When the company was first formed, the price of uranium was soaring, and Govind Friedland was anxious to capitalise on it.
The opportunity soon presented itself – at the time, French nuclear giant Areva was the only company operating in-country and the government of Niger made the decision to open up the industry to other companies, therefore releasing several previously unavailable licences.
GoviEx picked up the 250 square kilometre Madaouela licence in the central northwest region of the country. It is a major asset that is now permitted, and has played a central role for GoviEx ever since.
At the time, the company set about undertaking one of the largest exploration programmes anywhere in the world, drilling out 650,000 metres and generating a sizeable resource. The current figure stands at just over 60 million pounds in probable reserve.
A preliminary economic assessment was then completed and was duly followed by a feasibility study.
All was well and good.
Except that, in the intervening period, the uranium price had fallen significantly. From a spot price peak of over US$130 per pound in the second half of 2007, to a mere US$40 per pound three years later, before rallying and then falling back again.
Sentiment towards uranium suffered. GoviEx’s share price took a hit, along with the rest of the world’s uranium companies, and things, for a while, looked bleak.
But chief executive Daniel Major, a Camborne graduate with over thirty years of mining experience under his belt, was not to be deflected. He knows as well as anyone that there’s more than one way to skin a cat, and so with the market once again returning to deficit, it’s been back to the economic models for a re-evaluation, with help from SGS Bateman and SRK.
The plan is to put out an updated pre-feasibility study in the second half of 2020, one that GoviEx hopes will show considerable cost reductions both in terms of opex and capex, and point the way forward to a more definitive study later on.
Various refinements are being made to the new study, particularly in the processing. More gravity will be used and less ablation, and in the separation of molybdenum ion, extraction will be used over solvent extraction-electro-winning (SX-EW). GovEx is targeting a capex drop of at least 10%, from the previous number of around US$360 million to a hoped-for range between US$300 to $330 million.
The opex target is at US$22, which, even when set against the current spot price of US$24, allows for a certain leeway in operating margin.
Whether the spot price will ultimately play a role in any product sales from Madaouela is another question, since most projects like this seek to sell under longer-term off-take contracts. That gives certainty on price to both sides, and increases the level of comfort to the banks that any project finance is likely to be covered.
More to the point, perhaps, is that Major expects that the uranium price will start to strengthen at some point, after both Cameco and Kazatomprom pulled production out of the market last year and effectively engineered a deficit. It’s got to the point where Cameco is currently buying on the spot markets to meet its own contracts to supply, rather than producing from its own extensive reserves.
Clearly, this is a situation that can’t prevail for much longer, and in a letter to shareholders dated 30 December, both Friedland and Major stated that they expected the price to improve through 2020, citing factors such as the supply deficit, decreased political uncertainty in the US, and the on-market purchase of producers like Cameco.
But given that the market is, for now, at least fairly weak, why should investors take any interest in GoviEx?
The answer lies in the cyclical nature of the mining industry, and the depth of experience that people like Major can bring to bear.
“Back in 2008 when GoviEx was first looking to list, it was targeted as a US$1.4 billion company,” he says.
“And in the last cycle, the two shares that outperformed in the uranium space were Paladin and Energy Fuels.”
The key to that outperformance?
“These were the only two companies that actually built a mine during the cycle,” explains Major. “Everybody else either stayed as a developer or as a producer.”
The aim of GoviEx this time round is clear enough. When the uptick begins to gather pace, the company will look to move rapidly towards production and capture some of that upside.
And how much is on offer? It’s an open question. But the performance of Paladin sets a sobering precedent. In a market that was up 2,500%, Paladin soared by more than 10,000%. GoviEx has the resource and the experience to make it happen. It just needs the cycle to turn that little bit further.