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Alkane Resources Awards Engineering Design Contract For Dubbo Zirconia Project

Alkane Resources' (ASX:ALK) shares should trade firmer after reaching another milestone with the award of the Front End Engineering Design (OTC:FEED) contract for its Dubbo Zirconia project in New South Wales to Hatch Pty Ltd.

Hatch is an internationally recognised company supplying engineering, project management and operational services to the mining, metallurgical, energy and infrastructure industries.

The FEED will deliver capital and operating cost estimates to a target 10% accuracy, building on the work of the Definitive Feasibility Study released last year.

Deliverables for the FEED include all engineering works to enable an accurate estimate, including infrastructure, water treatment, acid plant, process plant and final product preparation costs.

Completion of the FEED will provide Alkane with the core cost estimate for use in its DFS, which is an important step to securing funding through international Export Credit Agency sources and project debt.

The FEED is expected to be formally complete early in the 4th quarter.

Work packages will be completed over the duration of the contract, steadily increasing the accuracy of the estimate from DFS level, and enabling progress to the construction phase on receipt of development approval and financing.

During the contract period work will continue in parallel at the Demonstration Pilot Plant at ANSTO, providing ongoing product development and confirmation of design parameters for the FEED.

Definitive Feasibility Study

The DFS estimated an initial 20 year life and a net present value of $1.23 billion, and confirmed a technically and financially robust project with a total life of mine EBITDA of $5.23 billion, from a 1 million tonne per annum operation.

It has the potential to be a strategic and alternate source of zirconium and heavy rare earth products capable of long term supply.

Upside is contained in the size of the resource which provides a project life of at least another 50 years beyond the 20 year life assessed in the previous and revised DFS.

With ongoing process optimisation there is further upside in higher recoveries for all of the metals, recovery and sale of a tantalum product, as well as positive outcomes from joint ventures.

Other key metrics of the DFS include total CAPEX of $766.8 million, total EPCM of $996.4 million, annual EBITDA of $290 million and an internal rate of return of 19.3%.

Several strategic partnerships have been established and product development work is continuing to ensure maximum return for the project's output.

Advancing offtake agreements

Alkane currently has two memoranda of understanding and one letter agreement to advance development of markets for Dubbo Project output.

The company expects that confirmed offtake agreements will be finalised during 2013.

Alkane has produced several high quality products and is continuing to provide these to potential customers for testing.

Zirconium demand

By the end of this decade, Technical Ceramic Marketing Services forecasts that total zirconium materials demand will reach 239,000 tonnes per annum, assuming a growth rate of 7% between 2012 and 2020.

Demand in 2020 would therefore require 368,000 tonnes per annum of zircon, or 150,000 tonnes per annum more than 2012.

The project will represent about 9% of the total zirconium materials market in 2015, and around 7% by 2020.

Current weakness in the zircon-zirconium materials pricing is expected to dissipate over the next two years, and prices used in the current DFS for the Dubbo Project reflect a growing market.

The price is anticipated to range from US$6 per kilogram to US$9 per kilogram as higher value zirconia applications are developed.

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