CA - Alamos Gold: Solid Company With Excellent Growth Prospects

Summary

• The company indicated a net income of 40.6 million, or $0.10 per share, up from an income of $29.5 million, or $0.07 per share, in 4Q21.
• The quarterly gold production was 134.2K Au ounces, a 19.3% increase from the fourth quarter of last year.
• I recommend buying AGI between $9.85 and $9.65, with possible lower support at $8.46.

Introduction

The Toronto-based Alamos Gold Inc. (AGI) released its fourth quarter and full-year 2022 results on February 22, 2023.

Note: This article is an update of my article published on January 16, 2023. I have followed AGI on Seeking Alpha since August 2017.

Recent News:

On February 28, 2023, AGI announced the acquisition of Manitou Gold.

The acquisition will consolidate Alamos’ existing ownership of Manitou shares and increase its regional land package around Island Gold with the addition of the Goudreau Property. This includes 40,000 hectares (“ha”) adjacent to and along strike from the Island Gold Mine, adding significant exploration potential across the relatively underexplored Michipicoten Greenstone Belt

Also, on February 21, 2023, AGI reported its updated Mineral Reserves and Resources as of December 31, 2022.

Global Proven and Probable Mineral Reserves increased 2% to 10.5 million ounces of gold (200 million tonnes (“mt”) grading 1.63 grams per tonne of gold (“g/t Au”)), with grades increasing 3%, reflecting higher grade additions at Island Gold and Mulatos. Mineral Reserve additions more than replaced depletion at a rate of 133%

1 - 4Q22 and FY22 Results Snapshot

The company posted revenues of $231.9 million in 4Q22 and a net income of $40.6 million, or $0.10 per share. Revenues were up 14.2% from 4Q21.

AGI declared a quarterly dividend of $0.025 per share (annualized rate of $0.10, or a yield of 1%).

It produced 460,400 ounces of gold, achieving the mid-point of annual guidance. All three operations performed well, meeting their respective production guidance. In the press release:

the Company delivered on several key catalysts in 2022 which have solidified its strong outlook. This included completing construction at La Yaqui Grande mid-year, and announcing the Phase 3+ Expansion of Island Gold, which will create a larger, more profitable and valuable operation. At Island Gold, the Phase 3+ Expansion is advancing well, while the strong operational performance continued to self-fund the ramp up in construction activities.

Below is shown the 4Q22 highlights:

The quarterly gold production was 134.2K Au ounces, a 19.3% increase from the fourth quarter of last year. The increase was explained by a solid performance at Mulatos district with 25K Au Oz from La Yaqui and Island Gold.

La Yaqui Grande achieved initial gold production in June 2022, following the completion of construction ahead of schedule.

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

1. The Island Gold expansion Phase 3+ Ontario, Canada. (With 2,400 TPD by 2026). Construction activities on the Phase 3+ Expansion ramped up.
2. The Lynn Lake project with construction decision is expected in H2 2022 (EIS approval and construction decision). The average annual production expected is 143K Au ounces over a 10-year mine life at an average mine-site AISC of $745 per ounce.

2 - Stock Performance

AGI is outperforming the VanEck Gold Miners ETF ( GDX ) and is now up 38.2% on a one-year basis.

John A. McCluskey, President and Chief Executive Officer, said in the conference call:

[W]e had a strong third quarter led by another solid performance from Young-Davidson and a standout result from La Yaqui Grande in its first full quarter of operation.

3 - Investment Thesis

Alamos Gold remains an excellent company with excellent financials, no debt, and solid cash, and it pays a quarterly dividend of $0.025.

The Phase 3+ Expansion progress is going smoothly and on schedule.

The only issue is potentially an external one. Gold prices and gold miners are not doing well when the FED turns hawkish, precisely what is happening now. Inflation pressures and recession risks in 2023 are increasing, which puts pressure on AGI.

Thus, trading AGI short-term LIFO using at least 30€-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 4Q22 - The Raw Numbers

Source: Company press release .

* Estimated by Fun Trading.

Alamos Gold Financial Analysis

1 - Revenues were $231.9 million in the fourth quarter of 2022

The company indicated a net income of 40.6 million, or $0.10 per share, up from $29.5 million, or $0.07 per share, in 4Q21.

Generated cash flow from operating activities of $102.3 million ($88.1 million, or $0.22 per share, before changes in working capital).

The cost of sales was $153.4 million in the fourth quarter, 10.8% higher than the prior-year period.

2 - Free cash flow was estimated at $17.5 million in 4Q22

Trailing 12-month free cash flow ("FCF") was a loss of $15.2 million, and the company posted an FCF of $17.5 million in 4Q22. Free cash flow will likely increase in 2023 with the completion of La Yaqui.

However, with the ramp-up of construction activities on Phase III plus expansion at the Island gold, CapEx increased to $84.8 million in the fourth quarter, albeit free cash flow was $17.5 million. It is a good sign for 2023.

3 - The company is debt-free (net cash) and had total cash of $148.4 million in 4Q22.

Alamos Gold ended the fourth quarter with cash and cash equivalents of $148.4 million and no debt. Liquidity is $648.4 million.

CFO Jaimie Porter said in the Q4 conference call :

We remain debt free and ended the year with 130 million in cash, 19 million of equity securities, and 500 million of undrawn credit capacity.

4 - Total quarterly production in 4Q22 was 134.2K Au ounces and sold 133,164 Au ounces

Alamos Gold reported a gold production of 134,200 ounces in 4Q22 and sold 133,164 ounces. The company sold 456,574 Au ounces in 2022 at a gold price of $1,799 per ounce. The company said in the press release:

The 4Q22 solid production was driven by solid performances from all three operations, including a substantial increase at Mulatos with the ramp-up of La Yaqui Grande.

Below is the 4Q22 production per mine:

The price of gold realized for the fourth quarter was $1,741 per ounce, down 3.2% sequentially.

All-in sustaining costs, AISC, were lower this quarter at $1,138 per ounce. Despite inflationary pressures, the company again maintained its AISC below $1,200 this quarter.

5 - 2023 Guidance

As indicated in my previous article, Alamos expects stable production in 2022, with a 4% growth expected in 2023.

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 a descending channel pattern with resistance at $10.4 and support at $9.75 with RSI weakening.

A descending channel is a bearish trend that is characterized by a series of lower highs and lower lows. This pattern forms when the price of an asset creates a lower high and then a lower low, and this process is repeated multiple times. The descending channel is also sometimes referred to as a downtrend or bearish trend.

The general strategy I usually promote in my marketplace for AGI is to keep a core long-term position and use about 30%-40% to trade LIFO while waiting for a higher final price target for your core position between $12 and $13.

I suggest selling about 30%-40% of your position between $10.40 and $10.65, with possible higher resistance at $11.50. Conversely, if the market turns even more bearish on gold due to a potential worsening of the inflation threat, I recommend buying AGI between $9.85 and $9.65, with possible lower support at $8.46.

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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