A new Africa-focused uranium champion is in the making, with the planned combination of Canadian explorers Denison Mines and GoviEx Uranium’s assets on the continent which, once completed, was expected to comprise the largest undeveloped uranium resource base in the world.
Despite the partners recently announcing that closing of the transaction would be somewhat delayed owing to a delayed review of the proposed transaction by the Zambian Competition and Consumer Protection Commission, Denison and GoviEx still expected the transaction to close before month-end, or early in June. Under terms of the transaction first announced late March, GoviEx would acquire Denison’s subsidiary Rockgate Capital, which held all of Denison’s Africa-based uranium interests. After closing, GoviEx would control one of the largest uranium resource bases among publicly listed development companies, with combined compliant measured and indicated resources of 124.29-million pounds of uranium oxide (U3O8), plus inferred resources of 73.11-million pounds U3O8.
The asset portfolio of the combined company would include two permitted and shovel-ready uranium development projects, including GoviEx’s Madaouela project, in Niger, and Denison’s Mutanga project, in Zambia. It would also include Denison’s Falea project, an advanced exploration-stage project, in Mali, and the exploration-stage Dome project, in Namibia. Under the terms of the transaction, GoviEx would pay with about 56.1-million shares, plus about 22.4-million in GoviEx common share purchase warrants. Upon completion of the transaction, Denison would hold 25% of GoviEx shares outstanding and 28% of GoviEx shares on a fully diluted basis.
GoviEx CEO Daniel Major stressed during a recent investor presentation in Toronto, in which Mining Weekly Online participated, that the company already had the support of four major nuclear and mining companies, including Cameco, Ivanhoe Industries, Toshiba (with which it had already concluded an offtake agreement) and Denison, which was mainly focused on its significant assets in the Athabasca Basin region, of northern Saskatchewan.
According to Major, the transaction would provide the company with considerable exploration upside to further increase mineral resources, with several drill-ready targets defined at each property. “We’ve picked up projects with a lot of work done on them, including drilling and engineering. GoviEx will have the ability to build a strong development pipeline with the significant metallurgical testwork and engineering studies on our three main development assets already in hand,” he stated. Once the transaction had been settled, Major advised that Madaouela had the potential to be first in production, with next steps involving the completion of a definitive feasibility study by end-2017, with development taking place over 2018/19, and first production from 2020 onwards.
The Mutanga project would follow short on its heels, with a definitive feasibility treatment being prepared over 2018/19, development to follow in 2020/21 and first production expected from 2022 onwards. GoviEx expected to undertake a prefeasibility study on Falea in 2018, while resource definition at Dome took place during the same time frame.
MIND THE GAP
Major made the case for nuclear energy providing a source of cheap and sustainable green electricity for the future. According to GoviEx, uranium demand driven by nuclear energy growth was expected to grow at 3% a year. Chinese reactor builds would comprise the most significant new demand, as the fleet was expected to expand from 21 reactors in 2014, to 132 reactors in 2030. Japan nuclear plant restarts had been slow to start, but government still targeted nuclear to make up about 20% of the long-term power mix.
Further, Major expected Indian and African reactor builds to exceed reductions in Western Europe. The nuclear market was expected to swing from a supply glut to a post-2020 supply deficit, fuelled by continued price weakness that increased the risk of further closures and project delays. Major noted that the uranium market would require at least two new Cigar Lake projects a year to fill the supply gap.
Major believed that the incentive price for the majority of new production to come online was around the $70/lb spot price mark, giving it a market advantage, as Madaouela was forecast to be able to produce 2.7-million pounds of uranium a year, with over 21 years at C1 cash costs of $24.5/lb, including by-product credits.
According to data services provider UxC, spot uranium prices fell to $27.50/lb in April. Major noted that, as a result of the expected emerging supply gap from 2020 onwards, energy utilities had started to look to fill supply gaps between 2020 and 2025. This could potentially result in GoviEx becoming a takeover target for French nuclear giant Areva, as its Niger-based 6.6-million-pound-a-year Arlit mine, located next door to Madaouela, was starting to run out of resources.