Alamos sees a 63% increase in Q2 profits

Alamos Gold (AGI-T) reports higher second quarter profits, despite lower production at its flagship Mulatos gold mine in Mexico’s Sonora state.

The mine generated 36,000 oz. gold, a 6% decrease from the year ago period. The lower production was due to a 23% drop in grade; however was offset by a higher crusher throughput.

The processing rate averaged 15,000 tonnes per day for the quarter, a 26% increase from the previous quarter. In June, that rate jumped to 16,000 tonnes daily.  

The other hiccups Alamos experienced during the quarter include lower solution flow at the mine and a reduced cyanide supply.  

The company says July’s rainy season has fixed the solution flow issue, which was caused by previous dry conditions. It adds that the cyanide is still “a bit of an issue.” But has secured a second supplier for late August.   

Despite those setbacks, the company reported a profit of US$15.5 million, a 63% increase from the same period last year, thanks to higher gold prices.

For the quarter, the miner sold 37,800 oz. gold for a revenue of US$56.9 million. Cash costs were better than expected at US$355 per oz. (excluding royalties).

The company says it continues to look at ways to improve cash costs, and will see if it could trim costs by lowering its power generating expenses.  

For 2011, the company says it’s on track to produce 145,000 to 160,000 oz. gold at cash costs of US$365-US$390 per oz.

Meanwhile, Alamos has outlined an US$40-million plan to build up its Mexican asset.  

It plans to spend US$25 million to develop the high-grade Escondida zone at the Mulatos mine, situated in the Salamandra group of concessions.

The company estimates it will cost US$17.5 million to construct a gravity plant to process ore from Escondida, and other nearby zones. The plant is expected to be done by year end. Production from the zone is slated for early 2012.  

Apart from developing, the miner has been actively exploring the El Carricito and San Carlos zones, with four rigs.

Drilling at El Carricito, which sits 20 km southwest of the Mulatos pit, continues to return less than promising results. Alamos began drilling the zone in late 2010 and its best hole to-date carries an interval of 85 metres grading 0.53 gram gold.

Recent metallurgical testing showed ore from Carlos is amenable to gravity separation, and could potentially double feed for the new plant.

The company conducted in-fill and step-out drilling at San Carlos, which confirmed the continuity of high-grade mineralization towards the northeast. It also discovered two other sub-parallel structures, about 600 metres from San Carlos’ resource area. Alamos says the new zones are covered by overburden, but are at the same elevation as the existing mineralization. It’s looking at the possibility of underground mining a portion of the zone.

In March, the company released an initial reserve estimate at San Carlos. The zone contains 160,000 oz. from 2.6 million tonnes grading 1.89 grams gold.

Reserves at Mulatos stand at 58.5 million tonnes grading 1.27 grams gold for 2.4 million contained oz. The mine has a 9-year life.

On the quarterly news, Alamos shares dropped $1.02 to $17.44 per share, within a 52-week trading range of $13.26-$21.65.

The company also has two advanced-stage gold projects in northwestern Turkey.