Boda resource estimate within five months

Alkane Resources 16 November 2021 Update
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Alkane Resources

Boda resource estimate within five months

Exploration and Q122 operational results

Metals & mining

16 November 2021

Price

A$0.935

Market cap

A$557m

A$1.3497/US$

Net cash (A$m) at June 2021

9.8

Shares in issue

595.4m

Free float

78%

Code

ALKX

Primary exchange

ASX

Secondary exchange

OTC QX

Share price performance

%

1m

3m

12m

Abs

(2.1)

(9.7)

(8.8)

Rel (local)

(3.7)

(8.5)

(22.7)

52-week high/low

A$1.23

A$0.67

Business description

Alkane Resources has two main assets in Central West New South Wales: the Tomingley gold mine, where recent exploration has increased the mine life by at least eight years from FY23 to FY31, and its Northern Molong project, which is shaping up to be a tier 1 alkalic porphyry district.

Next events

Maiden resource at Boda

By end-Q1 CY22

Tomingley extension project approval

Mid-CY22

Underground production at Roswell begins

Q1 CY23

Open cut production at San Antonio begins

Q3 CY23

Analyst

Lord Ashbourne (formerly Charles Gibson)

+44 (0)20 3077 5724

Alkane Resources is a research client of Edison Investment Research Limited

On 22 October, Alkane announced the results to a further 19 diamond core and reverse circulation (RC) drill holes at it Northern Molong Porphyry Project. As well as continuing to delineate the strike and dip extent of the porphyry mineralisation at Boda, in this case, Alkane also announced results from Boda Two and Three (to the south of Boda) and Kaiser (to the northwest). Individual intercepts at Boda ranged from 1m at 18.6g/t gold to 11m at 2.88g/t and wider, while one at Kaiser recorded 4.94g/t gold over 2m.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/20

72.5

20.6

2.56

0.00

36.5

N/A

06/21

127.8

46.3

5.35

0.00

17.5

N/A

06/22e

136.4

27.8

3.27

0.00

28.6

N/A

06/23e

128.2

31.4

3.70

0.00

25.3

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Maiden resource estimate scheduled for Q1 CY22

Alkane is aiming to delineate a maiden mineral resource estimate for Boda in Q1 CY22. Initially, this is likely to be in the form of a tighter, higher-grade resource for the sulphide cemented breccia, plus a separate one for the massive, mineralised envelope (probably at an economic cut-off of c 0.3g/t). Until then, in the light of the information available, our best estimate of the potential mineral inventory at Boda is c 5.5–11.0Moz in total (±75%), containing a high-grade sulphide cemented breccia of 3.5Moz at a grade above 3.0g/t gold equivalent.

Tomingley continuing to deliver in the background

Tomingley continues to perform well. Production in Q122 was 12,141oz at an all-in sustaining cost (AISC) of A$1,961/oz cf guidance of 55-60koz at an AISC of A$1,450-1,600/oz for the full year. However, this was within budget, which anticipated the mining of lower grade stopes late in the quarter, before progressing to higher grade stopes in October. In the meantime, near mine exploration has shown additional mineralisation outside the existing resource models at Roswell and San Antonio, as well as intercepts at El Paso (to the south of San Antonio).

Valuation: Up to A$1.56/share

Our base case valuation of the expanded and extended Tomingley operation is 33 cents per share, to which may be added (as contingencies) a further 6c for the eventual development of the Roswell underground extension and potentially 16c given the current gold price. To this total of 55c, an additional 4c may be added to reflect the value of residual (unmined) resources plus 3c for ongoing exploration success at Roswell, San Antonio and El Paso to take the total for the wider Tomingley operation to 62c (including cash held centrally). Beyond that, we value Alkane’s interests in Calidus and Genesis at 15c per share and the exploration completed to date at Boda, Boda Two, Boda Three and Kaiser and Duke within the Northern Molong Porphyry Project at anything up to 79c with plenty of blue-sky upside still remaining to take the total to 156c (cf 130c previously, see Exhibit 13).

Investment summary

Since our last note in September, Alkane has:

released the assay results of 11 RC and eight diamond drill (DD) holes drilled over a total of 12,394m (average 652m per hole) at its Boda, Boda Two, Boda Three, Kaiser and Cactus prospects at its Northern Molong Porphyry Project in Central West New South Wales in Australia;

announced its operational results for Q122.

This note updates our analysis of the company with respect to both announcements.

Boda drilling results

In its announcement of 22 October, Alkane reported the assay results of an additional four DD holes and an additional three RC holes at its Boda prospect at its Northern Molong Porphyry Project. The drilling is part of a 30,000m diamond and RC core exploration programme that began in July 2020 to test the dimensions and extensions to the large, low-grade mineralised envelope at Boda, as well as any internal high-grade zones.

