Uranium Report 2018 Everything You Need to Know About Uranium!

Uranium Report 2018 Everything you need to know about uranium!

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www.resource-capital.ch | [email protected] Preface

Dear Readers,

on the following pages, we present to We also interviewed the experts Scott you with pleasure the second update of Melbye and Dr. Christian Schärer about our uranium report. Uranium is a “hot” the uranium markets and the future pros- topic and many people don´t like to say pects. Of course, we present you some Jochen Staiger is founder and the least and some hate it. But without interesting companies from this industry CEO of Swiss Resource Capital uranium there would be a major problem sector with numbers and facts. The com- AG, located in Herisau, with the base load energy supply in the bined market cap of all uranium compa- Switzerland. As chief-editor and world and e-mobility would be still a dre- nies is only around US$10 billion world- founder of the first two resource am of the future. Swiss Resource Capital wide, a crazy small market with a fasci- IP-TV-channels Commodity-TV AG has made it its business to topically nating outlook. Climate change and and its German counterpart and comprehensively inform metals and clean air require nuclear energy. “There’s Rohstoff-TV, he reports about commodity investors, interested parties really only one technology that we know companies, experts, fund and the individual who wants to become of that supplies carbon-free power at the managers and various themes an investor in various commodities scale modern civilization requires, and around the international mining and mining companies. On our website that is nuclear power” – Ken Caldeira of business and the correspondent www.resource-capital.ch you will find 20 Stanford University’s Department of Glo- metals. companies and information as well as ar- bal Ecology. ticles related to commodities. Our series of special reports started with lithium and Commodities are the base of our econo- silver. Now we move on to uranium as it mic cohabitation. Without commodities is the energy metal of the future whether there are no products, no technical inno- we like it or not. Wind and solar energy vations and no real economic life. We are very often not cost effective nor really need a reliable and constant base load energy efficient considering the comple- energy supply in our highly industrialized te energy balance including the amount world. With our special reports we would Commodity-TV and Rohstoff-TV get of energy used to build it. This report like to give you the necessary insights shall give the reader an idea about the and inform you comprehensively. real facts of the uranium industry and the your company the awareness it deserves! energy supply from nuclear power world- In addition, our two Commodity IP-TV wide. China especially needs nuclear po- channels www.Commodity-TV.net & wer plants to solve its air pollution prob- www.Rohstoff-TV.net are always availa- lems because most of the electrical ener- ble to you free of charge. For the go we gy is generated by coal power plants. recommend our new Commodity-TV Tim Roedel is chief-editorial- and Today around 450 nuclear power plants App to download on iPhone or Android, chief-communications-manager are in operation in more than 30 coun- which also provides real-time charts, at SRC AG. He has been active in tries globally and 70 are under construc- share prices and the latest videos. My the commodity sector since 2007 tion. Over 163 nuclear power plants are team and I hope you will enjoy reading and held several editor- and planned or ordered by 2040 and if we all the special report on uranium and hope chief-editor-positions, e.g. at the want to drive with emission free e-cars, that we can provide you with new infor- publications Rohstoff-Spiegel, bikes or motor scooters we need those mation, impressions and ideas. Only the Rohstoff-Woche, Rohstoffraketen, nuclear power plants urgently as we can- one who gets broadly informed and ta- Wahrer Wohlstand and First not reliably generate the necessary extra kes matters relating to investments in his Mover. He owns an enormous power with wind and solar alone. Con- own hand will be amongst the winners commodity expertise and a currently several of the top uranium pro- and preserve his wealth during these dif- wide-spread network within the ducers have announced to reduce their ficult times. whole resource sector. production by 2018 to lift the uranium spot price to a level that is necessary for Yours Jochen Staiger the survival of most of the companies and to put pressure on the energy companies to renegotiate soon expiring delivery contracts.

www.resource-capital.ch | [email protected] Satisfying the Hunger for Energy and improving the Carbon Footprint at the same time? – Nuclear Energy can combine both!

The global energy demand has multiplied What is Uranium? since the end of the 1980s, especially due to the emerging countries and in particular the BRIC countries Brazil, Rus- One of only two elements that sia, India and China. About 11.5% of the can sustain nuclear ﬁssion total energy demand is met by nuclear chain reactions energy. Fossil fuels like coal and oil are still burned for energy production. The Now for some information about the ele- difference in the situation of 25 years ago ment uranium itself. Uranium was named is the increasing demand for reduction of after the planet Uranus and is a chemical

CO2 emissions and the more noticeable element with the element symbol U and phenomenon of “global warming”. In the atomic number 92. Uranium is a me- particular, the energy consuming indust- tal whose isotopes are radioactive. Natu- rial nations and the emerging countries rally occurring uranium in minerals is must increase their energy efﬁciency and comprised of the isotope 238U (99.3%) improve their carbon footprint in the co- and 235U (0.7%). ming years. This cannot be achieved by burning coal and oil. The alternatives are The uranium isotope 235U is ﬁssile by renewable energies - which need tre- thermic neutrons and besides the very [Rn] 5f36d17s2 92 mendous time and cost expenditures - or rare plutonium isotope 239Pu, the only nuclear energy which can provide lot of known natural occurring nuclide that is

energy CO2 neutral. This possibility of the suitable for nuclear fission chain reac- fast and almost clean energy generation tions. Therefore, it is used as a primary U has long been recognized by some coun- energy source in nuclear power plants Melting Point 1133° C tries who are increasing the construction and nuclear weapons. Boiling Point 3930°C of new nuclear power plants. URANIUM Occurrence Supply Gap inevitable in the future Uranium does not occur pure in nature but always in form of oxides in minerals. Today only 90% of the global uranium There are some 230 uranium minerals demand can be satisfied by producing that could locally be of economic import- mines. The number of nuclear reactors ance. will double in the coming 10 to 20 years. There is a large range of uranium depo- The previous main supplier of uranium – sits from magmatic hydrothermal to sedi- Russia’s nuclear weapons arsenal – mentary types. doesn’t exist anymore. Where will the The highest uranium grades are encoun- needed uranium come from? The exis- tered in unconformity-type deposits with ting mines can be expanded and new average uranium grades of 0.3 to 20%. mines opened but not at the current ura- These deposits are mined by the two lar- nium spot price of around US$ 21 per gest uranium producers. The largest pound. An enormous supply gap seems single uranium resource in the world is to be inevitable at least at the current Olympic Dam with a proven uranium market price. That is the situation inves- content of more than 2 million tons at an tors should be aware of – a sharply rising average uranium grade of 0.03%. The uranium spot price and an inevitable first industrial scale uranium mine in the connected second uranium boom. world is in Jachymov (Czech Republic) produced from hydrothermal veins.

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz According to the International Atomic War due to the beginning of the Cold war. Energy Agency (IAEA) the largest urani- The victorious powers of the Second um reserves are in the USA, Niger, Aust- World War, which rivaled for global domi- ralia, Kazakhstan, Namibia, South Africa, nance, now needed the highest possible Canada, Brazil, Russia, Ukraine and Uz- number of nuclear weapons and also bekistan. vast quantities of uranium. This resulted in a systematic exploration for useable uranium occurrences in all states of the USA. The previous Atomic Energy Com- Short outline of the mission (AEC) had the exclusive right to buy all of the produced uranium in the history of the commer- USA for over three decades. The greed cial uranium industry for more and more nuclear armament led to extreme high prices per pound of uranium for those days. As a result, the se- From the beginnings to the first arch for uranium was conducted in all atomic bomb U.S. states in the 1950s and 1960s. The USA had a strong uranium industry at the Uranium was produced for the first time end of the 1960s that was a global leader as a by-product in Saxon and English mi- from mining to enrichment. nes at the beginning of the 19th century. The Soviet Union initially expanded exis- Until the 1930s there was little use for the ting uranium mines in East Germany and radioactive raw material. It was used for Czechoslovakia. This was necessary coloring glass and ceramics as well as in because Russia had no knowledge of photography. The shadowy existence of uranium occurrences in its own country the uranium changed suddenly as Hitler until the end of the Second World War. In came into power in Germany, and an un- the 1950s and 1960s Russia began with precedented spiral of armament and tes- a uranium exploration which led to large ting of new weapons technologies beg- discoveries in Siberia and Kazakhstan. an. Above all the “Third Reich” accelera- ted the expedited mining of uranium. These mining activities were exclusively Rise and temporary slump of in the region of Jachymov (the German civilian use of uranium name is Sankt Joachimstal) in today’s Czech Republic. The German supply Already in 1953, the former U.S. presi- submarine U-234, that was seized by dent Eisenhower conceived a program two U.S. destroyers two days after the for the civilian use of uranium. “Atoms for end of the war and towed to the USA had Peace” should find their way in the ener- uranium ore from Jachymov on board. gy generation, medicine, traffic and agri- According to leading U.S. scientists, culture and resulted in the demand for parts of this uranium ore were used to additional amounts of uranium. The civi- build the Hiroshima atomic bomb. lian nuclear power had its beginning and was quickly advanced by other nations. After a 25-year long uranium boom con- The Cold War makes Uranium cerns have been increasingly voiced acceptable warning of the appearing lack of security in many nuclear power plants. After the The newly created uranium sector had its almost Maximum Credible Accident in biggest boost after the Second World the American nuclear power plant Three

www.resource-capital.ch | [email protected] Historical development of the uranium prices, the uranium production and important events. (Source: Laramide Resources)

