Brandon Munro #1 – Uranium Investors Need to Believe to Macro (Rewind to January)

We like checking in with Brandon Munro. He is a uranium market commentator and the CEO of Bannerman Resources (ASX: BMN). His insights into the uranium space are both compelling and revealing.

In January, after an incredibly disappointing 2019 for uranium, investor sentiment was at an all-time low. The Section 232 petition had failed to bear any tangible fruit, equities were tumbling away, and price discovery seemed an eternity away. Munro’s message to investors at the time was clear: believe in the uranium macro story, and look a little deeper. In hindsight, the mechanisms that were at work in January were accelerated by COVID-19, and they have led us to the more bullish sentiment we are seeing amongst the uranium community today.

Matthew Gordon talks to Brandon Munro, January 2020

The macro story for uranium is now better understood and for good reason. It is widely accepted that the world’s growing energy consumption necessitates a nuclear energy infrastructure. Fossil fuels are not as inefficient, and renewable energy is expensive and not entirely as green as initial publicity led us to believe or quite frankly our intuition suggests to us. Nuclear power is a (more) green solution to the energy needs of tomorrow. A global increase in the construction of nuclear power plants is evidence that the powers that be are fully aware of this. As of today, there are c. 440 nuclear power reactors operating in 30 countries (plus Taiwan), with a combined capacity of about 400GWe. In 2018 these over 10% of the world’s electricity. Moreover, around 55 reactors are under construction internationally, primarily in Asia, and there are big plans for Russia too. Further capacity has been added via nuclear plant upgrades, and plant lifetime extension programmes have been popular, especially in the US.

So, if investors are willing to accept this and put their faith behind the uranium macro story, it’s time to dig into the details.

Back in January, plenty was happening behind the curtain in a deep bear market. Industry insiders were claiming that UF6 reserves, held by utility companies, were all but gone. They also claimed the enriched uranium product (EUP) conversion price had risen by 400%, arguing that the price of uranium enrichment had risen from US$30 to a more sizable US$50. These are just some of the moving parts that were at play when we spoke, and they have continued to feature prominently in the discussions of the uranium investment community 7-months later. As the utilities’ reserves of EUP and UF6 have become substantially completely depleted, it has negatively impacted their optionality. The idea was that utilities would now need to look at their uranium supply chain with a greater sense of urgency, because without UF6 and EUP, long-term planning, and therefore contracts, would become a necessity.

Even with the significantly longer runway that utilities require to plug U3O8 in rather than UF6 or EUP, this hasn’t quite happened yet. While COVID-19 has been great for tightening inventories and restriction uranium supply into the market, exposing the supply-demand deficit, it has also thrown up all manner of problems for the utilities. As a consequence, long-term uranium contract discussions are currently a very low priority; they have much more urgent matters to attend to. It’s natural for uranium investors to feel frustrated at what appears to be another false dawn, but when looking more deeply at the fundamentals, like Munro did in this interview, and believing in the uranium macro story, there are still plenty of causes for optimism.

Munro dismisses the idea that U3O8 would return to its c. US$150/lb peak, and this is something we’ve heard consistently from some uranium brainiacs we’ve interviewed in the months since this interview. Specifically, Munro projected a sharp peak of US$90/lb, followed by a retreat to a sustainable US$50-60/lb. There simply isn’t the hype surrounding the nuclear space that was present 15-years ago, and it is unlikely this will ever return. The sentiment is still tarnished by nuclear disasters and the seething rants of purported environmentalists, and this is far from an easy reputation to shift.

Uranium investor requires patience and intellectual curiosity. Watch or listen to this uranium series with Brandon Munro and understand the space, the limitations, the opportunities and work out which companies will do better than others. Timing is everything. Gentlemen, start your engines.

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