Good morning. I would now like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead.
Thank you, operator, and thank you everyone for attending Alamos' third quarter 2021 conference call. In addition to myself, we have on the line today, John McCluskey, President and CEO, and Peter MacPhail, Chief Operating Officer. We will be referring to a presentation during the conference call that's available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Vice President of Technical Services, and a qualified person.
Please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars, unless otherwise noted. Now I'll turn it over to John to provide you with an overview of the quarter.
Thank you, Jamie, and good morning, everyone. I'd like to start with slide 3. Our third quarter was marked by strong ongoing performances at our Canadian operations, offset by short-term challenges at Mulatos as it enters a transitional period. Consolidated gold production of 104,700 ounces was lower than guided. While total cash costs and all-in sustaining costs were broadly in line with expectations, both were above our initial full year guidance and reflecting the impact of stronger than budgeted Canadian dollar. A key highlight in the quarter was Young-Davidson averaging record mining rates of 8,000 tons per day, producing 50,000 ounces of gold and generating $29 million in free cash flow. The mine is performing very well, and we expect it to be a strong free cash flow generator for a very long time.
Mulatos had a challenging quarter with an above average rainy season and slower than anticipated recoveries from stockpiled ore, affecting both production and costs. With Cerro Pelon winding down, stockpiles will make up a larger proportion of production for Mulatos until La Yaqui Grande starts supplying low-cost production in the third quarter of 2022. Given the higher costs associated with processing this stockpiled ore, we expect costs to increase in the fourth quarter and through the first half of next year. Mulatos costs are expected to decrease in the second half of 2022 and will be significantly lower in 2023 as La Yaqui Grande ramps up. Looking to the fourth quarter, we expect production to increase at each of our operations, reflecting higher grades at Young-Davidson and operational improvements at Mulatos.
Nevertheless, with the third quarter production shortfall at Mulatos, we are reducing our annual production guidance at the operations by 15,000 ounces or 3% on a consolidated basis to a range of 455,000-495,000 ounces. Production guidance for Young-Davidson and Island Gold remain unchanged, with both operations continuing to perform well and on track to achieve full year guidance. Given the ongoing impact of the stronger Canadian dollar and higher than planned costs at Mulatos, we are also increasing our consolidated total cash cost guidance to a range of $790-$810 per ounce, and all-in sustaining costs to a range of $1,120-$1,140 per ounce.
Excluding the impact of the stronger Canadian dollar, costs through the first three quarters of this year are consistent with our initial guidance. Moving to slide four. While we encountered some challenges in the third quarter, our strong long-term outlook remains intact. At La Yaqui Grande, construction is advancing well and remains on budget and on schedule to achieve commercial production in the third quarter of 2022. At Island Gold, the phase III Expansion is progressing with a focus on permitting, detailed engineering, and contract tendering. We also continue to have success growing the deposit and adding value through the drill bit with another exploration update planned in the fourth quarter. Finally, at Lynn Lake, we continue to advance permitting and expect this to be completed by the middle of next year, which would enable us to make a construction decision thereafter.
Collectively, these high return organic growth projects support our strong outlook with production potential of 750,000 ounces per year by 2025, a significantly lower all-in sustaining cost of around $800 per ounce. Given our solid balance sheet and ongoing cash flow generation, we can fund all this growth internally while supporting strong ongoing returns to shareholders through our dividend and share buybacks. I'll now turn the call over to our CFO, Jamie Porter, to review our financial performance. Jamie?
Thank you, John. Moving on to slide five. We sold 110,500 ounces of gold at a realized price of $1,792 per ounce for revenues of $198 million in the quarter. Gold sales were approximately 5,800 ounces more than gold produced, with some ounces produced in the second quarter being sold in the third quarter. Third quarter costs were broadly in line with guidance provided in the second quarter and higher than initial annual guidance.
Total cash costs of $788 per ounce and all-in sustaining costs of $1,152 per ounce continued to be impacted by the stronger than budgeted Canadian dollar, as well as higher than expected costs at Mulatos. Previous 2021 guidance was based on a Canadian dollar foreign exchange rate of 0.75 compared to the actual rate of 0.79 in the third quarter and 0.80 year to date. This has increased total cash costs by $30 per ounce and all-in sustaining costs by $45 per ounce relative to our initial guidance. Reflecting the ongoing strength in the Canadian dollar and higher cost in Mulatos, we have increased our 2021 total cash cost and all-in sustaining cost guidance. This also reflects some of the inflationary pressures being felt across the sector and globally.