Mile Island and the Super Maximum Cre- Conventional Production dible Accident in Chernobyl, the general public turned its back more and more to The majority of the uranium is mined in nuclear power. In addition, the collapse underground mines. The deposits are of the Soviet Union resulted in a building developed via shafts, drifts, ramps or stop of nuclear weapons and therefore spiral declines. Ingressing groundwater no further uranium was needed. and the ventilation of the mine often pose Many nations decided not to install new problems. The exact production method nuclear reactors and some countries is chosen according to the characteri- switched off existing reactors. Almost stics of the deposit. The form of the ore- 90% of all uranium mines were closed body and the distribution of the uranium because the market price for uranium in it are especially pivotal. An orebody had fallen to US$ 5 per pound in the me- can be speciﬁcally mined by underg- antime. The uranium for the operation of round methods where less waste materi- the still existing reactors came from old al is produced as by open pit methods. stockpiles or Russia’s disarmament pro- Ore bodies near the surface and very lar- gram. ge ore bodies are primarily mined by open pit mining methods. This enables the use of low cost large equipment. Mo- dern open pit mines can have a depth Uranium Production from a few to over 1,000 m and a diame- ter of several kilometers. Open pit mines Basically, there are two uranium produc- often produce large amounts of waste tion methods: the conventional producti- material. Like in underground mines, lar- on and the production via in-situ leaching ge amounts of water have to be drained or rather in-situ recovery (ISR). The exact from the open pit however the ventilation mining method depends on the proper- is less problematic. ties of the ore body, (like depth, shape, ore content, tectonic) and the type of country rock as well as other factors.

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz ISR Mining electrical net output of around 392.5 gigawatts. The ISR method uses injection wells to pump water and small amounts of CO2 The current leading nuclear nation are and oxygen into the sandstone horizons the USA with 99 running reactors. But to leach out the uranium. From recovery this is only half the truth because emer- wells, the pregnant solution is pumped to ging countries like China and India need the surface for processing. The whole more and more energy and have been method takes place completely underg- focusing on a massive expansion of round. The advantages of this method their nuclear power capacities for some are obvious: there are no large earth mo- time. It is of no surprise that currently 56 vements like in open pit mines, no waste additional nuclear reactors are under rock stockpiles or tailings ponds for hea- construction. The planning was comple- vy metals and cyanide. At the surface ted for an additional 160 reactors and only the wells are visible and the area 350 reactors are in the planning phase. around the wells can be used without After a 20 year stop a renaissance of the constraints for farming. With the ISR me- uranium sector is pending – especially Overview of currently operating thod low grade deposits can be econo- in China. reactors per country mically mined, the capital costs for the (Source: www.iaea.org/PRIS) mine development is signiﬁcantly reduced. The whole method can be implemented with a minimum of manpower which reduces drastically the operating costs. According to a study of the World Nuclear Association, 25% of the produced uranium outside of Kazakhstan comes from ISR mines.

The current status of the Uranium Market

But how does today’s uranium market look like? It is certain that the lack of investments into the procurement structure of the past 40 years – in the infrastructure of mines and processing plants – will very likely prove to be a windfall for the uranium investors in the future! Nevertheless, despite opposition against nuclear energy since the catastrophe in Chernobyl and even more after the events in the nuclear plants in Fukushi- ma (Japan) the number of plants worldwide is at a record high. Only 30 countries currently operate (as of March 1st, 2018) 449 nuclear reactors with a total

www.resource-capital.ch | [email protected] plant manufacturer Power Construction Corporation of China (Beijing) predicted the rise of its country among the biggest user of nuclear energy worldwide the Chinese government is planning the construction of more than 80 nuclear reactors in the coming 15 years and more than 230 new nuclear reactors until 2050. According to information from China Po- wer the new ﬁve-year-plan for the energy sector whose approval by the National People’s Congress has been planned in March 2016 provides for a faster expansion of the nuclear capacity: to date the capacity was to increase to 58 gigawatts during the coming 5 years, but now over 90 gigawatts are under discussion. In the Overview of reactors currently under year 2005 the planning was 40 gigawatts construction per country until 2020. Until 2030 110 reactors should (Source: www.iaea.org/PRIS) Demand situation be in operation. In the year 2016 alone China started the construction of 6 new China is only at the beginning reactors. In total 18 nuclear reactors are of the nuclear age in the construction phase. According to concepts for the energy sector initial US$ While many self-appointed experts have 75 billion are budgeted for the nuclear predicted the end of the nuclear age, it is expansion. In a second step China’s nuc- only in the development phase in the lear power generation should be expan- most populous country in the world. Chi- ded to 120 – 160 gigawatts by 2030! na is operating 39 reactors where most While in Germany the elimination of elec- of the electricity is generated by coal po- tricity generation from nuclear energy wer plants. Since the beginning of 2015, was decided after the events in Fukushi- 15 new nuclear reactors were put into ma, China has decided the opposite and service. The expansion of the nuclear will do everything possible to produce energy sector in China is enormous and electricity by nuclear ﬁssion. In light of occurs with breathtaking speed! Over the rising energy demand – due to the in- two thirds of the Chinese energy creasing prosperity – and a catastrophic consumption is still met by coal power carbon footprint China’s approach seems plants. Although China is mining its own only logical. coal deposits on a large scale, it is, besides India, one of the biggest coal impor- ter of the world. 30% of the globally pro- India expands civil nuclear duced coal is imported by these two program massively countries. A certain dependency from these coal imports is obvious. This is the Besides China, India is the second of the point China’s leadership wants to avoid. so called “BRIC-Countries” which is pur- The obligation to implement climate fri- suing a similar course. The second most endly and clean possibilities for energy populous country in the world plans to generation is only secondary matter. expand its nuclear energy capacity by 70 In the fall of 2015 the state-owned power gigawatts. In contrast, India’s current to-

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz tal electrical net output is only around 6.2 Currently Brazil is operating only one gigawatts. nuclear power plant with two reactors. A But India has slept through the entry into third reactor is under construction and is the nuclear energy and is now despera- expected to be connected to the power tely trying to search for mineable depo- grid in 2018. The construction of 4 addi- sits but has to expand its overloaded po- tional reactors is expected until 2030. wer grid at the same time. A tenfold increase of the nuclear energy capacities not only seems to be reasonable but also Rising global expansion of very necessary. nuclear energy India doesn’t have significant uranium deposits. A tenfold expansion of their Besides the 30 nations with operating own nuclear energy capacities would nuclear reactors, 17 additional countries mean an increase of the total global nuc- are planning to install nuclear power lear electricity generation by 10%. plants. Among those countries are Egypt, But where will the additionally needed the United Arab Emirates (four reactors uranium come from? Currently, only a under construction), Jordan, Turkey and few of the 22 Indian nuclear reactors are Indonesia. operating with full power. While Japan, China, Russia and South Korea could se- cure uranium resources worldwide, India The USA is close to an energy missed out completely. Only recently has collapse India entered into offtake agreements with companies from the USA, Canada, The USA has a special status. With 99 Namibia, Kazakhstan, Russia, Great Bri- reactors, they have by far the biggest tain und South Korea. nuclear power plant fleet in the world. Currently 6 nuclear reactors are under Nevertheless, the USA is threatened by a construction in India and 20 additional collapse of the energy supply. The USA is will follow until 2030. still the country with the highest electricity consumption per capita. And the hunger for energy of the Americans is increa- Russia and Brazil with increasing. In addition, the USA is facing the sing nuclear capacity question how to fulfil the CO2-reductions which were agreed to in Kyoto and Paris. The two remaining BRIC-Countries, Rus- Because many of the coal power plants sia and Brazil have also announced a were built in the 1950s and 1960s, they massive expansion of their nuclear pow- are working inefficiently and uneconomi- er plants. Currently Russia operates 36 cally. They have to be shut down sooner nuclear reactors with around 27.9 giga- rather than later. The electricity consump- watts. 6 reactors are in the construction tion is rising continuously. The USA has phase. Furthermore, Russia plans the no choice but to increase the number of construction of an additional 26 nuclear its nuclear reactors during the coming power plants which should increase the years. Of course, photovoltaic plants, percentage of the nuclear energy in the wind farms, hydroelectric power plants Russian energy mix from currently 16% or geothermic energy provide climate fri- to 19%. In a second step Russia wants endly energy, but these energy producers to increase this quota to 25%. By the can offer only a partial solution for the year 2030 Russia wants to build 26 reac- pressing energy problems. They are very tors. expensive and their performance is de-

