Alamos Gold Inc. (NYSE:AGI) Q2 2023 Earnings Call Transcript

Alamos Gold Inc. (NYSE:AGI) Q2 2023 Earnings Call Transcript July 27, 2023

Operator: Good morning. I will now turn the call over to Scott Parsons, Alamos’ Senior Vice President of Investor Relations. Please go ahead.

Scott Parsons: Thank you, operator, and thanks to everybody for attending Alamos’ Second Quarter 2023 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; and Scott R.G. Parsons, our Vice President of Exploration. 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 everybody 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 Vice President, Technical Services and a qualified person. Also, please bear in mind that all the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview.

John McCluskey: Thank you, Scott. Starting with Slide 3. We delivered an outstanding performance in the second quarter, achieving a number of operational and financial records. Production increased to a record 136,000 ounces, exceeding our guidance for the quarter while all-in sustaining costs decreased below our annual guidance. This was driven by another exceptional performance from La Yaqui Grande, which contributed to the strongest quarter from Mulatos district in more than a decade. With production totaling 264,000 ounces through the first half of the year and costs well within guidance, we may not remain on track to achieve full-year production and cost guidance. Financially, we broke a number of records, including revenue and cash flow from operations, which increased for the fifth consecutive quarter to $138 million.

We also generated a record $62 million of free cash flow, marking the fifth consecutive quarter of positive free cash flow as we continue to fully fund our growth projects and build our financial capacity. Now turning to Slide 4. We’re making excellent progress across our growth initiatives. We expect to release the results of an updated feasibility study on our Lynn Lake project in the next few weeks. Work on the Phase 3 expansion continues to progress, and we continue to have exploration success at PDA in advance of a development plan that we expect to release in the latter part of the year. As we announced early in the year, we defined 1 million ounces of higher grade reserves and resources at PDA over the last two years. As demonstrated through our exploration update in May, we expect PDA to continue to grow and support a significantly longer life mine at Mulatos.

At Island Gold, we are making significant progress on the Phase 3+ expansion. With the Galloway recently lowered into the shaft, construction of the hoist house, substantially completed and head frame erection well underway. We are on track to begin shaft sinking in the fourth quarter and deliver initial production from the shaft and expanded mill in the first quarter of 2026. We continue to have tremendous exploration success across the Island Gold deposit. As highlighted in our June news release, and we’re just scratching the surface of the regional potential across a much larger land package. This is highlighted by the photo at the bottom of the slide of a recently drilled core with significant visible gold from the Pine-Breccia regional target, which is only four kilometers from the Island Gold mill.

We also released our inaugural Climate Change Report in the quarter, a significant milestone in our sustainability journey, which among other things, outlines further details on our 30% reduction target in greenhouse gas emissions by 2030. Now turning to Slide 5. The key drivers of our strong outlook are all on track, as guided and seen through the first half of this year, low cost production growth from La Yaqui Grande is taking our production higher and costs lower. Through the Phase 3+ Expansion at Island Gold, we expect production will grow to 600,000 ounces per year with all in sustaining costs decreasing below the $1,000 per ounce level. Longer-term, to the development of Lynn Lake, we have the potential to increase production to 800,000 ounces of gold per year.

All of this growth is in Canada. It’s all lower cost and we can fund it internally, providing one of the strongest outlooks in our sector. I’ll now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg?

Greg Fisher: Thank you, John. This is my first quarterly conference call as Chief Financial Officer, and I couldn’t be happier to be reporting a number of new financial records. I’ve been with Alamos for over 13 years, most recently as Senior Vice President of Finance. And I can say that the outlook for the company has never been better. I’m excited for the growth we have ahead and look forward to continued strong financial results in the years to come. Moving to Slide 6. We sold 132,000 ounces of gold in the second quarter at an average realized price of $1,978 per ounce, $2 per ounce above the London PM fix for record revenues of $261 million. Total cash cost of $847 per ounce were in line with annual guidance and all in sustaining cost of $1,112 per ounce were below the low end of the range.

