How a Nuclear Renaissance Could Create Nuclear Consolidation

by: Michael Filloon

On December 17th of last year, Fronteer Gold (FRG) announced the sale of its subsidiary corporation, Aurora Energy Resources Inc. Paladin Energy Ltd. (OTCPK:PALAF) would acquire 100% of the uranium assets in exchange for 52.1 million common shares. This made Fronteer the largest shareholder in Paladin at 6.7%. This made the deal worth C$260.87 million. Aurora had significant uranium resources:

  • Michelin - Measured and indicated resources totaled 67,126,000 pounds of U3O8. Inferred resources added another 36,089,000 pounds of U3O8.
  • Jacques Lake - Measured and indicated resources totaled 11,187,000, with inferred resources adding 9,045,000 pounds of U3O8.
  • Rainbow - Measured and indicated resources totaled 1,869,000 pounds and inferred of 1,629,000 pounds of U3O8.
  • Inda - Measured and indicated resources of 1,821,000 and inferred totaling 4,788,000 pounds of U3O8.
  • Nash - Measured and Indicated resources of 1,243,000 pounds and Inferred of 808,000
  • Gear - Measured and indicated resources totaled 595,000 with inferred 615,000 pounds of U3O8.

The total measured and indicated pounds of uranium is over 83 million with inferred equaling almost 53 million.

This deal did not get much attention, at least when compared to Newmont Mining's (NYSE:NEM) purchase of Fronteer Gold's remaining assets. This deal started talk of consolidation in the gold space, but I am much more interested in what this means for uranium. The uranium mining space has not seen much by the way of acquisitions. This is not surprising as there are very few that know the ins and outs of this business. I will say this may be the beginning of something much bigger.

There are several companies that may begin to look good as an addition to larger companies interested in adding resources. Although some companies like BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) may be in the market to add any resource if the price is right, Cameco (NYSE:CCJ) is another company that may have domestic interests as well as abroad. Seems in-situ recovery has made several areas of resource look much more appealing as uranium concentrations do not need to be as potent as Cigar Lake to be of interest.

Uranerz (NYSEMKT:URZ) could be a target as it is a 294 million dollar market cap, plus has production coming on line right around the time the Russian HEU contract is set to expire. I like domestic production here, as they are well placed to supply uranium to United States based reactors like Excelon (NYSE:EXC) who they already have a contract in hand from. The current mines are:

  • Nichols Ranch-2.9 M lbs. Indicated at .114%
  • Hank-2.2Mlbs. M&I at .123%
  • Reno Creek-4.2 M lbs M&I at .056%
  • West North Butte-2.8 M lbs. M&I at .153%
  • Jane Dough-2.7 M lbs. M&I at .108%

For more information on Uranerz go here.

Ur-Energy (NYSEMKT:URG) is a 273 million dollar market cap company also with interests located in the United States. Ur-Energy states that the United States only produces 7% of the uranium it consumes. They believe domestic needs for nuclear fuel will increase significantly in the near future. They have several locations with significant resources:

  • Lost Creek has 9.8 M lbs. of indicated resources. Ur-Energy states they believe areas around Lost Creek could have potential for 20.7 to 24.1 million tons, with an average grade of .028%.
  • Lost Soldier has 12.2 M lbs of measured and indicated U3O8.

For more information on Ur-Energy go here.

Uranium Energy Corp. (NYSEMKT:UEC) is an uranium exploration and production company located in the United States. Uranium Energy calls itself North America's newest uranium producer as they are in production phase. Its current South Texas resources are:

  • Goliad - has 5.5 M lbs. of measured and indicated U3O8
  • Palangana - has 1.06 of measured and indicated U3O8

Uranium Energy has upside due to near term production, and they should see increased resources as they continue to drill new locations. For more information on Uranium Energy go here.

Bannerman Resources (BNNLF.PK) is a 154 million dollar market cap company. It has seen a marked improvement in the amount of contained metal since May of 2007. At this time, Bannerman had an inferred resource of 26.9 million pounds of U3O8. By October of 2010, Bannerman increased their resources to 28.3 million pounds measured, 120.4 million pounds indicated and 63.9 million pounds inferred pounds of U3O8.

Bannerman holds an 80% interest in this project through its Namibian subsidiary. These numbers are for 100% of the project. The contained resource at Etango has a contained resource of 212 million pounds of U3O8. To give an idea how large this is, the Rossing mine has 184 million pounds of contained U3O8. Bannerman estimates it can produce 5-7 million pounds of U3O8 per year from this mine. Bannerman also has interests at Swakop River and Botswana, but these locations are currently taking second stage to the Etango project. Bannerman has stated they are currently looking for a partner to help develop this mine.

Crosshair Exploration and Mining (CXZ) is a 76 million dollar market cap company. They have uranium, vanadium and gold properties located in Wyoming and the central mineral belt of Labrador. Its Wyoming properties are located in the Shirley Basin. Bootheel has 7-10 million pounds of uranium projected after the next drill program. Juniper Ridge has 7-10 million pounds of U3O8 historically. Just to the north, in the Powder River Basin, there are several ISR mines either on line or beginning production. These mines are owned and operated by larger uranium producers and help to make Crosshair's holding legitimate.

  • Smith Ranch/Highland - Cameco (CCJ) 6.4 million pounds of U3O8 of proven and probable reserves. 1.2 million pounds produced in 2008.
  • Christensen Ranch - Uranium One (OTC:SXRZF) ISR mine purchased in 2009.
  • Lost Creek - Owned by Ur-Energy (URG) 10.9 million pounds of indicated resource. Production to begin this year.
  • Moore Ranch - Uranium One (OTC:SXRZF) 5.8 million pounds of probable reserve. production to begin in 2011.
  • Nichols/Hank - Uranerz (URZ) 5.4 million pounds measured and indicated.

