EXCLUSIVE TO SIGHTLINE U3O8 – In 2011, after suffering nearly three years of declining U3O8 prices, uranium companies were energized at what appeared to be a rapid return in the spot price as it leapt nearly 50% to close the month of February at US$70.00. Two weeks later, the excitement came to an abrupt halt following the disastrous strike of a Tsunami in Japan, resulting in the shutdown of 10% of the world’s nuclear reactor fleet.
That event triggered what has been a slow, seven-year deterioration in the commodity price to levels significantly lower than the cost of production.
As the major producers relent to the market realities, shuttering mines and reducing production, early stage projects languish and eventually fall to the wayside. What is left is a much smaller but resilient group of uranium explorers who have somehow managed to weather the storm.
Although cost cutting is the obvious first course of action (see our article on overheads), eventually these companies need to find new (and sometimes creative) ways of financing their operations and advancing their projects. So how have the remaining uranium explorers managed to keep fuel in their tank?
Typically, equity financing is the primary method for exploration companies to fund their operations and advance their projects. For those exploration companies that were around pre-Fukushima, however, their share price has decreased an average of 85% while the U3O8 spot price has fallen over 70%.
During a time of ever-decreasing share and commodity prices in the uranium market, equity funding has been difficult, if not impossible to come by.
Look at Saskatchewan explorer Senator Minerals Inc. (TSXV: SNR) that spent months on a discouraging financing exercise. They announced in September 2017 their intention to raise up to $5 million (MM) on the back of their Carter Lake project acquisition. The financing was priced at $1.60 per share and the proposed $5 MM would allow them to fund their work program at Carter Lake and Patterson Northeast projects. One month later, the Company announced that, due to strong market interest, it had increased the financing price from $1.60 to $1.90 per share. One more month later, the share price had dropped to $0.80 and the Company announced they would not be proceeding with the private placement. Today Senator’s share price is seating around $0.08.
On the other hand, and despite the hard times, some explorers such as Deep Yellow, Blue Sky Uranium, UEX and Skyharbour have been quite adept at raising equity over the last two years ($15 MM, $11 MM and $7.8 MM respectively). Some of the companies have also been able to capitalize on warrants and options during the same period including, Blue Sky Uranium – $3 MM ; Skyharbour – $1.75 MM; Azincourt – $1.4 MM, Purepoint Uranium – $700,000; CanAlaska – $550,000 and ALX – $270,000.
The problem becomes much more evident when you look at the remaining 13 explorers on our list. Over the past two years, they have raised, on average, $850,000 per year each in private placements, which barely covers the average overhead costs of $760,000 per year. (see our article on overheads)
JOINT VENTURE PARTNERS
Some companies have been fortunate enough to find large collaborative partners allowing for the advancement of projects while preserving their own cash.
UEX has made good use of partnerships since its inception in 2001 through its initial transaction with Cameco for its Hidden Bay uranium exploration property and subsequent transactions with Cogema (now Orano) for what is now the Kianna deposit.
These, and other relationships have allowed UEX to continually prioritize, manage and advance its portfolio of 15 projects during the harshest of financial periods. While UEX’s exploration priority has rightly been on their exceptional Christie Lake project, 11 of its remaining 14 projects are engaged in some form of partnership.
With the help of their partners, some projects have had adequate past investment to be safely held on maintenance until markets return. Other projects have had reduced but continued investment in order to keep them in good standing.
Other strategic decisions, however, have allowed for acceptable dilution of ownership in return for continued advancement of the project. In 2018, Orano proposed budgets of $0.6 million on the joint ventured Alexandra project and $2.2 million on the Nikita project of which UEX decided not to fund. Interests on these projects are anticipated to drop to 39.6% in Alexandra and 22.8% in Nikita, should Orano complete the approved programs.
Purepoint Uranium Group Inc.
In 2007, Purepoint entered into joint ventures with Cameco and Orano on their Hook Lake and Smart Lake projects. Since then, the projects have proven to be located in the midst of the emerging Patterson Uranium District, a structural corridor situated on the SW edge of Saskatchewan’s Athabasca Basin and host to Fission Uranium’s Triple R deposit, NexGen’s Arrow deposit and Purepoint Uranium’s own Spitfire discovery.
