Last week I caught up with Jordan Trimble, CEO of Skyharbour Resources, to talk about the sentiment within the uranium market, his views on the uranium spot price, and an update on Skyharbour Resources.
On The Next Bull Market Move we have Jordan Trimble, CEO of Skyharbour Resources. How are you today Jordan?
I'm great thanks.
We were talking before the interview about the sentiment within the uranium market. Can you talk about that?
Yeah, absolutely and thanks again for having me. It's always good to catch up. Lots has happened since we last spoke, which wasn't that long ago in the WNA Conference in London in September, but we are seeing the market continue its upward trajectory, which is good.
This has truly been a sustained rally as you and I spoke last time, we've seen these false starts over the last few years after the uranium price bottomed in November of 2016 at $17.75 and we've seen it been volatile ever since then. In 2017 there were a couple of times where it gapped up just to fall right back down, but this last eight months really shook the bears if you will and brought some new life into the market and into the uranium mining stocks. We talked about that $30 a pound price. We're at $29 right now.
So, we're almost there. I just see there being, at some point, probably in 2019, a breakout with the price. I get back to the average global cost of production being in the low $40s and the price needed to incentivize new meaningful production to come online globally is, as most analysts forecast between $50 and $60 a pound.
This gives an indication, an idea, where the price could be headed. As we all know in 2006, 2007, in the last real bull market, we saw the price gap jump up to $138 a pound. Not sure if we'll see that again, but at $29 a pound, there's still a lot of production globally that isn't making money and as we know a lot of these long-term contracts at higher prices are expiring or rolling off in the next five to six years.
So that price protection will no longer be there, but just to get back to what's transpired, particularly in the last eight months, we have seen on the supply side major cuts. That's happened over the last couple of years starting with Kazakhstan in 2017 and again this year announcing pretty significant production cuts and these are ISR mines in Kazakhstan that are some of the lowest cost producing mines in the world, the lowest quartile of the cost curve.
So, these aren't marginal higher cost producers that are being turned off. These are some of the best mines, lowest cost mines in the world that are being shut down. Kazatomprom needs to see a higher price and just on that note, we just saw the closing of the IPO of Kazatomprom floating about 15% of the company in London and they ended up raising about $450 million and they've been doing everything they can to see a higher uranium price going into that IPO and I think you'll see that continue.
They've cut ties with certain uranium trading groups that have been a detriment to the market. We've seen them set up that training arm in Switzerland and again getting back to the main thing they've been doing over the last several years to help support the price and that's cutting production.
So, major supply cuts out of the world's largest producer of uranium and then we look over on this side of the pond with Cameco. As we all know, Cameco has now shut down McArthur River - I think you're going to need to see a much higher price, call it $35 to $45 range, before they consider turning the tap back on there, but that's again, a low cost mine that's been shut down by the world's largest publicly traded producer of uranium.
So you have the two largest producers that are working to support the price. Cameco's interesting because it is having to meet their contract obligations and deliveries by buying in the spot market.
Year to date, they've bought about two and a half of the four million pounds that they're planning to buy in 2018. They're in the market right now for about a half a million pounds at a time. It's a significant new source of buying in the spot market and as they guided earlier this year, they're planning 11 to 15 million pounds in 2018 and 2019.
That leaves a lot of sport market purchases yet to be had by Cameco in 2019 and in particular, early in the new year, they have some fairly large deliveries that they have to make.
We've seen major production cuts and I'll note, not just production cuts from producers choosing to shut down mines or curtail production because of the low price environment, but also we're now seeing some pretty large mines coming to the end of their mine lives.
We look at the demand side and the demand side now - we're now back above pre-Fukushima levels - about 190, just over 190 million pounds forecast demand for 2018. That's with now, 135 million pounds of primary mine supply. So, we've seen the supply side cut back significantly from about 165 million pounds in 2016. And demand continues to grow. Again, this is very much a developing country narrative. China, India, parts of the Middle East, even some African nations now talking about and looking at nuclear programs.
The demand side is continuing to grow, which is important, but we've also now seen the acceleration of Japanese restarts and that's also significant in that it took about six years to turn the first three reactors back on and then in about a year and a half, we've seen another six reactors come back online there.
So a lot more to come from Japan as well and then when we go and look at some more new financial buyers and funds that have come to market just even in the last couple of months, but the big one was in the summer with Yellow Cake out of London raising $200 million. They've now bought 8.4 million pounds from Kazatomprom, taken that out of the market, they're storing it in Cameco's facilities in Canada.
They have an option to buy $100 million worth of uranium each year for the next nine years. So, again, if they raise the money, that's a significant amount of uranium that they can purchase that comes out of the market. It tightens that market up even more, which is positive for the price going forward.
We're seeing now Uranium Trading Corp out of California raising $50 million to buy physical uranium. This is new demand that's coming in that's causing the market to tighten up even more and I think that these financial buyers will be a key catalyst for this next bull market.
This is very familiar to what we saw back in '06, '07 when you had these funds coming in, buying physical uranium and driving a higher price. So, all of these factors, really a confluence of factors and tail winds that are now finally starting to move the price higher, we've traded out into the high 20’s here.
