Mega Uranium bets on change in Aussie ‘no new mines’ policy

Toronto-based Mega Uranium (MGA-V, MGAFF-O) is betting a 22-year ban on uranium mine development in Australia will eventually be revoked, paving the way for the junior company to develop its growing list of uranium assets there.

Australian Prime Minister John Howard favours scrapping the ban while Kim Beazley, leader of the opposition Labor party, surprised supporters last month by announcing the longstanding policy will be open for debate at the party’s national conference in April 2007.

“All of the indications are that the policy will change,” Stewart Taylor, president of Mega, said from his Brisbane office. “There’s a lot of pressure from China for Australian uranium resources, so the federal government is putting pressure on the opposition.”

But there remain divisions within Labor, the party that introduced the policy in the 1980s, over Beazley’s about-face. His opponents are planning to make uranium mining a key issue in the campaign to elect a new party president next month, according to Australian media reports.

And even if the policy is scrapped at the federal level, the states of Queensland and Western Australia — where Mega’s resources are located — are opposed to uranium mine development within their jurisdictions.

The uncertainty doesn’t seem to worry investors, though. Mega, trading at around $7.50 per share at presstime, has a market capitalization of $390 million based on a portfolio of smallish uranium resources that, under current political conditions, cannot be mined. Mega has uranium exploration projects in Argentina, Bolivia, Mongolia and Canada, but its main focus — and its entire resource base — is in Australia.

Toronto-based Laramide Resources (LAM-T, LMRXF-O), which has resources in the U.S. but whose main asset is the Westmoreland copper-gold-uranium project in Queensland, is placing a similar wager. Westmoreland has an inferred resource of more than 44 million lbs. U3O8, while Laramide’s market capitalization is about $280 million.

Taylor says Mega’s popularity with investors is justified because any Labor policy changes at the federal level will trickle down to the states, which also have Labor governments. He is confident Mega will get the green light for development “in due course,” provided the company follows Australia’s stringent environmental and uranium export regulations.

That confidence was evident recently, when Mega launched a takeover of ASX-listed Redport (RPT-A), whose main asset is Lake Maitland, a uranium project in Western Australia with a National Instrument 43-101-compliant inferred mineral resource of 32.7 million tonnes grading 0.03% U3O8, or 23.7 million lbs.

Mega took a 15.6% stake in Redport for $10.5 million and has agreed to acquire the rest of the company in exchange for 9.36 million Mega shares. The purchase essentially doubles Mega’s resource base in Australia to 47 million lbs.

By comparison, the Olympic Dam mine in South Australia contains more than 4 billion lbs. of uranium reserves and resources, while the Ranger mine in the Northern Territory contains 192 million lbs. Australia, as a whole, contains about one-third of the world’s uranium oxide reserves.

“Maitland is fairly low-grade, but the attraction is that it’s a single mineralized layer 1-3 metres thick close to surface,” says Taylor, a geologist with 35 years experience, including senior management positions at companies such as Anglo American (AAUK-Q), the former Mount Isa Mines and Southwestern Resources (SWG-T, SWGGF-O). “You don’t need any blasting because its friable material, so you can just scrape off the overburden and virtually all of the deposit.”

The Lake Maitland acquisition follows Mega’s purchase of two deposits in Queensland: Maureen and the 10.7-million-lb. Ben Lomond, as well as 5,000 sq. km around Maureen with an additional 6.4 million lbs. of historical resources. If all of these resources can be converted to reserves, Mega has the potential to produce 3 to 3.5 million lbs. uranium per year.

Mega was able to acquire the deposits relatively cheaply because there were no competing bids. Acquired in early 2005, Ben Lomond cost the company A$1 million ($862,000) plus a royalty on production, while the Georgetown project that includes Maureen, cost A$1.1 million ($948,000), 2.1 million Mega shares, and a 0.75% net smelter royalty, in late 2005.

Ben Lomond was discovered in 1975. Following the completion of a bankable feasibility study in 1982 and an environmental impact study two years later, the planned development was halted by the introduction of what is now known as the “three uranium mines policy” that allowed established mines to continue operating but banned new development.

The shallow deposit comprises an east-west trending, steeply dipping vein system within Carboniferous volcanic rocks immediately underlying an unconformity with younger volcanics. The delineated resource, which is 43-101 compliant, has a dip length of 90-120 metres, a strike length of 750 metres, and contains a significant molybdenum credit grading 0.15% Mo.

Theoretically, about two-thirds of the deposit could be mined by open pit at a strip ratio of 5:1, while the rest would be accessible from underground.

Maureen was discovered in 1971 during an airborne magnetic-radiometric survey. Drilling over the next several years delineated a resource of 2.38 million tonnes grading 0.12% U3O8 and 0.07% molybdenum from surface to a depth of 140 metres.

The deposit sits along an east-west-trending fracture zone, within Upper Devonian/Lower Carboniferous sandstones and shales that straddle an unconformable contact with underlying Proterozoic rocks.

Taylor says current work on the properties includes a scoping study on the known resource at Ben Lomond and planning for a drill program to test the potential for additional resources east of the deposit. At Maureen, a 4,000-metre reverse-circulation and core drilling program is scheduled to get under way soon to verify the resource and to hunt for extensions both at depth and along strike.

The company also plans to fly airborne magnetics over the land package that comprises the Georgetown project to generate drill targets for an exploration program scheduled to begin after the rainy season.

There’s certainly no rush to development. Even if Mega bets right, and the ban on uranium mining is lifted in Queensland and Western Australia next year, it could be months or years before the parameters around uranium mine development are established.

In the meantime, Mega intends to use its healthy treasury of about $30 million to continue acquiring deposits and exploration properties, not only within Australia, but around the world.

“We’re prepared to go to any country with quality uranium resources that can be developed,” Taylor says.

— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).