Jamie Porter - Chief Financial Officer John McCluskey - President and Chief Executive Officer Peter MacPhail - Vice President, Chief Operating Officer Aoife McGrath - Vice President of Exploration.

Mike Parkin - National Bank Financial Cosmos Chiu - CIBC Dan Rollins - RBC Capital Markets Lawson Winder - Bank of America Merrill Lynch Anita Soni - Crédit Suisse Kerry Smith - Haywood Securities Tara Hassan - Raymond James Don MacLean - Paradigm Capital.

Good morning. I would now like to turn the meeting over to Mr. Jamie Porter, Chief Financial Officer. Please go ahead..

Thank you, operator, and thanks to everyone for attending Alamos' Second Quarter 2017 Conference Call. In addition to myself we have on the line today, John McCluskey, President and CEO and Peter MacPhail, Vice President, Chief Operating Officer. I would like to remind everyone that our presentation will be followed by a Q&A session.

On this call, we'll be making forward-looking statements. Please refer to the disclaimer on forward-looking statements in our news release and MD&A as well as the risk factors set out in our Annual Information Form. All forward-looking statements on this call are qualified by these cautionary statements.

There can be no assurance that our forward-looking statements, even though considered reasonable by management and based on information on hand, will prove to be accurate. Future results and events could differ materially.

Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Vice President of 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..

Thank you, Jamie, and good morning, everyone. Alamos delivered a strong all-round performance in the second quarter. We produced a record 106,000 ounces of gold, up 10% from the first quarter and delivered 7% reduction in our all-in sustaining costs to $942 per ounce.

This translated into our strongest operating cash flow in years and a significant improvement in our mine site free cash flow, with $18 million generated across all three mines.

We're on track to achieve our full year guidance and expect stronger results in the second half of the year, driven by higher throughput rates and grades at Young-Davidson and initial production from La Yaqui Phase I. We expect both of these to drive strong free cash flow growth from our operations through the rest of the year and into 2018.

Young-Davidson set a new record with 47,300 ounces produced in the quarter. And with 20,000 ounces produced in July, we're on pace to set a new record in the third quarter. The MCM waste pass is scheduled to be completed by the end of this month. And the pebble crusher is expected to be commissioned by the end of the third quarter.

These projects will allow for higher underground mining and processing rates, which we expect to drive much stronger production and lower costs in the second half of the year.

El Chanate continued to perform as expected, and Mulatos had another strong quarter, producing 41,000 ounces of gold at an all-in sustaining cost of $777 per ounce, representing a decrease of nearly $150 per ounce from the first quarter.

The mine generated $11 million of mine site free cash flow over the second quarter, excluding our development spending at La Yaqui. Phase I of La Yaqui has come a long way in a short period of time and remains on budget and on schedule with initial production coming later in the year. Shifting to our other growth projects.

We have ramped up on hiring efforts in Turkey and expect to get started on some of the longer lead time construction activities at Kirazli in the second half of this year. At Lynn Lake, work on the feasibility study is expected to be completed later this year.

We also took advantage of an opportunity to improve the economics on the Lynn Lake project by buying back a 2% royalty on the project. Financially, I'm pleased to report we are, again, once again debt-free, having retired our high-yield notes in April.

With the strong cash position and growing cash flow from our operations, we are well positioned to fund one of the best pipelines of growth projects in our peer group. With that, I will ask our CFO, Jamie Porter, to comment on our second quarter 2017 financial performance.

Jamie?.

Thank you, John. The second quarter was our best from a financial perspective since the merger with AuRico two years ago. We achieved record gold production in the quarter, which drove near-record revenues and record quarterly operating earnings and cash flow.

We recognized revenues of $131 million in the second quarter from the sale of 104,000 ounces of gold at an average realized price of $1,262 per ounce, $5 above the average London PM fix price.

We continued to improve margins as we realize significant cost savings in the quarter, with total cash cost of $784 per ounce and all-in sustaining costs of $942 per ounce, both down sharply from the first quarter.

Both operating and capital costs have benefited from the successful currency hedging program in place that has and will continue to protect our short term operating and capital cost exposure to further strengthening of our operating currencies.

For the remainder of 2017, we have hedged approximately 80% of our Mexican peso and Canadian dollar exposure at 18.5 to 1 and 0.78 to 1, respectively. Further, we have hedged our Canadian dollar exposure for the first half of 2018, with collars that ensure we will buy Canadian dollars between $0.73 and $0.75.

Improved margins translate into strong growth in free cash flow from our operations with a combined $18 million generated in the quarter. We expect higher mining rates and production at Young-Davidson as well as initial production from La Yaqui Phase I to drive further free cash flow growth from our operations in the second half of the year.

