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Alkane Resources: DFS results highlight substantial upside at Dubbo Zirconia Project


Alkane Resources (ASX: ALK) is a company on the move, powered by the Dubbo Zirconia Project (DZP), which is a strategic and alternate source of zirconium and heavy rare earth products with a resource capable of very long term supply.

The latest good news for the company is a bumper Definitive Feasibility Study (DFS), which has delivered very robust financial results.

First of all, DFS results for the DZP base case of 400,000 tonnes per annum have shown that the project delivers very positive returns.

Better still, the more likely development of the expanded 1,000,000 tonne per annum project provides a substantial upside to the base case model.

The numbers are very impressive, with a 20 year EBITDA estimated at A$6 billion, an after tax NPV of A$1.2 billion and pre-tax IRR of 30.2%.

Another plus is the project has received strong interest for all the product output at the expanded rate - and with three MOUs having been completed to date, with others in the pipeline, it appears the potential is just starting to be tapped.

Alkane added that preliminary discussions have been made with financial institutions and potential off-take partners, indicating several project funding options.

Alkane eyes 1,000,000 tonnes per year to Feasibility Study

The company added that while the accuracy of the estimations for the base case development is at accepted standards for a Definitive Study, the expanded concept employed typical ‘scaling’ factors for the capital cost.

While some operating costs are proportional to production, such as reagent consumption, others are unchanged by the scale, such as labour numbers.

The detailed analysis to take the 1,000,000 tonnes per year to Feasibility Study standard has already commenced and should be completed in the March quarter of 2012.

Alkane said this additional work will not impact on the project timetable as it will proceed in parallel with the Environmental Assessment and Financing programs.

DZP re-cap; reactivation of railway

The project is located about 30 kilometres by road south of the large regional centre of Dubbo which has a population of 42,000 and is serviced by sealed regional roads and the currently disused Dubbo to Molong railway.

At the expanded production rate, reactivation of the railway from Dubbo to the Toongi site is regarded as a priority.

The region has substantial existing infrastructure including state grid power supply, a natural gas pipeline, high quality water supply and light industrial services.

Importantly to help keep costs low, no camp facilities are required and most of the project workforce can be sourced locally, living in their own accommodation and commuting daily to the site.

Quick facts: Alkane Resources Ltd

Price: 1.19 AUD

Market: ASX
Market Cap: $690.24 m

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