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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning, ladies and gentlemen. Thank you for joining us today. Our presenters this morning will be John McCluskey, President and Chief Executive Officer; Jon Morda, Chief Financial Officer; Manley Guarducci, Vice President and Chief Operating Officer; and Mr. Ken Balleweg, Vice President, Exploration. Any questions you may have regarding the announcement will be addressed at the end of the presentation. Mr. John McCluskey, please go ahead.
JOHN MCCLUSKEY, PRESIDENT, CEO, ALAMOS GOLD INC.: Thank you, operator. Good morning, ladies and gentlemen, and welcome to the call. Jon Morda, the Vice President and Chief Financial Officer of Alamos Gold, will make a comment regarding forward-looking statements.
JON MORDA, VP, CFO, ALAMOS GOLD INC.: Thank you, John. We refer all participants to our forward-looking statement disclosure at the back of our press release and caution that mining and exploration is subject to a number of risks and uncertainties, particularly in respect of mining and processing of ore, achieving projected recovery rates, operating efficiencies, and conversion of mineral resources to proven and probable reserves, to name a few. There can be no assurance that forward-looking statements made in this press release and in this conference call, made based on information on hand today, will prove to be accurate. Future results and events could differ materially from those anticipated in such statements.
JOHN MCCLUSKEY: Thank you, John. We will follow our usual format with Jon Morda providing an overview of the financial picture, followed by Manley Guarducci, who will discuss operations; Ken Balleweg, who will provide an overview of exploration activity, after which we'll open the call to a Q&A session.
Alamos Gold has turned in a strong quarter; in fact, this is our best operating performance so far. The Company exceeded its market guidance, delivering 38,500 ounces of gold production against a target for the quarter of 35,000 ounces. We're committed to meeting or beating our quarterly guidance, and we've achieved this goal now for three consecutive quarters. We've demonstrated over this time frame incremental improvements in gold recovery, productivity, cash flows, and earnings.
The second quarter has also seen a significant ramp-up in exploration activity, with emphasis on new grass-roots targets which are advancing to the drill stage. A specific target that we are quite excited about is Cerro Pelon. This is a target we've been intrigued by for years because of the compelling geography and its proximity to our leach pad and plant facilities. While still early days, this is one of the largest gold anomalous zones that we have identified so far in the district. Indications from channel sampling and reconstructed drill roads show that there is gold in the system. By now, we have two drill rigs onsite drilling and a third scheduled to arrive shortly. Ken Balleweg will be providing more detail in the exploration overview.
As many of you know, the third quarter marks the rainy season in the Sierra Madres, with July and August having the highest rainfall. Some of you will recall that Q3 2007 was an unusual year, with rainfall two standard deviations above normal. I'm pleased to report that 2008 has followed a near-normal rainfall pattern. While this means heavy rain, the steps that have been taken in the past nine months to improve performance in this season have proved successful, and results are bearing this out. With about three weeks of high rainfall remaining, we are ahead of our internal forecast.
Specifically, July production was over 11,500 ounces, and we are on track for gold production of 32,000 ounces for the third quarter. This substantially exceeds the 22,000 ounces of production reached in the third quarter of 2007.
The Company ended the second quarter debt-free and with working capital in excess of $45 million and growing. We generated $0.16 per share in cash flow during the quarter, a fourfold increase over a comparable period in 2007. These numbers are particularly important as we come to the conclusion of the mill study for processing high-grade ore. It is becoming clear that we are in a position to finance the mill construction through cash flow generated from operations, along with a debt facility or line of credit arrangement.
The new mill will allow us to substantially increase production from operations at Mulatos, as well as maximize recoveries from high-grade ore. We've encountered high-grade in several areas of the property, including the Estrella pit, the Escondida zone, the gap and San Carlos zones, as well as others that are in an earlier stage of exploration. Over time we expect to continue to develop high-grade resources in the district. The option value of an existing mill as these resources come onstream will be highly beneficial to the Company. We expect to announce the results of the mill feasibility study before the end of September.
While we have seen significant improvements over the last nine months, there remains more to be done to improve production and lower cost. Some of these projects will be discussed in the operations presentation later in the call. But I want to emphasize the consistent theme. The objective is continuous improvement, and this applies to all aspects of our Company--from safety to maintenance, production and exploration.
The second quarter has seen some significant changes to our management team. Manley Guarducci, formerly General Manager of Mining Operations, was appointed Vice President and Chief of Operations in May, taking over from John Van De Beuken, who remains a Director of the Company.
Another addition to the management team is Charles Tarnocai, who joins us as Vice President of Corporate Development. Charles has a Ph.D. in geology and comes with an enviable track record of finding big gold deposits. He has worked previously in the Mulatos district during his years at Placer Dome. Charles will help in exploration, as well as pursuing property acquisitions and M&A opportunities.
We have also appointed James Porter as Vice President, Finance. Jamie is a CA in Canada and holds a CPA designation in the US. He's been with us for the past three years in the role of Controller. He'll continue to oversee this function, as well as take on additional responsibilities in the areas of Treasury and Investor Relations.
I would now like to call on Jon Morda, CFO of Alamos, to provide an overview of the Company's financial position. John?
JON MORDA: Thank you, John. Financial highlights for the second quarter of 2008 included revenue of $32.3 million, an increase of 55% over revenues in the second quarter of 2007 of $20.8 million. Cash from operating activities in Q2 of $15.2 million after working capital changes were $0.16 per share. Sales in Q2 were 35,482 ounces of gold sold at an average of $911.00 per ounce. On a year-to-date basis, revenue was $63.3 million, compared with $37.8 million in the prior year period. Year-to-date cash flow from operations were $30.0 million compared with $7.6 million in the comparable six-month period. Earnings from operations for the second quarter were $9.6 million compared with $3 million in Q2 of 2007. Earnings were $6.2 million or $0.07 per share--$0.06 diluted--compared with $1.9 million, or $0.02 per share, in Q2 2007.
Our balance sheet liquidity has improved. Cash at the end of the quarter was $18.3 million, while our working capital position was $45.0 million. We have a strong balance sheet with no debt, apart from non-interest-bearing liabilities incurred in the normal course of business. A significant portion of our working includes in-process leach pad gold inventory. At June 2008, that amount was $19.7 million compared with $22.7 million at December 2007, reflecting a drawdown of higher grade recoverable ounces stacked in Q1 and a slight decrease in the average cost per ounce...
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