Alkane Resources — Expanding its resources

Alkane Resources (ASX: ALK)

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Research: Metals & Mining

Alkane Resources — Expanding its resources

Tomingley delivered Q423 gold production of 15,822oz, meeting its quarterly forecasts at an AISC of A$2,174/oz. These results concluded a strong year, with full year production of 70,253oz at an AISC of A$1,602/oz beating original FY23 guidance of 55,000–60,000oz production (at an AISC of A$1,650–1,900/oz), and meeting April 2023 production guidance of 65,000–73,000oz (at an AISC of A$1,550–1,750/oz). Full year gold sales totalled 70,498oz, generating revenue of A$190.5m at an average price of A$2,703/oz. FY24 guidance has been set for Tomingley at 60,000–65,000oz production at an AISC of A$1,750–2,100/oz as Alkane anticipates increased costs in wages, and electricity, fuel and reagent prices. Following Alkane’s updates since our last note in April, we have increased our FY23 EPS estimate by 26.8% to 7.38c (cf 5.82c previously).

Tom Batho

Written by

Tom Batho

Analyst

Alkane-Resources_resized

Metals & Mining

Alkane Resources

Expanding its resources

Exploration and Q423 results

Metals and mining

18 August 2023

Price

A$0.65

Market cap

A$397m

A$1.5457/US$

Net cash (A$m) at December 2022

70.6

Shares in issue

601.6m

Free float

65%

Code

ALK

Primary exchange

ASX

Secondary exchange

OTC QX

Share price performance

%

1m

3m

12m

Abs

(21.9)

(24.7)

(19.4)

Rel (local)

(20.3)

(24.4)

(19.2)

52-week high/low

A$0.94

A$0.53

Business description

Alkane Resources has two main assets in Central West New South Wales: the Tomingley gold mine, where recent exploration has increased the mine life by at least eight years from FY23 to FY31, and its Northern Molong Porphyry project, which is shaping up to be a tier 1 alkalic porphyry district.

Next events

FY23 financial results

Late August 2023

Boda and Kaiser updated resource estimate

Q4 CY23

Underground production at Roswell begins

Q4 CY23

100koz annual production

FY26

Analysts

Tom Batho

+44 (0)20 3077 5700

Lord Ashbourne

+44 (0)20 3077 5724

Alkane Resources is a research client of Edison Investment Research Limited

Tomingley delivered Q423 gold production of 15,822oz, meeting its quarterly forecasts at an AISC of A$2,174/oz. These results concluded a strong year, with full year production of 70,253oz at an AISC of A$1,602/oz beating original FY23 guidance of 55,000–60,000oz production (at an AISC of A$1,650–1,900/oz), and meeting April 2023 production guidance of 65,000–73,000oz (at an AISC of A$1,550–1,750/oz). Full year gold sales totalled 70,498oz, generating revenue of A$190.5m at an average price of A$2,703/oz. FY24 guidance has been set for Tomingley at 60,000–65,000oz production at an AISC of A$1,750–2,100/oz as Alkane anticipates increased costs in wages, and electricity, fuel and reagent prices. Following Alkane’s updates since our last note in April, we have increased our FY23 EPS estimate by 26.8% to 7.38c (cf 5.82c previously).

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/22

165.0

52.1

3.68

0.00

17.7

N/A

06/23

187.5

62.5

7.38

0.00

8.8

N/A

06/24e

173.8

63.1

7.37

0.00

8.8

N/A

06/25e

228.6

78.7

9.01

0.00

7.2

N/A

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

Boda resource estimate scheduled for Q4 CY23

Alkane continues to work towards updating its mineral resource estimate for Boda and Boda Two in Q4 CY23 following the recent release of multiple assay results from Boda, Boda Two, Boda Three and Kaiser, which identified extensive mineralisation outside the current mineral resource. In addition, Alkane has begun further exploration at the aptly named Boda Four prospect located 1km south and along strike of the Boda Intrusive Complex (BIC). We expect Alkane to produce a conceptual mine plan at the Boda deposit later this year. However, pending its release we are, for the moment, leaving our Boda forecasts unchanged, albeit we recognise the potential for a longer open-pit life of mine before transition to underground mining.

Valuation: Tangible assets equal A$1.06/share

Tomingley contributes A$0.60/share to our updated valuation for Alkane (cf A$0.61/share previously). Liquid assets in the form of Alkane’s holdings in Calidus and Genesis contribute a further A$0.03/share, with Boda and Kaiser estimated at a combined US$174.8m (US$0.29/share or A$0.44/share) to Alkane, either as an in-situ resource or as development projects. This represents a total value estimate for Alkane of A$1.06/share (cf A$1.07/share previously). We also estimate a potential A$0.52/share additional upside in the event of further exploration success in the Northern Molong Porphyry Project at the Boda Two and Three deposits. Including all other contingent assets (and using current metals spot prices cf Edison’s more conservative long-term prices) this takes Alkane’s potential valuation to potentially A$2.27/share (cf A$2.22/share previously).

