Alkane Resources — Capital/Financing Update 2010

Aug 16, 2010

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RESOURCES LTD
ABN 35 000 689 216
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ASX ANNOUNCEMENT – 17 AUGUST 2010

Corporate Profile

Alkane Board

DUBBO ZIRCONIA PROJECT

YTTRIUM-HEAVY RARE EARTH CIRCUIT ADDED TO THE DEMONSTRATION PILOT PLANT

J. S. F. Dunlop (Chairman) D. I. Chalmers (Managing Dir) A. D. Lethlean

I. J. Gandel

L. A. Colless (Joint Secretary) K. E. Brown (Joint Secretary)

• Alkane has started larger scale production of an yttriumheavy rare earth concentrate from the new rare earth circuit at its Demonstration Pilot Plant (DPP) at ANSTO as part of the Dubbo Zirconia Project (DZP).

• Recent developments by China, the world’s largest producer of rare earths, has resulted in restricted availability of rare earth products and escalating prices for these outside of China.

• This has seen the rare earth basket of prices within the DZP climb dramatically in 2010:

Rare Earth	Q1 Average	Q2 Average	Late July	Early August
DZP LREE	$9.93	$12.06	**$16.02 **	$27.76
DZP YHREE	$32.95	$42.23	$54.59	$63.80
US$/kg

• The yttrium and heavy rare earth distribution in the ore body is unusual with 25% in the heavy category (standard distribution 95% light and 5% heavy) with this generating a higher than average return for the rare earth product.

Contact

Ian Chalmers Managing Director 96 Parry Street PERTH WA 6000 Telephone +61 8 9328 9411 Facsimile +61 8 9227 6011 Email ichalmers@alkane.com.au Web – www.alkane.com.au

12 month share price range A$0.49 - $0.23

Market Cap 16 Aug 2010

~A$103 million

ASX Code: ALK

249 million shares

June 30 2010

Cash ~ $8.7 million

• These developments emphasise the strategic significance of the DZP as a supplier of yttrium and rare earths, as well as increasing sales revenues for these products to over 40% of total DZP revenues.

• The Demonstration Pilot Plant (DPP) at ANSTO has been operating since 2008 and has proven the flow sheet for the DZP. Substantial zirconium and niobium products have been distributed to potential customers around the world.

No debt

Media Relations

Westbrook Communications Level 1, 17 Castlereagh Street SYDNEY NSW 2000

Telephone: +61 2 9231 0922 Facsimile: +61 2 9231 0131 Web: www.westbrookfin.com.au

Registered Office: 129 Edward Street Perth WA 6000 Telephone: 61 8 9227 5677 Facsimile: 61 8 9227 8178 PO Box 8178 Perth Business Centre Western Australia 6849 www.alkane.com.au mail@alkane.com.au

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Background

The Dubbo Zirconia Project (DZP) is located 30 kilometres south of the large regional centre of Dubbo in the Central West Region of New South Wales (Figure 1) . The DZP is based upon a large inground resource of the metals zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements (see 2004 Annual Report for full details).

Over several years Alkane has developed a flow sheet consisting of sulphuric acid leach followed by solvent extraction recovery and refining to produce several products (Figure 2). This flow sheet is being trialled by a Demonstration Pilot Plant (DPP) at the facilities of ANSTO Minerals (Australian Nuclear Science and Technology Organisation), located at Lucas heights in the south of Sydney.

Demonstration Pilot Plant (DPP)

The DPP was designed to confirm the flow sheet to a high level of engineering and to recover a suite of zirconium chemicals, zirconia, a niobium-tantalum concentrate, a light rare earth concentrate and an yttrium-heavy rare earth concentrate. These products are used in the expanding ceramic, catalyst, electronics, rechargeable batteries, permanent magnets, engineering ceramics, specialty glasses and alloys industries, as well as the nuclear power industry.

The DPP commenced operation in May 2008 and to date has recovered substantial volumes of zirconium chemicals, zirconia and niobium concentrate for distribution and market assessment. This year the DPP has continued to operate for short periods to trial engineering and process innovations, and check specific aspects of the flow sheet for product development.

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Laboratory test work has continued to prove the recovery of yttrium and rare earths from the current flow sheet using solutions generated by the DPP. This flow sheet naturally separates the light rare earths (LREE = lanthanum, cerium, neodymium, praseodymium and samarium) from the yttrium and heavy rare earths (HREE = gadolinium, terbium, dysprosium and erbium) (Figure 2).

