Global Atomic (TSE: GLO) – The Sensible Choice For Uranium Investment

The Global Atomic Corporation company logo.
Global Atomic Corp.
  • TSE: GLO
  • Shares Outstanding: 145M
  • Share price C$0.54 (20.04.2020)
  • Market Cap: C$79M

I recently wrote an article regarding Energy Fuels (NYSE: UUUU), America’s premier producer of uranium and a potential producer of vanadium. The company has just entered the rare earth elements processing space in what looks like a really smart deal.

Green uranium reacting in a glass vial with a uranium symbol and a nuclear symbol next to it

I mentioned in my Energy Fuels article that one crucial element for uranium companies is commodity diversification. It helps mitigate risk by taking away a reliance on the performance of the uranium market and gives companies options. Energy Fuels has diversity in the form of offering toll milling at its White Mesa Mill, in addition to environmental clean-up operations, vanadium and rare earth element ventures, and 17 fully-licensed feed streams.

Towards the start of that article, I mentioned I would be covering Global Atomic in the future. Crux Investor recently conducted an interview with the Chairman, President & CEO of Global Atomic Corp. (TSE: GLO), Stephen Roman, so now seems as good a time as any.

Global Atomic might not have its own mill, but its JV with Turkish metals specialist, Befesa Silvermet SAU, has allowed the company to create a unique combination of uranium development and cash flowing zinc concentrate production. Global Atomic has a 49% stake in the Iskenderun zinc concentrate production facility. The facility saw its processing capacity doubled last Summer through an upgrade and expansion from 65,000t to 110,000t of electric arc furnace dust. It was completed on time and on budget. It was commissioned in Q4/20.

This commodity diversification positions the company much more strongly than most of its uranium peers. It’s a 40 to 50-year annuity stream of cash that will ward off dilution for shareholders. The zinc price has taken a little hit recently (c. US$0.85/lb), but how do operations look? Roman explained that specific protocols have been employed to keep operations running as normal: an impressive feat, especially when uranium giants like Cameco are struggling to do the same. Iskenderun is still operating at full capacity.

Global Atomic had originally indicated it would take a 12-month payback for its share of the production facility from cashflows from the business, before cash contributions from sales would start flowing into Global coffers. Roman explains that a depressed zinc price has caused this timescale to double. In terms of dividend fees, Global Atomic still receives management fees and sales commissions, and this contributes to Global Atomic’s G&A. However, that once-a-year dividend payment will now start 12-months later than expected in 2022. Even the best-run companies can suffer in difficult market conditions, but Global Atomic has a second project of value in Niger.

Dasa – An Exceptional Asset

If a company has a world-class asset, it’s always going to find itself in a strong position. If you combine Global Atomic’s Niger-located Dasa Uranium Project with its high-quality management team, it could form a winning recipe for uranium investors.

Dasa Longitudinal Projection

Roman explained the plan for Dasa’s development moving forward. In the original PEA, released in October 2018, Dasa looked like a strong Resource. It had an AISC of US$28.51/lb U3O8, an initial CAPEX of US$320M, including US$141M for an on-site mill (US$467M with sustaining capital and reclamation). The Resource was also already high-grade: 69Mlbs U3O8 recovered at an average grade of 2,380 ppm U3O8 over a 15-year mine life, with an integrated on-site mill (the “DASA Standalone Scenario”) initially operating at 2,500tpd and ramping up to 3,000tpd.

However, these figures have been blown out of the water with the latest optimised PEA for Dasa.

