Mega Uranium eyes JV with Cameco at Kintyre

VANCOUVER — It’s been a busy month on the deal front for Toronto-based junior Mega Uranium (TSX: MGA). In mid-June Mega announced a proposed merger with peer Rockgate Capital (TSX: RGT), which would create a cashed-up uranium outfit with a portfolio of projects at varying stages across Canada, Australia and Africa.

On July 11 Mega was at it again, releasing terms of a potential joint-venture agreement with industry-leader Cameco (TSX: CCO) on its wholly-owned Kintyre Rocks uranium project in Western Australia.

Though negotiations are ongoing, Mega and Cameco released a term sheet that outlines a basic framework for the agreement. Cameco can earn a 51%-stake in Kintyre Rocks by solely financing roughly US$1.8 million in exploration at the site over the next two years, and earn an additional 19% in the project by chipping in another US$1.8 million within four years. Cameco will be the operator of the project during the farm-in period and the eventual manager of the joint venture.

Kintyre Rocks lies in the East Pilbara region of Western Australia, and encompasses around 225-sq.km of ground surrounding Cameco’s 70%-owned Kintyre joint-venture, which it operates with Japanese consortium Mitsubishi Development. Cameco took a US$168-million write-down on Kintyre during the fourth quarter of 2012 after the company announced it was not developing the asset following a prefeasibility study.

“We continue to have a positive view of the long-term fundamentals of the uranium market and want to ensure our assets are ready to respond when the market signals new production is needed. We expect a feasibility study would take about eighteen months to complete,” Cameco stated.

Cameco’s study modelled an open-pit mine with an estimated life of about seven years that would produce roughly 40 million lbs. of packaged uranium at an average production rate of about 6 million lbs. per year. According to the company it would require a US$67 per lbs. uranium price or larger production capacity for Kintyre to “break even”.

With uranium trading at roughly US$39.50 per lb. at the end of June, Cameco will likely need a larger resource at the project to move towards development. Kintyre currently holds global resources of 5.2 million indicated tonnes grading 0.49% U3O8, which amounts to around 56 million contained lbs. of U3O8.

Cameco drilled ten additional prospective areas at Kintyre in 2012 and identified no additional resources, but Mega’s asset could offer another opportunity moving forward. 

Mega has been working at Kintyre Rocks since around 2007, but hasn’t drilled at the project since 2010 due to budgetary constraints. In 2008 the company conducted a 5,000-metre, reverse-circulation drill program 3 km southeast of Cameco’s resource, and intersected similar lithologies of graphitic and chloritic schists with minor sulphide disseminations. There was, however, no significant radioactivity detected in the holes.

The company followed up with gravity and electro-magnetic surveys over the south-east projection of the Kintyre host rocks. Mega identified four targets for drill testing within six km of Kintyre’s resource, including: Area 1, Gleneagles, Southern Cross and Wyoming Valley.

At Area 1, Mega hit “Cassandra Member” stratigraphy in three drill holes over around a 700-metre cross section. The Cassandra Member hosts all known Kintyre deposits, and is considered fundamental to the discovery of further uranium resources. Mega’s Area 1 intercepts are around 3 km south of Cameco’s deposit beneath a regionally-extensive plain of thick sediment cover, and intersected up to 98 meters of the Cassandra stratigraphy beneath 32 metres to 77 meters of Permian glacial tillite sediments.

Drilling at Gleneagles was less successful — with no further exploration planned — while drill programs scheduled for Southern Cross and Wyoming Valley were delayed due to capital shortages.

Mega has traded within a 52-week range of 7¢ and 22¢, and jumped around 12% following news of the Cameco JV to close at 9¢ at the time of writing. The company will reportedly have around US$21 million in working capital following its merger with Rockgate, and has 267 million shares outstanding for a $24 million press-time market capitalization.