Apr 25, 2013
Executives
Jo Mira Clodman - Vice President of Investor Relations John A. McCluskey - Chief Executive Officer, President, Director, Member of Corporate Disclosure Committee and Member of Technical, Environmental, Social, Employees Health & Safety Committee James R.
Porter - Chief Financial Officer and Member of Corporate Disclosure Committee Manley R. Guarducci - Chief Operating Officer and Vice President Jason King Dunning - Vice President of Exploration
Analysts
Rahul Paul - Canaccord Genuity, Research Division Chitimukulu Musonda - CIBC World Markets Inc., Research Division Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division Mark Mihaljevic - RBC Capital Markets, LLC, Research Division
Operator
Good afternoon. I'll now turn the meeting over to Jo Mira Clodman, Vice President of Investor Relations.
Please go ahead.
Jo Mira Clodman
Thank you, operator, and thank you, everyone, for your interest in attending Alamos's First Quarter 2013 Conference Call. Our presenters today are: John McCluskey, President and Chief Executive Officer; Jamie Porter, Chief Financial Officer; Manley Guarducci, Vice President and Chief Operating Officer; and Jason Dunning, Vice President of Explorations.
I would like to remind everyone that our presentation will be followed by a Q&A session. Before we begin, please note this disclaimer concerning forward-looking statements.
We refer all participants to our forward-looking statements and resources [ph] disclosure in our press release and MD&A and caution that mining exploration is subject to a number of risks and uncertainties, particularly with respect to the mining and processing of ore, recovery rates, operating plans and the conversion of mineral resources to proven and probable reserves, to name a few. There can be no assurance that forward-looking statements made in the press release and conference call based on information on hand today will prove to be accurate.
Future results and events could differ materially from those anticipated in such statements and should not be relied upon. Also please bear in mind that all the dollar amounts mentioned in this conference call are in U.S.
dollars unless otherwise noted. Now John will provide you with an overview.
John A. McCluskey
Thank you, Jo Mira. This morning, we reported our financial results for the first quarter of 2013 and the launch of a share buyback program.
These announcements underscore the continuing strong performance of Alamos and our confidence that the company represents much greater value than the market acknowledges today. We produced 55,000 ounces of gold at a cash operating cost of $358 per ounce.
That puts us well on track to achieve our production target for the year of between 180,000 and 200,000 ounces. It is also significantly below our annual cash and operating cost guidance.
For the first time, we reported all-in sustaining costs. And at $692 per ounce, this was considerably better than the industry average.
Regardless of the metric used, Alamos consistently produces first quartile costs and margins. This has been our objective since the company was established.
As a result of our focus on continuous improvements and our disciplined approach to growth and risk management, we expect to outperform regardless of the gold price. Notably, the recent downturn in the gold price has not impacted our operating and development plans.
Given these factors, we determined that a share buyback program serves the interest of our shareholders. The Normal Course Issuer Bid permits us to purchase for cancellation up to 10% of the public float of our common shares.
In the current market environment, we see this as good use of our cash. We have the financial strength to advance our plans on all key fronts, including internally funding the development of our mines in Turkey.
Our Kirazli project was approved by the EIA commission and is awaiting formal approval. In the second quarter, we will submit our Agi Dagi EIA for approval.
Once the EIA Positive Decision certificate is received, we expect that it will take about 18 months to permit and build Kirazli with first gold pour at Agi Dagi about 18 months after that. Meanwhile, we continue to move forward with our plans for more high-grade production in Mexico, which Manley will address shortly.
Now I'll ask our CFO, Jamie Porter, to comment on our financial performance. Jamie?
James R. Porter
Thanks, John. Good afternoon, everyone.
The 55,000 ounces of gold that we produced in Q1 marked a record for the first quarter and is our second-highest production for any quarter. Our first quartile cash operating cost of $358 per ounce translated to another strong quarter of earnings and cash flow generation.
