Diversified Gold & Antimony Producer with Large Cash Balance

• Alkane Resources (ASX:ALK) has successfully completed its merger with Mandalay Resources, creating a dual ASX & TSX-listed gold and antimony producer with three operating mines across Australia and Sweden.
• The combined entity now produces over 160,000 gold equivalent ounces annually and generated close to $100 million in cash flow over the past 12 months, positioning it as a mid-tier gold producer.
• Management is pursuing 3 key objectives: maximizing value from existing assets, acquiring additional 80-120k ounce pa operations, and achieving market re-rating through enhanced scale & liquidity.
• Near-term growth catalysts include completing highway relocation at Tomingley, developing True Blue extension at Costerfield, and exploring higher-grade opportunities at Björkdal, with $40 million allocated to near-mine exploration.
• The merger provides pro forma cash of A$218 million with no significant debt burden, enabling capital allocation flexibility for organic growth and potential acquisitions while maintaining strong operational cash generation.

The completion of Alkane Resources' (ASX:ALK) merger with Mandalay Resources marks a pivotal moment in the Australian gold mining landscape, creating a diversified, cash-generating producer with operations spanning two continents. The transaction, which saw Alkane acquire all outstanding Mandalay shares at an exchange ratio of 7.875 Alkane shares per Mandalay share, has resulted in a combined entity that management believes is positioned for significant re-rating in the market.

Operational Foundation & Production Profile

The merged entity now operates three producing assets: Tomingley gold mine in New South Wales, Costerfield gold and antimony mine in Victoria, and Björkdal gold mine in northern Sweden. This geographical diversification across premier mining jurisdictions provides operational stability and jurisdictional risk mitigation that many single-asset producers lack.

Managing Director and CEO Nic Earner outlined the production metrics: 

"If we look back as if the last 12 months we'd been merged the whole time, then we would have done a bit over 160,000 ounces and generated close to $100 million worth of cash into the bank. So post growth, post tax, post everything." 

This production profile places Alkane firmly in the mid-tier gold producer category, with each asset contributing meaningfully to the overall output.

The production breakdown reveals distinct operational characteristics across the portfolio. Tomingley processes approximately 1.2 million tonnes annually, Costerfield handles 140,000 tonnes with high-grade vein mining, and Björkdal processes 1.4 million tonnes. This diversity in mining methods and scale provides operational flexibility and reduces single-asset dependency risk.

Strategic Growth Framework

Management has articulated a clear three-pillar growth strategy designed to maximize shareholder value. The first pillar focuses on extracting maximum value from existing assets through targeted development programs. At Tomingley, this involves completing the highway relocation and bringing the open cut online. At Costerfield, the emphasis is on demonstrating the conversion potential from resources to reserves while developing the promising True Blue extension. For Björkdal, the focus is on increasing both grade and volume through building on existing infrastructure.

"The first one is maximize the value of our existing assets," Earner explained, emphasizing that each operation has specific development priorities that can drive production increases without requiring entirely new infrastructure investments. This approach leverages the significant capital already invested in these operations while providing near-term production growth catalysts.

The second strategic pillar involves selective acquisition of additional assets within specific geographic parameters. The company has established clear criteria for potential targets, focusing on operations producing 80-120,000 ounces annually with reasonable mine life and growth potential. Importantly, management seeks assets that are already permitted or close to production readiness, targeting 2027 as a realistic timeframe for new production to come online.

Capital Allocation Philosophy

The merger has fundamentally altered Alkane's capital allocation dynamics, providing both scale and financial flexibility previously unavailable to either standalone entity. With pro forma cash of A$218 million and no significant debt obligations, the company enjoys considerable strategic flexibility in pursuing growth opportunities.

Earner addressed the capital allocation framework: 

"We'll spend around $40 million Australian dollars in this coming financial year" on near-mine exploration, while regional exploration will receive less than $5 million. This allocation reflects management's focus on maximizing returns from existing infrastructure and proven ore bodies rather than pursuing speculative greenfields exploration.

The debt-free balance sheet also influences investment decision-making processes. 

"It certainly decouples the need to chase a debt repayment to aggressively pursue reserve life only in one mine when potentially more profitability for the money could be in other places."

Interview with Nic Earner, MD & CEO of Alkane Resources

Market Positioning & Re-rating Potential

A key component of the merger thesis centers on achieving market re-rating through enhanced scale, liquidity, and index inclusion prospects. Management believes the combined entity's production profile and cash generation capabilities warrant a higher market valuation compared to current levels.

"If you look at us versus our peers, doing over 160,000 ounces in Australia with a good look ahead of that, putting cash in the bank on a regular basis, well, not many of those people are less than 1.4, 1.5 billion Australian in market cap."

This comparison suggests potential for significant valuation uplift as the market recognizes the enhanced scale and stability of the combined operations.

