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Alamos Gold Inc
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Good morning. I would now like to turn the meeting over to Jamie Porter, Chief Financial Officer. Please go ahead, Mr. Porter.
Thank you, operator, and thanks, everyone, for attending Alamos' Second Quarter 2018 Conference Call. In addition to myself, we have on the line today John McCluskey, President and CEO; Peter MacPhail, Vice President and COO; and Andrew Cormier, Vice President, Development and Construction.I would like to remind everyone that our presentation will be followed by Q&A session. On this call, we will be making forward-looking statements. Please refer to the disclaimer on forward-looking statements in our news release and MD&A as well as the risk factors set out in our annual information form. All forward-looking statements on this call are qualified by these cautionary statements. There can be no assurance that our forward-looking statements, even though considered reasonable by management and based on information on hand, will prove to be accurate. Future results and events could differ materially. 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 United States dollars unless otherwise noted. Now John will provide you with an overview.
Thank you, Jamie.We've had an excellent start to the year on a number of fronts. We raised production guidance after the first quarter, and we remain well on track to achieve this halfway through the year. With mill expansion at Island Gold, it's well on its way to being completed this quarter, and with the mill currently -- and the mill is currently being commissioned. Exploration of Island Gold also continues to exceed our expectations, and we will be issuing an interim mineral reserve and resource update in the third quarter, in which we expect a significant increase in resources.We also received the GSM permit for Kirazli this past week, a significant breakthrough for our Turkish assets. We produced 127,000 ounces in the second quarter at all-in sustaining costs of $996 per ounce. This exceeded production guidance of 125,000 ounces and was just below the record we set in the first quarter. This was driven by another strong performance from Mulatos and Island Gold resulting in the second production guidance increase for both operations this year. This more than offset a slower first half at Young-Davidson with the operation impacted by downtime for unplanned maintenance. This maintenance was completed and with grades and throughputs expected to increase through the rest of the year, we expect stronger results from Young-Davidson. We expect to produce between 120,000 and 125,000 ounces of gold in the third quarter at lower all-in sustaining costs. A completion of the mill expansion at Island Gold and stronger production from Young-Davidson are expected to drive productions higher in the fourth quarter. Combined with this solid first half, we remain on track to achieve full year consolidated production guidance of 490,000 to 530,000 ounces at all-in sustaining costs of $950 per ounce. Financially, we generated operating cash flow of $55 million, reflecting the strong production and sales in the quarter. We also generated $22 million of mine-site free cash flow, and $9 million of company-wide free cash flow, both ahead of budget. With the GSM permit for the Kirazli project now in hand, we will be ramping up full-scale construction over the next few months. The permitting process took longer than anticipated, but I can assure you that it will be well worth the wait. With its low cost of capital, Kirazli is one of the highest-return undeveloped projects in the world. It will take consolidated production to over 600,000 ounces per year, while significantly lowering our cost profile.Based on the current timelines, we expect initial production from Kirazli in the second half of 2020.Being debt free, with $235 million of cash, we have one of the strongest balance sheets in our peer group. Combined with growing cash flow from operations, we are able to fund Kirazli internally. And with that summary, I will turn the call over to CFO, Jamie Porter to comment on our financial performance.
