Fission Uranium (TSX: FCU; US-OTC: FCUUF) has released an updated prefeasibility study (PFS) for an underground-only mine at its wholly owned Patterson Lake South (PLS) uranium project in northwestern Saskatchewan. The updated PFS follows an earlier study of an open-pit and underground operation released in April.
The PFS tables a 1,000-tonne-per-day underground mine that will process 2.3 million tonnes grading 1.61% uranium oxide (U3O8) for 81.4 million lb. U3O8 over its seven-year mine life at average unit-operating costs of US$7.18 per lb. U3O8.
It forecasts a $702-million, after-tax net present value (NPV) at an 8% discount rate, and a 25% after-tax internal rate of return (IRR). This is an improvement over the hybrid study, which tabled a $693-million, after-tax NPV at an 8% discount rate, and a 21% after-tax IRR.
The change from an open-pit and underground mine to an underground-only operation is also expected to yield a 21% reduction in initial capex from $1.5 billion to $1.18 billion, and shaves the construction time line from four to three years. The payback period is 2.5 years.
The lower capex and shorter construction time is attributed to simplified water-control measures, the company says. The revised mining method eliminates the need for a system of dikes and slurry walls, dewatering and overburden removal, which will lower total mine-related earth movement 90% to 5.4 million tonnes — down from 51.2 million tonnes in the previous PFS, along with a 58% reduction in disturbed area.
The company’s 310 sq. km PLS project, 550 km northwest of the city of Prince Albert and 150 km north of the community of La Loche, is home to the world’s richest uranium mines.
Ross McElroy, Fission’s president and chief operating officer, says the company had initially looked at mining the shallow deposit as an open pit. “Normally when the deposit is 50 metres below the surface, an open pit is your preferred method to get to it. And it showed a very viable and attractive scenario,” McElroy says.
But the open-pit mining option would involve a high-capital requirement of building a berm wall around the deposit, as two of the five mineralized zones — the R780E and R1620E zones that make up the eastern region of the Triple R deposit — are located beneath Patterson Lake, where the water depth is generally less than 6 metres and overburden thickness is 50 metres.
“Because you have a lake sitting there, the Patterson Lake itself, you would have had to build a berm wall around the deposit, which is certainly technically viable, and it has been done many times on several deposits in northern Canada,” McElroy says. “But it is expensive.”
As a result, the company looked at the alternative of mining the deposit through an underground mine while it was completing the PFS on the open pit.
“We would save a significant amount of capital of at least $300 million, or more,” McElroy says of the underground-only option. “You are still looking at just over $9 per lb. U3O8 of operating costs, almost on par with an open pit … I’m 95% confident that the underground-only option is the way to go forward.”
The uranium project hosts the Triple R deposit, which consists of five mineralized bodies — R1515W, R840W, R00E, R780E and R1620E — spread across a 3.2 km mineralized trend on the southwestern end of Saskatchewan’s Athabasca basin. Mineralization at PLS occurs along steeply dipping structures and is often associated with graphitic material. The deposit sits 50 metres below the surface and is open in several directions.
In 2009, the company ran a high-resolution, airborne radiometric and magnetic survey that detected a radioactive anomaly 3 km west of Patterson Lake, in a new area. Fission discovered a high-grade, uranium boulder field through follow-up work on the anomaly. Through drilling, it traced the anomaly back to the west shore of Patterson Lake. It drilled the discovery hole, announced on Nov. 5, 2012, in what is now called the R00E zone.
“When we made the discovery back in 2012, it was in an area that nobody even looked at. That is why we were able to beat the big guys at the game,” McElroy says. “We really did open up a very important part of the Athabasca basin,” he adds. “The future of uranium mining in Saskatchewan will come out of this area.”
The project’s 17 mineral claims now comprise five mineralized zones that make up the Triple R deposit.
R1515W covers 90 metres in strike length, 68 metres across strike and 220 metres vertical. Mineralization remains open in several directions. R840W is located 515 metres east along strike of R1515W, and has a strike length of 430 metres. R00E is located 485 metres east along strike of R840W, and is drill defined to 115 metres in strike length. The R780E zone and R1620E zones, located beneath Patterson Lake, make up the eastern region of the Triple R deposit. R780E, the biggest zone, is located 225 metres east of R00E and has a strike length of 945 metres. R1620E is located 210 metres along strike to the east of R780E, and is drill defined to 185 metres in strike length.
