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ANNUAL REPORT 2010

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Skip Navigation LinksFinancial Report > Notes to the Consolidated Financial Statements > Note 15. Exploration And Evaluation Expenditure

note 15. exploration and evaluation expenditure

Canadian securities law requires the following description of the Consolidated Entity’s interests in mineral property tenements:

Manyingee Uranium Project (Australia) - Paladin 100%

The Manyingee Uranium Project consists of three granted mining leases – M08/86, M08/87 and M08/88 - covering 1,307 hectares in the north-west of Western Australia, 1,100km north of Perth, the State capital and 90km south of the township of Onslow on the north-west coast. The Consolidated Entity purchased the Manyingee Uranium Project in 1998 from Afmeco Mining and Exploration Pty Ltd (AFMEX), a subsidiary company of Cogema of France. Under the terms (as amended) of the purchase agreement a final payment of A$0.75M is payable to AFMEX when all development approvals have been obtained. Royalties of 2.5% for the first 2,000t of uranium oxide and 1.5% for the following 2,000t of uranium oxide are also payable to AFMEX and associated companies which formerly held interests in the project. The three mining leases were granted on 18 May 1989 for a 21-year term to 17 May 2010. The leases have now been renewed for a further 21-year term to 17 May 2031. Rights conferred by the three mining leases include the exclusive right to explore and mine minerals, subject to environmental and other approvals. The interest in Manyingee is held through the wholly owned entity, Paladin Energy Minerals NL. Following the lifting of the ban on uranium mining in Western Australia in late 2008 exploration planning has been undertaken with the intention of expediting a drilling programme. Ground access difficulties have so far precluded the commencement of drilling and it is hoped this issue will be dealt with in the near future.

Oobagooma Uranium Project (Australia) - Paladin 100%

The Oobagooma Uranium Project consists of four applications for exploration licences covering 452km2 in the West Kimberley region of northern Western Australia, 1,900km north-north-east of Perth, the State capital and 70km north-east of the regional town of Derby. The four applications for exploration licences are 04/145 and 04/146 lodged on 28 December 1983 and 04/776 and 04/777 lodged on 28 November 1991 which largely overlie the earlier applications. The Consolidated Entity purchased the Oobagooma Project in 1998 from AFMEX. Under the terms of the purchase agreement a final payment of A$0.75M is payable to AFMEX when the tenements are granted. A gross royalty of 1.0% on production is also payable to AFMEX. The applications for exploration licences remain in the name of Afmeco Pty Ltd (a company associated with AFMEX) until the date that they are granted after which title will be transferred. The interest in Oobagooma is held through the wholly owned entity, Paladin Energy Minerals NL. Following the change of government in Western Australia in late 2008 the granting of the lease applications are being actively pursued with both the Federal and State governments.

Valhalla North Uranium Project (Australia) - Paladin 100%

The Valhalla North Uranium Project consists of two granted exploration permits – Exploration Permit for Minerals 12572 (EPM 12572) and EPM 16006 - covering 457km2 to the north of Mount Isa in north-western Queensland. The Consolidated Entity acquired the Valhalla North Uranium Project following the successful takeover of Fusion in February 2009. EPM 12572 was granted on 11 January 2006 and EPM 16006 was granted on 26 March 2008, each for a period of five years with the potential to be renewed for further five year periods. The area was investigated during the 1950’s and resulted in the discovery of the Duke and Batman deposits, with limited mining of surface high grade mineralisation being undertaken with subsequent treatment at the Mary Kathleen mine. During the 1970’s the area was explored by both Queensland Mines Limited and Agip Australia Pty Ltd. Prior to the completion of the takeover, Fusion announced Mineral Resources conforming to the JORC guidelines on two deposits, Duke Batman and Honeypot. Recent exploration activities in 2010 have included a 52-hole drilling programme for 7,412 metres. Drilling at the Duke Batman deposit did not extend the mineralisation but identified a high grade core to the mineralisation.

