Philip Williams: Uranium to Cross $100 Threshold in
Source: Brian Sylvester of
The Energy Report
Philip Williams, Pinetree Capital's VP of business
development, says the spot price for uranium will likely explode
above $100/lb. in 2011, much as it did in 2007 when it topped at
$137. The good news, Philip says, is that even when uranium comes
off its high, it will likely only fall to around $80. It's around
$73 now. If Philip's right, we're on the cusp of another round of
uranium market madness. And you will want to read this
exclusive for some of Pinetree's favorite uranium and lithium
The Energy Report:
In January, Macquarie Research said it expects the uranium spot
price to reach $75/lb. in the first half of 2011 with the main
driver being China's growing energy demands. Where does
Pinetree Capital Ltd. (TSX:PNP)
see uranium trading at in 2011 relative to Macquarie's
We continue to be very bullish on the price of uranium. It's had
a very good run of late and we see that continuing for many of
the same reasons that Macquarie does. I think for the early part
of the year $75 is a good number, but it could surpass that
substantially by year-end. By then, we think that the price will
be at the $100 level and maybe even higher. We've got China doing
quite a lot of stockpiling, especially on the spot market. We see
the producers as being overcommitted right now. We also think
that financial-speculator activity will come back to the market.
All those events will culminate in a much higher price.
The last time we saw a similar price spike in uranium was in
2007, when prices for yellowcake rose above $130 per pound. After
that, prices dropped off dramatically. If these financial
speculators are just looking for short-term money and getting out
again, could we see a similar price drop?
I think there are two things to think about. In 2006-2007, the
uranium price was driven up mostly by financial speculators and I
think they're coming back into the market. When the run-up in the
price was on, in some cases, a very small amount of uranium
actually changed hands. With China's recent uranium stockpiling,
we've seen quite a lot of material go through the market at these
prices. I think we'll probably get a spike similar to the last
one and it could be even higher, and then it will pull back. But
I think we're going to have a much higher base price this time
than we did last time. After 2007, the price came back to about
$40. I think it's going to be substantially higher; it could be a
price that falls back into the $80-$100 range.
You mentioned China is stockpiling uranium, and China National
Nuclear Corp. just received governmental approval to work on four
new reactors. The European Commission just published a 10-year
strategy plan that encourages development of nuclear energy as a
means of clean energy. Japan's
Kyushu Electric Power Co., Inc. (TKY:9508.T)
has submitted plans to build a third reactor at the country's
Sendai Plant, and India just brought a new reactor online. Where
is North America in this global nuclear buildout?
In a word North America is lagging. When it comes to nuclear, the
U.S. is the largest generator of nuclear power with 30% of
worldwide nuclear generation; but a reactor hasn't been built in
the U.S. in decades. While there are quite a few on the drawing
board, only a handful is expected to come online by 2018. The
real growth here is in the developing countries that you
mentioned, China, India, etc.
What's largely responsible for the U.S.' lagging nuclear
I think government policy is improving toward new nuclear energy
but cost is still a big issue. Some of the numbers Macquarie
recently published listed the cost of a new reactor built in
China at about $2 billion versus $7 billion in the U.S.-that's a
huge factor. And natural gas-powered plants compete against new
nuclear reactors. I think there's still a lot of public opinion
against new reactors being built. There are 104 reactors in the
U.S. right now, so adding four is a very small growth rate
compared to what's happening in China and India. The U.S. was
very successful on its first nuclear energy buildout but has
since lost a lot of that technical knowhow, especially when it
comes to building
reactors. Now, the U.S. is climbing back up that curve.
Late last summer and into the fall, we watched big uranium
Cameco Corp. (TSX:CCO; NYSE:CCJ)
BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF)
dip into the uranium market to meet their supply contracts
because it was cheaper to buy uranium on the open market than
bring on more production. What minimum price level is necessary
for new uranium producers to be profitable?
