Poised for the next stage

Alkane Resources 4 May 2018 Update
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Alkane Resources

Poised for the next stage

Q3 results

Metals & mining

4 May 2018

Price

A$0.28

Market cap

A$142m

US$/A$:0.73

Net cash (A$m) at end March 2018

60.6

Shares in issue

506.1m

Free float

51%

Code

ALK

Primary exchange

ASX

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(3.4)

(5.1)

14.3

Rel (local)

(8.6)

(4.4)

9.4

52-week high/low

A$0.4

A$0.2

Business description

Alkane Resources is a multi-commodity explorer and developer, with projects in the central west region of New South Wales in Australia. It owns the Tomingley Gold Operation (TGO) and the Dubbo Project (DP) rare metal, zirconium chemicals and rare earths projects (both 100%). TGO entered production in January 2014 and DP’s first production tentatively planned for 2020.

Next events

DP execution plan

Q418

TGO UG mining study

Q418

Analyst

Tom Hayes

+44 (0)20 3077 5725

Alkane Resources is a research client of Edison Investment Research Limited

A strong Q3 saw the Tomingley Gold Operation (TGO) mine generate operating cash flows of A$21.2m, driving Alakane’s (ALK’s) cash pile to A$60.6m with a further A$8.4m held as bullion-on-hand. Two critical path catalysts are due in the final quarter of FY18, the final modular costing plan for the Dubbo Project (DP) and the way forward for extending the TGO’s mine life. The DP’s future viability has been proven viable technically, and has also been aided by a number of its products realising significant price gains (zirconium products and certain rare earth elements (REEs) related to magnets as well as hafnium and FeNb) driven by numerous supportive end-market changes. While financing the DP continues, we see ALK putting its own cash pile to use extending the life of the TGO’s processing facility via either UG mining or potentially exploration and development.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/16

109.6

11.0

2.2

0.0

12.7

N/A

06/17

117.8

18.0

4.5

0.0

6.2

N/A

06/18e

128.4

(1.3)

(0.7)

0.0

N/A

N/A

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

TGO sees marked improvement

Q318 gold production was 18,635oz (a q-o-q increase of 12%) at AISC of A$962/oz (a q-o-q decrease of 9%), with each ounce sold at an average price of A$1,708/oz (roughly flat q-o-q). With open pit operations due to naturally end as planned in Q119 (the July to Sept quarter of 2019), the focus is to decide on whether to invest in an UG phase, or potentially revert to exploration and development of the proven prospective region surrounding Tomingley and ALK’s old Peak Hill gold mine.

DP’s zircon, magnet metals drive value

Four of the five broad end-markets for the DP’s future products have experienced price-supportive events over FY18. Zirconium products have been aided by zircon supply shortages driving prices to levels last seen in 2011. Although supply is largely controlled by CBMM, FeNb price support is being driven by the c 257% vanadium pentoxide price increase (Oct 16 to Dec 17). As for magnet REEs, prices have fallen since the highs of Aug to Oct 2017, although in our opinion their importance has not yet been properly accounted for in the future of electric vehicles (EV), especially as China will likely drive for its own REE magnet resources to be used for its domestic EV industry. Hafnium continues to be subdued by a stagnant nuclear industry, which is the traditional supplier of the metal.

Valuation: Wait for catalysts to see re-rating

We await the TGO UG mine decision (due May 2018) to revalue this asset. We therefore only value the DP on an FY19 basis at A$0.90/share. A further A$0.13 per share can be attributed for ALK’s liquid assets totalling A$69m at end Q318.

ALK’s future direction coming soon

The future of the TGO’s mine life (mining commenced Q2 FY14 with current open pit operations due to end Q1 FY19) will shortly be announced. There are two options: ALK either announces a positive investment decision to take the mine underground below the Wyoming pit, or looks to pare operations back significantly, potentially processing the c 1Mt of low grade stockpiles containing c 31koz Au and increasing its exploration activities with a view to feeding new ore streams into the TGO’s existing plant. New ore streams could include the deeper sulphidic gold ores left behind at Peak Hill upon its closure in 2005. These would require either development of a standalone process facility close to the source of these ores, or modifying the existing TGO processing facility. To this end the biological oxidation (BIOX) method has been previously proven to be viable at Peak Hill.

