Canadian producers can now compete with Kazakhstan, Australia and Russia to sell uranium to China. Canada produces about 20% of the world’s uranium and exports over 80% of annual production. The fast growing nuclear industry has never been open to China and will create a boom in the Athabasca Basin for uranium explorers.
This deal will allow Cameco, the largest publicly traded uranium company to deliver 52 million pounds of uranium to China by 2025. The contract is worth about $2.5 billion in sales. China is hungry for nuclear with dozens of reactors planning to be built over the next 10-15 years.
Investors are well aware that the agreement between Russia and the United States expires in 2013. New demand is rising rapidly
as stated by the World Nuclear Association who expects world uranium consumption to grow and new demand will require double the amount of current production by 2020.
Cameco and Rio Tinto is predicting a supply shortage within 18 months. The last time this happened the spot price of uranium rose to $138 per pound.
Today there are 435 nuclear reactors in operation all over the world. Add to this another 100 nuclear reactors are under construction or on the drawing boards.
Projections by the World Nuclear Association expects 650 nuclear reactors over the next twenty years. Saskatchewan, Canada may turn into “The Next Saudi Arabia” over the next twenty years. Nuclear power is reemerging as the go to energy source for expanding Asian economies.
Recently, Prime Minister Harper signed a deal with China that brings almost $3 billion dollars worth of energy supply which includes uranium from the Athabasca Basin to satisfy China’s insatiable hunger for its expansion into nuclear power. Now may be the right time to look for uranium explorers in the Basin.
We have expected to see an increase in Mergers and Acquisition activity in this region for some time. We observed the transaction by Rio Tinto who outbid Cameco in 2011 for Hathor Exploration’s Roughrider Deposit, Denison and Energy Fuels recently signed a deal to create a large U.S. producer. Fission Energy just acquired Pitchstone Exploration for its 13 Athabasca exploration properties. These are all signs that M&A activity is on the rise.
Uranium stocks have pulled back after a significant rally in the first quarter and we believe that now may be a good time to look for junior uranium explorers in the Athabasca Basin such as Athabasca Uranium (UAX.V or ATURF) who is delivering on its stated exploration goals and making excellent progress this year, yet the price has surprisingly remained around $.18.
We believe Rio Tinto bought out Hathor as a strategic move to gain a presence in this mining friendly region, free of rising resource nationalism, geopolitical risk and lower grade uneconomic uranium mines. Different sources within the Basin are mentioning that the big boys are looking at potential projects for acquisition or joint ventures.
CITIC Group, which is a Chinese tentacle, are interested in uranium explorers in the Athabasca Basin. The interest from them in the Athabasca Basin is evidenced by the signing of large future supply contracts with Cameco. The recent spin off of Denison’s Canadian assets specifically its Wheeler River Deposit, (higher grade and larger than Hathor’s Roughrider) partnered with Cameco may be indicating that Denison is setting itself up as a potential acquisition target.
The big boys such as Cameco, Rio Tinto, Sovereign Asian Funds and possibly BHP are realizing that large profits from uranium production will come from the Athabasca Basin. This is where deposits have grades tens to hundreds of times greater than conventional projects worldwide.
The majors are having problems dealing with the ever rising threat of resource nationalism as exemplified by their experience in Namibia, which is making noises that they may institute a super tax on miners. We have witnessed the uprising in Mali and growing Black Empowerment movements in South Africa. Of these aforementioned entities Rio Tinto and China is finding a warmer welcome in the mining friendly Athabasca Basin.
This brings directly into focus a small company Athabasca Uranium (UAX:TSXV or ATURF:OTC) which stands out as a promising uranium junior explorer. Remember that this Basin is different than the conventional deposits found around the world. The deposits may be smaller in size but have grades hundreds of times greater.
Looking at the map, Athabasca Uranium is surrounded by hungry giants such as Cameco, Rio, Denison, AREVA among others. The maps reveals that the majors such as Cameco, Denison, AREVA engulf UAX prospects. The Keefe Lake area is undergoing active exploration by this company which has encountered massive alterations zones for which results have currently been released
Indeed, this young company has made sure that they retained Dr. Zoltan Hajnal who was the seismic exploration expert for Hathor. Hathor’s exploration success was based on a the use of seismic data to efficiently pinpoint targets. The success rate of their drilling rose to approximately 70% which heretofore had been much less. Dr. Hajnal played an integral role in the Roughrider Discovery.
Now with Athabasca Uranium he has been instrumental to help the company already pinpoint promising targets. On their first drill hole the company hit uranium alteration and mineralization.
Recently Athabasca Uranium reported that two holes encountered significantly anomalous alteration and another containing chloritic alteration at various intervals below the unconformity, a common feature found in the host rocks containing uranium mineralization. The identification of a quartzite lithology and uranium metals in the sandstone validated work done by UAX’s geological team.
Recently Athabasca Uranium just released news that they found additional uranium mineralization at its flagship Keefe Lake Property demonstrating that the alteration zone is widespread and that continued exploration is necessary.
Regarding the assay results, Gil Schneider, President commented, “The discovery of additional uranium mineralization found within the Keefe Lake Alteration Zone is extremely encouraging for Athabasca Uranium. The basement alteration style encountered at Keefe Lake is widespread and seems to be unique, thus representing an excellent opportunity for continued research and discovery.”
Athabasca Uranium is currently drilling its Keefe K-2 (Volhoffer Lake) targets, 7.7 kilometres to the south. Athabasca Uranium CEO Gil Schenider commented “Given the potential of the Volhoffer project, we felt compelled to implement a first pass of exploration drilling of the ground conductors.”
The development prospects appear to be a ground floor opportunity to acquire shares at bargain basement prices here below $.18. Athabasca Uranium is oversold and finding support indicating an upward reversal possibly very soon.
We expect with the geological progress they are making that the project will be carefully looked at by the big boys. We would not be surprised of a joint venture or a buyout of this fast growing explorer. Relating to financing and corporate development, Athabasca Uranium recently announced the appointment of Kim Goheen to its Professional and Technical Advisory Committee. Mr. Goheen recently retired from Cameco, the largest publicly traded uranium producer as Chief Financial Officer, where he played a pivotal role in Cameco's growth.
On his appointment Mr. Goheen commented: “I remain quite bullish on the longer term prospects for nuclear energy and look forward to helping UAX continue its growth in the highly prolific Athabasca Basin.”
Gil Schneider, Athabasca CEO also commented: “We are very excited at Kim’s decision to join our Advisory Committee. He brings a wealth of direct uranium experience to the Company, and we feel his joining us is a strong endorsement to the Company’s vision. We look forward to capitalizing on his considerable experience in the uranium field.”
With Mr. Goheen, Thomas Drolet and Dr. Zoltan Hajnal on the Advisory Committee, this company is being transformed into a junior powerhouse with the right people on board to rapidly develop this company. The company has shown success with the use of Dr. Hajnal's seismic interpretations.
Gil Schneider, President commented, “The value of the surface seismic survey and subsequent interpretation by Dr. Hajnal has exceeded all expectations. With the first drill hole at Keefe Lake, we encountered massive alteration and uranium mineralization. Downhole geophysics should further enhance our resolution and accordingly increase our chances of making an early discovery.”
Listen to my recent interview with Reza Mohammed, Exploration Manager for Athabasca Uranium, where he explains the significance of hitting alteration in the basin and some of the exciting developments taking place.
Disclosure: Long UAX and Athabasca Uranium is a Featured Company on Gold Stock Trades.