Alkane Resources — Investor Presentation 2017

Oct 11, 2017

Economics of Rare Earth Projects

Ian Chalmers Technical Director Alister MacDonald General Manager - Marketing

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Why rare earths?

Oil is the blood; steel is the body; but rare earth elements are the vitamins of a modern society (anon?)

Rare earth elements can be regarded as the "vitamins" required for the shift from a carbon based economy to the new 21st century electron economy (many references) There is oil in the Middle East. There is Rare Earth in China (Deng Xiaoping Chinese President - 1992)

Improve the development and applications of rare earth, and change the resource advantage into economic superiority (Jiang Zemin Chinese President - 1999)

Not only has China taken the lead on rare earth production over the last 20 years and now holds a dominant position in the whole supply chain from mining to consumer end-products, it has a clear policy to secure other deposits elsewhere in the world and enhance that dominance.

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Rare Earth Applications

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Source: IMCOA

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Rare Earth Demand Drivers

REE Demand 2016 by Application

• US$3-5B Global market

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US$3-5B Global market Other
Catalysts
8%
• 159,500t Annual consumption 2016 18%
• 6-8% Annual growth estimates Ceramics
5%
•
85-90% REE produced by China
Glass
6%
Phosphors
• Permanent magnets dominate 5%
consumption and growth 6 - 12% pa
•
Annual magnet market ~US$20B
•
Major use for Nd, Pr, Dy and Tb
Polishing
•
80% by value 20% by volume 12%
Magnets
• Growth in other REs for special 27% Metal
metal alloys and ceramics Alloys
16%
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Rare earth permanent magnets (REPM)

1. Luxury electric vehicle contains ~4.5 kg of REPM

• 2.0 kg for traction motor; 2.5 kg for other motors (windows, seats etc)

• Contains 31% rare earth Pr/Nd alloys, or 1.4 kg

• 1 million EVs require ~1,400 tpa of PrNd alloy

• Annual growth +30%

2. China will consume 46,500 t of Pr/Nd oxide for magnets in 2017, and is set to reach 60,000 tpa by 2020

• Magnet demand growth rate will increase further for EVs, wind power, and robotics

• • Crackdown on illegal Chinese production is reducing supply

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China Pr/Nd oxide demand tpa
100000
80000
60000
40000
20000
0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
China Legal China Illegal Source: IMCOA
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China: Critical Supply Issues to 2025

1. China Manufacturing 2025 is targeting 70-80% domestic supply by 2025 for key high value markets

• Critical supply risk for rare earths and zirconium chemicals as China supplies 90+ % of world supply

  • 50% of rare earths supply is non-quota or illegal

2. Export & supply of rare earths magnets threatened

• High growth rates for magnets in China will reduce exportspreference will be given to Chinese companies

3. China’s rare earth industry is US$3-5 billion, with a US$30-40 billion environmental clean up legacy

• Rare earth prices will need to double in order to pay environment clean up costs over 10 years

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Military Applications – strategic importance

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Source: Critical Rare Earths, National security, and US China Interactions. David L
An.2016
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Where are the rare earths?

Deposits and mineralogy

The major deposits – alkaline intrusive complexes and rarely volcanic sequences. All have variable mineralogy and uranium and thorium content. Others in secondary surficial environments (ionic clays); or deep sea muds; fly ash. Deposits are found in many world wide locations. Some examples are:

DEPOSIT GEOLOGY STATUS Baiyun Obo – China hydrothermal – skarn like (IOG ?) – bastnasite (LREE) Production Mt Weld – Australia carbonatite – monazite (LREE) Production Mt Pass – USA carbonatite sheets – bastnasite (LREE) Moth balled Longnan – China ionic adsorption clays – heavy rare earths Production Dubbo - Australia trachyte volcanic – eudialyte/bastnasite (Zr Hf Nb REE) Financing Browns Range – Australia hydrothermal vein - xenotime (HREE) Pilot plant Nolans – Australia carbonatite sheets – apatite (LREE) Feasibility Ngualla – Tanzania carbonatite – bastnasite (LREE) Feasibility

Baiyun Obo – China Mt Weld – Australia Mt Pass – USA Longnan – China Dubbo - Australia Browns Range – Australia Nolans – Australia Ngualla – Tanzania

The ore and host rock mineralogy affects the recovery process, and hence flowsheet capex, opex and product output.

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How do we get there? Deposit to product output

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Area selection Exploration Resource Process
• • Mapping • Definition Development
Geological
• • •
• Previous work Drilling Geo-metallurgy Metallurgy
• Feasibility
Pilot Plant
Environment
Offtake Financing
• Prove flow sheet • Impact studies • Product Construction
•
Samples for • Social licence certification
market • Production
• Bankable feasibility
Regulatory time
evaluation
frames
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The discovery to production usually takes 10 to 15 years and feasibility can cost in excess of $100 million

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Capital Costs

• Most current rare earth production facilities include upfront mineral beneficiation followed by “cracking” and dissolution of the minerals; then separation by solvent extraction and refining of the individual rare earths. There are several other extraction and refining processes being trialed but none are yet used in commercial production.

