Category Archives: uranium and nuclear
NexGen drill results continue expansion
The Energy Report
April 24, 2017
Source: NexGen Energy Corporate Presentation
NexGen Energy Ltd. (NXE:TSX; NXGEF:OTCQX) released results from 18 holes from its winter drill program at the Rook I property in Canada’s Athabasca Basin in Saskatchewan. According to the company, hole AR-17-136c2 is marked by “dense accumulations of massive to semi-massive pitchblende mineralization and is the strongest zone of mineralization encountered in the A3 shear to date. This newly discovered area is open to the northeast.”
Garrett Ainsworth, NexGen’s vice-president of exploration and development, stated, “Drilling has been very successful in significantly expanding mineralization at Arrow on several fronts. The discovery of massive to semi-massive pitchblende mineralization encountered in hole AR-17-136c2 in the A3 shear looks identical to that found in the A2 Sub-Zone.”
The A2 shear zone also shows expansion. Step-out drilling 200 meters northeast of existing drilling has intersected “39.0 m of total composite mineralization including 1.65 m of total composite off-scale radioactivity.” A drill hole 255 meters northeast has intersected “18.5 m of total composite mineralization including 1.6 m of total composite off-scale radioactivity.”
On the A2 shear, Ainsworth said, “Further step outs into the northeast gap of the A2 shear have returned additional high grade intervals, where we expect mineralization to continue further northeast and down-dip to drill hole AR-15-50. Scissor drill holes stepping out and within the A2 and A3 High Grade Domains continues to exceed our expectations.”
Rob Chang, an analyst with Cantor Fitzgerald, wrote on April 18 that “successful drilling has expanded the mineralization at Arrow on several fronts. Today’s results highlight the expansion potential as northeast step-out drilling in the A2, A3, and A4 shears have encountered varying degrees of uranium mineralization. We reiterate our Buy recommendation and $5.15/share target price.”
Chang also noted that the “2017 winter drill program targeting 35,000m using seven drill rigs is ongoing. A Preliminary Economic Assessment for Arrow is expected for Q3/17. NexGen Energy currently has $58M cash on hand which will likely be able to sustain over 2 full years of exploration drilling.”
David Talbot of Eight Capital noted that the drill results showed the A2 and A4 trends “hosted several drill holes with thick intercepts, strong and off-scale (>10,000 cps) radioactivity and therefore potential for high grade uranium mineralization.”
Talbot also noted that “management had expected to have only one high grade subzone at Arrow (A2). This provides a huge opportunity given sparse drill spacing on A3 Shear. Hitting anything that looks remotely like the A2 Shear Subzone is very significant.”
Eight Capital has a Buy recommendation on NexGen and a share price target of CA$5.30.
Talbot concluded that “Arrow is a world-class deposit; the 3rd largest in the Athabasca Basin and may even overtake Cigar Lake this year pending continued positive drill results. . .an initial PEA is due in July-August and investors eagerly await its economics.”
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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Additional disclosures about the sources cited in this article
Cantor Fitzgerald, April 18, 2017 Comment, NexGen Energy Ltd.; Disclosures as of Mar. 6, 2017, Report. Facts may have changed.
Potential conflicts of interest
The author of this report is compensated based in part on the overall revenues of CFCC, a portion of which are generated by investment banking activities. Cantor may have had, or seek to have, an investment banking relationship with companies mentioned in this report. CFCC and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Although CFCC makes every effort possible to avoid conflicts of interest, readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.
CFCC has provided investment banking services or received investment banking related compensation from NexGen Energy within the past 12 months.
The analysts responsible for this research report do not have, either directly or indirectly, a long or short position in the shares or options of NexGen Energy.
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Analyst certification: The research analyst whose name appears on this report hereby certifies that the opinions and recommendations expressed herein accurately reflect his personal views about the securities, issuers or industries discussed herein.
Eight Capital, NexGen Energy Ltd., Comment, April 18, 2017
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The 2017 Saskatchewan Mining Supply Chain Forum was a huge success. In a time where other resource shows are shrinking dramatically, ours grew!
See also HERE
Top 50 biggest mining companies
LIST AT BOTTOM OF STORY
April 3, 2017
MINING.com and sister company IntelligenceMine‘s ranking of the world’s 50 largest mining companies based on market value continues to show an industry in recovery.
At the end of the first quarter this year the top 50 companies had a combined worth of $842 billion. In total these companies’ added $258 billion in market capitalization over the past 12 months and a good fifth of those gains occurred in 2017.
Another indication of how the rising tide of commodity prices lifted all boats is the fact that the cut-off today to make the ranking is $5 billion (number 51 Kumba Iron Ore has a market worth of $4.96 billion). A year ago it was less than $4 billion.
Changing fortunes in subsectors saw the ranking change noticeably lower down the field. A year ago when gold was still enjoying one of its best starts in decades, gold miners were riding high, but well-known names like AngloGold Ashanti and Kinross no longer make the grade. That said, world number one gold company Barrick managed to improve its ranking.
In contrast, coal and iron ore players bunched up near the bottom at the beginning of the second quarter 2016 when most steelmaking raw materials prices were hitting multi-year lows significantly improved their rankings. Australia’s Fortescue has shot up 20 places while Canada’s Teck managed to climb 26 spots.
As with any ranking, criteria for inclusion is a contentious issue. We decided to exclude unlisted and state-owned enterprises at the outset due to a lack of information. That of course excludes giants like Chile’s Codelco, Uzbekistan’s Navoi Mining which owns the world’s largest gold mine, Eurochem, a major potash firm, trader Trafigura, top uranium producer Kazatomprom and numerous entities in China and developing countries around the world.
Another central criterion was the depth of involvement in the industry before an enterprise can rightfully be called a mining company.
For instance, should smelter companies or commodity traders that own minority stakes in mining assets be included, especially if these investments have no operational component or not even warrant a seat on the board?
This is a common structure in Asia and excluding these types of companies removed well-known names like Japan’s Marubeni and Mitsui, Korea Zinc and Chile’s Copec.
Levels of operational involvement and size of shareholding was another central consideration. Do streaming and royalty companies that receive metals from mining operations without shareholding qualify or is are they just specialized financing vehicles? We included Franco Nevada and Silver Wheaton.
What about diversified companies such as BHP Billiton or Teck with substantial oil and gas assets? Or oil sands companies that use conventional mining methods to extract bitumen for that matter?
Or vertically integrated concerns like Alcoa and number three on the list Shenhua Energy which is a power and shipping company more than a coal miner.
Chemical companies are also problematic – should FMC Corp not be ranked because its potash and lithium operations are such a small part of its overall revenues and what about Albermarle? While the merger of Potash Corp and Agrium is still to close we included only Potash Corp on this listing.
Many steelmakers own and often operate iron ore and other metal mines, but in the interest of balance and diversity we excluded the steel industry, and with that many companies that have substantial mining assets including giants like ArcelorMittal, Magnitogorsk, Ternium, Baosteel and many others.
Let us know of any omissions, deletions or additions to the ranking or suggest a different methodology.
Rio Tinto may take over Pistol Bay’s uranium assets sooner than expected
March 28, 2017
The assets are located close to Cameco’s McArthur River mine — the world’s largest producing uranium mine. (Image courtesy of Canadian Nuclear Safety Commission.)
Rio Tinto (LON:RIO) may become the sole owner of Pistol Bay Mining’s. (TSX-V: PST) uranium assets in the Athabasca Basin of Saskatchewan, Canada, sooner than originally planned, as it has decided to pay the junior miner $750,000 before April 17.
Rio will effectively hold a 100% stake in the uranium properties once it pays either $1.5 million by the end of this year; $2 million by Dec. 2018 or $2.25 million by the end of 2019.
The move by the world’s second largest miner amends a January agreement and means that once it gives Pistol Bay the remaining sum, Rio will own three key assets, located close to Cameco’s McArthur River mine — the world’s largest producing uranium mine.
Pistol Bay said Rio will effectively hold a 100% stake in the C 4, 5 and 6 uranium properties once it pays either $1.5 million by the end of this year; $2 million by Dec. 2018 or $2.25 million by the end of 2019.
In 2014, the Vancouver-based junior optioned the C5 Property, along with the C4 and C6 claims to Rio Tinto, which already has a 75% interest in the assets. Last year, Rio announced its intention to exercise its option to increase its stake in the assets to 100% by paying Pistol Cdn$5 million by December 2019.
So far, the mining giant has drilled 12 holes for a total of 6,104 m on the C5 Property, and completed gravity and DC resistivity surveys.
Meanwhile, Pistol Bay will focus its efforts in advancing its Dixie zinc-copper-gold properties in Ontario, Canada, which it bought in October last year.