www.resource-capital.ch | [email protected] Overview of currently operating reactors (blue), currently shutdown reactors (grey), reactors under construction (green) and permanently shutdown reactors (red). China, India, South Korea, Russia, the United Arab Emirates and the USA are currently working increased at the expansion of their reactor ﬂeet. (Source: www.iaea.org/PRIS)

pendent on the time of day and weather. connected to the power grid by 2025. Nuclear energy is therefore the only cli- Until now only 2 plants are under const- mate friendly energy generating possibi- ruction and additional 14 are in a concre- lity. In light of the amount of additional te planning phase. electricity demand during the coming two to three decades regenerative energies can only be an addition to the total Long-term supply contracts energy mix. expire soon Therefore, a law for expansion and funding of the energy generation by nuclear The previous cycle of contract conclusi- energy was created within the “Clean ons which was dominated by the urani- Energy Act of 2009” a program to provi- um price peaks of the years 2007 and de carbon free energy. Both U.S. gover- 2010 was the reason that the plant opening parties worked on a US$ 18.5 billion rators signed contracts at higher price plan for doubling of the nuclear power levels and very long durations of 8 to 10 capacities until 2030. At the beginning of years. On the one hand, these old cont- 2010 President Obama announced that racts are ending and on the other hand the U.S. government will provide in the the plant operators didn’t look for a 2011 federal budget additional funds of replacement of such deliveries. The for- US$ 36 billion of government guarantees ward contracts of the plant operators are for the construction of a new generation declining and therefore the required of nuclear power plants. This would be a quantities for which there are no contrac- tripling of the originally planned budget. tual obligations are increasing and have During the past years an application for to be contractually secured in the future. lifetime extension of 60 years total ope- As expected the unmet demand will be

rating time was made for over 60 U.S. just less than one billion pounds of U3O8 nuclear reactors. In addition, there are 40 in the coming 10 years. At the same time, applications for the construction of new over 70% of the expected reactor de- nuclear power plants that should be mands are not contractually secured un-

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz til 2025. For a little traded commodity like The Supply Situation uranium this return to more “normal” long term contracts could put tremen- The established producers are dous pressure on the long-term prices as running out of air well as on the spot prices. The international plant operators are showing more The established uranium producing na- and more buying signals which are en- tions Australia, Canada, Russia and Ni- couraging. ger have problems to expand their production further. All four countries produced in total just 26.835 tons uranium in Conclusion 2016. In 2009, they produced 28.000 tons uranium. Australia has problems Fact is that currently 449 reactors are in with BHP Billiton’s Olympic Dam Mine, operation and an additional 300 reactors the by far most proﬁtable uranium mine will be added until 2030. 56 plants are al- in this country. In Canada, the production ready under construction and 150 additi- start in Cameco’s MacArthur River Mine onal plants are in the concrete planning had to be postponed many times due to phase. Even if half of the old reactors repeated groundwater ingresses. In Ni- should be shut down until then 600 to ger planned mine openings also had to 700 reactors would be in operation in be postponed. 2030. Furthermore, 90% of the long-term delivery contracts between the uranium pro- The uranium production in the ducers and the energy generating com- USA has hit rock bottom panies are expiring by the end of 2020 which could get the established nuclear The situation in the USA is even worse. energy nations like the USA into trouble Although the Obama government has especially. approved a US$ 54 billion program for the funding of the nuclear energy indust-

Overview, age of currently operating reactors. Many will be (have to be) replaced by more powerful ones. (Source: www.iaea.org/PRIS)

www.resource-capital.ch | [email protected] result, the majority of the infrastructure and the permitted production facilities were closed or completely dismantled. Currently there are only a few mines in Texas, Arizona and Wyoming.

Kazakhstan – the new uranium superpower

Almost all established uranium producers are having difﬁculties with the rebuilding or the expansion of their uranium production, but one region has climbed to the top of the uranium production: Cent- ral Asia. Kazakhstan especially could multiply its uranium production during the past 10 years. The uranium production of the previous Soviet Republic in- Uranium Energy's Hobson plant is ready for creased from 2000 to 2016 from 1,870 to the re-start. ry, it is not clear from where the neces- over 24,500 tons. Kazakhstan surpassed (Source: Uranium Energy) sary uranium will be derived. The urani- the previous leader Canada in 2009 and um industry in the USA is only a shadow is responsible for close to 40% of the of the past. During the past 40 years the- global uranium production. re have been no investments in development of new deposits and almost 95% of the needed uranium was derived from Massive production cuts were the disarmament programs. The already initiated US-American nuclear reactors consume 18.000 tons uranium per year. An expan- Kazakhstan is part of the nations which sion of the capacities would also be an can mine uranium at the lowest costs. increase of the needed amount of urani- The country is however not willing to give um. The World Nuclear Association away its uranium resources to absolute (WNA) estimates that 40,000 tons urani- low prices anymore. At the beginning of um per year will be needed in the USA 2017 the state-owned group Kazatom- alone by 2025. Even at the peak of the prom announced that the uranium pro- US-American uranium production during duction will be cut by at least 10% in the 1960s and 1970s, such an amount 2017. This would take around 2,500 tons could not have been produced by the mi- uranium off the market. nes in the USA. The US-American urani- But Kazatomprom is not the only uranium production reached its previous peak um producer which opts for production in 1980. During that year 29,000 tons cuts in light of the ridiculous uranium uranium were produced. After the end of price. The uranium–major Cameco also the Cold War disarmed nuclear weapons announced production cuts. These are

became the most important source for speciﬁcally 4 million pounds of U3O8 for the US-American uranium demand. This the Rabbit Lake Mine and 2 million

resulted in a decline of the American ura- pounds of U3O8 for the MacArthur River nium production from 23,400 to currently Mine which rank among the 10 largest 1,125 tons uranium per year. As a direct uranium mines globally. From the Husab

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz Mine in Niger 5 million pounds of U3O8 during the coming 10 years, while 85% per year are missing and from the Langer of the original amount was disarmed in Heinrich Mine in Namibia 1.5 million the past 20 years. This material has pounds of U3O8. been already consumed in form of fuel elements. The future disarmament uranium is minimal compared to the amount Supply gap unavoidable of the past 20 years and will have no big effect on the uranium market. The se- In spite of the massive production ex- condary supply for the uranium market pansion in Kazakhstan during the past will fall from currently 9% to below 5% years a large supply gap will form in the by 2030. Therefore, the whole amount uranium sector in the foreseeable future. of Russia’s secondary supply will re- There is already such a gap. Until now main in Russia because Russia has not this gap could be closed with material offer uranium from its own disarmed from nuclear waste. But the nuclear in- nuclear weapons at the free market sin- dustry consumes about 10% more urani- ce 2013. um than is currently produced. The 449 nuclear reactors worldwide are consuming around 68,000 tons uranium per Summary year, only approximately 62,000 tons are covered by the global uranium producti- The supply side in the uranium sector is on. The International Atomic Energy going through a transition phase. The se- Agency (IAEA) estimates that the global condary supply from Russia’s disarmed uranium demand will rise to 140.000 tons nuclear weapons becomes less and less uranium by 2030 due to the construction important. While in 2006 37% of the de- of new nuclear power plants. The percen- mand was covered by disarmed nuclear tage of primary supply has to increase weapons, currently it is only 9%. Con- because Russia has reached the end of currently the number of nuclear reactors its nuclear disarmament. will increase rapidly. This rapidly increase in demand will not be completely covered by the established uranium producers New disarmament contracts – at least not at the current uranium spot without effect to the uranium price of US$ 21 per pound U3O8. From market where will the needed uranium in the future come from? The currently existing disarmament con- An increased production can only be tract between the USA and Russia, New achieved with a higher uranium price and START, will not change that. It provides associated large investments in the ex- for a further reduction of the nuclear we- pansion of existing and the construction apons arsenal by 30%. These 30% don’t of new mines. The basic problem is still include the total weapons arsenal at the the relatively low uranium spot price, end of the Cold War but only from 2011. which doesn’t allow producers to mine Since 1990 85% of all nuclear weapons difﬁcultly accessible and more expensive have been disarmed. The remaining 15% deposits. will be reduced by 30% meaning that Experts estimate that there are less than from the original amount only 5% will be 650,000 tons of economically recoverab- disarmed. le uranium at a market price of US$ 40 According to this new contract only 5% per pound uranium. of the original amount will be disarmed

www.resource-capital.ch | [email protected] At an annual consumption of around High demand is uncovered 68,000 tons uranium, these resources to date would not even last for 10 years assu- ming a constant market price of US$ 40 As expected the unmet demand will be

as well as a constant demand. This will just less than one billion pounds of U3O8 rise inevitably. in the coming 10 years. At the same time, If the market price for uranium would in- over 70% of the expected reactor needs crease and would justify production are not contractually secured until 2025. costs of US$ 80 per pound uranium the For a little traded commodity like urani- triple amount of 2.12 million tons uranium this return to more “normal” long um could be mined economically. term contracts could put tremendous pressure on the long-term prices as well At a uranium price of US$ 130 per pound as on the spot prices. The international approximately 5.7 million tons uranium plant operators are showing buying sig- could be mined economically. At the cur- nals more and more. rent consumption, the known reserves would last for 83 years. The best uranium stocks pro- mise multiplication potential!

