Things off with Alamos. John McCluskey, CEO, founder of the company, is here. He founded the company in 2003 and has built the company up from its first asset in Mexico through to its current portfolio with Island and Young-Davidson in Canada as well. It's been a great value creation story, and John's gonna take us through that, and then we'll do some Q&A.
Thank you, Matt, and thanks to Jefferies for having us here. I'll walk you through this presentation quite quickly. Just take it on a very high level, and then we'll have more time to spend on M&A. Just past the cautionary notes here, draw them all to your attention. We're a growing and diversified intermediate gold producer, and you know, this is something we've been saying for a while, but we've gone from you know, just nudging our nose into the intermediate space to a point now where we're effectively leading it. We produce just over 500,000 ounces of gold a year right now.
We've got great internal growth that will see us get as high as 900,000 ounces a year before the end of this decade. We keep our costs very tight, and because of our ability to control costs, I think that's been a-- that's had a very positive impact on our valuation. And we're going to continue to see our costs decline as we bring on new projects and essentially increase our production with lower cost operations. About 90% of our NAV is in Canada. The balance is in Mexico, so we're very much a North American-focused company. Suffice to say, very safe jurisdictions.
We've got long life mines, effectively, averaging 18 years, but the type of operations we have, we're quite confident they'll probably continue well after that. In terms of, you know, how we would characterize ourselves, I mean, first of all, from the chart, you see very prominently featured on the left-hand side of the screen or your right-hand side of the screen, we've been a tremendous outperformer over the last 3 years, and that means we've outperformed the gold index and the gold price and the S&P 500 and so forth. I mean, gold has not necessarily been the place you wanted to have all your dollars allocated for the last 3 years.
It's been looking very good lately, but you can see that, you know, we've been very focused on Alamos as a business, and we drive it that way. And you know, with low-cost production and with good margins, we've been generating great profits and paying a solid dividend throughout this this growth period, and as a result, it's led to a strong outperformance. So you couple that with our low jurisdictional risk, the fact that we can fully fund our growth from our our existing operations. We continue to generate strong free cash flow over and above what we're investing in the capital for growth. Very consistent execution. We're either meeting or exceeding guidance and have done so for 14 consecutive quarters.
These all resonate with investors, and I think we've developed a very strong degree of trust with our existing shareholder base, and we're attracting new investors to Alamos. Despite the fact that we've performed very well and we're trading at an attractive valuation, if you compare the gold space right now to virtually any other, we're still very attractively valued as an investment, and this is a slide that I find is speaking very well to institutional investors. You know, you can see in terms of our growth vis-à-vis EBITDA, you know, we've gone from $46 million in 2014 to $857 million.
In terms of how we compare against other sectors, though, we're still the second sort of lowest value sector in, among the investment, call it the investment spectrum, second only to energy. So, you know, the gold space still, I think, represents an attractive proposition for investors. And in light of the fact that the gold price has performed so well, it's really a remarkable fact that the equities have not traded, as a rule, have not traded in tandem with that relative strength. They've clearly lagged, and I think we all know why.
I mean, the gold has been, the gold as the commodity has been a target of very strong purchasing from central banks, particularly Asian central banks, India, China, as well as Russia, Turkey, Poland. There's a whole raft of countries that have been buyers of the physical metal, but that has not drawn investors, neither retail investors or institutional investors, into the gold equities, at least not until very lately. So we have a very long track record of value creation, and one of the specific ways we've done that is through M&A, and this is an area where gold mining companies are notoriously credited for destroying value in the gold space. And you can't get away from that.
If you look at some of the M&A transactions that were done, say, from that 2008- 2013 period, there was a lot of value destruction, and we saw it after the gold price corrected in that 2011-2012 period. As it started coming down, some of these overpriced acquisitions really stuck out like a sore thumb, and then you saw the write-downs come fast and furious over the following years, and that gave the industry quite a black eye. We didn't do any, you know, big transactions while things were running like that.
