Continental Precious Minerals locks up Swedish uranium

Continental Precious Minerals (CZQ-T, CTPMF-O) is taking a two-pronged approach in developing its substantial Swedish uranium assets, focusing both on putting its shallow hard-rock deposits quickly into production and getting a handle on the much larger potential of its less-developed, oil shale-hosted uranium deposits.

Based in Toronto, Continental is headed by president and CEO Ed Godin and directors Gerard Paul Osiska, Patricia A. Sheahan and Scott Walters. Other management includes senior project manager Michael Bromley-Challenor and consultants Andrew H. Phillips, Sven Snall and Thomas K. Sills.

Continental’s conventional fracture-filling, granite-hosted uranium deposits, which the company collectively calls “Project II,” lie on eight wholly owned licences in northern Sweden (see map page 13).

Partly as a response to the energy crisis of the early 1970s, the Swedish government drilled out the deposits in the late 1970s and early 1980s to historical proven and probable standards.

But then the country turned against nuclear power, uranium prices tanked for two decades and the state largely got out of mining in the early 1990s, leaving the deposits undeveloped.

Eventually they fell into the hands of a local, who approached Continental in 2005 and struck a deal.

In summer 2005, Continental hired Telluride & Associates to estimate indicated and inferred resources in compliance with National Instrument 43-101 on seven deposits: Skuppesavon, 978,000 tonnes containing 1.8 million total lbs. U3O8; Pleutajokk, 1.9 million tonnes with 5.3 million lbs. U3O8; Kvarnan, 1.9 million tonnes with 3.7 million lbs. U3O8; Bjorkramyran, 1.3 million tonnes with 3.2 million lbs. U3O8; Lilljuthatten, 947,000 tonnes with 4.2 million lbs. U3O8; Nojdfjallet, 756,000 tonnes with 1.1 million lbs. U3O8; and Sagtjarn, 756,000 tonnes with 1.1 million lbs. U3O8.

The seven deposits total 8.6 million tonnes containing 20 million lbs. U3O8, though Continental reckons there is a “historical potential” to add another 20 million lbs. to the tally.

True, these deposits are small and relatively low-grade, but they are all close to surface, often in hills, which will make for a low stripping ratio.

“Picture Lilljuthatten as a snowbank,” Godin says. “You can literally back a Caterpillar up and scrape the stuff off and that’s your mining costs; it’s a negative strip ratio.”

JV partner

The broad plan is to snag a joint-venture partner who will fund and complete a feasibility study to build, at roughly a US$200-million cost, a single, central mill at Bjorkramyran that would be fed by these seven satellite deposits for at least five years.

“The cash flow at uranium prices we’ve seen lately is pretty healthy, so the economics are there,” Godin says. “Plus, the mill will serve the purpose for us of letting us pilot plant the shales.”

Continental could also someday cut a friendly deal with Mawson Resources (MAW-V, MWSNF-O) to toll-process ore from Mawson’s nearby uranium projects.

“The economies of scale make sense, and there’s a relationship with our firm,” Walters says, noting that the investment banking firm he founded and runs, Max Capital Markets, financed Mawson early on.

“Mawson’s got one good property that we missed,” Godin laughs. “Between ourselves and Mawson we pretty well control everything in Sweden that has to do with uranium.”

Continental believes that it could be turning soil for a mill by the fall of next year, with both a feasibility study and major permits in hand.

The company still needs to do an environmental impact study, but is only required to complete a full EIS on the mill property.

“We’ll probably be one of the first of the juniors that will go into production,” Godin says. “There are two or three in production now, so we’ll be in the top five to ten of the four-hundred-odd uranium explorers out there.”

As for the fickle relationship the Swedish people have had with mining uranium and using it for power generation (having once voted in a referendum in the 1980s to forbid construction of any new nuclear power stations in the country), Walters comments that “from a federal level, no one has a real problem with it (uranium). It’s educating the community at a local level that we’ve been focusing our efforts on.”

Walters says the tide seems to be turning.

“A lot of the people who were anti-nuke are now anti-coal and oil, and they want to see a clean fuel source,” he says. “Well, the only clean fuel source is uranium.”

One major difference between uranium in Sweden and any other mineral commodity is that federal cabinet approval is required for the issuance of a mining licence.

“You have to work with the community all the time,” Godin says. “They’ll grant you the licences at the federal level, but they’ll tell you that you need to go to the local community and seek their approval. It’s almost like double licensing.”

Godin says that the mayor of the town near the planned mill is “going to support us one-hundred percent. He’s just waiting for us to start.”

But, Godin cautions, “taking (the ore) out isn’t a problem; it’s what are you going to do with the tailings? We’ve got to find a spot where we can dispose of them.”

Continental commissioned a preliminary environmental study, and five potential tailings-storage sites were selected.

“The question is, rather than going out and picking a site and saying, ‘that’s where we’ll put it,’ we’ll work with the Swedish government and get their blessing,” Godin says.

He notes that there are peat bogs in the area that naturally already have more uranium in them than will Continental’s tailings.

“It’s an organic thing, so it absorbs the uranium,” Godin says.

He explains why Continental will purchase the bogs outright: “Not that (the locals) are opposed for environmental reasons, it’s that they see it as a Mother Nature thing and want to keep them. But we’re going to buy them anyway just in case they change their minds, because some of them are high-grade, too — one of them’s about five per cent. And it’s all close to the surface.”

