Matching sentiment up to economics isn’t always a straightforward affair, especially when the commodity in question is uranium.
There’s a bear market in commodities, there’s a bear market in uranium, and sentiment is still struggling to recover from the impact of the Fukushima catastrophe back in 2011.
Having said all that, the uranium price isn’t plumbing the lows it was in the earlier part of the last decade.
When the new millennium dawned, uranium oxide spot wasn’t far off US$10 per pound, and it stayed at around those levels for the following few years, only busting through US$20 in 2005 when the mining boom really gathered steam.
After that it burst up through US$130 per pound in relatively short order, before giving up a lot of ground, spiking again in a less dramatic manner before Fukushima, and then drifting away towards the current US$37 per pound.
Looking at it from the perspective of 15 years ago, that’s not such a bad price.
But that’s not the way to look at it, according to Roger Lemaitre, chief executive of UEX Corporation (TSE:UEX), the world’s oldest publicly-traded uranium explorer.
Rather, we should be looking at the gold market for a rough guide to what the implications of the current pricing really are.
He argues that in the past decade a new floor has been established for gold, and that the uranium market has behaved in a similar manner.
After all, in the gold space miners are none too happy that the price has tumbled away from the near US$1,900 per ounce witnessed in 2011 to the current price of around US$1,100.
More than a decade ago though, the gold price was US$400 an ounce.
“In gold, US$1,100 is the new US$400,” says Lemaitre.
The price may be better than historic lows, but in this day and age it’s still hard to get things done with these pricing levels.
When it comes to uranium, the picture is even worse.
“At these prices, there’s not a single uranium mine that could be brought into production,” says Lemaitre.
And he should know. Not only does he now head up the world’s oldest junior uranium exploration company, but he spent many years working for Cameco (TSE:CCO), one of the largest exploration miners in the world.
He knows what it takes to find a mine, and to build one.
And in this pricing environment he knows too that it’s incredibly hard.
Instead, what companies have to do is position themselves for the next big uptick, which as sure as eggs is eggs will come, as China builds nuclear power stations, as India builds, as Japan builds, as Europe builds and as even the UAE builds.
China has 25 nuclear power stations under construction, meaning that China, as with so many things will be by far the single biggest driver of future demand. But according to data supplied by UEX and sourced ultimately from the IEA there’s an additional 43 power stations under construction worldwide.
That’s a total of 68 new power stations scheduled to come on stream in the coming decades, and on current production patterns the demand that that will generate looks set to put uranium into deficit in 2020.
The time to position for that deficit is now, and UEX is well ahead of the pack on that score.
“We’ve got some of the best land around,” says Lemaitre.
Already across two key properties in the Athabasca Basin the company has managed to accumulate an attributable 69.84mln pounds of uranium oxide in the indicated category, with a further 16.5mln inferred.
It’s also attracted in two of the biggest names in the business to help it along. The aforementioned Cameco is a major shareholder, while French giant Areva is in joint venture with UEX in the Shea Creek project just south of the former Cluff Lake mine.
Seasoned investors will know that the Athabasca Basin is arguably the world’s premier address for uranium mining, and Lemaitre makes no bones about the opportunity he sees on offer.
“Saskatchewan is the number one mining jurisdiction in the world bar none,” he says. “And you don’t just need a good mining jurisdiction, you need a good uranium mining jurisdiction.”
As to the properties themselves, the likelihood is that in industry terms these will come in in the lower cost quartiles, albeit that some improvement in the uranium price will be needed to ensure long-term economic viability.
In the short-term, the plan is to increase inventory, and for the time being UEX has the wherewithal to do it.
“The fuel light’s not on,” says Lemaitre, quoting the words of his finance director Ed Boney.
By that he means that there’s more than C$6mln in the bank for the company to get on and add inventory with.
The company is drilling now, and it will be fascinating to see what sort of results it comes up with.
Watch this space.