(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long PLU.V)
Plateau PEA Due in January Should Bring in the New Year with a Bang
Back in December, investors in Plateau Uranium were treated to a sneak-preview of some of the updated preliminary economic assessment (PEA) inputs and results. The company provided so much detail that regulators actually made it clarify the fact that none of the resources discussed have demonstrated economic viability (from a regulatory perspective, you would need a pre-feasibility or full feasibility study for that). In response, the company made the distinction between certain terms that it had used in its press release and clarified the nature of the information that was disclosed. Perhaps lost in all of that "clarification" was the glaring fact that Plateau seems to be about to confirm the results of its initial preliminary economic assessment… which showed very favourable economics back in December 2013. This time however, the PEA will be on the fully consolidated resource which has taken years to put together.
In a nutshell, Plateau seems to be pointing towards a base-case/high-grade operations option that would produce 4 to 5 million pounds of yellowcake per year for somewhere around 10 years... and it will be modelled as doing this at a $50/lb uranium price. If you're not aware, there are very few development projects in the world that can show positive economics at $50 uranium. It's one thing for a mine that's already built to turn a profit at $50/lb, but to show a positive NPV when the capex is still in front of you would be a rare animal indeed. Even with the cat somewhat out of the bag from Plateau's "premature" discussion of some of the early PEA findings, the market is so depressed these days that very few people took notice.
Forgive my brief rant here… Sometimes I think that you could wave hundred-dollar bills in investors' faces and they'd just view it as coloured paper that used to mean something to them, but they have forgotten what it is exactly. Look, I get it, commodities are a painful place to be… oil is down, most 5-year olds probably know that by now and it's the mother of all El Nino's, so gas is going to zero, right? On top of that, China is slowing and the dollar is strong. So sell, copper, oil, gas, zinc, iron, coal, all of it. If it's a commodity, it's a dirty word (though cocoa investors are having a good run). Energy and the metals are so universally hated, that it is almost by definition exactly the time to be buying them. Hey, Mr. Market… remember when you used to be cool? Remember when you would actually direct capital towards projects that made sense from a micro- and/or macro-economic standpoint in the hopes of generating a return on that capital? Remember when you used to be able to differentiate between, say, uranium and zinc and you understood that all energy and metals markets are not just a single thing that can be grouped into the same bucket? Mr. Market… wake up! There are good regional gas markets out there. There are still good discoveries being made in the base metals (just look at the Freeport-Reservoir Minerals JV in Serbia). And remember uranium? Japan keeps restarting reactors and China is building them like crazy… Eight per year (yes, 8 per year) through 2020. The material for these reactors isn't going to fall out of the sky… it's going to need to be mined. Which means that someone is going to have to actually build mines to pull it out of the ground.
The supply-demand fundamentals of the uranium sector are some of the most well-known figures out there, but the market seems bent on waiting for some kind of sign from the heavens before stepping up to the plate. In general, I agree that uranium projects make for a tough business. Costs are typically high and full-cycle returns are generally skinny, if positive at all. But what if you knew about one of the lowest cost and largest uranium projects on the planet, in a mining friendly jurisdiction, located on the Pacific Rim? Is that something you might be interested in?
This brings me back to Plateau, who just telegraphed exactly that in its December 1 press release linked here. This is a uranium project in one of the world's most established mining jurisdictions, in a country that was a founding member of the IAEA, that has a 4-lane highway running by it, hydro power crossing it, and good access to both sea- and airports. This would not be some dinky hobby-farm operation. The resource size and production numbers Plateau is discussing would put it within the top 10 development projects in the world and it may also be one of the lowest cost (in terms of opex/pound and capex/pound). All of the information is out there and the company has even gone on to further telegraph that it should be in a position to discuss the full results of the PEA in January 2016… yes, that's this month.
I'll have more to say once the PEA is on the table for all to see, but right now the smoke signals seem to be indicating that the Macusani Plateau project is an undiscovered gem in a sector that's getting increasingly positive traction as the world comes to grips with the realities of how to mitigate carbon emissions. China is leading the charge right now and several other countries have ambitious expansion plans of their own. All of these projects will need yellowcake and there are very few projects capable of delivering it. Depending on your cutoff, Plateau has somewhere from 80-120 million pounds of U3O8 that has shown excellent metallurgy, high recoveries, good leach kinetics, at or near surface, in soft rock which is wide open to expansion. The only knock on the project is that Peru hasn't had a uranium mine before, but that's more because there hasn't been a mine worth building, not because of some fundamental objection to yellowcake production. Yellowcake is actually fairly benign as a raw material and given what's happening in the mining sector globally, I would think that a new (and strategic) mine would be pretty welcome in a country like Peru right about now.
One of these days utilities are going to have to come to market to start contracting material for their uncovered reactor requirements... and when they do, the market will see just how bare the cupboard is. Oddly, the last uranium spike essentially synchronized a lot of the utilities' buy programs, so when they come to market, they will end up competing with one another again. For anyone that wants to see a really interesting interview on the uranium market fundamentals, this interview with Rob Chang from Cantor Fitzgerald is an absolute must read:
Happy New Year and happy hunting.