Thank you, John. We sold 129,000 ounces of gold in the second quarter at an average realized price of $1,307 per ounce for revenues of $169 million. Consolidated total cash cost of $832 per ounce and all-in sustaining costs of $996 per ounce were up from the first quarter, primarily reflecting the weaker quarter in Young-Davidson. Both total cash costs and all-in sustaining costs are expected to trend lower in the second half of 2018.Operating cash flow before changes to noncash working capital was $55 million or $0.14 on a per-share basis. Through the first half of the year, our operating cash flow increased 48% relative to the prior year to $117 million or $0.30 per share, continuing a trend of improving financial performance on both an aggregate and per-share basis.Our 3 core operations continue to generate positive free cash flow in the quarter with combined mine-site free cash flow of $22 million, and company-wide free cash flow of $9 million exceeding budget, reflecting higher gold prices and strong performances from Island Gold and Mulatos. Our adjusted net earnings for the quarter were $5 million or $0.01 per share. Our reported loss of $9 million or $0.02 per share was impacted by unrealized foreign exchange losses, recorded within both deferred taxes and foreign exchange of $15 million as well as other one-time items. Amortization expense was $42 million for the quarter or $328 per ounce, up from a year ago though slightly below full year guidance of $340 per ounce. This reflects lower production from Young-Davidson during the quarter, which carries a higher amortization per ounce charge. Corporate G&A expense in the quarter was $4.6 million, among the lowest in our peer group and consistent with guidance.Capital spending totaled $53 million in the second quarter, including $12 million of sustaining capital, $36 million of growth capital and $6 million of capitalized exploration. Capital spending at our operating mines remains on track. Within our development project, I'm pleased to report the increase of the 2018 budget for Kirazli to between $50 million and $60 million, now with the GSM permit in hand. We've already spent $10 million of that through the first half of the year and the remaining initial capital of $90 million to $100 million will be spent in 2019 and the first half of 2020. With no debt and cash and cash equivalents increasing to over $235 million at the end of the second quarter, we have more than ample capacity to fund this growth. At this point, I'll turn the call over to Alamos' Chief Operating Officer, Peter MacPhail, to provide an overview of operations.
Thank you, Jamie. Island Gold and Mulatos continued to perform very well in the second quarter, more than offsetting softer quarter in Young-Davidson. This allowed us to exceed production guidance and illustrates the importance of having a diversified operating base. No single mine is going to perform well in every single quarter, from which 3 core operating mines were well positioned to constantly perform well as a company. Young-Davidson produced 39,100 ounces in the quarter at total cash costs of $890 per ounce. And mine-site all-in sustaining costs of $1,083 per ounce. Production end costs were both impacted by unscheduled downtime to both the mill and the Northgate hoist. We have previously scheduled a 4-day shutdown to change the head ropes on the Northgate in July but moved this forward into June to correspond with an unplanned shutdown to replace a bearing on the hoist drum which had failed. This took 8 days, during which we weren't able to hoist ore, impacting throughput and production. This limited mining rates to average 6,100 tonnes per day for the quarter. The maintenance was completed by the end of June and mining operations are expected to return to budgeted levels in the third quarter. Grades mined of 2.35 grams per tonne were also lower than planned due to mine sequencing as we did not get to the higher grade stopes planned for the quarter.Mill processing rates of 6,600 tonnes per day were impacted by unscheduled 11-day shutdown at the mill to replace liners and repair the soleplate anchor bolts. The liner change had been planned for July but was moved up to coincide with the downtime for the repairs to the mill on the Northgate hoist. The work on the mill was completed in early July. With all this downturn behind us, we expect a stronger second half with grades and mining rates expected to increase through the rest of the year. However, given the weaker first half, we've reduced 2018 guidance for Young-Davidson to 180,000 to 190,000 ounces of gold.Island Gold produced 26,700 ounces during the quarter at total cash costs of $587 per ounce. And mine-site all-in sustaining costs of $668 per ounce. With production of 54,800 ounces well ahead of budget, we've increased 2018 guidance of Island for a second time, now expected to produce between 100 000 and 110,000 ounces, an 11% increase from initial guidance. All-in sustaining costs were again well below annual guidance with some sustaining capital deferred to the second half of the year, which will result in higher costs through the rest of the year.The mill expansion to 1,100 tonnes per day is on track to be completed in September. And we expect mining and milling rates to ramp up in the fourth quarter supporting strong production and free cash flow growth in 2019.Mulatos again exceeded expectations with production of 50,600 ounces at total cash costs of $795 per ounce, and mine-site all-in sustaining costs of $854 per ounce. This reflected higher recoveries from the heap leach operations and longer-than-expected mill production from San Carlos. Mill production had been initially expected to end at the first quarter. We have extended the mine life into the third quarter but can now see a definite end to the mining at San Carlos this month. Given the stronger-than-expected first half and extended production from San Carlos, we have increased our 2018 production guidance for Mulatos again this quarter to between 170,000 and 180,000 ounces, a 13% increase from original guidance.With mill production winding down in the third quarter, we expect lower production in the second half of 2018. Production is expected to return to the previously guided range of 150,000 to 160,000 ounces per year in 2019 and 2020.El Chanate produced 10,100 ounces at mine-site all-in sustaining costs averaging $1,442 per ounce. Mining activities are now expected to cease in the fourth quarter but will continue to benefit from ongoing production at declining rates through residual leaching. Looking ahead, the company anticipates maintaining production of approximately 500,000 ounces per year from existing operations, with higher margin growth from Island Gold replacing higher cost production at El Chanate. Kirazli will take us over 600,000 on an annualized basis. I will now turn the call over to Andrew Cormier, Vice President of Development and Construction to touch on our recent successes in Turkey.