Bigrlyi Uranium Project (Australia) - Paladin 41.71%

The Bigrlyi Uranium Project lies in the Northern Territory of Australia approximately 320km north-west of Alice Springs and is comprised of ten exploration retention licences (ERLs 46-55) covering 1,214 hectares. These tenements were originally granted in 1983 and have been subject to five yearly renewals since 1988. The project is now a joint venture between Energy Metals Limited 53.29%, Southern Cross Exploration NL 5.00% and Northern Territory Uranium Pty Ltd 41.71% (100% owned by Paladin) with Energy Metals Limited being operator and manager.

The Bigrlyi uranium deposit was originally discovered by Agip Australia Pty Ltd in the mid 1970’s before being transferred to Central Pacific Minerals NL in the early 1980’s. The deposit was subject to extensive drilling between 1974 and 1982 with Ore Reserve studies carried out during the 1980’s and 1990’s. During 2005/2006 a drilling campaign was undertaken by the Joint Venture partners which resulted in an initial JORC Resource. Resource definition drilling is ongoing at the project and an Initial Scoping Study was released in November 2007 and an Updated Scoping Study released in July 2008. Resource updates were released in April and July 2009 with additional drilling completed in late 2009 and 2010. In July 2010 an increased Indicated and Inferred Resource totalling 28.8Mlb U3O8 at a cut-off grade of 250ppm was announced.

Isa Uranium Joint Venture (Australia) - Paladin 91.03%

The IUJV in Northern Queensland is a 50:50 joint venture between Summit Resources (Aust) Pty Ltd (SRA) (Paladin 82.05% effective ownership) and Mt Isa Uranium Pty Ltd (MIU) (Paladin 100% ownership) with SRA being the operator and manager. The IUJV covers two defined blocks of land totalling 27km2 containing the Valhalla and Skal uranium deposits. Paladin’s effective equity in the IUJV was increased from 50% to 91.03% following the acquisition of 82.05% of Summit in 2007.

Valhalla Uranium Deposit (Australia) - Paladin 91.03%

The Valhalla Uranium Deposit is situated on EPM 17514 granted in January 2010 for a five year term to 5 January 2015. The Valhalla Uranium Deposit is located approximately 40km north of Mount Isa and straddles the Barkly Highway. The ground was previously held by SRA as EPM 9221 granted in 1993. The ground having been previously worked on by Mount Isa Mines Limited and Queensland Mines Limited from the mid 1950’s to the early 1970’s. Queensland Mines Limited, in particular, conducted extensive exploration over the Valhalla ground between 1968 and 1972 including the estimation of resources and reserves. Queensland Mines Limited allowed the tenement to lapse in 1991 and the ground was subsequently acquired by SRA in 1992. During 2008 resource definition drilling was commenced to enable completion of a detailed scoping study. As a result of the scoping study additional resource drilling was undertaken in 2009 with the intention of re-estimating the current resource. Geotechnical and metallurgical studies are ongoing.

Skal Uranium Deposit (Australia) - Paladin 91.03%

The Skal Uranium Deposit is situated on EPM 17519, granted in January 2010 for a five year term to 5 January 2015. The Skal Uranium Deposit is located approximately 8km south-east of the Valhalla Uranium Deposit and 32km north of Mount Isa. The ground was previously held by SRA as EPM 14048 granted in 2005. Skal was originally discovered by Mount Isa Mines Limited in the mid 1950’s and was subject to mapping and drilling at that time. Queensland Mines Limited acquired the project in the 1960’s and conducted further drilling resulting in an estimation of a resource for the project. The deposit is situated on EPM 14048 and the IUJV re-commenced drilling in 2005. An initial JORC compliant resource estimate was completed in mid 2008, with an updated resource reported in early 2009. Additional resource definition drilling was undertaken in 2009 and followed up with a resource update in October 2009. Resource definition and metallurgical drilling has been planned for late 2010.

Summit Resources Ltd (Australia) - Paladin 82.05%

Paladin acquired an 81.9% interest in Summit as a result of a takeover bid which closed on 1 June 2007. SRA, which is a wholly owned subsidiary of Summit, holds a large number of exploration tenements surrounding and to the north of Mount Isa in Northern Queensland. Other than the Andersons, Bikini and Watta Projects, for which JORC inferred resource estimates have been completed, limited exploration activities have taken place on these tenements in recent years and as such they are not considered material to Paladin at this point in time. It is expected that additional drilling will be undertaken at Bikini in late 2010 with the intention of updating the current resource.