  1. The AISC is now just US$18.39/lb. This is a truly world-class figure.
  2. The cash cost is an astonishing US$16.72/lb.
  3. Initial capital cost (CAPEX) has fallen to US$203M, including 20% contingency.
  4. Based on this PEA and $35/lbs uranium price, the Dasa project will have an after-tax NPV8 of US$211 million and an after-tax IRR of 26.6%. However, the NPV8 leaps to $485M with a 46.3% IRR if the uranium price goes to US$50/lbs, a price major uranium players are demanding as a minimum.
  5. The Dasa Project will have a Phase 1 Project mine life of 12-years, mining 48Mlbs U3O8 at 5,396ppm.
  6. Lastly, and perhaps most eye-catching, based on this PEA, Global Atomic will have an average annual steady-state uranium production of 4.4Mlbs U3O8. With this level of production, Global Atomic can become a meaningful second-tier player.

This optimised PEA has been well received by the market, with Global Atomic’s share price rising from C$0.27 to as high as C$0.71. It seems to be settling in or near that for now.

The PEA is based on the company’s plans to mine a higher grade flank zone in Phase 1 at their Dasa project in Niger. These economics are transformative. Roman had been indicating at the end of 2019 the numbers would surprise people, and he seems to have delivered. Moreover, we haven’t even got to the best part yet.

More Good News

As I mentioned in my most recent uranium article, covering Energy Fuels, when uranium does experience price discovery, it will happen quickly.

Exploration companies who are still messing around with preliminary drill programs are extremely likely to miss this cycle. So will high-CAPEX (US$1B+) uranium juniors, and so will developers who don’t have the appropriate licences and infrastructure in place.

The ready-to-go/existing producers are the companies investors will likely want to focus on. From these companies, it comes down to those with good infrastructure and appropriate financing in place who will be ready when the market moves. These are the companies that will be ready to secure supply contracts with utility companies. Those that are late to the party will be left outside in the cold.

Not only is Global Atomic an excellent uranium proposition in its own right, it also has a production timescale that would make most uranium companies weep. Global Atomic should be one of the fastest uranium companies to get in to low-cost production with a fundable CAPEX requirement. Roman stated in our interview that Global Atomic could be in production by the end of 2022. This means Global Atomic will be able to supply U3O8 into this contract cycle and start relationships with utilities for long-term contracts while most other uranium companies are still seeking financing.

A Category of One?

All in all, the investment proposition Global Atomic is presenting looks extremely exciting.

Cashed-up, high-grade, large-scale, low-cost, high-margin uranium production conducted by an experienced management team, reinforced by cash flow from zinc operations and delivered on an accelerated timescale. It seems like everything investors could be hoping for, at a time when the supply-demand fundamentals are hotting up market sentiment. The timing could just be on their side.

Then again, all investments are a risk, but Global Atomic appears to have de-risked everything it is in control of.

The only area we would perhaps like a little more clarity on is the cash flow situation at Iskenderun. When exactly will all of the cash start flowing and what is the financing strategy until this is the case? All things considered, we’re really happy Roman took the time to sit down with us. We expect uranium investors to read between the lines as the uranium market continues along what looks like a path of long-awaited resurrection.

While you’re here, if Global Atomic is a company that takes your interest, why not read one of our recent uranium articles, or watch our latest uranium interview?

Company Website: https://www.globalatomiccorp.com/

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.

The Global Atomic Corporation company logo.

Global Atomic (TSE: GLO) – World-Class Uranium Economics Can’t Be Ignored

The Global Atomic Corporation company logo.
Global Atomic Corp.
  • TSE: GLO
  • Shares Outstanding: 145M
  • Share price C$0.54 (20.04.2020)
  • Market Cap: C$79M

We recently conducted an interview with Stephen Roman. He’s the Chairman, President & CEO of Global Atomic Corp. (TSE: GLO).

Global Atomic is one of our favourite uranium stories: exciting, world-class uranium economics driven by secure zinc-powered cash flow, courtesy of a Turkish JV with Befesa Silvermet.

If Global Atomic is a company that takes your interest, why not read one of our recent uranium articles, or watch our latest uranium interview?

Global Atomic has a uranium mining AISC of just US$18.39 and a cash cost of US$16.72: these are elite economics in anyone’s book.

