The Speculative Investor


Alkane Resources (ASX: ALK, USOTC: ANLKY) [Shares: 595M issued, 598M fully diluted as at 16 Jul 2020]
Date / Location of update	Comments
22nd July 2020, Interim Update (Stock price: A$1.24)	Alkane Resources (ALK.AX) began trading 'ex' the Australian Strategic Materials (ASM) spinout on 21st July. The stock opened A$0.06 lower and then recovered to end the day unchanged, which could mean that the market is valuing ASM at A$0.30/share (5 times 0.06, since initially there will be one ASM share for every five ALK shares) and that subsequently there was sufficient strength in the gold mining sector to offset the effect of the ASM distribution. We won't know until after ASM shares begin trading on 30th July. What we do know is that A$0.30/share would equate to a market cap of about A$36M for ASM, which would be very low given the potential value of ASM's Dubbo Specialty Metals project. We almost certainly will be buyers of ASM shares on the market if they are available near A$0.30 when listed on 30th July. We have added ASM to the "Trading Positions" section of the TSI List assuming an initial price of A$0.30 and an effective dividend to ALK shareholders of A$0.06/share. However, we'll adjust the initial ASM price (and the associated ALK dividend amount) if ASM doesn't trade close to this level at some point during its first few days as a listed company. Also, we have removed ALK from the TSI List. The reason is that the stock is now trading well above our estimate of fair value. The company potentially will grow into its current valuation due to drilling success at the Boda target and expansion of the Tomingley Gold Operation, but at this time the intermediate-term risk/reward is not sufficiently attractive. The stock is up by about 120% since the beginning of this year and more than 500% since its inclusion in the TSI List back in 2016. Along the way there have been many buying and selling opportunities. ALK served us well.
20th July 2020, Weekly Update (Stock price: A$1.24)	Alkane Resources (ALK.AX) issued four significant press releases last week. First, the company advised that its South Korean research and development partner, ZironTech, has completed the preliminary work on the metallisation of neodymium oxide feed, producing approximately 1kg of 87% neodymium (Nd) metal alloy in the laboratory from its patented reduction process. The next step will be electrorefining to produce a 99.9% Nd metal, which is anticipated by the end of July. Also, additional quantities of Nd as well as Praseodymium and Zirconium metal will be produced at the JV's pilot plant before the end of this month. This constitutes meaningful progress for the soon-to-be-spun-out Australian Strategic Materials (ASM) and its Dubbo Specialty Metals project. Second, the company published its quarterly activities report for the June-2020 quarter. Some of the salient information, including the production and production-cost numbers, were announced a week earlier. The most important new information is an update to the Tomingley Gold Operations (TGO) FY2021 plan to account for the higher gold price. The updated plan involves production guidance for FY2021 of 45,000 to 50,000 oz at an AISC of A$1,450 to A$1,600 per ounce. This is a significant increase in the planned rate of production. It is also a modest increase in forecast cost per ounce, reflecting the inclusion of lower grade material that is now profitable due to the higher gold price. Note that the TGO Mine Plan does not yet incorporate mining of the Roswell or San Antonio deposits, located to the immediate south of the TGO. Approval of the developments at Roswell and San Antonio would further increase production, with a lower cost base. Third, the company issued the results of more infill drilling carried out at the TGO's Roswell and San Antonio deposits. The results are very good and underline the potential for these deposits to be developed into profitable mines over the next two years. Fourth, ALK shareholders approved the spin-out of Australian Strategic Materials (ASM) on a 1-for-5 basis (eligible ALK shareholders will receive one ASM share for every five ALK shares they hold). Tuesday 21st July will be the first day that ALK trades 'ex' the ASM distribution, so that's when we will find out the value being assigned by the market to each of ALK's separate businesses (the gold business being retained by ALK and the specialty metals business that will become part of ASM). The market value being assigned to ASM will be roughly five times the amount by which ALK shares decline in price on 21st July. It is expected that ASM shares will start trading on the ASX on 30th July. For TSI record purposes we will treat the spin-out of ASM shares as a dividend and add ASM.AX to the "Trading Positions & ETFs" section of the TSI List. For example, if the ALK share price falls by 0.20 when it goes 'ex' the ASM distribution on 30th July, then we will assume that ALK shareholders received a 0.20/share dividend and we will add ASM.AX to the List with an assumed entry price of A$1.00 (five times $0.20).
13th July 2020, Weekly Update (Stock price: A$1.19)	Alkane Resources (ALK.AX) announced that its Tomingley Gold Operation (TGO) achieved the company's (upgraded) FY2020 guidance by producing 33.5K ounces of gold at an AISC of A$1357/oz. ALK also announced that it had cash, bullion and listed investments totalling A$98.4M at 30th June 2020. We expect that production at the TGO will be expanded to 100K+ ounces/year within the next two years via the development of the Roswell and San Antonio deposits. The next big step for ALK will be the spin-out of Australian Strategic Materials (ASM), which should be completed in early-August. Also, over the months ahead we expect to get the first look at the economics of the planned TGO expansion (via a Scoping Study) and more drilling results from the Boda gold-copper porphyry prospect.
1st July 2020, Interim Update (Stock price: A$1.25)	Alkane Resources (ALK.AX) advised that its research and development partner, ZironTech, has successfully produced a titanium metal alloy with its patented reduction process at the JV's commercial pilot plant in South Korea. The patented method of metal production uses 45% less power than current industry methods. This is good news for the soon-to-be-spun-out Australian Strategic Materials (ASM) and its Dubbo Specialty Metals project. The Dubbo project won't produce titanium, but the patented method could be applied to all of its products and would reduce operating costs by a significant amount.
29th June 2020, Weekly Update (Stock price: A$1.23)	Alkane Resources (ALK.AX) reported the results of infill drilling at the Roswell and San Antonio deposits at the company's Tomingley Gold Operation (TGO). The results included some exceptional intercepts, such as 69.0 metres grading 9.12g/t Au, 71.0 metres grading 3.56g/t Au and 118.0 metres grading 2.58g/t Au at Roswell. ALK is preparing preliminary plans for both open-cut and underground mines at Roswell and San Antonio. These mine plans will lead to economic and environmental assessments, which are required to obtain approval to commence mining. Given that it should be possible to use the existing TGO plant to process the ore mined at Roswell and San Antonio, we expect that the economic assessments will be very positive. We also expect that there will be minimal difficulty obtaining the required environmental approvals.
22nd June 2020, Weekly Update (Stock price: A$0.93)	Alkane Resources (ALK.AX) provided more information regarding the spinout (de-merger) of its Australian Strategic Metals (ASM) subsidiary. Here are the main points: 1) It is expected that ASM shares will begin trading on the ASX on or about 30th July. 2) Shareholders with registered addresses in Australia/NZ will receive one ASM share for every five ALK shares they own. 3) Shareholders with registered addresses outside Australia/NZ will have their ASM shares sold by a "sale agent" and will receive the sale proceeds. 4) After the ASM de-merger, ALK will be focused on gold mining. 5) Initially, ASM will have no debt and cash of A$20M less the amount that has been spent since 1st April 2020. It will have 100% ownership of the Dubbo specialty metals project and associated assets (including land and water rights) as well as an investment in South Korean metals technology company RMR Tech Corporation. 6) Post-spinout, ALK will own all of the gold-related assets, including the Tomingley Gold Operation and the exploration-stage Boda project. It will be debt free with about A$60M of cash. 7) The de-merger must be approved by shareholders at a meeting to be held on 16th July. 8) Assuming the de-merger is approved, 20th July will be the last day of trading 'pre-spinout'. We are very much in favour of the ASM spinout as it should unlock significant shareholder value, if not immediately then within the next 12 months. Our rough estimate of ALK's current value is A$1.40/share, split 50/50 between the gold and specialty metals (ASM) businesses. This implies a very approximate value of A$3.50/share for ASM, since one ASM share will be issued for every five ALK shares. However, we suspect that the market is assigning a lot more value to the gold business than the specialty metals business. The current ALK share price is A$0.93. Our guess, which could be very inaccurate, is that the market is valuing the gold business at about A$0.70 per ALK share and the specialty metals business at about A$0.23 per ALK share. If so, the initial market price of ASM will be around A$1.15/share (five times 0.23). Further to the above, there could be a good opportunity to buy ASM shares at a significant discount in early August.
25th May 2020, Weekly Update (Stock price: A$0.86)	Alkane Resources (ALK.AX) reported the results of the final hole of its current drilling program at the Boda discovery, which is part of the Northern Molong Porphyry Project (NMPP). The hole contained wide intercepts of low-grade gold and copper, but nothing that looks economic. According to the company, modelling of the recent drilling indicates a +0.2g/t AuEq subvertical zone of significant gold-copper mineralisation approximately 500 metres along strike, 400 metres wide and more than 1100 metres deep. Within this envelope there is a +3.0g/t AuEq high-grade pod approximately 150 metres long, 100 metres wide and more than 500 metres deep. Both zones remain open along strike and at depth. ALK will have to do a lot more drilling to determine exactly what it has at Boda. In this vein, the company will soon commence a major drilling program to further test the high-grade core and the larger resource potential at Boda, as well as test other regional targets. Due to the results of the last two holes, we are less optimistic about the economic potential of the NMPP now than we were a few months ago. Therefore, when we next update our ALK valuation we will be conservative and only assign option value to this project. At the same time, the economic potential of the Tomingley Gold Operation (TGO) has increased and significant shareholder value should be added by the upcoming spin-out of Australian Strategic Materials (ASM). ALK provided more information about the above-mentioned spin-out last Wednesday. Assuming that shareholder approval is obtained at a meeting tentatively scheduled for early-July, the plan is for ASM to be spun out of ALK and listed as a separate entity in mid-July. According to last Wednesday's press release, if the Demerger Resolution is approved by Alkane shareholders at the Shareholder Meeting, Eligible Shareholders (those with registered addresses in Australia and New Zealand) will receive one ASM share for every five Alkane shares held on the Record Date. Shareholders with registered addresses outside of Australia and New Zealand will have their ASM allocations transferred to a sale agent, who will sell the ASM shares once listed on the ASX and remit the net proceeds of sale to the relevant shareholder in cash. In other words, ineligible shareholders will receive a capital return in cash determined by the initial market value of ASM shares. Also worth mentioning is that ASM has been allocated A$20M of ALK's cash, so it will begin its life as a separate listed entity with enough money to fund the business for at least a few quarters. The selling of the ASM shares of Ineligible Shareholders during the new company's first few days of listing will put temporary downward pressure on the share price and could create a good buying opportunity. We will deal with that opportunity at the time.
