Orior Capital has released a report that refers to gold explorer Alt Resources (ASX: ARS) as a “compellingly cheap” value proposition with a multi-million ounce opportunity.
With a global resource base of 6.8 million tonnes grading 1.82 grams per tonne gold for 406,000 ounces and 3.78Moz silver, Orior Capital analyst Simon Francis has given Alt an $0.08 per share valuation.
This is more than 247% higher than Alt’s closing price on Friday of $0.023.
Alt has a current market cap of A$6.4 million and is trading at an enterprise value (EV) per ounce of just A$13.
Mr Francis has compared the company’s resource to other gold explorers in Western Australia’s eastern goldfields which trade at an average EV/oz of A$46.
To shore up his case, Mr Francis pointed to recent deals in the area including Ramelius Resources’ (ASX: RMS) takeover of Explaurum, which gave Explaurum an EV/oz value of A$102.
At the time of the takeover, Explaurum’s flagship project Tampia Hill hosted more than 480,000oz in gold reserves and was nearing the completion of a bankable feasibility study.
Mr Francis pointed out that Alt plans to release a maiden reserve and the results of a feasibility study later this year.
If Alt was given the same evaluation as Explaurum, Mr Francis said Alt could be potentially worth A$0.165/share.
Consolidated gold tenements
Alt has amalgamated tenements that have been under fragmented ownership for decades, with resources too small to underpin separate milling operations – although, Alt’s Bottle Creek lease, which it acquired in late 2017, hosts a historic operation that produced 93,000oz of gold from two open pits (VB and Boags).
After securing Bottle Creek, Alt then went on to acquire the Mount Ida South and Quinn’s projects a few months later.
The company now owns 360 square kilometres of tenements in the region, including six mining leases and JORC-compliant resources.
With all tenements forming part of the wider Mt Ida project, Alt’s strategy has been to review historic data in combination with modern exploration methods to firm up drill targets.
To-date this strategy has proved successful with the current 6.8Mt resource anticipated to be added to in the next few months.
Last week, Alt reported it had identified high-grade gold at the Boags South deposit, which lies on the Bottle Creek mining lease.
The high-grade intersections were discovered after reviewing historic exploration data.
The shallow gold intersections were along strike from the historic Boags open pit at the southern end of the mining lease and were noted to be similar to the broader Bottle Creek mineralisation including the Emu and Southwark deposits.
Bottle Creek is the primary target for Alt with the company aiming to develop an eight-year 500,000tpa operation.
Multi-million oz potential
In his report on Alt, Mr Francis pointed out the region remains significantly underexplored, with Bottle Creek only drilled to 80m depths. Additionally, the resource is based on just 3.8km of a known 11km mineralised trend.
“Overall, the large scale of the tenement package, the large number of deposits in the region, and the shallow nature of the historical work all suggest there is plenty of scope to outline a multi-million oz deposit,” Mr Francis explained.
He added that there was also potential to peg up more land in the region, with a number of nearby assets regarded as “stranded”.
Alt’s strategy is to take advantage of existing infrastructure at Mt Ida including roads, an airstrip, tailings dams, bore fields and even a mining camp.
Mr Francis estimates establishing a standard carbon-in-pulp 500,000tpa processing operation could potentially cost Alt as little as A$20 million.
“With relatively high grade, soft oxide ores, low expected strip ratios, and high recovery rates, the company should achieve healthy margins – cash operating costs could be around A$1,000/oz gold, and all-in sustaining costs around A$1,200/oz.”
Based on the current gold price above A$1,800/oz, Mr Francis anticipates Alt could generate cash margins of around A$800/oz – giving annual earning before interest tax depreciation and amortisation of around A$28 million.
Where is gold heading?
In Australian dollar terms, the gold price is trading close to all-time highs and recent reports suggest production in Australia is about to fall dramatically over the next five years as the country’s largest mines deplete.
Australia’s gold output is expected to shrink more than 40% to 6.3Moz over the period.
Although some larger projects are anticipated to come online to mitigate the reduced output, it doesn’t account for projects such as Alt’s which could potentially mitigate the decline even further.
On a global level, gold production is expected to reach record highs in 2019, which S&P analyst Christopher Galbraith says will remain steady for the next few years before declining after 2022 as global reserves shrink.
With the world’s central banks including China’s and Russia’s turning to gold bullion as a safe haven amid economic and geopolitical volatility, demand for the precious metal isn’t expected to abate anytime soon.
The Australian Government’s Department of Industry, Innovation and Science’s latest Resources and Energy Quarterly forecasts the average gold price for 2019-2020 will rise to US$1,361/oz – up from its current level of around US$1,288/oz.
This is predicted to continue growing through to 2023-2024 with an estimated average of US$1,566/t.