Naked Banking – Exposed

“You should not be naked”, laughed the General. His men looked over, their AK47’s slung over their shoulders, and smirked. I smiled. It had been a long day that began 23 hrs earlier in London, and despite the 40-degree heat and my sweat-stained shirt, I had no intention of being naked. But without resolving my predicament relatively soon that was a distinct possibility.

We had been contacted by a French consultant, the French Fixer, as we referred to him in the office. He wanted to know if we could structure a sovereign-backed bond for an African country utilising its oil and minerals as collateral. Not something that a London boutique merchant bank was asked for every day of the week. After some research, I was sent off to investigate. I was to meet the relevant Ministers and then the President to get an idea of what exactly he had in mind.

It is impossible to fly there directly from London, so I had an 8-hour stop-over in Kenya. The flight left late afternoon, which I prefer with long haul, as I can get a couple of hours sleep. I arrived at 5am at Jomo Kenyatta International Airport, as it is now called. It’s a small and primitive airport; long corridors of food stalls and local craft stores. They were closed, as was the business lounge. Not a coffee to be had and just the cleaning crew and I occasionally nodding in acknowledgment of each other. Time passes slowly at first as I pace the softly lit mud-red walled corridors, but gradually the bustle of staff opening the shops and queuing travellers bring the warmth and breathes life into the milieu.

As I trying to squeeze my carry-on bag in to the narrow over-head compartment of the Being 737-700, I can’t help but note that I am surrounded by busy chattering monks wearing bright yellow and maroon robes trying to do the same thing. And there nestled serenely amongst them, the Dalai Lama. He sees me observing this bizarre scene and smiles at me. I settle in to my chair behind him oddly content.

When we land the monks and his Holiness are ushered off the plane and cram into a sparkling mini-bus, by-passing the airport security and disappearing from view. Does the Dalai Lama have a passport? As I start to disembark a microwave like heat hits me and a skin-peeling sun blinds me. My choice of chinos and a white long-sleeve shirt with linen jacket would have been perfect in June for the South of France. Here it was less so. I started to sweat before I got to the bottom of the mobile stairs. I patted my pockets in the vain hope that I had remembered my sunglasses and am guided towards what looks like a shed, but turns out to be the main hall of the airport. I note a concrete husk of a building in the distance, which a Chinese contractor had started to build, but had not finished. More of that later.

My friend, we need to get you some ‘clothes’es’, as he pronounced it, You should not be naked.

In the shed, we are greeting by U-shaped barricade of office desks flanked by armed military personnel. The room is no bigger than an average Starbucks. My co-passengers stare at each other hoping someone will take the lead. No-one says anything. Liberated by my encounter with his Holiness, I step forward and ask a tall lithe soldier, the friendliest looking, where we should go. He points to a crooked hole in the wall. We stare. A tractor, pulling a trailer with our luggage mounted, pulls up, and bags are lopped through the hole. We can’t reach them. Now the system becomes clear. The military personnel pick up a bag each and throw them on the desks, open the bags and search the contents. The owners rush forward, slightly alarmed, but necessarily respectful of the AK47s. When cleared, your suitcase was marked with a large white-chalk cross and you are allowed to leave through a narrow crack in the office-desk defence system. The hall started to empty rapidly until I was the last one left. No luggage! My irritation aside, this was deemed suspicious. ‘Why was I travelling without luggage?’ I wasn’t before I got here. ‘But you have no luggage.’ I know. I was requested to present a specific type of visa (which to my knowledge does not exist, nor therefore could it be required) and the relevant insurance papers or pay ‘a fine’. It is a way to supplement their poor pay. A bit mafia like and understandable, until the fine becomes unreasonable. I had danced this particular dance many times across Africa and in The Stans (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) and India. If you look like you have money, and would pay to remove an inconvenience, there are many scenarios which I have been forced to experience to extract my cash. And I don’t mind offering some travel advice. If the dollar amount being asked for is small, then pay it. If it is too much, for me that’s anything over $100, then ask to see their boss.

So there I am in a police cell, waiting for the boss to turn up. Never listen to my travel advice. An hour later, a soldier collects me and brings me in to a small room. I look around to see 4 armed-guards and there at a desk is the boss, a sergeant, his pistol in front of him. He asks why I am not agreeing to pay the fine. I say that $400 is too much. Well how much do I want to pay? Nothing, I say. He is unhappy with this answer. At this point I should mention my trump card (no not that guy). Remember the General at the beginning of this rambling story. I was his guest. One short phone call later, I am being driven high-speed in a military convoy, including motorcycle outriders, sirens blasting, cars being kicked in to touch, into the heart of the City to meet with the General.

“Matthew, where is your luggage?”, he shouts across the air-conditioned room as I stride towards him. I shrug. “My friend, we need to get you some ‘clothes’es’, as he pronounced it, “You should not be naked.”. But first some water and a local tea. I am tired, but grateful for his offer. My clothes’es have been on me for 30 hours now and I imagine the people unfortunate to be around me were even less keen than I was to be still wearing them. We all know that claustrophobic feeling as your clothes stick to you.

Do you remember the eighties? Starsky & Hutch, Dukes of Hazzard? Well it turns out the owner of “the best shop for men’s clothes” did. Bell-bottom trousers and long collars on shirts were de rigueur that season in the City, and I suspect many seasons before that one. I felt I could deal with the fashion faux-pas as I wouldn’t look out of place, but the strong, and at times over-powering odour of mothballs on all the clothes’es was, as the Dalai Lama said to me with his smile, to be endured.

But back to business. I met with the Minister and the President and indeed the Vice-President. They needed money. Money to build infrastructure for the people. And as we later learned, money to line their own pockets. They could offer oil, gold, copper, you name it they had it…under the ground. Whatever we wanted. I asked about unfinished airport building.

‘That was the Chinese. They promised to build an airport in exchange for oil.’

What happened?

‘They could not do the oil project because of the fighting.’

The fighting? What fighting?

‘Just some tribal issues.’

Will the Chinese be back?

‘Yes.’

When?

‘We do not know.’

Without getting in to too much detail the UN, the US, the French, the Germans and two Asian governments all had some say on the financial affairs of the country, each with their own business interests to protect. And rightly so. Promises had been made. Agreements had been signed by a succession of under-qualified Ministers and in some cases illegally.

When I first got in to banking, my boss said, understanding the jurisdiction into which you are thinking of investing our money is important. You need to understand how it works, because even the best assets in the world will not work if there is political or civil unrest, legal and regulatory uncertainty, terrorists operating near by, money laundering, exchange risk, lack of infrastructure, operation difficulty, geographic, ethical….the list is long.