The dual listing strategy on both ASX and TSX is designed to broaden the investor base and improve liquidity, factors that often contribute to valuation re-rating for mid-tier miners. Enhanced liquidity and scale may also facilitate inclusion in relevant indices, providing access to passive investment flows that have become increasingly important for mining company valuations.

Operational Excellence

Both legacy companies brought strong operational execution capabilities to the merger, a factor that management views as critical for achieving re-rating objectives. Alkane has maintained an impressive track record of meeting production guidance, missing targets only once since first gold pour in FY2014, and then by merely 3,000 ounces below the bottom of guidance range.

"We have a culture within the group of making sure we deliver on guidance. I think that's step one - people want to know that you can do the things that you want to do.” 

This operational reliability forms the foundation for market confidence and provides credibility for future growth projections.

Mandalay similarly demonstrated consistent delivery on guidance in recent years, particularly excelling in cash generation. The combination of these operational cultures is expected to continue the pattern of reliable performance that institutional investors particularly value in the gold mining sector.

Risk Management

While primarily focused on gold production, the merged entity maintains meaningful exposure to antimony through the Costerfield operation. Management estimates antimony will contribute less than 10% of company profits, maintaining the gold-focused investment thesis while providing some commodity diversification benefits.

Regarding commodity price hedging, the company maintains a conservative approach with less than 20% of production hedged going forward. 

"Investors have shifted to preferring to see the purchase of puts as an insurance cost as distinct from anything that caps the upside."

It reflects current market preferences for gold price participation rather than price protection that limits upside potential.

The geographic diversification also provides natural currency hedging, with Australian operations providing Australian dollar exposure while Swedish operations offer Swedish krona exposure, both against US dollar gold sales revenues.

Synergy Realization

The merger integration process has been facilitated by cultural similarities between the two organizations. Both companies operated with lean corporate structures and largely autonomous mine operations, reducing integration complexity and potential disruption.

"There is a really similar culture in the two companies, which made the transaction so simple."

The boards have merged effectively, combining Mandalay's expertise in Swedish operations with Alkane's Australian operational knowledge, while adding significant precious metals experience through new chairman Andy Quinn.

Identified synergies include procurement efficiencies within Australia worth several million dollars annually, capital allocation efficiencies, and favorable tax implications. However, management emphasizes that synergy capture is not the primary value driver, with scale-enabled growth opportunities representing the more significant value creation potential.

The Investment Thesis for Alkane Resources

• Scale and Diversification: Creates a 160,000+ ounce producer across three jurisdictions, reducing single-asset risk while providing operational stability and growth optionality across multiple high-quality assets.
• Cash Generation Power: Pro forma cash position of A$218 million with strong ongoing cash generation from three producing mines provides financial flexibility for organic growth and strategic acquisitions without dilutive equity raises.
• Proven Management Track Record: Both legacy companies demonstrated consistent operational delivery and guidance achievement, with Alkane meeting production targets in all but one year since 2014, providing confidence in execution capabilities.
• Clear Growth Pipeline: Well-defined expansion opportunities at each operation, including Tomingley open cut development, Costerfield True Blue extension, and Björkdal grade optimization, supported by $40 million annual near-mine exploration budget.
• Valuation Re-rating Potential: Enhanced scale, dual listing liquidity, and index inclusion prospects position the company for market re-rating, with management identifying peer comparisons suggesting significant valuation upside potential.
• Strategic Acquisition Platform: Financial strength and operational expertise provide foundation for accretive acquisitions of 80-120k ounce assets in preferred jurisdictions, enabling further scale benefits and production growth.
• Jurisdictional Quality: Operations located in premier mining jurisdictions (Australia and Sweden) provide political stability, established mining infrastructure, and favorable regulatory environments for long-term operational security.

The Alkane-Mandalay merger exemplifies the broader consolidation trend occurring within the gold mining sector, as companies seek scale, operational diversity, and financial strength in an environment of elevated gold prices and increasing capital requirements. The transaction addresses key sector challenges including single-asset risk, limited growth capital, and the need for enhanced market liquidity to attract institutional investment.

Current gold price levels above $5,000 AUD per ounce create compelling economics for previously marginal resources while extending mine lives through reduced cutoff grades. This price environment particularly benefits diversified producers like Alkane who can optimize production across multiple assets and mining methods. The merger also positions the combined entity to capitalize on the increasing importance of ESG considerations and jurisdictional stability, with operations exclusively in first-world mining jurisdictions.

The trend toward mid-tier consolidation reflects institutional investor preferences for scale, operational reliability, and growth optionality over single-asset developers. As passive investment flows increasingly influence mining sector valuations, companies achieving index inclusion thresholds through strategic combinations are likely to benefit from sustained valuation premiums.

"We come to part three of the leg. So we say, "what might we do?'. Clearly we're not the kind of people that are going to go and get a $3 billion asset. So the next leg is probably something in the 80 to 120,000 ounce per year range with reasonable life, reasonable growth where maybe it needs to be developed, but it's probably already permitted."