RBC target still $12/shAlacer Gold is a new Tier II gold producer created from the merger of Anatolia Minerals and Avoca Resources. Alacer has interests in three producing gold mines in Australia and a new gold mine approaching commercial production in Turkey. We forecast the company to produce close to 350Koz in
2011 and 450Koz in 2012. Alacer's internal growth target is 800Koz/yr by 2015.
Investment Rationale
New Tier II Producer - The combination of Anatolia and Avoca to create Alacer results in a solid platform for growth with 400-450Koz/yr of gold production from existing mines.Solid Management Team - Senior management has experience in doing business in Turkey and Australia, as well as managing much larger mining companies.Share Re-rating Potential Is Real, But Timing Is Early - ASR shares are trading at a discount to the peer group of Tier II Producers, but re-rating will likely require successful ramp-up of new mine in Turkey and further details on the scope and timing of future growth prospects.
Valuation
Our NAV for Alacer is US$5.00/sh. We maintain our 12-month price target of $12/sh, which reflects fair values generated using P/NAV and forward looking P/CF multiples. For Alacer, we employ 2.0x NAV and 17.5x forward P/CF target multiples, which represent toward the midpoint of our target multiples for
the peer group of Tier II golds (1.0-2.5x NAV and 10-25x P/CF), for the declining execution risk in the short term related to the merger and the ramp-up of the new Cöpler gold mine, and improving growth
prospects for Alacer.