. . . . .nicht verstehen können. Aber der einzelne Aktionär ist gegen die Kräfte des Marktes machtlos.
The Sell-Off In Alamos Is Done And Shares Have Upside
Jul. 14, 2015 3:07 PM ET | About: Alamos Gold Inc (AGI), Includes: AUQ, GDX
Summary
Alamos Gold's stock has sold off 25.28% over the past three months, compared to a 15.77% drop in the gold miners index.
The sell-off has been overdone in my opinion. Even though I wasn't crazy about the AuRico gold merger, I think shares are too undervalued here too ignore.
The new Alamos has more than $400 million in cash and will produce over 400,000 gold ounces annually, potentiall growing to 700k. I think shares are a buy here.
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AGI data by YCharts
Recent Stock Price: $4.74
Shares Outstanding: 281.67 million
Market Cap: $1.34 billion
52-Week Range: $4.53 - $10.14
Alamos Gold and AuRico Metals (NYSE:AUQ) completed their previously announced merger on July 2, and since that time, shares of the new company have declined nearly 16%. While part of this is due to a drop in the price of gold, Alamos has fallen much harder than both the benchmark gold miners index (NYSEARCA:GDX), which has fallen just 3.67%.
Is this justified? In my opinion, the sell-off in Alamos Gold shares looks a little overdone here, so I'm considering buying.
As I mentioned in a previous article, I felt the merger between Alamos and AuRico was actually a better deal for AuRico than Alamos, as AuRico carried $300+ million in debt while Alamos had $300+ million in cash with no debt at all. I liked both of the company's assets, but felt like Alamos was getting the short-end of the stick.
As the saying goes, there's no such thing as a bad investment, just a bad price. I think shares of Alamos are attractively priced here for a few reasons, and could begin to outperform.
First, the company's balance sheet is actually pretty strong, despite taking on new debt form the merger. The new company has $90 million in net cash ($403 million cash and equivalents versus $313 million in total debt), and $494 million in working capital, according to the investor presentation. And there are no significant debt maturities until 2020, which means Alamos has plenty of time to either repay or refinance the debt. If the company really wanted to, it could repay all of its debt today, and still have $90 million cash on hand.
Next, the Young Davidson mine (acquired by Alamos from AuRico) has been performing better than expected of late - in the first quarter of the year, the mine produced gold at all-in sustaining costs of $987 per ounce, the third straight quarter of sub-$1,000 costs. While guidance calls for costs between $950 to $1,050, it looks like costs will fall on the lower end of this guidance.
This cost figure is better than what's expected of the Mulatos mine, which should average $1,100 in AISC this year; Mulatos won't see a significant decrease in cash costs until 2017, when low-cost production from the La Yaqui and Cerro Pelon deposit begins. So Young Davidson actually reduces Alamos' total AISC and increases cash flow.
Meanwhile, you can't forget about Alamos' other development assets, such as the Kirazli and Agi Dagi projects in Turkey. The better project, in my opinion, as it requires just $146.1 million in pre-production capex (compared to $278.3 million at Agi Dagi), and will produce gold at total cash costs of $515 (compared to $611 at Agi Dagi), according to studies. With $494 million working capital, Alamos could afford to fund both, which would add 230,000+ ounces of production annually.
The stock looks cheap here when you consider the company's strong balance sheet and enormous growth potential - with Kirazli, Agi Dagi and the Esperanza gold project in production, Alamos could boost its annual production to over 700,000 ounces, while also lowering its AISC. I think this makes the company a strong takeover candidate, so I'm buying shares here.
http://seekingalpha.com/article/3325265-the-sell-off-in-alam…