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Uranium: An Overlooked Mineral Suddenly in Play

By Rodney Blake Major market corrections tend to come unannounced out of nowhere when things…

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This article was originally published by Resource World

By Rodney Blake

Major market corrections tend to come unannounced out of nowhere when things seem to be going particularly well. They can be quite devastating and can drop markets by well over 20% in just a matter of a day or two. The Dotcom bust of 2000, 9/11, the Financial Crisis of 2008 and the recent Covid-19 correction of 2020 are good examples of major market corrections. Luckily, most corrections become buying opportunities as they come in the context of a major bull market as stock prices recover in a relatively quick manner and the market resumes its bull run. The current Covid-19 correction and market recovery is a prime example of a correction within a major bull market. It took the S&P 500 just 6-months to recover the 1,200 points it lost in March 2020 and has now accented another 1,100 points to record highs of about 4,500. Sometimes however, corrections can turn into bear markets and take longer to regain prior levels as post correction events keep shell shocked investors on the sidelines. Case in point – Due to the resulting recession it took the S&P 500 Index over 5-years to recover to its pre 2008 Financial Crisis level of 1,600.

5 Year Uranium Price Chart

Occasionally, markets collapse and stay down for an extended period of time and go almost unnoticed in a major bear market. Which brings us to uranium as the focus of this column. I remember the collapse in uranium markets very well. I had just returned from the annual Prospectors & Developers Association of Canada (PDAC) Conference in Toronto in early March of 2011 where the price of uranium and uranium stocks was one of the highlights of the show. Just to recap – energy was in vogue and the price of uranium had recently risen from about US$60-a-pound to a record high of some US$105. There was much excitement regarding the few uranium producers and many uranium exploration plays in the Athabasca Basin of northern Saskatchewan and elsewhere throughout the world. Myself as a broker and many of my clients were enjoying this amazing bull market. What could go wrong? What could go wrong was when, just one week later and out of nowhere on March 11th – a massive tsunami tidal wave hit the East coast of Japan. The resulting devastation also flooded and knocked out of commission three of that country’s nuclear reactors. The price of uranium immediately plunged to just US$20 as Japan, one of the world’s largest users of uranium, and many other countries shut down their nuclear reactors as that type of power production suddenly was deemed to be too dangerous. Ultimately, the price of uranium stocks also collapsed as professional and retail investors quickly left this toxic sector.

That event was 10-years ago and the price of uranium has remained range bound in a price of US$20 – $25 for most all of that time. Major uranium producers were forced to cut back or close production facilities. Many junior uranium companies were forced to give up their uranium holdings and move on to other mineral endeavours as uranium projects received little if any investor interest and were almost impossible to finance. Except for a few instances  – there has been little if any interest in uranium exploration.

Then, starting late last year and more so this year the outlook for uranium started to change. The inventory surpluses created by the industry shutdown 10-years earlier have for the most part have been greatly reduced and returned to more normal levels as reactors around the world gradually came back on line. New reactors are being built as the greening of the planet puts more emphasis on clean nuclear power. Uranium producers, noting that $25 uranium was under their cost of production used surplus cash to buy U3O8 in the spot market. More recently, investment funds have accelerated the drawdown of uranium inventories by entering the market and accumulating large holdings of yellowcake. Because of the small size of the market, uranium is quite easily bought and stored for future use or sale. Much easier to store than a warehouse full of copper or a super tanker of oil. The net result is that the price of uranium has now broken the US$25 ceiling to achieve a new 10-year high of over US$35. Now, US$35 still isn’t historically a very high price and is well below the cost of production of U3O8 for most producers, but the break-out of a 10-year trading channel to a 10-year high catches the market’s attention.

Bull markets tend to start quietly and often go unnoticed by most investors. Most of the buying and the market moves tend to come at the end of the rally rather than the beginning. Case in point – When gold bullion made headlines in 2011 as it surged to a then record high of over US$1,700 – I would suggest that most investors weren’t buying bullion when the bull market actually started in 2000 with the price gold bullion at just US$275. The length and magnitude of a bull market can also be related to the length of the bear market that preceded it. When gold bullion made that historic 11-year, $1,500 rally it came after an agonizing 19-year bear market that saw the precious metal fall from its previous high of US$850 to the aforementioned US$275. In fact – in the early years of the rally, when the initial gains were small, many market pundits thought that gold bullion would never reach US$850 ever again.

