Alkane Resources Ltd (ASX:ALK) has placed the shortfall shares from the recent rights issue to complete a $16.5 million capital raising.
Funds raised will be used to develop the Dubbo Zirconia Project (DZP) in central New South Wales, which includes acquiring remaining key parcels of land within the project area.
Alkane is developing the DZP alongside its gold producing Tomingley Gold Operations (TGO), which is benefiting from a record high AUD gold price.
The company has guided TGO FY16 gold production of 60,000-70,000 ounces at a total operating cost (AISC) of A$1,250-1,350 per ounce.
The AUD gold price is currently trading at A$1,795 per ounce.
Tomingley Gold Operations
Tomingley is a cash producing asset that supports the development of the DZP.
Tomingley is a medium-sized gold project with circa 900,000 ounces of gold in the current defined resource space. The resource has a target life of 10-12 years.
Gold production for three quarters through to March in FY16 totalled 49,748 ounces and Alkane has guided FY16 gold production of 60,000-70,000 ounces.
Alkane recently executed initial documentation for a $14 million credit approved loan and hedging facility with Macquarie Bank (ASX:MQG).
The facility proceeds will be used to complete the definitive feasibility study (DFS) for the underground operations at TGO, near mine exploration, to repay the existing $4 million facility and provide expanded working capital.
Alkane has also entered into AUD gold forwards for 48,633 ounces at A$1,715 per ounce, which will support 16 months of strong operating cash flows at the TGO.
Use of funds
Proceeds from the $16.5 million capital raising will be used for the following:
- Acquisitions of the remaining key parcels of land within the DZP project area;
- Perform DZP pilot plant runs to confirm work to date and produce product samples for potential off-take customers;
- Development of strategic partnerships to provide value enhancement to published project financials;
- Other DZP related expenditures; and
- General working capital requirements including fees associated with the offer.
The DZP is located 400 kilometres northwest of Sydney and is a large polymetallic resources containing zirconium, hafnium, niobium, yttrium and rare earths.
The project has reserves to support a 35 year mine life and it has a net present value (NPV) of US$0.92 billion and 17.5% internal rate of return (IRR).
The project is located in a large agricultural and mining area proximate to substantial infrastructure including roads, rail, power, gas, light engineering and people.
Alkane has signed a Letter of Intent (LOI) with Vietnam Rare Earth JSC (VTRE) to toll process its rare earths concentrate from the DZP into individual rare earth products.
Financing of the DZP is currently in progress with production anticipated to commence in 2018.
The DZP has a diversified output of products and has the potential to be the world's largest hafnium producer.
The current estimated operating cost structure is very competitive at US$7-$8 per kilogram of product produced, which places the project in the lowest quartile producer.
Key milestones for DZP development:
- Acquire remaining key land parcels in (Q2/Q3 2016);
- Rare earth toll processing agreement (Q2/Q3 2016);
- Further product off take agreements (Q2/Q3 2016); and
- Begin staged project financing (H2 2016).
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