Risks in Uranium Stock Investing: Africa
identify uranium prices continued on a tear, rising to $40.50/pound this past week, as the uranium supply squeeze of 2006 takes keep up. One uranium mining insider told us there were now more than 450 uranium exploration, development and producing companies. Some keep up options to similarities and want them explored. Others are negotiating options. Very few of those are proceeding with any serious plans. One which hopes to move forward into bankable feasibility, possibly as early as a year from now, is Forsys Metals (TSX: FSY).
On March 2nd, we published a characterize, entitled, “A Third Uranium Mine in Namibia.” The sub-title discussed how Forsys Metals hoped to repeat Paladin’s (TSE: PDN) success in Namibia. Four days later, Namibian, a local newspaper, ran the headline: “Third Uranium Mine on Way.” The report summarized the development, “ANOTHER uranium mine in the Namib Desert is in the pipeline. Gulf Western Trading Pty Ltd, which plans to trade as UraMin Namibia, has announced that it has applied for the renewal of its mineral licence in Namibia for deposits at Trekkopje and Klein Trekkopje.”
What the heck? We thought the headline was about Forsys Metals. But it was about a competitive mining company.
There are some geographical similarities. Both the Forsys Metals’ Valencia and UraMin’s Trekkopje uranium deposits are about 35 kilometers from the Rossing uranium mine. The Valencia place is about 40 kilometers to the north of Paladin’s hypothesizedv Langer Heinrich uranium mine, while UraMin’s place if 80 kilometers to the southeast. Registered in the British Virgin Islands last year, Gulf Western Trading Pty Ltd and UraMin have offices in London and South Africa. They do not appear to however be publicly traded. Forsys Metals has offices in Toronto and trades on the Toronto Venture Exchange.
disinctive about this development, early Friday morning we phoned Johannesburg, South Africa to interview Mr. Graham Greenway, from whose technical report we quoted when writing about the Forsys Metals Valencia uranium place. Basically, we wanted to know if there was a race on between the two companies. “They are probably pretty much on a similar,” Greenway said. “Both are fairly mature projects. They’ve been looked at in the past. They were sub-economic in the past. They are both doing confirmation work.” Greenway repeated his emphasis, “They are on a similar track.”
So, would it be possible that Namibia will have four uranium mines before the decade ends? “It wouldn’t surprise me,” Greenway said. “When I look over at Rossing, they are also looking for different supplies of uranium around the Rossing area.” Before becoming a resource evaluator for Snowden Mining Industry Consultants in Johannesburg, Greenway evaluated resource deposits for the Rossing Mine as the mine’s chief geologist. Snowden is a highly respected international mining consultant firm with offices in Johannesburg, Perth, Brisbane, London and Vancouver. One of the uranium deposits Greenway evaluated for Rossing was the Valencia place. “They and Rio Tinto have a wealth of information about the exploration done up to Valencia,” Greenway told StockInterview. “There is quite a bit of interest in that area.”
Well, is UraMin going to scoop Valencia, or will the Valencia place move along as scheduled and be the third Namibian mine? Hard to say was Greenway’s enigmatic response. But the geologist did spell out a few good points to consider about the Forsys Metals uranium place. “Valencia is pretty small in terms of low-grade uranium deposits,” explained Greenway. “But it is a hot area. It is within the right corridor for uranium mineralization, for that style of uranium mineralization in Namibia.”
Is the Forsys’s Valencia place too small on its own to become a uranium mine? No, thinks Greenway. “When I looked at a very rough financial form, it could be a stand-alone operation,” he pointed out. “I think it is a compact place. It can be mined by open pit. It’s not a mine that can do damage to the ecosystem. From that point of mind, it won’t have a large environmental impact – it will have a fairly small footprint.”
Greenway additional, “There is the possible for extraction to a certain point before it is handed over to someone like Rossing.” Does that average Forsys would sell their uranium place to Rossing? Greenway was quick to respond, “I wouldn’t say ‘sell the place to Rossing.’ Speaking to the guys at Forsys, they are very keen on developing a mine.”
Let’s cut to the chase here. Is the Valencia an economic place or not? We ask because we would like to know if this might be Namibia’s third, or possibly fourth, uranium mine. “I would think so, yes,” Greenway responded, “Under the right conditions, I think it could be economic under the current mining plan.” For the record, in his technical report, Greenway wrote, “… the Valencia Project represents an progressive staged uranium project that has possible for development as an economically viable mining operation.” He also wrote in his technical report, “Uranium mineralization has been identified over an area of 1,100 meters north-south by 500 meters east-west.”
