Insider Interview: Uranium & Tariffs

Written by Gerardo Del Real
Posted July 23, 2018

Publisher's Note: Today we're bringing you an interview our junior mining expert and editor of Junior Mining Monthly and Junior Mining Trader, Gerardo Del Real, recently landed with president and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble.

The uranium sector is being thrust into the headlines due to possible tariffs in the near future. Only 5% of uranium used by the U.S. is domestically extracted, making uranium supplies a matter of national security.

That, combined with recent large cuts to production by foreign producers, makes now the perfect time to keep an eye on promising companies in the sector.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club

Gerardo Del Real: This is Gerardo Del Real for the Outsider Club. Joining me today is President and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble. Jordan, how are you this afternoon?

Jordan Trimble: Doing excellent. How are you doing?

Gerardo Del Real: I'm doing great. I'm doing great. Thank you for taking the time. It's a hectic day in the uranium space with headlines that there is the possibility of a probe that may lead to tariffs. In the uranium space, of course, it is a very volatile time geopolitically. Many, many U.S. producers are up 10, 15, 20% after market. I do believe that will extend to the entire sector, because it's going to force the hand of utilities sooner rather than later, but let's have that discussion a bit later on.

I know you're one of the more insightful people in this space. I want to introduce Skyharbour Resources. It's, of course, a company that I'm a shareholder of so I'm fully biased here, but I think that Skyharbour has been positioned well by you and your team to be one of those first companies to capture those disproportionate gains that uranium companies capture in a uranium bull market. I'd love for you to tell us a little bit about your background, Jordan, and what Skyharbour is, and then let's talk about the people you've been able to bring together.

Jordan Trimble: Perfect. Okay. We started the company back in 2013, so we've been at it for a few years now. Much like yourself, and we've had this discussion many, many times, we truly believe this is a very unique and unprecedented contrarian opportunity, so we went in there back in 2013 and, basically, started laying the groundwork, building the foundation for a vehicle investors can go to to get exposure to a rising tide in the next uranium bull market, but also get exposure to high-grade discovery potential. And those are, I think, two important catalysts to talk about when we talk about Skyharbour. It's an Athabasca Basin uranium exploration and early-stage development company. The assets are in the number two mining jurisdiction in the world, which is Saskatchewan, and just so happens to be the highest-grade depository of uranium in the world. This is really the Saudi Arabia, if you will, of uranium.

We started off acquiring projects, really focusing on getting deals done that were accretive, that were taking advantage of a depressed uranium market, being able to buy these assets at pennies on the dollar. We've now built a portfolio of five projects scattered throughout the Athabasca Basin in Saskatchewan, covering almost half a million acres of land. They're at various stages of exploration and early-stage development, but to give you an idea of valuation and re-rating potential for these projects and this asset base, we spent about C$4 million over the last five years to acquire these projects. They've had over C$75 million in historical exploration, in drilling. And in previous cycles, a couple of these projects have been in companies that have been valued well over $100, $200 million valuations in a better uranium market.

It's a great project portfolio. It's taken a number of years to build. I started running the company back in 2013. I teamed up with my head geologist, who's a very important part of our team, a gentleman named Rick Kusmirski, or Radioactive Rick, as he's known. He's found a lot of uranium. He's been at it for over 40 years in the Athabasca Basin, so focused expertise in the basin finding high-grade uranium deposits. He started his career in the basin with Cameco, the world's largest publicly traded uranium mining company. He was the Exploration Manager there for several years before starting his own junior company called JNR back in the late '90s, early 2000s, and he made multiple discoveries, had a lot of success with JNR. Took it from a $5 million valuation to over $350 million in 2006-2007, and ultimately sold the company to Denison Mines, and that's when him and I teamed up and started Skyharbour.

It's come full circle in a way where our largest strategic shareholder and strategic partner is Denison Mines (NYSE: DNN)(TSX: DML), the company that Rick sold JNR to back five, six years ago. Denison Mines, that's an important part of our story. They're one of the larger uranium development companies in the world. They're listed in New York and on the TSX.

Another very important part of our team is Dave Cates, who is a director of Skyharbour, and is the President and CEO of Denison Mines. My chairman, Jim Petit, him and I have worked together for many years. Before I started running Skyharbour, Jim and I ran a company called Bayfield Ventures, which was a gold company that we had success making a high-grade gold discovery in Ontario before selling the company to a larger gold mining company called New Gold.

