While producers must scale down production of uranium in line with the commodity’s demand profile, juniors are aware that they must be more active now to be ready to service demand when it picks up.
IMAGE: Courtesy of SSR Mining
Saskatchewan’s resource potential in conjunction with its stability from an economic and political standpoint should go a long way in stoking investor confidence in exploration activity. However, according to the Saskatchewan Ministry of Economy, exploration spending has declined year-on-year since 2014, estimated at C$177 million in 2017 against C$199 million in 2016.
Attracting investment in current market conditions hinges in great part on the knowledge that, whilst commodity prices may currently be low, exploration activity must be fueled in order to take advantage of an upturn when it comes around. In line with this, although uranium attractiveness is currently declining for mature operators, it seems to be picking up again for the juniors. While producers such as Cameco must adapt and scale down in line with the commodity’s demand profile, juniors are aware that they must be more active now to be ready to service uranium demand when it picks up, probably in the next five to 10 years. Companies with promising uranium projects include Fission Energy, Denison Mines, NexGen, ISO Energy, ALX Uranium Corp and Purepoint Uranium.
Fission Uranium’s Triple R uranium deposit at Patterson Lake South is believed by the company to be the most significant high grade, near-surface project in the Athabasca basin. In February 2018, Fission upped its indicated resource estimate to 87.76 million lb. of uranium oxide (U308), based on 2.19 million mt. grading on average 1.82% U308, and doubled its inferred resource estimate to 52.85 million lb. of U308, based on 1.33 million mt grading on average 1.8% U308. Fission expects to further update its resource estimates as a result of its 2018 drilling program. “Overall, it is one of the best metal discoveries of its time; it ticks all the boxes… Infrastructure wise, there is a road that goes almost right in the middle of our property which runs 365 days a year. We will need to build a mill but with NexGen’s Energy’s Arrow project close by there will be a lot of uranium that needs processing given their deposit includes about 200 million lb.,” said Dev Randhawa, CEO and chairman, Fission Uranium.
Reflecting strong investor interest, including US$82 million for 20% of the company secured from Chinese investors CGN Mining Company, the company has no immediate financing needs.
In summer 2017, Denison put 64 drill holes in at its Wheeler River and Griffin deposit, 44 of which were targeted outside of the existing resource estimate. 91% of the total were mineralized, many outside the existing resource. However, despite this and the team’s excellent track record following the discovery of the Phoenix and Gryphon deposits over the last few years, the company failed to gain traction due to market apathy regarding uranium stock. “With Wheeler River producing, we would be the fifth-largest uranium mine in the world based on our PEA mine planning and two to three times the size of the entire U.S. uranium mining business,” commented David Cates, president and CEO at Denison Mines. “We are trying to become an intermediate uranium producer, which is a sparse space for investors. Currently there is Cameco, a C$6 billion plus company, which would have been followed by Paladin Energy before it went into administration, or very small-scale U.S. operators. So, there is literally a C$6 billion gap waiting to be filled. With the C$6 million to C$7 million-per-year operation at Wheeler, Denison can follow the Lundin Group approach to being the lean, mean simple intermediate as the alternative to the complicated bureaucratic majors… We have the MacLean Lake mill operating with a 24 million lb. license capacity, and six million lb. current excess as only 18 million is being processed. The risk for this project is much lower than a new greenfield project.”
Going forward, Denison also plans to leverage its portfolio to develop a second flagship asset, most likely focusing exploration activity on the Waterbury Lake property following the discovery of a new zone of mineralization called Husky in the summer 2017. Seven of nine holes put in were mineralized, 9.1% over 3.7m, basement-hosted very close to the MacLean mill.
Holding a 20% carried interest on the Hook-Carter project, ALX Uranium Corp was formed in 2015 through the union between two companies with properties on the Patterson Lake trend: Lakeland Resources and a previous competitor, Alpha Exploration. The company recently acquired 72 lapsed claims totaling around 58,763 ha across eight projects: Argo, Sabre, Atlas, Luna, Vulcan, Echo, Apollo and Electra. Following data reinterpretation, ALX will likely put some people on the ground in the summer of 2018 with scintillometers to look for anomalies that might previously have been missed.
According to a PEA released in 2017, NexGen’s Arrow mine is on track to become the biggest uranium mine in the world. The company holds 259,000 ha of land in the southwestern Athabasca Basin. Towards the end of 2017, NexGen reported radioactivity results for the final 40 holes of South Arrow and Arrow on its Rook I property, concluding its summer drilling program.
