Lotus Resources (LOT) - Uranium Developer Aiming for 2024 Production

Lotus Resources Limited is a mineral exploration and development company. The company owns a 65% interest in the Kayelekera Uranium Project in Malawi. Lotus Resources owns 85% equity interest in Kayelekera with the remaining 15% held by the Malawi Government. Kayelekera hosts a high-grade resource with an existing open pit mine and demonstrated excellent metallurgical recoveries (87.5%) having historically produced over 10.9Mlb of uranium between 2009 and 2014, before closing to preserve the asset longevity due to a sustained low uranium price. Kayelekera’s current MRE (Mineral Resource Estimate) is 37.5Mlb of U3O8 (Triuranium Octoxide) at 630 ppm (parts per million).

Matt Gordon caught up with Keith Bowes, Managing Director, Lotus Resources. Mr. Keith Bowes is a highly regarded mining executive with over 2 decades of experience working on project development and operations in Africa, South America, and Australia across a range of commodities and processes. Keith managed the project for the Boss Resources’ redevelopment program for the Honeymoon Uranium Mine including all study phases and commercial trials of the new processing technology. As part of the study, he led the development in the application of two new technologies that have redefined the Honeymoon opportunity (leach chemistry and IX resins).

Company Overview

Lotus Resources is an explorer and developer with a controlling interest in the Kayelekera Uranium Mine in Malawi. Kayelekera has the potential to become one of the first uranium operations to come back online to meet an impending supply shortfall in uranium. The restart timeline aligns with industry predictions of a market under-supply of approximately 30Mlbs uranium in 2024. The company was founded in 2006 and is headquartered in Australia. Westview Resources Pty Ltd., Providence Metals Pty Ltd., and Lily Resources Pty Ltd are the company’s subsidiaries. The company is listed on the Australian Stock Exchange (ASX: LOT) and the OTC Markets (OTCQB: LTSRF).

The Kayelekera Uranium Mine

Lotus Resources owns the Kayelekera uranium project in Malawi. The project is a past producer that operated between 2009 and 2014. The company acquired the project from Paladin Energy Limited in March 2020. It has plans to restart the project and is looking at the uranium price in order to determine the ideal time to restart the asset.

Following the re-opening of Australia’s borders, the company’s Managing Director and CFO recently visited Malawi. This was the first time in 2 years that the executives were able to visit the country. They met with some of the project engineers and visited the plant, and the mine in order to determine whether additional work is needed to restart the asset. The company’s representatives also met with various ministers and the Mine Development Agreement Committee in Lilongwe. Additionally, they also had meetings with a couple of utilities to discuss the restarting of the asset.

Dr. Grain Malunga, Country Manager, Lotus Resources, has been an ex-minister of mines in the previous government and has been actively involved in keeping the current government up to speed on the ongoing operations.

Theo Keyter, the company’s General Manager has been highly active on-site, talking to various parties, the government, the district commission, and more. The company is focused on keeping the government and the communities updated on the restart plan.

The Malawian government is looking for additional revenue streams in foreign currency to alleviate the country’s poverty. The government is keen for Lotus Resources to restart the mine as it recognizes the opportunities that come with a new mine.

Notably, Malawi has 3 other international mining companies, namely Mkango, Sovereign Metals, and Globe Metals & Mining. As per Lotus Resources, an agreement signed with the company is likely to get rolled onto the other companies as well. As a result, Lotus Resources is focused on understanding the impact of various decisions.

The government has 15% ownership of the project. As a result, the company is looking to determine ways to raise finances in order to start a new project. Since both entities are partners, it is important for both party to understand the future roadmap. Upon successful execution, this can be a win-win situation. Together, the company and the government are looking to bring Kayelekera back online as soon as possible.

It is important to note that the restart of the Kayelekera project is highly dependent on uranium prices. The company is looking for the prices to rise to a certain threshold before restarting the project. If the company is confident that the uranium prices will rise within a short time period, it would still consider restarting the project. It is highly transparent with its investors and the government regarding its action plan.

The company is seeking a minimum uranium price threshold or a minimum number of contracts signed that would ensure a profitable operation. The company is looking to distribute the profits out of the mine to the government, the people of Malawi, and its shareholders.

