Skyharbour Resources (TSX-V: SYH) CEO Jordan Trimble on Developments in the Uranium Markets & Plans for Skyharbour’s Busiest Exploration Season Ever
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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble. Jordan, how are you?
Jordan Trimble: I'm doing well. Thanks for having me again.
Gerardo Del Real: Absolutely. Thank you for coming on. It's a busy time. You have drills turning, partner-funded drills turning, and you also commenced a minimum of 4,000 meters at your high-grade flagship Moore Uranium Project. I want to talk about the details of the program, and ask you about the partner-funded drilling. But beforehand, we seem to be stuck between $21 dollars and $22 dollars a pound in the uranium spot price. What do you think the next catalyst is going to be, Jordan? What do you see out there?
Jordan Trimble: I think the main catalysts or developments in the last few months that we've talked about on previous interviews are these major supply cuts from Cameco and Kazatomprom, the two largest producers, collectively accounting for over 60% of global primary mine supply. We saw in November Cameco announced they were shutting down MacArthur River, the largest uranium mine in the world, and Kazatomprom, a 20% cut over the next three years. I think it's important to highlight that. MacArthur just shut down here in February, and the Kazat cuts are happening over the course of these next three years. We saw a bit of a pop in the spot price when these announcements came out, but for I think the real move, it does take time. Right? It does take time for these supply cuts to work their way into the market. That will happen here this year.
As we talked about before, I do see the spot price moving significantly this year. I think that $30 dollar a pound price is an important threshold to get to and to break out of. I do think we could see that this year. But as we talked about in the past as well, I think what could happen now, sooner than later with the announcement of these cuts and these cuts actually happening now, is the utilities companies who are the main buyer – this is the main source of demand for uranium – this is going to force them to come back to the market sooner than later. Right?
We have expedited timelines now as far as this new contracting cycle, and when that happens, and as we've seen in previous uranium cycles, it's a herd mentality. Right? When it happens, they all come back. They all seem to come back at once. It causes a very quick move up in the price. And I think given these recent supply cuts, you'll see that start to happen this year, and that will just amplify, I think, the price increase, the recovery, in the spot market and the contract price as well.
As far as additional catalysts, we still have the Japanese restarts. We have a handful of reactors that are basically on the one yard line coming back online, with five that have come back online, and just under 20 that are in that restart application process. You have obviously the continuous build up of reactors globally, in particular in China, in India, and other parts of the developing world. We still see a steady growth in demand going forward, but now it's the supply side that's been brought into question. But I think one of the additional catalysts on the supply side this year, I think when you see these higher priced contracts roll off, and a handful of them rolling off in 2018, and a bunch more in 2019 and 2020, again, that puts these higher cost, marginal producers in a precarious situation. They can't produce at $40 or $50 dollar cost, and sell it into their contract at $60, $70, $80 dollars a pound anymore once those contracts roll off.
So there are some notable contracts that do expire in the next year or two here. And as those do expire and roll off, those companies that have higher costs won't be able to continue producing. So you're going to see additional production curtailment, and obviously that will be positive for the market. I think you're going to see that happen as you see the demand continue to grow. And again, the real driver here will be these utility companies coming back in, both into the spot market and the contract market over the coming years.
Gerardo Del Real: That's an excellent point, that was very well put, Jordan. But when the utilities come back to the market to buy, can you explain for folks that may not be familiar with why past uranium bull markets have been so violent to the upside? The input cost for the utility companies is really inconsequential, so they don't care if they're buying at $30 or $60 or $70 or $100. Can you explain why that is?
Jordan Trimble: Yeah, it's a very important point. Unlike a natural gas power plant or a coal power plant where a big chunk of your operating costs, and hence your bottom line, is tied to the fuel cost. It's tied to the price of natural gas or the price of coal. If the fuel cost goes way up, your operating costs go way up and your net income, your bottom line, goes down. Right? So it's very difficult to operate those kinds of base load power plants, base load electricity power plants, when you have price volatility in those commodities.
