Alacer Gold (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”ASR.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) has had a tremendous run in the early weeks of 2019. Shares of the gold mining company have risen as much as 33% in just over a month this year, and there are a few solid reasons behind this jump.
[stock_market_widget type=”chart” template=”basic” color=”blue” assets=”ASR.TO” range=”3mo” interval=”1wk” axes=”true” cursor=”true” api=”yf”]For one, the price of gold has been inching up over the past few months on account of strong demand for the metal, as well as an uncertain political environment. But more importantly, Alacer seems well placed to take advantage of the recent rise in gold prices thanks to a massive production boost in 2019. Let’s take a look.
Alacer’s Stock Price Gets Boost from Production
According to Alacer’s 2019 production guidance, the company expects to produce 350,000 ounces of gold. That represents a big increase from the 2018 production of 170,865 ounces, with the majority of the growth coming from the recently completed sulfide plant that started production in December of last year.
The sulfide plant at the Çöpler gold mine is expected to produce 230,000 to 270,000 ounces of gold this year, with the remaining coming from the oxide plant. For comparison, the oxide plant had supplied 147.619 ounces of production last year, while 23,246 ounces were produced from the sulfide plant. However, the sulfide plant produced more than 21,000 ounces of gold during December itself, when the production from the plant was first ramping up.
So, Alacer anticipates the sulfide plant to maintain its monthly production rate in 2019 and drive the majority of the company’s production. In fact, Alacer CEO Rodney Antal believes that the sulfide plant will help it achieve 300,000-400,000 ounces of annual gold production for years into the future.
What’s more, the massive jump in gold production is expected to push Alacer’s top line to $424 million this year, a jump of nearly 130% from the prior-year period. While incredible, this isn’t the only benefit that the newly completed sulfide plant brings to the table.
Expect a Massive Bottom Line Boost
The sulfide plant will not only increase Alacer’s production but also give its margins a nice shot in the arm. That’s because the average grade at the sulfide plant is 4.75 grams per ton of gold as compared to the oxide plant’s 1.60 grams per ton.
As a result, the sulfide plant production will have a cash cost of $425 to $475 an ounce and all-in sustaining costs of $600-$650 per ounce, which is lower than the oxide plant’s anticipated cash costs of $650-$700 an ounce and all-in sustaining costs of $700-$750 an ounce. In all, Alacer expects consolidated cash costs of $500-$550 an ounce this year and all-in sustaining costs of $675-$725 an ounce.
Not surprisingly, Alacer’s earnings are expected to nearly double in 2019. The company generated earnings of $0.15 per share in 2018, and analysts expect an increase to $0.29 a share this year on account of the massive increase in production. However, it won’t be surprising to see Alacer deliver an even bigger earnings jump this year on the back of favourable gold pricing.
In the end, it can be concluded that Alacer looks like a solid bet this year as it is sitting on numerous catalysts and is trading at less than 12 times forward earnings.
