Mr. John McCluskey reports
ALAMOS REPORTS SECOND QUARTER 2014 RESULTS
Alamos Gold Inc. today released its financial results for the second quarter ended June 30, 2014, and reviewed its operating, exploration and development activities.
"We produced 33,000 ounces in the second quarter of 2014 at total cash costs of $663 per ounce, again below our full-year cost guidance and providing strong operating cash flow before changes in non-cash working capital of $13.2-million," said John McCluskey, president and chief executive officer.
"We secured the surface rights at Cerro Pelon and La Yaqui and reached the underground orebody at San Carlos during the quarter, two significant achievements that will define production growth at Mulatos in the coming years. Underground development of San Carlos is progressing, and we remain on track for what we expect to be a very strong finish to the year as high-grade production ramps up in the fourth quarter. We remain confident we will achieve our full-year production guidance of 150,000 to 170,000 ounces. With strong ongoing cash-flow generation, over $392-million in cash and no debt, and a fully funded development pipeline, we remain well positioned to succeed in this challenging gold price environment," Mr. McCluskey added.
Second-quarter 2014 highlights
Financial performance:
- Realized quarterly earnings of $700,000 (one cent per share) compared with earnings of $8.8-million (seven cents per share) in 2013;
- Generated cash from operating activities before changes in non-cash
working capital of $13.2-million (10 cents per share) after changes in
non-cash working capital of $9.7-million (seven cents per share);
- Sold 34,039 ounces of gold at an average realized price of $1,288 per
ounce for quarterly revenues of $43.8-million;
- Reported cash and cash equivalents and short-term investments of $392.5-million as at June 30, 2014;
- Paid a semi-annual dividend of 10 cents per common share, or $12.7-million,
on April 30, 2014, maintaining the dividend level despite a
substantially lower gold price.
Operational performance:
- Produced 33,000 ounces of gold at total cash costs of $663 per ounce of
gold sold, 5 per cent below the low end of the 2014 guidance range of $700 to
$740 per ounce, and at all-in sustaining costs (which include total cash
costs, exploration, corporate and administrative, share-based
compensation, and sustaining capital costs) of $1,047 per ounce of gold
sold;
- Announced execution of an agreement to acquire the surface rights to the
La Yaqui and Cerro Pelon satellite deposits;
- Commenced underground development of San Carlos in anticipation of high-grade production in the second half of 2014 and completed construction
of a bridge across the Mulatos River, enabling year-round access to the
deposit;
- Appointed Paul Murphy as chairman of the board of directors.
Q2 2014 Q2 2013
Ounces produced 33,000 53,000
Ounces sold 34,039 55,000
Operating revenues (000) $ 43,843 $ 78,273
Earnings before income taxes (000) $ 4,490 $ 19,069
Earnings (000) $ 733 $ 8,828
Earnings per share (basic and diluted) $ 0.01 $ 0.07
Cash flow from operating activities
before changes in non-cash working
capital (000) $ 13,212 $ 33,773
Cash flow from operating activities
(000) $ 9,698 $ 13,058
Cash and short-term investments (000)
(2) $ 392,470 $ 466,412
Realized gold price per ounce $ 1,288 $ 1,423
Average London p.m. fix gold price per
ounce $ 1,288 $ 1,415
Total cash cost per ounce (1) $ 663 $ 448
All-in sustaining cost per ounce (1) $ 1,047 $ 682
All-in cost per ounce (1) $ 1,333 $ 861
(1) Total cash cost per ounce, all-in sustaining cost per ounce
and all-in cost per ounce are non-GAAP (generally accepted
accounting principles) measures.
(2) Cash and short-term investments are shown as at June 30,
2014, and June 30, 2013.
Second-quarter 2014 financial results
The company continued to generate strong operating margins in the second quarter of 2014 despite a substantial decrease in the gold price, as low cash costs allowed the company to generate $13.2-million (10 cents per share) cash from operating activities (before changes in non-cash working capital). Cash from operating activities of $9.7-million or seven cents per share decreased 26 per cent relative to the same period of 2013 as a result of lower gold sales and higher cash costs, offset by a lower change in non-cash working capital.
