Proactive Investors - Alamos Gold Inc (TSX:TSX:AGI, NYSE:AGI) has been upgraded by analysts at Bank of America (NYSE:BAC) Securities following its acquisition of smaller rival Argonaut Gold Inc (TSX:AR) amid a more bullish gold price environment.
The analysts upgraded their rating on Alamos from ‘Neutral’ to ‘Buy’ and upped their price target from C$21.75 (US$15.75) to C$27.25 (US$20).
Shares of Alamos traded hands at C$20.45 (US$15.05) late morning on Tuesday.
In March, the gold producer announced it would be acquiring Argonaut in an all-share transaction, allowing it to merge its Island Gold Mine in Ontario with Argonaut’s Magino mine and create one of the largest gold mines in Canada.
The analysts described Alamos’ acquisition of smaller rival Argonaut as “strategically compelling.”
“We affirm our view that the acquisition is a strong fit in Alamos’ portfolio given very tangible synergies while maintaining the company's low-jurisdiction risk focus,” they wrote.
“We incorporate the pending transaction into our model which we expect to be accretive on near-term earnings, cash flow, and operational metrics.”
The analysts project that the transaction will add 10%, 23% and 20% to Alamos’ gold production in 2024, 2025 and 2026 respectively.
“Incorporating the acquisition but also reflecting the impacts of our increased metal prices, we increase our 2024/2025/2026 earnings per share (EPS) estimates to $0.93/1.04/1.20 (from $0.59/0.69/0.68),” they added.
“Nevertheless, even on unchanged metal prices, the acquisition would still be immediately accretive to our estimates, based on our analysis.”
The analysts added that they view Alamos as a “solid holding” in the precious metals space.
“With gold prices on the run higher, we think generalist interest may spur back into the sector,” they wrote.
“In prior cycles, significant outperformance in gold has driven investors to move down-cap into the mid-tier and junior gold producer space for added (but quality) leverage. On this front, we think Alamos is a solid name to own, noting a high-quality asset base, an exceptional track record of operational performance, and an attractive geopolitical risk profile.”