Lower production hurts Alacer Gold

Alacer Gold (ASR-T) found out just how finicky investors can be given the uneasy economic environment.

The company was punished harshly for narrowly missing its production guidance for the quarter as it saw its market capitalization shaved by 12%, or 68¢, with its stock trading on Oct. 24 at $5.28 per share.

The drop came after Alacer reported lower production from its key assets in Australia and Turkey.

At its 80%-owned flagship Copler mine in Turkey, Alacer reported attributable production of 32,674 oz. gold, missing its guidance of 35,600 oz. gold.

It blamed the lower totals on the need to mine lower-grade, harder rock that contained less clay-rich ore. The company says, however, that it was in-line with a revised mining plan that is mining competent, harder rock from manganese and marble pits, and that higher-grade areas are scheduled to be mined during the fourth quarter.

At its wholly owned Higginsville mine in Australia, the company suffered a 10% drop in production as it fell to 32,357 oz. The total was lower than anticipated and came as a result of lower grades. Alacer says it has stopped mining low-grade pits and low-grade ore from the Trident underground mine.

Those overall lower grades could lead to higher operating costs in its upcoming financial statements, which are due out on Nov. 14. BMO Research is forecasting that those cash costs will come in at US$793 per oz. for the quarter.

On the more positive side, Alacer says its underground Chalice mine development is ahead of schedule, with the first stope mined at the Atlas lode in September.

And there was good news on the production front as well, albeit on smaller assets.

Gold production for the quarter from its South Kalgoorlie operations, which includes its 49% stake in Frog’s Leg gold mine, increased by 31% to 25,920 oz. gold.

The increase came thanks to higher grades from the Triumph open pit and the Frog’s Leg underground mine.

But Alacer will need to put the pedal to the metal if it hopes to meet its year-end guidance of 385,000 to 403,000 oz., with year-to-date production at 280,000 oz.

It says that higher grades from Copler in the coming quarter, combined with improving production levels at Kalgoorlie, will get it there.

The 385,000 to 403,000 oz. guidance, however, was lowered in August from an earlier guidance between 396,000 and 410,000 oz. gold.

To mitigate the effect of lower grades on costs, Alacer has looked to cut expenses in Australia by demobilizing two mining fleets at South Kalgoorlie and laying off all workers associated with operating and maintaining those fleets.

It says it will implement “additional cost-saving measures” in Australia in the coming months, but hasn’t provided details.