Update summary

Since our last note in April, Alkane has:

achieved its updated FY23 production and cost guidance at Tomingley (albeit guidance had already been revised upwards twice previously during the year),

announced its operational results for FY23,

released multiple assay results from Boda identifying extensive mineralisation outside the current mineral resource, and

announced high-grade gold mineralisation at the McLeans prospect located within the approved Tomingley project area.

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

Quarterly and FY23 operational results

Alkane achieved its updated FY23 production guidance figures with 70,253oz of production (cf the most recent guidance of 65,000–73,000oz) at an all-in sustaining cost (AISC) of A$1,602/oz (cf A$1,550–1,700/oz), exceeding prior FY23 guidance of 55,000–60,000oz production at an AISC of A$1,650–1,900/oz. Production at Tomingley in Q423 was 15,822oz at an AISC of A$2,174/oz, generating gold sales of 15,136oz for revenue of A$43.7m at an average price of A$2,884/oz. FY23 full year gold sales were 70,498oz for revenue of A$190.5m at an average price of A$2,703/oz.

A summary of Alkane’s recent quarterly results plus the full year results is provided in the table below:

Exhibit 1: Tomingley quarterly operating results, Q421–Q423

Q421

Q122

Q222

Q322

Q422

Q123

Q223

Q323

Q423

FY23

Ore milled (t)

201,437

247,884

257,384

261,675

262,264

270,618

239,078

277,225

282,410

1,069,331

Head grade (g/t)

2.16

1.79

2.42

2.27

3.23

2.75

2.56

2.26

2.14

2.42

Contained gold (g/t)

13,989

14,266

20,026

19,098

27,236

23,927

19,678

20,144

19,431

83,179

Recovery (%)

87.1

85.1

85.4

79.3

84.9

87.0

84.6

84.6

80.5

84.3

Gold poured (oz)

13,500

12,141

16,935

14,635

23,091

19,489

18,301

16,641

15,822

70,253

Gold sold (oz)

11,526

13,359

17,754

14,635

21,135

18,344

17,855

19,163

15,136

70,498

Gold price (US$/oz)

1,814

1,790

1,796

1,878

1,873

1,727

1,689

1,891

1,976

1,821

Forex (A$/US$)

1.2989

1.3613

1.3728

1.3806

1.4011

1.4646

1.5223

1.4636

1.4968

1.4868

Average realised price (A$/oz)

2,401

2,467

2,475

2,437

2,481

2,547

2,618

2,787

2,884

2,703

C1 site cash costs (A$/oz)

1,199

1,531

1,089

1,193

940

1,095

1,103

990

1,356

1,124

AISC (A$/oz)

1,669

1,961

1,338

1,598

1,150

1,191

1,323

1,805

2,174

1,602

Source: Alkane Resources, Edison Investment Research

As a result of Alkane’s Q423 operational results, we have adjusted our FY23 financial forecasts to those shown below in Exhibit 2 (FY23 financial results are scheduled for release at the end of August 2023).

Exhibit 2: Alkane underlying* income statement, H121–H223e (A$m, unless otherwise indicated)

H121*

H221

H122

H222

H123

H223e

FY23e

FY23e
(prior)

Revenue

65.252

62.581

76.911

88.099

93.465

94.089

187.554

182.808

Cash cost of sales

(24.087)

(21.226)

(35.423)

(32.104)

(34.789)

(40.561)

(75.350)

(83.704)

Gross profit before depreciation

41.165

41.355

41.488

55.995

58.676

53.528

112.204

99.104

Other net income

0.350

3.015

0.808

0.628

0.216

0.216

0.216

Administration expenses

(7.215)

(4.778)

(5.504)

(4.481)

(6.589)

(6.589)

(13.178)

(13.178)

Exploration and evaluation expenditure expensed

0.000

0.000

0.000

0.000

Exceptional item

0.000

48.334

0.000

0.000

0.000

0.000

Gain/(loss) on disposal

(0.002)

(0.955)

0.000

0.000

0.000

0.000

0.000

0.000

Share of profit/(loss) of associates

(0.473)

(0.397)

(0.020)

0.000

0.000

0.000

Depreciation

(9.226)

(12.028)

(14.171)

(20.942)

(17.715)

(19.768)

(37.483)

(37.700)

EBIT

24.599

26.212

70.935

31.200

34.588

27.170

61.758

48.442

Interest income/(cost)

(0.495)

(2.246)

(1.318)

(0.344)

0.236

0.471

0.707

0.707

Loss after tax from discontinued operations

0.000

0.000

0.000

0.000

0.000

PBT

24.104

23.966

69.617

30.856

34.824

27.642

62.466

49.150

Income tax

7.485

7.018

21.122

9.100

10.131

8.293

18.424

14.429

Effective tax rate (%)

31.1

29.3

30.3

29.5

29.1

30.0

29.5

29.4

Profit/(loss) for the year

16.619

16.948

48.495

21.756

24.693

19.349

44.042

34.721

Non-controlling interest

0.189

(0.189)

0.000

0.000

Minority interest (%)

1.1

(1.1)

0.0

0.0

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

16.430

17.137

48.495

21.756

24.693

19.349

44.042

34.721

Basic adjusted EPS (A$/share)

0.0277

0.0288

0.0814

0.0365

0.0412

0.0323

0.0738

0.0582

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 Australian Strategic Materials.

