Alkane’s gold mine helps in waiting game for bigger rare earths pay-day
Alkane Resources Ltd. (ASX: ALK | OTCQX: ANLKY) has an enviable position as a rare earths, hafnium and zirconium exploration company – an operating gold mine. Receipts from the Tomingley gold mine in Australia are allowing Alkane to resort to equity financing rounds, meaning a bigger pay-day when it secures partnership for its key Dubbo rare earths project.
Alkane has spent some time waiting for the markets for key rare earths zirconium and hafnium to tighten – prompting manufacturers to lock up future mine supply. Alkane Managing Director Nic Earner believes it is only a matter of time before the zirconium market, for example, starts to see the kind of shortages that will prompt manufacturers to change their strategy. The receipts from the gold mine help in that waiting game.
“There is a lot of dilution and pain to get to those points,” Earner told InvestorIntel. “Most of us in the sector think the deal will come where prices keep rising and that’s the new normal, and people will commit to this project.”
Zirconium has a strong market that is underpinned by its key use as the substance that makes Spanish-made ceramic tiles look shiny. Global demand may be growing between 6% and 8% a year because it’s also used in electric vehicles and in solid oxide fuel cells used in power storage devices, and mobile phones.
Global supply is gradually declining because of lower grades at Rio Tinto’s massive Richards Bay titanium sands mine in South Africa, which makes zirconium as a by-product. China is also shutting down mines that used unsustainable practices to extract the rare earth.
As reported in February, Alkane has held negotiations with a number of potential offtake partners for both zirconium and hafnium, a material used as an alloy in high temperature environments.
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Earner said the key is in choosing an off-take partner of the stature that will enable a financing deal with a bank. There are plenty of smaller manufacturers from China with market capitalizations of up to $500 million in revenue a year that might not be enough to impress a major lender, he said.
Alkane continues to negotiate with larger entities too, having signed a three year memorandum of understanding with German engineering group Siemens in 2016.
But China could well be the headquarters of the partner for Dubbo, considered as a “best-in-class” rare earths project with all permitting in place. The total size of China’s economy crept up by $2 trillion to $14 trillion last year, slowly catching up with the US economy at $20 trillion, according to the World Economic Forum.
Chinese manufacturers, faced with a decline in domestic rare earths supply because of shuttered mines, are beginning to build equity stakes in mine projects overseas to ensure they suffer no supply disruptions in the future, Earner said. Middle class consumption of cars, homes and phones is a major driving force in zircornium demand. Dubbo is located 250 miles inland from Sydney on Australia’s East Coast, placing it within close proximity for shipping to Chinese ports.
Earner also said that a “Black Swan” type event, such as a worsening of the trade spat between China and the United States, could also accelerate the process of finding the ideal partner. With the Tomingley mine churning out a rarely seen revenue stream for a junior mining company, you can expect Earner and the Alkane management holding out for an undiluted, big deal on Dubbo.
Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>