Global Atomic Corporation
- TSX: GLO
- Shares Outstanding: 145M
- Share price CA$0.51 (17.04.2020)
- Market Cap: CA$75M
Interview with Stephen Roman, Chairman, President & CEO of Global Atomic Corp. (TSE: GLO) .
Roman calls us to update about the announcement of their PEA results. They plan to mine a higher grade flank zone in Phase 1 at their Dasa project in Niger, which is what this PEA relates to. The results are impressive for many reasons.
Firstly the economics an AISC of just $18.39. That is world-class. And a cash cost of just $16.72. Also world-class. The number which caught our eye though was the steady-state production of 4.4Mlbs. Global Atomic becomes a meaningful second-tier player at that level. At $35 per pound, the NPV8 is $211M with an IRR of 26.6%. However if the price of uranium goes to $50 (where most producers and developers expect and need it to go), the NPV8 leaps to $485M with a 46.3% IRR.
That in itself is a good company. But remember this is Phase 1 of the much larger, albeit lower grade, Dasa ore body.
The key to this is the speed at which Roman believes they can get into production. He says by end of 2022. What that means is they can get in to supplying U308 in to this contract cycle and start relationships with utilities for long-term contracts while other are still seeking financing. We discuss the winners and losers and the realities of the time lines involved.
We also discuss their Turkish zinc JV which gives them a 40-50 year annuity stream of cash. This could be used to finance the capex requirement for Dasa.
Interesting times ahead. Let’s see if this experienced uranium team can deliver. We fully expect it to quietly go about its business. This one is leading from the front.
- Flight of the Swans: Market Situation, Interpretation of Announcements, Opinions on Utilities and Price
- Supply and the Market: How Will the Juniors Survive? What Qualities Will They Have
- Befesa Silvermet Zinc Project: An Update. Zinc Payback Timeline Discussed
- PEA Announcement: Reviewing Results
- Business Model: Why Get into Production Early?
- Strength of the PEA and Getting Permitted
- Raising Money and Limiting Dilution: Telling a Compelling Story, Raising Money and Limiting Dilution
- Timeline of Events: Getting into Production, PFS, DFS, etc.
- Market’s Reaction to Global Atomic and PEA Announcement
CLICK HERE to watch the full interview.
Matthew Gordon: Stephen, how are you, sir?
Stephen Roman: I’m fine. Matthew, how are you doing?
Matthew Gordon: Not bad. Locked up at home.
Stephen Roman: I’m in snowy Toronto. We just had a blizzard here this morning. I understand the weather is a little better in London?
Matthew Gordon: You are kidding? It’s sunny. It’s all sunny here. It’s 20-degrees, which, I mean, I don’t want to talk to an Australian right now; they’ve been telling me it’s 35 degrees, you know. No one needs to have that conversation. But anyway, so you’re holed up safely at home. Keeping busy. You’ve got a press release out today about your PEA, and I do want to talk to you about that in a minute, but first I need to get your take on what is going on in the marketplace. The last 2 or 3-weeks have been a bit crazy. You’ve had Cigar Lake shutting out for a little while. You have got the Kazakhs doing the same thing for potentially three months. You’ve got Rossing shutting down. You’ve got Husab production affected, Australia still seems to be marching on. What’s your take on all of this?
Stephen Roman: It’s a strange world out there, Matthew, with this virus floating around. And of course you know, a lot of these mines like Rossing, low-grade, high-cost, Cigar Lake similarly. I mean, all of these mines, I guess because of COVID-19, have now shut down. That’s taken a huge chunk out of the Uranium supply chain. I would, you know, if I was a utility, I think I’d be getting nervous about now on where they’re going to start getting supplies because their long-term contracts are coming due in the next year or two, and they’ve got to be out there looking at who can fulfil the next 10-year supply stream for them. You know, it’s obviously moved the Uranium price up quite significantly here over the last couple of weeks. And you know, some of these mines are going to take a bit of time to restart. So, you know, I think the Uranium side is getting a bit of a boost here and hopefully it’s not short-lived. I think we’d like to see it moving ahead. You know, to where it should be.
Matthew Gordon: Well, you’ve got a part of the audience who are saying that this is the ‘white swan’, this is the catalyst for change. You can’t remove that amount of pounds out of the marketplace without it obviously affecting the demand side. You’ve obviously been there, done it before; you have built Uranium, mined, got into production; you know what it’s about. I’m intrigued as to what you think the utility guys are actually thinking right now because the other thing going on in the background is obviously that the gas prices are being affected by the war with Russia. The war between Russia and the Saudis with regards to pricing and output. Are you having conversations with any utility guys at the moment? Have you got a, can you give us a sense of how they’re going to be judging this situation?
