Furthermore, two of Trump’s close advisors, Senator Jeff Sessions and Donald Hoffman are strong supporters of nuclear energy development. Hoffman, who is now on the short list of potential candidates to become Secretary of Energy, is the President and CEO of Excel Services Corp, a nuclear engineering and consulting firm he founded in 1985. Having previously served on the Board of Directors and as President of the American Nuclear Society, he also remains a very active member of the Society which consists of 15,000 nuclear scientists, engineers and specialists. Clearly, there is a strong potential case for nuclear under a Trump presidency. That development should be positive for not only America’s nuclear industry but also for North American uranium mining companies.
There has been much gnashing of teeth regarding the sub $20 uranium spot price. Not to worry. Thanks to the US Department of Energy bartering uranium reserves for services, the price decline is likely to be viewed as an overreaction. Couple that action with the fact that virtually none of the positive planks over the last five years espoused to cause the rise of the uranium price have materialized yet and everyone looks to have thrown in the towel.
Let’s build the case and conclude why investors should have uranium exposure, particularly with companies that have executed impressive growth strategies and deals during this challenging time. Nuclear energy will undoubtedly become a bigger sector globally over the coming years. China is leading the charge here with plans to build 110 reactors by 2030, a massive USD $100 billion undertaking. India plans for nuclear to provide 25% of its power by 2040. South Korea’s 25 current reactors provide a third of the country’s electricity and they are planning to bump this up to 70% by 2030. Even the oil capital of the world, Saudi Arabia has plans to go nuclear with 16 reactors slated to come online by 2030.
Back to the situation in the USA, American producers through the Uranium Producers of America (UPA) are lobbying for a law that limits DOE stockpile sales contending that:
“The DOE is selling the taxpayers’ uranium and conversion inventories via barter transactions to fund decontamination and decommissioning operations for defunct enrichment facilities, which previously supplied defense and later utility enrichment services.”
It appears the UPA has a strong case and even the current US Secretary of Energy, Ernest Moniz, is aggressively lobbying for significant funds to advance nuclear technology. With the incoming Trump administration, the developments benefiting the uranium market and the nuclear industry could very well be expedited.
Yet the uranium spot price has been in decline from its peak of $136 / lb in 2007 and is now trading near its all-time low in real terms at $18.75 / lb. One of the main drivers for this price decline has been an oversupplied secondary market but this is transient in nature and a reversal of this trend could very well be now underway.
Price turnaround will happen for all the previous stated reasons and the fundamentals, that will drive this price action, are stronger than ever. Important to note that the bulk of uranium bought and sold by utilities and producers is done through long term contracts. A lot of these contracts supplying nuclear utilities with uranium to fuel the reactors are expiring over the coming years with over 75% of the current contracts set to expire by 2025. This means that utilities must come back to the market to contract supply going forward for their reactors and as we have seen in the past, this will drive the price higher.
Currently, the state of the uranium market looks eerily like 2004 when capitulation set the stage for a massive run up in the uranium price shortly thereafter. Spot was trading around $20 / lb then and by early 2007, the spot price hit $136 / lb. A key factor in this was utility contracting
Rick Kusmirski, P. Geo, M.Sc., Head Geologist for Skyharbour Resources Ltd. (TSX-V: SYH) (OTC Pink: SYHBF) (Frankfurt: SC1N) agrees. He was previously Exploration Manager of Cameco Corporation's (TSX: CCO) uranium exploration projects in the Athabasca Basin before running JNR Resources which was acquired by Denison Mines Corp. (TSX: DML) in 2012.
“In 2003-4, everyone pretty much gave up given the depressed spot price. Unlike other metals, supply security is critical for uranium. These contracts are established for years with fixed negotiated prices. Current contract expirations are at the $40-$50 / lb. level and new contracts will reflect closer to those values than the spot price’.
Another factor contributing to the prolonged uranium bear market that could turnaround is Japan, which has almost 50 nuclear reactors still idled with only 2 back online. This has been the “holy grail” for an immediate runaway uranium price for the last five years and has set just about every equity analyst on a fruitless quest for price recovery. Needless to say, this has not occurred yet but remains an important catalyst for the price going forward: Several of these idled reactors having recently been approved for restart.
