Revealing the fruits of its labours

Alkane Resources 9 July 2021 Outlook

Alkane Resources

Revealing the fruits of its labours

New Roswell &
San Antonio mine plans

Metals & mining

9 July 2021

Price

A$1.215

Market cap

A$723m

A$1.3439/US$

Net cash (A$m) at 31 December 2020

28.2

Shares in issue

595.4m

Free float

78%

Code

ALK

Primary exchange

ASX

Secondary exchange

OTC QX

Share price performance

%

1m

3m

12m

Abs

22.7

68.8

(5.1)

Rel (local)

21.6

60.7

(24.8)

52-week high/low

A$1.50

A$0.67

Business description

Alkane Resources is 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 52,500oz in FY21.

Next events

Q4/FY21 financial results

August 2021

Tomingley extension project approval

Q3 CY22

Underground production at Roswell commences

Q1 CY23

Open cut production at San Antonio commences

Q3 CY23

Analysts

Charles Gibson

+44 (0)20 3077 5724

Alkane Resouces is a research client of Edison Investment Research Limited

On 3 June, Alkane revealed the fruits of its labours at Roswell and San Antonio by announcing an updated mine plan at Tomingley extending its life at least into 2031 (cf 2023 previously), while simultaneously expanding its throughput rate from c 1Mtpa to 1.5Mtpa. From 50-60koz pa in FY22–23, production is expected to almost double to 107.5koz pa in the period FY25–27 at an all-in sustaining cost of c A$1,400/oz and a capital cost of A$87m (representing a capital intensity of US$888 per average annual ounce of production). Although output is scheduled to drop back to c 60koz pa after FY27, the implementation of the Roswell underground extension would see it recovered back up to the 100koz pa level once again in FY28–31. Approval for the project is being targeted for Q3 CY22.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/19

94.0

25.4

4.57

0.00

26.6

N/A

06/20

72.5

20.6

2.56

0.00

47.5

N/A

06/21e

131.7

44.6

5.17

0.00

23.5

N/A

06/22e

133.2

28.0

3.30

0.00

36.8

N/A

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

NMPP continuing to deliver the goods

While it has been performing the studies required to extend its mining operation at Tomingley, Alkane has been continuing to drill at the Northern Molong Porphyry Project, also in New South Wales. Although work is still at a relatively early stage in the context of developing a mine, we believe that drilling conducted to date is consistent with a resource at the Boda and Boda Two prospects, within the Northern Molong Porphyry Project, in the order of 769–1,704Mt at an average gold grade of 0.25–0.26g/t potentially containing 6.2–11.0Moz Au plus copper and containing a high-grade pod of in excess of 2.1Moz gold equivalent. This compares with the (albeit JORC-compliant) mineral resource of 36.1Moz Au at a grade of 0.35g/t Au (plus copper) estimated at Newcrest’s Cadia Province mines 110km to the south of the Northern Molong Porphyry Project, that produced 843koz of gold in FY20 at an AISC of US$160/oz Au (net of by-product credits) to generate US$991m in free cash flow.

Valuation: Up to 125c/share plus blue-sky upside

Our ‘base case’ valuation of the expanded and extended Tomingley operation is 32 Australian cents per share (cf 18c for the shortened mine life previously), to which may be added (as contingencies) a further 5c for the eventual development of the Roswell underground extension (see Exhibit 5) and potentially 13c given the current level of the gold price. To this total of 50c, an additional 4c may be added to reflect the value of residual (unmined) resources plus 3c for ongoing exploration success at Roswell, San Antonio and El Paso to take the total for the wider Tomingley operation to 57c (including cash held centrally). Beyond that, we value Alkane’s interests in Calidus and Genesis at 8c per share and the exploration completed to date at Boda and Boda Two within the Northern Molong Porphyry Project at anything up to 60c with plenty of blue-sky upside still remaining to take the total up to 125c.

Investment summary

Company description: Australian gold miner and explorer

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 Metals 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, both in central-western 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 additional capital, expertise and operating capability, for mutual benefit – most recently in Calidus Resources (ASX:CAI), which is now in development and fully funded, and Genesis Minerals (ASX: GMD), which is developing the Ulysses gold project in Western Australia.

Valuation: Up to 125c/share plus ongoing exploration upside

Our valuation of Alkane comprises three assets, although one of these – Tomingley – itself comprises a number of components, not least as a result of the extension of its mine life from three to 11 years via the adoption of a new plan to extend mining operations into Roswell and San Antonio. Our ‘base case’ valuation of Tomingley therefore is 32c, to which may be added (as contingencies) a further 5c for the eventual development of the Roswell underground extension (see Exhibit 5) and 13c given the current level of the gold price. To this level of 50c, an additional 4c may be added to reflect the value of residual (unmined) resources plus 3c for ongoing exploration success at Roswell, San Antonio and El Paso to take the total for the wider Tomingley operation to 57c (including cash held centrally). Beyond that, we value Alkane’s interests in Calidus and Genesis at 8c per share and the exploration completed to date at Boda and Boda Two within the Northern Molong Porphyry Project at anything up to 60c with plenty of blue-sky upside remaining (eg at Kaiser).

Sensitivities

Every ±10% change in the gold price results in a change to our 32c ‘base case’ valuation of 10c (32%), while every 10% change in costs results in an average valuation change of 7c (20%). Assuming a flat, real gold price of US$1,812/oz (ie the spot price at the time of writing) for the remainder of the (extended) life of Tomingley’s operations, our valuation of Alkane (based on the present value of potential dividends payable to Alkane shareholders) increases by 13c, or 39%, from 32c to 45c per share.

Financials: Minimal future debt requirements

Alkane had A$28.2m in net cash on its balance sheet as at end-H121. Excluding cash flows from financing activities, it generated A$37.1m in cash from operating activities in H121 and invested A$54.3m in capex, leading to a free cash outflow of A$17.2m in H121 (or the equivalent of A$34.4m on an annualised basis). A similar performance in H2 would therefore have resulted in net cash of A$11.0m as at end-June 2021. The group recently reported H221 cash of A$19.0m and, we estimate, net cash of A$12.4m. In addition, it had A$7.7m of bullion on hand. Hereafter, we estimate that cash flow from operations will contribute meaningfully to capex as the Tomingley mine extension is constructed. However, we anticipate that management will nevertheless seek to fund a portion of the project with debt put in place over the course of the next 12 months.

Recent developments

Alkane has announced a number of developments since our last note on the company (Boda bodes well, published on 8 December), including:

An updated mineral resource estimate at San Antonio.

An updated Tomingley life of mine plan to incorporate the resources defined at Roswell and San Antonio, in particular.

