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Doug Beattie: The Last Uranium Boom; Part 4- Areva, What Were These Guys Thinking?

Posted on: Dec 8, 2021

Introduction

This is an article written by Doug Beattie. He was so generous to let me republish his articles, under the condition that I would make several things clear for readers before they continue with the article:

  • Readers should be made well aware that Doug Beattie is retired and has not accepted, and will not accept, any compensation for the reports  he has written.  Once compensation comes into the equation, it takes away some of his editorial liberty and would likely cause him to become very cautious with what he has to say.
  • Secondly, with respect to the zinc modules in particular, he has based his assessment on publicly available information only, hence he does not have the "inside angle" that analysts at the brokerages, traders etc. have. Since most of these modules were written over two years ago, many of the links are no longer functional.
  • The uranium work is largely based on recollections since he no longer keeps a library of information, apart from what is publicly available.
  • That Doug cannot be held liable for anything he has written in his articles
  • That these reports are often on the whimsical side and readers should bear this in mind.
  • That Doug has given me permission to republish.

Biography of Doug Beattie

Doug Beattie is a retired Chief Mine Engineer of Cameco, one of the largest uranium producers in the world, and is knowledgeable on uranium mines and mining. He also spent approximately eight of his 30+ years in the mining business working as an engineer at zinc mines including Noranda’s Geco copper/zinc/silver mine in northern Ontario, and Glencore’s George Fisher and McArthur River zinc/lead/silver mines in northern Australia.  Doug Beattie graduated in mining engineering at Queen’s University.

After working as a mining engineer in Saskatchewan, Ontario and Australia, he joined Cameco Corporation in 1993 as Senior Mining Engineer at the McArthur River exploration project. He later became Engineering Superintendent during the construction phase, and Mine Superintendent during the ramp-up to full production. In 2002 he became the Corporate Chief Mine Engineer at Cameco’s head office where he was largely involved in uranium project assessments and studies. He then consulted on a number of projects in Canada and Europe before full retirement in 2015.

This sums up the biography of Doug, his article is next, enjoy:

 

The NI 43-101 reports mentioned are linked at the end of this blog.

Perhaps the most spectacular disaster that came out of the uranium boom and bust cycle of the late 2000’s was the acquisition of UraMin by Areva.

To be charitable, this acquisition was due to unrealistic expectations for future uranium prices, commitment to a project where the technology had not been proved and, as mentioned in Part 1, the perceived need to acquire pounds in the ground to support future expected reactor sales.

To be not so charitable, there are overtones of corruption and gross incompetency related to this acquisition.

UraMin’s lead project was the Trekkopje property in Namibia.  The company listed on London’s AIM market in April 2006 and the TSX in December 2006.  An NI 43-101 report was filed on sedar in December 2006 which was then updated with filings in March and June of 2007.

UraMin also had an asset, Ryst Kuil, in South Africa with an historic resource of 11 MT grading 0.1% U3O8 and the Bakouma asset in the Central African Republic with an historic resource of 7 MT grading 0.27% U3O8 (later lowered in an NI 43-101).

In their 2006 Annual Report, UraMin tells us,

“UraMin is on track to achieve a combined annual production rate in excess of 20 million lbs per annum by 2012.”  This was a load of rubbish.   By all appearances UraMin had Areva in their sights from early on and exhibited little intention of placing any properties into production themselves.

Trekkopje

You can find a satellite image of the mine site here….

https://www.google.ca/maps/@-22.1974522,14.8382321,3356m/data=!3m1!1e3?hl=en

Trekkopje is a shallow calcrete type uranium deposit located in Namibia in the area of the existing Rossing, Langer Heinrich and Husab uranium mines.  The uranium mineralization is carnotite which is a uranium/vanadium mineral.   K2(UO2)2(VO4)2-3H2O.   A description from one of the NI 43-101’s is below.

Test hole drilling and test pits demonstrated that most of the ore was from 1-10 m in thickness and within 15 m of surface as illustrated below.    However, testing revealed that the majority of ore would require drilling and blasting to liberate it.  Using surface rippers would not work for the calcrete.

