Geordie Mark: Big Nuclear Future on Horizon
Source: Brian Sylvester of
Japan's nuclear catastrophe sent shock waves through the
uranium market, but in this exclusive interview with
The Energy Report
, Haywood Securities Analyst Geordie Mark explains why the
disaster in Japan isn't the end for uranium miners.
The Energy Report:
Geordie, take us through what it was like on March 11 once you
learned that Japan's nuclear reactors had suffered severe damage
in an earthquake and subsequent tsunami.
We were all taken aback by the scale of the natural disaster, of
which the significance of the event only really translated over
the weekend as more data started to become available. The shock
of the event hit the markets the next week with uranium stocks
taking a significant beating.
Was it more significant than the downturn in late 2008?
Definitely. The results over the entire week were far sharper and
more emotion driven than based on tangible knowledge of the
events, which are still slowly coming to light. We still don't
know everything that has happened at the reactors. We probably
won't for quite a while. Those tangible effects are still going
to come out. The market reacted emotionally and moved out of the
sector in a big way. In terms of magnitude and timeframe, we
believe that it was greater than what we saw in 2008.
Did you have to revise a number of your research reports on
uranium companies you cover immediately?
We were waiting to find out more information before we reached a
more-definitive conclusion about how the events would affect the
sector on a short- and long-term basis. We certainly needed more
information. Since then, we have revised some of our expectations
and our supply/demand scenarios.
Will the impact of Japan's nuclear problems continue to lower
uranium prices? Or will the upward price trend that started in
the second half of 2010 continue once the market suffers some
That's a good question. I think this sector will continue to go
forward still. There are a number of reactors under construction
today-62 or more. That represents appreciable growth, about
We've lost some demand, particularly from Japan and certainly
from the reactors in Germany that were shut down in response to
the accident in Japan. That loss in near-term demand is somewhat
offset of by the loss of production out of the
Rio Tinto's (NYSE:RIO; ASX:RIO)
Ranger Mine (69% Rio Tinto) in Australia and some shortfalls from
of the company's Rössing Mine in Namibia. That leads us to
believe that there's pricing protection based on supply/demand
So far this year, the long-term price for uranium is up about
11%. When you talked to
The Energy Report
in October 2010
, you said you expected some price pressure in uranium in 2012
and 2013. Has that outlook changed?
No, that's an area that is still very much in play. Those are
very large drivers. We expect to see a number of reactors remain
offline in Japan, but the pricing pressure is still there. The
supply/demand scenario is largely the same. We've lost some
demand on the short end of the curve, but we also lost some
production. We probably will lose a little expected future supply
from the advanced exploration-stage companies that we thought
might go into production after 2013. I think there may be project
development delays now due to greater regulatory oversight in
response to the events in Japan. However, it's still very much
the same equation that we saw 10 months ago.
Does that mean that you're going to increase the discount rate on
some of those juniors?
I think we'll leave them as they are. The discount rate in the
juniors still builds in a certain amount of risk depending on the
development and permitting stage of the individual projects.
Modification of expected production timelines and dilution
expectations in our valuation account for more protracted periods
of stakeholder interaction, project scrutiny and regulatory
The Ranger Mine is being shut down due to fear that severe
rainfall could push radioactive water over the edge of a tailings
dam and into a World Heritage site in Australia's Northern
Territory. Do you see this as a first step that could lead to a
push for nationwide ban on uranium mining in Australia?
Activist groups have already called for bans on uranium mining.
It is too early to say what the response will be.
Do you have an update on what is happening at the Ranger Mine
It extended its shutdown period to the end of July.
Do you have any Buy ratings on juniors with projects in
Sure we do. We cover
Mega Uranium Ltd. (
, which has a project in Lake Maitland. It's in the advanced
permitting-application phase. It's attempting to win a mine
permit for production around 2013 or so. This would be a
small-scale mine at about 1.65 million pounds (Mlb.) per year.
Mega has an $0.80 price target.
What would the company's costs be per pound?
