Profit after tax decreases by 10% y-o-y

Alkane Resources 1 March 2019 Update
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Alkane Resources

Profit after tax decreases by 10% y-o-y

H119 results

Metals & mining

1 March 2019

Price

A$0.21

Market cap

A$106m

Net cash (A$m) at 31 December 2018

73.7

Shares in issue

506.1m

Free float

78%

Code

ALKX

Primary exchange

ASX

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

5.1

(2.4)

(29.3)

Rel (local)

(0.2)

(10.2)

(30.8)

52-week high/low

A$0.3

A$0.2

Business description

Alkane Resources an Australian production and development company. It previously produced 70,000oz of gold per year from the open pit operations at its Tomingley gold mine, but is now transitioning to underground operations and expects to produce around 32,000oz of gold pa.

Next events

Q319 update

27 April 2019

FY19 results

25 October 2019

Analyst

Dr Ryan D Long

+44 (0)20 3077 5700

Alkane Resources is a research client of Edison Investment Research Limited

Gold mining operations at Tomingley performed strongly, with Alkane Resources reporting profit after tax of A$12.2m in H119 (the half year to December 2018) on the back of production of 26,754oz of gold. The 10% decline in net profit from A$13.5m in H118, along with lower production volumes and grades, was expected, reflecting the cessation of open pit mining in January 2019 as Alkane transitions underground. Development of the underground operation at Tomingley is progressing on schedule, with both the main decline and vent portals established. During H219, we expect gold production volumes, c 13,000oz, and grades to continue to decline as Alkane will be processing the mid-grade stockpile until ore from underground is extracted at some point in H219.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

06/17

117.8

6.6

0.02

0.00

10.5

N/A

06/18

130.0

31.5

0.05

0.00

4.2

N/A

06/19e

73.9

14.3

0.02

0.00

10.5

N/A

06/20e

47.9

1.7

(0.01)

0.00

N/A

N/A

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

H119 revenue declined 11% y-o-y

H119 revenue from gold sales totalled A$52.4m, down 11% from A$58.7m in H118, despite a 2% increase in the average gold price received to US$1,717/oz in H119 from US$1,688/oz in H118. Gold sales decreased 12% to 30,497oz in H119 from 34,794oz in H118. Net profit after tax decreased by 10% to A$12.2m in H119 from A$13.5m in H118, with a 1% reduction in all-in sustaining costs (AISC) to A$1,005/oz from A$1,013/oz Au, contributing to a reduction in operating costs.

Gold production down 34% y-o-y

Gold production during H119 totalled 26,745oz, down 34% from 40,764oz in H118, largely as a result of a 12% reduction in processed ore volume, which comprised a 40% reduction in tonnes mined, and a 22% reduction in head grade caused by open pit mining reaching the end of its life.

Cash, bullion & investments position remains strong

Alkane’s net cash, bullion and investments position remained strong at A$80.5m, and the balance sheet remains debt free. Guidance for the year of 35,000oz to 40,000oz of gold produced at an AISC of A$1,050–1,150/oz remains in line with our forecasts, which are unchanged.

Valuation: Underpinned by cash and Tomingley

We maintain our valuation for Alkane’s interest in Calidus Resources and the potential cash flow from Tomingley at A$0.27/share. Assuming Alkane secures the development funding for Dubbo in the first half of this calendar year, and the prices of metals improve to the level it expects over the next three years, our valuation could increase to A$0.44/share.

Exhibit 1: Financial summary

A$’000s

2017

2018

2019e

2020e

2021e

2022e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

117,792.0

129,974.0

73,904.4

47,935.9

69,860.3

172,877.6

Cost of Sales

(57,073.0)

(51,304.0)

(43,686.7)

(26,739.4)

(36,730.4)

(104,916.4)

Gross Profit

60,719.0

78,670.0

30,217.7

21,196.5

33,130.0

67,961.1

EBITDA

 

 

49,333.0

68,578.0

20,717.7

11,506.5

23,246.2

57,879.7

Normalised operating profit

 

 

7,607.0

32,107.0

13,464.5

4,071.6

0.0

0.0

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

7,607.0

32,107.0

13,464.5

4,071.6

0.0

0.0

Net Interest

(1,035.0)

(603.0)

798.1

(2,336.4)

(24,199.7)

(32,122.5)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(40,140.0)

(188.0)

0.0

(1,200.0)

33,912.8

0.0

Profit before tax (norm)

 

 

6,572.0

31,504.0

14,262.6

1,735.2

(24,199.7)

(32,122.5)

Profit before tax (reported)

 

 

(33,568.0)

31,316.0

14,262.6

535.2

9,713.1

(32,122.5)

Reported tax

4,631.0

(6,845.0)

(3,390.7)

(8,912.0)

0.0

0.0

Profit after tax (norm)

11,203.0

24,659.0

10,872.0

(7,176.8)

(24,199.7)

(32,122.5)

Profit after tax (reported)

(28,937.0)

24,471.0

10,872.0

535.2

9,713.1

(32,122.5)

