Interview with Dustin Garrow, uranium market commentator.
What did uranium-expert Garrow have to tell us about the world of uranium this week? The US House Appropriations Committee has stated that it will not approve the funding of the $150M uranium reserve, though some uranium bulls think this judgement will be revised once the DoE can answer some of the committee’s pressing questions about how exactly the reserve will be implemented. While there have been meetings between uranium producers and the government representatives for years, they’ve not been able to push this over the line. It’s clear the government was already aware of many of the issues plaguing the uranium sector, so this decision isn’t impulsive or surprising, though it is very disappointing for uranium juniors who are crying out for a light at the end of the tunnel.
A red flag on May 11th should have been a clear indication for uranium investors that this was how things would pan out: the Nuclear Energy Department at the DoE stated that “within a year they hope to have (their) procurement process clearly delineated.” It was clear the conversations were taking the judgement well into 2021.
Has technology and R&D been a distraction? The US government has been focussing a lot on research, SMRs, and funding export reactors of late, and this has potentially taken much-needed attention away from a potential uranium reserve. Garrow thinks a lot of these issues are geopolitical, with the US “diligently” trying to fund its reactor sales outside of the country and penetrate the export reactor market. Expect some more challenges yet from China and Russia. And a lot of under-cutting. Not sure too many commercial companies are willing to take the risk.
The uranium producers are absolutely down to their barebones, and while Energy Fuels has stated it will ‘produce’ c.200,000lbs of uranium this year (via recycling, alternate feeds, by-products, spot purchases, etc,) this comes from the reclamation services and not mining.
Matthew Gordon talks to Dustin Garrow, July 2020
The Senate version of the appropriations bill continues to provide hope to North American uranium players. There is optimism that this version of the bill still contains the US$150M reserve. He thinks this may well be retained come the end of the process.
The decision regarding the Russian Suspension Agreement (RSA) has been pushed down the road to December 2020, until after the US elections, at which point it is likely to be extended. Is this the utilities’ lobbyists at work? Nice cheap Russian uranium is the prize. But it will come at a cost to US uranium producers if not resolved. The election is just that: an election. Garrow doesn’t think it will make too much difference to the uranium sector whether the Democrats or Republicans claw their way into the Oval Office. Bringing back manufacturing into the US has been a Trump doctrine since day 1, but Biden is now onboard too.
There is a broad spectrum of opinions around the RSA. Through the Ad Hoc committee, the US producers are pushing hard to have the agreement expired so that the limits would be lowered albeit in a staggered manner. Utilities would argue that the current levels are ideal. Enrichment contracts have been signed recently for post-2020, and some of them have been contracted for more than the 20% in anticipation of the limit on Russian enrichment going away. These have been “price suppressive” according to the Department of Commerce. They have recommended the agreement should be lifted and the underlying antidumping investigation from the 90s should be reinstated, placing very high tariffs on Russian enrichment. On the other hand, the Russians might not want to put up with another 10-15 years of paperwork and auditing for what is, essentially, a very small part of the global enrichment market (3Mlbs/yr in America, c. 53Mlbs/yr globally). The Russians have been held at the 20% level since conception, and they have publicly sought a rise to 30-40%. If it doubles to 40% and 6Mlbs, Russia might start being interested again. At some level, commercially, it would make sense that the Russians walk away, especially considering the anti-Russian sentiment that is currently rife in the U.S. administration. On another level, they would lose a relatively cheap lever in off-book negotiations with the US govt.
There is not enough inventory in the market right now because the more mobile, lower-priced inventory is being depleted, and COVID-19 has massively impaired production, especially for KazAtomProm’s partners. The volumes are down but the price has held relatively stable, which Garrow thinks is a positive sign. What a lot of uranium investors don’t realise is how long a process restarting production is; it is not just a case of flipping a switch. For example, KazAtomProm has completely halted its well-field development programme. Its production is coming from existing well-fields. Once it is safe to go out and mine uranium, Garrow expects it to be into the middle of 2021, even if the ramp-up starts before the end of 2020, until we are back to some semblance of supply normality.
In order to press the restart button, long-term contracts will be needed. Which makes Cameco’s decision to restart Cigar Lake intriguing. Have they negotiated term-contracts with utilities? If so what are the terms and when will the market find out. That would set the cat amongst the pigeons. For everyone else though, everything appears to be contingent on contracts next yet signed, and the solution could eventually take a phased approach: if KazAtomProm and Cameco are satisfied and start ramping up, then the producers that are one step down the ladder. We could be well into 2022 before some of the newer want to be producers get a shot; even if their projects are close to shovel-ready, there is plenty of work to do regarding financing the CAPEX, the multitude of licences and operational to knowhow put in to action.
There is only one nuclear conference this year which is “hanging by its claws” in Las Vegas at the end of October 2020, and while 2020 had originally looked like a year when utilities would be much more active, it could well take until well into next year for any kind of meaningful market engagement. Very few people are travelling to visit the utilities right now, and these sorts of deals simply aren’t going to be carved out over the phone. It doesn’t look like there is going to be a rapid take up in term-contracts. It could be very gradual, and Q3/21 is the date we’ve heard be earmarked by many experts. Uranium price discovery may start slowly this year but getting to levels which uranium juniors need for commercial decision making is some way off yet.
There has been a surge of M&A in the space recently, as North American uranium miners target Energy Fuels’ White Mesa Mill to toll their uranium. Garrow states that uranium companies need multiple mines to get anywhere near the volume needed to be a player that interests the utilities. And as for the assets that are being bought up, Garrow just sighs. And when Garrow sighs, investors should too!
What did you make of Dustin Garrow? What questions would you like us to ask him in the future?
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