Also proving itself to be an attractive investment opportunity is ISO Energy, a company spun out from NexGen Energy following the acquisition of the Radio property, which now sits within the ISO portfolio. Since its establishment in 2012, ISO Energy has grown from a capitalization of about C$5 million into a billion-dollar company, with NexGen remaining its major shareholder. ISO Energy is well funded for 2018, with C$1.2 million in flow-through and over C$3 million in hard dollars. “One of the challenges for explorers, developers and miners is that a solid demand outlook is rare,” commented Craig Parry, ISO Energy’s president and CEO. “In the case of uranium, demand seems to be growing at about 2% a year. Last year, more reactors were commissioned worldwide than have ever been before, so demand is increasing positively. However, for the last year, for every single mine in the world, the spot price has been sitting below the cost of production. This is highly unusual. Most companies sell on long-term contracts, but most of these are expiring soon. Then all of the mines will be exposed to the spot price.”
Referencing an expectation to see more cuts in supply, Parry continued: “We are not far off being back in balance; a few more cuts and we will be in under-supply again, and prices will rise.”
ISO Energy’s main focus is to drill its Geiger property, recently acquired from Cameco, Areva and JCU, and also plans to drill its Thorburn Lake property in 2018, which lies only 6 km from Cigar Lake, one of the world’s great uranium mines.
Alongside promising uranium projects, companies such as Gensource are gaining traction in other resource areas. Gensource plans to expand its potash operations in Saskatchewan through a partnership with Essel Group Middle East, aimed at bringing one of its small-scale projects into production. The company is currently negotiating off-take agreements before moving into detailed engineering in order to erase risk and build attractiveness to consumers as they gain price stability. The potash solution mine is also very innovative in its technology. “It has a selective dissolution process which eliminates tailings on the surface,” highlighted Jason Mewis, president & senior engineer at EngComp, which has set up an innovative multi-party contract for the delivery of this project between Gensource and the contractor, SECON. “Additionally, the small industrial facility has such a little environmental footprint that the company should only need to submit a project proposal to the Environmental Branch without conducting a full environmental impact assessment… The delivery model is expected to be disruptive and revolutionary for the potash industry.”
Taking advantage of a more attractive commodity cycle, Foran Mining has been focused on its VMS deposit, McIlvenna Bay. The most significant recent development is an agreement that Foran signed with Glencore Canada, a subsidiary of the mining giant Glencore. Glencore has agreed to complete a feasibility study on McIlvenna Bay in return for obtaining the zinc offtake from the project. “As we advance development work on McIlvenna Bay, exploration activity will be driving the interest in the company,” commented Patrick Soares, president and CEO at Foran Mining. “At US$3.20 copper, US$1.45 to US$1.50 zinc, and a Canadian dollar exchange rate at $0.78 McIlvenna Bay looks better than the PEA projections. With Glencore’s long term view on zinc and copper prices, it is no wonder that they want to get the zinc offtake from McIlvenna Bay.”
In addition to McIlvenna Bay, Foran Mining has also made a discovery about 8 km away called the Thunder Zone, plus a large EM anomaly about 1 km away from McIlvenna Bay.
Staying On Top
With a number of promising projects underway, the challenge will be the attraction of investment towards their progression. The recent introduction of a Provincial Sales Tax (PST) on drilling costs could act as a deterrent, and the industry hopes that it will be revised. “Because of a decrease in revenue as a result of the reduction in commodity prices, the government made some significant changes that have had unintended consequences,” clarified Pam Schwann, president at the Saskatchewan Mining Association (SMA). “As junior companies do not have active revenue streams, any money spent in tax takes away from money invested directly into the ground, like drilling programs. Well over C$100 million goes toward exploration in northern Saskatchewan. These funds cycle through northern suppliers, which are primarily indigenous-owned, and supports their businesses and communities. The SMA has a very collaborative relationship with the provincial government and we are optimistic about changes being made on this issue.”
In line with a general recovery in the global mining industry, anecdotal evidence suggests investor interest and exploration activity in Saskatchewan has once again picked up in recent months. Investment issuer Zimtu Capital, for example, has seen an uptick in activity in both Saskatchewan and Manitoba and believes now is the best time to invest in currently unloved minerals. “Zimtu tries to stay ahead of the commodity game. Before they become popular is where there is real opportunity. Commodities like uranium and potash are at the bottom of the market so we need to make deals on these now,” said David Hodge, president and director, Zimtu Capital.
In order to realize its full potential in the longer term, the province must maintain adequate exploration incentives to ensure a steady stream of investment. Saskatchewan’s prominence as a top mining jurisdiction depends on the progression of exploration activity in order to take advantage of an upturn in commodity prices when that time comes around.