EDITOR: | May 14th, 2013

Alkane Resources: Company Insight – MD on Momentum With Developing Projects

| May 14, 2013 | No Comments

Alkane-Resources-LtdMay 14, 2013 (Source: Alkane Resources) —

Highlights of Interview
• Very strong economics for Dubbo Zirconia Project – NPV of $1,235 million.
• Project moving ahead with no reason why it won’t be developed; financing by mid 2014.
• Explains why the DZP is a strategic & alternate source of zirconium and heavy rare earths with very long term supply.
• Reviews the strategic partnerships established for the DZP.
• Current funding of $65m cash and $70m in liquid investments with no debt & Tomingley Gold  Project in construction for forecast $20-25m per annum free cash flow for up to 10 years.
• Is still considering selling a minority stake in the DZP at multiples of the NPV.

Record of interview:

Alkane Resources Ltd (ASX code: ALK, market capitalization of ~$210 million) recently announced an updated Definitive Feasibility Study (DFS) for its 100%-owned Dubbo Zirconia Project (DZP). Can you outline the updated project economics and scope of the project?

Managing Director, Ian Chalmers
The capital cost has decreased to $996 million and this includes a 20% contingency so we think we’re still being conservative. The annual revenue is just over $500 million with annual operating costs of $214 million and that provides a very healthy operating margin. The summary financial numbers are an annual EBITDA of $290 million, an investment rate of return on capital of 19.3% per annum and a very attractive NPV of $1,235 million using an 8% discount rate. EBITDA over a 20 year mine life is $5.23 billion, but the mine life
could be considerably longer based on the current resource alone.

It is a very robust project and we can’t see any reason why it wouldn’t proceed. We have strong interest in the project from potential customers, strategic partners and financiers – all key players in making the project successful.

Rather than outline the scope of the project here again, readers can refer to our various ASX announcements on the DZP which refer to issues such as the process, product output, market strategy and assumed prices. TheDZP will process 1 million tonnes of ore in the base case and the revenue streams will be in the following proportions: zirconium 31%, heavy rare earths 30%, light rare earths 24% and niobium 16%.

Can you explain why you have updated the Definitive Feasibility Study (DFS)? Was it in any way related to its commercial viability?

Managing Director, Ian Chalmers
The DFS in 2011 assumed a smaller base case of 400,000 tonnes of ore per annum throughput. At that stage, we believed that not only could we sell more products, but we believed the larger project at 1 million tonnes per annum would be the more robust project

Since 2011 we have undertaken substantial process development work which led to improvements in capital and operating costs and revenues. This development work is continuing, however we reached a point where we thought it was important to finalise the DFS so that we can progress other objectives, such as the financing program and the Environmental Impact Statement, in order to achieve development approvals early next year.

You’ve described the DZP as a strategic and alternate source of zirconium and heavy rare earth products with a resource capable of very long term supply. How does it stack up on a world scale of projects producing similar products?

Managing Director, Ian Chalmers
The DZP is not a rare earth project but is the only advanced polymetallic project of its kind in the world today that has proven its flow sheet through pilot plant operations. Polymetallic in that it will produce zirconium, niobium and rare earths. While there are a few other similar projects elsewhere these currently appear to be a fair way behind in terms of development.

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