URANIUM INVESTORS ...AND THE FUNDEMENTALS ARE COMPELLING..??>>..Over the next decade, we expect uranium demand to grow at about 3% per year (3%/year) with about two-thirds of that incremental buying coming from China, Russia and India. China is building reactors like they’re going out of style—30 units are currently under construction domestically, with 59 in the planning stage — and we’ve just seen China grow its presence internationally with an equity stake in the Hinkley Point power station in the U.K. Russia is building 10 reactors at the moment. It’s got 28 on the drawing board, according to the World Nuclear Association, and that’s going to more than offset the retirement of some of its aging reactors. Russia is heavily involved in vending reactors globally as well, with projects around the world. One interesting aspect of that is the build-own-operate model, where Russia will build and operate a plant in your country and then sell you electricity from that plant. In India, despite some headwinds with the nuclear liability law, another new reactor just connected to the grid, an additional six units are currently under construction and five dozen are on the drawing board. You’ve got new entrants like the United Arab Emirates, Turkey and Vietnam showing that they’re very serious about nuclear as a power source. ..>>.

Uranium Investors, Ignore the Noise! Fundamentals Are Compelling

By The Energy Report, on October 29th, 2013 in Energy

http://jutiagroup.com/20131029-uranium-investors-ignore-the-noise-fundamentals-are-compelling/

 

The Mining Report: David, welcome. What is happening with uranium demand? And where are the trends most pronounced?

David Sadowski: Over the next decade, we expect uranium demand to grow at about 3% per year (3%/year) with about two-thirds of that incremental buying coming from China, Russia and India. China is building reactors like they’re going out of style—30 units are currently under construction domestically, with 59 in the planning stage — and we’ve just seen China grow its presence internationally with an equity stake in the Hinkley Point power station in the U.K. Russia is building 10 reactors at the moment. It’s got 28 on the drawing board, according to the World Nuclear Association, and that’s going to more than offset the retirement of some of its aging reactors. Russia is heavily involved in vending reactors globally as well, with projects around the world. One interesting aspect of that is the build-own-operate model, where Russia will build and operate a plant in your country and then sell you electricity from that plant. In India, despite some headwinds with the nuclear liability law, another new reactor just connected to the grid, an additional six units are currently under construction and five dozen are on the drawing board. You’ve got new entrants like the United Arab Emirates, Turkey and Vietnam showing that they’re very serious about nuclear as a power source.

On the other hand, although the U.S., the world’s largest nuclear power producer, is building three large reactors and two more are due to start construction imminently, utilities have decided to close five small, old reactors due to challenging economics, with a handful more at risk of closure. In France you’ve got some talk about reducing its very heavy reliance on nuclear, while a similar debate has kicked off in South Korea. And Germany, as we all know, is looking to phase out its nuclear power plants by 2022. It’s sort of a polarized mix internationally when it comes to nuclear power and uranium demand.

The underlying theme is that Western nations may have slowed their momentum somewhat on nuclear, and there’s a variety of reasons for that, including upfront capital costs, which tend to be quite high; the low cost of competing sources of electricity, like natural gas; and in some cases low electricity demand and power rates regionally. Despite that, Eastern nations remain focused on nuclear reactors as a linchpin in their energy mix for its stable, low-cost, zero-emission ability to provide secure base load power.

TMR: With the market sending conflicting signals, how should investors proceed?

DS: For investors, the key thing to focus on is that irrespective of public outcry in some regions and pullback on nuclear power growth plans in others, there is still significant growth of nuclear power globally. Japan is going to be restarting its reactors. We think about 30 gigawatts or so will eventually get turned back on, with those first units firing up again mid-2014. Further clarity on the timing and number of those restarts as well as potential read-through on Japanese inventories is a key catalyst for the uranium market. The investor looking at some of these conflicting signals has to stay focused on the underlying trend and ignore the noise. We think the underlying trend is heading in a positive direction, especially in the medium- to long-term.

TMR: Ontario decided to refurbish existing nuclear plants instead of building new ones. What does this mean for the future of nuclear power in Canada?

DS: Canada has long been a major force in the global nuclear power industry. Nuclear power was first developed in the 1940s. In the 1950s and 60s, Canada developed the CANDU reactor design, a unique heavy water plant that is flexible with respect to maintenance and the fuel that can be used, supplies much of the world’s medical isotopes and has been exported to several other countries. For domestic power generation, Canada is pretty reliant on nuclear power. There are 19 reactors operating today, meeting about 15% of the country’s electricity requirements. We don’t think the decision not to pursue new reactors at Darlington is going to change nuclear’s role—the decision to refurbish the existing units is a cost-effective commitment, in-line with demand growth, to maintain nuclear as an important source of power in the country for decades to come.

TMR: Yellowcake is trading now at an eight-year low, around $35 per pound ($35/lb), but it appears to have stabilized there after sliding for three years. What is your advice for investors now and why?

DS: We believe the uranium price is more likely than not to be range-bound for the next 12 months or so given a glut of uranium supply and a significant dip of real demand in the marketplace (as opposed to discretionary demand) from utilities. In the medium to longer term, we continue to see extremely compelling supply/demand fundamentals. Accordingly, we’re still inclined toward companies that can weather some spot price weakness, but are leveraged to an inevitable rise in sentiment and equity valuations in the space.

TMR: In our last interview though, you had projected a three-year supply shortfall of uranium starting in 2014. What’s the current outlook?

DS: A lot has changed since we last talked. There’s been a bit of a pushback in terms of when we expect Japan to start up its reactors. That has had implications for uranium demand globally. Japan created a new regulator called the Nuclear Regulation Authority. It established a rigorous new safety framework that all reactors will have to operate under and the pre-restart inspection process was started from scratch all over again. The reactors have to be upgraded to meet the new guidelines, it’s going to take at least six months to inspect each power plant, and there’s a finite number of inspectors.

In China as well there’s been a throttle back on its growth plans following an 18-month safety review after Fukushima. That safety review was completed in late 2012. For the time being, only third-generation power plants on the coast will be permitted to commence construction going forward. That’s had a bit of a negative impact. Those are just two examples.

On the supply side, mine production has been very strong since we last spoke. We’ve seen big rebounds in Australian and African supply. Kazakhstan has continued to grow despite obvious price headwinds. There’s been some inventory selling by a company called Japan Atomic Power Co. Perhaps more significantly, requests for deferral of supply contracts by some Japanese utilities have led to the return of some uranium back to the original selling producers, who then turn around and sell that material into the marketplace. That’s had a negative impact on the supply/demand fundamentals.

Even though the Russian HEU agreement ends this year, which should reduce U.S. utility reliance on this stable source of supply, we think secondary supplies will continue to be significant. The U.S. Department of Energy stated it’s going to start releasing more of its material into the marketplace. We also now expect higher levels of material as a result of underfeeding at enrichment plants in both Russia and Western nations. On balance, this has all resulted in our global supply/demand shortfall getting pushed back several years.

We now see meaningful oversupply through 2016, a relatively balanced market from 2017 through 2019, but then in 2020 we see a deficit emerge that escalates very quickly to crisis levels. There is enough material to go around for now, but demand continues to grow. Existing mines are depleting and the uranium price is far too low to incentivize the mines that the market will badly need by the end of this decade. We believe uranium prices have to be a lot higher by 2015 or 2016 to provide enough lead time to bring on new supply in advance of this very large shortfall looming. It’s hard to time these things exactly with respect to the uranium price, but we do see further supply disruption or even a resumption of long-term utility contracting as being that spark that moves uranium prices to where they have to get to.

TMR: Given all these conflicting trends, how are mining companies responding?

DS: The mining companies have suffered. Spot uranium prices are at eight-year lows and are not reflecting the longer-term fundamentals. For companies that have meaningful exposure to current market prices, that is to say those that don’t benefit from long-term fixed-price contracts, their realized prices are on a downward trend. That is definitely factoring into equity valuations as well. We’ve got producers averaging well below historic levels. We typically see producers averaging well over 1.5-times price-to-net asset value, for example, and right now they’re trading at fractions of that. The juniors are even more battered with reduced prospects of securing equity financing and greater challenges in quickly getting their projects into positive cash flow. But the uranium price must inevitably go higher and we see a lot of opportunity on the equity side because of that. We think there’s going to be a continued trend toward mergers and acquisitions with logical consolidation in key jurisdictions such as the Western United States. Also, many larger entities are well capitalized, while potential acquisition targets are trading at bargain valuations.

As far as how uranium companies have coped, over the last 12–24 months we’ve seen Cameco shelve its Double U project, BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) shelved its Olympic Dam expansion plans. Trekkopje, Imouraren, Bakouma, Stage 4 at Langer Heinrich, Ranger Heap Leach—these are just some of the projects that have been pushed back or canceled, now removed from the project pipeline. Existing production has been cut back as well. Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX) has halted mining at three small mines in Colorado and Uranium One is throttling back on well field development at its Willow Creek mine in Wyoming, which should result in declining output rates there. Further supply cutbacks like those could be one of the catalysts that spark the uranium price over the next 12–24 months. We highlight Uranium One’s Honeymoon mine in Australia, Paladin’s Kayelekera in Malawi, Rio Tinto’s Rössing in Namibia and further growth in Kazakhstan as potentially being the next victims of this low price environment.

TMR: You recently attended this year’s World Nuclear Association Symposium. What were the takeaways?

