Sliding gold prices over the past three years have hurt gold mining stocks, but some gold miners have good prospects for growth once bullion prices strengthen. Today, we look at Alamos Gold, a gold miner that operates in Mexico and Ontario. The company’s Young-Davidson mine, in Ontario, should reach full production next year. Over the next three years, Alamos plans to increase total production by 75%, to 700,000 ounces of gold from 400,000 ounces. Moreover, the company is planning longer-term growth through the acquisition of the Lynn Lake project in Manitoba, which contains up to 5 million ounces of gold. We view Alamos Gold as a worthwhile hold for aggressive investors.
ALAMOS GOLD (Toronto symbol AGI; www.alamosgold.com) is the company formed by the July 2015 merger of Alamos Gold and AuRico Gold, another recommendation of our advisory on more aggressive investing, Stock Pickers Digest.
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The combined firm owns the Mulatos mine in Mexico and the Young-Davidson project in northern Ontario, which holds as much as 5.6 million ounces of gold. Young-Davidson started up in 2013 and will reach full production in 2016. But meanwhile, it’s moving from open-pit to underground mining, which has sharply increased its costs.
The company’s gold production rose 3.1% in the three months ended September 30, 2015, to 87,663 ounces from 85,037 a year earlier. However, lower gold prices offset the higher production, causing the company’s cash flow per share to fall to $0.02 from $0.16 (all figures in U.S. dollars).
Alamos holds cash of $320.8 million, which it will use to fund the Young-Davidson mine and increase the combined firm’s gold output from almost 400,000 ounces this year to 700,000 in 2018.
Mining stocks: Lynn Lake to add up to 5 million ounces of gold
Alamos also plans to consolidate its ownership of the Lynn Lake project in Manitoba by acquiring the shares of Carlisle Goldfields (symbol CGJ on Toronto) it doesn’t already own. Lynn Lake has five near-surface deposits that may contain as much as five million ounces of gold.
Alamos currently holds 10.9 million Carlisle shares representing about 19.9% of that company’s shares outstanding. Excluding that stake and Carlisle’s current cash holding, the acquisition will cost Alamos $28.5 million.
In February 2014, a preliminary economic assessment on the project’s two main deposits, MacLellan and Farley Lake, indicated that a mine producing 145,000 ounces of gold over a 12-year period was viable. Its costs would be $644 per ounce.
The company’s outlook is positive, but like most gold producers, its shares will be heavily influenced by the future direction of gold prices.
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