We're so happy to host Scott K. Parsons, the Senior VP Corporate Development and Investor Relations at Alamos Gold. We're so happy for their success, and Scott's going to tell us all about it, please.
Thank you, John, for hosting us once again. We've been part of this conference in some form or another for going on more than a decade, and we appreciate your support, both to Alamos and the broader industry, and happy to be part of the conference again. Today I'm going to be providing everyone with an overview of Alamos and outlining why we have one of the strongest outlooks in the sector. I am going to be making some forward-looking statements for this presentation, so I would encourage you to review our cautionary notes on your own time. I'll start with a brief overview of the company and our strategy, which I think really speaks to what we're doing as a company and where we're going. We're a diversified intermediate gold producer, but above all else, we are a growth company.
We're currently producing about a little over 500,000 ounces per year, but on a pathway to be producing about 1 million ounces annually by 2030. That growth is going to come from two projects in Canada, the Island Gold District and our Lynn Lake project. Both of those projects are going to be lower cost producers, such that they are going to take our cost profile, which is around industry average this year at $1,825 per ounce and a little higher than we would like, down towards the $1,250 per ounce range by 2028. That is a function of bringing on that, generally speaking, higher grade, lower cost production over the next several years. Another key facet of the Alamos story is where our assets are located.
Majority of our production and all of our growth is coming from Canada, such that 90% of our net asset value is supported by our Canadian assets, and that's really underpinned by our Island Gold district operation, Young-Davidson, Lynn Lake. Between the three of those assets, you've got mine lives that are averaging just under 20 years. With the outlook for each of these assets, I would fully expect these assets are going to be operating a lot longer than 20+ years from now. Another key facet of our story is we look to de-risk the business wherever we can. I touched on political risk. Our center of gravity has shifted dramatically towards Canada, giving us one of the lowest political risk profiles.
We also look to operate a very clean balance sheet, and that's where we are today and where we've been throughout most of our history with a strong cash balance and minimal to no debt. That's served us well during every point in the cycle. Our performance over the past year has not been up to our usual standards, and I will touch on that shortly, but this has not taken away from what is a really strong longer-term track record of outperformance. If you look at how we perform going back to the end of 2021, we're up more than 370% over that timeframe, significantly outpacing the price of gold, the various gold equity ETFs, and the S&P 500 itself. The driver of that longer-term outperformance is really a reflection of a number of things.
It's that high-quality portfolio of assets concentrated in Canada, giving us that low political risk profile, one of the strongest growth profiles, a declining cost profile over the next several years, and growing free cash flow while reinvesting in growth. Another big driver of our performance is our ability to create value from within, having generated $18 billion in value across our asset base since the acquisition of these assets. This internal value creation is really what's underpinning the growth of Alamos, and it's also something that we believe is sustainable given the outlook for each of our assets. One of the key drivers of our longer-term outperformance is our unique positioning within the intermediate gold producer space. We are one of the only companies that ticks all of the right boxes that investors, general investors, every investor is looking for.
We've got one of the strongest growth profiles with a pathway to doubling our rate of production to 1 million ounces by 2030. Our costs are already lower than the industry average and expected to decrease significantly over the next several years, such that we expect to be one of the lowest cost gold producers out there. We've got one of the largest reserve bases totaling 16 million ounces, underpinning one of the longest reserve lives. As I touched on on the previous slide, with 90% of our net asset value and 90% of our reserves concentrated in Canada, we have one of the lowest political risk profiles. The other key driver of our outperformance has been our long-term track record of value creation, and this is our long-term report card.
The bar on the left for each of these assets is the acquisition cost in gray, and the bars on the right are the current consensus net asset value, as well as the free cash flow that each of these assets has generated, net of all capital that's been invested into these assets. In each and every case, these assets are worth substantially more than what we've paid for them. Our blueprint when operating this company has been really simple. Focus on operating and developing high-quality assets with upside. This is something that we've been able to do across all four of our largest assets. When we do make acquisitions, and each of these assets has been acquired at some point in time, we look to pay a fair price whereby we can create value above and beyond what we paid for it.
Most recent example of this track record of success is the Island Gold District. Between Island Gold and the later acquisition of Magino, we paid a combined $1.4 billion for both of these operations. On a combined basis, these assets are now worth $11 billion based on current analyst consensus values, about 8x what we paid for it. They have also generated about $500 million in free cash flow, which is really understated because this operation is going through a pretty dramatic transformation right now, whereby we are expanding the size of the operation via a shaft expansion as well as an expansion in the mill. But once these are completed, you are going to see that free cash flow increase dramatically. If you look across all of these operating mines in our Lynn Lake project, we have created $18 billion of value since their respective acquisitions.
