Categories: Precious Metals
Topics: General Precious Metals

Alamos Gold’s Growing Mulatos Deposit Drives Growth

 By James West
MidasLetter.com
Friday, April 17, 2009

In March of this year, Alamos Gold (TSX:AGI) announced an increase of 21 percent in proven and probable reserves at its 100% owned Mulatos gold mine in Sonora Mexico. Coincident with the reserve increase was a decrease in measured and indicated resources of 14 percent (as those moved up into the reserve category), but an increase in inferred resources of 129 percent.

The updated mineral reserve estimate was calculated as at December 31, 2008 using a $700 per ounce gold price and consists of proven and probable reserves of 2.05 million contained ounces.

Gold production in the first quarter of 2009 increased 38% over the prior year period to 46,000 ounces, a new quarterly record for the company. That puts current annual production at 150,000 ounces per year, which the company anticipates expanding to 200,000 ounces annually. The company has no debt, plenty of cash, stellar management, and a bevy of development projects.

In 2009, the company's operations at Mulatos are expected to produce between 145,000 to 160,000 ounces of gold at a total cash cost of $350 per ounce (including the 5% royalty). At current gold prices, cash flows from operations in 2009 are expected to be more than sufficient to fund the company's planned mill construction, invest in operational projects to further improve recoveries and to fund exploration spending. Significant capital spending in 2009 will focus on closing the existing crushing circuit to ensure that the crusher discharge product size is 100% passing 3/8th of an inch. Independent metallurgical testing shows that closing the crushing circuit could improve recoveries by between 4-7%.

Alamos has one of the best-looking balance sheet in the industry, and operating exclusively in Mexico, very low risk. Its improving financial performance and margins combined with a relatively modest share price make it an ‘heirloom’ stock for the medium-risk component of any conservative portfolio.

BMO Capital Markets initiated coverage in March with an "outperform" rating, citing the company's strong cash balance and attractive valuation level. BMO analyst David Haughton highlighted Alamos's potential to accelerate development of satellite deposits around its Mulatos mine in Mexico, or to consider acquisitions that would make it more than a single-mine company.

With a robust cash balance, Alamos is shopping for acquisition targets that will provide accretive value to its shareholders in 2009.

Mexico is among the top 20 most attractive regions in the world for exploration and mining, according to results of a recent survey conducted by The Fraser Institute, an independent Canadian research organization. The country’s appeal to mining companies stems from a combination of factors including a strong mining culture, excellent geology, political stability and favorable tax and permitting structures. Under the country’s foreign-ownership laws, non-Mexican companies can maintain 100% ownership of their properties and reap the full benefits of successful exploration. In this welcoming climate, the recent strength of the gold price combined with Mexico’s abundance of gold deposits has fostered significant new investment. Several mines, including Alamos Gold’s Mulatos operation in Sonora, are expected to result from this latest rush to the region.

The company is led by John McCluskey as CEO. McCluskey also served as the Vice President of Alamos Gold Inc. Mr. McCluskey served as the President and Chief Executive Officer of Grayd Resources Ltd. from 1996 until his resignation on March 19, 2003. He served as Vice President of Finance and Director of Inca Pacific Resources Inc., a TSX Venture Exchange listed company engaged in mineral exploration from 1994 to 2002. He also worked with Miramar Mining Corporation and Boron Chemical International Ltd. (now, Atacama Minerals Corp.). He served as the Chairman of Alamos Gold Inc. He has been a Director of Grayd Resource Corp. since September 1996 and of Aurcana Corp. since July 2002. He has been a Director of Alamos Gold Inc. since February 21, 2003. He served as a Director of Alamos Minerals since May 1996 until the formation of Alamos Gold Inc. Mr. McCluskey has a 20 year history in mining finance and management.