4th May 2020, Weekly Update (Stock price: A$0.70)	Alkane Resources (ALK.AX) published its quarterly report for the March-2020 quarter (the third quarter of FY2020). The quarterly report included an on-plan performance from the Tomingley Gold Operation (TGO), with gold production of 5.7K ounces at an AISC of A$1346/oz (US$875/oz). Production guidance for FY2020 (the financial year ending 30th June 2020) remains at 30K-35K ounces of gold at an AISC of A$1250-$1400/oz. Note: The current A$ gold price is around $2650/oz. The Tomingley open pit is depleted and the current production is mainly from a small underground mine. However, there's a high probability that production will be expanded to circa 100K-oz/year over the coming 1-2 years via the construction of new pits at the Roswell and San Antonio targets, which are within a few kilometres of the existing plant. The de-merger of the Dubbo specialty metals project, which is held in an ALK subsidiary called "Australian Strategic Metals" (ASM), is progressing and likely to happen during the September quarter of this year. The de-merger could/should add substantial shareholder value over the coming 12 months. ALK's balance sheet is strong. The company is debt free with cash and bullion of about A$82M. This figure is down by about A$1M since the end of the preceding quarter.
27th April 2020, Weekly Update (Stock price: A$0.74)	Over the past 9 months Alkane Resources (ALK.AX) completed a 60,000m resource definition drilling program at the San Antonio and Roswell targets at its Tomingley Gold Operation (TGO) in New South Wales, Australia. An initial resource estimate for the Roswell prospect was published in January and an initial resource for the San Antonio prospect was published last week. The maiden Inferred Roswell resource is 7.02 million tonnes grading 1.97g/t gold (445,000oz) and the maiden Inferred San Antonio resource is 7.92 million tonnes grading 1.78g/t gold (453,000oz). Along with the Tomingley Underground and the Peak Hill Underground, the project now has a total resource of almost 1.2M ounces that potentially could be processed using the existing plant. Further drilling is underway at both Roswell and San Antonio to convert Inferred resources to M&I resources. Also, conceptual mine plans are being prepared with the aim of progressing mine approvals. This is good news. The combination of the San Antonio and Roswell deposits could enable a 10-year extension to the TGO's life. Last week's good ALK news, however, was counteracted by the reporting by the company of a disappointing result from a hole drilled at the Northern Molong Porphyry Project (NMPP). Previous results suggested that ALK had discovered a very large, low-grade porphyry-style gold-copper project at the NMPP's Boda target and that the grade of the resource was increasing to the south. Specifically, and with reference to the following map, Hole KSDD003 was drilled 100m to the south of and achieved better intercepts than Hole KSDD006, and Hole KSDD007 was drilled 100m to the south of and achieved better intercepts than Hole KSDD003. The new hole (KSDD008) was drilled 100m to the south of KSDD007 and ideally would have generated intercepts that were as good or better than those in KSDD007. However, relative to KSDD007 the mineralisation in KSDD008 had a much lower average grade. Also, unlike KSDD007 it did not contain any high-grade sections of significant width. Exploration of the NMPP is still in its early days and a lot more drilling will have to be done to determine the economic value of the mineralisation.
30th March 2020, Weekly Update (Stock price: A$0.63)	Alkane Resources (ALK.AX) reported the results of two more holes drilled at the Northern Molong Porphyry Project (NMPP) in the Central West of New South Wales. The results of two previous holes (KSDD003 and KSDD005) had indicated the presence of a potentially large, but low grade, porphyry-style gold-copper deposit. Of particular note, it was announced last September that KSDD003 intersected 502m averaging 0.48g/t gold and 0.20% copper from 211 metres. KSDD005 tested the depth extension of KSDD003 and didn't provide much in the way of new information. KSDD007, one of the two new holes, was drilled 100m south of KSDD003. It not only intersected an extremely wide section of low grade mineralisation (1,167m at 0.55g/t gold and 0.25% copper from 75 metres), but more significantly also intersected a substantial width of high grade mineralisation (96.8m at 3.97g/t gold and 1.52% copper from 768 metres). Because the deposit is deep, substantial widths of relatively high-grade mineralisation probably are required to make the project economically viable. In this regard, the results of KSDD007 certainly fit the bill, although a lot more drilling will have to be completed before studies of the project's economics can be undertaken. KSDD006, the other new hole, was drilled 100m to the north of KSDD003. It intersected very low-grade mineralisation. Overall, this news from ALK was very positive. The company appears to be zeroing-in on a large underground gold-copper deposit of sufficient grade to be economic. Assays from the final two holes in the current NMPP drilling program will be reported within the coming month.
16th March 2020, Weekly Update (Stock price: A$0.60)	Alkane Resources (ALK.AX) reported more results from drilling at the Roswell and San Antonio targets, which are within easy trucking distance of the company's Tomingley Gold Operation (TGO). The latest results include some very good intercepts, including 49 metres grading 8.71g/t Au at Roswell and 15 metres grading 7.43g/t Au at San Antonio. An initial Inferred resource for Roswell (445K ounces of gold) was announced in January and an initial Inferred resource for San Antonio is expected to be announced within the next few weeks. It then will be a matter of upgrading Inferred resources to M&I resources via infill drilling.
9th March 2020, Weekly Update (Stock price: A$0.80)	Alkane Resources (ALK.AX) advised that the government-owned Export Finance Australia (EFA) has offered conditional financing support for the Dubbo specialty metals project. This is positive, because with EFA's support in place it will be easier for ALK to attract other participants to a financing consortium for the project. Construction financing for the Dubbo project will be a focal point for management after Australian Strategic Metals, the ALK subsidiary that owns the project, is spun out as a separate company. Ideally, funding the construction will entail bringing in a large and financially-strong company as an equity partner.
17th February 2020, Weekly Update (Stock price: A$0.97)	Alkane Resources (ALK.AX) plans to spin-out the Dubbo specialty metals project as a separate company called Australian Strategic Materials (ASM). We've been advocating such a move for years, for two reasons. First, it will force the market to separately value the gold projects and the Dubbo project, which probably will lead to a higher total market capitalisation. Second, the Dubbo project could move forward at a much faster pace with a focused management team. In preparation for the spin-out, which we expect will happen around mid-year, David Woodall has been appointed managing director of ASM. We don't know Mr. Woodall, but he appears to have the right experience to lead ASM. Separately, ALK reported the results of a hole drilled at the Northern Molong Porphyry Project (NMPP) in the Central West of New South Wales. The hole (KSDD005) tested the depth extension of the mineralisation discovered in Hole KSDD003 at the Boda Prospect. It was announced last September that KSDD003 intersected 502m averaging 0.48g/t gold and 0.20% copper from 211 metres. KSDD005 intersected 689m averaging 0.46g/t gold and 0.19% copper from 402 metres, including 312m averaging 0.70g/t gold and 0.19% copper from 402 metres. The hole therefore demonstrated that the low-grade mineralisation continues for more than 1,000m below the surface. Although the assay results reported last week increase the probability that ALK has discovered a large gold-copper deposit, they didn't provide much additional information. The more significant information will be provided by the holes drilled to test the strike extensions of the holes reported to date. These results will be generated as part of the current 5,000m drilling program. ------------------------------------------------------------------------------------------- ALK has a gold business and a specialty metals business. It was originally in the "Other Stocks" section of the List because until recently the specialty metals business accounted for over 50% of the company's value, but that is no longer the case. Also, the company's plan is to spin-out the specialty metals business within the next several months, leaving ALK with the gold business. The potential of ALK's gold business has increased substantially over the past year due to the discovery of open-pittable gold resources within trucking distance of the existing Tomingley Gold Operation as well as the discovery of a large porphyry-style gold deposit at the Northern Molong project. The obvious increase in growth potential has been handsomely rewarded in the stock market and we expect the bullish trend to persist. The Dubbo specialty metals project has moved forward at a snail's pace over the past few years, but with a focused management team post-spinout there should be much faster progress. Our current plan is to retain ALK until the spinout happens and then to decide whether the TSI List should contain one or both of the de-merged businesses. The decision will be based mainly on market conditions and relative valuation at the time.
