Madison bets big on uranium price and resurgence in demand
CSE-listed Madison Metals is betting on a sustained increase in uranium demand and accompanying price hikes in the coming years as global demand for clean energy puts nuclear power at the center attention.
If the CEO of Madison Duane Parnham is right, then the company’s investment in the development of two large Rössing-type uranium deposits in Namibia and Canada – the world’s second and third largest uranium-producing countries, respectively – should produce significant returns.
Uranium is an unusual raw material to analyze because it is mostly purchased under long-term contracts by utilities that operate nuclear power plants. Therefore, the demand that sets the price is not simply the volume consumed in a given year.
Rather, it is the volume that utilities have contracted during the year and the supply available to fulfill those contracts in future years.
For this reason, there has been a somewhat depressed demand environment when demand is defined as contracted volume as opposed to consumption.
US-based investment asset manager Azarias Capital Management said in a January report that the past few years of minimum uranium contracts have left nuclear power utilities around the world with significant unmet fuel needs from 2023.
Azarias said he expects utilities to spend this year aggressively looking to secure their unmet fuel needs for next year and beyond. However, the question remains whether producers will be able to meet these fuel needs.
“We strongly believe they won’t. . . unless prompted by much higher prices,” the asset manager said.
According to the World Nuclear Association, the total supply of uranium has decreased by more than 10,000 t between 2012 and 2021, the world’s triuranium octoxide (U3O8) the supply having increased from 68,974 t to 56,961 t during the same period.
However, last year, the price of uranium hit its highest level since 2014. Throughout the year, the spot price of uranium rose from around $30/lb to 42, $05/lb, an increase of just under 40%.
This year, the price rose further to $63.60/lb in April, although it has since fallen back below $50/lb.
With prices hovering around the $50/lb mark, Parnham says he thinks a new uranium mine right now would struggle to break even. However, with prices set to rise significantly over the next few years and new production capacity sure to become essential, well-developed, risk-free uranium assets would become increasingly lucrative.
“It’s a bit of a risk for entrepreneurs like us, but when you assess the global uranium market and the global energy market, it’s clear that the price of uranium has to go up,” said- he declared. The mining weekly.
So far, things appear to be going Madison’s way, with investment institution Bank of America saying in April that it had raised its 2022-2027 uranium price estimate by an average of 20%. .
Moreover, last November, the American President Joe BidenThe administration passed an infrastructure investment and jobs law that allocated $25 billion to the country’s nuclear power sector, including $3.2 billion to be invested through 2027 in a advanced reactor demonstration program and $6 billion for a civilian nuclear credit program to preserve the country’s existing nuclear fleet and prevent premature shutdowns of nuclear power plants.
This time last year, reports surfaced that China planned to build 150 new reactors at a cost of around $440 billion, more reactors than the rest of the world has built in recent years. Last 35 years combined.
In addition, Reuters newswire reported in January that the European Union (EU) had drawn up plans to label nuclear power projects as green investments if the projects have a plan, funds and site to eliminate safely radioactive waste. To be considered a green investment by the EU, new nuclear power plants must receive construction permits before 2045.
Parnham said the EU’s move in this regard would further open the door to long-term investment in nuclear power.
All of these developments, according to Parnham, point to a resurgence of uranium as a profitable raw material, as it was between 2006 and 2012.
“I think we are still very early in the next uranium cycle where we can earn obscene amounts of money, if all goes well. From an investor’s perspective, I think one should take the sector very seriously as investable today,” he says.
Parnham says Madison invests the lion’s share of its time and effort in developing its Namibian uranium prospects, which are located in Erongo Province near the famous uranium projects of Rössing, Husab, Valencia, Etango and Langer Heinrich.
In January, the company entered into a binding letter of intent with Giraffe Energy Investments and Otjiwa Mining and Prospecting to consider acquiring an 85% interest in three separate concessions comprising 38,391 ha, collectively referred to as the Uranium Project. Rössing North, which contains an historic mineral resource estimate of over nine million pounds of U3O8.
The previous owners conducted limited exploration, including a reverse circulation drilling program which produced a Joint Ore Reserves Committee compliant report prepared by consulting firm SRK in November 2015, which determined that uranium mineralization was open along strike, deep and contained within well-defined boundaries. layers of uranium-bearing alaskite.
SRK also recommended that further exploration be undertaken to determine both the extensions of the two largest zones of mineralization already discovered and other areas of the property that have yet to be drilled.
Additionally, 11 newly identified zones of uranium mineralization on the lease warranted further evaluation by Madison in the future.
The company also has a 39,850 ha drill-ready uranium project in Kenora, Ontario, Canada. The concession was host to the mothballed Richard Lake uranium mine, which in 1976 had a resource model estimate of 590,000 t at 0.10% U3O8 over a width of 3 m, a length of 210 m and a depth of 300 m.
Further regional exploration in 2006 and 2007 indicated promising prospects for uranium mineralization, which Parnham believes is worth further exploration.
However, he says the region’s rugged terrain, with lots of trees, snowfall, mountains and lakes, means development of the Kenora asset is expected to take seven to ten years – much longer. than the company’s Namibian concessions, which Parnham believes can be developed to the same extent in as little as 12 months, due to ease of access and the historic work that has already been done.
The Madison team, led by Parnham and geological engineer Dr. Roger Lainepreviously founded uranium company Forsys Metals, where they licensed Valencia uranium exploration in Namibia, growing Forsys’ market capitalization from C$45,000 to C$860 million between 2006 and 2010.
“We are deploying the same model and the same techniques in Rössing North, and we think it is a very interesting time. There’s a lot of uncertainty, obviously, in the world today, but as someone who’s been through a few of those cycles, it’s always darker before the sun comes up,” Parnham says.