The acquisition, combined with the already optioned Dixie and Dixie 3 Properties, made the Canadian junior the dominant landholder in the Confederation Lake Greenstone Belt, a 7,050 hectares-area in the area southeast of Red Lake.
How to build a mine
Goldcorp’s Cerro Negro Mine in southern Argentine. Miners inside the Eureka vein Photo courtesy Goldcorp Inc.
The old adage “Mines are made not found” is a good start to “How to Build a Mine”. There are thousands of mineral discoveries with very few that reach the positive feasibility stage and fewer yet where a profitable mine is actually built. There are three key components to building a mine, starting with a competent, experienced management team. The second component is the financing required to build the mine. The third component is the deposit, which needs to be technically sound and economically feasible. This article assumes that a positive feasibility study (FS) has been completed.
In a normal mining market, financing will be available to proven management teams. An experienced management team can make the most out of a marginal deposit, while an inexperienced team can botch up the best deposit. This is not to say that good teams have not failed, as a number of very successful mine builders have started with, or had at least one failure, in their careers.
An FS produces a Life-of-Mine plan with development and production schedules based on the mining method and operating rate determined. The operating rate is based on what is practically and technically achievable for the deposit. Operating costs and capital costs are developed to within +/- 20% or better. A Life-of-Mine cash flow model is developed to include all revenue, operating costs and capital costs with the cash flow generating Net Present Values for the mine at several discount rates. An after-tax Internal Rate of Return of about 20% to 30% would be considered positive, combined with a quick payback of capital of two to three years and a mine life of five to ten years with a longer mine life preferred.
Also, to allow some leeway for slower ramp up to full production, swings in metal prices and mistakes, it is very important to have sufficient cash flow, say double, to payback the initial capital. The strategy should be to develop the mine as quickly as possible with the least amount of capital and mining /processing the high-est grades first.
Armed with a positive FS, senior management and the board of directors of the company that owns the project must decide whether they want to sell the project or their company, find a joint venture partner, or to build the mine themselves. Management’s first responsibility is to do what is best for the majority of the share-holders. Thus, if the price is right, a sale of the company may be the best route. A sale of the project and not the company is more complicated, as cash or shares remain in the company.
The second option would be to find a joint venture partner with the financing and or experienced team to build the mine, which is not as desirable, as the original owner will have to give up a significant amount of ownership to attract the new partner.
The third option is for the company to build the mine itself, whereby it will need to raise funds (financing) through equity (shares), debt such as loans, convertible debentures, royalty streams, smelter off-take agreements or some combination.
Assuming that the financing is in place, the project owner needs to hire a person to manage the project through to commissioning of the mine and potentially become the General Manager (GM) of the ongoing operation. This person should have experience in managing these types of projects and preferably have operations experience to mine manager level. The GM will hire several persons, the “Owner’s Team” to assist in managing the actual building of the mine and related aspects such as environmental, permitting, human resources and First Nations communications. Alternatively, the GM could engage a management company to act as the “Owner’s Representative” with a team in place that will manage most of the aspects required to build the mine. The key components for actually building the mine are engineering, procurement and construction management (EPCM). There are large firms that carry out all of this work and smaller individual consulting firms that can do the work in conjunction with associates. The Owner’s Team or Representative selects, engages and manages all of the consultants and contractors required to build the mine and will need to be in place through the EPCM phase, including commissioning of the process plant.
Once the mine Owner’s Team or Representative is in place and has engaged the consultants and contractors to carry out all aspects of building the mine, work will begin to build the mine based on the design, plan and schedule developed in the FS. The construction of roads, rail, air-strips or ports to access the mine plus the services such as water, sewage and power will begin, with much of this work similar to the work required for establishing other types of industries except that this construction could be in remote areas with added logistical challenges.
Construction of ancillary buildings such as the office, maintenance shop, warehouse, employee camp, and kitchen/ cafeteria is also similar to other industries. The key difference in construction is the mine itself, the crushing and processing plant, the tailings storage facility, permanent waste storage areas, in particular, if the waste is considered to be acid generating. For remote mine sites, it may be necessary to charter helicopters and/or private planes of various sizes to bring in equipment and personnel.
The FS will include base line studies of all environmental aspects to determine what the current environment is for the habitat of all living things and the long-term impact of building a mine. The quantity and quality of all ore and waste to be mined plus tailings will have been determined with regard to the potential to generate acid and other deleterious metals plus how to treat these issues while operating and at closure. The quantity and quality of water used during operation, the requirement for long-term treatment will have been determined. The work carried out for the FS is the basis for submitting plans for all permits required to obtain a licence to start mining. In Canada, there are two levels of permitting, provincial and federal. For smaller mines that do not have a significant impact on fisheries and waterways or international boundaries, only provincial permitting is required. For larger mines, both provincial and federal permitting is required.
What is called social licence to operate is now high on the list of risks in building a mine. Without approval from all stake-holders that will be impacted by the mine, governments will not provide approval to build the mine. Permitting includes a full closure plan for the end of the mine. In Canada, consultation is required with First Nations prior to granting a licence to develop a mine. This has complicated the permitting process, adding time, costs and risk to the process.
Development of the mine itself will be quite different for an open pit than an underground mine and will require different experience and equipment. Porphyry deposits are often large and many of the current deposits are near surface, thus are mined as open pits with large mining equipment; however, at depth some may have suitable characteristics to convert to large underground block caving mines. Vein type deposits are often narrow, can go to depth and are mined by underground methods with smaller equipment.
Operating costs are normally a function of the size of the equipment used for the mining method. Thus, open pits with large equipment have lower operating costs than underground mines. The grade of ore that can be mined is a function of the operating costs. Thus, the lower the operating costs, the lower the grade of ore that can be mined.
An open pit requires large equipment used to mine large quantities of ore and waste with overburden of soil stripped before the start of the pit. Sufficient over-burden is stripped and waste is mined, at a large capital cost, at the beginning, to provide the start to the open pit with the first benches of ore exposed and mined to sustain the process plant at capacity once the plant has started up. The mining method and equipment for an open pit mine is determined by the type of deposit, shape, size, and depth. The key pit design parameters are the slope of the walls, the bench heights and widths, the location of the road access for equipment and sizing of the equipment.
The underground mining method and operating rate chosen in the FS is mainly dependent on the thickness of the ore, the orientation (flat to vertical), the stability of the ore and the host rock, in particular the walls adjacent to the ore. Historic mining methods included a lot of timber support for unstable ground, whereas, modern ground support has changed to mechanized support such as rock bolts, screen and shotcrete. Wide veins and larger ore zones can now be completely mechanized for drilling, blasting, ground support and mucking. More precise long hole drilling and smaller mechanized equipment is now allowing many narrow veins to convert to safer sub level long hole mining instead of the more labour intensive conventional shrinkage and cut and fill mining methods.
Development of an underground mine is more complicated than an open pit and requires different experience and equipment plus different design depending on whether a shaft, adit or decline (sloping tunnel) is the main means of access. If the mine access is via an adit or decline, then this is easier to get started, requires less equipment, expertise, less development to open up the first stopes for mining and less capital.
Once the first stopes are developed, the decline can continue downwards, opening up new stopes after production commences. If a shaft needs to be sunk instead of a decline, then a headframe needs to be constructed with a hoist installed. The shaft needs to be sunk and equipped for a man cage and skip for ore and waste. As it is difficult to sink the shaft while the mine is operating and it is expensive to setup for deepening the shaft, the initial sinking will often be to a depth that allows mining for the first five to ten years, which is a large, initial capital outlay.
If a decline is required as well, then there is an additional expense, but with the benefit that mining of ore can start as soon as the first few months of ore have been developed from the decline. Subsequently, the shaft can continue sinking while the plant is already processing ore from the mine. In conjunction with the main accesses, other development will be required for ventilation and a secondary means of egress.
The crushing and processing facility is constructed based on the testing, flow sheet and design determined in the FS. Processing of the ore starts with understanding the mineralogy, then metallurgical testing for crushing, grinding and recovery of the metals and treatment/management of the tailings.
The metallurgy is extremely important and lack of sufficient testing up front has been the demise of a number of projects. Most deposits require one or two stages of crushing and sometimes a third stage, with at least one crusher in closed circuit, via screening to provide a feed to the grinding circuit of one quarter inch to half inch size. However, if semi-autogenous grinding (SAG) is used, the ore feed to the SAG from primary crushing may be six inch, thus eliminating the need for secondary crushing prior to the SAG Mill. Conventional grinding using a rod mill or ball mill will also be used, or some combination, to grind the ore to fine powder (micron size) using rods, balls, with the ore in the SAG mill to assist with the grinding, while the mills rotate.