Earnings before income taxes in the second quarter of 2014 were $4.5-million or four cents per share, compared with $19.1-million or 15 cents per basic share in the second quarter of 2013. On an after-tax basis, the company recorded earnings in the second quarter of 2014 of $700,000 or one cent per share compared with earnings of $8.8-million in the same period of 2013 as a result of lower gold sales and higher cash costs.
Capital expenditures in the second quarter of 2014 totalled $14.8-million. Sustaining capital of $4.0-million in Mexico in the second quarter included $1.3-million of spending on interlift liners for the leach pad; $1.5-million on construction activities, including cleaning of the ADR ponds; and $500,000 for component changes. Sustaining capital of $7.3-million through the first half of the year is in line with annual guidance of $13.2-million.
In addition, development spending of $10.5-million in Mexico was focused on underground development of the Escondida Deep and San Carlos deposits, waste removal at El Victor, and capitalized exploration. The company has commenced mining from the El Victor open pit and plans to begin mining the San Carlos underground deposit in the third quarter. Construction of the bridge over the Mulatos River was completed before the onset of the rainy season in July, allowing for year-round access to San Carlos.
Second-quarter 2014 operating results
Gold production of 33,000 ounces in the second quarter of 2014 decreased 38 per cent compared with 53,000 ounces in 2013. Lower gold production in the second quarter of 2014 relative to the second quarter of 2013 was attributable to lower grades and recoveries and less high-grade mill production.
Total crusher throughput in the second quarter of 2014 averaged 17,400 tonnes per day, slightly below the budgeted annual average throughput as a result of lower high-grade mill feed from Escondida Deep.
The company continued to benefit from higher grades in the second quarter of 2014, with the grade of crushed ore stacked on the leach pad of 0.93 gram per tonne gold being 9 per cent higher than the budgeted annual grade of 0.85 gram per tonne gold. The grade of ore mined and milled from the Escondida Deep deposit was 8.65 g/t Au for the quarter, consistent with the reserve grade. However, the number of tonnes mined and processed from the Escondida Deep deposit in the second quarter was below expectations.
The Escondida Deep deposit was developed in the first half of 2014 and, based on proven and probable mineral reserves as at Dec. 31, 2013, the company anticipated mining approximately 32,000 tonnes of high-grade ore from the deposit at an average grade of 9.48 g/t Au for a total of approximately 10,000 contained ounces. To date, structurally controlled fracturing within the deposit and higher-than-anticipated mining dilution have contributed to the company mining and milling approximately 11,000 tonnes at an average grade of seven g/t Au for a total of 2,500 contained ounces. The company expects to mine and process up to an additional 10,000 tonnes from Escondida Deep, at grades similar to those mined to date, in the third quarter of 2014, at which point the current deposit is expected to be depleted. Exploration activities will continue with the objective of delineating additional high-grade mineral resources at other underground targets in proximity to Escondida Deep.
Development of the San Carlos high-grade underground deposit is on track to provide substantial mill production in the fourth quarter of this year. Construction of a bridge across the Mulatos River (which separates the El Victor and San Carlos deposits) was completed in June, 2014, and underground development is continuing. The company is investing approximately $3-million to upgrade the existing mill circuit in order to optimize recoveries from the various ore types at San Carlos to ensure that the targeted recovery of 75 per cent is achievable. These mill improvements are under way and are expected to be complete by the end of the third quarter. Accordingly, high-grade ore mined at San Carlos will be stockpiled and processed through the mill in the fourth quarter. As a result of the deferral of high-grade mill production from San Carlos and the third quarter rainy season in Mexico, the company expects the majority of its remaining 2014 production to come in the fourth quarter. The company is confident that a strong fourth quarter will ensure that full-year production guidance is achieved.
The ratio of ounces produced to contained ounces stacked or milled (or recovery ratio) in the second quarter was 67 per cent compared with 75 per cent in the second quarter of 2013, due to lower mill production in 2014, which has a higher recovery ratio than heap leach production.