3rd February 2020, Weekly Update (Stock price: A$0.79)	Alkane Resources (ALK.AX) has reported five sets of results over the past several months from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets at its Tomingley Gold Operation (TGO) in New South Wales, Australia. The program is almost complete and an initial resource estimate for the Roswell prospect was published early last week. The maiden Inferred Roswell resource is 7.02 million tonnes grading 1.97g/t gold (445,000oz), which constitutes an excellent start. Further drilling is underway at Roswell to convert Inferred resources to M&I resources. Also, an initial resource estimate for the San Antonio prospect is scheduled to be published in March. These resource estimates are important because the combination of San Antonio and Roswell could enable a multi-year extension to the TGO's life. Separately, ALK published its quarterly report for the December-2019 quarter (the second quarter of FY2020). The quarterly report included another above-plan performance from the Tomingley Gold Operation (TGO), with gold production of 6.9K ounces at an AISC of A$1441/oz (US$980/oz). Production guidance for FY2020 (the financial year ending 30th June 2020) remains at 30K-35K ounces of gold at an AISC of A$1250-$1400/oz. Note: The current A$ gold price is around $2370/oz. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. However, the life of the operation has been extended by the construction of an underground mine that is about to go into production. Also, it's likely that new pits will be established over the next 1-2 years at the Roswell and San Antonio targets, which are within a few kilometres of the existing plant. With regard to the Dubbo specialty metals project, the commercial scale pilot plant being constructed as part of the investment in Clean Metal Processing Technology with Ziron Tech of South Korea is now scheduled to be commissioned in the June quarter of 2020 (a quarter later than previously expected). ALK's balance sheet is strong. The company is debt free with cash and bullion of about A$83M. This figure is up by about A$25M since the end of the preceding quarter. The change is due to cash in-flows from the TGO production and an equity placement that raised about A$35M offset by cash out-flows from investments in exploration drilling, underground mine development and the Dubbo project's pilot plant. The plan to de-merge the Dubbo project ("Australian Strategic Metals") is progressing. A shareholder vote to approve the de-merger is expected to occur during the June quarter.
20th January 2020, Weekly Update (Stock price: A$0.72)	Alkane Resources (ALK.AX) reported the fifth set of results from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets at its Tomingley Gold Operation (TGO) in New South Wales, Australia. Like the earlier results, the latest set included some good intercepts. An initial resource estimate for the Roswell prospect is scheduled to be published within the next two weeks and an initial resource estimate for the San Antonio prospect is scheduled to be published later this quarter. These resource estimates are important, but upcoming news regarding the results of exploration drilling at the Northern Molong Porphyry Project (NMPP) and the company's plan to spin-off the Dubbo specialty metals project have greater potential to move the stock price.
9th December 2019, Weekly Update (Stock price: A$0.57)	Alkane Resources (ALK.AX) reported the fourth set of results from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets at its Tomingley Gold Operation (TGO) in New South Wales, Australia. The latest results included 28 metres grading 2.94g/t Au at San Antonio and 2 metres grading 139.5g/t Au at Roswell. An initial resource estimate for the Roswell prospect is scheduled to be published this month and an initial resource estimate for the San Antonio prospect is scheduled to be published in February. These resource estimates are important because the combination of San Antonio and Roswell could enable a multi-year extension to the TGO's life. However, upcoming news regarding the results of exploration drilling at the Northern Molong Porphyry Project (NMPP) and the company's plan to spin-off the Dubbo specialty metals project have greater potential to move the stock price.
2nd December 2019, Weekly Update (Stock price: A$0.56)	Alkane Resources (ALK.AX) announced that it intends to raise A$55M by issuing new shares priced at A$0.55/share, a 10% discount to the market price immediately prior to the announcement. A$20M has been raised already via a placement to institutions and the remainder will be raised via a 1-for-8 entitlement issue to existing eligible shareholders (eligible shareholders being those with registered addresses in Australia, New Zealand or the UK). The stated purpose of the financing is to rapidly progress exploration and mine development in the company's gold-mining business. Given that ALK has about A$70M of cash and no debt we are very surprised that it is choosing to do a large equity financing. We suspect that the financing is related in part to the plan to spin-off the company's Dubbo specialty metals project into a separate listed entity. The additional cash should ensure that both the spun-off company and the gold mining business are well financed. ALK's share price has dropped to the financing price, so at this time there isn't anything to be gained by participating in the 1-for-8 entitlement issue. Anyone wanting to increase his/her stake can do so by purchasing shares on the market at/near the financing price.
11th November 2019, Weekly Update (Stock price: A$0.62)	Alkane Resources (ALK.AX) reported the third set of results from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets. The latest results included 13 metres grading 9.74g/t Au at San Antonio and 15 metres grading 6.22g/t Au at Roswell. The next significant news is expected to be an initial resource estimate for the Roswell prospect early next month. The combination of San Antonio and Roswell could enable a multi-year extension to the TGO's life. If so, substantial value will be added to the company.
28th October 2019, Weekly Update (Stock price: A$0.72)	Alkane Resources (ALK.AX) published its quarterly report for the September-2019 quarter (the first quarter of FY2020). The report was generally positive (as discussed below), but with one exception it contained no important new information. The one exception is the following comment: "A demerger and listing of Australian Strategic Materials is under active consideration by the Alkane Board. Consultation with regulators is underway." In other words, the separation of ALK into two companies, one focused on gold and the other focused on the Dubbo specialty metals project, is under consideration. This is exactly what we have been saying the company should do for the past two years, as it could unlock substantial value for shareholders. Due to the opportunities to expand the gold business that have cropped up this year, the separation makes even more sense now than it did a year ago. The quarterly report included another above-plan performance from the Tomingley Gold Operation (TGO), with gold production of 7.5K ounces at an AISC of A$1268/oz (US$862/oz). This has led to production guidance for FY2020 (the financial year ending 30th June 2020) being improved from 27K-32K ounces of gold at an AISC of A$1300-$1450 to 30K-35K ounces of gold at an AISC of A$1250-$1400. Note: The current A$ gold price is around $2200/oz. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. However, the life of the operation has been extended by the construction of an underground mine that is scheduled to go into production during the March quarter of 2020. Also, exploration results indicate the potential to establish a new pit within a few kilometres of the existing plant. With regard to the Dubbo specialty metals project, the commercial scale pilot plant being constructed as part of the investment in Clean Metal Processing Technology with Ziron Tech of South Korea is due to be commissioned in the March quarter of 2020. ALK's balance sheet is strong. The company is debt free with cash, bullion plus listed investments of about A$74M. This figure is down by about A$7M since the end of the preceding quarter due to investments in exploration drilling, underground mine development and the Dubbo project's pilot plant.
30th September 2019, Weekly Update (Stock price: A$0.68)	Alkane Resources (ALK.AX) reported the second set of results from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets, which are located within easy trucking distance of the company's Tomingley Gold Operation (TGO). Results from the initial 5,000 metres of drilling were reported in August and included 36 metres grading 5.09g/t, 39 metres grading 3.59g/t and 9.7 metres grading 8.01g/t at the San Antonio prospect. Results from the second 5,000 metres of drilling included 42 metres grading 2.61g/t Au and 24 metres grading 6.30g/t Au at the San Antonio prospect, and 45 metres grading 3.66g/t Au and 24 metres grading 5.33g/t Au at the Roswell prospect. These results are very positive, because they increase the probability that ore from the aforementioned prospects eventually will enable a multi-year extension to the TGO's life. The ALK stock price didn't react positively to the news, but's that's because it had doubled over the preceding two weeks in response to drilling results from a different project. Separately, ALK issued its updated Resource and Reserve Statement. The statement reflects the fact that the TGO is almost fully depleted, with only a small (74K-ounce) underground reserve that will be mined over the next couple of years. That's why the potential to use the TGO plant to process ore from San Antonio and Roswell is very important.
11th September 2019, Interim Update (Stock price: A$0.63)	On Monday of this week Alkane Resources (ALK.AX) reported very encouraging results from exploration drilling at the Northern Molong Porphyry Project (NMPP). This project incorporates exploration licences covering an area of 110km2 of the northern Molong Volcanic Belt (MVB), in the Central West of New South Wales. Of particular interest, Hole KSDD003 at the Boda Prospect, which was drilled beneath a zone of gold mineralisation previously defined in RC drilling back in 2016, generated an intercept of 502m averaging 0.48g/t gold and 0.20% copper from 211 metres. Also, Hole KSRC027 at the Kaiser Prospect generated an intercept of 40m averaging 1.30g/t gold and 0.22% copper from surface. Follow-up drilling has been immediately scheduled to determine the scale of the discovery, but these early results suggest the possibility that ALK has discovered a major porphyry-style gold-copper deposit. The only reason we are mentioning this news now instead of waiting for the Weekly Update is to point out that if the next couple of holes confirm the potential suggested by the results reported early this week, then the stock price could/should move a lot higher. Therefore, while it could make sense (for money management reasons) to do some profit-taking, ALK's risk/reward is just as good now as it was a week ago even though the stock price is now about 60% higher.
19th August 2019, Weekly Update (Stock price: A$0.41)	Alkane Resources (ALK.AX) reported the initial results from a 60,000m resource definition drilling program undertaken at the San Antonio and Roswell targets, which are located within easy trucking distance of the company's Tomingley Gold Operation (TGO). The initial 5,000m of drilling included these significant gold intercepts from the San Antonio prospect: 36 metres grading 5.09g/t, 39 metres grading 3.59g/t and 9.7 metres grading 8.01g/t. There's a good chance that ore from the aforementioned prospects eventually will enable a multi-year extension to the TGO's life.
5th August 2019, Weekly Update (Stock price: A$0.39)	Alkane Resources (ALK.AX) reported drilling results from the Peak Hill Gold Mine (PHGM). The PHGM is located 15 kms from the company's Tomingley Gold Operation (TGO) in New South Wales, Australia, and is a former open pit mine operated by ALK during 1996-2005. The current drilling is designed to test the underground mining potential of the deposit. To briefly recap, TGO's open pit was depleted in 2018 and over the past few quarters the company has been producing gold by processing low-grade stockpiles. This will continue until the end of the 2019 calendar year, after which processing will revert to underground ore from the Wyoming One deposit where there is presently a total resource of around 120K ounces. Also, ALK has been conducting a regional exploration program with the aim of finding new sources of ore to feed the TGO and thus extend its life. Results to date indicate the potential to develop open pits at the Roswell, San Antonio and El Paso prospects, which are within 8 kms of the TGO. Refer to the following map to see the relative positions of the TGO, the Wyoming deposit, the PHGM and the other prospects mentioned above. The PHGM drilling results reported last week were encouraging and included intercepts of 110 metres grading 1.97g/t Au from 197 metres and 102 metres grading 1.78g/t Au from 182 metres. However, the main purpose of the 10-hole program was to obtain samples for metallurgical testing. The ore is moderately refractory, so despite the good intercepts it might not be economic. The metallurgical testing will determine the extent of the opportunity at the PHGM. Separately, ALK announced that it will be investing up to A$6M to purchase up to 15% of Genesis Minerals (GMD.AX) at A$0.032/share. GMD's flagship asset is the Ulysses Gold Project. This project is located 30km from the mining town of Leonora (Western Australia) and has a JORC gold resource of 760,000 ounces at an average grade of 3.3-g/t. We estimate that GMD will have a market cap of about A$41M following the ALK investment. Considering the size, grade and location of the Ulysses deposit, this suggests that ALK is getting a reasonable deal. However, we would prefer that ALK used its 'spare' cash to progress the Dubbo specialty metals project rather than buy minority stakes in microcap gold miners.
