Nuclear power is enjoying a renaissance, and the world will soon need more uranium. Up to 50% more within a decade, says Joe Reagor of ROTH Capital. In this interview with The Mining Report, he explains that the share prices of uranium juniors remain low because the uranium spot price has not yet risen to reflect the increased demand just around the corner. This provides a great opportunity for canny, long-term investors, and Reagor identifies four companies that have the means to profit from the inevitable need for their product.

The Mining Report: The 27th annual ROTH conference was held in California last month. What’s the purpose of this conference?

Joe Reagor: We provide management access to our client base and provide exposure for the smaller-cap companies that are somewhat under-covered by the Street.

TMR: How would you sum up the sentiments of the participants?

JR: In the mining sector, I heard a bit of cautious optimism. Conditions seem to be improving, but the strength of the U.S. dollar is not helping most commodity prices. However, if you operate outside of the U.S., margins are improving. 

TMR: With all the concern about a possible stock-market bubble, was there perhaps a feeling that miners may be due for a revaluation because they produce things of tangible worth?

JR: There has been more generalist interest in mining recently because of the fear that the broader market is getting a bit frothy in certain sectors. This lends support for diversification and investment in mining companies because, as you said, they do produce hard assets and can benefit should the overall market underperform. 

TMR: Since we last spoke, the spot price of uranium topped $40/pound ($40/lb), and is now just above $39/lb. What are the fundamentals that have undergirded this rise?

JR: There was a significant supply overhang after the Fukushima disaster of 2011. Then there were two large sales that occurred after that, probably inventory liquidation, perhaps from Japan. We reached the bottom last summer. 

The supply overhang peaked again due to increased production from Kazakhstan. But that is no longer a problem. Kazakh production is no longer growing, and some of the larger uranium projects globally have been put on hold. That has allowed the inventory level to return to normal levels and has enabled a more sustainable pricing point. 

TMR: Where do you see uranium going for the duration of 2015?

JR: There will be additional demand as nuclear reactors come back on-line in Japan, and as China completes new ones. So, I think the price will continue to trend upward, perhaps to $50/lb by year-end, although we might continue to see small pullbacks. 

TMR: China’s demand for new reactors is dependent on burgeoning economic growth. Will China continue to expand as it has in the recent past?

JR: I’m not a macro expert on that subject, but my opinion is that China will continue to grow at a rate that will inspire envy in Europe and the U.S., but it will not be the double-digit growth we became accustomed to. China needs to produce more power for a growing and more affluent population, so it will need reactors. For that reason, I think China’s uranium needs may grow faster than its economy overall. 

TMR: According to a report by Cameco Corp. (CCO:TSX; CCJ:NYSE), the amount of uranium required to service the growing number of nuclear reactors will increase from 155 million pounds (155 Mlb) annually today to 230 Mlb annually within a decade. Can this need be met?

JR: There is some apprehension about whether uranium production can grow to that level. One source will be uranium as a mining byproduct. In the past, uranium produced by certain mines was treated as waste, but, if needed, this could enter the market. 

Multimillion-pound uranium projects in Canada and in the U.S. would likely see increased investment should uranium rise above $55/lb. And Kazakhstan can increase production significantly, even though it already produces one-third of world supply. 

TMR: Assuming that uranium demand does indeed rise to 230 Mlb annually, how would that affect the price?

JR: In the short term, price spikes of up to $100/lb are possible. In the long term, we’re looking at a price in the $60–70/lb range. The problem of price spikes could be solved with offtake agreements, whereby utilities help fund the development of uranium projects in return for contracts to buy uranium at fixed prices.

TMR: Given the recent success of uranium exploration in Saskatchewan, will there be a rush to develop these projects should the uranium price top $55/lb?

JR: Not necessarily. The uranium industry is now well aware of its supply-and-demand dynamics. A price above $55/lb will encourage additional development, but not of any projects that would result in significant oversupply. Most of the world’s active uranium mines are very profitable at $55/lb.

TMR: How finely can uranium demand be calibrated?

JR: Current uranium demand is 155 Mlb, plus or minus 5%, assuming no additional reactors. Reactor lead time is up to five years, and that is more than enough time to source new supply. 

TMR: Can you explain how the price of uranium is determined by long-term contracts signed by utilities and what the current state of this process is?

