Edison Investment Research says the proposed merger between Alkane Resources Ltd (ASX:ALK, OTC:ALKEF) and Canadian-listed Mandalay Resources Corporation is “demonstrably earnings accretive” and has materially enhanced its valuation outlook for the combined entity.
Merger to add value
Under the merger terms, Mandalay shareholders will receive 7.875 Alkane shares for each Mandalay share held, giving Mandalay shareholders 55% ownership of the enlarged group and Alkane shareholders 45%.
The merged company will be valued at around A$1 billion, with production from three operating gold assets – Tomingley and Costerfield in Australia and Björkdal in Sweden – forecast to reach 180,000 ounces of gold equivalent in 2026.
The all-in sustaining cost (AISC) is expected to average around A$2,160 per ounce.
In its updated analysis, Edison increased its base-case valuation for Alkane from A$0.48 to A$0.65 per share at a long-term gold price of US$1,794 per ounce.
At the prevailing spot price of US$3,320 per ounce, the valuation rises to A$1.87 per share.
Edison noted that Alkane is acquiring Mandalay on a pro forma P/E (price to earnings ratio) of 5.1x to June, while it is trading on a prospective P/E of 10.1x.
Definitive demonstration of value
“The increase in the valuation from A$0.423/share to A$0.628/share, despite the significant increase in the number of Alkane/Mandalay shares in issue (from 604.6 million to 1,350.0 million), is a definitive demonstration of the transaction’s value accretion,” the report said.
The merged group is expected to generate significantly higher free cash flow over the coming years.
Edison foreshadows that net cash accumulation could reach A$764 million by the end of FY31 at its long-term gold price assumption – sufficient to fund 41% of the pre-production capital expenditure required for Alkane’s Boda-Kaiser copper-gold project.
At current gold prices, this figure increases markedly to A$2.45 billion.
Edison further notes that “the valuation of Boda-Kaiser has been, inevitably, diluted by the merger. However, this is more than made up for by the combined entity’s increased cash generation potential.”
The transaction remains subject to shareholder and regulatory approvals, with completion anticipated in the third quarter of calendar 2025.
Edison projects consolidated financials from June 30, with Alkane’s current managing director Nic Earner to lead the merged group.