AQG (ASX) Re-rate trigger

Originally posted by stokdog ↑

Alacer Gold: 2 Hidden Factors Driving The Company's Value Up

May.22.18 | About: Alacer Gold (ALIAF)

Simple Digressions

Contrarian, long/short equity, Deep Value
MARKETPLACE
Unorthodox Mining Investing
(2,805 followers)
Summary

In Q3 2018, Alacer Gold will start producing gold from the sulfide zone of the Copler mine.
In my opinion, there are two not widely known factors that have a positive impact on the company's valuation.

In this article, I discuss these factors; in the final section, I am trying to assess the updated value of Alacer shares.

I am a big fan of under-followed, unpopular precious metals mining companies. Alacer Gold (OTCPK:ALIAF) is such a company. It currently runs the Copler mine, an open pit oxide ore operation located in east-central Turkey. Very soon, in Q3 2018, the company plans to commence mining at the sulfide zone of the Copler deposit. In my opinion, this project has a big, positive impact on the company's valuation. According to the technical report for the sulfide expansion project, its net present value is $728M. However, there are two issues not widely perceived:

Due to the fact that the project is 85% completed and most of the capital expenditures have been already made, the project's value is much higher than that disclosed in the economic study.

Over the years, the company has stockpiled a lot of sulfide ore, improving the project's economics further.

As a result, today, the company's shares are undervalued, and Alacer presents, in my opinion, an interesting buying opportunity.

https://seekingalpha.com/article/4176103-alacer-gold-2-hidden-factors-driving-companys-value

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I read this analysis last night when I got an email notification.

While it makes some good points in certain parts to say that the value of the company is much higher because the project has stockpiled ore doesn't make a lot of sense to me. It was always going to have a significant amount of stockpiled ore and it says so in the feasibility study. That amount might be slightly more than originally forecast.

Similarly to say that the capital expenditure has been 85% incurred and therefore the project is of a higher value doesn't make a lot of sense. If he said the project is more valuable because capex costs will be below the estimate used in the DFS then I would agree.

What I think he is trying to say is that the project has been derisked significantly and I agree with this. The value was always there and they don't appear to have strayed too much from the path in the DFS in terms of cost or timing.

The valuation methodology is convoluted also.

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