As uranium producers prepare for a price revival thanks to changing post-Fukushima sentiment and an incoming U.S. president who is thought to be very pro-nuclear, small-cap IsoEnergy Ltd is in full acquisition and development mode in a North American play that is to uranium what Saudi Arabia is to oil.
Even though we’ve already started to witness the radioactive effects in uranium stocks for the biggest producers and developers, including Cameco Corporation (NYSE:CCJ), NexGen Energy (NXE:TSX), AREVA (EPA:AREVA), BHP Billiton (NYSE:BHP), and Uranium One (TSE:UUU), with both Cameco up 40% and NexGen stock up over 70% in recent weeks, the window to get in on this while it’s still undervalued is closing.
But this is the tipping point. Japan is getting its nuclear energy back on track, 61 new reactors are under construction around the world, another 149 new reactors are planned, and long-term uranium contracts are set to expire.
Negative sentiment that has skewed true uranium fundamentals since the 2011 Fukushima disaster is reversing, and a new, apparently pro-nuclear U.S. president is likely to help this along.
Uranium is on the edge of becoming one of the world’s hottest commodities once again, and this is a once-in-25-year event.
As we near the edge of this tipping point, all eyes are on North America’s Athabasca Basin—a uranium wonderland that will be a key element of the new supply paradigm.
This is the best time to start consolidating uranium assets and preparing for the rebound, and here are 5 reasons to keep a close eye on IsoEnergy (TSX:ISO) with this in mind:
1. It’s Finally the Right Time for Uranium
IsoEnergy isn’t concerned by the current state of the uranium market precisely because if it’s not the bottom yet, you can see the bottom and from there on it is poised for upwards movement. The market is now at the early stage of what looks set to become a roaring bull market, and we’re already starting to see the transformation. Cameco is up +40% since November of last year, while during this same period, NexGen Energy Ltd. (TSX:NXE) is up over 70%. That shows that fundamentals are taking over a commodity that sentiment has hijacked for years.
The uranium market is now expected to make a strong recovery. This is why:
• While the 2011 Fukushima disaster devastated uranium by putting nuclear energy on hold and sending pre-Fukushima uranium prices of $70 per pound crashing to $20 per pound, where it remains on the spot market, sentiment is on the repair because at the end of the day, we need nuclear energy, and it’s the cleanest path we have.
• The ambitiously aggressive growth policies of giant countries like India and China will require massive nuclear energy to support.
• 61 new reactors are already being built and another 149 are in the planning stage around the world. These new nuclear reactors will require much more uranium.
• Not only are we looking at accelerated demand, but we’re looking at a line-up of long-term contracts set to expire, so there’s about to be some significant shopping around.
• The U.S. President-elect is expected to contribute to positive sentiment surrounding nuclear energy, and thereby give an additional boost to uranium stocks.
• Climate change issues—including the deal reached in Paris last year—are likely to speed up the move to clean energy, with nuclear power the best bet here: Not only is it one of the most efficient and reliable power sources, but it’s also carbon-free, unlike coal, oil and natural gas.
2. Spot Prices Don’t Matter: Lucrative Long-Term Contract Prices Do
While the spot prices are rising – up 20% in the past four weeks - but still low, they are largely irrelevant because 90% of the market is sold at long-term contract prices. Some contracts are being written at prices of more than US$40 per pound—a figure that is much higher than spot prices.
Some may fear the spot market, which they see every week, but the actual market on which sales are based is long-term contracts, and it’s not nearly as transparent as the spot market. Spot prices are reported by Tradetech and UXC without regard for the amount of material being moved They can be derived from transactions involving as little as 10,000 pounds of uranium. An entire market’s spot price is being based on this, skewing the real picture. The key is to focus on the bigger, long-term contracts for upwards of $40 per pound because these are what will drive the industry in the years to come.
Where it gets really radioactive is when you consider that these contracts are now coming to a close, and uranium is poised to become a very hot commodity once again. Major American and European nuclear reactors are coming off supply in 2017 and 2018, and will be looking for long-term contracts.
