Prepared remarks
Cash flow. Cash flow. Cash flow. That would allow us to increase the proportion of high-grade ore to be processed with an expanded Magino mill and push production rates well above the 534,000 ounce annual average outlined in the study. These target areas include Island Gold West Extension, Island Gold West Uplunge located in proximity to existing underground infrastructure, as well as the past-producing Cline Pick and Edwards Mines located 7 kilometers from the Magino mill. Turning to Slide 19. One of the highlights of the release was the discovery of a new high-grade zone located between 250 and 500 meters west of existing underground reserves and resources. This new zone is along strike to the Island Gold deposit, measures 200 by 300 meters based on drilling completed to date, and remains open down plunge and to the west. We also further expanded high-grade mineralization closer to surface within the Island Gold West uplunge area. The west uplunge area is accessible via the existing ramp, offering a low-cost, near-term opportunity to further increase underground mining rates beyond the planned 3,000 tonnes per day to be skipped via the shaft. Additional high-grade underground ore would boost the district's future annual production by displacing lower-grade Magino open pit feed in an expanded mill. Turning to Slide 20. Looking regionally, drilling in the past-producing Cline Pick and Edwards Mines continues to extend high-grade mineralization beyond the limits of previous mining. Earlier this year, we reported the best hole drilled to date at Cline Pick, having intersected 178 grams per tonne gold over 3.5 meters. Step-out drilling from this hole continues to successfully intersect and extend additional higher-grade mineralization. This included another highlight hole announced in June which intersected 68 grams per tonne over 3.1 meters. Over to Slide 21. Taking a step back, this 10-kilometer-long section highlights the significant potential across the district. The Island Gold main structure has grown in each and every year that we have owned it: less than 2 million ounces of reserves and resources in 2017 to what is now approaching 7 million ounces, net of the 1.7 million ounces produced. High-grade mineralization at Island Gold has so far been defined to a depth of 1.6 kilometers and the deposit remains open laterally and at depth. To the east, the deepest hole drilled to date at Cline Pick reached a vertical depth of 540 meters and the target remains open in multiple directions including at depth. By comparison, underground mines within the Canadian Shield are being mined beyond depths of 3 kilometers, highlighting the significant potential for growth. Additionally, limited drilling has been completed within a 7-kilometer gap between Island Gold and Cline Pick, and further along strike to the northeast across our broader 60,000-hectare land package. We have no shortage of high-quality, higher-grade targets, and believe we are only starting to scratch the surface of exploration across the district. As we further define these targets and additional sources of high-grade ore, we see excellent potential for this to support further production growth by leveraging our existing and planned infrastructure. With that, I will turn the call back to John.
Thank you, Scott. I will turn the call over to the operator and open the call for your questions.
Questions and answers
To ask a question, simply press 1 on your telephone keypad. Again, that is 1 to ask a question. Our first question comes from Sathish Kasinathan with Bank of America. Please go ahead.
Hi. Good morning. Thanks for taking my questions. My first question is on the cost guidance for the year. Thanks for all the details that you provided. Can you provide a bit more color on the $90 per ounce increase in cost related to labor inflation? More specifically, what assumptions were embedded in your original guidance at the start of the year? What changed over the last six months and how much of this increase should we see as structural as you move into 2027?
This is Greg Fisher. The $90 per ounce is a combination of contractors and labor, including some of our internal labor, so it is not all internal labor. Our assumption at the beginning of the year was about a 4% increase in labor rates and contractor rates. We have seen more profound increases on the contractor side, especially with respect to underground development. As we are ramping up Island Gold, we are relying more heavily on contractors, and we have seen cost pressure there. It is also on the open pit side with our mechanics and on the contractors that help with the big open pit equipment. We have seen pressure there as well, and there is just a higher reliance on contractors this year. As we move to put the truck shop in place by the end of this year, we will wind that reliance down. The last piece is that we implemented what we call a retention program for our Canadian operations midyear, and that had a cost impact of about $30 per ounce at our Canadian operations. It is much more retention focused, so it will be payable in future years, but we need to accrue that cost over the next couple years. That was not budgeted, but we implemented it midyear in response to the competitive market environment in Canada.
