Edison Investment Research Limited
London, UK, 9 July 2021
Alkane Resources (ALK): Revealing the fruits of its labours
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.
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.
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