Virginia Energy Resources Inc.

Virginia Energy Resources Inc.

October 18, 2010 10:20 ET

Virginia Energy Resources Inc.: Preliminary Economic Assessment Indicates Outstanding Profitability Potential for the Coles Hill Uranium Project in Virginia

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 18, 2010) - Virginia Energy Resources Inc. (TSX VENTURE:VAE) is pleased to announce the results of the 43-101 compliant Preliminary Economic Assessment (PEA) undertaken by Virginia Uranium Inc. on its Coles Hill Uranium Project. The results clearly demonstrate the technical and economic viability of the project.

Virginia Uranium Inc. engaged Lyntek Inc. and BRS Inc., as independent engineering consultants to complete the PEA. Lyntek Inc. evaluated the ore metallurgy and conducted processing evaluation of acid and alkaline leaching options to select the preferable processing design, while BRS Inc. was responsible for the mine design, as well as environmental and permitting considerations. The resource estimate used for the PEA was from the 43-101 compliant resource report completed by Behre Dolbear & Company, Inc., Marshall Miller & Associates and PAC Consulting on June 30, 2008.1

The conceptual design for the uranium mine, mill and reclamation was generated in sufficient detail so as to develop a budgetary cost estimate for the 35 year project life. Although the deposit is amenable to both open pit and underground mining, the PEA recommends underground mining by sub-level open stoping (SLOS) that utilizes a bulk underground mining technique.

The overall economics on the Coles Hill Uranium Project are favorable. Based on a US$65 per pound long term selling price for uranium, the project provides an Internal Rate of Return (IRR) of 36.3%; and at a 7% discount rate the Net Present Value (NPV) of the project is US$404 million.

Coles Hill Uranium Project NPV Matrix (US$000's)
  Discount Rate
Uranium US$/lb 5% 7% 8% 10%
$55 $278,041 $213,962 $187,573 $143,560
$65 $511,797 $404,133 $360,549 $288,763
$75 $745,553 $594,304 $533,525 $433,966
$85 $979,308 $784,475 $706,501 $579,169

An increase of US$5 per pound in uranium selling prices causes the project NPV (at 7% discount rate) to rise by US$95 million from US$404 million to US$499 million. The depreciation of the US dollar relative to currencies of major uranium producing countries such as Kazakhstan, Australia, Canada, Niger and Namibia, may contribute to upward pressure on uranium prices.

Planned operations indicate an initial annual production from the Coles Hill Project of approximately two million pounds of yellowcake per year. The proposed mill processing capacity will be 3,000 tons per day. The capital investment anticipated for permitting, bonding, mine development, processing plant, and required tailings impoundment through the first 4 years of production is US$203 million. This includes a 25% contingency. Capital investment over the 35 year life of the project would total approximately US$315 million, not including additional exploration to expand the resource size and extend the project life. The payback period for the initial pre-production capital investment of US$173 million is 2.5 years.

Mining by open pit and underground methods were evaluated as part of the PEA. In both deposits, mineralization continues to the surface, so the uppermost portions are amenable to open pit mining. Mineable zones below the potential open pits are generally over 100 ft thick vertically and occasionally up to 200 ft thick. A variety of factors including environmental considerations, surface land use, and economics were investigated to determine the best method to address these issues. The analysis suggested that an all underground mining concept be employed, but this does not preclude open pit mining as an acceptable option for further consideration.

The depth, continuity, structural attitude of mineralization, and rock strength make the Coles Hill deposits amenable to bulk mining methods such as SLOS. However, the foliation of the host rocks to the deposit will require some waste mining to steepen the footwall and allow broken ore to rill to draw-points. Key assumptions used for an underground plan in this study included:

  • Cutoff grade 0.06% U3O8
  • 10% dilution for primary stopes at 1/2 cutoff grade or 0.03% U3O8
  • Production rate target at 3,000 tpd for 350 days/year
  • Primary stoping will extract 70% of the total resource above the cutoff
  • Pillar retreat will extract an additional 20% of the total resource above the cutoff
  • Pillar retreat will not be diluted but will have higher mine cost per ton and a lower production rate.

