CA - Alamos Gold: A Solid Quarter Again

2023-07-31 15:38:51 ET

Summary

• Alamos Gold Inc. indicated a net income of $75.1 million, or $0.19 per share, up from $6.4 million, or $0.02 per share, in 2Q22.
• Alamos Gold produced 136K Au ounces in 2Q23 and sold 131,952 Au ounces at $1,978 per ounce. It was a solid production, up 30.9% YoY, exceeding quarterly guidance.
• I recommend buying Alamos Gold shares between $11.85 and $11.60, with possible lower support at $11.

Introduction

The Toronto-based Alamos Gold Inc. ( AGI ) released its second-quarter results on July 26, 2023.

Note: This article updates my article published on May 2, 2023. I have followed AGI on Seeking Alpha since August 2017.

President & CEO John McCluskey said in the conference call:

We delivered an outstanding performance in the second quarter, achieving a number of operational and financial records. Production increased to a record 136,000 ounces, exceeding our guidance for the quarter while all-in sustaining costs decreased below our annual guidance.

Alamos Gold owns three producing mines and two projects.

1 - 2Q23 Results Snapshot

The company posted record revenues of $261.0 million in 2Q23 and a net income of $75.1 million , or $0.19 per diluted share. Revenues were up a whopping 36.5% from 2Q22.

AGI pays a quarterly dividend of $0.025 per share (annualized rate of $0.10, or a yield of 0.8%).

AGI produced 136K Au ounces in 2Q23 and sold 131,952 Au ounces at $1,978 per ounce. It was a solid production, up 30.9% YoY, exceeding quarterly guidance, driven by a significant increase in output from the Mulatos District. AGI is on track to achieve 2023 Guidance of 480K-520K Au ounce at an AISC between $1,125-$1,165 per ounce .

Below is shown the 2Q23 highlights and 2023 Guidance:

The increase was explained by a solid performance at Mulatos district, slightly offset by Island Gold. President & CEO John McCluskey said in the conference call:

This was driven by another exceptional performance from La Yaqui Grande, which contributed to the strongest quarter from Mulatos district in more than a decade. With production totaling 264,000 ounces through the first half of the year and costs well within guidance

The Mulatos District produced 60,300 ounces, a 19% increase from the first quarter of 2023 and the highest level in 10 years, reflecting another solid quarter from La Yaqui Grande (Press release).

2 - Stock Performance

AGI is outperforming the VanEck Vectors Gold Miners ETF ( GDX ) and is now up 54% on a one-year basis.

3 - Investment Thesis

Alamos Gold Inc. is an outstanding company with excellent financials, no debt, and solid cash, paying a small quarterly dividend of $0.025. One crucial positive is that the growth is fully funded.

Offering significant growth potential with, among others, the Island Gold Phase 3+ Expansion to 2,400 tpd.

In my preceding article, I said that the only sensible topic was attached to the gold price fluctuation. However, the most urgent concern for investors has been replaced by a valuation matter I indicated in my preceding article.

AGI is a small gold producer with limited producing mines. This situation could elevate the risk of a sudden stock correction due to an unplanned hiccup.

Thus, trading AGI short-term LIFO using at least 40% of your entire position is crucial, while keeping a core long-term for a much higher target. The method is based on technical analysis and fundamental knowledge.

This two-level strategy has succeeded in my marketplace, "The Gold And Oil Corner," and I believe it is the safer way to play AGI.

Alamos Gold - Financial Snapshot 2Q23 - The Raw Numbers

Source: Company press release .

Alamos Gold Financial Analysis

1 - Revenues were $261.0 million in the second quarter of 2023

The company indicated a net income of $75.1 million , or $0.19 per share, up from $6.4 million, or $0.02 per share, in 2Q22.

AGI generated a record cash flow from operating activities of $141.8 million .

The cost of sales per ounce sold was $1,196 in the second quarter.

Total cash costs of $847 per ounce were in line with annual guidance, and all-in-sustaining costs were $1,112 per ounce below the low end of the Guidance range.

2 - Free cash flow was $61.6 million in 2Q23

Trailing 12-month free cash flow ("FCF") was $91.0 million , and the company posted an FCF of $61.6 million in 2Q23.

3 - The company is debt-free (net cash) and had total cash of $208.3 million in 2Q23.

Alamos Gold ended the second quarter with cash and cash equivalents of $208.3 million and no debt . Liquidity is $689 million .

The only disappointment is the low dividend paid, which is less than 1% and could easily be increased to $0.05 per share, in my opinion.

4 - Total quarterly production in 2Q23 was 136.0K Au ounces, and sold 131,952 Au ounces

Alamos Gold reported a gold production of 136,000 Au ounces in 2Q23 and sold 131,952 Au ounces .

It was a 6% increase from the first quarter of 2023 due to strong production growth from the Mulatos District.

Below is the 2Q22 production per mine:

The price of gold realized for the second quarter was a record of $1,978 per ounce , up 4.3% sequentially.

All-in-sustaining-costs, AISC, remain low this quarter at $1,112 per ounce , down sequentially from $1,176 per ounce.

5 - 2023 Guidance

Production is expected to be between 480K oz and 520K oz in 2023, an increase of 9% YoY (mid-point of guidance). AISC is expected to be $1,125-$1,175 per ounce , improving to $950 to $1,050 per ounce in 2024.

Technical Analysis (Short Term) And Commentary

Note: The chart has been adjusted for the dividend.

AGI chart shows an ascending channel pattern with resistance at $13.15 and support at $11.75.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices, but only after a downside penetration of the lower trend line. The stock will continue channeling upward until it is able to break either the upper or lower trend line.

The general strategy I usually promote in my investing group for AGI is to keep a core long-term position and use about 40% to trade LIFO while waiting for a higher final price target for your core position between $15 and $16.

I suggest selling about 40% of your position between $13 and $13.25 , with possible higher resistance at $14. Conversely, I recommend buying AGI between $11.85 and $11.60 , with possible lower support at $11.

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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