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.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Dustin Garrow – Uranium Contracts Just Became Interesting

Interview with Dustin Garrow, uranium market commentator.

As an advisor for numerous uranium companies, Garrow knows a thing or two about the uranium space. We’ve spoken with him several times previously, and on each occasion, he’s helped us further unravel the complex and opaque story of uranium. In this interview, we cover a variety of intriguing topics.

Matthew Gordon talks to Dustin Garrow, 14th June 2020


We start by discussing the U.S. Department of Energy’s Nuclear Fuel Working Group report. There has been plenty of reaction in the uranium community, but it was just a policy framework document, and many uranium commentators don’t appreciate the lack of specific numbers or timescales. There was a conversation several weeks ago between several uranium players and the DoE, discussing potential outcomes. Garrow thinks it is clear that this is simply a necessary part of the process, and I’d happen to agree. The U.S. government has kept its cards close to its chest, and I can see no reason why they’d change that strategy on a whim. All the major players in the uranium space were involved in the conversation, such as the Secretary of Energy, several senior government officials, and a representative of all the major U.S. uranium producers. All of the report’s recommendations were reviewed. The companies have honed in on the US$150M of investment in the 2021 fiscal year budget. Handily, this budget would come into effect on October 1st, 2020. Uranium investors might see a major catalyst sooner rather than later, though there have not yet been any approvals given. A lot of the uranium companies seem to be holding fire until the US$150M is appropriated. It will be intriguing to see how this unfolds, especially in an election year.

We then discussed uranium powerhouse, Cameco. Cigar Lake remains down and has now been down for 2.5 months. The shutdown has been repeatedly extended, and a determination to bring about uranium destocking to drive spot price up is one motive for this. It is currently shut down indefinitely. The Port Hope uranium conversion facility has reopened. There is no indication whatsoever that Cameco intends to reopen Cigar Lake in the near future. Cameco appears to want its new contract portfolio in place before it reopens the mine. Both Cameco and Kazatomprom, the two largest uranium players globally, have indicated that they will purchase uranium from the open market to fulfil their existing uranium supply contracts. This looks like an effort to drive spot price up, and it could well be effective. The timescale all depends on just how much inventory these utility companies possess. It’s far from a united front for the two uranium giants, but they are definitely singing from the same hymn sheet.

Kazatomprom has already stated that the carry trade is becoming increasingly obsolete, having publicly repudiated several multi-year sales agreements with traders. Are carry traders about to be wiped out? Traders thrive off large available inventories; they focus on mobilising it and getting it into the market in any way possible: spot, mid-term, long-term, etc. While the carry trade is certainly going to take a major hit, I’m not quite sure it’s going to be extirpated just yet. Carry traders can be extremely creative, and utility companies may still make use of them in some way.

Jurisdiction is becoming increasingly important for uranium investors as we approach the new upcycle. There is a substantial discount on most uranium juniors right now, and jurisdiction plays a big part in this. Cameco’s material comes from a stable mining jurisdiction, and this appears to be eminently more desirable than any jurisdiction with so much as a hint of volatility.

Euratom released an analysis of nuclear fuel availability around 3 weeks ago. Lack of investment in new uranium mines has dropped down from number 1 to number 4 on the list of most pressing risks for utility companies. Transportation hubs are now the number 1 risk: moving class 7 (highly-radioactive) material globally. A lack of grassroots exploration consolidates these issues. Euratom is far from happy with the market.

The uranium space is missing around 70Mlbs of production from the various care & maintenance and cutbacks seen in the uranium space around the world. This is half of what total global uranium production was last year: it’s starting to become a very big number indeed, and these lbs won’t be recaptured anytime soon.

In terms of the EIA Uranium Marketing Annual Report, many junior uranium players have been very disappointed, because it indicates that the utility companies aren’t particularly worried and have bigger priorities right now than securing uranium contracts. It’s especially surprising that the utility uranium inventory actually increased slightly. Share prices don’t look like they are going to be affected for some time yet.

We’ve previously spoken about Energy Fuels’ foray into the rare earths space, courtesy of the companies renowned White Mesa Mill, Utah. Garrow thinks that there is a growing focus within the U.S. that the rare earths industry needs to be more “vibrant.” Since he worked alongside them many years ago, he thinks Energy Fuels has done an exceptional job of making a uranium-specific mill much more flexible. This is smart monetisation, and Energy Fuels could be part of a possible rare earths renaissance in the States. However, this is some way off yet.

We interviewed Peninsula Energy earlier this week. The company has just raised A$40M out of nowhere to pay back a debt held since 2016 and push their low-pH ISR solution forwards at its flagship project. Garrow says this technology has not been utilised in Wyoming since the 1960s. It looks like Peninsula Energy is trying to avoid staying still by meeting the market somewhere in the middle on cost. It doesn’t look like the company will diversify anytime soon.

The uranium market as a whole is gradually getting more excited, but this is still tentative. There is capital available, but uranium companies need a great, strong story. The project and management team need to be excellent to convince investors to take the leap. There is a lot less option money flying around. Marketing for uranium companies is more important now than ever. Many will not survive, and many wouldn’t even survive long-term if the market went to US$100/lb. Investors can get excited, but Garrow encourages them to scrutinise a company to the fullest extent before acquiring a position. His personal tip is for investors to consider focussing on companies that fit their own investment strategies and desired risk profiles. Some investors may not ever want to invest in a uranium producer, because they are very susceptible to the impacts of price swings. It is all a matter of personal taste. Investors have to be able to read between the lines and identify bullsh*t when they hear it because there’s likely to be an increased amount of that in the coming months.

Lastly, short-term loans are becoming increasingly tricky to negotiate for uranium companies. this is partly due to collateralisation in a rising market. The loan fees simply haven’t been worth the hassle of negotiating complex deals for certain lenders.

What did you make of Dustin Garrow? Comment below and we will respond.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Dustin Garrow – Exploring The Intricacies Of The Uranium Space

Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Conversation with Dustin Garrow, Managing Principle of Nuclear Fuel Associates.

It’s been an eventful few months for the uranium space. Back by popular demand, uranium-expert Dustin Garrow returns to the Crux Investor platform to discuss some intriguing areas and shed some light on some nebulous themes.

We start by discussing the Nuclear Fuel Working Group’s report, and what it could mean for the uranium industry, both domestically and internationally.

Then, we move into the fundamentals of uranium supply and demand, including Garrow’s personal projections for the uranium price.

It’s an incredibly interesting watch for uranium investors and generalists.

We discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Dustin Garrow – Uranium Investors, term-contracts explained (Transcript)

Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Conversation with Dustin Garrow, Managing Principle of Nuclear Fuel Associates.

With a possible uranium renaissance finally on the cards, uranium investors will be clambering for all the content they can get their hands on. Well, this isn’t one they can afford to miss.

It’s been an extremely eventful few weeks for uranium. We had Cameco suspending its Cigar Lake uranium operation, Kazatomprom announcing impaired uranium production figures, and then the NFWG report. The report was tonally definitive: it’s time to restore America’s competitive nuclear advantage. However, there was a deficiency when it came to the specifics, particularly subsidisation figures and timescales, but it was just a policy document after all.

We were keen to gain some insight into the uranium space: Garrow was the man to ask. He’s a uranium market commentator and sits on a number of boards for uranium junior mining companies.

First things first, what is his take on the NFWG announcement? Was it what Garrow expected? Having been involved with the section 232 petition peripherally, Garrow is pragmatic about the working group outcome. While he appreciates the general message, he admits there was an expectation of many more specifics. He strikes a similar tone to Energy Fuels CEO, Mark Chalmers. This is a good first step and is just a policy document. He wants to see the DoE follow through with a robust, detailed plan to rebuild the American uranium industry; it’s the only away American uranium companies can compete internationally. Garrow also states that the timescale will be key: no commitment has been made beyond the 2021 budget, and American uranium players won’t be able to stick around forever. Worryingly, it looks like this plan will be a long time in the making.

Not only do uranium companies need to stick around and wait for the uranium price to elevate, they also have to wait for the entire American uranium infrastructure to wake up, including enrichment facilities. Garrow thinks uranium investors need to focus on the supply-demand fundamentals. The gap has never been bigger, and it seems likely this will be the final catalyst when the commercial market really starts to shift.

So, the U3O8 price has risen to US$33/lb. How will this price move in the short term? Garrow is aware there are numerous theories out there, but his instincts tell him that price discovery and the utility companies’ buying habits are like the chicken and the egg. Price discovery is driven by increasing demand from the utility companies, but Garrow thinks this demand is triggered by a rising spot price. Once the uranium spot price rises past a certain point, Garrow says this is a signal for utility companies to start buying again. Garrow thinks we’re still a little early, but remarks that several utility companies were making moves before COVID-19 in an effort to capture the long-term market. He’s hearing that some are in discussion with bigger American uranium producers about long-term contracts. These are exciting moments for uranium investors; best make sure you pick a winner! Garrow states there will never be a uranium mine built on the spot market, so keep that in mind when making investment decisions. Uranium investors need to pick winners and identify losers. Negotiating long-term contracts can be extremely complex and requires a specialist set of skills: skills that many uranium companies lack.

The general mood in the uranium space is optimistic. Uranium has been discussed in the highest levels of the White House, and there appears to be no doubt that the American government plans to follow through with its intentions. The government has also realised that the reactor space has become dominated by foreign powers. There are ZERO orders for U.S derived reactors in the foreign market. It’s very clear: it is time for the United States to catch up.

We discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

CLICK HERE to watch the full interview.

Matthew Gordon: Dustin, how are you, Sir?

Dustin Garrow: I’m fine, considering the extended lockdown here in Colorado, but we’re up in Steamboat Springs, so it is not the worst place to be.

Matthew Gordon: No, it’s beautiful. Absolutely beautiful. And keeping yourself busy?

Dustin Garrow: Oh yes. I think, certainly with the improvement in the Uranium market, there’s been a lot of conference calls with investor groups that are either currently invested or are looking to come back in the space and they’ve seen the price go up some 40%. I see this morning it was, you know, above USD$33, and so it continues to improve. So, it gets a lot of attention.

Matthew Gordon: Yes. I mean, as a percentage, it has moved up significantly in the last two months for sure, after some period of flat-lining. But we spoke in September when you were in London for the WNA conference, we caught up there and talked about the marketplace and winners and losers and so forth. But a lot has happened since then. We have had a lot, we have got you know, the indeterminate shutdown at Cigar Lake. We have had KazAtomProm closed down for a 3-month period, or at least reduced their facility’s output. Namibia; Rossing, Husab affected, Australia -it looks like reduction in the numbers but may face closure depending on how they manage things. So, the market is sort of driving that supply-demand fundamentals story even further, even tighter to the cross point there.

We also had a fairly big announcement yesterday, and I do want to get your feedback and all of the above from the Department of Energy in the US about revitalising the nuclear energy complex there. So why don’t we start off with yesterday’s announcement first: it is short on detail, no numbers, no dates no sense of how money is going to be allocated, and I think the market was disappointed. If you look at the share price of some companies, I think they did drop pretty quickly after 12 o’clock. Was it what you expected?

