The Uranium Juniors and Majors: A Symbiotic Relationship

By Katherine Young, ResourceX investor May 4, 2007

Fears about peak oil and the concept of uranium as a cleaner energy source have coupled in the industry’s collective imagination and forced the price of uranium to triple in the last year. On the supply side experts are alerting the public of shortages and many are saying that the uranium price will continue to climb as a result. With bio-energy solutions seen as being far-off in the future, uranium is being touted as nothing less than the solution to world’s energy and greenhouse gas problems.

Consequently, the juniors are aggressively exploring for the next uranium ore body. But as uranium decays, it emits radiation. For that reason uranium mining is subject to the most stringent regulations of any mining industry. The licensing process is lengthy and expensive and uranium production regulations make production prohibitive to juniors. So what becomes of a junior uranium company once it has a significant ore body? Conversely, how does a major like Cameco Corp. acquire more valuable uranium to meet growing demand and remain the industry leader it has been?

Think of the alligator that opens its devastating jaws to allow tiny birds to pick food from its teeth. The birds get a meal and the alligator capitalizes on what the birds offer--clean teeth. The two coexist peacefully. It’s similar with juniors and majors. They offer each other what neither could do as effectively on their own.

Cameco Corporation, located in Saskatchewan, is the world’s largest uranium producer. During its May 1, 2007 First Quarter Results conference call the company outlined its exploration strategy, which directly involves using the expertise of junior companies. During the call Cameco management said that Cameco has already entered into alliances and joint ventures with exploration companies in Gabon in western Africa and in Nunavut.

When the situation is right, they say, they’re ready for more partnerships. Jerry Grandey, President and CEO of Cameco Corporation, had this to say about Cameco’s planned exploration strategy: “[w]e will be ready when appropriate, to consider joint ventures, alliances and acquisitions, consistent with our production goals and overall vision.”

Arrangements with juniors are clearly a part of Cameco’s strategy. Lyle Krahn of Cameco Corporation explained why in an interview: “[w]e’re a large company but we can’t do all of the exploring around the world. As juniors explore and discover uranium it will help meet the growing demand for nuclear power around the world.”

A case in point is a non-binding memorandum of understanding that Cameco entered into in June of 2006 to acquire 19.5% of UNOR, formerly Hornby Bay Exploration Ltd., thereby creating a strategic alliance with them. UNOR has 226 mineral claims in Nunavut on the Hornby Basin, which has similar geological features to the Athabasca Basin in northern Saskatchewan.

Jerry Grandey said about the alliance: “[t]his relationship leverages the expertise of the junior uranium exploration company that has both a perspective land package with similar geologic characteristics to the Athabascin Basin and a solid technical team.” Singing the praises of the junior, Cameco is explicit about its interest in what the juniors are doing. However, it is a fact that juniors have to be interested in what the majors like Cameco have to offer as well, because they cannot carry their resources through to production on their own.

In Canada, the world’s largest producer of uranium, the permits required for exploration are obtained at the provincial level of government. There is considerable variation from one province or territory to the next, with some provinces being considered more or less ‘anti-nuclear’ than others.

However, because uranium production presents environmental and health and safety issues, the public interest is affected and federal regulations are called into play. The federal licensing process, which is governed by the Canadian Nuclear Control Act and managed by the Canadian Nuclear Safety Commission (CNSC), is arduous to say the least.

In an interview with Fred Ashley, Project Officer at the Canadian Nuclear Safety Commission, Mr. Ashley said that the licensing process can take roughly five years. Ashley explained why: “It’s obtaining all of the site-specific information that’s required to do the environmental assessment. It’s going through all the public information processes that are required for the environmental assessment.” The assessment is both comprehensive and detailed. Considerations such as meterology, seismology, archaeology, paleontology, vegetation, wildlife, soils and surface water are all significant. And, as Fred Ashley pointed out, the onus is on the company to provide the time-consuming required studies.

If the time and red tape isn’t enough to put a junior company off, Fred Ashley explained the costs involved. “You’re into several million dollars for sure. It is a major undertaking. And that’s why a strictly junior company is usually not in the league to carry forward a [uranium] mining operation…[u]sually the people involved in a junior exploration aren’t operators. There’s a lot of different experience and requirements to be an operator versus an exploration group. So if [a junior] did identify a valuable ore body, we think in most cases they’d be looking at partnering or some kind of arrangement with someone who is an operator.” Ashley added that even with an environmental assessment in place, a uranium producer still has to meet rigorous controls for uranium production.

When asked if it is easier to obtain permits and licenses in other parts of the world, Fred Ashley said: “the general standards still apply because there’s a lot of consensus between the different countries through the International Atomic Energy Agency…[s]o different countries will at least have a certain level of specific controls.” So, regardless of where in the world the junior is exploring, operating is a different game altogether and juniors - instead of moving to production on their own, like with other minerals - need to position themselves to be noticed by the Camecos of the world.

Cameco President Jerry Bradley, speaking to Terence Ortsland in a conference call, outlined Cameco’s current orientation toward the junior explorers: “[r]ight now Cameco’s been in kind of a watch mode because it takes quite a while to find a significant ore body.”

As far as what they look for, Lyle Krahn media relations at Cameco said: “It’s very simple. We look for a quality exploration team with a quality deposit.” You can bet that juniors feel the power of Cameco’s watchful gaze because once they have an ore body, interest from a major, after all, is their only option.

Katherine Young writes for Resourcex Investor, an internationally distributed newsletter specializing in identifying as-yet-undiscovered resource companies representing the best in their class. For more information, visit the website www.resourcexinvestor.com.

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