Considering we have a lots of newbies on the board, I thought it might be useful to gather together the available info on the biggest obstacle still in the way of the
DZP: Financing.
1) How much will we need?
a) 1 billion does get thrown around a lot. That number is not incorrect, but not really correct either. It's coming from rounding the last DFS (2012?13? there was a preliminary one around 2009) which figured 800 million +/- 16%.
b) The +/- is important to note: While costs including overruns could be as high as 950 mio according to the DFS, they could also be
a mere 650 mio if everything goes perfectly.
c) Since then, there have been quite a lot of developments taking place, some bound to increase that number, some to reduce it. The FEED due in late March should give more accurate guidance (accurate to 10%+/-), but let me list the most important factors in the plus and minus columns:
(1) Increasing capex:
- FeNi plant due to Treibacher JV (will also increase op profit), ballpark around 100 mio? it's not clear how much of that was covered by old DFS
- lower value of AU$ can increase cost of machines/parts we need to import
(2) Lowering capex
- Higher value zirconia production as opposed to ZOC seems to require lower capex (that one astonished me when I read it back then; almost seems too good to be true)
- improved, cheaper REE circuit (also reduces water needs)
- way cheaper oil/gas etc
- buyers market due to end of mining boom?
My stomach tells me that those factors will more or less cancel out; all in all 800 mio plus contingencies for construction problems seems a reasonably conservative bet.
2) How much capital do we have (spent) ourselves?
The FEED costs 50 mio, I'd guess 2/3s of that have already been paid. We got 35 cash(equivalent) on hand to easily cover the remainder plus overhead. IIRC we spent another 10-20 mio on stuff that counts to the capex number.
In addition, we'll have 2 full years of Tomingley production. Depending on gold price, that should be worth 100 mio.
So 150 million overall. 800-150=650 mio
3) JV partner
It is expected that one of our JV partners (most likely Shin Etsu, which makes billions of US$ profit every year) will buy 10% of the DZP as such directly from Alk once Alk gets its environmental permit (which decides the "if" of the DZP; later permits like the mining lease will only determine the "how"); my guess would also be that Shin Estu starts serious buying of Alk shares at that time.
Once upon a time, management hoped for a multiple of NPV (which is >1 billion at 20 years reserve / permit, as compared to a 70 years resource) for that, so I expect them to hold out at least for a single multiple, which would translate to 100 million for 10%. 650-100=550.
4) Debt financing
So this leaves us with 550 million of debt financing. For that
"Alkane Resources Ltd has engaged Credit Suisse (Australia) Limited (“Credit Suisse”), Sumitomo Mitsui
Banking Corporation (“SMBC”) and Petra Capital Pty Limited (“Petra”) to provide investment banking services"
http://www.alkane.com.au/pdf/asx/2012/20121025.pdf
300-400 mio of that are expected to come from government agencies esp in Japan. But Korea, Europe and the US have also shown interest. Another 150-250 mio would have to come from private banks. Given the ECBs pumping of fresh money into Europe, Alk should be an attractive target for them to park some of that money. And then there is also Fidelity which came aboard recently as a major investor at bargain prices (grumble, grumble)
5) Contingencies
The 800 mio above don't include contingencies for construction problems and other cost overruns. But lets remember: If things go wrong, contractors get to be paid later. Which means we can include 40 mio for 2017 Tomingley gold, including forward sales for the second half of the year. After that, we'd have to look at selling shares ...
6) Tricks up our sleeve
In addition, we could delay some stuff. E.g. we might collect the niobium concentrate in tanks (if permissible, else, the stuff goes into the general waste dump) and built the Fe-Ni plant a year later once we got some income from zirconia and REE. This reduces immediately needed capex by 100 mio and reduces income only by 20% for just one year. Also, we could buy old, used trucks / machines for 3 years of digging up the DZP and only switch to new ones once cashflow from DZP arrives. I'm sure there are other ways to go about it. Don't think we can ship in the sulfuric acid for 2 years, though - the risk of an accident is just too high.
(20min delay)