Analyst UpdateSome analyst have gears turning for joint ventures Alamos in the article with IAU.
For the record I am not a sahreholder of AGI.
Although packed with detail, we see two big picture takeaways from I-80’s 2024 outlook.
First, the path to 500kozpa production is moving forward more quickly than we think the market is giving credit for, with Granite Creek getting into the South Pacific Zone this year (~10g/t, good widths and ground conditions), Ruby Hill advancing gold (SCPe ~1,000tpd) and base metals (SCPe ~3,000tpd) towards updated MREs and McCoy Cove infill drilling to support reserves.
Second, the capital side of the picture is in a much better position as we expect the JV to largely fund Ruby Hill, and with Granite Creek moving to steady state stoping at SPZ (and we estimate cash flow positive) from mid-year.
We think now is a good time to reflect on where we think I-80 is going:
A long-term 500koz(SCPe 478kozpa at US$1,005/oz 2027-2036) plus producer in a tier-1 jurisdiction.
We think a good proxy for this is Alamos (AGI CN). Annualizing Alamos’s 3Q23, the company is a 542kozpa at US$1,121/oz producer with three mines and strong momentum from its high-grade drilling and expansion plans at itsIsland Mine in Ontario. Since acquiring Island through the takeover of Richmont Mines in 2017, AGI has outperformed the GDX by 60% and the gold price by 19%.
Below we further detail similarities and differences between I-80 and Alamos but our key point is where Alamos trades: the shares were +65% over the last 12 months for US$4.95bn EV for a 542koz production (US$876m per 100kozpa) – US$442/oz 2P, US$218/oz MRE, 9.4x EBITDA and a 3% FCF yield.
We have frequently referred to I-80’s US$2-3bn valuation potential at steady state, but AGI’s multiples would put I-80 in the US$3-5bn range on our steady state estimates. To summarize, we think the upside is worth stepping in early, especially with the capital funding side of the equation improving significantly and the assets showing real progress.
We reiterate our buy rating and C$5.30/sh price target based on 0.60xNAV5%-1850. Trading at 0.2x NAV5%-1850 and with 5-6 rate cuts priced in for this year, I-80 is both a top pick, and an undervalued bounce back name heading into 2024.
2024 outlook highlights progress to 500kozpa, we think Alamos is a good roadmap for I-80
Outlook: I-80 updated the market recapping 2023 highlights and 2024 plans. At Ruby Hill the drill program will continue to focus on defining and expanding high grade mineralization at Blackjack (skarn), Hilltop (CRD and skarn) and advancing met work with much of the ongoing work funded by I-80’s JV partner.
At Granite Creek six levels were developed in 2023 and a dewatering well was installed in 4Q23. The decline to access SPZ is expected to be completed in 1H24 as well as test mining of SPZ in H1, enabling increased mining rates in H2.
At McCoy Cove, the UG decline, and exploration platforms were completed in 1H23, the 40,000m (30m spacing) definition drilling campaign commenced, and pump testing was completed. The definition drilling campaign will be continued in 2024. Figure 1. McCoy Cove decline portal and ventilation Source:I-80 Gold i-80 Gold, 11 January 2024
Page 2 E Q U I T Y R E S E A R C H Comparing I-80 to Alamos: Long way to go but Alamos’s multiples show why we love I-80’s upside While we understand that some readers will have difficulty looking past the difference in current circumstances, as I-80 is an ambitious developer with three underground mines to ramp up and an autoclave to refurbish, while Alamos is one of the best performing mid-tier producers of recent years. However, we think it remains relevant due to similar jurisdiction, resource endowment and asset quality.
Alamos’s production, high-grade assets (two of the three in AGI’s case) and jurisdictions are very similar to I-80’s steady state, if they can execute. What’s more, Alamos trades at a premium to other mid-tiers and would be a significant positive re-rate for I-80.
