CSE-listed Madison Metals is betting on a sustained increase in uranium demand and accompanying price increases in years to come as the global demand for clean energy brings nuclear energy into ever sharper focus.

If Madison CEO Duane Parnham is right, then the company’s investment in developing two significant Rössing-type uranium prospects in Namibia and Canada – the world’s second- and third-largest uranium producing countries, respectively – should yield significant returns.

Uranium is an unusual commodity to analyse because it is mainly bought under long-term contracts by those utilities who operate nuclear power plants. Owing to this, the demand that sets the price is not simply the volume that is consumed in a given year.

Rather, it is the volume that utilities put under contract during the year and the supply available to fulfil those contracts in future years.

Owing to this, there has been a somewhat depressed demand environment when demand is defined as contracted volume as opposed to consumption.

US-based investment asset manager Azarias Capital Management said in a January report that the past several years of minimal uranium contracting had left nuclear power utilities around the world with significant uncovered fuel requirements from 2023 onwards.

Azarias said it expected utilities to spend this year aggressively seeking to secure their uncovered fuel requirements for next year and beyond. However, the question remains whether producers will be able to deliver on those fuel requirements.

“We believe strongly they will not . . . unless incentivised with much higher prices,” the asset manager stated.

According to the World Nuclear Association, total uranium supply dwindled by more than 10 000 t between 2012 and 2021, with global triuranium octoxide (U₃O₈) supply having decreased from 68 974 t to 56 961 t in the same period.

However, the uranium price last year reached its highest levels since 2014. Throughout the year, the uranium spot price rose from about $30/lb to $42.05/lb, an increase just shy of 40%.

This year, the price has risen further to as much as $63.60/lb in April, although it has since dipped to below $50/lb once again.

With prices hovering around the $50/lb mark, Parnham says that he believes a new uranium mine right now would struggle to break even. However, with prices expected to rise significantly in the next few years, and new production capacity sure to become sorely needed, well-developed and de-risked uranium assets would become increasingly lucrative.

“It’s a little bit of a risk for entrepreneurs like us, but when you assess the overall uranium market and the overall energy market, it’s clear that the price of uranium has to increase,” he tells Mining Weekly.

So far, things seem to be going Madison’s way, with investment institution Bank of America saying in April that it had raised its uranium price estimates for 2022 through to 2027 by 20% on average.

Moreover, in November last year, US President Joe Biden’s administration passed an Infrastructure Investment and Jobs Act that saw the country’s nuclear energy sector being allocated $25-billion, with $3.2-billion of that sum to be invested up to 2027 on an advanced reactor demonstration programme and $6-billion to be poured into a civil nuclear credit programme to preserve the country’s existing nuclear fleet and prevent premature shutdowns of nuclear power plants.

At the same time last year, reports emerged that China was planning to build 150 new reactors at a cost of about $440-billion – which is more reactors than the rest of the world has built over the past 35 years combined.

Additionally, newswire Reuters in January reported that the European Union (EU) had drawn up plans to label nuclear energy projects as green investments if the projects have a plan, funds and a site to safely dispose of radioactive waste. To be deemed a green investment by the EU, new nuclear plants must receive construction permits before 2045.

Parnham said the EU’s decision in this regard would further open the door for long-term investments in nuclear power.

All of these developments, in Parnham’s view, point to a resurgence of uranium as a profitable commodity, as it was between 2006 and 2012.

“I think we're still very early in the next uranium cycle where we can make obscene amounts of money, if all things go right. From an investor's perspective, I think one should be looking at the sector very seriously as being investable today,” he says.

MADISON’S PROSPECTS

Parnham says Madison is investing the lion’s share of its time and effort on developing its Namibian uranium prospects, which are located in the Erongo province near the renowned Rössing, Husab, Valencia, Etango and Langer Heinrich uranium projects.

In January, the company entered into a binding letter of intent with Giraffe Energy Investments and Otjiwa Mining and Prospecting to contemplate the acquisition of an 85% interest in three separate concessions comprising 38 391 ha, collectively referred to as the Rössing North uranium project, which contains a historic mineral resource estimate of more than nine-million pounds of U₃O₈.

Previous owners conducted limited exploration, including a reverse circulation drill programme which produced a Joint Ore Reserves Committee-compliant report prepared by consulting firm SRK in November 2015, which determined that the uranium mineralisation was open along strike, at depth and contained within well-defined uranium-bearing alaskite beds.

SRK also recommended the undertaking of further exploration to determine both extensions to the two larger areas of mineralisation already discovered and other areas of the property that had not yet been drilled.

Moreover, 11 newly identified uranium mineralisation areas on the concession warranted further evaluation by Madison in the future.

The company also owns a 39 850 ha drill-ready uranium project in Kenora, Ontario, in Canada. The concession was host to the mothballed Richard Lake uranium mine, which in 1976 had a resource model estimate of 590 000 t of 0.10% U₃O₈ over a width of 3 m, a length of 210 m and a depth of 300 m.

Further regional exploration in 2006 and 2007 indicated promising uranium mineralisation prospects, which Parnham says is well worth pursuing further.

However, he explains that the rugged terrain in the region, with plenty of trees, snowfall, mountains and lakes, means that the development of the Kenora asset is expected to take seven to ten years – significantly longer than the company’s Namibian concessions, which Parnham believes can be developed to the same extent in as little as 12 months, owing to the easy access and historical work that has already been done.

The Madison team, led by Parnham and geological engineer Dr Roger Laine, previously founded uranium company Forsys Metals, where they licensed the Valencia uranium prospect in Namibia, taking the Forsys market capitalisation from C$45 000 to C$860-million between 2006 and 2010.

“We're deploying the same model and the same techniques at Rössing North, and we feel that it's a very investable time. There is a lot of uncertainty, obviously, in the world today, but as one who has been through a couple of these cycles, it's always darkest before the sun comes out,” Parnham says.