Resource Sector Digest: Energy Fuels - Buy American Might Fall Flat

by: Itinerant

Uranium miners in the US are pinning hopes on a 25% quota.

Newmont is about to re-take the #1 spot in the gold mining world.

MAG Silver has moved another step closer to production.

debunking-buy-american-made-in-u-s-a-and-assembled-in-u-s-a (Source)

Will this time be different and nuclear facilities in the US be forced to Buy American? Read on and post your comments under this week's...

Resource Sector Digest

(Vol. 130 - April 15, 2019)

Brought to you by Itinerant and The Investment Doctor.

In case you missed out on previous editions of this newsletter, simply click here, here or here to catch up.

Setting The Scene

The US Department of Commerce is about to release its report on The Effect of Imports of Uranium on National Security shortly. The investigation into this matter was prompted by two small US-based uranium miners, Energy Fuels (UUUU) and Ur-Energy (URG), who propose that 25% of the US uranium market should be reserved for US producers. The DoC is required to prepare a report until April 14, followed by three months for the POTUS to take action (if any).

Deja vu? Yes, indeed - uranium miners have tried this trick before, and it is worth re-calling the 1989 report into this very same topic: the dire situation of US-based uranium mining was confirmed, but no national security threat was detected and, consequently, no action was recommended. After all, as of 1989, a large portion of the uranium used in the US came from Canada, and the Northern neighbor was not seen as a security threat back then.

Fast forward 20 years and one wonders what could have changed to warrant a different outcome.

Well, for one, the state of the uranium mining industry in the US has declined further, as illustrated by the chart above which was provided by Energy Fuels and Ur-Energy as part of their submission. However difficult as the current situation clearly is for US-based uranium production, the question remains whether the country's dependence on uranium imports represents a national security threat to be addressed by quotas.

No such threat was detected in 1989, and much of the arguments that led to this conclusion back then are still in place. Canada and Australia are still providing more than half of US uranium needs, and despite some name calling (link, link) by the POTUS, not much has changed in the otherwise friendly relationship with these countries. Furthermore, plenty of uranium mining capacity in Canada is on standby and can be ramped up in a relatively timely fashion if demand arises. One could go into much more detail here (and the report about to be released will most likely provide these details), but we are not expecting the bottom line to change: friendly neighbors are still able and willing to provide nuclear fuel for US demand, and what wasn't considered a threat in 1989 probably still doesn't constitute a threat today.

There is one notable change since 1989, however, and this change introduces a wild card into this storyline: the current POTUS seems to be taking a different view on national security than his predecessors. After all, this POTUS is currently pondering the likelihood of a national security threat posed by cars manufactured by NATO allies. Seriously? And Latin-American immigrants suddenly pose a national emergency. Seriously? Without wishing to open a Pandora's box here, this scribe believes that the current administration is in the process of re-defining the country's understanding of national security. Combine this re-definition with the public name-calling mentioned above and you have a speculative thesis that has certainly helped the share price of the mentioned uranium miners.

Chart Data by YCharts

Tempting as it might be to combine the Buy American card with the National Security card and agree to the proposed 25% quota, we believe this thesis will not come to fruition after all, and judging by the tail end of the chart above, the market might have come to a similar conclusion.

After all, there are powerful groups lobbying against the proposed quotas in the US, first and foremost the Ad Hoc Utilities Group formed by the American power utility industry. The political weight of this group far exceeds the clout of the uranium miners, and the potential backlash from power rate increases far exceeds the political kudos that can be garnered from the few hundred people associated with uranium mining.

At the end of the day, we believe there are valid arguments to consider an investment in both Energy Fuels and Ur-Energy, but the ongoing §232 investigation should probably not be included in a bull thesis. We are therefore expecting some weakness in the share price of both names in the coming weeks.

Actionable Ideas

The Investment Doctor has had a good look at Solvay SA (OTCQX:SOLVY) and seems to like what he saw.

News Release of the Week

News release of the week goes to Newmont Mining (NEM) and Goldcorp (GG) for receiving the final approval for their business combination. The transaction is set to close on April 18, and the combined entity will overtake Barrick Gold (GOLD) as the largest gold miner in the world.

Drill Result Summary

  • Lumina Gold (OTCQX:LMGDF) reported 626m at 0.62g/t gold and 0.11% copper at the Gran Bestia discovery in Ecuador. The hole failed to reach the end of mineralization which starts on surface.
  • Marathon Gold (OTCQX:MGDPF) has released drill results from the namesake deposit at its Valentine Lake property in Newfoundland. The reported holes were designed to confirm continuity of the deposit and seem to have served the purpose.
  • Puma Exploration (OTC:PUXPF) reported the discovery of a new copper zone at its Murray Brooks project in the Bathurst Mining camp of New Brunswick.

