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Black Range Minerals: Under The Radar, Ranking In Global Top 10 For Uranium Deposits

Black Range Minerals (ASX: BLR) is developing the advanced stage Hansen / Taylor Ranch Uranium Project which hosts the largest uranium resource in Colorado and the third largest uranium deposit in the U.S.

The project area contains JORC Indicated and Inferred resources of 90.9 million pounds of U3O8, at a grade of 600 ppm, found within 5 separate deposits that are located along a 10 kilometre strike line.

ANALYSIS

The Hansen / Taylor Ranch resource currently carries an Enterprise Valuation of $0.11 per pound of U3O8 which makes it the fifth most undervalued listed uranium stock on the ASX. It also places it at a significant discount to the Toronto Stock Exchange peer group for uranium explorers/developers average of $1.05 per pound.

Scoping Study parameters show just how compelling the project is. C1 cash costs are around $30 a pound against a long term price for the uranium concentrate of $65 a pound, highlighting the strong margin for Black Range Minerals.

However, a recent decision by the Denver District Court that may clear the way for Energy Fuels, Inc. to build the first uranium mill in the U.S. in 30 years at its Pinon Ridge project is also good news for Black Range Minerals. It may provide Black Range Minerals with a processing option for future concentrate produced from Hansen.

In short, for the medium to long term investor looking for an undervalued uranium play - Black Range Minerals ticks alot of boxes there is clear potential for a "multi-bagger" with this stock.

Share Price: $0.019
Issued Shares: 804.9m
Market Cap: $15.2m
Cash: $3.9m (Mar Qtr)
EV: $9.7m

URANIUM OVERVIEW

The World Nuclear Association estimates that 434 nuclear reactors operated worldwide in 2011, and consumed 163 million pounds of U3O8 during the course of the same year. An additional 61 nuclear reactors are under construction and are mostly found in countries such as China, India, and Russia where the demand for energy remains very strong.

In 2011 global mine production of U3O8 was estimated at 144 million pounds, with the balance of supply coming from secondary sources that have helped to keep prices low and are now causing mine supply to decrease.

These include the Highly Enriched Uranium Agreement or HEU between the U.S. and Russia that converts Soviet era atomic weapons grade uranium to a low grade feedstock that currently supplies around 50% of the annual feedstock required to operate all of the nuclear reactors in the United States.

The U.S. has 104 reactors that currently produce 20% of the country's electrical needs, and consume 50 million pounds of U3O8 on an annualised basis. Imports supply approximately 85% of the demand and this includes 24 million pounds per year that are purchased within the terms of the HEU.

The cessation of the HEU once it runs out of enriched uranium in 2013 and additional demand from 21 new nuclear plants that are proposed, planned or are under construction will require significant new supply sources.

In 2010 the U.S. produced a miniscule 4.23 million pounds of U3O8 from 6 active facilities, and provides newer developers such as Black Range with the perfect opportunity to replace imports with local production from the Hansen Uranium Deposit planned for 2016.

Hansen contains 39.4 million pounds of U3O8 and will be the first resource developed within the project area. The uranium mineralisation at Hansen is contained within a shallow blanket of sandstone that lies at a depth of 150 - 250 metres that is amenable to low cost production utilising borehole mining and ablation recovery technology.

BOARD AND MANAGEMENT TEAM

Alan Scott serves as Non-Executive Chairman, and is the Chief Executive Officer of HiTec Energy, and was the former Managing Director and Chief Executive Officer of Aurora Gold Ltd. He is a qualified accountant who was with Rio Tinto Ltd / CRA Ltd for 22 years and was involved with joint venture management, finance, acquisitions and divestments, commercial negotiations and project engineering. Previously he was with Coopers & Lybrand in Australia, Canada and England before moving into the mining industry.

Tony Simpson is Managing Director and is a Mining Engineer with over 40 years of industry experience. He was previously with Peninsula Energy and served as the Chief Operating Officer, and was directly responsible for the successful exploration and permitting activities at the Lance Uranium Project in Wyoming, U.S.A.

Mike Haynes is a Non-Executive Director who is a Geologist and Geophysicist with more than 17 years experience. He held technical positions with both BHP Minerals and Billiton before establishing his own successful consulting business, and has also served as a founding director for a number of ASX listed companies where he was involved in the identification, acquisition, financing and development of an array of global resources projects.

Duncan Coutts is a Non-Executive Director and is a qualified Mining Engineer with more than 19 years of industry experience. He was formerly the Chief Operating Officer for the Western Australian and PNG operations of Harmony Gold Australia, where he was directly responsible for operational management and project development. More recently he held positions as Chief Development Officer with ASX listed Metals X Ltd working on project development, and as an independent consultant providing specialist management consulting services to the mining industry.

Benjamin Vallerine is an Executive Director and Exploration Manager s and leads the Company's exploration and development activities. He is a Geologist who has been involved in numerous resource projects in Australia, Canada and the USA, and has worked for both junior and major mining companies, including Harmony Gold Mining Company and Rio Tinto.

