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Uranium Exploration Continues Robust Growth

By Darryl Kelley
MidasLetter.com
Wednesday, April 1st, 2009

Uranium exploration has been attracting increasing levels of investment, according to a report released by the Canadian government.

Natural Resources Canada recently released its 2008 mineral exploration expenditure data, and for uranium investors it shed some light on the challenges facing new supply in the Great White North.

Approximately $378 million was spent on uranium exploration in Canada in 2008 – part of a total of uranium spending in Canada of $1.4 billion since 2004 – and only two new resources have been built, which are years and years away from production. Interestingly, they are both in Quebec, and none in Saskatchewan, the uranium capital of the world.

Despite the massive price spike and ample financing opportunities during the boom of the 2006 to mid 2008 period, growth in primary uranium supply has been relatively anemic this decade. This is largely because advancing new production has proven to be significantly more challenging than anticipated. The massive wave of new production capacity forecast by many market observers has yet to materialize.

The only “new” discoveries since the uranium boom began in 2005 are Uracan Resources’ (URC-TSXV) 40 million pounds at their North Shore Property in Quebec, Strateco’s (RSC-TSX) 16.8 million pounds at Matoush, also in Quebec, and Hathor Exploration’s Roughrider Zone in the Athabasca Basin in Saskatchewan, which has yet to publish a resource.

(Apologies to UEX Corp., (UEX-TSX), and Pele Mountain (GEM-TSXV) but their “discoveries” had already been made or were historically known.)

As background, exploration across Canada, and across all minerals, was up in 2007 to $2.6 billion – a record year, and the eighth year in an uptrend. The Canadian government expects roughly the same level in 2008.

(Just to give you an idea of how important Canada is to the mining world, consider that 21% of all mineral exploration programs in the world are expected to be done in Canada, and that “Canadian companies” (not sure how that gets defined) will take part in 43% of them.)

The junior exploration companies have become the dominant explorers, outspending the seniors every year since 2004, and represent 63% of Canadian exploration. Exploration expenditures by juniors have gone from $175 million in 1999 to $1.8 billion in 2008.

Uranium has re-emerged as a star mineral commodity with expenditures rising from $48 million in 2004 to $91 million in 2005, $213 million in 2006, $413 million in 2007 and $378 million in 2008.

The 2007 federal government report on mineral expenditures had more information on uranium – “In 2007, activity at roughly 500 uranium properties represented close to 14% of total expenditures. Saskatchewan remained the leading jurisdiction for uranium expenditure in 2007, followed by Quebec (Otish Mountains), Newfoundland and Labrador (Central Mineral Belt), and Nunavut (Thelon and Hornby Bay basins). However, in 2008, Nunavut should move into third place ahead of Newfoundland and Labrador.”

Quebec has had more uranium discoveries added into a resource category than Saskatchewan, despite the prairie province having many more exploration dollars spent there. The Saskatchewan Mining Association estimates that $195 million was spent on grassroots uranium exploration in 2008 – more money in one year than Quebec has had in the last four years (Quebec expenditures were so low they didn’t bother keeping uranium stats before that).

Uranium exploration expenditure in Quebec in each of 2007 and 2008 was about $70 million, with $22 million in 2006 and only $4.5 million in 2005.

Uranium exploration accounts for just over half of all mineral exploration in Saskatchewan, and about 15% of Quebec’s total.

The only real increase in uranium production globally is coming from low grade, bulk tonnage deposits in Namibia, Africa, and from low grade ISL (in-situ leach) deposits in Kazakhstan.

Canadian mineral explorers are among the best in the world, and as the statistics show, clearly the most dominant group. If $1.4 billion in exploration dollars over 4 years can only find 56 million inferred pounds of uranium (Strateco plus Uracan) in the country with the largest uranium resources in the world, what does that say about the future supply of uranium? It strongly suggests that new supply will be hard to find in a first world country, and that has to be bullish for the long term uranium price.

In the medium term, risks in the uranium market appear balanced to the positive. Uncovered U308 requirements by utilities should begin to grow in 2011. The structural gap between supply and demand is anticipated to remain significant, as major new projects such as Cigar Lake and the Olympic Dam expansion are pushed back. Uranium prices will need to remain strong to encourage exploration and the development of new capacity.

In the long term, fundamentals in the uranium market appear extremely positive. The nuclear renaissance and the build out of new reactors, while no doubt slowed by the credit crisis and the global recession, is forecast to significantly increase U308 demand, particularly in China and India. Advancing new production to meet this demand is likely to be a very significant challenge for the industry.