Cash operating costs of $595 per ounce of gold sold in the second quarter of 2014 were below the company's annual guidance range of $630 to $670 per ounce, but were 57 per cent higher than $378 per ounce reported in the second quarter of 2013. This increase is primarily attributable to lower grades mined and milled in the second quarter of 2014 compared with 2013, as well as a higher cost per tonne of ore. Including royalties, total cash costs were $663 per ounce of gold sold in the second quarter of 2014.
Turkey developments
In August, 2013, the Turkish Ministry of Environment and Urbanization formally approved the company's environmental impact assessment for the Kirazli project. However, in January, 2014, the Canakkale administrative court in Turkey granted an injunction order in response to a lawsuit claiming that the ministry's approval of the EIA for the company's Kirazli project failed to assess the cumulative impacts of the Kirazli project and other potential mining projects in the region. The ministry contested the court's decision on the basis that there was no applicable regulatory requirement to include such an assessment in an EIA report at the relevant time. Notwithstanding this factor, in the second quarter, the Canakkale administrative court upheld its earlier injunction decision and officially revoked the ministry's EIA approval in relation to the Kirazli main project due to the lack of cumulative impact assessment. The court's basis for the injunction did not relate to concerns with any technical aspect of the Kirazli project.
At the time of the original injunction ruling, given the regulatory uncertainty surrounding the issue, as a contingency measure the company commenced preparation of an amended EIA for the Kirazli project that includes a cumulative impact assessment. The company expects to be in a position to submit this revised EIA by the end of September, 2014, in the event it is unsuccessful in appealing the court's decision to the Turkish high court. A ruling on the interim relief remedy requested by the company from the high court is expected in the fourth quarter of 2014.
Given that the company is already awaiting forestry and operating permits, and given the recent political developments in Turkey, as well as presidential elections in the third quarter of this year, the company does not expect the revocation of the Kirazli EIA to significantly alter its development timeline for the Kirazli project.
The company's EIA for Agi Dagi has been submitted and is currently under review.
The company has budgeted spending of $4.8-million in Turkey in 2014 for permitting, community and government relations, and general administration costs only. Given the continuing delay in receipt of key permits, the company has reduced its head count and curtailed spending significantly in Turkey. A full development budget for Kirazli and Agi Dagi will be reinitiated once the required permits are received.
Second-quarter 2014 exploration update
Total exploration expenditures in the second quarter of 2014 were $4.6-million. This was primarily focused at Mulatos where exploration spending totalled $3.4-million. This included $2.1-million of infill drilling at San Carlos and the Mulatos pit, which was capitalized. An additional $1.3-million spent at Escondida Deep and administration costs were expensed.
Mulatos
The focus of exploration at Mulatos was on two areas: tight infill drilling to support underground mining and exploration, and mineral resource and reserve drilling. To support this work, three new rigs have been added, and additional rigs will be added in the third quarter.
Four deposits were drilled during the quarter, including San Carlos, Escondida Deep, Escondida-Gap and East Estrella. Up to five rigs were active on San Carlos, two rigs at East Estrella and one underground diamond rig was working at Escondida Deep.
San Carlos remains the highest priority for exploration with approximately 10,671 metres drilled on the deposit during the second quarter. Of this, 3,648 m was tight infill drilling to support the planned underground mining operations. The remainder was drilled as part of the continuing exploration program to upgrade existing mineral resources, to extend the strike and dip of existing mineral resources, and specifically to target high-grade structurally controlled mineralization.
Drilling in the Escondida-Gap zone was completed early in the second quarter to test whether the high-grade Escondida Deep-style mineralization extends northwest into Escondida-Gap. Due to the promising intercepts encountered during the testing, a systematic program of exploration is now envisioned for this deposit as part of the 2015 program.
Esperanza
The company capitalized $1.2-million at the Esperanza gold project in the first quarter as development costs. These costs were primarily related to the collection of baseline study data to support resubmission of the EIA. The company is currently completing preparatory work for a planned geotechnical and small exploration drill program in the second half of 2014.
