Millennial Lithium (ML) – Last Major Hurdle Cleared. Shovel-Ready Prep Begins (Transcript)

Millennial Lithium Corp.
  • TSX-V: ML
  • Shares Outstanding: 83M
  • Share price C$1.01 (30.06.2020)
  • Market Cap: C$84M

Interview with Farhad Abasov, CEO of Lithium Developer, Millennial Lithium (TSX-V: ML)


The last major hurdle for Millennial Lithium’s flagship Pastos Grandes Lithium Project in Argentina was the Environmental Impact Assessment (EIA). Today, the company has announced that the DIA has approved its EIA, and now the company really is ready to get into production when the time is right.

There are a few small functional permits to sort, but they are unlikely to pose any real issues. The project has world-class economics; it’s in the lowest quartile for cost. Now, with Argentina back open for business, the shovel-ready project could create some major growth, once the funding is all in place that is.

What did you make of Farhad Abasov and Millennial Lithium?

We Discuss:

  1. Press Release: Approval of EIA and What That Means for Millennial Lithium
  2. What’s Next? Other Permits and Licenses to Come, and Choosing Partners
  3. A Look at Lithium’s Macro Environment: Timings for Upside

CLICK HERE to watch full interview.

Matthew Gordon: Farhad, how are you doing, Sir?

Farhad Abasov:  I’m very well, thank you. And Matt, how are you doing?

Matthew Gordon: Yes, all good. We are all good here.  I’m loving that background. Where is that?

Farhad Abasov:  Thank you very much. That is Baku, Azerbaijan.

Matthew Gordon: Very nice. It’s absolutely gorgeous. I want to be there.

Farhad Abasov:  Yes, you should. Once Covid restrictions are lifted though.

Matthew Gordon: Yes. You know, I have actually seen a few programs. I think there have been quite a few movies shot there as well. It’s a fantastic setting. Absolutely gorgeous.

Well, we should talk about –

Farhad Abasov:  Yes, Fast and Furious and some other ones.

Matthew Gordon:  There you go, all the good movies. Well, we should talk about your press release today because we spoke recently, and you said that this was coming up. You said it would be quick, and it clearly is. You’ve got a little bit of news around the EIA today. So just talk us through that and what it means.

Farhad Abasov:  Yes, absolutely, Matt. So, you remember the last time we spoke, I think it was a few weeks back, I mentioned that Yaya was in the pipeline. And there were a lot of questions after the presidential elections and provincial elections that took place in October last year, as to how the new government was going to approach the mining, energy sectors, and what it will mean in reality, you know, when it comes to actual permitting process. And you remember, I told you that although the government changed in Salta as well, the new president came in at the provincial level, the new minister of mining and so forth, but they immediately expressed their full support for almost all mining projects, and specifically our project: our Pastos Grandes project in Salta. And today they made that announcement that the government actually had reviewed it and approved it, which opens the doors to basically completing the entire permitting process. So the Environmental Impact Assessment Report, which was filed last year is probably the most important document because that encapsulates all our plans, all our production plans, construction plans, as well as all the conversations, all the interaction and consultations with the local community, with the government and so forth. And of course, as the name implies, it really looks at the environmental impact of our project, of our production centre on the environment in Salta province, in the Pastos Grandes specifically.

So, I must say that this is the stamp of approval, not only by the government of the province, but also by the local community. Because it actually shows the, you know, the environmental and benign character and nature of this business model of this approach in terms of using salt evaporation ponds. We’re not going to really disturb the environment that much at all. As you know, there’s not much excavation, or earth moving in general, we just drill into the ore body, or in this case into brine reservoirs, and pump brine back up to the surface.

So, all of that actually shows that we’re on the right track. The government is on the right track. And it sends a very strong message to the investment community, which was a bit nervous about how the new government will behave, how the new government will actually treat some of these large mining and energy projects in the country, specifically in Salta province. But we’ve always said, look, the Salta province is one of the strongest supporters of business, specifically mining, and you know, fortunately they approved it. They put their money where their mouth is, so to speak, in terms of approving the EIA.

Matthew Gordon: For me, following our last conversation, this is the one I was looking for, because this was the big hurdle. Because it says that you’ve done things right, legitimately. Obviously, the involvement of stakeholders locally; I, you know, I would have needed to see that. And that’s clearly been done. But as you say, the big signal is the market about the intent of the Argentinian government, about mining and doing business, and international partners being in Argentina. So that was what I was looking for and I’m glad you’ve achieved that.

But let’s look forward now, because that is the nature of investment; it is always looking forward. We’ve got to look forward. So, what else needs to happen now? Because we talked previously about people in doing due diligence and potentially, you know, looking at funding partners, and you needing to find the right structure there for you and your shareholders. But what needs to happen between now, now you’ve got the EIA approval, and being able to make a decision as to which partner to go with? Any more permits? Licenses?

Farhad Abasov: So, Matt, maybe I can tell you that, in a nutshell, what we’ve been doing while all these COVID restrictions have been in place, and you know, what we’re planning to do, continuing to do in this situation, this lock down situation in Argentina specifically, so that both yourself, and of course the listeners and viewers can appreciate what we’ve been doing, despite all of these kind of constraints placed on us by external circumstances. So, first of all, in addition to the EIA approval, we also consolidated our land position. So, in other words, you remember we’ve been working on rental properties, these are the properties that we’ve acquired from the government of Salta, through a tender process. We had big work commitments on these properties, which we’ve completed, and we’ve paid the government to completely transfer these titles to Millennial. So now Millennial actually owns and controls all of these properties, all of this land position in Pastos Grandes. And that is very important because we’ve achieved it, again, in the middle of all this pandemic, it may have been going on worldwide.

In addition to this, the work on the ground continues despite, again, all the constraints, despite all the difficulties there and challenges with shifts and so forth. We continued to work there. We are completing the work on the community centre that we have been building. Obviously, the pilot operations have been continuously ongoing, and that’s very important because we haven’t really slowed down any of the plans, any of the programs, that we set out to accomplish. Despite again, as I said, all these potential delays and issues.

Now going forward, we realised, look, nobody knows when all of these restrictions will be lifted so we have to continue with our track, with our programs and specifically now getting the rest of the permits, which is mostly mechanical. I mean, I don’t want to minimise their importance, but I want to say that most of them are operational permits, such as getting export licenses or construction licenses and so forth from both the provincial, federal and municipal governments. But you know, we’ve been working on that already. In other words, we were not just waiting for EIA approval and then launch the programs in that regard. So that has been going on. So, and they will be received as we go forward. In other words, they’re not going to be a major obstacle for any of the work that we are planning to accomplish in the next few months.

Now, the key thing right now, Matt, as you know, we’re at a stage where we need to basically secure funding for this project. So, we’re facing interesting options right now, again, despite the COVID situation, we’ve been continuously discussing and negotiating with various parties who are interested in becoming our strategic partners, or just large investors in the project. So, we are looking at various options right now. One is actually going forward with this project, with a very large strategic partner who has come in and basically helps us fund this using our current technology, our current approach. Then there are a couple of other large companies, not necessarily in the Lithium space, but they’re in the energy space, who are very much interested in becoming large players in the sector, in the Lithium sector. And they have developed variations of extraction, Lithium extraction technologies that they would like to basically kind of bring in into what we’ve been doing in Salta. So, we are looking into that as well.

Now the rationale behind this, Matt, is to look at all these three options, I would say, because those two companies have two different approaches, and see what will work best for us in terms of funding. And when I say funding, it is not just availability of financing, but also what kind of shareholder dilution we’re going to have as a result. Which one of these projects, or sort of technologies, will actually get us to production faster and at what cost? And of course, you know, the most important thing also is the size of this. I mean, do we have to scale this down a little bit to start with or will we just go ahead with our original plan? Which was basically starting with about 10 to 12,000t, and then ramping up to about a full 24,000t of Lithium carbonate production p/a, 2-years after the start.

So, luckily, all of these options are still on the table. And the way we have been approaching this is that look, while we are kind of all sitting in our homes, we can continue discussing all of these things, both internally and with these parties, so that when the market opens up, the economies open up and that the restrictions are lifted, we can basically bring all of this to conclusion. In other words, do your own DD on all these things and make a decision so that when the time comes, we, let’s say in September, October, hopefully we’ll make an announcement as to which way we’re going to go, and what kind of a structure, strategic partnership, joint venture, or just a straight forward investment we will be able to put together.

So, I think again, the fact that we have accomplished so much, despite all these restrictions, the fact that we still have a healthy cash position will position us in a very favourably compared to a lot of our peers come the recovery time, because I think we’re at the stage, and with a low cost structure that usually the brine projects have, we’ll be able to attract significant investment interest so that we can actually get going with construction.

Matthew Gordon: So, you are pretty close to being shovel ready. You have got to get the right type of money in place. I know you have got a lot of people sniffing around here and doing diligence and so forth. So that begs the question then, what’s happening in the world of Lithium, the Lithium macro environment? I’m sure a lot of commodities are struggling at the moment to try and understand what the new world is going to look like post-COVID. So, what’s your take on that? And I appreciate you are the lowest quartile cost producer and, you know, it’s all kind of good from that point of view, but people have got to get work out the timing on this, and I guess the biggest upside you can see is if the Lithium market comes back and you know, it’s full swing and the EV thematic isn’t impacted too greatly by COVID. So how are you and the board managing that, or trying to work out what the future looks like?

Farhad Abasov:  So, this is probably one of the most important factors that will affect whatever we do in the next few months, obviously. And I mean, if you look at this situation pre-COVID; I’m talking about at least 18 months back, up to, let’s say March of this year, we’ve seen quite a gloomy picture in the sector you know, over supply, the price coming down. The one bright spot in the whole kind of scenario and the whole landscape was actual continuous growth and demand for electric vehicles, hence obviously for all kinds of battery materials. So that has been in place. In other words, that’s the most important, I would say, factor in the whole kind of dynamics. The strong forecast, the strong growth forecast has been actually true, holding true, I should say, in the last few months, especially pre-COVID.

If you look at the numbers, EV sales have jumped dramatically in Western Europe, at least in major European countries like the UK, France, Italy, and Germany, year on year. The first quarter, they went up by almost 90%, specifically EVs, right? So now the expectation, or my personal belief is that after the recovery, it’s probable that type of a trend will return. I think it will. Again, obviously people are not going to rush out to buy cars, but when they do go out to buy cars, it will be likely for electric vehicles, mostly. Or at least they will do better than regular cars.

Now, in terms of its impact on Lithium. I think there have been quite a few interesting developments in the Lithium space as well, obviously you know, related to the fact that there was an oversupply, and still over supply, by the way, in the sector and the Lithium price has come down. Now, it is a typical feast and famine situation now, whereas, the Lithium price has come down to about USD$5,500/t to USD$6,000/t. This is on a spot price basis. And a lot of high-cost producers are already feeling the squeeze. So, we’ve seen not only hard rock producers out of Australia and China feeling the pain and, you know, either scaling down their production or shutting down all together, but a lot of development projects are getting shelved, right? Because they’re looking at it. If their cost structure is pretty high, they’re saying, well, there’s no way for us to actually get it funded. So, they’re getting shelved. Some of them are getting cancelled altogether indefinitely. So that actually, I think will have an interesting dynamical, interesting impact on the whole price scenario going forward, because what’s going to happen is that when you have almost half of the world’s supply coming from hard rock producers who actually have higher operating costs, and let’s say brine producers and where the price of Lithium is already below their marginal cost of production, either the price has to be pushed up to that level so that they still stay in business, or they have to go out of business.

So, I think that will bring the whole supply-demand dynamic into a more stable, or more balanced situation, where the price will have to come up once those guys either go belly up or something else happens there. Whereas the price is at a level where it incentivises new investments.

Now, the reason I’m saying that is that you know, the brine projects, for example, and our project specifically, tend to have much lower operating costs. So, for example, we expect to produce about USD$3,400/t. So today, you know, if we were to produce today and sell it at the spot price, we’d still make money. However, that may not be enough to cover all your capex and so forth. So that’s why I think in the next few months, probably, you know, again, the third or fourth quarter of this year, we’re going to see that type of stability in the price, and it is absolutely important. And I think it will have to happen, Matt, because if it doesn’t, there’s no way the industry can meet the demand coming from EV. So, what form or shape it’s going to take? Obviously, we can argue that, but it will have to happen, because right now, basically, only a few projects worldwide are still kind of a standing, still up and alive. Most of them are suffering; either they are completely bankrupt or they decided to abandon their projects or they’re on their knees and basically starved for cash. That’s why I think the companies that are in a stronger position will have to wait for that moment when that recovery happens in the industry.

Now, going back to a question as to the forecast, if we were talking about this, you know, the first quarter of this year before COVID started, I would say probably by the middle of the year, by the middle of 2020, it would have that type of recovery, meaning that that would have turned the corner. With this type of a delay, I think most likely we’re looking at the third or fourth quarter of this year if the economies open up at least, you know, quasi-normal conditions. And at that point, I think we’ll be in a position to basically go, and as I said, complete all these deals that we’ve been discussing, and basically complete the structure. And as I think I mentioned last time, we’re not doing this on our own. We have very strong financial advisors – Credit Suisse – their Toronto and London offices have been helping us.

Another very important thing that I should note here is that despite the difficulties and challenges that the sector has been experiencing, I’m talking pre-COVID, the parties that are talking to us aren’t short-term speculative groups. So, these are large industrial groups, and I’ve already made a long-term decision. And they have very strong vision that, look, this is what we want to be in. And this is a long-term trend that they want to participate in, not only participate in, but we also want to become significant players in the sector. I think that is very important for us. That is why there is this DD on their part, as well as all these detailed conversations that continue to this date. Otherwise we would have lost a lot of interest, you know, probably in mid-2019.

Matthew Gordon: No, I think that’s a really good point that you raised. We have had various conversations with Lithium groups and individuals over the past few weeks, and that’s quite clear that the decision making for certainly talking about EV is multi-year planning. You know; 10-year cycles for them. So, if there’s a dip in the market now, it doesn’t really affect their planning. Because with automotive, we looked at all of the automotive brands; USD$300Bn worth of infrastructure is being spent and built around that. They are going to need the supply, and it’s going to come down to where can they get that from? From a reliable source over a long period of time. And I guess the companies that can make money can get funded and they will survive, and others will have to work out a different, way or a different model of getting to market.

Well look, thanks for the macro component there. It is always interesting getting a different take, a different angle on it. But well look, Farhad, like I said, we were looking at for this and this was a big one, a big moment, a big hurdle to overcome. You have done it.

Let’s stay in touch. Let us know how these DD conversations get on because picking the right partner is going to be really important for you. Really important.

Farhad Abasov:  Well, thanks so much, Matt, and I’m glad you found time for this interview. I think it will give a lot of information to your viewers.

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Neometals (NMT) – Building a Battery Eco-system (Transcript)

Neometals Ltd.
  • ASX: NMT
  • Shares Outstanding: 545M
  • Share price A$0.16 (30.06.2020)
  • Market Cap: A$87M

Interview with Chris Reed, CEO of Neometals (ASX: NMT), and Accompanied by Darren Townsend, Chief Development Officer, and David Robinson, General Manager.


In each Neometals interview that we’ve carried out with the company, the management team has unpacked the value proposition of forward-thinking projects that play nicely into the increasingly ESG thematic and the EV/battery revolution.

Today, we talk about the company’s high-grade vanadium-bearing slag recovery project in Sweden. It has a JV with Scandinavian powerhouse, SSAB, which has nearly 2M tonnes of waste spread across 3 steel mills in Sweden and Finland. The average vanadium pentoxide grade in the slag ranges between 2.67% and 4.1%.

We discuss the recent scoping study results. Neometals has the methodology to effectively extract the vanadium while keeping operations in a low quartile for cost. The project development model ensures that Neometals doesn’t need to outlay large CAPEX or OPEX, and with around A$100M in the bank, the company has enough cash to carry out its operations and continue to expand.

What did you make of Chris Reed, Darren Townsend and David Robinson?

We Discuss:

  1. Company Overview
  2. News Release: Scoping Study Numbers as Good as Expected?
  3. Business Model: Replicating Mt. Mariot Success
  4. Battery Initiatives in Europe: Encouragement and Risks
  5. Flow Sheet and Processing Run-through
  6. The Numbers and Likelihood of Upscale
  7. Making Money in the Volatile Vanadium Market
  8. Getting into Production: A Timeline of Work to Come
  9. Potential Barriers and Risk Mitigation
  10. Possibilities to do More With SSAB

CLICK HERE to watch the full interview.

Matthew Gordon: Chris, how are you doing, sir?

Chris Reed: Doing very well, Matt, thanks.

Matthew Gordon: And I better say hello to Darren and Dave. How are you guys?

Darren and Dave:  Good, thanks.

Matthew Gordon: Good to speak to you again, good to speak to you again. But we are going to be talking today about a press release with regards to your Vanadium project in Europe. Good news, Chris.

Chris Reed: Absolutely. So, lately, as a first pass, we’ve got a project that can operate in the first quartile of operating costs and is secured by a conditional long-term supply agreement. So, you know, given the exceptional grade of the stockpiles, it comes as no surprise, and we’ve got plenty of scope to improve those outcomes, but, you know – first hurdle past.

Matthew Gordon: Yes. I was looking through some of the numbers, and I do want to get through it, but why don’t you kick off and give people that sort of one-minute reminder of what it is that you’ve put together here on this particular deal?

Chris Reed: Certainly. So Neometals is funding the evaluation of constructing a processing operation to recover Vanadium from by-products from Sweden’s national steel maker, SSAB. So, we are earning in, if you like, into a 50:50 joint venture with a company called Critical Metals. Unlisted. And so, we are funding the evaluation that satisfies our earning requirement. Critical Metals has a conditional 10-year supply agreement with SSAB to purchase the stockpiles of the of the by-product slag, that is stockpiled at two locations in Sweden and one in Finland.

Matthew Gordon: Okay, brilliant. So, we have talked about this just a few weeks ago, and obviously you’ve moved things on significantly. You’ve got the scoping study. I mean, have things gone as smoothly as expected? Are the, as a result, what you thought, because you were quite confident when we last spoke, but it’s never always plain sailing.

Chris Reed: Yes. Look, we did an extensive due diligence before entering into the agreement with Critical, and indeed, with the back to back agreement with SSAB. We took samples from the three major dumps, or stockpiles. We then subjected them to bench scale laboratory tests work that was undertaken under Dr David Robinson’s supervision. We then fed that into an engineering study managed by Darren Townsend. We have got Primera who are an Australian EPC for him to undertake it. I think it’s fair to say that you know, it was an extensive due diligence period. It was about 9 or 10-months in total. So, we were able to complete the metallurgical test work commensurate with being able to move very quickly to a Scoping Study. You know, in fact, during the Scoping study, we’ve taken samples for the pre-feasibility test work, and now we’ve got a drill rig up on site, taking variability samples, which you would normally find as a precursor for a full Feasibility Study.

So, we have a timeline, an indicative timeline that we put into the market. And of course, we’re a very well-funded project developer and we have our foot flat to the boards, so to speak.

Matthew Gordon: Yes. And I mean, that’s a good point, and possibly one worth reminding people of: you are very well funded. You’ve got a USD$100M+ in the bank. This project developer model that you guys have engaged with; you have done it successfully with Mt Marion on the Lithium project. You’ve got to take; you have got various projects on the go. And I think, in fact, if you would just describe the model that you employ there, because it means that you’re able to not use up vast sums of money, but develop project through to a point where you bring in strategic partners, effectively?

Chris Reed: Yes, essentially, we are project developers. What we identify as… we want to be in commodities that have very strong long-term fundamentals from a demand and supply point of view. And so, our exposure that links all of our projects is to the EV and energy storage thematic. And that picks out the commodities. And we pick out the projects that we like. Traditionally, we’ve been more upstream. What we’ve now done is pivot towards recycling. With respect to Lithium, we developed an upstream Lithium operation. We’re now looking at the ultimate downstream; which is the recycling. We do have an upstream Titanium- Vanadium project, but we’re now looking at materials recovery from, you know, essentially what is it equivalent to a tailings from a mining perspective.

We identify the projects; we build value by taking them through a valuation or exploration if it’s needed to make them really the size of the pie bigger. And then what we try to do to optimise outcome from an invested capital, and indeed from a risk perspective, is to bring in strong partners to operate and finance it, essentially some off-take. And that enables us to develop the projects at their optimal size, which is quite often difficult for smaller mining companies without excessive dilution.

We’ve got a fantastic balance sheet. I think at last quarter, it was a little under 100 in terms of total working capital; being cash and investments. It’ll be a little less because we’ve paid in a USD$10.9M dividend in the latest quarter. So that will naturally go down. But you know, we are very well funded to push these projects through to an optimal size, but then you actually have to get them into operation. And we’ve done that: we have a couple of multi-billion-dollar companies, developing Mount Marian into what is the world’s largest source of Lithium units in the world, as of sort of last quarter. And we’ve got strong partners for the battery recycling in SMS group. We are looking at an Indian Lithium converting plant with Manikaran who India’s largest power is trading company, using a Lithium feed stock off tape that we retained as part of the sale process. We’re working with a Chinese group on Barrambie, and at this stage we’re doing some Nickel exploration. We have about 140,000t Nickel metal tons. Nickel is obviously going to be a very increasingly important commodity in the EVs as we moved to the less cobalt-bearing EV batteries,

Matthew Gordon: I think that’s fascinating. Why we were attracted to you, and why we keep talking to you, is because you’ re coming at a slightly unusual angle, in the sense that you’re in the battery EV thematic; that space. But you’re trying to get away from the underground risk and, you know, go above ground on some of these projects, like the battery recycling and obviously this Vanadium recovery program as well from slag. So, it’s just kind of interesting also from not only trying to de-risk some of your investments, but the kind of whole ESG component to it as well seems to be very timely at the moment. Is that a big part of your thinking?

Chris Reed: Well, look, certainly we’re walking the talk in terms of the last two projects and the nearest sort of projects: two significant rerating events are indeed in the recycling and materials recovery, as opposed to upstream mining. You know, it is less risky, which is obviously, you don’t have to mine the material. I’m not saying it’s without risk, but it is a much more quantifiable risk. And it has obviously a lower CO2 footprint because there’s no mining and processing upstream involved and we’re recovering high value products and really closing the loop for these supply chains where societal and government regulations expect best practice and best utilisation of finite resources. And recycling of materials, recovery, you know, ticks ethical, environmental, security of supply issues, particularly when you look at Europe, which doesn’t have a massive amount of domestic supply of these key building blocks to keep powering their EV revolution.

Matthew Gordon: Yes. I think that’s absolutely right. You know, again, we have been in lots of conversations about more and more of the funds out there are looking for proper end to end, you know, carbon neutral, well, as much as you can do, but more of the process being socially responsible as well. So, it is just kind of interesting from that angle as to when you think about all of these big funds who are changing the terms of their investment thesis. It is just something that we wanted touch upon. Maybe we can come back to you and learn a little bit more. But look, back to this project: you are in Europe. There’s a big battery initiative in Europe. You have kind of got China, Europe and the USA trying to create their own kind of ecosystems for this. Have you been encouraged by what you’ve seen about the way that Europe is approaching this? Do you see any country risk in any of this? Any barriers?

Chris Reed: So, look, I think in terms of country risk, up in Scandinavia they do expect a high level of environmental responsibility. Look, we are very confident in the process and the people and the partners that we have.  We will move through that as we expect to. It is a very environmentally friendly process that Doctor Dave has come up with. It will leave the feedstock in better condition environmentally than we find it. We are able to extract it. It is a win-win in terms of, you know, we will be essentially remediating what would be a responsibility of the steelmakers to handle that, rehabilitate that, at some point in the future and extract value. So, I think, we’re pretty confident with that. I mean, in terms of the EU generally and, you know, the battery initiatives and all the regulatory and investment incentives from the local state, federal and even the EU, is really a fantastic tailwind to be the beneficiary of. So, you know, we are very comfortable with operating in that hemisphere.

Matthew Gordon: So tell me about, and it might be one for Doctor Dave, which is around the flow sheet and the process, because you guys have got this hydro-met process, and traditionally it’s been a pyro-met process, was that part of the reason why you were able to get this contract? And how much did that contribute to the thinking when you were sort of in discussions with your partner?

David Robinson: Yes, pretty much on my mind was a clean process, and we’ve come up with a hydro-metallurgical flow sheet that is very selective for Vanadium removal. And as Chris says, it actually leaves the leach residue as a much more stable form of the slag than the original stockpiles. So, we’re actually improving the quality of the material that is left behind after leach, as well as removing the value elements.

Matthew Gordon: So, the skill totally resides, and the intellectual property resides, with Neometals, and your partner is expecting you to deliver on that. And remind me again, will you be operating here or are you just giving up the technology?

Chris Reed: So, look, I could probably jump in there, Matt. So, we have agreed to license the technology into the joint venture. At this stage, we are looking to have a 50-50 incorporated joint venture in what is currently a Swedish company that holds the rights or is the counterparty to the conditional purchase agreement for the feedstocks. And so, we will work with them in terms of operating them. And obviously, we’ve got to make this a success. So, I think we’ll have equal contributions. And it’s quite likely that our technical team will obviously have to be involved in the IP, transferring to the operational base. Certainly, up at where we’re targeting this at Lulea up in the North of Sweden. It’s a fantastic location. There is actually a technical university there with somewhere around 15,000 students. So, from what I can work out, it’s almost the equivalent of having a mine in Kalgoorlie where you have the West Australian School of Mines, where you’ve got a good supply of you know, skilled potential operators.

Matthew Gordon: So, let’s move into the economic side, because that’s where investors and potential investors looking at this, this is what they want to understand is, what do the numbers look like? So, the numbers that we’re seeing, as we talked about before, 200,000t per annum, it’s currently in a 10-year term with the possibility of extension. So, they’re sitting with around 2Mt at surface. So that’s quite nice. What is the likelihood of being able to upscale this thing in terms of the kind of life of mine equivalent, given it’s all sitting above ground? I mean, do they keep feeding more and more onto the stockpile?

Chris Reed: Yes, correct. They’re currently adding to the stockpiles somewhere around in my mind, about 180,000t p/a. We have a number of years where we are moving through the Pre-Feasibility Study next financial year, then the Feasibility Study the year after, then we’ve got a construction window. I expect that will add somewhere between 600,000t and 700,000t, by the time that we look to want to start processing material. One of the conditions we have in the agreement is that upon making a positive investment decision, we’ll actually purchase the stockpiles at Lulea. And we would then move them over to our side so that we’ve always got, you know, what would be in mining parlance, the equivalent of having stockpiles ahead of your mill for a number of years. I expect that satisfactory performance of the contract if it’s indeed a win-win, where we’re paying valuable consideration to SSAB while alleviating the costs required to potentially rehabilitate or remediate those stockpiles, and we are operating to best practice. I couldn’t see any reasonable basis that we couldn’t have a meaningful discussion about increasing the scale upwards or extending the life outwards, I think with such a an extensive stock pile at the moment, it would, it would make sense to us to examine an increase in the production line.

Matthew Gordon: So, the Vanadium market at the moment has always been a little bit erratic, or certainly has in the last 2 to 3-years in terms of pricing. You guys are, I think the number of was quite low. It’s like USD$3.92 p/lb – which is pretty darn low. There’s margin to be made there even at today’s prices. What do you think the Vanadium market is going to do? And sort of remind people that 90% of that goes into the steel sector, and people are talking about Vanadium, redox flow batteries as well, coming to the fore. But where do you think you’re going to be selling this into and how?

Chris Reed: Yes. Look, at this stage the flow sheet play is producing Vanadium pentoxide, which is quite a common chemical. It’s probably the largest chemical that’s produced. Most of the production is pentoxide converted into Ferrovanadium, that hardened steel, increasing applications in terms of, it is a master alloy for aerospace Titanium alloys, a Titanium metal, which is strongly brittle with a Vanadium and alloy mineral that makes it ductile.

And also, as you mentioned, we have the Vanadium redox battery. So, we have the flexibility to go from V205 into a sulphate precursor, or we can extend ourselves to make Ferrovanadium.

Matthew Gordon: So, I’m building a picture of what you’ve kind of got around in my mind. From what you’ve said before you get into production, or I’m sorry, once you have made the decision to get into production and you can get to that point, you’ve got about 13-year’s worth of feed stock, but it’s continually being replenished. You have the option of upscaling it, and you are having discussions about 100% ownership of stock as well. So that’s kind of interesting to me in the context of it being a low-cost or lowest quartile producer.

Can we get into the numbers and the FID here? So, what is the process between now and the point at which you do get into production, that you guys are going through? Because you can choose to opt out at any point, but I suspect what you’re saying is that, we were very encouraged, and we probably won’t be doing that. So, what is the process here about getting into production and when would that be?

Chris Reed: So, the next step for us is to complete the Prefeasibility Study, and we need to have that completed by middle of next year. And effectively, work in proxy has sort of already commenced on that. We’ve started collecting samples from the stockpiles up in Sweden. We’ve got a drill rig up there at the moment. And we will obviously take that work and continue on through into the Prefeasibility Study. Formally we will get our board approval in the coming couple of months to formally commence that, but early works have started. So that’ll be by the middle of next year. We’ll then, you know, off the back of the success from that, look to go through to a Feasibility Study, which we’d be looking to complete by the middle of 2022. And an FID for the project at the end of 2022.

Matthew Gordon: So, the FID would be end of 2022. Okay. And what happens at that point? How much more money, in fact, how much money between now and then, and then what would you have to then commit yourself to at the end of 2022?

Chris Reed: Sure. Well, the studies that we are funding at the moment, that’s our obligation in our arrangement with Critical Metals, and we’re talking total expenditure for all of our commitments of circa USD$5M.

Matthew Gordon: And that’s in total or is that from now to that point?

Chris Reed: That’s from now to the FID.

Matthew Gordon: And then when you’ve done the FID, Chris – bring this back to you in terms of the terms, what have you agreed to do in terms of your capital expenditure and commitments?

