Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18
Which UK Best Theme Park - Alton Towers vs Thorpe Park vs Lego Land vs Chessington World - 12th Aug 18
USD is Rising. What this Means for Currencies and Stocks - 12th Aug 18
Hardest US Housing Market Places to Live - Look Out Middle Class - 12th Aug 18
America’s Suburbs Are Making a Comeback - 12th Aug 18
Stock Market US Presidential Cycle, Seasonal Analysis and Economy - Video - 12th Aug 18
Yield Curve Inversion and the Stock Market - Video - 11th Aug 18
Land Rover Discovery Sport 1st Dealer Oil Change Service - What to Expect - 11th Aug 18
How to Setup Webinars and Use Them to Overcome the Barriers in E-Learning - 11th Aug 18
Big US Stocks’ Q2’18 Fundamentals - 11th Aug 18
Dow Stock Market Trend Forecast 2018 - 10th Aug 18
SPX Testing Its First Support Level - 10th Aug 18
Dreaming of a "Comfortable Retirement" on a Public Pension? - 10th Aug 18
The Forrest Gump of All Future Democrat Election Losses - 10th Aug 18
More Uncertainty as Stocks Got Closer to January Record High - 10th Aug 18
Gold and Silver Kill Zone - 9th Aug 18
Even More Cracks in the Gold Dam - 9th Aug 18
Ignore the Stock Market “midterm election year”, Which is “supposed” to be Weak - 9th Aug 18
Stock Market Trend and Volatility Analysis - Video - 9th Aug 18
Tips on Maximizing Small Serviced Offices Space - 9th Aug 18
VIX’s Collapse is Bullish for VIX and the Stock Market - 9th Aug 18
Vestles Platform Offers Several Key Trading Tools - 8th Aug 18
US Stock Markets Higher Until November 2018 - Part 2 - 8th Aug 18
US Stock Markets Higher Until November 2018 - Part 1 - 8th Aug 18
Stock Market US Presidential Cycle and Seasonal Analysis - 8th Aug 18
Is the Stock Market Correction Over? - 7th Aug 18
Yield Curve Inversion and the Stock Market - 7th Aug 18
Stock Market Elliott Wave Analysis and Forecast - Video - 7th Aug 18
Trade War! Win the Economic Hostilities Against the Chinese - 7th Aug 18
Technical Analyst Sees Silver as 'Oversold' - 7th Aug 18
Alex Jones Banned! Will Unapproved Opinions Be Censored Off the Internet? - 7th Aug 18
Gold and Silver Stocks On the Verge of the Next Major Decline - 7th Aug 18
First Time Buyers Need to ‘boost the affordability’ of Their Move Alone  - 7th Aug 18
Long Term Care Homes as an Investment are Heating Up! - 7th Aug 18
The Exponential Inflationary Stocks Bull Market - Video - 6th Aug 18
Land Rover Discovery Sport Oil Change Service Dash Warning Message - 6th Aug 18
Restructuring of Western Economic Power - 6th Aug 18
Stock Market Trend and Volatility Analysis - 6th Aug 18
Stock Market and Economy False Narratives That are Just Wrong - 6th Aug 18
VPN – Is It Worth It? - 6th Aug 18
All You Need to Know About Umbrella Companies - 6th Aug 18
Why China Lost the Trade War Before it Even Began - SSEC Stocks Index - Video - 5th Aug 18
Dow Stock Market Elliott Wave Analysis - 5th Aug 18
Iran's Rial Currency Is In A Death Spiral, Again - 5th Aug 18
IMF Produces Another Bogus Venezuela Inflation Forecast - 5th Aug 18
Gold & Silver Precious Metals Monthly Charts - 5th Aug 18
Time to Position for a Decade-Long Bull Market in Natural Resources - 5th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Top Mexican Mid-Tier Gold Stocks

Commodities / Gold and Silver Stocks 2014 May 30, 2014 - 06:35 PM GMT

By: Zeal_LLC

Commodities

Mexico has been a popular destination for mining companies seeking out their fortunes amidst gold’s secular bull market.  And considering the huge lack of modern exploration across its rich precious-metals belts, some of the first movers like Alamos Gold have found smashing success.

Since 2003 Mexico’s gold production has increased by a whopping 390%.  This equates to a 2.5m+ ounce increase in annual output, which has vaulted this country to #8 in the global ranks.  Alamos Gold’s Mulatos mine has been a big contributor to this growth, with 1.2m+ ounces produced since 2005.  And with total resources remaining of 4.9m ounces, it still has a long life ahead of it.


