Alamos Gold - Earnings Call - Q1 2025

Transcript

Operator (participant)

Morning. I'll now turn the call over to Mr. Scott Parsons, Alamos's Senior Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Scott Parsons (VP of Corporate Development and Investor Relations)

Thank you, Operator, and thanks to everybody for attending Alamos Gold's First Quarter 2025 Conference Call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer; Greg Fisher, Chief Financial Officer; Luc Guimond, Chief Operating Officer. 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 the 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 Senior VP 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, John McCluskey will provide you with an overview.

John McCluskey (President and CEO)

Thank you, Scott Parsons. I'd like to turn your attention to slide three. We produced 125,000 ounces of gold in the first quarter, consistent with the lower end of quarterly guidance. Island Gold continues to perform well, offsetting a slower start to the year from Young-Davidson and Magino. As we will outline through this call, we have seen a significant improvement from both operations in April and expect this to contribute to a stronger production in the second quarter. With a further increase in production expected into the second half of the year driven by higher grades and mining rates at Island Gold and increasing grades at La Yaqui Grande, we remain well-positioned to meet our full-year production guidance.

All-in sustaining costs for the quarter were above our first-half guidance, reflecting lower production at Young-Davidson and Magino, increased royalties due to the sharply higher gold price, and higher share-based compensation given the 45% increase in Alamos's share price during the quarter. Through a combination of higher tons and grades processed, we expect rising production and a significant improvement in our costs through the remainder of the year. We expect this to drive a 20% decrease in all-in sustaining costs in the second quarter, with further decreases into the second half of the year. Turning now to slide four, we continue to advance our high-return, permitted, and fully funded organic growth projects that are expected to support further production growth and declining costs in the coming years.

Following our construction decision at Lynn Lake earlier in the year, we attended a groundbreaking ceremony alongside the Premier of Manitoba, as well as representatives from the First Nations and local communities. Construction activities are ramping up and will be completed over the next three years, with initial production expected in the first half of 2028. In February, we announced a 31% increase in our global mineral reserves to 14 million ounces. This included another substantial increase in reserves and resources at Island Gold, highlighted by a 32% increase in reserve ounces and an 11% increase in grades. We will be incorporating this growth along with large mineral reserves at Magino into an expansion study to be completed in the fourth quarter that we expect will outline significantly larger and more valuable operations. Turning to slide five, our outlook has never been stronger, and we have never been better positioned.

We have one of the strongest growth profiles in the sector, underpinned by three high-return projects. All of this growth is fully funded. We started last year at a run rate of 500,000 ounces per year. With the addition of Magino, we expect to produce approximately 600,000 ounces this year. With the phase three expansion in its final full year of construction, we expect further growth to 700,000 ounces per year by 2027, with all-in sustaining costs trending lower to approximately $1,200 per ounce. With initial production from the Lynn Lake project expected in the first half of 2028, our longer-term production rate is expected to increase to 900,000 ounces per year, with a further decrease in costs. At current gold prices, our all-in sustaining cost margin is expected to exceed $2,000 per ounce, supporting over $1 billion in annual free cash flow.

Longer term, we see excellent potential to take the company-wide production to 1 million ounces per year with a further expansion of the Island Gold District. Turning to slide six, we expect stronger free cash flow through the remainder of 2025 at current gold prices while funding all of our growth initiatives and record exploration program. With the Phase 3 Plus Expansion on track for completion in the first half of 2026, we expect considerably higher free cash flow starting in the second half of 2026. We expect further growth into 2027 and beyond driven by higher production, lower costs, and decreasing capital with the start of production from the PDA and Lynn Lake projects. I will now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg Fisher.

Greg Fisher (CFO)

Thank you, John McCluskey. On to slide seven. We sold approximately 118,000 ounces of gold in the first quarter at an average realized price of $2,802 per ounce for revenues of $333 million. The average realized price was below the London PM fix for the quarter, primarily as a result of delivering over 12,300 ounces into the gold prepayment facility based on a prepaid price of $2,524 per ounce. We will continue to deliver the same quarterly number of ounces into the facility until the obligation is completed at year-end. As a reminder, the prepaid facility was executed in July 2024, with the proceeds utilized to retire 180,000 ounces of forward sale contracts inherited from Argonaut Gold across 2024 and 2025, with an average price of $1,840 per ounce.

