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#Bull Case
Last edited 5 months ago

9th August 2019:

In that Livewire story, John Deniz, founder and CIO of Paragon Funds Management, whose fund returned 26.9% so far this year on the back of strong performance from Aussie gold producers, mentions Alacer Gold (AQG) as one of the best opportunities in the sector - in his opinion.  He believes they can pay down their remaining debt quite quickly (within around 1 year) and start spewing cash in a similar way to what Bob Vassie has achieved at St Barbara.  St Barbara were doing really well from a share price perspective, and then they had three pieces of news that the market didn't like, and got smashed:

  1. Their PFS on their GMX project at Gwalia concluded that the best option was to continue with their current truck-to-surface method of ore extraction from that very deep underground mine, rather than go with the pump-pre-crushed-ore-slurry-to-surface (or "hydraulic") method that the market had been expecting them to go with.  This decision also came with lower future year production guidance and some shorter-term higher costs.
  2. They announced the aquisition of Atlantic Gold Corporation in Canada, which has an operating low-cost gold mine and a number of other gold projects in Nova Scotia.  The market didn't like the acquisition at the time, although they seem to be warming to it now.
  3. They slightly downgraded guidance for FY19 based on a temporary blockage within their paste aggregate fill (PAF) system, which, due to the sequential nature of their mine plan (partly due to current ventilation constraints) was going to halt gold mining until it was fixed, and being as how it was already late May they couldn't make up the shortfall in the 1 month of the FY that remained.

They were the three main factors that caused the SBM SP to get smashed so hard, and because of the savage SP reaction to the last one, SBM also offered to refund the money to anyone who had participated in their SPP (to help fund the Atlantic Gold aquisition) and now wished they hadn't - seeing as the SP had fallen well below the SPP price at that point.

Since then, the gold price has risen, people have warmed to the aquisition, their FY19 production numbers came in a little better than expected, Simberi (their PNG mine) beat SBM's own production forecasts, people started to realise that Bob is almost certainly going to push ahead with "Simberi Sulphide" which will significantly extend the mine life at Simberi (currently only a couple of years, but converting the plant to efficiently process the suphide ore that sits below their currently mined oxide ore pits will extend that), and finally that the decision that they made at Gwalia in relation to GMX (Gwalia Mass Extraction) was the right one.  And so the SBM SP has rallied back up, with further to go I would imagine (I hope so, as I hold SBM).

If John Deniz is right, Alacer's rise and rise might not be so volatile (as SBM's has been).  However, Alacer is not without risk.  They are a single-project company operating in Turkey.  Alacer Gold operates the world-class Çöpler Gold Mine in eastern Turkey that produced 170,865 ounces of gold during 2018. Çöpler has substantial Proven and Probable Reserves of almost 3.7 million contained ounces and Measured and Indicated Resources of almost 5.6 million ounces of contained gold, which provide the foundation for Çöpler’s approximately 20 year mine life. Updated oxide production guidance for 2019 is 125,000 to 145,000 ounces from the oxide plant and 230,000 to 270,000 ounces from the sulfide plant at consolidated All-in Sustaining Costs of $675 to $725 an ounce.

That's taken from their website, and that's a very reasonable AISC, but it's in US$s.  In A$s, their AISC range is more like A$1,000 to A$1,070.  Still OK - certainly in the lowest quartile of gold producers listed on the ASX.  However, that is not their historical AISC, that was their FY19 guidance - their FY runs through until December by the way.  In the second quarter (that ended on June 30), their actual AISC was US$692 (~A$1,025), so they're on their way to achieving that guidance.  It pays to remember however that guidance can change.

Dacian Gold (DCN) had an apirational AISC target of A$1,000/oz a couple of years ago, but on July 10th, just one month ago, their latest AISC guidance was between A$1,340 and A$1,440 for the next 5 years.  They closed at 64 cents on the day, having started calendar 2019 at $2.50 and having traded at over $2.80 in February.  Dacian's issues were lower grades than anticipated and higher costs.  Things can change.

Gascoyne Resources (GCY) had similar issues and they're now in voluntary administration.  They are still operating, and will probably survive, but their shares remain suspended from trading.

Anyway, I don't hold Alacer Gold (AQG) myself, but they have a very nice chart, and I thought it was worth sharing this bull case that I came across today.

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