Allied Gold Corp (AAUC) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, thank you all for standing by. My name is Mark and I will be your conference operator for today. At this time, I would like to welcome everyone to the Allied Gold third quarter earnings conference call. All lines have been placed on mute to prevent any background noises. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star and number one again. Thank you. I would now like to turn the call over to Peter Mironi, Chairman and Chief Executive Officer. Please go ahead.

Operator, thank you very much. I will deliver the presentation for the company, and all of our management is here with me to answer any questions. So let's begin. We delivered strong and expected operating results for the quarter, our Cote d'Ivoire complex. Perform well, with Bonacro exceeding plan, and AgBio also delivering strong results well on plan. Sadiola production compared favorably to plan and to the prior year quarter. Operational improvements are underway, and higher-grade ore is entering into the mine sequence, which is expected to support stronger performance in the fourth quarter and through next year. I'm very happy to say that Kremuk commissioning activities began during the quarter, ore has now been introduced into the processing plant. The mine is now in production, with output expected to ramp up through the remainder of the year and beyond. We ended the quarter with cash of approximately $379 million, and we generated $116 million of operating cash flow. In terms of operational highlights, At Satiola, we produced approximately 42,300 ounces, with Alden sustaining costs of $2,876 per ounce. We expect improved equipment availability, higher-grade ore, and ongoing operational initiatives to support stronger results and lower unit costs. We have now begun implementing improvement initiatives that, frankly, were deferred during the ZGen transaction process. We've terminated short-term equipment contracts that were necessary to maintain production during that period, as we were expecting to transition to the sale of the company. We've amended our main mine contract to include commitments on fleet reliability and availability. We have higher-grade fresh and oxide ore that is expected to be introduced into the plant in this quarter that we're now in as part of the mine sequence. And production, as I mentioned, is expected to increase, and unit costs are expected to decline through this quarter and into the coming quarters into 2027. Bonaco produced approximately 28,600 ounces, all in sustaining costs of $1,670 per ounce. It benefited from higher grades and improved recoveries. Agbau produced 20,300 ounces at all in sustaining costs of $2,384 per ounce, with production in line with a plan and costs better than expected. Our Cote d'Ivoire complex of Bonneco and Agbao continued to perform well, and it provides us a strong foundation for our longer-term production objectives. Costs included stripping at PV5, although, and gains similar to prior years, this approach gets us into higher grade ore going forward. On financial results, revenue increased to $358 million, supported by an average realized gold price of just under $3,900 per ounce on our strong gold production. Adjusted EBITDA was approximately $140 million. Adjusted net earnings was $49 million, or $0.37 per share. Our consolidated all-in sustaining costs were $2,378 per ounce. We ended the quarter with $379 million in cash. Total liquidity, including our undrawn revolving credit facility, of $429 million. And with Kermuk beginning to contribute production and major development capital expenditures declining, we expect cash balances to increase through the year end and throughout next year. Gold collars that were entered into for the development of Kermuk are coming to an end, the effect being to increase our exposure to gold price and remove the revenue impact of those collars. Moving on to Kermuk. Kermuk is now in production. We expect production for November and December of 25,000 to 35,000 ounces. That increases to 55,000, up to 65,000 ounces in the first quarter of next year. And for all of 2027, our outlook is 240,000 to 270,000 ounces, and that increases to approximately 300,000 ounces in 2028. Chromebook is expected to be our lowest cost operation, and so it will contribute disproportionately more cash flow, so greater cash flow growth as that production ramps up. Now, these photographs on Kermukk highlight the significant progress that's been made and the scale of the operation. And importantly, we've built additional operational flexibility into the processing plant, capacity of up to 6.4 million tons per year, providing opportunities to optimize production as the mine ramps up. Beyond the initial production plan, we see significant long-term value creation. Through continued exploration with opportunities to extend mine life, identify higher grade ore sources, and sustain higher production levels for longer. I ask shareholders and those on the call to focus on recently published exploration results. They show extensions of existing ore bodies, particularly Ashashire, discovery of new mineralized areas, and grades from recent drilling, which show better than reserve grade. We have new and increasing inventories, plant capacity, all