Mines & Money London 2016 – Interview with Fission Uranium’s President, COO and Chief-Geologist Ross McElroy
Tim: Mr. McElroy, Fission Uranium is the 100% owner of the Patterson Lake South (PLS) Uranium Project in Saskatchewan, which was one of the largest uranium discoveries in the last years. What led to this discovery, where is the project located and what is the current resource status?
Ross: The project is located at the west side of the Athabasca Basin, just outside of the basin margin. The east side of the basin is where all the production comes from. We are speaking about Key Lake, Rabbit Lake MacArthur and Cigar. The west side is a virtually underexplored area. About 80km from us is the old Cluff Lake Mine, that AREVA operated till 2000. We selected this area because we were a junior and we liked to look where others didn’t. I worked for AREVA and they discovered the Shea Creek deposit, which is nearby and owns a resource of about 100 million pounds of U3O8. This discovery gave me the reason to believe in the western side of the basin. Most of the deposits in the Athabasca Basin are so-called unconformity deposits. Besides that, there are a few so-called basement hosted deposits, which are typically more shallow, because they are eroded. That means, that the basin originally was larger than it is today. We therefore looked where the basin used to be, not where it is now. That was a brand-new view, that nobody else made. We made a radiometric survey, which showed a large area of radioactive material. We then found some high-grade uranium boulders, with up to 10% U3O8, which is very high-grade material. This material was all ice-transported in the last glacier-period. We then back-tracked the ice direction to locate the uranium source. This led to the first discovery in November 2012, where the first drill hole hit the Patterson Lake South deposit. The interesting thing is, that there is only 50 meters of overburden. All of this led to a big drill program in 2013, when we were able to discover a zone of around 1km length. Since November 2012 we put in about 230 holes, of which 95% intersected mineralization. In January 2015, we did a first resource estimate of around 108 million pound of uranium, most of it in the indicated category. The road, that led from the city of Saskatoon to the old Cluff Lake Mine, goes right through our land position. This decreases the costs and the risk for production.
Tim: You already published a Preliminary Economic Assessment (PEA). Could you give a short overview of the most important numbers?
Ross: We published this PEA in September 2015, which showed, that this high-grade deposit is economically viable. The design shows an open-pit mine, in cause of the fact, that the top of the ore-body is only 50 meters below the surface. This open-pit model goes to a depth of about 200 meters, with further underground-mining scenarios. The IRR is about 40% after tax. It has a capex of about 1.1 billion dollars. Not inexpensive, but the payback is only a year and a half. It has a 12 to 15 year mine-life, based on the 2015 resource estimate. We will come up with another resource estimate soon, both with the resource size and possibly improvements in the economics. Since the time when we did this estimate, we continued to drill along this mineralized trend and found a new zone to the east on trend, which we called 1620 east zone, which is very thick and high-grade. And also to the west on land, we discovered the 840 west zone. These two zones will get a more positive impact on the economics on the project, in cause of the fact that one of it is on land and we do not have to build a dike yet to exploit it.
Tim: Could it be an option to start with the on the ground orebody, use the cashflow for financing the on-lake operation and use the overburden for building the dike?
Ross: The on-land-section is meaningful, because this would be the starter area and you do not have to build the dike yet. That means that you start with a conventional open-pit-mine, not having to deal with water issues. This would generate cashflow early on and pay for the second phase. The overburden material from the on-land-zone seems to be the right rock to use for building the dike. So you use material that you have to move anyways and the other benefit is, that you could use the first open-pit to put your waste material in. This should improve the economics, which means that an obviously attractive project becomes even better.
Tim: What about the All-In-operating costs?
Ross: In the initial PEA, we estimated All-In-costs of around 16.60 US$ per pound, which would make Patterson Lake South the lowest cost producing uranium mine on the planet. But you should have in mind, that this is a PEA and not a prefeasibility study, but it indicates, that this project could become a fairly low-cost producer.
Tim: What is the current status of your exploration program? Is drilling easier in winter?
Ross: Both summer and winter drilling are nearly the same from a cost perspective. In winter the lake is frozen, in summer we use barges. Both possibilities are extremely cost-effective. The lake is only seven meters deep, so it is not difficult to drill from these barges on.
Tim: Since the first quarter of 2016 you have a strategic partner out of China. Could you give some details about this deal?