Net earnings were $2.4 million for the quarter or $0.01 per share. This included a onetime after-tax charge of $21.8 million or $0.07 per share related to the retirement of the high-yield notes, partially offset by unrealized foreign exchange gains of $10.9 million or $0.04 per share.

Excluding these onetime items, our earnings would have been $0.04 per share. Operating cash flow before changes in noncash working capital was $45 million or $0.15 per share in the second quarter, a 32% increase over the first quarter. Again, this marked our strongest result in years, driven by higher production and operating margins.

Capital spending was $51.5 million, which included $11.1 million of sustaining capital and $40.4 million in growth capital. This includes $6 million invested in the construction of La Yaqui Phase I and a forestry permit fee of $5 million at Kirazli.

Capital spending at our operating mines, including Young-Davidson, remains in line with our annual guidance. Our corporate G&A expense remains among the lowest in our peer group at $3.6 million for the quarter, consistent with our full year guidance of $16 million. Amortization expense was $28 million in the second quarter at $268 per ounce.

This was down from $288 per ounce in the first quarter and $330 per ounce in the second quarter of 2016, reflecting lower amortization of both Mulatos and El Chanate. We had $150 million of cash and equity securities at the end of June, which was down from $495 million at the end of the first quarter, reflecting the repayment of the high-yield notes.

Retiring the notes saves us $24.4 million in annual interest payments and total interest of $72 million over what would have been the remaining term of the notes.

We also paid a $0.01 per share dividend in the quarter, marking our 15th consecutive semiannual dividend paid, and bringing the total amount returned to shareholders from Alamos pre- and post-merger to nearly $115 million.

With growing cash flow from our operations and one of the strongest balance sheets and growth profiles in our peer group, we're uniquely positioned to deliver sustainable shareholder value over the long term. At this point, I'd like to turn the call over to Alamos' COO, Peter MacPhail, to provide an overview of operations..

Thank you, Jamie. Young-Davidson produced a record 47,300 ounces of gold in the second quarter at total cash cost of $677 per ounce and all-in sustaining costs of $895 per ounce. Gold production was up 17% from the first quarter, reflecting higher processed grades and mill recoveries.

Underground mining rates averaged 6,400 tonnes per day, consistent with the first quarter of 2017 and at the lower end of our guidance. We expect stronger underground mining rates in the second half of the year, with work on the MCM waste pass expected to be completed by the end of this month.

Underground mine grades averaged 2.6 grams per tonne, up slightly from the first quarter. We expect mine grades to increase in the second half of the year to average approximately 2.7 grams per tonne for the full year, reflecting the mining of some higher-grade stopes.

We're off to a very strong start thus far in the third quarter, with grades averaging over 3 grams per tonne, driving production in July to the monthly record of approximately 20,000 ounces.

Mill throughput of 6,900 tonnes per day was down from the first quarter as we began recirculating mill scats instead of topping up the mill with lower-grade stockpiles. The resulting 12% increase in our processed grades to 2.45 grams per tonne more than offset the 10% decrease in throughput from the first quarter.

We will continue to operate the mill at the lower capacity until the pebble crusher is online late in the third quarter, after which the mill is expected to operate at a steady-state level of approximately 8,000 tonnes a day.

Young-Davidson generated $5 million in free cash flow for the quarter, and we expect strong free cash flow growth in the second half of the year, reflecting both higher production and lower costs.

Mulatos delivered another strong quarter with production of 41,000 ounces of gold at total cash cost of $735 per ounce and all-in sustaining costs of $777 per ounce. Costs were down sharply from the first quarter.

And reflecting the stronger margins, Mulatos generated $11 million in free cash flow, excluding $6 million of development spending at La Yaqui Phase I. Total crusher throughput averaged 18,300 tonnes per day, with grades stacked averaging 0.97 grams per tonne. Higher grades were stacked later in the quarter, which impacted the recovery ratio.

The strip ratio of 0.8:1 was consistent with guidance and down from the first quarter and a year ago. The high-grade mill processed approximately 400 tonnes per day at an average grade of 10.6 grams per tonne.

Ore processed exceeded underground mining rates, resulting in the drawdown of the high-grade stockpile to approximately 35,000 tonnes at the end of June. Based on currently known reserves at San Carlos and remaining stockpiles, the mill is expected to continue producing until the end of November.

An underground exploration program targeting San Carlos East is ongoing with the aim of extending the life of the deposit. El Chanate produced 17,600 ounces of gold in the second quarter at all-in sustaining costs of $1,208 per ounce.

The strip ratio remained elevated in the quarter at 4.5:1 as part of a scheduled pushback and is expected to come down in the second half of the year. Production was not significantly impacted during the pushback given the long leach curve at El Chanate.

However, we expect production to decrease in the second half of the year, reflecting the lower contained ounces stacked in the first half of the year. Stacking rates are expected to increase in the second half of the year, which will benefit production in 2018.

