MANAGEMENT S DISCUSSION AND ANALYSIS For the Three Month Period Ended March 31, 2018

Transcription

1 For the Three Month Period Ended March 31, 2018 The following management discussion and analysis ( MD&A ) is as of May 1, 2018 and relates to the financial condition and results of operations of Alacer Gold Corp. and its subsidiaries ( Alacer, the Group or the Corporation ) as of March 31, The MD&A supplements and complements the Corporation s unaudited interim consolidated financial statements for the three month period ended March 31, 2018 (the consolidated financial statements ) and related notes. Other relevant documents to be read with this MD&A include the Corporation s audited annual consolidated financial statements, the MD&A, and the Annual Information Form ( AIF ), all for the year ended December 31, Comparison herein is provided to the three month period ended March 31, Readers are cautioned that the MD&A contains forward looking statements and that actual events may vary from Management s expectations. Readers are encouraged to read the Cautionary Statements included with this MD&A and to consult the Corporation s audited annual consolidated financial statements for 2017 and related notes, which are available on the Corporation s website at on SEDAR at and on the ASX at The March 31, 2018 consolidated financial statements and MD&A are presented in U.S. Dollars ( USD ) and have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ), including International Accounting Standard ( IAS ) 34, Interim Financial Reporting. References to non IFRS measures are made throughout this MD&A. For further information and detailed reconciliations, see the Non IFRS Measures section of this MD&A. This discussion addresses matters the Corporation considers important for an understanding of the financial condition and results of operations as of and for the three month period ended March 31, 2018, as well as the outlook for the remainder of Table of Contents Overview... 1 Highlights... 2 Results of Operations... 6 Investments in Mineral Properties and Equipment... 7 Exploration and Development... 8 Financial Highlights Summary of Quarterly Results Liquidity and Capital Resources Business Conditions and Trends Transactions with Related Parties Critical Accounting Policies, Estimates, and Accounting Changes Financial Instruments and Other Instruments Non IFRS Measures Other Cautionary Statements... 25

2 Overview Alacer is a leading low cost gold producer, with an 80% interest in the world class Çöpler Gold Mine in Turkey operated by Anagold Madencilik Sanayi ve Ticaret A.S. ( Anagold ), and the remaining 20% owned by Lidya Madencilik Sanayi ve Ticaret A.S. ( Lidya Mining ). The Corporation s primary focus is to leverage its cornerstone Çöpler Gold Mine and strong balance sheet to maximize portfolio value and free cash flow, minimize project risk, and therefore, create maximum value for shareholders. The Çöpler Gold Mine is located in east central Turkey in the Erzincan Province, approximately 1,100 kilometers southeast from Istanbul and 550 kilometers east from Ankara, Turkey s capital city. Alacer is actively pursuing initiatives to enhance value beyond the current mine plan: Çöpler Oxide Production Optimization Expansion of the existing heap leach pad capacity to 58 million tonnes continues in preparation for the addition of oxide ore from Çakmaktepe reserves expected in Q4 2018, pending approval of the revised Çakmaktepe Environmental Impact Assessment ( EIA ) and operating permits. The Corporation continues to evaluate opportunities to extend oxide production beyond the current reserves with in pit exploration, Çöpler District exploration, and evaluating options to increase heap leach pad capacity, including potential for a new heap leach pad to the west of the Çöpler Gold Mine. Çöpler Sulfide Expansion Project (the Sulfide Project ) The Sulfide Project is approximately 85% complete with commissioning underway. Additionally, the Project is under budget and on schedule for start up in Q The Sulfide Project is expected to deliver long term growth with robust financial returns and adds 20 years of production at Çöpler. The Sulfide Project will bring Çöpler s remaining life of mine ( LoM ) gold production to approximately 4 million ounces at Allin Sustaining Costs averaging $645 per ounce 1, 2. The Corporation continues to pursue opportunities to further expand its current operating base to become a sustainable multi mine producer with a focus on Turkey. The systematic and focused exploration efforts in the Çöpler District, as well as in other regions of Turkey, are progressing. In February 2018, the Corporation announced additional positive drilling results at Ardich 3 within the Çöpler District. The Çöpler District remains the focus, with the goal of continuing to grow oxide resources that will deliver production utilizing the existing Çöpler infrastructure. In the other regions of Turkey, targeted exploration work continues, and work on the Definitive Feasibility Study ( DFS ) for the Gediktepe Project 4 is expected to be complete later in Alacer is a Canadian corporation incorporated in the Yukon Territory with its primary listing on the Toronto Stock Exchange. The Corporation also has a secondary listing on the Australian Securities Exchange where CHESS Depositary Interests ( CDIs ) trade. 1 All in Sustaining Costs per ounce is a consolidated non IFRS performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation to IFRS, please see the Non IFRS Measures section of this MD&A. 2 Detailed information regarding the Sulfide Project, including the material assumptions on which the forward looking financial information is based, can be found in the technical report dated June 9, 2016 entitled Çöpler Mine Technical Report (the Çöpler Mine Technical Report ) available on and on 3 Detailed information, including complete drill hole data, can be found in the press release entitled Alacer Announced Additional Positive Drilling Results for the Çöpler District including 67.7 Meters at 4.08 Grams per Tonne Gold Near Surface (the Ardich Update ), filed on February 26, 2018, which is available on and on 4 Additional information on the Gediktepe Project can be found in the press release entitled Alacer Gold Announces a New Reserve for its Gediktepe Project Providing Future Growth, (the Gediktepe PFS ) dated September 13, 2016, available on and on 1