of which leads to higher production for longer. Our plan, as we've discussed before, is to take that initial four years of an average of 300,000 ounces of production per year and extend that for longer. With production now underway, our focus is on advancing the ramp-up toward commercial production roughly by the end of the year and nameplate capacity early next year. In terms of our growth outlook, as we look ahead, we plan to more than double production from approximately 379,000 ounces last year, roughly the production that we expect this year, toward a sustainable platform of approximately 800,000 ounces annually by 2029, with a step up next year to 615,000 to 670,000 ounces of gold, a full 54% increase. To this and to last year. This growth is supported by Cromoc, ramping up toward 300,000 ounces annually. We expect by 2028. The phased expansion at Sadiola toward 300,000 to 400,000 ounces of production and sustained production of at least 200,000 ounces coming from Cote d'Ivoire. We now carry a mine life at Bonacro that exceeds 10 years and production of up to 120,000 ounces per year, which supports the CDI complex between Bonacro and Agbao of 200,000 ounces of gold production per year. At Sadiola, we are advancing our modular expansion initially to at least 7 million tons per year, and that gets us to 250,000 to 275,000. Ounces of gold per year, as much as 300,000 ounces of gold per year in certain years, depending on grade. The pre-leach thickener to improve contributions of higher-grade fresh ore as compared to oxides is in progress. Recovery increases that would comfortably take us into a production per year of at least 200,000 ounces are in progress as well. We are discovering new oxides. Again, I would refer to previously disclosed. Information on our exploration efforts, and they provide higher recoveries, and so it's very comfortable for us to be able to have more of those oxides in the mine plan. And finally, at Saudi Ola, we're implementing a power solution for solar, upgraded generators, and a heavy fuel engine that will increase our available power, provide power reliability, all at better costs. And importantly, we expect improving costs and greater contribution from Kermuk, of course, from the other mines that drive a cash flow growth that exceeds the rate of production growth. To conclude on what's upcoming, our immediate focus is completing the ramp-up at Kermuk this year toward that nameplate capacity early next year, commercial production by the end of this year. Our remaining gold collars expire in December. That increases our exposure to prevailing gold price. In early 2027, we expect to provide an updated feasibility study and capital estimate for the modular expansion, to which I just referred, as Sadiola. Along with annual mineral reserve and mineral resource update, we expect to see an increase in reserves and resources. And in the second quarter, we expect to commission the pre-leash thickener. As I mentioned a few moments ago, which is an important step toward a broader expansion strategy. We've taken an approach that, on capital allocation, that we hope comforts our shareholders. We are now beginning production at Kermuk. We have high conviction on the production coming from Kermuk and the optimizations and improvements at our other operations. That leaves us. with a very interesting situation. We're entering into a period of significantly increased free cash flow generation. And part of the capital allocation priority must be how we return cash to shareholders. We're progressing with a shareholder return policy as part of that capital allocation framework. We intend to evaluate the full range of cash return options that includes a base dividend, which we expect early next year. And we're anticipating the start in 2027 of a share buyback program. In regard to that share buyback program, of course, subject to the approval of the Toronto Stock Exchange, we intend to launch a normal course issuer bid to purchase for cancellation up to 10% of the public float of our common shares through the facilities of the Stock Exchange and, of course, through the New York Stock Exchange as well at prevailing market prices at the time of acquisition. We believe that from time to time, the market price for our common shares may not fully reflect the underlying value, and at those times, we prefer that the market takes advantage of the opportunity and creates the higher share price, but the company will be there to purchase common shares under our normal course issuer bid, where we consider those purchases to be an attractive investment and an appropriate use of our funds and the best way to deliver value to shareholders. One more point in determining the shares to buy and when to buy, we will also look at the trading liquidity of the common shares, the concentration of shareholder base. We do have a unique situation in the company in that 16%, roughly 16% of the stock is held by management. 9% of the stock is held by ZGIN. And so clearly, we will want to ensure that we don't create further concentration. We'll want to make sure that our objective of maintaining an orderly and liquid market without undue concentration will be maintained. And with that, ladies and gentlemen, let me open up the call to any questions you may have.