Thank you, Peter. We are very pleased to have received a GSM permit for the Kirazli project this past week. A lot of progress has already been made on Kirazli's infrastructure projects to date. 75% of the site is now cleared of trees and 80% of the road construction and 40% of the power lines are complete. Construction of the reservoir is also underway and is 40% complete.All of these infrastructure projects are expected to finish by the end of the year. Detailed engineering has been ongoing and purchase orders for processing equipment have already been placed. The tender process for the construction management and civil construction contract is complete, and mobilization will begin over the next 6 to 8 weeks. We have a strong team in Turkey led by our Country Manager, Metin Demir. Metin has over 27 years of experience in the mining industry, and includes 3 mine development and construction projects in Turkey, and was previously the General Manager of the Kisladag mine.We are well positioned to ramp up the full-scale construction over the next few months. And expect to be [indiscernible] first gold in the second half of 2020. With that, I'll turn the call back to John.
Thank you, Andrew. That concludes our formal presentation, and I'd like to ask the operator to open the lines for your questions. Operator?
[Operator Instructions] The first question is from Michael Gray from Macquarie.
I got 3 questions. First on Mulatos, the favorable recoveries. Were they related to a pad height? Or do you see a long-term positive impact from the La Yaqui or [the Sphinx stack]?
Michael, it's Peter. The recoveries at La Yaqui, I think we've budged for 85 -- 75, sorry we purchased it for 75 initially, and it's running 85 or even better than that. So that's -- we expect that to continue, those kinds of recoveries at La Yaqui. And that bodes well for La Yaqui Grande, which is very similar ore.
Okay. And can you comment on how the grades are reconciling at Island versus the block model?
Yes. So in the second quarter, it reconciled bang on grade wise. Year-to-date, we're plus 10% reconciliation on grade.
Okay, appreciate that. And then finally, are you able to give a breakdown on the capital expenditures for Kirazli. The $90 million to $100 million. How much in 2019 versus the first half of '20?
Can you repeat that question?
Just with the Kirazli CapEx, the $90 million to $100 million budgeted for 2019 and the first half of '20. Are you able to break that down into 2019 and 2020 CapEx expenditures?
It's a little early to do that now. Really depends on the start we get for the balance of this year. And that gives you that first with your construction. So we are better positioned with our guidance next year to break up the 2 years.
Yes, as assuming production goes -- construction goes way through to the first half of 2020, you can probably put $70 million in for 2019. But the residual $20 million to $30 million in 2020.
The next question is from Rahul Paul from Canaccord Genuity.
At Young-Davidson, you mentioned not getting to some of the higher grades still strong for the quarter. Was that largely related to the hoisting constraints holding back development? Or were there some other challenges as well?
This is just overall our mining rate that we saw in the quarter versus planned. We're kind of sequence driven there, and some of the higher grade stopes were to come on late in the second quarter had been pushed into the third quarter, we're actually seeing that now.
Okay, thanks. And then just moving on to Mulatos. With San Carlos mining coming through an end soon. Will the mill be effectively put on care and maintenance? Or are you looking at alternative sources of feed for the mill?
Yes, the mill will be put on care and maintenance later this quarter, once we're finished mining the stockpiles that remain at San Carlos -- from San Carlos. And yes, I mean, just having that mill gives us the ability to -- should we find some more higher grade sources in the area, we'll be able to process them. But right now, we don't see -- we don't have anything for it, but we'll hang on to the mill.
Well, we're not specifically targeting higher-grade structures. Our exploration right now is mostly very grassroots focused. And target is, I would say, primarily looking for open pit, heap leachable style mineralization.
Fair enough. Fair enough. And then just on that topic again. I mean, should we expect much in terms of care and maintenance costs going forward if the mill is not being used or...
No, that -- it's a very small mill, Rahul. There'll be no people -- I mean the cost will be zero to keep that mill there.
The next question is from Cosmos Chiu from CIBC.