Canon Bryan, CFO and Director of Terrestrial Energy as well as a highly respected uranium industry expert, is somewhat constructive on the sector, but feels it will take a major ‘shock’ to kickstart it. That could be several things, such as Japan tooling up or India and China speeding up reactor construction. He did say that China is a moving like a steaming train and could well accelerate its nuclear buildup plans.
Further, Canon said a negative shock such as some political issue in Kazakhstan, which supplies approx. 40% of the world’s uranium, could positively affect the price:
“The price of uranium today is surprising to many in the industry. What has been unexpected is Japan's refusal to turn its nuclear power plants back on. It has been over 5 years and only 2 of their reactors are providing power today. The effects on Japan's economy and its emissions are horrendous. Other problems for uranium markets have presented themselves as well, such as selling of uranium stockpiles by the US Department of Energy.”
However, upon understanding the sector, it makes sense to gain exposure. There seems little doubt that the stagnating primary mine supply in combination with the growing demand will result in shortages for years down the road.
Where is the current and future nuclear reactor base going to get its long term, secure supply of uranium from? Fortunately, there is a geological anomaly in the heart of geopolitically-favourable Canada called the Athabasca Basin which happens to host the highest-grade uranium deposits in the world.
Despite a declining commodity price environment recently, the Athabasca Basin has allowed a handful of exploration companies to flourish. Recent success stories like NexGen Energy, Fission Uranium, Alpha Minerals and Hathor Exploration have collectively created over $1.5 billion in value for investors and exemplify the unique opportunity Athabasca Basin uranium exploration companies can offer investors through the discovery process. One of the few companies left out there looking to emulate these successes and generate significant shareholder value through exploration and making new high grade uranium discoveries is Skyharbour Resources Ltd. (TSX-V: SYH).
The Company, and its CEO Jordan Trimble, have used recent weakness in the uranium market to build up a top tier asset base in the Basin at attractive valuations, assemble a strong, focused management and technical team, and to lay the ground work to benefit from the turnaround in the market.
“What we’ve been able to do over the last four years is to capitalize on this unprecedented bear market. We've now accumulated five projects, covering over 250,000 hectares of prospective land at pennies on the dollar. The valuation we’ve been able to get these projects at is less than $2.5 million in cash and stock. The five projects have had over $60 million invested in them in historical exploration. The strategy is now to go and value-add the projects through exploration and drilling.”
It’s worth noting that Skyharbour’s Head Geologist, Rick Kusmirski (or “Radioactive Rick” as he is nicknamed), employed a similar strategy in the early 2000’s with his company JNR Resources and benefited from the inevitable turnaround in the uranium market resulting in a share price increase from 5 cents to over $4 in 2007. To provide some context, two projects now in Skyharbour’s portfolio known as Moore Lake and Falcon Point constituted the flagship projects for JNR Resources in the mid-2000’s which boasted a +$300 million market cap. Skyharbour currently trades at a $12 million market cap and owns three other projects in the Basin as well. Furthermore, Skyharbour has advanced some of its properties through strategic partnerships with other companies.
CEO Jordan Trimble says the company will continue to employ this prospect generator strategy on its non-core assets which will allow for additional exploration financed by other companies, stock/cash payments made to Skyharbour, and more news flow going forward with Skyharbour retaining a carried interest and upside exposure in the projects.
Skyharbour's flagship project is the Moore Lake Uranium Project being optioned from Denison Mines which is also a large, strategic shareholder of the Company. A high-grade uranium pod called the “Maverick Zone” was discovered by JNR Resources led by Skyharbour’s head geologist Rick Kusmirski with drill results including 4.03% eU3O8 over 10 metres at approx. 260 metres depth. Skyharbour will be commencing its first drill program on the project in early 2017. The Company also owns a 100% interest in the Falcon Point Uranium Project on the east side of the Basin which hosts a shallow NI 43-101 inferred uranium and thorium resource as well as a high-grade surface showing at the north end of the property where recent grab samples returned up to 68% U3O8.
On the west side of the Basin, Skyharbour owns a 50% interest in the large Preston Uranium Project strategically located near Fission Uranium’s Patterson Lake South high-grade Triple R deposit as well as NexGen Energy’s high grade Arrow deposit. Approx. $5 million in exploration has been carried out to date on the property delineating over a dozen drill targets with partner companies having funded the bulk of this work.
