I wanted to bring your attention to a recently published report by Zimtu Capital (ZC), an investment fund in Vancouver, British Columbia. Derek Hamill, the author of the report, favorably highlights the Athabasca Basin in Saskatchewan as being one of the lowest-cost uranium producing regions in the world. This is great for companies like Cameco Corporation (CCO), Denison Mines (DML), Fission (FUU), Lakeland Resources (LK), Declan Resources (LAN), Skyharbour Resources (SYH) and Lucky Strike Resources (LKY) who are all exploring in basin. If any one of these companies is able to make a uranium discovery, investors know that the asset has great potential to be economic. Here are some of the points I wanted to highlight from the report:
- The Athabasca Basin is home to the highest grade uranium deposits in the world
- The Basin is one of the lowest-cost producing regions in the world, giving it a built-in insurance policy in the event of falling uranium prices.
There’s no better place to make a uranium discovery than the Athabasca Basin:
From the report: “Australian uranium miner, Paladin, has written down assets and posted heavy losses from their mining operations in both Malawi and Namibia. The Basin is like no other known uranium production center in the world. Canada has over 900 million pounds of Uranium that could be attractive with a current long term price potentially as low as $22 per pound”
Derek Hamill, a research analyst at Zimtu Capital, as well as the author of the report goes on to mention that “The Basin offers upside exposure to higher uranium prices resulting from strong growth in commercial nuclear energy generation, while offering important downside protection from increasing uncertainty for the industry. For this reason, exploration in the Athabasca Basin will remain resilient and future discoveries in the region should command a premium – potentially rewarding properly diversified investors who stay the course”.
This report just goes to show that the Athabasca Basin is the best place in the world to make a uranium discovery. Not only is it one of the lowest-cost producing jurisdictions in the world, it offers a level of political stability that is hard to come by for commodities investors. Companies don’t have to worry about losing projects like they could in Kazakhstan or Namibia.
Cantor Fitzgerald recently published a report saying that they believe uranium prices are set to go much higher in 2014. According to the author, Rob Chang, a uranium analyst with Cantor, “We have long pointed to 2014 as the kick off year for uranium prices to return and for the commodity to retake its position in the spotlight.” He later goes on to mention that “we believe prices are set for a violent move higher as Japan is set to restart some reactors this year.” Some of the larger uranium producers like Cameco Corporation and Denison Mines have done very well recently and I think you should keep an eye on them as they usually set the industry trend.
Producers:
Cameco Corporation (CCO) is a $9.5 Billion dollar uranium giant that is allocating a tremendous amount of capital towards drilling in the Athabasca. Cameco made it in Cantor Fitzgerald's 36 best global ideas for 2014 and the stock has done very well in the last few months. If you take a look at the chart below, you can see that the stock has been up over 30% since October 2013.
Denison Mines (DML) is another $648 million dollar uranium producer in the region that has seen great appreciation in their share price recently. The stock has been up well over 50% since October 2013.
Even though we see the spot price of uranium trading at about $35/lb, we can see the producers starting to gain some traction in the market. Now, I wanted to highlight a few junior uranium companies that are all in the exploration stage but that are gearing up for their drill programs in February/March of this year. This is only a few months away, and I think these companies should be on your watch screens as we can see a big lift in their valuations if they do in fact make a discovery. We have already seen what can happen when a junior uranium company makes a discovery in the basin. Alpha Minerals (AMW) was one of the hottest stocks on the TSX Venture Exchange, making shareholders substantial triple digit returns. Take a look at the chart below, the stock went from a low of $0.20 to a high of $7.60.
Explorers:
Lakeland Resources (LK)
According to Lakeland’s management team, the company should be having constant news flow from now until they start to drill sometime in February/March. They should be issuing a series of news releases before the drilling gets started, which should help gain interest among investors. The company is well positioned with substantial cash in the treasury, an experienced and sound technical team and a land position which gives it the highest chance of making a true discovery. The most important thing here to note is that we have all seen how the market rewards companies that have made a uranium discovery in the basin like Alpha Minerals (AMW) and Fission Uranium (FCU) (the two companies have recently merged). The market loves uranium discoveries and is willing to reward them handsomely.
Here is what we have to look forward to in terms of news flow for Lakeland in the near future:
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Field results from pre-drill/surface work at the Gibbon’s Creek Property (RadonEx, Boulders, and Ground Resistivity Survey)
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Drill results from Midas Gold Property
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Commencement of drilling at Gibbon’s Creek
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Potential additional project acquisitions
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Exploration commencing at secondary projects (ie. South Pine / Perch Lake, etc.)
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Potential continuation of building out of team.
They are working towards identifying their targets for their winter drill program which is expected to spark the market’s excitement this quarter.