What we did was we generated a ton of free cash flow and accumulated all that cash on our balance sheet, and then starting in 2015 , we took a really serious interest in M&A, and over the next three years, we managed to pull off three transactions. We acquired the Young-Davidson deposit in Ontario, Canada, followed by the Lynn Lake deposit in northern Manitoba, and we followed that up with the Island Gold acquisition, acquisition of Richmont Mines in 2017 . So back-to-back transactions, we would have done more at that very low gold price, had we been able to do so, but every time we did one of those bottom-of-the-market deals, we got our head handed to us by the market.
None more heavy-handed than the acquisition of Island Gold, which led to a 38% decline in our share price in the aftermath of that acquisition. It all worked out well in the end, like the old Westerns, where they pull it out at the final reel. We managed to basically deliver on everything that we were promising with respect to all of those acquisitions. Young-Davidson, when we acquired it, it was operating at the mid-level of that mine at a 3,800 ton per day rate.
We knew that it had to be built out to the bottom of the mine, and in other words, we had to double the depth of the shafts and the lower the ramp, build all brand-new infrastructure. We accomplished all that, and by 2020, we had that mine operating at 8,000 tons a day, and since then, it's been generating over $100 million a year in free cash flow. So just as we expected it would, it delivered, and if anything, it's just getting even better. We, we've replaced all the reserves that we've mined. We've managed to maintain a very long mine life, 13-year mine life at that operation since we acquired it. And you know, it's got tremendous margins today.
You know, we're producing around the $1,100 an ounce gold price level, and we're selling that gold at $2,500. I mean, that's just... That's a fantastic margin and generating lots of profits for our, for our shareholders. You know, Island Gold is another very similar story, where, you know, we acquired it for just over $600 million. The market consensus value on it right now is about $3.6 billion. We've generated something like $160 million in cumulative free cash flow, but we've also been very heavily investing in an expansion there. And by 2026, we'll have that mine operating at about 300,000 ounces a year at roughly $600 all-in sustaining costs.
So that to me is, you know, a clear indication of the kind of strategy that we're pursuing. You know, buy something when nobody sees the value, invest in it, build it, and ultimately turn it into something that produces tremendous profits for our shareholders. Just diving a little deeper on this one, we were also very fortunate to acquire the project right next door to Island Gold, and you can see from the photograph here with the Island headframe in the foreground. This is the headframe of the new shaft we are sinking as a part of this expansion that we're doing. In the distance, you can see the Magino open pit. This, the Magino mine was a project developed by a company called Argonaut Gold.
They sunk basically $1 billion in capital, which was almost twice what they had forecasted. By the time they got it to production, they were really struggling, and they were just operating on too small a balance sheet to really carry that project forward. They just didn't have the sustaining capital to get it over the line, and we started discussions in January. It led to a deal that we announced in April, and ultimately we closed that transaction in July. Magino right now represents about 100,000 ounces of production. It's got a brand-new 10,000 ton per day mill. It's in terms of synergies, there was just a lot of things that we could benefit from.
For example, by virtue of the fact that we're doing a big expansion at Island Gold, it involved doubling the size of our existing mill. We don't have to do that anymore because we can just put our ore through the mill that was on the Magino side. We need to do a big tailings lift, and that was something that, you know, we knew was a real constraint on our side. It was about a $40 million budget for this year. We didn't have to do that at all. The Magino was permitted for 150 million tons of tailings. There was plenty of capacity for everything we would need and everything that the Magino mine would need.
Just coming out of the chute, there was over $100 million right there in synergies, and when we looked longer term, it was in excess of $500 million in synergies alone, but by virtue of the fact that it was permitted to take that mill to 35,000 tons a day, the tailings capacity was permitted to go to 150 million tons, we had plenty of scope effectively to grow this district, and that's effectively what we're going to do. It's currently going to...
It's operating at about 250,000 ounces a year, but by 2026, that'll go to 400,000 ounces a year, and long term, we think we're gonna take it to well over 500,000 ounces a year by expanding both the open pit and the underground operation. We've just announced today a new discovery that we made about two years ago down in Mexico called Puerto Del Aire. This is now the long-term sort of opportunity at our Mulatos District , where we've been operating since 2005. We've been largely producing from open pit oxide deposits, heap leaching that ore. That's all changing now. We're now moving to underground mining. We're going to be building a mill here.
