Rossing South deposit could be No. 2 uranium producer by 2015

Although uranium has been out of flavour for a while and major indexes plunged more than 2% today on new worries of another recession, Extract Resources (EXT-T) shares were up 5%.

What lifted Extract shares 33¢ to $6.98 in Toronto was an updated resource estimate on its Rossing South deposit, which is part of its Husab uranium project in Namibia. The TSX Composite Index fell 256.08 points, or 2.2%, to 11,582.21.

Extract has increased indicated resources tenfold to 241 million tonnes grading 0.048% U3O8 for a total of 257 million lbs. U3O8 in zones 1 and 2.

It’s now the sixth largest undeveloped uranium deposit in the world. BHP Billiton’s Olympic Dam deposit in Australia is the largest with 5.3 billion lbs. U3O8. Extract has an additional inferred resource of 125.5 million tonnes grading 0.04% U3O8 totaling 110.3 million lbs. U3O8 in zones 3 and 4.

Rossing South, if developed, could be the second largest producer in 2015 with a 40,000 tonne-per-day operation producing 15 million lbs. U3O8 per year, second to Cameco and Areva’s MacArthur River mine in Saskatchewan.

A feasibility study due out at the end of the year will give a more accurate picture but a preliminary study by the company estimated a project capital cost of US$704 million, production costs at US$23.60 per lb. U3O8 with a 20 year mine life.

The Rossing South deposit also has potential for expansion. The company has 17 drill rigs on site at the moment to upgrade zone 1 and 2 to the measured category and after that the company will focus on upgrading inferred resources and extending resources beyond known mineralization.

According to UxC weekly data as of July 26, the uranium spot price is up 3.4% this year to US$46 per lb. and 15% above the 2009 low of US$40 per lb. while the long-term price is US$60 per lb., down 3.2% year to date.

Haywood Securities analyst Geordie Mark says that near-term uranium demand should be broadly met by primary and secondary supply for the next few years but that by 2013, when the Megatons to Megawatts program ends, there could be more demand than supply.  

Mark pointed out that if several supply disruptions and project delays hadn’t happened recently then the sector would be in a position of significant oversupply.