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Alamos Gold Inc
Symbol AGI
Shares Issued 392,776,822
Close 2021-02-24 C$ 9.73
Recent Sedar Documents

Alamos earns $144.2M (U.S.) in 2020, increases dividend

2021-02-24 17:33 ET - News Release

Mr. John McCluskey reports

ALAMOS GOLD REPORTS FOURTH QUARTER AND YEAR-END 2020 RESULTS

Alamos Gold Inc. has released its financial results for the quarter and year ended Dec. 31, 2020. All amounts are in U.S. dollars, unless otherwise stated.

"We closed 2020 on a strong note, meeting full-year guidance with our highest production for the year in the fourth quarter. This was driven by another record quarter at Island Gold and significantly higher production at Young-Davidson following the completion of the lower mine expansion. With ongoing strong margins, we had another solid quarter financially, generating $58-million of free cash flow," said John A. McCluskey, president and chief executive officer.

"We are expecting production to grow 15 per cent in 2021, supporting strong ongoing free cash flow generation while we reinvest in high-return organic growth projects. This includes the phase 3 expansion at Island Gold, where we just added another million ounces of combined high-grade mineral reserves and resources as the value of the operation continues to grow. Reflecting the strong quarter and outlook, we are pleased to announce a further 25-per-cent increase in our dividend, marking our second consecutive quarterly increase," Mr. McCluskey added.

Fourth quarter 2020:

  • Generated quarterly free cash flow (1) of $58.0-million, the second consecutive quarter with strong free cash flow, driven by higher margins at all operations;
  • Announced a 25-per-cent increase in the dividend to 2.5 U.S. cents per share to be paid in the first quarter of 2021, bringing the annual dividend to 10 U.S. cents per share and marking the second consecutive quarterly increase;
  • Production increased to 120,400 ounces of gold, the highest quarterly total in 2020, driven by strong performances at Young-Davidson and Island Gold;
  • Young-Davidson produced 48,000 ounces of gold and generated record mine-site free cash flow (1) of $30.8-million, driven by record mining rates of 7,651 tonnes per day from the new lower mine infrastructure, exceeding year-end targets;
  • Island Gold produced a record 41,200 ounces of gold and generated mine-site free cash flow (1) of $31.8-million;
  • Sold 121,831 ounces of gold at an average realized price of $1,860 per ounce for record revenues of $226.6-million;
  • Generated record cash flow from operating activities of $131.4-million ($126.5-million, or 32 cents per share, before changes in working capital (1)), a 69-per-cent increase from the fourth quarter of 2019;
  • Consolidated total cash costs (1) of $733 per ounce and all-in sustaining costs (AISC) (1) of $1,030 per ounce were below and at the low end of revised full-year guidance, respectively; as well, cost of sales per ounce of $1,115 was below guidance;
  • Record adjusted net earnings (1) of $58.2-million, or 15 cents per share (1), which include adjustments for unrealized foreign exchange gains of $16.4-million recorded within deferred taxes and foreign exchange, and other one-time gains of $2.3-million; adjusted net earnings increased 81 per cent compared with the fourth quarter of 2019;
  • Realized record net earnings of $76.9-million, or 20 cents per share;
  • Ended the quarter with cash and cash equivalents of $220.5-million and equity securities of $43.7-million;
  • In October, 2020, the company repaid $100.0-million drawn earlier in the year on its credit facility and is debt-free;
  • Acquired Trillium Mining Corp. for cash consideration of $19.5-million, increasing its land package adjacent to, and along strike from, the Island Gold deposit, by approximately 60 per cent.

