JOHANNESBURG (miningweekly.com) - Uranium production is still alive and well in South Africa – but don’t expect eager bankers hovering anywhere near the mine gates.
“The challenge is not finding uranium – the challenge is finding money. It is difficult to secure funding for any project at the moment,” says Rand Uranium CEO John Munro.
Bankers are brandishing red flags at anyone uttering the dreaded c-word – credit – especially as the current strained global economy has tempered the once insatiable appetite for commodities of any kind.
Uranium-mining has also suffered a minor setback in South Africa – once a global uranium-mining giant – after the much- publicised failure of the country’s first major new uranium project in decades, Uranium One’s Dominion operation, near Klerksdorp, before it really took off.
Despite this, Rand Uranium is forging ahead – owing somewhat to the luxury of having gold in its mining portfolio, which is diminishing the portion of funding required from the banking sector.
Demand for all commodities may tumble, and prices with it, but during the tough times an old truth still holds water: when the going gets tough, the tough turn to gold as a safe haven investment – explaining a rather healthy gold price of about $930/oz.
Also, the rand gold price has never been higher.
GOLD THE PATH TO URANIUM
The unlisted Rand Uranium is 40% owned by Harmony Gold and 60% by Pamodzi Resources.
Its current income flows from gold mining at the Cooke section underground mine of the old Randfontein Estates, west of Johannesburg. This was once the property of Harmony.
“The first month of full gold production has passed, and we now have the full team in place,” says Munro.
“We aim to get Cooke up to optimal performance, so we can get cash in hand and fund the uranium business.
“Gold makes a significant contribution to funding the uranium project – in lowering the funding demands,” says Munro.
He notes that the Cooke assets may be older, but that they still hold good potential.
“We have been surprised by it. It helps that we’ve got a very experienced team down there.”
Munro says the Cooke operations are shallow and safe, at a maximum depth of a 1 000 m, compared with most other South African mining operations reaching beyond 3 km.
“Cooke should be fatality free, and we’re focusing on this for 2009.”
One of the Cooke shafts has achieved a two-year fatality-free status.
All in all, says Munro, Cooke is “a great opportunity, resting in bringing to bear a very experienced team on modest assets to deliver good results”.
The final bankable feasibility study on Rand Uranium’s uranium projects will be completed by the end of October, he adds.
The prefeasiblity study was completed at the end of January.
“It is our intention to make a major investment decision whether or not to launch the company as a uranium company by the end of the year.
“Ultimately, we would like to build a reasonably sized uranium and gold business.”
WHAT A DIFFERENCE A CRISIS MAKES
Prior to the global economic meltdown, Rand Uranium had a good idea of what the bill would be to expand the existing Cooke underground gold operations to include underground and surface uranium operations, as well as surface gold operations. A prefeasibility study indicated it would be a $500-million project (R4,5-billion), viable at a uranium price of $50/lb.
However, the world is a vastly different place from when the study was wrapped up a mere four months ago.
Munro says the company has decided to slow the subsequent feasibility study down so that the company can “capture the new capital market fully”. “The world has changed significantly since last year.”
Retarding the feasibility study also means the company hopes to produce a final product that is a fully bankable feasibility study.
Munro describes any work done on large projects before October 2008’s global economic crash as “largely academic”.
This means Rand Uranium is working on defining a new capital expenditure number, in an effort to “sharpen up all aspects of the project, and to substantially reduce costs”, he explains.
He notes that there is a completely new paradigm in terms of project capital costs, owing to the global credit crisis.
“The timelines for the delivery on large items are coming back to normal after a time of unnaturally high demand. The delivery time for a large mill, for example, is down from three years to one year. Steel and copper prices have declined sharply.
“We want to make sure we can capture and exploit this. This is a once-in-a-lifetime opportunity to build a project more cheaply than a year ago.
“We want to come in well below $500- million.”
Munro says no engineering services firm could spare the time to talk to Rand Uranium on developing its assets six months ago, but that there is currently a “queue around the block”.
However, it’s not all plain sailing, says Munro.
The problem is that the availability of funding is much more difficult than it was last year.
He believes that only the “sharpest game in town” will be able to secure project finance and lure investors, and that Rand Uranium aims to be exactly this.
JUMPING THE QUEUE
Rand Uranium investigated the failure of several uranium projects worldwide, in an effort to determine what it has to do to move to the front of the financing queue.
“Project viability is vital, as is risk profile,” emphasises Munro.
The world is repricing risk in the current volatile market, and is likely to return to projects 20 km from an industrial and traditional mining hub such as Johannesburg rather than to projects in Central Africa where there is no infrastructure or services, he explains.
Another factor reducing risk and increasing viability is the quality of an asset base.
Munro believes Rand Uranium offers a solid, proved asset base, with the bulk of its resource not only on surface, but also boasting measured and indicated resource status.
“This means we don’t have a long ramping-up procedure to go underground, which is also a [riskier] type of mining.”
Munro says yet another factor reducing the company’s risk profile is the high grades on offer.
“Our tailings grades are at 212 g/t of uranium and 0,25 g/t of gold – this in comparison with other Wits dumps with the same gold, but uranium at 50 g/t to 60 g/t,” he explains.
“This means we can do whole-ore leach, and skip the preconcentration step which often means you lose half your grade.
“Skipping this expensive step, however, means we require a large plant capable of large throughput, so we have higher operational costs.”
In the end, says Munro, Rand Uranium has an on-surface asset, next to Johannesburg, offering a good grade, and the possibility of moving to underground uranium-mining as a project sweetener.
