Alamos Gold Inc

TSX:AGI

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alamos Gold First Quarter 2020 Results Conference Call and Webcast. I will now turn the call over to Mr. Jamie Porter, Alamos' Chief Financial Officer. Please go ahead.

[James R. Porter, Chief Financial Officer]

Thank you, operator, and thanks to everyone for attending Alamos' First quarter 2020 conference Call. In addition to myself, we have on the line today both John McCluskey, President and CEO; and Peter MacPhail, Vice President and COO. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during this call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Vice President of Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now I'll pass it over to John to provide you with an overview.

[John A. McCluskey, President, CEO & Director]

Thank you, Jamie. Good morning, everyone, and welcome to the call. We had a number of highlights to start the year in what has been a very challenging environment with the COVID-19 crisis. We had a strong first quarter from operations while also making good progress on our growth initiatives at Young-Davidson and Island Gold, which we expect will be transformative for the company. We produced 110,800 ounces of gold, exceeding the top end of our first quarter guidance, with particularly strong performances at Island Gold and Mulatos. Consolidated total cash of -- cash costs of $759 per ounce and all-in sustaining costs of $1,010 per ounce were both at the low end of our original annual guidance. Moving to Slide 4. Our foremost priority has and will continue to be the health and safety of our employees, their families and our local communities. We are fortunate to not have any confirmed cases of COVID-19 at any of our operations or offices, but that has not stopped us from taking action to help prevent the potential spread of the virus. Throughout March, we instituted a number of increasingly strict health and safety protocols across the company. These range from medical screening for all personnel prior to site entry to social distancing practices across our operations. On March 25, we voluntarily placed Island Gold on temporary care and maintenance. In early April, we suspended operations at Mulatos following the mandate by the Mexican government to suspend all nonessential businesses. In light of the temporary operational suspensions at Island Gold and Mulatos, we withdrew 2020 guidance on April 2. These suspensions will impact our second quarter results, but not take away from our strong second half outlook. We expect to resume operations at Island Gold in early May, and will do so safely in a staged manner. We're also positioned to resume operations at Mulatos once the government suspension is lifted. Our strong outlook is detailed on Slide 5. In terms of our growth initiatives, the Phase 3 expansion study at Island Gold continues to progress, and we expect to announce those results midyear. Given the significant growth of the deposit over the past few years, we expect this study will showcase Island Gold as a bigger and very profitable long-life operation. At Young-Davidson, the lower mine expansion is in the final stages, having commenced the tie-in of the upper and lower mines in February. We recently completed several critical path items, including the installation of the crusher, and connected the upper and lower portions of the Northgate shaft through the removal of the ROC pentice. We continue to make good progress albeit at a slightly slower pace given some labor and productivity limitations related to the COVID-19 precautionary measures we put in place. We now expect the lower mine expansion to be completed in early July of this year, a slight delay from previous guidance of June. The completion of this expansion will be a big driver of strong company-wide free cash flow in the second half of 2020. I will now turn the call over to our CFO, Jamie Porter, to review our financial performance in the quarter and our strong financial positioning. Over to you, Jamie.

[James R. Porter, Chief Financial Officer]