In order to raise funds, Lotus Resources is not only competing in the uranium space but also with other companies in different commodities as well. In order to attract investors for financing, the company is looking to develop the best product possible which can lead to favourable returns.

Apart from the Kayelekera mine that operated for 5 years, there aren’t any major mining operations in Malawi. There are a number of small coal mines which are mostly regional in terms of supply.

Project Financing and Negotiations

Lotus Resources has been in conversation with the government in order to attain a stable jurisdiction that offers investor confidence. It is looking for a mine development agreement and a stability period of up to 10 years. As per the agreement, the company is looking to lock in the royalty rates and corporate tax rates. It is also discussing withholding tax issues and tax losses along with other factors with the government. It is important to note that Paladin Energy, the previous owner, had negotiated a mine development agreement with the government in 2008. This agreement provides a framework that can be used to start negotiations.

The company is looking to determine the government’s critical requirements, as it would make it easier to devise solutions and negotiate. The government is currently reviewing the proposals and is expected to provide feedback in a short time period.

Lotus Resources’ team has plans to visit the US and Canada in order to enter discussions with various utility providers. Notably, the Kayelekera uranium mine would require $50M in restart capital for refurbishing along with some additional costs required for ore sorting test work, connection to the national grid, asset recovery, and more. The company is confident that the asset is going to be a low-cost restart.

Infrastructure Development

The Kayelekera project has ample water contained within the existing facility to fulfill the operating requirements. The company is currently focused on power requirements and is looking to get connected to the national grid. Power in Malawi is relatively cheap, costing between $0.10c-$0.12c/kWh. It is important to note that the majority of power is actually green as it is generated through hydroelectricity.

From an ESG (Environmental, Social, and Governance) perspective, the use of power generated from renewable sources is highly desirable. The company’s representatives met with the senior management team at ESCOM (Electricity Supply Corporation of Malawi Limited) in Malawi. The company discussed its power requirements and found that Karonga, the nearest substation, can deliver about 50%-60% of the mine’s total power requirements. However, work needs to be carried out at the substation itself along with the feed side of the power supply. The company has plans to build its own line from the Karongo substation to the mine, which is located at a distance of 40km-50km.

During the course of these discussions, the company raised concerns that ESCOM might struggle to raise the capital dollars needed to carry out upgrades to the substation and the feeder lines. The company provided alternative funding solutions where it would offer to cover a part of the required funds or even manage the contract for the upgrading process. In exchange, the company is seeking reduced tariffs so that the capital costs for the upgrades can be recovered. This also instils confidence in the company that everything gets done on time and within the cost bracket.

Lotus Resources has also been in discussions with the African bank and other development banks in order to raise capital for the refurbishment of the power lines. As per the company, raising capital from the banks would be relatively simple. Through this arrangement, the company is becoming a participant in the process, ensuring that the work is done within the provided time frame. ESCOM is looking forward to working with the company.

Lotus Resources is currently focused on the ongoing technical workaround ore sorting, power, and asset recovery. It is aiming at an operating cost under $30/lb, assuming that its cash costs are under $30/lb. Based on the cash-cost curve, this metric puts the company in the upper portion of the second quartile, which is a highly favourable position. The company is looking to deliver the first uranium shipment to its customers by Q2, 2024. However, this timeline is highly dependent on uranium’s market pricing.

As per the company, when a utility is looking to enter a contract with a potential supplier, the risk of supply is the main consideration. The company is looking to showcase the project timeline and demonstrate that it can be a low-cost producer. It is important to note that since the mine has previously been in operation for 5 years, the majority of the common issues faced by greenfield projects such as de-bottlenecking, and commissioning have already been addressed.

In order to ramp up the greenfield project, the company is considering an 18-24 months time frame. The company is looking to further improve the timeframe as everything has been tried and tested in the past. The company is confident that it will be able to put out the planned initial supply to the market on time.

Following the Russia-Ukraine crisis, the company’s operation provides a much-needed geopolitical diversification of uranium supply. Since the project is located in Malawi, which is located far away from the conflict, it offers a safe uranium supply for future requirements. In order to get the uranium out of Kayelekera, Walvis Bay is the obvious route of choice. In fact, Paladin Energy, the project’s previous owner also used the same route in order to move the supply. The company is also looking at other route options as well. It is working with an international logistics company to determine alternate ways to get the product out of the country.