We expect that cash costs would be somewhere in the mid-$20/lb.
What sort of uranium price would Mega need to have a profitable
If long-term prices hold where they are-just north of $70/lb.-it
would make an attractive proposition.
Hathor Exploration Ltd. (TSX.V:HAT)
, which is a junior operating in Saskatchewan's Athabasca Basin,
has launched a bid to acquire
Terra Ventures Inc. (TSX.V:TAS)
. If the deal goes through, Hathor would realize full ownership
of the Roughrider deposit. Is Hathor's bid to acquire Terra a
sign that more consolidation is on the way?
It's a strategic move. Given market sentiment about the sector
and the lows we have seen, we could see more opportunities to
consolidate further for companies that have good assets or
strategic asset portfolios.
Ok. What are some companies you believe could be targets in a
In the U.S., in-situ recovery (
) companies, such as
Uranium Energy Corp (NYSE.A:UEC)
Uranerz Energy Corp. (TSX:URZ; NYSE.A:URZ)
Ur-Energy Inc. (NYSE.A:URG; TSX:URE)
are all either in production or in advanced stages of permitting.
They could be attractive takeout targets for broader-scale
consolidation within the ISR space.
Strateco Resources Inc. (TSX:RSC)
potentially could be a good acquisition for a high-grade uranium
resource over 20 Mlb.
Extract Resources Ltd. (TSX:EXT; ASX:EXT)
Bannerman Resources Ltd. (TSX:BAN; ASX:BMN)
also represent potential targets for consolidation of strategic
asset ownership-this point is particularly poignant for Extract
Resources given the recent dialogue between
Kalahari Minerals plc (LSE:KAH; NSX:KAH)
-Extract's largest shareholder and China's state-owned China
Guangdong Nuclear Power Holding Corporation (CGNPC).
Let's look at some of those companies a bit more closely. In a
recent research report on Uranium Energy, you said you expect
operating cash flow per share to jump from $0.03 in 2011 to $0.35
in 2012 and $0.70 in 2013. What's going to propel that
The company started production late last year and has a great
growth portfolio. It is the newest uranium producer and probably
will hold that mantel for another year or more. The growth really
relates to Texas operations. The Palangana ISR project is
growing. The Goliad satellite ISR facility is expected to come on
stream late this year or early next year. That really gives the
company a good growth portfolio.
It's in a pretty safe jurisdiction as well.
Yes, It's in Texas, which is an Agreement State that streamlines
licensing. The company already has a fully permitted plant. Its
first project, Palangana, is fully permitted and in production.
Goliad has a draft permit and is awaiting the final permit
perhaps as soon as July. Political risk seems to be lower
What are your estimated operating expenses?
We say that the company's future expected cash costs are about
$26/lb. We play it conservative and will review once we see
sustained output growth. Our target price is $6.30.
Let's talk about Uranerz, which is developing a project in
Uranerz could win Nuclear Regulatory Commission (
) licensing approval for the Nichols Ranch ISR Uranium Project by
early next quarter. The company is well cashed up; it has around
$49 million in the bank. If it can start development by midyear,
it could be in production within about 12 months. Cash costs are
expected to settle somewhere in the mid- to low-$30/lb. range. We
see Uranerz as the world's next uranium producer. Our target
price on Uranerz is $6.10.
Ur-Energy is developing the Lost Creek project in Wyoming. How
robust could it be?
Ur-Energy's projects in
Great Divide Basin
, Lost Creek and Lost Soldier are a little bit behind in the
permitting progress compared to Uranerz. The company potentially
could receive Wyoming Department of Environmental Quality permits
and NRC license as early as the second half of this year and, as
such, it could come into production in late 2012. Ur-Energy has a
very strong technical team and an advanced development-stage
asset. We have a price target of $2.
Are there any other operating mines in Wyoming right now?
Uranium One Inc. (
is expected to be commissioning Christensen Ranch this year and
Cameco Corp. (TSX:CCO; NYSE:CCJ)
already has a production presence in the state.