Maybe a few questions from here. Maybe first off on Young-Davidson. Certainly, your underground mining rates were impacted by the 8-day shutdown. But if I were to gross that up, 8 days of 90 days, if I were to gross that up, I get to a number. If it was running for the full quarter at about, say, 6,700 tonnes per day, that's still sort of lower than what you had targeted, 7,000 tonnes per day for the year. Peter, are you still targeting 7,000 tonnes per day? And can you get there in the second half?
If you look back at our performance over the last year, it is around that 6,700 tonnes per day mark. We have hit 7,200 tonnes per day in Q4 of last year. You got to -- let me say it this way. This mine was designed at 6,000 tonnes a day, and -- for the upper part of the mine, and we're pushing it to 7,000 tonnes a day. 7,000 remains our budget. The guys are bonused on 7,000 a day. We've averaged 6,700 tonnes a day for the last year. The lower mine, which we're currently getting -- we can see it coming into focus now, fourth quarter of next year hope to be bringing that online, and that is designed at 8,000 tonnes a day. Difference is being skipping from that lower mine, we can put 24 tonnes in a skip ends instead of 17 tonnes in a skip that it currently house, that has to do with the friction hoist and the weight of the ropes, and various things like that. We'll be using or putting in place significantly more ore storage capacity in the lower mine, 6,000 tonnes of storage whereas we currently have around 1,000 tonnes. That really makes a difference when the mill -- sorry, if you're blasting or you're doing shift change and there's no one underground, we can skip on automatic, keep the thing going. But you run out pretty quick when you've got 500 tonnes to 1,000 tonnes in a bin. You've got 6,000 tonnes in a bin, you can skip for almost a whole day on automatic. The lower mine is being designed for 8,000 tonnes a day. I think our target remains 7,000. And I think you'll see us probably where we are now in the -- between 6,500 and 7,000 for until we get that lower mine built out.
And then, Peter, I guess there were some issues with the bearings and on the hoist and what not in Q2. And those issues have now been fixed. But could you remind us again, is that hoist just getting replaced anyways, right? As you link up the lower mine with the upper mine in late 2019.
Yes, so what happens there is -- well, first of all, those bearings should last 20 years. And it was a real disappointment that we had problem with one. What happens when we commissioned the lower mine is that we -- it is still the same hoist on top of the head frame. We just changed the ropes, lengthened the ropes, and that will continue to be the same piece of gear that we have there.
Okay. Maybe switching gears a little bit at Island Gold here. You mentioned that there's going to be interim reserve resource to be released some time in Q3, I believe. How many meters -- how many additional meters of drilling are you including at that new reserve resource and what would be the focus here? Would the focus be on a conversion of resources under reserves? Or would the focus here be expanding your resources or both?
Yes, so we put out a fairly complete exploration update in May, just before we had our visit to Island with you guys. And the drilling that went into that, I can't remember the meters, but it's all in that release. And in fact, most of the information would be in that release. The cut off for our drilling would have been just maybe several weeks or maybe a month past that. So I think most of the information is out there. It's going to be used for this resource update. You asked whether it'd be more reserve or resource, I think more resource. It's stepped out of drilling to the down plunge on the main zone. It's some of that drilling in that upper East zone. It's all of that. So there's going to be a mix of reserve and resource but the lion's share will be resource.
The next question is from Lawson Winder from Bank of America Merrill Lynch.
So, it's quite the log, John, getting on to your call this morning. It's fairly late and I missed. Did you mention what the underground mining cost per tonne was for YD? And if not, or either way, do you mind sharing it?
Yes, I don't think we mentioned that, Lawson. It was just over CAD 50 per tonne, with the lower tonnes driving that higher number.
Okay, that makes sense. And then just in terms of YD looking into H2. So there were 2, sort of like, surprises. There was Q1 with the pace sequencing, and then the bearing this quarter. I was just curious, Peter, is there anything for H2 that kind of like, I guess, I put it this way, keeps you up at night that you kind of worry about? Or are you very confident heading into H2 in terms of YD?
Yes, I think we're confident in our guidance now that we've reduced it. I think we're confident at that level. No, I think with this maintenance work behind us, we're in decent shape.
And then just -- one more on YD. The gold sales are -- have been trending nicely ahead of production in H1 and H2. I'm just curious for the second half...