Recent drilling results

In its announcement on 13 June, Alkane reported the assay results from two diamond drill holes (denoted DD) and two reverse circulation (RC) holes at its Boda, Boda Two, Boda Three and Kaiser prospects at its Northern Molong Porphyry Project, extending over 3km. On 4 August 2023, Alkane released a second update at Boda undertaking deep core drilling, continuing to outline significant mineralisation down plunge to the north-west of the Boda mineral resource estimation. Additionally, further drilling at Boda Two and Three intercepted higher-grade gold-copper mineralisation from near surface via eight RC drill holes and two diamond core tails. An updated mineral resource estimation for Boda, expected to include Boda Two, is anticipated in Q4 CY23 and for Kaiser in Q1 CY24.

Alkane has begun further exploration at the Boda Four prospect. Composed of two linear magnetic highs approximately 800m in length and up to 200m wide, the prospect is located 1km south and along strike of the BIC and named the Boda South Intrusive Complex (BSIC, Exhibit 3).

Recently a total of 912m across three RC drill holes were completed at the northern and central section of the BSIC at the Boda Four prospect intersecting low-grade copper-gold mineralisation. More RC drilling is planned next year, following the initial mineralisation detected, focusing on the west and north-west flanks of the BSIC in a similar prospective position as observed at the other Boda deposits.

Exhibit 3: Drilling and deposit locations of Boda (including 2, 3 and 4) and Kaiser

Source: Alkane Resources


Boda

In general, the Boda porphyry system is a series of near vertical, north-west striking, intrusive related breccias hosted within a thick sequence of shallowly east dipping andesite lavas. These magmatic breccias are hydrothermal in nature and zone towards higher gold-copper grades when associated with a chalcopyrite ± pyrite dominant cement. The deposit is truncated to the north-west by the north striking Solar Fault (Exhibit 3), a 65 degree west dipping reverse structure, over which significant post-mineral displacement has occurred.

Previously, the initial Boda deposit inferred mineral resource was estimated at 624Mt grading at 0.26g/t gold, 0.14% copper for 5.21Moz gold and 0.90Mt copper (30 May 2022), following over 83 drill holes for a combined 52,390 metres of diamond core and 19,041 metres of RC drilling. Exploration via deep core DD continues to define significant mineralisation down plunge to the north-west of the Boda mineral resource estimate.

Recent exploration drilling (13 June 2023 and 4 August 2023) identified extensive gold-copper results along the aforementioned Solar Fault following a prior positive drilling result (BOD091 intercepting 1,041m grading 0.32g/t Au and 0.17% Cu from 698m, 25 October 2022). New results have been received from DD testing within the north-west margin of the mineral resource estimate as well as beneath it, identifying mineralisation outside of the current mineral resource estimation, intersecting extensive gold-copper results including:

Hole BOD121:

1,601.9m grading 0.30g/t Au and 0.15% Cu, from 256m to end of hole including;

28m grading 0.97g/t Au and 0.38% Cu) from 323m, also;

4m grading 2.78g/t Au and 0.93% Cu from 336m, also;

45m grading 1.01g/t Au and 0.22% Cu from 464m, also;

5m grading 3.08g/t Au and 0.30% Cu from 465m.

Full details of the assay results are included in Alkane’s announcement. The other most significant intersection at Boda is a shallow intercept located within the current mineral resource estimation including the following higher-grade zones:

Hole BOD140:

346m grading 0.31g/t Au and 0.16% Cu from 108m, including:

1m grading 13.0g/t Au and 0.05% Cu from 331m, also;

27m grading 0.65g/t Au and 0.54% Cu from 413m.

A summary of the eight drill holes – totalling 4,576m (or 572m per hole) – is as follows:

Exhibit 4: Boda drill hole assay results

Date released

From

(m)

To

(m)

Intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

Previously announced holes

483.5

0.27

0.13

BOD116

13 June 2023

393.0

1,940.0

1,449.0

0.20

0.12

BOD117

13 June 2023

321.0

2,064.0

868.4

0.21

0.13

BOD121

4 August 2023

106.0

1,857.9

1,658.9

0.30

0.15

BOD138

4 August 2023

6.0

59.0

14.0

0.18

0.19

BOD139

4 August 2023

15.0

166.0

100.0

0.12

0.14

BOD140

4 August 2023

5.0

496.0

411.0

0.29

0.16

BOD141

4 August 2023

10.0

109.0

73.0

0.11

0.15

BOD143

4 August 2023

88.0

90.0

2.0

0.13

0.25

New results averages

572.0

0.24

0.13

All holes

491.5

0.27

0.13

Source: Alkane Resources, Edison Investment Research

Gold and copper intercepts were calculated using a lower cut off of 0.2g/t AuEq. Internal dilution (<cut off) is less than 25% of reported intercepts. True widths are estimated as approximately 50% of intersected widths.