This is an established district, probably the most-established
uranium district in the U.S. right now, isn't it?
The state has more than 50 years of continuous uranium-production
history and, by virtue of this, is placed as an established
Strateco is developing the Matoush uranium project in Québec,
which is a somewhat high-grade project. Why might that be a
Strateco has a handsome resource of just more than 20 Mlb. U308.
The grade is just under 0.6% uranium and it's in Québec. It has
good neighbors in Cameco and
. The resource has demonstrable upside potential along a long
strike length and at depth. It has all the marks for growth
potential. It also is a long way through permitting for its
bulk-sampling underground development. We think the company could
be close to winning a permit to go forward. The Matoush project
is probably one of the most advanced development-stage projects
held outside Cameco,
Denison Mines Corp. (TSX:DML; NYSE.A:DNN)
and Areva in Canada. We have a price target of $1.45.
What's the earliest it could be in production?
Probably 2014 or 2015.
What is the regulatory regime like in Québec? That tends to be a
pretty favorable jurisdiction for mining gold and base metals.
Does the same hold true for uranium mining?
That remains to be tested fully. Québec has a very rich mining
history, and international mining surveys place the province high
in the rankings.
Are there any other companies that have a takeover target on
Extract Resources is an obvious entity out there with the China
Guangdong Nuclear Power Group (CGNPC) in dialogue with the
largest shareholder in Extract Resources, which is Kalahari
Minerals. It's the only asset in the uranium space that I deem to
be world class and in the hands of the
Bannerman Resources is right in that neighborhood, too, albeit
with a bit lower grade, isn't it?
That's very true. Bannerman's Etango project is very sensitive to
the uranium price, and the company's share price has certainly
reacted that way in relation to changes in the underlying spot
price. The heap-leaching potential looks very good; the tests are
very reasonable. Bannerman's Etango project is anticipated to
deliver uranium at higher cash costs of around $40. However,
given that this development-stage project has the potential for
significant production of between 5 Mlb. and 7 Mlb., I don't
think the company can be ignored.
What is your forecast for prices through the end of 2011 and into
There is room for pricing strength going forward. We forecast the
price to be $67.50 for uranium spot and about $75 for uranium
long term. We still see most of the action coming around 2013 to
2014. There is good fundamental support for the commodity
Should investors get into this play now and ride it out until
2013 or 2014?
Value plays do exist for those who have mid-term investment time
horizons, as well as short-term time horizons as company
valuations are driven around catalysts relating to production
growth, permitting progress, resource expansion and discovery. We
expect that a number of companies in the uranium sector will
enjoy the aforementioned catalysts over the next year or so.
We really appreciate you taking the time for this.
Dr. Geordie Mark
, a research analyst with
, focuses on uranium companies involved in exploration,
development and production. He joined Haywood from the junior
exploration sector, where he was vice president of exploration
for Cash Minerals, which concentrated on uranium and iron
oxide-copper-gold targets across Canada. Prior to joining the
exploration industry, Mark lectured in economic geology at
Monash University, Australia and served as an industry
consultant. He completed his Ph.D. in geology in 1998 at James
Cook University's Economic Geology Research Unit in Australia,
specializing in aqueous geochemistry and igneous petrology
applied to ore-forming systems.
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1) Brian Sylvester 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:
Mega Uranium, Uranium Energy Corp., Uranerz, Ur-Energy, Strateco
3) Geordie Mark: I personally own shares of the following
companies mentioned in this interview: None. I personally am paid
by the following companies mentioned in this interview: None.
4) As of the end of the month, immediately preceding this
publication, either Haywood Securities, Inc., its officers or
directors beneficially owned 1% or more of Uranerz and Strateco.
5) Haywood Securities Inc. or an affiliate has managed or
comanaged or participated as selling group in a public offering
of securities for Strateco and Denison Mines in the past 12
6) Haywood Securities, Inc. or an affiliate has received
compensation for investment banking services from Uranium Energy
Corp. in the past 12 months.
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