Alacer Gold Corp.

Headwinds to sales and realised prices:Alacer Gold Corp. (ASX: AQG) has lately discovered its first ever mineral resource for the Ardich oxide gold deposit mines which are located in the Copler district. This resource mine comprises of 294 Koz of gold which has an average grade of 1.32 AU g/t and an inferred mineral resource of 85Kozs at an average grade of 1.20 Au g/t.

The company had also released its Q3 FY 2018 financial updates whereby it has reported the gold production of 26,160 Oz, which sums up to a total of 89,233 Oz for the YTD production. The average realised price fell from the Q2 FY 2018 price of $1289 to $1275 per Oz in the Q3, a fall of 1.09% on a QoQ basis. Gold sales came in at $35.50 Mn and were 29% lower on a YoY basis. This fall was on account of the volume degrowth experienced during the quarter of around 24%. The cost of sales saw a reduction on a YoY basis. This was basically on account of the decrease in the production cost resulting from the decrease in the gold ounces sold & a 50% reduction in the depreciation & amortisation costs.

The net loss attributable to the shareholders came in at $27.10 Mn for the stated quarter which was noted against profit of Q3 FY 2017. The enhanced loss was on account of the foreign exchange translation loss booked by the company of $ 37.70 Mn coupled with a lower income tax benefit of $39 Mn.Operating cash flows came in at $21.3 million in Q3 2018 and this was 35% lower than the number reported in Q3 2017, majorly due to $14.3 million lower revenues.
 

 
AQG’s Valuation Metrics (Source: Company Reports)

On the valuation front, the firm is trading at a price-to-cash multiple and this depicts that the stock is trading at a slight premium valuation given the current softness in operating performance. Meanwhile, the stock price has fallen by 8.68% over the past six months as on 10 December 2018. Considering the fluctuating scenario,we have a wait & watch view on the stock at the current market price of $2.260 as on 11 December 2018.
 

Evolution Mining Limited

Delivering positive cash flows:Evolution Mining Limited (ASX: EVN) had announced that board approval has been given to an expansion of plant at the Cowal to increase the throughput to 8.7 metric tonnes per annum as compared to the previous 7.50 Mtpa. This expansion will require an investment of around $25-30 Mn. The increase in production is expected to result into additional gold production of 5koz in FY 2020, 10-15 koz in FY 2021 and 20 koz per annum from FY2022 onwards.

For the quarter ended September 2018, the firm sold 196,021 oz of gold at an average price of A$1662/oz. During the quarter, company continued to deliver positive cash flows across its operations after fulfilling its OPEX and CAPEX needs. The operating mine cash flows came in at A$ 196.9 Mn for the September 2019 Quarter vis-à-vis $221.9M for the June 2018 Quarter. This fall in cash flows was mainly due to the timing of gold sales in September quarter and a lower realization in copper prices.

The firm has given its guidance regarding the production of 700koz of gold for the upcoming 3 years. This production would be achieved, thanks to the capacity contributed by the expansion of Cowal plant. As the Australian Gold sector seems to be robust enough, hence we expect that the company will keep on delivering growth in the subsequent quarters.


EVN’s Guidance/outlook (Source: Company Reports)

On the financial metrics front, the company has a pre-tax margin of 22% for 2018 against an industry median of 16.8%, this indicates that the company is performing better as compared to the industry at large, and thus can be considered for growth. Also, the company’s ROE is 11.9% which is decent enough and close to industry median. The stock price has fallen over the past six months by 5.85% as on 7 December 2018. Considering positive cash flows and robust margins,we reiterate our “Buy” recommendation on the stock at the current market price of $3.38 as on 11 December 2018.
 

Saracen Mineral Holdings Limited

Robust production volumes- key to cash generation:Saracen Mineral Holdings Limited (ASX: SAR) has via a recent ASX release stated that they have had two discoveries in the Carosue Dam corridor. These are Atbara discovery hole of 40 metres @ 3.80g/t and Qena discovery hole of 20.0 metres at 2.80g/t. These new discoveries are expected to result in the increased production of up to 4,00,000 ozpa. The follow up drilling at both the discoveries is slated to start immediately. This growth will lead to increased inventory underpinned by the increase in production and leading ultimately to higher operating cashflows

For the September Quarter, the firm has achieved a phenomenal production of 88940 Oz of Gold at the AISC of $993 per Oz. The company’s cash & equivalents for the quarter came in at $131 Mn vis-a-vis $118.3 million. This was achieved on account of the strong production performance and the robust volumes achieved by the company. This increased production performance and guidance is perfectly in line with the firm’s budgets and estimates.

The company has guided for a production of 325-345 koz at the all-in sustainable cost (AISC) of $ 1050-1100 per Oz for the FY 2019. This guidance is on the back of stellar production expectations from the Carosue dam corridor.


SAR’s Liquidity growth trends (Source: Company Reports)

On the financial metrics front, the company has a pre-tax margin of 22.1% which is better than the Industrial median of 16.8%, and the share price has risen by 20% in the past six months as at December 10, 2018. Considering the company’s expected production volume growth & robust cash position, we maintain our “Hold” recommendation on the stock at the current market price of $2.77 as on 11 December 2018, up 4.9%.

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