I expect the spot price will get to around $85 soon, and I think
everything that's in-or very close to-production will be
profitable at that level. Lots of groups out there have done
cost-curve analysis for future production that suggests we need a
much higher number. It's hard to give just one specific number
but I think it's at least $80/lb. It could even be higher
depending on cost inflation. The next generation of uranium
projects are lower-grade, more technically challenging and
farther from infrastructure and major markets than most of the
current mines. So, these new projects require a significantly
higher uranium price to make them profitable. You need a higher
incentive just to get them into production.
But just a few months ago, we had $40 uranium. What's going to
sustain the uranium price at $80?
You need to distinguish between the spot price and the term
price. The spot price tends to be a lot more volatile. That price
was $40 but the term price was above that at the time. Now, the
term price is below the spot price. But it's that long-term price
that applies to new projects because a lot of these projects will
forward sell their production into that price.
Fundamental supply and demand issues are ultimately going to
sustain the price. Going back to that Macquarie report you
quoted, we're seeing a lot of strategic buyers like utilities
from Asia and other places buying projects outright. At some
point, it's going to be very difficult to get production at any
price because it will be all tied up. The end users will be
integrated in such a way that they're already contracted for any
material produced. When you get into that type of environment,
the price can be as high as it needs to be.
But JP Morgan was far less bullish on the short-term price for
uranium. It predicted uranium prices in the neighborhood of
$60-$65 in 2011. Why is one big bank so much more bullish than
I think the difference, which Macquarie discusses in its report,
is that they missed the China stockpiling. Again, you're talking
about what's happening today between buyers and sellers that need
material today-not what people are looking for in the future.
When China comes in and buys close to 3,000 tons of uranium oxide
in December alone, that really impacts the spot market. Because
the spot market represents just a fraction of the total uranium
required in any given year, it is subject to much more swings in
price than the term price.
How large is that fraction?
I think it's 20%-30%. Last year and the year before were
particularly active years on the spot market. That's what gives
us the confidence that this move on the spot market is real and
can be sustained because of the volumes that are trading on the
spot market. The spot price is much more transparent; the term
price is far less so. It's a referenced price that's provided by
the pricing groups, but it's not as transparent as the spot price
in terms of where it might actually be on any given day. It could
be higher; but until an actual contract transacts that meets
those specific criteria, it doesn't actually change.
What's the term price right now?
As of Sept. 30, 2010, Pinetree Capital had 55 different
investments in uranium. That accounted for 18% of your holdings.
I dare say that that's even greater now based on stock-price
appreciation since then. Either way, that's a sizeable bet on
uranium. Could you tell us about your investment thesis and why
you own so many positions in so many different plays?
That September number also includes coal. We have one very
significant coal position that represented a large portion of
that amount and that's
Cline Mining Corp. (
. Cline has done great since the end of September and we think
there's a lot of potential there. As you pointed out, there have
been some tremendous performances by the uranium stocks since
September. We've always been big fans of this space.
We saw the long-term picture early on, or our Chairman and CEO
Sheldon Inwentash did. This is a very simple macro argument-the
world needs more electricity, especially clean power, and nuclear
is in the best position to provide that. With that in mind, we
wanted to have a big exposure to the uranium space, especially
after the price pullback from $138 to $40. There were junior
explorers and developers whose stock prices went so low that
their value was basically being discounted to almost nothing. At
that point, we decided to take a very proactive position in the
space and rebuild the portfolio. We sold quite a few of our
uranium names at the peak in 2007. We made a strategic decision
to return early to the space and identified a number of juniors
that were well positioned. I think our thesis has proven correct
to this point.
What are some of your more promising uranium holdings?
We have a number of names. We focus mostly on the junior and the
development-stage companies. We like names that have great assets
but have been mispriced in the market and good management teams
that can see those assets forward. Some of companies we are most
bullish on would be names like
Mega Uranium Ltd. (
, a long-held holding. It's an Australia-focused uranium
developer, and Australia has the most uranium of any country in
the world. There are some mines in production now. A change in
politics and philosophy in the country called for even more
uranium mines. Mega's Lake Maitland Project could be the very
first, or possibly second, new mine to be developed. It's in the
feasibility study stage and soon the company will have some
detailed information about the economics of that project.
