Could you tell us about what you were doing before you co-founded Alamos Gold, and what led you to that watershed in your career?
Alamos got its genesis through a listing on the Vancouver Stock Exchange in 1996. Before that, it was a small private company founded by myself and Chester Millar, a renowned Canadian mining executive. Chester, who is in the Mining Hall of Fame, had founded several companies. By the mid-90s, he was a very well-established executive in the mining business. I started working for him in the early 80s right out of school. The first six years of my career in the mining industry were at a company he started called Glamis Gold, which did very well.
After leaving Glamis, I teamed up with Chester to pursue opportunities in Mexico, leading to the creation of Alamos. We took the company public in June 1996, but soon after, the Bre-X scandal and the collapse in commodity prices hit hard. Gold prices plummeted, affecting the entire metal market. Chester and I saw an opportunity. In late 2001, we secured an option to acquire an asset in Mexico from one of the majors at the time and partnered with National Gold, eventually consolidating the district and making me the CEO.
Alamos was purpose-built to take advantage of changes in Mexican law in the early 1990s that allowed foreign ownership in the resource sector. This change led to a rush of junior companies into Mexico, but major companies were hesitant, leaving opportunities. At the time our market capitalization was under $1 million. However, we managed to secure financing and began operations. Our timing was fortuitous as gold prices began to rise in 2002, eventually skyrocketing from under $300 an ounce to $1,900 an ounce by 2012. This favorable timing was crucial for our success.
Could you tell us about Alamos today, beginning with an overview of your three operating mines?
Today, Alamos Gold has grown significantly, with a market cap that is a few thousand times more than its initial value. We now have three operating mines: one in Mexico and two in Canada. We are also in the process of acquiring a third mine, and we have plans to build a fourth in Canada, which is already permitted and ready to go.
Our first mine, which we started from scratch, was a significant achievement. By the time I took over as CEO in 2003, we had acquired the necessary social license, water rights, workforce, permits, and financing. We poured our first gold bar in July 2005, just two years after starting with no employees. This mine produced around 150,000 ounces of gold annually, with increasing margins due to rising gold prices.
Our next major move was the acquisition of Young-Davidson in Canada. This mine, which produces roughly 200,000 ounces of gold annually, was only partially built when we acquired it. We executed the first true merger of equals in the mining space, merging with another company of similar market capitalization without a premium on either side. We completed the construction of Young-Davidson, and since 2020, it has been generating over $100 million in free cash flow per year. With a long mine life, this mine is expected to continue producing for at least another 15 years. This strategic focus on safer jurisdictions and successful mergers has positioned Alamos Gold as a significant player in the mining industry.
Where does the acquisition of Argonaut stand strategically for Alamos?
Argonaut's acquisition is a significant strategic move for us, completed relatively late in our expansion timeline. We acquired Young-Davidson in 2015 at a gold price of $1,100 an ounce, followed by Carlisle Goldfields in 2016, and Island Gold when gold was at $1,285. Our acquisition of Island Gold, which initially seemed overpriced to the market, has since proven extremely valuable, with its valuation growing to $3.4 billion. When we acquired Island Gold, it was producing 100,000 ounces annually with a short mine life. Now, net of depletion, it holds over 6 million ounces and continues to grow. Magino, acquired from Argonaut, sits adjacent to Island Gold and, despite being a lower-grade, open-pit deposit, complements our existing assets.
Combining Island Gold and Magino has created one of the largest concentrations of gold deposits in Canada, ranking in the top five. We are expanding our operations to produce 400,000 ounces annually by 2026, with plans to reach 550,000 ounces through further expansions. This will position us among the largest and lowest-cost gold mines in Canada. The merger has yielded significant synergies, saving over $500 million in capital expenditures.
Do you intend to make other acquisitions similar to Argonaut?
While we always say our plate is full after an acquisition, history shows we often pursue new opportunities. Currently, our focus is on maximizing growth from our existing assets. This expansion involves significant capital investment and effort but is achievable given our permitted infrastructure and strategic planning.
Additionally, we are poised to make a production decision on Lynn Lake, which would add another 200,000 ounces annually. By the end of the 2020s, we aim to double our production capacity from 500,000 ounces to 1 million ounces annually. This growth trajectory is set within a strategic framework that leverages our existing resources and infrastructure, ensuring sustainable and significant expansion without the immediate need for new acquisitions.
What is your perspective on the current drivers behind gold prices and where do you see them heading?
The drivers behind gold prices are more defined than ever, with central bank buying having a significant impact over the past 18 months. Unlike previous cycles driven by Western investment, the current rise is fueled by Asian central banks, particularly those allied with India, China, and Russia. Countries like Turkey and Poland have also been major buyers, while Western nations have been sellers. Chinese retail investment in gold has surged recently, driven by limited investment options due to a struggling stock market and collapsing real estate market. This has positioned gold as a safe haven for Chinese investors, accelerating its accumulation.
On a macro level, the Chinese central bank's aggressive gold buying is part of a strategy to reduce dollar exposure. Holding over a trillion US dollars, they sought to diversify, and gold emerged as the logical alternative. The pivotal moment was when the US seized over $360 billion in Russian assets post-Ukraine invasion, prompting countries like China and Russia to seek economic independence from US influence. This trend suggests a growing reliance on gold to underpin a parallel economic trade bloc, driven by mutual distrust among these nations.
How has the mining industry changed over the past 20 years in terms of sustainability?
Environmental focus was integral from the start of my career, 40 years ago, with rigorous planning for projects to ensure minimal environmental impact and strong community relations. This approach was critical for our success in California, where we built two mines, and it has continued throughout my career. Sustainability and social license have always been key considerations. These issues are not new for the mining industry or for me; what is new is the increased attention from powerful investors who demand responsible practices across all industries, including mining.
Despite often being the focal point due to its visibility, the mining industry has consistently prioritized environmental and social responsibilities. Successful mining operations inherently integrate these values, and our company's founding directors and executives have always emphasized this.
