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Uranium Special Report
The emergence of global warming and peak oil has forced us in the last 10 years to start looking for other viable forms of energy. On a conscientious level, and an economic level, the world is now search for sustainable green forms of energy that will power our planet for centuries to come. One of the alternatives for a green future is nuclear and so far is the most logical alternative for the longterm sustainability of our planet. Nuclear energy has been a dirty word since disasters at 3 Mile Island and Chernobyl, but since then technological advances a have made nuclear one of the safest and greenest forms of energy production.
The world is going nuclear and demand is now outstripping supply and will do so for years to come as producers desperately try to ramp up production to meet demand. A place of supply that is now drying up that has been available to American nuclear rectors is the HEU program which expires at the end of 2013 and will not be renewed. The HEU program was part of the non proliferation treaty that converted Russian bomb grade material HEU into LEU which is used in nuclear reactors to generate electricity. This program over its 20 year total life will have produced enough LEU to power America’s energy needs for 2 years or 10% of America’s energy needs for the past 20 years. The American nuclear energy industry is now looking for another supply of uranium.
What better place to go looking, but in your own backyard!
The USA is about to reinvent itself as a country and its industries all the way along the value chain from the supply of raw materials to manufacturing and tech. One of the things they are doing is developing their own supply chain of strategic materials such as REE’s and Uranium. Currently the USA only supplies 7% of its own Uranium needs, due mostly to the fact that nuclear generators were dependant on the HEU agreement that supplied virtually all of America’s nuclear energy needs. Since that agreement is almost over and will not be renewed, there is an opportunity to fill this upcoming constraint on supply with an area that has a history of uranium production. Areas like the Powder River Basin in Wyoming have historically produced 100’s of millions of pounds of uranium and basically on standby just waiting to go back into production.
Ex uranium producing deposits in the midwest United States look to benefit from this secondary supply shift the most. These projects in Wyoming, New Mexico and other known uranium producing regions in the states are the most logical choices to fill this supply gap in 2013 and can easily be fast-tracked into production to meet the HEU supply gap in 2013. 3 years is enough time if the mine is being considered for in-situ recovery. In-situ recovery is when they drive 3 mining well down into the resource and blast the permeable rock with a chemical solution that dissolves the U3O8 and pushes it towards the center where it is sucked up through the middle well to surface where the uranium can be processed. This is a lowcost way to produce uranium from the rock with estimated cash cost per once being anywhere form 20 to 40 per / lb of recovered U3O8. The technique requires less capital cost then conventional mining methods and is considered by some more of an environmentally friendly way to mine uranium in the region.
When looking at resources that may be fast-tracked to production to meet upcoming nuclear energy demands, In-Situ Recovery (ISR) Uranium mining is a low cost method with both lower capital requirements and resulting lower operating costs with a much shorter time frame for mine construction including the added benefit of low environmental impact.
Permeable uranium deposits amenable to this method of mining are much more favorable for profitable mining than a conventional mine, especially in Wyoming in the USA where ISR accounts for all of Wyoming uranium production. ISR methods accounted for 36% of global uranium production in 2009.
Demand for uranium is set to rise materially as new reactors start to come online
Not only do we have a dwindling secondary supply which is going to trouble US end users more than anyone else in the world, but demand is set to rise at a steady pace fro the foreseeable future as 58 reactors are in the construction process, 148 are planned and another 331 reactors are proposed.
Currently there are 441 reactors in this world consuming 184M lbs of uranium. It takes 3 – 7 years to complete a reactor in the construction process, so if 58 reactors are in construction, I would expect close to 24M pounds of addition demand over the next 7 years. The 24M pounds of uranium of additional demand are over and above the dwindling secondary supplies most of which is from the HEU program which is over in 2013. 24M pounds of uranium demand is assumed that new reactors assume a constant demand for uranium which is similar to existing reactors. This equates to 10 – 20 new potential new projects producing 1 to 2 million pounds per year to meet up with demand for these new reactors that are in the construction process.
There are another 148 additional planned reactors which will take an average of 10 – 20 years to come online which represents another 62M lbs of potential uranium demand by 2020 - 30. There are still another 331 proposed reactors which represents an additional demand 15 -35 years out of 138M pounds.