Given the outlook for each of these assets from both an exploration standpoint and a growth standpoint, we expect these values are going to continue to grow. Our ongoing exploration success has been one of the key drivers of this value creation. If you look at our track record over the past seven years, our reserves have grown in each and every year for an aggregate increase of 64% to 16 million ounces, and that is net of 4.1 million ounces of depletion over that timeframe. We have discovered over that timeframe 9 million ounces of resources at a discovery cost of $33 per ounce. If you are ever having that conversation with an investor, why own a gold equity as opposed to the commodity itself, this is a perfect illustration of the type of leverage and torque you get within a high-quality gold company.
The ability to find ounces in the ground at a cost of about $30 per ounce, turn around and develop, produce those assets, and then sell them at gold prices north of $4,000 per ounce. This pace of discovery, this pace of reserve growth is what is underpinning our growth as a company. It is supporting the development of new projects in the case of our PDA project in Mexico, our Lynn Lake project in Manitoba, as well as the expansion of current operations like we are seeing at the Island Gold District. Given the ongoing exploration success we are having, you have seen our exploration budgets increase in every year over the last several years to now approaching just under $100 million. This is success driven. If we are not having success, you are not going to continually see our exploration budgets increase.
If we continue to have success like we are, I would expect to continue to see this exploration budget continue to grow. I touched on in the beginning, our shorter-term performance has not been up to our usual standards, and that has been primarily due to some operational challenges at our Young-Davidson mine. In June, Young-Davidson was impacted by a seismic event that has temporarily reduced underground mining rates. Seismicity is a normal part of every underground operation. The events that we had at Young-Davidson caused some damage to one of the access points on the 9410 level that was supplying about 2,500 tons per day. We did not sterilize any of these reserves. We absolutely expect to get back into this area after completing some rehab and putting in some additional ground support.
But in the near term, it has pushed our mining rates down from north of 7,500 tons per day to 5,000 tons per day through the second half of this year. We fully expect mining rates to improve into 2027. But in the near term, this was the main driver of our decrease in production guidance that we announced in July, as well as the increase in cost guidance. Again, this is a temporary setback. We do expect improving results, particularly into the latter part of this year, as well as over the next several years. The really important point to make here is there's no changes to our strong long-term outlook. The Island Gold District, it's our biggest operation. It's our biggest driver of growth and cost improvement that we are expecting over the next several years. That operation is performing really well.
We are seeing underground mining rates continue to increase. We're seeing milling rates increase to planned rates of 10,000 tons per day through the third quarter. The shaft expansion is going really well. The larger mill expansion at Magino is going really well and on track to be completed into the first quarter of 2028. These are the key facets of our growth story and what's really going to propel production higher over the next several years as well as bring our costs down. The other key driver of our longer-term growth, Lynn Lake, is also advancing well. We started construction earlier this year. Construction's ramping up well. We're going to get into more heavier construction activities into 2027, and that operation is on track to start contributing production into the middle of 2029.
That's the last piece that takes us up to that million ounce per year threshold. This is a great illustration of that strong long-term outlook. Again, we're producing a little over 500,000 ounces this year. By 2030, we expect to be producing double that at a rate of about a million ounces per year. The key drivers of that growth, and we are going to see steady growth over the next several years, are the completion of the shaft expansion at Island Gold into the first half of 2027, a further expansion of the Island Gold District in 2028 with the completion of that larger mill expansion, and then initial production from Lynn Lake into 2029. All of this growth is in Canada. It's all fully funded, and it's all lower cost.
In fact, we're expecting to generate pretty healthy free cash flow over and above that reinvestment in growth over the next several years, particularly as more of that growth comes online. Through the first half of this year, we generated $250 million in free cash flow over and above that reinvestment in growth. Looking ahead to 2027 and 2028, we're going to see that free cash flow grow as we see that growth come online from both Island Gold with the completion of that shaft expansion, the completion of PDA, and ultimately, the completion of that larger mill expansion at Magino into 2028.
That is going to push production higher, help drive our costs lower, and you are also going to see that rate of capital spending coming off as these projects come online, such that by the time Lynn Lake is online, we expect our free cash flow to be more than $1.5 billion a year at current gold prices. A quick summary of our three growth projects. I am going to touch on Island Gold District in more detail in a few moments, but we have got three primary growth projects. All high return, all located in good jurisdictions, and all being built at a manageable pace. You can see as the Island Gold District shaft expansion is completed into the early part of 2027, construction of PDA is completed towards the middle of 2027 as well. You have got more heavy construction activities ramping up at Lynn Lake.
We are not doing three projects at once. Really, we are doing two projects at once, and as those two are ramping down, we are ramping up on the Lynn Lake project. So a very manageable pace, both from a technical standpoint as well as from a capital allocation standpoint, such that we can generate that strong free cash flow over and above that reinvestment in growth. I am going to spend a few slides talking about Lynn Lake, as it is our biggest asset and it is going to be our biggest value driver over the next several years. In February, we announced the larger expansion of the Island Gold District through an expansion of the mill and the completion of the shaft expansion at Island Gold.