We have managed these well through the first three quarters of the year, but do expect more of an impact in the fourth quarter and into 2022. Operating cash flow before change to the non-cash working capital decreased 21% year-over-year to $102 million, or $0.26 per share in the third quarter, reflecting lower production and a lower realized gold price. Net earnings were $25 million or $0.06 per share. Excluding the unrealized foreign exchange loss of $13 million, adjusted net earnings were $38 million or $0.10 per share. Capital spending totaled $89 million in the third quarter, including $31 million of sustaining capital, $51 million of growth capital and $7 million of capitalized exploration.
Capital spending is expected to increase in the fourth quarter, reflecting the ramp up of capital spending on the phase III Expansion at Island Gold and at La Yaqui Grande. With significant capital expenditures scheduled for late in the year, we do see the potential for some fourth quarter capital to be deferred to early 2022. Free cash flow in the third quarter was -$8 million, reflecting higher capital spending at La Yaqui Grande and Island Gold, as well as lower than anticipated production. In addition to our quarterly dividends of $10 million, we also repurchased 600,000 shares at a cost of $4.5 million or $7.50 per share in the third quarter. Year to date, we have returned more than $35 million to shareholders in the form of dividends and share buybacks.
We are on track to return more than $45 million for the full year. We remain debt-free and ended the quarter with $211 million in cash, $23 million of equity securities and $500 million of undrawn credit capacity. Combined with strong ongoing cash flow generation, we remain very well positioned to fund our growth projects internally. I'll now turn the call over to our Chief Operating Officer, Peter MacPhail, to provide an overview of operations for the quarter.
Thank you, Jamie. Moving to slide six. Since the completion of the lower mine expansion at Young-Davidson mid last year, underground mining rates have consistently met or exceeded the target rates. This trend continued in the third quarter, with underground mining rates increasing to average a record 8,000 tons per day. This drove gold production higher to 50,000 ounces and costs lower, contributing to $29 million of mine-site free cash flow in the quarter. Total cash costs of $810 per ounce and mine-site all-in sustaining costs of $1,051 per ounce decreased 14% and 9% respectively from the second quarter, reflecting increased operating efficiencies.
Young-Davidson is well positioned to meet its full year production guidance with consistent mining rates of 8,000 tons per day and higher grades expected to drive another strong result in the fourth quarter. Given the impact of the stronger Canadian dollar, we have increased full year total cash cost guidance to approximately $850 per ounce and all-in sustaining costs to around $1,060 per ounce. Excluding this impact, costs were in line with initial guidance through the first three quarters of this year. With $70 million mine site free cash flow year to date and higher production expected in the fourth quarter, Young-Davidson remains on track to generate mine site free cash flow of approximately $100 million in 2021. Over to slide seven.
Island Gold produced 28,000 ounces of gold in the quarter, 16% lower than the second quarter, reflecting lower tons processed. This was due to eight days of downtime for unplanned maintenance in the mill early in the quarter. These one-time maintenance issues were resolved in July, with the mill operating at full capacity in August and September. Additional maintenance protocol has been put in place, along with an increase in spares, critical spares to mitigate future unplanned downtime. As previously guided, grades mined and processed were similar to those in the second quarter. Grades are expected to increase slightly in the fourth quarter to average a reserve grade of approximately ten grams per ton for the full year. Total cash costs and mine-site all-in sustaining costs were both higher than initial guidance, reflecting the stronger Canadian dollar and unplanned mill downtime.
Given the strong performance year to date, Island Gold remains on track to meet full year production guidance. As with Young-Davidson, we have increased full year total cash cost guidance to approximately $525 per ounce and mine-site all-in sustaining cost to about $865 per ounce, reflecting the stronger Canadian dollar. Work continues to ramp up on the phase III expansion, with the pre-sink of the shaft expected to begin in mid-2022. The current focus remains on permitting detailed engineering of the shaft and associated infrastructure as well as the paste plant. Contract tendering is ongoing, with key contracts now in place for the shaft sinking, head works, shaft site, surface works. Growth capital spending totaled $14 million in the third quarter.
