Alamos Gold Shares Rise on Royalty Repurchase and Mining Cost Reduction

Source: Streetwise Reports 03/16/2020

Shares of Alamos Gold traded 15% higher after the firm reported that it has repurchased a 3% net smelter return royalty on its Island Gold mine located in northern Ontario.

Intermediate gold producer Alamos Gold Inc. (AGI:TSX; AGI:NYSE) today announced that “it has entered into an agreement to acquire and cancel a 3% net smelter return royalty payable on production from the Island Gold mine for total cash consideration of $54 million (CA$75 million).”

The company indicated that “the royalty was acquired from a privately held company and is payable on gold production within four patented claims that comprise the majority of currently defined Mineral Reserves and Resources within the Island Gold deposit.” The firm advised that acquiring and eliminating the royalty will immediately reduce operating costs, increase operating cash flow and provide increased exposure to significant exploration potential at the Island Gold mining project.

The firm indicated that “as of December 31, 2019, the claims subject to the royalty contained 0.9 Moz of Mineral Reserves, representing 71% of Island Gold’s total Mineral Reserves and 1.1 Moz of Inferred Mineral Resources.”

Due to the elimination of the royalty payment, the firm now expects a “$40 per ounce, or 7%, decrease in Island Gold’s 2020 total cash cost guidance to between $480 and $520 per ounce and $40 per ounce decrease in mine-site all-in sustaining cost guidance to between $740 and $780 per ounce”.

The company’s President and CEO John A. McCluskey commented, “The acquisition of the royalty further reduces costs at what is already a low-cost operation while also increasing our exposure to the tremendous exploration upside. Since we acquired Island Gold in 2017, the Mineral Reserve and Resource base has doubled with the deposit approaching four million ounces across all categories. With the deposit open laterally and down-plunge across several areas of focus, we see excellent potential for this growth to continue at a greatly reduced royalty on future production.”

Alamos is headquartered in Toronto, Ontario, and is an intermediate gold producer with diversified production from three North America operating mines. The company’s mining projects includes the Young-Davidson and Island Gold mines in northern Ontario and the Mulatos mine in Mexico. The firm employs greater than 1,700 people at all of its combined locations.

Alamos Gold has a market capitalization of around $1.5 billion with approximately 391.1 million shares outstanding. AGI shares opened at $3.41 (-$0.465, -12.00%) over Friday’s closing price of $3.875. The stock has traded today between $3.34 and $4.94 per share and is currently trading at $4.57 (+$0.68, +17.48%).

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