Uranium sentiment picks up after weak start in 2018

The AREVA/Denison/OURD Canada McClean Lake uranium mill in the Athabasca Basin of northern Saskatchewan. Source: Denison Mines Corp.

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By Peter Kennedy

The AREVA/Denison/OURD Canada McClean Lake uranium mill in the Athabasca Basin of northern Saskatchewan. Source: Denison Mines Corp.

Uranium stocks are showing signs of life after retracing the gains made in the fourth quarter of 2017 following news of production cuts by two of the world’s leading producers, Cameco Corp. [CCO-TSX; CCJ-NYSE] and Kazatomprom.

In a uranium sector update, Haywood Securities analyst Colin Healey said investor sentiment in relation to uranium equities has picked up after a weak start to 2018.

“It has taken over seven years for the stars to realign for the uranium sector, but we are confident in saying it is currently in the best fundamental position we have seen since pre-Fukushima, and we believe signs of a sentiment shift are now identifiable in the technicals of industry proxy uranium-exposed ETF URA, suggesting a compelling entry point for investors who may be on the sidelines awaiting,” he said in a report.

The uranium industry has been struggling since a 2011 earthquake and tsunami in Japan disabled three reactors at the Fukushima nuclear plant, causing their cores to melt down, forcing Japan to shut down 50 nuclear reactors that remained intact.

Just before the Fukushima disaster, uranium touched US$70 a pound. It is currently trading at US$21.75 according to UX Consulting Co.

However, Healey is bullish for a number of reasons, including:

  • Tangible improvements in Japan, which is expected to have seven reactors at full commercial operation by the end of May, up from just three at this time last year.
  • Russia commissioned two new reactors in 2018.
  • All-in, there are 58 new reactors under construction globally, with construction of five new units commencing in 2018 to date.
  • Announced curtailments from the world’s largest producers will cause the uranium market to be in a small primary supply deficit in 2018.

“This sets up well for global inventory reduction and the first real visibility we have seen in more than half a decade on the potential for a balanced supply/demand uranium market, where we believe higher uranium prices must prevail to ensure a sustainable supply in the future,” Healey said in the Haywood report.

The analyst said investors can gain exposure to bullish moves in uranium equities by taking positions in the following companies:

NexGen Energy Ltd. [NXE-TSX, NYSE Ameican], which recently reported radioactivity results for 54 holes comprising 30,208 metres of winter drilling at the Rook-1 Project in Saskatchewan, which hosts the 300 million pound Arrow deposit.

A key area of focus was infill drilling, aiming for the maximum conversion of inferred resource tonnes to the more certain indicated category for inclusion in the upcoming prefeasibility study.

Haywood has a set a $6 target for NexGen, which was trading Monday at $2.52 in a 52-week range of $3.58 and $2.11.

“The Arrow deposit is already unparalleled globally in our opinion among undeveloped uranium resources both in scale and grade,” Healey wrote.

Denison Mines Corp. [DML-TSX; DNNNYSE American] is a uranium exploration and development company with interests focused in the Athabasca Basin region of northern Saskatchewan, including its 60%-owned Wheeler River Project, which holds the high-grade Phoenix and Gryphon uranium deposits.

Denison also owns a 22.5% interest in the McClean Lake uranium mill which is currently processing ore from the Cigar Lake Mine under a toll milling agreement.  It is also the manager of Uranium Participation Corp. a publicly-traded company which invests in uranium oxide and uranium hexafluoride.

Denison recently reported assay results from its winter diamond drill program at its Waterbury Lake Project, which focused on expanding known mineralization around the Huskie Zone, which was discovered in October, 2017.

The Waterbury Lake property consists of multiple claims, covering 40,256 hectares in the eastern portion of the Athabasca Basin. The property is owned jointly by Denison (64.22%) and Korea Waterbury Uranium Ltd. Partnership (35.78%) through the Waterbury Lake Uranium Ltd. Partnership.

Haywood has a $1.80 target price for Dension, which was trading Monday at 61 cents. The 52-week range is 50 cents and 80 cents.

Plateau Energy Metals Inc. [PLU-TSXV] is a uranium exploration and development company, which also offers exposure to lithium. The company recently announced results from recently completed vertical drills on its Falchani Project, which is located in the Chaccaconiza area of its Macusani Plateau Project in southeastern Peru.

The company has established a high-grade, lithium-rich unit that is over 100 metres thick at the location of hole PT-PCHAC04-TV. The results of only the sixth hole reported from Falchani confirm/expand the mineralized footprint outlining a unit that is now reportedly at least 300 metres long, over 100 metres thick, and over 500 metres wide with consistent lithium grades averaging only 3,000 ppm Li across all drilled intervals in the higher-grade unit (results of six holes reported to date).

Haywood does not have a rating for Plateau Energy, which was trading at 64 cents Monday in a 52-week range of 26 cents and 90 cents.

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