Bannerman Resources (ASX: BMN) – Putting Itself in Contention at the Head of the Uranium Pack

Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (05.08.2020)
  • Market Cap: A$39M

The brute scale of Bannerman Resources’ massive uranium resource was never in doubt. It is a homogenous, average-grade bulk resource in Namibia, itself a benign mining-friendly country on the South-West coast of Africa. Therein lay the problem for most investors: Bannerman’s 2015 Definitive Feasibility Study demanded a pre-production CAPEX of the best part of $800M.  Given the Aussie junior’s tiny EV and the huge volume of pounds that needed to find a home, Chinese nuclear utilities and their voracious future demand for uranium seemed to offer Bannerman’s best – and perhaps only – option, particularly because Africa remains a happy playground for large state-owned Chinese groups.

But things have changed today.

Bannerman’s CEO, Brandon Munro, is known as a seasoned and engaging individual, with an enquiring mind and ability to shine a light on what is often an opaque space. He is undoubtedly one of the most intelligent uranium commentators, and his insights are incisive, compelling and articulate in equal measure. However, Munro has now decided to shine white light on his own operations and to address market concerns with Bannerman Resources. Today’s announcement that Bannerman Resources has reconfigured their approach to get into production earlier and with a much-reduced CAPEX means that this project just made itself very attractive to a new raft of funders and investors. As we say here, the optionality just got brighter. We would argue Bannerman Resources is now in rarefied air, just one of a handful of uranium juniors with scale that can genuinely get into production within the next 3.5-4 years.

Matthew Gordon talks to Brandon Munro, August 2020

The decision to reduce the scale of a bulk-tonnage project would usually damage the economics, often beyond repair. But, in this case, it hasn’t, partly because advancements in processing technology have reduced reagent costs and also because the shape of the out-cropping Etango orebody facilitates a long mine life at low stripping ratios. The new scoping study has reduced the scale of Etango to a much more manageable and pragmatic level, which will ensure Etango has the optionality it needs to aid its journey towards production. The CAPEX has gone down to just US$254M, less than a third of the previous number. Whilst the annual production has also reduced, from 7.2Mlbs pa to 3.5Mlbs pa, it is still a very meaningful production profile than can only be matched this decade by a few players. The company will refer to Etango as “Etango-8” from now on (referring to the new 8Mt pa throughput to the mill) as a lucid indicator of the new value proposition on offer. In contrast, the throughput of the “giant project” was 20Mt pa. Etango-8 might only be 40% of that throughput, but because of the boost from a 20% higher grade profile, the company will produce 50% of the yellowcake over a relatively long mine life that can readily extend into Etango’s 271Mlb mineral resource.

Jurisdiction matters. So, what of the Africa factor? It doesn’t have the sex & sizzle of the Athabasca Basin. Munro is open in his support for all uranium miners, but he is also candid about the advantages of Etango-8 in relation to his Athabasca cousins. The Canadian projects undoubtedly have high-grades, but they also come with extremely long environmental baselines and permitting times – not to mention very large CAPEX requirement – resulting in finance-driven contracting thresholds that will impose a herculean task on their marketing teams.  We expect that Bannerman can move into production and be negotiating contract extensions long before the Athabasca plays can start to commit their production under contracts.  It’s hard to overstate the importance of timing in the uranium sector – not only because the sector’s famed volatility presents financing windows but also because arriving late to the contracting party reduces options for new entrants.

So timing, as always, is going to be critical in the uranium sector. Expectations around the macro are pregnant with expectation. Indications suggest that price discovery will come in mid-2021 as US utilities are pressured to sign long-term contracts and the big players continue to mop up loose inventory in the market. We should start to see price slowly move early 2021 before term-contracts and tight supply make the environment somewhat more competitive.

In their 2015 DFS, Bannerman Resources presumed a uranium price of US$75/lbs. In the new scenario, the company has been able to reduce this price assumption to US$65/lbs whilst maintaining an IRR above 20%. The post-tax NPV is still attractive at US$212M, admittedly a “significant premium” above the company’s current market cap. But the scale of the project is driven home hard if the original price assumption is applied; at US$75/lbs the Etango-8 post-tax NPV explodes to circa US$350M. The uranium spot price is just over US$32/lb today, so we’re still some way off what Bannerman Resources would need to be economically viable, but such is life for all uranium producers and juniors. The entire market is calling for a minimum of $60/lbs, and our off-the-record conversations with other uranium CEOs suggest the more realistic number required is $75/lbs.

The AISC now stands at US$40.90/lbs. Although only a modest improvement on what the company had back in 2015, it is commendable that Etango-8 did not trade-off the impressive capital reductions for higher operating costs. Total throughput for the LOM is now 51Mlbs compared to 113Mlbs under the 2015 DFS. Investors should remember that resource endowment isn’t going anywhere; those pounds are ready to provide optionality in the future. The giant-version of Etango retains environmental permits, a pilot plant, and a DFS – providing a highly leveraged option to uranium investors’ dreams coming true.

This strategy actually reminds us of a mining company in a completely different commodity class: gold. Rio2 is a Chilean gold miner, and CEO Alex Black reduced the resource of its flagship gold project by half. While the market didn’t appreciate the move at first, the booming share price now suggests that it was an incredibly smart one. Perhaps more companies need to think with agility and change the development playbook.

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Rio2-like returns might be what investors now expect to see from Bannerman Resources. Munro is targeting an accelerated pathway towards construction, with a PFS and DFS targeted within the next 18 months. Many uranium investors had viewed Etango as too large to succeed, but now the company appears to be fit for purpose and primed to time its entry into the next cycle perfectly if all the rumblings about potential uranium price discovery prove to be correct. 

This has turned Bannerman Resources into a vastly more attractive uranium investment proposition, but there’s a lot of work left to do. If there’s one person we’re confident can accomplish these deliverables, it’s Brandon Munro.

Will Bannerman Resources be producing pounds before the Athabasca Basin? Comment your thoughts below and we will respond.

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

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