SA's first uranium-focused mine on track for commissioning in Q1 '07

After the decline of the uranium industry more than two decades ago, owing to the backlash against nuclear energy after the incidents at the Three Mile Island and Chernobyl nuclear power stations, South Africa is once again caught up in a new uranium boom with the country’s first new uranium-mine, the Rietkuil Dominion uranium project (Dominion Project), less than 12 months away from production.

The company that is leading South Africa’s uranium renaissance is Toronto Stock Exchange- and JSE-listed mid-cap-miner, sxr Uranium One (Uranium One).

It was formed in January this year through the reverse takeover of Southern Cross Resources Inc, of Canada, by South Africa’s Aflease Gold and Uranium Resources.

The company, under the leadership of visionary president and CEO Neal Froneman, decided to develop a uranium-mine in South Africa two years ago, when supply and demand fundamentals indicated that the uranium market was entering a renewed up-cycle, owing to the increasing shortage of energy on a global scale.

Nuclear power is back in favour as it produces base-load energy with negligible ozone-destroying CO2 emissions.

Uranium One was already the owner of South Africa’s largest uranium deposit, which it had acquired decades ago from Anglo American.

Uranium One has made considerable progress in fast-tracking this project to operational stage, in order to take advantage of the positive market fundamentals.

In an exclusive interview with Mining Weekly, Froneman reveals that the extent of the progress that has been made in fast-tracking this project is evident in that the first draft of the final feasibility study has just been completed– one month ahead of schedule – and the commissioning of the Rietkuil Dominion Uranium project is on track for the first quarter of 2007.

Not only has Uranium One made considerable progress in fast-tracking the Dominion Project, but the company has also been successful in establishing significant investor confidence in this project.

This is evident from the way that the company was able to raise $147-million in a period of three weeks, through the private placement of 22,3-million common shares.

In fact, Froneman explains that the Uranium One share placement was oversubscribed during this exercise.

Although the company attracted the investor appetite to raise even more capital, it was restricted in the number of shares that could be issued, under stock-exchange regulations.

As more than 80% of this capital is to be used to complete the construction of the Dominion Project, it is evident that there is significant investor confidence in both this project and the uranium market.

However, as it is a brownfields project, it is fundamental to position Uranium One’s present feasibility and construction activities against the historical context of this operation.

Rietkuil Dominion uranium project

The Rietkuil Dominion Uranium Project, previously owned and operated by Anglo American, is a brownfields project, with gold having been produced from the Rietkuil goldfields since the 1880s, and uranium, as well as gold, having been produced from the property from the 1950s.

Flowing from these previous mining activities, Uranium One possesses a substantial database of geological information, including data from some 250 historical boreholes, 46 000 data points from previous mining and a 3D geological model developed from a seismic survey, which was used as the foundation for the project’s feasibility studies.

However, as the final feasibility study was being completed at the time of going to press, Uranium One was not in a position to disclose the findings of this study, although Froneman tells Mining Weekly that the study will be available to the public once it has been reviewed and signed off by independent auditors.

In addition, the company is presently engaged with the preliminary assessment of phase two of the Rietkuil Dominion Uranium Project, which will cover 30 years of mining, the results of which will be revealed within the next few months.

Froneman explains that the Anglo American historical data has been supplemented by Uranium One’s own extensive drilling campaign, which included the drilling last year of some 56 diamond drill holes totalling more than 17 500 m of drilling, with a further 48 000 m of drilling planned for this year.

Additional drilling is focused on delineating additional uranium resources and converting inferred uranium resources into higher categories of resource.

At this stage, the Rietkuil Dominion Uranium Project has a measured and indicated resource of 16,1-million pounds and an inferred resource of 146,6-million pounds of uranium (U3O8). There is also a significant by-product gold resource, and the company is examining the potential for extracting rare earths as well.

According to Froneman, as part of Rietkuil Dominion Uranium Project’s current exploration programme, the company has embarked on a three- to five-year upgrade plan to move the entire resource, which Anglo American estimated to be around 350-million pounds of uranium, into the measured, indicated and inferred categories by 2011.

The project has significant infrastructure in place, including a relatively new carbon-in-leach gold-processing plant, which will form part of a larger complex designed to recover both uranium and gold from the Rietkuil, Dominion and Bonanza South ore bodies.

Construction and development of new infrastructure has already started, with civil construction of the uranium plant initiated eight weeks ago.

In addition, the construction of the R1, D1 and D2 declines has begun for a bulk sampling programme, with the portals having been opened in recent months, and dewatering of the Rietkuil incline shaft completed down to three level.

