Good afternoon, everyone, and thank you for joining the Alamos Gold presentation and fireside chat. I'm just gonna go over a few slides with you briefly and then open the session to Q and A. I'd like to direct your attention to Slide three, which is just past the opening page and the cautionary notes. So Alamo's gold has grown significantly over the years into a diversified intermediate gold producer. To put that in context, in 2014, we produced 140,000 ounces of gold from the Mulatos Mine.
By 2019, we produced 500,000 ounces of gold from three North American mines. On top of that, we've built up a strong pipeline of growth projects in an industry that by and large is facing declining rates of production. At the same time, costs are decreasing driven by expansions or improvements at our existing operations and low cost production growth. Combined with the rising gold price, we've had a record year financially in 2019. Something that has not changed over the years is that we've continued to have a strong balance sheet with $215,000,000 in cash and $615,000,000 of total liquidity.
With our robust financial position and growing cash flow from operations, we can fund all of our growth initiatives internally. Last but certainly not least, we're focused on creating value for all of our stakeholders and this includes shareholders, but it also references employees, our host communities, and governments, and we have a good long term track record in for doing this on on all fronts. Switching to slide four. I'm gonna talk a little bit about sustainability and creating value for all stakeholders. I won't go into a lot of detail on the slide given the short duration of this presentation, It's important to acknowledge that we are very focused on operating in the right way and we're focused on benefiting all stakeholders that we engage with.
And that's been the case with Alamos since the company was founded in 02/2003. With respect to the environment, we are committed to minimizing our impact by continuously looking for avenues to reduce our footprint and reclaiming areas that we that we impact. And since we started the Mulatos Mine, for example, we've been continuously reclaiming it. After the first year of operation, we'd already spent $2,000,000 on reclamation on areas that we disturbed during the construction phase in areas that we were no longer using after the after the start of the operation. With our employees, that means reinforcing a culture of safety first and always striving to be better through our Home Safe Everyday program.
With our host communities, sustainability means investing in ways that will provide lasting benefits well beyond the life of our operations. With respect to governance, we've built and continue to refine a framework to ensure accountability and that we operate the company the right way by all of the stakeholders and principally our shareholders. Moving to slide five, I'd like to talk for a minute about COVID-nineteen, give you an update on our outlook. Our focus on safety continues to evolve and adapt to new challenges that we face such as COVID nineteen. We've been fortunate as a company to not have had any confirmed cases of COVID nineteen at any of our operations or offices, but that hasn't stopped us from taking action to help prevent the potential spread of the virus.
In March, we instituted a number of increasingly strict health and safety protocols across the company. These range from medical screening for all personnel prior to site entry, social distancing practices across all the operations. On March 25, we voluntarily placed Island Gold on temporary care and maintenance. And in early April, we suspended operations at Mulatos following the mandated shutdown by the Mexican government. These temporary suspensions at Mulatos and Island Gold will have some impact on our second quarter results, but they do not take away from our strong second half outlook.
We began ramping up operations at Island Gold earlier this month and we're well positioned to do the same at Mulatos when the government suspension is lifted. And by the way, there was an announcement today that the suspension is effectively lifted on the May 18. We're also making good progress on the lower mine expansion at Young Davidson, which will be a game changer for that operation. Moving to slide six now, and we're gonna talk a little bit about our first quarter and the impact it's gonna have on our year. So we just reported a a very solid first quarter, and we expect to build on this with stronger results in the second half of twenty twenty.
Consolidated production of a $111,000, 111,000 ounces beat the top end of our first quarter production guidance, while costs were at the low end of our original annual guidance. Combined with a stronger gold price, we generated near record operating cash flow of 82,000,000 up 32% from the first quarter of twenty nineteen. We expect to build on this start by establishing new records in the second half of this year and beyond. We remain focused on returning capital to shareholders with a total of 12,000,000 returned through dividends and share buybacks during the quarter. When our share price was impacted by the broader turmoil in the equity markets, we bought back 1,100,000.0 shares at much lower prices than where we are today.
