How to estimate an ISL Uranium Company

How to estimate an ISL Uranium Company




Over the past two years, the shared myth circulated among investors has been “pounds in the ground.” How many pounds of U3O8 does a company have in the ground? The more pounds a company claims, and more importantly gets institutions and investors to believe, the higher its market capitalization has run. Bigger is always better in most situations, but recovering uranium by an ISL operation, like any other mining operation, has its quirks.

During the early stage of this uranium bull market, pounds-in-the-ground was an important yardstick. But just as one can have a million-ounce gold place, with a complexity of metallurgical problems that prohibit a strong economic recovery or offer a paltry grade of gold in the ore, investors may discover the same problems in properly evaluating a company’s uranium claims. Instead of asking a company’s investor relations department how many pounds of uranium they have in the ground, find out how much uranium pounds they can truly retrieve and produce, and how much it will cost them to mine their character. Ask instead these questions:

o How permeable are the ore bodies you plan to mine?

o What is your average grade?

o Over what area does your rollfront extend?

o What is the thoroughness of your ore body?

By the time you have finished reading this characterize, you should have a better grasp on the economics of ISL mining. You should be better equipped to make a more intelligent decision about your favorite company. First, let’s examine the character of a uranium mineralized rollfront. Understanding the rollfront will give you the meaningful tools required to precisely estimate the prospects of any ISL uranium development company.

THE “ROLL FRONT” IS YOUR FRIEND

In the first article, we interviewed Charles Don Show, who helped pioneer ISL uranium mining as an economic method to extract lower grade ore from underground mining operations. In Snow’s 1978 article entitled, “Gas Hills Uranium District, Wyoming – A Review of History and Production,” published in the Wyoming Geological Association Guidebook, he wrote about the development of the “roll front” theory. He wrote about discussions the project geologists were having in the summer of 1955 about Utah Construction Company’s recently acquired option on the Lucky Mc uranium similarities in Wyoming’s Gas Hill District:

“Offset drilling Project 4 intersected one major mineralized zone with a grade thickness product over 10 percent U3O8. An offset of this and one other mineralized hole about 2500 feet away were empty. Many discussions of why the ore was in these ‘secluded’ pods were carried on late into the night… It was during the period of development of the reserves that members of the staff started referring to different layers and separated pods as areas of mineralization where chemical changes had caused deposition and soon the information ‘chemical front’ was in shared usage.”

Three years later, Paul A. Riddell prepared a report to document the ore occurrences at the Lucky Mc mine. He was among the first to use terminology that has since become an integral part of the “Roll Front” concept. In his project report, Riddell wrote:

“In conclusion, the uranium appears to be restricted to more porous beds, but is not uniformly distributed within these beds. The boundaries between ore and lean material are inconsistent – sometimes sharp and sometimes gradational. They do not appear to be related to changes in sedimentation within the beds. Others have suggested that the boundaries represent ‘chemical fronts,’ and this theory appears reasonable in light of present information.”

Originally called chemical fronts, these “pods” contained various grades of uranium. Each pod or roll front is comprised of different mineralization. Understanding that mineralization and how to extract the uranium alone determines how viable a place might be.

If you imagine roll fronts in a uranium area as if they were lily pods in a pond, you are off to a good start. When a company announces it has uranium mineralization on its character, this could average it has many pods, or fronts. Ideally, you hope to have multiple “fronts” obtainable on your ground. “Typically, the meat of the front (multiple percent of uranium) is only a few feet to ten feet wide at the most,” Strathmore Minerals president David Miller explained. “This is the part that your ISL wells have to address correctly. If you look at all the mineralization in a single front system, above 0.03 percent, then from the tails to the front could be 100 feet or more. If you look at the multiple fronts in stacked sands, and you look at one end of the system to the other, the width can be several miles. The length of any of these can be tens of miles, but the good stuff comes and goes.”

Miller compared these multiple fronts to “pearls on a string.” There may be one, two or three roll fronts in one well field. “There may be more than three roll fronts,” Miller additional. “There may be that many or more already in one pattern.” Again, they are pods and they may be stacked in layers, like lasagna. “The number of roll fronts in a pattern does not really matter, except for operational reasons,” Miller explained. “It is more complicate to properly address multiple roll fronts than a single roll front, and you may not be able to optimize recovery of all of them.”

