A new prefeasibility study on Denison Mines’ (TSX: DML; NYSE-AM: DNN) flagship Wheeler River uranium project in northern Saskatchewan’s Athabasca basin says underground in-situ recovery methods would lower cash-operating costs at the high-grade Phoenix deposit to US$3.33 per lb. — an eye-popping decrease from the US$22.15 per lb. determined in a preliminary economic assessment (PEA) completed just two and half years ago.
The remarkable drop in anticipated operating costs throttles up the study’s pre-tax net present value of the Phoenix deposit to $1.41 billion from $513 million, using a base uranium oxide (U3O8) price of US$44 per lb., and an 8% discount rate. That’s a 275% boost from the PEA.
At press time the spot price for U3O8 was US$27.50 per pound.
The pre-tax internal rate of return on Wheeler River also jumps to 47.4%, versus 20.4% in the 2016 PEA. And the pre-tax payback period shifts to 15 months, versus 36.
Meanwhile, total recovered U3O8 would reach almost 60 million lb. over 10 years, which is virtually unchanged from the 2016 PEA.
The dramatic change in economics is all about the move from the costly “jet bore” mining method used in the PEA to an advanced form of in-situ recovery (ISR).
“The selection of ISR will prove to be a defining moment for our company and a potentially transformational development for the future of uranium mining in the Athabasca basin, as we’ve now conceived the idea of bringing the world’s lowest-cost uranium mining method to the jurisdiction hosting the world’s highest-grade uranium deposits,” said Denison president and CEO David Cates during a post-release conference call.
But will it work at cash costs of US$3.33 per lb.?
“The question is how efficient is [the operation] underground,” said Colin Healey, a research analyst with Vancouver-based Haywood Securities. “If it is as efficient as [Denison] expects in the study, then the costs will be similar. But if the fluids don’t move through the deposit in the way that they expect or the leachability is slower, then the costs go up, because either you need more acid or you need more time.”
Regardless, Healey says the prefeasibility study makes Denison a more likely takeover target.
The new study “demonstrates the potential for much more compelling economics than the prior preliminary economic assessment,” Healey explained.
In-situ recovery is used throughout Kazakhstan — the world’s lowest-cost uranium producer — the U.S., China and Australia, but has yet to be used in Canada. Nonetheless, half of the world’s uranium is recovered using in-situ methods.
The environmental assessment process could take four years, but no company has permitted an in-situ uranium recovery operation in Canada.
“We have done some initial scoping with the [environmental] regulators … I would categorize those early discussions as being very encouraging,” Cates said during the call.
Healey, however, cautioned that it would “be more complicated than the environment assessment process for a conventional uranium mine in the eastern Athabasca.”
The two underground ore zones at Phoenix have been defined over a strike length of 1 km at 400 metres below surface — above the unconformity between the Athabasca basin sandstone and older basement rocks.
Core racks in the winter at Denison Mines’ Wheeler River uranium project in Saskatchewan. Credit: Denison Mines.
The deposit is contained in a relatively small area, compared with typical ISR roll-front uranium deposits. Denison claims Phoenix is the highest-grade undeveloped uranium deposit in the world.
The Wheeler River project hosts a probable reserve of 109.4 million lb. U3O8, with 59.7 million lb. U3O8 from 141,000 probable tonnes grading 19.1% U3O8 from Phoenix and 49.7 million lb. U3O8 from 1.26 million probable tonnes grading 1.8% U3O8 at Gryphon.
The project is a joint venture between Denison, which owns 63.3% and acts as operator, Cameco (TSX: CCO; NYSE: CCJ) with 26.7%, and Japan-based JCU Exploration, with 10%.
Denison is increasing its ownership in the project to almost 90%, under two recent agreements with Cameco.
Denison plans to recover uranium oxide at Phoenix by artificially freezing the “ore” to create an impermeable “cap.” A Denison spokesperson says this would allow the mining solution to be contained and recovered without contaminating the environment, or being diluted by natural groundwater.
The huge McArthur River and Cigar Lake uranium deposits in the Athabasca basin already use similar “freeze walls” to keep groundwater from flooding the operations.
In-situ recovery would involve injecting an acid reagent, known as “lixiviant,” into the Phoenix deposit via 200, four-inch drill holes. The solution would dissolve the uranium oxide as it travels through the ore, and the pregnant solution would be pumped out by way of 94 recovery wells.
The Phoenix processing plant’s throughput rate would be 500 litres per minute. Lab testing shows recoveries as high as 98.5%, with concentrations from 12 to 20 grams per litre.
Once the uranium is recovered, the solution is injected back into the holes to recover even more U3O8. Cost savings come from not having to remove waste and process massive amounts of ore.
The upfront capital costs at Phoenix would be $323 million, plus $100 million or so in sustaining capital. Denison has just under $30 million in cash.
Construction is scheduled to start in 2021, with commercial production in 2024. Production is slated to last 10 years.
The prefeasibility study also sees Phoenix being developed ahead of the nearby Gryphon deposit.
Gryphon would stay an underground operation, using long-hole mining methods.
The study also projects falling operating costs at Gryphon. Costs in the new study dip to US$11.70 per lb. from US$14.28 per lb., while total U3O8 recovered at Gryphon is modestly higher at 49 million lb. — up from 42 million lb. over 6.5 years of operation.
The $623 million in capital costs for Gryphon would come from cash generated by Phoenix once it is up and running.
Ore from Gryphon would be processed at Denison’s 22.5%-owned McClean Lake mill, which is situated 160 km northeast of the Wheeler River property.
The mill processes all the ore produced from the Cigar Lake mine under a toll-milling arrangement.
The McClean Lake mill was built in 1997 and is being upgraded to an annual capacity of up to 24 million lb. U3O8.
After the release of the study, Haywood Securities raised its target price on Denison to $2 per share, up from $1.80.
Shares in Denison trade in a 52-week range of 88¢ to 50¢. The company has just under 600 million shares outstanding and a $475-million market capitalization.
“Taken as a whole, the Phoenix operation demonstrates robust economics, even at current [market prices for U3O8],” said Peter Longo, Denison’s vice-president of project development, during the conference call.
—Based in Toronto, Brian Sylvester is a freelance business writer specializing in mining.
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