Sheldon Inwentash: Opportunities Abound in Uranium Sector
Source: The Energy Report (1/8/09)
With more than 20 years of experience in the investment industry, Sheldon Inwentash, chairman and CEO of both Mega Uranium and Pinetree Capital, sheds some light for The Energy Report on what he sees as "tremendously positive signs" for the future of uranium. Inwentash says this is one of the best buying opportunities we'll ever see because there are so many companies with qualified assets trading at a discount to cash.
The Energy Report: Where you see the energy market going, and how will that affect uranium?
Sheldon Inwentash: I’m a huge fan of uranium. I am CEO of a company called Mega Uranium (TSX:MGA), and we’ve just had a tremendous breakthrough in Australia with the recent change in uranium mining policy in Western Australia, so our team right now is charged up. We’re going to bring our Lake Maitland property, in Western Australia, into production. I look at the uranium market and it really has to do with electricity development. When you look at the alternatives in electricity, from an environmental footprint and from a cost standpoint you really don’t want to be burning fossil fuels to create another form of energy.
I’ve been to China and India enough times to know that it’s absolutely crucial for them; they need electric power and the real only natural solution is nuclear power/uranium. There’s a lot of uranium on the planet, but very little in commercial quantities in one spot or another. We’ve studied this business very closely and remain very actively involved.
The difficulty with it is the long lead times. We’re dealing with utilities, with intermediaries, with constructors of plants, and everything moves slowly. When I look at the demand side vs. what’s really in the pipeline for production, it’s very compelling. So we were very large investors at Pinetree in other names and when prices got real crazy, I think at the beginning of ’07, we exited most of our uranium positions right at the highs and now we’re coming back into some of the names that are trading at pennies on the dollar.
TER: I’m looking Mega at C$1.13.
SI: Yes. And they have assets. They have prospective mines. If you bring a uranium property into production, it’s almost like a gold mine. You get tremendous premiums of value because of the scarcity factor. We are very active in buying these beaten up junior uraniums.
TER: There's a credit crisis in financing and a projection that most of the nuclear facilities on paper or those that are already started will stall or just be eliminated. What does that mean for uranium in the next five to ten years if these plants don’t come online?
SI: First, I haven’t heard of any that have been stopped—maybe I’ve just missed those press releases—but almost every country in the world has been announcing that they want to have nuclear power. So what I see is that nuclear power is a strategic necessity for countries. This isn’t just a bunch of investors seeking greater return. These are populations needing power.
Look at the migration from the countryside to the cities in China, say 25 to 50 million people a year. The country is sponsoring a lot of the infrastructure buildup. I’ve met with some very high level energy officials in India who said their only way out of poverty is through energy. And to reach the masses, it has to be nuclear energy. So that is why they have really, really pushed the uranium nuclear agenda.
They’re going to say, "We’re building these plants. We’re either going to provide the capital for it or own them ourselves, but it’s strategic to survival." That is, to me, going to separate the investment class. So will there be some that may or may not get funded? If anywhere, it’s probably in the U.S.
So these are all, tremendously positive signs. While everybody’s eye is on some other ball, this is a big focus for me. Because I’m involved as an operator, in Mega, I understand quite a bit that’s going on at the government levels and the conviction that they have towards these issues.
The only thing I can’t bet on is timing. Unfortunately, in today’s world, investments are mostly momentum. Everybody loves to get into momentum, long run secular moves. Everything we buy is for a two- to four-year hold period. If we get to our objective prior to that, great. So we’re not in this for the short run and never have been.
TER: What do you think will turn Mega around?
SI: I’ll tell you exactly what’s going to change, what will distinguish us from others. On September 6th, the Labor party lost that state election [in Western Australia] and there is a new coalition government. The coalition announced two weeks ago that it will now authorize uranium production.
Mega has a project called Lake Maitland. Lake Maitland has approximately 25 million pounds of uranium with 1 meter of overburden. It’s a flat-lined pancake, very simple to mine. We just announced the scoping study. Our costs of production are around $20 per pound, which is low, and under $100 million dollars of cap ex—a very reasonable figure. We can produce over one and one-half million pounds a year and we’re ready to go. But what we’re going to do is negotiate with off-take buyers who will buy the uranium. My whole team right now is overseas with off-take buyers, second trip in a month.
