Great News Too Bad About The Price

Sep 25th, 2009 – Comment

What is your take on Alamos Gold and its new acquisitions. Do you have a suggested 12 month target for this one Thanks Dale Hi Dale, Alamos Gold Inc. ( AGI TSX) has had a great ride since October of 2008 when it hit the 52 week low of $3.50. But as with all things […]


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alamos

What is your take on Alamos Gold and its new acquisitions.
Do you have a suggested 12 month target for this one
Thanks

Dale

Hi Dale,

Alamos Gold Inc. ( AGI TSX) has had a great ride since October of 2008 when it hit the 52 week low of $3.50. But as with all things financial nothing goes up forever. Even great stories and prospects has to deal with externalities and investor expectations.

The externality that dominates the stock is the price of gold. The sell off in the commodity over the last two days washed out the news that the company had bought advanced stage deposits in Turkey.

gold2

You can see from the gold chart that the RSI and MACD both signaled a shift in momentum downward as the price retreated below the $1,000/ounce mark. The golden dream became the silver hook!

AGI announced that the deposits in the Bigu Gold Belt in Northwestern Turkey will help the company take their production from 160,000 – 170,000 ounces of gold in 2009 to over 400,000 ounces by 2013. Nothing wrong with that but its just over three years out and lots can happen in three months let alone three years.

agi

The three year chart shows resistance at $11.00 which it will have to break through for AGI to advance further.

agi2

The three month chart shows the breach of the support at $10.00 more clearly and moreover a break below support on the 50 day moving average. It has done so before and recovered but that was as momentum was driving the price of gold higher.

There are lots of positive elements in the story from a fundamental and operational point of view. When AGI reported Q2 in August they reached record earnings as they grew production at their operations in Mexico and pushed down the cost per ounce. Management was able to do the two things you want as an investor. They grew the top line, cut cuts, and increased profits. Nice!

AGI also has a $100M in cash and cash equivalents after the purchase of the properties in Turkey and they have no long term debt and no hedge programs in place.

I like the Alamos story but would be watching the direction of gold prices in the short term. I think there will be opportunities to find entry prices at lower levels.

Happy Capitalism!

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