“We also plan to continue high-grade gold-mining from the Cooke shafts. We’re looking at opening new surfaces to the east, and possibly even large-scale mechanised underground mining.”
Munro says Randfontein has a 50-year history of mechanised mining, and that it is well suited to this type of operation.
THE URANIUM MARKET
A long-term uranium spot price of about $50/lb is adequate to render Rand Uranium’s projects viable, says Munro.
“The consensus outlook is more bullish, but we’re playing it safe at around this mark – and a gold price of $850/lb.”
Rand Uranium has not started uptake negotiations with any uranium users yet.
“We’re looking to get involved, but we want to understand the behaviour of the market participants first,” says Munro.
He adds that the company expects a softer uranium market in 2009.
The current spot price is $47/lb.
However, things are still looking up for the yellowcake market.
“Of all the commodities, uranium is more shielded from the economic crisis, as there is ongoing demand from nuclear reactors. If you have a reactor, you must fill it with uranium,” says Munro.
Uranium’s demand side is currently veiled in uncertainty, as the precise volume of secondary supplies being retrieved from weapon arsenals remains unclear, while new and existing mining projects alike are struggling.
“Existing uranium production is under duress. For example, there are question marks over the continued development of Canada’s Cigar Lake since it flooded again,” notes Munro.
“New projects are struggling to secure regulatory approval.
“The supply side is weak, and this is where the opportunities lie.”
Munro is not deterred by a slowing Chinese economy. He believes shrinking growth in this Asian Tiger, with its ambitious nuclear reactor building programme, will only determine whether the uranium price is $60/lb or $100/lb – not less.
“The trend in the move away from greenhouse-gas emissions is very strong, and nuclear power is one way of achieving this,” he explains.
As for Rand Uranium’s permitting requirements, Munro says the most difficult part will be in securing permitting for a greenfield tailings deposition site.
“We have three options,” explains Munro.
“Our first priority is securing four to eight years of deposition on our own sites, and then to collaborate with other companies to move to a new site, or then, to go it alone.”
ECONOMIC STIMULUS
During a time when governments are placing economic stimulus packages on the table to secure the future of vulnerable industries, Munro believes Rand Uranium’s projects will breathe new life into Randfontein, which has been slipping economically as mining activities have scaled down steadily.
In the end, it could be possible for the area to become a uranium processing hub.
“We can place our uranium plant next to the Cooke gold plant,” says Munro.
“Our longer-term vision is to have a larger metallurgical facility, where we can treat the material from other uranium- miners too.”
Munro says the West Rand is not short on dumps containing uranium, but that it is short on finance to build processing plants, especially as the grades from other tailings miners are often too low to secure sufficient income.
“Even Rand Uranium has other dumps, with lower grades, not included in our 20-year plan, but they are next in the queue. With a large-scale metallurgical facility, we can exploit them all.”
Munro believes that a processing complex such as this could, once again, turn the West Rand into a significant uranium producer.
“We need to rebuild confidence in South Africa as a uranium supplier again.”
ACID FACTS
As retreating gold dumps for uranium requires sulphuric acid, this commodity plays a vital role in Rand Uranium’s viability.
Less than a year ago, the sulphuric acid price was at R4 500/t, but this is now down to R1 700/ton.
However, this is still steep and, coupled with availability issues, and the fact that South Africa has no infrastructure to rail and store imported acid from Durban to the reef, Rand Uranium has decided to build its own acid production plant.
“Our current economics are premised on this – but we are looking [more broadly],” says Munro.
“At this stage, we believe we have no other choice but to build our own plant but, taking into account the bigger picture, we need to collaborate with other tailings miners in order to save costs.”
The challenge, though, says Munro, is not necessarily finding the right partners, but finding partners who will still be in business a few years from now.
He notes that it is also possible for any acid plant to supply other industries, such as fertiliser manufacturers, thereby ensuring additional income.
The acid plant Rand Uranium is currently planning is a 400-t/d to 500-t/d facility, with the company’s own needs anticipated at 400 t/d.
The uranium processing plant will be a 400 000-t/m to 500 000-t/m plant, with 20% of the feedstock coming from underground operations.
The originally estimated $500-million budget includes an acid and processing plant, as well as working capital.
PROJECT TIMELINE
“We’re a modest start-up company,” says Munro, “but we are thinking of making a bigger play here. However, we need all possible participants to fill us with the confidence that they can bring capital to the table.”
The next step for Rand Uranium is to make an investment decision by the end of 2009, with any construction timeline probably ranging from 24 months. “So, we’re talking around 2012.
“This appears to be exactly the right time to deliver a new resource project – at the bottom of the bear market, so that we’re ready when the bulls come in.”
Munro says the ultimate plan is to prove the asset, build it and take the company to market.
“The current thinking is to list the company in 2012, when the uranium asset is ready to deliver.”
However, where will the funding come from?
There are three funding avenues, notes Munro. More than a third of the capital requirement is expected to come from the company’s current gold operations, with more than a third to flow from local financiers.
“You can still get finance for the right project,” says Munro.
The remainder of the funding is expected to come from the company’s share- holders and other investors.
However, failing to secure capital would not spell the end of Rand Uranium, emphasises Munro.
“If we get delayed in developing our uranium assets, we still have the ongoing gold business to keep our doors open. We’re more than self-sustaining at the moment.”
Munro says he has the sense that the current global credit crisis is continuing to deteriorate.
“We’re far from the bottom of this cycle. To call the bottom at the middle of this year is a bit optimistic. It will be a tough year.”
