Commodities, Features, Uranium

Is it time for uranium to shine?

uranium

Unstable geopolitical forces have caused more countries to consider the viability of nuclear power. And with the world’s largest uranium resources, Australia could be a major beneficiary.

If there’s anything to learn from the commodity world in recent months, it’s the importance of supply diversity and security.

This has become more and more pertinent in a uranium industry recently affected by supply disruptions and changing global priorities in the wake of the ongoing Russia–Ukraine conflict.

Hosting almost one-third of the world’s uranium resources – and with geopolitical stability to boot – Australia has the potential to significantly grow its uranium presence and several local companies, including Boss Energy, Vimy Resources and Toro Energy, are vying to do just that.

Kazakhstan, which currently accounts for more than 40 per cent of the world’s uranium production, was rocked by deadly protests in January as citizens voiced their discontent with the government and growing economic inequality in the country.

The uranium price surged as a result amid concerns the unrest would quell the country’s output.

Then, in early March, after hovering just below $US45 per pound (lb) for almost a month, uranium futures shot above $US60/lb for the first time since 2011.

The Russia–Ukraine conflict has resulted in widespread economic sanctions being placed on Russia, crippling its trade and quelling the world’s supply of many commodities and energy minerals. Given Russia is a prominent producer of fossil fuels, whether coal, natural gas or crude oil, countries and jurisdictions reliant on the country for energy resources had to look elsewhere.

As Europe moved away from Russian gas, Belgium chose to keep two nuclear reactors in operation that had previously been slated for early closure.

In mid-March, Finland opened Europe’s first new nuclear power plant in 15 years, commencing test production from the reactor. Once fully operational, Olkiluoto 3 is expected to provide 14 per cent of Finland’s electricity demand.

Uranium is the main fuel for nuclear reactors. Once the mineral is mined it goes through a refining and enrichment process before it is loaded into a nuclear reactor.

While conventional uranium mining methods involve the excavation of open-pit or underground mines, according to the World Nuclear Association more than half of the world’s uranium operations now implement a process called in-situ leaching (ISL).

Involving no major ground disturbance, this process sees oxygen-injected water (or another oxidising solution) circulated through the uranium ore, extracting the uranium.

After the uranium solution is pumped to the surface, it is then separated, filtered and dried to create a uranium oxide concentrate, commonly known as ‘yellowcake’.

Uranium One used ISL at the Honeymoon uranium project in South Australia when it first operated the mine from 2011–13, and Boss Energy will do so again when it looks to restart the project in the coming years.

However, there will be something different about Honeymoon this time around. Boss will use ion exchange as a processing technique rather than the solvent extraction method used previously.

Boss managing director and chief executive officer Duncan Craib said this was a huge bonus for the project.

“Ion exchange accounts for about 60 per cent of the world’s supply of uranium,” he told Australian Resources & Investment. “It’s the most commonly used method of production.

“All of the Kazakhstan operations use ion exchange. (Projects) in Wyoming in the US use the technique and it’s basically a very efficient, cheaper method of processing.”

Honeymoon
Boss Energy’s Honeymoon uranium project in Western Australia.

In a world of increased inflationary pressures, reducing Honeymoon’s processing cost will go a long way to solidifying the reviving project. And Boss has a few other advantages on its side.

“We’re in a very fortunate position that we have sunk infrastructure cost of $170 million from when the mine was first constructed,” Craib said. “It would cost significantly more to do that today.

“The plant that was constructed was really well done. If anything, I think they may have over-capitalised.”

The Honeymoon restart has an upfront capital requirement of $US80 million, which takes into account refurbishing the existing plant to cater for ion exchange processing.

Given the initial capital cost for many new mining projects can be in excess of $US200 million, having much of Honeymoon’s infrastructure already in place is a huge plus for Boss.

Craib said Honeymoon’s prospects were also benefited by the project’s permitting, along with an active export licence.

“You can only get a Federal Government-endorsed export licence … if all your other permits are in good order,” he said.

“And uranium mining is arguably one of the most stringent or well-regulated forms of mining in Australia. It’s quite an arduous process and there are many permits to get because of the geopolitical sensitivity of the commodity.”

Having launched an over-subscribed $125 million equity raise in March, Boss is fully funded through to production at Honeymoon, allowing the company to make strategic decisions regarding the project’s financial future.

“(Being fully funded to production) means that we’re not being forced to enter into offtake agreements to underpin debt financing,” Craib said.

“We believe the market’s going to further strengthen – the commodity price – and having that belief we want to be in a position that we can take advantage of that. As the market begins to move, we can enter into higher price contracts.

“If we had gone with the other option of focusing on a 100 per cent debt arrangement, then we would have to sign up significant portions of our production profile into offtake agreements at an existing price.”

Honeymoon also has a 1.25-million-pound stockpile of uranium oxide (U308) at the ready, which Craib said strongly positioned Boss heading into offtake negotiations.

“The strategic inventory gives us a stronger negotiation position, with fuel buyers when we enter into offtake agreements because they in effect have greater confidence in our ability to deliver,” Craib said.

“For a fuel buyer to sign up an offtake with a development or restart company, they would need some reassurance that we would be able to deliver and start producing.

“With us, the fact that we’re a restart project and have previously produced is a big tick; (as is) the fact that we have strategic inventory that can supplement or feed into a contract if there is any hiccup during that ramp-up period.

