Rare Earths Shares to Buy Alkane Resources (ALK)

Alkane Resources (ALK) | Rare Earth Shares to Buy | ASX ALKAlkane Resources (ALK) is a multi-commodity explorer and miner focussed in the Central West of New South Wales.

Its Dubbo Zirconia Project is a world class resource of zirconium, hafnium, niobium, tantalum, yttrium and rare earths.

ALK also has a new gold development planned at Tomingley based upon an 800,000 ounce (oz) resource.

Additionally, ALK made a major gold discovery at McPhillamys (3 million oz) with its joint venture partner Newmont.

ALK aims to develop multiple operations within a tight geographic area over the next five years.

Rare metals and rare earths are a unique proposition given their use in green technology.

Demand for many of the metals is being driven by environmental legislation to ensure emissions minimisation and energy consumption efficiency.

Demand looking strong

Rare Earths have long been considered a strategic resource for China, with LYC the nation’s only major competitor.

China controls more than 90% of the accessible resources of rare earth metals.

Over the last few years, there has been a trend in Chinese Government policy decisions supportive of government control of the Rare Earths industry in China.

ALK shares have soared over the past year following news the Chinese Ministry of Commerce announced restrictions on Rare Earth exports.

The total export quota for 2010 (30,259 tonnes) is 40% less than the total export quota for 2009 (50,145 tonnes). In addition, the export quota for 2H10 (7,976 tonnes) is 72% less than the export quota for 2H09 (28,417 tonnes).

With China deciding to keep most of the world’s supply to itself, it leaves Alkane Resources and its peers in a good position to cater for buyers elsewhere.

China is expected to continue reducing export quotas for rare earths in the coming years. A reduction in the order of 5%-10% is anticipated next year.

The trend will likely continue until the Chinese government achieves its strategy of restructuring its rare earths industry, addressing environmental issues and preserving its resources for the long term.

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Quarterly update

In February, ALK completed a $21 million capital raising. The funds will be used to complete its current projects and for further resource evaluations.

According to ALK, the potential revenues from DZP products continue to increase assisted by escalating zircon prices, the Chinese Government classification of zirconium as a strategic metals and an indication of future preferences for value added zirconium products, and further restriction of their rare earth exports.

Base case revenues at the rate of 400,000 tonnes per annum ore processed are now estimated at US$180Mpa with project open pit life of at least 200 years.

The expanded case of 1Mtpa could generate revenues of US$450Mpa.

The base case development for its Tomingley gold project confirmed a production of 370,000 oz of gold over a seven and half year life.

Operating cash flows for this project are estimated to be $155 million with a capital cost of $95 million.

Looking ahead

ALK has built a substantial resource base and is proceeding towards several developments.

Following the capital raising, the company is well funded to pursue its projects.

Alkane Resources is prospecting and mining key commodities at the moment which are experiencing increasing demand and prices.

Peers such as Lynas Corp (rare earths) and Iluka (mineral sands) have experienced strong gains over the past few months as investors acknowledge the value of their minerals.

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