Walters adds that it’s “one of the positioning moves that as a firm we’re taking to ensure that as the acceptance of nuclear energy gains a foothold through the European Union, we’re well positioned with uranium properties and opportunities — that’s an advantage we have with a team on the ground in Sweden.”

Oil shales

However, for the more patient investor, Continental’s Project I targeting uranium in oil shales (or “alum shales”) is probably the company’s most enticing uranium asset in Sweden.

Continental notes that, according to a 1985 Swedish Geological Survey report, Sweden has a historic resource of about 6 billion tonnes of kerogen hosted in about 50 billion tonnes of oil shale. After conversion, this amounts to about 20 billion barrels of oil.

In Project I, Continental controls 43 exploration licences that cover a large area of these oil shales, none of which have a NI 43-101-compliant resource delineated.

“The hard rock is what led us to the shales,” Godin says. “I really didn’t know much about an oil shale prior to that, but these things are just loaded with metal,” in particular uranium, vanadium, nickel and molybdenum.

“What’s in that shale is just incredible,” Godin says. “Anytime the Swedes were hard up for something, including oil and uranium, they’d go and mine their shales.”

The Swedish government has described the country’s shales as “Sweden’s most important reserve of fossil energy. The oil yields are significant and greatly increased by retorting and hydrogen under pressure. . . the formation contains the largest uranium resource in Europe.”

At Project I’s Viken licence, the shale is a 100-metre-deep homogenous deposit that’s mostly flat-lying, with some folding and bending. The Swedish government drilled 28 holes in years past, and Continental has drilled another 20 infill holes so far.

Grades from drill hol
es are on the order of 0.4 lb. U3O8 per tonne.

“It’s very consistent,” Godin comments. “There’s very little variance between the holes, and between the holes the Swedes did and what we’re doing.”

The oil shales (kerogen shales, to be more precise) that make up Project I are not economically amenable right now to the recovery of oil, which requires a fairly straightforward but energy intensive retorting process.

Still, the raw kerogen could be worth in the neighbourhood of US$20 per tonne, and so could be recovered and sold as a byproduct.

“What we hope to do by next fall is come out with an inferred resource of five hundred million pounds U3O8,” Godin says. “It’s a humongous resource and it’s low grade, but you’ve got enough credits in there.”

“Obviously those are easy numbers to dismiss because they’re very incredible,” comments Walters. “But, if we’re able to prove that up with drilling, that puts us in a very unique position to work with a major partner, which would be very good for our shareholders.”

In the event Continental is able to prove up that substantial resource, Walters says, the “actual development and exploitation would be a massive, massive undertaking.”

And Continental has three more of these deposits in Sweden, though one is being contested vigorously by the local communities.

Godin describes the infrastructure of the Viken licence area as high quality and notes that the closest community of size (Ostersund, population 45,000) is about 20 km north.

“There are lots of miners and lots of unemployment, so I think the social and economic impacts are going to transcend any resistance,” Godin says. “So far it’s been very minor anyway; no one seems to really care.”

Uranium bet

Continental latched onto these uranium-shale properties a couple of years ago, when uranium was trading in the teens.

“The only thing attractive about the project at the time was that they were drilled to a standard of proven and probable, so we were really betting against the price,” Godin recalls. “The break-even on those is going to run about thirty-eight dollars (US) a pound, so it can take a pretty good nosedive and we’re still okay.”

Continental is looking at some technologies for recovering the uranium from the shales, including some potential modifications of U.S. clean coal technology.

“It’s very exciting stuff — the technology’s come a long way,” Walters says. “It’s old-fashioned technology that they used in World War II to a large extent, but it’s being made more environmentally friendly.”

He notes that other countries exploiting oil shales include Estonia, Russia along the Estonian border, and Brazil.

Back on-site, Continental will continue to drill in order to upgrade the resource.

“We have to be objective and try to get as much out of this boom and get as much mileage out of it as we can,” Godin says.

The next step for Continental with the oil shales is to begin calculating NI 43-101-compliant resource figures that can be continuously ratcheted up as the months go by in 2007-08.

“The numbers there will certainly catapult us to one of the largest uranium resources in the world,” Godin says.

Continental graduated to the Toronto Stock Exchange in February, and now has 41.1 million shares outstanding, or 65 million fully diluted, with a large institutional following. Its largest shareholder is RAB Special Situations (Master) Fund, with some 10.3 million shares, while Godin owned 1.18 million shares at last count.

Continental is debt-free and holds $30 million in its treasury; another $25 million would come in if the stock was fully diluted.

“We’re building a real company with real pounds, with real minable assets, and to do that, we’re not going to take quick steps, we’re going to take right steps,” Walters says.

T.N.M. Nugget

CONTINENTAL PRECIOUS MINERALS (CZQ-T)

ASSETS:

Advanced conventional and oil-shale uranium deposits on 60 exploration licences in Sweden

CONVENTIONAL URANIUM RESOURCE:

20+ million lbs. U3O8 in 7 small, shallow deposits

MINE PLAN:

Truck ore to central mill for min. 5 yrs

URANIUM IN SHALE:

Potential for 100s of millions of lbs. U3O8

NEXT STEPS:

Expand conventional U resource; find JV for them; develop NI 43-101 compliant uranium resources in shales