3 Highlights Strategic The Sulfide Project is approximately 85% complete, with commissioning underway. The Project is on schedule for start up in Q The Sulfide Project is under budget, and the capital cost estimate has been reduced from $744 million to $692 million. On January 15, 2018, the Corporation released 2018 Guidance. 1 Pending approval of the revised Çakmaktepe Environmental Impact Assessment and Operating Permits, Alacer plans to commence mining at Çakmaktepe in Q Haul road construction from Çakmaktepe to the Çöpler infrastructure is progressing. On February 26, 2018, the Corporation released an exploration update on the Ardich Project 2. Exploration drilling and analysis work at Ardich continues. The Gediktepe Project DFS is progressing with scheduled completion later in Operational At March 31, 2018, the Çöpler Gold Mine, including the Sulfide Project expansion construction, surpassed 10.8 million man hours worked and has operated 491 days without a lost time injury. Gold production was 37,875 ounces, and attributable gold production 3 was 30,300 ounces. Total Cash Costs (C2) per ounce 4 were $552 and All in Sustaining Costs per ounce 4 were $737. Expansion of the existing heap leach pad capacity to 58 million tonnes continues. In pit exploration at the Çöpler Gold Mine continues with the goal of adding oxide production. Sulfide stockpiles at March 31, 2018 were 9.6 million tonnes at an average grade of 3.33 g/t gold or over 1 million contained gold ounces. Financial The Corporation ended the first quarter with cash of $137 million, debt of $250 million, and $100 million undrawn on the finance facility. Cash flow from operating activities during the quarter totaled $30 million. Working capital was $166 million at March 31, Attributable net profit 3 was $26.7 million or $0.09 per share. During the quarter, the Corporation hedged an additional 20,000 ounces of gold at an average price of $1,350 with settlements between July and December 2018 to secure the gold price on oxide gold production during the ramp up of the Sulfide Project. 1 Detailed information can be found in the press release entitled Alacer Gold Achieves 2017 Production Guidance, Beats Cost Guidance and Provides 2018 Outlook as Sulfide Project Approaches First Gold Pour filed on January 15, 2018, which is available on and on 2 Detailed information, including complete drill hole data, can be found in the press release entitled Alacer Announced Additional Positive Drilling Results for the Çöpler District including 67.7 Meters at 4.08 Grams per Tonne Gold Near Surface (the Ardich Update ), filed on February 26, 2018, which is available on and on 3 Attributable gold production and attributable net profit reflect the 20% reduction for non controlling interest at the Çöpler Gold Mine. 4 Total Cash Costs (C2) per ounce and All in Sustaining Costs per ounce are consolidated non IFRS performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation to IFRS, please see the Non IFRS Measures section of this MD&A. 2

4 Çöpler Sulfide Expansion Project Update The Sulfide Project is approximately 85% complete with commissioning underway. The Project is advancing on schedule to start production in Q and will be delivered under budget. The Sulfide Project will deliver long term growth with robust financial returns and adds 20 years of production at Çöpler. The Sulfide Project will bring Çöpler s remaining LoM gold production to approximately 4 million ounces at All in Sustaining Costs averaging $645 per ounce. 1 Through March 31, 2018, the Sulfide Project has incurred costs of $552 million and the capital cost estimate has been reduced from $744 million to $692 million Milestones Target Date Equipment Procurement Complete Autoclaves Arrival On Site Complete Autoclave Assembly Complete Engineering Design Complete Autoclave Certification Complete Major Plant Civil Works Complete Oxygen Plant Construction Complete Electrical & Instrumentation Works Commenced Dry Commissioning Commenced 2018 Milestones Target Date Energize High Voltage Switchyard and Power Distribution Complete Start up of Plant Q Overview of the Project Site 1 Detailed information regarding the Sulfide Project, including the material assumptions on which the forward looking financial information is based, can be found in the Çöpler Mine Technical Report. 3

5 Autoclave Building Autoclave Agitator Drives Grinding Building SAG and Ball Mills Development highlights YTD 2018 include: All major equipment is installed with the main construction activities now focused on electrical and instrumentation works. Energization of the high voltage switchyard is complete. Commissioning activities have started in some areas of the plant. Demobilization of the civil contractor commenced with only minor finishing works remaining to be completed. All primary structural steel is installed. Tailings storage facility earthworks progressed with placement of the clay liner and bulk fill for the embankment. Installation of the synthetic liner also progressed beyond the level required for start up. Operational Readiness activities are on target with the operational team recruited, onboarded and embedded with the project construction and commissioning team. The sulfide ore stockpile management strategy was developed last year with blending models defined and has been physically tested in preparation for the initial POX Plant ore feed. CIP Area Top of Tanks Tailing Storage Facility 4

6 Gediktepe Project The Gediktepe Project is located in Balıkesir Province, about 370 km west of Ankara and 190 km to the south of Istanbul. Gediktepe is a polymetallic orebody that contains economic values for gold, silver, copper, and zinc. Gediktepe is owned on a 50% basis with Alacer s joint venture partner, Lidya Mining. Work on the Gediktepe DFS is progressing and is focused on further developing the technical aspects and estimates of the Project. Some information arising through the ongoing DFS process has highlighted the need for additional metallurgical work (especially for enriched ore), as well as prompting changes to resource modelling and the site layout. The DFS is scheduled for completion later in

