Company Overview – Alacer Gold is a Tier III gold producer whose sole producing asset is the Copler mine in Turkey (80% owned). Alacer Gold (AQG) was formed from the merger between Avoca Resources and Anatolia Minerals Development Ltd and is dual listed on the ASX and TSX. Post the 2013 sale of the Australian Assets, AQG’s key asset is the Copler Heap Leach operation Turkey, in which AQG has an 80% effective interest. It has attributable resources and reserves of 8.0Moz and 5.3Moz, respectively. AQG forecast attributable output of 170koz in CY14 and is currently exploring options to expand the Copler Mine to 400koz on a managed basis. The company has a large exploration tenure in Turkey.

Analysis – Confirming what had been seen to date, the reconciliation study outlined higher grade reserves for the oxides which has provided the basis for higher near term production. The higher reserve grade (1.32 g/t) has resulted in a 5% increase in production through 2017. Development of the sulphides would extend the mine life of Copler by 17-18 years starting in 2018. Following environmental approval by year end and receipt of permits in Q1/15 (primary near term milestones), Alacer is expected to make a construction decision in Q2/15. We forecast average annual sulphide gold production of 150 koz at a mine site sustaining cash cost of $635/oz. Our cost estimates assume higher operating/sustaining expenditures given potential for cost creep and general inflation over the duration of the mine.


Copler Mine Site (Source - company Reports)

Alacer Gold is Tier III gold producer anchored by its 80% owned Copler Mine in turkey. Currently a heap leach operation processing oxide ores , production is expected to transition to high pressure  oxidation (POX) in 2018 allowing the company to recover gold, copper and silver from the large sulphide resource. Economics of POX appear favorable: With a stated after tax return of 20% assuming $1,300/oz, it would appear development of a POX plant to treat sulphide ores is feasible and economical. The underlying economics appear to benefit from: 1) Low cost power ($0.09/kwh). 2) Access to infrastructure given brownfield expansion. 3) Lower labour costs and use of contract mining. 4) Strong tax incentives which significantly reduce effective cash tax rate. 5) Sizeable reserve/resource base with high-grade ore already stockpiled on surface.


Sulphide Project Site Layout (Source - Company Reports)

Development of the sulphides significantly improves mine life of Copler extending the life of the operation from 4 years to approximately 22 years. Although early stage in nature, exploration at Copler as well as Dursunbey could unlock additional value for investors. The company expects to receive approval of its amended Environmental Impact Assessment (EIA) for Copler by year end following submission in April. Once approved the company expects to have all necessary permits in hand in Q1/15, Allowing for construction to start in Q2/15. Receipt of permits is now the key milestone for moving forward with POX. With a renewed and refocused exploration effort in Turkey, we expect drill bit success could deliver further share price gains for Alacer.



Copler Resource + Mined Ounces (Source - Company Reports)

The Copler oxide profile looks compelling to us with average output of 150koz at C1 cash cost below US$750/oz over the remaining mine life. In our view the market had not been attributing any value for the Copler Sulphide Project due to numerous previous iterations leading to genuine uncertainty. However now that a positive study has been released , we believe investors will look to reengage with the equity. We believe Copler now provides investors with a longlife low cost gold asset to embrace something that is not that common in the Australian gold sector.


Sulphide Processing Facility (Source - Company Reports)

Copler Sulphide Definitive Feasibility Study (DFS) indicates that the peak production rate of 230koz will commence in late 2017 and extend over a five year period, supported by an average sulphide grade of 3.9g/t. We had previously anticipated an initial 2 year period at the higher rate. After the initial 5 year high grade period the study indicates that production steps down to an average 134koz over a 12 year period supported by an average grade of around 2.2g/t.


AQG Daily Chart (Source - Thomson Reuters)

The study has estimated pre-production capex of $660m,  which includes $69m for contingencies. While the capital cost is higher than our initial forecast of $500m. The lower than expected all in sustaining cost of $635/oz more than compensates for higher capex. In addition to the Sulphide DFS, Alacer has provided an update on the oxide heap leach production mine plan that now includes total production of 616koz over a 3 ½ year mine life through until the end of 2017. This results in the Copler project now having an annual production rate of 150kozpa through until 2034 supported by an average grade of 1.3g/t.

While we are generally modelling the heap leach in line with guidance our estimates imply that the spent ore on the heap leach pad would contain a residual 840koz beyond 2019, but believe it is highly likely that the irrigation of the leach pad will continue beyond 2019 resulting in additional production volumes.

We forecast a total pre-production capital spend of US$660m, in line with the guidance. Similar to the grade and strip ratio profile, the eventual release of the technical report is likely to provide further detail on the expected timing of the capital spend. With total capex of US$660m, expected to be incurred over a 2 ½ year construction period we forecast the need for additional balance sheet liquidity of $250m by early to mid-2017. We expect Alacer to use debt financing rather than equity. In our view with positive cash generation from the oxide project and a short payback period of less than 2 years anticipated for the suphide project, Alacer should be able to secure competitive debt financing. Moreover we see no need for additional equity at this stage all else being equal.

Alacer has the longest minelife and is one of the lowest cost operators among the mid cap gold stocks.  DFS and updated Resources and Reserves further demonstrate the robustness of the sulphide project along with significant increases to Copler’s Reserves. We like the Alacer story and would be putting a BUY on the stock at the current price of $2.73.

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.