TORONTO (miningweekly.com) – Uranium is back on the radar for many in the Canadian investment community. At first glance, this might seem counterintuitive: effective September 2, the uranium oxide spot price stood at $34/lb, while short-term market sentiment remains muted.

But uranium marches to a different, longer-term beat. Bullish analysts and commentators highlight wider macro factors that will eventually act as key supports for output, spot prices and fixed-term supply contracts. Canada is poised to reap great rewards as the world’s second-largest producer of uranium, they argue.

However, others urge caution; long-term macro expectations have the nasty habit of falling flat, while the junior spectrum – so critical for broadening the pipeline of available projects – continues to suffer from strong economic headwinds. Then there is the question of the possible effect that Quebec’s moratorium on uranium exploration and exploitation may have.

MACRO MATTERS

Canada’s two main uranium producers are Cameco and Areva, and both have significant footprints in the prolific Athabasca basin region of northern Saskatchewan.

Cameco expects global consumption to rise from 170-million pounds to 220-million pounds by 2022, with the global reactor fleet increasing from 430 to more than 520 by 2022. China accounts for 28 of the new reactors planned or already being built.

With trade deals now in place, Chinese uptake for Canada-produced material is likely to be great and Cameco is already in discussions with various utility companies. “For the first time, we expect to deliver Canada-origin uranium this autumn,” Cameco senior VP and chief communications officer Ken Seitz said during the company’s mid- August second-quarter results conference call.

Many of Cameco’s views were mirrored by World Nuclear Association senior project manager Ian Emsley. “Under our central scenario, things will pick up pretty quickly to 2020 and then accelerate even more after that. But projections into the future cannot be considered as cast-iron guarantees of course,” he told Mining Weekly.

“China wants to be a leader in nuclear power generation,” he added. “Reports indicate they are making good progress and we’ve no reason to doubt their ambitions in this regard. We believe they’ll be building about half of the additional new reactors in the world for the next 15 or 16 years.”

Commentators also stress the ending by the close of 2013 of Russia’s programme to supply material obtained through reprocessing high-enriched uranium, as a further macro bonus. This will represent the withdrawal of around 24-million pounds of uranium, according to Cameco.

Another support will come from potential supply squeezes as demand grows and new projects take time to bring on stream. “[Project development] takes seven, eight, nine years. So the longer we wait for the signal to bring on new production, the longer it will be at the other end when we bring it on,” Cameco president and CEO Tim Gitzel said on a conference call.

HAVE A CIGAR

Cameco has first-hand knowledge regarding the time it takes; the company holds a 50% stake in the Cigar Lake uranium project that was meant to come on stream in 2007, but is only now about to enter production having suffered several delays.

The operation will eventually produce about 18-million pounds of triuranium octoxide (U₃O₈) a year, with Cameco entitled to about nine-million pounds through its 50% stake.

“Cigar Lake is a big part of our strategy to increase supply to 36-million pounds a year by 2018 and remains a successful low-cost producer,” Gitzel said.

Cameco and Areva have other projects in the pipeline and have the financial room to manoeuvre, unlike many juniors. However, there are notable exceptions and several companies are still making headway.

For example, Fission Uranium believes its flagship Patterson Lake South (PLS) project in the western portion of the Athabasca basin ticks all the right boxes.

“I’m optimistic about there being as significant deposits on the western side of the basin as there are on the eastern side. PLS is starting to show that to be true,” president and COO Ross McElroy told Mining Weekly during an interview.

Fission and Alpha Minerals each hold 50% in PLS, and Fission recently announced a proposal to acquire Alpha’s stake in late August, with further details outlined on September 3.

Fission’s current drilling programme at PLS is set to end during October, although it has already produced encouraging returns. Mineralisation has been reported as robust, while the company also announced the discovery of a fourth mineralised zone at PLS on August 16.

On September 4, the company unveiled assay results for hole PLS13-075 that included 61 m to 115.50 m for 9.08% U₃O₈.

“[The project is] not just high-grade but is also shallow, which makes it easier for us to find the right targets. Being shallow also helps lower the potential mining costs, helps ease the science and assists in the discovery process,” chairperson and CEO Dev Randhawa told Mining Weekly in the same interview.

“The Athabasca basin is the ‘Saudi Arabia of uranium’. On average, grades here stand at 2% versus a world average of 0.8%,” Randhawa added. “We’ve got the mills, we’ve got the infrastructure and, most importantly, we have the political will.”

GHOST AT THE BANQUET

The same might not be said of Quebec. On March 28, Quebec’s Minister of Sustainable Development, Environment, Wildlife and Parks, Yves-François Blanchet, announced a moratorium on the granting of certificates for uranium exploration or mining projects until a provincial study on the environmental impact and social acceptance of the sector is completed.

This outcome has been particularly hard for Strateco Resources, which has been developing the Matoush uranium project, located in Quebec’s Otish Mountains, and into which it has already invested $125-million.

Effective December 7, 2012, Matoush has an indicated resource estimated at 586 000 t, grading an average of 0.95% U₃O₈ for 12.33-million pounds of contained U₃O₈. Inferred resources contain 16.44-million pounds of U₃O₈.

The company had secured all necessary approvals from the provincial review committee, the federal review committee, the federal Environment Minister and the Canada Nuclear Safety Commission.

Strateco is now arguing its case through Quebec’s judicial system. The company is seeking compensation for damages it argues resulted from the moratorium, including a $16-million loss in market capitalisation.

“[If necessary], we also reserve the right to seek full compensation. We have spent $125-million until now and my investors are entitled to have real answers,” Strateco president and CEO Guy Hébert told Mining Weekly.

“One of the arguments presented to us was that we have not got ‘sufficient social acceptance’, despite there being no legal definition of this in Quebec or Canadian law,” he says. “[Even then] building social acceptance is an evolutionary process and, in order to develop it, we must have all the relevant facts in hand. This means further exploration is essential.”

Contemplating the broader situation, Hébert believes an intrinsic part of the problem stems from a growing disconnect among politicians and many in the wider public about the role of the uranium sector and the benefits of nuclear power, particularly its ability to help reduce carbon emissions.

“We talk a lot about the ways of life in Quebec – well, climate change affects everyone . . . today, nuclear power is a safe way to produce electricity and to protect the planet,” he said.

Keeping the macro factors in mind, favourable dividends for Canada’s uranium sector are indeed likely; and with near-production projects like Cigar Lake and development plays like PLS in the pipeline, the industry will no doubt remain in a position of strength for years to come.

Quite rightly, an open and frank debate about the uranium sector and its activities should be an ongoing one. But developments such as those in Quebec are disconcerting; companies should have the right to expect a clear and steady framework through which they can operate.

To suddenly move the goalposts in this manner not only hobbles project development but also broadcasts a message to the global marketplace: caveat emptor, or ‘let the buyer beware’. Given the current economic climate in Quebec, many might argue that this is the wrong message at the wrong time.