The key to the success of Global Atomic will be the speed at which Roman believes they can get into production. He says by end of 2022. Could Global Atomic hit the uranium up-cycle at the right time?

We Discuss:

  1. Flight of the Swans: Market Situation, Interpretation of Announcements, Opinions on Utilities and Price
  2. Supply and the Market: How Will the Juniors Survive? What Qualities Will They Have
  3. Befesa Silvermet Zinc Project: An Update. Zinc Payback Timeline Discussed
  4. PEA Announcement: Reviewing Results
  5. Business Model: Why Get into Production Early?
  6. Strength of the PEA and Getting Permitted
  7. Raising Money and Limiting Dilution: Telling a Compelling Story, Raising Money and Limiting Dilution
  8. Timeline of Events: Getting into Production, PFS, DFS, etc.
  9. Market’s Reaction to Global Atomic and PEA Announcement

Company Website: https://www.globalatomiccorp.com/

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.

The Global Atomic Corporation company logo.

Global Atomic (TSE: GLO) – Two can make a wish come true, yeah (Transcript)

The Global Atomic Corporation company logo.
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.

We Discussed:

  1. Flight of the Swans: Market Situation, Interpretation of Announcements, Opinions on Utilities and Price
  2. Supply and the Market: How Will the Juniors Survive? What Qualities Will They Have
  3. Befesa Silvermet Zinc Project: An Update. Zinc Payback Timeline Discussed
  4. PEA Announcement: Reviewing Results
  5. Business Model: Why Get into Production Early?
  6. Strength of the PEA and Getting Permitted
  7. Raising Money and Limiting Dilution: Telling a Compelling Story, Raising Money and Limiting Dilution
  8. Timeline of Events: Getting into Production, PFS, DFS, etc.
  9. 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.

Company Page: https://www.globalatomiccorp.com/

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.

The Global Atomic Corporation company logo.

I <3 geology, I <3 Ecuador

A photo of some colourful wooly hats.

In June 1991 I was unlocking my bicycle after my last first-year exam in geology at the University of Manchester when a bubbling surge of happiness stopped me in my tracks and made me look up and smile and just take it all in. I couldn’t believe that I had gone through my life until then without knowing what I had been taught in my first year of geology. It had opened my mind to new concepts of time and space, fascinating processes of rock and mineral formation, and also of how geology had influenced human activity through millennia. It had been a revelation, hard work, and a lot of fun. For me, the study of the science of the earth had shone a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. As I stood there, bicycle lock in hand, I thought how amazing the world was, and how much I loved this subject that I had come across by chance when I had mistakenly started an engineering degree.

Twenty-nine years later I am happy to say that my love of geology is still there. While the digital age thunders on, with apps and memes, full of ideas on a high-tech future, full of concerns about sustainability and climate change, geology is as relevant as ever and it still captures my imagination. As it was in my revelatory moment back in Manchester, so it seems to me that many of the key issues of the age are met in the exploration and development of mineral deposits. Is this too gushing¸ a case of hyperbole?  I argue that it is not an exaggeration, and that a look at the extraordinary events in Ecuador will help you share my appreciation.

The Ecuador national flag

Ecuador has it all. All of the issues, all of the challenges, all of the opportunities and all of the natural resources it might need to make a transformation. And I see this on a daily basis as I am a director of Salazar Resources, a proudly Ecuadorian Gold-Copper exploration and development company.

