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Alkane Resources: Petra Capital Bullish On Future With Sale Of McPhillamys Gold Project

Alkane Resources' (ASX: ALK) sale of the McPhillamys gold project has prompted Petra Capital to place a BUY recommendation on the stock based on an NPV of A$3.70,

The following is an extract from the report.

Sale of McPhillamys Gold Project

Alkane Resources and Newmont today announced they have accepted an offer from Regis Resources for the sale of the McPhillamys gold project. Regis will pay $150M (100%) which equates to $73.5M (20c/share) for ALK's 49% share.

Whilst the price is lower than our estimate of $109M, this is a positive outcome crystallizing value in a long term project.

The positive announcement follows recent major milestones achieved by ALK comprising Tomingley gold project approval and the rare earths MOU signed with Japanese company Shin-Etsu. We recommend buying ALK with 255% upside to NPV of A$3.70/share.

McPhillamys gold project sold

- Regis to acquire McPhillamys for $150M in scrip.
- ALK's share = $73.5M or 17.5M RRL shares at A$4.20/share.
- There is no escrow condition on shares issued.
- Payment equates to $60/oz based on 2.5Moz resources (57Mt @ 1.36g/t Au) at 0.5g/t Au cut-off

Transaction conditions

Subject to satisfaction of the following within 90 days:

- Ministerial grant of exploration licence renewal
- Ministerial approval of transfer of exploration licences
- Approval by Regis' project financier
- FIRB approval of issue of shares to Newmont
- Regis obtaining shareholder approvals required

What does it mean for ALK?

- Crystallises value of 20c/share for ALK's stake.
- Provides balance sheet flexibility.
- Allows ALK to focus attention on the Tomingley Gold and Dubbo Zirconia projects.

Newsflow ahead

- Q3 2012 - Tomingley mining licence.
- Q3 2012 - Updated financials DZP.
- Q4 2012 - DZP EIS submitted.
- Q4 2012 - DZP sell-down plus govt debt (MOUs).
- Q3 2013 - DZP approval and financing.
- Q3 2013 - First production Tomingley.
- Q4 2014 - First production Dubbo.

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