U3O8: Low Capital Costs, Short Term Uranium Production in South America

brazil businessIn a late December feature, Uranium Investing News (UIN) asked our readers which uranium companies they were following. One several names to come up was U3O8 Corp. (TSX:UWE, OTCQX:UWEFF), a South America-focused uranium exploration set on taking advantage of Argentina’s growing need for domestic uranium.

To learn more about the company, UIN spoke with Dr. Richard Spencer (RS), the company’s President and CEO. Here’s what we learned.

UIN: Recently U3O8 Corp. was identified as one of the uranium companies our readers are watching. In your opinion, what is it about U3O8 Corp. that sets it apart from other companies in its class? 

RS: The short answer is: we have a deposit in Argentina that shows promise for low capital costs and short time to production. We feel investors are focused on projects that can start generating cash flow in the near-term.

With the Laguna Salada Deposit in Argentina, we believe the capital costs – which we are finalizing with the preliminary economic assessment (PEA) at the moment – will be reasonable. We also expect the time to production to be relatively short. The reason for that is that Laguna Salada could not be technically simpler – basically an earth moving operating and using household chemicals to remove the uranium.  And the project is in a nuclear country. Argentina’s third reactor has been stress tested and is about to be connected to the grid; however, Argentina has no local uranium production. The country is keen for domestic uranium supply.

The projections that are being made in terms of supply and demand of uranium are indicating a diabolical shortage of uranium starting around 2018-2019. Analysts like Rob Chang at Cantor Fitzgerald are saying very loudly that with the average 7-10 years that it takes to go from discovery and getting a mine permitted; we are already in trouble in terms of mines being able to meet the demand for uranium. And the next few years is exactly the timeframe that U3O8 Corp. is focused on. We believe that the Laguna Salada Deposit will be in production by around the time that the shortage of uranium sets in, so we feel we are absolutely in the sweet spot there.

UIN: According to figures from the World Nuclear Association, South America isn’t known for uranium production. However, U3O8 Corp. has two key projects in South America: Berlin in Colombia and Laguna Salada in Argentina. What was it about South American that caught the company’s attention?

RS: There is no significant production from South America. When we acquired these projects, there were very few companies around to compete with us, and that hasn’t really changed in the time we’ve been in South America.   This has allowed us to establish a clear leadership position with some of the most advanced uranium projects in the region.  We’ve seen a little more interest in South America recently, but nothing like there has been in Africa or in the Athabasca Basin in Canada.

Further, geologically South America and Africa were joined before the Atlantic opened, and Africa produces about 17 percent of the world’s uranium at the moment. You have one side of a big lake producing a lot of uranium and the other side of the lake where the geology is the same producing nothing. It means that there is a geological opportunity there. The logic is that if Africa has uranium deposits, then South America must have similar uranium deposits.

I think that if we were to have this conversation in five years’ time, we would be looking at a sizeable chunk of uranium production coming from South America.

UIN: Mining Weekly recently published an article about the nuclear development happening in Argentina and Brazil. How can U3O8 Corp. benefit from South America’s nuclear development plans?

RS: Argentina is a growing nuclear country. It has been a leader in the nuclear space since the 1950s. It has its own reactor designs and other nuclear facilities, including medical isotope facilities and heavy water production facilities for the CANDU reactors. Argentina also has five research reactors that were built by Argentinean companies in Argentina. Currently there is a bilateral exchange going on with Brazil in which a reactor is being built jointly in Brazil with Argentine and Brazilian expertise and a reciprocal one – that would be the sixth one – being built in Argentina.

The nuclear energy industry in Argentina has vast potential, and despite all that expertise and know-how, they don’t have any of their own uranium production. So the central government is very keen to get local uranium development.   In addition, Argentina has co-operation agreements with other growing nuclear countries including China, Saudi Arabia, the UAE, India, South Korea and Russia – opening international market opportunities.

How this nuclear development relates to us is that we are currently finalizing a joint venture agreement with the Chubut provincial government whereby a mining company that is owned by the province will put exploration concessions into an enlarged Laguna Salada deposit – and we believe that our deposit extends onto that ground.  In exchange for their concessions, the mining company that is owned by the Chubut provincial government will get an equity stake in the expanded project.

That is a huge development because it means we have an incredibly close relationship with the provincial government, which is the entity that administers the environmental and mining permits. Their standards are absolutely stringent, but through this agreement they will know exactly what we are doing in the field and will have an opportunity to provide input on an ongoing basis as opposed to right at the end when we have completed an environmental impact assessment. We hope that the involvement of the Chubut provincial government will make the permitting a more interactive and seamless process.

UIN: One of U3O8 Corp’s most advanced project is Laguna Salada. Can you tell us a little more about this project?

RS: For Laguna Salada, it’s the simplicity that is so appealing. Laguna Salada is located in a semi-desert environment where very little else is viable. The physical environment is good for mining and the uranium and vanadium are in a very fine-grade mineral that sits within a fine sand in the gravel plain.

The gravel is completely unconsolidated – you can dig it up with a shovel.  As a result, most of our exploration has been done with a backactor that was used to dig trenches. For the mining, we are modeling a long trench with a continuous miner deepening the trench; as it digs away at one side of the trench, the gravel would be washed, sieved and replaced on the trailing edge of the trench. So essentially, the trench would just migrate sideways across these gravel plains and at the end you wouldn’t be able to see that the area had been mined. And for processing, we are looking at alkaline leach, which basically just uses washing soda and baking soda as the reagents to get extract the uranium and vanadium from the fine sand that has been separated from the pebbles by screening. It’s also very simple from a capital costs point of view. As such, we are anticipating a capital cost – to be confirmed in the PEA– that could be around $150 million range, which is not huge compared to other projects. And with the support of the federal government and provincial government via the joint venture, it should be one of the fastest projects in the world to get into production with a ready domestic market in Argentina, as well as export markets to the countries with which Argentina has nuclear cooperation agreements.