Additional drilling results at its Boda prospect within the Northern Molong Porphyry Project.

H121 and Q321 interim results.

This note considers each in turn and updates our valuation of Alkane accordingly.

San Antonio updated resource statement

On 16 February 2021, Alkane announced an update to its maiden mineral resource estimate at San Antonio. San Antonio’s maiden mineral resource estimate was announced on 20 April 2020 and was considered in our report, 007 strikes it rich, published on 23 April. A comparison of the updated resource with the original is provided in Exhibit 1, below. Of particular note is the promotion of 76% of the maiden inferred resource into the indicated category, from which they are then eligible to be subsequently promoted into reserves (unlike resources in the inferred category):

Exhibit 1: San Antonio updated mineral resource estimate vs maiden resource

Category

Tonnage

(kt)

Grade

(g/t)

Contained gold

(koz)

Updated

Measured

0

0.00

0

Indicated

5,920

1.81

345

Inferred

1,410

1.32

60

Total

7,330

1.72

405

Maiden

Measured

0

0.00

0

Indicated

0

0.00

0

Inferred

7,920

1.78

453

Total

7,920

1.78

453

Change (units)

Measured

0

0.00

0

Indicated

5,920

1.81

345

Inferred

-6,510

-0.46

-394

Total

-590

-0.06

-48

Change (%)

Measured

N/A

N/A

N/A

Indicated

N/A

N/A

N/A

Inferred

-82.2

-26.0

-86.8

Total

-7.4

-3.5

-10.7

Source: Alkane Resources, Edison Investment Research. Note: Totals may not add up owing to rounding.

The resource definition drilling programme at San Antonio (and 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 San Antonio are therefore capable of supporting a 7.3-year extension in the life of operations at Tomingley.

Roswell and San Antonio resources combined

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 demonstrate the potential for material project life extensions (subject to landholder agreements and regulatory approvals).

The San Antonio deposit is a continuation of the Roswell mineralised zone to the south of the Rosewood fault. 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 17,400kt resource at an average grade of 1.90g/t, containing 1,065koz gold. 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:

Exhibit 2: Roswell and San Antonio updated resources versus target

Target

Actual

Uplift of actual vs target

Prospect

Bound

Tonnage (kt)

Grade
(g/t)

Contained
gold (koz)

Tonnage
(kt)

Grade
(g/t)

Contained
gold (koz)

Tonnage (%)

Grade
(%)

Contained gold (%)

Roswell

Upper

6,200

1.90

379

10,070

2.04

660

62.4

7.3

74.3

San Antonio

Upper

10,200

2.80

918

7,330

1.72

405

-28.1

-38.6

-55.9

Lower

7,400

2.30

547

7,330

1.72

405

-0.9

-25.3

-26.0

Total

17,400

1.90

1,065

Source: Alkane Resources, Edison Investment Research

Alkane’s resources at Tomingley amount to 9.4Mt at a grade of 1.9g/t, containing 610koz gold. As such, the combined resources at Roswell and San Antonio have increased Alkane’s aggregate group resources by more than 170%.

In terms of mine life, at a milling rate of 1Mtpa, Roswell and San Antonio’s resources could therefore potentially add 17.4 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 which basis we would value the Roswell and San Antonio resources combined (ie 1,065koz – see Exhibit 2) at US$25.7m, or A$34.5m, or 5.8 Australian cents per share.

Exhibit 3 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 its exploration targets:

Exhibit 3: Alkane exploration targets’ potential value (US$m, A$m, A$/share)

Limit

Tonnage
(kt)

Grade
(g/t)

Contained gold (koz)

Valuation (US$/oz)

Valuation (US$m)

Valuation
(A$m)

Valuation
(A$/share)

Total*

Upper

23,800

2.19

1,678

24.08

40.4

54.3

0.091

Lower

15,800

1.81

920

24.08

22.1

29.8

0.050

Source: Alkane Resources, Edison Investment Research. Note: *Comprises Roswell, San Antonio and El Paso.

Note that these valuations in Exhibit 3 are based purely on the in-situ value of the resources that Alkane is targeting for delineation. Self-evidently, they are subject to increase to the extent that they are subsequently upgraded to reserves and included in the Tomingley mine plan.

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:

Increase production to c 745koz overall during the period FY22–31 (inclusive) at an expanded feed rate of 1.5Mtpa, including:

50–60koz pa in FY22 and FY23.

Production escalating from 60koz pa through FY24 to:

100–115koz pa for FY25–27, and

55–65koz pa for FY28–31.

Have an average all-in sustaining cost (AISC) over the life of mine of A$1,350–1,450/oz, based on existing and historical Tomingley open-cut mining costs.

Involve investment of A$87m (NB capex is expected to be funded from operating cash flow and debt without recourse to the equity markets, among other things, thereby minimising dilution). Note that this level of capex equates to a relatively low capital intensity of US$888 per average annual ounce of gold production (excluding the Roswell underground extension – see below).

With detailed plans and initial consultation now complete, an Environmental Impact Statement is being prepared for submission in Q3 CY21 and the expected timing for project approval is 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 5).

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

Exhibit 4: San Antonio, Roswell resource conversion into mined oz, actual vs expected

Deposit

Mined ounces

(koz)

Total resource

(koz)

Conversion

(%)

Mined oz implied at 67% conversion* (koz)

Variance

(%)

San Antonio

240

406

59.1

268

-10.4

Roswell

249

Roswell underground

188

Roswell total

437

660

66.2

436

+0.2

Total

677

1,066

63.5

703

-3.7

Source: Edison Investment Research, Alkane Resources. Note: *Pre-mining reserve:resource conversion ratio estimate for Tomingley – see our note, Boda bodes well, published on 8 December 2020. Totals may not add up owing to rounding.

As may be seen from the above table, the actual conversion of resources into mined ounces at San Antonio and Roswell is very close (in aggregate) to that which would be expected from the 67% Tomingley pre-mining reserve to resource conversion ratio, among other things, engendering confidence in the similarity between the deposits.

Mining

Open cut

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 San Antonio end) to the north (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 Coloma 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).

Underground

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. Within 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.

Processing

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:

crushing down to 40mm, as well as modifying the crushing circuit so that the secondary crusher does not recycle,

adding a 1.5MW mill before the existing ball mill, with its own cyclone pack and feed pumps,

adding an additional Knelson gravity concentrator and upgrading the Acacia capacity,

upgrading the tailings thickening circuit, and

associated electrical and reagent upgrades.

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 potential Roswell underground extension is also put into effect.

