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Alamos Gold Up 1% Despite Credit Suisse Lowering its Target Price

Credit Suisse has kept a Neutral rating but revised its estimates and lowered its target price on Alamos Gold Inc. (AGI.TO), which is up 1%.

Valuation: "We are revising our Target price to $21.00 from $22.00 based on a reduction to our DCF to $14.88/sh (from $15.66/sh), primarily the result of lower throughput and higher cash op. cost expectations. We use a 1.3X P/NAV multiple and add net cash of $1.57/sh at par to arrive at our Target Price. Our Neutral rating remains unchanged."

EPS revisions: "We have revised our 2011 EPS downward to $0.55 (from $0.58) due to lowered expected throughput and increased costs. 2012FY EPS has been revised upward to $1.09 (from $1.07) factoring in lower depreciation expense. We are introducing our 2013 EPS forecasts of $1.40."

Lower throughput due to reduced screening plant impact: "AGI indicated crusher throughput at Mulatos has been weaker than expected in January and February averaging 11.9ktpd vs. the expected run rate of 15.7ktpd. Management cited a greater percentage (25-35%) of oxides in the ore mix vs. (5% in) the geological model. As this level of oxides has been seen for the past few years, we expect, and management has indicated, this ore composition will continue. The oxides have the effect of reducing throughput as they produce less fines, fines which were suppose to be filtered in the new screening plant and result in a 13-20% boost in throughput to 15.7ktpd. As result, we are lowering our 2011FY average throughput forecast to 13.8ktpd."

Reduced throughput partially offset by higher recoveries: "We have increased recovery rates to ~72% from 68% for 2011 as the oxides do have higher recovery rates than sulphides and transitional ore. Management indicated that AGI is now on track for recoveries of at least 70% in 2011."

2011 production estimates paired back: "We have reduced our 2011FY production estimate to 161kozs from 174kozs and have increased our 2011 cash op. cost estimate to $375/oz above AGI guidance of $350-$360/oz."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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