What measures has Alamos Gold taken to mitigate the impacts of COVID-19?

Alamos Gold was on the COVID-19 issue very early, in advance of government mandates. On March 6^th I had lunch with one of the leading doctors at Princess Margaret Hospital (who helped isolate the SARS outbreak in Toronto in 2003), as Alamos Gold supports an oncology fellowship at the hospital. The doctor made clear the severity of COVID-19, and I immediately cancelled all travel: nobody was to go between the mine sites and HQ in Toronto. The following week we started social distancing, brought PPE to the mines, and trained the workforce on the new procedures.

At our Mexican operations we began screening for COVID-19 quickly as far back as May. In Canada, the Canadian healthcare system (Health Canada) finally approved PCR screening tests on July 1^st which we were then able to use at Island Gold as another layer of protection for our workforce. We closed down the Island Gold operation at the shift change on March 25^th, and the mine remained closed until the end of April where we brought workers back in in stages, after testing and quarantine. As a consequence, we have kept COVID-19 completely away from Island Gold and the town of Dubreuilville. Young-Davidson remained virus-free up until six cases (out of 1,000 workers) in November. Soon thereafter, we started testing the workforce using PCR tests at Young-Davidson as another layer of protection. The measures taken impact costs by approximately US$25/oz Au that we produce. This translates to US$3 million per quarter, but we have a workforce of over 2,000 people and we are taking responsibility to keep these workers and their families safe.

How has the underground mine development at Young-Davidson impacted production levels?

We had been working for a number of years on the build out and commissioning of the deep levels of the Young-Davidson mine. This included taking the shaft from 750 meters (m) down to 1,500 m, and building new infrastructure at depth to be able to take the mine from 6,000 tonnes per day (t/d) throughput capacity, to 8,000 t/d. Once all that infrastructure is in place, it takes some time to ramp up because of the necessary stope sequencing: you need enough stope faces open to supply the ore.

Can you explain how the Island Gold mine has evolved through exploration?

Richmont Mines had already made the discovery at Island Gold, mining a deposit that went back more than a decade, but had not performed impressively, with shallow reserves and mediocre grades. Before we acquired the mine, Richmont’s CEO at the time, Elaine Ellingham, had made a series of improvements, including testing at depth to look for higher-grade gold. By the time Renaud Adams was in charge, they had increased production through the mill from 500 t/d to 900 t/d, increased the grade from 4.5 g/t to 9 g/t, and raised annual production from 40,000 oz/y to 90,000 oz/y. This was achieved through mining to a depth of 650 m, which is still very low for the Canadian Shield, and this triggered our interest.

Generally, when reserve estimates are modeled by a company the size of Richmont, they take an optimistic view. However, when we looked at Richmont’s model, they were taking a conservative view, I think because many of the geo’s had come from Agnico Eagle. Over three consecutive years, virtually everything they were calling resources was converting in reserves. The market did not fully understand this and was skeptical when we made the acquisition for US$620 million.

Fast forward two years, and Island Gold is now one of Canada’s highest-grade, lowest-cost mines. At the 1,100 m level we are now looking at 19 g/t average inferred resource grades below the Eastern extension, up from the 10.5 g/t average grade from 650 m depth, and 4.5 g/t at 400 m. The mineral endowment has gone from 1.8 million ounces (Moz) to 3.7 Moz, as of December 2019. We have not been drilling at the same rate in 2020 because of COVID, but the work that we are doing clearly indicates that the ore body will continue to grow. Our engineers believe reserves and resources could potentially grow to upwards of 5 Moz in the coming years.

What are the latest developments from AGI’s Mexican assets, including the Mulatos mine and the La Yaqui Grande development project?

The Cerro Pelon satellite deposit at Mulatos was brought into production in 2019 and has been performing well with grades consistently higher than what was modeled, which helped contribute to free cash flow (FCF) of US$31 million in Q3. Cerro Pelon also represents the first real greenfield opportunity we have had near Mulatos, as previous owners Placer Dome had not drilled it. Areas like El Carricito and El Halcon hold enormous potential in terms of geologically similar high sulfidation gold deposits.

La Yaqui Grande will be a huge step forward for Mulatos, with 123,000 oz/y average production over five years and an AISC of US$578/oz with initial production expected in Q3 2022. This will keep Mulatos going for another seven years. For context, when we started Mulatos in 2005 it had a six year mine life, so we should have run out of ore by 2011. Here we are in 2020, still mining at 150,000 oz/y run rate, with at least seven years left to run and the possibility to extend through exploration – replicating the success we have had with El Victor, San Carlos and Cerro Pelon.