The mineralization is very similar to Langer Heinrich but the ore grade is only about 1/5th at 0.014% U3O8.  To put this in perspective, a tonne of material would contain about 0.3 lb of U3O8 and a conventional mill would recover perhaps 0.25 lb. U3O8 per tonne.  So in a $50/lb. environment, a tonne of ore is worth only about $12.50.

Mining large tonnages daily and minimizing processing capital and operating costs are the only two means of having the potential for any sort of project payback while producing worthwhile quantities of uranium annually.   For instance, if a mine operated at 10,000 tpd this would only lead to annual uranium output of less than a million pounds due to the very low grades.  Not worth the bother.

So UraMin looked at a number of scenarios and focussed on the mining of 100,000 tpd.  Since the cost of a conventional mill to treat this tonnage rate would be very high, UraMin focussed on the use of heap leaching.  The host rock is a consumer of acid which meant that sulphuric acid leaching was out of the question.  The other main way of extracting uranium is to use alkaline leaching instead (as used at US ISL operations).

The fundamental problem with alkaline heap leaching is that fact that this had never been attempted in the western world for the commercial recovery of uranium.  An extensive testing phase would therefore be necessary to get a better handle on whether this approach was both technically and commercially viable.

The grade distribution for the deposits is illustrated below.  The orange and red blocks are above 0.01% U3O8.

The resource statement provided in the last NI 43-101 published is illustrated below.

The project scope in this NI 43-101 is defined as:

The price of uranium used in this study was as follows:

Since this was a study commissioned by UraMin, it would not reflect Areva’s perception of future uranium pricing.

I recall having four key concerns when I reviewed the March 2007 NI 43-101:

  • The daily production rate of 100,000 tpd struck me as overly optimistic.  It was necessary to be selective with the mining here in order to remove the overburden while also avoiding some waste rock that was detrimental to the uranium recovery process (this waste would cause gypsum to form on the leach pile which would hinder percolation while consuming leach solution if I recall correctly).  High production rates are fine in bulk mining situations such as porphyry copper deposits but where selectivity is required, not so fine;
  • There was no industrial water supply available in the area.  Langer Heinrich and Rossing were essentially (over) utilizing existing aquifers.  So, the developer of this deposit would also be on the hook for a coastal desalination plant and related pipeline;
  • Most importantly, alkaline heap leaching had never been tried on a commercial scale in the western world as far as we could figure.  I canvassed numerous company mill metallurgists at Rabbit Lake, Key Lake and head office and they had never heard of this approach (although some had worked previously at Uranium City where conventional alkaline leach milling had occurred).  One research metallurgist at Port Hope was aware of a mine in Bulgaria that had attempted alkaline heap leaching during the communist era but it took eight years to get the recoveries they expected to achieve in two.  Trekkopje was therefore essentially a research and development project.  It would likely be about two years before a proper economic assessment could be made here;
  • The grade here was less than half of Rossings’ milling grade at that time and it was well understood that Rossing was at the high end of the cost curve.  By implication, so should this deposit.

So it did not take me long to relegate this one to the not ready for prime time basket.  It would be quite sometime before some decent capital, operating and uranium recovery figures were available.  I don’t even think I brought it up with the rest of the project development team since it looked like a work in progress (or more precisely, a low-grade non-starter to me utilizing a long-term forecast price of $50/lb. U3O8).

A third NI 43-101 was issued on June 11,2007 and it is very unlikely I had reviewed this before Areva dropped their bombshell on June 15,2007.

(Ramble alert- It was rather intriguing that the second NI 43-101 issued was called a “Bankable Feasibility Study Interim Progress Update Report”, whereas the third NI 43-101 filed just four days prior to the takeover announcement was labelled a “Preliminary Assessment”.  Was there some butt covering going on here already?)

I don’t recall, but I probably spat my coffee across the office upon reading that Areva had offered  $US2,500,000,000 in cash for UraMin.  At first you think, “what have I missed?”  but after reviewing Trekkopje and the other two assets again, the answer was “nothing”.  I had heard rumours that Areva was very thin on the ground in Paris for mining talent, and this just confirmed it in my opinion.

Below is the financial model for the first five years of production used in this last NI 43-101.

