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Green Energy: A Bubble In Unrealistic Expectations

Green Energy: A Bubble In Unrealistic Expectations

Authored by David Hay via Everegreen Gavekal blog,

“You see what is happening in Europe….

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This article was originally published by Zero Hedge

Green Energy: A Bubble In Unrealistic Expectations

Authored by David Hay via Everegreen Gavekal blog,

“You see what is happening in Europe. There is hysteria and some confusion in the markets. Why?…Some people are speculating on climate change issues, some people are underestimating some things, some are starting to cut back on investments in the extractive industries. There needs to be a smooth transition.”

– Vladimir Putin (someone with whom this author rarely agrees)

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of its citizens.”

– John Maynard Keynes (an interesting observation for all the modern day Keynesians to consider given their support of current inflationary US policies, including energy-related)

Introduction

This week’s EVA provides another sneak preview into David Hay’s book-in-process, “Bubble 3.0” discussing what he thinks is the crucial topic of “greenflation.”  This is a term he coined referring to the rising price for metals and minerals that are essential for solar and wind power, electric cars, and other renewable technologies.

It also centers on the reality that as global policymakers have turned against the fossil fuel industry, energy producers are for the first time in history not responding to dramatically higher prices by increasing production.  Consequently, there is a difficult tradeoff that arises as the world pushes harder to combat climate change, driving up energy costs to painful levels, especially for lower income individuals. 

What we are currently seeing in Europe is a vivid example of this dilemma.  While it may be the case that governments welcome higher oil and natural gas prices to discourage their use, energy consumers are likely to have a much different reaction.

Summary

  • BlackRock’s CEO recently admitted that, despite what many are opining, the green energy transition is nearly certain to be inflationary.

  • Even though it’s early in the year, energy prices are already experiencing unprecedented spikes in Europe and Asia, but most Americans are unaware of the severity.

  • To that point, many British residents being faced with the fact that they may need to ration heat and could be faced with the chilling reality that lives could be lost if this winter is as cold as forecasters are predicting.

  • Because of the huge increase in energy prices, inflation in the eurozone recently hit a 13-year high, heavily driven by natural gas prices on the Continent that are the equivalent of $200 oil.

  • It used to be that the cure for extreme prices was extreme prices, but these days I’m not so sure.  Oil and gas producers are very wary of making long-term investments to develop new resources given the hostility to their industry and shareholder pressure to minimize outlays.

  • I expect global supply to peak sometime next year and a major supply deficit looks inevitable as global demand returns to normal.

  • In Norway, almost 2/3 of all new vehicle sales are of the electric variety (EVs) – a huge increase in just over a decade. Meanwhile, in the US, it’s only about 2%. Still, given Norway’s penchant for the plug-in auto, the demand for oil has not declined.

  • China, despite being the largest market by far for electric vehicles, is still projected to consume an enormous and rising amount of oil in the future.

  • About 70% of China’s electricity is generated by coal, which has major environmental ramifications in regards to electric vehicles.

  • Because of enormous energy demand in China this year, coal prices have experienced a massive boom. Its usage was up 15% in the first half of this year, and the Chinese government has instructed power providers to obtain all baseload energy sources, regardless of cost. 

  • The massive migration to electric vehicles – and the fact that they use six times the amount of critical minerals as their gasoline-powered counterparts –means demand for these precious resources is expected to skyrocket.

  • This extreme need for rare minerals, combined with rapid demand growth, is a recipe for a major spike in prices.

  • Massively expanding the US electrical grid has several daunting challenges– chief among them the fact that the American public is extremely reluctant to have new transmission lines installed in their area.

  • The state of California continues to blaze the trail for green energy in terms of both scope and speed. How the rest of the country responds to their aggressive take on renewables remains to be seen.

  • It appears we are entering a very odd reality: governments are expending resources they do not have on weakly concentrated energy. And the result may be very detrimental for today’s modern economy.

  • If the trend in energy continues, what looks nearly certain to be the Third Energy crisis of the last half-century may linger for years. 

Green energy: A bubble in unrealistic expectations?

As I have written in past EVAs, it amazes me how little of the intense inflation debate in 2021 centered on the inflationary implications of the Green Energy transition.  Perhaps it is because there is a built-in assumption that using more renewables should lower energy costs since the sun and the wind provide “free power”. 

However, we will soon see that’s not the case, at least not anytime soon; in fact, it’s my contention that it will likely be the opposite for years to come and I’ve got some powerful company.  Larry Fink, CEO of BlackRock, a very pro-ESG* organization, is one of the few members of Wall Street’s elite who admitted this in the summer of 2021.  The story, however, received minimal press coverage and was quickly forgotten (though, obviously, not be me!). 

This EVA will outline myriad reasons why I think Mr. Fink was telling it like it is…despite the political heat that could bring down upon him.  First, though, I will avoid any discussion of whether humanity is the leading cause of global warming.  For purposes of this analysis, let’s make the high-odds assumption that for now a high-speed green energy transition will continue to occur.  (For those who would like a well-researched and clearly articulated overview of the climate debate, I highly recommend the book “Unsettled”; it’s by a former top energy expert and scientist from the Obama administration, Dr. Steven Koonin.)

The reason I italicized “for now” is that in my view it’s extremely probable that voters in many Western countries are going to become highly retaliatory toward energy policies that are already creating extreme hardship.  Even though it’s only early autumn as I write these words, energy prices are experiencing unprecedented increases in Europe.  Because it’s “over there”, most Americans are only vaguely aware of the severity of the situation.  But the facts are shocking… 

Presently, natural gas is going for $29 per million British Thermal Units (BTUs) in Europe, a quadruple compared to the same time in 2020, versus “just” $5 in the US, which is a mere doubling.  As a consequence, wholesale energy cost in Great Britain rose an unheard of 60% even before summer ended.  Reportedly, nine UK energy companies are on the brink of failure at this time due to their inability to fully pass on the enormous cost increases.  As a result, the British government is reportedly on the verge of nationalizing some of these entities—supposedly, temporarily—to prevent them from collapsing.  (CNBC reported on Wednesday that UK natural gas prices are now up 800% this year; in the US, nat gas rose 20% on Tuesday alone, before giving back a bit more than half of that the next day.)

Serious food shortages are expected after exorbitant natural gas costs forced most of England’s commercial production of CO2 to shut down.  (CO2 is used both for stunning animals prior to slaughter and also in food packaging.)  Additionally, ballistic natural gas prices have forced the closure of two big US fertilizer plants due to a potential shortfall of ammonium nitrate of which “nat gas” is a key feedstock. 

*ESG stands for Environmental, Social, Governance; in 2021, Blackrock’s assets under management approximated $9 ½ trillion, about one-third of the total US federal debt.

With the winter of 2021 approaching, British households are being told they may need to ration heat.  There are even growing concerns about the widespread loss of life if this winter turns out to be a cold one, as 2020 was in Europe.  Weather forecasters are indicating that’s a distinct possibility.  

In Spain, consumers are paying 40% more for electricity compared to the prior year.  The Spanish government has begun resorting to price controls to soften the impact of these rapidly escalating costs. (The history of price controls is that they often exacerbate shortages.) Naturally, spiking power prices hit the poorest hardest, which is typical of inflation whether it is of the energy variety or of generalized price increases. 

