By Greg Peel
In early April, South Australian Premier Mike Rann excitedly announced to the world that the biggest Australian uranium discovery since Olympic Dam had been made in his state. Media and investors scrambled. This was enormous news.
Except it wasn't.
Mike Rann had unwittingly given the impression to many that the Beverley Four Mile project in South Australia had just been discovered after some geologist had kicked a rock the day before. This was not the case. The project – 75% owned by US subsidiary Heathgate Resources (owners of the nearby Beverley mine which is currently in ramp-up) and 25% owned by Australia's Alliance Resources (AGS) – had been discovered long ago. Alliance investors had been impatiently awaiting a resource estimate which had been delayed by some months. It was now due soon.
Since early April the uranium spot price has passed the US$100/lb mark and at last physical trade had reached US$120/lb. Investors have continued to poor money into uranium hopefuls – some realistic prospects, others just a prayer. FNArena has been recently warning potential investor to be wary. What goes up fast can come down fast too.
This was in evidence yesterday and this morning, as the release of the long-awaited resource estimate has resulted in the Alliance share price falling from $2.80 to below $2.00 at last count. Clearly it was disappointing.
Except it wasn't.
Alliance announced that testing in a small part of the project had resulted in an initial Inferred Mineral Resource of 3.9 million tonnes at 0.37% U3O8, or 15,000t (32mlb) of contained uranium oxide.
To put that into perspective, Energy Resources of Australia's (ERA) Ranger mine contains some 43,000t of uranium oxide, Paladin's (PDN) African mines about 35,000t and Summit's (SMM) 50% owned Valhalla project 30,000t.
And BHP Billiton's (BHP) Olympic Dam – largest resource in the world – contains 1.6 million tonnes. It didn't look much like this was "the new Olympic Dam".
But then Alliance never suggested to anyone it was. That it might have been the "most significant" discovery since Olympic Dam is still, however, quite plausible. Alliance still thinks Four Mile has the potential to be bigger than Ranger.
But clearly the market was disappointed.
FNArena spoke to Alliance's CFO Ian Pamensky. He, too, was disappointed. But not in the resource estimate – only in the share price reaction. Indeed he was somewhat perplexed.
Pamensky pointed out that Four Mile is divided into three main areas – West, East and South. While tests have covered one square kilometre of a five square kilometre area the actual resource estimate represented only a "small portion" of the overall potential – in the West. Initial tests have also revealed "good hits" in the East, and the South lays in wait for its assessment. Thus 15,000t is hopefully just a start.
What investors should be focusing on is not so much the 15,000t, but the 0.37% grade. This is six times richer than Paladin's Langer Heinrich.
It should also be noted that Alliance's 25% interest is "free-carried". This means Heathgate will spend an estimated $14m to develop the project, and Alliance needs only share in the spoils. Infrastructure is also already on hand – at Heathgate's Beverly mine only 80km away.
This is only just the beginning of the Four Mile story. A Scoping Study will be released in about eight weeks. What sets Alliance aside from the pack of Australian uranium aspirants is that it has a known resource, which could prove to be a vast resource, in a uranium mining friendly state, with the potential to commence actual production within two to three years. Many listed uranium companies have little other than Geiger counter readings.
Why has the market taken the news so badly?
Pamensky is not sure, but agrees that (a) the uranium market has been flying into overbought territory, (b) the media reports in April probably gave the less knowledgeable a degree of unrealistic euphoria, (c) earlier investors who had waited for the resource estimate were possibly taking profits on "the fact", and (d) panic has set in, rendering the stock now probably oversold.