Strateco leads the uranium pack in Quebec (Part II)

Strateco Resources (RSC-T) has passed the first test for bringing its Matoush uranium project into production with the completion of a positive scoping study.

 

 Highlights from the study released in November say that the project could produce 15.5 million lbs. U3O8 over seven years while achieving an internal rate of return of 37%. The full study is expected to be released by Dec. 24.

 

The project would generate an operating profit of $841.5 million over the mine life while the pre-tax net present value (NPV) ranges between $341.6 million using a 5% discount rate and $154.1 million using a 15% discount rate.

 

Capital costs were pegged at $297.3 million before startup, plus another $45.5 million in sustaining capital and closure costs.

 

Operating costs are estimated at $302.53 per tonne milled or about $32.5 per lb. U3O8 produced.

 

And a long-term uranium price between US$60 and US$90 per lb. was used with an evaluation price of US$75 per lb. and an exchange rate of US85¢.

 

Mine production would ramp up to 262,500 tonnes per year, grading between 0.27% and 0.63% U3O8 over the mine life to produce more than 2 million lbs. U3O8 annually — until the final year, when only 1 million lbs. would be produced. The study predicts a recovery of 97.6% U3O8.

 

With the startup of a base metal and a gold mine already under his belt, Guy Hebert, Strateco’s president and CEO, says he was a bit surprised at some of the numbers.

 

“Costs were higher than I was expecting,” Hebert says. “But this was the reality last spring, and we don’t know what will happen in 2012.”

 

For example, the study used a sulphuric acid price of US$242 per tonne but Hebert says the going price lately has been US$80 per tonne.

 

Capital costs were a surprise to him as well. For the shell of the mill building, the study used a price of $48 million with a 25% contingency.

 

“We have a quotation for $15 million, but the consultant wanted to put $48 million for the shell, so that’s it — even if we have a quotation for $15 million,” Hebert says.

 

Another example is the closure costs, estimated at $30 million.

 

“We have quotations from two consultants; one at $10 million if we put half the tailings underground, the other at $30 million if we put no tailings underground,” Hebert explains.

 

But Hebert points out that the project is strong even with the high costs.

 

“Normally, a scoping study is built to kill your project,” Hebert says. “If you are marginal at your scoping, that can be a problem, so we went with a maximum costs. . . We hope to beat it.”

 

Dundee Capital Markets initiated coverage of Strateco in November, after the scoping study highlights were released.

 

Analyst David Talbot agreed the cost projections in the study appeared “overly conservative.”

 

In his analysis, Talbot assumed lower costs all around, decreasing capital costs by 22% to US$187.7 million and operating costs by 8% to US$25.2 per lb., while increasing the pretax NPV by 22% to US$240 million using a 10% discount rate.

 

On the other hand, Talbot used a long-term uranium price that was US$15 lower than the scoping study at US$60 per lb.

Operating profit over seven years was significantly lower at US$521.5 million.

 

Next summer, Strateco plans to begin underground development — a $40-million project expected to take two years.

 

The company has about $23 million in cash, but is burning through it at about $1.2 million per month. The company’s last financing was for $8 million in October, just two days before the markets crashed.

 

The company has retained Macquarie Capital Market Canada as its financial adviser and Hebert says the company is open to finding a strategic partner to help fund the underground development.

 

“We don’t expect to sell shares at fifty cents (in these markets),” Hebert says.

 

Indeed, the company’s share price was at 50¢ at presstime. Strateco sunk to a 52-week low of 40¢ in October, from a 52-week high of $3.15 per share in January.

 

But a lot could change if the project makes it into production. Until recently, Strateco has continued drilling on its three main zones, and plans to further develop them from underground. MT22 and MT34 appear to be open in several directions and the company has also had some success to the south and north of the main deposits.

 

Talbot points out that several other Matoush-type faults have been identified on the property. Boulder surveys have provided radiometric anomalies and potential source directions. Some high-priority targets to watch out for are the Laurent-Martin zone, 5 km northeast of Matoush, and Matoush Nord, 15 km north. The company also depends on magnetic, VLF and EM surveys for prospecting and plans to explore for unconformity-type deposits.

 

Cameco‘s (CCO-T, CCJ-N) Camie River project is on the southern border of the Matoush property, where unconformity-type uranium mineralization has been found within a greenstone belt. Strateco’s Eclat claims on the southern part of the Matoush project include part of that greenstone belt.

 

Strateco has brought the Matoush project a long way in just a few years and involving academia has been a part of that success.

 

Professors and graduate students from Queen’s University, University of Quebec at Montreal and University of New Brunswick have all delved into studying Matoush mineralization.

 

Two graduate students spent 10 weeks at the camp last summer to help better define this unknown geological system. UNB student Lise Robichaud, is studying the structure, while Queen’s student John Burns is focusing on the mineralization.

 

“At the moment, it doesn’t seem to fit very well with the current models,” Burns says. “Nobody really understands what’s going on here. . . If we understand it as a new deposit type then you can predict where else you might see it, which can help us find more uranium. . . anywhere in the world.”

 

The Matoush mystery is slowly becoming less of an unknown and Lafontaine is optimistic about the project’s future.

 

“We know that it’s a large system and I really don’t think we’ve hit anywhere where we can say it’s closed off,” Lafontaine says. “You have to think specific to this deposit.”