Note that, for the purposes of Exhibit 4, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. In general, it may be seen that the eight new holes reported widths of mineralisation that were larger on average than those of previous drill holes at slightly lower grades. Boda drill results continue to follow a comparable trend to the previous average. We await an updated Boda mineral resource estimate that is expected to include Boda Two, anticipated in Q4 CY23.

Boda Two and Boda Three drilling results

The Boda Two and Boda Three prospects are currently defined by a 1,100m x 500m coincident gold-copper soil and magnetic high footprint with separate conductive induced polarisation (IP) anomalies. The prospects are centred approximately 1km south of Boda, within the BIC. Boda Two and Three are part of a system of heavily faulted, basaltic to andesitic volcaniclastics and volcanics intruded by a series of steep west dipping dykes, stocks and intrusive breccias.

Announced on 13 June 2023, assay results at Boda Two intersected zones of extensive gold-copper porphyry mineralisation. On 4 August, Alkane released a further set of results from shallow RC drilling that intercepted higher-grade gold-copper mineralisation from near surface.

A summary of the new holes drilled at Boda Two and Boda Three (Exhibit 5) is as follows:

Exhibit 5: Boda Two and Boda Three drill hole assay results

Date released

From

(m)

To

(m)

Aggregate intercept (m)

Average gold grade

(g/t)

Average Cu grade

(%)

Previously announced holes

260.0

0.27

0.13

BOD099

13 June 2023

57.0

231.0

89.0

0.35

0.19

BOD103

13 June 2023

142.0

185.0

9.0

0.28

0.06

BOD112

13 June 2023

469.4

1,454.7

586.3

0.27

0.18

BOD113

13 June 2023

521.0

1,655.0

404.5

0.28

0.15

BOD114

13 June 2023

677.0

1,654.0

489.1

0.31

0.15

BOD115

13 June 2023

139.0

391.0

38.0

0.17

0.16

BOD118

13 June 2023

133.0

148.0

15.0

0.34

0.14

BOD119

13 June 2023

308.0

412.0

44.0

0.22

0.11

BOD098

4 August 2023

5.0

1,158.9

796.9

0.24

0.14

BOD104

4 August 2023

300.0

1,086.0

372.5

0.31

0.21

BOD123

4 August 2023

108.0

400.0

183.0

0.26

0.15

BOD124

4 August 2023

19.0

454.0

64.0

0.23

0.12

BOD125

4 August 2023

50.0

202.0

61.0

0.63

0.22

BOD126

4 August 2023

114.0

270.0

105.0

0.47

0.20

BOD127

4 August 2023

10.0

225.0

57.0

0.15

0.20

BOD128

4 August 2023

0.0

136.0

118.0

0.55

0.44

BOD129

4 August 2023

115.0

346.0

178.0

0.27

0.20

BOD130

4 August 2023

145.0

238.0

17.0

0.25

0.19

New results

201.5

0.29

0.17

All holes

237.1

0.28

0.15

Source: Alkane Resources, Edison Investment Research

Total metres drilled containing significant results amounted to 11,432m, or an average of 635m per hole. As at Boda, multiple intersections have been amalgamated and grades averaged according to the width of the individual intersections. Assessing new core samples, it may be seen that the 18 holes shown in Exhibit 5 reported widths of mineralisation that were smaller on average than those of previous drill holes, albeit at slightly higher grades. Owing to the narrower widths, the average of all intersections has dropped by 9% while the average gold grade has increased by 4%. We await an updated Boda mineral resource estimate that is expected to include Boda Two, anticipated in Q4 CY23.

As mentioned above, full details of the assay results are included in Alkane’s announcement. However, below are the most significant intercepts across eight RC drill holes and two diamond core tails at Boda Two and Boda Three. Significant intercepts from the shallow RC drilling have intercepted higher-grade gold-copper mineralisation from near surface, including:

Hole BOD123:

38m grading 0.68g/t Au and 0.30% Cu from 244m, including;

7m grading 2.58g/t Au and 0.79% Cu from 245m and;

46m grading 0.15g/t Au and 0.14% Cu from 354m to end of hole.

Hole BOD125:

52m grading 0.72g/t Au and 0.23% Cu from 150m, including;

11m grading 1.74g/t Au and 0.42% Cu from 151m.

Hole BOD126:

67m grading 0.27g/t Au and 0.17% Cu from 139m, including:

8m grading 1.55g/t Au and 0.50% Cu from 195m, and;

27m grading 1.10g/t Au and 0.33% Cu from 243m, including;

8m grading 2.80g/t Au and 0.62% Cu from 261m.

Hole BOD128:

113m grading 0.57g/t Au and 0.45% Cu from surface, including;

24m grading 1.17g/t Au and 0.91% Cu from 70m, including;

3m grading 2.78g/t Au and 2.67% Cu from 85m.