In short, to our wonderfully inquisitive readers and viewers, if you or the company that you are thinking of investing in cannot clearly explain how they mitigate these risks, just walk. Keep your money in your pocket, because the good news is that there are always other deals. FOMO is not part of any investment strategy. After all no-one wants to lose the shirt off their back, no, matter how sticky 😉

Integra Resources (TSX-V: ITR) – A Renowned Team And Exciting Drill Results

A gold tinted photo of some US$100 bills and a pile of gold coins with a white Crux Investor logo in the top right, and a white Integra Resources logo in the top left.
Integra Resources Corp.
  • TSX-V: ITR
  • Shares Outstanding: 119.6M
  • Share price CAD$1.25 (20.02.2020)
  • Market Cap: CAD$150M

We recently conducted an interview with George Salamis, President & CEO of gold-silver explorer, Integra Resources Corp. CLICK HERE to watch.

We regularly discuss interesting gold market proceedings on this platform. Check out one of our other recent gold company interviews here, or maybe some of our recent informative gold investment articles here and here.

The management team at Integra Resources is the former executive team of Integra Gold Corp, renowned for turning a C$15M gold company into a C$590 million (sold to Eldorado in 2017). What have they got this time around? We discussed:

  1. The share price increase: doubled in less than a year.
  2. Its flagship asset purchased from Kinross Gold Corp. in 2017.
  3. Promising drill results in 2019.
  4. Exploration plans for 2020.

We were also keen to ask why a gold-producing giant like Kinross Gold Corp. would sell its gold-silver asset to Integra Resources unless it was a dud? We explored some very impressive drill results and big plans for 2020. Do shareholders have a reason to get excited? With these results and a management team with such an impressive track record, maybe they do…

Company Website: https://www.integraresources.com/

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

China Gold Int (TSX: CGG) – Gold And Copper On A Grand Scale

A photo of a silhouette hand picking out a gold Chinese ring.
China Gold International Resources Corp.
  • TSX: EQX
  • Shares Outstanding: 113.5M
  • Share price C$12.6 (21.02.2020)
  • Market Cap: C$1.43B

We recently sat down for an intriguing interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099). CLICK HERE to watch it. CLICK HERE or HERE to read our most recent gold-related articles, or CLICK HERE for a different gold interview.

Gold had a good year and an especially positive 2H/19. However, China Gold Int. had a negative correlation on its share price throughout 2019. The company operates two producing gold mines that form a low-grade, bulk-tonnage gold operation with a copper by-product. The operational statistics look good on paper, so why this share price tail-off? We discuss:

  1. The Decline In Share Price: Why?
  2. The Gold Market Outlook For 2020
  3. How China Gold Int. Plans To Get The Share Price Back Up

Company Website: http://www.chinagoldintl.com/

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

MOGO Finance Technology Inc (TSX: MOGO) – Making Investors Money By Saving People Money

MOGO Finance Technology Inc.
  • TSX: MOGO
  • Shares Outstanding: 27.5M
  • Share price CAD$3.40 (21.01.2020)
  • Market Cap: CAD$93.5M

We recently interviewed Greg Feller, President of Canadian fintech, MOGO Finance Technology Inc. CLICK HERE to watch the full interview. We discussed some very interesting topics.

  1. The Battle Of The Banks
  2. Carbon Offset Cards
  3. Saving Young People Money
  4. Big Plans For The Future

This was Crux Investor’s first interview with a fintech. We found Mogo’s business model intriguing, but we have some question marks surrounding certain areas.

If Feller can pull this off, he’s going to make his investors some serious dollars, and all while saving customers many dollars of their own.

Company Website: https://www.mogo.ca/

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Serabi Gold (LSE: SRB) – Ready or Not At All, So Close Enough to Taste It (Transcript)

Interview with Michael Hodgson, CEO of Serabi Gold (LSE:SRB, TSX:SBI).

Off the back of yesterday’s press release, Mike spoke to us to give us a bit more colour on the details about the Public Hearing and the results of the first months test on the new ore sorter.

Interview highlights:

  • 1:30 – Public Hearing: A Positive Outcome
  • 3:43 – Ore Sorter: How Does it Work?
  • 9:56 – Focus for 2020: Exploration, Drilling and Building Value

Click here to watch the interview.


Matthew Gordon: Good. We saw the press release this morning, thought we’d try and catch you, and it sounds like we caught you at a good time, you’re off to Brazil tomorrow. So, why don’t we talk about the public hearing first of all which you told us about last time we spoke, but it seems to have gone well?

Mike Hodgson: Yes, yeah, I mean, you don’t get a definitive answer in the actual public hearing itself but you obviously… it could go very wrong on the day, so I mean if you have a positive public hearing in terms of like, everyone sits down and listens and all the stakeholders have the conversations and are all heard over 6-hours and there’s no… you know, it’s all done in a cordial manner, which is exactly what happened, you can’t have anything more.

So what we actually have there. It’s chaired by the State Environment Agency, called SEMAS, and they chaired it and all the various stakeholders had their say and we had pretty much overwhelming support, which was great. So they will now go away and digest all of those comments, people’s concerns, people’s wishes, people’s wants, and they will then make a recommendation to a governing body which is called KOHIMA. They’re the guys that actually, ultimately, either ratify it and take it to the board. So they’ll listen to all of the, as I say, all the comments and concerns and they’ll come back, hopefully, with an LP for us, we hope within the next sort of six to eight weeks. That’ll be a great result, we’ll be delighted to get it done so quickly.

Okay, it’s slipped a bit compared to what we hoped, but you’ll remember we had to live through all of those tailings dam problems of 2019 with Brumadinho and how that affected everybody in the mining industry in Brazil. We’ll obviously get the EIA resubmitted and the public hearing still early in 2020 and seemingly gone through in such a positive climate in a way. Yeah, I think we did a really… we’re very pleased. Very pleased.

Matthew Gordon: Well I guess you had the benefit of obviously Palito, existing business, running without any issues and you obviously had the support of the local community from that, so that all helps. And I think people mustn’t underestimate the importance of this, and we’ve certainly spoken to a few companies in the last couple of weeks who are suffering from not being able to get through the process, as it were.

Let’s talk about the ore sorter, because I’ve watched the video which kind of explains it all to me and we’ll put the link up above here now so people can go to that. Can you tell us the impact? You’ve been running it for the best part of a month and it seems to be delivering quite well. I’m looking at some numbers here, so you fed in 1,266 tonnes and you’ve identified 1,076 tonnes of waste, so that’s significant.