PERMEABLITY IS THE meaningful

Getting down to the business of ISL mining a roll front requires that we understand the role permeability plays in this mining method. Permeability is the flow rate of the liquids by the porous sandstone. Knowing what the permeability of the orebody will let you know how much water you can get by the sandstone formation. According to Uranerz Energy Chief Executive Glenn Catchpole, who is also a hydrologist, the typical porosity of sandstone is 10 to 20 percent. Porosity is the void space between the sandstone grains. By comparison, clay has a porosity of between 45 and 55 percent. Catchpole said, “A character’s formation has to have sufficient permeability to make the project economic.”

In order to dissolve the uranium into solution, you have to know the “hole volumes.” That’s the measure of the hole space in the rock. “You’re passing fluid by the formation about 30 times to dissolve the uranium,” explained UR-Energy Chief Executive William Boberg. “Part of a successful operation is knowing how many hole volumes we feel it’s going to take to make it all work.” Uranium Energy Corporation Chief Operating Officer Harry Anthony, an internationally recognized ISL expert, noted, “You need higher grade ore for tight formations. With high permeability, you can space your wells further apart.”

As with any industry, it boils down to economics. How much to function the plant? Anthony gave an example of an ISL plant operating at 5000 gallons per minute. Running 24 hours daily, the plant would course of action 7.2 million gallons of water. That’s more than 2.6 billion gallons of water processed every year. Operating costs are based upon cost per thousand gallons of water. “This includes electricity, reagents and labor,” said Anthony. On a daily basis, it would cost more than $21,000 to run an ISL plant, based upon Anthony’s calculations of $3.03 per thousand gallons of water. Using a 5,000 gallon per minute scenario, a plant might produce 2360 pounds of U3O8 every day or 80,000 pounds monthly. The cost to produce each pound would be $8.18. Using that math, the uranium grades would be about 44 parts per million (ppm) or 0.08. Anthony said, “I like to see 70ppm or higher.” A grade of 0.13 is 75ppm.

With low permeability in a tight formation, you may need to space more wells in a typical well field pattern. How much does each well cost? That depends upon the thoroughness of the roll front place. While explaining that costs are fixed and variable, Anthony computed the cost of a production well for a 500 foot place at $15,000. An injection well could cost $11,000 to install. By comparison, in New Mexico, where the deposits are wider and of higher grade, a 2000-foot production well might cost $27,000 and the injection well could cost $18,000, and it would nevertheless be economic.

Why are we talking about well installation costs? Again, it comes back to permeability. If the flow rate is lower, bringing an ISL well field into production costs more. Glenn Catchpole explained, “If your plant is running at 3000 gallons per minute (gpm), and the formation is tight, each production well might only have 10gpm flowing. A more permeable formation might have 20gpm flowing.” That method twice as many production wells are required to satisfy the ISL plant’s 3000gpm flow level. Installation costs have doubled, and that would also impact operating costs. And a company which once might have looked like it had an economic orebody could now smell like week old fish.

PUMP TESTING FOR PERMEABILITY

“The pump tests are extremely valuable,” explained Boberg. “The pump tests are one of the go/no-go considerations for what we’re doing.” Boberg told us UR-Energy expected to start drilling by the end of April or May on their Lost Soldier character in Wyoming. “We’ll be putting in the initial drill holes for the tests, and we’ll be doing the pump tests following that.” In one of series of tests, Boberg explained, “We take a chief out of the hole (3 inches diameter and 6 inches tall) and test it vertically by forcing fluid by it.” Because the movement of the fluids in the substrata, from one well to another, is horizontal, the only way to really find out the permeability and porosity is by drilling a hole and putting a pump in it.

Catchpole explained the procedure, “You put the equipment down your monitor wells to measure drawdown.” Quite simply, you measure how far the water goes down. “The pump test will tell you permeability.” A good pump test takes between 24 and 72 hours to complete. Catchpole’s Uranerz Energy plans to run their pump tests this summer on their Excalibur character in the northeastern Wyoming’s Powder River Basin.

