Alto Metals [ASX: AME]
Mining and Metals
Rapidly increasing gold resources
Alto Metals is focused on the expansion of gold resources at its Sandstone Gold Project in the East Murchison Mineral Field of Western Australia. Since the acquisition of the Sandstone tenements in 2016, Alto has rapidly expanded the resource base at the project to the current optimised pit-constrained Mineral Resource Estimate (MRE) of 832,000 ounces at a grade of 1.5 g/t gold, and it’s targeting a resource large enough to support a standalone operation at Sandstone. Given the high quality of the resources and the location of the project in a tier 1 mining jurisdiction with ready access to infrastructure, we see a reasonable chance for the gold deposits at Sandstone to be eventually mined.
High-quality resource base with significant growth potential
Sandstone’s pit-optimized resources are shallow and have a high grade with a reasonable prospect of converting Inferred Resources to Indicated with simply more infill drilling. Over 70% of pit-constrained ounces are within 100m from the surface and 90% within 150m. Mineralisation remains open along strike and at depth, highlighting the strong potential to continue growing the resource inventory with further drilling. Metallurgical test works on ore from Sandstone’s various deposits have shown excellent results, and historical production from some of Sandstone’s deposits has proven the mineralisation at those deposits to be amenable to conventional cyanide extraction.
A bullish outlook on gold supports the project’s economics
Gold is a monetary metal with zero third-party risk and is also an asset known to almost constantly growing in price over the long-term as its uses and market desire keep growing with the increasing population and wealth, while the fact that it’s an asset that’s scarce limits its supply growth. The combination of high inflation rates, high economic uncertainty levels, and forecasts of the hiking interest rates cycle getting closer to its end indicates multiple catalysts that could push gold prices higher in both the short term and the long term.
Valuation range of A$0.095–0.119 per share
We value Alto at A$0.095 per share in a base-case scenario and A$0.119 per share in a bull-case scenario using an asset-based comparable valuation methodology. Currently, Alto’s resources are trading below the Australian peer average EV/Resources Multiple of A$88.1/oz of gold. However, given the high quality of Sandstone’s resources and the project’s ready access to infrastructure, we believe Alto should trade at a premium to the peer average. As such, we believe Alto is currently undervalued. The key risks to our investment thesis include commodity price risk and funding risk.