Alkane Resources (‘Alkane’, ASX: ALK), developing the Dubbo Zirconia project, has reached the final stage of feasibility and expects to start construction of the mine, in New South Wales, in the last quarter of the year. Alkane is in the process of raising the necessary funds to launch operations on schedule; the challenge is not a small one, given that some AUD$ 1 billion will be needed. Last fall, ProEdgeWire contributor Robin Bromby, noted that Alkane managed to secure some very big financial players to arrange the investment banking and product financing support including Credit Suisse, Sumitomo Mitsui Bank and Petra Capital. Alkane indicated that it has also considering selling a 10% stake in the project to raise AUD 200 million.
The Dubbo project is very promising given that includes a combination of some of the most in demand rare metals including niobium, terbium, zirconium and dysprosium, for which the main Japanese processer of rare earths, Shin-Etsu Chemicals, has already signed a memorandum of understanding (MOU) for an offtake agreement for Dubbo. The Japanese ‘connection’ and the presence of Sumitomo Mitsui Bank suggest that any additional financing or project participation will also be Japanese. Japan, moreover, has been reducing its reliance on rare earths imported from China and it has looked to Australian suppliers with great interest, including Alkane and Lynas Corp (ASX: LYC). Shin-Etsu Chemical Company of Japan has entered into a Memorandum of Understanding (MOU) for their non-separated rare earth off-take from the Dubbo Zirconia Project (DZP). This is a significant agreement for future off-take. Last November, the Japanese government announced an official policy to diversify its rare earths imports, shifting away from China starting in mid-2013.
Alkane has established links to Japan well before this policy and the new and more nationalist government led by Prime Minister Shinzu Abe, voted in last December, has set an even more course to relations with China, prompting a more intense search for alternative sources of rare earths. Until recently, Japan imported some 90% of its rare earths from China; the new strategy is to reduce it to below 50%. Japan’s average demand for rare earths has ranged anywhere from 20,000 to 30,000 tons. After China, Australia has been the main supplier, accounting for about a third of those amounts. In 2013, the Ministry of Trade said Japan planned to import 9,000 tons from Australia. Meanwhile, there have been increasing rumors that China could, itself, become a rare earths importer due to increasing production restrictions, tougher environmental regulations and rare earth industry consolidation.
Australia is slated to fill in any gaps there as well and Alkane could benefit from this shift, potentially signing offtake agreements with rare earth refiners in China itself just as it has with Japan. Of course, for such prospects to be fulfilled, the world economy must improve. So far, there is some reason for optimism; China announced a better than expected GDP growth and today the Central Bank of China confirmed that the growth trend is being sustained after noting steady increases in the last three months of the year. Moreover, China’s economy, which has been largely export driven, is expected to address a number of domestic socio-economic challenges spurring more internally driven demand. As for Alkane, securing financing package will allow it to move ahead with the Dubbo project and reach the construction stage before the end of 2013. Alkane also announced in an update for the Dubbo Zirconia Project that it has been improving its process developments including such areas as water recycling. Alkane expects to release the Environmental Impact Statement at the end of March and the Definitive Feasibility Study in the March Quarter.
And when finally the Mining License fort their Tomingly Gold deposit will be released, Alkane will generate a positive cashflow starting early 2014… So the prospects are good!
Firstly the title is dissappointing Alessandro. No one can benefit from the Japan and China dispute especially if it escalates to war. Also are you sure that Alkane could benefit from the Chinese (if they become net importers of rare earths) by potentially signing offtake agreements with rare earth refiners in China. My understanding is that MOU’s for all metals from the DZP have already been signed and they do not include China.
Hello Mr. A. Coward;
Thanks for your comment; I actually think that war would be terrible but I don’t think it will come to that. The advantageous prospects will materialize becasue the dispute has promoted Japan to intensifiy its quest to diversify REE sourcing. The second advantage is the likelihood that China to start importing REE’s.
I suspect that the Japanese will want to make sure they get their hands on as much of Alkane’s output as they can; why allow the Chinese to get a foot in that door?
Moreover, Chinese interests seem to be pursuing their own and separate strategies. They have a stake in Arafura Resources, are gaining 50% of TUC Resources’ HREE deposits and now have put their foot on HREE from Northern Minerals via investor Conglin Yue who has close ties with China state-owned companies. Conglin Yue is also a large shareholder in Australian REE explorer Orion Metals.
In all that activity when are we going to see some cash from Lynas?
“potentially signing offtake agreements with rare earth refiners in China itself just as it has with Japan.”
VERY unlikely. Alkane has repeatedly stated that they try to keep away from any Chinese influence in order to present themselves to the world, esp Japan, as a reliable alternative source of REEs.
As for the current 1 MTPA plans, ShinEtsu will take all of it anyway, and they should be happy to soak up any increased volumes in the future.
The real positive sign out of China I see is the horrible smog they just experienced. Because it means the Chinese gov will now be forced to move a lot faster towards lots more wind power (dysprosium demand to go through the roof again) and nuclear power (which needs lots of metallic zirconium).
Alks main problem – besides the delays due to the inefficiency of the NSW gov holding back its Tomingley gold project, but that’s just a matter of weeks – is currently the zirconium market, or more specifically its ZOC submarket, which is very depressed (but bottoming out and growing again in 2013 it seems). This led to the cancellation of one of the three zirconium MoUs. However, they are working with that partner to move up the value chain to high end zirconium products. In the long run, I think, this will lead to even higher profits.
In the short run, together with the wait for the final TGP mining lease approval, it depresses the SP, though. Luckily, they have >170 mio liquid assets on hand, so they can shrug that off for quite a while (or even do a buyback?), concentrating on getting their projects moving.
Personally, I’m buying more, the price is just too good at these levels to resist; cf. http://www.alkane.com.au/reports/broker-media/brokers/20130128.pdf
Correction: I mostly meant neodymium re: wind power. But dysprosium demand should be positively affected by both developments (nuclear+wind), too …