Alamos Gold Inc (AGI) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I would like to welcome everyone to the AuRico Gold Incorporated 2012 first quarter results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to René Marion, President and Chief Executive Officer. You may begin your conference.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to AuRico's 2012 first-quarter financial results conference call and webcast.

Before we start the call, I'd like to refer our listeners to AuRico's forward-looking statement disclosure. Joining me today are Scott Perry, our Chief Financial Officer, and Anne Day, Vice President of Investor Relations.

This morning, I'll present a brief update on our 2012 fist quarter results, and then I'll pass it over to Scott Perry, who will provide an overview of our financial results. I will then further update the listeners to our operations. Please note that the presentation we're using here will be available on our web site.

Over to slide 4. I'd like to start off by discussing some recent highlights, and starting with Young-Davidson. We completed our first gold pour in April, and we actually produced 1,170 ounces during the month. The mill averaged over 5,000 tonnes a day from April 19 to April 30, excluding a one-day maintenance shutdown. And in May, we are currently averaging just under 5,400 tonnes a day already. The commissioning process has gone extremely well -- so well that, in less than one month, we were able to go through wet commissioning through ore commissioning and switching over to 24-hour a day operations.

As of last week, we have approximately 1,000,000 tonnes of pit ore stockpiled ahead of the mill. That's almost six months of mill feed. In establishing this stockpile, is a significant accomplishment and a greatly de-risk the coming quarters. The pit averaged approximately 27,000 tonnes a day in April, and is currently running over 31,000 tonnes a day in May. We started ore development in the upper boundary zone underground during the quarter, with the aim of commencing underground production and two high-grade stokes by the fourth quarter. And in fact, already this month we're averaging 800 tonnes a day.

Commercial production remains on target for the third quarter. And with all this activity going on, we have gone 1.7 million man hours without a lost-time incident. Moving over to slide 5, production during the first quarter was 102,000 gold-equivalent ounces, up 105%. Revenue of $177 million was up 152%, and adjusted net earnings of $0.21 a share was up 50%.

But really, the story is our core North American assets. We established a vision two years ago to be a leading low-cost gold producer, focused solely in North America. At the beginning of last year, we only had one operating mine. But since that time, we completed two acquisitions, completed the integration and consolidation of four operating companies. And with the divestiture of the Australian assets, and the pending El Cubo sale, we now have three large mines, all three predominantly gold, all of which will be in the lower quartile in cash cost, all of which will be expanding in the coming years.

So let's take a look at the first quarter of our new Company. Gold-equivalent production was 58,000 ounces, up 17%. Cash costs came in line with target at $493 per gold-equivalent ounce. And our margins grew by 20% to $1,207 an ounce. Revenues were strong at $93 million, and operating cash flow was $48 million. Our earnings from operations was $0.17 a share. And our reserves grew by 29% to 26.6 ounces per thousand shares.

And with that, I'd like to pass it over to Scott Perry, who will brief the listeners on the financial results.

Okay, thank you, René, and good morning, ladies and gentlemen.

Just starting off, on slide number 7. On the back of a transformational 2011, the Company has never been better positioned for growing profitability and operational cash-flow generation, which is being demonstrated in our year-to-date progress. Our first quarter operational performance saw a one-fold increase in gold-equivalent volumes, reflecting the Company's expanded portfolio of operations which is reflective of the acquisition of the Capital Gold El Chanate operation, the acquisition of Northgate's Australian operations, and the return to operations at El Cubo, whereas in the prior-year corresponding quarter, production was entirely attributable to our Ocampo operation. Our Company-wide cash cost per ounce of $770 per ounce was higher than the prior-year corresponding period, reflecting the higher cost production contributions from AuRico's non-core operations, mainly the Australian mine site and the El Cubo operation in Mexico.

As per recent news[flow], the Company is divesting these higher-cost non-core assets, which will streamline the portfolio and present a very low-cost portfolio of operations moving forward. By way of example, if we back out the production contributions of the non-core operations, the Company-wide cash cost per ounce was $493 per ounce for the quarter, which places such assets in the lower-cost quartile; this is the industry average.

