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Barbara Thomae: Uranium Will Rebound with Economy

Source: The Energy Report 08/06/2009
August 9th, 2009

The Energy Report checked in with Barbara Thomae, Senior Mining Analyst with the MineralFields Group, who says that they believe the economic recovery will spur reinvestment into the uranium sector, especially once uranium prices strengthen in line with other commodities. She says her firm's prudent portfolio picks (overweight in uranium and heavily overweight in gold juniors) have enabled them to have the best performance track record among all flow-through limited partnership groups for the past four years. Read on.

The Energy Report: There's a lot of "news" swirling around uranium (i.e. Russia has a moratorium, China is building dozens of nuclear facilities, recession is pausing development of nuclear facilities and more.) What's the truth regarding uranium? What should investors in this sector be watching?

Barbara Thomae: All this news does seem to be confusing investors and part of the problem is that there is no formal physical exchange for uranium as with other commodities like precious metals or oil. Indications for the price of uranium appear to have been trending lower (now at US$48.50 per pound) at a time when other commodities are trending higher in anticipation of an end to the recession. We believe that since uranium prices are negotiated through contracts between producers and consumers, investors need to look at the long-term supply and demand equation when it comes to uranium. They should consider the positive impact that the global acceptance of nuclear energy will have on the demand side over the next 10 years. Countries are definitely getting more politically motivated toward utilizing nuclear energy as a viable non-greenhouse gas-generating alternative to oil or coal.

TER: Is there a current or pending shortage? How large (in size or duration) is the shortage?

BT: We understand that mined production of uranium fell short of consumption by 60 million pounds last year, and the shortfall was made up by using recycled nuclear material from weapons from Russia. But this agreement is set to end in 2013 and if it is not renewed, primary uranium production will need to be stepped up significantly. With some 436 new reactors being planned worldwide, uranium demand is expected to rise at least 30% over the next decade.

While many assume that the supply from primary uranium sources (mines) will be there to meet demand, we believe that this is wishful thinking considering that new uranium deposits are very hard and expensive to find and then equally as complicated to permit and develop, creating a huge time gap between discovery and mining phases. The Europeans and Asians are not taking any chances and are busy locking into uranium supply deals now when prices are low. There are reports out that the Japanese government is encouraging domestic companies to invest in Australian uranium mining ventures to secure its nuclear fuel requirements down the road. Cameco, which controls some 15% of global supply, is in talks with the Chinese about a possible supply agreement.

TER: To what extent is any pending gap between supply and demand reliant on increased demand from new facilities being constructed versus ongoing operations of existing nuclear facilities?

BT: Since about three times as much uranium is required during the start-up phase when compared to reactors that are operational, we believe these new facilities will be responsible for a significant increase in future demand. In addition, the new reactors will be higher capacity than those operating, thereby adding to the demand.

TER: Do you see the fundamentals of investing in uranium changing much before the end of the year?

BT: We believe that the economic recovery will spur re-investment into the uranium sector, especially once uranium prices strengthen in line with other commodities. More foreign supply agreements are bound to put upward pressure on prices before the end of this year.

TER: Is the value of uranium and uranium stocks dependent on an economic recovery? So if the economic recovery stalls, will this be reflected in uranium stock prices?

BT: I believe that the value of uranium and uranium stocks depend at least in part on an economic recovery. The recovery should spur development and hence increase energy needs and drive prices for fossil fuels and uranium higher. This should result in getting nuclear energy projects approved and result in higher demand for uranium. An economic recovery will also serve to bring in the capital investments required for uranium projects at both the exploration and the development stages, and go a long way toward easing investors' fears that projects will not get financing.

TER: Do you see certain geographical areas for uranium exploration being better for investors, like Canada's Athabasca Basin?

BT: In terms of economic potential, the Athabasca Basin can't be beat for high uranium grades; however, there are many other issues that need to be considered beyond the exploration stage. Proximity to infrastructure, permitting, First Nation and environmental and safety issues, as well as ground conditions can significantly impact the economics of a project. We have seen key players, like Cameco Corp. (TSX:CCO), having to delay the start of production yet again at its Cigar Lake property owing to flooding.

Areas in Canada that look interesting in terms of future production include the Thelon Basin in Nunavut. Kivalliq Energy Corp. (TSX.V:KIV) is taking a proactive approach towards exploring and developing its Lac Cinquant uranium deposit in Nunavut. It struck a deal with the Inuit that includes a working interest in the project that was discovered in the 1980s. While the deposit has moderate uranium grades compared to the Athabasca, they are still fairly high and located closer to surface. We also believe that companies exploring in the Central Mineral Belt in Labrador could regain their foothold once the moratorium on exploration is lifted in two years time if not sooner.