Chris Reed: Yes, sure. So, for the FID, as I mentioned earlier, we would be purchasing a 700,000t of stockpiles, at the ultimately, the price depends on the prevailing Vanadium price. At that point in time I suspect it would be somewhere between 5% and 10% of the overall CAPEX of the project, potentially to purchase those stockpiles. But like I said, it’s Vanadium-dependent; it might be a little higher. And essentially the capital costs that we are looking at are about USD$160M. We will be in a 50-50 incorporated joint venture with Critical Metals. So, you know, our funding requirement would be USD$80M. And then of course, we will try to bring in some of the debt that’s available for some of these EU inner VAT where these financings are coming through for commodities that are linked to the energy storage and EV thematic.

This one really lends itself more to the energy stationary, energy storage thematic. I mean, VRBs had been around for a while. You’ve got Robert Friedland, bought the world’s second largest VRB manufacturer in China. I know they’ve got very bullish plans going forward for that project. You know, we see that there’s quite a lot of VRB manufacturing capacity held back by the availability of the electrolyte, which is a key part, and which is essentially a Vanadium sulphate solution. So, if you wanted to tailor it for the green funds, you would produce Vanadium sulphate. If you were looking to use the traditional EXIM financings, you would probably either look at a pentoxide or a Ferrovanadium, or a metallic sort of form that could go into the steel makers. But it is a wonderfully I guess, unique chemistry, or not chemistry, compound or element that, you know, you can have multiple uses from hardening steel. You have pharmaceutical applications, you have energy storage applications, and then you have aerospace applications.

Matthew Gordon: So, I think it’s interesting.

Chris Reed: I think it all goes well.

Matthew Gordon: It is interesting, and I think it all does go well for Vanadium moving forward, as it does with a lot of battery metals at the moment. Are you at all nervous about, I mean, given the timelines and what you’re doing between now and 2022, are you nervous at all about what’s happening on the macro economy? Do you think there’s a kind of disjoint there between, you know, what’s happening in the world and your business?

Chris Reed: Yes, look, I take some solace in that it is actually a hard asset. They’re hard commodities and, you know, they generally respond if there’s inflation to maintain their sort of value.

I think for me, yes, the Vanadium market is one of the most volatile commodities out there. I mean, we acknowledge that. We have been in the Vanadium-Titanium development game for about 16-years. So, we’re acutely aware of that. And the only long-term defensible strategy, with my miner’s hat on, is to be as far down the cost curve as possible and to keep driving that. Now, I think one of the overarching thematic for a lot of commodities worldwide is that the mines are getting deeper and the grades are getting lower and the mining costs, or the mining cost per unit of output of final production are endlessly going up and you are getting cost-push inflation. So, I don’t want to rely on demand-pull inflation, because I’m not entirely sure when the world economy will be back and we will receive demand-pull pricing. But, you know, I can say that there would be cost pushing at the current market price. And as you pointed out, being in the first quartile, you are comforted by the fact that the other 75% of producers are in a worse spot. And that, you know, I think if you go back to fundamental economics, you will turn off quite a lot of production and the price will respond before you ever get down to the bottom quartile.

Matthew Gordon: So, a lot of the things you’ve talked about today, it seems very, very positive. As you know, you are just at a scoping stage; there’s a lot of things that got to go right between now and the end of 2022. But is there anything that’s making you nervous in any of this? Are you seeing anything in the European economy which makes you nervous? Your partner?

Chris Reed: Once you take the mine out of it, the feedstock, the first 10-years’ feed stock exists above ground today. It is actually improving as the snow builds up on it and then melts every year until we get to the stage of starting to process it. We will leave the material in better condition than when we found it. I can’t see from a, you know, a holistic or an altruistic perspective how this is not a win-win for every stakeholder. I just can’t, you know, I think it’s one of the few projects I’ve ever seen in my life that, you know, you will genuinely know you will be leaving somewhere in a better condition than you found it, and be able to make some money. And I think, you know, we’re blessed if we can remediate something and earn a good return from it.

Matthew Gordon: No, I think that’s true. We’ve been, it’s being again, you know, a handful of tailings companies, mostly on precious metals and so forth, and PGMs, but I think that, again, coming back to that whole ESG component – I do agree with you there. And I think that’s going to reflect in the share price when they’ve kind of got things going and they’ve got into production. That’s why I was asking a question; between now and getting into production is there anything that kind of sticks out as a hurdle to be got over or something to be addressed?

Chris Reed: Yes, look, I think we were not familiar with operating up in Sweden. Our partner, Critical Metals, has been operating since 2007 and has had a number of projects. It has extensive contacts on the ground and operating around that area. And without them, we would not have ventured to expend capital in the evaluation of this opportunity.

Matthew Gordon: So, if we look at SSAB, obviously a huge, billion-dollar operation. Billions of dollars of operation there. They’ve got lots of feed stock: 180,000t p/a is significant. Is there room to do more with them? Have they got more stocks elsewhere? I mean, are those conversations which are happening, assuming you get over the line with this one and you prove that you’re, you know, you can work together?

Chris Reed: Yes. I think when you’re entertaining, or you’re entered into an agreement and it’s a new relationship, you know, we’ve not interacted with them before. And so, I think as we go through our studies and meet our timelines, and our interactions which with our partners are very frequent, then you build up the rapport. And I’d like to think that we are comfortable with how we operate and our history in the industry. And they have been operating in Scandinavia for a very, very long time. And I think if we perform well and they perform well, I can’t see why you wouldn’t look to deepen your relationship.

Matthew Gordon: I’m really interested to see how this thing moves. And I think the next date down that you talked about was the Pre-feasibility by the middle of next year. So that’s the next thing that we should be looking for. Is there anything in between now and then that’s worth being aware of?

Darren Townsend: I think as we progress with our drilling activities on site and recover more material, I think as we get results from that drilling, and results from the laboratory, I think we will be able to keep the market informed of our upgrades.

Matthew Gordon: Well, I mean guys, thanks for that. I’m just interested because you do have a number of projects on the go. Are you juggling things here? Or do you think that you’re…do you feel relatively in control in each of those? Because we’ve mentioned, obviously the Titanium, you’ve got the battery recycling, you’ve got this project, you’ve got Nickel, you’ve got some great projects in the portfolio. Do you feel in control?

Chris Reed: Absolutely. I mean, that’s why we’ve got dedicated teams to each one of the businesses. And we’ve got partners for each of the businesses. And then we know our skill set. We know what we do. We take successful R&D outcomes. We take successful exploration projects and we try to take them so far and then we want to monetise them with strong partners who bring operating and financial skills.

Matthew Gordon: Yes, it’s interesting actually, because again, you’re not short of cash, like say, it narrows down at about USD$100M. But when do you think this rerate moment comes? When do you think people will recognise each of the projects in their own right and then give you some credit for that? Because I know it’s early days, and you could segue from being a minor to be a project developer, and perhaps there’s a period you’ve got to go through, but how quick do you think that rerate will come?

Chris Reed: Yes, look, I think certainly the nearest cashflow on the horizon is the battery recycling joint venture. So, you know, the catalyst is there where you’re partnering with a multibillion-dollar company. We own what would be the largest combination of beneficiation, or shredding plant for Lithium batteries in Europe. Part of that has arrived already in Germany. The rest will shortly depart the US and we will have that assembled in Germany ready for operation. I think perhaps towards the end of end of this year, we have had obviously a couple of months slippage from COVID, you know, putting that partnership, which is really SMS commercialising what has been a great outcome in our R&D program, coupled with the fact that we already own what would be Europe’s largest front end, and then putting economics into the margin or the, sorry, the margins into the market, will help it be valued. And we’re looking to get to an FID for this project in 2021.

And so, you know, that gives the market a lot more confidence. We can actually make money and increase our balance and worth. And then you’re having a look at, 2021 for the battery recycling, and then you’ve got 2022 for the Vanadium recovery project. And then you have 2023, you know, you can have the Lithium hydroxide refinery, because you want production there to be delivered in about 2025. You know, Barrambie is a project that has its mining and construction approvals, and we are just waiting for the market so that we can secure an offtake that would underpin development of the project with the Nickel exploration. Nickel is almost like Lithium, we say that you’d want to be starting to deliver into the back half of this decade. And so, we are in the process there. We’ve got 11 Nickel sulphide resources. We wouldn’t mind adding to that a little bit. And then what we can have a look at is moving that out of exploration into a, perhaps a dedicated, listed vehicle for the benefit of our shareholders, and put a development team to go through the evaluation and multi-year evaluation so that they can look to make an FID and to deliver into, you know, when we think the market is right.

Matthew Gordon: You’re stacking them up, Chris, you are definitely stacking them up.

Chris Reed: We have got a fantastic portfolio of projects. Now, varying levels of capital intensity, and varying levels of return on invested capital for sure, but all good projects. And, you know, we like to make money and share it with our shareholders. You know, that’s being realistic and partnering and getting your money back early and taking the risk out has enabled us to deliver an excess of USD$55M back to the shareholders in 5-years. Now, there’s not that many miners that can do that, and it’s something that we pride ourselves on.

Matthew Gordon: Yes, well, it’s a nice way to finish the conversation. Dividend-paying, fully funded, ESG compatible. Multiple projects stacked to deliver over the next 2, 3, 4, and 5-years. So, great job. Let’s stay in touch guys. When there’s something to say, I’m sure there will be; you have got so much on. So, I appreciate your time today.

Chris Reed: Thank you. Thanks very much, Matt.

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#13 Uranium Investing Made Simpler – Brandon Munro (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (30.06.2020)
  • Market Cap: A$39M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors.

Uranium Market Commentator & Bannerman Resources (ASX:BMN) CEO, Brandon Munro gives us an exclusive run through on the World Nuclear Association (WNA) Nuclear Fuel Report – Extended Summary.

This is the first document of its kind by the WNA. The summary lays out the nuclear fuel cycle and macro thesis for the need for nuclear (and why uranium investors should feel comfortable), in easy to understand format and language. And most appealing is the plethora of charts, tables and diagrams to make the numbers easy to access and extrapolate. Good work WNA.

As ever, Munro masterfully breaks it down so that we can appreciate the moving parts and why the Extended Summary has been put together like it has. Munro was also co-Chair of the Demand Side Sub Group and contributor to the Fuel Report and Summary. Good work, Brandon Munro.

We Discuss:

  1. WNA Report: What is it and What’s its Purpose?
  2. WNA Expanded Summary: A Long-Time-Coming Tool For Investors
  3. Giving Nuclear Energy a Voice: Conservative Promotion Based on Past Experience
  4. Recent Events’ Impact on the Nuclear Space: Time for the WNA to Step Up?
  5. One Tool for Many Users: Who is The Target Audience?
  6. Can This Report Hold an Impartial and Balanced View on the Space?
  7. Hope For Harmony: Lack of Investment Needed for Nuclear to Shine

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon, how are you doing?

Brandon Munro: I’m very well. How about you, Matt?

Matthew Gordon: Well, I’m a bit excited. I’ve seen this report this morning from the WNA and I suspected that you would know a thing or two because you’re one of the co-chairs of the Demand Committee. So, this is the WNA putting out an expanded summary of their report from last September. So, it’s for a point in time, up until that time. There are no new data points in there from September to now, but it looks pretty exciting to me because it seems to be quite a nice summary of you know, what’s going on in the supply-demand side of things in this market.

Brandon Munro: Yes, it’s just hot off the press. We’ve been working on it behind the scenes for some time, but now it’s just been made public. And for people who haven’t followed the WNA’s Nuclear Fuel Report, it’s put out every two years and it looks in detail at the whole nuclear fuel supply chain. So, there’s a demand subgroup which I co-chair, and that determines what the demand for nuclear fuel will be, in this case from 2019 out to 2040. And then it looks at the different aspects of the nuclear fuel supply. So, there’s Uranium supply, conversion, enrichment, fabrication, and it finishes off with a little bit of discussion about how they all come together with supply and demand graphs, which I think are some of the most interesting aspects of this report for investors in this sector. So that’s the document that comes out in September and it’s available first of all, to WNA members and otherwise it’s available for purchase at a price that I think is very reflective of its value, but it’s not particularly accessible to, for instance, retail investors. It is something like £800. So, it’s quite an impost on a retail investor trying to get behind the information there.

Matthew Gordon: Okay. But you’ve now decided to put out this expanded summary, which covers most of the, I mean, not all of the juice has been given up on this, on the main report, but you’ve highlighted and gone through the micro-ecosystem that nuclear and Uranium inhabits. And I actually think you guys have done a good job. I mean, for someone who is coming new to this, whether they may just be interested parties or investors, it’s a really concise summary of that ecosystem. So, I think, well done for that. I mean, I got asked the question, so, it’s nine months later, so, 1 – why does it take so long? And then 2 – what were you hoping to achieve with this document?

Brandon Munro: Yes. So, look, first of all, the credit needs to go to WNA Secretary. They are the people who have done all of the heavy lifting. As you know, I’ve played a role in the report itself, as a member of some of the committees and co-chairing the demand committee. And I also played a review role and a little bit of touch ups on this summary. But the hard graft has been done by WNA in August. Olga Skorlyakova in particular, so all credit to her and the team there.

So, it is staggered, I’d say. I wouldn’t necessarily concede a delay because it has been intended to be that way. What WNA were trying to achieve is that the main report, in all of its detail and glory, is available to members and those who are prepared to pay for it. And obviously there is media and others who receive complimentary copies. And then this comes out with a staggered approach so that the information is available for free without diminishing the value proposition for the main report. As I say, for members and those who are paying for it.

In terms of what it’s achieving – well, it’s the first time that WNA has done this. So, we’re feeling our way a little bit. Some of the things that are motivated initially with the concept when myself and Olga and some others were throwing around ideas as to how we can add value to the main report, was for the investor community, which is one of the audiences that the Nuclear Fuel Report is designed for, what it enables is people to get behind the key graphs. So, the key graphs have made it into the public domain through WNA presentations, and you would have seen some on Twitter and some companies that picked up the key graphs in their own promotional materials. So, the Bannerman corporate update, for example: Uranium 2020, that’s on our website. That includes one of the graphs. And it’s very useful for us, but it’s harder for people, or it has been very hard for people to get behind what’s the methodology? What are the three scenarios and what’s behind them? How exactly has WNA gone about constructing the supply side, constructing the demand side? What’s the thinking behind why some projects are in one category and other projects are in another category? And for the people who really want to get technical, there’s quite a lot of discussion about load factor methodology, and exactly how WNA builds up their demand projections. So, it’s most of what you would need to be able to construct a model. Now, if you buy the full report, then you can of course check the WNA numbers at a granular level against your own model. But for somebody who’s looking in detail at the space, this is now a fully accessible and free version that they can go back to.

And whilst it is nine months late, or staggered, as I’m prepared to say, look, we’re talking about a horizon that goes all the way out to 2040 so I don’t think its lost value because of that. You know, people aren’t accessing this information and using this information to understand where nuclear is at in 12 months’ time. This is the industry’s view for 3 different scenarios as to where nuclear can be at all the way out to 2040. And that hasn’t lost any relevance through the passage of that time.

Matthew Gordon: I hear what you’re saying there. And I like the fact that it’s the WNA for the first time making more information accessible. That’s great. And I like, I particularly like sharing the methodology by which they have created these different scenarios for nuclear electricity generation. So, all that is good and to be commended. You know, my notes about the WNA, they are, this must be quite a move for them because they are quite conservative in terms of approach to the market. If I look at the way that the renewable sector comes and bashes them regularly, and there’s no kind of repost from nuclear; they are a kind of a quiet voice and perhaps I’d like to see them turn the volume up somewhat, if I’m honest. But how is that affecting their ability to promote nuclear? I mean, do you think that this document is the first of many, or a renewed, or invigorated approach to getting the story out there? Is that also the point of this document?

Brandon Munro: No, it’s not designed to be a point of the document. The WNA, they are very graceful and poised in the way that they approach things. And you’re not the only person who’d like to see the volume turn up a little bit. And bearing in mind that the nuclear sector is one of the most unfairly attacked sectors of any industry in the world. And the people who have been in this industry for a while, they’re just punch drunk to it, to be quite frank. So, increasingly, I think you will see advocates from both inside and outside of the nuclear industry, having a bit more to say about where renewables cannot provide the entire solution, and where it needs to sit side by side with nuclear. But we are not anti-renewables. That’s a point that needs to come across. And that’s a lot of the reason why WNA doesn’t want to be perceived as being an us and them type thing. It’s an us together situation. For the planet to deal with climate change challenges and all of the implications that come with that we need to have every available energy source, particularly the carbon-free energy sources like nuclear and the low carbon energy sources like renewables, they need to be working hand in hand in the appropriate circumstances and in the appropriate places. And the opposition that I’ve got to a lot of the renewables’ lobbying, is the ill-conceived and dishonest advocacy around renewables being able and capable of providing a hundred percent solution in all situations. It just isn’t true and it’s totally unfeasible. But WNA, as you pointed out, they are a lot more gentle about how they go about things. And so, they’re more careful about making those statements in that way.

Back to your question, this is not designed to be a lobbying document. It’s not designed to be an advocacy document. It’s designed to be a document that puts the facts out on the table as best as the industry can produce those estimates and those facts. So that’s why when you read through, you made the comment that you found the explanations quite helpful; that’s what we’ve tried to do with this document. And WNA does put out some excellent publications for those looking for a brochure that they can give to their neighbour who is a bit concerned or confused about nuclear. There’s an excellent one called The Sleeping Giant that you can download from their website. There is a bunch of other material there. And someone looking for a policy document or an advocacy document should go to some of those. This is about information. This is about economics. And that’s the value of the full report. And to a slightly lesser extent, that’s the value of this expanded summary in a more accessible form.

Matthew Gordon: Okay. So, I think we’re agreeing with each other. It’s a great explanation of where Uranium and nuclear kind of sits today, using the data from September. So obviously it’s nine months later, quite a few events have happened since then, which have affected the market. Does the WNA feel that it should update its data, given these quite extreme and extraordinary events, and what it could mean, certainly on the supply side? Because as an investor, I’m looking for guidance from someone. I kind of like that there is a kind of sober approach, a conservative approach from the WNA to this, because I hear lots of commentary from, they could be funds, interested parties, commentators, company CEOs, and they need to tell a certain story because their model is different, right? They either need shareholders to believe what they’re saying, or they need to raise capital, and they need to believe, or people to believe, that this market is going somewhere soon. The WNA numbers, along with some of the trade people are, I think, a little bit more realistic. So, I like this, but don’t you think in light of what’s happened recently that WNA should be leading from the front: talking about some of these events, what it’s going to do to the numbers? This nuclear report comes out every 2-years, don’t you think it’s time for it to, you know, step up and say, well, look, everyone, don’t worry. Things haven’t changed that much, or they have? But at least give some kind of guidance.

Brandon Munro: Yes. Look, you’ve got to ask yourself, what is the WNA role here? This is one of the functions of the organisation. They’re not a full-time information provider or consultancy like a Platz or one of the other S&P, or one of the other specialists in the industry. And the moment WNA starts updating this information for a particular event, well, where do they stop? You know, where do you draw the line as to something that’s so significant? So, I’m not advocating within an inside WNA at all for updating. I think people just have to be patient for the next edition to come out. However, having said that, one of the advantages of now putting out this expanded summary with a great degree of additional detail versus what’s in the public domain, is somebody can get behind these numbers and formulate in their own minds their own adjustment for some of these more dramatic events.

So, my expectation personally is that the COVID-related supply disruption will take about 20Mlbs out of supply for this year, and as per our discussion last week. I think that could well go up if we see certain disruptions extended beyond their initial estimates. So, you can look at the key graphs on supply and you can quite easily understand what 20Mlbs less for this year is likely to do to that. And you can get behind the methodology. So, whilst it’s not quite handing over a model so that you can just plug in the new numbers yourself, it’s pretty obvious looking at that, what that supply disruption is going to do. And I think that’s the value of this tool for not only investors, but all of the other stakeholders and members of the audience that this is trying to reach.

Matthew Gordon: I buy that. I think it does make it accessible from that point of view. And you can do some very simple maths there. Because there’s different types of investors going to be watching this, from those who are not yet invested but are slightly curious about this noise that Uranium market is creating. But they won’t quite know how to go about it. I think the charts in here are, well, it’s great. It is generous to share that with the public for the first time. Great. There’s going to people who want to be told what to do. There’s going to be people who use it and sort of reach around and do their own numbers. And some of these newsletter writers can produce some interesting content around that based on some real numbers. And then there’s going to be sort of other market commentators who, as usual, have their own view on where this is going and their timeframe. So, yes, I think it is a very interesting document. I did want to speak to you about what you set out to try and achieve with it and whether, well, here’s the question – do you think you’ve achieved everything that you wanted to achieve when you started writing this?

Brandon Munro: Well, I don’t think we can answer that until we’ve had some feedback. A large part of what WNA was trying to do with putting the expanded summary out was to provide information to people. And if the feedback starts coming back that it’s very helpful and it’s useful, well, then we can get a lot closer to saying, yes, we’ve ticked those boxes and we’re happy with the extra effort involved, which of course is quite substantial. So, let’s wait and see. I’m happy with the end product. And I hope that it ticks those boxes. But a large part of it is getting eyeballs onto this document, getting it explained in addition to the text, and getting people to go through it and start a conversation around it.

Matthew Gordon: But that’s what I’m trying to get at here. Who did you design this to go to? We have talked about a bunch of different audiences, like I’m focused on investors, right. But there’s obviously a wider audience that perhaps that are there help or influence, or you know, update with this. All those different audiences will have different needs. So, you know, when you write these things, you’ve got to have in mind who is reading it and what you think they want from it. And then, you know, getting feedback. Because there are 2 ways to come at it:  you can talk to them and say, what do you need from it? And write it to suit that. Or you can say, actually our remit is just this. We are just providing raw data for you in a slightly different way. And all of you will get something from it, but not any one individual will get everything they need from it. So, you know, getting feedback is kind of, it’s a little bit horse before the cart, isn’t it?

Brandon Munro: So, it’s a good point, because this is not a document that was written or prepared primarily for investors, and that on the one hand, is very helpful because it makes it impartial and it makes it balanced. And it makes it a document that offers you something different to what you might get from a bank or someone else who is advocating on the investment side in the sector. It is written more for members to understand what’s happening in the industry and do their own planning according to trends and form their own view. It’s written for policymakers, both within countries that already have nuclear power and countries that are considering nuclear power. It’s written for journalists to help straighten out a lot of the facts and hopefully address some of the mistruths about nuclear power. It’s written for academics, it’s written for students, and it’s written for the nuclear power supply chain. So if you’re a company who makes widgets and you’re hoping to sell X number of these widgets to a company that makes pipes, that’s hoping to build nuclear power plants, well, this is probably the best document out there for someone like that to understand what their market is likely to look for.

So, it cuts both ways. It has not honed in on what an investor wants to understand from this and what an investor requires, but equally you’re not getting the varnish that you do on many reports that are written for investors. And your point about balance and being impartial; I think there’s a point for people to understand here: this is a very balanced document because it has been written by committees who are predominantly composed of utilities on the one hand, who have got an interest in ensuring that this doesn’t overstate some of the dynamics for Uranium. And on the other hand, there’s a number of people from the supply and the development side who have got an interest in making sure that the document doesn’t understate the case for Uranium. And the same can be said for conversion and enrichment and fabrication. So that tension, which I know well after chairing one of those committees, that tension has ensured that we’ve come out with a really balanced outcome and something that can be relied on as a very good starting point for investors. And more sophisticated investors will then go and try and apply their own judgment having full understanding and knowledge of what the methodology is behind these numbers.

Matthew Gordon: You kind of answered my next question, which was a to be, given that the clue is in the title; it is the World Nuclear Association, you know, everyone talks to their own playbook. Do you think that you genuinely achieved an impartial and imbalanced view of the world, of nuclear, as people should see it? You know, I say this in the context of, I don’t think you are combative enough compared to everyone else, and compared to gas, compared to, you know, other forms of renewable you know, even coal, quite frankly. These people have lobbyists and they are talking a very aggressive game and fighting their corner. We’ve seen that played out with some of the conversations that we’ve had with utilities who are multi-energy source utilities. Nuclear seems slightly humbled by its past, or slightly nervous about its past in having these conversations where because of events like, well, not necessarily Fukushima, but certainly Chernobyl, or Three Mile Island, et cetera, you have to apologise slightly before you start a conversation. Is that the way it feels?

Brandon Munro:  That is very Canadian. Sorry. I just couldn’t resist it. They’re our closest cousins on humour, the Canadians to the Australians.

And you’re right. So, to answer your question – yes. I do think it has come out in a very balanced and impartial way. But remember, we’re dealing with the future here. It will necessarily be wrong. That’s the only thing it can be. We’re hoping it’ll only be a tiny bit wrong because by and large we’ve made solid assumptions, and more importantly, people can understand those assumptions. And with any economic forecast, as long as the assumptions are stated correctly it’s up to the reader ultimately to interpret those assumptions, see if they agree with them or not and make adjustments. So, it’s a forecast. It is delving into the future based on a set of circumstances. But each of those three sets of circumstances, which we’ve grouped into the scenarios: the reference, the lower and the upper scenarios, they are based on realities, forward-looking realities. The reference case is based on the current reality not improving and not getting worse. And the current reality, as we all know for the reasons that you just talked about, particularly since Fukushima, has been tough on the ground, tough with slow policy changes, still a fair bit of taboo at a political level. Communities are just starting to come around. But to be fair, nuclear just isn’t getting the chance to show even a small fraction of what it’s capable of doing for the world and achieving in the climate change challenge. So that’s the reference case. The lowercase means that those demands get harder and the reality is a more difficult reality. And then the uppercase assumes that the world and the nuclear industry makes improvements at that. Improvements in a policy, improvements in economics, and achieves at least some of the things, positively, that the industry is trying to achieve. But it is grounded in reality. It is not a wishful document. It is not an aspirational document. It’s not a, but only if we could achieve this, or with all the will that we could do this. So I contrast it very, very heavily with many of the documents and policy rhetoric that I see in some of our competitive forms of industry.

There are other both industry and non-industry groups who are putting out much higher scenarios for nuclear demand growth, you know, including the likes of IPCC, IAEA, WNCE. And in fact, the nuclear industry has a harmony project which is not based on moving from where we are with the current reality, that is based on the industry changing, or having an influence on the reality in a positive way to enable it to make a bigger contribution to climate goals. So, I do think it’s impartial and I do think it is grounded in reality, but we are talking about the future so it’s necessarily never going to get everything right.

Matthew Gordon: Okay. I agree with that. It is grounded in reality. The data points are excellent. And the way that, again, come back to the charts, people should look at this document, look at the charts. You know, it allows you to very quickly see the state of the nation, as it were. There was a flicker, there was a moment in this document where I thought there might be some selling. There might be some upside that, you know, some sort of ray of sunshine. And maybe it’s a discussion for another day, but you talked about harmony. Okay. So harmony is a, it’s kind of hope. It’s a moment of hope, and you go, well, can nuclear provide 25% of global energy needs at some point in the distance, right? And then the hope was crushed because they said, well, we’re going to need to treble our current production, infrastructure and so forth. In the same breath they then talked about the lack of investment in Uranium mining since 2016, actually 2014, to today. The lack of investment in any of the required infrastructure to get the Uranium sector, let alone the nuclear sector, moving again, which is obviously the supply side of the document. And I encourage people to look at that because that’s fascinating; the drop off in investment and the access to capital to do that, as we know it in today’s market. And then it goes very quickly onto the billions and billions of dollars which are going to be needed to be raised, and the infrastructure built in a market, which is again, struggling, I think, in the Western world and the places that we talked about. You know, USA and Europe investing in new plants or upgrading plants, et cetera, compared to what’s going on in China, or even the middle East, quite frankly. So, I just thought there was a moment there where the WNA might try and propose a way forward, bring other associations in, energy associations in, governments in, and try and get some sort of collective movement. But that I know is a big task. It would be a big effort required and maybe it’s not within the WNAs remit. But I think it would be really interesting to talk about between you and me, what we think it would take to deliver harmony, as described by the WNA.

Brandon Munro: Yes. And there’s a lot in that. There really is a lot in that, and there’s a lot that’s being done. This isn’t the document for explaining fully what needs to be done with harmony. And I think I’m glad that you asked me and we discussed the audience before you asked this question, because whilst you said that we are crushing hopes with the way that that’s been written, it is also a little reality check for policymakers that if you want to deal with climate crisis, these are some of the things that we need to be dealing with. We need to be, as policymakers and as global citizens, we need to be addressing some of these things that make nuclear more capable.

We know that the technology is there to be able to provide 25% of the world’s electricity. We know that industry can respond. It just needs the same build rate of nuclear power plants that we had in the 1980s. That can definitely be done. It is policy enablers predominantly; it is levelling the playing field. It is ensuring that there is, for example, some of the design specifications there, you don’t have nuclear power plants needing to have one design for the US, another designs for California, another design for Canada and another design for France, et cetera, et cetera. Those sorts of things can be addressed relatively easily in the context of the challenge that the world is trying to respond to. So, let’s pick that up in a separate conversation. It is a good one.

And the other thing that you said that I’d just like to pick you up on is you said, ‘the little ray of sunshine with harmony.’ I reckon you need; I know that you’ve only had this for a very short period of time, this document, but go back and have a look at those graphs. If you are a Uranium investor and you’re looking for sunshine in this document, you’ve got enough there to get sunburned Australian-style, really. Like you look at the concept of unspecified supply and how much Uranium is going to need to come on, particularly from 2025 onwards, by 2030, by 2040, there is a lot to be excited about as an Uranium investor, set out in an impartial, balanced way from deep within the industry itself with a whole bunch of utilities sitting across the table who’ve got no interest in paying more than they need to for Uranium. There’s plenty of sunshine here. I think maybe what you’re referring to with the harmony is that it’s gone beyond sunshine and it’s, you know, you are looking for the sky to open in a very heavenly way. And if we can achieve harmony as an industry, well, that’s exactly what will happen, I guess.

