Proponents of green energy encourage a transition towards wind turbines and solar panels to displace conventional electricity generation using fossil fuels. That scenario will likely mean that a significant number of newly-built nuclear power plants will also be needed in order to provide the baseline electrical supply to keep everything functioning.
Current uranium mine production may not be enough to provide adequate supply of yellowcake to fuel these plants. Just on the basis of demand from existing nuclear power plants in operation, the uranium market is already pricing in the potential threat of shortages. Consider the prospect of additional nuclear power plant construction and the requirement to lock up years of uranium supply for each plant to maintain operations.
Some producing uranium mines are approaching the end of their resources through steady depletion. Finally, the threat that Russian uranium supply will be curtailed due to extended sanctions may put even more pressure on the uranium market. These circumstances may drive uranium prices much higher.
One obvious strategy to play this bull market is for speculators to plunge into established uranium miners and ride the bull. However, a quick perusal of the big-name uranium stories reveals that many of these stocks are already trading near the top of their ranges on the five-year charts.
I believe the optimum approach is to identify emerging juniors that are still priced in a value range and yet present legitimate potential to achieve production within a relatively short time frame. One promising junior explorer, recently-launched Madison Metals Inc. (CSE—GREN), provides attractive leverage to the sector with several exceptional prospects in Namibia. Puranium Energy Ltd. (CSE—UX) is another similar story that was presented in this column last quarter.
Located in Southern Africa, Namibia is considered a favourable jurisdiction for mineral exploration and mining. Among the top worldwide uranium-producers, the country is endowed with extensive belts of highly prospective geology hosting many enriched uranium deposits. Namibia also offers established infrastructure, a stable framework of mining law and a reasonable tax structure.
Another important factor is that exploration may be active year-round and cost expectations are at the lower end of the spectrum. Given that risk capital is becoming more difficult to source, this may become a very critical advantage for an aggressive junior explorer. Madison currently controls three large exploration packages in Namibia, comprising a total area of 38,570 hectares.
To establish the beachhead of operations, Madison has combined two adjacent property licences from its Rossing North project. The property is aptly-named, situated immediately adjacent to the Rossing uranium mine, a significant producing operation established in 1976 supplying over 4,500 tonnes per year of U3O8 (triuranium octoxide, a common form in which uranium is traded). Since commercial production began, the mine has produced more than 140,000 tonnes of U3O8.
A short distance to the northeast are the Valencia and Namibplaas uranium deposits containing more than 90 million pounds of U3O8. The favourable geology of this prolific uranium belt extends into the land holdings controlled by Madison.
The Rossing North licence area includes a historic uranium deposit of 9 million tonnes of U3O8. This deposit supported small-scale open-pit mining in 2016 by a previous operator.
Planning is currently underway to launch the first round of drilling work at Rossing North with the objective to confirm historic resource zones and test for possible extensions to the previously-defined deposit. In addition, two new uranium anomalies have been identified, representing potential opportunities for uranium discoveries on this project.
The calibre of the management team will have a tremendous impact on the potential for a successful outcome.
Duane Parnham currently serves as executive chairman and CEO of Madison. Mr. Parnham founded Forsys Metals, establishing that company as a significant uranium producer within Namibia. Mr. Parnham led the development of the nearby Valencia mine, ultimately increasing the resources of the project by several hundred per cent. He has also participated in several successful transactions in Namibia during a career spanning 30 years.
Another highly respected player in the Namibian mining sector, Roger Laine, is contributing his expertise to build Madison. A doctorate-holding geological engineer with more than 40 years experience in the field, Laine has directly participated in the exploration and development of numerous uranium deposits. These individuals have the experience and contacts within Namibia to effectively lead Madison through the critical early stages of the business plan. They have been there before and demonstrated the capacity to build value in the field.
Madison checks all the boxes for a successful speculative opportunity in the junior resource sector. The company is led by established and competent management, with control of several excellent property holdings. The share structure is extremely tight following the recent IPO.
More than a third of the outstanding shares are held in escrow for two years. Therefore, this stock will trade freely without a lot of cheap paper to interrupt the upside if the pending drilling work achieves impressive results.
With a fully diluted market cap in the range of just $20 million the value proposition is appealing. However, with the potential for a rapid development scenario at Rossing North, the upside for this emerging uranium producer is compelling.
I expect that the bullish market action for the entire uranium sector will continue to gain momentum through next year. If so, Madison could be the right junior at the right time to deliver a speculative windfall.
This is an edited version of an article that was originally published for subscribers in the August 5, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
Investor’s Digest of Canada, MPL Communications Inc.
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