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Alkane Quarterly – Gold production meets forecast, set to continue

Gold production looks set to continue for gold miner and multi-commodity explorer, Alkane Resources (ASX:ALK), from its central west NSW mine, Tomingley Gold Operations near Dubbo.

Gold production was above forecast for the quarter and sale of 10,780 ounces gold at an average price of A$1,882/ounce gave revenue of A$20.3 million. A total of 48,969 ounces of gold were poured for the financial year with an AISC of A$947/ounce

Guidance for FY20 is production of 27,000 to 32,000 ounces of gold at an AISC of A$1,300 to A$1,450 per ounce, in line with the existing underground business case.

This week, Alkane released an Exploration Target for the combined Roswell, San Antonio and El Paso prospects this week, which lies within eight kilometres of Tomingley Gold Operations

The Dubbo Project (DP) remains construction ready, with the mineral deposit and surrounding land wholly owned, all material State and Federal approvals in place, an established flowsheet and a solid business case.

During the quarter, a binding agreement was executed with Ziron Tech of South Korea to fund a commercial scale pilot plant facility to complete final stage research, piloting and feasibility to convert metals, including key Dubbo Project metals, of high marketable purity. The agreement involves an investment by Alkane of US$1.2M in Clean Metal Processing Technology with Ziron Tech.

The Group’s cash and bullion position totalled A$80.8 million, with A$69.6M in cash, bullion on hand at fair value of A$3.4M, and A$7.8M of listed investments at market value.

READ THE FULL ASX ANNOUNCEMENT

Significant Exploration Target Defined At Tomingley

Gold miner and multi-commodity explorer, Alkane Resources (ASX: ALK), has defined a near-mine Exploration Target in the significant gold corridor identified by the company, which lies within 8 kilometres of the Tomingley Gold Operations (TGO) one million tonne per annum processing facility and underground mine.

The Exploration Target is between 15.8 and 23.8 million tonnes at a grade ranging between 1.7 to 2.2 grams per tonne gold and is across three primary prospects, Roswell, San Antonio and El Paso, which have a cumulative strike length of 2,500 metres.  The Exploration Target has been prepared on extensive drill data collected since mid-2017, including a recent exploration drill program of 76 holes for ~16,000 metres of reverse circulation drilling and 3 diamond drill holes totalling ~1,100 metres.

An Exploration Target of this size demonstrates potential for material mine life extension at TGO and also flags a possible return to open pit mining.

Alkane intends to further test the Exploration Target with drilling, which has already commenced, and this is expected to extend over approximately 12 months.  Alkane is intending to gain enough information in the next 6 months to define an initial Resource and determine whether open cut or underground mining is the preferable option to exploit this resource, if proven.

Today’s ASX announcement can be found here.

Further Significant Gold Intercepts within Tomingley Gold Corridor

Gold miner and multi-commodity explorer, Alkane Resources (ASX: ALK), has reported drill results from its Tomingley Gold Project in central west NSW, showing further significant gold intercepts within the “Tomingley Gold Corridor”.

Significant gold mineralisation has been confirmed by RC and diamond core drilling between the Roswell and San Antonio prospects, which now shows a combined strike length of 1,600 metres of gold mineralisation located within four kilometres south of the Tomingley Gold Operations (TGO) processing facility.

The objective of the extensive regional exploration program has been to define additional resources that have the potential to be mined either via open pit or underground operations and fed to TGO, an open pit mine with a 1Mtpa processing facility that is transitioning to underground through 2019.

Last week, Alkane announced gold production from processing of medium stockpiles for April-May totalled 8,886 ounces, giving 46,319 ounces financial year to date. The company increased its FY19 gold production estimate to 48,000-49,000 ounces from 42,000-47,000 ounces and as a result reduced operating cost guidance to $950 per ounce from $1,050 per ounce.

The full ASX announcement can be found here.

Alkane invests in clean, high purity processing technology

Multi commodity miner and explorer, Alkane Resources (ASX: ALK), is to invest in a new clean metal and high purity processing technology being developed in South Korea.

The technology converts metal oxides into metals through a carbon-free electrolytic process, with oxygen as a by-product, making it a cost effective and environmentally superior alternative.

It has been proven to be applicable to zirconium, hafnium, and permanent magnet rare earths metals (neodymium, praseodymium, dysprosium and terbium).