Due to these massive energy price increases, eurozone inflation recently hit a 13-year high, heavily driven by natural gas prices that are the equivalent of $200 per barrel oil.  This is consistent with what I warned about in several EVAs earlier this year and I think there is much more of this looming in the years to come.

In Asia, which also had a brutally cold winter in 2020 – 2021, there are severe energy shortages being disclosed, as well.  China has instructed its power providers to secure all the coal they can in preparation for a repeat of frigid conditions and acute deficits even before winter arrives.  The government has also instructed its energy distributors to acquire all the liquified natural gas (LNG) they can, regardless of cost.  LNG recently hit $35 per million British Thermal Units in Asia, up sevenfold in the past year.  China is also rationing power to its heavy industries, further exacerbating the worldwide shortages of almost everything, with notable inflationary implications.

In India, where burning coal provides about 70% of electricity generation (as it does in China), utilities are being urged to import coal even though that country has the world’s fourth largest coal reserves.  Several Indian power plants are close to exhausting their coal supplies as power usage rips higher.

Normally, I’d say that the cure for such extreme prices, was extreme prices—to slightly paraphrase the old axiom.  But these days, I’m not so sure; in fact, I’m downright dubious.  After all, the enormously influential International Energy Agency has recommended no new fossil fuel development after 2021—“no new”, as in zero. 

It’s because of pressure such as this that, even though US natural gas prices have done a Virgin Galactic to $5 this year, the natural gas drilling rig count has stayed flat.  The last time prices were this high there were three times as many working rigs. 

It is the same story with oil production.  Most Americans don’t seem to realize it but the US has provided 90% of the planet’s petroleum output growth over the past decade.  In other words, without America’s extraordinary shale oil production boom—which raised total oil output from around 5 million barrels per day in 2008 to 13 million barrels per day in 2019—the world long ago would have had an acute shortage.  (Excluding the Covid-wracked year of 2020, oil demand grows every year—strictly as a function of the developing world, including China, by the way.)

Unquestionably, US oil companies could substantially increase output, particularly in the Permian Basin, arguably (but not much) the most prolific oil-producing region in the world.  However, with the Fed being pressured by Congress to punish banks that lend to any fossil fuel operator, and the overall extreme hostility toward domestic energy producers, why would they? 

There is also tremendous pressure from Wall Street on these companies to be ESG compliant.  This means reducing their carbon footprint.  That’s tough to do while expanding their volume of oil and gas. 

Further, investors, whether on Wall Street or on London’s equivalent, Lombard Street, or in pretty much any Western financial center, are against US energy companies increasing production.  They would much rather see them buy back stock and pay out lush dividends.  The companies are embracing that message.  One leading oil and gas company CEO publicly mused to the effect that buying back his own shares at the prevailing extremely depressed valuations was a much better use of capital than drilling for oil—even at $75 a barrel.

As reported by Morgan Stanley, in the summer of 2021, an US institutional broker conceded that of his 400 clients, only one would consider investing in an energy company!  Consequently, the fact that the industry is so detested means that its shares are stunningly undervalued.  How stunningly?  A myriad of US oil and gas producers are trading at free cash flow* yields of 10% to 15% and, in some cases, as high as 25%.

In Europe, where the same pressures apply, one of its biggest energy companies is generating a 16% free cash flow yield.  Moreover, that is based up an estimate of $60 per barrel oil, not the prevailing price of $80 on the Continent.

*Free cash flow is the excess of gross cash flow over and above the capital spending needed to sustain a business.  Many market professionals consider it more meaningful than earnings. 

Therefore, due to the intense antipathy toward Western energy producers they aren’t very inclined to explore for new resources.  Another much overlooked fact about the ultra-critical US shale industry that, as noted, has been nearly the only source of worldwide output growth for the past 13 years, is its rapid decline nature. 

Most oil wells see their production taper off at just 4% or 5% per year.  But with shale, that decline rate is 80% after only two years.  (Because of the collapse in exploration activities in 2020 due to Covid, there are far fewer new wells coming on-line; thus, the production base is made up of older wells with slower decline rates but it is still a much steeper cliff than with traditional wells.) 

As a result, the US, the world’s most important swing producer, has to come up with about 1.5 million barrels per day (bpd) of new output just to stay even.  (This was formerly about a 3 million bpd number due to both the factor mentioned above and the 2 million bpd drop in total US oil production, from 13 million bpd to around 11 million bpd since 2019).  Please recall that total US oil production in 2008 was only around 5 million bpd.  Thus, 1.5 million barrels per day is a lot of oil and requires considerable drilling and exploration activities.  Again, this is merely to stay steady-state, much less grow. 

The foregoing is why I wrote on multiple occasions in EVAs during 2020, when the futures price for oil went below zero*, that crude would have a spectacular price recovery later that year and, especially, in 2021.  In my view, to go out on my familiar creaky limb, you ain’t seen nothin’ yet!  With supply extremely challenged for the above reasons and demand marching back, I believe 2022 could see $100 crude, possibly even higher. 

*Physical oil, or real vs paper traded, bottomed in the upper teens when the futures contract for delivery in April, 2020, went deeply negative. 

Mike Rothman of Cornerstone Analytics has one of the best oil price forecasting records on Wall Street.  Like me, he was vehemently bullish on oil after the Covid crash in the spring of 2020 (admittedly, his well-reasoned optimism was a key factor in my up-beat outlook).  Here’s what he wrote late this summer:  “Our forecast for ’22 looks to see global oil production capacity exhausted late in the year and our balance suggests OPEC (and OPEC + participants) will face pressures to completely remove any quotas.” 

My expectation is that global supply will likely max out sometime next year, barring a powerful negative growth shock (like a Covid variant even more vaccine resistant than Delta).  A significant supply deficit looks inevitable as global demand recovers and exceeds its pre-Covid level.  This is a view also shared by Goldman Sachs and Raymond James, among others; hence, my forecast of triple-digit prices next year.  Raymond James pointed out that in June the oil market was undersupplied by 2.5 mill bpd.  Meanwhile, global petroleum demand was rapidly rising with expectations of nearly pre-Covid consumption by year-end.  Mike Rothman ran this chart in a webcast on 9/10/2021 revealing how far below the seven-year average oil inventories had fallen.  This supply deficit is very likely to become more acute as the calendar flips to 2022.

In fact, despite oil prices pushing toward $80, total US crude output now projected to actually decline this year.  This is an unprecedented development.  However, as the very pro-renewables Financial Times (the UK’s equivalent of the Wall Street Journal) explained in an August 11th, 2021, article:  “Energy companies are in a bind.  The old solution would be to invest more in raising gas production.  But with most developed countries adopting plans to be ‘net zero’ on carbon emissions by 2050 or earlier, the appetite for throwing billions at long-term gas projects is diminished.”

The author, David Sheppard, went on to opine: “In the oil industry there are those who think a period of plus $100-a-barrel oil is on the horizon, as companies scale back investments in future supplies, while demand is expected to keep rising for most of this decade at a minimum.”  (Emphasis mine)  To which I say, precisely! 

Thus, if he’s right about rising demand, as I believe he is, there is quite a collision looming between that reality and the high probability of long-term constrained supplies.  One of the most relevant and fascinating Wall Street research reports I read as I was researching the topic of what I have been referring to as “Greenflation” is from Morgan Stanley.  Its title asked the provocative question:  “With 64% of New Cars Now Electric, Why is Norway Still Using so Much Oil?” 