Black Range has developed a highly experienced group of US based professionals for the Hansen Development Team is made up of Tony Simpson, Benjamin Vallerine and Mike Drew who are assisted by Rob Grebb Vice President of Regulatory Affairs, Pat Siglin Geologist, Howard Harlan Development Geologist.

Additional technical support is provided by WWC Engineering of Wyoming for permitting, TREC Inc of Montana for mining and processing studies, Kinley Exploration of Kansas who are specialists in innovative borehole mining, and Ablation Technologies of Wyoming who have developed innovative ablation uranium recovery technology

SHAREHOLDING AND FUNDING

The Board and Management team control 41.3 million shares for a 4.9% interest, with the top twenty shareholders controlling 284.9 million shares for a total 33.9% interest.

Cash reserves at the end of the March quarter were reported at $3.9 million after deducting $469,000 for exploration, and $448,000 for administration. Black Range projected exploration and evaluation expenditure of $700,000 and administration of $300,000 for the current June quarter, for a total outlay of $1.0 million.

The Company has issued 23.35 million (mainly issued to management) unlisted options at exercise prices of $0.03 - $0.05 that expire 12/03/2014 - 14/12/2016, and 250,000 options exercisable at $0.24 on 18/05/2012.

HANSEN AND TAYLOR RANCH URANIUM PROJECT

Colorado hosts 5 major and nationally recognized mining districts that are all located in close proximity to Denver, and has a well established mining culture and infrastructure. The Hansen/Taylor Project is located in the Tallahassee Creek District, some 30 km from the town of Canon City.

Uranium was discovered in the area in 1954, and 16 small open pit and underground mines were developed and produced uranium until 1972.

These districts now contain 33 permitted uranium mining projects along with the development of 2 new uranium mines. Energy Fuels has licensed a conventional uranium processing plant in the Paradox Basin, which is the only new mill licence in the United States in the last 25 years.

The Hansen / Taylor Ranch Uranium Project is located within the Tallahassee Creek uranium district that hosts the Cripple Creek heap leach gold mine, with 23 million ounces of historic gold production.

Black Range Tallahasse

Figure 1: Tallahassee Creek uranium district

Hansen and Taylor Ranch hosts the largest uranium deposit in Colorado that currently contains a JORC compliant Indicated Resource of 28.93 million tonnes at 0.062% U3O8 for 39.75 million pounds of U3O8, and an Inferred Resource of 40.06 million tonnes at 0.058% U3O8 for 51.18 million pounds of U3O8 at a cut-off grade of 0.025%; for a total of 68.99 million tonnes at 0.060% U3O8 containing 90.92 million pounds of U3O8.

These resources are contained within 5 separate deposits that include Hansen with 39.4 million pounds of U3O8 at 0.064%, Boyer with 22.7 million pounds of U3O8 at 0.062%, Noah with 7.8 million pounds of U3O8 at 0.055%, North West Taylor with 6.8 million pounds of U3O8 at 0.049%, and Picnic Tree with 3.2 million pounds of U3O8 at 0.070%.

Hansen Taylor

Figure 2: Hansen Taylor Resources

Hansen was discovered in 1977, and contains more than 2,200 holes for 1.15 million feet of drilling that defined an orebody that was permitted for open pit mining in 1981.

Mineralisation is located in two zones that are found at a depth of 100 - 250 metres and is covered with a thin layer of alluvium, barren andesite, bentonite clay, Tallahassee Creek conglomerate and contained within an Echo Park Sandstone that overlays a Pre-Cambrian rock unit.

High grade assays within the mineralised core include 29 metres at 0.150% U3O8 from 195 metres, and 44 metres at 0.132% U3O8 from 184 metres.

APPLICATION OF INNOVATIVE BOREHOLE AND ABLATION TECHNOLOGIES TO EXTRACT AND RECOVER URANIUM FROM HANSEN

Black Range Hansen

Figure 3: Hansen Underground Borehole Mining Layout

Based on the results from a scoping study that compared various options for the development of Hansen (borehole mining, conventional underground, and open pit mining) Black Range has decided to use borehole and the ablation mineral separation process as it offers clear cost, technical advantages and also creates significantly less environmental impact.

Underground Borehole Mining entails the drilling of an 18inch vertical borehole using conventional drilling methods. The borehole penetrates the overburden to the top of the mineralised zone and is then cased from the top of the mineralisation to the surface so that the barren overburden is completely isolated. A different rig with the underground mining tool is then employed. High pressure water is then pumped down the drill pipe where a nozzle at the bottom of the hole shoots a pressurized stream into the rock face causing the soft sandstone to disintegrate. The resultant slurry is sucked up through a drill pipe that is driven by a vacuum that is created by injecting pressurized air down the drill string. Approximately, 3,800 tonnes of ore containing some 9,000lbs of U308 are expected to be recovered from an average borehole.

