Aussie uranium juniors: from champagne to flat beer

PERTH, WESTERN AUSTRALIA — They were heady days for uranium juniors in late 2007, when uranium oxide’s spot price hit US$138 a lb. and new Australian uranium float listed on the Australian Stock Exchange at least once a week. Investors rushed to heavily oversubscribed companies holding ground in Western Australia and Queensland — states that were, and still are, politically out of bounds for uranium mining.

But by the time the spot price had slipped well below US$100 per lb., the romance was over.

Lindsay Dudfield, managing director of Energy Metals (EYMTF-O, EME-A) says Australian investors now see iron ore, nickel and even phosphate as in-vogue metals, while uranium, despite its bright future, is in the cellar.

In March Energy Metals, which holds a 55% stake in the Bigrlyi uranium project in the Northern Territory, announced a 64% upgrade in uranium resources and a 168% increase in vanadium content. Its share price rose a few cents that day but was back below A$1 the following day, and at presstime traded around A76. This compares with the second half of 2007, when Energy Metals traded at nearly A$3 (taking into account a three-for-one share split).

Bigrlyi’s total resource is now an indicated 2.3 million tonnes grading 0.17% U3O8and 0.24% V2O5, plus an inferred 5.2 million tonnes at 0.13% U3O8 and 0.27% V2O5.

Bannerman Resources (BAN-T, BMN-A) was a high flyer, but when the market fervour diminished, it gained no market interest from positive announcements from its projects in Namibia, notably Goanikontes.

In another example, Atom Energy (AXY-A), released a resource (compliant with Australia’s JORC code) on its Cleo’s deposit in the Northern Territory, but did not manage to reverse a progressively declining share price. By late April 2008, its market capitalization was less than A$4 million, even though it still had A$7.5 million in the bank.

Alan Eggers, a uranium industry commentator and principal of private investment fund Manhattan Resources, says the transformation of investor interest has been dramatic. So low are Australian uranium juniors on domestic investors’ radars, he says, that we could see some merger and acquisition activity later this year.

It’s not just the steady slide of the spot uranium price that has turned investors off — the January stock market meltdown triggered by nervousness on the Street and the repercussions of the U. S. sub-prime mortgage disaster are also to blame.

This put pressure on margin calls, hedge positions and other financial stresses that developed on the Australian financial markets. Firstly, margin lender Opes Prime, based in Melbourne, went into virtual collapse and this prompted exposed banker ANZ Bank to rapidly dispose of positions.

When another financial group, Lift Capital, raised the white flag, the freefall continued, particularly among junior companies that had been compelled by the Australian Securities Exchange (ASX) to disclose their exposure to Opes Prime.

Alan Eggers says that investor confidence in individual companies took a further battering in April, when it was disclosed that directors of explorers and miners, not just uranium companies, had Opes Prime and Lift Capital lending exposure.

Eggers adds that the prevailing wisdom in the junior uranium sector is that those companies that are not cashed up will be among those first picked off in any Australian mergers and acquisitions activity this year.

Companies that may need to raise capital right now will find it difficult, made harder by the likelihood that any offers for new stock would probably be well below current share prices.

Josh Welch, a uranium analyst for Perth stockbroker Paterson Securities, is more positive. The market correction had sorted out the good uranium stocks from the ordinary, he believes, and there are some juniors that are performing well, notably: Mantra Resources (MRU-A) with ground in southern Tanzania; WildHorse Energy (WHELF-O, WHE-A) with projects in Wyoming’s Bison basin; and Alliance Resources (AGS-A) with a 25% stake in the substantial Four Mile discovery near Heathgate Resources’ Beverley in-situ-leach (ISL) mine. (Heathgate is an affiliate of U. S.-based General Atomics, builder of the Predator unmanned aerial vehicle.)

Welch reckons that market sentiment could change if there is a big new discovery in South Australia or the Northern Territory.

A big victory of late has been the Australian Labor Party’s (ALP) elimination of its No New Mines policy, allowing the shackles to come off uranium development.

There was, however, a proviso: that Australia’s individual states decide whether to allow new uranium mines.

Western Australia and Queensland decided they would not, while the pro-mining South Australia — which hosts the Olympic Dam and Beverley uranium mines — decided it would. The government of the Northern Territory, which depends on federal money and currently allows the Ranger uranium mine to operate, was also positive.

The state of Victoria is not really prospective for uranium, New South Wales has not allowed uranium exploration for decades, while Tasmania has indicated it would allow uranium mining.

