Equinox Ponders Its Uranium SurplusBy Our Man In OzMost miners...

Equinox Ponders Its Uranium Surplus

By Our Man In Oz

Most miners would kill for a resource of 21.8 million pounds of uranium worth, on the current spot market price of US$110 a pound, about US$2.4 billion. For Craig Williams, chief executive of the dual-listed Australian/Canadian Equinox Minerals, the uranium falls into a category marked “curious distraction”. It will not stay that way for long even if the company is totally focussed on completing construction of its big Lumwana copper project in the southern African country of Zambia. Investors might like copper, but they love uranium, and no matter what Williams says he will come under increasing pressure to “monetise” the Lumwana uranium resource – and find more of the hot metal on the big tenement package Equinox has in Zambia.
With more than 2500 workers crawling all over the Lumwana site in north-west Zambia, and construction rushing towards completion in the second quarter of 2008, Williams says copper is all he can think about at the moment, especially as the US$600 million capital cost of Lumwana ranks it as the biggest foreign investment in Zambia. The mine has a target of producing a world-class 169,000 tonnes of copper at US78 cents a pound during the first six years of a forecast 37 year mine life, and an average of 122,000 tonnes of copper over the life of the mine at an average of US93 cents a pound.

But, in order to hit that copper production target, which calls for shifting 120 million tonnes of dirt a year, including 20 million tonnes of ore from a body measuring 321 million tonnes at 0.73 per cent copper, Equinox will be forced to become a uranium “miner”, if not a uranium “producer”. The problem, and the opportunity, the company faces is that the uranium occurs within the open pits being developed at Lumwana. Quite simply, Equinox can’t get at its copper ore without extracting the uranium-rich zones.

The original mine plan for Lumwana, drafted in 2003 when uranium was US$11 a pound, called for the uranium ore to be stockpiled. But financiers in Canada are now pressuring Williams to move more quickly on his uranium nest egg, and either make a commitment to building a uranium processing circuit at Lumwana, or spin-off the uranium asset inside Equinox into a separate company. “The Canadians in particular are keen for that to happen,” Williams told Minesite from his office in Perth. “There is a certain appeal in that, but there’s also the complication of the uranium at Lumwana being in discrete zones in the copper orebody. At this stage we’re sticking to the plan of mining the uranium zones and stockpiling until we can build a uranium circuit, and keeping the uranium as an asset of Equinox.”

If he sticks to that plan then the logical process for Equinox would be to complete the copper phase of the project, keep the construction contractor and workers on site, and swing them over to the uranium plant as quickly as possible, a suggestion that Williams does not dismiss. On the market, the prospect of a uranium “kicker” does not yet appear to have caused much excitement. Equinox has performed strongly, hitting an all-time share price high of A$5.16 on the ASX on June 16. Since then, as a dose of fear-and-loathing has gripped investors, the stock has slipped back to a price which appears to only take into consideration the copper component of Lumwana, especially as on July 24 the company reported more high-grade uranium assays from drilling being undertaken as part of a wider uranium feasibility study. Best hits were 11 metres at 0.75 % uranium from a depth of 24 metres, including a spectacular 3 metres at 2.66 % uranium from 25 metres.

That latest drill result is so good, and coming on top of a big resource in the ground, that Minesite is excused for imagining that uranium forms a reasonable part of Equinox’s A$2.4 billion market capitalisation. “Not so,” said Williams. “I don’t really think we’ve got much uranium benefit in our stock at the moment. Certainly the Canadian brokers believe we’re not getting value for it, which is one of the reasons why they think we should spin it off.” Does that appeal, asks Minesite? “Well, you can make an argument that we would get more value, but the fact remains that the copper project and the uranium project are symbiotic, they are the same orebody.”

Williams said the way to see Lumwana was as “a great big copper pit” with discrete zones of uranium enrichment found primarily at the hanging wall and footwall contact with the copper orebody. Exactly how much uranium, and precisely where it is located is being defined by the current infill drilling. When mining starts the uranium ore will be mined and stockpiled to avoid contaminating the copper ore. A decision on when and how to process the uranium ore will probably be made early next year. Because the two operations -copper and uranium- are entwined Williams believes it makes sense to keep them in the one company. “I’m sure the lawyers could work out a way to segregate them, but we have to assume they’ll stay in the one entity.” And there speaks a wise man even before the current shake-out in uranium explorers.

For Equinox there is little doubt that copper is the main game… for now. Uranium, however, is very much a future growth area, and not just in Lumwana. Exploration has identified at least three other deposits within 10 kilometres of Lumwana which contain defined resources of uranium. The original work on these secondary zones was conducted decades ago by Agip and Cogema and not taken to a JORC-code standard of reporting. However, there seems no doubt that these area represent tasty future targets for Equinox, along with areas further afield in the company’s 1355 square kilometre tenement package. Surely, asks Minesite, the prospect of more uranium outside the Lumwana pit adds to pressure for the creation of a separate uranium-focused company? “It might,” said Williams. “But I think we’ll carve our own direction there.”