Categories: Energy
Topics: General Energy

Skyharbour Resources (TSX-V: SYH) CEO Jordan Trimble on Highlights from Winter/Spring Drill Program & the Improving Fundamentals of the Uranium Market

June 15, 2018

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble. Jordan, how are you?

Jordan Trimble: I'm doing well. Always a pleasure to be on.

Gerardo Del Real: It's good to have you back on. The last time we spoke I was anticipating results from the 2018 winter/spring diamond drill program at the Flagship Moore Project, and we finally got some. We got some good numbers and some interesting things. You have some new high-grade uranium mineralization at Maverick, it includes 5.39% U308 over a meter within 2.07% over 3.5 meters. Of course you're probably eager to follow that up with an upcoming drill program. So I'd love your perspective and take on the drill results.

Jordan Trimble: Sure. So yeah, those are the highlights from the highlight holes. It was about a 3,400 meter program that we carried out earlier this year. Got the geochem back, which is what we've reported here. Some nice high-grade results. We're continuing to expand the high-grade zones, both at the main Maverick zone as well as the East Maverick, which was a new discovery, a new pod we found this time last year. That's part of the strategy on this project going forward. The Moore project’s had a lot of historical exploration. There's high-grade uranium mineralization that's relatively shallow at about 260 meters vertical depth at the unconformity. And we're finding these high-grade pods or lenses along this 4 kilometer corridor that we call the Maverick corridor. It's very typical to what you see in the basin.

There's been a lot of production historically from the basin with these, call it pearls on a string, high-grade pods or lenses of uranium. So we were seeing that at the Maverick corridor and with these high-grade results we've announced today we're adding to those high-grade zones. But of particular interest going forward, and I highlight this in the news release, the focus really for the summer drill program will be looking for and testing higher grade feeder zones in the basement rock, and we've spoken about this before. We're going to go at it with more drilling in the summer program, but looking for the structures that feed the unconformity, the sandstone where we're finding, where we know there's high-grade uranium. We want to find these feeder zones because that's really where we think the most potential lies for a much larger, higher grade deposit.

You look at some of the recent discoveries by NexGen, by Fission, by Denison in the Griffin deposit. These are all basement hosted. So that's what we're looking for now in this upcoming summer drill program. We've gone through all the historical data and drill results and previous exploration and we feel we have some new, high-priority targets that we'll be testing. So we'll be drilling a little deeper looking for that home run hit. We're confident that it's there, right? I mean, it's important to note that that uranium that we know is there that we're drilling into, that we have drilled into in these last few programs, it's come from somewhere. It's come from deeper down, and so we want to find those feeder zones and hopefully some larger, higher grade mineralization at depth.

Gerardo Del Real: We talked, I believe, the last time we spoke about the Venice target being an important target and you did make new regional discoveries at that target. How excited are you to follow that up and what do you see in there, Jordan?

Jordan Trimble: Yeah, it's a great point. Apart from the 4 holes that we drilled at the main Maverick corridor we drilled several holes on regional targets. You'll see in the news release the Venice target we hit anomalous uranium mineralization. It was actually in the basement rock, too. And so that's a high-priority regional target going forward.

This is a project that has had, as I mentioned, a fair bit of drilling historically. It has over 10 high-priority regional targets and most of them, the drilling that's been done at them, most of them are mineralized, right? We're finding uranium and uranium has been found at them. So, it's a highly anomalous project throughout, and that's very rare in the Athabasca Basin. Typically, if you drill 10 holes you're lucky to have even one of them that has anomalous uranium mineralization in them. At the Moore Project we see almost the reverse of that. There's a lot of uranium there. It had to come from somewhere, whether it's at the main Maverick zone, again which we'll be testing in the upcoming summer drill program, minimum 3,000 meters, we’ll be looking a little deeper into the basement rock or elsewhere on the project at some of these regional targets. We truly believe there's a lot more uranium to be found at the project.

Gerardo Del Real: Jordan, you and I had the pleasure of catching up at the 121 Mining Investment conference in New York recently. I attended your presentation. I joked offline here that you're quickly becoming – but I was serious – one of the more insightful voices in the space. I got to get your take on the overall sentiment. I know that we're still coming out of that bear market and you can judge by the size of the crowd, or lack there of at the presentation. There were some people there, there was some good interest, but we didn't see that standing room only that's typical of bull markets. But I definitely see the dominoes all lined up. What's your take, Jordan?

