Company Acquires 60% Interest in Mann Lake Project as Uranium Price Appears Poised for a Turn
Significant corporate activity at Vancouver-based Skyharbour Resources (SYH.V TSXV) includes the January 16th announcement that the Company has acquired the 60% Triex/Canterra interest in the Mann Lake Uranium Project on the east side of the prolific and high grade Athabasca Basin in northern Saskatchewan, adding to its already impressive property portfolio in the western Basin.
More on SYH in a moment.
Investors tend to invoke the spectre of Fukushima as the catalyst for Uranium's price decline. And certainly that is reasonable. The good news is that the decline may well be over or at least bottomed. Here are some very recent analyst/media observations/forecasts:
- Uranium prices ($35) lowest since 2005. Hit $140 in 2007. - 556 Reactors currently under construction planned or proposed. Pre-Fukushima, 541 - Forecast that Japan could restart as many as 16 reactors in 2014 - In December, Japan recommended Nuclear as primary power source - Global uranium deficits in 2 of the next 5 years with large and potentially consistent shortfalls by 2019 - Cameco, the proxy for global uranium market health is hitting new 52 week highs - Uranium price forecast to $60-plus by 2015.
There is the potential that there will not be enough uranium produced in 2019 and beyond to meet demand, resulting in mothballing some reactors or cancelling. If that eventuality comes to pass, in perception or reality, the price should act accordingly. And of course any positive nuclear news, particularly out of Japan, could potentially gap the commodity's price. No news likely means the status quo for now. That said, early is always better than late.
Skyharbour's Growing Influence
Within the last eight months, SYH has structured two impressive land deals. The first involved the formation of the Western Athabasca Syndicate and included one of the largest land packages in the Basin - over 700k acres in the west Basin near the PLS discovery with Syndicate partners Athabasca Nuclear (ASC: TSXV), Noka Resources (NX: TSXV) and Lucky Strike Resources (LKY: TSXV). Each of the four companies will earn 25% of five uranium properties by incurring exploration expenditures over a two-year period. Skyharbour believes the syndicate model is the most cost-efficient and operationally effective structure to conduct a large exploratory program without substantial equity dilution to current and future shareholders.
In the east basin, the Company just acquired 60% of the Mann Lake Uranium Project, which spans 8,600 acres; JV partner Aben Resources (ABN: TSXV) owns the balance. Let's break these down.
Surrounded by claims held by Cameco Corp. (CCJ: NYSE, CCO: TO), located southwest of the McArthur River Mine, and along strike to the northeast of the Millennium deposit, SYH's January 16th acquisition of Triex/Canterra's 60% interest in the Mann Lake Uranium Project is a noteworthy development for the Company. The project is adjacent to the Cameco, AREVA and International Enexco's Mann Lake JV. High-grade, basement-hosted uranium mineralization was intersected on this adjacent project during a 2006 diamond drill program, including 7.12% U308 over 0.25m and 5.53% U308 over 0.4m. A 13k metre, 18-hole drill program has just commenced at the Mann Lake JV, which is one of Cameco's largest exploratory drill programs in the Basin.
Previous surveys identified features that trend from Cameco's ground onto SYH's Mann Lake property. Any drill success over the next few months on the adjacent Mann Lake JV will surely value-add Skyharbour's Mann Lake property offering a potentially significant near-term catalyst.
This newly acquired property both expands and enhances SYH's influence and land position in the Basin and complements the flagship Western Athabasca Syndicate Project structured in the summer of 2013.
Western Athabasca Syndicate Project
The Syndicate was established to acquire approx. 710k acres in the Patterson Lake area and east Basin. The partners bring over 200 years of collective Basin geological experience and strong technical acumen. Diamond drilling at the Western Athabasca Syndicate property is to commence in March 2014. Of the $6 million earmarked for exploration over the next two years, SYH will fund $1 million. Fifteen targets have been identified through extensive geophysical surveys and detailed follow-up ground work. The 2013 VTEM airborne survey mapped 300 km of graphite-type conductor segments in the eastern block of the Preston Lake property with some segments evidencing over 10 km in length.
The Syndicate drill program comes on the heels of Alpha Minerals and Fission Uranium's (FCU: TSXV) recent discovery at the Patterson Lake South property. The area has received escalating exploration attention and claim acquisition activity as a result of the shallow discovery with drill results including 9.08% U3O8 over 54.5 metres in hole PLS 13-075. The Syndicate ground is strategically located around the PLS property.
The Syndicate property package also includes 11,800 acres at the Wheeler Property in the eastern flank of the Basin. The property has several promising targets within three historical uranium showings.
In case you weren't aware, the Athabasca Basin is the world's largest and richest uranium depository. The area supplies over 15% of global primary uranium supply. Major players such as Cameco and Denison are aggressively exploring and developing the Basin, and have recently seen their shares hit 52-week highs. The analysts' tone is decidedly optimistic if not outright bullish on uranium for 2014. As I have said before, Cameco tends to be the proxy for the health of the uranium market and since it supplies 14% of the world supply, that moniker is reasonable. Action of late in this company and others seem to have somewhat assuaged the Japan concerns.
Even in the unlikely event that the uranium price declines further, the Basin's higher U308 average grade of 2-4%--the global average is 0.1%--means that even if the price approached $20/lb. almost a billion pounds could still be mined profitably.
The Bottom Line
Skyharbour owns an excellent land package in the Basin and is poised to benefit from an improving uranium market. With no debt and approx. $800,000 in cash and cash equivalents, the Company can easily meet its immediate funding obligations. The modest market cap of $5 million is not excessive or bloated by speculation and has room for significant growth. The strong partnerships both in the Western Athabasca Syndicate and Mann Lake project spread the financing commitments as well as enhance expertise to ultimately mitigate risk.
Skyharbour now boasts two key company-specific catalysts in the near term: the Syndicate's work program in the Patterson Lake region and Cameco's drill program adjacent to Skyharbour's Mann Lake project. The Syndicate drill program at the Preston Lake property could be the step that provides the growth catalyst investors seek as a result of a new drill discovery in the emerging Patterson Lake area. In addition to this, Skyharbour's exposure on the east side of the Basin with its majority stake in the Mann Lake Project could be a substantial value-driver if Cameco's drill program on the adjacent property is successful in yielding a discovery.
Big picture, one has to believe that the severe negative sentiment plaguing the uranium space from the Japan situation will eventually subside. Also that the supply/demand curve will bend toward a deficit over the next 5 years. Given the beating the price and producers have taken since Fukushima, several years of growth and production have been compromised.
It seems the risk profile may well have tipped the scale back to significant growth from a crippling retreat. And it appears to have already begun, foreshadowed by the recent positive share price actions of the likes of Cameco and Denison. Expect this to trickle down to the juniors soon.
Bob Beaty The Bottom Line Report
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