A new Edison Research report on Alkane Resources Ltd (ASX:ALK, OTC:ALKEF) has highlighted the company's upside potential following a recent update of the mineral resource estimate at its Boda prospect in Central West New South Wales.
The report, released today, comes after Alkane last month updated its Boda mineral resource to include Boda Two and Three, resulting in a 30% increase in the gold grade and a 22% (or 1.17 million ounce) increase in contained gold at the prospect.
Boda is a landmark porphyry gold-copper system, within the Northern Molong Porphyry Project and to the north of the company's Tomingley operations, which the company believes has the potential to be a large, tier-one gold-copper project.
Edison Research places a value on the mineral resource increase of US$28.2 million (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 late in the current quarter, as well as a conceptual mine plan at the combined Kaiser-Boda deposit in due course.
Appreciable uptick in in-situ grade
The combined Boda and Kaiser deposit resource now stands at 853 million tonnes of ore, containing 8.43 million ounces of gold at a grade of 0.31 g/t, up from 0.25g/t, and a gold equivalent grade of 0.57 g/t, up from 0.51 g/t. Edison notes that this is more in keeping with the deposit’s peers in Ecuador, British Columbia and elsewhere in Australia.
“Nevertheless, exploration potential at Boda Two and Three remains high, with Alkane continuing to target high-grade mineralisation, albeit within blocks dislocated by around 500 metres by faulting.”
Valuation: $1.11 per share, potentially $2.36
Following the Boda resource update, Edison values Alkane at A$1.11 per share, up from A$1.06 per share previously. This represents a significant premium to the company’s current 64-cent share price.
This consists of an unchanged A$0.60 per share valuation of Alkane’s Tomingley Gold Operations, plus Boda and Kaiser deposits estimated at a combined A$0.50 per share — up from A$0.44 per share previously, and liquid assets in the form of Alkane’s holdings in Calidus and Genesis contributing a further A$0.01 per share.
Additionally, Edison estimates a potential A$0.48 per share additional upside in the event of further exploration success in the Northern Molong Porphyry Project.
Including all other contingent assets and using current metals spot prices as compared to the more conservative long-term prices used, this potentially takes Edison’s valuation of Alkane to as high as $2.36 per share — up from its previous $2.27 per share valuation.
Edison highlights that, “In the meantime, in Alkane investors can buy a profitable, cash-generating company on a multiple of just US$21.39 per resource ounce (approximately the same as an explorer).”
The full report can be found here.