Jordan Trimble: Yeah. Well look, there's not many of us left in this space, so I appreciate the compliment. But look, it's been a very difficult sector, a commodity that has been under siege for better part of the last seven years. We all know that. No question though in the last couple of months we've seen what I think is the early stages of a recovery. I know we've had these moments in the last couple of years, or these month to two-month periods where there's excitement. The spot price starts moving up, it ticks up a couple of bucks just to fall right back down.

I'd like to say this time's different though and there's a few kind of key things, indicators to look at. Just talking about that conference last week, notably what we saw was a change in sentiment, even from those times that I referred to last year. There is this renewed interest in the space. There's this notion now, and hopefully that turns into conviction, that the sector, the commodity is ripe for a turnaround and that it's happening right now.

We all know some of the larger or more important developments over the last, call it year and a half, whether it's the production cuts, whether it's the Japanese restarts, which I'll talk a little more about. We all know what's gone on, but we're finally now, I think, seeing those developments actually work their way into the market and you're seeing that in the uranium price moving up. I mean, it's moved up in the last two months here, about 10%.

So just to kind of go over some of the more recent news and developments in the space, and we talked about this last week at New York, and this is all really within the last few weeks, right? We've now seen on the demand side the Japanese nuclear restarts have been accelerating. We now have 8 reactors back online. We're expecting several more between now and the end of the year. Japan has reaffirmed their commitment for about 20-22% of their power mix being nuclear by 2030.

We know the government, the Abe government, is pro nuclear. They are committed to nuclear. It's their source of cheap, C02-free, emission-free electricity to compliment renewables. They've had to turn coal and natural gas power plants back on over the last several years as a result of turning their nuclear power plants off. So we are now seeing these restarts pick up some momentum. This time last year there were only 3 reactors online. I think that's important to note.

On the supply side, look, we know that the production cuts have been dominating headlines, right? We saw obviously Kazakhstan through Kazatoprom announce major cuts at the beginning of 2017 and end of 2017. An initial 10% cut, followed by a planned 20% cut over the next three years. Well, as you know just a couple of weeks ago it kind of quietly came out there that they were looking at an additional 6% cut here in 2018. So that's important.

Kazatoprom and Kazakhstan is the largest producer of uranium globally, over 40% of primary mine supply. So here's the largest producer and the lowest cost producer, the highest quality, call it lowest cost deposits in the world, announcing production curtailment. So that will, that is now working its way into the market. Then we saw the second largest producer, Cameco, shut down their largest mine at MacArthur River. Again, the highest grade, largest deposit of uranium in the world that shut off. That shut off in February. I do not see that mine coming back online at the current spot price. The current price of uranium in the low- to mid-$20s. We need to see higher prices before that production gets turned back online. But that's a lot of production that's gone offline in a very short period of time. Just under about 25% of primary mine supply that's been shut down.

One of the things I think that isn't getting talked about as much on the supply side is the fact that there are a lot of mines out there, and some of them big producers, whether it's Rossing or Ranger, these are mines that are coming to the end of their lives, right? It's not just turning the tap off. These are deposits that literally have been mined out. So it's not just producers turning off current production, it's also producers that have production that's coming to the end of its mine life. Right? So it's a combination now of both of those. And again, these supply cuts and curtailments are now working their way into the market. That's what I think we're seeing in the spot market as we speak.

Then again, just in the last couple of weeks, another big announcement. A fund that's being set up in London, an IPO that's being done with a company called Yellow Cake. So they've cut a deal with Kazatoprom to buy 8.1 million pounds of uranium from Kazatoprom. So that's potentially now 8.1 million pounds that won't be going into the spot market over the next year or two. Right? And that's a significant amount of spot supply that's been now bought by this fund. They're raising between $150 to $200 million US. I hear it's going well.

So here's a fairly large fund now that's gobbling up a good chunk of the market. Again, I think that just shows that really I think is a key indicator showing the renewed investor interest in this space. These combination of factors, this supply side response now to the low-price environment that we've been in playing out as well as the demand side kind of picking up a bit here.

