The hope of reopening a former Rio Algom uranium mine and milling complex near Churchrock to provide conventional processing for uranium mining and exploration companies in New Mexico was dashed Thursday as Texas-based Uranium Resources backed out of a deal to buy Rio Algom Mining from BHP Billiton for $110 million.
During a conference call Thursday, URI President and CEO David N. Clark told analysts and investors that uranium market that has been in a free fall since February cooled investor interest in uranium, causing M&A financing to dry up.
We believe this is the best decision for the company and our shareholders given the current market conditions that have prevented us from securing the $180 million needed to finance the acquisition. Although the Rio Algom mill site would have reduced the time to bring conventional mining back to New Mexico, there are viable alternative for URI and other New Mexico uranium companies to pursue, Clark said in a news release. For now, we will concentrate our efforts on rebuilding our lost cost production potential in Texas while continuing to develop our resources in New Mexico where we have over 101 million pounds of in-place uranium mineralized material.
Ironically, BHP had received a notice Tuesday from the Nuclear Regulatory Commission for a hearing to begin the process to reopen the Rio Algom mill. BHP bought Rio Algom Mining in October 2000 for US$1.13 billion.
URI had expected to pay BHP Billiton $16.5 million contingent upon receiving a NRC license to construct and operate a uranium mill. The uranium company had also planned to pay BHP $110 million in cash and assume some retirement benefits and reclamations liabilities.
The Grants Mineral belt is being revitalized for uranium mining and milling operations. Companies believe that conventional underground uranium mining would play a bigger role than in-situ leach uranium operations. By purchasing the old Kerr-McGee's Ambrosia Lake mill, now the BHP Rio Algom mill, URI had hoped to halve the time it takes to construct a mill. URI had hoped to utilize the footprint of the Ambrosia Lake mill where infrastructure remains on site.
The company estimates it has 92 million pounds of uranium in reserves in New Mexico. URI had also required 9,700 feet-per year of water rights to support milling activities. Last October URI Executive Vice President and COO Richard Van Horn told the New Mexico Radioactive and Hazardous Material Committee, Through the acquisition of the Rio Algom mill, we have the opportunity to be the first, and right now the only ...regional miller in the Grants Mineral Belt, constructing an 8,000-tpd mill, providing 200 jobs at the mill, and potentially 3,000 to 4,000 direct uranium jobs in the district.
The truth is, about two-thirds, if not more of the uranium here in the Grants Mineral District is not amendable to in-situ recovery and has to be mined with conventional methods, he said at the time.
It was estimated that the cost to build a conventional mill would average from $250 million to $350 million. Clark had hoped that building a new mill on a NRC licensed site with water rights would have allowed production to begin within four to five years.
However, during Thursday's conference call, Clark admitted, The ability for us to close it [the deal] on the original terms and condit6ions was just not there.
It's not anybody's fault, Clark explained. In the end I think it was pretty much bad timing.
If we had come to market 9 or 12 months ago, there's no doubt in my mind that this deal would have been consummated.
URI has 183,000 acres of New Mexico minerals holdings which includes mine sites at Crownpoint, Nose Rock and Roca Honda. These mines were originally designed to produce nearly 4 million pounds of uranium annually. East Roca Honda is immediately adjacent to Strathmore Minerals' Roca Honda Project.
During a question and answer session, Clark insisted that the Rio Algom mill site still remains an option to be the mill site that the industry needs. Nevertheless, he admitted, the question of potential liabilities troubled BHP Billiton more than the project's cost.
He noted that BHP has an NRC-approved plan to reclaim the mill.
Meanwhile, URI has another uranium battle pending before the 10th Circuit Court of Appeals in Denver. The EPA claims that URI subsidiary Hydro Resources' Crownpoint Uranium Solution Mining Project should be treated as Indian land. The underlying issue to be decided is whether EPA or the State of New Mexico is the appropriate agency to consider the injection permit for the land.
EPA's Solicitor maintains that the land is located with the Church Rock Chapter of the Navajo Nation, which opposes uranium mining on or near their tribal lands.