Alamos Gold Reports Second Quarter 2023 Results
Record production and strong margin expansion drive record financial performance including free cash flow of $62 million
TORONTO, July 26, 2023 (GLOBE NEWSWIRE) -- *Alamos Gold Inc. (TSX:AGI; NYSE:AGI)* (“Alamos” or the “Company”) today reported its financial results for the quarter ended June 30, 2023.
“We delivered a record performance in the second quarter on multiple fronts. Operationally, we produced a record 136,000 ounces, exceeding quarterly guidance, at costs consistent with annual guidance. This was driven by another excellent quarter from La Yaqui Grande which contributed to the highest production and free cash flow from the Mulatos District in more than 10 years. With the solid first half, we are well positioned to achieve our full year production and cost guidance,” said John A. McCluskey, President and Chief Executive Officer.
“The strong production growth and margin expansion led to a record quarter financially across a number of metrics including record revenue and operating cash flow. We also generated record free cash flow of $62 million while continuing to advance our growth initiatives that will in turn support further free cash flow growth. The Phase 3+ Expansion at Island Gold remains on track with construction of the shaft surface infrastructure well underway, and the updated Feasibility Study for the Lynn Lake project is in the final stages of completion. Both projects are key components of our strong outlook, with the capacity to nearly double our rate of production in Canada at significantly lower costs,” Mr. McCluskey added.
*Second** Quarter **2023*
· Produced a record 136,000 ounces of gold, exceeding quarterly guidance of 120,000 to 130,000 ounces. This represented a 31% increase from the second quarter of 2022 and 6% increase from the first quarter of 2023 driven by strong production growth from the Mulatos District. The Company remains well positioned to achieve 2023 annual guidance
· Record free cash flow^1 of $61.6 million reflecting strong operating results and margin expansion, as well as benefiting from the collection of sales tax receivables in Canada that had been temporarily delayed in the first quarter. The Company expects to continue generating strong free cash flow over the next several years while funding the Phase 3+ Expansion at Island Gold
· Generated record cash flow from operating activities of $141.8 million ($138.3 million, or $0.35 per share, before changes in working capital^1)
· The Mulatos District produced 60,300 ounces, a 19% increase from the first quarter of 2023, and the highest level in 10 years, reflecting another solid quarter from La Yaqui Grande. The strong performance drove a 28% increase in mine-site free cash flow from the first quarter of 2023 to $47.0 million, bringing the first half total to $83.8 million
· Young-Davidson continues to perform well, producing 45,200 ounces, consistent with the first quarter of 2023, and generating record mine-site free cash flow^1 of $35.4 million. Through the first half of the year, Young-Davidson generated $51.7 million of mine-site free cash flow and remains on track to generate over $100 million for the third consecutive year
· Island Gold produced 30,500 ounces and continues to self-finance the majority of the Phase 3+ Expansion. The Expansion is progressing well with the construction of the hoist house largely complete, the headframe well underway, and shaft sinking on track to start in the fourth quarter of 2023
· Sold 131,952 ounces of gold at an average realized price of $1,978 per ounce, for record quarterly revenues of $261.0 million. The average realized gold price was $2 per ounce above the London PM fix for the quarter
· Total cash costs^1 of $847 per ounce were consistent with annual guidance, and all-in sustaining costs ("AISC"^1) of $1,112 per ounce were below the low end of guidance and down 5% from the first quarter of 2023, reflecting low-cost production growth from La Yaqui Grande and lower sustaining capital
· Realized adjusted net earnings^1 of $59.3 million, or $0.15 per share. Adjusted net earnings includes adjustments for unrealized foreign exchange gains recorded within both deferred taxes and foreign exchange of $13.4 million, and other gains totaling $2.4 million. Reported net earnings were $75.1 million, or $0.19 per share
· Paid a quarterly dividend of $9.9 million, or $0.025 per share (annualized rate of $0.10 per share)
· Cash and cash equivalents increased to $188.6 million, up from $133.8 million at the end of the first quarter, reflecting strong free cash flow. The Company remains debt free
· Completed the acquisition of Manitou Gold on May 23, 2023, adding significant exploration potential across the Michipicoten Greenstone Belt by more than tripling the regional land package adjacent to and along strike from Island Gold
· Provided an exploration update at Mulatos, further extending high-grade mineralization beyond Mineral Reserves and Resources at Puerto Del Aire ("PDA") and intersected a wide interval of significant gold mineralization at the Capulin regional target
· Provided an exploration update at Island Gold, extending high-grade mineralization across the deposit including within recently defined hanging wall and footwall zones in proximity to existing underground infrastructure
· Completed an Impact Benefit Agreement and signing ceremony with Marcel Colomb First Nation for the Lynn Lake project in Manitoba, Canada
· Publication of Alamos’ inaugural Climate Change Report, outlining corporate governance around climate-related risks and opportunities
[^(^1) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.]
*Highlight Summary*
*Three Months Ended June 30,**
* *Six Months Ended June 30,**
* *2023* *2022* *2023* *2022*
*Financial Results (in millions)*
Operating revenues $261.0 $191.2 $512.5 $375.7
Cost of sales ^(1) $157.8 $151.9 $313.0 $287.4
Earnings from operations $88.6 $25.7 $163.6 $20.0
Earnings before income taxes $92.1 $30.2 $164.3 $15.9
Net earnings (loss) $75.1 $6.4 $123.5 ($2.1 )
Adjusted net earnings ^(2) $59.3 $29.3 $104.7 $47.3
Earnings before interest, depreciation and amortization ^(2) $138.9 $92.0 $258.8 $154.9
Cash provided by operations before working capital and taxes paid^(^2) $138.3 $85.3 $265.5 $156.2
Cash provided by operating activities $141.8 $75.7 $236.1 $122.2
Capital expenditures (sustaining)^ (2) $23.4 $20.1 $50.3 $42.7
Capital expenditures (growth) ^(2) (3) $49.8 $43.3 $101.8 $101.9
Capital expenditures (capitalized exploration) ^(4) $7.0 $5.6 $11.9 $11.7
Free cash flow ^(2) $61.6 $6.7 $72.1 ($34.1 )
*Operating Results *
Gold production (ounces) 136,000 103,900 264,400 202,800
Gold sales (ounces) 131,952 102,164 264,620 200,630
*Per Ounce Data*
Average realized gold price $1,978 $1,871 $1,937 $1,873
Average spot gold price (London PM Fix) $1,976 $1,871 $1,933 $1,874
Cost of sales per ounce of gold sold (includes amortization) ^(1) $1,196 $1,487 $1,183 $1,432
Total cash costs per ounce of gold sold ^(2) $847 $895 $834 $943
All-in sustaining costs per ounce of gold sold ^(2) $1,112 $1,170 $1,144 $1,264
*Share Data*
Earnings (loss) per share, basic and diluted $0.19 $0.02 $0.31 ($0.01 )
Adjusted earnings per share, basic and diluted^(^2) $0.15 $0.07 $0.27 $0.12
Weighted average common shares outstanding (basic) (000’s) 395,346 391,761 394,657 391,837
*Financial Position (in millions)*
Cash and cash equivalents^(^5) $188.6 $129.8
[^(1) Cost of sales includes mining and processing costs, royalties, and amortization expense. ]
[^(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.]
