Uracan to Benefit from Return of the Uranium Bull
Friday, May 8, 2009
Uranium is going to be in short supply in the
not-so-distant future, according to a report issued recently by
Toronto-based Salida Capital Corp. And that’s going to give a boost to
uranium explorers like Uracan Resources Ltd., (TSX.V:URC), who have established pounds in the ground and continue to expand on them.
According to the report:
“It is conceivable that the uranium industry may
need to expand annual mine production by more than 50% during the next
decade in order to meet demand from new reactors. In the ten–year
period to 1997 the industry was only able to grow annual production by
14%, despite a spike in prices and significant spending on exploration
and development. Today, the industry faces financing challenges in
addition to the regular geological, regulatory, and operational
hurdles. Should the mining industry come up short, the incremental
supply will have to come from larger draws on finite government
inventories. Otherwise nuclear power projects will be cancelled for
lack of fuel.
Meanwhile, today’s uranium price provides limited
incentive to explore for and develop new mines, while existing
operations and known deposits face a myriad of challenges. The marginal
cash cost for the uranium industry is believed to be in the
US$45–$50/lb range, higher than today’s spot price. Adding in a
reasonable return on investment suggests a minimum US$60–$65/lb
contract price to justify investment in a typical new project. Given
that reactors are far more concerned with security of supply than the
actual price of uranium, there would seem to be little resistance to
higher prices should market conditions tighten.”
And Salida isn’t the only group predicting
stronger demand for uranium in the near term. RBC Capital Markets
issued research on April 29 that concurs with Salida’s stipulations.
“Based on our supply demand outlook, we think the
uranium market will be facing substantial deficits and that utilities
will have to pay higher and higher prices to secure both spot and
long-term supplies. We also believe that the longer the spot price
remains depressed (e.g. below US$70/lb), the more dramatic the price
run-up will be.
We have revised our valuation for the uranium
sector to reflect our view that we are at the early stages of a bull
market, but we think the peak levels are still more than two years
away. We think that equity pricing at the peak could be driven by NAV
multiples that exceed 2.5 times for the more spot sensitive equities
like Paladin and Uranium One.”
The RBC report builds a strong case for increased uranium prices by the end of this year.
“We believe we have just recently come off the
bottom with respect to the spot price. Looking to the future, we are
forecasting the uranium price will increase from its current spot price
of $44 per pound to the mid-$50 per pound by the end of 2009. Longer
term, we believe the uranium spot price will need to increase
significantly to provide the proper stimulus to uranium companies to
develop new mines. We think the price increase will happen one of two
ways: (1) the spot market will tighten in advance of demand increases,
providing sufficient time for new mine development; and (2), new,
incremental demand drives the spot price higher, but given the
inability for supply to react quickly (e.g. years, not months), the
spot price could increase very dramatically, perhaps even mirroring the
2006-2007 bull market. Our forecasts are assuming the first option
occurs resulting in higher prices, but with some moderation to price
Uracan recently completed its winter 2009 drill
program at its 100% owned North Shore Property, located within its 100%
owned 1,000 square kilometer North Shore Uranium Property in Quebec.
The initial 3,000 meter winter 2009 diamond drill
program was extended to a total of 4,819 meters. Drilling was focused
on generating additional mineralization up dip and along strike from
the existing Double S NI 43-101 inferred resource of 74.2 million
tonnes at an average grade of 0.012% U3O8 containing 9.06 million
kilograms (20 million pounds) of uranium.
Total NI 43-101 compliant inferred resources to
date on the property are approximately 154.9 million tonnes at an
average grade of 0.012% U3O8 containing 18.48 million kilograms (40.73
million pounds) of uranium using a 0.009% cutoff.
The deposits are located approximately 8
kilometers north of the St. Lawrence Seaway, with electric power lines
and a paved provincial highway running through the property. These
open-pittable resources outcrop at surface, and are open at depth and
Uracan has a second uranium discovery at surface
at its 100% owned Pipewrench Lake property in Saskatchewan, located
about 120 km south of the Athabasca Basin. Drilling in 2008 intersected
1 to 3 pounds uranium per ton over widths up to 19.5 meters. Pipewrench
Lake is hosted in the same Wollaston domain geology that forms the
basement rock to many of the rich underground uranium mines in the
Athabasca Basin - but here the domain is at surface.
Uracan has 91 million shares outstanding. Visit the company’s web site at www.uracanresources.com to learn more.
DISCLOSURE: No shares held in any companies mentioned herein by they author or affiliates.