In general, the Boda porphyry system is a series of near-vertical, northwest striking, intrusive related breccias hosted within a thick sequence of shallowly east-dipping andesite lavas. These magmatic breccias are hydrothermal in nature and zone towards higher gold-copper grades when associated with a chalcopyrite±pyrite dominant cement. Exploration to date has identified that the northeast shoulder of Boda (see Exhibit 2) in particular has a shallow blanket of epithermal gold mineralisation associated with colloform quartz-carbonate veining and abundant pyrite, with gold grades as high as 18.6g/t (included in hole KSDD042) and it is this area of the deposit that all seven holes were designed to test.

A summary of the seven drill holes – totalling 5,322m (or 760m per hole) – is as shown in Exhibit 1.

Exhibit 1: Boda drill hole assay results

From

(m)

To

(m)

Average intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

Previously announced DD results

653.2

0.26

0.12

Previously announced RC results

259.7

0.21

0.12

Previously announced all holes

539.5

0.25

0.12

BOD054

21.0

163.0

142.0

0.21

0.15

BOD055

9.0

345.0

158.0

0.46

0.09

KSDD040

110.0

1,185.0

1,012.0

0.28

0.14

KSDD041

4.0

859.0

414.0

0.26

0.12

KSDD042

116.0

927.0

756.0

0.37

0.16

KSDD045

10.0

840.0

774.0

0.29

0.14

KSRC044

63.0

298.0

134.0

0.28

0.22

New DD results

739.0

0.30

0.14

New RC results

144.7

0.32

0.15

All DD results

662.7

0.26

0.12

All RC results

238.1

0.22

0.12

All holes

532.1

0.26

0.12

Source: Alkane Resources, Edison Investment Research. Note: RC holes denoted RC and BOD.

Gold and copper intercepts were calculated using a lower cut of 0.1g/t Au and 0.05% Cu, respectively. Internal dilution (<cut-off) is less than 15% of reported intercepts. True widths are estimated as approximately 50% of intersected widths (see Alkane’s announcement).

At least four mineralised intrusive breccias have now been identified central to the Boda mineralisation, with drilling conducted with 50m spaced southwest-oriented drilling traverses with nominal 100m spaced drill holes (see Exhibit 2) to determine the strike and dip extensions of the deposit. Note that for the purposes of Exhibit 1, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. In general, it may be seen that the four new DD holes reported widths of mineralisation that were wider and higher grade than those of previous holes, while the three RC holes reported widths that were narrower than previous holes, but grades that were, on average, higher than both previous RC holes and (unusually) the current round of diamond drill holes as well. As previously, the fact that DD holes continue to demonstrate wider overall intersections than their RC counterparts and extend to greater depths at higher grades may be attributed to the zonation of the system and the fact that the RC drill holes are testing the upper part of the system, where grades are anyway anticipated to be lower (as is typical of this type of porphyry system).

Exhibit 2: Boda, Boda Two and Boda Three prospect drilling

Source: Alkane Resources

Full details of the assay results are included in Alkane’s announcement. However, a summary of the significant intersections from the diamond core drilling is:

Hole KSDD040

848m grading 0.29g/t gold and 0.17% copper, including

19m grading 1.36g/t Au and 0.51% Cu

14m grading 1.42g/t Au and 1.03% Cu from 753m

Hole KSDD042

676m grading 0.39g/t Au and 0.16% Cu, including

1m grading 9.38g/t Au from 281m

30m grading 1.29g/t Au and 0.21% Cu

11m grading 1.24g/t Au and 1.66% Cu

11m grading 2.88g/t Au and 1.03% Cu, including

1m grading 18.6g/t Au, 1.70% Cu

Hole KSDD045

679m grading 0.30g/t Au and 0.15% Cu, including

21m grading 1.11 Au and 0.28% Cu

8m grading 2.17g/t Au and 0.90% Cu.

Significant intersections from the RC drilling included:

Hole BOD054

9m grading 1.09g/t Au and 0.43% Cu

Hole BOD055

6m grading 5.24g/t Au

A brief comparison between the results of the most recent assay results relative to those of comparable earlier holes – where comparison is possible – is provided in the table below:

Exhibit 3: Recent Boda assay results cf comparable earlier results

Recent hole

Prior comparable hole

Hole

Intersection
(m)

Average gold grade
(g/t)

Average Cu grade
(%)

Hole

Intersection
(m)

Average gold grade
(g/t)

Average Cu grade
(%)

KSDD042

756.0

0.37

0.16

KSDD034W2

655.0

0.12

0.13

KSDD040

1,012.0

0.28

0.14

KSDD031

407.2

0.77

0.31

KSDD041

414.0

0.26

0.12

KSDD028

839.0

0.38

0.17

KSDD045

774.0

0.29

0.14

KSDD029

220.3

0.22

0.14

BOD054

142.0

0.21

0.15

BOD055

158.0

0.46

0.09

KSRC044

134.0

0.28

0.22

Source: Alkane Resources, Edison Investment Research

Note that hole KSDD028 is significant for comparative purposes in that it was designed to intersect the north-west striking orebody at approximately 90°. The hole, collared in outer propylitic alteration, intersected a gold mineralised pyrite-sericite shell for approximately 300m downhole, which zoned in to extensive calc-potassic alteration with gold-copper (Au-Cu) mineralisation centred around a high-grade Au-Cu breccia. The breccia showed apparent sulphide zonation with the upper intercepts more pyrite rich, zoning towards the centre and at depth to more chalcopyrite rich with increasing Au-Cu grades, possibly vectoring towards a ‘causative’ intrusion to the Boda system.

