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U3O8 Corp. Files Positive PEA that Recommends its Laguna Salada Project in Argentina Advance to Pre-Feasibility

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U3O8 Corp. Files Positive PEA that Recommends its Laguna Salada Project in Argentina Advance to Pre-Feasibility

 

 

 

 

 

U3O8 Corp. (TSX:UWE) (OTCQX:UWEFF), a Canadian-based company focused on exploration and development of uranium resources and associated commodities in South America, has filed a National Instrument 43-101 Preliminary Economic Assessment on its Laguna Salada Deposit in Argentina. The PEA was undertaken by internationally recognized engineering firm, Tenova Mining & Minerals. The economic model shows that uranium at Laguna Salada would be produced at an average life-of-mine cash cost of $21.62 per pound of U3O8, net of a vanadium credit, and the total capital cost of $136 million would be paid back in 2.5 years (Table 1). All figures in this press release are in US$, unless otherwise noted.
 

“The PEA confirms that Laguna Salada would be among the uranium industry’s lowest cash cost producers – in the same league as in-situ recovery and Athabasca Basin projects,” said Dr. Richard Spencer, U3O8 Corp’s President and CEO. “In addition, the economic model shows that a larger resource at Laguna Salada would significantly improve the project’s economics. Hence, the PEA recommends resource expansion onto the adjacent La Susana area that has a footprint larger than the current deposit, and also onto the La Rosada target, where exploration returned average grades 30 times higher than at Laguna Salada. The estimated exploration budget to establish resources on these new areas is $1.8 million. The study also recommends that the project be advanced to pre-feasibility study with associated on-site pilot plant work.”
 

Table 1 – PEA Highlights (base case, pre-tax, $60/lb U3O8)(1)

 

 
 
----------------------------------------------------------------------------
Average annual uranium produced                                      0.64Mlb
----------------------------------------------------------------------------
Average annual vanadium produced                                     0.96Mlb
----------------------------------------------------------------------------
Mine life                                                           10 years
----------------------------------------------------------------------------
Cumulative free cash flow                                              $109M
----------------------------------------------------------------------------
NPV at 7.5% discount                                                    $55M
----------------------------------------------------------------------------
IRR                                                                      24%
----------------------------------------------------------------------------
Payback period                                                     2.5 years
----------------------------------------------------------------------------
LOM average uranium cash cost, net of vanadium credit              $21.62/lb
----------------------------------------------------------------------------
Average uranium cash cost over 2.5 year payback period             $16.14/lb
----------------------------------------------------------------------------
Capital investment (incl. sustaining & 20% contingency)                $136M
----------------------------------------------------------------------------
                                                                            
(1)  Uranium cash cost includes a 3% net smelter royalty ("NSR") payable to 
     the Provincial Government. The PEA is preliminary in nature as it      
     includes Inferred mineral resources that are considered too speculative
     geologically for economic consideration that would enable them to be   
     classified as mineral reserves. Mineral resources are not mineral      
     reserves and do not have demonstrated economic viability.There is no   
     certainty that the results of the PEA will be realized.
 

 

 

Low Cost of Uranium Production
 

The PEA estimates a LOM cash cost of $21.62/lb of uranium, net of a vanadium by-product credit, and including a 3% NSR to the Chubut Province. Vanadium contributes 14% of revenues, on average. This would put the Laguna Salada Deposit well within the lower quartile in terms of production cash costs in the uranium industry (Figure 1) and competitive with operating costs of uranium mines in the Athabasca Basin and low-cost in-situ recovery (“ISR”) operations.
 

Since the Laguna Salada mineralization lies in an unconsolidated, flat lying sheet just below surface, mining could start in the richest part of the deposit where revenue would be maximized so that the capital cost of the project could be paid back in 2.5 years. By taking this approach, initial uranium cash cost averages at $16.14/lb during the payback period or $11.66 in year 1 and $14.05 in year 2, gradually rising as uranium grades decrease over the 10-year mine life for an average cash cost of $21.62 (Figure 2).

Net Present Value and Internal Rate of Return

 
The PEA demonstrates that the project should generate healthy operating margins relative to analysts’ uranium price forecasts (Figure 2). The economic model was based on a $60/lb uranium (U3O8) price and $5.50/lb for vanadium (V2O5) to yield a NPV of $55 million at a 7.5% discount with a pre-tax IRR of 24% (18% post-tax IRR). At the consensus uranium price forecast of $70/lb, estimated to commence in 2019, the project’s NPV (at a 7.5% discount rate) would increase to $98 million, the IRR would increase to 35% and the payback period would shorten to 1.9 years (Table 2).
 