By 2025, demand may have increased for uranium by 47 percent, which represents a significant opportunity for the world’s uranium producers and explorers to bring new projects online and could be the equivalent of 10 new uranium companies all producing 10M pounds/year. There is opportunity for players at every stage of this game to capitalize on this upcoming short term and and longer term opportunities, whether it be the Wyoming ISR deposits just waiting for the key to turn or another couple of Athabasca producers to fill the void. Demand for uranium is set to continue to rise substantially over the long term and unless the world finds another, greener more viable form of energy, nuclear energy will be a form of energy for the future going well into the next century.
Uranium Spot Price to hit $80 in 2011!!!
At $40… most operations are not profitable or just at the point of break even. The cost to operate a mine may be less than $40 but once you include all the expenses of running a mining company. $40 is the bare minimum even for the cheap ISR mines in Wyoming.
All fundamentals support U3O8 going higher. Not only is uranium in short demeand, but no new supply will come on the market at less than $60 because of the cost to produce which is good for the long term prices of uranium. Between $40 and $60 spot prices, it is just not worth it in most cases to make the decision to mine. Uranium is also one of few commodities that is unique, it has little or no demand destruction!!! Uranium is a small cost of the production in nuclear electricity; a considerably higher spot price will not affect demand. Spot prices could double and have no effect on the cost of electricity generation by nuclear means.
My first target for next year is $75 - $80 with all fundamentals supporting a continued price rise well in excess of $100 by 2013. The spot price for a commodity that may one day drive the world’s electricity consumption is extremely undervalued given all the variables going forward at $60.
U3O8 Spot price set to breakout this winter and beyond…
Uranium prices have been so depressed for the last 3 years since the collapse of the spot price of well over $100… it is likened to a big heavy train that had to stop suddenly and now is just getting started. This heavy train took a while to get moving again, but once we got some momentum back in the train, it is going to be hard to stop. One thing that analysts always forget about is the speculators and just like any other commodity, speculators will have fun with U3O8. Uranium spot price has technically broken out on the charts and if you treat the spot and long term prices like moving averages we are entering into a bullish crossover period and current spot prices could move this winter another 30% between $75 and $80 dollars. Currently the spot price is $60.50 and the long term price is $62 which is the highest prices since December ‘08. Long term prices should start to move up with the spot as uranium prices move higher which is now a clearly definable trend that is just starting to move. Quantitative easing will affect U prices as well, but the real fundamental that will drive this market is a true demand supply crunch like REE’s, Uranium is on a verge of another longer, more powerful bull market than the previous. I expect old spot price high records to be broken on this run.
U-Stocks still undervalued
Uranium stocks are still undervalued when compared to the $60 spot price 4 years ago with a much more serious supply crunch approaching as secondary supply dwindles while at the same time demand continues to escalate. Psychologically, all these stocks have a long way to run this winter if the spot can at least maintain the $60 - $70 level and I have a suspicion the spot price will run well above $70 next year. Even though some of the U stocks have been through some dilution and share structure is different, a lot of the options and warrants set at the time are still not close to being in the money on these companies at current prices. Psychologically when you look at the long term chart, all these stocks are still cheap and will run hard at least to the end of the winter.
In 2005 and most of 2006 when the U spot was still trying to break $50 a stock like Denison was a $5 stock, it hit $15 highs in 2007 when uranium was peaking, but at $3.30 is currently very undervalued, especially when looking at prospects going forward including the Wheeler River Discovery. Mega is still a fraction of its price with only twice the shares and a bunch of high priced warrants that if exercised will put MEGA into a very nice cash position going forward and also indicating that it is still very undervalued, especially with progression of their projects, their financial position and recent discovery that has the potential to be a 40 – 80M pound high grade resource.
Shares out… 339.7M
Market Cap… $1.12 billion
Denison Mines is a uranium stock of the future with a current 1.6M lb production profile and targets to increase that production to 10M lbs by 2020. Denison has an international presence in Mongolia, Zambia, and Canada, but has the majority of their projects in the USA and looks to be a major beneficiary from the end of the HEU program. They have their costs under control with 3 mines in production at an average cost of $38.22 /lb and are now positioned to make positive returns from USA operations.