Mike Hodgson: Those numbers aren’t really terribly indicative. I put them in there because obviously we switched it on just over a month ago and we’ve been putting through some pretty miniscule tonnages, and we’re just playing around with it really, trying to find the sweet spot. And we’re using different types of ore. Some of the ore is actually sort of more massive sulphide ore. So really, I put those numbers in there to show people, hey, you know, it was a pile of rubbish, basically, sub-economic, very uneconomic material.

We passed it through the ore sorter and we just pulled out 200t at, like, 7g/t and the rest of it is a big pile of waste, and that just shows what this thing can do. And the video shows it, that it’s going in, you know, it’s crushed material which is 80% waste rock and if you look at underground face, underground, if you just eyeball that you can see, well hello, 80% of that face there is waste and 20% of it is a band of ore. That’s exactly what the ore sorter does. When that thing’s all been crushed it can actually eliminate all that waste and just scavenge out that sort of high-grade band of the sulphides where the Gold sits, and that’s what it does.

So I think we can see straight away it’s a very… it’s great at just scavenging out the ore out of the waste. And we won’t put our best material through it because it’s not an exact science, there are always going to be losses. Like, you will get ore going into the waste system and you will get waste going into the ore system, but I think the best way of describing it is, it is a waste remover. That’s what it is, it’s a waste remover and it’s an ore scavenger.

So we are only really using it at the moment and will be only using it until we’ve got this absolutely nailed, we’ll only be using it on our lower grade ore development, which is where we’re just driving along the belt in its most diluted materials, that’s the material with all the waste rock in, and it’s great for just recovering the ore out of that material and not having to pass all that stuff through the process pond which up until now had been completely constipating our process plans with this material.

So if we get rid of that, first of all we save ourselves, just by getting rid of that material and going for 500 tonnes a day at 7g/t, 400t per day at, say, 9g/t, you’re going to save yourself about USD$1M a year at cost which means the payback on this machine is about 18 months. But, more importantly, what it will do is it will liberate 100t a day of free space, which we can then use again to add more high grade or make our little process plant produce, instead of 40,000 ounces, which it can do today, the same plant with the same size and through-put can do 50,000 ounces. That’s the beauty.

Matthew Gordon: That’s truly remarkable. But it doesn’t actually identify Gold per se, does it? Explain to people what it’s actually doing? They can watch it in the video but I thought it was interesting to…

Mike Hodgson: Very, very important, the distinction. When you look at that video you see that yellow shiny stuff, people I know would be very excited if that was a band of Gold. It’s not. That is a band of sulphides, mostly charcoal pyrites which is a copper sulphide and pyrites which is an iron sulphide. And all of our Gold is very fine-grained contained within those sulphides. So, our ore sorter has two metals that actually split differentiating between ore and waste. What you’re always after with any type of ore sorting, whether it be diamonds or, as we’re doing, Gold, or whatever, you need contra between your ore and your waste, dark contrast. So it won’t work terribly well on a disseminated ore body? On an ore body like ours, which is very sharp, it will. So, what it’s actually doing, you crush it down to about a quarter of an inch, half an inch, so you can see there, an inch to half an inch, and you pass it through either a colour sorter or an x-ray sorter. So, let’s take the colour sorter first. In our case as you’re dealing with video, pink-based and the rest is ore. So you can just simply say, right then, I want to collect anything that’s not pink and it will just literally identify any stone that’s not pink and throw it off on to different belts as you saw in the video and the pink, the granite, will just fall off the edge as waste. Alternatively, you can sort on atomic density which is where you use the x-ray sorter, so it’s a piece of equipment not dissimilar to what we have at airports, you pass through it, and it’s actually penetrating every stone on 1mm centres, so it’s hugely detailed. And there’s a 3D sample so every stone gets analysed for a percentage or its atomic density and, of course, the granite rocks are much less dense than the sulphides and the ore rocks so, again, there’s a big contrast in density between what is the ore and what is the granite. So, again, we can sort on x-ray as well. And, if we really want, we can’t do it at the same time but we can – we haven’t tried that yet – but what we can do, we can sort once on, say, density, save the pile, and then you can pass the pile again and sort on colour. So, the permutations are endless and we’re just at the beginning of this journey really. But we’ve just simply by sorting on x-ray. It seems to be brilliantly separating the waste and putting some more add to the waste. The closing shot of the video you see that little pile and the big pile. We pulled that little pile. That’s now a big pile and before it was just lost in that big pile.

Matthew Gordon: It’s amazing. We were talking to a lot of companies about bringing ore sorters in to improve their productivity and throughput. As you say, the savings are, or can be, immense. You had a great year last year in terms of the share price. Obviously, shareholders, the share register must be quite pleased with your performance. I know you’re excited obviously about the ore sorter here but you’re obviously more excited about bringing Coringa into production. You’re off to Brazil tomorrow you tell me, before we started the call. What are you going to do?

Mike Hodgson: Well, we’re closing in on our sort of three-year, we’re doing, we’re updating our mine plans and our resource estimations. So that’s basically what I’m going down there to actually sort of oversee, have a good look at that. We’ve got some exciting drilling going on at Sao Chico. I just to make sure we can as much of those results into this resource estimate we’ve just done There will be an update coming out too some very couple of intersections on the further step outs yet. That’s not probably get the results on, quite, even the official results, but certainly it’s looking very good. We’ve got some very nice-looking introspection, visual at this moment in time so I’m going to be looking at all of that.

Coringa, a year, well that’s obviously going on very well. We’re, as you know, we talked about this last time, we have Greenstone the convertible loan note coming in at the end of next month, and that will, of course, be the catalyst to us to start work at Coringa, start on the decline and getting on the ground. And, again, the exciting thing about that is getting underground, getting the bulk sample done or getting that earth moving, see how that responds to ore sorting as well. So, I’m completely sold on the whole thing. I mean I must admit when it was all, when we all talked about it, it was about two years ago the scary thing was it basically going to amount to USD$2M on something like this was you know… Well, I don’t want it just to be an ethical success. We really hope it works in earnest. I’m completely sold. I think it’s a paradigm shift in this part of the world with all of its sulphite hosted Gold deposits. It’s going to be terrific.