Revenues were $86 million from the sale of 53,000 ounces of gold at a realized price of $1,628 per ounce. Despite the input cost pressures that the industry has been facing, particularly with respect to salary, cyanide and diesel, our total cash costs of $449 per ounce, including the 5% royalty, were significantly below our guidance for the year of $500 to $520 per ounce.
All-in sustaining costs, which include total cash costs, exploration, corporate and administrative, share-based compensation and sustaining capital costs, were $692 per ounce. We anticipate all-in sustaining costs per ounce of between $785 and $825 in 2013, which leads our peer group.
Reflecting the high realized gold price and continued low cash costs, cash margins remained strong at nearly $1,200 per ounce. Cash flow from operations before changes in noncash working capital was $40.4 million or $0.32 per share.
Earnings in the first quarter were $26 million or $0.21 per share. The 12% reduction from a year -- from the first quarter of last year reflected a higher per ounce amortization charges related to mill production from Escondida and a higher effective tax rate.
The first quarter 2013 was also impacted by a $3.6 million foreign exchange loss on the company's equity investment in the shares of Aurizon and $3 million in transaction cost related to the Aurizon offer, amounting to approximately $0.05 per basic share in total. We continue to enhance our excellent financial position, and our balance sheet has never been stronger.
We have no debt, and we increased our cash and short-term investment balances by nearly $20 million in the quarter to $373 million. Including cash and equity investments, the company held nearly $500 million at March 31.
We are generating tremendous levels of operating cash flow, which gives us great flexibility to pursue our goals. For instance, we intend to finance all of our capital development and exploration spending in Mexico and Turkey internally.
Our financial strength is also reflected in our commitment to paying a dividend. We recently declared a semiannual dividend of $0.10 per share or $13 million, which is payable on April 30.
At this point, I'll turn the call back to John.
John A. McCluskey
Thank you, Jamie. Alamos COO, Manley Guarducci, will now discuss quarterly operating results.
Manley?
Manley R. Guarducci
Thanks, John. Good afternoon, everyone.
The Mulatos Mine performed well in the first quarter, beating our budget with respect to throughput and gold production. Total crusher throughput averaged 17,900 tonnes per day, marking the second consecutive quarter in which throughput exceeded the annual budget of 17,500 tonnes per day.
This trend has continued into the early part of Q2, not withstanding a 48-hour scheduled maintenance shutdown earlier this month. The grade of the crushed ore stacked on leach pad in the first quarter of 1.25 grams per tonne was higher than the full year guided grade of 0.98 grams per tonne.
Grades milled from the Escondida high-grade zone were 6.59 grams per tonne, below the full year budgeted average grade of 11 grams per tonne. The bench mined during the quarter contained an area with highly silicified ore and weak fracturing, which have substantially lower grades than were modeled.
We have seen an improvement in grades thus far in April and expect grades will track closer to budget. Some variability is to be expected from quarter-to-quarter.
And despite the shortfall in Q1, the grade milled from the Escondida zone since the start of mining has averaged 11.27 grams per tonne, consistent with the reserve grade. The recovery ratio of 76% of the quarter was in line with the company's budgeted average for the year of 75%.
Overall, it was a strong start to the year, positioning us well to achieve full year production and cost guidance. Development activities in Mexico in the quarter were focused on Escondida.
This included initial development activities to gain access to the Escondida Deep portal, which will provide high-grade mill feed once the Escondida open-pit ore body is depleted. The company expects permit approval in the second quarter, allowing development of the San Carlos and Victor deposits, in anticipation of providing additional high-grade mill feed from San Carlos in mid-2014.
I am also pleased to report that during the first quarter, we received the International Cyanide Management Code Certification for our Mulatos Mine. This once again demonstrates our commitment to minimizing our environmental footprint and to meeting and, where possible, exceeding regulatory requirements with respect to our environmental performance.