We've just announced some of the economics around that, about $165 million CapEx, but a very strong IRR, 46% at $1,950 gold, but at spot, it's over 70% IRR. So it's obviously a very, very attractive project, and based on what we know already, it'll take us to 2035, production going into 2035, but there's lots of upside beyond that. I should mention, you know, when we started Mulatos, we only had six years of production in front of us, and that was in 2005. You know, and here we are, 20 years later, and we're still going strong, and I think by 2040, we're still gonna be looking to the future and what's coming next. That's just the kind of district it is.
So in terms of just summarizing, you know, where we're going, you can see our costs are declining as our production is growing. And by putting together each of these projects that I've been speaking about, plus the Lynn Lake project in northern Manitoba, which we now have permitted, but we're moving it towards a production decision for early next year. Adding Lynn Lake, which represents another 200,000 ounces of production, that would take us to 900,000 ounces a year, and we'd be able to sustain that for a very long time. So the Alamos story is kinda summarized in this way, and we always like to emphasize this idea of value creation because that's essentially what we get up in the morning to do.
You know, we've got the growth, we've got the diversification. We're in politically safe jurisdictions, so we effectively we have a very low risk profile from that point of view. We have a very sustainable business, long life reserves, low cost reserves, and I think that's essentially what the investment community is looking for when they look to a gold equity. And if you, you know, we're more than replacing reserves every year.
With the drilling that we're doing, we're actually expanding on reserves year by year, and we've been doing that for the last six years, and our finding cost has averaged about $15 an ounce. So I think that makes a pretty extraordinary point, and one of the reasons why I hope you stay focused on Alamos Gold. And with those remarks, I'll just conclude my formal presentation, and, we can have some Q&A.
Sounds good. We're also happy to take questions from the floor, so I'm curious- Sorry, there is a mic just.
I'm just curious on the PDA. Analysts seem surprised by the cost. Is it that just the cost of developing a new underground mine have gone up more than had been expected? It still sounds like a pretty good IRR.
It's very strong, but effectively, what we've done, just in light of everything that's coming together, you know, we haven't defined the last ounce there by any means, but it made more sense to us to bring about $60 million of the sustaining capital, bring that forward and put that into the initial capital instead. So we're gonna do a lot more development. We only need to really start from one portal on this mine. That would have been more than enough to supply the 2,000 tons a day that we need to fill the mill, but we decided to open it up from both sides and do a lot more development at the front end.
It's a way to set the operation up to be a low-cost mine for the long term. So that's what we did. It was pay me now or pay me later, and it looked like a better idea to put that up front. And we're only talking about an additional $60 million in capital, and you can see with respect to the IRR and so forth, it could more than handle the additional investment.
I've got one on capital allocation. So, you're on the, you know, progressive ramp up of Island Phase Three here and growing free cash flow and talking about advancing Lynn Lake to an investment decision. So I'm wondering, you know, how you think about capital returns versus new projects at this inflection point?
You know, we're primarily a growth company, so to be a growth company and not demonstrate any growth would be a little, how should I put it? A little cheeky. So in terms of where we're gonna allocate our capital, we're gonna put it where we think we're gonna get very strong returns, for one, and, you know, in light of the gold price that we're in. You know, you look at Lynn Lake. Lynn Lake will come in at roughly $850 all-in sustaining costs.
So if you're producing 200,000 ounces of gold a year in a $2,500 gold price environment, you're... Who's to say that's where it stops? I think it's gonna go higher yet. I think that has to be the position you take. You know, you're gonna invest in developing your assets so that you're gonna catch this rising gold price environment and generate the profits that shareholders are looking for.
Do you think there's an ideal scale you wanna get to as a growth company? You know, is there a point at which you say, "Okay, this is kind of, you know, the ideal size," or the sky's the limit?
No, I actually do think there is an ideal size, and to my way of thinking, you know, if you notice what the existential problem you run into in building, you know, a major gold mining company, it's that, you know, you're producing a commodity that's extremely hard to find. You know, if you're Coca-Cola, you just add more syrup and more bubbly water, and you're producing more Coca-Cola, and you can produce as much Coca-Cola as people wanna drink. It's not that way for gold. Gold is, it's a very tough commodity to find in economic quantities, you know, so that you can mine it and make money.