JR: Contract-price uranium has enjoyed a premium over spot price. This has trended down to only a couple of dollars a pound, but historically it has been closer to $10/lb. Utilities generally seek to sign contracts to buy uranium two years into the future. But they will sometimes take delivery 6 to 12 months early and have it sent to their concentrators. The ultimate purpose of these contracts for utilities is to provide price stability for energy consumers. And to the miners, these contracts guarantee financing. 

The great majority of uranium is sourced via contracts, with only 5–15% provided by the spot market. 

TMR: It has been suggested that the price of uranium is likely to increase soon because several large 7 to 10 year contracts are coming to an end. Do you agree?

JR: Some larger producers, such as Cameco or AREVA SA (AREVA:EPA), have contracts with utilities coming up for renewal. There is a essentially a quoted contract price out there that’s well known and then an assumed inflationary rate beyond that. I think the utilities are likely to simply renew these contacts with their existing producers. The bigger concern is that the Japanese utilities have not renewed contracts and don’t have offtake agreements, so they might be forced into the spot market. 

TMR: We often hear the uranium market compared to a game of chicken between suppliers and utilities. Is this a useful metaphor?

JR: It’s a bit overstated. Suppliers use this comparison in order to suggest that the price of uranium is going to increase, but when we compare in importance the overall cost of running a nuclear power plant versus the cost of 500,000 lb (500 Klb) to 1 Mlb of uranium, the latter is not all that crucial. 

Utilities are not that incentivized to haggle over a few dollars a pound, as the suppliers would have you believe. Utilities can now make up any supply shortfalls from their contracts in the open market, and that could lead to a tighter spot market. 

TMR: Would you talk about mergers in the industry?

JR: It’s been three months since the merger of Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.MKT; EFRFF:OTCQX) and Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT) was announced. The deal is transformational in that it creates multiple avenues of producing returns for shareholders. Energy Fuels had been a conventional uranium miner and producer. Adding Uranerz will give it an in-situ recovery (ISR) method of production and therefore the flexibility to fluctuate between the two methods as needed. ISR also provides a low-cost option should the uranium price flatten or trend downward. And the merger also provides the new company with additional cash flow to reinvest into larger uranium conventional projects should the uranium price reach the $55–60/lb range. 

TMR: You recently noted that revised growth plans for the new company will not be available until the merger is complete. Are there any clues as to what those plans might be?

JR: U.S. companies are prohibited from providing such guidance. I’m sure Energy Fuels would prefer to provide it to shareholders and analysts, but it can’t. 

TMR: In your March 23 research report, you wrote, “Q4/14 was a poor quarter for [Energy Fuels], as the company made no significant uranium sales. . .we anticipate a similar sales schedule in 2015 to that of 2014, with [the company] producing only 70 Klb of uranium and drawing down inventories to meet contract sales volumes of 800 Klb.” Is this model sustainable?

JR: Well, Energy Fuels has contracts beyond this year. I believe the contracts do get a little smaller as we go out, but Energy Fuel’s goal is to produce only from its conventional mining methods what it needs to deliver into those contracts. Should the uranium spot price rise above $50/lb, Energy Fuels would be able to increase production. 

On the other hand, should the spot price remain flat, we’d expect the company to produce just enough to meet contracts, with perhaps a slight amount beyond that to provide a cushion. The 75 Klb is just it finishing up the Pinenut mine in Arizona. Next year, Energy Fuels will switch to its Canyon mine in Arizona, which is expected to produce the 700 Klb it will need for next year’s deliveries.

TMR: How does Canyon compare to Pinenut with regard to costs? And are there significant costs associated with switching production from Pinenut to Canyon?

JR: We won’t know the cost metrics until Canyon actually begins production, but I expect them to be similar. There’s going to be a development cost for Canyon, probably $10–20 million ($10–20M), but the good news is that the Pinenut workforce is being transferred to Canyon, so there will be no significant severance costs.

TMR: Around the middle of February, Energy Fuels’ shares were trading around $6.50 but then fell to $5.03 by the beginning of April. They’ve since recovered to $5.26/share. Did the share-price fall surprise you?