This is what IsoEnergy is hedging its smart bets on. It’s at the right place, at the right time.
3. Welcome to the Saudi Arabia of Uranium
IsoEnergy is in high acquisition mode, targeting the discovery and development of high-grade uranium deposits in and around the Athabasca Basin in Saskatchewan—home to some of the world’s biggest high-grade deposits.
Described either as the “Saudi Arabia of Uranium” or the “Persian Gulf of Uranium”, Canada’s Athabasca Basin in Saskatchewan is the go-to destination for high-grade uranium and is home to grades of 100x the global average. This is arguably the world’s richest uranium mining area, and it’s also where IsoEnergy is hungrily scooping up prime property. Dozens of exploration plays and numerous big projects here tell the real story of uranium: how to profit from the coming resurgence of uranium.
NexGen Energy Ltd. (TSX:NXE), a $800M market-cap discovery, is one of the most active players here on the exploration and development side, and IsoEnergy is a spin-off of this highly successful venture. The company’s technical team has given early shareholders an enormous return on capital, and they plan on doing it again with IsoEnergy.
So far, ISO has added six Athabasca exploration projects to its portfolio:
(Click to enlarge)
ISO’s Thorburn Lake project is only 7 kilometers from Cameco’s Cigar Lake Mine— one of the richest uranium mines in the world. Here, 9 of ISO’s 14 drill holes have intersected uranium mineralization and elevated radioactivity. Prior to the discovery of Arrow, this was NexGen’s highest priority target.
Then we have North Thorburn, just 13 kilometers east of Cigar Lake with a number of high priority targets that are largely unexplored.
The Radio property is 2 kilometres from – and along strike of - giant Rio Tinto’s Roughrider deposit.
ISO’s Carlson Creek exploration project is contiguous with UEX’s Christie Lake property, home to the Paul Bay and Ken Pen basement hosted uranium deposits, which are only 5 kilometers west of ISO, and 19 kilometers northeast is of the giant McArthur River Mine.
Finally, the Madison and 2Z projects are characterized by shallow sandstone cover, and elevated uranium in drill holes and are therefore believed to have good potential for new deposit discoveries.
4. Cashed-Up and Ready to Explore
IsoEnergy has raised US$11 million dollars in the last four months alone, and they have US$8 million in the bank. This means they are drilling aggressively and are fully funded to continue doing so, while still looking for more smart acquisitions to consolidate their long-term position.
NexGen, which is a 75% shareholder in ISO, is also extremely well-funded, with $75 million in the bank—but ISO is set up to go it alone and while it can fall back on NexGen as a safety net, there is no need to.
This is a company that can stand on its own two legs, with great market support that others in this sector are lacking.
5. A Dream Team with Next Generation, Billion-Dollar Pragmatism
The dream team behind ISO Energy is the same dream team behind NexGen, and it’s an impressive story. NexGen was launched only five years ago; yet, while it had a valuation of only $20 million dollars in 2010, closes in on a billion dollar market cap today. As prices return to strength, this company could be on its way to 2-3 billion.
The senior management of ISO have major mining experience, including with one of the world’s big three, Rio Tinto, Uranium One and First Reserve. Chairman Leigh Curyer drove the development of the Southern Cross Resources project that was taken over by Uranium One and he has an eye for prime assets around the world. CEO and President Craig Parry is also a former Rio Tinto figure and highly successful exploration and business development geologist. He’s also a co-founder and current Board Director of NexGen.
It is this dream team that is taking both NexGen and IsoEnergy into the new era of uranium, where they are staking out an advantage that will allow them to cash in on the resurgence of a commodity that looks set for a major rebound.
Right now, it’s a great time for uranium investors because asset valuations are so low that the opportunities are disproportionately large. It is, indeed, a once-in-25-year opportunity to get in on what Cantor Fitzgerald analysts recently predicted would be a “violent increase” in uranium prices at some point and a situation in which low prices have choked off exploration and there aren’t enough new projects in the pipeline to meet the coming demand.
By James Burgess of Oilprice.com
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