As we anticipate a construction start on our projects in Turkey, our focus in the first quarter was on front-end engineering that we expect to complete in the second quarter. Bid preparation is underway so that once the EIA approval is received, we are ready to start construction immediately.
With that, I'll turn the call back to John.
John A. McCluskey
Thanks very much, Manley. We'll now ask Jason Dunning, our new of Vice President of Exploration, to give an overview of exploration activity.
Jason?
Jason King Dunning
Thank you, John, and good afternoon, everyone. Since becoming the Vice President of Exploration in February, it has been my great pleasure to get to know the entire Alamos team.
It is clear that senior management has built a very strong foundation for the company, specifically for exploration, that promotes a success-driven work environment. This positions Alamos for continuing technical excellence.
After spending the last week in Mexico, I am encouraged by the exploration prospects there. Yesterday, I arrived here in Turkey for my first trip, and I am looking forward to spending about a week here.
Turning to news from Alamos. Earlier this month, we reported our global mineral reserve and resource update for 2012.
Once again, the company succeeded in replacing mined out material reserves -- mineral reserves at Mulatos with proven and probable reserves of 2.37 million ounces of gold at year end. As a result, our mineral reserve life remains at 9 years based upon the 2013 budgeted throughput rates.
Globally, measured and indicated mineral resources rose by 2% to 5.08 million ounces of gold, driven by a 10% increase in Turkey. The company's inferred mineral resources were also up at 1.52 million ounces, reflecting the inclusion of the initial mineral resource estimate from the Çamyurt project that was reported in June 2012.
Exploration spending in first quarter totaled $3.1 million. This consisted of $2.2 million in Mexico, focused on completing infill and step-out drilling at East Estrella and deep directional drilling at San Carlos.
During the quarter, we spent $0.9 million in Turkey. And now I will -- and now John will conclude the formal part of our call.
John A. McCluskey
Thank you, Jason. We enter the second quarter with nearly $409 million in cash and equity investments, no debt and strong cash flow.
Our sights are set on growth, both organically and through acquisition. That extends our exceptional track record of financial performance.
We believe that we are well positioned to succeed at this. With that, I will now turn the call over to the operator, who will open the call for questions.
Operator
[Operator Instructions] Our first question is from Rahul Paul of Canaccord Genuity.
Rahul Paul - Canaccord Genuity, Research Division
Just in Mexico, why were the grade stacked on the leach pad in Q1 so much higher than your annual budget of 0.98 grams? Were you expecting to mine higher grades in Q1 compared to the rest of the year?
Manley R. Guarducci
Rahul, it's Manley. I'll take this one.
Yes, it's a little bit of a sequencing thing. We are -- we do have a little bit of a higher grade in the first half of 2013 compared to the latter part of 2013.
However, we continue to get positive reconciliations with respect to tonnes and grade in the Mulatos Pit as well. So that's part of it as well.
Rahul Paul - Canaccord Genuity, Research Division
So we should expect grades to be somewhat higher in the first half of the year, and then go back down in the second half of the year then?
Manley R. Guarducci
In Q1, I can say that. I can't recall off the top of my head for Q2 and the rest of year.
But yes, it's a sequencing thing more than anything else and the positive reconciliations.
Rahul Paul - Canaccord Genuity, Research Division
Okay. And then moving on to Turkey, are you seeing any indications that capital and operating costs might be higher than what was forecast in the 2012 study?
Manley R. Guarducci
At the moment, we're almost finalizing this PEA [ph] part of the design. And so far, we have no surprises.
We are doing some tradeoffs that we mentioned in the PFS, such as the conveyor versus truck, and the free rippings [ph] were in the middle of all of those. But as of now, no, there are no surprises.
Operator
Our next question is from Chitimukulu Musonda of CIBC World Markets.
Chitimukulu Musonda - CIBC World Markets Inc., Research Division
A couple of questions for Manley. First one, what is your crusher capacity at Mulatos?