7 Results of Operations Çöpler Gold Mine: 1 Q Q Gold ounces produced 37,875 32,918 Gold ounces sold 42,131 34,804 Attributable: (80% ownership) Gold ounces produced 30,300 26,334 Gold ounces sold 33,705 27,843 Oxide ore mined tonnes 928,979 1,029,576 Oxide ore mined grade (g/t) Oxide ore mined ounces 23,234 33,946 Oxide ore treated tonnes 988,459 1,006,800 Oxide ore treated head grade (g/t) Oxide ore treated contained ounces 24,573 33,236 Sulfide ore mined tonnes 2 851, ,316 Sulfide ore mined grade (g/t) Sulfide ore stockpiled ounces 2 67,703 10,874 Waste tonnes mined 7,312,509 7,999,178 Cash Operating Costs (C1) per ounce sold 3 $ 548 $ 696 Total Cash Costs (C2) per ounce sold 3 $ 552 $ 711 All in Sustaining Costs per ounce sold 3 $ 737 $ 898 All in Costs per ounce sold 3 $ 2,663 $ 3,145 Average realized gold price, excluding hedge $ 1,337 $ 1,231 1 Çöpler Gold Mine production data represents 100% for all periods presented, except for attributable production and sales. 2 Sulfide ore is being stockpiled and reported as a non current asset (Total of 9.6 million tonnes at 3.33 g/t gold). 3 Cash Operating Costs (C1) per ounce, Total Cash Costs (C2) per ounce, All in Sustaining Costs per ounce, and All in Costs per ounce are consolidated non IFRS performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation to IFRS, please see the Non IFRS Measures section of this MD&A. First Quarter 2018 vs. First Quarter 2017 Gold production of 37,875 ounces is 15% higher than gold production in Q Full year oxide gold production is tracking to 2018 guidance. Oxide ore grade of 0.78 g/t is 24% lower than Q as the Manganese Pit has become the primary source of oxide ore. Oxide ore tonnes mined of 0.9 million tonnes is 10% lower than in Q1 2017, in line with the mine plan. Waste tonnes mined of 7.3 million tonnes is 9% lower than waste tonnes mined in Q Total Cash Costs (C2) per ounce in Q of $552 were 22% lower than in Q C2 costs were lower in Q1 2018, primarily due to a 21% increase in gold ounces sold and the capitalization of waste tonnes utilized for Sulfide Project construction. The C2 cost metric is expected to trend higher in line with 2018 guidance as oxide production declines. All in Sustaining Costs per ounce of $737 and All in Costs per ounce of $2,663 were 18% and 15% lower in Q1 2018, respectively, than in Q1 2017, primarily due to lower Total Cash Costs (C2). 6

8 Investments in Mineral Properties and Equipment A summary of the investments in capital for the three month period ended March 31, 2018 is presented below: Capital Investments (in '000) Q % Attributable 1 Sustaining and general capital Heap Leach Pad Phase 4 expansion $ 738 $ 591 General plant and other assets 1, Sustaining capital Total $ 1,822 $ 1,466 Growth capital Sulfide Project Costs $ 69,414 $ 55,532 Other growth 10,487 8,509 Gediktepe Project 1, Growth capital Total $ 80,906 $ 64,544 Total capital expenditures $ 82,728 $ 66,010 Çöpler Sulfide Stockpiles $ 7,369 $ 5,895 1 Capital related to Anagold has been adjusted to reflect the impact of the 20% non controlling interest, capital related to the Gediktepe Project is reflected at 50%, and capital related to Corporate activities is reflected at 100%. Sustaining capital expenditures are generally defined as those that support the ongoing operation to sustain production and future earnings and are mostly considered non discretionary. Sustaining capital expenditures for Q totaled $1.8 million. Costs for the expansion of the heap leach pad to 58 million tonnes were $0.7 million. The $1.1 million General plant and other assets includes various small projects required to support the ongoing operations. Growth capital expenditures are generally defined as those that grow production and/or increase future earnings and are considered discretionary. Expenditures on the Sulfide Project of $69.4 million in Q were incurred to progress the Project. The $10.5 million in Other growth capital is primarily related to indirect costs for Sulfide Project construction. The $1.0 million in capital expenditures for the Gediktepe Project reflects the continued work on the DFS and initial site preparation works. Çöpler Sulfide Stockpiles reflects sulfide ore mined and stockpiled. During Q1 2018, 0.9 million tonnes of sulfide ore at an average grade of 2.47 g/t were added to the sulfide stockpiles. Costs related to the mining and stockpiling of sulfide ore in Q totaled $7.4 million. The sulfide ore stockpiles at March 31, 2018 include high grade, medium grade, and low grade stockpiles totaling 9.6 million tonnes at an average grade of 3.33 g/t gold (or more than 1 million contained ounces) and carried a total cost of $92.3 million (or approximately $9.6/tonne or approximately $89.6/ounce). 7