High grade: Cove and Creek (all holes) have put out better grades/widths than Island highlights While Mulatos has been a steady cash flowing mine, and the expansion of Young-Davidson in 2020 (lifted from 136koz in 2019 to 186koz in 2020) have been value drivers for Alamos, we think the big step change was the acquisition of Island (via Richemont), the continued exploration success there, and the expansion plans to double throughput to 2,400tpd to take production to >250kozpa. Figure 2. Island Mine longitudinal and West (A-A’) and East (B-B’) cross sections Source: Bloomberg,
Alamos Gold While increasing throughput to 2,000tpd individually at Granite Creek and McCoy Cove is not the current scope, we note that the drilling at both of I-80’s highest grade assets has actually exceeded the highlights (Alamos doesn’t release every hole) at Island. Island’s average highlighted hit was 3.8m at 18.5g/t for 70 gram metres. The same calculation for all McCoy Cove 2023 drilling was 9.6m @ 14.2 g/t for 128 gram metres – note this was of all holes and I-80 is drilling out Cove to ~30m spacing so these hits are representative.
The average of Granite Creek SPZ drilling (2021-2023) was 6.2m @ 15.5g/t for 115 gram meters. Figure 3. Granite Creek and McCoy Cove long sections Source: I-80 Gold i-80 Gold, 11 January 2024 Page 3 E Q U I T Y R E S E A R C H Reserves and resources: 15-20Moz portfolios of which ~1/4 are high grade UG ounces From a grade perspective, Island is the jewel in the crown for Alamos, with 1.3Moz at 10.1g/t reserves and a total MRE of 5Moz at 11.9g/t. This includes 3.5Moz at 13.6g/t of inferred material, which is impressive, but we’d expect a grade haircut on reserve conversion at Alamos’s reserve parameters: 15- 40% stope dilution at 0.5g/t, 2m minimum mining width, and 67-96% ore recovery.
I-80 has a total of 4.2Moz at 8.1g/t in resources at its high-grade UG assets. While admittedly this has yet to undergo reserve conversion, we think there’s also potential to add SCPe 0.5-1.0Moz at SPZ, and upgrade grade at Ruby Hill from the current 5.9g/t to ~7.0-8g/t Au. Both companies also have bulk lower grade assets.
Alamos edges it on average resource grade but noting that Young Davidson is a 2.4g/t UG asset, we think the overall resource endowments are similar. Alamos is larger but significantly more expensive, trading at US$440/oz reserve and US$219/oz resource vs I-80 at US$36/oz resource and US$91/oz on SCPe modelled inventory (5.7Moz).
Alamos and I-80 Reserves and Resources Production profile Below we compare Alamos’s last nine-year production profile and 2023-2026E (based on Bloomberg consensus) vs our estimates for I-80 from 2025-2037E. For us what stands out are the similarities in total production and AISC, in other words Alamos is very much a relevant comp for what I-80 could and arguably will be at full production.
While we acknowledge that achieving this profile will require excellent execution, we think I-80 has put a strong operational team in place with many ex-Barrick and Newmont Nevada operators led by President and COO Matt Gili.
Alamos 2014-2026E production and AISC profile vs SCPe 2025-2037 I-80 estimates Valuation Putting it all together below, we show Alamos’s current multiples based on annualizing 3Q23 production, revenue, EBITDA and FCF. Currently trading at US$219/oz on resources, 4.6x revenue, 9.4x EBITDA, a 3% FCF and US$876m EV per 100kozpa production, we think Alamos trades at a deserved premium for its high quality assets, jurisdictions and growth potential. I-80 is significantly cheaper, trading at 20-33% of the same metrics on our 2028 estimates (the first steady state year of the autoclave).
What’s more, when we fully load I-80’s EV, assuming that all funding needs are raised as equity at spot, we still see ~250% per share upside on average to Alamos’s multiples. This takes us full circle: While I-80 has a lot to execute on, the potential is world class based on valuations the market is currently paying for a similar company.
Since acquiring Richemont, Alamos has outperformed the GDX by 60% Source: Bloomberg Why we like i-80 1. Among highest grade open pit and underground development assets in US 2. One of only three companies with refractory sulphide processing facilities in Nevada 3. Ramping up underground methodically with US$82m of cash to support Catalysts • SCPe 1H24: Ruby Deeps MRE • SCPe 2024: Ruby Hill permits • 1Q24: Ruby Hill JV MoU decision • 2H23-1H24: SCPe updated Granite Creek DFS/MRE • 1Q24: Initial Ruby Hill polymetallic resource • 2025: SCPe for updated McCoy-Cove MRE and DFS