Once the ore is ground to the prescribed size for optimum recovery of the economic minerals, then these metals are recovered by a number of processes. Gold and silver can be recovered by gravity for the free gold/silver followed by cyanidation of the lower grade ore to make doré bars on site from both products. Alternatively, after gravity, a flotation step can be used to produce a lower grade concentrate to be shipped to smelters worldwide for final processing. Base metal and polymetallic ores usually use differential flotation to produce one or more concentrates to be sent to smelters worldwide.
Heap leaching has been used for some time for lower grade, precious metal and copper deposits, whereby the ore only has to be crushed to a size that liberates most of the economic metals and does not have to be ground, a quarter inch to a few inches in size is sufficient to achieve metal recoveries in the order of 60% to 80%. Heap leaching eliminates the need for a grinding circuit, flotation and/or large cyanide tanks, thus reducing the initial capital and operating costs. The crushed ore is trucked or conveyed to a leach pad where an impervious liner collects the leach solution from the heap, which has been sprayed with cyanide as each layer of ore is placed.
Carbon-in-Pulp, Carbon-in-Leach, Merrill Crowe, Solution-Extraction-Electro-Winning are a few of the processes to recover precious metals from the cyanide solution. Gold and silver doré that is produced on site from conventional milling and heap leaching will be sent to refineries including the Canadian mint for final refining to 99.999% purity from a doré bar that contains between 80% and 99% gold or silver. Doré bars provide quick cash flow from production with low shipment and refining costs compared to concentrates of large volumes that may require shipment halfway around the world with payments for the metals staggered over months.
Tailings from all of the processes must be deposited in a conventional tailings storage facility, near the plant, with a dam and often lined, or dried and stacked, or deposited underground after thickening, or after it has been made into a paste. If cyanide is used, then residual cyanide in the tailings stream must be destroyed prior to leaving the plant.
In summary, building a mine takes a long time from discovery to mining the deposit, usually 10 years or more with a huge amount of capital invested by many investors from the high-risk exploration stage through feasibility to building the mine. The skills and expertise of people from very diverse backgrounds are used in the conception and planning regarding the technical, environmental, social and economic impacts of the project on the local habitat, communities and the country.
Mr. Sveinson is a professional mining engineer with more than 40 years experience in exploration, development, construction, operation and financing of mining projects ranging in size from 100 to 2,000 tonnes per day in Canada, the United States, South America and Africa. Mr. Sveinson is President of International Mine Builders Inc., a consulting firm providing management and technical services to the mining industry.
by Fred Sveinson, PEng
Published with permission of Resource World Magazine
Making the grade: understanding exploration results
Diamond drill core from the Freegold Ventures Shorty Creek Project in Alaska. Note the massive chalcopyrite (copper) mineralization. Photo courtesy Freegold Ventures Ltd
The most exciting news from a mining exploration stock is a high-grade drilling result. But what constitutes a good assay? It varies from situation to situation and commodity to commodity. Listed below is some rule of thumb information on interpreting drill results for investors.
The first thing investors must under-stand is that high-grade mineralization is relative to the depth of the intersection and relative to the size of the intersection. Today’s mining technology allows mining on a vast scale, with large open pits and huge 200-tonne mining trucks capable of processing large volumes of ore at a low cost. This is possible, provided the zone is near surface and the ore zone is large enough to be mined in bulk. Open pits are generally less than 300 metres deep and are several hundred metres in diameter. Two questions to ask are:
- Is the zone less than 300 metres deep?
- Is the drill intercept over 100 metres thick?
If both of these questions can be answered ‘yes’, then the threshold for what constitutes ‘high-grade’ will be dramatically lower. As a rule of thumb, open pit mining can process ore for $10 per tonne and, where the ore grade is more than double that at $20 per tonne, results would be economic. Consider that 1% of a metric tonne is 22 pounds. Then, for a commodity worth about $1 per pound such as zinc, 1% zinc worth $22 per tonne becomes interesting. Grades triple that, worth $66 per tonne when less than 300 metres deep and more than 100 metres thick, would be considered high-grade.
Using the same dollar figures for mining, but considering other commodities, here are some high-grade intercepts for other commodities and a few recent examples.
COPPER: Anything over 100 metres and 1% copper equivalent or better is considered to be high-grade. For example, Serengeti Resources announced 119.6 metres of 0.9% copper equivalent (copper plus gold values added together) at depths from 180 to 300 metres. The stock then increased from $0.30 to $1.50 after those drilling results were reported.
NICKEL: This valuable metal doesn’t usually occur in nature as a bulk tonnage target since most bulk tonnage mines contain 100 million tonnes of ore or more, and most hard rock nickel deposits are less than 10 million tonnes in size. Therefore, anything over 20 metres in thickness (significantly less thickness than other commodities) and 2% nickel grade or better would be reasonably considered high-grade. Example: In September 2007, Noront Resources released two nickel intercepts from shallow drilling between 80 metres and 150 metres deep, with a section of 71 metres grading 1.8% nickel and 1.5% copper. The stock moved from $0.80 to $4.00.
GOLD: It is usually reported in grams per tonne (or g/t), although sometimes, in the US, it is in oz/ton. A gram of gold is worth about $25, so 2 grams or better would be viewed as high-grade for bulk tonnage mining. One hundred metres of good grade is again good criteria for thickness.
As a spectacular example, Aurelian Resources announced intercepts of 216 metres grading 12.8 grams gold/tonne from its Fruta Del Norte deposit in Ecuador, now owned by Lundin Gold. This result is truly exceptional in terms of grade and thickness, and propelled the stock from $2 to over $22 in 2006. However, this extreme grade and thickness only comes along once every 10 years or so.
URANIUM: Uranium has traded in a wide range over the last 10 years, being negatively impacted by the shutdown of the nuclear industry in Japan. It is sold under long term contracts with undisclosed prices so it is difficult to know a reliable reference price. I would use $50 per pound as a long term price and suggest that an open pit target that grades 2.2 pounds/tonne, or approximately 0.1% would be an economic intercept over 100 metres. For high-grade, underground deposits, a grade of 1% would be a significant intercept over thicknesses of 2 metres or more.
DIAMONDS: Economic diamond mines are generally small even though they are commonly shallow deposits mined by open pits. The contained value per tonne can be extremely high, but varies from deposit to deposit, depending on the quality and size distribution of the contained diamonds. Larger diamonds are much more valuable than smaller ones, and consequently, two diamond deposits with the same grade, which contain different proportions of large stones, will vary significantly in their value per tonne of ore.
As a general rule of thumb, 1 carat/tonne of ore is viewed as high-grade. The geometry is important. Diamond pipes are carrot-shaped, vertically inclined bodies that come to surface and can be mined by open pits, and then, if the grade is high enough, can also be mined from underground. Diamond pipes are usu-ally comprised of a rock called kimberlite which gushed up from deep in the earth carrying diamonds. The diamonds were not ‘born’ in the kimberlite; it is only a medium of transport. The diamonds that survived the long voyage to near surface are found in what is called the diamond stability zone. Diamonds can often occur in dykes, and these are much less preferable for mining due to the limited thickness of the bodies. So look for grades approaching 1 carat/tonne and a description that the sample comes from a pipe rather than a dyke.
In early stage diamond exploration, values are presented as a diamond count rather than a grade. Here the rule of thumb is to have a minimum of one diamond per kilogram sample. One example was Diamonds North Resources, which reported results of 551 diamonds in an 81.75 kilogram sample, for a diamond count of approximately seven diamonds per kilogram sample. This is seven times greater than what we hold as our rule of thumb, and so it’s not surprising that the stock went up over 100% from $0.75 to $1.80 in the day following the release of this result. However, there were not enough commercial-sized diamonds and the project is now on hold.
UNDERGROUND MINING OR SMALL TONNAGE SCENARIOS
Now consider smaller tonnage scenarios, where the thicknesses are much less than 100 metres, but still at least 2 metres thick. These geometrics can be mined by under-ground mining technologies, and the costs are considerably higher, say $25 to $50 per tonne as a rule of thumb. In this style of mining $100 per tonne gross metal value is interesting and $500 per tonne is considered to be high-grade.
