Toro Energy (ASX: TOE) has formally notified Deep Yellow (ASX: DYL) that it will not be proceeding to exercise its option to acquire the Napperby uranium project in the Northern Territory.
At the current uranium price the option purchase price would be approximately A$57m (calculated on 13.2m lbs at a floor price of $4.50 per lb less the original $2.3m option purchase price as per the terms of the agreement dated 4 May 2007 between the companies).
Toro has determined from the results of its scoping study and follow-up alternative development options that the current economics of the project, based on current long term uranium prices, do not warrant taking up the Napperby purchase option under the current terms with Deep Yellow.
In addition, no significant additional uranium deposits with reasonable grade have been discovered in the region to provide support to the economics of the project.
Greg Hall, Managing Director, said it is Toro’s current view that significant regional exploration will be required if additional resources are to be defined that may have a bearing on long term economics.
As the project stands today Toro’s economic analysis of potential development scenarios indicated that the deposit was unlikely to exceed Toro’s internal rate of return requirements under present and near term uranium price scenarios.
In light of this, Toro made an alternative proposal to DYL to enable the project to be taken forward on terms acceptable to Toro. This proposal was considered by DYL but was not accepted.
In the interests of preserving shareholder value Toro will now allow its purchase option to lapse (saving the option call requirement of approximately A$57m) and thereby allow operational control of Napperby to revert back to DYL from 5 May 2010, subject to final exploration rehabilitation requirements.
Toro will now provide additional focus to its exploration efforts in the Northern Territory looking for large scale, high grade deposits that are economically robust.
Toro said it is well advanced in discussions with potential third party investors interested in a significant and coordinated exploration program in the Northern Territory leveraging a tenement position that has been 3 years in acquisition and development.
Toro’s projects such as Tanami, Sandover, Reynolds Range and Waterhouse will receive
additional attention targeting higher grade sandstone or unconformityuranium mineralisation.
Hall said Toro’s priority project continues to be the Wiluna uranium project in Western Australia which is now advancing through the government assessment and approval process with a target of initial production by early 2013.