While almost two-thirds of Norway’s new vehicle sales are EVs, a remarkable market share gain in just over a decade, the number in the US is an ultra-modest 2%.   Yet, per the Morgan Stanley piece, despite this extraordinary push into EVs, oil consumption in Norway has been stubbornly stable. 

Coincidentally, that’s been the experience of the overall developed world over the past 10 years, as well; petroleum consumption has largely flatlined.  Where demand hasn’t gone horizontal is in the developing world which includes China.  As you can see from the following Cornerstone Analytics chart, China’s oil demand has vaulted by about 6 million barrels per day (bpd) since 2010 while its domestic crude output has, if anything, slightly contracted.

Another coincidence is that this 6 million bpd surge in China’s appetite for oil, almost exactly matched the increase in US oil production.  Once again, think where oil prices would be today without America’s shale oil boom.

This is unlikely to change over the next decade.  By 2031, there are an estimated one billion Asian consumers moving up into the middle class.  History is clear that more income means more energy consumption.  Unquestionably, renewables will provide much of that power but oil and natural gas are just as unquestionably going to play a critical role.  Underscoring that point, despite the exponential growth of renewables over the last 10 years, every fossil fuel category has seen increased usage. 

Thus, even if China gets up to Norway’s 64% EV market share of new car sales over the next decade, its oil usage is likely to continue to swell.  Please be aware that China has become the world’s largest market for EVs—by far.  Despite that, the above chart vividly displays an immense increase in oil demand

Here’s a similar factoid that I ran in our December 4th EVA, “Totally Toxic”, in which I made a strong bullish case for energy stocks (the main energy ETF is up 35% from then, by the way): 

“(There was) a study by the UN and the US government based on the Model for the Assessment of Greenhouse Gasses Induced Climate Change (MAGICC).  The model predicted that ‘the complete elimination of all fossil fuels in the US immediately would only restrict any increase in world temperature by less than one tenth of one degree Celsius by 2050, and by less than one fifth of one degree Celsius by 2100.’  Say again?  If the world’s biggest carbon emitter on a per capita basis causes minimal improvement by going cold turkey on fossil fuels, are we making the right moves by allocating tens of trillions of dollars that we don’t have toward the currently in-vogue green energy solutions?”

China’s voracious power appetite increase has been true with all of its energy sources. 

On the environmentally-friendly front, that includes renewables; on the environmentally-unfriendly side, it also includes coal.  In 2020, China added three times more coal-based power generation than all other countries combined.  This was the equivalent of an additional coal planet each week.  Globally, there was a reduction last year of 17 gigawatts in coal-fired power output; in China, the increase was 29.8 gigawatts, far more than offsetting the rest of the world’s progress in reducing the dirtiest energy source.  (A gigawatt can power a city with a population of roughly 700,000.)

Overall, 70% of China’s electricity is coal-generated. This has significant environmental implications as far as electric vehicles (EVs) are concerned.  Because EVs are charged off a grid that is primarily coal- powered, carbon emissions actually rise as the number of such vehicles proliferate. As you can see in the following charts from Reuters’ energy expert John Kemp, Asia’s coal-fired generation has risen drastically in the last 20 years, even as it has receded in the rest of the world.  (The flattening recently is almost certainly due to Covid, with a sharp upward resumption nearly a given.)

The worst part is that burning coal not only emits CO2—which is not a pollutant and is essential for life—it also releases vast quantities of nitrous oxide (N20), especially on the scale of coal usage seen in Asia today. N20 is unquestionably a pollutant and a greenhouse gas that is hundreds of times more potent than CO2.  (An interesting footnote is that over the last 550 million years, there have been very few times when the CO2 level has been as low, or lower, than it is today.) 

Some scientists believe that one reason for the shrinkage of Arctic sea ice in recent decades is due to the prevailing winds blowing black carbon soot over from Asia.  This is a separate issue from N20 which is a colorless gas.  As the black soot covers the snow and ice fields in Northern Canada, they become more absorbent of the sun’s radiation, thus causing increased melting.  (Source:  “Weathering Climate Change” by Hugh Ross)

Due to exploding energy needs in China this year, coal prices have experienced an unprecedented surge.  Despite this stunning rise, Chinese authorities have instructed its power providers to obtain coal, and other baseload energy sources, such as liquified natural gas (LNG), regardless of cost.  Notwithstanding how pricey coal has become, its usage in China was up 15% in the first half of this year vs the first half of 2019 (which was obviously not Covid impacted).

Despite the polluting impact of heavy coal utilization, China is unlikely to turn away from it due to its high energy density (unlike renewables), its low cost (usually) and its abundance within its own borders (though its demand is so great that it still needs to import vast amounts). 

Regarding oil, as we saw in last week’s final image, it is currently importing roughly 11 million barrels per day (bpd) to satisfy its 15 million bpd consumption (about 15% of total global demand).  In other words, crude imports amount to almost three-quarter of its needs.  At $80 oil, this totals $880 million per day or approximately $320 billion per year.  Imagine what China’s trade surplus would look like without its oil import bill!

Ironically, given the current hostility between the world’s superpowers, China has an affinity for US oil because of its light and easy-to-refine nature.  China’s refineries tend to be low-grade and unable to efficiently process heavier grades of crude, unlike the US refining complex which is highly sophisticated and prefers heavy oil such as from Canada and Venezuela—back when the latter actually produced oil.

Thus, China favors EVs because they can be de facto coal-powered, lessening its dangerous reliance on imported oil.  It also likes them due to the fact it controls 80% of the lithium ion battery supply and 60% of the planet’s rare earth minerals, both of which are essential to power EVs.    

However, even for China, mining enough lithium, cobalt, nickel, copper, aluminum and the other essential minerals/metals to meet the ambitious goals of largely electrifying new vehicle volumes is going to be extremely daunting.  This is in addition to mass construction of wind farms and enormously expanded solar panel manufacturing.

As one of the planet’s leading energy authorities Daniel Yergin writes: “With the move to electric cars, demand for critical minerals will skyrocket (lithium up 4300%, cobalt and nickel up 2500%), with an electric vehicle using 6 times more minerals than a conventional car and a wind turbine using 9 times more minerals than a gas-fueled power plant.  The resources needed for the ‘mineral-intensive energy system’ of the future are also highly concentrated in relatively few countries. Whereas the top 3 oil producers in the world are responsible for about 30 percent of total liquids production, the top 3 lithium producers control more than 80% of supply. China controls 60% of rare earths output needed for wind towers; the Democratic Republic of the Congo, 70% of the cobalt required for EV batteries.”

As many have noted, the environmental impact of immensely ramping up the mining of these materials is undoubtedly going to be severe.  Michael Shellenberger, a life-long environmental activist, has been particularly vociferous in his condemnation of the dominant view that only renewables can solve the global energy needs.  He’s especially critical of how his fellow environmentalists resorted to repetitive deception, in his view, to undercut nuclear power in past decades.  By leaving nuke energy out of the solution set, he foresees a disastrous impact on the planet due to the massive scale (he’d opine, impossibly massive) of resource mining that needs to occur.  (His book, “Apocalypse Never”, is also one I highly recommend; like Dr. Koonin, he hails from the left end of the political spectrum.)

