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Alkane Resources Ltd bags $12.4M to develop Dubbo Zirconia Project

Alkane Resources Ltd (ASX:ALK) has raised $12.4 million in a rights issue that it will use to develop the Dubbo Zirconia Project (DZP) in central New South Wales.

The DZP's mining lease was granted on 18 December 2015 and the Environment Protection Licence was approved on 14 March 2016.

At the board's discretion, a shortfall of up to $4.1 million worth of shares may be placed at the offer price of $0.20 over the coming 3 months.

Alkane is developing the DZP alongside its gold producing Tomingley Gold Operations (TGO).

The company has guided TGO FY16 production of 60,000-70,000 ounces at a total operating cost (AISC) of A$1,250-1,350 per ounce.

Recently, Alkane entered into AUD gold forwards for 48,633 ounces at A$1,715 per ounce.

Use of funds

Over the 9 months to 31 March 2016, $12 million has been expended on development of the DZP which has been funded through cashflows generated from TGO and existing working capital.

Proceeds from the rights issue will be used for the following:

(NYSE:A) Acquisitions of the remaining key parcels of land within the DZP project area;
(NYSE:B) Perform DZP pilot plant runs to confirm work to date and produce product samples for potential off-take customers;
(NYSE:C) Development of strategic partnerships to provide value enhancement to published project financials;
(NYSE:D) Other DZP related expenditures; and
(NYSE:E) General working capital requirements including fees associated with the offer.

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 (NYSE:NPV) of US$0.92 billion and 17.5% internal rate of return (NYSE:IRR).

The project is located in a large agricultural and mining area proximate to substantial infrastructure including roads, rail, power, gas, light engineering and people.

Alkane has signed a Letter of Intent (LOI) with Vietnam Rare Earth JSC (VTRE) to toll process its rare earths concentrate from the DZP into individual rare earth products.

Financing of the DZP is currently in progress with production anticipated to commence in 2018.

Analysis

Securing funding is an important milestone in Alkane's development of the DZP.

The DZP is internationally strategic as it will supply several critical metals from non-Chinese sources.

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.

As a gold producer, Alkane is benefitting from a A$1,690 per ounce gold price.

The company's major shareholders are Abbotsleigh at 23% and renown global fund manager Fidelity at circa 10%.

Key milestones for DZP development:

- Acquire remaining key land parcels in (Q2 2016);
- Rare earth toll processing agreement (Q2 2016);
- Further product off take agreements (Q2/Q3 2016); and
- Begin staged project financing (H2 2016).

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