UBS Global Research 23 January 2020 Alacer Gold Corp Vision to...

UBS Global Research
23 January 2020
Alacer Gold Corp
Vision to Sustainable 300-400kozpa for 10+ years

Alacer outlines a bold vision for 10 years which implies consensus upgrades
Today Alacer outlined Dec-19 quarterly production, 2020 guidance and a 10 year vision
for production of 300-400kozpa. Of these the 10-year vision is the most material in our
view. Here management is committing to a new technical report to be released during
2020 to firm up this vision. We believe consensus has production in run-off, based on
the last technical report delivered in 2015. A comparison of our production forecasts vs
this vision is shown in Figure 1-2. While we are not changing our production forecasts,
we estimate on a preliminary basis it could be worth ~$2+ps, on top of our $8.90ps
base case valuation. In our view this is not priced into Alacer and as this vision is
derisked, Alacer should outperform peers. Alacer’s valuation looks attractive, trading on
a FY20e P/E of 8.5x and a 14% FCF yield. Alacer is deleveraging rapidly and set to
move into a net cash position during 2020e. We maintain our Buy Rating.

Guidance for 2020
Alacer management are guiding for 310-360kozpa of gold production in FY20e at an
AISC of US$735-785/oz. This compares to UBSe prior to today of 373koz at an AISC of
US$704/oz. While lower production is guided than our forecast, we had been
speculating that the oxide production would be above that outlined in the 2015
technical report and this is the case. Costs are above our forecasts, but part of this
additional cost is being spent on accelerating growth initiatives such as a Tailings Dam
expansion and the Copler Technical Report. This is not an area of concern in our view
as the vision outlined today by management could be worth $2+ps if unlocked.

Key upcoming catalysts
Alacer is due to report its financials for 2019 on 4-Feb-20 North America time, or the
morning of 5-Feb-20 Sydney time. The likely focus of the conference call on that day
will be the growth vision outlined today. Beyond that the 2020 exploration budget has
been lifted to US$20m (100%) basis, which will mean a succession of exploration
releases justify life of mine extensions. Lastly an updated Technical Report to be
released in 2020 is expected to firm up the production vision outlined today.

Valuation: $8.90ps (DCF, 8% nominal discount rate, spot gold of US$1,550/oz)
Our price target is based on our 1 year forward NPV.