Earnings Call Transcript - AGI Q3 2025

Operator, Operator

Good morning, ladies and gentlemen. I would now like to turn the meeting over to Scott Parsons, Alamos' Senior Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Scott R. Parsons, Senior Vice President, Corporate Development and Investor Relations

Thank you, operator, and thanks to everybody for attending Alamos' Third 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; and 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, Technical Services and a qualified person. Also please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now I'll turn it over to John to provide you with an overview.

John McCluskey, President and Chief Executive Officer

Thank you, Scott. Starting with Slide 3. Before we go into the report for the quarter, I want to acknowledge this has been far from a typical production year for Alamos. We experienced production downtime and lower production in the first half of the year, which we are on pace to make up in the second half. Unfortunately, in recent weeks, downtime at the Magino mill and the seismic event at Island Gold will not give us the time to do so. As a result of these recent events, we've taken the prudent course and lowered guidance for the year by 6% from the midpoint of our original guidance. We have a reputation for taking a conservative approach to guiding the market, and we pride ourselves on providing consistently accurate guidance. Suffice it to say, we will continue to make operational improvements to raise the accuracy of our forecasting, recognizing that occasionally mining can be unpredictable. There remains to be said that while these recent events have a short-term impact, they in no way take away from the quality of our mines and what is without question one of the strongest outlooks in the gold sector. We are already seeing significant improvements this month with better grades at Young-Davidson and throughput from the mines. This will ultimately support lower costs than an 18% production increase, leading to record production in the fourth quarter. Production in the third quarter totaled 141,700 ounces, a 3% increase from the second quarter, driven by stronger performances from Mulatos and Island Gold District. This was slightly below the low end of quarterly guidance, reflecting one week of unplanned downtime within the Magino mill during the last week of September. Reflecting lower costs from the Mulatos district, total cash costs decreased 9% from the second quarter, and all-in sustaining costs decreased 7%, both consistent with guidance. With higher production, a record gold price and lower costs, we delivered record revenue, cash flow from operations and record free cash flow of $130 million in the quarter. We expect a significant improvement in both our fourth quarter production and costs to drive new financial records at critical prices. Turning to Slide 4. Through the majority of the third quarter, we were on track to achieve our full year production guidance. Given the unplanned downtime of the Magino mill in the last week of September and the seismic event at our Island Gold operation in October, we're decreasing our 2025 production guidance to between 560,000 and 580,000 ounces. This represents a 6% decrease from our original guidance released in January. Late in September, a capacitor failure within the Magino mill impacted the electrical drive for the SAG and ball mills. This led to one week of downtime and lower third quarter production than originally expected. The mill was restarted by the end of September and continues to demonstrate improvement in October. Due to the unplanned downtime, Island Gold's mill was restarted in late September to focus on processing higher grade underground ore. Given the record gold price environment, we will continue running both mills through the remainder of the year with the increased combined milling capacity supporting additional gold production, higher cash flow and increased profitability. In mid-October, the Island Gold mine experienced a seismic event, which is a normal part of operating an underground mine; no personnel or equipment were impacted and mining rates are expected to continue within budgeted levels. However, it does delay access to higher grades within one of our mining fronts. As a result, mine grades are expected to be lower than budgeted for the fourth quarter. Even with the lower-than-planned underground grades in the fourth quarter, we expect a substantial increase in production from Island Gold District driven by higher combined milling rates. We expect similar increases at Young-Davidson driven by higher mining rates and grades and at Mulatos with the recovery of higher grade ore stacked over the previous two quarters. All three operations are expected to contribute to an 18% increase in the fourth quarter production at lower cost, driving a further increase in free cash flow at current gold prices. Turning to Slide 5. Short-term challenges we experienced this year have no impact on our strong long-term outlook, which remains firmly intact. The Phase 3+ expansion at Island Gold will be a key driver of our growing production and declining costs over the next several years. The expansion is progressing well and with expected completion in the second half of 2026. The Lynn Lake project is another important part of our organic growth. Forest fires in Northern Manitoba limited our progress on this project this year, but we expect to ramp construction activities in the spring of next year, and initial production is now expected in 2029. This puts us on track to reach 900,000 ounces of lower-cost annual production by the end of this decade. The Island Gold District expansion study currently underway is expected to outline further upside with the potential to increase consolidated production to 1 million ounces per year within a similar time frame. We generated year-to-date free cash flow of nearly $200 million in 2025 and expect to generate growing free cash flow as we execute on this growth. Following the start-up of Lynn Lake, we expect to generate more than $1 billion of free cash flow annually at current gold prices. Now looking at Slide 6. In addition to delivering on our organic growth plans, we continue to surface value from our portfolio of assets. This included announcing the sale of our Turkish development project for a total cash consideration of $470 million. The transaction closed earlier this week and marks a positive outcome, realizing significant value for assets we had written off in 2021. We received $160 million on closing and the remainder, $310 million will be received over the next two years. With our strong free cash flow during the third quarter and initial proceeds from the sale of our Turkish assets, our current cash balance has increased to over $600 million. We'll be using the proceeds from the transaction and growing cash position to reduce our small debt position, and we expect to be active on our share buyback. We were also recognized for the second consecutive year as a TSX30 winner by the Toronto Stock Exchange for our strong share price performance of 310% over the trailing three years. The award is a testament to our long-term track record of outperformance, something we expect to continue to build upon as we deliver on our upcoming catalysts and organic growth times. I'll now turn the call over to our CFO, Greg Fisher, to review our financial performance.

