Alamos Gold up 19% on royalty purchase news

The Island Gold Mine 83 km north of Wawa, Northern Ontario. Source: Alamos Gold Inc.

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Alamos Gold Inc. [AGI-TSX, NYSE] on Monday said it has repurchased a 3% net smelter return (NSR) royalty on its Island Gold Mine in northern Ontario from a privately-held company for US$54 million in cash.

The royalty is located on four patented claims, which cover about 900,000 ounces of reserves or about 71% of the total Island Gold reserves. The acquisition and elimination of the royalty will immediately reduce operating costs and increase operating cash flow, while providing increased exposure to Island Gold’s significant exploration potential, the company said in a press release.

Alamos shares advanced on the news, jumping 18.7% or $1.03 to $6.45 on volume of 3.9 million. The shares are currently trading in a 52-week range of $5.31 and $10.12.

Alamos is a Canadian-based intermediate gold producer with diversified production from four operating mines in North America, including the Young-Davidson, and Island Gold mines in northern Ontario, and the Mulatos and El Chanate mines in Sonora Mexico.

The company produced 494,500 ounces of gold last year, meeting its production targets for the fifth year in a row. Alamos had previously said it expects its annual production to increase to 600,000 ounces in 2021. The expected increase in 2021 will reflect a full year of production from the Kirazli project in Turkey.

The Island Gold Mine is a high-grade, low cost underground mining operation located 83 km northeast of Wawa, Ontario, and began production in 2007 and produced a record of 150,400 ounces in 2019. The mine is located just west of the town of Dubreuilville.

As a result of the NSR repurchase, Alamos lowered its Island Gold Mine site cash cost guidance by 7% to US$480 to US$520/oz. In addition, Alamos’s consolidated cash cost guidance was also reduced to US$757 to US$797/oz for gold. Mine site all-in sustaining costs have been cut to US$1,007-US$1,047/oz (from US$1,020 to US$1,060/oz previously).

Post re-purchase, the effective NSR royalty rate on Island Gold’s reserves is decreased by half to 2.2% from 4.4%.

“We expect 2020 will be a transformational year for Alamos, driven by several significant catalysts,” Alamos President and CEO John McCluskey said recently. “On the back of another substantial increase in mineral reserves and resources at Island Gold, it is clear the orebody is evolving into a world class deposit,” he said.

A Phase III expansion study is slated for completion in the second quarter and is expected to showcase a larger, highly profitable and longer-life operation. “The lower mine expansion at Young-Davidson is on track for completion in June, after which we expect to transition to strong free cash flow growth,” McCluskey said.


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