Discovered by David Lowell, who also discovered Escondida, the world's largest copper mine, the very large Alto Paraná titanium project now belongs to Uranium Energy Corp (NYSE: UEC).
Nick Hodge: This is Nick Hodge with the Outsider Club. Joining me today is the founder, CEO, president and director of Uranium Energy Corp., (NYSE: UEC) Amir Adnani. EUC is a US based uranium producer, developer and explorer.
Amir, thanks for taking the time to be with us today.
Amir Adnani: Thank you, Nick. It's good to connect with you for an update.
Nick Hodge: Amir, I wanted to reach out because UEC is clearly a uranium-focused company that's an unhedged producer and offers great leverage for the coming bull market that many people see coming in uranium, but, recently, you had an announcement that was a bit outside of the uranium space. You exercised an option to acquire the Alto Paraná Titanium Project in Paraguay where you've been building a team for the past couple of years.
What was your and the company's rationale behind deciding to exercise this option and go into the titanium space?
Amir Adnani: We're very much focused as you know, and we have been for 12 years now, in building a very low cost and advanced uranium business, low cost, with our focus on in-situ recovery and advanced because, as you know, we are ... we have a processing plant at ... in South Texas with our Hobson plant and we've acquired recently the fully permitted Reno Creek Project in Wyoming.
In pursuit of other jurisdictions that had geologic setting that could be amenable to the low cost in-situ recovery method, over five years ago we started investigating the country of Paraguay as a place to make further acquisitions.
The reason why we did that, Nick, is because, going back to starting in the 1970s, companies like Anschütz and others like Korea Electric Power and Taipower teamed up to explore the country of Paraguay for minerals. In particular, they found the uranium deposits in Southeastern Paraguay, and then in 2006, for a few years from 2006 onwards, Cameco formed a joint venture down in Paraguay and spent over $20 million there drilling. Combined with the work that Anschütz had done, there was almost $50 million worth of work done in Paraguay.
We liked what we saw in Paraguay. It was a very stable country in terms of its political environment. It's a democracy. It's the last frontier in South America to really see active exploration or mining, so it's very much under-explored.
We made two acquisitions in Paraguay over the last five years of uranium projects, and that allowed us to assemble a technical team, local experts in Paraguay to help advance our uranium portfolio, but most of these individuals also have a very strong technical geologic background.
When you do any kind of work in Paraguay, and, again, we've been there for over six years now, you become very quickly aware of a significant discovery that was made between 2009 and 2010 in Paraguay by a gentleman by the name of David Lowell, who's considered as the world's greatest explorer. He's got a track record of over 15 large scale mines, including the world's largest copper mine, La Escondida.
With David Lowell leading the charge with his private company called CIC Resources, and David brought in some great blue chip investors, people like Lukas Lundin, and brought in a joint-venture partner, Tronox, who's a major player in the titanium business. There was over $25 million invested, and the country of Paraguay updated its mining code in order to really help accommodate the development of this project, Alto Paraná, and we learned about this being in the country over the last five or six years.
We were very much in awe of the significance of the situation that had developed with CIC Resources and this deposit, and so a year and a half ago, when the opportunity came up to acquire this due to an unusual softness in the titanium market in late 2015, early 2016, it felt that this would be about leveraging our in-country presence and know-how to make a very timely and strategic acquisition to consolidate, in essence, over 70,000 hectares, which makes up the Alto Paraná Titanium Project a pilot plant and that this would ultimately be something that we could develop and monetize for the benefit of UEC shareholders.
Nick Hodge: You just mentioned that it's a very large project, and so there's definitely some value to be had there, but not only is it a large project, some 70,000 hectares, but it's also very ... a robust deposit. Since you've exercised the option a couple of weeks ago, you've already put out a NI 43-101 Mineral Resource on it. It's something like 5 billion tons, grading 7.41% titanium oxide and 23.6% iron oxide with mineralization starting right at surface, so it's a very big, robust deposit. Can you put that into context for us relative to the rest of the titanium market?