Through the first half of the year, total cash costs are down 12% from a year ago and all in sustaining costs are down 9%, as we benefit from low cost production — low cost growth at La Yaqui Grande. We are one of the few companies to meet cost guidance in 2022 and are on track to do the same in 2023. Our reported net earnings of $75 million in the second quarter or $0.19 per share included unrealized foreign exchange gains of $13 million recorded within deferred taxes and foreign exchange and other gains of $2 million. Excluding these items, our adjusted net earnings were $59 million or $0.15 per share. Driven by our strong operating results and expanding margins, operating cash flow before changes in non-cash working capital increased 9% from the first quarter to a record $138 million or $0.35 per share.

Free cash flow also increased significantly from the first quarter to a record $62 million. Strong operating results and margin expansion were the main drivers of the free cash flow increase with the collection of $20 million in sales tax receivables in Canada that had been deferred from the first quarter also contributing. Capital spending totaled $80 million in the quarter and included $23 million of sustaining capital, $50 million of growth capital, and $7 million capitalized exploration. Through the first half of the year, capital spending totaled $164 million, consistent with our annual guidance. Our balance sheet continues to strengthen with no debt at $189 million in cash at the end of the second quarter, up from $134 million in the previous quarter, reflecting the solid free cash flow generation.

We expect this to continue as we internally fund our high return growth projects, while generating significant free cash flow and providing strong ongoing returns to our shareholders. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations.

Luc Guimond: Moving to Slide 7. Young-Davidson produced 45,200 ounces, consistent with the first quarter, reflecting similar grades and processing rigs. Costs in the quarter and through the first half of the year were in line with the upper end of guidance. Grades mined and processed were at the low end of the annual guidance range and are expected to increase in the second half of this year as previously guided. Milling rates were below mining rates, reflecting a scheduled liner change and weather-related power outages in the region. Milling rates are expected to return to guided levels for the rest of the year. Combined with higher grades, this is expected to drive higher production and lower costs in the second half of the year, putting the operation on track to achieve full-year guidance.

Mine site free cash flow increased to a record $35 million in the quarter, bringing the first half total to $52 million. With a stronger second half expected Young-Davidson is on pace to generate over $100 million in free cash flow for the third consecutive year. Over to Slide 8. Island Gold produced 30,500 ounces in the quarter. Grades were in line with guidance. However, milling rates were impacted by lower mining rates as well as downtime for maintenance on fine ore bin, and weather-related power outages. Mining rates were also impacted by the power outages as well as some loss shifts due to smoke from wildfires in Northern Ontario. Both mining and milling rates have returned to normal levels in July and are expected to average 1200 tonnes per day through the remainder of the year.

This is expected to drive higher production and lower costs in the second half of the year, putting Island Gold on track to meet full-year guidance. Over to Slide 9. We made considerable progress on the Phase 3+ Expansion in the second quarter with mechanical installation of the production and service hoist completed and the hoist house substantially complete. The Galloway that will be used for shaft sinking was lowered into the shaft and is being outfitted with the required mechanical and electrical components. Over 90% of the buried services required to start shaft sinking are now complete, and the erection of the head frame is well underway, as seen in the photos on the slide. Shaft sinking is on schedule to commence in the fourth quarter.

Over to Slide 10. A total of $41 million of capital related to the Phase 3+ Expansion and capital development was spent in the quarter. The expansion remains on budget with 36% of the total initial capital of $756 million spent and committed to the end of June. Most of the capital spent and committed to date has been focused on the shaft site area with spending on the mill expansion and Paste Plant expected to ramp up next year. The expansion is on track to be completed in 2026 and will create among the largest, lowest cost and most profitable mines in Canada. Moving to Slide 11. Mulatos district production totaled 60,300 ounces, an impressive 19% increase over the previous quarter and the highest production rate in the past 10 years. Costs were below full-year guidance for the quarter and through the first half of the year, driven by strong results from La Yaqui Grande with grades and stacking rates both above full-year guidance.

Mine-site free cash flow increased to $47 million also the highest level for Mulatos in over 10 years. As previously guided, production rates are expected to decrease in the second half of the year and costs increase. This reflects the end of mining in the main Mulatos pit as well as the decrease in stacking rates and grades at La Yaqui Grande to levels consistent with full-year guidance. With a very strong start to the year, the Mulatos district is well positioned to achieve full-year guidance. I will now turn the call over to our VP of Exploration, Scott R.G. Parsons.