Conclusion We have taken the current situation of way to low and not reality reflecting ura- Doubling of demand is not nium spot price plus the expected future faced by any expansion of the supply deficit to present you a compact supply! summary of promising uranium stocks. Our focus is especially on development The uranium spot price is as far from the companies with very promising projects US$ 130 per pound uranium as the cur- because these offer, besides the actual rent demand will be from future demand. appreciation due to a higher uranium According to a conservative estimate of spot price, in this connection also a high the International Atomic Energy Agency takeover chance. At the end of 2015 the (IAEA) this will double during the coming merger (in fact a takeover) of Fission Ura- years. The aforementioned range can be nium with (by) Denison Mines failed due cut in half in 10 to 15 years. to, among other things, the vote of Fissi- It shows that the still – apparently cheap on’s shareholders. This example shows way of generating electricity can only be that the investor can act on the assump- used if the market price for the starting tion that there will be other takeover or product uranium increases again. Supply merger possibilities in the future. That is and demand determine the market price because the uranium sector is currently for uranium too. undervalued and has to be rectified first. If the market price doesn’t allow an economical production, it will have to increase. In the case of uranium, the demand will increase sharply due to the construction of several hundred new nuclear reactors so that the market price will benefit twofold as well as the investor who has recognized that trend in time.

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz Interview with Dr. Christian Schärer – Manager of the Uranium Resources Fund and partner of Incrementum AG

Dr. Schärer you are manager of the (IAEA) 60 reactors are under construction Uranium Resources Fund of LLB Fund- worldwide, more than half of them in Chi- services AG in Liechtenstein (ISIN na (20), Russia (8) and India (5). LI0122468528). What is your strategy and what precisely represents the The construction of new nuclear power

Fund? plants should reduce CO2 emissions and air pollution as well as the dependence on imports of fossil fuels. In addition, The Fund invests heavily in companies nuclear energy provides the baseload to which are involved in the development the power grids which are constantly un- and mining of uranium deposits. The der pressure due to the fast-growing de- Dr. Christian Schärer is a partner in Fund predominantly has shares of mi- mand. Despite the events in Fukushima Incrementum AG and responsible for ning companies in its portfolio. Thereby and the nuclear phase-out in Ger- special mandates. we limit ourselves to the first part of the man-speaking regions, this results to a During the course of his study he was uranium value chain. The investment capacity expansion of the nuclear energy looking for strategic success factors goal is to get a maximum benefit of the production from 330 gigawatts (2016) to of successful business models. A emerging supply gap in the uranium mar- 580 gigawatts in 2030 in total. The pre- topic that fascinates him until today ket. This supply gap is the result of a dicted demand growth of around 3% per and inspires him when selecting scissor movement of supply and demand year is to be seen against this backg- promising investment opportunities. at the uranium market. While supply has round. Dr. Schärer studied business been stagnant for years due to falling administration at the Universität uranium prices, the demand is conti- Zürich and he received his PhD nuously growing with high visibility of 3% Since 2011 the uranium price is perma- extra-occupational at the per year. Until now the supply deficit is nently under pressure. What are the Bankeninstitut Zürich for an analytical covered by existing inventories as well main reasons for this price collapse and survey of the investment strategy of as secondary sources. But this will not how do you assess the current market Swiss pension funds in the real estate be sufficient in the near future… situation? sector. Since 1991 he has gained comprehensive financial market The uranium price is moving in multi-year knowledge in several roles as Nuclear energy, especially in the Ger- cycles. The price movement between the investment adviser, broker and man-speaking region, is controversial lower and upper turning point is enor- portfolio manager. and the politics has initiated the exit out mous. During the bull market of the Since summer 2004 Dr. Schärer’s of nuclear energy. Nevertheless, you 1970s the uranium price increased from focus as an entrepreneur, adviser and are confident that the uranium market US$3 to US$43 to drop by 70% to US$8 portfolio manager is on several will form a bottom from a cyclical per- by 2001. During the next cycle the price investment themes with material spective. You assume an increase in climbed to US$130 by 2007. Of course, asset character. He brings his demand by 3% per year. What makes enormous profit opportunities as well as practice-oriented financial market you so confident? significant risks are associated with such knowledge as board member to price fluctuations. companies. We have to differentiate between the situation in Germany or in Switzerland on Since the reactor accident in Fukushima one side and the global perspectives on in 2011, the price dropped from US$ 75 the other side. Contrary to Germany, the per pound to currently US$ 21 at the ura- emerging economies in Eastern Europe nium spot market; a movement that puts or Asia count on the expansion of nucle- tremendous pressure on the producers. ar energy. By February 1st, 2018 448 re- Three reasons seem to be primarily res- actors were online globally. This is a his- ponsible; first, the sale of uranium from torical record. Furthermore, according to the inventory of the Japanese nuclear the International Atomic Energy Agency power plant operators that were dis-

www.resource-capital.ch | [email protected] connected from the power grid after the tening their supply and are preparing the reactor catastrophe in Fukushima. Se- ground for a medium-term price turna- cond, the sale by uranium producers round at the uranium market when the with liquidity shortages and producers stagnant supply cannot satisfy the stea- with uranium as a by-product, which dy demand from China and India against then sell the uranium with little price sen- this background. In other words: at the sitivity. Third, the restraint of the buyers uranium market a growing supply gap is which are not stressed by falling prices forming in the foreseeable future which despite low inventories. will be closed by rising uranium prices. We assume that the uranium prices will At that reached price level we see the have to recover in direction US$ 70 per- uranium market now at an interesting mi- manently to stimulate the necessary ex- lestone. The bear market seems to be pansion of the production capacities… over. Since one year the uranium price tries to form a bottom. Besides the men- Returning to your question; we expect tioned good demand, we see a reduced the change for the better to materialize supply and an increasing price discipline during the current year. During that time- on sides of the producers as possible ca- frame an inventory cycle comes to an talysts for a considerable recovery of the end for many European and American uranium prices. nuclear power plant operators. They will have to come to the market to rebuild their inventories. From today’s perspecti- You mentioned that the low uranium ve around 40% of the demand for 2020 prices are putting massive pressure on is not contractually secured. This impul- the producers. How do the uranium se could become the catalyst of a sus- producers come to terms with these tainable turnaround. In addition, the spot low uranium prices and why do you ex- market does not have the liquidity like in pect a rebound? the past two years because the two largest uranium producers (Kazatomprom The low price of uranium at the market is and Cameco) have announced a signifi- a tremendous challenge for producers. A cant reduction of their production during profitable production is unthinkable in the current year. Normally the market will this environment. The costs are reduced anticipate this turnaround within a time- accordingly consistently. Production frame of several months… plans are adjusted to the low prices and unprofitable mines are closed. The existing capital is allocated with much disci- Is such a fund, focused on a single pline. Development and expansion pro- commodity, not too specialized and th- jects are rescaled or cancelled accor- erefore too risky? dingly. It is noteworthy that some producers have started to buy uranium at An investment in the fund is a focused the spot market to meet the long-term bet on the emerging supply gap at the commitments entered into. The current uranium market. An attractive return po- spot price is obviously below their pro- tential is opening up in front of an inves- duction costs! These actions have the tor with a medium-term investment hori- advantage that the as yet not produced zon which could also be very risky. The- uranium stays in the ground and can be refore, the fund is suitable as sold for higher prices at the market. With complementary building block in a diver- this behavior the producers are tigh- sified portfolio but not as a basic invest-

