The ‘Alkane Advantage’ includes benefiting from soaring global gold sales
Alkane Resources Ltd. (‘Alkane’, ASX: ALK | OTCQX: ALKEF) engaged in the exploration and mining of rare earths and gold. In recent months, Alkane has filled more headlines for gold than rare earths because last March, its Tomingley gold mine southwest of Dubbo officially opened and started production on schedule. Alkane estimated an initial revenue was estimated at about AUD$ 20-25 million, given a yearly production of some to 60,000 ounces. The timing of Tomingley’s opening is ideal as, despite a halt in the gold price rally, Alkane has benefited from soaring global gold sales, allowing the Company to essentially ‘hedge’ against the drop. In the second quarter, the world bought 190,000 more ounces than expected, bringing the total to 5.07 million ounces. This is the first increase in forward sales since 1999. For the full year, experts predict that gold sales should increase at least by one million ounces.
Alkane may likely increase production earlier than expected in order to take advantage of the demand. Alkane has hedged its gold with Credit Suisse “for delivery of 25koz by 16 May 2014 at a price of AUD$ 1,449/oz (USD$1,308/oz), limiting gold price volatility. Alkane Resources has also made an effort to be as efficient as possible in its gold exploration, using an advanced numerical model developed in collaboration with scientists from the West Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO) to reveal details about Alkane’s three gold deposits at Tomingley in order to determine gold mineralization zones that have remained hidden from geologists. The alternative would have been to rely on the more expensive and less efficient pattern drilling method.
Alkane has an additional advantage in that, being in Australia, it is well placed, geographically and through various trade agreements to take advantage of Chinese gold demand. China is expected to remain the undisputed leader of the gold consumption in the coming years. According to the World Gold Council (WGC), Chinese demand is expected to jump 25% by 2017 to reach a total of 1,350 tons of gold. China is literally thirsty for gold and it already accounts for 26% of global private demand. The Chinese consider equity markets to be too volatile and real estate, which is driving demand for direct investment in gold bars and jewelry. The WGC believes that Chinese consumption of gold jewelry should rise from 669 tons in 2013 to 780 tons in 2017.
Alkane’s gold will help finance the Dubbo Zirconia project in New South Wales rare earths project. Even if gold has stolen the headlines lately, Alkane has been continuing development at Dubbo. In early April it signed a contract with Hatch Pty Ltd to provide front end and design (FEED) to deliver engineering, infrastructure, water and acid plant processing among other aspects on the basis of the Definitive Feasibility Study issued in April 2013. The FEED will give Alkane as accurate an idea as possible about the core costs of getting the project to production and, therefore, ease the necessary funding to bring the project to production. Alkane expects the FEED to be ready by the start of the fourth quarter, or at the end of the summer. The DFS for the Dubbo Zirconia Project predicted an initial 20 year life with EBITDA of AUD$5.23 billion and NPV of AUD$1.23 billion. Alkane has already managed to secure some very big financial players to arrange the investment banking and product financing support including Credit Suisse, Sumitomo Mitsui Bank and Petra Capital.
In April, Alkane also announced that it has found a gold and copper mineralization zone at the McGregor Prospect of its Kaiser Project, also in New South Wales, which presented 1.06% copper at 8 meters and 0.34 grams per ton of gold at 109 meters.