Re-rate trigger, page-55

UBS Global Research
2 May 2018

Alacer Gold Corp
Price at date A$2.23
12m price target A$3.60
12-month rating: Buy
Will a re-rating follow first Sulfide gold in Q3?

Sulfide Project 85% complete; attention shifting to ramp up & first gold in Q3
Alacer Gold's investment case rests on its Sulfide Project. We believe the market has
been waiting for this project, with the share price trading in a tight range over the past
12 months. With construction 85% complete and more than fully funded, risks are
reducing. Ramp-up is now in sight, but this is at heightened risk given the relative
technical difficulty in operating autoclaves compared to more conventional processing.
We think this risk is weighing on investors' minds, but at 0.6x P/NPV, we conclude it's
already in the share price. With a long ramp-up to end-2019, AQG appears to be giving
cautious guidance. However, with construction pretty much done, we think now
remains a compelling buying point.

2018 Oxide production starts strong, guidance maintained
Alacer has delivered Mar-Q output from the Oxides of 37.9koz, well ahead of UBS-e
18.6koz. Mar-Q output is at 50% of full year guidance, so we expect a solid decline in
q/q output for the rest of the year. AQG reported an AISC of US$737/oz, in line with
UBS-e and guidance, which is unchanged. First gold from the Sulfide project is
expected in the Sep-Q and Dec-H guidance is for 50-100koz, no AISC guided.
Guidance could prove conservative, but we think the market is factoring in caution. We
also think the market is more focused on the timing to nameplate production &
availability, rather than production in the first year, which is typically very variable.

Buy – As risks continue to reduce, the likelihood of a re-rating increases
We rate Alacer Gold Buy, based on valuation. With net debt set to peak late in 2018E
and with nameplate production not until the end of 2019, the likely speed of a rerating
is debatable, however. We think Alacer has, and is working hard to de-risk the
project: this includes building a large stockpile of high grade ore (5g/t), extensive
project engineering and securing a quality operational team. Combined, we think this
merits higher than 0.6x P/NPV, but note the lingering risks of: 1) poor operational
availabilities from the autoclaves; 2) general Turkish country risk; and 3) a lifting net
debt position are clearly strong enough headwinds today. During 2018, we see the
long ~20 year mine life and low cost position (US$645/oz AISC LoM) to eventually
overcoming these headwinds.

Valuation: A$3.60/sh (DCF, 12% discount rate)
Our forecasts are unchanged at this time. Target price set at 1.0x P/NPV.

Sulfide ramp-up: this is where the risks are
First gold is expected in the September quarter. Guidance is currently for 50-
100koz in the Dec-H. The mill will likely reach 100% throughput faster than what
is shown below, but we try to account for availability as well. So 100% throughput
earlier, but maintaining this rate is likely to take time as the operators get use to
the nuances of the mill and ore. We think this risk is in the share price.