Berkeley Eng Regulatory News (BKY)

BERKELEY ENERGIA LIMITED

NEWS RELEASE | 14 July 2016 | AIM/ASX: BKY

Study confirms the Salamanca project as one of the world's lowest cost uranium producers

An independent Study has confirmed the Salamanca project as one of the world's lowest cost producers capable of generating strong after tax cash flow through the current low point in the uranium price cycle.

A Definitive Feasibility Study has reported that over an initial ten year period the project is capable of producing an average of 4.4 million pounds of uranium per year at a cash cost of US$13.30 per pound and at a total cash cost of US$15.06 per pound which compares with the current spot price of US$26 per pound and term contract price of US$41 per pound.

During this ten year steady state period, based on the most recent UxC forward curve of uranium prices, the project is expected to generate an average annual net profit after tax of US$116 million.

Managing Director Paul Atherley commented: "The Salamanca project is capable of generating strong, sustainable cash flow though the low point in the uranium price cycle. We have commenced initial infrastructure works and are aiming to establish the operation as one of the world's top ten producers, reliably supplying long term customers from the heart of the European Union."

With operating costs almost exclusively in Euros and a revenue stream in US dollars the project is expected to continue to benefit from the effects of deflationary pressures within the EU.

The project benefits greatly from the well-established EU funded infrastructure in the region with an initial capital cost of only US$95.7 million which is low by international standards for a project of this size.

The Company is of the view that whilst uranium prices will remain soft in the near term, from 2018, when Salamanca is scheduled to come on line, the market is expected to be dominated by US utilities looking to re-contract. These utilities will also be competing with Chinese new reactor demand, which may lead to higher prices.

The Company has recently been approached by a number of utilities looking to secure long term offtake agreements. These discussions are underway and offtake arrangements are being negotiated.

The project has an initial mine life of 14 years based on mining and treating only the Measured and Indicated resources of 59.8 million pounds.An annual exploration programme, which will take advantage of generous taxation incentives, has been aimed at making new discoveries and converting some of the 29.6 million pounds of Inferred resources into the mine schedule with the objective of maintaining annual production at over 4 million pounds a year on an ongoing basis.

This programme has commenced with drilling underway looking to extend the Zona 7 deposit at depth and to the south as well as testing nearby targets to the north. Initial results are expected to be reported shortly.

The mine design incorporates the very latest thinking on minimal environmental impact and continuous rehabilitation such that land used during mining and processing activities is quickly restored to agricultural usage.

The Company has established a good neighbour and business partner relationship with the local community. In addition to the creation of 450 direct jobs and up to 2,000 indirect jobs in a community hard hit by long term unemployment, the Company will actively support the local businesses and the activities of the local municipalities.

With approvals in place for initial infrastructure development, work has now commenced on the road realignment and power line upgrade ahead of the main construction. 

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Table 1 - Summary of Key Study Outputs

Introduction

This Definitive Feasibility Study (Study) was managed by MDM Engineering (part of the Amec Foster Wheeler group) and includes inputs from a number of specialized contractors including major Spanish firms OHL and Iberdrola. The study has been prepared in accordance with the JORC Code 2012 Edition (JORC).

Table 2 - Study Contractors

The Study is based on extracting 61.3 million tonnes of ore at an average grade of 408 ppm U3O8 to produce 48.6 million pounds of U3O8.

The Study reports on an initial mine schedule of 14 years producing on average 3.5 million pounds of uranium per year.

After an initial ramp up, production averages 4.4 million pounds per year during ten years of steady state operations.

Exploration will increase Mineral Resource base

The overall Mineral Resource Estimate (MRE) stands at 89.3 million pounds of U3O8.

The Study was based solely on Measured and Indicated Resources totaling 59.8 million pounds of U3O8 and did not incorporate any Inferred Resources, which total 29.6 million pounds of U3O8.

Potential exists to maintain steady state production by successfully converting these Inferred Resources into Indicated Resources with further drilling.

Table 3 - Global Mineral Resource Estimates at a cut-off grade of 200 ppm U3O8 (Only Measured and Indicated Resources included in the DFS)

(*) All figures are rounded to reflect appropriate levels of confidence. Apparent differences occur due to rounding. The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves

Ore Reserve Estimate

The project's Ore Reserve Estimate stands at 54.6 million pounds of U3O8 of which 20.6 percent is considered Proved and 79.4 percent is considered Probable after the application of all mining factors.

Table 4 - Project Ore Reserve Estimate

 (*) cut-off grade for Retortillo 107 ppm, Zona 7 125 ppm, Alameda 90 ppm. Apparent differences occur due to rounding.