Exhibit 5: Tomingley extended mine life production compared to prior Edison forecast

Source: Alkane Resources, Edison Investment Research

Approvals process

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 & 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:

a Mining Lease from NSW’s Mining, Exploration & Geoscience department (MEG),

a new or amended Environment Protection Licence (EPA),

roads approval for the relocation of the Newell Highway and Kyalite Road in the form of a works authorisation deed (WAD) from Transport for NSW and Council,

water approvals from the Department of Natural Resources Access Regulator (NRAR) and Department of Planning, Industry & Environment (DPIE), and

a stewardship agreement with the Biodiversity Conservation Division.

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

Exhibit 6: Tomingley mine life extension dates

Milestone

Date

Environmental impact statement (EIS) submission

Q3 CY21

EIS public display

Q4 CY21

Residue storage facility construction commencement

Q2 CY22

Project approval

Q3 CY22

Newell Highway diversion commencement

Q3 CY22

Infrastructure works at Tomingley gold plant

Q3 CY22

Underground production at Roswell

Q1 CY23

Open cut production at San Antonio

Q3 CY23

Milestone

Environmental impact statement (EIS) submission

EIS public display

Residue storage facility construction commencement

Project approval

Newell Highway diversion commencement

Infrastructure works at Tomingley gold plant

Underground production at Roswell

Open cut production at San Antonio

Date

Q3 CY21

Q4 CY21

Q2 CY22

Q3 CY22

Q3 CY22

Q3 CY22

Q1 CY23

Q3 CY23

Source: Alkane Resources

The full financial and valuation consequences of the mine life extension are considered in the ‘Alkane/Tomingley valuation’ and ‘Sensitivities’ section of this note, below.

Boda and Boda Two drilling results

On 18 December 2020, 8 March and 3 May 2021, Alkane reported the assay results of an additional 15 diamond drill holes (denoted DD) and an additional one reverse circulation (RC) hole at its Boda, Boda Two and Kaiser (Duke) prospects at its Northern Molong Porphyry Project. The drilling is part of a 30,000m diamond and reverse circulation core exploration programme that began in July 2020 to test the dimensions and extensions to the large, low-grade mineralised envelope at Boda, as well as any internal high-grade zones.

A summary of the 14 holes drilled at Boda and Boda Two is as follows:

Exhibit 7: Boda diamond drill hole assay results

From

(m)

To

(m)

Average/aggregate intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

Previously announced DD results

760.5

0.29

0.13

Previously announced RC results

303.3

0.17

0.10

KSDD014

436.0

915.0

419.0

0.21

0.03

KSDD028

120.0

1,088.0

839.0

0.38

0.17

KSRC033D

0.0

878.0

612.0

0.24

0.11

KSDD017

11.0

914.0

338.0

0.24

0.12

KSDD018

0.0

897.0

566.0

0.21

0.11

KSDD021

106.0

981.8

775.8

0.14

0.10

KSDD024

16.0

1,896.0

461.0

0.20

0.04

KSDD015

6.0

1,249.1

1,243.1

0.18

0.12

KSDD016

30.0

1,160.0

501.0

0.19

0.18

KSDD019

12.0

1,105.0

611.0

0.22

0.10

KSDD023

15.0

1,323.0

630.9

0.24

0.03

KSDD029

620.0

1,107.0

220.3

0.22

0.14

KSDD030

116.0

1,724.0

1,489.1

0.15

0.10

KSDD031

645.0

1,238.0

407.2

0.77

0.31

New DD results

654.0

0.24

0.12

New RC results

612.0

0.24

0.11

All DD results

705.1

0.26

0.12

All RC results

331.4

0.19

0.10

All holes

590.9

0.25

0.12

Source: Alkane Resources, Edison Investment Research

Note that, for the purposes of Exhibit 7, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. In general, it may be seen that the 14 new holes reported widths of mineralisation that were consistent with (albeit slightly less than) those of previous diamond drill holes at slightly lower grades, but which were still wider and higher grade than the RC widths and grades previously reported.

Analysis and interpretation of Boda and Boda Two drill results

Three drill holes (KSDD017, KSDD018 and KSDD024) were completed in the area between the southern extension of the Boda mineralisation shell and the northern extension of the Boda Two prospect. One drill hole (KSDD021) tested the southern extensions to the Boda Two prospect and two (KSDD023 and KSDD030) defined a gold-rich pyrite zone on the eastern margin of a new zone of extensive copper-gold porphyry mineralisation. Two further holes (KSDD029 and KSDD031) were designed to intersect the north-west structural trend and test down plunge, on the reverse angle, of the high-grade breccia identified by holes KSDD007 and KSDD028. Three further holes (KSDD015, KSDD016 and KSDD019) continued to intersect extensive zones of gold-copper mineralisation with increasing molybdenum grades flanking the potassic alteration (see Exhibit 8, below).

Exhibit 8: Boda prospect drilling update

Source: Alkane Resources

In general terms, holes KSDD017, KSDD018 and KSDD024 confirm and extend the mineralisation identified in reverse circulation holes KSRC032 and KSRC031, while hole KSDD021 largely confirmed the earlier (significant) results from hole KSDD022, which intersected a large pyrite shell comprising stringers and aggregates of pyrite within a sequence of propylitic altered basaltic andesites and monzodiorite sills and dykes. In both cases, it is surmised that the thick intersection of strong gold mineralisation with anomalous copper and pathfinder elements could be indicative of a distal component to a new, large fertile magmatic system (Boda Two). The same is also true of the intersection of significant molybdenum and copper mineralisation at a depth below 841m at hole KSDD024, which also suggests a zonation of metals around a deeper magmatic source to the system. Hole KSDD028 was significant in that it was designed to intersect the north-west striking orebody at approximately 90°. The hole, collared in outer propylitic alteration, intersected a gold mineralised pyrite-sericite shell for approximately 300m downhole, which zoned in to extensive calc-potassic alteration with gold-copper (Au-Cu) mineralisation centred around a high-grade Au-Cu breccia. The breccia shows 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, with the high-grade mineralisation appearing to plunge steeply to the north-east, possibly vectoring towards a ’causative’ intrusion to the Boda system. Individual high-grade intersections encountered in hole KSDD028 included:

832m grading 0.38g/t Au, 0.17% Cu from 256m

including 266m grading 0.66g/t Au, 0.36% Cu from 764m

including 65m grading 1.98g/t Au, 1.13% Cu from 799m

including 25m grading 4.43g/t Au, 2.59% Cu from 838m

Subsequent drilling, in the form of holes KSDD029 and KSDD031, successfully tested and extended the sulphide cemented breccia identified by holes KSDD007 and KSDD028 down dip within the main north-west structural zone by 100m. KSDD031, in particular, successfully intersected the sulphide cemented breccia down dip with significant assay results of:

383.2m grading 0.80g/t Au, 0.31% Cu from 775m

including 204m grading 1.40g/t Au, 0.51% Cu from 776m

including 101m grading 2.47g/t Au, 0.83% Cu from 824m

including 70m grading 3.04g/t Au, 0.92% Cu from 829m

The breccia remains open and further drilling in this area is designed to test the structure at depth where its nature may change from chalcopyrite dominant to more copper-rich bornite dominant as well as testing for a possible ‘causative’ porphyry intrusion to the breccia and Boda system. Hole KSDD014 intersected the north-east extension of the low-grading Au sericite-pyrite halo and may need to be extended in due course to test for Au-Cu porphyry mineralisation north-west of Boda at depth.