Greg Fisher, Chief Financial Officer

Thank you, John. On to Slide 7, we sold approximately 136,500 ounces of gold in the third quarter at an average realized price of $3,359 per ounce for record revenues of $462 million. The average realized price was below the London PM Fix for the quarter, primarily due to the delivery of over 12,300 ounces into the gold prepaid facility at a fixed price of $2,524 per ounce. We will deliver the same number of ounces in the fourth quarter, after which the prepay obligation will be completed. 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. Based on an average gold price of almost $3,000 per ounce since July 2024, the company increased cash flow by approximately $40 million over that period, given the decision to buy out the 180,000 ounces of hedges 15 months ago through the execution of that prepaid facility. Quarter-over-quarter, total cash costs and all-in sustaining costs decreased 9% and 7%, respectively, and both were in line with quarterly guidance. We expect total cash costs and all-in sustaining costs to decrease a further 5% in the fourth quarter, driven by higher production across all operations. We remain on track to achieve full year cost guidance, which was revised earlier in the year. We are now reporting total cash costs and all-in sustaining costs excluding the impact of mark-to-market adjustments for the revaluation of previously issued share-based instruments. This methodology provides a better representation of our total costs associated with producing an ounce of gold and eliminates volatility associated with mark-to-market adjustments. Our reported net earnings were $276 million in the third quarter or $0.66 per share. This included a $193 million reversal of a previously recognized impairment related to the Turkish projects as well as unrealized losses on hedge derivatives, foreign exchange impacts and other adjustments totaling $72 million. Excluding these items, adjusted net earnings were $156 million or $0.37 per share. Operating cash flow before changes in noncash working capital was a record $275 million in the third quarter or $0.65 per share. Capital spending totaled $135 million and included $35 million of sustaining capital, $83 million of growth capital and $17 million of capitalized exploration. Our consolidated 2025 capital guidance has been updated to between $539 million and $599 million, a 10% decrease from previous guidance, primarily reflecting lower spending at Lynn Lake with the ramp of construction activities shifting to 2026. Free cash flow for the quarter totaled a record $130 million, a 54% increase from the second quarter, driven by record contributions from all three operations. This includes $73 million from the Mulatos District, $72 million from the Island Gold District and $62 million from Young-Davidson. Our cash balance grew 34% from the end of the second quarter to $463 million. Subsequent to quarter end, we received initial cash payments totaling $163 million from the sale of both our noncore Turkish development projects and the Quartz Mountain project, bringing our total cash position to over $600 million currently. Combined with the undrawn balance on the credit facility, our total liquidity is over $1.1 billion. We expect growing production and declining costs to drive increasing free cash flow over the next several years while continuing to fund our organic growth plans. With a growing cash position, we expect to reduce our $250 million of debt currently outstanding while also evaluating opportunities to buy back shares and eliminate a portion of the remaining legacy Argonaut hedges. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations.