Full-year 2020:

  • Produced 426,800 ounces of gold, meeting revised production guidance; the company met or exceeded production guidance at all three of its operations;
  • Implemented extensive health and safety measures in response to COVID-19, including testing of all employees and contractors at its three operations;
  • Island Gold produced 139,000 ounces, driving record mine-site free cash flow (1) of $101.4-million;
  • Completed the lower mine expansion at Young-Davidson with the commissioning of the Northgate shaft and new lower mine infrastructure in July;
  • Generated free cash flow (1) of $122.3-million, reflecting a strong second half performance following the completion of the lower mine expansion at Young-Davidson, and the restart of operations at Island Gold and Mulatos, which were impacted by COVID-19 in the second quarter;
  • Sold 424,325 ounces of gold at an average realized price of $1,763 per ounce for record revenues of $748.1-million;
  • Total cash costs (1) of $761 per ounce were 2 per cent below the low end of revised cost guidance for the year, reflecting lower costs at both Island Gold and Mulatos;
  • AISC (1) of $1,046 per ounce was in line with revised guidance;
  • Cost of sales of $1,136 per ounce was 2 per cent below guidance, reflecting lower total cash costs;
  • Realized adjusted net earnings (1) of $156.5-million, or 40 cents per share (1), an 87-per-cent increase compared with 2019; adjusted net earnings include adjustments for unrealized foreign exchange losses recorded within both deferred taxes and foreign exchange of $4.5-million and COVID costs of $6.5-million, partially offset by other items totalling $1.3-million;
  • Reported net earnings of $144.2-million, or 37 cents per share;
  • Record cash flow from operating activities of $368.4-million ($382.9-million, or 98 cents per share, before changes in working capital (1)), a 41-per-cent increase from 2019;
  • Paid $25.6-million in dividends, a 64-per-cent increase compared with 2019; in addition, the company repurchased 1.1 million shares at a cost of $5.5-million, or $4.89 per share, under its normal course issuer bid (NCIB);
  • Reported year-end 2020 mineral reserves of 9.9 million ounces, up from 9.7 million ounces at the end of 2019, with additions at Island Gold, Young-Davidson and Lynn Lake more than offsetting mining depletion; this included an 8-per-cent increase in mineral reserves and a 40-per-cent increase in inferred mineral resources at Island Gold, for a combined increase of 1.0 million ounces;
  • Repurchased a 3-per-cent net smelter return (NSR) royalty payable on the majority of mineral reserves and resources at Island Gold for cash consideration of $54.8-million; this reduced the effective royalty rate from 4.4 per cent to 2.2 per cent on mineral reserves;
  • Reported results of the Island Gold phase 3 expansion study, which is expected to drive a 70-per-cent increase in average annual production to 236,000 ounces and a significant decrease in mine-site AISC to $534 per ounce starting in 2025;
  • Commenced construction of the low-cost, high-return La Yaqui Grande project in Mexico;
  • Equity securities value increased to $43.7-million at year-end; during the year, sold $9.7-million of equity securities for a realized gain of $6.6-million, recorded in retained earnings.

(1) Refer to the "Non-GAAP Measures and Additional GAAP Measures" disclosure in the associated management's discussion and analysis for a description and calculation of these measures.

Environment, social and governance summary performance

Health and safety:

  • Annual recordable injury frequency rate (1) of 2.25, a 28-per-cent improvement compared with 2019;
  • Annual lost-time injury frequency rate (1) of 0.14, a 17-per-cent improvement compared with 2019;
  • Performed over 13,000 COVID-19 tests on Alamos employees, contractors and visitors as part of enhanced workplace safety screening measures.

In 2020, the company improved its health and safety performance and finished the year with five lost-time injuries (seven in 2019) and 81 recordable injuries (131 in 2019). Alamos strives to maintain a safe, healthy working environment for all, with a strong safety culture, where everyone is continually reminded of the importance of keeping themselves and their colleagues healthy and injury-free. The company's overarching commitment is to have all employees and contractors return home safely every day.

The World Health Organization declared COVID-19 a pandemic on March 11, 2020. The company responded rapidly and pro-actively, and implemented several initiatives to help protect the health and safety of its employees, their families and the communities in which it operates.

Specifically, each mine site activated established crisis management plans and developed site-specific plans that have enabled it to meet and respond to changing conditions associated with COVID-19. The company has adopted the advice of public health authorities and is adhering to government regulations with respect to COVID-19 in the jurisdictions in which it operates.

