Uranium spot prices continued to skyrocket, rising to $ 40.50 a pound last week, as the 2006 contraction in uranium supply took hold. A uranium mining insider told us there are now more than 450 uranium exploration, development and production companies. Some have options for the properties and want them to be explored. Others are trading options. Very few of them are proceeding with serious plans. One that hopes to move towards bankable feasibility, possibly within a year, is Forsys Metals (TSX: FSY).
On March 2nd we published an article titled “A Third Uranium Mine in Namibia”. The subtitle discussed how Forsys Metals hoped to repeat Paladin’s (TSE: PDN) success in Namibia. Four days later, Namibian, a local newspaper, carried the headline: “Third uranium mine on the way.” The report summarized the development: “ANOTHER uranium mine in the Namib Desert is in the pipeline. Gulf Western Trading Pty Ltd, which plans to market as UraMin Namibia, has announced that it has applied for the renewal of its mining license in Namibia for deposits at Trekkopje. and Klein Trekkopje “.
What the hell? We thought the headline was about Forsys Metals. But it was a competitive mining company.
There are some geographical similarities. Forsys Metals’ Valencia and UraMin’s Trekkopje uranium deposits are approximately 35 kilometers from the Rossing uranium mine. The Valencia deposit is about 40 kilometers north of Paladín’s proposed Langer Heinrich uranium mine, while the UraMin deposit is 80 kilometers to the southeast. Gulf Western Trading Pty Ltd and UraMin, registered in the British Virgin Islands last year, have offices in London and South Africa. It seems they are not yet publicly traded. Forsys Metals has offices in Toronto and is listed on the Toronto Venture Exchange.
Curious about this fact, early Friday morning we telephoned Johannesburg, South Africa, to interview Mr. Graham Greenway, from whose technical report we quoted when writing about the Forsys Metals Valencia uranium deposit. Basically, we wanted to know if there was a race between the two companies. “They’re probably more or less in parallel,” Greenway said. “Both are quite mature projects. They have been analyzed in the past. They were subeconomic in the past. They are both doing confirmation work.” Greenway repeated his emphasis, “They are on a parallel track.”
So would it be possible for Namibia to have four uranium mines before the decade is out? “I wouldn’t be surprised,” Greenway said. “When I look at Rossing, they are also looking for alternative sources of uranium around the Rossing area.” Prior to becoming a resource evaluator for Snowden Mining Industry Consultants in Johannesburg, Greenway evaluated the resource deposits for the Rossing Mine as the mine’s chief geologist. Snowden is a highly respected international mining consulting firm with offices in Johannesburg, Perth, Brisbane, London and Vancouver. One of the Vía Verde uranium deposits evaluated for Rossing was the Valencia deposit. “They and Rio Tinto have a lot of information about the exploration done up to Valencia,” Greenway told StockInterview. “There is a lot of interest in that area.”
Well, is UraMin going to stay with Valencia, or will the Valencia deposit move on schedule and be Namibia’s third mine? Hard to tell was Greenway’s enigmatic response. But the geologist explained some good points to consider about the Forsys Metals uranium deposit. “Valencia is quite small in terms of low-grade uranium deposits,” Greenway explained. “But it is a hot area. It is within the correct corridor for uranium mineralization, for that style of uranium mineralization in Namibia.”
Is the Forsys deposit in Valencia too small on its own to become a uranium mine? No, thinks Greenway. “When I looked at a very rough financial model, it could be a standalone operation,” he said. “I think it is a compact deposit. It can be mined in the open pit. It is not a mine that can harm the environment. From that point of view, it will not have a great environmental impact, it will have a small footprint.”
Greenway added: “There is the possibility of extraction to some extent before it is turned over to someone like Rossing.” Does that mean that Forsys would sell its uranium deposit to Rossing? Greenway was quick to respond: “I wouldn’t say ‘sell the deposit to Rossing.’ Talking to the guys at Forsys, they are very interested in developing a mine. “
Let’s get down to business here. Is Valencia an economic deposit or not? We asked because we would like to know if this could be the third, or possibly the fourth uranium mine in Namibia. “I think so,” Greenway replied, “Under the right conditions, I think it could be economical with the current mining plan.” For the record, in its technical report, Greenway wrote, “… the Valencia Project represents an advanced tiered uranium project that has the potential to develop as an economically viable mining operation.” He also wrote in his technical report: “Uranium mineralization has been identified in an area 1,100 meters from north to south by 500 meters from east to west.”
