Bannerman makes headway at Etango

With a recently completed definitive feasibility study now under its belt, Bannerman Resources (BAN-T) says it can step up discussions with potential development partners and other financiers for its flagship Etango project in Namibia—one of the world’s largest undeveloped uranium projects about 60 km southwest of Rio Tinto’s (RTP-N, RIO-L) Rossing uranium mine and 45 km west of Paladin Energy’s (PDN-T, PDN-A) Langer-Heinrich mine.

Bannerman has also signed a key agreement with Namibia’s state-owned mining company Epangelo that gives it the right to earn an initial 5% stake in the project. Epangelo also holds a future one-time option at the time of a mine development decision to increase its stake to 10% for a 2.5% discount to the look-through market value at the time. Currently Bannerman has an 80% stake in the Namibian subsidiary that owns the project and Clive Jones, who founded Etango and is an independent director on Bannerman’s board, retains a 20% stake.

The definitive feasibility study outlines annual production of 7-9 million pounds of U3O8 for the first five years of operation and 6-8 million pounds a year thereafter, which Bannerman says puts Etango among the world’s top uranium projects.

The study envisions a minimum open-pit mine life of sixteen years but notes the mine life can be extended through drill programs that are already underway because the orebody remains open to the west and at depth, and because the study did not take into account inferred resources of 164.6 million tonnes of 176 parts per million U3O8 or 63.9 million pounds of contained U308. Those resources can be upgraded to indicated status in the future and add to the mine life, pushing it beyond twenty years, Bannerman says.

The definitive feasibility was based on measured and indicated resources (at a cut-off grade 100 parts per million) of 336.2 million tonnes at 201 parts per million U308 for 148.8 million pounds of U308. (Proven and probable reserves stand at 279.6 million tonnes at an average grade of 194 parts per million U308 for 119.3 million pounds of contained U308.)

Pre-production capital costs are forecast at US$870 million and the plant will be capable of processing 15-20 million tonnes per year. Cash operating costs are estimated at US$41 per. lb. U308 in the first five years and US$46 per. lb. U308 on average over the life of the mine.

At current long-term contract prices of US$60 per lb. U308, the study estimates cash operating margins of 24%, which will rise to 39% at an assumed base-case long-term price of US$75 per lb. U308. At uranium prices of US$75 per lb., Etango generates operating cash flow of US$2.7 billion before capital and tax, and free cash flow of US$923 million after capital and tax.

The life-of-mine break-even point is US$61 per lb. U308, about the current long-term contract price for uranium.

The project is highly leveraged to uranium prices. At a price of US$70 per lb. U308, payback is in ten years and the pre-tax internal rate of return stands at 8%. At a uranium price of US$75 per lb., payback drops to six years and the IRR rises to 11.6%. And at US$80 per lb. U308, payback comes in five years with an IRR of 14.9%.

Bannerman notes that the definitive study improved upon the numbers outlined in the preliminary feasibility study by increasing the size of the plant to 15 to 20 million tonnes a year, increasing average annual production by 22%, improving mining and material movement efficiencies, the better positioning of waste dumps and metallurgical testwork that improved recovery rates.

The project holds low technical and environmental risk, Bannerman says, and mining will be undertaken by conventional open-pit methods with processing via an on-off sulphuric acid heap leach operation. The heap leach pad could be reconfigured to process additional tonnes by raising its height or by expanding the pad itself, the company says.

Bannerman estimates that processing can start three months after the first production blast because the deposit outcrops at surface.

The uranium mineralizaton at Etango occurs within a stacked sequence of leucograntic sheets that have intruded the host Damara Sequence of metasedimentary rocks. The uranium bearing minerals are predominantly uraninite and uranothorite and are hosted within granitic intrusions varying in thickness from 3 metres to 135 metres.

Looking ahead Bannerman says it will soon submit the definitive feasibility study, an Environmental and Social Impact Assessment and an Environmental and Social Management Plan to Namibian authorities in support of its existing application for a mining licence.

Etango is situated in the gravel plains of the Namib Desert, about 28 km east of the coastal town of Swakopmund and has access to infrastructure. There is a road from the site to Swakopmund, and a railway line from Walvis Bay to Swakopmund runs within 30 km of the project. Walvis Bay is one of the largest and busiest deep-water ports in southern Africa and is within 73 km of the project. Finally, grid power can be drawn by a short spur line from nearby high-voltage electricity lines owned by Namibia’s power utility.

At presstime in Toronto Bannerman shares were trading at 22¢ apiece within a 52-week range of 20¢-51¢ per share. The Perth, Australia-based company has about 298 million shares outstanding.