Athabasca: More Land, More Uranium, More Profit
Declan Resources to Leave Other Juniors Behind by Q4 2014
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May 15, 2014 12:58 | Source: Declan Resources
VANCOUVER, British Columbia, May 15, 2014 (GLOBE NEWSWIRE) -- Nuclear power generation is approximately 12% of total world generation. There are currently 434 operable reactors in the world in over 30 countries (including 50 in Japan) with an additional 71 reactors under construction, 173 planned and 314 proposed.
The overall demand for uranium to feed those reactors in 2013 was ~170m pounds. However, uranium, as a commodity, has under-performed for the last 10 years.
There are two major reasons for this. First, the Russian Highly Enriched Uranium (HEU) Agreement to use old missile fuel to feed reactors was extended to 2014, adding 24m pounds per year to supply. Second, the events at Fukushima in Japan led to 50 reactors being taken offline and approximately 12% of fuel demand being pushed onto the market as supply.
There are three major events that occurred or will occur in 2014 that will radically alter the current paradigm. First, Japan is restarting its reactors. Japan's rapid switch to gas, post Fukushima, has destroyed its balance of payments and is bankrupting the government as it is paying $14 per Mcf for gas. In February the Japanese government issued a draft energy plan that categorically stated that uranium will be a part of their future. Three reactors are expected go back online by year end at the latest, with at least 28 more coming back online over the next 3 years. Second, HEU is officially over with 24m pounds of supply from decommissioned warheads disappearing with no plans to be replaced. Third, there are 71 reactors under construction, following decades of inactivity, which will increase uranium demand by 4% every year until 2020.
Uranium investors over the last five years have been seriously disappointed with the plunging prices. Over the next year, that should change as the pendulum of demand and supply swings from oversupply to deficit. The negative sentiment in both mining and uranium has combined to create a situation where traditional mining investing institutions are ignoring the uranium world right as a result of the historic losses in the sector. It is likely they will not 'buy back-in' until the price has recovered. Interestingly, the average price most analysts are using is $65 a pound compared to the 'current' price of $30. Analysts have also identified a supply deficit in 2016, which could mean prices potentially skyrocket past $65.
To gain exposure to uranium, investors should be in the place most likely to recover first when the prices do change. Arguably, that would be in Canada's Athabasca Basin in Saskatchewan, responsible for 15% percent of global production and the highest grades in the world. Average grades of 1-15%, vs. the global average grade of 0.2-0.3%. Investors should as well look to management with a track record of creating significant shareholder value. Also junior exploration uranium plays are more exposed to the long-term positive fundamentals of the uranium market driven by strong Chinese demand and the continued deferral of production on the supply side.
The company that checks all those boxes is Declan Resources (TSX-V:LAN). In 2011 Fission paid back handsomely despite a declining uranium market. Declan could well do the same.
To explain how Declan will do that, investors need to understand a bit about its model. It's a prospect generator in the uranium space. A Prospect Generator is a team of people who exhibit substantial geological, political and/or commercial expertise in a given value proposition (like uranium in the Athabasca, or Gold in West Africa), and target geological concepts and targets rather than projects.
Rather than financing and drilling those targets themselves, they farm in or bring in JV partners to finance the drilling. Exploration is really a knowledge business and a risky one at that. Project generators maintain an interest in the knowledge base by farming out an interest in the project base.