9 Exploration and Development The Corporation holds a significant portfolio of highly prospective exploration land holdings across Turkey. The Corporation continues to explore for opportunities to add to its development pipeline to become a sustainable multi mine producer. The results of Alacer s exploration program outlined below have increased the confidence that these deposits will add to the Corporation s organic growth projects. The Corporation is taking a disciplined and systematic approach to the exploration program with efforts focused in three parts: Çöpler in pit, Çöpler District and Turkey Regional. The exploration program is showing positive results in all areas: Çöpler in pit: The program continues with an aim to deliver additional oxide ounces to the production schedule. Çöpler District: At Çakmaktepe and Bayramdere, the Measured and Indicated Mineral Resource has increased to 239,000 ounces, and the Inferred Mineral Resource has increased to 50,000 ounces as announced on December 18, 2017 in the press release entitled Alacer Gold Announces Maiden Mineral Reserve and a 70% Increase in Measured and Indicated Mineral Resource for Çakmaktepe as well as Additional Exploration Results for Çakmaktepe (the Çakmaktepe Update ) 1. Additionally, at the Ardich gold prospect, the Corporation announced additional positive drill results on February 26, All holes have intersected predominantly oxide mineralization with impressive grades including 67.7 meters at 4.08 g/t gold near surface. Mineralization remains open in all directions. Drilling and analysis work at Ardich continues. The near mine Çakmaktepe and Ardich deposits are adjacent to the existing Çöpler infrastructure, including the excess capacity originating from the expansion of the heap leach pad to 58 million tonnes. Turkey Regional: Targeted exploration work continues, and work on the DFS for the Gediktepe Project is expected to be completed later in All noted press releases are available on and on 8

10 Overall exploration activities for Q are discussed below: Q Exploration spending (in '000) 1 Alacer Contribution (%) Exploration 100% Exploration Attributable Çöpler District 80/20 80% $ 1,409 $ 1,127 Çöpler District 50/50 50% Other Varied Total $ 2,599 $ 1,797 1 Exploration attributable to joint venture spending is accounted for as other costs under the share of loss on investments accounted for using the equity method of accounting. Çöpler District Exploration Program Alacer s exploration licenses surrounding the Çöpler Gold Mine span across a 17 km by 25 km area. The exploration licenses are managed under two separate joint ventures ( JV ). Alacer owns 80% of the licenses adjacent to the Çöpler Gold Mine under the Anagold Madencilik Sanayi ve Ticaret A.S. ( Anagold ) JV and 50% of the remaining licenses in the Çöpler District under the Kartaltepe JV, both in partnership with Lidya Mining. 9

11 Pending approval of the revised Çakmaktepe Environmental Impact Assessment and Operating Permits, Alacer plans to commence mining at Çakmaktepe in Q Çakmaktepe Haul Road Construction 10

12 The Çakmaktepe North and Central deposits are located on the 50% Alacer owned (Kartaltepe) tenement. The northern mineralization is confined to a major sub vertical shear zone. Oxide mineralization is characterized by silica iron carbonate rich jasperoid, iron rich gossan, and brecciated limestone. Mineralization also occurs along flat thrust structures and lithological contacts which can be cut by the shear zone. Contacts between ophiolite / limestone and lithologies in contact with intrusive granodiorite dykes are generally mineralized. The North deposit is confined to two major NW SE trending fault zones. The western fault, Çakmaktepe Fault, delineates the western extent of Çakmaktepe North and separates it from the Çakmaktepe ophiolitic units. The shear fault separates the mineralization from ophiolite to the west. A thrust fault delineates the eastern extent of Çakmaktepe Central and separates it from the Çakmaktepe ophiolitic units. The listwanite horizon is the most favorable host rock for gold. Granodiorite intrusions show evidence of hydrothermal activity. This can take the form of iron replacement or sheeted quartz veins with jasperoid closer to granodiorite contacts. A majority of the mineralization within the Ҫakmaktepe North pit boundary is steeply dipping and extends to a depth of nearly 180 meters. The local topography and near vertical mineralization results in a high open pit strip ratio. Conversely, mineralization within the Ҫakmaktepe Central pit boundary is found at shallower depths and is oriented nearly horizontal. This orientation results in a low strip ratio with favorable conditions for rapid ore extraction and minimal pre strip. The mine plan considers mining in the lower strip ratio pit first. The Çakmaktepe East deposit is on the 50% Alacer owned (Kartaltepe) tenement area and is a goldcopper deposit with mineralization occurring near surface in stacked iron rich gossans and associated oxidized host rocks. Most of mineralization occurs along the contacts of diorite and shear zone between ophiolites and calc hornfels with the highest grades in proximity to diorite contacts. The Çakmaktepe East zone is now considered to be fully defined to a depth of 100 meters below surface. The Çakmaktepe Southeast deposit is on an 80% Alacer owned (Anagold) tenement and is characterized by gold copper silver mineralization, mainly hosted within iron rich gossans and altered wall rocks developed along shallow dipping contacts between diorite, ophiolite and limestone lithologies. Mineralization is from surface to a depth of 50 meters. The zone was fully defined by resource drilling in 2015 upon which 2017 Mineral Resource estimates are based. The Ardich gold prospect (formerly known as Çakmaktepe Far North) is located immediately north (about 1.5 kilometers) of Çakmaktepe North. On February 26, 2018, the Corporation announced additional positive drilling results for the Ardich gold prospect in the Ardich Update 1. All holes have intersected predominantly oxide mineralization with some impressive grades, including hole AR09 with 67.7m averaging 4.08 g/t gold. 1 Detailed information, including complete drill hole data, can be found in the press release entitled Alacer Announced Additional Positive Drilling Results for the Çöpler District including 67.7 Meters at 4.08 Grams per Tonne Gold Near Surface (the Ardich Update ), filed on February 26, 2018, which is available on and on 11