The utilities are currently looking to diversify the supply and at the same time seeking good ESG scores. Shipping product out of Africa is really good from an ESG perspective as it uplifts the communities, and provides training and jobs to the local population. If the company can successfully develop a diverse supply with a good ESG component by supporting local communities, it might be able to negotiate a price that makes it worthwhile to restart the asset.

Supply Considerations

Lotus Resources is primarily focusing on the North American market, specifically the US and Canada. Over time, It is also looking to target Europe. Following this, the company is looking to target the Asian markets, namely Japan, China or India. These are the projected future plans, but as of now, the focus is mainly towards North America.

Walvis Bay is the ideal route to supply the North American market as it's a shorter shipping route. The company also has the flexibility to ship the material to BYRER as well, which is significantly shorter by road, and by ship. Furthermore, shipping through BYRER won’t add a significant cost. The company is still looking at various options but its major regions of focus for potential contracts are the North American and European markets.

Targets 2022 and Beyond

In April 2022, Lotus Resources announced the drill results from the Livingstonia prospect. Notably, the company already held the northern Livingstonia tenements and recently acquired the southern Livinstonia tenements. The southern tenements had a historical resource. Through a drill program, the company focused on QA/QC (Quality Assurance) in terms of twin holes in order to check whether the logging and grades match the historical resource. The company was able to find multiple easy extensions to the resource.

The company also carried out significant step-out drilling, which was considered a greenfield exercise. Through step-out drilling, the company could determine how far the anomaly extends to the north. The geologists are currently working with limited assay results that have come out so far. The company anticipates that it will be able to announce a resource on Livingstonia within the next 2 weeks.

Furthermore, the company has also been working on a Feasibility Study that will be announced in July. The Feasibility Study will be based on the Kayelekera resource, which is associated with the existing pit, contained within the company’s mining licence. It anticipates a 10-11 year mine life associated with the study. It is looking to demonstrate that the project has a longer mine life by carrying out additional drilling around the Kayelekera pit or expanding the Livingstonia area.

Lotus Resources has continued exploration work at Livingstonia in an area called Chilombo, which is located 20km to the north. This operation is a greenfield exploration program. Based on radiometric anomalies and geological interpretation, the company found that the asset was similar to Kayelekera. As a result, the company carried out drilling and is currently awaiting assay results. Based on the turnaround times, the assays are expected within the next 5-6 weeks.

The company is looking to demonstrate that the mine life goes beyond 10-11 years and has another 5-8 years of potential material that can be brought into the production schedule in the future. Over the course of the next 6 months, the company is focused on getting the project ready to be restarted in the subsequent 12 months that follow. During this time, the company will focus on plant refurbishment.

The company currently has a 38Mlbs resource at Kayelekera alone and is looking at a 3Mlbs annual production. Lotus Resources has a current market cap of around $300M. The African uranium projects are significantly larger in scale compared to their North American counterparts.

Lotus Resources is looking to step up and attain global recognition once the market is in a positive trend. It was listed on the OTC market in May 2022. The listing has been highly successful as the company has significantly grown its US and North American retail investor base.

It has plans to attend the Montreal conference in order to meet other developers, utilities, traders, and logistic companies. The company is also looking to conduct additional investment roadshows in North America since the market is highly receptive when it comes to uranium. The North American market also has the most capital to invest in uranium projects.

As per the company, there is an ongoing market perception that Kayelekera was a very expensive operation. Through the Feasibility Study, the company is looking to demonstrate by way of ore sorting, reduced power consumption prices, asset recovery, and improved tailing systems that it isn’t a high-cost producer. The company is looking to produce at under $30/lb, which is a target for the Feasibility Study. It is also in multiple high-level discussions about potential financing options through equity, debt, or a combination of both.

The Kayelekera project has low CapEx (Capital Expenditure) requirements for a greenfield project. The company has made notable advancements with utilities, banks, investors, and the government. Lotus Resources is looking to bring the project online, commence production and start delivering uranium to the market by 2024.

To find out more, go to the Lotus Resources website