Alamos Reports Second Quarter 2018 Results

Globe Newswire 1-Aug-2018 6:04 PM

TORONTO, Aug. 01, 2018 (GLOBE NEWSWIRE) -- Alamos Gold Inc. (TSX:AGI, NYSE:AGI) ("Alamos" or the "Company") today reported its financial results for the second quarter ended June 30, 2018 and reviewed its operating, exploration and development activities.

"With near record production in the second quarter, we came in slightly ahead of expectations and remain well positioned to achieve full year guidance. This reflected another strong outperformance from Mulatos and Island Gold, with production guidance for both mines increased for the second consecutive quarter," said John A. McCluskey, President and Chief Executive Officer. 

"We're also making excellent progress on the exploration and development fronts.  At Island Gold, the mill expansion is nearing completion and ongoing exploration success continues to demonstrate further resource growth. We also achieved a major breakthrough at Kirazli, securing the GSM permit allowing for the start of full scale construction. With a strong cash position, no debt, and growing cash flow from operations, we are well positioned to fund this growth and continue to deliver shareholder value."

Second Quarter 2018 Highlights

• Produced 126,500 ounces of gold, ahead of guidance of 125,000 ounces and 19% higher than the second quarter of 2017
• Increased production guidance at Island Gold for the second time this year to a range of between 100,000 to 110,000 ounces, an 11% increase from original guidance (based on the mid-point of guidance)
• Increased production guidance at Mulatos for the second time this year to a range of between 170,000 to 180,000 ounces, a 13% increase from original guidance (based on the mid-point of guidance)
• Maintained 2018 Company-wide production guidance of 490,000 to 530,000 ounces of gold, with increased guidance at both Mulatos and Island Gold offset by decreased guidance at Young-Davidson. Company-wide all-in sustaining cost guidance for the year has been maintained at $950 per ounce with lower costs anticipated in the second half of 2018
• Sold 129,272 ounces of gold at an average realized price of $1,307 per ounce for revenues of $168.9 million. Cost of sales of $1,160 per ounce, total cash costs¹ of $832 per ounce and all-in sustaining costs ("AISC")¹ of $996 per ounce were all higher than full year guidance as a result of lower production from Young-Davidson in the quarter
• Reported adjusted net earnings¹ of $4.9 million or $0.01 per share¹, reflecting adjustments for unrealized foreign exchange losses recorded within both deferred taxes and foreign exchange of $15.3 million, as well as other one-time items
• Realized a net loss of $8.9 million, or $0.02 per share
• Generated cash flow from operating activities of $62.5 million ($54.7 million or $0.14 per share, before changes in working capital¹), reflecting strong quarterly gold production. In addition, the Company generated $22.4 million in mine-site free cash flow¹, and $9.1 million of company-wide free-cash flow¹ in the quarter, both ahead of budget
• Increased cash and cash equivalents to $235.1 million up from $231.8 million as of March 31, 2018. The Company remains debt free
• Paid a semi-annual dividend of $0.01 per share, or $3.9 million, to shareholders on April 30, 2018
• As outlined in May, recent exploration results at Island Gold continue to exceed expectations with a significant increase in Mineral Resources anticipated. The Company will be providing an interim Mineral Reserve and Resource update for Island Gold in the third quarter
  
• Subsequent to quarter-end, announced the receipt of the GSM (Business Opening and Operation) permit and commencement of full construction activities at the Kirazli project in Turkey

⁽¹⁾ Refer to the "Non-GAAP Measures and Additional GAAP Measures" disclosure at the end of this press release for a description and calculation of these measures.

⁽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⁾ Includes capitalized exploration at all operating sites and development projects.
⁽³⁾ 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. 
⁽⁴⁾ Cost of sales includes mining and processing costs, royalties, and amortization expense, and is calculated based on the mid-point of guidance.
⁽⁵⁾ Capital guidance at Kirazli reduced to $50-60 million from the original budget of $100 million.  
⁽⁶⁾ Company-wide total cash costs, and all-in sustaining costs guidance remains unchanged. The Company has not revised guidance for total cash costs, and mine-site all-in sustaining costs at individual mine sites.

The Company continues to deliver on its strategic objectives of increasing cash flow from operations while advancing its portfolio of low-cost development projects. Gold production in the second quarter of 126,500 ounces exceeded guidance and increased 19% from the second quarter of 2017. Given the strong performance in the first half of the year, the Company is well positioned to achieve its previously increased full year production guidance of 490,000 to 530,000 ounces.

Company-wide production guidance has been maintained, with increased production guidance at both Island Gold and Mulatos offsetting a reduction at Young-Davidson. Global all-in sustaining cost guidance of $950 per ounce has been maintained with lower than guided costs at Island Gold and Mulatos expected to offset higher costs at Young-Davidson for the full year. Costs are expected to trend lower in the second half of 2018.

Gold production in the third quarter is expected to range between 120,000 and 125,000 ounces at lower all-in sustaining costs than in the second quarter. Fourth quarter gold production is expected to increase reflecting the completion of the mill expansion at Island Gold and higher production at Young-Davidson.

Young-Davidson produced 39,100 ounces in the second quarter. This result was below expectations reflecting eight days of downtime of the Northgate hoist and eleven days of downtime in the mill. As a result of the unplanned downtime for maintenance of both the Northgate hoist and the mill, as well as lower than budgeted throughput in the first half of the year, the Company is revising production guidance for Young-Davidson to a range of between 180,000 and 190,000 ounces. With the maintenance completed in late June, both the Northgate hoist and mill were fully operational in early July which is expected to drive stronger underground mining and milling rates in the second half of 2018. This, combined with higher underground grades, is expected to drive stronger production and lower costs in the second half of 2018.