13 Drilling continues to encounter mineralization, with new holes extending the known mineralized gold zone laterally to approximately 400 meters x 500 meters. At the end of Q1, 30 drill holes were completed at Ardich. Mineralization remains open in all directions. All the drilling to date is in the Anagold 80:20 lease area. The deposit is hosted in a sequence of stacked slices of ultramafic and sedimentary rocks, apparently intruded by porphyritic granodioritic rocks. Gold mineralization is commonly hosted at depths less than 20 meters below surface in carbonaceous rocks and gossanous ironstones and dolomites. Gold mineralization is largely present as oxide material with limited zones of sulfides present. Listwanites are mineralized at the fault contact and unmineralized at the surface. The Bayramdere deposit is on the 50% Alacer owned (Kartaltepe) tenement area and is an oxide gold and copper deposit. Mineralization is localized within three stacked shallow dipping lodes. The mineralization has formed at the contacts of limestone and ophiolite lithologies with mineralization replacing limestone along the contacts. The limestone / ophiolite contacts are low angle thrusts, with limestone typically being trapped as wedges of material within a dominantly ophiolite stratigraphy. Mineralization occurs within iron rich gossan horizons. Although a small deposit, Bayramdere is higher grade and can support a high strip ratio to access mineralization. A total of 10,709 meters of drilling for Bayramdere was included into the Mineral Resource estimate, inclusive of metallurgical and geotechnical holes. The Demirmagara prospect is on the 80% Alacer owned (Anagold) tenement area and is characterized by epithermal gold mineralization, confined to NW SE trending fault system with extensive jasperoids at the hornfels/bleached limestones and intrusive (mostly dioritic) contacts. Carbonate replacement epithermal outcrops give elevated gold grades. Road construction is ongoing to support the subsequent drilling program. 12

14 Financial Highlights A summary of the Corporation s consolidated financial results for the three month periods ended March 31, 2018 and 2017 are presented below: Consolidated Financial Summary (in '000, except for per share) Q Q Gold sales $ 56,340 $ 42,847 Less: Production costs 23,257 24,757 Depreciation, depletion and amortization 13,658 10,417 Mining gross profit $ 19,425 $ 7,673 Less: Other costs 12,976 19,240 Exploration and evaluation 2, Income tax benefit (30,835) (24,661) Total net profit and comprehensive profit $ 34,864 $ 12,190 Amounts attributable to owners of the Corporation: Total net profit $ 26,676 $ 8,658 Total net profit per share basic $ 0.09 $ 0.03 Total net profit per share diluted $ 0.09 $ 0.03 Cash Flows Operating cash flows $ 29,796 $ 9,115 Investing cash flows (95,347) (68,626) Financing cash flows (27) (84) Subtotal Cash flows (65,578) (59,595) Effect of exchange rate changes on cash $ (535) $ (919) Change in cash $ (66,113) $ (60,514) Ending cash and cash equivalents $ 136,700 $ 154,037 As of 31 Mar Dec 17 Financial Position Working capital $ 165,998 $ 233,752 Total assets $ 1,282,622 $ 1,253,119 Non current liabilities $ 289,581 $ 285,584 Total liabilities $ 339,155 $ 345,649 Total equity $ 943,467 $ 907,470 13

15 First Quarter 2018 vs. First Quarter 2017 Gold sales of $56.3 million were 31% higher than Q reflecting a 21% increase in gold ounces sold and a 9% increase in realized gold price. Total cost of sales in Q of $36.9 million increased 5% as compared to Q as a result of higher production offset by favorable operating costs. Attributable net profit of $26.7 million for Q was $18.0 million higher than Q attributable net profit, primarily due to the $13.5 million increase in gold sales ($10.8 million attributable), a $6.2 million increase in income tax benefit ($5.0 million attributable) arising from incentive tax credits, and a $6.3 million decrease in other costs ($5.0 million attributable), primarily due to less unrealized losses related to the hedge program recorded in Q Cash and cash equivalents decreased $66.1 million during Q as compared to a decrease of $60.5 million in Q The Q cash outflows were greater than Q1 2017, primarily due to $26.7 million in increased investing activities related to the Sulfide Project, offset by higher operating cash flows primarily driven by $13.5 million higher revenues and favorable operating costs. Gold Sales Details of gold sales for the three month periods ended March 31, 2018 and 2017 are presented below: Q Q Gold ounces sold 1 42,131 34,804 Gold sales ($000) $ 56,340 $ 42,847 Average realized price, excluding hedging $ 1,337 $ 1,231 Average realized price, including hedge gains (losses) $ 1,294 $ 1,259 Average London PM Fix $ 1,329 $ 1,219 1 Includes 100% of Çöpler. For Q1 2018, Alacer s average realized gold price reflected in revenues is $1,337 per ounce; this is before factoring in realized hedge losses. The average gold price realized, including realized hedge losses, was $1,294 per ounce or $35 below the quarterly average London PM Fix of $1,329 per ounce. The increase in average realized gold price, excluding hedging, during Q as compared to Q is consistent with price volatilities as discussed in the Business Conditions and Trends section. 14

