Many investors may not realize it, but uranium was the only commodity that went up in price last year. The uranium price is a pure function of demand and the number of reactors in China is set to reach 38 by the end of this year. The cost of uranium is trivial compared to a reactor's other running costs, leaving plenty of room for upward movement in the spot price. With the bear market in uranium going on five years, there are very few quality uranium companies still around vying for your investment dollar.
This week, we talk to Dev Randhawa, Founder and CEO of Fission Uranium (OTCQX:FCUUF). Despite harsh market conditions, Dev's team has created hundreds of millions of dollars of shareholder value through the discovery and development of Patterson Lake South. But the ride has not been without its ups and downs. In this interview, we discuss the failed merger between Denison (NYSEMKT:DNN) and Fission Uranium, as well as the more recent investment by Chinese group, CGM Mining Company.
Fission Uranium won an award for having the best mining project in the world, but with the Patterson Lake South Project reaching PEA level, what kind of upside remains for investors?
Palisade Radio Host, Collin Kettell: Welcome to another episode of Palisade Radio. This is your host, Collin Kettell. Joining us on the line today from the Cambridge Show in Vancouver is Dev Randhawa, Founder, CEO and Chairman of Fission Uranium. If you are unfamiliar with Fission and you have missed the hottest story in uranium in the past couple years, in just two years the Patterson Lake South Project was taken from discovery to resource estimate and is now at the PEA level classified as the largest undeveloped uranium asset in the Athabasca Basin. Dev, welcome to the program.
Founder, CEO and Chairman of Fission Uranium, Dev Randhawa: Thank you very much for having me Mr. Kettell.
CK: I want to start out by asking you since you are at the show and there are not too many more shows left these days. How is the Cambridge show this year?
DR: Well, it is really good they sure did a great job. It is a plus for me. I have been on the business a bit. It's always good to meet, you know, see old friends again. It is obviously a lot less booths but that is obvious in a bear market you are going to get that. But smart people still go there. Like you said there is a lot less shows now. We used to have the San Francisco show in something like Thanksgiving time in the US. We used to have the New York show. Right now we do not have that anymore. There are no regular ways for people to meet. Honestly, we do need more of that because the internet will not go so far deals are cut eye to eye. It is funny we are going to have peak action. I do not know in the next show unless it is going to be Sprott, so Rick Rule does. I think it is great. I think these shows are very necessary. You cannot hide behind the online world all day, right?
CK: Well, that is true. I remember, Dev, we actually met for the first time at the San Francisco show which is another show that no longer exists; it is being replaced this year. But, anyway, I want to talk to you about Fission. The company has really bucked the trend for the last couple of years under your leadership. Let us start with mentioning late last year there was a plan between Denison and Fission to merge the two companies. That ultimately fell through due to shareholders not voting it through. But the very interesting thing is just a couple months later you have now secured a major financing from the Chinese making me question, do you think that the shareholders had the right thing in mind with saying, "Hey, this asset is even superior to the peers and we want to keep this separate?"
DR: Yes. Well, first of all, actually most of the investors said yes; over 50+ percent already said yes. But we as the management team set the bar very high. When you do takeovers, believe it or not you can actually adjust how high you got to jump. We adjusted the bar to be 67%. We could have done it at 50% so we purposely picked the higher threshold making sure that is exactly what everybody wanted, the most is 67%, right? Some say we are Machiavellian about it. Also if you notice there was a PEA in the middle of it, meaning that we believe that investors reserve the right to vote with all the information.
Couple things that are not always understood by people that that is it was over 50% who voted and wanted a deal but not 57%. But we could have done that differently just moving the fractions around here and there. Securities log was about 50%, "That is all you need, Dev, Go for it," right, but we did not do that. Also, we made sure our PEA came up in the middle of it which would tell us how good this project is at first glance by simply looking at the economic point of view.
Those two things were purposely put into place to make sure that the decision was very well informed. There is just a couple of myths about that project that people were not always aware of. The Chinese, they were always there, but they always told us they could not move for quite some time, and that is just the fundamental problem. They are state-owned companies in China; have to go very slow. They have put in new anti-corruption laws a while ago. As a result everything takes much, much longer.
Just so you know our first meeting to get a deal done was sixteen months ago. Actually I probably would say it was eighteen months ago now I think about it. It took eighteen months and it is a long time in the life of a company. We are always talking to them. But I think what triggered for them was the PEA. Some say knowing that somebody else will make a run at us moved the agenda for them. Maybe the Denison deal kind of woke them up, hold on we may not get a chance to invest in it. A lot of reasons but, obviously, if I know they are going to do a deal, I am not sure I will- even the Denison deal took six months. I met Lukas and we were talking about it directly at the BMO conference, right?
