One hears the following saying on numerous occasions and ponders upon its validity: Back in the good old days… Well nothing says “back in the good old days” in the resource sector like the uranium sector a little over a decade ago, in 2007. It is the stuff of legends.
You see spot uranium prices were above $130 USD / lbs. (about 5x times today’s price) and uranium companies were the toast of the town. Spot uranium increased by over 500% in less than five years to reach an all-time high of $138 USD in the summer of 2007. Heady days indeed.
Even when adjusted for inflation, the spot price for "yellow cake," exceeded valuations reached in May of 1978 when it was trading $43 USD / lbs. - an inflation adjusted peak of approximately $130 a pound. Do we need to mention what a 500% increase would be like in gold or any other commodity price out there?
They say lightning never hits the same spot twice, but it’s got nothing on commodities. Commodities are cyclical and for ones that are illiquid, like uranium, it can be an explosive dynamic. A commodity with lack of liquidity in a bull market can equate to rocket fuel. In such cases, a “rising tide lifts all boats”, bringing us back to the 2007 uranium public company valuations.
Nobody is suggesting that we’re about to revisit 2007, but it is worth noting what happened last time, and what happened in the mini-bull of 2010-11. Several very sharp analysts, and others, are calling for a $30, $40, even $55 spot price in the in the next year or so. Whether you believe that or not, there is no denying uranium has awoken, and fundamentals are leaning towards a bull rather than a bear.
As is the case, any commodity at an all-time high can produce stratospheric valuations. Although we are a long way from such a manic bull as came to be in 2007, it’s a “good old days” memory to point out we are talking about “billionaire minting” valuations.
The all-time giant for a uranium takeout is the Areva-UraMin transaction of June 2007. Areva launched a $2.5-billion USD friendly takeover bid to acquire UraMin, which had amassed a portfolio of uranium projects in Africa. Here’s a little-known fact about UraMin: it was launched a little over two years before its acquisition. Evidently, it pays to be in the right commodity at the right time, even if you’re relatively late to the game.
A month later, in August of 2007, Uranium One bought out Energy Metals for $1.8-billion USD (yes, that’s two billion-dollar - yes with a “B” - takeout’s in about a month). Energy Metals was responsible for compiling the largest domestic uranium resource base in US history.
Like every bull market, the all-time best uranium bull run was followed by an incoming bear market. But surprisingly, this bear market was short lived, followed by another bull market run in 2011.
Most of the uranium analysts out there link the short bear market (2009) and the ensuing mini-bull run (2010-11) to a renewed worldwide nuclear renaissance. Bill Sheriff, former Chairman of Energy Metals, went on to form Tigris Uranium in 2010 with uranium assets in New Mexico. Approximately a year later, as spot rose above $60 USD / lbs., the little .10-cent private placement went on to healthy “ten-bagger” status. A rising tide certainly lifted this boat.
In the first quarter of 2011 the aforementioned nuclear renaissance was the recipient of a “Black Swan” event. An earthquake, and subsequent tsunami, off the coast of Japan decimated the Fukushima Daiichi Nuclear Power Plant. The results of the catastrophe essentially put the nuclear industry on hold. And although evaluations took a hit and the sector backed off noticeably, there was still some M&A activity to come.
In October, mining giant Rio Tinto and uranium giant Cameco engaged in a bidding war for uranium junior Hathor Exploration Ltd. Rio Tinto won it, paying $654-million CDN for Hathor’s promising uranium assets in the Athabasca Basin. The Hathor acquisition remains as the single biggest acquisition since the fall of 2011 when the uranium spot price stood at $53 USD / lbs.
So why did the Fukushima incident crater spot uranium prices? Back in 2011, before the tsunami disaster, Japan had one of the biggest nuclear reactor fleets in the world, second only to the US. Post Fukushima, as a precautionary measure, Japan shut down all its nuclear reactors. Safety concerns and public backlash fueled the bear, and the entire industry took its foot off the pedal. The result was and is a uranium market with an overhang of excess yellowcake, that only now, seven years later, through some very well documented catalysts that I outlined in my previous blog post on Sept 24th, appears to be reversing.
Azincourt currently has three uranium projects in the company’s portfolio. We carry 10% of the Fission 3.0 Patterson Lake North project, and we’ve recently acquired three highly prospective Peruvian-based properties known as the Escalera Group. Our primary focus in uranium is our advanced exploration joint-venture with Skyharbour Resources, the 25,000+ ha East Preston Project, located in the world-famous Athabasca Basin, Saskatchewan, which will be drilled this winter. Please visit our website for more information on these three specific projects, in addition to our ongoing lithium exploration in the Winnipeg River Pegmatite Field, Manitoba.
We believe our exposure to both the uranium and lithium sectors provides Azincourt with an asymmetric opportunity for significant growth in the coming months and years ahead. On a related note, it was again reported last week by Bloomberg NEF, that global demand for lithium will be on an uptrend movement because electrical vehicles alone are forecasted to increase from 1.1 million in 2017 to 30 million in 2030. Lithium-ion battery demand from the Electrical Vehicles industry alone is projected to grow at an annual rate of 20 to 30 percent through 2024.
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