So this “half-pregnant” scenario in what is now a subdued market for uranium stocks is seeing uranium explorers in Western Australia and Queensland slipping further back.

South Australia and the Northern Territory appear to have substantial head starts over Queensland and Western Australia, despite the rich uranium endowments of the latter two.

Apart from the fact the ALP is in power in all Australian States as well as now in the capital of Canberra, the mining bureaucracies of Western Australia and Queensland are without the experience, and perhaps lack the statutes to deal with the sensitive issues of uranium mining, environment and transportation.

At the recent Paydirt Uranium Conference in Adelaide, audiences heard that the (more pro-mining) Liberal and National Party opposition are showing no signs of winning state elections, though the ALP is currently on the nose in New South Wales. And since then, federal Liberal leader Brendan Nelson was only able to achieve a popularity rating of 11%.

“Unless (WA Premier) Alan Carpenter falls under a bus, there will not be a change of government in that state for ten years,” Perth market analyst and commentator, Peter Strachan, told delegates at the Paydirt conference. “Labor will be very much the dominant force in Western Australia State politics and the premier cannot be expected to change his local anti-uranium mine policies in any foreseeable future.”

Warwick Grigor of Sydneybased Far East Capital told the conference to expect moderate uranium prices this year.

“The froth has been blown off the top, we should look at last year’s US$135 per lb. price as the peak of the cycle,” he said. Grigor expects uranium to trade within the US$60- 90-per-lb. range for the balance of this year.

Grigor blamed the “bigger fool” syndrome for much of the past year’s hype in Australian uranium share stocks. “Those pieces of paper were worth whatever else someone was prepared to pay, and kept going higher as there was always another fool — until eventually the list of fools ran out.”

He added that the share price bounce “wasn’t helped when the ringleader of the pack — in the uranium sector’s case, Paladin Energy (PDN-T, PDN-A) — suffered commissioning problems, the real litmus test for a project, and was savaged by media and analysts alike.”

So, what are some of Australia’s key projects?

• Four Mile: This could be in production soon, particularly as Heathgate has a maturing operation at nearby Beverley. For initial production, the ISL “piping” can be extended to Four Mile.

• CrockerWellandMtVictoria: PepinNini Minerals’ (PEIMF-O, PNN-A) key prospects in South Australia are part of a joint-venture alli
ance with China’s Sinosteel, which has set up an office in Adelaide.

• Honeymoon and Goulds Dam: Now owned by Uranium One (UUU-T, SXRZF-O), which has gained South Australia government approvals to proceed with an ISL project.

• Bigrilyi: Energy Metals holds a managing stake of 53.74% with Valhalla Uranium — a subsidiary of Paladin Energy — at 42.06% and Southern Cross Exploration (SXX-A) at 4.2%.

There are significant reserves on projects in Western Australia, including: Rio Tinto’s (RTP-N, RIO-A) big Kintyre project in the Pilbara hinterland (now on the auction block); Mulga Rock, a big discovery by PNC of Japan in the 1980s now subject to a new float, Energy and Minerals Australia (EMA-A); and Yeelirrie, an old WMC Resources discovery which saw completed development studies in the 1980s and is now in the hands of BHP Billiton (BHP-N, BHP-A).

Queensland, meanwhile, has Skal, Walhalla and other advanced discoveries near Mt. Isa, owned by Summit Resources (until a recent takeover by Paladin, managed by Alan Eggers). There is also the Westmoreland project, now controlled by Canada’s Laramide Resources (LAM-T, LMRXF-O).

But the biggest undeveloped uranium project in Australia is Jabiluka in Northern Territory. It has gone through a few hands since being discovered by Pancontinental Mining in the 1970s, and is now held by Rio Tinto through its controlled entity Energy Resources of Australia (ERA-A).

A few years ago, the Londonbased mining giant promised landowner claimants in the Alligator River’s region not to proceed with development without their support. That brought out the anti-uranium lobby, which has tried to influence a community of “landholders” that’s currently at least 10 times larger than it was when the original discovery was made over 35 years ago.

According to Intierra’s Minmet database, the Jabiluka 1 deposit hosts probable reserves of 11.8 million tonnes grading 0.5% U3O8, and combined measured, indicated and inferred resources of 15.2 million tonnes at 0.5% U3O8. Former owner Pancontinental also claimed a substantial surficial zone containing 1 million oz. gold.

–The author is a freelance journalist based in Perth, Western Australia. He is a director of Atom Energy Ltd. and editorial director of private company Western Media.