Crosshair's Canadian holdings have a more significant resource. Crosshair states they have 17.1 million pounds of U3O8 in these locations. The Michelin mine has an estimated mine life of 17 years and IRR of 19.4%.

Mawson Resources (OTCPK:MWSNF) is a 110 million dollar market cap company with mines in Scandinavia and Peru. Mawson has reported a new discovery of bonanza grades of Uranium at its Rompas project in Finland. Other areas of interest with respect to uranium are:

  • Hotagen Projec - In Northwest Sweden and indicated resource of 3.3 million pounds of U3O8.
  • Duobblon Project - In Northwest Sweden and inferred resource of 8.8 million pounds of U3O8.
  • Nuottijarvi Project - in Central Finland and inferred resource of 3.3 million pounds of U3O8.

Mega Uranium (OTCPK:MGAFF) is a C$258 million market cap uranium producer as of September of last year. This company recently sold its South American assets. Since these assets were sold, Mega is now focused on uranium assets in Australia. These projects are:

  • Lake Maitland - Indicated resource of 23.8 M lbs. and 2.2 M lbs inferred
  • Ben Lomond - Indicated 7.9 M lbs. and 2.8 M lbs. inferred resource
  • Maureen - Indicated 5.95 M lbs. and .38 M lbs. inferred resource

Mega Uranium also has other areas of interest in other properties in Australia, Canada and Cameroon.

Energy Fuels Inc. (EFRFF.PK) is a $140 million market cap uranium producer with projects centered in the United States. States of focus are Colorado, Arizona and Utah. Its resources in the Colorado Plateau are 5.1 M lbs indicated and measured, with 3.6 M lbs inferred. Energy Fuels also states they have up to 28 M lbs of U3O8 resource with information from the Dept of Energy and Union Carbide drilling from February of 2008, this resource is not NI 43-101 compliant. Energy Fuels believes they can add another 18 M lbs. to Ni 43-101 with modest drilling.

The San Rafael district adds another 2.4 M lbs at .21% of measured and indicated and 1.3 M lbs. at .22% inferred resource. In this area, historic production of 4 M lbs. of U3O8 is added. Energy Fuels also has the Pinon Ridge mill in a position to provide service for producing and potential uranium mines.

Hathor Exploration (OTC:HTHXF) is a 320 million dollar market cap uranium exploration and production company. This may be one of the most exciting members of this group. They were able to get early entrance into the Athabasca Bay, where 25% of all uranium production currently originates. Hathor states that its Roughrider uranium deposit is estimated at 28 M lbs., including a high grade zone of 24 M lbs. at 11.7% U3O8. I would like to make clear this is a company estimate and not a resource estimate. Even so, this area is shaping up to be something exciting. Initial drilling found a high concentration of uranium mineralization. This company would look very good to a company looking to increase production significantly, like Cameco.

Another larger company that may either be bought or could possibly look to increase resources is Denison (NYSEMKT:DNN). This company is very well positioned and is one of my favorite companies in the space. It has a world class discovery at Wheeler River. They also have other locations in Canada, the US, Mongolia and Zambia.

Denison's resources break down into (as of Dec. 2010):

  • Measured 2 M lbs
  • Indicated 61.8 M lbs
  • Inferred 34.3 M lbs
  • Historical 14.5 M lbs

The largest portion of this company's resources is in the United States. Wheeler River is 60% Denison, 30% Cameco and 10% JV. Denison is the operator, but Cameco has skin in the game and will make sure production is set forth in a timely fashion. McArthur River is just adjacent to Wheeler River and it had 500 M lbs of ore at 22.3% U3O8. It would not be surprising for Cameco to look to buy Denison, or for Denison to buy other competitors in the United States to help meet the upcoming US need for fuel in 2013. For more information on Denison look here here, or for information on Cameco go here here.

Uranium Resources (NASDAQ:URRE) has the possibility of buying up other domestic competitors such as Uranerz or Ur-Energy. There is also the possibility that they could be acquired also. What separates Uranium Resources from the competition is its resources. A comparison of in the ground uranium shows how they stack up against the competition:

1. Cameco (CCJ) 948.5 M lbs.
2. Rio Tinto (RIO) 625.4 M lbs.
3. Extract Resources (OTC:EXRLF) 390.7 M lbs.
4. Paladin Energy (OTCPK:PALAF) 371.4 M lbs.
5. First Uranium Corp.(OTC:FURAF) 257.7 M lbs.
6. Uranium One (OTC:SXRZF) 195 M lbs.
7. Bannerman Resources (BNNLF.PK) 129.4 M lbs.
8. Uranium Resources (URRE) 101.7 M lbs.

If it wasn't for Canada's history of protecting companies based there from being bought, I would say the Cameco was also in play. Cameco as a company could make some major inroads by leaving its legacy contracts and going with the current long term price for all uranium delivered. I am sure Rio Tinto or BHP Billiton would love to hang that stock on their mantle.

In summary, if consolidation does not occur there could be significant deals signed with bigger miners to create synergies and most important, get the metal out of the ground. Just recently, Extract Resources signed a deal with Rio Tinto to help develop its Husab uranium project and Rossing uranium mine. This could be a positive alternative to the increased time it would take to develop without help.

The increasing price of uranium and the decreased cost per in-situ recovery bodes well for the industry. With the HEU coming off the market while many countries are trying to generate more electricity from nuclear power, we could see increasing prices for a while, and better yet, in my opinion, the need for uranium in the United States makes mines in this area very attractive for possible suitors. I would watch the spot price of uranium closely for the next few months; we could see $100/lb before the year is up.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DNN, URRE, URZ, URG, UEC over the next 72 hours.