Thank you, John. Moving on to Slide 6. We sold a total of 111,900 ounces of gold at a realized price of $1,582 per ounce, driving strong first quarter revenues of $177 million. Total cash costs of $759 per ounce and all-in sustaining costs of $1,010 per ounce were both at the lower end of our original guidance. In addition to strong operational performances from both Island Gold and Mulatos, our costs are benefiting from both the weaker Canadian dollar and the weaker Mexican peso. At Island Gold, our total cash costs decreased to a multiyear low of $452 per ounce. On top of a solid quarter operationally, Island Gold's costs benefited from the repurchase of a 3% NSR royalty in March for $55 million. The royalty was payable on the majority of reserves and resources at Island Gold and its repurchase has reduced cost by approximately $45 per ounce and reduced the effective royalty on reserves to approximately 2.2% from 4.4% previously. We also received terrific news from the Ontario government that Island Gold was accepted into the Northern Industrial Electrical Rebate (sic) [ Rate ] or NIER program during the quarter, which is expected to reduce electricity costs by approximately 20% going forward. With the strong performance on costs, Island Gold generated an impressive $20 million of mine site free cash flow in the first quarter. Operating cash flow before changes in noncash working capital was a near record $82 million or $0.21 per share in the first quarter. Our reported net loss of $12 million or $0.03 per share included unrealized foreign exchange losses of $42 million, largely within deferred taxes that resulted from the significant movements in foreign exchange rates in the quarter. Excluding these items, our adjusted net earnings were $29 million or $0.08 per share. Between higher revenues and lower operating costs, our adjusted net earnings nearly tripled from a year ago. Capital spending totaled $63 million in the first quarter, including $18 million of sustaining capital, $41 million of growth capital and $5 million of capitalized exploration. The majority of the growth capital was focused on completing the lower mine expansion at Young-Davidson, work on the tailings facilities at both Young-Davidson and Island Gold, and other infrastructure projects at Island Gold. We were active under our share buyback program during the first quarter, repurchasing 1.1 million shares at an average price of USD 4.90 per share, approximately 45% below our current share price. We also paid a quarterly dividend of $6 million in March, which represented a 50% increase from the previous quarter. In total, we returned $12 million to shareholders in the first quarter. We ended the quarter with cash of $215 million and $400 million of additional liquidity. This includes $100 million drawn on our $500 million revolving credit facility during the quarter to enhance our financial flexibility in light of COVID-19. We have no other debt. We have stress tested our balance sheet under a range of scenarios. And in every case, we remain very well positioned. With the temporary shutdowns at Island Gold and Mulatos and completion of the lower mine expansion at Young-Davidson, we do expect to be free cash flow-negative in the second quarter. However, we expect to transition to strong free cash flow growth starting in the third quarter of this year and beyond. With that, I'll turn the call over to our COO, Peter MacPhail, to provide an overview of our operations.

[Peter K. MacPhail, Chief Operating Officer]

Thank you, Jamie. Moving to Slide 7. Young-Davidson produced 28,700 ounces in the first quarter. As planned, this was down from previous quarters, reflecting lower tonnes mined and processed with the shutdown of the Northgate shaft in February to complete the tie-in of the upper and lower mines. Prior to the start of the tie-in, mining rates were consistent with those achieved in 2019 at 6,700 tonnes per day. This decreased as planned following the start of the tie-in in February and March to approximately 3,000 tonnes per day with ore trucked to surface from the upper mine. Total cash costs of $1,093 per ounce and mine site all-in sustaining costs of $1,242 per ounce both increased from previous quarters due to the planned lower mining and processing rates during the tie-in. Costs are expected to temporarily increase in the second quarter until we complete the lower mine expansion. We expect costs to decrease significantly once we begin skipping ore from the lower mine infrastructure in July. Over to Slide 8. Young-Davidson has continued to operate under strict healthy and safety protocols. As John noted, we have not had any confirmed cases of COVID-19 among any of our employees or contractors, and we have implemented a number of measures to help keep that way. These measures include medical screening before entry to site and physical distancing practices across our sites. To give you some perspective on some of those social distancing practices, we're now allowing only 4 people in the mine cage, whereas normally, we would have about 12. These measures have resulted in some labor and productivity constraints. This has slightly slowed our progress with the lower mine expansion now expected to be completed in July. Despite these challenges, we've made significant progress on the lower mine expansion, completing several critical path items over the past few months, as illustrated on Slide 9 and 10. We completed the main ramp from the upper mines to the lower mine infrastructure. The 8940 level loading pocket is completed and ready for commissioning. The crusher is fully installed and ready for commissioning. Skips, ropes and shaft bottom steel have been removed from the mid shaft loading pocket. And finally, the pentice separating the upper and lower portions of the Northgate shaft was drilled off, blasted and removed earlier this month. During the second quarter, we're completing the 9025 level rockbreaker station and coarse ore bins, installing the new ropes and skips, and finishing the 8930 load-out. This work is all expected to be completed in July, following which we expect mining rates to ramp up to 7,500 tonnes per day by the end of 2020. This will drive production higher and costs significantly lower in the second half of this year. Over to Slide 11. Island Gold produced 38,800 ounces during the first quarter, up 9% from the first quarter of 2019 despite suspending operations in the last week of March. Even with the downtime, underground mining rates increased to average a new record of 1,240 tonnes per day, 14% higher than the first quarter of 2019 and above our guidance range of 12,000 -- or 1,200 tonnes per day. Mill throughput also increased to average a new record of 1,164 tonnes per day for the quarter, with grades process averaging 11.7 grams per tonne. Total cash costs of $452 per ounce and mine site all-in sustaining costs of $670 per ounce were both better than the original guidance, reflecting the strong operational performance and inclusion of the [ near ] electrical rebate. Island Gold has been on temporary care maintenance since the last week of March. We made the decision to suspend operations given the unique setup of the operation with half of its workforce being fly in, fly out, and housing a camp located directly within the local community. We're planning a phased restart of the operation in early May under strict health and safety protocols. The Phase 3 expansion study of Island Gold continues with the results expected to be completed midyear. Given the substantial growth of the deposit over the last several years, including the 920,000 ounce increase in mill reserves and resources that we announced in February, we expect this will be a positive study showing Island Gold as a bigger, longer-life and more profitable operation. On Slide 12, Mulatos had a strong quarter, producing 42,600 ounces at total cash costs of $812 per ounce and mine site all-in sustaining costs of $958 per ounce. Production was 10% higher than the first quarter of 2019, driven by higher grades and tonnes stacked on the pad. Grade stacked averaged 1.25 grams per tonne, a 28% increase from a year ago, reflecting new production from the higher grade Cerro Pelon deposit. Operations at Mulatos were suspended on April 2, in response to the Mexican government mandate to suspend all nonessential businesses. The suspension has been extended to May 31, with the possibility of lifting restrictions on May 18 in regions that have seen little to no impact. To date, we have not had any confirmed cases at Mulatos nor in the surrounding region. While mining and stacking activities were suspended in early April, we continue to recover gold from the leach pad given the strong inventory of ounces stacked in the first quarter. We are well positioned to restart mining, crushing and stacking ore when the government mandate -- suspension is lifted. With respect to La Yaqui Grande, the project design and economics are being finalized, and we expect to make a construction decision later this year. Given its high grades relative to the main Mulatos pit, we expect La Yaqui Grande will be a significant driver of lower cost at Mulatos once in production. With that, I'll turn the call back to John.

