Forsys pushes Norasa uranium project to feasibility

Forsys Metals (TSX: FSY) has reported feasibility study results for its Norasa uranium project in the Erongo region of central-west Namibia.

Norasa comprises two main pits — Valencia and Namibplaas — which Forsys combined in early 2013, and a smaller satellite pit adjacent to Valencia. The company’s flagship project sits 35 km along strike from Rio Tinto’s (NYSE: RIO; LSE: RIO) Rossing mine, one of the largest uranium mines in the world.

The feasibility study, prepared by engineering consulting firm Amec Foster Wheeler, envisions Norasa as a 15-year open-pit mine producing 5.2 million lb. uranium oxide (U3O8) per year. Estimated capital costs are US$433 million.

“The release of the feasibility study has confirmed that we have solid economics that are very robust,” Forsys CEO Marcel Hilmer says in an interview.

Using a base-case uranium price of US$65 per lb. and an 8% discount rate, Norasa has a post-tax net present value (NPV) of US$383.4 million and a 26% post-tax internal rate of return (IRR). Payback should occur within 4.5 years.

While the current uranium spot is under US$40 per lb., Forsys argues the base-case assumption of US$65 per lb. is supported by several factors, including an estimated 30% growth in global nuclear power by 2020, the restart of Japan’s nuclear reactors following the 2011 Fukushima disaster and a looming supply imbalance.

Currently there are 437 operable plants in the world, and another 564 under construction, planned or proposed, Hilmer says. While it might take a decade before some of those reactors are turned on, he predicts uranium prices will rise before then. “That doesn’t mean the squeeze in the market will happen that far out, we see that as potentially happening in two to three years.”

The feasibility study’s sensitivity analysis shows the Norasa project is promising at lower prices. “It is quite refreshing for us that with plus or minus 23% on the [US$65 per lb.] uranium price, and plus or minus 30% on capex and opex, it still shows a positive NPV,” Hilmer says. “I don’t know if there are many projects that can have that level of robustness and strength across that percentage variance.”

The base-case operating costs over the first five years and life-of-mine should average US$32.96 and US$34.72 per lb., down from the estimated US$34.76 and US$38.20 per lb. in the 2013 engineering cost study. (Before that, technical reports and economic studies looked solely at the Valencia deposit.)

Bringing down costs from the 2013 study is an increase in the project’s reserve base. Norasa has 90.7 million lb. U3O8 in 206 million tonnes grading 200 parts per million (0.02%) in reserves. This is up nearly 15% from the previous estimate of 79 million lb. based on 177 million tonnes at 0.022% U3O8. The current estimate uses the same cut-off grade of 0.01% U3O8 for Valencia, and a slightly lower cut-off of 0.014% for Namibplaas.

Once in production, Norasa would rank as one of the top-six annual uranium producers, Forsys says. The junior already has a mining licence for the fully permitted Norasa project. “There are not many [uranium] projects in the world that are at this stage,” Hilmer reiterates.

With the definitive feasibility completed, Forsys is now looking for a project partner or several investors to help fund the project. Hilmer, who joined the firm in 2010, says he’s confident that junior will secure financing by the third quarter.

And if all goes to plan, Norasa might start producing as early as 2017.

Asked about the risks other than financing associated with Norasa, Hilmer points out a high level of drilling and technical work has been completed on the project, minimizing construction and design risk.

In addition, the Fraser Institute in 2014 ranked Namibia, the world’s fifth-largest uranium producer, as the top African country to mine in, Hilmer says. “We don’t discount there is [geopolitical] risk, but we’d call it low to moderate.”