Sustainable Open Pit Mining

The mine design incorporates the latest thinking in continuous mine rehabilitation which allows the orebodies to be mined with minimum land disturbance and to be continuously rehabilitated. On completion of operations the mining and treatment plant areas will be fully restored to their original agricultural land use.

Each of the shallow and long orebodies are mined by conventional drill, blast, excavator and truck methods opening up the orebody from the initial mining stage and progressively lining and backfilling with waste and treated ore, as mining progresses along the length of the orebody.

The ore from each open pit is loaded and hauled to the ore stockpile. The ore stockpiles at Retortillo and Alameda are at the process plant site while the stockpile at Zona 7 is approximately 10km from the plant. The ore from the Zona 7 stockpile will be loaded onto a two way overland conveyor which connects the site to the process plant area at Retortillo.

Ore is continuously stacked onto an on/off heap leach pad. Treated ore is reclaimed from the pad and transported back to the open pit for backfilling along with mined waste or to a temporary waste dump if there is no pit space available.

Mining operations will be carried out by a contractor with operations based on the use of hydraulic excavators and a fleet of haul trucks engaged in conventional open pit mining techniques.

Steady state mining during the first ten years will produce on average 4.4 million pounds per year. It is planned to maintain this production rate by both drilling the known Inferred Resources and potentially converting part of this into ore for the mine schedule and through new discoveries.

Processing

The ore will be treated by heap leaching and processed through a conventional circuit and sold as drummed U3O8 concentrate. An important environmental benefit of backfilling the treated ore reclaimed from the on/off heap leach pads into the mined pits, is the removal of the requirement for a tailings storage facility.

The process flowsheet comprises crushing, screening, agglomeration, stacking and heap leaching using on/off leach pads, followed by uranium recovery and purification by solvent extraction.

The conveyed ore is agglomerated, continuously stacked and irrigated with a dilute sulphuric acid solution. The ore types have reported impressive metallurgical recoveries averaging 88% with low acid consumption and a short residence time.

The concentrated uranium solution from the solvent extraction plant is treated to precipitate the uranium and calcined to produce U3O8 concentrate.

At Zona 7 only a primary crushing circuit will be required. The crushed ore will be conveyed ten kilometres to the process plant located at Retortillo. The secondary crushing circuit at Retortillo will be upgraded to include a tertiary stage.

The uranium from the Alameda heap leach pregnant liquor solution will be loaded onto resin via an ion exchange adsorption column and the loaded resin will be transported approximately 50 kilometres by road to the Retortillo plant for final extraction and purification.

Analysis of the concentrate produced from the Retortillo and Zona 7 ore (and analysis of the pregnant liquors from the Alameda deposits) indicate that there are no impurities at levels that could adversely impact the sale of the product.

Infrastructure

The project benefits significantly from well-established infrastructure in the area. The project is readily accessible by major roads and railways and is connected to the major sea port of Santander and airports at Salamanca and Madrid.

It has major electrical power connections, plenty of water and a strong demand for jobs in a region hit hard by unemployment. Training courses for future employees have been oversubscribed and enthusiastically attended.

The area has previously experienced the economic benefits of mining having supported Spain's main uranium mining industry from the 1970s up until the last mine closing in 2001.

The power requirements for the project are low at an estimated at 3.3 megawatts (MW) for Retortillo, 1.7 MW at Zona 7, and 3.1 MW at Alameda. All power will be supplied from the National Distribution Grid at a cost of US$0.07 per kilowatt hour. The connection will require construction of a 13 kilometre 45 kV powerline to the Alameda deposit site in year 2.

Water will be available from adjacent water courses and on-site sources such as pit dewatering bore holes and collection systems designed to capture rain and surface run-off water during the wet season.

On-site accommodation facilities are not required given the available labour sourced from nearby villages and from the city of Salamanca 70 kilometres away.

An on-site sulphuric acid plant is also not required as sulphuric acid is readily available from two regional smelters at very competitive rates.

Capital Costs

The initial capital cost of all infrastructure and indirect costs required to develop and commence production at Retortillo has been estimated at US$95.7 million.

The capital cost for the mine, processing facilities and associated infrastructure for Zona 7 is US$59.2 million and will be incurred during the first year of production.

The capital cost for the mine, processing facilities and associated infrastructure for Alameda is estimated at US$79.7 million and will be incurred during the second year of production.

The indirect costs include the first fill of reagents, spares, Engineering, Procurement and Construction Management (EPCM) costs, Preliminary and General (P&G) costs and a 6% contingency for the proposed facilities.