Ecuador is a traditionally socialist country that until recently had economic policies that deterred foreign direct investment in the mining sector. In 2007 the country trumpeted its eco-tourism and promoted a green economy, which was all well and good, apart from the fact that the country soon ran out of money. And in a dollarized economy (since 2000), printing is not an option which just leaves borrowing, inward investment or foreign export earning as potential sources of US dollars. In 2008, Ecuador borrowed $6.5 billion from China, with repayments partially based in Ecuadorian oil and terms negotiated at times of historic high oil prices.  While the oil price was strong, everything seemed fine, but commodity prices are cyclical and the cycle turns as inexorably as the arrival of taxes and death. Oil prices to 2014 had covered up the multiple sins of an inefficient public sector, large macroeconomic imbalances, and limited private investment, but eventually the oil price fell. As the new oil price reality bit, and growth opportunities in Ecuador (oil, agriculture, tourism) were remarkable by their absence, the government reassessed its attitude towards mining.

Maybe the 2008 moratorium on all mining was overkill? Maybe a subsequent imposition of a 70% windfall tax and mechanisms for 50% national ownership were deterrents on investment? Maybe the rampant illegal mining sector that paid no taxes and was completely unregulated in areas of environmental monitoring safety or any degree of social governance, should be brought under control? Maybe it would be better to have foreign direct investment to build a regulated, responsible mining industry that employs thousands, grows domestic economic capacity, pays royalties and taxes and earns hard currency? Maybe the mining sector in Ecuador should be nurtured not shunned? Maybe the remarkable geological endowment should be used to help build a better nation for the people?

An ineluctable truth emerged. Ecuador needed a modern mining industry to pay for its social and infrastructure agenda.  There were no other options, no other cards to play. And so reform was embraced.  Consultants helped create a plan for the Ecuadorian mining industry that led to bidding rounds by metal and by region, and critically the development of a new mining code.  The government introduced similar conditions to other countries, including incentives such as a fiscal stability agreement, VAT reimbursements and investment recovery before taxes kicked in. The results were astonishing.

A photo of copper-gold ore.
Copper-gold ore

Geology is apolitical, and copper-gold mineralisation doesn’t necessarily stop at a political border. Ecuador straddles some of the most prolific copper-gold geology on the planet and since the dawn of modern mineral prospecting it has experienced negligible systematic exploration. Almost uniquely for a peaceful country there are still walk-up large-scale high-grade deposits sitting at surface. When the government signalled it was serious about developing a modern mining industry, the world’s resources companies responded.

Almost overnight, Ecuador became a global mining investment destination. Foreign direct investment (“FDI”) surged to more than $250 million per year in 2017, with a projected $1 billion per year for the next four years. Over 200 new mining concessions were granted in 2017, accompanied by investment commitments of nearly $500 million of exploration expenditure in the first four. Since 2018, twenty-eight internationally renowned mining companies have established entities in Ecuador to pursue investment opportunities. Not only that but in 2019 two billion-dollar investments were completed, and the country now has two well-regulated, carefully monitored mines, employing thousands of local people, and generating vital foreign exchange earnings by producing copper at Mirador, and gold at Fruta del Norte.

Unsurprisingly there has been a backlash to this level of activity. A prominent anti-mining activist Carlos Perez has changed his name to Yaku Perez (Yaku is the Quechua word for water) and is vehemently opposed to foreign investment in the Ecuadorian mining industry, even though he turns a blind eye to the devastatingly destructive illegal mining in the country. Yaku regularly calls for referenda on the future of mining projects in Ecuador and he will continue to delay and obstruct the industry where he can as he persists in his argument that Ecuador should be pro-water and anti-mining. Incidentally, most professionals in the mining industry are supporters of clean water, responsible employment, wealth creation, the sustainable supply of vital raw materials and are not supporters of water pollution, environmental degradation, dangerous working conditions, tax evasion and all of the problems associated with illegal mining.

Another factor is that the population of Ecuador is split between those wanting jobs and those experiencing a very human resistance to change. What does a large mine entail? Will dastardly miners raze mountains, and bury villages under toxic waste? Some fear the rapid introduction of a new industry; others have the luxury of working closely with some of the many in-country professionals and learning first-hand about the industry. Suddenly the Chamber of Mines in Ecuador went from a clubby outfit to needing to assist the government and a population learn about the role and importance of a well-regulated mining industry in society.