Exhibit 4 updates our estimates of the potential mineralised inventory in the light of the seven new drill hole results at Boda. As previously, in recognition of the difference between RC and DD results, we have included two updated estimates: one based on the whole population of results and the other based on the results of the DD holes only. Our updated mineral inventory estimates are also compared with the resources disclosed by Newcrest for Cadia Ridgeway c 100km to the south (see Exhibit 9).

Exhibit 4: Edison estimate of the potential size of Boda mineralisation

Source of underlying data

Edison

Alkane Resources

Newcrest

Characteristic (units)

Updated
(all holes)

Updated
(DD holes)

***Prior
(all holes)

***Prior
(DD holes)

Alkane est. dimensions

High-grade pod

Surface projection

Cadia Valley Ridgeway

Cadia Ridgeway underground actual**

Strike (m)

1,037

1,037

1,037

1,037

1,000

150

1,069

250

 

Ave est true width (m)

257

327

260

322

400

100

521

150

 

Est surface area (Mm2)

 

 

 

 

 

 

0.557

 

 

Ave est true depth (m)

830

1,008

875

1,031

1,100

800

1,020

600

 

Est volume (Mm3)

221

342

236

344

440

12

568

22.5

 

Est density (t/m3)

3

3

3

3

3

3

3

3

 

Est tonnage (Mt)

664

1,026

707

1,033

1,320

36

1,704

67.5

151

Est ave gold grade (g/t)

0.26

0.26

0.25

0.26

*0.26

 

0.2

 

0.49

Est ave copper grade (%)

0.12

0.12

0.12

0.12

*0.12

 

 

 

0.32

Est ave AuE grade (g/t)

0.46

0.47

0.45

0.45

*0.46

3.0

 

2.0

0.84

Est contained gold (koz)

5,516

8,696

5,719

8,561

10,959

 

10,957

 

2,400

Est contained copper (kt)

827

1,276

862

1,259

1,643

 

 

 

480

Est contained AuE (koz)

9,847

15,377

10,187

15,088

19,563

3,472

 

4,340

4,925

Source: Edison Investment Research, Alkane Resources. Note: *Edison estimates; **From Newcrest reserve and resource statement, 31 December 2020; ***Conducted at prices of US$1,794/oz Au and US$9,299/t Cu. Updated gold equivalent resource inventory and grades calculated at US$1,818/oz Au and US$9,518/t Cu.

Given the information available, our best estimate of the overall size of the Boda deposit is broadly unchanged at 664–1,704Mt (cf 707–1,704Mt previously), albeit at a higher average gold grade of 0.26g/t (cf 0.25–0.26g/t previously) containing 5.5–11.0Moz Au plus copper (cf 5.7–11.0Moz previously), including a high grade sulphide cemented breccia of 3.5Moz (unchanged) at a grade above 3.0g/t AuE cut-off (see column entitled ‘High grade pod’).

Despite our interpretation of Alkane’s drilling results, clearly such estimates are very far from being anything close to JORC code-compliant and experience suggests they have an accuracy of approximately ±75%. Even the bottom end of this range, however, would suggest a multi-million ounce gold deposit at Boda, with a potential valuation (based on the US$24.08/oz average valuation of in-situ ounces calculated in our report Gold stars and black holes, published in January 2019) of A$0.30–0.59 per Alkane share.

Boda Two and Boda Three drilling results

The Boda Two and Boda Three prospects are defined by a 1,100m x 500m coincident gold-copper soil and magnetic high footprint with separate conductive induced polarisation (IP) anomalies.

A summary of the six holes drilled at Boda Two and Boda Three (see Exhibit 2 for orientation) is as follows:

Exhibit 5: Boda Two and Three drill hole assay results

From

(m)

To

(m)

Average intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

KSRC039 (previously reported)

136.0

320.0

14.0

0.07

0.13

BOD052

332.0

511.0

79.0

0.08

0.12

BOD053

85.0

356.0

213.0

0.12

0.19

KSDD035

0.0

762.0

305.0

0.12

0.12

KSRC045

67.0

534.0

210.0

0.12

0.11

KSRC046

3.0

196.0

34.0

0.09

0.12

KSRC047

45.0

210.0

44.0

0.10

0.11

All new holes

147.5

0.12

0.13

Source: Alkane Resources, Edison Investment Research. Note: RC and BOD are RC holes.

Total metres drilled amounted to 2,953m, or an average of 492m per hole. As at Boda, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. In addition, the one new diamond drill hole reported widths of mineralisation that were higher than those of its RC counterparts as well as being at higher grades (as expected). Otherwise, the five new RC holes generally reported both grades and widths that were higher than those of the previously reported RC hole (KSRC039), although readers should note that hole KSRC039 was drilled approximately 677m west-south-west of the Boda deposit (see Exhibit 2) to the far southwest of the area of mineralisation.

