I caught up with Skyharbour Resources CEO Jordan Trimble while he was in London last week. We talked about the Uranium market, the backers behind Skyharbour Resources, and how to look for a 10 bagger within the resource space.
On the Next Bull Market Move we have Jordan Trimble from Skyharbour Resources. How are you today Jordan?
I'm good thanks.
Great. So we're both in London at the moment. Why are you here in London?
So I'm here right now at the World Nuclear Association Symposium. It's kind of the marquee event for the nuclear industry globally held every year here in London just near to where we are right now. It's a great conference for getting a feel for what's happening in the industry and the supply and demand picture.
It's mostly focused on the nuclear industry versus the uranium mining part of the industry but nonetheless all the larger miners are represented here and we'll be in and out of the conference for the next few days, meetings as well. I've done some marketing here tied on with this conference and then I'll be spending a few days in France and in Belgium doing a couple lunch presentations and marketing days out there as well.
Before the interview we were talking about the sentiment within in the uranium market and for example the formation of Yellow Cake here in London and how investors are slowly taking a look back at the sector. What are your views on that?
Yeah I mean look this conference is going to be quite interesting given what's happened in the last year. When I was here a year ago sentiment was pretty grim. We hadn't seen McArthur River shut down and we'd only seen some minor production cuts out of Kazatomprom but a lot has changed in the last year whether it's on the supply side or the demand side as well with some of these new funds coming in.
Looking at the supply side, you had late last year McArthur shut down and now to be shut down for an indeterminate amount of time as we saw a few months ago with that announcement out of Cameco. We've had multiple additional cuts out of Kazatomprom and so we've seen pretty major cuts across the board in the last two years and it'll be interesting to see what the industry's thought leaders think about this at this conference.
And then if you look on the demand side, as far as nuclear power plants are concerned, we still have very much a growth-oriented story, especially in the developing world. 56 reactors currently under construction, hundreds more in the pipeline. About a third of this growth is coming from China so that is where most of the current reactors are under construction and are being proposed, planned and ordered.
But you have other countries like India, like Saudi Arabia that's announced they're planning an $80 billion nuclear expansion program to build over a dozen reactors there. So there's other parts of the world that are going nuclear and these are in parts of the world that are large population centers, we're not talking a few hundred million, we’re talking billions of people that need a lot of electricity, need it soon and need it to be clean.
We know the demand side's continuing to grow. When we look at new demand coming in and new buying coming in to the market and we look specifically at the spot market and this is where it gets real interesting.
We just talked about a lot of investors and analysts that are looking at the spot price and we've seen it continue to tick up over the last several months and again as we spoke about, I look at this as a very positive signal right now that we're seeing a bit of a sustained rally versus what we've seen in the past two years where we'll see the price spike up a couple of bucks just to be pushed right back down in a relatively short period of time.
We've now had four or five months of a sustained rally and we've seen higher volumes too. The volumes have picked up quite a bit, so it's not just the price action, it's the volumes as well that have been quite high so I think it's a real rally, and I think you're going to see it continue.
Nonetheless, we're still at unsustainably low prices in the mid twenties here with the spot price but it’s moving in the right direction. And a lot of this is driven by these new buyers coming in. Yellow Cake here in London which just raised $200 million, and was oversubscribed, and has an option to buy a $100 million worth of uranium each year for the next nine years. That's significant.
It becomes a bit of a self fulfilling prophecy if there's investor demand as you will see that $100 million raised and you will see that amount of material taken out of the market which is positive. You had Tribeca, and you've had a couple of other funds that are now looking to buy material. UPC's continued to raise money and continued to buy in the spot market as well, so we have these new buyers coming in including these new funds that have been set up.
This brings renewed interest to the space. Investors are now looking at it going okay, wow, there is this opportunity specifically in uranium within the broader commodities sector and uranium has been in a prolonged bear market, the price is unsustainably low, well below the average global cost of production, but there's good reason to believe that it's going to be trading much higher over the course of the next few years.
We now also have, and I think this is going be one of the biggest catalysts over the next year, producers coming in and buying in the spot market. It is much more profitable for them to actually buy the material in the spot market to fulfill their long-term contracts. And the most notable there being Cameco, the world’s largest publicly traded uranium mining company, which has guided they'll be buying between 11 to 15 million pounds through 2019.
