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U3O8 Corp well positioned to take advantage of approaching uranium upside

13th August 2015

By: Simon Rees

Creamer Media Correspondent

  

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TORONTO (miningweekly.com) – The restart of reactor No 1 at the Sendai nuclear plant, in Japan, this week was potentially a harbinger of a rising tide for the uranium industry, underpinned by China’s rapidly expanding fleet of nuclear reactors and other countries seeking to expand their nuclear capabilities as their economies developed.

As commodities came under further pressure in recent months, uranium had at least managed to tread water, albeit remaining stuck in the doldrums. The uranium month-end spot price, effective July 27, stood at $36/lb for uranium oxide (U3O8), according to nuclear industry consultancy UxC, down from a 52-week high of $44/lb. This compared with highs of more than $70/lb achieved at the start of February 2011, just before the Fukushima catastrophe struck.

Bullish analysts had predicted that uranium’s fortunes would improve over the long term, mainly owing to the growth of China’s nuclear reactor fleet. Effective July 31, China had 26 operational reactors, 25 under construction and 43 planned, according to the World Nuclear Association.

Talk also revolved around Japan, which had started bringing its reactor fleet back on stream, with more reactors expected to come online in the coming months.

ARGENTINIAN CONNECTION
As an emerging economy, Argentina was keen to increase its nuclear capacity as part of a broader energy mix. The country already had three reactors, with another being built and two more planned. However, many remained unaware of this as the country’s economic difficulties captured the headlines.

“Not many people realise Argentina has a third reactor or that they’ve been pretty assertive with the fourth, fifth and sixth reactors, and all within the past 12 months,” U3O8 VP for investor relations Nancy Chan-Palmateer told Mining Weekly Online, adding that nuclear power generated 10% of Argentina's electricity supply.

South America-focused U3O8 hoped to tap into this nascent market through its Laguna Salada project, in Chubut province. The deposit hosted uranium/vanadium within gravel, just 3 m from the surface. The resource stood at 6.3-million pounds, grading 60 parts per million (ppm) of U3O8 indicated and 3.8-million pounds, grading 85 ppm of U3O8 inferred, while screening of the gravel would lead to a head grade of between 850 ppm and 870 ppm of U3O8.

The company’s August 2014 preliminary economic assessment (PEA) of Laguna Salada estimated a potential production cost at $22/lb across a ten-year life-of-mine. This placed the project within the lower quartile of uranium projects being developed globally.

“It’s essential to be in that lower quartile, as it means you can ride out a cyclical downturn because we are in a cyclical market and always will be,” U3O8 president, CEO and director Richard Spencer told Mining Weekly Online in the same interview.

He noted that analysts and market participants either preferred the low-cost, in-situ recovery operations, such as those in the US or Kazakhstan, or Athabasca basin-style projects, whereby the production costs were greater but easily offset on the high grades recovered.

“While we’re not in either of those two places, our projected costs are absolutely comparable,” he stressed. “In fact, we estimate that our costs could be reduced to about $16/lb during the payback period.” That reduction could be achieved by U3O8 exploiting the deposit’s richer parts during a payback period of about two-and-a-half years. 

The capital needed to build the mine was estimated at $136-million, although the company believed it could bring this figure down by a further 10% to 15%.

As envisaged by the PEA, the next steps would entail an investment of $8.5-million that would help double the project’s size, move the permitting forward and help demonstrate the material through pilot processing.

Laguna Salada could then be taken to the feasibility stage within about two to two-and-a-half years. This was favourable compared with projects in the Athabasca basin, which often took many more years to advance, Chan-Palmateer noted.

GET GROWING
An important part of growing the project had been the recent partnering with Chubut’s provincial petroleum and mining company. Under a joint agreement, U3O8 would explore and develop the province’s adjacent concessions over a three-year period.

Both could then form a joint venture at the end of that timeframe, with each party’s stake reflecting the proportion of resources within their concessions.  

Working with the province would have other advantages, most notably within permitting, as Chubut would be fully appraised of U3O8’s progress in its environmental and resource requirements. “It’s not that they’d give us an easier time [in permitting], it’s just that we’d be working as partners and they’d know exactly what we are doing,” Spencer explained.

The company would require three permits for Laguna Salada. The mining and environmental permits would be secured from the province, while the right to produce yellowcake needed to come from the federal government. Spencer stressed that the Argentinean government had been supportive of U3O8’s efforts as a component within its broader nuclear strategy.

Argentina’s reactors had been supplied by material sourced from Kazakhstan and Canada, and U3O8 would seek to displace this supply with its own output, using its proximity to the market place, among other advantages, to achieve this, Chan-Palmateer pointed out.

The company believed the project could already feed the country's three online reactors with the resource already outlined in the PEA, while any additional supply could be sold into other markets, she added.

In the meantime, Argentina’s elections were scheduled to take place in October, and November if a second round was required. Spencer stressed that politicians from across the spectrum had identified clean power and energy security as essential for the country’s future.

There was also an opportunity ahead for Argentina to build closer ties with its neighbours and sell any future excess power across border, particularly to Brazil and Chile, both of which were energy starved.

“Argentina is now at a Y-junction when it comes to energy. One road is a ten-lane superhighway, the other is a mountain path of difficulty. I think the politicians are pragmatic enough to see where the opportunities lie. Indeed, some politicians now use the phrase ‘energy powerhouse’ when they talk about Argentina and that’s exciting,” Spencer said.

Edited by Henry Lazenby
Creamer Media Deputy Editor: North America

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