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Alkane Resources Ltd secures deal to toll process rare earths in Vietnam

Alkane Resources Ltd (ASX:ALK, OTCQX:ANLKY) has signed a Letter of Intent (LOI) with Vietnam Rare Earth JSC (VTRE) to toll process its rare earths concentrate from the Dubbo Zirconia Project (DZP) into individual rare earth products.

The letter was signed with Australian Zirconia Limited (AZL), a wholly-owned subsidiary of Alkane.

This follows the news of Alkane recently receiving notification of the granting of the Environment Protection Licence for the DZP, the final critical hurdle ahead of securing financing.

VTRE is a specialist Vietnamese chemical and advanced materials company which operates a processing plant located near Hanoi.

The facilities have full regulatory approvals for operations and environmental management and have been operating since 2012.

The expected agreement with VTRE not only delivers the offsite toll processing facility already identified in the company's existing business case, but also offers the opportunity to add further value to the rare earth products.

VTRE's rare earths operating costs are similar to or lower than in China, which will ensure that Alkane's production costs will be globally competitive.

The LOI states that Alkane will have an exclusive right for 12 months to complete due diligence and for the parties to finalise the terms of the agreements, including the option to purchase equity in VTRE.

DZP details

The project is located in the Central West region of New South Wales, and is 25 kilometres south of the large regional centre of Dubbo.

The project is based upon large in-ground resources of the metals zirconium, hafnium, niobium, yttrium and rare earth elements.

Over several years the company has developed a flow sheet consisting of sulphuric acid leach followed by solvent extraction recovery and refining to produce several products.

Local support for project

Deputy Premier and Member for Dubbo, Troy Grant, has welcomed the enormous investment in the region and the effect it will have on the local economy.

More than $1 billion will be invested in the project and about $50 million spent in the Dubbo region each year.

About 450 people will be employed during construction phase of the project and more than 250 during operation.

The recent granting of the Environment Protection Licence required Alkane to go through a rigorous government approval process.

Rare Earths Market

China dominates the rare earths industry contributes an estimated 85% of global production, while currently consuming more than 65% of global rare earths output in 2015.

Magnet manufacturing, particularly NdFeB magnets, is a key driver for the rare earths industry, growing at 6-10% per annum.

Global rare earths demand for magnets in 2020 is forecast to reach 65,000t pa, or one third of the total market of 200,000t pa of rare earths.

Demand for magnet rare earths outside China is forecast to be 15,000t pa.

The partnership with VTRE will allow Alkane to supply separated rare earths, metals and alloys for permanent magnets, independent of China.

Analysis

Finalising the agreements proposed in the LOI with VTRE will position Alkane as a world competitive producer of separated rare earths.

The partnership will allow AZL to provide a supply (alternate to that from China) of separated rare earth products.

The LOI with VTRE further derisks the project which will assist Alkane in their bid to secure project financing ahead of the commencement of construction.

The DZP compliments Alkane's cash producing Tomingley gold operations which have been providing funding.

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