UBS Global Research 30 October 2019 Alacer Gold Corp Racing...

UBS Global Research
30 October 2019
Alacer Gold Corp
Racing Toward Net Cash

Better-than-expected quarter with upgraded Oxide Guidance
The key operating and financial metrics in the Sep-19 quarter were all either ahead or
inline with our forecasts. Total production was 9% ahead of UBSe at 101koz, driven by
ongoing outperformance of the oxide plant. The sulphide plant ran sustainably and
delivered consistent production inline with expectations for an entire quarter. Freecashflow
on an unlevered basis was $73m, which is ~$290m annualised. Net Debt is
rapidly declining, down to US$110m as at 30-Sep-19 and below US$90m now. While
the share price has risen +149% 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 to come from the Oxide business
The oxide business is outperforming expectations, with production of 33koz, +38% vs
UBSe and driving the 2nd lift in guidance this year to 150-160koz (was 125-145koz).
There has been exploration success in-pit and positive grade reconciliation, meaning
that a large portion of this production is outside reserves. This oxide business is
supposed to be in decline, but there is a 25Mt expansion of stacking capacity planned
with 6Mt permitted and to be executed in 2020. The plant can handle 5-6Mtpa of
stacking. Management are drilling and permitting 4 target areas around existing mining
operations for further ore. Based on historical grades and recoveries, instead of a
declining business, the oxide production contribution might be able to be maintained at
~100-150kozpa. We do not factor this into our modelling yet, instead our production
forecasts from oxide ore is 89koz in 2020e and 47koz in 2021e.

Upside from the Sulfide business
The sulphide plant has demonstrated a quarter of consistent throughput, with periods
above nameplate. Management is now investigating whether the plant can be lifted
above. The twin autoclaves when running flat-out can deliver 150% of plant nameplate
and there remains surplus in grinding capacity which is not yet quantified. Regional
exploration has been delineating additional sources of both oxide and sulphide ore.

Valuation: $7.65ps (DCF, 8% nominal discount rate, spot gold of US$1,500/oz)
Our price target is cut to $7.65ps (from $7.90ps) and is based on our NPV.