Toro Energy

Ahead of the game

Having spent the last year de-risking and upgrading its large uranium project in Western Australia, Toro Energy is first in line to become Australia’s next uranium producer.

When we last spoke to Toro Energy Limited (ASX: TOE) in mid-2013, its Wiluna Uranium Project had just become the first in Western Australia to be approved by both State and Federal Governments. The remainder of last year saw the company make significant strides in taking the project closer to realisation.

The most significant step was the A$35 million all-scrip acquisition of the Lake Maitland Uranium Project from Toronto-based Mega Uranium Limited (TSX: MGA). Under this agreement, Mega provided the Lake Maitland assets and $1.5 million cash in return for 415 million new fully-paid ordinary shares in Toro to gain a 28% shareholding in the company.

Lake Maitland is 90km southeast of the proposed site of the processing facility for the Wiluna Uranium Project and thus increases the project’s resource base by a very substantial 43%. Managing Director and Chief Executive Vanessa Guthrie describes the acquisition as “a fantastic opportunity” for Toro.

“This single transaction provides significant project improvement, corporate and financing opportunities for the total Wiluna Project,” she says.

“Lake Maitland is a deposit very similar in style to all the other Wiluna deposits, and brings our combined upgraded resource up to 76.5 million pounds (Mlb) at an average of 479 parts per million (ppm). More importantly, follow-up drilling work identified a high-grade resource and determined new economics for the combined project.”

High-grade scenario

Toro released an independent Mining Scoping Study and Preliminary Economic Assessment for the Wiluna Project, integrating the newly acquired Lake Maitland deposit, at the end of January this year. It confirmed an initial operations life of 16 years, over which 20.1 million tonnes (Mt) of ore will be mined at 799ppm, including 15.9Mt ore at 907ppm. The assessment determined an average processing head grade of 883ppm over the first 10 years, over which time the average annual production will be 2Mlb U3O8. The total production, at a life of mine recovery of 85.6%, was determined at 30.2Mlb U3O8, and the average C1 operating cost for the life of the project at US$31.1 per pound.

“We now have a high-grade mining scenario on the first four deposits: Lake Maitland, Centipede, Millipede and Lake Way; that is a very different prospect to what we had before,” Guthrie remarks.

“These new economics still leave out two of our deposits, Nowthanna and Dawson-Hinkler, which, should the price move upwards dramatically during the mine’s life, means we still have upside where we could utilise a lower cut-off grade to extend the mine life beyond 20 years.”

With an operating cost of $31.10 per pound of uranium and a capital cost of around $315 million – this has increased slightly to account for additional infrastructure to Lake Maitland – the Wiluna Uranium Project is now in the bottom quartile of cost structure, relative to other new mines. In comparison to existing operations, it is in the second quartile.

“The project is now in a very similar operating situation to Paladin Energy Ltd’s Langer Heinrich Mine in Namibia, in terms of head grade and operating cost, although it is about half the size,” says Guthrie.

New partners

The Lake Maitland acquisition also brought Toro two new Japanese Joint Venture partners: Itochu Minerals & Energy of Australia Pty Ltd (IMEA) and JAURD (Japanese Australian Uranium Resource Development) International Lake Maitland Project Pty Ltd. These two companies have an option to acquire a 35% interest in Lake Maitland and to participate in the financing and development of that project.

Another significant transaction of 2013 was the farm-out agreement Toro signed with minerals explorer Rum Jungle Resources. The deal allows Rum Jungle to undertake potash exploration on some of Toro’s Lake Mackay tenements, not including those within the Theseus Uranium Project.

“Lake Mackay is a very large salt lake – one of the largest in Australia I think – and it has a high concentration of brine that sits just below the salt pan,” Guthrie explains.

“Rum Jungle has an interest in extracting potash from brine, so our Joint Venture with them gives them access to our tenements on the lake and if they find uranium there, we retain the rights to that.”

Toro’s most recently acquired business partner is RealFin Capital Partners of South Africa, who signed a binding Subscription Agreement in December 2013 to invest up to $10 million in Toro. The agreement comprises a $5 million equity subscription (Initial Subscription) and an additional $5 million optional equity subscription that can be subscribed to at any time until 1 July 2014 (Additional Subscription). In February 2014, RealFin elected to buy a further $1 million of ordinary shares in Toro ahead of the subscription cut-off date, on account of the “improving uranium market unfolding quicker than anticipated,” according to Realfin CEO Steve Doidge.

Guthrie is also thinking about the uranium market when she says that, while RealFin’s investment enables Toro to fund engineering work to take Wiluna to its final Definitive Feasibility Study, there is no rush to get to that point.

“We will be moving the Wiluna Project through to reserves this year and undertaking early engineering studies, but in a very measured way,” she says.

“Because we’re conscious that until the market uranium price starts to recover, there will be no new production – and the incentive price is still a long way off”

Uranium’s return

Due to uranium’s current low market price, Guthrie says Toro will maintain key exploration holdings only this year. Work on the Theseus project will be limited to some metallurgical test work, while the key goal on Wiluna is to secure a strategic project partner.

“Our key activity for the year is to deliver project financing with a strategic partner, and we are certainly pursuing that with a lot of energy because we believe wholeheartedly in the project and the long-term uranium market, so we want it to be ready to bring to the market when the time is right,” says Guthrie.

She believes that the uranium market is now on its way to recovery, with several factors leading to an “inevitable” price rise.

“The Japanese government has continued to state that they will return nuclear power to the country this year, albeit in a reduced way,” she begins to explain.

“The secondary uranium agreement between Russia and the US is now complete, so that’s about 20Mlb of secondary production that’s no longer in the market. We have seen supply shocks at Rio Tinto’s Rossing and Ranger Mines, when leach tank failures disrupted production in December. We’re continuing to see delays in some of the major projects, such as Swakop’s Husab Uranium Mine in Namibia and Cameco’s Cigar Lake Uranium Mine in Saskatchewan, and seeing China in particular barrelling ahead with building nuclear plants, with about 30 under construction.

“Finally, many of the long-term contracts signed in around 2010 come to maturity at the end of 2015, so after that there will be demand for uranium that is not committed in long-term contracts,” Guthrie continues. “This means the utilities will need to return to the market to sign new long-term contracts. So we think all the signals are there for a modest price rise during this year, and for further growth in the long term.”

When uranium demand is back up and the market ready to welcome a new producer, Toro Energy will be at the front of the queue.

“Our focus is to maintain that position, so that when the market does start to recover, our Wiluna Project is the obvious choice,” says Guthrie. “That’s where we’ve positioned ourselves and that’s how we’ll continue.”

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