While spending is expected to increase in the fourth quarter, some of the planned 2021 capital could be deferred into early 2022. Moving to slide eight, Mulatos produced 26,700 ounces in the third quarter at total cash costs and mine-site all-in sustaining costs $927 and $1,124 per ounce, respectively. The third quarter was impacted by the above average rainy season and slower than anticipated recoveries from stockpiled ore stacked in the quarter. The heavier rainfall and wet ore limited stacking rates to about 1,700 tons per day, which is about 20% below our guidance.
With Cerro Pelon winding down, we're also stacking a higher proportion of previously mined and stockpiled ore until La Yaqui Grande comes online in the second half of 2022. The leach cycle for the stockpiled ore has been longer than anticipated and processing costs higher than expected given the additional reagents required. We are expecting higher production from Mulatos in the fourth quarter. However, given the weaker third quarter, we are reducing full year production guidance by 15,000 ounces. Given the higher processing costs associated with the stockpiled ore, we're expecting total cash costs and all-in sustaining costs to increase in the fourth quarter and have revised our 2021 guidance accordingly. We expect higher costs to persist through the first half of 2022 before decreasing in the second half of 2022 as La Yaqui Grande ramps up production.
Mine site free cash flow was negative $20 million in the quarter, reflecting $23 million of growth capital and capital advances related to La Yaqui Grande. Moving to slide nine. Construction of La Yaqui Grande remains on track, as can be seen in the photos. The project's really coming along nicely. Pre-stripping of the open pit continues to ramp up, with over 6 million tons of waste mined in the quarter. The haul roads are now completed, solution ponds are lined, and the crushing circuit and ADR plant are advancing well. The project remains on schedule for commercial production in the third quarter of 2022 and on budget with $70 million of growth capital spent and $18 million advanced to contractors towards the initial $137 million capital estimate.
We expect costs to decrease at Mulatos in the second half of 2022 and more significantly into 2023, with La Yaqui Grande representing the majority of production from the Mulatos district. With that, I'll turn the call back to John.
Thank you, Peter. We'll now open the lines for Q&A session, and I'll turn the call to the operator to get that going. Thank you.
Thank you, Mr. McCluskey. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. The first question is from Cosmos Chiu from CIBC. Please go ahead.
Good morning. Thanks, John, Jamie and Peter. Maybe my first question is on Mulatos. You know, if I look at your MD&A, I see that, as you mentioned, the MD&A recovery was 49% in Q3. Year to date, it was 55%, so it's come down. Last year, it was over 70%. I think in part due to the stockpile ore. If I remember correctly, the stockpile ore, if it is the stockpile material from day one since 2005, I seem to remember that the recovery of that material is lower.
I guess my question is getting around to this ultimately, you know, I know the leach cycle is longer, but ultimately, what kind of recovery should we be expecting from this new mix that has more of the stockpile material in it on the leach pad these days?
Yeah. Hey, Cosmos. Peter.
Hi, Peter.
The recovery, if you look at just the ounces on versus off recovery in the quarter of 49%. Part of that is because of just a delay, really. Two things there, the rainy season dilutes things on us, and it was a particularly wet, rainy season. Those ounces are coming out in the fourth quarter, and longer leach curve associated with that stockpiled ore. You know, what we carry for that stockpiled ore, in our recovery model is something in the order of 50%. However, it tends to be higher grade, so then.
It's already been mined, so it's ore because we, you know, the cost to mine it have already been incurred. Yeah, that would be my answer to those questions.
Okay. Maybe as a follow-up, Peter, you know, how much of this stockpile material do you have? I'm just trying to get a clear picture in terms of how the mix of the different ore types is, you know, gonna be, as you transition to La Yaqui Grande. In the meantime, there's also El Salto, I believe that's been now stripped maybe, and that should be coming in as well. How should we look at it in terms of the mix of ore that's being stacked on the leach pad?
