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Research: Metals & Mining
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.
Written by
Alkane Resources |
Profit after tax decreases by 10% y-o-y |
H119 results |
Metals & mining |
1 March 2019 |
Share price performance
Business description
Next events
Analyst
Alkane Resources is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
|
|
Vermilion has reported Q418 FFO of C$222.3m, 6.7% ahead of consensus C$208.3m and in line with our estimate of C$222.2m. At 101.6kboed, production was 2.7% ahead of our forecasts, with FFO/share 1.1% ahead at C$1.46/share. Guidance for 2019 production of 101–106kboed (with the mid-point implying 19% y-o-y growth) and the capex budget of C$530m remain unchanged. ROCE in 2018 was 9% compared to a five-year average of 4%. Our last published valuation was C$54.5/share, based on a blend of FY19 P/CF, EV/EBIDAX and multiple of FCF plus five-year NAV growth.