Research that is free to access for all investors. Companies commission these providers to write research about them.
Brokers who write research on their corporate clients and make it available through our main bundle offering.
Research that is paid for directly by asset managers. Only accessible to institutional investors permissioned for access.
Event in Progress:
View the latest research on other companies in the sector.
Since our last note on the company, Alkane Resources has announced its interim results, its Q325 quarterly activities report and, on 28 April, a merger of equals with Canada’s Mandalay Resources Corporation. The first two of these three have led us to increase our FY25 EPS estimate by over 40%, to
Alkane Resources Ltd
Alkane’s Q225 quarterly activities report demonstrated production of 14,852oz Au via the processing of 269kt ore (cf guidance of 260–290kt) at a head grade of 2.25g/t (2.1–2.3g/t) and 84.2% metallurgical recovery (82–87%). While production was 2,148oz below target, 1,700oz of this could be attribut
On 14 October, Alkane released its Q125 quarterly activities report, showing almost all of its operating parameters in line with both guidance and our expectations for the full year. The exceptions were its head grade, which exceeded the upper end of the guidance range by 6.1%, and AISC, which improved upon the lower end of the guidance range by 9.1%. Most significant however was confirmation that AISC guidance reflects a one-off cost for decline development that is accounted as sustaining capital (rather than as an operating expense) and as a result we have increased our earnings estimates for FY25 by A$21.2m, or 85.8x (8,479%).
From time to time, RaaS Research produces non-commissioned research reports on industries and companies which we believe deserve attention. Josh Baker attended the Australian Gold Conference last week and found eight stocks he believes have clear catalysts for a re-rate.None of these companies are currently covered by RaaS.
ALK LGM STN
Since our last update note on 20 May, Alkane has announced 1) the results of its scoping study on the Boda-Kaiser project, 2) FY24 production of 57,217oz Au at an all-in sustaining cost (AISC) guidance of A$2,150–2,350/oz, 3) an updated five-year mining plan at Tomingley and 4) regional exploration results from the Northern Molong Porphyry Project (NMPP). This note updates our valuation of the company for each of these developments, of which the most important are the results of the Boda-Kaiser scoping study.
As with Boda before it, April’s resource update at Kaiser saw substantially all of its resource promoted from the inferred to the indicated category at a materially higher grade of both gold and copper. The close-spaced nature of the drilling required to achieve this will now allow these resources to be quickly and easily promoted to reserve status for the purpose of Alkane’s scoping study – or preliminary economic assessment – to be announced later this quarter.
Alkane Resources Limited (ASX:ALK) is an ASX-listed gold producer and explorer with a focus on central west New South Wales. The Perth-headquartered company owns and operates the Tomingley gold mine and processing facilities, south-west of Dubbo and the Northern Molong porphyry project in central west NSW which includes the highly prospective Boda and Kaiser deposits. ALK recently announced high-grade results from the Kaiser resource upgrade drilling programme and upgraded the Boda resource to 6.6mn ounces of gold equivalent (AuEq), with 4.4Moz AuEq inferred. Alkane noted in its recently released H1 FY24 results, that it was on track to meet its FY24 production guidance at Tomingley for 60-65,000 ounces at an all-in sustaining cost (AISC) of A$1,750 to A$2,100/ounce.
Following an extensive drilling campaign, on 14 December, Alkane announced an update to its Boda mineral resource estimate to include Boda Two and Three, as expected in Q423. The result of the update was a 30% increase in the gold grade and a 22% (or 1.17Moz) increase in contained gold at Boda, which we value at US$28.2m (4.7 US cents or 7.0 Australian cents per share). The Boda deposit remains open at depth and along strike and a subsequent resource update at Kaiser is anticipated in late Q1 CY24 as well as a conceptual mine plan at the combined Kaiser-Boda deposit in due course.