This is going to double production to about 534,000 ounces per year on average at mine site all-in sustaining costs, a little over $1,025 per ounce over the initial 10 years. So this is, again, double what we produced from the Island Gold District in 2025 at 20% lower costs. So this expansion, once completed in 2028, is going to turn the Island Gold District into one of the largest, one of the most profitable, and one of the lowest cost gold mines in Canada, with annual free cash flow over $1 billion per year at current gold prices. So this expansion is going to be completed in phases. The completion of the shaft in 2027 and the completion of the larger mill to 20,000 tons per day in 2028.
At that point, we are going to be supplying the mill with approximately 3,000 tons per day of high-grade ore from high-grade underground ore from Island Gold. We will be ramping up to that rate in 2029, with the remaining 17,000 tons per day coming from the Magino open pit. This is the new base case for the operation. As I am going to be outlining through the next several slides, we think there is going to be several opportunities to push production rates higher by incorporating additional sources of high-grade ore into that larger mill. I will start with the main Island Gold structure, which is the driver of this expansion. It has been a deposit that has been an incredible success story for us. We acquired it back in 2017.
At that point, this was a high-grade underground mine with less than 2 million ounces of reserves and resources grading around 9 grams per ton. Since then, reserves and resources have grown in each and every year that we've owned it to now sit at just under 7 million ounces, and reserve grades have increased over that timeframe to approximately 10.5 grams per ton. This is not only one of the highest grade gold deposits in the world, but it's also one of the fastest growing. This pace of growth within the underground deposit is really what's driving the multi-phased expansion of the Island Gold District. This is a long section view of the Island Gold deposit, and a great illustration of the fact that this deposit is going to continue to grow. It's open laterally. It's open at depth.
Our deepest holes in this deposit are down to a depth of about 1,600 meters. They are hitting high-grade mineralization. Some of the deepest holes we've put into this deposit are in this Island East area. I'll turn my cursor on. This is this Island East area, which is in proximity to where we have sunk the shaft. It is also one of the highest grade portions of the ore body and where we are seeing some of the best intercepts ever drilled on the deposit. This little box here contains 1.6 million ounces grading 15 grams per ton, so about 50% higher grades than what we're seeing across the rest of the ore body. As we have drilled this deposit deeper, we have seen higher grades.
Again, this deposit's open laterally, it's open at depth, and we fully expect this deposit's going to continue to grow as we extend that drilling deeper. The ultimate goal here is we are expanding this operation to a run rate of 2,400 tons per day next year once we turn on that shaft. Ultimately ramping up underground mining rates to 3,000 tons per day by 2029. As Island Gold continues to grow, we're going to look at every opportunity to push those mining rates higher beyond 3,000 tons per day to feed that mill and push our production rates up higher. That is just one of the areas that we're focused on in terms of areas of additional sources of high grade ore that we can feed into this Magino Mill complex. This is where the Magino Mill is located.
It's currently operating at 10,000 tons per day. We're going to be expanding it to 20,000 tons per day. This is a plan view. You've got the Magino mine over here, Magino open pit operation, and then the Island Gold operation. Some of the upside opportunities that we are working on, and I'll touch on these in the subsequent slides, are Island West Up Plunge, the North Shear, and Cline Pick & Edwards, which is a past producing high-grade mine. These are all additional potential sources of high-grade ore that is within trucking distance of this larger mill that is being upsized to 20,000 tons per day. We've got no shortage of high-grade opportunities in proximity to the mill. We've got no shortage of mill capacity, and we've got no shortage of tailings capacity with this much larger Magino tailings capacity.
The next step for us is to better define these additional higher grade targets and start to look to bring them into the development plan. Island West Up Plunge is probably the nearest term upside opportunity. If you look down here, this is a long section of the ore body. We are looking just in the upper west portion of the ore body where we have already defined about 300,000 ounces. We are actively drilling this area and looking to grow that resource to something larger. The opportunity here is we have already got existing underground infrastructure. We have the capacity to truck this ore to surface such that it is not going to displace the 3,000 tons per day that will be skipped up the shaft.
In addition to the 3,000 tons per day we are skipping up the shaft, we are looking at bringing additional high-grade ore to surface and push that mining rate of high-grade ore something north of 3,000 tons per day. Another exciting opportunity is this Island West extension, and this is a new discovery for us. Looks like it is below the Magino pit. In fact, it is not. It is south of the Magino pit and outside of the Webb Lake Stock. The theory here was that Island Gold is a shear hosted deposit, a long strike from Island Gold or along the same plane as the shear that hosts Island Gold. There could be additional Island Gold style mineralization. We have tested that earlier this year, and our drilling has confirmed that there is additional Island Gold style mineralization here.
