USB Global Research 31 July 2019 Alacer Gold Corp Cashflow...

USB Global Research
31 July 2019
Alacer Gold Corp
Cashflow Accelerating

Better-than-expected quarter with upgraded Oxide Guidance
June quarter production was 99koz, +23% vs UBSe primarily due to another standout
oxide result which has resulted in an increase to oxide guidance in FY19e. While
positive, the market has had more focus on the progress of Sulfide production which
was 57koz, +7% ahead of UBSe. All-In-Sustaining-Costs for the Sulfide plant in June
were US$574/oz, 12% below UBSe of US$656/oz. It is becoming clearer with each
update this year that the sulfide plant is performing well. While the share price has
risen +122% YTD as milestones are reached, we think more is likely to come. Alacer
stands out against our ASX gold coverage on a FCF yield for 2019-20e of >15%+ vs
peers on 3-5% and on a mine life of 20+ years vs peers on 5-10. Further upside is
possible from continuing to extend oxide production and from a gold price which has
been rising.

The quarterly in more detail
Guidance for oxide production for FY19e was lifted to 125-145koz (from 90-110koz).
We had been expecting oxide production to beat guidance and were forecasting
133koz prior to today. 2019Q2 financial results were also released today, but do not
provide a clear picture of performance due to the shift from capitalising the sulfide
earnings prior to the declaration of commercial production in Jun-19. We think the best
metric to view the result is cashflow. Cashflow was in our view ~$20m better than we
expected, with net debt effectively now down to US$170m (adjusted for a $20m
receipt on 1-Jul-19). Net debt has effectively now declined US$74m since Dec-18, a
shift that should accelerate from a higher gold price in H2 and greater production.

Modelling changes
The largest change to our modelling is our valuation discount rate. We have reduced it
from 10% nominal to 8% to reflect the significant de-risking of the sulfide project now
that it is clear the project has ramped up with steadily growing production and with
cash costs in line with our forecasts. This is still above the 5% discount rate we are
using to value Australian located gold assets. This change lifts our NPV by 18% to
$6.09ps.

Valuation: $6.09ps (DCF, 8% nominal discount rate)
Our price target is lifted to $6.50ps (from $5.70ps) and is based on our one-year
forward NPV.