Lotus Resources (LOT) - $50M Capex Puts Uranium Producer at Top Table

Lotus Resources is an Australian-based minerals exploration and development company. The Company’s key asset is a 65% ownership of the Kayelekera Uranium Project located in northern Malawi, Africa.

Kayelekera Uranium Project is a large 157km2 tenement package with excellent exploration potential and hosts a high-grade resource with an existing open pit mine and excellent metallurgical recoveries.  The remaining 35% is held by Lotus’s joint venture partner Kayelekera Resources (20%) and the Government of Malawi (15%).

We met with Keith Bowes, Managing Director of Lotus Resources which is a new story for us.

Company Overview 

Lotus Resources acquired the Kayelekera Uranium project from Paladin Energy last year as Paladin had 2 assets.  They had the Langer Heinrich asset in Namibia and Kayelekera was their second asset.  Both were on care & maintenance and Lotus Resources made an offer for the Kayelekera asset which completed in March 2020. It's a previous operating asset, operating for 5 years between 2009 and 2014 and went into care and maintenance due to the slump in the Uranium price. Lotus Resources plans to keep it on care and maintenance, with the intention of bringing it back on line when the Uranium price rises again.

Team Experience & Background

Keith Bowes is a chemical engineer but has been in the mining industry his whole career and spent about 20 years with the majors BHP Billiton, Anglo American then moved into the junior space about 7 years ago.  Six or seven years ago he was part of the team that did the due diligence work on Uranium One's Honeymoon asset, which ended up in Boss Resources, then he moved across into Boss Resources and ran their technical studies which resulted in the feasibility study announced in January of last year. He then moved to take up a similar role with Lotus so looking after the site, looking after the care and maintenance activities and starting to build up the technical studies and the work needed to bring it back into production.  

Grant Davies is a key member of the team and was part of the original due diligence and effectively negotiated the deal with Paladin Energy for the asset.  He has a lot of operational experience in Africa over the years.  They are starting to build their own team on site as well and have a lot of the original Paladin Energy team too.   

Acquiring Paladin's Kayelekera Project: Structure, Terms, & Plans

Langer Heinrich is the bigger of the 2 Paladin assets so it made sense for Paladin to focus on that asset and Paladin still has exposure to Kayelekera through their shareholding of Lotus as a 10% shareholder.   

The deal structure was partly equity and partly cash and there's a royalty associated with it as well.  There was an equity payment up front of about AUD$1.8M equivalent of Lotus shares. Paladin held a bond linked to the environmental bond of AUD$10M and part of the deal was the payback of that bond amount.  At the conclusion of the deal, Lotus paid the initial AUD$4M and then another AUD$1M earlier this year. AUD$2M is due in March of next year and then the final payment of AUD$3M. There is also a royalty on it of 3% capped at a AUD$5M total. The Kayelekera asset was costing Paladin around AUD$5M a year on their care & maintenance costs and they are now able to use those funds for the Langer Heinrich project and focus purely on that as their primary project. 

Lotus Resources has bought the existing asset which consists of a processing plant which has a throughput of about 1.5Mt per annum of ore which equates, at 1,000ppm, to about 3Mlbs of production.  It also has the associated infrastructure including an asset plant, access road, tailings facilities and open-cut mine. There is a camp on site which was included in the deal too. There is an existing mining licence which was transferred to Lotus Resources. In addition to the mining licence, they received 5 exploration licences, which will form the basis of future exploration programmes going forward.

Malawi as Jurisdiction: ESG, Permits & Licensing 

Malawi doesn’t have a very rich heritage in mining but there are a number of projects at the moment that are in a similar phase to Lotus Resources in terms of looking at restarting.  Malawi had elections last year and the opposition party has now come into power which is positive for the country and the mining industry moving forward. It is believed that mining is seen as an important part of the Malawian growth strategy and a significant revenue generator for the country so the government is behind the project.  

The project has no environmental concerns at this stage. The environmental permits and the mining licence are in place. Lotus Resources needs to be very careful with their water management systems which is their primary environmental requirement as there is a lot of rainfall in Malawi. They have water collection dams to collect all the water and pump the water from these dams back into the plant into a water treatment process to precipitate the Sulphates and any Uranium there. They monitor that solution and once it gets to a certain spec are allowed to discharge it into the river which runs down to the Malawian, to Lake Malawi.  There are monitoring points the whole way down the river to make sure there's no issues.

Waking it Up from Care & Maintenance: Considerations & Process

Lotus Resources put out a scoping study in October of last year to restart the project at AUD$50M as the capital cost to restart which includes direct plant refurbishment costs and restocking reagents.  It's a relatively remote site so it is beneficial to have 3 to 6 months' worth of reagents on site so there are no issues with downtime associated with delivery of reagents.   

There is also a cost of training the staff and a big effort will be put into that to try and reduce the number of expats required on the plant as they are more expensive than the local Malawians. This will help with the operating costs as well.

Opportunity at Hand & Exploration Potential

In the scoping study Lotus Resources took the existing mining operation and put a new production schedule against it, presenting 2 different scenarios.

1. In the first high-grade scenario they have an 8-year life of mine with an average pre-grade of about 900ppm over those 8 years but the first 4 years are 1,100ppm or 1,200ppm, producing about 16½Mlbs over the 8 years.

2. Scenario 2 has exactly the same first 8 years but at the back end of the schedule, they start to process some of the lower grade material that's already stockpiled on the surface and it pushes the life of mine up to 14 years to produce about 24Mlbs over that period. 

They're about to start test work on ore sorting where you can actually upgrade the ore on the lower grade material at the back end of the schedule.  They could realistically have an 11 or 12-year life of mine sitting at an average 900ppm which is a really strong project and there's 7Mlbs-14Mlbs of exploration target out there as well as an add on.

Business Plan: Money Allocation, Focus, & Timeline

Lotus Resources has just raised AUD$12.5M. They completed a scoping study in October last year which set a baseline for the project.  They've identified 3 or potentially 4 areas where they think they can make some significant differences to the project such as the ore sorting.  One of the constraints on the plant is asset consumption and the plant on site produces 235tpd. They can only feed in as much ore into the plant as it consumes 235tpd, so if they can reject some of the high asset consuming gangue minerals without losing too much Uranium they could potentially push the tonnes up and get more pounds at a lower cost.   

The second thing is that power on site at the moment is via diesel gen-sets, so the plant is not connected to the national grid and all power-gen operations for that period were from diesel gen-sets.  Lotus Resources has opened up negotiations with a number of parties, to potentially connect to the national grid which will reduce their power costs by about 75%.  There is also an opportunity to look at solar power, combined with batteries as a part of the energy mix too. The last one is to retro-fit a steam turbine onto the asset plant and recover power which would be about a quarter of the total power demand and another cheap way of getting power into the system.    

The aim is to have all of those done by the middle of the year and put a Feasibility Study (FS) together which should be completed by the end of Q1/22. Once the financing contracts and Feasibility is complete, they should be able to restart the asset half way through 2022. If the Uranium price does suddenly rise, there could be an opportunity to get into production a little bit earlier.

Burn Rate & Future Raises 

Lotus Resources has AUD$12.5M plus the AUD$6.6M in the bank at the end of December, so shouldn’t need another raise until end 2022/early 2023. 

It was good to catch up with Lotus Resources and we look forward to following their progress going forward. 

To find out more, go to Lotus Resources' Website.