Matthew Gordon: I think that’s what the shareholders bought into last year when the share price was moving rapidly up having been stagnant for so long. A couple of million bucks and a payback of, as you said, less than a couple of years, 18 months to 24 months. Fantastic. But, also the ability to double your production and get up towards that wonderful 100,000 ounce a year number it has got to be in the crosshairs for you. I mean Coringa could get you up to 80,000 and with your exploration at Sao Chico you’ve got to be aiming higher, haven’t you?

Mike Hodgson: Yes definitely, I think the ease of mining at Sao Chico ore body, that’s why we put a lot of effort on exploration now. We obviously get a bigger bang for our buck with our exploration work that we do there. If we do get a bit of a tiger by the tail there and, at the same time, the space that we’re liberating by cleaning up the Palito ore creates more space to put through more Sao Chico ore, but we’re not dismissing the possibility of being able to sort the Sao Chico ore as well. It might be a different way of doing it, but we are beginning to get some pretty good results on that. So, it’s three deposits. Coringa, Sao Chico and Palito as being sortable in the end. We’re going to squeeze, I was always saying, my comment there, low-grades and tonnes cost, we’re always going to try and get the grade up as much as possible and not just chase scale but chase quality so we can actually get to, you know, 100,000 ounces with mining as high a grade as possible so we don’t actually have the enormous through points that a lot of 100,000 ounce producers have to have to get that level of production. That’s the name of the game.

Matthew Gordon: And that’s the focus for this year or, have you got more surprises on the horizon?

Mike Hodgson: I think if we get a nice big resource increase at Sao Chico and we get successful or we get on the ground at Coringa and we bring back a bulk sample and that works very well with the ore sorter and Palito’s achieving its 45,000oz, I’d be very happy with that outcome.

Matthew Gordon: Very good. Thanks very much. I appreciate you taking our call with regard to this morning’s press release. We were keen to speak to you because it was one of the stories, success stories, of last year, certainly in terms of share price, which is the name of the game after all. So, we’re kind of keen to see how you get on this year and see if you can repeat that success. Stay in touch.

Mike Hodgson: I will Matthew. 


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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Denison Mines (TSX: DML) – High-Grade Canadian Uranium With A Smart Plan?

Homer Simpson, Springfield power plant employee, sits in a chair, reading a book on nuclear safety.
Denison Mines Corp.
  • TSX: DML
  • Shares Outstanding: 597.19M
  • Share price CA$0.50 (20.02.2020)
  • Market Cap: CAD$295M

We recently conducted an interview with David Cates, President and CEO of, uranium company, Denison Mines (TSX: DML). CLICK HERE to check it out.

We covered a lot of interesting topics, including:

  1. Denison Mines’ unique high-grade uranium portfolio.
  2. Current cash position and burn rate.
  3. Business plan for 2020.
  4. Uranium price discovery: when is it coming?

This is very high-grade uranium development, operated by a seasoned and knowledgeable team. Our platform has had a large amount of discussion surrounding uranium recently, after the announcement of President Trump’s US$150M budget for a uranium reserve. Feel free to check out the most recent uranium articles (here and here) on our platform, as well as our most recent interview with a uranium mining company.

We were intrigued by the business model that David Cates outlined, as he thinks it will give him a competitive advantage over his peer. It is potentially a very low-cost , high-grade uranium producer, if and when it can get in to production. We talk to him about if their team is technically competent to deliver an ISR uranium project in Canada and it indeed it can be permitted. Listen to his answers and let us know if you agree.

These are interesting times for uranium companies trying to position themselves for success.

It was a highly informative interview and uranium investors will likely find it of interest. Comment below if you have any thoughts on the uranium market as a whole, or maybe you have some questions about Denison Mines? Either way, we’ll make sure we get back to you.

Company Page: https://www.denisonmines.com/

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Pan African Resources (LSE: PAF) – Be-Be-Beating Hard Times, That is my Theme (Transcript)

Interview with Cobus Loots, CEO of Pan African Resources (LSE: PAF).

These guys get things done. Mining is never easy, mining in South Africa is far from easy, but the management team at gold producer, Pan African Resources, keep finding a way to get things done and are consistently hitting targets. Pan African is well on its way to becoming a mid-tier gold producer targeting 185,000oz per annum this year. Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

Pan African Resources has a share price of GB£0.125 and a market cap of GB£278M. It is listed on the LSE.

The key highlights from the update?

  • Pan African is on track to deliver the full-year production guidance of 185,000oz.
  • Group gold sales increased by 14.7% to 92,941oz (2018: 81,014oz).
  • The Evander 8 Shaft Pillar project development is progressing according to plan, with steady-state production planned from March 2020.

We like the tailings slant on the business. Green is very fashionable right now. Barberton Tailings Retreatment Plant produces a steady stream of gold, c. 25,000oz per annum, and the Shaft Pillar at Evander, an area of developmental focus in the near future for Pan African, could provide 20,000oz, rising to 30,000oz+ “in the years ahead.” Pan African is now mining more economically due to a strategy change: mining at the shaft rather than at deeper levels. The result is an intended sub-US$1,000 AISC for the Pillar project. Solid numbers, and in line with the rest of Pan African’s other operations. Elikhulu Tailings Retreatment Plant has had a mining feasibility study conducted that is now being independently vetted by a third party, with the view to expand it to a full feasibility study. Loots says it looks like c. 90,000oz per annum, with a 9-year life-of-mine, rising to 20 years with further resource modeling. By utilising existing infrastructure, Pan African can keep costs down and get things going quicker. This is still a little way off but could be a good addition to the portfolio.

In terms of dividends, Pan African recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world. Loots states that he wants to get back there. Let’s see how things turn out.

For now, it’s full speed ahead developing the projects, overcoming issues pertaining to jurisdiction, community and environment difficulties, and getting the share price where investors will no doubt want to see it.

Interview highlights:

  • 1:34 – Operational Update: Overview of Performance Results
  • 2:45 – Producing as Expected? A Run Through the Projects
  • 8:27 – AISC and Debt: What is the Current Position and What’s to Come?
  • 9:39 – Dividends: Keeping Them Going
  • 12:40 – Troubles in Jurisdiction and Community Issues: How Will They Ensure a Smooth Run of Operations?
  • 16:14 – What Should We Look Forward to from Pan African Resources?

Watch the interview here.


Matthew Gordon: Happy New Year. I haven’t spoken to you since before Christmas, so how are you?

Cobus Loots: Thanks, Matthew. We’re good. We’ve been busy as you might have seen from the operational update.

Matthew Gordon: We have, that’s why we called you. It seems like you have had a good last 6-months. You are on target to hit 185,000oz; that puts you very much in the mid-cap territory for sure. Are you pleased with your performance?

