Saturday, February 25, 2006

Feb 25 Uranium Stocks Update: sxr Uranium One (TSE:SXR)

Honeymoon Project

As my fourth uranium mining stock recommendation, I had highlighted the prospects for sxr's Dominon Project. Now it is time to take a look at their other uranium project and shift our focus from South Africa to South Australia.

Now as we all know, Australia has some of the tightest uranium mining laws in the world (if you want to read more about that situation, click on the January 2006 Archives on the right sidebar). Basically, they have a three mine policy that only allows for the operation of three uranium mines at the same time. However, as the Uranium Information Centre Ltd. correctly points out, there is room for four:

There are three operating uranium mines in Australia, Ranger in NT, Olympic Dam. and Beverley in South Australia. A fourth is cleared to start construction: Honeymoon, in South Australia.

This is what SXR has to say about its Honeymoon project in its MD&A (Nov 2005):

All primary regulatory approvals required to proceed into commercial production at Honeymoon including an Export license have been obtained. In the event the Company proceeds into commercial production, permits common to all site construction and commerical mining operations in South Australia are required to be obtained prior to commissioning.

So how much time does that take? Let's take a look at their website.

Honeymoon is fully permitted, with a mining license in effect for 20 years, and is ready to begin production with a short lead time of less than 18 months. short lead time of less than 18 months.

So if SXR.TO decides to go forward with Honeymoon, they could conceivably be mining uranium out of the ground somewhere in the latter half of next year. So how much are they planning to mine anyways?

A cost and engineering study carried out by Ausenco in 2004 projected construction costs of US $24.5 million and working capital requirements of US $6.3 million, for a total capital requirement of US $30.9 million. Over the projected mine life, the average cash operating costs per pound would be US $12.40, with optimal plant capacity of approximately 400 tonnes (880,000 pounds) per year. The project has indicated resources of 9.3 million pounds (NI 43-101 compliant) and a flexible plant design that would allow increased production levels with exploration success.

That's not too much uranium being mined actually; the other three mines will all be mining more. The point, however, is that a $30.9 million capital cost is actually quite low. At today's uranium oxide price, SXR.TO could recoup that cost in less than 2 years if they are mining close to a million pounds a year. With the Dominion project hopefully beginning uranium production in early 2007, Honeymoon represents a second source of revenue for SXR.TO.

One caveat. On January 12th, 2006, SXR.TO actually had to release a press release denying that the Honeymoon Project was up for sale. One segment in particular caught my eye:

"There have been reports that the old SXR held talks with interested parties from China about the Chinese acquiring a stake in Honeymoon. "The talks were not conclusive, and as far as Uranium One is concerned, Honeymoon is a core asset of our global company and is not up for sale. "I am on record as having said that the new Board of Uranium One will be asked to take a decision on the project later this year, and I expect to be in a position to make a recommendation to the board by June.

Well, efficiency is one of the benefits of central planning. China is building lots of reactors, China needs uranium, China will get uranium, somewhere, somehow. Point is, if Australia and China had been able to reach an agreement in their talks about exporting uranium, Honeymoon might have been swept up already. As it is, we have a bit of a waiting game until China can convince Australia that it will not use uranium for weapons.

All of this just means SXR is sitting pretty right now.


Blogger charlottebandit said...

Great run down on SXRs "Honeymoon" uranium deposit. Very thorough and detailed.

So what's your next pick? :)

My list (by priorities also) is identical to yours

2:36 PM  
Blogger charlottebandit said...

Next one on my list include Strathmore Minerals (STHJK).

8:50 AM  

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