Luc Guimond, Chief Operating Officer

Thank you, Greg. Over to Slide 8. Third quarter production from the Island Gold District totaled 66,800 ounces, a 4% increase from the previous quarter. A more substantial increase is expected in the fourth quarter, driven by an increase in combined milling rates from the Island Gold and Magino mills. Magino's milling rates continued to increase through the third quarter until the last week of September when a capacitor failure within the electrical house impacted the electrical drive for the SAG and ball mills. This resulted in one week of unplanned downtime. The capacitor and electrical drive module were replaced by the end of the quarter, following which milling rates have increased to average a new high in October. Quarter-over-quarter, underground mining rate increased 7% to 1,325 tonnes per day. Open pit mining rates increased 4% to 59,000 tonnes per day, including a 28% increase in ore mined to 17,600 tonnes per day. Grades mined from underground and the open pit were consistent with annual guidance. In mid-October, a seismic event occurred within the underground operation of Island Gold that has delayed access to higher-grade stopes to fill within one mining front. Seismic events are not uncommon for underground operations and mining rates are expected to remain within guided levels. However, rates mined in the fourth quarter are now expected to be lower than previously planned. We continue to expect a significant increase in production and decrease in costs in the fourth quarter. However, given the lower expected underground grades and unplanned downtime at the end of the third quarter, production guidance for the full year has been revised lower to between 260,000 from 270,000 ounces. Moving to Slide 9. A number of optimization initiatives have been implemented within the Magino mill over the past year that continue to drive improvements quarter-over-quarter. This included the installation of a redesigned liner and bolt configuration within the SAG mill in July, such that following a liner change and excluding the one week of unplanned downtime at the end of September, milling rates increased nearly 10%. With the mill up and running by the end of the third quarter, milling rates have continued to improve in October, approaching 10,000 tonnes per day, a new monthly high for the operation. To minimize potential unplanned downtime in the future and ensure increasing consistency of the operation, further review of electrical components was completed to ensure all critical spares have been identified and are on site. Moving to Slide 10. Given the unplanned downtime at the Magino mill, the decision was made to restart the Island Gold mill in the last week of September to focus on processing higher-grade underground ore. Operating the two mills will provide additional operational flexibility with increased milling capacity and allow us to capitalize on the higher gold price environment with stronger gold production. The restart of the Island mill provides an additional 1,200 tonnes per day of milling capacity. This is expected to support approximately 3,000 ounces of additional gold production on a quarterly basis, driving increased cash flow and profitability. At current gold prices, this represents nearly $50 million of additional annualized revenue with significantly higher gold prices, more than offsetting the higher processing costs associated with operating the Island Gold mill. We will operate the two mills through the end of this year, and we'll evaluate its ongoing operation into 2026 as part of the expansion study. Over to Slide 11. The Phase 3+ expansion continues to progress with the shaft sink now at the 1,350-meter level, 98% of the ultimate depth of 1,379 meters. Work also commenced on the 1,350 level shaft station. The Magino mill expansion to 12,400 tonnes per day is progressing well and is on track for completion in the second half of 2026. Base plant construction is advancing and expected to be completed in the first quarter of 2026. Mechanical and electrical outfitting for the water handling facility and shaft in-house is ongoing, and concrete foundation work for the new administrative complex is underway. Over to Slide 12. As of quarter end, we have spent and committed 84% of the total Phase 3+ capital of $835 million. The photos on the right highlight the progress on the shaft sink and 1,350 level shaft station. We expect to be skipping ore from this station in the latter part of next year with the expansion on track for completion in the second half of 2026. Over to Slide 13. We continue to advance the expansion study for the Island Gold District, which includes the evaluation of a larger mill expansion of up to 20,000 tonnes per day. The study is expected to include a larger mineral reserve through ongoing mineral resource conversion with encouraging results from our delineation drilling program supporting a strong rate of conversion and reserve growth. Work currently underway as part of the Phase 3+ expansion to 12,400 tonnes per day is being completed with a larger expansion in mind. This includes sizing the footprint of the new mill building to accommodate additional equipment for a further expansion of up to 20,000 tonnes per day. To ensure all the assays from the recently completed delineation drilling program are incorporated into the expansion study, we have shifted the completion of the expansion study from late this year to the first quarter of 2026. With the larger mineral reserve and higher combined mining and milling rates, we expect the expansion study will demonstrate significant upside to the base case plan released earlier this year. Over to Slide 14. Young-Davidson produced 37,900 ounces in the quarter, similar to the second quarter, reflecting the planned shutdown of the Northgate shaft in the first week of July to change the head ropes. Reflecting the downtime, mining rates averaged 7,300 tonnes per day in the quarter. Given the lower mining rates earlier in the quarter, excess mill capacity and higher gold prices, the low-grade stockpile ore was processed. Mill throughput rates averaged 7,800 tonnes per day in the quarter, a 12% increase over the previous quarter, reflecting the contribution of lower-grade stockpile ore, while process grades of 1.79 grams per tonne were 7% lower than mine grades. Reflecting lower mining and milling rates for the first nine months of the year, production guidance has been revised lower to between 160,000 and 165,000 ounces. Mining rates have returned to targeted levels, averaging 8,000 tonnes per day in September and October and are expected to remain at similar levels for the remainder of the year. Grades mined also increased towards the upper end of guidance in October at 2.25 grams per tonne and are expected to remain at similar levels for the rest of the quarter. Higher mining rates and grades, Young-Davidson is expected to have a much stronger fourth quarter with higher production and lower costs. Mine site all-in sustaining costs decreased in the third quarter, with a further decrease expected in the fourth quarter; the operation remains on track to achieve the full year cost guidance that was revised earlier in the year. Young-Davidson continues delivering strong mine site free cash flow with $62 million generated in the quarter and $160 million in the first nine months of the year, already surpassing the previous year record of $141 million in 2024. With strong ongoing free cash flow, the operation is on track to deliver well over $200 million for the full year at current gold prices. Over to Slide 15. Production from the Mulatos District totaled 37,000 ounces in the third quarter, a 9% increase quarter-over-quarter with the operation benefiting from strong ongoing stacking rates and grades and the recovery of previously stacked ounces. This trend is expected to continue with a further increase in production in the fourth quarter as the operation benefits from the recovery of higher-grade ore stacked in the previous two quarters. With higher production expected in the fourth quarter, we are increasing full year production guidance to between 140,000 and 145,000 ounces. Reflecting the stronger production, costs declined in the third quarter and with a further decrease expected in the fourth quarter, the operation is well positioned to meet its full year guidance. The PDA project continued advancing during the quarter with a focus on procurement of long lead items and detailed engineering. Expenditures are expected to increase in the fourth quarter and more significantly into 2026 with the ramp-up of construction activities. The project remains on budget and on track to achieve initial production mid-2027. The Mulatos District generated mine site free cash flow of $73 million in the quarter and $129 million in the first nine months of the year. It remains well positioned to continue generating strong free cash flow while fully funding construction of PDA. With that, I will turn the call back to John.