Predictably, some of the mining companies gamed the system. Companies bid to spend $250 million on a single exploration licence (a ludicrously large amount) over four years, only to load the vast majority of the spend into Year 4 and then make it conditional on material success in the under-funded years 1-3. Companies committed to investing multiples of their market capitalisation in early-stage exploration within a 4-year period. Stuff and nonsense perhaps, but given that it seems easier to find a near-surface deposit in Ecuador then other parts of the world, many companies were enable by the vagueness of the new mining code to put placeholders on title in the rush.

Stunned by the whirlwind of real and promised FDI, protest referenda, the arrival of most of the major mining companies, and by the general pace of events, the government closed the Mining Cadastre in 2018. The commitment to a modern mining industry is as strong as it has ever been, supported by public pronouncements, progressive changes to process and structure within the mining ministry, and of course, the stark reality of ongoing national budget deficits. But it was a case of too much too quickly. The cadastre is still closed as the government is redesigning the mineral title permitting process to make the exploration expenditure more accountable, transparent and digital. No new licences have been issued for eighteen months and although in that time wrinkles in environmental permitting and water use permitting have been ironed out, there has been a knock-on delay in exploration activity. It does mean, however, that those companies that already have a licence portfolio are at an advantage over new entrants looking to build a presence in-country.

Which brings me full circle, to that moment when I was standing outside the exam hall in Manchester so long ago. The study of the science of the earth continues to shine a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. I am just as excited and fascinated by the interdisciplinary nature of my subject as I was as an undergraduate, and each of those competing and complimentary aspects are manifest in the gloriously complex reality of the mining industry today in Ecuador.

Companies, such as Salazar Resources, that already have mineral title to explore have a wonderful opportunity to continue the discovery journey (discovery of an economic resource is always much more of a process than a single moment in time). Community relations and environmental stewardship are critically important, and those enterprises that can bring its local and regional population along the discovery journey with them will succeed where companies that fail to engage, encourage, and educate its neighbours will face protest and delay. The government understands the vital developmental and economic role that a responsible mining industry offers and it is working as fast as it can to create the framework for that industry to grow, and yet it is weighed down by the responsibility of having to make decisions now that will have long-lasting effects. It is no exaggeration to say that the fate of the nation depends on it. The officers and directors of companies that I know are genuinely excited about the positive transformation that a single well run mine can make to individuals, families, a community, a region, and the contribution that it makes to nation-building in a relatively small economy. And within it all there are the pure geologists among us, thrilled at the prospect of being part of a team that will make the next big discovery and bring vital commodities for our future needs to market.

Company Website: www.salazarresources.com

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

A photo of some colourful wooly hats.

Global Atomic (TSX: GLO) – The Perfect Storm

An image of money falling with a green Crux Investor logo over the top of it.
Global Atomic Corporation
  • TSX: GLO
  • Shares Outstanding: 145.44M
  • Share price CA$0.48 (12.02.2020)
  • Market Cap: CA$69.81M

A few weeks ago, we wrote an article about the three crucial elements required for any successful uranium mining company. The article received some great feedback, so we felt it would be valuable to explore the uranium conundrum. Today we will be inspecting Global Atomic Corporation’s ability to weather the forces at work. A TSX-listed company, (TSX: GLO) owns the largest ‘high-grade’ uranium sandstone deposit outside the Athabasca Basin.

A Company Overview

GLO is a junior uranium mining company with cash flow from its JV in an aluminium slag and steel dust recycling business in Turkey.

It provides ‘a unique combination of uranium development and cash flowing zinc concentrate production.’ GLO’s Chairman, President and CEO is Stephen Roman, who was recently interviewed by Crux Investor at the WNA Symposium. Roman is the Former senior officer and Director of Denison Mines, formerly one of the “biggest producers in the world.” He has notable accomplishments such as the 2016 PDAC ‘Bill Dennis Award’ Prospector of the Year winner, and the discovery of Gold Eagle, sold to Goldcorp for $1.5Bn.