Total cash cost of $1,193 per ounce and all-in sustaining costs of $1,805 per ounce were both above the top end of guidance for the first half of 2025, driven by higher costs at Young-Davidson and Magino, as well as higher royalties and share-based compensation. Given the 45% increase in our share price in the first quarter, long-term incentives outstanding were revalued and resulted in a $230 per ounce increase to all-in sustaining costs compared to our guidance. All-in sustaining costs are expected to trend lower through the year, with a 20% decrease expected in the second quarter and a further decrease in the second half of the year. We are monitoring our full-year cost guidance given the higher share-based compensation and royalty costs compared to guidance, which is challenging to forecast given the nature of these costs.

Excluding the impact of these variables, which are outside of our control, we remain confident with our full-year cost guidance. Our reported net earnings were $15 million in the first quarter, or $0.04 per share. This included $46 million of unrealized losses on commodity hedge derivatives for the legacy Argonaut 2026 and 2027 gold hedges and other adjustments totaling $2 million. Excluding these items, our adjusted net earnings were $60 million, or $0.14 per share. Operating cash flow before changes in non-cash working capital was $131 million in the first quarter, or $0.31 per share. Capital spending totaled $100 million and included $27 million of sustaining capital, $66 million of growth capital, and $7 million of capitalized exploration.

Free cash flow was negative $20 million and was impacted by $53 million of cash taxes paid, primarily related to year-end mining and income taxes in Mexico, as well as the settlement of 25% of the prepayment obligation. Cash tax payments are expected to decrease through the remainder of the year to between $10 million and $15 million per quarter. We expect stronger free cash flow through the remainder of the year, driven by higher production, lower costs, and lower cash tax payments. Combined with a strong cash position of $290 million and nearly $800 million in total liquidity, we remain well-positioned to internally fund our growth plans. I'll now turn the call over to our COO, Luc Guimond, to provide an overview of our operations.

Luc Guimond (COO)

Thank you, Greg Fisher. Over to slide eight.

Production from the Island Gold District totaled 59,200 ounces in the quarter, with a strong performance of Island Gold offsetting lower production from Magino. At Island Gold, mining and milling rates, as well as grades, were all consistent with annual guidance. This included 1,200 tons per day processed with grades averaging 11.36 grams per ton. Milling rates at Magino were lower than planned, averaging 7,200 tons per day. As I will review shortly, deficiencies in the ore flow design limited throughput rates earlier in the quarter. These have since been rectified, which has driven significantly higher throughput rates into March and April. Grades processed at Magino averaged 0.86 grams per ton, slightly below annual guidance. Given the lower mill availability in the quarter, mining activities were focused on waste stripping. With less ore mined, less of the relatively higher-grade ore was available for processing.

Mining rates have improved to average over 15,000 tons per day of ore in April and are expected to remain at similar levels through the rest of the year. This is expected to support the availability of higher grades for processing through the remainder of the year. Combined with higher milling rates, we expect significant improvement in production and decrease in costs from the Magino portion of the operation through the remainder of the year. With a strong contribution from Island Gold, the combined operation generated positive mine site free cash flow of $19 million in the quarter, net of significant capital investments in the Phase 3 Plus Expansion, and a robust exploration program. The operation is expected to continue self-funding the Phase 3 Plus Expansion at current gold prices, with significant free cash flow growth following its completion in 2026.

Moving to slide nine, Magino had a challenging start to the year, but we believe we have now turned the corner with milling rates steadily improving and nearing planned levels. Milling rates were lower than planned due to restricted ore flow through the crushing and conveying circuit. This was caused by deficiencies in the initial ore flow design for winter conditions, which created blockages within the feeders and undersized transfer chutes. The chutes were expanded during the quarter and combined with the various optimization activities undertaken in the second half of 2024. Milling rates increased substantially towards the end of the quarter. Milling rates increased to average 8,200 tons per day in March and approximately 9,500 tons per day in the last two weeks of April, with further improvement expected in May.