UIN: Are these types of deposits found anywhere else?

RS: One of the best examples of this type of deposit is Paladin Energy’s (ASX:PDN) Langer Heinrich in Namibia. Laguna Salada is that type of deposit except that it is not as old as Langer Heinrich. At Langer Heinrich, the gravel is at surface, but the gravel has been cemented, so it needs to be blasted and crushed. Laguna Salada is exactly the same kind of deposit, except it hasn’t turned into a concrete-like layer yet; therefore, requiring no crushing or blasting.  I think that in a number of million years Laguna Salada would be exactly like Langer Heinrich.

It’s the soft, gravelly nature that makes Laguna Salada special. By simply screening out the big pebbles, you are very efficiently concentrating the uranium into a much smaller volume of fine sandy material and that’s why it should be a low-cost project.

UIN: U3O8 Corp. has recently announced the discovery of two potentially large area of shallow uranium-vanadium mineralization adjacent to the Laguna Salada. What sort of opportunity do La Rosada and La Susana present the company?

RS: Those press releases were extremely significant.  Very early on we recognized that Laguna Salada is part of a uranium district. The publication of the results of La Susana – which is contiguous with Laguna Salada – and the earlier publication of the La Rosada which is 50 kilometers to the north, has the same style of near-surface, free-digging mineralization. We believe this is a district play and here is the evidence for it. Announcing those two discoveries was part of a longer term strategy to get across to our investors and the market that Laguna Salada is potentially a district scale deposit and could develop into a large deposit.

UIN: Looking at your other project, the Berlin Deposit in Colombia is interesting insofar that judging from the 2012 PEA, it could be a zero cash cost uranium producer due to by-product revenues. Are there other projects out there that can boast the same economics?

RS: I think that Berlin is a very special deposit with an incredibly exciting mix of commodities. Uranium is the biggest revenue producer, but it is followed very closely by phosphate.

The Berlin Project is located 60 kilometers from one of the biggest agricultural areas in Colombia and in South America along the Magdalena River. So there is a ready market for the phosphate just a little downhill from the deposit.  Then there’s the vanadium and the nickel as well – both of which are being used in batteries and obviously, the steel industry. Basically, this quite a high-tech group of metals when one considers the rare earths as well.

We’ve been quite conservative on the rare earths. There’s been a lot of hype and many projects out there that have such complex metallurgy that they’re unlikely to be economic.  This is why at Berlin, we conducted extensive metallurgical testing, the results of which showed that one process dissolves the uranium, vanadium, nickel, phosphate and the rare earths into a liquid – and then those commodities are extracted one by one from the liquid.

In our PEA, we only included two of the rare earths: yttrium and neodymium, in the economics of the project. But there are other rare earths in there that we didn’t talk about because we didn’t want to be seen by the market as climbing on the rare earth bandwagon.  Initial test results show that our established process extracts some of the other rare earths from the rock and their inclusion should impact the economics of the project positively.  After a small amount of additional test work, we may consider updating the PEA, or including additional rare earths in a prefeasibility study.  The rare earth aspect of the Berlin deposit adds a high-tech component to the project.  This potential rare earth supply is relatively low risk because extensive metallurgical testing has already been done and the project is located in an area of good infrastructure.

There is more that we can do to enhance the economics of the Berlin Project.  The advantage of having done a PEA as early on in the life of the project as we had –before we finished defining the resource– is that it shows us where the high cost input points of the project are and it allows us to rework them and bring additional testing in. I think Berlin is going to become an even more compelling project.

The Laguna Salada is our priority project because of the short time to production and expected lower capital costs.  Whereas Berlin is still the flagship but will take longer to develop given its large size potential yet also should be among the industry’s lowest in uranium production costs. The issue with Berlin, in this kind of market, is that with an estimated capital cost of $450 million and U3O8 Corp’s market cap at less than $20 million, the market can’t see a way for us to get Berlin into production at this time – even though the project still needs to be further developed before we contemplate production.

What we intend to do in Berlin in the short term is refine some of these relatively high cost components and work in efficiencies to further optimize the project and position for when market conditions improve.

UIN: Can you tell us about the company’s plans for 2014? What can investors expect next?

RS: It’s going to be a pretty busy year. The priorities are – and we see this happening in the first quarter – is the signing of the definitive agreement with the mining company that belongs to the Chubut government. And that is no mean feat. The Chubut government has signed many agreements in the petroleum industry, but this would be the first mining agreement.

Getting the Laguna Salada PEA out is priority number two, which is likely to happen after the deal with the Chubut government.  And after that, we plan to start working with the environmental authorities from the Chubut government to ensure that our environmental work is tested and challenged as we work towards completion of the environmental impact assessment, which is a key component on our path towards production.

UIN: Why should investors buy U3O8 Corp.?

RS: We are perfectly positioned to profit from the areas where investors are focused: short time to production and low capital costs with a ready domestic market in Argentina for our uranium.  Nicely staged after Argentina, is our Colombian deposit that gives investors exposure to other commodities including the growing agricultural market in South America and high-tech metals.  And we’re among only a handful of uranium companies with advanced projects as the sector is poised for recovery in an environment of a large, looming supply deficit.  Another point of comfort is that we have a lot of insider support. Insiders own about 30 percent of our float, which during these tumultuous markets, shows a strong vote of confidence for our projects and their potential.

UIN: That’s all we have for today. Thank you very much for sharing your story with us. 

RS: Thank you.


Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned. 

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