Welcome to the upside-down world.
Let me give you my thoughts on Alkane, DYOR.
Let's look at what the balance sheet looks like, below are hard facts in black and white:
+ Cash and Gold = $74 Million (30th June 2019)
+ Investments in Calidus Asx = $8 Million (22nd July 2019)
+ A sheep farm purchased for $16 million (let's say its worth half this) = $8 Million
+ A processing plant (Tomingley) that cost 100 Million to build in 2014, even as scrap metal it is probably worth = $20 Million
+Peak Hill JORC Resource, 108,000 oz at 3.29 grams per tonne. Say you want to sell it to an independent company without any processing options but still the exploration opportunity. It would have to worth $50 an Oz. Hence my valuation = $5.4 Million.
Hence the hard assets on the books that could be sold are a total of $115.4 Million.
Now let's look at the assets which are an X factor:
+ We at Tomingley have 3 years of underground production. At the current expected rate of gold production in FY 20, it is 27k to 32k. Lets split the difference and say 30k exactly. 30,000 x $2000 equals $60,000,000 revenue. Even if we can add only $10 million to the bank balance. This will push our cash position up over 84 million.
But if the same holds true for FY 21 (e.g $10M) and FY 22 (e.g $10M). Then our cash balance will go from $72 Million to $102 Million.
This is a personal asset on the company holds. But if all runs smoothly we can add an additional $30 million cash to what we currently hold. However we may add more than the $10 million each year, or we can extend the underground from 3 years to many more with more exploration underground drilling.
+ Exploration projects OUTSIDE of the area of Tomingley to Peak Hill gold area, such tenements as Northern Molong Porphyry, Cudal, Wellington Rockley etc. We have had some good interesting hits. But nothing to date which has really hung together. For example and in no particular order or tenement reference:
311m @ 0.28 g/t Au, 0.06% Cu from 19m to EOH
176m @ 0.20 g/t Au, 0.02% Cu from 124m to EOH
60m @ 0.81 g/t Au, 0.91% Cu from 0m
17m @ 1.2 g/t Au, 2.8% Zn, 7.29 g/t Ag from 96m
29m @ 1.53 g/t Au from 0m
However, we have done some of the heavy liftings for other potential exploration companies. All the other tenements, with data, would pick up between 1.0 Million and 2 Million (And I am probably being conservative with this number). Let's split the difference and say it = $1.5 Million. (P.S. we are still waiting on drill results from one of the areas, so we all hope we get a good hit).
+The Dubbo Project = Hard to tell. In the ASX document dated 04/06/2018 (DUBBO PROJECT ENGINEERING & FINANCIALS UPDATE) this report put a value on Dubbo Net Present Value at between 909 Million and 1.2 Billion. But even at Rock Bottom prices, could we not put a hard cost of 50 Million to some company with the work we have done already? This project could swing widely and is the real X factor. I think it is worth many hundreds of millions of dollars as is.
Look at CleanTeq (sunrise project), a project nowhere near as advanced as the Dubbo project (in my opinion), and they have no revenue (unlike Alkane), and they have a market cap based on the project of $285 Million.
= $909 Million Low End to $1.236 Billion High End
+ The exploration area between Tomingley and Peak Hill. Ok, now I would like to spend some extra time on this. This is the upside-down part. People, in my opinion, on hot copper, have nowhere near grasped how big this is.
Since this exploration target was announced, I have read ALL of the comments. The level of excitement is nowhere near what this target justifies! This gold find could extend the Gold Operation for a decade or more. Let me make my case.
Explurum Resources WA Gold Company (ASX = EXU) recently got taken over for 63 million dollars. This company had a total resource of 11Mt @ 1.8 for 675,000 oz. Hence each Oz was worth to the take over company 93 dollars. No revenue, very little cash. Hence all the 63 million was placed on the gold project.
Of course, you can't compare apples with oranges. So we need to take a look at the differences in Explurum vs Alkanes targets:
On the positive side for explurum:
+ The deposit was all open pit.
+ They had completed a DFS study.
+ The total they had planned to mine was 7.2 Mt at 2.09 g/t Au or 485k oz.
+ They had other areas to explore outside the primary resource
On the negative side for Explurum:
- While you can never tell, the central pit had been explored enough to suggest that not much exploration opportunities at depth continued (e.g. within the total 675,000 oz). The main project seemed to be closed off to new extensions.
- Explurium had no processing plant. Hence the upfront cost would have been $84 Million for the plant.
- Explurium would have had to spend a further $32 million, on infrastructure upfront on top of the $84 Million.
Alkane's Gold target, even on the low end, will be between 860k oz to 1.6 million oz on the top end.
Let's get excited and suggest the top end comes in. Now you have 1.6 million oz at 2.2 grams per tonne. If each oz had a value like Explurum's take overvalue ($93 an Oz) now you would be around the 148 Million areas.
In my experience, Alkane tends to be more conservative in grade and resource projections. Hence looking at the top end might be more realistic based on what drilling they have done so far.
But let's look at the top positives for Alkane:
+ We already have a plant. Hence the 100 odd million that other projects have to spend to get into production is not a liability for Alkane.
+ Alkane has based this expectation on RC drilling only (extremely extremely limited Diamond drilling at depth). So this target is somewhat shallow. Hence we may have further extensions at depth.
+ Alkane has vast areas which are not included in this exploration target.
On the negative side for Alkane:
- It looks like it will be a combination open pit and underground. Hence the underground is more expensive.
- Alkane still has not completed or started a mining plan.
- Alkane still has to complete the drilling program before beginning the study of the potential.
The bottom line for the gold Exploration. Even at the current market cap of $205 million. This really doesn't take into account the new gold find. At 23.8 Million tonnes at 2.2g/t with our 1 Million tonne plant this could be two decades of gold production!
Why are we not talking about this?
We can all agree that that the $115.4 Million is a correct figure that we could liquidate today. This is more than 0.20 cents per share.
But let's add to the $115.4, at a rock bottom valuation.
$30 million in cash production at Tomingley for the next 36 months.
$1.5 million in exploration tenements not in the Tomingley area.
$50 million for the rock bottom sale of Dubbo.
$17 million for the new exploration area with the low end of the projection at 860,000 oz for $20 per oz sale price.
This gives us a grand total of $98.5 Million.
Add this to the $115.4, for a total of $213.9 Million.
Still above the current share price.
But again you can do your own ranges based on the above. My point is that the new gold exploration could have a value at $90 an oz. And if our drilling does prove the high end projection of around 1.7 million oz of gold. Then this alone at $90 an oz should have a value of $153 million!
Comments. DYOR.
P.s Get a calculator and pen and work out the figures yourself. Let me know what you think.
(20min delay)