Stephen Roman: You know what? The last interaction I had with a number of utilities was at a Uranium conference in Nashville in the Fall, and this was obviously before Covid-19. And the general consensus at the Nashville conference was that they have to start getting back into the market. So that’s a very positive sign to me that they are definitely thinking about it, and I think with all these closures now that’s going to push them over the edge that they’re going to have to start scrambling to find supply. So you know, I think it’s good for the whole sector.
Matthew Gordon: So do you therefore think the price is, we’ve heard a bit of, you know, sort of 2-weeks ago, we were at USD$27, we are at just over USD$30, nearly.
Stephen Roman: Well, you know, I think Cameco and Kazatomprom: the two big players, they would probably like to keep the price below USD$40 per lb to keep many others from getting into the market. So, you know, I think if it moves into the USD$35 to USD$40 range, you’re going to see a bit more supply coming in. But probably not before that.
Matthew Gordon: Well, I do want to talk about your PEA because there’s some quite attractive numbers in there which you must be pleased about, but we’ll talk about that in a second. To that point, how does supply come into the market? If you’ve got a bunch of young pretenders as it were, you know, juniors who have got an asset, not necessarily a great asset, but, and not necessarily the cash to be able to do too much about it, but it is Uranium, so, you know, people are getting excited about what that could mean. Do you think that all these, all Uranium juniors currently in the marketplace are going to survive because of this price recovery, which people are expecting? Or do you think that it’s going to move in small increments, i.e. the lowest cost producers who can create a margin for themselves whilst the price recovers are going to be able to step up to the plate first? And what indeed does that mean for the people who need USD$50, USD$60, USD70 ?
Stephen Roman: That’s quite a question.
Matthew Gordon: It’s a long one, right? Are there going to be winners and losers is what I’m asking?
Stephen Roman: There’s some tremendous Uranium projects in the Athabasca basin. They have an issue with permitting timelines and capex so I don’t know how much money would be available to build a project that potentially is not going to be permitted for 10-years. So, you know, I think what people have to look at right now is who can actually come into production in the next two to three years that could actually start supplying the utilities when their contracts run out in two years. The big high-grade projects won’t be there. There’s some smaller producers, some institute leaching in the United States, you know, that’s 1Moz, 2Moz a year – it’s small scale. So, you know, I think aside from Cameco turning on production at USD$35 to USD$40 per lb, Kazatomprom doing the same thing, the new projects, there’s going to be very few that actually make it in this cycle.
Matthew Gordon: Okay. So in this cycle, see what intrigues me and what, we talk a lot, right? What intrigues me about you guys, and I think from what I have read, people appreciate your business model, the business model being that you’ve also got a Zinc revenue stream component with your Turkish JV Befesa. Now, that’s going to help because it means you’re not going to dilute shareholders continually. There’s that ongoing stream income stream there. Now you’ve, you have made a couple of statements recently with regards to that, because obviously Zinc prices have been hit a little bit. So you’re putting out a timeline there somewhat, can you just tell us about what’s going on in Turkey first of all? Are they still working? Are they still able to operate?
Stephen Roman: Yes, good question. Turkey is still working. Of course the government has imposed some protocols that everyone is following. And you know, where we are in Iskandar, it seems to be a virus-free at this point in time, but we are using very specific protocols to keep people away from each other. The plant of course is brand new, so it was just commissioned in Q4 last year, 2019. So, you know, it’s a highly automated plant, so you actually don’t need a lot of people there and you know, so it’s still running at capacity currently.
Matthew Gordon: Okay. So, but in terms of the statements you’ve made, you said that there was a sort of 12-month payback period, but with obviously where Zinc prices have been, you know, a little bit lower than they have been. That’s going to take a little bit longer. Can you give us some idea of the timeline there?
Stephen Roman: Yes. So when we started the plan the Zinc price was between USD$1 and USD$1.10. As a result of the current market conditions, it went down to USD$0.85c per lb, so what we’re telling people now, rather than have a one-year payback of our capital, we’re talking about two years at this point, So you know, the dividend stream is coming from there. We get a monthly management fees and sales commissions that effectively cover a lot of our G&A in the company. But the big dividends that are typically awarded once a year after the AGM they would start later than we expected.
Matthew Gordon: But that has got a long annuity stream of cash for you?
Stephen Roman: Well, I mean, the plant will be running for the next 50 years I would suspect, it’s a brand new plant, so.