Matthew Gordon; We shall see. We shall see. You know, congratulations to everyone involved in the report. I had to rush through it this morning to be able to get you on the line to be able to get this out today. I suspect this will be our weekly catch up because it is a good meaty subject. I’d love to come back to the harmony component. I think I’ve learned a few things in there, just in terms of, you know, the order of play, quite frankly. And honestly, the charts are fantastic. And to be sharing that with the public for the first time, I hope it’s the first of many. And as you say, I’ll be sure to give you my feedback once I’ve read it again. Because like I say, I would love to see WNA kind of doing more than it is doing now. Isn’t that the name of the game?

Brandon Munro: Yes, look. I think you have got to be a bit fair. They are doing a lot and they’re doing some great work at a policy level.

Matthew Gordon: I know, but you’ve got to ask for more, if you don’t ask for more, you won’t get. So, they can choose not to, we’ve got to be demanding as investors.

Brandon Munro: We always want more.

Matthew Gordon: Exactly. As investors we always want more. You should know that by now, Brandon.

Brandon Munro: Okay. More to come. I will look forward to that.

Matthew Gordon: I will look forward to that. Thanks for making time to run through this. We will catch up with you next week. Maybe on Harmony, maybe on something else. Hopefully there is more news and more feedback on social media. And once everyone’s had time to digest this over the weekend.

Brandon Munro: Yes. Terrific. And look, it’s been wonderful to come on, and I think, you know that I’m in no way a spokesman for WNA. That’s not my role here. I’m an industry participant who is privileged to have been quite involved in the process and just passionate about what I’m doing. So hopefully I haven’t overstepped the mark there or crossed any lines. But it was great to talk and great to talk about something that’s been quite a big part of what I’ve been doing for the last couple of years.

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#12 Parallels with Last Uranium Cycle Mean Consolidation – Brandon Munro (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (30.06.2020)
  • Market Cap: A$39M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors.

Uranium Market Commentator & Bannerman Resources (ASX:BMN) CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing. How do new investors in uranium play this cycle & which companies are set up to win?

We Discuss:

  1. New Entrants: Parallels With the Last Cycle
  2. Dangers of Believing in Promotional Material: How NOT to be Left Holding the Baby
  3. US Government Initiatives for SMR’s: Uniting Various Energy Sources
  4. Spot Price: Volatility Incoming?
  5. Kazakhstan and Significant News on COVID-19

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon, how are you doing, Sir?

Brandon Munro: Yes, I’m really well thanks, Matt. What about you?

Matthew Gordon: It’s all good. I’m liking the backdrop. So, you’re obviously up at the cottage again?

Brandon Munro: Yes, yes. Getting a few more things done. So, we’ve got school holidays coming up in a couple of weeks and there aren’t a lot of options as to where you can go from Perth, so we’re just very lucky that we’ve got this one. But it comes at a price; my wife has said that the kitchen wasn’t quite up to scratch. So that’s what we’re doing at the moment here.

Matthew Gordon: Oh boy. Oh boy. We’ve all had that conversation, haven’t we? We have all been there. I see the river from there – that’s absolutely gorgeous. You’re a lucky, lucky, man. And I bet, can you smell the eucalyptus?

Brandon Munro: Yes. And some of the gums are in blossom at the moment so there’s almost like this gentle honey smell around. It’s been a beautiful day today. It is been embarrassing to call this winter to be quite frank. It is a nice sunny day and really lovely down here. So, you’re right – we are very, very privileged,

Matthew Gordon: Privileged indeed. Well, look, we’re here for our weekly catch up. It feels like it’s been a quiet week, but no doubt I think we’ll find one or two things to talk about. I was particularly interested in some of these new entrants coming into the marketplace. There have been a few fundraisings as well, little bits of money here and there. And some of these new entrants coming in and, you know, and I’m not going to name names here, but I am kind of interested in the parallels between the last cycle and this, where we saw lots of young, new excitable start-ups looking at the Uranium market and going, Oh, maybe there’s some money to be made here, and not necessarily focusing on the quality of the asset or the target. I think there are some mistakes that are going to be made. And I think, you know, what we’d like to do is maybe help investors recognise what good and bad looks like and not make the same mistakes as last time around.

So, I mean, are you seeing that? Is that your sort of sense of what’s happening in the marketplace? So, with these new entrants coming in, that there is some kind of ground swell, there is the ability to get financed. There is the ability for these companies, who perhaps don’t necessarily know what they’re doing, to kind of enter the market and position themselves as an option?

Brandon Munro Yes. I mean, that is clearly what is happening. Usually what happens in a cycle, of course, is the longer you run in the cycle, the poorer quality assets not only make it to market but succeed initially in market. So, we are at the beginning of that, and time will only tell how these assets are in terms of quality and longevity and whether they can make it. But it is the early part of that run. What is interesting is some of the names behind the company. So we’re seeing not only Uranium tragics bringing product to market, but we’re seeing some in ASX, we’re seeing some big names in terms of promoters, brokers who play right across the commodity spectrum, who have had big wins in a number of different commodities: precious metals, base metals, minor metals, even tech. And clearly, they think that now is the time for them to start positioning in Uranium, because they’re putting their energy behind these backdoor listings and start-ups. So, on the one hand, it says very good things about the market. And on the other hand, it is obviously getting Uranium out there, giving investors a lot of choice. And they’re going to need to find ways of exercising that choice wisely.

Matthew Gordon: Yes, I think that’s right. I guess what I constantly try and make people aware of, or slightly rail against, is the promotional component to these stories. And that’s not to say some people can’t make some money through this, it’s just a pure promotion play, but unfortunately, it is usually the wrong people and someone at the end of it gets left holding the baby. You coined my phrase that I use regularly. And you know, it’s got to come back to fundamentals, surely? I am looking at some of the assets that people are purporting to be able to build a company around, they just don’t stack up. And not only that, but something which we got a lot of feedback from the conversation we had last week, which was the point that you made: that the skillsets necessary to run Uranium companies are in short supply. It’s not easy. It’s not mining. It’s ‘mining plus, plus, plus’, I think you once said to me, where you’ve got to know what you’re doing if you’re coming into this space. So, I think people suddenly realise the importance of what you said there. And I think again, unfortunately, I’m seeing a little bit of that over the past two to three weeks.

Brandon Munro Yes. There’s a lot in that. And I think we talked a lot about the special challenges and the complexities of Uranium last week. And for anyone who didn’t hear that, it’s really worth going over again. The promotional side is interesting as well: used incorrectly, or perhaps too aggressively, there’s something quite distasteful about over-promotion, but it does have its role as well. We’ve been in a bear market. Many Uranium companies are capital starved at the moment. There’s a lot of developments that aren’t going forward because the cost of capital is just way too high. And we’ve talked before about how fortunate Bannerman is and I am because all of that work was done during the last boom. So, all of those thousands of metres of drilling were funded at a much better cost of capital than what we could ever hope for right now.

So, good promoters and people who can really bring a lot of attention to a stock and good support behind a stock, they do have a role because they are going to enable projects to move forward a bit faster and at less cost to shareholders than if they’re sort of limping along and making the best of the current market conditions. So, you know, I’m slow to criticise good promoters. It is more about how they do it, how honest they are about it. And as you say, whether there is a real end game, or if it’s all just making sure you jump out of the train before it hits the cliff.

Matthew Gordon: Well, there’s the skill, right? There is the skill, if you want to play that game. I personally, you know, maybe it is a necessary evil, but it does leave a bad taste in the mouth. And, you know, I, again, a phrase that I’m going to repeat, because I know we’re going to be dealing with this soon, which is: getting the timing right is nigh on impossible. I’m not sure anyone has got that scale, whether they’re trying to find the bottom or the top, it’s hard to do. But at the end of this peak, which whatever that ends up looking like, someone is going to be left well out of pocket. You know, it’s usually the retail guys. That is my constant fear and battle and, you know, desire to educate. So, I think, you know, I agree – necessary evil. Some are better than others, but promotion is something you need to be careful of because it has pros and usually many, many cons to it, in my humble opinion.

But look, maybe we should stay away from that and talk about some of the more positive things that have happened recently. So, there’s yet again more US government initiatives. And by that, I mean dollars being lauded about on offer. What’s your take on that?

Brandon Munro: Oh, it’s all good news. It’s all grist for the mill. And we’re seeing more direct involvement from the Office of Nuclear Energy and also the Department of Energy themselves. There are some very good spokespeople for the industry within those offices, which I think is really positive. And they’ve got a fairly steady news-flow in terms of grants, forms of support, other government initiatives. What is interesting is that it’s all focused on the downstream. So, 90% of what we’re seeing is focused on SMRs, on competitiveness of conventional reactors of the nuclear supply chain as such. And so, it’ll be interesting to see what they’ve got backed up for Uranium miners. And if we start seeing more of the news flow and for the front-end fuel cycle.

Matthew Gordon: Yes, yes. I mean, obviously it’s just a drop in the ocean compared to what’s needed. I mean, you know, we talk obviously every week and we’ve spoken to a few other Uranium market commentators who don’t necessarily buy the SMR, the US SMR initiative in terms of its ability to meaningfully impact the economics of the US, based on international sales, which I thought was really interesting. In fact, I thought it was so interesting that after you, we are speaking to a guy called Ben Hurd. Who’s an eco-modernist. Okay. That’s a phrase I’ve never heard before. And basically, they’ve done various studies and reports, and it’s a quite interesting group actually, who are talking about can we actually ever achieve zero carbon energy, globally? And you know, there’s lots of people who advocate yes, and lots who say, no. Not ever will that happen. And they looked at and they studied, I think, over 34 different reports from various large groups, and made their own conclusions. But I’m going to find out about that. But one of the things that he talks about is SMRs. So, we’re going to maybe do a little deep dive there because he seems to know quite a lot about it. Maybe it is worth exploring where the US sits today and, you know, whether its hopes of regaining its seat at the table using SMRs is a likely possibility.

Brandon Munro: Yes. And look, I’m delighted that you’re talking to Ben. He is an incredibly intelligent individual. He has done a huge amount of work across the entire energy sector. He is an environmentalist at heart. A very good advocate for SMRs in the Australian context. And anyone listening should follow him on Twitter – he talks across the spectrum of environmental social issues, which obviously is extremely important for our industry, that we have strong credible pedigreed environmentalists who see the virtues and the value of nuclear energy. And given that he’s operating within the Australian context where conventional reactors have effectively been ruled out, it’s wonderful to have his focus on SMRs. So, well done on reaching out to him, and I really look forward to seeing what he’s got to say.

Matthew Gordon: I’m fascinated. I mean, we read a couple of the reports that they produced. I mean really, really interesting. I mean, just unconventional thinking, and pulling people up as well, you know, because everyone talks their playbook, right? So, different groups create different reports, but it talks to their own playbook rather than genuinely in an unbiased way. And he’s looking at how do we deliver a smart energy nexus? I just thought that’s a kind of interesting way of looking at it. You know, because if I look at…I won’t name it, but a report, which I read where it talks about nuclear competing against other energy sources, and I was like, well, it’s not necessarily competition. I think there is maybe room for all of the above if you look at the energy forecast requirements coming down the line that I’ve seen. So, how do they work smartly together? Because I guess different geographies will have different abilities, you know? If you are living in Australia or Spain, maybe solar makes a lot of sense. If you are off the coast of Scotland, wind makes a lot of sense. And clearly nuclear plays a big part of this or should play a very big part of this going forward as well. So yes, it should be an interesting conversation. You obviously know Ben well, and yes, anyone listening to this should listen to that.

Let’s sort of talk about one other thing: with regards to the spot price. I mean, again, we said last week that it’s kind of in the doldrums, but do you see any kind of volatility in the price coming up?

Brandon Munro Yes, I think we will see more volatility. It’s very flat at the moment and there isn’t much volume going through at all. There hasn’t been a lot of momentum coming from utility buyers, but we are getting to the end of a quarter, we’re getting to the end of the month. And what we have seen in the past is the capacity for it to be volatile. Single market players, or a couple of market players acting with a sense of singular motive, can affect the spot price when there isn’t a lot of volume, and there isn’t a lot of buying on the other side. So, I’m watching for that, probably expecting that. And let’s just see how it goes.

Matthew Gordon: Yes, well yes, let’s all see how it goes. Okay, the last thing I want to talk to you about before we move over to the Crux Club members, is Kazakhstan. Two of the senior members of government have contracted the coronavirus, and two people who are quite relevant to the production of Uranium. So, what do you know?

Brandon Munro: Yes, look, this is really the most important thing to watch in the Uranium sector at the moment. And people who follow us each week will know that we’ve dedicated time to this topic every single week; following what’s happening in Kazakhstan with COVID. What is the likelihood of the Kazakh production disruption ceasing early? Ceasing on time, or being extended? And for the first time, I think we’ve got a fairly clear indication that the chance of an extension is significant. So, you’re right; there’s been two high profile members of the current and former Kazakh government who have tested positive. First of all, Nursultan Nazarbaev who was the founding president of Kazakhstan, former PM, he’s reported as now having COVID-19, or Corona virus.  He is well into his seventies, he might be 79 now, so the country will be very concerned about that. He’s still obviously revered in Kazakhstan. He only recently handed over power, probably less than a year ago. And so, there’s not only a heightened awareness factor in Kazakhstan at the moment, but there’s also a respect factor that will be playing a big role. You wouldn’t want to be the company announcing your return to full business if something unfortunate was to happen to the founding leader of the new nation. And now the other one is the country’s health minister, also is reported to have had COVID-19. And so, these 2 things, plus what seems to be a bit of a second wave really in Kazakhstan has led to numerous shutdowns and new measures. And it seems to be that they want to really curtail all forms of activity this weekend, and that has the potential to carry on.

So, we are only a couple of weeks away from the end of the three months that was initially prescribed as being the anticipated, or estimated period of production disruption, where wellhead development and so on, wouldn’t carry on. I would call it quite likely that we’ll see that extended or if it does stop, it’ll probably stop in a fairly gentle way.

Matthew Gordon: Yes, I think the Uranium bulls we’re quite excited by that news because it’s everything that they’d hoped. Because if the supply side of things carries on as it has been for another quarter, or another period of time, they’re counting the pounds which are missing from the market. They are counting on Cameco and others actually signalling their intent. And for utility buyers, we don’t know what they think. We don’t know what they think. Because I still hark back to the US utility numbers, which came out a couple of weeks ago, which kind of caught everyone on the hop. And I guess that they’re the most important ones, but I think generally for Uranium bulls, they’ll see this as a signal to be piling in. And I think that seems to be the noise that we’re hearing. It’s like, obviously we talked about earlier: new entrants coming in, the ability to get bits of financing away. There’s a lot more commentary in mainstream press. We’re seeing reports on TV. So, I think that the ground swell is there, it’s just still that lack of clarity on how, and when we start to see movement on spot price again, and what that does for equities?

Brandon Munro Well, that’s right. As I say, I can see things being fairly flat for the rest of this month There is no a particular timeframe in which I’d expect an announcement from KazAtomProm over this. So, there’s every chance that they’ll bide their time until next month when there’s even further clarity and they know exactly what’s going on. I know they have announced that they’ve returned to wellhead development, or announced that they haven’t, in which case the market will expect some level of guidance over how long they expect the extension to carry on for. And that’ll be the trigger that I think bulls will be looking for.

We have talked before about the compounding nature of any extension of the Kazakh production cuts, and I think that is really important for people. So, for anyone who’s tuning into our show for the first time, this is the important thing to understand: first of all, it’s been 3-months at the end of this month that production disruption has affected all of Kazak production, including their joint ventures. And what that means is that they haven’t been able to do wellhead development. In other words, the already acidified horizons that were developed 3 or 4 or 5 or 6-months ago, they’ve carried on with production. The pumps have continued running. They have still operated their recovery facilities. So, it was the work that was done between three and 6-months ago that’s been yielding the Uranium that’s continued to be produced and sold. And also, KazAtomProm – the main player in all of this who is the majority owner of these assets, they flagged that they could still comfortably ride through about three months of disruption whilst tapping into their inventories that they maintain as a producer. And that would have put them into a slightly more comfortable position by being able to work down their inventories to more manageable levels.

The moment we go over those 3-months, if that is in fact what happens, not only do these assets start reaching the tail of their productivity; in other words, the work that was done a few months ago, except for the very best of those assets, the recoveries will be starting to taper. They’ll be getting right down. So, the amount of Uranium hitting the recovery plant and then being able to hit the barrel will be tapering quite significantly at this point. Also, the amount of Uranium that’s capable of being delivered, not only by KazAtomProm, but by its partners will be tapering as well. So, we’ve said before that for the first few months, the market hasn’t really felt this production disruption, and it’s now that they will feel the first 3-months of production disruption and also any extensions which will compound on that.

The other thing to bear in mind is just the effect that it could have on the utilities, traders and other market players’ sentiment. They could look at 3-months and they could see that as perhaps absorbing some of the excess inventory that existed, producer inventory, absorbing a little bit of utility inventory that they could rely on to see them through. If we do see an extension, particularly if there isn’t very clear guidance as to how long that extension is going to last for, now there aren’t available producer inventories that can simply fund these disrupted pounds. It’s going to need to come from somewhere. And back to your question about spot price: well, in terms of Cameco, they will need to come from the spot market in terms of KazAtomProm, they’ve told us in public forums in interviews that in fact, if it goes much longer than 3-months, they’ll also need to consider coming to the spot market to buy the pounds that they can deliver into their contracts. And that’s not to mention the other joint venture parties who whilst some of them won’t need to buy in the spot market in order to deliver into long-term contracts, there will be a similar effect because they won’t have the pounds available that they can deliver into the spot market.

So, it’s a very significant time. It’s a very significant time to be monitoring what’s going on. And yes, I agree with you – the Uranium bulls are looking to start placing their bets right now at a time when we’re going to see probably another couple of weeks of equities under pressure for those investors who are investing purely on what the spot price is doing at this point. So, it’s a great time. It’s a great time to be watching. And for those investors, it’s a great opportunity, I think.

Matthew Gordon: I think it is a great opportunity. I think it’s great opportunity if you pick the right company and know what you’re doing, and don’t bet on this, you know, bother to maybe go through some of the transcripts of our conversations, that would make a lot of sense. Understand what you’re playing with before you put your money down. So, but yes, it’s definitely opportune times for sure. And to that point, I think, just for the viewers, we’ve managed to nail a date down to actually speak with KazAtomProm. That was something that’s been a long-time baking, but we finally managed to do it. So, we’re speaking to them in a couple of weeks and we’ll be able to talk to them about their strategy and what they think of the market currently. So quite excited about that one.

I think it’s time to move over to the Crux Club. We’ve got 2 quite exciting topics to talk about in there, actually. Two quite big things. So, we can say goodbye to our regular subscribers, and move over there.

Brandon Munro: Great. Thanks, Matt.

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#10 Brandon Munro – Uranium Geopolitics Starting To Influence Market Price? (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.03 (22.06.2020)
  • Market Cap: A$33M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors.

Uranium has always been very political. Munro covers some extremely important topics that retail investors can’t ignore.

Nuclear Intelligence Weekly interviewed the CEO of Kazatomprom, Galymzhan Pirmatov, in May, but it is only now receiving mainstream coverage. Munro discusses Pirmatov’s comments and sees the interview as an in-depth version of the UxC interview we have previously discussed on our platform. Kazatomprom’s team has created a complex strategy that looks very smart. It is positioning the company well for a new uranium bull run.

Moving deeper into Kazakhstan related issues, we talk geopolitics. We’ve previously discussed how much pressure Russia could put on Kazakhstan’s uranium production, but this week we touch on the opinions of U.S. uranium producers, who have become increasingly frustrated at Kazakhstan flooding uranium into the market at zero margin to keep the spot price compressed. They are demanding more transparency this time around.

Munro then touches on vanadium: he actually sees a more compelling national security argument under which a section 232 petition could occur than uranium ever had. Predicting the trajectory of the uranium price is far from an easy task; it’s likely to be very volatile. Munro isn’t forecasting anything. He’s still bullish, but he is aware of just how volatile global markets currently are.

What did you make of our interview with Brandon Munro? Did you enjoy his pearls of knowledge? Comment below and we will respond.

We Discuss:

  1. Nuclear Intelligence Weekly interviews Galymzhan Pirmatov: Opinions and Implications
  2. Uranium One Numbers: Our Take and Interpretation
  3. Kazakhstan’s Sovereign Wealth Fund, Samruk Kazyna, Sells Stake: Why and What Will the Impact be?
  4. Kazatomprom’s Dividend Policy Challenged
  5. Geopolitical Chess Game: US Rhetoric on Kazakhstan and Russia
  6. Potential Strategies for US to Assure National Security and Save Their Nuclear Industry
  7. Vanadium to Get a 232 Petition? Is it Necessary?
  8. Choppy Spot Price for Uranium: Predictions and Trends
  9. Peninsula Energy to Raise $40M: What’s Happening on That Front?

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon, how are you doing, Sir?

Brandon Munro: Well, Matt, what about yourself?

Matthew Gordon: All good here. All good here. Desperate to talk to you for our weekly catch up because there’s been a lot happening. Again. Geopolitics at work. So, some of the things that I have noted: well, let’s start with Kazakhstan first of all, because I think that the geopolitics is the theme for this week, right? So, and the impact it’s going to have on utility buying. And the little bit of update with regards to production as well. So, I think it was Nuclear Intelligence Weekly who had an interview, which was, I think, back in the end of May, but it’s only sort of come out recently with Mr Pirmatov, who is the CEO of KazAtomProm. Quite a few interesting points came out of there. So, first of all, what was your take on the interview? It seems quite smart to me.

Brandon Munro: It was a good interview. Yes, it was probably the next level of depth after the UXC interview that we talked about a couple of weeks ago. And we should tell everyone that this is normally subscription-only material, but fortunately KazAtomProm are putting it up on the media portal in their website, so good folks like us can go and look at it. So, good depth, good level of questions and indicating I think a very sophisticated, outward facing approach now coming out of that corporate team in KazAtomProm. There were some things that I think are important for the market generally to understand out of that. The first one that I found useful is that there has been a bit of speculation about what happens if KazAtomProm comes on earlier than the three months where they’ve had their reductions and their suspended well head development.

So, I think as at 22 May, when this interview was first recorded, I think they have well and truly put that to bed. He said that you are right in assuming that it’s going to be throughout the second quarter, and he certainly left the door open for it extending beyond that. And the one comment that was made in the context of how they draw down their inventory was, well, if it does go on longer than the three months, we certainly can’t rule out needing to buy on spot to meet our deliveries. So, I found that aspect really quite interesting as well.

Matthew Gordon: Well, it’s huge. That’s a huge statement if it comes to be, obviously, but the fact that he’s leaving the door open for it; one, I think to me that it shows responsible governance in terms of staff, employees, etc. It’s responsible reporting in that it kind of gives the market a little bit of guidance as to how they are thinking. But the bit that I was quite interested in was where they talked about where they are. They have always been a big, big, big producer, but in the section where they talked about sales into the market, I mean, it goes back to like 2015 to today. I thought that was extraordinary because it wasn’t the kind of the well-run oiled machine, they were kind of trying to work out how they actually got product into market. So again, what did you think about the way they described that and what are the implications for it today?

Brandon Munro: So, people can go right to the end of the interview to see that couple of paragraphs. You are right; it was really interesting and very useful context, particularly for someone who perhaps hasn’t followed KazAtomProm, over the last several years like we have.  Essentially, what CEO Pirmatov said was between the three years from 2015, 2016, 2017, KazAtomProm wasn’t actually able to sell all of its Uranium. And he said that they only sold about three quarters of it and a lot of that was through traders. So, when you go back and look at the Uranium price during that period, it starts to make a lot of sense; if KazAtomProm was struggling to get rid of their material, no wonder it was sold down to that extent. But what’s important then is that he confirms that through THK and I think just becoming a lot more commercial and a lot more sophisticated, they’ve got a lot better at that and they’ve been able to, for 2020, actually oversell. And I think that was one of the comments that came out in our discussion when they did release their results a few weeks ago. So what they’ve seen is a period of a few years of underselling building up producer inventories, obviously being a very motivated seller, if they can only get rid of three quarters of it, to now moving to a point of not only balance, but before the COVID disruptions, they were already overselling to reduce their inventories down to the target level, which he mentioned there.

So apart from just having, you know, good data for people to get hold of and read and understand and contextualize, I found it interesting because you get the impression that there’s been this open tap of material that the utilities and the traders and others have just been accustomed to loading, you know, pulling out the bucket and filling it whenever they needed to. And that’s really changed now. And I’m not sure that the market at large of Uranium bias fully understands what this means if that tap suddenly slams off. And you can’t just blow the bucket up there, you’ve got to go and start buying your water in small bottles. So it’s that type of a movement or change or shifting in market dynamics that I think of when I read that paragraph, and if that’s the way it plays out, I think it’s very telling about how much this market is going to tighten up.

Matthew Gordon: I think so. I think so. And the other component to this is technical, because this is an ISR operation predominantly, and there’s some technical limitations to that. They can’t just switch off ISR or, you know, the whole thing effectively, it freezes up, you know, the glue solidifies as it were. So how are they, or are they maintaining, you know, bare minimum run rates to kind of keep this thing going so that when they do switch on, there’s not such a huge, again, another delay in getting up to full operational capacity?

Brandon Munro: No doubt there’d be some work being taken place at a desktop level in terms of planning as to how they will recommence wellheads. And there’d be lots of smart people within KazAtomProm gaming through just how they can operate with the logistics and so on to get everything moving. But don’t forget, this is a company; they’ve got something like 22,000 employees in KazAtomProm. So, it’s not just about getting started again at one single operation, one mine. They are going to have to do that all over the South part of the country. So the other thing that probably relates to what we were just talking about is that the market hasn’t felt these production disruptions out of Kazakhstan yet because where we’re at the moment is all of those we’re only halfway in or a bit more than halfway into this three month period. And most of those assets would still be producing more or less what they were producing before, because they’d be working off the pregnant liquor or the material that the solution that’s got.

The acid in that dissolves the Uranium, that was a result of the wellhead development that was done several months ago. They will only the best quality assets will still be producing. They’ll still be pumping that solution out more or less how they have perhaps the more challenged geological assets they’ll start to sear a tapering off. So, they’ll see it in their solution numbers, they’ll see it in the permeability rates and the amount of solution that they’re able to actually to draw for a given level of pressure and so forth. But even once they’d started wellhead development, this is a several month lead time process. So if, if they’ve operating a, let’s say a lesser quality asset, that’s already tapering now, well, you’ve got to take the day that they start there and add three months before you’ll start seeing that laden solution coming back at the level that they used to. So, you’ve got this lag effect that will only come into effect a few months after the decision is made to get back into it and to re mobilize the bulk of those 22,000 employees and get them working productively again.

Matthew Gordon: Absolutely. So, it’s not binary, it’s not on-off. There will be a lag again that impacts the market again, that affects access to U308. And again, that’s very telling for that for the marketplace. Now, one of the other companies too, you’re sticking with the Kazakhstan theme for a little bit longer, a Uranium one, they put out some numbers. I, again, interesting. I think production is down slightly but profitability up, because you know, they’ve been able to sell it, sell at higher rates. So, you know, swings and roundabouts though, but I suspect we’re going to see a, you know, different sort of set of numbers from them. I have seen the next quarter, but again, what was your take on the Uranium One announcement? What did it tell you?

Brandon Munro: So, on the face of it, on the face of it, what we saw was on a seasonally adjusted basis. So, this period versus the same

Matthew Gordon: Year on year, yes.

Brandon Munro: Their production levels were down by 5%. Now, what I think is interesting there is, I don’t think that number has taken into account what’s happening in Kazakhstan yet because Uranium One has got amongst the best of those Kazak ISR assets. So the ones that I would expect to have the most resilience, the assets that would carry on producing at nameplate for the longest after the wellhead development stops are that portfolio of Uranium one, two together with 1 or 2 others that are in joint ventures with a rhino and also you know, in kinds of fantastic project as well, but chemicals got, so I don’t think we’re seeing the effect in those numbers. And yet they’re already down 5% for either just reasons of those assets depleting. We’ve talked before about how ISR mines do have a long tail where they start to run off and they start to deplete. They’re not as binary as the conventional mind that you know, essentially runs out of all one day and, and grinds to a halt. So presumably what we’ll see is continued reduction. And regardless of that, it’s just indicative of what we’re seeing across the whole market, whether it’s the Olympic Dam or whether it’s the Namibian giants or whether it’s Uranium One, it just seems that there’s 5% to 10% being shaved or for everyone’s production numbers at the moment, assuming that they’re still producing.

Matthew Gordon: Okay. You think that’s a case of well head decline v deliberately reducing production, because the price in the market is, you know, if there was access to product and market, why pump it out there and sell it for a low price?

Brandon Munro: I just haven’t seen any evidence of Uranium One operating in that way. They’ve got low production, low cost assets. What I have observed is they’re quite willing to sell at the prevailing market price. And they were quite willing to do that even when the spot price was in the low twenties. So maybe there’s an element of that, but I it’s nothing that I have been able to pick up.

Matthew Gordon: Okay. I’m sort of intrigued to see how these numbers play out in the next quarter because there’s, there’s again, harking back to conversations we’ve had previously. And I think something that I want to end on with, you know, the US impression of what, what Russia and its allies are trying to do to Uranium prices. I just, I just would like to understand that at some point right now it’s all speculation, but again, I think the final kind of Kazakh focused story for this week as if we haven’t had enough already was Samruk-Kazyna they have put up, well are offering up to 5% of KazAtomProm. They’re big holders, but I think the number talks about is for it’s about $150M for about 4.5%. Again, why, why would they do that now? They are $75Bn fund. So, I guess this is inconsequential to them, but even so it’s a, it’s a bit, a big, bold move. What does it say to the market?