When you see a breakout through $30, I think it's going to really get some momentum and it's got a long way to move from the current price.
Excellent. From where I've been seeing things, it's definitely a case of certain fund managers or investors are waiting for the spot price to go to 30 and then they'll jump in. Is that the feeling you get as well?
Yeah, I think it's an important number to look at, but it isn't the be all and end all of the market. We talked just about the fundamentals there and this is very much driven by the fundamentals, by new buying coming into the spot market, and by supply cuts.
One other thing I'll note is we have not yet seen a new contracting cycle and this is really the main driver for the price and is one of the main reasons we saw the price in 2006, 2007 do what it did. The utility procurement cycle, this new contracting cycle that we've been talking about, they haven't been in the market, we know there's a lot of uncovered requirements past 2020 as these contract rolls off,.
And historically, this is how nuclear utilities purchase uranium for the nuclear reactors, they don't just step into the sport market. It's not a large enough market for them to do that. They will enter into these long term contracts and lock down a long term secure supply of yellowcake for their nuclear reactors and so. However, recently we've seen this complacency where they haven't been contracting. They've been buying in the spot market and in the short term contracts.
When we see a return to the long-term contract market, which we expect to happen over the next several years, that will be the main driver, I think, for a much higher uranium price.
Very good. Let’s get an update on Skyharbour Resources. You've had some news releases over the last couple of weeks. Can you give us some details about that?
Sure. Most recently we had an announcement from our partner company Orano, which is France's largest nuclear and uranium mining company, a strategic partner, industry-leader based out of Paris.
They've announced a $2.2 million exploration budget at our Preston project over on the west side of the Athabasca base, that includes just under 5000 meters of drilling, which will commence early in the new year.
This is an aggressive program. The budget puts them well ahead of their earn in schedule, which is great to see. They obviously like what they're seeing there and it benefits us having a large company like Orano exploring and developing the project.
They've been in the basin for a long time, they know what they're doing. If they find anything, we benefit with a retained minority interest at the end of the day. They can earn up to 70% by spending a total of eight million dollars, mostly in exploration expenditures, some cash payments as well over a six year period.
It’s very exciting to see them going full charge at that project. In 2019 we'll benefit from news flow over the course of the year from that and again, if they manage to buy some high grade uranium, that'll be a very positive development for Skyharbour and our shareholders.
Getting over to our flagship project, the Moore Project, we just finished our summer and fall drill program. We ended up bumping up the program from 3000 to just under 4000 meters.
As you may recall, this program was mostly drill testing basement hosted targets underneath what's called the unconformity. So, we have known high grade mineralization at about 250, 260 meters, relatively shallow compared to other high grade deposits in the Athabasca basin and that's at what's called the Maverick Zone that was discovered several decades ago.
We've gone and we've expanded that zone with a few of our previous drill programs since acquiring the project from Denison a few years back. Denison's our largest shareholder and their president, CEO Dave Cates is on our board. So, very close working relationship with them and we've had success with the drilling and this is our fourth program. Again, just finishing it up. We'll have drill results and news flow on that program here at some point in the next several weeks as we get the final geo-chemical assays back.
We’re very happy with the program and that will likely lead to a winter program commencing early in the new year where we will follow up on these basement hosted targets. What we're looking for down there, we know there's the high grade at the unconformity and the sand stone. We want to find the feeder zones, we want to find the source of that high grade mineralization. So, that's what we're trying to accomplish here drilling into the basement rock. It really hasn't seen much drilling or historical exploration deeper into the basement rock.
When the high grade discovery was made in the late '90s, early 2000s, at this project, the prevailing thought in the basin was just looking in the sandstone or at the unconformity for high grade mineralization.
There wasn't a lot of exploration or drill testing any deeper to the basement rocks, but as we know now, some of the more recent, notable high grade discoveries like NexGen, like Fission, these are all basement hosted deposits.
So, that's something we'd like to continue to test and hopefully find more high grade uranium mineralization a bit deeper down in the basement rock at Moore. Look out for drill results coming out in the next several weeks on that program, as well as gearing up for a winter 2019 drill program at the project.
So there will be a lot of news flow. We've positioned the company well for this, what we believe, is an impending bull market. We're in that recovery stage right now, but as an exploration and development company, it's about going out there and finding the next high grade deposit and advancing it.
As a final question, is there anything else you'd like to share with our listeners regarding the uranium market or any other markets?
No, I think that covers it all. It's an exciting time for us and we've been at it for several years and we've been waiting for this turn around in the uranium market and it's finally come and we're starting to see it gain momentum.
There's still a lot of positive catalysts and developments that have yet to happen.
I think you'll see additional supply cuts because we're still trading well below the average global cost of production, new financial buyers and funds coming in and buying physical material, and last but not least and probably the most important driver for a higher uranium price is a new contracting cycle as we enter into the 2020s.
Thank you very much Jordan and we'll have you on the show again soon.
The Next Bull Market Move
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