Sunday, November 30, 2014

The Uranium Bull Market: Only The Second Inning, Significant Upside Ahead

Published on Sunday 30th November 2014 (AEST)  

An article published on Seeking Alpha November 24th titled "Uranium Spot Prices Plummet as Buyers Exit the Market" is somewhat misleading and overlooks the nuances of the uranium spot market. 

The spot market is thinly traded, driven primarily by one off transactions which can be very volatile (hence the 5% rebound last night bringing U308 spot prices back above $40/pound, after the 8% drop on Friday). Heightened focus on the spot move - on the pages of Seeking Alpha and elsewhere - spurred uranium equities such as Cameco Corp. & Denison to sell-off sharply, despite the fact that their uranium contracts are long term, and not directly related to the spot price on any given day. 

The most important points to focus on when analyzing this market are the trajectory of uranium prices (higher), the long-term supply-demand imbalance (and why recent news regarding Japanese restarts is extremely important) and how much uranium-related equities are positioned to benefit given current valuations. 

As stated above, the uranium market is not very deep - the buying trends of utilities is critical to the price and can drive large swings in the price on a one-off basis. Our channel checks suggest that most utilities are behind in striking new contracts supplying them with uranium, just as in aggregate, global utilities enter the biggest contract role cycle of the last several years (see Chart 1). Most contracts are executed on a five or ten-year basis, and as the chart shows, 2005 and 2010 were the heaviest volume years going back to 1990. We believe natural buyers will be in the market to support any dip in price (again, see last night's strong rebound) starting now through the first two quarters of 2015 to secure the supply they are behind in contracting.

(click to enlarge)
Most uranium-watchers are extremely focused on Japan, but why? The Fukushima disaster was responsible for the start of the uranium bear market, and many bulls have hung their hopes on Japanese restarts as the primary driver of uranium equity prices. Earlier in November, two reactors at Japan's Sendai plant received approval for restart (the first since the 2011 Fukushima event). Though important from a sentiment perspective, the restart of two reactors in and of itself does not move the demand needle. The approval is however, a game changer, but not for the reasons commonly discussed. The decision to restart removes one of the biggest short-term oversupply concerns affecting the market (another catalyzing factor for global utility buying demand).

Prior to the Sendai announcement, many uranium market participants feared that an estimated 100mm pounds of Japanese inventory would be supplied to the market if Japanese officials failed in their campaign to restart. The likelihood of this event is now dramatically reduced as it would be illogical to sell necessary uranium reserves ahead of what will be a multi-year restart effort. As a sidenote, a successful snap election for Prime Minister Abe and his LDP party bodes well for an acceleration in the restart program. The LDP party has been firmly behind nuclear restarts, but their junior coalition partner, the Komeito party, has been an opposition force. Abe looks to be in a good position to secure an outright majority, and the implicit uranium catalyst is not often cited by the market.

While Japan is a popular component of the uranium trade, its contribution to future demand becomes less significant when compared to the growing number of reactor builds in the rest of the world, which in aggregate are a much more important source of demand. Industry consultants and uranium company management teams alike project the uranium market going into deficit over the course of the next several years excluding the demand impact of Japanese restarts (see Chart 2). As has been pointed out many times by various sources, until spot uranium reaches some ~$75/pound, it is uneconomical for uranium supply to come online. We believe that a clearing price level of at least $75/pound will be achieved in Q1 or Q2 2015.

(click to enlarge)
While the recent move in Uranium equities since the Sendai reactor announcement may seem significant, it only brings equities back to where they were trading at the end of September of this year. Perhaps more surprising, is the general divergence between the spot price and related uranium equities since the summer, which has only partially closed (see Chart 3).

(click to enlarge)
Though daily fluctuations in the spot price do not affect the operations of uranium miners such as Cameco and Denison, long-term price increases do impact the Net Asset Value ("NAV") of the companies. We believe the divergence in pricing between the commodity and equities reflects skepticism in the market about the sustainability of the underlying price move. 

Our discussions with bigger market players suggest that uranium demand is strong, while supply has been surprisingly thin. Meanwhile, both Cameco and Denison trade at significant discounts to NAV - upwards of 50% based on internal calculations based on given current pricing. We believe that higher spot prices, plus an eventual normalization of NAV multiples for the sector offers 100%+ upside to several names from today's prices.

Current equity prices reflect worst-case scenarios, just as the macro tailwinds for the industry are the strongest in several years. The buying behavior of utilities coming into their contract roll cycle, in addition to the positive sentiment catalyzed by Japan's restarts is underestimated by the market. Our top pick in the sector is Denison Mines based on the prospects of its Wheel Lake Gryphon zone drilling site, 22.5% joint venture stake of the Cigar Lake asset (operated by Cameco) and possibility of a near -term non-core asset sale (assets which currently have zero value in the NAV calculation). Internal one-year price target is C$ 2.20, implying greater than 75% upside from November 25th's closing price.