Owing to major long lead times, large components for the uranium plant, such as autoclaves and feed pumps, as well as some mobile mining equipment, have already been ordered.

Although it is unusual for the construction of mine infrastructure to commence before the completion of a final feasibility study, Froneman explains that this was an essential component of the company’s strategy to fast-track the project.

“Because this is not a marginal project, we took a decision to fast-track this project, through the initiation of construction, in June last year,” explains Froneman.

“We were able to do this using the $20-million capital that was raised in the Aflease Gold and Uranium Resources’ private placement in August last year.”

Consequently, the detailed feasibility study is being completed parallel with the construction of new-mine infrastructure.

“This gave the company the option to raise bank finance for the project during the feasibility-study stage, but with the successful completion of the private placement, which raised $147-million, Dominion is already fully banked.

“However, this does not mean that we are not going to raise some debt finance, because I think that it is appropriate to have a good debt-equity ratio.

“Essentially, having secured the $147-million, Uranium One is not dependent on debt finance to see the launch of this project.”

In terms of the future outlook of this project, Froneman explains that construction is on track and that the hot commissioning of the new uranium mill is on schedule for Q1 2007.

Production is estimated to begin at an annualised two-million pounds a year of uranium oxide, ramping up to four-million pounds a year by the end of 2010.

With the uranium market fundamentals indicating an increase in the commodity price on a sustained basis, at least in the medium-term, the operational outlook for the Rietkuil Dominion Uranium Project is optimistic, especially with cash costs estimated at $15/lb for uraniumoxide production.

To give some idea of the high margins the project will enjoy, Froneman believes that the spot uranium price, which is already in excess of $40/lb, will exceed $50/lb by the end of the year.

However, given the increasingly positive nature of the uranium market, the Rietkuil Dominion Uranium project is not the only Uranium One project that is in advanced feasibility-study stage.

The Honeymoon project, in South Australia, is Uranium One’s second project in line, on which the final feasibility study is due to be completed in the third quarter of this year.

Honeymoon project

Froneman explains that Honeymoon is an advanced in-situ leach project, using a technology which offers the lowest capital and operating costs, with a total cash cost of $12,40/lb.

The project is fully permitted under Australian legislation, with a mining licence in effect for the next 20 years, and is ready to begin production with a short lead time of less than 18 months.

Planned technical processes for uranium extraction have been confirmed, with the operation of a demonstration plant and a field leach trial over an 18-month period.

Preproduction well field design drilling has been completed, which will provide the data for a commercial development plan, focusing on optimising recovery rates.

A cost and engineering study carried out by Australia-based Ausenco in 2004 projected two key parameters, which include a production output of 880 000 pounds of uranium a year for the next six to eight years and a construction capex of $24,6-million.

The project has indicated resources of 9,3-million pounds and a flexible plant design that would allow increased production levels in the event of exploration success.

Froneman tells Mining Weekly that the company expects to complete both the final feasibility study and the complete debt financing of the project before the end of September.

However, the project will still require the go-ahead from the Uranium One board.

Future outlook
With two advanced uranium-mining projects nearing production stage, Froneman is very optimistic about the future of Uranium One, both within South Africa and globally.

He is especially bullish about the company’s prospects once the Rietkuil Dominion uranium project reaches production, as there is a growing demand for uranium on the international market.

“There are many interested parties who are eager to sign contracts with us for the off-take of uranium,” elaborates Froneman.

“We could have signed contracts six months ago. However, we took a conscious decision that, during the first year of production, we would sell our uranium on the spot market, because this minimises our exposure to start-up risk.”

Froneman explains that the company has not taken the decision to enter into any agreements because it wants to be able to benefit from the upside in the market.

“If we are on the spot market, we can sell on the market as and when we produce uranium.

“We also believe that the uranium price will continue to rise and we want to hold off as long as we can before entering into contracts.

“However, from 2008 onwards, we would like to have contracts in place for the off-take of our uranium, which will essentially be negotiated through our marketing partner, Nufcor International.”

Ultimately, Froneman explains that the company’s corporate vision is to produce five-million pounds of uranium by 2010.

“The basis on which we are going to do this is through our two assets, which make up this five-million-pounds target right now, in that four-million pounds will come out of the Rietkuil Dominion Uranium Project in South Africa and just under one-million pounds will come out of our Honeymoon Project in South Australia.”

Froneman concludes that Uranium One is determined to remain a delivery-focused company.

Its focus is on getting present projects under way as fast as is prudently possible, in order to produce results for the shareholders who have shown such tremendous confidence in the company.