Hole BOD129:

148m grading 0.22g/t Au and 0.20% Cu from 115m, including;

12m grading 0.51g/t Au and 0.32% Cu from 118m, including;

16m grading 0.37g/t Au and 0.47% Cu from 188m, and;

22m grading 0.23g/t Au and 0.21% Cu from 300m.

Results from two diamond core tails (both RC pre-collars were drilled to 424m depth and their results previously announced on 28 March 2023) include significant new intercepts of:

Hole BOD140:

551.9m grading 0.17g/t Au and 0.12% Cu from 607m, including;

27m grading 0.57g/t Au and 0.28% Cu from 821m.

Hole BOD140:

189m grading 0.28g/t Au, 0.26% Cu from 322m, including;

71m grading 0.44g/t Au and 0.42% Cu from 354m, and;

163m grading 0.59g/t AuEq (0.35g/t Au, 0.17% Cu) from 923m, including;

22m grading 0.66g/t Au and 0.24% Cu from 926m.

Analysis and interpretation of Boda Two and Three drill results

Showcasing a marginally higher grade with generally narrower widths than Boda itself, drilling at Boda Two and Three nevertheless demonstrates many similarities with Boda, including an extensive zone of low-grade gold-copper porphyry mineralisation with breccias that zone to higher grades. As such, the most recent rounds of drill hole results continue to confirm that the mineralisation continues for many metres to the south of Boda and possibly much further with the potential for additional high-grade zones. Recently the envelope has been tested extensively with an updated mineral resource estimation for Boda, expected to include Boda Two, anticipated in Q4 CY23 and for Kaiser in Q1 CY24. In the meantime, Edison’s best estimate of the mineral inventory at Boda Two and Three that may be encompassed by current drilling is shown in Exhibit 6, below.

Exhibit 6: Edison estimate of the potential size of Boda Two and Three mineralisation

Source of underlying data

Edison

Alkane Resources

Characteristic (units)

Previous

Updated

Variance (%)

Alkane estimated dimensions

Strike (m)

1,006

1,006

0

1,100

Average estimated true width (m)

130

122

-6

500

Est surface area (m2)

0.13

0.12

-6

0.55

Average estimated true depth (m)

644

587

-9

587

Estimated volume (m3)

84.3

71.9

-15

323.0

Estimated density (t/m3)

3

3

0

3

Estimated tonnage (Mt)

252.9

215.6

-15

969.1

Estimated average gold grade (g/t)

0.27

0.28

3

0.28

Estimated average copper grade (%)

0.13

0.15

12

0.15

Estimated average AuE grade (g/t)

0.47

0.48

2

0.49

Estimated contained gold (koz)*

2,227

1,935

-13

8,699

Estimated contained copper (kt)*

334

314

-6

1,412

Estimated contained AuE (koz)

3,808

3,312

-13

15,388

Source: Edison Investment Research, Alkane Resources. Note: *Edison estimates; updated gold equivalent resource inventory and grades calculated at US$1,914/oz Au and US$8,386/t Cu.

Our best estimate of the mineral inventory contained within the Boda Two and Boda Three deposits therefore is currently a 1,935koz Au at an average grade of 0.28g/t (see Exhibit 6, above). We caution that such estimates are very far from being anything close to JORC code-compliant and experience would suggest they have an accuracy of approximately ±80%. On this basis, we calculate a value for our current resource estimate of 1,935koz of A$0.117/share (based on the US$24.08/oz average valuation of in-situ ounces calculated in our report Gold stars and black holes, published in January 2019). If the ultimate resource delineated expands to 8,699koz (our estimate of the maximum reasonably possible), we would value it at A$0.524/share.

Although, at first glance our estimate of the mineralisation at Boda Two and Three is lower than previously, it is still consistent with a multi-million-ounce endowment to add to those already delineated at Boda and Kaiser. In this context, we note that the eventual maiden mineral resource estimate for Boda contained 45.6% of the maximum reasonably possible number of gold ounces implied by Alkane’s estimate of the dimensions of the orebody. Pro-rata, this would imply a mineral endowment at Boda Two and Three of 3,967koz, which we would value at A$0.239/share.

Tomingley’s regional future

The Tomingley Gold Project represents Alkane’s flagship asset, covering an area approximately 440km2, stretching 60km north-south. Following the announcement of the Tomingley Gold Extension Project, Alkane expects underground mining to commence at Roswell before the end of CY23. Alkane has been running an extensive regional exploration programme, defining mineral resource estimate at both the Roswell and San Antonio deposits, forming part of the Tomingley Gold Extension Project. Parallel to the mine expansion, regional exploration drilling recommenced in the region during early 2023, focusing on the McLeans, Plains, El Paso and Allendale prospects.

On 10 July, Alkane released the latest exploration results in the region surrounding Tomingley, identifying significant gold mineralisation at multiple prospects located within seven kilometres of the Tomingley processing facility, including targets within the approved Tomingley project area:

The McLeans prospect – located between the Roswell deposit and the Tomingley site. Drilling tested the strike of the andesite host and filled in previously intersected mineralisation. To date, drilling has defined mineralisation over 200m strike and 500m down dip that remains open. A maiden inferred resource at McLeans is expected in the coming quarter, likely to be categorised by Alkane as a reserve replacement. Early company estimates suggest a 90koz inferred gold resource.

