Hey, good afternoon, everyone. My name is Fahad Tariq. I am a Mining Analyst at Jefferies based out of Toronto. I cover large and mid-cap precious metals, including Alamos. Welcome to our fireside chat today with Alamos Gold. Alamos is a Canadian-based gold producer with operations in Canada and Mexico, and a current market cap of about CAD 16 billion. Its long-term strategy is built around internally funded growth toward 1 million ounces annually by 2030, led by the Island Gold District expansion, development of Lynn Lake, and a transition of Mulatos to higher grade underground production from PDA, while Young-Davidson remains an important cash flow anchor. Joining us today is John McCluskey, President and CEO. John, welcome to our conference.
Thank you very much.
I wanted to start maybe just by talking about the most recent operational update at Young-Davidson. The mine had a seismic event a few months ago, which resulted in lower 2026 guidance. Maybe talk a little bit about what needs to be done underground before mining rates normalize, and how much of the additional ground support costs investors should be thinking about as being structural costs going forward.
Right. Well, we have been mining at Young-Davidson for quite a number of years. We took it over in late 2015 and ramped up production from roughly 4,000 tons a day to 8,000 tons a day between 2016 and 2020, and operated very consistently, very profitably through 2025 into 2026. But as the years go by, we are getting deeper and deeper in the mine and stress levels go up. When we talk about seismicity in mining, essentially every time we blast to open up a stope, that is the seismicity. It is not Mother Nature, and it is not the San Andreas Fault or something like that. It is the shake that is caused by blasting. We operate very large stopes in that mine, and so that is just a natural part of the mining process. We were getting into levels, though, where as you go deeper, the mine experiences more stresses.
We were dealing with that. We more or less had mining going on as we were also reinforcing the development work that we had been doing in the years prior. Effectively, we are just very unfortunate as that development work was continuing, it just did not keep pace with the rate that we were mining. The blasting that we are doing did cause some damage to the tunnel workings that we have to access the mine faces. What we had been doing and what we continue to do is to just increase ground support, and that means, if you have never been in an underground mine before, you are walking through these fairly large tunnels. They are well lit, or they are well ventilated.
The rock itself is basically encased in a very thick wire mesh, and that wire mesh is bolted with what is called a MacLean Bolter, and it pushes bolts into the rock. Depending on the levels of stress you are dealing with, it could be anywhere from 6 ft to 10 ft. We are basically, as a consequence of being deeper in the mine, we are putting in more heavy ground support, so thicker mesh, deeper bolts. This is the kind of thing that is going on. We have been working on that actually prior to the event. That continues. The cleanup of that area continues. Fortunately, we did not sterilize a single ounce of reserve. We can clean this up and get back in and work in this area again. But for the time being, we are not mining out of the 9410 level.
The other levels are still supplying about 5,000 tons a day of production, and the last quarter that generated CAD 72 million in free cash flow. I think the market reaction was a bit overdone because effectively it wiped out the entire valuation for the mine itself, and the mine is still operating very profitably and still operating at 5,000 tons a day. We are working towards getting back to ramping up operations to between 7,000 and 8,000 tons a day into next year. It will be a ramp. The big change is we are developing a new mine plan that helps us deal with the additional stresses of being at the depths that we are operating at. Effectively, the new plan pushes the forces and stresses to the outer part of the mine.
Up till now, we have been pushing those stresses onto an internal zone in the mine that is not mineralized, and we use as more, they call it a crown pillar. That was a very good approach for the last decade. But now as we are getting to these depths, we are realizing that that is probably not viable. We would be okay, but from time to time, we would probably have an event we would have to clean up, and we would rather not do that. We want to operate the mine in a manner that it can just consistently deliver at whatever the rate it is we are set. All of that is underway and that ramp-up will be taking place throughout 2027.
Great. That is super clear. If investors are thinking about the long-term potential, is 8,000 tons per day still achievable, or based on your comments now, would that have to be revisited as well?
I do not know what that rate will be. I think 8,000 tons a day is the upper limit. It always has been because that is the rate of the mill. 8,000 tons a day is your goal. You want to make sure you are filling the mill. Mind you, we have other ways that we can do that. But I do not believe we will be any less than 7,000 tons a day, and we will not be any more than eight. We are talking about two-gram material, so the materiality between that extra 1,000 tons a day is not too significant, but the number will likely fall somewhere between 7,000 and 8,000 tons a day. I am not too worried about what that number is. What I am worried about is the long-term mining operation. We have got 14 years of reserves there that we know about, and it will continue to grow.