The following measures have been instituted across the company to prevent the potential spread of the virus:

  • Medical screening for all personnel prior to entry to site for symptoms of COVID-19;
  • Testing of employees at all operating sites prior to starting their work rotation;
  • Training on proper hand hygiene and social distancing;
  • Remote work options have been implemented for eligible employees;
  • Social distancing practices have been implemented for all meetings, huddles and transportation;
  • Mandatory use of personal protective equipment for employees where social distancing is not practicable;
  • Rigid camp and site hygiene protocols have been instituted and are being followed;
  • Elimination of all non-essential business travel;
  • Required 14-day quarantine for any employees returning from out-of-country travel;
  • In addition, since the COVID-19 pandemic began, the company's teams in Canada, Mexico and Turkey have donated their time, medical supplies and funds to help combat the effects and spread of the virus.

COVID 19 -- impact on operations

To protect nearby communities and align with government requirements, two of the company's mines were temporarily suspended earlier in 2020, but resumed normal operations during the second quarter. During the temporary suspensions, indirect production costs that exceeded normal operating capacity were expensed as incurred and not included in the inventory valuation. The company identified indirect production costs of $5.4-million that were directly expensed as COVID-19 costs as incurred in the second quarter of 2020 and not included in inventory. All operating costs incurred subsequent to the mine sites returning to planned operating levels have been included in mining and processing costs. As a result, there were no amounts classified as COVID-19 costs after June 30, 2020.

Since the pandemic began, operations have continued to incur additional costs related to testing of personnel, lodging and transportation, which have been included in mining and processing costs rather than COVID-19 costs after June 30, 2020. These incremental costs have increased total cash costs globally by approximately $25 per ounce and are expected to be incurred throughout 2021.

Environment:

  • Zero significant environmental incidents, consistent with 2019;
  • Announced the phase 3 expansion of Island Gold, which is anticipated to reduce life-of-mine greenhouse gas (GHG) emissions by 35 per cent relative to the current operation;
  • Advanced construction of the power line, which will connect the Mulatos mine to grid power, which will eliminate the need for site diesel power generation and reduce annual mine GHG emissions by 12 per cent;
  • Submitted the environmental impact statement for Lynn Lake and advanced project permitting.

In 2020, the company's mine sites operated in compliance with applicable environmental regulations, with the exception of two minor spills that triggered reporting to external agencies. Both incidents were addressed as per internal response procedures with no residual impacts. In addition to existing management measures to minimize and mitigate its environmental impacts, Alamos took steps in 2020 to improve its understanding of the transition and physical risks presented by climate change that could potentially affect operating sites and projects. This analysis will play an important role in the company's strategic planning, decision making and enterprise risk management.

Community:

  • Donated time, medical supplies, food supplies and funds across all operations and projects to help combat the effects and spread of COVID-19 in local communities;
  • Awarded the prestigious ethics and values in industry award by the Industrial Chambers Confederation of Mexico (Concamin), recognizing exceptional performance in corporate social responsibility by Alamos Gold's subsidiary Minas de Oro Nacional;
  • Received recognition for Mulatos and El Chanate as socially responsible mining companies by Cemefi, the Mexican Center for Philanthropy and the Alliance for Corporate Responsibility, the 12th consecutive year Alamos has been recognized with this award;
  • Published economic benefit assessment reports for Young-Davidson and Island Gold mines, providing an overview of each mine's economic value and community benefits in the regions they impact; copies are available on the company's website;
  • The company in partnership with Marcel Colomb First Nation (MCFN) launched a youth development project, with support from the Manitoba Mineral Development Fund.

Alamos believes that excellence in sustainability provides a net benefit to all stakeholders. Throughout 2020, the company continued to engage with local communities and offer support during the COVID-19 pandemic. The team at the Mulatos mine worked with local stakeholders to develop a COVID-19 community action plan aimed at the prevention, response, management and monitoring of COVID-19 within the local community. The team at the Kirazli project worked with village mukhtars to donate medical supplies to local clinics, and provided digital tablets to local students to ensure they were able to continue their education virtually and undisrupted while required to stay home. Alamos engaged in continuing dialogue with host communities to understand local challenges, priorities and expectations of the company.

Governance and disclosure:

  • Published a sustainability policy, human right policy and supply chain policy; and updated the company's anti-bribery, anti-corruption and anti-competition policy;
  • Received independent assurance over the company's inaugural Responsible Gold Mining Principles (RGMP) progress report;
  • Advanced steps to adopt the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD);
  • Top-quartile ranking in 2020 Globe and Mail board games.

