Here is the best research report i have seen so far on Marenica.It was written by Warwick Grigor,an analyst of BGF Equities. I called this guy 3 weeks ago to get some better understanding on certain issues (screening and scrubbing for example) He did a splendid job of research on Marenica. We have to thank him for that. (As i got this as a pdf i cant provide a link unfortuantely)
Now just read and enjoy:
First,the most important sentence of the whole piece:
Disclosure: BGF Equities Pty Ltd have not been paid fees by MEY for the preparation of this report. It has not been paid corporate fees. The authors do not own shares in MEY.
Marenica Energy Ltd MEY-Initiating Coverage
Progress on metallurgy will lead to signifificant upgrade of economics
Recommendation: BUY for Project Upgrades
Investment Perspective: We have upgraded our view on MEY following two key events; the acquisition of 10.6% of the Company by Areva, and the 120% increase contained uranium resources, following the boost in grade from 140 ppm to 170 ppm. MEY is one the cheapest entries into the Namibian uranium sector, as demonstrated by the comparative table on page two with an EV of A$0.93/lb. While we have less guidance on capex and opex for a possible development, as the scoping study is not due until mid 2010, we may find that the association with Areva gives MEY some unique benefits. Infrastructure sharing would lower capex. The ability to deliver pregnant liquor to Trekkopje for stripping could significantly lower capex and reduce financial risk. A corporate outcome would also be an option for Areva if it decided it made sense to own Marenica outright, to maximise its presence in the region. Given what it paid for Trekkopje, MEY would be cheap at twice its price. While the in-situ grade is modest, test work is showing that a simple mechanical upgrading of the ore can lead to grades in excess up to 500 ppm prior to leaching. This significantly improves the economics relative to the hard rock alaskite projects in Namibia. Many questions will be answered with the release of the scoping Study, which could lead to a significant re-rating of the stock.
Primary Points
1.Resources Grades and tonnages recently improved
-Historical resource grade shown to be understated; revised up from 140 ppm to 170 ppm -120% increase in contained U3O8 to 85 Mlbs (38,500 t), Indicated and Inferred -Increase in resources expected from continued drilling
2.Excellent Jurisdiction Namibia - one of the best countries in the World
-Namibia is an established uranium producing country -Mining law is amongst the most favourable in the World -Government is supportive of new projects
Project Status Metallurgical test work points to grade lifting by 200-300%
-ANSTO test work shows scrubbing and sorting delivered 90% of the uranium into 37% of the ore, giving a 200-300% boost in grades before leaching -96% extraction of uranium to solution in laboratory tests -Scoping Study due for completion in June 2010
Strategic Shareholder Areva on the register adds to the allure, and possibly the economics
-Strong vote of confidence with shares purchased at 21? in December 2009 -Opportunity for co-operative development with Arevaʼs Trekkopje project e.g. use of water from desalinisation plant, sharing stripping and back end of plant facilities -Better ability to debt finance project
Economics of the Marenica Uranium Project at Spot and Long Term Prices
We have run tables estimating the impact of the pre-concentration stage in the treatment of the Marenica ore. Table 1. below shows the impact on the tonnages and the grades, with 90% of the uranium reporting to the concentrated tonnage.
Table 1 - Impact of Pre-Concentration
JORC Resource" 227 mill. tonnes at 170 ppm Contained Uranium" 85 mill. lbs U3O8 (38,500 tonnes) On Pre-concentrating" 75 mill. tonnes at 500 ppm Contained Uranium" 76 mill. lbs U3O8 (38,500 tonnes Plant Feed" 10 mtpa at 170 ppm Leach Feed " 3.3 mtpa at 500 ppm"
We have estimated project economics using numbers that need to be verified when the Scoping Study is released in June/July, but we believe they are within the ballpark. These are tabled below. Notable observations:
? the $100m capex might seem low, but given the friable nature of the ore the front end of the circuit should be much cheaper than for hard alaskite orebodies found in Namibia ? the pre-concentration methodology has been show to work on bench scale test, but this needs to translate to commercial scale operations ? we have used two uranium prices; ? spot US$40/lb - at this price the rate of return would be unacceptable ? long term US$60/lb - at this price it would be a very profitable operation ? it is generally accepted that at US40/lb, very few new uranium mines would be developed. This would result in a seriously shortfall in supply over the next 5-10 years. ? the spot price is relevant to minor amounts of uranium and is therefore not considered a sound price to use for mines with long term production potential, that could appeal to nuclear power utilities. ? We have not fully considered the opportunity to share facilities with Areva, or the possibility of delivering only pregnant liquor to Areva for uranium stripping+
Now there comes a comparrison table with a comment on Marenica:
Planning screen and scrub to reduce mass by 65%, with 90% of U3O8, which lifts grade by approx. 3x into the leach circuit. Pregnant resin to be sold to/contracted to third party for final product. This might be Arveva, at Trekkopje, as Areva now hold 10.6% of MEY shares. Table assumes the grade can lift from 170 ppm to 500 ppm, with initial plant feed of 10 mtpa reducing to 3.3 mtpa into the leaching circuit.
