New Featured Company: In Uranium
Why is the Athabasca Basin so Important?
Countries like China, Saudi Arabia, India, England, France and, most importantly, the United States, are now in a strategic race to secure a long-term energy supply for their nuclear reactors. The Athabasca Basin has some of the highest-grade uranium deposits in the entire world. It is also home to the world's largest high-grade uranium mine (owned by Cameco and Areva).
While some of these countries which are vying for uranium supply are allies, make no mistake, they are looking out for numero uno, and no one else. Despite some of these countries producing a small amount of uranium within their own borders, they consume hundreds of times more. We are talking about the largest economies in the world. They are aggressively trying to secure long-term uranium supply contracts.
Take, for example, the USA: it produces roughly 9% of the uranium it consumes. It imports nearly 90% of the uranium needed to power its reactors.
With roughly 80 nuclear reactors expected to be built globally in the next 9 years, pressure on uranium supply will continue to increase, and the competition to secure long-term uranium supply by major economies across the world will intensify.
The World Nuclear Association expects demand for uranium to increase considerably up to 2030, resulting in a substantial need for additional supplies of nuclear fuel. This is bullish for uranium miners.
Canada's Uranium Production Comes Solely from the Athabasca Basin
Canada is the world's second largest uranium producer, next to Kazakhstan, and it is home to some of the world's highest-grade uranium deposits, as well as the largest high-grade uranium mine, all of which are located in the prolific Athabasca Basin.
Aside from having an abundant supply of uranium, Canada uses very little of the commodity in comparison to other large economies. In fact, Canada exports roughly 80% of the uranium it produces. This puts The Great White North, and the province of Saskatchewan, in an enviable position, primed to take advantage of the coming uranium boom.
With the demand prospects mentioned above, it should be no surprise that there has been a staking rush in Canada's Athabasca Basin. The question now becomes: Who will make the next big uranium discovery?
Continuing our Coverage in the Athabasca Basin
With a market cap of approximately $5.4 million, and roughly 18.75 million shares outstanding, our new client, Zadar Ventures Ltd. (ZAD:TSXV), has a comparably tight capital structure to its peers, and has begun its exploratory journey into the Athabasca Basin by optioning a project portfolio with assets strategically located nearby some major players in the region.
This new uranium exploration company has a 100% interest in strategically-located projects in the Athabasca Basin. It has managed to establish interest in projects nearby other assets which are controlled by notable industry names, such as:
- Areva - a multi-billion dollar french public multinational energy company.
- Alpha Minerals - known for its JV discovery with Fission. Has a market cap around $157 million.
- Fission - its management team made the Patterson Lake South Discovery on its JV project with Alpha. Has a market cap of approximately $166 million.
- NexGen Energy - Market cap of approximately $35 million.
- Cameco - one of the world's largest publicly-traded uranium companies. Operates the high-grade McArthur River uranium mine with Areva in the Athabasca Basin.
The three reasons we took Zadar Ventures Ltd. on as a client, plan on buying shares in the company, and are introducing it to you, are as follows:
1. The strategic location of its projects within the Athabasca Basin.
2. The significant amount of uranium exploration expenditures already invested in some of these projects by previous operators.
3. The relatively limited amount of capital requirements the Company has in order to keep the project portfolio in their control (good standing).
So, let us start by explaining exactly which of Zadar's projects within its portfolio in the Athabasca Basin are of interest to us. The company has had quite a busy fall, releasing several news releases based on their on-the-ground exploration initiatives in the Basin over the past couple months:
The Triex Assets - Our Main Focus
The Triex Assets consist of 5 strategically-located uranium projects, and include over $15 million in exploration dollars spent on them to date (source: http://finance.yahoo.com/news/zadar-options-5-strategically-located-120000808.html) - a substantial amount of information for Zadar, a company with a market cap of less than $6 million, to get a hold of.
Much of those exploration and development dollars and data produced is focused on the Pasfield Lake Uranium Project, the flagship of Zadar's Triex Assets.
