Uranium: Boss Anticipates Boosted Profits at Honeymoon

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Australia's Boss Energy has unfettered itself from low-priced legacy contracts long attached to its Honeywell uranium project, while simultaneously pulling down the project's estimated all-in production costs to $31.86 per pound U3O8. Combined with 1.25 million lbs. U3O8 of recently purchased inventory, the ambitious junior hopes it is now uniquely positioned to attract financiers and end-user utilities willing to consider new long-term contracts. In its new "enhanced" feasibility study for Honeymoon released Jun. 21, Boss anticipates a pretax net present value (NPV) of US$309 million, up 35% over a feasibility study estimate released in January 2020. Boss hopes to operate the South Australia project for at least 10 years, with average annual output of 2.45 million lbs. U3O8. There appear to be two major factors behind the boosted NPV. The first is a change in the planned processing method at Honeymoon: rather than solvent extraction anticipated in the previous study, Boss is fixed on ion-exchange thanks to a September 2020 breakthrough that allowed it to remodel the process. This entails slightly higher capital costs, which come in at $80 million in the enhanced study, 15% over the $70 million estimated last year, but much cheaper cash costs: $18.46/lb. U3O8 now, a 21% reduction from $23.25/lb. in January 2020. The new all-in cost estimate of $31.86/lb. U3O8 is down 11% from the previous $35.92/lb. estimate, meaning that it's not just lower costs overall driving the new NPV. But this can perhaps be explained in part by Boss' ability to disentangle itself from two of the three legacy contracts that had weighed down previous Honeymoon owner Uranium One (NIW Sep.4'15). Those contracts, two of which were with EDF in France and the Tennessee Valley Authority in the US, were signed at incredibly low prices, possibly approaching the single digits, by Uranium One predecessor Southern Cross Resources, or SRX (NIW Mar.1'19; NIW Nov.3'17). Once the mine went into commercial production, the mine operator would be faced with supplying into contracts well under even the cash costs. But Boss CEO Duncan Craib told Energy Intelligence that it has managed to whittle this burdensome portfolio down to only one contract without fees or payments. "We just negotiated," he said. And while that contract is included in the NPV calculation, it could also be fulfilled using the 1.25 million lbs. U3O8 that Boss now holds (and that is not calculated in the current NPV), which would only improve Honeymoon's economics. For the moment, Craib would prefer to keep those inventories as a means of reassuring prospective utility buyers. "The advantage Honeymoon has is we can supply into contracts within two years of signature," said Craib. And with the 1.25 million lbs. U3O8 in reserve, "there will be no slippage on deliveries within that critical period." Going Forward "Our strategy now will be somewhat influenced by discussions with [prospective] lenders: what do they need as a minimum price?" said Craib. With the uranium spot price barely hovering above Honeymoon's projected all-in costs, it's safe to say that any such minimum price hasn't been reached -- but Craib is confident of better days ahead. "Once we see the price moving and staying above the high $30s [per lb. U3O8], we'll see what contracts we can get into," said Craib. Boss uses a uranium price of $60/lb. U3O8 to justify its NPV, but Craib was clear that once it begins contracting it plans to "layer in contracts at different price mechanisms, volumes, and durations." And if the uranium price rises just a bit further, and stays there for a bit, it's not crazy to think that utilities might start to be interested. When asked recently about the supportive long-term contracts utilities have in the past signed with prospective uranium producers, Exelon Generation Manager Jim Nevling acknowledged that signing such contracts is "a lot harder" today, but nevertheless seemed willing to indulge the idea of returning to the model of above-market contracts. "It's much more difficult to justify anything more than a very modest deviation from reported markets," Nevling said during the recent World Nuclear Fuel Market conference. "So for example -- and I'm just making numbers up here -- if the spot price is at 32 [dollars per pound U3O8] and somebody came and said 'Hey, I need 40,' we can probably contemplate that. If the spot market is 32, and somebody comes to me and says, 'Hey, I need 65'? You know, that one's just not gonna float almost regardless." Phil Chaffee, London

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