U3O8 Corp. undertook this PEA before the full extent of the deposit is known in order to have independent verification that Laguna Salada’s production cost would be comparable with the uranium industry’s lowest-cost producers. As both the IRR and NPV are sensitive to deposit size, our next step aims to increase the resource, which would significantly improve both of these economic measures. For example, doubling the size of the Laguna Salada resource (and assuming a similar grade profile to the current resource), and doubling the production rate, would result in the NPV (at a 7.5% discount) increasing to $180 million and the IRR to 44%. The capital cost of a plant that has double the capacity would be approximately $25 million more than the current plant design (or a total of $138 million including contingency and sustaining capital) and would produce an average of 1.2 million pounds of uranium and approximately 2Mlb of vanadium per year over a 10-year mine life.
 

The immediate goal is further exploration on the La Susana area that appears to be an extension of the Laguna Salada Deposit, and on the La Rosada target, which show potential to increase the current resource to 20-25Mlb(3) of uranium (Figure 3).

 

 
 
(3)  Based on the initial resource at Laguna Salada and exploration of other
     mineralized areas, there is an initial conceptual uranium target of    
     150-225 million tonnes at 50ppm to 60ppm U3O8 (approx. 20-25Mlb U3O8)  
     identified in the Laguna Salada district to date. Potential quantity   
     and grades are conceptual in nature. There has been insufficient       
     exploration to define a mineral resource beyond the current resource,  
     and it is uncertain if further exploration will result in additional   
     mineral resources being delineated in the region.
 

 

 

Table 2 – Discounted Cash Flow Estimates on the Laguna Salada NPV and IRR to Uranium Price

 

 
 
----------------------------------------------------------------------------
Uranium Price                                                 $60           
                                                             (Base          
                                          $45       $50      Case)       $70
----------------------------------------------------------------------------
Discount Rate (in $                                                         
 millions)                        0%      $16       $47       $109      $170
                          --------------------------------------------------
                                  5%      ($3)      $22        $70      $118
                          --------------------------------------------------
                                7.5%     ($10)      $12        $55       $98
                          --------------------------------------------------
                                 10%     ($16)       $4        $43       $82
                          --------------------------------------------------
                                 15%     ($25)     ($10)       $23       $55
----------------------------------------------------------------------------
IRR                                        4%       11%        24%       35%
----------------------------------------------------------------------------
Pay-back period (years)                   4.7       3.7        2.5       1.9
----------------------------------------------------------------------------
 

 
Value per Fully Diluted Share of U3O8 Corp.(4)
 

U3O8 Corp. has now demonstrated positive economics on its lead projects in Argentina and Colombia as potential low-cost uranium producers with both deposits open for further expansion. Based on an initial NPV of $55 million (7.5% discount) as estimated in the current PEA, Laguna Salada equates to a base case value of $0.22 per fully diluted U3O8 Corp. share. In addition, the company’s flagship Berlin Project in Colombia has an NPV (7.5% discount) of $312 million based on only one-third of its resource potential for a value of $1.25 per fully diluted U3O8 Corp. share. These two projects together equate to a value of $1.47 per fully diluted U3O8 Corp. share. Although the preliminary economics of Laguna Salada are skewed by its relatively high capital cost to its current resource size (which other discoveries show potential to expand the resource significantly), both our Argentina and Colombian projects are strongly leveraged to improving uranium prices.

 

 
 
(4)  NPV and NPV per fully diluted U3O8 Corp. share do not represent a fair 
     market value of either the Laguna Salada or Berlin project, nor of the 
     shares of U3O8 Corp. (refer to Note 1 above).
 

 

 

Capital Costs

The Laguna Salada PEA estimates a $135.7 million capital cost, the main components of which are $16 million for mining and beneficiation equipment, $79 million for the processing plant, indirect costs of $11 million and contingency of $22 million (Table 3).
 

Table 3 – Summary of Capital Costs

 

 
 
----------------------------------------------------------------------------
Items                                                         (in $millions)
----------------------------------------------------------------------------
Mining and beneficiation(i)                                            $16.0
----------------------------------------------------------------------------
Sustaining capital                                                      $3.3
----------------------------------------------------------------------------
Processing plant and infrastructure                                    $79.1
----------------------------------------------------------------------------
Mine closure(ii)                                                        $2.0
----------------------------------------------------------------------------
Indirect costs (EPCM, insurance, temporary works, first fills               
 & spares etc.)                                                        $10.9
----------------------------------------------------------------------------
Working capital                                                         $2.5
----------------------------------------------------------------------------
Contingency of 20%                                                     $21.9
----------------------------------------------------------------------------
TOTAL                                                                 $135.7
----------------------------------------------------------------------------
                                                                            
(i)  Mining cost estimates include $1.7 million for the tailings facility   
     not reflected in the August 5, 2014 press release.                     
(ii) Mine site reclamation and closure would be ongoing during the LOM and  
     the majority of this cost is captured in operating costs.
 