John McCluskey, President and Chief Executive Officer

Thank you, Luc. I want to reiterate that this has not been a typical year for Alamos and is not reflective of our long-term record of meeting or exceeding expectations. Our near-term and long-term outlook remains bright, and with one of the strongest growth outlooks in the sector, we remain confident in our ability to deliver on our guidance. We expect to demonstrate this strong outlook, starting with a significant increase in production and decrease in costs in the fourth quarter. I'll now turn the call back to the operator who will open up for your questions.

Scott R. Parsons, Senior Vice President, Corporate Development and Investor Relations

We'd like to open up the call for Q&A now, please.

Operator, Operator

Our first question is from Cosmos Chiu from CIBC.

Cosmos Chiu, Analyst

Great. Thanks, John and team. Maybe my first question is on Q4. John, as you mentioned, we're expecting increases to production in Q4. You've given us a range, 157,000 to 177,000 ounces, fairly sizable range, especially for quarterly production. Could you maybe just touch on some of the factors that could lead you to the higher end of that guidance versus, say, the lower end?

Luc Guimond, Chief Operating Officer

Cosmos, it's Luc here. Across our operations, we're consistently achieving higher mining rates at Young-Davidson, reaching 8,000 tonnes per day. The significant increase in gold production from Young-Davidson in the fourth quarter is primarily due to grade. According to our mine plan for the fourth quarter, we anticipate being at the upper end of our guided grades, aiming for between 205,000 to 225,000, and we're closer to the 225,000 mark. Regarding Mulatos, we have amassed a significant amount of gold in the first three quarters, and we expect to see more gold production coming off the leach pad in the fourth quarter, resulting in increased output for Mulatos. For Island Gold, we are maintaining consistent mining rates and are also expecting strong performance in the fourth quarter. When we consider these three factors from our operations, they are collectively contributing to the anticipated rise in gold production in the fourth quarter.

Cosmos Chiu, Analyst

Okay, Luc, could you elaborate a little on the seismic activity that occurred at Island Gold in mid-October? It sounds like it's not a permanent concern and doesn't seem to have long-term effects, but could you provide more details on what happened? Was it in a higher risk area?