Scott R.G. Parsons: Thank you, Luc. Over to Slide 12. As John noted, we continue to have exploration success across several areas, most notably in Mulatos and Island Gold. In May, we announced an exploration update at the higher grade underground PDA deposit within Mulatos District, where we continue to extend high grade gold mineralization outside of currently defined reserves and resources. At 1 million ounces of combined reserves and resources, PDA has already grown larger than La Yaqui Grande. Given the number of high grade step out holes intersected already this year, we expect that growth will continue. Based on the success to date, we have doubled the size of our exploration drilling program at PDA and we’ll be completing it, we expanded 35,000-meter program in the third quarter.

The results will be incorporated into the development plan for PDA expected to be completed in the fourth quarter. We expect that this development plan will align a significant mine life extension of Mulatos. We also announced a wide interval of gold mineralization at 2 grams per tonne of 82 meters in a breccia along the Capulin Fault. The Capulin target is located four kilometers east of the Mulatos pit in an area that is seen limited historical expiration. We’ve completed several follow-up drill holes stepping out in this area with assays expanding. Thus far, I’m pleased to report that we’re seeing similar lithologies, alteration, and styles and mineralization as the first hole, highlighting the significant potential of the Capulin target and within the Mulatos district.

Over to Slide 13. At Island Gold, as highlighted in our June update, underground drilling continues to extend high grade mineralization across Island Gold deposit. While this has been a consistent theme since we acquired Island Gold Mine in 2017, a more recent focus over the past year is an expanded underground exploration drilling program in the hanging wall and footwall of Island Gold deposit. Exploration to date has defined and expanded on several higher grade zones in the hanging wall footwall structures. These zones are in proximity to existing underground infrastructure highlighting the significant potential to add near mine, high grade reserves and resources that will be low cost to develop. An excellent example of this is a newly defined perpendicular structure, the NS1 zone.

We defined the zone earlier this year, and we’re currently developing it, and we’ll be mining it over the coming quarters. Highlight the fuel development material we’ve already processed this 3,100 tonnes grading 15.2 grams per tonne. This zone was not factored into our reserves and resources nor our 2023 mine plan, but is already contributing to our production. With over 7,000 gold composites historically and recently intersected in the Hanging wall and footwall structures, there are numerous opportunities for the definition of additional high grade zones in the Hanging wall and footwall wall across Island Gold deposit, which has the potential to greatly increase our ounces per vertical meter. At 5.3 million ounces of combined reserves and resources, Island Gold has already tripled in size since we acquired it.

We see excellent potential for that growth to continue, that’s not even factoring in the significant regional potential that we’re only just starting to test. And with that, I’ll turn the call back to John.

John McCluskey: Thank you, Scott. That concludes our formal presentation. I’ll now turn the call back to the operator, to open the call for your questions. Operator?

Q&A Session

Operator: We will now take questions from the telephone lines. [Operator Instructions]. And your first question is from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu: Thank you John, Greg, Luc, and Scott. Congrats on a very strong Q2. And on that, as we talked about, you had a very strong first half. You’ve maintained your guidance for the year. But if I have done my math correctly, you’ve done about 53% of the full-year targeted guidance at the midpoint. I guess my question is, with Young-Davidson and Island Gold expected to be even better in the second half, is there a potential for you to exceed your current guidance for the year?

Greg Fisher: Hey Cosmos, it’s Greg here.

Cosmos Chiu: Hi, Greg.

Greg Fisher: I mean there is a potential. We’re sticking with our guidance because at Mulatos, and we’ve highlighted that at El Salto, we’ve completed mining in September. So we’ll be relying on some stockpiles for the second half of the year. But you can certainly know that production is going to go down at Mulatos portion of the pit. And then at La Yaqui Grande, we were producing some pretty high grade in the first half of the year, that’s also going to come back down to guided levels in the second half of the year. So the offset to the better production at both Island and YG would be lower production at Mulatos.