Analysis and interpretation of Boda Two and Three drill results

While lower grade with generally narrower widths than Boda itself, drilling at Boda Two and Three nevertheless demonstrates many similarities with Boda, including an extensive zone of low grade gold-copper porphyry mineralisation with breccias that zone to higher grades. As such, the most recent round of drill hole results confirm the mineralisation continues for many metres to the south of Boda and possibly much further with the potential for additional high grade zones. These breccias will be targeted with a second phase of drilling in CY22. In the meantime, our best estimate of the mineral inventory that may be encompassed by current drilling (using the same methodology as for Boda, above) is shown in Exhibit 6, below. Given the relatively sparse drilling conducted at Boda Two and Boda Three so far (seven holes over a strike length of approximately 617m), for the moment our estimate is based on the whole population of results, rather than discriminating between the results implied by the diamond drill holes compared with those implied by the RC drill holes. Our mineral inventory estimate is also compared with the resource disclosed by Newcrest for Cadia Ridgeway c 100km to the south (see Exhibit 9).

Exhibit 6: Edison estimates of the potential size of Boda Two and Three mineralisation

Source of underlying data

Edison

Alkane Resources

Newcrest

Characteristic (units)

Updated
(all holes)

Alkane est. dimensions

Cadia Valley Ridgeway

Cadia Ridgeway underground actual**

Strike (m)

617

1,100

250

 

Ave est true width (m)

64

500

150

 

Est surface area (Mm2)

0.550

 

 

Ave est true depth (m)

318

*318

600

 

Est volume (Mm3)

13.2

182.5

22.5

 

Est density (t/m3)

3

3

3

 

Est tonnage (Mt)

39.5

547.5

67.5

151

Est ave gold grade (g/t)

0.12

*0.12

 

0.49

Est ave copper grade (%)

0.13

*0.13

 

0.32

Est ave AuE grade (g/t)

0.34

*0.34

2.0

0.84

Est contained gold (koz)

148

2,049

 

2,400

Est contained copper (kt)

53

739

 

480

Est contained AuE (koz)

426

5,916

4,340

4,925

Source: Edison Investment Research, Alkane Resources. Note: *Edison estimates; **from Newcrest reserve and resource statement, 31 December 2020. Updated gold equivalent resource inventory and grades calculated at US$1,818/oz Au and US$9,518/t Cu.

Applying the same methodology to our estimate of the possible mineral inventory contained at Boda (see Exhibit 4), our best estimate of the mineral inventory contained within the Boda Two and Boda Three prospects is a modest 148koz Au at an average grade of 0.12g/t (see Exhibit 6, above), although we recognise that much of the basis of this estimate is dependent on the relatively narrow widths of mineralisation hitherto intersected and the observation that ‘true widths are estimated as approximately 50% of intersected width.’ If intersections in this area ultimately increase to those implied by the deposit’s apparent 1,100m x 500m coincident gold-copper soil and magnetic high footprint with separate conductive IP anomalies, we believe a resource approximately 13.8x the size (ie 2,049koz; see column entitled ‘Alkane est. dimensions’ in Exhibit 6) could be delineated and, within this context, it is notable that hole KSRC046 ended in mineralisation.

As before, readers are cautioned that such estimates are very far from being anything close to JORC code-compliant and experience would suggest they have an accuracy of approximately ±75%. Within this context, we calculate a value for our current resource estimate of 148koz of A$0.01/share (based on the US$24.08/oz average valuation of in-situ ounces calculated in our report Gold stars and black holes, published in January 2019). In the event that the ultimate resource delineated expands to 2,049koz, we calculate a value for Boda Two and Boda Three of A$0.11/share.

Kaiser drilling results

Historic drilling has defined a broad area of extensive alteration with two main zones of calc-potassic alteration and associated gold-copper mineralisation in the Kaiser Zone, centred over the Kaiser workings, and the Duke Zone, 200m to the northeast and parallel to it. These two zones exhibit many of the same characteristics as the Boda prospect, including their alteration assemblages and zonation with a similar northwest trend to the hydrothermal system.

To date, the area mapped by drilling at the Duke Zone is c 250m wide by over 800m in strike length and open along strike and at depth, with the potential for a large tonnage, low grade, shallow resource 1.5m to the northwest of Boda. On 22 October, Alkane reported the assay results of an additional three DD holes and one RC hole at Kaiser, totalling 3,425m of aggregate drilling (an average of 856m per hole).

A summary of the four holes drilled at Kaiser and Duke, within the context of the results from holes previously drilled, is as follows:

Exhibit 7: Kaiser drill hole assay results

From

(m)

To

(m)

Average intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

Previously announced holes

124.2

0.34

0.24

KAI039

6.0

188.0

121.0

0.24

0.16

KSDD036

3.0

826.0

524.4

0.18

0.13

KSDD037

22.0

1,152.8

368.8

0.32

0.12

KSDD038

9.0

1,131.0

750.0

0.19

0.12

All holes

194.6

0.28

0.18

Source: Alkane Resources, Edison Investment Research. Note: DD: diamond drill holes; RC and BOD: RC holes.