Luc Guimond, Chief Operating Officer

Yes, I can provide some details on that. Seismic activity is a natural occurrence associated with underground mining. As we extract ore through development and production blasting, we alter the stress patterns within the mining area. The recent seismic event impacted one mining front, and we've had to halt production there because, from a regulatory standpoint, we require two ways to exit the mine. At Island, one exit is the ramp system, and the other is an escapeway connecting different levels. The seismic event compromised the escapeway, necessitating some repairs before we can resume operations. We're currently working on that, and it's not expected to cause a long-term delay. We anticipate returning to that mining area by early December to continue production. While seismic events are an expected part of our operations, this one led to damage in the escapeway, which we are addressing.

Cosmos Chiu, Analyst

And Luc, these escapeways are designed as more permanent infrastructures. I would have expected them to be built to standards that can withstand various stress regimes. However, there are other factors to consider. My question is whether this was unexpected? Has this occurred before? Also, what measures do you currently have in place to mitigate the risk moving forward, especially considering that seismic activity does occur?

Luc Guimond, Chief Operating Officer

Yes. Look, I mean, I kind of referenced with regards to our ground control management plan and our seismic management plan that we have in place for all of our underground operations. In this case, the ground support continues to develop and change as we get into different mining areas and maybe different elevations of stress that are being seen within the mining operations. So we adjust accordingly with that. We do have a lot of dynamic support in place to mitigate these sort of environments that happen when we do have an elevated stress environment. And in this case, for the most part, I'd say the ground support actually worked as per expected. But just keep in mind, rehabilitation is just kind of also a natural function of an underground operation residually, the scaling activities that occur and some additional ground support requirements as a result of some of these openings being open for a longer term. And in this case, the escapeway being one of those. So it's not uncommon to actually have to go back in and do some rehabilitation. In this case, again, because of the fact that the escapeway has been compromised, we just had to go in and repair that escapeway to be able to resume mining activities within that mining front.

Cosmos Chiu, Analyst

Great. Maybe one last question. As you mentioned, the expansion study for Island Gold is now expected in Q1 2026 versus Q4 2025, in part to incorporate potentially including the Island Gold mill in terms of running it into 2026. But I guess, in the maybe bigger picture. Gold prices are certainly much higher now compared to when you put out the Island Gold, the first phase case study. Is there a bit of a shift in terms of thinking here, in terms of lower grade material can actually now be profitable? So maybe running Island Gold for longer, could increase the overall throughput. And in the end, some of that lower grade ore could still generate cash and overall cash flow is higher. Is there that kind of thinking going on right now, John, in terms of how you're looking at the Island Gold and maybe even broader picture as well as the other operations? And then how would that be incorporated into the year-end sort of reserve resource statement that's coming out? Like what kind of gold price would you look at?

John McCluskey, President and Chief Executive Officer

That was one of the longest questions I've ever heard, Cosmos. Regarding Island Gold, when we acquired Argonaut, our vision was to integrate both mines into a significant operation that could handle around 20,000 tonnes per day. We are currently working on this and expect to present our findings to the market by January or early February next year. This is the ideal operational rate for the mine. To address part of your question, we're currently processing about 1 gram per tonne material from the open pit while stockpiling some lower-grade ore. With the reduced costs and increased throughput, we plan to process everything through the mill instead of stockpiling, which is a more profitable approach. We'll provide the necessary data to demonstrate this early next year. We won't be mixing the lower grade, which is around 0.5 grams, with the higher grade, allowing us to maintain a decent head grade while benefiting from economies of scale and lower costs. Our vision for the larger Island Gold mine includes approximately 3,000 tonnes of underground throughput, which would elevate production to over 0.5 million ounces per year and lower costs to around $1,100 to $1,200 per ounce. The study will give us a more exact figure. We estimate having about 11 to 12 million ounces of reserves and resources, representing a sensible development strategy for this mine. Achieving this will require manageable capital costs, and it's a logical next step for the project. We're not applying this strategy to Young-Davidson or Mulatos. Young-Davidson is relatively insensitive to gold prices due to the nature of the ore body, which we're mining profitably, generating impressive cash flows, and running the mill effectively at 8,000 tonnes per day. Expect a great year for Young-Davidson next year. For Mulatos, the future lies in transitioning to underground mining of high-grade sulfide materials and processing those in a new mill we will construct. We still have opportunities to explore and identify additional oxide materials in this expansive district, and we're getting some promising results. However, our primary focus at Mulatos is to move from heap-leaching low-grade production to higher-grade underground operations. Overall, that's our direction, and we're not relying solely on a higher gold price to drive our strategy across all operations.