JR: I’ve been a bit surprised in general by the underperformance of the small-cap uranium producers in the face of the steady flow of positive news regarding the uranium price. This provides an opportunity to investors, in my opinion.

We’re maintaining a Buy rating and an $11 target price for Energy Fuels until we get further guidance. My overall view is that the Uranerz acquisition will result in a stronger, better company. Its current valuation is based solely on Energy Fuels, so there is upside for the combined company, even though reworking the numbers may or may not result in a higher valuation after the fact.

TMR: How does Uranerz make the new company better?

JR: By providing a lower-cost production footprint. Nichols Ranch will be an ISR producer and is expected to have significantly lower operating costs than those of conventional mines such as Canyon. Uranerz is also bringing some contracts that Energy Fuels can deliver into. Plus, Uranerz’s additional ISR projects give Energy Fuels additional future production flexibility.

TMR: How important is flexibility in today’s uranium market?

JR: Given the potential for price shocks, up or down, having flexibility in its production schedule and investment decisions is a significant differentiator for Energy Fuels. It stands apart from the other uranium juniors that have solely conventional or ISR production.

TMR: So ISR capability allows the new company to move more quickly based on possible spikes?

JR: ISR can reach production faster but cannot reach the same magnitude. ISR also allows fluctuation of production flow rates without significantly altering production costs. With conventional mines, production fluctuations can significantly alter operating-cost metrics.

The advantage of conventional mines is that they are more scalable. So one would expect a shift to conventional mining should we see a big increase in the uranium price.

TMR: How about other uranium companies?

JR: Ur-Energy Inc. (URG:NYSE.MKT; URE:TSX) has decided to produce enough to service its contracts, just as Energy Fuels has. Ur-Energy is contracted to produce 650 Klb in 2015, and it will produce about 800 Klb based on guidance. A good deal of the surplus will go into the spot market, but the company does have the potential to exceed that production—up to 1 Mlb—if spot prices recover further. 

The company has decided against building an inventory or being forced to sell too much of its potential production into a low spot-price environment.

TMR: Ur-Energy shares spiked in late winter from just below $1 to above $1.30/share. Why did this happen?

JR: I think the share price was probably tracking the uranium price improvement and some good news from Japan. There may have also been some short covering on the stock. Because Ur-Energy is not in the midst of a merger, there’s no arbitration going on, and therefore the stock can trade based on the fundamentals of the macro environment. 

TMR: How much production capacity does Ur-Energy have?

JR: The company has a second deposit in Wyoming called Shirley Basin. It’s a couple of years away from reaching production, but it could be another million-pound producer. We recently increased our target price for this company from $1.75 to $1.90. 

TMR: What other junior you follow has seen a significant drop in its share price? 

JR: Uranium Resources Inc. (URRE:NASDAQ) fell from above $1.80 in March to $1.27.

TMR: Why did that happen? 

JR: First, the company raised additional capital necessary to continue to fund development of its assets, and the additional dilution forced the valuation down. That offset the uptick in the uranium spot price. 

Second, Uranium Resources provided an update on its pounds in the ground resources and reserves, which showed some larger than expected reductions at certain properties. When the company made a land swap agreement on Roca Honda, it didn’t provide the exact details of how many pounds were leaving the resource. This turned out to be more than we previously thought.

This company is more of a long-term call option on uranium. It has no production today, and a uranium price of $48/lb would be necessary for it to move forward on its assets. On March 23, we reduced our target price from $3.50 to $2.25. This company’s assets are vast, so investors who believe that the uranium price will spike will be interested in it.

TMR: What’s the best strategy for investors seeking to benefit from the expected growth of nuclear power?

JR: There are two strategies I like. The first is targeting companies that are not getting full credit for assets that are expected to go into production in the next few years, like Ur-Energy’s Shirley Basin asset. The second is targeting companies, like Energy Fuels, whose portfolios are diversified enough such that they can wait out flat uranium prices.

TMR: So you see uranium miners as a long-term investment?

JR: Yes. The lead time of new uranium mines is long. So the ability to change the stories of these companies does not usually happen overnight, unless there is an acquisition, such as Energy Fuels buying Uranerz. 

As I said earlier, we expect higher uranium prices, but we haven’t seen these companies move because most lack financial flexibility. Should the price of uranium reach the $60–70/lb range, these companies will show the cash flow level needed to justify higher valuation, in our opinion.