Okay. Thank you for the color. Maybe my second question is on the underground mining rates at Island Gold. The second quarter saw a solid improvement to 1.55 thousand tonnes per day. As you think about reaching 2,000 tonnes per day by year end, can you walk us through the key operational milestones required over the next six months? What are the prime gating factors today?
This is Luc Guimond. It is a continuation of our ramp-up. It has been tracking quite well in the first half of the year. As we continue to advance our development rates in the second half of the year to support additional mining fronts, we will continue to be able to meet the second-half expectation with regard to the ramp-up. It will be a gradual ramp-up over the next six months, and our plan is to exit the year at 2,000 tonnes per day.
Okay. My final question is on the capital allocation side. With $1.2 billion in liquidity, strong free cash flow, and a portfolio of organic projects already underway, how are you thinking about M&A today? Has the recent disruption at Young Davidson changed your appetite for acquisitions as a way to diversify your portfolio?
We are not really focused on M&A right now. We have a watching brief across the market, as you can appreciate all mining companies do. But we outlined in the presentation that we have plenty of things to focus on over the next six months in terms of getting our Young Davidson operation back on track; completing all the development work we need to achieve over the balance of this year and into next year to get to higher mining rates at Island Gold; we have moved underground now at Mulatos with two drifts; we have a mill under construction there; and we have a full-blown construction project at Lynn Lake that is basically a $920 million project building a brand new mine. So we have plenty of organic growth underway and plenty to focus on. For Alamos at the moment, with gold prices having pulled back so strongly over the last number of months, M&A is just not a focus for us right now.
Your next question comes from the line of Fahad Tariq with Jefferies. Please go ahead.
Hi. Thanks for taking my questions. On La Yaqui Grande, the longer leach cycles—can you provide more detail as to what is causing it? I saw that it was related to the height of the pad. Is there any way to resolve that, and does it impact 2027?
This is Luc Guimond. It is two things: the ore characteristics being stacked and the height of the leach pad, which is resulting in the longer leach cycle. Overall recoveries are still expected to be 85%; it is just taking a bit longer to come through than we expected for 2026. There is no loss of ounces: the ounces will just be deferred into the 2027 plan, and we will provide further clarity when we update our three-year guidance at the end of the year with regards to our mine plans moving forward for Mexico, including TDA.
I think it is important to note that the mine is right at the very end of its life. We will continue stacking ore into Q1 of next year, but by that time it is pretty much done and after that it is residual leaching. This is not an ongoing issue over many years; we are talking about additional months to get out the balance of the gold that we stacked on the leach pad.
Given our experience with the Mulatos operation, where we stopped mining a couple of years ago and have still been residual leaching, it would take that amount of time to get all the ounces out. We have been getting all the ounces and expect to recover all the ounces that we had in inventory. We do not see anything different with Yaqui Grande. It is not similar in scale to Mulatos in terms of the height of the leach pad and the amount of tons stacked, but we still expect to recover all of the ounces in a shorter time frame over the course of 2027.
Okay. That is helpful. Switching gears to Island Gold: regarding the underground rates, I recall that 3,000 tonnes per day could be the upper limit. Can you remind us theoretically how that could change if additional high-grade ounces are discovered underground and can be mined? How much higher than 3,000 tonnes per day could be mined underground at Island Gold?
There are certainly opportunities with the infrastructure we have in place. With the shaft infrastructure we are putting in place, we will have capacity to handle 5,500 tonnes per day of ore and waste through that infrastructure. Our first step is getting to 2,400 tonnes per day when we move into 2027 and ultimately 3,000 tonnes per day once we move into 2029. Regionally, there are a number of targets within the district that provide opportunities for additional mill feed at higher grade, displacing some of the lower-grade feed from Magino. In the Upper West area, where we are starting to have some success with exploration, as well as with Cline Pick and Edwards, those are other independent access points whose infrastructure could provide additional mill feed to support higher grade long-term across the district. That is one of the big visions for the camp and is a driver for the overall mill expansion to 20,000 tonnes per day.