Luc Guimond, Chief Operating Officer

The only other thing I'd add there, Cosmos, is just with regards to the 20,000 tonne per day planned for the Island Gold District, but that hasn't been changed. I mean we're still looking to put that obviously out. We've changed the guidance on that to put it out early in Q1. But it will outline a plan of running about 17,000 tonnes per day coming from open pit operations, 3,000 tonnes per day coming from underground operations. So that still is the plan. As far as the Island mill, that we're still continuing to run at this point, which we started in September. We'll evaluate that as part of our business plans for 2026. But given this high gold price environment, giving us more gold production, certainly and more cash flow, it may make sense to continue to run that in 2026, but we're still evaluating that.

Cosmos Chiu, Analyst

Great. Sorry for my extra long question. I just haven't thanked Scott Parsons for putting out earnings during Game 5 of the World Series. It certainly has not impacted my performance.

John McCluskey, President and Chief Executive Officer

Sure.

Operator, Operator

A following question is from Ovais Habib from Scotiabank.

Ovais Habib, Analyst

John and the Alamos team, I have a couple of questions as well. Cosmos already asked a few that I had. To follow up on Cosmos' question regarding the seismic activity at Island Gold, I am relieved to hear that no personnel or equipment were affected by this incident. That's really good news. I would like to ask Luc about the active mining fronts. How many active mining fronts do you have access to at Island Gold, and how does this influence mine sequencing as we move into 2026?

Luc Guimond, Chief Operating Officer

We usually operate three to four mining fronts based on our current mining rates. As we scale up towards 2,400 tonnes per day over the next year, we plan to develop more mining fronts. Currently, we've shifted our focus from one mining front that is on hold until we establish the escapeway, and we will generate production from other areas of the mine in the meantime. This is a temporary issue related to the recent seismic event, and we expect to resume mining in that specific area by early December.

Ovais Habib, Analyst

And just also in terms of when you gain access to additional funding, isn't that a mitigating factor on its own going into 2026 then?

Luc Guimond, Chief Operating Officer

With regards to the production profile, it certainly gives us more flexibility. I think is what you're getting at. Yes, it will give us more flexibility as far as maintaining the mining, the rates that we're looking at. But again, in this case, we haven't changed our guided levels for Q4 for mining rates. It's just that we've had to refocus some of the activity as far as our production for the fourth quarter because of the fact that we've got about a six-week interruption from this one mining front until we get the escapeway we reestablished.

Ovais Habib, Analyst

Perfect. And just moving on to Magino. With the unplanned downtime at Magino mill, that was, I believe, late September. Were you also able to take advantage of this downtime to do any sort of additional maintenance on the mill as well?

Luc Guimond, Chief Operating Officer

We did. But through the quarter, I think we spoke about this with the last quarter release that there was a liner bolt configuration redesign that we actioned in the quarter. So we did that in July. We also had some scheduled maintenance in August for the ball mill. But certainly, with that week interruption with regards to the capacitor failing, which led to the drive module also failing that we had to get replaced. We did take the opportunity to do some other plant maintenance within the Magino mill facility as well.

Ovais Habib, Analyst

Okay. And just then moving towards exploration. I don't know if the other Scott is online. So can you give us a brief overview of where you are currently focused on the exploration side, especially if you continue to have success on Island Gold West as well as in close proximity to the Magino?