Matthew Gordon: I’ll put that down as a yes. Yes. Okay. Right. So that’s the sort of interesting part of the business model, but let’s come to maybe your PEA, because I think that will allow me to understand better where you’re positioning yourself in the market because there’s some clues there. You’re talking about getting in earlier into the cycle than some. So why don’t you give us the big numbers on the PEA? Tell us what you announced this morning.
Stephen Roman: Well, this morning we announced a phase one mining project at our flagship DASA project in Niger. This is a 250Mlbs deposit. And over 2019, we did a lot of trade off studies on how it should be mined; open pit, underground combination start-up underground and open pit or a vice versa. At any rate, what we’ve been able to achieve here, and with money actually there was provided from our Turkish operation, we did a big round of drilling and we defined an area we call the flank zone, which is a high-grade section of the deposit that comes close to surface. And so what we’ve laid out here in this PEA is a ramp access underground mine that is basically mining above 5,300 PPM, or 0.5% Uranium. And if you notice in the press release that the majority of the pounds, there are about 30Mlbs of the 48Mlbs we’ll be mining out of this flank zone is running at over 1% Uranium. So the average grade is about 5,300 PPM, which you know, for an African Uranium project is outstanding. It puts us more in the Athabasca style deposit. And that obviously then doesn’t require a lot of tons to make a lot of pounds. So we’ve engineered a thousand ton a day operation that’s going to produce about 4.4Mlbs a year of yellow cake that has an All in Sustaining Cost, of course, below USD$20 per lb. Our cash costs are about USD$16 per lb.
Matthew Gordon: I mean, that’s the remarkable number there; being able to produce at less than USD$20. I know you have said it before, but I’m not sure the market believed it and now you’re saying that that is achievable. And, I mean the other thing that stands out is the, I mean we knew this was a big Resource, you know, the available pounds here in terms of, I presume, phase II is huge, but this project on its own at USD$35 is showing, you’re indicating here what? 26% IRR at USD$35?
Stephen Roman: Yes, that’s after tax.
Matthew Gordon: So yes, that’s a nice number – you must be happy. Were you expecting it?
Stephen Roman: Well, you know, I think when we started working on the model of the flank zone as an underground high-grade operation, the numbers started coming in because the resource there is so good and it leads you into the lower sections of the deposit where there is also a lot of good high-grade material. But of course it needs to have more drilling, which you would do during your mining process. As it says in the press release, we’ll use this phase I to actually produce Uranium quickly, but also to develop the rest of the deposit.
Matthew Gordon: Okay. And the thing that interests me is, again, the business model: there’s some people who say, well, do it all in one go because there’s a much bigger resource and you know, therefore it’s going to be much more attractive to big players, et cetera. So why are you doing it this way? Why get into production early? I assume to hit this cycle? What you were saying five minutes ago?
Stephen Roman: Well, Matthew, you know, at the end of the day we’re a mining company; we like building mines. I think with Uranium, you know, and obviously you can mine this at a much larger scale. It’s going to take more capex, like we came out with our 2018 PEA that showed a USD$300M capex doing twice as much production on a much larger scale. But, you know, the grade was lower, the capex was higher, and for a junior mining company it was just too much. The other thing to consider in the Uranium business is you don’t want to come out there with an 8 to 10Mlbs a year project because where are you going to sell it? So what do we want to do? And we think the sweet spot is, you know, between 4 and 5Mlbs is just exactly where we came in. It’s a marketable amount of Uranium, you know two or three utilities could take that up every year and you don’t have a huge issue moving your product.
Matthew Gordon: Okay. Because I’m looking at 4M to 5Mlbs a year compared to like the US producers and I have spoken to both of them; they’re talking about a 1M to 2Mlbs. So you are a meaningful, could be a meaningful producer within a short timeframe to fit into a cycle where you think utilities are going to be needing to, you know, definitely going to be needing to fill up their inventory levels because where else is it going to come from? So I just wanted to know, have you had conversations with utilities? Do you know that this plan works better than getting out there and producing a much bigger project, which may be more attractive to Chinese investors for instance, because we’ve heard all models here. So why, what was the data that you had to say, now let’s go small, let’s do it now and let’s hit this cycle. And, you know, be, I guess what you’re trying to say is at least we will be in control.
Stephen Roman: That’s right. This is something that we can do with our capability and our financial horsepower. If we’re talking about projects that are into the hundreds of Millions you know, it’s something that we would not be able to do. So I think just like many mines in days of old, they would start with a smaller scale operation and, and grow the business out of cashflow. We can do the same thing. I mean there’s nothing stopping us from producing more if the demand is there.
