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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen and thank you for joining us today. Our presenters for 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 Ken Balleweg, Vice President, Exploration. Any questions you may have regarding the announcements will be addressed at the end of the presentation. Mr. McCluskey, please go ahead.
JOHN MCCLUSKEY, PRESIDENT & CEO, ALAMOS GOLD INC.: Well, thanks for promoting me to Chief Executed Officer, operator. I prefer to stay as the CEO for the time being. Thanks for joining us on the call. I will ask Jon Morda, CFO of Alamos Gold, to read the disclaimer concerning the forward-looking statements.
JON MORDA, 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 can be made based on information -- 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, Jon. The third quarter has truly been exceptional for Alamos. We are beginning to see the investment in operational improvements pay off in higher production, cash flow and earnings. We made a commitment on the quarterly call one year ago to setting conservative production forecasts that management believes could be met or exceeded. This marks the fourth consecutive quarter where we have exceeded our guidance on ever improving production results.
However, I would like to point out that we didn't expect to exceed our 32,000 ounce estimate for this quarter by a staggering 8000 ounces. In making a forecast, we had to weigh what we could measure against what we expected. What we could count on was that the high rainfall in this quarter would reduce crusher throughput. This, of course, adversely affects production and in fact, crusher throughput was marginally lower for the quarter.
What we expected but couldn't schedule is that the new stacking system would allow for better percolation in the heat and the glomeration and other changes in the operation would improve recoveries. Exactly when these benefits would start to show up in the production results was an open question. The answer proved to be the quarter in review as these improvements had a significant impact on our results.
We have also observed, for seven consecutive quarters now, that the block model as underestimated the grade of ore mined and stacked on the heap. But in making our forecasts, while we hope the higher grade will continue to surprise us, we did not bank on it as far as higher grades holding. We based our forecasts on the ounces contained in the blocks as modeled, ready to be mined over the quarter to follow. This quarter, the combined improvements from stacking and conveying of glomerations, solution flow management recovery and higher grade ounces delivered to the heap due to better grade in the orebody continued to provide record results. As much as I would enjoy reading off the financial highlights, I will leave the honor to our CFO, Jon Morda, who will follow me.
Looking ahead, we expect to see continued improvements from operations at Mulatos. We are studying the costs of even finer crushing at the operation through a closed crushing circuit. While the study is still in progress, preliminary results demonstrate we should see incremental higher recoveries from finer crushed ore.
We are also scheduled to have new agglomerating drums installed early in the first quarter of next year. The results suggest that the change from belt agglomeration to drum agglomeration will continue to improve operating results.
The strengthening US dollar is taking its toll on the gold price the past number of weeks and this clearly impacts our cash flow. However, with the weakening of the Mexican peso against the US dollar, our cash costs are decreasing, offsetting some of the effects of the weaker gold price. It is difficult to predict where the US dollar is headed in the short term, but it is worth noting that if the dollar weakens, the gold price goes higher. If the dollar strengthens, the peso decreases. Approximately half of our operating costs are peso-denominated. In the past six weeks or so, the peso has lost almost 30% against the US dollar. If the peso remains at this level, it could have a very positive impact on Q4 operating costs.
Now that the mine is running well, the question that is starting to come up more often is where do we go from here. Alamos is well-positioned to move forward. We are debt-free, we have almost $40 million cash on hand and we continue to enjoy a healthy operating margin on our operation. It is clearly the right time for growth.
As outlined in the quarterly release, we continue to pursue organic growth as exploration is expanding resources and outlining new areas of mineralization within the Mulatos district. We announced in the quarterly release a new zone on the Northeast side of the Estrella Pit called Puerto del Aire or PDA. A portion of this zone sits between the Estrella and high-grade Escondida deposits and is still being drilled. PDA will ultimately serve to extend the mine life of the Mulatos operation. To date, we have outlined about 300,000 ounces of gold in the measured and indicated category and 200,000 ounces in the inferred category.
These zones are still open and are likely to expand. The location of PDA has led to a reappraisal of the overall pit plan. It is becoming clearer that several zones are going to be developed into one large pit, linking Estrella, PDA, Escondida and the Salto and Mina Vieja areas. Developing an expanded pit in this way should reduce the stripping ratio and ultimately overall development costs.
Discoveries at Yaqui and Cerro Pelon look like good bets for developing gold deposits with excellent heat-leaching properties and the pipeline of additional exploration targets will be continually fed as early-stage targets move forward through the pipeline.
In addition, we are turning our attention to acquisition opportunities. We believe we have a realistic objective of growing the Company to where we will exceed 300,000 ounces of production within a three-year timeframe and this can be accomplished through a focus on acquisitions. Market conditions are such that clearly the time has never been better to pursue this objective. We have been building our management team over the last year with this idea in mind.
Last May, of course, we hired Charles Tarnocai as our Vice President of Corporate Development. Charles is a Ph.D. geologist who spent many years with Placer Dome where he was part of a team that developed millions of ounces of new gold reserves over the years that he spent there. His expertise in project valuation is well-suited for helping Alamos identify opportunities for growth through acquisition.
We recognize that we are operating in very uncertain times and fortunately, we have prepared well for them and this type of preparation will continue to serve us as we move forward. The targets we identify for acquisition will be carefully considered. We don't intend to leverage our balance sheet to take on projects that are beyond our ability to develop. We will look for projects with near-term cash flow, generating positive cash flow or with advanced resources open to expansion that can be acquired at low cost.
At this point, several attractive projects are well within reach. Market conditions such as these don't come along very often and it is important to know when to act. Our own project is the best example I can provide. When the Mulatos mine was acquired in 2001, the gold price was under $300 an ounce and very few people thought the purchase made any sense. You can imagine how difficult it was to raise the capital to get the project started. But we felt the time was right and it didn't take long to prove that this was the correct assessment.
While gold is trading at over $700 per ounce today, it is arguably more difficult for small developers to raise project capital and many worthy projects are distressed. In these circumstances lie the risk and the opportunity. We are confident that we are capable of creating shareholder value through accretive transactions in the near future with the objective of operating one or more additional mines within three years.
I would like to turn the call over now to Alamos' CFO, Jon Morda, who will provide financial highlights for the quarter. Jon?
JON MORDA: Thank you, John. Financial highlights for the third quarter of 2008 included revenue of $37.2 million on record sales of 41,293 ounces of gold, an increase of 139% over revenues in the third quarter of 2007 of $15.6 million, cash from operating activities in Q3 of $19.3 million after working capital changes or $0.20 per share. Sales in Q3 were 41,293 ounces of gold, sold at an average of $901 per ounce. On a year-to-date basis, revenue was $100.6 million compared with $53.3 million in the prior year period.
Year-to-date cash flows from operations were $49.3 million compared with $11.6 billion in the comparable nine-month period. Earnings from operations for the second quarter were $11.4 million compared with $1.1 million in Q3 2007. Earnings were $8.3 million, or $0.09 per share basic and diluted compared with 100,000 or no per share in Q3 2007.
Our balance sheet continues to grow stronger. Cash on hand at the end of the quarter was $34.5 million, while our working capital position was $54.5 million. We have no debt apart from non-interest-bearing liabilities incurred in the normal course of business. A significant portion of our working capital includes in-process leach pad gold inventory. At September 2008, that amount was $16.5 million compared with...
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