Date : 03/11/2020

Alkane Resources

ASX :

ALK

Market Cap : $732.33 Million

Buy

52 Week Range : $0.465 - $1.54

Share Price : $1.255

No significant update during Q1 of FY2021. The firm is on track to meet its guidance forecasts. We continue our "Hold" recommendation.

Company Analysis

Alkane Resources Ltd (ASX: ALK) is a relatively small gold producer. However, it has multi-commodity exploration and development projects in its portfolio. Our initial coverage of Alkane was on the 23rd of September at a price of $1.49. Fast forward 6 weeks and the stock is trading at $1.255 – which is down about 15%.


Source: Tradingview.com

Gold prices have stalled in recent weeks and all the momentum that carried gold stock on the ASX look to have subsided as well. Quite a few stocks have had corrections and they are now closer to at their fair value than they were before. However, given global economic uncertainty, gold prices are forecasted to be stable for the near future.

Since our last report on Alkane Resources, the firm has announced a performance review of Q1 FY2021. This has been quite the catalyst along with the stalling of gold prices for the 15% dip in stock price. Tomingley Gold Operations commenced in 2014 and is the firm’s largest project. Tomingley has 4 gold deposits – Wyoming One, Wyoming Three, Caloma, and Caloma Two. In 2019, open cut mining was started that is producing 60,000 – 80,000 ounces of Gold per annum. The total operating capacity of Tomingley is 1Mtpa.

Q1 FY2021 Update

Gold production during the quarter end September 2020 was as expected. 11,499 oz was produced at an AISC of A$1575 per oz. The operating costs stood at A$1178 per oz. Revenue from the sale of gold came in at A$27 million during the quarter as Alkane managed to sell 11,945 oz at an average price of A$2261 per oz. With an expected performance, Alkane have also confirmed that they are on track to reach their guidance of 45,000 – 50,000 oz at an AISC of A$1450 – A$1600 per oz in FY2021.

The Roswell and San Antonio deposits are awaiting approvals from the NSW government to begin development, and the firm has announced that the process has begun, and community consultation is in process.

The Tomingley Gold Operations Resources and Reserves have stayed the same since the August update:
Resources stand at 9.45 Mt grading 1.9g/t Au (610,000 oz)
Reserves stand at 2.97 Mt grading 1.8g/t Au (176,000 oz)

The December quarter will most likely see the preliminary mine plans for the Roswell and San Antonio deposits. Considering we see a successful addition of these deposits; the Tomingley Gold Operations will be extended and will have a total resources capacity in excess of 1 million oz.


Source: Alkane Resources

Alkane has begun discussions with Macquarie Bank for the provision of a A$20 million debt facility for working capital needs. Discussions are underway and we await an update to be made by Alkane. The cash position during the quarter has decreased. It now stands at A$33.1 million. Listed Investments and Bullion stand at A$54.2 million and A$4.7 million, respectively. The demerger from Australian Strategic Materials (ASX: ASM) resulted in the transfer of $18.5 million in cash to ASM. The below picture gives us an idea of the inflows and outflows during the quarter:


Source: Alkane Resources

Outlook

Not much has changed for Alkane Resources in the September quarter. The meeting of guidance forecasts means that the firm is on track. Tomingley Gold Mine currently provides the revenues for Alkane. The expansion potential with the Roswell and San Antonio deposits would increase the production capacity. In addition to this, the firm still has quite a few projects in the exploration stage.

The Tomingley Extension Project comes with the below potential:

  • Roswell Resource of 7.02 Mt at 1.97g/t Au (445,000 oz)
  • San Antonio Resource of 7.92 Mt at 1.78g/t Au (453,000 oz)
  • El Paso exploration target of ~ 5.1 to 7.4 Mt at 1.3 to 1.6g/t Au

The total resource at Tomingley would then sit somewhere at 25.4 Mt 1.9g/t Au (1,616,000 oz).

Alkane is following up on the drilling in Boda and an update on the Roswell and San Antonio extension is expected in Q2 of FY2021. There is quite a long way to go for Alkane Resources to become a multi mine Australian gold producer.

Recommendation

Since our last update, there has not been any significant changes in the fundamentals of the company. The only expected big announcement in Q2 is the preliminary mine plans for the Roswell and San Antonio expansion. We continue to recommend members to “Hold” their positions.

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