Alamos gold stock: La Yaqui mine now producing (NYSE: AGI)

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Introduction

Toronto-based Alamos Gold (NYSE: AGI) released its second quarter 2022 results on July 27, 2022.

To note: This article is an update of my article published on May 3, 2022. I followed AGI on Seeking Alpha since August 2017.

1 – Overview of 2Q22 results

The company reported 2Q22 revenue of $191.2 million and net income of $6.4 million or $0.02 per share. Revenue was down 2% from 2Q21.

AGI declared a quarterly dividend of $0.025 per share ($0.10 annualized rate). Below are the highlights of 2Q22:

Alamos Gold Q2 2022 Results

AGI Presentation 2Q22 Highlights (Alamos Gold)

Quarterly production was 103.9,000 ounces Au, down 9% from the second quarter of last year. A strong performance at Island Gold could not offset lower production at the Mulatos mine and Young Davidson.

Alamos Gold Quarterly Gold Production by Mine

AGI Quarterly Gold Production by Mine (Fun Trading)

The Yaqui Grande reached initial gold production in June 2022, after construction was completed ahead of schedule. Construction of La Yaqui Grande has been completed, with total capital expenditure for the project of $161 million. The Yaqui Grande produced 5k Au Oz in June.

Alamos Gold - La Yaqui Grande Mine Production

Presentation AGI La Yaqui (Alamos Gold)

Alamos Gold also has two other projects underway at the moment. Gold production is expected to increase significantly by 2025.

  1. The golden island Phase III expansion Ontario, Canada. With 2,400 TPD by 2026.

Alamos Gold - The Island Gold Expansion

AGI Island Gold (Alamos Gold Presentation)

On June 28, 2022, the Company announced the results of the Phase 3+ expansion study conducted on its Island Gold mine. The P3+ expansion study was an update of the phase 3 study published on July 14, 2020.

The new study indicates higher production, with an average annual gold production of 287,000 Au ounces beginning in 2026 upon completion of the shaft.

Third quarter activities will include the completion of site cleanup and preparation of the shaft area, with pre-sinking of the shaft expected to begin in August 2022. AGI spent $15.3 million in growth CapEx in 2Q22.

  1. The Lyne Lake Project with construction decision expected in H2 2022 (EIS approval and construction decision). Expected average annual production is 143,000 ounces of Au over a 10-year mine life at an average on-mine-site ISIC of $745 per ounce.

Alamos Gold Lyne Lake Project

AGI Lynn Project (Alamos Gold Presentation)

2 – Stock market performance

AGI outperforms the VanEck Gold Miners ETF (GDX) and is now down 3% YoY.

AGI vs. GDX Price
Data by YCharts

John A. McCluskey, President and CEO, said on the conference call:

We had a strong second quarter on several fronts, meeting our near-term operational targets while achieving 2 key growth initiatives, including achieving first production at La Yaqui Grande and announcing a Phase III expansion more larger and more profitable side of Island Gold. Both have bolstered our strong outlook by supporting production growth and lower costs.

3 – Investment thesis

The investment thesis continues to be the same as stated in my previous articles. Alamos Gold is a great company with great finances, no debt and strong cash flow.

The Yaqui Grande is now producing. The recently released results of the Phase 3+ expansion study conducted on the Island Gold mine demonstrate significant growth potential for the coming years, reinforcing the case for long-term investment.

Additionally, it is a gold producer with assets exclusively in the Americas.

Thus, I recommend AGI as a perfect candidate for a long-term investment and use the recent weakness to build a position.

Gold has trended higher since a recent selloff on the news. The price of gold rallied last week after the Fed decided to raise interest by another 75 points. Inflation is a serious issue for the global economy, and there is growing evidence that we are sliding into recession in 4Q22. This prospect makes an investment in gold mines even more attractive.

Comparison AGI vs. GOLD vs. Silver

1 Year AGI GOLD SILVER Comparison Chart (Fun Trading)

Alamos Gold – 2Q22 Financial Overview – The Raw Numbers

Alamos Gold 2Q21 3Q21 4Q21 1Q22 2Q22

Total revenue millions of dollars

195.1 198.0 203.1 184.5 191.2
Quarterly profit in millions of dollars -172.5 25.10 29.5 -8.5 6.4
EBITDA millions of dollars -129.9 100.0 88.0 70.9 45.9*
EPS (diluted) $ per share -0.44 0.06 0.07 -0.02 0.02
Cash flow from operating activities millions of dollars 86.7 82.4 88.1 46.5 75.7
CapEx in $ 86.9 89.2 119.0 87.3 69.0
Free movement of capital 3.2 -6.8 -30.9 -40.8 6.7*
Total cash in millions of dollars 256.3 234.3 196.4 145.2 144.0
Total long-term debt in millions of dollars 0 0 0 0 0
Dividend $/share (semi-annual) 0.025 0.025 0.025 0.025 0.025
Outstanding shares 392.8 395.9 392.3 391.9 394.5

