| Mon 21 Apr 2008, 8:28 | | FUM - First Uranium To Build Acid Plant To Secure |
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FUM
FIU
FUM - First Uranium To Build Acid Plant To Secure Future Supply Of Sulphuric
Acid For Its Uranium Plants At Reduced Costs
News Release
First Uranium Corporation
(Continued under the laws of British Columbia, Canada)
(Registration number C0777384)
(South African registration number 2007/009016/10)
Share code: FUM & ISIN: CA33744R1029
"First Uranium" or "the Company"
NEWS RELEASE - April 21, 2008
FIRST URANIUM TO BUILD ACID PLANT TO SECURE FUTURE SUPPLY OF SULPHURIC ACID
FOR ITS URANIUM PLANTS AT REDUCED COSTS
All amounts are in US dollars unless otherwise noted.
Toronto and Johannesburg - First Uranium Corporation (TSX:FIU, JSE:FUM)
(ISIN:CA33744R1029) ("First Uranium" or "the Company") today announced that,
it will purchase and install an "off the shelf" acid plant to produce
sulphuric acid to reduce the future costs and secure supply of acid required
for its two uranium and gold mining projects in South Africa, the underground
Ezulwini Mine ("Ezulwini") and the Mine Waste Solutions tailings recovery
project ("MWS"). At a projected cost of $124 million, the acid plant will be
installed at MWS, located in the Western portion of the Witwatersrand Basin
approximately 160 kilometres South-West of Johannesburg. Based on an analysis
of pyrite feed-stock potential from the MWS tailings dams, a preliminary
technical assessment and a recent market analysis, the Company expects that
it will take 19 months to procure and commission the acid plant with
anticipated production beginning in January 2010. The company has secured its
initial requirements for sulphuric acid in a market where acid supplies
remain very tight. The company anticipates significant acid price increases
that are expected to continue in the medium term, as acid prices are closely
related to the market for sulphur which is also indicating tight supply and
significant price increases
RATIONALE
Reduced availability of electrical power in South Africa has caused cutbacks
in the operation of smelters and other facilities that produce sulphuric acid
as a byproduct. The reduced supply of acid, increases in the cost of
elemental sulphur (which is used to produce acid) and increased demand for
acid in the base metal sector and for fertilizer production have led to
rapidly increasing global acid prices. The Company has assessed and confirmed
the economic viability of constructing an acid plant to provide the required
sulphuric acid for its operations to mitigate the effects of supply
constraints and rapidly rising costs for acid.
Graph 1: SULPHUR SPOT PRICE COMPARISON
(To view this graph, please see electronic version of this news
release on the Company`s website at www.firsturanium.com)
Notes for the Graph 1 and Tables 1 and 2:
1. `fob` means "free on board" and indicates that the quoted price
includes the cost of loading the goods into transport vessels at the
specified location
2. `cfr` means "cost and freight" and indicates that the cost of the goods
and freight charges are included in the quoted price; while the buyer
arranges for and pays insurance
3. as South Africa is a net importer of sulphur, local suppliers practice
import parity pricing with industry recognized benchmark prices as shown
The long-term global outlook for the sulphuric acid ("H2SO4") market is based
upon information from sulphur industry research and is primarily driven by
the spot price for sulphur.
Table 1: INTERNATIONAL ACID PRICE FORECAST
2008 2009e 2010 - 2015-
2015e 2020e
$/tonne $/tonne $/tonne $/tonne
Tampa (cfr) 250 175 80 80
consumer
Houston (fob) 260 175 80 80
Average H2SO4 265 175 80 80
price
The forecast acid prices exclude the $90 per tonne cost of transport from the
South African port of entry to the Company`s mining operations. Due to new
uranium mining activity in this region, there is increasing local demand for
sulphuric acid. This demand can only begin to normalize once additional acid
plants have been commissioned.
