Issue link: http://resourceworld.uberflip.com/i/1099276
16 www.resourceworld.com A P R I L / M A Y 2 0 1 9 ALAMOS GOLD within the district. The first of these was the Escondida high-grade zone that we found about 600 metres outside the pit where we were mining. By the time we had finished per - mitting and engineering it, the pit had grown to a point where we were able to incorporate the Escondida Zone within the main Mulatos pit. Escondida graded 10 grams per tonne and produced around 50,000 ounces a year for a little over two years. It was a real kick in revenue with such profitable ore to open pit mine. We also found the La Yaqui Grande deposit in 2015 containing roughly 700,000 ounces. RW: Where is that located? JM: It's about nine kilometres from the main Mulatos pit where we started operations. RW: You seem interested in finding and developing satellite deposits such as Cerro Pelon near the Mulatos Mine, so when you acquired Mulatos or some other projects, did you have satellite deposits in mind? Did you know there was that kind of potential nearby? JM: Yes, we absolutely knew that. You could see all the exposed alteration throughout the district. The first time we visited Mulatos, we did a big circle in the aircraft flying over the district and you could see these big dome-like structures and all the silica alteration. It was obvious that this was a district with incredible potential. Even though we owned substantial mineral rights, it took us years to do deals with ranchers and the local ejidos (landowners) in order to access the surface rights and undertake exploration. So for the longest time, we had to stay focused on one particular 1,500-hect - are area of the property and that's where we found a huge amount of the gold. We found the El Victor deposit there, the Escondida high-grade deposit, and the San Carlos deposit which we mined under - ground. It was only after 2015 that we had a real breakthrough and started to make deals with the ranchers and ultimately a new agreement with the ejidotarios that allowed us to explore throughout the dis - trict on the ejido lands. For us, that was an amazing breakthrough. We've made two discoveries since that time. RW: You already have several advanced exploration projects in Manitoba, Mexico, Oregon and Turkey. Is that enough for now or are you still on the lookout for more acquisitions? JM: For the time being, we've got a tremendous amount of potential growth within our project development pipe- line. What we're really focused on now is investing capital in expanding and improving our existing operations. Outside of that, the main focus is construc- tion of our Kirazli Project in Turkey where we recently received our operating permit. It took some time to permit that project after the initial environmental permit, which alone took years to obtain because of all the lengthy baseline studies and so forth. Following that, we had to get the forestry permit. Then we needed what's called the GSM permit from the provincial Turkish government. Finally, we needed the operating permit from the Ministry of Energy, Mines and Resources. From start to finish it took four years. Now we're ready to build. RW: Alamos had quite a financial turn- around from a $17.9 million loss in 2016 to a $26.6 million profit in 2017. Can you explain that? JM: It was driven by improving opera- tions at the Young-Davidson Mine in Ontario and the Mulatos Mine along with better gold prices. That would explain the bulk of it, but the more exciting story is the one that's currently unfolding. We're spending a lot of money on capital investments to expand operations and on construction of the new Kirazli and Cerro Pelon mines. What that will mean to free cash flow will be dramatic. We'll be finished the con - struction on the lower development of the Young-Davidson Mine at the end of this year. It will take us through the first quar- ter and into the second quarter of 2020 to tie the upper mine and the lower mine together. But after that's done, we've essen- tially set up that mine to produce $100 million in free cash flow for the next 15 years at today's gold price. We're bringing on the Kirazli Project in the second half of 2020. All-in sustaining costs there are expected to be around $400 per ounce, so at a $1,300 gold price, that mine is going to generate phenomenal cash flows. At cur - rent gold prices, it should generate in the neighbourhood of a $100 million in free cash flow annually in each of its first three years. At our Island Gold Mine near Wawa, Ontario, we are also undertaking an expan - sion. It was a 900 tonne-per-day operation at 9 grams gold/tonne when we acquired it in 2017. Now we're mining 10.5 grams and we've expanded it to 1,200 tonnes-per- day. So we're really driving an increase in production and a decrease in costs through economies of scale at Island Gold as well. RW: Do you have a start-up date for the Esperanza and Cerro Pelon mines in Mexico? JM: Cerro Pelon is permitted, in con- struction, and will start producing gold in the first half of 2020. We don't have a construction time table for the Esperanza Project. We're still working on the environmental baseline as well as archaeo - logical studies because we're fairly close to some archaeological sites. That was also the case for one of our projects in the Mulatos district. We are working closely with the Archaeological Institute of Mexico at Esperanza to preserve some important archaeological artefacts. I think our work in Sonora earned their respect and laid the ground work for what we will be able to do at Esperanza. In any case, the project is at least three years away from development. RW: There is already a feasibility study for Lynn Lake, Manitoba, so what are you doing there now? JM: The feasibility study, completed just over a year ago, unfortunately, had a low internal rate of return. It was a little more than 12.5% and we wouldn't build a proj- ect with a low IRR like that. So we've been working on value engineering and putting together a better project plan, particularly with a view to lowering capital costs.