Alkane Resource’s FY23 financial results were broadly in line with our forecasts, with profit after tax totalling A$42.5m (compared to our forecast of A$44.0m) and EPS of 7.10c (cf 7.38c). Cash flows from operations exceeded our forecasts (A$95.5m cf A$75.6m) as a result of an increase in deferred tax liabilities, albeit this was balanced by higher exploration capex of A$58.1m to result in a net cash flow of A$4.1m (cf A$2.4m). Following FY23 production of 70,253oz at an all-in sustaining cost (AISC) of A$1,602/oz, FY24 guidance for Tomingley is 60,000–65,000oz at an AISC of A$1,750–2,100/oz. Our forecasts remain largely unchanged in the aftermath of Alkane’s FY23 results. We maintain our valuation.
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).
Alkane continues to increase its production guidance, indicating confidence in a strong close to FY23, from 62,000–70,000oz to 65,000-73,000oz. It also lowered its expected unit costs to an AISC of A$1,550–1,700/oz, from previous guidance of A$1,550–1,800/oz. These updates follow confirmation of Q323 gold production of 16,641oz and a total for the year to date of 54,431oz, at an AISC of A$1,446/oz.
Since our outlook note published on 7 July 2022, Alkane has made several important announcements. Firstly, it improved its FY23 production guidance to 62,000–70,000oz (a 17% increase) after impressive H123 production at Tomingley and now expects to reach the upper end of this range. This has resulted in our EPS forecast for FY23 increasing by 30.6% from A$0.0445/share to A$0.0582/share. This was followed by the approval of the Tomingley Gold Extension Project, permitting open-cut mining at the Roswell and San Antonio deposits (including underground mining at the former), extending the mine life at Tomingley to at least 2031. Additionally, Alkane announced an inferred mineral resource at Kaiser of 4.7Moz AuE (0.48Mt Cu, 2.05Moz Au). Finally, it reported Q323 gold production of 16,641oz, bringing the current year to date production figure to 54,431oz.
Alkane has announced an initial inferred resource estimation at its Kaiser deposit based on approximately 49,000m of drilling, using a 0.3g/t gold equivalent (AuEq) cut-off required for open-cut mining at the deposit. The programme concluded with an estimate of 270Mt grading at 0.54g/t AuEq for 4.7Moz AuEq (0.48Mt Cu, 2.05Moz Au). As a result, the value of contained copper now surpasses the value of gold in the Boda-Kaiser deposits. Additional exploration is now underway at Boda and Kaiser, with updated resource estimation expected at the end of CY23.
As expected, the NSW Minister for Planning has approved Alkane’s Tomingley Gold Extension Project, allowing both open-cut mining at the Roswell and San Antonio deposits (including underground mining at the former) and extending the mine life to 2032. The approval accepts a processing rate of up to 1.75Mtpa, with underground mining due to commence at Roswell before the end of CY23. Financing has been secured via A$50m of debt funding from Macquarie Bank, together with 100koz of gold hedging at a weighted average price of A$2,825/oz (US$1,928/oz).
Alkane upgraded its FY23 guidance for gold production from 55,000–60,000oz to 62,000–70,000oz on 5 January. This follows H123 production at Tomingley of 37,790oz. Alkane has lowered its expected unit costs, to AISC of A$1,550–1,800/oz, down from previous guidance of A$1,650–1,900/oz. Also, approval of the Tomingley Gold Expansion Project, expected in late December, has been deferred until early February.
Alkane’s Q123 operational results, announced today, were notably ahead of our forecasts, driven by both mill throughput (which operated at an elevated rate equivalent to 1.08Mtpa) and head grade (which, at 2.75g/t, was materially ahead of our expectations) to result in gold production for the quarter of 19,489oz (cf guidance for FY23 of 55-60koz). Given these results, our forecasts are under review.
On 22 October, Alkane announced the results to a further 19 diamond core and reverse circulation (RC) drill holes at it Northern Molong Porphyry Project. As well as continuing to delineate the strike and dip extent of the porphyry mineralisation at Boda, in this case, Alkane also announced results from Boda Two and Three (to the south of Boda) and Kaiser (to the northwest). Individual intercepts at Boda ranged from 1m at 18.6g/t gold to 11m at 2.88g/t and wider, while one at Kaiser recorded 4.94g/t gold over 2m.
