Uracan to Benefit from Return of the Uranium Bull
Source: James West, Midas Letter (5/6/09)
Uranium is going to be in short supply in the not-so-distant future, according to a report issued recently by Toronto-based Salida Capital Corp. And that’s going to give a boost to uranium explorers.
According to the report:
“It is conceivable that the uranium industry may need to expand annual mine production by more than 50% during the next decade in order to meet demand from new reactors. In the ten–year period to 1997 the industry was only able to grow annual production by 14%, despite a spike in prices and significant spending on exploration and development. Today, the industry faces financing challenges in addition to the regular geological, regulatory, and operational hurdles. Should the mining industry come up short, the incremental supply will have to come from larger draws on finite government inventories. Otherwise nuclear power projects will be cancelled for lack of fuel.
Meanwhile, today’s uranium price provides limited incentive to explore for and develop new mines, while existing operations and known deposits face a myriad of challenges. The marginal cash cost for the uranium industry is believed to be in the US$45–$50/lb range, higher than today’s spot price. Adding in a reasonable return on investment suggests a minimum US$60–$65/lb contract price to justify investment in a typical new project. Given that reactors are far more concerned with security of supply than the actual price of uranium, there would seem to be little resistance to higher prices should market conditions tighten.”
And Salida isn’t the only group predicting stronger demand for uranium in the near term. RBC Capital Markets issued research on April 29 that concurs with Salida’s stipulations.
“Based on our supply demand outlook, we think the uranium market will be facing substantial deficits and that utilities will have to pay higher and higher prices to secure both spot and long-term supplies. We also believe that the longer the spot price remains depressed (e.g. below US$70/lb), the more dramatic the price run-up will be.
We have revised our valuation for the uranium sector to reflect our view that we are at the early stages of a bull market, but we think the peak levels are still more than two years away. We think that equity pricing at the peak could be driven by NAV multiples that exceed 2.5 times for the more spot sensitive equities like Paladin and Uranium One.”
The RBC report builds a strong case for increased uranium prices by the end of this year.
“We believe we have just recently come off the bottom with respect to the spot price. Looking to the future, we are forecasting the uranium price will increase from its current spot price of $44 per pound to the mid-$50 per pound by the end of 2009. Longer term, we believe the uranium spot price will need to increase significantly to provide the proper stimulus to uranium companies to develop new mines. We think the price increase will happen one of two ways: (1) the spot market will tighten in advance of demand increases, providing sufficient time for new mine development; and (2), new, incremental demand drives the spot price higher, but given the inability for supply to react quickly (e.g. years, not months), the spot price could increase very dramatically, perhaps even mirroring the 2006-2007 bull market. Our forecasts are assuming the first option occurs resulting in higher prices, but with some moderation to price increases.”
Uracan recently completed its winter 2009 drill program at its 100% owned North Shore Property, located within its 100% owned 1,000 square kilometer North Shore Uranium Property in Quebec.
The initial 3,000 meter winter 2009 diamond drill program was extended to a total of 4,819 meters. Drilling was focused on generating additional mineralization up dip and along strike from the existing Double S NI 43-101 inferred resource of 74.2 million tonnes at an average grade of 0.012% U3O8 containing 9.06 million kilograms (20 million pounds) of uranium.
Total NI 43-101 compliant inferred resources to date on the property are approximately 154.9 million tonnes at an average grade of 0.012% U3O8 containing 18.48 million kilograms (40.73 million pounds) of uranium using a 0.009% cutoff.
The deposits are located approximately 8 kilometers north of the St. Lawrence Seaway, with electric power lines and a paved provincial highway running through the property. These open-pittable resources outcrop at surface, and are open at depth and along strike.
Uracan has a second uranium discovery at surface at its 100% owned Pipewrench Lake property in Saskatchewan, located about 120 km south of the Athabasca Basin. Drilling in 2008 intersected 1 to 3 pounds uranium per ton over widths up to 19.5 meters. Pipewrench Lake is hosted in the same Wollaston domain geology that forms the basement rock to many of the rich underground uranium mines in the Athabasca Basin - but here the domain is at surface.
Uracan has 91 million shares outstanding. Visit the company’s web site at www.uracanresources.com to learn more.