Issue link: http://resourceworld.uberflip.com/i/1099276
A P R I L / M A Y 2 0 1 9 www.resourceworld.com 17 The intention is to drive the IRR up nearer to 20% before we build. We're making excellent progress and one of the things that is driving it is the grassroots exploration work that we've been doing there. We've managed to increase the reserve in the past year within proximity of the existing deposits; so far from they've climbed from 1.6 million to 1.9 million ounces. That's had a positive effect on the economics of the project but there's still quite a bit of additional work to be done to bring down capital costs to the point where we get the return high enough. When we get it to where we are comfort - able making the investment we will make a construction decision. RW: What are the current develop- ments at the Young-Davidson Mine? JM: Young-Davidson was originally a project of Northgate Minerals. When we acquired Young-Davidson in 2015, the mine was operating at roughly 5,000 tonnes per day from what the previous operators called the mid-mine level. It's about 700–750 metres below surface. The full extent of reserves go down beyond 1,500 metres in depth. It was the objective of Northgate from the beginning to build all the infrastructure required to mine out the deposit from the 1,500-metre level. Except to do so, especially for a com - pany the size of Northgate, it would have required too much time and capital, so they undertook to establish mining opera- tions at the half-way mark in order to generate cash flow from those reserves and then use the cash flow to build out the rest of the mine. That would have prob- ably worked well if the gold price had maintained the $1,500 to $1,800 an ounce range. Unfortunately, that didn't happen. Northgate was subsequently taken out by AuRico by the time we came along. It was pretty clear that in that depressed gold price environment the very strong Alamos treasury – close to $400 million cash and no debt – was exactly the antidote for the situ - ation that AuRico found itself in at the time, with a world-class asset at Young-Davidson. So we put the two companies together and suddenly the combined company had the balance sheet to get the job done. Within 18 months, the mine was already paying for all its own sustaining capex and all its growth capex. Combined, that would be about $90 million annually and additionally, by 2016 it started giving back free cash flow to the treasury. In 2017, it generated $34 million in free cash flow. Last year, it generated about $12 million in free cash flow. In paying for sustaining and growth capital and returning free cash flow from operations the mine is doing everything that was envisioned in the original plan. It just took a bit longer to get there and a merger to provide the financial strength to get it over the line. Now we're at the point where the last portion of capital to get that infrastructure completed is being spent and we'll effectively have the build out completed by 2020. Then we work on the tie-in. Once we've tied the upper and lower mine together, it's set to go. RW: What is it like working in Turkey? JM: Exploring in Turkey is an absolute dream. The climate in western Turkey where we are working is one of the most beautiful climates that I've come across – typical Mediterranean. Infrastructure is excellent. There are good roads and we have a location in a local town with offices and accommodations for 25 people. You can drive right there on good roads. We are in Etili village, which is within about 15 kilometres of where we're exploring, so conditions couldn't be more ideal. The Turkish people are wonderful, hos - pitable and generous. The people that we employ are highly educated and capable. Turkey produces among the best geologists and mining engineers in our industry. RW: What about the civil unrest and the Syrian border? Are prospective areas in the country far removed from the politi- cal unrest? JM: There's a fair amount of unrest in Syria but not so in Turkey. The outcome of the war in Syria has seen a huge influx of refugees coming into Turkey. Turkey has been looking after over 3 million refugees for close to six years. I imagine it's a huge strain on their economy but they don't turn anyone away. The region where we're operating is unaffected by civil unrest. RW: Your proven and probable reserves were up 67% between 2015 and 2017. You must look for acquisitions with built-in expansion potential. Is that correct? JM: That is very much the case. In fact, when we were a single-mine company in 2014, we recognized the market was in a downturn and this was the time to grow. That year we had about 140,000 ounces of production, our reserves were down to about 1.7 million ounces. At this point we undertook to grow and create a mid-tier company. Five years later we've gone from 1.7 million ounces to just under 10 million ounces of reserves and annual production has grown from roughly 140,000 ounces to 506,000 ounces. That growth makes us the second fastest growing mining company in the world. That result is the product of a successful M&A strategy and investment in organic growth. RW: One of the photographs on your website shows a large greenhouse struc- ture with hundreds of plants. Where is this operation? JM: It was taken at Mulatos. One of the things we undertook at the start of opera- tions was to reclaim as we went along and not leave reclamation for the end of mine life. We undertook a substantial reclama- tion project after our first year of operation and have continued this practice. We noticed early on that if we tried to bring plants in from outside the district, they didn't do well. We realized that we needed to harvest the seeds and cuttings from the plants that were growing in the district, grow them from seed, and then replant them. There are quite a number of relatively rare plant species in the area and what we've been able to do is establish our own greenhouse operation on site, cultivate these plants and improve the biodiversity of the region. This is an ongoing process, not only reclaiming areas of direct distur - bance, but going beyond that in an effort to improve the biodiversity adjacent to our operations. n ALAMOS GOLD