Alkane Resources — Coming to fruition

Listed on the ASX since 1969, Alkane Resources is a gold production company with a multi-commodity exploration and development portfolio. Having de-merged its Dubbo rare earths project into Australian Strategic Materials in 2020, Alkane’s focus is a multi-faceted gold investment strategy at its two major projects, Tomingley (including its Roswell and San Antonio extensions) and the newly discovered Northern Molong Porphyry Project (NMPP), both in New South Wales (NSW). In addition to its owner-operated assets, Alkane has also made a number of strategic investments in junior gold mining companies and high-potential projects, where it is in a position to contribute capital, expertise and operating capability, for mutual benefit, for example, in Calidus Resources (ASX:CAI), which is now fully funded and in development, and Genesis Minerals (ASX: GMD), which is developing the Ulysses gold project in Western Australia.

Our valuation of Alkane continues to be underpinned by Tomingley as it develops into the San Antonio and Roswell deposits (SAR) to its immediate south, which we estimate contributes A$0.57/share to company’s valuation. Liquid assets in the form of Alkane’s holdings in Calidus and Genesis contribute a further A$0.06/share. Where before these had been the only two tangible contributors to Alkane’s valuation, they have now been joined by Boda (part of the NMPP), where Alkane has recently announced a maiden resource of 5.2Moz gold, or 10.1Moz gold equivalent (AuE). We estimate that this is worth an immediate US$125.5m (or US$0.21/share or A$0.31/share) to Alkane either as an in-situ resource or as a development project (see pages 10–13), albeit with the proviso that the project-based valuation will now increase inexorably, both as a result of continued resource increases and upgrades and as a result of Alkane’s de-risking the project by achieving future development milestones and with the passage of time. Whereas we previously calculated that 56% of Alkane’s share price was covered by tangible assets, we now estimate that 136% of it is, with up to A$0.59/share in additional upside available in the form of further exploration success in the NMPP as well as the gold price and the ever increasing probability that the Roswell underground extension will be sanctioned in the wake of its resource upgrade on 2 May.

As befits a project at an earlier stage of development, the sensitivity of our Boda project valuation to long-term changes in metals prices (±73% for every ±10% change in metals prices) is much greater than the sensitivity of our Tomingley valuation (±21% for every ±10% change in prices).

Alkane had A$17.0m in net cash on its balance sheet as at end-H122, composed of A$38.0m in cash and A$21.0m in external borrowings. As at end-Q422, the cash component of this equation was reported to have increased to c A$77.9m after the company’s sale of 20m shares in Genesis Minerals for A$34.4m in February. In addition, it had A$8.2m of bullion on hand and, we estimate, an updated A$38.5m in listed investments in Calidus, Genesis and Sky Metals. Alkane generated A$71.1m in cash from operating activities in FY21 (cf A$37.1m in H121) and invested A$102.7m in capex. Hereafter, we estimate that cash flow from operations will contribute meaningfully to capex as the Tomingley mine extension is constructed. However, we expect that management will nevertheless seek to fund a portion of the project with debt put in place over the course of the next six to 12 months.

Since our last note on the company, Alkane has:

This note updates our analysis of the company in respect of all of these announcements.

On 30 May 2022, Alkane announced a maiden mineral resource estimate for its deposit at Boda in the Northern Molong Porphyry Project (NMPP) of 624Mt ore at a grade of 0.51g/t AuE containing 10.1Moz AuE (5.21Moz Au plus 0.90Mt Cu). The resource also contains a sub-component of 353Mt at a grade of 0.63g/t AuE containing 7.1Moz AuE (3.72Moz Au plus 0.62Mt Cu) potentially amenable to bulk-tonnage underground mining at a 0.4g/t AuE cut-off. A comparison between these actual resources and Edison’s prior estimate of the mineral inventory contained at Boda is provided in Exhibit 1, below. It is also compared with the resources disclosed by Newcrest for Cadia Ridgeway c 100km to the south of the NMPP (see Exhibit 7).

The Boda resource estimate was based on 71,431m of drilling over 83 holes (average 885m/hole) using a 0.3g/t AuE cut-off deemed appropriate for potential open-cut mining.

Immediately apparent from Exhibit 1 is how closely the total resource at Boda approximated our prior estimate based on the data collected from both diamond (DD) and reverse circulation (RC) drilling (10.1Moz AuE cf 9.8Moz AuE estimated). The resource was less than that previously estimated solely on the basis of diamond (DD) holes. The fact that DD holes demonstrated wider overall intersections than their RC counterparts and extended to greater depths at higher grades may be attributed to the zonation of the system and the fact that the RC drill holes were testing only the upper part of the system, where grades are anyway expected to be lower (as is typical of this type of porphyry system).

