Resource Capital Research lifted its target price on Toro Energy (ASX: TOE) to 40 cents per share in response to a substantial increase in the grade of Toro Energy’s flagship Wiluna Uranium Project.
Toro Energy announced last week a 34% improvement in the grade estimate at Lake Way (part of flagship Wiluna Project) deposit’s grade to 543 parts per million (ppm) U3O8 from the previous estimate of 404 ppm released in May last year. The upgrade followed a similar increase in resource grade at Centipede - also part of Wiluna Project.
In an update released late last week, Resource Capital Research noted that the increases in grade, when combined with Centipede, was well ahead of expectations, and that it estimated every 10% increase in the grade equated to roughly 10 cents per share in added value.
The new total resource at Wiluna Project is 20.21 million tonnes @ 548ppm (0.055%) U3O8 for 11,070 tonnes (24.4 million pounds) of contained uranium oxide compared to the previously reported resource of 25.83 million tonnes @ 419ppm U3O8 for 10,835 tonnes (23.89 million pounds), both at 200ppm cut-off grade.
For the first time, the resource includes a portion of Measured resource where detailed drilling of 25m grid spaced holes over an area 200m square was undertaken, which greatly increases confidence in the continuity of mineralisation.
A pre-feasibility study released in September 2008 assumed a 1.5 million tonnes per annum (mtpa) operation with a 12 year mine life with a capital expenditure of A$247 million and operating expenditure of US$39/pound which gave a base case project net present value @12.3% of A$78 million using a U308 price of A$80/pound. At the time, Resource Capital Research highlighted the sensitivity of the of the project economics to the grade.
The current optimisation study look set to substantial improve the economics of the project, therefore, as it was designed to lift grades by at least 20% and cut the capex figure by at least 10%. “This means optimisation study release in 3Q09 will be a huge milestone for Toro Energy and its share price,” Resource Capital stated.
The equity research for junior and developing resource companies further highlighted that Toro Energy’s “considerable pedigree of uranium management experience” would be crucial in bringing the Wiluna and Napperby projects into production in 2012/2013.
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