It’s worth noting that when Roman first mooted the idea of merging the Turkish asset with the uranium business, the market reaction was negative. In today’s depressed Uranium market, investors are thankful he did, as it has de-risked this investment considerably. Intelligent foresight or luck? Like all successes in mining, probably a bit of both. Roman is quick to give credit to his team though. We think it gives Global Atomic an advantage over most of its true peers in the Uranium category. We will get into some numbers later in this article.

So, let’s talk about some of the variables first:

Zinc

GLO has the basis of a solid foundation of revenue from the fourth most consumed metal in the world.

Zinc prices are down at the moment, but even at these prices the JV has paid for the build of a large plant that doubles output. They produce zinc concentrate. The positive cashflow, once the debt is paid down, starts to flow to Global Atomic in 2021. Zinc production is predominantly used for construction: the frames of buildings, bridges, roofing, stairs, and piping. It is also used to coat iron/steel to prevent rust. A secondary use of zinc is in bronze and brass alloys, with a variety of applications ranging from batteries to fertilisers.

The price of zinc currently stands at c.$2,540/ton, an oddly low price for a material with remarkably low stockpiles on the London Metals Exchange, down from 1.2 million tonnes in 2015 to just 60,000 tonnes now (2008 market crash levels). Zinc is currently in a 134,000-tonne deficit according to the International Lead and Zinc Study Group (IZLSG).

Uranium

Considering the current uranium market, GLO is performing admirably.

With a market cap of CAD$70M, the share price has risen steadily this year, from CAD$0.35 to a peak of CAD$0.55, before settling in around the CAD$0.50 This is close to a five-year high: an intriguing and surprising achievement. Many of its peers have seen falls of 30-40% as the macro story takes longer than expected to manifest itself in contract purchasing. These healthy finances are likely aided by the forecasted zinc recycling cash flow. If they were a pure uranium play, they would be in much deeper waters right now. In addition, GLO is the only Uranium junior with positive cash flow and net income: CAD$4,679,268 for the nine months ending September 30th 2019 and CAD$5,648,589 for the same period last year.

Energy Fuels have employed a similar strategy with their vanadium. It is clear that companies with a diverse portfolio are usually more investable than those with a single asset, or indeed a single jurisdiction.

An Experienced Management Team

CEO, Stephen Roman, has extensive uranium mining experience and a strong track record in business.

He sold a large gold company (Gold Eagle) to Goldcorp in 2008 for US$1.5B. Roman’s general mining experience is assuring, but his uranium experience as the former senior officer and director of Denison Mines Limited is crucial. As mentioned in a previous article, uranium is a commodity that requires a unique set of skills and poses an enigmatic set of challenges. Roman’s large ownership figure of >8% is certainly an encouraging indicator. Roman has been actively purchasing additional shares from the open market.

Encouraging Stuff From CEO Stephen G. Roman

The remainder of the management team, especially the in-country team, is equally experienced with uranium. There is sufficient presence of uranium specialists alongside mining experts to render GLO’s management team a force to be reckoned with.

A Good Asset

GLO’s base metal division owns 49% of Befesa Silvermet Turkey (BST), which owns a zinc recycling plant in Turkey called Iskenderun. The other 51% is owned by Spanish company, Befesa, which has extensive experience in this field. In 2019, the plant experienced a within-budget and on-time upgrade and was re-opened in early November 2019 with a capacity of 110kt (c. 60Mlbs Zinc pa.).

BST has been a profitable operation for approximately 10 years. It provides excellent cash flow to GLO and has a low break-even. BST is a streamlined, efficient operation with high margins and a low overhead. Despite zinc prices being erratic and low at present, BST remains a strong asset.

