Executive Summary / Key Takeaways

• Self-Funded Growth to 1 Million Ounces: Alamos Gold is executing a fully-funded, sector-leading growth plan to lift annual production to over 900,000 ounces by 2028 and potentially 1 million ounces long-term, driven by three high-return projects: Island Gold Phase 3+, PDA, and Lynn Lake.
• Strategic De-risking and Capital Unlock: The recent sale of Turkish Development Projects for a total cash consideration of $470 million significantly de-risks the balance sheet, unlocks "hidden" value, and provides substantial internal funding for the aggressive growth pipeline.
• Technological/Operational Moat: The core investment thesis is anchored by the Island Gold District's integration with the Magino mill, which is expected to deliver average annual production of 411,000 ounces at a mine site All-in Sustaining Cost (AISC) of $915 per ounce over the initial 12 years.
• Financial Powerhouse in the Making: Following the completion of the PDA and Lynn Lake projects, the company projects its annual free cash flow to exceed $1 billion at current gold prices, a compelling long-term target for a mid-tier producer.
• Near-Term Cost Volatility Addressed: Despite a revised 2025 AISC guidance of $1,400 to $1,450 per ounce (a 12% increase), approximately 40% of the increase is attributable to external, non-operational factors like higher share-based compensation and royalty expenses driven by the rising share price and gold price.

The North American Growth Engine: Setting the Scene

Alamos Gold Inc. is strategically positioning itself as a premier North American gold producer, leveraging a portfolio of long-life, low-cost assets in politically stable jurisdictions. The company’s history, which began with the Mulatos mine in 2005, has culminated in a focused strategy centered on the high-grade, high-potential Canadian Shield and a high-return underground transition in Mexico. This strategy is designed to deliver a sector-leading growth profile that is entirely self-funded, with the ultimate goal of achieving annual free cash flow exceeding $1 billion upon the completion of its major projects.

In the competitive landscape, Alamos Gold operates as a mid-tier producer, differentiating itself from larger rivals like Barrick Gold (GOLD) and Newmont (NEM) through its concentrated focus on stable North American assets. While the majors benefit from greater scale and diversification, AGI’s strength lies in its operational efficiency and lower-risk profile, which is expected to translate into more reliable cash flow and superior risk-adjusted returns. The company’s growth trajectory is competitive with peers, and its commitment to low-cost production is a key competitive moat, particularly against more variable performers like Kinross Gold (KGC).

The Technological Moat: Island Gold's Strategic Integration

The core of the investment thesis rests on AGI’s operational and metallurgical strategy to integrate the high-grade Island Gold underground mine with the larger, more cost-effective Magino mill, a move expected to create one of Canada’s largest and most profitable gold mines. This integration is the company’s primary technological differentiator, moving beyond simple mining to complex operational synergy.

The tangible benefits of this strategy are quantifiable and compelling. The base case Life of Mine plan for the Island Gold District outlines average annual production of 411,000 ounces at a mine site AISC of just $915 per ounce over the initial 12 years, a figure that places it at the low end of the industry cost curve. The transition is already underway, with the Island Gold mill shut down in mid-July 2025 and high-grade ore successfully rerouted to the Magino mill. Following optimization initiatives, Magino’s throughput rates steadily improved to approximately 9,500 tonnes per day in late July 2025, with the company on track to reach 11,200 tonnes per day later in the third quarter. Metallurgical testing of the blended ore has confirmed expectations, targeting an overall recovery of about 96%.

Looking ahead, an expansion study, due for completion in the fourth quarter of 2025, is evaluating a further expansion of the Magino mill to 20,000 tonnes per day. This expansion is the key to unlocking the long-term potential of the district, supporting higher mining rates and the conversion of a significant portion of the 5 million ounces of resources not yet incorporated into the base case. Furthermore, the company’s PDA project in Mexico features a process innovation: the new mill complex will produce a concentrate, eliminating the use of cyanide in the process, which is a key environmental and operational advantage in the region.

Financial Strength and Capital Allocation

The company’s strategic execution is reflected in its strong financial performance. The second quarter of 2025 saw record revenues and cash flow from operations, with a strong free cash flow of $85 million generated while simultaneously funding growth projects. This performance was supported by an 18% reduction in all-in sustaining costs compared to the first quarter, driven by stronger operational results across all three operations.

A major strategic move was announced on September 14, 2025, with the sale of the Turkish Development Projects for a total cash consideration of $470 million. This cash injection significantly bolsters the company’s already strong liquidity position, which stood at $345 million in cash and $845 million in total liquidity as of the end of Q2 2025. This capital is crucial for internally funding the aggressive growth pipeline, a strategy management prioritizes over increasing the dividend in the near term. The company has also effectively managed the debt inherited from the Argonaut (AR) acquisition, utilizing a gold sale prepayment facility to eliminate 180,000 ounces of inherited hedges for 2024 and 2025, thereby increasing exposure to rising gold prices.

Cost Volatility and Operational Risk Management

While the long-term cost outlook is exceptionally strong, the company faced near-term cost pressures, leading to a revised 2025 AISC guidance of $1,400 to $1,450 per ounce. Management clarified that approximately 40% of this 12% increase is attributable to external factors outside of their operational control. These factors include higher royalty expenses due to the sharply higher gold price and the revaluation of cash-settled share-based compensation, which is marked-to-market quarterly and was significantly impacted by the stock’s strong performance.

The company also addressed operational challenges, such as the unique groundwater inflow event at the Young-Davidson underground mine in Q2 2025, which caused nearly one week of downtime. This issue has since been resolved through enhanced watershed management and the addition of extra pumping capacity, ensuring the operation is on track for a much stronger second half of the year and expected to achieve targeted mining rates of 8,000 tonnes per day in the fourth quarter. Management expressed high confidence in meeting the reiterated full-year production guidance, stating they would not have maintained it otherwise.

Outlook: A Clear Path to 1 Million Ounces

The company’s forward-looking guidance provides a clear roadmap for growth and cost reduction. The Phase 3+ expansion at Island Gold is well-advanced, with 79% of the total capital of $835 million spent or committed as of Q2 2025, and the shaft sink is 92% complete, on track for completion in the fourth quarter of 2025. The overall expansion is expected to be completed in the second half of 2026.

In Mexico, the PDA project’s development is accelerating in the second half of 2025, with first production expected in mid-2027. The project boasts an after-tax Net Present Value of nearly $500 million and an Internal Rate of Return of 73% (at a $2,500/oz gold price). Further solidifying the long-term outlook is the Lynn Lake project, with initial production expected in the first half of 2028. The completion of these projects is expected to take the consolidated production rate to over 900,000 ounces per year at well below industry average all-in sustaining costs. Longer term, the potential for further expansion of the Island Gold District is expected to push annual production to approximately 1 million ounces.

Conclusion

Alamos Gold is in a decisive phase of its corporate history, transitioning from a successful mid-tier producer to a high-growth, low-cost gold major. The core investment thesis is defined by the strategic integration of the Island Gold District, which provides a tangible, low-cost operational moat, and the disciplined, self-funded execution of a multi-project growth pipeline. The $470 million cash infusion from the Turkish asset sale, combined with strong operational cash flow, provides the financial muscle to complete the Phase 3+, PDA, and Lynn Lake projects. While near-term cost guidance has been revised upward due to external market factors, the underlying operational performance remains robust, and the path to $1 billion in annual free cash flow is clearly defined by the company's long-term production targets and cost profile. For discerning investors, AGI represents a compelling opportunity to invest in a gold producer with a high-confidence, fully-funded growth story in stable jurisdictions.