Quartz Mountain
During the quarter, $200,000 was expensed at the Quartz Mountain project on work related to the preparation of the coming drill program focused on validating the existing mineral resources. This program is expected to commence in the third quarter with the company having received its first exploration permits for the project subsequent to quarter-end.
Outlook
The company is confident that it can achieve its full-year production guidance of 150,000 to 170,000 ounces. Gold production in the first half of 2014 totalled 70,000 ounces at cost levels within the company's guidance range for the year. While production results benefited from 15-per-cent-higher grades from heap leach ore in the first half of 2014, negative grade and tonne reconciliations at the Escondida Deep deposit resulted in lower-than-planned high-grade mill production.
The company expects to process the remainder of the Escondida Deep deposit (up to 10,000 tonnes at similar grades processed to date) in the third quarter and has transitioned to underground mining activities at the San Carlos deposit. San Carlos is on track with the bridge across the Mulatos River complete and underground development focused on completing sufficient headings to support the ramp-up of underground ore production to targeted throughput levels in the second half of 2014. The company will undertake modifications to the milling circuit in the third quarter in order to ensure optimal recoveries from the different ore types within the San Carlos deposit. The modifications are expected to be completed prior to the start of the fourth quarter of 2014 at a capital cost of approximately $3-million.
In order to maximize gold recovered, high-grade San Carlos ore will be mined and stockpiled until the modifications are completed in late September. Therefore, San Carlos production will be deferred with the mill expected to process the high-grade stockpiles in the fourth quarter. Third-quarter gold production has historically been impacted by the onset of the rainy season, which causes dilution of the leach pad and results in production being deferred until the fourth quarter. Accordingly, the company expects a strong improvement in production in the fourth quarter.
Looking beyond 2014, the company expects development of the Cerro Pelon and La Yaqui satellite deposits to bring on additional low-cost production, which will help drive annual production closer to the level achieved in 2013. The company signed a binding agreement for acquisition of the surface rights for the Cerro Pelon and La Yaqui deposits in the second quarter of 2014. The company closed the acquisition of the surface rights to the La Yaqui deposit in June, 2014, and is currently finalizing the acquisition of the surface rights to the Cerro Pelon deposit, which it expects to complete in the third quarter.
The focus over the next 18 months to 24 months will be on permitting and developing the two deposits, with initial production expected in 2016. The two projects are expected to contribute an average of 33,000 ounces per year of low-cost gold production over a five-year mine life, with peak annual production of 50,000 ounces. The near-term focus will be on baseline studies and compiling environmental impact assessments for both Cerro Pelon and La Yaqui, with approvals expected in approximately 12 to 15 months. This will be followed by a six- to eight-month construction period at La Yaqui and eight- to 10-month construction period at Cerro Pelon. Initial production from La Yaqui is expected in 2016 followed by Cerro Pelon in 2017. Total initial capital to construct both projects is expected to be approximately $21-million. In conjunction with the completion of the environmental baseline studies, the company will undertake further detailed economic analysis, as well as additional exploration drilling at Cerro Pelon.
Gold production from the first of the company's Turkish projects, Kirazli, is expected within 18 months of receipt of the outstanding forestry and operating permits. The company remains confident that these permits will be granted. However, recent legal developments have increased uncertainty of the expected timing for receipt of these permits. While the company awaits positive resolution of the legal process, as a contingency measure the company is also amending its EIA for the Kirazli project to include an assessment of the potential cumulative impacts of proposed projects in the region and expects to be in a position to file it by the end of September, 2014.
With the completion of the Esperanza and Orsa acquisitions in 2013, the company increased its development pipeline substantially. Development spending at Esperanza in 2014 of approximately $11.3-million is focused on baseline work required for the resubmission of an EIA report and an internal feasibility study to further support development of the project. Spending at the Quartz Mountain property will be focused on validating the existing mineral resources, with a new drill program commencing in August.
The company's financial position remains strong, with over $392-million in cash and cash equivalents and no debt. The company's development capital and exploration spending in 2014 is all expected to be financed from cash flow and the company is well positioned to pursue accretive acquisition opportunities and to deliver on its longer-term growth objectives.