Again, considering 1% of a tonne equals 22 pounds then we would need 4.5% zinc to be interesting and 10% zinc to be high-grade. Since zinc deposits are generally flat, and bedded layers have thicknesses of less than 100 metres, we are generally looking for 10% or better. Using $500 per tonne gross metal value as a high-grade metal value on a per tonne basis gives the following parameters for other commodities:
COPPER: 10% copper would be very high-grade, but very often copper occurs with other base and precious metals, so I would consider a value of 5% copper to be a rule of thumb threshold for thicknesses of 2 metres and up. The Nevsun Resources Timok Project in Serbia has indicated resources for the Upper Zone estimated to be 1.7 million tonnes averaging 13.5% copper and 10.4 g/t gold – exceptionally high grades. The Ivanhoe Mines Kakula deposit in the DRC has returned very high copper grades, including 11.91 metres (true width) of 6.23% copper at a 3.0% copper cut-off.
GOLD: One ounce, or roughly 30 grams/tonne is high-grade and can be expected to move markets in most cases. Several ounces of gold per tonne is considered to be high-grade for underground mining, although 5 grams gold/tonne is usually economically viable. The most well-known example of narrow high-grade is in Goldcorp’s Red Lake, Ontario mine where gold grades of 18-20 grams gold/tonne are being mined from its deep workings.
URANIUM: The Athabasca Basin in northern Saskatchewan has high-grade uranium which can run from 1-3% uranium and higher in deposits buried 200 metres or more below surface. These are among the highest grade uranium mines in the world, so we will define 1% uranium as high grade for small tonnage style deposits. Fission Uranium has reported fantastically high grades at its Triple R deposit, including hole PLS16-504 on zone R840W with 25.95% U3O8 over 4.0 metresand 10.03% U3O8 over 11.0 metres. DIAMONDS: There is no separate rule of thumb I can define for small tonnage high-grade diamond deposits as to carat value, or diamond counts; the rule stated previously of one carat/tonne should suffice for all scenarios.
PLATINUM AND PALLADIUM:
These precious metals almost always occur as narrow seams, and one would look for grades of 6 grams platinum + palladium/ tonne over 2 metres as a reasonable thresh-old for high-grade.
The previous guidelines should give the reader a general idea of what is high-grade in a news release. It is important to think of assays in terms of what they mean in dollars per tonne, using the idea that a deposit is generally profitable if the metal value is twice the mining cost. Also it is necessary to determine if the deposit can be mined as a bulk tonnage or low tonnage project before considering whether a news release ‘makes the grade’ or not.
by Alf Stewart
Published with permission of Resource World Magazine
Rick Rule on Uranium: Early means wrong, unless…
March 16, 2017
Rick Rule on Uranium: Early Means Wrong, Unless…
You have a 5-stock portfolio where the worst company goes 22:1
In an exclusive Q&A session for Sprott Private Wealth clients, Rick Rule shared his thoughts on the uranium market and explained why speculators shouldn’t worry too much about being early.
Transcript (edited for readability)
Rick: Let’s begin with a general discussion of the resource market. Those of you—and I assume that most of the Canadian clients of Sprott have fairly broad backgrounds and resource equities. Those of you who do have that background will understand that these markets are extremely cyclical and extremely volatile. I don’t think I need to remind too many of you that the period 2011 through the end of 2015 featured a truly brutal bear markets in natural resource equities. The worst I recall since the beginning of the 1980s, the TSX-V index if my memory serves me correctly declined by 88% in nominal terms and more on real terms because the index gets gained.
Those of you who have been around for the long time know, however, that bear markets are the authors of bull markets, just as the spectacular bull market we enjoyed last decade was the author of the bear market that we just suffered. If past is prologue, this incredible decline sets the place for a very handsome recovery. And certainly 2016 saw the down payment on that recovery where the gold or precious metals sub-index of the TSX was up by at least 100%.
It’s important to know that you resolve commodities bear markets and commodities equities bear markets in one of two ways. One, the traditional way, is demand creation where simply the low prices associated with commodities in a decent economy leads to an increase in demand because the low price increases the utility of the commodity. This recovery appears to be different given a paucity of worldwide demand for anything.
The other resolution is, of course, supply destruction where an extended period of low prices causes the destruction of productive capacity which is very difficult to reestablish because of the long lead times and the incredible amount of capital that are required to address bringing production back online. And I suspect that the recovery that we’re going to see in this market will happen as a consequence of supply disruption, which means, ironically, that this market could, in theory, overshoot to the upside well above market clearing prices because the ability to address market imbalances—supply and balances will be reduced for a 5- or 6-year timeframe.
This has profound implications, of course, for the resource equities. As we know, the resource equities get oversold in bear markets and they get overbought in bull markets and one would expect, to the extent that prices overshoot to the upside with regards to the commodities that prices could but not necessarily will overshoot to the upside. That doesn’t mean that coming out of the bear market into a bull market that one should buy indiscriminately.
It’s important to note that the junior resource sector in aggregate is always overpriced because 80% of the listings in the junior market have absolutely no value whatsoever.
The credibility and occasionally the luster that one sees in junior resource markets really are caused by 20% or more of the listings. So, it’s extremely important in bear markets or bull markets not to buy the broad market but really to buy the best companies and the best performers. Mercifully over time, Sprott has an exemplary track record of doing just that and I hope that we’re able to continue that effort on your behalf.
One of the things that we’ve seen in the beginnings of this bull market that we’ve just enjoyed is occasional periods where the stocks, having been ridiculously depressed in 2015, have in the near term overshot to the upside. And I suspect that we’re going to see extremely choppy markets through the balance of 2017, which means that you’re going to have to be a stock picker, first of all, and it also means that in periods where the market is overbought, you’re going to have to remember to sell and in periods where the market declines precipitously, which it will, you have to remember not to be shaken out of the market. Remember that traders and investors both attempt to buy low and sell high.
It’s difficult to buy when the market is declined by 25% or 30%, but in truth, an attractive market that’s fallen by 25% or 30% is precisely 25% or 30% more attractive, and this will be a stock picker’s market and a market where you either have the intestinal fortitude to use volatility as a tool or it will certainly use you and you will become a victim.
Yes, we’re in the early stages of the bull market, but no it’s not going to be easy. It’s going to be volatile. There’s going to be a lot of money to be made but you’re going to have to follow your brain not your heart because the market will always attempt to trick you by rising rapidly and by selling off just as rapidly. The beginnings of bull markets as you’ll recall in the 2000-2002 period can be extraordinarily volatile.
Some of you will recall the beginning of that last great bull market upside, the early part of 2001, when the market fell by 40% to punish the faithful just one more time. Could that happen again? It almost certainly will. Don’t be shaken out. Use the sell-off as a chance to position yourself for the subsequent runs.
Now, let’s talk about the subject of the call—the uranium market. I suspect that anybody who is on this call after the long bear market that we have endured in uranium were participants in the bull market that we enjoyed in the 2001-2006 timeframe. That was easily—and this is a poor pun—the most explosive bull market I have ever seen in my career. I remember there were 5 uranium juniors, 5 companies worldwide where the management teams had a deep enough memory to be able to spell uranium. And over the course of that bull market, the poorest performer of those 5 juniors ran 22:1. The best performer in that market, Paladin Uranium, ran from a bottom of 1 penny to a high of $10. The single oddest experience of my financial career.
What’s interesting about that bull market is that at the beginning of that bull market, nobody wanted to believe. Uranium hadn’t performed for 20 years, so many observers were bored. And the ones who weren’t bored were actively hostile. When you mentioned uranium in 2000, people thought of Hiroshima, Nagasaki, Three Mile Island or Chernobyl. In truth, they were critical rather than merely bored. It was, in fact, a contrarian’s paradise.
By the end of that bull market, people who had equated uranium with Chernobyl and Nagasaki were trying to cadge new stock tips out of anybody who could spell uranium. This disgust gave way to total greed. The extremity of that bull market became amusing after a while because as a consequence of the bear market, there were probably only 10 or 15 exploration teams worldwide who were confident to own a uranium company. Yet at the top of the bull market boom, there were 500 companies that purported to be in the uranium business. That meant determining whether or not a company had an adequate management team was a simple function of dividing the number of teams available—15—by the number of applicants—500. Not a very promising outlook.
It is strange that when a commodity has to go up, nobody cares. And when a commodity has gone up and doesn’t have to go up anymore, nobody cares. It’s interesting how really so soon after we’ve learned that lesson how we forget the lesson with the exception, of course, of those of you who are on the call.
So, let’s look at the uranium market today and where we are. You’ll recall in the last market that the price of uranium ran from $8 a pound in 1999 to a high in excess of $135 a pound in 2006. And although it hasn’t round-tripped, it has come pretty close. Subsequent to the tragic events in Fukushima, the uranium price fell from $85 a pound all the way down to a low of $18 a pound. It has settled out now as we speak in the spot market of $24 a pound.