They also have the exciting new World Class Discovery at Wheeler River in the Athabasca Basin which his planned to be a major producer by 2020. Wheeler River has produced some nice intercepts including…
5.5m @ 11.82%
4.5m @ 17.72%
3.5m @ 19.96%
6m @ 62.61%
9m @ 16.8%
Denison Mines is debt free and well financed with $78M working capital and a quality international project pipeline such as the 20M lb Mutanga/Dibwe in Zambia, the 18M lb Gurvain Saihan project in Mongolia and the World Class Wheeler River Discovery. Denison has set the stage to become a premiere international uranium producer over the next decade and is currently a company that will profit from a rise in short term prices with production of 1.6M lbs of U3O8. Denison has inventories of 89M lbs of uranium including 14.5M lbs of historical resources.
Because of the HEU agreement coming to an end, US uranium companies have a competitive edge over their international counterparts to supply the upcoming supply void in 2013. Companies that have sizable high grade projects in the west that are amenable to ISR style mining will be given serious consideration for fast-tracked production. Add to the fact the US is trying to rebuild its own internal supply chain from raw goods and up. American u companies have a leg up to fast-track production.
Mega Uranium MGA
Shares Out… 246M
Market Cap… $258 million
Great economics for Australia…
Mega Uranium is positioned to be a premiere Australian producer over the next decade with quality projects in Australia. With near term production going forward from Maitland Lake of 1.6M lbs and the recent discovery near Cameco’s 79M lb Kintyre deposit, fundamentals bode well for Mega’s short term success and continued material revaluation.
Mega’s other ace in the hole in Australia is Ben Lammond which has an N43-101 compliant resource of almost 11 million pounds in all categories grading between .27 and .21%. Ben Lammond also grades .15% Molybdenum making it on of the highest value per ton uranium resources outside of the Athabasca Basin. The deposit has huge upside potential being open to the east for at least a 1km strike. Mega has commenced a prefeasibility study on this property.
Huge Exploration Upside in Cameroon and Canada
MGA also have prime exploration targets in Canada and Cameroon where in Cameroon Mega has successfully drilled economical widths of uranium mineralization. Mega also has interests all over Canada including a jv with Forum Uranium FDC in the northwest region of the Athabasca Basin as well as the highly prospective IOCG target in the Yukon.
Results from the highly prospective Igor property in the Yukon which extends on strike for 600 meters of which MEGA can earn up to a 75% interest in the project…
64.7m of 1.18% cu, 0.09% U3O8, and 2.25 g/t ag
6.9 m of 2.31% cu, 0.152% U3O8 and .05 g.t au
7 m of 7.37% cu, 0.417% U3O8 and .33 g/t au
4.4 m of 7.24%cu, 0.132% U3O8, .21 g/t au and 6.79 g/t ag
Mega also has interests in the Central Mineral Belt in Labrador that are considered highly prospective, but a uranium moratorium has put a damper on the whole area with no end in sight.
Hathor Exploration HAT
Shares out… 107M
Market Cap… $333 million
Covered @ $1.90 +$1.22 / 64%
Hathor is my top pick for discovery in the Athabasca Basin, I have followed and posted about HAT for years. Last month Hathor released the best hole to date on the Roughrider East Project of 63.5m grading 7.75% U3O8. Hathor’s Midwest Northeast Project represents one of the best discoveries in the basin in 20 years.
Hathor’s Midwest Project has an initial resource of 6.5M lbs indicated and 5.5M lbs inferred. This initial resource base is just a starting point to what is going to end up being a very significant deposit in the Athabasca Basin. Unlike a lot of the uranium deposits in the Basin, Hathor’s deposit is shallow making initial economics look quite good. Hathor currently has 4 rigs drilling on the project aggressively expanding the known resource open along strike in both directions.
In addition to the Midwest Project Hathor’s recent jv with Forum Uranium is having early indications of success as Forum has identified new geochemical targets on the Henday Project. The project is along the Midwest Trend which hosts Hathor’s Roughrider deposits as well as Fissions J zone. A 4,500m drill program is scheduled to begin in early January. The summer program had been deferred until the winter because it was determined that the most prospective basement rocks corresponding with a magnetic low is underneath the lake which can only be access by drilling after freeze up.
