Alkane Resources - Balancing Near-Term Gold Growth with Long-Term Copper-Gold Potential

• Alkane Resources has released a scoping study for their Boda-Kaiser deposit, exploring mining and processing options at 5, 10, and 20 million tons per annum.
• The 20 million tons per annum option shows the most promise, with potential production of 280,000 ounces equivalent per year and a four-year payback period.
• The project has a large capex requirement of AUD$1.8 billion for the 20 million ton option, necessitating a partnering process.
• Alkane is seeking a partnership that reflects Boda Kaiser's value in their share price, potentially through a partial sale or earn-in agreement.
• The company aims to increase production at their Tomingley operation from 60,000 to 100,000 ounces by 2026 through development of new deposits and mill expansion.

Alkane Resources: Unlocking Long-Term Value in New South Wales

Alkane Resources (ASX:ALK) is an Australian gold mining company that operates the Tomingley Gold Mine in New South Wales and is developing the promising Boda-Kaiser copper-gold project.

Recently, Alkane released a scoping study for Boda-Kaiser, a significant milestone in the project's development.

Interview with Managing Director, Nic Earner

Boda-Kaiser Scoping Study: A Path Forward

The recently released scoping study for the Boda-Kaiser deposit marks a crucial step in Alkane's journey to unlock the value of this substantial copper-gold resource. Located approximately 4.5 hours west of Sydney, Boda-Kaiser boasts nearly 15 million ounces equivalent, with roughly half the value split between gold and copper.

Nic Earner, Managing Director of Alkane Resources, explained the purpose of the study:

"The purpose of a scoping study is to say what's the path forward, where are we going to go with this."

The study examined three production scenarios: 5 million, 10 million, and 20 million tons per annum.

While all scenarios showed promise, the 20 million tons per annum option emerged as the most attractive. Earner highlighted the potential output:

"If we look at a large one, say 20 million tons per annum, first 10 years roughly, that pumps out nearly 280,000 ounces equivalent per year."

This scenario also demonstrated strong economics, with Earner noting, "High free cash flow at current spot prices, you know, $15,000 per ton Australian for copper or $35,000 per ounce Australian for gold, you know that would repay back in about four years."

Capital Requirements & Partnership Opportunities

The ambitious scale of the Boda-Kaiser project comes with significant capital requirements. The 20 million tons per annum scenario carries a hefty price tag of AUD$1.8 billion (approximately USD$1.2 billion). This substantial capex requirement necessitates a strategic approach to project development and financing.

Earner acknowledged the challenges associated with such a large-scale project:

"It's one of the conundrums, isn't it, for these large scale projects. And you pay quite a bit of money up front, but then it generates cash for many, many years."

This long-term perspective is crucial for understanding the potential value of Boda-Kaiser.

Given Alkane's current market capitalization, the company is actively exploring partnership opportunities to advance the project. Earner emphasized the importance of finding the right partner: "We're looking for a partner that is prepared to put some money forward and can agree on programs and things to understand about how to develop that creates mutual value."

The ideal partner would likely be a larger mining company with the financial capacity and technical expertise to develop a project of this scale. Earner suggested that gold-focused corporations looking to add copper credits might be more interested than pure-play copper companies at this stage.

Project De-risking & Development Timeline

Alkane has made significant progress in de-risking the Boda-Kaiser project. Earner outlined the steps taken: "We've drilled this deposit out to indicated, so we can broadly put the geological risk behind us here."

Additionally, the company has conducted extensive metallurgical studies, including flotation tests, to understand recoveries throughout the ore body.

The proposed mining and processing methods are conventional and well-understood in the industry. Earner described the process: "We've got a two-stage crush, high-pressure grind, large mill heading into a flotation circuit, rougher scav, rougher con goes to cleaners, cleaner con gets pressed and shipped. There's nothing remarkable about what I've just described."

However, investors should be aware of the long lead time associated with developing a project of this scale in New South Wales. Earner provided a realistic timeline:

"For fast track, you're talking five-seven years to start construction, two years to build."

This timeline includes environmental baseline studies, impact assessments, and government approvals.

Tomingley Gold Operations: Near-Term Production Growth

While Boda-Kaiser represents a significant long-term opportunity, Alkane is also focused on growing its existing Tomingley Gold Operations. The company aims to increase production from the current level of around 60,000 ounces per year to 100,000 ounces by 2026.