The make-break point for a formation’s permeability is its Darcy rating. How high is the Darcy? A typical Darcy can range from minus 1000 to plus 3. The higher the Darcy, the more permeable the formation and that would help determine how economic the orebody is. An permissible range would be one-half to one Darcy. What is a Darcy? Catchpole said, “It is gallons per day over feet squared.” He additional a pure hydrologist would calculate the feet per day or centimeters per second to get a more accurate permeability assessment. However, the Darcy is a widely accepted measuring unit in the industry.

Until a company gets its Darcy rating on its character, one can’t be completely certain the character can be mined by ISL. What guidelines does one depend upon? Catchpole said, “Historical research can give you permeability levels for a formation.” So we asked Catchpole how he felt about his Excalibur similarities. He answered, “We know our similarities are permeable enough.” How permeable will be answered with the pump tests.

OTHER FACTORS

Uranium grades can be a contentious point, so we asked our ad hoc panel of experts. “Grade is the driving force,” Harry Anthony shot back. We asked him about companies which said they could run an economic ISL operation with grades as low, or lower than 0.02. Anthony laughed, “They are crazy. They’d be out of business before they started.” Catchpole was more reserved in responding, “It probably wouldn’t have an economic recovery.” Strathmore’s David Miller offered a more technical examination, “Frankly, that will not likely have enough recoverable pounds. The operating grade feeding the plant will be too low. What is the best grade? 0.5, 0.10, or 0.15. It depends upon the place.”

How much can you truly retrieve? Boberg explained the problems of pounds-in-the-ground. “Let’s say we’ve got 100 million pounds of uranium now. How much of that can we truly mine? There may be 10 million in a particular orebody that looks like we can mine it. If we build an operation around that, we might be able to develop an access to maybe 7 million pounds of that. And in a recovery course of action, we might only be able to retrieve 70 percent of that.” Every company has to also be very careful in studying their orebodies before building their plant. “We’ve got to make sure that the plant we’re building isn’t built over a possible resource,” Boberg emphasized. “We’ve got to drill under that to make sure we’re not accidentally putting the plant over another part of the place.”

Another worry with an orebody is channeling. “You don’t want channeling,” Catchpole insisted.” Channeling indicates the water is going by a very thin path. “If your orebody has a thickness of ten feet and your channel of flow is one foot, you are missing most of the uranium formation,” said Catchpole. “You may have good flow rates, but not much U3O8 recovery.” Sometimes, a channel can be a natural occurrence, where the flow is along a fault. The channel creates a smaller, but preferred path for the fluids to flow by. . Unlike fracturing a formation to release natural, or coalbed methane, gas, a fractured channel has the opposite effect on ISL uranium mining.

How much does it cost to install a well field pattern, and is it economic to do so? “The art part of an ISL operation is interpreting the ore body and the hydrology,” Catchpole explained. “Your hydrologic test results determine where you think the solutions are going to flow best. In other words, which direction has the best or least permeability. This has to get factored into how you lay out those patterns, the width of your orebody, and how far out to the edge of the orebody you go.”

In a well field pattern, Strathmore’s David Miller can determine the economic viability of the ground. “The keys to what is recoverable are: (a) how many pounds are recoverable per pattern? And (b) what does it cost to install a pattern?” Miller explained. “If you have 10,000 pounds in place and can retrieve 8000 pounds, your well field development cost can be $8/pound, if it costs you $80,000 to install that pattern. Add your operating cost, capital amortization and restoration cost, and you would have a total cost.”

Finally, the cost to install a pattern also depends over how much territory your roll front deposits run. “Ten million pounds over an area of one-half mile will cost less than those same pounds over an area of two to four miles,” remarked Terrence Osier, senior geologist for Strathmore Minerals. “That method more injection wells and more production wells.” thoroughness of the wells influences its installation cost, as mentioned before, and impacts its daily operating cost. “When uranium costs were very low, a few years ago, a company needed 70,000 pounds per pattern,” Harry Anthony commented. “Now a company might only need 20,000 pounds per pattern to make it economic.”

There are many variables within the above advices provided by these experts. However, the important point to realize is the time of hyperbole and hoopla over “pounds in the ground” has passed. As more uranium development companies move closer to establishing an ISL operation, the go/no-go consideration, as William Boberg aptly described it, will come down to permeability. After that, the economics of a project will either make it viable or not.

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.




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