This style of recovery allows for selective and controlled mining of the resource at low capital cost, and deploys a small surface imprint utilizing mobile equipment, and allows for the pregnant ore slurry to be brought to the surface in a safe and closed environment.

Once mining is complete boreholes and the mined cavity are backfilled with a cement pate and the surface area rehabilitated.

The drilling rig is then moved a short distance so that a fresh borehole can be carved out of the mineralised zone.

The Hansen deposit was formed when uranium contained fluids flowing through the Echo Park sandstone, precipitated out of solution and migrated into the sandstone formation, leaving the uranium minerals as a patina or outer coating on the sandstone grains within the formation.

Ablation Technologies has developed an economic process for removing the mineralised patina from the sandstone grains that produces a high grade, high value concentrate containing some 95% of the uranium in approximately 10% of the original mass. The concentrate can then be transported off site for final processing.

Black Range has also elected as part of its development strategy, to transport the concentrate above to an existing offsite mill, for processing into yellow cake.

SCOPING STUDY PRODUCES POSITIVE RESULTS

Black Range has completed a positive Scoping Study at Hansen that utilises low cost borehole and ablation technologies to extract 5.28 million tonnes of ore, and produce 14.05 million pounds of uranium.

The Life of Mine Operating Costs were estimated at a total of $30.01 per pound of produced uranium, that includes wages of $3.07, UBHM operating costs $13.38, ablation operating costs $3.13, material handling $0.19, water treatment $0.12, milling operating costs $8.14, and site wide costs of $1.99 that were prepared to an accuracy of +/- 20% and exclude royalties, taxes and contingency.

Capital Costs were estimated at a total of $141.52 million and include UBHM slurry handling $3.09 million, ablation $34.11 million, material handling $1.91 million, water treatment $12.07 million, site wide costs $7.34 million, engineering and installation $15.00 million, and mill for $68.00 million. Capital costs could be significantly reduced to around $40 million by the separate provision of off-site milling and a BOO agreement for ablation.

With an estimated Long Term uranium concentrate price of around $60-$65 per pound, affords Black Range strong projected profit margins.

ENERGY FUELS INC.

In a recent decision, Denver District Court Judge John N. McMullen ruled in favour of the Colorado Department of Public Health and Environment and Energy Fuels, Inc. (TSX:EFR) on the ten substantive environmental, health, and safety claims in a case challenging CDPHE's issuance of a radioactive materials license for the Pinon Ridge project to Energy Fuels.

This has major positive ramifications for Black Range as it would appear to clear the way for the first uranium mill to be built in the U.S. in nearly 30 years in Colorado. Energy Fuel's mill could provide a less costly option for Black Range for processing of concentrate from the Hansen / Taylor Ranch Uranium Project.

CATALYSTS

- Denver District Court decision - issuance of license for Energy Fuels Inc.
- Preliminary Economic Study - Q4 2012
- Hansen Resource Upgrade Q3 2012
- Complete 110d UBHM pilot test Q3 2013
- 112d Mine Permit underway with submission completed 2015
- Commencement of production planned for 2016

ANALYSIS

Black Range is targeting production in 2016 from the largest uranium resource in Colorado that has been evaluated as a high quality development opportunity in a pro-uranium jurisdiction, and utilizes an environmentally friendly processing route.

UGBM, ablation and off site milling results in an OPEX of around $30 per pound of U3O8. The CAPEX of around $70 million is among the lowest in the industry removing a significant impediment to development decision and ultimately, production and cash flows.

The Black Range Hansen / Taylor Project higher grades with lower OPEX and CAPEX should assist with the completion of positive feasibility studies and funding.

The appointment of managing director Tony Simpson is likely to be a watershed appointment as he was formerly Chief Operations Officer at Peninsula Energy (PEN.ASX) - overseeing exploration and permitting at its Lance Uranium Projects in Wyoming, U.S.

VALUATION GUIDE

Black Range's Hansen / Taylor project ranks highly in terms of undeveloped and developed global uranium deposits:

Size of deposit 91m lbs: 7th in world
Grade of deposit 600ppm: 5th in world
Sovereign and political risk: lowest 10% range
CAPEX <$40m: lowest 10% range

From a global analysis of 58 uranium projects that ranged from explorer to producer status sees an Enterprise Value of $0.92 per pound of uranium resources in the exploration stage, an EV of $1.29 per pound in the Pre-Feasibility Stage, an EV of $0.82 per pound in the Feasibility Stage; and an EV of $3.90 per pound for developers and an EV of $4.30 per pound for producers.

Market valuations within the Australian resources sector and uranium sector have pulled back significantly over the last few months, providing opportunities for investors in quality uranium plays.

Black Range ticks the valuation box with an EV/Pound (lb) of to $0.13 per pound of uranium resource at Hansen / Taylor.

With catalysts and the Company coming out from under the radar, we can see a potential "multi-bagger" in Black Range. At a median valuation range for its uranium explorer peers, would see Black Range trading at a valuation of 5 times its current share price in 12-18 months. Given the scale and size, there could also be growing corporate interest level as well.

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