16 Other Costs Details of other costs, excluding exploration and evaluation costs, for the three month periods ended March 31, 2018 and 2017 are presented below: (In $000's) Q Q General and administrative $ 3,287 $ 4,283 Share based employee compensation costs (gain) 1,164 1,497 Foreign exchange loss 7,555 1,797 Other loss ,663 Total corporate and other costs $ 12,976 $ 19,240 General and administrative costs decreased 23% in Q as compared to 2017, primarily due to organizational realignment costs incurred in Q Share based employee compensation costs represent non cash long term incentives that are tied to the price of the Corporation s shares. Incentive grants are generally expensed over a 3 year vesting period. The unvested units are subject to mark to market adjustments based on the share price at the end of the period and assumptions related to performance measures. The lower Q share based compensation expense is due to mark to market adjustments. Foreign exchange loss results from movements between USD and TRY exchange rates as applied to Turkish operations. As TRY weakened in Q1 2018, a loss of $7.6 million was incurred from the unrealized losses from revaluing assets denominated in TRY. The most significant TRY denominated asset is the deferred income tax asset related to the incentive tax credits. Other loss of $1.0 million for Q are $10.7 million lower than Q1 2017, primarily due to greater unrealized losses incurred for the forward sales contracts in Q Unrealized losses reflect the change in the carrying value of the forward sales contract liability from period to period. Income Tax (Benefit) Expense Details of income tax (benefit) expense for the three month periods ended March 31, 2018 and 2017 are presented below: (In $000's) Q Q Income tax (benefit) expense $ (30,835) $ (24,661) Income tax benefit for Q primarily reflects the impact of the recognition of incentive tax credits related to qualifying expenditures at the Çöpler Gold Mine under the third incentive certificate. Application of these tax credits reduces accounting income tax expense in the current period and offsets current and future cash tax payments. 15

17 Summary of Quarterly Results The following table summarizes the Corporation s total revenues, attributable net profit, and attributable net profit per share for the eight quarters ending March 31, (in '000, except for per share) Q Q Q Q Q Q Q Q Total revenues $ 56,340 $ 80,603 $ 49,837 $ 35,800 $ 42,847 $ 38,419 $ 28,005 $ 37,881 Amounts attributable to owners of the Corporation: Net Profit (Loss) $ 26,676 $ 20,953 $ 29,115 $ 22,778 $ 8,658 $ (8,157) $ 77 $ 12,189 Per share profit (loss): basic $ 0.09 $ 0.07 $ 0.10 $ 0.08 $ 0.03 $ (0.03) $ 0.00 $ 0.04 diluted $ 0.09 $ 0.07 $ 0.10 $ 0.08 $ 0.03 $ (0.03) $ 0.00 $ 0.04 Generally, the Corporation does not experience significant effects of seasonality with regard to revenues or expenses. Market fluctuations in the gold price have affected revenues and profit over the last eight quarters. Liquidity and Capital Resources The Corporation manages its liquidity and capital resources to provide sufficient cash and cash equivalents to meet short and long term operating and development plans, finance facility obligations, and other contractual obligations when due. Historically, the Corporation has used cash flow from operations and existing bank credit facilities as primary sources of liquidity. For potential funding of large transactions, such as acquisitions, mine development and expansion, and debt financing transactions, Alacer may look to the private and public capital markets as a source of financing. Currently, capital resources at March 31, 2018 are sufficient to fund planned operations, forecasted exploration and capital expenditures, and reclamation and remediation obligations in Additionally, the Corporation is confident that it has the ability to complete the Sulfide Project funding based on current cash on hand, projected operating cash flows, and the $350 million finance facility with a syndicate of lenders (BNP Paribas (Suisse) SA, ING Bank A.S., Societe Generale Corporate & Investment Banking and UniCredit S.P.A.). As of March 31, 2018, $100 million remains undrawn from the finance facility. The facility agreement has no mandatory hedging, has an 8 year term, and has interest rates of LIBOR plus 3.5% to 3.95%. While no mandatory hedging is required, discretionary hedging to secure the gold price and discretionary hedging to limit the exposure to TRY volatility have been implemented as discussed in the Business Conditions and Trends section. With respect to longer term funding requirements, the Corporation is confident that future cash flows generated from operations and other sources of liquidity will be available. Under present conditions, the Corporation has sufficient access to capital and debt markets. There is a risk that the cost of obtaining capital resources from capital and debt markets may increase in the future as lenders and institutional investors may increase interest rates, impose tighter lending standards, or refuse to provide any new funding. Notwithstanding present market conditions, changes in the Corporation s business, unforeseen opportunities or events, and other external factors may also adversely affect liquidity and the availability of additional capital resources. Due to these factors, Alacer cannot be certain that funding, if needed, will 16

