Gold mining operations at Tomingley performed strongly, with Alkane Resources Ltd (AX:ALK) reporting profit after tax of A$12.2m in H119 (the half year to December 2018) on the back of production of 26,754oz of gold. The 10% decline in net profit from A$13.5m in H118, along with lower production volumes and grades, was expected, reflecting the cessation of open-pit mining in January 2019 as Alkane transitions underground. Development of the underground operation at Tomingley is progressing on schedule, with both the main decline and vent portals established. During H219, we expect gold production volumes, c 13,000oz, and grades to continue to decline as Alkane will be processing the mid-grade stockpile until ore from underground is extracted at some point in H219.
H119 revenue declined 11% y-o-y
H119 revenue from gold sales totalled A$52.4m, down 11% from A$58.7m in H118, despite a 2% increase in the average gold price received to US$1,717/oz in H119 from US$1,688/oz in H118. Gold sales decreased 12% to 30,497oz in H119 from 34,794oz in H118. Net profit after tax decreased by 10% to A$12.2m in H119 from A$13.5m in H118, with a 1% reduction in all-in sustaining costs (AISC) to A$1,005/oz from A$1,013/oz Au, contributing to a reduction in operating costs.
Gold production down 34% y-o-y
Gold production during H119 totalled 26,745oz, down 34% from 40,764oz in H118, largely as a result of a 12% reduction in processed ore volume, which comprised a 40% reduction in tonnes mined, and a 22% reduction in head grade caused by open pit mining reaching the end of its life.
Cash, bullion & investments position remains strong
Alkane’s net cash, bullion and investments position remained strong at A$80.5m, and the balance sheet remains debt free. Guidance for the year of 35,000oz to 40,000oz of gold produced at an AISC of A$1,050–1,150/oz remains in line with our forecasts, which are unchanged.
Valuation: Underpinned by cash and Tomingley
We maintain our valuation for Alkane’s interest in Calidus Resources and the potential cash flow from Tomingley at A$0.27/share. Assuming Alkane secures the development funding for Dubbo in the first half of this calendar year, and the prices of metals improve to the level it expects over the next three years, our valuation could increase to A$0.44/share.
Business description
Alkane Resources an Australian production and development company. It previously produced 70,000oz of gold per year from the open pit operations at its Tomingley gold mine, but is now transitioning to underground operations and expects to produce around 32,000oz of gold pa.