Let’s look at uranium industry economics and talk about where the price of uranium is likely to go in the intermediate, that is, 2- to 5-year timeframe. The International Energy Agency estimates that the global total cost of production—this includes issuer working capital and adding back or subtracting, if you will, the value of prior exploration and production write-downs—that the total cost to produce a pound of uranium today is about US$60 on a global basis. So, worldwide, we spend $60 a pound to make uranium and we sell it for $24 a pound. We lose $36 a pound and being minors we try and make it up on volume.
What this means is that the industry is in liquidation. Why would anybody invest in an industry in liquidation? How much should one pay for the privilege of losing $36 a pound on volume? The reason is, of course, that either the uranium price goes up or the lights go out. Well, uranium is a politically unpalatable source of energy. It’s a widespread source of energy, nonetheless. Responsible at the present time for between 15% and 16% of total US base load demand after 2 decades of very strong investment in a variety of alternatives including wind, solar and natural gas.
While it’s a politically unpopular form of energy, it’s a necessary form of energy. And I would submit to you that within the intermediate term timeframe, that is, the 3- to 5-year timeframe, we have two expectations. One alternative is that the price of uranium goes up to the cost of production or the other is that the lights go out. And my suspicion is that it will be the former rather than the latter. And this move from $24 a pound to $60 a pound should engender a pretty interesting move in the uranium stocks. You have seen in the last 8 weeks an amazing move in the junior uranium stocks probably in anticipation of the bigger move.
It’s worth noting that the yellowcake price in the last 8 weeks has gone from $18 a pound to $24 a pound. That is, it has gone from very—well, from ludicrously uneconomic to just plain very uneconomic. And the consequence of that is that the price of many uranium juniors has doubled and some are up by 400%. We’ll talk about this in a minute.
It is my own expectation that the uranium price will stay weak. I can’t tell you how weak and I can’t tell you for how long, but at the present, despite the fact that uranium prices are very low, the market is oversupplied. You’ll hear many reasons for this. People always seek a narrative to justify conditions, but the most obvious one to me is that the second biggest consumer of uranium in the world, the Japanese, shut off uranium production following Fukushima. So, a country that had supplied about 16% or 17% of global demand all of a sudden had a hundred million pounds of inventory that they weren’t going to use. In other words, what had become demand suddenly became supply.
The most important single thing for you to watch as uranium investors and speculators more important than anything else is the pace of Japanese restarts. If Japanese reactors begin to restart, two things happen: systemic demand returns to the market and about 75% of what currently constitutes supply disappears from the market. The market fell simply because there was a plurality of supply over demand. The market will rise when the demand begins again to exceed supply. This is a question that begins with when not if. But when is an important question.
Is there any reason to justify the increase in uranium stocks that we have seen in the last 8 weeks? And the answer to that is: unless you know when the uranium price is going to increase, probably no. How do we play this game? We know for sure that the uranium price must go up or the lights will go out. So, we have a wonderful question in the sense that the unanswered question is when but not if.
In terms of the speculative aspects of the uranium market, which I suspect most of you are more interested in, I want to bifurcate the strategies that we’re going to talk about between what I would call strategic speculation and a tactical speculation. What you will find in all commodity centers but particularly in uranium is that the management talent and the assets do not align conformably across the whole market but a rather concentrated in a fairly small number of companies.
My suggestion is that of the 30 or 35 companies that remain interested in uranium—by the way, that’s down from 500 over 5 or 6 years. Of those 30 or 35 companies that pretend to be in the uranium business, there are 6 or 7 that are probably market leaders in terms of their assets and their managements. I am not prepared to disclose on this phone call who they are because our own research differentiating the best from the worst is not done.
We expect to have a list that will have segregated that 35 down into 6 or 7 and we expect to have that available through your Sprott brokers in the early or mid-summer, that is, June and/or July.
Now, one thing that those of you who experience the last market will understand is that as Doug Casey would say, “When the tide rises, all boats float,” which is to say that the lousy companies will perform in the market sometimes better than the good companies. And there is a case to be made for tactical trading, that is, buying companies with tiny tight market caps to participate in the furor that is usually engendered by a real market.
But you need to differentiate within your own portfolio those companies that deserve to do well as a consequence of their managements and their assets, and those companies that will do well as a consequence of the stupidity of your peers. In my own experience, when I have tried to buy stocks in anticipation of people even more foolish than me following me, I have turned out most often to be the greater fool.
From my own point of view, most of my own uranium speculations will be tactical speculations, that is, I will attempt to confine myself to the best companies, not necessarily the companies that have the best market structure, momentum, and trading characteristics but rather the companies that have the best management teams and the best assets.
One of the things that I think that you will see in the next 2 or 3 years before this market gets underway in earnest is you are going to begin to see concentration and amalgamation in the uranium business. This is a very good thing. When you see industries in liquidation like uranium, one of the critical tasks is to increase the assets under management by smaller groups so that the general and administrative expense relative to assets under management declines. The industry needs efficiency which it hasn’t seen. And you also need management teams that are able to make decisions over broad asset bases so that they optimize the asset rather than optimize their chances for salary.
You need ultimately to see low G&A charges relative to assets in the ground and production. So these amalgamations will be good and the amalgamations will benefit the companies that are consolidated in the near time. In the long term, they will benefit the consolidators.
One thing I really want to talk about, because I expected everybody on this call is already long in the uranium stocks and is excited about the moves that we’ve seen, is the need, in the choppy market, to remember that buying low and selling high involves both of those actions. When the overbought situation in uranium corrects itself, these uranium juniors that have run up 100%, 200%, 300%, 400% can easily decline by 50% which makes them paradoxically 50% more attractive even after they have disappointed you.
What I am trying to say is if you bought a viable uranium junior 8 weeks ago at 10 cents a share and it’s currently at 45 cents a share, you might be well advised selling half of your position drawing your capital out so that you have the rest of your position for free so that when and if the prices decline, you have both the cash and the courage to take advantage of the market decline because, make no mistake, nobody is going to be building any mines at $25 uranium. It’s going to take a higher price to incent the mines to be built, which means that between now and that blessed event that we’re going to have lots of advances and lots of declines in the market. Lots of chances to take advantage of volatility and lots of time to be taking advantage of volatility.
It will also be important for those of you who are qualified to take advantage of private placements to be part of the Sprott effort to capitalize the best uranium juniors. It’s our belief that we don’t want to be involved in any company that we won’t be willing to finance for 3 years of bad markets. In other words, while this market may perform this year, it may not perform in 2018. It may not perform until 2019.
The last uranium market that I was in, I was 3-1/2 years early which tempted me to say I was wrong except I made so much money after that in such a short period that it overcame almost any discount rent that I wanted to apply to it. And my suspicion is that that might be true this time.
Don’t make a commitment to the uranium business that you aren’t prepared to stick with for 3 years.
When you can, make that commitment in a private placement. Make that commitment so that you have the size to stay interested and more importantly where you have a warrant, the right but not the obligation to buy more stock at a fixed price when you are right and the price goes up.
Be picky. Pay attention to and take advantage of opportunity. Stay in touch—in close touch with your Sprott broker and find out when private placements in the sector are available. Buy those private placements where you have enough courage of your conviction that you’re happy to stay along for 2 years or 3 years even in the face of periodic 20% and 30% decline.
I think that’s a good enough general overview of the uranium market and now what I think I’d like to do is to begin answering questions.
[Begin Listener Q&A]
Question. “Does the uranium oversupply take 2 years to unwind? What price can it be expected until then?”
Interesting question. I’m too old and smart to answer it directly. I have no idea when the oversupply unwinds. The leading indicator will be Japanese restarts. If we see Japanese restarts 9 months from now, effectively the overhang in the market is gone. Until we see Japanese restarts, the overhang that we see in the market will not happen.
In terms of what price could it go to, well, the global cost of producing uranium right now is about $60 a pound. At the beginning of the last bull market in 2000 or 2001, the global cost of producing uranium was about $30 a pound. One would have expected an irrational market the last time through for the price escalation to peak out at $40 or $45 a pound. But you’ll remember when you have a supply destruction resolution of a bear market and the market supply and demand is equalized and the price starts to pick up, the suppliers can’t meet pricing signals in the market.
In the last bull market, the price could have resolved itself in the $50 or $60 range but overshot all the way to $130 or $135 a pound. While this market could resolve itself in the $70 a pound level, it’s not unreasonable to believe that we have any global economic recovery or any recovery in China combined by a restart of Japanese reactors that the uranium price could settle above $60 or $65 a pound.
Remember too that there is tremendous price elasticity or demand in elasticity with regards to uranium. The price of producing electricity from a nuclear reactor is completely independent on the price of uranium. The uranium as a percentage of the cost of generated electricity in a nuclear reactor is commonly between 3% and 5% of total costs. The truth is that in the nuclear industry today, the legal bills are much higher than the uranium bills.