Cobus Loots:  Yes. We believe that, certainly the performance for the first 6-months provides a solid base for us to have a very good financial year. So Elikhulu performed very well, so we produced almost 30,000oz. We are well-positioned now actually for the next 6-months to increase that to go to almost 65,000oz for the full year so that is a great performance. Barberton was down slightly, mostly as a result of underground. But we have more flexibility now so we expect a much better 6-months, going forward from Barberton. And then also, and what I think is very positive, the work that we have done in the Evander 8 Shaft pillar. This project has gone from being a liability to actually now being poised to generate attractive cash flows going forward for the next 3-years.

Matthew Gordon: Okay. If you don’t mind, can we just break down that 185,000oz that you are going to be producing. You’ve got your existing Barberton and Elikhulu, both on the tailings and the mining front, and they are going as planned? The numbers are as targeted, first of all?

Cobus Loots: Well yes.Let’s start with Elikhulu first of all which we started last year: it’s a world class project. It is USD$130M that we put into the ground. It retreats old historic mining tailings, and it has a life of 12-years at present. And it is producing at an All In Sustaining Cost of USD$650 per oz or below. I think what’s more is that we are cleaning up legacy liabilities so it ticks the box in terms of ESG, looking after the environment, etc. So it’s a great project. It’s incredibly safe. We don’t have as many employees as what we would have had underground. So, we are very happy with the performance at Elikhulu, and as I said, we expect Elikhulu to do even better over the next 6-months.

And then the Barberton complex, which is also a world class tailings business, the BTRP, we do have about 20,000oz from the BTRP at Barberton and then 80,000oz at underground. So that gives us another 100,000oz per year, from Barberton. And then as I said, the Pillar, which is a project that we commissioned at the moment at Evander, that will give us 20,000oz which then actually becomes 30,000oz and more in the years ahead.

Matthew Gordon: Okay. And you actually refer to that as a former liability. Why was that?

Cobus Loots:  We curtailed operations at 8 Shaft, so we were mining 24 level, which was very deep. With a lot of infrastructure, a lot of logistics, a huge number of employees. So we curtailed that business about 2 years ago. We actually shut it down. And then the sort of question arose: what do we do with the remaining resource? We could have quite simply terminated operations at 8 Shaft, and that would have been the end. Instead, we said, let’s have a look at this Pillar project, let’s see what sort of Gold we can get out and over what sort of timeframe and at what margin, importantly. And that’s how the 8 Shaft pillar project has happened.

Matthew Gordon: Right. So basically, it was costing you a lot of money to get Gold out of the ground. It was becoming less and less profitable, having sunk a lot of money into the ground there as well. So you are now mining more economically as a result. That’s the point of what you have done?

Cobus Loots: Well, we are ceasing operations at the bottom levels which are very expensive and we are actually starting mining right at the shaft. So we have guided, we have anticipated that the all in sustaining costs of this Pillar project to be below USD$1000, which is very attractive. And that’s in-line with the rest of our operations.

Matthew Gordon: And Cobus, can I just ask you about Egoli, because you have obviously talked about the MFS, the mine Feasibility Study has been finalised now. Where are you at with that? What should we be excited about?

Cobus Loots: Yes. It has been a very interesting project from our perspective, as you said, the Mining Feasibility Study has been done. We are actually getting the study independently vetted by a third party and then they are expanding it to a full Feasibility Study, the results of which will be available pretty much at the same time as our interim financial results.

Matthew Gordon: Right.

Cobus Loots: And yes, circa 90,000oz per year, initially life of mine 9-years but if we model for the resources, it’s anywhere from 15 to 20-years.  At a fairly limited capital number for a project of this nature because of the fact that you are utilising existing infrastructure mostly: there is a processing plant, it’s operational on surface, we have the vertical shaft that’s all done. There are turns, certainly, currently, even a conservative Gold price to be attractive. So I think, you know, watch this space in terms of Egoli and our next steps when we release our interim results.

Matthew Gordon: Okay, when does that actually…how does that ramp up? How quickly does that ramp up?

Cobus Loots: You know, we haven’t yet pushed the button on development. The key is to finalise funding. And we what we have said to shareholders, we will not do the funding in any way that is dilutive. So we are looking at potentially bring in a stream or an equity investor of sorts. Certainly, the project has dig capacity in our view also. Once we are happy with the Feasibility Study and the fact that we can manage the risks, and it is a project that we need to be doing, from a pipeline perspective, we will finalise the funding and we will certainly add a time frame in terms of development.

Matthew Gordon: Okay. So the timing is not imminent? Because when I asked you earlier about, have you plans for adding debt for this year, you said, no. So, this is not a 2020 debt solution. You are saying that will come after that?

Cobus Loots: That’s right. The ramp-up period is three years, and most of the capital is spent in the later years. And if we potentially look to get in an equity investor, or some other form of finance, then that sort of takes off the burden, certainly from ourselves. But in terms of existing operations, certainly, we will be set in terms of debt, that holds true so we are not going to look to gear up the existing operations to fund a project like this. I think that it will stand on its own two feet.

Matthew Gordon: Okay. So you have been looking at the AISC and looking at ways of reducing it. I mean, I guess it is pretty standard: getting somewhere between USD$950 USD$1,000 is where you want to be, especially in today’s Gold price. So you are obviously throwing off a lot more cash, but you’ve also had to finance a lot of the development work with debt so what is the position on that at the moment?

Cobus Loots: Well, for 6-months to December, we have managed to de-gear the balance sheet and we have guided that in the year ahead, we should see a dramatic decrease in our gearing levels. You know, that’s a product of the Pillar coming into production, so we will be steadily instating the Pillar in March. It’s a product of Elikhulu performing at a steady state and the operations at Barberton performing. Certainly, what’s helping us also is the Gold price which is performing well in US dollars and even more so in South African Rand which is the currency that we look at.

Matthew Gordon: Yes. Okay. So, if I may just touch upon this here; a lot of mid cap and a lot of large companies, they tend to borrow money, then plough it back into the ground and kind of forget about shareholders. You issued your first dividend for a couple of years recently, what are your plans for keeping that going? Are you going to give back to long-holding shareholders in your company? Or is it the plan just to reinvest into the ground?