Working capital, amounting to US$10.7 million, is required to support eight months of operation after start-up at Retortillo and has been included in the year 1 operating cost estimate.

The engineering studies supporting the capital cost estimates for the project allow for a level of accuracy of nominally +/- 10%.

A summary of major capital costs is shown in Tables 5 to 7 below:

Table 5 - Retortillo Up-Front CAPEX

Apparent differences in totals occur due to rounding

Table 6 - Zona 7 Up-Front CAPEX

Apparent differences in totals occur due to rounding 

Table 7 - Alameda Up-Front CAPEX

Apparent differences in totals occur due to rounding

At Retortillo, an additional US$9.95 million of capital is required to develop a second major pit in year 13.

Operating Costs

The average C1 steady state operating cost has been estimated at US$13.30 per pound of U3O8 produced.

The average operating cost for the life of mine is US$15.39 per pound of U3O8 produced.

The operating costs (C1 cash costs) are defined as the direct operating costs including contract mining, processing, ripios backfill, water treatment and G&A.

Table 8 - Summary of Life of Mine Operating Costs (nominally ± 10% accuracy)

Apparent differences in totals occur due to rounding

The all in cash cost (excluding rehabilitation costs) over the life of mine is US$17.15 per pound of U3O8 produced and comprises C1 cash operating costs plus marketing, transport costs, estimated at 1.0% of the gross value of the final product (US$0.63 per pound U3O8 produced), and royalties which average US$1.51 per pound U3O8 produced over the life of mine.

The royalties are defined as a percentage of the net value of the product sold (gross value less commercialisation) and include the State Reserves Royalty (2.5%, applied only to production at Alameda), Municipality Royalty (0.2%, applied to all project revenues) and an Anglo Pacific and RCF Royalty (combined total of 1.375%, applied to all project revenues).

Environmental, Waste Management and Rehabilitation

The costs associated with the continuous rehabilitation programs and closure programs include the pit preparation for backfilling, rehandling of temporary dumps for backfill and the rehabilitation of the surface.

The costs for the preparation of the pits for backfilling are incurred from year 2 of operations and amount to US$6.8 million for Retortillo, US$3.6 million for Zona 7 and US$6.6 million for Alameda.

The cost for rehandling at the end of the mine life is US$26.1 million for Retortillo, US$26.4 million for Zona 7 and US$31.0 million for Alameda.

The cost for rehabilitation and closure is US$13.9 million at Retortillo, US$14.0 million at Zona 7 and US$20.1 million at Alameda.

Pit preparation for backfilling and reclamation systems have been treated as capital costs while ripios reclamation and backfilling have been treated as operating costs.

Community and Employment

Management has worked closely with all stakeholders, including local communities and relevant government authorities, in all aspects of work conducted on the project to date.

As part of these efforts, the Company has signed co-operation agreements with each of the three local municipalities under which the Company has committed to contribute to the economic and social development of the community.

The workforces required for the construction and operational phases of the project will be sourced from the local communities whenever possible in combination with a small number of highly skilled professionals who will be recruited from elsewhere in Spain or abroad.

The Company has commenced skills training programs for local employees who have been drawn from the surrounding region which has a history of over thirty years of uranium mining operations.

Training programs completed to date include blasting techniques and driver training for heavy equipment and were both heavily oversubscribed by local participants.

The Company currently estimates that an ongoing workforce of approximately 450-500 direct employees (including mining and other permanent contractors) will be required during steady state operations.

The University of Salamanca has estimated a multiplier effect whereby 5.2 indirect jobs will be created for every direct job, making the project a significant contributor to job creation in an area suffering badly from the effects of rural desertification.

Permitting

The Company has received all the European Union, National, Regional and Provincial level approvals required for the commencement of initial infrastructure development of the project.

This initial development, the realignment of the road and upgrading the power line, is underway ahead of the main construction.

With the Mining Licence, Environmental Licence, all approvals from the Water Authority and Initial Authorisation for the Process Plant in hand, the approvals required ahead of the main construction comprise the locally issued Urbanism Licence and the Construction Authorisation by the Ministry of Industry, Energy and Tourism. Both of these approvals are in progress.

Sustainable cashflow generation through continuous exploration

The current resource base comfortably supports strong cashflow generation over the next decade. Continuous annual exploration targeting both the conversion of existing Inferred resources into the mine schedule and the generation of new resources will be a major focus.

The Study did not incorporate any Inferred Mineral Resources currently contained within the overall MRE for the project (which comprises of an additional 29.6 million pounds U3O8). The Company believes substantial potential exists to both upgrade and increase the resource base from exploration and therefore extend the mine life at Salamanca.

