Great. Thanks. Good morning, everyone. I'm Tyler Langston, JPMorgan's Metals and Mining analyst. With us this morning, we have, Jamie Porter.
He's the CFO of Alamos Gold. So, thank you, for joining us this morning, Jamie. And I think, to kick things off, Jamie was just going to start, with the presentation, and then we'll switch over to some Q and A. So, I'll hand it over to you, Jamie. Thanks.
Thanks very much, Tyler. Thanks for the introduction, and thanks to you and JPMorgan for inviting us to present at the conference today. Please note that I will be making some forward looking statements as part of the presentation, so I would encourage you to refer to our cautionary notes disclosure on Slide two of our deck. If we move over to Slide three, this slide does a good job of really introducing Alamo. So it gives you a good idea of who we are and where we're going over the course of the next five years.
We're a growing diversified intermediate gold producer with a very low risk strategy and a strong growth outlook. We'll produce approximately 500,000 ounces of gold this year, which represents a 15% production increase relative to 2020, And that increase has been driven by completion of the lower mine expansion at our Young Davidson mine in Northern Ontario. We have the potential to grow production from 500,000 ounces a year to 750,000 ounces per year over the course of the next five years through both the expansion of our Island Gold mine and the construction of what will be our third mine in Canada, our Little Lake project, Northern Manitoba. While we're focused on growing production, we're also focused on expanding margins and improving profitability. We anticipate a 24% reduction in all in sustaining costs over the course of the next five years.
So this year, we'll average around $1,050 per ounce going to $800 per ounce in 2025. What that's gonna do is drive dramatic free cash flow growth and a significant ongoing annual free cash flow, 2025 and and beyond. We've always employed a very conservative and low risk strategy. We tend to operate in very safe jurisdictions. We have 100% of our gold production coming from North America, with 70% of that coming from Canada.
From a financial perspective, again, we're very conservative. We prefer to shy away from debt. We've generally had a strong cash position on our balance sheet. And I think that financial conservatism has served us very well. It's positioned us to be acquisitive at the bottom of the market when perhaps others haven't been able to.
We have a slide later in the deck where we'll talk to some of the value that we've created for shareholders through M and A over the course of the past several years. We also tend to build projects at a pace that we can afford. So we use the cash from our balance sheet and cash flow from operations to build out our development pipeline. That means we're not reliant on external financing, and we can really drive strong organic internal growth. What that leads to is a sustainable business model that supports growing returns over the long term.
I think we've done a good job of reinvesting in our business and ensuring that we continue to grow and the results in terms of performance really speak for themselves. We have a 13% average annualized return since the company was founded in 02/2003. Over that same period, we've returned over $2.00 $8,000,000 to shareholders in the form of dividends and share buybacks. So long term track record of success that we want to look to continue going forward. If we move on to the next slide, a few points on ESG.
I'd say that the common theme at Alamos with respect to ESG is really continuous improvement in terms of everything that that that we do. On the environmental front, we're always looking for opportunities to reduce our our footprint and and minimize impacts. You can see on on on this slide that we do fare quite well relative to our peers, both in terms of GHG emissions and in terms of water efficiency on a per ounce of gold produced basis. Despite that, we're always looking for ways to do better. We have initiatives underway at each of our sites to further reduce our GHG emissions.
At our Miladros mine, we're in
the process of connecting to the grid to reduce our reliance on diesel power generation. At Young Davidson, with that lower mine expansion that a reference complete, we've really automated the mining process and cut back on
the number of trucks that we need to use for mining there. And at Island Gold, our Phase III expansion, our shaft expansion is going to result in a 35% reduction in GHG emissions. From a social perspective, first on safety, and safety is a core value of the company. It's we have a strong safety culture, safety is key to everything that we do at Alamos. We have a program we call Home Safe Every Day, and again, that's very focused on continuous improvement.
And you can see the results of that here in this slide with a 59% reduction in our LTI or lost time injury rate over the course of the past three years. With respect to our local communities, we're always looking for ways to provide lasting long term benefits that will extend beyond the life of our mining operations. A great example of this is a community investment infrastructure in, Matarachi, which is a a town proximate to our Mulatos mine where we've invested heavily in hospitals and and education and increased the housing stock and and community centers. We've been awarded for our our our work in Mexico, and it's a it's a great, example of of of what we try to do, in terms of creating long term lasting benefits. From a governance perspective, we have a very diverse and independent board.