Amir Adnani: The resource estimate, as you point out, is quite significant. The number, as you point out, when you start talking about ... just under 5 billion tons of titanium oxide and at a high grade, grading 7.4% as was disclosed in our news release and 43-101 numbers, I mean, not only is it large, but it's one of the highest grade and largest known ferro titanium deposits that, the iron oxide component, that creates about 23.6% as was again mentioned in the 43-101. The mineralization is ... it occurs at surface, with an average thickness of about 6.6 meters, large land package and all those qualities.
Putting it into context, Nick, again, just some very high level numbers, and these are not economic considerations, but just putting the actual ilmenite resource, and ilmenite is the feedstock or the feed mineral for titanium oxide, the numbers reported in our resources, if you look at the top five biggest ilmenite in the world, which Alto Paraná is one of them, Alto Paraná is almost two and a half times larger in the size of its ilmenite resource than the other four top five projects combined.
I mean, there's some context for you. That's a project that would not just have multi-decade life in terms of its future development potential, but it would have multi-century life. To have a mine that has centuries of mine life ahead of it is just ... puts it in context in terms of how unusually large and high grade this project is.
Now, it also happens to benefit from excellent infrastructure, with proximity to major hydroelectric power source, and it has been de-risked due to the fact that it's ... the work done on the ... at the property has included extensive drilling development of a test mine, construction of a pilot plant to evaluate the proposed flow sheet for future production, production of approximately 110 tons of concentrate.
I mean, again, you kind of just put that all into context and, again, some marketing or some logistical and environmental work as well. It's sizeable and significant, but at the same time has been de-risked and, for us, it was step one to put out this 43-101 report, but we plan to carry out more work that is a function of work done previously by CIC Resources, but most of it we're now updating and upgrading and bringing into the public light, because CIC Resources, since the initial formation or exploration activity started in 2009 by David Lowell, it was a private company, and so it's almost like the first time that the world gets to see, perhaps, one of the finest and definitely one of the hallmark works and discoveries by David. We really do commend him for this, for the amazing work that has been here.
Nick Hodge: You mentioned that it's obviously very large and high grade and starts at surface and you also mentioned that it's been de-risked. It's very close to the second largest hydroelectric dam in the world, so that comes with cheap power, but one thing you didn't mention that I just want to add is that the prices for the ore that you mentioned, ilmenite, is they've ... I think they've something like doubled since you originally signed the option agreement in late 2015, early 2016, so that's another thing that this project has going for it. It's the ore that it's going to produce is clearly in an uptrend right now.
Let's talk about the transaction then. You paid $1 million in stock for this asset, plus a 1.5% NSR, and that's after the project had $25 million in it, so how do you interpret the value this project brings? How do you assess the accretiveness, if that's a word?
Amir Adnani: Again, in our resource business, as you can appreciate, anytime you can pick up projects that are at a resource stage and have been advanced like Alto Paraná has been and you can acquire them for a fraction of the replacement value of the work that was done or a fraction of the discovery cost of the resource, it was a deal that will always be accretive and I think you can always create substantial shareholder value out of, but it is always about the point in the commodity price cycle that acquisitions and divestitures are made.
If you look at the original option agreement that we signed to acquire this project, at the time that we signed this deal, the ilmenite prices had truly bottomed. Now, this is obviously with the benefit of hindsight, but, at the time, they were about $60 per ton, which was towards the end of 2015, early 2016, and, according to Bloomberg, the price of the ilmenite bulk concentrate is now priced at approximately $180 per ton.
You just look at that math right there. I mean, within a year and a half, to have seen the price bottom at 16 and now the ... almost three times the price that it was back ... in a span of basically a year and a half, that's a very sharp turnaround and ... but, at the same time, there's arguably an element of luck here involved as well. I think it was timely that we were set up in Paraguay and able to get on this very quickly. I think, had we not already invested time and energy and resource in that country for over five years, we wouldn't have been able to act as quickly and be able to be aware of this opportunity and also act to take advantage of the downturn in the market.