At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. If you want to withdraw your question, please press star and number one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ralph Profiti from Seifel Financial. Please go ahead.

Thank you, Operator. Good morning. Thanks for taking my questions. There was some discussion on Sadiota grade reconciliation. Work that was going to be done. And my question is, was the Q3 grade on plan? And when you think about Q4 and coming sort of somewhere within the guidance, has that or been exposed? And are you feeling comfortable about the grade control work that's been done to meet the guidance for 2026?

The answer is yes. We are comfortable with the grade control work that has now been undertaken since the termination of the Zijin transaction. We're comfortable with the expected increase in grade in the fourth quarter and through 2027, and we will see a significant increase in production in the fourth quarter by comparison to the first three quarters of this year.

Okay, glad to hear. And then, Peter, if I could stay with you, just on the capital allocation question, there seems to be a sort of a staggering between the decision of the dividend versus the decision of the NCIB. And I was wondering, is the decision on the NCIB driven by, are you waiting for more clarity on things like the modular expansion CapEx, you know, things like the timing CapEx of the Pebble Crusher at Kermuk? These things are sort of still in a state of flux. And of course, once you get full rate commission of CARMUC, it gives you a little bit more visibility on the timing of that. Is that what's governing the timing of the NCIB, sooner versus earlier?

Well, the timing will be a regulatory issue, Ralph. So we do have to file with the Toronto Stock Exchange. We have to go through that formal process. I would expect that we will likely have that in place by the end of the year, early next year. And so we will then begin to evaluate when we should be coming into market to purchase shares. Why we put a more pronounced emphasis on the stock buyback is because it is more obvious. That the share price is not reflecting true value. And if that continues to be true through to the end of the year and into next year, then in the same way as it is more obvious, it becomes more an opportunity for us to buy back stock and be one of those market participants that would support the share price and increase that share price. The dividend, I would expect that our dividend, subject to our board's conclusions, subject to where we see our cash flows, I would expect that the dividend would be in line with what our peers have been doing. So whatever is the allocation of cash flows to dividends that is within the peer group, we would expect it to be at least within the peer group. What we were trying to do is we were trying to say that there's high conviction on the improvement operations. On Kermuk's ramp-up, getting to commercial production, and then, of course, getting to nameplate the further optimizations and improvements, even at Kermuk and the other operations, that will generate some very significant cash flows. And so even before we're generating those cash flows, we're saying we're committing to the delivery of cash distributions to shareholders.

Okay. Yeah. Agree on all your points. Thank you, Peter.

And if I may, in our predecessor company, this management's predecessor company in Yamana, those of you who were with us at the time, you might remember that our cash machine at the time was a mine called Shibata, very similar to Kermuk. We went into production in early 2027. We declared our first dividend in late 2026 with that high conviction of that cash flow that would be generated.

We're taking a very similar approach.

Your next question comes from the line of Karim Makruri from Kainacore General T. Please go ahead.

Good morning, Peter. Just on the Kermuk ramp-up, just wondering if there's any specific issues that you've been dealing with, or are they more just typical ramp-up, like, de-bottlenecking processes?

An entirely ordinary course. Ralph, I'll pass it to Gerardo in a moment just to go into a little bit more of the detail, and certainly we're happy to speak to you offline on that, but an entirely ordinary course. What we've done is we've focused on the reality of value creation, longer-term production. We recognize that a focus is on first gold, but the important thing is making sure that that plant is working properly, making sure that we have that stockpile to the level that we want it to be, that the mine is efficient, and that we're ready for that increase in power availability that we expect within the course of the next several weeks. So it's been a very deliberate effort on our part to make sure that we align machinery and equipment properly, that we have a proper protocol relating to how we operate this machinery and equipment so that we're not experiencing challenges going forward. We have a deliberate, very accelerated ramp-up. In order to get that, what you want to do is you want to make sure that you've taken all the bugs out of the machinery and the equipment in advance. That's the approach we've taken.