Brandon Munro: So, there’s a couple of things here that are quite interesting. So yes, there are a very big sovereign wealth fund, but this is very important for them. A few years ago, Kazakhstan created a roadmap of privatizations, predominantly assets through Samrat Casona, but you know, also other privatizations as well. And cause that prom was seen as being the flagship. It was the first ship out of the harbour with significant telco airline privatizations backed up behind it, et cetera, et cetera. So, they obtained an, a plan or an approval back then to reduce their holding down to 75%. A as everyone knows, there was the initial IPO where they reduced their holding to about 85%. Then in September last year, they did a secondary sale, which brought their holding down again by a few percent and that four and a half percent that you mentioned that was actually what they were intending to do.

And they ended up upscaling it taking about $206M rather than the $150M and reduced themselves all the way down to the 75% target. There’s a small retail component back into Kazakhstan. But if you assume that that’s all fully subscribed, and they will be bang on 75%. And that’s box ticked. In terms of the timing. I think if you look at the share price graph of KazAtomProm in London, that probably tells the story here that the secondary place in September last year was at $13 per depository receipt and they’ve traded below now they’ve popped up above it and it just looks to me like it was their first good, solid opportunity to get the job done without doing it at a lower price and the previous price it was set so well done to the sovereign wealth fund, I’d say, but what it also means for the broader market is quite interesting because there’s another $200M worth of stock that’s been placed predominantly institutionally generalist investors have picked that up.

So, one of the things that the Uranium market has suffered from is just being so small, very important as we always talk about, you know, it’s an incredibly important energy source, but the investible universe is very small. It’s hard to get banks interested. It’s hard to get analysts at broking firms and, and so on interestingly, to get enough volume going through their desk to them investing in coverage. So, here’s another $200M out there. They, they did a switch rule on their advisers. I saw. So, there’s another couple of advisors who are incentivized to get out there and talk about the story and all of that just has to be positive for the market. It’s just extra eyeballs, extra reason to talk about Uranium and cause Adam prom. So, I think it’s a good development and now it’s brought that whole cycle to an end.

And now KazAtomProm is the entity that we were waiting for it to become. Now, the other thing that I find quite interesting is just getting back to that interview for a moment, quite a bit of discussion about dividends. And they’ve got a very generous dividend policy. And I must say the folks that Nuclear Intelligence Weekly are very astute, do you know, I like them a lot and they’re, they’re good, intelligent journalists as the name would suggest, right? So, they pressed and prodded and it to be on the dividend policy for two, from 2 angles, really, first of all, and the dividend policy is to pay out 75% and KazAtomProm made a commitment to pay out $200M. The first angle is, well, you’re going to need a fair bit of capital to get this wellhead development started up again. How are you going to go with that?

Is there enough there? And cause I don’t prompt said they would, but you know, I think the fact that those questions were being asked is interesting, but the other element is the Tenge certainly is very helpful for KazAtomProm it’s really dropped a lot because they’ve got Tenge costs and a US dollar selling price. So, in terms of running business, that’s fantastic. Except when you’ve made a commitment in U S dollars to send $200M out the door. So that was the other line of questioning, which is starting to pick apart a little bit at well, if the Tenge continues to fall, how’s that going to help your capacity to pay dividends? And when that, the importance of that and the relevance back to the whole market is that’s going to create further incentives that are commercial level for cars that impromptu allow this market to continue tightening and to allow the Uranium price to generate better margins for them, just so that they can keep topping up the bank account and to be able to both pay that dividend out as well as have the capital available to get started again.

Matthew Gordon: Yes. I mean, it’s a very generous dividend. I mean, I I’m stunned that they were set up at that and if I’m stunned that they would set it cause they, they don’t need to. Do you think it’s under pressure from back home with the, the sovereign wealth fund?

Brandon Munro: I’m not sure pressure’s the right way. That’s just how it was set. The sovereign wealth fund is there for generating money out of its sovereign assets and deploying them into other parts of the country. So, it has been a cash cow and they want it to stay that way. Undoubtedly, that’s what it’s all about creating those expectations to generate a point of difference, I think on the LSE.

Matthew Gordon: Yes. Well I think that’s my, my next point is that is the need for their parents of transparency because there’s one group of people who are not buying it. And that’s, I think the US Uranium producers & juniors who are saying, well, actually you are undermining our markets. You have been constantly selling into the market at zero margin gains because you’re trying to undermine what we’re doing over here. You’re trying to take over our energy business. And there was an article to that effect this week from The Hill. It was okay, a lot of politics involved in the narrative and the wording and the way they crafted that message. But do you, do you think that Kazakhstan is trying extra hard to be seen as a proper company, Western standards? There’s now 25% of shares in the open market? Are they concerned about their reputation?

Brandon Munro: Yes, I think they are. I think they are trying hard. I think they’re as best as they possibly can. They’re adopting quality governance seeing the way that they behave behind closed doors as I get the chance to, I can never fault any of that. Their inner process of commercializing their mentality and their culture in the organization. And that can be a slow ship to turn around. Not only for businesses that have emerged from a Soviet sphere of influence, but the same thing happens in privatizations in countries like the UK and Australia, you know, you take, what’s been a government entity and you try and get those that empower organization to think culturally like an entrepreneur and it’s, it’s hard work. So undoubtedly, there’s a bit of that that’s going on, but I just, I struggled to buy some of the, some of the accusations that are coming out at KazAtomProm in the US it just doesn’t add up for me.

Like they’re only selling 10% of their own product into the U S so they’re certainly under selling into what is still the world’s largest Uranium market. So, this concept that they’d sort of flooding it, it just doesn’t the numbers don’t support that. And when you look at the report that we talked about last week, the EIA report it wasn’t the Kazak material. That was the cheapest, it was the Russian material. So, the material coming from KazAtomProm also from Uranium One. So, and when you put that Kazak material against Australian material it’s more or less the same price. So, the numbers don’t support the type of rhetoric that you just described that is coming out of some corners of the industry. So, I struggled to believe it, and I struggle to agree with it.

Matthew Gordon: So, but aren’t, they are falling under the umbrella of Russia. They, they are being positioned as a puppet for Russia. They are, will do exactly what they’re told by Russia. And there’s this very aggressive national security stance on, on multiple fronts in the US at the moment. And I think we’ll need to stay up, stay away, maybe from what’s been happening on the streets of America this week. That’s a, that’s a very hot topic, deliberately deservedly, slow, hot topic, but for today on Capitol Hill in lobbyist groups, we’re seeing this very aggressive language. We’ve got another Section 232 coming up for Vanadium, which we’ll talk about in a second. But this whole national security issue as a justification for a lot of these industries. Cause they’re seeing it as a route to maintain the you know, the America’s position in the world and be self sufficiency. And, you know, for lots of reasons, people are using that as the headline banner for their argument, national security don’t you think that the US is justified in taking that position? Why, why should it be beholden to Russia? Why should they let Russia come in and take over there that energy or nuclear energy requirements, because this is the, it’s the game of political chess, isn’t it?

Brandon Munro: Yes. I think there’s 2 parts to the question that you’ve just asked. The 1st one is the concept of lumping Kazakhstan and Russia together. It’s a convenient thing to do. And I think for let’s say a readership or an audience who maybe haven’t spent much time thinking too carefully about a lot of this stuff or haven’t followed the history or haven’t been to those parts of the world. It’s an easy thing just to lump more together. They were of course, very close they’re all in the Soviet Union together. Still a lot of Kazakh commerce and spoken is done in Russian, et cetera, et cetera, but it’s a sovereign nation. It is its own country. And whilst, possibly Russia still got a lot of influence there. And we’ve talked before about what would happen if really, if push came to shove, push isn’t coming to shove at the moment, and I think they are operating fairly independently.

They certainly regard Uranium One and Atom (inaudible) as competitors and certainly behave as competitors. And until something happens where the geopolitical deck chairs get moved around a little bit, I think it’ll continue that. So that’s the first part of the question.

The 2nd part of the question is I think what you’re asking about is it is the US enabling itself or making itself too vulnerable to Russian dominance in the energy sector, which is nuclear. So, and this, it goes to the whole Russian suspension agreement and discussions to a lesser extent, Section 232, the answer is, in my opinion, the US does need to be careful of that. They need to be very careful and their solution needs to be, to get their own industry to the point where it can compete as a viable alternative, and not only for the Russian suppliers, but also the European suppliers.

And that came through in the nuclear fuel working group report. There’s an understanding that that is the case. The article that you’re referring to that was published in The Hill, and they talk about it, some of the more extreme views in the industry about what levels of enrichment and contracts and so on might be expected should the Russian suspension agreement not be renewed. And they’re probably realistic. I think there was a number there are 40% of US demand after the end of this year. And when you look at how well the Russians compete well, that’s probably about right. They probably would be able to fill that amount in, just on producing a very good product reliably at a very good price. Now, where does that leave the US well, yes, it does leave them quite vulnerable and the best way out is for them to have their own domestic alternative that’s viable and competitive.

Matthew Gordon: Yes. I think if you look back to how Russia has used gas or weaponized gas in Europe and with their NordStream 1 and NordStream 2, I think that seems to be what the Americans are fearing. That if he, if you let the Russians come in and control 40% of the nuclear energy supply in the US they take the lead, they start dictating, and the utilities will be at the behest of what the Russians decide. So, it, I think the fear seems to be Russians producing at a not-for-profit basis. And in, in a way where it’s a lost leader effectively, they’re saying we don’t mind losing money here, but we’ll, we’ll play the long game. We don’t mind we’ll subsidize it from elsewhere because it’s not a lot of money in the scheme of things or cripple the US ability to produce because companies are independent that there’s nothing nationalized in the US although they’re having some calls of the past couple of weeks to nationalize a number of commodities, Vanadium being one of them, which like, I guess we should talk about.

So I think that’s the fear from that, but I’m not quite sure from what you said, whether you, whether you believe that those fears are valid or you think that the strategy is that the Russians are employing is misunderstood, or indeed, maybe, maybe they are valid. It’s just commerce, it’s not geopolitics, it’s commerce.

Brandon Munro: Look, I think those fears are valid and you see them expressed in rather shrill terms from time to time. So if I’m being a bit cagey here, I’m just being very careful what fears I’m agreeing to, because there is a fair bit of console out there, but in the way that you’ve just described it, I’m quite happy to, to agree with you there, that there is a legitimate risk here that needs to be fundamentally mitigated, and it can be mitigated in a couple of ways. The first one is what I talked about in terms of establishing the American industry as announcing quite determined to do, but it also needs to be mitigated at a utility level or at a reactor by reactor level. And that exists amongst many of the US utilities. Many of them have their own risk mitigation policies where they can’t be more exposed to X percent from Kazak / Russian material.

They group them together and, and so on, but it’s not uniform. And the risk mitigation, what we would regard as sensible risk mitigation when prices are really low. Number one, it’s pretty tempting to look past some of those risks when you can mock-up really cheap pounds. And secondly, when prices are low, that risk just doesn’t seem so real. It doesn’t seem so acute. You know, when there’s 2015, 2016, when there was so much material around, as we talked about is it really realistic that Russia could turn off the taps? You know, there’s all of this around fast forward to 2025. When we do know that there’s going to be a real crunch here, that’s when they’re at their most vulnerable. And that’s when the mitigation needs to be both at an industry level, at a government level and at a reactor level.

Matthew Gordon: And I think that’s what people were certainly Section 232 was about you had these companies begging their government to help them fight against what they saw as you know, a state competing against a company, which, you know, has, it has a balance sheet, which, which looks like it. They, whatever it was for, for those 2 companies at the time, they couldn’t possibly hope to win. What they needed to do is kind of create this recognition that this was a potential problem and what the rhetoric we’re starting to see off the back of a nuclear fuel working group. And even prior to that, and certainly some of the press was coming out now. And, and I appreciate these are possibly pay for a lobbyist type articles, which is a little bit, you know, sensationalist. But the point, the point is there’s a mood in America.

Now Trump has created a mood on several fronts, but businesses, I think, want him there, he, he is pro business. He’s telling people what the success rate for some of those industries is another matter. And the fights he chooses to fight is another matter, but Uranium and nuclear have got the attention of, of the hell. We still haven’t seen any announcements around. We’ve seen lots of announcement, non no announcements around the commercial component. What is the government going to step in and do, how much money are they going to put forward? We talked last week; it’s going to take billions of dollars. We’re still not hearing that kind of conversation. It’s just all competent without any substance. So, do you think it’s coming down the line or again, a key convert? This question, is this just a lateral rhetoric?

Brandon Munro: So, two things there, the first one is America’s vulnerability to Russia. If we can just lump the whole concept of Russia together, when it comes to Uranium is very different to their vulnerability, to Russia when it comes to enrichment. And Section 232 was about Uranium. So, I’m not so willing to take what is a genuine vulnerability when it comes to enrichment services and extrapolate that to Uranium. You know, they’re still Canada, they’re still Australia, they’re still Namibia. For it, for at least the foreseeable future there’s Kazak material that will be reliably available there. So, it’s just a really different proposition. But the second point that I’d make is that the strategy adopted that was articulated in that in that report, I think is very sound. They’re saying we we’ve got a fairly limited strategic reserve at the moment. It’s what they’ve got at the moment is only enough for about 7 reloads.

So, if they did find themselves becoming too vulnerable, say to Russian enrichment, and there was a spat, and that was withheld well, they don’t, you know, and there’s 90 reactors there, right? So, seven reloads doesn’t really buy them very much time. So, the strategy then a building up that reserve from seven to what really needs to be more like 22. It needs to buy them in a good solid year, if not to have buffer time, that’s a solid strategy. And that’s something that I can really get behind and agree with. And the idea is they want to take that Uranium that’s talked about, then they want to make sure that they’ve got conversion that is re-established in the US so they can then that Uranium push it through the conversion cycle to create the demand, to get convert on up and running again at metropolis works facility. And then they’re talking about, we need to enrich that material so that their stockpile for strategic reasons, as a primary form of mitigation against this vulnerability that we’re talking about is sitting there in AUP. And then it’s just fabrication. And the US exposure to geopolitical interference in fabrication is actually very small.

Matthew Gordon: Okay. I buy that argument. You mentioned that something that you said, US needs friends. You’ve still got Canada, you’ve still got Australia, still getting them. Maybe they need friends. It’s very combative environment at the moment. Doesn’t seem to be a lot of French friend making going on at the moment, because it was bringing on a topic. Again, we talked about last week, which was the Iranian sanctions, right there has, at the time, there hadn’t been a response. I think there was a response by Russians Senator, but that was it. But now we’ve got the French, the Germans and the UK of command said, we regret the US has position on the Iranian sanctions. China has come out and effectively said, forget it. If anyone wants to, we’re cracking on us normal, and if anyone wants to join us, we would welcome them.

The Russians, I think there’s no official statement from them, but I can imagine that’s going to be something along the lines of the Chinese. So, if the America American is to deal with this. We talked last week said it’s not a big enough deal commercially for countries to go to go to economic war with the US and we’ve, and we’ve seen Trump’s temper tantrums in effect that China, even the Chinese wobbled a bit there. So, Europe’s not going to do too much about it, but it’s pretty strong language that they’re… well for Europe… they’re using there about their belief that the US has called this wrong. So, is the US going to back down or is, or is it going to encourage you it’s convictions and carry on as normal?

Brandon Munro: Well, that language has been used consistently, right? That to May 2018, when president Trump unilaterally with, during the first place. And it doesn’t seem to have swayed the decision making too much. In the meantime, we’ve seen a willingness, I think, from the administration to rub up against its allies and its friends as it suits them. So, I don’t think that’s going to be particularly persuasive. It is strong language but there was a huge diplomatic effort back in 2018 to try and dissuade the administration from leaving the JCPO way. And that ultimately was ineffective. We don’t know just how much they manage to slow the process down. And perhaps they did, perhaps there was enough discussions behind closed doors, but it ultimately didn’t succeed in trying to pull that deal back together. And we haven’t seen it succeed in any way in terms of renegotiating or bringing your new deal to the party.

The other thing to bear in mind with China is they can’t really do anything in the US in the nuclear sphere at the moment, either because they’re largely unable through either the trade dispute or through direct sanctions in, on some of those Chinese nuclear entities. So, they don’t have much to lose in the way that Russia does. So, it doesn’t surprise me that China’s basically saying, well, you know, around sits at the, towards the end of our belt and road initiative, a large part of our export strategy is about rolling it out through there. So, if the US is going to make open up those pathways for us, but we’ll jump into them.

Matthew Gordon: There has been this week by the US Department, of Commerce they said it was going to open an investigation into whether inputs of vanadium, which are the metals used in aerospace and defence and energy applications. They’re looking at a potential section two, three to probe. Another one as we alluded to earlier is, did we, did they need this? Is this just another move by the vanadium lobbyists to try and get noticed? Cause they’ve seen what’s happened with Uranium?

Brandon Munro: Well, I think you could probably argue that in vanadium there’s a bigger cause for concern than Uranium in many respects. Not only does it have those technology related applications that are used in directly in national defence and national security, but vital in steel production and becoming a lot more important in storage as well. And certainly, my opinion that vanadium redox flow batteries are the only currently viable commercialized technology and storage, if you don’t have access to pumped hydro. So, this, the supply of vanadium is very choppy. An awful lot of it comes from pork quality magnetite. A lot of that is in China. And so there’s a geopolitical aspect where China and Southern Africa dominate the supply and Russia dominate the supply of the Vanadium, but there’s also a commercial choppiness as well because in many respects, the supply of the Vanadium operates not according to the vanadium price, but according to the iron ore price and how much of that lower grade magnetite is being pushed into the market. So, you’ve got compounding geopolitical and commercial vulnerabilities there. What makes it interesting for us in this conversation is an awful lot of the vanadium that’s been mined in the States has been mined together with Uranium and as we’ve seen with energy fuels, for example, and so anything that benefits or helps along the Vanadium is presumably going to help along a number of different traditional Uranium deposits as well, conventional mined Uranium deposits as well.

Matthew Gordon: Yes. And I can imagine that Energy Fuels be feeling a little bit perky about this one, given that they’ve got the White Mesa Mill. They need to feed… it’s a beast. They need to feed the beast.

Brandon Munro: I think I might’ve given the template for the petition, huh?

Matthew Gordon: Yes. Well, it, it, it feels, it feels the same as there have been lots of conversations. We’ve had this conversation around rare earths as well. So, I wonder if you sometimes wonder if these guys have energy fuels in particular, just as you say, here’s a template and off you go again, but it’s, it’s certainly an interesting conversation. Vanadium has been very volatile in the marketplace. There are some very big producers out there all over the world, you know, not just, just the U S you know, so I’m not sure supply as a big issue, a big issue really it’s 90% of the steel market at the moment, but there are say these other applications, which are very niche and, you know, you know, aerospace, air engineering, et cetera, et cetera. Also, VRFB the, the that looks huge to me in terms of long-term storage capability.

So, but we shall move on. And talk about that another day. I want to ask you one last question, and then I’m going to want you to sum up what it means to the market, which is obviously spot price at the moment. This is the thing that people look for. I know there’s a lot of other moving parts as we’ve talked about multiple conversations last 10-weeks. But spot price is a thing that people look at. So, it it’s been an interesting week. What’s your take on the movement of the spot price at the moment, and, you know, can you, can you sort of forecast what you think is coming up on the basis of what you’ve seen over the last couple of weeks?

Brandon Munro: And the only thing that I’ll forecast is it’s going to continue to be choppy. I think that’s, that’s fairly clear. We just, aren’t seeing a lot of volume in the spot market. So, whenever we don’t have much volume, it’s vulnerable to impact of traders and we’re coming up to a significant milestone at the end of June. So, there’s, there will be parties who are motivated to impact that number. And if there isn’t enough buying that might happen, and we’ve got a swing buyer in the market, Cameco who can sort of make this dynamic work for them either way, in terms of allowing the price to come down or pushing it up, or just doing it, being happy to participate with whatever it does. And we’ve got a number of players who are sitting on the side-lines just to see what happens particularly in Kazakhstan.

No doubt that response in that interview was directed at utilities and others to say, look, we’re not going to come on early, so don’t try and wait out this market. Don’t game it to see that if we come July one, are we, are we back in action? Are those pounds just pouring out again? So, what does all that mean? Well, it means that until we’ve got a greater level of buying in the spot market there will be parties who are sitting on very healthy paper profits at the moment. Just to remind everyone, the spot market is not an immediate delivery market. So, there will be parties that financial players, traders who bought Uranium in the $24 to $25 range back in March. They won’t have taken delivery on that material yet. They won’t have paid for it yet. And now they’ve got the chance to take a $24 pound and sell it at a $30, $32 $33, $34/lbs.

And if they’re under a little bit of a squeeze in, for other reasons related to covert and the various financial ramifications of this pandemic, that’s going to be tempting for them to tip that out. And if there isn’t a lot of buying that way, we might we’ll see the price, come back a bit. So happy to predict a little bit of volatility around the edges. But I think what we do have here is a broader trend, which is moving up and for all of the things that we’ve talked about, all of those reasons that the market isn’t feeling the disruption yet, that disruption is going to be felt in the latter half of this year. At the time when the genuine buyers will be coming into the market, particularly as the utilities are able to come out of the direct distractions and difficulties that they are facing with covert.

Matthew Gordon: Okay. I guess we shall see what happens in the next week or so. With regards to that choppiness. Final thing is we note that Peninsula Energy an Aussie company with assets in the USA. They have really gone for it. They’re raising A$40M. That’s a chunk of change. That’s one of the biggest raises that we’ve seen recently. So, I wonder what they know.

Brandon Munro: Ah, look, I don’t want to get too involved in commenting on other company’s balance sheets and that type of thing, but it is a little bit like what we’ve seen with the KazAtomProm raising. It’s good to have a broker drawing feeds out of this type of thing. Good to have advisors drawing fees. It’s paying for the wheels to go around in the sector. I think we both agree that the folks at peninsula are really good people there they’re very competent and good operators. You know, I respect Wayne a lot and I also know what it’s like to have a big dominant player on the register. When I took over this, the helm of Bannerman, RCF was a 38% shareholder. And whilst I have only ever had very good dealings with them and, and it’s been a very positive relationship it is something that can be a turnoff to a lot of investors to see a private equity fund having a dominant position. And we didn’t have to deal with debt, not by then anyway, not by the time I came in. So, without commenting specifically on what peninsula has done I think it’s, it’s positive for the sector. And, you know, I think they’ve put themselves in a really strong position to go forward now.

Matthew Gordon: Yes, I think, I think it’s a, it’s good for the market that they believe they can get that over the line given, given that their starting point today. I think it projects a lot of faith in the financial market, where I have come from that they think they can get a deal that size over the line for the company of the size. Cause it’s, you know, it’s a really big percentage of the, as a percentage of, of the company, so good luck to them. And I’ll be speaking to them later to find out, get the, get it from the horse’s mouth from Wayne. So, I’ll say hi for you. Brandon, thanks very much. I think it’s these, these little movements in the, in the market, they all kind of add up, and I think the it’s moving, moving the market and the positive market sentiment forward. I think generalists are now paying attention to this. We’re seeing a lot more coverage of Uranium with articles, with interviews. It’s exciting times for you guys.

Brandon Munro: You know, also Matt, in terms of what we’re doing with these weekly chats, I’m getting really great feedback. I think more and more people are seeing this as a regular opportunity to learn about the sector, the intricacies of it in real time. So, while some of the topics that we talk about aren’t dramatic catalysts, the fact that we’re following threads on some big issues is a great opportunity for a lot of investors and others who are interested in the sector just to develop a solid understanding. And I know that you’re passionate about educating investors, and that’s certainly where I’m coming from. So really gratifying to get all of that feedback and long night continue.

Matthew Gordon: Well that continued Brandon go have yourself a fantastic weekend. I have still got a few hours to go here. I’ll be finished in six hours. I think, I hope. But we’ll catch up with you next week.

Brandon Munro: Great. Okay. Thanks again for having me on

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Galiano Gold (GAU) – Turnaround Story. Creating Cash, Not just Mining Ounces. (Transcript)

Galiano Gold Inc.
  • Shares Outstanding: 222M
  • Share price US$1.17 (22.06.2020)
  • Market Cap: US$259M

Interview with Greg McCunn, CEO of Galiano Gold (TSX/NYSE: GAU).


Galiano Gold (formerly Asanko Gold) is a mid-tier gold producer with an operating gold mine in Ghana: Asanko. The mine is owned and operated in a 50:50 JV with Gold Fields Limited (JSE, NYSE: GFI). It is large scale and started producing in 2016, but a recent tactical shift has been something of a game-changer.

Galiano Gold has gone from focussing on building the resource as large as possible to now placing an emphasis on sustainable cash flow and incremental growth through rapid fully-funded exploration. Galiano Gold is also focused on driving its free cash flow position. Shareholders will want to see how McCunn plans to add accretive value to the Galiano Gold mix.

What did you make of Green McCunn and Galiano Gold? Comment below and we will respond.

We Discuss:

  1. Company Overview
  2. The Foundation: Company’s History, Development of the Business Plan and CEO’s Background
  3. Present-Day Mentality: Significant Changes Made
  4. $65M Paid in Dividends: Will it Continue?
  5. Utilising the Free-Flowing Cash: Plans to Continue Value Growth
  6. Cost Cutting and Exploring: What Have They Got?
  7. Conversations with Institutional Shareholders: Any Pressure to Speed Up?
  8. Steady Progression and Ready for Opportunities
  9. Change of Management and Company Name: Why?
  10. Message to Investors: What Could You be Buying Into?

CLICK HERE to watch the full interview.

Matthew Gordon: Greg, how are you doing, Sir?

Greg McCunn: Doing very well, thank you. Thanks for having me.

Matthew Gordon: Fantastic. Well, thanks for joining us. You’re another Vancouver, right? You’re our third Vancouver person today. I should have moved there or something.

Greg McCunn: Yes, as you can see, we are sitting back in the office here today. We have just started slowly creeping back to some semblance to normality.

Matthew Gordon: Well, that’s fantastic. Good. Well look, new story for our audience. We were meant to meet in London. Something came up, which meant that we couldn’t travel. We won’t mention it. We won’t mention the C word. Why don’t you give us a 1-minute overview of the business and then we’ll pick it up from there.

Greg McCunn: Absolutely. So, Galiano Gold. Greg McCunn, CEO, and we are a producing Gold mining company. We operate the Asanko Gold mine. It’s located in Ghana in West Africa. So the mine is a 50:50 joint venture between ourselves and Gold Fields with Galiano as the operator, so we’re paid a management fee to operate the joint venture, and the mine produced about 250,000oz Gold last year at an All in Sustaining Cost of around USD$1,100 p/oz. We are expecting more of the same this year and we can talk a little bit more about our guidance as we get into it. The mine has been in commercial production for about four years. We built this mine and put it into production back in 2016.

Shifting more to the corporate side of things. We do trade on both the Toronto stock exchange and the New York stock exchange under the ticker GAU. I think when we walked into this interview this morning, our market cap was about USD$250M. And we have a reasonable treasury here now. We’ve put together our balance sheet, which is being repaired, which I can also get into. I think over the last year, we’re sitting with just about USD$54M in cash and no debt. So, in reasonably good shape as Galliano Inc.

Matthew Gordon: Fantastic. What a summary that’s perfect summary. I couldn’t have done better myself. We always like to kick off with new companies for this audience who are new to your story and get a sense of how you’ve gone about doing this. I mean first of all; we need to mention the name change in case people get confused. That’s a recent occurrence. We’ll come onto that and the reasons why, but give me a sense of what you originally set out to try and achieve, okay. So, you’ve been in production for 4-years, but there was a bit to it before that point. So, what was the team set out to do? What did you think you’d be able to build and indeed, were you able to stick to that plan?

Greg McCunn: Yes, absolutely. Well, maybe I could just give you just a little background on myself and sort of how I got here, and I think that that does help fill in some of the gaps as well. So, I’m a metallurgical engineer. I spent the first half of my career mostly working in technical and operational roles predominantly in base metals: in zinc, nickel and copper. Mostly with a big Canadian company here – Teck. It was Cominco and became Teck Cominco over the years and is now Teck both in Canada and in Australia. When I started working, my first corporate role was after I completed an MBA and I started working for Placer Dome, which is a big multinational Gold mining company here in Vancouver. It produced 5Moz Gold a year. I was working in corporate development for several years in the early 2000s until we were taken over by Barrick, which is the time when I sort of shifted in 2006 more to working in junior mining and that’s where my career took a little bit of a different turn. I ended up, I find myself as the CFO, if you can believe it, which is an unusual role as a metallurgical engineer. But I find myself as the CFO of a junior mining company called Farallon and we raised a couple hundred million dollars. We built a mine in Mexico. We put that mine into production back in 2008. It was a high-grade underground VMs deposit. And we ended up selling that company to Nyrstar, the world’s largest zinc producer, back in late 2010. And so, from there, I moved on to become the CFO of what is effectively now Galiano.

So, originally the company was called Keegan resources and we were an exploration stage company when I joined there back in early 2011, and we were able to put together a merger with an Australian company called PMI, which we then changed the name of the company to Asanko Gold. We built what’s now the Asanko Goldmine. We raised several hundred million dollars to do that. Put the mine into production and started commercial production in Q1/16. And after a year of operating the mine, I actually left the company and I had an opportunity to become a CEO. And so, you know, one of the reasons that I became a CFO in the first place was I thought it would be a good pathway to eventually to be able to run a company. I took 10-years as a CFO being there, but in a couple of different companies, but eventually an opportunity presented itself. I was to run a small company called Alio, which you may know has been taken over by Argonaut Gold now – a Mexican-based Gold producer with an interesting project in Guerrero, at the same place that I had previously built a mine.

So, about a year ago, I was asked to come back to what was then still called Asanko as a CEO. I think if you about, you know, where we’re headed and where we were seeing ourselves have gone over the last year, one of the reasons I came back was I saw an opportunity to really transform the company from a project-related mine building company into more of a sustainable business. And I think when you look back a year ago, when I came and I joined the company had been the mine at that time had been running for three years. If you look back over those three years, there were some challenging times, but the mine actually produced about $300M in EBITDA over that 3-year period. You know, there’s a good margin at the Asanko Gold mine.

