Exploration in Saskatchewan’s prolific Athabasca Basin, home to the world’s largest and richest uranium deposits, requires the technical skills of an engineer, the artistic vision of a Michelangelo, and most important, loads of discretionary cash. Even then, an economic find is far from guaranteed. Statistically, the odds of discovering a uranium deposit there, developing it and then bringing it to the mining stage are, according to numbers from Placer Dome, roughly 1 in 10,000. In other words, uranium in the Athabasca Basin is the needle in an 80,000 km2 haystack. So, investors need to take a hard look at who they’re lending their money to, and not get pie-eyed just because a press release has the word “Athabasca” in it.
Why is there suddenly so much buzz about this area? A few quick stats on the Basin show why it’s become such a hot commodity as the uranium market takes off:
- Grades in excess of 20% uranium (compared to the global average of 0.14%,
- 30% of the world’s uranium supply; some of the lowest discovery costs going (US$1 per pound,
- A value per tonne ranging from US$50 to $775 (in the lower grade, open pitable deposits) up to US$6,400 and more (for deeper, richer finds, like McArthur River and Cigar Lake).
The total value of Athabasca’s uranium deposits is on the order of US$30 billion (1.5 billion pounds of U308), putting the region on par with the world’s major mining districts-Nevada’s Carlin trend (US$35 billion at US$300 per ounce gold), and Ontario’s Timmins Camp (US$21 billion) and Hemlo (US$6.6 billion).
For the past 30 years, however, depressed uranium prices have kept U3O8 “yellowcake” exploration off investors’ radar screens, meaning that activity in the Basin has largely been in “hold and wait” mode. With the exception of a few persistent juniors and a handful of cash-rich producers, the area was essentially deserted, from a mining perspective, between 1985 and 2003. But worldwide supply shortages of uranium, along with burgeoning nuclear programs in nations such as China and India, finally caught up with the markets in 2004 and the spot price surged more than 40% to US$20.70 per pound-and continues rising. This resurgence has meant an exploration renaissance for the Athabasca Basin. Three years ago, only a dozen junior explorers were seeking uranium worldwide; now there are over 45 targeting the Basin alone.
This boom, along with the impressive stats on the Athabasca area, has sent many investors scrambling to buy any explorer operating here. But let’s look at a few caveats. The Basin’s geology is such that land positioning is a key factor in the ultimate success of an explorer. The Basin itself is an oval-shaped deposit of sandstone, elongated east-west, which sits atop older “basement” rocks. The sandstone layer is shaped like a bowl-thicker in the center (over 1000 meters), tapering to less than 100 meters thickness at the edges. Uranium deposits are, for the most part, located at or near the contact between the sandstone and basement rocks (called the “unconformity”), and thus historical exploration has focused on the edges of the Basin where the thin sandstone makes it easy to get at this mineralized zone.
However, not all sections of the Basin rim are equal; most of the major uranium finds have come along the eastern edge. Geologists involved believe this is because of linear structures present in the basement rock here, called “shear zones”, similar to faults, which run northeast-southwest underneath the Basin. The shear zones do several important things; including providing a track for uranium-rich fluids to flow along and creating empty space within the ground where uranium can be deposited. Many shear zones also contain abundant graphite (carbon), which causes uranium to fall out of solution and form significant deposits. These structures seem to have played a major role in making the Basin’s eastern rim ores more heavily mineralized than deposits discovered so far in other sections. One exception is the Cluff Lake area in the central-western part of the Basin, where a meteorite impact or ancient volcano appears to have brought rich uranium ores closer to the surface.
Today, however, most of the “easy finds” in the eastern part of the Basin and the Cluff Lake area are now under claim by companies like Cameco that got into these areas early. Here’s the history: almost from the time of the first uranium discoveries in the Athabasca area in the 1940s, federally owned Eldorado Mining and Refining (which held a national monopoly on prospecting, mining, and processing uranium) pored over the region, using the government’s deep pockets, and picking up any deposits lying at or near surface. The first major high-grade uranium discovery came at Rabbit Lake at the eastern edge of the basin in 1968, followed by Cluff Lake in 1970 and Key Lake in 1975. Development of Key Lake as an open-pit operation began in 1983 with annual production of 5 million kg, making it the world’s largest uranium producer at the time. As these high-grade deposits came online, lower-grade mines in the Beaverlodge area, along the north rim of the Basin, shut down.