It's an interesting inflection point we're at right now. There's a confluence of positive bullish factors that are working right now providing the tailwinds that we need to see a higher price. It's exciting if you're an investor in the space because I still think these companies are relatively undervalued but they’ll move quickly as the price of the commodity moves up. I see the $30 / lb U3O8 mark as the key breakout price for the commodity.
I think if we see it break through $30 that's a key technical resistance level. And I think you'll see it move very quickly thereafter and I really do think that that'll happen over the course of the next 12 months with these new sources of buying and the lack of supply.
When we talk about the global supply and demand for the commodity right now, you're looking at just over 190 million pounds in annual demand globally and we're only going to be producing in 2018 about 135 million pounds of primary mine supply. So that shortfall has to be met by secondary supplies.
With regards to the secondary supplies and inventories, I think there's a lot of misunderstanding out there. Yes there are inventories of uranium, there's always been a lot of inventories of uranium, a lot of governments mandate that there are inventories held by their utilities companies and government departments, like the Department of Energy in the US. But that doesn't necessarily mean those are inventories that are readily available for sale, they're not mobile, and it's mobile material that can be sold into the spot market. If you look at the mobile uranium that could be sold into the spot market that could put downward pressure on the price, there's a very small amount of it.
And so when we look at that specific market, I do see a much higher price and again that's what investors are looking at when they're going into the market. This will be quite positive for the mining companies going forward.
So how is Skyharbour Resources being prepared for this rise in the uranium price?
Well we have a lot on the go right now, we started the company about five and a half years ago. Put our contrarian caps on and saw an opportunity to go in and basically build from scratch a new Athabasca Basin focused, high grade uranium exploration and early stage development company. We spent the first few years just building the team and the asset base, acquired five projects for about $4.5 million. These projects have had over $80 million invested in them historically so they're not all just early stage grass roots.
There are two projects in particular, one of which has an NI-43 101 compliant uranium resource of about seven million pounds, it's lower grade at 0.03% but it’s near surface and there's some higher grade mineralization that we've discovered below the deposit. That's our Falcon Point project which comes second to our flagship, and this flagship project (the focus for us) will provide the most near-term catalysts for the company over the next 12 months. This project is called the Moore Project.
The project is in the heart of the eastern side of the Athabasca Basin, right on the main mine trends. It's about 15 kilometers east of Denison Mines’ flagship project, the Wheeler project. It's important to note that Denison is our largest strategic shareholder, we have a partnership with them and their president and CEO Dave Cates is on our board as well.
We work very closely with him and his team. We now own 100% of the project as we've completed the earn in with Denison. That was just announced a few weeks back. The project has high grade uranium mineralization that was discovered a couple decades ago at what's called the unconformity which is the contact between the sandstone and the underlying basement rock. Moore has had a lot of historical drilling and work done on it. It has these small pods of high grade uranium at relatively shallow depths at the unconformity which is what we've been expanding with these recent drill programs that we've completed.
What's exciting on this project over the next six months is we just commenced a summer drill program which will see between three to four thousand meters almost entirely focused on drilling basement-hosted targets. We've talked about this in the past but it's important to note the when this project was being drilled historically, the high grade was discovered back in the late 90s / early 2000s by my head geologist, Rick Kusmirski.
Rick has a long illustrious career in the uranium exploration and mining industry having worked at Cameco for 12 years. He was a senior geologist there before he built and sold his own uranium company called JNR and that's when he came and he joined us in 2013.
So they found this high grade uranium back in the late 90s / early 2000s but a lot of the drilling that was carried out in the 2000s when most of the work was done on this project and was just focused in the sandstone or at the unconformity, so they weren't drill testing or exploring for basement-hosted, high grade uranium. We've seen in the last 15 years most of the recent and notable discoveries - whether it be NexGen, whether it be Fission, whether it be the Gryphon deposit that Denison has at Wheeler - these are all basement hosted deposits.
