Australia | Oct 31 2019
Alacer Gold's oxide resource expansion at Copler holds significant promise while the sulphide plant pleased brokers with steady production throughout the September quarter.
-Sulphide plant now routinely at, or above, nameplate capacity
-Further upside from ongoing exploration success around Copler
-Free cash flow yield and mine life stand out among gold peers
By Eva Brocklehurst
Alacer Gold ((AQG)) has defied the pessimists and managed the transition to its sulphide project, while still upgrading production forecasts at the established Copler oxide resource.
The oxide business was supposed to be in decline but exploration targets have revealed potential for further ore, both sulphide and oxide. UBS points out, based on historical grades and recoveries, instead of declining the oxide production contribution may indeed hold up.
Meanwhile, the sulphide plant has ramped up and delivered sustainable production throughout the September quarter. Credit Suisse lauds the progress with the sulphide transition, as an endorsement of its quality as well as management's capability and execution.
Year-to-date 161,500 ounces have been produced at a cost of US$613/oz and the plant is now routinely at, or above, nameplate. It was not that long ago that investors were concerned about the risk of a production hiatus, as oxide reserves depleted and sulphide permitting was delayed.
However, additional discoveries outside of reserves have provided over 50% of the 2019 oxide gold production. These new discoveries appear almost certain to underpin a long life for Copler. Work is underway on near-mine prospects as the expansion of heap leaching occurs. Credit Suisse suggests the potential now appears stronger than when Copler initiated oxide mining.
Moreover, sulphides are present beneath all of the subsequent oxide discoveries and this indicates an opportunity to enhance the profile and extend life beyond the current 20 years. Management's strategy is to sustain oxide and sulphide gold production from Copler for 10 years at 300-400,000 ounces.
Oxide Extends
Alacer Gold has lifted oxide guidance for 2019 citing positive reconciliation, in-pit exploration and successful blending strategies. September quarter production of 101,300 ounces was well ahead of Macquarie's expectations. Upgraded guidance at the oxide project is the main positive for the outlook, in the broker's view, as regional drilling adds to inventory.
UBS has lifted oxide production forecasts for 2020 and envisages further upside from ongoing exploration success and the stacking of oxide ore. While the company's plans are not yet fully formed, the broker assesses it may be possible to stack and leach around 5-6mtpa for several years and, depending on grade and recovery, potentially maintain the oxide production at 100-150,000 ounces per annum.
The Ardich prospect revealed strong intercepts that support a materially larger metal endowment compared with the current resource. Mineralisation is open in all directions. An updated interim resource is anticipated for Ardich, 6km to the north east of Copler's processing centres. Ardich has indicated resources of 639,000 ounces at 1.5g/t along with 96,000 ounces of inferred resources at 1.16g/t.
Credit Suisse considers Ardich the most exciting growth opportunity and success will almost certainly require additional heap leaching capacity. If Ardich grows proportionate to the mineralised trend then it could be a multi-million ounce endowment, the broker adds, supporting its own gold recovery infrastructure.
Another oxide growth prospect, adjacent to Ardich, is Cakmaktepe where a review is underway to better understand the system. Phase 1 mining was completed in the quarter, with strong positive grade reconciliation. Credit Suisse also highlights Copler Saddle, which borders the western flank of the mine and has also demonstrated highly economic grade intersections over favourable widths.
The Alacer Gold share price has risen 149% in the year to date as the company passed certain milestones, and UBS suspects more is to come. The broker considers the stock a stand-out in the gold sector, with a free cash flow yield for 2019-20 of over 15%, vs peers on 3-5%, and with a mine life of more than 20 years vs peers at 5-10 years.
FNArena's database has three Buy ratings for Alacer Gold. The consensus target is $7.28, signalling 6.0% upside to the last share price.
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