In advance of the transition to processing Island Gold ore through the Magino mill, approximately 8,000 tons of high-grade ore from Island Gold were blended with Magino ore and processed through the Magino mill in April. The batch test was successful, with recoveries averaging 96% from the blended ore, in line with expectations. With the significant improvement in Magino's milling rates and successful batch test of Island Gold's high-grade ore, Island Gold's mill is expected to shut down in early May, following which ore from Island Gold will be trucked and processed through the larger and more cost-effective Magino mill. Given the significantly lower processing costs from utilizing the Magino mill, this is expected to contribute to declining costs through the remainder of the year. Moving to slide ten, the transition to the Magino mill is an important step towards the completion of the Phase 3 Plus Expansion.

The Magino haul road is now substantially complete and will be used to transport ore from the Island Gold portal to the Magino mill. Progress is being made on the mill expansion to 12,400 tons per day, with both earthworks underway and detailed engineering ongoing to support a larger, longer-term expansion of the mill. Within the shaft site area, we continue to make progress, having recently completed the second shaft station breakout at the 1,050 level. At quarter end, the shaft sink had reached a depth of 1,055 meters and remained on track to reach the ultimate depth of 1,373 meters in the third quarter of this year. The construction of the paste plant is also advancing well, with 30% of the building steel now erected and boreholes for the delivery of paste underground completed in advance of liner installation. Over to slide eleven.

As of quarter end, we spent and committed 75% of the total Phase 3 Plus Expansion capital of $796 million. The expansion remains on track for completion in the first half of 2026 and will be a significant driver of low-cost production growth and free cash flow generation. Over to slide twelve. Young-Davidson produced 35,400 ounces in the first quarter, lower than planned due to lower mining rates. Lower production drilling and scoop availability in the first two months of the quarter impacted stope productivity and mining sequence. Production drilling meters and scoop availability improved within the quarter, and mining rates were back to design capacity of 8,000 tons per day in March and April and are expected to remain at similar levels throughout the rest of the year.

Through higher mining and processing rates, as well as increased grades, production is expected to increase and costs decrease the remainder of the year. With another strong quarter of mine site free cash flow of $39 million, Young-Davidson is on track to deliver more than $100 million of free cash flow for the fifth consecutive year. Over to slide thirteen. Total production from the Mulatos District was 30,400 ounces in the quarter, with two-thirds of production coming from La Yaqui Grande and the remainder from residual leaching at Mulatos. As previously guided, grades of the La Yaqui Grande were expected to be at the low end of the guidance range in the first quarter and steadily increase throughout the year. With lower grades stacked in the quarter at La Yaqui Grande and higher contribution from residual leaching, costs were above the top end of the annual guidance range.

Costs are expected to trend lower through the year as production increases, driven by higher grades from La Yaqui Grande. The environmental permit amendment for the PDA project was received in late January, allowing for the start of construction activities. The focus during the quarter was on procurement of long lead items and detailed engineering. Construction activities are expected to ramp up towards the middle of the year, with first production on track for mid-2027. Mine site free cash flow totaled $1 million in the quarter, net of $48 million in cash tax payments for the 2024 year. With production increasing and costs decreasing, the Mulatos District is expected to generate strong mine site free cash flow through the remainder of the year while funding the development of PDA and a robust exploration program. With that, I will turn the call back to John McCluskey.

John McCluskey (President and CEO)

Thank you, Luc Guimond.

I'll now turn the call over to the operator, who will open the call for your questions. After that, I'm going to ask the operator to turn the call back to me for some final remarks. To me.

Operator (participant)

Thank you. We will now take questions from the telephone lines. If you have a question, please press * one. You may cancel your question at any time by pressing * two. Please press * one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu (Analyst)

Thanks, John McCluskey, Greg Fisher, Luc Guimond, and team. Maybe my first question is on the Magino mill. Sounds like some of the issues in terms of the restrictions with the conveyor or conveying and crushing bottlenecks have now been rectified.

Now looking at, you're getting to close to 9,500 tons per day in terms of throughput. I guess my question is, previously you had expected to get to 11,200 tons per day by the end of Q1. Is that still what you're trying to aim for near term in terms of getting up to 11,200 tons per day? Do you need to reach that level before you can fully integrate the Island Gold and Magino and shut down the Island Gold mill?

