What happened
Shares of Alamos Gold (AGI +8.03%), a Canada-based intermediate gold producer, rose 18% in August, according to S&P Market Intelligence. Alamos Gold reported earnings -- excluding one-time charges -- of $0.04 per share, beating analysts' second-quarter earnings estimates of $0.01 per share. In addition to the earnings beat, there were several other highlights that delighted investors, driving the stock higher.
So what
After producing 105,900 ounce of gold -- a quarterly record -- Alamos Gold also reported operating revenue of $131.3 million. The company saw gold production at all three of its sites increase but most noticeable was Young-Davidson, which reported a quarterly record of 47,300 gold ounces. According to management, higher throughput rates and grades were responsible for the record achievement in the last quarter, and the same factors will yield similar results in the next quarter. On the conference call, John McCluskey, Alamos' president and CEO, reported that the mine produced 20,000 gold ounces in July and will likely set a new production record in the third quarter.
Image source: Getty Images.
In addition to record gold production, investors celebrated the company's success in reducing costs. Alamos reported all-in sustaining costs, or AISC, of $942 per gold ounce, which means it brought costs down 7% compared to the same period last year. This suggested, again, that the company is poised for continued success through the rest of fiscal 2017 -- management forecasted AISC to drop from $1,010 in fiscal 2016 to $940 for fiscal 2017. If successful, Alamos will have reduced AISC 14% since 2015.
Investors are sometimes skeptical of earnings figures since management can manipulate non-cash charges and produce skewed results. Instead, they emphasize cash flow. For Alamos, this would certainly be welcome. In the second quarter, it reported operational cash flow of $51.4 million -- a 156% quarter-over-quarter increase and a 39% year-over-year increase.
Tack on the fact that Alamos strengthened its balance sheet, ending the quarter with no net debt, and it's clear why investors found the company's second quarter so lustrous.
Now what
Looking ahead, there are several things that investors can monitor. For one, confirming that the company achieves its fiscal 2017 guidance is a necessity. In addition to AISC of $940, investors can look for Alamos to meet its other targets: gold production between 400,000 and 430,000 ounces, total cash costs of $765 per gold ounce, and total capital expenditures between $140 million and $157 million.
Achieving guidance is certainly important, but investors should also watch for signs that the company's executing its various projects in development. For example, gold production at the expansionary La Yaqui project is expected to begin in the second half of 2017. And positioning the company for future growth are six projects -- with the potential to double current gold production -- in the developmental phase: three in Turkey and three in North America.
Besides earning a gold star, if Alamos is successful in both meeting its fiscal 2017 targets and executing its projects in development, investors will certainly see more glittering days ahead.
