A recently reported leak at the Fukushima nuclear plant in Japan has reawakened concerns over the development of new nuclear reactors in the country, with most experts agreeing that any renewed build-up will likely be put on hold until the situation is resolved.
The news provides the latest explanation for uranium’s low price. Whatever the reason — the consequences are being felt by Bannerman Resources (TSX: BAN).
With the spot price for uranium oxide (U3O8) a ways off from the break-even point outlined in its feasibility study on its flagship Etango project, Bannerman recently pushed back the expected first production date for the project by two years. The mine was set to enter production in 2016, but will have to wait until 2018.
Etango is a low-grade, alaskite-hosted deposit in Namibia, which is one of the world’s top-five uranium producing nations. It sits 38 km east of Swakopmund in the Erongo region, which also hosts Rio Tinto’s (NYSE: RIO; LSE:RIO) world-class Rossing uranium mine and Paladin Energy’s (TSX: PDN) Langer Heinrich mine. Etango itself is considered one of the world’s largest undeveloped uranium projects. If built as envisioned, it could become a top-10 producer in the world.
The project hosts three deposits, but only the Etango deposit has measured and indicated resources. Measured resources stand at 62.7 million tonnes grading 0.0205% U3O8 for 28.3 million lb. U3O8, while indicated resources stand at 273.5 million tonnes grading 0.02% U3O8 for 120.4 million lb. U3O8. When combined with the Ondjamba and Hyena deposits, inferred resources top 164.6 million tonnes grading 0.0176% U3O8 for 63.9 million lb.
Accounting for these low grades, BMO Capital Markets analyst Edward Sterck calculated a break-even uranium price for the project of US$71 per lb. In contrast, the company’s feasibility study pegged the break-even uranium price at US$61 per lb. The current spot price for U3O8 is in the US$35 per lb. range.
BMO points out that the project’s economics could be helped by a low strip ratio and low acid consumption.
As of the end of June the company had $3.6 million in its treasury.
At press time the company’s shares were trading for 6¢. Bannerman has 325 million shares on a fully diluted basis, and BMO rates Bannerman as “market perform,” with no target price.
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