First the market ran over him, then a truck.
This is how John McCluskey hit bottom and bounced back. It was 1999 and the dot.com bubble was already sucking the mining investment pool dry to feed tech startups. He had formed Alamos Minerals and Grayd Resources just in time for commodity markets to sour. Then he found himself in the hospital.
“I probably stared death in the face for a good solid month. It wasn’t clear whether I would make it,” McCluskey said in an interview at The Northern Miner’s Canadian Mining Symposium in London. “Once you’ve gone through something like that, well everything seems pretty easy.”
Now he’s running Alamos Gold (TSX: AGI; NYSE: AGI) valued at $6.8 billion. It operates the Mulatos mine in Mexico, the Young-Davidson and Island mines in northern Ontario and is developing the Lynn Lake project in northern Manitoba.
“What I needed more than anything else after being run over by a truck was, I needed a project,” McCluskey recounted on Oct. 13 in conversation with Chris Hinde, director of industry newsletter Pick & Pen. “I needed something to put my energy into. I didn’t want to go to the ‘woe is me’ kind of life.”
Watch the conversation in this video:
Mulatos mine
That project became the Mulatos mine in Sonora state. National Gold, which had secured the option from Placer Dome, couldn’t raise cash. McCluskey’s Alamos Minerals formed a joint venture with National and six months later in February, 2003 Alamos took over the partner and changed the name to Alamos Gold with McCluskey as CEO.
Acquired for US$10 million, Mulatos has produced around US$450 million in free cash flow over 18 years of operation, McCluskey said. It set a blueprint for the Alamos business model: Buy when the market is low, invest, then reap the rewards.
Alamos bought Young-Davidson for US$750 million in 2015. Since 2020 it has generated about US$100 million a year in free cash flow, the CEO said.
Alamos paid US$600 million for Island Gold in 2017 and now it has a net asset value (NAV) of more than US$2 billion, he said. It purchased Lynn Lake for US$22 million, now the project has a NAV of about US$450 million.
“Every time we’ve ever done something, the analysts have trashed it,” he said. “If you buy something at the bottom, ‘you’re a fool.’ But when you buy at the top, ‘well things are never going down again.’”
After developing Mulatos, Alamos sought another project in Mexico and considered Morelos, then held by Teck Resources (TSX: TECK.A | TECK.B; NYSE: TECK) and now run by Torex Gold (TSX: TXG). But it found striking a deal with Indigenous groups in Guerrero state more difficult than it had in Sonora. Instead, it turned to Turkey where Teck had some assets.
“For the price of entry, it was a worthy project to take on,” he said. “In 2009-10, Turkey’s outlook looked pretty bright. It didn’t turn out that way. It turned out terribly. The country went in completely the wrong direction. The best indicator I can give is that when we went into Turkey, it was 1.7 lira to the US dollar. Today it’s nearly 28.”
Return to Canadian roots
Agnico Eagle Mines (TSX: AEM; NYSE: AEM) bought Alaska-focused Grayd Resources for US$300 million in 2011. By then McCluskey had spent most of his mining career, which began in 1983, outside of Canada. He began to look at his birthplace in a new light.
“Canada was priced at the same level as Africa or South America and we thought to ourselves, given that Canada is a far safer jurisdiction, why isn’t it getting a premium?” he said. “Well, I thought about this for about three seconds and said, ‘let’s capitalize on this advantage.’”
McCluskey saw that Young-Davidson had a long-life reserve but was severely undercapitalized to develop it. Then-owner AuRico was $320 million in debt with $70 million in cash left and still had to spend $350 million to develop the lower mine, he said.
“You wait until the market corrects, then you buy,” the CEO said. “We had the brains, they had the looks, we decided to make lots of money as the song said,” he recounted, referring to The Pet Shop Boys.
Alamos may develop Lynn Lake to start production in 2028, the CEO said. In May, Alamos acquired Manitou Gold and tripled the land holdings around Island Gold as it works to increase the resource there and extend the mine’s life.
“It’s exceptional how things have gone,” he said. “The market will eventually wake up and suddenly all these exploration opportunities will become valuable again and the price to acquire that ground will soar.”
On sustainability, McCluskey suggested going beyond converting hauling trucks to electric from diesel, to getting rid of the trucks altogether. Alamos installed a conveyor system underground at Young-Davidson and sends ore to the surface via skips in the shaft. The same concept is under construction at Island.
Hydro-electric power in Ontario and Manitoba is green to begin with. But also, companies must consider the investment in exploration to extend mine life to make it worthwhile to install a shaft running on green hydro-electric power.
‘If you want a greener operation, tap into grid power,” he said. “That to me is a sustainable way forward.”
Correction: A previous version of this story misspelled Lynn Lake and said the underground conveyor and skip system at Island had already been built. It’s not finished yet. The Northern Miner regrets the errors.
Good story. Classy guy. Great company.