DEFINITIVE FEASIBILITY STUDY
KEY PHYSICAL AND FINANCIAL METRICS
The Mulga Rock Project exploration tenement package covers approximately 757km2 of unallocated Crown land.
Tenure is unencumbered by other leases or claims.
The Mulga Rock Project area is covered by granted Mining Leases and Miscellaneous Licences covering all infrastructure required
for the Life-of-Mine.
The Mulga Rock Project tenement package covers approximately 757km2 of unallocated Crown land in the Shire of Menzies, within the Mt Morgans district of Western Australia. Due to the arid nature and deep sandy soils of the local environment, the project area cannot sustain stock and so is devoid of any pastoral lease or settlements, past or present.
The project comprises two granted Mining Leases (M39/1104 and M39/1105) and twelve Miscellaneous Licences (L39/193, 219, 239 to 243, 251 to 254, 269) nine granted and three under application, covering all infrastructure required for the Life-of-Mine. In addition, there are eight granted Exploration Licences (E39/876, 39/877, 39/1148, 39/1149, 39/1150, 39/1551, 39/1902 and 39/1953) and two under application (E28/2710 and E39/2049). Two Prospecting Licences, P39/5844 and P39/5853, are also under application.
Details of all tenements and applications within the MRP as of 31 December 2017 are shown
in Table 2.1 below.
Vimy holds all Ministerial approvals required to carry out development and mining activities at the MRP, subject to endorsement of Mining Proposals and Works Approvals (State and Commonwealth) and secondary licences.
Table 2.1: Mulga Rock Project Tenement Details as at 31 December 2017
The Mulga Rock Project has a total Mineral Resource of 90.1Mlbs U3O8 being 71.2Mt at 570ppm U3O8.
The Mulga Rock East mining area contains a high-grade mineral inventory totalling 25Mlbs at 1,500ppm U3O8.
A 34% increase in the Mulga Rock East mineral resource has been achieved since the release of the PFS.
The Mulga Rock Project has total Ore Reserves of 22.7Mt at 845ppm for 42.3Mlbs U3O8.
In July 2017, a significant Mineral Resource update for the Mulga Rock Project was released to the ASX and reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code 2012); the modifying factors for this resource update are provided in the Appendix of that release. AMC Consultants Pty Ltd independently verified the Mineral Resource estimate. The July 2017 Mineral Resource block model forms the basis of the DFS mine plan and design.
The MRP Uranium Mineral Resource is 71.2Mt at 570ppm U3O8 for 90.1Mlb U3O8 (see Table 5.1 below). This represents an increase of 20% in contained U3O8 metal for the global resource when compared to the PFS Mineral Resource released to the ASX in September 2015. The increase in contained metal comprises a 10% increase in uranium grade and 9% increase in tonnage. More importantly, Mulga Rock East (Ambassador and Princess) has increased by 34% in contained metal comprising a 17% increase in grade and a 13% increase in tonnage when compared to the mineral resource used for the PFS.
There is a high-grade component within the Ambassador and Princess deposits containing 25Mlb U3O8 at an average uranium grade of 0.15% (1,500ppm) U3O8, with 91% in Measured and Indicated status. Vimy plans to mine three major high-grade pit shells that will be the focus of initial mining activities during the project payback period.
There is 45.4Mlb U3O8 in Measured and Indicated status representing 50% of the total global resource as summarised in Figure 5.1.
Table 5.1: Mulga Rock Project Mineral Resource, July 2017
Figure 5.1: Mulga Rock Project Distribution and Resource Status
Currently the Ore Reserve comprises 22.7Mt at 845ppm U3O8 for a total of 42.3Mlbs of U3O8 (ASX announcement 4 September 2017) as detailed in Table 5.2. The Ore Reserves are derived from, and are a subset of, the MRP Mineral Resource as released to the ASX on 12 July 2017. The modifying factors for this Ore Reserve update are summarised in Appendix 1 - ‘JORC Code – Table 1 Mulga Rock Project – Ore Reserve Update’ provided to the ASX on 4 September 2017.
The classification of the MRP Ore Reserve has been carried out in accordance with the principles of the JORC Code 2012 Edition. It reflects drilling and sampling density, estimation methodology, understanding and confidence of the orebody continuity, and the proposed mining and metallurgical recovery methods.