These things are not simple. There is no book on how to do deals in a crappy market, that's our problem, right, obviously is. We have got very crappy markets and people with the money are the ones who hold the gold, right? They can set the terms all they want, but this is a great- well, we won the best project in the world 2015. Not the best uranium project; the best project, period. That is a tough one to win when you are- that is a really tough one to win in there because they tend to be mostly African projects, but we won that, the Canadians.
The project is amazing. The project is amazing because it may not just be the best uranium project in the world, It may be the best project in the world, mining project, period, because when- the way you- it was an easy way when you got an open pit operation, okay? But that is the first thing. You are digging the hole where the rock is worth $1400 and it costs you may $100 or $150 to pull it out. That is a big margin.
The best example for gold bugs is, imagine five million ounces, fifty meters from surface, open-pittable in a good jurisdiction like Saskatchewan and it is running 46 grams per ton, right? You know what, Lukas Lundin, the guy has paid for their project, eight grams. This thing is 46 grams equivalent. That is how expensive crazy this rock is. It is amazing project when you compare it even to other non-uranium projects as well. I think that there are different factors why the Denison did not go through. We could have pushed it through. We did not. We have a management team one year because we felt... and enough people said, "You know what? We do not like Denison's projects enough. We love Lucas, but we do not like his projects that much. We want to give up half of our company to give this up." There you go. That is kind of- instead the Chinese say, "Hey, we will give you $80+ million for 20% of the company."
CK: Yeah, well, Dev, you are one who perseveres - and you have for some time - and I can only imagine a certain level of frustration after working so closely with the Denison guys anticipating a merger might go through. But like we just said the Chinese came through on this deal, CGN Mining quickly afterwards, and that is testament to the PEA. You just touched on it a little bit. But let us kind of outline why this project - in your mind and in the investor's mind - is so phenomenal? First of all it is only 50 meters from surface which means that you do not have to dig down very much. The costs are not very high to get the uranium out. It is also very large. You have over a hundred million pounds between indicated and inferred. What else can you tell us about the project in its current state of why it has attracted such big partner?
DR: Well, what the PEA tries to do is saying, "Okay, let us look at the jurisdiction. Let us look at the type of rock you have got, how much rock it is, how expensive the rock is, and using today's mining methods and building mill what will it cost?" Well, the cost came out to be about $16. If you go to production right now it costs you about $16. Just keep in mind Cigar Lake is around $19, ... $20, and the other ones that are running right now around $30. If they are saying, our PEA, which is a very conservative group, said, "If you will go into production right now you will be the cheapest-producing uranium mine in the world." It is because uranium starts at 50 meters from surface.
Now I know there are some great stories out there, uranium at $400 etc. That is not the same thing. Unfortunately, the basin is full of - full of - deposits that are deep. They are not coming out anytime soon, until uranium's at 70 or 80 or 100 because it does not make any economic sense. The average cost of a mine around the world, Cameco has said, is around $60, $65. That is including getting your money out and trying to make a profit Remember some of these operations are still running like Paladin They are just getting their cash costs out. They are not getting their money back. They are just covering their cash, not even that sometimes. It is a very unique, it is a once in a lifetime project like Ron .... I trust very much. Ron said, "Dev, this is a once in a lifetime project. Do not lose it. Hang on to the same end. Develop as far as you can and before you hand it over."
We are a tough group. In fact I remember the very first article a guy wrote on uranium. I remember a number of articles came, but the one that really got it going was kind about rough Ralph Kettell, called 'The Other Yellow Metal'. You might want to dig it up, talked about Strathmore. Yeah, that is how far back we go back. Strathmore was something we started 1996 on uranium, supported by Mr. Casey, Rick Rule, Bob Bishop in those days. Of course, we had Bre-X and stuff happen, and everything fell apart and we got back again. Then in 2007 we gave birth to Fission Energy and in 2013 we sold it, kept the PLS Project, developed it, bought the other half from ... We will do the right moves. But at the same time we will set parameters to make sure our shareholders get to vote.
Yeah, we have been around for a long time and that is why this is a very special time for our technical people. We work very hard on Waterbury but the most we could squeeze out of the thing was about 13 million indicated. Here, our first round was 80 million indicated. You can work very hard sometimes, but you got to have some luck as well. We are fortunate our technical team is on the edge learning new ways to do things. We had a border call today and Ross, there is a new geophysics system he wants to try which can, you know it's under ground geophysics may able to do this and probably get better information. There are new radioactivity surveys out there we can do.
