Bruno: Alkane Resources has a golden recipe for success in the rare earths sector
Alkane Resources Ltd. (‘Alkane’, ASX: ALK | OTCQX: ALKEF) is a mining and exploration company focused on zirconium, niobium and rare earths in New South Wales, Australia. Alkane also started to produce gold. The Company’s main rare earth interest is the $1B Dubbo Zirconia Project (DZP), with an estimated open pit mine life of 70+ years that is expected to process 1 million tons of ore per year. One of Alkane’s major advantages is that it started to confront the biggest problem facing rare earth explorers from the very beginning. It is not major feat to produce concentrate from the ore. The key factor, rather, lies rather in the separation of the many metals which make up the commodity group known as rare earths. This is where many have failed by not succeeding in developing cost-effective separation processes, usually relying on a single basic technology based on solvent extraction. Alkane, however, has been working on the processing aspect with outside partners almost from the very start.
The ore body features large concentrations of zirconium, yttrium, niobium, hafnium and rare earths. In late 2013, Alkane issued a number of statements related to increased rates of recovery from the ore at the DZP. In fact, in the latter half of 2013, Alkane has worked very closely with the Australian Nuclear Science and Technology Organisation (ANSTO) – and its own demonstration pilot plant – on ways to improve recovery. Alkane’s CEO confirmed that recovery rates have improved to the extent that Light rare earths (LREE) went up 17% and the more in-demand Heavy rare earths increased about 44%, from about 900tons/yr. to 1300tons/yr. The upgraded values could add an estimated $40-$50million a year in revenue. Alkane has therefore followed a ‘recipe for success’ by developing a production that adapts to the market and is open to continuous improvement, adjusting the processing methods in order to extract more of the high-demand rare earths thanks to its strategy of cooperating with various refiners and research institutes allowing for ‘synergies’ to be established.
Moreover, 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. Alkane indicated that it has also considering selling a 10% stake in the project to raise AUD 200 million. The Japanese financial backing is no coincidence, given that the Dubbo project is very promising given that includes a combination of some of the most in demand rare metals including niobium, terbium, zirconium and dysprosium. The main Japanese processer of rare earths, Shin-Etsu Chemicals, has already signed a memorandum of understanding (MOU) for an offtake agreement for Dubbo. The Japanese ‘connection’ and the presence of Sumitomo Mitsui Bank suggest that any additional financing or project participation will also be Japanese. Japan, moreover, has been reducing its reliance on rare earths imported from China and it has looked to Australian suppliers with great interest, Alkane being one of them.
Alkane has also hedged its rare earths activity through a soon to be gold production facility at the Tomingley Gold Operations. Thus Alkane will have revenue coming in from gold production, while continuing work at the Dubbo Zirconia Project. Last February 14, Alkane’s managing director, Ian Chalmers, confirmed that gold production has gotten underway at Tomingley as the first pour took place with the production of a more than eight kilo bar, containing about 230 ounces of gold. More literally, Alkane announced it 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. The fact that Alkane delivered the first gold production on schedule should also raise the confidence of investors (and customers) that Alkane knows how to get a project from grass roots to completion on schedule and on budget. The gold revenue will further help Alkane e complete the larger and more complex – and more revenue prolific – DZP.