Tuesday, May 31, 2011

Is Hathor Exploration.... Part 2

Hathor Exploration (TSX:HAT) just announced in a news release recently that they are announcing a bought deal flow-through financing for slightly more than $13M. http://www.hathor.ca/i/pdf/2011-May27-NR.pdf

This should be helpful in their exploration efforts, as Hathor continues in their attempts to prove up an ever-increasing deposit size at their Athabasca Basin project called Rough Rider. This has been expanded to now include Rough Rider East and Rough Rider Far East zones. The latest release that gives us an indication of just what Hathor holds was released May 17, 2011, and can be seen here, http://www.hathor.ca/i/pdf/2011-05-17_NR.pdf

Now with this appearing to be solid positive news, there is yet another impact that is showing an effect on most, if not all, of the uranium sector. This is evidenced by the closing prices of several companies in this sector. These are the closing prices for May 31, 2011.
TSX:CCO  Cameco Corp.  $27.08     Net change -0.28   Change in %   -1.02%  Volume  1,212,756
TSX:DML  Denison Mines Inc. $2.25  Net change -0.14 Change in %  -5.96%  Volume  1,006,552
TSX:PDN  Paladin Energy Ltd  $3.25  Net change -0.04 Change in % -1.22%   Volume   704,935
TSX:UUU  Uranium One Inc.  $3.55   Net change -0.15  Change in %   -4.05%   Volume  2,989,791
TSX:URE  UR Energy    $1.58      Net change  -0.08    Change in %  -4.82%      Volume  340,334
The reason for this latest setback, following the Japan crisis is news just released from Germany.
Uranium producers were impacted by yet another aftershock, tumbling on news that Germany had officially decided to phase out all of its nuclear power plants by 2022. Chancellor Angela Merkel has decided to phase out nuclear power plants, currently a quarter of total electricity production, over the next decade.
This move comes as a precautionary measure in the wake of the problems at Japan’s Fukushima plant after the March earthquake and tsunami. The high-risk move means the German government will switch off eight of its 17 nuclear plants this year and close the other nine by 2022. According to the World Nuclear Association, Germany's 2011 annual uranium requirement is 3,453 tonnes, or 5% of the world's total demand.
To offset these significant closures, the country plans to aggressively pursue a renewable energy phase-in and raise the share of energy produced by greener sources by 50% from the current 17%. Commenting on the plan, Merkel said, “To generate the electricity of the future we need to give our energy system an entirely new architecture.” The decision by Merkel’s Christian Democrats and their coalition partner the Free Democrats comes as a big blow to Germany’s “big four” nuclear power companies, RWE, Eon, Vattenfall and EnBW. Not only could this hurt earnings, it will likely reduce their capacity to invest in new projects to realize the government goal doubling renewable energy’s contribution to total electricity production over 10 years. While Germany's decision may impact uranium demand in the near term, its worth noting that it Germany did not have any new planned nuclear additions, so this should not have a material impact on the long-term total demand story for uranium.
The news out of Germany, seemingly took the shine off the last week's news, that Traxys had concluded a contract with FluorB&W for the purchase of the full quantity of UF6 that FBP expects to receive in return for clean-up services at the Portsmouth uranium enrichment facility in Ohio. Negative press for uranium/nuclear producers has increased awareness in renewable power producers – Canaccord Genuity’s top renewable picks include: Algonquin Power (AQN) and TransAlta (TA) – renewables represent 25% of its generation capacity.
It is only to be expected that the market might react in the way they have to-date. What I would like to consider is the fact that Germany had no plans for any new nuclear reactors and as such this should not have a material impact on the long-term demand for uranium. If there is no material impact expected long-term, then why would we expect uranium to drop in the long term.

Cameco, which is one of the largest, if not the largest, uranium producers globally. Cameco CEO Jerry Grandey has been reported to say that his company still views doubling their uranium production by 2018 as making sense. http://www.cbc.ca/news/canada/saskatchewan/story/2011/05/06/sk-cameco.html
I think that this is a relatively accurate view looking forward, and even more so if Germany's latest move runs into complications with supply issues connected with rare earth elements, which at present are not only very expensive, they are approximately 95% -97% Chinese controlled. They also happen to be on an export limit currently. With no other country having the facilities to separate the various elements at present, I would say it is quite feasible to believe that there may well be some dips in uranium prices.

The biggest need is electricity to support the 50% of the world's population that now lives in cities, as well as provide cheap and reliable electricity for manufacturing, especially in countries where exports are the main component of wealth generation. There's a lot of power generational infrastructure going up, and it never seems to be enough. China was putting up one coal fired power plant a week, and after a brief slowdown in new projects, is aggressively investing in power generation again. There are 27 nuclear reactors under construction, and China is planning another 25-30 more by 2020.


There will always be some who raise concerns over the safety of nuclear power, however, I feel confident that nuclear power will continue to generate power for many years into the future. As research continues on how to build safer designs, and technology increases, nuclear power seems to be here for quite some time. Considering all this, leads me to the question that this post originally set out to ask, and that is what does the future hold for Hathor.

I would suggest that Hathor will do well as they continue to expand on the size of their resources. There are a few scenario's that could prove to be possible. Cameco, who is obviously in a position to start paying attention to a company such as Hathor, would make a likely company looking to grow by acquisition. Another company that could quite possibly be eyeing Hathor is Areva, as could be Kepco. The biggest draw back I see with the Kepco scenario is the fact they are likely to run into resistance from either Cameco or Areva. Both of these companies have projects in close proximity to Roughrider. Hathor of course could opt to attempt to prove up enough resources to make it feasible to start up their own mine with mill. The one thing that Hathor has on it's side for now is the fact that most of the biggest players, such as Cameco and Areva, would prefer to let the smaller companies do the exploration, which as we all know is the higher risk portion of developing a mine. I would not be surprised to see either of these companies take a run at Hathor, if they continue to expand their resources. I also see the management of Hathor being completely capable of taking this project to an actual mine, pending of course, on sufficient resources being discovered. As to which decision would be the most appropriate, is at best, very difficult to say at this point. I would expect that if Hathor can triple to quadruple their resource size and still manage to avoid any takeover, this company could become a significant miner. I do feel that Hathor has many positives going for them, and although there may be some minor pullbacks here and there, Hathor stands to gain much in the long-term.

For disclosure purposes I have received no compensation of any kind for this post. I do not own shares in Hathor Exploration at the time of this post. I may enter into a position in the near future.  

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