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Skyharbour Resources (TSX-V: SYH) / (OTCQB: SYHBF) is in a strong position to benefit from a rebound happening right now (finally!) in uranium prices. The Management team, Board & technical advisors are world-class, especially for a company with a market cap of C$ 9.8 M = US$ 7.0 M. {see April presentation pages 4-6}.
For years pundits have been saying that a recovery in the uranium price was 3 to 12 months away. They have been wrong. For the first time in two years there’s been a noteworthy bounce in the spot price.
Spot uranium price up 22% in past five weeks…
The uranium market has relatively sticky demand as producers are required to deliver material into long-term contracts. By contrast, supply is highly concentrated in a handful of mines & jurisdictions. In the past five weeks, the spot price is up 22% to $29.10/lb. from $23.85/lb. {investing.com}. That’s nearly a 4-yr. high. Note: {up 30% to $31.2/lb. on 4/14/20}.
As can be seen in the chart below, the eight largest upward moves in spot prices range from 39% to 89%, with an average of 58%. These spikes took place over an average of 6.6 months. Two important things to consider; first this data reflects historical spot prices, not long-term contract prices.
Second, the current 22% bounce is only in month two of its ascent. If history is a guide, there could be further upside well into the Summer or even Fall. Having said that, there’s no certainty that the price will continue rising.
If we are at the beginning of a significant move higher, the price could move north of $35/lb. An “average” breakout move of 58% would bring the spot price to ~$38/lb. Even more important is what might happen to the long-term contract price.
Skyharbour could outperform giants like Cameco & NexGen
Over the past 51 months, the average premium paid above spot for long-term contracts has been ~36% {Cameco website}. That implies a contract price of $52/lb., {36% above the $38/lb. figure}. Is this too aggressive? Not necessarily, a majority of uranium producers have no interest in locking in long-term deals under $45/lb.
The current premium is 12%. Could we see a $45/lb. or $50/lb. contract awarded this year? A move to $45/lb. would likely generate a lot of excitement. We haven’t seen that level since June 2015.
Although there’s been a modest rebound in uranium stocks, I strongly believe that an increase in the contract price from the current $32.5/lb. to $45/lb. (or more) would spark another, possibly larger, move for the sector. It’s worth noting that historically the spot price traded above $70/lb. from December 2006 to March 2008 and hit a monthly high of $136/lb. in June 2007.
I find it interesting that industry leaders Cameco, Denison Mines, NexGen Energy, Fission Uranium & Uranium Energy are up more from their lows (+86%) than Skyharbour. Higher risk, smaller market cap juniors are poised to have outsized gains if the uranium price continues to climb.
Good things are happening for Skyharbour….
CEO Jordan Trimble and his team have prudently assembled a basket of six properties in the eastern half of the world famous Athabasca uranium basin. The portfolio covers > 250,000 hectares and contains wholly-owned assets as well as farmed-out properties. Three projects are being actively explored, but management is only funding exploration at its 100%-owned Moore Uranium project.
On March 9th, option partner Orano Canada Inc. commenced its exploration programs at the Preston Uranium project located near NexGen’s high-grade Arrow deposit and Fission Uranium’s Triple R project. Orano can earn up to 70% of a 49,635-hectare central portion of the Preston Uranium project for C$8 million over six years. Skyharbour owns 50% of the Preston project. Orano is currently about half way through the C$8 million earn in.
On February 13th, Skyharbourannounced the start of, and is now wrapping up, a 2020 winter diamond drill program at its flagship, 100%-owned, 35,705-hectare Moore Uranium project. This project is ~15 km east of Denison Mines’ Wheeler River. Management announced plans for 2,500 m of drilling in 6 to 9 holes to follow up on last year’s exploration successes.
An option to acquire the Moore project was obtained from Denison in June 2016. Twelve contiguous claims total a sizable 35,705 hectares (~88,230 acres) located just east of the midpoint between the Key Lake mine & mill complex and Cameco’s McArthur River mine. The Project has seen extensive historical exploration, including roughly $50 million of inflation-adjusted exploration expenditures. More than 140,000 meters have been drilled in > 380 holes.
100%-owned Moore project has seen a lot of drilling
Unconformity style uranium mineralization was discovered on the Moore property at the Maverick Zone in April 2001. Historical drill results include 4.0% eU3O8 over 10m incl. 20% eU3O8 over 1.4m. In 2017, Skyharbour announced select assays of 6.0% U3O8 over 5.9m incl. 20.8% U3O8 over 1.5m at a vertical depth of ~265m.
Another highlight can be found at Maverick East with an intercept of 1.8% U3O8 over 11.5m, incl. 4.2% U3O8 over 4.5m & 9.1% U3O8 over 1.4m. Refinement of the Company’s geological & structural model has greatly improved drill targeting in the basement rocks of Maverick East, along strike and down dip of current mineralization.
This fully-funded & permitted drill program is testing both unconformity & basement-hosted targets along the company’s high-grade Maverick structural corridor. Of particular interest is the active search for underlying basement feeder zones to the unconformity-hosted, high-grade uranium that’s already been identified.
Importantly, these targets have seen only minimal historical drilling. Management hopes to expand the high-grade mineralization discovered at the Maverick East Zone and to test the Goose & Viper target areas along strike, with a focus, again, on basement-hosted mineralization. It’s worth noting that most of the recent high-grade discoveries in the basin, like those made by NexGen & Fission, have been made in the basement rocks.
Most of the historical drilling at Moore has not tested basement targets and it has only been recently with modern geophysical techniques and new geological modelling that Skyharbour has properly refined its top basement hosted targets, which are being tested in this drill program.