On 16 August, Alkane published the assay results of 10 more holes drilled at Boda. While our estimate of the overall mineralised inventory at Boda has changed little as a result of this set of holes, probably their most significant consequence is the increase in the potential resource contained within the high-grade sulphide cemented breccia from c 2.1Moz gold equivalent (AuE) to c 3.5Moz AuE above 3.0g/t AuE. This is as a result of the extension of this structure to at least 800m (cf 500m previously) from the interpretation of the assay results of holes KSDD034 and 034W2, KSRC038D and KSRC042 and, in particular, KSRC043, which returned an intersection of 31m from surface at a grade of 2.94g/t.
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.
On 9 November, Alkane reported the results of an additional 11 holes at its Boda prospect at its Northern Molong Porphyry Project. The most obvious, immediate consequence of the results is that it has doubled the north-south strike length of the system from 500m to 1,000m and, as such, is likely to represent either an extension of the original system or a whole new system. Among other things, this has caused us to increase our estimate of the upper limit of the mineralised inventory at Boda from 738Mt to 2,241Mt at an average gold grade of up to 0.35g/t. Note that Boda remains open to the northwest, south and at depth, with the relatively unexplored high grade mineralisation being the focus of further drilling.
On 30 July, Alkane achieved its goal of demerging Australian Strategic Materials (ASM) in order to become a purely gold-focused miner. Since then, it has announced FY20 results, including an updated reserve & resource statement and the results of additional drilling at Boda, which continue to be consistent (in our opinion) with its hosting a multi-million-ounce gold resource. This note updates our financial forecasts and valuation in the aftermath of the ASM demerger in particular and also the material (12.0%) strengthening of the Australian dollar vs the US dollar.
In recent weeks Alkane has announced drilling results from its Boda prospect in the Northern Molong Porphyry Project, a maiden (inferred) resource at its Roswell and San Antonio prospects south of Tomingley and its interim results. In addition, Export Finance Australia (Australia's export credit agency) has confirmed its interest in participating in the financing of Alkaneâs Dubbo rare earth project in Central West New South Wales. Each has the ability to add to our valuation of Alkane, although by far the largest in terms of magnitude are the drilling results from Boda.
Alkane Resources (ALK.ASX) has had a busy summer with exceptional drill results from its Northern Molong Gold-Copper Porphyry Project, continued local and regional resource drilling at Tomingley, and the acquisition of a 15.1% interest in Genesis Minerals (GMD.ASX) for A$6.3m. The acquisition is part of Alkane’s growth strategy to increase its shareholder value by investing a portion of its significant cash balance (A$69.6m) into junior gold companies or projects that have high exploration potential or require near-term development funding. Genesis is the second investment Alkane has made in line with this strategy, the first being a 13.0% holding in Calidus Resources (CAI.ASX).
Alkane Resources’ successful drill programme during H119 at the Tomingley Gold Project has resulted in the generation of an exploration target ranging from 860,000oz Au to 1,680,000oz Au. Importantly, this exploration target lies within 8km of Alkane’s operational Tomingley gold processing plant. Successful resource drilling of the exploration target, followed by positive feasibility studies, could extend the life of the gold operations at Tomingley beyond 2022.
In this interview, Nic Earner, MD of Alkane Resources, provides us with some insights into why gold production has been increasing at the Tomingley Gold Mine, the implication of the exploration success around Tomingley and its recent strategic agreement with Zirconium Technology Corporation.
Gold production from the mid-grade stockpile at Tomingley continues to perform above our expectations, resulting in a second upgrade of our production estimates this year. We increase forecast gold (Au) production for FY19 to 48,000oz (from 44,000oz on 2 May 2019, previously 40,000oz on 12 February 2019). As a result, we also increase forecast gold sold to 52,800oz (from 48,800oz). The increased production levels also result in a lower all-in sustaining cost (AISC), which decreases to A$1,004/oz Au (from A$1,059/oz Au). Alkane also announced a binding agreement with Zirconium Technology Corporation to fund a pilot plant operation to convert metal oxides into metals.