And even when you find it, I mean, the timelines for getting projects permitted and built is pretty long, and the costs are not going down, so it's pretty expensive. So, you know, the whole business is a relatively tough business, and that's why gold remains a very, you know, rare and desirable commodity, and that's why the value of gold ultimately remains high, because of its scarcity. So, you know, acknowledging that, you know, we've done an extremely good job in focusing on certain situations that, you know, by and large, they were overlooked assets in the market.
We sort of picked them up and dusted them off, and we did the drilling that was often required, that the high-risk sort of exploration drilling that needs to be done in order to turn something from a sow's ear into a silk purse, and we succeeded in doing so, and probably the most dramatic case was Lynn Lake itself. It was under 700,000 ounces of reserves when we acquired it, and you know, today in all categories, net of a million ounces of depletion, we're at over six million ounces and growing. We haven't factored in any of the drill results from this year in that number, and you gotta know from the numbers we're publishing, that that ore body is continuing to grow.
So, consensus valuation today: $3.7 billion. When we bought it for just over $600 million, people thought we needed our head examined. So, you know, everything's changed. It was also a sub-$1,300 gold price when we bought it. It's $2,500 gold today. You can sort of see how you have to go about building value when nobody wants to buy anything, when the gold price is really low and things look really bad, and well, then you jump in and buy, but it's a very tough thing to do.
And you'd think investors would love that, you know? You'd think that, you know, being countercyclical in a cyclical commodity would gain all kinds of kudos. No, it doesn't, you know? Because typically, when you go to make an acquisition, the arbs in a weak market jump all over that, and your share price is driven down, in our case, in a very dramatic fashion, 16% on the first day.
Well, if you're a portfolio manager, and a company announces a deal like that, sort of late in the year, you realize your Alamos position has just got massacred, and that's not very good for your annual performance review, right? So there's a reason why, you know, there's a little bit of competitive tension between, you know, what a mining company has to do to grow and what the investors in that company actually want that company to do. They want it to grow, but painlessly, you know? It's almost impossible. So look, we took our medicine, you know. We took several years to demonstrate that we were on the right track with Island Gold. Frankly, it took several years with virtually everything we acquired.
You know, when I bought Mulatos back in 2001 with gold under $300 an ounce, some very, very smart people that I know in Vancouver that normally fund that kind of thing, they really wouldn't touch it. They said, "No way, that's, this is not gonna work.
And I bought it for $10 million, and it's gone on to make over $500 million in profit. So, you know, the sentiment in the market when the market's down, especially in the gold market, has been just as bleak as I've ever seen, but it's turned around now. And while the commodity itself has been doing exceedingly well, it's only the equities are starting to do well virtually as we speak, and this is why you've got to be confident. We're not in some sort of mature end of the market at all. We're in the very, very early innings of this market.
And do you think scale is something that helps you do things countercyclically? Like, so what is the push? What is the ideal output you would have, and, and, you know, is that something that you think you can get to organically, or would you look at growing even faster?
I think scale has nothing to do with whether you act in a countercyclical way or not. You know, we've been acting that way since we had no production. And i think countercyclically is the only way to really thrive in a business like this. In terms of, you know, that whole question of, of scale, I don't think scale has the same sort of importance that investors put on it, say, a decade or two decades ago. Investors want quality. You know, do they want a great big mine in, you know, some super high-risk jurisdiction, led by a, you know, a despot?
I mean, case in point, you know, Kinross had a beautiful asset in Russia. Kupol made tons of money, it was a great mine, but when things went sideways in Russia, what happened to Kupol? You know, they got their tails out of Russia with $350 million, for arguably what was a, you know, mine worth maybe $1 billion or more.
There are reasons to stay in safe jurisdictions, and if you're investing the kind of money we are, you know, we're putting you know roughly now in this Island Gold camp, we're gonna put in $1 billion over the next few years. Now, it's going to produce, you know, our long-term vision is to bring that camp to roughly 600,000 ounces of gold a year, you know, at $1,000 all-in sustaining costs. That's very doable just by expanding the open pit to 200,000 ounces a year and taking underground production to about 3,000 tons a day, which would yield around 360,000 ounces of gold a year.