The problem was, and I certainly heard this from some of our key shareholders when I came back, was that, we had reinvested all of that USD$300M, and in fact, most of our treasury back into the ground. And so, the plans that were there in front of us as well, envisioned continuing that investment and that they were going to double the capacity of the processing plant; go from a 250,000oz producer to a 450,000oz producer. It required ore transportation infrastructure, you know, so for the foreseeable future in front of our investors, was that that was going to continue. And, you know, I had questions like, well, this isn’t a real business, you know, you’re just taking all the cashflow that’s coming out of the mine and putting it back into the ground. When are we going to generate some return for our shareholders? And so, we really et about last year trying to change that narrative. And, you know, the company was in a difficult position because it adds very little in the way of treasury. You know, we’d run treasury balance down to below USD$10M, which is awfully difficult to run a mining company with less than a USD$10M buffer in the bank. And as well, we lacked a really credible direction where the mine was heading. We didn’t have a credible life of mine plan. It didn’t envision, you know, a substantial amount of capital. And so, I think over the last year, we’ve been able to rectify both of those things. And we really changed, I think, the narrative at the mine site last year, away from just producing ounces to producing cash. And so over the year, as we wound down our capital spending programs and we were able to start generating cashflow, certainly the rise in Gold price has helped in the last half of the year, to the point where the mine was able to actually distribute, make distributions to its shareholders to the joint venture. In Q4/19 last year and in Q1/20 this year, we distributed USD$65M, so USD$32.5M to Galiano’s account. And more of that is coming in Q2/20. So, I think that has helped fix our balance sheet.

As I said, we’re now sitting with just under USD$54M in cash and no debt. And during that period, we were also able to come up with a plan with our joint venture partner to develop the mine, making the most of the assets that we already have. So, we have this wonderful 5.5Mtpa processing facility. It treats ore from multiple pits on a wonderful land package in Ghana. You know, we’ve now produced a credible life of mine plan that doesn’t envision a lot of capital spending. We’ve got a 10-year mine life here and we published that in February. And so, I think the basis has been reset and now it’s onward and upward in 2020.

Matthew Gordon: I love that. I love that. So that MBA has paid for itself. Congratulations on that. No, but that’s a very important because it’s –

Greg McCunn: That’s an MBA strategy. You didn’t hear that from me.

Matthew Gordon: Exactly, exactly, but it’s really important. I’ve had this conversation twice today already, where you’ve got companies who are looking to reinvest any cash they make straight back in the ground, or by acquisition or further OPEX spend, et cetera. And they’re in the mining business. They’re in the business of, you know, producing ounces. They’re not in the business of making money, which all businesses should be in. All businesses. I don’t care if you’re a sandwich shop or make bicycles or you mine: you have got to make money, and people forget to do that. And that’s a very common thread in a lot of conversations that we have with mining CEOs and investors in the natural resources space, where people forget that component. And I guess that’s where the kind of lifestyle accusation actually gets thrown at some companies. And big producers also forget this. So, I think, if you don’t mind, because you touched upon a few different threads there and I like that big segue from what the plans were to where you are, to the mentality. I think you said at the mine site, as well as make it pervasive throughout the organisation to understand that it’s about making money. So, it’s easy to say, Oh, we kind of changed a few things around, but what did you actually do? What actually changed from then to now because it doesn’t happen overnight?

Greg McCunn: No, it doesn’t. It requires some careful planning, really is what it boils down to you. And, you know, mining is a difficult business. It’s a capital-intensive business. It is an industry where we don’t control the price of your product. So, you know, that makes it awfully challenging through various cycles to be able to run a business successfully. So, you have to understand what’s coming and plan for it. And I think that’s something that over the last year, the biggest shift that we’ve made is, is a way from, again, just focusing on ounces and focusing on trying to generate cashflow at a reasonable Gold price, but bearing in mind that you are going to have to make investments. We do have a tailing storage facility that we need to raise every 2nd year. We do have pits that require pushbacks and access to ore or an open pit mine, but the same would be said for an underground mine where you need to keep up with your development. So, you know, the opposite mistake can often be made where you shift into harvest moon too quickly and you don’t do enough capital spending. You don’t do enough development work to be able to keep the, to really maximize the benefit of your assets in the ground, which is really, I think the objective of the mining company is to make money continuously, but realise that you are also trying to maximize the benefit of what’s a once off natural resource, they have to use the most effective ways to generate profits for your shareholders.

Matthew Gordon: Okay. So, okay. I just love that. Okay. First of all, you’ve also distributed cash back to shareholders in the form of dividends – USD$65M – a not insignificant amount. You kind of set an expectation there. So, we’ll see how that continues. Hopefully it does continue. Is that the plan?

Greg McCunn: You know, we’re starting to build, rebuild our balance sheet now at the corporate level where we’ve received those distributions so that we can, you’re absolutely right; starting to return capital to shareholders and shareholders in Galiano now. We started that process in November where we committed to buying back our own stock. So, we put about USD$3M back into the market, buying back about 3.5M shares over the last four months. So that’s a meaningful start for the first time, to returning some of that capital to shareholders. And as we go forward, you know, as we become more comfortable with our plan, we’ve produced that life of mine plan in February, we absolutely adhered to that plan in the first quarter of this year and we had the best quarter that the mine has ever had. Record production and record low All in Sustaining Costs. And we’re on track for another good quarter in Q2/20. So that’ll be the second quarter that we delivered onto that plan. And I think it’s very important that we keep doing that for the balance of the year so that we can look at a more sustainable way of returning capital to shareholders at the right time, like a sustainable dividend policy, for example.

Matthew Gordon: Okay. But you’ve now also created a problem for yourself, haven’t you? Because you’ve got cash. What are you going to do with the cash? Because if it sits down and does nothing, it’s just cash. So people have expectations about the, well, the optionality, which you’ve now given yourself by obviously restructuring the balance sheet, but sitting there on this kind of free flowing cash machine that you’ve got, but you can’t, you know, $1 is worth $1. What are you going to do with that cash to create accretive value for shareholders going forward? Because you’re a big company now. You are, what are you? USD$250 million, so, you know, you’re up there, it gets harder and harder to grow. So, what’s the plan?

Greg McCunn: Yes. So, I think at this stage, you know, we really, over the last year we had to fix the things that we talked about already before we could even contemplate what was next. And you know, now that we’ve got to that stage where we’ve got a credible plan in front of us, we’ve got really 2 initiatives. And I think the 1st is, you know, the plan that we put together, as I said, making the most of the assets that we have, is very credible. We can deliver on that plan. It’s a decent life of mine plan, but we’re really now focusing on this three to 5- year strategic business plan at the mine. And that’s this planning that I talked about; to be able to consistently deliver free cash flow, you have to be thinking ahead more than just your annual budgeting cycle, and that’s not something that we had actively in place. So, we’ve been really trying to formulate that 3 to 5-year plan, and we’ve got two ways we can make that plan better than what’s in the public domain now. And the first is through driving our costs down. And as I said earlier, you know, mining is a business where we don’t control the price of our product, so you have to be focused on costs. I think our business was set up to be a, as I said, a capital spending business where we were looking to be a half a million ounce a year producer. So, there’s a lot of efficiencies that we can bring this year and we’re targeting and reduction in the All in Sustaining Costs of USD$100/oz, which is meaningful. I know that’s, to put it in perspective, that’s USD$25M a year in operating cost savings.

And so there’s a number of initiatives that are happening there that will involve us potentially reinvesting some capital in certain things, upgrades to some of our processing plants, et cetera, to try and bring those costs down, but predominantly it’s around savings and how we handle materials. So, a very, again, very limited amount of capital required to capture these savings.

But the 2nd aspect we are going to reinvest the money in is in exploration. And I do think that when we’re looking at a plan here with a 10-year mine life, I do sometimes get the comments of, ‘Why do we need to do a lot of exploration when we’ve got 10 years of my life in front of us? You know, why don’t we just get a little further along the track?’ But the reality is the exploration we’re talking about is not just to add years to the backend of the mine, now that will happen. Of course, when you find more ounces and develop more reserves, but it’s really targeted at our three to 5-year business plan and to make it more profitable. So, to have better margins, to try and find out ounces that are more economical than the ones that we have in our mind plan now. And so, as some of our pits get more mature, you know, the ounces get deeper, the pushbacks required get bigger. It’s not that they’re not worth doing, and it’s not that they’re not profitable at $1,300 Gold, but we’ve got a tremendous land package here with the ability to find some more profitable ounces that are close to the mill, that we can get access to in the near term and fit into the mine plan, not at the end, but in 2022 and 2023. And again, just focusing on trying to make the business better, not trying to spend money just to produce nice drill results, but that’ll be a nice consequence of it. And hopefully the market gets excited about it in a macro environment here, but it’s really around making the business better.

Matthew Gordon: Okay. So, you’ve switched the business model into one that understands it’s about making money. So great. I get that cutting costs – absolutely, of course, what you should be doing, but there’s only so far you can go with that. Okay. There’s a point at which the processes are in place and hopefully nothing goes wrong and you can maintain an AISC, which is, you know, whatever target, you’re aiming for: USD$100. As I say, that’s a big deal. It’s a meaningful deal, but there’s a point at which it is optimised and you, you know, there’s no point in spending time optimising any further because it’s just disproportionate returns. Right?

Second – exploration. You are sitting on a large land package. What do you know about what you’ve got at the moment? What’s the potential that’s in there? Have holes been drilled? Have you got data? What do you know?

Greg McCunn: Over the first three years of commercial production, the company really did very little in the way of what I would call meaningful exploration and drilling. But that’s not to say that they didn’t do a lot of work on prospectivity. And so combining the works of the many operators that have worked on this Gold belt over the years into a proper prospectivity analysis or a database of all the layers of soil, geochemistry, airborne geophysics, analysing all those layers of data collectively as one data package is something that we did spend a lot of time on to get ready, to be able to do exploration. And we just never had the balance sheet to commit to being able to do it. So now that we’re there, we’ve got a commitment there for USD$10M for this year.

It is certainly success driven. If we have success, there’s certainly the ability to divert more funds into that. If we see it’s worthwhile. And we’re really looking at three areas of exploration where we see tremendous potential to add to the business case here. First and foremost is over four years of mining, we’ve been averaging about 250,000oz a year including a depletion from the reserve base. And so that’s 1Moz of reserves that are gone, and we’ve never really made any efforts to try and replace those reserves. So, first and foremost, in and around some of the pits where we’re currently mining, we’ve already made the infrastructure investment. We already have roads. We already have trucks, jobs established at the pits, et cetera, very little, obviously we’re mining there now, or we will be in 2021. On some of these, about half of our budget is going into drilling in and around those pits, and so we’re very confident that we’re going to have the ability to replace a depletion in our program.

Right now, we’ve got four drills turning. We’ve got a 38,000m drill program planned. The results are coming in right now. We’re focused on in and around the pits where we’re mining. And we believe that we can replace the depletion with the program that we’ve outlined for 2020 and 2021. So, call it roughly half a million ounces of additional reserves that would allow us to just keep running those pits, to just keep going, to keep mining there, and effectively it pushes out some of our higher-cost ounces in the middle of our mine life.

Matthew Gordon: That is interesting. Was there a another?

Greg McCunn: That was, and in second, we do have one of our main pit, which is where we’ve been mining ore for the last four years. It has been the main source of ore. It has gone through two phases of production. We’ve got a third phase to access there. There is about 600,000oz of reserves, but it does require a fairly substantial pushback. Again, worth doing at USD$1,300 Gold, which is where we stated our reserves. Certainly, very attractive at USD$1,700 Gold, but it does consume some of our cashflow over the period of, it’s scheduled to start in late 2022, and it will take about a year and a half to get in there and really access those reserves. So, what we’re targeting with our second half of our exploration program this year is we do have one particular trend, which we think can be a new deposit. It’s located about six miles or 10 kilometres south of the processing plant. It’s called Miradani-Tontokrom It’s a ground that we acquired from Anglo a few years ago. It’s about a 3km long, 2-mile long trend of mineralization. We’ve got some drill holes into the Tontokrom area in particular. You know, we believe that has a meaningful a capability to defer and implant there for some period of time, which is again, maybe even replace that 600,000oz or push that 600,000oz of reserves.

So really, as I said, we’re looking at exploration on those two prongs of not necessarily elongating the mine life; it will naturally do that but making that 3 to 5-year business plan better. By better, I mean, more active. And then finally, you know, with this land package, there’s 21,000 hectares of ground here. We own the majority of the Asankrangwa Gold belt. That’s where the name Asanko Goldmine comes from, the shortened version of that. And you know, it has largely been unexplored.

We do have these targets that we’re working on this year, that we’ve delineated, but we’ve also got some more green field potential to, you know, what’s going to be our next, as you know, our mine is anchored by 2 main deposits: Nkran in the south and the Esaase to the north of where our 2.4Moz of reserves sit. What’s finding the next out of the Esaase or the next Nkran? So, we are doing a bit of background work on that this year. It’s not expensive work, but it’s more groundwork to prepare for an eventual drill program. So, I think to answer your question, we’re going to be mining Gold here for a long time.

Matthew Gordon: Okay. I guess it comes back to, cash is a wonderful thing. It’s giving you lots of optionality. I’m going to ask the question; I think I know the answer, but do you feel under any pressure whatsoever from any of the institutional shareholders, which you, it seems to be somewhere in the reason of about 60% of your shareholder register, are they asking you to move quickly? Because exploration is obviously, it’s cheap, but it’s slow. I appreciate you are sitting on a large land bank. Do they want you to go and raise some more money, do some M&A and get some scale to what you’re doing? There’s a cost to that. And I think I know the answer, but what’s the conversation with institutions been like?

Greg McCunn: Yes. So, first on the exploration front at the Asanko Gold mine, I think there always is, you know, I think there could be a case for putting more money into exploration, particularly given the amount of cash that the asset is generating. Right now we’ve got a meaningful program where we’ve gone from essentially doing no drilling for a period of five or six years while we built the mine and got into production, to ramping that up to what’s quite a lot of activity, you know, there’s a significant amount of drill core coming out here, four ore drill rigs turning full time with a fifth one arriving. That’s a big step up, and we want to make sure that we, you know, make them make, create the most value that we can from those exploration results. Might we ramp it up further? I suspect it’s probably possible, but I think that’ll be success based. So, let’s see how this first round turns out. We’re starting to get some nice results from some of the drilling already. We’ll be publishing those to the market here certainly in Q3, and there could be a good business case for doing more exploration. You are right.

Now, when we look at what other things might Galiano do, which is, I think where you’re getting to with all of this, is certainly if we go back a year, one of the reasons coming back here was that I did see that we have the potential to create a sustainable business. And by sustainable business, I do believe that in mining, you do have to have more than one asset running. You know, we talked about, the push back at the Nkran pit, the capital reinvestment, we talked about mining being a capital-intensive business, whether it’s open pit or underground, there’s cycles of development capital that need to be spent on operations. And if you only have one mind and you mistime that cycle that coincides with a rise in Gold price, where you are actually putting all the money back into the ground, that can be challenging.

So, you can see that the case to have two or three businesses that are running, where you can plan those cycles properly, you can get generating sustainable cash flow across all of the metal price cycles that are reasonable. And that’s where you can have a sustainable dividend returning capital to shareholders. So, you know, the intention certainly of coming back here was to do that; to create a sustainable business. And we don’t have to be in a hurry to do it. We’re certainly not under any pressure from our institutional shareholders to go and run out and do something. But I think the way we look at M&A is perhaps a bit different than maybe when I went to work at Placer Dom in the early 2000s where, you know, getting bigger for the sake of getting bigger, it was very important because companies traded at 2 x NAV, no one really ever cared whether the mine generated cashflow or not, they just looked to how fast can you build NAV? You know, there was incentive to just continue to do deals, and that’s certainly not the case. And it won’t be the case here. From our perspective, any acquisition that we look at doing, whether it’s a merger, whether it’s acquiring a producing asset from a major would only get done if it makes our business better. So that’s the rationale that we use when we’re trying to look at these things.

Matthew Gordon: Okay. Well, I like the fact that there is a rationale to all of this because sometimes people just, you know, wander from one point to the next, hoping just to survive. I appreciate that you kind of laid out the plan there. I think from what you’re saying, there’s no kind of big moves. This is about getting what you’ve got done, right? Not going crazy with the money that you have got. Again, we see that: when people get money and then they feel they’ve got to go and do something big. But that doesn’t sound like it’s your modus operandi.

Greg McCunn: It certainly doesn’t have to be. I think that’s the point, you know. I think you’ll have to be, in this industry, you know, there are not a lot of opportunities that are available so I think you have to be continuously working on looking at opportunities and sometimes when the opportunity presents itself, you need to be ready. And so that’s more our focus; continually evaluating things, looking at things that might make sense to build out to strengthen our business. And if the opportunity presented itself, I’d certainly think that we’d like to take advantage of that. And I’m thinking we’ve got the capability now, and we’re, you know, we’re positioned with a bit of a refreshed management, a refreshed board of directors, where we’ve changed out some of our key directors, we’ve got a team here who’s looking to build a sustainable business. And so, I think when those opportunities come, and we know they will, we’ll certainly be ready.

Matthew Gordon: That’s interesting. Yes. I had noticed that. Sort of getting a team that’s fit for purpose was important. So, the name change – changing the management team. Are you trying to build a company in your own image? I mean, what’s the thought process here?

Greg McCunn: So the name change, I think, is reflective of predominantly two things: firstly, there is a refreshed board in management here and it is nice to turn the page and it, you know, we think it reflects the change in philosophy away from the messaging of we’re going to continue to invest capital and build the Asanko Gold mine into something, an enormous entity to an entity that’s focused on running a sustainable business and generating cash flow. And that certainly is a shift, you know, changing the name helps change, turn that page in that history. And there’s also an element here though of, we rightly or wrongly named the mine the Asanko Goldmine. As I said, the mine is a 50:50 joint venture now between Gold Fields and Galiano. When the company was named Asanko Gold, and you’re trying to explain to new shareholders that yes, we operate the Asanko Goldmine, but that’s a joint venture and the Asanko Gold Inc is separate, that messaging was sometimes difficult to convey. So, I think this also tidies up that story quite nicely so that if we eventually have more than one asset, you know, it’s clear that Galiano is a corporate entity. We operate the Asanko Goldmine in Ghana, and that’s a joint venture between ourselves and Gold Fields. So, it also tidies that up nicely.

Matthew Gordon: Okay. And again, so what would you say to people looking at this project, and your existing shareholders, I guess they’ve got to be pleased. You had a bit of a dip, like everyone else, in March time, but you’re starting a bit of growth in the share price, but what type of company are people buying into here? You are dividend paying – great. Unusual. But without the kind of growth story to it, you know, the speed at which the growth story actually happens. Do you think the shares can continue, or is it just going to be a steady, steady growth or flatlining going forward? Where does the excitement come from?

Greg McCunn:  Yes, the excitement in terms of the equity valuation as it sits now, I think that there’s still plenty of room to go here. I mean, this is a very strong macro environment for Gold. I don’t think Galiano has fully rerated into that macro environment. I think there were some, you know, the main pushback that we can get beyond, as you say, our institutional shareholder base, you know, if you look at 4 or 5 names, they control 60% of the VA issued in outstanding shares. Those are very stable shareholdings, good supportive shareholders who have been long supporters of the business and really liked the direction we’re taking the company. But how do we get those new names into the business? How do we create an exciting story for what’s coming next? And that’s, I think, still has some room to run, quite a bit of room, in fact.

And I do think that delivering is something that the company didn’t do well over the first three years of commercial production. And I think, you know, we’re slowly recovering from that. Now we have started to see volumes increase on both New York and in Toronto. We started to see a lot more investor interest in the story. And we are still seeing a lot of wait and see, you know; you said you were going to produce a life of mine plan that shows low capital and 10-years of mine life. Let’s see that. Okay. We delivered that in February. And that was only a few months ago. You said you were going to produce this year between 225,000oz and 245,000oz of Gold at USD$1,000oz to USD$1,100oz let’s see you do that for 2020.

And so, we’ve had a great first quarter, we’re having another good second quarter. So, I think there’s an element of steady-steady here; we’ll start to attract some new investment and there will be some excitement around just doing what we said we were going to do. I think in this market, some exciting exploration drill results are not going to hurt. Let’s face it. That’s not the reason we’re doing it but sprinkling on some really nice exploration results on top of what is a story of a mine and delivering into its guidance, I think will be powerful for 2020.

Matthew Gordon: Okay, Greg. Thank you so much for running through that story. I like that, it’s not quite slow and steady, I think that would be a bit unfair, but there is kind of a consistent and robustness to the plan. We like the free-cash flows, obviously, very attractive for anyone. And we look forward to maybe catching up with you and understanding when you start delivering more of these targets that you’re aiming for. And hopefully you can accelerate the exploration plan somewhat.

Greg McCunn: Absolutely. Well, let’s look forward to that success in Q3/20. And yes, thank you very much for having me. I think it’s been a great introduction and I appreciate the time.

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Uranium Space is CRYING OUT for this… #11. Brandon Munro (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.03 (22.06.2020)
  • Market Cap: A$33M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

For access to the UN-CUT interview go here.


Brandon Munro is back and he’s ready to share the latest and best insights into the uranium space with our Crux Investor viewers.

First, we take a look at the impact COVID-19 has had on Kazakh uranium production. We all know the pounds are down and won’t be made up, but is the virus going to extend the 3 months shutdown?

Namibia is a country that has classified mining as an essential service, so the uranium sector there can continue at close to fully-optimised production.

We then talk about how well Australia has dealt with the COVID-19 crisis and the positive impact this had had on BHP’s Olympic Dam: it’s still open as usual.

After taking a look at Paladin Energy’s fall from grace off the ASX300 and what this could spell out for all Australian uranium juniors, we talk about the need for consolidation in the uranium space. With projects, capital and expertise spread thinly, uranium companies need to band together if they hope to prosper or even survive come the turn of the uranium market. What did you make of Brandon Munro this week? Comment below and we will respond.

We Discuss:

  1. COVID-19’s Impact on Countries: Looking at Kazakhstan
  2. Production in Namibia: How Did COVID-19 Affect it?
  3. Cameco and Kazatomprom: Independence of Market and Production Clues
  4. COVID-19’s Affect on Australia’s Olympic Dam
  5. Paladin Energy Removed from ASX300: Implications and Opinions
  6. Business Models Galore: Survival of Uranium Companies Lies in M&A

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Brandon, how are you doing, sir?

Brandon Munro: Well thanks, Matt. How are you?

Matthew Gordon: Ready for our weekly catch up? It seems like a quiet week though, compared to what has been going on.

Brandon Munro: It has been a quiet week. Quite a bit was happening in equities this week, but in as far as the market goes, I think it was just one of those weeks where it just did its thing; not a whole lot of market defining announcements, no big catalysts, nothing that had Twitter running hot, or my email clogging up, or my phone running off the hook – just a week in Uranium.

Matthew Gordon: Well, I think the interesting thing that happened yesterday was the fact that the market had a little bit of a shock. The US Fed made noises about a potential second wave of COVID-19. It was coronavirus which got people nervous. I think it got people, perhaps younger investors, nervous. I mean, I have not sort of seen this thing before, and we, you know, we had all sorts of numbers thrown out as a result from market experts. So maybe, and again, you know, we perhaps should stay away from all things medical as to whether we believe that to be true or not in the US, so maybe we should talk about COVID-19; how it is affecting countries around the world. So why don’t we start with Kazakhstan, because that’s something we have talked about over the last couple of weeks. Any new news there?

Brandon Munro: Yes. So, the public information obviously is that Kazakhstan’s cases have reduced, but they’re still significant. So, they’re at about 250, a bit below 250 new cases a day. And if we put that in a little bit of context, when KazAtomProm announced that they would be suspending wellhead development at least for an estimated 3 months, their cases were averaging 50 per day, so still five times up from when they decided it was appropriate to take that action. And it is worth thinking about Kazakhstan, because I think a lot of the market is looking at that 3-month estimate, wondering if they would potentially come on early, which they would have to do in the next couple of weeks, or if it can go longer. And we have talked at least a couple of times about why that production disruption extending would have such a compounding effect on both sentiment as well as the pounds available in this market.

So, we have got still quite a few cases coming through. They’re not out of the woods yet. Karaganda province, which borders the most important production centre of Uranium in Kazakhstan, there was a New York Times article that talked about a number of towns being shut down, or shut in. Various restrictions because of outbreaks there. Someone who works in the mining sector in Kazakhstan that I deal with, not in Uranium, but in another commodity, they told me a story during the week about how there was a case in their office building and so they have all had to go home for another two weeks, and how disruptive that is. So, there is that sort of disruption going on. And so, we have had the guidance that the three months is likely to take its full course. And what would be really interesting is, at the end of this month, to have a look and see what guidance KazAtomProm gives going forward. And when you talk about the sort of numbers that we have, I think it is very open to them to play it safe, be a bit cautious and stay offline.

Matthew Gordon: And let’s just remind people what the implications of that are, which we talked about this last week: Mr Pirmatov talked about the possibility, or at least they would consider coming and buying in the open market, not something that they had envisaged a couple of months ago, certainly not discussed a couple of months ago. So, the implications in terms of availability in the open market are potentially quite big.

Brandon Munro: Particularly if they don’t have a firm idea of when they’re going to come on again and how long it could go. Because if these decisions are truly being made on medical grounds, nobody knows, nobody knows. And you know, the scare that you referred to about second waves in the US, well, Kazakhstan starts hitting winter as early as October on the steppes there. And they could well be looking at well, what would the implications of a second wave be? Would they do a couple of months of wellhead development with the risk that they’d have to shut in again and delay and see winter out? So, there are a lot of uncertainties there. And just because of the sheer volume of their production in the market, and the fact that the 4th month of a production disruption will have a much bigger impact than the first 3-months because of the ISR mining. This could really have quite a big effect once they start coming into the spot market.

Matthew Gordon: Okay. So, the implication for Uranium investors, or people thinking of investing in Uranium, is that the macro story just builds and builds. It is accelerating. If KazAtomProm has to come into the market, there’s going to be less supply around. So therefore, when this thing pops, it should pop quite quickly.

Brandon Munro: Correct. And what has slowed the Uranium recovery down for the last 3-years, in other words, we had fundamentals that 2.5 to 3-years ago were very attractive, but the market hasn’t reacted to it. And it has been the presence of inventory, primarily, that has done that. It has enabled utilities to defer buying decisions and various other mechanisms within the market that has disconnected the price from some very, very strong fundamentals. Once that inventory goes, and particularly if it starts going backwards because you’ve got large spread producer buying of Uranium in the spot market, plus a nice little sentiment lift coming from either financial investors or utility to realise that they need to restock, then you’ve got the ideal conditions for the fundamentals to match up to price and price has got a long way to go before it matches fundamentals.

Matthew Gordon: It certainly does. I mean, again, it is something we have discussed on many of our previous weekly catchups. Okay, well, let’s kind of move it on because I think that what we’re trying to understand is, you know, what’s happening in the world of Uranium in terms of production? So let’s go for your home from home: Namibia. What is the news from there?

Brandon Munro: Well, Namibia has locked down the Erongo province, or Erongo region. Again, the Erongo is the region in Namibia that has hosted all of the Uranium mining. Bannerman’s Etango project, Deep Yellow, Langer Heinrich, and Paladin’s Langer Heinrich project. And of course, the giant Rossing and Husab projects that are owned by two of the Chinese utilities. So, they’re in lockdown, they’re in lockdown for 14-days at this stage. But importantly, during the first lockdowns, Namibia ironed out all of the details around mining and what’s allowed. And as a result of that, mining has been classified as an essential service. So, mining carries on. If we go right back to our first discussions about COVID-19, you can still operate a full workforce and you can still operate a mine, but you can’t do it perfectly easily when the rest of the society around you is shut down. So, it will just make it hard for them to hit targets and do so for the next couple of weeks, but essentially full production.

Matthew Gordon: Okay. And so, when do we start understanding or hearing about the numbers? Will it be a 5%, will it be a 10% reduction in their operating output?

Brandon Munro: We will get that through the Bank of Namibia figures. That will only come through at the end of the year.

Matthew Gordon: Okay.

Brandon Munro: We’re talking about utility-owned mines here that have got no direct disclosure obligations in that way. They obviously need to keep the IAA informed and the Namibian government informed. But there’s not an awful lot of transparency there. And for that matter, not all of that Uranium is hitting the market in any case, a lot of it goes directly back to those utility owners for absorption into their own supply chain.

Matthew Gordon: Okay. The net effect being the same. So, do you think, given the conversations we have had in the past couple of weeks, and I think some other market commentators have commented too with regards to the position that Cameco finds itself in. It is closed down, for the right reasons, but it is going to open up for the right, different reasons. And KazAtomProm saying that they may potentially need to come into the market to buy. Are there any clues that whether the Husabs of this world would also, you know, keep production at a level which may help global prices?

Brandon Munro: I don’t think the two things are related: Husab and Rossing are operating according to things that are essentially independent of market. You know, Rossing is operating to deliver into contracts that will have some market mechanisms. So, you know, they have got a bit of an interest in seeing the price increase, but essentially, whatever they don’t deliver into a contract goes back to CNNC. And with Husab, that’s largely the case. So, I don’t, I think they will be operating according to a vacuum as far as the market goes. And the things that are worrying them are far more operationally based on the ground.

Matthew Gordon: Okay. So, let’s move on to another group who perhaps care even less about the price of Uranium, which is Olympic Dam, BHPs production, because it is a by-product there. It is just part of what they’re doing during the normal course of business while mining Copper. So, what’s happening in Australia, are they being affected? Are you seeing any signals or signs there?

