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A $514-million expansion of its Island Gold mine in northern Ontario will increase production while taking the cost per ounce of producing gold to industry leading lows, says Alamos Gold Inc.

The Toronto-based miner says its decision to proceed is based on a study of several options that concluded the best path forward was to implement a mill upgrade and shaft expansion to increase ore extraction to 2,000 tonnes per day from the current 1,200 tonnes by 2025.

Despite target price upgrades by several financial analysts who watch the company, Alamos shares traded lower on Wednesday, falling by as much as 2.8 per cent to $13.76 in morning trading before recovering to $13.91, down 1.7 per cent, at 3:30 p.m. EDT.

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“Already one of the most profitable mines in Canada, the expansion will increase production, lower costs, and make this operation even more profitable. The expansion will also best position the operation to benefit from additional exploration success,” said president and CEO John McCluskey.

In a research report, analysts at Stifel GMP said the expansion is a “low risk, low operating cost project” that would make sense even if gold prices were lower than the current multi-year highs.

They raised their target share price to $20 from $15.

“With these new growth plans in place at Island Gold, Alamos Gold has further enhanced its organic growth trajectory with Island Gold projected to grow production by about 72 per cent, solidifying its place as a standout amongst the intermediate producers,” said CIBC in a report to investors.

It increased its price target from $14 to $18 per share.

The project is to boost average annual gold production at the mine to 236,000 ounces starting in 2025, up from this year’s guidance of 130,000 to 145,000 ounces, Alamos said.

The expansion is expected to result in a 19 per cent decline in average total cash costs to $403 per ounce of gold and a 30 per cent decrease in overall sustaining costs to $534 per ounce.

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The project is expected to double the mine life to 16 years.

Island Gold’s high-grade deposit has more than doubled to 3.7 million ounces, with more growth expected, since Alamos bought it for about $600 million in 2017, the company said.

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