The mining cost estimates used for this Ore Reserve have been developed by Mining Plus. Equipment vendors, mining contractors, and other mining service providers have submitted cost estimates used to develop the current DFS mining cost models built from first principles to meet the mine production schedule.
For planning and design purposes, the optimised pits and subsequent DFS pit designs are derived using all available Mineral Resources, including Inferred material. The material in the Inferred Resource does not determine the economic viability of the MRP and does not contribute materially to the first ten years of the mine schedule as ore to be mined between Years 1 to 10 comprises 90% of the Ore Reserves. Overall, the optimised pit designs for Ambassador, Princess and Shogun contain 85% of Proved and Probable Ore Reserves. There was a 98% conversion of Measured resources into Proved Ore Reserves, and 91% conversion of Indicated material into Probable Ore Reserves.
Table 5.2: Mulga Rock Project Ore Reserves, August 2017
The DFS mine schedule supports 15 years of production at 3.5Mlb of uranium per annum.
The optimised pit designs for the DFS remain economic under a broad range of uranium prices both at current-term contract prices and expected future pricing.
The DFS has a high-grade start-up strategy to maximise cash flow during initial production ramp-up, whilst maintaining mine life.
Excavation of two bulk test pits at Ambassador verified the free-dig nature of the overburden.
Vimy examined a high-grade start-up strategy to maximise metal output, and therefore value, during the initial ramp-up phase. A separate optimisation study was conducted for the Ambassador and Princess deposits using adjusted optimisation parameters to represent direct feed (instead of through the beneficiation circuit first) into the semi-autogenous grinding (SAG) mill. The adjusted parameters along with variation in the revenue factor provided nested pit shell results to determine areas suitable to support the high-grade production ramp-up phase within the ultimate economic pit limits identified in the previous section.
Figure 6.5 shows the Ambassador deposit at different targeted ROM feed grades.
Following on from the resource optimisation, Mining Plus developed the pit designs and defined the mineral inventories for the deposits using the optimised pit shells.
Geotechnical pit wall slope design parameters were fully supported by an extensive geotechnical diamond drilling program undertaken at Ambassador, Princess and Shogun. The parameters were subsequently verified by two geotechnical test pits excavated as part of the DFS in March 2016. AMC supervised all geotechnical work undertaken as part of the DFS. The pit design parameters, based on geotechnical assessment across all pits were:
- 15m benches with 5m berms;
- The top berms are below the surface Quaternary sand layer;
- The batter angles vary to suit the material and heights of walls;
- Operating bench heights, 10m for waste and 5m for ore;
- Minimum mining widths, 80m for cutbacks and 40m at pit base;
- Final pit floor to follow contour of footwall ore contact;
- Ramp widths, 40m dual lane and 25m for single lane; and
- Ramp gradients maintained at less than 10%.
The overburden is free-digging as verified by the two bulk test pits completed at Ambassador. The overburden sequence will be mined by two face shovels operating on 10-15m high faces.
Figure 6.7 shows the final pit design for Mulga Rock East. Overburden landforms have been designed to accommodate required ex-pit volumes.
Figure 6.7: Mulga Rock East Mining Centre Layout
The Mulga Rock Project is located near Kalgoorlie-Boulder, a major mining service centre.
The workforce will be fly in-fly out and accommodated in a site village with a sealed airstrip.
Installation of a private long-term evolution (LTE) 4G network future-proofs the project and allows mining automation to be implemented at a later date.
Large water borefield secured with 167-200GL of water.
The infrastructure component of the Mulga Rock Project includes all supporting facilities located outside the mining area. Infrastructure includes the engineering design, procurement and management for the following siteinfrastructure works:
- Main access road;
- Internal access roads and tracks;
- Bulk earthworks including clearing of all required areas, installations including culverts, box cuts, back fill, hard stands, dams, drains, catchments, services trenching and water storage ponds for the process plant site, mining services area, accommodation village, airstrip, power station, internal roads, borefields, and explosive magazine storage;
- Accommodation village installation, reticulated services, waste disposal, water treatment and associated infrastructure;
- Aerodrome and airstrip;
- Communications system;
- Transportable buildings including offices, change rooms, crib rooms and ablutions;
- Steel framed buildings including workshops, warehouse and uranium packaging building;
- Fuel storage and distribution facility;
- Power station civils and generator haul building;
- Power reticulation across the project site;
- Site fencing and security;
- Process plant security;
- Kakarook borefield water supply;
- Pit water re-injection borefield;
- Potable water supply and waste water treatment; and
- Wheel wash system for road-based vehicles.