Brandon Munro:  No, they’re not being affected at all in fact. South Australia, the state in which Olympic Dam and Ranger are based. ERs Ranger mine, it has had, I think, two new cases in the last 6-weeks. They have got no active cases in the whole state. And in fact, just this afternoon, the South Australian government announced that it would be opening its interstate borders. So, its borders with Western Australia, Northern territory and Victoria and new South Wales on 20th of July. So as far as they’re concerned, they don’t have a problem in South Australia. And so, the chance of it affecting either of those minds, particularly once they have now made all of the relevant adjustments; blue team, red team, et cetera, et cetera, bus in bus out, all of the different things that they have done. I just don’t see any capacity for disruption in the short term. Of course, there’s a chance of a 2nd wave in Australia. That’s what has people concerned – what happens when we have to open up international borders in a more substantive way? But for the foreseeable future, I just don’t see any substantial potential for disruption there because of COVID.

Matthew Gordon: Well, I think the Australian policy, I mean, you are world leading. I mean, the number of incremental deaths due to COVID-19 is extremely low. So yes, that’s a big moment if the borders open up, if international flights do start coming in, and I guess we shall see when you guys decide to open up the borders.

Can I talk about one other thing Aussie? Because, potentially, Uranium just lost its seat at the table in a way, in that Paladin has just been removed from the ASX300. What’s your reaction to that? I know we want to stay away from commenting about companies specifically, so I want to talk about this in the context of Uranium as a sort of leading commodity in the world.

Brandon Munro: Yes, it is significant. So the S&P runs a series of indexes on ASX. People would be familiar with the All Ordinaries, then there’s the ASX-100, ASX-200, and ASX-300. So, essentially, the ASX-300 are the 300 largest stocks on the Australian stock exchange that meet certain liquidity requirements. There needs to be a minimum pre-float, et cetera. But for all intents and purposes, it is the 300 largest stocks. And if you fall below an acceptable market capitalisation, or if the rest of the stock market goes up and you maintain your market capitalisation, but a bunch of other companies push in front of you, then you get delisted out of that. So, for anyone who doesn’t understand that. So yes, indeed. So, S&P announced they’re rebalancing today, which will take place next Friday, the third Friday of June is one of their quarterly rebalancing dates, and Paladin and unfortunately for them and their shareholders, has been pushed off. It is not a massive immediate effect for them, but that will limit some of some of the investment funds’ capacity to invest who are mandated according to ASX-300 requirements, et cetera, et cetera. So there probably will be some selling to come out of it. But what is relevant and what is important is that now there isn’t a pure play Uranium company in that ASX-300 that isn’t closing a mine. You have got ERA there, that’s got a large market cap, but it probably, because of its liquidity requirements and the fact that Rio now owns 89%, is not investible.

So, if you were to define ASX-300 as an institutional grade, for argument’s sake, there’s nothing of institutional grade left in Australia. That’s, on the one hand, you know, rather sad given where we were before this bear market started, but on the other hand, it is a very interesting opportunity and it will certainly entice consolidations. For example, if Paladin had consolidated or merged with another company in the last six months, they’d still be in the ASX-300. And there will be companies that will see the opportunity to, 1 plus 1 equals 2, but that 2 gets you into the ASX-300, and therefore 2 goes to 2.2 or 2.3, when you see both the capacity for index buying, but also the appetite that’s building amongst institutions that we know is there, where a number of these investors, they love the Uranium setup. They love the fact that it is so asymmetrical at the moment. That it is a very good hedge against broader macro risk because nuclear power doesn’t march to the macro tune at the moment. Plenty of very, very credible commentators, writers, analysts who are saying, look, it is Gold first of all, of course, but Uranium second, in terms of an excellent metals hedge against macro-economic concern; that’s just elevated in the last day in the States as we saw.

So, once you see a company re-emerge, which could be Paladin, or it could be some other group, into that institutional investment grade, I think they will get a big lift under the wings. And that’s going to drive a number of things into the sector and something definitely worth watching.

Matthew Gordon: Yes, I’m fascinated by some of the business models out there. You know, like I say, we don’t want to talk about companies specifically, so let’s just talk about the model. So, you’ve got groups here, and we have spoken to a few recently who are talking the language of M&A. Others who are talking about joint ventures, and others who are just, you know, obviously they believe they have got what it takes because their single asset is big enough to be a leading producer at some point, subject to financing and a lot of things going right for them. Do you think that, like I say; we’re dancing around an area here that I’ve got to be quite careful about, do you see mergers happening in this space? Because the macro story is building, but at the same time, it has taken a long time to get here. We have seen a few raises in the market to deal with different problems, and they have been varying degrees of expensive and varying degrees of, well, let’s just keep the lights on and keep going to the end of the year. Do you see some companies needing to merge, needing to come together? Not any because they’re running out of cash, but to be a much more interesting story, to be a bigger story in what is a sort of dwindling market.

Brandon Munro: Yes, I do. And in fact, I’d go even further than that and say, this sector is crying out for consolidation. And if you run through, first of all, there’s the point that you made just about efficiencies; so, there’s too many management teams and too many overheads for too few assets at the moment, basically. But you then need to look at expertise. That’s an even tighter commodity in Uranium than money is. You need people in Uranium who have dealt with radiological issues, who have built mines, who have run minds, who have dealt with regulators, who have dealt with the IAAE, who sold the stuff, who understand how the nuclear sector operates, who can make strategic decisions on all of this. Who can gain the credibility of the buyers, which are utilities, which are a totally different animal to someone who is prepared to take a Copper concentrate or something like that?

There’s just so much to understand in the Uranium and nuclear sector. And this is a sector that’s essentially been in a bear market for 30-years and has been in a very deep bear market since 2011. You don’t see that the flood of young talent that’s come through this sector, and the people who were leaders in it, a few are still fantastically still hanging around and still in the sector, like Dustin Garrow. And thank goodness that he is. But he is working because he loves to work. He’s not working because he is of a working age. And so many of his compatriots have made the decision just to retire. Some of them aren’t even with us anymore, sadly. So, there isn’t enough expertise for the number of projects. So that’s the second thing.

The third thing is that capital is becoming more difficult. And as we were just explaining, if you can bulk up, you’ve got access to deeper pools of capital who are more suited for a commodity like Uranium. Uranium is capital heavy. It is not like little CIP plants in Gold or, you know, buying the plant down the road that’s just stopped operating in Kalgoorlie to punch out 10,000oz p/a, or something like that. Uranium is capital-intensive by its very nature. So, you need to have access to more developed pools of capital. And then from an operations point of view and at a more global level, when a utility looks at the Uranium space right now, what they see is they see a couple of dozen Uranium companies who are all assuring them that we will be ready in production in three, four, five years. And it is not a utility’s job to go and do the detailed analysis on the environmental implications and how realistic that is, or try and second guess what their technical processes are, or even understand that there’s daylight between a Scoping Study and a PFS and a DFS and what that risk profile really means.

So, the utility sees this array of projects that seem to all be very likely to come on stream. And so, what’s the big deal? Where’s this supply crunch? They just think that we’re lying to them or exaggerating, or we have got confirmation bias because we love our own project or something like that. What this sector needs is the better projects to consolidate into a handful of lumps. And those leaders then go to the utilities and say, look, we’re here to build a long-term Uranium business. That’s what we’re passionate and invested in here, but you need to understand, Mr. Utility, that we will only bring these projects on sequentially, as you demonstrate, as the market, that we need those pounds. So, all of a sudden, this array of projects that are all declared to be fantastic, separate into a few stragglers, which will be found out by then, and a few clients of credible projects in the form of Uranium companies that are serious about building. And that’s a natural progression in this sector and it will happen.

The problems that we have got, I guess there’s a fair bit of management who are clinging onto their jobs at the moment. There are shareholders that are a bit reluctant to enter into even a scrip for scrip consolidation at the bottom of the market. You know, as much as company A might merge with company B on identical ratio to what they do at the top of the market, they’re still a sentiment-driven thing because merging at USD$0.20, not USD$0.50 that happens at the top of the market. So, shareholders are more likely to support a merger in an elevated situation. And when we were just getting a little bit close, because the Uranium price was really going down and desperate, and we were seeing a few, certainly I saw a few CEOs who maybe saw this is their opportunity to exit and go into Gold or Copper or something more fun. Then it picked up again, and so they’re in there for a little bit longer. So, there’s a bit of a long answer for you, Matt. But I do think that this sector requires consolidation from both a push and a pull factor perspective, from both a top down and a bottom up perspective.

Matthew Gordon: Great answer. I love that answer. We spoke with Dustin, actually yesterday, and it was fascinating. He echoes a lot of what you’ve just said, because like I said, you know, he has been around the block. He’s worked from all angles in the industry. So, he does have a view. And the interesting thing he said was that, one, with regards to management, that the people just aren’t around who had been there and done it before. And he said, you cannot underestimate that factor because he said, I saw it in the last cycle, there were lots of names, lots of conversations, lots of pitching, lots of promises made, and very few companies actually got over the line. And he’s talking about companies in the Athabasca Basin. He’s talking in Australia, he knows Namibia. He saw what worked, he saw what didn’t work, and more didn’t work than worked, This is not necessarily a direct correlation to share price, because there was sentiment in the last cycle which was very positive with anyone who mentioned the word Uranium. If they walked into our bank and said the word Uranium, we were interested. But the reality was very, very different. And he said, it is going to be no different this time around.

In fact, here’s an interesting thing: and I’m looking at them here, he gave me, he’s got a couple of handfuls of companies that he thinks will make it, based on his knowledge of what’s happened in the last couple of couple of cycles. And it is kind of fascinating, you know, his view, having been there and done that. So, I enjoy that conversation with him and saying, you know, what people say and what they’re capable of doing are two very, very different things. And he kind of, again, off camera, gave me examples of, you know, companies who he thought talked a good game, but had no chance of actually getting over the line. So, a lot of what you just said makes a lot of sense to me. And again, Dustin’s explanation of how the utilities were, how the buyers think, what they’re looking for, what they actually believe. Some of these utilities’ companies are and are not capable of delivering. It is it is obvious to them. It is perhaps a little bit less obvious to us Uranium investors, but it is essentially getting an insider view on that one. As usual there are always many, many unknowns.

But as a Uranium investor, I think the mood seems to be positive. We are seeing companies who are coming into the Uranium space who are applying for permits and licenses. We’re buying into companies with permits and licenses, which haven’t really done anything in there, and I think that’s always kind of indicative of the mood. They feel that they’re going to be able to get financed. I know they’re sort of jumping on the bandwagon, but nevertheless, it is one of the early indicators that this is a market which perhaps is moving in the right way again. We’re having brokers approach us, you know, talking about, are we aware of any companies or projects, which would like money for this space? And we’re not talking big money. These are the obviously very, very early stage, barely even exploration, just I think asset hunters.

And so, Brandon, look, I think we started this talk thinking that not much happened this week. Nothing really to discuss. We have done it again. We have perhaps gone off in an impassioned speech about several topics there. But look, I appreciate your time. Have a great weekend. Are you up to anything fun this weekend? What’s happening?

Brandon Munro: Ah, just chilling this weekend. I’ve been really busy this week and I was pretty busy last week as well. So, I’ve got a few things to catch up on, on the home front. No bees, unfortunately. So, nothing quite that exciting, but hopefully I’ll keep myself busy with my daughters; that will be enough for me.

Matthew Gordon: Beautiful. Beautiful. Yes, me too. I must check up on those little bees. It is been wet. Very, very wet here. It is terrible. In fact, you know what I’m doing? I’m going up on the roof. We have got a leak. The lead work on the roof somewhere is not working. So, I’m obviously a man of many skills – that is so not true. I’m at least going to try and spot where the leak is and then maybe call a man who can. But these days it is very hard to get anyone to come out because they don’t want to be in contact with us. So yes, that’s my task for the week. Okay, well, Brandon, thanks so much again. Let’s talk next week. Hopefully some exciting developments. You never know.

Brandon Munro: You never know. But we always manage to find something to yabber on about, and from my understanding, your audience doesn’t mind it either. It was great to chat, thanks for having me on again.

Matthew Gordon: And it is time to say goodbye to our regular viewers from, as we join Crux Club. We are going to be talking now to Brandon and get his views on China’s influence on the Uranium market and Uranium investment by association. We look at how China affects companies and countries in terms of how they interact with China, what China’s drivers’ goals and ambitions are and how they think they’re going to get. It should be an interesting conversation. We are also looking at the NEI blog recently, which talked about the number of reactors in the US applying for an operating extension; what the impacts could be for US utilities, and of course, for our investments? But before we go, if any of you are interested in understanding what Brandon has to say on Uranium, and indeed what other market commentaries have to say about a variety of commodities and investments, go to You can find that at, where you can sign up for the waiting list, but in the meantime, goodbye.

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Peninsula Energy (PEN) – $40M, why now? Uranium Investors Puzzled! (Transcript)

Peninsula Energy Ltd
  • ASX: PEN
  • Shares Outstanding: 315M
  • Share price A$0.08 (09.06.2020)
  • Market Cap: A$30M

Interview with Wayne Heili, CEO of Peninsula Energy (ASX: PEN)


As usual, Heili lives up to his straight-talking reputation when asked why they chose this point to raise A$40M. A 2016 loan has been extended on many occasions but now, in light of the market conditions not reaching a critical mass, the loan is due in October 2020. Heili explains how the funds will be used.

We Discuss:

  1. Company Overview
  2. AUS $40M Raise: Why Raise So Much? Debt History
  3. Retail Investors Taken Aback: Why Choose This Method of Raise and Other Options Considered
  4. Timings: Why Do it at This Time, Rather Than at the End of the Aussie Tax Year?
  5. Risks, Concerns and Fees: Terms & Agreements with Shareholders
  6. Assuring Investors of Future Success
  7. Current Cash Position, Contracts and Breakdown of Spend for $40M
  8. Timeline of Getting into Production
  9. The Market Waiting Game: Spend Now or Wait?
  10. Does the Market Understand the Reasons for the Raise? Could They Have Waited?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Wayne, how are you doing, Sir?

Wayne Heili: Fantastic. Matt, nice to talk with you today.

Matthew Gordon: Yes, I appreciate it. Thanks for coming on at such short notice. I do appreciate that you’ve got some big news, which I want to discuss with you, but first let’s give everyone new to the story that one-minute overview, you know, what your business is about.

Wayne Heili: Well, Peninsula Energy over the past 2.5-years has been making significant advances in transitioning our existing alkaline-based in situ recovery operations in Wyoming to one that’s going to use low pH mining solutions. We think that’ll significantly enhance the economic potential of that flagship property for us when we recommence production. Our numerous achievements over the last several years, Matt, have that combined with the improving outlook and for Uranium demand in the market have not been reflected in our share price. Our board, you know, our folks believe that the spectre of the near-term maturity of the debt that our company carries has been the burden. And it is been the reason why our share prices and our share performance hasn’t moved with other companies in this space. And today we’re in the process of addressing that one final issue that’s been holding us back.

Matthew Gordon: Okay. Which is a large raise! It is quite a big number, over USD$40M, it is not to be ignored. You know, your market cap is around what? USD$28M, USD$29M, and you’re raising USD$40M. Why so much money?

Wayne Heili: Well you know, we have to be careful. So I’m going to kind of step into the Australian dollar rather than the US dollar. And we’ll talk Australian dollars for a little while now. Our debt in Australian dollars is about AUD$27M. And our capital raise, we’re looking at about AUD$40M on the raise. So the purpose of this raise is to entirely eliminate that debt in the nearest prospect that we can, and then we’ll be taking on some additional funds to carry our company forward with the initiatives of improving the low pH technical understanding, some optimisation, some de-risking of our project moving forward. So, you know, the scale of the raise is really one that is recapitalising the company. Going after a rather large raise at this time, the fundamental purpose is extinguishment of the debt. Everything else that we’re going to do, you know, could have been done with a much smaller raise, but the debt extinguishment is the main purpose.

Matthew Gordon: Right. Okay. And I do understand that you’ve had conversations with the lender. You’ve extended it a few times over the past few years, they’ve reached the end of their tether, have they? I mean, I know you kind of got an extension from April through to the end of June?

Wayne Heili: Yes. You know, look, we took this debt in 2016 when the company had just stood up the project and was just beginning production. You know, over the last four to five years now, we have extended the debt on a number of terms. We have changed the conditions on a number of times, you know, and today we really do believe that with the debt coming due at the end of October of this year, we really do face a very real prospect that the investment horizon for those lenders and that lender group is really near the end. And we’re not certain that we would be able to extend or change the terms and conditions of the debt moving forward. Beyond that, we pay AUD$3M a year in interest and servicing of that debt. So that’s a big chunk of corporate burn that’s being financed by our investors. So, it is important for us to look for ways to reduce our burn rate, reduce our costs moving forward. And so, extinguishing the debt became a real priority for us.

Matthew Gordon: And what about, why this method? Why a 45.4% discount to the share price as I think it was at some point in May. That’s hugely dilutive isn’t it?

Wayne Heili: Yes. Well, we recognize the offer price is a significant discount to our last closing price or to the pricing of our last capital raise, which was completed at the beginning of this year. The COVID-19 influenced markets today, in those markets equity raises, that are primarily for the repayment of debt or for the restructuring of a balance sheet, are being similarly priced. This is a substantial discount, but it is in the ballpark and the same pricing as you would see if you looked into the universe of other raises trying to accomplish the same thing, Matt, we priced this rights issue to minimise the execution risk. We also put… we think the pricing puts values in the rights for the shareholders. So, if they might clear the market if any current shareholders did not wish to, or were unable to take up their entitlements, these shareholders may be able to realise some value by selling their entitlements in the market because of the way we priced it today,

Matthew Gordon: So, who recommends to you that that’s the price? What was the starting price? I’m assuming you negotiated it, but it is still 45.4% so what were they originally recommending?

Wayne Heili: Well, this was a, yes, you know, we were looking at a 50% discount. We weren’t quite at that that level. But, you know, you can see raises of this type in the markets today offering 30% to 60% discounts.

Matthew Gordon: Yes, I think the retail investors are… kind of taking their breath away. They’re not quite sure what to make of it. Well, you tell me: what do you think they should make of it?

Wayne Heili:  I want the retail investors to be assured that the form of this capital raise was selected because it puts our current shareholders front and centre first. They have first rights to take up this well-priced offering. We didn’t do a placement to institutions in advance of opening up this rights offer. This rights offer goes to our shareholders first and if they take up their rights, nobody else will. Now it is fully underwritten and has been underwritten by Canaccord and a group of sub-underwriters. So, if the shareholders do not exercise their rights or opt not to, for one reason or another, you know, we could be assured that this raise will be successful. But it was very important to the board, very important to the company, was the treatment of our existing shareholders. And that’s why we selected this form of a raise. And it isn’t inherent with this type of raise that there are generally larger discounts, but again, each of our current shareholders has the first chance at these well-priced new shares.

Matthew Gordon: Okay. What were the other options you looked at?

Wayne Heili: You know, for the last 18-months now, we have been negotiating an arrangement that would achieve a partial monetisation of one of our offtake contracts. And the intent of that monetisation was to repay the debt. That’s been a part of our story, but the viability of that arrangement really depends on the ability to purchase Uranium in the spot market and at the time of execution, and the ability to buy at a price that would generate a significant upfront payment to the company. With the recent increase in the spot price of Uranium, the upfront value for a monetisation type of transaction has diminished significantly. So, the appeal of the attraction and the monetisation is not what it once was. And for us, we’re being mindful of the proximity of the maturity of our debt. We did look at all of our realistic options for the company and we took the prudent decision, we think, to avail the company of what is a fairly certain market right now, the Australian market is a pretty buoyant fundraising environment at the moment. And it is not always like that. It hasn’t been under the COVID environment. There’s been a lot of uncertainty in the markets and it may return to a volatile and uncertain market. So, we see this as a good time to remove the spectre of long-term debt. We think this was the best mechanism that we could look at. We value our shareholders and we put them first in line for this raise and, you know, really other mechanisms that didn’t put our shareholders today first in line, were quickly eliminated.

Matthew Gordon: You must have been one of the few Uranium companies wanting the spot price to stay low then?

Wayne Heili: Well, that is the irony, Matt, of our position. You know, the monetisation depended on a low price and the markets were low for a long time, but the monetisation transaction was just simply not getting done with some of the negotiations and the agreements that had to be completed. It just couldn’t be, we had a structure that we thought was a win for all parties, but there were some contract details that weren’t working out. We have looked at it, it has gone on long enough. We needed to reduce you know, the price of Uranium going up was against the interest of the monetisation. But Matt, it certainly is not against the interests of the company in the long term.

Matthew Gordon: Right. True, true. A couple of things on the actual terms: first of all, the date for this, what’s the date for this?

Wayne Heili: Well, the record date for shareholdings is June 10th, but we’re really looking to complete this raise in the month of June. We’ll have the proceeds come and completed by the 30th June. And we’ll be printing a strong balance sheet for the end of our fiscal year, for the end of the June quarter.

Matthew Gordon: A question from an Aussie shareholder: why didn’t you do this after the end of the Aussie tax year? Allow them to sell down some of their shares and then roll over the capital gains into the next year?

Wayne Heili: Yes. I’ve heard a few folks say that, that it would have been more advantageous for the current shareholders. First and foremost, you know, that wasn’t something that went through my mind; sitting in the US, I don’t have the same tax years, and maybe that was a miss on our part. But our motivation for the timing was to make sure that the company was debt-free and had a strong balance sheet at the end of the fiscal year.

Matthew Gordon: Right. Okay. Second thing – Canaccord – under what terms are they underwriting this?  Are they going to have a position on this? I mean, how are you paying them?

Wayne Heili: Well, Canaccord is brokering and underwriting and managing the process. Euros is also a co-manager of the process. You know, Canaccord gets an underwriting fee of 5% and a management fee of 1%. So the total cost on this is about 6% of the proceeds. And Canaccord has gone out and enlisted a book of sub-underwriters. They do that on their own, but you know, we have talked to major shareholders, we have talked to investors and high net worth folks interested in this space. Some of the Canaccord folks, some of the principals are in that block, but the sub underwriting is being done by institutions and outside of Canaccord . So you’re not seeing Cannacord taking a major position.

Matthew Gordon: Okay. I guess my main concern when I see deals like this and groups like that, and I’ve had it done to me, so it is particularly raw, is where they dump stock into the market after a 4-month hold, the stock gets hammered as a result, and sometimes never recovers. Certainly, companies of a certain stage. Is that a likelihood here, or have you taken precautions, or have you been given assurances?

Wayne Heili: Yes. look, that’s a concern. Everybody has that concern, and what we wanted * accord to do was to get a strong look to strengthen our registry. You know, we have asked them to look for investors who are long on Uranium, and they have. We have very good support from long Uranium funds in the sub-underwriting. Look, we did not want fast money in this deal. Really what we want is for our existing shareholders to exercise their rights. We want them to benefit from the pricing and the future that this company has to offer. We appreciate our current shareholders’ support coming into this, and we hope to continue to enjoy them. We encourage them to all take up their rights. The best way to avoid fast money coming into this company is for the shareholders who are currently owning the company to take up their rights.

Matthew Gordon: No, absolutely. But at the same time, you don’t want to hold them to ransom here on needing to do that when some of them may not be able to, and, you know, some may also be long suffering buying in at much, much higher prices, and you’re asking them to kind of double down on something, which you need to give them comfort that you believe you’re going to be able to get over the line. Not just the raise, but in terms of getting the company into production and survive long enough to be a player in this market.

Wayne Heili: And that’s, really Matt, what the residual of this shareholding is about and our current cash position. We look to see that this company can move forward with our de-risking and optimisation work at Lance and start to prepare for the resumption of production operations at the facility with our current cash flow. We’ll have a strong balance sheet that’ll carry us through 2021 and beyond, and, you know, into 2022, and not just sitting on our thumbs, we’re going to be working to advance the technical aspects of the project. We continue to identify ways that we can make this a stronger production operation at a lower cost. We want to continue to test that. We have been preparing the new field demonstration, as you know, we have done one field demonstration at the project already with the low pH, but now we’re at the cusp of starting the second field demonstration.

We’ll do that in July or August, but certainly we’ll be starting the new field demonstration in the September quarter. You know, we’re going to invest in the project. We’re going to invest in getting it ready for production. The reality is, you know, we haven’t made a final investment decision to start or resume operations, but the market trends are very positive, and we’re prepared to do this. We’re prepared to ramp up our production on general market improvements or on US market opportunities. And we believe, and we have looked at this very closely, we can be back in production and producing at a healthy rate within six months of a final investment decision.

Matthew Gordon: You have got this raise, you’re going to be able to retire that debt, so you’re going to debt free. So there’s no burden. Was that a securitized debt possession as well? Sorry, if I may, I’m just trying to understand.

Wayne Heili: Yes.

Matthew Gordon: So securitized, so it is quite severe. You can park that up. You do have, I remember from our last conversation, some revenues over the next couple of years from your contracts that you’ve got in place. I mean, how much are we talking about as a contribution there?

Wayne Heili: Sure. Right. Well, look, over the next 18-months, our contract book yet has 525,000lbs of deliveries. If we do that, if we supply those deliveries from the market and make purchases in the spot market today, our deliveries are priced well above the spot market. So, there’s a good margin on that. If we did this without producing, we could realise a net inflow to the company of AU$9M over the next 18-months. Looking forward into the future, our contract book extends out to 2030, and generally is 400,000lbs to 600,000lbs per year, every year from now to 2030, so we’re really just moving into the sweet spot. And one of the benefits, if you will, of not conducting the monetisation is that we’re preserving that strong contract book and the near-term deliveries, which were the ones that had the most value in a monetisation. So rather than taking money today through a monetisation, but taking less than the value of the contracts, we’re preserving those contracts, and in 2021 and 2022 and 2023, we have a stronger contract book and much stronger revenues.

Matthew Gordon: Okay. I’m just trying to get an idea of the numbers here. So you’ve got, over the next 18-months, AUD$9M of contribution. That’s the delta, after you pay down your debt, paid any interest and paid fees to the various parties, I mean, what sort of number are we sitting on?

Wayne Heili: Well, the residual…let me grab a sheet of paper with some math on it. There we go. So, you know, out of the AUD$40M which we’re raising, AUD$27.5 is going to go towards the retirement of the debt and the payment of the interest. 6% of it is costs for the equity raise. Generally speaking, we’re looking at having AUD$9M to AUD$10M proceeds available for us to advance the project, to do the low pH transition de-risking work, and to carry the company forward. We had a good quarter. I’d say we’re having a good quarter. We had some revenues in the second quarter of this year and our balance doesn’t significantly diminished because we have been very careful with our spending. So, we’re coming in, you know, we’re coming to the end of this quarter with a good cash position. We’ll pick up some additional cash through this equity race. And we’ll be fairly strongly cashed up the potential to be, I guess, somewhere in the range of AUD$16M to AUD$20M.

Matthew Gordon: Okay. AUD$16 to AUD$20M. Your G&A is what for the next


Wayne Heili: Yes. well, our corporate overhead has been reduced to probably around the range of USD$2M per annum or less in Australian.

Matthew Gordon: Yes, AUD$3M there for the next 18-months.

Wayne Heili: We have knocked that down. Look, we’re spending money at the project…we’re spending money on –

Matthew Gordon: That’s what I want to get to; what are you going to do with this money? You’ve got some cash. Do you just sit and wait it out because the market’s doing what it is doing, or are you progressing this new low pH solution that you’ve come up with?

Wayne Heili: Absolutely. Advancing the low pH…

Matthew Gordon: At what pace, what do you get? What are you doing?

Wayne Heili: We are spending the investment into field demonstrations, there are going to be about 3 patterns of wells. We have put these wells in. You know, you spend USD$250,000, USD$300,000, USD$400,000 on well installation and then you’re going to acidify or start running the operation. You have operating costs, chemicals, et cetera to run the test. I see that as being USD$500 to USD$1M; these are US dollars because I’m going to be, you know, the US operation. So, we continue to pour money into the technical improvements. We have some test work, laboratory test work and other scaled up test work that we’d like to conduct. Each one of these technical valuations are leading to optimisations. At the end of the day, I think, you know, we’ll be issuing a new Feasibility Study on the project, and then there’s costs associated with issuing a new technical report for any project. But you know, this isn’t just about overheads. This is about investing in the project, not sitting on our thumbs and waiting for the market, but again, bringing our project to a better point so we can enter the market sooner at a better operating cost.

Matthew Gordon: Right. Okay. So, we’re moving on to that slightly healthier, better part of the compensation, which is, how do you get your company into production? Again, I know we have had a talk previously, but for people new to this, your predicted timeframe for going from these tests through to Feasibility Study, through to a point where you are going to understand the economics better – what are you allowing for that timeframe?

Wayne Heili: Putting the company in production and conducting the tests is not mutually exclusive. They can happen concurrently. And that’s important to understand; if we decide to make that investment decision because the markets are, and good days are upon us, we can be in production within six months. We have two existing wealth fields at the facility that have not been optimally mined that we can today start putting into production as low pH and recovering more, or additional Uranium from resources from those areas. And, you know, we do need to invest in some of our facilities to make it compatible with the low pH chemistry, the change of chemistry, including asset storage change and including refurbishment of our wastewater systems. All of those things, you know, we have said, we’re ready to start doing some of the initial preparation. As the market signals indicate, you know, we’ll be investing in that right away. And we have the resources and the flexibility now to do that with this gap raise. We don’t have to wait and say, okay, now the market is good, let’s raise some money so we can start. We’re actually going to be in the position of saying, now that market’s good, let’s start.

Matthew Gordon: Okay. So you can be in production in six months at the point, you’ve got all of this stuff in place. Is that what you’re saying? And you’ve got the money for that. So when is the next raise?

Wayne Heili: Okay. Well, we have the ability, you know, with this planning to put us into 2022. We’re going to have a good cash flow, a good positive cash flow in 2021 with the contract sales that we do expect to happen. So we’re, you know, we’re really not going backwards at this point in time. We have year in, year out sales that can be met either through production from the markets, depending on what the market tells us to do. The market goes up, we’ll meet our sales through production. If the market stays slow, we will probably meet our sales through purchases for the period that we can. So we have great flexibility. We’re going to have a good cash balance and we’re going to have revenues that really nobody else in our space can speak of right now.

