Brandon Munro – Building America’s Critical Minerals Technical Hub? (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (27.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

Our weekly romp through the world of uranium with Brandon Munro, reveals that even in a relatively quiet week, there is much to discuss. Two potential large stories.

1. AOC says she is open, as is Joe Biden, to looking at nuclear as part of the solution for America’s energy. This calms unsettled nerves within utilities as the US elections loom at the end of this year. It gives clues about budgets and eases investment decisions, although we doubt any investment decisions will be made until after the election.

2. Is America trying to build and American Rare Earths Hub? Some big clues this week as Energy Fuels engages Constantine Karayannopoulos and Brock O’Kelley, two rare earth element industry experts who each have decades of experience producing commercially viable rare earth products, to aid in the development and implementation of commercial and technical REE strategies for the new US REE program. Karayannopoulous built and sold MolyCorp for c. $1.3BN, and currently runs Neo, one the world’s largest downstream rare earths businesses. Something big is happening here.

We also discuss the parallels between uranium and rare earths. The geopolitics and global weaponising of access is becoming exacerbated.

We Discuss:

  1. COVID-19’s Effect on Uranium Supply: A Look at Kazakhstan, Australia, Canada and Namibia
  2. Disruptions to the Market and What They Mean for Uranium Investors and Companies
  3. Spot Price Movement: Anticipating the Next Spikes and Throughs
  4. US Government Parties Supporting Uranium: AOC, Bipartisans and Others Affecting Public Perception
  5. Energy Fuels Announcement: Parallels Between Uranium and Rare Earths

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Brandon, how you doing, Sir?

Brandon Munro: All good, Matt. How are you?

Matthew Gordon: Yes. Nice. Yes. Good. It’s been a long week. It feels like a long week already and it’s definitely the end of your week. So, thanks for touching base. But it’s been a quiet one all round, hasn’t it?

Brandon Munro: Yes. It’s got that feel about a week that has just consolidated after probably six, seven, eight weeks of fairly busy news and quite a lot of spot price activity. And you know, we have just had a very gentle uptick in the spot price, Uranium news, companies. It’s just been one of those weeks that has meandered along really.

Matthew Gordon: Meandered along. This is going to be a short one, and I mean it this time, but it is just worth kind of going through some of the things which are affecting the macro component because those things aren’t changing too much. If we look at Kazakhstan, obviously some numbers came out there. I mean, what’s your take on that?

Brandon Munro: Well, we have seen increasing COVID-19 cases in Kazakhstan over the last week, which is not always a trigger for relaxing restrictions as they’ve done. So you can expect from that that they will be cautious going forward. We have seen cases of, you know, 1,500 a day type thing, sorry, 350 a day type numbers coming through. And interestingly, Kazakhmys, which is the largest copper producer in Kazakhstan, they’ve now had to close one of their very big mines near Qaraghandy, and that’s the Nurkazgan copper porphyry mine. So, I think they had 35 cases out of about 1,100 workers, so it became a little hotspot for them and they expect to have it back into production with new shift rosters and all of that type of thing in June. But still, that’s a bit of a warning sign for Kazatomprom and anyone else in the industrial complex in Kazakhstan, that with rising cases, the chance of becoming a hotspot does increase.

So, we have seen continued high cases in Russia, although it is tapering off over the last week. So, I still see that as status quo. I don’t see any reason for the Kazakhs to be popping the champagne corks anytime soon there. And I’d expect to see no reason why we won’t have the Kazakh assets down for the three months that they’re expecting. And we’re a little bit more than halfway into that process now.

Matthew Gordon: Right. Okay. But again, as far as the macro story is concerned for Uranium, that continues to be good news in terms of its reduction of the supply into the marketplace. Should we touch upon some of the other countries as well? Obviously, we have talked in the past about Australia, Namibia and Canada. What are you hearing from them?

Brandon Munro: So, with Canada, first of all, we are still seeing quite a high caseload in Canada. It is tapering off in Saskatchewan; they’re starting to open up again. I think they’ve put down 8th June as the date for restaurants and bars and gyms and so on opening up. But the Northern territory still tells a different story there. So, La Loche, the village or the settlement that Cameco highlighted in their earnings call, they are seeing some level of reduction in cases, but it’s still a community in crisis and there’s little spot fires popping up around the place. There’s another settlement nearby that’s now had 35 cases in a first nation settlement. So I, again, there just isn’t any call for a relaxation of what Cameco has done there until we really see those first nation communities come through this and get over it.

Matthew Gordon: Then Australia, all fine there?