[John A. McCluskey, President, CEO & Director]

All right. Thank you, Peter. Thanks, everyone, for listening. That concludes our formal presentation. I'll now turn the call over to our operator to open the call for your questions.

[Operator]

[Operator Instructions] Your first question comes from Dalton Baretto from Canaccord.

[Dalton Baretto, Analyst]

Congratulations on an excellent quarter. My first question is around Island Gold. Maybe John or Peter, can you explain to me what a phased restart would look like?

[Peter K. MacPhail, Chief Operating Officer]

I'm happy to...

[John A. McCluskey, President, CEO & Director]

Do you want to go ahead -- go ahead, Peter.

[Peter K. MacPhail, Chief Operating Officer]

Yes, I'm happy to take that. Yes. Thanks, Dalton. So we're starting up -- our phased restart is first week, day shift only, local employees, people from the community. We'll then go to day and night shift again, with local employees. And then we'll start bringing in people from outside. We've changed -- we used to have the camp right in the middle of town. There's -- that camp is still there, but we've added to that through last year, just commissioned a camp closer into the mine site. So we'll be using that predominantly, although we probably still need to use the other one. So over the course of about a month, we'll be up to full speed.

[Dalton Baretto, Analyst]

Perfect. That's helpful. And then just maybe sticking with Island Gold. So the study -- the expansion study is almost done. Any chance we can get a sneak peak around the parameters in terms of sizing, shaft versus ramp, that sort of thing?

[Peter K. MacPhail, Chief Operating Officer]

Sure. I mean, we -- I think it's -- we've stated before, we're looking at higher production rates, obviously, than the 1,200 tonnes per day where we're currently permitted. We're looking at ramp and shaft. We're looking at several options. But it wouldn't be surprising to see us looking at either a ramp or a shaft option in around the 1,500, 1,600 tonne per day range. And maybe shaft load options sneaking a bit higher than that. So that's kind of where we're looking right now.

[Dalton Baretto, Analyst]

Okay. Perfect. And then just maybe one more for me, then I'll jump back in queue. And I apologize if I missed this in your disclosure. But have you guys looked at locking in the current exchange rates and deal prices, particularly in Mexico?

[James R. Porter, Chief Financial Officer]

Yes. Dalton, it's Jamie. We do. We're fairly active on our currency hedging program. So we put some hedging in place at the start of the year, and we're continuing to do so now to take advantage of the -- certainly, the weakness in both the Canadian dollar and the Mexican peso. As of now, we've got about 2/3 of our Canadian dollar exposure for the remainder of the year hedged between about $0.725 and $0.76, and we've got about 80% of our Mexican peso exposure hedged between MXN 19 and MXN 22. We are adding to our hedge positions currently. More so in Mexico, where we're seeing collar ranges of between 22 and 32. So there's good opportunities now to lock in very low currency prices.

