Sometimes the planets are aligned and it’s time to take on greater stock market risk for greater potential returns. That time is arguably now! Will the 2020s be remembered as the decade of COVID? Inflation? Yes, but also as the decade of commodities.
Relatively low commodity prices from 2010-2019, the rise of ESG & inflation have caused the pipeline of new supply (across most commodities) to slow to a trickle.
The best assurance that there will be enough of your favorite metal/mineral is a higher price. We’re seeing that with copper, nickel & silver up 27%-55% from 52-wk lows. There are several critical materials I could go on and on about, but uranium stands out.
Fundamentals have been turbocharged by geopolitical events, (Russia’s invasion of Ukraine), but also inflation & the global need for incremental power to electrify transportation.
The all-time (nominal) high spot price was ~$140/lb. in mid-2007. Adjusted for inflation that would be ~$200/lb. today. I’m not saying that uranium is headed to $200/lb., but $100/lb. seems reachable in the coming years.Today its at $51/lb.
Will 2023 mark the start of a, “renaissance in nuclear power“? Arguably it’s already started, meaning that a frenzied scramble for uranium could be about to unfold.
Where will the uranium come from? The former Soviet republic of Kazakhstan (by far the world’s largest uranium producing country) has close economic ties to Russia.
If Putin demanded that it halt uranium exports to the U.S./Europe — ship to China & India instead — Kazakhstan might have difficulty saying no.
Kazakhstan produces more than the next five countries combined
Notice in the chart above that Namibia & Niger are among the top-8 producers. At a recent mining conference Robert Friedland said, “…there isn’t a major mining company in the world that hasn’t been in touch with us {Ivanhoe Mines], wanting to visit the mine or figure out how to get involved in the [DRC]. No exceptions.”
If the uranium price were to double, dozens of uranium juniors would be up 200%+. A new uranium junior in my portfolio (boasting an exciting lithium/tin/tantalum REE project as well) is African Energy Metals [AEM] (TSX-V: CUCO) / (OTCQB: NDENF).
{see brand new corp. presentation}
AEM is following in the footsteps of mining legends like Robert Friedland, Lukas Lundin, Peter Funk & Clive Johnson, leaders willing & able to do the hard work and deploy the right teams to find/develop mines well off the beaten trail.
The Company has not 1 or 2, but 5 senior execs, board members or consultants with extensive experience in Africa. CEO Yves B. Kabongo has been actively involved in some of this century’s most prominent M&A deals involving Ivanhoe Mines, Randgold (acq. by Barrick) & Glencore.
In the following interview of Exec. Chairman Stephen Barley, we discuss the investment merits & associated risks of African Energy Metals.
Please give readers the latest snapshot on African Energy Metals.
The acquisition of the Falea project is transformative for us. It has an existing uranium, copper & silver [NI 43-101 compliant] resource. Valuations done by two well known investment banks provided indicative levels of $30M & $66M.
A substantial amount of work has been done at Falea. There are 31M lbs. of uranium ( Indicated + Inferred), plus 21M oz. of silver & 63M lbs. of copper. And that’s on just 5% of the 225 sq. km property, there’s plenty of room for new discoveries.
In addition, we’re expanding upon a portfolio of lithium, tin, tantalum & rare earth properties in the DRC. Investors in AEM enjoy exposure to multiple critical energy metals/minerals.
Yes, I noticed Manono and Kalehe Projects – Lithium, Tin, Tantalum, Rare Earths on your website. Can you give us a teaser?
We have not released much information on our Manono or Kalehe Li/tin/tantalum/REE projects in the DRC. The 30 sq. km Manono project is highly prospective for Li, as it’s near AVZ Minerals’ massive, ultra-high-grade, (400M tonnes @ 1.71%) project. It is also highly prospective for tin, tantalum and REE with a non-compliant high-grade tin resource estimated at 25,500 tonnes.
Our Manono land package is also close to Tantalex’s properties, currently undergoing a 20,000 m drill program. Stay tuned for more news.
The 200 sq. km Kalehe project is being hand-mined by artisanal miners who are reportedly extracting 1,000 kg/day of high grade tin ore. This project is 120 km from the Alphamin tin mine, which has the highest head grade in the world at 4.5%.
Falea is in Mali, what do you say to those who are concerned about Africa? If Falea is a strong project, why is GoviEx divesting it?
Just look at big players across Africa; B2 Gold Corp., IAMGOLD, Barrick, BHP, AngloGold Ashanti, Endeavour Mining, Glencore, Zijin Mining & Ivanhoe Mines, who have been successfully mining in Africa for a long time.
In this decade of commodities one has to go where the metals/minerals are, but we wouldn’t do that without a very experienced team with a demonstrable track record in Africa.
GoviEx was in the fortunate position of having three strong uranium projects, two of which were far more advanced, requiring significant attention & capital.
GoviEx is not walking away, they’re retaining a substantial interest in Falea through a meaningful shareholding in AEM and a 3% NSR.
One thing we love about this acquisition is that the entire in-country team is joining AEM. This offers a degree of de-risking of the Project, and hopefully diminishes the perceived country risk.
31M lbs. of uranium is significant given African Energy’s small size, but is it large enough to become a profitable standalone mine?
Two valuations attributed to Falea by investment banks are $30m & $66m. Even before we do additional work to increase project value, there’s a large arbitrage opportunity given the enterprise value of AEM {market cap + debt – cash} is just C$5M.
Over $100M has been spent at Falea, it would take years to replicate that work. While a decision to proceed as a standalone mine can only be made in the future, but the project is open is all directions and at depth. Therefore, we think it’s reasonable to believe there will be resource expansions.
Africa is known for lower grade uranium deposits, sometimes in remote locations. How does Falea compare to peers?
That’s easy. In terms of grade Falea compares well {chart below, by Sprott}. The Project is higher grade than seven peers and lower grade than three. At 31M lbs. it’s a bit small, but only 5% of the property package has been drilled and the resource is open in all directions.
There are mines currently in operation with grades that are half or a third of Falea’s. For example, Paladin’s world-class Longer Heinrich in Namibia plans to restart with a grade of 448 ppm U3O8 vs. Falea at ~ 900 ppm U3O8.
Regarding remoteness, those major mining companies I mentioned earlier are exploring for gold, copper & cobalt. Add lithium to the mix and imagine all the power, rail, ports & roads that are coming to West Africa. China is already building that new infrastructure, reportedly having invested US$23B from 2006-2020.
Please describe the key exploration & development that’s been done at Falea?
Great question. That’s one of the best parts of this story. Over $100M has been invested, there’s been 232k meters of drilling. Not only is there 31M lbs. of relatively high-grade uranium, but 21M ounces of silver & 64M lbs. of copper.
The in-situ value of the silver alone (at spot prices & 100% recovery) is > C$600M. That’s on top of the value of the uranium @ C$1.6B. If/when the uranium price doubles, the in-situ value of the (existing) uranium resource would surpass C$3B.
Of course, we realize it will take a lot more drilling, development & investment to bring Falea to Feasibility stage, but there should also be more uranium, silver, copper (and possibly gold) found along the way, and higher commodity prices.
Thank you Steve, very interesting. I really like uranium & lithium over the next several years. I look forward to hearing more about the lithium/tin/tantalum/REE opportunity in the DRC. Any final thoughts?
{see brand new corp. presentation}
Yes, thank you Peter. We’re very excited about African Energy Metals. We think we’re in the right place, with the right African team, at the right time in the right metals/minerals. We will have more to say about our Li/tin/tantalum REE project in the near future.
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