We know that the demand side has been consistently growing. Again, we have just under 450 reactors operating globally, 58 under construction. Important to note too that almost 40% of the pipeline projects and reactors are in China, right? This is the real growth center for nuclear going forward and they continue to turn reactors on. There's been 5 new construction starts since the beginning of 2018. Things are really starting to pick up. We're seeing that a little bit in the market now.

I think it's important to emphasize that this is still very early days. We're not trading at $40, $50 uranium. Spot price is still just hovering above $23 a pound, which as we've talked about in the past is well below the average global cost of production of about $41, $42 a pound and well below that $55, $60 a pound number needed to spur new development, bring new, meaningful production online to meet that growing demand.

Gerardo Del Real: I couldn't agree more, and you know the utilities have to be paying attention to the larger funds now starting to make the phone calls and actually allocate capital, taking supply off the market. Would you agree with that, Jordan?

Jordan Trimble: Yeah. Well, I mean look, Yellow Cake is now buying 8.1 million pounds of uranium from Kazatoprom. That's 8.1 million pounds of uranium that's not going into the market for these utilities. Right? So absolutely. The long-term contracting, we need to see that come back. We know there's a significant amount of uncovered requirements for nuclear reactors starting really in the early 2020s through to 2025, and it just accelerates thereafter after 2025.

And so yes they are, I think, now finally as we've talked about, they've been sitting on their hands, they're finally getting up. They're looking around and seeing what's happening in the market. I think you'll see the spot market first as we're seeing, and then you'll see that a work its way into the contracting market, but it's all good for the price going forward.

Gerardo Del Real: Absolutely. In the meantime, Jordan, what is next for Skyharbour?

Jordan Trimble: Yeah, so we have a lot on the go. As I discussed earlier we're gearing up for a summer drill program, focus being on making new basement, high-grade discoveries, looking for these feeder zones. We have some really, really interesting targets, new targets picked out. So we'll be testing that. That'll likely commence in August. So we'll have some news flow generation from that.

We also, as you know, employ the prospect generator model. We've had two partner companies that we brought in last year, Orano, France's largest nuclear and uranium mining company, state run company that's earning in 70% at our Preston project over a 6-year period, $8 million earn in. They just recently completed a drill program, so we'll actually have some news on that coming out over the next couple of months.

Then Azincourt, at our East Preston project, completed some work and geophysics earlier this year looking to get back into the field later this year, early next year, along with Orano as well. We'll have news flow from the exploration and drill programs from our partner companies over the next, call it 6 to 12 months. We are actively looking to bring in new partners on some of our other projects. We own 100% of three other properties, all of which are drill ready, one of which at Falcon Point has an NI 43-101 uranium deposit on it. High-quality projects, one of the benefits of being one of the last uranium juniors left, quite frankly, not just in the basin, but in the world.

Gerardo Del Real: Period.

Jordan Trimble: We've been able to get our hands on some top-quality exploration assets, big property package. We're continuing to look at additional opportunities and projects. We like this dual strategy that we have. We offer that high-grade discovery potential with a focus at our flagship Moore project. We know there's high grade there. We're looking to find more high-grade uranium through our drilling. And then the other projects, the four other projects that we have employ the prospect generator, bring in strategic partners to help fund the exploration and we get some cash and stock payments on an annual basis as well. So it's a good strategy. We're well positioned for this, I think, impending market recovery in the uranium space and one of only a few names left in the space.

Gerardo Del Real: And you know the moves to the upside are absolutely violent in the uranium space, Jordan. I commend you and the team for the work that you've done these past few years, bringing in these great projects, joint venturing them out and of course advancing the flagship. It's always exciting to me to see the market turn because you go from 43, 44, 45 cents and before you know nobody cares at that price point, but everybody's going to love you at $1.20, $1.50, and I think that's on the way here in the next year or two.

Jordan Trimble: Absolutely.

Gerardo Del Real: Jordan, thanks again for your time. Look forward to chatting soon.

Jordan Trimble: All right, Gerardo. I appreciate it. We'll talk soon.

Gerardo Del Real: Have a good one.

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