Company Overview: Alacer Gold Corp. (ASX: AQG) is a Canadian company incorporated in the Yukon Territory with its primary listing on the Toronto Stock Exchange. The company also has a secondary listing on the Australian Securities Exchange where CHESS Depositary Interests (“CDIs”) trade. It owns an 80% interest in the world-class Çöpler Gold Mine in Turkey operated by Anagold Madencilik Sanayi ve Ticaret A.S. (“Anagold”), and the remaining 20% is owned by Lidya Madencilik Sanayi ve Ticaret A.S. (“Lidya Mining”). 


AQG Details
 

 
Several Development Opportunities on AQG’s Way: Alacer Gold Corp. (ASX: AQG) has its primary focus to leverage its cornerstone Çöpler Gold Mine and strong balance sheet as foundations to continue its organic multi-mine growth strategy, maximize free cash flow and therefore deliver maximum value to shareholders. The mine is in east-central Turkey in the Erzincan Province, around 1,100 kilometers southeast from Istanbul and 550 kilometers east from Ankara, Turkey’s capital city. The company continues to look out for opportunities to further expand its current operating base to become a sustainable multi-mine producer with a focus on Turkey, underpinned by the discovery of Çakmaktepe, the Ardich deposit, and the Çöpler Saddle prospect under the systematic and focused exploration efforts in the Çöpler District.

Looking at the past performance over FY16 to FY19, total revenue and net income of the company have grown with a CAGR (compounded annual growth rate) of 49.05% and 165.70%, respectively. Group’s total revenue improved from US$142 Mn in FY16 to US$470.2 Mn in FY19, and net income improved from US$6.2 Mn in FY16 to US$116.3 Mn in FY19.

It has devised a two-fold exploration and future development strategy for Mavialtin which includes expanding the known areas of mineralization, while concurrently making new discoveries, to economically justify a standalone mine; and/or developing a Mavialtin Complex where various smaller deposits could be processed through a common central facility.

AQG is witnessing several exceptional growth and development opportunities following the successful commissioning of the sulfide plant and the exploration successes. Moreover, these opportunities are being progressed and expected to continue through 2020 to define development pathways for the organic growth pipeline.

Under guidance for 2020, the exploration program is expected to emphasize on growing oxide production through drilling at Çöpler in-pit, Çakmaktepe, the Çöpler Saddle, and at Ardich/Greater Çakmaktepe. It is expected to include both step-out drilling to further define the extent of the mineralization and in-fill drilling to determine options for a starter pit.


AQG Financial Performance (Source: Company Reports)

FY19 Key Highlights for the period ended December 31, 2019: Gold production for the full-year period was reported at 391,213 ounces, within the stated guidance of 380,000 – 430,000 ounces. The production figure involved 157,646 ounces from the oxide plant and 233,567 ounces from the sulfide plant. Consolidated All-In Sustaining Costs per ounce sold for the period was reported at US$713, well within the stated guidance of US$675 to US$725 per ounce.

Attributable earnings for the full-year period was reported at US$116.3 million or US$0.39 per share with normalized attributable earnings of US$109.9 million or US$0.37 per share. Gold sales for the full year period stood at 395,046 ounces resulting in total gold sales proceeds of US$552.5 million. Cash flow from operating activities for the period was reported at US$255.2 million, excluding the ounces sold that were produced prior to declaration of commercial production of the sulfide plant. Cash position as on December 31, 2019 was reported at US$233 million, with total debt of US$280 million, resulting in net debt of US$47 million.


FY19 Key Metrics (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 6.16% of the total shareholding. Vanguard Investments Australia Ltd. and IPConcept (Luxemburg) S.A. hold maximum interests in the company at 2.62% and 1.54%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

A Quick Look at Key Metrics: Its gross margin, EBITDA margin and net margin for FY19 stood at 45.6%, 53.2% and 33.5%, better than the industry median of 41.2%, 31.4% and 4.3%, respectively, implying decent fundamentals for the company. Its current ratio for FY19 stood at 2.47x, better than the industry median of 2.29x, which implies that the company is in a good position to address its short-term obligations. ROE for FY19 stood at 14.5%, better than the industry median of 3.9%, which implies that the company generated better returns for its shareholders than its peer group.