Could the same sort of bull market be setting itself up for uranium. Time will tell, but in this early first uptick, uranium has many of the same characteristics as that of gold some 21-years ago. Uranium is coming off an incredible 10-year bear market and has just broken above a very long  support base of about US$25. Uranium production is less than the current needs of the world’s reactors. The overhanging stockpile of uranium has mostly been depleted as funds increase their purchases of U3O8. Demand for clean energy is increasing but 10-years of relative inactivity has left the uranium industry with only limited increases in supply. Should this US$35 level hold then the next upside target could be somewhat higher.

How should investors play this uranium market? The uranium market is different than most mineral markets. Uranium orebodies and production rates are relatively small and are often measured in pounds as opposed to tonnes for most minerals other than precious metals. Uranium, although one of the world’s most widely occurring minerals, is very elusive to find in minable concentrations. Therefore most of the world’s production comes from only three countries, Kazakhstan, Canada and Australia. To add to the complexity of uranium, many otherwise mineral friendly jurisdictions such as British Columbia and Quebec have outlawed uranium production, and Saskatchewan, with the world’s richest uranium reserves, doesn’t want nuclear reactors in the province.

Unlike the gold or copper industries – There are very few primary uranium producers to chose from – especially those that trade on an organized exchange. There are also a limited number of exploration companies that have viable orebodies or discoveries to develop. And although it is possible to purchase physical uranium, it is somewhat awkward to store physical U3O8 on ones premises or in a safe deposit box. More grass roots uranium exploration companies will no doubt emerge if this turns into a real market, but for now they are few and far between. I’m not aware of any new new uranium mines coming forward and those few with established orebodies face years of permitting and environmental hurtles to overcome. With so few clear choices it would seem that a small number of ETFs that cover uranium production, exploration & development, and physical delivery would give most investors an overall exposure to this long overlooked commodity. An informed investor could also leverage their ETF positions with a limited number of well researched individual companies.

Uranium could be setting itself up to be the next resource market darling. So far this year, gold and silver, except for a brief New Year rally have disappointed. Copper peaked mid-year at $4.75 but has since drifted lower. Crude oil rallied to US$70 and is now consolidating those gains . Trouble is – the petroleum industry, while now profitable, is losing investors to the green energy theme. And now long forgotten uranium has suddenly jumped higher by $10. Should the current price hold, there could be nothing but blue sky ahead for some time to come. All of which brings us to the uranium market of today.

The uranium market has made an encouraging short term run but could it be setting itself up for a major long term bull market? A number of indicators would suggest this might be so. Similar to gold bullion, uranium seems to be breaking out from a very long term bear market. The commodity has built a very long support base at about US$25. Often, the length and magnitude of the resulting bull market rally is comparable to the length and magnitude of the previous bear market. The recent $10 uptick in the price of U3O8 has caught the attention of savvy commodity investment funds and retail investors alike. Post tsunami, the uranium market was awash in oversupply. That surplus, for the most, part has been absorbed by the industry and investors. After 10-years of cutbacks – current producers will need time to return dormant mining facilities to production to meet current demand. There are very few uranium orebodies ready for production. Those projects still face years of permitting issues and environmental ‘Not In My Backyard’ or NIMBY headwinds. Grass roots exploration for uranium has been mostly nonexistent since the market turndown. It will take many years to find and develop new uranium resources. The overall uranium market is quite small when compared to most other mainstream commodity markets. Increased physical buying and storing of U3O8 could greatly magnify further price increases. Some would say this is folly, but it has happened before – In 1979-80 the oil rich Hunt Brothers identified a relatively limited physical silver as compared to the much larger gold market. They entered the market and bought approximately 100-million ounces of physical silver which helped to drive the price from about US$5-an-ounce to a record of over US$50 – twice the magnitude of the gold bullion rally that went from about US$175 to US$850.

Major bull markets tend to focus on something new that hasn’t been overly scrutinised or overanalysed. Uranium fits this criteria. A decade is a long time to be off the investment radar. The global drive to lower carbon emissions is accelerating. And while older investors may remember the highs of 10-years ago – there are many young or new investors today who have never been exposed to uranium and are looking for opportunities to invest in the greening of the planet. Uranium also meets this criteria. Reactors are very environmentally friendly way to produce energy as they have zero carbon emissions. Timing and opportunity are important. Uranium is emerging out of a longterm bear market to be a key component  of the greatest investment topic of the day.

