Oakbay banking on uranium rewards

Uranium plants such as this (Oakbay's cost about R1bn but it paid 37.5m for it) are not built every day, particularly given the collapse in uranium prices since it was completed in 2007. At that stage, spot uranium was at a peak of $136 per pound. Today it is about $36 per pound.

Varun Gupta, CEO of Oakbay Resources, which owns 74% of the Shiva Uranium mine and plant, hosted a media visit to the mine on Wednesday, 2 September. He said Oakbay was preparing for a capital raising of about R800m to undertake development of the underground gold and uranium mine. This would enable first uranium production within about 18 months to two years.

Uranium One, which completed the plant, had ambitious plans for what was then called the Dominion project. In its first year of production, Dominion promised to produce 491,000 pounds of uranium, aiming for 3.8-million pounds a year at steady state.

However, those targets were rapidly revised downwards.

The plant is designed to recover 92% of the uranium, but in its first year its average recovery rate was only 57%, according to the competent person's report on Oakbay's website.

When the mine and plant were mothballed, reasons given were that the mine design was inappropriate, the feed to the plant was unsuitable and the gold grade had been overestimated.

Oakbay bases its projections on gold and uranium grades that have been revised downwards.

It has been funding the care and maintenance of the plant through open-pit gold mining, while it works on a new plan for mining underground.

It was refining a bankable feasibility study done in 2010 to further optimise the project, although its plan was adequate for fundraising purposes, finance director Trevor Scott said.

Oakbay was considering options, including an underwritten rights offer, a private share placement, or a mix of debt and equity, he said. A share issue would help ease illiquidity.

Oakbay's shares have gyrated from R10 to R50 and back to R30 in the past year, reflecting thin volumes. The shares are 80% held by the Gupta family through Oakbay Investments, while a 17.7% stake is held by long-term shareholders, including the Industrial Development Corporation, leaving only 2.3% in the hands of minorities.

In the year to February, Shiva Uranium produced 378.82kg of gold, 10% more than in 2013, and no uranium. At the end of the period it held R191.1m in cash.

Half-year results will be published before the end of November.

By the time the mine is producing gold and uranium, Mr Gupta is confident the uranium price will be responding to supply and demand imbalances, as Japan has begun restarting nuclear reactors after the Fukushima disaster and other plants are being built around the world.

Locally, the government is talking to various countries that could bid to build a new generation of up to 9,600MW of nuclear power. It would seem obvious that South African companies with uranium resources (which also include AngloGold Ashanti and Sibanye Gold) would hope to secure a long-term supply contract.

Mr Gupta said Shiva would be producing uranium within about two years, but SA's new nuclear power would only come on stream several years later. In the near future, Oakbay intended to open discussions with agents and nuclear-power firms about securing long-term supply contracts.

At the same time, Oakbay is looking for other acquisition opportunities in the energy and mining sector.

Source: Business Day