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Murchison United moves into the big league with AREVA deal

Murchison United is a company in demand. After signing a landmark agreement with AREVA last week, the company moved up into the big league of uranium exploration juniors who can confidently say they have projects with the potential to be world class – and that’s no small feat!

The uranium sector, itself, is in complete disarray compared to the calm, steady progress we have witnessed at Murchison United. Uranium spot prices have come off the boil, to say the least. After a stratospheric rise in 2007, peaking at $140 per pound, the price hit $58 this week. To put this pull back into context, one has to remember that uranium spot prices were stuck at around $10 until 2003. Most uranium CEO’s will tell you they can make money at $25-30, so there is still plenty of scope for commercial discoveries and the development of new mines. What has happened, though, is that the plethora of uranium explorers who exploded onto the market in 2006-2007, have had major haircuts on their share prices. A good number of these opportunistic companies have already begun to diversify out of uranium, moving into other hot sectors like potash, iron ore and coal. But the price cooling hasn’t slowed down uranium companies, like Murchison, who have quality assets. In some ways the uranium pull back is good news for investors, as it has helped to separate the pretenders from the players.

AREVA confirmed this week that Murchison is a player. French giant AREVA is best known for its nuclear power plant and transmission interests, but in fact, it is the only company in the world that has interests in every industry linked to nuclear power - from mining uranium to dismantling old nuclear power plants. AREVA is a publicly listed the company on the NYSE Euronext, and has a market capitalisation in the region of £85 billion. Ninety per cent of AREVA’S parent company is controlled by the French Government and, to cut a long story short, the French Government has a lot of say at AREVA. It may be a PLC, but it operates in the nuclear industry and its interests are aligned to the French Government - so in a sense, AREVA is not really influenced by fluctuations in the uranium spot price. It is in for the long game, and the long game is a projected surge in nuclear power plant developments across the globe, over the next 10-20 years. AREVA will be a major benefactor, and to support the surging demand in nuclear power, it has a vested interest in ensuring there is an ample supply of uranium.

Murchison United, on the other hand, is a uranium junior that picked up the trail in West Africa when most other uranium companies were focused on Canada’s Athabasca Basin, Australia’s uranium districts and other hot spots like Kazakhstan and Namibia. Murchison United chose Guinea and Mauritania. In Guinea, Murchison has a number of interesting projects, at various stages of development, which it’s drilling as we speak. In Mauritania, Murchison picked up ground once held by AREVA, back in the 1970’s. The relationship between Mauritania and AREVA has gone full circle; this is a story told many times before. The big boys used to like exploration. Before the 1990’s, all the big mining groups spent considerable money on exploration and subsequently built up huge databases of info. But in many mining companies vocabulary ‘grass roots exploration’ almost became a dirty word. Exploration was for junior companies; but now the landscape for exploration changed. Nowadays, mining juniors are relied on to find new discoveries, and once they do, they will either be acquired or find a big brother to fund development of the asset. AREVA is no different, really. It spent a fair few francs in Mauritania, built up a database, and then left when things got difficult. Now, however, the group is very keen to expand its uranium mining interests. It has a large presence in Canada and Niger, and now it’s turned its attention back to Mauritania; and luckily for Murchison shareholders, Murchison holds the land.

Murchison has nine exploration licences in Mauritania, covering a mind-boggling 8,200 square kilometres. The key target areas are part of a geological formation called ‘the Reguibate Massive’, which is part of the West African Shield. Murchison completed airborne and radiometric surveys over high-interest areas of its licences, and in late 2007, completed a 4000 metre reverse circulation drilling programme. Radiometric logging from the holes highlighted high-grade uranium intersections, including 1.55 metres at an impressive 1.83% U308. These results came from the Bir En Nar uranium prospect, a 900 metre by 50 metre northeast-southwest trending zone.

And it is the Bir En Nar uranium prospect that has been earmarked by AREVA and Murchison to be ‘fast tracked’. The ‘co-operation agreement’, as the deal is labelled, has a number of facets to it. First, AREVA has agreed to take a 5% stake in Murchison United at A$0.135 (6.5 pence) per share, injecting approximately £1.15 million. Second, Murchison will issue a further 10% stake to AREVA in return for access to its exploration database, plus technical services, equipment and personnel. If a minimum of 60 million pounds of inferred uranium resource can be delineated in the first two years, the two companies will form a joint venture. Murchison isn’t sitting around on this, and stated that it hopes to define an initial resource at Bir En Nar before the year is out - we await details of the next round of drilling.
Murchison’s deal with AREVA gives it two years to come up with something of a size and grade that would entice AREVA into the next stage of the deal. Meanwhile, Murchison continues with drilling in Guinea where a 5000 metre resource definition diamond drilling programme is scheduled to commence in September.

So the gauntlet has been thrown down. Murchison now has extra cash in the bank, access to the most comprehensive database in Mauritania, an exciting prospect in Bir En Nar, and a big partner who will take any quality discovery through to development. Not bad at all.

Probably best of all, Murchison United also confirmed that it would soon change its name to something that sounds less like a third division football club! What more could shareholders ask for?