“That gives them enormous confidence that we’ll be able to deliver and meet our contractual obligations.”

While Boss has an open policy regarding its offtake strategy – meaning it could sell all around the world – there are some key jurisdictions on which the company is focused.

“Our target market would likely be Europe and the US, but not to, say, South Korea and Japan,” Craib said. “We can trade with whomever; we’ve got experience on entering into offtakes with a multitude of countries, but it would appear most of our discussions are currently with North America and Europe.

“The type of contracting that we would look to enter into would be market-related offtake agreements where we have a floor and a ceiling, the floor would protect you against the downside. The contracts will be of different pricing mechanisms and different durations.

“As the market begins to pick up, as it’s doing, we would be looking to layer in those market-related contracts. It’s very difficult to cherry pick the top of the market but these market-related contracts give you the ability to grow with the market.

“That’s the way the industry is heading – away from fixed-price contracts towards market-related contracts.”

Early March saw uranium futures shoot above $US60/lb for the first time since 2011.

While Australia has never generated its own nuclear power – something unlikely to change any time soon – the energy source is enjoying a resurgence overseas.

According to the International Energy Agency (IEA), global nuclear power generation grew by 3.5 per cent in 2021 compared with 2020, rebounding from an almost four per cent drop in 2020.

The IEA has forecast nuclear power generation to grow by an average of one per cent between 2022 and 2024, predictions that were published prior to the commencement of the Russia–Ukraine conflict.

Craib believes that while recent geopolitical crises have played a role in accelerating uranium’s recovery, some underlying themes have remained all along.

“(Uranium) demand exceeds primary production and there’s been a drawdown on inventory levels,” he said. “So the world needs new uranium mines to be developed and new uranium resources to be discovered.

“The growing awareness globally (from the Russia–Ukraine conflict) has reinforced the need for new reactors and it’s likely to lead to an increase in uranium demand in the near term as reactor timelines are extended.”

Craib said recent events have also highlighted the importance of geopolitical security and sourcing supply from safe and stable jurisdictions.

“You can also look at the geographic and corporate diversification of nuclear fuel supply,” he said. “Recent events have highlighted the importance of securing supply sources with minimal geopolitical risk.

“That’s where Australia is in such a strong position. We really are a geopolitically stable country, and particularly for mining.

“Then South Australia – where Honeymoon is located – is the premier uranium state. The only operating uranium mines in Australia are in South Australia, being Olympic Dam and the Heathgate Resources operation.”

Boss Energy made a final investment decision regarding the restart of its Honeymoon project in early June, paving the way for the company to accelerate construction of the project.

Another aspiring Australian uranium producer, Vimy Resources, has been developing its Mulga Rock and Alligator River uranium projects in Western Australia and the Northern Territory, respectively.

Vimy successfully raised $17 million in March, enabling the company to be fully funded into 2023 when it hopes to have completed Mulga Rock’s bankable feasibility study.

Soon after, the explorer announced a $658 merger agreement with Deep Yellow to create a global uranium company with footprints in Australia and Namibia.

Deep Yellow is currently developing its Tumas project in the southern African nation, which could produce 2.5 million pounds of U308 per annum over a 11.5-year mine life. Mulga Rock has a potential annual production capacity of 3.5 million pounds of U308 over its own 15-year mine life.

Vimy managing director and chief executive officer Steven Michael said the merger strongly positioned Mulga Rock moving forward.

“This merger de-risks and underpins our path to development at Mulga Rock,” he said in a statement.

“The combined financial, processing and operating strengths of both companies will enable greater optimisation and the delivery of Mulga Rock, as well as an established exploration team that can unlock considerable value at Alligator River.”

Following the necessary approval process, Vimy and Deep Yellow aim to complete the merger in July.

In early May, Vimy announced that a resource extension drilling program at Alligator River’s Angularli deposit would commence in June, the first exploration to have occurred at the prospect since 2018.

The 19-hole diamond drilling program will target extensions to the existing resource and potentially highlight new deposits at Angularli North, South and West.

Toro Energy is another company looking to bring a uranium project on-stream, with its Wiluna project in WA boasting four deposits.

In early May, Toro completed a pit re-optimisation study on its Lake Maitland prospect, which validated the deposit as a standalone uranium-vanadium operation.

The study found a 50 per cent increase in potential uranium production for Lake Maitland and identified the deposit as the preferred resource for the Wiluna project. It also identified the potential production of 12.2 million pounds of vanadium oxide (V2O5) .

Lake Maitland now has a possible 35.2 million tonnes (Mt) of ore to be mined, up from the 13.2Mt determined prior. The study also increased Lake Maitland’s forecast mine life from 10.1 years to 17.6 years.

Toro executive chair Richard Homsany said the findings successfully repositioned Lake Maitland as an operation for the future.

“The re-optimisation of the Lake Maitland pit is a very significant step towards realising the true value and potential of our 100 per cent-owned Wiluna uranium project,” he said.

“These results have materially elevated, at a scoping study level, the potential ore to be mined and U308 to be produced at Lake Maitland.”

While Australia may not warm to nuclear power any time soon, its next wave of uranium producers have a unique opportunity to establish themselves in a growing international nuclear market. Add in geopolitical stability, and Australia might be an ideal uranium breeding ground.

This feature appeared in the June issue of Australian Resources & Investment.

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