Greg Fisher, Chief Financial Officer

Yes, I can provide an overview year-to-date. We shifted our strategy at Island Gold from exploration to delineation at the beginning of the year, and we successfully completed that delineation program in the third quarter for both Magino and Island Gold. This focused on converting the inferred mineral base from our June update for the expansion study into reserves. The reserve calculation process is now underway, with the delineation results having been received. In the fourth quarter, we will shift back to exploration at Island, drilling down plunge and the upper sections to the West between Island and Magino, particularly on the main Island Gold structure. Additionally, we have started a Phase 2 drill program at Cline and Edwards, building on the success from earlier this year. These mines are 7 kilometers from the Magino mill, and we are excited about the exploration results from the first half of the year, which continues. At Young-Davidson, we have developed the hanging wall exploration drift at 9620 and are currently drilling from there to define a high-grade zone in the conglomerate. We have drilled 15 holes, and assays are beginning to come in, with ongoing drilling aimed at expanding that mineralization. We are also starting a regional program in the fourth quarter at Young-Davidson, focused on our Otisse target located 3 kilometers from the Young-Davidson mill, which we believe has potential for future open pit ore. At Mulatos, we have concentrated this year on sulfide exploration across the district and have seen success in several targets. We are building on the first half of the year, continuing to expand mineralization at Cerro Pelon and testing multiple sulfide targets that our team has identified. We are encouraged by some of the results coming from Mulatos as we transition from seeking oxide, where we still have targets, to focusing on building the sulfide inventory of high-grade underground components that could define the future of the district. Finally, regarding Qiqavik, our greenfield project in Nunavik, Northern Quebec, which we acquired with Orford Mining, we executed exploration there in the third quarter. We planned for 7,000 meters but completed 9,000 meters. The goal was to find the source of the high-grade boulders identified across the belt, and we drilled in five target areas. Assays are just coming in, and we are pleased with surpassing our drilling expectations based on our program execution and the results from some of the core samples.

Operator, Operator

Our following question is from Fahad Tariq from Jefferies.

Fahad Tariq, Analyst

Just on the Magino mill, can you maybe provide some more color on how you're thinking about the targeted throughput maybe by the end of this year? I believe it was previously 11,200 tonnes per day and then 12,400 tonnes per day next year. How should we be thinking about that given some of the ramp-up issues so far?

Luc Guimond, Chief Operating Officer

Yes, it's Luc here. As I mentioned during the third quarter, we made some changes to the SAG mill regarding the liner bolt configuration, which has been completed. We also had a scheduled ball mill liner change, and there was an issue with the capacitor in September that impacted us. However, from mid-July until the capacitor issue at the end of September, the mill was consistently delivering over 10,000 tonnes per day. After addressing the capacitor problem and resuming milling activities through October, we've been averaging just above 10,000 tonnes per day as well. Our goal of reaching 11,200 tonnes by the end of the year remains on track, but we need to do some fine-tuning before the end of the quarter to ensure we can consistently achieve that. Regarding the long-term target of 12,400 tonnes, we're already working on expansion. We need additional equipment for the CIP, leach circuit, refinery, and elution to handle the higher gold content entering the plant. We're also assessing the grinding capacity, as we might need a third grinding circuit to support operations. This evaluation is part of the overall mill expansion, and we expect to provide updates on this early in the new year.

Fahad Tariq, Analyst

Okay. That's helpful. And then maybe just as a follow-up. So if the Magino mill is able to get to 11,200 tonnes per day by the end of this year, things are improving. Would that be reason enough not to keep running the Island Gold mill?

Scott R. Parsons, Senior Vice President, Corporate Development and Investor Relations

I think at these gold prices, we're evaluating this. However, I believe we want to maximize throughput, and operating those two mills at these gold prices probably makes sense.

Operator, Operator

A following question is from Sathish Kasinathan from Bank of America.

Sathish Kasinathan, Analyst

Most of my questions have been asked and answered. So maybe a question for Greg. So with over $600 million in cash balance, you indicated that you will be more active in buybacks. How should we think about the cadence of buybacks on a quarterly or an annual basis? Do you have a target run rate in mind? And also, given your growth projects, how should we think about like a minimum cash balance?

Greg Fisher, Chief Financial Officer

Thank you. From a share buyback perspective, we have not set specific targets. Our approach is to be opportunistic while considering our other capital needs, such as business growth and debt repayment. We are analyzing all of these factors and, due to the recent decline in share price and gold prices, we aim to be active in share buybacks. Currently, we have $1.1 billion in liquidity and a cash balance of $600 million. We intend to pursue share buybacks, reduce some debt, and assess the option to buy back some of the legacy Argonaut hedges. All these activities will provide capital as we aim to grow from 600,000 ounces to over 1 million ounces by the year's end. It's essential that we maintain sufficient capital, but we do have free cash flow at the moment. For our minimum cash balance, we would like to keep at least $250 million to $300 million on the balance sheet.

Sathish Kasinathan, Analyst

Okay. Maybe a question on Young-Davidson. So it seems the mill has been operating at 8,000 tonnes per day for a couple of months now. Do you think the mill's performance has reached a level that it can continue to consistently operate at this level? And given the current gold prices, is there potential for maybe pushing the mill to a higher run rate?

