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

A conversation with Dustin Garrow, uranium market commentator.

FULL ARTICLE FOR THIS INTERVIEW HERE.

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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