Alamos Gold's Young-Davidson production outlook pressured as Island Gold ramp-up continues, Jefferies says

Jefferies says Alamos Gold’s Young-Davidson mine is dealing with seismic events and power outages that have reduced production and increased costs. While the firm characterizes the latest disruptions as temporary, it noted that three consecutive quarters of underperformance heighten the urgency of restoring operational consistency at the site.

Young-Davidson disruption and guidance cut

Alamos recently lowered its second-quarter production guidance for Young-Davidson to 130,000 to 135,000 ounces, down from a prior range of 155,000 to 175,000 ounces. The company attributed the change to the impact of seismic activity, power interruptions, and lower grades.

Jefferies said Alamos expects production at the mine to remain roughly in line with first-quarter levels. However, it also expects second-quarter costs to exceed earlier expectations.

Management indicated that reduced mining rates at Young-Davidson are likely to continue for the rest of the year. Jefferies wrote that this is expected to push 2026 consolidated production below the low end of guidance and result in costs above previous forecasts.

Island Gold as a longer-term growth driver

Jefferies highlighted Island Gold as a key contributor to Alamos’ longer-term growth outlook. The firm said the asset remains on track and represents about 60% of its asset-level net asset value estimate.

Jefferies reported that underground mining rates at Island Gold reached a record of more than 1,500 tonnes per day in the second quarter, with expectations to increase to 2,000 tonnes per day by year-end. It also said Magino mill throughput is approaching 10,000 tonnes per day following planned maintenance.

In Jefferies’ view, Island Gold’s operational performance supports the longer-term growth case presented at the company’s recent Investor Day and underscores the asset’s growing importance in the portfolio. The firm added that the operation is positioned to deliver production growth and lower costs through the second half of 2026.

Capital allocation updates

Jefferies pointed to capital allocation as a positive. During the second quarter, Alamos spent about $92 million to eliminate 35,000 ounces of inherited Argonaut Gold hedges due in the second half of 2026, increasing its exposure to spot gold prices. The firm noted that about 85% of the company’s 329,000-ounce hedge position has now been settled.

Alamos also repurchased $30 million of shares under its normal course issuer bid in May.

Jefferies forecast changes and valuation

Jefferies lowered its second-quarter production forecast to about 125,000 ounces at all-in sustaining costs of approximately $1,903 per ounce. It also revised full-year estimates to about 528,000 ounces at roughly $1,770 per ounce.

The firm maintained its Buy rating on Alamos Gold but reduced its price target to $50. Shares closed on Thursday at about $35.