Dustin Garrow: Well, I think, you know, having been kind of peripherally involved in the 232 process, which by the way, ended a year last July. And so, the Nuclear Fuel Working Group (NFWG) was an entirely new creation from the Trump administration. And I think with the 13 Federal Agencies involved, there’s always a little scepticism of how a group that large, representing such a diverse number of areas within the government are going to come together, which they did. But I think that there were some expectations of you know, more specific actions. I think they’ve laid out, obviously, there’s more direction. But I think as Mark Chalmers at Energy Fuels said, you know, this is the first comprehensive study of the US fuels cycle in decades. And so that’s an important first step. And the Secretary of Energy though made the comment that this is a roadmap. In other words, this will allow the government now to see their proposed to have a senior administration official oversee the ongoing process. I understand there’s even a call later today where the stakeholders, which would probably be producers, processors, certainly the utilities, NEI, will all have a chance, I think, to begin to discuss some of the details perhaps of how does this now get implemented.

And then I think one of the bigger issues though, Matt, is the length of time we’re dealing with. I mean, on the Uranium side, they talked about the Uranium reserve being put in place and it may be something that enhances the American assured fuel stockpile program, which was put in place actually back in 2012. And they put some numbers: 17Mlbs to 19Mlbs pounds beginning this year. But you can assume, is that a 10-year program, which they’ve talked about? Will there be some ramp up? Well, you know, again, those kinds of details are really lacking.

And the other that’s important is how do they allocate that? When they submitted their 2021 budget request, it said to keep at least 2 US Uranium mines in operation. Well, you know, first of all, that’s a pretty meagre domestic industry. You know, most of the projects are pretty small, in situ recovery mines, so do they actually mean specific mines? Companies? You know, what will be the annual volume?

The Secretary of Energy said yesterday, they don’t have a process for determining pricing, which is pretty important. I think the producers have told the government that they need, really, a long-term government commitment at reasonable prices, considering the production cost profile in the US. And it’s got to go on in order for it, allow them to raise capital to rehire people to, you know, again, restart their facilities. I think one of the issues, clearly, is they’ve stated that it’s only no commitment is made beyond the 2021 budget request. So right now, it’s a one-off situation. So anyway, yes, I think the market, the investment side was expecting more specifics, and they may come in time, but it may take a while.

Matthew Gordon: So yes, thanks for the answer. I think the thing that was missing as well was an indication of how it’s going to engage with the stakeholders. There’s a lot of stakeholders. There’s a lot of money to be deployed. There’s a lot of planning and economics to be worked out. The timeframe here is, or potentially, could take a long time to put together before anyone is in a position to make a decision about allocating budgets, and even then, it’s got to go through a congressional process of approval. Even though this is a bipartisan proposal, or recommendation, this is going to be a long time in the making. How do Uranium miners, because that’s what we’re here to talk about today, how do Uranium miners get an understanding or a sense of how they benefit and when?

Dustin Garrow: Well, again, I have been trying to make a determination of how the government is going to approach a newly created entity or activity. They may decide we have got to in put a lot of resources, we’ll have a lot of video conferencing. We will make decisions quickly. We’ll just have to have to wait and see. But you know, I think normally the government is very deliberate in how they do things. So again, it may take a while. And again, I think that one of the issues, there’s a lot of US producers, when you look across those that have existing facilities, those that have proposed developments that they’ve been working on for years. I mean, I don’t want to necessarily identify specific companies, but the list, as you point out, is fairly lengthy.  I just looked this morning at the in-situ recovery capability; if you look at all of the projects, existing, proposed, you know, it’s above 20Mlbs a year, which no one has, the most anyone has produced recently is below 5. So again, I think there will be a lot of stakeholders, as you say, involved, and it will be an interesting process.

Matthew Gordon: Okay. So, given the big thing we heard though was that the US government would be acquiring or servicing a Uranium reserve, you’ve talked about the 17Mlbs to 19Mlbs over a 10-year period. I mean, right now as it is today, I can think of a couple of companies that between them, they maybe could put together 1Mlbs today. They are also going to need to see the price recover to a point where it is economic for them to get their facilities back up and running. Of course, I’m referring to the 2 petitioners here in this instance, I know lots of people are throwing their hat in the ring about how quickly they get back into production, but they all need a price to be incentivised to do that. It’s nowhere near that at the moment. So, it is nice to see a spot price at USD$33/lbs but it’s going to be better for these companies to understand what the utilities are prepared to pay in terms of term contracts, however they’re structured. And we are going to talk about that later. So, that’s the only thing I’m seeing; building over reserve. What can it mean and what can investors interpret that as meaning for the companies that may be invested in US companies?

Dustin Garrow: So, what will happen on the project with the producers? Yes, I think that some have been preparing for the commercial market to improve to the point where they can be participants. But I think, as you know, it’s all about the timing and how long does it take? I mean, it’s like Fukushima, you know, Tim Gitzel at Cameco has said, he never thought 9-years later we would be where we are. Finally, the market is seemingly beginning to respond. So, I think that’s a, you know, a big factor for the US production industry, some have been able to benefit from long-term legacy Uranium contracts, which has kept their operations going. Those have pretty much run out, or they’ve moved the deliveries forward in negotiations with the customers to benefit now rather than over the next few years. There are a couple of producers with contracts that are still in place, but they’ve really dropped off. So, then the question becomes, what do you do now?

Do you keep, you know, they have to cut back, I mean, production now is at virtually zero, so you’ve got these several companies that have gone to bare minimums. There’s not really a, again they would have to rehire people, so it is how long do the investors want to be involved in kind of living off of very minor raisings? When will the market be there? Let’s put it that way; be it the government or the commercial market. So, I think that’s kind of, you know, it’s put them in a difficult position. Even waiting until October 1st, if the USD$150M is approved, you’ve still got another five months at least before there would be any funding available.

So, anyway, it’s a difficult position right now. And that includes conversion. I mean, the Metropolis Plant has been shut down for well more than a year. I think it’s approaching two years and you know, it’ll take a while for them to get back in operation. I see that they have put a date of 2022 on that. And I understand they are still shipping yellow cake off site. It’s being transferred to other converters to be toll converted so they meet their delivery commitments. But that’s a big deal; when you move yellow cake off site from a conversion plan. So, anyway, yes, it’s gotten down to where it’s at a difficult situation.

Matthew Gordon: This is a difficult situation, but I’m trying to work out where the power lies and I’m trying to, and again, help investors understand where the market dynamics are shifting to, because what we heard yesterday was the significant intent from the US government by the Department of Energy, that’s what I heard, but it’s going to take time. And it’s going to take time before they know how they are going to allocate budget and they’re not committing to anything beyond 2021. So, I think there are some immediate beneficiaries when the system starts working with whatever they construct starts working, for sure. And if they do start buying pounds this year, then again, there’s a couple of beneficiaries of that. But it seems to me that the power has shifted back to the market dynamic, which is the supply-demand fundamentals, which, you know, has been growing and has been accelerated with this COVID-19 situation we see here. The gap is huge. The demand-supply gap is huge like it’s never been before. And do you think that investors, companies, funds alike should be focused on that, knowing that the nuclear working group is, and you feel the working group is working towards solving something, but let’s focus on what things we know and what things we can control rather than relying on a government which is traditionally slow moving?

Dustin Garrow: Well, yes, I think that you know, as we are all aware now, with the COVID-19 effects on the Uranium market, and as you say, the supply side is really the issue. I mean, demand effects seem to be relatively modest. EDF will probably have the biggest impact. But you know, here in the US, the Department of Energy just put out their short-term energy outlook on April 7th. So they have attempted to include some COVID-19 effects on the economy. They see nuclear down less than 2% this year in total generation of electricity in the US.

China has said their nuclear plants are back. You know, I don’t think they ever reduced operations. South Africa is keeping a unit down a little longer than they thought, but it’s really the cutbacks on supply which could be the final catalyst on the commercial market side, which I think, the understanding of supply issues really came up with the WNA report in September, when they came out and said, in every scenario there’s a need for unspecified Uranium sources. And that was a way of trying to describe inventory in increased production at existing mines, whatever, to fill that gap. So, I think that we have had now, you know, more than 6-months of the industry realising that supply certainly was an issue.

Now we have had these cutbacks, you know, the general census production would be about 140Mlbs, 142Mlbs this year. Last year it was around 140Mlbs. If you’d start, depending on your assumptions of restarts of Cigar Lake and things like that, they are probably going to lose 20Mlbs, maybe 25Mlbs this year, if not more. So, you’re down 110Mlbs to 115Mlbs with Uranium requirements. If you look at WNA of, you know, around 180Mlbs, you have still got secondary supplies; 25Mlbs seems to be a number that people are agreeing on. So, like you said, that gap has really gotten substantial. And then the restarts, I think when the Kazakhs start to put in well fields, they have to put the Lixiviant to them.  So, there is a slow ramp up. But yes, I think that we may now be seeing the market finally being transitioned into one of deficit, of structural deficit. And so, there’s just got to be better contracts longer term, not just to restart the mines that are down: principally MacArthur and things in Kazakhstan, but for new mines. I mean there is a, I think an acknowledged need to build new production capacity beyond what’s in care and maintenance. And by, pick a date – you know, is it 2023, 2025? It looms large when it takes years to get these projects actually producing yellow cake, which is the ultimate, let’s say, need of the market.

But the movement of the spot price; one of the points that was brought up recently is when that gets closer or exceeds term prices, then the utilities can go into their managements and say it’s no longer USD$25 and low 30s, or really closer to USD$40/lbs. True long-term contracts have been kind of in that range. People haven’t really been signing them. But now spot, you know, that relationship has always been pretty close and that again has justified the term contracting. So, I think we may be moving into that new phase of the market.

Matthew Gordon: Yes, I think that’s interesting. We have heard CEO’s talk about submitting RFPs, but the numbers that they’re submitting not close to anywhere near close to what the utilities are wanting to see at the moment. But do you feel that the gap, where we are today at USD$33/lbs, and where most people are saying, well, most that I talk to, to be able to run this economically, some will get into production at USD$30/lbs, but they are not making much money. You want to make money, right? That’s the name of the game. So, do you think, how quickly do you see these markets move? You were around for the last cycle – you saw it explode. Do you think we’re in the same or similar market conditions to back then? Which would allow the price to move rapidly when it does start going, or we’re going to be stuck in the thirties for some time? In which case, it’s not going to move the dial for a lot of producers.

Dustin Garrow: Well, I think, at this point there’s several opinions, of course: there are those that say, yes, the price will move up. The spot price will maybe move into the mid-thirties, it could stall out. We could see a new trading range kind of in the USD$32/lbs to USD$35/lbs area for a while. Then the utilities would say, well, you know, it just shows maybe there’s not as big of a supply issue looming. There are others saying USD$40/lbs by third quarter. USD$50/lbs by the end of the year. I think what triggers, particularly the term contracting, is both the level and the velocity, you know, that the price keeps moving up. Then the utilities reach a conclusion that well, this is now sending me a signal that supply is an issue in the future. And so, I think we’re still a little early, but I think we are more likely to see some of the utilities again, they started to come in the market before the COVID effect. A couple of the big US utilities distributed long-term requests for proposals, one in January, one in February, but they were really capturing the true long-term market. I mean delivery starting, you know, kind of $22/lbs to $24/lbs and going out to $28/lbs to $30/lbs. So, they were beyond the carry trade impact.