Early days here, but if we are able to continue to define additional high-grade mineralization, we could have another ore shoot in addition to Island West, Island Main, Island East, and each of these ore shoots contains several million ounces. This could be an opportunity whereby we add several more million ounces over to the west, and that ultimately could provide an opportunity whereby the deposit has grown significantly enough to support another shaft. Zooming out, this is a broader long section of Island Gold, Magino, as well as the Cline Pick targets. It is a great illustration of both the scale of Island Gold and Magino. You have got close to 12 million ounces between these two deposits, but it is also a great illustration of the opportunity we have at Island Gold and across the district.
Again, this is a deposit that has only been drilled down to a depth of about 1,600 meters. We are hitting high-grade mineralization in some of the deepest holes we have put into this deposit. These types of deposits in the Canadian Shield can extend and are being mined down to depths of more than 3 km Lots of opportunity for Island Gold to continue to grow at depth as well as laterally and down plunge. Similarly, if you move over to this Cline Pick & Edwards target, this is a past producing gold mine that we have consolidated ownership of over the last several years. Past producer, past high-grade producer. There was some historical drilling in it, but there was not a thorough program ever put into these deposits given the fragmented historical ownership.
Now that we own the entire thing, we are putting a sustained exploration effort into these deposits, and we are seeing some really nice results. Two of the best holes that have ever been drilled on this deposit were released earlier this year, 178 grams over 3.5 meters, and more recently, 68 grams over 3 meters. These intercepts are among the deepest intercepts have been drilled at Cline Pick & Edwards, down to a depth of just under 500 meters. Much like Island Gold, these deposits are completely open at depth as well as laterally. Again, lots of opportunity for upside. In between these two deposits, you've got 7 km of ground that has seen virtually no drilling historically. Another big opportunity for us, and this is all well within trucking distance of that expanded Magino mill that we are constructing.
Plenty of opportunities for us to push that mix of high-grade ore beyond 3,000 tons per day and push that rate of production sustainably north of 500,000 ounces per year. I'll shift over to our next project, PDA, which is in Mexico. It's another low cost, low capital, high return project. PDA is less of a growth project and more of a project that's going to significantly extend the mine life of the Mulatos district. It's a high-grade underground deposit. If you look at the history of the Mulatos district, we've been traditionally targeting open pit heap leachable oxide mineralization, and that's supplied the vast majority of production over the past 20 years. PDA is a different story. This is a higher grade underground sulfide target.
In order to accommodate processing of PDA, we are going to be constructing a 2,000 ton per day mill, which is supported by the growth of PDA in itself. What this mill is also going to do for us is it's going to open up new opportunities in the district. Along the way, when we've been targeting that open pit-able heap leachable shallow mineralization, we've been encountering sulfide mineralization, but did not follow up on any of that sulfide mineralization because we did not have the processing capabilities. We saw that below Cerro Pelon. We've seen that below La Yaqui Grande. Most notably, we've defined close to 1 million ounces of higher grade reserves at PDA.
With this new mill, we're going back to some of these areas where we previously encountered higher grade sulfide mineralization like Cerro Pelon, following up on that drilling below the old open pits and defining additional sulfide mineralization that we ultimately expect will be a source of additional mill feed. Cerro Pelon is one of those targets. We know there's sulfide mineralization below La Yaqui Grande. Once that open pit is depleted into the latter part of this year and early part of next year, we're going to be following up and doing additional drilling there to chase that sulfide mineralization below the existing open pit. Halcón is a newer discovery where we are hitting some really nice sulfide mineralization.
Much like what we are working on at Island Gold, where you have a centralized mill and multiple different deposits feeding that centralized mill, we are thinking the same thing at Mulatos, where you have this centralized PDA mill, which is going to be fed primarily by the PDA underground deposit initially, but then ultimately by Cerro Pelon, hopefully La Yaqui Grande and Halcón and some of these other targets that we will be working up in the district. This is something that is a near term project for us. Construction is underway, as you can see from the photos on the left-hand side of the screen. The two portals have been collared. Construction of the mill is well underway, and this is tracking well for completion into the middle of 2027. Last, but certainly not least, is Lynn Lake. It is our third growth project. It is located in Manitoba, Canada.
As you can see from the photo on the right-hand side of the screen, construction is well underway. It is ramping up. We are expecting more intensive construction activities into 2027 and 2028, which is putting this operation on track for initial production in 2029. That timing of the ramp up in construction dovetails nicely with the completion of work on the shaft expansion at Island Gold. With that completed, we can shift more of our attention over to construction activities at Lynn Lake. This is another attractive long life, low cost project. It will add close to 200,000 ounces per year over the initial 10 years. That is the piece that is going to push us from 800,000 ounces per year to 1 million ounces per year by 2030. It is also going to contribute to lowering our overall consolidated all-in sustaining costs with Lynn Lake's cost profile below $1,000 per ounce.