TMR: Joe, thank you for your time and your insights. 

Joe Reagor is a research analyst with ROTH Capital Partners, providing equity research coverage of the natural resources sector. Prior to ROTH, he worked in equity research at Global Hunter Securities and at Very Independent Research, covering a wide array of resources companies including metals (steel and aluminum), mining (gold, silver and base metals) and forest products (containerboard, OCC, UFS and pulp). Reagor earned a Bachelor of Arts in economics and mathematics from Monmouth University.

1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Energy Fuels Inc. and Uranerz Energy Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services. 
3) Joe Reagor: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

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The Mining Report: After the governor of Japan’s Kagoshima Prefecture approved the restart of two reactors at the Sendai Nuclear Power Plant, the daily spot price of uranium jumped $1.40/pound ($1.40/lb) to $39.25/lb. How do you assess this change going forward?

Rob Chang: The restart news is very positive, although it is happening at a slower pace than we had originally expected. The Japanese utilities are well organized. They are asking to restart the two reactors that are most likely to gain approval. However, we think that the price change is more a matter of what is going on behind the scenes. Two sellers have stopped selling. A number of utilities have increased their buying. One large utility recently purchased 10 million pounds (10 Mlb).

TMR: Who stopped selling and who’s buying?

“Some of the best uranium drill holes ever reported are on Fission Uranium Corp.’s property, and that is pretty impressive.“

RC: Uranium spot prices are not traded on the public market. These types of transactions are contracted between producers and utilities with the occasional investor or trading house in between. The uranium spot price is not actively speculated upon like gold or copper, nor can the general public get in on the action. The movement in uranium spot pricing is generally based on transactions by entities that are well versed in the intricacies of that market. They probably would not be trading based on just the Japanese news, especially because most of us were already expecting the reactors to restart.

TMR: Do you think the uranium equities will echo the spot price move? 

RC: Absolutely. Uranium prices have been going up since June, even as uranium equities recently hit a 52-week low. As the uranium spot price moves higher, the dichotomy between the two will increase and we believe uranium equities will need to play catch up. 

TMR: Are the utilities buying long-term uranium contracts?

RC: I have not heard about many long-term transactions. But the long-term price made a notable upward move of $4/lb to $49/lb. With the uranium spot price nudging the long-term price along, we expect term prices to be pushed higher as the spot price increases. 

TMR: What juniors do you like in the uranium space now?

RC: That depends on what you count as a junior. How about anything smaller than Cameco Corp. (CCO:TSX; CCJ:NYSE)?

“As an under-the-radar, near-term gold producer, we think Pershing Gold Corp. is quite valuable.“

On the exploration side, Cantor Fitzgerald likes Fission Uranium Corp. (FCU:TSX) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT). Fission’s Patterson Lake South is emerging as a world-class asset. We believe Fission will eventually control more than 100 Mlb of high-grade U3O8. It is expected to put out its first resource estimate by the end of the year. Some of the best uranium drill holes ever reported are on Fission’s property, and that is pretty impressive.

We are very positive on Denison Mines. Denison effectively owns everything of significance in the Athabasca Basin that is not already controlled by Cameco or Fission. Anyone looking to gain a foothold in the Athabasca Basin, be it a Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) or a Vale S.A. (VALE:NYSE), is going to have to deal with Denison, Fission and Cameco. And if Cameco moves to expand its existing holdings, it will have to deal with Denison and Fission. On top of that, Denison has an interest in the McClean Lake mill, which is very important because it has cash flow from processing Cameco’s Cigar Lake feed. Importantly, the mill gives Denison a piece of a strategic asset, processing material from one of the most important mines in the world.

In the U.S.-based space, Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) is reporting good news on completing contract sales. This company is near the top of our list because it is producing at the low end of the cost curve—in the low $20s/lb. It is enjoying incredible success mining its Lost Creek project, producing uranium at a much higher rate than expected. Plus, Ur-Energy can scale up as prices rise. We recommend Ur-Energy for its low-cost and excellent production profile to date.

TMR: Ur-Energy uses the in situ recovery (ISR) method at Lost Creek. How does that reduce the cost of production?