In terms of Edison’s attempts to estimate a mineralised inventory at Boda and Boda Two, the results continue to demonstrate a complication whereby, almost without exception, the results from the RC holes demonstrate lower widths and grades than those from comparable diamond core drill holes.

Exhibit 9: Recent Boda and Boda Two DD hole assay results cf comparable earlier RC results

Recent hole

Prior comparable hole

Hole

Intersection

(m)

Average gold grade

(g/t)

Average Cu grade

(%)

Hole

Intersection

(m)

Average gold grade

(g/t)

Average Cu grade

(%)

KSDD017

338.0

0.24

0.12

KSRC032

503.0

0.10

0.11

KSDD018

566.0

0.21

0.11

KSRC031

239.0

0.06

0.09

KSDD024

461.0

0.20

0.04

KSRC031 & 032

KSDD021

775.8

0.14

0.10

KSRC037

385.0

0.10

0.11

KSDD022

394.0

0.53

0.02

KSRC033D

612.0

0.24

0.11

KSDD007

1,197.1

0.54

0.25

KSDD010

869.0

0.17

0.08

KSDD012

1,159.0

0.18

0.12

KSDD016

501.0

0.19

0.18

KSRC016

176.0

0.20

KSDD023

630.9

0.24

0.03

KSRC031

239.0

0.06

0.09

KSRC034

201.0

0.20

0.14

KSDD030

1,489.1

0.15

0.10

KSRC036

291.0

0.11

0.11

Source: Alkane Resources, Edison Investment Research

In general, the diamond drill holes (DD) demonstrate wider overall intersections than their RC counterparts, extending to greater depths at higher grades. Of note, within the context of this observation, is the fact that hole KSDD021 finished in mineralisation. This difference between RC and DD drill hole results may be attributed to a) the zonation of the system and b) the fact that the RC drill holes are testing the upper part of the system, where grades are anyway anticipated to be lower (as is typical of this type of porphyry system). In addition, some of the RC drill holes are pre-collars for subsequent diamond drill holes in order to reduce the overall cost of the holes. Note that four RC holes (KSRC031, KSRC032, KSRC037 and KSRC038) also finished in mineralisation and two of these (KSRC032 and KSRC038) will be extended by diamond tails at a later date.

Exhibit 10 updates our estimates of the potential mineralised inventory in the light of the 14 new drill hole results at Boda. As previously, in recognition of the difference between RC and diamond drill results, we have included two updated estimates: one based on the whole population of results and the other based on the results of the diamond drill holes only. The results are also compared with the resources disclosed by Newcrest for Cadia Ridgeway c 100km to the south (see Exhibit 11).

Exhibit 10: Edison estimate of the potential size of Boda mineralisation

Source of underlying data

Edison

Alkane Resources

Newcrest

Characteristic (units)

Updated

(all holes)

Updated

(DD holes)

***Prior

(all holes)

***Prior

(DD holes)

Alkane est. dimensions

High-grade pod

Surface projection

Cadia Valley Ridgeway

Cadia Ridgeway underground actual**

Strike (m)

1,034

1,034

891

891

1,000

150

1,069

250

Ave est true width (m)

271

315

243

348

400

100

521

150

Est surface area (Mm2)

0.557

Ave est true depth (m)

915

1,044

819

1,036

1,100

500

1,020

600

Est volume (Mm3)

256

340

177

321

440

7.5

568

22.5

Est density (t/m3)

3

3

3

3

3

3

3

3

Est tonnage (Mt)

769

1,020

533

964

1,320

22.5

1,704

67.5

151

Est ave gold grade (g/t)

0.25

0.26

0.26

0.29

0.25

0.2

0.49

Est ave copper grade (%)

0.12

0.12

0.13

0.13

0.12

0.32

Est ave AuE grade (g/t)

0.45

0.47

0.43

0.46

0.45

3.0

2.0

0.84

Est contained gold (koz)

6,192

8,648

4,480

8,985

10,624

10,957

2,400

Est contained copper (kt)

938

1,267

682

1,253

1,609

480

Est contained AuE (koz)

11,127

15,314

7,322

14,211

19,090

2,170

4,340

4,925

Source: Edison Investment Research. Note: *Edison estimates; **From Newcrest reserve & resource statement, 31 December 2020; ***Conducted at prices of US$7,674/t Cu and US$1,840/oz Au. Updated gold equivalent inventory and grades calculated at US$1,787/oz Au and US$9,401/t Cu.

In the context of the above estimates, it is worth noting the like-for-like increase in the lower end of our estimate of the potential resource at Boda, as represented by the ‘Updated (all holes)’ column, primarily as a result of the increase in our estimate of the dimensions of the deposit (albeit at a slightly lower average grade, overall).

In broad terms, given the information available, our best estimate of the overall size of the Boda deposit is 769–1,704Mt at an average gold grade of 0.25–0.26g/t containing 6.2–11.0Moz Au (cf 4.5–12.3Moz previously) plus copper and containing a high-grade pod of in excess of 2.1Moz gold equivalent (AuE) at a grade above its 3.0g/t AuE cut-off.

Clearly such estimates are very far from being anything close to JORC code-compliant and experience would suggest they have an accuracy of approximately ±75%. Even at the bottom end of this range however, it would suggest a multi-million ounce gold deposit at Boda with a potential valuation (based on the US$24.08/oz average valuation of in-situ ounces calculated in our report Gold stars and black holes, published in January 2019) in the range A$0.34–0.60/share (cf A$0.24–0.67/share previously).

Kaiser drill results

Concurrent with activity at Boda and Boda Two, elsewhere drilling is testing identified anomalies at Kaiser and an area about 5km in length to the south of Boda (denoted Boda Three), as well as other regional targets within the 15km monzonite intrusive corridor that extends from Boda to Finns Crossing defined by both the 3D-IP survey and existing Alkane data.

Of the 15 drill holes reported upon in December 2020, March and May 2021, one, KSDD027, related to Kaiser and was designed to test a conductive induced polarisation (IP) anomaly within the Duke Zone on the north-eastern flank of the Kaiser porphyry style mineralisation.