Island Gold exceeded budget again in the second quarter, producing 26,700 ounces and bringing first half production to 54,800 ounces. Given the outperformance in both the first and second quarters, the Company is raising 2018 production guidance at Island Gold for the second time this year to a range of between 100,000 and 110,000 ounces, an 11% increase from original guidance (based on the mid-point). The Phase I expansion of the Island Gold mill to 1,100 tpd remains on track and is expected to be completed in September. This is anticipated to drive stronger production and lower costs in 2019 and beyond. Accordingly, the Company expects significant free cash flow growth in 2019.

In parallel to the Phase I mill expansion, the Company is pursuing an aggressive exploration program at Island Gold which has been successful in driving nearly a 400% increase in Mineral Reserves and a 60% increase in the Mineral Reserve grade since 2014.  As reported in May, the 2018 exploration program has continued to extend high-grade gold mineralization along-strike and down-plunge from existing Mineral Reserves and Resources across three main areas of focus.

Exploration results at Island Gold continue to exceed expectations with a significant increase in Mineral Resources anticipated. The Company will be providing an interim Mineral Reserve and Resource update for Island Gold in the third quarter. Ongoing exploration success will be incorporated into an evaluation of the most effective and economic approach to a Phase II expansion of the operation beyond 1,100 tpd.

Total production from the Mulatos district (including La Yaqui Phase I) increased to 50,600 ounces in the second quarter, again exceeding budget and bringing first half production to 96,600 ounces.  As a result of continued strong performance from the heap leach pad and extended production from underground at San Carlos, Mulatos is now expected to produce between 170,000 to 180,000 ounces in 2018, a 13% increase from the mid-point of original guidance. With mill production winding down in the third quarter of 2018, the Company expects 2019 production to return to the previously guided range of 150,000 to 160,000 ounces per year, reflecting the end of production from San Carlos.

El Chanate produced 10,100 ounces in the second quarter and is expected to produce 40,000 to 50,000 ounces for the full year. This is down from 2017 reflecting lower mining rates with mining activities expected to cease early in the fourth quarter. Given the long leach cycle at El Chanate, the Company expects to benefit from ongoing gold production beyond 2018 through residual leaching. This will be lower cost and higher margin production, with mining activities completed, and is expected to drive higher mine-site free cash flow from the operation.

The Company expects combined annual gold production of at least 500,000 ounces from its existing operations in 2019 and 2020 with low cost production growth from Island Gold replacing production from El Chanate. Consolidated all-in sustaining costs are expected to decrease in 2019 reflecting the completion of the Phase I expansion at Island Gold and the end of the 5% royalty at Mulatos, with a further decline expected in 2020 reflecting higher underground mining rates at Young-Davidson. Increased production combined with declining operating costs is expected to result in strong free cash flow growth over the next three years.

On July 25, 2018, the Company was granted the GSM (Business Opening and Operation) permit required for the construction of its Kirazli project.  To date, construction has been focused on the surrounding infrastructure projects; however, with receipt of the GSM, full-scale construction activities will commence over the next two months. The Company has estimated spending for the remainder of the year of between $40 to $50 million, bringing total 2018 capital spending to between $50 and $60 million. The remainder of the $152 million initial capital budget for Kirazli is expected to be spent in 2019 and the first half of 2020, with first production expected in the second half of 2020.

In addition to capital spending in Turkey, a total of $46 million is budgeted for development at Cerro Pelon, La Yaqui Grande and Lynn Lake as well as capitalized exploration at all sites. The total exploration budget of $36 million is primarily focused on following up on the ongoing success at Island Gold.

The Company is well positioned to fund this growth having significantly de-risked its balance sheet in 2017. The Company is debt free with growing cash flow from its operations and over $640 million of cash and available liquidity under the Company's credit facility.

Young-Davidson produced 39,100 ounces of gold in the second quarter of 2018, lower than the comparative quarter of 2017 due to unscheduled downtime of both the Northgate hoist and the mill, and lower grades mined.

During the quarter, the underground operations were impacted by an eight day shutdown of the Northgate hoist. The Company had previously scheduled a four day shutdown to change the head ropes on the Northgate hoist in July; however, this was moved to June to correspond with an unplanned shutdown required to replace a bearing on the hoist drum which failed prematurely. During the shutdown, the Company was unable to hoist ore for a period of eight days, which impacted throughput and production levels for the quarter. The maintenance was completed at the end of June and mining operations are expected to return to budgeted levels in the third quarter.

Underground grades mined of 2.35 g/t Au for the second quarter were in-line with the first quarter, but lower than the prior year quarter primarily as a result of mine sequencing. As previously guided, the Company is expecting stronger production in the second half of the year with grades and underground mining rates expected to increase through the remainder of the year.

During the second quarter, 598,196 tonnes or 6,574 tpd, were processed through the mill with grades averaging 2.17 g/t Au.  Tonnes milled were lower than budget as a result of the eleven-day shutdown of the mill to replace liners and for repairs to the soleplate anchor bolts. The liner change was planned for July, but was moved up to coincide with the other maintenance required to the mill, and to correspond with the timing of the Northgate hoist downtime. During this period, the Company built up underground stockpiles of approximately 40,000 tonnes, which will be processed during the second half of 2018.

Mill recoveries of 92% were in line with expectations and the prior year period.

As a result of unplanned the downtime in the second quarter and lower than budgeted throughput in the first half of the year, the Company is amending production guidance at Young-Davidson to between 180,000 and 190,000 ounces. The Company expects stronger throughput and production in the second half of the year.

