Australia | Mar 29 2011
– Alacer Gold lifts reserves at Copler project
– Capex also higher, minor valuation impact
– Stockbroker ratings remain mixed
By Chris Shaw
Alacer Gold ((AQG)) is developing the Copler project in Turkey and a pre-feasibility study has indicated a larger reserve base than previously had been expected.
As Deutsche Bank notes, reserves at the project have increased to 4.6 million ounces from 2.2 million previously, with recoverable gold estimates at around 3.7 million ounces. Total reserves for Alacer are estimated by Goldman Sachs to stand at around 5.7 million ounces, while mine life is estimated at 16 years.
Along with an increase in reserves has been an increase in capex costs at the project to around US$410 million, which was higher than Deutsche had been expecting. Others had been building higher capex assumptions into their models, as Goldman Sachs had previously estimated capex would come in around the US$500 million mark.
This increase in capex has been offset by the increase in production, so Deutsche notes capital intensity for the project has actually declined slightly to less than US$200 per ounce annually. The net effect of this update is a slight decrease in Deutsche's valuation for Alacer.
This reflects minor cuts to earnings estimates, Deutsche trimming its earnings per share (EPS) forecasts by 3-6% in FY12 and FY13. Deutsche's EPS estimates now stand at US84c in FY11, and US180c in FY12.
UBS has gone the other way and made minor increases to estimates to US67c and US77c in FY11 and FY12. This changes reflects the Copler project being further advanced than had previously been thought.
Goldman Sachs has now factored the sulphide portion of the Copler project into its model, the result being EPS forecasts for the broker now stand at US41.2c in FY11 and US72.7c in FY12. A site visit by UBS suggests there remains good potential for further reserve increases at the oxide portion of the project as well.
This will come in handy, as Deutsche Bank notes its model suggests an equity share of production for Alacer of around 620,000 ounces by 2016. This compares to management's goal to reach production of 800,000 ounces by 2015.
What should also help in this regard is Alacer is not a one-project company. The portfolio also includes the South Kal, Higginsville and Frog's Leg gold projects. This is the result of the creation of Alacer via the recently completed merger of Avoca Resources and Anatolia Minerals Development.
UBS expects a feasibility study on South Kal will be completed later this year, which should add around 800,000 ounces to Alacer's total reserves.
Both Deutsche Bank and UBS rate Alacer as a Buy, while Goldman Sachs has a Hold rating on the stock. For UBS a positive rating is justified on valuation grounds, as its numbers suggest Alacer is trading at a significant discount relative to peer multiples.
Deutsche Bank also sees value, estimating Alacer is trading on a forward earnings multiple of around five times. This is viewed as low given the expected production growth and asset life. As well, Deutsche expects positive news flow through this year may act as a positive catalyst for the share price.
The only other coverage of Alacer within the FNArena database comes via BA Merrill Lynch, who last week reinstated research with an Underperform rating. The consensus price target for Alacer according to the database stands at $10.23, with BA-ML the low mark at $8.00 and UBS leading the way with a target of $11.70.
Shares in Alacer today are stronger and as at 11.20am the stock was up 15c at $8.53. This implies upside of around 19% to the consensus price target according to FNArena.