Alkane Resources — Interim / Quarterly Report 2017

Jul 17, 2017

ASX and MEDIA RELEASE

18 July 2017

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Quarterly Activities Report to 30 June 2017

Tomingley Gold Operations (TGO)

• Record gold production in the quarter of 27,924 ounces at AISC of A$906/ounce completed an excellent second half of the 2017 financial year.

• Site operating cash flow after development costs for the quarter was A$30.7M.

• Quarter Results

• Gold production was above forecast at 27,924 ounces and well above the previous quarter of 18,721 ounces

• Site operating cash costs reduced to A$702/ounce with all in sustaining costs (AISC) of A$905/ounce

• Gold sales 31,107 ounces for revenue of A$52.6 million at an average price of A$1,690/ounce

• Gold forward contracts at 30 June 2017 of 17,500 ounces at average price of A$1,716/ounce.

• Full year production for FY2017 was 68,836 ounces with an AISC of A$1,335/ounce, including H2 production of 46,645 ounces with an AISC of A$1,038/ounce, generating cash flow of A$32.7 million (full year site operating cash flow after development costs).

Dubbo Project (DP)

• An initial twelve month toll treatment agreement was concluded with Vietnam Rare Earth JSC (VTRE) as part of the extended due diligence of downstream processing, allowing evaluation of both the physical separation process capability as well as commercial, logistics and sales.

• Two shipments of light rare earth concentrates totalling 80 tonnes acquired on market by ASM were processed, producing approximately 31 tonnes of separated rare earth oxides, including cerium, lanthanum, praseodymium, and neodymium oxides. Final processing is expected to be completed in July, with products then available for sale as pure oxides, or after conversion, as metal alloys.

• Upward price movements in the zirconium chemicals and powders, and rare earth magnet markets are signalling renewed confidence in the sectors, with further increases anticipated during 2017.

• The modularised build is being optimised and costed by Outotec to further support the bankability of the project, and assist with flexible financing options for construction.

Corporate

• The Group’s cash position totalled A$44.9M with A$42.0M in cash and bullion on hand at fair value of A$2.9M, an increase of A$15.9M from the previous quarter and an increase of A$15.2M for the financial year.

CONTACT : IAN CHALMERS, MANAGING DIRECTOR, ALKANE RESOURCES LTD, TEL +61 8 9227 5677 INVESTORS : NATALIE CHAPMAN, CORPORATE COMMUNICATIONS MANAGER, TEL +61 418 642 556 MEDIA : HILL KNOWLTON STRATEGIES, CONTACT: IAN WESTBROOK, TEL +61 2 9286 1225 OR +61 407 958 137

Ground Floor, 89 Burswood Road, Burswood WA 6100, AUSTRALIA (PO Box 4384, Victoria Park WA 6979, AUSTRALIA) Telephone: +61 8 9227 5677 Facsimile: +61 8 9227 8178 www.alkane.com.au mail@alkane.com.au

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TOMINGLEY GOLD OPERATIONS (TGO)

Tomingley Gold Operations Pty Ltd 100%

The TGO is based on four gold deposits (Wyoming One, Wyoming Three, Caloma and Caloma Two) located about 14 kilometres north of the Company’s inactive Peak Hill Gold Mine, and approximately 50 kilometres southwest of Dubbo.

Operations

TGO had record production in the quarter, higher than was expected due to excellent operational performance and continued releases of high grade ore which is over reconciling for the Caloma Two pit.

A total of 27,924 ounces of gold were poured for the quarter, with site cash costs of A$702/oz and all in sustaining costs (AISC) of A$906/oz. This gives total production for H2 at 46,645 ounces of gold at an AISC of A$1,038/oz (site cash cost of A$850/oz), a substantial recovery from H1. FY2017 production totalled 68,836 ounces at an AISC of A$1,335/oz.

Budgets for FY2018 are complete and production is expected to be 65,000 to 70,000 ounces of gold at an AISC of A$1,100 to A$1,200. Mining for the budget period will be almost entirely from the Caloma Two and Wyoming One pits, with the Caloma One pit finishing in the coming quarter.

The current life of mine plan sees the open cut pits finishing in Q1 FY2019. A small cutback of the Caloma One pit to the north east utilising smaller equipment has been designed and whilst not scheduled is an option for TGO should the economics allow it in the future. Low grade stockpiles of approximately 612,000 tonnes are also available for milling, but are at present not scheduled until the potential underground material is available to be blended with it.