15th July 2019, Weekly Update (Stock price: A$0.40)	Alkane Resources (ALK.AX) published its quarterly report for the June-2019 quarter (the final quarter of FY2019). After another above-plan quarterly performance from the Tomingley Gold Operation (TGO), gold production for the full financial year was 49K ounces. This was at the top of the upwardly-revised guidance range and about 60% above the original guidance. In other words, the TGO performed very well in FY2019. Production guidance for FY2020 (the financial year ending 30th June 2020) is 27K-32K ounces of gold at an AISC of A$1300-$1450. Note: The current A$ gold price is around $2000/oz. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. That's why the amount of gold produced has been trending downward. However, the life of the operation has been extended by the construction of an underground mine that is scheduled to go into production during the March quarter of 2020. Also, exploration results indicate the potential to establish a new pit within a few kilometres of the existing plant. With regard to the Dubbo specialty metals project, which is where the bulk of ALK's value and upside potential lies, the company's efforts to arrange financing and offtake agreements are on-going. ALK has a strong balance sheet, with no debt and cash, bullion plus listed investments of about A$81M. This figure is roughly the same as it was 6 months ago.
17th June 2019, Weekly Update (Stock price: A$0.42)	Alkane Resources (ALK.AX) reported another round of interesting results from exploration drilling in the vicinity of its Tomingley Gold Operations (TGO). As stated in ALK's press release: "Significant gold mineralisation has been confirmed by RC and diamond core drilling between the Roswell and San Antonio prospects, showing a continuous strike length of 1,600 metres of gold mineralisation located within 4 kilometres south of the Tomingley Gold Operations (TGO) processing facility. Together with the El Paso prospect there is a cumulative strike length of 2,500 metres of gold mineralisation within 8 kilometres of TGO." The latest results included 78 metres grading 3.51g/t Au from 214 metres and 24 metres grading 3.84g/t Au from 174 metres. The following map indicates the positions of the targets being drilled in relation to the TGO. This is good news as it is further evidence of the potential for a multi-year extension to the TGO's life. ALK is in the 'sweet spot' at the moment, because there simultaneously is increasing demand for gold-related investments and REE-related investments (ALK offers exposure to gold and REEs). However and as we've stated in the past, the dual focus on REEs and gold is far from ideal on a longer-term basis. The dual focus (or lack of focus to put it more aptly) probably explains the frustratingly-slow pace at which the Dubbo Project (the host of the REE resource) has been moved forward.
10th June 2019, Weekly Update (Stock price: A$0.34)	Alkane Resources (ALK.AX) advised that the performance of its Tomingley Gold Operation (TGO) continues to be better than expected, prompting another increase in FY2019 gold production guidance. Originally it was 30K-35K ounces, then three months ago it was boosted to 35K-40K ounces, then a month ago it was boosted to 42K-47K ounces, and now it is 48K-49K ounces. Due to the higher production, costs are lower. This is obviously good news. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. That will continue to be the case until late this year, when initial production from the underground mine is scheduled to begin. Separately, ALK announced that it had agreed to invest US$1.2M to fund the final stage development (late stage piloting and feasibility analysis) of a process to convert metal oxide into metals of high marketable purity on a commercial scale. The development is being carried out by Zirconium Technology Corporation, a South Korean company, and if successful the process could be applied to 80% (by revenue) of the metals that would be produced by ALK's Dubbo Project (DP). ALK would have exclusive global rights to use the technology at commercial scale in relation to zirconium and hafnium under an agreed license and royalty regime. The risk/reward of this investment by ALK looks attractive. This is because if the technology being developed proves to be cost effective it could add substantial value to the DP, whereas the maximum downside is only US$1.2M. We strongly believe that ALK should float off its gold-mining business as a separate company via a pro-rata distribution to shareholders, leaving the current company to focus on the development of the Dubbo specialty metals project and forcing the stock market to independently value the gold and specialty metals assets. The total stock market capitalisation would, we think, be much greater if this were to happen.
20th May 2019, Weekly Update (Stock price: A$0.22)	In late March Alkane Resources (ALK.AX) reported some very good results from drilling undertaken at the San Antonio prospect, which is 3-4 kms south of the company's Tomingley Gold Operations (TGO) in New South Wales, Australia. Last week there were good results reported from drilling at the El Paso prospect, which is about 3 kms further south of the TGO. The best results came from a hole that intersected 12 metres grading 4.99g/t Au from 108 metres, 21 metres grading 2.38g/t Au from 141 metres and 6 metres grading 10.65g/t Au from 168 metres. The following chart shows the locations of the San Antonio and El Paso prospects relative to each other and the TGO. The latest drilling results are more evidence of the potential to re-start open-pit mining at Tomingley and significantly extend the life of the project.
6th May 2019, Weekly Update (Stock price: A$0.24)	Alkane Resources (ALK.AX) published its quarterly report for the March-2019 quarter (the third quarter of FY2019). The report revealed another above-plan performance from the Tomingley Gold Operation (TGO), with production of 10.7K ounces at an AISC of A$956/oz. The on-going better-than-expected performance of the TGO has prompted another increase in FY2019 gold production guidance. Originally it was 30K-35K ounces, then three months ago it was boosted to 35K-40K ounces, and now it is 42K-47K ounces. The company produced 37.4K ounces during the first three quarters of FY2019, so the expected production during the final quarter is 5K-10K ounces. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. That's why the amount of gold produced has been trending downward. However, plans are in place to extend the life of the operation by developing an underground mine and exploring for additional resources. Initial production from the underground mine is on track to begin during the December-2019 quarter and recent drilling results suggest the potential to establish a new pit within a few kilometres of the existing plant. The company's efforts to arrange financing and offtake agreements for the Dubbo specialty metals project have continued, but no tangible progress was reported. ALK has a strong balance sheet, with no debt and cash, bullion plus listed investments of A$78.8M. This constitutes a quarter-over-quarter decline of A$1.7M.
1st April 2019, Weekly Update (Stock price: A$0.275)	Alkane Resources (ALK.AX) reported some very good results from drilling undertaken 3-4 kilometres from its Tomingley Gold Operations (TGO) in New South Wales, Australia. The reported intercepts included 39m grading 6.09 g/t and 33m grading 4.37 g/t. This news is very positive, because it suggests the potential to re-start open-pit mining at Tomingley and significantly extend the life of the project. We are only interested in ALK due to the long-term potential of its Dubbo specialty metals project, but more evidence pointing to the possibility of expanding the TGO could be a short-term catalyst for a substantial upward re-rating of the stock.
20th February 2019, Interim Update (Stock price: A$0.20)	Alkane Resources (ALK.AX) owns the Tomingley Gold Operation (TGO) in New South Wales. It also owns the Dubbo Project (DP), which is construction-ready and slated to produce zirconium (43% by revenue), hafnium (10% by revenue), niobium (17% by revenue) and REEs (30% by revenue). The TGO has generated a significant amount of cash for ALK over the past few years, but it always will be a small-scale operation and as such will never warrant a large stock-market valuation. The DP, on the other hand, has the potential to generate huge wealth and is the reason for our on-going interest in ALK. The company has a healthy balance sheet, with no debt and cash-plus-investments of around A$80M. With 506M shares outstanding and a current stock price of A$0.20, in effect the market is valuing the combination of the TGO and the DP at only A$20M. This seems absurd, given that the DP's 2018 FS estimated a net present value of about A$1.2B at current commodity prices and using a discount rate of 8%. The seemingly-absurd market valuation can be explained by the snail's pace at which ALK's management is moving the Dubbo Project forward. Before construction can commence, offtake agreements must be put in place and financing must be arranged for the A$1.3B of up-front capex. Ideally, financing of the up-front capex will be achieved by entering a JV with a much larger company. The reason is that even if it is possible for a small mining company to arrange all of the financing required to build a substantial mine, it is a high-risk path to take. The cost overruns that often occur during the construction phases of large projects generally can be taken in stride by major mining companies, but can be life-threatening to small companies that have chosen to 'go it alone'. And even if the small company is able to arrange sufficient additional financing to cover the overruns, the high cost of this additional financing probably will crater the stock price. A good recent example is Nemaska Lithium (NMX.TO), which lost about 45% of its market value last week after announcing a cost overrun at its construction-stage mining project. This might be an unfair appraisal, but we get the impression that in terms of sorting out the offtake agreements and construction financing ALK's position today is not materially different to what it was three years ago. We hope we are wrong and tangible progress will be demonstrated within the next few months. The bottom line is that ALK is extraordinarily cheap, but it will stay that way until/unless a deal is done that enables the DP to move into the construction phase.