I want to emphasize that point. We are very much focused on making new discoveries with Skyharbour, finding new high-grade uranium deposits, and really our end game, our exit strategy, and what the shareholders can look forward to is making these discoveries, delineating resources, derisking projects, and ultimately looking to sell them or to sell the company to a larger company, as is the case with most junior exploration and mining companies and what they're looking to do.

I think that sums it up. We have a couple of other important members on the board and on our strategic advisory board, including a gentleman named Paul Matysek, who I think you know well and is well known in the industry. Paul's built and sold a handful of mining companies in the last 12 years. His biggest win coming from a uranium company called Energy Metals, which he built and sold in 2007 to Uranium One for $1.8 billion, so he knows a thing or two about building these companies and selling them to larger companies.

That rounds out the team. We have our corporate team here based in Vancouver, and our geological team based in Saskatchewan near the projects.

Gerardo Del Real: Jordan, I'd love to set the table for everybody and provide a little bit more context. You mentioned the success of the team that you've put in place, the multiple success stories of companies they've sold for hundreds of millions of dollars. You mentioned the significant expenditures on the properties that you've been able to roll in under the Skyharbour banner. What's your current market cap right now?

Jordan Trimble: Yeah, our current market cap is about C$22-$23 million. This just shows you the deep discount right now in this sector that's really been created over, post-Fukushima, over the last seven years as a result of low uranium prices. And as I talked about earlier, given the project base we have, the team that we've assembled, I think there's strong potential for re-rating and to see that valuation increase as we go out and value-add the projects through exploration, and through partner companies exploring and developing our projects, but also through a rising market, a rising tide in the uranium sector.

Gerardo Del Real: Let's talk about the flagship. Can you tell me a bit about your flagship project and the attention it's received and will be receiving this quarter, and frankly, the rest of this year?

Jordan Trimble: Yeah, absolutely. This is really the crown jewel for the company. It's called the Moore Uranium Project. We acquired the project about two years ago from Denison Mines. It's a project that's had a lot of historical exploration. In fact, the high-grade uranium that's at the project was discovered by my head geologist, Rick, and his team back in late '90s. That was an important part of getting the deal done. Rick and his team really know this project best. They've spent the most time working there. They understand the geology, and they know where the most potential lies, and that's really what we're trying to tap into now that we've essentially brought the project back into the Skyharbour portfolio. It's had over $40 million in historical exploration drilling. A lot of data, a lot of information.

There's high-grade mineralization at a zone called the Maverick Zone. It's a four kilometer-long corridor, prospective corridor. Really, only about two kilometers of that four kilometers has been systematically drilled. It's important to note the mineralization's relatively shallow. This is important when it comes to actually mining it. Looking at the economics, it'll bring your costs down. It also brings, for us, our discovery costs down for each pound in the ground that we're finding, that we're adding to what will ultimately be a resource there.

The unconformity, which I won't get too technical here, but something called the unconformity, which is the contact between the overlying sandstone rock and the underlying basement rock, the high-grade uranium that is known there is basically at the unconformity. So this is interesting. We know there's these high-grade, shallow pods of uranium mineralization that we've been drilling into, that we've been expanding, that we've been finding more of along strike on that Maverick corridor.

But one of the areas that has not been properly or systematically drilled or tested is below, in what's called basement rock, and this is important for our upcoming drill program starting here in mid-August. We are planning 3,000 meters to more aggressively test the basement rock and the structures below the unconformity that would potentially host the feeder zones for that high-grade mineralization. We found up to 21% U308 uranium over a meter and a half, 6% over six meters. That's very high-grade, very valuable ore at the unconformity. It's had to come from somewhere, and it's come from these feeder zones in the basement rock.

So we are now going out with this drill program, and likely future drill programs, to test for these higher-grade zones, and that's really where we feel there's the potential for a much larger higher-grade deposit to be found. If you look at the recent discoveries in the Athabasca Basin, and again, I like to emphasize this point, you look at the companies like NexGen, like Fission, Denison at the Gryphon deposit, these recent high-grade discoveries that have created hundreds of millions of dollars in shareholder value were all found in the underlying basement rock.

So it's exciting for us, with this flagship project that we've recently acquired and really just scratched the surface with our own drilling on, to go in it with a new look and start testing some of these targets in the basement rock, to add to what we know is already there at the unconformity and in the sandstone, the shallow high-grade mineralization that was found historically.

Gerardo Del Real: So in baseball terms, Jordan, and you framed it this way before, you've hit lots of singles, some doubles, but you're taking a couple of bigger swings this go around. You're swinging for a home run. Is that accurate?