Much like the other projects that we have in our portfolio, we see excellent potential to define additional upside. This is an underexplored district, which we have tied up over 80 km of strike. Much like PDA, much like Island Gold, we expect this will be a hub and spoke type strategy where you have a centralized mill. Initially that mill will be fed by the MacLellan open pit and Gordon open pit, and then Burnt Timber and Linkwood will come into the mine plan. But there is additional opportunities for further pits within the district. Maynard is one of our more advanced stage targets. Every hole we put into that target thus far has hit gold mineralization. We think this ultimately turns out to be another deposit like Burnt Timber and Linkwood. Tulune, another deposit or another target where every intercept has hit gold mineralization.
It is something we will be following up on. Something that we are doing this year at Gordon MacLellan is actually targeting higher grades below the currently defined open pits. Why are we doing that? Lynn Lake, as it currently stands at 9,000 tons per day, has a 25-year mine life, which is long. We are looking at opportunities to bring some of that production forward. We are also looking at opportunities for higher grades in the district, whereby we can prioritize processing some of those higher grades over the initial 10 years, 15 years, 20 years to keep that rate of production up at 200,000 ounces per year over the longer term. We think there is going to be really good opportunities to do so. We are in a unique spot as a company in that we are both a growth company and we are also generating strong and growing free cash flow.
I mentioned earlier in the presentation, we generated just under $250 million of free cash flow through the first half of this year, and we are using that to support what is a very balanced approach to capital allocation, whereby, in addition to reinvesting in growth, we are also prioritizing increasing returns to shareholders, strengthening our balance sheet, as well as retiring some of the remaining hedges that we inherited from Argonaut Gold. All three of these items were a focus during the first half of this year, with nearly all $250 million of that free cash flow redeployed in each of those initiatives. This was used to support a 60% increase in our dividend in the first quarter. We increased our rate of share buybacks with $50 million utilized for buybacks through the first half of this year.
We have also been active in retiring all of the remaining Argonaut Gold hedges that were set to expire in 2026, such that we have now retired nearly 300,000 ounces of the initial 330,000 ounces of hedges that we inherited from Argonaut Gold. That leaves approximately 50,000 ounces of hedges into the first half of 2027. We are looking at opportunities to retire those hedges. We are being opportunistic as we see dips in the gold price, and we have every intention of retiring those hedges before they are set to mature in 2027. I think that really speaks to our bullishness on where gold prices are going over the next year. As our free cash flow grows as a company, as that growth comes online, we are going to have more capacity to look to return more to shareholders via increased buybacks as well as increased dividends.
John, I am going to close out the presentation there. I think for any investors you have on the line, this is a great time to be looking at gold equities in general and in particular, Alamos. We are currently traded at a discounted valuation and with one of the strongest outlooks in the sector, I do not expect we will be trading at a discount for long. We have got some meaningful catalysts coming up over the next six to 12 months, starting with the completion of the shaft at Island Gold into the early part of 2027. I think as we execute on our growth plans over the coming quarters, I expect our valuation will rebound. I think that is going to be the case, and I think that is going to be true even if gold prices stay flat at current levels of $4,100 per ounce.
I also expect we are going to see additional moves higher in the price of gold, which I think is providing a pretty compelling investment opportunity.
Thank you. Thanks everyone on the call for your time and attention. Everyone is welcome to submit questions from the question box. I will begin with a few. Looking to 2030, the 1 million ounces breaks down as 534+ at Island Gold District, 186,000 ounces at Lynn Lake, 150,000 ounces at Young-Davidson, and about 110 ,000 ounces in Mexico?
Approximately thereabouts. Lynn Lake, during its early years, we will be processing higher grades. It is about 186 ,000 ounces on average over the first 10 years, but we should see production higher than that over its initial years.
When you have the shaft done at Island Gold, how much will that open up exploration since, as you develop out the tunnels and kiss the rock and visually inspect, it is so much easier than drilling from other parts of the mine or surface?
For sure. The shaft is sunk. It is down to a depth of just under 1,400 meters. We are currently outfitting the shaft with all the interior steel and working on the shaft bottom infrastructure. As that work is completed and we start utilizing the shaft, and we have the development in place around shaft bottom, that is going to open up additional opportunities to start targeting higher grade mineralization at depth from underground. Instead of targeting these holes that we are drilling down below the existing deposit, we have to drill from surface currently. As that development extends down towards shaft bottom, we will be able to target some of that mineralization from underground. From there, you are drilling much shorter holes, which are much more cost-effective.