And, you know, as a couple of the market observers have said, they probably saw the best prices that may be offered under new term contracts for quite a while. But then they’ve kind of stepped back a bit with the COVID-19 effects, where they have had to handle all of that. And some of it is reloads. You know, again, spring and fall are big reload timeframes in the US, and the fuel groups get involved in that. Having worked in a fuel group in the past, you go out to the reactor do you do fuel start-up tests, and so that is a high priority. And you know, they’ve got a pretty full agenda right now of issues they have to get cleared. But I’m hearing that some are still in discussions with the bigger producers about long-term contracts. And again, Matt, that’s one thing that, you know, people tend not to focus on. If we went back 15-years and there’s a certain way you have to go about –

Matthew Gordon: Well, let’s get onto that. Let’s get onto that.

Dustin Garrow: I think the market fundamentals are moving in the right direction right now.

Matthew Gordon: Okay, well let’s get on to that. So, then let’s put it in a way that people are going to understand: so, Cameco has got orders to fill. Cameco is not producing any product at the moment, okay, it’s got orders to fill. It needs to find pounds in the market, and it has been able to cobble together pounds over the last year, put together with their own output, and you know, they’re hopefully making some money there. There’s not a lot of pounds out there now, but they just, they have these contracts in place. What happens if they cannot find the pounds that they need to fill the contracts? Do they just turn and go, sorry, can’t do it. We’ll have to wait until there’s something in the market, or we have to wait until we get into production. What are the punitive terms in a contract if you don’t deliver?

Dustin Garrow: Well, there are, you know, force majeure protections. Now, I don’t think MacArthur would qualify, but Cigar? I mean, it was shut down due to provincial health restrictions. So that to me is, if they had to trigger force majeure, they could do it there. But back on they’re making their deliveries, keep in mind they’ve got purchase agreements in place. I think they’ve got a couple certainly within Inki and as they made clear on their quarterly, they’re taking a disproportionate share of that production; meaning they’re taking pounds that were produced for KazAtomProm. So, I think that they’ve probably set up some agreements with probably, maybe the Kazakhs with others. Maybe the Uzbeks right now, that you don’t see in the spot market, but they are near-term purchases. So that’s one thing. It wouldn’t surprise me if they’ve gone to their customer base and some of them that said, hey, do you really need these pounds right now? What if we deliver them a year from now? That goes on. So, it affects the delivery commitment side. They’ve not really suggested that, but that’s what I would be doing.

And the other is loans. I mean, I think you know, again, Cameco is a pretty conservative company. Would I approach maybe utilities that are holding big inventories, which they don’t intend to sell but they don’t need for maybe several years? And there’s certainly one big region where that’s applicable and put in place contingent loans. You know, if we need to draw down this material, can we do it under this, these…? So, I think they’ve probably done some things on the procurement, acquisition side, more than just coming into the spot market to probably ensure that they’re going to meet their delivery commitments.

I mean, at the end of the day, it’s long-term delivery. Reliability is what carries the day in this industry. And even the Kazakhs have said, that is where they are continuing to progress that they want to be viewed as a long-term, reliable supplier. Well, to do that; you meet your delivery commitments. So, so I think that’s, you know, if you’d look at what Mike Campo will be doing, I think Orano is in a somewhat similar position. People kind of don’t talk about them. But in a normal year, if MacArthur was operating and Cigar, normally, they’d get about 20 million pounds out of Kazakhstan Canada and Missouri. Now, based upon some assumptions, they might lose 7Mlbs or 8Mlbs this year: with MacArthur, with the Cigar, with the cutbacks in Kazakhstan. And I think one of the telling issues there is, when they shut down McArthur and they borrowed one year’s worth of production share; 5.4Mlbs immediately from Cameco, it didn’t suggest to me they have a lot of available inventory. So again, when people say there are producers buying in the market, I assume that that’s both Cameco and Orano.

Matthew Gordon: So that’s just a sort of a mix on the market and off market acquisitions. And in a way it’s kind of a, I would just call it a structured finance really. Because you’re talking about borrowing under certain conditions with a view to either replace or pay at whatever structured finance rates you have agreed. So, it is much more complicated than I think most people appreciate, the way, the way that the product moves around the market.

Dustin Garrow Yes. There’s no question. And again, I just want to say, I’m speculating a bit on Cameco, but I know them again as a long-time conservative company and they want to meet their delivery commitments. So that’s what I’d be doing. I’d certainly be putting the loans in place. But yes, I think you’re right. I mean even in the spot market today, you step back and you say, well, the volume is 30Mlbs through mid to late April. And the question of course is where did those pounds come from? Well, I’m being told that actually some producers are selling. There are a couple that because of production cost structures are not as sensitive to backing out of the market, let’s put it that way. Some of the traders have been doing a bit but also the financial buyers, those that kind of showed up in a wave in 2018, they bought, there was speculated 10Mlbs, 12Mlbs, 15Mlbs.

I think that last year some of them may have managed those inventories a bit, sold some off. But what I’m being told is, is that then in the market, selling and buying; they’re acting more and more like traders. So, we see what’s called turn in the market, and that’s kind of reflected in that 30Mlbs. So, it’s not really 30Mlbs. It’s probably less than that, but we have had pounds transacted more than once by some of these. So, again, the market is, as you say, more complicated than it appears on the surface. But again, the financial buyers acting as traders, and it’s not all of them, but it’s enough to kind of kid more volume in the marketplace.

Matthew Gordon: Okay. We’re getting into an area which I love: which is where you work out how you make money. Okay. So, you have already started to describe the fact that term contracts can be extremely complex mechanisms, yes? You’re laughing because you know it. You know that they can be designed and cut in a number of different ways. So, park that, bear that in mind. It’s a complex thing. I have been trying to help people understand how to identify the types of companies, junior Uranium miners who have more of a chance of getting into production than others. So, we have looked at the fundamentals of the asset and the management team’s experience, their access to, or availability of cash to move this through, and the stage of development that they’re at. And they clearly the economics of what they’ve got. But the bit we very rarely talk about, it is that thing we talked about at the start, which was the complexity of putting deals together. Because even if you can economically get into production, you’ve then got to deal with and contend with putting these contracts together. Not everyone has those skills. So, what is your experience there? Is it simple or is it complex?

Dustin Garrow: What sounds like simple is pretty, pretty complex. Now, to make a couple of comments, I have listened to a number of the recent interviews with the CEO managing directors of development companies and I don’t hear a lot about the customers. In other words, it’s, well, term contracts are kind of the, we need to get those, but they focus a lot on optimisation; getting their costs down, which obviously you’d need to do. But I think that in one of your recent interviews, the managing director said the optimisation starts to get, the benefit gets smaller and smaller, and you know, term contracts aren’t something that come kind of later in the process. I’ll go on record; there will not be a Uranium mine built based on the spot market, ever. It has never been, and it won’t be in the future. It is too risky. Too specific on the customer base.

So, term contracts really, to me, trigger the development process. In other words, without term contracts, there are very few instances where you get financing, so you really can’t then get your capital in place to then start developing the mine. And you know, and I harken back to when we did the Paladin bankable contracts, those were a necessary part of the project moving forward. Without those, we wouldn’t have had the financing to do that.

Now again, I think one of the exceptions was the Berkeley energy agreement with the Middle Eastern sovereign wealth fund, which said, yes, term contracts would be nice, but they didn’t really require them. But everyone else is really going to look up, and you know, Cameco say MacArthur doesn’t restart without new term contracts. Converdyn: we will not restart Metropolis. So, it’s not just a nebulous concept.

Okay. So how do you go about it? First of all, new production centres, assuming a relatively balanced market, now, if it becomes a seller’s market, that’s going to change the dynamics. But the utilities will say, we’ll do a small contract, we’ll do 200,000lbs, 300,000lbs as a starter, and then if you develop the project, if you meet your delivery commitments, we’ll consider a larger commitment, because we can cover off with our flexibilities that we have gotten from our long-time reliable suppliers to cover if you don’t meet your delivery commitment.

So that’s another thing. I think there’s a sense that million pound contracts are just out there. Very few, if any. And they’re going to, again, the newer producers are going to have to see a suite of small volume agreements. Now, how do you go about that? Again, the utilities approached the market either on market, it’s called, which is an official written request or proposal, which they send out to their list of suppliers. So, in other words, even under that circumstance, you have to get on the supplier list, so you make sure you even see what they’re distributing.

But I went back 15-years and looked at term contracting and 70% of the volume was placed ‘off-market’. What does that mean? That is direct negotiations and it can be done by new producers. I did some of that with Paladin. And certainly, existing producers, you know, Cameco is in, talking to their, as they’ve said, their best and largest customers to extend their current contracts. So, you know, I think that that’s another issue that’s not fully appreciated. Is there going to be term contracting going on? Cameco – 36Mlbs? Well, there’s never been an announcement by a utility. Cameco only does it in the aggregate. So, a lot of the term contracting has been ‘off market’.

So, if you’re a new producer, you really can’t sit and wait for the phone to ring because it won’t ring. So, you’ve got to get out, and it is as important as optimising your project as talking to funding sources, but it’s actually engaging. When do you engage the utility industry, which ultimately will determine your future? And so, it’s complicated. And again, I won’t go into all the aspects of each contract. It’s more than price. People just think, well, I need USD$50/lbs, but there’s delivery, timing, delivery locations you know, quantity flexibilities, usually, you know, now even there’s 10%, 15% to the favour of the buyer. Extension options. The other thing too is that it has an impact on your working capital. If you look at Cameco’s delivery schedules, it’s skewed to the Q4 because they give their customers, in general, the right to call the delivery date. Now, if you’re a small new producer, if you do that, you’ve got to assume a pound you produce in January may not be delivered until December. So, you’re going to have to sit on that pound for months. And so that needs to be part of your economic calculation. Which some of them, I don’t think, take that into account, but you can negotiate better delivery terms if you’re a new guy. So that’s what I’m saying; you need to ICA marketing plan strategy, again, it is as important early on, is how are you going to construct and operate your asset?

Matthew Gordon: I think that that’s fascinating. It says to me that companies which are not talking about this, or not talking about their ability to do this, either don’t know or are nowhere down that process. It’s also interesting to me that, you know, in a buyer’s market and a seller’s market, the terms are going to be very different. The pricing and the structure of those terms, the securitisation capability of those terms will be reflected in the cost of your money as you’re talking to funders. Because if you’re a small company, new to the market, whatever your experience, you’re going to need a series of these small contracts to build, to add up to something that’s interesting to funder to allow you to complete your capex and get into production, because one small deal isn’t going to cut it. It is a fascinating, fascinating space and thank you for talking about it. And I’m sure there’s a lot more to it than that, but it’s a new thing that investors should be looking at and listening for from companies. I have not heard it. I have not heard that conversation from very many people. I can count on one hand how many people here have done it before and are capable of doing it.

Dustin Garrow: Well, Matt, what you hear is that, ‘we have met with’, or ‘we were in discussions with’, and I think that they’re just saying, ‘yes, I set up a meeting with six utilities during the WNA and we had a nice…’ Utilities generally want to meet because they want to see what is out there and what is realistic. But that is, you’re far away from negotiating a term contract or a SWU.