Well established Denison Mines Corp. [DML-TSX], an iconic name in the global uranium sector, is entering a new phase in its fabled history as it moves to develop a new high-grade deposit in the Athabasca region of Saskatchewan.

Targeted for initial production in the second half of this decade, the Pheonix deposit on Denison’s flagship Wheeler River property will rank as potentially one of the lowest-cost uranium mines in the world.

The project is being developed at a time when the uranium market is showing signs of a sustained recovery and the beginnings of a new contracting cycle.

Optimism in the sector is being driven by a spike in spot price of uranium, which recently jumped to a of US$50.80 a pound, amid signs that the discretionary supply of the nuclear fuel is dwindling. The hope is that this scenario will prompt utilities to secure supplies of uranium by signing long term contracts with major producers such as Cameco Corp. and Kazakh state owned KazAtomProm

Denison sees itself as a developer of the next phase of uranium assets that are likely to enter the market in the second half of the decade when the price of nuclear reactor fuel could be much higher. Other companies that fit into that category are NexGen Energy Ltd. [NXE-TSX, NYSE] Fission Uranium Corp. [FCU-TSX; FCUUF-OTCQX; 2FU-FSE].

What sets Denison apart from its competitors is uranium extraction plan.

Diamond drill core logging at the Denison Mines Wheeler River Uranium Project. Source: Denison Mines Corp.

A NI 43-101 compliant pre-feasibility completed for Wheeler River in September, 2018, included the selection of the in-situ recovery mining method for the development of the Pheonix deposit, with an estimated average operating cost of US$3.33 per pound of U308. All-in costs are forecast to be US$8.90 a pound.

In-situ recovery involves processing the uranium while it is still in the ground through the injection of catalyzing agents into the ore.

In-situ-recovery is only possible in porous geological formations (like sandstone) which are amenable to such a technique. On average, the capital spend needed to put an ISR uranium project into production is less than 15% of the cost to build a conventional hard-rock uranium mine.

Aside from the production cost, ISR leaves a much smaller environmental footprint because it does not require the construction of a tailings impoundment facility. Denison is aiming to be the first company to deploy the ISR method at a uranium project in Canada.

In an interview with Resource World, Denison CEO David Cates said company executives are so confident in the technology that they recently announced a decision to advance the Wheeler River project to the feasibility stage.

Wheeler River is the largest undeveloped high-grade uranium project in the eastern portion of Saskatchewan’s Athabasca Basin. Denison is developing the project with its 50% owned JCU (Canada) Exploration Co. Ltd. affiliate. Denison is the project operator and holds an effective 95% interest in the site.

Proven and probable reserves at the site stand at 109.4 million pounds of U3O8. That includes 141,000 tonnes at 19.1% U3O8 or 59.7 million pounds in the Pheonix zone, and 1.26 million tonnes at 1.8% U3O8 or 49.7 million pounds in the Gryphon zone.

A pre-feasibility study for the Pheonix deposit forsees average annual production of 6.0 million pounds of U308 for 10 years.

The completion of the feasibility study is a critical step to the progression of the project and is intended to advance de-risking efforts to the point where the company will be able to make a definitive development decision.

Aside from Wheeler River, Denison’s other key asset in Saskatchewan is a 22.5% ownership interest in the McClean Lake joint venture, which includes several uranium deposits and the McClean Lake uranium mill. The mill is contracted to process ore form Cameco’s Cigar Lake mine under a toll milling agreement.

Earlier this year Denison announced that it procured 2.5 million pounds U3O8, at an average cost of US$29.61/lb U3O8, to strengthen its balance sheet as part of a project financing initiative connected to the future advancement of its flagship Wheeler River project.  As of June 30, 2021, the Company also reported having $84.9 million in cash and cash equivalents.

In April, 2021, Denison said it had entered into a participation and funding agreement with the English River First Nation (EFRN), in connection with the proposed in-situ recovery uranium mining operation at Wheeler River.

Denison said these agreements reflect Denison’s desire to operate its business in a progressive and sustainable manner that respects ERFN rights and advances reconciliation with Indigenous people. On October 5, 2021, Denison shares were trading at $1.81 in a 52-week range of $2.29 and 40.5 cents, leaving the company with a market cap of $1.46 billion, based on 805.7 million shares outstanding.