Instead of drilling a hole from surface that is an oriented hole, which could be north of 2,000 meters in length, you are drilling that hole from underground where you might be drilling 200 meters, 300 meters, 400 meters. You are much closer to the target, much more effective, in terms of getting more results into target sooner, and also much more cost-effective. The benefit from drilling underground as well, too, and I did not touch on this during the presentation, but if you were to take that long section view of the deposit and look at it from a cross-section view, one of the areas we are having a lot of success is into the hanging wall and footwall of the deposit. To properly define some of these hanging wall and footwall zones, we need to do most of that drilling from underground.
Some of these zones are sub-parallel structures, some of them are perpendicular structures. It helps to get the rigs underground whereby we can reorient the rigs and better target some of these opportunities.
When you drill, what fraction of the holes do you abort due to deflection? A tenth of the holes? More or less?
That is a great question, and one I would really have to defer to our other Scott K. Parsons, our SVP of Exploration, to answer. I would be arm-waving if I guessed an answer there. Our hit rate in terms of hitting the appropriate zones that we are targeting within the Island Gold District is extremely high. That really speaks to the strengths of the team, but as well the continuity of the ore body. If you are, again, to look at a cross-section view of this deposit, very much structurally controlled. Where we see that ore body plunging at depth is where we target our drilling. Generally speaking, we are hitting the same Island Gold style mineralization.
In terms of the future, and I know you're not the board of directors, in 2030, with $1.5 billion or so of free cash flow, there's some tough choices between shareholder returns. Hopefully, there'll be exploration successes. There's a few juniors that you have little investments in that might get lucky. There might be acquisitions. It might be too early to plan or guess. Are there any thoughts you could offer? Tell us about the juniors you invested in.
Yeah, that's one area of where we'll look to deploy some capital. I think realistically, out towards 2030, there's going to be additional internal organic opportunities for us to develop. I touched on a number of them within the Island Gold District. If Island Gold continues to grow the way it has been growing, at some point, it's not unreasonable to think this deposit can support another shaft. In addition to that, we're seeing some really nice results at this Cline Pick & Edwards target. That could very well be another operation whereby we're mining high-grade ore and trucking that over to the Magino Mill. I think within the Mulatos District, now we've got a new focus on targeting sulfide mineralization. There's a lot of untapped opportunities that we've caught a sniff of previously but didn't follow up on, but we'll be following up on now.
That will support the development of additional deposits beyond PDA, including Cerro Pelon, Halcón, La Yaqui Grande. I do think there are going to be additional organic growth opportunities. We're going to continue to look at development stage upper assets that we can slot in behind Lynn Lake. As Lynn Lake is coming online, we'll hopefully have some additional development stage projects that we're advancing and coming more into view into that 2030 timeframe. We're also going to look to redeploy more of that capital to shareholders in the terms of higher buybacks and increased dividends. So it's really a balance of all three things, John. It's growth, reinvesting in growth, primarily organic growth, looking at opportunities for attractive projects that complement our existing portfolio that we can bring in over the coming years.
If we don't find anything, then we'll continue to invest internally and redeploy more of that free cash flow to shareholders.
You have enough money perspectively to have three 6,000-foot shafts built, $1.5 billion a year. I hope your geos can keep up with their walking around money. The question's from the group, what will you do with the money you get from the Turkey divestiture going forward?
That's going to feed into our overall cash balance into the second half of this year. It's the same priority as through the first half of this year. We'll use that cash to support our ongoing shareholder returns, which includes an increased dividend from earlier this year, share buybacks, which we're being opportunistic with, as well as retiring the remaining hedges that we inherited from Argonaut Gold.
Given past production cuts, misses, revisions, what specifically has changed in how guidance is built in? Contingencies, risking of ramp ups, ranges, etc., in your 510,000 ounces- 560,000 ounces target?
Our targets are realistic. Our targets were realistic previously, but we were optimistic in a few different areas that didn't pan out. If you look at where we were last year, we were dealing with challenges across two operations. Some one-off challenges at Young-Davidson, as well as a slower than expected ramp-up of the Magino mill. Magino, we were too optimistic with how quickly we could ramp up that mill. Magino, we acquired via Argonaut Gold in 2024. The mill was not built by us. It was not designed by Alamos, and frankly, was not built to the same standards that we would build a mill. We knew there was some deficiencies in that mill going into the acquisition. We knew they could be resolved. We were too optimistic in terms of how quickly they could be resolved.
That impacted our production rates into the latter part of 2025. What I can say now is, those issues are largely resolved. We've made a number of changes to that mill, replaced a number of the problematic components, and addressed the key deficiencies which were keeping milling rates below 10,000 tons per day, such that milling rates are now at design rates of 10,000 tons per day. They were there in the latter part of the second quarter, and they've averaged around 10,000 tons per day through the third quarter. That was one of the areas where we struggled last year in terms of hitting our targets, and that impacted our ability to hit our guidance. It's a bit of a long-winded answer here, but it was a new asset for us. We were too optimistic with what that asset could do.