[Operator]

The next question comes from Mike Parkin from National Bank.

[Michael Parkin, Mining Analyst]

A couple of questions for me. With regards to Mulatos, where are we at with the power line? Is that in site and connected? Or is that still further upside in terms of cost reductions to come?

[Peter K. MacPhail, Chief Operating Officer]

Yes, Mike, it's Peter. No, it's not connected yet. It's actively being worked on. It should be connected later this year, probably in the third quarter, it will be barring unforeseen COVID restrictions.

[Michael Parkin, Mining Analyst]

And in the -- we've seen the phenomenal drop in cost because of the cap on the royalty. What would this, in addition, drop costs?

[James R. Porter, Chief Financial Officer]

Mike, it's Jamie. It's both another $30 an ounce.

[Michael Parkin, Mining Analyst]

Okay. Super. And then with YD, your lower mine connection gets done. What's that do in terms of staffing for the mine? Do you need to add more people? I remember it's quite heavily automated compared to the mid-level loading pocket. Do you have more than sufficient staff on the books now? Or would you actually be hiring a few in the third quarter?

[Peter K. MacPhail, Chief Operating Officer]

No, we're pretty static with the staff or the manning levels between the upper mine at 6,700 tonnes a day and the lower mine ramping up to 7,500 tonnes a day by the end of the year. It is more automated. So it -- you get more bang for your buck there.

[Operator]

Your next question comes from Cosmos Chiu from CIBC.

[Cosmos Chiu]

Maybe first off, just a quick one here. At Island Gold, could you remind me what percentage of the workforce is actually local versus fly in, fly out?

[John A. McCluskey, President, CEO & Director]

It's about half and half.

[Cosmos Chiu]

It's half and half. Okay. And then maybe Peter as well. In Mexico here, clearly, a restart is dependent on the Mexican government giving the okay, maybe as soon as May 18. But could you talk about, is it potentially going to be a staged approach in terms of the restart as well? And if it is, then what are the different stages?

[Peter K. MacPhail, Chief Operating Officer]

Yes. I think once we get the go, we'll -- we would be able to come back full steam ahead. If it was a staged approach, we have a contingency there where we could -- we have quite a stockpile of that sulfitic material [ to assess ]. It's slightly lower recovery, but higher grade. So we could certainly dip into that and just crush [ that ] and put it on the leach pad with significantly lower numbers on site. So that's in our back pocket if we need it.

[Cosmos Chiu]

Great. And then at YD, as you mentioned, at the end of Q1, the throughput went down to about 3,000 tonnes per day. As you connect the lower mine or as you continue to work on a lower mine, now trucking ore up the ramps, is that sort of the throughput that we should be expecting once again in Q2?

[Peter K. MacPhail, Chief Operating Officer]

Yes. I think we had guided 2,500 tonnes a day. So we exceeded that in Q1. We're continuing to try to exceed that. So I mean, we've established that, that's what we can do, and we'll try to keep it there.

[Cosmos Chiu]

Yes. That was my other question as well, Peter, in terms of how were you able to exceed your expectations in Q1? And as you mentioned, can you continue that into Q2?

[Peter K. MacPhail, Chief Operating Officer]

Good operators.

[Cosmos Chiu]

All right. And then maybe one last question here. Bigger picture. With gold hitting $1,700 an ounce, and I haven't seen that for a while now. But on the other hand, with COVID-19 restrictions, has that changed how you look at capital allocation? Clearly, John, you were active on the share buybacks in the past quarter. And you have Island Gold, the expansion study coming in. You have the potential here, La Yaqui Grande. Bigger picture, has that changed? Or has it not? And how do you look at it?

[John A. McCluskey, President, CEO & Director]

Well, it hasn't changed substantially as far as our current capital expenditure plans are concerned. We're well positioned, as you know, from a balance sheet perspective to continue with what we're doing. So we have the option, if we want, for example, to pick our pace as far as the pre-strip at La Yaqui Grande is concerned. So we can approach that a little more aggressively with higher gold prices in view. And of course, we're going to be generating pretty strong free cash flow in the second half of the year. As Young-Davidson comes on full steam from the lower mine infrastructure. So I really don't -- I don't see us backing off on our current schedule. It's nice to know that if something unexpected happens, we have the option to do that. But we're not planning -- we weren't planning any capital expenditures that we couldn't afford to do and our financial situation actually looks very strong. So we're in a good position to keep going.