I think our average cost was just under $5 a share U. S. We also paid a quarterly dividend of $6,000,000 in March, representing a 50% increase from the previous quarter. Since 2018, we've tripled the dividend and we expect further increases to come as we start generating higher levels of free cash flow in the second half of this year. Moving now to slide seven, I'll talk briefly about some of the catalysts that we have coming up.
We've got a number of significant catalysts over the next several months and these will be transformational for Alamos. Our phase three expansion study at Island Gold will be completed by mid year and given the significant growth of the deposit over the past two years, we expect this study will showcase Island Gold as a bigger, more profitable, and longer life operation than where the market currently values this asset. At Young Davidson, the lower mine expansion is in its final stages having recently competed completed several critical path items. These include the installation of the crushing circuit, connecting the ramp system from the upper and lower mines, and removing the rock pentas that separated the upper and lower portions of the Northgate Shaft. And in fact, in a report to management this morning from operations, we learned that most of the the ropes connecting the the shaft to the shaft bottom, so twice the length of what we were currently operating with.
Most of those ropes are now installed, and and we're ahead of schedule in the shaft. The lower mine expansion is expected to be completed in July, and this will be a driver of strong company wide free cash flow growth in the second half of twenty twenty. I'm just going to move now to slide eight. That strong outlook is starting to be reflected in our share price as we've been one of the top performing gold equities this year. We also have a good long term track record of outperformance with an average annualized return of 15% per year since 2003 outpacing the gold price and the TSX Gold Index.
Even with our recent outperformance, we're still attractively valued. Given the catalysts that we have coming up over the next several months, the quality of our assets, our growth, our strong balance sheet, I'm very convinced that we are well positioned to continue with outperformance and close the the gap with the premium companies within our peer group. I would like to thank you very much for listening, and that concludes my the formal port portion of the presentation. And now I'd like to invite Lawson Winder to open up the session for q and a.
John, thank you very much for your presentation. And I I would note you're a very well known CEO and certainly don't require an introduction, but I do apologize for the lack of one at the start of this call. Just a little mix up there. So where I'd like to start is your dividend has been increased several times in the past several years, and you're also participating in buyback as well. And I'd like to pursue how you think about what the right dividend level is and how you balance that with a buyback.
And just to set the context, I wanted to point out that in 2019, you invested $15,600,000 into the dividend, another 11,400,000.0 into the buyback, and the two accounted for about 9% of operating cash flow before working capital changes. And, you know, by comparison, though, in 2013, you guys actually paid out an even higher amount. 25% of operating cash cash flow was paid out, but the majority of it was it was a dividend. Hope hope that helps. Thank you.
Yep. Well, certainly, you know, my preference is for is for dividend dividends over over share buybacks. But we're, you know, we're gonna be opportunistic in a in a highly volatile market. And I I think if you notice when we've whenever we've stepped in and and aggressively bought back shares, it's typically been when there is some sort of market fallout and when our shares are driven down to just ridiculously low levels, you know, generally half or less than half of our of our net asset valuation. And at that point, it it just you know, the fact is we have a very, strong balance sheet, a very strong cash position, and and it gives us the wherewithal to step into the market under our share buyback plan and and and to buy.
But when when the market rises and it's healthy, then we we we we watch and and and we wait. Where the dividend is concerned, that is that is more driven by our our cash flow. And in the past when when we were one mine operator at Mulatos, Mulatos went through a period of about five years where it just year after the other was was ever increasing cash flows as we increased production and lowered our costs. And with the rising gold price during those years, we became step by step a a more profitable company and ultimately generated over 400,000,000 in free cash flow from operations. But we used a significant portion of that cash to pay back dividends.
In dividends we ultimately paid back roughly a $130,000,000 in dividends over that period. And as we come out from this period where we've been aggressively making acquisitions, anybody looking back can see that between 2013 and 2017, we're very busy. We made six acquisitions, two of them fairly substantial ones, MOE with Boreco in 2015 and the acquisition of Richmont Mines in 02/2017. In in the aggregate, it was close to $2,000,000,000 in acquisitions that that we made. And the the net result is we transformed our our company from a single buying operator into a very solidly positioned mid tier.