 

 

Operating Costs
 

Revenue of approximately $10/t of mineralized gravel against operating costs of $4.34/t would generate operating cash flow of $5.58/t (Table 4).
 

Table 4 – Summary of Operating Costs

 

 
 
----------------------------------------------------------------------------
                                                    Per tonne of mineralized
Items                                                                 gravel
----------------------------------------------------------------------------
Revenue                                                                $9.92
----------------------------------------------------------------------------
Operating Costs:                                                            
----------------------------------------------------------------------------
Revenue-based royalties                                                $0.30
----------------------------------------------------------------------------
Mining                                                                 $0.99
----------------------------------------------------------------------------
Processing                                                             $2.94
----------------------------------------------------------------------------
G&A                                                                    $0.12
----------------------------------------------------------------------------
Total Operating Costs:                                                 $4.34
----------------------------------------------------------------------------
Operating Cash Flow                                                    $5.58
----------------------------------------------------------------------------
                                                                            
(i)  Numbers may not add due to rounding
 

 

 

Recommended Budget and Work to Prepare for Pre-Feasibility
 

The PEA proposes a budget of $4.4 million for the work recommended for completion of a pre-feasibility study on the Laguna Salada Project (Table 5). Permitting (budgeted at $1.5 million), $1.1 million for infill trenching and drilling to upgrade 20Mlb of prospective resources to the Indicated category, and $1.5 million for a full feasibility study, would ready the project for a decision as to whether to commence construction.
 

Table 5 – Budget Summary for Recommended Work

 

 
 
----------------------------------------------------------------------------
Items                                                                 Budget
----------------------------------------------------------------------------
Resource estimate & expansion                                     $1,817,000
----------------------------------------------------------------------------
Metallurgy                                                           765,000
----------------------------------------------------------------------------
Pilot plant test work                                                500,000
----------------------------------------------------------------------------
Water resource studies                                               315,000
----------------------------------------------------------------------------
Social & environmental                                               300,000
----------------------------------------------------------------------------
Pre-feasibility study                                                750,000
----------------------------------------------------------------------------
Budget for Completion of Pre-Feasibility Study                    $4,447,000
----------------------------------------------------------------------------
Permitting (including environmental impact assessment)             1,500,000
----------------------------------------------------------------------------
Resource upgrade to 20Mlb Indicated                                1,100,000
----------------------------------------------------------------------------
Feasibility study                                                  1,500,000
----------------------------------------------------------------------------
Budget for Feasibility Study                                      $4,100,000
----------------------------------------------------------------------------
Total                                                             $8,547,000
----------------------------------------------------------------------------
 

 

 

Dr. Richard Spencer, P.Geo., President and CEO of U3O8 Corp. and a Qualified Person as defined by NI 43-101, has supervised the preparation of, and verified the technical information contained in this press release relating to the Laguna Salada Project and the PEA.
 

A copy of the PEA technical report: “U3O8 Corp: Preliminary Economic Assessment of the Laguna Salada Uranium-Vanadium Deposit, Chubut Province, Argentina” dated September 18, 2014 is available on the company’s web site at www.u3o8corp.com or SEDAR at www.sedar.com.
 

About U3O8 Corp.
 

U3O8 Corp. is focused on exploration and development of uranium resources and associated commodities in South America. The company’s uranium resources comprise three deposits defined in accordance with NI 43-101 located in Colombia, Argentina and Guyana:

 

 
 
--  Berlin Deposit, Colombia - a PEA shows that Berlin could be a zero cash
    cost uranium producer thanks to revenue from by-products of phosphate,
    vanadium, nickel, rare earths (yttrium and neodymium) and other metals
    occurring in the same deposit; 
    
--  Laguna Salada Deposit, Argentina - a near surface, free-digging uranium,
    vanadium deposit that a PEA shows would have a cash cost in the
    industry's lower quartile of uranium production; and 
    
--  Kurupung Deposit, Guyana - an initial uranium deposit in a large
    emerging uranium district.

 

Posted September 25, 2014

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