Declan Resources (LAN)
Declan Resources has partnered up with Lakeland on their Gibbon’s Creek Project. Declan has the option to earn up to a 70-percent interest in the project by spending $6.5 million on exploration and $1.5 million in cash payments to Lakeland over four years. As I mentioned above, drilling on the Gibbon’s Creek target should start sometime in Feb/March of this year.
Declan Resources is run by a very savvy, experienced,and successful group. Wayne Tisdale is a very large shareholder himself, owning over 5 million notes. In his most recent filing from December 16th2013, he bought 190,000 shares at $0.08. One thing I always preach to investors is to make sure that the insiders have a substantial amount of stock at roughly the same price as you prior to investing in a company. It is imperative they have their skin in the game as well. That way, you know their intentions are aligned with yours and everyone will work together on making the deal a success. I believe this is the case with Declan. The insiders have proven that they are heavily invested in the deal themselves, are buying stock in the market, and will hopefully continue to do so.
Wayne Tisdale is a veteran in the business and has been involved with many successful companies during his tenure, including Rainy River (8mn oz of gold in Ontario which was bought by New Gold for $310 Million), and we hope he and his team are able to perpetuate this track record with Declan. Declan also trades on good volume on a daily basis, and at an average of 400-500K shares/day, liquidity isn’t an issue.
Lakeland and Declan’s Gibbon’s Creek Uranium Property has been gaining more and more recognition among investors:
Lakeland and Declan’s Gibbon’s Creek Project has been turning heads around the mining community. A January 8 news release highlighted positive results from their recently completed surveys. These surveys are necessary to identify drill targets for their upcoming program in the spring. Both Lakeland and Declan were ecstatic about their successful completion of a land-based RadonEx survey, with a peak of 9.93 picocuries/square metre/second which is believed to be one of the highest reported RadonEx values recorded to date in the Athabasca Basin. Not only that, but their ground-prospecting and sampling program confirm the existence of a historic radioactive boulder field on the Gibbon’s Creek property. Results include eight boulders with assays greater than 1.0 per cent triuranium octoxide and a high of 4.28 per cent U3O8. This is all great news as it confirms the existence of uranium in the area. When Lakeland and Declan issued this news, both companies had a good run on their stock, providing further assurances to investors that the market is excited for their upcoming drill program.
Skyharbour Resources (SYH)
Skyharbour is part of a four-company partnership called the Western Athabasca Syndicate which was formed to explore and develop a 709,513 acre uranium property package, including the largest mineral claim position surrounding Alpha Minerals (AMW) / Fission Uranium’s (FCU) high-grade PLS discovery. One of the things that really caught my interest in this case is the amount of money being invested in the exploration by the partners. It took Fission and Alpha approximately $5 million to make the first drill discovery on the property, while the Syndicate is planning a $6 million program over two years while leveraging the combined expertise of all four companies’ technical teams that comprises over 200 years of geological experience.
To date, Skyharbour and its partners have completed almost $2 million of exploration, of which Skyharbour only had to pay $340,000, or 17% of the total cost (Skyharbour, under the Syndicate deal, only has to fund 1/6thof the overall program). The company issued a news release on January 7th, 2013 to report their highly encouraging initial results from gravity surveys. For those of you who aren’t too familiar with uranium projects, gravity surveys are a powerful tool for uranium exploration in the Athabasca Basin, and a gravity low anomaly is a prime drill target as it represents altered rock that could host a uranium deposit. Skyharbour and its team have only completed half the survey but so far the results are encouraging. They will finish the survey in the coming weeks, followed by additional radon surveys leading into a drill program in March of this year. In the current market environment, the syndicate model of which Skyharbour is a part is proving to be a cost-efficient and operationally-effective structure by which to conduct a large exploratory program without substantial equity dilution to shareholders. It is evident the company has assembled the right ingredients to potentially make another discovery in this emerging area of the Basin, and to emulate the success Alpha and Fission have had.
Each company I have highlighted here has had a good run with their stock price, and I believe they have a lot more room to grown as they set their sights on making a true uranium discovery in the basin. I think that now is the time to be keeping these companies on your radar screen as each one of the gets ready for their upcoming drill programs in the spring. News flow on Lakeland, Declan and Skyharbour should be forthcoming, potentially adding short term volatility for shareholders to capitalize on.
I encourage everyone to take a look Derek Hamill’s report on the Uranium market which can be found here.
As always, if you have any questions, please do not hesitate to get in touch with me anytime.
Disclosure: Transcend Resource Group has been paid a consulting fee for conducting an independent review on Lakeland Resources Declan Resources, Skyharbour Resources and Lucky Strike Resources. Transcend Resources Group is also a shareholder of Declan Resources.
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