Gold sold for the quarter totalled 31,107 ounces at an average sales price of A$1,690/oz generating revenue of A$52.6 million. Bullion on hand decreased by 3,172 ounces to 1,814 ounces (fair value at quarter end of A$2.9 million). Site operating cash flow after development costs for the quarter was A$30.7M. The hedge book at quarter end consisted of forward contracts for 17,500 ounces gold at an average forward price of A$1,716/oz.

Underground Mining Study

The drilling program targeting strike extensions and in-fill areas with the aim of lifting the gold ounces per vertical metre in any future designs continues with completion expected in October. At this time the geological models will be updated and a mine plan evaluated for development.

Regional Exploration

The regional air core drilling program continued within the Tomingley Gold Project and 46 holes totaling 3,582 metres have been completed to date along drill traverses spaced 400 to 800 metres apart, testing an initial area from the southern boundary of TGO mine site to the Cemetery target just north of the Peak Hill mine site, approximately 12 kilometres. Results will be reported as they become available.

At the El Paso target (previously called Eulinda Park), gold mineralisation of >1g/t au has been identified over an open strike length of 1,200 metres. Two, 500 metres apart, core holes totaling 791 metres have been completed to provide detailed geological and structural data of the mineralisation.

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TGO FY 2017 Quarterly Production Figures

TGO Production		FY 2016	Sept Quarter 2016	Dec Quarter 2016	Mar Quarter 2017	Jun Quarter 2017	FY 2017
Waste mined	BCM	6,199,820	1,533,279	1,799,904	2,165,717	2,180,210	7,679,110
Ore mined	Tonnes	1,285,454	221,139	318,216	249,109	434,404	1,222,868
Strip Ratio	Ratio	12.2	18.4	15.4	23.0	13.1	16.6
Grade	g/t	1.84	1.51	1.39	2.42	2.69	2.08
Ore milled	Tonnes	1,096,105	231,797	279,338	281,654	295,194	1,087,983
Head grade	g/t	2.08	1.50	1.48	2.36	3.10	2.15
Recovery	%	90.9	90.1	90.4	91.1	92.8	91.5
Gold poured	Ounces	67,812	10,435	11,756	18,721	27,924	68,836
Revenue Summary
Gold sold	Ounces	67,983	10,000	12,519	16,303	31,107	69,929
Average price realised	A$/oz	1,605	1,627	1,666	1,694	1,690	1,678
Gold revenue	A$M	109.1	16.3	20.8	27.6	52.6	117.3
Cost Summary
Mining	A$/oz	736	1,188	1,029	721	485	748
Processing	A$/oz	292	505	450	269	168	295
Site Support	A$/oz	96	148	118	80	49	84
C1 Site Cash Cost	A$/oz	1,124	1,841	1,597	1,070	702	1,127
Royalties	A$/oz	46	35	40	51	57	49
Sustaining capital	A$/oz	31	130	37	8	46	47
Rehabilitation	A$/oz	18	68	72	38	71	71
Corporate	A$/oz	37	65	57	34	29	41
AISC1	A$/oz	1,256	2,139	1,803	1,201	905	1,335
Bullion on hand	Ounces	2,971	3,368	2,572	4,986	1,814	1,814
Stockpiles
Ore for immediate milling	Tonnes	701,047	661,645	709,148	620,271	761,829	761,829
Grade	g/t	0.82	0.80	0.79	0.75	0.95	0.95
Contained gold	Ounces	18,480	17,201	18,195	15,126	23,300	23,300

1AISC = All in Sustaining Cost comprises all site operating costs, royalties, mine exploration, sustaining capex, mine development and an allocation of corporate costs, on the basis of ounces produced. AISC does not include share based payments or net realisable value provision for ore inventory.

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Core drills testing underground ore positions Wyoming One

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Blast rigs on high grade ore shoot in Caloma Two

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TGO site image at 29 May 2017

DUBBO PROJECT (DP) – zirconium, hafnium, niobium, yttrium, rare earth elements Australian Strategic Materials Ltd (ASM) 100%

The DP remains construction ready, with the mineral deposit and surrounding land wholly owned; all State and Federal approvals in place; an established flowsheet and a solid business case.

Engineering

The project remains ready for detailed design and construction to commence, contingent on financing.

ASM continues to work with Outotec to refine the existing engineering to provide highly accurate costing for the processing section of the project using the modularised build philosophy, allowing the Company to quickly commence the construction phase following financing.

Marketing Developments

Vietnam Rare Earths JSC (VTRE)

During the quarter ASM signed a 12 month toll treatment agreement with VTRE as a further development of the MOU agreed in April 2016 for processing rare earth concentrates into separated rare earth oxides and metals as required.

