Last Friday a short announcement from gold mining junior Alacer Gold Corp – CDI (ASX: AQG) saw its stock up suddenly.
It closed last Friday 10.65% up at $2.13 after it confirmed earlier news that it had been approached by another miner about possibly combining the two companies, without naming names.
Fellow gold miner OceanaGold Corporation (ASX: OGC) announced on the same day that it has made several attempts since early this year to engage Alacer in talks. It also confirmed that Alacer had told it that it is not willing to enter into such discussions.
How the two companies stack up
OceanaGold and Alacer Gold have market capitalisations of $796 million and $635 million respectively. OceanaGold has operations in New Zealand and the Philippines. In the first half of FY 2014, it had a net profit of US$57 million on US$298 million in revenue.
That followed FY 2013's year of record gold production and an underlying net profit of US$91 million. Its total all-in sustaining cost for producing gold is US$779 per ounce, yet that is because it also is mining copper at a Philippines mine, making its gold production costs cheaper.
Alacer Gold is now focusing on its low-cost production Copler gold mine in Turkey. In late 2013 it sold off all of its Australian assets to Metals X Limited (ASX: MLX), which included the Higginsville Gold Operations and South Kalgoorlie Operation.
Why is Alacer Gold attractive?
The Copler mine has an all-in cost of US$806 per ounce, which is still a wide buffer between gold's US$1,214 per ounce spot price currently. That would be very attractive to any miner with gold prices drifting back down to December 2013 lows of US$1,200 per ounce. In its latest quarter, it had sales revenue of US$63.7 million with a net profit of US$12.7 million.
For OceanGold, Alacer Gold would be an attractive combination with low-costs similar to its own. Alacer also had about US$292 million in cash and no external debt at June 20, 2014.
With gold not showing a strong recovery recently, price pressures could cause some consolidation in the industry and low-cost producers are always attractive.
Alacer's board wants to stay independent, but this event could draw more attention from other gold miners.
What's a good alternative?
Despite the 10% rise last Friday, the stock is languishing near yearly lows and earnings are forecast to decline over the next two years.
Rather than wait to see what gold prices are going to do in the near term, there are still other profitable gold and resource miners that could be much better alternatives.
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