We have drilling down below the 1,500 m level, and this cyanide unit just keeps on going and going and going. I think 25 years from now, there is still going to be mining there. So we have to set things up with that long-term perspective in mind, and that is in effect what we are doing. The game plan is to mine out your whole reserve, not to necessarily mine it out in a fixed period of time.
Moving to what is the real growth driver of the company, Island Gold. Underground mining rates are continuing to rise toward 2,000 tons per day. Shaft commissioning is expected in early 2027. What are the critical milestones that investors should be watching for between today and getting to 2,400 tons per day?
Well, you are right. It is all about the shaft, and we did reach shaft bottom at the end of the first quarter. We have been now putting in all the shaft infrastructure, all the structural steel, everything required to effectively operate that shaft. We are slightly ahead of schedule, which no CEO should ever say, but we are indeed ahead of schedule right now. I am quite pleased at the way that is going. The heavy lifting has been done. This project has largely been de-risked. What remains is, as I said, putting in the structural steel, putting in the development that we are going to need to support higher mining rates. We are working on that right now. The lower shaft infrastructure, where the crusher and so forth will go into all that work, is also taking place.
There is still a fair amount of work to be done between now and Q1, but we are on track to get there. It will allow us to operate at 2,400 tons a day, where we are well beyond where we were at the end of the last quarter. We are very much on schedule to reach 2,000 tons a day without the shaft. When we look at the physicals, I sort of like the way things are unfolding right now. We have another, what I consider a big plus with the power line upgrade being completed also in Q1, we will be shifting to a much larger and more consistent power source that will effectively run that big shaft. That is a grid-driven shaft, which you want.
Right now, we have a fleet of diesel trucks which ferries the ore from the mine face to surface, and that is about a 90-minute trip for a truck to make it from our current levels up to surface. That will go from 90 minutes to roughly two minutes, and it will go from diesel power to hydroelectric power. That, to me, is a nice change that we are going to see.
Thinking beyond the 2,400 tons per day, maybe talk about the potential to get to 3,000 tons per day, and maybe for the benefit of the audience, just orient in terms of why the underground is just so much. That ore is preferred to the open-pit at Magino.
It's a good question. First of all, the underground high grade is about 10.5 g per ton, whereas the open-pit ore is about 0.95 g per ton. You're looking at roughly 10x the grade from the underground ore. If I was feeding a 20,000-ton per day mill complex, which we will be doing by 2029, I would like a higher component of that feed to come from the underground high grade as opposed to the open pit. The capacity is there. It would rather have steak on the plate than salad, let's put it that way. I want to get things set up. Initially, what we're going to do is take it to 3,000 tons a day, which we're on track to meet that by 2028, and that's just a question of development.
The shaft has the capacity to do 4,500 tons a day. I'm not constrained by shaft capacity. It's just a question of being able to source as much of that high grade, having enough faces open so that we can pull out as much of the high grade as we can. I think we'll be in a position by Q1 of 2028 to supply 3,000 tons a day of high grade to the mill, and that would see about 17,000 tons a day of the open-pit mining going to the mill, and that would take the operation from its current levels to about 530,000 ounces a year.
Great. I want to stay on Island Gold just because I think the exploration potential is sometimes underappreciated by the market, or, I don't know, maybe investors have just gotten used to seeing such great exploration results that they're almost numb to it. There continues to be high-grade mineralization across Island Gold, Cline-Pick and Edwards. At what point do you look at the asset again and try to rethink what the scale of that mine could be or that complex could be?
I certainly appreciate that comment about getting used to high grade. Even I get a little bit spoiled, because sometimes we'll get a hole and it'll be 15 g over 5.5 m true width, and I'll go, "I guess it's okay." That's a spectacular hole. But when we've been getting holes that are 35 g, 45 g, 57 g, and sometimes it's over 10 m, 15 m widths, and you go, "Yeah, that's more like it." You do get a little bit spoiled. But I do notice every time we come out with a press release with our drill holes, there's this one analyst up in Canada, and what he'll do is he'll take the news releases from any given month, and he'll put in the top 10 drill holes that came out that period.
