There have been few catalysts driving uranium stocks this summer. But Mickey Fulp, the "Mercenary Geologist," believes that this market funk resembles the period that preceded one of the best junior resource bull markets ever seen. In this exclusive interview with The Energy Report, Fulp tells us why he's "hopefully optimistic" about the coming months.
Companies Mentioned: Cameco Corp. - Fission Energy Corp. - Hathor Exploration Ltd. - Strathmore Minerals Corp. - Uranium Energy Corp
The Energy Report: Cameco Corp. (CCO:TSX; CCJ:NYSE) recently initiated a hostile takeover of Hathor Exploration Ltd. (HAT:TSX.V) for CAD$3.75 a share. Hathor called the offer "opportunistic" based on softness in share prices following the nuclear disaster in Fukushima, Japan. How could this change the shape of the market?
Mickey Fulp: Although the bid was 40% over its current market price, higher than the pro forma 30% for a takeover, Hathor's board of directors rejected the bid and put out a statement urging shareholders to reject the offer and "wait and see" until Hathor releases assays from this summer's drilling at Far East and publishes a scoping study in the fall.
I certainly think that a bidding war could ensue. Players that could possibly be involved are AREVA SA (CEI:PAR), Denison Mines Corp. (DML:TSX; DNN:NYSE.A), Rio Tinto plc (RIO:NYSE; RIO:ASX), BHP Billiton Limited (BHP:NYSE; BHPLF:OTCPK), Vale S.A. (VALE:NYSE), or perhaps sovereign companies and governments. The market obviously thinks the bid is too low, with speculators pushing HAT's recent trading to the $4.15 range.
TER: How long do you think it will be before this is flushed out?
MF: It usually takes a few months for these things to settle. Rest assured, I'm not selling my Hathor stock now.
TER: Are you making any other changes in your uranium portfolio based on what's going on right now?
MF: Yes. I have been buying Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX) via stink bids during the summer and added to that position upon the takeover bid announcement. It controls the ground adjacent to Hathor's flagship Roughrider Property. Fission Energy must be taken out, too, if Roughrider is developed into an open-pit mine, which is the likely scenario. If you draw an open-pit outline around the main Roughrider zone, it severely encroaches upon Fission's ground. Its ground also contains a significant uranium deposit, the J Zone.
TER: Fission's stock is up 10% and it's traded as high as $0.73. Is that on news of the takeover bid?
MF: Absolutely. It's been trading tremendous volumes over the last few sessions.
TER: Let's look at some of the fundamentals for uranium. When we spoke in March, you said that you didn't think demand would diminish much in the short- to mid-term after Fukushima because fundamentals had not changed. Is that still your position?
MF: Yes. We're presently seeing a weak spot market, which has been reduced to discretionary buying and consumers looking for bargains. Some traders and speculators have moved out of this market. We have seen more demand destruction than we did originally because Japan has taken many reactors offline temporarily. Their use is only one-third of pre-Fukushima capacity. At last count, 18 of 54 reactors were operating.
TER: Do you think that is going to keep the price down for longer than you had forecast in March?
MF: No. We're still dealing with a +$50/pound (lb.) spot price and a long-term contract price of $65/lb. The spot price is down from a yearly high of $73/lb., so that's very significant. But the long-term contract price is down much less. It was $72/lb. pre-Fukushima.
There has been a significant decrease in the spot price, but this is the slow season for uranium. Uranium goes through the summer doldrums just as the stock market does. The fall buying season is still ahead of us. I don't expect uranium to drop much below $50/lb. in the near term.
TER: Have the U.S. Department of Energy's stockpile sales impacted either the spot price or the long-term contract price?
MF: No. That actually stabilized a few months ago. Of the 5 million pounds (Mlb.) in scheduled sales per year, the Dept. of Energy forward sold 3.5 Mlb. and took it off the open market for 2011 to 2013. If anything, this agreement has stabilized the market—it is a significant positive factor.
TER: Has concern about finding a reliable domestic supply of uranium in both the U.S. and Europe been a catalyst for companies that could fulfill that demand?
MF: Western Europe is the only part of the world that seems to be trying to move en masse away from nuclear power. The U.S. will produce a bit more than 4 Mlb. this year. It uses 55 Mlb., so do the math: We produce only 7% internally at our own mines. We need a viable domestic industry and I'm still bullish on uranium mine development in the U.S.
TER: What are some companies in the U.S. that might be able to meet domestic demand?
MF: Uranium Energy Corp (UEC:NYSE.A) is a new producer with its in-situ recovery project in South Texas. It recently announced another key permit for its Goliad satellite facility. That well field could be in production within the next year. UEC is the one company that I am most bullish on.
I have been a long-term supporter of Strathmore Minerals Corp. (STM:TSX; STHJF:OTCQX), which has an on-going feasibility study at Roca Honda in New Mexico with joint venture partner Sumitomo Corp. (8053:TYK; SUMF:OTCPK). It also has the largest play in the Gas Hills of Wyoming with a partner in an announced, but not completed, deal with Korea Electric Power Corp., or KEPCO. The memorandum of agreement was announced about a month ago.