As before, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. Once again, it may be seen that the four new DD holes reported widths of mineralisation that were materially in excess of both those previously reported and comparable RC results, albeit at similar to lower gold grades and slightly lower copper grades.

Analysis and interpretation of Kaiser drill results

On the basis of these results, our best estimate of the mineral inventory that may be encompassed by drilling at Kaiser (using the same methodology as for Boda, above) is shown in Exhibit 8, below. Note that, as with Boda Two and Boda Three, given the relatively sparse drilling conducted at Kaiser and Duke to date, for the moment our estimate is based on the whole population of results, rather than discriminating between the results implied by the diamond drill holes compared with those implied by the RC drill holes. Our mineral inventory estimate is also compared with the resource disclosed by Newcrest for Cadia Ridgeway c 100km to the south.

Exhibit 8: Edison estimate of the potential size of Kaiser mineralisation

Source of underlying data

Edison

Alkane Resources

Newcrest

Characteristic (units)

Updated
(all holes)

Alkane est. dimensions

Cadia Valley Ridgeway

Cadia Ridgeway underground actual**

Strike (m)

986

800

250

 

Ave est true width (m)

85

250

150

 

Est surface area (Mm2)

0.200

 

 

Ave est true depth (m)

315

*315

600

 

Est volume (Mm3)

26.3

63.1

22.5

 

Est density (t/m3)

3

3

3

 

Est tonnage (Mt)

79.0

189.2

67.5

151

Est ave gold grade (g/t)

0.28

*0.28

 

0.49

Est ave copper grade (%)

0.18

*0.18

 

0.32

Est ave AuE grade (g/t)

0.57

*0.57

2.0

0.84

Est contained gold (koz)

702

1,681

 

2,400

Est contained copper (kt)

142.2

340.6

 

480

Est contained AuE (koz)

1,446

3,464

4,340

4,925

Source: Edison Investment Research, Alkane Resources. Note: *Edison estimates; **from Newcrest reserve & resource statement, 31 December 2020. Updated gold equivalent resource inventory and grades calculated at US$1,818/oz Au and US$9,518/t Cu.

Applying the same methodology as to our estimate of the possible mineral inventory contained at Boda (see Exhibit 4), our best estimate of the mineral inventory contained within the Kaiser prospect is 702koz Au at an average grade of 0.28g/t (see Exhibit 8, above), albeit we recognise that this could more than double to 1,681koz if the drilling widths intersected ultimately increase to close to the 250m width mapped by drilling to date (see column entitled ‘Alkane est. dimensions’).

As before, readers are cautioned that such estimates are very far from being anything close to JORC code-compliant and experience would suggest they have an accuracy of approximately ±75%. Within this context, we calculate a value for our current resource estimate of 702koz of A$0.04/share (based on the US$24.08/oz average valuation of in-situ ounces calculated in our report Gold stars and black holes, published in January 2019). If the ultimate resource delineated expands to 1,681koz, we calculate a value for it of A$0.09/share.

Northern Molong Porphyry Project background

The Northern Molong Porphyry Project is 100% owned by Alkane, covers c 115km2 of the northern Molong Volcanic Belt and is around 80km to the north-east of its Tomingley Gold Mine, in Central West New South Wales (Exhibit 9).

Exhibit 9: Location of the Northern Molong Porphyry Project

Source: Alkane Resources

To date, Alkane’s drill results at Boda have shown both a similar stratigraphic sequence and style of alteration and mineralisation to Newcrest’s Cadia Province mines 110km to the south, although it is also more structurally complex. Nevertheless, the Cadia Province mines host a JORC-compliant mineral resource estimate of 36.1Moz Au at a grade of 0.35g/t Au and 8.2Mt of copper at a grade of 0.26% Cu plus silver and molybdenum and produced 843koz of gold in FY20 at an AISC of US$160/oz Au (net of by-product credits) to generate US$991m in free cash flow.

The Northern Molong Porphyry Project now comprises four exploration licences, Bodangora, Boda South, Kaiser and Finns Crossing, within which Alkane has defined five magnetic anomalies interpreted to be intrusive complexes, denoted Kaiser, Boda, Comobella, Driell Creek and Finns Crossing, all within a 15km north-west to south-east trending corridor (Exhibit 10) and all close to road, rail, gas and water infrastructure. Importantly, the Boda anomaly correlates with a historical IP survey completed by CRA Exploration (now Rio Tinto) over the Boda Intrusive Complex (BIC). This survey showed a strong high chargeable anomaly along the northern edge of the survey area coincident with the magnetic anomaly, as a result of which Alkane subsequently completed a 70-line kilometre IP survey over the 6km strike extensions of the BIC to generate drilling targets.