“Ur-Energy Inc. is near the top of our list because it is producing at the low end of the cost curve.“

RC: If the ore is amenable, ISR is the lowest cost recovery format. It does not involve as much earth moving as the conventional open-pit and underground mining methods. The engineers dig an injection well and, farther away, an extraction well. They pump a chemical solution into the injection well. In Kazakhstan, the solution is acid-based; in Wyoming, it is a sodium bicarbonate mix—basically water mixed with baking soda. The solutions dissolve the uranium underground. The liquid filled with dissolved metal is pumped up from the extraction well. This uranium mining method is less intrusive and more environmentally friendly than conventional mining. And it is much less expensive on the front-end capital expenditure (capex) side. 

TMR: Other juniors?

RC: Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT) just started production and sales. We look forward to seeing its cost performance. But as we have been pointing out for quite a long time, there is an unavoidable supply deficit approaching. Uranium producers stand to benefit most. Uranerz is well positioned for earning long-term profits.

TMR: Uranerz’s shares were steady at $1.50 during 2013 and spiked to over $2 last March. They then fell to almost $1, and shot up to $1.50 in the last couple of weeks. What was the cause of that spike about a year ago up above $2? Are we looking to pass the newest upsurge?

RC: Last March, there was a lot of positive sentiment behind uranium. The prevailing analysis was that uranium was set to move this year because of Japanese restarts. Unfortunately, that did not come to pass. There were a lot of delays with the Japanese restarts, and the uranium sentiment turned sour. At that time, Uranerz was receiving final approval and moving to go into production. Passing through that gateway, plus the positive sentiment toward uranium, contributed to the big rise in March. And in early November Uranerz jumped again, due to the re-emergence of positive sentiment on uranium and the fact that Uranerz is now selling yellowcake. Basically, the same thing is happening with the other producers I mentioned.

We also really like Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX; UUUU:NYSE.MKT). Energy Fuels is holding several mines on standby. It can start two or three of the mines within six months to a year, and within two or three years of a production decision, it can launch an additional half dozen mines. Production scalability is very high. Energy Fuels owns the only conventional mill for processing uranium in the U.S., and that gives the firm a great strategic advantage. Right now, the mill is on standby because of the previous low-price environment. But as the uranium spot price blasts through $44/lb, a nicely leveraged Energy Fuels will soon be able to pump out profits.

TMR: How important is it for a company to control a mill?

RC: Ore extracted by open-pit or underground mining needs to be processed by a mill. A mill is a strategic asset—it is very important because any miner that does not have a mill will have to pay Energy Fuels to use its mill. At current uranium prices, conventional mining is not very economic. But at higher prices, there will be a large demand for milling. There are “mom-and-pop” uranium operations throughout the U.S. that will have to pay Energy Fuels to process their yellowcake.

TRM: What other companies do you like in the U.S. for uranium?

RC: Uranium Energy Corp. (UEC:NYSE.MKT) is similar to Energy Fuels because it’s 100% unhedged and fully exposed to the spot market. Once its sales are up and running again, its share prices will sweeten. We are big on the U.S. producers primarily because the U.S. is the No. 1 consumer of uranium at around 55 Mlb/year. But the country only produces around 3–5 Mlb annually. All of these producers stand to benefit from premiums. 

TMR: How did the stocks of the companies that you have mentioned weather the downturn in uranium?

RC: For most of the past year, they were beaten up. Relative to the recent movement in the price of uranium, many stocks have traveled in a different direction, which does not make sense, but it does make them cheap. That said, the firms I am interested in are starting to recover; some are showing notable strength. 

TMR: Is now a good time to buy uranium stocks at bargain basement prices?

RC: The bargain basement pricing may have passed. When the uranium spot price was $28/lb and leading the uranium equities downward, we saw a lot of 52-week lows. I doubt that we will see uranium down to $28/lb again. I doubt that it will fall below $35/lb as demand increases.

TMR: What companies are you watching in other metal sectors?

RC: We follow a range of precious metal names. We are particularly excited about Pershing Gold Corp. (PGLC:OTCBB). It is currently listed on the OTC Bulletin Board, but it does have designs to uplist onto a larger exchange. We’re very excited about Pershing because it has a property, Relief Canyon, located in Nevada near Coeur Mining Inc.’s (CDM:TSX; CDE:NYSE) Rochester mine. Relief Canyon is a past-producing mine with an open pit. Most important, it has a mill that was barely used on site. It was shut down because the previous management team ran out of money. The upshot is that Pershing has a relatively new mill on the site of a past-producing pit in a well-known precious metals, primarily gold, jurisdiction with some silver. 

