July 30, 2013

Uranium Nearing Terminal Velocity

Published on Tuesday July 30 2013 (AEST)  

The steady and significant retreat of the uranium price over the month of July gathered even more pace last week. Volumes were steady, with six transactions involving around 700,000 pounds of uranium being reported, but the spot uranium price still fell 5% over the five days. We are now looking at levels last seen in November 2005. 

This was just before that time everyone thought uranium would make for a great investment, pushing the price up to US$138 a pound by June 2007. The GFC interrupted, then we had the Fukushima incident in March 2011 and uranium has been moving steadily south ever since. It's just a matter of time until world energy consumption increases. 

The US Energy Information Administration forecasts an increase of 56% by 2040. At the same time, nuclear power generation is expected to double, but with few buyers desperate at the current moment, 2040 seems like a long time to wait. In the meantime, the uranium market seems caught in a vicious circle. The lower prices are pulling out more buyers, but these buyers are bargain hunters. Thus the lower the price, the more buyers. The more buyers, the more price pressure. The more price pressure, the lower the price goes. For months sellers have been holding firm, but the dam broke earlier this month and it seems sub $40 dollar prices are not only a reality, but now a sub $30 nightmare is being dreamed about. Industry consultant TradeTech thinks we could see some price support from come from producers, traders and/or financials, but they would have to step into the market and buy some significant quantities. 

There are no takers yet, with most of them now in a "have to sell" position. By last Friday, TradeTech's Weekly U3O8 Spot Price Indicator had fallen another US$2.00 to US$34.50 a pound. There are still signs of life in the term market, TradeTech reporting that four new utilities are looking for offers for delivery in the mid-term. Yet just like the spot market, the higher levels of activity are proving disastrous for prices. Mid-term uranium prices have dropped in conjunction with spot prices, which has a number of US and non-US utilities contemplating entry into the term market to take advantage of current prices. 

Last week TradeTech's Mid-Term U3O8 Price Indicator managed to hold firm at US$43.00 per pound, with the Long-Term Price Indicator unchanged at US$57.00 per pound



July 27, 2013

Capture Upside In Undervalued, Underfollowed Energy Stocks

Published on Saturday July 27 2013 (AEST)  

Big gains are rarely found by jumping on the bandwagon. Independent Analyst and founder of MockingJay Inc., Peter Epstein argues that market darlings won't reward latecomers; that's why he spends his time finding undervalued, under-followed junior resource companies. 

In this interview with The Energy Report, Epstein shares his resource stock diamonds in the rough, including a uranium name commercializing a groundbreaking technology and a graphite company beating its competitors to market. The Energy Report:  You've written that "a great company doesn't necessarily make a great investment." Are you implying juniors are better bets? 

Peter Epstein: Yes—juniors are highly risky in that they can move up or down by quite a large amount, but if, for example, a junior is trading at its cash value, how risky is it really? At some point the upside outweighs the risk. Make no mistake: You still need good projects, cash in the bank and a strong management team, but if you're buying shares in a company that's trading below its cash value, you're basically getting its assets for free. 

TER: What's an example of a great company that's not necessarily a great investment? 

PE: Look at Cameco Corp. (CCO:TSX; CCJ:NYSE), a true leader in the uranium space and a great company.  If underlying uranium prices rebound to $75 or $85 per pound ($85/lb), as many pundits expect, analyst price targets indicate that Cameco's stock might increase by about 25%. However, select oversold juniors in the space could return multiples of the amount invested. 

TER: Your portfolio really runs the gamut of resource sectors. How do you choose which commodities to focus on? 

PE: I read a lot and I speak with many management teams and industry experts. It's not necessarily difficult to pick the commodities that have strong core fundamentals. For example, iron ore fundamentals look challenging, as Rio Tinto (RIO:NYSE; RIO:LSE; RTPPF: OTCPK), BHP (BHP:NYSE; BHPLF:OTCPK), Vale (VALE:NYSE) and Fortescue Metals (FMG:ASX), together representing two-thirds of the iron ore industry, are ramping up production levels dramatically. On the other hand, uranium fundamentals appear quite strong. Japan is restarting a number of nuclear reactors early next year and China and India are building new reactors as fast as they can. China has little choice. Its major cities are choked with coal-related air pollution, not to mention the millions of new cars on its roads. India's coal market is hopelessly complicated and corrupt. Coal-fired electricity generation there can't possibly keep up with demand. India's stated goal is to get 25% of its power from nuclear energy, from which it currently gets just 3%. All of this suggests increasing demand for uranium. TER: What are some oversold juniors you're watching in the uranium space? 

