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Renewed uranium market interest piques curiosity in Norasa

Norasa, Namibia.

Norasa, Namibia.

Photo by Forsys Metals

12th May 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The relatively positive trend in uranium spot prices since the start of the year has resulted in somewhat renewed interest in the sector’s undeveloped projects.

Following a week of intensive meetings with institutional investors in Toronto, the mining finance capital of the world, director and CEO of Namibia-focused uranium explorer Forsys Metals Marcel Hilmer emerged, confidence that the company would be able to secure finance and build its flagship $432.8-million Norasa project, in Namibia's Erongo region.

In an interview with Mining Weekly Online, Hilmer underlined that “there is interest in the project, part and parcel with the renewed interest in the uranium space”.

After completing a positive feasibility study on the twin-deposit project in March, the TSX-, Frankfurt- and Namibia-listed company was now determined to put in place the funding to construct the project, an amount Hilmer thought was achievable given the project’s size and scope.

“We think it is economic,” he said.

MARKET REBALANCE
Hilmer noted that there was "something in the wind" for uranium and he expected a market rebalance to take place “sooner than some people would say”.

He pointed to several newsworthy events in recent months that had heightened market momentum, including Canadian producer Cameco recently striking a C$350-million supply agreement with the Department of Atomic Energy of India to provide 7.1-million pounds of uranium concentrate under a long-term contract through to 2020.

According to him, the Canadian government’s endeavours to establish closer trade relations with countries, such as India and even Australia, also augured well for the uranium industry over the long term.

Following Japan’s Fukushima earthquake in 2011, many significant utilities and other parties operating in the uranium market retreated from the commodity, eventually pushing uranium’s price down from $70/lb to as low as $34.50/lb.

Late last year, however, the spot price started rising again to as high as $44/lb. This was owing to expanding demand from China as it progressed construction of at least 26 new nuclear reactors, significant spot sales to utilities, as well as Japan, which in December approved the restarting of certain nuclear reactors, signalling that nuclear power would once more make up about 20% of the power mix, albeit only over several years.

From the start of the year, the spot price climbed from just above $35/lb of uranium oxide (U3O8) to about $39.50/lb by early in March, conspiring with the positive results from the Norasa feasibility study to push Forsys Metals’ TSX-listed stock to a six-month high. However, spot uranium once more fell in April, back below $36/lb last week.

Some other factors were also expected to start correcting the market imbalance, as certain large mines were nearing the end of their productive lives.

Forsys was not currently in active discussions with potential future offtake partners, but Hilmer noted that he was encouraged that the region's dominant economy, South Africa, had announced its commitment to advance nuclear power.

“It is still early days, but the government, banks and institutional investors are very supportive of this. There is a definite need in South Africa to improve the power supply for the commercial and residential sectors.

“We are not today in direct discussions with potential offtake partners, but are more than willing to discuss the opportunity with interested parties,” Hilmer advised, noting that, given Forsys’s market capitalisation, the size of the project and the significant disconnect between the two, the company would have to be open to the best possible arrangement to see the project go into production.

“What we’d like to see is advancing discussions with strategic partners. We have 100% of the offtake available, which is a significant inducement to get involved when you’re talking over five-million pounds a year with production spread over many years,” he added.

NORASA FEASIBILITY
Forsys had in March reported a 14.8% rise in reserves, higher yearly and life-of-mine (LoM) output and lower operating costs for its Norasa uranium project, following the completion of a feasibility study.

Norasa comprises the Valencia main and satellite pits as well as the Namibplaas deposits and is considered as potentially one of the next big uranium-producing mines of the near future.

The economic treatment had resulted in an estimated after-tax net present value at a discount rate of 8% of $383.4-million. Using the initial investment and operating cash flows from inception, the after-tax internal rate of return was estimated to be 26%.

The project’s capital outlay would amount to $432.8-million, up from the $392-million estimated in the key performance indicators in the National Instrument 43-101-compliant technical report on the project, released on March 27 last year.

The latest study resulted in Norasa’s reserves being estimated at about 90.7-million pounds of U3O8, up from 79-million pounds of U3O8 reported in October 2013. Forsys added 10.7-million pounds of U3O8 reserves from the Namibplaas deposit, using a 140 parts per million cutoff grade.

The project’s expected operating costs were $32.96/lb of U3O8 over the first five years and $34.72/lb of U3O8 over the 15-year LoM. The updated cost estimates represented a significant reduction from the 2013 Engineering Cost Study estimates of $34.76/lb and $38.20/lb of U3O8, respectively.

The Norasa production schedule had been modified to incorporate the updated mineral reserves and to include a processing rate increase to 11.2-million tonnes a year, up from 8.2-million tonnes a year envisioned in 2010.

The project was expected to produce about 5.2-million pounds of uranium a year over its mine life.

"Norasa is one of the very few uranium projects in the world that is construction ready with a mining licence.

“We believe that the study results will attract strategic partners and investors, and provide us with alternatives for the next phase of Norasa's development," Hilmer explained.

On Tuesday, Forsys's TSX-listed stock traded down 2.63% at C$0.19 apiece, a far cry from the 52-week high of C$0.48 a share a year earlier.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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