Toro walks away from $57m project option

Toro Energy has decided not to exercise an option to acquire Deep Yellow's Napperby uranium project in the Northern Territory, saying the $57 million price tag is too high.

The decision follows a farm-in agreement reached between both parties in 2007 when Deep Yellow negotiated for Toro to buy into the project for an upfront scrip cost of $2.3 million.

Under the deal, Toro agreed to spend $750,000 each year on exploration costs at the project, and was given a May 4 2010 deadline to decide whether it would buy the project outright for a combination of cash and shares based on the uranium price and the resource.

The $57 million price tag, which excludes the $2.3 million upfront payment, was calculated on 13.2 million pounds at a floor uranium price of $4.50 per pound.

Toro today said that following a scoping study and the exploration alternative development options, the current economics of the project did not warrant a move to buy the project.

It said that no significant additional uranium deposits with a reasonable grade have been discovered in the region during the past three years, which was necessary to support the economics of the project.

"As the project stands today Toro's economic analysis of potential development scenarios indicated that the deposit was unlikely to exceed Toro's internal rate of return requirements under present and near-term uranium price scenarios," Toro said in a statement.

The company added that it had made an alternative proposal to Deep Yellow to advance Napperby, however the proposal was not accepted.

Toro said it will now allow its purchase option to lapse, a move that Deep Yellow has agreed to. Ownership of the project will revert back to Deep Yellow.

Deep Yellow said in a statement that it was disappointed that Toro had elected not to buy Napperby and will consider an option to package the project with its other exploration tenements in the NT.

Shares in Deep Yellow were unchanged at 21 cents while shares in Toro climbed half-a-cent to 11c at 11:35 AEST.