Now, having said that, you have to also look at how the titanium related companies were trading in 2015 and, basically, the late part of 2015 when the ilmenite price for titanium oxide bottomed. If you look at the share prices and the way these titanium companies were trading, they all looked like they were going to bankrupt. They were all in a very difficult position as well to take advantage of something like this.
For UEC, we were not in a dire situation. We were actually in a better uranium market. Back then, uranium was actually closer to $40 per pound, and as you know it's actually come off since then. We were, again, got lucky in that we were at a better point in the price cycle for uranium and had some relative strength to do a deal like this.
If you look at the same titanium companies that in 2015 looked like they were going to go bankrupt, if you just look at their share prices and the chart of their shares today and didn't know they were a titanium company and had to guess what they are, you might guess that they're blockchain companies or some cryptocurrency.
I mean, they're all flying and they're at 52-week highs, so there's been ... Again, the opportunity was interesting that it came at a time when the players in the industry, who could have pounced on something like this to control an important resource, were dealing with much bigger financial issues at the time and, again, to some extent, I think it closed that main competition out for us, and we were able to capitalize on that and get the deal done.
Nick Hodge: I think you're being a bit humble, Amir. It's been hallmark of your acquisitions not only with UEC, but also with GoldMining, that you go out there and you find things that are significantly undervalued or that are countercyclical and you get phenomenal deals on them, and they're good assets. That's just a credit to you and your team.
Now, you've got this asset. You've got a good deal on it. Let's talk a bit about the titanium market because it's a pretty opaque market. It's tough to get pricing. A lot of people have heard about titanium, but they're not quite sure what it's used for. Can you give us a brief overview on the titanium market and its end uses and applications?
Amir Adnani: About 95% of all the mined titanium minerals are used to manufacture pure titanium dioxide, which is a pigment that enhances brightness and opacity in paints and inks and paper and plastics and things of that nature. It's the whole pigment side of the business. The remaining 5% of supply is used in the production of titanium metal. Titanium could be combined with iron, aluminum, vanadium, molybdenum to produce stronger, lightweight alloys for aerospace applications and whatnot.
It's a market that, again, seems to be and is very much kind of geared towards its application and use as a pigment, but I'm quite fascinated as well by what could happen through research and development and technological advancements we're seeing and hearing about that can expand the industrial use and potential market for more titanium products.
Nick Hodge: It only makes sense. Like you say, only 5% is used in actual titanium metal applications, and that doesn't sit right with me, given the qualities of the titanium metal itself, how light and how strong it is. It seems to me that there could be some new coming uses for this metal that aren't currently being maximized and exploited. What are you seeing out there that could act as a catalyst or a game changer that allows the titanium market to open up to create more end uses and expand titanium markets globally?
Amir Adnani: I was recently in London just a couple of weeks ago and meeting with a number of companies and investors, some in the titanium space. In fact, what's interesting, Nick, is most of the sector and the companies that are active in it are based either in London, in the U.K. or in Australia. When it comes to North America, we actually have very little exposure to the sector, both as people in the industry or as from a capital markets or investment point of view.
The area that really fascinated me is the fact that some of the titanium producers have invested in companies like Metalysis for example. Here's a player who has developed a technology that can ultimately improve and expand the current market for titanium products.
What are we talking about? Titanium is favored for additive manufacturing for a range of reasons because of its corrosion resistance and high strength to weight ratio. Typically, when you go from mining something like ilmenite, which is mined for titanium dioxide production, you go through something called the Kroll process. This process can be comparatively expensive and requires more production steps than technology being developed by a company like Metalysis and others like that.
Historically, titanium's high price has constrained its availability and use in spite of its very excellent properties. Right? When you see that this very complex and expensive sort of methods to manufacture it conventionally could be changed around, I think there are potentially game changing technologies out there like this example that we just referred to that in the coming years could potentially really expand the current market for titanium products.
I think, when you look at, for example, everything from the revolution taking place with electric vehicles and the greater kind of industrial need for building cars, for example, I mean, to have the use of something like titanium and better strength to weight ratio, so stronger metal with less weight, if you can build cars with greater application and use of that, it would be beneficial, and it would be beneficial to a battery car that has to take weight into account.
