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Alamos Gold drops as Dundee lowers price target following disappointing Q4 results

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Alamos Gold (TSE:AGI) shares tanked Thursday after the company released 2014 production results below its guidance, blaming a severe rainy season and slower than expected mill circuit start-up in Mexico.

Dundee Capital Markets left its rating at neutral on Alamos, but lowered its price target to $10.00 from $10.25 previously.

The company reported fourth quarter production 42,500 ounces, 16 percent below Dundee's estimates, resulting in full year production of 140,500 ounces, also shy of management's updated target for the low end of 150,000 to 170,000 ounces provided in late October.

For 2015, the gold producer is guiding for between 150,000 to 170,000 ounces at total cash costs of $865 an ounce, 18 percent higher than its previous $733 estimate.

Alamos cited higher stripping, lower heap leach grades, and longer haulage distances as driving costs increasing year-over-year, Dundee said.

"Alamos reported 4Q production results which were below guidance, and weaker 2015 forecasts than expected, representing a continuation of cost increases and free cash flow consumption," wrote Dundee analyst Josh Wolfson in a report released earlier Thursday. 

"While Alamos' long term growth opportunities have the potential to improve the company's outlook, and its liquidity position remains healthy, we believe Mulatos mill challenges and Turkey permitting uncertainty will continue to act as an overhang."

The Canadian gold producer has assets in Mexico, Turkey and the US. In Mexico, its Mulatos mine is forecast to produce at the lower end of its 150,000 to 170,000 ounce forecast in 2015, while permitting is ongoing at its Esperanza project in Mexico and Kirazli and Agi Dagi projects in Turkey.

Dundee said that Alamos currently maintains a healthy liquidity position of $360 million and no debt, but at a gold price of $1,300/oz, would consume a material $31 million in 2015, before dividends of $25 million. 

"Beyond 2015, improving grades/strip are expected at Mulatos, and permitting in Turkey & Mexico have the potential to improve growth," Wolfson concluded.

Shares were down 6.8 percent at C$9.05 in Toronto as of 12:40pm ET. The stock has tumbled 18 percent in the last 12 months.

Quick facts: ALAMOS GOLD INC CLS A

Price: 10.75 CAD

TSX:AGI
Market: TSX
Market Cap: $4.22 billion
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