The establishment of the Sprott Physical Uranium Trust has created quite a stir.
Sprott's extensive buying has created an unprecedented excitement and demand, leading to the highest prices we've seen in a long time.
But what effect has this catalyst had on the strategies of major uranium industry players?
Especially considering that the changing market conditions require companies to be agile and able to adapt? What does the future hold for the industry and investors?
To find out we spoke to several industry players about their strategies and what investors could expect from the market. These include:
- Roger Lemaitre, President and CEO of UEX Corporation
- David Cates, President and CEO of Denison Mines Corp.
- Chris Frostad, President and CEO of Purepoint Uranium
- James Sykes, CEO and Director of Baselode Energy Corp.
Meet the panel
Founded in 2002, UEX Corporation is a uranium exploration and development company headquartered in Saskatoon, Canada. Since its establishment, the company has made significant advancements in the discovery and development of uranium deposits in the Athabasca basin.
The company's first objective is to double its uranium resources inventory in anticipation of the inevitable surge in uranium prices. This will be the result of the increased demand in uranium that will be needed to sustain the increasing growth and popularity in nuclear power.
The company has four flagship uranium and cobalt mining projects. One of these, the Shea Creek property is one of the largest undeveloped uranium resources within the basin. It was one of the first of a new wave of uranium discoveries in the Western Athabasca Uranium Camp and its deposits remain open for expansion.
At the helm of the company is President, CEO, and Director, Roger Lemaitre. He has a Master of Applied Science in Geology from McGill University, a Bachelor of Applied Science in Geological Engineering from Queen's University, and a Master of Business Administration from Athabasca University.
He is also a professional engineer and geologist with over 20 years of professional experience with both senior and junior mining companies. Prior to joining UEX, he was the CEO and executive director of URU Metals Limited where he reorganized the company's asset mix by successfully identifying and acquiring significant new exploration projects.
Founded in 1985, Denison Mines Corp. is a uranium exploration and development company headquartered in Toronto, Canada with interests focused in the Athabasca region. Here, it has several key assets, including its flagship Wheeler River Project, and a 22.5% interest in McClean Lake Mill. The Wheeler River project is the largest undeveloped uranium project in the eastern part of the Athabasca basin.
In addition to these projects, Denison Mines, through its 50% ownership of JCU (Canada) Exploration Company, Limited, also holds interests in various uranium joint ventures in Canada, including the Millennium project, the Kiggavik project, and Christie Lake.
Leading the company is President and CEO David Cates. David holds Master of Accounting and Honors Bachelor of Arts degrees from the University of Waterloo and is a Chartered Professional Accountant. Prior to joining Denison Mines in 2008, David held positions at Kinross Gold Corporation and PWC LLP.
He has extensive experience in both the Canadian and international uranium mining industry and has accumulated more than 10 years of senior management and financial experience in several roles with Denison Mines.
Established in 2002, Purepoint Uranium is an exploration company headquartered in Toronto, Canada. Its goals are to identify key projects with strong high-grade uranium potential. The company focuses on the precision exploration of its projects in the Athabasca basin, the world's richest uranium region.
Here, it has six key projects including Hook Lake, Smart Lake, Red Willow, Turnor Lake, Umfreville, and Henday Lake. The company also proudly maintains project ventures with two of the largest uranium producers in the world, Cameco Corporation an Orano Resources Inc. and is dedicated to building partnerships with industry influencers and meaningful relationships that creates profit for its stakeholders.
At the helm of its operations is founding partner, President, and CEO, Chris Frostad. Chris has over 35 years of experience and has led public companies in both the technology and mining and metals industries. Prior to being CEO at Purepoint he held numerous senior positions in the technology industry including CEO of a Toronto-based venture capital firm and that of CEO at a Mexican gold development company.
Chris is a qualified Chartered Accountant and Chartered Professional Accountant who started his career in international taxation with Deloitte.
Baselode Energy Corp is a uranium exploration company headquartered in Toronto, Canada. The company is focused on identifying near-surface, basement-hosted, high-grade uranium deposits outside the Athabasca basin. As such, it currently owns 159,000 hectares of highly prospective land covering three key projects within the basin including Catharsis, Hook, and Shadow.
To reach its goals, the company intends to use a combination of innovative technology, well-understood geophysical methods, and geological interpretations to map deep structural controls to identify shallow targets for diamond drilling. If successful, the company can make a discovery that can go into production at an expedited rate.
Leading the company is CEO and Director, James Sykes. James holds a Bachelor of Science in Geology and brings over 10 years of Athabasca basin uranium exploration and discovery experience to the Baselode team.