On the growth front, we are starting to fill out key positions in Turkey, having hired a project director to oversee the construction of Kirazli.

As announced in April, we've expanded our capital budget in Turkey to up to $30 million in 2017 and expect to get started on some of the critical path items, including the water reservoir, in the second half of the year.

At Lynn Lake, we submitted the project description in July, officially kicking off the permitting process, and we expect to complete the work on the feasibility study later this quarter.

We spent $6 million on development activities at La Yaqui Phase I during the second quarter, and we expect to spend an additional $3 million to complete construction. Construction is expected to be completed in the third quarter, followed by commissioning and initial production.

Once ramped up, we expect La Yaqui Phase I to produce approximately 25,000 ounces a year at significantly lower cost than production at the Mulatos complex. With that, I'll turn the call back to John..

Thank you, Peter. That concludes our formal presentation. I'll now turn the call back to the operator, who will open the call for your questions.

Operator?.

[Operator Instructions] And the first question is from Rahul Paul from Canaccord Genuity. Please go ahead..

At Young-Davidson, recoveries were 92% during Q2, and you mentioned that, that was in line with expectations. Now with the exception of a bit of a dip in Q1, recoveries have ranged between 90% and 93% since late 2015.

What are you budgeting for recoveries longer term? And how much improvement should we expect with the pebble crusher coming online and increase -- ultimately improving the reserve grade?.

Hi, Rahul. Thanks for the question. Yes, we -- if your question is, what do we budget for recovery and guide for recovery, it's 90% to 92%. That was our guidance in 2017. It ranges -- on a month -- that's quarterly numbers. On a monthly basis, we see it in the dead of winter when we have maybe the worst water quality, it could be as low as 89%, 90%.

And then in the middle of summer, we get up into the 93% range. You might recall that's about a 4% improvement from where we were 3 or 4 years ago. So it's been a continual -- a continuous improvement effort in the mill there and perhaps we push it a bit more.

But I don't -- I think that's a pretty good number to use, and we're pretty comfortable hitting that all the time. So with respect to the pebble crusher coming online, that will allow us to improve throughput, but won't impact recovery..

Okay.

And then -- so longer term, stay around 91%, which is sort of the midpoint?.

Yes, that's a fair number to use..

Okay. And then just moving on to Mulatos. Has the pace of drilling picked up there? I mean, I was under the impression that you had a bit of a slower-than-expected start to the program this year..

So is that exploration drilling, Rahul?.

Yes..

Yes, compared to last year, it's been a steadier state year really. We had up to 13 rigs last year. And since about mid-February this year, we've had consistently 4 rigs on-site. So it's a slightly different year in terms of focus. Last year, it was sort of all hands on deck trying to drill out zones 1 and 2 at La Yaqui.

But this year, we have more of a combination of working on projects like Bajios, Refugio and steady state drill out on Zone 3 at La Yaqui as well as some scout programs on those other projects. So it's a slightly different year, but we're aiming for an update on Zone 3 at the year-end and the other scout programs as we go through them..

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

Just a few questions here around the Mexican exploration as well.

Just before we start on that, San Carlos, can you remind us what the grade is of the stockpile?.

It's in the eight- to 10-gram per tonne range, Mike..

Do you have any positive grade reconciliation associated with that or using that as [indiscernible]?.

No, that's what we would expect to see from it..

And then so San Carlos, you're doing some drilling there.

When would we expect to see the results of those drill results, in the third quarter earnings?.

Yes, that would be the -- might be the time that we would have some results to share on the San Carlos East drilling. If you go back historically, we had a -- there is an East zone associated with San Carlos, and we're getting close to it from a mining perspective. So we're just drilling out in front of us right now..

These zones doesn't -- you never had a resource on it, right? But you did have a number of holes into it that showed similar grade?.

Mike, it's Jamie here. I think we did have a -- like a 60,000-ounce resource there. But yes, our objective now as we get out to that zone is to ultimately find out what's there, effectively do exploration by mining..

And then Refugio, you've talked about that being a possible new high grade source for the mill.

What's the timing on -- in terms of getting rigs to work there and when could we expect the first drill results from that?.

Michael, it's Aoife here. I believe the rig moved down there this morning. There is not a ton of grade. So we spent the last three months doing some mapping and sampling through there. And it's looking very interesting. So we'll be quite keen to see what comes out of it. I expect results potentially sort of Q3, Q4 for that..

And then just following up on Lynn Lake, you had some interesting holes there. I understand those won't be part of the feasibility study, obviously, given the timing of that being so not too far off in the distant future.

But what's the objective of that? Are you aiming to have like an inferred resource? Or are you -- is it still too early? You're just larger spacing and then you would have to go back and infill for an inferred..

We're hoping to have an inferred along strike from MacLellan -- the long strike to the northeast from MacLellan this year. But -- and there will be more drilling required later on to continue to take that along strike. But some of that ground we've seen out there is pretty wet, so there's a limit to how much we can do in the summer.