Luc Guimond (COO)

Yes. Hi, Cosmos. Luc Guimond here. As I touched on in the communication, our expectation is actually we're going to make that transition at the beginning of May, actually at the end of next week. We've seen some continuous improvements, certainly over the last three quarters, as we've talked about with regards to the jaw crusher, cone crusher.

The last component, which kind of held us back from actually making the transition by the end of Q1, was some of the bottlenecks that we saw in the crushing and conveying system. We have since addressed those. As I mentioned, at the end of April, we were running at 9,500 tons per day. We had a couple of smaller minor operational issues, to be frank with you, that would have actually put us well above 10,000 tons per day with regards to running the processing plant. Really, the final step for us was to be able to complete the higher-grade batch test of Island Gold ore co-mingled with the Magino ore just to validate the metallurgical recoveries in the processing plant from a plant scale perspective. We did that.

We had no issues with regards to the overall performance of overall recovery as well as overall leach circuit performance. We are now quite comfortable to make that transition. Our expectation is at the end of next week, we will start actually bringing all of the Island ore, underground ore, over to Magino and being processed on a co-mingling basis with the Magino ore.

Cosmos Chiu (Analyst)

I guess, Luc Guimond, in terms of numbers, I bring up the 11,200 tons per day. I know that was a number that was given out previously. Is that a number that we should stick to, or is that still a number that we should look at as a target or not so much these days? I guess that is really the crux of my question.

Luc Guimond (COO)

No, that's still the number we expect to deliver on, Cosmos, is the 11,200 tons per day as we move forward here through the remainder of the year.

Cosmos Chiu (Analyst)

Okay. Sounds good. Maybe moving to Young-Davidson here, just a quick question, Young-Davidson. It's always been steady, as you know, very steady operation. I was kind of surprised that throughput on mining output was a bit lower in Q1, as you mentioned, due to kind of equipment availability underground. Is that due to kind of the age of the equipment?

Can you maybe comment on that? Is there any kind of renewal of equipment needed at this point in time, or is it just really kind of like a maintenance? Actually, I don't know. Maybe you can just touch on what happened and should we be concerned about the age of the equipment? Sure.

Luc Guimond (COO)

It was really more mining sequence related, to be honest with you, Cosmos. Typically, with the lower mine infrastructure, from 95, 90 down has a direct feed into our crushing and conveying system. Where the upper mine, the legacy from the upper mine from the early years of mining, there is a transfer point required to be able to provide that ore distribution down into the lower mine. As a result of that, we had some more productive stopes that we were expecting through the first quarter in the lower mine that are much more productive for us to be able to maintain the 8,000 tons per day. We typically like to keep about a 50/50 blend.

As a result of some of those stopes not coming online in a timely fashion in the first quarter, in combination with a couple of production drills that we actually had working in the lower mine to get those stopes online, we had a couple of unscheduled maintenance issues with a couple of those drills that we had to address. That really affected the performance in the quarter. As far as the overall fleet management and replacement management of our equipment, it is always done in a timely fashion. The equipment that we are currently utilizing still has useful life. It was more just in relation to some unscheduled downtime with the drills, as well as a couple of scoops, which also puts a bit more pressure, obviously, for rehandling from the upper mine to the lower mine.

As part of our equipment replacement strategy, I mean, we do have a couple of new units that we brought in last year. We have a couple more new units coming in this year as far as scoops and another production drill as well, based on operating hours and the life cycle of those pieces of equipment.

Cosmos Chiu (Analyst)

Understood. Maybe just one last question turning to likely Greg Fisher here. Two things on the guidance and costs. Number one, Greg Fisher, could you remind us what kind of gold price assumption you factored into your cost guidance for the year? Number two, a bit more of an accounting nerdy question here, but the $230 announced was in part due to higher management compensation with the increase in the share price of Alamos this past quarter, maybe this past year. How does it work?

