Alkane Resources: An Established Gold Producer's Stabilization Plans, Key Expansion and Exploration Upside

• Alkane Resources, an Australian gold miner, aims to stabilize production at 75-80k oz/year at under $2,000/oz AISC
• Focused on consolidation and cash build through 2024 after completing key projects in late 2023
• Large exploration potential at Boda and Porphyry projects, seeking strategic partners for development
• The management team has a strong track record of project delivery and exploration success in NSW
• Inflection point expected in late 2024 as spending tapers off and cash generation increases

Alkane Resources (ASX:ALK) presents a compelling investment opportunity as a gold producer with a clear path to increasing production, lowering costs, and unlocking significant exploration upside. The company's near-term focus on consolidating its existing operations while progressing its major exploration assets positions it well for long-term value creation.

Existing Operations Provide Stable Foundation

Alkane has produced gold from its Tomingley operations in New South Wales for nearly a decade. The company currently targets annual production of 75-80,000 ounces at an all-in-sustaining-cost (AISC) below $2,000 per ounce. As Managing Director Nic Earner explains,

"We're interested in stabilizing, moving to Roswell, and printing a fair bit of cash. If we're doing 75-80,000 ounces at less than A$2,000 bucks an ounce, then every one of those ounces we're making A$1,500 bucks clear."

This focus on margin over volume is key to Alkane's strategy. The company invests in mine development and equipment to increase efficiency and throughput from its underground operations. Major projects, including a paste fill plant and flotation fine grinding circuit, are expected to be commissioned by Q4 2024. This should drive a step-change in production to over 100,000 ounces per year at lower unit costs.

Interview with Nic Earner, Managing Director of Alkane Resources Ltd.

Near-Term Cash Build and Shareholder Returns

With the bulk of its expansion spending complete, Alkane expects to see a significant increase in cash generation from late 2024 onwards. According to Earner, "December quarter for us should be the inflection point of spending versus cash build again, and if not December, definitely the March quarter."

This cash build gives Alkane flexibility to deliver shareholder returns through dividends or share buybacks, while investing in its exploration pipeline. The company has a strong balance sheet with a modest debt facility due for repayment by 2026. Alkane is currently renegotiating this facility to match its forward production profile and cash flows.

World-Class Exploration Upside

In addition to its production assets, Alkane has assembled a portfolio of highly prospective exploration grounds in the Central West region of NSW. The Boda and Kaiser prospects at its Northern Molong Porphyry Project have delivered several promising drill results, including some of the longest and highest-grade porphyry gold-copper intercepts globally in recent years.

With an established resource of over 10 million ounces of gold equivalent, Boda is one of the largest porphyry discoveries worldwide in the past decade. Alkane has already invested over $50 million in exploration and development at Boda and sees potential for a large-scale, low-cost mining operation.

Strategic Partnership Potential

Given the scale of the opportunity at Boda, Alkane is open to bringing in a strategic partner to help fund and develop the project. The company is completing a scoping study on potential throughput rates ranging from 5-20 million tonnes per annum. While a smaller scale operation could be developed independently, Earner believes "the orebody itself lends itself to doing 10-20 million tonnes per annum" and would require a larger balance sheet.

Alkane is not pursuing a partnership at any cost. Any transaction must recognize the value of the exploration work completed to date and provide a clear development path. As Earner puts it,

"We can't do a transaction that puts very little value on it... We also can't do a transaction that passes the ownership of the timeline to someone else."

Proven Management and Technical Team

Alkane's management and technical teams have a strong track record of discovery and development in NSW. Over the past decade, the company has built and commissioned the Tomingley gold mine, developed a rare earths project, and made several significant gold-copper discoveries.

This in-house expertise reduces execution risk for Alkane's growth projects. Over the past decade, the company has secured more project approvals than any other in NSW and has deep experience navigating the state's regulatory framework. While Alkane would look to bring in specialist advisors for any major transaction, the core management and technical teams have the skills needed to advance its key projects.

Alkane Resources offers exposure to a high-quality gold production business with an exceptional organic growth pipeline. The company is well positioned to deliver increased production and cash flows from its Tomingley operations soon, with potential for transformational growth from its world-class Boda discovery in the longer term. With a proven management team and strategic partnership potential, Alkane is an attractive opportunity for gold investors seeking exposure to a growing producer with exploration upside.

The Investment Thesis for Alkane Resources

• Stable gold production with clear path to 100,000+ ounces per year at sub-$2000/oz AISC
• Near-term cash generation inflection as key expansion projects are completed in late 2023
• World-class exploration upside at Boda porphyry project with over 10Moz gold equivalent and potential for large-scale, low-cost development
• Proven management and technical team with a track record of discovery and development success
• Strategic partnership potential to unlock value and accelerate development timeline

Alkane Resources presents a rare opportunity to invest in a well-established gold producer with a world-class growth pipeline. The company's near-term focus on optimizing its existing operations should drive increasing margins and cash flows, while its longer-term exploration upside offers potential for significant value creation. With a strong balance sheet, proven management team and strategic options to accelerate the development of its key growth projects, Alkane is well positioned to deliver shareholder returns in a strong gold price environment.

The current macroeconomic backdrop supports gold, with central banks globally maintaining accommodative monetary policies, geopolitical tensions driving safe-haven demand, and inflation concerns leading investors to seek real assets. Australian gold producers like Alkane are particularly well placed to benefit given the favorable exchange rate and low sovereign risk.

Australia is the world's second-largest gold producer, with a well-established mining industry and supportive regulatory environment. In 2021, Australian gold output reached a record 328 tonnes as producers responded to high gold prices and favorable operating conditions. The Fraser Institute ranks Western Australia and South Australia in the top 5 mining jurisdictions globally, while New South Wales also scores well on investment attractiveness.

Australian gold miners are trading at attractive valuations relative to their North American peers, despite a positive outlook for the gold price and a weaker Australian dollar enhancing margins. On consensus estimates, ASX-listed gold companies are trading on a median 2024 P/NAV of around 0.8x and a 2024 P/CF of about 4x. This compares to 2024 P/NAV of 1.2x and 2024 P/CF of 6x for the North American gold miners. This valuation disconnect, coupled with the strong macro tailwinds for gold, suggests ASX gold miners are positioned for a re-rating.