[^(3) Includes growth capital from operating sites. ]
[^(4) Includes capitalized exploration at Island Gold, Young-Davidson and Mulatos District.]
[^(5) Comparative cash and cash equivalents balance as at December 31, 2022.] *Three Months Ended June 30,**
* *Six Months Ended June 30,**
* *2023* *2022* *2023* *2022*
*Gold production (ounces) *
Young-Davidson 45,200 46,400 90,200 98,300
Island Gold 30,500 37,300 63,400 61,800
Mulatos District^(^7) 60,300 20,200 110,800 42,700
*Gold sales (ounces)*
Young-Davidson 43,570 46,662 89,246 98,187
Island Gold 28,183 36,797 61,910 60,165
Mulatos District 60,199 18,705 113,464 42,278
*Cost of sales (in millions)*^*(*^*1)*
Young-Davidson $59.3 $59.8 $121.2 $124.4
Island Gold $27.6 $32.0 $58.5 $56.2
Mulatos District $70.9 $60.1 $133.3 $106.8
*Cost of sales per ounce of gold sold (includes amortization)*^* (1)*
Young-Davidson $1,361 $1,282 $1,358 $1,267
Island Gold $979 $870 $945 $934
Mulatos District $1,178 $3,213 $1,175 $2,526
*Total cash costs per ounce of gold sold *^*(2)*
Young-Davidson $955 $866 $948 $852
Island Gold $678 $590 $651 $650
Mulatos District $847 $1,566 $843 $1,568
*Mine-site all-in sustaining costs per ounce of gold sold *^*(2*^*),(*^*3)*
Young-Davidson $1,212 $1,087 $1,222 $1,064
Island Gold $1,072 $848 $1,016 $939
Mulatos District $894 $1,636 $903 $1,717
*Capital expenditures (sustaining, growth and capitalized exploration) (in millions)*^*(*^*2)*
Young-Davidson ^(4) $13.5 $13.1 $30.9 $35.8
Island Gold ^(5) $54.7 $29.3 $111.7 $62.7
Mulatos District ^(6) $6.5 $21.3 $12.2 $47.3
Other $5.5 $5.3 $9.2 $10.5
[^(1) Cost of sales includes mining and processing costs, royalties, and amortization expense.]
[^(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures.]
[^(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses.]
[^(4) Includes capitalized exploration at Young-Davidson of $1.2 million and $2.6 million for the three and six months ended June 30, 2023 ($1.3 million and $2.3 million for the three and six months ended June 30, 2022).]
[^(5) Includes capitalized exploration at Island Gold of $3.0 million and $5.4 million for the three and six months ended June 30, 2023 ($4.1 million and $9.2 million for the three and six months ended June 30, 2022). ]
[^(6) Includes capitalized exploration at Mulatos District of $2.8 million and $3.9 million for the three and six months ended June 30, 2023 ($0.2 million for the three and six months ended June 30, 2022).]
[^(7) The Mulatos District includes both the Mulatos pit, as well as La Yaqui Grande.]
*Environment, Social and Governance Summary Performance *
*Health and Safety*
· Total recordable injury frequency rate1 ("TRIFR") of 1.23 in the second quarter, down from 1.56 in the first quarter of 2023
· Lost time injury frequency rate1 ("LTIFR") of 0.09 in the second quarter, up from 0.00 in the first quarter of 2023
· Year-to-date TRIFR of 1.40 and LTIFR of 0.05During the second quarter of 2023, the TRIFR decreased with 13 recordable injuries, four less than the prior quarter. One lost time injury was recorded in the quarter involving a hand injury to an exploration drilling contractor at Mulatos. Alamos strives to maintain a safe, healthy working environment for all, with a strong safety culture where everyone is continually reminded of the importance of keeping themselves and their colleagues healthy and injury-free. The Company’s overarching commitment is to have all employees and contractors return Home Safe Every Day
*Environment*
· Zero significant environmental incidents and zero reportable spills in the second quarter and year-to-date
· Detailed design works completed for the reclamation of the Cerro Pelon, El Victor and San Carlos open pits within the Mulatos District
· Completed site visits with Alamos’ Independent Tailings Review Board to Young-Davidson and Island GoldThe Company is committed to preserving the long-term health and viability of the natural environment that surrounds its operations and projects. This includes investing in new initiatives to reduce our environmental footprint with the goal of minimizing the environmental impacts of our activities and offsetting any impacts that cannot be fully mitigated or rehabilitated.
*Community*
· Completed an Impact Benefit Agreement and signing ceremony with Marcel Colomb First Nation for the Lynn Lake project, with the goal of providing long term socio-economic benefits to the community and collaboration on economic development, jobs, training and environmental stewardship of the project
· Held a ceremonial signing to celebrate the Definitive Agreement announced earlier in the year between Alamos and Batchewana First Nation for the Island Gold mine
In addition, ongoing donations, medical support and infrastructure investments were provided to local communities, including:
· Eye health, dental health, and sexual education campaigns with residents of Matarachi
· Various contributions within the Temiskaming and Algoma districts of Ontario, including donations to the Temiskaming Hospital Foundation, rejuvenation of the Elk Lake playground, funds to support the Matachewan community garden, and sponsorship of various local events
· Island Gold hosted its second 'Mining Showcase' event for high school students at École St. Joseph in Wawa
· Annual clean-up in Dubreuilville with participants from Island Gold, the township and local students
The Company believes that excellence in sustainability provides a net benefit to all stakeholders. The Company continues to engage with local communities to understand local challenges and priorities. Ongoing investments in local infrastructure, health care, education, cultural and community programs remain a focus of the Company.
*Governance and Disclosure*
· Publication of Alamos’ inaugural Climate Change Report, outlining corporate governance around climate-related risks and opportunities; the Company’s processes to identify, assess and manage climate-related risks; alignment to Task Force on Climate-related Financial Disclosure recommendations; and further details on Alamos’ 30% absolute greenhouse gas emission reduction target by 2030
· Publication of Alamos’ 2022 Report on conformance to the World Gold Council’s Responsible Gold Mining Principles and independent assurance report
· Publication of the annual report outlining payments to governments under Canada’s Extractive Sector Transparency Measures ActThe Company maintains the highest standards of corporate governance to ensure that corporate decision-making reflects its values, including the Company’s commitment to sustainable development. During the quarter, the Company continued to advance its implementation of the Responsible Gold Mining Principles, developed by the World Gold Council as a framework that sets clear expectations as to what constitutes responsible gold mining.
