At the beginning of this year, Canadian-listed Sparton Resources signed three agreements which, taken together, should provide the initial structure to allow it to develop into a uranium producer in China. The agreements also set the company up as a producer of germanium. It is no easy task to agree a deal in China, let alone three, so chief executive Lee Barker has clearly shown a lot of patience and persistence. When we last wrote about the company, it had been carrying out tests on the recovery of uranium from coal ash with a branch of the China National Nuclear Corporation (CNNC). These tests went well, and have resulted in the establishment of a new Sino-foreign joint which aims to produce uranium from waste material and coal ash in Yunnan Province. Specifically, the new joint venture company has the rights to carry out this work on a large coal ash waste pile in the Lincang area.
This company is to be called the Yunnan Sparton New Environ-Tech Consulting Co Ltd - get your memory round that one! - and its operations are actively endorsed by the Chinese government, so funding from government and local financial institutions should be available. The partners are a subsidiary of Sparton called Sparton Energy, the Remote Sensing branch of CNNC, and local Sparton partner, Beijing John Hanseng Investment Consulting Co. Sparton will have an initial 60 per cent interest in the joint venture, although that could be boosted to 90 per cent if the others do not contribute further funds when required.
Uranium was Sparton's original target, but germanium was added along the way, and Lee Barker is clearly very bullish about it. In 2006, only 100 tonnes of germanium were produced throughout the world so its price is simply sustained by the predominance of demand over supply. Over the past year the price of 99.99% germanium fob-China has risen from US$1,200 per pound to US$1,600 per pound, and the experts see no sign of a retreat from these levels. In recent years the uses to which germanium is put have multiplied. It's now to be found as a semi-conductor, in fibre optics communication networks, in infrared night vision systems, and in polymerization catalysts. And for some time it's been known that germanium is present in the fly ash that comes out of coal-fired power stations.
A couple of deals had to be put in place to get production underway. The first was with Tianhao Group, a private germanium-producing company in Lincang. The waste ash is controlled by the government so that it doesn't get into the wrong hands, and Tianhao has exclusive rights to reprocess the material. Tianhao will get either a processing fee or a royalty on any uranium production that comes from the waste, which grades around 0.64 pounds per tonne U3O8. The main waste area is said to contain 350,000 tonnes. Tianhao is already producing between 60 tonnes and 80 tonnes per day of new uranium-bearing waste of a similar grade, so the joint venture partners will be able to get moving on ash similar to that which has been used historically to produce uranium in the Lincang area.
The second deal involves Sparton Energy buying an 85 per cent interest in Linjiang 306 Hua Jun Coal Co Ltd Lincang City, for a total of C$3.06 million. This is a Chinese company owned by two local businessmen who will retain a 15 per cent interest between them. Its assets include infrastructure and mining licences covering three coal mines producing thermal and germanium coal feedstock. It also owns a100,000 tonne ash waste pile with a grade averaging 0.4 pounds per tonne uranium. Linjiang is the second largest germanium concentrate producer in the Lincang area and is producing approximately 3,500 kilogrammes of germanium concentrate a year, which netted the company C$153,000 a month in the third quarter of 2007, and that was when the price was lower than it is now. The price being paid is less than two times positive cash flow so this looks like a good deal, especially as there is enough germanium coal feedstock to last for at least another 10 years.
The present situation is that Sparton is raising US$10 million by way of convertible debentures and this will be used to fund the purchase of Hua Jun and to construct a pilot plant and uranium extraction testing facility. The balance will fund construction of a commercial uranium extraction plant for Lincang coal ash. Here again Lee Barker has shown that he understands how best to further projects in China. Sparton may be listed in Canada, but he has mandated Quam Limited of Hong Kong to raise the money. Quam is a powerful financial group with strong links into China, and has been advising Sparton during the last two years over which these deals were negotiated. The convertible carries a 10 per cent coupon and will be converted into a 35 per cent stake in Sparton Energy which should have listed by the time the convertible matures at the end of September 2011. At the end of last week Lee Barker reported that nearly 90 per cent of the money had been raised.
Lest it appears that Sparton is a one-trick pony it should be pointed out that part of the security for the debenture is its six per cent working interest in the Chebucto gas field offshore Nova Scotia. Sparton also has a royalty on the Blizzard uranium project in British Columbia, gold projects in China and Nevada, a silver- goldj oint venture in Mexico and a uranium-gold project in New Brunswick. Last month Sparton reported that it had identified a new zone of mineralization at the last of these projects, where preliminary grab and chip sampling results have returned significant values in copper, silver, and molybdenum. International Northair Mines, Sparton's partner in Mexico, has also just announced an intersection of 34.8 metres grading 192 grammes per tonne silver from trenching. It is doubtful if any of this is given value in the present market capitalisation, but these projects will be the core of the company after Sparton Energy lists.