Table 2: DELIVERED ACID PRICE FORECAST
Forecast 2008 2009e 2010 - 2014-
2014e 2020e
$/tonne $/tonne $/tonne $/tonne
Average 260 175 80 80
international
H2SO4 price --
fob
Richards Bay,
South Africa
Transport 901 901 901 152
Total cost 350 265 170 95
modeled
Notes:
1. Transport costs ex Richards Bay, South Africa
2. Assumes that enough local acid production will have started up by 2014
to reduce transport costs
Future price projections in South Africa, which indicate sulphuric acid costs
ranging between US$330 and US$600 per tonne, have not taken into
consideration acid demand at new mining projects, such as MWS, which will
come on stream in the near term and approximately represent an additional15%
of current market acid supply.
Even assuming more conservative increases in acid costs, the Company expects
that its investment of $124 million in an acid plant, on its own, will have
an internal rate of return ("IRR") of 6%, an NPV of $28 million and a payback
of 11 years. The low-cost acid produced by this plant will improve NPV at
Ezulwini and MWS as sulphur will be sourced from current operations at no
cost.
THE ACID PLANT BUSINESS MODEL
Once the acid plant is completed, the Company will direct all of the pyrite
currently produced as waste at the MWS tailings plant to the acid plant for
the production of sulphuric acid, which will eliminate the need to source
acid from third-party vendors. Since the planned production of the acid would
be more than sufficient to supply both Ezulwini`s and MWS`s projected acid
requirements, excess acid could be sold into the market at the then
prevailing market rates. In addition, as the production of acid in the plant
will be an exothermic reaction, there is the opportunity to generate a by-
product of approximately four megawatts of power, which will be available to
augment the power supply to Ezulwini and MWS.
"We are in a fortunate position to have access to pyrite which is currently
being discarded as a waste product after we have removed the gold from the
pyrite flotation concentrate at MWS," added Gordon Miller, President and CEO
of First Uranium. "While we believe that we have dealt with the current
electrical power supply issues in a satisfactory way, it is but one of the
important issues facing mining companies today. Consistent and reasonably
priced acid supply is a fundamental requirement for our operations and the
decision to build an acid plant will not only secure supply and protect us
from rampant acid price inflation, it will also assist with future power
requirements,"
ACID PLANT
The technical parameters used for this economic assessment are based upon
test work and a preliminary assessment that has been conducted by MDM
Engineering (Pty) Ltd during the past five months. The specification and
procurement study is expected to be concluded within eight weeks. Of
potential benefit to the installation of an acid plant is the fact that
Simmer & Jack Mines, Limited, First Uranium`s parent company, holds an
existing license to produce acid at their Buffelsfontein Gold Mine under
their Old Order Mining Right, which is in the process of being converted to a
New Order Mining Right.
Table 3: PROJECT SPECIFICATIONS AND ECONOMICS FOR A 600 TONNE-PER-DAY ACID
PLANT
Description Amount Unit
Tonnes of sulphur required per month 6,200 tonnes per
month
Tonnes of tailings concentrate (pyrite) 24,000 tonnes per
required per month month
Tonnes of acid produced per month 18,000 tonnes per
month
Total capital 124 $ millions
Total capital cost per total tonne of 31 $/tonne
acid produced
Operating cost of acid plant per tonne 14 $/tonne
of acid produced
Revenue per tonne of acid charged to 51 $/tonne
Ezulwini and MWS
IRR 6% %
Long-term acid market price assumed for 95 $/tonne
acid plant economics
Payback 11 years
NPV 28 $ millions
A standard plant with a sulphuric acid capacity of 600 tonnes per day has
been chosen as the preferred size specification, which is more than
sufficient to meet the Company`s planned acid requirements. In addition, the
plant would have the flexibility to adjust the process to achieve the desired
sulphuric acid production regardless of the pyrite content in the tailings,
which will allow the Company to fulfill its sulphuric acid requirements
despite variances in the pyrite content from one tailings dam to the next.
The Company expects there to be a healthy market into which it should be able
to sell any excess acid production.