DS: The symposium is the largest demand-side event in the industry. Normally we see an uptick in market activity following the conference as market participants from around the globe sit down in London and hammer out supply deals. That didn’t really happen this year. I think what became apparent at the WNA was the demand side of the industry feels satisfied with the amount of uranium available to meet its uncovered needs over the next couple of years. That in part has led to a complete collapse of the long-term contracting market. We’re just not seeing any long-term contracting right now. Year-to-date there’s only been about 14 million pounds (14 Mlb) of yellowcake that has changed hands in the long-term market. That compares to about 140 Mlb/year average over the last decade. There’s some thinking that at some point utilities have to resume contracting. That’s really going to be what gets the uranium price moving upward in our view—that concern among utilities that they’re not covered on the supply side, coupled with an increasingly apparent future supply shortfall, leading to more buying. As I’ve mentioned, Japanese reactor restarts and further supply cutbacks could be critical in the timing of this.

TMR: You have 10 uranium companies under coverage. What are your choice picks and why?

DS: Two of our top picks are Cameco Corp. (CCO:TSX; CCJ:NYSE) and Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT). For Cameco, we’ve got a $25/share target and an outperform rating. This company is the industry’s go-to, the blue chip uranium company. It’s organically growing very low-cost operations, which are for the most part in very safe jurisdictions. It has a lower-risk approach to contracts, with a targeted pricing mix of about 40% fixed-pricing and 60% market-related pricing in the contract book. The company’s got a solid balance sheet. We think it’s going to end Q3/13 with about $800M in working capital and another $2 billion ($2B) in undrawn lines of credit. It’s also diversified across the nuclear fuel chain, with exposure not only to its core uranium mining business but also with nuclear fuel services, like conversion and fuel fabrication. It’s got a stake in the Bruce nuclear power plant as well as a newly bolted-on uranium trading business, so it’s quite diversified. On top of that, Cameco pays a 2% dividend. We think it offers a very attractive risk/reward proposition at these levels.

On Ur-Energy, our other top pick, we’ve got a strong buy rating and $1.80 target. Ur-Energy is the world’s newest uranium producer, having just started operations at its flagship, wholly owned Lost Creek in-situ leach mine in Wyoming, a very favorable geopolitical jurisdiction for mining. Lost Creek has lowest-quartile cash costs. We’re modeling it at about $22/lb life-of-mine average production cost there. Ur-Energy just put out a strong production update in September. We think that the ramp-up curve on production is highly derisked now. The company also boasts an operationally experienced management team that has done a great job hedging themselves. About 33–50% of design production rates are going to be delivered into fixed-price contracts through 2019. Those contracts are priced well above current market levels, providing significant near-term cash flow. Having just secured its long-sought-after low interest bond loan from the state of Wyoming, $34 million at 5.75% interest, we model Lost Creek as fully funded, and the company’s balance sheet as carrying much lower risk. Furthermore, trading at only 0.6 times price-to-NAV, a 40% discount to the group average, we think the current share price offers a very attractive entry point at the moment.

TMR: Speaking of Cameco, in September you bumped your target for Cameco up $1 to $25, but the stock fell 14%. What was the thinking behind that?

DS: That change was more of a housekeeping revision. With that research note, as we always do around that time of the year, we rolled forward the discount periods on our discounted cash flow models from 2013 to 2014. We also rolled forward the valuation period on our price to cash flow to 2015. Both of those changes, in this case, had a slightly positive impact on our valuation and that’s what resulted in the upward tick to a $25 six- to twelve-month target price.

TMR: How will the opening of Canadian uranium mine investment to European companies affect your uranium companies?

DS: It’s certainly good news. Elimination of the non-resident ownership policy (NROP) will permit European Union-based companies to own a majority stake in an operating uranium mine. That opens the door for companies like Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) and AREVA SA (AREVA:EPA) to push forward with development of existing deposits or to buy more uranium assets in Canada. Accordingly, it increases takeover potential for companies like Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT), UEX Corp. (UEX:TSX) and Kivalliq Energy Corp. (KIV:TSX.V).

Despite Cameco’s apparent support for the rule change, we think it may face increased competition in Canada for personnel, equipment and permitting priority if companies like Rio Tinto and AREVA are allowed to build up production.

TMR: Denison Mines Corp.’s stock is at a four-year low, with its takeover target, Rockgate Capital Corp. (RGT:TSX), having fought Denison’s bid. Your return on Denison has also been poor. Why are you recommending Denison as an outperform?

DS: The board of Rockgate has actually changed its tune and is now recommending shareholders accept the offer from Denison, which we think is a great deal for shareholders on both sides. Denison gets a significant chunk of cash out of Rockgate as well as the Falea project in Mali as a throw in for less than $0.20/lb, while Rockgate shareholders will now get shares of Denison, a company with superior size, liquidity, assets and strategy in exchange for their Rockgate shares. Falea is likely to get spun-out with Denison’s other African assets if the deal closes successfully.

On our recommendation, we view Denison as one of the premier uranium explorations globally with a dominant landholding in the eastern Athabasca Basin. The company has a 60% interest in Wheeler River, the world’s third-highest-grade uranium deposit that continues to grow. It’s got a 22.5% stake in the McClean Lake mill, the most advanced uranium processing facility globally, which is undergoing a doubling of plant capacity at nil cost to Denison and should yield some nice toll milling revenues starting next year. It’s got a 60% stake in Waterbury Lake, the western extension of Rio Tinto’s Roughrider, and then a highly prospective suite of exploration projects elsewhere in the Athabasca as well as in Mongolia and in Zambia.

In addition to outstanding exploration upside at those projects, we recommend Denison on high takeout potential. We believe these growing high-quality assets in low-risk jurisdictions would be a natural fit for many strategic entities, such as Rio Tinto, particularly after the recent revision to the NROP policy, as we discussed, as well as Cameco or even Asian nuclear utilities. Denison is well run. It’s got a solid cash position even without the Rockgate acquisition. Like our other top picks, Denison can weather uranium price weakness in the near term, but it’s poised for that inevitable rebound in uranium prices and industry sentiment. That’s really what drives our valuation on the company.

TMR: Thank you, David. You’ve given us a lot of insight.

DS: You’re welcome.

David Sadowski is a mining equity research analyst at Raymond James Ltd., and has been covering the uranium and junior precious metals spaces for the past six years. Prior to joining the firm, David worked as a geologist in western Canada with multiple Vancouver-based junior exploration companies, focused on base and precious metals. David holds a Bachelor of Science in Geological Sciences from the University of British Columbia.

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DISCLOSURE:
1) Tom Armistead conducted this interview for The Mining Report and provides services to The Mining Report as an independent contractor. He or his family owns shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Energy Fuels Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) David Sadowski: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: I was research restricted on Alpha Minerals and Fission Uranium at the time of the interview. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
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( Companies Mentioned: AREVA:EPA,
CCO:TSX; CCJ:NYSE,
DML:TSX; DNN:NYSE.MKT,
KIV:TSX.V,
RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK,
RGT:TSX,
UEX:TSX,
URE:TSX; URG:NYSE.MKT,
)

More on this topic (What's this?)

Uranium Prices are Rebounding (Energy and Capital, 10/9/13)

Uranium Prices Poised to Soar (Energy and Capital, 9/27/13)

 

10 Strategies for Success in a Flat Commodity 

Price Market: John Kaiser

By The Energy Report, on October 22nd, 2013 in Energy

 

http://jutiagroup.com/20131022-10-strategies-for-success-in-a-flat-commodity-price-market-john-kaiser/

 

