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Wheeler River PEA buoyant even with cautious uranium price forecast

by Greg Klein | April 4, 2016

Two high-grade eastern Athabasca Basin uranium deposits could form a single mining operation lasting 16 years, according to the Wheeler River joint venture’s PEA. Operator Denison Mines TSX:DML released the figures April 4 from a study that incorporates the McClean Lake mill and bases its numbers on a conservative price forecast.

Wheeler River PEA buoyant even with cautious uranium price forecast

McClean Lake expansion should provide
excess capacity of six million pounds a year.

Using an 8% discount rate, the pre-tax NPV comes to $513 million with a 20.4% IRR. Each of the three partners would face a different tax scenario, Denison pointed out. The company holds a 60% stake in the JV with Cameco Corp TSX:CCO (30%) and JCU (Canada) Exploration (10%).

Initial capex would come to $560 million and sustaining capex another $543 million. Payback was reckoned at about three years.

Those numbers assume a uranium price of $44 per pound U3O8, the current long-term contract price according to Denison. (In lieu of a spot price, UEX Consulting provided a very low March 28 price indicator of $29.15.)

By comparison, Fission Uranium’s (TSX:FCU) September PEA for Patterson Lake South considered a price of $65 per pound. Cameco’s average realized price for 2015 came to $57.58, partly bolstered by the weak Canadian dollar.

But should uranium reach $62.60, Wheeler River’s PEA projects a pre-tax NPV of $1.42 billion and a 34.1% IRR.

The “conventionally mined” basement-hosted Gryphon deposit would enter production first. The unconformity-hosted Phoenix, located below water-saturated sandstone, would require Cigar Lake techniques of ground-freezing and remote-control jet-boring. The two Wheeler River deposits lie three kilometres apart on the 11,720-hectare property.

The Phoenix resource used a 0.8% cutoff to show:

  • indicated: 166,400 tonnes averaging 19.14% for 70.2 million pounds U3O8
  • inferred: 8,600 tonnes averaging 5.8% for 1.1 million pounds

Gryphon’s resource used a 0.2% cutoff:

  • inferred: 834,000 tonnes averaging 2.31% for 43 million pounds

Cutoff grades were based on an assumed price of $50 per pound. The Phoenix indicated category has the world’s highest grade of any undeveloped uranium deposit, Denison states. High-grade Gryphon assays from last winter’s drilling have yet to be incorporated into the resource.

The study sees Gryphon production beginning in 2025, turning out around 40.7 million pounds over seven years. Phoenix would follow with 64 million pounds over nine years. Milling would take place at McClean Lake, expected to have excess capacity of six million pounds a year when expansion finishes by the end of 2016. Denison holds a 22.5% share of the mill, along with AREVA Resources Canada (70%) and OURD Canada (7.5%).

“Thanks to the existing infrastructure in the eastern Athabasca Basin, our ownership interest in the McClean Lake mill, and a project designed to minimize risk and upfront capex, the Wheeler River project has the potential to emerge as one of the next producing assets in the region,” stated Denison president/CEO David Cates.

Last week the company announced an all-share deal in which GoviEx Uranium CSE:GXU would acquire all of Denison’s African assets. Expected to close next month, the transaction would leave Denison with 25% of GoviEx outstanding shares and 28% on a fully diluted basis.

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