Despite funding shortfall, US Oil Sands aiming for Q4 start-up

Mining oil sands to extract bitumen used to create crude oil is generally a Canadian phenomenon. However, an Alberta company is hoping to change all that with a new project expected to start in the fourth quarter.

US Oil Sands (TSXV:USO) said on Thursday that the firm is holding steady to its Q4 deadline for completing its PR Spring Project in eastern Utah. The oil sands mine is one of the first commercial oil sands operations in the United States. According to the Calgary-based company, construction is 98% complete. The $62.5-million project is about 4% over budget, and that has presented a liquidity problem that US Oil Sands addressed in its Sept. 29 press release.

As a result of project costs having risen by about $2 million and due to "rectification of deficiencies," the firm does not have enough in the kitty to complete the project. It says it anticipates needing another $3-4 million in working capital before the end of the year, and is "actively pursuing funding alternatives in excess of US$6 million in order to meet this working capital deficiency and provide sufficient flexibility during the upcoming few months."

Just over a year ago US Oil Sands started digging a series of pits, each the size of a football stadium, about 265km (165 miles) from Salt Lake City.

Although the development is being touted as 'the first oil sands mine in the US,' the truth is that another Canadian company, MCW Energy Group (TSXV:MCW), already runs a processing plant in Asphalt Ridge in the Uinta Basin, one of Utah’s eight major oil sands deposits. The Toronto-based company is using an alternative technology to the one applied in Canada, as it doesn't utilize water for extracting crude.

US Oil Sands is also developing a new technology and has already invested nearly $100 million over a decade to get permits, buy equipment and develop an unconventional extraction method.

US Oil Sands claims says its approach eliminates need for tailings ponds, requires 50% less energy input than traditional oil sands projects, recycles 95% of the water used and has small above ground footprint.

The company's pioneering process uses a citrus extract called d-Limonene as a solvent to separate bitumen from sand. d-Limonene oil from orange rind is used in industrial cleansers.

The Utah mine is being built at roughly a third of the capital cost of larger oil sands mines in northern Alberta, where new capacity is added for about $100,000 per barrel.

US Oil Sands' stock was up 20 percent on Friday, trading at 3 cents a share on the Toronto Venture Exchange.