Alkane Resources (ASX:ALK) - Balancing Gold Production Growth with Copper-Gold Development Potential

Jul 12, 2024

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

Our previous interview: https://www.cruxinvestor.com/posts/alkane-resources-asxalk-australian-gold-producer-targeting-100000oz-5635

Recording date: 11th July 2024

Alkane Resources (ASX:ALK) presents an intriguing investment opportunity in the gold and copper mining sector. With a market capitalization of around 300 million AUD, the company is strategically positioned to capitalize on both near-term gold production growth and long-term copper-gold development potential.

The company's flagship Tomingley Gold Operations in New South Wales is on track to increase production from its current level of 60,000 ounces per year to 100,000 ounces by 2026. This growth is underpinned by the development of new deposits, including the Roswell underground mine and the San Antonio open-cut deposits. Alkane plans to expand its mill capacity to 1.5 million tons per annum to accommodate this increased production, providing investors with a clear path to enhanced cash flow in the near term.

While Tomingley offers immediate growth prospects, the company's Boda-Kaiser copper-gold project represents a significant long-term opportunity. A recent scoping study explored various production scenarios, with the 20 million tons per annum option emerging as the most promising. This scenario could potentially yield 280,000 ounces equivalent per year, with a payback period of about four years at current commodity prices.

However, the Boda-Kaiser project comes with substantial capital requirements, estimated at 1.8 billion AUD for the 20 million ton option. Recognizing this challenge, Alkane is actively seeking strategic partnerships to advance the project. The company aims to find a partner that can bring both financial resources and technical expertise, while ensuring that the value of Boda-Kaiser is appropriately reflected in Alkane's share price.

Investors should note that the development timeline for Boda-Kaiser is considerable, with a realistic estimate of seven years from start to production. This includes time for environmental studies, impact assessments, and regulatory approvals. While this extended timeline may test investor patience, it also allows the company to thoroughly de-risk the project and optimize its development plans.

From a macro perspective, Alkane is well-positioned to benefit from favorable trends in both the gold and copper markets. The ongoing demand for safe-haven assets supports gold prices, while the global push towards clean energy and electrification underpins long-term copper demand.

The company's Managing Director, Nick Earner, emphasizes the potential value of Boda-Kaiser by drawing parallels with historical projects: "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."

For investors, Alkane Resources offers a balanced opportunity: near-term production growth at Tomingley provides cash flow and potential for near-term value creation, while Boda-Kaiser represents significant long-term upside. The success of the company will largely depend on its ability to execute the Tomingley expansion plans and secure an appropriate partnership for Boda-Kaiser.

While the market may not fully reflect the potential value of Boda-Kaiser at present, this could present an opportunity for investors who appreciate the long-term potential of large-scale copper-gold projects. As always, potential investors should carefully consider the risks associated with mining development, including commodity price volatility, regulatory challenges, and the substantial capital requirements of bringing new projects into production.

View Alkane Resources' company profile: https://www.cruxinvestor.com/companies/alkane-resources