El Paso – hosted in a similar geology to Roswell (andesite). Situated 1km south of the San Antonio deposit, drilling at El Paso has the approximate dimensions of 250m in length and 50m in width.

The Plains prospect – a 500m x 200m zone of gold mineralisation beneath a shallow cover of 15 metres, located 1km south-east of the Roswell Deposit, within the approved Tomingley project area.

The Allendale prospect – positioned approximately 5km north-west of Tomingley, the Allendale prospect is a gold-copper porphyry target. Assay results were recently received from 95 air-core holes along seven traverses, spaced nominally 1km apart.

Exhibit 7: The McLeans, El Paso, Plains and Allendale prospects

Source: Alkane Resources

Recent exploration results were captured via 142 air-core drill holes for 15,321m across five prospects (including Roswell North, albeit minimal data, 1 RC hole); 18 RC drill holes for a total of 5,212m; and 4 DD totalling 1,481m of core. Notable drill results from the aforementioned prospects are listed below:

Exhibit 8: Boda Two and Three drill hole assay results

Prospect

From

(m)

To

(m)

Intercept

(m)

Average gold grade

(g/t)

Average Cu grade

(%)

MCLUG004

McLeans

126.4

334.2

19.7

2.68

0.00

EPP046

El Paso

42.0

84.0

42.0

1.68

0.00

EPP047

El Paso

267.0

316.0

31.0

0.58

0.00

EPP049

El Paso

69.0

180.0

15.0

1.58

0.00

RWRC477

Plains

75.0

142.0

17.0

0.69

0.00

RWRC478

Plains

183.0

187.0

4.0

1.54

0.00

RWAC477

Plains

90.0

93.0

3.0

2.08

0.00

RWAC481

Plains

78.0

84.0

6.0

0.83

0.00

ALAC092

Allendale

57.0

69.0

12.0

0.52

0.02

ALAC147

Allendale

93

114

21.0

0.01

0.11

ALAC176

Allendale

115.0

140.0

16.0

0.86

0.03

Source: Alkane Resources, Edison Investment Research

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 (including Roswell and San Antonio) discounted back to present value at a rate of 10% per year, excluding exploration expenditure. In the wake of Q423 operational results and after updating our A$/US$ forex assumptions to reflect current exchange rates, our valuation of the dividend stream potentially available to Alkane shareholders from its immediate Tomingley operations is now A$0.550/share (cf A$0.563/share in April 2023 previously). However, we add the value of residual resources at the end of the life of operations, which we now estimate to be 832koz (cf 834koz previously) with a current value of US$20.0m (A$30.6m), or A$0.051/share, to bring our total valuation of Tomingley to A$0.601/share (cf A$0.613/share previously) including cash.

A comparison of our updated expectations for Alkane’s EPS and (maximum potential) DPS stream and valuation from the present to the end of its life of operations is shown in Exhibit 9, below.

Exhibit 9: Alkane life of operations’ forecast EPS and (maximum potential) DPS (A$/share)

Source: Edison Investment Research

Note that the DPS columns in Exhibit 9 represent theoretical, maximum potential dividends that we believe could be paid by the company, rather than actual dividends forecast and are used solely for valuation purposes. In reality, 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.

Combined valuation of Alkane

A summary of our updated valuation of Alkane in the light of recent announcements surrounding exploration and Q423 operating results (see Exhibit 1) is as follows:

Exhibit 10: 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

61

61

60

60

Roswell underground

8

8

8

8

El Paso and ongoing Tomingley extension exploration

2

2

2

2

Investments in Calidus and Genesis*

3

3

3

3

Boda exploration

31

31

31

31

Boda Two & Three exploration

16–56

16–56

12–52

11–52

Kaiser & Duke exploration

12

12

12

12

Spot metals prices cf long-term forecast

49

49

59

59

Total

107

75115

222

106

81121

227

Source: Edison Investment Research. Note: *At prevailing share prices of A$0.17/share for Calidus and A$1.33/share for Genesis. Totals may not add up owing to rounding.

The variation of valuation for Boda Two and Three exploration is described in Coming to fruition, published on 7 July 2022. Differing methods of estimation generate a range of valuations (drill results return A$0.11/share cf dimensions estimates at A$0.52/share). Moreover, readers are reminded that such estimates are very far from being JORC code compliant and experience would suggest they have accuracy of approximately ±80%.

We expect Alkane to produce a conceptual mine plan at the Boda deposit later this year. However, pending its release we are, for the moment, leaving our forecasts unchanged albeit we recognise the potential for a longer open-pit life of mine before transition to underground mining.

Tomingley and the Northern Molong Porphyry Project (seen as a potential operating asset) also experience a material increase in valuation as a consequence of rising metals prices, if valued at the spot prices of gold and copper rather than Edison’s long-term forecast prices (ie in real terms, both the gold price falling in CY28 to US$1,554/oz and the copper price to US$6,410/tonne) as the margin between spot prices and our long-term forecast grows with short-term increases in the gold/copper price.

