Uranium Has a New Hot Spot: Haywood's Mick Carew

Uranium Has a New Hot Spot: Haywood's Mick Carew - The Energy Report (8/18/15) - Several developments in the uranium space, including the restart of a reactor in Japan that has been offline since the Fukushima disaster, have primed the commodity for a price surge. In this interview with The Energy Report, Mick Carew, research analyst with Haywood Securities, explains how, in addition to the Japanese restart and expansion in the Athabasca Basin is bolstering prospects for consolidation in the sector.

The Energy Report: Mick, some prime assets are available in the junior market, but uranium prices continue to languish by and large. In Japan, a major utility company recently restarted a Sendai reactor on the west coast of Kyushu. It is the first start-up of a nuclear reactor in Japan since 2013, in the wake of the Fukushima meltdown in March 2011. How does Haywood view the impact of this news on near-term uranium prices?

Mick Carew: The start-up of the nuclear reactors in Japan is definitely considered a positive for the uranium sector. But there are uncertainties in terms of the backlog of uranium stored in inventory in the country. With the reactor fleet being offline for four years now, Japan certainly has a significant supply of uranium on hand. How much it will purchase in the spot market in the short to medium term is uncertain. Needless to say, with the reactor restart and a good likelihood of further reactors to follow suit, demand is now lifting.

TER: The Canadian government recently granted an exemption to foreign ownership restrictions on producing uranium mines. Do you see consolidation as a dominant theme in the uranium space, especially in Canada, in the near and medium terms?

MC: The number of players in the uranium sector is small, particularly in the Athabasca Basin. Being a niche commodity in terms of the number of companies involved in the sector, the prospect of consolidation is more limited when you compare it to, say, the gold sector. In terms of small-cap juniors, we see the potential for consolidation as access to capital dries up. Among the majors, there's already been ample opportunity for consolidation. But consolidation has not been overly significant in the sector. We see the southern margin of the Athabasca Basin in particular as a newly discovered region where mid-large cap miners will continue to focus, whether it be through consolidation or exploration. There is definitely potential to have further consolidation in that regard.

TER: There was one structure in the southern part of the basin, and now there are two. Could there be three? Four? Is that the thought process there?

MC: If you consider the number of pounds of uranium that have been discovered in the eastern part of the basin over the last several decades, and if you look at the strike rate and the amount of drilling being completed in the southern part of the basin versus the level of discovery of significant intersections, that suggests there's enormous potential. There are a number of conductors, or structures, that have been tested in that part of that basin, but it's still very much in its infancy. In terms of exploration, there's no reason to suggest there are not more discoveries to be found. I think it is the next growth area in the uranium sector.

TER: Consolidation is also happening in the fertilizer space with Canadian potash major making multiple overtures for one of Germany's top potash prospects. What should investors learn from those repeated attempts to complete a takeover?

MC: Consolidation in the potash space, particularly among the larger producers, will likely continue to attract antitrust concerns. Overseas, projects might be scaled back to stabilize global supply. In addition, similar to the uranium sector, the fertilizer sector has been a niche market, so there are fewer companies in the sector compared to other commodities. This limits the potential for significant consolidation in the sector.

TER: Do you expect other large players to seek upstream or strategic assets?

MC: In the fertilizer sector, again, it will be more limited because there are only a few key players in the space. I certainly think some of the other major players will be looking at these types of assets given the depressed commodity prices.

TER: Do you have any parting thoughts for us on the energy space?

MC: The uranium sector has been depressed, but all commodities have been. With Japan coming on line, I think investors are feeling more confident of the sector now. And if Japan comes on line with confidence in uranium as an energy source, I think the uranium space is the place to be. We'll see that reflected in the uranium price accordingly.

TER: Thank you for your time, Mick.

Mick Carew is a mining research analyst with Haywood Securities. Carew has mineral exploration experience on three continents, Asia, Australia and North America, with specific expertise in a variety of uranium, base and precious metal ore deposits. He also brings extensive technical experience in the evaluation of potential targets and geological properties. Carew holds an Honors Bachelor of Science from Monash University of Melbourne and a Ph.D. from James Cook University.

Email: jluther@streetwisereports.com