David Talbot: Uranium and Lithium Demand Powers
Source: Zig Lambo of
The Energy Report
Mining Analyst David A. Talbot remains bullish on uranium and
sees growing demand for lithium. In this exclusive interview
The Energy Report,
he tells us why he believes the nuclear plant building boom
will continue worldwide despite the recent setback in Japan. He
has positive expectations for select stocks in both arenas.
: CANALASKA URANIUM LTD. - FMC LITHIUM CORPORATION - HATHOR
EXPLORATION LTD. -
NEMASKA EXPLORATION INC.
- ROCKGATE CAPITAL CORP. -
RODINIA LITHIUM INC.
- SOCIEDAD QUÍMICA Y MINERA DE CHILE S.A. -
TALISON LITHIUM LTD.
- UEX CORP. - URANIUM PARTICIPATION CORP.
The Energy Report:
Thank you for joining us today David. You last spoke with
The Energy Report
in late January about the uranium market and the nuclear
industry. Two months later we had Fukushima. What is your
analysis of the current state of affairs with nuclear and
We remain bullish on the spot price of uranium. In January, we
said it was all about uranium demand and it largely still is. The
demand picture hasn't really changed as much as the general media
portrays. We might see uranium demand decline about 5% to 10%
from where we predicted, by about 2020. But, we still expect
about 240 to 280 million pounds (Mlb.) of demand per year by
then, which is really about an increase of 30% to 55% from
Worldwide, 440 reactors are in operation, 61 under
construction and 154 planned. Most of the sentiment over the past
several months was driven by emotion and fear and reaction to
what is being shown on the news rather than reason. Take Germany,
Switzerland and Italy for example. Much of the mainstream media
portrays Germany's anti-nuclear stance as the death knell for the
industry. People don't understand that as recently as last
September, Germany was preparing to get out of the nuclear power
industry and did a sudden about face at that time by extending
Looking at the numbers, the effect of Germany's shutdown won't
be as bad as most think, either. Germany's 17 reactors only use
5% of current demand. This was expected to decline to about 3% by
2020. Switzerland only has five reactors and 1.4 Mlb. of annual
requirements. That's less than 1% of world uranium demand. Italy,
no reactors, none under construction, none planned. We do believe
there will be cancellations and delays, but many of those
countries were either on the fence to begin with or really just
have smaller nuclear programs.
China, India and Russia alone account for about 50% of the new
reactor build and they're all on board. India just announced that
its new liability laws are due by the end of the month. This will
likely kick start the nuclear build in that country. Saudi Arabia
had 16 proposed reactors, which was a pleasant surprise in the
land of big oil. That news essentially negated Germany's news in
the long-term. Plus, strong support out of the United Arab
Emirates and the announcement of new build in the U.K. were
Are there really any viable alternatives to
Not when it comes to a green alternative. Coal and oil
definitely have their environmental drawbacks, even with
scrubbers. So does natural gas even though it's currently favored
by the green movement. The other alternatives just can't handle
base load like nuclear.
So what do you predict for the uranium market in the coming
year or two?
I believe supply is more of an issue today than it might
have been about six months ago. Development companies need higher
prices to make their projects economic and attract the investment
they require. Without higher prices we likely won't see a lot of
the new mine build that is being forecasted.
We forecast uranium prices between $65 and $75/lb. over the
next couple of years, particularly as the HEU Agreement (Highly
Enriched Uranium), or the down-blending of Russian nukes goes
offline in 2013. Spot prices should strengthen later this year
from $53.75/lb. right now. Uranium's term price is still at
$68/lb. according to Ux Consulting, which publishes world nuclear
fuel prices. It's only off about 7% since March 11th, which is
telling us that the utilities are still buying. That's really the
price that we should be watching rather than the spot
We often use
Uranium Participation Corp.'s (TSX:U)
price:NAV (net asset value) ratio as a proxy for uranium
market sentiment. After almost four months of trading at over a
10% discount to its NAV, we now see only about a 5% discount to
that NAV. We've got a buy and a CAD$9.40 target price on Uranium
Uranium stocks sometimes lead the uranium price. We saw that
during the last cycle and we're starting to see some of that
again with stocks that sold off too far and are now bouncing
back. The developers and the smaller stocks should rebound a bit
more quickly than some of the larger caps or producers. It may
take some time to get the general investors back into the sector
in any meaningful way, although lately, and much to our surprise,
we have noticed that many who got into the space in November 2010
after the AREVA-China contracting news are still kicking the
tires on the sector. In the meantime, some resource funds may
come in and target smaller companies with potential for
substantial capital gains but they'll likely target the better
In January, you talked about three uranium companies that
were at the top of your list:
Rockgate Capital Corp. (TSX:RGT)
Hathor Exploration Ltd. (TSX.V:HAT)
UEX Corp. (TSX:UEX)
. What's the story now?