Now, with uranium and nuclear power plants, the purchasing managers for the utilities that operate these power plants, these are the people that actually go out there and negotiate the contracts and purchase the material, purchase the uranium. They're much less concerned about price volatility, and the simple reason is the operating costs for a nuclear reactor, less than 5% of the operating cost is the fuel cost, is the uranium. So you have a buffer if you will. If the price of uranium spikes up, it's not going to make a huge difference to the bottom line of the nuclear utility. So that's why you can see these violent moves up. Because whether they're buying it at $20 a pound, $30 a pound, $50 or $100, it really doesn't make a huge difference. They're just more concerned about security of long-term supply. They need to know that they're going to get the material when they need it.
You've got to remember there's a year and a half to two year lead time from the time they buy the yellow cake, which is what's mined, to the time they actually have enriched fuel that they can put into the power plant. It's not just buying yellow cake from the miners. You actually have to factor in that year and a half to two year enrichment and fuel processing cycle and process.
It's not as simple as some other commodities. And so again, this is where you see these wild bull markets, quite frankly, because they come to the market, they're not as price sensitive, they will bid it up. They will buy it at much higher prices, and we also have seen historically, too, these contracts, large contracts being entered into or expiring in relatively short periods of time. Right? So it's clumpy. You get a whole bunch of contracts that expire over the course of a few years, and then there's not a whole lot of contracting in the years in between. Right? It's very similar to what we saw in the mid-2000s. That was one of the reasons we saw the price increase as much as we did, from $20 to over $130. But it was exacerbated by supply disruptions and shocks, primarily the Cigar Lake flooding. Well, here we are in not obviously the exact same set of circumstances, but a similar set of circumstances where we are now seeing supply disruptions and curtailment, and we're coming into a new contracting cycle with the utilities companies.
Gerardo Del Real: Absolutely. Well said again. Let's talk about what you're doing to position Skyharbour for this coming bull market, which I think we're all in agreement it's just a matter of when. Right? It's not a matter of it. We know it's cyclical. We know the utilities are going to have to come back. Does it happen this year? Does it happen next year? I'm on record of saying if you're 6 months early or 12 months early, you won't be sorry that you were early once the cycle actually turns and arrives.
What are you doing at Skyharbour? You just started your winter diamond drill program and I mentioned earlier that you have partner-funded drills turning as well, Jordan. Give me the details.
Jordan Trimble: Yeah, so this is going to be our busiest exploration season ever as a company. We just announced a minimum 4,000 meter winter drill program at our flagship, high-grade Moore Project on the eastern side of the Athabasca Basin. Again, this is the highest grade depository of uranium in the world, in Canada, one of the best jurisdictions globally. You're familiar with this project. It's the flagship we've been drilling at here for the last year and a half, and just starting our next winter program. Excited to get the drills turning again, and this will be the main source of news flow and the main catalyst for the company over the next several months as we continue to expand on the known high-grade mineralization that we have there.
But what's really exciting about this program that we just started, is we carried out, and this is quite innovative technology. Cutting edge. It's the first time we've used it on one of our projects, but we actually flew a drone survey, a UAV survey, a geophysical MAG survey, which has really been I think a breakthrough survey for us. I mean, time will tell obviously with the drilling and with the targets that we've garnered from it, but the big breakthrough there is that these drone surveys, this one in particular, has allowed us to get much tighter spacing on the actual survey itself. So when you're flying in a helicopter or an airplane, you can only get such tight spacing when it comes to the actual survey line spacings. You can think of it as meaning that the actual results in the geophysical signature that outlines the drill targets, it's course. It's not as refined. Right?
Well with a drone, not only can you get much tighter spacings, we were able to get 20 to 30 meter line spacings on the survey, but you can actually fly it a lot lower to the ground too, so you get better penetration. You get a much more refined geophysical signature and data from that survey. And this is very important for high-grade uranium in the Athabasca Basin. These are low tonnage, very high-grade deposits. It's not a big porphyry system that can be kilometers long. In a lot of cases you can get a lot of uranium within just a few hundred meters of strike.