We do very well in in terms of leading governance rankings. We are local council members and are working towards adoption of the responsible gold mining principles. Again, go back to that constant theme. We're always looking at ways to do better and continuously improve in terms of both what we do and how we go about disclosing it. If we move on to Slide five, this slide provides a snapshot of our first quarter results.
We had an excellent start to the year, 01/6000 ounces of gold production, which exceeded our guidance for the quarter, and our costs were in line. That strong performance was led by our Canadian operations, where we set records at both Young Davidson and Island Gold. At Island Gold, we had very high grades mined during the quarter, which led to another quarterly record in terms of production and generated $30,000,000 of free cash flow, so phenomenal quarter at Island. At Young Davidson, we hit record mining rates for the quarter. So we planned on achieving mining rates of 7,500 tonnes per day, and we exceeded that and had a strong financial performance as a result as well.
So $120,000,000 of operating cash flow generated in the first quarter of twenty twenty one, which was almost a 50% increase relative to the prior year quarter. Phenomenal financial performance across the board. We did reinvest heavily in the business. We invested about $90,000,000 in capital expenditures in Q1, focused on building our La Yaqui Grande mine in Mexico and on the Phase III expansion at Island Gold. But net of all that, we added $10,000,000 to the balance sheet in the quarter.
So ended with a very strong cash position of GBP $236,000,000. Moving over to Slide six. Here, we really highlight that reinvestment in growth and how important that is to our sustainable business model in
terms
of supporting growing returns over the long term. We take a very balanced approach to capital allocation. So we take the free cash flow that we generate from our mines, and we split it into three categories: the first being returning capital to shareholders in the form of dividends or share buybacks second category being strengthening our financial condition and improving our balance sheet and last but not least, the third category is that reinvestment in high return internal growth projects. So if you look at what we've done over the course of the past three quarters since we completed the lower mine expansion at Young Davidson, we've generated about $144,000,000 of free cash flow over that period. And how have we used it?
Well, we've increased our dividend by 70%. We bought back stock, so we've certainly returned capital to shareholders and increased the ongoing returns to shareholders. We've strengthened our balance sheet in that we've repaid $100,000,000 of the stronger revolver. We've increased our cash balance to just under $240,000,000 And we've reinvested in those high return internal growth projects. We've effectively doubled our exploration budget company wide.
We are building that La Mexico, and we've started the expansion of the Island Gold operation with the shaft expansion project that we initiated late last year. So we are currently in a very in a period of heavy reinvestment and growth, and this will continue until 2025, at which point our capital spending really starts to decline and our free cash flow increases quite significantly. If we move on to Slide seven, this slide really illustrates the strength of our existing production base and how we see that growth coming about over time. Our three existing producing mines, Young Davidson, Island Gold and Mulatos provide a very solid long life production base in around 500,000 ounces per year. That will grow to 600,000 ounces per year in 2025 once we've completed the phase three shaft expansion at Island Gold, which is going to drive production at Island from approximately 140,000 ounces to 240,000 ounces per year.
Also in 2025, we anticipate completing construction of our Lynn Lake project in in Northern Manitoba. And once Lynn Lake comes online, that adds another 170,000 ounces of low cost production. So that gets us to a consolidated global total production of 750,000 ounces, again, at substantially lower costs. We'll be running around $800 all in sustaining costs. So it's, again, tremendous free cash flow growth coming in 2025 and beyond.
If we move over to Slide eight, we've been very successful over the years in creating shareholder value through both M and A and exploration. This has effectively provided the foundation for the outlook that we have today. We start with Mulatos on the far left of this slide. Our CEO acquired Mulatos back in 2003 for less than $10,000,000 The mine was built for $70,000,000 and to date has returned over $460,000,000 in net free cash flow. In addition, it has a $530,000,000 consensus now in value ahead of it.
So that's a $10,000,000 investment that's created $1,000,000,000 of shareholder value, and it's really the blueprint for the company's success. We move over to the middle of the slide. We see our Young Davidson mine. We acquired Young Davidson through our no premium merger of equals with Aretha Gold back in 2015. Since that acquisition over the past six years, we've been operating the upper part of the Young Davidson mine, taking cash flow from that operation to fund construction of the lower mine infrastructure, which is bigger and better and allows us to increase production.
