Alamos Gold (TSX: AGI) presented a mixed set of financials in its third-quarter 2024 results, underscoring significant revenue growth but revealing a softer bottom line than anticipated. For the quarter ending September 30, the Toronto-based gold producer reported record revenue of $360.9 million, a 41% year-over-year increase from $256.2 million in Q3 2023.

This was primarily driven by increased production volumes, buoyed by the addition of the newly acquired Magino mine and elevated gold prices. While Alamos saw substantial top-line growth, adjusted earnings per share (EPS) fell below expectations at $0.19, missing analyst projections of $0.21 and showing limited improvement from $0.14 in the same period last year.

The company reported total gold production of 152,000 ounces, marking a 9% increase over the previous quarter’s 139,500 ounces. This growth was in line with guidance and underscored by a higher average realized gold price of $2,458 per ounce, up from $1,932 per ounce in Q3 2023.

Yet, despite these tailwinds, Alamos encountered notable cost pressures across its operations. Total cash costs climbed to $984 per ounce, a sharp increase from $835 per ounce in the previous year, with the inclusion of Magino’s higher-cost ounces significantly inflating the cost profile. The company’s all-in sustaining costs (AISC) rose more sharply, reaching $1,425 per ounce compared to $1,121 in Q3 2023, demonstrating a 27% year-over-year increase and outpacing revenue growth.

These cost challenges are particularly evident at Magino, which saw operating cash costs per ounce at $2,025 and AISC ballooning to $3,007 per ounce. Magino’s initial ramp-up costs and necessary mill improvements pushed these metrics higher, dragging down consolidated margins. Excluding Magino, Alamos’ total cash costs and AISC would have been significantly lower, at approximately $866 and $1,241 per ounce, respectively.

Net earnings for the quarter were $84.5 million, a significant improvement over the $39.4 million posted in Q3 2023. This quarterly figure, however, includes a $38.6 million post-tax reversal of impairment at its Young-Davidson mine, driven by favorable long-term gold price assumptions. Excluding the impairment reversal and accounting for unrealized losses on commodity hedge derivatives, adjusted net earnings totaled $78.1 million, or $0.19 per share.

Operating cash flow before changes in working capital was $192.8 million, up from $133.2 million a year earlier. However, after accounting for working capital adjustments and other transaction costs from the Argonaut acquisition, net operating cash flow came in at $165.5 million, only slightly higher than the $112.5 million achieved in Q3 2023.

Free cash flow saw a notable jump, reaching $87.5 million compared to $37.3 million last year. This increase can largely be attributed to strong cash flows from the Mulatos District, which contributed $66.9 million in mine-site FCF for Q3, underscoring its role as Alamos’ most profitable asset. Furthermore, Alamos took a $250 million drawdown on its credit facility to address debt inherited from Argonaut, indicating an increased reliance on leverage to fund its expansion and restructuring costs.

At quarter’s end, Alamos’ cash balance stood at $291.6 million, down from $313.6 million in the previous quarter, highlighting the capital-intensive nature of its recent growth initiatives.

Looking ahead, Alamos anticipates fourth-quarter production between 140,000 and 145,000 ounces, suggesting a slight pullback compared to Q3 levels, albeit with lower costs anticipated as Magino stabilizes.

While management remains confident in achieving further cost reductions at Magino and continues to forecast production in the range of 550,000 to 590,000 ounces for the full year, it is apparent that scaling up production has brought significant cost volatility, complicating margin improvements. The company’s current AISC guidance is 11% higher than prior estimates, reflecting these ongoing challenges at Magino and the inflationary pressures impacting labor and materials costs.

Alamos Gold last traded at $27.10 on the TSX.

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