TORONTO (miningweekly.com) – TSX- and NYSE MKT-listed Denison Mines has reported a strong pre-tax internal rate of return (IRR) of 20.4% at current uranium prices on its 60%-owned Wheeler River project, including a net present value (NPV) on a 100% basis of C$513-million, according to a preliminary economic assessment (PEA) published on Monday.
"We are very pleased with the positive results of the PEA – particularly being able to illustrate that the project has the potential to generate robust economics based on today's uranium price and with our current resource base. Thanks to the existing infrastructure in the eastern Athabasca basin, our ownership interest in the McClean Lake mill, and a project designed to minimise risk and upfront capex, the Wheeler River project has the potential to emerge as one of the next producing assets in the region," commented president and CEO David Cates.
The company reported base case and production scenarios for the Wheeler River project, located in the Athabasca Basin region of northern Saskatchewan and host to the Phoenix and Gryphon deposits. The project comprised a joint venture between Denison (60%), Cameco (30%) and JCU (Canada) Exploration Company (10%).
Under the base case scenario, consulting engineering firms SRK Consulting (Canada) and Amec Foster Wheeler Americas assumed a uranium price of $44/lb, which would result in the total capital outlay of C$1.1-billion.
The report was prepared on a pre-tax basis, since each partner had different circumstances from a taxation standpoint.
Denison also received an indicative post-tax assessment based on its ownership, showing a base-case post-tax IRR of 17.8% and a post-tax NPV of C$206-million, with a payback period of about three years. Denison’s share of initial capital costs would be C$336-million, with sustaining capital of C$325-million.
The production case scenario provided the project with significant exposure to an expected rising uranium price. The strong profitability at the current price offered lower-risk exposure to rising prices, as shown by a $62.60/lb of uranium oxide production case scenario, resulting in a pre-tax IRR of 34.1% and a pre-tax NPV of C$1.42-billion. Denison's share would be C$852-million.
Denison advised that it intended to proceed with a prefeasibility study for the Wheeler River project and associated environmental assessment studies, which would take between 12 and 18 months.
The Gryphon deposit was expected to produce 40.7-million pounds of uranium oxide, over a seven-year mine life, at a cash operating cost of $14.28/lb. This was equal to about six-million pounds of uranium oxide a year. The Phoenix deposit was expected to produce 64-million pounds uranium oxide, over a nine-year mine life, at a cash operating cost of $22.15/lb. This rate was equal to about seven-million pounds of uranium oxide a year.
Despite the Phoenix deposit being much higher grade, the Gryphon deposit was expected to be the more profitable deposit, owing to lower capital and operating costs. Located well below ground unconformity and in stronger ground conditions, it would allow for conventional development and mining practices. Conversely, at Phoenix, the unconformity-style mineralisation required more sophisticated lateral development and ground freezing, as well as remote extraction methods demanded by the high uranium grades and associated radiation levels. The mining of Phoenix also carried increased technical risk associated with mining at the unconformity, which might lead to delays in production, Denison warned.
"With the opportunity for resource growth at Gryphon and higher uranium prices on the horizon, the PEA provides Denison with a solid foundation to work from and supports our decision to continue to explore on the property and advance the project immediately into a prefeasibility study,” stated Cates.