Marenica Uranium Project, Namibia (MEY 80%)
Background
Marenica Energyʼs main project, Marenica, is strategically located in the uranium-rich Damara Province Namibia, where the Rossing (RIO) and Langer Heinrich (Paladin) mines account for more than 10% of the world mine supply of uranium. Trekkopje (Areva) and Rossing South (Extract) promise to boost Namibiaʼs proportion of World supply to 20%. Other projects in the province include Etango (Bannerman), Inca (Deep Yellow) and Valencia (Forsys). These projects combined will ensure that Namibia remains one of the most important countries in the resurgence of uranium and nuclear power.
The Marenica uranium project is covered by EPL 3287. centred 65 km E of Henties Bay and 60 km W of Usakos, intersected by a regional road. The licence was first granted in November 2006, for a period of three years. During the December quarter of 2009, the EPL was renewed for another two years by the Ministry of Mines and Energy. MEY became involved in April 2006, when a joint venture was signed with Jaco Smith and MEY became Exploration Manager. Ministerial consent for the joint venture was obtained in May 2006. Environmental Clearance was received in July 2006. The licence was transferred to Marenica Minerals (Pty) Ltd, a Namibian registered company, in June 2007. The licence was renewed (with a 25% reduction) for a period of two years from November 2008 to November 2010.
Geology and Mineralisation
The licence geology is dominated by the Damara Mobile Belt, which comprises erosional sediments from the Mokolian Group, which hosts several large deposits including the Rossing Uranium Mine and the Navachab Gold Mine. The region is dominated by eroded sediments and exposed granites and intrusions. Overlying the sediments are calcrete and gypcrete occurrences. The Marenica Project covers areas of resistant marble domes and schists, with numerous late-stage dolerite dyke swarms that can be from 1 to 150m in width. Numerous latestage faults cut the area and these have provided channel paths for the dykes. There is an extensive network of ephemeral river channels with broad alluvial and colluvial cover, typically draining to the SW. These frequently obscure the palaeodrainage related calcrete mineralisation within the project. Reconnaissance drilling in the 1970s first identified the two styles of mineralisation being investigated by MEY today; uranium in nodular and tube-like structures within calcrete and gypcrete sediments, and secondary mineralisation that occurs as infill along joints, planes and fractures within the basement rock.
Exploration History
Pre-Marencia Energy
The radiometric anomalism on the Marenica licence was first identified in the 1970s when the Geological Survey of Namibia flew several airborne radiometric surveys. In 1973, the Atomic Energy Board examined the area in conjunction with the Damara Mining Company of South Africa. A scintillometer survey was undertaken with follow-up trenching and sampling. Uranium was identified with secondary mineralisation. In 1976, Gold Fields Mining and Development Ltd conducted work on what is now the NE extent of EPL3287, continuing until the relinquishment of the ground in the early 1980s. Approximately 2,000 bore holes were drilled for over 32,000m. Beneficiation test work was conducted, including radiometric sorting, attritioning and alkaline leaching. Gold Fields calculated an estimated resource of 5,535 t of ?recoverable? uranium at a grade of 205 ppm eU3O8, and an additional resource of 2,600 t at a grade of 200 ppm eU3O8. A cut-off grade of 80 ppm was applied.
Post Marenica Energy
MEY commenced with mapping, rock chip sampling, trenching and airborne radiometric and gravity surveys. This work improved the accuracy of the database and interpretations, and resulted in much of the earlier identified schistose rock being reclassified as granite and alaskite, thereby increasing the prospectivity for basement-hosted primary mineralisation. MEY identified 1,945 Gold Field drill holes, finding 582 of these had collapsed but a total of 24,127m of drill holes were found to be open. MEY drilled 150 RC holes in the first half of 2007, as part of a validation exercise, with half being alongside Gold Field holes. An initial JORC resource of 31 Mt at 210 ppm was calculated in November 2007. RC drilling recommenced in November 2007, drilling to extend known mineralisation to the east, and in-filling between Gold Field anomalies 3 and 4. Drilling was mostly on 600m x 200m spacing, while resource calculation areas were drilled on a 120m x 120m pattern to depths of 10-25m. From May to July 2008, the Phillipus prospect was tested with 12 holes for 1,540m. The target was primary alaskite mineralisation on the northern margin on the Marenica Dome. Three layers of mineralisation with grades of 50-200 ppm, in combined thicknesses of 3 to 60m. From July to November 2008, a further 264 holes were drilled in the paleochannel area for 12,386m, mostly on a 600m x 300m grid. Diamond core drilling was conducted in April and May 2009, to provide geotechnical, mineralogical and metallurgical samples for scoping and feasibility studies. Seven HQ core holes were completed for 771m. This was followed by further RC drilling for resource calculation data, with 587 holes for 10,690m. The resource was upgraded to 122 mill. tonnes at 140 ppm in November 2009. A further 30 RC holes were drilled on the Phillipus and Springbok targets in 2009.