Whenever we come out with a news release, at least three of our holes will make it onto the top 10. That Island Gold ore body is absolutely extraordinary. There is much potential to expand this ore body. We took it over with less than 1 million ounces of reserves. Had roughly 700,000 ounces of reserves when we started 2018. Well, net of 1.5 million ounces of depletion, we are at 5.5 million ounces today of reserve, and it is growing. We are close to 8 million ounces in reserves and resources. It is just extraordinary how it is growing. You mentioned Cline-Pick and Edwards, that is 7 km to the east, and we have pulled the highest grade, best drill hole that we have ever pulled in the district.
There has been over, what, 7,000 drill holes in this area, and the highest grade was ever pulled was pulled in Cline-Pick and Edwards. 178 g over 3.5 m. A pretty extraordinary hole. We have drilled adjacent to it. We are hitting high grade. It looks like it is going to develop into an ore deposit, I have to say that. The other thing that we recently did, and again, the market can miss it. I do not know how, but it does. We did a 250 m step out to the west. As you know, we acquired our neighbor's property. This was the Magino Mine. They developed an open pit mine there, grade is just under a gram. There is about 3 million ounces. It is a very profitable mine. I am very glad to own it.
We are developing it right now, and I think it is going to turn into something quite significant when we have completed this development. 400 m south of that open pit, where we postulated you would see the extension of the shear that we work, the Island Shear. We came up with the idea that if there was going to be high-grade mineralization on that ground, it was going to be 400 m south of the pit, not under the pit. We put two drill holes into it, and we nailed it. We put scissors holes, and both of them hit 5 m of roughly 12 g mineralization. That is the Island Shear. So that was a good bit of sleuthing by our geological team, I have to say.
That result should have set off all kinds of alarm bells, and the only people that seemed to pay attention was the major mining companies who called up and said, "Oh, we would like to find out a little bit more about that." Because we are pushing this deposit. It is going to be over 10 million ounces from underground. If you add what we have depleted, we are pretty close to it right now. Between reserves, resources, and depletion, it has already exceeded 10 million ounces. Very few 10-million-ounce ore deposits exist in the world.
Yeah.
Let alone in Ontario, Canada.
Yeah. You mentioned the acquisition you did a few years ago of Argonaut Gold and acquiring Magino. The Magino mill now seems to be, I think, at 10,000 tons per day. That was the last update we got. What has driven the improvement in the reliability to get to that level, and what lessons are being incorporated to get to the next expansion to 20,000 tons per day?
We took over that milling complex. It had just been built by an Australian engineering company called Ausenco. I think they built a mill that would've worked just fine in Australia, but just was not designed for Canadian winters. The design flaws, particularly at the front end, were just slowing the whole operation right down. We came up with a plan to supplement the feed at the front end. We brought in a contract crusher, and that's operating very well, and it bypasses that whole grizzly dump setup that had been originally designed for the deposit does not work very well, will never work very well. What we're doing in terms of the long-term solution, as you know, we're doubling that mill complex from 10,000 to 20,000 tons a day.
How we're dealing with it, at the front end, we're getting rid of that whole setup, and we're putting in a 20,000 ton per day gyratory crusher. Now, this thing, if you can picture those sandworms that you saw from Dune, well, that's what a gyratory crusher is like. You cannot throw in enough. It will just take everything you throw at it, and boulders, and it doesn't matter what. We'll be able to direct dump into this big gyratory. It will basically crush everything we throw at it, and then it will feed two lines. It can feed them each 10,000 tons a day. But as you know, we'll be bringing in 3,000 tons a day of the high grade from Island Gold. So we'll be bringing in roughly 17,000 tons a day from the open pit to directly dump into the gyratory.
That will be quite a sight to see when it is in place. The scale of this operation, it is moving far beyond what was ever envisioned by Argonaut Gold, and it is actually the proper scale for the grade and the reserve of the Magino deposit. It should have always probably been a 20,000 ton per day operation. It is going to be very profitable at effectively 535,000 ounces of production a year. That is where it will be when we are done. It will be generating that production at roughly CAD 1,000 all-in sustaining costs. So it will be one of the most profitable gold mines anywhere in the world.
