Despite uranium prices at decade lows and three years of belt-tightening, Fission Uranium (TSX: FCU; US-OTC: FCUUF) has increased the indicated resource at its Triple R deposit by 8% and the overall resource by 30%.
The updated resource estimate for Triple R is based on five zones, which extend 3 km long on the company’s Patterson Lake South property in the Athabasca basin. (The previous resource estimate in September 2015 was based on just two zones.)
Triple R has an indicated resource of 2.19 million tonnes at an average grade of 1.82% U3O8 for 87.76 million lb. U3O8. The indicated resource includes a high-grade zone of 119,000 tonnes grading 18.39% U3O8 for 48.25 million lb. U3O8.
The new resource boosts inferred pounds by 95% and consists of 1.33 million tonnes grading 1.80% for 52.9 million lb. U3O8, including 32,000 tonnes grading 20.9% U3O8 for 14.71 million lb. U3O8.
Ross McElroy, Fission’s president, chief operating officer and chief geologist, tells The Northern Miner that “we were really happy” about the resource update. “We were very mindful of the tough uranium market conditions that we’ve been in, so we tried to maximize what we could get done by spending less.”
In the last two years Fission spent $35 million on exploration and development at Patterson Lake South. It drilled 66,000 metres and 200 holes, and made discoveries on trend. “We stepped out to the east and found the R1620E zone and stepped out to the west and found the R840W, and more recently the R1515W. So those are all along one linear trend and that includes the main zone, R780E — the biggest zone of all.” (A fifth zone is called ROOE.)
The increase in the indicated resource owes to infill drilling in R780E, while the increase in inferred resources owed to the discovery and delineation of the R1620E, R840W and R1515W zones.
Dev Randhawa, Fission’s CEO and chairman, noted that while the market may not have rejoiced at the new resource numbers, the company’s management team hasn’t overspent on drill campaigns just to meet expectations.
The upside is that Fission is debt-free, and with the exception of an $82-million strategic investment by China’s CGN Mining at the end of 2015 (96.74 million shares at 85¢ per share), the company has not had to raise money and dilute shareholders over the last four years.
“At the end of the day we tried to listen to shareholders and looked at the market and thought, ‘we’re not going to get a lot of support blowing our brains out and drilling like a drunken sailor,’” Randhawa says. “We really tried to save our money. We have to grow the deposit but we have to find a balance, so I think you may get some people who think that the resource update numbers aren’t big enough, but we didn’t try too crazy hard, because exploration is very, very expensive, and aggressive exploration is super expensive and we don’t have any debt, and our competitors have debt.”
This year the company will continue exploration and resource growth. The winter drill program is focused on geotechnical data gathering and infill drilling in the R780E zone as part of its prefeasibility study work. Fission expects another update to the resource after it completes its 2018 drill program.
The company is already in the midst of the program and will drill close to 6,000 to 7,000 metres this winter. McElroy says Fission hasn’t planned what its summer program will consist of, but adds that he expects it will be on the same scale, bringing the full-year drill program to 15,000 metres.
Seventy percent of the company’s expenses this year will go into work for the prefeasibility study, while the other 30% will be spent on exploration, mainly in the R1515 Zone, McElroy says. What’s not spent on drilling R1515 will be spent on the R780E zone, with the intention of moving more inferred ounces to the indicated category, as well as undertaking geotechnical drilling.
Fission describes Triple R as an “elite deposit in a group of high-grade uranium deposits of the Athabasca basin region.” It also happens to be a near-surface deposit (between 100 metres and 300 metres).
The property lies 50 km south of the Shea Creek project — one of the largest undeveloped uranium resources in the Athabasca basin, and owned by UEX (TSX: UEX) and Orano. The French uranium mining and nuclear fuel group, which in January changed its name from Areva, owns 50.9% of Shea Creek and UEX owns the other 49.1%.
Fission says it is in a good position to get the timing right for Triple R and be ready for production when the uranium market moves out of the doldrums. (Uranium prices have fallen more than 70% since the Fukushima accident in March 2011.)
“It will take six or eight years to be in production and the market knows that by that time you’ll get a very rich contract price, and that can finance your mine into production,” Randhawa says.
The mining executive also points to recent supply cuts announced by Cameco (TSX: CCO; NYSE: CCJ), one of the world’s largest uranium producers, accounting for 16% of global production, and other cuts in Kazakhstan, which could accentuate a massive supply crunch some analysts warn is coming by 2023 or 2025.
In November 2017, Cameco declared it would temporarily suspend operations by the end of January 2018 at its McArthur River mining and Key Lake milling operations in northern Saskatchewan due to uranium price weakness.
“Cameco, which has the richest uranium mine in the world, said, ‘Hey, we can’t make money at these prices, what are we going to do?’” Randhawa says. “You aren’t going to see the impact of their cuts until this spring or summer, when they stop producing.”
Randhawa estimates that Cameco’s cuts will amount to 15 to 16 million lb., “and that’s probably the supply overhang in the market.”
Meanwhile, Kazakhstan’s state-owned uranium company, Kazatomprom, said in December 2017 that it will cut uranium production 20% over the next three years to align output with demand and put a floor on prices.
“The key piece wasn’t Kazakhstan saying ‘we’re going to shut down 20%,’ it was Cameco,” he says. “You should see the Kazakhs behave a bit better [now] and stop dumping on the market. They do want to go public and they need to start acting like adults.”
In a research update in December on the uranium market, Cantor Fitzgerald analysts estimated the production suspensions at Cameco and in Kazakhstan would amount to 42.3 million lb. U3O8 over the next three years. This year alone the cuts will mean 24.1 million pounds. Uranium oxide will no longer come into the market.
While Randhawa says he is confident the market will turn, if it doesn’t, management is prepared for another few years of bleak uranium prices.
“We’re funded for a couple more years of darkness if the markets don’t turn,” he says.
“We are optimistic people — you have to be in this business, year after year of being hit. But we also have to be aware that utilities are very hard to predict. The problem with all of them is they don’t plan ahead … if you look back in history, when spot prices were low, utilities didn’t contract, and when they jumped up, they contracted three times as much!
“Utilities are like governments,” he continues. “People who work for government have a very, very different view of the world. They don’t get paid on the job for taking risk … so unfortunately [the utilities] aren’t contrarians.
“Rick Rule says if you’re not a contrarian you’re a victim, and they are victims, obviously.”