Matthew Gordon: Okay. You talked about a bunch of stuff there. Can you break it down? How do you spend the spare capital that you’re going to have? You have got about AUD$9M left from the AUD$40M Aussie raise. You talked about, maybe over that next 18 months, a AUD$9M contribution there in terms of, well, depending on what the spot price is. How are you going to allocate that money? And at what point do you stop? If the market has not recovered, at what point do you stop and go, okay, we need to sit on a cash reserve here. We have done enough testing. We know how to do this when it gets going, but the market’s got to give us those signals.

Wayne Heili:  Yes. I mean, Matt, you’re asking the questions that we ask every day is, you know, is the market, right? Should we be investing, or should we, should we be waiting? Today we know that we can guarantee or feel a lot better about the ramp up of our project. If we invest in de-risking and optimisation, and we’re ready to put several million dollars into the technical de-risking and optimisation of the low pH transition. We are prepared to do some of the fundamental investments that you know, that some of the longer lead time investments that are going to get us ready for production. So, you know, we have now, not allocated, but we now expect to have the resources to do these things, which are going to put us in a prime position to make the investment decision to start production. That decision hasn’t been made. And, you know, we’re going to watch the clock. We’re going to watch our cash balance very closely. We’re going to be good stewards of the resources that we have, but we’re absolutely planning to advance our capabilities and understanding of the project so that when we do come into production, we’ll come in strong.

Matthew Gordon: Okay. Do you think the retail market understands what you’re trying to do and why?

Wayne Heili: I hope so, you know, we have been communicating the importance of the low pH transition at Lance for the last two and a half to three years. I mean, this is something that has been front and centre in our story. This transition will put our project into a lower operating cost position with a higher productivity from our well fields in our ore body. This is technically a very important thing that doing with the transition. We are the first company in the United States to use what is a global leading Uranium recovery process: low pH ISR. And our project is particularly amenable to that chemistry. Not everybody in the United States should use that chemistry. And our industry in the United States for the longest time has fully relied on the alkaline chemistry. But this is a case where the technicals tell us that the alkaline chemistry wasn’t the right thing to do. And we should be doing the low pH. We have we have achieved the regulatory approvals that we needed to move forward and now it is really on us to invest in the project, start it up when the market says go,

Matthew Gordon: Okay, do you think your prospectus has done a good enough job of explaining exactly why you’re doing this, what you’re going to do with a spare capital? And what are you going to do to kind of get the forgiveness of the Aussie retail investors?

Wayne Heili: I hope so. We put a lot of effort into the prospectus, and I can tell you too, that a lot of effort goes into describing the risks of these operations, you know, in the company and general market risks for any company. So, I would encourage the investors to read the prospectus, to understand the pathway that this eminent trajectory that this company has been on. The accomplishments of the last several years are really remarkable, when you look at it in hindsight. Today, this is an opportunity for us to recapitalise this company, to put it in a position of strength, and having the ability to rapidly respond to the market stimulus. We all hope and expect that the Uranium markets are on a positive trajectory, an upwards trajectory. That’s what we have been seeing. We think that’ll continue. And, you know, our company is preparing itself to respond to better markets, rather than the markets that we have seen for the past decade.

Matthew Gordon: Could you have waited longer?

Wayne Heili: Could we have waited longer to do the capital raise?

Matthew Gordon: Yes.

Wayne Heili: No, I don’t think so. And this was really our judgment, the debt wasn’t due immediately, but the longer you wait before you try and retire your debt, the bigger the price you are going to pay to do so.

Matthew Gordon: Wayne, thank you very much. That’s a great update. I know it has been a tough, a few months, well, I say a few months, it is a few years really, isn’t it for a Uranium? And I the early signs are there. I think people are encouraged by what’s happened in the last couple of months, but you guys have still got a long way to go, and you’ve got to get yourself in a position to be able to fight that fight. So, thanks for today. Stay in touch. Let us know how you’re getting on. And if there’s any news, pick up the phone.

Wayne Heili: Thanks, Matt. You know, we’re doing everything we can to position this company for the rebound. We believe the rebound is here. We have seen that early signs of it. And on the Uranium pricing from the USD$34/lbs to USD$35/lbs price range, maybe it is just the start. There’s certainly a lot of macro impetus to see the Uranium price go up. You know, we see that happening. We want to be ready. We want to be on the front line, producing Uranium early and enjoying the profits, being well prepared.

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Serabi Gold (SRB, SBI) – 2020 AGM – CEO Summaries 2019 & 2020 Guidance (Transcript)

Serabi Gold PLC
  • TSX: EQX
  • Shares Outstanding: 59M
  • Share price GB£0.83 (16.06.2020)
  • Market Cap: GB£49M

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


We last touched base with Hodgson in May. This time around, he’s here to discuss the outlook for 2020.

Like most gold producers, Serabi Gold is likely to miss it’s guidance for 2020, but not by as much as investors would expect. The company has mitigated the impacts of the market reset and COVID-19 effectively. Sprott is out of the picture, and now the company is debt-free and cashed-up, it can proceed forward with exciting gold exploration at Sao Chico, in addition to creating operational optimisations at Palito and Coringa.

This gold producer has been consistently on the up, but now Hodgson has put his foot to the floor, and Serabi Gold appears to be accelerating into top gear.

What did you make of Micahel Hogdson and Serabi Gold? Are you a gold investor? Does gold mining interest you? Comment below and we will respond.

We Discuss:

  1. 2019 Overview: Great Year for Serabi Gold. Looking at 3 Areas of Progress
  2. Rough Starting 2020, yet Great Results so Far: What’s the Rest of the Year Got in Store
  3. Exploration Potential: Prospective Land Package and Great Possibilities

CLICK HERE to watch the full interview.

Matthew Gordon: Hi, Mike, how are you doing, Sir?

Mike Hodgson: Very well. Thank you. Nice to speak to you, Matt.

Matthew Gordon: Well, thanks for joining us today. You should be, today, at your AGM, but obviously things are what they are, and unfortunately people can’t get together and your shareholders aren’t able to see you in person. So, you’ve kindly agreed to talk to us, and I guess sort of kill 2 birds with one stone and talked to us about a couple of things. One, 2019 performance and obviously 2020, and what has been happening and what your hopes are for the coming year under the current conditions. So, if you don’t mind, why don’t you give us your rundown of 2019?

Michael Hodgson: Well, you are right, it is the wonder of technology, isn’t it? I mean, yes, we would have been there today. It was always a good day in our calendar. Over the last few years, we’ve had more and more interest with our AGM and had lots of, well, a fair number of shareholders coming along and asking some pretty good, intelligent questions, a good following and sadly this year we can’t do it. But you know, forums like yourself are brilliant for doing that. So, this is an opportunity to meet, to give out more information. Well, a lot of it would all be repetition of what we did in 2019, but it’s a very important moment to sort of reflect on because it was a great year for us. And possibly more importantly, people are going to want to know where we are now and where we’re going, as with many companies. I will come on to that.

But 2019 first: well, you know, as I said before, you know, 3 main areas of progress for us, really with Serabi. The production from two mines ore bodies: Palito and Sao Chico, great year. It was the first time we exceeded 40,000oz in our history. We have been ramping up, not quite making 40,000 for the last four years, but finally we made it in 2019, which was great, and it was our best year ever. We are really pleased with that. So, production went really well. The plant was full. The ore body is working very well. So really, plant loads of operation. So, you know, our push was obviously, where do we go from here? And during the year, we obviously did all that test work on the ore-sorter, which we’ll come on to a little bit. That obviously arrived at site at Q4/19. In the last months of the year, we were basically assembling all of that and it has been a terrific purchase because in Q1/20 this year, it has really helped us, particularly in the second part in March and April,  just after commissioning, it has had some tremendous results. In fact, if we hadn’t had it, we probably would’ve have had quite a poor quarter, but in the end, the ore-sorter was a great way of turning our quarter around.

The back of 2019: so, as well as Palito going very nicely, and Sao Chico, exploration success, we brought in a surface diamond drill rig, a couple of contractors, and we really got our teeth into those geophysical anomalies in and around the mine site. What’s called headframe exploration in and around Sao Chico, particularly. And we did a fair bit of that in the second half of the year. The results didn’t really flow through until the end of the year, but we’re very nicely doing step out drilling at Sao Chico, and I’ll probably talk more about that in the results of 2020, that’s when we get the results. We got going, focusing on Sao Chico in particular. That has been pretty good. And the final part of the 2019 story was really Coringa, which was our, what we call our Palito lookalike down the road, which is going to be probably our most obvious growth strategy. We have our Palito 40,000oz to 50,000oz, and we have another project down the road, which looks pretty much the same. So that means 40,000oz, 50,000oz going to 90,000oz. That’s our plan.

We did a new resource update in 2019 in the first quarter. We did a PEA that came out in September, which showed what we thought, you know: yes, robust 40,000oz, above USD$900 All In Sustaining Costs. 8g/t, 8-year mine life Palito lookalike. We got that out, off the rank on end of Q4/19 last year. And now we have completed an environmental impact assessment on it, and we are very busily doing our permitting, final stage of permitting for Coringa. Hopefully with a view that we can actually start building the plant, assembling the process plant that’s already there in the backend of this year coming, this year, 2020.

So, 3 areas, good production, great exploration start-up, progress at Coringa with permitting.

Matthew Gordon: Well, not only that, your share price moved. It was quite a year for your shareholders.

Michael Hodgson: Yes, sorry, that’s a very good point, and probably the most critical point. Yes, we went from, we had been sort of bumbling along about £0.40p, I suppose. And we had a bit of a dip in May down to about £0.23p, and we had a tremendous recovery in the second half of the year. And I think at the end of the year, we even exceeded, we didn’t quite make the pound, but we got sort of £0.90p and we have pretty much stayed there since. So, we’ve enjoyed a great run in the second half of the year, tremendous on share price. So yes. So, all those, I’d like to see those three things, as well as great marketing and good management got us to where we are today.

Matthew Gordon: Well, like I say, we follow you quite closely. For us, you are one of those sort of turnaround stories of last year, after sort of a, you know, a while of stagnation and, you know, you kind of got yourself over the line and you are getting noticed by people, for sure. I think I would agree – you had a great 2019. A good year for you guys. Is it going to continue? Let’s talk about 2020. It’s been a very difficult start for everyone. There has been a market reset. We’ve obviously got the coronavirus, COVID-19 affecting people’s ability to work. You had a strong start, but how’s it gone since then?

Michael Hodgson Well, as you say, before the virus actually really started impacting in Brazil, we had a very decent January. We then had a bit of a tough February because we had a mill go down on us. But fortunately, that ore-sorter I talked about earlier was really our salvation. The beauty about this ore-sorter is that it takes waste out and it allows the basically high-grade material to go to the plant. It gives you catch up facility in a plant-constrained operation. So, we’ve had a phenomenal March and a phenomenal April; our two best months on record. In the middle of all this virus too, which was pretty surprising. I remember sitting at PDAC in March thinking this, we don’t know how this is going to go. I don’t think anybody thought in PDAC how bad it was going to be, but I did suspect it was going to be tough. But you know, after that March and April; two phenomenal months, and let’s say our best months ever.

So, we finished Q1 with 9,000oz, which is very respectful number, and our target was 10. Our budget for this year is 45,000. It’s actually 20,000oz by the end of the second quarter, we have a stronger second half of the year. I know I spoke to you about three, four weeks ago. You know, we’re not going to be able to make our 10,000oz in that second quarter, but we’re going to, we’re doing well. We are going to probably do about 8,000oz. We’re doing pretty well. And I think all things considered, that’s a tremendous effort.

The reason we’re not going to do that is, what we actually did in anticipation, and with what’s actually happened with the virus. We just started being a camp: we just wanted to get everybody who wasn’t really critical to the operation off the site, just to reduce risk. That allows us to socially distance everybody, people have much better sleeping arrangements, better sort of eating arrangements. We just basically sent everybody out so that people have got space. Just good common sense. So, we’ve got less, we haven’t got the optimal workforce there. We’ve only got, for example, we have a workforce of about 500 people. Normally we’ve got about 350 people at site. We have now reduced that to 250 people. And so therefore it’s unreasonable to expect that we can actually have normal production with that level of people, but those people who are there, they are just purely on Gold production duties, that’s it.

And they are doing a fantastic job. We’ve actually done. We’ve kept people there, the union has been tremendous in terms of cooperation. We’ve managed to have people working much longer stints than they normally would. They want to do this. They want to spend more time at site and then more time away. And we’ve been rotating people through with quarantining. Anybody new coming to site gets tested for the virus. So those of them who are symptom-free and negative, obviously they come in and allow people to leave. So, we feel we can maintain a level of production of about sort of 7,500oz to 8,000oz per quarter. So not as high as we did, but that’s a pretty decent effort all things considered. And I would say we’ve enjoyed, obviously, fantastic economic tailwinds with the Gold price in terms of dollars and in terms of the Real exchange rate.

So, we might not be producing the answers we thought we were going to produce, but we forecast our cash position to be, at the end of Q2/20, to be about USD$6M. And we’re going to see well above that. At the end of Q1/20, we probably had about USD$3M more in the bank. We ended Q1 with USD$9M in the bank, when before we thought we’d have USD$6M. So actually, our cash position is great. And the great news is at the end of this month, Sprott, who have been a fantastic debt partner for us for many years are gone. They are out. Finished. We are debt free, completely debt free. So, we’re going to be a company going into Q3/20 debt-free.

We also managed to renegotiate the purchase of Coringa in smaller parcels rather than actually paying the trigger payment of the outstanding USD$12M that we still owed them to finally purchase all of Coringa at the end of March. We renegotiated that.  We are paying them in $500,000 payments per month, which would go up to USD$1M a month in July, but that’s very affordable with our current level of production, et cetera.

So, it’s, you know, it has all worked out quite well. So, we’ve managed to sort of tidy up the balance sheet. We’ve probably got about USD$2M more in the bank than we thought we were going to have. We might not have the ounces of production, but we’re getting better money for the ounces that we do produce. And we do feel that we can actually continue as we are for sort of 2000oz, 2,500oz a month – so 7,500oz, 8,000oz quarters in Q3, Q4  well, you know, one would like to think we can do a little bit better and things will begin to, we can man up a little bit more and get back to a more normal quarter in Q4/19. So, whilst we might not reach our guidance, as I said before, we’re hopefully going to make a pretty decent stab at a good proportion of it.

Matthew Gordon: Okay. That’s fantastic. Can I ask you about a couple of things you said though? Because I’m intrigued. First of all, congrats on being able to continue to work and putting the plans in place to have most of your workforce able to work and, you know, and you say 8,000 versus the 10,000 is a pretty good effort all things considered. But the 2 things I want to talk to you about are, one: how important is the exploration component to what you’re doing?

Michael Hodgson:  Well, we stopped exploration about a month ago, that was surface drilling. And that was with a contractor. And again, that was kind of, reluctantly we had to do it, but we just needed the space and they come and go, we just couldn’t have people coming and going to the site. We basically wanted to isolate the site and keep it safe. So, our sort of priority was with our workforce. We said to the exploration contract, look, unless you are prepared to keep your guys there for a longer duration, like we’re all doing you know, they can’t come and go. And they wouldn’t do that. So, we said, okay, well let’s just down tools on the surface, we have kept the underground drilling going in fact, with short breaks, and the underground exploration is back starting up again now. So that’s good. And that’s going now.

Sao Chico in particular, it’s not just about going out along strike east and west, which is what we were doing, but going down, which looks tremendous. That’s something that we can continue. So, we actually have got the exploration drills underground, turning again, and they are doing the down dip exploration beyond the mine limits, actually in the mine. So, whilst the surface part is parked the underground part will continue. And you know, you are right; I mean, I was very reluctant just to sit and stop exploration and just mine for sort of 3 to 6-months. That’s ultimately going to come back and bite you. So, we didn’t want to do that. So, we’ve got at least the underground drilling going again, which is great.

Matthew Gordon: Okay. So that’s something. And then the reason I ask that is because obviously I think people in the market understand the concept of, you know, you’ve got Palito, and in Coringa you’ve got Palito 2. You have doubled, or are potentially doubling, the size of the company because they are both high-grade, underground. You know what you’re doing. I’m intrigued by the land package that you’ve got because potentially, that’s where a lot of upside can come through the trail. But when do you think you’re going to be able to kind of get back into that properly with some kind of a vengeance and with the new cash that you’ve got, do you plan to ramp that up as well?

Michael Hodgson Yes. Well, what we did do, what we stopped in May or April was the surface drilling, which was particularly…, our exploration over the last 6-months has focused in three areas. It’s been step-out drilling at Sao Chico, principally, where we’ve got this whole sort of, you know riches of geophysical anomalies, ore satellites in and around Sao Chico. Sao Chico itself is a geophysical anomaly but looks quite poor compared to the ones in and around it. So, we’re obviously very excited about those. And we did start intersecting sulphide mineralisation at Sao Chico before we stopped. And then we have just got a bit of a tiger by the tail there, so that’s absolutely brilliant. And we’re drilling the gap in between the two, so that’s fantastic. That’s the bit that’s all to play for. It’s parked for the time being, but we’ll get back into that in no time. And that’s fine.

One thing we were able to do though, was we were doing a big regional geochemistry program. And that’s not specialised labour. That’s our guys, we just have field crews just doing, you know, it’s donkey work really, but it’s really fantastic work. They just sit there taking ore samples over the entire area. And we finally, after that six months hard work, produce those, if you remember; three weeks ago, those maps. Really great geophysical maps, which show geochemical sort of contours on top of the geophysics. So, we can see how that great big geophysical anomaly bridges between Palito and Sao Chico. We’ve got a great big booming magnetic geophysical anomaly with lots of electromagnetic geophysical knowledge. And now we’ve got a beautiful big 100, 200 PPM Copper anomaly over this.

Now we all know that the Gold that we have at Palito and Sao Chico lives with the Copper. So now we’re doing sort of follow up Gold on all of those, and we can do all this work in the background while all of this drop down is going up. So, what we’re doing is we’re actually moving forward with all the geochemistry, and really homing in on the best target areas so that when we do actually come back, they will be drill ready and we can actually start drilling the targets. So, we’ll have a coincidental geophysical anomaly, geochemical anomaly, and then we drill it. And we’re obviously pretty excited about some of the ones we talked about a few weeks ago, which were on that big belt that you’ll see between Palito and Sao Chico.

Matthew Gordon: Well, you certainly did sound quite excited about it when we went through it a few weeks ago, was it three weeks ago? Because I think the potential there is to really, to, you know, develop the land package that you’ve got, quite inexpensively at this point, whilst obviously getting Coringa up and running.

Michael Hodgson: Well, I think the thing that is compelling about these anomalies is, I know they are early stage and people sort of go, oh, you know, they are only geophysical anomalies, but everything that’s discovered starts off as an anomaly. That’s what the base of this is. These look they’ve got such signatures, similar to Palito and Sao Chico. I mean, that’s the great thing: we’ve got templates, you know, we know what Sao Chico looked like as just an anomaly before we started mining it and look what the hell it is now. It’s a great deposit.

We’ve got these ones like Calico and Juco, which are immediately to the south of Palito, they are 5km away. I mean, that’s nothing. That’s a road to our process plant.  Easy, easy. They are high priority because of where they are. And you know, if we get a, say, some hits there and we can actually go to another 2,000oz, 300,000oz resource and with all these different satellites, they add great value. We can very quickly turn exploration success into production ounces.

And this whole exploration effort that we’re doing at the moment is because we know, with planned constraint, the ore-sorter is going to free up some place in our process, some space to, you know, for the next step, but it’s not going to be the solution to all of our problems. It’s going to buy us another 10,000oz basically, at this stage, that’s it. So, we can make our little plant go from 40,000oz, 50,000oz, which is great, a great bottom line, you know, additions to us, but where do we go from there? Where do we go from there? That’s the next question? You know,

I’m absolutely convinced that our tenements hold much more than 50,000oz worth of Gold per year, without doubt, without any doubt whatsoever. The question is, where? And so therefore, what we have got to figure out is, okay, all these sorts of central riches that we actually have, you know, how big are they and where are we going to process it? Because we are going to, you know, you asked the question: obviously, Sao Chico keeps growing. Do we put some kind of processing down there? If these two ore bodies that we’ve got near around Palito are coming to, or have the prospects to become ore bodies, do we put a slight expansion at Palito? It’s a wonderful problem to have.

We’ve actually got, it’s pretty interesting because we’ve got a plant at Coringa that’s too big for Coringa and we’ve got a plant at Palito that’s too small for Palito, or we haven’t got a plant at Sao Chico. And what we’ve got is resources everywhere, potentially. And then just kind of figuring out what’s best to put where and when. So, but I think it’s a nice problem to have. I think we’ve got great upside in all of them. And it’s just a case of doing it in the most logical way that makes most sense to shareholders, which means we can build our company with as much cashflow as possible and as little sort of borrowing and dilution than we’ll ever have to do. And that’s what we’re trying to do.

Matthew Gordon: Well, as you say, Mike, some nice problems to have. It’s a nice environment to be working in. You’re building up the cash position. You are debt free. Things are looking better for you. I know this is part of your AGM discussion. So, from me, congratulations on last year. I really liked what you did there. You have got a good team. They seem to know what they are doing. This year, we look forward to hearing more of the same please, I think would be the call from the shareholders, but I’d just say for anyone listening to this, please send us your questions that you’d like to ask, because I’m sure we’ll be speaking again soon to Michael, or I hope we will. Or indeed, send them directly to Mike at Serabi Gold

Michael Hodgson: There is the opportunity. If anyone has got questions, please come back to us, we are always willing to talk through with interested shareholders what our plans are.

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Dustin Garrow – Uranium Winners & Losers Easy to Pick (Transcript)

A conversation with Dustin Garrow, uranium market commentator.


Garrow is an expert on all things uranium. Still heavily involved in advising uranium company Boards, he has been in the Uranium space for +40-years and worked in all aspects of it. He draws parallels in the inner workings of how successful companies are built, and how they fail. It was a pleasure to hear his thoughts on the latest technical and commercial events within the uranium space.

The uranium market is finally looking up, and uranium mining companies are gearing up to make important moves. Uranium speculators need to keep their eyes peeled because things are starting to heat up in the uranium sector.

1. Not hearing the confident noises he expected from the Nuclear Fuel working Group’s recent talks. It’s all a bit long-term and no certainty about budgets until after the US elections in November 2020.

2. EurAtom – issue warnings to European utilities about inventories, buying, lack of investment and transportation.

3. The importance of inventory location and why discounting is dragging prices down.

4. What’s happening with delta between contract and spot? And what’s the impact?

5. What is carry trade’s role? And is it dead?

6. Winners and loser easily identified

A must watch for uranium investors and generalists alike! What did you make of Dustin Garrow? Comment below and we will respond.

We Discuss:

  1. Nuclear Fuel Working Group Conversation – All chat, no numbers?
  2. When is Cameco reopening?
  3. COVID-19’s effect on KazAtomProm
  4. The Death of Carry Trading
  5. Importance of Jurisdiction in Today’s Market
  6. Euratom Analysis of Nuclear Fuel Availability – What’s The Takeaway?
  7. How Many Millions of Uranium Lbs are Missing in The Market?
  8. Garrow’s Take on the EIA Uranium Marketing Annual Report
  9. What does The Refuelling Mean for Uranium Producers?
  10. Energy Fuels Moving into Rare Earths: Importance of the Decision
  11. Peninsula Energy’s A$40M Raise: Opinions on Raising Large Sums in Current Market
  12. Is the Uranium Market Excited Again? How Long Will It Last?
  13. Winners vs Losers: Making Better Uranium Investments
  14. The Difficulty of Short Term Loans in the Market

CLICK HERE to watch the full interview.

Matthew Gordon: How are you, Sir?

Dustin Garrow: Doing well these days, considering everything going on in the world.

Matthew Gordon: Beautiful. Are you getting out of the house? You are running around the countryside?

Dustin Garrow Yes, we were able to make a quick trip to Arizona and now we’re back. So, you know, as the US opens up, I think people are a bit more comfortable going out, but still wearing masks in most places and adhering to social distancing.

Matthew Gordon: So that’s where we like to hear. That’s what we like to hear. It has been a while since we spoke and, you know, things have been, the last few months have been a bit crazy in the world of Uranium. Lots of moving parts, lots to discuss, lots to understand as investors in the Uranium junior space. So, let’s talk about some of those things. I’d love your love view on them. Can we just start with the Nuclear Fuel Working Group? Now, there was a conversation last week, or maybe it was a couple of weeks ago now, where they had a few more players sitting around chatting about what could be. My take on it: there was a lot of chat, not a lot of numbers, and trying to understand from an American insider in the industry, what was your view of the outcome of that conversation?

Dustin Garrow: Well, Matt, I think, you know, as they like to point out, there’s the process, and I think this was in-keeping with what the government does. It did have all the major players: The Secretary of Energy, a couple of his senior people. You know, the producers were represented by Jon Indall of the Uranium producers of America, and they went through all of the recommendations of the report. Now, keep in mind that the working group kind of morphed from looking at the front end of the fuel cycle into now, things like small modular reactors, the export market for commercial reactors. So, you know, it’s broadened in its scope. Now, back on the Uranium side, they made it very clear that there was a need to keep a domestic industry in place. There was a need for more inventory being available, not immediately, but down the road. So, and they focused in on the USD$150M appropriations requests in the fiscal year, 2021 budget.

Now, the listeners need to realise that the 2021 budget would come into effect October 1st of this year, so we’re not that far away from it. There’s been no approvals given, but I know that the producers have been in some discussions about appropriations prior to that date, and I’m not sure where that stands, but it seemed to be on the call. That’s where the government was looking, was the 2021 budget. Now, as I think we’ve talked in the past, some of the challenges, I think it’s difficult for the producers to make firm commitments for, you know, restarts of production, rehiring people, when it’s only a one-year commitment. Now, they’ve also put it in the 10-year budget forecast, but that’s certainly subject to the next administration, be it under president Trump or someone else. So, I think there are some issues that need to be addressed there.

So yes, you know, they’ve got to put the process in place. The head of the Department of Nuclear Energy made the comment, we know by next year they will have the process, which should be all inclusive. And I think next year, probably referring to the early part of next year, and maybe what they’re doing is waiting to see if they get that 150 approved or appropriated and then move forward. I didn’t, you know, I got the sense there that they were still committed, certainly. That this was president Trump’s now marching orders for a lot of people in the government. So, I came away with a positive on the overall nuclear power side, but still some, as you say, unanswered questions, kind of, how quickly can they do it on the fuel cycle?

Matthew Gordon: Yes, I noticed that. It seems very unclear to me. I get that Trump is pushing; it’s an election year. Okay. I keep saying this in every interview – it’s election year, there has got to be some posturing and politicking over this, for sure. You can’t discount that as part of it. But I was looking for language that could give us clues, but instead it just got, to me, slightly more complicated because we’re talking about SMRs and getting the export business and competing back at the international stage again, and, you know, being number one. And all of those kind of big grandiose statements without the substance of anything more than, let’s wait and see if this USD$150M shows up once, and who is in power to be able to sign off on the USD$150M a year for the next 10-years conversation. Not that we know who that’s allocated to. So, I was, I guess, unreasonably looking for a little bit more guidance from them, a little bit more direction from them, which was not forthcoming.

Dustin Garrow: Well, you have got to remember, Matt, I think the way it works here, probably the same as in the UK, it has got to be addressed at the highest levels. So, I think that’s why they had the Secretary of Energy involved to make the comments that, yes, we’re committed to do this. Then it trickles down in the bureaucracy where they say, hey, there’s the mandate. So now we’ll start working on more specifics, how do we get this done? The guys at the top tend not to be focused on the specifics of how we get this done. It’s just, we need to get it done.

Matthew Gordon: Absolutely. And, again, if I look back in the history of US energy and secretaries of energy, it’s usually a case of all of the above. And all of the above costs a lot of money and all of the above takes time to come in. So, I guess the clues weren’t there, hence my slight frustration. Because I’m looking to see how Uranium junior companies are able to benefit from this. But I guess we’ll wait to see what the next conversation brings us.

Can we talk about the news? Obviously, Cameco: I think that’s had been a big thing since we spoke. Cigar Lake is still shut down. I don’t think that looks like it’s opening anytime soon. We’re what? 2.5-months into the 3-month period, what are you hearing?

Dustin Garrow: Well, you know, originally it was three to four weeks, and then they extended that for the indeterminate.

Matthew Gordon: Of course, it was. Sorry, I was getting confused with Kazatomprom.

Dustin Garrow: Yes, well, the same language. And so right now on the Cigar Lake side, obviously they reopened the conversion facilities. I’m not picking up anything that suggests they’re now looking to reopen Cigar right away. And actually, on the call, Grant Isaac made the comment that, well, we want to, you know, have our new contract portfolio in place to reopen the two facilities. Now, maybe that was just a slip of the tongue, but I think, you know, those that said, early days, were looking maybe four to six months, they probably weren’t too far off. So, you know, I think that’s, and some of it obviously is COVID-19 oriented. I don’t think the province has opened up yet. So that’s kind of where we are. So, we’re continuing to lose that production in the overall picture. Let’s put it that way.

Matthew Gordon: Well, let’s bring that together. Let’s sandwich this conversation with KazAtomProm, who also in a recent article suggested that should COVID carry on as it is, and it seems like it will in-country, if news reports are to be believed, that they too may have to look to the market to fulfil their contracts. So, you’ve got two of the largest producers, the most powerful producers in this small world of Uranium that we were talking about, who are talking the language of needing their contract portfolios get to a certain place. And the fact that they’re going to have to come in and sweep up the remnants on the table, which seems to be doing the rounds at the moment, which in itself may drive prices. And we talked several months ago, and we’ve talked a couple of times about the ability of the two largest companies to do this. Now, I’m not saying that deliberately, there’s not some sort of cabal going on here. They’ve not come together and colluded in this, but you know, events have occurred, which means that they are making those sorts of noises. I mean, do you think that’s realistic? Do you think that will help the spot price?