Hathor is a top stock going forward working on delineating and expanding the Midwest Project which is prospective for multiple high grade uranium deposits and early indications are that they may be on to another nice find at the Henday project.
Taking advantage of HEU in the US midwest…
Strathmore Minerals STM
Shares Out… 87.9M
Market Cap… $114 million
Strathmore is definitely the cheapest of the bunch when you compare market cap to reserves. One reason it has a discount is that most of their advanced projects are in New Mexico and their flagship project Roca Honda 60% is an underground mining operation set to produce in 2013-14. Midwest uranium companies with quality ISR projects will command a premium at market. They have other projects in New Mexico that may be amenable to ISR mining, but until proven economic and start the permitting process, will not get the same value that a Wyoming ISR projects get.
Their Gas Hills project in Wyoming looks to have potential with 17M historical ounces and is amenable to ISR mining, but still has a lot of work to be advanced to production stage. Strathmore is cheap when considering the amount of lbs in the ground they hold and potential that their properties hold; that are all pretty high grade for USA Midwest deposits. If they can prove their New Mexico projects are economic with ISR methods then STM could get a major bump up in valuation.
With 87M lbs in inventory including 17M historical at Gas Hills, Strathmore Minerals is very cheap when valued at only $1.55 per lb of uranium and is a very good value buy with a high quality pipeline of projects in the MidWest US.
UR Energy URE
Shares out… 99M
Market Cap… $195
UR Energy is going to be the next producer in Wyoming with their 11M lb Lost Creek Project in the Powder River Basin in Wyoming. They have almost completed the permitting stage to bring its lost creek deposit into production as well as build a 2 million pound per year uranium processing facility. They have even received an exemption for limited construction and have ordered key plant equipment for the mine. These guys are serious about being the next mine in production in the Powder River Basin.
Lost Creek’s conservative PEA indicates close to a million lbs a year with favorable recovery of 80% which is well above industry standards of 70% with operating cash costs of $23.36/lb of U3O8 over a 7 year mine life. Lost Creek will be in production well beyond 7 years with the nearby 14M lb Lost Soldier deposit expected to be the next project permitted as well as initial exploration drilling has indicated another 24 -28M lbs on adjacent properties not including the existing resource. With a 2 million pound mill URE has plans on doubling production but want to get Lost Creek up and running before promising another million ounces. Once Lost Creek is up and running, permitting is much easier and can be made as an extension of Lost Creek. There is also potential for expansion at both the Lost Creek and Lost Soldier Deposits with holes hitting economical grade mineralization outside of the defined resources.
UR Energy is one of the top stocks to benefit from the HEU supply gap. They have one of the best technical teams in North America, are a nearterm low cost producer at $23/lb, in a mining (uranium) friendly jurisdiction in Wyoming and are alrady building the infrastructure with an economical on-site processing plant that will be fed with uranium ore in the area for years to come. With $34.7 million in the bank and rapidly moving through the permitting process being well ahead of other juniors in the area, URE is set to be uranium junior to be reckoned with.
Uranez Energy URZ
Shares Out… 64.5M
Market Cap… $252
Uranez is another company focused on near term production potential in the Powder River Basin. Uranez plans 1.5 to 2M pounds production by 2012 on their ISR style deposits in Wyoming. Uranez has the least amount of resources of the American potential junior producers at just 18M ounces between their 5 N43-101 deposits. I expect that many of these deposits are open for expansion. At 2M lb per year production by 2012, Uranez has stated some pretty lofty goals.
Uranez may be a bit overvalued when compared to its peers but factors that may help URZ are the fact they are going big and their share structure is much tighter than the rest.
Titan Uranium TUE
Shares out… 106M
Market Cap… $45M
Covered in the premium edition at $0.19 +0.235 / 120.5%
Titan Uranium is another company that is ready to take advantage of HEU unwinding. They are focusing on developing their Wyoming Sheep Mountain project which has proven and probable reserves of 14.2 million pound of uranium. An initial feasibility study based on $60 long term price for uranium gave a 1.5M lb /year production and an 11 year mine life using open pit, underground and heap leach recovery. Cash cost are estimated at $28.67 lb uranium and has an NPV of $101 million at 7% discount rate.