That took some capital, it took some shares, and it took some investment. But now we're coming out of that and we're going from this heavy investment phase into a cash flow harvesting phase. And as we do that, you're gonna watch our dividend continue to rise. And we started to increase the dividend in absolute terms ahead of that free cash flow coming on just to give a positive indication to the market that we were confident in the plan. But it starts in the second half of this year, and you're gonna you're gonna see us continue to increase our dividends in in conjunction with that rising free cash flow with the idea that as we get into 2021 where cash flows are going to soar beyond where they were in this year, we look to a philosophy where about a third of our free cash flow is going to be used for building up our balance sheet.
A third of it is going to be invested in growth among our operations. We've got several interesting mines that we can build including Guayaki Grande, we've got Lynn Lake, Carodsley still. And finally, a third to a third will go to dividends. So that that's more or less how we we look at it.
With that context, one could imagine the dividend certainly increasing quite a bit from here. That's interesting commentary and
Fully fully expecting the dividend to double by by 2020. It it some something precipitous would have to happen to the gold price. And and and frankly, I'm not a natural gold bull. I spent too much of my career in in a in a bearish gold market, literally from from 1983 through 02/2003, arguably, that was a a bear market in gold. So I've learned to be cautious where where gold is concerned, but we we acquired very aggressively between 2013 and 2017 because we thought that was the bottom of the market.
And if you look at the shape of the curve, I think we were proved right. You know, we we made those acquisitions when when gold was basically trading between 11 and $1,200 an ounce. You know, now we find ourselves at $1,700 an ounce, and I'm I'm looking forward to much higher gold prices in the future. Not gonna be surprised at all to see gold break $2,000 an ounce.
Our firm's actually calling for it to hit 3,000 in eighteen months.
I know. I I've seen that. I'm I I I hope he's right. But by any measure, with these gold prices, we're a highly profitable company, and we're generating great cash flows with our with our our production profile going forward. You start ramping the gold price up through $2,000 an ounce, and and and we become extraordinarily profitable.
Okay. Just to clarify a point there, you said you expect the dividend to double by the end of twenty twenty?
No. I said going going into 2021 as we as we see this very strong free cash flow coming up into 2021, I can see our cash flow or I could see our dividend doubling from where it is in 2020.
Wow. That's a that's a statement. There's actually a question from the call. Think it might have been prompted from several of the comments that you made with regard to M and A. Obviously, you have made several acquisitions, though, in lower gold price environments.
And so the question is, now in the current environment, especially with other intermediate and mid tier producers merging to create newer and larger companies, what is Alamo's m and a strategy in in this environment?
Well, what you'll find is that when when the market's at the bottom and and times are really tough, you you won't find people doing deals. There was very, very little done during those years. And now that the market is is perking up as usual, you know, people will start, you know, getting busy trying to catch up, but they're not going to make the same kind of deals that we made. I mean, can you recall, it wasn't that long ago. We paid just over $600,000,000 for Island Gold.
And people were saying we'd grossly overpaid, bad deal, our share price tanked. Well, you know, the thing isn't the the Island Gold's worth twice what we paid, and that's just two years ago. And it's it's doubled in size. Production's climbed from under a 100,000 ounces a year to a 150,000 ounces a year. Yeah.
We were pretty stupid, weren't we? I mean, it's really funny how how critical the market can be when it doesn't understand something, and it just jumps to the conclusion that clearly the Alamos management and board has finally lost its mind. I haven't received a single phone call to say, wow. I think we got that wrong. That's just the way it goes.
When you do a top of the market deal, you'll you'll find yourself at the front page and and and and fed it by the market. And when you do a bottom of the market deal, you'll find yourself usually heavily criticized. And that's just the way that's just the way it is, and I totally accept that. And I I never complain about it. I'm I'm just pointing it out.
I've basically been involved in companies that always have done this. I started with Glamis Gold in the early eighties, and they were a serial acquirer at the bottom of the market. That's just the way they did things. And that's how Glamis grew from when I joined at an $8,000,000 company into a $7,000,000,000 company. And that's how I've grown Alamos from a a $1,000,000 company to a $4,000,000,000 company.
It's through that type of m and a strategy. So, you know, I'm not at all surprised to see m and a really starting to pick up. We're certainly under no pressure to to do m and a. Certainly not the type of m and a that you would require to do in order to fill up your your project pipeline. You know, would we be open to some sort of strategic merger with with an equally strong company or or even a stronger company?
