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Alacer Gold has released a major strategic review and update on its 2013 plans. The company has set four key priorities, which define its future developments: to maximise cash flow and the portfolio value, while minimising project risks and returning value to shareholders.
Turkey-based assets. At its Copler mine in Turkey, the company plans to construct a conventional milling and CIL operation which will process higher-grade material with materially improved recovery for three years and then re-process heap leaching material for another five years. The plant could in future be fed with additional oxide reserves discovered at Copler itself or at the Copler exploration area, which Alacer thinks has good prospects. The construction decision is to be taken in 3Q13. At the same time, Alacer has said that the Copler Sulphide Expansion feasibility study is still ongoing, but did not provide any additional details.
Australia-based assets. In Australia, Alacer has decided to keep the HGO plant underutilised but processing higher grades, thus improving the cash flows expected from the Trident and Chalice mines in 2H13. Moreover, Alacer has agreed to divest its 49% stake in the Frog's Leg mine for USD 171mn to its joint venture partner LaMancha and to provide milling services for another 18 months. Based on this, Alacer has decided to pay USD 70mn in special dividends (CAD 0.24/share, 5.4% dividend yield).
2013 production and costs. For 2013, the company plans production of 370-410koz (the lower end is 203koz for Copler, 138koz for HGO and 30koz for SKO excluding Frog' Leg). This is in line with our expectations for every asset. However, our numbers are more upbeat in terms of costs: whereas our TCC of USD 390/oz for Copler is in line with the USD 385-425/oz guidance, our USD 1,000-1,100/oz for Australian operations is below the USD 1,200-1,300/oz guided. As a result, our TCC of USD 720/oz in 2013 is below the USD 770/oz guided. Alacer also guides for total 2013 capex of USD 177mn, including USD 55mn for exploration, which is reasonably in line with our current assumptions of USD 126mn in capex and USD 50mn of exploration expenses.
Hold reiterated. With no surprises on the production side, the cost guidance is moderately disappointing as the ongoing cost optimisation in the Australian division has so far yielded only insignificant results. We view the sale price for the Frog's Leg stake as fairly good: EV/reserves of USD 215/oz and EV/production of USD 3,400/oz are in line with the industry average, compared with EV/reserves of USD 251/oz and EV/production of USD 3,173/oz for Alacer currently. At the same time, we stress that the NPV of Australian operations is less than 20% of Alacer's total figure and therefore provides only a marginal positive effect, while the major growth/value driver (details of Copler's future operations) remains undefined. Therefore, seeing a slight downside risk to our 2013 financial forecast for Alacer, we are reiterating our Hold recommendation for the stock. The company also mentioned its intention to pay 20% of FCF as dividends starting from 2014, which could provide small support for the stock.
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