With that now complete, we'll be operating Young Davidson for decades to come at 200,000 ounces per year. And at that rate of production, Young Davidson will generate $100,000,000 per year in free cash flow. So you can see, again, the acquisition cost $950,000,000 and we've driven the value of Young Davidson up to consensus NAV currently of approximately $1,500,000,000 so a 50% increase in value. Last, but certainly not least, is our our Island Gold mine. So we we acquired Richmont Mines in November of twenty seventeen, and and in so doing, acquired Island Gold.
We paid approximately 620,000,000 US for the asset. Since in in the three and a half years since acquisition, Island has returned approximately 200,000,000 in cash, and it has a consensus now ahead of a one of $1,300,000,000. So we've we've dramatically increased the the size of this deposit. It was 1,800,000 ounces of total reserves and resources when we acquired it. We went from 1.8 to 2.7 to 3.6.
We now set as of the end of last year, 4,800,000 ounces of total reserves and resources, and we're confident that that's going to continue to grow. We added 1,000,000 ounces of high grade 18 gram material last year despite spending only half of our exploration budget. So Island is a really exciting growth story for us. I I think it you know, there's no question in our minds that this will be a 5,000,000 plus ounce deposit with a NAV in excess of of of $2,000,000,000 once we've completed resequencing to get some of that higher grade material adapting into the mine plan and once we expand the resource even further. So tremendous value creation through M and A.
So I'll end on this final slide. I'll close out the presentation, just touch briefly on valuation. As you can see from the chart on the bottom right, we are trading at a discount to consensus net asset value, I think, currently around 0.78 times, suggests that record that represents a great entry point for investors and certainly an attractive investment opportunity just given the quality of the company. We have high quality long life assets. We have that 50% production growth over the course of the next five years relative to our peers with a very low political risk profile, again, with 100% of our production being based in North America.
Extremely strong balance sheet, again, $240,000,000 of cash and £500,000,000 line of credit, so £740,000,000 of available liquidity and a very strong free cash flow outlook. So we believe that we've got all the qualities required for to attract a premium valuation, and we think it's just a matter of time before we get there. So with that, Tyler, I'll wrap up the formal part of the presentation. I'll turn it back over to you.
Great. Thanks, Jamie. I guess maybe just to start, you kind of you mentioned how basically it's the expansion at Island Gold and the development of Lynn Lake are sort of the two projects that should drive the growth going forward. I guess, you know, with both, could you just talk about, I guess, you know, some of the potential risks, you know, around those projects or, you know, sort of on the other side, just the potential upside, you know, from them just so we can kind of frame the opportunity?
Certainly. I think I mean, I touched on some of the upside in that M and A slide. I think we're very confident that Ireland's just going to continue to grow, and we'll be able to expand production through either higher grades coming into the mine plan earlier or through higher tonnage. But our Phase three expansion at Island Gold, it's really an expansion of an existing operation. We've already increased production at that mine by 50%.
When we acquired it from Richemont, they were operating at about 800 tonnes per day. So we've moved that up to initially to 1,100 tonnes per day, and now we're operating at 1,200 tonnes per day. So we've already gone through the process of of completing an expansion there before. Now what we're looking to do is is move production from 1,200 up to 2,000 tonnes per day, sink and and construct a a shaft and and really automate the the mine and make it more efficient and more cost effective to access those resources at depth. But I think in terms of risk, mean, it's an operating mine, so we're permitting an expansion of an operating mine, which is far different from, you know, construction of of an entirely new deposit.
The shaft construction itself, I'd suggest, is is low risk just given our our experience. I mean, we have our general manager at Island Gold, Austin Hemphill. He was the underground mine superintendent at Young Davidson, while we built both the MCM and and Northgate shafts there. So he has a lot of experience in that regard. We have a great project team working on it.
In terms of just the overall spend, we've got $05,000,000,000 of capital allocated to this project over the course of the next five years. And to date, everything seems to be, lining up with what we've projected. We just awarded the contract for the ShaftSync. It's about $100,000,000 contract. And the timing, the cost, everything is well within what we've planned as part of our Phase III study.