These elements together represent over 80% of forecast revenue streams from Alkane’s development ready zirconia and rare earths project at Dubbo in central west New South Wales.

Alkane is investing US$1.2 million towards a pilot plant facility to complete late stage piloting and a feasibility study for larger scale development and commercialisation of the process

In return Alkane will have a 10 per cent interest in the developing company as well as exclusive rights to use the technology at commercial scale in relation to zirconium and hafnium.

Alkane’s agreement is with a South Korean company, Zirconium Technology Corporation, with the research having been developed by scientists at Chungnam National University’s Department of Materials Science and Engineering in Daejeon.

The technology has the potential to replace the Kroll process, a highly energy intensive process that has been used broadly in industry since its development in the 1940s, with a more environmentally sustainable process which, when commercialised, is estimated to reduce metallisation costs by in excess of 50%.

Alkane considers this investment in downstream processing will improve the economics of its Dubbo project as well as giving it an involvement in the wider commercialisation of a breakthrough technology.

The pilot plant is expected to run throughout 2019 and 2020, putting Alkane in a position in 2020 to make a final investment decision about wider investment in commercialisation.

Alkane’s ASX announcement today is at this link.

To read the company’s Tomingley Gold production update and revised FY 2019 guidance released to market yesterday, please go here.

READ FULL ASX ANNOUNCEMENT

Third Near-Mine Discovery at El Paso Confirms 2.5km Tomingley Gold Corridor

Gold miner and multi-commodity explorer, Alkane Resources (ASX: ALK), today reports drill results from near its central west NSW Tomingley gold mine which it describes as “great news” and pointing to “substantial” mine life extension for Tomingley.

The results are from the El Paso prospect 7km south of Tomingley and together with results from two other nearby prospects show a cumulative strike length of 2,500 metres of gold mineralisation within 8 kilometres of the mine.

The objective of the regional exploration program has been to provide a broader source of ore feed, either at surface or underground, to extend the future of the Tomingley mine.

Drill results from El Paso intersected gold mineralisation which Alkane described as “substantial” and ranged from:

21 metres grading 2.38g/t Au from 141 metres, to
6 metres grading 10.65g/t Au from 168 metres, which included 3 metres grading 17.80g/t Au from 171 metres

For the recent March quarter Alkane reported Tomingley gold production above forecast at 10,669 ounces, with gold sales totalling 10,791 ounces generating revenue of A$19.9M at an average price of A$1,841/ounce.

At 31 March 2019 Alkane’s cash and bullion position totalled A$78.8M.

Alkane has provided FY19 production guidance of 42,000 to 47,000 ounces of gold at an AISC cost of A$950 to A$1,100 per ounce.

READ THE FULL ASX ANNOUNCEMENT 

Alkane Quarterly Gold Sales Generate A$19.9m

Multi commodity miner and explorer, Alkane Resources (ASX: ALK) has released its quarterly activities report to 31 March 2019.

Production at Tomingley Gold Operations was above forecast at 10,669 ounces, with gold sales totalling 10,791 ounces generating revenue of A$19.9M at an average price of A$1,841/ounce.

Guidance for FY19 has increased with production of 42,000 to 47,000 ounces of gold at an AISC of A$950 to A$1,100 per ounce.

The Group’s cash and bullion position totalled A$78.8M, with A$72.4M in cash and bullion on hand at fair value of A$1.8M, and A$4.6M listed investments at market value.

Alkane continues to hold approximately 10.2% of ASX listed gold developer Calidus Resources Ltd (Calidus). The Company continues to seek further investment opportunities.

Highlights and the full quarterly can be found here.

Significant Gold Intercepts Confirm Potential for Tomingley Extension ‐ 50,000 metres of Drilling Initiated

Significant gold intercepts in central west NSW confirm potential for Alkane Resources’ (ASX: ALK) Tomingley extension.

The broad, shallow high-grade intercepts three to four kilometres south of Tomingley Gold Operations demonstrate potential for material project life extension and flag a potential return to open pit mining.

Over the last year, Alkane has conducted an extensive regional exploration program with the objective of defining additional resources that have the potential to be mined either via open pit of underground operations and fed to Tomingley Gold Operations.

