Alamos Gold Inc. (TSX: AGI) is a Canada-based gold producer, which acquires, explores, and produces gold and other precious metals. The company operates in two major geographies: Canada and Mexico. The three operating mines of the company are in North America: The Young-Davidson Mine in Canada and the Mulatos and El Chanate Mines in Sonora, Mexico.

Key highlights

• Dividend declaration & Shares buyback: On Feb 23, 2022, the company announced the quarterly dividend of USD 9.8 million which comes at USD 0.025 per common share. It also reported 783,300 share buybacks in Q4FY21 for USD 5.7 million. The group has a strong history of paying dividends for thirteen consecutive years including buybacks, out of which in FY21 alone, the total amount returned to shareholders in the form of dividends and buybacks stood at USD 51 million. The ability of the company to pay regular dividends across all the market cycles, depicts strong corporate governance and management integrity towards its shareholders. 

   Source: Company presentation

• Sale of Non-core project:On February 28, 2022, the company announced the sale of its non-core project: the Esperanza Gold Project by entering into a binding agreement for a total value of USD 60 million. This signifies the strategic long-term goal of the company to focus towards its core business.   

• FY21 gold production:For FY21, the gold production reported at 457,200 ounces, which is 7% higher than the FY20 numbers and within the guidance range of 455,000 ounces to 495,000 ounces. During the time of rising costs and labor shortage, the company very well maintained its All-in sustaining costs of USD 1,046 per ounce of gold which is 9% higher than the FY20 number, but surprisingly lower than the revised guidance of USD 1,120 per ounce of gold to USD 1,140 per ounce of gold. This depicts the operational efficiency of the company which is a big contributor in keeping its bottom line strong.
  

Risks associated with investment

The company deals primarily in gold mining and production operations, which is a proxy play of the gold prices to a great extent. Any major volatility which sustains for the long term can sway the revenues and profitability of the company. Further, the hedging cost along with the currency fluctuations are also key risks associated with this business. 

Financial overview of FY 2021 (Expressed in millions of USD)

Source: Company Filing

• Increase in Operating revenues: The company reported an increase of 10% in its Operating revenues to USD 823.6 million in FY21 as compared to USD 748.1 million in FY20. This was primarily from the increase in sales of 457.5 thousand ounces of gold sold at an average realized price of USD 1,800 per ounce in FY21 as compared to 424.3 thousand ounces of gold sold at an average realized price of USD 1,763 per ounce, in pcp.

• Cost of sales: For FY21 the cost of sales increased to USD 534.1 million vs the cost of sales of USD 482.0 million in pcp. This is majorly on account of higher gold production which pushed the mining cost by 9.7% to USD 351.5 million in FY21 vs the USD 312.6 million in FY20.

• Earnings before Income taxes:  For FY21 the company reported Earnings for Income tax of USD 2.3 million vs the USD 218.2 million in FY20. The major drawdown was from the Impairment charge of USD 224.3 million in FY21
  

Valuation Methodology (Illustrative): EV to Sales-Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 12.70% in past one month and 4.83% in the past three months. The group reported an increase in both gold production and revenues, and the three-year guidance is promising with stable production in 2022 and around 4% of growth is estimated for 2023. The company is almost debt-free, and the recent sales of its non-core business projects helped to elevate its cash and cash equivalent to USD 172.5 million. On the valuation front, the stock is undervalued on the Enterprise to Sales multiple as compared to its peers, suggesting much headroom for the stock to match the industry valuations.

On the technical front, the stock rallied steeply from the lows of CAD 4.43 in March 2020 to the recent highs of CAD 15.52 on July 20 and sold off gradually. Currently, the stock is consolidating around the CAD 9 to CAD 10 levels, forming support at these levels. The prices are above the 50 DMA which is an indicator of the short-term trend, depicting an upward trend, and further conformation can be acknowledged once the prices cross the 200 DMA on a closing basis.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing market price of CAD 9.76 on March 3, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. We have considered Yamana Gold Inc., Pretium Resources Inc., and Wesdome Gold Mines Ltd. as the peer group for the comparison.

One-Year Technical Price Chart (as on March 3, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary:

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.