So we're very comfortable with that. I'd say, you know, if there's a risk, it's it's permitting. I don't think it's a question of, you know, if we get the permits, just a question of of when. Timing with respect to to to the permitting, you know, especially with COVID having been thrown in can, there can be minor delays there. But overall, we're we're very confident in in both the timeline and in the capital budget that we've, that we've put forward there.
So that's Island At Lynn Lake. It's a really straightforward project. It's an open pit conventional milling. It's got a lot going for it in terms of very strong provincial government support. We've been working very closely with provincial government all along, and our investment in Northern Manitoba aligns extremely well with their COVID economic recovery plan of infrastructure spending.
So we're actually working with them on, projects related to upgrading our power line and, more road infrastructure and things like that. So the so the province is behind us. We do have access to very cheap hydroelectric power being where we are in in Northern Manitoba, and we've got great exploration potential. So I think from a from the risk of of of of whether we go ahead and make a construction decision, I I I think we're we're confident that we'll move forward with Lynn Lake. We've increased we did our initial feasibility study back in late twenty seventeen based on a reserve of 1,600,000 ounces.
We've added 5,000,000 ounces to that. So this project at consensus gold prices has well north of the 30% it will be a go. And in terms of constructability and everything else, again, there's great infrastructure in place, it's a pretty straightforward project.
And then I know you mentioned for Island Gold, you know, sort of the costs that sort of generally been tracking in line, for the expansion. Just in terms for your current operations, in Lynn Lake, I mean, you seeing just sort of any general signs of inflationary pressures or not inflationary pressures, just, you know, sort of difficulty, difficulties with the supply chain or, you sort of winding things up, you know, from that perspective?
Yeah. I'd say, I mean, get that question a lot, with respect to our existing operations, and we're seeing, you know, some cost inflation, but nothing overly significant at this point. I mean, the the big thing that's affected us this year is is really the Canadian dollar. We did our budget at at 75¢, and, you know, Canadian dollar's been as high as 83. It settled back down around 80¢ currently, but that's got about a $50 per ounce impact on our all in sustaining cost just given the amount of spending that we do in in Canadian dollars.
Know, labor, 2.5 increase this year, which is pretty standard in Canada, 5% in Mexico. We are seeing slightly higher consumable costs in some cases where the inputs are, you know, related to steel. But we do have multiyear contracts for a lot of our consumables as well. So it hasn't overall cost inflation hasn't had a big impact on our operations other than the foreign exchange rate. On the capital side for for Lynn Lake and and, Island Gold phase three, we we will purchasing about, you know, $30,000,000 worth of steel over the course of the next three years.
So so that that that increases in in in the price of steel will certainly, will certainly hit us. But I think, generally, we we're not seeing anything significant. I mean, we have contingencies in place, and and maybe we're, we're we're taking up part of those, but, there's there's no significant inflation that's going to cause us the need to provide updated guidance on capital spending.
Great. And then I guess I mean, I think you mentioned sort of in your prepared remarks that you benefit from operating in stable jurisdictions, and I guess around 70% of your production is from Canada and the rest from Mexico. But I guess could you just talk, just in general, a little bit about sort of geopolitical risks for the industry. We're sort of seeing some things in some countries in South America. So I would just be curious to kind of sort of get your thoughts on sort of what you're seeing and sort of how you think about your assets and sort of growth going forward?
Yes. No, I think I think that's a good question. We have I mean, we've we've been fairly deliberate in in our our approach, in in terms of how we've we've set up the company. If you go back six years ago, you know, we had one producing mine, Mulatos, in Mexico, and that was it. We've been looking we had been looking for that long life, high quality asset in Canada.
We secured our first one with Young Davidson and and followed that up with Island Gold. So we've really repositioned the company away from from Mexico into being a a North American producer. I think, you know, geopolitical risk risk have has been increasing across the industry. You've seen you know, we filed a billion dollar arbitration claim against The Republic Of Turkey as a result of some of the challenges that we've had there. You know, Centerra has had their challenges of late, and you've seen risk of nationalization in Peru and higher royalties in copper and talk of, you know, higher royalties and taxes in Mexico.
So, absolutely, I think we've purposely designed, Alamo so that we're in what we consider to be one of the most stable jurisdictions. And, if you look at what we've done from, M and A perspective over the course of the past couple of years since the Island acquisition, we've been focused on really small transactions in and around our existing mines in Canada that really improve what we have currently. So we bought back a royalty on Island Gold for £50,000,000 that will save us probably twice that over the long term. We acquired Trillium for £20,000,000 at the end of last year. So we've been focused on small deals just making our Canadian assets better rather than taking a big step out into a new, you know, potentially risky jurisdiction for a development project or a small producer.