This growth will be achieved through the development of new deposits and expansion of the processing plant. Earner outlined the plan:

"We already have those ounces discovered and scheduled. So we have a new underground mine, Roswell, that we've developed and we're stoping from, and it's steadily increasing its percentage of our ore feed. And then we have two open cuts of deposits we call San Antonio that will go in."

The expansion plan includes increasing mill capacity to 1.5 million tons per annum, which will boost production to 100,000 ounces per year. This near-term growth provides investors with a clear path to increased cash flow and potential value creation.

Financial Considerations & Market Position

Alkane Resources presents an interesting financial profile for investors. The company is currently debt-free and generating cash flow from its Tomingley operations. However, the market capitalization of around AUD$300 million suggests that the full potential of the Boda-Kaiser project may not be fully reflected in the share price.

This situation could present an opportunity for investors who see long-term value in the Boda-Kaiser project. The company's strategy of seeking a partner for Boda-Kaiser while continuing to grow Tomingley provides a balanced approach to value creation. Earner emphasized the importance of this balance:

"We're after capital valuation, particularly through exploration, but through good, good performance."

Industry Context & Market Dynamics

Alkane Resources operates in a dynamic gold mining industry, where companies are constantly evaluating opportunities for growth and consolidation. The company remains open to various strategic options, including potential mergers or acquisitions that could create value for shareholders. Earner noted,

"If someone did have more cash but not quite as long an asset, then bringing those together, I think people would see us as de-leveraged and may attribute a higher rating."

The Investment Thesis for Alkane Resources

• Near-term production growth: Potential increase from 60,000 to 100,000 ounces per year by 2026 at Tomingley.
• Large-scale development opportunity: Boda-Kaiser project with 15 million ounces equivalent resource.
• Strong economics: 20 million tons per annum scenario shows potential for 280,000 ounces equivalent per year with four-year payback.
• Exploration upside: Ongoing exploration programs in prospective areas of New South Wales.
• Partnership potential: Opportunity for value creation through strategic partnership or M&A activity.
• Diversification: Exposure to both gold and copper markets.
• Undervalued asset: Possible market undervaluation of Boda-Kaiser project potential.

Alkane Resources offers investors exposure to a growing gold production base through its Tomingley operations, with the potential to reach 100,000 ounces per year by 2026.

The company's Boda-Kaiser project represents a significant long-term opportunity in the copper-gold space, with the potential to produce 280,000 ounces equivalent per year at full scale. While the project's large capital requirements necessitate a partnership approach, this also presents an opportunity for value creation if the right deal is struck.

Investors should weigh the near-term cash flow growth against the longer-term development potential when considering an investment in Alkane Resources. The company's ability to successfully navigate the partnership process for Boda-Kaiser and execute on its Tomingley expansion plans will be crucial factors in realizing shareholder value.

Macro Thematic Analysis

Alkane Resources' positioning in both the gold and copper markets aligns with several key macro themes in the mining and metals sector. The global push towards clean energy and electrification is driving increased demand for copper, which is essential for renewable energy infrastructure and electric vehicles. This trend supports the long-term outlook for copper prices and enhances the potential value of projects like Boda-Kaiser.

In the gold market, ongoing economic uncertainties and inflationary pressures continue to support gold as a safe-haven asset. Central bank policies and geopolitical tensions further underscore gold's importance in investment portfolios. Alkane's growing gold production at Tomingley provides exposure to these favorable gold market dynamics.

The increasing focus on responsible mining practices and environmental, social, and governance (ESG) factors is another important theme. Alkane's operations in New South Wales, a stable mining jurisdiction with strong regulatory frameworks, position the company well in this regard. The company's emphasis on conventional mining and processing methods, as well as its attention to environmental baseline studies, aligns with growing investor expectations for sustainable mining practices.

The trend towards industry consolidation and strategic partnerships, particularly for developing large-scale projects, is evident in Alkane's approach to Boda-Kaiser. This reflects a broader industry recognition of the challenges in financing and developing major new mines, especially in an environment of rising costs and heightened stakeholder expectations.

Nic Earner's quote succinctly captures the opportunity:

"If people rewind their minds 10, 20, 30 years and look at the copper and gold prices at which some of the large long data projects started and then they look at what that would mean in grade terms today...people will find a lot of projects started around these sort of equivalent grades on a price basis."

This perspective highlights the potential for Boda-Kaiser to become a significant long-term value driver for Alkane Resources in a favorable macro environment for both gold and copper.