The Mining Report: John, you have characterized the current resource market as a bear market unlikely to have higher metal prices in the next year, with the possible exception of zinc. Why are you drawing a different conclusion than other analysts who believe we are in a resource supercycle?
John Kaiser: I believe the general supercycle is still intact as nations with very large populations are embracing capitalist methods. Because they are starting with much lower standards of living, they have a long way to grow. However, I do think we are in a bit of a pause. We are still dealing with the fallout from the 2008 financial crisis, a dysfunctional political system in the United States and Europe’s issues.
Also, China’s growth rate is slowing and the country is shifting from a capital-intensive development of infrastructure and production capacity to more domestic consumption spending. On top of this, the mining industry generated a lot of supply in response to the higher real prices of the past decade. So there is a supply glut coming as demand cycles downward, and we’re going to see weak prices for a while. Unfortunately, or perhaps fortunately depending on what hat you are wearing, we have also seen rising costs, the response to which may curtail the supply glut sooner than expected.
I would say by 2017, however, the supercycle will be evident again, because this bear market is creating the same supply/demand imbalance conditions that existed 10 years ago, when the big bull market started.
TMR: What indicators will tell us we might see the supercycle in 2017?
JK: What we have to watch is the world’s gross domestic product growth. The International Monetary Fund scaled back expectations in its October World Economic Outlook. We also have to see how the U.S. deals with its debt ceiling problem, and the U.S. won’t get any traction until there is a political change where nothing blocks spending the money to get the economy ramping up again.
We also want to see which mines in the pipeline actually come onstream. This applies more to the raw materials that are used in the real world as opposed to gold, which is treated largely as an insurance policy hedging various future outcomes.
A lot of projects are being shelved right now because of escalating costs. All this misery that we’re witnessing will actually underpin a future bull market in the commodity sector.
TMR: What gold price is required to make mines economic these days?
JK: The average all-in cost for gold production is about $1,200/oz. Even though we’re looking at a gold price that has increased three, four times since 1980′s stabilized price, the costs have risen right along with it. We need something around $1,500/oz-plus to justify putting a lot of these deposits into production.
TMR: Are the costs for getting copper out of the ground also higher than the selling price?
JK: In the past five years, we have seen above-average cost escalation in the mining sector. Both capital costs and operating costs have been increasing about 10% annually. In the case of copper, if your all-in cost was $2.49 per pound ($2.49/lb) in 2007 and you apply 10% inflation each year, you’re looking at a $4/lb copper price just to break even, and we’re currently at $3.20–3.30/lb.
Now some of these costs are going to come down, but we’re still looking at numbers that are at or higher than the current spot prices for gold and copper. It is not a wonderful situation for deposits where they have reduced the cutoff grade and started mining lower-grade deposits to meet the increase in demand. We’re in a situation where we’re going to have to just wait to see higher prices materialize to justify a fresh push of putting deposits into production.
TMR: If most of these commodities and the juniors that mine them are waiting for prices to go up, what does that mean for the juniors’ common exit strategy—being taken over by a major?
JK: During the past seven to eight years, we’ve had a tremendous round of takeover bids, where 200-plus Canadian juniors were taken over at a value of over $128 billion ($128B). A lot of these deposits are waiting to be developed. The other companies out there own deposits that tend to be lower grade and have a more expensive cost structure. There is no appetite amongst the majors right now for that type of deposit, and the capital markets are not going to be interested in directly funding development because the profit margin just isn’t there.
The one group that has not yet made a big move is Chinese sovereign wealth companies, which we know have been studying the landscape looking for opportunities. When these Chinese national companies start buying cheap gold assets, that will be a signal that the turnaround for gold is coming sooner rather than later.
TMR: While we’re waiting for that to happen, what strategies should investors know about when looking for companies that will be successful?
JK: Look for a company that has a high enough deposit grade so that even at the current metal price there is still a decent profit margin. These companies are available at bargain prices. One that I’ve recently recommended is Midas Gold Corp. (MAX:TSX), with its Golden Meadow gold project in Idaho, which has a grade of about 1.5 gram gold per ton (1.5 g/t), plus an antimony byproduct credit. This is significantly better than the 0.8 or 0.9 g/t deposits with their 5–10 million ounce (5–10 Moz) resources that everybody was excited about during the past few years. Midas Gold is working on its prefeasibility study; it has 5 Moz that it would mine over a 14-year period. You are not paying much of a premium to own this type of company.
TMR: Does the company have enough money in the bank to keep going?
JK: Yes. It recently raised almost $10 million ($10M) from Teck Resources (TCK:TSX; TCK:NYSE), a company that makes shrewd acquisitions. It’s counting on a lot more ounces being present than are already outlined. The company has a 9.9% foothold. Teck is a potential future exit strategy for Midas.
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) also paid $15M for a 1.7% net smelter return, which, based on the permitting timeline and the ore mining schedule that the company proposed in its Preliminary Economic Analysis (PEA), suggests a 19% discount rate for the future royalty stream. Both these investments, totaling $25M, have given Midas sufficient capital to complete the prefeasibility study expected sometime in the first half of next year.
TMR: So look for a company with a higher-grade deposit. What’s another strategy?
JK: I like the strategy of a discovery within a discovery that could completely eclipse the original low-grade resource. Looking for higher grade zones within the system is a way a gold junior can revitalize an existing deposit that doesn’t work at current low metal prices. One of the companies that I’m very enthusiastic about that’s doing just that is Probe Mines Limited (PRB:TSX.V). It made a grassroots discovery several years ago, which was one of these 4 or 5 Moz deposits of 1 g/t. Unfortunately, that deposit is not very valuable at $1,200–1,300/oz gold. However, the company continued to explore this system and found a higher grade zone. We’re talking about 5 to 10 g/t. The zone so far is very continuous.
Probe has also just finished some infill drilling and one step-out hole on the high-grade zone. We will get a resource estimate in early 2014. I’m estimating we will see ~1–1.5 Moz of about 5 g/t gold.
This finding is a surprise that has the company and many investors wondering, are we dealing with something a lot bigger? That’s the kind of blue sky that you want exposure to in this sort of market that we have now.
TMR: So look for a discovery within a discovery. Can you give us another approach?
JK: Look for companies that have an innovative target-generation strategy. All the easy gold that’s at surface has been found and harvested. You now have to look deeper. One that I have been focusing on for the last few years is Nevada Exploration Inc. (NGE:TSX.V), which uses a groundwater sampling technique to look for gold and Carlin-type pathfinder elements in northern Nevada, where we know there’s already been 300 Moz found, most of it on land that Newmont Mining Corp. (NEM:NYSE) and Barrick Gold Corp. (ABX:TSX; ABX:NYSE) control.
The general perception is that Barrick and Newmont have it all and there’s nothing really left outside of their holdings. However, before Nevada Exploration, nobody had a very good way of looking beneath the gravel covering the basins. One can argue that another 300 Moz remains to be found in Nevada. University of Nevada Reno’s John Muntean has proposed a geological “magmatic sweep” theory, which explains why northern Nevada has such a fabulous gold endowment laid down during a brief window 42-25 million years ago. Nevada’s more recent stretching that created its basin and range topography resulted in half the region “disappearing” as gravel filled basins. Regional sampling by Nevada Exploration has identified dozens of off-trend geochemical gold anomalies within the basins that suggest a gold deposit in the bedrock “under cover.” The market is skeptical, but if you get a big intersection on one of these off trend targets, you have a game that’s wide open. You get replication possibilities because everybody will want access once it has been demonstrated that any one of them could be a huge 5–10 Moz-plus discovery.
TMR: Sounds like an interesting target-generating approach. Any other strategies you think could work between now and 2017?
JK: Let’s shift to uranium exploration. A junior explorer, Uravan Minerals Inc. (UVN:TSX.V), has developed an interesting geochemical sampling method it is using on projects in the Athabasca Basin.
A big discovery event in the past year is the Patterson Lake South discovery in the Athabasca Basin by Fission Uranium Corp. (FCU:TSX.V) and Alpha Minerals Inc. (AMW:TSX.V). This is a classic high-grade unconformity type of uranium deposit with grades of up to 20% uranium. The size of this discovery is stimulating interest in the potential for a new Athabasca Basin area play.
Uravan has spent the last five to six years developing its geochemical sampling method in collaboration with Queens University’s Kurt Keyser, which looks for the lead isotope decay products of a uranium deposit. These get absorbed by vegetation and clay particles. The company takes tree core samples at surface to find evidence of a resource that may be 1,000–1,500m deep. You still can’t tell the size of it or the grade, but at least you know you’re going to hit something once you drill down there.
This approach opens up a much deeper portion of the basin that has been largely out of bounds because of the difficulty in finding these deposits, which almost always are right at the unconformity between the basement rocks and the overlying sandstone rocks in association with graphite. The conventional targeting tool is a geophysical survey that looks for conductors representing these graphite beds. But deeper than 450m, these conductors become fuzzy just as drill holes that need to pinpoint the target become expensive. This is problematic because most of the graphite beds at the Athabasca Basin unconformity do not host a uranium deposit. Uravan’s radiogenic isotope based sampling tool allows the junior to see evidence of a uranium deposit at substantial depth from the surface. A case study done this summer apparently demonstrated that Cameco’s 850m deep Centennial deposit shows up as a well-constrained geochemical anomaly. Theory says that in the Athabasca Basin, the thicker the sandstone cover, the bigger and richer the potential uranium deposit at the unconformity. Uravan now has a tool that enables it to stalk super-elephants in uncharted territory.
Uravan can also perform this research as a service to companies that have claims in the Athabasca Basin and then earn a royalty or a small interest in exchange for generating the geochemical part of the target that you need to justify raising money for a high-stakes drill program.
Another company I cover, Diagnos Inc. (ADK:TSX.V), has developed computer algorithm-based methods for reassessing existing data sets. Most deposits are small and high grade, squirreled away inside complex geology. Diagnos loads data into the system and uses pattern recognition software to look within the data set to see what the previous exploration geologists didn’t see.
Juniors have spent millions of dollars on projects where they found smoke but no fire. Even though the previous exploration generated “negative results,” those results themselves constitute valuable information because one knows where not to look. Juniors can rent the services of Diagnos to take a fresh look at projects. Diagnos also collects a royalty when it generates the prospect from old assessment data and farms it out to another junior.