4th February 2019, Weekly Update (Stock price: A$0.22)	Alkane Resources (ALK.AX) published its quarterly report for the December-2018 quarter (the second quarter of FY2019). The report revealed another above-plan performance from the Tomingley Gold Operation (TGO), with production of 11.1K ounces at an AISC of A$1051/oz. The better-than-expected performance of the TGO over the past two quarters has prompted an increase in FY2019 gold production guidance -- from 30K-35K ounces to 35K-40K ounces. The Tomingley open pit is depleted and the current production is solely from the processing of stockpiles. However, plans are in place to extend the life of the operation by developing an underground mine and exploring for additional resources. Initial production from the underground mine should occur during the December-2019 quarter. The company's efforts to arrange financing and offtake agreements for the Dubbo specialty metals project continued during the quarter, but it seems that (again) no tangible progress was made. The Dubbo project is the only reason for our interest in ALK and we are frustrated due to the snail-like pace at which this project has advanced over the past 2 years. ALK has a strong balance sheet, with no debt, cash/bullion of A$75.7M and listed investments of A$4.8M.
24th December 2018, Weekly Update (Stock price: A$0.20)	Alkane Resources (ALK.AX) agreed early last month to invest A$8M in Explaurum Resources (EXU.AX) at A$0.12 per EXU share. We wrote at the time that this news was slightly negative for ALK, because it was paying a high price for its EXU stake and because it appeared to make economic sense to combine EXU's Tampia project with RMS's Edna May project (the ALK investment was being used by EXU's management to thwart an attempt by RMS to take-over the company). Fortunately for all concerned (ALK shareholders, EXU shareholders and RMS shareholders), commonsense and a higher offer from RMS have prevailed. The ALK investment in EXU will not go ahead and the Tampia project will be acquired by RMS. BTW, this makes RMS (a former TSI stock selection) a more interesting gold stock as it should substantially increase the remaining life of the Edna May mine.
5th November 2018, Weekly Update (Stock price: A$0.23)	Alkane Resources (ALK.AX) has agreed to invest A$8M in Explaurum Resources (EXU.AX) at A$0.12 per EXU share. If this investment is approved by EXU shareholders it will result in ALK owning 12.2% of EXU. Also, ALK will be able to increase its EXU stake to 20% by exercising options over the coming two years. EXU is presently the subject of an all-stock takeover bid from Ramelius Resources (RMS.AX). Due to the close proximity of EXU's exploration-stage Tampia gold project and RMS's operating Edna May gold mine and the relatively small scale of the Tampia project, at this stage it looks like Tampia would be better suited to being a satellite deposit for Edna May than a standalone mine. However, the RMS and EXU management teams couldn't agree on a price and now ALK has stepped up to provide the financing needed by EXU to move forward on its own. This news is slightly negative, because ALK is paying a high price for its EXU stake and because, as mentioned above, it appears to make economic sense to combine EXU's Tampia project with RMS's Edna May project. Separately, ALK published its quarterly report for the September-2018 quarter (the first quarter of FY2019). The report revealed good performance from the Tomingley Gold Operation (TGO) during the quarter, with production of 15.6K ounces at a low AISC of A$972/oz. This production result enabled the company to increase its cash/bullion hoard by about A$2M to A$82.4M. However, it's expected that production will be lower and costs will be higher over the rest of FY2019. The company's efforts to arrange financing and offtake agreements for the Dubbo specialty metals project continued during the quarter, but it seems that no tangible progress was made. The Dubbo project is the only reason for our interest in ALK.
29th October 2018, Weekly Update (Stock price: A$0.23)	Alkane Resources (ALK.AX) published its annual report for the latest Financial Year (FY). The report showed that the company had working capital of A$67M at 30th June 2018, up from A$35M a year earlier and A$45M at 31st December 2017. Adding net cash of A$32M to the balance sheet during the FY was a good result, especially considering the investment that was made in the development-stage Dubbo Project.
22nd October 2018, Weekly Update (Stock price: A$0.23)	Alkane Resources (ALK.AX) has invested A$3.7M via private placement to obtain 8.8% of Calidus Resources (CAI.AX), an exploration-stage gold miner with a current market cap of about A$40M. Also, ALK can increase its CAI stake to 10% by spending an additional A$2.5M to exercise options. CAI controls the Warrawoona Gold Project in the Pilbara Goldfield in Western Australia. This project currently contains a 712K-oz Resource with an average grade of 2.11g/t Au and apparently has excellent exploration potential. The price being paid by ALK for its CAI stake looks reasonable, but we view the news as neutral. First, the CAI investment won't move the dial for ALK unless CAI discovers a lot more gold. Second, it raises the question as to why ALK is diverting part of its $80M cash reserve towards a non-core investment when it will have to raise hundreds of millions of dollars to develop its flagship Dubbo Project. Separately, ALK reported drilling results from its regional exploration program at the Tomingley Gold Operation (TGO). The purpose of the exploration is to increase the TGO's mine life. The drilling results do not appear to be significant, although an intercept of 11.5m with an average grade of 2.15-g/t suggests that there is potential to discover additional economic gold mineralisation within easy trucking distance of the existing plant.
15th October 2018, Weekly Update (Stock price: A$0.22)	Alkane Resources (ALK.AX) issued updated resource and reserve statements for its Tomingley Gold Operation (TGO). As at 30th June 2018 the TGO had 437K ounces of gold resources, including 144K ounces of gold reserves. Also, the company reiterated that it expects to produce 30K-35K ounces of gold during FY2019. We continue to believe that ALK should separate into two companies, one owning the TGO and the other owning the far more important asset known as the Dubbo Project (DP). The TGO will always be a small-scale operation, whereas the DP has the potential to generate huge wealth and deserves a 100%-focused management team.
3rd October 2018, Interim Update (Stock price: A$0.23)	Alkane Resources (ALK.AX) is going ahead with the development of underground mining operations at its Tomingley gold mine. The plan is for the new underground operation to produce 93,000 ounces of gold over a 40 month period commencing mid-2019. Due to the high forecast cash costs of the underground operation (A$1,100-$1200/oz), the aforementioned 93K ounces of production won't add much cash to ALK's balance sheet. In fact, developing the underground operation initially will drain A$25M from ALK's cash reserve (A$80M at 30th June). However, the underground operation will create opportunities to discover new economic gold resources and thus extend the overall mine life.
3rd September 2018, Weekly Update (Stock price: A$0.20)	Alkane Resources (ALK.AX) issued its annual report for the 2018 Financial Year, revealing that the company made an after-tax profit of A$24.5M, or 4.8c/share, during the FY ending 30th June 2018. This means that at Friday's closing price of A$0.20 the stock was trading at a P/E ratio of only 4.2. However, last year's earnings are not indicative of what the company will earn this year, since gold production at its Tomingley mine will be about 50% lower due to the completion of open cut mining. The balance sheet included in the annual report showed that ALK had no debt and A$66M of working capital at 30th June, up from A$45M six months earlier. This means that ALK is in a strong financial position. In addition to the Tomingley Gold Operation (TGO) ALK also owns the Dubbo Project (DP), which is construction-ready and slated to produce zirconium, hafnium, niobium and REEs. As we stated about a month ago, the primary focus of ALK's management now should be on recruiting a large, well-financed JV partner to fund the bulk of the DP's pre-production capex.
30th July 2018, Weekly Update (Stock price: A$0.22)	Alkane Resources (ALK.AX) issued its Quarterly Activities and Cash Flow reports for the June quarter (the final quarter of FY2018). The combined amount of cash, cash equivalents and bullion increased by A$11M during the quarter and now totals about A$80M. Gold production during the quarter from the company's Tomingley Gold Operation (TGO) was on plan and total production for the 2018 Financial Year (1st July 2017 to 30th June 2018) was 78.5K ounces at an AISC of A$1002/oz. This is close to the top of the original guidance range for production quantity and at the bottom of the original guidance range for production cost. Therefore, it is fair to say that the TGO performed well over the past 12 months. Due to the completion of open cut mining, FY2019 production is expected to be much lower. Guidance is for 30K-35K ounces of gold at an AISC of A$1,300-A$1,400/oz. Consequently, the TGO probably won't make a significant positive contribution to ALK's balance sheet during the coming 12 months. The primary focus of ALK's management over the months ahead should be on recruiting a large, well-financed JV partner to fund the bulk of the pre-production capex for ALK's Dubbo Project in exchange for equity in the project.
16th July 2018, Weekly Update (Stock price: A$0.21)	Alkane Resources (ALK.AX) is carrying out exploration work near its Tomingley gold mine in an effort to identify new deposits that could extend the life of the operation. Last Wednesday the company reported an encouraging intercept (7m averaging 3.43-g/t gold) from a hole drilled 3 kms from the existing mine, but at this stage there is scant evidence that a new economic gold deposit has been discovered.
9th July 2018, Weekly Update (Stock price: A$0.24)	Alkane Resources (ALK.AX) distributed an infographic highlighting some of the important aspects of its Dubbo specialty metals project. We thought that the graphic was a useful summary and include it below without further comment.
11th June 2018, Weekly Update (Stock price: A$0.26)	Alkane Resources (ALK.AX) owns the Dubbo 'specialty metals' Project and the Tomingley Gold Operation (TGO). Last Monday, the same day that the results of the Dubbo Project's updated engineering and financial study were released (refer to last week's Interim Update for the related discussion), the company released the results of a preliminary study on the TGO's underground potential (current production is from an open pit). According to the engineering work completed to date, there is the potential to recover about 100K ounces of gold via underground development over a 40-month period. This means that underground mining could contribute about 30K ounces/year for a little more than three years. This is significant given that current production is about 70K ounces/year, but it is expected to cost A$16M to access the underground ore and the cash costs of extracting the ore are estimated to be quite high at A$1150-A$1250/oz. This suggests to us that the underground development as presently envisaged has a low NPV and IRR. It's certainly possible that additional exploration and engineering work will enable the development of a profitable underground mine at the TGO, but at this time the TGO's underground potential doesn't move the needle on our ALK valuation.