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Friday, August 15, 2014

Will 15% Of Uranium Supply Be Lost On August 28th 2014?

Published on Friday 15th August 2014 (AEST)  

In terms of supply, there's one place that's head-and-shoulders above all others: the Athabasca Basin of northern Canada. With uranium mines here running at grades up to 100 times greater than deposits in most other parts of the world.

And with uranium prices down, Athabasca has become all the more critical for supply. Being one of the few places on the planet where producers are still making money--and continuing to turn out production.
But news this week suggests that problems of a different kind could be brewing here. Labor issues.

Local news sources report that workers at the major McArthur River mine and Key Lake processing facilities may be preparing to strike. With the move coming after the United Steelworkers Union's collective agreement with mine operator Cameco expired in December 2013.


Talks since have apparently been unsuccessful in arriving at a new labor deal. And negotiations between Cameco and the workers are now set to conclude on August 28--with the union reportedly having authorized a full strike for its 540 members here if an agreement is not reached by that date.

Such a stoppage could be one of the biggest events to hit uranium supply for a long time. The McArthur River mine alone puts out up to 18 million pounds of uranium each year--equating to nearly 15% of current global supply.

The facility has never seen a strike before, so it's uncertain exactly what the impact on production might be. But Cameco itself has acknowledged a possible knock on output, noting that "there is risk to production if we are unable to reach an agreement and work stoppage occurs."

Of course the two sides still have two weeks to work out an agreement and avert the strike. But if such a solution fails to emerge, things could get a lot tighter in uranium, very quickly.
Here's to high-pressure negotiations,

Dave Forest
Company: Pierce Points Daily E-Letter

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Tuesday, August 5, 2014

Queensland Government's New Uranium Mining framework opens the state to Yellowcake Exploration

Published on Tuesday 5th August 2014 (AEST)  
Between 1958 and1963 a total of 4500 tonnes of uranium were produced. A world oversupply of uranium led to the mine lying idle from 1963. It was reopened in 1974 but closed again in 1976. It was finally closed down in 1982 and the following year everything in the town from the houses to the public buildings and the equipment was put up for auction.

A framework to guide the reintroduction of uranium mining in Queensland is expected to encourage uranium exploration, despite the resource's low price on the international market.
The Queensland Government's regulatory framework that will enable the development and operation of its uranium industry.

The action plan is one of the features of the government’s 30-year plan to develop the state.
Uranium hasn't been mined in Queensland since the closure of the Mary Kathleen mine in 1982. A ban was introduced seven years later.
Queensland Natural Resources and Mines Minister Andrew Cripps,says the framework takes into account all relevant issues across the uranium mining life cycle, such as strict environmental standards, transportation and safe handling. 

“Over the last 18 months, since the government announced that we would be removing the ban on uranium mining, we have been working very hard to develop a modern regulatory framework for the development of this industry,” Mr Cripps said.

The framework provides mining companies with a blueprint for their planning if they choose to propose a new uranium mine.

Mr Cripps says it is unlikely mining companies would seek to develop a mine any time soon, as the global uranium price is very low and it will not be commercially viable until the market recovers.

“Any applications that do come forward will be driven by the commercial realities of the day,” he said.
“The whole purpose of having (this) framework in place is that, when there are commercial opportunities that present themselves, Queensland is in a position to take advantage of those opportunities.”
Mr Cripps expects companies will be ready to start exploration and other preparations ahead of any improvements to the market.

Georgetown resident Noeline Ikin sat on the Uranium Mining Implementation Committee, which collaborated with the State Government to create the new framework.

She says her view of uranium mining improved during the process. She also said there would be strong employment opportunities  “There would be two or three of four years of construction (of a new facility) that local people are able to engage in and benefit,” she said.

“Then when the mine starts operating... there will be 400-500 employees for an average mine.”
Townsville deputy mayor Vern Veitch, a critic of uranium mining, says the new framework does nothing to ease concerns about the safety of reintroducing the industry.

“There is very strong concern in Townsville about the possibility of a mine reopening just over the Herveys Range ridge at Ben Lomond (mine site).

"The reason for that is that the Burdekin River is the back-up water supply for the Townsville community.
“We simply cannot take the risk that this water could be contaminated with radiation poisoning from a severe storm, heavy rain that would see tailings go into the Burdekin River,” Mr Veitch said.

Applications for uranium mining projects will be lodged with the Coordinator-General for assessment and a Uranium Mining Oversight Committee has been established.

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Wednesday, June 25, 2014

GoviEx Uranium (CSE: GXU) New TSX Listing

Published on Wednesday 25th June 2014 (AEST)

The Company's principal objective is to become a significant uranium producer through the continued exploration and development of its Madaouela Project and its other uranium properties, in Niger.
The Company's principal asset is an advanced-stage exploration property located in close proximity to the Somair and Cominak mines in the Agadez region of north central Niger in the heart of a historically prolific uranium-producing district (the "Madaouela Project"). 