Based on the current price projections for sulphuric acid, the Company
expects the acid plant to operate at an incremental cost of approximately $14
per tonne of acid, which will be reduced by credits received for the plant`s
by-product of electrical power discussed on page 3. The financial impact of
the acid plant has been factored in the cash flow analysis below.
BENEFIT TO THE COMPANY`S MWS AND EZULWINI PROJECTS
The incremental benefits to the Company`s MWS and Ezulwini projects are
tabled below and also reflect the required investment in electrical power
generation (announced in a separate release dated April 18, 2008), the rising
costs of Eskom-supplied power in future years, the construction of an acid
plant, the Company`s current assumptions for the projects prices of uranium
and gold and the projected currency exchange rate of the South African rand
and the US dollar.
Table 4: ACID PRICES AT MWS
Description MWS
November April 2008 April 2008 April 2008
20071 Power & Own Acid Exposed Acid
Acid Conservative Market
case Downside
case
Average H2SO4 price 60 73.42 114.63 168.34
($/tonne)
Operating cost 2.5 2.9 3.2 3.4
($/tonne)
NPV ($ millions) 505 419 375 347
Notes:
1. The source of the November 2007 data was the `Technical Report on the
Pre-Feasibility of the Buffelsfontein Tailings Recovery Project, located
at Stilfontein, North West Province, South Africa`
2. H2SO4 : Yr1 $266 / tonne; Yr2 $266 / tonne; Yr3 and beyond $34.2 / tonne
3. H2SO4 : Yr1 $266 / tonne; Yr2 $266 / tonne; Yr3 -Yr6 $170 / tonne ; Yr6
and beyond $95 / tonne
4. H2SO4 : Yr1 $266 / tonne; Yr2 $266 / tonne; Yr3 and beyond $200 / tonne
5. Average life of mine rate to exchange Rand to US dollars = 7.53
6. Average acid input cost of total operating cost for MWS = 23%
7. Average H2SO4 costs are a blend of the cost of contracted acid supply
and the cost of the planned acid plant
Table 5: ACID PRICES AT EZULWINI
Description EZULWINI MINE
May 20071 April 2008 April 2008 April 2008
Power & Own Acid Exposed Acid
Acid Conservative Market
case Downside
case
Average H2SO4 price 60 1052 1683 240.54
($/tonne)
Operating cost 55.6 73.35 74.3 75.4
($/tonne)
NPV ($ millions) 332 667 655 643
Notes :
1. The source of the May 2007 data was the `Technical Report on the
Preliminary Assessment of the Ezulwini Project, Gauteng Province,
Republic of South Africa`
2. H2SO4 : Yr1 $565 / tonne; Yr2 $565 / tonne; Yr3 and beyond $47.5 / tonne
3. H2SO4 : Yr1 $565 / tonne; Yr2 $565 / tonne; Yr3 -Yr6 $ 170 / tonne ; Yr6
and beyond $95 / tonne
4. H2SO4 : Yr1 $565 / tonne; Yr2 $565 / tonne; Yr3 and beyond $200 / tonne
5. Average life of mine rate to exchange Rand to US dollars = 7.53
6. Average acid input cost of total operating cost for Ezulwini = 2.5%
7. Average H2SO4 costs are a blend of the cost of contracted acid supply
and the cost of the planned acid plant
Table 6: ACID PLANT ECONOMIC ASSUMPTIONS AND VALUATION
ECONOMIC Unit Mar Mar Mar Mar Beyond
ASSUMPTIONS 2011 2012 2013 2014 Mar
2014
Currency (ZAR/$US) 7.50 7.45 7.57 7.57 7.57
exchange rate
Sulphuric $/tonne 170 170 170 170 95
acid price
(Market
Outlook)
Sulphuric $/tonne 200 200 200 200 200
acid price
(Market High
Case)
PRELIMINARY ASSESSMENT VALUATION Unit Market Market
Outlook High
Case
NPV $ 28 75
millions
IRR % 6% 13%
"We decided, with the full support of our Board, that, given our uranium
price, gold price and exchange rate assumptions, our Ezulwini Mine and Mine
Waste Solutions were robust enough projects to support our decision to supply
our own electrical power generating capacity and invest in the business of
producing sulphuric acid," added Mr. Miller. "Our analysis of our peak
funding requirements, taking into account the construction of new acid and
power plants suggests that we would be required to draw down on a credit
facility, on a short-term basis, from April 2009, until sales of gold and
uranium increase to completely offset our capital needs. With gold prices at
or above $900 per ounce, revenue from our near- to medium-term gold
production may mitigate any needs to raise any other forms of capital."
