PhosEnergy: A Uranium Game Changer?

Private Australian company PhosEnergy, which is in a joint venture with uranium giant Cameco (TSX:CCO,NYSE:CCJ), recently announced positive commercial results from a demonstration plant designed to extract uranium from the phosphoric acid streams of phosphate fertilizer production plants.

The small demonstration plant has been running for several months at a US phosphate fertilizer plant, and has demonstrated uranium recoveries in excess of 90 percent, suggesting that 400,000 pounds per year of uranium could be produced from that small plant at a cash cost of approximately US$20 per pound. That places the process in the lowest quartile of global uranium producers.

The PhosEnergy process was originally developed by the Australian Nuclear Science and Technology Organisation, and moved forward with major funding from Cameco. The technology was folded into Australian public company Uranium Equities (ASX:UEQ), but demerged in August 2013, with Uranium Equities retaining its traditional uranium mining assets and PhosEnergy going private. Uranium Equities retains a 10-percent interest in PhosEnergy, which currently holds 27 percent of the rights to the technology, with 73 percent held by Cameco.

The innovative technology recently came out of a lengthy trial phase to test pilot-scale steady production over several months; its positive results were then fed into a prefeasibility study (PFS). As mentioned, the PFS suggests cash costs near US$20 per pound of U3O8 from this small plant, with significant economies of scale able to be realized from larger plants. The company is well progressed in negotiations with US phosphate plants, and has estimated the potential for production of 6 million pounds of U3O8 per year from existing US phosphate plants alone.

The joint venture partners will now decide whether to enter the full feasibility process.

The technology is predicated on the fact that sedimentary phosphate deposits generally contain uranium in concentrations of up to 100 ppm U3O8, such that the 300 billion tonnes of known phosphate resources could contain upwards of 25 million tonnes of recoverable U3O8, dwarfing known conventional resources. Current global production of 50 million tonnes of phosphoric acid could potentially yield 20 million pounds of U3O8, some 15 percent of current global mine production, but that is still some years off as it is yet to be commercially proven.

Assuming it does pass muster, however, production could be ramped up quickly as the permitting process for the installation of an extraction plant onto an existing phosphate plant is likely to be far shorter than for a traditional uranium mine. The production potential, while significant, would probably be absorbed by predicted supply deficits in coming years, and so is unlikely to create an overhang. That said, the low cost of production would likely bring down the average for the global cost curve, and therefore put some pressure on higher-cost projects.

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.