That can only continue for so long.
Yes. When do you expect that to sort of reverse or catch up? Do you expect it this year as this is a longer term?
On an annual basis, it's going to have to be equal because it's -- when we produce it, we sell it. The inventory can, in the milking, kind of, go up and down by maybe as much as 5,000 ounces in any given quarter.
Okay. So you would expect some sort of chewing up in Q3 or Q4. Okay. All right, that's great. And then just finally just sort of longer term on Mulatos. So you guys have guided to the production there coming back down to that, I believe it was 150,000 to 170,000 range post San Carlos. Once you bring in La Yaqui Grande in 2021. So do you guys think of La Yaqui Grande as being additive to this new range or supplemental like being able to sort of keep the upper range?
That 150,000 to 160,000 ounce that we talked about is, knowing what we know now about the reserves that we have there, not factoring any sort of resource conversion or anything like that just on a reserve base and the next 8 years or so, 8, 9 years, we see that being able to maintain that run rate. And that includes South stockpiles, La Yaqui Grande, and Yaqui, Cerro Pelon.
Your next question is from Josh Wolfson from Desjardins Bank.
Just a couple of quick cost questions. First off, for sustaining capital, first half spending was $23 million. For the low end of your guidance, spending in the second half would be $45 million. So a very significant step up. Are you still comfortable with that sustaining capital guide? And is there anything in particular where that -- those dollars are being allocated?
Yes, Josh, it's Jamie. You're right. The majority of that deferral of sustaining capital was in Island so do expect we indicated that in the MD&A and press release. We do expect sustaining capital in Island to be a fair bit higher through the second half of the year. I think it will probably come in within $5 million of the low end of our guidance. The -- capital budget on the sustaining capital side often gets deferred into the following year. So I wouldn't expect that to be above the low end of our full year guidance.
Got it. And then similarly for YD, and maybe this is too granular, but, yes, first half total cash cost at $850,000 versus full year guide of $675,000. Is it reasonable to assume that the cost in the second half will be that much lower that -- those -- that, that asset specific number will be achieved?
No, no, it's not. We're not going to get to the $675,000 for the year, but I think what we tried to indicate in the MD&A is that on an overall consolidated basis, the lower reported cost at Island and Mulatos, we're hopeful will offset the higher cost of YD.
Understood. And one just last question. For YD, obviously, your mining rates are expected to improve in the second half. Is there any waiting to a particular quarter or is there any sort of impact of the downtime for the second quarter leading into the third quarter where we should expect maybe highest throughput in the fourth quarter versus third or is it going to be somewhat balanced?
There's a good, Josh, there's a good slide in our corporate presentation that shows, I think the 5-year history of YD. And if you look back over that history, you'll see that the fourth quarter is always the strongest quarter of YD. So we would expect that at Young-Davidson. We'd expect that at Island as well. Our forecast for Island is slightly higher grades in the fourth quarter relative to the third quarter. So we -- as indicated in the MD&A, we expect our quarterly production to drop to between 120,000 and 125,000 ounces in Q3. And we should go up from there in Q4.
The next question is from Kerry Smith from Haywood Securities.
Peter, just for the back half of 2018? I'm assuming the -- even though you're going to get some higher-grade stopes, I am presuming the grades are not going to be much greater than reserve grade or sort of 2.65, 2.7?
Yes, that's about right.
Okay. And the other question I had was the anchor bolt failure that you had, was that a failure of the concrete or was it failure of the bolt itself?
It's hard to say. I think you get a bit of what happened there was the soleplate was probably a little bit loose in the concrete and caused the bolt to fail. We -- you can run like that for a while but ultimately, you want to go down and tear up that soleplate, chip away all the concrete and start fresh. So that's what we did.
Okay. I guess what I was getting at was is there a chance that you can have an issue like that with one of the other bolts or you can...
No. Well, there's always a chance sure, but there is no sign of that.
Okay. And, Jamie, I know you guys had talked about sort of revisting Kirazli on the capital side. Just given what's happened with the lira is -- are you doing that now? Or are you planning to do that? And can you maybe hedge a little bit of that lira exposure just to, kind of, lock in some of those currency rates?