By the mid-1970s, the high-grade targets were gone and therefore geologists began looking for lower-grade deposits, 0.3 to 1% U3O8, which could be mined by standard open-pit and near-surface underground methods. This meant targeting the edges of the Basin. Thus, much of the rim was explored.
In the 1990s, privatization changed the uranium landscape in Canada. That’s when Saskatchewan Mining and Development (SMDC), a provincially owned uranium mining firm, merged with Eldorado to form the Canadian Mining and Energy Company, or Cameco-the world’s largest publicly traded uranium company. Cameco proceeded to pick over much of the Basin, keeping what they believe to be the most prospective pieces of land-mainly on the eastern rim, along with smaller holdings on the northern and southern Basin edges. In other words, they’ve tied up all the good ground that’s been historically discovered, particularly around the Basin rim.
However, things are changing in uranium exploration. Beginning in the 1980s, companies realized that, in addition to the shallow basin edges, ore could also be found in deeper sections, where the sandstone exceeds 400 meters thickness. This shift in thought brought about a second phase of exploration, one that targeted the “blind” uranium deposits, those with no expression on the land surface. Technology such as deep-sensing geophysical techniques and alteration detection became crucial. Again, the success rate was impressive-the 1980s saw the discoveries of the MacLean, Midwest, and Sue Deposits, as well as a particularly rich deposit at Cigar Lake. The biggest find came in 1988 when, after eight years of systematic exploration, the McArthur River ore body was found 80 km northeast of Key Lake. Little wonder it took that long-the deposit, which averages only a few meters thickness, lies some 500 meters below surface.
These discoveries proved that there may still be opportunities in the Basin, particularly for companies with a good knowledge of newer techniques like electromagnetic geophysics, tools the big players didn’t have back in the days when they passed over “uneconomic” sections of the Basin. EM geophysical methods were what originally identified graphite in the basement fault structure at McArthur River, helping guide a drill program that eventually located the main ore zone. Such high-tech prospecting in unclaimed areas toward the center of the Basin could potentially unearth new discoveries.
That said, investors need to take a hard look at any property in the central Basin, given the costs involved with producing from the deep, narrow deposits here. 500 meters of sandstone overburden makes for a much more difficult exploration process and much higher mining costs. Producing in these areas also means freezing the sandstone to prevent water influx and improving ground conditions, both of which aren’t cheap. And these are remote sites mining highly radioactive ore, which increases transport and safety costs.
Could there be opportunities left on the more profitable Basin rim? As mentioned above, it’s possible that today’s explorers may be able to use new technology to locate ores that were missed in the past. Especially if another major basement shears zone structure is detected, potentially offering a target similar to the prolific zones in the eastern Basin. Are such structures to be found in the west, north, or south? No one knows for sure, but conventional wisdom is that shear zones probably do occur in other areas. South of Cluff Lake, for example, electromagnetic anomalies have been detected that could be indicative of graphite-laden shears at depth.
All of this means that investors need to come equipped with a healthy skepticism when evaluating Athabasca plays. If a claim is in the center of the Basin, how thick is the sandstone? In these deeper areas, explorers will need a large cash flow in order to finance drilling. And even if they find a deposit, will the depth make mining unprofitable? On the other hand, when looking at new plays along the “safer” Basin rim, one needs to ask what’s new or different about this area that would make it more than just moose pasture passed over by the majors years ago. Is there any indication, geophysical or otherwise, of potential structures such as shear zones that could indicate high-grade ore?
The Basin’s prolific record-18 uranium deposits discovered since 1968, grading from 0.3% to over 14%-certainly suggests potential for new finds. However, it will be geological know-how and access to a large supply of exploration cash that separates the explorers making real gains from those simply riding the coattails of the Basin’s reputation. Pick your stocks accordingly.