And it has a Japanese partner at Lake Maitland Project,
Yes, Mega has a very strong partner in the Japanese group JAURD
(the Japan Australia Uranium Resources Development Co. Ltd.). And
shortly it will be in a position to capitalize on the increasing
price and shortage of advanced-stage uranium projects and
companies. We're excited about that one.
One of our names that's had a tremendous amount of success in
the last few months and really has just started to get a
following is a company called
Rockgate Capital Corp. (TSX:RGT)
. It has a growing resource in Mali, West Africa. We've seen a
number of African names build and be taken over, including
Mantra Resources Ltd. (TSX:MRU)
, which was taken over by Russia's AtomRedMetzoloto (ARMZ)
Uranium Holding Co., a Russian uranium miner that is wholly owned
by Atomenergoprom OAO-a subsidiary of Rosatom and an extension of
Uranium One Inc. (
for a very attractive premium to the price that Rockgate's
trading at now. We're starting to see monies that were invested
in Mantra start to shift over to Rockgate as the company grows
its resource. Rockgate's recent financing puts the company in a
very strong position to expand its resource and move its project
ahead through economic studies.
One of the geographic regions we focus on that a lot of people
have not is in South America. One of our key positions there is a
U3O8 Corp. (TSX.V:UWE)
. U308 has projects in Guyana, Colombia and Argentina. This year,
U308 is slated to expand its NI 43-101 resources at all of those
projects by almost tenfold. We think there's a lot of upside as
other investors start to see South America the way we saw it two
years ago-as the next frontier for uranium development.
One company in the U.S. is
Energy Fuels, Inc. (
. We've been around that story for quite some time. What we saw
last year was a very strong management team moving toward a new
license to permit and build a mill in the U.S.-something that
hasn't been done for a long, long time. It paid off when the
company successfully got that approval earlier this year. We
think Energy Fuels is well ahead of the pack in terms of
conventional uranium mining in the U.S. In the U.S., there's a
scarcity of uranium supply. We see Energy Fuels as a consolidator
in the space. It's just in a tremendous position to capitalize on
what we think is a very strategic place to be in the U.S.
And there's some vanadium in the mix there on the
Yes, these Colorado Plateau projects, and even those in Utah
contain certain ratios of vanadium to uranium. So, you get a nice
kick from the vanadium byproduct, even though they're still
fundamentally uranium projects. Energy Fuels is well positioned
to deliver new production and the first new mill permitted in the
Another one that we're quite keen on right now is a company
Mawson Resources Ltd. (TSX:MAW; OTCPK:MWSNF;
. This is in an interesting story because it's much like Energy
Fuels, but it's actually uranium and gold. I would say almost
freakishly high-grade gold and uranium. The company acquired a
portfolio of projects in Finland from
last year. In prospecting at one of the projects, the company
found probably the highest-grade gold and uranium anyone has ever
seen on surface-over 20,000 grams per ton (g/t) gold in some
places and more than 40% uranium in some places. It's very early
stage exploration at that project, but the company's been able to
delineate a 6 km. strike length to the trend at over 200 meters
in width. These high-grade showings are pervasive across the
trend and it's never been drilled. It's a new discovery with very
limited work; but when you see those kinds of results on surface,
it's very, very encouraging.
Does that mean Mawson is putting some of its other projects next
door in Sweden aside for the moment?
To a certain extent, yes. There'll be some money spent on those
projects but the bulk of the funds will be directed toward the
Rompas Project, the high-grade uranium/gold project in Finland.
Why? It's the results. Mawson is waiting to get the final permits
for a drill program that could commence as early as February.
There's just a lot of blue sky in that story and a lot to be
learned about what could be there.
Let's move away from uranium, toward another clean energy
commodity that's getting a lot of play-lithium. Increasingly,
lithium is being used in batteries to power electric vehicles
(EVs). Those were nickel-metal hydride batteries just a few years
ago, but now they're mostly lithium-ion batteries. Lithium is
also finding its way into some other new technologies. Judging by
the number of investments that you have in lithium plays,
Pinetree is betting heavily in its investment potential. Why did
you get into lithium?
