Good morning. I would now like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead, sir.
Thank you, operator, and thanks, everyone, for attending Alabos' Second Quarter twenty twenty Conference Call. In addition to myself, we have on the line today both John McCluskey, President and CEO and Peter McPhail, COO. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q and 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 and A, as well as the risk factors set out in our annual information form.
Technical information. This presentation has been reviewed and approved by Chris Bostwick, our vice president of 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. With that, I'll turn the call over to John to provide you with an overview.
Thank you very much, Jamie. Good morning, everyone, and welcome to the call. We had a reasonably good second quarter despite having to adjust to operating in a challenging COVID-nineteen environment. Importantly, we advanced several of our key growth initiatives, which culminated in the completion of the lower mine expansion at Young Davidson, the announcement of the Phase three expansion at Island Gold and the Liaki Grande construction decision earlier this month. With respect to our operations, we produced 78,400 ounces of gold in the second quarter.
Production was impacted by temporary suspensions at Island Gold and Mulatos for more than a month related to COVID-nineteen. Consolidated total cash costs of $933 per ounce and all in sustaining costs of $12.76 dollars per ounce were also affected. Given the impact of COVID-nineteen on our second quarter results, we've revised our full year 2020 production guidance slightly lower to 405,000 ounces to 435,000 ounces. We also made minor revisions to our cost guidance, with total cash cost guidance increasing 3% to a range between $780 to $820 per ounce, and all in sustaining cost guidance increasing 2% to $10.30 dollars to $10.70 dollars per ounce. This primarily reflects higher costs at Young Davidson in the second quarter due to the delay in completing the tie in.
With Mulatos and Island Gold resuming operations in May and returning to normal operating levels in June, and the lower mine expansion at Young Davidson completed earlier this month, we expect much stronger production and significantly lower costs in the second half of this year. Moving to Slide four. As previously discussed on our quarter call, we implemented increasing increasingly strict health and safety protocols across the company with the emergence of COVID-nineteen, ranging from medical screening for all personnel prior to site entry to social distancing practices across our our operations. At the May, we began safety ramping up operations at Island Gold and did the same at Mulatos towards the end of the month. All of our mines are now operating at normal levels, albeit under strict health and safety protocols.
These protocols continue to evolve as we look for the best ways to keep our workforce and communities safe. Our strong outlook is detailed on Slide five. We started the year working towards several significant catalysts as part of the transformational year for Alamos. Earlier this month, we delivered on three of these catalysts. The completion of the lower mine expansion at Young Davidson will be a step change for that operation, meaning higher production, lower costs and lower capital going forward.
This will be a big driver of strong company wide free cash flow growth in the second quarter second half of twenty twenty and beyond. At Island Gold, the Phase III expansion will double the mine life and give us a bigger, lower cost and even more profitable operation. Finally, the Eliaqui Grande project adds low cost, high return production to the Mulatos complex. With Island Gold and Mulatos operating at normal levels, Young Davidson ramping up to 7,500 tonnes per day, we expect higher production and much lower cash costs to drive strong free cash flow growth in the second half of this year. 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 six in the presentation. We sold 74,600 ounces of gold at a realized price of $1,692 per ounce for revenues of 126,000,000 in the quarter. Total cash cost of $933 per ounce were temporarily higher, primarily reflecting the COVID nineteen related delay in completing the lower mine expansion at Young Davidson. All in sustaining costs of $1,276 per ounce were also impacted by sustaining capital being spread across lower production at all of our operations.
As John mentioned, we expect costs to decrease significantly in the second half of twenty twenty. Despite the downtime and lower production at Milatos and Island Gold during the quarter, both operations performed well, generating $19,000,000 and $9,000,000 of mine site free cash flow, respectively. Operating cash flow before changes in noncash working capital was $45,000,000 or $0.11
per share in the second quarter.
Our reported net earnings of 12,000,000 or 3¢ per share included unrealized foreign exchange gains of 10,000,000 recorded within deferred taxes, partially offset by COVID nineteen costs of 6,500,000.0 at Island Gold and Mulatto and other onetime losses of 1,900,000.0. Excluding these items, our adjusted net earnings were 10,000,000 or 3¢ per share. Capital spending totaled 55,000,000 in the second quarter, including 14,000,000 of sustaining capital, 39,000,000 of growth capital, and $1,000,000 of capitalized exploration. Majority of the growth capital was spent on completing the lower mine expansion at Young Davidson, advancing work on the tailings facilities at both Young Davidson and Island Gold, and other infrastructure projects at Island Gold. With the announcement of the phase three expansion at Island Gold and the positive construction decision for La Yaqui Grande, we are increasing our capital guidance for 2020.