[^(1) Frequency rate is calculated as incidents per 200,000 hours worked.]
*Outlook and Strategy*
*2023 Guidance* *Young-Davidson* *Island Gold* *Mulatos* *Lynn Lake* *Total*
*Gold production *(000’s ounces) 185 - 200 120 - 135 175 - 185 *480 - 520*
*Cost of sales, including amortization* (in millions)^(^3) *$**625*
*Cost of sales, including amortization * ($ per ounce)^(3) *$**1,250*
*Total cash costs *($ per ounce)^(^1) $900 - $950 $600 - $650 $900 - $950 — *$825- $875*
*All-in sustaining costs* ($ per ounce)^(^1) *$1,125 - $1,175*
*Mine-site all-in sustaining costs *($ per ounce)^(^1)(2) $1,175 - $1,225 $950 - $1,000 $950 - $1,000 —
*Capital expenditures * (in millions)
Sustaining capital^(^1) $50 - $55 $45 - $50 $10 — *$105 - $115*
Growth capital^(^1) $5 - $10 $165 - $185 $5 - $10 $12 *$187 - $217*
* Total Sustaining and Growth Capital*^*(*^*1)* *$55 - $65* *$210 - $235* *$15 - $20* *$**12* *$292 - $332*
Capitalized exploration^(^1) $5 $11 $4 $5 *$**25*
*Total capital expenditures and capitalized exploration*^*(*^*1)* *$60 - $70* *$221 - $246* *$19 - $24* *$**17* *$317 - $357*
[^(1) Refer to the "Non-GAAP Measures and Additional GAAP" disclosure at the end of this press release and associated MD&A for a description of these measures.]
[^(2) For the purposes of calculating mine-site all-in sustaining costs at individual mine sites, the Company does not include an allocation of corporate and administrative and share based compensation expenses to the mine sites. ]
[^(3) Cost of sales includes mining and processing costs, royalties, and amortization expense, and is calculated based on the mid-point of total cash cost guidance.]The Company’s objective is to operate a sustainable business model that can support growing returns to all stakeholders over the long-term, through growing production, expanding margins, and increasing profitability. This includes a balanced approach to capital allocation focused on generating strong ongoing free cash flow while re-investing in high-return internal growth opportunities and supporting higher returns to shareholders.
With a record second quarter performance, the Company continues to successfully execute on this strategy on all fronts. Production increased to a new record of 136,000 ounces, exceeding second quarter guidance, while AISC decreased below the low end of full year guidance. This was driven by another strong quarter from the Mulatos District with La Yaqui Grande contributing to the highest production and mine-site free cash flow from the operation in more than 10 years. With the strong start to the year, the Company remains on track to achieve annual production and cost guidance.
Financially it was a record quarter on a number of fronts reflecting the strong operational performance and higher gold prices. The Company generated record quarterly revenues, cash flow from operations and free cash flow. The significant increase in free cash flow to $61.6 million was achieved while continuing to advance a variety of growth initiatives that are expected to support growing production, declining costs, and further free cash flow growth in the years ahead. This included substantial progress on the Phase 3+ Expansion at Island Gold. Construction of the hoist house is largely complete, the erection of the headframe is well underway, and shaft sinking is on track to begin in the fourth quarter of 2023.
After achieving a significant permitting milestone earlier this year at the Lynn Lake project with the receipt of a positive Decision Statement for the Federal Environmental Impact Statement (“EIS”), work on the updated Feasibility Study is nearing completion. The Company expects this to outline another attractive, low-cost, long-life growth project in Canada with significant exploration upside.
The Company continues to have broad based success adding value through its exploration programs. This includes extending high-grade mineralization beyond Mineral Reserves and Resources at Island Gold and PDA, demonstrating ongoing growth potential at both assets. This will be incorporated into a new development plan for PDA to be completed in the fourth quarter of 2023 which is expected to outline a significant mine life extension at the Mulatos District.
As outlined in the three-year production and operating guidance provided in January 2023, the Company expects higher production at significantly lower costs over the next three years. Refer to the Company’s January 12, 2023 guidance press release for a summary of the key assumptions and related risks associated with the comprehensive 2023 guidance and three-year production, cost and capital outlook. Production is expected to range between 480,000 and 520,000 ounces in 2023, a 9% increase from 2022, and remain at similar levels in 2024 and 2025. Company-wide AISC is expected to decrease 4% in 2023 and 17% by 2025 to between $950 and $1,050 per ounce.
The Company is well positioned to achieve 2023 guidance with production through the first half of the year totaling 264,400 ounces and total cash costs and AISC both in-line with guidance. In the third quarter, production is expected to be between 120,000 and 130,000 ounces, at AISC near the upper end of the annual guidance range. Third quarter guidance reflects lower planned production from the Mulatos District with the end of mining in the main Mulatos pit and the return to guided grades and stacking rates at La Yaqui Grande.
Young-Davidson had another strong quarter with mining rates exceeding targeted rates, averaging 8,089 tpd in the second quarter and 8,050 tpd through the first half of the year. This contributed to first half production of 90,200 ounces and mine-site free cash flow of $51.7 million. With higher grades expected to drive stronger production in the second half of the year, Young-Davidson is on track to achieve full year production guidance and generate more than $100 million of mine-site free cash flow for the third consecutive year.
Island Gold produced 63,400 ounces in the first half of the year, and with higher mining and processing rates expected in the second half of the year, the operation is on track to meet full year guidance. As outlined in the Phase 3+ Expansion study released in June 2022, grades mined are expected to increase in 2024, driving production higher. A further increase in grades and an increase in mining rates toward the latter part of 2025 is expected to drive an increase in production and a reduction in costs. As demonstrated in the quarter and through the first half of the year, Island Gold continues to generate strong cash flow from operations allowing the operation to self-finance the majority of capital spending on the Phase 3+ Expansion.
Combined gold production from the Mulatos District (including La Yaqui Grande) increased to the highest level in more than 10 years in the second quarter to 60,300 ounces at total cash costs and mine-site AISC below annual guidance. Through the first half of the year, the operation produced 110,800 ounces, more than double the prior year, and generated $83.8 million of mine-site free cash flow driven by low-cost production growth from La Yaqui Grande. As previously guided, production is expected to decrease in the second half of the year reflecting the end of mining within the main Mulatos pit as well as the return to guided stacking rates and grades at La Yaqui Grande. Given the excellent start to the year, the Mulatos District remains well positioned to meet full year guidance.
Capital spending, including capitalized exploration, totaled $80.2 million in the second quarter and $164.0 million though the first half of the year, consistent with annual guidance of $317 million to $357 million. The majority of this spending in 2023 is expected at Island Gold with the ramp up of construction on the Phase 3+ Expansion. Capital spending at Island Gold is expected to remain at similar levels in 2024 and 2025 and then drop considerably in 2026 once the expansion is complete.