Quarterly production

The TGO produced 18,635oz of gold in the third quarter, in line with management’s forecast. Year to date (YTD) gold production is 59,398oz, making the company’s production target of between 75,000oz Au and 80,000oz look eminently achievable. Costs have also come down to the planned life-of-mine average of c A$1,000/oz on a AISC basis, and are in stark contrast to the Q1 to Q3 period in FY17, when extreme levels of rainfall affected operations and drove AISC as high as A$2,139/oz (Q117). As open pit operations are nearing the end of their planned lives at Caloma One and Wyoming, we do not expect any further large tonnages of waste to be mined and we expect operational data through Q417 and Q119 to mirror that of Q318. Our expectations for Q418 are presented in Exhibit 1, below.

Exhibit 1: YTD TGO operational data and Q4/FY18 forecasts

Production

Units

Q118

Q218

Q318

Q418e

FY18e

Waste mined

BCM

1,807,545

507,498

470,598

500,000

3,285,641

Implied strip ratio

ratio waste:ore

16.0

4.1

2.5

3.0

3.0

Ore mined

Tonnes

289,627

330,613

505,840

270,000

1,087,732

Ore grade

g/t

2.55

1.96

1.80

2.40

2.11

Ore milled

Tonnes

281,191

264,416

272,125

270,000

1,087,732

Head grade

g/t

2.80

2.21

2.41

2.40

2.46

Recovery

%

92.7%

92.9%

91.2%

92.3%

92.3%

Gold recovered

Ounces

24,122

16,641

18,635

19,229

78,627

Gold sold

Ounces

21,610

13,184

21,550

19,229

75,573

Gold revenue

A$m

36.4

22.3

36.8

31.8

127.3

Implied realised gold price/ actual

A$/oz

1,685

1,694

1,708

1,653

1,685

Cost of sales

A$m

23.7

17.6

17.9

17.7

76.9

AISC operating cost

A$/oz

982

1,058

962

1,000

1,001

Gross margin

%

71.6%

60.1%

77.5%

65.3%

68.6%

Stockpiles and bullion on hand

Ore for immediate milling

Tonnes

770,136

829,356

1,063,782

1,063,782

1,063,782

Bullion on hand

Ounces

4,303

7,756

4,870

4,870

4,870

Value of bullion on hand (based on implied gold price above)

A$m

7.25

13.14

8.32

8.32

8.32

Stockpile grade

g/t Au

0.86

0.87

0.91

0.91

0.91

Contained gold in stockpiles

Ounces

21,086

23,195

31,140

31,140

31,140

Value of stockpiled gold ounces at quarter's average price

A$m

35.5

39.3

53.2

53.2

53.2

Source: Alkane Resources and Edison Investment Research

Exhibit 2: Operating cost breakdown

Source: Alkane Resources and Edison Investment Research

The following exhibit details the TGO’s quarterly production since mining commenced in Q2 FY14.

Exhibit 3: TGO quarterly production data Q214 to Q318

Source: Alkane Resources and Edison Investment Research

TGO underground mining study and Peak Hill resource

ALK has been revising its underground gold resource and reserve estimations with a view to publishing the reserve estimate in May 2018. The result of this revised reserve estimation will allow the company to decide whether the quantum of economic gold available for mining will be the best use of its cash, or whether a better financial return would be achieved from developing either a greenfield exploration asset or brownfield development. We await the company’s guidance on this matter.

We believe one brownfield opportunity that is worthy of further investigation is the primary sulphide gold resource left behind at the Peak Hill gold mine. This was previously mined by ALK for its oxide gold cap between 1996 and 2005.

The existing Peak Hill resource estimate was undertaken using JORC 2004 guidelines, which have since been superseded by JORC 2012.

