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

Key Highlights:

• Production guidance: For FY22, the company came out with a strong gold production guidance which is estimated to be between 440,000 oz (ounces) to 480,000 oz (ounces), whereas the FY21 actual production stood at 457,000 oz. The Yong Davidson mine is estimated to produce gold in the range of 185,000 oz to 200,000 oz, the company’s Island gold mine is anticipated to state the FY22 gold production between 125,000 oz and 135,000 oz, whereas the Mulatos mine is projected to produce gold in the range from 130,000 oz to 145,000 oz. Higher estimated gold production when clubbed with rising average realized gold prices can positively impact the revenues. Below is the pictorial presentation of the estimated gold production from FY22 to FY24.

  Source: Company presentation

• Leadership on the Environmental, Social, and Governance front: In Q1FY22, the group reported lower GHG emission per oz gold equivalent produced at 0.37 (tCO2/oz) as compared to the international average of 0.54 tCO2/oz. Below is the pictorial presentation of how the company is flaring on the ESG front as compared to the industry.  Lower emissions and wastage push the company’s ranking on the ESG matrix, which attracts ESG-focused investors for seeking investment opportunities.

Source: Company presentation

• Strong liquidity profile: The group’s quick ratio for Q1FY22 was reported at a higher level of 1.75x, as compared to the industry median of 1.56x. Further, the company’s current ratio was stated at 3.18x for Q1FY22, against the industry median of 2.61x. The higher quick ratio and current ratio represent the company’s ability to meet its short-term obligations falling within one year time, without any hindrance, ensuring the smooth running of the business operations.

Source: Refinitiv, Analysis by Kalkine Group

Risks associated with investment

The company’s financial performance is mostly dependent on the price of gold and any substantial downtrend in the gold prices can hamper the revenue. The company is also facing other challenges such as currency risk, credit risk, changes in the mining and exploration laws, etc.  

Financial overview of Q1FY22 (Expressed in millions of USD)

Source: Company Filing 

• During Q1FY22, the group reported a decrease in the operating revenue to USD 184.5 million as compared to the higher operating revenue of USD 227.4 million in Q1FY21. The total gold sold in Q1FY22 was 98,466 ounces as compared to the 126,482 ounces of gold sold in Q1FY21, and the lower average realized gold prices in Q1FY22 also pushed the sales figure lower in the reporting period.

• The group posted loss from operation of USD 5.7 million in Q1FY22 as compared to the earnings from operations of USD 76.3 million in Q1FY21. Because of lower revenues and higher expenses in Q1FY22, the group reported a loss from operating income.

• For Q1FY22, the company reported net loss of USD 8.5 million as compared to the net earnings of USD 51.2 million in Q1FY21.

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

The company is optimistic in terms of the annual production guidance for FY22 and stated the total gold production to be between 440,000 ounces and 480,000 ounces as compared to the actual gold production of 450,000 ounces in FY21. The group posted lower revenues on account of a lower quantity of gold sold and lower average realized prices and higher expenses in the similar period (Q1FY22). On the valuation front, the stock is measured on the EV/ Sales based multiple, and we have considered Lundin Gold Inc., Osisko Gold Royalties Ltd., etc. as the peer group for the comparison. 

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the last closing price of CAD 9.92 on May 24, 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.

One-Year Technical Price Chart (as of May 24, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

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.