The Current Exploration Programme
A 5,000m programme of air-core drilling, designed to test regional palaeo-channel targets, commenced in February 2010. Three targets are being tested with 115 holes drilled to an average depth of 8m. The Recent Resource Upgrade On 1 March 2010, MEY announced a 120% increase in the contained uranium incorporating recent drilling and an extensive programme of re-probing holes drilled by Goldfields and subsequently comprising;
? probing of unlogged historic drill holes: 291 holes/6,718m ? probing of new in-fill drill holes: 249 holes/4,762m ? probing of exploration drill holes: 19 holes/2,384m
SRK Consulting conducted an updated resource assessment, calculating a JORC compliant 85 mill. lb U3O8 (38,500 t) resource, including the correction of eU3O8 values to U3O8 equivalents using linear regression, tabled below:
Methodology of Resource Calculation
The resource covers the palaeo-channel domain and secondary mineralisation in the basement which outcrops to the west of the channel and which forms the footwall of the channel deposit. The sub-channel basement was previously excluded from the resource calculation. Ordinary kriging algorithms were used for block grades, but a Uniform Conditioning analysis was applied, considering the large block size and the shallow nature of the orebodies. The individual Selective Mining Unit (SMU) was 10x5x2m, assuming this is an achievable mining size. There has been no consideration given to mining or processing recoveries, mining losses or dilution. The density of the palaeo-channel material was assumed to be 2.2t/m3, and the basement material 2.61/tm3. The Indicated material is in the central portion of the deposit that has been more closely drilled, as well as the boundary between the channel and basement domains.
Mineralogy and Metallurgical Testwork
Three styles of mineralisation have been identified at Marenica with carnotite comprising 85% of the uranium; ? primary, hyrdrothermal uraninite ? secondary oxidised bedrock carnotite ? calcrete-hosted carnotite
Metallurgical test work is ongoing. During 2009, 600 kg of mineralised material was collected from two costeans. Both palaeo-channel and weathered granitic bedrock material was collected. These samples were shipped to Cardiff University in the UK, to test for amenability to alkaline leaching processes similar to those employed by Langer Heinrich and Trekkopje. More recently, the Australian Nuclear Science and Technology Organisation (ANSTO) has been conducting test work at its Lucas Heights facility in Sydney. Tests on two 500 kg samples have confirmed that the ore is amenable to upgrading using screening, scrubbing and ore sorting methods. The grade of the calcrete ore can be lifted by up to 240% by rejecting 63% of the material, retaining 90% of the uranium in the process. Results from the weathered bedrock indicate that 90% of the uranium can be preconcentrated into 30% of the ore, lifting the sample grade from 232 ppm to 871 ppm, being a 375% lift in the grade. The process used by ANSTO is effectively a scubbing and washing of ore crushed to 25 mm i.e. simple mechanical process. This method has been found to be more effective than radiometric sorting. Bottle roll tests have given encouraging leaching results but there is concern that generation of fines could be problematic for a heap leach operation i.e. fines could cause ponding and incomplete leach coverage. Agglomeration would be necessary. Given the amenability to scrubbing and sorting to boost the head grade by 200-250%, it is likely that agitated leach tanks will be preferred to heap leaching. Work is continuing to assess and improve the rheological characteristics of the slurry for the alkaline leaching stage. Initial tests have shown good leaching characterisitcs with 96% uranium extraction within a 24 hour period from both calcrete and weathered bedrock material. The testing process is yet to address the recovery of uranium once it is dissolved into solution. An appropriate ion exchange (IX) resin needs to be identified for resin in pulp (RIP) recovery.
Exploration Upside
As with many uranium projects, there continues to be sound exploration potential for expanded resources. In November 2009, a new airborne survey identified 16 new targets in both palaeo-channel and bedrock terrains. A 5,000m aircore drilling programme commenced in February. On 23 March 2010, MEY announced the first results from this programme, with Target MA5 looking like a western extension of the current resource. Intercepts were in the range of 1.4 to 3.0m, and grades were 106-259 ppm. The targets being tested are shown on the diagram below.
Finances
MEY currently has $3.5m in the bank. MEY is obliged to make payments based on the size of the resource calculated. The recent increase in the resource resulted in the payment of $648,400 plus GST.
Share Register
Like a number of other uranium exploration companies in Africa, MEY was approached by Polo Resources Plc in mid 2009, to conduct a placement of shares. As with the other companies, Polo decided to divest its holdings to concentrate on Extract Resources. The Polo holding of 10.57% in MEY was sold to Areva NC in December 2009. The appearance of Areva on the share register could have significant implications for MEY, both corporately and operationally. Apart from being a world-leader in uranium and nuclear power, Areva is developing the large tonnage, low-grade calcretised palaeo-channel Trekkopje uranium deposit located 25-30 km to the south of the Marenica uranium project. The Areva presence on the register will add to shareholder confidence, though it is still only a small holding in the eyes of Areva. However, it does open the door to sensible cooperation on the operational front. Significantly, Areva has invested heavily in local infrastructure that could benefit MEY e.g. the water desalinisation plant at Wlotzkasbaken, 30 km north of Swakopmund.
MEY Price at posting:
14.6¢ Sentiment: LT Buy Disclosure: Held
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