Exhibit 4: Peak Hill Gold Mine Proprietary deposit gold resource (JORC 2004)

Deposit

Measured

Indicated

Inferred

Totals

Tonnage (t)

Grade (g/t)

Tonnage (t)

Grade (g/t)

Tonnage (t)

Grade (g/t)

Tonnage (t)

Grade (g/t)

k Ounces

 0.5g/t gold cut off 

Proprietary

N/A 

N/A 

9,440,000

1.35

1,830,000

0.98

11,270,000

1.29

467.4

3.0g/t gold cut off  

Proprietary

N/A 

N/A 

N/A

N/A

810,000

4.4

810,000

4.4

114.6

Source: Alkane Resources

As shown above there is the potential for roughly 0.5Moz of gold resource (at the lower 0.5g/t COG). While the above resource cannot be used as it is based on old JORC guidelines, it presents a clear opportunity for further investigation. We understand from management that the BIOX process method has historically been proven as viable for treatment of proprietary sulphidic ores. Further assessment would be required to confirm this is in line with JORC 2012 guidelines. However, previous investigations are worthy of recognition and provide some de-risking for the potential development of the brownfields proprietary deposit.

ALK is also converting its old Peak Hill database into a format that can be used in more modern mining software. Along with some further confirmatory drilling, this will allow the company to publish a JORC 2012-compliant resource estimate in the September 2018 quarter.

Exploration opportunities

Aside from the DP’s potential development, ALK has control over large exploration tenements in the Dubbo region of New South Wales, Australia. Of these exploration tenements, over the past 20-plus years two have yielded operational mines (Peak Hill and the current TGO), a large gold-copper porphyry resource (McPhillamys) sold for an attributable A$73.5m in 2012 to ASX listed Regus Resources, and the DP. ALK’s exploration tenements and land holdings appear to be fertile ground and could potentially yield further economic mining opportunities for ALK.

Included amongst ALK’s numerous exploration results (see the company’s Q3 quarterly activities report for the full set of results) is a series of three prospects that lie directly to the south of the TGO’s operations. These have been drilled to varying degrees and have all yielded drill assay results of >1.0g/t Au. The three prospects are McLeans, San Antonio and El Paso. In our opinion, San Antonio provides the highest and shallowest gold grades (as opposed to high gold grades at El Paso, which start at a depth of c 340m below surface). So far, the grades in drill hole TO228 are:

4m grading 1.60g/t Au from 86m depth

2m grading 0.63g/t from 96m depth

8m grading 0.79g/t from 108m depth

1m grading 0.85g/t from 145m depth ( to end of hole)

Exhibit 5: Alkane exploration project locations near to the TGO mine site

Source: Alkane Resources

This southerly corridor runs parallel to the Newell Highway, which bisects the TGO mine site. Mineralisation is found along this north-south trend due to rheological differences between the brittle rhyolitic porphyry to the east and the relatively ductile sediments to the west.

Dubbo: Will the flagship sail?

The DP has been Alkane’s flagship project for at least a decade. Over this time management has run a pilot plant at the Australian Nuclear Science and Technology Organisation facilities outside of Sydney to determine a viable and proven flowsheet design to process the rare metal containing eudialyte ores into the following saleable products:

zirconium basic carbonate and chemical zirconia products for the downstream zirconium chemicals industry

the whole range of REEs as oxide products, with lanthanum and cerium stockpiled and sold as and when prices improve

ferro-niobium for the steel industry

refined hafnium to be used in the aerospace industries

With a technical flowsheet design completed and product samples generated and supplied to potential customers over the pilot plant’s 10 years of operation, the DP stands alone in the mining industry as the only viable rare metal project. Further, it is the only project that will have bankable level data with which to source financing of the roughly US$500m per 0.5Mtpa throughput module. Previous iterations of the DP’s design contemplated a US$$1bn single-phase build-out. However, this approach is cumbersome in terms of marrying demand to supply and is difficult to finance.

As such, ALK’s modular design execution plan, which it is due to release in May 2018, will detail the exact operating cost structures and capital expenditure profile required to build out the project in stages.

Financing the DP: A multi-faceted approach

Alkane has long held the view that financing the DP will involve conventional debt, export credit agency debt, equity (potentially at the DP level) and involvement of a strategic partner(s). The view we maintain, until the exact financing structure is announced, is as follows.

ALK’s financing team (including debt advisers Sumitomo Mitsui Banking Corporation) is pursuing the US$0.5bn (A$0.63bn) initial capex required to bring the DP into Phase 1 production. ALK’s plan includes selling a small stake in its wholly owned subsidiary containing the DP. ALK is also pursuing Export Credit Agency (ECA) funding, which may provide hundreds of millions of Australian dollars in the form of loans at very low interest rates. These two financing routes would be joined with more conventional debt and equity financing to satisfy the requirement.

