Alamos Gold (TSE:AGI) has been upgraded to a buy rating by analysts at Dundee Capital Markets, who said they believe the company should not be written off just yet, though any potential improvement in outlook has already been priced out of its stock.
Late last month, the gold miner reported weaker than expected fourth quarter results and 2015 guidance, which resulted in "material subsequent share price underperformance," Dundee said.
"While 2015 represents another transition year for AGI, and long term growth uncertainties remain, shares have priced out any potential improvement in outlook, in our view limiting downside risk. As a result, we see asymmetric return potential and are upgrading our rating to BUY from NEUTRAL."
The company's Mulatos mine in Mexico is expected to generate flat production and higher costs in 2015 relative to last year, across a backdrop of rising corporate capex. But analyst Josh Wolfson said this is "cause for pause, but not a reason to throw in the towel."
He acknowledged the weak year for Mulatos, but said annual variance is inherently part of a mine plan, and "we do not believe 2015 is representative of either Mulatos' or Alamos' long term outlook."
Mulatos has been challenged by the depletion of high grade open pit ore along with the transition to lower heap leach grades, but future years are expected to benefit from a return to open pit reserve grades, Dundee said, as well as production/margin growth from the Cerro Pelon and La Yaqui deposits.
As a result, the brokerage is forecasting free cash flow to improve from negative $1 million at spot prices in 2015, to $67 million in 2017.
Dundee also noted future opportunities for Alamos in Mexico and Turkey, which have been ascribed no value due to uncertainty as to when or if these projects will be advanced.
Dundee's Wolfson has a buy rating on Alamos and a 12-month price target of C$10.00. Shares were trading at C$6.74 in Toronto on Monday, down 0.6 percent.