Alkane Resources awards engineering design contract for Dubbo Zirconia project
Alkane Resources' (ASX:ALK)
shares should trade firmer after reaching another milestone with the
award of the Front End Engineering Design (FEED) contract for its Dubbo
Zirconia project in New South Wales to Hatch Pty Ltd.
Hatch is
an internationally recognised company supplying engineering, project
management and operational services to the mining, metallurgical, energy
and infrastructure industries.
The FEED will deliver capital
and operating cost estimates to a target 10% accuracy, building on the
work of the Definitive Feasibility Study released last year.
Deliverables
for the FEED include all engineering works to enable an accurate
estimate, including infrastructure, water treatment, acid plant, process
plant and final product preparation costs.
Completion of the
FEED will provide Alkane with the core cost estimate for use in its DFS,
which is an important step to securing funding through international
Export Credit Agency sources and project debt.
The FEED is expected to be formally complete early in the 4th quarter.
Work
packages will be completed over the duration of the contract, steadily
increasing the accuracy of the estimate from DFS level, and enabling
progress to the construction phase on receipt of development approval
and financing.
During the contract period work will continue in
parallel at the Demonstration Pilot Plant at ANSTO, providing ongoing
product development and confirmation of design parameters for the FEED.
Definitive Feasibility Study
The
DFS estimated an initial 20 year life and a net present value of $1.23
billion, and confirmed a technically and financially robust project with
a total life of mine EBITDA of $5.23 billion, from a 1 million tonne
per annum operation.
It has the potential to be a strategic and
alternate source of zirconium and heavy rare earth products capable of
long term supply.
Upside is contained in the size of the resource
which provides a project life of at least another 50 years beyond the
20 year life assessed in the previous and revised DFS.
With
ongoing process optimisation there is further upside in higher
recoveries for all of the metals, recovery and sale of a tantalum
product, as well as positive outcomes from joint ventures.
Other
key metrics of the DFS include total CAPEX of $766.8 million, total EPCM
of $996.4 million, annual EBITDA of $290 million and an internal rate
of return of 19.3%.
Several strategic partnerships have been
established and product development work is continuing to ensure maximum
return for the project’s output.
Advancing offtake agreements
Alkane
currently has two memoranda of understanding and one letter agreement
to advance development of markets for Dubbo Project output.
The company expects that confirmed offtake agreements will be finalised during 2013.
Alkane has produced several high quality products and is continuing to provide these to potential customers for testing.
Zirconium demand
By
the end of this decade, Technical Ceramic Marketing Services forecasts
that total zirconium materials demand will reach 239,000 tonnes per
annum, assuming a growth rate of 7% between 2012 and 2020.
Demand in 2020 would therefore require 368,000 tonnes per annum of zircon, or 150,000 tonnes per annum more than 2012.
The project will represent about 9% of the total zirconium materials market in 2015, and around 7% by 2020.
Current
weakness in the zircon-zirconium materials pricing is expected to
dissipate over the next two years, and prices used in the current DFS
for the Dubbo Project reflect a growing market.
The price is
anticipated to range from US$6 per kilogram to US$9 per kilogram as
higher value zirconia applications are developed.
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