Mulatos is located in the east-central portion of Mexico’s Sierra Madre Occidental, in an area that saw its first gold mining nearly 400 years ago.  When Alamos acquired this project, it knew that the miners of yore had only scratched the surface.  And it didn’t take long to determine that there was a large complex of deposits that were amenable to profitable mining.

CEO John McCluskey, who was Alamos’ original founder in 2003, had the support of rising metals prices and a spectacular team of mine builders.  And Alamos methodically developed Mulatos into one of Mexico’s finest gold mines.  Mulatos is mainly an open-pit operation, although some underground mining is now taking place to tap the higher-grade ore.  In both cases the ore is geologically incomplex.  And with all-around fabulous logistics, Mulatos’ gold is produced at operating costs in the lower quartile of industry average.

In 2014 Alamos is projecting midpoint production guidance of 160k ounces, at cash operating costs of $650/ounce.  All-in sustaining costs will also be relatively low, at an estimated $980/ounce.  And this will allow it to build on an already-strong balance sheet that includes $400m in cash and no debt.  It will also allow Alamos to continue to pay its 2%+ dividend, a bonus for a sector that usually doesn’t return much capital back to shareholders.

Looking forward Mulatos has enough proven-and-probable reserves for a mining life of at least 10 years at the current production rate.  But this is conservative considering 2.5m+ additional resource ounces available for upgrade as well as a whole lot of upside discovery potential from ongoing exploration.

Mulatos will long be the flagship asset for this mid-tier gold producer.  But Alamos has its sights set on becoming a multi-mine producer in the near future as it develops its incredibly strong growth pipeline.  Up next will be output from a set of standalone satellite deposits in the Mulatos district.  And down the road will come production from advanced-stage projects elsewhere in Mexico, Turkey, and the US.

The Cerro Pelon and La Yaqui projects are located just southwest of Mulatos.  These satellite deposits are amenable to conventional heap-leach processing, which will be performed at their respective mining sites.  They’ll add about 60k ounces of production per year at cash costs under $400/ounce.  And if surface rights are acquired and permits are received in a timely manner, Alamos is targeting 2016 for the first gold pour.

Alamos acquired its Turkey assets from a joint-venture between Teck Resources and Fronteer Gold in 2010.  The Kirazli and Agi Dagi projects are located about 16 miles apart, and are both great candidates for open-pit heap-leach processing.  These projects have seen a number of technical studies, the latest being a joint prefeasibility study in which Kirazli/Agi Dagi would combine to produce an average of 166k ounces per year, at cash costs of $544/ounce, over a 9-year mine life.

Developing the Turkey projects is a slam dunk from an economic perspective.  And Alamos is smartly looking at sequencing their construction (Kirazli first) so it can self-fund the entire buildout.  If Alamos plays its cards right it shouldn’t need outside funding, which is a huge boon in today’s challenging capital-raising environment.  Permitting is unfortunately taking longer than expected.  But once things get sorted out, Alamos expects an 18-month construction period.

Elsewhere in Mexico is the excellent Esperanza project.  Alamos acquired this beauty via its 2013 acquisition of Esperanza Resources.  And it too has been subject to a series of economic studies that show great promise.  Esperanza’s ore is amenable to open-pit heap-leaching, and the latest assessment has it producing 100k ounces of gold per year, at cash costs of $500/ounce, over a 6-year mine life.

Even though Esperanza has low technical risk, Alamos will conduct more advanced feasibility work in order to incorporate a bigger chunk of this project’s 1.3m ounces of resources into the mining plan.  And if the Turkey projects continue to be delayed, Esperanza could end up moving up in the development queue.

Last but certainly not least of Alamos’ advanced-stage projects is its Quartz Mountain project located in Oregon.  Alamos scored this project via a 2013 option agreement with Seabridge Gold.  And it only has modest financial obligations to gain full ownership.  Quartz Mountain has had $60m invested into exploration since the 1980s, which has served to delineate 2.8m ounces of near-surface resources.  This project is subservient from a capex perspective for now, but Alamos will progressively seek to prove up the resources and perform an economic assessment.

As you can see, Alamos Gold has a strong pipeline that if fully developed would make this company a multi-mine low-cost mid-tier powerhouse.  And we can’t discount the possibility of it making greenfields discoveries and/or using its financial strength to acquire its next producing mine.

Regardless of how its next mine comes about, Alamos’ stock ought to be a great place for gold-stock investors to be once gold picks back up.  AGI has demonstrated its ability to provide great positive leverage to the metal in the past.  And a confluence of recent events is currently affording a tremendous buying opportunity.