6th June 2018, Interim Update (Stock price: A$0.26)	Alkane Resources (ALK.AX) reported the results of an updated engineering and financial study on the Dubbo Project (DP), the most recent previous study having been completed in 2015. The DP is fully permitted and slated to produce zirconium, hafnium, niobium and REEs. At current commodity prices the approximate revenue split would be: Zirconia products: 46% REEs: 34% Niobium: 14% Hafnium: 6% The published results of the new study were disappointing, for three main reasons: 1) The company had previously advised that using a modularised construction process the pre-production capex could be reduced and the economics could be improved. Specifically, in a press release in October-2016 ALK advised that by using a modular construction method, with much of the construction happening off site, it should be possible to reduce the total capital cost of the DP from US$930M to US$840M and reduce the up-front capital cost to US$480M. However, in the Staged Build plus Modular Construction scenario considered as part of the latest study, the total capex is estimated to be US$1.1B and up-front capital is estimated to be US$610M. As a result, the economics of the staged/modular scenario are worse than the economics of the base case scenario. 2) The prices for the commodities that will be produced by the DP are on average significantly higher now than they were when the 2015 study was completed, leading to a 14% increase in the forecast annual revenue. However, the profitability boost that should have stemmed from the higher selling prices has been totally offset by higher operating expenses. 3) As it did in the 2015 study, ALK only quoted the DP's pre-tax economics. There was no mention of post-tax economics, but unless the company has figured out a way to avoid paying tax it's the post-tax numbers that are important. Despite higher commodity prices and the financial benefits that were expected to be achieved via a modular construction approach, the estimated economics of the DP are almost identical now to what they were three years ago. The most attractive scenario is the "Base Case", which is the non-staged approach involving the construction of a 1Mtpa operation at a cost of A$1.3B. At the assumed commodity prices, this scenario results in a pre-tax NPV(8%) and IRR of A$1.24B and 17.5%, respectively. There is nothing wrong with these numbers. Furthermore, the A$1.24B NPV compares very favourably with ALK's current enterprise value of around A$70M. The market reacted negatively, though, because ALK's management had led 'everyone' to believe that the numbers would be much better. It would be impossible for a company of ALK's size to fund the DP's A$1.3B capex without massively diluting the shares and/or taking on an unwieldy amount of debt. However, it may be possible to enlist a much larger company as a partner, with the larger company funding the construction in exchange for a 50%+ stake in the project. ALK's management is looking into doing exactly that, in that it describes the top-priority funding solution as: "Sale of Project Interest to Strategic Investor: The Company continues to meet with potential product off-take partners and investment funds with mandates targeting investment in the key products of the Dubbo Project, organisations considered to have the best strategic alignment with the Company." The other three funding options under consideration, in priority order, are financing from Export Credit Agencies, traditional equity and debt financing, and other financing methods such as selling royalties and streams. A positive aspect of the updated Study is the leverage it reveals to changes in commodity prices. For example, if all else remains the same then a 20% increase in selling prices boosts the Base Case pre-tax NPV(8%) by almost 80% -- from A$1.3B to A$2.3B. This is important because the prices of the DP's outputs should continue to trend upward. Although the worse-than-expected numbers in the updated DP Study caused a 10% decline in ALK's stock price as opposed to the bounce that we were hoping for, it remains clear that the per-share value of ALK's assets is vastly greater than the current share price. There's huge valuation-related upside potential, but realising this potential is going to require more patience than originally expected.
30th April 2018, Weekly Update (Stock price: A$0.29)	Alkane Resources (ALK.AX) published its quarterly activities and cash-flow reports for the March-2018 quarter. The combined amount of cash, cash equivalents and bullion increased by A$11.2M during the quarter and the balance sheet remains solid. At the end of March ALK had no debt and about A$69M of liquid financial assets. Gold production during the quarter from the company's Tomingley Gold Operation (TGO) was on plan and the production guidance for the current Financial Year (1st July 2017 to 30th June 2018) has been narrowed from 70K-80K ounces to 75K-80K ounces. Importantly, the AISC guidance has improved from A$1000-A$1100/oz to A$975-A$1050 (US$740-US$800). The TGO should continue to add cash to the company's balance sheet. An underground mining study for the TGO was originally scheduled to be completed during the March-2018 quarter but is now scheduled for completion in May. This study has the potential to be a positive, market-moving piece of news. For the fully-permitted Dubbo Project (DP), which is slated to produce zirconium, hafnium, niobium and REEs, the company advised that a project execution and financial model incorporating the results of the modularised build study (MBS) has been further delayed while the financial assumptions are reviewed by the board. May-2018 is the new ETA. We've been eagerly awaiting the financial results of the MBS, because we expect them to highlight the extreme under-valuation of ALK shares. However, the delay in providing the information is a cause for concern. When a junior mining company is late in publishing the results of an economic study it generally isn't because the numbers turned out to be better than expected.
5th March 2018, Weekly Update (Stock price: A$0.28)	Alkane Resources (ALK.AX) issued its half-year financial report. The balance sheet included in this report showed that ALK had no debt and A$45M of working capital at 31st December 2017, which is up from A$35M six months earlier. This means that ALK remains in a strong financial position. ALK has two projects -- the Tomingley Gold Operation (TGO), a gold mine with expected production of 70K-80K ounces during the current FY, and the Dubbo Project (DP), which is construction-ready and slated to produce zirconium, hafnium, niobium and REEs. For the TGO, an underground mining study is scheduled to be complete this quarter. For the DP, a project execution and financial model incorporating the results of a modularised build study is also scheduled to be complete this quarter. That is, ALK should have two pieces of important news within the next four weeks.
29th January 2018, Weekly Update (Stock price: A$0.32)	Alkane Resources (ALK.AX) published its quarterly activities and cash-flow reports for the December quarter. The combined amount of cash, cash equivalents and bullion increased by A$4.4M during the quarter and the balance sheet remains solid. At the end of December ALK had no debt and about A$58M of liquid financial assets. Gold production during the quarter from the company's Tomingley Gold Operation (TGO) was slightly above plan and the production guidance for the current Financial Year (1st July 2017 to 30th June 2018) has been increased from 65K-70K ounces to 70K-80K ounces at a reduced AISC of A$1000-A$1100/oz (US$800-$880/oz). This implies expected production of 30K-40K ounces over the next two quarters and means that the TGO should continue to add cash to the balance sheet. An underground mining study for the TGO is scheduled to be completed this quarter. This study has the potential to be a positive, market-moving piece of news. For the fully-permitted Dubbo Project (DP), which is slated to produce zirconium, hafnium, niobium and REEs, the company advised that a project execution and financial model incorporating the results of the modularised build study will be released in February. This is the information that we've been eagerly awaiting. We expect that it will highlight the extreme under-valuation of ALK shares. The economics of the DP have been given a boost over the past year by the stricter environmental controls being implemented in China. The reason is that the environmental crackdown in China is reducing the global supply, and therefore elevating the prices, of the DP's main commodity outputs. At some point it will make sense for ALK to split into two listed companies, perhaps by floating-off the TGO. This is mainly because a much higher overall market valuation would result from forcing the market to separately value each of the company's projects.
22nd January 2018, Weekly Update (Stock price: A$0.34)	Alkane Resources (ALK.AX) advised that it has produced high-purity hafnium dioxide products at its demonstration pilot plant using a proprietary process to separate hafnium from zirconium. This is important because a) there may be a global shortage of hafnium over the next few years, b) ALK's construction-ready Dubbo Project (DP) is slated to produce 25 tpa of hafnium, and c) although hafnium is expected to be a relatively minor part of the DP's overall output, at the current hafnium price the aforementioned production would result in annual revenue of about US$40M for ALK. The next major market-moving news from ALK is expected to be the results of the modular construction study for the DP project. This was scheduled to be complete before the end of 2017 but has been delayed to Q1-2018.
23rd October 2017, Weekly Update (Stock price: A$0.31)	Alkane Resources (ALK.AX) published its quarterly activities report for the September quarter. The company had quarterly gold production of 24K ounces at its Tomingley Gold Operations (TGO). This is a good result, but it doesn't alter the annual guidance of 65K-70K ounces. Also, quarterly production is expected to fall to 13K-15K ounces during the current quarter due to the planned mining of lower grades. At the development-stage Dubbo Project (DP), the company's most important mineral asset, work is continuing on the Modularised Build Study. Completion of this study is scheduled for the current quarter and will be a very important milestone. In general terms, the plan is for the DP's two main outputs to be zirconium chemicals and rare earth elements (REEs). Currently, these commodity markets are dominated by China. Due to the combination of increasing global demand and efforts by China to keep a lid on supply, prices are substantially higher now than they were a year ago. Some of the price gains are illustrated by the charts that follow. The commodity-price gains that occurred over the past year have greatly increased the value of the DP, but this increase in value has not been reflected in the price of ALK shares.
11th September 2017, Weekly Update (Stock price: A$0.40)	Alkane Resources (ALK.AX) published updated reserve and resource statements for its Tomingley Gold Operation (TGO). The TGO now has P&P reserves of 166K gold ounces and a total resource (including reserves) of 508K gold ounces. These figures are well down from a year earlier due to 68K ounces of mining depletion and improved geological knowledge. Based on the current reserve the TGO only has about 2.5 years of remaining life, but there is a good chance that the mine life will be extended by drilling that converts resources to reserves and discovers additional resources. In any case, the development-stage Dubbo Project (DP) continues to be the most important reason to own ALK shares. This project hosts a large mineral resource comprising various REEs (Rare Earth Elements), zirconium, niobium and hafnium. Furthermore, neodymium (Nd) and praseodymium (Pd) are the main REEs to be produced by the DP. Chinese policy changes created an REE investment bubble during 2010-2011. This bubble did what all bubbles eventually do, which is implode. The results were that prices crashed to their pre-bubble levels and the vast majority of the speculative investments that were spawned by the rising commodity prices became worthless. We mention this because a recent Bloomberg article suggests the possibility that Chinese policy changes are early in the process of inflating a new REE-related bubble. Here are the opening two paragraphs of the article: "Rare earths are booming again as a clampdown on wildcat miners in China crimps supply in the world's biggest producer while the clean energy boom bolsters their use in everything from electric vehicles to wind turbines. Prices for "light" rare earths including neodymium and praseodymium have exploded in recent months as traders and consumers snap up material that's becoming scarcer. China's shutting down illegal producers as the industry is swept up in the same kind of government clampdowns that have shaken other metals markets in 2017. Among many other applications, the elements are needed to make magnets used in motors and turbines." A consequence is that ALK's DP is quickly becoming more valuable. ALK offers excellent value and relatively low-risk (as far as these things go) exposure to the potential new boom in the REE space. Its price has also nearly doubled over the past 2.5 months and is testing resistance at A$0.40. A pullback to the low-A$0.30s would create a new short-term buying opportunity. However, there is obviously no guarantee that such a pullback will occur.
