Alamos Gold (TSX: AGI; NYSE: AGI) has pushed back its Island Gold shaft expansion by about a quarter and flagged higher construction costs, delaying a key source of production growth and cost savings in northern Ontario.
Commissioning is now expected to be completed by mid-2027 rather than the first quarter, the company said Wednesday in its quarterly results. The stage 3+ shaft project is expected to run about 5% above its $835-million (C$1.17-billion) budget, implying a total cost of roughly $877 million.
“We view third-quarter results as slightly weaker than expected and note that updates to the 2027 outlook are also a slight negative,” Desjardins mining analyst Bryce Adams wrote in a note late on Wednesday. “On the back of third-quarter operating and financial results, we expect the shares to underperform peers.”
The shaft is meant to replace truck haulage with hoisting ore and waste to surface, allowing Alamos to mine more tonnes at lower costs. Its delay, alongside slower development at Puerto Del Aire in Mexico and continuing constraints at Young-Davidson in Ontario, puts pressure on production and costs into 2027.
Output outlook
Formal guidance for next year has not been updated, but the commentary points to a lower production outlook, Adams said.
BMO Capital Markets analyst Brian Quast lowered his target price to C$70 while retaining an outperform rating. Updates at Island Gold and Puerto Del Aire are likely to weigh on 2027 production guidance, he said.
Alamos shares finished 1.3% stronger in Toronto on Wednesday at C$44.29 apiece, before the results were released after market close. They have traded between C$38.03 and C$75.78 over the past 12 months, giving the company a market capitalization of about C$18.5 billion.
Ground support
Alamos encountered a dyke while excavating underground storage bins for the shaft’s ore and waste handling system. The rock formation requires additional ground support, and the company is also reinforcing the loading pocket and broader handling system, it said.
Underground mining rates are still expected to exceed 2,000 tonnes a day in the first half of next year. However, the increase to 2,400 tonnes a day is now expected in the second half.
The higher project cost reflects inflation and the additional work on the handling system. Alamos had spent about $815 million on the shaft expansion by Sept. 30.
Island Gold and the neighbouring Magino open pit form the Island Gold District near Dubreuilville, about 650 km northwest of Toronto. A separate $542-million district expansion includes doubling Magino’s mill capacity to 20,000 tonnes a day. That work remains scheduled for completion in the first quarter of 2028.
The company expects the expanded district to average 534,000 oz. of gold annually over its first decade starting in 2028, at mine-site all-in sustaining costs of $1,025 per ounce.
Further setbacks
At Puerto Del Aire, within the Mulatos District in Sonora, unexpected ground conditions and contractor performance have slowed underground development. The mill remains on track for completion by mid-2027, but lower mining rates are expected to reduce production below previous plans during the second half of next year.
Young-Davidson is rebuilding access and installing stronger ground support following June seismic events. Alamos expects mining rates to recover gradually through 2027 and 2028, with an updated mine plan to accompany its three-year guidance early next year.
The setbacks come despite record quarterly output of 68,700 oz. from the Island Gold District. Underground mining averaged a record 1,790 tonnes a day, up 15% from the second quarter, while Magino’s mill throughput rose 16% to 10,313 tonnes a day.
The district would need to produce 92,600 oz. in the current quarter, a 35% increase from the third quarter, just to reach the low end of its annual guidance, Adams noted.
Difficult quarter
Group production fell 16% from a year earlier to 119,000 oz., while all-in sustaining costs rose 42% to $1,956 per ounce. Alamos maintained its revised annual guidance of 510,000 to 560,000 oz. at all-in sustaining costs of $1,775 to $1,875 per ounce.
Fourth-quarter output is expected to increase to between 140,000 and 160,000 oz., with higher underground mining rates and grades at Island Gold helping lift production and lower costs, Alamos said.
The near-term setbacks are primarily timing and execution issues, while the longer-term growth outlook remains intact, National Bank Financial analyst Don DeMarco said. He retained an outperform rating and C$81 target price.
The company ended September with $597.4 million in cash and about $1.15 billion in total liquidity. It expects to fund its growth projects internally and received another $160 million in October from last year’s sale of its Turkish projects.
Alamos plans to quantify Puerto Del Aire’s production and cost effects in its updated three-year guidance early next year.
“Through the expansions of the Island Gold District and development of Lynn Lake, we remain on track to nearly double our rate of production to approximately 1 million oz. annually by 2030, at substantially lower costs,” CEO John McCluskey said in the release.
Source: www.northernminer.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