[Cosmos Chiu]

I guess, on the other hand, John, would you speed it up? Because the other factor is that you were hitting fairly good numbers in terms of the commodity itself. Has that changed your plans? And roping in even like Lynn Lake and some of the other assets as well.

[John A. McCluskey, President, CEO & Director]

Well, we're going at a very good pace at Lynn Lake right now. And if we thought that the gold price movement was merely a blip, I guess, what you would do is you'd push everything as hard as you could to take advantage of the gold price. We don't believe it's a blip. We think these higher prices are going to be around for a number of years ahead. And we think that the -- that the production that we have coming online as we bring on new assets will benefit from higher gold prices.

[Operator]

The next question comes from Kerry Smith from Haywood Securities.

[Kerry Smith, VP, Director & Senior Mining Analyst]

Maybe Jamie can answer this question. Just on the hedging, I know you've got just right around 61,000 ounces hedged this year in those collars. Do you have the flexibility under that hedging program to deliver all your production into the hedge whenever the gold price is below $17.09 an ounce? Or are you mandated to deliver a certain number of ounces every month, let's say, and you can't deliver any more despite what the gold price may or may not be?

[James R. Porter, Chief Financial Officer]

Kerry, yes. No, I mean, we do have some flexibility in terms of being able to roll those contracts or move them forward. But the majority of those contracts are spread out kind of on a monthly basis. So over the next 6 or 7 months, it's, I think, about around 8,000 ounces a month. The hedge book had no impact on our realized gold price, as you would have seen, we came in within $1 of the London PM Fix in the first quarter, and we're right at the kind of top end of those collars currently. But we are -- as we say, we're delivering into them on a monthly basis. So there'll be -- that exposure is pretty limited now. And any additions to the hedge books are at obviously substantially higher rates.

[Kerry Smith, VP, Director & Senior Mining Analyst]

And is there a plan then, Jamie, to add to that hedge book over the course of time, let's say, into 2021 today? Or what is the thought process?

[James R. Porter, Chief Financial Officer]

Yes. So our policy is that we can do up to 20% of our planned kind of steady-state production of around 500,000 ounces. So that's 100,000 ounces total only 12 months out. And we're not increasing that limit. We're not extending that beyond the 12 months, just given the positive momentum in the gold price. We think it's prudent to be conservative here. So we're doing some short-term additional collars. I think we just added some with the $1,600 floor in the $1,950 ceiling. But we're -- I can say we're taking a fairly conservative approach.

[Kerry Smith, VP, Director & Senior Mining Analyst]

Okay. And then maybe, Peter, just on Mulatos, the grade in Q1 was quite a bit better than I expected, and I presume the grade at the main pit must have been better than you were budgeting, because I can't imagine that Pelon delivered that big bump in grade all by itself. Or how did you get that better grade?

[Peter K. MacPhail, Chief Operating Officer]

Well, Pelon did deliver a big bump in grade. We were mining multiple grams per tonne there of oxide and putting it on the pad. So it was really good stuff. The main pit did well as well. I think, was maybe a bit higher than planned.

[Kerry Smith, VP, Director & Senior Mining Analyst]

Okay. So the grade of Pelon was quite a bit better than perhaps you were expecting?

[Peter K. MacPhail, Chief Operating Officer]

No, we were expecting it to be the high in the first quarter, and it came in around where we expected it actually in the first quarter. We expected production to be a bit higher in the first quarter at Mulatos than the -- in the first half than the second half.

[Operator]

The next question is a follow-up from Dalton Baretto at Canaccord.

[Dalton Baretto, Analyst]

I just wanted to ask one question on Turkey. John, just given the fiscal situation in Turkey now and just restrictions on COVID-19 and large gatherings and that sort of stuff. Has that in any way kind of improved your odds of renewing the mining concession in the near term?