Not much has changed. All three companies have very good
projects. All three remain at the top of the list. Rockgate is my
top pick right now with a buy and CAD$4 target price on the
stock. The stock is up about 66% since June 20th when the sector
turned upward. It was fairly hard hit by Fukushima. Rockgate is
working on its 100%-owned Falea project in Mali. That's a
uranium-silver-copper deposit. It shows amongst the highest
grades, up to 6.5% U3O8, that we've seen outside of the Athabasca
Basin. It has a resource of about 28 Mlb. of uranium and 41 Moz.
silver, which is likely to grow through aggressive drilling.
We're expecting a comprehensive preliminary assessment report
this month. This should give us further comfort regarding
metallurgy of this high-grade uranium-silver-copper resource with
potential for low-cost, long-life uranium and silver production.
We just think the stock is undervalued and see a triple from
Hathor is a buy here with a CAD$5.60 target price. This stock
is unique on the sector. It's up significantly, almost 92% up
since March, is even up 3% since before Fukushima and back to the
levels that we saw last November. We still think there is more
room to go. It has joined the TSX. It has a new very strong
management team that has over-delivered. And it is currently
buying out its partner at Roughrider to own 100% of the property.
Resources for a second zone were just announced and a third zone
discovered. The second resource estimate announced in May brought
the entire project to about 58 Mlb. If you look at just the
high-grade portions of the deposit, you can really see about 54
Mlb. grading 12%, making this the fourth-highest grade uranium
deposit on the planet. That should turn some heads and, we think,
essentially make Hathor a potential takeout target. That is one
of the main reasons the stock has been performing so
For UEX Corporation, we've got a buy and CAD$3 target price on
this stock. The stock is up 16% over the last two months. It was
also very hard hit by Fukushima. UEX actually started to rally
earlier than most of its peers. It started going up about six
weeks ago. This is a tale of two stories. It's about the Shea
Creek joint venture with AREVA (PAR:CEI) and the third-largest
uranium deposit in the Athabasca at 88 Mlb. Mineralization is
open in almost every direction and we see high potential to
expand. In the east, the company wholly owns the Hidden Bay
Project. This is the sixth-largest undeveloped resource in the
Athabasca Basin with about 40 Mlb. The preliminary assessment
came out positively. It has a modest cash operating cost and
capex (capital expenditure). This company has potential to toll
mill its uranium at a couple of existing uranium mill facilities,
including Cameco Corp.'s (TSX: CCO; NYSE: CCJ) Rabbit Lake Mill,
which is located about 4 km. away from the project. Cameco
already owns about 22.6% of the company.
What do you think the prospects are for a lot of these
smaller companies that are out there looking for uranium? How
feasible are these prospects?
I think that investors are now entering the small cap
companies with good projects, but some of those microcap stocks
haven't started to move yet. Therein is the opportunity. For
CanAlaska Uranium Ltd. (TSX.V:CVV; OTCBB:CVVUF;
. CanAlaska is in our Mineral Exploration Watch List, we have a
buy rating with no target price. We have been following it for
quite some time and it seems to be a bargain right now with a
market cap of about $14M. It is a grassroots explorer with one of
the largest exploration portfolios in the Athabasca Basin. I
personally like high grades and that is why I like the Athabasca.
CVV has formed joint venture agreements with Japanese and Korean
strategic partners, raising about $42M through such partnerships
to date. It has between 25,000m and 30,000m of drilling planned
through 2011. The key focus is going to be the Fond du Lac
Project located on the northern edge of the Athabasca where the
company recently found 0.5% over 2m. We see potential to
follow-up on that hit.
Another area that you've been quite hot on is lithium.