In the timeframe Luc is referring to, 3,000 tonnes per day is a pretty good rate for that shaft to handle, and you have to realize it is as much a function of having enough faces open across the mine to supply that throughput. The opportunity lies in utilizing the ramp, where we are having success at the 700-meter level. With the operation shifting from ramp to shaft, we would open up the possibility to bring as much as 1,000 tonnes per day up from the Upper West zone utilizing the ramp. That is where the immediate opportunity lies to increase underground mining rates at Island Gold.
That is really clear. Thank you so much.
Your next question comes from the line of Ovais Habib with Scotiabank. Please go ahead.
Hi. Good morning, John and team. Just a couple of questions. Starting off with Island Gold: mining rates seem to be improving at Island Gold and milling and mining rates seem to be improving at Magino as well. You brought the upper end of the guidance down a little bit on the Island Gold district. Any color on that front? What is the plan going into 2027? Should we expect similar levels going into 2027 or is this just the ramp-up period to consider?
This is Greg. We have kept the original guidance. The low end previously was 290,000 ounces and that remains the same. We have strong confidence we will hit our guidance. Mining rates are ramping up as expected: Q1 was over 1.4 thousand tonnes per day, Q2 was 1.55 thousand, and we've seen improvement into July. Magino mining rates are ramping up as well; Q1 was a slower start but since then we've seen improvement with June at 9.8 thousand tonnes per day and into July at 10 thousand tonnes per day. The mine is performing very well. We tightened the range on guidance overall after the seismic events at Young Davidson. It was a 40,000-ounce range for the second half; given the first half is completed, we felt 40,000 ounces was a large range and tightened it to 20,000 ounces. This tightening is not indicative of our view on meeting production guidance for 2026 and has no impact on 2027 onwards.
Got it. Thanks for that, Greg. Follow-up to Fahad's question: regarding increasing mining rates and taking more from Island to displace some ore from Magino, when would you be in a position to start talking about or including that into your mine plan? Is it more of a 2027 situation or longer-term?
We are in the exploration phase there right now and it is going very well. We started the year with roughly 300,000 ounces of inferred and I would like to see it grow into that half-million ounce range, because that is when it makes sense to start putting a mine plan around the zone and focus on the effort required to develop it as a theoretical 1,000-tonne-per-day ramp operation. It is an immediate, low-CapEx, quick-payback opportunity that utilizes existing infrastructure and falls within our permits, so it is a real high priority for us. We committed a big portion of our exploration budget and the results are coming in nicely. I think we will start putting shapes around those resources at the end of the year and see if we can expand the reserve; from there, we would work on mine plans. Ideally, getting it in by 2029 would be a big win; any earlier would be a massive win. We are throwing everything at it right now.
Okay. Got it. Thanks. That is it for me.
Your next question comes from the line of Cosmos Chiu with CIBC. Please go ahead.
Hi. Thanks, John and team. Maybe my first question is on CapEx, especially growth CapEx. I see that in Q2 for the Island Gold district, for example, growth CapEx decreased from Q1, and Lynn Lake, on the other hand, increased. If I look at those two assets, first-half spend is still below 50% of full-year guidance. Was the Q2 spending as planned? If so, what are the plans to increase the velocity of spend in the second half to get to your guidance?
Hi, Cosmos. The timing is related. With Lynn Lake it is an obvious ramp-up, so as we continue on with the project we will spend more in Q3 and Q4 and that will continue to step up into 2027 as part of the ramp-up. On Island Gold it was simply timing; we still plan to spend what we put in our guidance for the year. That will put us on track for the shaft being completed in the first quarter and set us up for the Magino mill expansion to be completed in the first quarter of 2028.
Maybe talking about guidance: you increased your cost guidance for all three assets. I understand the reasons for Young Davidson and Mulatos; for Island Gold you talked about inflation as well but production guidance did not change. So is that really pure inflation? Did you see much of the inflationary pressure come through in Q2 versus Q1? Have you factored further inflation into Q3 and Q4 when formulating full-year cost guidance for Island Gold?