A lot of our drilling really needs to be done over the winter. So there'll be a push, another push on it sort of January, February time..

Thank you. The next question is from Cosmos Chiu from CIBC. Please go ahead..

Just a few questions for me here.

Maybe first off, on Young-Davidson, could you remind us maybe, Peter, have you gone through of the low-grade stockpile material?.

No, we still have around 0.75 million tonnes of stockpile material. It's made up of a combination of low grade from the years -- three, four years ago when we were running the pit as well as stockpiled mill scats. And there's quite a pile of that, that's built up over the years.

That's one of the main drivers in getting this pebble crusher project going so we can reprocess that stuff..

Got you. And then in terms of the underground mining rate here, Peter. You did about 6,400 tonnes per day in Q2. Of course, that's going to go up as you put in the waste pass.

Previously, earlier in the year, you talked about potentially getting it up to the range in terms of the underground mining throughput is anywhere between 6,500 to 7,500 tonnes per day.

What are you sort of targeting for the second half? And then could you actually get up to the higher point in that range that you had given out earlier this year?.

Yes, Cosmos. So the waste pass that we're putting in is there to access kind of excess hoisting capacity that we have on the MCM side and are not taking advantage of currently. So when that comes online, we'll be able to put all the waste to the MCM pass and use the Northgate shaft just for hoisting ore.

I would expect to see our rates start climbing up to kind of the 7,000 tonne a day mark first and then we'll create a beachhead there and push on. It will be a gradual thing. It's not going to be a light switch where we turn that on and all of a sudden we have 7,500 tonnes a day. You also have to have the ore available in front of you.

And on that front, we're hitting our development targets this year. We're right on track for our meters. So we're in pretty good shape..

Okay. And the reason why I asked is, as you've mentioned in the press release today, July production was 20,000 ounces. It looks like the underground grade was about 3 gram per tonne. If I were to reverse engineer and back-calculate the tonnage that was likely processed through the mill, that would have been about 7,200 tonnes per day.

I'm just trying to ultimately get to an understanding in terms of the sustainability of that 20,000 ounces that was produced in that 1 month of July..

I think we've referred in the press release to that being largely grade-related, we did have pretty darn good grades in July. And we'll wait to see the end of next quarter how it all pans out..

And those higher grades, Peter, were they as expected? Like did that -- were you expecting higher grades from your block model? So was it positive grade reconciliation or was it as expected per the model?.

No, it's pretty much right on as expected by the model. We were targeting some higher grades in the latter -- for the latter part of the year and we're into them now. But you shouldn't expect 3 grams per tonne for the rest of the year by any means..

Sure. And then maybe switching gears a little bit here on Turkey. Certainly, progress is being made. But maybe a question for John.

I would have thought that by now you would have the GSM permit? Are there any issues? Or is everything okay?.

Yes, I would say everything is okay. It's certainly not a question of logistics or anything like that, it's more a question of politics, I would say. Country like Turkey, everything you do there is very, very political.

Probably the least controversial permit that Turkey will issue to us is the GSM permit, which is really a health and safety permit, beyond anything else. The only reason why it's politicized at all is because it's the very final permit that you need to receive. And it being the last one, it's one that gets some focus and attention.

That's sort of -- for those that oppose mining, and there is an element of virtually every society that does, they tend to sort of gather their forces and mount some effort in the press and otherwise in order to make their opposition very clearly and widely known.

But at the same time, we've anticipated this all along, and we've been doing our level best to increase our community relations and public relations activity over the last several months in Turkey, making absolutely certain that the facts are well-known and people won't be sort of misled by really what amounts to false information that often feeds into the general public's consciousness through the press.

So we've been working quite steadily at this, and we feel that the effort that we're making is essentially creating a relatively balanced view of what the project represents for the community and for -- frankly, for the country of Turkey.

And what I'm really gratified to see is that we've got very broad-based support, very strong political support and very broad-based community support. It goes well beyond the local communities in the vicinity of where the operations will start. But even within the capital now, within Çanakkale itself, there is very strong support for the project.

And the forces that were essentially opposed to mining development in this region all along, they seem to be -- over the last year, losing a great deal of traction, a great deal of momentum. So the environment is clearly what we need it to be.

And I think the provincial government is just more or less watching this unfold and they've running their process. That is basically coming to a conclusion sometime in the next month. And I'm -- and that's -- the timing of that is all, it's all known to them. They don't really disclose precisely where they are.

But I know it's -- the process has been running for a number of weeks now and it must be getting very close to its completion. And I would suspect shortly thereafter, we'll see the GSM permit granted. So I'm quite confident that things are on track. I'll be in Turkey next week. I should be having a meeting with the governor when I go.