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz ment. The Uranium Resources Fund has ting reactors worldwide and the related between 25 and 30 positions in the port- uncertainty about the future perspectives folio. This diversification makes sense of the civil use of nuclear energy is res- against the background of the current ponsible for that. Against this backg- state of the uranium market. round we became very humble although we still feel confident about the potential of the uranium market. Our primary goal What do you recommend to investors is to remain a player when the uranium who are interested in an investment in market rebounds. the uranium sector? Our portfolio is therefore based on three The outlined supply gap and the related pillars. The core of the portfolio is compri- potential of rising uranium prices are only sed of 2 solid basic investments. First an foreseeable at the moment. The exact investment in Uranium Participation (U timing of the expected turnaround at the CN), a Canadian holding company which uranium market is uncertain despite the invests in physical uranium. If we are right good perspectives. If, against expecta- the supply gap at the uranium market will tions, the current phase of bottom buil- be closed by the increasing uranium ding continues for a longer time the air price. Uranium Participation will be one of will become thin very fast for some urani- the first and direct profiteers. In addition, um producers. Their balance sheets are we always have a significant position in emaciated after the persistent price col- the Canadian industry leader Cameco lapse and the cost reduction potentials (CCO CN). The company has a broad-ba- are mostly exhausted. Even for a de- sed portfolio of World Class Assets, is veloper of new uranium projects the en- cash flow positive and pays a dividend vironment is challenging because their despite the challenging environment. projects become economically viable and thereby feasible with increasing ura- When the prices begin to climb only the nium prices. As a result, it is difficult to producers, which can place a significant find investors for the funding of the next uranium production on the market will project stages. Who bets everything on benefit. Only the one who produces can one card at that constellation takes a big deliver. To be on the safe side we invest risk – possibly too big. The stake within a in companies with low production costs diversified investment fund seems to be and that have a solid order book. It is reasonable. In addition, we suggest a good to know in this context that only a timely scaled build-up of the positions. relatively small amount of the annual uranium production is traded at the spot market. The main portion of the uranium What are your selection criteria for the production is processed within long-term selection of your fund holdings? delivery contracts at a predetermined (forward) price. We invest in companies We initiated the fund with confidence ba- that have sold a significant portion of sed on the described positive medi- their production in the past at a predeter- um-term prospects three weeks before mined price, which is considerably higher the reactor accident in Fukushima. These than the current spot prices. This softens events have pushed back the positive the current psychological strain. As ex- starting position by 5 to 6 years. The de- amples for companies in this category commissioning of the Japanese reactor can be mentioned Ur-Energy (URE CN) or fleet, which comprises 10% of all opera- Energy Fuels (EFR CN).

www.resource-capital.ch | [email protected] Third, we invest in explorers and develo- position in our fund today. The company pers that are advancing development has started the construction of the Sala- and mining projects on a world class le- manca uranium mine in Spain and will vel. Of special interest are those that can commence production in 2019, latest. At start their production in the timeframe of that time many nuclear reactor operators the expected supply gap. They will bene- in the EU might start to renew their long- fit from the attractive sales prices. In ad- term delivery contracts. Berkeley Energia dition, these assets should have the is in an excellent position because the necessary size to qualify as take-over Salamanca mine will be the only signifi- targets. We assume that after the price cant uranium producer in the EU-region. turnaround at the uranium market a con- This makes the project attractive from a solidation wave will roll through and mi- strategic point of view. In addition, I like ning companies from outside the sector that, by global comparison, low invest- would like to position themselves in the ment volume of less than EUR 100 milli- uranium business as well. This would on is necessary to bring the mine to pro- make sense due to the low cyclical sen- duction. This is the result of the excellent sitivity and the relative high visibility of infrastructure (water, electricity, and the uranium production. workforce) and the attractive geographic location. Due to the fact that the uranium deposit is near the surface low cost open Currently which are your biggest indivi- pit mining is possible. A comparable low dual positions and why? investment volume, low production costs and an annual production volume of Besides the mentioned standard assets around 4.4 million pounds make this pro- Uranium Participation and Cameco as- ject very attractive from an economic sets like Uranium Energy (UEC US), Ber- point of view. keley Energia (BKY LN), NexGen Energy (NXE CN), Energy Fuels (EFR CN), Fissi- In addition, the state fund from Oman on Uranium (FCU CN) or Denison Mines took a long term holding in “Berkeley (DML CN) fit, for various reasons, in our Energia” with the investment of around aforementioned acquisition strategy. US$120 million within a convertible bond last year. Thereby the construction of the mine is financially secured. If we assume In addition, do you keep an eye on the conversion of the bond into shares of smaller uranium companies which the company later Oman will be, with a could become interesting during the holding around 37%, a strategic major coming months? shareholder. A clear commitment to the long term intact perspectives of the ura- This is a difficult question. A consequen- nium market! ce of the bear market is the disappearan- ce of many companies. At the height of the last bull market around 500 companies with focus of uranium were listed. Today only 40 to 50 companies with reference to uranium are suitable investments. However, there are some attractive investment possibilities. If I have to name one of my favorites it would be Berkeley Energia , which is the largest

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz Interview with Scott Melbye Executive Vice President of Uranium Energy, Commercial V.P. of Uranium Participation Corp. and Advisor to the CEO of Kazatomprom

Mr. Melbye, over the course of your one of them) and headed three hours career you have held positions as Exe- back into town. Experiences like this hel- cutive Vice President, Marketing of ped me develop a real passion for the Uranium One, President of Cameco resource business. Years later, I gradua- Inc., Chair of the Board of Governors of ted from Arizona State University in 1984, the World Nuclear Fuel Market and Pre- and took on my first industry role with sident of the Uranium Producers of uranium broker, Nukem Inc. in New York. America. Currently, you are serving as Executive Vice President of Uranium Energy, Commercial V.P. of Uranium Since mid-2015 we saw significant vo- Participation Corp., and as the Advisor latility in the uranium spot-price. It went to the CEO of Kazatomprom. In other from 40 to 18 and back to 26 US$. So, Scott Melbye is a 34-year veteran of words: You are THE uranium expert! have we already seen the bottom? the nuclear energy industry having What led to your uranium-career? held leadership positions in major The short answer is yes, even though we uranium mining companies as well as Thank you, that is very nice of you to say. will have some starts and stops before industry-wide organizations. Through I feel fortunate to have spent my entire we fully gain traction (as has been the to June 2014, Melbye was Executive career in the uranium and nuclear energy case recently with the price back down Vice President, Marketing, for Uranium business. Our industry is quite unique in around the US$21-$22 level). The indus- One, responsible for global uranium that it is a fairly small and international try has been in a seven-year bear market sales activities. Prior to this, Melbye community of quality, smart, and devo- that began after Fukushima in March spent 22 years with the Cameco ted people who are all pulling together to 2011. This has been a long and challen- Group of companies, both in the supply 11 percent of global electricity ging downturn, as it would be for any Saskatoon head office and with their supplies with highly reliable, clean-air, commodity. While this period has chal- U.S. subsidiaries. He had last served base-load energy. lenged the patience of uranium inves- as President of Cameco Inc., the My introduction to the uranium business tors, the depth and breadth of this down- subsidiary responsible for marketing was at a very young age. Being a se- turn has sowed the seeds of an even and trading activities with annual sales exceeding 30 million pounds U O . cond-generation uranium miner, I grew more robust and sustainable recovery. 3 8 up around the business. My father, Chuck We are finally seeing years of low prices Melbye was formerly the Chair of the Melbye, graduated from the Colorado beginning to take its toll on the supply Board of Governors of the World School of Mines-in 1950. He explored, side of the market. Production cutbacks Nuclear Fuel Market and President of and developed uranium deposits throug- are becoming the norm (and accelera- the Uranium Producers of America. He hout the Colorado Plateau, Wyoming ting), as higher priced legacy term cont- also currently serves as Executive Vice and even Paraguay, with joint venture racts begin to fall off. Uranium prices in President of Uranium Energy and VP-Commercial for Uranium partners such as Southern California the low U$20’s per pound U3O8 range Edison, Korea Electric Power and Taiwan are simply unsustainable over the longer Participation Corporation and just Power Company. I recall an early memo- term. All-in production costs of the lo- completed a two-year term as an ry at the age of 12 travelling to Moab, west cost mines are higher than the cur- advisor to the CEO of Kazatomprom, Utah with my father to meet a bearded rent depressed price level. Further, the the world’s largest uranium producer and dusty old prospector at the local mo- current price environment fails to incenti- in Kazakhstan. He also sits on the tel coffee shop. After spreading out the vize the majority of undeveloped uranium advisory board of the Colorado School exploration maps over the breakfast tab- projects towards construction. of Mines, Nuclear Engineering le, we jumped in his old pickup truck and program. Melbye received a Bachelor headed out a jeep trail into the remote of Science in Business Administration red-rock canyons and plateaus of that Japan is going to bring its reactors back with specialization in International prolific uranium district. Arriving at the to the grid step-by-step, but cancelled Business from Arizona State University prospective outcropping, we took some a supply-contract with Cameco in early in 1984. scintillometer readings, bagged some 2017. Will Japan put too much pressure mineral samples (kicking a scorpion off on the spot-price?