4th September 2017, Weekly Update (Stock price: A$0.40)	Alkane Resources (ALK.AX), a company with a Feasibility-stage specialty-metals project (the Dubbo Project - DP) and an operating gold mine (the Tomingley mine) in Australia, issued its annual report for the financial year (FY) ending 30th June 2017. The balance sheet included in the report showed that ALK had no debt and A$35M of working capital at 30th June 2017, which is up from A$28M a year earlier and exactly in line with what we guessed in the 24th July Weekly Update. This is a good result considering the rain-related problems encountered by the company during the first half of the FY. ALK's next milestone and major stock-price catalyst will be the independent study into the economics of using a modularised build approach at the DP. This milestone was expected in September but has been pushed into the December quarter.
28th August 2017, Weekly Update (Stock price: A$0.34)	Alkane Resources (ALK.AX) announced a senior management shuffle, with Nick Earner replacing Ian Chalmers as Managing Director. Nick Earner has been the company's Chief Operations Officer for the past four years and Ian Chalmers will remain on the Board in the role of Technical Director. We view this change as neutral for the company, as in effect the same people will remain responsible for the operation of the Tomingley Gold Mine and the development of the Dubbo Project.
24th July 2017, Weekly Update (Stock price: A$0.34)	Alkane Resources (ALK.AX) advised that its gold production during the June quarter was well above plan at 28K ounces. This exceptionally good performance completely offset the rain-related poor performance during the first two quarters of the 2017 Financial Year (FY), allowing the company to achieve its original FY2017 production guidance of 65K-72K ounces. To be more specific, ALK's Tomingley Gold Operation (TGO) produced 68.8K ounces during the year to 30th June 2017. ALK stated that the excellent quarterly production result enabled the addition of about A$16M of cash to its balance sheet during the quarter. Given that the company was also cash-flow positive during the March quarter we expect the annual report, which probably won't be published until October, to show a much-improved working-capital position. Our guess is that the working capital amount is now about A$35M, up from A$16M at 31st December. Lastly, the following excerpt from what we wrote about ALK three weeks ago remains applicable: "The recent above-plan production performance at the TGO is very important, but the main reason for our interest in ALK has always been the Dubbo Project (DP) -- a potential future producer of zirconium, hafnium, niobium, yttrium, and rare earth elements. The DP remains construction-ready with all permits in place, but the commencement of construction depends on financing, which, in turn, depends on the results of a study into the economics of using a modularised build approach. Completion of this study is expected within the next three months and is a potential catalyst for a substantial up-move in ALK's share price."
3rd July 2017, Weekly Update (Stock price: A$0.23)	Alkane Resources (ALK.AX) advised that gold production at its Tomingley Gold Operation (TGO) was tracking well ahead of plan during the June quarter and, as a result, that production during the second half of the 2017 Financial Year (the first half of the 2017 calendar year) would be about 10K ounces more than the downwardly-revised guidance issued in January. Furthermore, gold production for the full 2017 FY is now expected to be 65K-67K ounces, which compares very favourably with the revised guidance of 53K-58K ounces. This is obviously good news. Production guidance for FY2018 is 65K-70K ounces at an AISC of A$1100-A$1200/oz (US$825-$900/oz at an exchange rate of 0.75). If this guidance is achieved then the TGO should generate at least A$25M of cash for ALK over the next 12 months. The recent above-plan production performance at the TGO is very important, but the main reason for our interest in ALK has always been the Dubbo Project (DP) -- a potential future producer of zirconium, hafnium, niobium, yttrium, and rare earth elements. The DP remains construction-ready with all permits in place, but the commencement of construction depends on financing, which, in turn, depends on the results of a study into the economics of using a modularised build approach. Completion of this study is expected within the next three months and is a potential catalyst for a substantial up-move in ALK's share price. ALK is a strong speculative buy near its current price of A$0.23.
24th April 2017, Weekly Update (Stock price: A$0.25)	Alkane Resources (ALK.AX) published its quarterly report for the March quarter, which in Australia is the third quarter of the financial year (FY). The report indicated that production at the Tomingley Gold Operation (TGO) has fully recovered from the weather-related disruptions of the preceding two quarters. This means that after being a cash consumer over the preceding two quarters, in the March quarter the TGO returned to being a cash generator for the company. Specifically, site operating cash flow was A$6.5M for the quarter. The March quarter's gold production at the TGO was 18.7K ounces, which is up by 59% from the December quarter. With this greatly improved result in the books the company is on track to achieve the top end of its 53K-58K downwardly-revised production guidance for FY2017. The improvement in TGO's production performance is very important, but the main reason to own ALK shares is now, and has always been, the Dubbo Project (DP) -- a potential future producer of zirconium, hafnium, niobium, yttrium, and rare earth elements. The DP remains construction-ready with all permits in place, but the commencement of construction depends on financing, which, in turn, depends on the results of a study into the economics of using a modularised build approach. (Note: The economics are already very good, but they are going to be even better using the modularised build approach.) This study was originally expected to be complete during the March quarter of 2017 and later expected to be complete during April-2017. According to the report issued last week, completion of the study has now been delayed to the September quarter of 2017. The additional delay to the completion of the DP modularisation study is disappointing to say the least. It probably means that the company is still 3-5 months away from generating the positive news catalyst that, based on the earlier words of ALK's management, was supposed to have already happened.
17th April 2017, Weekly Update (Stock price: A$0.25)	Alkane Resources (ALK.AX) announced that it has begun a drilling program to test underground ore positions at its Tomingley Gold Mine (TGO) and at near-mine and regional exploration targets. Initial results don't look significant to us, although they were described as "encouraging" by the company in that they were similar to early drilling results achieved at deposits currently being mined.
10th April 2017, Weekly Update (Stock price: A$0.27)	Alkane Resources (ALK.AX) reported results from exploratory drilling at its early-stage Northern Molong gold-copper porphyry project in NSW, Australia. Up until now we have assigned no value to this project and based on last week's drilling news we will continue to assign no value. It's possible that a potentially-economic discovery will be made at this project, but it hasn't been made yet.
20th March 2017, Weekly Update (Stock price: A$0.26)	Alkane Resources (ALK.AX), a company with a Feasibility-stage specialty-metals project (the Dubbo Project - DP) and an operating gold mine (the Tomingley mine) in Australia, issued its half-year report for the financial-year ending 30th June 2017. The balance sheet included in the report showed that ALK had no debt and A$16M of working capital at 31st December 2016. The company's balance sheet remains healthy, although the working capital shrank by $12M during the first half of the FY. This was due to higher-than-planned costs at Tomingley stemming from unusually-heavy rainfall and spending undertaken to move the DP towards a mine-construction decision. The next news-related catalyst for ALK's stock price is likely to be an updated engineering/economic study for the DP based on the use of a modular construction method. This is expected in April.
6th February 2017, Weekly Update (Stock price: A$0.36)	Alkane Resources (ALK.AX) issued its quarterly report for the December quarter. Due to much-higher-than-average rainfall from June through to December in the area of the company's Tomingley Gold Operations (TGO), gold production was well below plan during the quarter and during first half of the 2017 Financial Year (FY). Normal weather has since returned and the production rate has increased, but the big weather-related miss during the first half of the FY has caused FY2017 guidance to be reduced from 65K-72K to 53K-58K ounces. To achieve the downwardly-revised guidance the company will have to produce 31K-36K ounces of gold during the first half of this calendar year. The AISC is expected to be A$1350-A$1550/oz during this period. Due to the reduced gold production rate, ALK was cash-flow-negative by about A$4M during the December quarter and by A$8M-A$9M during the first half of FY2017. However, it still has a healthy balance sheet with about A$20M of working capital. While the poorer performance of the TGO is a concern, the main reason to own ALK shares is for exposure to the Dubbo Project (DP). The plan is to develop the DP into a mine that produces various "strategic materials", including Zirconium, Hafnium, Niobium and Rare Earth Elements (REEs). The project is fully-permitted, but in broad terms three things will have to happen before it enters the construction phase: 1) Complete the engineering study to determine the economics and other details of a modularised construction approach. This is expected to happen in April-2017. 2) Finalise off-take agreements for the mine's outputs. 3) Arrange financing. The DP is potentially worth many times ALK's current market cap.
5th December 2016, Weekly Update (Stock price: A$0.32)	Alkane Resources (ALK.AX) provided an update on its progress. The company is in the process of securing offtake arrangements for the various outputs from the Dubbo Zirconia Project (DZP). This involves providing samples of some of the products to potential customers and must be done before construction financing can be finalised. Construction financing is expected to be a mixture of debt and equity, including a possible strategic investment at project level. Also, an updated engineering/economic study using a modular construction method is in progress and is now scheduled to be completed in April of 2017 (was previously Q1-2017). The updated study should confirm that the initial capital cost can be substantially reduced, possibly by as much as half. If so, this will make it easier to arrange the construction financing. ALK's recent stock-market performance has been surprising, to put it mildly. We were surprised when the stock price gained more than 50% for no apparent reason over a 2-week period in October and then even more surprised when the stock price lost almost 50% for no apparent reason over a 3-week period in November. Near its current price in the low-A$0.30s ALK is back to a level where new buying would be reasonable.
