Letlhakane Economics

Project Economics

A Technical study forms the basis for the Company’s flagship Letlhakane Uranium Project’s Mining Licence Application (MLA) submission to the Botswana Department of Mines. The Technical Study outcomes highlighted the potential economic viability of the project with a rising uranium price.

The Technical Study results and production targets reflected in this announcement are preliminary in nature as conclusions are drawn partly from indicated mineral resources and partly from inferred mineral resources. The Technical Study is based on lower level technical and economic assessments and is insufficient to support estimation of ore reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the Technical Study will be realised. There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realised.

The Technical Study was completed by A-Cap Resources with the assistance of consultants Optiro, Cube Consulting, SLR Consulting (South Africa), Kappes Cassiday & Associates, OMC Hydromet and Lycopodium Minerals Pty Ltd. The relatively low CAPEX of US$351 million including contingency is in line with previous estimates and reflects the project’s ideal location, near substantial infrastructure with road, rail, and power adjacent to the project area.

The OPEX for the first 5 years ranges between US$32 and US$40 averaging US$35 per pound U3O8. The process plant will be targeting production of up to 3.75 million pounds U3O8 per annum over the first 5 years (ranging between 3–3.75Mlbs U3O8). Production gradually decreases over the mining licence period with processing of lower- grade stockpiles.

The key economic parameters for the project are summarised in Table 1.

Project-Economics
Table 1: Summary of outcomes of the technical study

The technical study financial outcomes as determined by financial modelling undertaken by A-Cap reported a project pre-tax net present value (NPV8%) of US$383 million (post-tax $240M) and a pre-tax IRR of 29% (post-tax 24%) assuming a forecast uranium average contract price of $81 per pound U3O8, over the projects 18 year life of mine. The cash flow is based on real dollars, i.e. unadjusted for inflation, with the NPV calculated using a discount rate of 8%, which is a typical rate in Lycopodium’s experience used to assess developments of this type. The financial outcomes are further based on a 100% equity funded project with no debt financing. Royalties payable to the Botswana Government have been factored in, and post-tax outcomes are based on income tax applicable to Botswana mining companies.

The production target which forms the basis of the Letlhakane MLA and the economic analysis is based on the resources reported to the ASX on 6 June 2012 under JORC 2004 (Table 2). The 2012 resource estimate was used as it was more appropriate to the mining method envisaged than the 2013 resource, which was based on a probability model approach. Both resource estimates are globally similar and both were completed by external consultants Optiro. The production target is made up of a majority of inferred resources, however the quantum of inferred resources in the production target is not considered a determining factor in the project viability. Recent work based on a drill study comparison at the Kraken deposit has confirmed that at a starting drill spacing of 200m by 200m, the change of contained metal is within +/-10% when drilled down to 100m by 50m drill spacing. The current criteria for inferred resources is nominally greater than 100m by 100m drill spacing.

Capital Costs & Infrastructure

Initial Construction CAPEX

Main Area US$ (Million)
Construction Indirects 30
Process Plant 176
Reagents & Plant Services 30
Infrastructure 33
Mining – Pre strip 26
Management Costs 25
Owners Project Costs 28
Owners pre-production buildup 3
Grand Total exc. Working Capital 351

Table 6: Total initial construction CAPEX

The initial construction CAPEX table includes a contingency of US$43 million. Working Capital of approximately US$40 million is required (includes US$5M contingency). Owners Project costs incorporate admin and plant pre-production costs, spare parts and mobile plant. A pre strip is required in the Serule West area to access potential higher grade mineralisation.

Operating Cost Parameters

Processing and Metallurgy

Primary, Oxide and Secondary Mudstone uranium ores will be treated by way of acid heap leaching with recovery of uranium via a combined solvent extraction / ion exchange (SX/IX) circuit, with ultimate production of UO2 filter cake using the indirect uranium precipitation process via sodium diuranate (SDU) precipitation. The leach circuit process flow diagram is illustrated in Figure 1.

The Study focussed on treating 9 million tonnes of ore per year through crushing, agglomerating, stacking and sulphuric acid leaching on one of two permanent leach pads, each with a capacity of 79 million tonnes. Leached ore will be left in place and each lift sealed with a geomembrane liner.

The design capacity of the processing plant is 3.75 million pounds per annum of U3O8 equivalent per year, to allow for peaks in production, with average annual production estimated at 2.4 million pounds. The acid leach project is expected to operate for 18 years based on the current in- pit resources of Oxide, Primary and Secondary mineralisation.