www.resource-capital.ch | [email protected] The pace of the Japanese recovery has on amounted to 162 million pounds in certainly been a disappointment. Most 2016. While this continued a trend of an- analysts, including me, have been wrong nual uranium production increases in the as to how quickly their reactor restarts face of low prices, the rate of increase would occur. The good news is that posi- has finally reversed as cutbacks are tive developments took hold during 2017 being implemented. Global production in (despite Cameco’s high-profile contract 2017 fell to 151 million pounds and could dispute with Tokyo Electric Power, which decline further to below 140 million appears to be isolated to those parties). pounds in 2018. This supports observa- Japan now has 21 reactors in the restart tions that a peaking of mine production process with Federal regulators, with fif- has finally occurred. Several high-profile teen Safety Review approvals being han- production cutbacks have been announ- ded down by the NRA. We are expecting ced, including Cameco’s Saskatchewan to see a total of nine reactors restarted and U.S. operations, Areva’s Niger mi- and operating in 2018 (five are currently nes, Paladin’s Namibian Langer Heinrich in operation today). These don’t sound mine and Kazakhstan’s ongoing reduc- like big numbers, but should be viewed tions in output. The announcement by as positive developments for both mar- Cameco to shut in their world-class ket fundamentals and sentiment in the Mac Arthur River Mine in late 2017 uranium industry. Furthermore, recent has been particularly significant. The Energy Policy has reaffirmed a target of MacArthur River Mine (and associated having nuclear provide at least 20% of Key Lake mill) in Northern Saskatchewan Japanese energy supplies going forward. represents the world’s richest uranium This policy was further strengthened with deposit, with ore grades 100 times the the landslide reelection victory of pro-bu- global average and is the world’s largest siness and pro-nuclear Prime Minister in terms of annual output. Cameco has Shinzo Abe. While this issue remains declared that this operation will be down very emotional with many Japanese, the for “at least 10 months”, which would replacement cost of fossil-fueled electri- equate to as much as 18 million lbs of city has raised household power bills by global, tier-one, production being remo- close to 14% in just 4 years. Japan has ved from the supply mix. As Cameco few viable alternatives going forward and continues to sustain global sales at a le- nuclear provides protection against both vel exceeding 30 million pounds per year, supply and price risk from fossil fuel im- this bold move will serve to drawdown ports (much of which is produced in the inventories much faster than envisioned Middle East). even one year ago and put Cameco into the market as a significant buyer of uranium. Subsequent to Cameco’s an- In the last few months, a couple of pro- nouncement, the Kazakh state producer, ducers reported that they are planning Kazatomprom, followed up their 10% cut to cut their production, including Kaz- in 2017 production, with an announced atomprom where you served as an ad- 20% reduction in planned output over visor for the past two years. Will this si- the years 2018 to 2020. While analysts gnificantly affect the uranium spot- are still struggling to define the exact vo- price? lumes impacted, it is definitely a continued strong signal that the world’s largest This is absolutely a key catalyst in the producer of uranium, accounting for uranium price recovery that has been about 40% of global mine supplies, is in- long in coming. Global uranium producti- tent on pursuing a rational and discip-

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz lined market approach going forward. The planned 2018 IPO to privatize a 25% share of the company will also incentivi- ze Kazatomprom to do anything in their power to support global uranium prices during, and after, this process. Finally, while not a production cutback, we received great news in early 2017 that the U.S. Department of Energy (“DOE”) has bowed to pressure from the U.S. producers and reduced the amount of government inventories that are released to the market by over 1 million pounds per year in 2017 and 2018. This may not sound like much, but combined with announced production cutbacks, close to 50 million pounds of current/future supply has now been removed from the market over the past 24 months. It should Uranium production in Kazakhstan also be recognized that an additional 17 brought on by uranium price spikes in (Source: Kazatomprom) million pounds per year will be removed 2007 and 2010, resulted in utilities rus- by 2025 from the expected resource de- hing to contract at higher prices and for pletion of currently operating mines. very long terms. While these old contracts are expiring, the utilities have not been moving to replace these supplies. Many long-term contracts will run out in As a result, the forward coverage of utili- the next 12 to 18 months. Utilities are ties has fallen appreciably, increasing the beginning to return to the market. Will uncommitted requirements that will need they get their uranium for less than 30 future contract coverage. These unﬁlled US$ per pound? needs (under recently revised conservative estimates) currently total around 742 Only in the very near term and until such million pounds over the next 10 years, time renewed utility uranium procure- which is higher than the 705 million ment levels pick back up. This is the pounds of uncommitted demand exis- other key catalyst that has me excited ting in 2011. In a thinly traded commodi- right now, but has yet to fully hit the mar- ty, like uranium, this return to more nor- ket. mal long term contracting levels should The world’s ﬂeet of operating reactors, put considerable upward pressure on and those nearing completion, are now long term and spot prices. We are begin- expected to generate a cumulative fuel ning to see the signs of this increased requirement of 174 million pounds of buying activity by global utilities which is

U3O8 in 2018. This fuel requirement is ex- very encouraging. However, utilities in pected to grow to 196 million pounds by the United States are continuing to sit on 2030. While this demand for uranium is the sidelines in a wait and see mode as fairly steady and predictable, the procu- to the direction future fundamentals. Per- rement decisions of utilities can vary ba- haps a catalyst behind this perceived sed on contract coverage, inventories, complacency, stems from the Section forecasts of future prices and risk tole- 232 Trade case which was ﬁled by two rance. The previous contracting cycle, U.S. producers with the Department of

www.resource-capital.ch | [email protected] Commerce early this year. A “232” filing der smaller units with designs typically is made to address harmful levels of for- less than 1,000 MWe. eign imports reaching a point which en- A trend to keep our eyes on, and not yet dangers national security. Today, less factored into the near-term supply and than 5% of domestic needs are fulfilled demand analysis, is the growing emer- by domestic mines, despite abundant re- gence of Small Modular Reactor (‘SMR”) sources and competitive potential. As designs. These are reactor designs which the proposed remedy of this filing is a re- have a 50-300-megawatt range of out- served 25% quota of U.S. reactor requi- put, and are similar to the small, compact rements for U.S. domestically mined ura- U.S. naval reactors which have operated nium, there is a great deal of uncertainty safely since the 1950’s. SMR’s can be in the market until the Trump Administra- mass produced in factories and shipped tion rules in this “buy American” issue. on site. They are scalable in nature, can Similar trade actions have been filed with accommodate small grids like islands regards to aluminum and steel imports, and remote areas, require much lower so market observers are keeping a keen upfront capital, and have a faster pay- eye on this development. back period due to short construction times. The U.S. Nuclear Regulatory Commission is updating their regulations New reactors are being built and older to accommodate these small-scale pow- ones will be shut down. What does this er producers, which has been a big barri- mean for the future demand? Do new er to entry to date. While these reactors reactors need more uranium than older will use less uranium than today’s large ones? units, this potential new growth area is a very welcome development. Ten reactors were added to the global grid during the 2016 calendar year, exceeding the mark set in 2015 for the Just to give the readers some numbers: highest growth rate of nuclear power ca- How much uranium does a new reactor pacities in the past 25 years. While 2017 need for the first load and how much reactor additions were down from 2016, does it need for further loads? the pause is only temporary, as there are currently, 57 nuclear reactors under con- Great question and something that adds struction in 14 countries with the princi- to near term uranium requirements due pal drivers of this expansion being China, to the 57 reactors currently under const- Russia, India, South Korea, and the Uni- ruction. A reactor under steady-state ted Arab Emirates. operation refuels only once every 12 – 24 The World Nuclear Association reports months depending on their optimal fuel that 448 reactors are operable in 30 management and operating strategy. At countries. These reactors have a capaci- these periodic refueling outages, appro- ty of 393 gigawatts of electricity and sup- ximately one-third of the reactor core is ply about 11 percent of the world’s elec- replaced with fresh fuel and the remai- trical requirements. ning fuel assemblies are shuffled to new The new reactors are all of designs which locations in the core. The oldest fuel that exceed 1000 megawatts and more than has been in the reactor for several years compensate for the retirement of some is retired to spent fuel storage for ultima- older smaller reactors that have reached te disposal (or is reprocessed into new the end of their operating lives. The total fuel). demand for uranium will increase with In the case of a new reactor in its first the requirements of the larger reactors operating cycle, the entire reactor core balanced against the retirement of the ol- needs to be loaded with fresh fuel. This