Alamos maintains the highest standards of corporate governance to ensure that corporate decision making reflects its values, including the company's commitment to sustainable development. In 2020, the company finalized new corporate policies to strengthen its governance and approach to managing business activities responsibly. The company also advanced its implementation of the Responsible Gold Mining Principles, developed by the World Gold Council as a framework that sets clear expectations as to what constitutes responsible gold mining. In addition to the company's inaugural RGMP progress report, in 2020, Alamos published expanded environmental, social and governance (ESG) disclosures within its annual ESG report, conflict-free gold report, and response to the investor mining and tailings safety initiative. Copies are available on the sustainability section of the company's website.

(1) Frequency rate is calculated as incidents per 200,000 hours worked.

                                              OUTLOOK AND STRATEGY
2021 guidance                                                          
                                            Young-Davidson   Island Gold          Mulatos      Other (2)         Total

Gold production (000s ounces)                      190-205       130-145          150-160                      470-510
Cost of sales, including amortization
(in millions) (4)                                     $255          $108             $177             -           $540
Cost of sales, including amortization
($ per ounce) (4)                                   $1,290          $785           $1,145             -         $1,105
Total cash costs ($ per ounce) (1)               $790-$840     $430-$480        $840-$890             -      $710-$760
All-in sustaining costs ($ per ounce) (1)                                                                $1,025-$1,075
Mine-site all-in sustaining costs
($ per ounce) (1) (3)                        $1,000-$1,050     $750-$800    $1,060-$1,110             -
Amortization costs ($ per ounce) (1)                  $475          $330             $280             -           $370
Capital expenditures (in millions)
Sustaining capital (1)                             $40-$45       $40-$45          $30-$35            $-      $110-$125
Growth capital (1)                                 $25-$30       $80-$85         $95-$100           $10      $210-$225
Total sustaining and growth capital
(1)                                                $65-$75     $120-$130        $125-$135           $10      $320-$350
Capitalized exploration (1)                             $7           $20               $-            $7            $34
Total capital expenditures and
capitalized exploration (1)                        $72-$82     $140-$150        $125-$135           $17      $354-$384

(1) Refer to the "Non-GAAP Measures and Additional GAAP" disclosure in the associated management's discussion
and analysis for a description of these measures.
(2) Includes growth capital and capitalized exploration at the company's development projects (Turkey, Lynn 
Lake, Esperanza and Quartz Mountain).
(3) For the purposes of calculating mine-site all-in sustaining costs at individual mine sites, the company 
does not include an allocation of corporate and administrative and share-based compensation expenses to the 
mine sites.
(4) Cost of sales includes mining and processing costs, royalties and amortization expense, and is calculated 
based on the midpoint of guidance.

The company's objective is to operate a sustainable business model that can support growing returns to all stakeholders over the long term through increasing production, expanding margins and increasing profitability. This includes a balanced approach to capital allocation focused on generating strong continuing free cash flow while reinvesting in high-return internal growth opportunities and supporting higher returns to shareholders.

Despite a challenging environment with COVID-19, 2020 was a transformational year for Alamos. In addition to meeting revised annual production and cost guidance, the company executed on several significant catalysts, which have solidified its strong long-term outlook. This included the completion of the lower mine expansion at Young-Davidson in July, which drove significant free cash flow growth in the second half of 2020 and is expected to drive a 15-per-cent increase in consolidated gold production in 2021. In addition, the company announced the start of construction on the high-return La Yaqui Grande project and demonstrated a significant increase in value of the Island Gold mine through the phase 3 expansion of the operation. With another substantial increase in high-grade mineral reserves and resources at Island Gold announced earlier this week, beyond what was incorporated in the phase 3 expansion study, the value of Island Gold continues to grow.

The company met revised production guidance and was below the low end of revised total cash cost guidance in 2020. Combined with a rising gold price, the company generated free cash flow of $134-million in the second half of 2020. The company expects strong continuing free cash flow to support higher dividends while also reinvesting in the high-return La Yaqui Grande project and phase 3 expansion at Island Gold. These projects will, in turn, drive free cash flow higher and support growing, sustainable returns to shareholders over the long term.