And just back on that comment you just made, when we put the bankable contracts in place for phase one at Langer, I think there were 4 or 5 utilities that we had got contracts with, and we actually had a couple of holes that needed to be filled in right at the last minute. But without that, the bank said, you know, you’ve got to meet these criteria on pricing volumes, delivery dates and all of that. So, I mean, it was a very specific set of criteria.

Matthew Gordon: Yes. It is a fascinating area to get into because there’s a few variables that you’ve talked about there, which could affect the economics in a meaningful way. The cost of money is important down there. The terms you negotiate with the utility in a buyer’s market can affect, especially when some of these guys are, you know, needing X dollars to start, to breakeven; worth considering and worth analysing.

Look, Dustin, thanks very much for running through with your experience of the term contracts market. I do appreciate it. To finish off, are you optimistic about coming back to the Nuclear Fuel Working Group (NFWG)? Are you optimistic that it’s a good thing for the US utility buyers and US nuclear complex as a whole?

Dustin Garrow Oh yes. I think that, again, it’s crucial that something is being done, that this has been looked at. And again, I think, Matt, to some of us who’ve had a long experience in the US, it’s at a very, very high level. I mean, Larry Kudlow has been involved. Bolton, before he left, was involved. So, I mean this isn’t just some low-level, a couple of departments are thinking about whatever. I mean it is at the highest levels in the White House. So, I think that there is a commitment to move forward to keep a viable US fuel cycle. I mean, we haven’t talked enrichment, but I think they realise we need to have domestic enrichment capabilities. And I think, you know, export reactors. I think the government has realised that the Russians, Chinese, to a lesser degree – Koreans, are dominating that market. And like they said, there are no orders for US-derived reactors in the foreign market. Zero. So, everything that’s going on in the middle East and India, you name it, there’s nothing on the order books for the US. So, there needs to be help somewhere if we’re going to reassert some kind of leadership role globally in the nuclear area.

Matthew Gordon: Yes, I think it’s fascinating. I think we’re obviously, you know, with generation four, or just new and innovative technologies as a whole, and supporting that and the ability to export, we’re kind of walking into the realms of, you know, corporate America here; as we said, maybe a subject for another day as to how they can get back at the table.

But you know, today I wanted to talk about Uranium miners. I think you’ve given us another big clue there as to what people should be looking for listening for when they’re trying to identify the right companies to get after.

So, you’re obviously very busy at the moment I suspect, but not running around the world. Lots of phone calls, Zoom calls. What’s the mood in the market at the moment?

Dustin Garrow: Well, as you know, I am Chief Commercial Officer for Yellow Cake. And so, there’s been a lot of interest in investing in a fund that holds the physical asset. But I would say in the last couple of weeks, based upon group calls and individual one-on-ones, I have probably talked to 30 different groups. And you know, it’s interesting, they ranged everywhere from continental Europe, London, Hong Kong, Singapore, so, I mean it’s pretty broad. Australia, a lot of interest, a lot of knowledge, which I think is important. There were groups that have come in, they’ve left, they’re coming back, but it’s not, you know, tell me the fundamentals of supply-demand. It’s more of, I understand that, but what are the nuances and what’s the timing? I mean, I’m forever asked when is, and now I can say, well, the price has gone up. Finally.

Matthew Gordon: That is fascinating. Again, that’s fascinating. We’re seeing the generalists, we’re getting inbound, you know, being asked for our views on this, not that they should do, but they do. And to see them interested for the first time in a long time is, well, I’m glad, obviously, very nice, but what do you think it’s going to take for them to actually step in and put some money in and sort of see where this is going? Because you know, for me, they talk about spot price. That makes that the most important thing. They go, you know, when’s this thing going to get to a point where these mining companies can get into operation? I don’t know.

Dustin Garrow: But yes, Matt, a lot of them have gone beyond what’s the spot price doing today? What’s a spot price going to be in a month? They realise that this is a much more complicated industry, and what they’re asking me on, on the production side, are questions like management. In other words, I’m going to begin to invest not an asset, but do you think these guys are going to get this done or not? And so, I think, and that’s, you know, something we have talked about before is human resources, operational, technical, managerial marketing expertise in this business is becoming increasingly scarce. But I think that that’s why I guess I’m more optimistic is because, like I said, a number of…it’s the odd call when somebody says, ‘hey, I have got a clean sheet of paper. Tell me about nuclear and Uranium.’ It’s like, ‘Oh no, you know, I have been in and out, I have gotten done well, I have gotten burned, you know, and now I have got my list of critical criteria and it sort of goes beyond the spot price’. And a lot of them more and more are understanding the term market involvement and what that means. But yes, so I think that is what gives me optimism is the, let’s say, increased sophistication in the space of the investors. Because for years, as you know, decades we didn’t have it. There really wasn’t any investor group, you know, mines were built by big companies and so they were part of a big financing arena: the Rios, the Cameco’s and all of that.

 But now it is, you know, it’s much more interesting because of the financial guys and their analysis. I listen to what they say. You know, in the old days it was, they had no clue. And now it’s like, no, we have run the numbers, we have our model and here’s what we’re concluding. So, it shows that they’re putting the time, effort in, which I think is needed.

Matthew Gordon: Yes, I guess there is a better…we have had inbound calls from fund managers, hedge fund managers, and they talk about specific assets and they’re telling me why certain assets within a company, unnamed, well, I’m not going to name it, will never work. They won’t work at a hundred bucks. So yes, there’s some very detailed analysis out there, but these, unfortunately the market isn’t aware of that information because it’s not capable of doing that type of analysis. So, it is a, I guess all of us are learning all the time.

So, I shall let you go, Sir. I thank you very much for today, as ever, but let’s not leave it six months next time. That was ridiculous. I know things were quiet, but I suspect they’re going to be a lot busier over the next few weeks and months.

Dustin Garrow: I think so. And you know where I am. I’m not going anywhere.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Small Uranium Companies May Need to Change Strategies to Survive – Dustin Garrow (Transcript)

Dustin Garrow, former Paladin Director, and industry advisor to Uranium companies, Uranium ETFs and Uranium Funds, was involved in writing the WNA Nuclear Fuel report, especially the uranium chapter. A lot of investors on social media are seeing the findings of the report as a signal for a recovery in the uranium price. We ask Dustin Garrow if this a realistic assumption.

Analysts say there needs to be production at higher price. This report says ‘yes there needs to be more investment in the fuel cycle and particularly uranium. So everyone is saying the same thing. The Demand forecast marginally positive. Dustin tell some of the factors for altering the data from companies to show a more realistic outlook.

Will some of the junior uranium companies fall off the cliff if the price discovery takes longer than hoped. How will their strategies need to change?

Certainty is still not here, but the mood is more positive. Dustin Garrow saw 10-12 investment groups which is more than have attended more many years. Not a lot of the US utilities. He talks about conversations with generalist investors. And also an update about the 90 Day Working Group.

The report has previously had a reputation of being vague. But a lot of hard work has gone in to making it a little bit more commercial. But still avoids talking about the economics! It doesn’t talk price. Surprised, we were. But it does now discuss long-term contracts and term market.

Did you know that the EU and US represents over 50% of the uranium requirements. 1.9 billion pounds of uranium, and 90% was on long-term contracts.

Interview Highlights:

  • WNA Expectations
  • WNA Fuel Report: What Will it Do For The Market?
  • Current Mood in The Market: When Will Price Discovery Happen?
  • Struggles of Raising Funds in The Junior Space
  • Investment Hacks: What Should You Look Out For Before Investing?
  • Buying Physical Uranium: What Should You Know?

Click here to watch the interview.


Matthew Gordon: It has. We, like you, have been trotting around, meeting people, interviewing people at the WNA Symposium London, getting a sense of what the mood is. What do you want to get out of it?

Dustin Garrow: I think an important part is the biannual market Fuel Report from the WNA. I happen to have been involved in the uranium chapter. And the initial reactions have been very positive from outside organizations and people. I think the report reflects more of the concern of some of the fuel cycle participants. And it goes not just to uranium, but also the conversion side. I think the industry perspective now is more in line with what I’ve been seeing, particularly in the uranium side, on the supply issues that are looming.

Matthew Gordon: The WNA Fuel Report comes out every two years. It has had a reputation of being just a little bit vague. It paints a broad picture. But this year, a lot of hard work has gone into it. And we’ve met some of the authors of that. You were involved as well. It’s just that little bit more commercial. It’s getting to where it needs to be. You were involved with the uranium component. What was the brief?

Dustin Garrow: I’ve been involved in the report for many series of it. It was originally designed as an internal communication document. It wasn’t nearly as critical as to how it was put together. And the other thing is you can’t talk economics, can’t talk prices for anti-competitive reasons. But then it became the industry position, as particularly more investor groups, began to look in the uranium side. So, there’s been that lengthy transition. Still can’t talk economics. But it now it addresses things like the need for long-term contracts. There is still a big hurdle at this point. A lot of companies are at the starting gate in various forms, but without the utilities committing to more than a 2-3 forward year agreement, they can’t raise financing. It’s now being recognized, the term-market, it’s role in this industry. I looked at the US and the EU deliveries since 2000. There’s really good data on both the regions, which represents more than 50% of uranium requirements. Over that period, they’ve taken delivery of 1.9Bn lbs of uranium and 91% was under long-term contracts. So, the idea that the utilities rely on the spot market just doesn’t reflect reality. They still buy about 20Mlbs a year in the spot.

Matthew Gordon: It talks about long-term contracts which is a really important part of the industry for sure, but it’s not giving any indication around price because it can’t be anti-competitive.

Dustin Garrow: So you say things like ‘adequate’. And that depends on the specific company. What’s adequate for a Cameco is not adequate for a new build project somewhere else. But it’s a crucial element in the progression of the production facilities.

Matthew Gordon: If I look at people like TradeTech or UXC, they can get into this. And I think is important for commercial reasons that they can get into this. They sell those reports into utilities funds etc. But these interviews are for the ordinary guy like me and you, who want to buy shares in equities. What does this report do for them? Does it give certainty to the marketplace so therefore, people start behaving in a different way and therefore the equities react?

Dustin Garrow: What’s important is a lot of the investment analysts have concluded that there is a need for more production and it will be at a higher price. It has to be because of the economics of the new production facilities. The WNA, without talking the economic side, is saying, y’es, there is a need for more investments in the fuel cycle and particularly uranium’. So now everyone is saying the same thing. Now the contrarian would say, ‘well, now it’s time to look over the other direction’. I think one thing that was brought out in the WNA Fuel Report is the demand forecast. Recently the WNA had a low-case which had demand eventually dropping off. Well, now even the low-case is a positive I think it’s 0.1% growth. But it’s not a drop off. So, across the three cases, the reference case is about 2% growth per year and the higher one is 3.5%

Matthew Gordon: How did that how did they marry this up with the supply case? Most companies will overstate, will be a little bit hopeful about what they’re going to be capable of doing, but they are restricted by a number of factors.

Dustin Garrow: I think what what’s another important thing is there’s more judgment being put into the WNA Fuel Report. In other words, you can take the public statements of all these companies and say, ‘well, his history suggests that it’s going to take longer, it’s going to be slower’, or whatever and more of that’s going in the report.

Matthew Gordon: That’s great news.

Dustin Garrow: So, it’s not like, ‘oh, no, you’ve got to say just public information’. So, there’s some judgment that goes into it from people…Frank Haney, who ran the working group. He’s retiring next year after 50 years in the industry. So, we have some long beards involved.