Some takeaways from Part 4:

The assessment of a project can generally only be as accurate as the least accurate input used in the assessment.  There are nine key inputs to any project that impact its financial outcome:

  1. The capital cost to build the project;
  2. The time it takes to build the project;
  3. The capital necessary annually to sustain the production rate;
  4. The time it takes to ramp up to full production;
  5. The unit operating costs annually for the project;
  6. The expected annual output for the project based on grades and recoveries and the ability to market this output;
  7. The net unit revenue the project expects to receive for their output (commodity price forecasting);
  8. Taxes, royalties and other burdens;
  9. The cost to close the project and rehabilitate the site.

The fundamental problem I found throughout my career was that most projects had a very unhealthy obsession with predicting the capital cost of the project at the expense of almost all of the other project inputs.You can literally have hundreds of people designing the project and trying to nail down the cost of the project to a high level of accuracy.You often then just have one metallurgist, one mining engineer, one accountant and one freshly minted MBA predicting the annual output, operating costs, annual forecast commodity prices and the financial payback expected.So despite being told that the capital cost of a project is $500 M +- 20%, the biggest source of error likely lurks in one or more of the other elements listed above.And it is for this reason many projects fail.

In Areva’s case they pulled the acquisition trigger so early in the design process here that they ended up getting 1), 4), 5), 6) and 7) severely wrong which subsequently contributed to their bankruptcy.  Instead of describing each in detail I have listed the expected and actual outcomes in the table below.

Takes your breath away.  The following is taken from the WNA website.

A mining licence was granted in June 2008, first concentrate from the pilot phase was produced in January 2011 but development stalled in October 2011 due to low uranium prices. The second stage pilot operation had been commissioned in mid-2010, and the main ore stacking for on-off alkaline leach operation commenced early in 2012. However, the project was put onto a care and maintenance basis in October 2012: "considering both the continued decrease of uranium prices coupled with the investments yet to be made on site, Areva has no other option than to postpone the launch of the Trekkopje mine." Production in 2012-13 was 437 tU, “demonstrating the feasibility of the technical solutions adopted and confirming the production cost targets.”

So it appears that probably close to $US4,000,000,000 was spent to recover about one million pounds of U3O8.   In 2011 Areva announced a reduction in resources from 45,600 tU to 26,000 tU (68 Mlb. U3O8) and also took a EUR 1,800,000,000 write down on the mine.

Bakouma

One of the other key assets acquired was the Bakouma deposit in Central African Republic.  An NI 43-101 dated June 2007 put the resource at 5.7 MT grading 0.2% U3O8 for 26 Mlb. U3O8.   The study did mention the presence of nine other deposits in the area.  A feasibility study was underway when the takeover was announced.  Areva most likely had the best understanding of the area potential since the French and Swiss had been exploring on and off in the area since the 1960’s.   Mining at Bakouma was to start in 1978 pending financing but the project was shut down in 1981 when the price of uranium collapsed.

The Central African Republic was and is a strife torn nation that you have probably never heard of.  There really was not enough meat on the bone of the NI 43-101 to even review what its potential economics would be so a review by us never occurred.  But I was certainly well aware of the instability and warfare going on at the time in the country though.

The figure below, from the NI 43-101 report, strongly suggests open pit mining for the Patricia deposit (the French give orebodies the name of women, I kid you not.)

According to a study linked as a footnote at the end of this blog (and not independently verified), even though Areva was now the 90% owner of this property, they were not even allowed to visit it until March of 2008.   The Central African Republic apparently then requested $360 M in order to allow Areva to keep visiting the property, to which Areva agreed to pay $40M!  Areva made no attempt to construct a mine here.

In June 2012, the Lord’s Resistance Army attacked the Bakouma site and the site was evacuated in September 2012.  You cannot make this shit up.  Never a boring day in the uranium world.

So it is anyone’s guess whether a mine will eventually be built here.