The continuous surface miners will produce primary crushed ore, which feed a closed screening and secondary crushing circuit with <19 mm product feeding the agglomeration drums, where polymer and acid will be added before the agglomerates are stacked by a grasshopper conveying system. A two-stage acid leach was found to be the optimum process where the stage 1 leach is at a higher acid level giving advantages of fast kinetics and early recovery of the bulk of the uranium during the first stage. Leaching will take place in multiple stages using intermediate and raffinate solutions, to limit the volume of PLS feeding the SX plant. Uranium will be recovered from the SX strip solution using continuous ion exchange, followed by purification and precipitation as sodium diuranate using hydrogen peroxide, before final precipitation of uranium oxide concentrate (UOC) and drying.

SX/IX testwork demonstrated that the leachate can be processed by SX followed by IX then refining to yield a high purity saleable uranium oxide concentrate product. The SX/IX combination is novel though each component uses conventional technology and was demonstrated in the ANSTO Campaign 2 program. It was developed to optimise the water and acid balance and minimise acid loss in SX stripping.

The uranium recoveries vary from 60.5% to 77.7% depending on ore type were derived by applying discounts of 2% for scale-up from laboratory conditions to commercial field operations plus losses in ripios interstitial liquor of 0.8% and 0.1% for losses in the refinery. The recoveries used per ore type were calculated following the 4m column testing completed at ANSTO and other column tests carried out at SGS labs in Perth.

Comminution tests indicate that these materials are soft and not very abrasive with the average crushing work index (CWi) of 8.82 kWh/t (range 5.9-13.3kWh/t).

Process costs were calculated by ore type and pit. The major contributors to production is the Primary ore. The summary of the process costs are in Table 3. The main operating consumable is determined by the acid consumption.

The continuous surface miners will produce primary crushed ore, which feed a closed screening and secondary crushing circuit with <19 mm product feeding the agglomeration drums, where polymer and acid will be added before the agglomerates are stacked by a grasshopper conveying system

Cost Centre Mixed Oxide Gorgon & Kraken Primary Serule West Primary Lower Mudstone (Acid Leach) Mixed Mudstone Low Acid Leach (65% UM, 35% LM)
USD/wet t % Cost USD/wet t % Cost USD/wet t % Cost USD/wet t % Cost USD/wet t % Cost
Operating Consumables 3.46 60% 3 57% 4.62 67% 3.1 58% 3.11 57%
Product Transportation 0.08 1% 0.08 2% 0.13 2% 0.05 1% 0.06 1%
Maintenance 0.51 9% 0.51 10% 0.51 7% 0.51 9% 0.51 9%
Power 0.68 12% 0.68 13% 0.68 10% 0.68 13% 0.68 13%
Laboratory 0.05 1% 0.05 1% 0.05 1% 0.05 1% 0.05 1%
Labour – Processing & Maintenance 0.46 8% 0.46 9% 0.46 7% 0.46 9% 0.46 9%
Sub-Total – Processing & Maintenance 5.25 90% 4.79 89% 6.46 92% 4.86 90% 4.89 90%
Labor – Administration 0.22 4% 0.22 4% 0.22 3% 0.22 4% 0.22 4%
General & Administration Cost 0.35 6% 0.35 7% 0.35 5% 0.35 6% 0.35 6%
Sub-Total – General & Administration 0.57 30% 0.57 11% 0.57 8% 0.57 11% 0.57 10%
TOTAL 5.82 100% 5.36 100% 7.02 100% 5.42 100% 5.45 100%
Processing Cost, USD/t U 53,783 49,219 39,618 88,809 64,487
Processing Cost, USD/lb U3O8 20.69 18.93 15.24 34.16 24.81

Table 3: Process costs per ore type, inclusive of Labour and Administration costs.

The mining costs are calculated by using quoted prices from operating mining contractors within Southern Africa. The costs take into account, pit depth, specific gravity and hardness of the material moved.

OPEX Mining cost Processing including G&A Total Operating costs
US$/lb US$/lb US$/lb
LOM 18.1 22.7 40.7

Table 4: Opex costs over life on mine

OPEX Mining cost Processing including G&A Total Operating costs
Year US$/lb US$/lb US$/lb
1 18.0 14.2 32.2
2 18.8 14.7 33.4
3 21.7 14.9 36.6
4 24.3 15.8 40.0
5 14.2 18.0 32.2
Average* 34.9
* the average is weighted against the UO2 produced per annum.

Table 5: Opex for first 5 years production