Yeah. I mean, as always, at Mulatos, we have a number of ore sources. There's still some Victor ores, there's still some San Carlos open-pit ore. Those are gonna wind down towards, you know, in the coming months. Cerro Pelon is winding down. Salto is gonna be ramping up starting early next year, and it will come online more as the year progresses, and the stockpile ore. Between now and I would say mid-next year when La Yaqui Grande is on stream, about 50% of our ounces would be coming from the stockpile ore.
Would you be able to tell me how much of the stockpiled ore do you still have?
It's in the range of 5 or 6 million tons. I think we had 9 million tons at the beginning of this year, and we've been processing it through the year. I'd have to get the exact number, Cosmos, but we still have quite a stack of it.
Okay, for sure. Maybe switching gears to cost here. As you mentioned, the leach pad now will experience an increase in cost due to higher reagent usage and cost. You know, maybe breaking it down, how much more reagent does the stockpiled ore need, and how much cost increase are you anticipating for this reagent? You know, which one's a larger portion of that cost increase?
I mean, it requires more lime and cyanide to be specific. Those are the reagents and caustic as well. Just about everything we put on there is increased for this, you know, stockpiled ore. It's, you know, different zones of the stockpiled ore have just different requirements. We're going through our, you know, planning process for next year now. I mean, we'll come out with guidance in due course. What we're seeing is, you know, those ounces are probably coming in at somewhere in the range of an all-in sustaining cost of maybe in the $1,500 per ounce range for that, you know, 50% of our production for the next six or eight months.
Part of that cost is non-cash because of the you know associated cost of building that stockpile. I think there's $200 or thereabouts that's non-cash. I mean, they still make good money, but there you go.
Mm-hmm. Great. Maybe, you know, in terms of a broader question here, following up on that, Jamie, as you mentioned, you know, you've managed costs really well in the first three quarters, but there are inflationary pressures on operating costs in the industry. We should be expecting some increases, some impact in Q4 into 2022. We've just talked about, you know, Mulatos and some of the reagent costs. Where are you seeing some of the inflationary pressures? Is it in Mexico? Is it in Canada? Is it in the reagent cost? Is it in labor, or is it just everything?
Yeah, Cosmos, it's Jamie. We've just gone through, you know, our budgeting process, and I think it is really across the board. I mean, across all of our operations, we're seeing slightly higher, you know, expected labor increases than what we would have had in past years. Obviously, the diesel price has increased, and certain consumable costs, you know, grinding media, and anything to do with steel has gone up, in some cases significantly. A lot of our input costs have been subject to multiyear purchase contracts that are expiring. We are seeing, you know, an uptick.
I think across the industry from an operating cost perspective, it's in the, you know, 5%-7% range, and I'd say our experience has been consistent with that.
Great. Thanks a lot. Those are all the questions I have. Thanks again for the call.
Thank you. The next question is from Mike Parkin from National Bank Financial. Please go ahead.
Hi, guys. Thanks for taking my questions. One, going back to Mexico, Cerro Pelon, you're indicating that'll be depleted in the fourth quarter. Is it expected to kind of be a full quarter of tonnage or kind of a half quarter?
Yeah. It'll be at some time in November that we wind up mining there, but the ounces will continue to come off at, you know, through the quarter.
Right. Okay. Just kind of revisiting inflationary kind of comments. As you're kind of ramping up the phase III Expansion, can you just remind us in terms of like what additional manpower you have to bring on through contractors and how you're finding that availability? We're hearing a bit of labor market tightness in Canada, and are you seeing any signs that the higher diesel price is starting to kind of revive, you know, demand in the oil patch for people and increasing competition for staff there?
On the contractor side, I mean, I would say, we are, you know, as everyone is, the labor market is tightening up. It hasn't hurt, you know, our Canadian operations. It hasn't hurt any of our operations, frankly. You know, our turnover rate hasn't gone up appreciably kind of year-over-year for the last number of years. As we need to bring on contractors for various, you know, things, I mean, you know, sinking a shaft is not a lot of people. It's a lot of time. You know, we've now awarded that contract to Redpath. I think we can say that. I don't think that's confidential.
You know, they have a good supply of contractors, a lot of them Canadian-based, that like to work in their home country and close to home. I think that'll be fine. You know, building a paste plant or expanding a mill, you know, those will also be contractors, and we'll be, you know, contracting with outfits that will supply those folks. If it's tougher to get people, the costs associated with that may go up a little bit, you know.