KSDD027 intersected two zones of gold-copper porphyry mineralisation with grades and alteration similar to Boda and significant assay results of:

360m grading 0.38g/t Au, 0.15% Cu from 0m

including 7m grading 0.90g/t Au, 0.26% Cu from 119m

6m grading 0.90g/t Au, 0.29% Cu from 204m

6m grading 1.71g/t Au, 0.24% Cu from 332m

442m grading 0.17g/t Au, 0.11% Cu from 422m

including 27m grading 0.31g/t Au, 0.13% Cu from 492m

58m grading 0.28g/t Au, 0.16% Cu from 735m.

Overall, we calculate that hole KSDD027 had an aggregate intercept of 360m at a grade of 0.38g/t Au and 0.15% Cu, which, although slightly narrower than the majority of the holes featured in Exhibits 7 and 9, is nevertheless also of a higher grade in terms of both gold and copper.

The orientation of the Kaiser mineralisation (including the Duke zone) appears, at first glance, to be somewhat more varied than that of the Boda and Boda Two deposits. Taken together with the other drill holes for which results are known and using the same methodology as for Boda and Boda Two, Edison calculates that the drilling conducted to date could indicate a deposit at Kaiser of c 28.2Mt at grades of 0.34g/t Au and 0.24% Cu (0.72g/t AuE) containing c 305koz Au and 67kt Cu. In this respect, it is worth noting that the intersections at Kaiser appear to be both narrower and to a lesser depth than those at Boda and Boda Two. As before, this estimate is self-evidently not JORC code-compliant and we estimate that the accuracy of such an estimate is ±75%.

To date, approximately half the number of holes have been drilled at Kaiser as have been drilled at Boda and Boda Two. As such, there is ample scope for Edison’s estimate of in-situ mineralisation at Kaiser to increase with additional drilling and an indication of the potential of the Duke zone is demonstrated by the fact that, in Alkane’s words, it ‘is currently interpreted from existing drilling to be approximately 250m wide, striking over 800m and open along strike and at depth.’ These dimensions may be compared with those in Exhibit 9 for an indication of the potential mineral inventory that may be hosted by such an orebody (ie of the same order of magnitude as that contained at Boda and Boda Two). Within this context, it is worth noting that, by varying our assumptions regarding the orientation of the Kaiser mineralisation, in particular, we are able to generate a potential inventory of 116.6Mt at grades of 0.34g/t Au and 0.24% Cu (0.72g/t AuE) containing 1,258koz Au and 276kt Cu (compared with which our other estimate of 305koz is 75.6% smaller). In the meantime, follow-up drilling is being undertaken to start testing in the very prospective 800m corridor between Boda and Kaiser and in which very little effective exploration has been conducted to date.

Northern Molong Porphyry Project background

The Northern Molong Porphyry Project is 100% owned by Alkane, covers c 115km2 of the northern Molong Volcanic Belt (MVB) and is around 80km to the north-east of its Tomingley Gold Mine, in central-west NSW (Exhibit 11).

Exhibit 11: Location of the Northern Molong Porphyry Project

Source: Alkane Resources

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

The Northern Molong Porphyry Project now comprises four exploration licences, Bodangora, Boda South, Kaiser and Finns Crossing, within which Alkane has defined five magnetic anomalies interpreted to be intrusive complexes, Kaiser, Boda, Comobella, Driell Creek and Finns Crossing, all within a 15km north-west to south-east trending corridor (Exhibit 12) and all close to road, rail, gas and water infrastructure. Importantly, the Boda anomaly correlates with a historical induced polarisation (IP) survey completed by CRA Exploration (now Rio Tinto) over the Boda Intrusive Complex (BIC), which showed a strong high chargeable anomaly along the northern edge of the survey area coincident with the magnetic anomaly. As a result, Alkane has recently completed a 70-line kilometre IP survey over the 6km strike extensions of the BIC to generate further drilling targets.

Exhibit 12: Northern Molong Porphyry Project regional geology

Source: Alkane Resources

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

Quarterly and half-year results

HY21, Q321 results and FY21 guidance

While Q121 operational results from the existing mining at Tomingley were close to our expectations, results for both Q2 and Q321 were characterised by higher head grades and lower unit costs (in A$/oz terms). As a result, according to its full-year production update, released on 8 July 2021, Alkane produced 56,958oz gold in FY21 at an all-in sustaining cost (AISC) of A$1,320/oz, outperforming its most recent guidance of 50–55koz at an AISC of A$1,400–1,550/oz and its original guidance of 45–50koz gold at an AISC of A$1,450–1,600/oz materially. A summary of Alkane’s quarterly results for the year to date (including Edison’s forecasts on the detail of Q421) plus our updated forecast for the full year is provided in the table below.

Exhibit 13: Tomingley quarterly operating results, Q120–Q421e

Q220

Q320

Q420

Q121

Q221e

Q221

Q321e

Q321

Q421e

FY21e

FY21e

(prior)

Ore milled (t)

231,493

113,699

204,269

254,423

227,203

235,217

227,203

237,455

236,300

963,395

936,033

Head grade (g/t)

1.21

1.83

2.20

1.56

1.86

2.50

1.86

2.40

2.03

2.11

1.78

Contained gold (g/t)

9,006

6,690

14,448

12,761

13,587

18,906

13,587

18,323

15,446

65,435

53,522

Recovery (%)

88.3

85.6

89.3

88.4

87.4

88.1

87.4

91.0

87.4

87.0

88.0

Gold poured (oz)

6,929

5,723

13,358

11,499

11,875

15,919

11,875

16,040

13,500

56,958

47,124

Gold sold (oz)

9,143

3,864

12,992

11,945

11,875

16,613

11,875

15,844

13,500

57,902

47,570

Gold price (US$/oz)

1,483

1,581

1,713

1,911

1,868

1,875

1,749

1,796

1,814

1,849

1,819

Forex (A$/US$)

1.4627

1.5282

1.5226

1.3987

1.3745

1.2929

1.3476

1.2943

1.2989

1.3212

1.3671

Average realised price (A$/oz)

2,084

2,126

2,327

2,261

*2,567

2,302

*2,357

2,203

*2,356

2,281

2,385

C1 site cash costs (A$/oz)

1,024

995

981

1,178

1,268

720

1,268

803

1,103

927

1,246

AISC (A$/oz)

1,441

1,346

1,368

1,575

1,593

1,201

1,586

997

1,620

1,320

1,570

Source: Alkane Resources, Edison Investment Research. Note: *Forecast average realised gold prices exclude forward sales.

