Headed ‘Kaiser takes on the World’, Edison Investment Research Limited has released updated research on Alkane Resources Ltd (ASX:ALK, OTC:ALKEF) that values the gold producer and explorer at A$1.01 per share and potentially A$2.95/share.
The update is based on an increase in resources at the Kaiser deposit within the Northern Molong Porphyry Project (NMPP), the almost doubling of underground ore reserves at the Roswell deposit, which is part of the Tomingley Gold Extension Project (TGEP), and quarterly production figures from the Tomingley Gold Operations (TGO).
Alkane assets
Alkane Resources has two main assets in Central West New South Wales - the Tomingley Gold Operations, south of Dubbo, where exploration to date increased the mine life by at least eight years from FY23 to FY31, and the Northern Molong Porphyry Project, ~ 80 kilometres northeast of TGO and including the Boda and Kaiser deposits, which is developing into a tier-1 alkalic porphyry district.
READ: Alkane Resources updates Kaiser resources; takes NMPP total to 14.7 million gold equivalent ounces
As with Boda, Edison said the recent resource update at the NMPP’s Kaiser deposit saw substantially all resources promoted to the indicated category at a materially higher grade of both gold and copper.
Kaiser now hosts 3.74 million gold equivalent ounces, which includes 1.9 million ounces of gold and 420,000 tonnes of copper.
Among leading deposits
Edison’s report said: “Seen in national terms, the entire 14.7-million-ounce Boda-Kaiser complex is among the top three deposits in Australia in terms of resources and among the top 10 based on its gold inventory alone.”
The close-spaced nature of the drilling undertaken for the resource update would allow the resources to be quickly and easily upgraded to reserve status for the company’s scoping study which is scheduled to be released later this quarter.
READ: Alkane Resources lifts TGEP gold reserves to 664,000 ounces; readies for first stoping
Roswell reserves
The Kaiser update followed a doubling of the underground ore reserve estimate to 237,000 ounces a month earlier at the Roswell deposit, which increased overall reserves by 118,600 ounces at higher grades. TGEP’s reserves now total 664,000 ounces.
Edison said this would give Alkane more than enough reserves and resources to execute the TGEP, which is to the south of the TGO, and almost enough reserves to execute the Roswell underground extension project as well.
With Alkane currently trading at $0.635 and a market cap of approximately $380.2 million, Edison’s valuation represents upside potential for the company.
READ: Alkane Resources paves golden path as it ramps up mining at Roswell
Edison’s valuation
In the research report, Edison said its valuation of the Tomingley project remained little changed at $0.60 per share, which represented almost 100% of the company's current share price.
“Combined, we value Boda and Kaiser as in-situ resources, in an increasingly narrowing range, at A$0.40–0.50/share,” it stated.
This range reconciles closely with Edison’s valuation of Boda and Kaiser as producing assets of A$0.45/share, “which both cements the valuation and confers confidence in its magnitude”.
Alkane’s liquid assets in the form of its holdings in Calidus and Sky Metals contributed a further A$0.01/share to the valuation taking the total for ‘existing assets’ to A$1.01–1.11/share.
As well as these assets, Edison said Alkane had a number of ‘contingent assets’ that were largely dependent on future exploration success. These could add a further A$0.53/share to the valuation.
These valuations have been made at the conservative long-term metal prices of US$2,400/ounce of gold and US$10,668/tonne of copper with Edison’s valuation rising by a further A$1.31/share to a total of A$2.95/share.
“In the meantime, in Alkane, investors can buy a profitable, cash-generating company with the potential for near dilution-free development on a multiple of just US$21.25 per resource ounce (ie approximately the same as an explorer),” the report stated.