The consequence of that, if you have 6 billion dollars invested in a reactor and you’re burning a million pounds of fuel a year, the difference to you between spending 30 million dollars on yellowcake and 60 million dollars on yellowcake is entirely irrelevant. It’s the 6 billion dollars that you have invested in the plant that matters.
What that means in the case of uranium given that it sells for $24 and it costs $60 is that the price of uranium must go up and because there is so little demand elasticity, the price of uranium can go up. The price is something that must go up and can go up almost certainly will go up. I just can’t tell you when.
Next question. “Is Toshiba’s problems with their reactors going to impact the outlook for uranium?”
The answer to that is no. There are plenty of competing suppliers of nuclear technology. And Toshiba’s problems are precisely because they are an inefficient problem-solver. Markets work. The most efficient solvers of problems kill the least efficient solvers of problems, and Toshiba has proven then to be, at least in the context of constructing reactors in the United States, very inefficient problem-solvers. The market is doing what it was intended to do, which is basically assassinating Toshiba’s nuclear business. But there are plenty of nuclear technology providers in the world. The thing that matters one more time in terms of the uranium price is Japanese restarts.
The next question. “The market is rigged. The only relevant chances is our chances of recovery through a lawsuit in the second district of Court of New York.”
I don’t happen to believe that assertion. Given the fact that I have hung around, if you will, Canadian small-cap markets for years means that I’ve seen a lot of rigs in my life. I’ve seen a lot of conspiracies. And in my suspicion, a thorough going rig is impossible because the people who organize and engineer the rig turn on each other.
Markets work over time. Rigs don’t work.
The idea that there is a political class which would like to eliminate the use of uranium is absolutely true. The problem with that is that even that political class when they come to congress or parliament and flip the switch wants the lights to go on, and those are their alternatives. Think about their other alternatives. Germany is an example. In a political context, very publicly shut down nuclear energy except that they didn’t. They bought nuclear energy from Poland, nuclear energy from France.
The difference was the domicile of the reactor, not the consumption and that part which they couldn’t buy from Poland or France in large measure, they filled in by burning dirty U.S. coal. It’s an interesting green solution to an odd political calculation. So, the market is rigged? I don’t think so. The relevant topic for me is Japanese restarts, not some kangaroo court in the United States.
Next question. Somebody quoting me, throwing my own verbiage back at me. “If you’re too early, you’re wrong. In questioning when uranium companies are profitable or uranium spot price is north of $30, are you measuring in months, years or decades?”
Now this is the crux of our discussion. You’ll recall earlier in this discussion my admitting to being at least 30, probably 40 months early last time, and I publicly castigated myself saying that 10% discount being 4 years early isn’t the same as early. It bridges on being wrong, except when you have a 5-stock portfolio where the worst company goes 22:1. In that particular case, the truth is that the money my clients and I made overcame almost any discount in a financial sense.
Now, in terms of a non-financial sense, that is, the trauma that you feel being 40% or 50% down on an investment when other types of investments are working and you’re lagging can take you to the psychiatrist couch at the very best. It’s important to measure whether you have the financial and the psychological strength to be early. But the truth is the contrarians—successful contrarians are always, always early.
Do I measure this in months? Likely not. Years? Likely. Decades? Certainly not. If the current condition that we’re in extends longer than 5 years, you will see almost every uranium mine in the world with perhaps 5 exceptions shut down. Could it take 2 to 3 years? Absolutely. But one more time, what you watch is the pace of Japanese restarts.
Next question. “Is the present moment too early, just right or a little late to start investing in uranium juniors?”
That’s a great question. And the answer to that is actually yes, yes, and yes. It depends on who you are. It depends on your orientation. It depends on your timeframe. It depends on your psychological tolerance and your needs. A little late? Well, a basket of uranium juniors is up probably by 100% in 6 weeks, which is to suggest that they’re substantially less attractive than they were.
My own supposition is that not all of that basket will exist when the uranium price goes up. Some of them will go to zero. The time to sell those is anytime you own them. But the truth is, that the survivors in the 3- to 5-year timeframe, my suggestion is, will be markedly higher than they are today, but perhaps lower first. So, are we too early? Maybe, for some of you. Are we too late? Maybe, for some of you, if 30% or 40% decline would shake you out, then you’re too late. Or is it just right? If you have a 3- to 5-year timeframe, that one is probably true too. I’m not meaning to be obtuse. I am suggesting that the answer to that question has more to do with you as an investor, as a speculator, as a human being than it does with the uranium market because the truth is that all three of them are true.
Next question. “Small modular reactors, do you feel this development technology ‘led by UK, Bill Gates and others will advance uranium markets in 2017?”
Absolutely not. It might influence the narrative, the thinking around uranium. It might excite people, but demand from small modular reactors will probably not be a factor in the market for 10 years. After the ultimate commercialization of this technology, if it occurs, I see one of the strangest permitting nightmares in the world—the idea that you’re going to be able to permit a backyard nuke. While it’s highly amusing to me, probably it’s causing conundrum already in federal, state and local governments. A conundrum that I think is wonderful, but I don’t see impacting the market in particular.
Next question. “Gold and, to a lesser extent, silver and uranium are presented as negatively correlated with the stock market in general. If there is a sudden drop in the market as a whole, will gold and uranium stocks also tank?”
The answer to that is absolutely. What you’ll learn about resource stocks is that resource stocks are stocks. And when stock markets tank, in particular, in response to liquidity crisis, all stocks tank and stocks on the periphery of markets—small stocks, stocks in unpopular sectors tank the most.
So, if we have 30% or 40% market decline, my estimation is that we’d have a 50% or 60% decline in the small resource stocks. I also believe that some of the small resource stocks are undervalued now, which means that they would come back quicker than the broad market. The question is, would you have the courage to hold them through that? Or better yet, buy into that sort of decline? Remember the different name for a bear market is a sale. It’s just that people will very seldom have the courage to buy financial assets on sale.
Next question. “How much spare production capacity do current uranium producers have?”
And the answer to that is not much. They have a lot of latent capacity, but bringing that capacity online with the exception of Kazatomprom requires a lot of capital expenditure and a long lead time to production. An example would be one of the largest uranium producers in the world is actually a by-product at Olympic Dam in Australia and Olympic Dam could easily supply another 15 million pounds a year.
The problem with that is that the expansion that they’re looking at Olympic Dam is a 15 billion dollar capital outlay that will take 60 years to effect and is, in fact, more reliant on higher copper prices than uranium prices. So, with the exception of Kazatomprom which has a substantial amount of fairly low cost production that they could bring online, there is not much spare productive capacity and there is no productive capacity at all that I’m aware of with the exception of Kazatomprom below US$45 a pound. There is, in the U.S. market, probably four million pounds a year of spare productive capacity, but the cash cost associated with that production are about $40 a pound. So, the incentive price for that production is $45 or $50 a pound.
Next question. “Over the next 2 years, do you see a strong enough recovery in enough countries to drive the prices of industrial metals significantly iron?”
And the answer to that is no. I do not suspect that we will see a demand-led recovery in industrial materials prices. I believe that the recovery that we’ll see in industrial materials prices will come about as a consequence of supply destruction, not demand creation.
The exception to that is the nickel business where you’re having a politically engendered choice ironically for the right reasons. The government of the Philippines has made the odd right decision, not something that they’ve done very often of late, but they’ve decided to eliminate the highly destructive open-pit unauthorized laterite mining that’s taking place in decimating large amounts of the Philippines islands. This reduction of laterite mining has caused supply destruction in the nickel industry that I think will drive the nickel price higher without increased demand.
Next question. “Why do uranium producers continue to produce so much if they are losing $36 a pound?”
The answer to that is a paradox. In capital-intensive businesses, when you have sunk billions of dollars into productive capacity, you produce down through marginal cost and often through marginal cost because it costs you so much money to shut in production and then it costs you so much money to reestablish production that what people often do is they produce down to the cash cost of production and then they produce below the cash cost of production in the vainglorious attempt to win what we call “the last man standing” contest. In other words, you want to have productive capacity available when the price increases.
And then, of course, there’s that great unsung reason why people continue to produce. And that’s so that the management team can continue to have something to do and draw their salary. Remember that in the mining business, management teams consider true yield not to be profit margin but rather salary and emolument to management teams, which can seldom be done when they shut in production.
Next question. “Trump’s indifference proves him to be republican captured by fossil foil oligarchs. Bad time for alternative sources including uranium.”
My own suspicion is that although politics are important in both the near term and the long term, markets trump politics—poor play on word. And by the way, Trump is pro-nuclear. I think that Trump’s tweets and pontifications notwithstanding, his influence in the uranium market over 5 years will be nonexistent.