Based on the above assumptions for Q421, a summary of our estimate of Alkane’s full-year results for FY21 is as shown in Exhibit 14, below. Readers should note that there is an anomaly whereby Alkane’s H119, FY19 and H120 results were reported with its recently demerged Australian Strategic Materials’ (ASM) numbers fully consolidated, but its FY20 results reported with ASM reflected as ‘classified as held for distribution to owners’ and/or ‘discontinued’. The consequences of this are most obviously apparent in the line items entitled ‘loss after tax from discontinued operations’. However, this is not considered material enough to significantly detract from the overall trends apparent from the figures.

Exhibit 14: Alkane underlying* income statement, H119-H221e (A$m, unless otherwise indicated)

H119

H219

H120

H220

FY20

*H121

H221

FY21e

(current)

FY21e

(previous)

Revenue

52.352

41.643

34.098

38.451

72.549

65.252

66.405

131.657

104.169

Cost of sales

(28.829)

(24.827)

(16.500)

(16.400)

(32.868)

(24.087)

(27.614)

(51.701)

(62.005)

Gross profit

23.523

16.815

17.598

22.051

39.681

41.165

38.791

79.956

42.163

Other net income

1.759

(1.667)

0.111

(0.201)

(0.090)

0.350

0.350

(0.090)

Administration expenses

(4.797)

(2.570)

(4.993)

(5.276)

(10.269)

(7.215)

(7.215)

(14.430)

(7.367)

Exploration and evaluation expenditure expensed

0.000

0.000

0.000

(0.329)

(0.329)

0.000

0.000

0.000

Impairments

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Gain/(loss) on disposal

0.000

0.000

0.000

(0.317)

(0.317)

(0.002)

(0.002)

0.000

Share of profit/(loss) of associates

(0.473)

(0.473)

Depreciation

(5.990)

(1.265)

(1.429)

(7.722)

(9.151)

(9.226)

(11.358)

(20.584)

(12.429)

EBIT/(LBIT)

14.495

11.314

11.318

8.207

19.525

24.599

20.218

44.817

22.277

Interest income/(cost)

(0.258)

(0.161)

(0.109)

0.498

0.389

(0.495)

0.313

(0.182)

0.626

Loss after tax from discontinued operations

0.000

0.000

0.000

(0.583)

(0.583)

*0.000

0.000

0.000

PBT/(LBT)

14.237

11.153

11.209

8.122

19.331

24.104

20.531

44.635

22.903

Income tax

2.047

0.219

3.743

2.826

6.569

7.485

6.159

13.644

5.726

Effective tax rate (%)

14.4

2.0

33.4

34.8

34.0

31.1

30.0

30.6

25.0

Profit/(loss) for the year

12.190

10.934

7.466

5.296

12.762

16.619

14.372

30.991

17.177

Non-controlling interest

0.189

0.000

0.189

Minority interest (%)

1.1

0.0

0.6

Adj. profit/(loss) for the year attributable to shareholders

16.430

14.372

30.802

Basic adjusted EPS (A$/share)

0.0241

0.0216

0.0146

0.0091

0.0233

0.0277

0.0241

0.0517

0.0289

Source: Alkane Resources, Edison Investment Research. Note: *Excludes ‘profit/(loss) after income tax expense from discontinued operations’ of A$22,134k relating to the demerger of ASM.

Self-evidently, our updated earnings estimate for FY21 reflects a material upgrade relative to our prior estimate. Inevitably, some of the upgrade reflects Alkane’s operational outperformance in Q2 and Q321. However, some of it also reflects the gold price staying higher for longer (especially in Q321) relative to our prior assumptions.

Alkane/Tomingley valuation

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

On this basis, our valuation of the dividend stream potentially available to Alkane shareholders from its immediate Tomingley operations is now A$0.324/share (cf A$0.183/share previously). However, to this must be added the value of residual resources at the end of the life of operations, which we now estimate to be 0.8Moz with a current value of US$18.1m (A$24.4m), or A$0.041/share, to bring our total valuation of Tomingley to A$0.365/share (cf A$0.206/share previously) including cash.

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

Exhibit 15: Prior Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Exhibit 16: Updated Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Source: Edison Investment Research.

Source: Edison Investment Research.

Exhibit 15: Prior Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Source: Edison Investment Research.

Exhibit 16: Updated Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Source: Edison Investment Research.

Note that the DPS columns in Exhibits 15 and 16 represent theoretical, maximum potential dividends payable, rather than actual dividends forecast and are used solely for valuation purposes. In reality, we would expect a portion of any dividends that could be paid instead to be re-invested into the business, either in the form of exploration expenditure (eg at the Northern Molong Porphyry Project) or capital expenditure.

Sensitivities

The three principal valuation sensitivities to which our valuation of Alkane is exposed are:

the gold price,

costs, and

the Roswell underground extension (see Exhibit 5).

Each of these is considered below, relative to our discounted dividend valuation of Alkane of A$0.324/share (above).

Exhibit 17: Alkane/Tomingley valuation sensitivity to the gold price and unit costs

Valuation
(Australian cents per share)

Gold price percentage change (%)

-20%

-10%

-

+10%

+20%

Unit cost percentage change (%)

+20%

0.0

8.4

19.4

29.7

40.0

+10%

4.9

15.6

25.9

36.2

46.6

-

11.5

22.1

32.4

42.7

53.1

-10%

18.4

28.6

38.9

49.3

59.6

-20%

24.9

35.1

45.4

55.8

66.1

Source: Edison Investment Research

In summary, every 10% change in the gold price results in an average valuation change of 10.4c (32.1% relative to our ‘base case’ scenario), while every 10% change in costs results in an average valuation change of 6.6c (20.4% relative to our ‘base case’ scenario).

If the gold price remains at US$1,812/oz in flat real terms (ie the price at the time of writing), then our valuation of Alkane (based on the present value of potential dividends payable to shareholders) increases by 12.6c/share, or 38.9%, from 32.4 to 45.0 cents.

The valuation’s sensitivity to the discount rate is as follows:

Exhibit 18: Alkane/Tomingley valuation sensitivity relative to the discount rate

Discount rate (%)

0

5

10

15

20

25

30

Valuation (c/share)

53.3

41.0

32.4

26.2

21.6

18.2

15.5

Source: Edison Investment Research

Finally, we calculate that our valuation of 32.4c/share rises by 5.4c, or 16.7%, to 37.8c/share in the event of the Roswell underground extension being implemented (see Exhibit 5), in which case our life of mine profile for EPS and (maximum potential) DPS is as follows (cf Exhibit 16):

Exhibit 19: Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)*

Source: Edison Investment Research. Note: *Incorporating Roswell underground extension (see Exhibit 5).

