Alamos could grow Island to 600,000ozpa

Alamos Gold sees the potential to grow production at its Island Gold-Magino complex in Ontario, Canada, to more than 600,000ozpa through continued investment in expanding mill capacity and exploration.

In July, the company closed a US$325 million all-stock acquisition of Argonaut Gold to obtain Magino, adjacent to its Island Gold mine.

"What we are doing is similar to what Kirkland Lake Gold did with Detour; taking something that was struggling to make 100,000ozpa and taking it somewhere upwards of 600,000ozpa, a completely different scale of operation, Alamos Gold chief executive John McCluskey told Mining Journal.

That "different scale" would require increasing the size of the Magino mill from 10,000tpd to an eventual possible 20,000tpd, in addition to extensive exploration to find the resources to sustain elevated production rates. "We see a lot of exploration potential on the Magino side.

The game plan is to expand operations at the Magino pit from 10,000tpd. It should be doing 15,000tpd at a minimum and possibly up to 20,000tpd. The Magino mill is permitted for 35,000tpd, so it is a matter of defining a new mine plan based on an expanded pit.

There is a lot of exploration drilling to be done to expand the pit that Argonaut couldn't do because it came up against the Alamos property boundary," said McCluskey.

Magino

McCluskey views Magino as a landmark acquisition because the immediate cost synergies dwarf the purchase price.

"We recognise that synergies often don't materialise in acquisitions, but in this case, the synergies were patently obvious. We have conservatively outlined over $500 million of synergies in that transaction, without counting the $1 billion of tax pools we can take advantage of," he said.

Access to the Magino mill means Alamos does not have to refurbish the Island Gold mill to increase its capacity from 1200tpd to 2400tpd, saving $55 million this year alone. It also does not have to do a tailings storage facility (TSF) lift as it can use the Magino TSF.

Instead, it can invest in getting the newer Magino mill ready to handle 11,200tpd in 2026, including material from the expanded Island underground mine, and then onwards to 12,400tpd.

Budget

Alamos has budgeted to spend more than $60 million on exploration this year, continuing a level it has maintained for several years. This effort has seen it grow the resources at Island Gold from 1.7Moz to more than 6Moz, net of depletion. As the company predicted, the grade has also improved with depth, from 9gpt to 11gpt, with recently mined stopes averaging 14.4gpt.

"We don't have to scramble to catch up on something [others] have been ignoring; it has been a top priority for some time, driven by the fact that we have a very significant discovery that we have been pursuing over several years. Underground drilling at Island has recently returned 17m grading 102gpt and several other very high-grade results in what may be another dilation zone.

Growing the open pitiable inventory at Magino will allow the mill to supply very high-grade material from the Island underground mine, 4-5gpt medium-grade material from the north shear, and lower-grade material from the Magino open pit once the mill capacity is increased.

Performance

Alamos reported a net profit of $70.1 million in the quarter to June 30, a 66.5% increase over the March quarter, although 6.7% down on the prior year. Its production increased 2.5% quarter-on-quarter and 2.3% year-on-year to 139,100oz. More importantly, it slashed its all-in sustaining costs by 13.4% from the March quarter to $1096/oz, which saw its AISC margin grow 37% to 52.1%. 

"What the market is looking for is margin growth. There is an anticipation that mining companies should make more money as the gold price goes up. In our case, investors can see it, although we haven't begun to see the full extent of it as it will be in 2026 when we complete the [Island Gold] shaft that will bring down our costs dramatically. If you're going to justify a premium valuation, you have to deliver the goods," said McCluskey.

To increase its exposure to the gold price, which broke through $2500/oz on the day of the interview, Alamos removed the hedges Argonaut Gold put in on its 2024 and 2025 gold production at Magino. However, it will wait before it seeks to do something similar for the remaining 2026 and 2027 hedges.

"We have time before the end of 2025 to see which way the market is going, but that amount is only about 10% of our production. We picked up 4Moz, and of those, a few hundred thousand were hedged," said McCluskey.

The value of Alamos Gold shares has increased about 30% so far this year. They are trading at US$17.45, valuing the company at $7.4 billion.