Alacer Gold Corp. - Is it sinking further post the third quarter results?
Oct 26, 2015 | Team Kalkine
Weak Third Quarter Performance
Alacer Gold Corp - CDI (ASX: AQG) has 80% interest in the Çöpler Gold Mine, a world class mine in Turkey operated by Anagold, while Lidya mining has the rest of the 20% interest. The group recorded a Gold production of 53,728 ounces during the third quarter of 2015, at overall cash costs per ounce of $517 during the period while All-in Sustaining Costs per ounce was recorded at $672 per ounce. The group achieved a total sulfide stockpiles of 4.6 million tonnes at an average grade of 3.81 g/t gold or around 560,000 contained ounces by the quarter end. Alacer revenues declined to US$60.3 million during the third quarter of 2015 as compared to the US$64.1 million in the second quarter of 2015, on the back of decreasing production and rising costs. Production costs also increased to $27.8 million during the period impacted by declining grade and higher strip ratio, against $20.8 million production costs in second quarter of 2015. Consequently, Alacer profit before income tax declined to $16.3 million during the period, from $22.2 million in Q22015. Alacer improved its cash to $369 million in Q32015 and had a working capital of $420 million. Meanwhile, Alacer Gold entered into a credit facility of $250 million for a term of seven years, with interest rate of LIBOR in the range of 2.5% to 2.95%.
Gold production and Costs (Source: Company Reports)
Low Cost Producer
Alacer is among the low cost producer, wherein the group achieved 1 million ounce of gold at an average operating cash costs of $401/oz. The group also delivered over $600 million of cash in 4.5 years. Alacer Gold would continue detailed engineering and procurement efforts on its Çöpler Sulfide Project, and estimates a medium-term growth coupled with solid financial returns and accordingly is adding a further 22 years of production. The group received the Environmental Impact Assessment approval in December 2014 and is also waiting for the final approval of land use permits which are undergoing regulatory process. Post the land use permit the group would start the Sulfide project construction. Based on the Technical Report on March 2015, the Sulfide Project would lead the Çöpler Life-of-Mine gold production to 3.9 million ounces with All-in Sustaining Costs averaging $637 per ounce. The group would continue to seek opportunities to enhance its present operating base focusing on Turkey while maintaining to be a low cost mine producer. The group is making structured as well as focused exploration efforts to trace further oxide deposits in the Çöpler District and in other Turkey regions. Accordingly, Alacer Gold drilled over 58,000m and 500 holes in June 2015 at its Dursunbey project which showed notable high grade intercepts. Drilling as well as metallurgy work would continue to progress in the Dursunbey project at western Turkey during 2015.
Projects locations (Source: Company Reports)
Guidance
The group continues to focus on optimizing its Çöpler Oxide Production as well as expanding the current heap leach pad capacity to 58 million tonnes. Accordingly, AQG estimates to incur a capital expenditure (which includes the final Heap Leach Pad Phase 4 expansion) of $24 million or approximately $120/oz. Almost 70% of the Heap Leach Pad Phase 4 extension area is inside the present mine permit area and the group is constructing on this area. On the other hand, the group requires additional land use permit which is awaited for the final approval at present, to build in the rest of the 30% of the area. New heap leach pad site engineering located to the west of the Çöpler Mine is also under progress. Meanwhile, Alacer Gold is targeting to enhance its oxide production from 2015 till 2019 which would further boost the group’s extra free cash flow during construction, commissioning and ramp up of Sulfide Project. The Oxide production is estimated to grow by 210,000 ozs beyond 2017 while the group projected Çöpler gold production growth to 319,000 ozs in 2019 from an estimated guidance of 190,000 oz to 210,000 oz in 2015. On the other hand, the group’s drilling efforts for near mine satellite oxide pits are underway at Yakuplu. For the full year of 2015, Alacer estimates total cash costs to be in the range of $450 to $500 per ounce while All-in Sustaining Costs are projected to be in the range of $700 to $750 per ounce.
Production projections (Source: Company Reports)
Stock Performance
The shares of Alacer gold delivered a year to date returns of over 29% (as of October 26, 2015) despite gold price pressure, as the group has been approached by other miners for a potential merger. On the other hand, the group did not encourage any such talks with miners. Moreover, Alacer gold has been decreasing its gold production from the past few quarters given the volatile gold prices and also reported a weak third quarter. We believe that the shares are trading at higher levels and based on the foregoing, we give a “SELL” recommendation to the stock at the current price of $3.22.
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