And, you know, the answer would be yes on the right terms. We would certainly be open to that. But, you know, we're always going to be very carefully looking at the rationale for doing such a deal. We're not believers in in getting big for for the sake of getting bigger. You know, a transport truck is big, but I'd rather be driving a Porsche.
It's all about quality. And, you know, frankly, Alamos has got first class assets. We're gonna be able to generate tremendous cash flow from from our operations. It's gonna be very difficult for somebody to present present terms to us that are effectively accretive for the Alimol shareholders. So it's it could come down to a much larger company coming along and presenting us with a a substantial premium, and, you know, that we'd definitely be paying attention to.
But if we could just normalize our valuation in line with our peer group, that takes us to $15 a share. Right? Just getting a normalized NAV. So, you know, we we're we're working on getting us there. We know we're we're we're just a quarter or two away from it.
And and and and that valuation will be strictly driven by by the numbers. It's just gonna be driven by the production and the and the and the rising cash flow. And and and when we get there, we'll have much better currency to work with, both cash and and stock. But in the meantime, our attitude is just stick to the plan, get the YD tie in finished, get the Island Globe phase three study out. It's not that far off now.
We've got some really interesting things to build. We've got Liaki Grande fully permitted and and ready to go down in Mexico. We've got Karazli in Turkey, which is still fully permitted and ready to go. We're just awaiting the renewal of our licenses. That's a bit of a a gong show, but no fault of our own.
We're sort of caught up in Turkish politics there. And one way or the other, we're gonna we're gonna get that sorted. On that front, it's kind of ironic that that that suite of assets, three projects that are as far as I I'm told, you know, carry zero valuation in in the market. Well, I I could see that under some circumstances, but I I don't quite understand it in our our case because, you know, when it comes down to it, if if a management team has been able to build a company from, say, under a million to to 4,000,000,000, they've certainly demonstrated to the market that they have the ability to surface value from from the market, from assets. And you you'd have to be incredibly pessimistic to believe that somehow or other we have no way of surfacing any value from those Turkish assets.
I think clearly we do. There's lots of different ways we can approach it, and you've gotta know that we we have a whole variety of of options at our disposal, and and we consider all of them.
Well, maybe maybe just pursuing that a a little further. I mean, it it is a rather frothy m and a environment, at least the beginnings of potentially a frothy m and a environment. I mean, would you ever consider monon monetizing those Turkish assets?
Well, that's certainly that's what I'm talking about when I talk when I'm talking about variety of of options at our disposal. There there is interest in those assets. There's no un unquestionably, there is interest in in those assets. And there's a a variety of ways with that we can we we can pursue that. There's no question in my mind anyway based on just discussions I've had just this year that that situation in Turkey is ultimately going to get resolved.
There's no question that those mines go into production. They absolutely will go into production. Whether they do so under the current circumstances with Alamos 100% in ownership of those assets and operating those assets or whether there's some other arrangement that we make on commercial terms, you know, that remains to be seen. But we're determined to get it going forward one way or the other.
Alright. That's great color. Thank you so much for that, John. Maybe just turning to to Mexico. Since I've been following the stock, the company has had a fairly dramatic reorientation of the asset base away from Mexico and toward Canada.
Does additional exposure to Canada fit with the long term view of Alamos?
Well, it certainly does. We you know, we we're quite aggressive pursuing opportunities in Canada going back to, you know, as far as 2011 is concerned. And around the time that Northgate was put in play, we had actually made a bid for for Northgate for the Young Davidson mine before Eureco people did. And we we were just unwilling to pay the premium that they were willing to go. I mean, I think at that time we might have put a 30% premium on the table.
They put a 60% premium on the table and and one one but, hey, it it it paid to wait because I think they paid about $1,600,000,000 to acquire Northgate. And when we merged the company when we merged the two companies together, they were both valued at 750,000,000. That was at virtually the bottom of the market in in 2015. Young Davidson is a is a tremendous asset, and and it it's the kind of thing we were looking for. It's in the Canadian Shield.