The exact financing structure of the DP has not been finalised. However, we understand from discussions with management that the total US$0.84bn (US$1.1bn, A$1.8bn) required to develop the DP over two stages could be secured by a series of staged transactions. An example is:

selling a stake in Phase 1 equivalent to c 10% of Phase 1 capex or NPV (ie c A$70–100m); and

raising 35% of Phase 1 capex (total Phase 1: US$480m, A$632m) as equity. It is anticipated that ALK would be seeking a higher valuation for its project before issuing significant equity. For Phase 1, subject to project valuation, one can notionally assume the issue in FY19 of 353m new shares priced at A$0.60 each to raise a gross A$212m (US$162m). However, for the purposes of our model, we maintain a notional A$0.35 per ALK share price (current share price is A$0.29) to raise equity under our valuation assumptions. If ALK were to achieve a share price of A$0.60 to raise equity, our valuation would become A$1.11/share.

In the above scenario, we calculate that this would leave ALK with a maximum required net debt position in FY19 of A$317m to fund Phase 1, which equates to a gearing (debt/equity) ratio of 82% and a leverage (debt/debt+equity) ratio of 45%. ALK is looking to cover this requirement using ECA loans incurring very favourable interest rates, as well as conventional project financing routes, potentially incurring higher interest rates.

Phase 2 development depends on the success of Phase 1 and prevailing commodity prices. It would be expected that ALK would be rerated in the market before commencing Phase 2 capital expenditure, and therefore achieve much of the second phase on debt.

DP end markets: Supportive of further price increases

The DP’s products feed into four broad end markets:

REE applications including, but not limited to, the high-growth permanent magnets sector. Permanent rare earth magnets have received less attention since the EV revolution. While battery materials such as lithium, graphite, nickel and cobalt take the limelight, the critical requirement for rare earths used to optimise electric motor performance has not been as recognised. ALK has yet to secure commercial terms for the DP’s REE output, although interest in a non-Chinese supply of REEs, in our opinion, will drive a commercial offtake agreement for the DP’s rare earth output. A growing understanding of the rare earth applications in EV manufacture will be a key early price driver.

Zirconium products for use in the downstream zirconium chemicals business, with a growing importance of the ceramics industry as the lead potential buyer of DP output. The zirconium basic carbonate and chemical zirconia process lines at the DP could also produce a potential supply of a hafnium free zirconium feedstock to supply the nuclear industry with an alternate supply of nuclear grade zirconium metal used in nuclear reactors.

Hafnium is a metal usually produced as a by-product of the nuclear industry (as above); supply has been subdued to the stagnant nature of the global nuclear industry, at least in the west. Hafnium is seeing its importance grow as it is seen an ideal high-temperature, abrasion resistant alloying agent for use in high-performance aeronautical engineering applications.

Ferro-niobium, a key steel hardening ingredient, sees its price largely governed by the relative monopoly on prices resulting from the world’s pre-eminent producer CBMM in Brazil. Regardless, ALK has sourced and agreed on commercial terms an off-take agreement for DP FeNb output with German company Treibacher Industrie.

Exhibit 6: Permanent REE magnet metal, ZOC and zircon sand price trends April 2017 to April 2018

Source: Alkane Resources and Asian Metal, taken from Alkane Resources Quarterly Activities Report dated 27 April 2018

Valuation: DP only until May 2018 catalysts announced

Our valuation for the TGO is suspended until we gain clear insight into the company’s future direction for this asset. Including net cash flows for the remainder of its official open pit operations (ending Q119) only adds 1 cent to our base case valuation. We will look to revisit, remodel and re-value the TGO and ALK’s wider gold-centric development plans as details emerge, first in May with the outcome of the TGO UG study and in the September quarter with the publication of a revised Peak Hill Proprietary deposit resource estimate.

As such, our base case valuation of ALK’s shares is pinned to just the DP for now. This asset’s value has always dwarfed that of the TGO, and will continue to unless ALK decides not to go ahead with the project’s development. However, we can only see this occurring through a lack of financing being made available.

On a standalone basis we value the DP at A$0.90 per share on a FY19 basis (previously A$0.79 on an FY18 basis).

For a full explanation behind our valuation methodology for the DP please refer to our December 2016 update note Staged DZP plan de-risks financing and off-take.

