The Dubbo project, 30km south of Dubbo city, is seen as an alternate source of zirconium and heavy rare earths, comprising zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements.



The updated DFS was based on a 1 million tonne per annum mining and processing facility which would generate estimated annual earnings before interest, tax, depreciation and amortisation of $A290 million, or $5.23 billion over the project’s initial 20-year mine life.

Total resources at the project stand at 73.2Mt grading 1.96% zirconium, 0.04% hafnium, 0.46% niobium, 0.03% tantalum, 0.14% yttrium and 0.75% rare earth elements, which Alkane said would give the project life at least another 50 years beyond the initial 20-year mine life.

Under the 1Mtpa base case, net present value was estimated at $1.23 billion while an internal rate of return of 19.3% was given.

Annual operating costs for the mine would be about $213.5 million, while the operation would generate Alkane annual revenue of $503.5 million.

Estimated capital costs of $996.4 million would be spread out over a two-year development and construction period.

The total cost comprises $396.8 million for the process plant, $116.6 million for the sulphuric acid plant, $253.4 million for infrastructure and owner costs, $63.5 million for engineering, procurement, construction and management and $166.1 million for 20% contingency allowance.

The previous DFS, undertaken in 2011, estimated capital costs for the same capacity rate at $893 million, while a $470 million price tag was estimated for a smaller 400,000tpa production rate.

While there has been a marked reduction in market prices for zircon-zirconium chemicals and rare earths since the initial DFS, Alkane said the revised DFS was positive regarding future price trends for Dubbo’s products, in particular rare earths which are scarcer.

While costs for the project’s development have risen, Alkane said it was not contained to the Dubbo project.

“The revised DFS shows higher total project capital costs and slightly higher operating costs in accord with industry-wide increases in Australia over the last two years,” Alkane said.

“These increases now appear to be contained.”

The project will undergo an environmental assessment, with an environmental impact statement slated to be lodged by the end of the month.

The Dubbo project has already been classified by the NSW Department of Planning and Infrastructure as a state significant project.

While the company has a strong balance sheet with about $80 million cash in hand at the end of the December quarter, the company is assessing several options to secure a finance package of around $1 billion.

Available options include equity sale of minor interest in its subsidiary, Australian Zirconia, loan facilities through offtake partners, debt facilities and equity funding.

Alkane anticipates it will take about a year to secure the finance needed, which will run parallel to the final project approvals.

The timetable should allow the development program for the Dubbo project to start in the first quarter of 2014 to enable first production in 2016.

Alkane has two memorandums of understandings and one letter agreement to advance development of markets for the project.

The company believes confirmed offtake agreements will be finalised during 2013.

Shares in Alkane were unchanged at 48c.