Recently the appropriate components were added to the DPP to allow the recovery of the yttriumheavy rare earth concentrate, and an initial six day run has commenced. Product recovered from this operation will be used to advance the marketing program. Two further six day test runs are scheduled for the first half of September.

The light rare earth program has taken second priority to the yttrium-heavy rare earth recovery and zirconium chemical-zirconia development, but now has increased in importance and it is anticipated that the LREE circuit will be added to the DPP in last quarter of year.

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Figure 2

Market Developments and Production Scenario

Early July, the Chinese Ministry of Commerce (Mofcom) announced that their export quotas for rare earths for the remainder of 2010 were to be reduced, such that the export of the primary products would be about 60% of 2009 levels. This decision almost immediately impacted on prices, resulting in some significant rises as demonstrated by Table 1 below.

In a separate but related move the Chinese Government is encouraging consolidation of the REE industry and a promise to eliminate illegal mining operations. It has also been reported that the country’s two biggest producers, Baotou Rare Earth High-Tech Co and Jiangxi Copper Corp, have agreed to a unified pricing approach.

These actions, along with increasing demand due to environmental legislation to encourage energy efficiency and emissions minimisation, will impact on supply and pricing for rare earth products over the next few years and importantly emphasise the strategic significance of the yttrium and heavy rare earth production from the DZP.

The yttrium and rare earth distribution in the DZP ore deposit is unusual, having about 25% in the “heavy” category, which is very different to the standard distribution of about 95% light and 5% heavy. As shown in Table 1, this distribution generates a higher than average return for the yttrium rare earth content of the deposit. Revenues for these products will now increase significantly and account for over 40% of total DZP revenues.

In a similar move, the Chinese Government has removed the 5% VAT refund on zirconia exports, reflecting the growing concerns within China about supply and price of zircon, which feeds the Chinese zirconia and zirconium chemicals industry. This will also impact on the prices of these products and further advances the potential of the DZP to be a significant contributor to this business.

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Table 1 Rare Earths Prices 2010 (US$/kg REO)

Table 1 Rare Earths Prices 2010 (US$/kg REO)	Table 1 Rare Earths Prices 2010 (US$/kg REO)	Table 1 Rare Earths Prices 2010 (US$/kg REO)	Table 1 Rare Earths Prices 2010 (US$/kg REO)	Table 1 Rare Earths Prices 2010 (US$/kg REO)
(Note: 1. Source:metal pages 2. Figures have been rounded)
Light Rare Earth	Q1 Average	Q2 Average	Late July	Early August
LanthanumOxide	$5.72	$7.13	$11.50	$22.50
CeriumOxide	$4.15	$5.58	$7.00	$21.00
PraseodymiumOxide	$26.00	$30.60	$38.00	$48.00
NeodymiumOxide	$26.58	$31.13	$40.00	$48.50
SamariumOxide	$4.50	$4.50	$8.00	$15.00
Heavy Rare Earth
EuropiumOxide	$488.33	$521.67	$550.00	$575.00
GadoliniumOxide	$7.47	$8.25	$16.00	$25.00
DysprosiumOxide	$141.67	$196.67	$275.00	$295.00
TerbiumOxide	$405.00	$545.00	$550.00	$585.00
YttriumOxide	$10.50	$11.42	$15.00	$22.00
DZP LREE	$9.93	$12.06	$16.02	$27.76
DZP YHREE	$32.95	$42.23	$54.59	$63.80
Compiled by IMCOA

These prices are for individual separated rare earth oxides at 99% purity, and the actual value for DZP concentrates will depend on market acceptance of the concentrate.

As detailed in the 31 March 2010 Quarterly Report, there is the growing awareness of a significant developing shortfall in the world supply of zircon. As well as being consumed in substantial quantities as zircon in the ceramics, refractory and foundry industries, zircon is the primary feed material for the downstream zirconium industry.

TZ Minerals International Pty Ltd, Perth based mineral sands consultants, estimate that 2012 zircon consumption will be around 1.3 million tonnes, of which 19% (250,000 tonnes) is consumed by the downstream zirconium industry. Driven by the demand in China for ceramics use in urbanisation programs, the 2019 demand will be close to 1.7 million tonnes of zircon.

Even with Iluka Resources Limited’s new zircon production coming from their South Australian deposits at Jacinth and Ambrosia, the closure of their major zircon producing Eneabba operation this year will see the potential shortfall escalate to 0.5 million tonnes (20% of world demand) by 2020. Currently there does not appear to be new resource potential that is capable of filling this shortfall.