Technical Disclosure
Historical technical disclosure in this new release relating to the Mine
Waste Solutions tailings recovery project ("MWS" and formerly named the
Buffelsfontein tailings recovery project) was extracted from a technical
report entitled "Technical Report - Pre-Feasibility of the Buffelsfontein
Tailings Recovery Project, located in Stilfontein, North West Province,
Republic of South Africa" submitted on November 1, 2007, and was prepared by
Daan van Heerden, B.Sc., M.Comm., Charles Muller, B.Sc, Pr.Sci.Nat, and Johan
Odendaal, B.Sc., M.Sc., Pr.Sci.Nat all of Minxcon Pty Ltd. ("Minxcon"),
Treavor Pearton, B.Sc Eng PhD, FGSA and Mike Valenta, Pr Eng, B.Sc., of
Metallicon Process Consulting (Pty) Ltd. ("Metallicon`) each of whom is a
"qualified person" under NI 43-101 and is independent of First Uranium.
Historical technical information is this news release relating to the
Ezulwini Mine is extracted from a technical report entitled "Technical Report
- Preliminary Assessment of the Ezulwini Project, Gauteng Province, Republic
of South Africa" originally submitted on November 8, 2006, revised on
December 5, 2006, January 31, 2007 and May 9, 2007 prepared in accordance
with NI 43-101 by R. Dennis Bergen, P.Eng and Wayne Valliant P.Geo of Scott
Wilson Roscoe Postle Associates Inc. ("Scott Wilson RPA") each of whom is a
"qualified person" under NI 43-101 and is independent of First Uranium.
The disclosure contained in this news release relevant to their respective
contributions to Ezulwini, MWS and the acid plant has been reviewed and
approved by Messrs. Bergen, van Heerden, Muller, Odendaal, Pearton, Valliant
and Valenta.
The economic analysis contained in this news release is contained in a the
above technical reports and is based, in part, on inferred resources, and is
preliminary in nature. Inferred resources are considered too geologically
speculative to have mining and economic considerations applied to them and to
be categorized as Mineral Reserves. There is no certainty that the reserves
development, production and economic forecasts on which the preliminary
assessment contained in the technical reports is based, will be realized.
Cautionary Language Regarding Forward-Looking Information
This news release contains certain forward-looking statements. Forward-
looking statements include but are not limited to those with respect to the
availability of electrical power, the planned addition of owner-operated
power generation, price of electrical power and sulphuric acid, the
estimation of mineral resources and reserves, the realization of estimated
pyrite content in the MWS tailings dams, the timing and amount of estimated
future production, costs of production, capital expenditures, costs and
timing of development of new deposits, success of exploration activities,
permitting time lines, currency fluctuations, requirements for additional
capital, availability of financing on acceptable terms, government regulation
of mining operations, environmental risks, unanticipated reclamation
expenses, title disputes or claims and limitations on insurance coverage and
the timing and possible outcome of pending litigation. In certain cases,
forward-looking statements can be identified by the use of words such as
"goal", "objective", "plans", "expects" or "does not expect", "is expected",
"projected", "assumed", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates", or "does not anticipate", or "believes" or
variations of such words and phrases, or state that certain actions, events
or results "may", "could", "would", "might" or "will" be taken, occur or be
achieved. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of First Uranium to be materially different from
any future results, performance or achievement expressed or implied by the
forward-looking statements. Such risks and uncertainties include, among
others, the actual results of current exploration activities, conclusions of
economic evaluations, changes in project parameters as plans continue to be
refined, availability of equipment, materials and fuel, possible variations
in grade and ore densities or recovery rates, failure of plant, equipment or
processes to operate as anticipated, accidents, labour disputes or other
risks of the mining industry, delays in obtaining government approvals or
financing or in completion of development or construction activities, risks
relating to the integration of acquisitions, to international operations, to
prices of uranium and gold, to price of electrical power and sulphuric acid.
