The long winter of falling uranium prices is about to give way to a Japanese spring. In an interview with The Mining Report, Cantor Fitzgerald's Rob Chang discusses the return of the small producers as an increasingly hungry market looks to eat up all of the available uranium. Plus, Chang likes gold and enlightens us on how gold miners are shaking profits out of slag.
Cantor Fitzgerald Canada's Senior Analyst and Head of Metals and Mining Rob Chang has covered the metals and mining space for over eight years for the sellside and the buyside. Prior to Cantor, Chang served on the equity research teams at Versant Partners, Octagon Capital and BMO Capital Markets.
The Mining Report: After the governor of Japan's Kagoshima Prefecture approved the restart of two reactors at the Sendai Nuclear Power Plant, the daily spot price of uranium jumped $1.40/pound ($1.40/lb) to $39.25/lb. How do you assess this change going forward?
Rob Chang: The restart news is very positive, although it is happening at a slower pace than we had originally expected. The Japanese utilities are well organized. They are asking to restart the two reactors that are most likely to gain approval. That said, the jump in the spot price reflects the news out of Japan. However, we think that the price change is more a matter of what is going on behind the scenes. Two sellers have stopped selling. A number of utilities have increased their buying. One large utility recently purchased 10 million pounds (10 Mlb).
TMR: Who stopped selling and who's buying?
RC: Uranium spot prices are not traded on the public market. These types of transactions are contracted between producers and utilities with the occasional investor or trading house in between. The uranium spot price is not actively speculated upon like gold or copper, nor can the general public get in on the action. The movement in uranium spot pricing is generally based on transactions by entities that are well versed in the intricacies of that market. They probably would not be trading based on just the Japanese news, especially because most of us were already expecting the reactors to restart.
TMR: Do you think the uranium equities will echo the spot price move?
RC: Absolutely. Uranium prices have been going up since June, even as uranium equities recently hit a 52-week low. As the uranium spot price moves higher, the dichotomy between the two will increase and we believe uranium equities will need to play catch up.
TMR: Are the utilities buying long-term uranium contracts?
RC: I have not heard about many long-term transactions. But the long-term price made a notable upward move of $4/lb to $49/lb. With the uranium spot price nudging the long-term price along, we expect term prices to be pushed higher as the spot price increases.
TMR: What juniors do you like in the uranium space now?
RC: That depends on what you count as a junior. How about anything smaller than Cameco Corp. (CCO:TSX; CCJ:NYSE)?
On the exploration side, Cantor Fitzgerald likes Fission Uranium Corp. (FCU:TSX) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT). Fission's Patterson Lake South is emerging as a world-class asset. We believe Fission will eventually control more than 100 Mlb of high-grade U3O8. It is expected to put out its first resource estimate by the end of the year. Some of the best uranium drill holes ever reported are on Fission's property, and that is pretty impressive.
We are very positive on Denison Mines. Denison effectively owns everything of significance in the Athabasca Basin that is not already controlled by Cameco or Fission. Anyone looking to gain a foothold in the Athabasca Basin, be it a Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) or a Vale S.A. (VALE:NYSE), is going to have to deal with Denison, Fission and Cameco. And if Cameco moves to expand its existing holdings, it will have to deal with Denison and Fission. On top of that, Denison has an interest in the McClean Lake mill, which is very important because it has cash flow from processing Cameco's Cigar Lake feed. Importantly, the mill gives Denison a piece of a strategic asset, processing material from one of the most important mines in the world.
In the U.S.-based space, Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) is reporting good news on completing contract sales. This company is near the top of our list because it is producing at the low end of the cost curve—in the low $20s/lb. It is enjoying incredible success mining its Lost Creek project, producing uranium at a much higher rate than expected. Plus, Ur-Energy can scale up as prices rise. We recommend Ur-Energy for its low-cost and excellent production profile to date.