Financial Review

For the quarter ended June 30, 2018, revenues of $55.1 million were $3.4 million lower than the comparative quarter of 2017, due to less ounces sold, partially offset by a higher realized gold price. For the first half of 2018, revenues of $114.6 million were $2.5 million higher than the prior year, attributable to a higher realized gold price, offset by lower ounces sold.

Cost of sales, which reflects mining and processing costs, royalties, and amortization expense, of $56.7 million were higher than the comparative quarter due to higher mining and processing costs. Cost of sales for the first half of 2018 were $113.7 million, an increase of $11.8 million due to higher mining and processing costs and amortization.

Total cash costs in the second quarter were $890 per ounce, an increase of 31% from the second quarter of 2017 due to lower grades processed and a higher mining cost per tonne, reflecting the impact of lower throughput on fixed costs. Total cash costs of $856 per ounce for the six-month period were 24% higher than the prior year period. Second quarter mine-site AISC were $1,083 per ounce, 21% higher than the prior year quarter reflecting higher total cash costs, partially offset by lower sustaining capital. Mine-site AISC for the six-month period were $1,037 or 19% higher than the prior year period due to similar factors.

Capital expenditures were in-line with budget at $18.5 million in the second quarter, including $7.9 million for sustaining capital and $10.6 million for growth capital. Total capital expenditures were 19% lower than the same quarter of 2017. Capital spending for the second quarter was focused primarily on lateral development in the upper and lower mines, and lower mine infrastructure. For the six-month period, capital expenditures of $41.4 million were consistent with the prior year period.

Young-Davidson generated mine-site free cash flow of $4.0 million in the second quarter, consistent with the prior year quarter and the first quarter of 2018, as lower capital expenditures were offset by lower operating cash flows. Year-to-date free cash flow of $8.5 million was higher than the prior year, primarily reflecting a higher gold price. The Company expects mine-site free cash flow to grow in subsequent quarters driven by stronger production and operating margins.

⁽¹⁾ Financial results from Island Gold are included in Alamos' consolidated financial statements for the period subsequent to November 23, 2017. Gold production from Island Gold for the three and six months ended June 30, 2017 was 26,110 and 49,882 ounces. 
⁽²⁾ Cost of sales includes mining and processing costs, royalties and amortization. 
⁽³⁾ 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.  Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
⁽⁴⁾ 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.
⁽⁵⁾ Grams per tonne of gold ("g/t Au").

Second quarter gold production of 26,700 ounces was above budget, and consistent with the prior year quarter. With year-to-date production of 54,800 ounces well ahead of budget, the Company is increasing Island Gold's 2018 production guidance for the second time this year to a range of 100,000 to 110,000 ounces, an 11% increase from original guidance.

The Company mined 82,097 tonnes of ore from underground in the second quarter of 2018, or 902 tpd, lower than the prior year quarter, though consistent with the first quarter of 2018. Underground mining rates are expected to ramp up in the latter part of 2018 concurrent with the completion of the mill expansion to 1,100 tpd. As guided, underground grades mined of 7.34 g/t Au in the second quarter were lower than the first quarter due to mine sequencing.

Mill throughput for the second quarter was 88,776 tonnes, or 976 tpd, an increase from 940 tpd in the prior year quarter. Milled grades averaged 8.71 g/t Au, consistent with full year guidance of 8.3 to 8.9 g/t Au. Milled grades were higher than grades mined with existing high-grade stockpiles supplementing mill feed. Mill throughput is expected to remain in a similar range in the third quarter and ramp up during the fourth quarter following the completion of the mill expansion to 1,100 tpd in September.

Financial Review

With the Company acquiring Island Gold on November 23, 2017, financial information prior to the acquisition date has not been included in the comparative table above.

Island Gold generated revenues of $35.7 million in the second quarter, lower than the first quarter of 2018, reflecting lower realized gold prices. Revenues for the six-month period were $72.3 million on sales of 54,760 ounces of gold.

Cost of sales in the second quarter and year-to-date were $28.0 million and $55.5 million, respectively. Cost of sales includes ongoing amortization charges related to the purchase price of the asset, which increases amortization to approximately $450 per ounce based on current mineral reserves and resources.

Total cash costs of $587 per ounce were in-line with full-year guidance of $575 per ounce, however, higher than the prior quarter, reflecting lower grades mined. In addition, mine-site AISC of $668 per ounce were well below guidance of $825 driven primarily by timing of sustaining capital spending. Mine-site AISC are expected to be higher for the remainder of 2018 as sustaining capital increases in the second half of the year.

Capital expenditures totaled $17.6 million in the second quarter, with spending focused primarily on capitalized exploration, lateral development, mining equipment and the mill expansion. Total capital expenditures in the second quarter included $2.2 million of sustaining capital and $15.4 million of growth capital. Year-to-date capital expenditures totaled $31.5 million.

Island Gold generated mine-site free cash flow of $4.4 million during the second quarter and $14.2 million for the six-month period driven by stronger than budgeted production and operating margins. The Company expects Island Gold to generate sufficient cash flow to fully fund its enhanced exploration program and the mill expansion to 1,100 tpd.

⁽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.  Total cash costs and mine-site AISC are exclusive of net-realizable value adjustments.
⁽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").

Mulatos reported another strong performance with gold production of 50,600 ounces in the second quarter, well above budget and higher than both the first quarter and prior year quarter. The stronger than expected production was driven by higher heap leach recoveries as well as continued mill production from San Carlos.

Given the strong first half performance, with production of 96,600 ounces, the Company is increasing full year production guidance at Mulatos for the second time this year to a range of 170,000 to 180,000 ounces, a 13% increase from the original 2018 guidance.