21st November 2016, Weekly Update (Stock price: A$0.56)	Alkane Resources (ALK.AX) had its annual general meetings of shareholders last week. The presentation delivered at the meetings provides a very good overview of the company's progress and potential. It is mandatory reading for anyone who owns or is interested in owning ALK shares. Although it has a significant gold-production business, the main reason to own ALK is the development-stage Dubbo Zirconia Project (DZP). A Feasibility-level study completed last year estimated that the DZP could be developed into a mining operation with a net present value (NPV), using an 8% discount rate, of US$1.1B (A$1.45B). This equates to A$2.90 per ALK share, or about 5-times the current stock price. Furthermore, an updated engineering/economic analysis using a modular construction process is scheduled to be completed during the first quarter of 2017 and will probably reveal a higher NPV. The biggest unknowns/risks are the future prices of the specialty metals that the DZP will produce and the details of the construction financing. With regard to the latter, if the modular construction concept is shown to be attractive then ALK will have to raise about US$500M next year in order to bring the project's first phase into production in 2019.
31st October 2016, Weekly Update (Stock price: A$0.57)	Alkane Resources (ALK.AX) had three noteworthy announcements last week. First, the company announced that it has signed a memorandum of understanding (MOU) with Siemens regarding the potential future purchase by Siemens of some rare-earth and specialty metals produced at ALK's Dubbo Zirconia Project (DZP) and the purchase by ALK of some Siemens equipment and systems that would be used at the DZP. The MOU doesn't imply any commitment by either company. As far as we can tell, it does no more than document that the two companies are in discussions about how they could work together in the future. However, it's an unquantifiable plus that a global industrial conglomerate is interested in discussing potential deals with the relatively miniscule ALK. It is further evidence that the DZP is commercially viable. Second, ALK issued its quarterly report for the September quarter. The report quantified the adverse effects of unusually heavy rainfall over the past few months in the area of the company's Tomingley gold mine. Gold production during the quarter was about 10K ounces, which was about 6K ounces below plan. As a result, costs were much higher than planned and the mine was cash-flow negative by around A$5M. The company still expects to meet its FY2017 production guidance of 65K-72K ounces of gold, but the average cost of production will probably be about A$100/oz higher than originally expected. Third, ALK advised that by using a modular construction method, with much of the construction happening off site, it should be possible to reduce the total capital cost of the DZP from US$930M to US$840M and to reduce the up-front capital cost from US$930M to US$480M. This is very good news. Between now and the end of March-2017 a revised financial model for the project will be prepared on the basis of the aforementioned modular construction methodology. This will help us quantify the value of the DZP.
24th October 2016, Weekly Update (Stock price: A$0.54)	Alkane Resources (ALK.AX), a company with a Feasibility-stage specialty-metals project (the Dubbo Zirconia Project - DZP) and an operating gold mine in Australia, issued its annual report for the financial-year ending 30th June 2016. The balance sheet included in the report showed that ALK had no debt, A$28M of working capital and A$190M (A$0.38/share) of net assets at 30th June. In FY2017, ALK is expected to produce 65K-72K ounces of gold at an AISC of A$1200-$1300/oz (US$912-$988/oz) and advance its specialty-metals project to a construction decision. ALK's price is up by more than 150% since the stock was added to the TSI List only three months ago. Some profit-taking would be appropriate for risk-management purposes, but there is additional upside potential associated with the DZP.
26th September 2016, Weekly Update (Stock price: A$0.42)	Alkane Resources (ALK.AX) had news regarding its Tomingley gold project (Victoria, Australia) late last week that was, on balance, negative. First, the company issued a statement of its updated resources and reserves. The total project resource has declined by 17% over the past 12 months -- from 699K-oz to 579K-oz -- due mainly to mining depletion, while the project's reserve has increased slightly -- from 236K-oz to 253K-oz -- due to the addition of the maiden underground reserve first reported last November. This news is neutral. Second, the company announced that greater-than-expected rainfall over the past three months has adversely affected its production. The amount of production during the current financial year (FY2017) is expected to meet guidance, but the AISC is expected to be A$50/oz higher. This news is obviously negative. ALK has performed extremely well since being added to the TSI List in July (the stock price has almost doubled). The strong performance on the stock market was primarily driven by the progress achieved by the company at its flagship asset -- the Dubbo Zirconia Project (DZP). The DZP is the main reason for our interest. We view ALK as a 'hold' at this time. There is large additional upside potential, but at the same time there is a risk of a significant correction.
22nd August 2016, Weekly Update (Stock price: A$0.32)	Alkane Resources (ALK.AX) had a good week. The company announced that it has signed a marketing, sales and distribution agreement with Minchem Ltd., an England-based ceramics marketing and manufacturing company with 40 years of experience in zirconium chemicals and zirconium-dioxide products. The agreement covers all zirconium materials produced by ALK's Dubbo Zirconia Project (DZP). These materials are mostly used in chemicals and ceramics. At current commodity prices and at full production the zirconium-related output from the DZP would generate annual revenue of $100M-$120M, or about 30% of the project's total revenue. Earlier this year ALK signed a letter of intent with a Vietnamese company (VTRE) for toll processing of the rare-earths concentrate produced by the DZP, and the plan is for ALK and VTRE to establish a joint-venture company for marketing of the rare-earths products. The agreement with Minchem is a big step forward in putting the DZP into production, which is why the news was immediately followed by a 25% rise in the stock price (an under-reaction, in our opinion). As we understand it, the next steps include finalising the deal with VTRE, signing off-take agreements for the various products and arranging construction financing.
20th July 2016, Interim Update (Stock price: A$0.215)	We've been keeping an eye on ALK since it was brought to our attention by a TSI reader a few months ago. It appeared to offer good value, but the story was complex and involved commodity markets (rare earths and other specialty metals) that we didn't understand. We still don't have a good understanding of the commodity markets that will ultimately be the difference between ALK being a huge success or dead money, but we no longer view such an understanding as a prerequisite for having a very positive opinion of the stock's prospects. There are two reasons, the first (and foremost) of which is that the current market cap assigns zero value to the company's potentially-high-value "specialty metals" project. The second is that people who do understand the markets for specialty metals have given their stamp of approval to ALK's associated project. ALK's most important asset is the Dubbo Zirconia Project (DZP) located in central New South Wales (Australia). This project hosts a large mineral resource comprising various REEs (Rare Earth Elements), Zirconium, Niobium and Hafnium. For discussion purposes we'll lump these elements together under the "specialty metals" label, but the markets (the end uses and global supply situations) of each element are different. A feasibility-level engineering study completed in August of last year estimated an IRR and NPV of 17.5% and US$1B, resp., near current commodity prices. Furthermore, the DZP is fully-permitted and construction-ready. However, the engineering study also estimated an initial capex of almost US$1B. The initial capex probably represents an insurmountable obstacle at current commodity prices, but the project could well be 'financeable' at higher commodity prices. We noted, above, that ALK's "specialty metals" project is currently being assigned no value by the stock market. We say this because in addition to the development-stage DZP, ALK has other assets with a combined value of more than its current A$100M market cap. These assets are A$30M of cash and a gold mine with 70K-ounces/year of profitable production. ALK's Tomingley gold project, which is also located in central New South Wales, has a short mine life and should therefore be assigned a relatively low valuation, but the present valuation is unreasonably low considering what has happened to the prices of gold and gold-mining equities over the past 12 months. Based on the valuations being assigned to other Australia-based gold miners with relatively short mine lives and similar operating costs (Tomingley's AISC is around US$940/oz), we estimate fair value for the Tomingley project to be US$90M (A$120M). By our reckoning, therefore, ALK has assets in addition to the DZP that are worth roughly A$150M, or 50% more than the company's current market cap. That's why we don't need a good understanding of the "specialty metals" markets to figure out that ALK's risk/reward is very attractive. We can be confident that the DZP has significant value and we can be certain that it doesn't have negative value. We also noted above that people who do understand the markets for specialty metals have given their stamp of approval to the DZP. This comment was in reference to a detailed report put out by Hallgarten and Co. early this week. The following chart shows the massive (1000%+) rise in ALK's stock price during 2010-2011. This was in response to the bubble in REE prices fostered by China's government. The bursting of the REE bubble, which was also fostered by China's government, caused ALK to lose all of its gains. It was an incredible round trip, not just for ALK but for all listed companies involved in the REE mining space. The difference is that most of the stocks that flew to great heights during the 2010-2011 REE bubble have since disappeared, whereas ALK has continued to move its project forward and is well positioned to benefit from a likely future improvement in commodity prices. The following chart also shows that ALK's stock price has essentially flat-lined near the bottom of its 10-year range since the beginning of this year. This suggests that the current price is a relatively low-risk entry point. Higher prices for "specialty metals" and perhaps a lot of patience will be needed for new investors to achieve large profits, but buyers near today's price of A$0.21-$0.22 are unlikely to lose much money. The worst case is probably that the stock continues to do what it has been doing for the past 6 months, which is nothing. The most efficient place to trade ALK is on the Australian Stock Exchange (ASX), but the stock can also be traded Over-The-Counter (OTC) in the US as an American Depository Receipt (ADR) under the symbol ANLKY. One ADR is equivalent to 10 ordinary shares. We always recommend AGAINST trading on the US OTC markets, but if you do attempt to trade ANLKY you should place a limit order that corresponds closely with the latest price on the ASX. For example, with ALK priced at A$0.22 on the ASX and an A$/US$ exchange rate of 0.75, the correct price for ANLKY would be about US$1.65 (10*A$0.22 converted to US$).