Gold and precious metals mining stocks are prone to major boom and bust cycles and lately, both have been on the run higher. Whether you want to attribute the rise to concerns about inflation, sovereign debt, geopolitical risks, or supply/demand dynamics, the reality is these stocks are moving. I recommend getting involved with Alamos Gold Inc. (AGI), advises Tyler Laundon, editor of Cabot Early Opportunities.
AGI is a solid, (relatively) low-risk Canadian gold exploration, development, and mining company with projects in mining-friendly locations. Alamos has three operating mines: The Young-Davidson and Island mines in Ontario and the Mulatos mine in Sonora State, Mexico.
It is also developing a number of new mining properties, including the Lynn Lake project in Manitoba (production expected in 2028), the Kirazlı, Ağı Dağı and Camyurt projects in Turkey, and the Quartz Mountain project in Oregon.
In 2024, the company expects to produce around 505,000 ounces (oz.) of gold at a cost of around $1,150/oz. (the recent price of gold was about $2,375/oz.). Alamos is an efficient producer with the potential to drive production costs down by about 10% over the next two years.
While the company’s current assets and production profile are attractive enough to drive shares higher during a gold stock rally, the recent acquisition of Argonaut Gold is a nice little sweetener. The main attraction with Argonaut is its flagship Magino mine, located just 300 meters from Alamos’ Island gold mine in Ontario.
Magino just started producing gold last summer, has an estimated 19-year reserve life, and a new mill with capacity for 10,000 tonnes per day (tpd) now, with expansion potential. This mill is expected to become the central mill for an expanded complex, allowing Alamos to decommission the old Island mill and operate a much more efficient, new mill with capacity for both Magino and Island.
Big picture, the Argonaut acquisition likely adds about 10% to gold production this year (total estimated production of 550,000 oz.), ramping up to an additional 20% in 2026 (660,000 oz.) and just north of 800,000 oz. by 2029.
While the price of gold is a huge variable to forward revenue and EPS estimates (and overall gold stock performance), current best guess is Alamos delivers revenue of $1.36 billion this year (+33%) then grows by about 10% in 2025. With Argonaut wrapped in and efficiency gains, EPS could jump 80% to almost $0.93 this year, then grow between 10% and 15% in 2025.
Recommended Action: Buy AGI.