We're not quite there in our contract letting yet, but we have, you know, secured the, you know, the shaft sinking portion of this, and we're not seeing, you know, any concerns with that.
All right. Thanks very much. Just one more down in Mexico. What should we be kind of modeling for a rehandle cost of the stockpiles there on a $ per ton basis?
It's around $1 a ton U.S.
Thanks. Can you? It's been a while since I've revisited this, but diesel prices used to be kind of independent of spot market in Mexico. Is that still the case where the government still dictates, you know, how prices kind of change year to year?
You wanna take that, Jamie?
Yeah, yeah. No, I think you're right. I mean, we pay to Pemex, the state monopoly, but I think the current rate we're paying is more consistent with market prices.
Okay. All right. That's it for me, guys. Thanks so much.
Thank you. Once again, please press star one on your device's keypad if you have a question. The next question is from Kerry Smith from Haywood Securities. Please go ahead.
Thanks, operator. The first question I had maybe for Peter, just with this, slower leach cycle and the higher reagent costs for that stockpiled ore at Mulatos, is there any concern that that maybe the ultimate recovery on that material won't get to what you're targeting and maybe the reagent costs will actually be higher on average over the course of time? Or are you thinking it's still gonna be similar recovery to what you sort of expected, just gonna take longer?
There's a couple of things going for us. I mean, yeah, the reagent costs are higher on that stuff, as it's been sitting there longer, sulfidic ore. You need to put more lime on it, more cyanide on it to, you know, leach the gold. It is also higher grade, so that's going for us. Recoveries are also, you know, maybe not as bad as when we put it down there. There's a lot of things at play there. You know, of that, whatever we have, 6 or 7 million tons left of stockpiled ore there, is there a portion of that that, you know, is too low grade or low recovery or high reagent costs to process? There's a chance of that.
You know, we'll work through that, and we won't put it on the pad if it doesn't make sense.
Okay, so you're not really that concerned about it. It is a bit slower, but you're not worried that you're gonna lose
Yeah, it's slower 'cause it's sulfide. It's lower recovery because it's sulfide. It's higher cost because it's sulfide. Yeah, I mean, it's just gonna be. It's gonna cause us a lumpy couple of quarters, but then we'll be lumpy in the other direction with the La Yaqui Grande. It's gonna be booming. So, you know.
Right. Okay, that's helpful. Thanks, Peter.
Yeah.
Then maybe for Jamie, just on the $137 million of CapEx at La Yaqui Grande, can you remind me how much of that was the pre-strip, and how much of that pre-strip is actually done as of today? I think you know, you gave in the disclosure how many tons you've moved. I'm just wondering percentage-wise how much of that pre-strip is actually done.
Yeah, about 75% of the total capital cost of La Yaqui Grande was pre-strip. In terms of our percentage completion on that, I don't have that number in front of me, Kerry. We're on track and on schedule. As Peter said, you know, once La Yaqui Grande comes online, we'll be, you know, production is gonna increase pretty dramatically, and our costs are gonna be cut in half. We remain on schedule and, you know, even better, we remain on budget. Like, we're consistent with our capital budget there. We're not seeing any cost overruns.
Okay. Okay, that's awesome. Thank you. Peter, can you elaborate a bit more on what the issue was with the mill?
Yeah. I mean, a couple of power bumps, and fried motors and sanded out CIL tanks that take days to un-sand by hosing them out, followed by getting it back up and running, burning out pumps and waiting for new pumps to show up. It was just unfortunate. You know, we are now, you know, we have, like, many spare pumps on site to deal with any similar thing in the future. It is a I mean, that mill was built in 1985, and it's been expanded a few times, and we're gonna expand it again. We'll expand it really good this time.
Okay. Thanks very much. Appreciate it.
Kerry, if I have anything to say about it, we're not gonna expand it again. We're debating that right now, and we're waiting for the numbers to come in by the end of this quarter, and I'd like to think it's gonna go a lot better than that.
Right. Okay, great. Thank you, John. Appreciate it. Bye now.
Operator, are there any further questions?
My apologies. There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932.