TMR: Another unique exploration model makes another good tactic. Any others you’d like to suggest?
JK: Let’s discuss the old-fashioned prospect-generator farm-out model. I’ve taken a shine to Avrupa Minerals Ltd. (AVU:TSX.V) because it focuses on an area nobody has been particularly interested in—Europe. Avrupa has claims in Portugal, Kosovo and Germany.
In Portugal, the company is rethinking the geology of the Iberian Pyrite Belt, which hosts world-class polymetallic volcanogenic massive sulfide ore deposits. Antofagasta Minerals Plc (ANTO:LSE) has been paying to earn its share of this project. Here you have the junior’s geologists coming up with an innovative reconceptualization of the geology that hosts the deposits, acquiring prospects, doing some basic work to dress them up and then attracting a major company to farm in to the project. The company has done something similar in Kosovo, a region that has not had modern exploration.
In eastern Germany and northern Portugal, areas both known for their tungsten production, Avrupa is applying the intrusive-related Fort-Knox/Pogo-style model to look for gold systems in areas where past mining and exploration has simply been focused on tungsten. This little company runs a tight ship. There are strong people in management and if we do get a general turnaround, this would be one of the first companies to acquire a higher profile.
TMR: We’ll add the farm-out model to the list. Any others?
JK: Yes, I’m excited about the prospects for zinc, and for a zinc junior, Lithic Resources Ltd. (LTH:TSX.V). I have been generally negative about the upside for metal prices, but zinc is one metal where I think we may get upside relatively sooner. There have not been a lot of big zinc deposits pushed into the development pipeline and yet we’re approaching a rapid shutdown of zinc mines due to depletion. Analysts are now predicting that zinc, which has been in surplus, will start to go into deficit by next year and this will worsen over the next five years. We are expecting zinc to reach $1.25–1.50/lb within the next year or two, which is much better than its current $0.80–0.85/lb level. If China continues to shift toward more domestic consumption, we can also expect demand for zinc to rise even as the supply is declining.
Lithic Resources’ West Desert deposit isn’t in the middle of nowhere; it’s in Utah, one of the more mining-friendly states in the U.S. This would be potentially partly open-pit for the oxide resource, but more likely underground for the sulfide resource.
Lithic’s PEA, produced several years ago, was essentially negative even at $1.10/lb zinc. However, the base case prices they used for the deposit’s copper, silver and gold were substantially lower than even today’s spot prices. By rethinking the PEA in contemporary spot prices, adding in a higher zinc price and throwing in the company’s rethinking of the magnetite as a waste product and treating it instead as a potential saleable product, things could develop rapidly.
Lithic is going to produce an updated PEA, probably by the end of the year. It will likely do some additional drilling to take care of some of the resource expansion potential. Then it will go into a resource feasibility demonstration and ultimately need to spend $20–25M on an underground program as part of a feasibility study. If we have zinc ramping up, there’ll be the capital available to make this happen.
Last year, there were some significant management changes at the company, when some very experienced people were brought on board who were CEOs of two different companies, which were bought out for a total of $4.5B. There’s also a hedge fund that is now a significant stakeholder in the company. This one’s all teed up and ready to go.
TMR: Interesting take on zinc as a strategy. Any thoughts about rare earths?
JK: I’m interested in Namibia Rare Earths Inc. (NRE:TSX, NMREF:OTCQX) as a shorter-term solution to the future heavy rare earth element (HREE) shortage. The HREE deposits we’ve identified in the West, such as Quest Rare Minerals Ltd.’s (QRM:TSX; QRM:NYSE.MKT) Strange Lake deposit and Tasman Metals Ltd.’s (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE) Norra Karr deposit, are world-class deposits, which, once they come onstream, will take care of the world’s HREEs for a very long time. However, these deposits are not going to come onstream tomorrow.
The shorter-term solution that has caught my attention, Namibia Rare Earths, has discovered a HREE-enriched zone that is low grade—the Lofdal Area 4 property within the larger Lofdal carbonatite complex. By “enriched” I mean 85% or higher HREE compared to 40–50% for Strange Lake and Norra Karr. The company will release some metallurgical studies in about a month, which will tell us if it can produce a concentrate that could be shipped to a company like Molycorp (MCP:NYSE) or Rhodia Group (RHA:NYSE) for separation.
Within three years, I could see Namibia Rare Earths supplying a significant amount of HREEs, which make up 80–90% of the ore, furnishing about 50% of non-Chinese demand, all of which is currently supplied by China’s depleting HREE enriched deposits. That’s much faster than the four to six years we can expect for any of the bigger projects.
TMR: So another good strategy: a rare earth junior who might get to market faster. Let’s keep going.
JK: Let’s talk about nickel, another unpopular metal, currently around $6.25/lb. Used in stainless steel, it was selling for $25/lb in 2007. A seemingly unlimited supply of nickel pig iron is haunting the market right now. Nickel pig iron is made in Chinese blast furnaces from low-quality laterite ore direct shipped from Indonesia and the Philippines, which have in recent years emerged as the world’s biggest nickel suppliers. Experts are pretty negative about the supply/demand surplus deficit in the next four years, but by 2018 they expect this to reverse.
A company that’s caught my attention is First Point Minerals Corp. (FPX:TSX.V), which for the past five years has been looking at a different style of nickel mineralization called awaruite, a naturally occurring alloy of nickel and iron that is quite low grade. It’s 75% nickel, 25% iron and exists as small grains within the ultramafic rock. You can use simple magnetic and gravity separation techniques to get this out.
Cliffs Natural Resources Inc. (CLF:NYSE) is the partner on one of these projects for a big open-pit 110,000 ton per day operation for which the PEA was published earlier this year.
Frankly, at the current price of nickel that project is close to being worthless. However, because of the nature of the production, if we saw higher nickel prices driven by higher energy costs or chemical costs, First Point’s cost structure would not be affected in the same manner because the only significant energy costs the company has is for grinding the rock, which all the sulphide producers share.
Cliffs is interested in developing a North American supply of nickel, which would not experience the same cost inflation as competing sulfide and laterite deposits. I think that when the company completes the prefeasibility study in a couple of years, we will see that it has optimized the project and that this is a profitable project even at $6/lb nickel.
By then we will start seeing that the Philippines’ supply of laterite for nickel pig iron production is not infinite and that perhaps Indonesia has put a stop to exporting raw ore. Then once again we’re caught off balance because the big guys during the interim have had to scale back their development plans because of this current glut of supply that’s depressing the metal prices. It’s a bit of a longer-term speculation, but it’s based on a different processing style targeting a different type of mineral.
TMR: Can you give us one more idea that’s completely different?
JK: OK, how about diamonds? Peregrine Diamonds Ltd. (PGD:TSX) has a bulk sample that’s in the midst of being processed. We may even see results before Christmas. If there are big beautiful diamonds inside that bulk sample, suggesting a high-carat value, then this stock will be ready to participate in what I think is a revival in the diamond sector.
We know that as long as the world doesn’t go into a depression, demand for quality diamonds will continue to grow. Explorers have not found any giant diamond mines in a very long time, and no big new diamond mines are coming onstream. Peregrine Diamonds has been in the doghouse for a few years, but I think it is poised for a bit of a revival. To me, this is a very attractive play in this sector.
TMR: When will we find out if this bulk sample is valuable?
JK: The 500-ton sample, if it runs 300 carats (300 ct) per hundred tons, should deliver 1,500 ct. That is a large enough parcel to allow a formal valuation that will tell us what kind of value we would get when we go into commercial production. What we’re always looking for is a type of Holy Grail—a high-grade pipe with a high value. This sample, which they hope to have out before Christmas, or the first week or two in January, could change the market’s perception of this project dramatically.
TMR: Interesting. Can you leave us with advice for investors who are trying to survive 2013, or as Rick Rule says, thrive, because fortunes are made in bear markets rather than bull markets?
JK: Fortunes are made in resource sector bear markets by those with great patience, especially when you target juniors with deposits that are near worthless at prevailing metal prices. However, if higher real metal prices take a long time to arrive, such juniors run the risk of diluting away their upside to stay alive, or getting swallowed cheaply by predators with deep pockets and even greater patience. Most investors do not have Rick Rule’s capacity to influence the destinies of the companies in which they make investments. The resource sector juniors that I generally target in the current bear market climate are ones with innovative stories that can flourish and create shareholder value whether or not higher metal prices materialize. If we do get into a stronger overall market, it’s companies like these, which have well-articulated stories, that will accelerate out of the bottom faster than other companies with deposits that require a substantially higher metal price to be back in the money.
TMR: Thanks for giving us that wrapup. We appreciate your time.
JK: You’re welcome.
John Kaiser, a mining analyst with 25+ years of experience, produces Kaiser Research Online. After graduating from the University of British Columbia in 1982, he joined Continental Carlisle Douglas as a research assistant. Six years later, he moved to Pacific International Securities as research director, and also became a registered investment adviser. He moved to the U.S. with his family in 1994.
Kaiser will be speaking at the San Francisco Metals & Minerals Investment Conference, formerly known as the San Francisco Hard Assets Investment Conference. With over 20 years of assembly, this conference wrote the book on how to provide a valuable and real-world education on how to evaluate and select the right mining and metals stocks. This annual conference is a favorite among individual and institutional investors because they know it is the place for quality investment advice with direct access to global experts on natural resources investments, supply/demand forecasting and analysis on commodity trends. This conference is the best opportunity to learn first-hand how to protect every dollar you have by making sure your portfolio is properly positioned for cyclical markets. The event is presented by International Investment Conference (IIC), a division of Summit Professional Networks. Learn more at www.MetalsandMineralsEvents.com/SF.
Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit The Mining Report.
DISCLOSURE:
1) JT Long conducted this interview for The Mining Report and provides services to The Mining Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Mining Report: Probe Mines Limited, Namibia Rare Earths Inc., Tasman Metals Ltd. and Fission Uranium Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) John Kaiser: I or my family own shares of the following companies mentioned in this interview: First Point Minerals Corp., Lithic Resources Ltd., Namibia Rare Earths Inc., Avrupa Minerals Ltd., Uravan Minerals Inc., Nevada Exploration Inc., Peregrine Diamonds Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