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz There is extremely high air pollution creates what is known as the “initial core gawatts by 2030. The Chinese govern- in the Chinese cities. effect”. The first core fueling requires ment has increased its emphasis on nuc- (pixabay/ 3dman_eu) about 1.5 times the uranium required in a lear energy as a way to deliver vast typical reload (the reason it is not 3 times amounts of electricity, without adding to more has to do with lower U-235 enrich- the severe air pollution crisis from carbon ment levels in the first cycle). Taken col- emissions affecting their major cities. In lectively across all of the new reactor terms of reactor requirements Chinese start-ups, the bump in global require- annual uranium consumption will rise ments is substantial, not to mention that from 20 million lbs in 2017, to over 75 these requirements tend to be procured million pounds by 2030. earlier than subsequent reloads. This all has a profound impact on global To put this into actual numbers, a new uranium supplies, as China possesses Westinghouse AP-1000 reactor (like tho- relatively little in the way of quality dome- se being built in Georgia) require about stic geologic uranium reserves, despite 1.65 million pounds for an initial core, its large geography. As such, China sta- with a reload requiring around 1.1 te-owned companies have been aggres- pounds. This can, of course, vary based sively pursuing uranium imports to the on operating cycle-length and tails assay tune of about 50 million pounds of U3O8 (depending on the relative prices of ura- per year, taking advantage of the urani- nium and enrichment). um downturn and accumulating an under-valued commodity that they will rapidly consume at their current growth The new leading nuclear nation will be rate. Their investments in foreign urani- China. How will their current constructi- um deposits and production assets also on plans effect the uranium sector? have significant impacts on the global market. While their massive investment China continues to lead the global nucle- in the Husab uranium mine in Namibia ar growth story, expanding from their will advance this mine’s development currently installed 35 gigawatts of capa- earlier than economics would otherwise city from 38 reactors, to close to 150 gi- dictate, other investments in existing mi-

www.resource-capital.ch | [email protected] nes, like Langer Heinrich, also in Nami- by DOE. Already New York, Connecticut bia, will take significant volumes of pro- and Illinois, have taken real concrete duction “out of circulation” for western steps to reform these market dysfunc- utilities. tions and preserve this critically important base load nuclear power in the name of reliability and grid stability. Other sta- Much has been said lately about the tes like Ohio, New Jersey and Pennsyl- nuclear energy program of the United vania are considering similar legislation. States, currently the world’s largest The performance of U.S. nuclear power fleet. So-called de-regulated electricity plants during recent “polar vortex” win- markets and low natural gas prices ters, and hurricanes, have only reinforced have put some plants under economic the need for this policy shift by the Trump stress. What is the Trump Administrati- Administration and individual states. on doing to address the continued via- Elsewhere in the regulated markets of bility of nuclear energy in the U.S.? the Southeastern United States, we are seeing the construction of two new reac- We have actually seen a great deal of po- tors of the Westinghouse AP-1000 de- sitive developments on this front in the sign. Two additional units in South Caro- past year, and the Trump Administration lina had begun construction, but are on has certainly been supportive of both the hold for the time being. Unfortunately, nuclear energy industry, and uranium fuel these massive construction projects cycle, in the United States. The challen- were caught up in the bankruptcy rest- ge is not that nuclear reactors are un- ructuring of Westinghouse given their in- competitive with their low US$0.03 to ability to effectively manage these const- $0.05 per kilowatt hour generating cost. ruction programs. The good news is that The market structure in these supposed- the Vogtle units 3&4 in Georgia will pro- ly de-regulated jurisdictions are severely ceed to completion under a new const- distorted by the high levels of subsidies ruction manager, Bechtel, and will be granted renewables and compounded supported by extended loan guarantees by low natural gas prices. Unfortunately, from the Trump Administration. The renewables provide the lowest level of Summer units 2&3 in South Carolina re- as-needed reliability, and gas prices can- main in suspension, but here too, the not be relied upon to stay low forever (or story can still turn positive with state offi- simply through the cold winter weather cials and potential investors looking at months). Meanwhile, the potential loss of ways to complete these reactors and 24/7 reliable and carbon-free base load bring them into operation. electricity from nuclear is put in jeopardy. While some isolated, older operating The Trump Administration has certainly units will succumb to decommissioning taken on this energy security predica- in the United States in the coming years, ment as a priority, emphasizing the need like that of Oyster Creek recently in New for a reliable and robust electric grid un- Jersey (1969 start-up), we are seeing the der all supply and demand scenarios. opposite occur with most U.S. reactors While the DOE directives in this regard pursuing (and receiving) approvals for did not result in mandated changes th- license extensions to add 20 to 40 years rough Federal Energy Regulatory Com- of additional operating years to their safe mission (“FERC”) regulatory measures in and useful lives. Already, Exelon, Domini- 2017, the onus is now on the individual on and NextEra Energy have said they states to demonstrate the price stability plan to ask regulators to extend 60-year and reliability standards recommended licenses by 20 years for eight reactors in

Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz Virginia, Pennsylvania and Florida. Re- tus in the uranium sector and could this quests for as many as 20 more are ex- lead to another uranium-price upward pected to follow. Also last year, the Pali- trend? sades nuclear power plant in Michigan, that was slated to be retired in 2018, is The uranium market has required a great now pursuing a plan to extend opera- deal of patience from investors as it has tions for four additional years. The value worked through the over-supply condi- of these vital base-load electricity gene- tions that emerged out of the Fukushima rators, from both an economic and ener- events in 2011. Having said that, as we gy security perspective, are perhaps fi- head into 2018, we have a very exciting nally becoming more widely recognized. development materializing that is rarely seen, but certainly coveted, by commodity investors. With the record number of Let’s come to uranium supply. Do you reactors operating, and coming on-line see major new mines starting producti- around the world, we are seeing a robust on in the next five to eight years? What and growing global demand for uranium. does the pipeline look like and what While utilities have recently been heavily price will most companies need to ad- covered under contract from past cycles, vance development, and bring their we see a new contracting cycle emerging projects into production? that will put renewed stress on available supplies in the coming years. The trend This development should be startling to of global uranium production cutbacks, the nuclear generating companies, and like those announced by Canada and probably explains the current, and very Kazakhstan late last year, have been long strategic appetite for Chinese invest- in coming. These cutbacks will likely ment. Beyond the large Chinese Husab continue at a time when the pipeline for mine, we see very little in terms of new new supplies is at a low point, and lead- mine development. From a producer’s times required to reverse that trend could viewpoint this is not surprising, given the be rather prolonged. The price impact seven-year period of challenging price could be acute. conditions we have experienced. The in- This is certainly the right time to be posi- centive price for meaningful new uranium tioned in uranium investments to capita- production (new developments or mine lize on an emerging, sustained, price re- expansions) to come to the market is covery. estimated by BMO, in their March 2017 uranium market outlook, to be higher than US$60 per pound U3O8. This, and the prolonged licensing and permitting process required to bring on new production (as much as 10 years or more for a major conventional mine/mill complex), make for an interesting situation as the uranium market is expected to move into a near term supply deficit amidst higher contracting volumes.

In summary: What are your feelings about the current supply-demand-sta-

www.resource-capital.ch | [email protected] Blue Sky Uranium High-grade uranium projects with good prospect of low cost open pit mining!

The majority of standard uranium mines bara. In 2010 Blue Sky Uranium received produce the uranium ore by underground the exclusive right to complete airborne mining techniques raising the constructi- geophysical surveys over an area of on and mining costs. The Canadian de- 2.265 million hectares. After a detailed velopment company Blue Sky Uranium study the company decided to acquire owns several huge uranium licenses in the mining rights for Anit, Ivana and San- Argentina which, after initial inspection of ta Barbara because several significant the drill results, can probably be mined anomalies were discovered on these by open pit methods. This is an enor- projects. The three license areas cover mous cost advantage which promises an area of 269.000 hectares in total and not only faster mining but also high mar- are located in the province of Rio Negro, gins. Argentina. Anit, Ivana and Santa Barbara are situated within a 140km long trend which hosts several known uranium de- Amarillo Grande Uranium- posits. Besides the near surface uranium Vanadium Project: mineralization, Amarillo Grande also Location, Resources and hosts significant vanadium resources. Mining Possibilities This is interesting because the price of vanadium has more than doubled since Blue Sky Uranium’s flagship project is the fall of 2016 und vanadium as by-pro- Amarillo Grande which consists of three duct could significantly contribute to a subprojects: Anit, Ivana and Santa Bar- low-cost production. The uranium and vanadium ore occur in depths of 0 to 25m whereby the deposits can extend over several kilometers. The overburden is comprised of only slightly compacted sand which results in favorable mining and extremely low drill costs. Mining will be carried out by a so-called scraper which strips the rock layers and a con- veyer loads the stripped material directly on a following truck. No drilling and blas- ting is necessary, which drastically reduces the mining costs. In addition, the company does not need the majority of excavators usually needed. The ore material could be processed in a central processing plant located between the three subprojects by means of the low- cost leaching process. All these benefits make it possible to mine low grade deposits. An example for such a mine is Langer Heinrich in Namibia where the Amarillo Grande is located in the province of corresponding resources are mined for Rio Negro, Argentina. less than US$18 per pound of uranium. It (Source: Blue Sky Uranium) should be noted that Blue Sky Uranium has the advantage of the additional vanadium resources.

www.blueskyuranium.com Amarillo Grande Uranium- Vanadium Project: Ivana

Ivana is the largest and southernmost subproject. It covers 118,000 hectares and hosts a 25km long anomaly. Within a 4,500m x 1,500m corridor a high-grade mineralization was discovered by sampling and drilling corresponding to previous radiometric surveys. Initial sampling provided results of up to 1.81%

U3O8 over 0.75 m. This sample was col- lected only 2m below the surface.