PE: Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX) is extremely well positioned in the U.S. It will have two of the top-five uranium development projects in the U.S. once it closes on its announced acquisition of Strathmore Minerals Corp. (STM:TSX; STHJF:OTCQX). Energy Fuels owns the only operating conventional uranium mill in the country. This mill has a replacement cost in the hundreds of millions, yet Energy Fuels' fully diluted market cap is just $125 million ($125M). Energy Fuels trades at a very substantial discount to peer uranium producers. The last time there was a major bull market in uranium stocks, Energy Fuels' stock was up by 400% within about nine months. This time around, the stars are aligning for big gains once again. 

TER: How do you determine the top-five U.S. projects? Is it based solely on size? 

PE: It's largely based on the scale of the projects. The U.S. is home to a number of emerging in-situ recovery (ISR) projects that should produce 2–8 million pounds (2-8 Mlb) of resource over the next four to eight years. These are companies like Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT), Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT) and Uranium Energy Corp. (UEC:NYSE.MKT). The difference with Energy Fuels is that its projects are conventional mining operations as opposed to ISR, which some believe is a lower-cost method. However, if you have a conventional mining project that's three times as large as an ISR project, you're still going to make strong returns at that scale, even if it's at a lower margin. To be clear though, the economies of scale of Energy Fuels' major projects could easily even out the margins as compared to proposed ISR projects. 

TER: Black Range Minerals Ltd. (BLR:ASX) has an unusual uranium ore concentrating technology called ablation. How does that method measure up to an ISR or conventional mining project? 

PE: The technology concentrates uranium mineralization at the mine site by 90% or more by separating waste from ore in a low-cost, green, purely mechanical process. Therefore, instead of shipping 100 tons of ore to a mill that could be hundreds of miles away, only 10 tons of concentrate need be shipped. This translates into immense savings at every step of the mining operation. Ore is cheaper to transport and process and there are 90% less tailings! 

The unique thing about Black Range Minerals is that in addition to its Hansen/Taylor Ranch uranium project in Colorado, which, at 91 Mlb, makes Black Range a top-five resource holder in the U.S., the company also has a 50/50 joint venture (JV) with a private company named Ablation Technologies LLC. 

This JV has exclusive global rights to ablation technology, which could be a game-changer. The majors will be watching the deployment of a semi-commercial scale unit closely in coming months. This JV interest is a hidden asset that could be worth a multiple of Black Range's entire market cap. 

 5Ton P/hr  Ablation Uranium Recovery Unit Under Construction June 23rd 2013


July 17, 2013

Federal Resources Minister Gary Gray Wants Nuclear Australia Debate

Published on Wednesday July 17 2013 (AEST)    

Federal Resources Minister Gary Gray says the Government should not shy away from a debate about whether to develop a nuclear power industry in Australia. 

 Mr Gray has previously spoken of his support for nuclear power and today told the Australian Uranium and Rare Earths conference in Perth that he believes there is a clear commercial market for nuclear power. 

The Labor Party is opposed to nuclear power generation, but Mr Gray says it could secure a reliable energy supply while reducing the nation's carbon footprint. Mr Gray says there needs to be a discussion about whether Australia has a nuclear future. 

"There is no proposal to build a nuclear power station, but that doesn't mean that it's impossible to have a debate or a discussion around our nuclear industries for the future," he said. 

"It is a valuable thing for Australians to be aware of the whole range of opportunities that are available to us as a nation and also responsibilities that are available to us as a nation." . 


Uranium Spot Tipped For Explosive Rebound !

Published on Wednesday July 17 2013 (AEST)  

Brace yourself: Uranium tipped for Explosive Rebound ! 

