Alamos Gold (TSX: AGI; NYSE: AGI) generated record cash flow of US$76 million during the third quarter, led by strong operating performance across its three operations in Ontario and Mexico.
Alamos generated 117,100 oz. gold., and sold 116,035 oz. at an average realized price of US$1,882 per oz., at all-in sustaining costs (AISCs) of US$949 per oz. sold.
The resulting record cash flow led the company to raise its quarterly dividend 33%, increasing to an annual rate of US8¢ per share, starting with December’s payout.
“We had an excellent third quarter financially and operationally, with strong performances at all three operations driving costs significantly lower,” John McCluskey, Alamos Gold’s president and chief executive, said in a statement. “This included another record quarter at Island Gold, and Young-Davidson starting to demonstrate its full potential following the completion of the lower mine expansion.”
With 306,400 gold oz. produced so far this year, Alamos maintains its revised annual production guidance of 405,000-435,000 oz. gold, at AISCs of US$1,030-$1,070 per ounce.
While Island Gold delivered record performance, producing 39,600 oz. gold due to higher grades mined, Young-Davidson met a milestone in July, with the completion of the lower mine expansion. The tie-in of the Northgate shaft allowed Alamos to achieve average mining rates of 6,700 tonnes per day in the quarter and produce 36,400 ounces. Rates are expected to increase to 7,500 tonnes per day by year-end, driving unit costs lower.
The Mulatos open pit in Mexico churned out 41,100 oz. gold in the third quarter, for a total record cash flow from operations of US$130.8 million and record adjusted net earnings of US$56.9 million.
Alamos closed out the quarter with US$274.1 million in cash and equivalents, and US$40-million worth of equity securities. After quarter-end, the company repaid US$100 million of its revolving credit facility and is now debt-free, with its sight set on high-return growth.
This summer, Alamos announced that it would be going ahead with an expansion of the Island Gold mine, to 2,000 tonnes per day, and up from 1,200 tonnes per day currently, through a new shaft build. The expansion study results, released in July, suggested average annual gold production of 236,000 oz. annually starting in 2025, once the shaft is complete, at mine site AISCs of US$534 per ounce. The capital cost estimate for the expansion stands at US$514 million. Based on a base-case gold price of US$1,450 per oz., the after-tax net present value estimate for the expansion comes in at US$1.02 billion, at a 5% discount rate, with a 17% internal rate of return.
Also in July, the company announced internal study results, and said it would go ahead with construction of the permitted La Yaqui Grande heap leach project in Mexico, 7 km from the Mulatos operation.
The project would deliver an average of 123,000 oz. gold annually, starting in the third quarter of 2022, at AISCs of US$578 per ounce. With a five-year mine life and an initial capital estimate of US$137 million, the after-tax net present value estimate stands at US$165 million, at a 5% discount rate and based on a US$1,450 per oz. gold price, with a 41% internal rate of return.
“We expect to continue to generate strong free cash flow while reinvesting in high-return projects like La Yaqui Grande and the Phase III Expansion at Island Gold, which will support further growth and returns to shareholders,” McCluskey said.
In mid-afternoon trading in Toronto, Alamos shares were up $1.36, or 13%, to $12.17. Over the last year, the miner’s shares have traded in a range of $4.43 and $15.52 per share. The company has about 393 million common shares outstanding for a$4.7-billion market capitalization.
Ryan Hanley of Laurentian Bank Securities has a buy rating on Alamos and a one-year price target of $20.50 per share.
CIBC’s Cosmos Chiu has an ‘outperformer’ rating on the stock and a 12-18 month target price of $19.25 per share.
“Alamos reported better-than-expected Q3 production and costs, driving a financial beat and generating $76 million in free cash flow, a quarterly record for the company,” Chiu commented in a research note to clients. “The transition to material free cash flow generation was a key deliverable for Alamos following the capital intensive lower mine tie-in at Young-Davidson, and the results demonstrate the asset’s potential as its ramp-up continues into year-end.”