The global exploration budget for 2023 is consistent with spending in 2022. The Mulatos District accounts for the largest portion with an increased budget of $21 million, followed by $14 million at Island Gold, $8 million at Young-Davidson and $5 million at Lynn Lake. The exploration focus in 2023 continues to follow up on a successful year in 2022, with Mineral Reserves increasing for the fourth consecutive year to 10.5 million ounces of gold, and grades increasing 3%.
The Company's liquidity position continues to strengthen with cash and cash equivalents increasing to $188.6 million at the end of the second quarter, while remaining debt free. Additionally, the Company has a $500 million undrawn credit facility, providing total liquidity of $688.6 million. As part of a balanced approach to growth and capital allocation, the current focus of growth capital is the Phase 3+ Expansion at Island Gold. With no significant capital expected to be spent on developing Lynn Lake until the Phase 3+ Expansion is well underway, the Company remains well positioned to fund this growth internally while generating strong free cash flow over the next several years. The Company expects a further increase in free cash flow in 2026 with the completion of the Phase 3+ Expansion.
*Second Quarter 2023 results*
*Young-Davidson Financial and Operational Review*
*Three Months Ended June 30,**
* *Six Months Ended June 30,**
* *2023* *2022* *2023* *2022*
Gold production (ounces) 45,200 46,400 90,200 98,300
Gold sales (ounces) 43,570 46,662 89,246 98,187
*Financial Review (in millions)*
Operating Revenues $86.3 $87.3 $172.6 $184.1
Cost of sales^ (1) $59.3 $59.8 $121.2 $124.4
Earnings from operations $25.9 $25.9 $49.9 $56.5
Cash provided by operating activities $48.9 $43.9 $82.6 $89.8
Capital expenditures (sustaining) ^(2) $11.1 $10.2 $24.3 $20.6
Capital expenditures (growth) ^(2) $1.2 $1.6 $4.0 $12.9
Capital expenditures (capitalized exploration) ^(2) $1.2 $1.3 $2.6 $2.3
Mine-site free cash flow ^(2) $35.4 $30.8 $51.7 $54.0
Cost of sales, including amortization per ounce of gold sold ^(1) $1,361 $1,282 $1,358 $1,267
Total cash costs per ounce of gold sold^ (2) $955 $866 $948 $852
Mine-site all-in sustaining costs per ounce of gold sold^ (^2),(3) $1,212 $1,087 $1,222 $1,064
*Underground Operations*
Tonnes of ore mined 736,078 742,516 1,457,005 1,478,820
Tonnes of ore mined per day 8,089 8,160 8,050 8,170
Average grade of gold ^(4) 2.14 2.24 2.18 2.30
Metres developed 2,238 3,097 4,933 6,344
*Mill Operations*
Tonnes of ore processed 696,718 705,014 1,398,672 1,442,742
Tonnes of ore processed per day 7,656 7,747 7,727 7,971
Average grade of gold ^(4) 2.13 2.25 2.18 2.32
Contained ounces milled 47,774 50,975 97,987 107,445
Average recovery rate 91 % 91 % 91 % 91 %
[^(1) Cost of sales includes mining and processing costs, royalties and amortization.]
[^(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures. ]
[^(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses. ]
[^(4) Grams per tonne of gold ("g/t Au").]
Operational review
Young-Davidson produced 45,200 ounces of gold in the second quarter, consistent with the first quarter of 2023 and the prior year period. With production totaling 90,200 ounces through the first half of the year, and higher grades and throughput rates expected to drive stronger production in the second half of the year, Young-Davidson remains on track to achieve full year guidance.
Underground mining rates exceeded full year guidance, averaging 8,089 tpd in the second quarter. Grades mined averaged 2.14 g/t Au in the quarter, similar to the first quarter of 2023 and consistent with the low end of annual guidance. As previously guided, grades mined are expected to increase through the second half of the year.
Mill throughput averaged 7,656 tpd in the second quarter with grades processed averaging 2.13 g/t Au. Tonnes milled were lower than mined reflecting a scheduled liner change as well as unplanned downtime due to weather related power outages in the region. The mill has returned to targeted operating rates in July and is expected to average 8,000 tpd through the rest of the year. Mill recoveries averaged 91% in the quarter, in line with guidance and the prior year period.
Financial Review
Second quarter revenues of $86.3 million were 1% lower than the prior year period, reflecting less ounces sold, partially offset by a higher realized gold price. For the first half of the year, revenues of $172.6 million were 6% lower than the prior year, primarily driven by less ounces sold.
Cost of sales of $59.3 million in the second quarter were consistent with the prior year period. Underground unit mining costs were CAD $49 per tonne in the quarter, a 6% improvement from the first quarter of 2023, and consistent with the prior year period. Cost of sales of $121.2 million for the first half of the year were lower than the comparable period, primarily due to less ounces sold.
Total cash costs were $955 per ounce in the second quarter and $948 per ounce for the first half of the year. Mine-site AISC were $1,212 per ounce in the quarter and $1,222 per ounce for the first half of the year, both in-line with annual guidance. Total cash costs and mine-site AISC were above the prior year periods reflecting inflationary pressures as well as lower grades processed. Costs are expected to decrease in the second half of 2023 driven by higher grades mined and processed.
Capital expenditures in the quarter included $11.1 million of sustaining capital and $1.2 million of growth capital. In addition, $1.2 million was invested in capitalized exploration in the quarter. Capital expenditures, inclusive of capitalized exploration totaled $30.9 million for the first half of 2023, a 14% decrease from the prior year. Capital expenditures are expected to be higher in the second half of the year, and in line with annual guidance.
Young-Davidson continues to consistently generate strong free cash flow, including record mine-site free cash flow of $35.4 million in the second quarter, and $51.7 million in the first half of 2023. Mine-site free cash flow in the quarter benefited from the collection of a temporary build up of $8 million of sales tax receivables for Young-Davidson which were collected in April. Young-Davidson has generated over $100 million in mine-site free cash flow in each of the past two years. With the strong start to the year, the operation is on pace to generate similar free cash flow in 2023 and over the long-term, given its 15 year Mineral Reserve life.