Jordan Trimble: Yeah, that's a good way to put it. I mean, we've drilled in the last few programs relatively shallow testing for finding additional high-grade mineralization at the unconformity, those singles or those doubles as you talk about, and I don't want to take anything away from that. We've had a lot of success doing that, and that's added to, that's created new value. We will be coming out with a maiden resource at some point down the road, and all that drilling that we've done will contribute to that. And we believe that there's more to be found along strike at the unconformity, relatively shallow, but yeah, as you point out, we now have an excellent understanding of the geology.

We've done some deeper geophysics to look for some deeper targets in the basement rock. We've done some exploratory drilling into the basement rock as well, finding the right kind of alteration and indicators that give us the thumbs up to go and be a little more aggressive now with the drilling, testing some of these deeper targets. This will be very much the first drill program that we carry out that is, call it that home run swing, and we're confident that we'll find something down there. You can never guarantee exploration or discovery success, but I think we're at a stage now where we definitely have the most confidence in drilling deeper and focusing most, allocating most of the budget into these basement holes.

Gerardo Del Real: Well, and again, just for a bit of context, your neighbors that you mentioned, NexGen and Fission, much more advanced, obviously, but they've been successful with those home run swings, and I think NexGen's market cap's approaching C$1 billion, and Fission's, if I'm not mistaken, is right around C$340, $350 million. Again, just a brief reminder, Skyharbour's at C$22 million, or something along those lines, so the reward is definitely worth the risk of raising the capital, spending the money, and taking the swing and seeing what's down there.

Jordan Trimble: Yeah, absolutely. And further to our exploration strategy and our general corporate strategy as an exploration company, that's what we do. We go out and we find those new high-grade deposits, like a NexGen has, like a Fission has, like Denison, like Hathor, which was acquired by Rio Tinto. We'd like to be the next big discovery story in the Athabasca Basin. But unique to Skyharbour, we do employ, as a secondary strategy to that high-grade exploration, we do employ what's called the prospect generator model.

What we do here is we have a big portfolio of projects. We only have so much money to go out and systematically explore and drill these projects. We don't want to go and have to dilute at these prices, raise significant amounts, tens of millions of dollars to properly go and explore these other properties, so what we do is we bring in partners, strategic partners, to come in and essentially fund the exploration and development at these secondary projects, and in return, we basically, they earn-in a majority interest. But to get that majority interest, they have to fund the exploration for a certain period of time, and we typically get cash and stock payments on an annual basis from them as well. So again, we can then use those payments to pay for the exploration in our main focus at our flagship Moore project without more equity dilution.

We've done two deals in the last year and a half, one of which was a strategic partner in Orano, used to be called AREVA, which is France's largest uranium mining company. Big, big, company based in Paris. They've come in on an option agreement. We signed with them just over a year ago on our Preston project, which is in the vicinity of Fission and NexGen in the western side of the basin. And for them to earn up to 70%, they have to spend $8 million over a six-year period. They've just finished their first drill program, results to come out on that, and planning future exploration programs there over the next several years.

We then did a deal with a company called Azincourt. Similar deal, whereby they can earn-in 70% by funding the exploration and paying us some cash and stock as well. So it compliments our main focus at Moore. It makes sure that these other projects are being advanced. We are seeing shareholder value created in them through the exploration that's being funded by these other companies, and we retain a minority interest at the end of the day, assuming they earn-in, but we benefit from the news flow. It generates more news flow for us and more catalysts for the shareholders.

Gerardo Del Real: So more shots on goal with other people's money, basically.

Jordan Trimble: Exactly.

Gerardo Del Real: Excellent. How's the share structure, Jordan?

Jordan Trimble: It's good. We've managed to keep it well structured, 55 million shares issued and outstanding. I think that it's worth noting some of the larger shareholders. As I mentioned earlier, our largest strategic shareholder is Denison Mines at about 10%. Dave Cates, as I mentioned, who runs Denison Mines, is on our board. We have some other funds and institutional investors that have taken positions in the last few years, one of which, Marin Katusa of the KCR Fund, has been a cornerstone investor, really, since day one. A few others, Kass Investment out of Shenzhen, OTP Bank out of Hungary is a large shareholder.

There's been more institutional interest in the last year and a half, two years, I think, seeing what we're talking about in the broader uranium market as well as liking what we offer on a company-specific basis. It's not just about the team, the management, and the geological team. It's about the long-term shareholders that understand what we're trying to accomplish and understand the value and investment proposition that we offer.

Click here to read part two of this interview.

For the past decade, Gerardo Del Real has worked behind the scenes providing research, due diligence, and advice to large institutional players, fund managers, newsletter writers, and some of the most active high-net-worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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