With a recently completed definitive feasibility study 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, 60 km southwest of Rio Tinto’s (RIO-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 an 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.
Bannerman has an 80% stake in the Namibian subsidiary that owns the project. 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 million to 9 million lbs. uranium oxide (U3O8) for the first five years of operation and 6 million to 8 million lbs. 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 16 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 contained lbs. U3O8. Those resources can be upgraded to indicated status in the future and add to the mine life, pushing it beyond 20 years, Bannerman says.
The definitive feasibility was based on measured and indicated resources at a cut-off grade of 100 parts per million (ppm) of 336.2 million tonnes at 201 ppm U3O8 for 148.8 million lbs. U3O8. Proven and probable reserves stand at 279.6 million tonnes at an average grade of 194 ppm U3O8 for 119.3 million contained lbs. U3O8.
Pre-production capital costs are forecast at US$870 million and the plant will be capable of processing 15 million to 20 million tonnes per year. Cash operating costs are estimated at US$41 per lb. U3O8 in the first five years and US$46 per lb. U3O8 on average over the mine’s life.
At current long-term contract prices of US$60 per lb. U3O8, 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. U3O8. 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. U3O8, which is about the current long-term contract price for uranium.
The project is highly leveraged to uranium prices. At US$70 per lb. U3O8, payback is in 10 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%. At US$80 per lb. U3O8, payback comes in five years with a 4.9% IRR.
Bannerman notes that the definitive study improved upon the numbers outlined in the preliminary feasibility study by increasing the size of the plant up to 20 million tonnes a year, increasing average annual production by 22%, improving mining and material movement efficiencies, better positioning waste dumps and peforming metallurgical testwork that improved recovery rates.
“The Etango project continues to evolve and the definitive feasibility study goes a long way to reduce risk,” mining analysts Ian Parkinson and Matthew Gibson of the Canadian Imperial Bank of Commerce (CIBC) write in a client note. “Capital expenditure is expected to increase to US$870 million from US$702 million previously — an increase of 24% that is in-line with what we have been seeing in other mining projects. The increase in capex is mostly related to increasing overall annual throughput at the mine from 15 million tonnes per annum to 20 million tonnes per annum.”
The project holds low technical and environmental risk, Bannerman says, and mining will be undertaken by conventional open-pit methods with 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 leucogranitic 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 located in the gravel plains of the Namib Desert 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 that runs within 30 km of the project. Walvis Bay — one of the largest and busiest deepwater ports in southern Africa — is located 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 traded at 22¢ apiece within a 52-week range of 20¢–51¢ per share. The Perth, Australia-based company has 243 million shares outstanding.
CIBC analysts Parkinson and Gibson have a 12-month target price on Bannerman stock of 80¢ per share. Their price target is based on a 1 times net asset value multiple, which the analysts say reflects “the discount that the market places on development-type names in the market.”
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