Source: Company press release

* Estimated by Fun Trading

Gold production details

1 – Second quarter 2022 revenue

Alamos Gold Quarterly Revenue

AGI (Fun Trading) Quarterly Revenue History

The company reported net income of $6.4 million, or $0.02 per share, compared to a loss of $172.5 million, or $0.44 per share in 2Q21.

Mining and processing costs were $89.2 million, 9% higher than last year. The increase was primarily related to higher processing costs at Mulatos associated with stockpiled ore.

2 – Free cash flow was estimated at $6.7 million in 2Q22

Alamos Gold Quarterly Free Cash Flow

AGI (Fun Trading) Quarterly Free Cash Flow History

Trailing 12-month free cash flow was a loss of $71.8 million, and the company posted FCF of $6.7 million in 2Q22. After completing the La Yaqui Grande mine, I expect more free cash flow in the coming quarters.

3 – The company has no debt (net cash) and had total cash of $144 million in 2Q22

Total Alamos Gold Cash to Debt

History of AGI Quarterly Cash vs. Debt (Fun Trading)

The company has no debt and $144.0 million in cash and cash equivalents. Total liquidity is now $622 million.

Alamos Gold Review

AGI Balance Sheet (Alamos Gold)

4 – Total quarterly production was 103.9 K ounces Au and sold 102.164 K ounces Au

Alamos Gold Production

History of quarterly gold production from AGI (Fun Trading)

Alamos Gold said it sold 102,164 ounces of gold in the second quarter at an average realized price of $1,871 per ounce for revenue of $191.2 million.

Alamos Gold posted second quarter production of 103,900 ounces,

Below is the production of 2T22 by mine.

Alamos Gold Production by Mine

AGI Quarterly Gold Production by Mine 2Q22 (Fun Trading)

The realized gold price for the fourth quarter was $1,871 per ounce.

Alamos Gold Quarterly Realized Gold Price

History made by AGI Quarterly Gold Price (Fun Trading)

All-in sustaining costs, AISC, were lower this quarter at $1,170 per ounce. Despite inflationary pressures, the company is significantly reducing its AISC this quarter.

Alamos Gold Quarterly AISC

AGI Quarterly History AISC (Fun Trading)

To note: No progress with Kirazlı (Çanakkale, Turkey). Alamos Gold incurred $1.3 million in the second quarter due to ongoing detention and legal costs to advance the treaty claim.

5 – Orientation 2022 and beyond

As noted in my previous article, Alamos expects flat production in 2022, with 4% growth expected in 2023.

Production is expected between 440K oz and 480K oz in 2022 and a 4% increase (midpoint of forecast) between 460K and 500K oz in 2023 and 2024.

2022 Alamos Gold Guidance

AGI 2022 Guidance (Alamos Gold)

The company’s all-in sustaining cost forecast is expected to be $1,190-$1,240 per ounce in 2022, rising to $950-$1,050 per ounce in 2024.

AISC is expected to decrease by approximately 18% from 2022 to 2024 (based on the midpoint of the forecast), reflecting lower costs at Mulatos and Island Gold.

Technical analysis (short term) and commentary

AGI Technical Table

Short Term AGI TA Chart (Fun Trading)

To note: The graph has been adjusted for the dividend.

The AGI chart shows an ascending channel pattern with resistance at $8.20 and support at $7.

The general strategy I usually advocate in my market for AGI is to hold a long-term basis position and use around 30%-40% to trade LIFO expecting a higher final price target for your basis position between $11 and $12.

I suggest selling about 30-40% of your position between $8.10 and $8.30.

I think it is prudent to accumulate AGI below $7.1. However, depending on the FED’s future decisions, AGI could retest $6.65, which is a great price for long-term investors.

I highly recommend holding a long-term main position and using around 30%-40% to trade LIFO while waiting for a higher final price target for your main position between $11 and $12.

Watch the price of gold like a hawk.

To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS), although it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by creating two different accounts for the same security, one for long term and one for short term trading.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

Author’s note: If you find value in this article and wish to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks.

About Aldrich Stanley

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