Alamos Gold Inc Is Attractive at Current Levels

Lots of cash on the balance sheet and zero debt could translate into growth for Alamos Gold.

May 1, 2014 at 9:25AM

Alamos Gold (NYSE:AGI) shares have been underperforming the market this year, losing 23% year to date. The reason for this is simple: The company's production and revenue fell throughout 2013 and continued to decrease in the first quarter of 2014. However, Alamos Gold has certain strong points, which could position the company's shares for future upside.

Solid balance sheet and low costs justify current valuation
Unlike many other gold miners, Alamos Gold has zero debt. The company finished the first quarter with as much as $400 million of cash on the balance sheet, around a third of its market cap. Often, a situation like this occurs when a company is in a difficult situation. However, this is not the case for Alamos Gold, which has been consistently profitable -- except for the fourth quarter of 2013.

The company has maintained a low-cost profile, with all-in sustaining costs of $908 per ounce of gold in the first quarter. Keeping costs low is paramount in the current price environment as gold prices are struggling to stay above the $1,300 level.

Alamos Gold trades at a 40% premium to its book value. In comparison, miners with similar market caps like Harmony Gold Mining (NYSE:HMY) and IAMGOLD (NYSE:IAG) trade at more than a 50% discount to book. However, this fact does not make them more attractive then Alamos Gold. Both miners have all-in sustaining costs that are close to the current gold price.  This fact makes them vulnerable to any gold price downside.

Cash could bring future growth
The current amount of cash on the balance sheet gives Alamos Gold flexibility in pursuing investment opportunities. The company has two projects in Turkey that are in the permitting stages, and it could pour money into them when permits are obtained. On the other hand, Alamos Gold could take advantage of depressed asset prices and buy a producing mine.

Silver miner Silver Standard Resources (NASDAQ:SSRI) was recently in a similar situation. The company had one producing mine and lots of cash on the balance sheet. Surely, Silver Standard Resources felt the pressure to put this cash to work. As a result, the company diversified into gold with the purchase of the Marigold mine from Goldcorp and Barrick Gold.

Just like Silver Standard Resources, Alamos Gold might be feeling the need to deploy its free cash. There's barely any need to keep that much cash on the balance sheet for safety purposes. Thus, Alamos Gold could be active on the shopping front this year, especially if it doesn't get permits for its Turkish projects.

Bottom line
In my view, Alamos Gold is an interesting gold miner to consider. The company has low costs and substantial potential for growth when it finally puts its cash to work. In addition, Alamos Gold pays a dividend that yields 2.2%, which is a healthy yield for a gold miner nowadays. All in all, Alamos Gold looks attractive at current levels.

You don't want to miss this
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW, to Nike, to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the Made In China era... and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers