VANCOUVER, British Columbia, May 15, 2014 (GLOBE NEWSWIRE) -- Nuclear power generation is approximately 12% of total world generation. There are currently 434 operable reactors in the world in over 30 countries (including 50 in Japan) with an additional 71 reactors under construction, 173 planned and 314 proposed.
The overall demand for uranium to feed those reactors in 2013 was ~170m pounds. However, uranium, as a commodity, has under-performed for the last 10 years.
There are two major reasons for this. First, the Russian Highly Enriched Uranium (HEU) Agreement to use old missile fuel to feed reactors was extended to 2014, adding 24m pounds per year to supply. Second, the events at Fukushima in Japan led to 50 reactors being taken offline and approximately 12% of fuel demand being pushed onto the market as supply.
There are three major events that occurred or will occur in 2014 that will radically alter the current paradigm. First, Japan is restarting its reactors. Japan's rapid switch to gas, post Fukushima, has destroyed its balance of payments and is bankrupting the government as it is paying $14 per Mcf for gas. In February the Japanese government issued a draft energy plan that categorically stated that uranium will be a part of their future. Three reactors are expected go back online by year end at the latest, with at least 28 more coming back online over the next 3 years. Second, HEU is officially over with 24m pounds of supply from decommissioned warheads disappearing with no plans to be replaced. Third, there are 71 reactors under construction, following decades of inactivity, which will increase uranium demand by 4% every year until 2020.
Uranium investors over the last five years have been seriously disappointed with the plunging prices. Over the next year, that should change as the pendulum of demand and supply swings from oversupply to deficit. The negative sentiment in both mining and uranium has combined to create a situation where traditional mining investing institutions are ignoring the uranium world right as a result of the historic losses in the sector. It is likely they will not 'buy back-in' until the price has recovered. Interestingly, the average price most analysts are using is $65 a pound compared to the 'current' price of $30. Analysts have also identified a supply deficit in 2016, which could mean prices potentially skyrocket past $65.
To gain exposure to uranium, investors should be in the place most likely to recover first when the prices do change. Arguably, that would be in Canada's Athabasca Basin in Saskatchewan, responsible for 15% percent of global production and the highest grades in the world. Average grades of 1-15%, vs. the global average grade of 0.2-0.3%. Investors should as well look to management with a track record of creating significant shareholder value. Also junior exploration uranium plays are more exposed to the long-term positive fundamentals of the uranium market driven by strong Chinese demand and the continued deferral of production on the supply side.
The company that checks all those boxes is Declan Resources (TSX-V:LAN). In 2011 Fission paid back handsomely despite a declining uranium market. Declan could well do the same.
To explain how Declan will do that, investors need to understand a bit about its model. It's a prospect generator in the uranium space. A Prospect Generator is a team of people who exhibit substantial geological, political and/or commercial expertise in a given value proposition (like uranium in the Athabasca, or Gold in West Africa), and target geological concepts and targets rather than projects.
Rather than financing and drilling those targets themselves, they farm in or bring in JV partners to finance the drilling. Exploration is really a knowledge business and a risky one at that. Project generators maintain an interest in the knowledge base by farming out an interest in the project base.
Statistically project generators are the best way to invest in exploration and have the best discovery and takeover probabilities. As Rick Rule the mining investment guru is quoted as saying. "Project generators are unassailably the best form of exploration investment." A good project generator has a few necessary components: multiple projects with a willingness to farm them out. As well, a management team with good enough ideas and reputations to make the industry a willing participant in their exploration activities. The important part is a 3rd party willing to make expenditures on your behalf minus generative costs and general administrative expenditures. The Company spends 1 or 2 million for every 5 or 7 spent on your behalf; giving you leverage in the market and maximizing your ability to find major discoveries. Not only having multiple projects, but also by using experienced successful teams to source and generate those targets. It's about maximizing your chances of exploration success while minimizing and mitigating possible exploration risks. Exploration is the only way that significant multiples are made in the resources sector.
Over the past six months Declan has secured an impressive strategic land position in the Athabasca Basin including 14 properties and over 340,000 hectares. These areas include drill ready properties that have already benefitted from significant exploration activities and have a completed VTEM survey. The team at Declan has a primary goal of having the largest landholdings in the basin by year-end.
Results of exploration work completed is already extremely encouraging with the Radonex survey at their Gibbons Creek property recording a peak of 9.93 picocuries/square metre/second (believed to be one of the highest reported Radonex values recorded to date for the Athabasca basin).
Proven management is lead by David Miller, the former CEO of Strathmore Resources, which spun out Fission and was later taken out by Energy Fuels. David is no stranger to completing large deals with 3 Joint Ventures with massive Asian partners to his credit: He has a knack for creating shareholder value.
To complement David, Declan has Dr. Hikmet Akin who some refer to as the godfather of Athabasca Uranium. He was CEO of the original URANERZ, which was the 3rd largest uranium producer in the world as well as the largest landowner in the Athabasca before being taken out by Cameco. These two industry and mining veterans are a formidable duo that likely create compelling shareholder value once again.
Declan trades at $0.10 with a market cap of $13 million.
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