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2018 was a down year for many
commodities, with oil, coffee and sugar among the worst hit. One metal
however emerged unscathed: uranium. The spot uranium price in December was
actually up over 20% since the start of the year, and it has continued to
hold within spitting distance of $30 a pound - trading at US$28.70 a pound as
of Dec. 28.
- Skyrocketing demand. The global
capacity for nuclear power is expected to grow by 27% between 2015 and
2030. Nuclear consultant UxC estimates annual uranium demand
will spike by nearly 60%, from the current 190 million pounds of U3O8 to
300 million pounds by 2030.
- Mines have shut down. At current
prices, about three-quarters of uranium mines are uneconomic. This is
why several large uranium mines have shut down recently. Big mines like
Ranger in Australia, and Rossing in Africa are running out of
ore. As the grades become too low to be economic, these multi-million
(annual) pound producers will scale back production, or even close down,
further inflating prices.
- Supply shortfall. Uranium supply
has been steadily dropping since 2016. That year total mined supply was
around 163 million pounds, in 2017 it was 154 million, and in 2018 it
was under 135 million. With current U3O8 demand at 192 million pounds,
that leaves a shortfall of at least 57 million pounds.
- Uncovered demand. Uncovered
uranium demand (utilities’ requirements for U3O8 that is not covered by
contracts) is projected to increase by up to 54 million pounds by 2020,
or just under a third of total demand that year. Then it keeps rising:
150 million pounds in 2025, 179 million pounds by 2030. That 179 million
pounds of uncovered demand is actually 16 million pounds more U3O8 than
total mined production predicted for that year.
- More buying on spot. On top of
constrained mine production, coupled with higher demand for nuclear
energy as new reactors get built, there is expected to be more buying on
the spot market which is about to put upward pressure on the spot price.
Cameco has closed down mines, but it still committed to supplying
uranium to its long-term contracts with utilities. With prices so low,
it’s actually cheaper for the Canadian producer to buy uranium on the
spot market than to mine it. Cameco will have to buy 8 to 10 million
pounds of spot uranium over the next few months. This represents around
a quarter of the spot market. On top of this, several new uranium
funds and holding companies have emerged in the last year. Seeing an
imbalance in the market, their rationale is to buy uranium on the spot
market, store it, and sell it later to utilities when the price goes up.
The outlook for nuclear, and uranium, is expected to get even better.
Louis James of Casey Research, who changed his name to
Lobo Tiggre and now runs Independent Speculator, sees uranium
as a better speculation this year than gold.
For Tiggre’s explanation, which reinforces our arguments, see
his commentary in Kitco. In a recent
video interview, he said, “What I love most about uranium is that it
doesn't matter what the global economy does,” which is not something that can
be said about most commodities.
As for nuclear energy, we only need to look at the facts. China has the
most reactors in the pipeline including 43 operating, 15 under construction
and 179 planned or proposed. Globally there are 453 operating nuclear
reactors and 55 new reactors under construction. Japan, which shut down all
its reactors following the 2011 earthquake/ tsunami, now has nine reactors
back online, up from just three in 2017.
Think what you like about Microsoft founder Bill Gates, but the
billionaire philanthropist is certainly influential. In a year-end letter
detailing what he learned in 2018, Gates writes one of his goals in 2019 is
to persuade US leaders to “get into the game” of advanced nuclear energy.
“Nuclear is ideal for dealing with climate change, because it is the only
carbon-free, scalable energy source that’s available 24 hours a day. The
problems with today’s reactors, such as the risk of accidents, can be solved
through innovation,” Gates says
in his blog - clearly referring to his TerraPower venture.
The Bellevue, Washington-based company was hoping to build a pilot project
in China to test its traveling-wave nuclear technology (which use depleted
uranium as fuel and minimize waste), but the plan was derailed
by new regulations from the Department of Energy that restrict
nuclear partnerships between America and China.
The Trump Administration has stated its intention to keep
ailing coal and nuclear plants online for national security reasons. In
October the President signed the Nuclear
Energy Innovation Capabilities Act (NEICA) into law. The act aims to
eliminate financial and technological barriers standing in the way of nuclear
innovation.
The administration also just announced an investment of $115 million over
the next three years to reopen a uranium enrichment plant in southern
Ohio. According
to The Columbus Dispatch, the plant would house 16 centrifuges at the
former American Centrifuge Project in Piketon.
The best place to look for returns is the juniors, where the uranium bear
market of the last seven years has decimated share prices, meaning very
attractive entry points. And the preferred location is Saskatchewan’s
Athabasca Basin, home to the world’s highest-grade uranium jurisdiction, where
the largest uranium mine (McArthur River) is, along with Cameco’s Cigar Lake
Mine, and some very notable recent high-grade discoveries including Fission
Uranium’s Patterson Lake South/Triple R, Rio Tinto’s Roughrider deposit and
NexGen Energy’s high grade Arrow deposit. A lot of exploration is happening
around the Basin, and one of the best companies to have amassed a large,
prospective land position is Skyharbour Resources (TSXV:SYH).
The Vancouver-based company has just completed its fall drill program focusing
on the Maverick Zone of its Moore property, located about 15 km east of
Denison Mines’ Wheeler River project. The primary objective of the 3,800m
program was to investigate the potential for uranium mineralization at depth,
in the basement rocks.
Drilling at the western end of the Maverick Zone, SYH pulled up a 15.2m
intercept containing 0.56% triuranium octoxide (U3O8) - including
3.11% U3O8 over 1.8m. More importantly though, the intercept - one of the
broadest to date - occurred between 264.5m and 279.7m downhole, and most of
the zone was below the unconformity in the basement rocks.
According to Skyharbour CEO Jordan Trimble, the high-grade
intercept is proof that the
basement rocks have a lot of potential to host more high-grade uranium
mineralization, which was a key objective of the fall drill program.
“Conceptually it gives us a lot more confidence there’s probably a lot
more to be found at depth.”
A recent $600,000 private placement means Skyharbour is fully
cashed up for its next phase of exploration at Moore.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he
believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no
responsibility or liability as to its accuracy or completeness. Expressions
of opinion are those of Richard Mills only and are subject to change without
notice. Richard Mills assumes no warranty, liability or guarantee for the
current relevance, correctness or completeness of any information provided
within this Report and will not be held liable for the consequence of
reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect
loss or damage or, in particular, for lost profit, which you may incur as a
result of the use and existence of the information provided within this
Report.
Richard owns shares of Skyharbour Resources (TSXV:SYH). SYH
is an advertiser on his site aheadoftheherd.com
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