Okay, that's okay. And just longer term at Kermuk, you know, a lot of explorations happened since the 2003, sorry, 2023 feasibility study. Just wondering if there's any plans to update the Kermuk study at some point in the near future.

Well, we expect to update, upgrade our reserves and resources. That will lead to an improvement to the mine plan. As I said in the formal presentation, Ralph, we have an average production of roughly 300,000 ounces in the first four years. We expect that what we'll do is we will want to increase that for longer than four years. And so that's something that we plan to do. So, Kerry, just to complete the thought, we'll upgrade our proven and probable reserves, and with that, sometime next year, we'll also indicate how we expect to get to that 300,000 ounces for longer than the four years.

Great. That's it for me. Thanks, Peter.

Your next question comes from the line of Mohamed Sidibe from National Bank. Please go ahead.

Good morning, Peter, and thanks for taking my questions. Maybe staying on Kermuk, and thanks for sharing with us what the guidance assumes on the throughput front. I think in the MD&A, you noted that the stockpiles are sitting at a pretty good level with grades above the mineral reserve. Could you provide us with a little bit of color on how we should think about grade in 2027? I think I was just referring back to the latest 2023 tech report, but any additional color you could provide would be helpful. Thank you.

Let me begin by saying, Mohamed, that the stockpile is at the level that we wanted it to be as we got into commercial production, which is three months of stockpile, roughly 1.5 million tons. We're ahead of schedule on that, and grade is showing comparable to or better than reserve grade. Half of that stockpile is at significantly higher grade than reserve grade. So we're very comfortable with where we are with the stockpile. So, perhaps if I can pass it to you, just answer the balance of the question.

On the stockpile, first I think on the mining sequence, mining plan, we are online. We are where we need it to be and we have exposed, I think, one of the pictures shows the status of those hills that some of you saw on site. They are flat. They have a space to put shovels and move trucks and increase the productivity that continues to progress. And the stockpile is around 1.5 million tons. And our medium-grade and high-grade and average is around 1.7, 1.8 grams per tonne, so we are really pleased to the progress there, and now we're mining for next year, not for this year, which put us in a good position, excellent position for 2027.

Great. Thanks a lot for that caller.

And for my second question, I think just broadly, the overall industry is being impacted by the geopolitical events and, you know, the impact on fuel transport. Can you maybe help us understand which mine is most exposed and how we should think about these cost pressures as we head into 2027?

Yes, so on cost pressure, Mohamed, because we're more heavily reliant on diesel, including for the plant, not only for our trucking fleet at Cereola, then the impact on Cereola will be greater than the impact on our other, on Cremoc. The impact on the Cote d'Ivoire complex is less because it's a smaller operation. Both of them are smaller operations. But I don't believe, you're asking the question of geopolitics and then also about price. On the geopolitics, you should take comfort that there isn't not any impact. We know we're asked this question frequently by shareholders, but there's not any impact on supply lines, logistics, any disruptions relating to that. We're experiencing what other companies are experiencing, and that's it, and that is the price. So diesel has gone up in price, and so we're experiencing the impact of that. We're experiencing that more at Sadiola than we are at Cromoc. We're heavily reliant on hydroelectric power generation at Cromoc for the plant, so we're less dependent, of course, on diesel. But in terms of the geopolitics, to go to that point, there's no disruption, no risk of disruption to our supply lines. And interestingly, in Ethiopia, we are the second company in the country, I believe that the first was Ethiopian Airlines, that actually has its own license for the importation of fuel. So we're not reliant on quotas. We're not reliant on government bringing fuel into country. We are managing our own supply chain and our own logistics. And, frankly, we happen to be better at it because companies are better at managing these things. We have multiple routes for delivery of fuel into country, all of the countries. And in particular, with respect to Sadiola, we come from Senegal. Our supply chain comes from Senegal, and that is one of the easier routes, as you are aware, one of the easier routes coming into the country with no disruptions to supply line. And with respect to Ethiopia, we have multiple. Lines coming into the country, and I'm very happy to say, as we said before, that we are our own importer of fuel, and that gives us a considerable amount of efficiency that many other companies would not have.