Putting aside the environmental ravages of developing rare earth minerals, when you have such high and rapidly rising demand colliding with limited supply, prices are likely to go vertical.  This will be another inflationary “forcing”, a favorite term of climate scientists, caused by the Great Green Energy Transition.

Moreover, EVs are very semiconductor intensive.  With semis already in seriously short supply, this is going to make a gnarly situation even gnarlier.  It’s logical to expect that there will be recurring shortages of chips over the next decade for this reason alone (not to mention the acute need for semis as the “internet of things” moves into primetime). 

In several of the newsletters I’ve written in recent years, I’ve pointed out the present vulnerability of the US electric grid.  Yet, it will be essential not just to keep it from breaking down under its current load; it must be drastically enhanced, a Herculean task. For one thing, it is excruciatingly hard to install new power lines. As J.P. Morgan’s Michael Cembalest has written: “Grid expansion can be a hornet’s nest of cost, complexity and NIMBYism*, particularly in the US.”  The grid’s frailty, even under today’s demands (i.e., much less than what lies ahead as millions of EVs plug into it) is particularly obvious in California.  However, severe winter weather in 2021 exposed the grid weakness even in energy-rich Texas, which also has a generally welcoming attitude toward infrastructure upgrading and expansion.

Yet it’s the Golden State, home to 40 million Americans and the fifth largest economy in the world, if it was its own country (which it occasionally acts like it wants to be), that is leading the charge to EVs and seeking to eliminate internal combustion engines (ICEs) as quickly as possible.  Even now, blackouts and brownouts are becoming increasingly common.  Seemingly convinced it must be a role model for the planet, it’s trying desperately to reduce its emissions, which are less than 1%, of the global total, at the expense of rendering its energy system more similar to a developing country.  In addition to very high electricity costs per kilowatt hour (its mild climate helps offset those), it also has gasoline prices that are 77% above the national average. 

*NIMBY stands for Not In My Back Yard.

While California has been a magnet for millions seeking a better life for 150 years, the cost of living is turning the tide the other way.  Unreliable and increasingly expensive energy is likely to intensify that trend.  Combined with home prices that are more than double the US median–$800,000!–California is no longer the land of milk and honey, unless, to slightly paraphrase Woody Guthrie about LA, even back in the 1940s, you’ve got a whole lot of scratch.  More and more people, seem to be scratching California off their list of livable venues. 

Voters in the reliably blue state of California may become extremely restive, particularly as they look to Asia and see new coal plants being built at a fever pitch.  The data will become clear that as America keeps decarbonizing–as it has done for 30 years mostly due to the displacement of coal by gas in the US electrical system—Asia will continue to go the other way.  (By the way, electricity represents the largest share of CO2 emission at roughly 25%.) 

California has always seemed to lead social trends in this country, as it is doing again with its green energy transition.  The objective is noble though, extremely ambitious, especially the timeline.  As it brings its power paradigm to the rest of America, especially its frail grid, it will be interesting to see how voters react in other states as the cost of power leaps higher and its dependability heads lower.  It’s reasonable to speculate we may be on the verge of witnessing the Californication of the US energy system. 

Lest you think I’m being hyperbolic, please be aware the IEA (International Energy Agency) has estimated it will cost the planet $5 trillion per year to achieve Net Zero emissions.  This is compared to global GDP of roughly $85 trillion. According to BloombergNEF, the price tag over 30 years, could be as high as $173 trillion.  Frankly, based on the history of gigantic cost overruns on most government-sponsored major infrastructure projects, I’m inclined to take the over—way over—on these estimates.

Moreover, energy consulting firm T2 and Associates, has guesstimated electrifying just the US to the extent necessary to eliminate the direct consumption of fuel (i.e., gasoline, natural gas, coal, etc.) would cost between $18 trillion and $29 trillion.  Again, taking into account how these ambitious efforts have played out in the past, I suspect $29 trillion is light.  Regardless, even $18 trillion is a stunner, despite the reality we have all gotten numb to numbers with trillions attached to them.  For perspective, the total, already terrifying, level of US federal debt is $28 trillion.

Regardless, as noted last week, the probabilities of the Great Green Energy Transition happening are extremely high.  Relatedly, I believe the likelihood of the Great Greenflation is right up there with them. 

As Gavekal’s Didier Darcet wrote in mid-August:  ““Nowadays, and this is a great first in history, governments will commit considerable financial resources they do not have in the extraction of very weakly concentrated energy.” ( i.e., less efficient)  “The bet is very risky, and if it fails, what next?  The modern economy would not withstand expensive energy, or worse, lack of energy.” 

While I agree this an historical first, it’s definitely not great (with apologies for all the “greats”).  This is particularly not great for keeping inflation subdued, as well as for attempting to break out of the growth quagmire the Western world has been in for the last two decades.  What we are seeing in Europe right now is an extremely cautionary case study in just how disastrous the war on fossil fuels can be (shortly we will see who or what has been a behind-the-scenes participant in this conflict).

Essentially, I believe, as I’ve written in past EVAs, we are entering the third energy crisis of the last 50 years.  If I’m right, it will be characterized by recurring bouts of triple-digit oil prices in the years to come.  Along with Richard Nixon taking the US off the gold standard in 1971, the high inflation of the 1970s was caused by the first two energy crises (the 1973 Arab Oil Embargo and the 1979 Iranian Revolution).  If I’m correct about this being the third, it’s coming at a most inopportune time with the US in hyper-MMT* mode.

Frankly, I believe many in the corridors of power would like to see oil trade into the $100s, and natural gas into the teens, as it will help catalyze the shift to renewable energy.  But consumers are likely to have a much different reaction—potentially, a violently different reaction, as I noted last week. 

The experience of the Yellow Vest protests in France (referring to the color of the vest protestors wore), are instructive in this regard.  France is a generally left-leaning country.  Despite that, a proposed fuel surtax in November 2018 to fund a renewable energy transition triggered such widespread civil unrest that French president Emmanuel Macron rescinded it the following month.

*MMT stands for Modern Monetary Theory.  It holds that a government, like the US, which issues debt in its own currency can spend without concern about budgetary constraints.  If there are not enough buyers of its bonds at acceptable interest rates, that nation’s central bank (the Fed, in our case) simply acquires them with money it creates from its digital printing press.  This is what is happening today in the US.  Many economists consider this highly inflationary.

The sharp and politically uncomfortable rise in US gas pump prices this summer caused the Biden administration to plead with OPEC to lift its volume quotas.  The ironic implication of that exhortation was glaringly obvious, as was the inefficiency and pollution consequences of shipping oil thousands of miles across the Atlantic.  (Oil tankers are a significant source of emissions.)  This is as opposed to utilizing domestic oil output, as well as crude from Canada (which is actually generally better suited to the US refining complex).  Beyond the pollution aspect, imported oil obviously worsens America’s massive trade deficit (which would be far more massive without the six million barrels per day of domestic oil volumes that the shale revolution has provided) and costs our nation high-paying jobs.

