Geordie Mark: Glowing Reviews for Uranium Plays
Source: Brian Sylvester of
The Energy Report
You don't hear a lot of talk about uranium these days. It's just
not as sexy as gold or silver. But with a host of reactors slated
for construction, the sector is rife with opportunities. Haywood
Securities Analyst Geordie Mark visits numerous uranium projects
each year, researching plays at all levels. In this exclusive
The Energy Report,
Geordie tells us why he's given "sector outperform" ratings to
no less than 11 companies. It could be the most comprehensive
global roundup of uranium plays anywhere.
The Energy Report:
The spot price for uranium was $40.75 a pound on June 21, when the
long-term price for uranium was $58-a spread of $17.25, or 42%.
What's poised to support a 42% price increase?
The spot price actually moved up to $41.75 that night, the first
move to the upside in quite a number of months. It's a positive
response to demand coming onstream. The long-term contract market
is very different from the spot market; and, historically, it's
significantly bigger in terms of the volumes that are traded. We're
seeing the spot price moving to meet those contract prices going
forward. We also think there's a backdrop of significant demand
increase due to a delay in the development-stage projects resulting
from financial crisis issues and general market conditions.
How far out do you see the spot price and the futures price
We're looking at a marriage maybe even by the end of 2011, with a
spot price of $65 and a long-term move out to $70. We certainly
expect to narrow the current gap by that point.
And you said part of that is due to the number of projects coming
That's right. A few development-stage companies will go into
production but, certainly compared to 2007, there have been delays
due to equity raising. The number of new projects going forward has
been stymied when those projects needed significant capex for
At the same time we have a number of new reactors being built.
That's true. Over the last two years, we've seen some significant
growth in the number of reactors going into construction. I think
something like a 58% increase in the number of reactors are on the
planning board; that's a very good size in terms of a steady
increase in future demand.
Given the number of reactors being built or scheduled, why haven't
uranium stocks performed better of late?
There's a relationship between share prices and general market
conditions. Over the last two years, both spot and long-term prices
have come off somewhat in response to global financial conditions.
I believe spot has come down from about $59 and long-term prices
from $80. Company valuations are quite closely linked to commodity
prices, so you're basically seeing the relationship to a softening
in the commodity price over that two-year period.
So with demand slated to rise significantly, we should see a
corresponding rise in share prices of uranium miners and
That's our target forecast for our covered companies and where we
see the commodity price going in response to increasing demand. I
think the interesting thing is that increasing demand not only
corresponds to the number of new reactors coming onstream but also
policies echoing out of Europe regarding extending the life of
existing reactor fleets. You're seeing a number of different
avenues in which nearer-term demand could increase, which only adds
to the longer-term demand of new reactors. There are incremental
policy changes toward nuclear power, too, certainly across Europe
and coming across through North America. Obviously it's happening
in Asia, with China and South Korea furnishing fairly large
reactor-unit increases for their countries.
Some of the most promising uranium projects are in Australia.
Although the country is considering a new tax on miners, the
Mineral Resources Rent Tax (
), a recent change in leadership in the governing party could be a
favorable development. Could you update us on the political climate
in Australia as it pertains to the uranium players there?
Well, Australia is interesting. It has the world's largest
accumulated known uranium resources and the largest uranium
deposit-Olympic Dam. At the moment, Australia's federal government
allows uranium mining, and other regulations basically filter down
state by state. Western Australia is now open to uranium mining.
South Australia has an active uranium mining history, as does the
Northern Territory. The more recent super-tax proposal, which the
Labour Party put forward, created an uncertainty in terms of the
value of both current and future mining projects. Julia Gillard,
the new Prime Minister, has made motions toward the industry in
terms of coming forward and talking about possible modifications to
the mining taxation rules. For the time being, it's hard telling
how ultimately this will break down.
Your research talks about some sector outperformers among the
conventional explorers. You've mentioned
Energy Fuels Inc. (
Mega Uranium Ltd. (
Strateco Resources Inc. (TSX.V:RSC)
. Please update us on those companies.
They provide investors with exposure to uranium in different
jurisdictions. For example, Mega has the Lake Maitland project in
Western Australia, which is opening up for uranium mining and where
a significant proportion of Mega's assets are located. The company
has good partners in a Japanese consortium, which owns about 35% of
the asset at Lake Maitland. Mega provides people with exposure to a
near-term uranium producer that has a significant support base in
terms of these partners. I think that's one of the more favorable
new projects in Australia. We anticipate production maybe in 2013.
It would be a lower-cost producer, probably in the high $20s in
terms of USD per pound of production.
How much would Mega produce annually at Lake Maitland?
We're looking at about 1.65 million pounds; it's small-scale
production. It's basically a thin layer at surface that doesn't
require conventional mining. It's unconsolidated mud effectively,
so 1.65 million pounds a year for the life of the project.
Does Mega have any other projects in Australia?