Key Metrics (Source: Thomson Reuters)

Key Risks: The company is susceptible to certain risks such as political, economic, monetary policy, and other risks in Turkey along with credit risk, interest rate risk and foreign currency risk which may affect its future operations and financial position.

Recent Update: On February 14, 2020, the company announced drill results for the Mavialtin Porphyry Belt (Mavialtin), a structural corridor around 6-7 kilometers wide and extending over around 20 kilometers from Alacer’s producing Çakmaktepe Mine to the Mavidere porphyry deposit. The site hosts at least four areas of porphyry gold copper mineralization, namely Aslantepe, Saridere, Findiklidere and Mavidere. AQG has reinterpreted, remapped this location and then drilled an additional sixteen diamond drill holes i.e. nine in Mavidere, five in Findiklidere and two in Aslantepe, confirming and extending the known extent of mineralization here.

What to expect: As per the release, due to the continued ramp up of the sulfide plant and timing of scheduled shutdowns for the autoclaves, consolidated production is expected to be lower in the first half of the year. Additionally, the ongoing in-pit exploration programs at Çöpler and Çakmaktepe are expected to continue to develop several near-term oxide ore targets. Sustaining capital expenditure has been estimated to be $33 million in total, which includes $17 million for ongoing construction of the TSF lifts; $7 million for the ~6 million tonne heap leach pad expansion; and $9 million for general items (inclusive of $2 million for optimization work on the sulfide plant).

Growth capital expenditure has been estimated to be around $49 million in total, which includes $23 million for accelerating construction of the TSF; $6 million for work on the additional ~20 million tonne heap leach pad expansion; and $20 million for other growth initiatives (inclusive of the Çöpler District Technical Report that will deliver a holistic plan for the organic pipeline). The exploration spends for 2020 has been increased to $20 million, of which $14 million is attributable to Alacer.


FY20 Guidance Data (Source: Company Reports)

Gold Outlook: At the time of writing, the gold spot (XAU/USD) traded at a price of US$1,563.06 (17:08 (UTC+11)). The outlook of gold seems stable as current disturbance in the equity market over COVID-19, has proven to be boon for gold investors, as reflected from the continuous price rise. As per technical analysis, on monthly timeframe chart, the stock is trading above 20 EMA, 50 EMA and 200 EMA, indicating a continuous uptrend.


Monthly Chart for Gold Spot (XAU/USD) (Source: Thomson Reuters)


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Based Relative Valuation (Source: Thomson Reuters), *1 USD = ~1.69 AUD

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Analysis:

Monthly Chart:

(Source: Thomson Reuters)

Weekly Chart:

(Source: Thomson Reuters)

The stock is trading close to a strong support which can be seen on both the monthly and weekly charts, whereas on monthly chart, it is trading above 50 EMA and on weekly chart, it is trading above 200 EMA. Therefore, any probable chances of a bounce-back can not be avoided. On pull-back, the stock is expected to test challenge at level close to $5.711 (Fibonacci Projection level of 23.6%), and break-on which next test can be expected at level close to $6.645 (Fibonacci Projection level of 38.2%).

Note: EMA – Exponential Moving Average

Stock Recommendation: The company continues to focus on improving and extending oxide gold production in the coming years beyond the current Çöpler oxide reserves by accelerating the development of several near-mine oxide ore targets within the Çöpler pits and surrounding areas. Moreover, it is actively exploring several highly prospective exploration targets across Turkey, which on-success would help the company to deliver sustainable value for its shareholders in the times to come. Considering the company’s business operations, performance in FY19, profitability margins, FY20 guidance, gold outlook and current trading levels, we have valued the stock using EV/EBITDA multiple based relative valuation method and arrived at a target price which is offering an upside of double-digit growth (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $4.830, up 10.023% on March 24, 2020.
 
 
AQG Daily Technical Chart (Source: Thomson Reuters)

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