Total crusher throughput averaged a record 20,100 tpd, reflecting the addition of La Yaqui Phase I. A total of 1,802,109 tonnes were stacked in the second quarter at a grade of 0.88 g/t Au, consistent with annual guidance. The waste-to-ore ratio of 0.82:1 was consistent with the prior year quarter and in line with guidance.

In the second quarter, 31,485 tonnes of ore from the San Carlos underground mine were milled at an average grade of 5.94 g/t Au. This was not included in the original budget as mill production was expected to have been completed by the end of the first quarter. Based on revised estimates, San Carlos is now expected to be completed in the third quarter with mill throughput expected to be slightly lower than the second quarter as mining activities wind down.

The recovery ratio of ounces produced to contained ounces stacked and milled was 89% in the quarter compared to 65% in the prior year period and guidance of 75%. The higher recoveries are the result of the recovery of deferred ounces from the leach pad, and stronger than budgeted recoveries at La Yaqui Phase I.

Financial Review

For the three months ended June 30, 2018, revenues of $64.1 million were 26% higher than the prior year quarter, reflecting a 23% increase in ounces sold and higher realized gold prices. Revenues for the six-month period were $123.7 million, 26% higher than the prior year period due to higher ounces sold and realized gold prices.

Cost of sales of $49.2 million in the second quarter and $92.8 million for the six-month period, were higher than the prior year periods reflecting higher total tonnes moved and increased amortization related to La Yaqui Phase I. Further, heap leach costs were impacted by higher processing costs due to a greater area under leach as compared to the prior year quarter. Cost of sales reflects mining and processing costs, royalties, and amortization expense.

Total cash costs of $795 per ounce in the second quarter were 8% higher than $735 per ounce in the prior year quarter, with the prior year benefiting from higher open pit and underground grades mined. Total cash costs for the six-month period of $791 per ounce were slightly higher than $780 per ounce reported in the prior year period. Mine-site AISC in the quarter were $854 per ounce, 10% higher than the prior year quarter reflecting higher total cash costs and higher sustaining capital. Mine-site AISC for the six-month period of $848 per ounce were consistent with the prior year period as higher cash costs were offset by lower sustaining capital per ounce.

Mulatos generated mine-site free cash flow of $14.6 million for the quarter and $23.5 million for the six-month period, both well ahead of budget, driven by substantial production and sales growth combined with higher gold prices. Mulatos is expected to generate strong cash flow in 2018, which will be used to advance the La Yaqui Grande and Cerro Pelon deposits through permitting, as well as funding ongoing exploration activities.

El Chanate produced 10,100 ounces of gold in the second quarter of 2018, down from 17,600 ounces in the prior year quarter, reflecting lower stacking rates in the first half of the year while completing the final push back of the pit. Mining rates were slightly lower than budget in the first half of the year, and as a result, mining activities are now expected to cease early in the fourth quarter. The Company expects to benefit from ongoing gold production at decreasing rates into the fourth quarter of 2018 and beyond through residual leaching which is expected to drive higher mine-site free cash flow.

Financial Review

Second quarter revenues of $14.0 million were lower than the comparative quarter of 2017 due to fewer ounces sold. Revenues for the six-month period were $31.4 million compared to $41.7 million in the prior year period, reflecting lower production as mining activities wind down.

Total cash costs per ounce of $1,404 for the second quarter and $1,279 for the six-month period were higher than the respective prior year periods, reflecting lower ounces stacked in the quarter while completing the final push back. Mine-site all-in sustaining costs per ounce were $1,442 for the quarter and $1,304 for the six-month period, higher than the respective prior year periods.

Mine-site free cash flow was slightly negative at $0.6 million in the quarter and positive $0.5 million year-to-date. El Chanate is expected to realize higher cash flows from residual leaching starting in the fourth quarter of 2018. Given El Chanate's higher cost structure, the Company has hedged all of El Chanate's remaining 2018 gold production through gold collar contracts, ensuring a minimum gold price of $1,289 and participation up to a price of $1,473 per ounce.

Second Quarter 2018 Development Activities

Kirazli (Çanakkale, Turkey)

On July 25, 2018, the Company received the GSM (Business Opening and Operation) permit, and now has all the major permits required for the development of Kirazli.

The initial capital estimate for Kirazli is $152 million of which $50 to $60 million is expected to be spent in 2018, inclusive of $10 million spent through the first half of the year. The bulk of the remaining initial capital will be spent in 2019 and the first half of 2020. Based on the current timelines, the Company expects initial production from Kirazli in the second half of 2020.

Development activities continued during the quarter, and included power line construction, tree clearing, road relocation and construction of the water reservoir. Approximately 75% of tree clearing of the Kirazli site has been completed, with the remaining portion to be completed later this year. Water reservoir earthworks and grouting is ongoing, with construction expected to be completed by the end of 2018. For the three and six months ended June 30, 2018, development expenditures at Kirazli were $4.8 million and $9.9 million respectively.

As outlined in the 2017 Feasibility Study, Kirazli has a 44% after-tax internal rate of return and is expected to produce over 100,000 ounces of gold during its first full year of production at mine-site all-in sustaining costs of less than $400 per ounce.  The Company is also assessing the impact of the devaluation of the Turkish Lira on initial capital and operating costs, given the Feasibility Study was completed at an exchange rate of TL:USD of 2.9:1 while the current TL:USD is 4.8:1.