( Companies Mentioned: AMW:TSX.V,
AVU:TSX.V,
ADK:TSX.V,
FPX:TSX.V,
FCU:TSX.V,
LTH:TSX.V,
MAX:TSX,
NRE:TSX, NMREF:OTCQX,
NGE:TSX.V,
PGD:TSX,
PRB:TSX.V,
TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE,
UVN:TSX.V,
)

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7. Energy Fuels Inc. http://www.theenergyreport.com/pub/co/636 TICKER: EFR:TSX; EFRFF:OTCQX Energy Fuels Inc. is the largest conventional producer of uranium in the United States. The company owns the only conventional uranium mill in the U.S., the White Mesa mill in Utah. Energy Fuels also owns several producing and near-producing mines in Utah, Arizona and … read more

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   The information provided below is from analysts, newsletters and other contributors. Please contact the company and visit its website before making an investment decision.

   Expert Comments:

   Sheldon Modeland, Edison Investment Research (10/29/13) "With its recent acquisition of Strathmore Minerals Corp., Energy Fuels Inc. is closer to achieving its goal of becoming the leading U.S. U3O8 producer and a midtier global producer. During FY/13, the company expects to produce 1.2 Mlb U3O8, making it the second-largest U.S. producer, and has the potential to increase its annual production (up to 6x) as market conditions improve."
   Markus Aarnio, Seeking Alpha (10/18/13) "There have been four different insiders buying and no insiders selling Energy Fuels Inc. stock during the last 30 days. Three of these four insiders increased their holdings by more than 10%. Additionally, three different analysts have Buy ratings on the company. . .I believe the stock could be a good pick based on the intensive insider buying."
   The Energy Report Interview with Rob Chang (9/10/13) "We cover Energy Fuels Inc., which is the second largest producer of uranium in the U.S. and probably has the best story leveraged to the uranium price. It currently produces only about 1 Mlb/year, by design, with several mines that can be turned on relatively quickly. We estimate that it could quickly turn on anywhere between 2–5 Mlb more in annual production once prices get to attractive levels. On top of that, it also has the White Mesa mill that it acquired from Denison, located in Blanding, Utah, which is the only conventional mill in the U.S. Having mill access is extremely important because you effectively cannot produce your final product without it. Energy Fuels has a monopoly position with a conventional mill and it can even make money by processing material on a toll basis for other producers. We believe that this is a very attractive company for those who believe that the uranium price will head higher." More >
   Colin Healey, Haywood Securities (9/9/13) "Energy Fuels Inc.'s acquisition of Strathmore Minerals Inc. fortifies strategic ties and sweetens its project pipeline. . .the acquisition accretes value for Energy Fuels shareholders and reduces risk. The company's attributable NI 43-101 all-categories resource base increases 79% to 127 Mlb U3O8."
   Michael Allison, Seeking Alpha (8/29/13) "I believe that Energy Fuels Inc. offers a great opportunity for investors interested in the uranium sector and who are also interested in investing in micro-caps. . .in my opinion and the opinion of a number of other analysts, this company has a great management team who seem to be doing all of the right things to put it in a prime position as a high-potential investment in the nuclear energy sector."
   fewer comments

   Rob Chang, Cantor Fitzgerald (8/14/13) "Energy Fuels Inc. shareholders overwhelmingly approved a previously announced acquisition of Strathmore Minerals Corp. . .the acquisition will lead to operational synergies as Energy Fuels' White Mesa mill is located relatively close to Strathmore assets, such as the 28.7 Mlb Roca Honda project in New Mexico. Geographical synergies will also be realized between Energy Fuels' 30.2 Mlb Sheep Mountain project in Wyoming and various mining claims owned by Strathmore that are contiguous with Sheep Mountain, as well as the latter's 10.9 Mlb U3O8 Gas Hills and Juniper Ridge projects."

   The Energy Report Interview with David Talbot (8/1/13) "Energy Fuels Inc. has huge leverage to uranium prices and is one of our top picks in a rising uranium price environment. It has high price contracts, an effective and acquisitive management team and huge expansion potential. The company has really been focused on running only its lower-cost operations while delivering about 100% of its production into these higher-priced term contracts." More >

   Wall Street Advisors, Seeking Alpha (7/30/13) "Energy Fuels Inc. stands particularly poised to benefit from what seems to be a consensus among analysts will be a near-term significant rise in uranium spot prices. . .it owns the only licensed, operating conventional uranium mill in the U.S. . .Energy Fuels will deliver ~1 Mlb uranium in its current fiscal year pursuant to contracts with three different utilities at. . .a 60%+ premium to the current spot price. . .Energy Fuels offers the best combination of limited downside in current market conditions and leveraged upside to rising prices in the uranium spot price market."

   The Energy Report Interview with Peter Epstein (7/25/13) "Energy Fuels Inc. 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. 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 $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. . .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." More >

   Rob Chang, Cantor Fitzgerald (7/24/13) "We are initiating coverage on Energy Fuels Inc. with a Buy recommendation and a $0.23/share target. . .the company is expected to produce 1.2 Mlb U3O8 in 2013, thus ranking it among the top producers in the U.S. . .Energy Fuels owns the only operating conventional mill in the U.S. and is the sole provider of toll milling services in the country. . .it has three established uranium sales contracts that we estimate to have an average realized price of above $60/lb through 2015."

   The Energy Report Interview with Chris Berry (6/13/13) "Nuclear power is, and will likely remain, a very compelling option despite some of the challenges that the industry faces. Given this backdrop, we have seen a number of deals completed. Most recently, Energy Fuels Inc. signed a letter of intent to acquire Strathmore Minerals Corp. I have followed Strathmore Minerals Corp. for some time and always thought that the location of its deposits, plus the relationships it has with Sumitomo Corp. and Korea Electric Power Corp. (KEPCO) would make the company an ideal take-out candidate. Congratulations are in order for the Strathmore management team on its accomplishments." More >

   David Talbot, Dundee Capital Markets (5/27/13) "Energy Fuels Inc. signed an LOI to acquire all outstanding shares of Strathmore Minerals at an exchange ratio of 1.47 Energy Fuels for every 1 Strathmore share; this values Strathmore at $28.2M, or $0.23/share for a 26.6% premium as of Energy Fuels' May 23, 2013, close. . .this deal is yet another example of Energy Fuels' desire to become an intermediate uranium producer, the clear conventional choice in the U.S., and is positioning itself to be a unique vehicle in an otherwise small sector. . .Energy Fuels has strong leverage to rising uranium prices."

   The Energy Report Interview with Matt Badiali (5/23/13) Matt Badiali: Energy Fuels Inc. has production. Uranium producers like this are breaking even at $40/lb, but once the price of the uranium goes up, their profits are going to grow because they've already covered their costs. These companies are going to start popping up on people's radar screens, and investors are going to wonder why they're trading at 3x earnings. The uranium sector right now is a textbook opportunity. It was a hated commodity that was left for dead and we see the uptrend coming. If you're willing to wait 18–24 months, you can very easily double your money here. . .

   TER: Energy Fuels has four producing mines and a number of others that are still in development. Do you like that mixture?
   MB: Absolutely. Mines are finite producers. A mine is like a loaf of bread. You get so many sandwiches out of it and then you've got to get another loaf of bread. I love to see companies that have mines in production, mines about to go into production and several exploration projects. That's the ideal mining company. More >
   

   Colin Healey, Haywood Securities (5/13/13) "We reiterate our Buy rating on Energy Fuels Inc. . .with cash costs per pound of uranium on the higher quartile of the marginal cost curve, the company has the potential to offer significant upside in a strengthening uranium price environment. . .investment in Energy Fuels provides exposure to two sectors (uranium and vanadium) with robust underlying demand fundamentals, which will lead to a sustained improvement in metal price and stability that further enhances resource value and diversifies risk."

   David Talbot, Dundee Capital Markets (5/10/13) "We reiterate our Energy Fuels Inc. Buy recommendation. . .Q2/13 should be reflected on positively—earnings were up, cash flow was positive, cash increased, sales prices were 18% higher than spot and perhaps the best in the industry, costs declined rapidly, production guidance grew and higher, and cost stockpiles should be almost completely drawn down by quarters end. Believing that we are near the bottom in the uranium sector (as we expect some reactors in Japan to resume in H2/13) then we currently believe that buying this leveraged stock would be an excellent opportunity."

   The Energy Report Interview with Malcolm Shaw (3/12/13) "I like Energy Fuels Inc. as well. It's more of a call option on uranium as it's a slightly higher-cost structure, but its leverage to uranium is clear. It could become a go-to name if and when the uranium market does pick up." More >

   Rob Chang, Cantor Fitzgerald (2/14/13) "For FY/13, Energy Fuels Inc. forecasts sales and production of about 1 Mlb U3O8, of which about 957 Klb will be sold toward long-term contracts that contain higher prices. . .uranium production will come from conventional ore from the company's Beaver, Pandora, Arizona 1 and Daneros mines. . .Energy Fuels' quarter-over-quarter EPS improved to $0.00/share from –$0.08/share."

   The Energy Report interview with Colin Healey (2/14/13) "We rate Energy Fuels Inc. as a Sector Outperform. It's one of the producers in the space with strong leverage to the uranium price. We look at Energy Fuels as a great opportunity to get exposure to uranium price appreciation. If the prices do what we forecast toward the end of 2013, investors in this name could do very well." More >

   The Energy Report Interview with Rob Chang (1/31/13) "Energy Fuels Inc. is another interesting one we've touched upon in the past. It's a U.S. producer that recently had to place certain projects on stand-by due to the low uranium price. The key thing to note is that many of its operations are effectively turnkey and can go into production in as little as three weeks from whenever management makes that decision. So when the uranium price gets to the point where it's economic, production could increase fairly quickly. On top of that, Energy Fuels also owns a very significant strategic asset in the White Mesa mill, which is the only conventional uranium mill operating in the U.S. Additionally, smaller "mom and pop" uranium operations in the surrounding areas all need a mill to process their material, and Energy Fuels is the only game in town. That's a pretty powerful thing to have." More >

   The Energy Report Interview with Matt Badiali (1/24/13) "I told my readers about the big, safe assets first and looking back, we did a pretty good job, timing wise. Now that we have established the trend, we will start to pick off the best of the exploration plays because I think that that's a good place to make some money over the next year or two. I will definitely look at Energy Fuels Inc." More >

   David Talbot, Dundee Securities (1/18/13) "Energy Fuels Inc. and Laramide Resources Ltd. announced this morning a toll milling arrangement for the 100%-owned and 3 Mlb U3O8 La Sal project and the White Mesa mill in Utah. This appears as a win-win for parties. . .Energy Fuels will earn risk-free revenue while helping to fill its mill. . .perhaps, once it is demonstrated that the mining operations, metallurgy and mill capacity works, then we suggest that Energy Fuels might just buy this operation outright."

