Alkane’s ‘best-in-class’ rare earths, hafnium, zirconium project nears key offtake agreement
Investors in rare earths projects have had to deal with disappointment in recent years. A potential new market blossomed in 2011 when prices doubled in a two-week period on news that China threatened to control supplies.
The announcement spurred a wave of projects in other countries on the prospect of high prices and manufacturers seeking to diversify away from Chinese sources. Geo-political concerns about rare earth (REE) supply even found its way into the House of Cards narrative.
As many InvestorIntel readers know, none of the above happened and the hot investment story of 2011 didn’t unfold in the way the market expected it to. Prices slid back to their long-term averages, leaving several of the projects in Africa and Australia beached.
Perth-based Alkane Resources Ltd. (ASX: ALK | OTCQX: ANLKY), with one of the best-in-class projects from that period, hasn’t given up on the rare earths market, neither for two other key metals – zirconium and hafnium — that it holds at the Dubbo project located 400 kilometers (250 miles) from Sydney. Alkane Managing Director Nic Earner says the market is turning for each of the commodities held at Dubbo, and the quality of the resource means that negotiators for major industrial companies are reconsidering long-term off-take agreement options.
“It’s only now that the market is moving and their superiors [senior management responsible for procurement] have told them to start taking a risk,” Earner said. “There appears to be structural change and that’s changing the supply and demand. We are talking about off-take agreements with a number of players.”
The change is being spurred by a policy change from within China to shut down illegal suppliers of rare earths, and producers of zirconium. Demand for zirconium is growing at between 6% to 8% a year on a number of next generation electric vehicle uses, besides demand in solid oxide fuel cells used in portable power storage devices and mobile phones. There is also strong demand for hafnium, a mineral used in alloys used in high-temperature environments such as rocket engine nozzles and thermal shielding. Hafnium is emerging as a replacement material for silicon in some applications.
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Bosch Industries recently signed an off-take agreement for REEs and more are expected to follow. Alkane signed a three-year, nonexclusive memorandum of understanding in 2016 with German engineering group Siemens to progress towards an offtake agreement. The company is now in talks with several companies, Earner said.
Zirconium projects have struggled to secure off-take agreements because the industry is used to abundant supplies and manufacturers rely on just-in-time deliveries, Earner said. Pending talks, however, may differ from similar negotiations in the lithium industry because of fewer competition among companies developing projects, Earner said.
“They are all taking a good hard look at their hard chain, I’ve never seen more interest in zirconium than in the last six months,” Earner said. “We find ourselves among probably four or maybe five serious contenders, each with their own strengths and weaknesses.”
One of those strengths has been Alkane’s operating gold mine, Tomingley, that continues to provide cash-flow for the company. Alkane Resources has used those revenues to secure environmental permitting and get the project into construction-ready shape the moment a serious off-taker permits the company to secure full financing. The company also plans further drilling at Tomingley to further extend the life of the mine and keep financing milestones at Dubbo, even though the key off-take agreement appears to be just around the corner.
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>