Financials

ALK’s appendix 3B to end Q318 details YTD revenues from the TGO of A$95.9m and total cash outflows from operations of A$72.2m. Costs comprise all G&A (mine site [A$2.0m] and central costs [A$3.5m]), production (A$48.5m) and development (A$7.4m) operating costs and exploration and evaluation costs (A$8.4m). With Q418 costs likely to mirror Q318 and no significant amount of waste requiring extraction as the open pits near completion, we have assumed these cost levels carry through to year end.

ALK reported YTD capex of only A$1.0m, which we consider mirrors the company’s intention to hold its cash until all its internal studies are completed.

Cash at end Q318 was A$60.6m, a q-o-q increase of 35% (Q218: A$44.8m) driven by solid performance at the TGO, with costs driven lower against a relatively flat Australian dollar gold price. To this could be added A$8.4m in bullion-on-hand, for total liquid assets of A$69m or A$0.13 per ALK share.

Factoring the company’s Q3 results into our model and assuming it sells 78koz of gold at an average price of A$1,653/oz (our US$1,275/oz gold price assumption adjusted for YTD monthly gold prices and a US$/A$ exchange rate of 0.75), we forecast Alkane will finish FY18 with cash of A$63.3m, a modest –q-o-q increase of 4.5% over Q3, with bullion-on-hand valued at A$8.4m, for total liquid assets of A$71.7m.

Exhibit 7: Financial summary

A$'000s

2016

2017

2018e

Year end 30 June

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

109,624

117,792

128,431

Cost of Sales

(76,236)

(57,073)

(76,951)

Gross Profit

33,388

60,719

51,480

EBITDA

 

 

40,913

61,258

41,489

Operating Profit (before GW and except.)

10,984

18,993

(2,443)

Intangible Amortisation

0

0

0

Exceptionals/discontinued

(4,375)

(51,526)

0

Other

0

0

(4,245)

Operating Profit

6,609

(32,533)

(6,689)

Net Interest

54

(1,035)

1,185

Profit Before Tax (norm)

 

 

11,038

17,958

(1,258)

Profit Before Tax (FRS 3)

 

 

6,663

(33,568)

(5,504)

Tax

(1,968)

4,631

0

Profit After Tax (norm)

9,070

22,589

(5,504)

Profit After Tax (FRS 3)

4,695

(28,937)

(5,504)

Average Number of Shares Outstanding (m)

420.8

502.9

835.0

EPS - normalised (c)

 

 

2.2

4.5

(0.7)

EPS - FRS 3 (c)

 

 

1.1

(5.8)

(0.7)

Dividend per share (c)

0.0

0.0

0.0

Gross Margin (%)

30.5

51.5

40.1

EBITDA Margin (%)

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

182,691

148,474

117,155

Intangible Assets

72,553

83,107

94,332

Tangible Assets

102,941

60,627

18,083

Investments

7,197

4,740

4,740

Current Assets

 

 

38,569

54,276

79,798

Stocks

12,394

9,644

14,149

Debtors

1,720

2,445

2,093

Cash

24,455

41,969

63,337

Other

0

218

218

Current Liabilities

 

 

(10,448)

(19,335)

(14,494)

Creditors

(8,745)

(11,166)

(6,325)

Short term borrowings

0

0

0

Other

(1,703)

(8,169)

(8,169)

Long Term Liabilities

 

 

(20,502)

(18,488)

(18,488)

Long term borrowings

0

0

0

Other long term liabilities

(20,502)

(18,488)

(18,488)

Net Assets

 

 

190,310

164,927

163,971

CASH FLOW

Operating Cash Flow

 

 

37,432

52,284

32,495

Net Interest

54

(1,035)

1,185

Tax

0

3,498

0

Capex

(40,423)

(43,705)

(12,614)

Acquisitions/disposals

416

3,016

0

Financing

12,127

3,455

307

Dividends

0

0

0

Net Cash Flow

9,606

17,513

21,373

Opening net debt/(cash)

 

 

(14,849)

(24,455)

(41,969)

HP finance leases initiated

0

0

0

Other

0

0

(4)

Closing net debt/(cash)

 

 

(24,455)

(41,969)

(63,337)

Source: Company accounts and Edison Investment Research

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Alkane Resources and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Alkane Resources and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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