Laramide Resources (TSX: LAM; US-OTC: LMRXF; ASX: LAM) ended 2012 with an enterprise value of less than US$1 per lb. in the ground for its district-scale uranium resource in Australia and a handful of smaller projects in the U.S. — yet another victim of negative market sentiment in general and of the commodity’s short-term prospects in the wake of Japan’s Fukushima disaster.
But Marc Henderson — Laramide’s president and chief executive, and the former president of Aquiline Resources, which was sold in 2009 to Pan American Silver (TSX: PAA; NASDAQ: PAAS) — is nothing if not a patient man. And he is convinced that when the market turns, as he knows it will, Laramide’s massive Westmoreland project in the state of Queensland in northeastern Australia will be one of the surviving uranium projects that will be developed into a mine.
“Our project is meaningful not only to Australia, but to the world,” he says. “Westmoreland is a unique asset in having all three attributes: scale, jurisdiction and structure. There are other uranium projects on the drawing board, but most don’t tick all three boxes. The closest — and why it has market buzz and market cap — is the PLS discovery in Saskatchewan.” The Patterson Lake South project in northern Saskatchewan is a fifty-fifty joint venture between Fission Uranium (TSXV: FCU; US-OTC: FCUUF) and Alpha Minerals (TSXV: AMW; US-OTC: ESOFF).
“We have the combination of scale —Westmoreland is probably one of the most prominent projects in Australia in terms of scale,” he continues. “We also have a jurisdiction that is right for the utility buyers, because they want production. And Westmoreland will be in the right part of the cost curve, because it’s not one of these projects that needs US$80 per lb. uranium to be economic and get off the ground.”
The Westmoreland project has indicated resources of 18.7 million tonnes grading 0.089% uranium oxide (U3O8) for 36 million contained lb. uranium oxide and inferred resources of 9 million tonnes at 0.083% U3O8 for 15.9 million contained lb. U3O8. Altogether, that’s 51.9 million lb. uranium oxide — one of the 10 largest uranium deposits in Australia, and only one in a handful of the world that is not under the control of a major mining company. Eighty percent of the resource lies within 50 metres of surface.
Henderson says the envisaged open-pit operation, which would use conventional acid-leaching and solvent extraction, is likely to be larger than the 2007 resource estimate would suggest, and points out that Laramide didn’t concentrate on enlarging the resource while the state’s ban on uranium mining was in place and uranium prices were low. (The uranium spot price stands at US$34.50 per lb., the lowest level since December 2005.)
“We were not focused on trying to expand it because it was big enough to get off the ground, and we believe it will support a number that is much bigger than the number we put out five years ago,” he says. “Whether it will be 65 million lb. or 70 million lb. I can’t say, but it will certainly be bigger than 52 million lb. — our expectation is that it will be a lot bigger, and we’re encouraged by the exploration potential.”
The mine life is estimated at 11 years, but Henderson and his management team say it could exceed 15 years, with more resource and reserve drilling. An updated economic study is due before year-end.
Henderson says the next step is getting Westmoreland’s permits in place, which until recently was not an option. The mining ban on uranium in Queensland imposed by the Goss Labor Government in 1989 was only overturned in October 2012, and it was not until this March that an independent committee delivered a comprehensive report outlining how the industry could be re-established in the state. At the time, Natural Resources Minister Andrew Cripps declared that uranium exports could earn Queensland billions of dollars and provide hundreds of jobs and economic benefits.
“You’ve got a government now that is supportive and encouraging the development of this industry, and that was not necessarily the case even twelve months ago,” Henderson says. “They very much want to see uranium promoted and expanded. Their challenge is to get their production level up to match their resource base.”
Henderson notes that the company has collected more than two years of baseline environmental data, and says permitting shouldn’t take more than two years, at which point the outlook and prices for uranium will have improved markedly, making it easier for companies with good projects to obtain financing — whether through partnerships, off-take agreements, or both.
“The two-year timeline is more of an aggressive wish-list sort of timeline. It’s not inconceivable that it may take longer, but it will happen, and we are committed to move as quickly as possible,” Henderson says. “Either way, we’re not going to be in production until 2017, so yes, I’m moderately interested in what the spot price is going to be in 2018. But I’m pretty sure it’s not going to be US$34.50 per lb.”
He says that since the boom ended in 2007, followed by the Fukushima disaster in March 2011, the pool of uranium companies has shrunk considerably. “We’re down to the survivors, and the survivors by and large are the ones with projects that actually will produce uranium to put into power plants at a price that seems reasonable.”
Henderson adds that he is bullish on uranium “because the worse it gets short-term, the more dramatic the recovery is going to be.
He says that “I would be gloomy if I were producing right now, and it’s not fun to be a shareholder at the moment, because it all looks terrible. But most of our assets are oriented to the long-term, and even if we ran as hard as we could and had unlimited money, we’re still really looking at production that is four or five years away anyway, so I’m constructive on the whole industry.”
As for when the market will turn, Henderson argues it could be as early as 2016, and says that when it does, it will move fast.
“There’s still no momentum, but the minute there is momentum it’s going to get very interesting, very quickly,” he says.
At press time in Toronto Laramide was trading at 61¢ per share within a 52-week range of 47¢ and $1.54 per share.
Laramide has 73 million shares outstanding, and management holds an 11% stake.
In addition to Westmoreland, Laramide’s assets include La Jara Mesa in New Mexico and La Sal in the Lisbon Valley district of Utah. Its portfolio is complemented by other joint-ventures, strategic equity positions and royalty participation in uranium development and exploration companies.
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