*Island Gold Financial and Operational Review*
*Three Months Ended June 30,**
* *Six Months Ended June 30,**
* *2023* *2022* *2023* *2022*
Gold production (ounces) 30,500 37,300 63,400 61,800
Gold sales (ounces) 28,183 36,797 61,910 60,165
*Financial Review (in millions)*
Operating Revenues $55.8 $68.8 $119.7 $112.5
Cost of sales^ (1) $27.6 $32.0 $58.5 $56.2
Earnings from operations $27.0 $34.8 $59.6 $53.7
Cash provided by operating activities $50.2 $49.5 $86.7 $76.9
Capital expenditures (sustaining) ^(2) $11.0 $9.5 $22.4 $17.3
Capital expenditures (growth) ^(2) $40.7 $15.7 $83.9 $36.2
Capital expenditures (capitalized exploration) ^(2) $3.0 $4.1 $5.4 $9.2
Mine-site free cash flow ^(2) ($4.5 ) $20.2 ($25.0 ) $14.2
Cost of sales, including amortization per ounce of gold sold ^(1) $979 $870 $945 $934
Total cash costs per ounce of gold sold^ (2) $678 $590 $651 $650
Mine-site all-in sustaining costs per ounce of gold sold^ (^2),(3) $1,072 $848 $1,016 $939
*Underground Operations*
Tonnes of ore mined 100,568 112,203 208,964 215,192
Tonnes of ore mined per day ("tpd") 1,105 1,233 1,154 1,189
Average grade of gold ^(4) 9.23 10.02 9.40 9.22
Metres developed 2,134 1,902 4,237 3,341
*Mill Operations*
Tonnes of ore processed 102,000 114,448 209,508 215,097
Tonnes of ore processed per day 1,121 1,258 1,158 1,118
Average grade of gold ^(4) 9.51 10.09 9.54 9.18
Contained ounces milled 31,180 37,132 64,262 63,459
Average recovery rate 97 % 96 % 97 % 96 %
[^(1) Cost of sales includes mining and processing costs, royalties, and amortization.]
[^(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures. ]
[^(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses. ]
[^(4) Grams per tonne of gold ("g/t Au").]
Operational review
Island Gold produced 30,500 ounces in the second quarter of 2023, an 18% decrease from the prior year period reflecting lower tonnes and grades processed. For the first six months of 2023, Island Gold produced 63,400 ounces, a 3% increase from the prior year period driven by higher grades mined and processed. With stronger mining and milling rates expected in the second half of the year, the operation remains on track to meet full year production guidance.
Underground mining rates averaged 1,105 tpd in the second quarter, lower than both annual guidance and the prior year period reflecting unplanned downtime due to smoke from wildfires in Northern Ontario as well as weather related power outages. Mining rates have returned to normal levels in July and are expected to average 1,200 tpd through the second half of the year. Grades mined averaged 9.23 g/t Au in the quarter, and 9.40 g/t Au through the first half of the year, both consistent with annual guidance.
Mill throughput averaged 1,121 tpd, lower than annual guidance and the prior year period, due to lower mining rates, downtime for maintenance on the fine ore bin, and the above noted weather related power outages. Milling rates have returned to guided rates through July and are expected to average 1,200 tpd through the second half of the year. Mill recoveries averaged 97% in the quarter, slightly above the prior year period.
Financial Review
Island Gold generated revenues of $55.8 million in the second quarter, 19% lower than the prior year period, due to less ounces sold offset by a higher realized gold price. For the first six months of the year, revenues were $119.7 million, higher than the prior year as a result of more ounces sold and a higher realized gold price.
Cost of sales of $27.6 million in the second quarter were 14% lower than the prior year period, reflecting less tonnes processed. Cost of sales of $58.5 million for the first half of 2023 were higher than the comparable period, reflecting inflationary pressures on mining and processing costs.
Total cash costs of $678 per ounce and mine-site AISC of $1,072 per ounce in the second quarter were above the top end of annual guidance, primarily due to higher unit mining and processing costs resulting from lower tonnes processed. Through the first half of 2023, total cash costs of $651 per ounce were in-line with annual guidance while mine-site AISC of $1,016 per ounce were slightly above annual guidance. The Company expects mine-site AISC to decrease in the second half as throughput returns to guided levels.
Total capital expenditures were $54.7 million in the second quarter, including $3.0 million of capitalized exploration. Spending on the Phase 3+ Expansion continued through the second quarter with activities focused on shaft site infrastructure, including the hoist house and headframe. The construction of the hoist house is now substantially complete and shaft sinking scheduled to commence in the fourth quarter of 2023. Additionally, capital spending was focused on lateral development and other surface infrastructure. For the first six months of 2023, capital spending of $111.7 million, inclusive of capitalized exploration of $5.4 million, reflects the ramp up of construction activities on the Phase 3+ Expansion.
Mine-site free cash flow was negative $4.5 million in the second quarter and negative $25.0 million through the first half of the year given higher capital spending related to the Phase 3+ Expansion. At current gold prices, Island Gold is expected to self-finance the majority of the Phase 3+ Expansion capital over the next three years. The operation is expected to generate significant free cash flow from 2026 onward with the completion of the expansion.
*Mulatos District Financial and Operational Review*
*Three Months Ended June 30,**
* *Six Months Ended June 30,**
* *2023* *2022* *2023* *2022*
Gold production (ounces) 60,300 20,200 110,800 42,700
Gold sales (ounces) 60,199 18,705 113,464 42,278
*Financial Review *(in millions)
Operating Revenues $118.9 $35.1 $220.2 $79.1
Cost of sales^ (1) $70.9 $60.1 $133.3 $106.8
Earnings (loss) from operations $45.7 ($27.8 ) $82.3 ($32.1 )
Cash provided (used) by operating activities $53.5 ($8.7 ) $96.0 ($20.1 )
Capital expenditures (sustaining)^ (2) $1.3 $0.4 $3.6 $4.8
Capital expenditures (growth)^ (2) $2.4 $20.7 $4.7 $42.3
Capital expenditures (capitalized exploration) ^(2) $2.8 $0.2 $3.9 $0.2
Mine-site free cash flow ^(2) $47.0 ($30.0 ) $83.8 ($67.4 )
Cost of sales, including amortization per ounce of gold sold ^(1) $1,178 $3,213 $1,175 $2,526
Total cash costs per ounce of gold sold ^(2) $847 $1,566 $843 $1,568
Mine site all-in sustaining costs per ounce of gold sold ^(2^),(^3) $894 $1,636 $903 $1,717
*La Yaqui Grande Mine*
*Open Pit Operations*
Tonnes of ore mined - open pit ^(4) 996,117 343,884 2,029,060 496,818
Total waste mined - open pit ^(6) 5,603,937 6,260,883 11,434,752 12,142,114
Total tonnes mined - open pit 6,600,053 6,604,767 13,463,812 12,638,932
Waste-to-ore ratio (operating) 5.00 4.00 5.00 4.00
*Crushing and Heap Leach Operations*
Tonnes of ore stacked 1,013,932 333,166 2,033,567 333,166
Average grade of gold processed ^(5) 1.52 1.57 1.54 1.57
Contained ounces stacked 49,552 16,777 100,474 16,777
Average recovery rate 87 % 30 % 81 % 30 %
Ore crushed per day (tonnes) 11,000 5,500 11,200 5,500
*Mulatos Mine*
*Open Pit Operations*
Tonnes of ore mined - open pit^ (4) 1,167,727 1,227,625 2,169,512 1,841,438
Total waste mined - open pit ^(6) 566,761 1,691,474 1,178,516 3,664,026
Total tonnes mined - open pit 1,734,488 2,919,099 3,348,027 5,505,464
Waste-to-ore ratio (operating) 0.49 1.38 0.54 1.45
*Crushing and Heap Leach Operations*
Tonnes of ore stacked 1,417,645 1,526,771 2,646,721 3,268,254
Average grade of gold processed ^(5) 1.10 0.68 1.02 0.70
Contained ounces stacked 49,911 33,197 86,452 74,049
Average recovery rate 35 % 46 % 34 % 51 %
Ore crushed per day (tonnes) 15,600 16,800 14,600 18,100
[^(1)* *Cost of sales includes mining and processing costs, royalties, and amortization expense. ]
[^(2) Refer to the “Non-GAAP Measures and Additional GAAP Measures” disclosure at the end of this press release and associated MD&A for a description and calculation of these measures. ]
[^(3) For the purposes of calculating mine-site all-in sustaining costs, the Company does not include an allocation of corporate and administrative and share based compensation expenses. ]
[^(4) Includes ore stockpiled during the quarter. ]
[^(5) Grams per tonne of gold ("g/t Au").]
