Mulga Rock uranium project: uneconomic and unlikely

Mining Uranium mines and mining Environmental impacts Western Australia

Vimy Resources claims its “Definitive Feasibility Study” (DFS) shows that the Mulga Rock uranium deposit east of Kalgoorlie is financially viable and ready to begin mining in the near future.

The DFS relies on heroic assumptions about prices, unfounded optimism about a booming nuclear industry and a scenario where Vimy has no low-cost competitors. In reality, many low-cost competitor mines have recently decreased production or delayed investment in response to low uranium price and could resume production in response to possible future price increases before this project is close to being viable.

Regulatory risks are also downplayed or ignored in the DFS. The mine still requires a number of remaining approvals and the DFS fails to reflect the miner’s financial obligations to contribute to Western Australia’s Mine Rehabilitation Fund or the likelihood that the WA Government may require a significant mine closure bond.

Assumptions about exchanges rates and establishment costs in the DFS are made with little regard to the macroeconomic realities of Australia. If commodity markets boom and raise the uranium price to USD$60/lb, so will the exchange rate and the capital costs of mining construction, undermining profitability. The last time uranium prices met the DFS forecast the exchange rate was USD$0.85 and mining capital costs were increasing at 7% per year.

The project risk is profound. A more complete scenario analysis that expands the scope of the Mulga Rock DFS shows that under plausible assumptions about exchanges rates (USD$0.75-0.80 range) and uranium prices (USD$20-40 range) the mine is unprofitable. Applying the recent ten-year average price (USD$40) and exchange rate (USD$0.85) the NPV of the project is nearly negative half a billion dollars.

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