Exhibit 10: Northern Molong Porphyry Project regional geology

Source: Alkane Resources

Four of these targets have now been drill tested: Kaiser, Boda, Comobella and Glen Hollow. Exploration has identified the margins of major monzonite intrusive complexes that provide the primary control for porphyry and epithermal mineralisation with significant intersections being reported along the western margin of both the Kaiser Intrusive Complex and the BIC. Specifically, gold mineralisation has been discovered at Kaiser, Boda and Glen Hollow (which is part of Comobella), with recent drilling identifying multiple phases of monzonite to monzogabbro intrusion that are plumbing a north-west structural corridor hosting extensive (calc-)potassic alteration and significant gold-copper mineralisation. In this case, the north-west orientation of the structural zones is significant in that similarly oriented structural zones are important controls to Macquarie Arc alkali gold-copper porphyry mineralisation such as the Lachlan Transverse Zone at the Cadia Valley (and Northparkes) deposits. Within this context, the alteration at Boda suggests the prospect is positioned in the upper parts of an alkali porphyry system with high-level epithermal gold veins observed in some of the drilling coincident with strongly pyritic zones, while deeper drilling has defined strong pervasive hydrothermal alteration that is dominantly calc-potassic (ie, a biotite+actinolite+epidote+magnetite+chalcopyrite±kspar±bornite mineral assemblage), phasing out to a more distal propylitic alteration (albite+epidote+chlorite+pyrite±chalcopyrite).

Quarterly results and FY22 estimates

Q122 operational results and FY22 estimates

Production of 56,958oz gold at Alkane in FY21 at an AISC of A$1,320/oz was materially ahead of the company’s most recent guidance of 50–55koz at an AISC of A$1,400–1,550/oz and its original guidance of 45–50koz gold at an AISC of A$1,450–1,600/oz. Production in Q122 (which was announced on 29 October) was 12,141oz at an AISC of A$1,961/oz cf guidance for FY22 of 55–60koz at an AISC of A$1,450–1,600/oz. However, this production result was within budget, which anticipated mining lower grade stopes late in the quarter, before progressing to higher grade stopes in October. A summary of Alkane’s recent quarterly results plus our estimate of those required in each of the remaining three quarters for it to hit approximately the middle of its guidance range for the full year is provided in the table below:

Exhibit 11: Tomingley quarterly operating results, Q420–Q422e

Q420

Q121

Q221

Q321

Q421

Q122

Q222e

Q322e

Q422e

FY22e

Ore milled (t)

204,269

254,423

235,217

237,455

201,437

247,884

270,947

270,947

270,947

1,060,725

Head grade (g/t)

2.20

1.56

2.50

2.40

2.16

1.79

1.99

1.99

1.99

1.94

Contained gold (g/t)

14,448

12,761

18,906

18,323

13,989

14,266

17,299

17,299

17,299

66,164

Recovery (%)

89.3

88.4

88.1

91.0

87.1

85.1

87.4

87.4

87.4

86.9

Gold poured (oz)

13,358

11,499

15,919

16,040

13,500

12.141

15,120

15,120

15,120

57,500

Gold sold (oz)

12,992

11,945

16,613

15,844

11,526

13,359

15,120

15,120

15,120

58,718

Gold price (US$/oz)

1,713

1,911

1,875

1,796

1,814

1,790

1,802

1,819

1,819

1,807

Forex (A$/US$)

1.5226

1.3987

1.2929

1.2943

1.2989

1.3613

1.3494

1.3497

1.3497

1.3525

Average realised price (A$/oz)

2,327

2,261

2,302

2,203

2,401

2,467

*2,432

*2,455

*2,455

*2,452

C1 site cash costs (A$/oz)

981

1,178

720

803

1,199

1,531

1,181

1,181

1,181

1,261

AISC (A$/oz)

1,368

1,575

1,201

997

1,669

1,961

1,454

1,452

1,453

1,569

Source: Alkane Resources, Edison Investment Research. Note: *Excludes forward sales.

Alkane/Tomingley valuation

As previously, our valuation of Tomingley is based on the present value of our forecast life of operations dividend stream to investors in Alkane as a result of the execution of the Tomingley mine plan (including Roswell and San Antonio) discounted back to present value at a rate of 10% per year, excluding exploration expenditure.

In the wake of Q122 results, our valuation of the dividend stream potentially available to Alkane shareholders from its immediate Tomingley operations is now A$0.328/share (cf A$0.348/share previously – albeit with the decline solely attributable to the strengthening in the relevant forex rate, from A$1.3771/US$ to A$1.3497/US$). However, to this must be added the value of residual resources at the end of the life of operations, which we estimate to be 0.8Moz with a current value of US$18.2m (A$24.5m), or A$0.041/share, to bring our total valuation of Tomingley to A$0.369/share including cash.

A comparison of our updated and prior expectations for Alkane’s EPS and DPS stream and valuation from the present to the end of its life of operations is as follows:

Exhibit 12: Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Source: Edison Investment Research.

Note that the DPS columns in Exhibit 12 represent theoretical, maximum potential dividends that we believe could be paid by the company, rather than actual dividends forecast and are used solely for valuation purposes. In reality, we would expect a portion of any dividends that could be paid instead to be re-invested into the business, either in the form of exploration expenditure (eg at the Northern Molong Porphyry Project) or capital expenditure.

