Alkane Resources Limited

ALK Details

Performance Shares Issued: Alkane Resources Limited (ASX: ALK) is engaged in the production of gold and the exploration of gold and copper commodities with a development portfolio at Tomingley (gold) and Northern Molong Porphyry Project (gold-copper operations). On 19 November 202, ALK issued ~1,944,058 performance shares under an employee incentive scheme to a few key management personnel including Director Nicholas Earner.

 Q1FY22 (Ended 30 September 2021) Highlights:

• The company met the forecast of 12,141oz of gold production for Q1FY22 at an AISC of ~$1,961/oz from the Tomingley operations.
• The company generated ~$33.0 million in revenue at an average price of ~$2,467/oz from the sales of 13,359 ounces of gold.
• The company is ramping up its fleet with new equipment (loaders, trucks, and production drill) which has lifted the mine performance.
• Tomingley Gold Extension Project Update: The company is in the process of seeking approval to develop the Roswell and San Antonio deposits situated near the Tomingley project. It is engaging with the NSW Government to seek approval on the submission of the Gateway Certificate application which evaluates the impact on the agricultural land in NSW (New South Wales).
• ALK held ~9.7% and ~19.7% shareholding in Calidus Resources Ltd (ASX: CAI) and Genesis Minerals Ltd (ASX: GMD) at the Q1FY22-end.
• During Q1FY22, ALK sold off the Galwadgere Project to Sky Metals Ltd (ASX: SKY) for consideration of ~6 million shares in the company.
• The company held ~$34.4 million cash as of 30 September 2021 versus ~$19 million as of 30 June 2021.

Key Metrics during FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of exploration targets, gold price & production changes, and regulatory delays.

Outlook:

• The company estimates ~55,000 - 60,000 oz gold production and AISC in the range of $1,450- $1,600/oz from Tomingley operations in FY22.
• It will continue with the drilling program at Boda prospect to expect a maiden resource for mineralisation and with the near-mine exploration at Tomingley.
• ALK plans to submit the Environmental Impact Statement later in the current quarter and expects to receive the project extension approval during mid-2022.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of ALK gave a negative return of ~13.47% in the past three months and a positive return of ~16.78% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.655 - $1.255. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering the draw-down of ~$20 million working capital facility, and borrowing arrangements for mobile equipment during Q1FY22, and persisting labour shortage challenges due to COVID-19. For this purpose of valuation, few peers like Evolution Mining Limited (ASX: EVN), OZ Minerals Limited (ASX: OZL), Bellevue Gold Limited (ASX: BGL), and others have been considered. Considering the current trading levels, met Q1FY22 production guidance, improved mine performance, cornerstone investments in CAI & GMD, higher cash balance in Q1FY22, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.835, down by ~1.765%, as of 24 November 2021.

ALK Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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