Author: Resource World

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Base Metals

Monsters of Rock: Lithium shares flush with positive sentiment to dominate the gains

Lithium miners were the kings, queens, jacks and aces of the bourse on an avalanche of positive news around the … Read More
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Lithium miners were the kings, queens, jacks and aces of the bourse on an avalanche of positive news around the sector.

The biggest trigger was probably the incredible rise in value for Tesla overnight, which soared beyond a US$1 trillion valuation on news Hertz would order US$4 billion worth of electric vehicles from the automaker.

As the leading electric vehicle maker in the western world, and with a big presence also in China and energy storage, Tesla is one of the biggest end users of lithium products globally.

Its boss Elon Musk, now the richest man ever, has a fair bit of sway on the market as well.

On top of that Pilbara Minerals (ASX:PLS), up 525% over the past 12 months since spodumene prices bottomed out at under US$400/t (it sold a batch for upwards of US$2000/t last month), gained 7.66% after formally announcing plans to develop a lithium chemical plant in a JV with South Korea’s POSCO.

Core Lithium (ASX:CXO) declared the start of construction on its Finniss Lithium Mine in the Northern Territory. That will be shipping concentrate from the end of 2022.

$550 million capped Neometals (ASX:NMT) was up 14% after announcing its battery recycling demonstration plant in Hilcenbach, Germany, had been fully commissioned.

The one time lithium miner is up 405% over the past year.

Vulcan Energy (ASX:VUL), Sayona (ASX:SYA), Liontown (ASX:LTR) and Orocobre (ASX:ORE) were among the lithium miners to dine out on the day’s news, while rare earths miner Lynas (ASX:LYC) was also up.

On the flippity flip, iron ore miners were weak with Fortescue (ASX:FMG) and Rio Tinto (ASX:RIO) cancelling out a gain from BHP (ASX:BHP), while Mineral Resources (ASX:MIN) cancelled out the gains it made with yesterday’s announcement the Wodgina lithium mine would be coming back online with news it ate a 48% price discount on iron ore sales in the September Quarter.

MinRes’ average realised prices fell from US$178/t to around US$78/t between the June and September Quarters.

The bright green is all lithium baby. Pic: Commsec

 

Base metals inventories falling, but can it be sustained?

Base metals were back up on Monday, with production cuts in energy starved China and Europe hitting primary supply.

Inventories held by the major exchanges are being chewed up.

While price moves among the miners was muted, nickel rose 3.2% to climb back over US$20,000/t overnight after hitting US$21,000/t briefly last week.

“Nickel rallied after Eramet disclosed a 19% drop in ferronickel production from its operations in New Caledonia,” ANZ analysts said in a note.

“The market is also showing signs of tightness, with cash contracts closing at their biggest premium to futures in two years. LME inventories are down nearly 50% since April.”

LME stockpiles for copper hit their lowest level since 1974 last week, but Commbank analyst Vivek Dhar says it is too early to say whether the market is as tight as it seems, or whether some traders are hoarding to capitalise on high prices.

The market is expected to be in a small deficit at the end of this year to a 328,000t surplus in 2022 on rising supply (about 1.3% of global demand).

Mined supply is expected to increase 2.1% this year and 3.9% in 2022, but Dhar warned copper miners had a history of underwhelming.

“The rising forecasts for copper mine production reflect 5 major copper projects due to arrive by the end of 2022,” Dhar said.

“That compares with just two major copper projects in the last 4 years.

“Given the track record of mine disruptions (i.e. labour strikes, power and water scarcity and geopolitics) and the decline in copper grades, elevated copper mine production growth forecasts don’t tend to last long.

“We think it’s worth considering that new mine supply may take longer than currently expected to hit the market.”

The post Monsters of Rock: Lithium shares flush with positive sentiment to dominate the gains appeared first on Stockhead.







Author: Josh Chiat

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Energy & Critical Metals

Chart of the Day: Plenty of immediate upside targets for Ionic Rare Earths

Let’s get into it. Iconic Rare Earthss (ASX:IXR) is a bullish set up from a technical perspective. It’s in an … Read More
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Let’s get into it.

Iconic Rare Earthss (ASX:IXR) is a bullish set up from a technical perspective.