Total operating costs are expected to average US$30.01 per pound in the first 10 years of the project, including taxes, royalties and a 25% cost contingency. The average operating costs over the 35 year life of mine are estimated at US$36.83 per lb, including taxes, royalties and a 25% cost contingency. Importantly, the competitiveness of the Coles Hill uranium project on the global cost curve could improve as a result of a weaker US dollar relative to currencies of major uranium producing countries.

Coles Hill Uranium Project - Forecast Annual Operating Expenses (US$/LB)
Production Period Annual Expense 25% Contingency Tax and Royalties Total Operating
Years 1-10 $21.68 $5.42 $2.90 $30.01
Years 11-20 $27.84 $6.96 $2.72 $37.52
Years 21-35 $38.73 $9.68 $2.88 $51.30
Life of Mine $27.18 $6.80 $2.86 $36.83

This represents the portion of the deposits with sufficient grade, size and spatial distribution to be mined via the SLOS method under current foreseeable economic conditions. However, most of the historical exploration drilling conducted by previous operators was primarily for open pit mining depths. Both deposits remain open along trend and at depth for further resource delineation. In addition, the area between the two deposits was historically restricted from exploration drilling by mining leases that prevented surface disturbance so as to preserve the Coles Family homestead. The decision to pursue an underground mining method means that the company will consider exploration drilling in the "protected area", where mining is restricted to the underground method, to investigate the potential to enlarge the underground mineable resources.

Past laboratory studies indicate that the ore is suitable for either acid or alkaline processing. While acid leaching could produce a higher recovery of uranium from processed ore, alkaline leaching with an 83% recovery rate was deemed to be the more attractive option. This analysis requires further investigation and there is the potential to demonstrate higher recovery rates using more modern processing techniques, which could have a meaningfully positive impact on the project economics. After giving effect to the current 83% milling recovery rate, the forecast uranium production during primary stoping phase of the mine life (years 1-20) is 36.9 million pounds. The production during the pillar retreat phase (years 21-35) is higher cost, but does not have a meaningful impact on the project's Net Present Value.

The next significant technical milestone is to advance the project through the pre-feasibility stage. Exploration bulk sampling was recommended by Lyntek/BRS to refine mining and processing cost estimates, which could reduce the 25% operating cost contingency. Additionally, it was recommended that the Vulcan geologic model be optimized for an underground mine plan, the effect of which may cause an improvement in grade though no change in total mineable resources.

Separately, the Commonwealth of Virginia has engaged the National Academy of Science (NAS) to complete a study on the safety of uranium mining for the state. That study is anticipated to be done by December 2011. Pending a positive outcome from the NAS study, the state legislature would then be in a position to consider lifting the moratorium on uranium mining in Virginia.

The PEA indicates that the project will create 250-350 temporary jobs during the first twelve month construction phase and sustain about 325 permanent jobs through the 35-year duration of the project. The typical employee at the proposed mining and milling operation would earn annual compensation of between US$50,000 and US$70,000, significantly higher than the median income for residents in Pittsylvania County today.

Once in production, the Coles Hill Project would contribute millions of dollars to the overstrained Pittsylvania County annual government budget and help stabilize the tax burden on local property owners. The PEA forecasts a US$41-US$46 million direct annual benefit for the local economy both from the project's payroll, as well as from the purchase of materials and services from local companies such as heavy equipment and machine parts suppliers. The multiplier effect that invariably accompanies a major industrial operation like the Coles Hill Project would likely stimulate an additional US$240-US$300 million in local economic activity each year.

Walter Coles Jr., President and CEO of Virginia Energy Resources, noted that approximately 37% of the electricity generated in Virginia each year comes from nuclear power. As such, Virginia's annual consumption of uranium for nuclear fuel is the equivalent of almost 1.7 million pounds per year. Importantly, the forecast annual production rate for the Coles Hill Project might allow Virginia to become completely self-sufficient with regard to its annual nuclear fuel requirements.

