it in the reserve plan. And it's -- we are able to get -- we are able to mine it at a higher grade. Kind of probably similar ounces at the end of the day, but higher grade. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [44] -------------------------------------------------------------------------------- So basically more of a dilution -- better dilution factor. Okay. Well, that's it then for me. Thanks, guys. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Dan Rollins, RBC. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [46] -------------------------------------------------------------------------------- Just want to touch base on YD here. Obviously, you had a bit of a slower underground mining rate for Q3. It's picked up in September and October. You're going to exit this year at 6,000 tons a day. Are you still on schedule to exit 2016 at 8,000 tons a day? -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [47] -------------------------------------------------------------------------------- We are still going through our planning and our budget cycle, so we will be providing guidance on that in January. But the ramp-up continues. I think as far as having two quarters in a row at around 5,000 tons a day, if you look back in the history -- the quarter-by-quarter history that we used to put out, you would have seen a couple of quarters in a row at 4,000 tons a day. You would've seen a couple of quarters in a row at 3,000 tons a day. It's not always perfectly linear. So it continues, and continues on track to get to our stated goal of 6,000 by the end of this year. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [48] -------------------------------------------------------------------------------- Okay. So we will see a couple -- every other couple of quarters, we will probably see a bit of a stepwise change on the throughput as you catch up with the (multiple speakers). -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [49] -------------------------------------------------------------------------------- Yes, I don't think you should get worried -- we should worry too much about having it not be perfectly linear. We're getting there. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [50] -------------------------------------------------------------------------------- No, I'm not worried about that. I just -- I wanted to confirm because previously AuRico had stated that 8,000 tons day was the (inaudible) versus 2016. Just wanted to make sure that was -- there was nothing that's changed in the mine plan that said that still isn't attainable or it might just take a couple more quarters. -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [51] -------------------------------------------------------------------------------- Yes, well, like I said, we're looking at our 2016 budget plan currently, and we will be coming out with guidance. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [52] -------------------------------------------------------------------------------- Okay. Are you guys still comfortable on a Canadian dollar basis to get the unit cost down on the mining basis underground at YD down to $35? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [53] -------------------------------------------------------------------------------- Yes, we remain -- if you look at, on a Canadian dollar basis, the last two quarters have been around $41, $42, somewhere in there, and that's at 5,000 tons a day. So just with the economies of scale, mid-30s -- should be no issue with that. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [54] -------------------------------------------------------------------------------- Okay. Perfect. And Jamie, can you just confirm -- you didn't break out -- you've changed the accounting here. It's a little bit -- you used to breakout depreciation in that quite a bit. I assume given the right down at El Chanate, there's basically no depreciation there anymore. And then I was wondering if maybe even off-line, you just let us know what it is -- what the dollar basis was at both YD and Mulatos during the quarter. -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [55] -------------------------------------------------------------------------------- Sure, the amortization by mine. Yes, we can do that. You're right on Chanate. There's no carrying value, but there is amortization that that's in inventory. And as those balances get (technical difficulty) there is an amortization charge associated with those. But, yes, I will shoot that over, too. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [56] -------------------------------------------------------------------------------- Okay, perfect. And then John, maybe if you could just touch base on Turkey, you mentioned the AK party getting elected, which I think is great for the mining sector there given the support of that government over the last five to 10 years. But when are you -- are you still thinking you get permits by year end here, or is it now -- are you starting to think more into the beginning of 2016? -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [57] -------------------------------------------------------------------------------- Well, a few weeks either way of that. It's always difficult to pin it down to that kind of exactitude. But I was just in Turkey last week. I met with our advisors. Their feedback was that the election was very positive for our projects. Having continuity of policy there in some key cases -- continuity of people, decision makers that remain in place. They think that's all very, very positive. And we have gone ahead and we have submitted our force-feed permit. The way it sequenced is after you obtain the force-feed permit, then you apply for your construction permit. So, all of that is essentially in progress. And I think the timing on it is certainly going to be well in advance of any groundbreaking that we would intend to do. As I have said over and over again, we don't plan to actually get construction started until spring of next year in any case. So I think we are very likely to have our permits in hand well ahead of that. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [58] -------------------------------------------------------------------------------- Okay, perfect. And then are you still on schedule for the submission of the EIA at Esperanza later this year? -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [59] -------------------------------------------------------------------------------- I think I would be more comfortable saying that early next year for the submission of that permit just with -- the work is ongoing. I don't know whether I'm talking out of turn here, but the work is ongoing. And I suspect, though, that it's going to be early next year before we put that in for permitting. -------------------------------------------------------------------------------- Dan Rollins, RBC - Analyst [60] -------------------------------------------------------------------------------- Okay, great. Thanks very much (inaudible). -------------------------------------------------------------------------------- Operator [61] -------------------------------------------------------------------------------- (Operator Instructions) Kerry Smith, Haywood Securities. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [62] -------------------------------------------------------------------------------- Jamie, can you give us maybe just a bit of a range as to what you think the G&A might look like next year? Like dollars, millions total for the Company? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [63] -------------------------------------------------------------------------------- Yes, I certainly can, Kerry. I think -- you saw we came in at $6 million in the third quarter, indicated in the conference call script that we're going to see further synergies. I think we will between $4.5 million, $5.5 million a quarter going forward. So, $18 million to $22 million annualized, which represents almost $10 million in savings relative to Alamos and AuRico combined previously. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [64] -------------------------------------------------------------------------------- All right. Okay, okay. And then for -- I think, Peter, if I understood you correctly for the permits that you've applied for at La Yaqui and Cerro Pelon, those permits would not allow you to mine any of this incremental exploration drilling that you've been doing. And it's kind of restricted to a certain area that would include where that drilling is underway. Is that correct? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [65] -------------------------------------------------------------------------------- Yes, just to be clear, we haven't submitted the applications yet. We're working on them. But it is in an existing camp, and it's well-understood. As far as the drilling that we are doing, it's outside what would be in the current limits of what we would be permitting for. But modifying those permits once you are up and running is pretty standard course there. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [66] -------------------------------------------------------------------------------- Right. But you wouldn't need to modify the permit to incorporate those areas if they turned out, then. -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [67] -------------------------------------------------------------------------------- Yes, that's virtually the same everywhere in the world, Kerry. I don't know anyplace that's any different. But our -- we've been doing that -- we have probably done it four times just in relation to the Mulatos pit. We've had four expansions of that pit, and it's never taken us any more than four to six months to get those expansions -- to get those approvals. So we always have the permit in hand well ahead of the point in time where we move into the new zones. So I'm not worried about that at all. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [68] -------------------------------------------------------------------------------- Okay, okay. -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [69] -------------------------------------------------------------------------------- The other thing, Kerry, just further -- all the new drilling that we are doing at both Yaqui and Pelon is on land that we currently have surface rights for, so that's -- certainly helps that equation. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [70] -------------------------------------------------------------------------------- Okay, okay. Yes, I just thought maybe you might have been lucky in the area you had applied for actually incorporated some of that area but -- and just one last question, how much -- how many times are you thinking you would mill through the mill at Mulatos in Q4? Just total tons roughly? -------------------------------------------------------------------------------- Peter MacPhail, Alamos Gold Inc. - COO [71] -------------------------------------------------------------------------------- Well that would be somewhere around 500 tons a day times 90, so -- -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [72] -------------------------------------------------------------------------------- Okay, so 500 average, okay. And that's fine. And then just last question if I could, just the grade of that stockpiled that you have down at Mulatos, what is the rough grade of that pile? Is it kind of close to the grade you milled in Q3 or is it somewhere between that in reserve grade? -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [73] -------------------------------------------------------------------------------- Kerry, I think the way we characterize it in the press release and MD&A is that it's currently above the reserve grade. But we can't get an accurate reflection of the grain until once we -- it's actually been processed in the grades (technical difficulty) calculated. So I think we will stick with it's better than the fixed gram reserve grade. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [74] -------------------------------------------------------------------------------- Got you. Okay, perfect. Thanks very much guys. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- Anita Soni, Credit Suisse. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [76] -------------------------------------------------------------------------------- My question -- most of them have been asked and answered. The one that I had remaining was about reserves, just a follow-up on the gold price. Could you also give us the assumptions that you used on currency and oil last year? -------------------------------------------------------------------------------- John McCluskey, Alamos Gold Inc. - President, CEO and Director [77] -------------------------------------------------------------------------------- I remember per peso it was 14.5 and we've been running close to -- better than 16 for most of the year. The oil price -- I don't think we -- I think we used our actual costs from the Mexican government because, as you know, we are kind of a price taker there. And in fact, the cost has come in somewhat under what we had budgeted because the Mexican government decided not to continue raising the cost of diesel on a monthly basis as they had been doing for the previous probably 30 months. So I think in the case of the diesel price next year, we're just going to have to wait to see what the Mexican government sets, and that will be what it is. So Anita, just with reference to YAD, I think the CAD US FX was actually parity last year. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [78] -------------------------------------------------------------------------------- And this is all with respect to reserves, right? -------------------------------------------------------------------------------- Jamie Porter, Alamos Gold Inc. - CFO [79] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [80] -------------------------------------------------------------------------------- Okay, all right. Thank you very much. -------------------------------------------------------------------------------- Operator [81] -------------------------------------------------------------------------------- Thank you. As there are no further questions registered, if you have any further questions that have not been answered because of time limitations, please feel free to contact Mr. Scott Parsons. The conference call has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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