TER: There seems to be some American properties that are getting attention. . .are you as interested in the companies with assets in Texas, Wyoming, Utah and New Mexico? What about other global areas?

BT: Since MineralFields Group and Pathway Asset Management currently are primarily focused on flow-through financing, we support the junior uranium exploration sector throughout Canada (with the exception of British Columbia, which placed a ban on exploring and mining uranium in the province last year).

Each U.S. state must be judged on its own merits. Wyoming, which is very rich in uranium resources, ranks as the most mining-friendly jurisdiction in the U.S. by the Fraser Institute. But I am hearing about companies like Denison losing money on some of their in situ leach operations in the U.S. and it doesn't help that the government just designated nearly one million acres of Arizona land near the Grand Canyon off limits to new uranium mining claims for two years.

On a global scale, parts of Australia are very prospective for uranium and considered low risk. There seem to be some very worthwhile projects in places like Kazakhstan, Mongolia, as well as Niger; however, the geopolitical risk there is much too high for most juniors.

TER: From an individual investor's point of view, provide your perspectives on investing in juniors compared to seniors.

BT: MineralFields Group looks for undervalued juniors that are trying to expand their resource base, those that are approaching development and those that have compelling geologic targets for new discoveries, all with credible and experienced management. We believe that the investment rewards are definitely highest during the discovery phase of the mining cycle. But this can be fairly challenging for a junior in terms of expenses and time constraints so we prefer to back those with senior levels of professional or academic expertise on board.

Seniors do offer more security, but they tend to be more secretive about their new findsóleaving investors out of the action when discoveries are made.

Actually, MineralFields and Pathway have been overweight in uranium, and heavily overweight in gold, juniors for the last several years, and our prudent portfolio picks have enabled us to have the best performance track record among all flow-through limited partnership groups for four years in a row (from 2005 to 2008 inclusive), with details on our website (see below).

TER: Do you have any favorite uranium companies, seniors or juniors?

BT: Our MineralFields and Pathway funds are holders of Northern Continental Resources Inc. (TSX.V:NCR) due to the outstanding discovery potential at its Russell Lake property in the Athabasca Basin. A superior takeover bid by Hathor Exploration Ltd. (TSX.V:HAT) last month over rival Denison's initial bid for Northern Continental will likely be approved in the coming weeks. We really like Hathor's aggressive yet scientific approach to exploration and feel it will lead to a discovery at Russell Lake before too long.

We also invested in Fission Energy Corp. (TSX.V:FIS) recently as part of a $3.9 million raise as the company plans to drill test a similar structure as that which hosts the adjacent high-grade Roughrider uranium deposit that Hathor is successfully defining. Fission was spun out from Strathmore Minerals Corp. (STM.V) in 2007 to separate out its Canadian properties. The company has plans to drill its Dieter Lake property in Quebec this summer using flow through dollars.

We are investors in Vancouver-based Anglo-Canadian Uranium Corp. (TSX.V:URA) who has two early stage uranium properties in Quebec's Otish Mountain area. We like the diversity this company brings as it also has 13 uranium properties in the western U.S. and is expanding its portfolio through recent acquisitions in gold and copper prospects in the Yukon, British Columbia and Quebec.

As mentioned, we financed Kivalliq Energy's (KIV.V) in its efforts to confirm historical uranium resources and test the extent of this mineralization along an anomalous trend at its Lac Cinquant property in Nunavut. We believe they should be successful because surface showings along the trend have returned encouragingly high grades of uranium in association with silver and copper.

Our most recent investment is in CanAlaska Ventures Ltd. (TSX.V:CVV) to support its drilling program that will test for basement-hosted feeder systems at the Fond du Lac property that it can earn up to 49% in from the First Nation reserve lands. We were encouraged by the company's uranium expert, Dr. Karl Schimann, who has identified the type of alteration/mineralization that signals uranium mineralization potential nearby and the fact that the property is situated on the northern portion of the Athabasca basin where the unconformity target is within 100 metres of the surface. CanAlaska is also active on several other fronts within the Basin this year.

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With over 25 years of experience as a geologist in the resource sector, Barbara Thomae's (P.Geo.) work history includes consulting work for junior and senior mining companies since the early 1980s. Barbara is currently a Senior Mining Analyst with the MineralFields Group . She joined MineralFields Group as its Senior Mining Analyst in October 2005 and heads its Vancouver office to focus on coverage of Western Canadian based junior mining companies and financing opportunities. Barbara also holds a graduate level Diploma in Environmental Science and is a professional geoscientist (1992) registered in the province of British Columbia and a member of the CIM and the Geological Association of Canada. She graduated from the University of British Columbia's Geological Sciences program in 1983.

Source: The Energy Report 08/06/2009

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