Can Alamos Gold Sustain Its Hot Streak?

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 got off to a terrific start in 2019. The stock has appreciated more than 40% so far this year on the back of impressive production growth, increasing gold prices, and a recent project approval that could boost its output.

The stock has appreciated more than 40% so far this year on the back of impressive production growth, increasing gold prices, and a recent project approval that could boost its output.

Let’s take a closer look at the various factors driving Alamos’ stock growth and why investors have been so excited about the company this year.

Impressive Production Growth

Record production at the Island Gold mine and improved performance at Young-Davidson have been catalysts for Alamos Gold, allowing the company to increase production and lower costs simultaneously. Thanks to these two mines, the company’s gold production increased 18% last year to a record 505,000 ounces.

Alamos’ cash cost came in at $802 per ounce and all-in sustaining costs were $989 per ounce. However, the company’s costs were higher on a year-over-year basis, leading to a decline in its adjusted earnings per share. The company reported adjusted EPS of $0.05 in 2018 as compared to $0.13 in the preceding year.

This was a result of a massive spike in the cost of sales, which rose 18% year over year and offset the increase in gold prices. The cost of sales increased on account of a non-cash inventory impairment at El Chanate.

So, despite a tremendous increase in sales, Alamos’s bottom-line profile didn’t improve last year. However, the company did enough to boost investor confidence by way of certain other measures.

Some More Positives  

On March 1, Alamos announced that it has received the permit to operate the Kirazli project in Turkey. It has set aside an initial production budget of $152 million for the mine, expecting initial production by the end of next year.

Alamos expects Kirazli to produce more than 100,000 ounces of gold during its first full year of production with all-in sustaining costs of less than $400 an ounce at the mine. The company believes that this will allow it to push its production beyond 600,000 ounces and also lower the cost profile.

That’s great news for Alamos investors as the company’s output is expected to remain flat this year at 500,000 ounces, according to the mid-point of its guidance range. All-in sustaining costs are expected between $920 and $960 per ounce, so Kirazli will substantially reduce the company’s costs going forward.

This should positively impact the company’s dividend. Alamos recently doubled its dividend to $0.01 per share paid quarterly as compared to the prior dividend of $0.01 per share paid semi-annually. The company has been paying a dividend for the past 10 years now, and investors can expect the same to increase further on account of higher production that will lead to an increase in earnings.

Analysts expect the company’s earnings per share to triple this year. Once the company’s project in Turkey comes online, its bottom line will receive another nice shot in the arm going forward. As such, Alamos investors should continue holding shares of this company because it can deliver more upside and also provide a nice dividend payout.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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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