His most prominent achievements are the roles he played in NexGen’s Arrow deposit and the invaluable work he did on Hathor’s Roughrider deposits. In fact, over the course of the last decade, James has been directly and indirectly involved with the discovery of more than 500 M lbs. of U3O8 in the Athabasca Basin.
Have their strategies changed?
As an exploration company, Purepoint Uranium’s activities rely on work in the field which, in turn, requires substantial financing. As a result, the company has been cautious during the past few years and has focused its attention on projects where it could get the most value. In other words, it focused on keeping its operations efficient and economical.
The recent catalysts in the market have changed this strategy and, while mining activity is increasing, Purepoint is now able to shift its attention to projects they’ve maintained in recent years. In addition, making this easier is the fact that the company was able to raise more money as a result of the changing market conditions.
As Chris Frostad, President and CEO, states,
“We have been able to get out there and really start advancing those projects in earnest now in a way that we haven't been able to do in the last 5, 6, 7, 8-years.”
According to Roger Lemaitre, President and CEO, UEX is also shifting its strategy to more development. As a result of the price increases and impetus in the market, the company is now able to increase its operational tempo and shift its focus to projects it kept on hold for the past few years.
In turn, this allows it to focus on more operations in its portfolio of projects which results in increased sustainability. In addition, the recent market changes have also given UEX the ability to finance the recent acquisition of JCU with Denison Mines.
Ultimately, the market changes and recent catalysts had an overall positive effect on its operations and allowed UEX to create value where there was none a mere few years ago. As Lemaitre puts it,
“That is excellent for us but also the opportunity to create value from a place where we don't have value right now, is really important to us as well, that market's finally there.”
For Baselode Energy, an early-stage company, the position looks a little different. When the company started its operations last year, it had a strategy and business plan in mind.
Since then, the company has been diligently executing that strategy. As a result, Baselode Energy’s strategy hasn’t changed or, as James Sykes, CEO and Director puts it,
“The idea is to keep pushing that forward and keep pushing the boundaries and ideas and really trying to revolutionize Athabasca.”
At its core, Denison Mines' strategy hasn't changed because their project didn't require higher capital amounts to be able to advance. However, the changing market has made it focus more on taking advantage of the opportunities available. Fortunately, because that's always been its focus, the company is agile and able to adapt to evolving market conditions.
As a result, the company has now been able to secure a third of the project capital expenditure up front and has been able to invest in a feasibility study. This is something that wasn't possible a few years ago.
And taking advantage of opportunities is one of the core principles of Denison’s management. As David Cates, President and CEO says,
“I think it's incumbent on us when we manage our companies to look at the opportunities in front of us and see how we can make use of them for the benefit of our shareholders.”
How will they approach the market?
We've previously reported about the impact that the Sprott Physical Uranium Trust had on the market. Chris Frostad believes that this caused excitement in the market which drove the spot price of uranium up. In turn, the excitement attracted many more investors which further increased the spot price.
In simple terms, it's a case of supply and demand. So, as an increasing number of investors buy uranium the price will tend to increase. For Purepoint, who is not in production, this means it has to take advantage of the market as it evolves. However, Frostad believes that other companies react at different stages and in different ways depending on their operations.
For UEX, the term price is a more important consideration compared to the spot price. As Roger Lemaitre, CEO, says,
“At the end of the day, the real market truly moves when term price starts to move.”
Although the spot price has increased significantly in recent months, the lack of significant movement in the term price is a concern for Lemaitre. This is simply because the term price typically follows the spot price.
Despite this, he believes that Sprott’s activities increases demand for uranium while reducing supply, which then creates a price setting mechanism. For this reason, he's of the view that this is the beginning of a wave of price increases. As a result, UEX is taking a cautious approach and its real trigger will be when the term price starts to move.
Cates shares this sentiment. According to him, it's vital that people understand that the long-term price has moved, although it's a subtle movement compared to the spot price. This is a bullish signal for the market and a good indicator that the market will increase in the future.
Cates also believes that because other buyers like investors and utilities are buying uranium apart from Sprott, this is an encouraging sign for the market.
For Frostad, the increasing number of investors and utilities in the market will also have an impact on how he runs Purepoint Uranium. For him, it's vital to understand the different timelines, objectives, and financials around how their partners operate and how the market influences these. This will, to a large extent, influence how they'll be moving forward.
How should investors approach the market?
Now that we've seen how our panel will approach the changing market the question is how investors should approach it. The thing is, with the increases in price and increased impetus in the market, there will be many new entrants. The problem is, investors don't always know who or what to invest in.
For Roger Lemaitre, it’s simple. For him, it's all about the fundamentals.
