'Irrational' uranium prices making life tough, even for world-class juniors

13th March 2017 By: Henry Lazenby - Creamer Media Deputy Editor: North America

'Irrational' uranium prices making life tough, even for world-class juniors

Randhawa said the irrational price situation impacts on a junior company like Fission by driving the stock price down, making financing difficult and potentially very dilutive to shareholders
Photo by: Simon Rees

VANCOUVER (miningweekly.com) – The resource investment market’s fixation on uranium spot prices and fewer majors operating in the space are making life difficult for uranium exploration juniors, even those such as Fission Uranium, that have made world-class discoveries in one of the best jurisdictions in the world.

Speaking to Mining Weekly Online during the recent Prospectors and Developers Association of Canada yearly international convention, in Toronto, chairperson and CEO Dev Randhawa pointed to recent market commentary by Canadian uranium major Cameco CEO Tim Gitzel that current low uranium prices are not sustainable, or rational.

“The problem is that people are fixated on the spot price. There’s also the long-term price that’s at about $30/lb at the moment. Nobody can produce economically at these price levels. It’s a fictitious mirage of prices,” Randhawa stated.

He noted that all it takes for the spot price to move is 50 000 lb of yellow cake to move between two entities to create excitement in a 170-million-pound-a year-market. "How is that possible?” he lamented.

“It’s not sustainable or rational. The best mines in the world cost at least $20/lb to $25/lb to produce; at best $30/lb to $40/lb for average mines and then you still have capital expenditures to pay back and register a profit – so, really, we need a price of about $60/lb to be successful,” he said.

Randhawa recommends more production be taken off the market to stabilise long-term prices. “People who are not making money need to drop more production, as Cameco and the Kazakhs have indicated they will do. I’ve heard talks of Kazakhstan potentially dropping output by up to 20%,” he noted.

According to him, Kazakhstan is more important than Cameco, because it sells at spot price, keeping the price down. “The overhang is about eight-million to nine-million pounds, so, if that disappears, the price will go back to rational prices,” Randhawa said.

“I’ve been through the cycles before, such as in 1997 when the price dropped to $7/lb, and we needed $40/lb to survive. The problem is that the utilities don’t act rationally. When the price ranged between $7/lb to $20/lb, no one signed any contracts. For instance, Tokyo Electric Power Company Holdings (Tepco) waited until the price went to $100/lb before they signed a long-term deal,” he said.

Randhawa said the irrational price situation impacts on a junior company like Fission by driving the stock price down, making financing difficult and potentially very dilutive to shareholders.

He added that the depressed market had caused the major players to leave as their profits fell, leaving fewer players to pick up new development projects, despite being very attractive.

“There are fewer big players in the market at the moment. There are no more Rio Tintos in the uranium space; we need majors such as Areva back in. They are the companies to take guys like us out. We’re lucky because we have CGN as a partner – 'the mother ship' of all uranium companies. They have the cash, they have five nuclear reactors coming on line this year, eight more being built and [a further] eight in planning.

“We need higher prices to attract the bigger players, because nobody can make money with these low prices,” Randhawa stated.

The long-term uranium price fell to a low of $30/lb on December 1, and traded at about $33/lb on February 1. The spot price had fallen to $18/lb on November 1, climbing back to $24.50/lb on January 1.

Randhawa noted that Fission’s flagship Patterson Lake South (PLS) project represents one of the last remaining "low-hanging fruit" in the global uranium industry, possessing a high-grade deposit, only 50 m from surface.

“Only Cameco is specialised to mine uranium deep underground and there is a lot of significance having a shallow, higher-grade deposit, opening the deposit to a wider audience of potential buyers,” Randhawa stated.

The recent price rout has prompted the Fission board to preserve cash and change exploration strategy at the PLS discovery. The team will, this year, focus on what Randhawa calls “blue sky prospects”, stepping out from the established Triple R deposit and investigating the westerly high-grade uranium boulder field.

Randhawa believes the significant resource already defined and the shallow nature of the deposit will boost the project’s profile as a low-cost producer. With expected operating costs of $14.02/lb and a pre-tax internal rate of return of 46.7%, the project is expected to achieve low-cost production with a low payback and highly profitable life-of-mine.

Fission has announced the recent discovery of a new mineralised zone 660 m west of the existing R840W zone, highlighting the potential to extend the PLS mineralised trend, in Saskatchewan’s Athabasca basin, well beyond the current 2.63 km mineralised trend.

The Kelowna-based company reported results from five holes drilled in the R1620E zone, three drilled in the R840W zone and two regional holes drilled 660 m west of the R840W zone, towards the high-grade boulder field. All nine holes were mineralised, with four returning high-grade intervals.

Regional drilling (hole PLS17-514, line 1665W) had hit mineralisation with a 1 m anomalous interval (117.5 m to 118.5 m), with a peak of 3 200 counts per second (cps) - the measurement of ionising radiation expressed as being a rate of counts per unit time - over 0.5 m.

The drilling also successfully expanded the R840W land-based, shallow and high-grade zone, with three holes in the R840W zone returning strong results and high-grade intervals, the company said.

The drilling also expanded the R1620E shallow and high-grade zone, with five holes on R1620E returning wide mineralisation. These include hole PLS17-517 (line 765W), with 52.5 m mineralisation (between 104 m to 156.5 m), including 6.82 m of total composite >10 000 cps; hole PLS17-521 (line 795W) which returned 36 m mineralisation in a 49.5 m section (between 128 m to 177.5 m), including 4.03 m of total composite >10 000 cps; and hole PLS17-515 (line 765W), which returned 41 m mineralisation in a 49.5 m section (between 141.5 m to 191 m), including 3.86 m of total composite >10 000 cps.

Fission explained that drilling in the R840W and R1620E zones is aimed at growing these newly discovered shallow, high-grade mineralised areas at the west and east end of the 2.63 km mineralised trend, for possible inclusion in a future resource estimate update.

"This is a strong start to our 63-hole winter programme. We've expanded the near-surface, high-grade zones at each end of our 2.63 km mineralised trend, which is of key importance as we seek to include these in a future resource estimate, planned for later this year. We've also had an exciting hit with our regional drilling, hitting mineralisation on a 660 m step-out from the R840W zone. We consider this to be a new area of mineralisation and we will be targeting it for aggressive follow-up drilling,” Fission president, COO and chief geologist Ross McElroy told Mining Weekly Online.

Fission had recently expanded its winter drill programme to include a further 29 new drill holes, for a total of 63 holes (19 020 m). PLS hosts the Triple R – the only major deposit in the basin with a high-grade core starting at 50 m from surface, as well as two other, similarly shallow and high-grade zones.

Most of the additional holes will focus on high-priority regional exploration targets with the objective of making a new, near-surface, high-grade discovery at PLS, the company advised.