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

11,203.0

24,659.0

10,872.0

(7,176.8)

(24,199.7)

(32,122.5)

Net income (reported)

(28,937.0)

24,471.0

10,872.0

535.2

9,713.1

(32,122.5)

Basic average number of shares outstanding (m)

503

506

506

550

853

1,366

EPS – basic normalised ($)

 

 

0.02

0.05

0.02

(0.01)

(0.03)

(0.02)

EPS – diluted normalised ($)

 

 

0.02

0.05

0.02

(0.01)

(0.03)

(0.02)

EPS – basic reported ($)

 

 

(0.06)

0.05

0.02

0.00

0.01

(0.02)

Dividend ($)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

10.3

(43.1)

(35.1)

45.7

147.5

Gross margin (%)

51.5

60.5

40.9

44.2

47.4

39.3

EBITDA margin (%)

41.9

52.8

28.0

24.0

33.3

33.5

Normalised operating margin (%)

6.5

24.7

18.2

8.5

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

148,474.0

138,275.0

156,450.1

339,396.7

740,365.7

911,927.7

Intangible assets

83,107.0

93,136.0

103,136.0

94,508.8

104,508.8

114,508.8

Tangible assets

60,627.0

36,266.0

39,674.5

230,748.3

621,217.3

782,779.3

Investments & other

4,740.0

8,873.0

13,639.6

14,139.6

14,639.6

14,639.6

Current assets

 

 

54,276.0

93,306.0

75,417.6

18,034.6

27,544.4

26,234.6

Stocks

9,644.0

19,153.0

2,834.7

1,838.6

2,679.6

6,630.9

Debtors

2,445.0

2,030.0

6,074.3

3,939.9

5,741.9

14,209.1

Cash & cash equivalents

41,969.0

72,003.0

66,508.6

11,636.1

18,002.8

3,774.5

Other

218.0

120.0

0.0

620.0

1,120.0

1,620.0

Current liabilities

 

 

(19,335.0)

(27,430.0)

(18,272.8)

(23,386.5)

(36,386.5)

(45,703.2)

Creditors

(11,166.0)

(9,299.0)

(3,590.7)

(2,197.8)

(3,018.9)

(8,623.3)

Tax and social security

0.0

(6,929.0)

(1,672.1)

(4,395.0)

0.0

0.0

Short-term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

Other

(8,169.0)

(11,202.0)

(13,010.0)

(16,793.8)

(33,367.6)

(37,079.9)

Long-term liabilities

 

 

18,488.0

13,647.0

13,647.0

(21,353.0)

(246,353.0)

(311,353.0)

Long-term borrowings

0.0

0.0

0.0

(35,000.0)

(260,000.0)

(325,000.0)

Other long-term liabilities

18,488.0

13,647.0

13,647.0

13,647.0

13,647.0

13,647.0

Net assets

 

 

201,903.0

217,798.0

227,242.0

312,691.8

485,170.5

581,106.1

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

201,903.0

217,798.0

227,242.0

312,691.8

485,170.5

581,106.1

CASH FLOW

Operating cash flow before WC and tax

49,333.0

68,578.0

20,717.7

11,506.5

23,246.2

57,879.7

Working capital

5,518.0

(9,498.0)

6,565.7

1,737.5

(1,821.8)

(6,814.2)

Exceptional & other

672.0

2,823.0

500.0

500.0

500.0

500.0

Tax

0.0

(6,845.0)

(8,647.6)

(6,189.1)

(4,395.0)

0.0

Net operating cash flow

 

 

55,523.0

55,058.0

19,135.8

7,554.9

17,529.4

51,565.5

Capex

(33,551.0)

(9,224.0)

(10,661.7)

(199,008.7)

(414,215.1)

(219,941.7)

Acquisitions/disposals

53.0

0.0

0.0

54,540.0

0.0

0.0

Net interest

(1,035.0)

(603.0)

798.1

0.0

(2,336.4)

(24,199.7)

Equity financing

3,471.0

(5.0)

0.0

20,000.0

110,000.0

80,000.0

Exploration and Evaluation

(10,154.0)

(10,969.0)

(10,000.0)

(10,000.0)

(10,000.0)

(10,000.0)

Other

2,963.0

(4,317.0)

(4,766.6)

37,041.3

80,388.9

43,347.6

Net cash flow

17,270.0

29,940.0

(5,494.4)

(89,872.5)

(218,633.2)

(79,228.3)

Opening net debt/(cash)

 

 

(24,455.0)

(41,969.0)

(72,003.0)

(66,508.6)

23,363.9

241,997.2

FX

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

244.0

94.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(41,969.0)

(72,003.0)

(66,508.6)

23,363.9

241,997.2

321,225.5

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Alkane Resources and prepared and issued by Edison, in consideration of a fee payable by Alkane Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

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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

1,185 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

General disclaimer and copyright

This report has been commissioned by Alkane Resources and prepared and issued by Edison, in consideration of a fee payable by Alkane Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

1,185 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

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

1,185 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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