   Rob Chang, Cantor Fitzgerald (1/15/13) "Energy Fuels Inc.'s Pinon Ridge uranium mill takes another step forward: An appointed hearing officer issued a decision yesterday confirming that the company's Pinon Ridge mill will continue to move forward in the state of Colorado's licensing process. . .if fully permitted and built, the Pinon Ridge mill would be Energy Fuel's second mill. . .with mill access being the key bottleneck in any conventional mining operation, having two fully permitted mills provides the company with excellent optionality."

   Colin Healey, Haywood Securities (12/24/12) "We maintain our Sector Outperform rating for Energy Fuels Inc. . .the transition from developer to producer for the company has been quite smooth. It is demonstrating the capability to manage and produce from the inherited assets, has put in place and appropriate production plan given the current uranium market and is well positioned to ramp up production should uranium prices begin to move positively. . .the balance sheet remains strong."

   David Talbot, Dundee Securities (12/18/12) "Energy Fuels Inc. is a potential turnaround story—it has been punished the most of the uranium producers this year. But it is now focused on lower-cost, higher-grade production from its Arizona Strip breccia pipe mines, with its new Pinenut mine scheduled for startup shortly and its Canyon project in the pipeline. The company announced in September that it would close three higher-cost operations. This is a story has: 1) huge leverage to risking uranium prices; 2) a significant regional resource base; 3) the only conventional mill in operation in the U.S.; 4) no need to spend $150 million to construct a new mill despite receiving its Nuclear Regulatory Commission permits; and 5) vast potential to expand production. . .as uranium prices are expected to rise, given the company's high leverage to prices, we would expect to see Energy Fuels shares to rise in tandem."

   The Energy Report Interview with David Talbot (12/4/12) "We have a Buy recommendation and $0.75 target price on Energy Fuels Inc., as it has indeed become one of the largest uranium producers in the U.S., having bought operations from Denison Mines Corp. It owns the strategic White Mesa Mill, the only conventional and permitted mill operating in the U.S., which has saved the company about $150M since it doesn't have to permit and construct a mill of its own. The company has recently shifted production to lower-cost and higher-grade operations in Arizona. . .the company has a lot of leverage to uranium prices, and once those pick up we expect Energy Fuels to benefit significantly." More >

   David Talbot, Dundee Securities (10/18/12) "Energy Fuels Inc. announced overnight that it will be temporarily halting production at its Daneros mine in Utah, its Beaver mine in Colorado and winding down production at the adjacent Pandora mine. . .we feel it was prudent on the part of the management to take this preemptive step. . .we believe that the bulk of the company's lowest-cost uranium production will be retained, restructuring costs will likely be minimal, resources are being saved for higher prices and mining could be resumed relatively quickly."

   Colin Healey, Haywood Securities (10/18/12) "Energy Fuels Inc. provided the first production guidance since acquiring the Denison Mines U.S. assets. . .guidance under its new structure outlines FY13 production of 1–1.1 Mlb U3O8 and 2–2.2 Mlb V2O5. . .our target of $0.40 implies a potential return of 150%, and thus justifies a Sector Outperform rating and Speculative risk. . .overall, it looks as though the company is taking appropriate steps, focusing on its lowest-cost production, given the persistent weakness in the uranium price since Fukushima early last year. The plan outlined should provide a sustainable platform through FY13 if uranium prices begin to rebound as expected over the period."

   Rob Chang, Cantor Fitzgerald (10/17/12) "Energy Fuels Inc. has announced that it will shift its short-term focus toward low cost operations due to the low uranium price environment; the company will focus on mining the high-grade breccias pipes in northern Arizona as well as processing alternate feed material at its White Mesa mill, located in Blanding, Utah. . .mining at the high-grade (0.68% U3O8) Arizona 1 property will continue through the first three quarters of 2013 while the 0.44% U3O8 Pinenut mine is put into production in Q2/13. . .throughout the year, the White Mesa mill is expected to continue to process alternate feed, which does not have any associated mining costs for Energy Fuels."

   Colin Healey, Haywood Securities (8/20/12) "We are reinitiating coverage of Energy Fuels Inc. with a 12-month target price of $0.45/share; the 120% projected return warrants a Sector Outperform rating. . .the company has transformed into a significant U.S. uranium producer with a new share structure, new assets and a production model."

   Rob Chang, Versant Partners (8/16/12) "Energy Fuels Inc. announced on Wednesday that during the month of July, two sales shipments totaling approximately 200 Klb at an average price of US$62.18/lb had been shipped. The sales were completed under two long-term uranium contracts that were transferred to Energy Fuels upon the June 29 completion of purchase of the U.S. uranium assets of Denison Mines; the completion of these two shipments now places Energy Fuels as a uranium supplier and the largest active, conventional uranium producer in the U.S."

   The Energy Report Interview with David Talbot (8/14/12) "Energy Fuels Inc. has emerged from a couple of deals as the second-largest uranium producer in the U.S., with a resource base of 70 Mlb. We have a Buy rating on the stock and a $0.90 target price. They bought the White Mesa mill from Denison, which is the only operating conventional mill in the U.S., plus several operating mines. This saved Energy Fuels about $150M by not having to construct its own mill, where it just received its NRC license in Colorado. Synergies with projects in Utah, Colorado and Arizona might fill that mill, keeping costs as low as possible. . .we view Energy Fuels as a good opportunity with cash flow and significant leverage to rising uranium prices. It's preparing its pipeline of projects with two mines that are already permitted, Whirlwind and Energy Queen. Pinenut is also approaching production within the year. The management team has operating experience with the old Energy Fuels nuclear company, and its Sheep Mountain project up in Wyoming could bring this company to a whole new level." More >

   Rob Chang, Versant Partners (8/2/12) "Energy Fuels Inc. is an undervalued uranium producer after its acquisition of Denison Mines' U.S. assets. The transaction gives Energy Fuels operating mines (with an additional one coming online this year) for a total production profile of 0.9 Mlb U3O8. The company also acquires the only conventional uranium mill in the U.S. Combined with the Energy Queen and Whirlwind mines (which are both turnkey mines that can become operational within a year) and its 30.3 Mlb U3O8 Sheep Mountain project that is scheduled to begin production in 2015."

   David Talbot, Dundee Securities (7/30/12) "We recommend Energy Fuels Inc. as a Buy. . .with two financings and the Denison Mines Corp. transaction behind it, the company has emerged as the second largest producer in the U.S with a resource base of 69.6 Mlb. . .we view investment in Energy Fuels as an opportunity. . .with cash and cash flow, it is preparing pipeline projects such as the permitted Whirlwind and Energy Queen mines and Pinenut toward production within the year."

   Steven Bulwa, Seeking Alpha (5/31/12) "Once the reorganization is complete, Energy Fuels Inc. will become the largest 100% U.S. pure-play uranium producer as well as one of the largest holders of NI-43-101-compliant U.S.-based uranium. 2012 production forecasts for the company total more than 25% of U.S. total production estimates; in addition to Denison Mine Corp.'s U.S. mining assets, Energy Fuels will also operate the White Mesa uranium mill, the only operating conventional uranium mill in the U.S. . .the transaction is intended as a platform for further consolidation of uranium assets in the U.S.; adding assets should increase output significantly at White Mesa."

   The Energy Report Interview with Rob Chang (5/8/12) "As you know, Energy Fuels Inc. acquired the U.S. assets of Denison Mines. . .people should be recognizing Energy Fuels as a big winner, given that it has established itself as the premier producer in the U.S. That's pretty significant, because the U.S. is the largest consumer of uranium. . .there's a massive shortfall between U.S. demand and supply. . . Energy Fuels acquired the White Mesa mill from Denison, which allows it to put its Energy Queen and Whirlwind mines into production. Those are two turn-key mines that could be turned on within a year of the production decision. Those two mines are basically on pause while Energy Fuels clears all of the permitting and rebuilding hurdles for the Piñon Ridge mill, but now that it has acquired the White Mesa mill, it no longer needs to wait for Piñon Ridge. It can just go and process everything through there. So, unlocking those two mines will allow it to produce over 1 Mlb/year in the U.S. and provide immediate upside. There aren't that many producers out there, and Energy Fuels is a new producer on the block. I can see the company commanding a premium once the dust settles." More >

   Morning Coffee (4/18/12) "Both Energy Fuels Inc. and Denison Mines Corp. rallied after announcing that Energy Fuels planned to buy Denison's U.S. mining assets and operations in an all-stock transaction valued at $106M. . .as a result, the companies said the deal will create the largest U.S. pure-play uranium producer with a 2012 production forecast of more than 25% of total estimated U.S. production. The combined entity is also one the largest holders of NI-43-101-compliant U.S.-based uranium resources with Measured and Indicated resources of 49.8 Mlb of U3O8, plus Inferred resources of 17.9 Mlb U3O8."

   Rob Chang, Versant Partners (4/18/12) "Energy Fuels Inc. and Denison Mines have announced an agreement whereby Energy Fuels will acquire all of Denison's assets and operations in the United States in exchange for 1.106 Energy Fuels shares for each Denison share. . .the acquisition of Denison's U.S. assets will create a 100% pure-play U.S. uranium producer that will account for over 25% of estimated U.S. uranium production and hold 52.5 Mlb of Measured and Indicated U3O8 resources as well as 18.1 Mlb of Inferred U3O8. The transformational acquisition of Denison's U.S. assets vaults Energy Fuels to No. 1."