Cobus Loots: Well, if you look at our priorities in terms of how we apply capital, we need to continue to invest in our assets. But in the past, we have managed to do so, and then also pay an attractive dividend. Certainly, up to quite recently, we were one of the highest yielding Gold dividend shares in the world. And that’s where we’d like to get back to. And I think the operating environment in terms of the robustness of our assets and the performance, and then also the Gold price, should assist us in resuming even more attractive dividends in the future. Clearly, we have stalled some of the debt that we took on to fund Elikhulu, that’s still on the balance sheet, but as I said, we anticipate that number, in terms of the gearing levels, to come down quite dramatically in the year ahead.

Matthew Gordon: Any more plans for any more debt?

Cobus Loots: Well no, there’s no need for us to incur any more debt. Also, if you look at the sort of projects that we undertake now, one obviously looks at all the return metrics including internal rate of return, MPV etc, but payback is also very important for us, so how long does it take for us to get our money back and that’s where projects like Elikhulu where regionally, we were costing a payback of 4 years on a USD$130M odd, and at this Gold price, I actually expect the pay back to be sooner. So those are the sort of projects we like to do.

Matthew Gordon: Again, it’s just trying to understand the thinking of the management team here, because you’ve got options of paying it back in 4-years or paying it back quicker, paying dividends, you know, you have got the choice of what you do with that money. Some companies like to be completely debt-free as quickly as possible; others like to maintain some kind of leverage and utilise that spare cash elsewhere to develop and grow the business, where’s your head at?  

Cobus Loots: Well look, obviously, a mining company should not be over-geared and they should have a conservative level of debt. That’s really where I think we will end up in the next 6 months or so. It also doesn’t make sense for us to have no debt. In our view, it’s not efficient from a capital allocation perspective. We think that we can pay a significant, pretty much all of our debt in the next 12 to 18 months in resumed dividends so that one is not at the expense of the other.

Matthew Gordon: Okay. So dividends; they are still in the pipeline, your shareholders will still be receiving dividends as you continue to develop the business and grow the business – perfect. Can we talk about something else though? You did highlight them and I’ll give you credit for this; you don’t shirk or hide from this, you have talked about a couple of things: there have been some community issues which have affected productivity, and also, more recently, some power issues. I know mining is mining, and it is tough, but what has gone on there and will it reoccur?  

Cobus Loots: Yes, sure. I think we have demonstrated the ability to operate successfully in South Africa. We have had community unrest and that has affected, as you pointed out, the Barberton operations in the last 6 months. We had very serious power issues with ESCOM, our South African power and utilities, in December. On top of it, we also had probably the weakest December in terms of rainfall that I can recall for the last 20-years, so that will also have affected operations. So, you know, the bottom line is that one has to plan some level of disruption to your operations and you have to robust assets that can withstand these sorts of issues, and a management team that is proactive and can anticipate when they can and then deal accordingly.

So yes, South Africa gets quite a lot of bad press I think in terms of the operating environment, and a lot of it is justified, but as you said, most mining jurisdictions have their issues.

Matthew Gordon: They do, and like I say, I give you credit for not shirking away from it or ignoring it, but like I say, ESKOM for instance – what was the issue? Is it going to reoccur? Because I look at the, again, the information that you have provided, the prices have been going up and up, which affects your margins, but how do you engage with them? How do you have conversations that give you some sort of certainty about what the future looks like?

Cobus Loots: Well sure. ESKOM has been more of an issue at Evander, our underground business, and fortunately there, we have spare capacity so we can afford to turn off a mill for a couple of hours if there is what is termed, low-shedding: so where the grid is overloaded. So we do have that capacity but what I think also, the ESKOM situation is not going to become any easier overnight. We will continue to have power shortages in South Africa for at least the next 2-years. Barberton mines is less energy intensive so it is less affected. Elikhulu doesn’t use a lot of electricity so that is less affected. And fortunately, as I said, at Evander underground, we have some spare capacity so we can afford to reduce our underground consumption for a limited period. And recently, the Minister of Mines in South Africa has come out and said that they are in the process of deregulating the private power generation. At Evander, we are completing a Feasibility Study (FS) into our solar plant that will be able to look after pretty much all of Elikhulu during the daytime. And we expect that we will be able to, over time, expand that project also. So miners are being creative about finding solutions and I think that over the medium to longer-term, we will get those solutions implemented in a way that actually makes sense for shareholders.

Matthew Gordon: Interesting. You should talk to your neighbours over the road at Bushveld by the sounds of it.

Cobus Loots: Exactly.

Matthew Gordon: Okay. Well thanks for that update. It just sounds like business as usual for you. I appreciate you being quite direct about some of the issues that you miners face, but you are consistently hitting the numbers, or exceeding the numbers, despite those problems. So you always find a way. Do stay in touch and let us know how you get on. What are the next big things that we should be looking out for?

Cobus Loots: Well, we have our interim results now being released next week, on the 18th February and that will contain more detail on performance and what we expect for the remainder of the year. And yes, as I said, we are quite positive. We have laid a solid foundation, a good base to do well. So the Rand Gold price, is pretty much the highest it has ever been so that’s a good environment for us to operate in also.

Matthew Gordon: You see that continuing do you?

Cobus Loots: We sort of try focussing on those issues we can control, but it’s always nice to have tailwinds like the Gold price.

Matthew Gordon: Light a candle, for sure. Thanks again, speak real soon.

Cobus Loots: Thanks, Matthew. Speak soon.


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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Time To Grow Up and Get Your Pyjamas On

My kids drive me nuts.  My youngest son spends most days in his pyjamas playing computer games. My youngest daughter complains about never having enough data whilst she is creating her next Tik-Tok or editing videos of one of the animals being “so cute”. Each of our kids has three screens; a phone, iPad and a laptop. I don’t remember sanctioning any of those purchases. I don’t see my kids for large parts of the weekend, as they are playing on their computer. It’s perfectly normal my wife tells me. It can’t be I say.

So to counteract this growing behavioural trend, we decided to take the kids on a 3-week trip to Asia at Christmas. Exquisite beach hotels, swanky City hotels, lots of day trips on boats, up river, out to sea, up mountains, fish-markets, elephants, nature walks, temples, rural villages, making hats from leaves… Something of a memory lane for me, as I had grown up for large parts of my life in Asia. These day trips usually involved mini-bus and being driven to a variety of locations.