Next question. “Republicans captured by fossil fuel oligarchs.”
All of those oligarchs are also uranium oligarchs. So, my own suspicion is that although the narrative might be driven by the political headlines, the only politics that matter in the uranium business are Japanese politics. The popular consensus in Japan about whether energy security—Trump’s danger that the Japanese people have been exposed to by the Japanese nuclear industry. The only politics that matter in the uranium business in the near term are the restart of Japanese reactors, all the other political morons notwithstanding.
And with regards to alternative sources, remember that all of the alternative sources are challenged by uranium in the sense of uranium’s incredible energy density and the fact that the money to burn the stuff, if that’s the right phrase, has already been spent. I realized that the political establishment before Trump preferred other sources of energy, things like solar, but they had obvious problems, things like night.
Distributed energy, inconsistent energy, requires an amazing grid. You have to get wind power from where the wind is blowing to where the energy is wanted. You have to get solar power from where the sun is shining to where the power is going to be consumed. In order for this distributed energy to be effective in the United States, in the first instance, you needed up 400% redundancy which means that you need the ability to produce at peak about 4 times the average power consumption and you need an incredible expenditure in wire to get the power to where it ain’t from where it is.
What’s going to happen is we’re going to talk alternatives and we’re going to burn natural gas and we’re going to burn uranium and we’re going to burn coal. That’s what’s going to happen.
Next question, “The USA is the number one producer of nuclear power, 9th largest uranium producer. Concerning the amount of supply, which is produced by CIS nations, in your opinion will security of supply be a priority for the USA in the near future?”
The narrative to that question is yes. I think what you’ll see coming out of the Trump administration is the importance of US source material. I’ve heard that my whole career, about 40 years. The truth is, in need, demand is tangible. My entire career, there have been incredible postulations from the morons in Washington about the efficacy of using Arab oil as we burned millions of barrels a day.
Similarly, the Venezuelans have unveiled against the imperialist Americans on a global basis while the principal consumer of Venezuelan oil was, of course, the U.S. Will we make loud noises about the need to produce uranium in Wyoming and Texas? And will we allow that to make us pay more than a dollar or two a pound more for U.S. supply? Absolutely not. The truth is, you want electrical power at the lowest price that you can get it.
Now, is there a good future for nuclear in the U.S.? That’s a very different question. We have the rule of law in the United States. We have the best infrastructure with regards to electrical transmission and other source of things in the United States. Will there be money made at $60 a pound in Wyoming and Texas? Absolutely. Will we shut down nuclear generation in the United States? No. Will we shut down uranium mining in the United States?
The truth is that there are 4 good jurisdictions in the United States for extractive industries—Alaska, Nevada, Wyoming and Texas. And domestic uranium production is concentrated in Wyoming and Texas, both jurisdictions that have long regulatory experience with the uranium business. And make no mistake, in an industry as charged with narrative as uranium is, you want knowledgeable rather than unknowledgeable regulators. The regulators in Wyoming and Texas understand the risks of uranium. They have long experience in attempting to help industry mitigate those risks. Those are great places on a global basis to be producing uranium.
Will protectionism matter? No. Not at all.
Next question, “What are your thoughts about Deep Yellow Uranium as an investment or speculation?”
In the first instance, I can’t talk to you about what’s appropriate for you as an investor or speculator. In other words, I can’t give investment advice because I don’t know about the questioner enough to answer the question. I, or rather, an investment partnership where I am the general partner and the largest limited partner, has become the largest shareholder in Deep Yellow Uranium. I did that because of the incredible experience I enjoyed some years ago with Paladin, the stock that as I told you moved from a penny to $10.
Deep Yellow is the re-acquaintance of the original Paladin backer, that is myself and Sprott, with the team that made Paladin work, led by John Borshoff. Will past be prologue? I hope so, but I have no idea.
Is Deep Yellow an attractive investment or speculation? Well, it’s not an investment at all. Is it an attractive speculation? For you? I don’t know. My mind is obviously made up. A partnership that I control is now a 15% shareholder.
There will likely be a financing in Deep Yellow—and I’d say likely. They haven’t agreed to any proposals made by anybody, but there will likely be a financing in Deep Yellow in the next 3 months. And assuming in that an agreement can be made between Sprott and Deep Yellow, that financing will likely be done by Sprott. Now, the truth is that there are several groups that are competing to offer Deep Yellow money. My suspicion is that given our long relationship with Deep Yellow, that that management team believes that we bring more than money to the equation, but I may be flattering us in that discussion.
Final question, “I have been in the uranium markets for many years and have heard that the turn in the uranium market is closed. I recall watching a webcast on the same with Marin Katusa and I think yourself a few years ago. Could this be another false dawn?”
Absolutely, this could be another false dawn. Right now, demand is constrained because of Japanese restarts. There is between 80 and 100 million pounds of excess supply because of Japanese restarts. The timing of the recovery of this market is a function in the near term of Japanese restarts; in the long term, about the bankruptcy of the uranium power industry at this price point.
If you have questions about the topics raised in this article, please reply to this email or contact the editor here. You can also call your Sprott Global financial advisor at 800-477-7853. Rick Rule
CEO, Sprott U.S. Holdings
Mr. Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As Director, President, and Chief Executive Officer of Sprott U.S. Holdings, Inc., Mr. Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management.
Mr. Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics. He is frequently quoted and referred by prominent natural resource oriented newsletters and advisories. Mr. Rule and his team have long experience in many resource sectors including agriculture, alternative energy, forestry, oil and gas, mining and water. Mr. Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.
If you have questions about the topics raised in this article, please reply to this email or contact the editor here. You can also call your Sprott Global financial advisor at 800-477-7853.
Sprott U.S. Media, Inc. is a wholly owned subsidiary of Sprott Inc., which is a public company listed on the Toronto Stock Exchange and operates through its wholly-owned direct and indirect subsidiaries: Sprott Asset Management LP, an adviser registered with the Ontario Securities Commission; Sprott Private Wealth LP, an investment dealer and member of the Investment Industry Regulatory Organization of Canada; Sprott Global Resource Investments Ltd., a US full service broker-dealer and member FINRA/SIPC; Sprott Asset Management USA Inc., an SEC Registered Investment Advisor; and Resource Capital Investment Corp., also an SEC Registered Investment Advisor. We refer to the above entities collectively as “Sprott”.
The information contained herein does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
This report contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forward-looking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any fund or account managed by Sprott. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any fund or account managed by Sprott will be invested.
Thu Mar 16, 2017 | 1:44pm EDT
By Zandi Shabalala | LONDON
Smaller mining companies seek IPOs but deals remain modest
FIILE PHOTO: Workers are seen underground South Africa’s Gold Fields South Deep mine in Westonaria, 45 kilometres south-west of Johannesburg, South Africa, March 9, 2017. REUTERS/Siphiwe Sibeko/File Photo
Stock market flotations of smaller mining and metals companies are set to pick up this year, although a return to the flood of deals five or six years ago remains unlikely while investors rebuild their bruised confidence in the sector.
A continued rally in metals prices is galvanizing some firms into raising capital on exchanges across the world to fund exploration and plow cash into existing projects, with others also preparing initial public offerings.
But with investors’ memories fresh of a bloodbath in mining stocks in 2015, the firms’ ambitions are modest: they are joining small-capital indexes or listing on junior markets in deals typically worth $10 million or less – far from Glencore’s $10 billion flotation in 2011 when commodities were booming.
“We are at the early stages of a cyclical recovery so you would expect to see the first signs of resurgence in the IPO market,” said Michael Rawlinson, Global co-head of Global Mining and Metals at Barclays.
So far this year, the bulk of IPOs have been in Australia, where nine mining companies have already filed to list their shares on the Australian Stock Exchange. That compares with 10 new issues for the whole of 2016.
Lee Downham, head of EY’s global mining & metals transaction advisory services, said the small-cap indexes in Toronto, London and Australia would see the bulk of initial activity until investors built up the confidence for larger cash calls.
“The sector needs to regain shareholder confidence before the bigger fundraising takes place,” he said.
Investors were stung when mining indexes in London, Australia and Toronto fell between 27 and 50 percent in 2015, with Anglo-American (AAL.L
) losing 75 percent of its value.
However, commodity prices began their revival last year, sending Anglo-American back up nearly 300 percent and making it the best performing blue chip in London, albeit from a low base.
GOLD EXPLORERS DOMINATE
Gold exploration companies, including Huntsman Resources and Raptor Resources, have dominated the Australian crop of IPOs so far as they take advantage of bullion prices rising in 2016 for the first time in three years.