Our estimate of a high-grade sulphide cemented breccia of 3.5Moz at a grade above 3.0g/t AuE cut-off (based on Alkane’s estimated dimensions; see column entitled ‘High grade pod’) has yet to be explicitly confirmed but is entirely consistent with what has been announced so far. At least four mineralised intrusive breccias have now been identified central to the Boda mineralisation.

Note that hole KSDD028 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.

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), we estimate that a resource of 5.2Moz gold (Exhibit 1) has an in-situ value of US$125.5m, or US$0.21/share, or A$0.31/share (cf our prior estimate in the range A$0.30–0.59 per Alkane share).

Alkane’s immediate imperative will be to define the extent of the mineralisation ahead of a PEA at end CY23 or early CY24. The deposit remains open at depth and along strike to the south and along strike to the north-west within the Boda intrusive corridor and drilling continues to define the overall system with extensions being tested south of Boda at Boda Two and Boda Three and north-west of Boda towards Kaiser via Korridor. Infill drilling to promote the resources delineated so far from the inferred into the indicated and measured categories is also being conducted.

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

Alkane announced the results of three further DD holes drilled at Boda Two and Boda Three on 17 December 2021 and 25 February 2022. A summary of the three new holes is as follows:

Total metres drilled at Boda Two and Boda three currently amount to 7,064m (cf 2,953m previously), or an average of 706m per hole (cf 492m per hole previously). Multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. With three additional DD holes completed in the latest round of drilling however, there is mounting evidence that the grades and widths of mineralisation are greater than those implied by earlier RC holes.

While lower grade with generally narrower widths than at Boda, drilling at Boda Two and Three nevertheless demonstrates many similarities with Boda. 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. They also demonstrate an extensive zone of low-grade Au-Cu porphyry mineralisation with breccias that zone to higher grades. These breccias are in the process of being targeted currently. 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 4, below. This is also compared with the resource disclosed by Newcrest for Cadia Ridgeway c 100km to the south (Exhibit 7).

Applying the same methodology as previously at Boda (see Exhibit 1), our best estimate of the mineral inventory contained within the Boda Two and Boda Three prospects is 591koz Au at an average grade of 0.16g/t (cf 148koz at 0.12g/t previously). If intersections in this area ultimately increase to those implied by the deposit’s apparent 1,100m × 500m coincident Au-Cu soil and magnetic high footprint with separate conductive IP anomalies however, we calculate that a resource several times this size (see column entitled ‘Alkane est. dimensions’) may still be possible.

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%. In this context, we calculate a value for our current resource estimate of 591koz at Boda Two and Three of A$0.035/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 4,473koz (as potentially implied by the dimensions noted in the table above), we calculate a value for Boda Two and Boda Three of A$0.266/share (ie on a par with Boda).

No new drill hole results have been reported at Kaiser since our last note. Historical drilling has defined a broad area of extensive alteration with two main zones of calc-potassic alteration and associated Au-Cu mineralisation in the Kaiser Zone, centred over the Kaiser workings, and the Duke Zone, 200m to the north-east 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 north-west 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 0.7km to the north-west of Boda.

A summary of the holes drilled at Kaiser and Duke, to date, is as follows:

As before, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. In addition, the DD holes reported widths of mineralisation that were materially in excess of comparable RC results, albeit similar to lower gold grades and slightly lower copper grades.

On the basis of these results, our best estimate of the mineral inventory that may be encompassed by drilling at Kaiser is shown in Exhibit 6, below. Our mineral inventory estimate is also compared with the resource disclosed by Newcrest for Cadia Ridgeway c 100km to the south.

Applying the same methodology used previously as at Boda (Exhibit 1), 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 6, 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%. In this context, we calculate a value for our current resource estimate of 702koz at Kaiser and Duke of A$0.042/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 would value it at A$0.100/share.

The NMPP 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 NSW (Exhibit 7).

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 37.9Moz Au at a grade of 0.34g/t Au and 8.5Mt of copper at a grade of 0.25% Cu plus silver and molybdenum and produced 765koz of gold in FY21 at an all-in sustaining cost (AISC) of minus US$109/oz Au (net of by-product credits) to generate US$2,180m in revenue, US$1,615m in EBITDA, US$1,796m in operating cash flow and US$1,232m in free cash flow (FY21 results).

The NMPP 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 8) and all close to road, rail, gas and water infrastructure. Significantly, 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.

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 Boda Intrusive Complex. 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.