A couple of years ago, we saw the potential in this space in
terms of electric cars. Our analysis showed that even though some
other battery types would fit into the mix, lithium would
ultimately be the dominant player. There are a very small number
of players that dominate on the production side; in fact, there's
a lot of room for juniors to come in and acquire projects-brine,
hard rock or clay projects. You can acquire projects for
relatively low costs and add a significant amount of value
through exploration and development. We saw that as a great
opportunity to make some very strong returns.
Does Pinetree show a preference for brine versus hard rock
We have in the past but we don't like to make general statements
about one type of project versus another. We really look at the
individual investment opportunity. In some cases, the hard rock
assets might be so mispriced that you could make a much better
return even if you took a stance ideologically that the brines
were going to be the better projects overall. For example, we've
been quite positive on
Canada Lithium Corp. (TSX:CLQ; OTCQX:CLQMF)
even though we've spent most of our time focusing on the brines
and names like
Lithium Americas Corp. (TSX:LAC)
Orocobre Limited (TSX:ORL; ASX:ORE)
and others in South America. But really we try to find those
mispriced or misunderstood assets where management has the
wherewithal to move ahead, add value and realize the right price
in the market.
Yes, but some of those brine lithium deposits have potassium in
the mix. If your processing circuit is developed properly, you
could get potash as well as lithium.
Absolutely. There's tremendous opportunity in those kinds of
What are some that Pinetree is rather bullish on?
Lithium Americas is at the top of our list. We've been involved
in that story from the very early days, and it's just blossomed
into a tremendous story. It's one of the largest brine deposits
on the planet. The company's made tremendous strides on the
technical side, as well as understanding the economics. We're
going to see two major studies published this year with a
prefeasibility study first, and then a feasibility study by
year-end. The story has come together in a very short amount of
time, but we see tremendous upside.
And Lithium Americas' Salar de Cauchari lithium project is not
far from one owned by another company you mentioned,
In fact, Cauchari and Orocobre's Olaroz project are abutting each
Given the proximity to each other, did Pinetree make its
investment in Lithium Americas with an eye toward potential
In general, we always look for assets that we think will
ultimately be consolidated or could be the consolidators. We
certainly see that as something that should happen in that
particular region. We're not sure whether Lithium Americas will
be the consolidator or not, but the company has tremendous
partners and could easily go it alone. As I said, it's one of the
largest brine resources on the planet; so, it's not a requirement
but it's certainly an exit that's possible for LAC.
Are you vested in Orocobre, too?
We're not a disclosed holder of Orocobre.
Could you leave us with thoughts on how these clean technologies
are influencing the mining sector and some of the opportunities
they are creating?
One area that we didn't touch on is rare earth elements, which
are used in a lot of cleantech applications. We also have quite a
few investments in that area. We believe there will be strong
opportunities in the cleantech space over the next few years for
many reasons. China is dominating rare earths production, and
finding supply outside of China is an absolute must for companies
that want to be in those cleantech spaces. We're tremendously
bullish on rare earths, at least for the next year or two. Clean
energy is certainly one reason we're in the uranium space. When
you stack up nuclear versus coal-generated power, uranium is a
hands-down winner. We see more and more people getting behind
nuclear energy, and it's a great place to be vested.
Thank you for talking with us today, Philip.
Philip Williams joined Pinetree Capital in January 2009 and
was appointed to the position of resources analyst. Philip
brings almost 10 years of financial market experience to the
company. Prior to joining Pinetree, he spent five years working
for several institutional brokerage firms in the equity
research department. Most recently, he was a uranium analyst
focused on companies with advanced development projects in
Australia, the United States and Namibia.
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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:
Pinetree Capital, Mega Uranium, Energy Fuels, Mawson Resources
and Lithium Americas.
3.) Philip Williams: I personally and/or my family own shares and
stock options of the following companies mentioned in this
interview: Mega Uranium, Rockgate Capital, U308 Corp. and Mawson
Resources. I personally and/or my family am paid by the following
companies mentioned in this interview: Mega Uranium, U308 Corp.
and Rockgate Capital.
4.) Directors and officers of Pinetree Capital are also directors
and officers of the following companies mentioned in this
interview: Mega Uranium and U3O8 Corp., and receive compensation
from the companies, including stock options. They and/or members
of their families may also have long or short positions in the
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