RBC on SKO expansion IMPACT - Neutral-to-slight Positive - we believe shareholders will prefer that the company focus capital spending on higher margin projects
Alacer has decided not to proceed with the planned expansion of the South Kalgoorlie Operations (SKO) plant from 1.2MMtpa to 2.5MMtpa at this time.
The company noted that further resource definition and engineering is required to deliver adequate returns on capital.
We had modeled $125MM of capital ($100MM in 2013 and $25MM in 2014), taking gold output from 100Koz to 200Koz/yr.
Without the expansion, we expect SKO to remain a 1.2MMtpa operation with a 10-year minelife, yielding just under 100,000oz of gold per annum.
In our view, Alacer mgt had well telegraphed to the market that the SKO expansion may not proceed, and we believe most ASR shareholders are of the view that there are better uses for capital, such as the Copler sulphide expansion (and/or new project acquisitions).
The RBC one year forecast remains $12.00 per share.