Dustin Garrow Yes. Well, first of all, on the KazAtomProm front, I think, I know, as you know, on their last quarterly call, they made it very clear that they had no intention of kind of coming in the market, à la Cameco. They viewed it as being the reliable long-term supplier and not being seen as a trader. I think though they realise, Cameco obviously has a position as a reliable long-term supplier, and with the COVID-19 situation, I think they realise that perhaps with their draw down of inventory, with the lapse in production, Uranium One has announced that their production is down there. I think they have to look at, and they said, they look at all eventualities, they may have to cover some of their deliveries. Now, they have a trading arm that I think is in a perfect position to do that. It’s just that they have to say, well, we’re not going to draw our inventories down to an unacceptable level. Production is not going to ramp up as quickly as we had hoped. And so, they may have to do that, which obviously will help remove more available inventory in the market. I mean, they have, like you say, Cameco and KazAtomProm, I’m still hearing that perhaps Orano is doing some coverage out of the markets. You’ve got the big producers that could come out and pretty well vacuum up a lot of the excess inventory. So again, the market, you know, it has flattened, as we know. It is quiet right now, but you know, later in the year we could start to see that that strengthening again with more demand showing up.

Matthew Gordon: Well, let’s hope so, but that leads us nicely onto a comment, or certainly some discussions we’ve had with regards to carry trade. So, is the death nell of carry trade? Are they about to be wiped out? What’s your view?

Dustin Garrow Oh, you know, I think that what I’ve learned having spent time within a big trading organisation is that they can be pretty creative. Now, as I think I was quoted in one publication, you know, the traders tend to thrive on large available inventories. They love to mobilise that inventory, place it in the market, be it spot midterm, long-term, you name it. That’s kind of where they make their bones, as they say. Will it totally disappear? I’m not quite there yet. Now I know that for example, KazAtomProm has been very public and said they had signed multi-year sales agreements with some of the traders and they’ve terminated those. They will not supply traders. Now, some of the traders have gone into the Uzbeks and signed off offtake contracts. So you know, but it will be a source that the utilities can kind of, rely is not the right term, I think we’ll say, Hey, I’m going to cover all of my two to three year needs out in the future with carry trade contracts. I think the ability to do that will be lessened. And cost of money; I think, as we come out of the COVID situation, I’m being told that just like getting money for new Uranium production facilities, it’s probably going to be available, but it’s going to be higher cost. So, you know, depending on the spread between the price levels and you know, that margin can start to collapse we’ll just have to wait and see. Another imponderable. Again, if you are a nuclear fuel manager and you have that list of 10 issues, be it Russian suspension agreements or Iranian waivers, whatever, now it’s kind of carry trade should be on there somewhere. How does it fit in? And it may just change where it could be there, but not in the volumes we’ve seen in the past.

Matthew Gordon: Yes. I think another interesting thing is that they know how to be nimble and agile and segue, engineer, because they’re not going to wither on the vine quietly, they’re going to go kicking and screaming, aren’t they?

So, we talked about something, and again, related to the carry trade in a way; we talked about location being important, didn’t we? So, and the reasons for that is manifold, but again, just to remind people, what is your take on why location is more and more important in today’s market?

Dustin Garrow Well, you know, just for the listeners, the price reporters are coming out with price discounts. In other words, the USD$33/USD$25 let’s say today, is for delivery at Cameco. It has become the primary delivery location. I think it’s because Cameco when it buys, refers material there, for whatever reasons. Certainly ConverDyn, they have still not made any decisions about restarting. I think they’re taking deliveries of material, but I understand physically, material is being moved off site. So, it’s not viewed as attractive as Cameco. And Orano, I understand that they’re running up against storage limits. And so they’re not, for example, issuing or discussing new supplier agreements for non-consumers of conversion. So, I think just all of those factors put in place, and it’s just the cost of transport and the uncertainties; people just prefer material at Cameco. And so that’s why we’re seeing that discount, which, you know, has gotten to be pretty substantial. That’s 10%. That’s a number of dollars.

Matthew Gordon: That’s not to be ignored. No. So that is having a big impact on the marketplace. So generally, actually, we’ll finish on a couple of more things then I want to get an overall view. We will kind of skip through the market. So Euratom obviously put out a document, probably about three weeks ago now and they had two or three big conclusions. What was your takeaway from what they had to say? It seems to be, they were sort of admonishing the market somewhat.

Dustin Garrow: Well, keep in mind the Euratom supply agency, which I saw, they just had their 60th anniversary, plays a different role in the market. Let’s put it that way. If you are a Eurotom EU utility, all of your contracts have to be concurred by the supply agency. In other words, they have a responsibility to implement policy on things like diversification. And so, they have an advisory group made up of representatives from several of the utilities, from, I know Orano is on there, representing the suppliers. And so, they periodically come out with a report saying, ‘Hey, these are the 10 most important risks to the front end of the fuel cycle. And here are some of the recommended solutions, or what can the utilities do?’ Interesting: in the previous one, a lack of investment in new mines was the number one risk. That’s now dropped down to four. It’s still there, but this now is a transportation hub. So, the whole issue of moving Class 7 material globally has come up. It’s now the number one risk. But they’ve also got other Uranium-related risks on there: permanent reductions and output and exploration, not much grassroots exploration going on right now. But you know, they’re able to then recommend to the utilities. You know, don’t do single source, have multiple sources, have different forms of inventory. Now, which is interesting because as you know, as you go in inventory, as you go natural, you have UF6 enriched, UF6, or fabricated fuel, that has big economic implications, but they don’t really look at that. They say, well, you should be having material in all forms at different locations and all of that. So, I think now, the utilities generally adhere to those guidelines.

Now they’ve given exceptions, particularly for Eastern European utilities when they had come in the EU, they had large dependency on, for example, Russian fuel. Now they’re moving away from that gradually, but for example, they’re in violation; the EU policy is no more than 25% from a single source. So, I think that’s, it’s now to the US utilities to look at that and go, ‘Ooh, I better, you know, this is all good stuff. I should toe the line.’ I think they take it into account just like every, you know, they say, ‘Hey, it’s a big group, it’s 120-some reactors.’ So, this is their policy statement. So, you know, it’s just another bit of grist for the mill. But it has an economic component that’s not discussed in the report.

Matthew Gordon: Yes, that’s true. I think that one thing they also said was that you needed to have three years of inventory available to you at any one time. So little things like that, seemingly obvious stuff, but it needs saying, right? It seems.  Okay. So, all of those moving parts, so what does this mean? The market is short on production. Obviously, there has been a little drop in demand, obviously a little bit of drop in demand, it would seem. But what is missing? What was the number you were going to put on it? How many millions of pounds is missing in the market now?

Dustin Garrow: Well, I went back to the beginning of 2018. So, we’re talking 2.5-years, and that captures Langer shut down McArthur, and just running some numbers for this year, I came up with about 70Mlbs of, let’s call it lost production from the care and maintenance, the cutbacks in Kazakhstan. With the Kazakhs, it was off planned production, things like that. But just as a kind of a working number, you know, 70Mlbs. So, it’s half of what production was last year globally. So, it’s starting to become a very large number and that won’t be recaptured anytime soon. You know, even if MacArthur, Cigar, you know, come back at 18Mlbs each. Now MacArthur is licensed to go a bit above that, will they do that? That remains to be seen. But yes, the number I came up with was interestingly enough, right at 70Mlbs, since the beginning of 2018, has been taken out of the primary production.

Matthew Gordon: Because you describe it as lost as opposed to delayed. You think that should be in the ecosystem today, but both Cameco and KazAtomProm have said, we’re not going to play catch up. You know, they’ve got different price points, I guess, that they’ll be talking about, but nevertheless, they’re not going to play catch up and try to get those pounds back in the market. So, will the ecosystem be running on a little bit of vapour as a result? I mean, isn’t that kind of a little bit nerve-wracking for utilities?

Dustin Garrow: You know, as Cameco has put out on its calls, their program is designed for better transparency on the market. In other words, there’s a, as you know, a broad range of opinions on how much…yes, the overall inventory is a very large number. We know that to be at a billion pounds and a half. However, you want to classify Russian inventory and high-assayed depleted tails and all of that, but, you know, use a billion. Is that available? In other words, do we just not need to produce anything for years and years? And I think that’s part of the strategy, it is to say, okay, we’re going to go out there and we’re going to be persistently buying in the market. Now so far, I mean, look at April – 25Mlbs. So, you know, I think that was traders. It was maybe the financial guys. I’m hearing, there’s a couple of low-cost producers that are laying pounds into the spot market. I don’t want to point fingers, but you could probably figure out who they are. And so, it’s not just been, Oh, traders are, you know, flooding the market. It’s been several sources. And I think, again, if I’m a financial investor and I bought at USD$25, maybe even in January, and I can sell it at USD$33/lbs, I may take that USD$8/lbs for my half a million pounds and then say, well, if the market starts to move up again, I’ll move back in. So, I think we’re seeing, you know, again, quite a bit of different sourcing, but as the persistent pressure comes in, the utilities have backed out of the spot market from what I can tell. It doesn’t mean they’ve stopped buying that. They have other things they’re working on right now. And they seem to not be particularly concerned about availability.

Matthew Gordon: No, they’re not, they’re not.

Dustin Garrow: Because why buy at USD$33/lbs?

Matthew Gordon: Yes, big, big. Discuss. The EIA Uranium marketing annual report came out about two weeks ago. I think it stunned a few people, and I’m not sure why it was, but it did, because the numbers show that it’s like 3Mlbs less than the year before. It’s no big deal. They’re not running out anytime soon. It’s way more than people imagined. And I’ve heard various versions of just post-number justification about why that is. And you know, the fact that you have UF6 enriched and so forth being used instead of U308. And it all kind of like, you know, with hindsight, it is a great argument, but I think at the time, on the day it has done a few people, a lot of market commentators didn’t actually know what was going on. Couldn’t work it out. What was your take? Did you expect these numbers to come out? Because if you are a Uranium junior miner equities investor, you are slightly disappointed by that because it says, as you’ve just said to me, the utilities don’t seem particularly worried. They’ve got other stuff to do. They’ve got all of the above to look at: they’ve got their gas; they’ve got the renewables to worry about. So, they know they are good for a while, so what’s in it for us? What should we be thinking?

Dustin Garrow: Yes, I think it was a little surprising that the utility inventory went up a little bit. We’re talking rather than a decline and, you know, the utilities were more active in the spot last year, according to UX; they bought globally, you know, 22Mlbs, something like that. Now the unfilled requirement profile; the utilities entered into contracts for about 26Mlbs, when you average minimum, maximum. And when you look at the total unfilled requirements, as if by magic, they kind of dropped by 26Mlbs. So yes, they did some contracting, some of it further into the future. And I think that reflected as reported by Cameco, they’ve gone to some of their bigger, better utility customers and they’ve probably renegotiated, extended, whatever their contracts. So I mean, to me, all the pieces kind of fit, but then when you look again at unfilled requirements by 2024, which isn’t that far off, you know, more than 50% of the stated requirements from the utilities are yet to be contracted – 22Mlbs. And then in the year 2023, it’s 37%.  So that’s still a lot of material to be contracted for.

The question is always the timing. When do the utilities decide, hey..? Now, as we have talked, when I went to the NTI conference in January, a number of the utilities were saying, ‘Hey, I think the time is coming. I want to start talking about long-term contracts,’ and a couple of them entered the market but the rest of them have now kind of stepped back and said again, I’ve got other big issues looming, there seems to be material. So, but I do think there is, it has been reported; there are ongoing discussions between some suppliers and the bigger utilities but it’s just not at the level where you are seeing a lot of these contracts reported. And I think we may have to wait until fourth quarter. I mean, we’re almost at the end of the second quarter, and until we see a little clearer.

Just as a side note – it’s pretty interesting. The DOE information, Energy Information Administration just came out with an update on electricity in the US through 2022, or whatever. But this year they see electricity demand down 5.7% for the year, but nuclear shares, which have been 20%, goes to 22% because of a much lesser cutback. So, the point is, the plants are still operating. They’re being refuelled, there may be schedules that have had to be jockeyed around. I see TVA just finished its third refuelling. So again, the fuel groups have been, let’s say, distracted or prioritised away from, well, I need material in 2024, rather than I’ve got to get work on with the group that’s refuelling today. So, I think there’s part of all that. And again, the price – I’ve heard that some of the utilities are speculating, price will go mid-thirties, then the air clears and it drops back below USD$30/lbs. So, I really don’t see the need to go out and contract for a lot of material. But the need is still there. The reactors are operating. We’re yet to see the new EU numbers, which have come out in July.

Matthew Gordon: I think that that will be very tiny. That’s really interesting what you said there, because again, some of the reaction to the EIA marketing report, Uranium marketing report was that, don’t worry, there’s a whole bunch of reactors which need to be refuelled this year. That’s going to dramatically change the environment. Okay. It’ll be fine. Do you think that’s going to be big enough to make the utilities –

Dustin Garrow: No.

Matthew Gordon: No, Right. Okay. There we are. Good. Thank you.

Dustin Garrow: The reloads that are being loaded now were planned five years ago. I mean, people don’t understand; this isn’t coal, where you say, I need another few more tons. Having worked within a fuel group, an operations group at a utility, they’re planning several reloads out in the future because they have to have that material in the pipeline, enriched to the right level, fabricated bundles delivered. So, this is not a ‘just in time’ industry at all.

Matthew Gordon: Got it. I wanted to hear that, because just listening and reading some of that conversation, it just seemed, I always call it ‘pub talk’. You have got to speak to people in the know and who have been in the industry and sort of see it.

Dustin Garrow: It just so happened, I saw, what, about 90% of the US reactors are scheduled to be refuelled this year? Either spring or fall. Those are the refuelling windows. And so, you go, yes, it’s a lot of material, a lot of refuelling that’s going on, but this was planned forever ago.

Matthew Gordon: Okay. So, what does that mean for Uranium producers? All of this refuelling is going on. It has been planned. They’re going to need to backfill, as it were, but looking at the numbers from the EIA, looking at UXC, looking at TradeTech numbers, it’s not going to affect share price for some time to come.

Dustin Garrow: It’s all, you know, and I think our last talk was on the term market. I think it’s when the utilities say, okay, I need to start contracting for 2023, 2024, which they’ll do maybe starting later this year. So, any kind of price implication, certainly for material on the production curve, you are going to see soon. So, in other words, at USD$31/lbs, USD$32/lbs, we’ll look at, okay. Trade Tech has a new index, the production cost index, where they’re just saying, this isn’t necessarily reflective of what people might offer. I’ve seen too many producers that go, ‘Oh, well, I’ll take this contract, which is a loss leader, but then I want to report, I’ve got a contract and then the investors will say, I’m real and I can do that anyway.’ What I think trade tech has done is modelled production and said, ‘Hey, for restarts and new production, the lowest is USD$44/lbs.’ And they’re putting it out there. They’re saying, this is what it costs. And I think that does not have a profit component. So, you can really bump that up to well into the high forties.

So that to me is a more important index than what somebody might be offering in a hybrid contract. You know, so that’s a point, we say, well, once the utilities go, ‘Hey, I’ve talked to the suppliers and I’m not going to see prices below USD$40/lbs, then I really probably am.’ And it helps though that the spot price moves up because then that gap starts to close, and the optics look better for the long-term contract at USD$45/lbs. So, I think a lot of the factors are beginning to help the whole idea of more term contract.

Matthew Gordon: So that’s the delta we should be looking for: the closing of that gap. I think that’s one for another day because I want to get into a contracts-only conversation with you, because it’s absolutely fascinating. So why don’t we segue onto something useful for Uranium equities investors? Okay. So, let’s just take a look at the market, and there are a few things that I’ve noticed. There’s a big move by one company which you know, well, which is Energy Fuels, and this discussion that they’re having in the market about rare earths, okay. So, they’re a Uranium company with Vanadium as well. So, we’ve just talked about the Uranium market and we kind of skipped through a lot of topics there. They do have this Uranium component. I think I heard something about the potential for another Section 232 for Vanadium. But again, let’s park that up for now. But rare earths -oh boy! That is exciting to me because rare earths can be processed at White Mesa. Their White Mesa Mill that they have, it’s a huge mill with many, many lines to it. So, do you know much about that? I mean, obviously I don’t think necessarily think they are segueing away from Uranium, but they’re giving themselves more options it seems. And as another strategic mineral in the US, just how important is this?

Dustin Garrow: From my understanding, I’m by no means a rare earth expert, but with the current discomfort with say, trade with China, I think there is a growing focus within the US that the rare earths industry needs to be, let’s call it more vibrant. Now, I know the White Mesa Mill really well. I worked for old Energy Fuels when the mill had just been built. And I think they’ve done a really good job of making a dedicated Uranium mill into a much more flexible facility. Obviously, it had Uranium, Vanadium to begin with, because of the Colorado plateau ores. When the market went south, they got into alternate feeds, which is effectively a waste processing disposal business, which they’re still doing. And they’ve been doing it now for 20, 25-years. And I know that looking at White Mesa for rare earths processing has been going on for a while internally, in other words, how can we make this even more flexible if the Uranium market does not respond? If the Department of Defence and DOE, that project doesn’t go as quickly or as large or as well to support us. So, I think, you know, it’s like some of the other companies. I know Uranium Energy has got, I think, Titanium they’re looking at. So, you know, it’s a good business strategy, if you can do it. I mean, if you are an ISR producer, it’s really tough to do more than produce Uranium out of your processing plant. But a traditional mill, you know, they they’re able to engineer it to do more. So, I think to me, it’s a plus. Now the question is, are they abandoning Uranium? Well, no, it’s still going to be, I think, their primary focus, but there’s going to be this, let’s call it secondary activity of where they may become a focal point for the production or processing of rare earths, which I know there’s a big mine in Texas. I haven’t, you know, I know there’s the one in California, but there’s probably several big deposits where they have gone, ‘Well, we don’t really want to build a mill, or we can’t, or whatever. And so maybe White Mesa is the answer.

In fact, we drove right by Blanding on the way to Arizona on our visit down there. And you go, ‘Yeah, there’s a big facility sitting out there in South-eastern Utah, that could be used for a number of minerals. So yes, I mean, I think it’s just a smart business strategy decision. Just don’t sit there and go, well, you know, Uranium’s tough and we’re just going to ride it out. And, you know, I think they need to look at other –

Matthew Gordon: Yes. What I liked about it was that there’s just this general mood on Capitol Hill about national security across a multitude of different commodities. And, you know, rare earths have a radioactive component to it. So, it’s not a case of, you know, do you want to pay for a mill? But can you get the licenses to process radioactive waste or material? And how long does that take? And not every state feels the same way about it. I don’t think the market has given the company credit for that yet. Certainly not on the share price, that’s for sure. But they’ve got one or two things to deliver between now and then, but I just thought that was an interesting one.

The other big one that stood out for me was an Australian company, but the assets are in the US, which is Peninsula Energy. They have just raised AUD$40M -that’s a big, big chunk of change. It’s an ISR project, obviously. I mean, have you heard much about what the plans are there? We had Wayne Heilli on the other day, actually, talking about Peninsula Energy’s project. Are you aware of it?

Dustin Garrow: Oh, well, yes. I mean, Peninsula, obviously, is moving forward with the new technology, which hadn’t been really utilised in Wyoming except back in the sixties or something. So, they’re not sitting still, they’re saying, ‘Hey, let’s try to meet the market somewhere in the middle on cost’. But, I’m not sure that they’re going to diversify at all. I mean, I see a Azarga now in parts of Wyoming on top of South Dakota, so they’re geographically… So like I said, there’s a number of diversification strategies and optimisation that’s going on in response to the market.

Matthew Gordon: Yes, well, there’s a lot of movement in the market. I think some people have taken advantage of the recent move in price to go and raise a few dollars to kind of keep the lights on and keep things chugging along. And there’s been, you know, small raises. But there’s been like, say AUD$80M is not insignificant. It is the same with NextGen – C$30M, sorry, not NextGen – it is Fission with USD$30 million about three, four weeks ago. Again, to try and move things along. So, do you think, do you feel that the market sentiment, because, I mean, you are in sitting in front of these funds, you are talking to these guys, is the conversation changing? Is it evolving? Are they getting excited again?

Dustin Garrow: Yes, I did a roadshow in January for one of the companies I work with, and maybe it was who we scheduled the meetings with, but there was a lot of enthusiasm then. And I think it’s still there. It’s been muted a little bit by COVID-19 on, what does that mean? How long is it going to last? What’s the role of nuclear going forward, you know, that kind of thing? But yes, I think there, from what I could tell, there is capital available, but you have got to have a really good story, which has gone beyond, well, I have a bunch of drill holes, but now they’re asking questions about what does the management look like? In other words, do they have the responsibility or the experience in the industry, and that’s becoming harder to acquire. Let’s put it that way.

I think there are a lot of companies now that have brought in executives just by necessity, from other commodities, some are financial guys. But to try to find, you know, those that have Uranium in their blood, one of my favourites of course, is John Borshoff, he and I still stand, but he’s like I am: he’s a Uranium bug or bull. But there’s fewer and fewer of those guys around, just because there hasn’t been the training ground, there hasn’t been… It’s just like they’re now saying we’ve got to train up more, part of that discussion with DOE, more professionals in the nuclear area. Well, you’ve got to demonstrate it’s where someone says, I want to spend 40 years in this industry. And I think that’s kind of where we’re coming with Uranium. One of the more disquieting aspects of it is, my concern is 10 years from now, do you have enough experience to operate Uranium facilities, which are different than anything else on the face of the planet? From a regulation standpoint, transportation – which is now a huge risk, you know, dealing with the governments on permitting. I know even Vimy, they have got federal permits, I guess, at the federal level, but they still, you know, they’re making it clear that they’ve got kind of secondary provincial state level permits that they still have to acquire. I mean, as you know, I worked for Berkeley Energia for a while, and I think they said with Salamanca, there was 120 permit licenses approvals that they had to have all current so everything kind of came together in that one core. And so, 120 for one 3Mlb p/a mine, which by the way, seemingly is, let’s say, struggling to say the least. So that to me is as big an issue as anything: it is human resources, how many Uranium geologists, how many Uranium process engineers, and they’re just not growing any. So that could be, I think, the next big challenge in the production side.

Matthew Gordon: It is interesting. I mean, we did talk about this, I think, again in second interview, we talked about human resource, and you know, my big takeaway from that was if you haven’t done it before, you are probably going to struggle. So as an investor, I’m looking for someone who has produced pounds, who has got them into the market, because as you say; one, you’ve got to work out how the hell to get it out of the ground economically, but then you’ve got to transport it, and that’s by road, store it at a port, get it on a boat, get it to where it needs to be. The logistics are complex, for sure. And I do appreciate what you are saying with regards to, there’s not just a CEO or a management team who have done it before, but the entire food chain of people, the operational management team. If you haven’t done it before, you possibly are slightly more likely to fall over than not.

Dustin Garrow: It is not impossible.

Matthew Gordon: It is not impossible, it’s just that little bit harder and fraught with regulation and so forth. But again, I want clues, I want some clues here from you, Dustin. I know it’s hard to suck these out of you, but we’re going to try, which is, in terms of the way the current market stands, like we get the big boys: we have talked about Cameco, we have talked about Orano, talked KazAtomProm, but there’s a kind of stable of smaller producers, mid-tier producers, and we’ve mentioned a couple there in terms of a UR-energy and Energy Fuels and obviously the guys in Namibia, but what else should we be looking for? Because I’ve already noticed a few new entrants into the marketplace. People who took something else completely different two months ago, they have just gone and bought licenses, Uranium licenses, because it seems to be becoming flavour of the month. We’re getting closer to the flavour of the month. Those guys make me nervous because they are segueing from one commodity to the next. But are there companies, or if you don’t want to name companies, are there clues as the types of companies in terms of what their structure is today that we should be looking to for investment purposes?

Dustin Garrow: Well, I think obviously as the price starts to move up, as you say, you get enthusiasts that come into the industry, and it just depends on what the investors are looking for. In other words, you know, it’s not been my area of speciality, but I’ve been around now, like 15-years dealing with the investors. There are some companies that are destined never to produce anything. That’s okay, but then don’t buy off on, ‘Oh, well we’re the next producer?’ Well, maybe not. I mean, and there there’s some negatives to be a producer; then you are really exposed to market price swings and all kinds of stuff. So I guess it’s, you know, the diversified portfolio, I think, you know, we do have the Paladins now the Lotus group with Kalikira that would that have existing facilities. Energy Fuels. The other guys in the US, Uranium Energy, Ur-energy, that obviously if you’ve got the facilities, you’ve made some kind of a commitment that you are probably going to try to move towards operation.

I think as you get further away from that, when you look at the USD$400M to build a facility somewhere, and the years it takes in Canada, the USD$1.2Bn or more, then it gets a little less, I don’t want to say certain, but I think there’s a whole new group of challenges where then you have to say, well, is this group ready to spend to raise that kind of money and then effectively invest it in building this facility?

You see, my experience goes back to Paladin. When we raised the money, everything was ready to go built the plant, built the phase one mine, you know, on budget, on schedule, but that was under a group where they all had experience in Uranium, and so it all worked well. I think there’s just a lot of other projects that didn’t quite go; let’s pick on Imouraren which was a big company building it and Tricopi, I mean, was a massive disaster. So it’s not, you know, you’ve got to try to weigh all of that and say, hey, maybe this group was successful elsewhere. It doesn’t say they can’t be successful in Uranium, but there’s just a lot of issues that they have to appreciate, rather than, oh, we’ll get this done in six months. No, I’d rather hear, we think we can get it done in a year and a half, but it could take us longer because… So, again, for investors in the space, it’s going to be really hard to bring on new production. I think.

You have got the existing facilities – fine, but you know, as we all know, in the last uplift outside of Kazakhstan, which was really operated by the Kazakhs, was Paladin, you know, and then a few small ISR projects in Wyoming, but that was it for all of the discussion and all of that. So yes, it’s a complex industry. I don’t want to name names. I could probably come up with a half a dozen where I’d say, yes, they’re probably going to accomplish more sooner than this other list. I think people can step back and see where that might be.

Matthew Gordon: Well, that that will be an interesting conversation, for sure. And I know that we feel the same way. We feel, but we don’t know 1/10th of what you know, so that is valuable data. But look, I think we have taken up a lot of your time, but can I just finish with one last question? I need to talk about a short-term loan, something that happened in the market recently, UPC – what’s going on there?

Dustin Garrow: Well, I thought it was kind of interesting, you know, UPC had done UF6 loans in the past that were covered, I think more than a year. The whole loan area can be really tricky. I got involved when I was with New Mexico Trading. Part of it is collateralisation, particularly in a rising market. If you mark to market and you have, let’s say, lent 1Mlbs to someone at USD$50, the price goes to USD$60/lbs, well, normally that’s secured with a letter of credit. So, then there has got to be adjustments. It can be just a big pain. For example, I think yellow cake has been asked, do they want to get it in the loan market? And, you know, the loan fees have been like 1% so it just wasn’t worth the grief. Well, I thought it was interesting that UPC announced that they’d done a half a million U308 loan which was going to yield a $100,000 pm for, I think like a 4-month period. So, they’re going to get USD$400,000 to lend to someone, and they said it was a secured loan. I think it might be just a location where someone needed half a million pounds, maybe at Cameco, and UPC was willing. Because if you annualise the interest rate, that’s pretty rich. So, someone seemed to be pretty anxious to get material which would be returned in a fairly short window. So, I just thought that was kind of an interesting activity that UPC got involved in. And they’re selling conversion. You probably saw that, which, what a great investment -you know, they probably bought it at, certainly below USD$5, and they are selling it for USD$20/lbs, so that’s not bad. But yes, so I thought the loan was interesting,

Matthew Gordon: It’s quite rich, quite rich. But I guess that is why you do it, right? Dustin – amazing. Thank you. I have, again, learned more about this market. And I’m glad you kind of cleared up a few things which were kind of troubling me from some other market commentators. I appreciate that. Hopefully things will pick up across the board.

Dustin Garrow: Let’s get together again, it may not be at WNA. There are people still optimistic that that will happen, but I’m not so sure.

Matthew Gordon: In September? No chance, no chance. Do you think Nashville will happen?

Dustin Garrow: Well, it’s Las Vegas.

Matthew Gordon: Las Vegas, sorry.

Dustin Garrow: Yes. At the end of October, although I’m hearing that there’s some pushback from, interestingly, the utilities. I don’t really want to go to Las Vegas. I’d rather have it maybe in Washington, shorter, you know, and all that. I mean, you can make the case that there will be no industry conferences this year. The one that’s in Australia that I know Mark Chalmers coordinates will obviously be virtual. So, it’d be kind of interesting, pretty interesting group of speakers, but it’s just, you don’t have that chance to interface. And I think part of that then hinders some of the, particularly term contracts. So, you know.

Matthew Gordon: Well, you said to me last September at the NWA in London, you said, decisions don’t get made until, it was Nashville last year. That’s probably why I got confused there. You said that decisions don’t get made until after October. That’s when people kind of get together, US utilities, they all kind of gather and conversations happen. So, if it’s not going to happen in Las Vegas this year, they’re not going to get together virtually, these are conversations that happen in corridors, aren’t they?

Dustin Garrow: Usually, or you do speed dating where you have a series of 30-minute meetings with fuel managers. That became kind of the normal MO. But right now, you know, it could slow down the contracting, particularly for term, because everybody kind of wants to sit down and get a feel for, is this really going to happen? And so, anyway, we’ll see.

So yes, I think, you know, two months from now, we might go, Whoa, look at where the market is. We really missed it. Or you go, Oh, you know, we’ll just have to wait and see.

Matthew Gordon: We’ll have to wait and see. Okay, well maybe no Las Vegas, that’s a different kind of speed dating they do there, isn’t it? From what I hear. So, we shall catch up again soon. There’s probably going to be something exciting happening the Uranium market. There always is. I loved your insight, as ever. Loved your insight, as ever. So, thanks so much, Dustin.

Dustin Garrow: You are quite welcome. And again, in this industry, hope springs eternal. So, we’ll see.

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