Ryst Kuil

Although UraMin never issued an NI 43-101 for this property in South Africa I had access to some old work done by Esso in the late 1970’s.   I can recall very little from the assessment I did except to conclude that the property would likely not amount to more than 2 million pounds U3O8 per annum.  UraMin states SRK was conducting a feasibility study for late 2008 completion targeting 4.4 Mlb. U3O8 per annum from an historic resource of 11 MT grading 0.1% U3O8.   This implies a mine life of only five years which suggests project overcapitalization.  There are however numerous other small deposits spread out over 100 km.   The deposits remind me of Westmoreland in Queensland.  Shallow flat lying uranium deposits in sandstone some of which can be open pit mined.

Again, we saw nothing here that fit into a $50/lb world at our more conservative production assumptions but if Areva was indeed using $100/lb.  and 4.4 Mlb. a year this project may have had some merit.  It does not appear that Areva did much, if any, work here prior to divesting of this property.

The property ended up in the hands of Peninsula Energy (74%) who withdrew from any further development in April 2018.  Project details can be gleaned from their website (in the Announcements Achieve).   Ryst Kuil should not be confused with Rietkuil.   Peninsula eventually reported a resource of 23.3 MT grading 0.11% U3O8 for 56.9 Mlb. U3O8 for numerous properties including Ryst Kuil in about a 100 km x 100 km area.   But they had their hands more than full trying to make something of Lance in Wyoming and could not find a buyer here.

Final Takeaways

This whole Areva/UraMin thing would probably have been a comical farce along the lines of Energy Metals and Uranium One except for the fact that Areva did not acquire UraMin with stock, they used cash.  When combined with the TVO reactor construction fiasco in Finland, Areva ended up bankrupt and the French government had to recapitalize the company.   So the French taxpayers are essentially on the hook for the UraMin and TVO fiascos.   Areva is now the financially hobbled Orano.

As a quasi-state enterprise during this period, Areva seemed to me to suffer from a severe case of lack of corporate governance.  The company had a head strong CEO who seemed to manage with a “my way or the highway” type mentality and all her minions got in line since they seemed to be too scared to say shit even if their mouths were full of it.  It is in these types of situations that companies are at their most vulnerable.  The CEO overrules a rational corporate thought process likely in order to achieve some sort of personal goal that they have publicly stated (such as “we will be the worlds largest gold producer” yada yada yada).

In my opinion, Areva’s CEO was then taken to the cleaners by some mining sharks that got her in their sites and went in for the kill.  (At no time during the brief courtship was Cameco contacted by UraMin or an investment banker to review these assets for a possible counterbid to the best of my knowledge.  This was a hit job on Areva by UraMin, pure and simple in my opinion.)   And I see at least one of these sharks is still at it today in the next sexy commodity of the year, lithium.

It should also be noted that:

there were common links between the Uranium One and UraMin fiascos: they both involved the same consulting firm doing the NI 43-101’s and both fiascos had southern Africa origins;

if in fact there was corruption involved here, a company such as Cameco listed on the NYSE, could likely be taken to the cleaners due to the Foreign Corrupt Practices Act in the USA.  A mere whiff of the potential chased us away from other opportunities;

in all of the fiascos reviewed to date in these blogs, you may have noticed that the analysts and regulators, in Canada in particular, quickly kicked this stuff under the carpet and moved on.   Caveat emptor.

FOOTNOTE

For those interested in the corruption angle I came across this 38-page paper written by a university student in 2017.  I cannot vouch for its accuracy and it appears to be a very awkward translation from French to English.  It is very well referenced though.  You can use google translate on many of the references.  Even Bill Clinton gets another mention.  You could probably make a Hollywood movie or novel out of this one.  Areva’s CEO’s husband was eventually charged with insider trading of UraMin shares.   According to this study, UraMin spent $US32M acquiring the properties they vended to Areva for $US2.5B months later.  Puts those Energy Metals guys to shame.

The UraMin Case

Other useful links: (Note The Critical Investor: links don't work anymore so are removed)

Initial Resource Estimate Trekkopje NI 43-101 Nov 2006

Bankable Feasibility Study Interim Report Trekkopje NI 43-101 Feb 2007

Preliminary Assessment Trekkopje NI 43-101 April 2007

Bakouma Technical Resource Report NI 43-101 June 2007

Doug Beattie, February 19,2019

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