Alkane Resources (ASX:ALK) increased its cash position by A$6 million over the September quarter to $20.8 million as the company’s Tomingley gold operation (TGO) in New South Wales improved production by 40%.
Add to this bullion on hand valued at A$3.1 million. The Group has no debt.
The additional cash is expected to be channelled largely into development expenses at the Dubbo zirconia project (DZP), also in NSW, and reactivated regional exploration efforts.
This stronger balance sheet has been supported by success at TGO, where gold production improved 40% on the June quarter to 19,789 ounces as the Caloma pit operated within fresh rock.
The Caloma Two resource has been incorporated into the open pit development schedule, and options for commencing underground operations on all resources are being evaluated.
Site costs were A$1,104 per ounce and total cash operating costs (AISC) were A$1,234 per ounce.
The key cost driver for the operation remains the efficiency of the mining equipment and TGO continues to work collaboratively with its dry hire equipment supplier to lift the payload, utilisation and overall efficiency of the fleet.
Also, as a result of the waste removal schedule, the third mining fleet was withdrawn late in the period, reducing total operating costs.
Gold sales totalled 21,000 ounces for revenue of A$32.9 million at an average price of A$1,565 per ounce. This generated an operating cash flow of $9.7 million.
These results come to light as gold trades above its 200-day moving average for the first time in five months. Gold was last trading at A$1616 per ounce.
Alkane's hedge book at quarter end was 22,500 ounces at A$1,596 per ounce.
Resources at TGO stand at 11.25 million tonnes at 1.9g/t gold for 687,000 ounces of gold. Reserves at the mine total 4.36 million tonnes at 1.6g/t gold for 235,000 ounces of gold.
FY2016 production is estimated to be 60,000 – 70,000 ounces within an AISC range of A$1,200 – 1,300 per ounce.
The costs are higher than the anticipated long term life-of-mine AISC of A$1,000 – 1,100 per ounce due to waste stripping in FY2016 at the mine’s Wyoming One pit.
Dubbo zirconia project
Alkane’s nearby DZP also reported progress over the quarter, with completion of the Front End Engineering Design (FEED). The capital estimate for the project came in at A$1.30 billion (US$970 million) including a contingency of A$103 million.
Preconstruction costs at the project, including marketing and developing work, will be the spending focus under the company’s newly improved cash position.
DZP has strong economics with anticipated product revenue of around US$17 per kilogram, with costs of approximately US$8 per kilogram. Further, capital intensity is low at US$38 per kilogram of annual product.
Annual revenue has been estimated to be approximately A$580 million with operating costs of A$260 million delivering a A$320 million per annum EBITDA, 20 year net present value of A$1.22 billion and internal rate of return of 17.5%.
The development of a hafnium recovery circuit has also delivered higher purity zirconium products with high value potential.
During the quarter, Alkane’s wholly owned subsidiary Australian Zirconia Limited (AZL) signed an Early Contractor Involvement (ECI) agreement with global minerals and metals processing technology supplier, Outotec, to find further value in the project design with the intention of delivering the processing plant on an Engineering, Procurement & Construction (EPC) basis.
The NSW Planning Assessment Commission announced the final development approval for the project on May 28. This is a significant milestone for the project, enabling AZL to progress applications for the Environmental Protection Licence (EPL), Mining Lease and other minor permits.
These applications have been submitted and approval anticipated by the end of this year.
Analysis
Alkane is in a strong financial position with $20.8 million in cash as the company continues to improve its NSW operations. Add to this bullion on hand valued at A$3.1 million. The Group has no debt.
Improved production from TGO appears set to continue over the rest of FY2016, with waste stripping at the mine’s Wyoming One pit targeting a local resource of 167,000 ounces of gold.
This inventory defines Wyoming One as the operation’s second most endowed pit, behind Caloma which hosts 254,000 ounces of resources.
Alkane’s hedging strategy will continue to take advantage of the high Australian gold price, with the company targeting around 30-40% of its annual production as hedging positions.
Depending on the spot price, these forwards will be sold and replaced.
The company has demonstrated its ability to cut costs and maximise gold production at TGO during a time of higher gold prices, adding revenues and supporting its financial standing as other project development works roll out.
DZP’s revenue and valuation figures suggest a robust project based on conservative prices.
The project has continued to demonstrate strong economics despite some weak commodity pricing, with efforts to enhance processing flowsheets and marketing continuing to improve project potential
Marketing traction during the quarter took the form of discussions with key customers and stakeholders for DZP products, with a high level of interest shown in recent process improvements and the additional information provided in the FEED.
Meetings in the U.S., Europe, Asia, and Australia were also made during the quarter.
DZP is based upon large in-ground resources of the metals zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements. This includes 73.2 million tonnes at 1.96% zirconium oxide in the Toongi deposit.
Successful production of a hafnium concentrate at DZP is an important milestone that will drive further process development, and marketing efforts to maximize the value of products produced.
Test results from recent hafnium work will enable the company to progress discussions with interested parties on a number of fronts.
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