EDITOR: | June 2nd, 2016 | 8 Comments

Alkane details how Dubbo project will become a substantial cash generator

| June 02, 2016 | 8 Comments

ALKANE_CTMS2016June 2, 2016 — Ian Chalmers, Managing Director of Alkane Resources Ltd (ASX: ALK | OTCQX: ANLKY) presented at the 5th Annual Cleantech and Technology Metals Summit held in Toronto recently. Alkane is a multi-commodity mining and exploration company with a focus on gold, copper, zirconium, niobium, hafnium and rare earths. Its projects and operations are located in the Central West region of New South Wales, in eastern Australia.

Mr Chalmers, in this video presentation, explains

  • How the Dubbo Zirconium Project, while costing near A$1 billion to develop, will be a substantial cash generator.
  • Why rare earth products produced by Vietnamese partner can undercut China producers
  • How the range of products from Dubbo releases the project from being dependent on any one commodity
  • How 15 years of hard work have paid off

And, at the end of the presentation, he makes a keen point about Alkane’s profitability in the rare earth space.

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  • investor

    This project has been going on for too long.
    As an investor I am not sure what to value.
    I need one commodity. Too big and complex.
    How do you expect people to understand and value multi commodities.
    You need to be producing all these at the desired outut and purity in order to realise profits.
    Question for Ian Chalmers? Why are you persisting with it?
    You have wonderful gold deposit and other exploration potentials?
    Why not focus on these and drop the DZP? Come on!

    June 7, 2016 - 7:17 AM

  • Ian Chalmers

    Investor, sorry about the slow response but I don’t get much of a chance to revisit these stories (and somebody points out a question). The DZP is a very good project and we have continued to derisk it over several years by operation of the demonstration pilot plant to confirm the engineering and prove our ability to produce multiple high value products which customers will buy. As we have shown over the last few years the DZP is very viable even at current rare earths and Zr, Hf and Nb prices and will generate an annual US$250 million cash flow for several decades. We do not need RE prices to double or triple as virtually every other RE project needs to get off the ground at present. The DZP is now construction ready after all the hard work and we are advancing the financing options to progress to construction. It does not need further funding investment at present.
    Yes the gold project has been very valuable to Alkane’s development as a mining company, and will continue to do so for several years. We will continue to explore to find the next resource to slot into the development pipeline. In the worst case scenario of not being able to get the DZP fully funded in the next 12 months, we can park it at no cost and focus on the gold mine and gold-copper projects that we have.
    Although I don’t get much time for investing (except in ALK) I value companies on their cash generating capacity, not whether it is from gold, REs or widgets. Right now ALK has about US$20-25 million pa from gold and will get closer to US$300 million pa within about 5 years. And yes, we are not even valued for our gold cash flow today!

    June 25, 2016 - 3:50 AM

  • Trevor

    Hi Ian,
    Thanks for the presentation. I had some questions about the DZP and the company.

    1. You had a slide from 26/04/2016, which outlined that you spent $27.6 million on DZP from 1st July 2014 to 31st March 2016. How much are you expecting for 2016/17 on DZP total?
    2. In the same slide you had 11 million from project area land purchases. Could you break this down a bit. How much land and why did you purchase?
    3. The gold project needs to go underground? I think a CAPEX figure of around $31 million was said? How will the company afford this? Will the company 100% go underground, and how easy/hard is it?
    4. Gold has shot up in price. Alkane has a hedged position. How many ounces are left, what price and how long until the hedge will be finished so hopefully we can take advantage of the new gold price.
    5. I find it hard with the DZP to know how it compares with projects around the world, eg (size and grade, and upfront capex etc). Is there anyway you could do a slide on this in an upcoming ASX announcement?
    6. Why cant you process the resource at Peak Hill at your new gold project? Eg truck it from peak hill?
    Thanks in advance.