As such, the Boda porphyry system manifests itself as a series of near-vertical, north-west 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 north-east 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 (in hole KSDD042). 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. In 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).

The following table provides a summary of the physical and financial characteristics of Boda’s most immediate geological analogues:

Since Boda is at a relatively early stage of development, it does not yet have a reserves estimate. However, within this context, a number of features of Boda’s peers’ technical aspects are noteworthy:

In consequence of these – and a number of other – observations, Edison has constructed a full financial model for Boda, albeit necessarily preliminary in nature, based on the following assumptions:

Our long-term gold and copper price assumptions remain unchanged at US$1,524/oz and US$6,410/t (US$2.91/lb), respectively.

As a result of our assumptions, we calculate that Boda has the potential to produce 182koz gold per annum plus 21.3kt copper, or 271.0koz AuE, at costs as shown below (depending upon the accounting convention adopted):

On this basis we estimate that Boda’s income statement in the first full year of its operations will be as shown in Exhibit 11. Note that, in recognition of the fact that Edison’s long-term metal prices are relatively low, Exhibit 11 also includes columns which present the same result at consensus long-term prices and spot prices:

Before making an investment decision on Boda, Alkane will want to drill out the remainder of the deposit, including Kaiser and Duke. It will then enter an approvals process similar to the one currently underway for the Tomingley mine life extension. Using that as a precedent, Alkane management estimates that approval for mining at Boda will take a minimum of four years, but a more likely ‘fast track’ timeline of seven years and a realistic timeline of 10–12 years. On this basis, Edison has initially assumed that approvals for the Boda project will be forthcoming in approximately June 2031, with capex then commencing for the period FY32–34, before first production in FY34 and the first full year of production in FY35. Clearly there are a number of financing considerations to be taken into account, which it is beyond the scope of this note to pre-empt at this stage in the evolution of the project. However, all of the above being the case, we calculate an immediate value of Boda to Alkane of US$80.9m, or US$0.136/share or A$0.200/share, based on the present value of future dividends, discounted at our customary rate of 10% per annum. Moreover, this valuation rises to reach US$190.8m at the start of capex (FY32) and a maximum of US$544.3m, according to the following profile:

Note that, at long-term consensus and spot prices, the equivalent immediate valuations of Boda to Alkane would be:

Alternatively, Edison’s valuation is sensitive towards the (real) discount rate applied to future dividends to the following extent:

All of these results may be compared with Edison’s in-situ valuation of the entire Boda, Kaiser/Duke, Boda Two and Boda Three complex of US$156.6m or US$0.263/share or A$0.387/share, as follows:

On 2 May 2022, Alkane announced an update to its mineral resource estimate at Roswell. A comparison of the updated resource with the original is provided in Exhibit 14, below. Of particular note is the 262koz (or 193.2%) increase in the inferred category of resources, which may then be promoted to the indicated category of resources at a later date and ultimately into reserves:

The resource definition drilling programme at Roswell is ongoing as part of an extensive regional exploration programme aimed at providing future additional ore feed, either from surface or underground, to the Tomingley mill, approximately 3km to the north of Roswell. At the current milling rate of 1.0Mtpa, resources at Roswell alone are therefore capable of supporting 14.1 years of operations at Tomingley.

The Tomingley Gold Project covers an area of approximately 440km2, stretching 60km north-south along the Newell Highway from the Tomingley mine in the north, through Peak Hill and almost to Parkes in the south. To date, Alkane’s regional exploration programme has yielded broad, shallow, high-grade intercepts that confirm the potential for material project life extensions (subject to landholder agreements and regulatory approvals).

Alkane reported a maiden resource at Roswell on 28 January 2020 and an updated mineral resource estimate on 4 November 2020. Together, the Roswell and San Antonio resources now comprise a 21,399kt resource at an average grade of 1.90g/t, containing 1,310koz gold. These add to existing resources at Tomingley of 8,614kt containing 550koz and reserves of 2,373kt containing 144koz.

With the caveat that drilling is still ongoing, a comparison of the resources delineated to date at Roswell and San Antonio relative to Alkane’s targets is as follows:

Taken together therefore, it can be seen that the tonnage and contained gold delineated at Roswell and San Antonio combined already outstrips the upper limit of its exploration target for the two deposits.

In terms of mine life, at a milling rate of 1Mtpa, Roswell and San Antonio’s resources could therefore potentially add 21.4 years to the life of operations at Tomingley, to which end land acquisitions have taken place, an underground exploration drive from Tomingley to Roswell is being developed and consultation, permitting and licensing to facilitate expedited mining is underway with the relevant stakeholders and NSW government.