And then I guess, as you mentioned with the investment treaty claim against Turkey, so I I know sort of the process can take up to five years. But I guess, is there a hope or a possibility that it could be potentially settled, sooner than that?
There there certainly is. I mean, as part of that process, you're you're encouraged to negotiate. So, you know, our our legal counsel suggests that at at the at the outside, it's a five year five year period. I think there's the real potential for another party to potentially come in and arrangement where the permits would be reinstated and we'd be compensated for the projects by this other party. That could certainly happen.
I think, you know, for us, our our process was was effectively frustrated. We've been sitting for eighteen months without without access to any real insight as to when when we get that permit reinstated. So this was the our really our last recourse. And, yeah, I think, ultimately, we're we're comfortable we'll we'll get a multiple of our cost base back. I mean, we filed the claim for a billion dollars.
Our cost base for our Turkish assets is $250,000,000 and we've had, you know, interest at a level, certainly, at multiples of our cost base. So I'm hopeful that that's where it ends up, and I'm hopeful that it does get settled prior to five years from now.
Right. And then, talk a little bit about, but in terms of sort of capital allocation, can talk a little bit about how you think about sort of prioritizing sort of growth versus increasing the dividend versus potentially buybacks? And then I guess maybe just a little bit with the dividend. I think you can sort of focus more on sustainable increases, but have you ever thought about linking the dividend to some sort of equation or formula?
Yes. We've certainly thought about that in the past. Our view has always been, the dividend should be based on cash flow. And, in in periods where we're generating, you know, tremendous free cash flow and don't have, higher return growth projects to reinvest in, then absolutely, we'll we'll increase the dividend. But we've never we've always shied away from from an approach where, you know, we tie the the dividend to the to the gold price or to some specific, percentage of operating cash flow.
I think we we prefer to have the discretion, and that's frankly, I think that's served us, fairly well. We are in a heavy I talked about in the presentation, we're in a very heavy reinvestment phase now. And I think that's what's required to give us that 50% production growth over the next five years. At that point, though, I mean, if you look at the cash flow, it's 750,000 ounces and $800 sustaining costs. We're generating $750,000,000 of, pretax, pre growth capital cash flow annually.
So there will be a tremendous amount of cash available for distribution shareholders in the form of higher dividends, bolstering our balance sheet further and investing in whatever other projects are interesting at that time.
Right. And then maybe I think we have a couple of minutes left. But in terms of you know, ESG, I guess, you, you know, sort of comment, obviously, you know, reducing greenhouse gas emissions, you know, water, you know, those are some of the main topics. But I guess, could you comment, I guess, a little bit about what, you know, sort of Outmost is most focused in those areas?
Sure. I'd say over the past couple of years, it's really been our focus has been on just doing a better job of telling our story. I mentioned I referenced it in the presentation, but these are ESG has been a focus for us since the company was started. It's just inherent in everything that we do. But where I think there was a lot of room for improvement was just in how we measure what we're doing and measure, you know, progress and continuous improvement and, you know, improving our transparency in terms of disclosure in our sustainability report and related filings.
So I think we've done a great job of that. We just filed two weeks ago our 2020 sustainability report. It's the best one we've ever done. And, again, it's it's it's really just getting better, continuous improvement. We have we have a great safe safety record over the last three years, but, you know, how how much can we improve that?
From a, I guess, GHG emissions perspective, it's understanding where we think we can get our operations to, over time. From a climate change risk perspective, you know, we've just completed a study on what the key climate change risks are to Alamos, and and we're in the process of, well, we've certainly updated our our filings to disclose risks around that, but we're trying to just understand that better as a management team so we can manage against it going forward. So I'd say it's really just, you know, formalizing our approach, being more transparent and doing a better job of reporting, what we're doing.
Great. Thanks. Well, I think with that, we only have about a minute left. So I'm trying to squeeze in too many more questions. But, again, Jamie, you know, thanks for for attending this morning.
I really appreciate it, and, take care.
Thanks very much, Tyler. You too.
Yep. Bye. Bye now.