Skyharbour’s project base is unique for a company of its size in that it has high grade uranium mineralization in drill core at its flagship Moore Lake project, an NI 43-101 compliant uranium and thorium deposit at its Falcon Point project, and one of the largest land packages proximal to the high-grade deposits being defined by NexGen and Fission on the west side of the Basin.
But it’s not just the property portfolio that is impressive; the team is a real highlight for the company. President and CEO Jordan Trimble, CFA, and Chairman Jim Pettit run the company out of Vancouver having previously sold their gold company Bayfield Ventures to New Gold on the back of a high-grade gold discovery in Ontario. Head Geologist Rick Kusmirski and his technical team in Saskatoon have many decades of experience focused on uranium exploration in the Athabasca Basin with several discoveries under their belt. Director David Cates is the current President and CEO of Denison Mines which is the largest, strategic shareholder of Skyharbour Resources. And Strategic Advisor Paul Matysek is well known name in the industry having built and sold four mining companies in the last decade including Energy Metals Corp. which grew from a $10 million market cap in 2004 to approximately $1.8 billion when it was acquired by Uranium One in 2007.
Skyharbour recently raised $2.4 million to fund the upcoming drill program at the flagship Moore Lake project. The Company is well structured with 44 million shares out and some of the larger shareholders include Denison Mines, Marin Katusa and the KCR Fund, Doug Casey, OTP Fund Management, and the management and insider group which collectively own approx. 20% of the company.
In August, Skyharbour did an impressive deal with Denison, granting Skyharbour an option to acquire a 100% interest in the Moore Lake project for stock and cash as well as $3.5 million in exploration over the next five years. Denison retains a claw-back option for 51% by spending over twice Skyharbour’s expenditures, illustrating their view that the property still has a lot of value yet to be unlocked through the drill bit.
“Partnering with Skyharbour is the perfect way to ensure Moore Lake continues to be explored for potentially significant mineralization,” stated Denison’s CEO David Cates in a July 2016 press release who is also now a Director of Skyharbour. “While Denison wasn't actively looking to sell its position in the Moore Lake property, we couldn't pass on an opportunity to join forces with the dynamic leadership team at Skyharbour and their strong and well thought out plans to take Moore Lake through the next phase of exploration."
One of the key catalysts coming up for Skyharbour is the drill program slated to commence in January at Moore Lake. The Company intends to go back into the Maverick Zone and expand on the known high grade pod with a focus on testing mineralization below the unconformity in the basement rock where many recent discoveries in the Basin have been made. The drilling will also test several other high priority targets looking for additional high grade discoveries. Skyharbour has a share price of $0.28 and a market cap of $12 million while Denison trades at $0.63 and a market cap of $336 million.
Once the ice roads are set up in January, Skyharbour will commence its drill program at Moore Lake. With the Athabasca Basin having the highest grades in the world and previous drill holes on the project having yielded grades of up to 5% U3O8 (far more than the 0.1% global deposit average) the next 6 months will be pivotal for Skyharbour.
The deal with Denison on Moore Lake is highly accretive for the Company’s shareholders as it adds a high-grade uranium property with strong exploration upside potential to the portfolio to complement the other uranium projects Skyharbour holds in the Basin.
Over the last five years, the uranium spot price has confounded, almost defied analyst projections. In 2004 there were similar emotions and sentiment. As we saw, with much less projected growth, the spot went up almost 7-fold in two years. Much ink has been spilled on the Fukashima factor. Would the price have gone even higher if there hadn’t been the tsunami? Who knows? Water under the bridge now.
Skyharbour offers more than just a compelling investment opportunity in a deeply discounted sector. The Company’s management has shown a unique ability to raise money in what is a very tough market. Management under Jordan Trimble has exploited the uranium market weakness to build a portfolio of properties and a team that will benefit quickly and decisively once the uranium price trend reverses.
Having high grade discovery potential in the Basin also serves as a bit of a hedge against the declining commodity price as the main company catalyst is exploration success. Time and time again investors have been rewarded handsomely for Athabasca Basin discoveries and the subsequent M and A activity.
With global leaders Cameco, Rio Tinto, Areva and Denison active in the area, the potential for consolidation is compelling and ongoing. Skyharbour is continuing to make prudent long-term decisions and forge strategic relationships in challenging markets that will provide exceptional and consistent shareholder value.
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