Research on profitable gold mine price targets a 286% gain
Where would you find a publicly-listed rare earth company that makes a profit? Or a company that has a unique mix of rare and specialty metals such as zirconium, hafnium, and niobium with a profitable gold mine as well?
Alkane Resources Ltd. (OTCQX: ANLKY | ASX: ALK) is the subject of a 32-page report by analyst Christopher Ecclestone of Hallgarten & Company. He has a 12-month price target on the company that, if reached, would represent a 286% gain on its present prices (which are A$0.22 in Australia, $1.64 through its United States ADR listing).
Alkane owns the Dubbo Zirconia Project (DZP), near the city of Dubbo, which Ecclestone says “is akin to having several horses running the same race”. This project contains rare earths (25% in the “heavy” category), zirconium, niobium, hafnium and perhaps tantalum. And in the same region Alkane operates a gold mine that pays all the bills and keeps the company in profit.
The gold is the immediate story in terms of revenue, but the long term for Alkane is the DZP. Ecclestone describes the DZP as “a potential trove of high-value and high-demand metals all with applications in new and evolving technologies”.
But there is another aspect, which led Ecclestone to dub Alkane “the great survivor” in the rare earth sector. It first identified the potential of Dubbo in the late 1990s, but survived by dusting off the Tomingley gold project as an insurance policy against the notoriously fickle rare earth space and gave it cash flow and producer status at the same time. Alkane’s revenue for FY16 was A$109.1M generating site net operating cash flow of A$27.6M.
Here’s where the DZP stands at the moment:
- The financial feasibility study is complete; all environment approvals (state and federal) are in place and the engineering plan refined.
- The project has longevity: the mine is expected to process 1 million tonnes of ore a year for 70 years.
- The revenue split forecast is zirconium (31%), niobium (15.8%), praseodymium-neodymium (21.8%), terbium-dysprosium-yttrium (14.8%) and hafnium (9.2%).
- First production is scheduled for 2018.
Get our daily investorintel update
With the gold price climbing and the Australian dollar staying low, Ecclestone thinks that the gold revenue is unappreciated by the market which sees these profits as being used to fund the DZP. But he argues that if the gold project could be spun out and subject of an IPO, the cash windfall could far exceed its present cashflow.
Rare Earth Elements (REE)
Among recent developments has been the forming of a relationship with Vietnam Rare Earth JSC (VTRE).
A rare earth processing industry is evolving in Vietnam. As Ecclestone notes, Vietnam has shown itself to be aggressive in courting industries where, while it cannot offer raw materials, it can offer conversion of metals and minerals at competitive prices. Moreover, it has a geographical advantage: it is centrally located, close to end users and not too great a distance from the sources of raw materials.
VTRE has two plants. One at Phu Ly has a 4,000 tonnes a year rare earth oxide separation plant producing lanthanum, cerium, neodymium, praseodymium (the two sought-after magnet metals), dysprosium and terbium for Asian buyers. At Haiphong, the port city for Hanoi, there is a 1,200 tonnes a year rare earth metal alloy plant.
The letter of intent between Alkane and VTRE concerns toll-treating DZP’s rare earth concentrate to produce separated REE products. Alkane says the costs of such processing in Vietnam are lower than now being experienced at Chinese rare earth plants.
Almost half of zirconium (47% to be precise) demand is from the ceramics industry, followed by chemical uses (21%), refractory (17%) and foundry (12%).
It is used in production of ceramic pigments, drying agents, fire retardants, advanced ceramics, electronics and catalysts. Zirconias are also a key component of solid oxide fuel cells, a developing and important source of cleantech produced electricity.
While zircon consumption bottomed out in 2014, at its lowest point for a decade, Alkane is aiming to meet the demand for premium zirconium chemicals and zirconia that can compete with Chinese production of zirconium chemicals and fused zirconia. Says Ecclestone: “A major advantage of the DZP is the quality of zirconium product which is derived directly from the ore and not from a zircon source” at present, zircon is currently, and overwhelmingly, mostly a by-product of processing of ilmenite, rutile and tin.
Alkane is set to become the major producer of this metal, which is used in super-alloys for jet engine blades and industrial gas engines. It is classified as a strategic metal. It is also used in control rods at nuclear power stations.
While Hafnium in volume is a small part of the planned DZP output, it is forecast to produce 10% of the project’s revenue.
Alkane’s goal is to produce ferro-niobium with a 65% content at the rate of 3,000 tonnes a year (with 1.967 tonnes of niobium in that). In 2013 the company signed a joint venture with the Austrian metal alloy producer, Treibacher Industrie AG, to produce FeNb on site at Dubbo.
Adding niobium to steel makes it stronger, lighter in weight, and highly resistant to corrosion.
In his review, Ecclestone looks to the DZP as “the main game” and examines the Tomingley gold operation as “the enabler”. He notes that taking “this source of revenues to carry work forward on a Rare Earth project, Alkane has separated itself out from the rest of the REE pack who have been unable to self-fund development in a tough market”.
To access the complete Hallgarten & Company research report, click here
InvestorIntel is a trusted source of reliable information at the forefront of emerging markets that brings investment opportunities to discerning investors.