It's it's long life. It's it's fifteen years that we know of, and it's probably going well beyond that. Took a bit of capital to get it all set up to go, but we've completed that now. And that's very often the case with these large bulk tonnage underground operations. Takes a lot of capital to set it up.
But once you've done it, you know, the way it goes, it's it's largely automated mine. In other word, we were sort of doing the ratio this morning. Forever it it if you compare Young Davidson to Macassa, which is the closest gold mine nearby, it's a high grade, a very labor intensive mine. We're we're a lower grade sort of bulk tonnage operation. It takes so one it takes one man to to move one ton at Macassa.
It takes one man to move 12 tons at Mulatos. That's the ratio. So for each person we employ, they move 12 tons of rock versus for each people person employed at Macassa, they they move about a ton of rock. So it just gives you an idea of of the difference in that operation in in in those two operations. What it means when you have a bulk tonnage underground operation, you're relying on large equipment, and you're relying on more relying more on automation.
So, you know, we think Canadian assets are they ought to be commanding a premium in the market. I don't necessarily think that's true right across the board. We actually compared valuations on a number of things inside and outside of Canada over the course of the last week, And we we really don't see that Canadian assets are commanding the premium that they deserve, but it will come. And and what will drive it is just ongoing political unrest in the world, ongoing growing political uncertainty. Let's call it that.
Now speaking of Canadian assets, you have Island phase three with a study coming shortly, which you alluded to. La Yaqui Grande as well, which you spoke about on the q one call. And then, and then there's Lynn Lake. So those two, potentially, very creative, projects with Lynn Lake, where does it now fall in the pecking order of potential projects?
Well, Lynn Lake is clearly it's in the pipeline. It's it's a question of of just getting the work done that needs to be done in in order to advance the project. So we're still in the process of doing the environmental studies. And we as as you know, we we completed back back not long after we first acquired it, we completed a a feasibility study that at at $12.50 gold showed a pretty skinny IRR. It was about 13%, but that was at a $12.50 gold price assumption.
If the if you use a higher gold price assumption, call it $14.50, 1,500, suddenly the IRR shoots up into the into the mid twenties and its spot. It's it's it's about 30. So the economics of of Lynn Lake look look far better than they did when we first acquired it. But recall when we acquired it, you know, gold was was very low at the time. It was we did that deal back at the end of of twenty fifteen.
Gold price was was down below $1,100 an ounce, I think. But we acquired it for $20,000,000. It was 2,000,000 ounces of gold at over two grams open pittable. I mean, it was a it was a great time to buy that asset and it's it's hard to get around the capital that you need to put into Canadian mining projects, especially those located in the North. Lynn Lake has the advantage of a pretty decent infrastructure for being in Northern Manitoba.
It's got a road right into Lynn Lake. There's power from the Churchill Dam going right into Lynn Lake. So we actually get very low cost power. So the operating cost of that line will be will be pretty reasonable. The capital cost, though, is the capital cost.
It's pretty tough to get that down, and that would that's what that's what impacts the IRR. So we're working on that. We continue to to tweak the feasibility, and we we continue to work towards completing the environmental permit. And we can yeah. We're we're continuing to advance it.
It's probably, I'm I'm guessing, eighteen to twenty four months before we've got it all ready to go. But at that point in time, I I think we're gonna have a a project that we can make a production decision on. We think pretty highly of that asset. There's also a what what is seldom talked about when Lynn Lake comes up is is the fact that we've got something like 60 kilometers of ground staked. We've we've staked the entire belt.
It's incredibly perspective ground. It seemed little to no exploration. We've just started flying very sophisticated airborne. We're using the Halifeltkin system, and it gives you about 20 times the the the view that you used to be able to get from airborne when this region was last thrown flown probably about twenty five years ago. So we're we're we're bringing modern exploration to Northern Manitoba, and we we we think there's a lot of potential up there.
That's fascinating. You paint a exciting picture for Lynn Lake. Thank you for that. John, unfortunately, we we have reached the end of the scheduled presentation time. I'd like to thank you very much for your participation today.
I'd also like to thank the audience for your interest and your questions, and all the best to everybody.
All right. Thank you. Thank you, everyone.