Combined valuation of Alkane

A summary of our updated valuation of Alkane within the context of all its assets is as follows:

Exhibit 20: Alkane Resources’ valuation summary (Australian cents per share)

Previous

Current/updated

Asset

Existing assets’ valuation

Contingent assets’ valuation

Potential total

Existing assets’ valuation

Contingent assets’ valuation

Potential

total

Tomingley plus cash

21

23

23

37

37

Roswell underground

5

5

Roswell and San Antonio resources

6

27

27

El Paso and ongoing Tomingley extension exploration

3

3

3

3

Investments in Calidus and Genesis*

5

5

8

8

Boda exploration

24–67

67

34–60

60

Spot gold price level cf long-term forecast

3

3

13

13

Total

32

79–123

128

45

55–81

125

Source: Edison Investment Research. Note: *At prevailing share prices of A$0.51/share for Calidus and A$0.072/share for Genesis. Totals may not add up owing to rounding.

Of note in our updated valuation is the shift in the components of the valuation from contingent to fundamental as a result of the extension of the mine plan at Tomingley and also the increased sensitivity of the valuation to the gold price in both absolute and percentage terms. Finally, readers should also note that direct comparison in the valuation of Tomingley and Alkane’s investments in Calidus and Genesis is not appropriate. In this case, expenditure made out of cash flow into ‘investments’ in H121 in particular will have acted to depress the valuation of Tomingley (in the form of cash no longer being available to fund future capex and dividends) while simultaneously increasing the valuation of those investments, purely by virtue of new money being invested. In the absence of this discretionary investment, we estimate that the valuation of Tomingley would have increased by an additional 0.9c/share, while the value of Alkane’s investments in Calidus and Genesis would have decreased by approximately the same amount.

Financials

Alkane had A$28.2m in net cash on its balance sheet as at end-H121. Excluding cash flows from financing activities, it generated A$37.1m in cash from operating activities in H121 and invested A$54.3m in capex, leading to a free cash outflow of A$17.2m in H121, or A$34.4m on an annualised basis. A similar performance in H2 would therefore have resulted in net cash of A$11.0m as at end-June 2021. The group recently reported H221 cash of A$19.0m and, we estimate, net cash of A$12.4m. In addition, it had A$7.7m of bullion on hand.

Hereafter, we estimate that cash flow from operations will contribute meaningfully to capex as the Tomingley mine extension is constructed. However, we anticipate that management will nevertheless seek to fund a portion of the project with debt put in place over the course of the next 12 months.

Exhibit 21: Financial summary

2018

2019

2020

2021e

2022e

30 June

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

129,973.6

93,994.9

72,549.0

131,657.2

133,159.3

Cost of Sales

(51,080.9)

(53,656.4)

(32,868.0)

(51,701.4)

(74,033.7)

Gross Profit

78,892.7

40,338.5

39,681.0

79,955.8

59,125.6

EBITDA

 

 

70,378.7

32,971.7

29,412.0

65,525.8

51,758.9

Normalised operating profit

 

 

31,658.3

25,808.8

20,171.0

45,291.8

27,844.9

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

31,658.3

25,808.8

20,171.0

45,291.8

27,844.9

Net Interest

(579.0)

(418.8)

389.0

(182.0)

185.9

Joint ventures & associates (post tax)

0.0

0.0

0.0

(473.0)

0.0

Exceptionals

0.0

0.0

(646.0)

(2.0)

0.0

Profit before tax (norm)

 

 

31,079.3

25,390.0

20,560.0

44,636.7

28,030.8

Profit before tax (reported)

 

 

31,079.3

25,390.0

19,914.0

44,634.7

28,030.8

Reported tax

(6,919.9)

(2,266.1)

(6,569.0)

(13,644.2)

(8,409.2)

Profit after tax (norm)

24,159.4

23,123.9

13,991.0

30,992.5

19,621.6

Profit after tax (reported)

24,159.4

23,123.9

13,345.0

30,990.5

19,621.6

Minority interests

0.0

0.0

0.0

(189.0)

0.0

Discontinued operations

0.0

0.0

(583.0)

0.0

0.0

Net income (normalised)

24,159.4

23,123.9

13,991.0

30,803.5

19,621.6

Net income (reported)

24,159.4

23,123.9

12,762.0

30,801.5

19,621.6

Basic average number of shares outstanding (m)

506

506

547

595

595

EPS – basic normalised (A$)

 

 

0.05

0.05

0.03

0.05

0.03

EPS – diluted normalised (A$)

 

 

0.05

0.04

0.02

0.05

0.03

EPS – basic reported (A$)

 

 

0.05

0.05

0.02

0.05

0.03

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

10.3

(-27.7)

(-22.8)

81.5

1.1

Gross margin (%)

60.7

42.9

54.7

60.7

44.4

EBITDA margin (%)

54.1

35.1

40.5

49.8

38.9

Normalised operating margin (%)

24.4

27.5

27.8

34.4

20.9

BALANCE SHEET

Fixed assets

 

 

138,275.0

172,196.0

129,077.0

189,070.5

204,246.5

Intangible assets

93,136.0

103,894.0

32,745.0

57,300.0

67,300.0

Tangible assets

36,266.0

51,038.0

62,322.0

84,378.3

89,554.3

Investments & other

8,873.0

17,264.0

34,010.0

47,392.2

47,392.2

Current assets

 

 

93,306.0

76,501.0

59,096.0

35,543.0

40,125.1

Stocks

19,153.0

4,816.0

7,647.0

12,624.7

5,107.5

Debtors

2,030.0

1,998.0

2,940.0

3,246.3

3,283.4

Cash & cash equivalents

72,003.0

69,582.0

48,337.0

19,000.0

31,062.3

Other

120.0

105.0

172.0

672.0

672.0

Current liabilities

 

 

(27,430.0)

(21,762.0)

(14,238.0)

(19,686.0)

(19,822.6)

Creditors

(9,299.0)

(8,007.0)

(9,425.0)

(14,873.0)

(15,009.6)

Tax and social security

(6,929.0)

(9,317.0)

0.0

0.0

0.0

Short-term borrowings

0.0

0.0

(2,090.0)

(2,090.0)

(2,090.0)

Other

(11,202.0)

(4,438.0)

(2,723.0)

(2,723.0)

(2,723.0)

Long-term liabilities

 

 

(13,647.0)

(13,059.0)

(19,522.0)

(19,522.0)

(19,522.0)

Long-term borrowings

0.0

0.0

(4,515.0)

(4,515.0)

(4,515.0)

Other long-term liabilities

(13,647.0)

(13,059.0)

(15,007.0)

(15,007.0)

(15,007.0)

Net assets

 

 

