#11. Brandon Munro – What is the Uranium Sector “crying out” for?

A weekly catch up with Brandon Munro, Uranium Market Commentator and CEO of Bannerman Resources (ASX:BMN).

It’s that time of the week again. Brandon Munro, Crux Investor, Uranium. Are you sitting comfortably?

There haven’t been any big catalysts or market-defining announcements this week, but is there anything uranium investors should be paying attention to? Of course there is.

Matthew Gordon talks to Brandon Munro, 18th June 2020

COVID-19’s Impact on Kazakhstan

New cases of coronavirus have reduced, but they are still significant: c. 250 new cases per day. To put that into some context, when Kazatomprom originally announced that it would be suspending wellhead development for an estimated 3-months, the country was only at 50 cases per day, 5 times less than now.

The big curiosity for uranium investors is how Kazatomprom’s strategy will play out. Will the uranium giant come back online early, or will there be a further delay? Such a delay would have a profound impact on investor sentiment within the uranium space and would massively tighten the pounds in the market.

The current guidance is that the originally quoted 3-months will remain accurate, but uranium investors need to keep their eyes peeled. With these sorts of case numbers, Kazatomprom would be more than justified to stay offline. In such an instance, Kazatomprom CEO, Galymzhan Pirmatov, has stated that Kazatomprom ‘could’ turn to the market for uranium pounds to fulfil its existing uranium supply contracts rather than increasing production. Buying in the open market could provide Kazatomprom with the certainty it needs to fulfil its supply obligations. Uranium bulls will be reading between the lines and hoping this, along with noises from Cameco about doing the same thing, drives price discovery. A likely second wave when Winter hits in October could cause further significant production disruption. When the market does move, it’ll move quickly.

The Namibian Uranium Sector

Casting our eye over to Namibia, Munro’s home from home with Bannerman Resources’ Etango Project, the country has locked down the Erongo Region, which is home to all the uranium projects in Namibia. The region is in lockdown for 14-days at this stage, but, importantly, Namibia has already classified mining as an essential service. There will be some minor disruption for the next few weeks, but Munro expects close to full uranium production to be achieved, though the real numbers will only be confirmed at the end of the year: these are utility-owned mines with no direct disclosure obligations in this regard.

Cameco & Kazatomprom

I’ve previously discussed how Cameco and Kazatomrpom appear to be singing from the same hymn sheet when it comes to uranium market destocking, though many speculators have disagreed with me, claiming Kazatomprom intends to continue producing to drive everyone else out of business. Munro himself thinks their strategies have no relation to one another and are largely independent of market conditions and mechanisms. These operational decisions will, for the time being, be made in a vacuum away from the market.

Australasia & COVID-19

We all know that the major Australasian countries have dealt with COVID-19 extremely effectively, aided in no small part by their low population densities. BHP’s Olympic Dam, the largest known single deposit of uranium in the world, hasn’t been affected in any significant manner. Uranium is a byproduct of this copper operation; thus, decisions aren’t necessarily uranium-focussed. The South Australian government has even announced that it will open its interstate borders on the 20th of July. Our European and American viewers/readers will be watching on with envy!

Paladin Energy

Another Australian uranium story regards Paladin Energy: the company has been removed from the ASX300. Does this mean uranium has lost its seat at the top table in Australia? It’s clearly a meaningful event; there is no longer a pure-play uranium company in the ASX300 that isn’t closing a mine. In fact, Munro claims that there is nothing “institutional-grade” left in Australia when it comes to uranium equities. However, from a more bullish standpoint, this removal could entice consolidations, as uranium companies vie for a spot in the ASX300. If an Australian uranium player is to re-emerge as an institutional grade investment, it will likely be given a lot of momentum and could spark interest and activity in the market. Mr Borshoff would agree and say ‘I told you so’.

“Crying Out For Consolidation”

It appears that mergers in the uranium space are almost guaranteed in the near future. Moreover, Munro believes that “this sector is crying out for consolidation.” The better projects need to consolidate to have any weight attributed to them by the utility companies. Right now, it’s far too cluttered with individual uranium vessels promising utility companies that they are their best bet for an eventual long-term supply contract a few years down the line. There are too many management teams and too many overheads for too few low-quality assets.

In addition, and most significantly, expertise is the rarest currency in the uranium sector. Experienced, knowledgeable minds are hard to come by, and every uranium company would have a hugely increased chance of success with one at the helm. These issues combine to create an environment where mergers are needed to rebalance the sector and reduce the risk profile of many uranium companies, many of which are run by people who have never produced and sold a pound of uranium before. Uranium is an idiosyncratic, complex sector that has complications at every stage. Do some uranium companies need to stop promoting pie in the sky dreams of production and get down to robust negotiations? And if yes, which companies do you see needing to come together?

What did you make of Brandon Munro this week? Comment below and we will respond.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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