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Murchison United: Looking to score with uranium

With a name like "Murchison United", one would expect this PLC to be a Premiership football club. However, reality couldn't be further from the truth – this company has taken a number of forms over the years, but all of them have been related to natural resources. The current incarnation of Murchison United is predominately focused on uranium in Guinea and Mauritania, two impoverished West African countries with historical ties to England's favourite buddy to the south, France. It is a bit of a surprise, perhaps, that Murchison hasn't changed its name to something with the word "uranium" in it, as over the past months, with uranium prices soaring, any company that has even mentioned the 'U' word has received a fillip in its share price. It was around the beginning of 2005 that Mark Reilly, newly appointed Managing Director, and Glenn Featherby, Chairman, started looking at uranium projects in Africa and Europe. The hunt for new projects to propel the company in a new direction led them to West Africa (where French Nuclear heavyweight Areva had previously carried out exploration) and, more recentlly, to Mauritania where the World Bank had funded a massive airborne geophysical survey to generate investment in the country's mineral prospectivity.

The company's move into the uranium exploration game couldn't have been timed much better. Uranium (U308) spot prices have rocketed since bottoming out in 2001-2002 at US$8/lb U308 to over US$130/lb in 2007, though prices have since fallen back to around US$85/lb. This surge has been fuelled by a deficit in the uranium market that has previously been met by stockpiles from the United States, and Russia's decommissioning of weapons-grade armaments. Those stockpiles are now believed to be dwindling, and the subsequent anticipated gap between mining output and demand has pushed prices to incredible heights in just a few years. Recently, the spot price was exacerbated by delays to Cameco's (the world's largest uranium producer) Cigar Lake project in Canada, which will be a world-class mine when in full production. The spot price of uranium has often affected the attitude of large players like Areva. Only a few years ago, Areva was cutting back on exploration and development of uranium mines, due to low prices. However, the current situation has forced a u-turn, and it is now actively seeking new development projects to secure supply. Interestingly, Areva's own uranium backwater is West Africa, where it owns and operates two mines in Niger, which is the third largest exporter of uranium worldwide, supplying 30% of France's uranium consumption. So companies like Murchison United have Areva to thank on two fronts: firstly for carrying out the original exploration, and secondly for re-entering West Africa with new vigour to find new sources of uranium which has, in turn, strengthened the hand of explorers with a land grab in prospective regions.

So in Mauritania, the company has secured six exploration permits covering 8200 km2 in the Reguibat Shield, which is part of the West African Craton. Mauritania is prospective for a plethora of minerals; it is best known for Iron Ore, but also produces industrial minerals, copper, and has gold and diamond exploration. Uranium is quickly moving up the priority ladder though, partly because of the country's interest in additional development, and partly because of its connections with France, and the latter's interest in securing more uranium from Africa. Triton (ASX) and Alba Minerals (AIM) are also exploring for uranium in the region. Initial exploration by Murchison returned grades as high as 0.95% U from soil sampling - of high enough significance to give the green light on a drilling programme that will commence shortly. The company is looking to drill around 40 holes, 100 metres in depth to test numerous targets in calcrete deposits… results should be flowing back to investors in late 2007/early 2008. Murchison is more advanced in the Republic of Guinea, where the company has three licences at Bohoduo (1081km2), three licences at Firawa (1516km2) and two licences at Sesse (966km2).

At Firawa, Murchison has spotted its best chance of near term production: a 5 kilometre strike has been identified, with initial drilling in May at 100 metre intervals, over half of the strike hitting mineralisation including 12 metres @ 0.077% U and 20 metres @ 0.052% U. The mineralised zones were in unweathered lateritic clays no deeper than 50 metres. Murchison United now intends to continue drilling at Firawa, once the rainy season ends in October. The ambition is to drill up to another 20,000 metres to allow a resource estimate to be calculated. Results will, no doubt, start being drip-fed to the market in early 2008, and will carry on through the entire spring/summer drilling season. Drilling is also planned at Bohoduo this year, where a 700 metre anomaly has been identified.

In the near term cash isn't an issue, as the company was lucky enough to secure funds in July, just before the markets took a turn for the worse. £3.2 million (A$7.4 million) was raised at 4.7 pence (A$0.11) a share. With the company's attention focused predominately in West Africa, other assets from previous haunts look more and more out of place. The company still has funding commitments to the Maroochydore Copper Project Joint Venture in Western Australia, and the Millennium Copper Project in Queensland. Maroochydore already has a JORC compliant indicated and inferred resource of 51 million tonnes, grading 1% copper and 0.04% cobalt, so the project certainly has value, but is quite small. The company has stated that options are being considered, so an outright disposal of the assets in Australia wouldn't surprise us.