In other words, how far can you push?
Manley R. Guarducci
Right now, with what we're doing, we're pushing it pretty much to capacity if you include proper maintenance and scheduled downtime to repair things and such. I mean, you can do between 1,000 and 1,100 tonnes an hour with the whole circuit running at its peak performance levels.
However, we've got to allow time for maintenance and things.
Chitimukulu Musonda - CIBC World Markets Inc., Research Division
Okay. And just on Escondida, you mentioned in the release that the top portion exhausts at the end of this year, and then would switch to, I guess, the underground portion.
Could you maybe just give us a sense of how development work is going in prep for that?
Manley R. Guarducci
Sure. In order to get into the, what we call, Escondida Deep part of the portal or the deposit, which is in the northeast wall of the open pit of the Mulatos Pit, we're just going to go down a couple of benches ahead of time in the pits, and then we're going to collar our portal right in the side of the pit wall, which is underway right now.
And it's a very short development to get into the remaining ore there. And after that, we're going to punch the tunnel that we're going in through there, right through to the other side at Victor, just to open up all the exploration ground between the pits and the Victor and gap areas.
Chitimukulu Musonda - CIBC World Markets Inc., Research Division
Okay. And then how do you develop on San Carlos?
Because I imagine Escondida Deep is only about a quarter's worth of production. Is that correct?
Manley R. Guarducci
Yes. Between 1 and 2 quarters of production.
The San Carlos is a totally different development. That's on the other side of the river, and that will have its own portal and infrastructure there.
Operator
Our next question is from Trevor Turnbull of Scotiabank.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
It seems like you guys have been having this positive reconciliation at Mulatos for, I think, most of last year and obviously again in Q1. Are you guys getting more of a handle on exactly how that reconciliation is playing out?
I mean, do you expect it's always going to be skewed a bit positively?
Manley R. Guarducci
Trevor, it's Manley. I'll take that one as well.
We've always had the positive reconciliation pretty much since day 1 of the mining. And the reason we have it is because of the way things were logged way in the past.
It's nothing to do with the way things were done. It's just interpretation of what's done when we looked at the percent of oxides mix and sulfides in the deposit.
And now the thing that's swings it the most is that the percent of oxides and mix that we're seeing are more than what were modeled based on sulfur content, as well as a lot of the SAS materials that were -- how do you say, that we planned to mine, has actually converted into ore as well. And yes, we pretty much -- we don't count on it or budget for it, but we expect to have positive reconciliation to carry forward.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
Okay. And also with respect to Escondida, is some of the kind of outperformance on the leach pad related to some of the Escondida ore being leached as opposed to go into the mill?
Manley R. Guarducci
Yes. Some of the lower-grade ores that didn't go to the mill that went to the leach pads would have affected it, but not as much as the positive reconciliations within the lower-grade material that was planned to be mined.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
So when we're thinking about as Escondida kind of winds down towards the end of the year and we're looking at the tonnage at the mill, 500 tonnes a day, give-or-take, is there some component of tonnage that's actually also going to the leach pad that we should think about?
Manley R. Guarducci
Sorry, I don't understand the question, Trevor.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
I guess, what I'm wondering is if we kind of take what looks to be left of the reserves and run it out at, say, 500 tonnes a day, it looks like you would go kind of through the end of 2013. And it sounded like the MD&A was saying that things would probably wrap up by year end on Escondida.
Manley R. Guarducci
It will be around year end. What we have there is we have a little bit of a negative reconciliation with respect to tonnes with that highly silicified, poorly fractured material I mentioned in my speech.
It was one area of the Escondida deposit that we have identified. I think we're through it.
The grades so far in Q2 show that we're through it. But we did have a little bit of a negative bearing to some tonnage there, and that affected us a little bit, whereas -- no, we don't plan on putting anything else through the pad unless it's low-grade material that's -- modeled as lower-grade material.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
Okay. And just a quick question on Turkey.