Wheelings and Dealings

Equinox Gold (OTCPK:EQXGF) has strengthened its balance sheet ahead of starting construction of its Castle Mountain project by closing a $130M strategic investment by Mubadala Investment Company and setting up a $130M revolving facility led by the Bank of Nova Scotia (BNS). With Aurizona also coming online, the company seems set for some interesting news flow this year.

Paramount Gold (PZG) has sold a 2% NSR on its Sleeper property in Nevada to Franco-Nevada (FNV). The proceeds of $2M will be used to fund development of Paramount's Grassy Mountain project in Oregon.

Goldsource (OTC:GXSFF) was able to raise C$7.5M in a brokered placement. The funds will be used to drill and further develop the Salbora discovery near the company's Eagle Mountain mine in Guyana.

Sarama Resources (OTC:SRMMF) announced a C$2.5M strategic investment by Australian gold miner Silver Lake Resources (OTCPK:SVLKF). This investment was part of a C$4.5M financing and will ensure sole ownership of the South Hounde project in Burkina Faso. It will also pay for salaries and some exploration activities.

Vendetta Mining (OTC:VDTAF) seems to have obtained debt funding to finalize the acquisition of its Pegmont project in Queensland, Australia. The synopsis of the associated discussion on the Itinerant Musings chat board reads like this:

Troilus Gold (OTCQB:CHXMF) announced a C$12M bought deal offering aiming to raise capital for the re-development of the company's namesake mine in Quebec. The mine was operated by Inmet Mining before it was taken over by First Quantum Minerals (OTCPK:FQVLF). And speaking of First Quantum, we take note of the base metal miner's intention to spend $327M on an expansion of the Cobre Panama mine, a plan that will certainly make Franco-Nevada investors happy.

Maverix Metals (OTCQX:MACIF) has amended its credit facility and thereby increased liquidity. The revolving facility has been expanded from $50M to $75M, and at the same time, interest obligations for drawn funds have been reduced from LIBOR plus 2.5-4% to LIBOR plus 2-3%.

Other News

MAG Silver (MAG) and JV partner Fresnillo Plc (OTCPK:FNLPF) have received board approval to complete the Juanicipio silver mine, targeting completion in late 2020. The market may be speculating on a potential buyout given the recent relative strength of the junior.

Chart Data by YCharts

Taseko Mines (TGB) announced production of first copper from the test facility at its Florence copper project in Arizona. This is an in-situ leaching project, and Taseko seems confident to start production from a commercial facility within 12 months. Excelsior Mining (OTCQX:EXMGF) is the other company attempting to mine copper using this technology on a large scale at the Gunnison project, also in Arizona. The junior is aiming to start production before the end of the year.

Trevali Mining (OTCQX:TREVF) has named Mr. Ricus Grimbeek as the new President and CEO. The new front man has an engineering background, a trait we can only applaud in the context of this particular zinc miner.

Hudbay Minerals (HBM) is turning into the next venue for activist intervention in the mining space. In this case, Waterton is seeking to replace 80% of the directors at the May 7 annual meeting, with current management and board clearly not happy with this notion.

Lydian International (OTC:LYDIF) is calling in the police to remove protesters from the Amulsar mine site where construction has been stalled since June last year. An Armenian court order for the police to take action can be appealed until May 10, and we note that summer conditions are crucial for various construction activities.

Euro Sun Mining (OTCPK:CPNFF) has received all permits necessary to develop and eventually exploit the Rovina Valley gold deposit in Romania. The PEA for the initial phase of this project as filed on SEDAR earlier in the year described an operation that forgoes the use of cyanide and employs dry-stacking of tailings, decisions that have added to capex and have reduced the profitability of the project, but apparently have also paved the way to persuade government agencies to issue said permits.

Integra Resources (OTCQX:IRRZF) confirmed expectations of positive metallurgical properties at DeLamar and Florida Mountain in Idaho. The latest results will flow into the ongoing work for an eagerly awaited PEA.

OceanaGold (OTCPK:OCANF) is maintaining its appetite for gold projects in Nevada. The mid-tier and its junior partner Bravada Gold (OTCQB:BGAVF) have agreed on an exploration program for the Highland project located on the Walker Lane.

Harte Gold (OTCPK:HRTFF) announced results of a feasibility study for the Sugar Zone gold project. The economics met high expectations, but that was not enough to turn the share price around after the corporate update a week earlier.

Chart Data by YCharts

And finishing off on a positive note for once, we would like to shout out to Endeavour Mining (OTCQX:EDVMF) for declaring commercial production at the Ity mine in Cote d'Ivoir, plenty of time ahead of schedule and with plans to produce 160-200Koz before the end of this year.

We bid our farewell for now, see youse all next week, alert and with a smile on your face for the next issue of this newsletter.

Disclosure: I am/we are long NEM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.