Alkane Resources (ASX:ALK) production from the Tomingley Gold Operations held steady during the June 2015 quarter, helping full year production to reach 69,612 ounces - which is within the annual guidance of 65,000 – 75,000 ounces.
Full year sales of 70,734 ounces provided revenues of $101.9 million at an average price of A$1,441/ounce, as at end of June 2015.
Cash flow for the June quarter after site operating expenses and development expenditure was negative A$0.5 million, but delivered an impressive positive $23.7 million for the full year.
Total operating costs for the year were higher than anticipated at A$1,249 an ounce.
Adding interest the recent fall in the Australian dollar has gold trading in excess of A$1500 an ounce during July, therefore providing an additional margin of up to A$100 an ounce for the start of FY16 over the average for FY15.
Alkane said that FY2016 production guidance will be issued after the revised Reserve and Resource statement is finalised later in August following completion of revamped pit optimisation and mining schedule.
Funds generated by Tomingley during the period were applied to the activities underpinning the evaluation and development of the company's Dubbo Zirconia Project (DZP).
Therefore Tomingley has helped to fund DZP's feasibility and engineering studies.
The project will continue to generate more and more international interest, especially from strategic investors in North America and Europe.
In the June quarter, meetings were held in Asia, Europe and North America, involving process development, tolling, product off take and financing discussions.
Alkane remains well-funded with a$14.8 million in cash at the end of June 2015, along with A$4.8 million in bullion. The company has no debt.
Hedging program
At the end of June 2015 Alkane had gold hedge of 24,000 ounces at average forward price of A$1,577 an ounce.
The company has a strategy of adding additional ounces into the hedge during each quarter, or at 'price opportunistic' times.
This helps smooth out the average entry point on the hedge, while also replenishing the book as the company deems appropriate.
The Dubbo Zirconia Project
The DZP is the jewel in the crown of the Alkane portfolio, and hosts a very large polymetallic resource of the metals zirconium, hafnium, niobium (tantalum), yttrium and rare earths.
Recently the NSW Planning Assessment Commission gave final development approval for the project, a significant milestone which enables it to move ahead with applications for the Environmental Protection Licence and Mining Lease, and to progress into development.
FEED pre-construction work has also been completed by international engineering company Hatch on primary design with tender responses from vendors providing revised capital costs.
Further analyses incorporating vendor feedback and the review of revenue streams will provide a bankable standard document within the next 2-3 months
While not as well understood in Australia, metals contained at the DZP are strategically important on a global scale.
The reserve supports 35 year mine life at 1 million tonne ore processing per annum with defined resource potentially supporting a significantly longer operation.
Over many years Alkane has developed a flow sheet consisting of sulphuric acid leach followed by solvent extraction recovery and refining to produce several products, including trialling the process at demonstration pilot plant scale.
The project has a demonstrated flow sheet with pilot plant and products for market evaluation at ANSTO.
A robust technical and financial feasibility was completed in April 2013, with a bankable study nearing completion.
The potential opportunities of DZP are fascinating, and include:
- Supplying several critical metals from non-Chinese sources;
- Having a diversified output gives robust revenues, even at current Chinese domestic rare earth prices;
- Full spectrum of rare earth magnet materials – neodymium, praseodymium, dysprosium and terbium produced; and
- Potential to be the world’s largest hafnium producer and supply long term stable production and pricing into the expanding aerospace industry.
Analysis
Alkane has a unique business model in using gold production from its Tomingley project to fund feasibility and engineering studies at its potentially company making Dubbo Zirconia Project.
Alkane remains well-funded with a$14.8 million in cash at the end of June 2015, along with A$4.8 million in bullion. The company has no debt.
Tomingley:
- Produced 69,612 ounces in FY 15, within guidance of 65,000 – 75,000 ounces.
- Full year sales of 70,734 ounces provided revenues of $101.9 million at an average price of A$1,441/ounce, as at end of June 2015.
Adding intrigue to the project, a falling Australian Dollar has the gold price in the local currency over A$1500 an ounce during July.
This provides an additional margin of up to A$100 an ounce for the start of FY16, compared to the average over FY16.
Dubbo Zirconia Project:
Alkane was busy in the June quarter marketing with follow up visits and meetings covering all of the product outputs from the DZP.
Meetings were held in Asia, Europe and North America, involving process development, tolling, product off take and financing discussions.
In addition, discussions in Australia took place with several leading international companies interested in product offtake and working with Alkane to maximize value adding of process streams.
The importance of the DZP as a new source of critical metals and oxides to diversify supply away from existing sources continues to gain recognition and support from companies and governments seeking to reduce dependence on current supply sources, particularly from China.
Proactive Investors comment:
Based on yesterday's closing price of $0.22, the company has a valuation of circa $100 million, while holding cash and bullion of around $19.5 million.
The current price of Australian Dollar gold, at over A$1500 an ounce, provides strong margins for Alkane. A hedge book also provides certainly of sales value.
Alkane remains one of our top gold selections in the medium term.
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