Matthew Gordon: Okay. But let me talk to you a bit before we get too excited, because it’s quite easy in the current climate to get excited about Uranium. You know, the two yellow commodities are getting quite exciting at the moment. So you have to excuse me. But you’ve done a PEA, it’s just a PEA, right? It’s not a PFS.
Stephen Roman: Well actually, we’ve done the PEA to a PFS level. So this will form the core of our technical material that’s going to be submitted to the government for our mining permit. So what we’re planning on doing now is we’re finishing our hydrogeological work around the mine as well as our environmental impact statement. These are necessary to achieve our mining permit. So really the final bits, which would be some more geotechnical drilling and final engineering, we can do that subsequent to getting our mining permit. So the idea is to submit all of this material now as a final technical report to the government by the summer, by June, July with our application for a mining permit.
Matthew Gordon: And what does that allow you to do? Because I am going to ask in a second about money, because you’re going to need to raise money at some point, but what does having the mining permit allow you to do? Why are you focused on that?
Stephen Roman: I think it’s a huge catalyst for our operation because once you have your mining permit, you are unrestricted; so you can raise money and you know, there will be much more interest from utilities, potentially off-take agreements and various other financial instruments that we could use. With the Turkish operation, we could even have a sort of a bond issue that you know, basic coupon that’s supported for instance, by our Turkish cashflow. So we want to keep dilution to a minimum. We probably will raise a little bit of money, but timing-wise, for me, the best time to do that would be subsequent to achieving our mining permit.
Matthew Gordon: Right. Okay. And how much are we talking about here?
Stephen Roman: Oh, between CAD$5M and CAD$10M.
Matthew Gordon: Okay.
Stephen Roman: Yes, that’s not a huge amount. And you know, if the Uranium price continues to move, and the share prices move up, people will finally recognise this project because, you know, funny enough, a lot of people have not heard about Global Atomic, and I see a Uranium publications coming out. I just got one this morning talking about every company, and global Atomics, is not, there. Why aren’t people seeing this project? To me, we just have to pound the pavement a little bit and get people aware of it because it is very significant. I mean, we signed a deal with Orano mining, the French government in July of 2017. And the reason they did that is because they want to have an assured supply and augment their feed source for their Somair operation north of us. They did extensive due diligence on this project, and we weren’t as far ahead as we are now. So you know, this I think, is a very significant project in the Uranium space, but particularly in Niger where they derive most of their revenue stream from Uranium, and they view this project as like the next phase for development in the country.
Matthew Gordon: Okay. So if I may finish off, can you give me that timeline, you talked about getting into production this cycle, but what are you aiming for? Because okay, you’ve done a PEA to PFS standard, but you have still got to get a PFS. You’ve got to do your Feasibility, you’ve got to do the numbers on the PFS. What’s that timeline look like?
Stephen Roman: Oh, that should be finished during 2021. So that, you know, I mean it would be nice to actually start moving dirt towards the end of 2021 or early 2022.
Matthew Gordon: Okay. And by moving dirt, you literally mean, because you’re going underground here, you’re moving dirt, transporting it up the road for processing. Is that what’s happening?
Stephen Roman: Well actually, what I’m meaning is that you would start prepping this site and developing your portal, moving a camp in there to actually start developing the whole infrastructure. So we’re right on the power grid. We’ve got proposals in from solar hybrid suppliers that’ll sell us power under a power purchase agreement to keep our power costs low. But you know, Orano gets their power from a coal-fired plant down the road, which happens to be right in line with us.
Matthew Gordon: Okay. So the question is, when do you think you start taking U3O8 and selling it? When are you producing?
Stephen Roman: Oh, I would say you know, if all goes well and COVID-19 doesn’t keep everybody shut down for the next year, that by 2022, we’d be selling Uranium.
Matthew Gordon: Fantastic. You might. So, okay. So things are going great guns, you’re out there pounding the streets, telling the story. What’s the feedback been so far?
Stephen Roman: Well, aside from people being quite amazed by the project and the numbers coming out of it you know, a lot of people need to learn about it. So this has sort of woken up a few people.
Matthew Gordon: Yes, I think so. Well, it’s exciting times. It’s exciting times, Stephen. I think a lot of the generalists seem to be waking up to Uranium again, which is fantastic news. They’ll need educating, because again, it’s, you know, it’s been quite, it’s taken us a long time to learn about the ins and outs of it. It’s quite an opaque market. But I think it’s nice to sort of see them at least asking the questions again. Well, best of luck to you. Thanks very much for giving us an update on the PEA and the announcement. Stay in touch and let us know how things are progressing.
Stephen Roman:: We will definitely stay in touch and you’ll be getting our news as it’s coming out.
Matthew Gordon: Good, man, sir. Thank you very much.
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