Q319 was a strong quarter for Alkane Resources, with gold production from the stockpile at Tomingley Gold Mine above expectations. As a result, we have increased forecast gold production for FY19 to 44,000oz from 40,000oz and increased gold sold to 48,800oz from 41,500oz. We have also decreased our forecast all-in sustaining cost to A$1,059/oz Au from A$1,108/oz Au.
Gold mining operations at Tomingley performed strongly, with Alkane Resources reporting profit after tax of A$12.2m in H119 (the half year to December 2018) on the back of production of 26,754oz of gold. The 10% decline in net profit from A$13.5m in H118, along with lower production volumes and grades, was expected, reflecting the cessation of open pit mining in January 2019 as Alkane transitions underground. Development of the underground operation at Tomingley is progressing on schedule, with both the main decline and vent portals established. During H219, we expect gold production volumes, c 13,000oz, and grades to continue to decline as Alkane will be processing the mid-grade stockpile until ore from underground is extracted at some point in H219.
Alkane Resources is a well-funded gold production company with A$73.7m in cash and no debt. It is seeking to leverage its cash balance and extensive expertise in gold mining and exploration through a strategy of investing in junior gold companies and projects that meet its investment criteria. Alongside this, the company is transitioning from open pit mining to underground mining at its Tomingley gold project and is pursuing the finance required to develop its Dubbo polymetallic project.
A strong Q3 saw the Tomingley Gold Operation (TGO) mine generate operating cash flows of A$21.2m, driving Alakane’s (ALK’s) cash pile to A$60.6m with a further A$8.4m held as bullion-on-hand. Two critical path catalysts are due in the final quarter of FY18, the final modular costing plan for the Dubbo Project (DP) and the way forward for extending the TGO’s mine life. The DP’s future viability has been proven viable technically, and has also been aided by a number of its products realising significant price gains (zirconium products and certain rare earth elements (REEs) related to magnets as well as hafnium and FeNb) driven by numerous supportive end-market changes. While financing the DP continues, we see ALK putting its own cash pile to use extending the life of the TGO’s processing facility via either UG mining or potentially exploration and development.
The fourth quarter of CY17 going into Q1 CY18 should prove pivotal to the development of the Dubbo Project (DP), aided in no small part by a strong broad rebound in DP-relevant metal prices that account for c 80% of future annual revenue generation. We see the DP taking centre stage for Alkane, as it looks to develop its flagship project and secure commercial binding agreements over projected Phase 1 annual revenues (of c A$407m). The TGO has maintained course on cost and production guidance for the financial year, and a revised underground mine plan is due by end CY17.
Following a rain-sodden H1, the second half of FY17 saw a remarkable turnaround in gold production at the Tomingley Gold Operation (TGO), and brought down unit costs markedly as a result. With similar production and cost guidance to FY17 targeted for FY18 at the TGO, key catalysts will be those linked to the development of the Dubbo Project (DP). Commentary from Alkane (ALK) that key product markets (eg certain rare earths, zircon/zirconium) are recovering from their multi-year lows signals a return of focus to the company’s flagship project.
Alkane has provided a pre-quarterly update for its Tomingley Gold Operation (TGO). Strong production performance of 17koz of gold produced across April and May has led the company to revise upwards its H217 production target from 31-36koz, to 43-45koz. H217 all-in sustaining costs (AISC) are also estimated to come down from A$1,350-1,550/oz published by Alkane in January, to A$1,000-1,100/oz. This is expected to have a positive effect on the company’s cash flow, which will be confirmed via its FY17 financials due out mid-July.
After a testing H117 at the Tomingley Gold Operation (TGO) due to high levels of rainfall that affected gold production, Alkane’s third quarter results show a return to profitable operations, with net cash flow from operations of A$6.5m reducing after delayed December 2016 payments to a net A$2.0m at quarter’s end. As weather conditions improved in NSW, Q317 gold production recorded a q-o-q increase of 59%, with 18,721ozs Au produced at AISC costs of A$1,201/oz. Sales of 16,303ozs Au at an average realised gold price of A$1,694/oz resulted.
