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Alamos Gold shares 4Q18 and whole year results

Published by , Assistant Editor
Global Mining Review,

Yesterday, Alamos Gold Inc. (Alamos) reported 4Q18 and annual 2018 production. The company also provided 2019 production and operating guidance.

“Alamos produced a record 505 000 oz of gold in 2018, meeting production guidance and marking an 18% increase from 2017. This was driven by strong performances from Mulatos and Island Gold, the latter setting a new record for production and continuing to demonstrate strong potential for growth in mineral reserves and resources,” said John A. McCluskey, President and CEO.

“We expect a similar rate of production in 2019 with lower costs driving stronger margins. Lower costs are expected to result from improvements at Young-Davidson and low cost production growth at Island Gold.

Looking forward to the second half of 2020, we expect Alamos to transition from reinvesting in growth to generating strong free cash flow. With long-life production from our existing operations at declining costs, a leading portfolio of high return growth projects, and a strong, debt-free balance sheet, Alamos is well positioned to deliver on this growth,” McCluskey added.

Fourth quarter and full year 2018 operating highlights

  • Record annual production: Met guidance with record production of 505 000 ounces of gold in 2018, up 18% from the previous record in 2017, reflecting the inclusion of Island Gold for the full year. 
  • Strong fourth quarter: Produced 125 600 oz of gold in the fourth quarter, an increase from the third quarter reflecting a stronger performance from Young-Davidson and record production from Island Gold
  • Costs expected to meet guidance: Total cash costs and all-in sustaining costs for 2018 have not been finalised but are expected to be consistent with revised full year guidance of $810 and $990/oz, respectively. Costs in the fourth quarter are expected to be lower than in the first nine months of 2018.
  • Record sales: Sold a record 131 164 oz of gold in the fourth quarter at an average realised price of $1244/oz, $17/oz above the average London PM Fix, for revenues of approximately $163 million
  • Received Schedule 2 Amendment for new tailings facility at Young-Davidson: Schedule 2 Amendment received from the Federal government in December 2018, securing tailings capacity for all existing Mineral Reserves and Resources at Young-Davidson
  • Successful permitting at Cerro Pelon: Received Environmental Impact Assessment (MIA) and Change of Land Use (CUS) approval in 4Q18 and commenced full scale construction of the high return Cerro Pelon project.

2019 guidance overview

  • Stable production: production guidance of 480 000 - 520 000 oz of gold, consistent with 2018 production.
  • Lower costs to drive stronger margins: Consolidated total cash cost guidance of CAN$710 - CAN$750/oz, down 10% from revised 2018 guidance of $810 per ounce.  All-in sustaining cost guidance of CAN$920 - CAN$960/oz, down 5% from revised 2018 guidance of CAN$990/oz. Excluding El Chanate, all-in sustaining costs are expected to be CAN$925/oz in 2019 (based on mid-point of guidance).
  • Growth capital focused on new production:  Total capital budget of CAN$290 - CAN$315 million, up from revised 2018 guidance of CAN$217 to CAN$236 million reflecting the construction of two new mines, Kirazli in Turkey, and Cerro Pelon in Mexico. The capital budgets for Young-Davidson and Island Gold are consistent with 2018. The company expects a reduced rate of capital spending following the completion of the lower mine expansion at Young-Davidson and construction of Kirazli in 2020.
  • Peer-leading, debt-free balance sheet and stronger cash flow to fund growth: The company expects to fund the expansion of its existing operations through cash flow from operations with development of Kirazli to be funded from the balance sheet. With approximately CAN$206 million of cash and no debt at the end of 2018, Alamos is well positioned to fund this growth.
  • Strong exploration budget: Global exploration budget of CAN$33 million, consistent with 2018, including CAN$19 million budgeted at Island Gold to follow up on ongoing exploration success.
  • Corporate G&A among lowest in peer group: Corporate and administrative expenses are expected to total CAN$20 million (excluding share-based compensation), or CAN$40/oz (based on the mid-point of guidance), among the lowest within the intermediate gold producer peer group.

Outlook to 2021

  • Production growth to over 600 000 oz/yr in 2021: combined annual gold production is expected to be approximately 500 000 oz/yr in 2019 and 2020, increasing to over 600 000 oz in 2021 reflecting a full year of production from Kirazli.
  • Declining cost profile: Consolidated total cash costs and all-in sustaining costs are expected to decrease substantially in 2021 driven by lower costs at each of Island Gold, Mulatos and Young-Davidson, the latter reflecting the completion of the lower mine expansion, as well as new low-cost production from Kirazli.
  • Capital spending to trend lower resulting in strong free cash flow growth starting in 2H20: Capital spending is expected to trend lower in 2020 and 2021 reflecting the completion of both the lower mine at Young-Davidson and construction of Kirazli, resulting in strong free cash flow growth starting in the second half of 2020.
  • Increasing returns to shareholders: the company expects to return increasing value to shareholders as it generates higher levels of free cash flow in the second half of 2020 and beyond.

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