Matthew Gordon: So that’s the WNA Fuel Report. Generally, very positively received. It’s certainly an upgrade from where it’s been, a lot of hard work gone into it and a lot more realism. Let’s talk about mood. I’ve been speaking to people and I’d say the general mood is positive, without necessarily being certain. It’s better than it was 6 months ago when we first started discovering the world of uranium. I’ve had some fantastically wide-ranging views on when price discovery happens from 3 months through to 18 months. Now everyone’s got a different business model, and everyone has different needs. But the people sitting in the middle are thinking maybe it’s going to happen next year. What are you hearing?

Dustin Garrow: I thought it was interesting that at the WNA symposium I think there were ten or twelve investment groups represented. We’ve never had that before. We’ve had maybe 2 or 3.

Matthew Gordon: And these are generalists?

Dustin Garrow: These are these are the guys that are either going to buy physical or buy inequities. They’re the guys that are going to put the money up for the industry. And someone said last night at a dinner I attended… when you’ve been around in this business so long, you walk in a room and you sense the mood, and it is on that positive side by the producers, either real or those that plan to come into production. The meetings that I’ve had outside of this symposium had been very positive. It’s not, ‘oh, well, what about the Japanese? They’re never going to’…It’s more like, ‘I’m on board now. When is it going to happen?’. The Section 232 in the United States… we had the July 12th memorandum from the President, which some people interpreted as, he had no interest in helping the domestic industry. But if you read his statement, it was ‘at this time’. And now the 90 Day Working Group will come out with some kind of remedy. But it will be uranium conversion, enrichment and probably be pretty neutral regarding the utilities. What’s going to be their exposure? But the point being, it’s not going to affect the general market. It’ll be kind of played out in support of the US government. But I think some of the utilities, particularly in the US, have the big unfilled needs, are saying, ‘well, I still don’t know what’s going to come out’. We’ll have that answer by mid-October. And then I think that they’ll start making their procurement decisions.

Matthew Gordon: We’ve had similar conversations. I think quotas, tariffs, subsidies. No-one knows.

Dustin Garrow: I think that’s all off the table. There will be some form of government support just directly. It won’t limit imports of other origins or anything like that.

Matthew Gordon: Let’s step back and see what happens there. But I think that’s going to be very interesting, obviously, for the US uranium companies. One of yours, Energy Fuels, obviously waiting to see what’s happening there.

Dustin Garrow: I think that activity in the term-market is what’s going to help raise the spot price. So, it’s not going to be the spot price goes up and then there’s term activity. The utilities are already doing their due diligence. They’re contacting suppliers. How much have you got? What timeframe? What kind of pricing are you looking for? That’s a precursor for them coming out. And like one of the US utilities was just in the long-term market, 2021-2025… So, again, they’re starting the process that they’ve not been willing to do because of the price differentials for a number of years.

Matthew Gordon: So, you were at the Eight Capital dinner last night. What were you hearing? What were the questions that are being asked?

Dustin Garrow: Well, no one’s saying, ‘well, is the price going to drop?’. What are the factors that are going to move it up and when do we see those asserting themselves? Now, some of us, we are die hard optimists. We could start to see it before the end of the year. But I think by first quarter, keep in mind, there’s a big conference in Nashville at the end of October, where there’s only like 3 US utilities here. They’ll all be in Nashville; the producers will be there. I think there’ll be much more discussion because we’ll know what the working group recommendation is or outcome. So, we could see some of them will say, ‘well, I’m going to get out there now. I’m not going to wait’. And we could start to see an uptick in term-contracts.

Matthew Gordon: Based on your assertion that you think it’s pretty soon, a lot of companies are going to like that news. Not saying it’s going to happen, just that they’re going to like your view. If that doesn’t happen… we’ve been speaking to a few people and we’ve been interviewing a few people. So, we’ve got a broad sense of what’s happening with it with a junior uranium space. A lot of them are needing to raise capital to keep going. They may get to the end of the year, but that’s it. Do you feel that the funds or the institutions that you’re talking to are ready to have those conversations with these juniors or are they going to struggle?

Dustin Garrow: I think some, because they have a good business plan, good projects, they’ll be able to maybe live on the drip for a while. They’re not going to get that big multi $100M financing done without term-contracts. I think they may be optimistic on how long that takes. It’s not that the price goes up, the next day the phone rings and all the utilities sign big contracts and by the end of the week away you go. It can take months and months. And at some point, the Cameco’s enter the market. And at some point, you’re going to see a lot of activity once you get to a certain degree.

Matthew Gordon: That’s great saying that because I think if I look at the retail following that we’ve got within uranium. Very passionate, very optimistic and patient group of people, very knowledgeable too. But they shouldn’t expect an immediate pop in price. There’ll be a gradual escalation on price. Is that what you’re saying? That could be as well as long as 12 months before it gets to where it needs to be? When does it get to $50?

Dustin Garrow: Well the term-price at $30 we could see $40 very quickly, because I think that’s the next plateau. A bit of contracting by some, then another pop up to $50. Well, how long does that take? Are we dictated to by the utilities when they come on the market? So, yes, by some time. First half of next year should you see a lot of term-contracting activity. And it’ll affect the spot-price. I think we’re within a 6-month window.

Matthew Gordon: I’m going to go back to my institutional days. I’m looking at price, if it hits $40. Most of these companies are still under water at $50-$55. So, in a meaningful way, it doesn’t matter if it is $20 or $40, but for the funds, if they see contracts in place, they have security. They still have to take a guess on what the future holds. And that the company can get product to the utilities. They’re got to say this will get to $55. That’s only break even for some of these companies. Some these companies need to make more than that to be able to pay back anything they have borrowed. So, there’s still a lot of uncertainty in terms of ability to raise capital. Is there not, at this point?

Dustin Garrow: Yes. That’s why some of them are out meeting, a lot of meetings, a lot of discussions and preparation for them. Then you go out and you do your whatever amount of term-contracting. I think the financing is available, but with the right conditions.

Matthew Gordon. We’ve been meeting and talking to a lot of the funds and institutions, and they’re generalists who, as you say, are coming back in and having a look at what’s going on. They’re having to get back up to speed, to understand what’s happening in the market, and they’ve going to take a view on what the future looks like. But, yes, I think the money is there, under the right conditionas. But that is going to come down to 2 quite important things that I’ve discovered in the past 6 months, management teams who have produced uranium and got it into market. Not many of them, right? And then, of course, the basic fundamentals of mining, is this a good asset? Can you get it out of the ground, let alone get it into market?

Dustin Garrow: Well, as you know, we’re having more specific questions. In other words, will a rising tide lift all boats? I think some of the investors that have either been in the space or more sophisticated, whatever, are saying, well, now of this group of companies, where should I place my funds? I think probably the primary question that I’m getting back is, ‘I’m on board, I think it’s great, next year. But where do I place my funds?’ And part of it is, like you say, management teams, the experience. And that’s hard to come by these days. Very difficult. There’s just not many veterans left. And uranium is a unique commodity because of the political, social issues surrounding it.

Matthew Gordon: I’ve been calling it in the past few days ‘Mining +’. Mining’s hard enough. Then you have the uranium component, which is a political hot bed. And some of those geopolitical concerns. But without getting at the macro, we all agree that the general consensus is it’s positive, a huge infrastructure needs filling. But if we come back to the management team. There’s about 50-55 companies in the uranium space at the moment. As the market recovers, you’re going to have new entrants coming in. It’s hard to imagine that any of them are going to have relevant uranium experience.

Dustin Garrow: It will be difficult.

Matthew Gordon: So, again, for our Subscribers, that’s something that they need to consider when making an investment decision. A new story doesn’t necessarily equate to capital appreciation, because these new entrants are unlikely to get into production with new management teams with no experience. Not impossible, just unlikely.

Dustin Garrow: During the last uplift, there were like 400 / 500 companies. I was at PDAC and everybody was tacking up a sign. ‘We also do uranium’, on top of everything else. And geologists with some drill logs they were they were getting funded. I think this time around it will be more difficult, because the questions will be asked, ‘who is behind it?’, peal it to the next layer and. And who’s going to do this? I want names. And that’s going to be a difficult part of the equation for some of the companies to convince funds. And it goes into the term-contracting. The utilities will say, ‘I’ll do a 200,000lbs /300,000lbs contract. I’m not going to do 500,000lbs. I don’t know you guys. I don’t know your project. It’s not built. So, I’m going to be cautious’. So, that means junior companies have to even do more contracts than maybe an established producer, of which there aren’t many left.

Matthew Gordon: Yes. A few things going on there. If you don’t have anyone who’s produced or been involved with producing uranium before, as an investor, you’ve got to think twice because it’s complex. It is not just drilling holes in the ground, finding it, digging it. It’s not that simple. There’s what happens afterwards. The bit that you’ve got a huge track record on was, I’m not selling you by the way… I’m just referencing that you have huge experience in this, the contract side of things. That’s not easy because, time comes into this. There are buying cycles. Term-contracts are 5, 7 years, aren’t they?

Dustin Garrow: They come in cycles. And just as a quick side note, when we did the bankable contracts for Langer Heinrich, the banks laid out very specific requirements. How much volume? At what price? Over so many years. So, we had to then construct a contracting plan that met all those needs. And sometimes you have holes and the banks go ‘fill the hole before I’m going to press that release of funds’. So, there’s more to it than like I said, the phone rings and you pass around contracts and you’re done. Won’t happen that way. It’s not to say these other companies can’t be successful. It just may take a bit more time. They may have to be more flexible in contracting.

Matthew Gordon: I think the phrase I heard yesterday was that ‘they don’t know what they don’t know’.

Dustin Garrow: And it’ll come to their front door.

Matthew Gordon: And that takes time. And that takes money. And sometimes they can’t fix it. So, a lot of things to be cautious of as an investor in the uranium space, unless you get a team that’s been there, done it before. I think that’s important because a lot of people, generalists, I’m not talking about the wonderful uranium crowd that have been in there through thick and thin over the last two years. I’m talking about generalists coming back home when uranium does kickback, will need to understand that. It’s not a case of all boats float on a high tide. I fundamentally disagree with that statement. I think all boats float for a while. And then the inevitable happens, they sink. So that’s great if you get it on the way up. But if you’re if you’re left on the boat, you’re in trouble.

Dustin Garrow: TradeTech, one of the two long time industry consulting firms has just put out a study on production. And it goes beyond, ‘well, here are the costs’. They look at full cost because a new project’s not going to be built on cash costs only, but then they try to look at what are the impediments? What about the secondary licensing? What about the mine plans? What about contract? Have they gone out and approached the market? Are they ready to do that? So, it’s kind of a guideline, a cookbook, to look at and go, ‘well, you know, just because you’ve got the best technical project, you may not be in the first mover group. You may not veto the third’, because of where the projects located for a number of reasons. So, the industry is trying to help some of the consulting firms in that regard.

Matthew Gordon: But that’s fine for people like you and me. We can afford that report. I saw it yesterday. Great report. And we can interpret that and extrapolate what we want from that for retail, family office, high net worth. They’re not going pay for that report. They don’t have access to that. They’re going to have to trust the information that they’ve got access to. And that’s why I’m interested in talking to people like you, you’ve been around the block a few times. You’ve seen a few cycles, influencers who understand what’s going on in the uranium space. But it can also help bring to light some of these issues. What the company says and what the company is capable doing are sometimes polar opposites. They’re very far apart and that’s the difference between making money and losing money. And that’s important. This is investor’s money. That’s what I care about.

