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Home Stock in Focus – Alkane Resources
November 27, 2025

Stock in Focus – Alkane Resources

Cromwell Jordan Lipson Portfolio ManagerJordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Sitting on a Gold Mine

The Cromwell Phoenix Global Opportunity Fund’s mandate is simple but wide: to seek out attractive opportunities across the small-cap universe where securities trade at discounts to readily assessable net asset values (NAVs), or where special situations create strong risk-adjusted return potential. This allows us to go wherever opportunities may present. Towards the end of 2024 an opportunity presented to invest in gold miners. A fast-rising gold price and a muted response from gold miners led to a compelling investment opportunity. These purchases, along with a timely addition in May this year, meaningfully contributed to returns over the period.

Gold vs Gold Miners

When the price of gold goes up, gold miners benefit more than you may inherently think. This is because a mine is leveraged to the price of gold in a way simply owning gold bars isn’t. Despite the immense challenge of running a mining operation, the underlying economics are relatively simple. Costs include the energy, people, infrastructure and equipment it takes to get gold ore out of the ground (and often process it) and revenue is the amount purchasers pay for the gold. For the most part, the cost of extracting the gold does not change when the gold price does, while revenue is directly linked to the gold price. A simple example highlights just how much leverage a gold miner might have to the price of the shiny metal. Let’s say it costs $1,500 to extract an ounce of gold, and the price of gold is $2,000 per ounce. The miner will clearly make $500 for every ounce of gold it mines and sells. Now let’s say the price of gold increases by 50% to $3,000 per ounce. It still costs $1,500 per ounce to get the gold out of the ground1 but now my pretax profit has increased by 3 times to $1,500 per ounce ($3,000 – $1,500) despite the gold price only increasing 50% (see below).

 

 

This example is dramatically oversimplified and misses much nuance, but what naturally follows, is that when the gold price increases, the price of a gold miner should go up even more (all else equal). In the example above, a 50% increase in the gold price has led to the mine becoming 200% more profitable. The chart below shows what actually happened in 2023 and 2024. Rebasing values to 100 as at the start of 2023, it shows returns for junior gold miners compared with returns of the gold price:

 

As can be seen above, across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%. This is the opposite of what would be expected to happen. Some of this relates to a more challenged cost environment, but that alone can’t explain this outcome. What happened next is shown in the chart below. It expands on the chart above, beginning in 2023 and continuing until the end of the September 2025 quarter.

 

As can be seen, the environment for gold has been extremely conducive since the end of 2024. The gold price continued to rise, and gold miners have finally seen the upside leverage to the gold price reflected in their own share prices.

What happened?

Analysing exactly why gold miners underperformed the rally in the gold price initially is an imprecise activity, however observations can be made. It is worth noting that brokers provide widely available net asset values (NAVs) for gold miners. Often, they provide two; one using their own assumed gold price, and another assuming the current (or spot) gold price remains stable. At the end of 2024, NAVs using spot prices showed many gold miners trading at a price to NAV of less than 0.5. Official published NAVs, using broker predictions of future gold price, were much lower. This was a result of “expectations” of a lower future gold price. In reality, brokers are hesitant to quickly move assumptions when information changes. This would require constant republishing and changes of opinion, none of which is practical or in their interest. This is not a criticism, as their job is to provide analysis, information and generate trades, not necessarily to be a hands on investor. In the case of gold however, there is a liquid spot and futures market2, which allows investors to observe the value of gold today and of the price at which it can be hedged in the future. This gold price can simply be utilised in a model to derive a valuation. The benefit of using a market-based gold price, relative to a single market participant’s expectation, is the “skin in the game”. The World Gold Council reports that over US$200 billion of gold is traded per day, and each buyer and seller is incentivised to maximise their own profit.

At the end of 2024, spot and futures prices were meaningfully higher than many broker estimates. To be fair, they were probably higher than many of the estimates in other investors’ financial models, however these models are not publicly available. With the gold price sustained at higher levels, the outcome was predictable. Brokers (and probably other investors) moved their gold price assumptions higher thereby increasing valuations. As the gold price continued to increase, this cycle continued, with assumptions and valuations consistently stuck in the past. The recent rally in gold miners reflects a catch up in those assumptions.

 

“Across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%.”

Spot colour mine truck.

Alkane Resources

Alkane Resources has long been listed on the Australian Stock Exchange and has been a holding of the domestically focused Cromwell Phoenix Opportunities Fund for many years. In April 2025, Alkane announced a transformational merger of equals proposal with Canadian-listed Mandalay Resources. The transaction was structured to have Alkane acquire Mandalay Resources and for shareholders of Alkane to end up owning 45% of the combined business with Mandalay shareholders owning the remaining 55%. This provided an opportunity for this portfolio to purchase a position in Mandalay, which was trading at a small discount to the merger price implied by Alkane’s Australian share price, and more importantly a meaningful discount to the merged company’s NAV and our assessment of valuation. The merger was highly likely to close as the transaction was recommended by both sets of board members and supported by major shareholders.

The merger represented an attractive proposition for both sets of shareholders. Mandalay had struggled for market relevance, as a closely held stock, listed in Canada, with assets in Australia and Sweden. For Alkane, the merger transforms the business from a single-mine producer into a multi-mine company, reducing asset-specific risk and improving production and earnings resilience. Furthermore, Alkane’s operating results have been burdened by legacy hedging contracts, whereas Mandalay is unhedged, providing the combined group with more direct exposure to movements in the gold price. The increased scale of the combined company has facilitated greater investor interest and attracted meaningful passive investment inflows. Alkane was added to the ASX 300 Index in late September and also received an upweighting in the US$8 billion VanEck Junior Gold Miners ETF (GDXJ), reflecting its enhanced market capitalisation and improved free float. Furthermore, the combined company is being run by long-time Alkane CEO Nic Earner, for whom we have a great deal of respect.

The merger was approved and successfully closed in early August. The portfolio’s holding in Mandalay until August marginally detracted value relative to indices, however since August, the holding (in what is now the merged Alkane Resources) has returned almost 66% in CAD. The position has been trimmed as it has risen, however remains 3.0% of portfolio assets at period end.

Current Positioning

With the recent rally in the price of gold miners, it is reasonable to wonder if they still represent an attractive investment opportunity. The answer in our view is broadly yes. The same biases that led to undervaluation in the past are still prevalent today as the gold price climbs higher. The portfolio has however been a net seller of these stocks for risk management reasons, as we do not wish to have too large an exposure to this one specific theme. The price to (spot) NAV of many gold stocks remains near 0.5, despite the strong performance. If current gold pricing holds, gold miners should produce strong profitability, cash flow and returns in the future.

As at period end, direct exposure to gold miners represents approximately 9.5% of the portfolio.

1In reality, a strong gold market would lead to tighter labour market conditions and other factors that would increase the cost of mining, but this is small in comparison to the increase in profitability. There may also be a royalty associated the gold mined, which is a variable cost based on the gold price.

2This is merely a market where a participant agrees to buy or sell a commodity at an agreed price at a point in the future. It can be used to speculate (or hedge) on the future price of the commodity. All things equal, a futures price should be the spot price adjusted for the time value of money and storage costs.

Cromwell Global Opportunities Fund Performance

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