Here is a Seeking Alpha out already........I am thinking this might increase the chance of some takeout, JV or merger.
Summary
- Allied Nevada's updated feasibility study for the Hycroft Expansion looks good.
- I'm a bit surprised to see the higher capex, as this is an era where it's difficult to get projects financed.
- The investment thesis fully depends on whether or not Allied Nevada will be able to secure funding for the expansion.
Allied Nevada Gold (NYSEMKT:ANV) has announced the results of its fine-tuned and improved feasibility study on its Hycroft gold-silver mine in Nevada, USA. This updated study still assumes a two-phase construction plan for the mill expansion, just like the previous feasibility study. The initial capital expenditures have increased slightly to approximately $1.4B, but this also has a positive impact on the after-tax NPV5%, which increases to $1.81B.
The NPV is mainly increasing because the new feasibility study expects the total amount of recovered ounces of gold and silver to increase by 4%. The expected life of mine gold output is now estimated at 7.4 million ounces, and not less than 340 million ounces of silver. More importantly, the Internal Rate of Return is also expected to increase to 28%, which makes this a very interesting investment for the company. However, in these market circumstances, a lot of investors and financiers are primarily looking at the initial capex rather than the big picture. I have the impression it's much easier to get low-capex and smaller projects financed than another $1B+ capex project. That being said, I do like the IRR of the Hycroft Expansion (even though it's based on a gold price of $1300/oz, which is approximately 5% higher than the current spot price). As the adjusted cash cost in the first few years of the mine life of the expanded Hycroft mine will be less than $500/oz, Allied Nevada does have a shot to find financing for the project, as I can imagine (silver) streaming companies might be very interested in purchasing a gold and/or silver stream.
As said, from a theoretical point of view, this expansion looks good and Allied Nevada should build it. However, it will be very difficult to find financing for a large gold and silver project in the current market circumstances. Allied Nevada had a working capital position of $220M as of June of this year, and I hope this situation will have improved a bit when the company reports its next earnings. If you think the Hycroft Expansion will receive funding, then Allied Nevada Gold is a speculative buy at this point.