There has been a paradigm shift if you will, the geological thinking and the target types have changed where companies are now looking to find feeder zones in the basement rock and we've seen this with these recent discoveries of some of the richest mineralization and uranium deposits hosted in these basement targets. So at Moore we are now for the first time really testing these basement targets at between 300 to 500 meters depth. We just started that program so we'll have some news coming out with updates and the drill results eventually as that program progresses.
And then there is our “secondary strategy”. Because we have five projects, our flagship being Moore is where we are funding the work and that's the main catalyst, but we also have these other projects that we own and we want to make sure that they are advanced, that exploration on them is being funded. So what we do is we employ the prospect generator strategy / model by bringing in partner companies to fund exploration and earn in on the project. We usually get some cash and stock as well so it's a good way for us to fund Skyharbour without having to dilute and we've done two deals in the last two years. One of which was a big deal we did with an industry leader, Orano, previously AREVA out of France. They have to spend $8 million to earn up to 70% of our Preston Project which is over on the west side of the Basin near Fission and NexGen. It’s a big property, about 50,000 hectares. They just completed their first drill program and they have plans for additional drill programs next year. And we can let them do the work, they're the operator and if they make a big discovery we'll benefit with our retained minority interests.
We get some cash payments as well as them funding the exploration going forward. We then did a second deal with a junior company called Azincourt. Azincourt is earning in 70% on our East Preston Project with a similar structure in terms of what that option agreement looks like: some cash and they issued some stock as well and then they have to fund $2.5 million worth of exploration over the next few years. So again we can let them go and explore that project.
We have multiple irons in the fire right now and that's really key in the Athabasca Basin. If investors are interested in getting exposure to high grade uranium discoveries which yield significant returns for investors as demonstrated by NexGen and by Fission, that's really what we offer the investor outside of just exposure to the price of uranium.
You want to have multiple irons in the fire, you want to have multiple programs. It's tricky to do that if you're a smaller company, we're still a $30 million valuation so relatively small cap. You have to go and you have to raise the money to pay for this exploration and drilling. But we have our partner companies doing that at Preston and East Preston so that we can focus our time and efforts at our flagship Moore Project.
I also note that you have some well known investors. So I can imagine a situation where if the bear market does carry on a lot longer you will still have investors willing to fund Skyharbour Resources.
Yeah and I like to point that out when I talk about the company that we have a fantastic management and geological team that we've assembled. One of the of the silver linings of a bear market is not just acquiring projects or assets on the cheap but also putting a really good team together of top quality geologists and management that quite frankly in a tough market aren’t available. So it has allowed us to put together one of the better teams for uranium exploration.
I run the company, my chairman Jim Pettit and I have worked together for a while. Jim runs Aben Resources which is a gold company which we share office space with. We share office space with a handful of junior mining companies, Aben and Skyharbour being two of them,
Jim and I previously built and sold a gold company called Bayfield Ventures. Again very similar model to what we're trying to accomplish here at Skyharbor. We go out, we find the deposits, we delineate a resource, we de-risk the project as much as we can and then we ultimately look for a larger company to come in and acquire us and that's what we did with Bayfield with a gold project in Ontario which was acquired by New Gold back around the time that I started Skyharbour.
So that's the model. And then we teamed up with my head geologist and his geological team out Saskatoon. Rick Kusmirski, who is a 40 year veteran in uranium exploration in the Basin and was at Cameco for many years, has a lot of experience as well on the junior side. He ran a company, JNR, which he took from a $5 million company in 2000 to over 400 million in 2007 in then last uranium bull market and he ultimately sold the company to Denison. So it's come full circle now too with Denison being our largest shareholder and Dave Cates being on our board.
Another important part of our team is Paul Matysek who is strategic advisor and is a well-known industry titan and company builder. He's a large shareholder as well. Management and insiders are large shareholders of the company and we have a lot of skin in the game - we believe in what we're doing. But we also have a number of other notable strategic shareholders as you mentioned including Marin Katusa, Doug Casey, a couple of funds.
Notably in the last two years when we've raised money we have seen more of an institutional interest including Sachem Cove out of New York, OTP out of Hungary, KS investment out of Shenzen, China. So we're starting to see these resource funds and in particular uranium focused funds that are being set up and are putting money into these companies. That's exciting to see, and again this is all indicative of an early stage bull market and recovery right now that we're seeing in this space.
