Allied Gold (TSX:AAUC) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Allied Gold delivered strong operating results with Bonikro exceeding expectations and Agbaou performing well in the Côte d’Ivoire complex, while Sadiola showed favorable production compared to plans and the prior year.
Kurmuk commissioning activities began, and the mine is now in production with an expected ramp-up, contributing significantly to future cash flow.
The company reported revenue of $358 million and adjusted EBITDA of $140 million, with adjusted net earnings of $49 million or $0.37 per share.
Strategic initiatives include terminating short-term equipment contracts, amending mine contracts for fleet reliability, and implementing power solutions to improve operations and cost efficiency.
Allied Gold is on track to more than double production to approximately 800,000 ounces annually by 2029, with significant contributions expected from Kurmuk and expansions at Sadiola.
A share buyback program is anticipated to start in 2027, subject to regulatory approval, with plans for a base dividend early next year.
Management expressed high confidence in operational improvements and cash flow generation, with a focus on returning cash to shareholders through dividends and share buybacks.
Full Transcript
Mark (Operator)
Hello 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 question, simply press STAR and number one again. Thank you. I would now like to turn the call over to Peter Marrone, Chairman and Chief Executive Officer. Please go ahead.
Peter Marrone (Chairman and Chief Executive Officer)
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 Côte d’Ivoire complex performed well with Bonikro exceeding plan and Agbaou also delivering strong results. While on plan, Sadiola production compared favorably to plan and to the prior year. 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.
Very happy to say the Kurmuk 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 Sadiola we produced approximately 42,300 ounces with all-in 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 Zijin 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. At Bonikro, we produced approximately 28,600 ounces at all-in sustaining costs of $1,670 per ounce. It benefited from higher grades and improved recoveries. Agbaou produced 20,300 ounces at all-in sustaining costs of $2,384 per ounce, with production in line with plan and costs better than expected. Our Côte d’Ivoire complex of Bonikro and Agbaou continued to perform well and it provides us a strong foundation for our longer-term production objectives.
Costs included stripping at PV5, although again 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 $1,900 per ounce. On our strong gold production, adjusted EBITDA was approximately $140 million. Adjusted net earnings were $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 Kurmuk beginning to contribute production and major development capital expenditures declining, we expect cash balances to increase through the year end and throughout the next year. Gold collars that were entered into for the development of Kurmuk 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 Kurmuk, Kurmuk 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. Kurmuk 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 Kurmuk 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 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 Kurmuk 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 Côte d’Ivoire.
We now carry a mine life at Bonikro that exceeds 10 years and production of up to 120,000 ounces per year, which supports the CDI complex between Bonikro and Agbaou 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 Sadiola 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. Importantly, we expect improving costs and greater contribution from Kurmuk, 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 Kurmuk 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 at Sadiola, along with the 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-leach thickener at Sadiola, as I mentioned a few moments ago, which is an important step toward that broader expansion strategy. We’ve taken an approach on capital allocation that we hope comforts our shareholders. We are now beginning production at Kurmuk. We have high conviction on the production coming from Kurmuk 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 the 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 roughly 16% of the stock is held by management, 9% of the stock is held by Zijin, and so clearly we will want to ensure that we don’t create further concentration. We 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.
Mark (Operator)
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 and A roster. Your first question comes from the line of Ralph Profidi from Stifel Financial. Please go ahead.
Ralph Profidi (Analyst)
Thank you, operator. Good morning. Thanks for taking my questions. There was some discussion on Sadiola 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 ore been exposed? And are you feeling comfortable about the grade control work that’s been done to meet the guidance for 2026?
Peter Marrone (Chairman and Chief Executive Officer)
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.
Ralph Profidi (Analyst)
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 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 Kurmuk? These things are sort of still in a state of flux.
And of course, once you get full rate commission of Kurmuk, 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?
