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Bannerman Resources Marks Huge Improvements In Uranium Economics

Bannerman Resources (ASX:BMN; TSX:BAN; NSX:BMN) has slashed costs and increased the value of its Etango uranium project in Namibia six-fold as feasibility optimisations offer a strongly enhanced investment scenario.

An Optimisation Study on the geological modelling and mine planning aspects of Etango has improved the project's net present value from US$69 million to $US419 million.

The revision of 2012 Definitive Feasibility Study results also outlined a 17% reduction in life-of-mine operating costs to US$38 per pound of U3O8 and a 9% reduction in pre-production capital costs to US$793 million.

Post-tax internal rate of return has also improved from 9% to 15%, with payback from first production now expected in 4.4 years.

Other outcomes of the study included total operating cash flow of US$3.7 billion before capital and tax, as well as free cash flow of US$1.6 billion after capital and tax.

Peak annual free cash flow was contemplated at US$392 million.

This will flow from a 16.4% increase in annual output during the first five full years of production to 9.2 million pounds of U3O8.

Average annual production was estimated at 7.2 million pounds of U3O8 over an initial 15.7-year open pit mine life, with a strip ratio improved from 3.3 in the original DFS to 2.8.

Measured and indicated resources at Etango total 165 million pounds of U3O8.

Accelerated production

The latest Optimisation Study demonstrates that Etango can produce more efficiently with lower movements.

This will be driven by the application of variable cut-off grade strategy, with lower grade ore being stockpiled initially and treated at the back end of the initial life of mine.

Operations will involve conventional truck-and-shovel open pit mining with radiometric scanning grade control and lower cut-off grades as a result of favourable cost and process parameters.

Bannerman can also reduce upfront capital by about US$56 million through the use of leased equipment in its fleet.

Processing testwork has foreshadowed an enhanced production profile at Etango, with results demonstrating relatively low acid consumption and rapid leach kinetics achieving more than 90% extraction after 14 days.

Power costs have been estimated at only US$0.10/kWh.

First-class jurisdiction

With a stable government and fiscal regime, Namibia is a well-regarded mining jurisdiction, particularly in the uranium sector, where it is the world's fifth largest producer.

It is also ranked the most attractive African investment jurisdiction by the Fraser Institute Mining Company Survey.

The country boasts an effective uranium permitting and regulatory process with a strong track record, including three new uranium mines permitted and constructed over the past 10 years.

In this context, Etango further benefits from proximity to a uranium export-rated port at Walvis Bay, only 47 kilometres away.

Established infrastructure chains in the country already support uranium project development and operations such as the Rossing, Langer Heinrich and Husab mines.

Grid power is planned to be supplied via a 35 MVA supply to the Etango site while water will be sourced from a nearby 20-gigalitres-per-annum desalination plant.

Corporate update

Operational refinements at Etango have coincided with an ownership consolidation, debt extinguishing and new funding for Bannerman.

The company has confirmed the terms of a move announced last month to acquire 100% ownership of the project via an arrangement with major shareholders Resource Capital Fund IV L.P., Resource Capital Fund VI L.P. and Mr Clive Jones, a Bannerman director and shareholder.

The transactions will result in Bannerman not only taking full control of Etango, but becoming debt free and securing A$4 million through a $1 million cash payment and an equity placement of about 63.3 million shares to RCF VI for $3 million.

The deal is also set to result in the extinguishment of $12 million in debt through the conversion of convertible notes held by RCF into Bannerman shares and the sale of a 1.5% royalty over Etango to RCF for $6 million.

The shareholdings of RCF IV and RCF VI would move to about 20.4% and 19.3% of Bannerman's issued share capital, respectively. The shareholding of Clive Jones has the potential to increase to about 19.6%, assuming that all relevant shares are issued to him rather than his nominees.

Analysis

The Optimisation Study further establishes Etango as an advanced project with an early-mover advantage within the consensus forecast improvement for uranium market activity and pricing.

This establishes a sound project platform for Bannerman to engage with the global nuclear industry and promote Etango during this educating and marketing process.

The study has strongly repositioned the project, demonstrating economics that are highly competitive at consensus incentive long term uranium prices and confirming the technical robustness of the DFS.

This clearly places Etango at the forefront of the global development pipeline of projects likely to produce at or above 2 million pounds of U3O8 per annum.

Also, favourable processing testwork results and unconverted resources at the site offer considerable potential to further improve the economics of the project.

Etango also benefits from an uncommonly friendly jurisdiction for uranium in Namibia where three major uranium mines have been permitted and largely constructed during the past 10 years.

Meanwhile, consolidation of Bannerman's ownership of Etango is expected to provide considerable structural benefits when project financing is sought for development. The transactions with RCF rend Bannerman debt free with new funds that allow Etango to be taken to the next stage.

The project is also well positioned with regard to macro trends in the uranium and nuclear space. As the global imperative to reduce greenhouse gas emissions evolves, nuclear energy as a baseload electricity source is expected to play a central role in meeting the growth of future energy needs.

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