That's 560,000 ounces of gold from those two operations. It won't take us quite $1 billion. That's including the expansion we have underway, plus additional money that we might put in to expand the Magino Mill to accommodate a much higher throughput for the two operations. That's a really small investment to produce 600,000 ounces of gold at a $1,000 AISC. You know, today's gold price, look at that margin, that's a $1,900 margin on 600,000 ounces of gold.
You know, that's a world-class production facility, and with 20 years plus reserves, I mean, it's really extraordinary to have it. Combined right now, there's over 11 million ounces between what we have on the Island side and what we have on the Magino side, and it's going to grow. You know, we just allocated another $3 million to exploration to expand the Magino pit three days ago. You know, because there's no question it's gonna expand to the east. Where that property boundary used to constrain what they could do to the east, well, there's no property boundary anymore, so we're drilling it all off to the east. Underground, you know, we've been drilling it to beat the band all year.
We just published about six weeks ago about 30 or 40 drill holes that came out of the underground side of on the Island Gold side, and those are some of the best drill holes we've ever reported. So there's no doubt in our minds, the Island Gold mine, the underground side of it, just continues to grow. And look, I feel like I have to pinch myself every now and then. I mean, to have 11 million ounces, I mean, that's it. You're sitting on a Tier 1 asset, and all we have to do now is step by step, build that production profile. You know, once we exceed 500,000 ounces a year, you can kinda drop the mic right there, but I think it goes beyond that.
Obviously, a huge value driver for the company.
Yeah.
You've also been pushing further north in Canada, so I mean, Lynn Lake and then this, Orford deal in Qiqavik. Do you wanna talk about that one?
I could talk about it briefly. I mean. There's a reason why we're up there. There's a belt of rocks up there called the Cape Smith Belt, and those rocks, typically around the world where you find them, they host some of the biggest and most profitable gold mines in the world. And if you just, you know, sitting in the way is Hudson Bay, but on the other side of Hudson Bay, you get into Nunavut, and you'll notice a string of gold deposits there, and those are the deposits owned by Agnico Eagle. So you're essentially hunting in the same belt as you find those deposits, but no one has looked on the Quebec side.
What you do find there is one of the biggest and most profitable nickel mines in the world, Raglan, which is a Glencore asset. And we started to back this little junior a number of years ago because one of our former directors, one of our existing directors, pardon me, was formerly working with Falconbridge, and Falconbridge discovered and put Raglan into production, so he knew that belt really well, and he knew there was tremendous potential there for gold, but nobody had been looking until this little junior set up the objective of finding a gold deposit up there. We started to fund them, but it was like that junior market was just a broken model.
I mean, nobody really wanted that stock because, despite the fact that year by year, the company was making progress, it could never break out of its, you know, micro-cap status there, even with our full backing. At this point, we own 27% of the company 'cause we kept on having to backstop the financings, which was like, we said, "This doesn't work anymore." So we just took it over, brought the personnel in-house, and now we've been exploring it this year.
We have about a 40-kilometer trend, and we've got high grade from end to end. There is no question there's gonna be a gold deposit up there. We didn't do any drilling there this year. It was all focused on mapping. We brought in some of the best glacial geologists in the world. These guys who can basically take a look at a big mess of rocks in the ground and explain to you what the glaciers have done, and where you can probably trace these high-grade boulders back to their origin.
That's a big part of what you have to do, and once you can get that solved, now you know at least where to drill, and they didn't really have a clear idea on that in the past. So they did some drilling that hit smoke but, you know, never got into the heart of the thing, but now we're onto something. I would say that this last year, we had a bigger staff up there and a bigger budget than it's ever seen, and we never put in a single drill hole. It was all mapping and sampling in the kind of detail that is really required to make the big discovery, and I think that's what's lurking up there. I think there's a really big discovery to be made.
Interesting. Well, that's great. That brings us to time, but thank you very much for the presentation, and we, you know, touched [audio distortion]