That's become a popular metal here in the last several years as
the electric automobile business has taken off and lithium
batteries are being used in all sorts of applications. Can you
give us a review of that general market and what's going to
Certainly. I believe the lithium industry is fairly
concentrated. About 80% of world production is in the hands of
the four largest lithium companies,
Sociedad Química y Minera de Chile S.A. (NYSE:SQM;
Chemetall, a division of Rockwood Holdings Inc. (
Talison Lithium Ltd. (
FMC Lithium Corp. (
. World production is now roughly 120,000 tons per annum (tpa) of
lithium carbonate equivalent. Actual capacity is closer to
180,000 tpa. New projects scheduled to come online in the next
few years could perhaps add another 100,000 tpa. As expected in
any fledgling industry, technical and permitting challenges could
result in postponements. So, we might see some of those newer
projects encounter a little bit of difficulty getting off the
ground. Lithium carbonate demand appears to be growing somewhere
between 7% and 15% annually. By 2020, lithium carbonate demand
might reach as high as 240,000-270,000 tpa. If electric vehicle
penetration picks up as expected, primarily in Asia or China, we
could see a true renaissance that might help keep up with the
potential production coming online.
Is there potentially more supply than there is demand?
I really think that remains to be seen, but there is that
risk. China right now has about 100,000 electric vehicles and the
country is striving for about one million by 2012 with 5 to 10
million by 2020. It has programs that urge first-time buyers to
purchase electric vehicles of all kinds-cars, motorcycles, mopeds
or e-bikes. We definitely see electric vehicle use increasing in
China. So, it comes down to how well a retail product is adopted
by the masses. We do think it will be adopted, but to what
extent? We're not quite sure. Outside of Asia, a lot of hype is
going on in Europe and North America. No one knows how quickly
people in those countries will adopt new electric vehicles.
How does potential demand affect the price of lithium or is
that a contract market worked out by suppliers and buyers?
Yes. Lithium prices are based on really long-term contract
pricing between the buyers and the sellers and well disseminated
to the public. However, the general consensus is that prices
weakened around the financial collapse and really have just
started recovering in the last few months. Prices right now are
bouncing around $5,000/ton of lithium carbonate equivalent (LCE).
Recent announcements by two of the four large producers, FMC and
Chemetall, indicated their prices are going up by about 20%
starting in July to over $6,000/ton. We use about $5,500/ton LCE
for our forecast, which really is at the lower end of some of the
studies out there and possibly below where a couple of the large
producers are selling.
You wrote a report dated June 9th, on the lithium industry
where you described some companies you feel have pretty good
prospects. Can you talk about some of those for us?
Certainly. There are two fairly small companies in
particular that I like at this time. Our top pick in the lithium
Rodinia Lithium Inc. (TSX.V:RM; OTCQX:RDNAF)
, despite its $30M market cap. We've got a buy with a CAD$1
target price on this stock. RM continues to be one of the most
undervalued stocks on our lithium coverage list. Rodinia is
developing a brine project at its flagship Salar de Diablillos
site in the Province of Salta, Argentina, about 11 km. from the
world's second-largest producer, FMC's Salar del Hombre Muerto.
It just reported a couple of pit samples that were about three
times the average lithium grade of the deposit. Rodinia also has
its Clayton Valley Project in Nevada adjacent to Chemetall's
Silver Peak brine operation and the only U.S. producer of
lithium. Given the company's significant resource in Argentina,
good brine chemistry, lack of competition on the Salar and its
three aquifers, we think now is a good entry point for investors
looking to share in Rodinia's growth. Our target price suggests a
triple from here.
And the other one?
Nemaska Exploration Inc. (TSX.V:NMX;
is located in mining-friendly Québec. We've got a buy and
CAD$1.10 target price on it. Nemaska's hard-rock Whabouchi
Project is expected to start production in 2012. It has a
high-grade resource of 29 Mt. of ore grading over 1.5% lithium
oxide. So, this is one of the higher grade lithium oxide
pegmatites in the world. Not as high grade as Talison's in
Australia, but it definitely does the trick. Nemaska anticipates
production of a 6% lithium oxide concentrate that it could very
quickly export to China where it has a strategic alliance with
China's largest lithium battery materials provider Tianqi
Lithium, a company that already owns 10% of Nemaska. Its
projected initial gross margins are estimated in the 50% range
based on a preliminary estimate from earlier this year and a
modest $86M capex. This project has good infrastructure, support
from the provincial government, the local native community and we
think this is a good way to participate in short-term lithium
concentrate production potential.