Production is expected to increase to between 470,000 to 510,000 ounces of gold in 2021, a 15-per-cent increase from 2020 (based on the midpoint of guidance). The increase is expected to be driven by significantly higher production at Young-Davidson with the completion of the lower mine expansion. This is also expected to drive total cash costs lower to between $710 and $760 per ounce, a 3-per-cent decrease from 2020 (based on the midpoint of guidance). This includes costs of approximately $25 per ounce for COVID-19 testing and other related health and safety costs budgeted across all operations. All-in sustaining costs are expected to range between $1,025 and $1,075 per ounce, which is consistent with 2020, reflecting the lower total cash costs offset by higher sustaining capital at Mulatos.

Gold production is expected to be between 120,000 and 125,000 ounces in the first quarter of 2021 at costs in line with annual guidance. Gold production and costs are expected to be relatively consistent on a company-wide basis throughout 2021.

Total capital spending, including capitalized exploration, is expected to range between $354-million and $384-million in 2021. The increase from 2020 reflects the investment in high-return growth projects at Island Gold and Mulatos, as well as an expanded exploration program at all of the company's operations.

Gold production at Young-Davidson is expected to increase by 45 per cent in 2021 (based on the midpoint of guidance) driven by significantly higher mining rates following the completion of the lower mine expansion in July, 2020. Underground mining rates are expected to ramp up from 7,500 tonnes per day early in 2021 to design rates of 8,000 tpd in the second half of the year. Total cash costs and mine-site all-in sustaining costs are expected to decrease 20 per cent and 16 per cent, respectively, from 2020 (based on the midpoint of guidance), reflecting higher mining rates and productivity improvements with the transition to the lower mine infrastructure. Combined with lower capital spending, this is expected to drive record mine-site free cash flow of approximately $120-million in 2021.

At Island Gold, gold production and total cash costs are expected to be in the same range as 2020 and consistent with the assumptions outlined in the phase 3 expansion study released in July, 2020. A total of $25-million has been budgeted for exploration at Island Gold, a significant increase from $12.9-million spent in 2020. The larger program will follow up on another extremely successful drilling campaign in 2020 whereby mineral reserves were more than replaced and now total 1.3 million ounces grading 9.71 grams per tonne of gold (4.2 million tonnes) and inferred mineral resources increased 40 per cent to 3.2 million ounces with grades also increasing 9 per cent to 14.43 g/t Au (6.9 Mt).

The Mulatos district is expected to produce 150,000 to 160,000 ounces of gold in 2021, up 3 per cent from 2020 (based on the midpoint of guidance). Cerro Pelon, the Mulatos pit and surface stockpiles will supply all production in 2021. Mine-site all-in sustaining costs are expected to increase 5 per cent from 2020 and are expected to be higher during the first half of 2021, reflecting $25-million of spending to complete prestripping of the El Salto area of the Mulatos pit. In the first quarter of 2021, mine-site free cash flow will be impacted by annual tax payments relating to 2020, which are expected to be approximately $20-million.

The company submitted its environmental impact statement (EIS) for the Lynn Lake project in the second quarter of 2020 and continues to progress along the anticipated two-year permitting process. The 2021 capital budget for Lynn Lake is $13-million, including $6-million for development activities to support the permitting process and $7-million for exploration. The company will provide updated guidance for Kirazli following the concession renewal.

The 2021 global exploration budget has increased to $50-million from $25.3-million spent in 2020. The increase reflects larger exploration programs at each of Island Gold, Mulatos, Young-Davidson and Lynn Lake. Island Gold remains the primary focus and continues to account for the largest portion of the budget with $25-million planned for 2021 as noted above. This is followed by a $9-million budget at Mulatos and $7-million budgeted at each of Young-Davidson and Lynn Lake. Approximately 70 per cent of the 2021 budget will be capitalized.

The company's liquidity position remains strong, ending the year with $220.5-million of cash and cash equivalents, $43.7-million in equity securities, and no debt. Additionally, the company has a $500.0-million undrawn credit facility, providing $720.5-million of liquidity. The company expects strong continuing free cash flow generation in 2021 while financing its high-return internal growth initiatives.