This year, and going forward with Magino, we have a much clearer view on what that asset can do, which is feeding into much more realistic targets in terms of throughput rates and production rates. With respect to Young-Davidson, the challenge we've had at that operation is the unexpected seismic event, which has knocked our throughput rates back from 7,500 tons per day to 5,000 tons per day for the remainder of this year. With our updated guidance, we are basing that on operating that operation at 5,000 tons per day through the rest of this year at similar grades as we were mining through the first half of the year. I think we've got realistic targets for Young-Davidson. We've got realistic targets for Island Gold, and we've got realistic targets for Mulatos.
I think it was unfortunate that we had to revise our guidance earlier this year on the back of that seismic event. But our revised guidance for the rest of this year is realistic, and we fully expect to hit it. I think going into next year, it's a similar story. There's less of those unknowns with the Magino operation and with respect to Young-Davidson. We've scaled back mining rates to 5,000 tons per day. They will be higher going into 2027. Whatever updated guidance we provide into the early part of next year will absolutely be a target that we expect to sustainably hit.
I talked to Richard Young before he sold out Argonaut to you, and we were friends from when he was an early investor contact in the late 1980s at Barrick. Richard just said that his technical people in Western Ontario weren't as good as in West Africa.
Yeah.
You worked with the bugs. You got a big mill and a big asset sheet.
We got a big mill and a big asset sheet. Very attractive price. The open pit has performed really well. Both mining rates, grades have been reconciling really well. It is just the mill that has been problematic, but that is absolutely fixable. It is a mill. There is nothing abnormal about the processing circuit. Nothing exotic about it. Nothing exotic about the ore. Very straightforward metallurgy. It processes both Magino open-pit ore and Island Gold ore extremely well. In fact, that has been one of the bright spots of that milling operation. We are getting recoveries from sub 1 gram open pit ore, which is in the 94%-95% range. So really good recoveries, higher than initially expected. The deficiencies within the circuit are infrastructure related, and that is absolutely fixable with time and money. We have addressed the majority of those deficiencies in the near term.
With the larger expansion of 20,000 tons per day, we are building a brand new parallel circuit that operates at 10,000 tons per day. As part of that, we are also going to be addressing the remaining deficiencies within the existing circuit, and that is primarily the primary crusher and truck dump arrangement.
This question is concerning the Island Gold underground ramp up. What are the gating items such as lateral development at 8 km-10 km this year, contractor performance, paste fill, ventilation, number of active faces or stopes? What is the shaft commissioning slips a quarter?
I think you hit on all the gating items there, John. Absolutely. We need to get the development in place. We need to increase the number of working faces. We need to get that shaft online. The excavation is done. We are currently outfitting the shaft steel, but we need to get the shaft bottom infrastructure completed to allow us to start utilizing that shaft and skipping ore to surface. I think you touched on all the different items that we need to continue to focus on through the rest of this year and into the early part of next year to start to see those mining rates step up to that 2,400 tons per day rate. In the near term, we are seeing underground mining rates increase. There were a little over 1,400 tons per day in the first quarter.
There were over 1,500 tons per day in the second quarter. We have seen underground mining rates continue to increase in the third quarter, and we are on track to see underground mining rates increase to exit the year at 2,000 tons per day. We do not need the shaft online to push mining rates up higher. Part of that is having additional ventilation in place to allow us to support the increased mining rates. Ultimately, to get from 2,000 tons per day to 2,400 tons per day, that is going to require getting that shaft turned on. That is something we are now targeting towards the latter part of the first quarter.
Next question concerns the Young-Davidson mine grade in Q2 at 1.75 gram versus the 2.2 gram reserve grade. I guess it is possible you have processed some low-grade stockpiles after the seismic event or leading into it. How much was dilution, overbreak, stope selection, or model reconciliation? What does mine-to-mill reconciliation show for 2025 and 2026, I guess?
The reconciliation has been pretty good. A reconciliation to the block model at Young-Davidson. What you are seeing with the mine grades in the second quarter was a greater mix of lower grade stope. The unfortunate part about that seismic event was it hit the 9410 level. That level was supplying about 2,500 tons per day of ore. The stopes in that level happen to be higher grade in the 2.5 gram per ton range. That is part of what contributed to the lower grades that were mined in the second quarter, and that is what is also going to keep underground grades mined in a similar territory through the rest of 2026. We were not expecting to mine 2.2 gram per ton ore in 2026. If you look at our guidance from January, the grades we guided to were 1.9 grams to 2.05 grams.
That is a function of where we are mining in the ore body. I will pull up a long section of the deposit. Some of the higher grades within the deposit are more concentrated into the YD West, the upper portion of YD near that historic open pit. Until we see a higher concentration of stopes into those areas, which is out in towards the 2030, 2031 timeframe, we are expecting grades to be below that reserve grade of 2.2 grams per ton. So, 1.9 grams- 2.05 grams is what we were expecting this year. But given the loss to some of those higher grade stopes, I should say temporary loss of access to some of those higher grade stopes, we saw lower grades in Q2 and are expecting lower grades through the rest of this year. But I would not expect 2.2 gram per ton mineralization until into the early 2030s.