Angela and Pamela Projects (Australia) - Paladin 50%

In early 2008, the Northern Territory Government advised that the Angela Project Joint Venture (Paladin 50% and Cameco Australia Pty Ltd 50%) had been selected to explore the Angela and Pamela uranium deposits located near Alice Springs in the Northern Territory. Exploration Licence 25758 covering 3,767 hectares was granted on 3 October 2008 for a six year term with the potential for further renewal and exploration and resource definition drilling was planned. Drilling programmes were completed in 2009 and 2010 and these are being evaluated to determine the future direction of the project. It is anticipated that an initial resource estimate will be completed in 2010.

Other Mineral Property Interests

The Consolidated Entity holds various other mineral property interests, however, these are not considered material and as a result no further disclosure of mineral property tenement information has been included in the consolidated financial statements.

Environmental Contingency

The Consolidated Entity’s exploration, evaluation, development and operation activities are subject to various national, federal, provincial and local laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Consolidated Entity has made, and expects to make in the future, expenditures to comply with such laws and regulations. The impact, if any, of future legislative or regulatory changes cannot be determined.

The following table details the expenditures on interests in mineral properties by area of interest for the year ended 30 June 2010:

Areas of interestValhalla / Skal(1)
US$M
Isa North
US$M
Fusion
US$M
Angela/ Pamela
US$M
Bigrlyi
US$M
KM
US$M
LHM
US$M
Other Uranium Projects
US$M
Total
US$M
Balance 30 June 2009 494.4117.78.0-14.3--1.1635.5
Acquisition property payments2.90.7------3.6
Project exploration and evaluation expenditure
Labour1.11.00.30.80.20.2-0.74.3
Outside services1.02.00.61.90.40.61.30.38.1
Other expenses1.60.80.20.70.50.3-0.64.7
Total expenditure3.73.81.13.41.11.11.31.617.1
Exploration expenditure expensed(3.7)(3.8)(1.1)(3.4)(1.1)(1.1)(1.3)(1.6)(17.1)
Foreign exchange differences31.87.60.5-0.9--0.140.9
Balance 30 June 2010 529.1126.08.5-15.2--1.2680.0

(1) Summit has a 50% interest in the Valhalla/Skal Projects with the other 50% interest held by the Paladin Group. As a consequence of the takeover of the Summit Group, the above table now reflects 100% of the Valhalla/Skal Projects with the non-controlling interest reflected on the face of the Balance Sheet.

The following table details the expenditures on interests in mineral properties by area of interest for the year ended 30 June 2009:

Areas of interestValhalla / Skal(1)
US$M
Isa North
US$M
Fusion
US$M
Angela/ Pamela
US$M
Bigrlyi
US$M
KM
US$M
LHM
US$M
Other Uranium Projects
US$M
Total
US$M
Balance 30 June 2008 1,389.8389.8--17.0--1.31,797.9
Acquisition property payments--6.4-----6.4
Project exploration and evaluation expenditure
Labour1.50.50.10.20.30.2-0.73.5
Outside services3.40.1-0.60.60.50.10.15.4
Other expenses1.50.3-0.30.50.5-0.43.5
Total expenditure6.40.90.11.11.41.20.11.212.4
Exploration expenditure expensed(6.4)(0.9)(0.1)(1.1)(1.4)(1.0)(0.1)(1.2)(12.2)
Exploration expenditure capitalised-----0.2-- 0.2
Foreign exchange differences(320.8)(92.9)1.6-(2.7)--(0.2)(415.0)
Impairment of exploration and evaluation(574.6)(179.2)------(753.8)
Transferred to Mine Development-----(0.2)--(0.2)
Balance 30 June 2009 494.4117.78.0-14.3--1.1635.5

(1) Summit has a 50% interest in the Valhalla/Skal Projects with the other 50% interest held by the Paladin Group. As a consequence of the takeover of the Summit Group, the above table now reflects 100% of the Valhalla/Skal Projects with the non-controlling interest reflected on the face of the Balance Sheet.