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Alkane Resources Ltd's gold production at Tomingley delivers positive cash flow

During 2016 the price of gold in Australian Dollars has traded consistently above A$1600 an ounce, providing the opportunity for significant margins.

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Gold-producer Alkane Resources Ltd (ASX:ALK) has increased its cash position to $21 million during the March 2016 quarter, following strong production from the  Tomingley Gold Operations near Dubbo.

For the period, Tomingley produced 14,512 ounces of gold at a total operating cost (AISC) of A$1,358 per ounce.

The company noted that costs remain higher than the anticipated long term life-of-mine AISC of A$1,000-1,100 per ounce due to waste stripping in FY16 at the Wyoming One pit.

During 2016 the price of gold in Australian Dollars has traded consistently above A$1600 an ounce, providing the opportunity for significant margins.

The company remains on track to meet its FY16 production guidance of 60,000-70,000 ounces at an ASIC of A$1,250-1,350 per ounce.


March quarter production details


Tomingley produced 14,512 ounces of gold during the quarter at a AISC of A$1,358 per ounce.

Whilst forecast unit costs remain within the upper end of previous guidance, costs are now forecast to be within an AISC range of A$1,250-1,350 per ounce, an increase of 4% on previous guidance.

Performance at Caloma and timing of high grade ore releases from Wyoming One are the key drivers of the 4% increase in cost.

Gold sales for the quarter totalled 15,000 ounces resulting in revenue of A$24.3 million at an average price of A$1,621 per ounce.

At 31 March, 2016 Alkane had hedged 27,000 ounces of forward gold sales at an average price of A$1,615 per ounce.

Gold production for FY16 to date is 49,748 ounces.


Analysis

Tomingley continues to be Alkane's cash producing asset helping the company fund the Dubbo Zirconia Project (DZP) into production.

While AISC costs have been revised slightly upward at Tomingley to the range of A$1,250-1,350 per ounce, current hedges in place lock in a gold sale price of A$1,615, which means there is still a material margin available for Alkane.

Using the mid-point of the company's guidance ranges and hedged gold sales price of A$1,615, Alkane will theoretically still be netting A$315 cash per ounce in the following quarter.

The spot AUD gold price is currently trading at circa A$1,600, which places the company in a favourable position to lock in more profitable hedges.

The life-of-mine schedule at Tomingley is currently being reviewed in a bid to extend the mine life which will provide improved project economics.

Any further positive drill results at Tomingley have the potential to increase the project economics through further extension of the mine life.


Dubbo Zirconia Project (DZP)

The DZP is located 25 kilometres south of Dubbo in New South Wales.  It is based upon large in-ground resources of the metals zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements.

The Environment Protection Licence was granted by the NSW Environment Protection Authority
on 14 March 2016.

Alkane signed a Letter of Intent during the quarter with Vietnam Rare Earth JSC (VTRE) to toll process Alkane's rare earths concentrate produced by the DZP into individual rare earth products.

VTRE is a specialist Vietnamese chemical and advanced materials company which operates a processing plant to produce separated rare earth oxides from rare earth concentrates and recycled magnet materials. 

VTRE also produces rare earth alloys for neodymium iron boron (NdFeB) permanent magnets.

Magnet manufacturing, particularly NdFeB magnets, is a key driver for the rare earths industry, growing at 6-10% per annum.

The partnership will allow Alkane to provide a supply, alternate to that from China, of separated  rare earth products, guaranteeing certification and supply chain traceability from ore mined and processed in Australia through to customers’ products.

It will also allow Alkane to participate in downstream markets and capture further value adding for its rare earth products.

Financing and off-take negotiations are ongoing, the final step required before the commencement of construction.

 

Proactive Investors is a global leader reporting financial news, media, research and hosts events for listed emerging growth companies and investors across four continents.

Quick facts: Alkane Resources Ltd

Price: 0.63 AUD

ASX:ALK
Market: ASX
Market Cap: $318.84 m
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