Cosmos Chiu: Of course. And maybe a little bit deeper at the La Yaqui Grande. As you mentioned, Q1 or Q2, sorry, was really good. I read that there was a positive grade reconciliation. Could you maybe give us a bit more color on that? Was it confined to a certain area? Was it what was your understanding behind the positive grade by reconciliation? And on that, could it happen again?

Luc Guimond: Hi, Cosmos. Yes, it’s Luc here. It’s really a function of the drill density with regards to the early stages of the pit. And as we get deeper into the pit, the drill density is more defined, so part of it is just a wider spacing of the drill density at the top of the pit. The other aspect of it as well is that we were actually getting some ore outside of the block model with pretty strong grades as well, which was not identified in the original block model. So that also helped in the overperformance. I mean, for the quarter, I think we were about 7% above our expected block model grade. But as we get lower into the pit, what I can say with the current benches that we’re mining relative to the tonnes and grade model from our block model, we’re very tight as far as the actual results relative to the block model as we continue to move deeper into the pit.

Cosmos Chiu: Of course. Maybe switching gears a little bit. As you mentioned, the PDA development plan is coming out before the end of 2023 in Q4 2023. As you mentioned, May 15, mid-May, the exploration results have came out, we’re very good. If I look at it correctly, there were some holes that returned 21-gram per tonne, 3-gram per tonne 14.8 grams per tonne, uncut or even cut, it was still very good; and certainly higher than the current reserve grade, which is 4.84 gram per tonne. I guess my question is, number one, can you remind us what is being included in that development plan in terms of the timing in terms of cutoff? And number two, what’s the potential for even higher grade being incorporated into this deposit?

Scott R.G. Parsons: Cosmos, I can take that. It’s Scott R.G. We’re in the midst of that expanded drill program. So I guess the first point is we look to be defining an internal mid-year resource update towards the end of the program, probably mid-Q3, which we would use for the updated development plan. I will say that that doesn’t mean that the drilling will stop at that point in time. I mean, we’re continuing to expand the deposit in multiple directions. We focused around PDA 1 and 2 zone so far [indiscernible] are part of that reserve and resource and represent significant upside in terms of exploration when we start expanding on those as they are open as well. In terms of higher grades, the more drilling we’re doing, the more predictive we’re getting with targeting higher grade structures within the PDA deposit.

So there is a strong Northeast control to high grade mineralization, and as the period of those structures. So as we expand out from the existing mineralization. We’re strategically targeting those structures that we know are control on some of the higher grades there.

Cosmos Chiu: Great. Maybe one last question and switching gears again a little bit. Lynn Lake, certainly, your updated feasibility study is coming out next month in August. And John, I think you’ve done a very good job in terms of progressing the asset there, the EIS now you’ve signed with the First Nation’s group. I guess, what’s next? I guess, you can’t tell me too much more, but if I looked at the 2018, the last sort of feasibility study kind of outdated now. The IRR was 12.5%, but that was again based on a much lower gold price. So again, I’m — so you can’t tell me what the IRR is going to be that’s coming out. But can you remind us like in terms of your hurdle rates, how you look at these projects? And what should we expect, again, to the extent that you can share with us?

Scott R.G. Parsons: Cosmos, maybe I’ll start on what we can expect. I mean, yes, we are putting out our updated feasibility in a couple of weeks. So we can’t speak to any specifics. But I mean, you can expect that capital is going to go up. We released that in 2017, the end of 2017. So there’s been years of inflation in some of the highest inflationary period that we’ve seen over the last 30 years in that period. So capital is going to go up from that perspective. But also we have a bigger resource. And as a result of the bigger resource, we have the ability to potentially increase the mill throughput that we’re putting through, so it’s just increasing the size and base of the plant. And both of those would contribute to a larger operation and as a result, higher capital.

John McCluskey: Hi, Cosmos, it’s John here.

Cosmos Chiu: Hi, John.