In our report Gold stars and black holes, published in January 2019, we calculated an average value of in-situ resources quoted in the Australian market of US$24.08/oz. On this basis we would value the Roswell and San Antonio resources combined (ie 1,310koz) at US$31.5m, or A$46.4m, or 7.8 Australian cents per share.

Exhibit 16 demonstrates the value that Alkane may immediately add to its operations via success at all of its prospects to the south of Tomingley (ie including El Paso) in the event that it hits the upper end of its exploration target (note that, in terms of ounces delineated, it is already within 368koz or 22% of achieving this milestone):

Note that these valuations in Exhibit 16 are based purely on the in-situ value of the resources that Alkane is targeting for delineation. More important is what they offer in terms of confidence concerning the Roswell underground extension to the Tomingley mine life extension.

On 3 June 2021, Alkane announced the formal extension of the life of its Tomingley operations to at least 2031 via the incorporation of the Roswell and San Antonio deposits (using both underground and open-cut mining methods) into its formal mine plan. Whereas reserves at Tomingley were previously only sufficient to support production of c 174koz over the three years until the end of CY23, the extended mine plan will:

With detailed plans and initial consultation now complete, the project is expected to be approved in mid-2022. Potential also exists to maintain FY25–27 production levels into FY28–31 and beyond via the subsequent extension of high-grade underground mining at Roswell (see Exhibit 18).

A comparison of the ounces to be mined under the extended mine plan relative to each deposit’s resource base is as follows:

Thus, at the projected production rates of c 100koz per annum, we can see that Roswell and San Antonio combined currently host a resource 197koz in excess of that required by the currently planned mining schedule – assuming a 67% reserve:resource conversion ratio – and that the Roswell deposit alone boasts an excess of likely mineable ounces that almost perfectly matches the 160koz requirement of the Roswell underground extension in FY28–31 (increasing production from c 60koz pa to c 100koz pa).

The open-cut mining plan envisages three pits, joined at the pit crest on a north-south line, which are expected to be mined from the south (ie the San Antonio end) to the north (the Roswell end) with the Roswell pit being mined in two stages. In deference to environmental considerations, scheduling will require the San Antonio pits to be mined first (with most of the early waste being used to backfill the Caloma One and Caloma Two pits at Tomingley), so that waste from Roswell can be placed into them, leaving Roswell as the final, open void. Among other things, this will create a c 2Mt run of mine stockpile at its peak (ie more than one year’s milling capacity).

In the meantime, the NSW Government Resources Regulator granted approval for the development of an exploration drive from the existing underground Wyoming One operation at Tomingley to the Roswell deposit in May 2020, which will extend into the upper half of the currently planned stoping area, allowing both upwards and downwards development. Underground mining will be similar to that currently employed at Tomingley, using standard long-hole open stoping. However, in order to maximise recovery in the higher-grade, wider sections of the Roswell orebody, Alkane also intends to use paste fill from a hired plant using consolidated tailings. In the context of underground mining at Roswell, of note is the fact that approximately 33% of tonnes (and ounces) mined will be from material currently classified as inferred, based on the operating experience and reconciliations at the existing Tomingley operation. Nevertheless, in mitigation, a substantial grade control programme is planned in advance of stoping commencing.

Under its current approval, the Tomingley plant has permission to operate at a throughput rate of 1.5Mtpa of ore, which was sought to allow faster processing of oxide material from the original pits. Since the start of CY21, it has been running at a rate closer 1.0Mtpa. However, as part of the new project approval, Alkane will seek to increase its licence to 1.75Mtpa, which will allow it to regularly process sulphide rock at 1.5Mtpa, with the potential to increase capacity by up to 16.7% during periods of favourable operating conditions. The plant modifications required in order to achieve this enhanced throughput capacity include:

Once the project is approved and developed, it will add an additional eight years and c 622koz of gold output to Tomingley’s life of mine production profile relative to our prior expectations and c 802koz if the Roswell underground extension is also put into effect, as now seems increasingly likely in the aftermath of its resource upgrade.

For simplicity, a single Project Approval consent is being sought by Alkane for all extension activities. Since the capital investment value of the project is in excess of A$30m, it will require State Significant Development consent and, for this purpose, either the minister for planning and public spaces or the Independent Planning Commission is deemed to be the determining authority. Once Project Approval is obtained however, a number of other approvals will be required, including:

More details regarding the approvals process are available in Alkane’s 3 June 2021 announcement (Tomingley Mine Life Extended Beyond 2020). However, a summary of the key dates pertinent to the extension of the project is as follows:

The full financial and valuation consequences of the Roswell underground extension are considered in the ‘Alkane/Tomingley valuation’ section, below.