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Subsequently, VTRE processed two shipments of light rare earth concentrates totalling 80 tonnes acquired on market by ASM, producing approximately 31 tonnes of separated rare earth oxides, including cerium, lanthanum, praseodymium, and neodymium oxides. Final processing is expected to be completed in July, with products then available for sale as pure oxides, or after conversion, as metal alloys.

The processing at VTRE forms part of the extended due diligence of downstream toll treatment, allowing evaluation of both the physical separation process capability as well as commercial, logistics and sales.

Product Marketing

Marketing efforts focussed on customer meetings in Europe and North America, plus conferences to promote the Dubbo Project. The Minor Metals Trade Association (MMTA) annual conference and Intermag were both attended in Dublin at the end of April, followed by Critical Materials Council (CMC) Conference in Dallas, Texas, and the Cleantech & Technology Summit in Toronto. The Company’s zirconium marketing agent Minchem also attended the MMTA conference and the European Coatings Show in Nuremberg, Germany in April, as well as the Ruidow Zircon conference in Kunming, China in May, which was attended by many Chinese and international zirconium companies.

Discussions continue with customers regarding offtake agreements and product testing and development, with customers indicating increased urgency following recent developments in China which have impacted both zirconium chemical and rare earth magnet metal supply. The disruption in zirconium chemicals supply from China during the quarter underscored the importance of developing alternative supply sources independent of China. China currently supplies over 90% of all zirconium chemicals but is facing increased restrictions on production and environmental compliance issues to minimise pollution to the environment. The crackdown by Chinese authorities is understood to be targeting all chemical industries, including rare earths, in order to tackle air pollution and the long term damage affecting waterways and soil degradation.

Development of value added zirconium and hafnium chemicals, oxides and metals continued during the quarter for three high value products, with a major focus on producing high purity chemical precursors. With further concentration of rare earths and downstream magnet and end products manufacture in China, there is an increased urgency for western companies to secure long term independent supplies of critical elements. Growing uncertainties over prices and supply makes the Dubbo Project an important new source of supply.

Market Developments

Widespread price increases for zirconium and magnet related rare earths (praseodymium and neodymium) occurred during the June quarter, taking some zirconium prices to the highest levels in four to five years. The figures below show the change in Chinese US dollar export prices for key rare earths and zirconium related materials during the first half of calendar 2017.

A 25+% increase in the key magnet rare earths since January for praseodymium and neodymium has taken prices to the highest levels in two years. Further price increases have occurred in July on the back of strong demand, with little or no increase in supply expected during the remainder of the year. Increased efforts by Chinese government authorities conducting environmental inspections and audits is also likely to curb some illegal mining production, which will further reduce supply.

Growth in demand for high performance rare earth permanent magnets (REPM) is occurring due to clean energy and transport policies and initiatives by governments worldwide to meet national and international targets for reduced emissions. The rapid growth in demand for electric vehicles is attracting

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significant media attention, but there is equally strong demand for other applications for magnets, including wind power and industrial robots. Some forward buying and stock building is also being reported for magnet rare earths, as well as producers holding out for higher prices.

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2017 prices for key rare earths and zirconium materials
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Zirconium oxychloride (ZOC) prices increased by 40% since the end of last year, resulting in the highest prices for 4-5 years. ZOC is the key indicator of the zirconium chemical industry. The increase was due to a combination of increased raw material prices, stricter enforcement and focus on non-compliance with environmental laws, and imposition of additional regulations by Chinese authorities. An increase of chemical process prices since the end of last year, has been followed by a 20% increase in zircon prices. Strict environmental audits in several ZOC producing provinces in China during the quarter also resulted in closures or reduced production. It is understood that eight ZOC producers in Shandong Province (which produces 1/3[rd] of all ZOC in China) suspended production following visits by environmental inspectors. Most producers have now returned to production following remedial actions to reduce emissions, including converting operations from coal to natural gas.

ZOC prices have now breached the important psychological level of US$2,000/t, with prices expected to stabilise for the time being. Chinese environmental inspectors have now moved to other provinces to conduct similar environmental audits, with increasing pressure building for existing operations to comply with tougher regulations, or face closure. China produces over 210,000 tpa of ZOC, which consumes at least 130,000 tpa of zircon raw materials. While zircon contains ~500pm of uranium and thorium, ZOC is produced with less than 2 ppm, so around 65 tpa of uranium and thorium reports to waste streams, with

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solid residues and other process chemicals. With China’s increased efforts on environmental compliance, management of ZOC waste streams will become a focus of attention, which is expected to result in better disposal or storage practices, and an expected further increase in costs. Additional environmental taxes are also set to be imposed in January 2018, although specific amounts relating to zirconium (and rare earths) are yet to be announced.