Great. We spent a lot of time talking about the brownfield expansion opportunity, which is Island Gold. On the greenfield opportunity, it is Lynn Lake, which is now in construction. Maybe just provide an overview of that project, what was attractive about it, and why the company ultimately sanctioned it and is now constructing it.
Well, we bought that mine in 2016 when the gold price was under $1,100 an ounce. We closed it in January of 2016, and we paid about $25 million for it. At that very same time, do you remember Goldcorp? They bought the Coffee deposit for $550 million. People thought Coffee, that was a great deal, and nobody even noticed Lynn Lake. Flash forward to 2026, Coffee just changed hands again. Newmont sold it for about $80 million. I think consensus valuation on our Lynn Lake operation is north of $2 billion. Well-deserved, because that ore body has grown. When we bought it had roughly 1.6 million ounces at 2 g defined, and now it is sitting at about 3 million ounces of reserves, similar grade.
That to me is a really good testament to picking up something at the bottom that nobody is looking at, and then putting in the effort that it takes to turn it into what could ultimately be a very profitable ore body. We envision it producing at 200,000 ounces a year. It will be able to generate that production for a very long time. Costs will be sub-CAD 1,000 all-in sustaining costs. The reason why it is so low is it is essentially a fairly shallow, low strip, open pit operation feeding a mill. It is very conventional ore. It gets very high recoveries, very quick, very easy metallurgical process. We enjoy the cheapest power in the world. Northern Manitoba has some of the biggest hydroelectric complexes in the world. It effectively is the reason why Minnesota stays warm in the winter, and why their energy costs are so low.
Our costs are about CAD 0.045 per kilowatt hour, and that will run a 9,000 ton per day mill, and it will run it very, very cheaply. Right now we have about 20 years of production ahead of us at Lynn Lake, and there is phenomenal exploration potential. That is why we green-lighted it. We liked what we had, but we control about 100 km, what is that, about call it 65 mi of mineral claims across a greenstone belt that is highly prospective. It has not seen anywhere near the kind of exploration that Ontario saw, and that is just across the border. It is just the way those two provinces were. One is more of an agricultural province. Ontario was more of a mining province. There was a stock exchange in Ontario that funded mining projects, and that is what made all those discoveries in northern Ontario.
Nothing like that ever existed in Manitoba. We are picking up where things left off at the Ontario border, and I think Lynn Lake is a great example of the mineral potential. It is the same Canadian Shield. People think the Canadian Shield ends at the Ontario border, but it, pardon me, it actually goes right into Saskatchewan. It is a great opportunity for us. It is clearly thinking out of the box a little bit, but I think long term, this is going to be a great asset for us.
With any greenfield project, there is a lot of sensitivity or questions for any operator about just CapEx and inflationary pressures. I know it is still early, but just what you are seeing in terms of how the budget is proceeding and anything that has been procured already, how things are trending with Lynn Lake.
Well, we are pretty far along now. We have got a full construction project going on up there right now. Our budget this year was about CAD 100 million. I am pretty sure we will get all that spent by the end of the year. Next year, it is going to be roughly CAD 400 million. I think the following year, CAD 400 million, then 2029 it will be ready to go. Where the main inflationary pressures are, it is all around labor. That is just true right across the mining industry right now. We do not have as much pressure as you might think, given that these are open pits as opposed to, think of all the complexity and cost of sinking a shaft.
If you think of what we did at Island Gold with the paste backfill plant and shaft development and all the infrastructure that has to go around that was a big project, and if we hadn't got in front of the rising steel costs and so forth, we had largely purchased everything we needed in order to keep that more or less on budget. Fortunately for us, Lynn Lake just doesn't have the same capacity for inflationary pressure. We are seeing normal inflation plus a little pressure on labor, but otherwise, things are pretty much in line.
Great. I'm just cognizant of time, so I'm going to pause to see if there's any questions in the room. Yeah. Just wait for the microphone, please. All right.
With ounces being deferred from Mulatos Grande into 2027, could there be an overlap with the PDA commissioning, and could that overlap create an upside for Alamos Gold in 2027?