Financials

As per its 27 July Tomingley Q4 production update Alkane had A$80.3m unaudited cash as well as A$8.3m of bullion on hand and, we estimate, A$18.7m in listed investments in Calidus, Genesis and Sky Metals. We also estimate that Alkane generated A$76.3m in cash (including net interest) from operating activities in FY23 compared to A$86.5m in FY22. During Q423 it invested A$15.7m on various growth and expansion programmes, including the San Antonio-Roswell underground exploration drive and ventilation rise, early works associated with the Newell Highway realignment and process and paste plant capital for the Tomingley Gold Extension Project. Additionally, A$6.5m was spent on exploration with the focus of exploration expenditure being the Northern Molong Porphyry Project and, in particular, drilling at the Boda, Boda 2 and Kaiser prospects. Hereafter, we estimate that free cash flow from operations will continue to contribute meaningfully to capex as the Tomingley mine extension is constructed and further exploration is conducted at the Kaiser-Boda deposits. To de-risk the completion of these targets, Alkane has a currently undrawn A$50m debt funding facility from Macquarie Bank, together with 100koz of gold hedging at a weighted average price of A$2,825/oz, fully described in our last outlook note, released in April.

Regarding our forecasts, we have continued to model hedges on a realised gains basis, such that any gains (or losses) will be intrinsically linked to the ever-moving gold price along with our current long-term forecast. However, the time value associated with the contracts is excluded from our forecasts. In line with previously modelled debt structures, we report any profit or loss pertaining to hedges in the revenue line of the financial summary below.

Exhibit 11: Financial summary

A$’000s

2018

2019

2020

2021

2022

2023e

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

129,973.6

93,994.9

72,549.0

127,833.0

165,010.0

187,553.9

173,834.4

228,565.3

Cost of Sales

(51,080.9)

(53,656.4)

(32,868.0)

(45,313.0)

(67,527.0)

(75,350.0)

(87,880.1)

(127,631.8)

Gross Profit

78,892.7

40,338.5

39,681.0

82,520.0

97,483.0

112,203.8

85,954.3

100,933.4

EBITDA

 

 

70,378.7

32,971.7

29,412.0

70,527.0

87,498.0

99,025.8

72,776.3

87,755.4

Normalised operating profit

 

 

31,658.3

25,808.8

20,171.0

49,940.0

53,821.0

61,758.4

62,117.3

77,096.4

Reported operating profit

31,658.3

25,808.8

20,171.0

49,940.0

53,821.0

61,758.4

62,117.3

77,096.4

Net Interest

(579.0)

(418.8)

389.0

(2,741.0)

(1,662.0)

707.4

979.1

1,558.8

Joint ventures & associates (post tax)

0.0

0.0

0.0

(870.0)

(20.0)

0.0

0.0

0.0

Exceptionals

0.0

0.0

(646.0)

1,741.0

48,334.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

31,079.3

25,390.0

20,560.0

46,329.0

52,139.0

62,465.8

63,096.4

78,655.2

Profit before tax (reported)

 

 

31,079.3

25,390.0

19,914.0

48,070.0

100,473.0

62,465.8

63,096.4

78,655.2

Reported tax

(6,919.9)

(2,266.1)

(6,569.0)

(14,503.0)

(30,222.0)

(18,423.5)

(18,928.9)

(23,596.6)

Profit after tax (norm)

24,159.4

23,123.9

13,991.0

31,826.0

21,917.0

44,042.3

44,167.5

55,058.7

Profit after tax (reported)

24,159.4

23,123.9

13,345.0

33,567.0

70,251.0

44,042.3

44,167.5

55,058.7

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

(583.0)

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

24,159.4

23,123.9

13,991.0

31,826.0

21,917.0

44,042.3

44,167.5

55,058.7

Net income (reported)

24,159.4

23,123.9

12,762.0

33,567.0

70,251.0

44,042.3

44,167.5

55,058.7

Basic average number of shares outstanding (m)

506

506

547

595

596

597

602

602

EPS – basic normalised (A$)

 

 

0.05

0.05

0.03

0.05

0.04

0.07

0.07

0.09

EPS – diluted normalised (A$)

 

 

0.05

0.04

0.02

0.05

0.04

0.07

0.07

0.09

EPS – basic reported (A$)

 

 

0.05

0.05

0.02

0.06

0.12

0.07

0.07

0.09

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

10.3

(-27.7)

(-22.8)

76.2

29.1

13.7

(-7.3)

31.5

Gross margin (%)

60.7

42.9

54.7

64.6

59.1

59.8

49.4

44.2

EBITDA margin (%)

54.1

35.1

40.5

55.2

53.0

52.8

41.9

38.4

Normalised operating margin (%)

24.4

27.5

27.8

39.1

32.6

32.9

35.7

33.7

BALANCE SHEET

Fixed assets

 

 