[^(6) Total waste mined includes operating waste and capitalized stripping.]
Mulatos District Operational Review
The Mulatos District produced 60,300 ounces in the second quarter, 19% higher than the first quarter of 2023, and nearly 200% higher than the prior year period, reflecting low-cost production growth from La Yaqui Grande. For the first six months of 2023, the Mulatos District produced 110,800 ounces, including 81,400 ounces from La Yaqui Grande. As previously guided, production rates are expected to decrease in the second half of the year reflecting the depletion of the main Mulatos open pit, as well as a decrease in stacking rates and grades at La Yaqui Grande to levels consistent with full year guidance. Given the strong start to the year, the Mulatos District is well positioned to achieve full year guidance.
La Yaqui Grande Operational Review
La Yaqui Grande produced 43,000 ounces in the second quarter, a 12% increase from the first quarter of 2023. Mining and stacking rates were both consistent with the first quarter of 2023, and above full year guidance. Stacking rates exceeded design rates, averaging 11,100 tpd in the quarter. With the start of the rainy season in Mexico, stacking rates are expected to return to design rates of 10,000 tpd in the third quarter and on an ongoing basis. Grades stacked on the leach pad averaged 1.52 g/t Au, above annual guidance of 1.15 to 1.45 g/t Au due to positive grade reconciliation. Grades stacked are expected to decrease in the second half of the year to be consistent with full year guidance. The recovery rate was 87% in the quarter and 81% through the first half of the year, in line with annual guidance.
Mulatos Operational Review
Mulatos produced 17,300 ounces in the second quarter, an increase from the first quarter of 2023, reflecting higher stacking rates and grades stacked. Total crusher throughput averaged 15,600 tpd, with a total of 1,417,645 tonnes stacked at a grade of 1.10 g/t Au, including stockpiles. Mining activities are expected to decrease in the third quarter with mining in the El Salto portion of the pit to be completed in July. Stockpiles will continue to be stacked at declining rates into the fourth quarter. Recovery rates of 35% were similar to the first quarter and reflect higher levels of stockpiled ore stacked with longer leach cycles.
Financial Review (Mulatos District)
Revenues of $118.9 million in the second quarter were more than triple the prior year period reflecting the strong contribution from La Yaqui Grande which commenced operations in mid-2022. Similarly, revenues of $220.2 million through the first half of 2023, were higher than the prior year as a result of more ounces sold and a higher realized gold price.
Cost of sales of $70.9 million in the second quarter were higher than in the comparative period, driven by a full quarter of production from La Yaqui Grande. The comparative period was also impacted by an adjustment related to the Mulatos leach pad inventory totaling $22.3 million. For the first half of 2023, cost of sales of $133.3 million were higher than the comparable period for similarly noted reasons.
Total cash costs for the Mulatos District of $847 per ounce were below annual guidance, driven by higher grades mined from La Yaqui Grande. Mine-site AISC for the Mulatos District of $894 per ounce were also below annual guidance and down 45% from the prior year period. Total cash costs and mine-site AISC for the Mulatos District are expected to increase in the second half of the year, bringing full year costs in-line with annual guidance. This reflects the end of mining from El Salto in July and a decrease in grades and stacking rates at La Yaqui Grande to levels consistent with annual guidance.
Capital expenditures totaled $6.5 million in the second quarter, a significant decrease from the prior year period reflecting the completion of construction of La Yaqui Grande in June 2022. Second quarter capital expenditures included sustaining capital expenditures of $1.3 million, and capitalized exploration of $2.8 million. For the first half of the year, capital spending totaled $12.2 million, consistent with annual guidance.
The Mulatos District generated mine-site free cash flow of $47.0 million in the second quarter, a 28% increase from the first quarter of 2023 and the highest quarterly free cash flow in more than ten years. Through the first half of the year, the operation has generated $83.8 million of mine-site free cash flow with the strong performance driven by low-cost production growth from La Yaqui Grande. The Mulatos District is expected to continue generating strong ongoing free cash flow in the second half of the year, at lower quarterly levels reflecting the above noted lower grades at La Yaqui Grande. In addition, cash taxes of $3 to $5 million per quarter are expected in the second half of the year, resulting from the increased profitability of the operation.
*Second** Quarter **2023** Development Activities*
*Island Gold (Ontario, Canada)*
Phase 3+ Expansion
On June 28, 2022, the Company reported results of the Phase 3+ Expansion Study (“P3+ Expansion Study”) conducted on its Island Gold mine, located in Ontario, Canada.
The Phase 3+ Expansion to 2,400 tpd from the current rate of 1,200 tpd will involve various infrastructure investments. These include the installation of a shaft, paste plant, expansion of the mill as well as accelerated development to support the higher mining rates. Following the completion of the expansion in 2026, the operation will transition from trucking ore and waste up the ramp to skipping ore and waste to surface through the new shaft infrastructure, driving production higher and costs significantly lower.
