Positive Feasibility For Western Prospector

Despite considerable cost increases, the economics are still profitable for Western Prospector Group’s (WNP-V, WEPGF-O) Gurvanbulag uranium deposit in eastern Mongolia, according to a definitive feasibility study.

Based on proven and probable reserves of 5.04 million tonnes grading 0.161% U₃O₈ (for 17.9 million lbs. contained uranium) at a cutoff grade of 0.08% U₃O₈, the project would have an estimated pretax internal rate of return of 9.2% based on a constant selling price of US$65 per lb. On an aftertax basis, the IRR would amount to 1.3%.

The reserves were generated in the feasibility study from the revised resource estimate released in November. According to the new resource estimate, Gurvanbulag has measured and indicated resources of 4.28 million tonnes grading 0.189% U₃O₈ plus 795,000 tonnes grading 0.126% U₃O₈ in the inferred category.

The feasibility study indicates that the deposit can produce an average of 1.85 million lbs. of uranium annually as calcined yellowcake for a nine-year production life. (A radiometric sorting plant is projected to remove 620,000 tonnes of low-grade rock and feed a nominal 500,000 tonnes a year to the process plant with a head grade of 0.179% U₃O₈.)

Aker Metals, a division of Aker Solutions, which completed the feasibility study, estimated preproduction capital costs, based on second-quarter 2008 currency exchange rates, at US$280.2 million with an additional US$137.5 million for sustaining capital costs during the life of the mine. Operating costs per tonne mined would be about US$94.62, or an operating cost of US$29 per lb. of yellowcake.

Those costs have risen since a preliminary assessment was completed on Gurvanbulag in 2007. At that time, capital costs were 55%, or US$148.7 million, lower. Operating costs have risen by US$10.64 per tonne.

While an after-tax IRR of 1.3% could be seen as a slim margin, Eric Bohren, Western Prospector’s president and chief executive, told The Northern Miner that with the financial crisis in Mongolia, “taxes are a negotiation.” As proof he pointed to the government’s recent announcement that it would give value-added tax exemption for any advanced mining technologies that are brought into the country and said Western Prospector’s proposed resin-in-pulp uranium processing mill would be a good candidate for such a tax exemption.

“The feasibility study is robust pretax,” he added.

“The study not only proves that Gurvanbulag is a profitable lead project, but it also gives our strategic partners the due diligence they need to agree on a transaction with Western by the end of Q1 2009.”

The Gurvanbulag central deposit is one of a number of uranium deposits within Western Prospector’s Saddle Hills project.

In December, Reuters news agency reported that Marubeni Corp., Japan’s fifth-largest trading company, intends to take a stake in Gurvanbulag this year, as well as in the Dornod uranium deposit owned by Khan Resources (KRI-T, KHRIF-O).

To qualify as a strategic partner, a company must be able to help Western with financing for production, Mongolian political support, or transport support to move uranium from the mine to the end customer, Bohren says.

Assuming all government permits are in hand by the end of May, the feasibility study forecasts that production could start as early as January 2012.

Bohren declined to say whether he thought those dates were realistic or not, but he did say that the government of Mongolia “has become increasingly flexible since the financial crisis last fall” and that because its financial position is weakening it is far more likely to push mining permits and projects ahead faster than it has done in the past.

“In the last few weeks, Mongolia has requested emergency aid from foreign aid nations to provide cash for its central bank, whose reserves are over half gone since September,” Bohren notes.

“The Mongolian banking system is in turmoil, evidenced by the government taking control of Anod Bank (the country’s fifth largest bank), the resignation by the head of the Mongolian central bank, and rumours about the government of Mongolia not being able to pay its bills.”

Bohren concludes that co-operation in all mining projects, including uranium, will occur quickly because “the only way to prop up the financial system is to get external capital into the system.”

Gurvanbulag and other uranium deposits in the region make up part of the northeast-trending Argun-Mongolia uranium province, which extends from the Gobi desert in south-central Mongolia to about 250 km into Russia, where it hosts the prolific Strel’tsov uranium deposit cluster.

At presstime, Western Prospector was trading at about 40¢ per share. The junior has a 52-week trading range of 10¢-$1.34 and has 54.3 million shares outstanding.