COMPANY PROFILE
ALKANE RESOURCES
AUSTRALIA AND ASIA
Alkane set for defining year
World-class strategic-metals project looms large over company’s producing Australian gold mine
T
Mining at Alkane’s
Tomingly gold
mine in New
South Wales. The
company’s track
record in the state
is impressive
58
HIS YEAR IS SHAPING AS A
pivotal one on Alkane Resources’ (ASX: ALK) road to
a planned 2019 production
start from one of the world’s most important emerging sources of zirconium, niobium, hafnium and other rare
earths, with marketing and finance
governing the speed of advance for
the fully permitted Dubbo project in
Australia.
With its strong cash position
(A$24.5 million at the end of 2016),
revenue-generating gold asset not
far from Dubbo, and unique track
record of delivering test products
into markets from a pilot plant that’s
been fully operational for eight years,
Alkane is a rare entity in a strategic
materials sector that has downstream
participants longing for secure, highquality sources of supply.
Having recently delivered a modern mine on schedule and within
budget in the tier-one jurisdiction of
New South Wales (and with a 20-year
history of exploring, operating and
rehabilitating sites in the state’s cen-
tral west), Alkane CEO Ian Chalmers is
determined to do the same with the
company-making asset that has defined Alkane for nearly two decades,
and has attracted strong interest
from significant offtake parties such
as Siemens and Minchem, and the
Vietnam Rare Earth JSE for rare earth
separation.
The goal has been made more immediately attainable by the adoption
of a new, staged and modular development approach that cuts in half the
former capex hurdle of US$970 million. Alkane is working with leading
Finnish engineering firm Outotec on
optimisation of the design that could
also deliver important operating and
overall (stage one and two) capital
cost reductions.
A 500,000 tonnes per annum startup production rate – versus the previous 1 million tonnes per annum
– pushes out the projected 70-year
operating life of a project based on
one of the world’s largest in-ground
resources of zirconium, hafnium, niobium, yttrium and RE elements.
February 24 - March 9, 2017 • mining-journal.com • Mining Journal
Chalmers says the proposed
US$480 million Dubbo project, with
its faster payback prospects, makes
it a more digestible proposition for
providers of the project-level, Export
Credit Agency, bank debt and equity
financing mix Alkane is striving for.
He concedes the opacity of some
RE and ‘high-tech’ metal pricing and
markets activates red risk flags, but
tolerance is growing as existing supply arrangements mature and the
escalating demands of strategic material users become more visible.
“Offtake agreements ultimately
drive the financing – the level of
financing and the timetable – so
we’re putting a big effort into offtake agreements and arrangements,”
Chalmers says.
“Apart from building on those
existing LOIs and MOUs, we are
focused on securing offtake agreements and joint-venture relationships, or technology-development
relationships.
“There are a number of those in
pipeline at this time.
“It’s difficult to set a precise time
on when they will be concluded, but
I remain optimistic that by the end of
this quarter we should have two-tothree of those in place and by halfway
through the year we will have a number in place that will give us the confidence that we are putting away all
the offtake agreements and arrangements necessary for financing.
“One of the positives that has come
out of this change of development
concept, with the staged modular
plant, is that it halves the volume of
material that we’ve got to put away
to generate the revenue. So the progress we’re making on that is pretty
good.
“We’ve certainly made a lot of
progress on the zirconium – the same
with the progress on the rare earths
and niobium.
“It is worth understanding, though,
that the supply of these commodities has traditionally revolved around
short-term agreements. Offtake
agreements typically run for six or 12
months, maybe 2-3 years if you are
lucky. So that’s one of the complexities we’re dealing with.
“We’re working to educate the
banks and financiers and credit agencies that that’s how this works. Some-
times you may not get binding agreements until you’re at a point where
you’re starting to produce material
that can be certified by the customers. So that demands the right riskmanagement procedure. The banks
don’t like that level of uncertainty,
but it’s just the nature of the business
and we have to live with that.”
Chalmers says Alkane has spent
more than 10 years researching and
building an understanding of RE and
zirconium chemical markets dominated by Chinese producers, and a
high-grade network of experienced
marketing and business development personnel in Europe, North
America and Asia. “It’s very important for those relationships with key offtake parties to
work to have people who do know
the business and have been around
for a long time,” he says.
Chalmers sees positive portents for
zirconium, niobium and key RE pricing needed to elicit new production
outside of established oligopolies.
Alkane would not be swamping the
market with supply in any of its core
target product streams.
“We can say we’ll potentially be the
single biggest producer of hafnium
products and therefore have the ability to be a long-term stable and sustainable supplier, which is what the
market is looking for,” Chalmers says.
Alkane is looking at initially supplying
small product volumes and building
as the market develops.
“Hafnium is an interesting market because we won’t see some of
the key emerging applications for
the metal kicking in until that stable
source of supply is established and
people can see there is a long-term
reliable source.
“Overall, we feel comfortable putting in [price] escalators in the financial model for all output – small escalators – to give a real valuation on the
project.”
Alkane will continue to supply sample products into the market this year
– “we have a fairly big programme
coming up”, Chalmers says – as part
of marketing and commercial plant
refinement efforts. Prospective customers continued to provide valuable product feedback.
“It really is an iterative process,”
Chalmers says.
“With all of these products the consumers must prequalify them before
buying long term. So we’ll continue
with that prequalification momentum. We’ve been doing that now for
three years and we’ll continue to do
that throughout 2017 as well.
“Just in the rare earths space – because unlike with the other metals
there are still projects pushing forward there – we see that as an important differentiator. We don’t have
a situation where we produce a concentrate and cart it off somewhere
else to be processed before testing.
Our final products are coming out a
fully operational, [there’s a] functional pilot plant and I think in that sense
we’re a long way ahead of anybody
else.”
Sans the weather interruptions that
negatively impacted production and
free cash flow from Alkane’s Tomingley mine last year, Alkane is expecting
a return to the substantial FCF of FY16
over the course of 2017.
That, and positive outcomes from
the work Outotec is doing on Dubbo’s
detailed design, should see progress
being made on the ground at Dubbo
from the middle of this year.
Chalmers says work on the proposed modular design is proceeding
smoothly toward a June finish. With
smaller components, offsite fabrication and easier assembly than the
bigger plant first examined, the design could also yield further economic benefits. Scale-up of first-phase
Dubbo project would likely occur
over 3-4 years from 2020.
“All the permitting is done – there
are no outstanding permits,” Chalmers says.
“It’s just down to making sure we
have enough offtake in place to guarantee the revenue stream that we
need, and financing, and then pressing the go button.”
Dubbo pilot plant:
a key differentiator
for Alkane
“We’ll potentially
be the single
biggest producer of
hafnium products
and therefore have
the ability to be a
long-term stable and
sustainable supplier”
– IAN CHALMERS
CHIEF EXECUTIVE OFFICER
ALKANE RESOURCES
AT A GLANCE
0.7
Alkane share price (A$)
0.6
0.5
0.4
0.3
September, 2016
February, 2017
HEAD OFFICE
Alkane Resources
89 Burswood Road, Burswood, Western
Australia, 6100 Australia
Tel: +61 8 9227 5677
Email: [email protected]
Web: www.alkane.com.au
DIRECTORS
John Dunlop, Ian Chalmers, Ian Gandel,
Anthony Lethlean
MARKET CAPITALISATION
A$167 million (February 21)
QUOTED SHARES ON ISSUE
505.2 million
MAJOR SHAREHOLDERS
Abbotsleigh (Gandel Metals), 22%;
Fidelity Group, 7%
Mining Journal • mining-journal.com • February 24 - March 9, 2017
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