Alkane Resources Ltd (ASX:ALK)’s first-quarter operational results for the 2023 financial year exceeded the expectations of Edison Investment Research Ltd, prompting the research firm to put its full-year estimates under review.
The research firm said Alkane’s strong performance in the first quarter was driven by higher mill throughput and head grade, which, at 2.75 g/t, was way above Edison’s forecast. The exploration company reported gold production of 19,489 ounces for the first quarter.
The company’s operations were adversely affected by unusually high levels of rainfall in New South Wales but were more than offset by a head grade that was above even the company’s expectations, it noted.
In light of the results, Alkane is "highly likely" to meet its production guidance of 55,000-60,000 ounces at an AISC of A$1,650-1,900 per ounce for the 2023 financial year.
Alkane 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 FY2023 to FY2031, and its Northern Molong project, which is shaping up to be a tier-1 alkalic porphyry district.
The following is an extract from the research report:
Alkane has two major near-term catalysts in prospect namely, approvals for the Tomingley Gold Extension Project and a maiden resource at its Kaiser prospect northwest of Boda in the Northern Molong Porphyry Project. The former is now anticipated ‘in the current quarter’ (we anticipate in December), while the latter is now expected in Q323 (ie Q1 CY23) - we expect in February.
In the meantime, we note that, despite the recent falls in the gold price in US dollar terms, the concurrent falls in the value of the Australian dollar mean that, in local currency terms, gold is trading at levels that are higher than any quarter in FY22 and which will also, in Alkane’s case, be augmented on a short-term basis by in-the-money hedges put in place in recent months.
At the time of our last note on Alkane, our valuation continued to be underpinned by Tomingley, which we then estimated contributed A$0.57/share to Alkane’s valuation. Liquid assets in the form of Alkane’s holdings in Calidus and Genesis contributed a further A$0.06/share.
Where before these had been the only two tangible contributors to Alkane’s valuation, they had, at that time, been joined by Boda, which we estimated was worth an immediate US$125.5m (or US$0.21/share or A$0.31/share) to Alkane either as an in-situ resource or as a development project, albeit with the proviso that the project-based valuation would increase inexorably, both as a result of continued resource increases and upgrades and as a result of Alkane’s de-risking the project by achieving future development milestones.
As such, we calculated that Alkane’s share price was more than 100% covered by the value of tangible assets (cf 56% previously), with up to A$0.59/share in additional upside available in the form of further exploration success in the Northern Molong Porphyry Project as well as the ever-increasing probability of the Roswell underground extension project being sanctioned.