At Maverick East, drilling by Skyharbour intersected significant high-grade uranium mineralization extending from the unconformity into the basement rocks. Last year’s hole ML19-06 intersected 0.62% U3O8 over 12.0m, incl. a high-grade basement-hosted intercept of 2.31% U3O8 over 2.5m.
Drilling to the northeast of Maverick & Maverick East will be done this year on the under-explored remaining two km of the Maverick corridor. The promising Goose & Viper target areas, step-outs of ~500m & 1,500m along strike, will be drill-tested.
Drill results and final assays are expected in the next month or two, so this is a key near-term catalyst for investors to look out for.
Why uranium? Why now?
Perhaps no single attribute of uranium as fuel is as compelling as this; a 20-gram pellet of uranium, just half the size of a AA- battery, packs the same punch as 400 kg of coal, an amount that would fill a container measuring ~9.3 cubic feet! This is a big reason why nuclear power plants are popping up all over China & India. The need for uranium to fuel nuclear power plants that will replace coal-fired plants is growing by the day.
Over the past few decades the global outlook for the maintenance / growth of coal-fired power plants has fallen, with no end in sight. Although China & India will build coal plants for the foreseeable future, growth rates are slowing. In most parts of the world it’s increasingly difficult to fund new coal plants. This is bullish for the long-term prospects of nuclear power.
Cameco’s bullish earnings commentary and the U.S. government’s 10-yr. proposal (starting in 2021) to spend US$ 150M/yr. acquiring U.S. produced uranium, barely moved the needle of investor sentiment. Depending on negotiated contract pricing, perhaps 3 or 4 million pounds (per year) will exit the market into U.S. storage. That’s fairly important for U.S. producers. However, by far the bigger news is Cameco’s bullish commentary.
Cameco’s CEO said, “… we have more prospective for long-term business in the contract pipeline than we have seen since 2011.” …the underlying fact is that uranium demand is going up while supply is going down. Current weak prices are putting future supply at risk, this is not sustainable.”
Cameco offers bullish commentary
Importantly, Cameco’s CEO reported that his team has been rejecting proposals by utilities on contracts in the, “$40’s/lb.” There appears to be a widening gap between bids & offers. This suggests that prices could move fairly rapidly as buyers finally move off the sidelines.
The spot market is relatively tight now, it typically sees between 30 to 60 million pounds transacted annually. However, last month Cameco announced a one-month shutdown of its Cigar Lake operations. This is yet another bullish signal for uranium prices as Cigar Lake accounts for ~13% of primary mine supply. Prior to the pandemic, Cameco had plans to buy 20-22 million pounds of uranium in the spot market this year.
An extended shutdown would force Cameco to buy even more in the spot market. Other recent announcements include Namibia cutting ~10% of global supply and the world’s largest producer Kazatomprom cutting of up to 10.4 million pounds in 2020.
Might Borehole Mining be a game-changer?
An industry development I’m watching is Borehole Mining (“BHM“) testing in the Athabasca basin. Like In-Situ Recovery (“ISR”), BHM is amenable under select conditions; most notably in permeable rock at depths below ~300 meters. In BHM, a narrow hole is drilled. At bottom, a high pressure water jets break apart the ore. The resulting uranium slurry is then pumped to surface.
If any of Skyharbour’s six properties prove amenable to BHM, it could truly be a game-changer. Denison & Orano have been working on this for years. As these companies continue to optimize BHM, this technology could soon be ready for primetime.
An interesting peer uranium explorer in the eastern part of the basin is IsoEnergy. Its market cap of approx. C$ 40 M is four times the size of Skyharbour’s, a valuation discrepancy that’s due to blockbuster drill results on the company’s flagship 8,371-hectare property. Like Skyharbour, IsoEnergy is pre-maiden resource.
Could Skyharbour’s valuation approach that of IsoEnergy? If the Moore project were to hit higher grade mineralization across wider areas, then the potential for the larger (35,705-hectare) property would be immense. No one knows what the drill bit will deliver, but it’s worth reiterating that in addition to Moore, Skyharbour has multiple exploration programs underway with partners Orano & Azincourt Uranium.
6 properties, 3 actively explored = increased discovery potential
Skyharbour stands to benefit from discoveries on its 50%-owned Preston project, being drilled by Orano and the East Preston project being drilled by Azincourt. {Note, both Orano & Azincourt can earn up to 70% interests in Preston & East Preston}. Orano is currently doing geophysical work and a field program to generate drill targets. Azincourt is conducting a $1.2 M drill program consisting of 2,000 – 2,500 meters in 10 – 15 holes.
By farming-out assets, Skyharbour has three bites at the uranium apple. These prospects in the world famous Athabasca basin could become considerably more valuable if/when uranium prices move higher. Exploration success, plus a continued uptick in prices, could drive juniors higher, especially the share prices of companies that operate in safe, ultra high-grade jurisdictions.
During the last major uranium bull market there were hundreds of juniors to choose from. Today there are, at most, a few dozen worth consideration and far fewer that are in the Athabasca basin, with a world-class team, minimal cash burn, low valuation and multiple projects being actively explored. Companies like Skyharbour Resources (TSX-V: SYH) / (OTCQB: SYHBF) have ample room for upside.
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 Skyharbour Resources, 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 Skyharbour Resources are highly speculative, 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 any investment decisions.
At the time this interview was posted, Peter Epstein owned no shares in Skyharbour Resources, and Skyharbour was an advertiser on [ER].
Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons 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, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