Combined valuation of Alkane

A summary of our updated valuation of Alkane in the light of both our updated Boda estimates (see Exhibits 4, 6 and 8) and Q122 results (see Exhibit 11) is as follows:

Exhibit 13: Alkane Resources valuation summary (Australian cents per share)

Previous

Current/updated

Asset

Existing assets’ valuation

Contingent assets’ valuation

Potential total

Existing assets’ valuation

Contingent assets’ valuation

Potential

total

Tomingley plus cash

39

39

37

37

Roswell underground

6

6

6

6

El Paso and ongoing Tomingley extension exploration

3

3

3

3

Investments in Calidus and Genesis*

9

9

15

15

Boda exploration

32–61

61

30-59

59

Boda Two & Three exploration

1-11

11

Kaiser & Duke exploration

4-9

9

Spot gold price level cf long-term forecast

12

12

16

16

Total

48

53–82

130

52

60-104

156

Source: Edison Investment Research. Note: *At prevailing share prices of A$0.64/share for Calidus and A$0.155/share for Genesis. Totals may not add up owing to rounding.

Financials

Alkane reported A$34.4m in cash on its balance as at end-September 2021, partially balanced by an assumed A$24.9m in net debt financing from its Macquarie working capital facility plus lease financing during the quarter, to result in an overall estimated net cash position of A$9.5m at the quarter’s end (cf A$9.8m as at end-FY21). In addition, Alkane had A$4.9m of bullion on hand and, we estimate, an updated A$87.8m in listed investments in Calidus and Genesis (cf A$51.1m previously). Excluding cash flows from financing activities, Alkane generated A$71.1m in cash from operating activities in FY21. Hereafter, we estimate that cash flow from operations will contribute meaningfully to capex as the Tomingley mine extension is constructed. However, we expect management will nevertheless seek to fund a portion of the project with debt put in place over the next 12 months.

Exhibit 14: Financial summary (A$000s)

2018

2019

2020

2021

2022e

2023e

2024e

2025e

30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

129,973.6

93,994.9

72,549.0

127,833.0

136,445.5

128,192.5

145,659.7

239,268.2

Cost of Sales

(51,080.9)

(53,656.4)

(32,868.0)

(45,313.0)

(76,806.2)

(63,528.6)

(85,327.0)

(150,500.0)

Gross Profit

78,892.7

40,338.5

39,681.0

82,520.0

59,639.4

64,663.9

60,332.7

88,768.2

EBITDA

 

 

70,378.7

32,971.7

29,412.0

70,527.0

52,272.6

57,297.2

52,965.9

81,401.4

Normalised operating profit

 

 

31,658.3

25,808.8

20,171.0

49,940.0

27,659.0

31,083.6

42,000.9

70,436.4

Reported operating profit

31,658.3

25,808.8

20,171.0

49,940.0

27,659.0

31,083.6

42,000.9

70,436.4

Net Interest

(579.0)

(418.8)

389.0

(2,741.0)

146.6

362.9

135.0

383.5

Joint ventures & associates (post tax)

0.0

0.0

0.0

(870.0)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(646.0)

1,741.0

0.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

31,079.3

25,390.0

20,560.0

46,329.0

27,805.6

31,446.5

42,136.0

70,819.9

Profit before tax (reported)

 

 

31,079.3

25,390.0

19,914.0

48,070.0

27,805.6

31,446.5

42,136.0

70,819.9

Reported tax

(6,919.9)

(2,266.1)

(6,569.0)

(14,503.0)

(8,341.7)

(9,434.0)

(12,640.8)

(21,246.0)

Profit after tax (norm)

24,159.4

23,123.9

13,991.0

31,826.0

19,463.9

22,012.6

29,495.2

49,573.9

Profit after tax (reported)

24,159.4

23,123.9

13,345.0

33,567.0

19,463.9

22,012.6

29,495.2

49,573.9

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

(583.0)

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

24,159.4

23,123.9

13,991.0

31,826.0

19,463.9

22,012.6

29,495.2

49,573.9

Net income (reported)

24,159.4

23,123.9

12,762.0

33,567.0

19,463.9

22,012.6

29,495.2

49,573.9

Basic average number of shares outstanding (m)

506

506

547

595

595

595

595

595

EPS – basic normalised (A$)

 

 

0.05

0.05

0.03

0.05

0.03

0.04

0.05

0.08

EPS – diluted normalised (A$)

 

 

0.05

0.04

0.02

0.05

0.03

0.04

0.05

0.08

EPS – basic reported (A$)

 

 

0.05

0.05

0.02

0.06

0.03

0.04

0.05

0.08

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

10.3

(-27.7)

(-22.8)

76.2

6.7

(-6.0)

13.6

64.3

Gross margin (%)

60.7

42.9

54.7

64.6

43.7

50.4

41.4

37.1

EBITDA margin (%)

54.1

35.1

40.5

55.2

38.3

44.7

36.4

34.0

Normalised operating margin (%)