Let's talk about investing in general. The average investor wants the holy grail of a ten bagger. But they want it in a couple of weeks. So how would an investor gain a ten bagger? What are the rules that you would trade by?
It's the old adage, right? It takes you for or five years to become an overnight success and that really is the truth. I think what you do is you have to look at companies from a top down approach, and when you look at the specific commodity, what are the fundamentals of the commodity, what are the prospects for a higher commodity price and that's always tricky. A lot of people try and speculate on what commodities, what metal prices are going to do, and that's always a tough one.
But with uranium, it's at an interesting point right now because we have been through a long bear market and we are really starting to see the forces at be move the price higher. I just look at this last four or five months, the price action, the volumes on the spot market and more buying coming in. Again, Cameco coming into the spot market, that's happening through 2019 as well as Yellow Cake and additional funds that have been set up.
So I like the prospects for uranium and the price of the commodity over the next few years. There's just a lot of tailwinds building for this commodity. And what's the upside from here? Well look, it's $27 dollars a pound right now, still a lot of mines that can't make money at that current price, hence why these companies are buying in the spot market and selling it into their contracts. But the upside is I still think quite large given that the average global cost of production is over $40 / pound.
And the price needed to see new meaningful production come online to meet growing demand and existing demand carried on into the future, you need $50 to $60 uranium. A lot of long term price forecasts by analysts that cover the space are $55 to $60 / pound uranium. So I think you still have quite bit of upside even from the current prices. That's important.
And then as you work your way down and you're looking for that ten bagger or you want that big home run hit you have to remember, they are ten baggers for a reason: they're not easy to find and they're rare. But you can do your homework and your due diligence to help increase the odds of finding that one or two companies that provide that. Typically speaking, you're not going to get a ten bagger from larger companies.
They're lower risk with lower potential returns. Now, if you have an incredibly hot uranium market as we saw in 06/07, they can provide those kinds of returns. But otherwise you're only going to get those returns typically speaking form the juniors, from the exploration companies. The discovery process can provide those kinds of ten X and twenty X returns. Look at NexGen, look at Fission, who are prefect examples of that in a declining commodity price environment. So had those discoveries been made in an improving commodity uranium price environment, those companies would be trading at multiples of where they are currently. And that still could come. But you have to look for the quality discovery stories, exploration companies that really do have a legitimate shot at finding something big, high grade, that can provide the potential for those kinds of returns.
Some great advice there. As a final question, you briefly talked about Aben Resources. And the last couple of weeks they've had some great news in their drilling program. Lit up the market. Now the price in consolidating a little bit. What's your view on where they will go next and the future for them?
Yeah so just to give some context to it, as I mentioned my chairman Jim Pettit, runs Aben. We share office space and work closely together. I'm not on the board or an officer of the company, but I am a large shareholder and needless to say really like the story. If you look at the team that runs Aben, Jim, Tim Termuende who is a director and runs Eagle Plains, and Ron Netolitzky who's a very well known mine finder and has a lot of history in the Golden Triangle having found Eskay Creek and Snip.
He is, very much so. And so it's got a great board and management team. The project, the flagships Forrest Kerr, which is right at the heart of the Golden Triangle was a project that actually Tim Termuende worked on about 30 years ago. So a few years ago when they put this property package together, and it wasn't easy, there was a whole bunch of different property groupings and claims that they had to consolidate to make this one big property.
They got the deal done, put the land package together and it's now starting to bare fruit in that they've made a new high grade discovery at what's called the North Boundary Zone. That's what's moved the market up.
We're seeing as you mentioned a bit of consolidation, there have been a lot of warrants that were expiring this year exercised as well as a 12.5 cent financing that just came free trading so we're having to chew through some of that but I think once it does, there's a lot more upside to be realized.
These kinds of discoveries are hard to make. We talk about these ten X and twenty X potential returns, well these are the kind of discoveries that you need to potentially have those returns and what's really fascinating about this project is that historically there were companies that worked there and Noranda in particular that drilled some very high grade, shallow intercepts of 34 grams per tonne over ten meters.