We assess that Pershing can get up and running at a very low cost. Money managers often ask us to suggest cheap investments that can produce in the short term. Pershing Gold fits the bill because it will only cost, say, $20 or 30 million of capex to ramp up into production. The asset is fully permitted. In addition, Pershing has had excellent exploration success that is encountering grades that are three to five times greater than what is listed on the official NI 43-101 resource for the project.

TMR: Is there a cost of production below which it doesn’t make sense for Pershing? How low can the price of gold go before Pershing’s Nevada project would not be viable?

RC: We estimate the all-in cost at $850–900/ounce, which is very low. The reason is this is run-of-mine material. You basically take it out of the ground, stick it right on the leach pad and start leaching. It does not cost much to take it out of the ground because much of the overburden is already stripped. Plus, it does not need to be crushed, because it is run-of-mine material. 

Another selling point for Pershing Gold is its excellent management. Executive Chairman and CEO Stephen Alfers is the gentleman responsible for discovering Long Canyon, which was sold to Fronteer Gold and later on to Newmont Mining Corp. (NEM:NYSE). He later became the head of U.S. operations at Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). He saw the opportunity at Pershing and decided to leave Franco-Nevada to become Pershing’s CEO. That is a very strong vote of confidence in the solid project.

TMR: Pershing’s stock was at $0.40 in April, and now it is down to $0.28. Is there a reason for that decline? 

RC: Pershing Gold has outperformed gold over the past month. Over the past three months, it’s been in line with the gold price movement. As an under-the-radar, near-term gold producer, we think Pershing Gold is quite valuable. 

TMR: Are there any other precious metal companies on your radar scope?

RC: Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX) has a 100-million tonne gold and silver resource that is located right beside Coeur Mining’s Palmarejo operation in Mexico. The Palmarejo operation is a significant part of Coeur Mining’s total value. Palmarejo is on its last legs production-wise. Coeur owns a gigantic mill on site, and it has announced a deal with Franco-Nevada to develop a nearby mine called Guadalupe and mill high-grade material from it. Franco-Nevada has a royalty on all of the ore coming out of Guadalupe. 

Now, here is the kicker: Paramount’s deposits are located within a few kilometers of the Palmarejo operation. Based on the size of the mill at Palmarejo, Coeur Mining likely needs more material than it is expected to get from Guadalupe. The acquisition of Paramount would give Coeur access to mill feed that is free of the Franco-Nevada royalty encumbering the gold and silver produced from Guadalupe. It makes a lot of sense for Coeur Mining to buy Paramount Gold and run its ore through the mill. That way, it can take more of the revenue. This is an obvious takeout story. 

TMR: Thanks for the conversation, Rob.

RC: A pleasure talking to you, Peter.

Cantor Fitzgerald Canada’s Senior Analyst and Head of Metals and Mining Rob Chang has covered the metals and mining space for over eight years for the sellside and the buyside. Prior to Cantor, Chang served on the equity research teams at Versant Partners, Octagon Capital and BMO Capital Markets. His buyside experience includes managing $3 billion in assets as a director of research/portfolio manager at Middlefield Capital, where his primary resource portfolio outperformed its direct peer and benchmark by over 28% and 18%, respectively. He was also on a five-person multistrategy hedge fund team, where he specialized in equity and derivative investments. He completed his Master of Business Administration from the University of Toronto’s Rotman School of Management.

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DISCLOSURE: 
1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Fission Uranium Corp., Ur-Energy Inc., Uranerz Energy Corp., Energy Fuels Inc. and Pershing Gold Corp. Franco-Nevada Corp. is not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Rob Chang: I own, or my family owns, shares of the following companies mentioned in this interview: Fission Uranium Corp. and Denison Mines Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Fission Uranium Corp., Ur-Energy Inc., Paramount Gold and Silver Corp., Pershing Cold Corp., Uranium Energy Corp., Energy Fuels Inc. and Uranerz Energy Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

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