18 be available to the extent required, or on acceptable terms. If Alacer is unable to access funding when needed on acceptable terms, the Corporation may not be able to fully implement future business plans, take advantage of business opportunities, respond to competitive pressures, or refinance future debt obligations as they come due, any of which could have a material adverse effect on the Corporation s operational and financial results. However, the Corporation may elect to reduce its planned expenditures concurrent with prevailing conditions. The Corporation has financial flexibility to adjust its spending levels to provide sufficient liquidity to meet its current and future operational goals and financial obligations. Working Capital Working capital, current assets less current liabilities, decreased by $67.8 million during Q to $166.0 million, primarily due to a $66.1 million decrease in cash and cash equivalents related to continued funding of the Sulfide Project. Current assets are available and current liabilities are due at varying times within twelve months following the balance sheet date. Cash and cash equivalents are readily available to settle obligations related to current and future expenditures. The ability to distribute cash to the Corporation may be subject to finance facility contracts, jurisdictional regulations, or joint venture provisions. These provisions are not expected to adversely affect the Corporation s ability to meet its commitments when due. Off Balance Sheet Arrangements The Corporation does not have any off balance sheet arrangements. Business Conditions and Trends The Corporation s results of operations, financial condition, financial performance, and cash flows are affected by various business conditions and trends. The variability of gold prices, fluctuating currency rates, and increases and decreases in costs of materials and consumables associated with the Corporation s mining activities are the primary economic factors that have impacted financial results during Gold Price The price of gold is the most significant external factor affecting profitability and cash flow of the Corporation. The price of gold is subject to volatile price movements over short periods and is affected by numerous macroeconomic and industry factors that are beyond the Corporation s control. Major influences on the gold price include currency exchange rate fluctuations, the relative strength of the USD, the supply of and demand for gold and other macroeconomic factors such as interest rate levels, and inflation expectations. Declines in gold prices have adversely affected and in the future may adversely affect the Corporation s operating results, cash flows, financial condition, access to capital markets, the economic viability of reserves, and the ability to reinvest capital in order to maintain or grow the current asset base. A significant and prolonged deterioration in gold prices may negatively affect future cash flow such that the Corporation may curtail or determine it may not be economical to continue with existing or planned exploration or capital development and expansion activities for existing operations. 17

19 The Corporation entered into a forward sales hedge program to secure the gold price on oxide gold production during the ramp up of the Sulfide Project. As of March 31, 2018, remaining forward gold sales total 44,395 ounces at an average price of $1,310 per ounce for settlement during the period between April and December During Q1 2018, the gold price experienced volatility with the London PM Fix price ranging from $1,308 in March to $1,355 per ounce in January. The price of gold closed at $1,324 per ounce on March 29, 2018, and the average Q market price of $1,329 per ounce represents a $110 per ounce increase from the $1,219 per ounce average market price for Q The chart below shows the daily London PM Fix gold price from April 1, 2016 through March 31, Currency Rates Fluctuations in currency rates affect the Corporation s cash flows. The USD is the Corporation s functional currency. The Corporation s earnings and cash flow may be particularly affected by fluctuations in the exchange rate between USD and TRY. Such fluctuations may give rise to foreign currency exposure, which may affect future financial results. In May 2017, the Corporation entered into a foreign currency forward sales hedge program to limit exposure to the impact of TRY volatility. As of March 31, 2018, the remaining unsettled foreign currency forward sales under the hedge program totals 146,812,500 TRY at an average FX rate of 3.9 for settlement during the period between April and September

20 Period end TRY currency rates, as well as average TRY currency rates for the respective periods, relative to the USD are presented in the table that follows. End of Period Rates as of Average Currency Rates 31 Mar 31 Dec 31 Mar 31 Dec Q1 Q USD:TRY The chart below shows the movement in the USD:TRY foreign exchange rate from April 1, 2016 through March 31, Inflation Rates Inflation rate in Turkey was 10.23% 1 in March 2018, with the 12 and 18 month average rates being 11.15% and 10.40%, respectively. Currently, the Corporation has not experienced any material cost inflation resulting from changing domestic input prices. The collective impact of changing prices may result in operating and capital cost variances beyond Management s control. The Corporation is not currently using derivative products specific to goods or services consumed in the operations. 1 Inflation rates obtained from Republic of Turkey Prime Ministry, Undersecretariat of Treasury. 19

21 Transactions with Related Parties In the second quarter of 2016, the Corporation entered into a related party agreement for construction services for the sulfide process plant with GAP İNŞAAT YATIRIM VE DIŞ TİCARET A.Ş. ( GAP ), an affiliate of our joint venture partner. The current scope of work under the contract is valued at an estimated $150 million of which $104 million has been spent. Additionally, key management compensation, including Board of Director fees, is deemed a related party transaction, as outlined in the Management Information Circular and in Note 24 to the Corporation's audited annual consolidated financial statements for the year ended December 31, Critical Accounting Policies, Estimates, and Accounting Changes The Corporation s consolidated financial statements are prepared in accordance with IFRS. The significant accounting policies applied and recent accounting pronouncements are described in Note 3 to the Corporation's consolidated financial statements for the year ended December 31, There have been no significant changes from the Corporation s accounting policies applied during the year ended December 31, 2017, with the exception of updates to the Financial Assets and Revenue Recognition policies to reflect the accounting standard revisions to IFRS 9 and the new IFRS 15 accounting standard, both effective January 1, Additional information regarding the changes can be found in Note 3 of the Corporation s unaudited interim consolidated financial statements for the three month period ended March 31, The preparation of the Corporation s consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates and assumptions. The critical accounting estimates and judgements applied are described in Note 5 to the Corporation's consolidated financial statements for the year ended December 31, 2017, and there were no changes since year end. These estimates and assumptions are based on management s best knowledge of the relevant facts and circumstances taking into account previous experience, but actual results may materially differ from the amounts included in the financial statements. Financial Instruments and Other Instruments The Corporation s financial instruments as of March 31, 2018 consist of the gold forward sales, foreign currency forward sales, cash and cash equivalents, receivables, investments in publicly traded securities, and trade and other payables, presented at fair value. The Corporation s financial instruments are denominated primarily in USD. The Corporation recorded an unrealized gain of $0.5 million on the forward sales programs in Q There were no other material gains or losses associated with other financial instruments in Gold Price Risk is associated primarily with the volatility that will occur in the precious metals commodity market. Such risk is managed by hedging a portion of the Corporation s oxide gold production through forward gold sales agreements. The hedge program s objective is to secure the gold price during the rampup of the Sulfide Project as discussed in the Business Conditions and Trends section above. As of March 20