Since our last note, Alkane has announced operational results for Q2 and Q322, production results for Q422 and financial results for H122. Guidance for FY22 was for production of 55–60koz at an AISC of A$1,500–1,650/oz. In the event, production for the year was 66,804oz, notwithstanding the external effects of weather and the COVID-19 pandemic, at an AISC that ‘is expected to be slightly below guidance’ (note that this is very similar to the pattern it showed in FY21, when it also outperformed its guidance of 50–55koz at an AISC of A$1,400–1,550/oz by producing 56,958oz gold at an AISC of A$1,320/oz). As a result, Tomingley has now met or exceeded guidance in every year of its operation. In this case, the strong FY22 performance was attributed to above forecast mined grade from several areas, as well as selfless levels of flexibility exhibited by the workforce. At the same time, the group announced unaudited cash, bullion and investments positions of A$124.3m as at end-June 2022, composed of A$77.9m in cash, A$8.2m in bullion and A$38.1m in listed investments. In consequence of these disclosures, we have updated our operational forecasts for Q422 and FY22 to those shown below:

On the basis of these forecasts and Alkane’s H122 financial results, we have adjusted our FY22 financial forecasts for the group to those shown below in Exhibit 21:

One feature of note in our updated forecasts is the A$48.3m derecognition gain reported in Alkane’s H122 financial results and its (estimated) gain on disposal of A$15.3m, which arose as a result of Alkane’s sale of Genesis shares to the value of A$18.8m in H122, with the result that its residual holding was reclassified to financial assets at fair value. Excluding these ‘exceptional’ gains, our underlying pre-tax profits forecast for FY22 is A$42.4m (cf A$27.8m forecast previously).

In late November 2021, Alkane sold 126m shares of its holding in Genesis Minerals for proceeds of A$18.8m and a gain on disposal of A$13.9m. After a rights issue and a 10 for 1 consolidation, this left Alkane with a residual holding of 31.7m shares, of which it sold 20.0m in Q322 for proceeds of A$34.4m and (we estimate) a gain relative to the position’s holding value of A$1.4m. In the aftermath of these sales, we estimate that Alkane has a residual holding in Genesis of 11.77m shares. Together with its holdings in Calidus Resources and Sky Metals, we estimate the value of its listed holdings, as at the time of this note, to be as follows:

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 (albeit now extended) discounted back to present value at a rate of 10% per year, excluding exploration expenditure.

In the wake of Q322 operational results, Q422 production results and H122 financial results, our valuation of the dividend stream potentially available to Alkane shareholders from its immediate Tomingley operations is now A$0.508/share to 1 July 2022 (cf A$0.328/share to 1 July 2021 previously). However, to this must also be added the value of residual resources at the end of the life of operations in 2031, which we now estimate to be 1.0Moz with a current value of US$23.7m (A$34.9m), or A$0.059/share, to bring our total valuation of Tomingley to A$0.567/share (cf A$0.369/share previously) including cash.

A comparison of our updated expectations for Alkane’s EPS and DPS stream and valuation from the present to the end of its life of operations is shown in Exhibit 23, below:

Note that the DPS columns in Exhibit 23 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 and given the likely capital requirements of the NMPP, we would expect the majority of any dividends that could be paid to shareholders instead to be re-invested into the business, either in the form of exploration or capital expenditure.

A summary of our updated valuation of Alkane in light of both the announcement of a maiden resource at Boda (see Exhibit 1) and H122, Q322 and Q422 financial, operating and production results, respectively (see Exhibits 20 and 21), is as follows:

A number of features of the valuation are noteworthy:

Alkane had A$17.0m in net cash on its balance sheet as at end-H122, composed of A$38.0m in cash and A$21.0m in external borrowings. As at end-Q422, the cash component of this equation was reported to have increased to c A$77.9m after the company’s sale of 20m shares in Genesis Minerals for A$34.4m in February (see above). In addition, it had c A$8.2m of bullion on hand and, we estimate, an updated A$38.5m in listed investments in Calidus, Genesis and Sky Metals. Excluding cash flows from financing activities, Alkane generated A$71.1m in cash from operating activities in FY21 (cf A$37.1m in H121) and invested A$102.7m in capex, leading to a free cash outflow of A$31.6m. Hereafter, we estimate that cash flow from operations will contribute meaningfully to capex as the Tomingley mine extension is constructed. However, we expect that management will nevertheless seek to fund a portion of the project with debt put in place over the course of the next six to 12 months.