Alkane Resources Ltd (ASX:ALK) (OTCMKTS:ALKN) (FRA:AK7) was initiated by Ord Minnett Research in January 2021 after seeing Alkane’s potential to transform into a mid-tier miner with multiple assets producing ~200,000 ounces per annum.
Ord Minnett has now released a ‘3Q21: Upgrades + Initiation Reminder’ following a solid quarter during which Alkane’s gold production of 16,000 ounces exceeded Ord Minnett’s expectations by 33%.
The following is an extract from the research update:
Alkane’s March Qtr was a solid beat vs our expectations and saw a upgrade on costs and gold output. We remind investors of our January Initiation noting that ALK trades at a discount to DCF as well as getting a potential giant porphyry for free (Boda). We make slight model changes but leave our $1.30/sh target and Buy Rec unchanged.
MarQ21 Results In a Nutshell: Guidance Upgrades
- Gold Production of 16koz beat our expectations by 33% due to a combination of high grades of 2.4g/t (vs reserve 2.0g/t) and 3% improvement in recoveries to 91% (vs 12-month avg 88%).
- The underlying cost base was largely unchanged at $15m, but higher metal output pushed the unit cost denominator to a healthy A$997/oz.
- FY21 guidance was upgraded with gold output +6% to ~52koz while AISC costs were down 3% to ~A$1475/oz. This appears conservative relative to YTD metrics of 43koz at ~$1,229/oz.
Initiation Reminder: Mid-Tier with Giant Porphyry
- In January we initiated on ALK (link here) seeing the potential to transform into a mid-tier miner with multiple assets producing ~200koz pa
- We expect Tomingley gold mine to rejuvenated by FY24, with gold output to double (back) to 80koz, extend life +10yrs (from <3) at a low cost of A$1300/oz. Permitting is on track for mid 2021, with the life extension study expected in May.
- Boda is an exciting exploration discovery that hosts a large copper gold porphyry. It will take several years to drill and define, but our analysis of other systems indicates there is a high probability of further exploration discoveries. Recent drill results at Kaiser (360m @ 0.55g/t AuEq) are immaterial in terms of grade, but assists in increasing the known footprint. High grade will take some time to find, but we say stay the course.
Retain Buy Rec/TP remains at $1.30/sh
- We incorporate 2&3Qtr result, 1H financials and guidance upgrades. Our earnings have increased in FY21/22 +22%/-17%.
- No change to our $1.30/sh TP or Buy rec. Our valuation Is based on sum of the parts DCF for Tomingley (82¢) and EV/Resource for Boda (42¢).
- Next Event is the Tomingley expansion study in May, followed by the JuneQtr result which we expect 12koz at a cash cost of $1620/oz. Exploration at Boda ongoing.