However, while BST is cash flowing, it is not cash-positive at present. The JV still needs to pay-off the new plant, which it will do in 2020. The CAPEX for BST’s upgrade was CAD$26M. It was financed via 2018 cash flow, and debt (CAD$2M from Turkish bank and CAD$20M from Befasa (Libor +4%)). Investors should be aware GLO needs to utilise BST’s cash flow to pay off the debt: c. CAD$6M in both 2020 and 2021.

GLO also owns the largest high-grade uranium sandstone deposit globally, the Dajy Area Surface Anomaly (DASA Deposit) in Niger.

Niger is a good mining constituency with a fast-permitting schedule of just 6 months. In terms of DASA, GLO has 100% ownership. DASA is a large and high-grade deposit, open to multiple directions and GLO have claimed that with more drilling they can demonstrate it is a >300Mlbs uranium resource.

Besides the flagship DASA deposit, GLO owns:

  1. Tin Negouran Deposit, 10Mlbs U3O8
  2. Dajy Deposit, 17Mlbs U3O8
  3. Isakanan Deposit, 34Mlbs U3O8.

A feasibility study is due to begin on DASA imminently, but just how imminently remains to be seen. The current stagnancy of uranium prices may be somewhat demotivating, but like Energy Fuels, albeit for different reasons, GLO has no urgent need for uranium prices to rise. They can bide their time and play the long game because of the zinc cashflow.

The key aspect of the DASA asset to be aware of is its grade. GLO released further assay results in April:

DASA Assay Results (April 2019)

DASA’s grade and size is unique and gives GLO a definitive edge over its rivals. While Energy Fuels’ mill was a possible gamechanger for the American uranium producer, the economic availability of DASA, the amicability of Niger as a uranium mining constituency, and the MOU signed with Orano related to ore sales and strategic development means GLO isn’t significantly hampered by lacking ownership of its own mill.

Sufficient Cash

GLO is currently sitting on c. CAD$5M in cash and cash equivalents, down from CAD$7.7M in December 2018. The company’s finances are in reasonable order.

This is hands down one of the better uranium projects (if we can call it that) that we have looked at. The zinc in Turkey delivers free cashflow in spades. The debt for the new plant is going to be paid off this year, but still delivers c. CAD$1-$2M of cash to Global Atomic, and, thereafter, free cash of potentially between CAD$12M-$14M per year, like an annuity stream for the foreseeable future, depending on zinc price and internal charging structures. That is a lot of cash. Mr. Roman must be feeling pretty good about his decision right now.

Conclusion

What is more exciting is what this cash does for the company. It allows the company to potentially deliver a large-scale Uranium project without dilution to shareholders. Clearly, this depends on the decisions made by the management team as to how they develop DASA. Cash from the zinc would allow them to develop the higher-grade flank zone, and start producing and selling uranium into market by 2024. This assumes the truck and toll initially and do not have a large capital outlay to build their own plant, without diluting shareholders on the CAPEX.  So, a few assumptions made by us, but eminently possible.

In our opinion, what GLO should do before then is a small injection of cash of CAD$6M-$12M (depending on their plans), to do the FS on the flank zone, to do the engineering and cover 24mths of G&A (the zinc revenues will be paid annually in arrears). As a shareholder, we’d accept this as it would release the value of DASA quicker and possibly time the Uranium market beautifully. This scenario is obviously idealistic, but, based on the data available, very, very deliverable.

Roman has previously stated that they could produce in the high-USD$20 range. Even if we load this up and get to USD$40, Global Atomic is going to be much more attractive than most of its peers when it comes to discussions on financing CAPEX. Clearly, going to market and raising a large CAPEX budget will be doable, and would probably deliver a slightly better IRR than our potential model, but will take longer to get to revenue. So, of course, we like our model best.

What do you want the company to do? What do you think?

Company Page: https://www.globalatomiccorp.com/

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.

An image of money falling with a green Crux Investor logo over the top of it.