Like most gold stocks, AGI (in blue) tends to trend in the same direction as gold (in red).  Also like most gold stocks, AGI had a solid run-up in the years leading up to gold’s 2011 all-time high.  What I want to look at though is how AGI has performed since, amidst a period where gold consolidated and then plunged to the abysmal lows we saw last year.

Given their risk/reward paradigms, gold stocks tend to amplify their underlying metal’s gains and losses.  They are certainly no fun to own when gold is falling.  But they can sure be a blast when gold is rising.  Unfortunately gold has fallen on balance since 2011, but there have been four meaningful uplegs to test AGI’s mettle.

The first two were in 2012, amidst what was essentially a healthy period of consolidation following gold’s apex.  Each time gold delivered 15% gains.  And each time AGI responded with great positive leverage.  With trough-to-peak gains of 30% and 44%, it leveraged gold’s uplegs by 2.0x and 2.9x respectively.

Gold’s next upleg emerged out of the depths of its Q2 2013 panic.  It rose 18% in what we had hoped was the beginning of a prolonged run higher to bring it back to normalcy.  But unfortunately it ended up being nothing more than a relief rally that eventually gave way to new cyclical lows.  AGI did respond though, with a spectacular upleg gain of 57% (3.1x leverage).

In each of these first three uplegs, it was definitely worth investors’ while to own AGI.  But as you can see, it definitely wasn’t worth it in upleg #4.  While gold rose 16% from late December to its March 2014 high, AGI fell by nearly 5%.  Not only did AGI not positively leverage gold, it didn’t even pace it.  And to actually lose ground against the metal was quite disconcerting.

The impetus for Alamos Gold’s underperformance was the announcement of its 2014 guidance.  Now in isolation its 160k ounces mined at cash costs of $650/ounce is excellent.  These costs are easily in the lower quartile of industry average, and will make for another solid year.  Comparatively though these figures were somewhat of a shock.  And investors obviously didn’t take too kindly to them.

Over the previous two years Mulatos’ average production was 195k ounces at average cash costs of only $391/ounce.  This obviously fostered high expectations for this mine going forward.  So with 2014’s outlook guiding production down by 18% and cash costs up by 66%, you can certainly understand investors’ deep dismay.

Interestingly the reasoning for this outlook was actually not a big shocker for those who follow this company.  On the production front a planned transition to mining different zones will push through a lower budgeted grade for the mill feed.  Lower grades naturally lower output while adversely affecting costs.  Also contributing to higher costs is a planned higher waste-to-ore ratio, a transition to contractor mining, and general higher mining costs that are associated with increased tonnage from underground mining.

Unfortunately this outlook shocker comes at a time when there is little tolerance for surprises.  AGI did deserve to pull back a bit, but it didn’t deserve to sell off as hard as it did.  Even at 2014’s guidance, it is still one of the best fundamental plays in the space.  And I believe investors currently have one heck of a buying opportunity amidst these oversold conditions, which may never be seen again once gold continues its run higher.

Overall Alamos Gold is part a very small fraternity of mid-tier gold producers that are well positioned to thrive at today’s and tomorrow’s gold prices.  At Zeal we do extensive research that seeks to uncover solid miners like Alamos Gold.  And we recently completed a thorough examination of the mid-tier gold space that culminated into a fascinating report profiling our favorite dozen.  To have the detailed fundamental profiles of Alamos and the other 11 at your fingertips, buy your report today!

These stocks are among those we choose from when making trade recommendations in our acclaimed weekly and monthly newsletters.  To find out how we are positioning for gold’s imminent run higher, subscribe today!  You won’t find a superior contrarian-focused newsletter out there!

The bottom line is Alamos Gold operates one of Mexico’s finest gold mines.  Since pouring its first gold in 2005, Mulatos has produced over 1.2m ounces while generating over $1b in revenue.  Not bad for a project that was acquired for $10m and built for $70m.  Mulatos also still has sizeable resources remaining, which means it is still in the early stages of its mining life.

Down the road Alamos targets the development of its strong growth pipeline.  And in the process of becoming a multi-mine producer it ought to continue to perform well for investors.  Alamos has historically offered excellent positive leverage to its underlying metal.  And investors can take advantage of the one time it didn’t by buying low at bargain-basement prices.

By Scott Wright

So how can you profit from this information? We publish an acclaimed monthly newsletter, Zeal Intelligence , that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research as well as provides in-depth market analysis and commentary. Please consider joining us each month at … www.zealllc.com/subscribe.htm

Thoughts, comments, or flames? Fire away at scottq@zealllc.com . Depending on the volume of feedback I may not have time to respond personally, but I will read all messages. Thanks!

Copyright 2000 - 2014 Zeal Research ( www.ZealLLC.com )

Zeal_LLC Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules