Alamos posts solid Q3 results

Alamos Gold (TSX: AGI; NYSE: AGI) had a relatively good run in the third-quarter, with adjusted earnings of US$9.2 million, or US7¢ per share — in line with analysts’ expectations.

The Toronto-based miner produced 43,000 oz. gold in the quarter, which was a little below what analysts had predicted, but consistent with production in the year-ago period.

“The slight miss in production was offset by higher sales [48,000 oz.] and better cash costs,” writes BMO Nesbitt Burns analyst Brian Quast, who upgraded his $20 price target to $22.50, while maintaining an “outperform” rating.

Total cash costs were US$491 per oz., with all-in sustaining costs of US$810 per oz. gold sold in the quarter. Both figures were within the company’s annual guidance. Alamos generated quarterly revenues of US$63.8 million by selling 48,000 oz. at an average realized price of US$1,329 per oz.

“The gold price continued to trend lower in the third quarter. However, with our low cost structure, we continue to generate strong margins and operating cash flow of US$25.7 million [after changes in non-cash working capital],” John McCluskey, the company’s president and CEO, said in a statement.

 Quast notes that Alamos has achieved 75% of its full-year production guidance, with 151,000 oz. at total cash costs of US$461 per oz. produced to date. He says the company is well positioned to beat its 2013 target of 180,000 to 200,000 oz. gold at total cash costs of US$500­ to US$520 per oz. gold sold. 

Strong throughput and grade from Alamos’ heap-leach operation at Mulatos in Sonora, Mexico, offset the noticeably lower grade from the mine’s high-grade Escondida pit in the quarter, notes Desjardins Capital Markets analyst Adam Melnyk.

Average throughout for the heap leach was 18,000 tonnes per day, which is above the company’s 17,500-tonne-per-day guidance, while the heap-leach grade averaged 0.99 gram gold per tonne, above Melnyk’s forecast of 0.90 gram gold and Alamos’ annual budgeted grade of 0.98 gram gold.

The grade from the Escondida pit averaged 6.73 grams gold per tonne, compared to the company’s yearly guidance of 11 grams gold. Alamos says the drop in grade came from a change in the mine plan to expedite access to the Escondida Deep portal and develop the underground zone. In mid-2014, the company plans to transition mining from Escondida to Escondida Deep and process ore from the San Carlos deposit, but at lower recovery rate. The Escondida pit could be depleted by early 2014.

The gold producer says that changes to the tax regime in Mexico — which are set to come into effect on Jan. 1, 2014 — could increase its tax burden in the country. Some proposed changes include a 7.5% royalty on earnings before interest, taxes, depreciation and amortization, and a 0.5% additional royalty on revenues.

Noting that the firm’s only producing mine is in Mexico and the lower recoveries expected at San Carlos, Melnyk has trimmed his target price to $19 from $20. He has kept his “buy-above-average risk” rating on the stock, and views Alamos as a “premium, low-cost producer.”

Alamos has advanced its development pipeline during the quarter. It received an environmental-impact assessment (EIA) approval for its Kirazli project and has submitted an EIA report for the Agi Dagi project, both in Turkey. It is waiting for forestry and operating permits at Kirazli — expected later this year or early next year — and is guiding first production from the project in the first half of 2015.

It also  completed the acquisitions of Esperanza Resources and Orsa Ventures during the quarter. The US$88.1-million Esperanza takeover gave Alamos the Esperanza gold project in Mexico’s Morelos state. The deposit, envisioned as a heap-leach operation, could deliver low-cost gold ounces due to its “simple metallurgy, low strip ratio and nice silver credit,” writes Haywood Securities analyst Kerry Smith in a note.

Alamos says Esperanza could boost its Mexican output by 50%, and it’s working on resubmitting an EIA report for the project.

Smith adds that the US$3.5-million Orsa takeover gave Alamos a 2.85 million oz. resource in Oregon “at a valuation well below the finding cost.”

He has bumped his target to $17 from $16, and has a “buy-medium-high risk” rating on the stock.

On the third-quarter results, Alamos closed Oct.31 flat at $16.61 per share, but dropped 7% the next day to $15.44.