Alkane Resources — The Bodas continue to grow

Alkane Resources (ASX: ALK)

Last close As at 23/11/2024

AUD0.50

0.01 (1.01%)

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Research: Metals & Mining

Alkane Resources — The Bodas continue to grow

Alkane Resource’s FY23 financial results were broadly in line with our forecasts, with profit after tax totalling A$42.5m (compared to our forecast of A$44.0m) and EPS of 7.10c (cf 7.38c). Cash flows from operations exceeded our forecasts (A$95.5m cf A$75.6m) as a result of an increase in deferred tax liabilities, albeit this was balanced by higher exploration capex of A$58.1m to result in a net cash flow of A$4.1m (cf A$2.4m). Following FY23 production of 70,253oz at an all-in sustaining cost (AISC) of A$1,602/oz, FY24 guidance for Tomingley is 60,000–65,000oz at an AISC of A$1,750–2,100/oz. Our forecasts remain largely unchanged in the aftermath of Alkane’s FY23 results. We maintain our valuation.

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Metals & Mining

Alkane Resources

The Bodas continue to grow

FY23 financials

Metals and mining

25 August 2023

Price

A$0.67

Market cap

A$401m

A$1.5545/US$

Net cash (A$m) at June 2023

66.7

Shares in issue

601.6m

Free float

65%

Code

ALK

Primary exchange

ASX

Secondary exchange

OTC QX

Share price performance

%

1m

3m

12m

Abs

(13.6)

(14.7)

(7.6)

Rel (local)

(12.3)

(14.8)

(9.6)

52-week high/low

A$0.94

A$0.53

Business description

Alkane Resources 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 FY23 to FY31, and its Northern Molong Porphyry project, which is shaping up to be a tier 1 alkalic porphyry district.

Next events

Boda and Kaiser updated resource estimate

Q4 CY23

Underground production at Roswell begins

Q4 CY23

100koz annual production

FY26

Analysts

Tom Batho

+44 (0)20 3077 5700

Lord Ashbourne

+44 (0)20 3077 5724

Alkane Resources is a research client of Edison Investment Research Limited

Alkane Resource’s FY23 financial results were broadly in line with our forecasts, with profit after tax totalling A$42.5m (compared to our forecast of A$44.0m) and EPS of 7.10c (cf 7.38c). Cash flows from operations exceeded our forecasts (A$95.5m cf A$75.6m) as a result of an increase in deferred tax liabilities, albeit this was balanced by higher exploration capex of A$58.1m to result in a net cash flow of A$4.1m (cf A$2.4m). Following FY23 production of 70,253oz at an all-in sustaining cost (AISC) of A$1,602/oz, FY24 guidance for Tomingley is 60,000–65,000oz at an AISC of A$1,750–2,100/oz. Our forecasts remain largely unchanged in the aftermath of Alkane’s FY23 results. We maintain our valuation.

Year

end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/22

165.0

52.1

3.68

0.00

18.1

N/A

06/23

190.0

60.6

7.10

0.00

9.4

N/A

06/24e

172.4

63.0

7.34

0.00

9.1

N/A

06/25e

229.3

80.6

9.39

0.00

7.1

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Potential to be a tier one asset

Drilling at the Boda, Boda Two and Boda Three deposits is complete, with final assay results expected in September, and further drilling is now solely focused on the Kaiser deposit. Current feedback from the Boda Two and Three deposits suggests a greater upside than previously estimated following positive results in favourable geology. Mineralisation at depth remains open down dip and along strike, sitting outside of the western boundary of the current Boda mineral resource estimation. Further drilling is required to build on the new assay data. As per our last note, we expect Alkane to produce an updated mineral resource estimate for Boda, including Boda Two and Three, in Q4 CY23 and for Kaiser in Q1 CY24. Following completion of the Boda exploration programme, Alkane believes the system could represent a possible tier one gold-copper project.

Valuation: A potential valuation of A$2.27/share

Following its results, our valuation of Tomingley remains unchanged at A$0.60/share. Liquid assets in the form of Alkane’s holdings in Calidus and Genesis contribute a further A$0.03/share, with Boda and Kaiser estimated at a combined US$174.8m (US$0.29/share or A$0.44/share) to Alkane, either as an in-situ resource or as a development project. This represents a total value estimate for Alkane of A$1.06/share. We also estimate a potential A$0.52/share additional upside in the event of further exploration success in the Northern Molong Porphyry Project at the Boda Two and Three deposits. Including all other contingent assets (and using current metals spot prices cf Edison’s more conservative long-term prices), this takes Alkane’s valuation to potentially as high as A$2.27/share. Otherwise, in Alkane, investors can buy a profitable, cash generating company at a rating of US$23.05 per resource ounce – ie little more than that of a cash consuming explorer.

