Alkane Resources Ltd (ASX:ALK) is setting out to build on its gold production and cash flow from the Tomingley Gold Operations in New South Wales by extending known reserves and regional exploration and resource potential.
Furthermore, the company continues to see the Dubbo Zirconia Project (DZP) as a growth opportunity able to provide the company with diversified future cash flows.
Alkane aims to advance the modular/staged development of the DZP through off-take, technology partnerships and financing.
Alkane shares have traded up 145% year to date, currently priced at $0.585.
Cash producing Tomingley
The wider Tomingley project in central west New South Wales, which hosts the Tomingley Gold Operations (TGO) that commenced in 2014, covers an area of 270 square kilometres.
During FY2016, TGO produced 67,812 ounces of gold for site cash flows of A$24.6 million and pre-tax profit of A$14.3 million.
Alkane recently commenced an expansive exploration program at the Tomingley Gold project.
The program will test underground ore positions at Tomingley, near mine and regional exploration targets, and revisit underground ore potential at Peak Hill.
DZP upside potential
The DZP is located 400 kilometres northwest of Sydney and is a large polymetallic resource 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).
Securing financing for the DZP is a key milestone for Alkane.
The DZP has been referred to by market commentators as the most advanced and arguably best rare earth elements and specialty metal project in the world.
Most recently, Alkane signed a memorandum of understanding with Siemens for off-take and equipment supply.
DZP modular development
Alkane recently conducted an internal review that found an opportunity to lower capital costs through construction on a two-stage modular basis.
A study from 2015 concluded a capital cost estimate of US$930 million was required.
The new two-stage construction proposal would break up the capital costs into US$480 million for stage 1 and US$360 million for stage 2 for a total capital cost of US$840 million.
This not only significantly lowers the initial capital cost required to develop the project but also the overall cost.
Revised financials will be released following completion of a detailed assessment of this concept in the 2017 March quarter.