UBS Global Research
12 May 2020 Alacer Gold Corp Merger of Equals Proposal With SSR Mining
Alacer and SSR Mining announce a merger of equals proposal
The proposed transaction is a nil-premium merger of equals, whereby Alacer
shareholders will receive ~43% of the equity in the combined group. This is in line with
respective market values. As shown in the figures on p2, Alacer is contributing 53% of
resources and 43% of gold reserves. For the next 3 years, Alacer assets are forecast by
consensus to contribute 44% of production, but because of Copler’s relatively lower
cost position, 58% of free cash flow and 53% of 2020e EBITDA. So Alacer is
contributing arguably more of the economics of the deal. However the market ascribes
a higher cost of capital to assets in Turkey vs the US/Canada, so despite contributing
less cashflow and earnings, the market ascribes SRR’s assets as more valuable.
What are the benefits of the deal?
The respective management teams on the conference call did not highlight any material
quantitative synergy benefits beyond $5-10m in office costs. The assets are not
anticipated to be managed differently or projects materially expedited. Both companies
had strong balance sheets. The key benefit would seem to be from a lower cost of
capital from the combined group, with a market cap of US$4bn. Alacer trades on lower
earnings multiples than our ASX covered peer group because of a higher cost of capital
ascribed to its single mining complex in Turkey. Our NPV of A$9.49ps is based on a
spot gold price of US$1,700/oz and an 8% cost of capital. A 7% cost of capital would
lift our NPV by ~$0.60cps to ~A$10.10ps.
What is the key opportunity cost of this transaction to Alacer shareholders?
Alacer is scheduled to announce an updated Copler district technical report in 2020H2.
This was to underpin the vision of ~300-400kozpa of production sustainably for 10
years, which was announced in Jan-20. We estimate on a preliminary basis it could be
worth >$2ps, on top of our $9.49ps base case valuation. We do not believe this was in
consensus forecasts or the share price either. Under the merger proposal terms with
SSR, Alacer shareholders will only receive 43% of this potential value uplift.
Valuation: $9.49ps (DCF, 8% nominal discount rate, spot gold of US$1,700/oz)
Our price target is based on our NPV.
AQG Price at posting:
$8.47 Sentiment: None Disclosure: Held