We are always- in fact this deposit, unlike some people out there think it was not found by a man; it was actually found by an airplane. We flew an airplane with high resolution like a flying Geiger counter and just a kilometer flying over the surface. What we were looking for onto the basin was we were looking for high grade boulders or outcrops of uranium and we did find them. We try to be on top of the ball technically.
Today we talk of another idea, another example we are going to do is- using core drilling is quite expensive, right? But R C Drilling is very cheap and that is how they often explore in the United States because it is very cheap. But you can put down a down hole, you still measure radiation down in the hole, right? We are going to be doing that. That is another example of where you save a lot of money and still get some drilling done.
There is a reason why we found it and nobody else did because remember everybody was so focused on the east. No one really talked about the west, right? Everything is going to be deep. It has got to be at the unconformity and it has got to be like Cigar Lake. It became the model, right? Just like hockey, baseball or football team wins and then a model of how they did it and everyone is trying to copy that model. Well, the same thing in the basin. There was is a model out there that Cigar Lake was. Everybody looks at our team and so what about looking for basement? And what about the west? The west doesn't have that. We flew this airplane around the basin, found these boulders and then we went up twice with geologists and then we made the drill holes. It is very important even in our stage that we are always on top of trying to think of new ways because technology is changing and you got to take advantage of that.
CK: Yeah, well, you have been starting to segue into my next question which is next steps. I want you to explain why a speculator who has not invested in any uranium at this point would look at Fission Uranium as the way to go? Sure, optionality exists. You guys have an extremely economic project, as the PEA displayed. As uranium price appreciates your share price is certainly going to appreciate, but what about exploration upside or the next steps towards production?
DR: We look at a project first then step back. People sometimes see a PEA and they think, "Oh, they are done. They are going to go into mining now." That is not true. We did it because we wanted to know how this would look. But, for example, the PEA we did does not include our 600 west zone. The 600 west zone is very important. It is on land and what it does is it means that you don't have to move the dirt twice. What we will do is we are going to start mining on 600 west first, take that dirt, build a bern. When that is done we will fill the hole back. That is a very cool, economic way of mining. That is one thing we are doing right now exploring 600 West to show that this thing is going to grow, grow, grow.
Every conductor can have high grade uranium, but all uranium has to come from a conductor. This is a situation where we want to cast and check other conductors. There are a hundred and five conductors on our property. We have only done three. We only looked at three conductors, so a lot of conductors left on these things and they are all EM conductors that we think that can host uranium. Forest Lake, for example, actually has better signatures than the 780 zone. We are going to be testing those areas as well. There are lots of opportunities left on this property. Unfortunately people sometimes think the exploration upside in gone. It is just silly. There is lots of upside left.
That is one of the reasons by the way, the Chinese have gotten involved. The SLE CGN has said like for them they want to grow this 300 million pounds. They need to grow this because they have got a thirst for uranium. One of the reasons that people should be buying uranium stocks is like I think this quote. He said the only commodity that went up last year in price believe it or not, was uranium. In the last three weeks every commodity got crushed, right, except one, uranium. What is holding up the best in this downward market? Uranium. If you got to pick one commodity this is it because there is no love about uranium. There is nothing like it.
The gold bugs and a bunch of them out there that believe that it is all manipulated by governments and things like that, right? Uranium is not a function of the economy; it is a function of the growth of reactors, and that is going through the roof. In China alone, they have got thirty reactors. They are building twenty four and fourteen more are starting this year. They are going to have thirty-eight going by the end of this year, and every one of those guys needs a lot of uranium. In fact now they are building for other people. We have a lot of growth in this project, lots of blue sky. Uranium is the one commodity you can hide in.
CK: Well, sure, our focus so far has been on the merits of the project and of your leadership team and what you have built over the last couple of years. But as you just pointed to you combine that with the state of the market. We have been doing a lot of interviews on Palisade Radio the last few weeks. One just out with Rick Rule; I know he is talking at your event. Uranium has better prospects than almost any other commodity and that is a great place to be.
DR: Absolutely! There is no comparison to it, a lot of smart guys, the fact speak for themselves. For example, when you have a crash, you want to be in the stock that is going to get the hurt down hurt down the least, right? Same thing with the commodity. This is that commodity which has not been crushed with oil coming down. Oil's come down from 100 down to 20, this is 30, right? We went up. We went up from 28 to 35, right? We went up 25% when the rest of the world got crushed. It is a very good commodity to be in.
CK: Well, I want to ask you a hard question, a question that you probably do not want to answer because there is no good answer to it. You built a company that does not rely on the price of uranium, your economic where it is, but what is your prediction for the next twelve months? Do you think the move is going to happen quick?