Normally, higher kind of revaluation of management compensation that was issued in a previous quarter, the revaluation, does it usually get into your on-sustaining cost number for the quarter? Number two, yeah, it's up 45% year to date, but today your share price is down 11%. Doesn't that mean later on it might get revalued again in terms of those management compensation expenditures? Does that mean we're going to see a reversal of today's $230 announced sometime later on? Doesn't that introduce a lot of volatility into that number?

Greg Fisher (CFO)

Yeah, Cosmos, it's Greg Fisher here. I'll answer the easy question first, which is the gold price assumption. That was $2,400. We had budgeted that. Obviously, the increase in the gold price above that $2,400 has an impact on royalties expense as well as other charges that are related to mine site performance.

On the stock-based compensation, I mean, it relates to the fact that we issue PSUs, RSUs, DSUs, and they all have terms of, call it, three years or longer. Those all need, so it is all from our units that have been issued in the past. And because we settle those in cash, they are considered liability-based instruments. Therefore, under accounting rules, they are required to be marked to market every quarter. To your point, could we see a reversal of this? Yes. I mean, if the share price drops, you have a negative mark to market. If the price increases, you have a positive mark to market. Why it was so profound this quarter was because we were up 45% in the quarter, which we have never seen before. Frankly, it is a good thing. Yeah, I mean, that is just how the accounting works on that.

Every company will include stock-based compensation in their definition of all-in sustaining costs.

Cosmos Chiu (Analyst)

Okay. Great. Thanks, John McCluskey and team. Those are the questions I have. Thank you.

Operator (participant)

Thank you. Following question is from Michael Siperco from RBC Capital Markets. Please go ahead.

Michael Siperco (Analyst)

Yes. Thanks very much for taking my question. Just on the Magino, I know you said higher grades over the rest of the year on the higher milling. Apologies if I missed it somewhere, but are you able to quantify that? Should we be thinking back in line with original guidance, or is there potential for a bit of a catch-up and some higher grade?

Luc Guimond (COO)

Yeah. We will track to being within guidance for the rest of the year with regards to Magino, with regards to the grade profile that we would have put out at the beginning of the year.

I mean, we were slightly below on the Magino side, certainly for the head grades that went into the mill, but that was really a function of not actually mining the entire mine plan through the quarter because of some of the challenges that we had with regards to the crushing and conveying with regards to those drop chutes that we had to replace. That prevented us from getting all of the higher grade portion of the ore that we were expecting in the quarter, which would have put us within guidance.

Cosmos Chiu (Analyst)

Okay. Makes sense.

Michael Siperco (Analyst)

Just another question on the testing you were doing, blending the Magino and Island ore. What sort of grade were you testing there in terms of the Magino material?

Are you confident at those levels of recovery, sort of no matter what you're putting into the mill between the Island ore and the Magino ore?

Luc Guimond (COO)

Yeah, we're comfortable. I mean, the high-grade test, we ran about 8,500 tons of Island ore co-mingling with the Magino ore. The Island ore was running, from a day-to-day perspective, anywhere from 7-10 grams on average in that range, with Magino ore that was running at about 0.9 at that point. That is typically the sort of blend that we would expect to see as we start to continue to co-mingle this ore for the long term, running that entire plant with both ore sources feeding into the one mill. The overall recoveries that I mentioned, in our expectation, we ended up with about a 96% recovery overall on the combined ore stream, which is what our expectation was. Okay.

Michael Siperco (Analyst)

Great. Thanks. That makes sense. Maybe one more, if I could. If you look out longer term, obviously, you've got a lot of growth on deck through 2030, but construction really starts to ramp up in the second half. You'll soon have three projects on the go. Can you give any color on how you're managing that, sequencing it, or otherwise managing risk over the next couple of years?

Luc Guimond (COO)

Yeah. I mean, our Phase 3 Plus Expansion is well underway. I mean, we're well over halfway through, certainly. The shaft depth is nearing completion there by the end of this year. Phase plant, we're starting construction. It's not on critical path, but we expect to have that completed by the end of the year. The next phase, obviously, for us is the continued mill expansion to support more throughput through the Magino mill.