24.4

27.5

27.8

39.1

20.3

24.2

28.8

29.4

BALANCE SHEET

Fixed assets

 

 

138,275.0

172,196.0

129,077.0

203,161.0

217,637.4

245,013.7

258,638.7

257,763.7

Intangible assets

93,136.0

103,894.0

32,745.0

57,794.0

67,794.0

77,794.0

87,794.0

97,794.0

Tangible assets

36,266.0

51,038.0

62,322.0

99,411.0

103,887.4

121,263.7

124,888.7

114,013.7

Investments & other

8,873.0

17,264.0

34,010.0

45,956.0

45,956.0

45,956.0

45,956.0

45,956.0

Current assets

 

 

93,306.0

76,501.0

59,096.0

33,054.0

42,531.2

26,817.3

44,479.1

100,284.7

Stocks

19,153.0

4,816.0

7,647.0

11,648.0

5,233.5

4,917.0

5,586.9

9,177.4

Debtors

2,030.0

1,998.0

2,940.0

1,894.0

3,364.4

3,160.9

3,591.6

5,899.8

Cash & cash equivalents

72,003.0

69,582.0

48,337.0

18,991.0

33,412.3

18,218.4

34,779.6

84,686.6

Other

120.0

105.0

172.0

521.0

521.0

521.0

521.0

521.0

Current liabilities

 

 

(27,430.0)

(21,762.0)

(14,238.0)

(18,179.0)

(22,668.7)

(12,318.5)

(14,110.2)

(19,466.9)

Creditors

(9,299.0)

(8,007.0)

(9,425.0)

(11,082.0)

(15,571.7)

(5,221.5)

(7,013.2)

(12,369.9)

Tax and social security

(6,929.0)

(9,317.0)

0.0

0.0

0.0

0.0

0.0

0.0

Short-term borrowings

0.0

0.0

(2,090.0)

(3,294.0)

(3,294.0)

(3,294.0)

(3,294.0)

(3,294.0)

Other

(11,202.0)

(4,438.0)

(2,723.0)

(3,803.0)

(3,803.0)

(3,803.0)

(3,803.0)

(3,803.0)

Long-term liabilities

 

 

(13,647.0)

(13,059.0)

(19,522.0)

(26,471.0)

(26,471.0)

(26,471.0)

(26,471.0)

(26,471.0)

Long-term borrowings

0.0

0.0

(4,515.0)

(5,922.0)

(5,922.0)

(5,922.0)

(5,922.0)

(5,922.0)

Other long-term liabilities

(13,647.0)

(13,059.0)

(15,007.0)

(20,549.0)

(20,549.0)

(20,549.0)

(20,549.0)

(20,549.0)

Net assets

 

 

190,504.0

213,876.0

154,413.0

191,565.0

211,028.9

233,041.5

262,536.7

312,110.6

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

190,504.0

213,876.0

154,413.0

191,565.0

211,028.9

233,041.5

262,536.7

312,110.6

CASH FLOW

Operating cash flow before WC and tax

69,941.3

33,135.8

28,173.0

72,065.0

52,182.6

57,207.2

52,875.9

81,311.4

Working capital

(9,498.0)

(5,172.0)

(3,481.0)

(2,840.0)

9,433.7

(9,830.1)

691.0

(541.9)

Exceptional & other

1,277.0

1,454.0

3,704.0

4,632.0

0.0

0.0

0.0

0.0

Tax

(6,919.9)

7,047.9

(249.0)

0.0

(8,341.7)

(9,434.0)

(12,640.8)

(21,246.0)

Net operating cash flow

 

 

54,800.5

36,465.7

28,147.0

73,857.0

53,274.7

37,943.2

40,926.1

59,523.5

Capex

(9,224.0)

(19,621.0)

(46,122.0)

(59,477.0)

(29,000.0)

(43,500.0)

(14,500.0)

0.0

Acquisitions/disposals

0.0

4.0

(20,068.0)

1,522.0

0.0

0.0

0.0

0.0

Net interest

(579.0)

(418.8)

389.0

(2,741.0)

146.6

362.9

135.0

383.5

Equity financing

(5.0)

0.0

39,442.0

(31.0)

0.0

0.0

0.0

0.0

Exploration and Evaluation

(10,969.0)

(11,578.0)

(20,132.0)

(26,642.0)

(10,000.0)

(10,000.0)

(10,000.0)

(10,000.0)

Other

(4,317.0)

(7,442.0)

(9,522.0)

(18,129.0)

0.0

0.0

0.0

0.0

Net cash flow

29,706.4

(2,590.1)

(27,866.0)

(31,641.0)

14,421.3

(15,193.9)

16,561.2

49,907.0

Opening net debt/(cash)

 

 

(41,969.0)

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(24,196.3)

(9,002.4)

(25,563.6)

FX

311.6

169.1

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

16.0

0.0

16.0

(316.0)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(24,196.3)

(9,002.4)

(25,563.6)

(75,470.6)

Source: Company sources, Edison Investment Research


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Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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