Flying Alkane prepares for another climb with propulsion on several fronts

The Ian Gandel-led sharemarket star is now onto a high-grade pod at its Boda porphyry in NSW while Tomingley looks set for a new lease on life and the rare earths project is about to be set free. Plus, Genesis on the fast-track to being a producer
26th June 2020
Barry FitzGerald

Ian Gandel has long been an enthusiastic supporter of the Aussie mining and exploration industry.

It has been nice to see then that his 23.5%-owned Alkane (ALK) where he is chairman has been a star performer of late, rising from 38c in September last year to this week’s $1.24, making for a $685 million company.

It was last September that Alkane made its Boda gold-copper porphyry discovery in the northern Molong volcanic belt of NSW’s Macquarie Arc.

After a half dozen or so serious follow-up holes since, Boda has been confirmed as something special.

Just how special will be tested in the next 12 months or so with the drilling of 25-30 new drill holes into Boda, along with 5-10 holes into the best of the regional targets Alkane has lined up.

It’s a $10-$12m drilling program aimed at determining whether Alkane has a Cadia-scale project on its hands, a reference to Newcrest’s (NCM) gold-copper wonder some 110km to the south.

But there is also a more nuanced aim, one that adds to the excitement around Boda compared with other gold-copper porphyry exploration plays that can be found on the ASX.

It goes to the modelling based on drill results to date which has indicated the presence of a high-grade pod at Boda grading more than 3g/t gold equivalent which is some 150m in length, 100m wide, and 500m in the vertical.

Convert that in to 20mt at 3g/t equivalent if you are so inclined, and it makes for 1.8m ounces of gold equivalent – a handy “start-up” pod for a bigger lower grade/bulk mining project if there ever was one.

Normally porphyry explorers get a sniff of low-grade but bulk mineralisation and spend years trying to find a high-grade core to kick off development. Alkane might just have achieved the reverse of that.

The early success at Boda – and what will come from this year’s drilling program at the prospect and the regional targets – does not of itself explain the massive growth in Alkane’s market cap.

Boda probably accounts for about half of the growth, with the other half coming from a greater recognition of the value of Alkane’s Tomingley gold operation next to, and partly under, the Newell highway, 50km south-west of Dubbo in NSW’s Yowie country.

Recent infill drilling at a couple of satellite deposits has prompted Alkane to start the planning process to bring them as new ore sources for Tomingley which has about three years (with upside) of underground resources ahead of it.

Their development could re-establish Tomingley as a 70,000-80,000oz annual producer from the currently constrained 30,000-35,000oz, with a 10 year mine life to boot.

Further focussing the market’s attention on Alkane’s gold credentials is the move to demerge the Dubbo critical metals project (rare earths, niobium, zirconium and others) from Alkane’s portfolio.

It has been around forever and if not for some very big buts - like $1.3 billion in capex and offtake agreements - it would be up and producing now, reducing the world’s dependence on China for critical metals.

Alkane is seeding the company to list on the ASX with the Dubbo project - Australian Strategic Materials – with $20m to maintain the momentum at Dubbo so remains ready to go once the world says it wants a big new non-Chinse supplier, and makes it happen with financing an d offtake support.

Book value of the Dubbo project was put at $120m in the demerger documents. That seems about right given the $100-$120m value that can be derived from an ASX peer comparison.

Alkane shareholders will receive one ASM share for every 5 Alkane which is clearly another factor in Alkane’s market cap surge.

The demerger removes any on-going financing requirements for Alkane for a project still in the slow lane.

That means that the new look Alkane has a pure gold (copper) focus. And that is the something the market is happy to pay up for without the distraction of Dubbo.

Golden Juggernaut:

It’s a pity that the normal early August date for the Diggers & Dealers bash beneath Kalgoorlie’s big blue sky has had to be pushed back to October 12-14.

That’s because August is close enough to have guaranteed that there would have been dancing in the streets, such is the weight of money for the gold sector in response to 7-year highs in the US gold price.

The flood of money in to the sector – the gold price is delivering 70%-plus Aussie dollar margins for even our “high” cost ($A1,500/oz) producers - has been staggering in its breadth.

It seems that all of sudden, tell a good story about exploration upside at a greenfields project, or how an “old” high grade project has life in it yet, and the funding comes flooding in.

Critically, the long absent generalist investor has hopped on to the golden juggernaut, with the tear-away share price gains in the sector reflecting the deepening of the investment pool for gold stocks.

Again, it is because of the $A1,000/oz-plus fully costed margins currently being enjoyed by the sector. Will the boom-time conditions last until October?

Undoubtedly so is the weight opinion. But for the gold explorers/developers, it is all about seizing the moment. That’s reflected in the tsunami of capital raisings now washing through the sector.

Much of the fresh capital will be wasted.

But just as much will be put to good use, with the current conditions giving previously hamstrung juniors the chance to breakout and get cracking on their long baked plans to capture the boom-time margins for themselves.

GENESIS MINERALS (GMD):

Genesis Minerals (GMD) is an example of the latter with this week’s $19.5m capital raising and associated $13.5m acquisition of the Kookynie gold project near Leonora.

The fund raising and acquisition fast-track Genesis towards becoming a stand-alone gold producer from what becomes a combined Ulysses-Kookynie gold project.

Kookynie is immediately south-east of Ulysses which has long been the company’s flagship.

As mentioned here in January when Genesis was a 3.5c stock – it is now 54% higher at 5.4c - the company was in a half-way house at Ulysses with its 867,000 ounces (8.5mt at a very handy 3.2g/t gold).

Failing one of the gold many producers in the region making a move on the company, the plan was to make a decision on a stand-alone development, or go with a toll treatment operation.

While Ulysses has exploration upside, the resource as stated was not quite there for a stand-alone operation, making the lower risk but lower reward toll treatment route the most likely route.

But the Kookynie pick up changes all that. The acquisition comes with an indicated and inferred resource of 414,000oz (8.53mt at 1.5g/t), carrying a combined Ulysses/Kookynie to 1.28m oz (17mt at a still handy 2.34g/t).

The additional ounces have come cheap too at $32/oz. Most struggle to find gold at that sort of cost, and it is a fraction of what is usually paid to acquire resource ounces. So the acquisition gets a tick on those metrics.

But more than that is that Genesis comes storming out of its halfway house to begin planning its entry in to the ranks of Aussie gold producers where fat margins are the order of the day.

A feasibility study in to a bigger stand-alone operation is underway. Confirmation of robust economics would fire off signals to potential takeover predators, including funnily enough, current 15% shareholder Alkane.

The study is due for completion in the March quarter next year, with results from a stepped up exploration effort to be fed in to the document. The cost of all that is covered by funds surplus to Kookynie’s acquisition cost from the $19.5m capital raising.

The raising – a $10m placement at 4.2c and an underwritten 1-for-6 entitlement offer at the same price - envisages the potential for Alkane to go to 19.9% via its role as a sub-underwriter. Failing that, Alkane will get to 19.9% through a shareholder-approved placement.

Alkane’s current 15% stake was bought when the market wasn’t much interested in gold developers stuck in a halfway house.

The idea was, and remains, the identification of undervalued developers to either make money on the original investment, or to eventually seek agreement on coming together if the developer has come of age.

The Kookynie acquisition puts Genesis on that latter pathway, making it a situation to watch once the FS in to a combined Ulysses/Kookynie operation is out and about early next year.

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