Vimy Resources’ vision statement is ‘mining a cleaner tomorrow’. It is a clever double entendre referring not only to nuclear power as the cleanest source of reliable energy, but the way in which the ASX-listed company intends to mine; with low residual impact and real-time rehabilitation. Nuclear energy is emerging as one of the few low carbon-emitting, 24/7 power sources that can help achieve the IPCC’s goal of a 1.5C limit on global warming. While renewables have grown significantly along with energy storage technology, their intermittency and low energy density means that other baseload sources must be included in a holistic energy mix.
Vimy CEO and managing director Mike Young has noticed a fundamental change in public perception towards nuclear energy. The Fukushima accident influenced opinion for many years, but as climate change began to dominate headlines, the positives of nuclear came into the ascendancy. And many countries provide hard data on the efficiency, safety and low cost of nuclear; France and Canada are two clear examples.
“I like to use electric vehicles (EVs) as an example to really understand how clean nuclear power is. Despite the hype, EVs are not emission-free and are only as clean as the power source used to charge them.
“In Queensland, where electricity is powered by coal, a Tesla 3 will emit 17,500g of CO2 per 100 km but in Ontario, a Tesla 3 only emits 880g per 100 km, 5% of Queensland’s Tesla, because the grid is powered by nuclear and hydro.”
Uranium fuels nuclear power plants where controlled fission of uranium produces heat that generates the steam to drive turbines and generate electricity on a large scale. Put simply, uranium mining is vitally important to the world’s decarbonising mission.
Vimy owns the largest advanced, but undeveloped, uranium project in Australia. Australia holds the largest known uranium resources in the world and is the third largest producer globally, behind only Kazakhstan and Canada.
The company is advancing projects in Western Australia and the Northern Territory and has a globally experienced management team and board of project developers and mine operators. Their experience and industry contacts put Vimy at a strong advantage in the obscure and complex uranium market.
Young is a geologist and was born and educated in Canada where he worked on several uranium projects in Northern Saskatchewan before moving to Western Australia (WA) in the late 1980s. He gravitated towards resource geology and 3D modelling when it was in its infancy and, as a result, was involved with many successful mining projects through his work as a resource consultant.
Since then he has built a solid reputation in the WA mining community, growing an iron ore company (BC Iron Limited) from its initial listing to first iron ore on ship within four years. During those years he met Cheryl Edwardes – now Vimy’s chairman – a former WA state politician and ex-Environment Minister, who shares his passion for the potential of uranium to reduce greenhouse emissions.
Alongside Young at the helm of the company is chief nuclear officer Julian Tapp, an economist who not only manages the dark art of approvals, but has become expert in the uranium market – Julian is the chair of the supply working group of the World Nuclear Association.
The executive team also includes CFO Marcel Hilmer, a strategic thinker and former CEO of a uranium junior, and GM of geology Xavier Moreau, thought to be one of Australia’s best uranium geologists.
Uniquely for a WA junior, Vimy also employs a US-based uranium sales and marketing expert in Scott Hyman. Scott has both buy and sell side experience as he worked for both a supplier, Cameco Corporation, and a utility, Dominion Energy, for almost thirty years and knows the industry and its players in the US very well. Vimy concentrates its sales efforts on the US utilities as they make up 30% of the global market.
The team believes deeply that Vimy is best placed to capitalise on the ‘perfect storm’ of a looming supply shortage and a growing demand for nuclear power, due in part to the erstwhile climate emergency.
“Looking at uranium production around the world at today’s spot price, very few producers can make money at the current spot price. Not even companies with the lowest cost mines in the world, such as Cameco at McArthur River in Canada, can make money and so that mine is shut until sustainably higher pricing is achieved.
“Cameco has shut down an 18 million pounds (Mlbs) per year operation because the low prices aren’t sustainable, and Kazakhstan has curtailed expansion and is scaling back as well. Cameco will not destroy an asset like McArthur River by mining and selling it at low to zero profit. Why would you?
“But more importantly for long term investors, exploration has slowed to a trickle and as a result there are few projects that are close to production. The signs of a growing and systemic shortage going forward have become more obvious to many, and Vimy’s activities during the past five years have been predicated on taking advantage of this.”
That shortage is being exacerbated by growing uranium demand, particularly in non-OECD countries across Asia and the Middle East, whose governments are seeking ways of providing cheap, low emission power that can feed into national grids 24/7, unlike wind and solar power which are subject to weather patterns and seasons.
There are currently 493 nuclear reactors in advanced planning stages or under construction around the world, adding to the 442 already in operation. The new power plants will require an additional 250 Mlbs of uranium every year, in a current market of 170 Mlbs.
Considering the diverging supply and demand factors, Vimy expects a structural uranium shortage to take hold even before it could be in production. Uranium supply contracts are generally written up to three years in advance, so utilities are sharpening their pencils now.