Peter Marrone (Chairman and Chief Executive Officer)
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 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 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 Kurmuk’s ramp-up, getting to commercial production and then of course getting to nameplate, the further optimizations and improvements even at Kurmuk 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.
Ralph Profidi (Analyst)
Agree on all your points. Thank you, Peter.
Peter Marrone (Chairman and Chief Executive Officer)
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 Chapada, very similar to Kurmuk. 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.
Mark (Operator)
Your next question comes from the line of Kari Makhrurri from Canaccord Genuity. Please go ahead.
Kari Makhrurri (Analyst)
Good morning, Peter. Just on the Kurmuk ramp-up, just wondering if there are any specific issues that you’ve been dealing with, or are they more just typical ramp-up debottlenecking processes?
Peter Marrone (Chairman and Chief Executive Officer)
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 entirely ordinary course. What we’ve done is we 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 proper, 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.
Niki
Okay, that’s Niki here. And just longer term at Kurmuk, a lot of exploration has happened since the 2023 feasibility study. Just wondering if there’s any plans to update the Kurmuk study at some point in the near future.
Peter Marrone (Chairman and Chief Executive Officer)
Well, we expect to update and 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, Kari, 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.
Kari Makhrurri (Analyst)
Great. That’s it for me. Thanks, Peter.
Mark (Operator)
Your next question comes from the line of Mohamed Sidibeh from National Bank. Please go ahead.
Mohamed Sidibeh (Analyst)
Good morning, Peter, and thanks for taking my questions. Maybe staying on Kurmuk, 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.
Peter Marrone (Chairman and Chief Executive Officer)
Yes. So 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. Henry, if I can pass it to you just to answer the balance of the question.
Henry
On the mining sequence, mining plan, we are online. We are where we needed 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 space to put shovels and move trucks and increase the productivity. That continues to progress. The stockpile is around 1.5 million tons, and our medium grade and high grade are on average around 1.7, 1.8 grams per ton. So we are really pleased with the progress there.
And now we’re mining for next year, not for this year, which puts us in a good position—excellent position for 2027.
Mohamed Sidibeh (Analyst)
Great. Thanks a lot for that color. And for my second question, I think just broadly the overall industry is being impacted by the geopolitical events and 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?
Peter Marrone (Chairman and Chief Executive Officer)
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 Sadiola, then the impact on Sadiola will be greater than the impact on Kurmuk. The impact on the Côte 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 is 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 Kurmuk. We’re heavily reliant on hydroelectric power generation at Kurmuk 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.
Mohamed Sidibeh (Analyst)
Absolutely. Thanks a lot for that color. I was definitely focusing on price rather than logistics, but thanks a lot for that added color. My other questions have been answered. Thank you.
Peter Marrone (Chairman and Chief Executive Officer)
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—André, I would expect that at Sadiola, the increase in diesel has been about $80 per ounce. Yes.
Mark (Operator)
Your next question comes from the line of Robert Bonte from Scarlet Macau Capital. Please go ahead.
Robert Bonte (Analyst at Scarlet Macau Capital)
Hi, thanks for taking the questions. I had two questions. Just want to follow up on Sadiola and on Kurmuk 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?
Peter Marrone (Chairman and Chief Executive Officer)
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 are often—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.
Robert Bonte (Analyst at Scarlet Macau Capital)
Okay, fantastic. And on Kurmuk, I just wanted to understand—the gating element has always been the power. Where are we in the power now? Is full power at site already, or when does the power network kind of get connected to site?
Mark (Operator)
That will conclude our question-and-answer session. I will now turn the call back over to Peter Marrone, Chairman and Chief Executive Officer. Please go ahead.
Peter Marrone (Chairman and Chief Executive Officer)
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 Kurmuk is in production. 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 Kurmuk. And we are delighted that we are the poster child for the country for mining.
Mark (Operator)
That will conclude the Allied Gold third-quarter earnings conference call. Thank you all for joining. You may now disconnect.
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