So yes, Kerry, we are doing that. So we've -- the way we see about 60% of our capital is lira-denominated, much of that labor. But you've got -- the depreciation of the lira being offset somewhat by pretty high inflation in Turkey running 13% to 15% over the last couple of months. So there is going to be a positive impact. But it's not going to drop our capital by 20% or anything. I think we're comfortable sticking with the $150 million, and we're confident that we'll be able to get the project built for that. On hedging, we are absolutely able to hedge lira. We're evaluating that currently.
The next question is from Dan Rollins from RBC Capital Markets.
Peter, I was just wondering if you could just confirm again the throughput that La Yaqui Grande is going to be designed there at Mulatos?
I think [indiscernible].
It's Andrew, Dan. So La Yaqui Grande we're designing for an average throughput of 9,000 tonnes a day.
Okay. And then just trying to get that sort of run rate to 150 to 170, and when you've got Pelon kicking in, La Yaqui, La Yaqui Grande. And the existing heap leach running for probably another 5 to 6 years. It does seems like you'd be higher than that 170 range in a couple of years and then drop off. Is that sort of 150, 170 an average you're recording?
Yes, that would be average and there may be a bit of fluctuation. But I think maybe what you're saying -- if I -- one I -- when we -- when I look at it, I'm looking on a reserve basis only with no resource conversion. If you look at Mulatos pit reserves assuming no resource conversion, you don't, it's not a 5-year. Yes, the Mulatos pit, I believe, is exhausted within the next 3 years. And then the bulk of production comes from Cerro Pelon and La Yaqui Grande, the plugged figure in that kind of calculation is the stockpile that we'll be processing leaching on the existing Mulatos leach pads and we can control really the timing of that. So our objective is to obviously get the goal there as soon as possible, but the way it looks currently we'll be able to sustain around that 150,000 to 160,000 ounces production levels for the next 7, 8 years, assuming there's nothing else.
Okay. That's perfect. And then just on the exploration at Mulatos. You are spending a lot of money. And I do realize that you did have a lot of success there in '15, '16 and to a degree last year, especially at Grande. But with the budget right now, is it more greenfield grassroots type exploration activities that are going through? Because it's been a while since we saw any real drill results from Mulatos.
Yes...
Yes, go ahead, John.
Yes. That's exactly what it is. We are targeting a number of these big alteration zones that we've had on the drawing board for quite a number of years where the basic mapping had been done, but we had never really advanced them very far beyond that. So, virtually, our entire budget this year has been directed in that way. So we're -- we're really -- it's a period where you are really slogging through doing the high-risk but potentially it's very rewarding end of the exploration. One zone that we're starting to drill now that we did drill about 8 years ago. It's a big system. It has -- we were able to identify some gold mineralization there but we're taking a much bigger path at it this time around picking up, starting from doing more geophysics and more of the basic geology to try to identify broader targets than the initial approach that we took when we did the drilling a number of years ago. So it's not going to be a quick program where we go in and plug holes into one specific area where it's an 18-square kilometer alteration area. This was the [ Carasito ] zone. And we're going to essentially design a program over a number of years that gives us a better chance of finding something if it's there. So that's how I would derive -- describe the exploration budget at Mulatos this year. Quite different from the money that we're putting into Island Gold, which is effectively building on an ongoing discovery story that's been in place for about 4 years.
Okay. That's very helpful. And then I guess we can't ask the question every quarter now about when the permits you are getting from Kirazli, so congrats on getting those. But is there -- when do you have to start thinking about permitting for A Da. I know it's still a number of years down the road and I believe your still plan of attack there is to get Kirazli up and running, and then use the cash flow from Kirazli to fund A Da. But is there -- can you get those permits now? Or do you need to wait closer to when Kirazli is up and running because there is a timing issue on when you receive those permits and when you need to start moving the project forward?
Certainly, we're going to keep our eye on timing but there is two specific things I would think about in terms of next steps in Turkey. Issue one would be just the cost of getting some of those permits in place. There is a fairly significant cost attached to forestry permits in Turkey. So I don't want to put those permits in place any sooner than it's required. And then secondly, I believe that the whole process is just going to go much more smoothly when everyone can see a successful Kirazli up and running. It's nice to have -- it will be nice to have a mine like Kirazli, which will be quite a showpiece when it's done. It will be a place where all concerned can come and observe firsthand what we're doing instead of theoretical -- theoretically speculating on the risks and dangers of an operation like this in the area. Once it's established and we can show that it's a really safe environmentally sensitive project, I think it's going to help pave the way for the next project that we undertake in that region.
