A transformative vision of a post-Fission/Denison merger uranium world
Investors have spoken, and they said they don't want a merger of Fission Uranium and Denison Mines.
In this interview with The Energy Report, Marin Katusa, founder of Katusa Research, shares his insight on why Fission investors rejected the deal and where he is finding value in the uranium and oil sector today.
The Energy Report: What happened to the Fission Uranium Corp.-Denison Mines Corp. deal? Why did investors reject it and what does it mean for the junior uranium mining landscape?
Marin Katusa: Ross McElroy and his team have done a great job growing the Patterson Lake South (PLS) resource, which is turning out to be a world-class deposit. It is clear the majority of the Fission shareholders wanted the company to stay focused on its PLS project and didn't believe the benefits of diversification, including access to a mill, the Lundin group and Wheeler River, outweighed the potential of the PLS deposit.
I had a great run early on with Fission. We tripled our money, and we sold, albeit a bit too early, but a profit is a profit. I think both Fission and Denison are still interesting opportunities, because both are much cheaper than they were before the deal was offered. I own neither currently.
TER: What's next for Fission? It isn't going to try to take Patterson Lake to production, is it? Are there other suitors in the wings?
"I think Fission Uranium Corp. will keep drilling fantastic numbers."
MK: It is difficult for an exploration company to take something like PLS to production; it rarely works. A completely different skill set is required. PLS will have a permitting hurdle, not to mention there's no mill that could take their feed currently, so the company would have to build one, and that could cost as much as $1 billion ($1B).
Fission could become an acquirer of other projects on the east or west side of the basin, or it too could become a takeout target by larger company, or perhaps even become a target of a hostile take out by someone like NexGen Energy Ltd. That would be a very interesting result to the Fission saga. In a bear market, anything is possible. Perhaps the board changes at Fission, and the new board sees the benefits of merging with NexGen and a merger happens on friendly terms with NexGen. Anything is possible.
In early 2014, we participated in the NexGen private placement, and the team at NexGen has done an incredible job. Tim Young, who is on my Top Ten Under 40 list, had incredible vision when he staked the properties NexGen holds today. It's great to see young resource entrepreneurs doing so well.
I actually think the two should merge, but I don't think the current Fission board would like that to happen. The two management teams might not be a good fit. But if it did happen, it would make for a very interesting story. If that happened, the region could get very hot, and the other juniors could do quite well, such as Skyharbour Resources Ltd. I currently do not own Fission or NexGen, so I don't have any skin in this potential fight. I own a lot of Skyharbour.
Now, if Fission and NexGen did merge, the pounds between the two justify a mill of their own. Then it might use Asian money or Cameco Corp. dollars. But in the near term, I think both companies will keep drilling fantastic numbers and move both projects forward. Building a uranium mine is not an easy task. Very few groups have the experience.
TER: Will Denison try to buy another Athabascan company?
MK: Definitely a possibility, or it could be bought out. Denison's pattern has always been to look to increase shareholder value. The Lundin group is that rare breed that understands exploration and production. Very few groups have that level of power, ability and financial resources. One thing I've learned in 15 years of this business is never underestimate a Lundin group company. I definitely expect big things in Denison's future.
TER: What is the uranium landscape looking like now? Where should investors look for value?
MK: The U.S. consumes just under 50 million pounds (50 Mlb) of uranium annually, and it produces less than 5 Mlb. So it's importing over 90% of what it consumes. When one in five homes in the U.S. are powered by nuclear energy, that's not a good formula for national safety. Half the uranium in the U.S. came from Russia for the last 20 years. Now only 25% can come from Russia by U.S. federal law. Sadly for the U.S., the difference is being made up not from Canada, not from Australia, not from U.S. production, but from Kazakhstan.
That is going from a bad situation to an even worse one. In 2014 alone, the U.S. increased the Kazakh imports of uranium by over 80%. I think the U.S. has positioned itself in a tough situation here. The U.S. is still the largest consumer of uranium globally, and that's not going to change. We are going to have a rude awakening shortly. Will it change in the next few months? No. But this is something that you'll see getting a lot of media attention by 2019.
I have a whole chapter in my book, "The Colder War," about the smart way to play uranium opportunities. Speculators and investors who want exposure to uranium should focus in North America. I'd avoid projects in Africa. South America has a few areas that I like. Paraguay has great potential. But, really, the value is in North America. It's very difficult for a Western company or a Canadian publicly traded company to compete with what Russia and China are doing internationally, especially in Africa.
So I would focus on the Athabasca Basin, where the grade is the highest in the world, and the rule of law protects shareholders. I am also a big supporter of the in-situ recovery (ISR) production in the U.S. I think the lowest-cost producers in the U.S. are a great place to be invested right now. If you have a long-term perspective, you want to have exposure to North American reserves, resources and production.