Although First Uranium has attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that
cause actions, events or results not to be as anticipated, estimated or
intended. It is important to note, that: (i) unless otherwise indicated,
forward-looking statements indicate the Company`s expectations as of the date
of this news release; (ii) actual results may differ materially from the
Company`s expectations if known and unknown risks or uncertainties affect its
business, or if estimates or assumptions prove inaccurate; (iii) the Company
cannot guarantee that any forward-looking statement will materialize and,
accordingly, readers are cautioned not to place undue reliance on these
forward-looking statements; and (iv) the Company disclaims any intention and
assumes no obligation to update or revise any forward-looking statement even
if new information becomes available, as a result of future events or for any
other reason.
In making the forward-looking statements in this news release, First Uranium
has made several material assumptions, including but not limited to, the
assumption that: (i) consistent supply of sufficient power will be available
to develop and operate the projects as planned; (ii) approvals to transfer or
grant, as the case may be, mining rights will be obtained; (iii) metal
prices, exchange rates and discount rates applied in the preliminary economic
assessments are achieved; (iv) mineral resource estimates are accurate; (v)
the technology used to develop and operate its two projects has, for the most
part, been proven and will work effectively; (vi) that labour and materials
will be sufficiently plentiful as to not impede the projects or add
significantly to the estimated cash costs of operations; (vii) that Black
Economic Empowerment ("BEE") investors will maintain their interest in the
Company and their investment in the Company`s common shares to a sufficient
level to continue to support the Company`s compliance with 2014 BEE
requirements; and (viii) that the innovative work on stabilizing the main
shaft at the Ezulwini Mine will be successful in maintaining a safe and
uninterrupted working environment until 2024.
Conference Call
First Uranium will conduct a conference call with investors to discuss the
information in this news release at 10:00 a.m. local Toronto time and 4:00
p.m. local Johannesburg time on Monday, April 21, 2007. The conference call
will be available simultaneously to all interested investors and news media.
Callers may dial 1 800 319-4610 (Canada and the US) or 0800 200 648 (South
Africa). Callers from other international locations may call +1 604 638-5340
(Canada) or +27 11 535 3600 (South Africa). The call will be webcast at
http://services.choruscall.com/links/firsturanium080421.html and an archive
will be available through the same link shortly after the live event for 90
days.
A replay of the conference call will be available for 30 days. To access the
replay, callers may dial 1 800 319-6413 (Canada and the US). Callers from
other international locations may access the replay by dialing +27 11 305
2030 (South Africa) or +1 604 638-9010 (Canada). Access to the replay will
require the code 2128, followed by #.
About First Uranium Corporation
First Uranium Corporation (TSX:FIU, JSE:FUM) is focused on the development of
its South African uranium and gold mines with the goal of becoming a
significant producer through the re-opening and underground development of
the Ezulwini Mine and the expansion of the Mine Waste Solutions tailings
recovery facility. First Uranium also plans to grow production by pursuing
value-enhancing acquisition and joint venture opportunities in South Africa
and elsewhere.
First Uranium Corporation
1240-155 University Avenue, Toronto, ON Canada M5H 3B7
www.firsturanium.com
For further information, please contact:
Bob Tait, VP Investor Relations
at 416 342-5639 (office), 416 558-3858 (mobile) or bob@firsturanium.ca
Sponsor: Investec Bank
Date: 21/04/2008 08:28:01 Produced by the JSE SENS Department.
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