Lastly, in terms of realized metal prices, our realized gold price in the quarter was $1,700 per ounce, which was 23% stronger than the prior-year quarter. The realized silver price was some $33 per ounce, which was 2% stronger than the prior quarter. All of which is obviously favorable in terms of underpinning the Company's financial results and is reflective of AuRico's unhedged revenue profile.

Moving onto the next slide, slide number 8 -- Company-wide earnings from operations, which is exclusive of the Australian operations -- these Australian operations being accounted for as discontinued operations -- was 73% higher than the prior-year corresponding quarter, and is predominantly reflective of the expanded portfolio of production that I discussed previously. The bottom line, net earnings results for the quarter, which is inclusive of the Australian operation's contribution, was a positive $1.4 million versus earnings of $11.8 million in the prior-year period. Adjusting the bottom line net earnings result to what is truly reflective of the Company's performance result in adjusted net earnings of $57.8 million, or $0.21 per share, versus $20.2 million or $0.14 per share in the prior-year period. This is an increase of some 185%, which is attributable to the expanded portfolio of operations on the back of last year's acquisitions. I will shortly provide you with more detail on the adjusted net earnings and appending slide.

Lastly, in terms of the operating cash flow result, which is one of the key metrics that we use to gauge business performance, the first quarter result generated some $64.6 million of positive operating cash flow, which was close to twice the result of the prior-year corresponding quarter.

Moving to the next slide on slide number 9. On this slide, we're illustrating our adjusted earnings result, and we've have broken it down into adjusted net earnings from continuing operations and adjusted net earnings from discontinued operations, the aggregation of which derives the Company-wide adjusted net earnings result of $57.8 million, or $0.21 per share. In terms of the continuing operations, the primary adjustment items are the unrealized non-cash foreign exchange loss of $19.7 million, the non-cash mark-to-market valuation on the option component within the Company's outstanding convertible bonds, the summation of which results in an adjusted net earnings result of $34.9 million, or $0.13 per share, noting there was no tax effect associated with these items.

In terms of the discontinued operations, which represents the Australian operations, the key adjustment is the impairment charge that was booked to the Australian operations to value these assets in line with the consideration received in divesting these assets. During the first quarter, the Company continued to invest capital in mine development, which resulted in the carrying value of the Australian assets being in excess of the consideration ultimately received through the sale of these assets.

This impairment charge is not reflective of the quarterly performance, so in adjusting the earnings result for this charge, the adjusted net earnings for the discontinued operations was $22.9 million, or some $0.08 per share, again noting that there is no tax effect associated with this adjustment item. Again, aggregating the contribution from continuing and discontinued operations, the bottom line adjusted net earnings result was $57.8 million, or $0.21 per share for the first quarter, which was a 50% improvement over the prior-year corresponding quarter.

Moving on to the next slide, on slide number 10 -- this slide illustrates the key North American operations, or what we're calling our core assets. It's representative of the streamlined portfolio following the divestment of the Australian operations and the divestment of the El Cubo operations; noting, of course, that it would be exciting to shortly be including Young-Davidson in the schedule, which will then be truly reflective of the portfolio's strong profile moving forward. In terms of the quarterly performance, key take-away is that the core operations were again strongly profitable and contributing positively to operating cash-flow.

El Campo and El Chanate generate significant streams of earnings and operational cash flow, which is attributable to their very low cost of production, both assets operating under $500 per ounce during the quarter. Again, this slide's going to present very well in the future, when Young-Davidson is in commercial production, just in terms of illustrating how much we have streamlined the portfolio to now consist of three core assets, which will profile long-life, low-cost, high-growth operational potential, which will all contribute favorably into the Company's bottom lines in years to come.

Moving on to slide number 11 -- just covering up on the balance sheet in the Company's financial foundation there, too, we finished the quarter with $113 million in cash, which will grow significantly through the year in terms of the recent Australian and El Cubo divestments, where we will be receiving cash proceeds of $165 million, as well as $110 million in equity shares. On top of this, there are various contingency proceeds associated with such divestments that can accrue to AuRico's account moving forward.

Further bolstering the Company's liquidity, we recently successfully increased the size of our revolving line of credit facility to $250 million, which is commensurate with AuRico's significantly improved credit profile. The competitively priced facility has no operational performance covenants. It's a full-year facility, and it was syndicated with seven high-calibre banks, which I would advocate is a testament to AuRico's strong credit profile and business strategy going forward.