Over the past three years, Purepoint’s partners have contributed nearly $10MM towards the advancement of Hook Lake while paying Purepoint $1,250,000 in management fees for their work as operator.
Meanwhile, Purepoint’s early investment in their other nine projects has allowed them to remain in good standing during the uranium market’s down cycle.
ALX Uranium Corp.
As the Patterson Uranium District emerged, it became evident that ALX held a potentially valuable asset in their well-located Hook-Carter Lake project. In 2016, they monetized that asset by selling an interest in Hook-Carter to developer Denison Mines.
In return for an 80% interest, ALX received 7.5 MM shares of Denison. Denison, as operator agreed to fund the first $12MM in exploration expenditures with $3MM in the first three years.
Since then, ALX has used the proceeds of those shares to advance their other 18 projects and cover overhead costs.
Skyharbour Resources Limited
Along similar lines, allowing other explorers to earn-in to projects by funding exploration is a fairly common method of advancing early stage projects without the dilutive aspects of equity financings.
In 2017, Skyharbour signed option agreements with Orano Canada Inc. and Azincourt Energy whereby Orano and Azincourt can earn in up to 70% on the Preston Project through a combined $9,800,000 in total exploration expenditures, as well as $1,700,000 in total cash payments and Azincourt shares.
Securing strong equity partners can also be helpful in strengthening an explorer’s financing capabilities. Some companies will be able to capitalize on its strategic partnership as a way of funding its projects but also boosting investors’ confidence that there is a “big brother” backing up the Company’s strategic plans.
Summit Resources Limited
Summit is an example of an evolving equity partnership structure. Paladin Energy Limited is Summit’s largest shareholder with an 82.08% interest on Summit’s shares. Both companies also share 50% ownership of Summit’s flagship project: the Isa Uranium JV project.
On August 1st, Paladin announced an off-market conditional takeover bid for all the issued shares Paladin does not presently hold, priced at a 68.33% premium from the July 31st closing price. While the takeover bid is finalized (scheduled to closed on October 12, 2018), Paladin also agreed to provide Summit a loan facility up to $500,000 for working capital requirements, that will include its transaction costs.
Paladin and Summit relationship was not always friendly. Back in 2007, Paladin made a hostile take over bid for Summit shares which ended up in the Australian Government Takeover Panel as its directors rejected the offer by Paladin and signed a transaction agreement with then Areva NC Australia Pty Ltd (for more info on the court ruling, click here.)
This time around, the independent directors of Summit unanimously recommend that Summit shareholders accept the offer in the absence of a superior.
Fission 3.0 was incorporated in October 2013 as a wholly-owned subsidiary of Fission Uranium Corp. to hold the Patterson Lake North PLN, Clearwater West, North Shore, Beaver River and Manitou Falls properties in Saskatchewan, together with the Macusani, Peru property.
The company was immediately taken public leaving Fission Uranium to hold a significant equity position and providing Fission 3.0 with an initial treasury of approximately $3MM and a shared management team.
Fission 3.0 has gone on to assemble a respectable portfolio of 21 uranium exploration projects across the Athabasca Basin and has successfully raised approximately $3MM per year either through private placements or through work performed for its primary shareholder, Fission Uranium.
ISOEnergy began as a wholly owned subsidiary of NexGen Energy to acquire certain exploration assets of NexGen in early 2016. Until its listing on the TSXV in late 2016, ISOEnergy’s operational expenses were financed by NexGen. To that end, NexGen holds 58.9% of ISOEnergy common shares.
Since their spinout, ISOEnergy has successfully raised in excess of $10MM for the acquisition and advancement of Athabasca Basin projects with the support of their majority shareholder.
Western Athabasca Syndicate
In 2013, as the southwest region of the Athabasca Basin was starting to show promise and investors continued to hold out hope for an early return in uranium prices, four uranium explorers took a novel approach to exploring their projects. Skyharbour Resources, Lucky Strike Resources, Athabasca Nuclear and Noka Resources assembled their respective 710,000 acres of adjoining properties into a single exploration region.
The result was a four-way, 25% each, earn-in arrangement requiring the collective investment of $6MM over a two-year period.
Unfortunately, uranium prices continued to decline and the agreement never reached a joint venture stage, but this syndicate certainly highlights the creativity and dedication of those who continue to believe in the potential of this metal and this region.