The mineral resources in the updated study remain unchanged from the previous one. The PLS project contains 2.22 million indicated tonnes grading 2.1% U3O8 for 102.4 million contained lb. U3O8. Inferred resources add 1.22 million tonnes grading 1.22% U3O8 for 32.8 million contained pounds. Resources are based on a cut-off grade of 0.25% U3O8.
Fission plans to complete a feasibility study, along with an updated resource estimate, by December 2020.
Also in the pipeline is a 90-hole, 28,000-metre drilling program scheduled to begin in December until July 2020 to expand and convert the resources in the three mineralized zones — R1515W, R845W and R1620E — from the inferred to indicated category.
The underground PFS is based on indicated resources from the R780E and R00E zones, although the project will accommodate more resources from the other three zones.
“If we are able to convert everything that we know, we roughly get about another 35% of the resource,” McElroy says.
Fission also plans to drill deeper on R780E to increase the overall mineral reserve mine life.
McElroy expects the PLS project will reach production in seven years’ time, in 2026.
“Once we are in production, I think we will be a very important supplier of uranium to the world,” he says.
Canada is the world’s second-largest producer of uranium after Kazakhstan. According to Natural Resources Canada, most of the country’s uranium reserves are located in the Athabasca basin, which hosts the world’s largest high-grade deposits. The deposits mined in Canada have grades that are 10 to 100 times greater than the average grade of deposits mined elsewhere in the world.
Fission Uranium’s ownership of the PLS project dates back to 2013, when the company was created after Fission Energy signed an agreement with Denison Mines that saw Fission Energy spin out some of its assets, including its 50% interest in the PLS property, into a new, publicly traded company called Fission Uranium.
As part of the agreement, Denison acquired a portfolio of uranium exploration projects from Fission Energy. Fission Uranium held the remaining assets of Fission Energy, including their 50% interest in the PLS property.
In 2016, CGN Mining became Fission’s strategic partner when the Chinese state-owned company took a 19.9% equity stake through the purchase of 97 million Fission shares at 85¢ per share, for gross proceeds of $82.2 million.
“That is why the Chinese chose to invest with us,” says Dev Randhawa, Fission Uranium’s CEO and chairman. “They like very shallow projects. They feel there are less technical risks.”
Randhawa says the rise of electric vehicles and cryptocurrencies will drive the demand for nuclear energy, which is fuelled by uranium ore.
According to a 2019 performance report by the World Nuclear Association, nuclear generation in Asia rose more than 10% in 2018 over 2017 to reach 533 terawatt hours, accounting for more than one-fifth of the world’s nuclear generation. China and India’s need for reliable, non-air-polluting electricity drives the two countries’ continued growth in nuclear-power investment.
After the updated PFS, Eight Capital’s vice-president and senior mining analyst David Talbot increased his target price for Fission from $2 to $2.30, and reiterated his “buy” recommendation. The economics of the underground PFS is a “vast improvement” over the previous PFS based on a hybrid mine, he says in a Sept. 23 research note, adding that “today’s underground PFS should not only improve confidence greatly, but lay the groundwork for Fission’s ultimate development plans.”
The quickest way Fission can improve the value of the PLS project is to convert inferred resources from all five zones to the indicated category. Running the permitting process in parallel would also help minimize the development time line. “[Fission] is one of our top developer picks, as it may come in cheaper and quicker to production than certain peers, assuming it can execute,” Talbot says.
Alexander Pearce, a mining analyst with BMO Capital Markets, gave Fission an “outperform” rating. “We view the design as an attractive alternative development, with similar economics, but potentially lower permitting and social risks,” he says in a research note.
Derek Macpherson, vice-president of research with Red Cloud Securities, maintains his $1.20-per-share, fair-value estimate. “The high-grade nature and politically safe jurisdiction at PLS warrants a substantial premium relative to current prices,” he says in a research note. Macpherson says that uranium prices are poised to rally, and “a premium asset like PLS is likely to be one of the first to re-rate in the industry.”
Fission’s shares were trading at 36¢ per share within a 52-week trading range of 32¢ to 75¢ at press time. The company has 486 million common shares outstanding for a $175-million market capitalization.