And I'm hoping that's sort of the final step in terms of our effort, our engagement with the government prior to the issuance of the permit..

That's certainly good to hear and I would say fairly encouraging. And then maybe on the CapEx, as I think either Jamie or Peter mentioned, you've increased your CapEx in Turkey to $30 million. I just want to make sure. I think your previous development CapEx guidance was $100 million to $110 million.

Does that include the increase to your spendings in Turkey?.

It's Jamie here. No it did not. So that would be -- at the end of the first quarter, we increased our budgeted spending in Turkey from $4 million up to as high as $30 million. I think right now, based on current forecast, we'll probably End Up spending about $20 million. So $16 million more than what was in our initial development spending guidance..

So I take the $100 million to $110 million and add $16 million to it?.

Correct..

And then maybe one last question from me at Mulatos. Just following on, on the San Carlos East, as you've kind of said right now, likely based on stockpiles, based on what you know today, San Carlos will likely come to an end in Q4. However, there's the potential at San Carlos East. So is there -- I'm just trying to understand.

Is there likely going to be some kind of gap in between no matter what you find at San Carlos East? Or could you actually bridge that gap? Because I think Jamie also mentioned that there could be some exploration by mining..

Yes, we're going to -- we've got -- we have no reserves out there, but we have some hits out there. So we're going to start mining out that way, and we just can't -- we can't say we're going to get any ore but [Indiscernible]….

Got you. I got you..

We can see running the mill until November on what we can feel and touch now. And beyond that, we can't give you any guidance, but we're going to start mine -- start heading out in that direction..

Thank you. The next question is from Dan Rollins from RBC Capital Markets. Please go ahead..

Peter, I was wondering if you could provide a little bit commentary on the situation at Cerro Pelon, not a lot of talk on the exploration front there. Where does that project stand? I know last year, there was potential to delay the permit, drill it off more and then submit a permit later on.

Has the thinking around Cerro Pelon changed? Or is that still the case? And if not, when could we see the existing reserves developed?.

Hey, Dan. Yes, so we did the -- so a year ago, what we did was we kind of focused on La Yaqui, building La Yaqui Phase I, drilling La Yaqui Grande, and we did some drilling also at the same time in parallel on Cerro Pelon.

I think Cerro Pelon is -- we're now in a position with Cerro Pelon that we pretty much know what it is, and we're going to start the engineering on that to bring it online with -- it is what it is -- whatever it is. It's close to 300,000. I can't remember, 220,000 ounces of gold reserve.

Hopefully, we find more ultimately, but we're going to start engineering it and permitting it as is. We are going to -- we are in the process of doing some trade-offs on whether it makes sense to run it as a satellite deposit to Mulatos with its own pad or maybe truck the ore to Mulatos because it's really not all that far.

In fact, it's not much further than or it's kind of similar distance that El Victor is from the leach pad. So that's where we are with Cerro Pelon..

Okay.

And what's the -- just how long for the engineering? And then, again, can you remind me what the permitting time line was for La Yaqui Phase I?.

So MIA preparation and then the permitting is kind of a two year process. And so maybe kind of 2, 2.5 years from now we will be in a position to start breaking some ground there..

Okay. Perfect.

And then a question, just how is the rainy season treating you right now?.

It's average or slightly below average for rain at Mulatos. And in the last several years, it's been well above average. So it's been relatively dry. When we say relatively dry, it's still average if you look at kind of history..

But based on the changes the company has made to the plant and to the ADR plant and the throughput, you basically have been able to mitigate a lot of the downtime that you used to see during the rainy season.

Is that correct?.

Yes, and we've taken a lot of that out of it. There still will be a minor amount maybe of -- but not near to the extent that it used to occur. We basically upped the capacity of the carbon adsorption circuit..

Thank you. The next question is from Lawson Winder from Bank of America Merrill Lynch. Please go ahead..

Just actually a follow-up on Dan's question on the rainy season.

With your cyanide costs, are those in line with what you budgeted for the year?.

Yes. There's no problem there and we're right on -- in fact, the cost per kilo is probably less than what we budgeted. There's been some surplus in the market there and our consumption rate is about bang on target..

And then Peter, just on YD, seems like there was a little bit of slippage in the timing of the completion on the MCM waste pass.

What was it that would have driven that?.

Maybe it's -- I mean, it's a project that last -- talking about this for 18 months, I think. So it's a long project to drive that rate. Just some maybe minor design changes along the way that pushed it out another month or so. That's basically it. The rates of advance were there. We chose to do it in two legs instead of one.

It's a bit of a safer process doing it like that and that added a bit of time..

And then finally, Jamie, just on the hedging. The hedging programs has so far worked out well, and it looks like it's going to continue working out well. You've added some more Canadian dollar hedges but no peso hedges. I'm just curious why you chose not to hedge the peso further out into 2018..

