Alamos Gold (NYSE:AGI) reported first quarter earnings of $2.7 million compared to earnings of $26.0 million for the same quarter last year. The substantial drop was due to lower realized gold prices and lower production volume. Revenue decreased 52% from $86.3 million to $41.5 million while production decreased 33% from 55,000 ounces to 37,000 ounces. Lower production was the result of lower grades, throughput, and recoveries, but was in line with company estimates.

All-in sustaining costs for the first quarter were $908 per ounce, which was lower than the $960-$1,000 range that was forecast, but 31% higher than last year. Alamos is projecting production of 150,000 to 170,000 ounces for 2014, which is less than the 190,000 ounces produced in 2013. This is due to transitioning to underground mining as the open pit high grade zone had been depleted. While many gold producers were slashing resource estimates, Alamos reported updated mineral reserves and resources including a 43% increase in the grade of underground proven and probable mineral reserves at San Carlos and a 31% increase in measured and indicated mineral resources across all of the company's projects, despite lower gold price assumptions used in calculations. Alamos also announced it is maintaining its $0.10 per share dividend, which will be a welcome sign to shareholders.

Permitting problems
Alamos had received a positive Environmental Impact Assessment decision certificate from the Turkish Government for its Kirazli project. However, in January the Turkish courts issued an injunction on the basis that the report failed to address the "cumulative impacts" of the Kirazli project in regards to other potential mining projects in the area. The Turkish government has challenged the injunction, and the court is expected to make a decision in June. In addition, Alamos is also waiting for forestry and operating permits and cautions that recent legal developments coupled with increased political instability have increased the uncertainty of the timing of receiving the permits. It anticipates production to commence in approximately 18 months after receipt of the permits, which means that in the best case scenario, production is likely at least two years away.

Strong cash position
Alamos currently has $410 million in cash, cash equivalents, and short-term investments with no debt. During its Q1 conference call Alamos CEO John McCluskey gave investors an idea of what he is planning to do with the cash when he stated, "We continue to advance our peer leading development pipeline and with $410 million in cash and no debt, we are well positioned to not only internally fund our development initiatives, but also pursue accretive acquisitions." In January 2013, Alamos had attempted a hostile takeover of Aurizon Mines Ltd. but ultimately lost out to Hecla Mining (NYSE:HL).

The addition of Aurizon Mines provided Hecla with the Casa Berardi gold producing mine in the mining-friendly province of Quebec, which the company is guiding to produce 125,000 ounces of gold this year. While Alamos lost out last time, it looks like they will be again looking to increase production through acquisition which is understandable given the recent setbacks with their exploration projects.

Investors looking to gain exposure to rising gold production among mid-tier producers may want to take a look at B2Gold Corp (NYSEMKT:BTG), which is projecting to increase gold production from 366,000 ounces in 2013 to 410,000 ounces in 2014, an increase of more than 10%. The company is projecting a substantial increase to 555,000 ounces in 2015, when it expects its Otjikoto project in Namibia to have its first full year of production. B2Gold had a cash balance of $253 million at the end of 2013, which should cover most of the roughly $340 million pre-production costs of the project, including equipment leases, pre-production stripping costs and power plant costs. The company expects all-in sustaining costs of $1,025-$1,125 for 2014, which gives it some room for profit at current prices. 

Foolish bottom line
Without increased production, it's hard to see a lot of upside in Alamos shares unless the price of gold takes off. Given the CEO's recent comments, it seems likely that Alamos will try to acquire a producing asset. With its substantial war chest, the low price of gold, and depressed stock prices of other gold miners, now is probably a good time for Alamos to make an acquisition. Alamos will also need to focus on cutting costs after it works through the transition from open pit to underground mining to ensure it maintains its status as a low-cost producer.