Dustin Garrow: I think money will be made in this space again. I think it will probably be on a more selective basis.

Matthew Gordon: Pick the right team. The right boat.

Dustin Garrow: Yes. And a lot of it’s the right team that can get things done.

Matthew Gordon: Are you seeing any good stories out there? Over the past 2-3 days and over the past six month I’ve heard different business models and I don’t mean physical or ETFs or equities. I just mean companies which are up or coming at it in a different way, which makes sense, or companies which have got all the fundamentals in place. What type of company would you invest in? Or advocate in investing in?

Dustin Garrow: I think you’ve hit the high points, those that can demonstrate some experience in the commodity and mining in general. That always helps. If they’re not totally cash starved at the moment, that’s a plus. It gives them a little more breathing room so they can go out and meet with utilities and lay the groundwork. And if it’s like, ‘well we can’t go out, we can’t talk to anybody, we don’t have any money’, then it’ll be tough for the utilities to put you on their supplier list. When they don’t see you and you may have the best widget, but they can’t see it. The utilities need yellow cake in the can. They aren’t that interested in your share price. They can’t stuff shares or certificates in their reactor. They want to make sure in 2023 on June 1st you’re going to deliver that 100,000lbs, because they work it into their fuel plan. So that’s what they’re after. And so it goes beyond just the investor side. You’ve got to convince the customers that you’ve got credibility, particularly with new projects. If you’re a new person on the block it’s it can be a challenge.

Matthew Gordon: I just talked about something which was buying physical uranium. There’s a company in the UK called Yellow Cake. You’ve got one in North America which is called Uranium Participation Corporation (UPC). How does that work? What is buying physical uranium?

Dustin Garrow: There’s really more than one model and I’ll talk UPC, Yellow Cake. They’re being characterized as sequesters of the uranium. UPC has held their inventory for 15 years. And Yellow Cake, the business model, as you know, I’m chief commercial officer for Yellow Cake. Is to accumulate that inventory at good acquisition cost. The current 9.4Mlbs we acquired at under $22. Buy it and hold it for an extended period, add to it when the stars are aligned correctly to where we go out and raise money, buy more. We’ve got the option with the Kazakhs. And it’s an investment that the investor can make up a bet on the market. In other words, ‘I think it’s going to keep going up. I will accumulate shares’. At some point they may say it’s $45-50, could come off. Then they’ll take a different decision. But it’s basically that store of value that they can make decisions on.

Matthew Gordon: And it’s based purely on the price of uranium spot that that day. ‘I bought it $25, it’s now at $40, I’m checking out’, because it just happens to be in the form of shares. You’re buying and selling physical product.

Dustin Garrow: But the material doesn’t like come in the market. Now there’s a different group, which there’s 6, 8, 10 investors that have bought physical. Now that means they hold the U308 at a conversion facility. They come in, they add to that when they think the price is going up. And at some point, I think when they say, ‘well, OK, I’ve doubled my money in six months and I’ll sell some of it off’. I think that happened earlier this year. So, that’s a different model.

Matthew Gordon: One is physically selling off, but that’s a group of institutional guys, presumably. The first one you described was there’s an inventory sitting there. So, you can you can buy shares in that. It will continue to sit there. And once you want to sell your share, you can sell it someone else. But the uranium still remains there. It’s not going into the market per se. It’s a security.

Dustin Garrow: Yes, it’s a lot easier than if you buy physical because then you get into the storage accounts. There’s fees, there’s all kinds of things. Not to say that’s a bad part of a three-legged stool, but it’s different. And I know the analysts are really struggling with ‘how do you model that?’. Cameco has mentioned it on their calls. But apparently late last year, that group bought 8-10Mlbs. Could have been more, could have been less. And I’m asked how and when will they sell? At what price? Some might sell at $35. They go, ‘hey, I bought it at $25 I’ll sell it’. That’s a great deal, I’ll go do something else. Others may say this thing’s rate going up quickly. I’ll hold to $50. They may sell at $35 and come back at $40. So, it’s a growing part of the spot market that to some degree you can’t model. It’s like, ‘well, how do we model this? We know what the utilities are going to do. We know the producer buying’. I contend you can’t model it. If it was one person you go, well, I can kind of figure out what they’re doing, but it’s now a diverse group all over the world. South America. Australia. North America.

Matthew Gordon: Right, so if I’m looking at something like Yellow Cake. You buy at $22. If the price goes down. There’s nothing you can do about that. So, the value of what you bought is less than what you paid for it. But your expectation by investors buying shares is that it’s going to go up. So, there’s no equity risk per se, it’s just purely on the products above the ground sitting in containers, Cameco’s facility or wherever it’s held. Whereas equities, a bit more exposure to all the risks below the ground and management decision making and availability of cash. So, it’s just a different risk profile.

Dustin Garrow: So, it allows you to participate in the uranium space by either Yellow Cake, UPC or physical. I understand one of the large banks that’s been involved in buying physical has been providing that service. You don’t have to get a supplier or storage agreement. We’ll do it under ours. So, there’s the entrepreneurial side of that, for a fee. So, then that takes some of the goodness out of it. And then it’s the equities. Everybody says, well I’m going to buy Cameco. Well yes. They’re a fundamental part of the business. But actually their upsides are limited by ceiling prices and defined price contracts. So, if the price goes to above $100, if you look at their sensitivity table, they start to hit a ceiling. Now, on the downside, they don’t go down below about $30. So, they’ve got a collar. And that’s part of their business model. I’m not sure everybody looks at that. They think, well, if the price goes to $200 it great but  in reality Cameco will hit their ceiling.

Matthew Gordon: It’s also not good because there will be a lot of entrants, new entrants in at that point.

Dustin Garrow: I mean but then the different strategy, different risk.

Matthew Gordon: So, to finish off because I know you’ve got places to be, you’re meeting lots of people today. You think uranium people should be looking at it, should be considering as part of their investment portfolio. General consensus is quite positive.

Dustin Garrow: Yes. More and more people are looking. I did a roadshow in April with yellowcake and it was mostly North America. And certainly, we did Boston, New York, but out on the West Coast. Los Angeles. San Diego. So, we see a broader spectrum of interest. And I think it’s waiting on the Section 232 though, we don’t know what that kind of means. But once the green light goes, even if it’s a pale green. I think there’s going to be a lot of investment.

Matthew Gordon: People will be waiting until then, I think generalists are waiting till then, see what that outcome is, whatever it is, some degree of certainty about how to move forward.

Dustin Garrow: Figure out what does it mean and then the utilities will react so you’ll see that term market start to pick up.

Matthew Gordon: Dustin. Good to see you face to face here in London. Enjoy the rest of your time here. I think you’re diving on aeroplane tomorrow. We’ll catch up hopefully in October.

Regrets About Writing the Section 232 Petition? More Pain to Come? We Chat to Uranium Guru Dustin Garrow (Transcript)

Would he do it again? How do the Utilities make decisions about Uranium spot price versus Uranium contract prices. And do the utilities hold the key to unlocking the Uranium spot market and how will sovereigns take control. Who survives, who dies?

Dustin Garrow helped write the Section 232 Petition, now on Donald Trump’s desk, so he knows more than most about Section 232. But what’s his view? And how do you build a Uranium business today? We talk to Dustin Garrow about the issues in the market. Why he is strong on US Uranium companies even though the US does not hold sway on the global stage any more? Find out on CRUX.

Click here to watch the interview.


Matthew Gordon: I just want to kind of set the scene here. You’ve been long in the Uranium market, you live and breathe it. It’s in your blood. And we’re taking advantage of you today to maybe help the listeners and followers of CruxInvestor.com understand what’s going on in the Uranium market at the moment. Would you agree there’s a general acceptance that the 232, which I think you helped draft if I’m not mistaken, with UREnergy and Energy Fuels. Do you think that that has in itself frozen the market? In terms of, utilities are nervous about making any kind of decision until the outcome of that is known. Is that, would that be a fair statement?

Dustin Garrow: Yeah I think that’s reasonable. And just for the listeners’ benefits. One of my clients is Energy Fuels, which was one of the two petitioners so I have a bit of confidentiality, I have to deal with. But yeah, utilities first of all felt that the administration was not likely to upset their nuclear fuel purchasing because some of their reactors are in very difficult electricity markets. And any increase in costs, certainly is not something they would like to see. But yeah, I was at a big conference in Miami in April and talked to a number of the fuel managers and they just said we really don’t know the best course of action here. And a couple of them actually said we really would like to get this behind us, whatever it is.

Matthew Gordon: I want to get onto that side of things because I think the market has discussed at length 232, and what may or may not be in it, you know, what may or may not come out of it. But I want you to talk to me about supply-demand. If we may start with the utilities. These are a bunch of smart guys. They’re actuaries in all but name. And they’re trying to make decisions based on multiple criteria. Can you give us some sort of insight into that decision making that they’ve got to go through in terms that risk mitigation, when they’re buying.

Dustin Garrow: Yeah absolutely. Just keep in mind, the nuclear fuel cycle, just by the nature of the industry, is quote ‘long-term’. So in other words, they have to buy fuel well in advance of when they will put it into their reactor, because it has to go through various processing steps, be fabricated, taken to the site. So you’ve got pretty much anywhere from a year to a year and a half. But they really start that planning well in advance. And so the fuel managers with their risk management groups at the utilities, are having to look well forward and as I mentioned earlier, they protect themselves usually through long-term contract.

Matthew Gordon: What is the long term? What’s the term of the contract here?

Dustin Garrow: So what I would say one today, we did have a US utility in the market not too long ago, in 2018. They were looking for delivery starting in 2020. They would go through 2024 and then they always appreciate a year or two of extension option. So normally they’re looking anywhere from 2-3yrs out and then for maybe 4-5yrs. It is interesting just as a side note, the Euratom Supply Agency just came out with their fuel report. And they said the average contract for their utilities was signed 9 years ago. So keep in mind these are very long-term planning horizons. And so when something like the 232 comes up, they… the proposal is they buy 25% of their requirements from newly produced US Uranium. So that’s a fairly large chunk of their Uranium requirements. So that’s what’s kind of frozen them, if you want, they wouldn’t say that, but it’s kind of hindered their planning, because they don’t know which road to take particularly for future longer-term contracts, not necessarily just spot buying.

Matthew Gordon: So the utilities are… they have a kind of can control on the spot price in the sense that until they start buying, people don’t really know where they stand. So can you just give us a little bit more insight into the sorts of things that are going through their heads. You met with some of them in April. I guess you speak to them regularly. It’s beyond 232, which is the American component to this. There’s a lot of the geographical mitigation of risk. They’re not gonna buy from one source. That would be problematic, I’m sure, or could be problematic, I’m sure.  What are the things that they’re looking for in their contracts?

Dustin Garrow: You know I guess if I have a speciality it’s long-term contracts. And what they want is a diversity of supply. You know they have to take that into account.

Matthew Gordon: What does that mean? What do you mean by diversity?