Alkane Resources Managing Director, Nic Earner said: “It is clear from the breadth and grade encountered in the latest drilling that these are the most significant exploration results in the Tomingley region since the initial discoveries by Alkane over 10 years ago. These results are reminiscent of the discovery holes of the deposits that then became our Tomingley Gold Operations. With our processing plant, which is currently treating stockpiles and is soon to be processing underground material, only 4kms away, we will be expediting the drilling and development of these ounces to capture value for shareholders as quickly as possible.”

Read the full ASX annoucement

Multiple High Grade Gold Zones In Tomingley Regional Program

  • An extensive regional exploration program focused on the immediate mine area to the south of Tomingley has continued as part of the plan to provide additional ore feed, either via open cut or underground, for the future of the Tomingley Gold Operations (TGO).
  • RC and diamond core drilling is underway to further understand the potential for gold resources at Roswell, San Antonio and El Paso prospects. These prospects have a cumulative strike length of 2,500 metres.
  • RC drilling results were received for the Roswell prospect confirming multiple high grade gold lodes at Roswell Prospect 3 kilometres south of the TGO mine with intercepts of:
    • RWRC023 39 metres grading 4.49g/t Au from 123 metres;
    • incl 9 metres grading 8.43g/t Au from 123 metres;
    • and 6 metres grading 4.70g/t Au from 189 metres;
    • and 21 metres grading 2.46g/t Au from 207 metres;
    • incl 8 metres grading 4.83g/t Au from 217 metres;
    • and 26 metres grading 2.48g/t Au from 234 metres to end of hole;
    • incl 3 metres grading 5.57g/t Au from 234 metres;
    • also 3 metres grading 4.63g/t Au from 249 metres.
  • Significant gold mineralisation at Roswell is confirmed over a strike length of 350 metres. RWRC023 was drilled on the southernmost RC drill traverse and high grade gold mineralisation is open to the south.

READ MORE

Quarterly Activities Report to 31 December 2018

Tomingley Gold Operations

  • Development of the underground operation has commenced with both the main decline and vent portals established.
  • Quarter Results
    • Gold production was above forecast at 11,111 ounces.
    • Site operating cash costs were A$846/ounce with AISC of A$1,051/ounce.
    • Gold sales were 23,841 ounces for revenue of A$40.9M at an average price of A$1,716/ounce.
  • Guidance for FY19 has increased with production of 35,000 to 40,000 ounces of gold at an AISC of A$1,050 to A$1,150 per ounce.

 

Corporate

  • Cash, bullion and listed investments position totalled A$80.5M
    • A$73.7M in cash, bullion on hand at fair value of A$2.0M, and $4.8M of listed investments at market value.
  • Completed strategic placement into ASX listed gold developer Calidus Resources Ltd (Calidus). At the end of the quarter Alkane holds ~10.2% in Calidus.
  • The Company did not progress with its proposed investment into gold exploration company Explaurum Limited (ASX: EXU); the deposit and a break fee of $400,000 were paid to the Company.

 

Dubbo Project

  • Financing effort continues in a volatile global market:
    • Continued increasing environmental legislation is affecting supply of Chinese zirconium chemicals and powders.
    • Ferro-niobium prices remain high as steel companies continue to look to substitute ferrovanadium, which is facing short supply.
    • China’s rare earth permanent magnet industry continues to forecast increasing demand.

 

Exploration

  • The extensive regional exploration program underway around TGO continued. This program has the objective of defining additional resources that have the potential to be mined either via open pit or underground operations and fed to TGO.
  • 24 RC drill holes for a total of 4,266 metres testing the gold resource potential of the Roswell prospect were completed as part of this program. One diamond core drill hole was completed to a depth of 372.2 metres characterising the mineralisation at the San Antonio prospect. Assays are pending and finalised results will be presented in a separate announcement.

READ THE FULL REPORT 

REVIEW OF THE CHINESE ZOC MARKET AND GLOBAL FORECAST

Zirconium oxychloride (ZOC) producers face tougher environmental standards in China, while materials costs are increasing worldwide, especially for zircon. Smaller producers are shutting down, the Chinese industry is consolidating, and ZOC prices are rising. In addition, many zircon mines are reaching the end of their life and supply chain stockpiles are dwindling, so the global forecast is for uncertain supply, growing demand and higher prices for zirconium materials. Significant additional supply from new sources like Alkane’s Dubbo Project is urgently needed.

