Code: ALK
Name: Alkane Resources
Sector: Materials
Total Shares (Listed and Unlisted): 510M shares, Mkt Cap $170M
Company Facts. Gold producer also holding a rare earth deposit in NSW
Fundamental Analysis
Alkane is currently cash flow positive with about $40m cash in bank [expected outgoings this qtr ~$30m]. Income from a producing gold mine in NSW [producing 65,000 ozs/y @ AISC A$1300/1400]. Guidance for next year is 70,000 ozs @ AISC A$1100/1200. Recent exploration drilling has extended the mine life and the company recently announced interesting results at a nearby site. Bottom line is the company is financially sound.
The company is interesting from a strategic point of view because of its tenements at Dubbo containing a major deposit of rare earths. There are 17 different rare earths and they vary greatly in their economic value. Dubbo has a high concentration of the heavier rare earths and these also attract higher prices. The company has been operating a pilot plant for about 10 years. The main expense for rare earth companies is the highly technical process of separating out the individual rare earths from each other and ensuring purity of product. For the company to move to the next level and become a producer requires funding of $500M for the processing plant. All permits are in place. Getting the money together has been a long, long, long wait.
This company is for the patient, no doubt about it. It is currently trading around 34 cents which is a discount to book value [40 cents]. This year rare earth prices have started to improve [+20%] and appear to trending higher. China is the main producer/supplier of rare earths, in recent months China has begun to crack down on the unregulated mining of rare earths and this might generate supply problems down the track. Alkane is holding a very good deposit [80 year mine life] and it is only a matter of time before the funding comes through.
This is not a short term trade... the SP might continue stagnate for quite some time but once funding is announced the intrinsic value will generate a healthy SP rise and the company should become a profitable rare earths producer.
