Plateau Uranium's PEA Suggests Post-Tax 40.6% IRR and US$603 million NPV8 at US$50/lb Uranium
The title of the heading above really says it all. Plateau Uranium (PLU on the TSX Venture) has released the long-awaited details of its updated preliminary economic assessment and believers in the Macusani project (myself included) are feeling vindicated by the result. As modelled, the project is expected to be highly economic at a long term uranium price of just $50/pound, with a modelled post-tax IRR of 40.6%, payback of 1.76 years, and a corresponding NPV8 US$603 million (approx. C$860 million). That's underscored by the fact that operating costs are projected to come in a just US$17.28/pound U3O8 for the life of mine production of ~6 million pounds U3O8/year. Again, those numbers are based on just US$50/lb long-term U3O8 pricing.
For reference, most companies in the sector (and analysts) run their scoping economics at $65-75/pound long-term U3O8… and fortunately PLU provided some insight in that regard as well. In the low case estimate of just US$35/lb U3O8, the Macusani project is still expected to yield a post-tax IRR of 22.5% and NPV8 of US$236 million. At $65/lb U3O8 (the long term price that most analysts use), the numbers are jaw-dropping, with a modelled post-tax IRR of 55% and a NPV of US$967 million (approx. C$1.4 billion). All of this is on start-up capex of US$300 million, which is highlights the low-capex/high return potential of the project.
As it stands today, the Macusani project would appear to be one of the most economic and one of the largest projects in the global uranium development pipeline. This result is not accidental. It has taken years for Plateau to consolidate the Macusani project under one roof and it is only now that the company has been able to present a truly optimized mining plan whereby hauling distances are minimized and processing grades are maximized. There are very few projects in the world that can boast economics like the ones that Plateau has presented today and even fewer in well-established Pacific Rim mining jurisdictions. The Macusani project is ideally located for any number of potential buyers in Asia or the Middle East, including China, Korea, Japan, India, Saudi Arabia, or the United Arab Emirates -- all of which have either significant installed nuclear generation capacity and/or immediate plans for reactor fleet expansion. Any one of the players in this potential buyer's club would probably love to get their hands on 60+ million pounds of uranium with operating costs of just over US$17/lb. The other nice thing is that capex is projected to be just US$300 million, which is a reflection of the simplicity of the planned operation, and is also low for an operation of this scale.
Critics of Plateau will point to the fact that Peru has never had a uranium mine before. From my research on the matter, I can only say that this is not because Peru has a fundamental aversion to yellowcake. Peru mines just about every other metal on the planet within its borders and as mining products go, yellowcake is fairly benign. As I see it, the simple fact of the matter is that Peru has simply never had a uranium project that was worth building before… and that no longer seems to be the case. The Macusani project is located adjacent to the 4-lane InterOceanic Highway that connects it to the Pacific Coast. Hydroelectric power lines literally cross the project area and water supplies are readily available. There is also a local workforce in towns that are within a commutable distance. In terms of access by air and sea, Lima and Cusco can be reached by daily flights from the regional airport located about a 3 hour drive from the project area and the port of Matarani is 8 hours away by road. Most of the mineralization is at or near surface, metallurgy is simple, leaching is quick, and recoveries are high. In my experience, these are the kinds of things that collectively make the difference between just having a "project" and having a project that might actually turn into a mine.
For readers wanting more detail on the project specifics, I will refer you to my initial note on the topic from last year. You can link to that note here: http://hydracapital.ca/2/post/2015/03/the-cheapest-100-million-pounds-of-low-cost-uranium-on-the-planet-no-wonder-insiders-have-been-buying.html
Since my initial note on the Macusani project, it has only improved with the acquisition of the Azincourt Uranium lands in the middle of 2015. The numbers released today bear that out, and even in today's market, I challenge anyone to find a project with comparable scale and economics trading with a C$15 million market cap (recall that Plateau has only about 40 million shares outstanding) and zero debt. Plateau has just unveiled the belle of the uranium ball and I suspect that the suitors will be lining up soon, if they haven't started already. I've drawn parallels between the Macusani project and Mantra's Mkuju project (Tanzania) before. Both projects are of similar scale and grade, and both are in jurisdictions that had no uranium mines before. ARMZ/Uranium One paid roughly $1 billion (yes, billion) for Mantra back in 2011 (that was after Fukushima) and Mantra was only at the pre-feasibility stage at that point (and I don't recall Manta's numbers being this good). As I pointed out, at Friday's closing price of C$0.38 Plateau investors are currently looking a market cap of about C$15 million…