Dustin Garrow: What I mean is geographic region. So then they’re looking at political risk. They’re looking at transportation issues and technologies. In other words, you can mine Uranium underground mining, in fairly high risk environments like the Athabasca Basin, where they actually freeze the ore bodies or put in freeze curtains to hold water back. And the other is in situ recovery, where they drill well fields. And so that’s Kazakhstan, Uzbekistan. Conventional mines in Africa, there’s Namibia, Niger, Australia. So Uranium is mined globally. It’s not like some of the other fuels that if it’s a coal source, then you know you’re generally linked to something fairly close at hand. Uranium and Nuclear fuel is truly global. And so they have to take into account those sources and then as I said as they move into the fuel cycle, to conversion, enrichment of the Uranium and fabrication, there’s various facilities around the world. So where do they contract? Again under acceptable risk which then drives their, for example, strategic inventory. You know if you’re buying from a region that might be a bit more politically unsettling, you might want to carry more inventory. So it’s a pretty complex calculus they use. Now when I started the US, you usually bought from US suppliers. It was kind of a lot more simple, now it’s truly global.

Matthew Gordon: Yeah, absolutely, the US have kind of fallen by the wayside for whatever reason, for a multitude of different reasons. And we can get into where nuclear sits because obviously Uranium and nuclear sit side by side and it’s very emotional, emotive subject, as I’m sure you’re aware. But just sticking with the utilities just a little bit longer if we may. So the utilities It would be reasonable to say that they are controlling the spot price that moment until they know what’s going on. The spot price is driving the planning for the equities, the public companies that are producing this stuff. And today it’s a mid-$20s say. They need it to be $50+ to be economic. Anything between where we are today and $50 is a moot point. It doesn’t kind of shift the dial in any way. So what’s got to happen? What’s going to happen? Is it’s just 232?

Dustin Garrow: No I think 232 just was a complicating factor. In other words that the utilities were beginning to move into an era… I won’t get into the other parts of the fuel cycle, but their profits have been significantly depressed. So the utilities who looking forward, they’re seeing higher prices. And so they’re trying to come up with a good defensible strategy on how do you cover your future needs in the most economic, and under reasonable risk, parameters. And it’s not particularly easy at this point. So again 232 showed up and they said well this just kind of puts a little stop on what we’re doing. Because a number, and we’re looking at longer-term contracting, and then 232 came in.

Matthew Gordon: With hindsight would you have recommended to those two companies that they do submit the petition. Would you have done 232 with hindsight?

Dustin Garrow: As a producer? Yeah I think as you’re probably well aware, what was happening was these longer term contracts at higher prices. The US utilities paid an average of $39 a pound last year for over 40M pounds of deliveries, in an $24 average spot market. So that the longer-term contracts, which are characterised as legacy, were helping a lot of a number of the producers stay in business. But the utilities have been really hesitant to extend or even negotiate new long-term contracts. And so particularly in the case of the US, you were seeing the industry really… production last year was under a 1.5Mlbs. This year going to be well under 1Mlbs. And so the producers are really looking at a situation where they’re trying to keep the lights on. The other thing quickly to keep in mind the 232 is national security. So in the case of the United States, the Department of Defense starts to play a role because whatever their future needs are, have to be addressed by US origin fuel. You cannot use any Uranium conversion, enrichment from any other country

Matthew Gordon: So that bifurcation in the market does that mean there’s two sets of prices potentially, is the solution?

Dustin Garrow: I think it depends on the volume. In other words if it stays at 25%, then it’s going to be 10Mlbs to 12Mlbs pounds a year. So it becomes a fairly noticeable part. But if it’s somehow smaller President Trump say 6Mlbs to 8Mlbs pounds a year. Department of Defense may start buying some.

Matthew Gordon: Where’s the real cost in this? You know with weapons grade enriched Uranium, 90% enrichment. Where does the cost come? Is it at the Uranium getting it out of the hole stage or is it, you know, all in the enrichment phase, in which case the Uranium component’s, again, it’s irrelevant isn’t it?

Dustin Garrow: It depends on what you’re addressing. If it’s commercial grade Uranium for power reactors, it’s one thing. Uranium is a fairly significant part of that process. Now if you go into the military side, then it’s enrichment, because you’ve got it from its natural state to a very high enrichment.

Matthew Gordon: This kind of and I do promise to the listeners that we’re going get back to picking winners and losers in terms of… But I do want to talk about the strategy and who the winners are going to be with this arena in which we’re playing right now. Which is this space before companies can manufacture, produce Uranium profitably. You’ve got countries, and your friend Mark at Energy Fuels, I think he would argue that there’s a geopolitical story going on here with Russia, with China etc. And then there are obviously the public limited companies themselves who each have their own business models and business drivers and needs. And they’re all global players. Certainly the producers and the ones with cash, they’re global players. So who do you think is going to win? First of all can we talk about the China-Russia component. So what’s going on there? we’ve got these SMR’s which people are offering into places in Africa: we’ll build it, we will run it and we’ll have long term contracts with you. That helps countries like that. You’ve got all sorts of PPP models. How is China and Russia making it difficult for America to get back on to the platform?

Dustin Garrow: Well first of all let’s talk about the Russian side which is again very complicated, very long history. There is in fact the suspension agreement which affected the amount of Russian nuclear fuel that could be imported to the US which has been in place in various forms since 1992 or 1993 and it’s now being reviewed once again. What we’re seeing I think with China and Russia is some competition on a geopolitical front. In other words they’re very active in marketing export reactors now to do that as you point out they not only provide the reactor itself they provide the fuel they take it away. So if you approach a country such as South Africa or Saudi Arabia I know the Russians are talking to the Saudis right now. Once you put a reactor somewhere 60 to 80 year life. So it’s an interesting geopolitical issue which is quite complicated. But what happened with the Russians is they sold a lot of Uranium after the dissolution of the Soviet Union. And so right now the myth that the one part that is a challenge to them is Uranium. So that’s why they’re getting active again in Central Asia. They have their own Uranium production. They have a proposed mine in Tanzania. So the Russians actually I’ve heard are quote short Uranium for domestic uses for export reactors. And so they’re being much more cautious on some of their sales but they have a lot of enrichment capacity. So that’s what they’re selling into the U.S.. So that’s kind of the Russian story. Now the Chinese is different. They’ve been stockpiling Uranium to support their own program. But at times they do sell in this, like the United States but they’ve not been a big factor in the export market they’re producing in Namibia. They have domestic production. They have long-term contracts to buy in Australia and Canada. So they’re really more in a stockpiling mode to support their really significant growth in reactor build.

Matthew Gordon: But right okay, I mean that’s the component. So you’re saying there’s a business component to this but there’s also this geopolitical component which basically means control especially with 60-80 year contracts. You have control over that country’s energy needs and that’s a problem. That’s a problem for U.S. companies right.

Dustin Garrow: Yeah. I mean the U.S. companies first of all we had 2, we had more, we had a number of reactor manufacturers back in the 70s and 80s. And now we’ve got officially General Electric Hitachi and Westinghouse, Toshiba are still in the business. General Electric is kind of really wound down the reactor business. So we’re left with Westinghouse which is effectively controlled by the Japanese. So when you look at some of these projects you know the Russians and the Chinese will come in and not only do they offer the reactor and the ancillary services they will finance it so they will provide the necessary capital. So the U.S. you know Westinghouse has been at a real disadvantage in some of these countries. Now they’ve been successful in China. And you know because China wanted some of all of the technologies so they’ve done that. But yeah I mean you need EXIM bank financing so it’s much more complicated because Westinghouse is not a state owned entity like the exports of Russia and China.

Matthew Gordon: Yes I think, it’s an all-in solution, it’s a one packaged product. You go to the whoever is running the country and you say I can give you whatever 10%-20% of your energy needs like that.

Dustin Garrow: A big part of them yes. And I’ve heard that they’ll just send a bill, you know we’ll produce X amount of energy you pay your annual bill and we take care of everything else. So it would be attractive to some of the countries, to smaller countries in particular.

Matthew Gordon: I’ve seen that with hydroelectric in Asia as well it’s the same sort of packaged product that makes it a lot easier. You pay over a 40 year contract. So is there some degree of frustration with American companies that countries like France or Germany or Australia are kind of aren’t towing the sort of traditional party line of you know we’re going to side with the US here. Everyone’s got their own business interests at heart here. And you know that doesn’t necessarily help in terms of the Entente Cordiale. And we do see it in other areas and obviously with what’s going on in Iran at the moment as well so there’s… You know America was a powerhouse when they spoke people listened. But do you think that’s not happening anymore.

Dustin Garrow: Well that’s one of the topics it just came up actually quite recently that if you don’t have a robust nuclear industry domestically you really start to lose any leverage internationally. Let’s pick on South Korea which was successful in getting a four reactor package in the Emirates which they’re now, the reactors are starting to come on. But they have a phase out program in South Korea. Now it will go for many decades but it’s just like Japanese exports of nuclear technology or equipment. When you’re in, not a phase out, but let’s just say they continue to struggle to bring on more reactors you kind of lose that leverage where you’ve got the Russians and the Chinese the French to a more limited degree doing export reactors. They’ve got a lot more say than if well you know… we don’t have the products or the services or but you know listen to what we tell you.

Matthew Gordon: Yes it’s… I appreciate that it’s a difficult space and difficult time for some of the U.S. players at the moment. So if we may come on to the public companies the producers developers and explorers. now mining’s a tough space. Full stop. But mining Uranium, you’ve got that added emotive content all because of the association with nuclear. People in countries like Spain make things difficult for, I won’t mention names but we know who we’re talking about. You know and all over the world where this nuclear component is slightly misunderstood by some and others will tell you that it’s zero carbon and it’s the solution. Bill Gates putting in a $1Bn of his own money into this. You’ve got polarising views I guess is what I’m coming at. So how do the companies, main players being Kazatomprom, Cameco and then a kind of handful of others in production and then a bunch of explorers in the world. Let’s not forget this is mining because we always forget, we get so excited about talking about Uranium we forget it’s mining with its usual mining problems: finding it digging it out of the ground economically producing it selling it in a market which may or may not be receptive to it in terms of spot price. Can we start with Kazatomprom and Cameco. Are they influencing or controlling price at the moment. I think Cameco is trying to find 9M pounds to fulfil orders for this year alone. So what are they thinking?

Dustin Garrow: Actually much more than that. I think that you know and first of all lets focus on Cameco. Because they are a Western Company, a very large producer made up of two government organisations in the long past. You know I think what happened there, and certainly on the Cameco side, and it was a big surprise I think to the industry when they decided to put McArthur River on care and maintenance which was producing 18M pounds a year in a 150M-160M pound production scenario and say they’re going to buy and you know they’ve been very public to say we are trying to get the price up. So are they manipulating? No they’re basically just saying we’re going to retire available supply and even better because we have long-term contract commitments we’re going to become a buyer in the market. Now there is the, on the Kazakh side, there is a world nuclear fuel market meeting going on at Lisbon as we speak. And yesterday they made a presentation and part of the feedback I got was they said the price is too low. So I mean they’re publicly stating the price is too low. They’ve cut back production. You know what they had planned to do. These are two big producers that are attempting to, not manipulate, to try influence the price so they can stay in economic production because right now if you look at the spot price more than half the world production is uneconomic. Now fortunately for the utilities quite a bit of it is state owned be it China be it you know, Kazatomprom which is now kind of a split between public and private. So you know it’s pretty clear prices have to be higher in order for these… for production to go forward or restarts and certainly new mines which everyone pretty well recognises need to be built. There’s no question you need new capacity as older mines like Ranger in Australia. Rossing  looks like it may get a bit more life because it’s been purchased by the Chinese. $25 – That’s why again most of the producers have longer-term contracts at much higher pricing.