In John's opening comments, he said something along the lines that Agi Dagi's gold portal would be 18 months after. And was that after Kirazli's first gold pour?
That seems a bit longer than I would have thought.
John A. McCluskey
No, that's just what we've been saying from the start. That's just consistent with all our previous guidance.
Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division
Okay. Because I was thinking in terms of the permitting, Agi Dagi is only sitting like about, what, 6 months behind -- 6 to 9 months.
Is that realistic?
John A. McCluskey
There's more development work involved in Agi Dagi, so we've been planning all along to bring Agi Dagi into production mid-2016.
Operator
[Operator Instructions] Our next question is from Mark Mihaljevic of RBC Capital Markets.
Mark Mihaljevic - RBC Capital Markets, LLC, Research Division
Just a couple of quick follow-up questions. So should we look at Escondida Deep as basically a bridge between Escondida and San Carlos?
And will there be a bit of a gap in the high-grade feed at any point in there?
Manley R. Guarducci
Right now, it all depends on the permitting at San Carlos because that's underway right now. We don't expect it to, and our goal is to exactly do what you're saying, go from the open pit to underground with Escondida Deep.
And as we continue the tunnel at Escondida Deep through the mountain, there's a couple of spots there that haven't really been drilled out, where we're fairly optimistic on. And in the meantime, do the developments at San Carlos to have that online by the time Escondida Deep is completed.
John A. McCluskey
Correct. All going well, there won't be any gaps in production.
But there is a possibility, if permitting should take a little longer, something like that. But the way we planned it out, the way we've sequenced, there shouldn't be any gaps at all.
Mark Mihaljevic - RBC Capital Markets, LLC, Research Division
Okay. And can you give any more color on the timing for Kirazli?
I know you're in the final stages. But have you had any more indications from the government?
John A. McCluskey
We are in attendance at a conference in Turkey right now, quite a number of our personnel are there. And there are politicians there and so forth.
And so far, the mood is a very buoyant. The project is well-known, well-understood and well-regarded.
Beyond the fact that everybody is sort of looking at it with an air of very good will, there's not much more we can say. It's sort of out of the hands of the technical review group, and it's essentially been kicked into the hands of the politicians, if you want to put it that way.
So whatever their particular timeline is, it's more difficult to assess. The technical committee actually came through on precisely the timeline that they told us they could turn it around in.
But we're hoping very much before the end of this quarter that we're going to have the EIA approval in hand, and we are going to be able to move things forward. But it's really difficult to assess whether they're going to be able to deliver it on that timetable or not.
I'm hopeful they will. Certainly, all the indications they give us would seem to point to that.
Operator
[Operator Instructions] Our next question is from Rahul Paul of Canaccord Genuity.
Rahul Paul - Canaccord Genuity, Research Division
Just as a follow-up, when should we expect more detail on your underground mining plans in Mexico just in terms of costs and capital and that sort of thing?
Manley R. Guarducci
Rahul, it's Manley again. We're probably going to announce everything when we get the permitting done.
We're still in the process of doing the detailed planning and such on the San Carlos area. So once we get the permits, we'll probably release all that information.
Operator
We have no further questions registered at this time.
John A. McCluskey
Well, with that, I want to thank everybody for attending the call. It's been a terrific quarter for us.
In fact, the last 2 quarters have been 2 of the best quarters in the history of the company. It's also been 2 of the worst quarters of share performance for the company.
Kind of ironic how those coincided, but that's life. I do expect better things in the future.
This company is in fine fiddle and we've got a very aggressive young team that has every intention of seeing this company grow and increase our profitability. That's the name of the game.
And we're very much committed to it. So thanks again, everyone.
And we look forward to updating you again next quarter.
Operator
Thank you. If you have any further questions that have not been answered, please feel free to contact Jo Mira Clodman at (416) 368-9932, extension 401, or at 1 (866) 766-8801.
The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.