And then it's been a while since you've directed any real cash towards exploration and it's notable why with the delays in permitting and just some of the other aspects going on, but there's a lot of smoke around that area of -- in the Biga Peninsula, especially if you stand on some of those outcroppings or the silica caps, you can see them all over the place. But when do you start putting real money back in the ground in exploration there and potentially start to flush out the district potential between Kirazli, A Da and Çamyurt mill?
Well. You know part of the issue is the fact that we already have 3 million ounces of reserves there. We have enough reserves to provide us with a really good production profile for 10 to 12 years. From that perspective, nobody's holding a gun to our head to do exploration. Now Kirazli right now has about a 6-year mine life, and there is plenty of potential around it. So I would like to get going on additional drilling there. But I think you could expect it to be timed for when we have the mine finally up and running. I really don't have much interest in spending more money on exploration until I'm starting to generate some free cash flow from those operations.
[Operator Instructions] And the next question is from Anita Soni from Crédit Suisse.
My questions mostly have been answered. But I just want to circle back on stockpiles for both Island Gold and for YD. So I guess the quarter you had pretty good grades considering what was mined underground and I think the MD&A said that it was from stockpiles. Can you let us know what -- where those stockpiles stand now? What grade they're at?
Which operation are you talking about? Island?
Island first, yes.
Yes, so we have some stockpile on surface. It's kind of an in and out -- and we do have the ability sometimes to segregate some high grade there and help us out there. I think probably having the order of 30,000 tonnes at any given time in the stockpiles would have been around there, which is quite a bit for underground mine if you consider that's about a month's worth of production.
And I assume it's north of 11 gram per tonne material?
I'm sorry, Anita, I can't hear you.
Sorry, is it north of 11 gram per tonne material? Or what like...
I think it averages around 5 or 6. But we can segregate it so I think we did pull some higher grade stuff off during the quarter. We did it back.
Given the type of operation it is, the grade of that stockpile will change from quarter-to-quarter.
Okay. Right. And then moving same -- similar question on YD. I guess YD I'm a little confused because -- do you still have scats left? Or they're -- I mean, is that depleted?
No, we have multiple different kinds of stockpile there. And in fact where you're probably where you're confused I bet is that we had for the first time an appreciable amount of underground ore stockpiled at the end of the quarter. It was about 40,000 tonnes of 2.35-, 2.4-gram material.
Okay, so your stockpiles are not stopping your mining and then [indiscernible] -- but then you've lower grade, more lower grade than normal rather than doing -- because otherwise, it's really hard to get to that 2.1 level.
The -- so what I mean is that at the end of the quarter because we were shut down and underground continued to drug some stuff up, we ended up with about a 40,000 tonnes stockpile of underground ore at the end of the quarter. We did also mill scats and what would have been multi-scats. In all, we have about 0.5 million tonnes of stockpile at around a gram, of scats. Plus, we have, at the end of the month -- and that probably includes the 40,000 tonnes of underground mill. In addition, we had 40,000 tonnes underground at 2.3.
Next question is from Mike Parkin from National Bank Financial.
All right guys. A couple of questions. On La Yaqui, how's the grade reconciling there? You've got a history of that district being kind to you. Are you seeing a similar trend to the earlier days at the Mulatos pit?
We are. It's getting in positive. 5% is what I'm being told here, so 5% positive grade wise at La Yaqui.
Okay, and any positive grade reconciliation on tonnes versus...
No, I think we're flat there.
Okay. And on the hoist bearing failure. From your analysis of it, was it a load failure or just a manufacturing...
Bearing has been sent off for testing. So I don't think we have the results back on that yet. It is designed for the full load to the bottom of the shaft. This is there must have been something wrong in the manufacture of that particular bearing.
And did you do an inspection of the other side to see how it's holding up?
Yes, it's just fine.
Okay. And what's -- do you guys carry a spare for that or was it kind of a custom order bearing?
Yes, we're well spared for everything associated with that hosting facility.
There are no further questions registered at this time. This concludes today's conference call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parson at (416) 368-9932, extension 5439. Thank you. Have a nice day.