These geophysical drone surveys, I think, are going to be a very important part of call it reconnaissance work and drill target going forward. This is the first time we've used it. We've flown it over our main Maverick corridor. That's the 4 kilometer long quarter that hosts that high-grade zone that we're drilling, that we're expanding right now. There is lots of room to move. There's only been about 2 kilometers of the 4 kilometers that's been systematically drilled. We flew this drone survey to help find additional targets and refine the current targets on that 4 kilometer strike lane.
But the other exciting part about the drill program is we are going to be testing again the basement rock potential. Right? We know that we have high-grade at the uncomformity, just above in the sandstone, a little bit into the basement rock. But we really haven't done much drill testing and there hasn't been in terms of the historical work much drill testing into the basement rock on this project. And as we know, that's where these recent major discoveries like NexGen, like Fission, the Gryphon deposit at Denison. They've all been found in the basement, in the underlying basement rock.
So there's a lot of blue sky potential left and we're looking to expand the current known high-grade zone. I think this drill program with that drone survey, with these new targets and refined targets, both along strike and at depth in the basement rock, I think that will be the key to unlocking additional discoveries here with this drill program and future drill programs that we carry out on the project.
Gerardo Del Real: I'm excited because you're drilling in an area on the east side of the property where very little drilling has taken place in the past. Is that correct, Jordan?
Jordan Trimble: Yeah, we're going to be drilling a couple regional targets that we had success with in the summer drill program, and then the majority of the drilling back again at that main Maverick corridor. So like I said, this property has a long history but we are going at it with a new look. We know the geology is there for a bigger deposit, higher grade, and more discoveries, and that's what we're looking to unlock here with this minimum 4,000 meter program.
Gerardo Del Real: You also have partner-funded drilling that I alluded to earlier. Can we speak to that a bit?
Jordan Trimble: Yeah, we saw news out over the last couple of months, AREVA, which actually now it's been renamed Orano, a company based in France. They're carrying out a $2 million dollar program as we speak, so that just started a few weeks back. They're drilling a minimum 4,500 meters at our Preston Project. This is over by Fission and NexGen. We'll be getting updates and results on that program. It's still the early days, but as the drilling progresses over the next few weeks, we'll get some news and updates on that program. And needless to say, that's being funded entirely by them, so it's additional news flow to compliment what we're doing at our flagship Moore Project. But between the two projects here, just shy of call it 10,000 meters of drilling. So it's a very active season of work, and drilling, and exploration for Skyharbour, both at our flagship Moore and at Preston.
We also have, as you're aware, on our East Preston Project, Azincourt, they're currently carrying out some groundwork in geophysical surveys to identify drill targets for drill programs upcoming on that project as well. So again, busiest season we've had in terms of exploration. It will be the busiest season as far as news flow is concerned and I think the timing is great with everything that's happening right now in the uranium market.
Gerardo Del Real: Excellent. How does the treasury look?
Jordan Trimble: It's good. We got just over about $2.2, $2.3 million in the treasury. So that obviously covers us for our drill program at Moore. AREVA – now Orano – and Azincourt funding their exploration and drilling programs over at Preston and East Preston. So we're obviously fully funded for the work I just talked about, and we'll have cash leftover once we're done with our drilling at Moore, so we're in good shape there. We do also get option payments from Orano and from Azincourt on an annual basis. That's the benefit of the prospect generator model and strategy, is you do have obviously stock and cash that come in as you option these properties out, as the other companies earn in, but you benefit from them funding the work and the news flow that's generated from that provides a lot of catalyst for the company.
Gerardo Del Real: PDAC is coming up. Can people find you there? How can we get ahold of you, Jordan?
Jordan Trimble: Yeah, we'll be at PDAC. We have a booth there. I'm doing actually a presentation on the Monday at 3 PM. There is a handful of uranium companies, us included, that are presenting. We'll be at PDAC, we'll be present. Looking forward to the conference. It's the marquee mining conference globally, so we always have a presence there. Take a look and come by the booth. We'll be there and we're happy to answer any questions.
Gerardo Del Real: Excellent. Jordan, thank you so much for your time.
Jordan Trimble: Thank you.