Mulatos District (Sonora, Mexico)

La Yaqui Grande and Cerro Pelon

The environmental impact assessment ("MIA") for Cerro Pelon was submitted during the second quarter, with approval expected by the end of the year. The capital budget for Cerro Pelon in 2018 is $8 million which comprises engineering, permitting and early stage construction activities. The Cerro Pelon deposit is located approximately three kilometres from the existing Mulatos operation. Given its proximity to Mulatos' infrastructure, ore from the Cerro Pelon open pit is expected to be trucked to the existing heap leach circuit for processing. Following MIA approval, construction and pre-stripping activities are expected to take approximately 18 months with initial production expected in 2020. Recently completed work includes the design of the waste rock dump, haulage road and crushing circuit.

La Yaqui Grande's capital budget for 2018 is $5 million with spending focused on permitting and project engineering. The MIA is expected to be completed and submitted by the end of 2018 with construction and pre-stripping activities commencing in the latter part of 2019 and production in 2021. Similar to La Yaqui Phase I, La Yaqui Grande will be developed as a standalone, open pit, heap leach operation. La Yaqui Grande exploration activities in 2017 were successful in increasing Mineral Reserves by 28% to 644,000 ounces as at December 31, 2017 (14.3 million tonnes grading 1.4 g/t Au).

The Company spent $1.0 million on permitting and engineering activities in the second quarter, and $1.9 million for the year. The Company expects to ramp up spending in the second half of the year.

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 (170,000 ounces over its first six years) at average mine-site all-in sustaining costs of $745 per ounce.

The 2018 capital budget for Lynn Lake is $12 million, comprised of $8 million for development activities and $4 million for exploration.  Development spending will be focused on baseline work in support of the Environmental Impact Study ("EIS") for the project that will be submitted to satisfy federal and provincial environmental assessment requirements. The permitting process is expected to take approximately two years followed by two years of construction.

During the second quarter, the Company continued the review of value engineering initiatives to enhance the project's economics, including modifications to the overall site layout, structures and foundations for the process plant, and review of camp location. During the second quarter, $1.5 million was spent at Lynn Lake mainly on project optimization and exploration activities, and $2.0 million year-to-date.

Second Quarter 2018 Exploration Activities

Island Gold (Ontario, Canada)

Delineation drilling at Island Gold in 2017 was successful in increasing Mineral Reserves by 18%, net of mining depletion. The 2017 exploration program was also successful in outlining additional gold mineralization down plunge to the east.

The 2018 exploration program is targeting three main areas along the two kilometre Island Main Zone. The focus is on expanding the down-plunge and lateral extensions of the deposit with the objective of adding new near-mine Mineral Resources.

Drill holes in the Main and Western Extension areas are testing high-grade, east-plunging shoots below existing Mineral Reserves and Resources. Drill holes in the Eastern Extension are exploring for additional plunging shoots along strike beyond existing Mineral Reserves and Resources.

In May, the 2018 exploration budget was increased 20% to $18 million. This includes 45,000 metres ("m") of surface exploration drilling, up from 33,000 m. The 2018 program also includes 30,000 m of underground exploration drilling, 35,000 m of underground delineation drilling, and 15,000 m of regional exploration drilling.

The underground delineation drilling program is focused on converting Inferred Mineral Resources into Indicated Mineral Resources. This drilling is being conducted primarily from the 620 and 840 levels.

Surface exploration drilling

Surface exploration drilling totaled 13,250 m during the second quarter of 2018, with 17 holes completed as part of the directional drilling campaign. The directional drilling targeted areas peripheral to the Inferred Mineral Resource blocks below the 1,000 m level, with drill hole spacing ranging from 75 m to 100 m. The area being targeted by the surface directional drill program extends approximately 2,000 m in strike length between the 1,000 m and 1,500 m elevation below surface.

The surface directional drilling programs will continue in 2018 with a focus on defining new Inferred Mineral Resources.

Underground exploration drilling

During the second quarter of 2018, a total of 7,441 m of underground exploration diamond drilling was completed in 39 holes from the 620 and 840 levels. The objective of the underground drilling is to identify new Mineral Resources close to existing Mineral Resource or Reserve blocks.

Total capitalized exploration expenditures at Island Gold during the second quarter of 2018 were $4.7 million, with year-to-date capitalized exploration expenditures of $7.8 million.

Highlight drill results from the 2018 drilling campaign were previously disclosed in a press release on May 24, 2018 and are summarized as follows:

Main Extension: step-out drilling continues to intersect high-grade gold mineralization which extends up to 900 m east of current Mineral Reserves, and remains open down-plunge. Highlights include:

• 32.06 g/t Au (14.18 g/t cut) over 4.10 m;
• 17.10 g/t Au (12.72 g/t cut) over 6.33 m; and
• 14.89 g/t Au (10.18 g/t cut) over 3.40 m.

Eastern Extension: high-grade mineralization extended east outside of Inferred Mineral Resources and remains open down-plunge. Highlights include:

• 71.27 g/t Au (42.14 g/t cut) over 4.92 m;
• 44.28 g/t Au (30.55 g/t cut) over 5.97 m;
• 47.68 g/t Au (19.26 g/t cut) over 3.69 m; and
• 35.15 g/t Au (13.42 g/t cut) over 4.29 m.

Western Extension: high-grade mineralization intersected outside of Inferred Mineral Resources, extending mineralization down-plunge. Highlights include:

• 31.54 g/t Au (31.54 g/t cut) over 5.07 m.

Infill drilling of Inferred Mineral Resources returns high-grade intersections, confirming continuity of mineralization which is expected to support Mineral Resource conversion. Highlights include:

• 127.90 g/t Au (69.18 g/t cut) over 6.38 m;
• 58.80 g/t Au (44.22 g/t cut) over 8.78 m;
• 134.37 g/t Au (15.48 g/t cut) over 3.04 m;
• 95.48 g/t Au (25.02 g/t cut) over 2.86 m;
• 93.55 g/t Au (18.59 g/t cut) over 2.66 m;
• 53.37 g/t Au (46.54 g/t cut) over 3.94 m;
• 30.37 g/t Au (30.37 g/t cut over 6.36 m; and
• 41.30 g/t Au (22.85 g/t cut) over 4.64 m.