22 31, 2018, the remaining unsettled gold forward sales under the hedge program totals 44,395 ounces at an average gold price of $1,310 for settlement during the period between April and December Credit Risk is associated primarily with short term investments and the portion of cash and cash equivalents held by banks. Such credit risk is managed by diversifying holdings among various financial institutions and by purchasing short term investment grade securities. This may include such instruments as bankers acceptances, guaranteed investment contracts, corporate commercial paper, and U.S. and Canadian treasury bills in accordance with the Corporation s investment policy. Investment objectives are primarily directed towards preservation of capital and liquidity. The investment policy provides limitations on concentrations of credit risk, credit quality, and the duration of investments, as well as minimum rating requirements for cash and cash equivalents held in banks and financial institutions. The majority of the Corporation s receivables balances consist of claims for recoverable Turkish value added tax ( VAT ). As of March 31, 2018, Turkish VAT receivable totaled $11.0 million. Management monitors its exposure to credit risk on a continual basis. Interest Rate Risk is generally associated with variable rate financial instruments and available market interest rates at the time financial instruments are acquired. The Corporation holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Short term investments are purchased at market interest rates and result in fixed yields to maturity. Interest expense as related to borrowings on the finance facility are based on a variable interest rate of LIBOR plus 3.5% to 3.95%. Other financial assets and liabilities in the form of receivables, payables, and provisions are non interest bearing. Future net cash flows from interest income on cash and cash equivalents and interest expense on variable rate borrowings will be affected by interest rate fluctuations. The Corporation manages interest rate risk by maintaining an investment policy for short term investments and cash held in banks, which focuses on preservation of capital and liquidity. The Corporation currently does not engage in any derivative transactions to manage interest rate risk. Foreign Currency Risk is generally associated with financial instruments and transactions denominated in non USD currencies. The Corporation is exposed to financial gain or loss as a result of foreign exchange movements against the USD. In May 2017, the Corporation entered into a foreign currency forward sales hedge program to limit exposure to the impact of TRY volatility. As of March 31, 2018, the remaining unsettled foreign currency forward sales under the hedge program totals 146,812,500 TRY at an average FX rate of 3.9 for settlement during the period between April and September The Corporation holds USD and TRY in sufficient amounts to meet its estimated expenditure requirements for these currencies. The Corporation held approximately $7.7 million denominated in TRY as of March 31,

23 Non IFRS Measures The Corporation has identified certain measures that it believes will assist with understanding the performance of the business. As these measures have no standardized definitions under IFRS, they may not be directly comparable with other companies non IFRS performance measures. These non IFRS measures are not intended to be a substitute for, or superior to, any IFRS measures of performance, but Management has included and discussed them in this MD&A as these are considered key measures used within the industry for assessing performance. These non IFRS measures include Cash Operating Costs (C1) per ounce, Total Cash Costs (C2) per ounce, All in Sustaining Costs per ounce, and All in Costs per ounce and are explained further below. Cash Operating Costs (C1) and Total Cash Costs (C2) are calculated using guidance issued by the Gold Institute and adopted by the World Gold Council. The Gold Institute was a non profit industry association comprising leading gold producers, refiners, bullion suppliers, and manufacturers. This institute has now been incorporated into the National Mining Association. The guidance was first issued in 1996 and revised in November All in Sustaining Costs and All in Costs are calculated based on guidance from the World Gold Council issued in June Cash Operating Costs (C1) includes mining, processing, transport and refinery costs, mine site support costs, movement in production inventories, and by product credits, where relevant. Total Cash Costs (C2) includes all of the Cash Operating Costs (C1) noted above, plus royalties and severance taxes. All in Sustaining Costs are an extension of Total Cash Costs (C2) and incorporates costs related to sustaining production, including sustaining capital expenditures, exploration, and general and administrative costs. All in Costs include All in Sustaining Costs plus growth capital costs and regional joint venture exploration expenditures. Cash Operating Costs (C1) per ounce, Total Cash Costs (C2) per ounce, All in Sustaining Costs per ounce, and All in Costs per ounce are calculated by dividing the relevant costs, as determined using the cost elements noted above, by gold ounces sold for the periods presented. The data does not have a meaning prescribed by IFRS, and therefore, amounts presented may not be comparable to data presented by gold producers who do not follow the guidance provided by the Gold Institute or the World Gold Council. In particular, non cash costs such as depreciation and amortization would be included in a measure of total costs of producing gold under IFRS, but are excluded from the non IFRS measures noted above. Furthermore, while the Gold Institute and World Gold Council have provided definitions for the calculations of these costs, such calculations may vary from company to company and may not be comparable to other similarly titled measures of other companies. 22