Last weekend Alacer Gold Corp. (ASR.TO, Financial) processed the first oxide ore from the Çöpler gold deposit in Turkey using the new sulphide plant that the company has built there.
The news was released by the American gold mining and exploration company through its website on Sept. 4.
Alacer Gold Corp. is just one step to the next stage of growth. The pressure oxidation circuit will start sometime in the third quarter of 2018. After that, the miner will progressively replace the production of gold from oxide ore with the production from the sulphide ore.
For full fiscal 2018 the company has already guided for gold output ranging between 50,000 ounces and 100,000 ounces of sulphide ore. Production of gold from oxide ore is projected to be between 110,000 ounces and 130,000 ounces.
Therefore the total production of gold for the current year is expected to exceed the 2017 level with more than 25,000 ounces. The ounce of gold that the miner will sell at Çöpler will be produced sustaining an all-in cost of $650 to $700. If we consider that Barrick Gold Corp. (ABX, Financial) – one of the two largest world’s producers of gold – is supplying the yellow metal at an all-in sustain cost of $750 to $815 per ounce sold, then Alacer Gold Corp is running operations at a very competitive cost.
Alacer Gold Corp. has a target to deliver value to its shareholders through organic growth. The expansion of the Çöpler mine in Turkey represents an important milestone. The site is nestling a considerable amount of precious metal into the mineral. According to the full 2017 report of Dec. 30, 2017, the company has approximately 4 million ounces of gold in proven and probable reserves. It means that Çöpler is one of the largest deposits of gold in Turkey. Just to have a better idea of the size of the Çöpler mine: The deposit of Alacer Gold Corp. follows Kisladag mine, the biggest gold accumulation of the country and the second main producing asset of Eldorado Gold Corporation (EGO).
That volume of reserves will be enough to guarantee operations at Çöpler for at least another 20 years -- not to mention the volume of gold that can be upgraded from the lower category of indicated and measured resources through in-pit and nearby exploration activities. The miner is also studying possibilities to increase the capacity of the heap where the metal is leached.
Of course the economics of Alacer Gold Corp. will depend on the price of the commodity. But with the guarantee of another 20 years of production at an aggressive cost, the company is already more than halfway to deliver robust financial returns.
That benefit has a value today. The company has estimated that the after-tax net present value of the Çöpler expansion project is $728 million. That has been calculated according to a 5% discount rate. Since Alacer Gold Corp. is reporting 293.84 million shares outstanding, of which about 99% is float, the current value of the project per share is $2.48.
Alacer Gold Corp. is trading at $2.33 Canadian dollars ($1.78) per share on the Toronto Stock Exchange. This means that the project, the future production of the company for the next 20-years and related financial returns, can now be acquired on the Toronto Stock Exchange at a 28% discount.
I see only one disadvantage, which is that the project has an internal rate of return (IRR) of only 19.2%. That is not the best you can find in the industry because there are many other metallic projects that have a higher IRR and that are in more favorable mining jurisdictions than Turkey. Consider also that investors usually label a financially robust project as one that has an IRR of 30-35%.
Since the stock market is offering the possibility to practically buy the Çöpler project at a nearly 30% discount compared to the net present value, this makes the thesis interesting to investors.
Alacer Gold Corp. has already performed well on the stock market. After an 11% climb for the 52 weeks through Sept. 4, Alacer Gold Corp. has outperformed the VanEck Vectors Gold Miners ETF (GDX) by 38% and the VanEck Vectors Junior Gold Miners ETF (GDXJ) by over 36%. The company is not paying dividends.
The share price is far below the 100- and 50-day simple moving average line but still slightly above the 200-SMA line.
The 52-week range is $1.49 to $2.26.
On Wall Street, five out of 9 analysts are suggesting buying the stock. Three analysts are recommending holding the stock. For one analyst, the stock will underperform.
Disclosure: I have no positions in any securities mentioned in this article.
