{"id":59232,"date":"2011-11-30T10:07:23","date_gmt":"2011-11-29T23:07:23","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/30\/alacer-golds-re-rating\/"},"modified":"2011-11-30T10:07:23","modified_gmt":"2011-11-29T23:07:23","slug":"alacer-golds-re-rating","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/30\/alacer-golds-re-rating\/","title":{"rendered":"Alacer Gold’s Re-Rating"},"content":{"rendered":"

\n\t– Macquarie initiates on Alacer<\/span> Gold with an Outperform rating
\n\t– Strong production growth and improving valuation are likely catalysts
\n\t– News flow should be positive in coming months
\n\t– Buy ratings on Alacer<\/span> continue to dominate stockbroker views<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tAlacer<\/span> Gold ((AQG<\/span>)) has been among the preferred listed gold plays in Australia, the FNArena<\/span> database showing the stock had been rated as a Buy by three of the five brokers offering coverage. This has increased to four positive views, as Macquarie has initiated coverage with an Outperform rating.<\/p>\n

\n\tThe attraction for Macquarie is a clear correlation in the listed gold space between a company's production levels and the price to net present value (NPV<\/span>) multiple the stock trades on. Since Alacer<\/span> was created early this year Macquarie notes a P\/NPV<\/span> re-rating to 1.25 times net present value has occurred.<\/p>\n

\n\tThis re-rating is expected to continue, Macquarie seeing scope for Alacer<\/span> to trade on a P\/NPV<\/span> of 1.5-1.6 times in the coming 12-18 months. This implies a valuation range for the stock of $12.20-$13.00.<\/p>\n

\n\tAnother factor supporting Macquarie's positive view is a strong production growth profile, as from current output of around 410,000 ounces the broker sees potential for total production to move above 700,000 ounces per year by FY15<\/span>. Total reserves currently stand at 5.9 million ounces with projects in both Australia and Turkey.<\/p>\n

\n\tTwo projects should account for the increase in production, Macquarie expecting Copler<\/span> will deliver about 170,000 ounces of the increase and South Kalgoorlie<\/span> around 100,000 more ounces.<\/p>\n

\n\tThis production increase should be achieved without any increase in production costs, as Macquarie expects total operating costs will decline from around US$560 per ounce at present to about US$550 per ounce by FY15<\/span>.<\/p>\n

\n\tMacquarie has identified a number of factors that should help Alacer<\/span> achieve this growth in production. One is an aggressive exploration program that covers all the mines in Alacer's<\/span> portfolio, which includes Copler<\/span>, the South Kalgoorlie<\/span> operations, Higginsville<\/span> and Frog's Leg.<\/p>\n

\n\tAlacer<\/span> also plans some technical work such as a bypass of the crushing circuit to allow the treating of lower grade ore at Copler<\/span> oxides. Work is also being done to deliver higher than nameplate throughput of the POX circuit and an improvement of the block model at the Copler<\/span> sulphides<\/span>.<\/p>\n

\n\tAssuming the exploration program delivers the success expected, Macquarie's view is Alacer<\/span> looks solid value relative to global peers. A further attraction is a strong cash generation profile, as despite a forecast US$730 million in capex<\/span> between now and 2015, Macquarie expects Alacer<\/span> will grow its net cash position to around US$1.05 billion over the same period.<\/p>\n

\n\tInvestors should benefit from a consistent news flow from Alacer<\/span> over both the short and medium-term. Macquarie notes this reflects both the exploration program and the ongoing feasibility study for the Copler<\/span> sulphides<\/span>.<\/p>\n

\n\tIn initiating coverage Macquarie has set a price target of $13.00, while pointing out there is upside to a valuation of more than $16.00 pending the results of exploration work and production expansion at existing projects.<\/p>\n

\n\tMacquarie's target puts it broadly in line with other brokers covering Alacer<\/span>, as the FNArena<\/span> database shows a consensus price target of $12.49. Targets range from BA Merrill Lynch at $9.50 to Deutsche Bank at $13.65.<\/p>\n

\n\tThe target of UBS has come down to $13.60 from $14.40 to reflect the impact of a option held by 5% owner of Copler<\/span>, Lidya<\/span> Madencilik<\/span> Sanayi<\/span> ve<\/span> Ticaret<\/span>, to move to 20% of the project via the exercise of this option for $37.8m<\/span>. <\/p>\n

\n\tFactoring this in sees UBS trim its value for Alacer<\/span> by 5%, which also reflects a reduction in the broker's estimate for Alacer's<\/span> total resources and reserves of 7% and 11% respectively. Earnings estimates for 2011 have been trimmed by 9% to reflect a marking to market for the gold price and some adjustments to depreciation and amortisation<\/span> charges.<\/p>\n

\n\tThe growth potential and associated positive news flow identified by Macquarie is the primary attraction for others in the market, with UBS and Deutsche Bank both seeing near-term upside from any good news from Copler<\/span> and on the resource base as a whole.<\/p>\n

\n\tBA-ML's is the one negative view on Alacer<\/span>, the broker arguing while things are progressing solidly at Copler<\/span> there remains a lot of work to do on the Australian assets. BA-ML wants to see evidence of some improvements in the domestic assets before considering turning more positive.<\/p>\n

\n\tShares in Alacer<\/span> have moved inside a trading range over the past year of $7.60 to $12.30. The current share price implies upside of around 16% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Macquarie has initiated coverage on Alacer Gold with an Outperform rating, adding to the majority positive view on the growth potential of the gold play.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59232"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59232"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59232\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}