While the state legislature considers the regulatory issues related to uranium mining, the on site management team of Virginia Uranium, Inc. will continue to advance the project from a technical perspective, as well as nurturing a favorable environment for local and national acceptance for the project. Virginia Energy Resources (TSX VENTURE:VAE) is the largest single outside shareholder in Virginia Uranium Holdings, Inc. Virginia Uranium Holdings, Inc. owns 100% of Virginia Uranium, Inc. By the end of 2010, VAE's indirect interest into the Coles Hill uranium project is expected to exceed 30%.

Risks and Blue-sky Opportunities
The principal project risks are:

  • Future selling prices for uranium
  • Permitting and regulatory timelines. Lack of approval for uranium mining in Virginia
  • Shifts in ore grade and tonnage as infill drilling progresses
  • Increases to the anticipated capital investment and operating costs as the mine, milling and reclamation plans are refined and optimized

The principal blue-sky opportunities for the project are:

  • Grade improvement through optimization of the ore-block model
  • Increased metallurgical recovery rates
  • Step out and infill drilling to expand the delineated resources at Coles Hill. High grade core remains open at depth (1,000 feet)
  • Significant expansion of uranium resources via the discovery of other deposits around Coles Hill

1 Note: below is the summary of the 43-101 compliant resources estimate calculated by Behre Dolbear & Company, Inc., Marshall Miller & Associates and PAC Consulting that provided the basis for the PEA completed by Lyntek Inc. and BRS Inc.

43-101Compliant Resource Estimates - June 30, 2008 (Millions of Tons and Pounds In-Place)
Cutoff % U3O8 Measured1 Indicated1 Total1
Tons2 % U3O83 Pounds U3O8 Tons2 % U3O83 Pounds U3O8 Tons2 % U3O83 Pounds U3O8
Coles Hill Uranium Project Total ( North Coles Hill and South Coles Hill Deposits)
0.200 0.397 0.301 2.39 2.87 0.274 15.7 3.26 0.278 18.1
0.150 0.562 0.264 2.97 5.41 0.227 24.6 5.97 0.231 27.6
0.125 0.654 0.246 3.22 6.17 0.216 26.7 6.82 0.219 29.9
0.100 0.755 0.228 3.45 6.27 0.215 26.9 7.03 0.216 30.4
0.075 1.35 0.164 4.44 24.0 0.116 55.9 25.4 0.119 60.4
0.050 2.28 0.124 5.65 35.4 0.101 71.7 37.7 0.103 77.4
0.025 6.62 0.064 8.42 92.1 0.060 111.0 98.7 0.060 119.0
1Total tonnage above cutoff grade and average weight % U3O8 of that tonnage
2Short tons based on a rock density of 2.56 g/cc
3Weight %
4Mineral resources that are not mineral reserves do not have demonstrated economic viability

The technical information contained in this press release is reported and verified by Norm Reynolds, P.Geo., Virginia Energy Resources' Director and a qualified person as defined by National Instrument 43-101. In addition, John Kyle P.E. of Lyntek and Doug Beahm P.E. of BRS Engineering also reviewed and verified the contents of this press release in their capacity as qualified persons as defined by National Instrument 43-101.

On Behalf of the Board of Directors


Walter Coles Jr., President & CEO

This news release includes certain "forward-looking statements" under applicable Canadian securities legislation. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future results, events and objectives could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include exploration and other risks detailed from time to time in the filings made by the Company with securities regulators.

Neither TSX Venture Exchange nor the Investment Industry Regulatory Organization of Canada accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Virginia Energy Resources Inc.
    Walter Coles, Jr.
    (604) 669-4799
    Virginia Energy Resources Inc.
    Tony Perri
    Investor Relations, Manager
    (604) 669-4799