Sure, yes, just based on -- just based on pricing that there was better opportunities to get something done on the CAD than there was on the Mex. So I think the overall company's exposure to Canadian dollars is substantially higher than the peso. So we're happy that we do have both Canadian dollar hedges in place and yes, that will benefit.

The way we account for that is that the benefit goes right to our operating cost. So you won't see that in the -- you won't see a big goofy FX number. The benefit of the hedges will actually pull through to our operating and capital cost numbers through hedge accounting..

And just curious, have you continued to hedge through July or have you put that on hold in hope of better pricing on the CAD hedges?.

Yes, we haven't done much in July, Lawson..

And then actually maybe just one final question on YD. There was a really good CAD improvement quarter-over-quarter on the underground mining cost to -- I think it was like $44 a tonne.

Was that driven by some efficiency improvements or was that just again the split between operating versus capitalized development work?.

I'd say it was probably a bit of both, but more on the split of between capital and operating development. And we'll see that continue to drop as hopefully as we push tonnes..

The next question is from Anita Soni from Crédit Suisse. Please go ahead..

So just a few questions that are following up others.

La Yaqui, when do you expect to be commercial there?.

Not sure..

I think later this year. I mean, we'll be stacking the pad year in. I mean, effectively, we're starting now. We hope to see some production by the end of the third quarter, early fourth quarter, so somewhere in there..

That's your first production. I'm just curious as to when we should start putting it into our income statement..

We'll get commercial pretty quick there, Anita, probably within one month..

Okay. And then I just want to understand your method at Young-Davidson for filling the mill.

So the scat material, what's the grade of this stuff?.

It's been around 1 gram..

Okay. And you expect similar recovery rates on the 92% once you get it crushed? Is that the....

Yes, it all kind of blends into everything else and near enough to that to not make a difference..

And how much of -- you had said the 0.75 million tonne is stockpiled material, which, I guess, is just from the open pit stuff.

Can you give us an amount that you have of the scat?.

The 0.75 million is combined open pit material and scat. And about 3/4 of that is scats and about 1/4 of it is low-grade stockpile..

And as you mine, how much more of this stuff do you get as a percentage?.

Well, as we mine, once the pebble crusher is online, we won't be putting any more into that stockpile..

Yes, I understand that.

But from a mining -- underground mining rate, how much of that would be the scat material?.

I don't think I understand the question. From an underground mining rate how much of it is....

It's probably it's less than what is it about, 3% of the material that comes out from the underground mine. Peter, is that material that....

Again, maybe I'll take a shot at this. The scats that we've been putting out there over time that now sit there -- and there's 0.5 million tonnes of it or something like that, with grading around 1 gram per tonne, they come out of the mill at about a 6% of what we're putting in the mill, 6% comes back out, it goes on to that stockpile.

So at the beginning of this quarter, rather than do that and put lower grade material back into the mill, in the front end from the stockpile, we just recirculated that material, which slowed down the mill throughput a certain amount, but actually in the end, we made more gold at a lower cost by doing it like that.

So we'll continue to do it like that. So I'm not sure if I answered your question..

No, that's fine. I'm just trying to get an understanding of what the ramp-up and the sustainability of that throughput level.

And so just from the underground feed rate, are you still -- what's your target for your underground feed rate and where did it end up this quarter?.

So ore up the shaft, once we get the waste pass online, we'll be pushing up to 7,000 tonnes a day and then incrementally push it beyond that. Whether we get to 7,500 this year or not, I'm not sure..

And the 8,000 should be filled by the scats until they run out?.

Yes..

The next question is from Kerry Smith from Haywood Securities..

John, just based on your comments on the GSM for Kirazli, would it be fair to say that you'd be disappointed if you didn't have that permit by the end of Q3 then?.

I would. Yes, I would be disappointed if I didn't have by the end of Q3. I don't see -- I just don't see any reason why we wouldn't. So it would be interesting to hear what the reason -- what the reasoning would be -- would like to hear it explained why we wouldn't have it by then. So I'm certainly hoping that's the case.

The fact of the matter is, it's a rather opaque process, and it's so influenced by politics. Something -- it might be signed and waiting on somebody's desk, but it just hasn't moved possibly for political considerations that I may or may not even be aware of. That's part of the problem.

And I think that based on a meeting that took place a week ago in Istanbul where the Minister of Energy, who overseas mining, he met with the mining industry, and he -- it was sort of a -- first, he made a presentation, a PowerPoint presentation, then subsequently, he opened it to Q&A. And he listened to the concerns of the industry and so forth.

And just about everybody, including Turkish companies, said that the process in Turkey needs to get a lot more transparent. And the Minister of Energy said, he totally agreed and that the country would be working towards achieving that.