Mulatos District (Sonora, Mexico)

The Company has a large exploration package covering 28,777 hectares with the majority of past exploration efforts focused around the Mulatos mine. Over the last three years, exploration has moved beyond the main Mulatos pit area and focused on prospects throughout the wider district. After significant exploration success at La Yaqui Grande over the past few years, the focus in 2018 has shifted to other parts of the district including El Carricito, El Halcon and El Jaspe.

In the second quarter of 2018, the Company invested $2.6 million in exploration activities within the Mulatos District, of which $0.9 million was capitalized and the remainder expensed. This included 8,854 m of diamond drilling and 201 m of reverse circulation drilling focused on both near-mine targets and regional targets including El Halcon and El Jaspe. Year-to-date, the Company has spent $7.0 million, of which $2.0 million capitalized.

At El Carricito, mapping and sampling continued during the second quarter with 100% of the concession having been mapped. El Carricito remains a key focus of the 2018 exploration program with 5,700 m of scout drilling planned for the second half of this year.

Lynn Lake (Manitoba, Canada)

Surface exploration drilling continued at Lynn Lake in the second quarter of 2018 with a total of 3,936 m drilled in ten holes. Exploration drilling was focused in the southern portion of the Lynn Lake Greenstone Belt testing for the continuation of structures related to gold mineralization along strike of Burnt Timber and Linkwood, as well as two regional targets.

During the second quarter, a regional exploration program was initiated focused on refining exploration targets and generating a pipeline of prospective targets across the Lynn Lake Greenstone Belt. This exploration program will continue into the third quarter of 2018.

A total of $4 million and 10,000 m of drilling is budgeted at the Lynn Lake project for 2018. Spending in the second quarter totaled $0.9 million, bringing the year-to-date expenditures to $1.7 million.

Review of Second Quarter Financial Results

During the second quarter of 2018, the Company sold 129,272 ounces of gold for total revenue of $168.9 million, a 29% increase compared to the prior year period. This was primarily driven by the Island Gold acquisition, which contributed 27,257 ounces, or $35.7 million in sales for the quarter, a higher realized price of $1,307 per ounce compared to $1,262 per ounce in the prior year period (a $4.7 million benefit), partially offset by lower ounces sold at El Chanate. The Company's realized gold price of $1,307 per ounce was in line with the London PM fix.

For the second quarter of 2018, cost of sales were $150.0 million, compared to $109.5 million in the prior-year period.

Mining and processing costs were $101.3 million compared to $77.9 million in the prior-year period. The increased costs were mainly the result of the addition of Island Gold, which added $14.4 million of mining and processing costs in the period, as well as higher operating costs at Young-Davidson.

Consolidated total cash costs for the quarter were $832 per ounce, compared to $784 in the prior year period. The increase was driven by higher total cash costs at Young-Davidson resulting from lower grades mined and unscheduled downtime to the mine and mill, offset by the addition of lower cost production from Island Gold in the current period.

In the second quarter, AISC per ounce increased to $996 from $942 in the prior year period. This was primarily driven by higher total cash costs as sustaining capital was relatively in line on a per-ounce basis.

Royalty expense was higher in the second quarter at $6.3 million, compared to $3.7 million in the prior year period, primarily due to the addition of Island Gold, and a higher number of ounces sold at Mulatos.

Amortization of $42.4 million in the quarter was higher than the prior year period expense of $27.9 million. Amortization was $328 per ounce, up from $268 per ounce in the prior year period, though consistent with the first quarter of 2018. This reflected higher amortization at all operating sites and the addition of Island Gold which carries a higher amortization per ounce charge.

The Company recognized earnings from operations of $9.6 million in the quarter compared to $15.8 million in the same period of 2017 as a result of increased operating costs at Young-Davidson and higher amortization charges at Island Gold, partially offset by stronger operating margins at Mulatos.

The Company reported a net loss of $8.9 million in the quarter, compared to net earnings of $2.4 million in the same period of 2017. Net earnings in the period were significantly impacted by foreign exchange movements related to the weakening Canadian dollar, which generated a foreign exchange loss of $2.1 million, as well as foreign exchange losses of $13.2 million recorded within deferred income taxes.

Associated Documents

This press release should be read in conjunction with the Company's interim consolidated financial statements for the three-month period ended June 30, 2018 and associated Management's Discussion and Analysis ("MD&A"), which are available from the Company's website, www.alamosgold.com, in the "Investors" section under "Reports and Financials", and on SEDAR (www.sedar.com) and EDGAR (www.sec.gov).

Reminder of Second Quarter 2018 Results Conference Call

The Company's senior management will host a conference call on Thursday, August 2, 2018 at 11:00 am ET to discuss the first quarter 2018 results.

Participants may join the conference call by dialling (416) 340-2216 or (800) 273-9672 for calls within Canada and the United States, or via webcast at www.alamosgold.com.

A playback will be available until August 30, 2018 by dialling (905) 694-9451 or (800) 408-3053 within Canada and the United States. The pass code is 8683343#. The webcast will be archived at www.alamosgold.com.

Qualified Persons

Chris Bostwick, FAusIMM, Alamos' Vice President, Technical Services, who is a qualified person within the meaning of National Instrument 43-101 ("Qualified Person"), has reviewed and approved the scientific and technical information contained in this press release.