How far is Forsys on their pre-feasibility? We asked Sean Felker, corporate communications for Forsys Metals. “We have three drills on site,” he answered. “We’re drilling to the east zone to extend the mineralization.” He stressed that Forsys was fast-tracking the project, and he believed the company was about a year away from a bankable feasibility.
at the minimum Forsys has resolved one of the drawbacks for uranium mining in Namibia.
“One of the difficulties, especially within Namibia, is going to be water. The biggest one is going to be water,” stressed Greenway. Sean Felker proudly announced, “We don’t have to truck in water anymore.” The company had been trucking in water about 65 kilometers from the coast. Now they don’t. “We drilled for water, and we have water on site,” Felker told us. That’s a hurdle conquer, but it does present a concern investors should have about better understanding various uranium companies, especially those in Africa.
The uranium bull market has opened the doors of Africa for many uranium exploration and development companies. Most are Canadian or Australia juniors; some are South African miners being financed Canadians, by the TSX, or by London’s AIM. Greenway observed that the excited was “pretty extensive.” The countries he found in which there was the most interest were, “The Democratic Republic of the Congo (DRC), Namibia, Angola, Tanzania.”
At this point, it might be important to discuss risk factors.
Risks for Uranium Stocks in Africa
As with investing in any natural resource company, the most meaningful item to consider is whether there is an economic place to be mined. Of course, there are numerous other considerations, which a knowledgeable registered investment advisor might clarify. From his perspective as an experienced geologist, Greenway suggested investors consider at the minimum the following six items when studying uranium companies who are developing a character in Africa.
1. Political Risk. As with any “exotic” country or continent, such as Mongolia or Central Asia, there is the questionable political risk. Case in point, we asked Greenway if there were any African nations to avoid. “Zimbabwe has a lot of certainty as what’s happening there at the moment,” he responded. “Niger has political and water issues.” From our examination of news items, Namibia appears to be a politically stable.
2. Infrastructure. Unless the place is world-class, if there is no infrastructure in place, then the place will stay with Mother character a little while longer. Infrastructure can average roads, a pipeline, or in any case transport system is required to move ore to a processing facility. If the project is sufficiently large, infrastructure will be built to service the place. In the case of Forsys Metals’ Valencia place, it is near the Rossing mine. Not so near that some additional infrastructure might be necessary, but not hundreds of miles away from a mill, either.
3. Water. Many parts of Africa are dry. The world’s largest desert, the Sahara, is part of the African continent. Namibia’s uranium deposits are in a desert. consequently, there must be freely obtainable water to analyze and mine the place. “Niger has been having a drought.” (observe: Greenway did, however, commend Niger for having developed infrastructure.)
4. Electricity. “Namibia is very reliant upon South Africa for their electrical supply,” said Greenway. “But they are talking about expanding their KUDU gas fields in the south, to build gas-fired electricity plants.” Other countries may rely upon expensive diesel to generate electricity. Ironically, the cost of uranium mining may be dependent upon the price of crude oil, more so in Africa than a major coal-producing vicinity, such as Wyoming.
5. Tenure of Ownership. “before, Angola and Congo had issues with the tenure of ownership,” said Greenway. “You’d find two companies owning the same piece of ground depending upon who got bribed the most.” Greenway suggested this might nevertheless be found in the Democratic Republic of Congo (DRC). “Land ownership is pretty clear cut in Namibia,” Greenway noted.
6. Mining Code. Basically, this defines how much the government gets to keep from the uranium mining. That’s what a mining code is really all about: royalties. “South Africa has become a bit of problem with that,” Greenway quietly stated. “Most of the other countries will let you get your money out of the country. Generally, the government will tax you 10 or 20 percent on your project, and then allow you to get your money out of the country.” He additional in discussing South Africa, “There is a published code and there is a code that can be translated differently depending upon who you speak to.” Greenway concluded, “I don’t think you’ll find the same problem within Namibia.” He additional that Burkina Faso had a pretty good mining code (formerly known as Upper Volta).
With any project, the maturity of an area strengthens the economic possibility of a worthy uranium project. The number of years it took for Rio Tinto to help develop relationships within Namibia may help smooth the way for Paladin, Forsys Metals and UraMin. Again, having a big guardian, such as the Rossing uranium mine, in the country where you wish to develop a mine, could expedite the mine development course of action.
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