Matthew Gordon: Can I ask a question about this Dustin, because people want to draw parallels to the last uptick where companies like your former company Paladin, just shot to the stars. 10,000x return kind of numbers being thrown around. But the thing that also happened back then was you went from broadly 50 companies to 500 companies. People got excited. We’re gonna all have a Uranium company. But do you feel that this time because this dip in the price has gone on for so long. Do you think there’s scope for certain players, we won’t name names, to go and buy up some of these better Explorers/Developers. Some of the Australian companies I’m thinking of, with assets either in Australia, or Africa or elsewhere. There are some good projects which are quite short of cash. But just hoping this thing, the market changes soon. So how do they survive? Do they go… keep at trying to raise capital? I know there’s a bunch more Uranium funds out there. That’s the good news, like Yellowcake. But how do they keep going? How do they keep the lights on? Do they keep the lights on? Or do a couple of big guys come along and say we’ll just wrap things up now, while times are tough for them, because we know where the market’s going?

Dustin Garrow: I would like to think that some of the big mining companies would kind of re-emerge, and come in and as you say sweep up some of these good mines, that may be suffering financially. What we’re seeing though, is actually the opposite. The big mining companies like RioTinto, that have been in this business 40yrs are now exiting totally. And I’ve not heard of any interest, no matter what they think of where the price is going, of coming back into Uranium. BHP is a bit of a reluctant participant because they’ve got…

Matthew Gordon: Those are super companies. It’s too… this market is too small. Uranium market compared to Gold, compared to Iron Ore. It’s too small. They’re not going to do that. But there must be some mid-tiers with a bunch of cash, thinking this could be interesting?

Dustin Garrow: Yes. But I think they look at the… they’ve either looked at Uranium in the past, and maybe didn’t get involved. And then you had Fukushima and they say they think they’re lucky stars that they hadn’t gotten involved. But yeah you would think there would be some that would say, ‘hey this looks like a very interesting area’. Now I have done a number of investor road shows, for Yellowcake. And I say the investment community in general is very interested in Uranium. And there’s a lot of capital at the starting gate, but they’re saying, ‘232. Let’s see what the outcome is. When does the market move. How strongly does it move up’. And I think it’s to…

Matthew Gordon: But if that’s the bottleneck Dustin, but that’s the bottleneck. If 232 is the bottleneck, all they’re saying is timing. All we’re talking about is timing here. But they have to do some groundwork on basic due diligence on mining companies right. There are going be some good ones and some bad ones.

Dustin Garrow: I would like to say yes I’ve heard that there’s several you know mid-tier mining companies high credibility availability of capital that are doing that. I’ve not heard of a one. You know I think again we’re depending on which media you follow is, either a strong story or it’s going down as fast as you can. So I think that’s part of the problem. It’s a strange commodity. Like you say, the most regulated commodity in the world. The mine that’s proposed for Spain, I understand they have over 120 permits and licenses. You know it’s a gravel pit. It’s not iron ore. It’s really really challenging.

Matthew Gordon: Maybe it’s a discussion for another day in terms of what is the logic that’s going on there. Because that’s an excessive amount of permits by any standard. And I think it’s because it’s Uranium, nothing else.

Dustin Garrow: It’s radiation. And it’s Uranium. It’s not good no matter what. And so everybody in the certainly the government side, they want to make sure, be at local governments, state governments, federal governments. It’s the laundry list is almost endless.

Matthew Gordon: Your backside is covered.

Dustin Garrow: You have the ones with the Uranium in their blood. The one company that I worked for previously, was really set up to when the stars aligned really move forward quickly. The mine in Namibia was put together in a little over a year. And that’s a unique situation.

Matthew Gordon: But the thing that’s changed there. Obviously Fukushima happened, and again I’ve had all sorts of numbers thrown at me with that. But I think with Paladin… it was a massive marketing exercise. But the marketing exercise was to utilities, to get them to see that you’re a good company. You deliver what you say you deliver on time it would be there, because the biggest crime in the utilities space is not ordering and buying product to fill these large reactors. So is that the only difference. The fact that this black swan event Fukushima, and I get Chernobyl and Three Mile Island before that, and the safety numbers around that. But is that the only difference between when you were going around the world talking about Paladin and today? What do companies need to do to get people to be positive?

Dustin Garrow: Well I think you know obviously I lived through Three Mile Island and Chernobyl and all of that. I think what was unique about Fukushima was the Japanese were viewed as a gold standard. They were if you want to name a country, at 54 reactors and for that event to happen, which again took everybody by surprise, and then the aftermath was the shut down of that entire industry sector, and the length of time, like Gitzel at Cameco said nobody thought we’d be 8yrs later and we have 9 operating reactors. It’s been such a slow…. So then you had Germany immediately react. You had some of the Taiwan and we want to get out of this business because it’s unsafe. I think the fact that the tsunami created a situation no one had anticipated, you know cut off fuel to the diesel generator, all this.. we go into the ins and outs of Fukushima. That started everybody stepping back. So you know, you’re basically asking in the absence of Fukushima… well the industry would have I think continued to grow. There would have been… it would have been more orderly, in my mind. You’ve now lost that orderly progression throughout the fuel cycle. It’s not just Uranium, but let’s just look at Uranium. So low-price has caused a lot of capital destruction. Let’s put it that way. And a lot of kind of I think lack of interest.

Matthew Gordon: But do you think it’s also created new technologies? You know people are talking about new technologies within the space, not just the SMR, the small reactors, but the technology… the reactors will last 60yrs, 80yrs now, not 40 years. So that kind of view to safety has been enhanced. And you got people like I mentioned previously Bill Gates, espousing the virtues, and I think even one of Mike Alkin’s friends, Elon Musk would (that’s a private joke). You know, are talking about the virtues of carbon neutral nuclear base-load power. It makes sense. The smart guys are saying it makes sense. But you’ve got this nagging doubt. This historic slightly ageing view of the industry, which you guys are trying to overcome. And so it’s not just 232, and what it’ `s doing for utilities. But it’s that public perception for politicians, like the Germans who are re-viewing their nuclear stance, as the French have done in terms of delaying it. But does the industry need to work harder at the publicity side of things. I mean how do they get people over that hump?

Dustin Garrow: As I’ve mentioned, I’ve been in this business since the first Arab oil embargo, a long time. And because I think the industry was created by highly specialised engineers and utilities. The communication to the general public has not been  strong suit. Let me put it that way. And just leave us alone. We know how to do that, which was, when I got in this business around before 1980. The forecast for the United States was to have a 1,000 reactors. I’ve got that forecast from the Atomic Energy Commission. We got to 10% of that. But that was the thought. This was going to keep the meter. It’s complicated. Unfortunately it came out of the weapons side. And so there was always that uncertainty, I guess, or concern. And so then these events, accidents have just added to that. So going forward, that’s why when you look at the forecast of installed nuclear capacity, it isn’t a negative number. It’s like 1%-2%  growth. And thank goodness the Chinese… now keep in mind at the time of Fukushima, they had 13 reactors operating. Now 45. So this is a program that is on the fast track.  And it’s happening elsewhere, but not in the traditional markets.

Matthew Gordon: Just in terms of getting back to for our retail high net worth and family office investors. Let’s make this understandable for them. So it’s a very complicated arena. It’s a very emotional arena in which people are operating. You’ve got the fundamentals of mining, which you need to understand. You’ve got this Uranium / Nuclear relationship going on. And it’s going through a dip in the cycle. But if you are saying to me, that large companies are thinking twice about buying up equity, other public companies, small public companies, not just the BHP’s, but anyone you say you haven’t heard of anyone thinking of doing this. Why on earth would a retail investor buy into these shares at the moment? Because there’s a lot of noise. And I’ve looked back at videos from 2yrs, 18 months a year ago, and people were saying the same things then as they are now. So if I had 18 months ago invested in Cannabis, let’s say, and was now, I’ve reaped my rewards from that decision, and I was looking to invest in something. Why do you think Uranium is going to take off and when?

Dustin Garrow: Well I think let me reference one of the larger consulting companies in this industry, UX out of Atlanta. They say this demand is kind of behind the dyke. In other words, in the absence, let’s pick on 232, the utilities would have already been out in the term-markets, signing long-term contracts. Some of which would be with these smaller, newer, proposed producers. Now what happens there is, you get smaller volumes. In other words you get a 200,000lbs pa contract instead of 500,000lbs pa because you have to prove that you’re going to be able to deliver. And so the utilities, what they need is Yellowcake in the can. They don’t care what your share price is or anything else. They’ve got to have fuel. So I think what we’re seeing is, as you say, how did these guys survive? How do they hold their breath? Some were on the drip. They’re going to raise a little bit of capital. But then I think that any day we could have a 232 decision, and the utilities, that was my point about talking to the fuel managers, I want to get this behind me, because I need to cover my needs post 2020. In other words it’s not, tomorrow I need to buy 100lbs. They couldn’t care less about that. It’s need to cover 5Mlbs pa starting early 2020s. So what I think is going to happen, actually I think the situation is more attractive, because you don’t have 500 companies saying, ‘oh I can do this’. And I think the investor community has learned lessons. They’ve done their due diligence, and no longer they going, ‘gee who in the 500 are likely…’ You can whittle it down fairly quickly. And it has to do with status of the project. Location. Management. I think some of the companies that have brought in non-Uranium people, have found out that because it’s such a different commodity… and that’s another thing is availability of skilled professionals, management and even at the mill site… let’s put it at kind of the operating site. There is a real lack. And so you really have to step back and say, ‘Well OK let me look at this universe, and I can get rid of…’.  Now rising tide will lift all boats. I think if we start to see a $50 price then you can make some money. But in general, you’ve got to look at during the last uplift it was all Kazakhstan. It went from under 10Mlbs to over 50Mlbs. Because they had all these projects that the Soviet system had defined and were kind of ready to go. And the only other one was Paladin. I mean really when you look at it. Small ISR mines in Wyoming took 5-6yrs because of permitting because… and a key factor is term contracts. Just as another thing to look at. The Kazakh’s transact at the spot price. That’s their official transfer price. But in the West, there’s never been a Uranium project built based on the spot market. It’s always been always from contract.

Matthew Gordon: I hear you 100%. I’m going to make you call the timing on this. When’s it going to get over $50?

Dustin Garrow: Oh I’ve given up forecasting prices a long time ago. It should be higher at the end of the year.

Matthew Gordon: Oh you’re good. You’re good.

Dustin Garrow: I should point out there’s a big gap between kind of $25 and $50, which is really the incentive price. I think we could see a strong move, and then depends on who’s able to get into business, and so it’s going to be an interesting market over the next probably several years.

Matthew Gordon: Okay. Thanks very much for your time. I appreciate it. Lovely to talk to you as always and we’ll speak to you again real soon.

Dustin Garrow: We’ll probably talk right after 232.

Matthew Gordon: Yeah that’s right. Thanks very much.