Further, one of my other big fears is that the West is engaging in unilateral energy disarmament.  Russia and China are likely the major beneficiaries of this dangerous scenario.  Per my earlier comment about a stealth combatant in the war on fossil fuels, it may surprise you that a past NATO Secretary General* has accused Russian intelligence of avidly supporting the anti-fracking movements in Western Europe.  Russian TV has railed against fracking for years, even comparing it to pedophilia (certainly, a most bizarre analogy!). 

The success of the anti-fracking movement on the Continent has essentially prevented a European version of America’s shale miracles (the UK has the potential to be a major shale gas producer).  Consequently, the European Union’s domestic natural gas production has been in a rapid decline phase for years. 

Banning fracking has, of course, made Europe heavily reliant on Russian gas shipments with more than 40% of its supplies coming from Russia. This is in graphic contrast to the shale output boom in the US that has not only made us natural gas self-sufficient but also an export powerhouse of liquified natural gas (LNG). 

In 2011, the Nord Stream system of pipelines running under the Baltic Sea from northern Russia began delivering gas west from northern Russia to the German coastal city of Greifswald.  For years, the Russians sought to build a parallel system with the inventive name of Nord Stream 2.  The US government opposed its approval on security grounds but the Biden administration has dropped its opposition.  It now appears Nord Stream 2 will happen, leaving Europe even more exposed to Russian coercion. 

Is it possible the Russian government and the Chinese Communist Party have been secretly and aggressively supporting the anti-fossil fuel movements in America?  In my mind, it seems not only possible but probable.  In fact, I believe it is naïve not to come that conclusion.  After all, wouldn’t it be in both of their geopolitical interests to see the US once again caught in a cycle of debilitating inflation, ensnared by the twin traps of MMT and the third energy crisis?

*Per former NATO Secretary General, Anders Fogh Rasumssen:  Russia has “engaged actively with so-called non-governmental organizations—environmental organizations working against shale gas—to maintain Europe’s dependence on imported Russian gas”.

Along these lines, I was shocked to listen to a recent podcast by the New Yorker magazine on the topic of “intelligent sabotage”.  This segment was an interview between the magazine’s David Remnick and a Swedish professor, Adreas Malm.  Mr. Malm is the author of a new book with the literally explosive title “How To Blow Up A Pipeline”.   Just as it sounds, he advocates detonating pipelines to inhibit fossil fuel distribution. 

Mr. Remnick was clearly sympathetic to his guest but he did ask him about the impact on the poor of driving energy prices up drastically which would be the obvious ramification if his sabotage recommendations were widely followed.  Mr. Malm’s reaction was a verbal shrug of the shoulders and words to the effect that this was the price to pay to save the planet.

Frankly, I am appalled that the venerable New Yorker would provide a platform for such a radical and unlawful suggestion.  In an era when people are de-platformed for often innocuous comments, it’s incredible to me this was posted and has not been pulled down.  In my mind, this reflects just how tolerant the media is of attacks on the fossil fuel industry, regardless of the deleterious impact on consumers and the global economy.

Surely, there is a far better way of coping with the harmful aspects of fossil fuel-based energy than this scorched earth (literally, in the case of Mr. Malm) approach, which includes efforts to block new pipelines, shut existing ones, and severely restrict US energy production.  In America’s case, the result will be forcing us to unnecessarily and increasingly rely on overseas imports.  (For example, per the Wall Street Journal, drilling permits on federal land have crashed to 171 in August from 671 in April.  Further, the contentious $3.5 trillion “infrastructure” plan would raise royalties and fees high enough on US energy producers that it would render them globally uncompetitive.)

Such actions would only aggravate what is already a severe energy shock, one that may be worse than the 1970s twin energy crises.  America has it easy compared to Europe, though, given current US policy trends, we might be in their same heavily listing energy boat soon.

Solutions include fast-tracking small modular nuclear plants; encouraging the further switch from burning coal to natural gas (a trend that is, unfortunately, going the other way now, as noted above); utilizing and enhancing carbon and methane capture at the point of emission (including improving tail pipe effluent-reduction technology); enhancing pipeline integrity to inhibit methane leaks; among many other mitigation techniques that recognize the reality the global economy will be reliant on fossil fuels for many years, if not decades, to come. 

If the climate change movement fails to recognize the essential nature of fossil fuels, it will almost certainly trigger a backlash that will undermine the positive change it is trying to bring about.  This is similar to what it did via its relentless assault on nuclear power which produced a frenzy of coal plant construction in the 1980s and 1990s.  On this point, it’s interesting to see how quickly Europe is re-embracing coal power to alleviate the energy poverty and rationing occurring over there right now – even before winter sets in.  When the choice is between supporting climate change initiatives on one hand and being able to heat your home and provide for your family on the other, is there really any doubt about which option the majority of voters will select?

Tyler Durden
Tue, 10/26/2021 – 19:30





Author: Tyler Durden

Energy & Critical Metals

The cyclical semiconductor sector could be headed back to oversupply: Here’s how several Aussie stocks are placed for 2022

It’s no secret that the semiconductor sector has been experiencing supply shortages since the onset of the COVID pandemic. When … Read More
The post…

It’s no secret that the semiconductor sector has been experiencing supply shortages since the onset of the COVID pandemic.

When times are good the chip makers invest in more chip capacity to the point where there’s oversupply and prices and production comes down – and no one invests anymore.

And about 12-18 months down the line this translates to shortages, and investment picks up again.

But COVID triggered a complete halt in investment in production capacity and at the same time demand increased for laptops with people around the world working from home.

And now there’s a global shortage which is impacting supply chains and production levels – but could the sector be reaching a turning point?

Mark Kennis from Stocks Down Under and Pitt Street Research says that if investors want to keep close tabs on the sector, they should keep an eye on the Philadelphia Semiconductor Index.

“It’s by far the most important index for semiconductor stocks,” he told the Stocks Down Under Semiconductor Conference last week.

“It’s a basket for US based stocks listed in the US, equipment players, fabs companies, and a few foundries.

“Right now, it’s near all-time highs, and it’s a really good index to watch because typically the investors in this space look about six to nine, sometimes even 12 months ahead.

“So, if you see a turning point in stocks, that’s usually a good indicator that the industry is turning, maybe going back to an oversupply situation again.”

Here are how the stocks presenting at the conference see 2022 playing out.

BrainChip (ASX:BRN)

The company is by far the biggest player by market cap in the sector, with its Akida 1000 Neuromorphic System-on-Chip able to learn in real time, mimicking neurobiological architectures and working like a mini brain.

The company made a swathe of announcements in November, entering into a four-year licence agreement for its Akida IP with  MegaChips – a pioneer in the Application Specific Integrated Circuit (ASIC) industry.

BrainChip also completed functionality and performance testing of Akida, which achieved performance and lower power consumption results.

Company founder and chief technology officer Peter van der Made – who handed over the CEO reins to Sean Hehir last month – told the conference that the extremely low power consumption is good for the planet compared to current AI computing which generates huge amounts of greenhouse gases.

“If you look at the collected data centres of the world, they emit around 600 million pounds of greenhouse gases,” he said.

“An Akida 1000 is estimated to be around 97-99% more energy efficient processing.

By 2030 if we continue the way we’re going, data centres will account for 30% of global electricity – and Akida can solve that problem with its low processing power.

And Akida is independent from the cloud, doesn’t require an internet connection to operate and can learn in milliseconds as opposed to weeks with traditional AI.

