Alamos Gold Can Spring a Positive Surprise This Earnings Season

Alamos Gold [stock_market_widget type="inline" template="generic" color="default" assets="AGI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been in fine form on the stock market so far this year, rising nearly 65% so far on the back of the recent rally in gold prices. However, the company’s momentum will be put to the test when it releases its fiscal second-quarter results on July 31. Let’s take a look at what’s expected of Alamos Gold this time and if it can deliver.


The Expectations From Alamos

Analysts expect Alamos’ top line to take a slight hit during the quarter, falling 1.6% year over year to C$166 million. Its earnings are also expected to fall to C$0.01 per share from C$0.04 per share a year ago.

The lower top- and bottom-line numbers that the market expects can be attributed to Alamos’ output expecting to remain flat in 2019. The company delivered 505,000 ounces of gold last year, and for 2019, the forecast is between 480,000 ounces and 520,000 ounces of gold.

Analysts are probably expecting that lower gold prices and a flat production profile will weigh on the company’s performance this year. In the second quarter of 2018, Alamos Gold had produced 126,500 ounces of gold. Given that the company is on track to produce 500,000 ounces of gold at the mid-point of its guidance, its production could decline slightly.

The one thing that could work in Alamos’ favour is the recent uptick in gold prices. In the year-ago period, Alamos had recorded an average realized gold price of $1,307 an ounce. Now, gold prices averaged much higher than the $1,300 an ounce mark in the month of June, the final month of the quarter.

This could help Alamos deliver a better-than-expected performance in the second quarter. But more importantly, things are expected to get much better from here onward for the company.


A Strong Outlook is Expected

Analysts are estimating that the company’s exploration results will lead to higher production.

For the third quarter, analysts are expecting revenue of C$169.7 million from Alamos Gold. That represents an upside of nearly 16% from the prior-year period. What’s more, the company’s earnings are expected to triple year over year to $0.15 per share as compared to $0.05 per share a year ago.

Now, expecting such a massive improvement in Alamos’ results seems surprising given the company’s full-year forecast. But it looks like analysts are estimating that the company’s exploration results will lead to higher production.

I’m saying this because Alamos has reported that it has gained access to high-grade mineralization at the Island Gold mine. According to one of the company’s recent press releases:

To date, five drill holes have been completed in this area with all intersecting ore-grade gold mineralization. This includes new drill holes MH18-05, which intersected 102.74 g/t Au (58.62 g/t cut) over 3.94 m and MH18-04 intersecting 31.66 g/t Au (31.66 g/t cut) over 2.95 m. These new intersections are located 120 m and 50 m west, respectively from previously reported drill hole MH18-03 which intersected 46.11 g/t Au (25.81 g/t cut) over 4.67m (see Press Release dated May 9, 2019).

This indicates that Alamos’ production profile could improve in the future because higher grades will allow it to mine more gold with less waste tonnage, thereby leading to lower costs. As such, investors should not rule out a positive surprise from Alamos as it is capable of delivering a strong outlook.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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