John McCluskey: I would add that, if you keep in context the — it’s our usual habit to pull in M&A transactions when the gold price is very low, where we can buy things at lower cost. And at the time we closed this transaction to acquire Carlisle Goldfields. The gold price was under $1,100 an ounce. It was virtually the bottom of the market that would have been January 2016. So the whole point of acquiring it at that time was to pick up those ounces cheaply, and I think we paid something like $22 million for what was roughly a 1.6 million ounce resource. We did a quick preliminary study just to get a gauge on what economics might look like and using a $1,250 gold price assumption, it still showed something like 11% or 12% IRR.

And that was not using any creative financing in order to pull that IRR up higher. So here we are at $1,900 gold. We can certainly use a substantially higher gold price assumption when we are going to run the economics this time around. So that’s going to be one of the big offsetting factors. And the change in scale, we’ve added a significant number of ounces since we acquired the deposit and there’s more to come. That’s the other thing. We always had in view that we had a district scale play here with something like 80 kilometers of strike in a virtually untested greenstone belt, that the market, by and large, does not really understand, but the potential is real. And based on preliminary work that we’ve been doing on a regional basis, we are more encouraged than ever at the long-term potential for this district.

So for us, the development of the two pits is just a start. It’s a gateway into what we think is a very long-term potential for the company. So like most things we do, the acquisition of Island Gold was a very strategic move. It had more than enough flesh on the bones to justify the exploration work we’ve put in. And of course, we can point to quite a substantial success. But you’re going to see us do much the same as we did at Mulatos. We’re going to continue to explore. And over time, we’re going to add more deposits. And we think there’s a really bright future for that part of the world. And we intend to be quite aggressive pursuing that potential over time. In terms of the development time line, we will come out with a study, but based on previous guidance, we’re not intending to immediately jump into the development of this mine.

We don’t need to do that, and it would be far better timed for us in terms of allocation of capital and allocation of management time, the skilled personnel that we’ll ultimately put on that project. Right now, they’re quite heavily involved in the Phase 3+ Expansion of Island Gold. So we want to be in a position to substantially de-risk the Phase 3 expansion to get most of the capital spend. And by that time, there will be a natural progression where we’d be able to move people from Island Gold and onto the Lynn Lake project. So we’re still sticking with that objective. Even though you can see we’re generating tremendous amounts of free cash, and we have — we certainly have the capacity to do the work. What we can do and what we will continue to do is advance the detailed engineering.

So when you see us make an estimate, as you will see in this upcoming study, it’s not a rough guess. These numbers are going to be very well nailed down. And so our — I would say our estimates are going to be highly reliable. And therefore, the IRR is something that we’d be very happy if you modeled and the valuation that we’re going to put on this project is going to be real added value to the asset base of the company.

Cosmos Chiu: Great. Thanks again, John and team for answering all my questions. That’s all I have. Thank you.

Operator: Thank you. The next question is from Ovais Habib from Scotiabank. Please go ahead.

Ovais Habib: Thanks, operator. Hi, John and Alamos team. And yes, congrats on the Q2 beat. Just a couple of questions from me. My first question is in regards to the NS1 zone. I did miss some of the comments made by Scott R.G. So I apologize if you have to repeat some of your comments here. At the recent Island Gold site at NS1 Zone was discussed pretty well in-depth, and there was a potential to commence production from the zone in the second-half. Again, even though the zone is not even in the reserves or resources. Is this still the case? Is that still the plan? And what potential do you see across the Island Gold deposit to discover similar zones?

Scott R.G. Parsons: Yes. It’s Scott R.G. I can take the question. Yes, the NS1 zone is — it was discovered earlier this year. We’ve been able to pivot and advance it quickly in conjunction with the mine plan for this year. Basically just drilling it off, ceiling along, and I highlighted it in my commentary, 3,100 tonnes from an exploration still at 15 grams per tonne that we’ve already put into production. We’ll be developing stopes on the NS1 zone in the second half of this year, as discussed. The zone remains open up and down dip. We’re drilling that as we speak. I think the real opportunity beyond just that zone, I think that’s a good example is the number of zones that exist at Island that we need to — we’re now in a position to drill from underground and these perpendicular structures, they occur on periodicity across the mine.

It’s a matter of drilling them off well ahead of when we get there with the mine development, which we’re doing now and then also looking at these sub-parallel zones.