Exhibit 1: Financial summary

A$’000s

2018

2019

2020

2021

2022

2023

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

129,973.6

93,994.9

72,549.0

127,833.0

165,010.0

190,527.0

172,421.5

229,304.3

Cost of Sales

(51,080.9)

(53,656.4)

(32,868.0)

(45,313.0)

(67,527.0)

(83,496.0)

(87,880.1)

(127,631.8)

Gross Profit

78,892.7

40,338.5

39,681.0

82,520.0

97,483.0

107,031.0

84,541.4

101,672.5

EBITDA

 

 

70,378.7

32,971.7

29,412.0

70,527.0

87,498.0

94,924.0

72,434.4

89,565.5

Normalised operating profit

 

 

31,658.3

25,808.8

20,171.0

49,940.0

53,821.0

59,246.0

61,989.4

79,120.5

Reported operating profit

31,658.3

25,808.8

20,171.0

49,940.0

53,821.0

59,246.0

61,989.4

79,120.5

Net Interest

(579.0)

(418.8)

389.0

(2,741.0)

(1,662.0)

1,341.0

1,001.2

1,457.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

(870.0)

(20.0)

0.0

0.0

0.0

Exceptionals

0.0

0.0

(646.0)

1,741.0

48,334.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

31,079.3

25,390.0

20,560.0

46,329.0

52,139.0

60,587.0

62,990.5

80,577.5

Profit before tax (reported)

 

 

31,079.3

25,390.0

19,914.0

48,070.0

100,473.0

60,587.0

62,990.5

80,577.5

Reported tax

(6,919.9)

(2,266.1)

(6,569.0)

(14,503.0)

(30,222.0)

(18,137.0)

(18,897.2)

(24,173.3)

Profit after tax (norm)

24,159.4

23,123.9

13,991.0

31,826.0

21,917.0

42,450.0

44,093.4

56,404.3

Profit after tax (reported)

24,159.4

23,123.9

13,345.0

33,567.0

70,251.0

42,450.0

44,093.4

56,404.3

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

(583.0)

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

24,159.4

23,123.9

13,991.0

31,826.0

21,917.0

42,450.0

44,093.4

56,404.3

Net income (reported)

24,159.4

23,123.9

12,762.0

33,567.0

70,251.0

42,450.0

44,093.4

56,404.3

Basic average number of shares outstanding (m)

506

506

547

595

596

598

601

601

EPS – basic normalised (A$)

 

 

0.05

0.05

0.03

0.05

0.04

0.07

0.07

0.09

EPS – diluted normalised (A$)

 

 

0.05

0.04

0.02

0.05

0.04

0.07

0.07

0.09

EPS – basic reported (A$)

 

 

0.05

0.05

0.02

0.06

0.12

0.07

0.07

0.09

Dividend (A$)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

10.3

(-27.7)

(-22.8)

76.2

29.1

15.5

(-9.5)

33.0

Gross margin (%)

60.7

42.9

54.7

64.6

59.1

56.2

49.0

44.3

EBITDA margin (%)

54.1

35.1

40.5

55.2

53.0

49.8

42.0

39.1

Normalised operating margin (%)

24.4

27.5

27.8

39.1

32.6

31.1

36.0

34.5

BALANCE SHEET

Fixed assets

 

 

138,275.0

172,196.0

129,077.0

203,161.0

257,497.0

304,826.0

318,451.0

317,576.0

Intangible assets

93,136.0

103,894.0

32,745.0

57,794.0

98,498.0

161,310.0

171,310.0

181,310.0

Tangible assets

36,266.0

51,038.0

62,322.0

99,411.0

107,386.0

111,104.0

114,729.0

103,854.0

Investments & other

8,873.0

17,264.0

34,010.0

45,956.0

51,613.0

32,412.0

32,412.0

32,412.0

Current assets

 

 

93,306.0

76,501.0

59,096.0

33,054.0

98,190.0

107,364.0

121,547.4

182,093.9

Stocks

19,153.0

4,816.0

7,647.0

11,648.0

17,952.0

21,906.0

6,613.4

8,795.2

Debtors

2,030.0

1,998.0

2,940.0

1,894.0

2,344.0

5,167.0

4,251.5

5,654.1

Cash & cash equivalents

72,003.0

69,582.0

48,337.0

18,991.0

77,894.0

80,291.0

110,682.5

167,644.6

Other

120.0

105.0

172.0

521.0

0.0

0.0

0.0

0.0

Current liabilities

 

