The Gold Industry’s Low-hanging Fruit is Disappearing

The gold price has fallen in 2018, but some believe the yellow metal has held up reasonably well considering the headwinds it’s faced.

Speaking at the recent Denver Gold Forum, John McCluskey, president, CEO and director at Alamos Gold (TSX:AGI,NYSE:AGI), commented, “given how strong the US economy’s been, how strong the US dollar is, how well US equities have been doing in particular, it’s remarkable that gold has held in as well as it has.”

He added, “it’s been well supported at the $1,200 level. I’m more than happy with that given that we’re still able to operate at a profit and our operations continue to generate sufficient free cashflow for us to essentially carry out our growth and maintain a strong balance sheet.”

One focus for Alamos Gold right now is its Young-Davidson mine in Ontario, where it’s working on an upgrade that will boost throughput from 6,500 to 7,000 tonnes a day to 8,000 tonnes a day. “That’s going to mean a very substantial jump in free cashflow in 2020 at Young-Davidson,” said McCluskey. “That’s something that I think shareholders in the company are really looking forward to.”

When asked to comment on the current dearth of exploration in the gold space, McCluskey said that it’s “very clearly” something we need to see more of. “It’s often the case that when gold prices are lower in order to conserve cash mining companies will cut back on exploration. We’ve taken quite the opposite approach, we’ve been exploring very aggressively over the last few years.”

Explaining that approach, he continued, “we recognize that the reality of the business is that exploration suffers when margins are thin and companies are suffering. But if we don’t do something as an industry, we’re going to find that over the next decade we’re going to deplete our resources much more rapidly than we can replace them, and eventually we’re going to face a crunch.”

McCluskey concluded, “you often hear said that most of the low-hanging fruit has been picked and it’s getting more and more difficult to find new things. And that is proving to be the case.”

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.