Ovais Habib: So this 3,100 tonnes was that already produced in Q2 or would that be kind of coming in Q3?

Scott R.G. Parsons: No, that’s in mine. So that was sort of an exploration still that we put in on the NS1 zone.

Ovais Habib: Got it. Okay. And just switching to Mexico. In regards to PDA, just some thoughts on permits. So what kind of permits would be required? Would it just be an addendum to the existing Mulatos permit? Or would you have to apply for a full permit over there?

Luc Guimond: Yes. It’s Luc here. So with regards to the PDA permitting, I mean with — obviously, with some of the Mexican mining reform changes there, we don’t see any issues with regards to being able to obtain permits in relation to mining for PDA from both the mining and milling point of view, it’s within our existing concessions. And the legacy of actually having operated underground mines there previously would fall just as an addendum to our existing permits to be able to continue that from our mining perspective, and very similar for the milling aspect with regards to what we’re looking to do. We did have a small mill complex there from the previous underground mining operations. We’ll have to upscale that once we do complete our mine design and then support the mill design for that. But also it would be, again, within our existing concessions, and we would just be looking to seek amendments to our existing permits.

Ovais Habib: Excellent. Okay. That’s it for me. And thanks for taking my questions.

Operator: Thank you. The next question is from Fahad Tariq from Credit Suisse. Please go ahead.

Fahad Tariq: Hi, good morning. Thanks for taking my question. Just something maybe we haven’t talked about in a while, the Turkish assets, has there been any update on that front, whether the arbitration process or potentially finding a local partner and/or selling those assets altogether? Any color on that would be really helpful. Thanks.

John McCluskey: Yes. We haven’t provided an update on it, because there really is nothing to update when there is, you’ll hear from us.

Fahad Tariq: Okay. And then just switching gears, just a modeling question on La Yaqui. Thinking about grades in Q3 and Q4, I know they’re declining sequentially. Is there any additional color we should be thinking about? Like are grades going to fall like to the low end of the annual — like the guidance range in Q3 and Q4? Just anything that could help us modeling that — those grades would be helpful?

Luc Guimond: Yes. Well, as per our mine plan for this year, we were expecting grades to drop in the second half of the year as per our guidance. So in the second half of the year, we’ll be more in line with our reserve grade of about 1.25.

Fahad Tariq: And there’s — is that — is there a difference between Q3 and Q4? Or is it kind of safe to assume?

Luc Guimond: Pretty consistent in the second half of the year. And as I touched on with regards to our over performance certainly from the first half of the year, based on what we’re seeing with the benches that we’re currently mining, they’re aligning with the block model from our actual results. So we’re not expecting any over performance in the second half of the year. We should be more in line with our reserve grade of 1.25.

Fahad Tariq: Okay, great. That’s super clear. Thank you.

Operator: Thank you. The next question is from Mike Parkin from National Bank. Please go ahead.

Michael Parkin: Thanks guys. And Greg congrats on your first call and nice quarter too. Just most of my questions have been answered. But with Lynn Lake, I think you’ve set a good tone on what to expect in terms of scale and CapEx. Can you remind me again, power costs? I remember we’ve chatted about it in the past. But from what I recall, I think the power cost for the asset with grid power is extremely low. I just don’t remember what the number is on top of my head.

Greg Fisher: Yes, Mike, it’s Greg here. It’s about 4.5 tonne kilowatt hour.

Michael Parkin: And then you’ve kind of addressed it, but it seems like challenges working around smoke in the area, that seems to be largely kind of behind you. Can you just give some additional color there? Is it — you’ve noticed current days are on average better than what maybe June was?

Luc Guimond: Yes. Mike, it’s Luc here. I mean obviously, as you’d appreciate, I mean, forest fires are an annual thing that we have to do with regards to our operations in Northern Ontario certainly in the summer months. In this case, I mean, with regards to the fires that we had in the region, no effect as far as the fire itself to compromise the assets. It was more really related to smoke. And it’s always a function of the wind direction. These fires can be up to 100 kilometers away from our infrastructure, but the wind direction will bring the smoke into that — our region of our operations, and it’s always a function of our fresh air fans to provide the proper ventilation for the underground workings where the smoke — the fans pick up that smoke and then bring it into the work environment and then it’s just — it becomes difficult for our workforce to rather determine whether it’s an actual fire or it’s just related to the forest fires.

