Alamos Gold Stock Has the Potential to Get Better

Alamos Gold [stock_market_widget type="inline" template="generic" color="default" assets="AGI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has shot up more than 60% this year as it has managed to sustain the impressive momentum it gathered in the early part of the year. The fact that Alamos stock has been on fire this year can be attributed to its production growth, and the company now has another catalyst that could help it address one of its problems.

Impressive Cost Control

Alamos Gold’s production was up 18% in 2018, coming in at a record 505,000 ounces. The company seems to be on pace to meet that mark this year as well.

In the first quarter of 2019, Alamos’ gold production came in at 125,300 ounces, which was slightly lower than the year-ago period’s output of 128,900 ounces. But the good part was that the company’s cost of sales of $1,061 an ounce was lower than the year-ago period’s figure of $1,113 an ounce.

This allowed Alamos to offset the impact of weak gold prices to some extent. More specifically, Alamos recorded an average realized gold price of $1,304 an ounce during the quarter, down from $1,331 an ounce during the year-ago period. What’s more, the lower costs allowed Alamos to keep its bottom line in good shape.

The company delivered operating income of $18.7 million during the quarter as compared to $18.5 million in the year-ago period. This is good news for investors as the recent rally in gold prices should increase Alamos’ earnings power in the coming quarters since the company expects to deliver between 480,000 ounces and 520,000 ounces of production this year. Cost of sales is estimated to be $1,075 an ounce for the year and Alamos seems to be on track to hit that mark.

Higher gold prices will be a tailwind for the company going forward, though that isn’t the only catalyst investors should be watching.

Taking Steps to Boost Production

The good news for Alamos investors is that the company is taking steps to increase its production. The company recently reported that the surface exploration drilling program at the Island Gold Mine has helped it access high-grade gold minerals.

The eastern extension at the mine resulted in gold mineralization of 102.74 grams per ton of gold, while at the main extension, it saw 24.08 grams per ton of gold. The higher grade materials should eventually help the company deliver improved production at a lower cost base.

Alamos has also received an expansion permit for the second phase of the Island Gold mine. The phase two expansion allows the company to mine at a rate of 1,200 tons per day as compared to the earlier permit of 1,100 tons per day. More importantly, the company claims that no additional capital is required for this expansion.

So don’t be surprised to see an uptick in the company’s production and lower costs at the same time in the coming months. Moreover, the recent increase in gold prices will continue to be a catalyst for the stock, so it’s best to keep Alamos on your radar.

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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