Energy Fuels (NYSE MKT:UUUU) (TSE:EFR) expects to increase the size and improve the economics of its Roca Honda Project in New Mexico by acquiring adjacent mineral properties currently held by Uranium Resources (NASDAQ:URRE).
Energy Fuels has entered into a letter of intent with Uranium Resources (URI) to acquire properties adjacent to Roca Honda, totaling some 4,580 acres. Roca Honda is adjacent to the high-profile Mount Taylor mine project held by the General Atomics subsidiary, Rio Grande Resources. This acquisition pieces together the main portions of the historic Roca Honda project which was developed by companies including Kerr-McGee in the late-70’s and early-80’s.
Energy has offered US$2.5 million cash, US$375,000 of Energy Fuels common shares; a royalty held by the Company on certain properties to be developed in later phases of Peninsula Energy’s Lance Uranium Project in Wyoming; unpatented lode mining claims held by the Company adjacent to URI’s Church Rock Project; and a 4% gross royalty on Section 17 of the Acquired Properties, which can be repurchased by Energy Fuels upon payment to URI of US$5.0 million cash at Energy’s discretion prior to the due date for the first royalty payment. Closing on the transaction is expected in late June.
The properties contain significant historical uranium resources with additional exploration potential, as well as mine development infrastructure, including a partially-sunk mine shaft constructed by Kerr-McGee in 1982 to a depth of 1,478 feet. This infrastructure could result in lower capital requirements, reduced operating costs, and shortened timelines to production.
“Our transaction with URI will significantly increase the size of our Roca Honda project and has the potential to make the project economics even more attractive through increased uranium resources, additional exploration, and the potential use of the existing historic mine shaft. The strategic importance of domestically produced uranium cannot be emphasized enough, as global uranium supplies are expected to tighten in the coming years. We look forward to proceeding with the closing of this tactical acquisition,” said Energy Fuels’ President and CEO, Stephen P. Antony.
The Roca Honda Project is located in the heart of the Grants Mineral District of northwest New Mexico, one of the most historically significant uranium producing districts in the U.S. According to the USGS, New Mexico contains the 2nd largest uranium reserves in the U.S. behind Wyoming.
According to a 2007 URI internal report, the properties being acquired by Energy Fuels contain 0.7 million tons, or 4.8 million lbs., of U3O8 at an average U3O8 grade of 0.34%. In addition, there is significant potential to expand Roca Honda’s uranium resources through future drilling and exploration.
Roca Honda is held by the Company’s 60% subsidiary, Roca Honda Resources (RHR), with the remaining 40% of RHR held by subsidiaries of the Company’s joint venture partner, Sumitomo Corporation. Energy Fuels intends transfer the Acquired Properties to RHR in consideration of accommodations to be made by Sumitomo to compensate for its share of the costs for the acquisition.
According to the NI: 43-101 preliminary economic assessment and technical report (PEA) from last February, the current Roca Honda project (without the properties being acquired) will produce a yearly average 2.6 million pounds of U3O8 with a nine-year mine life to be processed at the Company’s existing White Mesa Mill in southeastern Utah. Once verified, the historical resource estimates for the Acquired Properties would be added to the resources described in the PEA for the Company’s existing Roca Honda project.
The PEA for the current Roca Honda (without the properties being acquired) estimated that the project currently hosts approximately 1.5 million tons of Measured and Indicated Mineral Resources with an average grade of 0.48% U3O8 containing 14.6 million pounds of uranium. In addition, the project is estimated to currently host an additional 1.2 million tons of Inferred Mineral Resources with an average grade of 0.47% eU3O8 containing 11.2 million pounds of uranium.
The Company believes it has sufficient cash and resources to carry out its business plan beyond calendar year 2015 and as of March 31, 2015, the Company had $35.20 million of working capital, including cash and cash equivalents of $6.54 million and 816,408 pounds of uranium concentrate inventory.
Energy Fuels expects to sell a total of 800,000 pounds of U3O8 during 2015, at an average price of $57.45, under existing contracts which will generate significant cash for the Company’s operational needs.
While uranium spot prices have edged up since last summer, they are still far off from their heyday back before the Japanese earthquake and tsunami led to the shutdown of all the reactors in Japan.
But new reactors in Europe, the Middle East, and Asia, along with the expected restart of Japan’s reactors, are setting up a longer-term supply-demand imbalance within 10 years, with significant increases in uranium prices anticipated. Indeed, just this week came news that Japan’s nuclear regulator has given final approval for two reactor restarts which are now expected to occur this summer.
Energy Fuels is the largest conventional uranium producer in the United States. It owns the White Mesa mill, which is the only conventional uranium mill operating in the U.S. and is capable of processing 2,000 tons per day of uranium ore and 8+ million lbs. of U3O8 per year. In light of weak uranium prices, the company is only selling uranium under its long term contracts, though it is maintaining and building its ability to increase production as uranium market conditions continue to improve.
Energy Fuels was trading 0.65% percent higher this morning in Toronto.