About Alamos

Alamos is a Canadian-based intermediate gold producer with diversified production from four operating mines in North America. This includes the Young-Davidson and Island Gold mines in northern Ontario, Canada and the Mulatos and El Chanate mines in Sonora State, Mexico. Additionally, the Company has a significant portfolio of development stage projects in Canada, Mexico, Turkey, and the United States. Alamos employs more than 1,700 people and is committed to the highest standards of sustainable development. The Company's shares are traded on the TSX and NYSE under the symbol "AGI".

FOR FURTHER INFORMATION, PLEASE CONTACT:

Scott K. Parsons
Vice-President, Investor Relations
(416) 368-9932 x 5439

All amounts are in United States dollars, unless otherwise stated.

The TSX and NYSE have not reviewed and do not accept responsibility for the adequacy or accuracy of this release.

Cautionary Note

This press release contains statements that constitute forward-looking information as defined under applicable Canadian and U.S. securities laws.  All statements in this press release, other than statements of historical fact, which address events, results, outcomes or development that the Company expects to occur are, or may be deemed to be forward-looking statements. Forward-looking statements are generally, but not always, identified by the use of forward-looking terminology such as "expect", "believe", "anticipate", "intends", "estimates", "forecast", "budget", "contemplate", "continue", "plan" or variations of such words and phrases and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.

Forward-looking statements include information as to strategy, plans or future financial or operating performance, such as the Company's expansion plans, project timelines, production plans and expected sustainable productivity increases, expected increases in mining activities and corresponding cost efficiencies, expected drilling targets, expected sustaining costs, expected improvements in cash flows and margins, expectations of changes in capital expenditures, forecasted cash shortfalls and the Company's ability to fund them, cost estimates, projected exploration results, reserve and resource estimates, expected production rates and use of the stockpile inventory, expected recoveries, sufficiency of working capital for future commitments and other statements that express management's expectations or estimates of future performance.

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by the Company at the time of making such statements, are inherently subject to significant business, economic, legal, political and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements.

Such factors and assumptions underlying the forward-looking statements in this document include, but are not limited to: changes to current estimates of mineral reserves and resources; changes to production estimates (which assume accuracy of projected ore grade, mining rates, recovery timing and recovery rate estimates and may be impacted by unscheduled maintenance, labour and contractor availability and other operating or technical difficulties); fluctuations in the price of gold; changes in foreign exchange rates (particularly the Canadian dollar, Mexican peso, Turkish Lira and U.S. dollar); the impact of inflation; employee and community relations; litigation; disruptions affecting operations; availability of and increased costs associated with mining inputs and labour; development delays at the Young-Davidson mine; inherent risks associated with mining and mineral processing; the risk that the  Company's mines may not perform as planned; uncertainty with the Company's ability to secure additional capital to execute its business plans; the speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses, permits and authorizations for  the Company's development and operating  assets; contests over title to properties; changes in national and local government legislation (including tax legislation) in Canada, Mexico, Turkey, the United States and other jurisdictions in which the Company does or may carry on business in the future; risk of loss due to sabotage and civil disturbances; the impact of global liquidity and credit availability and the values of assets and liabilities based on projected future cash flows; risks arising from holding derivative instruments; and business opportunities that may be pursued by the Company

Additional risk factors and details with respect to risk factors affecting the Company are set out in the Company's latest Annual Information Form and MD&A, each under the heading "Risk Factors", available on the SEDAR website at www.sedar.com. The foregoing should be reviewed in conjunction with the information found in this news release. 

The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

Cautionary Note to U.S. Investors Concerning Measured, Indicated and Inferred Resources

The Company is required to prepare its resource estimates in accordance with standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in Canadian National Instrument 43-101. These standards are materially different from the standards generally permitted in reports filed with the United States Securities and Exchange Commission. When describing resources we use the terms "measured", "indicated" or "inferred" resources which are not recognized by the United States Securities and Exchange Commission.  The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. U.S. investors are cautioned not to assume that any part of measured or indicated resources will ever be converted into economically or legally mineable proven or probable reserves. The estimation of inferred resources may not form the basis of a feasibility or other economic studies and involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources.

Non-GAAP Measures and Additional GAAP Measures

The Company has included certain non-GAAP financial measures to supplement its Consolidated Financial Statements, which are presented in accordance with IFRS, including the following:

• adjusted net earnings and adjusted earnings per share;
  
  
• cash flow from operating activities before changes in working capital and taxes received;
  
  
• Company-wide free cash flow;
  
  
• total mine-site free cash flow;
  
  
• mine-site free cash flow;
  
  
• total cash cost per ounce of gold sold;
  
  
• all-in sustaining cost ("AISC") per ounce of gold sold;
  
  
• mine-site all-in sustaining cost ("Mine-site AISC") per ounce of gold sold;
  
  
• sustaining and non-sustaining capital expenditures; and
  
  
• earnings before interest, taxes, depreciation, and amortization

The Company believes that these measures, together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. Non-GAAP financial measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Management's determination of the components of non-GAAP and additional measures are evaluated on a periodic basis influenced by new items and transactions, a review of investor uses and new regulations as applicable. Any changes in to the measures are dully noted and retrospectively applied as applicable.

Adjusted Net Earnings and Adjusted Earnings per Share

"Adjusted net earnings" and "adjusted earnings per share" are non-GAAP financial measures with no standard meaning under IFRS which exclude the following from net earnings:

• Foreign exchange gain (loss)
  
  
• Items included in Other loss
  
  
• Certain non-reoccurring items
  
  
• Foreign exchange gain (loss) recorded in deferred tax expense

Net earnings have been adjusted, including the associated tax impact, for the group of costs in "Other loss" on the consolidated statement of comprehensive income. Transactions within this grouping are: the fair value changes on non-hedged derivatives; the renunciation of flow-through exploration expenditures; and loss on disposal of assets. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the unadjusted net earnings.