We now expect to spend between 205 and 235,000,000 this year, an increase of $2,530,000,000 from our previous guidance. This includes an expected 20,000,000 increase in gross capital at Island and a 10 to 15,000,000 increase at Mulatos for the development of La Yaqui Grande. This is partially offset by lower capitalized exploration at Island Gold with exploration activities having been suspended for a good part of the second quarter. We repurchased an additional 527,000 shares under our share buyback program early in the quarter at an average price of US $5.05 per share, more than 50% below our current share price. We also paid a quarterly dividend of 6,000,000 in June.
In total, we've returned 9,000,000 shareholders in the second quarter and 17,000,000 year to date.
We ended the quarter with cash of 201,000,000,
30,000,000 of equity securities, and 400,000,000 of additional liquidity. This includes the 100,000,000 drawn on our 500,000,000 revolving credit facility in the first quarter to enhance our financial flexibility given COVID nineteen. We have no additional debt. With the completion of the lower mine expansion at Young Davidson, we have transitioned from a reinvestment phase to a period of strong free cash flow growth. We are well positioned to fund our internal growth initiatives while also growing our net cash position and returning additional capital to our shareholders in the form of higher dividends.
I'll now turn the call over to our COO, Peter McPhail, provide an overview of our operations. Peter? Thank you, Jamie. Moving to Slide 7. Young Davidson produced 23,100 ounces in the second quarter, with total cash cost of $15.64 dollars per ounce and mine site all in sustaining cost of $18.00 $9 per ounce.
Production and costs were impacted by the Northgate shaft being down for the entire quarter to complete the tie in at the upper and lower mines. As previously announced, this was delayed about a month into July due to COVID-nineteen related to labor constraints. During the downtime, ore was trucked to surface from remnant stopes in the upper mine at a rate of approximately 2,700 tonnes per day. Given the delay, we have revised our full year production guidance at Young Davidson to 135,000 to 145,000 ounces and increased our cost guidance. With the lower mine expansion now complete, we are expecting a much stronger second half with production increasing to a range of 83,000 to 93,000 ounces and total cash costs decreasing sharply to between $800 and $840 per ounce and mine site all in sustaining costs decreasing to between $990 and $10.30 dollars per ounce.
Over to Slide 8. The completion of the lower mine expansion is a significant milestone and game changer for the operation. We are now operating from the new infrastructure that is bigger, more efficient and more productive. Underground mining rates increased from approximately 2,500 tonnes per day earlier this month to 6,500 tonnes per day currently and are expected to continue to increase to 7,500 tonnes per day by the end of twenty twenty. In addition to driving production higher to over 200,000 ounces annually, it will also drive costs lower.
Furthermore, with the completion of the expansion, our capital spending will trend lower going forward. Collectively, we expect this to drive strong free cash flow growth starting in the third quarter. Over to Slide nine. Island Gold produced 19,400 ounces during the second quarter, a total cash cost of $5.00 $1 per ounce and mine site all in sustaining costs of $781 per ounce. Production was lower, reflecting the temporary suspension of operations from the March to the April.
We began a phased restart of the operation in early May. The operation is performing well within the mine with mining miller grades increasing to average above 1,200 tonnes per day in June. Mine grades of 7.28 grams per tonne for the quarter were impacted by the deferral of high grade stopes into the third quarter. As such, mine grades are expected to increase in the second half of the year. Given the downtime in the second quarter, we have tightened our full year production guidance to between 130,000 to 140,000 ounces while keeping cost guidance unchanged.
Looking to the second half of the year, we are expecting stronger production, reflecting higher grades and mining rates. Moving to Slide 10. Iron gold is already a variable profitable mine, but as outlined in the Phase III expansion study, it's going to grow into an even more profitable operation. After an extensive review of multiple scenarios, the shaft expansion to 2,000 tonnes per day was clearly the best option to take this operation forward, having the strongest economics, being the most efficient and productive, and far and away having the lowest operating costs. Over to Slide 11.
Following the completion of the shaft in 2025, gold production will increase to average 236,000 ounces per year at industry low all in sustaining cost all all in sustaining cost of $534 per ounce. At a 1,750 gold price, which is starting to look conservative relative to spot prices, Ireland will generate more £200,000,000 of free cash flow a year. This is clearly the best option based on what we know now. Furthermore, as shown on Slide 12, the shaft gives us the greatest exposure to future exploration upside, particularly at depth. The deposit is open laterally and down plunge, and we're confident the reserve and resource grade base will grow further.
The shaft gives us the future flexibility to ensure we capitalize on that growth. For additional information on the shaft expansion and the benefits it will bring, I encourage you to visit our website to review the webcast we held on July 15. Moving on to Slide 13. Mulatos produced 35,900 ounces in the second quarter, a total cash cost of $750 per ounce and mine site all in sustaining cost of $890 per ounce. Despite the temporary suspension of operations in April and through most of May, Mulatos performed well, benefiting from the large inventory of ounces stacked on the leach pad prior to the shutdown.