Wrapping up, our financial foundation and overall balance sheet liquidity is very strong. And with Young-Davidson shortly coming into commercial production, the company has never been better positioned for growing profitability, operational cash-flow generation, and therein, some compelling valuation upside.

With that, I will now pass the presentation back to René Marion, our President and Chief Executive Officer.

Thank you, Scott.

Moving over to slide 13. My next two slides are to go back to Young-Davidson and highlight how the commissioning process is proceeding. I really like the chart on slide 13, because it's a testament to the operators up at the mine site, as well as the accomplishments of the construction crews. The mill, as I mentioned earlier, is performing extremely well. In April, running at 5,000 tonnes a day. In fact, it's running currently at almost 5,300 tonnes a day. We've processed to the end of May 6 over 110,000 tonnes. We've increased the reserves during that same time period by 36%, or bringing the reserves to 3.8 million ounces; and we've re-engineered and underground and mining efforts and completed the expansion program which is now under way. We have just received the amended environmental permit for the mill expansion to 8,000 tonnes a day.

On slide 14 -- what do we have to do to reach commercial production? On the top left-hand side, you can see the open pit performance. On the open pit, we have to run 30 days at 29,750 tonnes, a rate that we're actually currently at. In fact, if we were to fast forward that right-hand bar to May 8, month-to-date, we've been running at 31,353 tonnes per day.

And looking at the bottom left-hand chart for the mill. The mill needs to process, over a 30-day period, 5,100 tonnes a day; a rate, again, that we're currently at. In fact, month-to-date, to May 8, we're running at 5,356 tonnes a day, so we're there.

We also have the commission and gravity and flotation circuits. The gravity circuit we anticipate having commissioned by the end of the month, and the flotation circuit, by mid-June. And as such, we remain on-schedule for commissioning and declaring commercial production by the third quarter.

Over to slide 15. Quickly, on the Young-Davidson mine re-engineering. With the re-engineering simplification of the mining methods underground to 100% long haul, with the utilization of pace backfill, we anticipate reaching 8,000 tonnes a day by 2016, and thereby increasing the design and/or production from 180,000 ounces a year envisioned in the feasibility, to over 250,000 ounces a year.

The Northgate shop has completed the internal ground support. And the next 400-meter leg of the shaft will commence during this summer. We're also accessing the shaft bottom so that hoisting can commence by next summer. And between now and then, we'll be hauling ore production to surface using our haulage equipment. For that reason, you can see that we're able to get 800 tonnes a day month-to-date from development of the upper boundary zone. We've also improved mining recoveries to 92%, from approximately 70%, and decreased dilution to 10%. We've also got a large team working on reserve expansions and resource expansions, with four diamond drills on-site currently.

Moving to slide 16 -- Ocampo, the underground averaged 2,300 tonnes a day in the first quarter. Grades by March returned to historical grades to the mill. We received, during the quarter, approval by the Board of Directors, the development of our third underground mine, level 2, which is anticipated to commence production by the end of this year and reach its ultimate capacity by the end of next year.

The open pits are performing extremely well at 107,000 tonnes a day, ore and waste. We're currently scheduling in the exploitation of three new open pits, the Los Molinas, the Belen/San Jose, and Alta Gracia. The mill performed very well during the quarter at just under 3,200 tonnes a day, with gold recoveries of 96%, and silver recoveries of 87%. And the Heap Leach stocking rates have improved to 8,900 tonnes a day during the quarter. The final designs on the mill expansion to 4,000 tonnes a day and the shaft commissioning will be completed shortly, and the work will commence during the second half of this year, commissioning in the second half of 2013.

Over to slide 17, El Chanate -- we acquired El Chanate only in April last year. The open pit was largely under-stripped. The open pit mining rates historically ran at 38,000 tonnes a day. We've increased that mining rate to March-April, to 96,000 tonnes a day, or up 155%. The Heap Leach has been performing extremely well. Historically, the Heap Leach Crushing and Stacking Plant could only do 14,000 tonnes a day. We have successfully, by the end of March, expanded through two expansion programs to 21,000 tonnes a day. You can see on the right-hand side of the chart, that we almost averaged in April, 21,000 tonnes a day -- just shy.

