size matters for wa uranium sleeper

Size matters for WA uranium sleeper
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Tuesday, 7 October 2008


IF YOU mentioned Mulga Rocks to the average share punter, you would probably get a blank stare. That may soon change, however, with Energy and Minerals Australia set to confirm its Western Australian project as one of Australia’s biggest uranium deposits. The Metal Detective, by Stephen Bell

Despite all the recent market carnage, EMA and other WA uranium hopefuls still have a spring in their step following the Liberal election win last month.

Colin Barnett’s victory over anti-uranium campaigner Alan Carpenter will not see an immediate flood of WA yellowcake production – uranium is more complicated than most other minerals.

UBS has warned that production will be at best five years away, with WA juniors struggling against rising capital costs, limited funding avenues and drawn-out environmental approvals.

But at least the uranium rock kickers can be confident that money spent on drilling and feasibility studies will not disappear down the drain.

Adelaide-based Toro Energy was quick off the mark, with a prefeasibility study last month concluding that its Wiluna project will be viable with capital costs estimated at between $196 million and $247 million.

And last week Toro decided to strike while the iron is hot, seeking to raise $26 million from shareholders in a rights issue.

Toro, a spin-off from Oxiana in 2006, would be familiar to most Aussie uranium buffs.

Not so Perth-based junior EMA, which listed in May after a relatively modest $5 million initial public offering.

Since that time, EMA has slipped under the radar, despite it having more uranium on its tenements than you can shake a Geiger counter at.

Part of the reason is the company’s tightly held structure.

There are very few shares available for trade, given that executive director and company founder Mike Fewster has 82% of the stock, held in escrow.

The next biggest at 1.6% is Clive Donner’s LinQ Resources fund, which likes the look of EMA’s Mulga Rocks, 250km northeast of Kalgoorlie.

Last month EMA launched a drilling campaign to verify a pre-JORC resource – 46,500 tonnes of uranium oxide at a grade of 0.11% – compiled by the previous Japanese owners, Power and Nuclear Corporation, or PNC, in the 1980s and ’90s.

If EMA can confirm the numbers, Mulga Rocks will officially become Australia’s second biggest undeveloped uranium deposit behind BHP Billiton’s Yeelirrie.

“It is an internationally significant resource,” said EMA managing director Chris Davis.

“We have enough uranium to power the London metro area for 30 years. That is a lot of electricity.”

The latest drilling includes 33 diamond holes that will “twin” some of those drilled by PNC, a now defunct Japanese government corporation, which dropped the deposit in 2000 when uranium prices slumped to $US7 per pound.

Based on the Japanese estimates, EMA has a piddling market capitalisation, per pound of yellowcake, of $US1.27.

This compares with Cameco’s Kintyre at $6/lb, Alliance at $15/lb and Paladin at $20/lb.

The market is not attributing much value to Mulga Rocks because it: (a) does not appreciate the scale of the deposit, (b) does not believe the old drilling results, or (c) worries about tenure, with EMA facing a writ over the project, which it plans to vigorously defend.

EMA has been somewhat hamstrung on promotion, with the Australian Securities Exchange forcing it to classify the resource as an “exploration target”.

This is despite the Japanese peppering the deposit with nearly 1600 vertical drillholes.

“If Mulga Rocks is a target, it’s like a dartboard in a pub – riddled with holes,” said Davis.

Very little of the Japanese drilling descended below 45 metres, the depth of the flat-lying deposit which Davis describes as a 5m-thick “tablecloth” under 40m of free-dig overburden.

EMA expects to release an initial JORC uranium statement before the end of the year.

Consultancy Coffeys is crunching the numbers on the old data, alongside some of the new drill core.

EMA, which had $A7 million in the bank at June 30, says it plans to define a “significantly larger resource” inside 12 months.

After the diamond holes, EMA’s rig will complete a 16,000m air core program to define nickel and cobalt mineralisation that is co-mingled with the uranium.

The obvious question: If Mulga Rocks is so good, why did the Japanese let it go?

The way EMA tells it, PNC was a bureaucratic government organisation that simply dropped the ball when prices collapsed eight years ago, much to the disgust of some of its geologists at the time.

EMA’s Fewster was nimble enough to peg the deposit, and to scrounge valuable data on Mulga Rocks when PNC closed its South Perth office.

Under PNC’s ownership, Mulga Rocks was hidden from the gaze of uranium punters.

That changed with EMA’s debut earlier this year.

Now the company is attempting to educate investors – and politicians – about what may be a giant uranium deposit on Kalgoorlie’s doorstep.