Construction continued to advance through the second quarter of 2023, with the focus on shaft site surface infrastructure, including the hoist installation and headframe erection. Shaft surface construction will continue through the remainder of the year, with shaft sinking commencing in the fourth quarter. Further details on progress to the end of the second quarter are summarized below:
· Completion of the 44kV powerline from the existing Island Gold Mine substation to the shaft area substation location
· Completed major mechanical components installation for Service & Production Hoists
· Completed over 90% of major buried services required to start shaft sinking
· Constructed crane runway pad and commenced erection of the headframe structural steel
· Lowered the Galloway into the shaft pre-sink to support sinking
· Assembly and installation of the pre-fabricated E-house building modules
· Paste plant detailed engineering was 50% complete; issuance of long lead time equipment procurement packages ongoing
· Mill expansion basic engineering was 50% complete, with overall engineering being 20% complete; issuance of long lead time equipment procurement packages ongoing
· Lateral development to support higher mining rates with the Phase 3+ Expansion remains ongoingDuring the second quarter of 2023, the Company spent $40.7 million, related to the Phase 3+ Expansion and capital development. To the end of June, 36% of the total initial growth capital of $756 million has been spent and committed on the project. This includes progress as follows:
(in US$M)
Growth capital (including indirects and contingency) *P3+ 2400 *
*Study*^*1**
* *Spent to date**
* *Committed to date**
* *% of Spent & Committed*
Shaft & Shaft Surface Complex 229 97 66 71 %
Mill Expansion 76 2 1 4 %
Paste Plant 52 1 1 4 %
Power Upgrade 24 2 3 21 %
Effluent Treatment Plant 16 — — —
General Indirect Costs 64 23 3 41 %
Contingency 55 —
Total Growth Capital $516 $125 $74 39 %
Underground Equipment & Infrastructure 79 17 — 22 %
Accelerated Capital Development 162 53 — 33 %
Total Growth Capital (including Accelerated Spend) $756 $195 $74 36 %
[^(1) Phase 3+ 2400 Study is as of January 2022. Phase 3+ capital estimate based on USD/CAD exchange $0.78:1. Spent and Committed to date based on average USD/CAD of $0.76:1 since the start of 2022.]Growth capital spending at Island Gold on the Phase 3+ Expansion is expected to be between $165 and $185 million in 2023. Capital spending is expected to remain at similar levels in 2024 and 2025 and then drop considerably in 2026 once the expansion is complete.
*Shaft site area - July 2023*
*Hoist house interior and drums - July 2023*
*Lynn Lake (Manitoba, Canada) *
The Company released a positive Feasibility Study on the Lynn Lake project in December 2017, outlining average annual production of 143,000 ounces over a 10-year mine life at average mine-site AISC of $745 per ounce. The Company is in the final stages of completing an updated Feasibility Study, which is expected to be released in August 2023. The Company expects this to outline another attractive, low-cost, long-life growth project in Canada with significant exploration upside.
In March, the Company achieved a significant permitting milestone for the Lynn Lake project with a positive Decision Statement issued by the Ministry of Environment and Climate Change Canada based on the completed Federal Environmental Impact Statement, and Environment Act Licenses issued by the Province of Manitoba. During the quarter the Company finalized an Impact Benefit Agreement and participated in a signing ceremony with Marcel Colomb First Nation, the most proximate First Nation to the project. The Mathias Colomb Cree Nation has brought an application for judicial review of the Decision Statement issued by the Ministry of Environment and Climate Change and an internal appeal of the Environment Act Licenses issued by the Province of Manitoba. At this time, the application and appeal are not expected to impact overall Lynn Lake project timelines.
As part of the Company's balanced approach to growth and capital allocation, no significant capital is expected to be spent on the development of Lynn Lake until the Phase 3+ Expansion at Island Gold is well underway.
Development spending (excluding exploration) was $2.7 million in the second quarter of 2023 on engineering to support the updated Feasibility Study.
*Kirazlı (Çanakkale, Türkiye)*
On October 14, 2019, the Company suspended all construction activities on its Kirazlı project following the Turkish government's failure to grant a routine renewal of the Company’s mining licenses, despite the Company having met all legal and regulatory requirements for their renewal. In October 2020, the Turkish government refused the renewal of the Company’s Forestry Permit. The Company had been granted approval of all permits required to construct Kirazlı including the Environmental Impact Assessment approval, Forestry Permit, and GSM (Business Opening and Operation) permit, and certain key permits for the nearby Ağı Dağı and Çamyurt Gold Mines. These permits were granted by the Turkish government after the project earned the support of the local communities and passed an extensive multi-year environmental review and community consultation process.
On April 20, 2021, the Company announced that its Netherlands wholly-owned subsidiaries Alamos Gold Holdings Coöperatief U.A, and Alamos Gold Holdings B.V. (the “Subsidiaries”) would be filing an investment treaty claim against the Republic of Türkiye for expropriation and unfair and inequitable treatment. The claim was filed under the Netherlands-Türkiye Bilateral Investment Treaty (the “Treaty”). Alamos Gold Holdings Coöperatief U.A. and Alamos Gold Holdings B.V. had its claim against the Republic of Türkiye registered on June 7, 2021 with the International Centre for Settlement of Investment Disputes (World Bank Group).
Bilateral investment treaties are agreements between countries to assist with the protection of investments. The Treaty establishes legal protections for investment between Türkiye and the Netherlands. The Subsidiaries directly own and control the Company’s Turkish assets. The Subsidiaries invoking their rights pursuant to the Treaty does not mean that they relinquish their rights to the Turkish project, or otherwise cease the Turkish operations. The Company will continue to work towards a constructive resolution with the Republic of Türkiye.
The Company incurred $0.3 million in the second quarter related to ongoing holding costs and legal costs to progress the Treaty claim, which was expensed.
*Second Quarter 2023 Exploration Activities*
*Island Gold (Ontario, Canada)*
A total of $14 million has been budgeted primarily for underground exploration at Island Gold in 2023. For the past several years, the exploration focus has been on adding high-grade Mineral Resources at depth in advance of the Phase 3+ Expansion Study, primarily through surface directional drilling. This exploration strategy has been successful in nearly tripling the Mineral Reserve and Resource base since 2017 to over five million ounces of gold. With an 18-year mine life, and with work on the expansion ramping up, the focus has shifted to a more cost-effective expanded underground drilling program that will leverage existing underground infrastructure. This drilling is much lower cost on a per metre basis, is less technically challenging, and requires significantly fewer metres per exploration target.
The underground exploration drilling program has been expanded from 27,500 metres ("m") in 2022 to 45,000 m in 2023. The program is focused on defining new Mineral Reserves and Resources in proximity to existing production horizons and infrastructure including along strike, and in the hanging-wall and footwall. These potential high-grade Mineral Reserve and Resource additions would be low cost to develop and could be incorporated into the mine plan and mined within the next several years, further increasing the value of the operation. To support the underground exploration drilling program, 444 m of underground exploration drift development is planned to extend drill platforms on the 490, 790, 945, and 980-levels. In addition to the exploration budget, 36,000 m of underground delineation drilling has been planned and included in sustaining capital for Island Gold.
A regional exploration program including 7,500 m of drilling is also budgeted in 2023. The focus will be on evaluating and advancing exploration targets outside the Island Gold Deposit on the 55,300 ha Island Gold property. A total of 3,630 m of surface regional drilling in 26 holes was completed in the second quarter. This drilling has focused on the Pine-Breccia target where visible gold has been intersected with assays pending (2,174 m in 22 holes), and at two early-stage targets (1,456 m in 4 holes).