We are working through that. Time-wise, expecting to have that completed in the second half of 2026. We have a solid team built there. We have lots of people to be able to manage the Phase 3 Plus Expansion. With regards to Mexico, PDA, we have done a number of projects down there over the 20-year period. We basically have the team that is seconded within our operations team to be able to manage these projects. That is the way we have always done it in Mexico over the 20-year period. We already have the complement of people that we need to be able to deliver on PDA, certainly with regards to the construction on the milling infrastructure that we are going to be building there. On the mining side, it is going to be managed also with our operations team, but it will be contract mining.

There'll be a complement of people that obviously will oversee that on the contract side. Lynn Lake, certainly, we're in the early stages of that, but we're in the process of building our team. All of the key figures that we need as far as management as we start the project are in place. We're quite comfortable, certainly, moving on those three areas of growth over the next couple of years.

Michael Siperco (Analyst)

Okay. Great. Thank you very much. Appreciate it. I'll pass it on.

Operator (participant)

Thank you. The following question is from Ovais Habib from Scotiabank. Thank you. Please go ahead.

Ovais Habib (Analyst)

Thanks, operator. Hi, Alamos team. Just a couple of questions for me. Most of my questions have been answered. One question that's been coming up since my calls this morning is just on the AISC side.

Basically, in terms of based on your Q1 results, and you're expecting that 20% decline in AISC, we're kind of estimating kind of you would need to hit about $1,000-$1,050 per ounce in order to achieve your cost guidance or AISC guidance. How confident are you in terms of achieving these cost levels?

Greg Fisher (CFO)

Hey, Ovais. It's Greg Fisher here. We are very confident in what we can control, which is our operating costs, our sustaining capital. That is tracking well against the budget. What we really do not have any control over and do not have any foresight on is where the gold price is going to go and the share price. Those are two things that we have some control, but actually do not have control over, and therefore cannot manage the impact on the cost.

What we are saying is, from what we have oversight on, we are very comfortable with respect to budget. We are over budget on what we had put in the guidance for our share-based compensation and the royalty expense. If that continues to impact us, then it could have an impact on our overall cost guidance.

Ovais Habib (Analyst)

Okay. Thanks for that, Greg Fisher. Just moving quickly on to the exploration side at Island Gold, you guys hit some pretty good results on the western side of Island Gold. Is there plans to continue drilling on that side and any sort of color on that front?

Scott Parsons (VP of Corporate Development and Investor Relations)

Hi. It is Scott Parsons, VP of exploration. Yeah, those results were encouraging and positive. Drilling is ongoing as we speak in the western part of Island, both from underground and surface, following up on the upplunge extension of the western ore chute.

That continues to grow and expand as we step out. We had a good increase in resources there at the end of last year, and we continue to step out both closer to surface with surface drills and underground from our underground platforms in that area.

Ovais Habib (Analyst)

With those underground platforms, Scott Parsons , I mean, is there a possibility that you have infrastructure to actually mine those areas as well?

Scott Parsons (VP of Corporate Development and Investor Relations)

Yeah. That is our approach with basically establishing our exploration just underground is utilizing them initially for exploration. We will put a drill at the end of the platforms, drill, we hit mineralization and define resource. We will extend that platform further to be able to infill drill, convert it to reserves, but also to continue exploration. Ultimately, those will be used for production in the future.

Ovais Habib (Analyst)

That is it for me. Thanks for taking my questions. Thank you.

Operator (participant)

The following question is from Carey MacRury from Canaccord Genuity. Please go ahead.

Carey MacRury (Managing Director and Metals & Mining Analys)

Hey, good morning, guys. Just a couple of follow-ups on Magino. You've made a lot of upgrades to the processing circuit there. Are there any more upgrades that you still need to do to get to the 11.2, or you're kind of there now?

Luc Guimond (COO)

No. It's Luc Guimond here. No, we're there now. I mean, as I mentioned, we've made obviously a few modifications there from the original design that was installed. I can't emphasize that enough. It was some poor design considerations there with regards to the crushing circuit and conveying circuit. We've made all of those changes. We made some other modifications to the grinding circuit that we felt would improve the overall throughput. We've completed the batch testing with regards to a low-grade and a high-grade component of Island ore co-mingling with Magino ore.

We're confident on the metallurgical side of things. There's nothing stopping us now from moving forward and starting hitting our stride to that 11,200 tons per day.

