'Shovel-Ready' project could benefit from rebounding rare earth prices

Alkane's Tomingley Gold Project

Snap quiz: the transition metal Zirconium (Zr) can be found in a. nuclear reactors, b. prosthetic hips, c. jet engines or d. all-of-the-above. You guessed it—it's "d."

Zirconium is an obscure do-it-all metal critical in auto exhaust catalysts, electronics, engineering, ceramics, optical glass and industrial alloys. It is typically traded as:

  • fused zirconia—zirconium oxide (ZrO2)
  • zirconium chemicals—including zirconium oxychloride (ZOC)
  • zirconium basic carbonate (ZBC)
  • zirconium sulfate (AZST)
  • zirconium hydroxide (ZHO)

According to a recent "Quarterly Activities Report" published by Alkane Resources Ltd. (ALK:ASX; ANLKY:OTCQX), "China's continuing 'war on pollution' via strict environmental inspections is having far reaching effects on supply of all types of chemicals, including zirconium and rare earths. Reported shortages in availability of zirconium oxychloride (ZOC) have increased delivery times, and raised concerns about ongoing supply."

ZOC prices increased 40% in the first half of 2017. Prices are now over 60% higher compared to the end of last year and are currently $6,700 USD per tonne on a 100% zirconia basis.

For the last 25 years, Alkane has operated exclusively in the central-west of New South Wales, Australia.

The Dubbo Project (DP) is a construction-ready mineral deposit containing zirconium, hafnium, niobium, yttrium and rare earth elements. Alkane owns the surrounding land. State and federal approvals are secured. The Dubbo Project is now in the financing phase.

The focus now is on:

  • Securing offtake contracts
  • Signing a deal with a strategic investor
  • Updating financial models
  • Forming partnerships with commercial debt providers
  • Engaging with Export Credit Agency (ECA) finance teams

The Dubbo Project is designed to create a long-term supply chain of 15 critical metals and oxides. The diversity of products will require specialized processing. The broad base of industrial end-users provides a stability of revenue streams.

Alkane's marketing team has been meeting with zirconium, hafnium and rare earths buyers in Europe, U.S. and Japan.

"Most customers are acutely aware that China supplies over 90% of zirconium chemicals and over 80% of rare earths supply," stated the quarterly report, "Customers have experienced a steady increase in prices this year from China, as well as periods of interrupted supply, which have highlighted supply chain risks and the importance of the DP. An additional LOI was signed during the quarter for zirconium products, with further LOIs under discussion."

Alkane is also currently generating cash flow from the Tomingley Gold Operations (TGO) 50 kilometers southwest of Dubbo in central-west New South Wales, Australia.

Tomingley reported gold production last quarter of 24,122 ounces at an all-in-sustaining-cost (AISC) of $982/ounce. Site operating cash flow after development costs for the quarter was A$14 million. Gold sales totaled 21,610 ounces for revenue of A$36.4 million at an average price of A$1,685/ounce.

Full year guidance for 2018 is 65,000–70,000 ounces of gold. The company has A$46.3 million in cash and bullion on hand.

"The Dubbo Project nears finalization of critical path items, including the completion and pricing of a modularized development approach by industry heavyweights, Outotec," wrote Analyst Tom Hayes of Edison Investment Research on October 26, 2017, "This study is due for completion in Q218. All required Dubbo development permits have been sourced and the project is effectively 'shovel ready.'"

Hayes also noted that a "number of the Dubbo Project's end product prices have seen a rebound over the past six months, and provide a clear reason to focus on Alkane's long-held flagship asset."

Disclosure: 
1) Lukas Kane compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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Disclosures from Edison Investment Research, Edison Insight, October 26, 2017

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Source: Streetwise Reports  (10/31/17)