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Alkane Resources' Approval For Tomingley Gold Project Brings $200m In Cash Flow A Step Closer

Alkane Resources (ASX: ALK) is rapidly advancing towards joining the ranks of Australia's gold producers with the receipt of New South Wales Government approval for its Tomingley Gold Project, which could generate A$200 million in cash flow.

Production is set for the second half of 2013 at a rate of around 50,000 to 60,000 ounces per annum, with Tomingley expected to generate A$570 million in revenue over the base case seven and a half year mine life.

This compares to a revised capital cost estimate of $107 million.

Tomingley production

Tomingley comprises three open pit mines - Caloma, Wyoming One and Wyoming Three - to be followed in year three or four by an underground operation initially focused on the Wyoming One deposit.

It hosts a JORC Resource of 12.6 million tonnes at 2 grams per tonne for 812,000 ounces of contained gold.

The mining rate will average 1 million tonnes per annum from the open cut operations and 250,000 tonnes per annum from underground.

The higher grade underground ore will be blended with low grade stockpiled open pit ore to maintain a processing rate of 1 million tonnes per annum through a conventional carbon in leach gold recovery circuit, pending development of other potential resources.

This treatment rate would recover an average 50,000 to 60,000 ounces of gold a year for a minimum of seven and a half years.

Longer term there is potential to expand the resources through development of the Caloma Two deposit and Caloma underground, as well as via regional exploration.

Path to production

A number of operational and environmental management plans have been finalised or are being prepared, and approval of the Mining Lease from the Division of Resources and Energy is anticipated.

This final step should enable construction work to begin.

Detailed design by the EPCM contractors, Mintrex Pty Ltd, is well advanced. Some off-site construction work could begin in September, assuming all approvals are in place, with the upgrade of primary and secondary road access and commencement of the water and power lines.

Some long-lead items such as the ball mill were ordered last year to minimise construction delays.

Project financing

Alkane recently agreed to extend the mandate to Credit Suisse to provide a project financing facility to 31 December 2012.

This financing comprises a Project Loan Facility of up to A$45 million and a Gold Hedging Facility of up to 163,000 ounces.

Last year Alkane entered into an initial 90,000 ounce gold forward sale that will underwrite a minimum price of around $1,600 per ounce for the first two and a half years of production from Tomingley.

The company previously secured $107 million in new capital for the development of Tomingley and the Dubbo Zirconia Project.

Analysis

Alkane is very rapidly being propelled from explorer to miner as it ticks the boxes at Tomingley.

The company's potential to grow will be enhanced further once it begins netting an estimated cash flow of $20 to $30 million per annum from production, which is set to start in the second half of 2013.

The location of Tomingley is also a factor, given it is just 15 kilometres from Alkane's Peak Hill Gold Mine hosting a resource of 467,000 ounces of gold, which provides for synergies between the two projects.

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