McCluskey Makes the Case for Why Alamos is the Gold Sector’s Best Investment
Alamos boss says company is a good example of a mining success story
Alamos Gold (TSX/NYSE: AGI) CEO John McCluskey told the Mining Forum Europe in Zürich that despite the company’s rapid growth, there is plenty more to come.
McCluskey reflected on his first appearance at the conference 20 years ago when the company was yet to become a producer.
“Today, we produce from four mines and will generate about 600,000 ounces of production this year,” he said.
“We’re probably one of the fastest growing gold mining companies on a gold basis, in the whole sector, and we produce from safe jurisdictions, which I think has become more important.”
Alamos’ first mine was Mulatos in Mexico but today 90% of the company’s value, and almost all of its growth, comes from Canada.
Shares in the company have almost doubled over the past year and its market capitalisation is now in excess of US$11.09 billion (C$16 billion).
“There's not too many companies that started out as a little penny stock exploration company and grew to the scale that we are now,” McCluskey said.
“We have outperformed just about everything. We've outperformed the commodity. We've outperformed the gold index, both the GBXJ, the GDX and the S&P. That's about as good as you're going to do, and we've done so in a very disciplined fashion.”
Quality improving
Alamos merged with AuRico Gold in 2015, giving it the Young-Davidson mine in Canada, and in 2017, it acquired Richmont Mines and the Island Gold mine.
“We did a series of acquisitions between 2015 and 2017 and that's really the backbone of our growth today,” McCluskey said.
“But when we were doing those acquisitions, the market didn't like it. The market does not like bottom of the market transactions. It loves top of the market transactions – don't ask me why, because we're in a cyclical business, and the only way to succeed in a cyclical business is to essentially buy countercyclically.”
Mulatos was acquired for US$10 million in 2003 and generated over US$700 million of free cashflow since.
“And the market still carries something like a US$700 million valuation on it,” McCluskey said.
“We took that money effectively deployed it into new acquisitions in Canada, and that is really the route for the performance that we've had.
“And if you look at what we've done with some of these acquisitions, you see we tend to acquire them at very good prices, and then by investing in exploration and development, we turn them into something more valuable.”
McCluskey said Alamos acquired Island Gold for US$600 million and was accused of overpaying.
“Now the market values it in excess of US$4 billion – and that's after we've mined over a million ounces out of the deposit,” he said.
“So these are examples of how you can actually succeed in the mining business. It's a fact that that most companies that get together and try generally fail to make money in this sector, but the few that that do, tend to do very, very well, and we've been fortunate to be one of those.”
Strong outlook
McCluskey said Alamos continues to add higher grade, lower cost ounces to its portfolio.
The company has added 8 million ounces of resources at a discovery cost of US$30 an ounce.
“Looking forward now, we have a very strong outlook, and the outlook is based on the success that we've had in exploration over the last six years or so,” he said.
“And that, to me, is a very strong indicator of why we're going to succeed in the future. The lifeblood of this industry has always been exploration.”
Alamos expects to reach annual production of 700,000oz in 2027 and 900,000oz per annum longer term.
“That combination of things, I think, is going to lead to continued outperformance,” McCluskey said.
The company is already thinking beyond 900,000ozpa and a potential phase four expansion at Island Gold.
McCluskey said Alamos represented one of the best investments in the gold sector.
“When we were here last year, for example, we were trading in about C$18 a share. Today, we're trading at something like C$37 a share,” he said.
“Yes, if you had bought it last year, you would have done very well, but have you missed it”
“Well, considering that we're looking to nearly double our production in the next five years or so, and that gold prices are considerably stronger, and going to get stronger yet, I don't think you've missed it at all.
“You've certainly missed the first leg, if you will, but these are great markets for stock pickers, because the herd hasn't shown up and driven valuations across the board through the roof.
“Those investors that have paid very close attention to the sector and have differentiated the good performers from the not-so-good performers, those investors are doing extremely well.”
