Five corporate transactions over eight years and a steady pace of consolidation and resource growth have laid the groundwork for an updated preliminary economic assessment (PEA) of the Macusani project in southern Peru that would place it in the lowest quartile of the world’s uranium producers, Plateau Uranium (TSXV: PLU; US-OTC: PLUUF) says.
In the PEA, Plateau estimates cash-operating costs would average US$17.28 per lb. uranium oxide (U3O8) over a 10-year mine life, and initial capex would come in at US$300 million, with payback in less than two years.
The PEA uses a base-case price of US$50 per lb. U3O8 — which is 23% lower than the US$65 per lb. the company used in a December 2013 PEA — and still slashed costs, reducing anticipated capital expenses 9.4%, operating expenses 16% and payback 50%, all while boosting the production rate 42%.
“Nobody has used US$50 per lb. uranium in any economic study in the last four years—it’s all US$65 per lb., and some used US$70 per lb.,” company CEO Ted O’Connor says in an interview. “We wanted to be more realistic to separate us from all of our predevelopment peers.”
The project’s after-tax net present value at an 8% discount rate rings in at US$603 million — up 45% from the December 2013 PEA estimate of US$417 million — and the post-tax internal rate of return is 40.6%, up 25% from the earlier estimate.
Only three of the project’s five uranium deposits where resources have been defined (Colibri, Kihitian and Isivilla), were used as potential mine feed in the updated study.
“The company has 124 million lb. resources in total, but the PEA used only 70 million lb. to produce 61 million lb. U3O8, because of the 88% process recovery,” O’Connor says. “This leaves 54 million lb. defined mineral resources that were not included in the PEA scenario.”
According to the May 2015 updated resource estimate, at a 75-part-per-million (ppm) (0.0075%) U3O8 cut-off grade, indicated resources stand at 95.2 million tonnes grading 0.0248% U3O8 for 51.9 million lb. U3O8, and inferred resources total 130.2 million tonnes averaging 0.0251% U3O8, containing 72.1 million lb. U3O8.
At a cut-off grade of 0.02% U3O8, indicated resources are 33.47 million tonnes grading 0.0445% U3O8 for 32.8 million contained lb. U3O8, and inferred add another 41.62 million tonnes grading 0.0501% U3O8 for 45.9 million lb. U3O8.
The updated resource estimate incorporates U3O8 that Plateau Uranium amassed through its September 2014 acquisition of the Minergia projects from Azincourt Uranium (TSXV: AAZ).
O’Connor was the president and CEO of Azincourt, which acquired the projects from Cameco (TSX: CCO; NYSE: CCJ) and its former partner Vena Resources (TSX: VEM) for $2 million in cash and shares in 2013. Azincourt sold the projects to Macusani Yellowcake in an all-share deal worth more than $5 million. (Macusani Yellowcake changed its name to Plateau Uranium in April 2015.)
O’Connor knew about the Minergia projects because he had worked at Cameco for 19 years, the last 10 of which he mostly spent evaluating partnerships with juniors and scouting out other uranium properties.
“I visited all kinds of projects all over the world and I know pretty much all the projects that are out there,” he says. “I got Cameco interested in Peru and managed that partnership and relationship with the partner from 2006–13.”
After the 2011 Fukushima nuclear disaster in Japan, however, along with some corporate management changes and what O’Connor describes as a “resource-challenged experience” at its Kintyre uranium project in Australia, Cameco doubled the threshold it used to evaluate development projects.
“They said ‘50 million lb. isn’t going to cut it, we need over 100 million lb.,’ so at the time it didn’t want to explore in Peru, and they retreated to their core regions.”
Azincourt benefitted from the retreat, as did Plateau Uranium.
“When Cameco stopped their work in Peru they had identified 35 million to 40 million lb. at Minergia,” O’Connor says. “Macusani Yellowcake only had 16 million to 20 million lb. on their property. I always believed it would get to Cameco’s threshold, but rather than consolidate, Cameco liquidated … we rolled it into Macusani Yellowcake, and in 2013 and 2014, continued drilling and identified more resources.”
O’Connor says there are more resources on the company’s 910 sq. km concessions in the Puno district, 650 km southeast of Lima.
“We’ve got historical drilling from some of our predecessors that had been consolidated over the years … there are two or three occurrences that have been drill tested and intersected uranium mineralization, but have not been drilled at tight enough spacing to make a resource, and there are high-grade surface showings that have never seen a drill hole.”
What makes the company’s deposits unique, he says, is that they are hosted in 7-million-year-old rhyolite volcanic rocks that evolved from melting glacial ground water that moved the uranium around in surface environments and precipitated as autunite, a hexavalent uranium mineral.
The deposits formed in the same place they sit in now by circulating ground water under the same high-altitude conditions, he explains, adding that uranium deposited in this environment is easy to get out of the rocks.
“The way the deposits formed is similar to superficial uranium deposits like Langer Heinrich and sandstone uranium deposits with groundwater-scavenging uranium, and precipitating it out near-surface,” he says. “The mineralization is only 150,000 years old and occurred under benign conditions, so the method and cost of extracting it is low, which makes the deposits unique and explains why operating costs in the PEA are so low, relative to the rest of the world,” he says.
They are relatively shallow, so they’re easy to define and delineate, he continues. “They’re low grade, high tonnage and have a big footprint, so we’ve built our resource quite inexpensively at US36¢ per lb. in the ground discovery costs, and that’s world-class.”
But in Canada’s Athabasca region, finding deposits is “more like finding a needle in a haystack,” he says, “and the cost of discovery historically is US$1 per lb. in the ground.”
The PEA envisions a conventional open-pit mine with a centralized mill and throughput of 30,000 tonnes per day. The company plans to use heap-leach processing to extract uranium into a weakly acidic aqueous leach solution, with uranium recovery through ion exchange and a solvent extraction acid-recovery circuit.
As far as permitting the project is concerned, O’Connor acknowledges that Peru does not produce uranium and that his company’s resources are the only ones defined in the country.
But Peru is a well-known mining jurisdiction and a top destination for mining exploration in South America, he says, and in 1957 was one of the founding members of the International Atomic Energy Agency.
“They’re not afraid and want to add uranium to the list of commodities the country exports — they just need to understand our processes,” he says. “They u
sed to say that they’d have to redo their whole mine act, and now it’s come to ‘we need to understand your process and see if anything needs to be changed in the mining regulations.’”
O’Connor adds that Plateau Uranium has formed a committee with three of the groups that are within the Ministry of Energy and Mines, and “has a seat at the table to try to establish what, if anything, needs to be changed to allow uranium production, and the actual institute and ministries have been really, really positive.”
O’Conner forecasts that “if the stars all align” a prefeasibility study could start later this year, along with a feasibility study in 2017, submitting all of the environmental impact assessment documents (which start with community agreements, detailed mine and process documents, water permits, etc.) in 2017 and 2018, and kicking off a 12- to 18-month construction period.
If “probably the earliest but achievable” production starts in 2019, the timing would be strategic, given analyst expectations that there will be a shortfall of supply near the end of the decade.
O’Connor notes that the uranium price hasn’t faltered as much in the last 12 months as they did for most other commodities. “We had our big hit in 2011 with Fukushima and prices eroded further into 2014, but prices have remained stable — if not increased a bit in terms of the spot price — in 2015,” O’Connor says. “It’s one of these commodities where, right now, there is as much if not more demand on the horizon as there was pre-Fukushima … Cigar Lake at full production will be 20 million lb., so by 2030, we’ll need five new Cigar Lakes — and there’s nothing out there to fill that demand.”
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