(MENAFN- ProactiveInvestors - Australia) Alkane Resources Ltd (ASX:ALK) has signed a memorandum of understanding (MOU) with the Australian arm of Siemens AG.
The purpose of the MOU is to advance the Dubbo Zirconia Project (DZP) with respect to procurement of Siemens equipment and operational solutions and future off-take products.
The MOU is non-exclusive and non-binding for a period of three years.
The DZP has received all required government approvals, is construction ready with projected annual revenue from the project estimated to be US$430-$470 million.
Alkane will become the world's largest producer of heavy rare earths outside China, with products principally used for rare earth magnets and special ceramics and alloys.
MOU details
Siemens intends to explore options to procure on normal commercial off-take terms rare earths from DZP directly Alkane, or through its distribution channels or partners.
Alkane intends to procure equipment and systems from Siemens Solution Areas where Siemens consider entering into offtake agreements for rare earths from DZP.
Dubbo Zirconia Project (DZP)
The DZP is located 400 kilometres northwest of Sydney and is a large polymetallic resource containing zirconium, hafnium, niobium, yttrium and rare earths.
The project has reserves to support a 35-year mine life and it has a net present value (NPV) of US$0.92 billion and 17.5% internal rate of return (IRR).
During August, Alkane signed an exclusive worldwide marketing, sales and distribution agreement with Minchem Ltd for all zirconium materials produced by the DZP.
At full capacity, the DZP will produce zirconium products worth US$100-US$120 million annually.
England-based Minchem is a technical ceramics marketing and manufacturing business that has been involved in zirconium chemicals and zirconium dioxide products for over 40 years.
The five year agreement will commence upon production from the DZP and an option will exist to extend the term for an additional five years upon mutual agreement.
The DZP is now construction ready with financing currently in progress with production anticipated to commence in 2018.
Analysis
This MOU presents another substantial step forward in the development of the world class DZP, which can become a significant non-Chinese supplier of several critical metals.
Securing financing for the DZP is a key milestone required by Alkane to unlock the value of the US$0.92 billion project.
The company's financing strategy targets a combination of export credit agency finance and bank debt.
The DZP has been referred to by market commentators as the most advanced and arguably best rare earth elements and specialty metal project in the world.
The Alkane share price is up 170% year to date trading at $0.645.
Alkane's gold producing asset, the Tomingley Gold Operations (TGO) continues to provide cash inflow for the company.
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