It’s been a tough few years in the mining business, but in spite of all the ups and downs it’s still possible for a company now and again to hit a sweet spot.
Between May and mid-June its share price more than doubled as investors piled into a double good-news story: a producing gold mine coupled with a sizeable rare earths project.
June was the month when gold punched through US$1,400 for the first time in several years and moved up at one point to a six-year high.
That was all to the good for Alkane, which has been producing gold from open pits at the Tomingley mine in New South Wales since 2014 at a rate of between 60,000-to-80,000 ounces a year. The operation is currently transitioning from open pit to underground, however, and production has consequently been lower, at just under 49,000 ounces for the year just gone. It’s likely to be between 27,000 and 32,000 ounces for the year to June 2020.
Still, if there’s ever a good time to transition to lower production, it’s surely when the gold price is rising. Production in 2019 came in ahead of budget, with a corresponding downward effect on costs, so margins were already higher than had been anticipated, even before the gold price started its sudden move in June.
Meanwhile, exploration efforts are underway to push out the mine life, and details of a significant exploration target in the neighbourhood of Tomingley were revealed earlier this month.
So, at the core of this company is a robust and well-run gold operation with an established track record and a recent history of beating expectations that’s allowed Alkane to build a solid platform for growth.
This is not just hyperbole. The platform as it stands consists of over A$80mln in cash and liquid investments, comprising A$69mln in cash, A$3.4mln in bullion and A$7.8mln in listed investments, most notably in Calidus Resources Ltd (ASX:CAI), a company with a gold project in the Pilbara.
But when it comes to Alkane’s stated intention of seeking new opportunities and investments there’s also the matter of Alkane’s paper to consider too. Its shares have performed strongly on the Australian market and would make for attractive currency in any deal in a way that the shares of many other companies would not.
Much of that share price strength is down to the second major asset in Alkane’s portfolio, the Dubbo zirconium and rare earths project, also in New South Wales. This project is the largest of its kind outside of China, and, pending finance, is on the cusp of production, with all the necessary permits in place.
The numbers are certainly impressive. According to the feasibility study, Dubbo will generate A$4.7mln in free cash flow over a 20 year mine life. The net present value is set at just over A$1.2bn, and the internal rate of return works out at 17.5%.
What’s more, the 20 year life by no means exhausts the potential. On some estimates Dubbo could be mined for more than 75 years.
So, a big opportunity in a world that’s suddenly become very interested in rare earths. A recent A$1.2mln deal signed in South Korea for further work on converting the oxides from Dubbo into marketable high purity metals points the way to potential further investment from South Korea.
But in the final analysis it remains to be seen where the billion dollars-plus needed to get Dubbo into production will come from. But that there’s interest, there can be no doubt. And Alkane’s share price demonstrates at the very least that this is one company the market has not lost faith in.