The Company uses adjusted net earnings for its own internal purposes. Management's internal budgets and forecasts and public guidance do not reflect the items which have been excluded from the determination of adjusted net earnings. Consequently, the presentation of adjusted net earnings enables shareholders to better understand the underlying operating performance of the core mining business through the eyes of management. Management periodically evaluates the components of adjusted net earnings based on an internal assessment of performance measures that are useful for evaluating the operating performance of our business and a review of the non-GAAP measures used by mining industry analysts and other mining companies.

Adjusted net earnings is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of operating profit or cash flows from operations as determined under IFRS. The following table reconciles this non-GAAP measure to the most directly comparable IFRS measure.

Cash Flow from Operating Activities before Changes in Working Capital and Cash Taxes

"Cash flow from operating activities before changes in working capital and cash taxes" is a non-GAAP performance measure that could provide an indication of the Company's ability to generate cash flows from operations, and is calculated by adding back the change in working capital and taxes received to "Cash provided by (used in) operating activities" as presented on the Company's consolidated statements of cash flows. "Cash flow from operating activities before changes in working capital"  is a non-GAAP financial measure with no standard meaning under IFRS.

The following table reconciles the non-GAAP measure to the consolidated statements of cash flows.

Company-wide Free Cash Flow

"Company-wide free cash flow" is a non-GAAP performance measure calculated from the consolidated operating cash flow, less  consolidated mineral property, plant and equipment expenditures. The Company believes this to be a useful indicator of our ability to operate without reliance on additional borrowing or usage of existing cash company-wide. Company-wide free cash flow is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures of performance presented by other mining companies. Company-wide free cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Mine-site Free Cash Flow

"Mine-site free cash flow" is a non-GAAP financial performance measure calculated as cash flow from mine-site operating activities, less mineral property, plant and equipment expenditures. The Company believes this to be a useful indicator of our ability to operate without reliance on additional borrowing or usage of existing cash. Mine-site free cash flow is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures of performance presented by other mining companies. Mine-site free cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Total Cash Costs per ounce

Total cash costs per ounce is a non-GAAP term typically used by gold mining companies to assess the level of gross margin available to the Company by subtracting these costs from the unit price realized during the period. This non-GAAP term is also used to assess the ability of a mining company to generate cash flow from operations. Total cash costs per ounce includes mining and processing costs plus applicable royalties, and net of by-product revenue and net realizable value adjustments. Total cash costs per ounce is exclusive of exploration costs.

Total cash costs per ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

All-in Sustaining Costs per ounce and Mine-site All-in Sustaining Costs

The Company adopted an "all-in sustaining costs per ounce" non-GAAP performance measure in accordance with the World Gold Council published in June 2013.  The Company believes the measure more fully defines the total costs associated with producing gold; however, this performance measure has no standardized meaning.  Accordingly, there may be some variation in the method of computation of "all-in sustaining costs per ounce" as determined by the Company compared with other mining companies. In this context, "all-in sustaining costs per ounce" for the consolidated Company reflects total mining and processing costs, corporate and administrative costs, share-based compensation, exploration costs, sustaining capital, and other operating costs.

For the purposes of calculating "mine-site all-in sustaining costs" at the individual mine-sites, the Company does not include an allocation of corporate and administrative costs and share-based compensation, as detailed in the reconciliations below.

Sustaining capital expenditures are expenditures that do not increase annual gold ounce production at a mine site and excludes all expenditures at the Company's development projects as well as certain expenditures at the Company's operating sites that are deemed expansionary in nature. For each mine-site reconciliation, corporate and administrative costs, and non-site specific costs are not included in the all-in sustaining cost per ounce calculation.

All-in sustaining costs per gold ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies.  It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

Total Cash Costs and All-in Sustaining Costs per Ounce Reconciliation Tables

The following tables reconciles these non-GAAP measures to the most directly comparable IFRS measures on a Company-wide and individual mine-site basis.

⁽¹⁾ Corporate and administrative expenses exclude expenses incurred at development properties.
⁽²⁾ Sustaining capital expenditures are defined as those expenditures which do not increase annual gold ounce production at a mine site and exclude all expenditures at growth projects and certain expenditures at operating sites which are deemed expansionary in nature. Total sustaining capital for the period is as follows:

Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")

EBITDA represents net earnings before interest, taxes, depreciation, and amortization. EBITDA is an indicator of the Company's ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.

EBITDA does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

The following is a reconciliation of EBITDA to the consolidated financial statements:

Additional GAAP Measures

Additional GAAP measures are presented on the face of the Company's consolidated statements of comprehensive income and are not meant to be a substitute for other subtotals or totals presented in accordance with IFRS, but rather should be evaluated in conjunction with such IFRS measures.  The following additional GAAP measures are used and are intended to provide an indication of the Company's mine and operating performance:

• Earnings from operations - represents the amount of earnings before net finance income/expense, foreign exchange gain/loss, other income/loss, loss on redemption of senior secured notes and income tax expense

Unaudited Consolidated Statements of Financial Position, Comprehensive
Income, and Cash Flows

ALAMOS GOLD INC.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited - stated in millions of United States dollars) 

ALAMOS GOLD INC.
Condensed Interim Consolidated Statements of Comprehensive Income 
(Unaudited - stated in millions of United States dollars, except per share amounts) 

ALAMOS GOLD INC.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - stated in millions of United States dollars)