Associated documents

This press release should be read in conjunction with the company's interim consolidated financial statements for the year ended Dec. 31, 2020, and associated management's discussion and analysis, which are available from the company's website in the investors section under reports and financials, and on SEDAR and EDGAR.

Reminder of fourth quarter and year-end 2020 results conference call

The company's senior management will host a conference call on Feb. 25, 2021, at 11 a.m. ET, to discuss the fourth quarter and year-end 2020 results.

Participants may join the conference call by dialling 416-340-2216 or 800-273-9672 for calls within Canada and the United States, or by webcast at the Alamos website.

A playback will be available until March 28, 2021, by dialling 905-694-9451 or 800-408-3053 within Canada and the United States. The passcode is 5619316 followed by the number sign. The webcast will be archived at the Alamos website.

Qualified person

Chris Bostwick, FAusIMM, Alamos's vice-president, technical services, who is a qualified person within the meaning of National Instrument 43-101, has reviewed and approved the scientific and technical information contained in this press release.

About Alamos Gold Inc.

Alamos is a Canadian-based intermediate gold producer with diversified production from three operating mines in North America. This includes the Young-Davidson and Island Gold mines in Northern Ontario, Canada, and the Mulatos mine in Sonora state, Mexico. Additionally, the company has a significant portfolio of development-stage projects in Canada, Mexico, Turkey and the United States. Alamos employs more than 1,700 people and is committed to the highest standards of sustainable development. The company's shares are traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol AGI.

                              CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                      (stated in millions of U.S. dollars, except per-share amounts)

                                                                For three months ended     For 12 months ended
                                                                          Dec. 31,               Dec. 31,    
                                                                      2020        2019        2020        2019

Operating revenues                                                  $226.6      $186.0      $748.1      $683.1
                                                                  --------    --------    --------    --------
Cost of sales 
Mining and processing                                                 86.0        87.4       312.6       339.0
Royalties                                                              3.3         4.4        10.2        17.4
COVID-19 costs                                                           -           -         6.5           -
Amortization                                                          46.5        44.2       152.7       165.0
                                                                  --------    --------    --------    --------
                                                                     135.8       136.0       482.0       521.4
Expenses
Exploration                                                            2.6         1.7         7.2         6.7
Corporate and administrative                                           5.7         5.2        21.0        19.8
Share-based compensation                                               1.2         1.5        10.3         9.2
                                                                  --------    --------    --------    --------
                                                                     145.3       144.4       520.5       557.1
                                                                  --------    --------    --------    --------
Earnings from operations                                              81.3        41.6       227.6       126.0
Other expenses
Finance expense                                                       (1.3)       (0.4)       (4.3)       (2.5)
Foreign exchange gain (loss)                                           2.7           -        (1.4)        0.3
Other gain (loss)                                                      3.1         2.6        (3.7)        5.1
                                                                  --------    --------    --------    --------
Earnings before income taxes                                          85.8        43.8       218.2       128.9
Income taxes
Current income tax expense                                            (9.7)        5.8       (30.1)      (12.7)
Deferred income tax recovery (expense)                                 0.8       (11.6)      (43.9)      (20.1)
                                                                  --------    --------    --------    --------
Net earnings                                                          76.9        38.0       144.2        96.1
Items that may be subsequently reclassified to net earnings
Unrealized gain on currency hedging instruments, net of taxes          3.7         1.8         1.1         6.0
Unrealized gain on fuel hedging instruments, net of taxes              0.4           -         0.1         0.5
Items that will not be reclassified to net earnings
Unrealized gain on equity securities, net of taxes                     9.9         3.5        23.8         2.5
                                                                  --------    --------    --------    --------
Total other comprehensive income                                      14.0         5.3        25.0         9.0
                                                                  --------    --------    --------    --------
Comprehensive income                                                  90.9        43.3       169.2       105.1
                                                                  --------    --------    --------    --------
Earnings per share
Basic                                                                 0.20        0.10        0.37        0.25
Diluted                                                               0.19        0.10        0.37        0.24
                                                                  --------    --------    --------    --------

We seek Safe Harbor.

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