Alkane’s (ALK’s) recently announced revised execution plan for the DZP provides for a significant re-rating of the project’s value. We calculate that the new modular design, where two trains of 0.5Mtpa will be constructed between end 2017 and 2023, will yield the same 1Mtpa size project as before but by using a staged capex spend will result in a c 16% uplift to our fully diluted (at a share price of A$0.40) DDF value of ALK’s shares. We view this plan as pivotal to the DZP’s successful execution and something that reduces risk in a multitude of areas, such as lower financing risk and construction costs from building components in lower-cost jurisdictions. Customer participation should also be improved by lowering commitments in off-take agreements geared to initially smaller production.
Alkane has announced that it has signed an MoU (via its wholly owned subsidiary Australian Zirconia) with Siemens relating to its flagship Dubbo Zirconium Project (DZP). The purpose of the MoU is to advance the DZP, in particular to state each party's intention with respect to the procurement of Siemens’ equipment and operational solutions, and future offtake of products produced by the DZP. This follows Alkane’s 16 August announcement relating to a major zirconium agreement with a UK specialist chemicals firm. In our view, both agreements de-risk financing of the estimated A$1.3bn capex requirement for DZP and move it closer to the construction phase.
The TGO gold mine continues to perform well, helped in no small part by a resurgent gold price during H216, and despite unseasonably high rainfall persisting through Q416. Stronger cash flows resulted and we expect the TGO to continue at similar operating levels (to FY16) through FY17. The DZP continues to advance, albeit with a number of concurrent project elements requiring completion before financing can be finalised.
Alkane’s wholly owned subsidiary, Australian Zirconia, has been granted an Environmental Protection Licence (EPL). This finalises the approval process for the Dubbo Zirconia Project (DZP) and significantly de-risks the path towards financing. With all the development permits now in place, Alkane can provide assurance to its finance team that no fundamental obstacle, whether technical, commodity price (the DZP is robustly profitable at current commodity prices), governmental or otherwise, can hinder the project’s development post financing being secured.
Alkane reports a second cash flow-positive quarter after the high amounts of waste required to be mined during H215 made the TGO cash flow negative. Gold production remains on track for 60-70koz by end FY16, with AISC costs in a range of A$1,200-1,300/oz ytd. Costs compare to an Australian dollar gold price of c A$1,570/oz. Progress on developing the DZP is also highlighted, with the key mining lease achieved during the quarter. We maintain our view that the DZP, through its diversified product suite and very advanced stage of engineering and product offtake arrangements, remains the strongest non-Chinese contender for exposure to the strategically important REE (and other speciality metals) space.
Our value of Alkane's flagship DZP project has improved by 32% based on the completed FEED design (released in August 2015) and conservative (2020e) product prices, when compared to the value provided in its 2013 DFS. The three main reasons are inclusion of a hafnium revenue stream, improved metal recovery factors, providing more metal to sell, and a weakened A$ aiding US$-priced revenues against domestic priced operating costs. When remaining offtake agreements and project permits have been received, Alkane will aim to finalise its long-established financing strategy to fund development of this unique (A$1.3bn) diversified-commodity project. This note focuses solely on the DZP, with the Tomingley Gold Operation referenced only in our SOTP valuation.
The Tomingley Gold Operation (TGO) hit its FY15 production target and mining has followed plans with production reconciling well with resource models. Coupled with a significantly weaker Australian dollar and well managed costs, the TGO generated A$23.7m in cash flow in FY15 (after operating and development costs), A$15m of which was invested straight back into the Dubbo Zirconium Project (DZP). In our view, the market’s slight negative reaction to Alkane’s Q4 results relates to a broad pessimism towards commodities and a view on quarterly financials rather than considering the full-year performance data – which shows the TGO to be a solid, profitable gold mine operating in line with expectations.