“I think you want to avoid companies that just pick up land that don't have the experience like James's group and doesn't know where to pick up good land. Just picking up land isn't good enough, it's picking up land where someone knows something, or has this hypothesis of something, or whether they're doing deals with established companies.”
This is even more so when you consider that the area staked for mining or exploration across the Athabasca basin has increased by about 75%. Despite this, there's not uranium everywhere, so it's quite possible that new entrants could invest in land with no potential. As a result, Lemaitre believes that investors should look out for companies with operations in key areas.
Sykes echoes this sentiment. He believes that investors should look for companies with longevity who has been in the Athabasca basin since the previous bull run.
“These are the guys who are invested in it, these are the guys who didn't get out on the flavor of the month, once Uranium crashed. These are the guys who stuck around, stuck with their best projects, stick to other areas once new ideas came out and that goes a long way.”
But what about new entrants that don't necessarily have the experience, but have the financial backing? Cates believes that, while financial backing is helpful to get started, it doesn't necessarily mean that these entrants can build successful businesses. In other words, it goes further than just having the money and having access to capital doesn't necessarily make a company a good investment.
Another aspect, according to him, that investors should consider is the assets a company has and the strategy it uses. And this is where many new investors face several pitfalls. This is simply because many companies have many assets, but they’re old and will never be revived.
As a result, investors often invest in something that has little to no possibility of giving them a return. As Sykes put it,
“Everyone is always searching for the monsters, you don't need the monsters, you need the economics. So, why keep looking for the monsters that aren't economic, when you can find the unicorns that are economic?”
Frostad believes that a major contributor to this is the increased noise that comes along with excitement in the market. This makes it difficult for companies to educate investors.
For example, when speaking about the previous bull run, he says,
“And one of the things I remember from the last go round was the noise. It was unbearable, because everybody was making up new terms, new terminology, trying to put bigger, better numbers out there and what it led to was a confusion of the market that was crazy.”
Ultimately, investors would then need to filter out all the exaggeration, news, and numbers when they decide what companies to invest in. Investors should focus on the fundamentals of a company and ignore all the noise as Frostad puts it.
A significant contributor to this noise is technology and social media. In the last five years or so social media platforms like Twitter, Reddit, and chat rooms contributed substantially by providing investors with more information than ever before. The problem is, that this information is sometimes inaccurate, sensationalist hype, and can drive the wrong investment decisions.
Sure, some small-cap companies have been the beneficiaries of this and were able to capitalize on major market movements. But the question is whether sensationalism contributes any value to investors? In the short term it can lead to increased returns but in the long term, a good investment still relies on certain fundamental principles which the short-term hype can’t provide.
Despite this, Cates believes that social media and technology has a role to play and contributes to the overall market, which ultimately, companies then benefit from. However, he believes that while some of the impetus in the current uranium market is driven by social media, larger investments are coming from institutional investors who want to take advantage of the opportunities that uranium offers.
According to him, like institutional investors, the key remains to consider the fundamentals of a company as the basis for an investment instead of relying on social media hype. Also, Frostad believes that a major contributor to good investment decisions is having the right education and this is something social media typically can’t offer.
Yet, it's something that companies need to contend with. As Sykes puts it,
“It's pretty wonderful world, but it's also scary too when you when you see the power that investors online can have with Reddit and things like that. It can be a scary situation but its roll with it.”
What the future holds
By now everyone knows that the Athabasca basin carries some cachet which attracts investors. This is simply because the basin carries a higher degree of probability of being economic due to it having the highest-grade uranium in the world.
According to Lemaitre, this is also because,
“The history of the basin and history of discovery and with more recent discoveries made and the cost profiles that are popping out from the studies, they all seem to line up.”
This, ultimately, makes it easier for investors to invest in companies with operations in the basin compared to other uranium producers around the world.
This is not to say that there aren’t good assets outside the basin, but many investors place a premium on assets that will be more profitable. As a result, many investors place a premium on mining companies with operations in the Athabasca basin.
After all, it's these aspects that drive value, and what makes the Athabasca basin very attractive. In fact, as Frostad put it,
“I think it has benefited us and be it unfairly, that's just there.”
But what does the future hold for the Athabasca region? Cates believes that there are still many new assets to be discovered and to be built. This is mainly because the Athabasca basin is not only a large expanse of land, but also very early in its exploration history. As Lemaitre says,
“We're still scratching the surface.”
He believes that there will be new models and ideas that will take uranium mining and exploration beyond simple exploration and create more value. And if more value is created, investors will be perfectly poised to earn attractive returns.
As you can see from the above, our panel believes that the future is bright for the uranium mining and exploration industry. Considering the vast expanse of the Athabasca basin and the fact that it’s very early in its exploration history, it’s an exciting time indeed.
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