Titan Uranium is also a top pick for Athabasca junior explorers with highly prospective exploration properties in the Athabasca Basin being one of the largest land holders in Athabasca positioned for a grassroots discovery in the underexplored central and western parts of the basin.
U3O8 Corp UWE
Shares out… 77.6M
Market Cap… $67 million
U3O8 Corp is one of the cheapest U stocks on the market with absolute unmatched potential to add N43-101 resources through development of current projects. They are the premiere South American explorer for uranium. Currently they only have 7M lbs indicated inferred on Aricheng which is just one of 3 potentially massive projects, but they recently announced that exploration has led them to believe that they have a resource close to 32M pounds at Aricheng which has excited the market.
UWE has a great project at Berlin in Columbia with a historical resource at the Berlin project in excess of 38M pounds of uranium. The Berlin project has the added benefit of being a multi element project that is rich in uranium, vanadium, moly and yttrium.
The wild card for U3O8 Corp material upside valuation is the Laguna Salada project in Argentina where trenching has identified mineralization over a 28km area. Current work is focused on infill trenching and an initial resource by the end of 2010.
UWE has projects with potential to have over 100M lb of inventory plus other elements such as vanadium, molybdenum and yttrium. As UWE works to advance its projects, U3O8 Corp is considered extremely undervalued in my books with excellent potential for material revaluation. This one is no brainer under $1. UWE also had extreme insider buying on Friday which is often a very big buy signal.
First Uranium FIU
Shares Out… 181M
Market Cap… $235 million
First Uranium is my bottom feeder pick and is very cheap concerning the resource at Ezulwini. Ezulwini has a N43-101 resource in both categories of 195.65 lbs of uranium and close to 30M oz’s of gold (most of this is in the inferred category). Ezulwini is working towards peak production by 2019 and now have all the infrastructure in place with a 200,000t per month gold facility and a 100,000t per month uranium facility now fully constructed. Right now they are working out the bugs that come along with restarting operations and Q4 is already showing a dramatic improvement of the mine call factor.
Production is expected to improve in 2011 going forward with a lot of improvements designed to maximize efficiency of operations. At $1.30 it has been hammered down from multi-year and represents a good bottom feeder pick going forward with gold and uranium production. At $1.30 it is a very good speculative buy.
Strateco Resources RSC
Shares Out… 122.7M
Market Cap… $112 million
Strateco Resources is very cheap concerning that this may be the next uranium mine outside of the Athabasca Basin. I have followed the Otish Basin stocks and Central Mineral Belt stocks for a long time and Srateco has a quality high grade uranium resource at Matoush with 7.5M lbs of uranium indicated at 0.78% U3O8 and close to 13M lbs of uranium inferred at 0.5% uranium. Currently RSC is valued at $5.50 a lb of U3O8, but the recently confirmed a new uranium lense on the property 1.5 km from the 3 lenses that make up the Matoush deposit. 2 holes 60 meters apart graded 0.48% over 4.2 meters and 0.33% over 5.1 meters.
Strateco Resources has strong public support for the project and with recent news shows that there is plenty of exploration upside potential with this new discovery 1.5km from the Matoush deposit. I have full confidence that RSC will find many more lenses like this to ad to their inventory which will feed operations for years to come.
Strateco Resources is a screaming buy under $1 for what is one of the highest grade uranium deposits outside of the Athabasca Basin.
A cheap explorer that is a good area play off of RSC is Pacific Bay Minerals PBM which has several targets to go after on claims surrounding the Matoush discovery. I would rate Pacific Bay as a very strong buy as well with high quality targets.
Forum Uranium FDC
Shares Out… 114.9M
Market Cap… $32.7 million
Covered in newsletter @ $0.16 +0.125 / 78%
I have mentioned Forum many times in the past as a top pick with both uranium and REE exploration exposure. FDC has high quality targets and jv’s with some very notable names in Mega and Hathor in the Athabasca Basin. The Henday Project is where all the excitement currently lies as they think they may have found a significant basement hosted target similar to HAT’s roughrider discovery. FDC’s Henday Project jv with Hathor is in the Midwest trend of discoveries that play host to Hathor’s Roughrider deposits and Fission’s J zone.