And if you include the run of mine material now that's going onto the Heap Leach pads, we've increased placement rates by125% from the first quarter of 2011 to April. In fact, April averaged just shy of 32,000 tonnes a day going on to the Heap Leach pad. We also increased our [large] supply by 63%, and currently have 67% of every tonne ever placed on the pads under Leach. And we're not stopping there -- we're currently working on obtaining further water permits. I'd also like to note, at El Chanate, that we've gone approximately 1.5 million man hours without a lost-time incident. So it's got to be one of the records in Mexico.

Moving to my final slide, on slide 18 -- in March, we announced our exciting growth profile, 160% growth up to 2014. And it doesn't end there, because Young-Davidson is not at full capacity in the underground operations, so this carries on to 2016; Some short-term catalysts will be the closing, obviously, of the divestment of El Cubo, which is anticipated in June; declaring commercial production at Young-Davidson early in Q3; and continuing to ramp up underground at Young-Davidson and start stoping by the fourth quarter of this year.

With that, I'd like to turn it over to the operator to open up the line for Q&A.

Certainly. (Operator Instructions). Your fist question comes from the line of Rahul Paul from Canaccord Genuity, your line is open.

Hi, everyone. René, you mentioned that you were averaging sort of 800 tonnes a day from the underground at Young-Davidson. Any sense of how the grades there -- there's a concerning with the block model?

Rahul, it's development work at 800 tonnes a day, and unfortunately, our lab isn't commissioned yet, so we're back-logged up at the offsite lab that we're using. Once our lab gets up and running fully, then we'll be able to get more realtime information.

Okay, thanks a lot. That's pretty much it for me. Congratulations on a good quarter.

Thank you.

Your next question comes from the line of Brian Christie from Desjardin, your line is open.

Good morning, guys. Couple of quick ones for Scott here. Just maybe the effect of tax rate over the balance of the year, and then have you drawn down any of the line of credit, the new facility?

The drawn balance, Brian, on the credit facility is approximately $100 million, so that leaves us with $150 million of available capacity. There's no requirements or envisaged needs to draw down that facility moving forward, obviously got very strong cash balance in the back of these divestments. In terms of effective tax rates moving forward to Canada, I'd suggest modeling 26% as an effective tax rate, and again for Mexico, I'd suggest modeling 30%.

Great, thanks, Scott.

Operator. Your next question comes from the line of David Haughton from BMO Capital Markets; your line is open.

Good morning, René and Scott; thank you very much for the update. Just looking at the Australian transaction, have you got the cash yet?

Yes, we received the cash last Friday.

Okay. And, are you escrowed on that stock for Crocodile?

Yes, we are. It's a four-month hold.

And when would you expect the completion of the El Cubo deal?

El Cubo, we're expecting hopefully to close by the end of June. I guess the one sort of variable there is, we do have to file for antitrust approval for Mexico. That usually takes about 30 days. We're filing as we speak, so at a minimum, I would say in 30 days from now, 30 to 45 days would be a good place holder.

Okay. So, we should expect then your next quarter would reflect the cash from Crocodile and the cash for El Cubo?

That's correct.

All right. Can you just explain a little bit about the tax credit that you got in this quarter?

Yes. In terms of the deferred tax expenses in a recovery position for the first quarter, there's really two things driving that. In terms of the parent entity, AuRico Gold Incorporated, which is the owner of the Young-Davidson asset, our tax losses and the apparent entity are now being recognized as recoveries as a result of Young-Davidson in the future income-stream there. The second item is, in terms of the purchase price allocation on the Capital Gold Transaction and Northgate transaction.

There's a number of fair value adjustments there, which are not tax-deductible. They result in future income tax liabilities from an accounting perspective, but now that we're amortizing these assets, those future income tax liabilities are being amortized, as well, so those liabilities have decreased. That's what -- they are the two key items driving that deferred tax expense recovery.

Okay. And we'll have, I guess, another confusing quarter ahead of us with the discontinued operations. But this time, it'll be the Mexican assets as discontinued, and all the assets will simply disappear.

Yes, that's correct; yes.

The accountants know really how to make our jobs much harder, don't they?