   Jeb Handwerger, Gold Stock Trades (4/17/12) "Energy Fuels Inc. and Denison Mines Corp. today announced that they have entered into an agreement to complete a transaction that will create the largest 100% U.S. pure-play uranium producer. . .this new entity will hold one of the largest NI-43-100-compliant U.S. resources of close to 50 Mlb Measured and Indicated uranium. . .this transaction may be momentous for the entire sector and may be just the beginning for future merger and acquisition activity."

   Rob Chang, Versant Partners (4/17/12) "Energy Fuels Inc. and Denison Mines Corp. have announced an agreement whereby Energy Fuels will acquire all of Denison's assets and operations in the U.S. . .the acquisition of Denison's U.S. assets is a 'game changer' for Energy Fuels, as it will create a 100% pure-play U.S. uranium producer that will account for over 25% of estimated U.S. uranium production and hold 49.8 Mlb of Measured and Indicated U3O8 resources as well as 17.9 Mlb of Inferred U3O8. . .the acquisition of the 2 Ktpd White Mesa mill will effectively shorten the development timelines for Energy Fuel's 1.8 Mlb U3O8 Energy Queen mine in Utah and the 3.1 Mlb U3O8 Whirlwind mine in Colorado."

   The Energy Report Interview with Jim Letourneau (4/3/12) I also like Energy Fuels Inc.; it has near-term production potential and also intends to build a uranium mill in Piñon Ridge, Colorado. More >

   David Talbot, Dundee Securities (3/26/12) "Following Energy Fuels Inc.'s recent acquisition of Titan Uranium, we have incorporated the new Sheep Mountain project into our model and we reiterate our Buy rating. . .we found that the acquisition itself was accretive. . .we expect economics of Sheep Mountain to improve given the right financing options. . .we believe that this newly acquired heap-leach uranium project in Wyoming fits well with the company's conventional mining strengths. It also provides a valuable option—an alternative route to production with lower capital intensity than would be required with construction of a new mill."

   Rob Chang, Versant Partners (3/13/12) "Energy Fuels Inc.'s merger with Titan Uranium Inc. vaults it to a new level. . .we are maintaining our Buy recommendation for. . .and believe the company is an undervalued, near-term uranium producer in a country that is in need of security of supply. . .with the addition of the assets acquired from Titan Uranium, Energy Fuels now has an enviable resource portfolio that is among the largest out of all U.S.-based uranium non-producers."

   Geordie Mark, Haywood Securities (3/2/12) "Energy Fuels Inc.'s updated prefeasibility study (PFS) highlights Sheep Mountain's future development potential. . .within the updated PFS, the best economics come under a scenario in which the company will concurrently develop the resources by underground and open-pit mining. Compared against the original PFS, mine life was extended by 4 years (now 15 years)."

   Geordie Mark, Haywood Securities (2/28/12) "We view the addition of Titan Uranium's assets to Energy Fuels Inc.'s portfolio as positive for Energy Fuels' shareholders, as it adds significant additional resources (266%) in the U.S., diversifying and expanding Energy Fuels' asset base and providing the investor with additional optionality in a strengthening uranium price environment. . .Energy Fuels has significant leverage to uranium price and has the potential to offer significant upside in a strengthening uranium price environment."

   Rob Chang, Cantor Fitzgerald (2/25/12) "Energy Fuels Inc. announced a revised preliminary feasibility study for its 100%-owned Sheep Mountain uranium project located in Fremont County, Wyoming. This asset was recently acquired via the company's acquisition of Titan Uranium. . .it reported that the best economics for Sheep Mountain involve an open pit/underground scenario that would generate an internal rate of return of 42% and a net present value of US$146M using a 10% discount rate."

   MJ Clark, Wyoming Business Report (2/6/12) "Energy Fuels Inc. signed a letter of intent with Titan Uranium Inc. to acquire all outstanding common shares of Titan, which owns 100% of the Sheep Mountain uranium deposit in Fremont County, Wyoming. The transaction is expected to close this month. . .Energy Fuels is working to build a uranium mill on 30 acres 60 miles west of Telluride, near the Utah border. . .it cleared its latest hurdle in the regulatory process in October, when the Environmental Protection Agency granted a permit for the mill's uranium tailings pond."

   The Energy Report Interview with Geordie Mark (11/15/11) "Consolidation is probably the name of the game in the uranium space. . .there is the potential merger of Energy Fuels Inc. and Titan Uranium Inc., announced at the end of October. . .I felt it was a positive move for Energy Fuels, in that it gives the company access to a broader resource base, particularly in the uranium mining state of Wyoming. Energy Fuels has potential access to future production through its planned Piñon Ridge uranium-vanadium mill. The Sheep Mountain uranium project in Wyoming is a moderate-sized, defined resource of more than 30 Mlb uranium, and Titan's management team has a clear objective of progressing the project through permitting and development over the next several years."

   The Energy Report Interview with Rob Chang (11/1/11) "Energy Fuels Inc. recently announced that it has purchased the Skidmore Lease in southeast Utah's Sage Plain District from a private company. This lease contains 921 Klb of historic resources that need to be proven up. More importantly, that lease is located near EFR's current Calliham, Crain, Sage and other nearby leases, which enables the company to continue its strategy of consolidating the area. It can now start the permitting process for their third potential mine behind its Whirlwind and Energy Queen Mines, which are already waiting to go." More >

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8. Rob Chang: Uranium Stocks Powering Up

   TICKERS: AREVA, CCO; CCJ, EFR; EFRFF, EXT, FCU; FSSIF, HAT, KAH, KIV, RIO; RTPPF, URZ, UEC, UUU
   http://www.theenergyreport.com/pub/na/rob-chang-uranium-stocks-powering-up
    
   Source: Zig Lambo of The Energy Report  (11/1/11)
   While Germany and Switzerland have made headlines with sudden phase-out plans, world leaders from North America to Africa to Asia have reaffirmed their commitment to nuclear power as a low-carbon, low-cost energy solution. Development plans continue for the industry, and the long-term growth picture shows continued uranium demand. In this exclusive interview with The Energy Report, Rob Chang discusses prospects for both junior and major uranium developers and producers, and which companies could be the next belle of the bidding war ball.
   
   
   Companies Mentioned: AREVA SA : Cameco Corp. : Energy Fuels Inc. : Extract Resources Ltd. : Fission Energy Corp. : Hathor Exploration Ltd. : Kalahari Minerals plc : Kivalliq Energy Corp. : Rio Tinto Plc : Uranerz Energy Corp. : Uranium Energy Corp. : Uranium One Inc.

   Related Companies

   • : DNI Metals Inc.
   • : Matamec Explorations Inc.
   • : Midland Exploration Inc.
   [Editor's note: This interview took place on October 24, 2011. Mr. Chang's comments were made prior to Versant Partners' engagement on Fission Energy's financing.]
   
   The Energy Report: Thank you for joining us again. What major changes have unfolded in the uranium sector since you last spoke with The Energy Report in June?
   
   Rob Chang: Let's look at uranium pricing first. The spot price went through the summer doldrums, as it usually does. It dipped slightly but stayed relatively flat since June. It's down about 3% and is currently in the low $50s. The long-term price declined by about 6%. It was around $68 when we last spoke. It's now $64. But there has been some good news. Looking at it from a global standpoint, the number of nuclear reactors under construction, planned or proposed has significantly increased. There are currently 565 in various stages as opposed to 553 back in June. We've also seen some M&A activity heat up the market. Cameco Corp.'s (CCO:TSX; CCJ:NYSE) and Rio Tinto's (RIO:NYSE; RIO:ASX) bids for Hathor Exploration Ltd. (HAT:TSX.V) were huge news items. More recently, the China Guangdong Nuclear Power Corp has resumed talks with Kalahari Minerals plc (KAH:LSE; KAH:NSX) and Extract Resources Ltd. (EXT:TSX; EXT:ASX) to acquire them as well. It's been a pretty interesting time for the uranium space since we last spoke.
   
   TER: It sounds like some stability has returned to the sector and long-term prospects remain positive.
   
   RC: I would definitely agree. The prospects haven't changed in terms of supply and demand. There was a lot of initial negative sentiment toward what happened with Fukushima. Since then, what we've actually seen is something that, in my opinion, is beneficial in the long term for the industry in that countries around the world reassessed their nuclear programs. As a result, the overwhelming majority came out saying that they're fine or that they're putting in place improvements that will make them better. Outside of the more publicized Germany, Italy and Switzerland news regarding anti-nuclear decisions and phasing out in Germany and Italy—those are the exceptions rather than the rule. For example, Japan's own Prime Minister said he thinks it's impossible for Japan to maintain its economy without nuclear power. China has completed safety assessments a month ahead of schedule. Spain has deemed nuclear power to be irreplaceable. And the Czech Republic came out with an energy plan wherein nuclear will contribute 60–80% of the nation's power by 2050. Overall, the worldwide perception of nuclear energy has been pretty positive.
   
   TER: Looking at the price chart, we've had a bottom around $49. Have we seen a permanent turnaround in the price of uranium, or do you foresee it fluctuating in a similar range?
   
   RC: The $49 figure is unnaturally low based on supply and demand fundamentals. In our opinion, long-term spot prices should be closer to $70 in order for supply to match demand. This would also make new mines economic, especially low-grade mines in Africa, for example. What we've seen more recently concerns utility buying, which usually occurs in the last quarter of the year. Because utilities weren't really buying, we saw a lot more volatility than we normally do. Instead, producers became the major buyers, soaking up excess supply rather than selling the uranium they're producing—it's actually more cost-effective for them to simply buy off the market and sell it at a higher price, fulfilling their contracts that way. There will always be short-term volatility, especially since uranium is viewed as a high-beta commodity.
   
