Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Shares in Global Atomic (TSX: GLO) have dropped nearly a third since the military rulers of Niger, where the company is developing its Dasa uranium project, vowed on the weekend to kick out United States troops that have been there more than a decade.
By Tuesday afternoon, stock in the Toronto-based company had fallen 29% since Friday to C$2.21 apiece, valuing Global Atomic at C$462.7 million. It was as low as C$2.03 on Tuesday and has traded in a 52-week range of C$1.28 to C$3.91.
Global Atomic plans to start Dasa’s $424.6 million construction after June and commission the mine by the end of next year, according an updated feasibility study this month. The military coup in July led the US to suspend government funding for Dasa, but the company raised C$15 million in January by selling stock and says it will pursue more financing in a 60% borrowing, 40% equity-raising model.
“With the situation in Niger being fluid, in addition to current advanced discussions with project lenders, the company is also pursuing other financing strategies to meet its project funding requirements,” president and CEO Stephen G. Roman said in a release on Monday. “Given strong third-party interest in Global Atomic’s high-grade uranium project and our plans for near-term production, there are many groups interested in funding the Dasa project.”
The spot price of uranium oxide, also called yellowcake, was $91 per lb. on Tuesday, down from $107 per lb. last month, but still at its highest level since 2007. The metal is at nearly double its year-ago price on rising demand for electricity production without the air pollution of fossil fuels, and a forecast supply deficit. China alone plans to build about 150 reactors over the next decade.
Shares in other uranium producers, such as Canada’s Cameco (TSX: CCO; NYSE: CCJ) and Kazakhstan’s Kazatomprom (LSE: KAP), the world’s largest, gained 2% on the Niger developments, but declined on Tuesday to near Friday’s close.
American troops have been in Niger to fight regional Islamic insurgents since a 2012 agreement. The West African country supplies about 5% of global uranium demand making it the seventh-largest producer, including about 20% of the European Union’s needs. Numerous junior and large companies are exploring in Niger. French-state owned Orano said last month it was restarting production that was suspended after the coup.
David Talbot, a uranium market expert and managing director of Toronto-based Red Cloud Securities, said that despite the uncertainty in Niger, the country has been a steady uranium producer for more than 50 years and the government has respected operations by foreign companies.
“Even with the recent removal of French troops from the country, Niger has respected Orano’s business and we would expect it to do the same with Global Atomic and others,” Talbot said in a note on Tuesday. “For now, the key catalyst for Global Atomic remains the closing of its project debt financing.”
The main shareholders in Global Atomic are Toronto-based Sprott Asset Management with nearly 8% through exchange-traded funds, and New York’s Global X ETFs and investment firm VanEck. The January stock fundraising included $5 million from Bermuda-based Regent Mercantile Holdings led by Stephen Dattels, who also has an interest in Pasofino Gold (TSXV: VEIN) and its Dugbe gold project in Liberia.
Global Atomic raised Dasa’s probable reserve by 50% to 73 million lb. uranium oxide in 8 million tonnes grading 4,113 parts per million uranium oxide, according to the new feasibility study. The company has signed offtake agreements for 1.3 million lb. of uranium a year from a plant expected to produce about 3 million lb. annually over a proposed 23-year mine life.
Western nations such as France, which has long stationed troops in its former colonies, have been trying to help countries in West Africa’s Sahel region south of the Sahara Desert stem the growth of Islamic insurgents over the past few decades. The US began its Africa Command in 2007. But recent coups, including in neighbouring Mali and Burkina Faso, have hardened the resolve of some countries to lessen ties with the West and turn to Russia and its mercenary outfit Wagner Group for support.
In an alarming development for the US, Niger is considering a yellowcake supply deal with Iran, The Wall St. Journal reported on Sunday. The West has been trying to block Iran’s access for decades to nuclear material that could help it build an A-bomb.
The pivot prompted a US delegation including Assistant Secretary of State for Africa Molly Phee to visit Niger last week and press the regime under General Abdourahamane Tiani to organize elections, address security concerns and kill the Iran deal. But the Americans didn’t meet with Tiani. He issued a statement criticizing the condescending attitude of the visitors for not following protocol, denied there was a deal with Iran and cancelled the security arrangement with the US.
The US operates two bases there including one for drones built in 2021 for an estimated $100 million, according to Reuters. It remains unclear if all the 1,300 US soldiers in the country will have to leave.
Besides countering Islamic insurgents, the West also wants to increase its uranium fuel processing. The US, Canada, Britain, France and Japan committed a total of $4.2 billion in December to build new plants since Russia’s Rosatom controls more than half the world’s capacity. Some Western nations are considering whether to sanction Rosatom and yellowcake exports to Russia.
For uranium investors, the price crash in battery metals nickel, lithium and cobalt may be a cautionary tale about the energy transition’s demand at this stage. Nuclear power has held out promise for decades but safety concerns, accidents and construction cost overruns have limited its appeal. The cure for high metal prices is high metal prices, The Economist noted last month.
But the Toronto-based Sprott Physical Uranium Trust (TSX: U.U for USD; U.UN for CAD), the largest investment fund in the physical metal, with $5.5 billion under management, remains boosterish while noting constraints in Niger.
“The situation in Niger is still developing, and Orano continues to face logistical challenges with both accessing the required reagents and exporting uranium,” Sprott exchange-traded fund project manager Jacob White said in blog-post on Monday. “Uranium’s recent pullback from the triple digits may be an attractive entry point in the overall uranium bull market.”