There is a lot of questions in the queue. Why is Young-Davidson ramping back slowly versus a V-shaped recovery? Is there something about the current setup where you cannot ramp back to 7,500 tons a day without creating more seismic instability?
We want to do this properly, John. We have got a 14-year reserve life at that operation. We want to put this operation in the best position to be successful over the longer term. So, it is a good question. We have lost temporary access to the 9410 level, which was supplying 2,500 tons per day. It is easy to assume we just need to reestablish access to this area, and then we are operating with that additional 2,500 tons per day. But we are going to approach this differently. As this operation moves deeper, we are seeing increasing seismicity, which is a natural evolution of an underground mine. I should say seismicity is a natural part of every underground mine. But we want to extract this ore body in a fashion that is going to minimize stress over the longer term.
Through the second half of this year, we are going to be completing rehabilitation work on that access point to the 9410 level to allow us access to those higher grade stopes. We are going to be putting in enhanced ground support. So instead of six-foot bolts, we are going to be putting in eight-foot bolts and heavier gauge wire screen. We are going to be doing that across that 9410 level as well as into the lower portion of the operation. But we are also going to be working on an updated mine plan, and an optimized extraction sequence whereby we extract this ore body in a fashion that is going to push stress to the outer extremities of the ore bodies. A pillarless mining technique, which will help prevent any opportunities for stress to build up within the interior of the ore body. That is going to take time to implement.
We're going to need to ramp up our development rates. We're not expecting more life of mine development. We want to do is put in additional development over the next few years to give us that additional operational flexibility to optimize that ore extraction sequence, all of which feeds into what we expect will be a measured ramp up in mining rates over the next few years. We're expecting 5,000 tons per day through the second half of this year. We do expect to do better than that into 2027. We're not expecting to be back up to 7,000 tons per day in 2027, at least not into the early part of the year. That is our longer term target, to get mining rates back up above 7,000 tons per day, but it will take some time to get there.
Next question. Can you bridge all-in sustaining costs from $1,825 this year to $1,250 in 2028? Clearly, $275 of it is not having the setbacks this year, and most of the rest of it is the Island expansion. Additionally, the questioner asks about volume leverage on fixed costs versus lower unit costs from grid power, the truck shop, Young-Davidson turnaround, what wage and contractor inflation is assumed?
It's a good question. You touched on some of the answers there. In addition to an improvement in cost at Young-Davidson, which we expect as mining rates move higher, the biggest driver of that decrease in cost over the next several years is the Island Gold District, and it's a combination of things. This is a very high-grade operation that we are currently operating via ramp system. Second quarter, we were mining at over 1,500 tons per day with a fleet of haul trucks, which are driving up to 90 minutes down the ramp system to the current working faces, another 90 minutes up to surface to support 1,500 tons per day. Once we turn this shaft online into the early part of 2027, we'll be skipping ore to surface in the matter of a couple of minutes.
Instead of operating at 1,500 tons per day, we'll be operating at 2,400 tons per day, and then ultimately 3,000 tons per day. You're getting economies of scale by pushing your throughput rates ultimately double where they were in the second quarter. You're seeing productivity improvements, which is going to drive unit mining costs lower by transitioning from ramp access mining, where you're using a fleet of diesel-powered haul trucks, to skipping ore to surface via a shaft which is connected to the electric grid in Ontario, which is primarily sourcing hydroelectric power in Northern Ontario. What's the third thing? You're also benefiting from the connection of this operation, the broader operation to electric grid power. The Magino Mill, as it currently stands, is sourcing its power from a CNG plant.
Once we complete the big powerline project that we were constructing for the shaft expansion in 2027, we're also going to connect that mill up to the electric grid, which will result in a savings of about $5 per ton on our processing costs. It's economies of scale, productivity improvements by turning on the shaft, which is going to drive unit costs lower, connecting the entire operation up to the electric grid, which is also going to drive our processing costs lower.
Completion of that Magino Mill expansion in 2028, which is going to allow us to turn off the Island Gold Mill and start processing all of the high-grade underground ore through the Magino Mill at about half the processing costs is all going to lend itself to substantially lower costs within the Island Gold District, and that's going to feed into that lower cost profile on a consolidated basis.
Scott, I used to have a reputation for asking tough questions, but some of my clients have really started up on the business, and they're tougher than me now.
We have some tough questions coming up?
I congratulate you on running a double gauntlet with us.
Thank you, John. I appreciate that.
That covers the question box. Go out and make some money. Have a good day. Thank you very much, everyone, for your attention.
John, thank you, and thank you everybody for joining the presentation today.
Thank you.