While substitution for zircon is considered possible in some sectors, in general the substituting products are currently more expensive than zircon. As with the rare earth industry, China dominates the downstream zirconium chemicals industry and currently supplies around 90% of the world’s requirements, however unlike the rare earth industry China has only limited zircon resources and relies upon non-domestic imports.

Zircon price and supply will have a major impact on the cost and availability of zirconium chemicals, zirconia and zirconium metal, and this will again highlight the strategic significance of the Dubbo Zirconia Project.

As a result of these developments in the rare earth supply and also potential developments in the downstream zirconium industry supply, the base case for the operation currently set at 400,000 tonnes per annum ore throughput, could be significantly expanded as demonstrated in Table 2 below.

Even at 1million tonnes per annum, the project would have an open pitable life in excess of 100 years

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Table 2DUBBO ZIRCONIA PROJECT Production Outputs
Product	400,000tpa (Base Case)	1,000,000tpa
ZBS, ZOH, ZBC, ZrO2	**15,000tpa (6ktpa ZrO2) **	**37,000tpa (15ktpa ZrO2) **
Nb -Ta concentrate	**2,000tpa (1.4ktpa Nb2O5) **	**5,000tpa (3.5ktpa Nb2O5) **
LREE concentrate	1,980tpa (REOs)	4,950tpa (REOs)
YHREE concentrate	600tpa (REOs)	1,500tpa (REOs)
ZBS = zirconium basic sulphate; ZOH = zirconium hydroxide; ZBC = zirconium carbonate; ZrO2 = zirconia ; Equivalent ~99% ZrO2 + HfO2 basis. Nb-Ta concentrate = ~70% Nb2O5; 1.0% Ta2O5 calcined basis. LREE = Lanthanum, cerium, neodymium andpraseodymium. YHREE =yttrium, gadolinium, dysprosium and terbium. (70% rec)

ZBS = zirconium basic sulphate; ZOH = zirconium hydroxide; ZBC = zirconium carbonate; ZrO2 = zirconia ; Equivalent ~99% ZrO2 + HfO2 basis. Nb-Ta concentrate = ~70% Nb2O5; 1.0% Ta2O5 calcined basis. LREE = Lanthanum, cerium, neodymium and praseodymium. YHREE = yttrium, gadolinium, dysprosium and terbium. (70% rec)

Definitive Feasibility Study (DFS)

The DPP operation has confirmed the process flow sheet and is providing engineering data for capital and operating cost estimates, and continues to generate substantial product for market evaluation. Data from the DPP and Letters of Intent from future customers will be incorporated in the current DFS which should be completed early 2011.

Depending upon financing and Development Consent from the New South Wales state government, the DZP could be in production late 2012 or early 2013.

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The internal section of the DZP Demonstration Pilot Plant

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Alkane Resources Ltd – ASX Announcement

17 August 2010

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COMPANY BACKGROUND

Alkane is a multi commodity explorer and miner with its operations focussed in the Central West of New South Wales , centred about 400 kilometres northwest of Sydney. Over several years, including experience in developing the Peak Hill Gold Mine, Alkane has built a substantial resource base and is proceeding towards several developments. Apart from the DZP, the Company has:

The Tomingley Gold Project currently has an 840,000 ounce gold resource within the Wyoming and Caloma deposits , (full details are in the 2008 Annual Report and the ASX announcements of 2 October and 16 December 2009). A feasibility study for the development of the project with potential 50,000 to 60,000 ounce per annum production is anticipated to be completed mid 2010.

Near Orange, the Company has a joint venture ( ODEJV ) with Newmont, one of the world’s largest gold miners, which resulted in the discovery in 2006 of a significant gold deposit at McPhillamys within the Moorilda Project . An initial resource of Indicated plus Inferred resources containing 2.96 million ounces of gold and 60,000 tonnes of copper has been defined (full details ASX announcement of 5 July 2010) . Newmont are proceeding to complete a Bankable Feasibility Study for the development of the deposit.

Elsewhere within the region, Alkane has defined a 2 million tonne 1.00% copper Indicated Resource (details 2005 Annual Report) which is being reviewed for its development potential at Galwadgere within the Wellington Project , and several other advanced exploration projects with encouraging drill intercepts. New exploration targets have been identified at several other locations.

In Western Australia the Company hold a diluting 23% residual interest in a nickel sulphide joint venture with Xstrata Nickel (Jubilee) near Leinster .

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The information in this report that relates to exploration results, mineral resources and ore reserves is based on information compiled by Mr D I Chalmers, FAusIMM, FAIG, (director of the Company who has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Ian Chalmers consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

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