Follow-up drilling provided among other things:

3,136ppm U3O8 over 1m, 2,182ppm U3O8 and 1,285ppm V2O5 over 2m, 2,087ppm U3O8 and 1,892ppm V2O5 over 1m, 1,861ppm U3O8 over 3m, 1,473ppm U3O8 and 721ppm V2O5 over 1m Blue Sky Uranium’s flagship project is 1,410ppm U3O8 over 1m, That successfully confirmed the initial Amarillo Grande which consists of three 1,135ppm U3O8 over 5m and grades of more than 1% U3O8! subprojects: Anit, Ivana and Santa Barbara. 1,130ppm U3O8 over 5m Amarillo Grande Uranium- (Source: Blue Sky Uranium) within significant Uranium and vanadi- Vanadium Project: Anit um mineralization of up to 20m in thickness. All these drill results are The second subproject, Anit, covers from maximum depths of 23m! around 24,000 hectares and lies between Ivana and Santa Barbara. Anit is located In September 2017 and January 2018 re- on a 15km long trend showing near sur- leased drill results could extend the face uranium mineralization. Special at- strong mineralized corridor by 3km to the tention is on a 1,000m x 200m corridor northeast and suggest that the corridor within a paleo channel. continues to the north and south. Historic exploration activities identified Furthermore, additional drilling provided for 81 drill holes an average grade of further high-grade result, among other 0.03% U3O8 and 0.075% V2O5 over things, 10,517 ppm U3O8 over 1m and 2.6m. In the western and central zones 8,618 ppm over 1m within a larger inter- 103 pits were discovered which had ura- section of 8m with more than 2,200 ppm nium grades of more than 50ppm where-

U3O8 and 2,800 ppm U3O8 respectively. by on average 1.97m with 0.04% U3O8 In January 2018 the next spectacular re- and 0.11% V2O5 were detected. A drill sult followed! The company identiﬁed, campaign, which started in May 2017, among other things, more than 20,000 identiﬁed uranium grades of up to ppm U3O8 (equals over 2%) over 1m. 1,114ppm U3O8 and up to 3,411ppm

www.blueskyuranium.com V2O5 . The very high-grade vanadium re- Exploration projects in Chubut source especially attracted the attention Province of the management so that additional work and drilling is planned in this area. Blue Sky Uranium has additional explo- Blue Sky’s management believes that ration projects in the Chubut Province this corridor could be 5km or more long. south of Rio Negro. Test works also showed that the majority The Sierra Colorada project covers of the present uranium and vanadium re- around 39,900 hectares. The project is sources could be significantly improved located 96km from Cerro Solo project by wet screening because coarse gravel (not Blue Sky Uranium) in a similar geolo- in particular contains hardly any uranium. gic environment. The National Commis- This could reduce transport and proces- sion of Atomic Energy could already con- sing costs and achieve production at se- firm a significant resource at Cerro Solo. veral satellite projects concurrently. Sampling at Sierra Colorado could prove

up to 0.65% U3O8 and 1.55% V2O5 as well as traces of molybdenum. Amarillo Grande Uranium- Blue Sky Uranium’s second project Tier- Vanadium Project: ras Coloradas is situated northeast of Santa Barbara Sierra Colorada and to date was explored only sporadically for existing depo- The third subproject Santa Barbara lies sits although the company detected near northwest of Anit and is still at a very ear- surface mineralization by radiometric ly stage. Blue Sky Uranium could already surveys. identify several anomalies on the project The Cerro Parva project covers around and wants to make a new discovery 67,800 hectares and is located only soon. 40km east of Cerro Solo. The Chubut projects are intended for a future pipeline expansion and therefore Amarillo Grande Uranium- are not currently in the development fo- Vanadium Project: cus of the company. current activities

Currently the company is increasingly fo- Grosso Group: cusing its activities on Anit and especial- the game changer ly on Ivana. Ivana especially is at the focus because the company tries to extend Blue Sky Uranium belongs to the Grosso the discovered high-grade areas and Group. The Grosso Group is a resource provide a resource estimate as quickly as management company that is in operati- possible. To this end the company works on since 1993. The company is speciali- with an electrical tomography program zed on South America and especially on covering 11km and a drill program com- Argentina. During this time, they made prised of 4,500m. Metallurgical test runs three multi million ounces precious me- are conducted concurrently to establish tals ﬁnds in Argentina. In addition, part- an optimal leaching process and to recei- nerships could be entered with resource ve the highest possible recovery rates. In giants like Barrick, Areva, Rio Tinto, Teck January 2018 recovery grades for urani- and Yamana. Company chief Joe Grosso um of over 95% were determined. The was awarded Argentina’s Mining Man of completion of a resource estimate was the Year in 2005. The Grosso Group has commissioned. a vast network of industry and political

www.blueskyuranium.com contacts in Argentina. Grosso is director besides uranium, significant vanadium and chairman of Blue Sky Uranium since resources also and second, the existing October 2017. resources can be mined most likely by open pit mining methods. Together this promises, due to several existing Summary: three projects, two high-grade sections, a very good chance elements, prospect of low cost for an early production and especially for mining! a low-cost production which needs only a fraction of the capital costs that similar Blue Sky Uranium is a real early stage conventional mines require. An own pro- chance at an imminent uranium boom duction should be within the realms of market. Although the company has al- possibility with the very well networked ready made significant exploration and Grosso Group in Argentina. In December development progress on its three ad- 2017 Blue Sky Uranium completed an vanced projects within Amarillo Grande, oversubscribed financing of CA$1.12 an initial resource estimate which is million. An additional also oversubscri- planned for the fourth quarter of 2017 bed financing of CA$1.45 million was re- may bring clarity on the dimension of the alized in February 2018. Both oversub- resources at Ivana. Two things seem ob- scribed financings clearly show that jectively speaking crystal clear: First, the many investors are convinced by the de- rocks at Ivana and also at Anit contain, velopment of Blue Sky Uranium.

Exclusive interview with Nikolaos Cacos, CEO of Blue Sky Uranium

What did you and your company achie- discovered by Blue Sky and is open for ve within the last 12 months? expansion – mineralized sequences be- lieved to be preserved along the trend. Our drilling continues to reveal high-gra- Leachable mineralization; upgradeable de uranium intercepts within poorly con- through a simple low-cost wet screening solidated sediments near surface, buil- technique. Exclusive rights to over Nikolaos Cacos, CEO ding our understanding of the deposit 287,000 hectares with this information and its potential. The Ivana target has the we are moving toward a resource esti- largest, highest-grade zone of uranium mate and a PEA. mineralization found at the Amarillo Grande uranium-vanadium project to date, and understanding it fully is the key What are the main catalysts for your to uncovering the potential of the 140-ki- company within the next 6 months? lometre-long mineral belt controlled by Blue Sky. We are an excellent candidate We are working on a resource estimate to to be the ﬁrst low-cost, near-term dome- be completed in March (43-101) and then stic uranium supplier in Argentina. Three on to a Preliminary economic assess- main properties with zones of near-surfa- ment targeted to be completed by July. ce mineralization within a 140km trend

www.blueskyuranium.com What is your opinion about the current gy of 6,613,868 pounds of coal. It would conditions of the uranium market? take 2 million grams of oil or 3 million grams of coal to equal the power cont- The $20 per pound range is a crisis price ained in 1 gram of uranium fuel. Unlike oil for the uranium industry. Prices are now and coal, nuclear fuel is recyclable and, so low that most uranium mines are lo- in a breeder reactor, can actually pro- sing money on every pound they sell at duce more fuel than is used up! For these spot pricing. All U.S. uranium mines are reasons, nuclear energy is by far the best losing money at current prices. The reali- means now available to power a modern ty is that nuclear energy has provided – industrial economy. Seasoned resource and continues to provide – the world with investors know that one of the ultimate massive amounts of clean, safe, emissi- signs of a market bottom is when the on-free electric power. Coal, which is current market price of a resource is lo- also used to generate electricity, has kil- wer than an industry’s lowest cost of pro- led far, far more people than uranium. duction. When this situation occurs, eit- The average citizen in nuclear energy ca- her the price of the resource goes up or pabilities doesn’t know the vital role that the producers go out of business and the nuclear power plays in their economy. world goes without the resource. In the America gets 21% of its electricity from case of energy resources, the world al- nuclear power. Nuclear power provides ways chooses to keep the cars running electricity for about 23 million homes in and the lights on. the US, or about twice the number of homes in California. A portion of an ounce of uranium contains the equivalent ener-

Blue Sky Uranium Corp. ISIN: CA0960495079 WKN: FRA: TSX-V:

Shares issued: 77.6 million Options: 4.8 million Warrants: 10.4 million Fully diluted: 92.9 million

Contact:

phone: +1-604-687-1828 fax: +1-604-687-1858

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www.blueskyuranium.com Swiss Resource Capital AG | Poststrasse 1 | 9100 Herisau | Schweiz