From: The Australian 
July 17, 2013 

MAYBE it was the heavy morning rain, or maybe it was the realisation that the market is doing more to damage the uranium sector than any number of marches through the streets of Fremantle could achieve. Either way, the collection of anti-nuclear activists that usually gathers outside the annual Australian Uranium Conference were for the first time in the event's history a no-show. 

For the dozens of uranium explorers, developers and miners gathered inside, being ignored has become routine. Investors have shown little to no love for uranium stocks for more than two years, since the Fukushima nuclear disaster in Japan triggered a series of events that left the price of uranium and shares in uranium companies wallowing. The uranium price now sits below $US40 a pound, half the level required to get new uranium mines off the ground. For explorers, raising fresh equity to top up increasingly meagre bank balances is a near impossible prospect. Against that backdrop, however, is a strong conviction in the sector that their fortunes could be about to turn. 

The supply and demand equation has been working against the uranium sector since Fukushima sparked an ongoing shutdown of almost all of Japan's nuclear power capacity. But even as Japan continues to work out what role, if any, nuclear will play in their energy future, China continues with a wave of nuclear development that could dramatically increase global uranium demand. For Julian Tapp, a former lieutenant to Andrew Forrest at iron ore miner Fortescue Metals Group and who now runs would-be uranium developer Energy and Minerals Australia, the uranium market is shaping up to become "iron ore on steroids". The outlook for uranium today is similar to that facing iron ore in the early 2000s, he says, when a becalmed iron ore price overshadowed the early signs of the massive demand growth set to emerge from China. 

Today, Tapp says, China is embarking on a "massive" rollout of new nuclear reactors that will drive a major surge in uranium demand. "Not only is there a shortage coming, it seems there will be a sustained shortage. Even if all the current projects on the drawing board get up, it's difficult to see how there's going to be enough supply to keep up with demand," Mr Tapp told The Australian. Compounding the issue, he says, is the looming end of an international program to recycle Cold War-era nuclear warheads into fuel for nuclear power plants. Those supplies should be exhausted by the end of the year. "When (the uranium market) turns, it's likely to go quite a long way," Tapp says. "My estimate is somewhere in the range of $US120-$US140 (per pound) for the spot price." Until then, however, Tapp faces a real challenge in keeping EMA funded. It only has about $1 million in cash at present and needs to secure more -- a task Tapp admits will be difficult. EMA's dwindling bank balance is a familiar story across the uranium sector, but it is also one that could help in the industry's stockmarket revival. 

Argonaut Securities analyst Matthew Keane is tipping a big rise in mergers and acquisitions in the uranium space in the coming year, driven in part by cashed-up companies preying on those running out of funding. "Looking into 2014 we would expect to see a higher level of M&A within the sector itself," he says. "We are now 2 1/2 years into a post-Fukushima decline in the uranium price, and a number of junior uranium companies are now really feeling the strain in terms of their balance sheet. The average cash balance across the junior balance in around $2.1m. "For those companies that do have cash, there is the opportunity for the cash-meets-project type acquisition." Adam Myers, a corporate finance partner with BDO, told the conference that those few players with money should be looking to take advantage of the opportunities in a depressed market. "There's certainly opportunities to pick up good-quality projects because companies are really running out of cash," he said. "It's worth looking at the market and seeing if there is a strategic deposit you can pick up." One player that says it is looking to buy unloved assets is Peninsula Energy. The company has seen its own share price plummet in recent years and is still trying to secure the $100m in debt funding it needs to develop its first uranium mine. 

Still, it wants to add another project to its portfolio. Executive chairman Gus Simpson says he wants the company to acquire an early-stage project somewhere in Australia, to complement the company's other development projects in Wyoming and South Africa. "There are some 345 operating nuclear power stations in the world," he says. "As I speak there are 67 new nuclear power stations under construction; that's the most at any single time in history. And there are another 167 nuclear power stations that will be built over the next decade on top of those 65. That is a renaissance." Should that play out, don't be surprised if the anti-nuclear protesters manage to find their voice once again.

 . .


July 2, 2013