As Investors Rush to Gold, This Miner Is Poised to Soar

The COVID-19 pandemic has investors scrambling for safety...

Global growth could fall 4.9% this year, according to the International Monetary Fund – which would make 2020 the worst year since the Great Depression.

What's more, to battle the pandemic, global central banks have unleashed a flood of liquidity into the markets. The Federal Reserve alone has seen its balance sheet jump to more than $7 trillion, from about $4 trillion in January.

Now, rising coronavirus cases increase the risk of further shutdowns. And Fed Vice Chair Richard Clarida recently said the central bank would provide more stimulus if a coronavirus resurgence were to hurt the economy again.

And when central banks print money, investors know where to turn...

Gold.

Investors are rushing into the precious metal. In the first half of the year, more than $400 billion has flowed into gold exchange-traded funds (ETFs). That's already above the high set in 2016.

These factors pushed the precious metal above $1,800 for the first time in about a decade. The gains may not stop there, thanks to the Fed and the coronavirus. And today's company is set to benefit...

Toronto-based Alamos Gold (NYSE: AGI) is an intermediate gold producer. The company formed in 2003 from the merger of Alamos Minerals and National Gold. Last year, it produced almost 500,000 ounces of gold and generated $683 million in revenue.

Today, Alamos has three operating mines in mining-friendly jurisdictions – two in Ontario, Canada, and one in Sonora, Mexico. The company also controls six significant development-stage projects in Canada, Mexico, Turkey, and the U.S.

The Mulatos mine in Mexico is the foundational mine that built Alamos...

The company acquired the property for just $10 million in 2003 and brought commercial production online by the second quarter of 2006. And it has been a cash cow for Alamos... Since production began, it has produced more than 2 million ounces and generated about $420 million in free cash flow – an incredible 4,100% return on the initial purchase price.

Last year, Mulatos produced 142,000 ounces of gold. The company expects to produce between 150,000 and 160,000 ounces of gold at the mine this year. Based on current production levels and gold reserves, Alamos expects to get another six years out of Mulatos.

Alamos also owns one of the largest underground gold mines in Canada – the Young-Davidson mine in northern Ontario.

Last year, Young-Davidson produced 188,000 ounces of gold. Its production outlook for 2020 only projected between 145,000 and 160,000 ounces. But that's a planned reduction. And it didn't account for the impact of the pandemic, which disrupted some of its activities.

You see, Alamos is currently building the infrastructure to access the lower level of the orebody. It expects to complete construction this month. So production will increase over the second half of the year. And it expects to produce 200,000 ounces by 2021.

As of December 31, the total reserves at Young-Davidson were enough to keep the mine operating for 13 years. But the 11,000-acre land package has exploration and expansion potential. So it could be a tailwind for Alamos for years to come.

Alamos' third project is the Island Gold mine in northern Ontario. Alamos acquired the property when it purchased Richmont Mines in 2017.

Alamos completed a Phase I expansion at the site in 2018. It holds a permit for a Phase II expansion and is conducting a study on a Phase III plan. Even more important, through its exploration efforts, Alamos increased its identified reserves at Island Gold by 21% in 2019.

Alamos is just the kind of company that will benefit from rising gold prices. As the price of gold increases, so does the value of the gold Alamos has in the ground. We can see the correlation in Alamos' share price...

Gold has risen about 19% this year on coronavirus fears and central bank stimulus. This drastically outperforms the S&P 500 Index, which is down about 2% year to date. Alamos' shares have done even better, soaring 73% in 2020.

Alamos has three strong mines in its portfolio, which have sent shares surging. With gold hitting multiyear highs, and having tailwinds that should push it even further, Alamos' outperformance should continue.

Sometimes investing is simple.