“With Akida, it’s completely independent of the cloud, all the information is processed on the chip itself, so it’s very secure, whatever stays within the chip itself cannot be hacked,” van der Made said.

The production chips are now being integrated into complete PCIe and Mini-PCIe boards, with these boards and evaluation systems being shipped to Early Access Customers for further testing and verification to see how they work as part of customers’ products.


 

BlueChiip (ASX:BCT)

The company’s core technology is a MEMs device which sits sort of adjacent to the semiconductor market.

Managing director Andrew McLellan addressed the conference fresh off the back of the company’s announcement that its own branded cryovials have been registered with the United States FDA (USA) and received European CE IVD certification.

The company’s Bluechiip-Enabled sample management solutions product line includes sample storage consumables, readers, and stream sample management software.

“We target very highly sophisticated markets, IVF marketplace, clinical trials, cell therapies, population cryobanking, vaccines, that all require ultra low temperature ID and traceability,” he said.

“There’s well over 300 million high value bio samples that are stored, and preserved and processed in minus 196 °C environments – and this is a well over $600 million annual target market for us.

“There’s also applications emerging in the vaccine developed to be shipped and transported at minus 80 degrees.”

And the McLellan says the company has been untouched by supply chain disruptions.

“We’ve got capacity to manufacture up to 10 million chips a year, we’ve got 3 million chips in stock as it stands,” he said.

“They’re worth around $2.5-3 each, so easily valued at around $10 million.

“And we can scale that very rapidly and quickly.”


 

Weebit Nano (ASX:WBT)

The ReRAM player announced a $25.7 million placement to 4 Israel-based institutional investment and pension funds, and a $9 million entitlement offer this month.

CEO Coby Hanoch told the conference that since the company has made progress since signing its first commercial agreement with US based fab SkyWater in September.

“When President Biden announced a $52 billion investment in semiconductors he was holding the Skywater wafer in his hand,” he said.

“By the end of next year, we should be qualified and then be able to start mass production.”

Biden waving a SkyWater wafer around

It certainly helps that Weebit uses standard material in the fab, making it as simple as possible to ramp up manufacturing, which adds a 5% cost to the wafer – as opposed to 10-20% with flash.

Plus, Hanoch said the embedded memory market – where you embed a memory system on a chip – is growing rapidly and is expected to reach over US$100 billion in just a few years.

“One of the big advantages we have in the embedded space is that we can go down to very small geometry, the smaller nanometres,” he said.

“And flash basically is stuck at about 40 nanometres so all of the advanced applications today have to jump through hoops to really connect to the non-volatile memory.

“We already announced we scaled our tech to 28 nanometres, which is one of the sweet spots of our industry.”


 

BluGlass (ASX:BLG)

Laser diode player BluGlass executive chair James Walker said that the company is soon to be the fourth gallium nitride (GaN) laser diode supplier in the game.

“We are well on our way for transitioning from an R&D company to a product manufacturing technology development company,” he told the Stocks Down Under Semiconductor Conference.

“We can operate in the high value high margin product space where there are very few players.

“GaN laser diodes sell for tens of thousands of dollars, so it’s high margin, low volume and fits beautifully into our capacity.

“We have enough capacity that we can actually make enough epitaxy – which is the first component of a laser diode – to generate over $170 million worth of revenue.”

Plus, the company has demonstrated working remote plasma chemical vapour deposition (RPCVD) tunnel junction laser diodes in a world-first proof-of-concept.

The prototypes have demonstrated good lasing behaviour, with potential to address the 50% performance loss presently sufferance by GaN laser diodes due to excess heat.

The company is confident that the GaN laser diode market is a $735 billion opportunity.


 

4DS (ASX:4DS)

4DS raised $2.5 million via a placement at $0.048 per share last month, and launched an SPP to raise a further $2.5 million to fund the development of its Interface Switching ReRAM technology with imec in 2022.

But the company also recently reported testing results from its Third Non-Platform Lot and Second Platform Lot wafers which showed that the endurance of the Third Non-Platform Lot memory cells has potentially degraded when compared to the Second Non-Platform Lot performance reported in February.

The company highlights the need to switch from using Non-Platform Lots to using Platform Lots which include imec access transistors.

The Third Platform Lot will also include a test chip – an imec 1 megabit array using 4DS’ ReRAM cells, with executive director David McAuliffe telling the conference the company expects to be out of fab in early Q3 2022.

“Between now and then I think we’ll see a significant increase in the valuation of the company,” he said.

“Our end goal in 2022, is to show that the technology is able to be put on a megabit array – which I think the industry will be very interested in.

“That’s the goal for 2022 – challenging, but achievable.”


 

Archer Materials (ASX:AXE)

CEO Dr Mohammad Choucair told the conference straight up that there’s a need to differentiate Archer from other groups in the semiconductor sector.

“The only similarity between Archer and the others in this important sector is the word semiconductor,” he said.

“Other than that, we’re in completely different arenas. And this is because Archer is developing a quantum chip and is really the only company on the ASX doing so and in fact, one of only a few in the world doing so.

“We have a unique value proposition that holds up the world first in that we’re building a qubit processor that could potentially allow for quantum computation at room temperature and onboard modern devices.”

Last month the company successfully fabricated microfluidic channels required for its biochip, integrated sensor components and other features within them on a silicon wafer.

The fabrication, miniaturisation, and integration of the microfluidic channels is a vital step on the development pathway for the company’s biochip, that would allow tiny amounts of liquid or gas samples (e.g. saliva, blood, breath, etc.) to be analysed.


 

 

The post The cyclical semiconductor sector could be headed back to oversupply: Here’s how several Aussie stocks are placed for 2022 appeared first on Stockhead.


Author: Emma Davies

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Marvel Discovery bolsters “multi-commodity” portfolio with acquisition of uranium project

2021.12.05
For over half a century, uranium has been one of the world’s most important energy minerals.
It is used almost entirely in nuclear reactors…

2021.12.05

For over half a century, uranium has been one of the world’s most important energy minerals.

It is used almost entirely in nuclear reactors for generating electricity; a small portion of the mineral is also used in radioisotopes for medical diagnosis and research.

Nuclear power is widely considered an efficient form of energy creation. One uranium pellet weighing just 6 grams produces the same amount of energy as a tonne of coal.

Today, nuclear power is the second-largest source of low-carbon energy used to produce electricity, following hydropower. During operation, nuclear power plants produce almost no greenhouse gas emissions.

According to the IEA, the use of nuclear power has reduced carbon dioxide emissions by more than 60 gigatonnes over the past 50 years, which equals almost two years’ worth of global energy-related emissions.

There are more than 440 nuclear power reactors currently in operation across 30 countries, with another 50 or so under construction. Together, these nuclear reactors account for around 10% of the world’s electricity and one-third of global low-carbon electricity.

As a zero-emission clean energy source, nuclear power has become a vital part of the global energy transition, which would see nations shift away from the use of fossil fuels as the main source of electricity generation.

Nuclear electricity production. Source: World Nuclear Association, IAEA PRIS

Last year, as many as thirteen countries produced at least a quarter of their electricity from nuclear plants. Prior to 2020, electricity generation from nuclear energy had increased for seven consecutive years.

In a recently updated outlook report, the International Atomic Energy Agency (IAEA) said it expects world nuclear generating capacity to double to 792 gigawatts (net electrical) by 2050 from 393 GW(e) last year.