Carey MacRury (Managing Director and Metals & Mining Analys)

As you think about the expansion to 15,000 plus, can you just remind us what sort of components are going to need upgrades to get to that level?

Luc Guimond (COO)

It's basically twinning the infrastructure that we have now, Carey. It's talking about another crushing circuit, so two-stage crushing as well as two-stage grinding with additional leach capacity, both CIP and CIL. Upsizing the elution circuit and upsizing the refinery to actually handle higher gold content overall coming in on a bigger processing plant, potentially up to 20,000 tons per day.

Carey MacRury (Managing Director and Metals & Mining Analys)

That's twinning the grinding circuit as well?

Luc Guimond (COO)

Correct.

Carey MacRury (Managing Director and Metals & Mining Analys)

Yeah. Okay. Okay. Great. Thank you. Thank you.

Operator (participant)

Once again, please press * one at this time if you have any question. Following question is from Don DeMarco from National Bank Financial. Please go ahead.

Don DeMarco (Analyst)

Thank you, operator. Good morning, John McCluskey and team. Yeah, first question. Looks like a bit of a catch-up on sustaining CapEx over the rest of the year. Is this as expected and aligned with your planned AISC reductions and lower costs in H2?

Greg Fisher (CFO)

Yes, that's correct. I mean, sustaining capital is always going to be timing-based, and we had expected it to be a little bit lower in the first quarter and catch-up over the rest of the year.

Don DeMarco (Analyst)

Got it. Okay. Sticking with costs, I mean, full-year guidance was issued before some of the tariff announcements in the States.

Are you seeing any impacts from the tariffs on your costs here or maybe some of the FX volatility weighs on them?

Greg Fisher (CFO)

We aren't seeing any of the impact on tariffs now. I mean, I'll step back and say that about 50% of our cost structure is labor and contractors, and contractors are predominantly labor as well. No real exposure there, as well as there's another 15% that's energy and fuel. The majority of our cost base is not really exposed to anything that could potentially have tariffs on it. Right now, we aren't experiencing anything. What we are experiencing is the last part of what you said, which is a weaker Canadian dollar compared to what we had budgeted. We are benefiting from that.

Don DeMarco (Analyst)

Okay. Good to hear.

Maybe just looking ahead, I mean, you indicate potential for a million ounces a year with further expansion of Island. Can you add some color on the Island expansion study that's pending release in Q4, including maybe the scope, the timing, and magnitudes of CapEx that might be related to that study?

Greg Fisher (CFO)

I mean, as far as the larger mill complex, we're still working through that. We don't have specific numbers that we can talk to at this point. It's a bit too early. I think we've talked about we've communicated that we're going to put out a development plan by the end of the year, which would talk about what the larger mill complex would look like, both from supporting Magino mining rates, but as well as looking at Island underground mining rates to see if we can go certainly beyond the 2,400 tons a day.

As part of what we're contemplating is looking to bring the underground component of that mill feed to about 3,000 tons per day from Island underground.

Don DeMarco (Analyst)

Okay. Okay. Great. Thank you. That's all for me. Good luck with Q2 and the rest of the year.

Operator (participant)

Thank you. We have no further questions, registered, at this time. I would now like to turn the meeting back over to John McCluskey.

John McCluskey (President and CEO)

Thank you, operator. I just wanted to say in conclusion that we have a long history of meeting or exceeding our guidance, and we take pride in that record. I think it's at least five years where we've either met or exceeded guidance. Coming in at the low end of production and higher on costs is not illustrative of our track record, and it's not indicative of our expected performance for 2025.

We're already on track for a much stronger second quarter and further improvement in the second half of the year. Furthermore, if you take a look at our three-year outlook, it continues to demonstrate that we're going to have further growth in production and further declines in costs. Our outlook, it looks better than ever. From that point of view, as a management team, we remain very confident in what we're doing. We saw the market reaction this morning to the quarterly results. We think it's certainly overdone. We have a strong year in front of us. We've come through a tough quarter, but stronger quarters lie ahead. We're very, very confident in our ability to deliver on that. With that, I'll conclude my remarks and turn it back to you, operator.

Operator (participant)

Thank you. The conference has now ended.

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