• The plants are sophisticated chemical processing facilities, with multiple streams and potential recirculating loads that require careful management to ensure maximum recovery and product quality.

• Management (handling, storage and neutralization) for long term administration of waste stream costs are often large and under estimated.

• Large scale pilot plant proving of the flow sheet is essential to inform capital and operating costs, demonstrate mass balances and product recoveries, demonstrate sustainable environmental management and to minimizing process and financial risk.

• Capital costs will depend upon planned capacity and location. Currently there are several nonChinese rare earth projects that have commenced operation during the last five years or are planning development.

• Recent capital cost estimates for projects have ranged from about US$400 million to US$2,000 million, and as a rough “rule of thumb” an approximate cost of US$50/kg of REO can be applied (excluding working capital).

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Price Sustainability – the neodymium example

The “2011 boom”, initiated by a geo-political event and exacerbated by rampant speculation (mostly traders) Calls for rare earth substitutions, thrifting and some amazing “discoveries”.

The sustainability window (?) US$60-110/kg NdPr metal A price that can allow western NdFeB permanent magnet consumers to compete on price/quality with Chinese producers

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“Economics”

- Indicative valuations based upon industry generalisation with a[+] / 15-20% accuracy

Product	Units	Current Price Range	Source	Source	Source	Source	Source	Source	Recovery %	Operating economics for six RE type deposits applying global average recovery and current REO prices. Opex calculated as globalized averages to generate an approximate US$ revenue per kilogram of output. Gross margins range from negative to about positive 60% Environmental management costs for Chinese operations not included in their costs (particularly ionic clay deposits)
		**US$/kg FOB China **	Basnasite ppm	Monazite ppm	Xenotime ppm	Apatite ppm	Ionic clay ppm	Polymetallic ppm	Estimated global averge
Lanthanum Oxide	La2O3	2.53	22350	23320	174	5540	18	1800	75
Cerium Oxide	CeO2	2.90	32075	46430	432	13340	4	3390	75
Praseodymium Oxide	Pr6O11	90.00	2760	5040	61	1630	7	375	70
Neodymium Oxide	Nd2O3	72.50	7690	17700	274	5950	30	1300	70
Samarium Oxide	Sm2O3	2.30	1	2	178	2	28	200	50
Europium Oxide	Eu2O3	80.00	85	518	37	110	1	6	50
Gadolinium Oxide	Gd2O3	43.30	0.2	1	476	1	69	200	60
Terbium Oxide	Tb4O7	580.00	30	88	106	22	13	30	50
Dysprosium Oxide	Dy2O3	185.00	30	224	719	93	67	190	65
Holmium Oxide	Ho2O3	40.00			150		16	40	50
Erbium Oxide	Er2O3	28.50			427		49	107	50
Thulium Oxide	Tm2O3	NA			59		7	15	50
Ytterbium Oxide	Yb2O3	30.00			344		25	92	50
Lutetium Oxide	Lu2O3	720.00			46		4	13	35
Yttrium Oxide	Y2O3	3.50	7	740	4810	370	650	1460	75
Chemical Zirconia	99.50% ZrO2	10.00						19000	85
Hafnium Oxide (95% HfO2)	Hf Metal	500.00						400	50
Ferro-niobium (65% Nb)	FeNb	35.00						4400	65
Recovered value /kg			$14.19	$20.36	$20.30	$23.02	$26.73	$20.60
Opex (average)			$15.00	$13.00	$25.00	$15.00	$15.00	$8.00
Revenue			-$0.81	$7.36	-$4.70	$8.02	$11.73	$12.60
Gross Margin %			-6%	36%	-23%	35%	44%	61%

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Summary of Economic Drivers for REs

✔ Quality of the resource – grade, recovery, metal distribution Location and access to infrastructure ✔ ✔ % of “magnet metals” Nd, Pd, Dy, Tb and Sm in production that will drive revenue

✔ Volume and quality of off-take agreements ✔ Operating costs ✔ Capital intensity ($/kg per product capex) ✔ Sustainable product prices ✔ Demonstrable sustainable environmental practice

Demonstrable sustainable environmental practice

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Financing

 ECONOMICS

Rare earth (and rare metal) projects involve complex processing options to produce marketable products. To generate reasonable financial returns, these projects require stable and sustainable product prices, and economies of scale which usually relate to large upfront capital expenditure.

 RISK MANAGEMENT

Minimising technical and financial risk is of primary importance and this requires a substantial investment in pilot plant proving and distribution of products to consumers for certification and off-take agreements.