Yes, we do; our heads are spinning sometimes, as well. That's why I would definitely encourage everyone to really look to our adjusted earnings schedule to try and decipher all of that.

All right. Thank you very much, Scott.

Your next question comes from the line of Mike Parkin from Bank of America; your line is open.

Hi, guys. Congratulations on the good quarter. Just a couple questions on the effective tax rate guidance that you've given. Where do you expect the Canadian tax rate to move up by? Would that be low for a couple years?

It will be low for a couple of years, Mike, because we do have the tax losses that we've always had historically in terms of our Canadian domicile G&A. So, those tax losses will get utilized now as Young-Davidson starts generating taxable income. You know from, a modeling perspective, in terms of modeling earnings going forward, we would advise that you assume an effective tax rate of 26% for Canada.

Okay. And then one question, for Young-Davidson, you spent about $100 million on CapEx this year. Your full-year guidance is $173 to $187. How do you see that trending for the remaining nine months.

Well, when you take a look at our forecast; we're betting on budget right now for that fist quarter, and the assumption of up to $187 million is based on revenue streams during the second quarter being credited against the CapEx so that commercial production was assumed at the beginning of Q3.

Okay. All right. Thanks for clarifying that. Thanks, guys.

Your next question comes from the line of George Ireland from Geologic Research Partners; your line is open.

Question. You talk about accelerating pre-stripping at El Chanate and possibly Ocampo, if I heard correctly. How much money went into the pre-strip? And how much would have been considered normal stripping, and why was that decision taken? Was it just the availability of cash, or was there operational consideration?

Good morning, George, it's René. Indeed, the pre-stripping at Ocampo is winding down. The largest amount for the last two years was on Picacho pit. But over to Chanate, historical stripping rates were, prior to us showing up, were under 1 to 1, and the life of mine, if I recall correctly was 2.6 or 2.9 to 1. We're going to be running at around 3.6 to 1 for the next 18 months because, on the east lay back, we have to go down quite a few benches. So, if I were to look forward this year, I don't have it in front of me, but we've got some 15 million plus tonnes to move on that east lay back.

Okay. So, as you're talking about the pre-strip, was this a decision to move it ahead faster, or was it always part of the operational plan for El Chanate?

It's kind of a combination of both because, increasing the placement rate to over 30,000 tonnes a day, like we did last month, really required to bring that east layback forward in time. But the east layback wasn't even -- was barely started when we took possession of the mine. Basically, we had the contractor double his equipment fleet.

Okay. So, that probably is chewed up what, $7 million or $8 million of cash in the quarter that would have otherwise been not be capitalized?

Yes, the exact number is $6.7 million during the quarter.

Thank you.

You're welcome.

(Operator Instructions) Your next question comes from the line of Scott Parsons from TD Securities; your line is open.

Good morning, guys. I just have a quick question relating to your inventories. I see more specifically ore and process. This hasn't continued to increase over the past year so maybe you can give us some color on why it's still increasing, and if you actually expect to recover all these ounces?

From an accounting perspective, Scott, one of the key things you're seeing there in terms of the increase is obviously when we acquired Capital Gold and El Chanate operation, we had to it do a purchase-price allocation and reevaluate what is the fair value or that Heap Leach inventory at El Chanate.

Okay.

That inventory is approximately $25 million associated with a fair value bump on closing that transaction. With regard to the open pit operations at Ocampo, you're also seeing the Heap Leach inventory grow there, as well. As you know, I've been focusing quite heavily in terms of ramping up underground productions, whereas at the Ocampo Heap Leach facility the production rates there, particularly last year, were lower than what we're guiding going forward. So, as we're moving forward here and seeing more and more production coming off that Heap Leach facility, and you will see that inventory balance starting to be drawn down.

Okay.

If I can add to that, we also have to remember that at Chanate, you know, they were irrigating -- well, we're irrigating 67% of the ore by increasing the solution by 63%. So, most of the Heap Leach pad was not under leach when we acquired the mine. Now we have it under leach.

Okay, so you expect both of those to contribute to lower inventories going forward?

Yes, because when we take a look at the production forecast on a quarterly basis of 20 to 23,000 in gold equivalent ounces, part of that is the fact that we've got the older sells under leach.