DR: You know what, when it does it always happens quick. That is the problem. It is not like you get this jump in $1 or $2 in oil. When uranium went remember the last time it was $7 up to $140, right? The previous high before was $37, okay?
DR: $37, then it went past that. For me the key will be belief that two things could do it. Japan continues to grow, that will be gradual, or a problem at a mine. Usually what causes jumps in commodities in uranium has been mines. For example, when we jump from $13 to $20, it was because Cigar Lake got flooded and it was coming on line and there is just a tight supply. Then you have also had the fire down at Ranger in Australia. Usually it is an event.
I personally think that as the Chinese start to buy uranium in the open market they will cause some tension. One of the problems we have got is that the utilities only bought about a quarter of the usual amount so instead they buy and spread it over four years. There is got a lot of- their coverage time is definitely- they do not have the uranium come 2020, but they do not wait till then; they usually, you know, a couple of years before if not before they like to know they have got that uranium.
Uranium is a very small part of running a reactor. It is not like you said uranium goes to a hundred, oh, we cannot afford that. No, no. We figure out once that- I think Sprott Asset Management did a quick number that unless uranium at $200 we would not be touching the interest payments on borrowing the money in normal standards. It is a very small part of running a reactor that is why you can have these huge moves. It is insensitive, right? To me, I thought it would be last year, so I have always been wrong because I am biased. For us, it matters a lot to us the price of uranium it effects our stock price.
There is only a handful of names that you should really own. Denison, us, you know, Uranium Energy (NYSEMKT:UEC), and Cameco (NYSE:CCJ). If people don't want risk they can buy the ETF. But for us I think we offer stability with this financing. We are able to be solid now for the next three to five years. Do not need any money no more that up in Canada we have these folks who funds it is like a bad treadmill because you keep, keep, keep going to them. Because there is a very small pool of people, right, who buy these things, and so we are off that treadmill. I like that. I like the fact that we have got the best undeveloped uranium asset in the world and Chinese already owned 20%. We got a built in buyer there. I am going to be going to India this spring. We have been invited to come out and talk to utilities there.
These other players we are talking to- when you have got one it is like when you have got a job it is easier to find a job, right? Same thing here. You already got so $70, $80 million well it's easy to get more money when you have got money, right? Because when you do not have money your bank will squeeze you. Right now this market, he who has the gold wins. In a bull market it is the company because money is chasing it. Right now the companies are chasing money.
CK: Yeah, well, adding to your point, Dev, and this will my last point. I bring this up on the show all the time, but uranium is a very unique sector as a way for people to invest in a public company. You look at something like gold and there are several hundred different companies for investors to go into. But in the uranium space and especially today if you are looking for a quality uranium company, you listed a few of them, there is just not that many. Like you said the move is over before you even realize it. I just remember looking at stock screens years ago when the uranium prices started to move and you are talking 20, 30% moves day after day for a couple weeks, and just like that the investment you have made or speculation has appreciated hundreds of percent. I guess it is only a matter of time before that happens again.
DR: Well, yeah, I agree. I mean it is different altogether. Someone said the entire uranium markets are like, you know, $6 billion. I think it is even less. I think it is $4 billion. That is smaller than Lululemon, one clothing company, right? At the same time it does make it easy absolutely to do those things.
DR: Easier to pick stocks
CK: Well, Dev, I want to thank you so much for taking 30 minutes out of your busy schedule today. I hope that yourself and Fission Uranium have a very successful show this year up in Vancouver. Dev, if you have anything else to add go ahead now.
DR: No, it is great. Thank you for your time. I think these are tough times and investors need be very wise where to put their money. You want to be in companies that are financially strong, well-managed, and I think in the right commodity. I think that is where we tick three boxes. I think we are financially strong. Our managers have been through tough times, and I think we are in the right commodity which has not gone down like the others have this year.
CK: Absolutely! Dev, thank you so much for coming on the show.
DR: Thank you.
Dev Randhawa is an expert in the natural resources and energy markets. He has enjoyed a long and successful track record as a Chairman and CEO. In this capacity he has founded and grown several highly successful junior resource exploration companies. Prior to becoming a C-level executive of mining exploration companies, Dev Randhawa had a successful career as an investment banker. He left to start his own junior mining corporation in 1996 in order to run a company that allowed him to take the long view and build something more lasting. The skills and experience that he acquired as a broker helped him to develop a great understanding of the components that allow a resource company to succeed. A great management team and a great Geo team form the core of his approach and his track record speaks for itself.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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