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Alkane Resources Ltd achieves gold production guidance for FY16

Alkane’s gold production for FY16 was within guidance. With further evidence of quarterly production increasing and costs decreasing, TGO is becoming a more profitable cash producing asset for Alkane.

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Alkane Resources Ltd (ASX:ALK) produced 67,812 ounces of gold from its Tomingley Gold Operations (TGO) in FY16, which sees it successfully achieve its FY16 guidance target.

During FY16, gold was sold at an average price of A$1,605 per ounce generating A$109.1 million and net operating cash flow of A$27.6 million.

TGO site costs for FY16 were A$1,124 per ounce and all in sustaining costs (AISC) were A$1,256 per ounce.

Costs are evidently decreasing with the most recent June quarter achieving site costs of A$1,009 per ounce and AISC of A$1,149 per ounce.

Outside the TGO, Alkane continues with its development of the Dubbo Zirconia Project (DZP) valued at US$0.92 billion, which is now construction ready pending financing.


June quarter highlights

June quarter highlights for TGO include:

- Gold production of 18,064 ounces;
- Operating cash costs were A$1,009 per ounce and AISC of A$1,149 per ounce;
- Gold sales of 17,733 ounces for revenue of A$29.4 million;
- Average gold sale price of A$1,658 per ounce;
- Gold hedges available at 30 June 2016 totalled 63,900 ounces at A$1,690 per ounce; and
- Site net operating cash inflow for the quarter after site operating expenses and development
expenditure was $9.0 million.

June quarter highlights for DZP include:

- All project land purchases were completed; and
- Discussions continued with Vietnam Rare Earth JSC (VTRE) following signing of the letter of
intent to toll process rare earths concentrate.


Tomingley Gold Operations (TGO)

TGO is a cash producing asset that supports the development of the DZP.

TGO 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.

Alkane recently executed a $14 million credit approved loan and hedging facility with Macquarie Bank (ASX:MQG).

The facility proceeds are being 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.


Dubbo Zirconia Project (DZP)

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 DZP is now construction ready with financing currently in progress with production anticipated to commence in 2018.


Analysis

Alkane’s gold production for FY16 was within guidance at 67,812 ounces with site costs of A$1,124 and AISC of A$1,256.

With further evidence of quarterly production increasing and costs decreasing, TGO is becoming a more profitable cash producing asset for Alkane.

Furthermore, the company has partly locked in these profits with gold hedges in place at an average price of $1,690 per ounce.

With the AUD gold price continuing to trade strongly at $1,770 per ounce, Alkane is still making a substantial margin on gold sales outside of its gold hedges in place.

Securing financing for the development ready DZP remains a key short term milestone and catalyst for Alkane.

The broad strategy has not changed with strategic investment, Export Credit Agency finance and commercial debt remaining as the key components of the envisaged project funding suite.

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.

Alkane is well funded with A$29.8 million in cash and bullion at the end of the June quarter.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

Quick facts: Alkane Resources Ltd

Price: 0.625 AUD

ASX:ALK
Market: ASX
Market Cap: $316.31 m
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