Alamos Gold (NYSE:AGI) completed its acquisition of AuRico Gold (NYSE:AUQ) last week, a deal that gives it much greater scale that should help it withstand a difficult gold price environment, but TD Securities analysts Steven Green says the combined company still faces numerous challenges.
Most significant is AGI's relatively high operating costs, with estimated all-in sustaining costs of more than US$1K/oz. in 2016 - above most mid-tier peers - and Green expects AGI's Young-Davidson and Mulatos mines will operate at close to breakeven at current metal prices.
Young-Davidson is AGI's biggest catalyst, and the miner expects to complete the production ramp-up by 2017, but Green thinks there is still plenty of execution risk.
Green maintains his Hold rating but cuts his stock price target to $8.50 from $9.
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