So as a result of that, we had to cancel shifts. It’s intermittent. So I mean we could have potentially one shift or two consecutive shifts canceled, the smoke — wind directions change, bring the smokes — takes the smoke away from our infrastructure, our ventilation fans, and then we’re able to operate again for a number of days. And then obviously, with the wind direction change, it could bring that smoke back into the region. So in this case, we just had more frequency of smoke being in the region with regards to our assets, which is what resulted in canceled shifts as a result. But it’s something that we deal with on an annual basis.

Michael Parkin: Okay. And then for Scott R.G. Parsons. The Capulin drill results, you noted that you’ve got a number of additional assays pending. Do you have a sense of when you might be able to release those?

Scott R. G. Parsons: Yes. Obviously, we want to — the story continues to develop what we’re seeing visually anyway. We want to have a meaningful number of holes to release. So we can — as we continue stepping out on that first hole that we spoke to. So we’re continuing to drill there now. We just added a third drill, so there will be more coming out of that area over the coming months, likely, I’d expect that we have [indiscernible] in September.

Michael Parkin: Okay. So kind of ahead at Denver Gold Show we could probably see something?

Scott R. G. Parsons: It could be around that time, yes, again, results dependent as we get them in. Yes.

Michael Parkin: Okay. Thanks guys. Congrats again.

Operator: Thank you. [Operator Instructions]. And the next question is from Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith: Thanks, operator. Luc, just on the guidance for La Yaqui Grande, you talk about lower stacking rates in the second half. Are you tailing back the stacking rates because of the rains that usually come in Q3? Or is there no reason why the de-stacking rates will be lower than what you’ve done in Q2?

Luc Guimond: Hi, Kerry. No, it’s really related to the seasonal effect with regards to the range that we get in Mexico. Productivity-wise, it just — it slows down our overall operations. So as a result of that, the stacking rates end up being lower, through the rainy season.

Kerry Smith: Okay. So we see that through Q3 and now and maybe the back end of Q4 would be a lot — later rates possibly because it rise out.

Luc Guimond: Yes. It’s primarily related to Q3. But again, it’s always a function that depending on how long the rains lasts. But usually, by Q4, things start to return to more normal levels.

Kerry Smith: Right. Okay. And for the recovery at La Yaqui Grande. How has the leach curves been tracking with the ore that you’ve been leaching when you run your leach curves in the La Yaqui ore? How they been looking relative to your overall recovery curve that you’ve got for the project? Are they tracking in line or are they tracking better or worse?

Luc Guimond: Yes, they’re tracking in line. They’ve been very solid, Kerry. I mean, recoveries are plus 80%, certainly on the La Yaqui ore.

Kerry Smith: Okay. Okay. And Scott R.G., just on Capulin, how many holes do you think you might have drilled and with three rigs running now by the time we get to September?

Scott R.G. Parsons: Probably an additional somewhere in the ballpark of 4,000 to 5,000 meters. Obviously, we’re exploring a large area there. We’re moving drills between holes as we continue to step out from what we know. So yes, likely an additional 4,000 or 5,000 meters by then.

Kerry Smith: And how many holes do you have — that you have assets pending on right now?

Scott R. G. Parsons: We have, from the second quarter, nine additional holes — at the end of the second quarter.

Kerry Smith: Okay. And then the 4,000 to 5,000 meters is including the nine holes, is it?

Scott R. G. Parsons: No. I think you’ve spoken too much to expect with — between now and the next news release. So not including those nine holes, we’re expecting to drill an additional 4,000 to 5,000 meters between now and end of [indiscernible] September.

Kerry Smith: Okay. Got it. Okay. Great. Thank you.

Operator: Thank you. There are no further questions registered at this time. This concludes this morning’s call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932 extension 5439. Thank you for your participation, and you may now disconnect your lines.