- Dr. Michael Gunning was the President of Triex Minerals. Triex Minerals assembled this package of properties and has optioned 100% of the Triex Assets to Zadar Ventures. Dr. Michael Gunning is the Chairman of Alpha Minerals and he was also the President and CEO of Hathor.
Pasfield Lake Uranium Project
On September 26, 2013 (click here for news release), Zadar completed the 100% purchase of this project. This particular project is noteworthy because it is located in the eastern Athabasca Basin, which has proven to be the most prolific and productive area to date, for uranium exploration, discovery, and exploitation.
In particular, this area hosts the Key Lake, McArthur River, Cigar Lake, and Millenium uranium mines, as well as the Roughrider uranium deposit discovered by Hathor Exploration Ltd. and sold to Rio Tinto for $654 million in 2012.
Furthermore, the Pasfield project (37,445 hectares) is situated on the Pasfield Structure (interpreted as an astrobleme [impact structure] similar to the Cluff Lake Structure) and astride the regionally significant and mineralized Cable Bay shear zone ("CBSZ").
Exploration has identified important indications of the presence of uranium-bearing hydrothermal fluids along the fault that forms the eastern arm of the CBSZ. Further drilling is required to adequately test for uranium mineralization in this structurally complex area, especially where shallow basement (300-500 metres) is indicated by geophysical surveys.
Exploration by Triex comprised lake sediment sampling, soil and biogeochemical sampling, airborne electromagnetic and gravity surveys, and culminated in a 2009 diamond drilling program.
Soil and bio-geochemical surveys identified a robust multi-element anomaly with significantly elevated uranium values accompanied by elevated levels of boron, lead, molybdenum, vanadium and arsenic, the five key pathfinder elements associated with alteration halos above unconformity-type uranium deposits in the Athabasca Basin.
2009 reconnaissance drilling by Triex identified the presence of significant alteration features indicative of proximity to uranium ore-bodies. Pervasive bleaching was present in basement rocks at the unconformity in all holes. This 2009 drilling program has never been followed up and Zadar intends to utilize the information garnered from it to continue to evaluate the Pasfield Lake target towards discovery.
Zadar's Triex Assets also consist of the:
Stony Road Project Riverlake and Highrock Projects West Carswell Project
Each of these projects represents stand-alone, strategically located, uranium exploration targets within the Athabasca Basin.
The PNE Project
The PNE project (15,292 hectares) comprises the contiguous PNE, Bullrun A and Bullrun D claims (adjoining Fission's PLN project which is JV'd with another explorer). Zadar has an option to acquire a 100% interest in this road accessible project.
This is a project (PNE) with high discovery potential for uranium mineralization. The target-type is unconformity or basement hosted uranium deposits at shallow depths.
On September 11, 2013, Zadar announced that the discovery of radiocative boulders on the PNE Project had been made (click here for news release).
As well, boulders with elevated to anomalous uranium and boron contents (pathfinders for uranium deposits) occur on-property. These have not yet been traced to source. Only one hole has been drilled on the project to date, a 1980's vintage exploration hole in the extreme Northeast of the PNE project. This showed clay alteration, fracturing and abundant pyrite, indicative of hydrothermal enrichment, typical of proximate uranium mineralization in the Basin.
The PNE project is located ~11km NE of the Patterson Lake South project (Fission Uranium Corp./Alpha Minerals Inc.), where high-grade uranium intersections, first discovered in 2013, are being encountered at shallow depths. (Alpha Minerals Inc. news release of April 24, 2013).
The project also lies ~27km southeast of the Shea Creek deposit (UEX Corp./AREVA), which has a reported U3O8 mineral resource estimate of 67.66 million pounds indicated and 28.19 million pounds inferred, at a cut-off grade of 0.30%. The Shea Creek deposit represents the largest undeveloped uranium resource in the Atahbasca Basin.
The PNE project lies within a large basin scale NE trending gravity low structural corridor. The former Cluff Lake mine (>60M lbs U3O8 produced) and the UEX-Areva Shea Creek deposits (42 km and 27 km to the north, respectively) lie along the western margin of this structural feature. The recently discovered high-grade uranium mineralization found at the Patterson Lake South project also lies within this structural corridor.