Okay, that's it for me. Thank you. Operator. Your next question comes from the line of David Haughton from BMO Capital Markets; your line is open.

Thank you. Just a follow-up one for you, Scott, if you don't mind. There's a performance criteria for the balance of the money coming out of Crocodile. What kind of time frame should we be thinking about for getting that money out of them?

I'll take that, David.

Thanks, René.

What it is, is a cash leap on net-free cash flow. So, it all depends on the first tranche of how they can recoup the first $60 million. But then, after that, we have a long-term participation that decreases over time. It ends up being around 20% to the net-free cash flow forever.

Because those operations seem to have done surprisingly well in the first quarter.

Yes, that's correct. I mean, if you do add back the impairment adjustment, I think they generated positive earnings of $23 million after tax; likewise, in terms of net-free cash flow, they were positive about $3 million.

And the sweep that René was mentioning, is that capped to $55 million, or is it just open ended?

It's not capped at all. It's forever and ever.

All right, thank you for the clarification. Operator. Your next question comes from the line of Adam Graf of Dahlman Rose; your line is open.

Good morning, guys. Congratulations on a solid quarter. I have a question just regarding the mill expansion at Young-Davidson to 8,000 tonnes a day. The previous plan had the open pit ending around year four, and certainly depleted in year five. Were you in year five there with the expanded mill, would that be drawing all from underground? Or are you going to also extend the life of the open pit? And just regarding either mine and the mill expansion, when do you see spending on that starting?

Good morning, Adam, it's René. With regards to the underground, instead of assuming a three-year ramp up to full production, we've been conservative. I'm assuming it's a full four years, so you see 8,000 tonnes a day coming out of the underground in 2016. That runs forever. On the open pit side, though, because we're started the underground so much earlier, in fact, this year, what you'll find is, in the open pit, after we reach underground at 8,000 tonnes a day, there's still remaining about a year, year and a bit of open pit material on stockpile. That will be processed at the end of the mine life. The nice thing about it is if we do fall behind at all on the underground, we've got all of the tonnes that we need. If we do better, we'll just have more material at the end of the month.

Now, the expansion from 6,000 tonnes to 8,000 tonnes a day, the engineering firm that took a look at that really couldn't set battery limits; didn't see major obstacles in CapEx. But to be conservative, we've assumed $13 million, which is an additional tailings line, leach tank and filters -- sorry, thickeners. The reality is, what we're going to try to do is really test the mill in the coming months and quarters, and push the mill, because we've got 1 million tonnes already ahead of the mill, to see what the bottlenecks actually are, and that'll take place in the coming months.

And René, just as far as any additional underground infrastructure needed to maintain an 8,000 tonne-per-day rate, versus the original plan, what do you see there and when does that get phased in?

Really, you know, what we've done on the underground is, we've just have taken a plan, the capital spend plan, and brought it forward. So really, it's just starting a couple of years earlier on the underground. You do have a bit more equipment. For example, we just bought another jumbo right now for development to sustain the development requirements for that. We need a few extra trucks, so there's not much new capital for that expansion outside of the pace back-fill plan, which is scheduled for next year at $30 million.

No other bottlenecks that need to be expanded in any way to make that 8,000 tonnes per day from the underground?

We don't see it. We've got lots of ventilation for it, which would typically be a bottleneck of one sort or another. The main decline is really the pressure valve that you can use because, you know, you can always truck to surface if you're running the shaft at capacity. The Northgate shaft can do 8,000 tonnes a day at the ultimate depth of ore and waste, which means some ore would have to come to decline.

But, we are taking a look at the MCM shaft itself can do 2,000 tonnes a day of ore and waste, as well. So, we don't see any materials handling problem. We actually brought in an engineering firm to simulate materials handling underground, and they had no problems somewhere between 8,000 to 10,000 tonnes a day. It's ultimately, how many trucks that you want to have underground at that point.

Very good. Thank you.

Thank you. Operator. There no further questions in the queue. I will now turn the call back to Mr. Marion for closing remarks. Thank you very much, ladies and gentlemen, for joining us. We look forward to the coming quarters and ultimately announcing commercial production at Young-Davidson. With that, we'll end the call. Operator. This concludes today's conference call. You may now disconnect.