But they really couldn't follow it up and a big part of that had to do with the geological model they were looking for was VMS style mineralization much like Eskay but it doesn't really fit in that model. It is high grade gold mineralization so they didn't really understand the geology, the structural controls, the geometry of the high grade, so it was tough for them to follow up on it and they really didn't do a whole lot of drilling given that it's a relatively short drill season. And back in those days, it was also very remote and very high cost to drill.
The infrastructure wasn't there but now you have two roads, one on the north and one on the south end of the property. You have power nearby, hydroelectric facilities on the south end. So the infrastructure wasn't there and your costs were much higher. The geological understanding wasn't there and you also had glaciers that were covering a good chunk of the property that have since receded. So then you go back in there and we started drilling on the property this time last year. We knew we were into something big when we drilled those first three holes into the North Boundary Zone and you saw the results from last year.
The highlight hole of just over 21 grams per tonne of gold, 3% copper over six meters. As a new discovery in an area that previously had never been drilled, that was about 230 meters from that previous Noranda drill hole. So a big step out, hitting those kinds of grades and that kind of mineralization within 150 meters of surface is pretty spectacular.
The market really wasn't paying attention because those assays were reported in October of last year which is the tail end of the season and everything was selling off at that point. So it kind of fell on deaf ears but we knew we were into something and Jim, Tim, Ron and the guys running the company did a good job raising the money and then going and starting the program earlier this season. The first drill hole went right back into that North Boundary Zone and hit 62 grams per tonne of gold over six meters at a relatively shallow depth. That's spectacular. That was in just one high grade zone; there were three other high grade zones as well and again all shallow.
So there's been a lot more drilling, that's been carried out to delineate that North Boundary Zone. It's important to note that it's very complex geology, it's structurally controlled, and it's high grade gold. Look at Brucejack for example. Took a lot of drill holes to delineate that resource. It's not just a big, low grade porphyry system that you drill into and it's consistently mineralized or disseminated. Sometimes you can drill and miss it and then you step out a little bit and you hit something incredibly high grade. But once you get the geology and structural controls figured out it makes the drilling a lot easier and your hit rate goes up a lot more. They just started oriented drilling which will help with that and the idea after making the discovery last year and continuing to hit high grade this year will be to drill as much as possible between now and the end of the season to get as good of an idea on the structural controls and the geometry of it. That way we can go into next season and really prove up a resource.
The type of mineralization that we're seeing consists of various ages of rock, and different mineralizing events, it's complex but it's very strong and robust. There's something there, you don't just find that stuff randomly. And what's now exciting too is they drill three holes about a kilometer and a half south where there's a big soil geochem anomaly that extends for over four kilometers north to south and two kilometers east to west and it looks like it continues extending further south as well. There really hasn't been any drill testing historically there but they went and they drilled three holes recently and they hit mineralization very similar to what they saw last year when they drilled those first three discovery holes at North Boundary. They drilled them a kilometer and a half south so they call it the South Boundary and that just shows how strong this mineralizing system is and the size potential.
So if those return with some high grade results, I think that's a game changer for us. And we'll know that here shortly. But they know they’re into something big and they know they have to continue drilling having just recently raised $5.2 million.
They are fully funded for the rest of this program and going into next year. Eric Sprott led that financing, he's now the company's largest shareholder. And the other good thing too is that as we know with the Golden Triangle it's very seasonal both with the exploration news flow and with share prices, so one of the things that Jim and the guys did is they went out and acquired other projects in western Canada. One project that they're earning in on in Saskatchewan is the Chico Project which is close to SSR’s Seabee and Santoy past producing mines, and SSR is doing quite a bit of drilling in that area just north of us on trend. So the Chico Project will provide news flow in those down months in the winter months for Aben to help provide a bit of a buffer between the two summer seasons up at the Golden Triangle.
All in all, it's an exciting new discovery by Aben. It's early days in it and I really do see there being a lot more upside from here with continued drill success.
Excellent. thank you very much for your time Jordan, hope we will have you again on the show soon.
Absolutely thank you.
The Next Bull Market Move.
For more information on Skyharbour Resources go to http://skyharbourltd.com
Disclaimer - Interviews are conducted in the name of research and learning from the best. Only you can decide what makes a good speculation/investment. I have not been compensated for this interview with Skyharbour Resources or for any interviews in the past on The Next Bull Market Move.