Bannerman Keeps Ticking Boxes, Awaiting Uranium Recovery

Bannerman Resources (TSX:BAN,ASX:BMN) announced last week that it has awarded contracts to construct and operate a demonstration heap leach plant at its Etango uranium deposit in Namibia.

The total cost of the plant is expected to be AU$1.4 million, and upon completion in early 2015 it is scheduled to run for at least 12 months, providing larger-scale proof of concept of the current processing flow sheet, as well as generating valuable operating data that can then be used to provide feedback into final plant design.

However, like most of the world’s current stable of undeveloped uranium deposits, Etango remains uneconomic at the prevailing uranium price.

A definitive feasibility study was completed in late 2012, outlining plans for a long-lived operation producing between 6 and 8 million pounds per year of U3O8 for over 20 years — but at a cost. The study estimates pre-production CAPEX of $870 million with an average life-of-mine cash operating cost of $46 per pound U3O8. Despite having slightly lower cash costs in the early years of the operation, it is likely that a price of nearer to $70 per pound will be required to justify development of Etango. That said, few — if any — new greenfields projects are able to justify development at prices below $60 per pound, and most require prices above $80 per pound.

The uranium spot price has increased almost 30 percent since its lows of August to currently sit at $36.50 per pound. The uranium market is somewhat illiquid and still dominated by opaque, long-term contracts, but in recent weeks, market perception seems to be shifting toward the recognition of the potential for medium-term deficits; that’s largely due to gradual increases in demand from new reactors approaching commissioning, industrial action in Canada and political problems in Russia. But there is still some way to go.

In the case of Bannerman, the longer game seems key. The high incentive prices required for new developments to proceed, coupled with the extreme time lag generally required for the approval of new uranium mines is finally raising the recognition of longer-term deficits. In July this year, major resource investor Resource Capital Funds invested in Bannerman via a $5-million convertible note, sufficient to provide the company with funding to continue low-key feasibility work and progress through the permitting process in expectation of the uranium price recovering. In effect, funds to keep the asset secure in a holding pattern.

Bannerman’s key advantages then are the size of Etango and its location in a reasonably stable country that is demonstrably friendly to uranium mining. Etango has been extensively drilled and moved to a JORC and NI 43-101 compliant reserve of 279.6 million tonnes at 194 ppm U3O8, for a total of 119.3 million pounds contained U3O8, making it one of the larger undeveloped uranium deposits in the world, albeit low grade, and therefore of strategic interest to potential end users.

As a low-grade, bulk tonnage operation, there is probably little the company can do to appreciably reduce its planned operating costs, but it can continue to reduce technical and political risk via small plants such as the one announced this week. If it’s able to do that, when the price does reach the trigger point, it will be ready to fire — or be sold.

Securities Disclosure: Brad George holds no investment interest in any of the companies mentioned. 

Brad George is a geologist by trade, and has spent over 25 years working in the mining industry around the world in a variety of capacities. Primarily focused on exploration, Brad has gained extensive experience in iron ore, base metals and gold on five continents. He has extensive experience in the management of public resource companies.

Upon completing an MBA, Brad spent several years in London as a partner in a boutique brokerage house, developing a franchise as a rated mining and metals analyst. Brad now resides in Perth, Western Australia.