   No matter how we look at it, we're going to see uranium and uranium equities higher than they are presently. The key question now is, when will they rebound? Right now the uranium market is negatively affected by the global economic crisis and investors are not willing to take on risk. Once things settle down, the supply/demand fundamentals behind the nuclear industry should take hold.
   
   TER: Can you bring us up to date on the developments that have taken place with uranium companies you've been covering?
   
   RC: Sure. Starting off with Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX), other than the bids for Hathor coming in from Cameco and Rio Tinto, the company has had some interesting exploration results. Its Patterson Lake South Project has some exploration results showing boulder trains of high-grade uranium. It's looking very prospective and the company just announced that it's doing additional trenching.
   
   The numbers there look very exciting, with potential for something pretty significant. It will certainly add another layer of interest to what has already been a very exciting story, given that Waterbury is right beside Hathor's Roughrider Project. On top of that, the company also has its Dieter Lake property and the Macusani as well. We're monitoring Fission's progress there with a great interest. Just from looking at it, it seems just the boulders themselves are high-grade enough to potentially have a resource.
   
   TER: Can you clarify for people who aren't acquainted with the geology of uranium—where do the boulders come from and what is their significance?
   
   RC: That's the interesting thing. The company is currently doing some exploration to find out exactly where the boulders originated. The potential source is northeast of where the boulders were found on the property and hopefully the whole resource is all still on the property. But, these boulders are just basically rocks on the surface. Fission has been finding pretty high-grade mineralization there.
   
   Another company we're covering and very excited about is Kivalliq Energy Corp. (KIV:TSX.V). It has identified the western and eastern extensions to their Lac Cinquante Deposit, which has 14.15 million pounds (Mlb) of 0.79% uranium—the highest-grade uranium deposit in the world outside of the Athabasca Basin. It's located in Nunavut. The western extension has shown a high-grade intercept of 2.25% over 2.3 meters (m). That's just one hole, but we've seen interesting results from both sides. It may potentially be a much larger resource. The Lac Cinquante Deposit itself is a very small part of the overall area that Kivalliq can explore. Looking at some of their target maps, it seems like there are many targets the company can potentially test that will last them quite a long time. It's quite exciting for them as well.
   
   TER: Nunavut—that's pretty remote.
   
   RC: Yes, but there are other projects being developed right now in the area. AREVA (CEI:PAR), to the northeast of Kivalliq, is currently working on their Kiggavik uranium project. It is reassuring for investors to see a large uranium miner currently moving forward on an asset in the area. But you are correct; there is less infrastructure and the deposit will definitely have to be high grade and relatively large for it to be economic. However, it is the highest-grade uranium deposit outside of the Athabasca Basin, so it's got the potential.
   
   TER: What other companies do you like?
   
   RC: Energy Fuels Inc. (EFR:TSX) recently announced that it's purchased the Skidmore Lease in southeast Utah's Sage Plain District from a private company. This lease contains 921,000 pounds of historic resources that need to be proven up. More importantly, that lease is located near EFR's current Calliham, Crain, Sage and other nearby leases, which enables them to continue their strategy of consolidating the area. It can now start the permitting process for their third potential mine behind its Whirlwind and Energy Queen Mines, which are already waiting to go.
   
   TER: What's the general outlook for uranium mining in the U.S. versus Canada?
   
   RC: Mining in the U.S. tends to be a little bit more difficult, given the anti-uranium sentiment in some areas. In Canada’s Athabasca, there has been consistent and well-accepted uranium production for many years. In the U.S. it's a little bit more difficult. You can see that in Virginia, for example, where there's been a lot of pushback toward uranium. Even with Energy Fuels right now, a Colorado federal judge issued a stay against the Department of Energy's activities in granting licenses for uranium exploration, or any type of uranium-focused activity. The regulatory regime is a little more difficult and more protective in the U.S. compared to the Athabasca region.
   
   TER: Would you say the safest jurisdictions are in Canada or overseas at this point?
   
   RC: Yes, but I think the U.S. has some very good resources, strong companies and good projects being advanced. Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.A) is progressing with its deposits in Wyoming and Uranium Energy Corp (UEC:NYSE.A) is now producing in Texas. There are, however, a few more hoops to jump through in the U.S. compared to other countries such as Kazakhstan or African countries, where the regimes are more favorable toward mining development. I had a good chat with the management at Uranerz recently, and, it seems that the development of its assets has been progressing very well. We're quite anxious to see when it starts producing and we're very positive on the company.
   
   TER: Let's shift gears again to M&A activity. There were at least two competing offers for Hathor from Rio Tinto and Cameco. Rio Tinto upped Cameco's bid by about $0.40 a share. Is this going to be a bidding war that attracts more players, or are these two going to fight it out to the end?
   
   RC: Rio Tinto came into the game pretty late already. If I were to guess, I would expect it would be just between these two. We're more than likely going to see a second offer from Cameco. The common view, as well as mine, is that both bids are a little low relative to what Hathor should be worth. Cameco is in the best position to provide synergies and pay the highest amount for Hathor. It is the dominant player in the area, with two mills and extensive experience developing Athabasca-based mines. On the other hand, Rio Tinto is one of the largest miners in the world and if it wants something, it can get it. It'll be interesting to see how things shake out.
   
   TER: What are the implications here for Fission? Is the company going to end up getting taken over too, or is it a little premature?
   
   RC: I think Fission will definitely eventually be taken out by whomever wins the Hathor battle. Fission's property, even though the exploration is probably two or three years behind Hathor's, is very prospective. Based on the drilling results that we've seen already, Fission's J East zone is the likely western extension to Hathor's Roughrider zone. Then, 30m just to the west of J East is the J Zone. That's a pretty large tabular ore body that's near to surface relative to Roughrider's deposit.
   
   Further to the west of J Zone there are several other perspective targets that Fission's currently exploring. There could potentially be more pearls in that string of mineralization. The mineralization is shallower on the west side with these pearls of mineralization going deeper toward the east. Potentially there is more further to the west of what Fission has in its J Zone. Since its property package is larger than Hathor's, it could potentially have more mineralization than Hathor. But that remains to be seen.
   
   TER: When do you think someone will take a shot at Fission?
   
   RC: I would assume that whomever wins the Cameco/Rio Tinto battle will want to consolidate the whole area. More than likely this battle will continue into 2012. Bids for Fission will probably happen a few months after that. Meanwhile, Fission will obviously be trying to prove up as many resources as possible to increase its value. Within a year, Fission will likely no longer be a standalone company.
   
   TER: What's happened with the stock prices on Fission, Kivalliq and Energy Fuels since last June, and what are you expecting in the near future?
   
   RC: All three have moved up. Hathor will probably go up with the potential bids. I think the key one to look at really is Fission. Given that Fission does not have a resource, many investors don't know what type of valuation to assign to it. It's trading in the $0.80 range as we speak. My expectation of a resource is somewhere between 15-20 Mlb, now just shy of 18 Mlb. We believe that Fission is probably worth double its current share price. Will Hathor be worth more? Probably, but a double from its current level is unlikely. I do know some investors who believe that Hathor should be worth $10.00 a share. Looking at it from that perspective, I'm very excited about the prospects for Fission.
   
   TER: How about Kivalliq and Energy Fuels?
   
   RC: I like both those companies very much as well. Unfortunately they don't have a take-out scenario happening right next door but, valuation-wise, are very strong. We believe Energy Fuels is still a buy with a $1.30 price target. On Kivalliq, we also have a Speculative Buy rating with a $1.00 price target.
   
   TER: So there's still some potential upside on all of these plays. Are you looking at any other companies you'd like to mention at this point?
   
   RC: As far as our favorite producer names, even though we don't cover it, we are positive on Uranium One Inc. (UUU:TSX). It is the one producer that is 100% exposed to the spot price, meaning it does not have any hedge to sales. In our opinion, it is in the best position to get good leverage and torque from when the spot price inevitably goes into the $70s. Other producers will be stuck at lower price points with their contracts.
   
   TER: What do you think our readers should be looking at now at if they're interested in the uranium market in North America?
   
   RC: Fission is an exciting opportunity, because you have that immediate take-out story happening next door. An NI 43-101 resource coming at the end of this year that will be somewhere between 15-20 Mlb makes for an exciting story that has tremendous upside. For those who want to position themselves for a good turnaround in the uranium spot price, Uranium One probably would be a very strong candidate. Looking a little longer-term, we're very positive on Energy Fuels and Kivalliq Energy, with our target prices being significantly higher than where they're trading now.
   
   TER: Plenty of food for thought and interesting prospects. We appreciate your time today and we'll look forward to talking with you again.
   
   RC: Great. Thank you.
   
   Versant Partners Analyst Rob Chang has extensive financial markets experience dating back to 1995. He was a member of a five-person team running a multi-strategy hedge fund, a base metals research associate at BMO Capital Markets, a manager of resource funds at a boutique investment management company and an equity analyst covering the global mining sector at an independent investment bank. Rob has an MBA from the Rotman School of Management at the University of Toronto and holds a Chartered Investment Manager designation.
   
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   DISCLOSURE:
   1) Zig Lambo of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
   2) The following companies mentioned in the interview are sponsors of The Energy Report: Fission Energy, Energy Fuels Inc., Uranerz Energy Corp. and Uranium Energy Corp.
   3) Rob Chang: I personally and/or my family own shares of the following companies mentioned in this interview: Uranium One. I personally and/or my family am paid by the following companies mentioned in this interview: None.
   

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