Alamos Gold Inc (AGI) 2013 Q1 法說會逐字稿

Good morning. My name is Denise and I'll be your conference operator today. At this time I'd like to welcome everyone to the AuRico Gold Inc. first quarter results conference call. 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)

Thank you. Anne Day, VP of Investor Relations, you may begin your conference.

Thank you, everyone and good morning. Thanks for joining us today for the AuRico Gold first quarter earnings results conference call and webcast. On the line today we have Scott Perry, President and CEO and Rob Chausse, CFO. They, along with other members of senior management team, will be available during the Q&A period at the end of the call. At the end of the presentation the operator will provide instructions for those who wish to ask questions. Today's presentation, financial results and press release are all available on our website at auricogold.com.

But before we begin I will go through an abbreviated version of our forward-looking statements, which are also provided in the press release and today's presentation. Some of today's commentary may contain forward-looking information for AuRico. In this respect we refer you to our detailed cautionary note regarding forward-looking statements and our press release and presentation. You are cautioned that actual results and future events could differ materially from the respective conclusions, forecasts or projections. We refer you to the section entitled The Risk Factors in our latest MD&A and other filings available on SEDAR, which set out the material factors that would cause results to differ. I will now turn the call over to Scott Perry, CEO.

Thanks, Anne and good morning, everyone and thank you for joining our earnings conference call today. I'm just starting off on slide number 4 in the presentation deck. Today AuRico is presenting a second consecutive quarter of solid results, that are in line with AuRico's targeted guidance levels. It's a very clean set of results now that all the accounting noise associated with our divestment strategy is behind us. The only real change in our reporting is the inclusion of all-in cash costs, which the World Gold Council and our peers are supporting as a truer measure of operating cost levels. In the current gold price environment investors more than ever are scrutinizing the financial position and underlying fundamentals of gold mining companies. I believe our financial results and our financial position reported today really do demonstrate that AuRico presents very well.

With the benefit of hindsight, the strategy we embarked on in 2012 of divesting our non-core assets with a very well-timed initiative and positions AuRico very well in the current metal price environment. The price points we realized were compelling at the time and are even more so in today's metal price environment. Our divestment strategy generated monetized consideration in excess of $1 billion, which the Company used to pay down 100% of our drawing corporate debt balances, we reduced our Company share count by 13%. We've launched a peer-leading dividend program which is yielding close to 3.5% at today's valuations and that all of this is underpinned by a very strong cash balance of approximately $270 million. In addition to that cash balance we also have a revolving line of credit that is totally undrawn that has a capacity of up to $150 million. This equates total liquidity in excess of $400 million. So it's safe to say that our business plans and our four-year growth plans are fully funded.

As part of last year's divestment strategy and the ultimate streamlining of the Company, we've already realized significant cost savings in the form of a significantly reduced G&A expenditure requirement. There's been a significant reduction in our company-wide exploration investment program and this is in addition to the elimination of significant capital expenditure requirements at the divested assets. Now what really underpins our fully funded growth profile moving forward is obviously our flagship operation, Young-Davidson. As our shareholders appreciate, Young-Davidson is a key strategic asset that will produce in excess of 200,000 ounces per year over an exceptionally long mine life. And I think with every update Young-Davidson is increasingly showcasing its longer-term potential. Management and the Board are very pleased and excited with the progress at Young-Davidson. We would advocate that Young-Davidson has been one of the smoother commissionings in recent times and will increasingly feature as one of the more promising assets in the Canadian gold mining industry.

The productivity and the unit operating cost efficiencies are in line, if not outperforming our targeted expectations which is a real credit to the operating team. The underground operation at Young-Davidson is ramping up very well. During the first quarter we exceeded our targeted capacity of 1,000 tons per day and we exceeded that by approximately 10% for the quarter. In the month of March alone we averaged around 1,400 tons per day of production from the underground and this positive trend continued for the entirety of the month of April. The processing facility is exceeding our expectations as well. We'd always targeted a throughput capacity rate of approximately 6,000 tons per day and in Q1 we averaged around 6,400 tons per day. So very favorable performance.

In the month of March alone we operated at around 7,200 tons per day. And that positive performance continued into the month of April. So again, we're very favorably exceeding our targeted throughput rate. The in-process expansion of the underground operation is in line with schedule and guidance whereby we will be shortly commissioning the mid-shaft crushing and hoisting system in the third quarter. This will be a key catalyst for ongoing production increases from the underground operation. As featured in our Q1 results and disclosure, the Company has completed two of three key initiatives to bringing the underground mine into commercial production. In mid-February commissioning of the MCM shaft, which improved the ventilation capacity, reduces ramp congestion by hoisting waste to the surface and improves overall productivity of the mine whereby the shaft is typically skipping 700 to 800 tons per day of capital waste development material. This was commissioned in mid-February and is in consistent day-to-day operations.