 

(27,430.0)

(21,762.0)

(14,238.0)

(18,179.0)

(25,297.0)

(43,701.0)

(27,416.0)

(30,683.3)

Creditors

(9,299.0)

(8,007.0)

(9,425.0)

(11,082.0)

(13,708.0)

(23,508.0)

(7,223.0)

(10,490.3)

Tax and social security

(6,929.0)

(9,317.0)

0.0

0.0

(1,001.0)

(7,283.0)

(7,283.0)

(7,283.0)

Short-term borrowings

0.0

0.0

(2,090.0)

(3,294.0)

(5,930.0)

(7,371.0)

(7,371.0)

(7,371.0)

Other

(11,202.0)

(4,438.0)

(2,723.0)

(3,803.0)

(4,658.0)

(5,539.0)

(5,539.0)

(5,539.0)

Long-term liabilities

 

 

(13,647.0)

(13,059.0)

(19,522.0)

(26,471.0)

(61,516.0)

(68,492.0)

(68,492.0)

(68,492.0)

Long-term borrowings

0.0

0.0

(4,515.0)

(5,922.0)

(9,116.0)

(6,175.0)

(6,175.0)

(6,175.0)

Other long-term liabilities

(13,647.0)

(13,059.0)

(15,007.0)

(20,549.0)

(52,400.0)

(62,317.0)

(62,317.0)

(62,317.0)

Net assets

 

 

190,504.0

213,876.0

154,413.0

191,565.0

268,874.0

299,997.0

344,090.4

400,494.6

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

190,504.0

213,876.0

154,413.0

191,565.0

268,874.0

299,997.0

344,090.4

400,494.6

CASH FLOW

Operating cash flow before WC and tax

69,941.3

33,135.8

28,173.0

72,065.0

137,248.0

95,354.0

72,864.4

89,995.5

Working capital

(9,498.0)

(5,172.0)

(3,481.0)

(2,840.0)

(776.0)

(3,948.0)

(76.9)

(317.1)

Exceptional & other

1,277.0

1,454.0

3,704.0

4,632.0

(48,334.0)

3,500.0

0.0

0.0

Tax

(6,919.9)

7,047.9

(249.0)

0.0

0.0

(701.0)

(18,897.2)

(24,173.3)

Net operating cash flow*

 

 

54,800.5

36,465.7

28,147.0

73,857.0

88,138.0

94,205.0

53,890.3

65,505.1

Capex

(9,224.0)

(19,621.0)

(46,122.0)

(59,477.0)

(42,581.0)

(33,695.0)

(14,500.0)

0.0

Acquisitions/disposals

0.0

4.0

(20,068.0)

1,522.0

619.0

4.0

0.0

0.0

Net interest

(579.0)

(418.8)

389.0

(2,741.0)

(1,662.0)

1,341.0

1,001.2

1,457.0

Equity financing

(5.0)

0.0

39,442.0

(31.0)

(4.0)

(20.0)

0.0

0.0

Exploration and Evaluation

(10,969.0)

(11,578.0)

(20,132.0)

(26,642.0)

(40,935.0)

(58,105.0)

(10,000.0)

(10,000.0)

Other

(4,317.0)

(7,442.0)

(9,522.0)

(18,129.0)

49,659.0

368.0

0.0

0.0

Net cash flow

29,706.4

(2,590.1)

(27,866.0)

(31,641.0)

53,234.0

4,098.0

30,391.5

56,962.1

Opening net debt/(cash)

 

 

(41,969.0)

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(62,848.0)

(66,745.0)

(97,136.5)

FX

311.6

169.1

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

16.0

0.0

16.0

(316.0)

(161.0)

(201.0)

0.0

0.0

Closing net debt/(cash)

 

 

(72,003.0)

(69,582.0)

(41,732.0)

(9,775.0)

(62,848.0)

(66,745.0)

(97,136.5)

(154,098.6)

Source: Company sources, Edison Investment Research. Note: *Net operating cash flow excludes net interest, which can be found in isolation three lines lower.


General disclaimer and copyright

This report has been commissioned by Alkane Resources and prepared and issued by Edison, in consideration of a fee payable by Alkane Resources. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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General disclaimer and copyright

This report has been commissioned by Alkane Resources and prepared and issued by Edison, in consideration of a fee payable by Alkane Resources. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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United Kingdom

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