When supply becomes tight, utilities’ sensitivity to cost becomes secondary to security of supply and so the next twelve months could see a significant increase in uranium contracting activity putting upward pressure on contract pricing.
“We’re already seeing the US utilities ramping up their contracting activities at a time of slowing supply. It’s the perfect storm,” Young proclaims.
Vimy’s Mulga Rock project in WA is Australia’s largest, advanced undeveloped uranium project and has gained State and Federal primary environmental approvals, completed a definitive feasibility study (DFS), and is progressing secondary approvals.
The company has been very transparent about its path to production. Financing will be ‘contract-led’ whereby Vimy will need to secure long-term contracts in the US$50s to obtain debt funding. As a result, Vimy seeks to establish long term relationships and contracts with US utilities. “Our long-term plan has always been to write those contracts through 2020 then roll into financing and final investment decision (FID) in early 2021. Therefore, Scott Hyman’s job is critical and so he is constantly in front of the utilities, not only providing them with updates on our project, but gaining valuable intelligence on the US market.
“As a result of that intel, we are confident that the uranium market is on the rebound and we will be hosting the grand opening of the Mulga Rock Project in the not too distant future. So, it’s contracts in 2020, FID in early 2021 and then it’s a two-year build for the project, so we’d be in production late early 2023 just as the shortage is really taking hold.”
The Mulga Rock DFS was published in January 2018 and outlines a strategic, long-life project with annual uranium production of 3.5 Mlbs over a 15-year life of mine. It also showed a 25% IRR and NPV of AUS$530 million on a AUS$490 million capital cost, with the project reliant on a uranium contract price of US$55-60 per lb.
A peer review of the DFS in late 2019 found the study to be world class with no design or engineering flaws identified. “The reviewers confirmed that the Mulga Rock DFS is an outstanding study,” says Young.
“Now that almost two years have elapsed, we wanted to revisit the cost input data to ensure that the capital and operating costs are up to date. We are also investigating opportunities to reduce capex and opex.
“Mining will be very simple at Mulga Rock,” Young says. “We will use an efficient and cost-effective strip-mining process, where pits are backfilled with tailings or overburden as we go. This results in very low residual impact to the environment – a mining method that reaffirms the ‘cleaner’ in Vimy’s vision statement.
Vimy’s ambitions also extend beyond Mulga Rock after acquiring the Alligator River Project in March 2018 from Cameco Australia. The project comprises the largest granted tenement package in the Alligator River Uranium Province of the Northern Territory – a region which has striking geological similarities with the Athabasca Basin in Canada.
“The Athabasca is the premier location for uranium deposits in the world because they are big and they are high grade. Some of the biggest deposits in the world are located there such as McArthur River and Cigar Lake.
“As a geologist, the Alligator River Project really excites me. The similarities in the geology of the two regions are profound. Both provinces have sandstone units lying above the mineralised formations as well as all the same structural and alteration elements. Athabasca is where the large deposits are found and our work so far indicates that will be the same at Alligator River.”
Despite these geological similarities, the two uranium provinces have received contrasting levels of exploration activity over the last thirty years. While intense exploration in the Athabasca Basin has led to a string of massive discoveries, Australia’s regressive Three-Mines Policy (1984-1996) resulted in little to no exploration in Alligator River.
“You’ve got this geological province that’s really prospective and hasn’t been explored for uranium for three decades. Cameco’s drilling barely scratched the surface and that’s why we’re so excited about the targets that have been thrown up by our fieldwork in the area.”
One of Vimy’s targets in the Alligator River tenements is the Angularli resource, which yielded a positive scoping study late in 2018. The inferred mineral resource was estimated at 0.91 million tonnes (Mt), at 1.3% uranium oxide for 26 Mlbs of uranium.
“We’ve also drilled some holes at the Such Wow deposit and seen some exciting results from that campaign. And late in last year’s field season, we announced some really exciting geochemical results from Southern Flank, our Jabiluka look-alike.
“US utilities look at long-term reliability of supply and while the Mulga Rock Project has fifteen years of mine life, Alligator River has the potential to provide uranium products far into the future,” Young explains.
To conclude, Young and Vimy have high confidence in the improving fundamentals of the uranium and nuclear power industries even after the first three months of 2020 have been dominated by uncertainty in global markets due to the outbreak of the COVID-19 pandemic.
While the virus will certainly make conditions more challenging in the short term, uranium demand is inelastic, predictable and is being driven by global decarbonising trends and reactor builds in non-OECD countries like Russia, China, India and Saudi Arabia.
“We’re seeing a curtailment of large mines and there are very few new developments that are as advanced as Mulga Rock. Certainly, the consensus view is that the uranium price will rise in the early 2020s and that’s about the time that Mulga Rock will come into development.
“On top of all of the fundamental uranium economics, the COVID-19 pandemic is resulting in mine closures which will accelerate the shortage and highlight the importance of diversification of supply.”