Debt-Free Alamos Gold Going Strong In Mexico

Earnings jumped a record tenfold to US$29.4 million (US31¢ per share) last year from US$2.9 million (US3¢ per share) in 2007 for debt-free Alamos Gold (AGI-T, AGIGF-O).

The gold producer reported revenue growth of 80% to US$133 million, and generated cash from operations of US$65.3 million, up 213% from US$20.9 million a year earlier.

Headquartered in Toronto, the company also ended the year with a cash balance of US$43.8 million, a significant gain over the year-earlier figure of US$7.8 million.

The company’s cash balance has increased since then to US$110 million after it raised US$62.5 million in a bought-deal financing (10.4 million shares) in February.

Improvements in efficiency at the company’s Mulatos gold mine in Sonora, Mexico, contributed to a 21% increase in the amount of ore mined and a 33% drop in waste mined.

The efficiencies were gained after the company reorganized the Mulatos open pit and commissioned a new crusher. Average daily crusher throughput in 2008 rose 18% year-on- year to 13,000 tonnes.

Improvements on the operations side also led to significantly higher gold recoveries, which, coupled with strong gold prices, resulted in a good financial year, the company says.

Efficiencies and operational improvements cut the total cost per tonne of ore by 16% year-on-year to US$9.51. That drop was due primarily to a 45% decrease in the waste-to- ore ratio from 2.5 in 2007 to 1.37 in 2008.

Lower costs per tonne of ore along with a higher estimated recovery resulted in cash operating costs of US$345 per oz. gold sold in 2008, a 12% year-on-year decline from US$390 per oz.

But the company admits that it has also benefited from the devaluation of the Mexican peso compared with the U. S. dollar as its net financial liabilities denominated in Mexican pesos have been revalued at a lower U. S. dollar amount.

The Mulatos mine went into production in 2005, and has proven and probable reserves of 48 million tonnes grading 1.35 grams gold per tonne for total contained gold of 2.05 million oz. The waste-to-ore ratio for the Mulatos pit is 1.6.

Looking ahead, Alamos anticipates production in 2009 should reach between 145,000 to 160,000 oz. gold at a total cash cost of US$350 per oz., including a 5% royalty.

It also hopes to complete a technical study in the first quarter of 2009 supporting the construction of a mill capable of processing high-grade ores, including ore from the company’s Escondida deposit, which lies 500 metres northeast of the main Estrella pit at the Mulatos mine.

Alamos believes the cost of pre-stripping Escondida and building the mill would be about US$45 million. Construction would take place over two years with production from the mill expected to begin in late 2010.

At presstime, Alamos shares were trading at $8.19 per share. The company has a 52-week trading range of $3.50-9.14 per share and about 107 million shares outstanding.