Anatolia Energy (ASX:AEK) has released a much anticipated Pre-Feasibility Study for its high grade Temrezli ISR Uranium Project in central Turkey that has yielded sector low operating costs as well as high financial returns from development.
Some key financial metrics that many uranium developers would envy include: a Net Present Value of US$191.1 million pre-tax, cash operating costs of just US$ 16.89/lb of U308, Internal Rate of Return of 65% and a payback period on capital of just 11 months.
This is based on average U308 production per annum 825,636 pounds per annum and initial capital cost of US$ 41.0 million including US$4.3 million in contingencies.
All told, the high financial returns from development of Temrezli show how profitable ISR projects can be; driven by its high grade, low capex and low operating costs.
Today's study will position Anatolia as one of the lowest cost uranium producers in the world and no doubt open additional funding alternatives to drive toward production in 2016/17.
Bullishly, work is underway to herald cost savings in plant capital costs, via the substitution of U.S. suppliers with local Turkish suppliers, and reduction of contingencies applied. This could also partially reduce operating costs.
Project financial returns could be bolstered further with later integration of satellite (regional) mining opportunities such as Anatolia's 100% owned Sefaatli Project where early exploration results intersected high grade uranium.
Anatolia Energy managing director, Paul Cronin said:
"Completion of the PFS is a significant milestone for Anatolia and takes the Company a great deal closer towards achieving our objective of becoming a high margin producer of uranium in the near term.
The test work completed by Anatolia and its independent consultants during the PFS upgraded the project in many respects since the PEA completed last year, leading to superior financial returns than have previously been reported.
The strong economics of the project, even at today's term uranium price provides a robust foundation for project financing and uranium sales discussions.
Our focus over the coming months will be to complete detailed plant designs, and seek to assess the project capital based on local Turkish plant costs, which we believe may substantially reduce up front capital requirements."
The PFS modelling is based on a current Resource of 5.2 million tonnes grading 1,157ppm eU308 for 13.3 million pounds U308, from which 9.9 million pounds of U308 are recovered over an initial mine life of 12 years.
PFS Results in detail
Total U308 Production over LoM: 9,907,630 lbs (development case) / 8,711,488 lbs (base case)
Mine life: 12 years / 11 years
Avg. U308 production per annum: 825,636 lbs pa / 791,953 lbs pa
Peak U308 production per annum: 1,154,563 lbs pa / 1,167,757 lbs pa
Revenue over life of mine: US$644.0 million / US$566.2 million
Free Cash Flow over LoM: US$345.5 million / US$295.0 million
Avg. Cash operating cost: US$16.89/lb / US$17.84/lb
Initial capital cost incl. contingency: US$41.0 million / US$41.0 million
Capital Cost Contingency (LoM): US$8.7 million / US$8.0 million
Pre-Tax NPV8%: US$191.1 million / US$1468.8 million
Post-Tax NPV (8%): US$145.6 million / US$125.6 million
Internal Rate of Return (Pre-Tax): 65% / 64%
Payback period: 11 months / 12 months
Operating cash flow of US$345.5 million (A$ 447.3 million) based on long term contract price US$65/lb uranium price
In-situ recovery (NYSEMKT:ISR) Mining
Anatolia intends to use ISR methods to extract uranium from the Temrezli uranium deposit. The method is widely used, particularly in the U.S. and central Asia, and consists of installing a pattern of injection and recovery wells and circulating a mining solution (lixiviant) through the mineralized portion of the formation.
The lixiviant is then pumped from the formation and the dissolved uranium is recovered through ion exchange. ISR operations entail minimal surface disturbance and no significant excavations or rework of the surface contours.
The PFS results herald a new force in ISR uranium has arrived. Key to any decision to "push" the development button are project financial returns. The PFS demonstrates that Temrezli could still generate strong cash flow and operating earnings even at current low uranium prices.
At a long term contract price of US$50/lb, the low operating costs ensure that the Temrezli Project is capable of generating a strong profit of NPV of US$107.6m.
At an Avg. Cash operating cost US$ 16.89/lb, ranks Temrezli at the low end of operating costs quartile for the sector.
Anatolia's Temrezli Project has received significant interest from a range of potential financiers of the project including equity partners, off-take parties and debt providers. This is not surprising given the financial returns from development. The Company has indicated it is confident of funding.
The Company's existing Operation Licence will enable Anatolia Energy to construct the ISR well field and processing plant upon issue of an Operation Permit, which are typically granted within 14 days of application.
Recent metallurgical and hydrogeological results have potential to meaningfully impact economics. The recent hire of Tom Young, former VP of Operations at Cameco USA, as Chief Operating Officer now provides Anatolia with experience in both development and operations of ISR uranium mines.
Anatolia will look to convert its Operating Licence into an Operating Permit, and to progress discussions with a number of potential providers of development funding.
Full scale development could commence in 2015 subject to development finance being in place.
Based on the Low EV to resource ratio compared to Wyoming ISR peers of circa US$2.30/lb Vs peer range of US$5-22/lb the current market cap of Anatolia of $24 million at a share price of $0.079 completely undervalues the stock.
We expect this rating to rise as it moves into development phase and additional investors twig to the under-valuation. Tellingly,Sprott Asset Management is a substantial shareholder at 8.96% of the company.
Incorporating today's PFS results into the mix and Proactive Investors has calculated a valuation and equivalent share price target for Anatolia of $0.22 to $0.27 within 12 months.
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