Alkane Resources (ASX: ALK) has discovered bonanza grade gold in the latest reverse circulation drilling program at the Tomingley Gold Project, which is located in the Central West region of New South Wales in Australia.
Drilling has been conducted at the Caloma Two deposit, within Tomingley, with the highlight; 9 metres at 110g/t gold from 194 metres, including 1 metre at 821g/t gold; which is the highest grade discovery recorded within the project.
Other high grade results include; 1 metre at 65.7g/t gold from 61 metres; 2 metres at 11.50g/t gold from 83 metres; and 3 metres at 10.2g/t gold from 63 metres.
These are supported by broader intersections such as; 26 metres at 2.38g/t gold from 174 metres, 23 metres at 2.46g/t gold from 78 metres; and 27 metres at 2.00g/t gold from 216 metres.
The drilling program will continue until the end of March 2013, providing additional near-term assays for the project, with the program aiming to complete the detailed drilling of the target zone to enable resource estimation and incorporation into the development schedule.
In February this year Alkane was granted a mining lease for Tomingley, which means construction can begin with the first gold pour scheduled for late 2013, producing 50,000 to 60,000 ounces per annum. This is expected to generate an EBITDA of A$217 million.
Tomingley is based on three defined gold resources, Wyoming One, Wyoming Three and Caloma, which total around 12.6 million tonnes at 2.0g/t gold for 812,000 ounces.
Alkane had $80 million in cash at the end of December 2012.
Resource expansion program at Caloma Two
An extensive reverse circulation drilling program kicked off at Caloma Two in October 2012, which the aim of defining resources within the Caloma Two deposit which is located immediately to the south of the planned Caloma open pit.
What is so important about the mineralisation at Caloma Two is that it is located within similar feldspar porphyry sub-volcanic intrusive units to those which host the Caloma and Wyoming deposits.
The geological interpretation of the deposit continues to evolve and currently gold mineralisation is observed to be associated with quartz-sulphide veins within a near vertical 100 metre wide east-west structural corridor.
Tomingley is strategically located
One of the benefits for Alkane of the Tomingley project is its proximity to infrastructure which includes water 45km pipeline, power State Grid with 20km 66Kv power line, and roads - both primary and secondary access.
Another plus is the skilled local workforce, with 150,000 population within a 120 kilometre diameter area, and therefore cheaper operating costs as no accommodation is required and other costs for companies who must operate on a fly-in / fly-out basis.
Tomingley: Financial breakdown
- CAPEX - A$107M, ($54M plant; $30M infrastructure; $23M owners costs)
- Throughput - 1.0Mtpa
- Head Grade - 2.00g/t
- Recoveries - 93%
- Gold Production - average 50 ‐ 60,000ozpa
- Operating Costs - ~$1000/oz
- EBITDA ‐ $200M (base case at $1,600/oz)
- Life - 7.5years (targeting +10 years)
- Mine method - open cut & underground
- Caloma Two resource estimate
Today's bonanza gold discoveries, supported by many high grade intersections, show the potential for Alkane to significantly grow the gold resource at Tomingley - which would then allowed for an extended mine life and a large boost to the overall project economics.
Alkane has already been granted a mining lease for Tomingley which will be a 1 million tonne per annum operation producing 50,000 to 60,000 ounces per annum. This is expected to generate an EBITDA of A$217 million.
The company's plan for the cash generated is to towards the operating expenses of Alkane's proposed Dubbo Zirconia Project (DZP) in New South Wales, as well as maintain the exploration effort on the project.
There is also a price dis-connect between the current market cap. of around $220 million ($0.58 per share), and the company's asset value.
Alkane holds $80 million in cash, along with 17.5 million shares in Regis Resources (ASX: RRL) which at their current $4.20 price are worth about another $73 million, bringing the total to well over $150 million.
These assets equate to around 70% of Alkane's market cap. and therefore the market is only placing a $70 million valuation on the company's two projects, being Tomingley and the DZP - which are expected to generate over $200 million cash flow per annum from 2016.
Therefore the recent retracement in the Alkane share price to around $0.59 from a twelve month high of $1.62 provide investors an opportunity to enter the stock at what is currently a significant undervaluation.
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