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After topping out at a bit over ~US$106/lb. nearly eight months ago, the spot price of uranium has fallen ~25% to ~$79.5/lb. For readers not following it closely, $79.5/lb. is a strong level, the highest in many years (before the run-up to $106/lb.). Interestingly, the inflation-adj. high from June 2007 is $211/lb.
Despite a very robust fundamental backdrop, even more compelling than in June 2007, stock prices have suffered. Many bellwether names are down 30%-50% from 52-wk highs. Is this a buying opportunity? Yes, I think it is, but only if one has an investment horizon measured in quarters, not weeks.
Here are the main factors underpinning the uranium narrative. At roughly 40% of global supply, Kazatomprom [KAP] is a hugely important driver. It recently lowered CY 2025 production guidance by 17%.
This significant cut calls into question 2026 volumes at a time when new mines are taking meaningfully longer to commercialize. The 2017 PEA on NexGen’s Arrow project pointed to initial production in the mid-2020s. Since then, that world-famous project has been pushed back at least five years.
Uranium mines in the Athabasca basin are very high-grade but often quite complex. Some projects in the basin have experienced cap-ex blowouts. Turning back to KAP production, even if it can meet guidance from 2026 on, its uranium is increasingly headed to China, and much of the rest to Russia and other non-Western countries.
There are fewer than a dozen new projects of greater than 10M lbs./yr. that will make or break nuclear’s renaissance. At a recent major nuclear industry conference, sentiment was very positive (despite weak uranium share prices). In my view, the incentive price to get large, low-grade greenfield projects built is $85-$90/lb.
At the big uranium conference, well-known pundits like Justin Huhn & Mike Alkinsaid they’ve never seen a bigger disconnect between extremely bullish fundamentals & dismal stock performance.
Note, type in those names, Huhn, Alkin, and the word, “uranium” on YouTube to get recent interviews. The uranium narrative, albeit one-sided, is well-covered for free. Many consultants are pounding the table, saying we could see a repeat of last year when the spot price soared from Aug./Sept. to January.
Madison Metals (CSE: GREN) / (OTC: MMTLF) is an overlooked uranium junior with just 32M shares outstanding. It has promising uranium projects in Namibia, Africa, and could begin production within a year. Today management announced important news. It’s farming out its Cobra project to a small, Australin-listed junior.
This is a wise move as the Company is entirely focused on its Khan project. Working with an ASX-listed company will attract investors to Madison as ASX-listed uranium juniors are well followed. The junior farming into Cobara, Star Minerals’ share price is up over 40% on this news.
Perhaps over time Madison could dual list in Canada & Australia. Better to have Cobra advanced by a third party than to have it sit idle. Exec. Chairman & CEO Duane Parnham commented,
“This agreement strengthens Madison’s operational footprint in Namibia, as we now have active exploration efforts underway on two uranium projects in one of the world’s premier uranium mining jurisdictions. We believe this partnership will unlock significant value for both companies and our respective shareholders, and we look forward to advancing our mutual goal of driving sustainable uranium production to meet global energy demands.”
The flagship Khan project is 6 km from the world-class Rössing mine’s processing facility. The following image shows recent drill results.[#s in (parentheses) are grade x meter calculations].
These are strong initial results, and management is optimistic about finding more results like this, and possibly better, in an upcoming, low-cost 2,000-3,000 m RC drill program.
Readers should note that in addition to Rossing 6 km away, the giant Husab mining complex is 10 km away. Heap leaching of uranium ore is reportedly being tested at Husab. If successful, Khan would have two places to send material, both well within shipping ranges.
Low-cost, highly efficient conveyor belt systems would probably work from Khan to Husab and/or Rossing. A conveyor of over 12 km currently operates at Rossing. If the Company can deliver on its plans for near-term production, its valuation is absurdly cheap. Having said that, execution risk is high and there are a lot of moving parts.
Why should investors consider Namibia? Because that’s where the uranium is! Ranking behind Kazakhstan & Canada, Namibia is the 3rd largest producer. If Madison’s projects were in Canada, the Company’s enterprise value {market cap + debt – cash} would be several times higher than $5.5M.
Unlike the vast majority of uranium juniors across the globe, Madison’s flagship Khan project has a mining license and ample access to regional infrastructure including; roads, power, water, rail, ocean port, skilled workforce, mining services & equipment companies.
Last month the Company was granted a nuclear fuels license by the Ministry of Mines & Energy. This means Khan could be under construction as soon as management raises a meaningful portion of the estimated US$35M in start-up capital.
CEO Duane Parnham believes most of the cap-ex could be raised via construction/equipment financing, coupled with a relatively modest debt facility from an African bank lending group like RMB. At $80/lb., the payback period should be under 18 months.