CAPITAL COST ESTIMATE
Total capital cost is A$493M inclusive of growth allowance and contingency totalling A$41.7M.
The DFS capital cost has reduced by A$10.9M when compared to the PFS.
Mulga Rock Project Capital Cost Breakdown
PREVIOUS CAPITAL COMPARISON
A comparison of the change in the capital cost estimate developed for the DFS, at A$492.98M, to that released to the ASX in November 2015 for the PFS, at A$503.9M, is presented in Figure 11.2.
The DFS capital cost has reduced marginally from the PFS cost estimate, with the following cost centres being responsible for the overall 3% reduction in cost:
- The cost of the process plant has increased marginally by A$1M with the base metals plant being replaced with a turnkey sulphuric acid plant;
- The cost of plant and regional infrastructure has increased by A$1M, due to an increase in costs associated with the communications system and electrical substations, following refinement of the requirements for this part of the infrastructure scope, which has been partially off-set by a reduction in the cost of the accommodation village;
- The cost of indirects has increased by A$11M, primarily due to increases in construction mobilisation-demobilisation costs, construction facilities and EPCM hours for the project;
- The cost of mining and pre-strip has decreased by A$15M, due to the change from Princess to Ambassador North pit as the initial tailings storage facility;
- The growth allowance has decreased by A$9M, commensurate with the higher level of project definition developed as part of the DFS; and
- The owner’s costs have decreased by A$13M, primarily due to lower owner’s contingency with a greater level of definition of project scope and review of the project risk register.
Years 1-5 cash operating cost of production is US$25.11/lb (exclusive of royalties and sustaining capital).
Life-of-Mine All-In Sustaining Cost (AISC) of US$34.00/lb.
Total Life-of-Mine sustaining capital estimated at A$159M or equivalent to US$2.36/lb.
The DFS Life-of-Mine cash operating cost has reduced by US$3.40/lb when compared to the PFS.
The operating cost estimate for the Mulga Rock Project was developed by GR Engineering Services with assistance from Mining Plus and is based on the Life-of-Mine ore schedule, process design criteria, steady-state mass and energy balance, and metallurgical piloting undertaken as part of the DFS.
Figure 12.2: Mining Operating Cost Breakdown
OWNER-OPERATOR TRUCK AND SHOVEL IS THE MOST COST-EFFECTIVE APPROACH FOR THE MULGA ROCK PROJECT, ENSURING VIMY HAS FULL CONTROL OF EXPENDITURE.
Figure 12.1: Distribution of LOM Cash Operating Costs by Area
Almost all uranium is sold on long-term contracts directly between miners and the utilities; these contracts are confidential and have a very limited relationship with the oft-quoted ‘spot price’.
As contracts continue to roll off, higher cost producers will need to ‘reposition’. Global stockpiles might be able to sustain demand in the short term, however, this is not a sustainable strategy.
Nuclear generating capacity is expected to increase by 38% in the next decade.
Current and growing future demand for nuclear power means existing mines must remain open and new mines need to come on stream.
The nuclear industry is a somewhat closed club and as a result, many investment analysts often overlook the subtle nuances within the uranium market. For example, an emphasis by some commentators on the ‘spot’ uranium price belies a fuller understanding of the more important, but less visible, ‘long-term contract’ market. Moreover, the uranium market is not like typical metal markets in that there is no clearing house like the London Metal Exchange. Almost all uranium is sold on long-term contracts directly between the miners and the utilities; these contracts are confidential and have a very limited relationship with the oft-quoted ‘spot price’. However, the spot price is the only visible measure of the uranium price and so has a huge influence on not only market sentiment, but has also created unrealistically low expectations on the part of utilities regarding fair long-term contract prices.
Owing to the mostly conflicting, and therefore mostly incorrect, publicly available data, Vimy has embarked on its own detailed view on the current and future state of the long-term contract market. Various development scenarios are considered for the growth of nuclear power over the period and these scenarios are then converted into an associated UOC demand estimate.
