Minority shareholders in Ranger uranium producer Energy Resources of Australia (ERA) got done over something shocking this week when 68 per cent controlling shareholder Rio Tinto said it would not support life-extending work at the operation.
More than $485 million has since been wiped from ERA’s market value, with minority shareholders having to wear $155m of the value hit.
Of greater interest now though is the impact of Rio’s shock decision on the broader outlook for uranium markets, and the future of a little thing called Aura Energy (AEE), which has advanced uranium projects beneath the sands of the Sahara in Mauritania, as well as beneath the snow in Sweden.
ERA is a big player in the global uranium market. It accounts for about 6 per cent of global production from the Ranger mine.
Ranger has been getting by on treating stockpiles left over from when it was an open-cut operation, with ERA’s plan being to develop the Ranger 3 Deeps underground resource to continue for the long term.
But Rio has put the kibosh on that, more than likely killing off for good any hopes ERA had of re-establishing Ranger as the world’s third-biggest uranium mine behind McArthur River and Cigar Lake in Canada.
It’s tough for ERA minority shareholders but good for other uranium investors. As analysts at Canada’s Dundee Capital enthused during the week: “This news is very positive for the uranium sector.”
“We believe this will have an impact on mid-term uranium supply, potentially bringing some analysts’ and widely circulated World Nuclear Association production assumptions into a deficit situation prior to the 2019 to 2022 period that are currently forecast,’’ the investment firm said.
It added that the Ranger bombshell might also start to worry some end users and help “entice nuclear utilities’ return to long- term contracting, and generate a spark under uranium market speculators’’.
Now it has to be said that (spot) uranium prices at $US36.75 a pound do not exactly fuel much excitement in the uranium space. But the price is up some 30 per cent on a year ago, and the much deeper and representative contract price is now within striking distance of $US50 a pound.
For Aura’s bustling executive chairman Peter Reeve, the improving backdrop means it is time to get out and about and alert both investors and the nuclear industry that Aura has a mix of near-term (Mauritania), and long-term (Sweden) development options.
Hartleys, which is close to the company, reckons Sweden is all a bit too big and too far-dated to get excited about just yet. But Mauritania is different, and underpins the broker’s 8c-a-share price target on the stock. It was trading at all of 2c yesterday, for a market capitalisation of $6.5m.
The 50 million pound Tiris deposit sits in the Sahara and is unusual in that while its mineralisation is low grade, it can be substantially upgraded in a trommel screen process which sifts off the fine uranium particles from the highly weathered granite host rock.
“The deposit is shallow, fast leaching and likely to grow, which makes it attractive,’’ Hartleys said.
Aura is working on completing a definitive feasibility study within 18 months. A previous scoping study pointed to the potential for a $US45m development producing an (initial) one million pounds of uranium annually at a cash cost of about $US30 a pound.
Given it is a 50 million pound resource, and comes with exploration upside, it is assumed that the initial annual output could be cranked up to something bigger over time.
Funnily enough, water for processing purposes is not an issue given the presence of aquifers beneath the desert. And perhaps best of all, there is not a green tree within cooee of the project area, remembering of course that Ranger sits in one of the world’s great watersheds, inside a world heritage national park to boot. Unity Mining
There is no argument that the past few years have been awful for Unity Mining (UML), the group that tried to resurrect the historic Bendigo goldfields and failed.
That the grit it has shown in the intervening period is starting to deliver some rewards is evident in its share price advance from the March average of 0.7c to the 2.3c on offer yesterday.
That gives it a market cap of $26m which is less than the $28m in cash it has flagged it expects to be holding at the end of the month, with its Henty mine in Tasmania expected to be good for another 10,000 ounces of production before the (calendar) year is out. Unity has also said about $6m of the cash could be going back to shareholders via a capital management program. That in itself is about 0.5c a share.
But more than that is what might come from the deal with the Orange-based mining contractor PYBAR on Henty, and the potential for the strong Australian gold price to underpin the development of Unity’s stalled Dargues gold project near Canberra.
PYBAR can earn a 50 per cent interest in Henty by spending $5m on exploration, all of which is about finding more of the high-grade shoots that have made Henty a one million-plus ounce producer over time.
In a sense, PYBAR has doubled down by also moving to a 10 per cent shareholding in Unity. Apart from showing its strength of belief in there being more gold to be found, it also serves as a blocker to predators looking to strip Unity of its cash, or one looking to get in to Henty on the cheap through Unity should PYBAR’s exploration effort come up trumps.
Dargues, meanwhile, stands as a seriously advanced 50,000 ounce-a-year gold project that would be all that more attractive if it were to secure approval to produce gold on-site from a standard carbon-in-leach process. Currently it only has approval to produce a gold concentrate which would have to be sent elsewhere for processing. Applications are in with the NSW authorities and going by anything mining in the state nowadays, it is going to take time, particularly as some locals don’t like the thought CIL involves the use of cyanide.
But there is nothing unique in that, with the CIL process widespread in the industry. Securing the required approvals would substantially derisk the project, and would be a trigger for a substantial rerating of the stock in itself.
SHE Price at posting:
4.4¢ Sentiment: Hold Disclosure: Held
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