Seeking Alpha: Alacer Gold Still Looks Underrated Amidst Operating Risks

Even though Alacer Gold (OTCPK:ALIAF) is down about 20% from its July highs and down a third from its 52-week high, the shares are still up about 14% from when I wrote about the company in December as an undervalued and unloved gold stock. That's nothing to brag about relative to the performance of the industry, with the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and Market Vectors Junior Gold Miners Fund (NYSEARCA:GDXJ) up around 30% and 40% over that time and investors should ask themselves whether the ongoing operating risks are likely to be adequately rewarded from here. My use of a higher discount rate than most sell-side analysts leads to a roughly 20% lower fair value estimate and while Alacer looks well-positioned to remind a low-cost miner with exploration upside, the risk-reward is not necessarily absolutely convincing at present.

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Alacer Gold Still Looks Underrated Amidst Operating Risks

Investopedia: Can Smaller Miners Become Big Winners In The Gold Rush?

Gold is still the hot trade. While it's not that hard to remember when gold was an afterthought, squeezed between a quick summary of bonds and commodities during financial programming, it is now a leading investment class. Whether an investor's interest in gold is fueled by fears of inflation, economic and political turbulence, technicals, or even just a "greater fool" theory, the reality is that it has been a winning trade.

By now any investor with even a passing interest in gold knows a little something about the myriad of choices for investment. People can choose to own actual bullion or numismatic gold, resource mutual funds, specialized ETFs like SPDR Gold Shares (NYSE:GLD), or mining stocks ... and those are just the most popular options. (For more, see What To Do About Gold Now.)

Given that mining companies are the only entry on the list that can actually grow from internal strategic decisions, they are worth a serious look. Here, we'll consider some of the smaller miners, which can offer substantially more bang for the buck than major miners like Barrick (NYSE:ABX) and Newmont Mining (NYSE:NEM).

A Quick View From Above 

What is interesting about mining companies is that they don't necessarily track gold prices, and that is particularly true for smaller miners. For small miners, performance is often significantly influenced by the company's efforts to bring mines into operation and increase gold production. Investors should also note that many (if not most) analysts expect gold prices to peak in the next year or two and then decline - that does not preclude successful investments in small miners and those analysts could certainly be wrong, but it is a detail to consider all the same. 

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