Alkane Resources Developing The TGP And DZP

Alkane Resources has announced a number of key catalysts for developing its Tomingley Gold (TGP) and flagship Dubbo Zirconium-Niobium-Rare Earth (DZP) projects, both in New South Wales. A$70m of its March 2012 A$107m equity raising will go towards the A$107m (excluding contingencies) capex required to develop the TGP, the rest will be available via a A$45m loan facility and up to 163koz gold hedging facility agreed with Credit Suisse (which has been extended until 31 December 2012). Alkane has also successfully obtained memorandums of understanding (MoUs) for 100% of future DZP production (first production due in 2014), critical to securing the c A$708m capex (excluding EPCM and contingency) it needs.

DZP MoUs de-risk future revenues
Alkane has now agreed MoUs with third-party companies over all its DZP products (zirconium, niobium and rare earths). The structure of these agreements is such that Alkane will receive commercial market prices for its products. Some of the MoUs will result in joint ventures being formed and a shared cost to develop refining processing capacity (notably Zr/Nb products).

TGP development under way
Before development approval for the TGP was announced on 1 August, Alkane had already advanced pre-development works (including purchase of long-lead items and water supply) at the project, allowing for first production in Q413.

McPhillamys sold for c A$73.5m (c A$50/oz of resource)
Alkane and partner Newmont have agreed to sell 100% of the Orange District Exploration JV (ODEJV) containing the large McPhillamys project (2.96Moz oz Au in resource) to Regis Resources (ASX:RRL) for A$150m. This translates to A$73.5m for Alkane’s 49% share, taken in shares of Regis at a VWAP of A$4.20 per share.

Valuation: Our valuation remains robust
Our valuation is based on the TGP entering production in Q413 and operating for an initial 8.5 years (under our assumptions and likely to be extended through mining additional nearby resources). We see the DZP entering production in late-2014 and operating for at least 20 years (supported by its 50+ year resource at a production rate of 1Mtpa). We use a gold price of US$1,350/oz and prices for the DZP basket of products as supplied by Alkane (see page 7). On this basis we value Alkane at A$2.44/share (at a 10% discount rate).

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