That’s right, US$35M could put Madison into production in 2H 2025, producing 100s of thousands of pounds in year 1, followed by a decade of ~906k lbs./yr. Therefore, at $80/lb. U3O8 and an average cost of $35/lb., annual pre-tax profits would average ~C$45M/yr. {see chart below}
At a 10% discount factor, I estimate a post-tax NPV of ~C$160M & IRR of ~200%, as cap-ex is low & payback is rapid. Yet, Madison’s valuation is just C$5.5M.
If the uranium price were to fall to $60/lb., and costs came in at $45/lb., there would be a profit of ~C$11M. However, anyone thinking we’re headed to $60/lb. should not invest in this sector! I believe pricing is more likely to hit $100+/lb. then it is to sink to $60/lb. Note: {5-yr. futures [CME contract] is ~$98/lb. for Aug. 2029}.
Unlike most uranium projects around the world, the risk of major cost blowouts in op-ex or cap-ex at Khan is minimal because the operation is so incredibly simple — just digging up the ore and sending it by truck or conveyor belt to Rossing or Husab.
Importantly, the Company’s prospects & the neighboring Rössing & Husab mines in Namibia are < 100 km from a major ocean port. By contrast, uranium mined in land-locked Niger is trucked 1,500 km to a rail loadout, then 400 km to the coast.
A toll-milling scenario for Madison is quite plausible as, 1) Rössing wants/needs third-party ore, 2) Madison’s assets are just 6 km away, and 3) Madison has a shallow deposit that, subject to more drilling, should deliver millions of pounds.
In the chart below are annual C$ cash flow scenarios from toll-milling assuming a 10M lb. resource at Madison’s Khan project. In production next year, and at a full capacity annual run-rate in 2026, management believes 906K lbs./yr. is a reasonable goal.
If a larger entity gets involved and drills Khan more aggressively, a greater than 10M lb. resource could potentially be booked. Madison’s two key executives, Duane Parnham & Dr. Roger Laine founded a highly successful uranium play in Nambia at the tail end of the last major uranium bull market in 2007.
Mr. Parnham has lived and/or worked in Nambia for 23 years. Few outsiders understand its politics, business climate, and culture better than he does. Duane has > 20 years of experience in uranium + significant exposure to precious & base metals.
In addition to Forsys Metals, Parnham developed & monetized a Namibian Oil & Gas company for $100s of millions. Duane has been acquiring shares of Madison in the open market since before COVID-19!
Dr. Roger Laine is a geological engineer with > 40 years of experience in advanced mineral exploration projects, specializing in geo-statistics & reserve estimation. He gained valuable nuclear industry insights at AREVA.
He’s extremely well-versed in both underground & open-pit mines, and an expert in grade/quality control, using advanced computerized information systems. Dr. Laine held senior executive positions with companies in the Americas, West & Central Africa, and Europe.
The following chart shows Namibia’s large, bulk tonnage mines & projects, with an average grade of 284 ppm = 0.0284% U3O8. Notice that GRADE separates the producers from the (still) developing…
Below 300 ppm is low grade, but not unusual for deposits in Africa. At today’s uranium price, 284 ppm is ~US$50/tonne of rock. On a copper equiv. basis, that’s a solid 0.54%.
Madison has a 9M pound U3O8 (historic, SRK 2015, Inferred category, 85% ownership) prospect grading 260 ppm. Peer African projects are valued at C$1.18/lb. of U3O8. The technical team thinks it could double Cobra’s resources as the 2015 work done by SRK was based on shallow holes, and the deposit is open in all directions & at depth.
Based on listed peers, 9M lbs. (7.65M net to Madison) from Cobra alone is arguably worth more than the Company’s entire valuation. Now that it is being farmed out, we could get exciting exploration updates down the road.
In Namibia’s Erongo uranium province, Khan has emerged as one of Africa’s newest discoveries. Promising drill results from Phase 1 are being used in the planning of a larger RC drill campaign of 2,000-3,000 m later this year.
While peer African projects are much larger, Madison’s Khan project could reach production in 2H 2025. By comparison, Bannerman Energy, Forsys Metals, Lotus Resources & Elevate Uranium are looking at 2027.
Madison Metals offers high reward with commensurate high risk. CEO Parnham and team have excellent connections & experience in Namibia and uranium. These attributes should mitigate some, but not all risks. Having permits & licenses in hand is a major de-risking factor.
Still, a main concern is that toll-milling operations get delayed several quarters for unforeseen reasons. Even in that case, Madison’s low valuation seems unwarranted.
Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Madison Metals, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Madison Metals are highly speculative, and not suitable for all investors. Readers understand and agree that investments in small-cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making investment decisions.
At the time this article was posted, Madison Metals was a paying advertiser on [ER] and Peter Epstein owned shares in the company that he acquired in the open market with his own funds.
Readers understand and agree that they must conduct due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reason whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, or reported facts.