I loved looking out the window of the bus and watching people going about their lives. The economies of these Asian countries are thriving, especially in the big Cities. In my day, there were thousands of bicycles and small motor-cycles which drove the economy. These days its trucks and cars that block the roads, and pollute the air so much so that pedestrians have to wear face-masks to venture out on to the sidewalks.  But in the rural towns and villages, it is still the humble motor-cycle that pulls makeshift trailers and laden with wares, and I mean laden. There is art-form to stacking a motor-cycle 2-meters high and 2-meters wide with chicken cages, hay or even people. Head-on they look like a motor-home approaching, but the distinctive ‘put-put’ mutter from the small motor is a giveaway. One enterprising gentleman on a scooter caught my eye.  It seemed he had just collected his wife and new born child from hospital; his wife riding pillion, holding the delicate new-born child and a suitcase; as the husband weaved his way through the crowded traffic, whilst holding a saline drip suspended from bamboo cane. A very perilous construct, but life moves on.

I turn around every 15 mins or so and say, ‘look at that guy with the 3 goats on his back’, or ‘what an amazing looking temple’. Silence from the back. Heads are down and buried in their phones. I try to engage them. My wife tells me not to worry. All rather a depressing. There were good moments too, lots of them, but that stuck with me.

Back home, my eldest son, who is still at school, is a digital consultant to our business. He throws Gary Vaynerchuk quotes at me, whilst downloading the latest social media business app, which as it turns out saves us 40% on our film-editing time. And there has been a lot of that. It turns out we don’t have to hire a new social person as the App he has identified can create and schedule all our social media activity weeks in advance and collate the statistical analysis for us. He has an awareness to Brands, Apps, Enterprise software, business models revolutionising different sectors. I’m starting to feel out-dated and out of touch. But I couldn’t be prouder of him.

My technology exchanges with my son made me realise that my generation is guilty of being a bit out of touch and not listening to our kids. We need to take a look at the life they inhabit. Take a look at their norms. How do they interact with the world around them? My youngest son isn’t playing on his computer; he is playing, laughing and talking online with his friends. They are having as much fun as I used to kicking a ball around or building toy models from balsa wood. We have to look up and see what our kids are doing today, listen to them, as they are ones that will inhabit and define the future. The types of jobs that they will have probably don’t exist today.

In this virtual world, they have to think differently. 

The schools and Universities we herd our children to are slowly making changes to subjects. And kids are accessing the information that they need online and digesting the information in different ways. They are equally comfortable with and reliant on technology. They are self-learning from a very early age. The online games that they play on their computers are teaching them skills they will need in the future. I see that now.

However, what it has created is opportunity for investors. That was a cold segue! But tell me you didn’t think the same thing. Hear me out.

I was first subjected to this phenomenon when Mine-craft first surfaced. I was even dragged to a 2-day event at Disneyland Paris. I have never felt more out of touch in my life. Even that time when my then girlfriend was trying to teach me the dance moves to ‘Don’t Blame it On The Boogie’ didn’t even come close. Thanks for trying Siobhan! Then the sequence of ‘must have’ software games started to invade our house.

The gamers that my kids watch online are multi-millionaires. And there are lots of them because there are billion dollar industries being started in bedrooms all over the world. These gamers are sophisticated business people and have built up huge followings by recording themselves or playing live acting like kids, bantering with their mates, laughing screaming and quite often swearing. YouTube pays them through a share in advertising revenue that they generate. These gamers are lauded by their avid followers and wanna-be hoards of children in bedrooms all over the word. And right now I am lauding them too for their financial acumen.

Apparently, the best players do online collaborations. It has got professional. Some players have built teams around them. The compete for honours and money. Big online events where people pay money to watch the best players and best teams battle each other online. You can even bet on the outcome of the game. There are currently about 500,000 frequent and occasional viewers. In addition, there are conferences all over the world holding events where you can pay to watch the same guys you pay to watch battle online battle each other live. Most professional real-world sports teams like soccer and football have e-sports equivalents. These professional gamers wear the team jersey and are sponsored or paid by the club. They are representing! And some of these guys make millions, but without the danger of brain injuries and ligament damage.

I was not aware of the scale of this industry until about a year ago, when someone asked if I wanted to invest in a HK based e-sports team. They sent me many large tomes about the industry, the training methods, the selection process, the competitions, the turnover, business plans… these are sophisticated operations. They know where the cash is and how to structure an organisation to put them in a position to extract it. In this virtual world, they have to think differently. Their cost structure is different. These teams are popping up all over the world. Some are going public. Could these companies be part of our future investment portfolio? Probably. But first we need to understand the sector. Like all sectors in their infancy, there will be winners and losers. Hopeful, enthusiastic management teams with no commercial acumen, need to be separated from the herd. This a fast-moving sector, but the fundamentals of business and investing still apply.

We are going to interview several of these over the next few weeks to learn more. Why not come along for the ride with us? Send us your questions and we will put them to these companies, or go and do the research for you.

Pond Speak: You Say Zee

We Brits have much in common with our wonderful American cousins. But language isn’t necessarily always one of them. For instance, you put on sneakers, we put on trainers. You get in line, we love to queue. You lift up the hood, we look under the bonnet. And we can only apologise for the lack of ‘z’ in our spelling of certain words.

One of our super smart and delightful American readers has kindly helped correct us on something we wrote about yesterday. We thank him for helping us learn. Our article on the recent announcement by Energy Secretary Dan Brouillette, discussing the funding for domestically produced uranium, we used a phrase “discretionary funds”. We questioned what they meant and also what it could mean in terms of the allocation of the budget being discussed.

Discretionary to us means just that, at our discretion. In my banking days, if I had discretionary funds, I could allocate them at my discretion without seeking permission or sign off from my client as to where or how much, as long as it was in my mandate. In fact, the dictionary describes it as:

Discretionary: Adjective
Available for use at the discretion of the user.
“there has been an increase in year-end discretionary bonuses”
Denoting or relating to investment funds placed with a broker or manager who has discretion to invest them on the client’s behalf. Eg: discretionary portfolios

But in US Budget-speak, discretionary apparently means something quite different than it does elsewhere. So for the Non-US, or investors who perhaps are not quite 100% au fait with US Budget speak, buckle up. You and we are being schooled.

There are only 2 major types of budget allocations.

  1. Mandatory (a law was passed saying that funds must be used to do something enacted into law by Congress & Senate) and;
  2. Discretionary, which are budget requests that come up through the ranks from departments that may or may not be approved at the discretion of Congress.

The vast majority of budget items are discretionary, which doesn’t mean at the discretion of some politician or government employee. The budget document is broken down by Department and Agency to extent that every item is clearly defined by law there is no lack of clarity.

In our article we highlighted the questions that US producers want answered, ‘how much of this discretionary $150M is allocated to US producers and at what price’. So two questions.