I would love there to be an overlap, but I don't think there will be. We're rapidly depleting Mulatos Grande. I'm pretty sure we're done in the first quarter anyway. It's hard to call it by the week, but I think we're finished production by the first quarter, and we're scheduled for startup of underground mining operations in the second quarter at PDA. Not really anticipating an overlap. Wouldn't be a problem if there was, but I just don't see that.
How do you think about acquisitions going forward? You mentioned Lynn Lake and the opportunity that you had in 2016. How do you see the framework for what's available right now and just even exploration versus spending, mining acquiring?
That's a good question. The market changes dramatically between a $1,100 gold price and a $4,400 gold price. For us, too. Back then, and that's not that long ago, in 2015, we had a market value of CAD 1 billion. Actually, in US dollars, it would be more like $800 million , and today we have a market value of about $15 billion . That's a pretty good change in that period of time, in an industry that struggled through most of it. From 2015 to 2022, those were not great years for the gold mining industry. It started to get better after that. We took full advantage of that very weak market. We'd built up a very strong cash position on our balance sheet. It was a war chest that was basically built up and kept in place, waiting for a downturn in the market.
When it came, we got aggressive, and we acquired Young-Davidson in 2015, we acquired Lynn Lake in 2016, and we acquired Island Gold in 2017. It's like bang, bang. Those three. We acquired them collectively for next to nothing, for less than CAD 1 billion, and collectively those assets are worth CAD 17 billion, CAD 18 billion now. So that's hard to duplicate. You need a down market to be able to create value through M&A on that type of scale. I'm not saying you can't create value, I still think you can. But good assets are hard to acquire at low prices in a hot market, and frankly, we're in a hot market right now. We were always keeping our eyes peeled for an opportunity. I wasn't necessarily looking to acquire Magino back in, whenever it was, 2024. Gold prices had moved to around $2,000 an ounce.
That already looked $2,000 an ounce. That looked pretty good. But when it came to the point where fish or cut bait, we had to acquire it, we bought it. We bought it on the most favorable of terms because it was that exception that proved the rule. The gold price had gone from $1,300 to $2,000, but their share price had gone from $4 to $0.22. So you've got to keep your eye on the details, and that was a great acquisition to make at that time. They poured over CAD 1 billion of capital into developing that project, and we were able to pick up that company for something like CAD 300 million. So like I said, we keep our eyes peeled for those situations where we can see a lot of value. But by and large, it's just harder to do deals right now.
We're not really thinking about M&A as such. We're really driven by this internal growth. We've been adding ounces. We've added millions of ounces. We've replaced every ounce we've mined and added more in each year for the last 10 years. We're adding ounces at a cost of roughly CAD 30 an ounce. There's where organic growth can prove to be far more accretive, far more of a value creation exercise than M&A.
John, maybe in the last couple of minutes that we have, it might be lost on some investors that Alamos actually has the best growth profile of any intermediate mid-tier gold company, at least that we cover. There was a time where Alamos traded at a very significant premium to peers. There's been some operational issues that are getting resolved now. I'm sure this is something you think about, but what do you think it'll take for investors to regain that confidence for Alamos to then return to that premium valuation?
That's a fair question. We're in a market that is relatively unforgiving. I think in part, as the gold price has gone higher, as you've drawn in more generalist investors, more retail investors, you've brought in a shareholder base that doesn't necessarily understand the business that well. It's harder for them to assess whether, when you announce you've got a problem, is that a big problem? Is it a little problem? The assumption is, well, geez, that mine must be just done. Get me out of the stock. Then selling begets selling. I think that's the way it goes. The trend reverses and everybody piles on that trade. I think the shorts might have taken full advantage of that as well. That's the stock market. It's like we've got two businesses that we've got to sort of manage at the same time.
On the one, we've got the mining business, and that we're doing really well with. Finding reserves, very low cost, we're building these assets out. We're going to double our production in a matter of a few years' time. That's a great story. But the stock market side of it, you've got to manage that, too. Investor perception matters. Perception almost matters more than reality, in a sense. What we have to do, I think, in order to regain investor confidence, if you will, I think we have to put together a couple of quarters back to back where we just deliver on guidance. We're working on that, and I'm confident we'll achieve it.
Great. I think that's a good place to stop. John, thank you very much. That was a great presentation.
Thank you.