Alamos Gold Inc (TSX:AGI, NYSE:AGI)'s operational issues at its Young-Davidson mine are weighing on the company's near-term production outlook, while the continued ramp-up at Island Gold is becoming increasingly important to its growth plans, according to analysts at Jefferies.
The analysts noted that after earlier setbacks, Young-Davidson is now facing seismic events and power outages that have reduced production and raised costs.
Although Jefferies views the latest disruptions as temporary, the firm wrote that "three consecutive quarters of underperformance increase the urgency to restore operational consistency at the mine."
Alamos recently lowered second-quarter production guidance for Young-Davidson to 130,000 to 135,000 ounces from a previous range of 155,000 to 175,000 ounces, citing the impact of seismic activity, power interruptions and lower grades. The company expects production at the mine to remain roughly in line with first-quarter levels, while second-quarter costs are anticipated to exceed earlier expectations.
Management has also indicated that reduced mining rates at Young-Davidson are likely to continue for the rest of the year, which Jefferies wrote is expected to push 2026 consolidated production below the low end of guidance and costs above previous forecasts.
Jefferies highlighted Island Gold as a key driver of Alamos' longer-term growth story. The firm wrote that the asset remains "firmly on track" and accounts for about 60% of its asset-level net asset value estimate.
Underground mining rates at Island Gold reached a record of more than 1,500 tonnes per day in the second quarter and are expected to increase to 2,000 tonnes per day by year-end, according to the note. Magino mill throughput is also approaching 10,000 tonnes per day following planned maintenance.
"In our view, Island Gold's operational performance reinforces the longer-term growth case outlined at the recent Investor Day and the growing importance of the asset within the portfolio," Jefferies wrote, adding that the operation is positioned to deliver production growth and lower costs through the second half of 2026.
The analysts also 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. 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 lowered its production forecast for the second quarter to about 125,000 ounces at all-in sustaining costs of approximately $1,903 per ounce and revised its 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.