Associated documents
This news release should be read in conjunction with the company's interim consolidated financial statements for the three- and six-month periods ended June 30, 2014, and June 30, 2013, and associated management's discussion and analysis, which are available from the company's website in the investor centre tab in the reports and financial statements section, and on SEDAR and EDGAR.
Reminder of second-quarter 2014 results conference call
The company's senior management will host a conference call on Thursday, July 31, 2014, at 12 p.m. ET to discuss the second-quarter 2014 financial results and update operating, exploration and development activities.
Participants may join the conference call by dialling 416-340-8527 or 877-677-0837 for calls within Canada and the United States, or by webcast at the company's website.
A playback will be available until Aug. 14, 2014, by dialling 905-694-9451 or 800-408-3053 within Canada and the United States. The passcode is 7032513. The webcast will be archived at the company's website.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(stated in thousands of United States dollars, except per-share amounts)
For the three-month For the six-month
periods ended periods ended
June 30, June 30, June 30, June 30,
2014 2013 2014 2013
Operating revenues $ 43,843 $ 78,273 $ 85,353 $ 164,545
Mine operating costs
Mining and
processing 20,256 20,804 37,802 39,763
Royalties 2,315 3,841 4,620 8,663
Amortization 9,738 16,462 21,122 29,397
32,309 41,107 63,544 77,823
Earnings from mine
operations 11,534 37,166 21,809 86,722
Expenses
Exploration 1,465 1,384 2,900 2,172
Corporate and
administrative 4,350 5,045 8,434 12,879
Share-based
compensation 1,784 1,205 1,000 420
7,599 7,634 12,334 15,471
Earnings from
operations 3,935 29,532 9,475 71,251
Other income
(expenses)
Finance income 788 635 1,507 1,318
Financing (expense) (352) (229) (698) (476)
Foreign exchange
gain (loss) 350 (3,631) 40 (6,962)
Other (loss) (231) (7,238) (1,113) (7,264)
Earnings before
income taxes for
the period 4,490 19,069 9,211 57,867
Income taxes
Current tax (expense) (3,207) (12,381) (2,982) (26,425)
Deferred tax
(expense) recovery (550) 2,140 (2,750) 3,375
Earnings for the
period 733 8,828 3,479 34,817
Other comprehensive
income (loss)
Unrealized (loss) on
securities (58) - (557) (1,604)
Reclassification
of realized losses
(gains) on
available-for-sale
securities included
in earnings - 2,668 - 2,668
Comprehensive income
for the period 675 11,496 2,922 35,881
Earnings per share
Basic 0.01 0.07 0.03 0.27
Diluted 0.01 0.07 0.03 0.27
PRODUCTION SUMMARY AND STATISTICS (1)
Q2 Q2 YTD YTD
2014 2013 2014 2013
Ounces produced (1) 33,000 53,000 70,000 108,000
Crushed ore stacked on leach
pad (tonnes) (2) 1,580,200 1,552,000 3,063,700 3,124,000
Grade (g/t Au) 0.93 1.10 0.98 1.18
Contained ounces stacked 47,300 54,800 96,500 117,900
Crushed ore milled (tonnes) 6,800 46,000 36,900 91,600
Grade (g/t Au) 8.65 10.94 4.27 8.78
Contained ounces milled 1,900 16,200 5,100 25,800
Ratio of total ounces
produced to contained
ounces stacked and milled 67% 75% 69% 75%
Total ore mined (tonnes) (3) 2,105,000 1,900,000 3,853,000 3,410,000
Waste mined (tonnes) 1,580,000 907,000 2,530,000 1,609,000
Total mined (tonnes) 3,685,000 2,807,000 6,383,000 5,019,000
Waste-to-ore ratio 0.75 0.48 0.66 0.47
Ore crushed per day
(tonnes) -- combined 17,400 17,600 17,100 17,700
(1) Reported gold production for second-quarter 2014 and year-to-date 2014
is subject to final refinery settlement and may be adjusted.
(2) Excludes mill tailings stacked on the heap leach pad during the period.
(3) Includes ore stockpiled during the period.
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.