Ross: CGN is the state-owned utility from China, that bought into our company in January 2016. They took a 19.9% stake in the company for 83 million dollars in cash, which means that we do not have to raise money for quite some time. The price that they payed was a 35% premium. The benefit to have CGN as a partner is that you have a future planning company which looked for projects in Canada to feed their growing nuclear industry with uranium and not a kind of end user. CGN met with Cameco and all the other companies which have something in the Athabasca Basin, checked many projects out and the project that attracted them the most was the PLS project. Because of its size, that it is shallow open-pitable, which they understand better than underground mining. The PEA was another part that attracted them.
Tim: Let’s come to the uranium market. The cheapest producing mine in Kazakhstan has overall costs of 21 to 22 US$ per pound, but the uranium price stands at around 18 US$. Where is the sense in that and will we see some kind of rebound next year?
Ross: There is not much uranium traded at these low prices. Uranium prices cannot stay low for a long time, because nobody is making money at these prices, nobody is making money at 30 US$. Even the lowest cost producers need to see 40+ US$ per pound and I think globally we speak of about 70 US$ per pound. Our project would be one of the first which would realize a profitable scenario, when prices rise. The demand side is positively changing the prize. China is building one reactor every 6 weeks. They have about 45 reactors operating in China and have plans for running over 200. They do not need only more power, but also clean energy. So, they need to convert a lot of their source of energy from coal to nuclear solutions. At the moment their nuclear part makes only two percent of their power grid and they try to get it up to 15-20%.
Tim: Don’t we already have a shortage in the uranium market? So, what gives pressure on the uranium spot-prize?
Ross: There is a lot of stockpile in inventory. Part of these overhangs is, that the Japanese didn’t come back to the market, yet. This is going to happen, but it is slower than expected. It is not only China, who is planning to expand their nuclear fleet. The Saudis have plans for building 16 new plants, India is also a growth story, the Middle-East, etc. The US has around 100 nuclear plants, but 95% of their demand has to be imported, same with China.
Tim: Most of the long-term contracts are running out in the next two years, is this right?
Ross: Since the Fukushima disaster back in March 2011 there haven’t been signed many new contracts by utilities. Typically, utilities sign contracts for 4 to 7 years in term-length. Nobody has really signed meaningful contracts since the Fukushima event, even if the utilities like such contracts, because they know the supply and that they will have a fix price. Many utilities didn’t sign new contracts because they didn’t know, what will happen, if they will shut down, etc. So, to get back to your question: Yes, the longer-term contracts are expiring soon and you have to see utilities come back into the market and buy contract-uranium. The mining companies have no intention to sell uranium at 20 or 30 US$.
Tim: How could this help the uranium spot-price if the producers just extend their long-term-contracts which are based on uranium prizes of 60 or 70 US$?
Ross: Typically, the spot price covers around 10 to 15% of all traded uranium. The longer-term prices are at around 30 US$. Nobody makes money at these prices, but once the buyers are coming back to sign new contract, nobody will sign deals for 30 US$. Maybe for 50 or 60$ and the spot prize will follow these prizes, in cause the spot prize is often a leader. Typically, it stands higher than the long-term prizes at an upwards-trend and lower in a downwards-trend. So, the spot-price is always a kind of indicator for the whole market.
Tim: Let’s come back to Fission Uranium and to the last question. What are your plans for 2017?
Ross: We will finalize our winter program in January 2017, for which we spent around 6.5 million CA$ and which will have a range of about 12,000 meters. The goal is to expand the known mineralized trend, primarily the eastern and western part. We will also test areas outside this known mineralized trend. I think there is a good chance for another discovery. We then would like to bring out another resource estimate in the third quarter of 2017, which should bring much more stuff into our resource treasury. Remember, the last estimate was published in January of 2015 and since that time we had a lot of drill success. And, as I mentioned, the western part of the already known trend should have a huge positive impact into the project’s economics. We have enough cash, the best partner out of China and we are improving the project for the coming rebound in the uranium sector.
The interview was conducted by Tim Rödel, Editorial & Communication of Swiss Resource Capital AG. Disclaimer of SRC AG at: http://www.resource-capital.ch/de/disclaimer-agb.html
This interview is only for information and does not constitute any advice for selling or buying of securities.