Uranium poised to trigger scramble

| Friday June 26, 2009 00:00

For decades, Botswana has been renowned for its premier position in the production of high value diamonds, the country's economic backbone. The country has also enjoyed the international spotlight for its massive coal reserves which are conservatively estimated at more than two hundred billion tonnes.However, an unglamorous and previously unexploited mineral is expected to trigger a stampede among investors and mining companies eager to leverage on its rising status as a cash commodity.

Uranium, chiefly used in nuclear power generation, has for decades been viewed negatively as it can also be enriched and used for nuclear weapons, the fear of which drove the Cold War of the 1940s to 1990s.

The silvery-grey mineral has, however, made a comeback, with many countries accepting the use of uranium for energy production and downscaling their anti-uranium proliferation policies. The reduction of new power projects worldwide, and in southern Africa in particular, has led investors to view nuclear power plants as viable, cleaner, renewable and high-powered alternatives to widely used fossil fuels. With uranium a cleaner alternative to coal in terms of global warming, more debate around its use has emerged in the last decade. The greater acceptance of this mineral has allowed countries such as Canada, Australia, Russia, Namibia and others to grow multi-billion uranium extraction and processing industries.

Indicative of the new status uranium has acquired, its price rose ten times between 2003 and 2007 - from less than US$10 per pound in 1998 to a peak of US$100 per pound in 2007. The price has slightly declined in line with declining exploration worldwide and is currently forecast to end 2009 around US$70 per pound. However, analysts such as the MSA Group predict demand for uranium will outpace production in the near-term; with the global recession trimming exploration budgets, this positive supply/demand balance for uranium could hold for years to come.

In total, 28 companies hold concessions for radioactive minerals throughout Botswana, but particularly in the northeast of the country. Two Australian companies are actively on the ground, both in the north; in Letlhakane and in Sese, 50 kilometres south of Francistown. The more advanced of these two projects, is the one in Letlhakane, which is being developed by Australian company, A-Cap Resources. It is estimated to contain 98 million pounds of uranium.

African Energy drilled 5, 000 metres in 2007 at its Sese project, uncovering about nine million pounds of uranium of different qualities. African Energy's Managing Director, Frazer Tabeart, is among those bubbling with confidence about the profitability of uranium.'We took a view four years ago that uranium demand would be increasing and we have not seen anything in the last two years to say differently,' Tarbeart said. 'Infact, we are seeing demand growing and supply constrained. China, for instance, has a state-approved plan to improve its power generation capacity, and that will drive huge demand for uranium for reactors.'China currently has 12 nuclear reactors under construction with another 33 planned and another 80 proposed. By January last year, the Oriental giant had 11 operating nuclear reactors.

Tabeart said all over the world, decisions are being made to reverse nuclear phase-outs and that powerful economies such as the United Kingdom are experiencing policy shifts on the use of nuclear power plants. 'Even India is growing its uranium stockpiles for nuclear power,' he said. 'The fundamentals for uranium look very strong.'Meanwhile, A-Cap Resources is ramping up its activities to prepare for production. This year, the company is focussing on transforming itself from an explorer to a developer. Although A-Cap has other resources outside its flagship at Letlhakane, it has resolved to focus its energies and finance there.

'We plan to bring the project forward through a Bankable Feasibility Study,' said the company's CEO, Dr Andrew Tunks. 'Thus far, we have conducted water studies, more drilling and an Environmental Impact Assessment has begun. Tenders for a feasibility study have already gone out. Next year, we are planning more than 20, 000 metres of drilling. In the last three years, we have drilled more than 60, 000 metres and there are more areas to be drilled. This resource has an enormous capacity to grow from its current levels.' An equity investor, Polo Resources Limited, is set to also come on board, taking up 19.9 percent of A-Cap and pumping in 10 million Australian dollars which will go towards advancing the company's Botswana projects to production. A-Cap shareholders are to meet on June 26 (today) to approve part of Polo Resource's equity injection.

'I don't believe there will be any issues with the shareholders on the placement,' Tunks said. 'We have had it wacky in the last 10 months and last December our share price was only 10 Australian cents. When the company took the decision to recommit to Botswana and started drilling again, the share price started rising. While this was going on, negotiations for the placement were also on-going and after it was announced, the share price doubled. Our shareholders will not vote against this because it has already paid a lot of money into their pockets.' While optimism surrounds the uranium industry locally and internationally, some analysts warn that in the long-term, uranium production will peak and prices plateau before falling. However, most studies indicate that underinvestment in  new uranium mines will cause supply problems particularly for high grade ore. In addition, all producers are seeing little high-grade ore available in comparison with the larger volumes of low-grade ore.