So there's certain things that aren't in place now that they are working to improving, but until then, it becomes really difficult in my position to say in a call like this to our analysts and investor audience, I feel definitively it's going to be in hand by such and such a date. I mean, that's the one thing we can't do.

And if you've noticed, since I've sort of been personally taking things in hand in Turkey going back to about early 2014, there's absolutely being no promises given, no timings provided and simply because when I pressed for answers on timing and so forth on anything that was going on, anything that I was involved with going on there, I never get an answer that was satisfying.

And so I just came to the conclusion that I think if they could give me something, they would, but they can't, so they don't. So that means I can't give some sort of forecast to the market either. And does that hold Turkey back? I think it does. I think Turkey is well aware of that. And I'm looking to see that improved in the years to come.

And I think under this current minister and this current government, we will see improvements. But for the time being, I think we've done everything the right way. And in doing so, I think we've earned a lot of credit, both from government and the bureaucracy.

And slowly but surely, we won over the majority of hearts and minds in the province where we're going to be developing the project. And that all adds up to some very sort of positive, very positive sentiment on my side in terms of what I think can be achieved. So I'm optimistic.

And it's -- I hope in the not-too-distant future, I'll be able to put together a news release saying the permit's in hand and construction is underway and full tilt. But for the time being, there's quite a lot that we can continue to do.

It's not really holding us back in that a number of the things that we're working on now don't actually require the GSM permit to be in hand. So we continue to do the things we can, and we're waiting on the final permit to come through. And we're very confident it will come through. We don't think it's a question of if, it's just a question of when.

And for that reason, we asked for an increased budget from the board. We've been hiring people and spending more money. All of that is because we are ultimately very, very confident in the project going forward.

So that's the sort of the main thing that we can tell investors now that we're certainly getting enough encouragement from the government and all those concerned to keep our optimism high and our confidence high. And when the permit's received, it will be received..

No, no, that's helpful.

And Jamie, on the $20 million -- or the -- what you're thinking now is going to be a $20 million spend in Turkey, is any of that actually contingent on getting the GSM or all that work can be done without it?.

Yes, Kerry, all that work can be done without it..

And out of the $17 million Mulatos exploration budget this year, how much -- I couldn't find it in the notes. It's probably there.

But how much have you spent year-to-date of that $17 million?.

Hi, Kerry, it's Aoife. Jamie said about $7 million..

Okay. Okay. And Peter, just the meters developed at YD in Q2 were pretty good. I think they were over 3,400 meters. What is kind of the average meters you need to develop annually? Just remind me now for that orebody. I don't remember if you've given..

That's right on budget, Kerry. That's what we target. And that's what we're getting. And that's where we'll need to be for the next year and a bit and then it starts to come off..

So say, 3,400 meters a quarter for the next -- well, through 2018 then, I guess?.

Yes..

And how long does it actually take to commission a pebble crusher? Is it fairly quick?.

I would say not a tremendously long time. Unless you have any problems that would be -- would be a couple of weeks..

I got it. Okay.

And then the slightly lower throughput through the crusher at Mulatos in Q2, was that just the ore hardness? Or was it a function of the feed coming from the pit? Or what is that? Or was that maintenance?.

It was just slightly lower and we had a bit more maintenance to do in the quarter versus the previous quarter, primary crusher maintenance, some conveyor belt maintenance, some screen maintenance. Just the way it lined up for the quarter and we spent more downtime..

And that buyback on the royalty, that seems like a very good use of your cash, so congratulations on that..

Thank you. The next question is from Tara Hassan from Raymond James. Please go ahead..

Just a couple of questions here in Mexico on the VAT. There were some headlines earlier this year, I guess, on sort of general industry and a push to get those refunds back into the hands of the companies.

Do you guys have any clarity on timing on that? Or any expectations for what we can model in for this year?.

Sure, Tara, it's Jamie. We've actually -- we've been quite successful this year, particularly in the second quarter, in getting our VAT back. I think we had -- we collected seven months' worth between Mulatos and El Chanate in Q2. So we're getting pretty close to caught up.

The nice thing that we have going for us as well is that we're now taxable in Mexico. So going forward, we'll be able to offset the VAT against our income taxes that would otherwise be payable. So we don't expect it to be -- that to be much of a collection issue for us going forward..

And just on the YD cost, as you guys ramp up and have the benefit of the pebble crusher and MCM, there is, obviously, I think, an expectation on the per tonne cost to see some improvement.

So can you give us an idea of what those costs were on the milling side in Q2 and what we should be seeing going forward for the remainder of the year?.

Yes, I think on the milling costs, as we get up -- as we go to 8,000 from, let's say, 7,000 where we were this past quarter, there's going to be -- some of that's fixed, some of that's variable. I'd say I don't actually have the numbers in front of me, but you're going to see a reduction of unit costs marginally.

And then -- was that your question, was there anything else?.

