Gold Producer Targets ~80koz Production Amid Booming Price Environment

• Alkane Resources is an ASX-listed gold producer with mines in New South Wales achieving record-high gold prices around A$4,600/oz
• Production guidance for FY2025 is 70-80koz at A$2,400-2,600/oz AISC; expects to be at lower end but increase to 80koz+ in FY2026
• Installed flotation and fine grinding circuit to increase recoveries by 7% and pace carbon-in-leach plant; resulted in higher near-term costs
• Underground operations at Tomingley and satellite deposits open at depth with exploration upside; also developing new open pit
• Strong cash and bullion position of A$40M at end Dec 2024 to rise; A$45M in bank debt hedged at A$2,850/oz through June 2027

Alkane Resources is an Australian gold producer listed on the ASX. With its high-quality assets, operational improvements, exploration upside, and exposure to record-high Australian dollar gold prices, Alkane is well-positioned to deliver value to shareholders.

Capitalising on Record Gold Prices 

Gold prices have reached all-time highs in Australian dollar terms, currently trading around A$4,600 per ounce. Alkane Resources is taking advantage of these exceptional prices, with only one-third of its production hedged at a significantly lower price of A$2,850 per ounce through June 2027. At current spot prices, the company realises an average gold price of approximately A$4,000 per ounce.

When discussing the hedging strategy, Alkane's Managing Director Nic Earner stated:

"Broadly similar to most of the appeals, we hedge in order to make sure that we don't blow up through a debt repayment period." 

This prudent approach to hedging allows Alkane to protect against downside price risk while maintaining significant exposure to the current high gold price environment.

Operational Improvements Driving Margins 

Alkane Resources has implemented several operational enhancements to improve efficiency and profitability. The company recently commissioned a flotation and fine grinding circuit at its Tomingley processing plant, which has increased gold recoveries by an impressive 7%. By unlocking previously unrecoverable gold, this A$40 million investment is expected to deliver substantial returns.

Additionally, Alkane installed a new pace carbon-in-leach (CIL) plant, further optimising its processing capabilities. These upgrades, combined with the high-grade nature of the ore bodies, position Alkane to achieve industry-leading margins.

Interview with Managing Director, Nic Earner

Production Growth & Cost Reduction 

For the fiscal year ending June 2025, Alkane Resources has provided production guidance of 70,000 to 80,000 ounces of gold at an all-in sustaining cost (AISC) of A$2,400 to A$2,600 per ounce. While the company expects to be at the lower end of this guidance range, it anticipates a significant increase in production to over 80,000 ounces in fiscal year 2026.

The higher near-term costs are primarily attributed to investment in development work for a new mining area. As Nic Earner explained: 

"The reason it's higher is because the following financial year, we're doing a whole bit of development in a new mining area. So that goes through into that cost base." 

This strategic investment lays the foundation for increased production and lower costs in the coming years.

Extensive Exploration Upside 

Alkane Resources' flagship Tomingley Gold Operations, which include the Tomingley underground mine and the nearby satellite deposits of Roswell and San Antonio, offer significant exploration upside. The underground operations are open at depth, with the potential for further resource expansion.

Nic Earner highlighted the exploration potential, stating, 

"In 2013, when we built this mine and started mining it, we launched with about 370,000 ounces in the mine plan, open cut and underground. We've mined already about 650,000 ounces, and we have the better part of the same again in reserve." 

This track record of resource growth demonstrates the quality and prospectivity of Alkane's assets. In addition to its underground operations, Alkane Resources is developing a new open pit mine in parallel. This development is expected to contribute to production growth in the coming years and provide operational flexibility.

Strong Financial Position 

Alkane Resources maintains a robust financial position, with cash and bullion holdings of A$40 million as of December 2024. The company expects this balance to increase in the current quarter, driven by strong operational cash flow generation.

Alkane's debt profile is manageable, with A$45 million in bank debt fully hedged at A$2,850 per ounce until June 2027. The company is actively paying down this debt, with A$5 million scheduled for repayment by June 2025, and the remaining balance to be settled over the following two years.

The Investment Thesis for Alkane Resources

• Exposure to record-high Australian dollar gold prices, currently around A$4,600/oz
• Significant operational improvements, including a new flotation circuit increasing recoveries by 7%
• Expected production growth to 80koz+ by FY2026, with costs declining as new mining areas come online
• Extensive exploration upside at Tomingley underground and satellite deposits open at depth
• New open pit development to contribute to future production
• Strong balance sheet with A$40M cash & bullion, debt reducing, and hedging strategy to protect downside
• Compelling valuation with potential re-rate as production grows and costs decrease

Macro Gold Thematic

The current macro environment presents a highly favorable backdrop for gold, with the precious metal trading at record highs in Australian dollar terms. Unprecedented fiscal and monetary stimulus globally in response to the COVID-19 pandemic has raised concerns about currency debasement and inflation, driving demand for gold as a safe haven asset and store of value.

Geopolitical tensions and economic uncertainty further support the investment case for gold. The ongoing trade disputes, particularly between the U.S. and China, have contributed to market volatility and increased the appeal of gold as a portfolio diversifier. Additionally, the low interest rate environment reduces the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.

Australian gold producers, such as Alkane Resources, are particularly well-positioned to benefit from these tailwinds. The combination of high Australian dollar gold prices and the relatively stable mining jurisdiction of Australia enhances the profitability and risk-reward profile for these companies.

As Nic Earner, Managing Director of Alkane Resources, aptly summarised the opportunity, "It's quite remarkable margins for this period of time."