With predictions of an emerging uranium shortage in the near-term, Boss Energy (ASX: BOE) is a South Australian uranium explorer ready to take full advantage of the situation with its advanced Honeymoon uranium project in South Australia.
Uranium supplies were in a deficit last year compounded by the delay of new mines due to the ongoing subdued spot price and production constraints due to COVID-19.
However, with trade tensions easing particularly between the US and China, its expected utilities will re-enter the market in 2021 in search of long-term supplies.
Although the spot price remains below US$30 per pound, analysts are predicting eroding supplies and the dry project pipeline will spur uranium prices upward again past the US$50/lb which is the estimated “magic number” to incentivise new mines.
Boss is poised to take advantage of the optimistic uranium outlook, while continuing to expand its Honeymoon project.
Managing director Duncan Craib said there was “widespread expectation” that uranium prices will rise in the near team as the supply deficit worsens.
“Our strategic timetable is aimed at ensuring we are in a position to sign long-term offtake agreements when prices strengthen – locking in robust margins and substantial free cash flow in the process.”
Mr Craib added the strategy is shored up by the fact that its wholly-owned Honeymoon project is fully permitted and also has export approvals.
Enhancing economics at Honeymoon uranium project
Since acquiring the asset in 2015, Boss has been steadily growing the global resource from 16.75 million pounds of uranium to 71.67Mlb.
While further exploration is underway to boost the global resource inventory even more, the company is also completing an enhanced feasibility study which is due for delivery in the current quarter.
The study is expected to provide an even better base-case scenario to fast-track the project to production based on only 35.9Mlb of the current resource.
It builds on the feasibility study that was published in January last year that estimated capital expenditure of US$63.2 million is required to re-start mining at the project.
In this study, forecast all-in sustaining costs of US$27.4/lb of uranium were anticipated over the 12-year life of mine.
Optimisation work has been ongoing since the January study was released, and by August last year, the company had identified avenues of “significant cost reduction” in developing and operating the mine.
GR Engineering Services noted a 10% or US$6.3 million cost saving on the capital expenditure and found a way to shave US$1.20/lb off the operating costs.
These savings are related to reduced site power requirements and transmission line upgrade costs, with further savings to be found from reducing reagent consumption.
Another advantage to re-starting the project is an existing plant, which is on care and maintenance.
Boss said “strong progress” had been made on the enhanced feasibility study, which has an ultimate goal of reducing costs, while increasing the plant’s nameplate capacity to 2.45Mlb per annum of uranium.
It aims to do this by removing the existing solvent extraction columns and replacing them with a new NIMC ion exchange system.
Australia’s next uranium producer
Boss’ strategy at Honeymoon is to become a first-mover in the uranium sector with the re-start of mining.
The company’s rationale behind optimisation studies is to cement Honeymoon as one of the lowest cost uranium mines globally – ensuring it is economic even in a subdued pricing environment.
From its location in South Australia, Honeymoon has minimal barriers to transition from exploration project to uranium mine.
Boss has already secured all permits required to resume production from the project and has approvals in place to export up to 3.3Mlb of uranium equivalent for the mine annually.
Steps to secure financing underway
At the start of February, Boss revealed it had kicked-off discussions with global lenders regarding securing the requisite funding to get Honeymoon up and running.
The company pointed out the US$63.2 million in estimated capital expenditure costs is among the lowest of any pre-production uranium project in the world.
As part of the funding process, Boss has already signed confidentiality agreements with “several global lenders” and is seeking formal indicative financing proposals.
The plan is to ensure debt funding is “well-advanced” when the company seeks to bed down its offtake agreements.
“The price at which we enter into offtake agreements is dependent on our all-in costs and how we structure financing terms and maximise shareholder returns,” Mr Craib explained.
He said the company was “very well-positioned” for the long-awaited correction in the uranium price.
“We will complete the enhanced feasibility study and progress project funding so that when the widely predicted uranium price rises materialise in the near-term, we will be poised to meet our goal of becoming Australia’s next uranium producer with very robust margins and strong free cash flow,” Mr Craib added.