    June 26, 2016 - 12:51 AM

  • Ian Chalmers

    Trevor, sorry again but this is the first time I’ve been back to this since the 25th. Answers:
    1. The DZP is now construction ready, so we don’t need to spend much more. Probably about A$3M for operation of the pilot plant to confirm the recent flow sheet improvements and produce products to secure off-take agreements in the next 12 months. There will be some costs for market development.
    2. As at 30 June final land purchases totalled A$14M with no more to spend. Although the actual project impact is about 500 hectares, it straddles 6 properties. These are quite small farms and cannot be worked by the owners if we only take parts of the properties, hence we have to buy the whole farm. So we now own 3,500ha (about 1,000 to be used for biodiversity offset – Federal law).
    3. The $31M capex is total u/g life capital spend to recover the defined reserve. To get the portal in and initial development for ore production is about $10M over 18 months. This can be funded from cash flow.
    4. We currently have 63,900oz hedged at A$1,690/oz. This changes weekly as we sell into or roll over to a new price.
    5. This is quite difficult as there are no active projects that are similar. Best to look at slide 11 in the Cleantech presentation which shows the capex, opex and how the output revenue is distributed. Importantly the price deck used are current spot. The tonnes and all metal grades are tabled in slide 23.
    6. The ore at Peak Hill is classified as moderately refractory, ie it needs some preliminary processing before it can be treated at a typical CIL plant like Tomingley. We are currently looking at what is required to bring PH back into production, so I’m optimistic that it could happen within 3 or 4 years..
    Hope this helps.

    July 5, 2016 - 2:28 AM

  • trevor

    Hi Ian,
    Thanks for the Answers to my post from Trevor.
    I had some follow up questions if you have time.
    1. Bodangora Nsw EL4022 and EL6209, do any of these tenements have royalties on them or buy back provisions? I seem to remember a RIO Tinto buy back on some tenements, but I could be wrong.
    2. Could you give us some insight to the latest drilling on the above two tenements? And past drilling?
    3. In the last Qrt report. There was a 14million capital loan with Macquarie. What is the meaning of the loan?
    4. Development Expenditure was $18.4 Million in FY15/16. The last qrt was only 1.4 Million. Well down on the first three qrts at an average $5.76Million Average. What are you expecting for 16/17 for this.

    July 15, 2016 - 1:58 AM

  • Ian Chalmers

    Thanks Trevor, answers below:
    1) No residual royalties or buybacks as we bought out Rio interests a few years ago.
    2) We believe that the Kaiser – Duke – Belgium area has significant potential for a porphyry gold-copper system (like Newcrest’s Cadia-Ridgeway system). Currently there appears to be a very large envelope of alteration and mineralisation within an area of about 5km x 2km. The key now is to find the core high grade section(s), and we hope to start drilling again before the end of the year.
    3) The MBL loan is a working capital facility that is half related to the rehab bonds with the state government (this frees up the funds for use by ALK) and the other is for TGO development, particularly to commence the underground access and mining. It has a short duration and will be repaid early 2018. The strategy is to take pressure off the TGO cash flow, and to ensure ALK is adequately financed to cover any adverse situations.
    4) The development expenditure relates to the Tomingley operation, and covers costs like tailings storage, waste stripping and rehabilitation. These costs are included in the site’s AISC. It was lower in the last qrt due to timing (not being able to get the work done due to the persistent heavy rain). For FY17 we anticipate being around A$30M depending upon the timing of the u/g development.

    July 20, 2016 - 5:16 PM

  • Trevor

    Hi Ian Trevor Again, thanks for the feedback.
    Just three questions to go.
    1. Last year in the cashflow statement purchase of property and equipment was $15.1 million. What are you expecting this year?
    2. Last year exploration was $6.7 million. What do you expect in 2016/17 cashflow.
    3. The DZP is extremely costly upfront. Has any thought been given to mine it on a smaller scale. Eg allowing for a smaller upfront cost, thus getting into production quicker?

    July 21, 2016 - 7:48 PM

  • Ian Chalmers

    Hi again Trevor,
    I’m always happy to answer questions.
    1. None really on property. There will be some costs relating to the set up of the property / environment managements costs for the DZP.
    2. The exploration expenditure as defined by the ASX system includes other evaluation costs, so most of the A$6.7M is DZP engineering, pilot plant and marketing with only about $1M genuine exploration. This year we have a budget of $3M for real exploration.
    3.We’ve given a lot of thought to the costs, and have serious study nearing completion to look at how the expenditure could be staged. I hope the results of that study could be released in this quarter. The final decision might relate to our offtake arrangements and we would want to ensure that we meet the demands of our customers – this would impact on plant throughput and hence size.

    July 23, 2016 - 3:01 AM

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