I think it's fascinating that this market for titanium right now is so heavy and dominated by its use as pigment. I think there could be game changers in the years to come to really expand the market for titanium products, and, in that context, it's really exciting to control arguably one of the largest, if not the largest, ilmenite resources in the world, again, which is the mineral mine to produce titanium dioxide.
Nick Hodge: It's an incredible situation to be in. I don't think there are many opponents left to the fact that the internal combustion engine is giving way to electrification. Just in the past couple of months, we've seen Volkswagen and Volvo say they're going all electric. China has said it wants to phase out internal combustion cars, and so there's going to be a very real need for strong, lightweight alloys that can maximize the efficiency of the batteries and allow the cars to travel as far as possible on one charge and that's just one opportunity, so it is very exciting.
Given the opportunity that exists, what are your plans going forward for this project? I know that you have said you want to get out a 43-101 technical report by the end of the year, but what else do you have going on with this asset in Paraguay?
Amir Adnani: Again, we're mindful of two things. We have a strong treasury right now and a strong cash position with UEC of close to $25 million of cash, and that's a sufficient funding for us with our main uranium business. That gives us a runway for well over two years and it basically puts us in a good, comfortable position, and we want to use that also as a war chest to make acquisitions in our main area of focus with uranium.
Having said that, we see that this is a deposit at a right time in the commodity price cycle for titanium, which is going to grow in importance and value. With a separate team that we could assemble and to have focus on this project, which is the current plan, it can have a more dedicated sort of attention spent on and expertise to advance it towards the next months on, which would be additional drilling to further confirm and raise the category of resources and develop it towards a more constrained and qualified resource.
That drilling, coupled with additional work to pave the way for a preliminary economic assessment and some kind of scoping study around the economic parameters of the project would be key goals and next milestones. These are not efforts that we envision would be very expensive. And it’s key work that was outlined in the 43-101 report that was published, in terms of additional drilling and additional data to help complete the PEA. All that recommended work came in well below $1 million.
You can see, with a limited amount of capital, which doesn't in any way break the bank for UEC, we can continue to de-risk this, add more value to it and ultimately be in a position where if we decide to sell a portion of the project or list it as a separate company or whatever the case is that leads to some form of monetization, we can do it at a very attractive and valuation, and that would be obviously to the benefit to of UEC and UEC shareholders, and it would help really bolster UEC's balance sheet without equity dilution or what is otherwise a difficult uranium market.
This asset actually gives us a serious financial strength that is hard to find when uranium is at a 13-year low. This asset really comes into our portfolio and in our camp, Nick, at a very interesting and attractive time. It was definitely kind of a bear market acquisition on its own, but it gives us a bit of diversification, and that's not a bad thing if it, again, strengthens our hand in developing and building our main area of focus with uranium.
Nick Hodge: No, it's not a bad thing at all. I've been following UEC for a couple of years now. I think it's a great investment alone, if you just think that the uranium bull market is going to return. You've got a portfolio of projects in Texas and other states in the US that are production ready and unhedged, and, again, that alone I think presents a good case to invest in UEC.
Now, you've got this very large and largely de-risked titanium asset as well that just adds to the value for shareholders and potential shareholders, so I encourage my readers and listeners to check out the story, if they haven't already, and definitely learn more about UEC at Uraniumenergy.com.
Amir, I want to thank you for joining me today and taking time out of what I know is always a busy day for you. Is there anything you'd like to add before we hang it up?
Amir Adnani: No. It's great to connect with you. We should have an interesting and diverse mix and use flow in the coming months both from our uranium related activities, with drilling at our Burke Hollow Project, with advancements at our Reno Creek Project in Wyoming and, of course, with potential news and developments with Alto Paraná and this new addition to our portfolio, so it should be an exciting and busy months ahead for UEC and our team.
Nick Hodge: Thanks, Amir. I always appreciate your time.
Amir Adnani: Thank you, Nick.