Vancouver – An abrupt ruling by the Mineral and Petroleum Resources Authority of Mongolia deeming certain exploration licences held by Khan Resources (KRI-T, KHRIF-O) and Western Prospector Group (WNP-V) are invalid sent both company’s stock tumbling in August 17th trading.
The Mineral Authority determined the decision to issue Khan’s special exploration license 9282X (its Additional Dornod property) and Western Prospector’s exploration license 7685X (covering part of its Gurvanbulag uranium deposit) are both considered invalid.
The justification the Mongolian government apparently cites is that some the previous exploration work and reserve determination on the projects was financed by the state budget. Reportedly 34 mineral licences issued to 18 entities may be cancelled by Mongolia’s mineral department.
Khan was quick to point out the ruling does not effect its existing mining license for the Main Dornod property, in which it indirectly holds a 58% interest.
Located in northeastern Mongolia, Dornod is a past producing open pit uranium mine that was operated by the Russians from 1988-1995. Uranium bearing ore loaded onto rail and hauled north to a Siberian milling facility recorded production from the Dornod 2 open pit deposit was just over 700,000 tonnes of ore grading 0.12% U3O8.
A pre-feasibility study recently completed on Dornod reviewed an indicated resource of 25.3 million tonnes averaging 0.116% U3O8, for about 64.3 million contained lbs U3O8. An additional 2.2 million inferred tonnes of 0.05% U3O8 was also tabled.
Within the indicated resource, the study delineated a probable reserve of 18.2 million tonnes of 0.122% U3O8 in the No. 2 and No. 7 deposits for about 49.1 million contained lbs. U3O8.
Khan has a 58% joint venture interest in the No. 2 deposit, 58% of a two-thirds interest in the No. 7 deposit, and a 100% interest in the remaining third.
The Dornod study factored a uranium price of US$55 per lb U3O8, and modeled a 3,500-tonne-per-day operation over a 15.5-year mine life, giving average annual production of 2.9 million lbs. U3O8. Costs are estimated at US$19.99 per lb. U3O8 or US$49.21 per tonne of ore.
A 37.1% internal rate of return is projected along with a US$288 million net present value using a 10% discount rate. The capital cost of developing Dornod is estimated to be about US$283 million.
Khan hopes to commence a full feasibility study at Dornod in the Fall of 2007.
Fellow prospective uranium developer Western Prospector holds its Saddle Hills uranium project, which is adjacent to Khan’s ground. Saddle Hills contains a number of historic uranium deposits delineated by past Russian exploration (from 1975-1989) including extensive underground development.
The Gurvanbulag deposit contains an indicated resource of 2.83 million tonnes grading 0.22% U3O8 for about 13.6 million contained lbs. U3O8 plus an additional 2.67 million inferred tonnes at 0.15% U3O8 (about 8.6 million contained lbs. U3O8). The resource study used a 0.07% U3O8 cut-off grade.
Uranium mineralization is region is hosted in a large volcanic-sedimentary basin.
Shares of Khan closed down $1.33, or 48%, at $1.46 apiece on strong volume following news the Mongolian government was invalidating its special exploration licence. Western Prospector was off 18%, down 61, at $2.79 per share prior to its trading halt.
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