Luc Guimond, Chief Operating Officer

The mill has been performing quite well at Young-Davidson. I mean, obviously, our overall ore production that's come out through Q3 and some of the previous quarters has been more related to giving all of the grade that we can from the mining operations. And certainly, in Q3, it was related to the shutdown that we had to make with regards to the head ropes. But the mill has been performing quite well. There's no issues there. On the aspect of actually looking to see if it can do more, that's something that we've been looking at and seeing with other opportunities to be able to increase the overall throughput through that mill complex. It would not necessarily come from more underground ore. The mine is designed and the infrastructure is designed to support 8,000 tonnes per day. But there are other opportunities with some of the smaller satellite open pit deposits within the region of Young-Davidson that we could look to bring into a mine plan and provide additional mill feed to the YD mill complex with some minor capital requirements to be able to do that. The potential would be to probably get it up to around 9,000 tonnes per day consistently.

Operator, Operator

The following question is from Don DeMarco from National Bank.

Don DeMarco, Analyst

John and team. Maybe just a quick question on the capacitor incident. What were the root causes of that? And is there a risk of a repeat?

Luc Guimond, Chief Operating Officer

The capacitor failure, we're still actually having that analyzed. So I don't have a firm answer on that, but it's not something that you would typically see, to be honest with you. So there could have been a defect within that part itself. I mean we've been running our Island Gold mill complex and our Young-Davidson mill complex for years and have never experienced that sort of failure with a capacitor. But it wasn't just a capacitor. The capacitor failing was part of it, but that led to some residual damage within the drive unit of the power modules that operates the SAG mill and the ball mill. So we had some other component failure there like resistors and a bus bar and some other electrical components that resulted in some additional repairs. But this is not a normal course of business. We've never seen this with any of our other operations. So I'd say at this point, it's a one-off, but we still need to do further diagnosis to understand exactly what happened with that capacitor.

Don DeMarco, Analyst

Okay. I look forward to that. And it sounds like the timing of mining...

Luc Guimond, Chief Operating Officer

Just the other thing I would add to that is that from an inventory aspect and just making sure that we have all of the parts, we have done another thorough review of our electrical components for running that plant to ensure that we have all of the critical spares that we need just to prevent any sort of significant downtime moving forward.

Don DeMarco, Analyst

Okay. Then just to my next question, with regard to the Magino mill and combining the two ore streams back into that mill, it sounds like it's potentially 2026, maybe later. Seems like there’s good reason at this gold price to keep the 1,200 tonne per day Island mill running. But since you've done it before, you've done it once already in July, would the second time round be somewhat routine just with a quicker ramp-up?

Luc Guimond, Chief Operating Officer

Yes, it's pretty seamless, to be honest with you, to put the both ore streams into the one plant. I think I'd mentioned before, we did a couple of batch tests just to confirm the metallurgy back in Q2, Q3, and that all was validated. Frankly, running that combined ore stream into the Magino mill from really mid-July until we did have that capacitor failure at the end of September, metallurgically everything was performing quite well, both from a gravity recovery point of view as well as overall recovery. The expectations were as per what we were expecting as far as what we modeled to what we were seeing in the plant. So it's a pretty easy simple transition to just provide that ore feed back into the stream and combine the two streams into one feeding into the one mill complex.

Don DeMarco, Analyst

Okay. And then just as a final question. Turning to Lynn Lake development. We see that the timeline has been impacted by the wildfires. How about CapEx? Can you give any more granularity on the implications to the CapEx estimates to develop that project?

Luc Guimond, Chief Operating Officer

Yes, regarding capital expenditures, we expect to see some inflation impact because of delays. We essentially lost the entire construction season this summer, which is crucial for productivity in Northern Manitoba and Northern Ontario, where our operations are located. Consequently, our original timeline has shifted from mid-2028 to early 2029, and this will incorporate an inflation factor as well.

Greg Fisher, Chief Financial Officer

Yes. I mean, just adding to that. We put a study a couple of years ago. So you have three years of inflation since we put out that study with this additional year that Luc just commented on moving it out to 2029. And inflation on capital projects is run around 5% to 6%. So we can expect a 15% increase in our capital that we put out in the feasibility study for Lynn Lake.

Operator, Operator

There are no further questions registered at this time. This concludes this morning's call. If you have any other questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439.