Uranium Explorers Discover Peru

Nuclear power is back in fashion, and with it, so is Peru’s uranium wealth.

Ever since Peru’s Institute of Nuclear Energy (IPEN) mapped the massive Macusani area in the southern Andes in the 1950s, the cold, mountainous terrain has been considered one of the world’s biggest deposits outside of Canada and Australia, its rocky yellow surface testament to the energy potential that lies within. IPEN data from 1983 points to the area having some 200,000 tonnes of uranium carrying ore with average grades from 0.2% to 12% of uranium oxide.

With countries from China and India to France and Iran eager for uranium and some 50 nuclear power reactors to be commissioned worldwide by 2013, companies such as Vena Resources (VEM-V, VNARF-O), Contact Resources (CTS-A), Frontier Pacific Mining (FRP-V, FRPMF-O), Solex Resources (SOX-V, SLXRF-O) and Wealth Minerals (WML-V, WMLLF-O) have come calling at Macusani and its surrounding areas, which lie not far from the famous highland waterway Lake Titicaca. Only Cardero Resource (CDU-T, CDY-X) has thus far focused solely on a more northerly area at San Roman, near the Peruvian capital, Lima.

Indeed, things are looking very rosy for Peru’s uranium juniors, which so far have been unaffected by the wave of anti-mining protests in the Andean nation since 2003.

“Judging by the current momentum, Peru could be producing uranium by 2012, adding to its already huge metals production ranging from copper to zinc,” says Lima-based independent mining consultant Roberto Aquino.

Meanwhile, the huge interest in Peru has been underscored by a move in January by Canadian giant Cameco (CCO-T, CCJ-N), the world’s largest publicly traded uranium company, to take a 50% option in Vena’s eventual mine production.

“The big boys are now looking at this area and starting to get interested,” says Frontier chairman and chief executive Peter Tegart. “They are watching this area and it is new to everyone in the uranium game. The reason we are here is that the whole Macusani area contains a lot of uranium.”

Tegart puts the resource value of the Frontier-Solex joint venture at Macusani at around US$3 billion at current uranium prices.

Tempting scene

That mouth-watering figure, the geological deposits and a 20-year high in uranium prices are enough to tempt mining companies that have typically stayed out of the uranium scene.

Cardero, for instance, says its Amable Maria project at San Ramon is “too large to ignore.” With a variety of uranium mineralization styles including polymetallic veins and sedimentary hosted uranium, Amable Maria is at early exploration stages and Cardero is looking for a joint-venture partner to develop the concession.

“The Amable Maria project could provide significant value to our shareholders in partnership with a company possessing a uranium discovery focus and the necessary expertise,” says Cardero president and chief executive Henk Van Alphen.

Given that few miners expected uranium prices to be so high today — at US$113 a lb. and set to climb further — expertise in mining the hard, dense, silvery-white metal is in short supply in Peru. Australia’s Contact Resources has teamed up with former members of Peru’s nuclear authority IPEN to develop its Corachapi project, counting on their local geological expertise. The Perth-based company believes the area has the potential to yield a resource of up to 5 million tonnes and aims to start trial mining early next year. Current studies show a global inferred resource of 3.8 million tonnes at 0.098% of uranium oxide with a high-grade core of 1.1 million tonnes grading 0.4%, or 9.2 million lbs. uranium oxide. Contact also has the neighbouring Kikitian uranium property about 15 km east of Corachapi, but exploration is at an early stage there. Wealth Minerals has also moved into Peru, acquiring four uranium prospects in Peru last year, with some 38 sq. km near the Solex-Frontier property in the Quenamari district.

Peruvian uranium grades may not be the world’s richest and news of low grades initially disappointed some investors. Frontier’s stock dropped 11% in late January and Solex shares fell 5% when the companies first announced the 0.013% grade from five drill holes on the Calvario III zone at Macusani. But companies operating in the Macusani area say the easy entry to near-surface deposits makes all the difference.

“The uranium at Frontier’s property is fairly low grade, but it is easily accessible,” Tegart says. “It is low-cost uranium and that makes it very profitable.”

Solex and Frontier are keen to point out that although the uranium grade at Calvario is on the low side, the average in situ value of uranium is well above US$20 a tonne, while better grades are likely to be found in the Precambrian, volcanic rocks. The two companies still have some $2 million more to spend on exploration at the 460-sq.-km concession over the Sayana, Calvario, Puncopata and Agaton areas and hopes to get 50 million lbs. in the drilling program.

“Sayana has some forty million tonnes of uranium and could be worth seven million to eight million dollars (U.S.) at current uranium prices,” Tegart says.

Phase-one drilling is now complete on the Calvario III target and two rigs are drilling on the Agaton and Sayana West targets, with the best results at Calvario III showing 1 metre of 0.779% U3O8 (15.6 lbs. per short ton) within a 16-metre section that graded 0.053% uranium oxide, or 1.06 lbs. per ton.

Vena Resources

Having been the first mining company to bet on Peru’s uranium potential, Vena Resources is arguably best placed to take advantage of the huge demand for the metal and is the most advanced in the quest to put Peru on the global uranium production map. The company initially acquired 140 sq. km from IPEN and, with access to 30 years of IPEN’s data, was able to choose what the company says are “the best sites within the Macusani area.”

Led by former Microsoft executive Juan Vegarra, the company sees another two years of drilling and resource definition, with a further two years to take the site to production. Given the interest that Cameco has shown in Vena, drumming up financing is unlikely to be difficult. Cameco has signed an agreement giving it the option to invest $10 million over the next four years in return for a 50% interest in Vena’s uranium unit, Minergia, with the opportunity to increase that stake to 60% when a feasibility study is done and to 70% when production starts.

As part of the agreement with Cameco, Vena has acquired another 315 sq. km of surrounding areas to expand its uranium search.

“We are moving very aggressively with Cameco to expand our portfolio of targets in Peru,” Vegarra says. “Cameco’s engineering support and production knowledge provides Vena with the potential to realize a significant investment for Peru in the short term. We now have the best possible partner in the uranium field with the goal of quickly delineating resources and putting a production facility into place.”

One of only two Canadian companies listed on the Lima stock exchange’s risk capital market, Vena’s shares rose 14% to US98 on the news of the Cameco tie-up and the stock has also fared well in Toronto on the TSX Venture Exchange, also lifted by rising uranium prices.

— Based in Monterey, Mexico, the author is a freelance writer specializing in mining issues.

Getting a reaction

In a nuclear reactor, the uranium fuel is assembled in such a way that a controlled fission chain reaction can be achieved. The heat created by splitting the U-235 atoms is then used to make steam, which spins a turbine to drive a generator, producing electricity.

Nuclear power stations and fossil-fuelled power stations of similar capacity have many features in common. Both require heat to produce steam to drive turbines and generators. In a nuclear power station, however, the fissioning of uranium atoms replaces the burning of coal or gas.

The chain react
ion that takes place in the core of a nuclear reactor is controlled by rods, which absorb neutrons and can be inserted or withdrawn to set the reactor at the required power level.

The fuel elements are surrounded by a substance called a moderator, which slows the speed of the emitted neutrons, enabling the chain reaction to continue. Water, graphite and heavy water are used as moderators in different types of reactors.

Because of the kind of fuel used (the concentration of U-235, for instance), if there is a major uncorrected malfunction in a reactor the fuel may overheat and melt, but it cannot explode like a bomb.

A typical 1,000-megawatt reactor can provide enough electricity for a modern city of up to 1 million people. About 35 such nuclear reactors could provide Australia’s total electricity needs.