Financing

ASM continues to work with its financial advisors, Sumitomo Mitsui Banking Corporation (SMBC) to pursue the funding strategy for the project. Strategic investment, Export Credit Agency (ECA) finance and commercial debt remain as the key components of the envisaged project funding suite. ASM has presented to numerous local and international fund managers and discussions are continuing with relevant ECAs and commercial banks.

The ability of the DP to provide long term sustainable security of supply of a diverse range of over 15 critical metals and oxides is one of the strong themes which is being increasingly recognised both in Australia and overseas. The diversity of products and markets also provides stability of revenue streams over a broad base as different markets cycle through ups and downs over time.

NORTHERN MOLONG PORPHYRY PROJECT (NMPP) includes BODANGORA, KAISER and FINNS CROSSING PROPERTIES (gold-copper) Alkane Resources Ltd 100%

Further to the RC drilling program completed in the March 2017 quarter testing four target areas of Driell Creek, Boda, Kaiser and Windora within the Northern Molong Porphyry Project (NMPP), two diamond core holes totaling 1,293 metres were drilled to test substantial low grade gold-copper mineralisation in the Kaiser-Boda prospects. The holes are located more than 1 kilometre apart along strike.

Extensive zones of alteration were logged within and adjacent to the monzonite intrusive complex. Results are awaited.

ELSIENORA (gold); ORANGE EAST PROJECT (gold–copper); WELLINGTON (copper-gold); CUDAL (gold-zinc); ROCKLEY (gold) were inactive during the quarter

LEINSTER REGION JOINT VENTURE (nickel-gold )

Alkane Resources Ltd 19.4% diluting, Australian Nickel Investments Pty Ltd (ANI) 79.6%. Two prospects - Miranda and McDonough Lookout.

At the time of this report an update from ANI had not been received.

CORPORATE

The Group’s cash position totalled A$44.9M with A$42.0M in cash and bullion on hand at fair value of A$2.9M, an increase of A$15.9M from the previous quarter and an increase of A$15.2M for the financial year.

The Group was debt free at the end of quarter with the project loan facility fully repaid after a final scheduled principal repayment of A$1.0M. The performance bond facility of A$5.1M was reduced by A$2.0 during the quarter. The remaining $3.1M commitment will be reduced in Q1 FY2018.

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Competent Person

Unless otherwise advised above, 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 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Chalmers consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

Disclaimer

This report contains certain forward looking statements and forecasts, including possible or assumed reserves and resources, production levels and rates, costs, prices, future performance or potential growth of Alkane Resources Ltd, industry growth or other trend projections. Such statements are not a guarantee of future performance and involve unknown risks and uncertainties, as well as other factors which are beyond the control of Alkane Resources Ltd. Actual results and developments may differ materially from those expressed or implied by these forward looking statements depending on a variety of factors. Nothing in this report should be construed as either an offer to sell or a solicitation of an offer to buy or sell securities.

This document has been prepared in accordance with the requirements of Australian securities laws, which may differ from the requirements of United States and other country securities laws. Unless otherwise indicated, all ore reserve and mineral resource estimates included or incorporated by reference in this document have been, and will be, prepared in accordance with the JORC classification system of the Australasian Institute of Mining, and Metallurgy and Australian Institute of Geoscientists.

ABOUT ALKANE - www.alkane.com.au - ASX: ALK and OTCQX: ANLKY

Alkane is a multi-commodity company focused in the Central West region of NSW, Australia. Currently Alkane has two advanced projects - the Tomingley Gold Operations (TGO) and the nearby Dubbo Project (DP). Tomingley commenced production early 2014. Cash flow from the TGO has provided the funding to maintain the project development pipeline and will assist with the preconstruction development of the DP.

The NSW Planning Assessment Commission granted development approval for the DP on 28 May 2015 and on 24 August 2015 the Company received notification that the federal Department of the Environment gave its approval for the development. Mining Lease 1724 was granted on 18 December 2015 and the Environment Protection Licence was approved on 14 March 2016. Financing is in progress and this project will make Alkane a strategic and significant world producer of zirconium, hafnium and rare earth products when it commences production in 2019.

Alkane’s most advanced gold copper exploration projects are at the 100% Alkane owned Bodangora, Wellington and Elsienora prospects Wellington has a small copper-gold deposit which can be expanded, while at Bodangora a large monzonite intrusive complex has been identified with porphyry style gold copper mineralisation. Gold and base metal mineralisation has been identified at Elsenora.

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