190,504.0

213,876.0

154,413.0

185,405.5

205,027.1

Minority interests

0.0

0.0

0.0

(189.0)

(189.0)

Shareholders' equity

 

 

190,504.0

213,876.0

154,413.0

185,216.5

204,838.1

CASH FLOW

Operating cash flow before WC and tax

69,941.3

33,135.8

28,173.0

65,400.8

51,668.9

Working capital

(9,498.0)

(5,172.0)

(3,481.0)

164.0

7,616.7

Exceptional & other

1,277.0

1,454.0

3,704.0

2.0

0.0

Tax

(6,919.9)

7,047.9

(249.0)

(13,644.2)

(8,409.2)

Net operating cash flow

 

 

54,800.5

36,465.7

28,147.0

51,922.6

50,876.4

Capex

(9,224.0)

(19,621.0)

(46,122.0)

(42,640.3)

(29,000.0)

Acquisitions/disposals

0.0

4.0

(20,068.0)

0.0

0.0

Net interest

(579.0)

(418.8)

389.0

(182.0)

185.9

Equity financing

(5.0)

0.0

39,442.0

0.0

0.0

Exploration and Evaluation

(10,969.0)

(11,578.0)

(20,132.0)

(24,555.0)

(10,000.0)

Other

(4,317.0)

(7,442.0)

(9,522.0)

(13,882.2)

0.0

Net cash flow

29,706.4

(2,590.1)

(27,866.0)

(29,337.0)

12,062.3

Opening net debt/(cash)

 

 

(41,969.0)

(72,003.0)

(69,582.0)

(41,732.0)

(12,395.0)

FX

311.6

169.1

0.0

0.0

0.0

Other non-cash movements

16.0

0.0

16.0

0.0

0.0

Closing net debt/(cash)

 

 

(72,003.0)

(69,582.0)

(41,732.0)

(12,395.0)

(24,457.3)

Source: Company sources, Edison Investment Research

Contact details

Revenue by geography

Level 4
66 Kings Park Road
West Perth, WA 6005
Australia
+61 8 9227 5677
www.alkane.com.au

Contact details

Level 4
66 Kings Park Road
West Perth, WA 6005
Australia
+61 8 9227 5677
www.alkane.com.au

Revenue by geography

Management team

Non-executive Chairman: Ian J Gandel

Managing Director: Nic Earner

Mr Gandel is a Melbourne businessperson with experience in retail management and retail property. He has been a director of the Gandel Retail Trust and has had an involvement in the construction and leasing of Gandel shopping centres. Previously he was involved in the Priceline retail chain as well as being the CEO of a chain of serviced offices. Through his private investment vehicles, Mr Gandel has been an investor in the mining industry since 1994 and is a substantial holder in a number of publicly listed Australian companies. He holds and explores tenements in Western Australia both in his own right and via his private investment vehicles. He is non-executive chairman of Alliance Resources and a non-executive chairman of Australian Strategic Materials.

Mr Earner is a chemical engineer and graduate of University of Queensland with 25 years’ experience in the mining industry. He joined Alkane as COO in August 2013, prior to which he spent four years at Straits Resources, 11 years at Rio Tinto’s Australian coal division and eight at BHP’s Olympic Dam mine, at which he managed its concentrator and hydromet functions, which included substantial milling, leaching and solvent extraction circuits. His other positions included production superintendent (smelting) and senior engineer (process control, instrumentation and communications). Among other roles, he is also a non-executive director of Australian Strategic Materials (ASM).

Technical Director: Ian Chalmers

Chief Financial Officer: James Carter

Mr Chalmers is a geologist and graduate of the Western Australia Institute of Technology (Curtin University) and has an MSc from the University of Leicester in the UK. He has worked in the mining and exploration industry for over 50 years, during which time he has had experience in all facets of exploration and mining. Mr Chalmers was MD of Alkane for 11 years before making way for Mr Earner in 2017. During that time, he was responsible for the discovery of the gold deposits immediately to the south of Tomingley and the porphyry gold-copper body at Boda. Among other things, he is a non-executive director at ASM.

A certified public accountant (CPA) and corporate governance professional with over 20 years’ experience in the mining industry, Mr Carter has held CFO roles for the past 15 years in a number of publicly listed mining companies. His experience has primarily involved debt and equity capital market transactions, IPOs, treasury management, tax strategy, M&A and corporate governance.

Management team

Non-executive Chairman: Ian J Gandel

Mr Gandel is a Melbourne businessperson with experience in retail management and retail property. He has been a director of the Gandel Retail Trust and has had an involvement in the construction and leasing of Gandel shopping centres. Previously he was involved in the Priceline retail chain as well as being the CEO of a chain of serviced offices. Through his private investment vehicles, Mr Gandel has been an investor in the mining industry since 1994 and is a substantial holder in a number of publicly listed Australian companies. He holds and explores tenements in Western Australia both in his own right and via his private investment vehicles. He is non-executive chairman of Alliance Resources and a non-executive chairman of Australian Strategic Materials.

Managing Director: Nic Earner

Mr Earner is a chemical engineer and graduate of University of Queensland with 25 years’ experience in the mining industry. He joined Alkane as COO in August 2013, prior to which he spent four years at Straits Resources, 11 years at Rio Tinto’s Australian coal division and eight at BHP’s Olympic Dam mine, at which he managed its concentrator and hydromet functions, which included substantial milling, leaching and solvent extraction circuits. His other positions included production superintendent (smelting) and senior engineer (process control, instrumentation and communications). Among other roles, he is also a non-executive director of Australian Strategic Materials (ASM).

Technical Director: Ian Chalmers

Mr Chalmers is a geologist and graduate of the Western Australia Institute of Technology (Curtin University) and has an MSc from the University of Leicester in the UK. He has worked in the mining and exploration industry for over 50 years, during which time he has had experience in all facets of exploration and mining. Mr Chalmers was MD of Alkane for 11 years before making way for Mr Earner in 2017. During that time, he was responsible for the discovery of the gold deposits immediately to the south of Tomingley and the porphyry gold-copper body at Boda. Among other things, he is a non-executive director at ASM.

Chief Financial Officer: James Carter

A certified public accountant (CPA) and corporate governance professional with over 20 years’ experience in the mining industry, Mr Carter has held CFO roles for the past 15 years in a number of publicly listed mining companies. His experience has primarily involved debt and equity capital market transactions, IPOs, treasury management, tax strategy, M&A and corporate governance.

Principal shareholders

(%)

Abbotsleigh

23.97

Chapelgreen

6.84

Van Eck

4.43

Vanguard

2.58

Invesco

1.77

I.J. Gandel Esq

1.36

Fyvie

1.06

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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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

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

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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

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

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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