What we have to do even though we have lots of money in the company, is look for a partner who will, in combination, buy some of the uranium—which is what they want and need—and possibly a minority stake in the property. We’ve got tremendous interest from China. The problem is we’re dealing with governments, utilities, who are very slow. That catalyst will give us visibility to be a producer within three years, which is very good in uranium. On top of that, we have a pipeline of three more projects.
So we believe that we could be a 3 to 5 million pound-a-year producer, but certainly a million and a half pound-a-year producer in a geopolitically safe country, with a high margin, robust project. And it will be sought after. So that whole series of events will separate us from many of the other companies that boast assets, but for which there are many barriers. Either cap ex is way too high, or they don’t have approvals. Also, we have historic relationships with the aboriginal community, so we have no aboriginal issues. In fact, they’re partners with us. So, really, a lot of the barriers that are in front of others we don’t have. In fact, we really have a green light.
TER: How much money does Mega have in the bank?
SI: Approximately $50 million.
TER: And you’re talking to folks to find who wants to buy that uranium.
SI: Exactly. That’s the key. They all want the product. They don’t want to be investors in uranium, but they feel that to have control over uranium, they have to have some voice and some say, so they all want to have some participation in the deposit itself.
TER: How would you describe Pinetree Capital (TSX:PNP) for the typical investor? Why should an investor look at Pinetree?
SI: Why investors have looked at it and bought it is because they find it very difficult, as you said before, to pick which junior to buy just looking at the geology. We own a lot of companies, so this is a way of participating in sectors, having other people do the due diligence.
We have a great track record. We’re going to be volatile with the space because that’s our business. We’re in the junior market, so we’ll get hurt when the junior market gets hurt. We can find these things, we understand them, we stay on top of them. For the average investor, it’s a good way to participate in a space without having to spend the time and take the risk. Also, they can buy the shares. If they don’t like it, they can sell the shares. It’s not as illiquid or onerous. We’re very transparent. We list many of our holdings on our website.
TER: If somebody buys into the precious metals market, it’s a leverage bet.
SI: Exactly. Our position in golds is trading at 30% to40% of the value of Pinetree and we have a lot more companies in the portfolio.
My personal feeling is right now this is one of the best buying opportunities that we will see, for those that care about this particular space, junior resource, gold first, uranium second. There are so many companies trading at a discount to cash that have qualified assets and are trading at 10 cents on the dollar. We are buying millions of shares of these little ones and people are just—pardon my expression—just puking them up.
TER: Has uranium hit a bottom?
TER: In ’09 you see it higher?
SI: Yes. And I’d be happy with uranium at $80 or $90 a pound. I would say that, running Lake Maitland, we will make a lot of money and many producers will be very happy. We don’t need it to go to $150 and $200. And, you’ve got to remember, the price of uranium per pound—the flow through, the cost to the end buyer—does not really directly impact them. It’s only a small component of the cost. Again, people get fixated on certain numbers.
I think we’re still looking at 2011 to 2015 range where some of the projections show quite a supply shortfall. It started off with Cigar Lake and it’s gone to the Olympic Dam. Everything has negatively affected the supply side. All the risks from the supply side are to the downside. I have not seen any upside surprises. Sure, we have a couple of new discoveries out there, but they’re a long, long way to getting into production if they ever do.
Again, when I look at a deposit like Lake Maitland, 25 million pounds, where you can have a steady supply for 10 to 15 years. . .utilities will love that. Great geopolitical situation, low cost of production. I look at that asset and it’s just been liberated and it’s worth a lot of money, yet our stock price has gone down by half, which doesn’t make sense, but there’s no one else who’s going to fill the gap to deliver that uranium. So I feel really comfortable with our position.
TER: Thank you, Sheldon, we're pleased to hear your assessment of uranium. We appreciate your talking with us today.
Sheldon Inwentash is Chairman and CEO of both Pinetree Capital (TSX:PNP), a Canadian investment company with a portfolio of investments primarily in the resource and energy sectors, and MEGA Uranium (MGA-TSX), one of the fastest growing junior mining companies. Mr. Inwentash has more than 20 years of experience in the investment industry. A Chartered Accountant, he was an Ontario finalist for the 2007 Ernst & Young Entrepreneur of the Year Award. He founded Pinetree in 1992. T he fair value of Pinetree's investments surpassed $100 million for the first time in 2005, and in 2006, Pinetree ranked 5th out of 300 small-cap companies by Canadian Business Magazine for total 1-year return.
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