In mid-April we completed the raise boring of the second leg of the Young-Davidson production shaft and this will provide and secure access to eight years of production, or essentially the first 50% of the underground reserve ounces. This vertical shaft now extends to the 9,590 level, which is some 900 meters below surface. Our activities right now are focused on commissioning the mid-shaft crushing and hoisting system, all of which is scheduled for Q3 of this year. At El Chanate we reported another solid and consistent quarter of production at attractive cash costs and this is expected to continue throughout the course of this year. Of particular note at El Chanate follow-up drilling -- follow-up exploration drilling on the three new areas of mineralized interest identified as part of last year's program has now begun. These target areas are all located along trends of the existing open pit and could bode well for potential increases in El Chanate's resources and mine life. So with those initial highlights I'd now like to turn the call over to Rob Chausse, AuRico Gold's Chief Financial Officer, to walk you through our first quarter's financial results.

Thanks, Scott, and good morning. Before we get started I'd like to note that for comparative purposes I'll be speaking to the results from operations classified as continuing for the prior period and not those classified as discontinued. In 2012 continuing operations were comprised of El Chanate only whereas 2013 includes the El Chanate and Young-Davidson.

Turning to slide 6 for results, first quarter revenue from continuing operations was $65 million driven by sales of approximately 39,000 gold equivalent ounces at an average realized gold price of $1,627 per ounce. Total production for the first quarter, which includes pre-production ounces from Young-Davidson, was approximately 46,000 ounces. Revenue sales and productions were higher than Q1 of 2012 largely due to the startup of Young-Davidson during the Q3 of 2012. As a result of the Young-Davidson startup earnings from operations increased to $17.5 million from $9 million from Q1 of 2012.

First quarter adjusted operating cash flow was approximately $20 million, or $0.08 per share compared to $0.02 per share in Q1 2012. The Company also recorded net income of approximately $18 million, or $0.07 a share, during Q1 compared to a loss of $0.05 per share in Q1 2012. The Company recorded net income of approximately $18 million, or $0.07 per share, during Q1 compared to a loss of $0.05 per share in Q1 2012. After adjusting for one-time charges, that I'll review in more detail shortly, net earnings were approximately $11 million in Q1 in line with the first quarter of 2012. On a per-share basis adjusted net earnings were $0.04 per share.

Moving to slide 7, as noted the operational results include the results of our El Chanate and Young-Davidson mines in the current quarter and only El Chanate in the prior-year quarter. Young-Davidson open pit produced 20,500 ounces in the first quarter. The underground also produced 7,700 pre-production gold ounces for a total of 28,000 gold ounces for the quarter.

Young-Davidson realized cash costs of $694 per gold ounce for the open pit during the first quarter. El Chanate produced approximately 18,000 gold ounces, or 6% fewer ounces in Q1 2012, primarily due to unplanned maintenance at the ADR plant. Total cash costs at El Chanate were $563 per gold ounce in Q1 this year, a 35% increase over Q1 last year. The increase is primarily due to the application of higher quantities of solution aimed at accelerating gold recoveries and a reduction in capitalized stripping costs. Combined, our operations achieved cash costs of $635 per gold ounce in the first quarter of 2013 which is in line with our previously stated guidance.

Moving to slide 8, this slide provides a detailed reconciliation of our adjusted earnings for the quarter. As noted earlier the reported net income from continuing operations for the quarter was $18 million, or $0.07 per share. The adjusted result deducts the unrealized foreign exchange gain of $936,000, the unrealized gain of $6.9 million on the option component of our convertible senior notes and also the unrealized gain on derivatives of $2.2 million, which was primarily from the strengthening Mexican peso. The $2.8 million unrealized loss on contingent consideration related to the El Cubo sale is added back. After taking into account all of the items noted on the schedule, the adjusted net earnings result for Q1 is approximately $11 million, or $0.04 per share.

We have reported all-in sustaining costs of $985 per ounce for the first quarter. As we progress through the year we expect to come in line with our previously stated guidance of $1,100 to $1,200 per ounce. This metric is being impacted by the timing of certain expenditures. All-in cash costs include production cash costs, corporate and general administrative expense excluding non-share-based comp, capitalized exploration costs, reclamation cost accretion, care and maintenance costs and sustaining capital expenditures. The definition of all-in sustaining cost is still being discussed. Once final we will amend to conform, if necessary.

As Scott mentioned, throughout the last two years AuRico has been trading up on asset quality and has optimized and focused spending. This effort has allowed us to strengthen our balance sheet, reduce our outstanding share count, establish an ongoing dividend, significantly reduce our capital investment requirements and lower our exploration and G&A spend. As an example, we have guided and expect G&A and exploration to be $16 million and $25 million lower respectively in 2013 when compared to 2012. Total reduction of $41 million. Also, our capital requirements are declining significantly at our continuing operations and our assets will essentially be built by the end of 2013.