Uranium Marketing Strategy

Berkeley intends to sell U3O8 concentrates to large global utility companies across the US, Asia and Europe. The Company is in ongoing discussions with a number of major utilities regarding long term offtake contracts and potential financing structures and expects to conclude suitable arrangements well within the planned development timeframe.

DFS Sales Price Assumptions

The Company has utilised the latest UxC Annual Mid Long Term Base Price Projections for its sales price assumptions (UxC Uranium Market Outlook report for Q2 2016). UxC is the Industry's leading source of publications, data services, consulting on the global nuclear fuel cycle markets.

The forward curve utilised is a projection of long term contracted uranium prices (rather than spot prices) which is consistent with the Company's intention to enter into long term offtake contracts over the significant majority of its offtake.

This forward curve utilised is more conservative than analyst consensus forecasts where long term contract prices are forecast to rise from $43.25 per pound of U3O8 in 2017 to $65 per pound from 2022 onwards.

Table 9 - Sales Price Assumption based on UxC Annual Mid Long Term Base Price Projections

Net Present Value & Internal Rate of Return

The (ungeared) Net Present Value after tax is US$531.9 million at an 8% discount rate (real), and the (ungeared) IRR after tax is 60%. The project is expected to exhibit levels of profitability that would contribute value to Berkeley shareholders.

Table 10 - Project Net Present Value

NPV Sensitivity Analysis

Sensitivity of the (ungeared) NPV results to changes in the key drivers of the DCF model are presented in the table below.

If a long term contract price of US$44 per pound U3O8 is used flat over the life of mine then the NPV is US$407.2 million and the IRR is 60%.

Table 11 - Project NPV Sensitivity Analysis

Appendix 1: ASX Summary of Resource Estimate and Reporting Criteria (Updated Zona 7 Mineral Resource Estimate)

Prospect Location, Geology and Geological Interpretation

Zona 7 is the largest deposit within the Salamanca project located in central-western Spain.

Significantly, the Zona 7 deposit is located within 10km of the approved location of the proposed processing plant at Retortillo (Figure 2).

Zona 7 is a vein type uranium deposit hosted in a sequence of fine grained metasediments which are overlain by a conglomerate unit and adjacent to a granite intrusive. The mineralised envelope is interpreted to be sub-horizontal to shallowly dipping and occurs from surface and to maximum depth of approximately 100m.

The style of the uranium mineralisation includes veins, stockwork and disseminated mineralisation in joint/fracture filling associated with brittle deformation. The uranium mineralisation occurs both within the partially weathered zone and fresh rock. Uraninite and coffinite are the primary uranium minerals. Secondary uranium mineralisation is developed in 'supergene-like' tabular zones corresponding to the depth of weathering

Drilling and Sampling Techniques

The Mineral Resource Estimate (MRE) is based on data obtained from three phases of drilling (historical 1960's to 1980's, 2007-2008, 2013-2016) totalling 428 holes for 27,475m. The drilling comprised 103 diamond holes (DD) and 325 reverse circulation (RC) holes (Table 12).

The majority of drilling conducted by Berkeley prior to 2016 was undertaken on a 100m by 100m grid, with section lines orientated approximately northwest-southeast across the interpreted strike of the mineralisation. The 2015-2016 infill drilling campaign closed the spacing in Domain 6 to a 50m x 50m and 35m x 35m grid, in order to improve confidence in this part of the MRE (Figure 4). Some of the historical drilling was completed on a closer spaced 35m x 35m grid in Domains 2, 3 and 4. The majority of the drill holes are vertical.

The drill hole collar locations were surveyed by qualified surveyors using standard DGPS equipment achieving sub decimetre accuracy in horizontal and vertical position. Down-hole surveys were undertaken using a Geovista down-hole deviation probe. Measurements were taken every 1cm down hole and averaged every 10m. All DD and RC drill samples were geologically logged, with all relevant data being recorded. Diamond core was also geotechnically logged. Core boxes and samples and RC samples and chip trays were photographed for future reference.

Diamond core was quarter or half cut and sampled on 0.20-1.00m intervals. RC samples were collected over 1m intervals and split in the field using two riffle splitters in cascade or a cone and quarter method to provide an approximately 3-5kg sample. Samples were further split in the core shed using a scoop to generate 0.7-1kg samples which were sent to external laboratories for preparation and analysis. Quality assurance procedures were employed, including the use of standards, blanks and duplicates.

Down-hole gamma logging was undertaken for all probe accessible holes drilled by Berkeley to provide a gamma equivalent U3O8 (eU3O8) grade. The down-hole gamma response was converted to eU3O8 after correcting for radon, hole diameter, air/water and application of a deconvolution filter. eU3O8 data was only used in the MRE when chemical assay data was not available.