And our very clever reader helps us with the first question:

1.  The description of the Uranium Reserve budget item says “domestic production” which means that the uranium MUST be produced within the borders of the United States. By definition, it would be impossible for any production from Canada, Australia or Africa to be “domestic production”. The whole point is to reinvigorate uranium mining inside the US. A question that investors ARE asking is whether Canadian or Australian based companies, like Cameco and Peninsula, would be eligible to compete for those DoE purchase contracts. Given those companies, just like Energy Fuels which could be cast as a Canadian-company, use wholly registered subsidiaries in the US to operate the mines, it seems a moot question. By definition, any mine operating inside the US where the product does not cross a federal border is domestic and would meet the requirements for a Buy America policy. So that seems clear, unless anyone else has an opinion that they would like to share. Great knowledge  shared.

The second question, which we added in a second draft:

2. A budget has been set for the purchase of domestically produced uranium ($150M x 10-years), but the price at which the US DOE will purchase? Well that is unknown at this stage. No companies that we have spoken to have been consulted on this topic by any US government department yet, either on or off the record. Yes, we asked! What we do know is that most CEO’s have said they will need $50-$55 to be incentivised, off the record some have indicated a higher would be needed. That doesn’t tell us much either unfortunately. Who and how the purchase price and contract terms are set is still a mystery. Different companies will breakeven at different levels. And who wants to just breakeven! And as we know from conventional mining AISC numbers can be manipulated to suit your argument, so the negotiations are set to be an interesting and revealing phase of the uranium saga.

So if you want to help us analyse or analyse the budget, we would welcome your thoughts in the comments below, or if you would like to come to our defence or defense, and write an article or just some wordz (too much?), we’d love to hear from you.

Love from you couzins across the pond.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Best Foot Forward. I want a Clean Fight

What a week for Energy Fuels (NYSE: UUUU)

US Secretary, Dan Brouillette announced a package which signalled to many that the US Department of Energy has taken seriously the cry for help from the uranium miners and the Nuclear industry. A 10-year $150M pa budget which The Office of Nuclear Energy (ONE), which sits within the Department of Energy (DOE), is asking for to “re-establish the nation’s nuclear fuel supply chain through the domestic production and conversion of uranium.  Sounds positive in the best-case scenario, but more information is required.

But it seems to have set off another event which has started a passionate debate by Uranium investors on social media. Energy Fuels (TSX: EFR | NYSE American: UUUU) has issued a new release announcing a bought deal for $16.6M through Cantor Fitzgerald. It has not yet closed, but we would expect it to close within the next week.

This isn’t the first Uranium company to sortie into the market recently looking for capital. But it is one of the largest. So what is going on? We don’t know yet, but will request a call with the CEO, Mark Chalmers, when they close the Deal, as we won’t get much out of him before then.

So why would they raise money now with their shares so depressed, and at a discount? It doesn’t make sense. Or does it?

Firstly, it’s worth remembering that Energy Fuels has around USD$16M of unsecured, convertible debentures with annual interest-only payments of c.USD$1.4M and a maturity date of 31st December 2020. That effectively is a large liability on the balance sheet which we will see in their March 2020 Quarterly Statement, so they need to do something about that.

Energy Fuels is raising $16M. They owe $16M. So maybe they are going to pay off the convertible. That would make sense wouldn’t it. Except it doesn’t. The uranium market has been hard to read for the last 4 years, it’s not any easier today. If you are company spending cash to keep the lights on, you need cash to hand, and not keep getting the begging bowl out. The smart thing to do would be to refinance the convertible and keep as much of that cash available as possible.

Also, what you can’t do is wait for the market to turn and save you. That has been the downfall of many a company. The response to the DOE announcement was mixed. It hasn’t had the super-charged effect that uranium companies needed. Don’t get me wrong, it was more positive than negative, but some doubt around the detail remains. So, in our opinion, companies need to get on to the front foot. Be in control as best they can. In the of case Energy Fuels, the USD$16.6M bolsters their balance sheet to somewhere in the region of USD$55M – $60M. Remember this is made up of cash and working capital in the shape of inventory (uranium & vanadium). About 50% is inventory, not cash, but only semi-liquid. That said the price of vanadium is creeping up again, c.$7-$7.50 at the moment, the c.1.5Mlbs of Vanadium in Energy Fuels stores is starting to look attractive again. We don’t expect that to be sold anytime soon, but is currently an appreciating asset.

Remember the $16M convertible is due at the end of 2020.

This reminds me (it’s not an exact parallel, but enough of one) of the actions of another company that we follow closely, RNC Minerals (TSX: RNX). The new CEO, Paul Huet, did a bought deal in September 2019 for USD$18.5M, much to the chagrin of his large retail following. The share price was depressed and cry from the crowd was ‘no more dilution’. But that raise turned out to be the making of one of the turnaround stories of last year. It bolstered their balance sheet and allowed them to put things in place to take advantage of the turnaround in the gold price from September 2019. It was a bold move. It didn’t win him any fans initially, but now the mood is much changed. The company is consistently producing and adding to their cash balance.

That is gold and this is uranium, but investors banging the ‘10- 50 bagger uranium drum’, probably won’t be overly concerned about the cost of this money to Energy Fuels as they will be swimming in cash, they tell us, when the market turns. The more conservative of us, who buy the macro story driving the demand cycle, may have winced at the price paid by Energy Fuels, but here is my take.

If the announcement from the DOE is the first salvo, it is a positive one. Right now, there aren’t US uranium producers capable of suppling annually the 2Mlbs – 2.5Mlbs of domestic uranium that the DOE announcement claims it will buy from 2021. Is this a case of Chalmers wanting to get on the offense to be able to claim as much of the $150M as possible? We think so. Can he do it? Well that’s going to come down to timing, luck and planning. Only one of those he can control. But if he has timed this correctly, even us conservatives would expect to make money on Energy Fuels. It doesn’t necessarily mean I’m happy today about what this does to the share price, but then I wasn’t buying into the short-term thesis for Uranium. And to be clear we do not own shares in Energy Fuels today. But after the raise next week that may change.

We talk in one of our other articles here about Energy Fuels belief that given there are only a handful of US uranium companies capable of producing uranium today, they would expect to the be at the front of the queue. And Energy Fuels, with the only working uranium (and vanadium) mill in the US – White Mesa, probably think it deserves to be at the head of that queue. In the current market it would be hard to argue against that.

So whatever your take on the DOE announcement, the conversation just got a lot more interesting.

Your opinion that matters, so please leave a comment below.

Company Page: https://www.energyfuels.com/

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

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.