While the lower tonnes mined and stacked during the downtime did not have a significant impact on the second quarter, it is expected to have some impact on production in the second half of the year. As a result, our full year production guidance has decreased 10,000 ounces to 140,000 to 150,000 ounces, while our cost guidance remains unchanged. Moving to Slide 14. Looking ahead, La Yaqui Grande will be a big part of the future of Mulatos and a significant driver of lower costs. Earlier this week, we announced results of the positive internal economic study on La Yaqui Grande, highlighting it as our next low cost, high return project in the Mulatos district.
At our base case gold price assumption of $1,450 per ounce, La Grande has an after tax IRR of 41%. At $17.50 per ounce, the return increases to 58%. This follows similarly high returns for our La Yaqui phase one and Cerro Pelon operations and highlights the type of potential in the Mojave District. La Yaqui Grande is fully permitted and expected to produce a 123,000 ounces per year starting the third quarter of twenty twenty two at mine site all with sustaining costs of $578 per ounce. This will replace higher cost production for the main Milanesas pit, keeping combined production at around 150,000 ounces per year, but at substantially lower cost.
Initial capital of $137,000,000 is expected to be spent over the next two years starting in the second half of twenty twenty. We expect Mulatos to self finance the development of La Yaqui Grande. With that, I'll turn the call back to John.
Thanks very much, Peter. We'll now open the lines to your questions. And with that, I'll ask the operator to take over the call. Operator?
Thank you. We will now take questions from the telephone lines. Please press star one at this time if you have a question. There will be a brief pause while the participant register. Thank you for your patience.
The first question is from Cosmos Chiu from CIBC. Please go ahead. Your line is now open.
Hi. Thanks, John, Jamie and Peter for the conference call. Maybe first off, my question is on La Yaqui Grande. Good to see the positive decision that was made two days ago and a very strong IRR. But could you remind us in terms of the CapEx profile, the timing?
I think you touched on it. And how that kind of fits in, in terms of the CapEx needs for Island Gold phase three?
Cosmos, it's it's Jamie here. I I can take that. Yeah. I think we we announced in in the press release that the total capital for the project is about a 137,000,000 US, I believe. We should spend between 10 and 15,000,000 of that this year, and that's the reason for the slight increase in Mulatto's capital guidance, for the remainder for the second half of twenty twenty.
And we spend up to a 100,000,000 of that in 2021. So, I I mean, at these gold prices, Mulatos is able to entirely self finance that. So if you look forward into 2021, you know, Young Davidson at at these prices is generating $140,150,000,000 in in free cash flow. Mulatto or Island and Mulatos are both generating about 50,000,000 in in free cash flow net of all their capital related to the phase three expansion at Island And La Yaqui Grande construction at Mulatos.
Mhmm. And how does that so that, you know, the bulk of that CapEx is gonna come before you need to spend any kind of money on Island Gold,
basically? That's right. I mean, we'll we'll start next year. We have some capital related to phase three, some growth capital in our Island budget for 2021. But net of that, island's still generating $5,060,000,000 of, of of free cash flow.
Once La Yaqui Grande is built, you've got both Young Davidson and Mulatos generating well north of a 100,000,000 a year in free cash flow. And Island able to self finance as as a majority of the phase three expansion. So we're we're very well positioned. We're we're not gonna need to use much, if any, of our balance sheet. Rather, this this growth will be entirely self financed.
Mhmm. And then, you know, nothing is gonna happen, but, you know, certainly Turkey, what if that comes back in? What if you need to restart sort of construction in Turkey? How does that kind of fit into the picture in terms of capital allocation?
Yeah. I think from a spending perspective, it would be, you know, if we get the permit reinstated, it would be six to twelve months before we we start heavily ramping up the spending. And, you know, the project has a north of a 100% IRR at these gold prices. So it's it's obviously something we'd we'd wanna go ahead with with, you know, minimal additional capital. We're we're talking about a 130,000,000 US of incremental capital.
So we'd have we definitely have the ability to, to move forward with that as well. Mhmm.
And and that maybe a bit more on the La Yaqui Grande here. You know, as you mentioned in your press release, you know, a lot of that ore is gonna be replacing higher cost, production coming from Mulatos. But is there any kind of scenario whereby it will be in addition to, you know, Mulatos main pit production whereby, you know, instead of 150,000 ounces, you could, you know, be pushing, upwards to 200,000 ounces, which, you know, I believe that, you know, Mulatos, that's where it was at at one point in time, you know, many years ago. But, is there a scenario whereby that could happen?