Do you see any technological developments on the horizon
that could significantly impact the lithium market, either
negatively or positively?
I think most of the technical advancements are going to be
positive. The term "lithium-ion battery" actually comprises a
range of battery designs. Many of them are still experimental and
research is underway. But really, designers are looking to
improve lithium's already high-energy density, take advantage of
its ability to hold a charge and its lack of memory effect that
allows it to recharge over and over again. But failure to reduce
costs while maintaining and improving safety and durability could
hamper growth prospects for electric vehicles. That would be a
negative for the industry in general. Now, beyond vehicle
applications, we may start seeing some lithium batteries being
used for large-scale electrical storage. Single batteries storing
dozens of megawatts might power a small town or factory. That
application could potentially drive demand further.
Is there any competing technology on the horizon that could
knock lithium out of the market at some point?
Not when it comes to the smaller applications. Lithium is
pretty light. It's ideal for use in iPods and laptops. And
because it's light, I think it'll be used more in vehicles. When
it comes to long-term storage applications, vanadium could be
Do you have any final thoughts you would like to leave with
To summarize, we're bullish on the prospects for the
uranium sector. Because of the undeniable long-term demand, we
are on course for a uranium shortage by the year 2014. We expect
that uranium prices will begin to reflect that situation. Beyond
that, we do see a little bit of a rally here in the uranium
stocks. We think that they are definitely undervalued. And, we've
seen some pretty good news lately. The U.K. is expanding its
fleet of reactors, which is a very positive signal to the market,
and the Indian nuclear build is finally getting its own
In the lithium space, we're optimistic demand will continue to
increase in the manufacturing of greases, glass and ceramics. But
we really think it will explode in the lithium-ion battery
segment where small batteries, laptops and iPods will be joined
by growth in electric vehicle and large-storage batteries. We
will keep an eye on supply over the next few years.
So, as far as you're concerned, things generally look
pretty positive and this looks like a good time for people to be
buying. Is that right?
Well, thank you very much for taking time out of your busy
schedule. I'm sure that our readers will find this all very
interesting and hopefully, useful.
I appreciate the conversation.
Senior Mining Analyst
worked for nine years as a geologist in the gold
exploration industry in Northern Ontario. His field experience
included three years with Placer Dome and six years managing
projects for Franco-Nevada Corp. and its successor, Newmont
Capital. David joined Dundee's research department in May 2003;
in the summer of 2007 he took over the role of analyzing the
fast-growing uranium sector, and has since launched the lithium
sector. David is a member of the Prospectors and Developers
Association of Canada, the Society of Economic Geologists and
graduated with distinction from the University of Western
Ontario with an Honours B.Sc. degree in geology.
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1) Zig Lambo of
The Energy Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Energy Report:
CanAlaska Uranium Ltd., Talison Lithium Ltd., Rodinia Lithium
3) David Talbot: I personally and/or my family own shares of the
following companies mentioned in this interview: CanAlaska
Uranium Ltd. I personally and/or my family am paid by the
following companies mentioned in this interview: None.
David Talbot has visited certain material operations of the
following issuer(s): Hathor Exploration Ltd., Nemaska Exploration
Inc., Rockgate Capital Corp., Rodinia Lithium Inc., and UEX
David Talbot and/or Dundee Securities Ltd. has been partially
reimbursed for expenses by the following issuer(s) for travel to
material operations of the issuer(s): Hathor Exploration Ltd.,
Nemaska Exploration Inc., Rockgate Capital Corp., Rodinia Lithium
Inc., and UEX Corp.
Dundee Securities Ltd. has provided investment banking
services to Rockgate Capital Corp., Hathor Exploration Ltd., UEX
Corp., Rodinia Lithium Inc., and Nemaska Exploration Inc. in the
past 12 months.
Dundee Securities Ltd. and/or its affiliates, in the
aggregate, own and/or exercise control and direction over greater
than 10% of a class of equity securities issued by Rockgate
Garth MacRae, a director of Dundee Capital Markets Inc.,
Dundee Corp., DundeeWealth and Dundee Precious Metals Inc., is a
director of Uranium Participation Corp.
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