It’s in an uptrend. The moving averages are sloping up.

It’s shown us that when it wants to the market can get a hold of it – as evidenced by the fierce run from 1.5c to 6c at the start of this year.

 

Chart of the Day: Ionic Rare Earths (ASX:IXR)

There are no immediate gaps on the chart to worry about that need to be filled.

The company surpassed 4c resistance yesterday on increasing volume, which was a positive sign. However, after touching 4.5c in intra-day trade, it has now settled back to close at 4.2c, leaving a daily selling candle.

That infers that a test of 3.8 – 4c may be on the cards.

In our view that would make attractive buying.

Given the negative response to the scoping study in late April, there are plenty of immediate upside targets, the most immediate being 4.7c, with further potential to those March highs above 6c.

Back the other way, and we don’t need to hold this below 3.5c.

The company is well funded – reporting over $11m on balance sheet at their last quarterly – with an updated quarterly anticipated before the end of the month.

We are long as of yesterday, and will manage the trade to the above risk, looking for 4.7c first, with potential to above 6c if things go their way.

Steve Collette of Collette Capital Pty Ltd (ABN 56645766507) is a Corporate Authorised Representative (No. 1284431) of Sanlam Private Wealth (AFS License No. 337927), which only provides general advice.

Collette Capital only makes services available to professional and sophisticated investors as defined by the Corporations Act, Section (s)708(8)C and 761G(7)C.

The Collette Capital Wholesale IMA Strategy has returned +24.83% p.a. net of all fees as at the end of September 2021 since inception in January 2015 (using the Time Weighted Return method of calculating returns).

Learn more at www.collette.capital

The post Chart of the Day: Plenty of immediate upside targets for Ionic Rare Earths appeared first on Stockhead.


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Energy & Critical Metals

Hastings could be next in line to produce rare earths in Australia with plant approval in Onslow

Rare earths player Hastings Technology Metals (ASX:HAS) has just secured environmental approval for construction of the downstream processing plant at…

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Rare earths player Hastings Technology Metals (ASX:HAS) has just secured environmental approval for construction of the downstream processing plant at its Yangibana rare earths project in Onslow in WA.

It’s a solid step on the path to production, with the plant set to perform hydrometallurgical processing of rare earths oxide concentrate from Yangibana into mixed rare earth carbonate (MREC) containing high levels of neodymium and praseodymium concentrate (NdPr).

NdPr are vital components used to manufacture permanent magnets that are required in advanced technology products ranging from electric vehicles to wind turbines, robotics, medical applications and digital devices.

And Yangibana contains one of the most highly valued NdPr deposits in the world, with NdPr:TREO ratios of up to 52%.

Australia’s next rare earths producer?

The Department of Agriculture, Water and the Environment (DAWE) approval follows DevelopmentWA Board sign-off last month for the company to enter discussions for an option to lease Ashburton North Strategic Industrial Area (ANSIA) Lot 600.

“This is a significant milestone for our Yangibana Rare Earths Project and further endorses Hastings’ decision last year to decouple the processing plant from the Yangibana mine site,” executive chairman Charles Lew said.

“The Commonwealth environmental approval will allow Hastings to construct the Onslow Rare Earths Plant for a full production rate of 15,000 tonnes of MREC per annum, unlocking the high-quality and NdPr-rich rare earths carbonate that we will produce at Yangibana.”

“Importantly, the Commonwealth approval is another positive step in Hastings’ journey to become Australia’s next rare earth producer.”

“Debt financing talks are advancing well and scheduled for conclusion before the end of this year and early stage civil works at the Yangibana mine site are in progress.”

Pic: Location of ANSIA highlighting the site chosen for the Onslow rare earths plant.

Plant construction kicks off in 2022

The company says that building the plant at ANSIA – which is around 15kms south-west of Onslow – is key to its downstream processing program because it offers access to piped natural gas, a plentiful supply of water and grid power.

Plus, the ANSIA location reduced the volumes of consumables and reagents needed to be transported to the Yangibana mine site by up to 80%.

Construction of the plant is due to begin in 2022, after the completion of early works at Yangibana mine site – and in line with Hastings’ target to produce its first MREC in early 2024.

The post Hastings could be next in line to produce rare earths in Australia with plant approval in Onslow appeared first on Stockhead.




Author: Emma Davies

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