(MENAFN - ProactiveInvestors - Australia) Alkane Resources (ASX: ALK) has been granted a mining lease covering its Tomingley Gold Project in New South Wales which paves the way for construction to begin immediately and first gold in late 2013.
Tomingley will be a 1 million tonne per annum operation producing 50,000 to 60,000 ounces per annum. This is expected to generate an EBITDA of A217 million.
The cash flow from Tomingley will contribute towards the operating expenses of Alkane's proposed Dubbo Zirconia Project in New South Wales, as well as maintain the exploration effort on the project.
A review of the planned mining operation based on the existing resource was completed, resulting in a revamped schedule with anticipated improved gold production of 380,000 ounces over a seven year life.
Construction is expected to take around 11 months from the start of site works.
Resource expansion
Meanwhile, Alkane has delivered further reverse circulation drilling results from its Caloma Two deposit, with drilling aimed at defining resources within the deposit.
Tomingley currently hosts a total Resource of 12.6 million tonnes at 2 grams per tonne (g/t) for 812,000 contained gold ounces, with the Caloma Two deposit capable of adding to that and extending the mine life.
Notable results included:
- 20 metres at 4.05 grams per tonne (g/t) gold from 143 metres, including 9 metres at 6.73g/t gold;
- 17 metres at 3.94g/t gold from 135 metres, including 7 metres at 6.62g/t gold;
- 12 metres at 6.1g/t gold from 158 metres;
- 19 metres at 2.82g/t gold from 246 metres, including 3 metres at 6.76g/t gold;
- 10 metres at 4.5g/t gold from 147 metres;
- 37 metres at 3.11g/t gold from 165 metres, including 2 metres at 10.8g/t gold; and
- 34 metres at 2.78g/t gold from 222 metres, including 2 metres at 9.59g/t gold.
The Caloma Two deposit is located immediately to the south of the planned Caloma open pit, and mineralisation is located within the feldspar porphyry sub-volcanic intrusive which hosts the Caloma and Wyoming deposits.
The detailed drilling has continued to advance the geological interpretation, and currently gold mineralisation appears to be associated with quartz-sulphide veins within a near vertical 100 metre wide east-west structural corridor that cuts across the north-south trending porphyry.
The quartz veins pinch and swell both down dip and along strike and can range from very narrow intervals up to zones in excess of 20 metres in width.
Very broad zones of mineralisation are observed where cross linking vein structures appear to be flat to shallow north dipping and where the veins intersect bands of siltstone within the porphyry body.
Mineralisation has previously been confirmed over a 300 metre strike length, but it is possible that it will extend an additional 150 metres east to the eastern contact of the porphyry host.
Further reverse circulation and core drilling is in progress to complete the detailed drilling of the target zone to enable resource estimation and incorporation into the development schedule.
This drilling is scheduled for completion in the first quarter of 2013.
Tomingley development
Capital and operating costs for Tomingley were updated in September 2012 leading to the revised capital estimate of 116 million, including contingencies.
At the end of the December 2012 quarter 12.1 million had been expended on development and capital costs, including 3.53 million for EPCM expenditure.
The acquisition of several long lead items, such as the ball mill and site water supply, has previously been initiated.
At the end of December, 95% of the detailed plant design had been completed by EPCM contractor Mintrex Pty Ltd.
To incorporate the increased operating costs, the three deposits at Wyoming One, Wyoming Three and Caloma were re-optimised at a A1,600 per ounce gold price.
The pits were redesigned and production rescheduled based upon the in-pit Measured, Indicated and Inferred Resources. The Ore Reserves are currently being revised.
The reschedule was particularly useful in smoothing gold production but also in providing 70,000 ounce per annum output in the first two years to accelerate capital returns.
While the base case mine life, including stage one of the Wyoming One underground operation, was reduced slightly to seven years, anticipated total gold production increased to 380,000 ounces, from 360,000 ounces previously.
Production cash cost estimates, excluding state royalties, dropped to A980 per ounce over the life of mine.
There is additional upside with the mineralisation currently being drilled at Caloma Two, extensions to the Wyoming One underground and further expansion of the Caloma open pit and underground.
Analysis
Alkane is very rapidly being propelled from explorer to miner as it moves to construction at Tomingley.
The Tomingley Project provides early cash flow capability. A review of the planned mining operation based on the existing resource was completed, resulting in a revamped schedule with anticipated improved gold production of 380,000 ounces over a seven year life.
This would generate an EBITDA of A217 million.
Tomingley is located just 15 kilometres from Alkane's Peak Hill Gold Mine hosting a resource of 467,000 ounces of gold, which provides for synergies between the two projects.
On the exploration front, Alkane mantains a tight geographical focus in New South Wales with exploration success and further development potential.
As of December 2012, cash and Regis Resources shares held totalled about 180 million.
Alkane is in a strong financial position and is poised to grow over the next four years. The company's cash resources are around 76% of its current market capitalisation of A236.6 million.
This attributes less than 100 million in value to both the Dubbo Zirconia Project and the Tomingley Gold Project.
Alkane is a long term investment opportunity with a clear development strategy of multiple operations with substantial emerging cash flow, and the capacity to pay dividends.
Proactive Investors can see considerable opportunity from current, near 52 week low, share price levels with today's news and further milestones in 2013 to change the valuation.