How far is Forsys from its prefeasibility? We asked Sean Felker, corporate communications for Forsys Metals. “We have three drills on site,” he replied. “We are drilling to the east to extend the mineralization.” He stressed that Forsys was accelerating the project and believed the company was one year away from profitable feasibility.
At least Forsys has solved one of the drawbacks of uranium mining in Namibia.
“One of the difficulties, especially within Namibia, will be water. The biggest will be water,” Greenway emphasized. Sean Felker proudly announced, “We no longer have to truck water.” The company had been transporting trucks on the water about 40 miles offshore. Now they don’t. “We drill for water and we have water in place,” Felker told us. That’s a hurdle cleared, but it raises a concern investors should have in order to better understand various uranium companies, especially those in Africa.
The bull market for uranium has opened the doors of Africa to many uranium exploration and development companies. Most are young Canadians or Australians; some are South African miners financed by Canadians, through the TSX or London AIM. Greenway noted that the excitement was “quite widespread.” The countries that he found in which there was the most interest were, “The Democratic Republic of the Congo (DRC), Namibia, Angola, Tanzania”.
At this point, it might be important to discuss risk factors.
Risks to uranium stocks in Africa
As with investing in any natural resource company, the most important element to consider is whether there is an inexpensive deposit to extract. Of course, there are many other considerations that an experienced and registered investment advisor could clarify. From his perspective as a seasoned geologist, Greenway suggested that investors consider at least the following six elements when studying uranium companies developing property in Africa.
1. Political risk. As with any “exotic” country or continent, such as Mongolia or Central Asia, there is questionable political risk. For example, we asked Greenway if there were African nations to avoid. “Zimbabwe is very certain of what is happening there right now,” he replied. “Niger has political and water problems.” According to our analysis of the news, Namibia appears to be a politically stable country.
2. Infrastructure. Unless the reservoir is world class, if there is no infrastructure in place, then the reservoir will stay with Mother Nature for a little while longer. Infrastructure can mean roads, a pipeline, or whatever transportation system is required to move the ore to a processing facility. If the project is large enough, infrastructure will be built to service the depot. In the case of Forsys Metals’ Valencia deposit, it is close to the Rossing mine. Not so close that any additional infrastructure is necessary, but not hundreds of miles from a mill, either.
3. Water. Many parts of Africa are arid. The largest desert in the world, the Sahara, is part of the African continent. Namibia’s uranium deposits are in a desert. Therefore, there must be water available to explore and remove the reservoir. “Niger has been suffering from a drought.” (Note: Greenway, however, praised Niger for having developed infrastructure.)
4. Electricity. “Namibia is very connected to South Africa because of its electricity supply,” Greenway said. “But they are talking about expanding their KUDU gas fields in the south, to build gas-fired power plants.” Other countries may depend on expensive diesel to generate electricity. Ironically, the cost of uranium mining may depend on the price of crude oil, more in Africa than in a major coal-producing region like Wyoming.
5. Possession of property. “Previously, Angola and the Congo had problems with property tenure,” Greenway said. “You would find two companies that own the same land depending on who is bribed the most.” Greenway suggested that this could still be found in the Democratic Republic of the Congo (DRC). “Land ownership is pretty clear in Namibia,” Greenway noted.
6. Mining Code. Basically, this defines how much the government gets from mining uranium. That’s what a mining code is really about: royalties. “South Africa has become a bit of a problem with that,” Greenway declared quietly. “Most other countries will allow you to get your money out of the country. Generally, the government will charge you a 10 or 20 percent tax on your project and then allow you to get your money out of the country.” He added when speaking of South Africa: “There is a published code and there is a code that can be translated differently depending on who you talk to.” Greenway concluded: “I don’t think you will find the same problem in Namibia.” He added that Burkina Faso had a pretty good mining code (formerly known as Upper Volta).
With any project, the maturity of an area reinforces the economic possibility of a worthy uranium project. The number of years it took for Rio Tinto to help develop relationships within Namibia may help pave the way for Paladin, Forsys Metals and UraMin. Again, having a big gatekeeper, like the Rossing uranium mine, in the country where you want to develop a mine, could speed up the mine development process.
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