Lake Maitland is their primary project. Their second main asset in
Australia is Ben Lomond, up in far northern Queensland, just
outside the city of Townsville. It's a modest-grade deposit; it's
got potential. They've got a bunch of other exploration plays
around the world, particularly in Canada.
What's your target price on Mega?
Before we go further, could you give us an overview of cash
costs-low, medium and high-in terms of uranium production?
Sure. Certainly low cash costs now would be below around $25 a
pound. Medium would be upper $20s and $30s. High costs are $40s and
Okay. What can you tell us about Strateco?
Matoush is a very nice deposit in Québec; very handsome grades,
close to 0.6% U3O8. It has a resource of about 20 million pounds of
uranium U3O8-small, but higher grade. Our interpretation is that
Matoush is the most advanced project for a development-stage
company in Canada. Strateco has a big program going at the moment
-another 60,000 meters of drilling this year to look for extensions
of mineralization, and another 60,000 meters planned for 2011. The
orebody is still open. Guy Hébert, the president and CEO, is also
working out permitting. We're looking at permits for the project to
start underground development for bulk sampling.
How long would it take for them to get the assay results from that
We're looking at a couple of years, probably 2012. They have to
develop the underground workings first. The main thing in the
interim is the underground development itself, and also the
exploration drilling they're doing. It takes time. That's why we
think Strateco is ahead of its peers in terms of submitting
proposals to the Canadian Nuclear Safety Commission (
) for licensing and permitting approval. Canada is highly
regulated, which is a good thing. It's mandated, and these things
Alright, what about the others?
Energy Fuels, that's a uranium-, vanadium-oriented company in Utah
and western Colorado. We like them because of the duality of the
commodities. In addition to uranium, they have the vanadium, which
is an integral component in steel manufacturing. That gives them a
bit of a boost. Energy Fuels would be a moderate to higher-cost
producer and shares many similarities with
Denison Mines Corp. (TSX:DML; NYSE.A:DNN)
and its mining and processing operations in the United States.
What are some of their assets?
They have the Piñon Ridge Mill project, permits for which are under
review. That process should be complete by early next year. They
have a couple of mines that are fully permitted and will be
underground mining on the Colorado Plateau. Energy Fuels has the
potential to go into production at their Whirlwind Mine, but they
don't have a mill there yet.
A recent edition of Haywood Securities'
gives sector outperform ratings to
Paladin Energy Ltd. (ASX:PDN; TSX:PDN)
and Denison. What upsides do you see there?
I favor Paladin simply because they have two conventional open-pit
mines in Africa where they're ramping up production. There's one in
Namibia, which is the world's fourth largest uranium-producing
country. The new mine that they commissioned last year in Malawi is
Kayelekera. Paladin's a conventional player with production costs
of around $30 a pound; it's a Tier-2 producer at the moment and is
looking to expand from there. The company also has development
plans in Australia and elsewhere in Africa. They've done quite
well-they've proven themselves to be the new player in terms of
conventional mining and milling in the uranium sector.
Are they approaching
Cameco Corp. (NYSE:CCJ; TSX:CCO)
No, not yet. Cameco is fairly substantial, quite diverse; but
Paladin is a Tier 2. There are not many Tier 2 producers out there;
Uranium One Inc. (
, Paladin and Denison in that fold.
Tell us about Denison.
Denison is basically a North American uranium producer and also
produces vanadium from its Utah operations. It's a higher-cost
producer, and certainly the leveraged play in the space. Denison
has basically reconstituted itself over the last year and a half in
terms of raising equity to minimize long-term debt. They've also
brought in KEPCO as a partner-
Korea Electric Power Company (
. Basically, Denison is slowly ramping up its production in the
U.S. They've cut down a few of the higher-cost producing mines to
be more prudent in their mining and producing operations. For
example, they have a partnership with
at the McClean Lake facility in Canada, which is probably going on
care and maintenance in July.
Why is that?
AREVA operates that, so it's largely their decision. . .probably
looking toward future prices to see when it comes back onstream.
Denison also produces vanadium, and they have a very exciting
discovery in the Athabasca Basin-the Phoenix Zone in the Wheeler
River joint venture. Phoenix has had some outstanding drill results
over the last year. They're aiming to get a resource estimate out
on that by the end of 2010. Quite an exceptional discovery, I
In that same issue of
you talk about some
miners. Among your sector outperformers are
Uranium Energy Corp. (NYSE.A:UEC)
Ur-Energy (NYSE:URG; TSX:URE)
Uranerz Energy Corporation (TSX:URZ; NYSE.A:URZ)
. Tell us about those.
Uranium Energy, Ur-Energy and Uranerz are all in the U.S., all
looking at in-situ uranium recovery-so no physical mining, all
sandstone-hosted. We see near-term production out of all three of
the companies. That's this year for Uranium Energy, probably next
year for Ur-Energy and late 2011, early 2012 for Uranerz.