This was about 10% higher than the 715 GW(e) projection previously given by the IAEA, citing that many countries are considering the introduction of nuclear power to boost reliable and clean energy production.

“The new IAEA projections show that nuclear power will continue to play an indispensable role in low carbon energy production,” IAEA Director General Rafael Mariano Grossi stated.

The prospects for nuclear power will likely grow higher in the next two decades and beyond with many countries now targeting net-zero carbon emission. Growth is projected at around 2.6% annually through 2040, according to the World Nuclear Association (WNA).

Uranium Market

Positive developments for nuclear energy have also served as a strong tailwind for the long-dormant global uranium market.

As all commodity markets tend to be cyclical, uranium has languished near historical lows for the better part of the last decade, but the tide is beginning to turn.

Since the third quarter of 2021, uranium prices have enjoyed a sudden revival, rising by about 40% just in September, outpacing all other major commodities.

The price surge coincided with a burst of demand in uranium investments, led by Sprott Physical Uranium Trust, which has amassed a uranium stockpile that is equal to about 16% of the annual consumption from the world’s nuclear reactors, reflecting a massive bet on nuclear’s rising prominence in a carbon-free future.

Since mid-August, the Sprott fund has been snapping up uranium from the spot market almost on a daily basis, sometimes buying more than 500,000 pounds in a single day, according to its website and social media account. That helped to drive uranium futures to its highest since 2012.

Two exchange-traded funds focused on uranium — NorthShore Global Uranium Mining ETF (URNM) and the Global X Uranium ETF (URA) — have also seen a resurgence, with investors having poured more than $1 billion into them so far this year.

However, even before the recent price rally started, demand for uranium from the investment sector was growing, claims John Ciampaglia, CEO of Sprott Asset Management, which oversees the physical trust.

ETFs that track uranium are some of the best performers of the last two years, reversing a downturn that came when investors shunned the commodity following the Fukushima nuclear disaster in 2011.

About 20 million pounds of uranium had already been locked up by buying from London investment firm Yellow Cake Plc, Toronto-based Uranium Participation Corp. and a few junior uranium development companies, according to Jonathan Hinze, president of UxC LLC, a leading nuclear fuel market research firm.

The Sprott uranium fund was formed out of an April takeover of UPC, which at the time held 18 million pounds of uranium. In March, Yellow Cake bought $100 million worth of uranium from Kazatomprom, the world’s top uranium miner. The Kazakh producer is also said to be in talks to supply uranium directly to Sprott, according to Bloomberg reports.

Although uranium demand from utilities has not increased much, Kazatomprom has warned of supply shortages in the long term as investors scoop up physical inventory and new mines aren’t starting quickly enough.

Years of persistently low prices have led to planned supply curtailments of existing production capacity, lack of investment in new capacity, and the end of reserve life for some mines. These factors are all likely to jeopardize the long-term security of uranium supply faced with a rising demand for carbon-free electricity.

To complicate matters, utilities normally do not come to the market when they need uranium; instead, the mineral must be purchased years in advance to allow time for a number of processing steps before it arrives at the power plant.

So as the spot market continues to thin, driven by investor purchases, there may not be enough uranium to adequately satisfy the growing backlog of long-term demand.

Not Enough Supply

According to the World Nuclear Association, for about 445 reactors with a combined capacity of over 390 GWe, this would require some 76,000 tonnes of uranium oxide concentrate containing 64,500 tonnes of uranium from mines each year. For context, total production from mines was about 47,700 tonnes last year.

More significantly, mine production as a percentage of world demand has been on the decline for the past five years, from 98% in 2015 to just 74% in 2020, WNA data shows.

World uranium production and reactor requirements. Source: OECD-NEA, IAEA, World Nuclear Association

While the balance is usually made up from secondary sources including stockpiled uranium held by utilities, recycled or re-enriched uranium, and ex-military weapons, their share of the total supply will decline over time and should not be counted on for electricity generation in the long term.

According to a report by WNA, primary uranium production from existing mines will decrease by 30% in 2035 due to resource depletion and mine closures, while new planned mines will only compensate for exhausted mine capacities.

With mine output seeing further declines due to the Covid-19 pandemic and now investors hoarding more physical uranium, the industry is in dire need of strategic investments on mine projects to assuage future supply concerns.

Uranium Mining Overview

Uranium is a naturally occurring element with an average concentration of 2.8 parts per million (ppm) in the Earth’s crust. Traces of it occur almost everywhere.

In fact, it is more abundant than gold, silver or mercury, about the same as tin, and slightly less abundant than cobalt, lead or molybdenum. Large amounts of uranium also occur in the world’s oceans, but in very low concentrations.

To make nuclear fuel from uranium ore, the uranium is first extracted from the rock, then enriched with the uranium-235 isotope, before being made into pellets that are loaded into assemblies of nuclear fuel rods. In a nuclear reactor, there are several hundred fuel assemblies containing thousands of small pellets of uranium oxide in the reactor core.

The nuclear chain reaction that creates energy starts when U-235 splits or “fissions”, which produces a lot of heat in a controlled environment.

Most of the ore deposits supporting today’s biggest uranium mines have average grades in excess of 0.10% of uranium (or 1,000 ppm), and even the low-grade ores must be 0.02% to support a mine. Therefore, uranium operations are constrained to just a few places with suitable orebodies that can be mined economically.

While uranium production occurs in 20 countries, more than half of the world’s total output comes from just 10 mines in five countries, with Kazakhstan leading the way as usual (over 19,400 tonnes). Other notable producers include Australia, Namibia and Canada.

The largest producing uranium mines in 2020. Source: World Nuclear Association

Some uranium is also recovered as a byproduct with copper, as at the Olympic Dam mine in Australia (BHP), or as byproduct from the treatment of other ores, such as the gold-bearing ores of South Africa, or from phosphate deposits in places like Morocco and Florida. In these cases, the concentration of uranium may be as low as a tenth of that in orebodies mined primarily for their uranium content.

Various types of uranium mines can be found throughout the world. Open-pit mining occurs where orebodies lie close to the surface, while underground mining methods are employed where orebodies are deeper.

Meanwhile, some orebodies may lie in groundwater in porous unconsolidated material (such as gravel or sand), and may be accessed simply by dissolving the uranium and pumping it out; this method is known as in situ leaching (or in situ recovery in North America). For some ore, usually those with very low-grade (below 0.1%U), it is treated by heap leaching, which is similar to in situ mining.

Canada’s Athabasca Basin

As one of the leading uranium producers, Canada is rich in uranium resources and has a long history of exploration, mining and generation of nuclear power. Up until 2019, it had mined more uranium than any other country (539,773 tU) in history, about one-fifth of the world total.

By 2021, Canada has known uranium resources totalling 606,600 tonnes U3O8 (514,400 tU), with exploration still continuing. A majority of these resources are in high-grade deposits, some one hundred times the world average.

Canada’s uranium mining industry is represented by the major discoveries in the Athabasca Basin of northern Saskatchewan, which have accounted for most of the country’s production since the 1970s. The region is known to host some of the largest high-grade uranium deposits in the world.

The McArthur River and Cigar Lake mines, jointly owned by Cameco and Orano, have been the two main producers.