We also continue to implement and assess opportunities that ensure our dollars are employed effectively and that we maximize free cash flow. As of March 31, 2013 AuRico had approximately $420 million in liquidity consisting of $270 million in cash and $150 million of available credit facilities. Our effective -- our consolidated effective tax rate for the first quarter was 20%. The rate is lower primarily due to Young-Davidson having losses available to shelter income. Going forward our tax rate is expected to be in the range of 25% to 30%.

In closing, I want to reiterate our commitment to operating and free cash flow. While other performance metrics will be considered in the decision-making process, it will primarily be the cash flow metrics that will determine our ongoing strategic behavior. With that, I'll turn the call back over to Scott.

Okay. Thanks, Rob. As Rob alluded to in his closing remarks, the last two years have been very busy for the team here at AuRico Gold. This last slide here on slide 10, it really does demonstrate how much the Company has been transformed. Really has streamlined the asset base and it's very well-positioned for key focus on delivering reliable, consistent, sustainable performance. We've got a very high-quality asset base with two producing assets [dollar-side] here in North America. A lot of the heavy lifting, in terms of divesting our non-core assets, that's now complete.

Our timing was very fortunate. We got lucky, to be honest, in terms of the divestments of last year in which we raised in excess of $1 billion in monetized consideration. As I mentioned at the outset, those price points that we achieved as well as the execution or the doability of those transactions would probably not be possible in today's metal price environment. So our asset base, we now boast a low-cost asset base producing high quality ounces with a very significant mine life longevity. And most recently we have been demonstrating growing reserve and resource per share count across the Company. In terms of our growth profile moving forward, on a production per share basis we have production growing for the next four to five years, all of which is underpinned by the high quality Young-Davidson operation. And we will continue to focus on quality low-cost ounces.

In terms of the balance sheet, Rob and I have both discussed this on the back of those divestments. Our balance sheet has a very strong cash balance of some $270 million. We've got available financing capacity on our revolving line of credit facility of some $150 million. So we've got very good internal liquidity. All of this is underpinned by a growing profitability and growing cash flow per share as we move forward.

And in terms of our focus on shareholder value creation, at the beginning of this year we compressed our share count by some 13% with the recently completed $300 million substantial issuer bid. And then February we announced our peer-leading dividend policy, which is yielding approximately 3.5%. On the back of that growing production per share, growing profitability per share and growing cash flow per share we would expect that to resonate in growing dividends per share as we move forward. Now of course all of this is being favorably underpinned by the recent substantial share buyback that has really optimized our shareholders' exposure to each of these metrics moving forward. So with that I'd like to pass proceedings back to the operator and open up the call for Q&A.

(Operator Instructions)

Dan Rollins, RBC Capital Markets.

Good morning everyone, including Anne. Scott, maybe just quickly on Mexico the new royalty, any ideas of what impact that will have on your effective tax rate at El Chanate?

Well, I'll -- it's Rob, actually I'll answer. It's expected to be a 5% tax on EBITDA earnings. So I guess when you work it through the program, without having all of the law in place and the various components, we can't give a specific number, but I would expect it to be 2% on our effective tax rate.

Perfect. And then I guess at West -- I'm sorry, at Young-Davidson, with the downturn in the market as of late, have you seen a change in your ability to fill positions needed to staff the underground? Are you seeing better quality people coming in now or is it still fairly tight?

It's Peter MacPhail. We haven't had a huge problem attracting underground miners to that area. We are close by to Kirkland Lake and people can work at our operation and be home at night. And with the recent downturn, that area hasn't thus far been really hit. So we haven't seen any change yet but we haven't been having any great issues either.

Perfect. And then just given that the mill is running above design levels right now and assuming that the underground ramps up as you expect, how long can you maintain the grades from the open pit without having to, one, eat into ore that would have been destined for the stockpiles or actually eaten into the low-grade stockpiles?

We are scheduled to run good grades from the open pit right through until about this time next year. And then by then the underground will be roughly half of the -- getting close to half of the mill throughput. It's well into next year. I'd have to look at the plans in more detail, but our ounce profile does not go through any sort of dip at all.

Okay.

Working on that, Dan, is as we continue to outperform on underground production obviously the production from the underground is much higher in grade so it's always going to receive preferential treatment in the sense of being processed at the mill facility. So if anything, it's actually going to displace some of that high-grade production from the open pit, which is a good thing because that would mean your stockpile is there and you have that on hand as you move forward.

Okay. And then with the shaft up and running with the waste have you seen -- has the movement of material up and down the ramp actually been better than you had expected?

Yes. Absolutely. In fact, that was something we actioned on just early this year, and it's really alleviated the traffic up and down the ramp. And we're seeing that in frankly higher underground production rates go.

Perfect. Thanks, guys. Nice quarter.

(Operator Instructions)

There are no further questions queued up at this time. I'll turn the call back over to Ms. Day.

Thank you, operator. I would like to take this opportunity to thank everyone for joining us this morning. As always if you have any questions you're more than welcome to reach out to us and we'd be happy to help. Thanks for your time today and we'll now close the call.

This concludes today's conference call. You may now disconnect.