And then on the mining costs, still a bit of room there, I think, based on what you guys were seeing previously?.

Again, again, as we continue to get the tonnes up, you'll see -- you get economies of scale with some of that being fixed and some being variable, probably half-and-half or so at this point..

Thank you. The next question is from Don MacLean from Paradigm Capital. Please go ahead. Mr. MacLean your line is open [Operator Instructions]..

I guess we're all looking forward to the second half of the year. You, too, particularly, Peter, for YD. My questions were related to Lynn Lake and Kirazli. And you've been quietly beavering away on Lynn Lake. It's a bit of a sleeper. You didn't pay much for this asset, but you're getting close to the feasibility.

Can you give us a bit more color on it and maybe, Jamie, give us a bit of sense of how sensitive it is to the strengthening Canadian dollar we've been having?.

Don, in terms of giving you more sense of it, I guess, I mean, we're still beavering away on the feasibility and frankly, we're in the phase now where you start to pull in all the costs and see where it ends up. So I mean, look I -- what we're trying to develop there is a relatively simple project.

It's open pit, mill, tailings dam and infrastructure is good. But you know all those things. So yes, I can't give you much more flavor than that on it at this point, Don. And then I think your other question was to Jamie..

Yes, I mean, the feasibility study, economics aren't complete, so there's not much color that we can give you on that front. In terms of the sensitivity of the Canadian dollar, given that the numbers aren't finalized, I'd have a look at that. But I'd expect YD about 90% of our costs are Canadian dollar-denominated.

I'd expect to be closer to 80% at Lynn Lake, 80% to 90%. So certainly, sensitive to the strengthening in the Canadian dollar..

And maybe can you give us a sense of whether or not we're looking at a reasonably strong project here or is this one that will be sort of contingent on higher gold prices or a weaker Canadian dollar?.

Yes, Don, I don't think we can give you a sense one way or the other. I think what we've said in the past is that Lynn Lake is not going to have economics like our projects in Turkey, which are some of the lowest-cost projects out there. So I wouldn't be expecting a 30% IRR. But beyond that, there's not much we can say at this point..

That's a big bandwidth. Okay. Fair enough. That remains a sleeper. We'll look forward to the feasibility study. Just on Kirazli, I think everybody noticed Alacer's comments about their project capital costs coming in a bit below budget, strength of the lira.

Can you, Jamie, provide any sort of color of whether or not you're seeing some favorable implications to both the capital and the operating costs for Kirazli?.

Sure. So I mean, in the feasibility study that we released earlier this year, we used a 2.9 to 1 Turkish lira. I think the spot had been around 3.5. And there is the opportunity to do some -- the market is good for currency hedging in Turkey. So once we're going full steam ahead, we would love to protect some of our exposure.

And that would certainly benefit us on both CapEx and operating costs once we get up and running..

Right.

And roughly, what portion of the CapEx and the OpEx are lira-denominated or lira-sensitive?.

About two third..

That's great. So that should be beneficial. Great..

The next question is from Anita Soni from Crédit Suisse. Please go ahead..

Just to follow up on Young-Davidson.

So at the beginning of the year when you guys had indicated that you might not be achieving that 8,000 tonne per day on the original schedule, what was the hesitation there? And then what's changed now?.

Yes, yes, at the beginning of the year, we said that we do plan to get to 8,000 tonnes a day once we have the lower mine all built out. And so just the infrastructure that we would be putting in place beefed up more storage capacity, less rehandling of ore, more working faces, et cetera.

What's the hesitation now? I think we'll get to 7,000, 7,500 in that range, and that's probably where we'll be until we get get the lower mine all built out..

Yes, Anita, that move to pushing out the 8,000 tonne per day target to when the lower mine is developed is really based on cash flow for this year. We could have hit that 8,000 tonne per day target, but it would require trucking more and effectively reducing the profitability of every tonne that we trucked out as well.

We're waiting until we get our own hoisting, and that looks to be a couple of years out..

And so that effectively still is unchanged? It's just that in the interim that you've decided....

That's unchanged..

You've decided to press the scats as much as possible until they run out?.

Yes, they're paid for sitting on the surface. We've already hoisted them so..

The next question is from Lawson Winder from Bank of America Merrill Lynch..

Just a really quick follow-up for me. On the depreciation at Mulatos, it looks like it actually picked up a fair bit in the quarter like -- to something like $250 per ounce, Jamie.

Is that a good run rate going forward for the rest of the year?.

Lawson, I think it's actually going the other way. Our amortization at Mulatos is going down. It should continue to go down once La Yaqui Phase I gets up and running just given the relatively low capital associated with that project. So I'd say on a go-forward basis, probably in around $200 an ounce..

Yes, sorry, I was looking at the quarter-over-quarter basis not year-over-year, but okay, that's great..

There are no further questions 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..

Thank you, operator..

Thank you..