Bulk density values were derived from 800 solid‐fluid pycnometer measurements. In situ dry bulk densities were applied to all blocks in the resource model based on the degree of weathering.

Table 12: Summary of drill holes used in the MRE update

Sample Analysis Methods

Sample preparation of all drill samples involved oven drying, crushing and pulverising to achieve a grind size of 85% passing 75μm. Sample pulps from the drilling program were analysed for uranium using either of the Delayed Neutron Counting (DNC) or pressed powder X-ray fluorescence (XRF) methods. Historical drilling samples were analysed for uranium using the XRF, atomic absorption spectroscopy (AAS) or fluorometric methods.

Resource Model

Surpac and Isatis software was used for geological modelling, block modelling, grade estimation, MRE classification and reporting. Sectional geological interpretations were joined to create a series of 3D mineralised wireframe domains (Figure 5) that showed continuity above a grade of 100 ppm U3O8. Statistical analysis and geostatistical variogram modelling was used to determine appropriate parameters for estimation of uranium grade using Ordinary Kriging (OK) and Localised Uniform Conditioning (LUC).

The resource model for Domains 5 and 6 (>88% of the Zona 7 MRE) has been updated with the 2015-2016 infill drilling, and the upgrades to these Domains are the subject of this release. As a result of the closer spaced infill drilling, improvements in sample support, geological continuity and variography, Domain 6 was determined to be suitable for the application of LUC. LUC provides a simulation of the expected grade and tonnage selectivity at the Feasibility Study Selective Mining Unit (SMU) dimensions.

Grade Estimate

The uranium grade was estimated into a 25m by 25m x 6m panel using OK for all domains followed by the application of LUC to simulate the grade tonnage distribution based on SMU dimensions of 5m x 5m x 6m for Domain 6 only. Domain 5 was updated using OK. All other domains (2, 3 and 4) were unchanged from the November 2014 OK estimate (Figures 6 and 7).

Variography was used to derive appropriate orientation and weighting factors employed by the OK and LUC algorithms. Suitable sample search distances, minimum and maximum sample numbers required to make a grade estimate and search ellipse anisotropy to honour the mineralisation trends were derived. These parameters were selected to ensure that the resource model honours both the global and local grade distribution of the uranium mineralisation.

Cut-off Grades

The MRE has been reported using a cut-off grade of 200 ppm U3O8, which is consistent with the grade used to report previous MRE's for this style of mineralisation.

Mining and Metallurgical methods and parameters

Based on the results of metallurgical testwork carried out on representative samples from the Zona 7 deposit and the shallowness of the deposit, recent mine planning work has shown that the Zona 7 MRE can potentially be extracted using open pit mining methods, with the recovery of uranium through the application of acid heap leach methods.

Bulk density values were unchanged for Domains 5 and 6 after review with a 50% increase in bulk density data. In-situ dry bulk densities were applied to all Domain 5 and 6 blocks in the resource model based on the degree of weathering as follows: 2.28 t/m3 for completely weathered material; 2.40 t/m3 for partially weathered material; and 2.64 t/m3 for fresh rock. Note that both the bulk density and MRE are unchanged for Domains 2, 3 and 4 which were unaffected by the 2015 drilling program.

Validation of the models included visual inspection of the grade distribution compared to the drill hole data, comparison of block model and drill hole statistics and creation and assessment of swath plots. Overall the grade estimate showed a good representation of the drill hole data for the resource.

Mineral Resource Estimate and Classification Criteria

The MRE for Zona 7 Domains 5 and 6 has been updated, incorporating additional drilling and sampling information from the 2015-2016 drilling campaign.

The MRE has been classified and is reported as Measured, Indicated and Inferred based on guidelines recommended in the JORC Code (2012). The reported MRE has been classified with consideration of the quality and reliability of the raw data, the confidence of the geological interpretation, the number, spacing and orientation of intercepts through the mineralised zones, and knowledge of grade continuity gained from observations and geostatistical analysis. There is adequate mining, metallurgy and processing knowledge from feasibility studies to imply reasonable prospects for eventual economic extraction.

The MRE is reported at a cut-off grade of 200 ppm U3O8 (Table 13), along with estimates showing the range of U3O8 cut-off grades that would span the range applicable to open pit mining (Table 14).

All figures are rounded to reflect appropriate levels of confidence. Apparent differences occur due to rounding.

Table 14: Zona 7 - Grade Tonnage Table

Appendix 2: Summary of RC Drill Intersections - Zona 7 (200 ppm U3O8 cut-off)