Cigar Lake is currently the world’s highest-grade uranium mine with 97,550 tonnes U3O8 (82,720 tU) of proven and probable reserves. The McArthur River mine, an even bigger operation than Cigar Lake, was placed on care and maintenance in 2018 due to market weakness.

Uranium mines in Canada. Source: World Nuclear Association

Past production can also be found at the nearby McClean Lake operation, which in the last 10 years has mostly been used to process ore from Cigar Lake; and the Rabbit Lake deposit, most of which had already been mined out after more than 40 years of mining.

To this day, the northern part of Saskatchewan remains a world leader in uranium production, with several proposed mines waiting in the pipeline (i.e. Denison’s Wheeler River) and various projects in the advanced-exploration phase.

Marvel Discovery

The most recent development in Saskatchewan’s uranium industry involves Canadian-based emerging resource company Marvel Discovery Corp. (TSXV: MARV) (Frankfurt: O4T1) (MARVF: OTCQB) and its latest asset acquisition from District 1 Exploration Corp.

Last week, the company announced it will assume all obligations under District 1’s option agreement to acquire a 100% interest in the Highway North property located in the Athabasca region of Saskatchewan.

The Highway North property is located 70 km southwest of the former producing Key Lake uranium mine. Aptly named for its location along Highway 914, the property consists of five contiguous claims totaling 2,573 hectares.

The Key Lake deposit, which is northeast of the property, contains two mineralized zones that historically produced a total of 4.2 million tonnes of product at an average grade of 2.1% U3O8.

Only 21 drill holes have been drilled on the property thus far totaling 3,527m between 1980 and 2008. Surface exploration and drilling have verified the presence of uranium mineralization along the Highway zone, with grades up to 2.31% U3O8 over 0.29 m.

Regional Geology

The deposit model for exploration on the Highway North property is a basement-type unconformity-related uranium deposit, such as those found at Eagle Point (part of Rabbit Lake), Millennium, and Gaertner and Deilmann (Key Lake).

This deposit type belongs to the class of uranium deposits where mineralization is spatially associated with unconformities that separate Proterozoic conglomeratic sandstone basins and metamorphosed basement rocks. Although rocks of the Athabasca Group and the basal unconformity do not outcrop on the property, they likely once overlaid the basement gneisses and metapelites which now do, as the current erosional edge of the Athabasca Basin, and potential outliers, is about 50 km north of the property.

In Saskatchewan, uranium deposits have been discovered at, above and up to 300 m below the Athabasca Group unconformity within basement rocks. Mineralization can occur hundreds of meters into the basement or can be up to 100 m above in Athabasca Group sandstone.

Typically, uranium is present as uraninite/pitchblende that occurs as veins and semi-massive to massive replacement bodies. Mineralization is also spatially associated with steeply dipping graphitic basement structures and may have been remobilized during successive structural reactivation events.

Such structures can be important fluid pathways as well as structural or chemical traps for mineralization as reactivation events have likely introduced further uranium into mineralized zones and provided a means for remobilization (see below).

Representative sections of three well-known unconformity-related uranium deposits of the eastern Athabasca Basin: Cigar Lake, Key Lake (Deilmann pit) and Eagle Point

The Highway Property straddles the Key Lake fault zone, an important corridor for structurally controlled Athabasca Basin-type uranium deposits.

Critical criteria on the property for these types of uranium deposits include the presence of graphitic EM conductors within metasedimentary packages, major reactivated northeast-trending fault systems that have been disrupted by obliquely cross-cutting subsidiary structures and the presence of uranium-enriched source rocks (see figure below). Exploration to date on the property has been limited.

Commenting on the company’s latest acquisition, Marvel’s president and CEO Karim Rayani, said:

“The Highway North project is perfectly situated along the Key Lake shear zone with power, water and road accessibility. The geological setting is prospective for structurally controlled basement-hosted uranium deposits such as the Millennium zone and Key Lake deposits of Cameco. Marvel continues to present stakeholders a rare opportunity having exposure to multi-commodity – critical element opportunities under one umbrella.”

Conclusion

The Highway North property adds to the company’s diverse portfolio of Canadian exploration projects that already includes gold, silver, copper and rare earth elements.

In an interview with Proactive Investors to discuss the new deal, CEO Rayani said this uranium asset acquisition may have taken investors by surprise, but in a good way. “We’ve always been a multi-commodity play, so we felt it made a lot of sense to add this to the Marvel portfolio of projects.”

The Highway North project, which was put together by an ex-Rio Tinto team, shares similar characteristics to the largest development-stage uranium project in Canada being developed by NexGen Energy, the chief executive says.

According to Rayani, Marvel is headed towards more of a “mine bank”, having already completed one spinout over the last few months, and the uranium asset may follow the same path.

“Really, we’re leveraging our shareholder base, creating share dividends and an opportunity. So we’re going against the grains as a typical mining company with gold, especially with our market cap,” he added.

With an increasing focus on nuclear power as a reliable fossil fuel replacement, it is expected that uranium exploration in Saskatchewan will continue to thrive given the province’s vast resources. A recovery in uranium prices would also stimulate a fresh wave of investments from key players in the mining industry.

With uranium prices doing well at the moment, Rayani believes that Marvel’s new uranium property, as well as its gold projects, should pick up more steam heading into 2022.

Marvel Discovery Corp.
TSXV:MARV, Frankfurt:O4T1, OTCQB:MARVF
Cdn$0.09, 2021.12.03
Shares Outstanding 79.1m
Market cap Cdn$7.1m
MARV website

Richard (Rick) Mills
aheadoftheherd.com
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Canaccord Reiterates Ratings On Uranium Royalty Following Latest Purchase

On December 2nd, Uranium Royalty Corp (TSXV: URC) announced that they have entered into a supply stream with CGN Global. This
The post Canaccord Reiterates…

On December 2nd, Uranium Royalty Corp (TSXV: URCannounced that they have entered into a supply stream with CGN Global. This deal is for 500,000 pounds of U3O8 from CGN which will be delivered between 2023 and 2025 at a weighted average price of $47.71 per pound. 300,000 pounds will be delivered on October 20th, 2023 and the other 200,000 pounds will be delivered in 100,00 increments on June 14th, 2024, and April 2nd, 2025, respectively.

Uranium Royalty Corp currently has 3 analysts covering the stock with an average 12-month price target of C$6.33, a 26% upside to the current price. Out of the 3 analysts, 2 have strong buy ratings and the other analyst has a buy rating. The street high sits at C$7.50 while the lowest comes in at C$5.

In Canaccord’s note, they reiterate their C$7.50 12-month price target and speculative buy rating, calling the deal attractive. They believe that this deal will provide shareholders with some form of leverage, “at a time when prices are expected to rise due to a fundamental supply-demand imbalance.”

Canaccord believes that the term contracting cycle is now underway and that utilities are actively engaged in both off and on-the-market discussions. They believe that this will help lower volatility and tighten the spot market, while the general public will continue to worry about the security of the long-term supply of uranium.

Lastly, they add that if spot prices were to rise, Uranium Royalty would be well-positioned as they hold a total of 1,548,068 pounds of U3O8 at an average cost of $40.89.


Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Canaccord Reiterates Ratings On Uranium Royalty Following Latest Purchase appeared first on the deep dive.


Author: Justin Young

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