The Madaouela Project consists of the Company's ownership interest in seven brownfields exploration permits known as Madaouela I, II, III, IV, Agal, Era and Anou Mellé.

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Saturday, June 21, 2014

Nuclear Boom Overwhelms China Watchdog

Published on Saturday 21st June 2014 (AEST)

June 20 (Bloomberg) -- China is moving quickly to become the first country to operate the world’s most powerful atomic reactor even as France’s nuclear regulator says communication and cooperation on safety measures with its Chinese counterparts are lacking. Zeb Eckert reports on "First Up." (Source: Bloomberg)

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Thursday, May 15, 2014

Alexander Molyneux Speaks On Record Uranium Demand Expected for 2016

Published on Thursday May 15 2014 (AEST)  

 Alexander Molyneux, chairman at Azarga Resources Ltd., talks about the company's agreement to merge with Powertech Uranium Corp. and the outlook for the uranium mining industry.

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Tuesday, May 13, 2014

Design/Build for Lance In-Situ Uranium Extraction Project

Published on Tuesday May 13 2014 (AEST)  

The last year construction began on a nuclear power plant in the United States was 1977, but that is about to change. 

The Department of Energy announced in February that it is backing the construction of two new nuclear power plants, and TREC, a Woodard & Curran company, is working on a major uranium mining project to provide the fuel that these and other plants will need. After four years, the Nuclear Regulatory Commission (NRC) recently gave initial permitting approval and released the final environmental impact statement for the first phase of the project where TREC will play a leading role.

Strata’s Lance In-Situ Uranium Recovery Projects in northeastern Wyoming encompass at least 190 combined miles of uranium mineralization and more than 53 million pounds of triuranium octoxide compound. TREC is leading the pre-construction activities for the uranium processing plant under a design/build contract and providing conceptual designs, detailed engineering design support, procurement, and construction services.

“Designing the system is an exciting challenge for our team,” said Brian Pile, a Regional Operations Manager at TREC. “This project is made even more significant because it will be such an important source of fuel for clean, low-carbon energy production in the future. We are committed to the efficient design of a low-impact system that protects the local ecology and creates long-term benefits for both Strata Energy and the local economy.”

The TREC team completed each component of the facility design, including mass balance, piping and instrumentation diagrams, and process layouts, as well as structural and instrumentation and control engineering. TREC also managed the laboratory, plumbing, HVAC and architectural design work for the facilities and generated specifications for the building, construction, equipment, pumps, tanks, and process, mechanical, structural, and electrical controls. Woodard & Curran is assisting TREC with the electrical and instrumentation and controls aspects of the project.
Prior to construction, TREC developed performance specifications that were provided to vendors for pricing and associated structural, safety, and ventilation designs, which were then incorporated into the facility design. This approach significantly reduced design costs and will expedite the building process.

Production at the Lance Projects

The Ross Production Site, the first phase of the Lance Project, is the area where Strata is currently focusing development and will use in-situ recovery (ISR) to extract the uranium, rather than an open pit or underground mine. ISR at the Ross project involves a number of injection wells that pump a solution of groundwater mixed with oxygen and sodium bicarbonate (lixiviant) into the sandstone that holds the uranium. The lixiviant oxidizes and dissolves the uranium, which is then drawn up by recovery wells. The solution is pumped to a central processing plant, where the uranium is extracted through an ion-exchange circuit, elution, precipitation processes, and drying for an initial annual production rate of 1.2 million pounds of “yellowcake” by 2017. The water used to bring the dissolved uranium to the processing plant is then re-fortified and returned to the aquifer in the closed loop process.

The entire wellfield is surrounded by a series of perimeter monitoring wells to guard against the migration of mining solution outside of the recovery area. ISR requires minimal surface disturbance, and the affected area—including the groundwater—is restored when the mining operation is concluded.

The Ross site will contribute a significant portion of the total United States production of uranium. According to the U.S. Energy Information Administration, 2013 domestic uranium production totaled roughly 4.8 million pounds. Strata is targeting 1.2 million pounds of triuranium octoxide produced at the Ross site per year through the years 2014 – 2017 and later plans to increase production to 2.3 million pounds per year.

Construction Underway
The uranium will be extracted through an ion-exchange circuit, elution, precipitation processes, and drying for an initial annual production rate of 1.2 Mlbs of “yellowcake” by 2017.

Construction Underway

Ground breaking commenced in October of 2013. Phase I construction has been completed to the point feasible during the winter months. TREC and Strata have begun procuring equipment and the pre-engineered steel buildings to allow for the rapid continuation of construction in the spring. Strata anticipates that the NRC will issue the Source Material License in early April 2014, which will allow the construction of the processing plant and initial wellfields.

“The design/build approach streamlines the process for Strata Energy,” Pile added. “The project benefits by having one contract and entity for design, construction, cost, and schedule management. It really is a true turn-key delivery for the owner, which provides them with the ability to focus on their core business.”

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