 OFF-TAKE

Historically rare earth sales were based on long term contracts. Currently difficulties arise when customers expect new suppliers to base their pricing on spot prices generated by traders who have no commitment to sustain the industry. These conditions are rarely satisfactory for normal financiers.

 FINANCE

The equity markets struggle with these “exotic” metals, as they are perceived to be high risk and of relatively low cumulative value. The 2012 price “crash” reinforced these negative perceptions.

These large complex projects will rely on innovative funding solutions needing the support of national financial institutions such as Export Credit Agencies and / or specific strategic agencies or companies that understand the national significance of the metal supply.

 NICHE MARKETS

Few comparative and successful projects for peer comparison by financial institutions

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Strategic Issues

China’s dominance of the markets for rare earths, and for some specific rare metals, will continue with the clear public statements by the Chinese Government of the intention to maintain and expand China’s advanced manufacturing capabilities.

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Source: Karl Gerald van den Boorgart, Polina Klossek and Andreas Klossek, “How Forward Integration along the Rare Earth Value chain Threatens the Global Economy”, paper presented at 2014 Critical Minerals Conference, Denver, Colorado, August 3-5 2014. Referenced in “The Elements of Power, Gadgets, Guns and The Struggle for a Sustainable Future in the Rare Metal Age, David S Abraham, published by Yale University Press, October 2015

The value increases from US$4B Minerals; US$40B Materials; US$400B Components; to US$4T Systems

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Strategic Issues – Financing Perspective

Geopolitical and sovereign risk. Recent actions by African and South American governments demonstrate that this risk remains very high. What countries are “safe”? Supply chain visibility. The large issue of product from illegal mining/production in China and other conflict regions. Interaction with the laws of the US and Europe.

National defence issues – potential for interruption to supply. Corporate requirements for business continuity.

Are non-Chinese countries and companies prepared to accept that supply of many components and consumer products will be dictated by China?

Are these entities prepared to support project developments that may not qualify for normal terms of resource project financing – IRR, NPV and length of payback? The rare earth supply chain outside of China needs to be acknowledged, supported and requires strategic investment.

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Alkane Resources Ltd Thank You

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© 2017 Alkane Resources Ltd

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Acknowledgements

This presentation 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 of implied by these forward looking statements depending on a variety of factors. Nothing in this presentation 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 Geosciences.

Competent Person

Unless otherwise stated, the information in this presentation that relates to mineral exploration, 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 Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Ian Chalmers consents to the inclusion in the presentation of the matters based on his information in the form and context in which it appears.

Acknowledgements

Many Alkane staff and consultants have contributed to the content in this presentation which has been compiled over twenty years during the study into the development of the Dubbo Project. Dudley Kingsnorth (Industrial Minerals Company of Australia) is thanked for his review of the information relating to global prices, operating and capital costs.

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Dubbo Project Resources & Reserves

Dubbo Project – Mineral Resources

Resource Category	Tonnes (Mt)	ZrO2 (%)	HfO2 (%)	Nb2O5 (%)	Ta2O5 (%)	Y2O3 (%)	TREO (%)*
Measured	42.81	1.89	0.04	0.45	0.03	0.14	0.74
Inferred	32.37	1.90	0.04	0.44	0.03	0.14	0.74
Total	75.18	1.89	0.04	0.44	0.03	0.14	0.74

*TREO% is the sum of all rare earth oxides excluding ZrO2, HfO2, Nb2O3, Ta2O5, Y2O3,

These Mineral Resources are based upon information which has been compiled by Mr Stuart Hutchin, MIAG, and an employee of Mining One Pty Ltd. Mr Hutchin has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken 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 Hutchin consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. The full details of methodology were given in the ASX Announcement of 19 September 2017.

Dubbo Project – Ore Reserves

Reserve Category Proved Probable Total	Tonnes (Mt)	ZrO2 (%)	HfO2 (%)	Nb2O5 (%)	Ta2O5 (%)	Y2O3 (%)	TREO (%)*
	18.90	1.85	0.04	0.440	0.029	0.136	0.735
	0
	18.90	1.85	0.04	0.440	0.029	0.136	0.735

*TREO% is the sum of all rare earth oxides excluding ZrO2, HfO2, Nb2O3, Ta2O5, Y2O3,

These Ore Reserves are based upon information compiled which has been compiled by Mr Ievan Ludjio MAusIMM(CP) and Mr Mark Van Leuven FAusIMM (CP), employees of Mining One Pty Ltd. Mr Ludjio and Mr Van Leuven have sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken 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 Ludjio and Mr Van Leuven consent to the inclusion in this report of the matters based on his information in the form and context in which they appear. The full details of methodology were given in the ASX Announcement of 19 September 2017.

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