Huntsman Resources is an exploration company with projects in the Democratic Republic of the Congo and Australia, while Raptor Resources explores for gold and copper in Australia.
Also expecting to list in Australia is lithium-focused Marquee Resources, which plans to raise $2.7 million from investors to find and develop exploration projects.
The London Stock Exchange, which hosts three of the world’s largest five mining firms, listed two companies last year – rare earths miner Mkango Resources (MKA.L
) and uranium miner Aura Energy (AURA.L). They followed just one flotation in 2015.
Mkango chief executive Will Dawes said the miner listed on London’s junior AIM market to fund its projects, increase liquidity and broaden its shareholder base while maintaining its Toronto listing.
Rainbow Rare Earths RWBR.L raised $8 million from its listing in London in January to fund its Burundi project.
“Circumstances seem to be more optimistic for junior mining IPOs in the short to medium term than they have been before,” said Martin Eales, chief executive of Rainbow Rare Earths.
Performance of the new listings has been mixed. Shares in Mkango and Rainbow have not added that much value but Aura Energy has surged about 75 percent.
There have been two new mining listings on the Toronto Stock Exchange so far this year, and the bourse said more are expected in the coming months. In 2016, there was a 38 percent increase in cash raisings by mining firms from 2015.
“Assuming that things continue the direction they are going with commodity prices, and there is every indication that there will, we will be seeing a large number of new listings,” said Orlee Wertheim, the head of business development for mining at TSX.
However, industry experts said that while there was a marginal improvement of new listings, investors were still cautious and this could affect how many companies actually make it to market.
“In terms of our pipeline, we are definitely seeing more flow of potential transactions,” said Jeff Keating, director at SP Angel Corporate Finance. “There is more interest in mining companies but I don’t believe that it is going to lead to a flood of IPOs or a return to where we were five or six years ago.”
(Story corrects number of Toronto listings this year in eighteenth paragraph.)
(editing by David Stamp)
Cameco explores U.S. mines sale as uranium slump drags on: CEO
TORONTO — Reuters
Published Monday, Mar. 06, 2017 4:14PM EST
Last updated Monday, Mar. 06, 2017 4:17PM EST
Canada’s Cameco Corp., the world’s second-biggest uranium producer, is exploring the sale of its U.S. production facilities, its chief executive said on Monday, as a six-year industry slump drags on.
Cameco, which has been cutting costs and curbing production, is in the early stages of evaluating the sale of its mines in Wyoming and Nebraska, but also wants clarity on U.S. President Donald Trump’s plans for nuclear power, Chief Executive Tim Gitzel said in a telephone interview.
“We are in the process of looking at divesting those assets. We’re not very far into it, so I can’t say too much, but it’s something we’re looking at,” Gitzel said, speaking from Saskatoon, Saskatchewan, where Cameco is based.
Earnings of uranium producers have been hurt by low prices amid surplus supplies, tracing back to the 2011 Fukushima tsunami that led to the shutdown of all of Japan’s nuclear reactors. A few have since come back online.
Cameco shares were slightly up in Toronto at C$14.54, after spiking higher minutes after Reuters reported on the possible sale.
Cameco’s U.S. mines can annually produce 1 million to 2 million pounds of uranium, used to make fuel for nuclear reactors. Those mines – while much smaller than Cameco’s mines in northern Canada, which are among the world’s biggest – are seen as an important foothold in the United States, a big uranium consumer with little domestic production.
Canada is the second-biggest uranium producer, after Kazakhstan.
The U.S. mines use the in-situ technique of removing ore by injecting a chemical solution into wells, while leaving rock in place. Gitzel declined to place a value on the mines.
The U.S. mines have been the subject of speculation since late last year, but Gitzel has not previously commented publicly. Cameco has probably been open to selling for some time, said David Talbot, analyst at Eight Capital.
The assets are attractive, but liabilities related to reclaiming groundwater and future decommissioning of the mines may limit interest, two U.S. producers said.
The cost of reclaiming and decommissioning the U.S. mines is estimated at C$257-million, Cameco spokesman Gord Struthers said.
“It’s a heavy lift (financially),” said Paul Goranson, executive vice president at Energy Fuels Inc. The liabilities do not rule out a sale to a small U.S. producer, but they would need careful management, Goranson said, adding that larger players could have interest.
The chief financial officer of Ur-Energy Inc, Roger Smith, said the miner would be interested in Cameco’s undeveloped U.S. assets, but Cameco might package them with the mines, which are “not a good fit.”
As it ponders selling the mines, Cameco is also seeking clarity on Trump’s plans for nuclear power, and especially the views of U.S. Energy Secretary Rick Perry, Gitzel said.
Gitzel said he was closely watching whether the United States follows through with a border tax on imported commodities, which could make U.S.-based production more valuable.
Cameco would not sell its biggest-producing Canadian mines – the “crown jewels” – or its best development projects, Gitzel said.
The mining industry strikes something new – optimism
The Globe and Mail
Published Sunday, Mar. 05, 2017 4:45PM EST
Last updated Sunday, Mar. 05, 2017 6:28PM EST
For the first time in years, the global mining industry’s annual extravaganza has rattled into life surrounded by what looks suspiciously like a bull market.
Many commodity prices, from copper to zinc, have rocketed higher in recent months. Share prices have followed suit, and attendees to this year’s Prospectors & Developers Association of Canada (PDAC) convention in downtown Toronto no longer bear the dazed look of accident survivors.
But, even so, the opening day of the industry’s big bash on Sunday still struck a wary tone. Organizers expect 22,000 people to attend the show, which runs through Wednesday. That is roughly the same number as last year, but it is far below the 30,000 who flooded through the doors at the height of the commodity boom in 2011.
In happier times, the convention prided itself on being the spot for both hard-drinking parties and non-stop deal-making. It has become a more sober, restrained affair in recent years as the industry has struggled through a prolonged bleak patch.
Attendees to this year’s convention welcomed signs that the sector’s long ordeal is finally over, but nobody was declaring victory just yet.
“There’s definitely optimism here, but it’s of a cautious sort,” said Paul Robinson, a director at mining consultants CRU Group in London, and a speaker at the conference.
The surprise pick-up in mineral prices in recent months was based largely on China’s unexpected economic vigour, with an assist from U.S. President Donald Trump’s pledge to spend a trillion dollars on infrastructure, he said. The problem is that neither the Asian giant nor the U.S. President are a sure bet to keep on giving.
China, which consumes about half the global output of many commodities, remains the biggest uncertainty, Mr. Robinson noted.
He said Beijing’s decision in recent weeks to curtail aluminum production as a way to help ease air pollution is a positive signal because it indicates the Chinese government feels confident enough about the underlying economy to take the risk of throttling back on a key employer.
But skeptics warned that governments in Beijing, Washington and elsewhere are hard to predict. “One common factor for most [metals markets] is the outsized near-term importance of highly uncertain politics and policy,” Rory Johnston of Bank of Nova Scotia cautioned in a note.
Until the global trend becomes clearer, many miners are content to bide their time. However, unlike a year or two ago, when all the emphasis seemed to be on buttressing balance sheets, a growing number of companies are at least considering expansion.
“We’re being asked to talk to clients about a lot of the big projects that were put on hold back in 2012 and 2013,” said Dave Lawson, president of the global mining and metals market for Amec Foster Wheeler, an engineering consultant and project manager. “People are dusting off those projects and taking a new look at them … redoing the calculations and rethinking the economics.”
A slower industry has resulted in cheaper labour and more competitive bids on everything from construction to manufacturing, he said. Thanks to the improving cost picture, Mr. Lawson’s group has shaken hands on – although not yet officially booked – more than $300-million (U.S.) of new business in the first two months of the year, he estimated.
While big players mull a return to megaprojects, many smaller companies are paying an unusual amount of attention to minor metals, such as lithium and cobalt, where the case for buying is less about the global economy and more about technological trends.
Both lithium and cobalt are used in batteries and a host of promoters on the convention floor are delighted to assure passersby that demand for the metals can only climb as smartphones and electric vehicles become more popular.
Visitors who aren’t in the mood to invest in a junior lithium play can check out the comparative merits of a host of mining jurisdictions, from Greenland to Mongolia, that are using the show to pitch their unique virtues.
One of the more intriguing presences at this year’s show is Brazil, which is seeking to reinvigorate its mining sector by cutting red tape and opening up many previously restricted areas to foreign investors.
Fernando Coelho Filho, Brazil’s Minister of Mines and Energy, is in Toronto to talk to miners and assure them that he intends to remove many of the bureaucratic obstacles to winning a mining permit.
“Our bureaucracy has been very tough to go through,” he said. “We know that. And we’re going to improve.”