Alkane’s $1 billion Dubbo Zirconia Project (DZP) is “shovel-ready”, as they say, but with aforementioned $1 billion needed. At 1 million tonnes per annum of high-quality zirconium, hafnium, niobium and rare earth elements, the DZP generates about A$550 million a year (US$406 million) at current spot prices - $550/t processed – and is equivalent to a 10g/t gold deposit (openpit with almost no waste!).
But while cash flow from its 75,000ozpa Tomingley gold mine has been helping Alkane advance studies and testwork that have taken DZP to the brink of financing (likely via debt and offtake partners), the company seems certain to go back to being a gold-focussed entity in future when the dust settles on a DZP funding and development structure.
That, Alkane managing director Ian Chalmers indicated on Mining Journal’s first Gold Investor Series webinar, would be an ideal outcome for all concerned, for while he saw current equity market sentiment being favourable toward Australian gold producers with stable cash flow and earnings in front of them, Alkane’s current value wasn’t indicative of its asset value, including a quality gold exploration portfolio.
“In a normal scenario with a gold producer putting out $25 million per annum of [net operating] cash flow, you would be looking at a market cap of $170-230 million,” he said. “Our current market cap is $90 million.
“When we ask the question among the finance community as to why this could be so it really gets back to the fact that DZP is a billion-dollar project that is hanging over our head. We seem to get this negative markdown based on the fact that at some stage we have to put together this $1 billion.
“Our view is these are totally separate ventures [and] we’re going to fund DZP from external sources that we always had in mind to, so TGO stands alone as a 100%-owned asset of Alkane [and the] market cap should be double what it is. That’s the simplistic way we view it and why we’re frustrated [by current circumstances].”
Alkane will continue with modest exploration spending in and around Tomingley this year but could ramp it up to $2-3 million a year from FY17 as it opens up underground exploration to build the resource base at the mine, and chase extensions of high-grade mineralisation at depth and along strike from the existing Wyoming and Caloma deposits at Tomingley.
“The current mine schedule has decline development commencing in the second half of FY17, and then underground production later in FY19,” Chalmers said. “The initial concept is to blend high grade underground ore with low-grade stockpiled openpit ore for maybe 18-24 months, and then have the development in place to have two operating underground sites – possibly three if we can get an underground operation at Peak Hill [15km from Tomingley and the site of Alkane’s original openpit heap leach operation between 1996 and 2005].
“Our strategy now is once we’ve made a decision and got financing in place for Dubbo we can go back and really have a hard, serious look at the Tomingley area. We’ve done virtually no exploration there for five years; we’ve got a belt that’s 50km long and in the middle of it is Peak Hill – underneath [the previous mine] is a very large gold resource … it’s not JORC 2012 compliant so I can’t call it a resource anymore, but it’s open down-dip and along strike and it is a very big mineralised system.
“So we’ll look into the underground resource potential at Tomingley, and also along strike, and other targets, and at Peak Hill and … in parallel with that we’ll maintain other efforts looking at the porphyry copper-gold systems we’ve been exploring for in the region.
“We previously discovered the 3moz McPhillamys gold deposit [sold to Regis Resources, generating $70 million for Alkane] and so we have a track record of finding projects and if we can’t develop them ourselves we bring in a major or sell them.”
For more on Alkane's strategic plans and outlook, you can listen to the full webcast for free at https://t.co/YKrvaF11Y9
