Alkane Resources offers the safety of gold production and the upside of gold exploration and rare earths
As the coronavirus spreads and stock markets come under pressure stocks that offer both safety and growth become even more popular. For example, as we watched the Chinese mainland market plummet 8% today, this Australian gold miner and rare earths developer rose 2.5% today, and is up 277% over the past year.
Alkane is a gold production company with multi-commodity exploration and development projects predominantly in the Central West region of NSW, also extending throughout Australia. The Company is also well known for its rare earths project known as the Dubbo Project. They also have numerous other exploration projects in Australia, and a pastoral company.
Alkane Resources’ focus is on gold mining; however, they also own the Dubbo Rare Earths Project in NSW, Australia
The Tomingley Gold Mine and Mill
Alkane has guided FY2020 gold production to be 30,000-35,000 ounces from their Tomingley Gold Mill, at an AISC of A$1,250 to A$1,400 per ounce. Production growth is planned via the Tomingley Corridor (San Antonio and Roswell projects). Due to strong recent drill results, Alkane is expediting the process to move to future mine development at Roswell.
Initial Resource at the Roswell Deposit, and by March 2020 for the San Antonio Deposit
In recent news, Alkane announced an initial resource at their Roswell Deposit, located just 3km south of Alkane’s operating Tomingley Gold mine and processing facility. With the first stage of drilling completed, Alkane reported an Inferred Mineral Resource (using a 0.5g/t gold cut-off) of 7.02 million tonnes grading 1.97g/t gold (or 445,000 oz of contained gold).
Further drilling at Roswell is underway to reduce the drill hole spacing in order to convert Inferred Resources to Indicated and Measured status. The Resource remains open at depth.
Drilling is also continuing in the prospective corridor to the south of Roswell and an initial Inferred Resource for the San Antonio deposit is anticipated in March 2020.
Alkane Resources Tomingley corridor providing additional gold inferred resources
The Boda copper-gold porphyry discovery
In September 2019 Alkane announced a landmark discovery at Boda. The extensive porphyry mineralization encountered has similar characteristics to Newcrest’s Cadia Project (110km south), with strong indications of a large system at Kaiser-Boda. RC drilling shows extensive low grade from surface, with an increase in grade from ~200m to 502m at 0.48g/t Au and 0.2% Cu; higher than Cadia East reserve grade. Porphyry discoveries can be lower grades as they are often massive in size.
The Dubbo Project (rare earths) update
Alkane continues to develop its 100% owned rare earths Dubbo Project in NSW, Australia; as both the US and Australia hold talks to support the rare earths sector.
The Dubbo Project contains a huge resource of rare earths including zirconium, niobium, and hafnium. The project’s estimated NPV is A$1,236 million over an initial 20 year mine life, with the potential to expand to a 75+ year mine life. The Project is permitted and construction-ready, pending finance.
Alkane has made significant progress in regard to the planned demerger of their 100% owned subsidiary Australian Strategic Materials (100% owner of the Dubbo Project). Alkane expects to lodge documents with the ASX ahead of a shareholder meeting to vote on the demerger in the June quarter of 2020. It appears that the demerger is to unlock the inherent value of the Dubbo Project, which under the current structure gets little value.
Alkane has an extensive tenement holding in NSW with strong exploration potential. Added to this is their massive pastoral holding called the Toongi Pastoral Company. They also own 15% of Genesis Minerals (ASX: GMD) and 13% of Calidus Resources (ASX: CAI).
Alkane Resources timeline of key milestones
Valuation is still attractive
Alkane Resources currently has a market cap of A$470 million, and a PE of 17.6. Essentially this is based on their gold operations will minimal value assigned to their massive Dubbo rare earths project, hence the demerger plans. Added to this is a very nice cash and bullion position of A$91.7 million.
The continued discovery of significant gold resources near Alkane’s Tomingley Mill, most notably at Roswell (and San Antonio), but also a huge potential new discovery at Boda; combined with the near term potential of unlocking some value from the Dubbo Rare Earths Project explains why Alkane Resources continues to be a winner.
For investors, Alkane still offers plenty of safety via gold production and growing gold resources, and growth potential from rare earths as Governments take a stronger role to support the sector to secure safety of supply that is already massively dominated by China. Added to this is a proven management team that continue to execute much to shareholders’ delight.