A total of 16,943 m of underground exploration drilling was also completed in the second quarter in 66 holes. The objective of the underground drilling is to identify new Mineral Resources close to existing Mineral Resource or Reserve blocks. In addition to underground exploration drilling, a total of 4,408 m of underground delineation drilling was completed in 22 holes, focused on infill drilling to convert Mineral Resources to Mineral Reserves. Through the first half of 2023, 95 holes totaling 23,835 m have been completed as part of the underground exploration program, and 45 holes totaling 7,827 m as part of the underground delineation drilling program. A total of 77 m of underground exploration drift development was also completed during the second quarter.
As announced in the June 15, 2023 press release, the 2023 program has been successful in further extending high-grade gold mineralization across the Island Gold Deposit. This included multiple significant high-grade intercepts within several recently defined hanging wall and footwall structures in proximity to existing underground infrastructure with previously reported highlights as follows:
· Island West: high-grade mineralization extended outside of Mineral Reserves and Resources within the main C-Zone. The C and E1E-Zones are the main structures which host the majority of currently defined Mineral Reserves and Resources at Island Gold.
· 146.33 g/t Au (37.19 g/t cut) over 2.20 m (580-473-22); and
· 38.92 g/t Au (38.92 g/t cut) over 2.10 m (790-479-16).
· Island West Hanging Wall Zones: high-grade gold mineralization intersected within sub-parallel zones in the hanging wall, and within a newly defined perpendicular structure, the “NS1” Zone. Multiple sub-parallel and perpendicular hanging wall zones have been defined over the past year in proximity of existing underground infrastructure and represent a significant opportunity to add near mine Mineral Reserves and Resources.
· NS1 Zone
· 89.31 g/t Au (7.73 g/t cut) over 2.40 m (770-466-03);
· 25.57 g/t Au (5.68 g/t cut) over 2.50 m (770-466-07);
· 42.27 g/t Au (7.43 g/t cut) over 2.30 m (580-473-26);
· 16.06 g/t Au (6.95 g/t cut) over 2.80 m (770-466-02); and
· 14.50 g/t Au (10.08 g/t cut) over 3.10 m (580-473-25).
· G1 Zone
· 60.03 g/t Au (25.70 g/t cut) over 2.50 m (790-479-13); and
· 11.13 g/t Au (6.82 g/t cut) over 2.20 m (850-471-01B).
· Island West Footwall Zones: high-grade gold mineralization intersected within newly defined sub-parallel structure the “DN” zone.
· 22.34 g/t Au (22.34 g/t cut) over 2.90 m (790-479-04).
· Island East: high-grade mineralization extended outside of Mineral Reserves and Resources in the main E1E-Zone.
· 104.48 g/t Au (50.76 g/t cut) over 3.10 m (840-608-49);
· 40.54 g/t Au (33.33 g/t cut) over 2.50 m (840-608-43); and
· 11.93 g/t Au (11.93 g/t cut) over 4.20 m (840-632-17).
· Island East Footwall Zones: high-grade gold mineralization intersected within sub-parallel zones in the footwall (NTH2, NTH3) in proximity to existing underground infrastructure.
· NTH2 Zone
· 44.48 g/t Au (9.71 g/t cut) over 3.10 m (620-629-03); and
· 17.91 g/t Au (5.34 g/t cut) over 2.10 m (620-629-01).
· NTH3 Zone
· 12.34 g/t Au (7.65 g/t cut) over 3.30 m (840-554-44);
· 16.86 g/t Au (11.40 g/t cut) over 2.30 m (840-554-60);
· 13.21 g/t Au (13.21 g/t cut) over 2.70 m (840-554-04); and
· 11.02 g/t Au (7.29 g/t cut) over 2.30 m (840-566-08).
Note: All reported drill widths are true width of the mineralized zones, unless otherwise stated. Drillhole composite intervals reported as “cut” may include higher grade samples which have been cut to: C-zone @ 225 g/t Au; E1E Zone @ 185 g/t Au. B Zone @ 90 g/t Au; D1 and G1 Zones @ 45 g/t Au; G Zone @ 70 g/t Au; E1D @ 80g/t Au; DN, NS1, NTH1, NTH2, NTH3 @ 35 g/t Au.
Total exploration expenditures during the second quarter were $4.2 million, of which $3.0 million was capitalized. In the first half of 2023, the Company incurred exploration expenditures of $7.0 million, of which $5.4 million was capitalized.
*Young-Davidson (Ontario, Canada) *
A total of $8 million has been budgeted for exploration at Young-Davidson in 2023, up from $5 million in 2022. The 2023 program includes 21,600 m of underground exploration drilling, and 400 m of underground exploration development to extend drill platforms on the 9220, 9270, and 9590-levels.
The focus of the underground exploration drilling program will be to expand Mineral Reserves and Resources in five target areas in proximity to existing underground infrastructure. This includes targeting additional gold mineralization within the syenite which hosts the majority of Mineral Reserves and Resources, as well as within the hanging wall and footwall of the deposit where higher grades have been previously intersected.
During the second quarter of 2023, two underground exploration drills completed 6,065 m in 14 holes from the 9220 West exploration drift. Drilling is targeting syenite-hosted mineralization as well as continuing to test mineralization in the footwall sediments and in the hanging wall mafic-ultramafic stratigraphy. During the first half of 2023, a total of 11,696 m was completed in 27 holes.
In addition, 5,000 m of surface drilling is planned to test near-surface targets across the 5,900 ha Young-Davidson property. A total of 3,684 m of surface drilling in 16 holes was completed in the second quarter focused on the MCM-target area, immediately east and adjacent to the Young Davidson deposit.
A total of 87 m of underground exploration drift development was completed in the second quarter to extend drill platforms on the 9620 and 9220 levels.
Total exploration expenditures during the second quarter were $2.3 million of which $1.2 million was capitalized. For the first half of 2023, exploration spending totaled $4.1 million of which $2.6 million was capitalized.
*Mulatos District (Sonora, Mexico)*
The Company has a large exploration package covering 28,972 ha with the majority of past exploration efforts focused around the Mulatos mine. For 2023, a total of $21 million has been budgeted for exploration, three times larger than the $7 million budget in 2022. This includes 35,000 m of surface exploration drilling focused on continuing to expand Mineral Reserves and Resources at PDA, a higher-grade underground deposit, adjacent to the main Mulatos pit. Additionally, the regional exploration budget has doubled to 34,000 m with the focus on several high priority targets including Refugio, Capulin, Halcon West, Carricito, Bajios, and Cerro Pelon West.
During the second quarter of 2023, exploration activities continued at PDA and the near-mine area with 17,581 m of drilling completed in 59 holes. Exploration drilling at PDA has been extremely successful with Mineral Reserves increasing 70% in 2022 to 728,000 ounces (4.7mt grading 4.84 g/t Au) with grades also increasing 4% as of the end of 2022. Ongoing exploration results will be incorporated into an updated development plan which is expected to be completed in the fourth quarter of 2023.
The regional program included 8,741 m of drilling completed in 33 drill holes. At the Capulin target, 4,293 m in nin