138,275.0

172,196.0

129,077.0

203,161.0

257,497.0

295,671.6

309,296.6

308,421.6

Intangible assets

93,136.0

103,894.0

32,745.0

57,794.0

98,498.0

135,947.0

145,947.0

155,947.0

Tangible assets

36,266.0

51,038.0

62,322.0

99,411.0

107,386.0

110,970.6

114,595.6

103,720.6

Investments & other

8,873.0

17,264.0

34,010.0

45,956.0

51,613.0

48,754.0

48,754.0

48,754.0

Current assets

 

 

93,306.0

76,501.0

59,096.0

33,054.0

98,190.0

100,618.6

129,920.2

189,121.1

Stocks

19,153.0

4,816.0

7,647.0

11,648.0

17,952.0

17,984.6

6,667.6

8,766.9

Debtors

2,030.0

1,998.0

2,940.0

1,894.0

2,344.0

2,312.3

4,286.3

5,635.9

Cash & cash equivalents

72,003.0

69,582.0

48,337.0

18,991.0

77,894.0

80,321.7

118,966.2

174,718.4

Other

120.0

105.0

172.0

521.0

0.0

0.0

0.0

0.0

Current liabilities

 

 

(27,430.0)

(21,762.0)

(14,238.0)

(18,179.0)

(25,297.0)

(20,053.0)

(18,812.0)

(22,079.3)

Creditors

(9,299.0)

(8,007.0)

(9,425.0)

(11,082.0)

(13,708.0)

(8,464.0)

(7,223.0)

(10,490.3)

Tax and social security

(6,929.0)

(9,317.0)

0.0

0.0

(1,001.0)

(1,001.0)

(1,001.0)

(1,001.0)

Short-term borrowings

0.0

0.0

(2,090.0)

(3,294.0)

(5,930.0)

(5,930.0)

(5,930.0)

(5,930.0)

Other

(11,202.0)

(4,438.0)

(2,723.0)

(3,803.0)

(4,658.0)

(4,658.0)

(4,658.0)

(4,658.0)

Long-term liabilities

 

 

(13,647.0)

(13,059.0)

(19,522.0)

(26,471.0)

(61,516.0)

(61,516.0)

(61,516.0)

(61,516.0)

Long-term borrowings

0.0

0.0

(4,515.0)

(5,922.0)

(9,116.0)

(9,116.0)

(9,116.0)

(9,116.0)

Other long-term liabilities

(13,647.0)

(13,059.0)

(15,007.0)

(20,549.0)

(52,400.0)

(52,400.0)

(52,400.0)

(52,400.0)

Net assets

 

 

190,504.0

213,876.0

154,413.0

191,565.0

268,874.0

314,721.3

358,888.7

413,947.4

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

190,504.0

213,876.0

154,413.0

191,565.0

268,874.0

314,721.3

358,888.7

413,947.4

CASH FLOW

Operating cash flow before WC and tax

69,941.3

33,135.8

28,173.0

72,065.0

137,248.0

99,241.8

72,992.3

87,971.4

Working capital

(9,498.0)

(5,172.0)

(3,481.0)

(2,840.0)

(776.0)

(5,244.9)

8,102.0

(181.5)

Exceptional & other

1,277.0

1,454.0

3,704.0

4,632.0

(48,334.0)

0.0

0.0

0.0

Tax

(6,919.9)

7,047.9

(249.0)

0.0

0.0

(18,423.5)

(18,928.9)

(23,596.6)

Net operating cash flow*

 

 

54,800.5

36,465.7

28,147.0

73,857.0

88,138.0

75,573.3

62,165.4

64,193.3

Capex

(9,224.0)

(19,621.0)

(46,122.0)

(59,477.0)

(42,581.0)

(41,068.0)

(14,500.0)

0.0

Acquisitions/disposals

0.0

4.0

(20,068.0)

1,522.0

619.0

0.0

0.0

0.0

Net interest

(579.0)

(418.8)

389.0

(2,741.0)

(1,662.0)

707.4

979.1

1,558.8

Equity financing

(5.0)

0.0

39,442.0

(31.0)

(4.0)

1,805.0

0.0

0.0

Exploration and Evaluation

(10,969.0)

(11,578.0)

(20,132.0)

(26,642.0)

(40,935.0)

(37,449.0)

(10,000.0)

(10,000.0)

Other

(4,317.0)

(7,442.0)

(9,522.0)

(18,129.0)

49,659.0

2,859.0

0.0

0.0

Net cash flow

29,706.4

(2,590.1)

(27,866.0)

(31,641.0)

53,234.0

2,427.7

38,644.5

55,752.1

Opening net debt/(cash)

 

 

(41,969.0)

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(62,848.0)

(65,275.7)

(103,920.2)

FX

311.6

169.1

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

16.0

0.0

16.0

(316.0)

(161.0)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(62,848.0)

(65,275.7)

(103,920.2)

(159,672.4)

Source: Company sources, Edison Investment Research. Note: *Net operating cash flow excludes net interest, which can be found in isolation three lines lower.


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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.

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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.

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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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