The present uranium market pricing mechanism, both in proposed new contracts and the current spot price, would be inadequate to sustain production of current global uranium demand in a normal metals market. However, most uranium miners are shielded by a portfolio of long-term contracts written at a time of historically high uranium prices. But over the next few years, many of these contracts come to an end and so the industry is entering a period of re-adjustment as the disconnect between utilities and the uranium miners begins to play out.
This situation was demonstrated through the significant announcement by Cameco Corporation (TSX:CCO) on 8 November 2017 about the suspension of operations at the McArthur River Mine in Saskatchewan for ten months from January 2018 (CCO 69.8% ownership).
This single mine produced 18Mlbs U3O8 in 2016 and contributes 11% of global primary uranium supply. It is also one of the lowest cost producers on Vimy’s uranium cost curve (Figure 13.1). Yet, as Cameco admits, the favourable contracts are running out and it is necessary to reposition the company to sustain cash flows.
Furthermore, on 4 December 2017 Kazatomprom announced a 20% reduction in annual production over the next three years, and approximately 10Mlbs U3O8 in 2018 alone. When combined, these are significant reductions amounting to 18% of global uranium production.
As contracts continue to roll off, the higher cost producers will also need to ‘reposition’ and while global stockpiles might be able to sustain demand in the short term, this is not a sustainable strategy. Current and growing future demand for nuclear power means existing mines must remain open, and new mines need to come on stream.
As long-term contract prices inevitably correct to sustain and grow primary supply uranium production, Vimy’s Mulga Rock Project will become a significant and strategically important uranium mine.
"As long-term contract prices inevitably correct, Vimy's Mulga Rock Project will become a strategically important uranium mine."
NUCLEAR FUEL CYCLE
All uranium mines produce a uranium oxide concentrate referred to as UOC, but with slightly differing chemical composition depending on the uranium process used (i.e. UO4, UO3, U3O8). In any event, all UOC is normalised to U3O8 for reporting purposes and this section will refer only to U3O8 or UOC interchangeably.
To prepare uranium for use in a nuclear reactor, it undergoes mining and milling, conversion, enrichment and fuel fabrication for use in the reactor. These steps make up the ‘front end’ of the nuclear fuel cycle.
Figure 13.2 shows the ‘nuclear fuel cycle’ and a full description is available on the World Nuclear Association website.
Uranium sold by Australian mining companies can only be used as fuel in nuclear reactors. Reactors typically burn circa 27t of uranium fuel for each GW of electricity produced. This requires circa 200 tonnes, or 440,000lb of UOC to go into the front end of the fuel cycle.
The project NPV8 is A$530M at an assumed long-term uranium contract price of US$60/lb U3O8, with an IRR of 25% and project payback period of 3.1 years after commencement of production.
For every US$5/lb increase in the uranium price, the project NPV8 increases by A$172M.
The all-in capital breakeven uranium price for the project is US$44.58/lb U3O8
The project generates an average A$134M per annum free cash flow (EBITDA) after royalties.
PROJECT ECONOMIC ANALYSIS
Project financial analysis is based on a ‘100% equity’ basis and the cost of capital is ignored. All results are inclusive of a 5% Western Australian royalty and a 1.15% RCF VI royalty entitlement as announced to the ASX on 17 August 2015. Results are on a pre-tax basis in A$, unless stated otherwise. Financial modelling is inclusive of all capital items including mining fleet, mining pre-strip, process plant, project infrastructure and LOM sustaining capital.
A project financial model has been developed with a valuation date of 1 January 2018, coinciding with an expected decision to commence development in the second half of 2018. An 8% discount rate has been used for the project economic analysis.
Table 14.1 shows the variance in NPV8, IRR and project payback period for the different uranium contract prices. The project NPV8 is A$530M at an assumed long-term uranium contract price of US$60/lb U3O8, with an IRR of 25% and project payback period of 3.1 years after commencement of production.
The all-in capital breakeven uranium price for the project is US$44.58/lb U3O8 using a discount rate of 8%. The project generates on average A$134M per annum free cash flow (EBITDA) after royalties.
Figure 14.1 shows the impact of capital and operating costs, production and uranium price on the project economics, within +/-10% accuracy of the DFS. Uranium price has the greatest impact on the project economics with every US$5/lb increase in the uranium contract price resulting in the NPV8 increasing by A$172M.