Alamos Gold Up 2% Despite Credit Suisse Lowering its Price Target on Costs and Lower Throughput

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

Valuation: "We are revising our Target price to US$19.00 from US$21.00 based on a reduction to our DCF to $14.47/sh (from $14.84/sh), based on lower throughput expectations. We are also revising our multiple 1.2x (vs. 1.3x previously) to reflect higher costs which put AGI closer to the mid range of peer costs, vs. the prior costs profile which garnered a premium at the lowest end of the range. The reduced multiple also reflects a lack of growth in the near term. Our Neutral rating remains unchanged."

EPS revisions: "We have revised our 2011-2013 EPS downward to $0.52/1.03/1.35 (from $0.55/1.04/1.38) due to lower expected throughput and thus lower production and higher costs."

AGI revised 2011FY guidance downward with production of 145-160kozs (from 160-175kozs) and cash operating costs (CoC) forecasts of $365-390/oz (from $350-365/oz). This guidance is based on 14.3ktpd (from 15.7ktpd - see below), and unchanged assumptions of recovery rates of 70%, gold grades of 1.24g/t and strip ratio of 0.76:1.

Crusher throughput needs more tweaking to achieve full rates: "We had noted in our earnings preview (April 25th) that 'we remain concerned with the efficiency of the new screening plant which was designed to increase throughput by 13-20% to 15.7ktpd by removing fines from the crushing process. We expect....AGI's throughput expectations will continue to be challenged.' As a result, we previously lowered our 2011FY average throughput forecast to 13.8ktpd. Our long-term assumption is now revised to 15.3kptd. We have now further reduced our 2011FY gold production and costs estimates to 150kozs (from 161kozs) and increased our 2011 cash op. cost estimate to $405/oz (from $380/oz) vs. AGI's guidance of $365-$395/oz. AGI indicated it is implementing optimization measures to deal with the issues."

AGI announced a 43% dividend increase to $0.05 (from $0.035) to its semi-annual dividend, bringing AGI's current yield to 0.67% (from 0.47%).

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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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