Absolutely. Thanks a lot for that call, Pierre. I was definitely focusing on price rather than logistics, but thanks a lot for that added call. My other questions have been answered. Thank you. Thank you.

And if I may, on price, While there is an impact, fuel is the least significant of our inputs. Clearly, the greatest input is labor. But I would expect that, Andre, I would expect that at Sediola, the increase in diesel has been about $80 per ounce.

Yes.

Your next question comes from the line of Robert Bonte from Scarlet, Macau Capital. Please go ahead.

Hi, and thanks for taking the questions. I have two questions. I just want to follow up on Sadiola and on Kumuk. And Sadiola, I just want to understand, so last quarter, I think you were telling us that we were going to be transitioning into more fresh ore, higher throughput, and better grade. Has that been now postponed to 4Q or to 1Q? How do you want us to think about that for Sadiola?

Yeah, so Robert, it's really a Q4 event. So we see a significant increase in production. So the production increase is in the range of about 20% to 25% from Q3 to Q4. So it's a significant increase, and mostly that's the result of improvements to grade. If I may, and I've had this discussion with many of our shareholders, in the course of a corporate transaction, With the expectation that a company is being sold. There are many things that should be done that are often delayed or deferred. One of the questions that was asked earlier was drilling for grade reconciliation, equipment availability, the availability of drills for that grade control, excavators, and proper overhauls or maintenance of equipment, including excavators. I hope it's clear that when you're in the middle of a corporate transaction, if you have contractors that are doing work that don't know if… That work will continue after a transaction is completed. There's a tendency, if I may use the word, sloppy. And so we recognize that. But as we were terminating the transaction, we immediately took the steps that were necessary to improve the operations. And you'll begin to see that in Q4.

Okay, fantastic. And on Kormuk, I just want to understand on the, I guess, the gating element has always been the power. Where are we in the power now? Is full power at site already, or when does a power network kind of get connected to site?

Yeah, so full power is several component parts. Let me compartmentalize the bits. One is we have power, so we're connected to the grid. We have backup coming from diesel generators at this point. We will have full power to completely run the plant and nameplate by the third week to fourth week of November. That requires a line stabilization instrument. It's called a STATCOM. It's a big piece of equipment. We have said before that that is now in delivery to site. That's being done by the utility and its subcontractors, and we're monitoring that, and it's progressing as we expect it to. All the earthwork and related activities at site have been done. We expect that the connection to that will occur within that time frame of third week, fourth week of November. That gives us complete full power. That allows us to get to commercial production by the end of the year, and then soon after that, to nameplate.

Understood. Perfect. Thank you. Thanks for taking the questions, and congratulations on the quarter.

That will conclude our question and answer session, and I will now turn the call back over to Peter Maroney, Chairman and Chief Executive Officer. Please go ahead.

Thank you very much, Operator. Thank you very much, everyone. I really don't have any concluding comments. I hope that there's a bit of enthusiasm on the part – you can hear the enthusiasm on the part of management. We look forward to connecting with many of our shareholders and analysts and others on the call. We are delighted that Kermog is in production. And we do expect to have a gold pour over the course of the next several days. It is a little bit of fanfare. We must remember that this is the first mechanized mine in Ethiopia. It is a poster child for what the country wants, which is more mining in the country on that Arabian Nubian shield. There is a planned ceremonial event with governmental officials. And we have conceded that that's an important thing for the country, and so we expect to do that gold pour as part of that ceremonial event. We would have been delighted to say to you that we've completed a first pour of gold at present time, but we'll have more gold to pour over the course of the next several days as we complete that ceremonial event. We are in production at Kermuk, and we are delighted that we are the poster child for the country for mining.

That will conclude Allied Gold third quarter earnings conference call. Thank you all for joining. You may now disconnect.