This year for Uranium Energy?
Yes. We're looking at Uranium Energy entering production in October
from their Hobson plant and mining from their well fields at
Palangana-both in Texas; so, with this timeline, it will
effectively be the world's next uranium producing company. It's
quite an exciting development for the space and the company. They
have another project, Goliad, which could potentially add to their
production and should get its final permitting by the end of this
year. We like Uranium Energy's lower-cost production base. They're
not large but their cash costs are probably around $22, so quite
good there. Production scale potentially 1M-2M pounds annually.
Has the share price moved in anticipation of production?
No, not as yet.
Given that its pending production profile hasn't been taken into
account, might it be a good buying opportunity?
We certainly like them. Our target there is $3.90. They're trading
at around $2.40, so we think that offers a good opportunity. They
have a number of catalysts going forward and a big exploration plan
around their existing resources. They will update their resource
estimate in September; production in October. We're looking at
getting a second well field project 'Goliad' permitted by the end
of the year. A third project called, Seager-Salvo, could have an
initial resource estimate by year-end, as well.
What about Ur-Energy?
Ur-Energy and Uranerz are good peer companies. They're both in
Wyoming, and both submitted applications to go into mining around
the end of 2007, beginning of 2008. We're looking at production
next year for Ur-Energy and early 2012 for Uranerz. Let's go
through Ur-Energy. They've got a very good cash position and have
the Lost Creek and Lost Soldier deposits. They've been operating
from Lost Creek first-they're looking at development there. We're
looking at the Nuclear Regulatory Commission (
) ultimately providing final permits and licenses to go into
production in the second half of this year. It's the same for
Uranerz. We're looking at probably starting to build at the end of
this year, beginning of next year. Lower-cost producer, small
Let's go back to what's happening in Africa. Haywood's research
would seem to agree that Africa has a number of promising uranium
explorers and developers. Could you talk about some of the juniors
Haywood thinks are poised for significant share appreciation?
Africa is blossoming as a region for uranium discovery.
Mantra Resources Ltd. (TSX:MRL; ASX:MRU)
Extract Resources Ltd. (TSX:EXT; ASX:EXT)
have made some genuine new discoveries there over the last year or
two. I think the best thing about Africa is the probability of
making discoveries that are more easily exploitable in terms of
being at or near surface, so they're amenable to open-pit mining.
Mantra has an exceptional deposit, the Mkuju River Project in
Tanzania. I think the company published its first resource estimate
at the beginning of last year. . .more than doubled it within a
year and still has the potential to increase that resource. They're
looking at production in the second half of 2012. That's a very
quick timeline to production. They're still looking at increasing
the capacity from their plant and milling operation. We're looking
at a modest cash cost of about $25 a pound. Mantra has a lot of
positives going forward.
Extract made an outstanding discovery at Rossing South in
Namibia. This is 6 km. south of the existing Rossing Mine that
Rio Tinto Ltd. (LSE:RIO; NYSE:TP; ASX:RIO)
operates. They have close to 300 million pounds of defined
resources, which they identified in rapid time. Their resources are
significantly higher grade than the existing Rossing operation and
they're looking at expanding on that. It's a world-class discovery,
a fact that their share price has reflected over the last 18
That's great. Any others?
Bannerman Resources Ltd. (TSX:BAN; ASX:BMN)
has done a lot of work in terms of defining the Etango deposit,
which has about 160+ million pounds of uranium. It's tens of
kilometers away from Extract's Rossing South. They're all very
close together, and all alaskite-hosted. That means the mining and
processing techniques are well known and understood given the long
history of mining at the Rossing Mine.
The Etango deposit is defined over 6 km. of strike length. It
crops out-it's at surface and shallow. Bannerman doesn't have the
grade that Extract has, so they're a more leveraged play in the
space; but we still like Bannerman in terms of a large strategic
resource. We're looking at cost of production in the high $30s or
maybe $40 a pound.
The big thing there is that they should get their ultimate
mining license over the next few months, so they'll be one of only
three operations to have licenses to go into production. The big
players are looking for resources with potential for large-scale
production in areas that allow uranium mining. And that's where
Bannerman, Extract and Mantra all come out quite well.
Thank you, Geordie, for updating us on all of these exciting
Dr. Geordie Mark, a research analyst with Haywood Securities,
focuses principally on uranium companies involved in exploration,
development and production. He joined Haywood Securities 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. Immediately prior
to joining the exploration industry full-time, Dr. 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 the
following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors
The Energy Report:
3) Geordie Mark: I personally and/or my family own shares of the
following companies mentioned in this interview: Paladin Energy. I
personally and/or my family 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 Mantra Resources.
5) Haywood Securities Inc. or an Affiliate has managed or
co-managed or participated as selling group in a public offering of
Extract Resources, Mantra Resources, Mega Uranium and Uranerz
Energy in the past 12 months.
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