Yeah. I think under our under our existing plans, I I mean, we've got about six different sources of of of ore at Mulatos between Cerro Pelon, La Yaqui Grande, the various Mulatos pits and the stockpiles we have. So our our plan is to have a relatively smooth production profile averaging around a 150,000 ounces over the next six years. We do have the flexibility to increase production, particularly at at La Yaqui Grande by, effectively just adding trucks and increasing the mining rate. So that's something we'd, we could consider if it made sense to do so.
But having a sustained increase in production above 200,000 ounces a year would would require us, you know, to have some success on the exploration front.
Mhmm. Of course. And maybe maybe a question on the financial side here. You know, certainly, I don't know how to forecast this, but the US dollar, you know, Canadian dollar nowadays, it seems like the Canadian dollar is strengthening against the US dollar. Maybe, Jamie, could you, you know, remind us of your hedging strategy, how much is being hedged right now, and, you know, how we should look at it on a go forward basis in terms of I don't wanna call it risk mitigation on the foreign exchange component, but I guess that's what it is.
Yes. It's certainly so we've as of as of today, we've got about 50% of our Canadian dollar exposure hedge for for the remainder of 2020. And a pretty tight collar range between 74 and 76¢. So spot is right right in the middle of that that range currently. And that's that's generally what we try to do.
We we use collars to try to approximate our our our budgeted rate, which was 75¢ for the year. So it's it's it's short term in nature. We don't generally go out too too far. We're we're starting to look into q one of next year. But yeah.
So it's it's a fairly conservative FX hedging program, and we'll we'll we intend to keep it that way.
Mhmm. And then one last question, if I may. You know, on this COVID nineteen, you know, certainly, q two was impacted, but it sounds like you have a lot of protocols in place, and, you know, you're in a good place. But based on observations up until now, you know, any kind of, permanent changes, permanent impact that we could expect, on a longer term basis, you know, in terms of cost, in terms of operations, in terms of efficiencies, anything on that front?
Yeah. I think, from I I mean, you would have seen it with our revised guidance. Our cost guidance is is effectively flat, a slight increase, relative to what we what we published at the start of the year. The COVID cost we reported in our q two financial statement of 6,500,000.0. Those were incremental related to the temporary suspensions of operations at Island and Mulatos.
We don't expect those to recur. You're not gonna see COVID costs in our financials going forward unless we are, you know, required to suspend one of the operations again because of the because of an outbreak or something else. The impact on our operations and productivity, I I think, is is is is fairly muted. We're saying less less than 5%. And at least for 2020, it's it's certainly been offset by the, the weaker currencies and and then diesel prices that we've seen.
But we we wouldn't expect the the changes that we've made to have a material impact on our cost structure at any of our mines.
Great. Thanks a lot. Those are all the questions I have. Thank you.
Thank you. The next question is from Kerry Smith from Haywood Securities. Please go ahead. Your line is now open.
Thanks, operator. Peter, you you say that you'll be at 7,500 tons a day from the underground at YD by the end of the year. How long would it take you to get to 8,000 ton a day roughly? Is that does it take another six months to get there so that would be the middle of next year?
Hey,
Carrie. I don't know. We haven't we haven't entered into our our budget setting yet, but, you know, I would expect that we'll be getting into 8,000 at some point Mean, 7,500 tons a day. And we'll see we'll see as we go through this the the latter half of this year.
But, I mean, the mine is is currently really well positioned, would say, with all that brand new infrastructure, lots of broken ore underground, lots of drilled off ore underground. We're we're in pretty good shape right now. So, yeah, we'll we'll see. I don't wanna give you a prediction.
Okay. Okay. And then just a second question on YD. Do you plan to maintain any sort of a surface stockpile from underground, or you're just gonna have that the fine ore bins underground, the 6,000 tons for excess sort of ore?
Yeah. I mean, it it could we could end up with an underground ore stockpile on surface. It depends on on, you know, if if the, you know, drilling mill shutdowns and things like that, we could put a little bit out in the yard. We have the capability of doing that. We wouldn't expect it to be significant, though.
We've got lots that we've gone from, as you know, something like very minimal amount of storage, like five five hundred tons of storage in the in the upper mine infrastructure to, jeez, six, seven thousand tons of storage currently in in the lower mine infrastructure. So we've got we've got reasonable amount of storage. We also have storage, of course, in in in stopes and and things like that. So, I mean, we've got we're a much better place than we've ever been.
Okay. But but if I mean, is is a day a day of storage capacity, day of milling capacity is enough in terms of storage? It just seems like you'd probably wanna have a bit more, I guess, is what I'm wondering.
Yeah. We'll probably end up with a few days on surface to to, you know, to to go to if we have to.
To just to manage. Okay. Okay. That's great. Thanks.
Thank you. There are no further questions at this time. This concludes this morning's call. If you have any further questions that not have not been answered, please feel free to contact mister Scott Parsons at 41636899323689932 extension 5439. Thank you for your participation.