Rundown on Zadar
Zadar Ventures (ZAD-.TSXV) is an uranium exploration company, an inherently risky investment. At Pinnacle, we focus heavily on speculative opportunities. This is our niche. Zadar is a client of ours, and we plan on buying shares in the company, so we are biased. It will, like almost all juniors, continually look to raise capital in pursuit of attempting to make a discovery.
Zadar's project portfolio within the Athabasca Basin is intriguing, for a few reasons. Of particular interest is the Triex Assets, which include a $15 million exploration data base. Zadar's market cap is approximately $5.4 million.
It is important to note that Zadar Ventures has only been trading for approximately 18 months. It is a relatively new story, and over the last couple of months, Zadar has started to release developmental news regarding its interest in the prolific Athabasca Basin.
An often overlooked component in the exploration business is the land carrying cost of assets. Particularly in this market, it is a vital statistic. You see, aside from general administrative costs (paying salaries, office rent, legal fees etc.), exploration companies spend the bulk of their money on conducting work programs (i.e. geophysics, soil sampling, drilling etc.) in order to honor option or joint venture agreements. This is where the big bucks are typically spent, and in order to cover these exploration costs, it often requires dilution in share structure.
Now, in a bull market, when commodity prices are skyrocketing, dilution is not as big of a concern, because companies are typically rewarded for strong drill results. However, in a slower market, one that is more risk-averse (like we are seeing today), the potential for significant dilution concerns investors, and rightly so. To our point.
Over the next 24 months (approximately), Zadar Ventures' minimum financial commitment in order to keep all of its projects in good standing is around $500,000, according to the company. From our research, that is low in comparison to many of its peers within the Athabasca Basin which are in a similar stage of development with comparable-sized properties.
It is not uncommon to find uranium explorers with financial obligations, in order to keep their projects in good standing, around $1.5 to $3 million over the next 24 months. Depending on share price, that additional capital needed to complete work commitments could be significantly more dilutive. In addition, Zadar's capital structure is the second smallest in comparison to the 12 uranium explorers we evaluated within the Athabasca Basin. Zadar currently has approximately 18.6 million shares outstanding.
The relevance behind Zadar's reasonable, minimum financial commitment on its projects over the next 24 months is simple. Uranium, ever since the Fukishima disaster, has been in a bear market (currently trades for about $36 per pound), but that is expected to change, particularly in the next 12 to 18 months. Once uranium demand picks up, so will its price, likely increasing interest in uranium exploration, particularly in the Athabasca Basin. We saw a very similar situation develop with uranium back in 2005/2006. In anticipation of this potential demand increase, uranium explorers are gathering assets right now while the market is soft.
OilPrice.com reported that:
"According to the French uranium giant [Areva], after 2015, we could be looking at significantly higher prices for uranium as new nuclear plants come online and Japan reactivates its reactors.
"It would be wise for buyers to make decisions in 2015 at the latest," Bloomberg quoted Olivier Wantz, head of Areva's mining division, as saying last month.
"All new nuclear plants will significantly boost demand in coming years, even taking into account the phasing out of German plants [by 2022]... "We see first a stabilization of prices, with the start of a pick-up as soon as 2014."
Just today, Zadar announced it has completed the first tranche of $933,000 of its non-brokered private placement of up to $2,000,000 at a price of $0.20 per unit (click here for details). Furthermore, in November, Zadar announced a $650,000 financing through the sale of common shares at 25 cents (click here for details).
*The private placements are subject to the acceptance of the TSX Venture Exchange.
Zadar Ventures has demonstrated its ability to arrange financings in a tough market, which is refreshing.
If Areva's prediction comes to fruition (and they are not the only one making similar predictions), there will be heightened interest within the uranium sector. This would likely trickle down into the junior market.
We do not share in your profits or losses, so conduct your own thorough and independent due diligence.
ZAD Trading Data:
- 10-Day Average Volume: 185,000
- Market Cap: $5.40 million (approximately)
- Current Share Price: $0.29
- 200 Day Moving Average: $0.27
- 21-Day Moving Average: $0.26
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