CHINESE PRODUCTION COST DRIVERS

  • There are 25 producers of zirconium oxychloride (ZOC) in China. 16 are in the eastern province of Shandong. National ZOC production is 346,000 tonnes annually.
  • The Chinese government is enacting a 5-year US$277 billion plan to address environmental concerns, especially industrial pollution.
  • Current means of ZOC production in China create pollutants including alkaline wastewater, acidic gas, and silicate sludge.
  • Recent changes to Chinese environmental regulations that are profoundly impacting the ZOC industry include 2014 air pollution standards and 2015 emission standards for the inorganic chemical industry. There are also provincial standards that can be stricter than the national standards.
  • The Chinese government aims to reduce China’s use of energy from coal to 58% by 2020, down from 64% in 2015. Shandong, one of the largest ZOC producing regions, is also the primary coal consumer.
  • Natural gas is the primary fuel-switching option for industrial boilers used in ZOC production. The government is seeking additional supply and building more pipelines to increase the use of energy from natural gas from 6% in 2013 to 10% by 2020.
  • Tightening regulations have their greatest impact on smaller ZOC producers who cannot afford to upgrade their emissions, disposal, storage and monitoring practices to comply. Some facilities will also need to pay for water treatment by an external party.
  • Producers who do not comply risk permanent closure. Some companies disregard closure orders by continuing to operate, but visits by environmental inspectors frequently force non-compliant operators to suspend production to avoid fines.
  • ZOC producers are also bearing the cost of converting coal-fired furnaces to natural gas, as well as paying more for electricity (energy from natural gas is 1.5 times more expensive than coal).

Environmental drivers alone have increased ZOC production costs by ~ 10%.

  • To date, environmental enforcement has focused on water and gas discharge, but China will need to address the issue of radioactive waste, particularly as future zircon supply is likely to contain a higher proportion of Uranium and Thorium. Producers will, therefore, bear additional costs associated with safer disposal/treatment of radioactive waste.

Materials costs are also rising

  • Average production cost for ZOC increased by 47% from mid-2016 to end-2017, mostly due to price increases for zircon – the raw material for ZOC production – and caustic soda, which is used in the extraction process.
  • As a result of environmental clamp-downs constraining local supply, domestic prices for caustic soda have risen by more than 100% since mid-2016.
  • Four consecutive price increases were announced by major zircon producers in 2017, with combined increases up to US$300 per tonne (~30%).
  • In first-half 2018, some zircon producers announced price increases of US$180-US$300 per tonne. Prices are expected to trend higher after one of the major producers announced a US$175 per tonne increase for second-half 2018.
  • The weighted average price for premium-grade zircon is estimated at around US$1,500 per tonne FOB for 2018, and at US$1,580 per tonne FOB for 2019.

Consequently, the price of ZOC is increasing.

  • Following several years of weak market conditions, with huge stockpiling in the supply chain and declining prices, ZOC prices recovered strongly in 2017.
  • The profit margin for ZOC producers is much greater than the margins of downstream users. Surveyed Chinese producers indicated that they could reduce their margin if prices become unacceptable to customers.
  • However, ZOC consumers have indicated that since there are currently no substitutes for ZOC, they will be forced to accept any price increases and pass the cost on to their customers.

FORECAST

Uncertain supply, growing demand

  • The Chinese ZOC industry is consolidating. Uncompetitive plants are closing, leaving large-scale companies, integrated producers with competitive downstream products, and companies with by-products.
  • In addition, a number of existing operations are expected to close due to end of mine life.
  • Global supply of zircon from existing operations is predicted to decline rapidly, down 4-5% per annum to 2025, to approximately 800,000 tonnes.
  • Global demand for zircon was 1.1-1.2 million tonnes in 2017 and is expected to rise beyond this in 2018. The ceramic sector is expected to underpin global zircon consumption growth in the future.

CONCLUSION

Significant additional supply from new projects will be needed to meet global supply deficit

EXECUTIVE SUMMARY ON CHINA ZOC INDUSTRY

(click the image below or here to download the full report)

References

  • Impact of tightening regulations on ZOC industry by TZ Minerals International Pty Ltd, Oct 2017
  • China ZOC Price Forecast by TZ Minerals International Pty Ltd, June 2018
  • Feedstock and Zircon Market Study by TZ Minerals International Pty Ltd, Feb 2018