Breaking that down: production did not change, so it is not a production driver. It is inflation and a bit of scope change on contractors. We are increasing development from about 8,000 meters to 10,000 meters this year and ultimately to 15,000 meters over the longer run at Island Gold. We are hiring but also need contractors to support the extra development, and those contractors are costing more than anticipated. We have seen this more profoundly in Q2 than Q1 and expect it to continue through the rest of the year. Also, midyear we implemented a retention program for our Canadian operations in June, which impacts the second half of the year and will continue into 2027. This is important to ensure we hit our ramp-up and achieve higher mining rates in 2027.
One last question: earlier this month we had significant smoke from wildfires in Northern Ontario and Toronto. Any impact on your Northern Ontario operations?
No, nothing significant. Young Davidson had no interruptions from fires in the region; it has been pretty quiet there. The Island district saw smoke but not fires in close proximity to the operation; we had a couple of minor interruptions with a couple of shifts but nothing significant and no effect on second-quarter performance. At Lynn Lake, we were evacuated for one week due to a fire evacuation notice to the community and the project, but we were remobilized about a week after that, so roughly a two-week effect overall from evacuation notice to getting back to full-scale construction activities. Other than that, it has been uneventful for the year.
Thanks, everyone. Those are all the questions I have. Thanks again.
Your next question is from the line of Don DeMarco with National Bank. Please go ahead.
Thank you, operator, and good morning, John and team. Luke, my first question is for you. You mentioned that in H2 at Young Davidson the rehabilitation work in the 9,410 level is to be completed and you expect to get back into the stope and continue mining. With this, do you expect a step change right back up to 2,500 tonnes per day, or will it be more of a progressive ramp-up in run rates?
Our focus is to provide additional enhanced ground support in the 9,410 level and a couple of other levels within that western mining front area. That area was providing about 2,500 tonnes per day of mining rate through that district. Once we complete the rehabilitation through the second half of the year, our expectation is to get above 7,000 tonnes per day moving forward. Part of this work is reviewing the overall extraction sequence of the orebody at depth below the 9,410 level. That review is ongoing and we will provide further clarity by the end of the year as part of our three-year guidance, but our expectation is to ramp up into 2027 and longer term with above 7,000 tonnes per day.
Continuing with Young Davidson: you mentioned some other levels might require additional support. Is the higher-level ground support mine-wide or just at the 9,410 level or vicinity? How much of the increase in costs are one-time versus structural? Do you foresee requiring an indefinite level of higher ground support in some areas?
It is primarily in the lower levels below the 9,410 level that we are talking about with regards to enhanced ground support. For areas we have already developed, we will apply enhanced ground support, which refers to longer embedded dynamic support, some cable bolting requirements, and changes to the gauge of the mesh we are using. That work will occur over the rest of the year. An advantage is that a lot of the lower-mine development is not in place yet; those are areas we had not brought into the mine plan, and over the next number of years we will be bringing in brand-new development that will include the enhanced ground support from the start.
Adding to that, the enhanced ground support will be the standard going forward in the lower mine. We will have added costs associated with that, but it might be $10 to $15 million a year added to sustaining capital. It is not a larger number than that.
Maybe one final question on Young Davidson: can you provide some color on the frequency and magnitude of seismic events over Young Davidson's operating life? Just trying to get a sense of the probability of something like this reoccurring. Have you noticed trends as the mine deepens? Are events occurring at a higher frequency as the mine gets deeper?
Seismicity is a normal part of underground mining; once you are mining underground you will create seismic activity. We are not seeing more events overall or higher events overall; it is a function of the extraction sequence and what we are doing underground. As part of the review of overall extraction sequence in the lower mine and the development plan we are putting in place with enhanced ground support in existing development and where we will be in the new sections, we expect that with the ground support and a reviewed mining sequence we will be able to manage seismicity effectively and extract the orebody responsibly as we continue.
And we will be more reliant on a consistent mining plan to deliver on this.
Okay. Thanks a lot, Luc. That is all for me. Good luck for the rest.
There are no further questions at this time. This concludes the morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at (416) 368-9933 Extension 5440.