Forum has many quality uranium projects including the Maurice Point jv with Mega, the 100% owned Key Lake Project which they are drilling this winter and their North Thelon project which now has shown REE potential. Further exploration is warranted on this large REE target.
Forum got a huge boost from being mentioned on BNN last week and has some daytraders in it, but is a quality story going forward and a solid buy for the investor under .30 cents.
Fission Energy FIS
Shares out… 69.2M
Market Cap… $59 million
Fission is another key explorer in the area with their J zone discovery. Recently they announced they extended the mineralization with another high grade step out of 6 meters grading 4.45% U3O8. This was a15 meter step out of a hole that graded 12 meters at 3.64% U3O8. Fission is another key player in the Hathor’s Midwest Project that is shaping up to be the most exciting discovery in the Athabasca Basin in over 20 years with many juniors making key discoveries as well as others defining high priority exploration targets.
Fisson has many other high quality targets within the Athabasca Basin, but right now all the excitement is about their J zone discovery and with continued expansion of this deposit, Fission is currently undervalued under $1 with expectations for continued success and expansion of the J zone. Fission is right in the middle of all this recent excitement regarding the Midwest Trend and will rise with the rest of the bunch that are participating in this exciting rebirth in the Athabasca Basin.
PurePoint Uranium PTU
Shares out… 73.3M
Market Cap… $16 million
Purepoint Uranium is another cheap Athabasca explorer that has potential to make a significant discovery. They are in the right place in the Athabasca Basin and have identified 45 high potential targets in its 11 Athabasca Basin properties. A property of note is Purepoint’s Henday Block which is 9km northwest of Areva’s 41M lb Midwest Lake deposit.
They recently announced that newly defined EM conductors from a VTEM Airborne Survey are on trend with neighbor Fission’s J zone and Hathor’s Roughrider and Roughrider East deposits. The survey identified 7.5km of EM conductors where historic data only identified 2.9 km and the only historic hole on the property was interpreted as having tested a weak to moderate target.
Purepoint’s Henday Block Project is going to attract a lot of attention with the recent discoveries on Hathor’s and Fission’s properties, as well as Forum’s highly prospective Henday property.
Please don’t confuse Forum’s Henday Property with Purepoint’s Henday Block Project. Purepoint is another Athabasca Explorer that has some real discovery potential.
ESO Uranium ESO
Shares out… 97M
Market Cap… $12.6 million
Last but not least is ESO. I haven’t covered it in the newsletter but have followed it since .065 and commented on it on facebook at .08 2 weeks ago. Eso uranium has a 2 pronged approach to exploration with gold and uranium projects in throughout North America. Eso has high quality properties in the Athabasca Basin with 50/50 jv’s with both Hathor and Fission. Their properties include Cluff, Patterson Lake, Hook Lake, Cree and Hatchet which cover more than 250,000 acres of prospective Athabasca Basin targets.
Eso is also exploring for gold in BC, intersecting decent results on their Donna project including trench results of 29.66 g/t over 2.5 meters which extends the zone further west along the soils anomaly. Initial drilling to date has identified broad anomalous zones of mineralization with hopefully the discovery hole to come.
Eso is a great penny flyer with quality jv projects in the Athabasca Basin and what is looking to be a potential discovery in BC that may give ESO some momentum from 2 angles going forward.
All these stocks from DML to ESO traded much higher, are undervalued, and will go higher as the whole uranium market continues its rebound into 2011.
The 2 major focus’s for the investor for uranium should be projects in the Midwest US and the Athabasca Basin with a sprinkle of projects in other strategic places. All the stocks mentioned above I consider very good buys in this uranium market going forward.
There are certainly more, but this is a good start.
M & I millions lbs
Price / lb
Current Production 1.6M lbs 2020 target of +10M lbs U3O8
2012 Lost Creek 1M lbs (ISR)
Ramp up full production by 2019
OtishBasin is likely Canada’s next uranium producing region due to moratorium on CMB
Roca Honda by 2014(underground) New Mexico projects need to prove ISR
1.6M lbs by 2013
Explorer developing 3 high quality targets in S.A.
Commercial production by 2012… +1.5 -2M lbs (ISR)
*not historical but conceptual
**U3O8 Corp recently stated an additional 25M conceptual pounds at Aricheng
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