[John A. McCluskey, President, CEO & Director]

I would say it's definitely improved our odds, if you want, but I'm not expecting anything imminent. Certainly not before the end of Ramadan. And the situation in Turkey, you've got to watch the politics as much as anything else. And right now, the government is facing pressures from multiple sites. But the real key one is the economy. And just like you've seen in many countries, unemployment, which already was suffering in Turkey; Turkey went into a recession 2 quarters ago, the unemployment rate has soared. And in the region where we are, it's in excess of 25%. So this is something that's going to obviously weigh very heavily on the government and even the local party. The government isn't really sort of controlling the local mayorships and they only have half the MPs from that region. So the CHP is fairly prominent in the Canakkale region. They can't really afford to stand very strongly in opposition for -- in opposition to investment and employment regardless of what maybe one element of that party might think. By and large, the CHP party is very supportive of mining and has been since the very beginning of Turkey. So I do see things shaping up well for us, just because of economic pressures. And there's also been a very strong shift in sentiment. Due to the fact that this whole crisis was essentially precipitated by a social media campaign that was just all standing on a foundation of lies. There's not a single thing they were alleging that was true. So you can get away with that for so long. But eventually, given enough time and effort, and we've certainly been putting in the effort, you can start to make people question those initial assertions when they have to stare the facts in the face. So while the people that are opposed to that project still try to push the old allegations, by and large, the people in general know that they're not true. So it's only those that are just opposed to the mine, no matter what the case may be, those are the ones that remain sort of strongly in opposition. And I would say there's been a huge shift in sentiment as far as the sort of the general public is concerned. And it's also important to note that we've always had very strong support from the local communities who are aware from the very start that what was being said about the project just fundamentally wasn't true. Another thing to point out is that there were 2 additional court challenges brought against the project over the last year. The last one was dealt with in January. We didn't think it had a snowball's chance in hell. But nevertheless, it got a hearing, and they were unsuccessful again. So the court has repeatedly upheld the project and the -- all the permits which were being attacked in the court case. All the permits were upheld and justified by the court. So I would say from a whole variety of perspectives, the project is looking very likely to get renewed. And I don't think the alternative is one that the government could really afford, and that would be them just going ahead and seizing the project and then forcing us into some sort of international arbitration where we would undoubtedly win. And I just don't think that is what Turkey wants to do. It really needs to encourage foreign investment. It's very low on U.S. dollars right now. They can't really count on what they typically get in the spring and the summer, a big tourist trade, and it brings a lot of foreign currency into Turkey. That's probably not going to happen in 2020, and that means, particularly in a region like Canakkale which is really relying on tourism quite heavily, it's going to mean projects like ours take on much more importance. So I would say -- I hate to go on too much about Turkey, but -- and I do know that it's getting virtually no value in our share price. But if you look at it just in terms of those facts, you can see that our position is really quite good. And the government has always supported the project, and they're just waiting for an opportunity where it's going to face as little opposition as possible to bring the project back. At this stage, it looks very good. I think another important thing to point out is there are no protesters left at the site. There was a very small group, small but vocal group, sort of maintaining a vigil at that site for the last number of months. But that site has been completely cleared now, and the forestry department is in the process of actually planting that area with trees and fencing it off. So I just don't think there's going to be any further scope during this whole COVID-19 crisis. I don't think there's going to be any further scope for that to continue to bother us.

[Dalton Baretto, Analyst]

That's very comprehensive and helpful. So if I can ask a follow-up then, and this is kind of related to what Cosmos was asking earlier on the capital allocation side. If we assume that the mining concessions are renewed in the next few months, let's say. Would you guys have the appetite to take on Kirazli, the Island Gold Phase 3 and La Yaqui Grande all at the same time?

[James R. Porter, Chief Financial Officer]

John, I can touch on that just very quickly. And Dalton, I think our strategy in terms of capital allocation hasn't changed over the last 3 years. It's been once we start generating that meaningful free cash flow that we'll start seeing in the second half of this year, 1/3 of it will go to further bolstering our balance sheet, so building up our cash balance. 1/3 will go to returning capital to shareholders, which we've been doing with the share buybacks and the dividends. And 1/3 will go to our internal project development pipeline. So that's La Yaqui Grande. I mean, if you look at current prices and our plant production for next year, Young-Davidson and Island Gold will generate well north of USD 200 million between the 2 of them. Mulatos will generate enough free cash flow to support construction of La Yaqui Grande and then some. So we'll -- net of all the investment in La Yaqui Grande, we'll still be generating free cash. So I think there's room to -- if we wanted to go ahead with Kirazli, advance Lynn Lake, while building La Yaqui Grande, there's room to do that within our 1/3, 1/3, 1/3 plant. So yes, I don't see that as being an issue at all. And with respect to the Phase 3 expansion in Island Gold, we'd be looking at about 18 to 24 months of permitting before we start spending any significant capital on that. So that doesn't -- there's no real cash outflow associated with that for the next couple of years.

[Operator]

There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at [phone], extension 5439. Thank you.