Brandon Munro:  Yes, it’s almost embarrassing to say it, being in Australia; we seem to have really come through this well. South Australia, which is the home to most of our Uranium production with the Olympic Dam and Beverly, they haven’t had a case since 7th May, and I think the last case before that was a couple of weeks before then and they don’t have any active cases left in the state. So, you can effectively declare South Australia free of COVID-19 for now. I mean, of course there’s risks about what will happen when they open up their internal borders into other States and there’s the chance of, I want to say a second wave, but it’s really still a first wave that we would be exposed to. Their main border is with Western Australia to the West and we have also got things pretty much under control; just a couple of cases each week. So, I don’t see any prospects for COVID-related supply disruption, or dramatic supply disruption at those Australian centres.

I would just say that there is still a lot of caution around interaction with indigenous communities, so that is affecting the way that ERA goes about its business. So, they’ve got different restrictions on their fly-in, fly-out and their drive-in, drive-out workforce to try and mitigate that. But the miners generally have adapted quite well now to all of these different ways of handling their shifts so it’s probably just in the irritant category now for ERA and for Olympic Dam.

Matthew Gordon: Okay. And then your territory in Namibia, are you back to work?

Brandon Munro:  Yes. Namibia is back to work. The mines in Namibia have been ticked through that. What they needed to do was present a COVID-19 management plan to the Ministry of Health before they could resume full production. They’ve done that. What we’re hearing on the ground is that neither of those giant Namibian mines are back to full production, but they are back at work. So that’s a good sign for Namibia, which has had fairly devastating economic ramifications from the shut-down, when the shutdown has been very effective at controlling the virus, they only had 16 cases that they’re aware of and now there’s a couple that have popped up in one part of the country. But again, if the testing is an indication of what’s going on in the population, they’ve effectively eradicated it for now. But at some very dramatic cost. And I think it is really heart-breaking to see what that’s done to a lot of the people there who are already on the poverty line or below. You definitely see a lot more impact on people from starvation and other related issues there compared to what they might’ve been facing with the virus itself. Into the longer term that’s going to promote a heavy development agenda and obviously incentivise the government to do whatever it can within its powers to bring on employment and development. So, in the medium term, that’s good for the Uranium industry there as well.

Matthew Gordon: Okay. So, what does all this mean? Okay. So, we have talked before, you know, in the past few shows about the macro stories, flight amount, et cetera. There continues to be disruption, and people are trying to get back to work. But what does it mean for the Uranium sector as a whole? And what’s it going to mean for some of the equities? You know, companies like Bannerman, companies that we, you know, in North America and Africa, what should people be looking for from these companies? Is it just more of the same, or how are you viewing it?

Brandon Munro: So, I think what’s relevant here is this supply disruption has contributed to accelerated destocking. Inventory has been the issue for our sector making a price break out for several years. So even though we have had fairly deep deficits, structural deficits, in terms of what is supplied in the world, primary and secondary versus what’s consumed, it’s destocking or under buying or working off inventories, whichever one of those terms you’d like to use, that’s what’s filled the gap. And that’s what has been necessary in order for the utilities to return to fully buying what they consume. So, if nothing else, this event or series of events, is probably going to take 20Mlbs out of the market. So, there’s 20M lbs of additional destocking. To put that into some sort of context for the viewers, in the US, which is the largest single market for Uranium, they destocked in 2018 to the extent of about 10M bs.

We will shortly have the numbers for 2019, but we think it was pretty similar. So, it has created the equivalent of two whole years of destocking in the US. And most people who look really closely at these numbers, and I’d consider myself in that category, believe that inventory has now returned to historically normal levels. And in certain pockets, it’s less than historically normal. And as we discussed last week, that comes in the context where there’s numerous reasons why utilities would ought to be preferring to be slightly on the heavy side for their commercial inventories right now. And what I was referring to for viewers who didn’t see last week’s show was Euratom and security of supply comments where they were very strong and advising their Euratom member utilities to maintain significant levels of inventory in order to risk manage a variety of different issues: transportation, bottlenecks in the conversion cycle and also in increasing geopolitical risk and potential for mine supply to be unavailable.

So that’s the immediate effect. The secondary effects of this go to sentiment. Now, investor sentiment – yes, that’s one thing, and I think we’re seeing Uranium stocks perform okay. They’ve sort of slowed down in terms of expectations and liquidity and volume and so on. But they have still recovered everything that they gave up to the market after COVID-19 spooked junior resources, at least. But what I really refer to when I say sentiment, is a reason for utilities to revisit their procurement strategies. In particular the procurement strategy of burning off their inventory or selling down their inventory. And at a simple decision, if it was taken more or less across the entire industry to buy what they burn, not to de-stock, not to underbuy any further, that’s going to put a lot of pressure on the structural deficit that without COVID-19 related disruption is still 20Mlbs. That’s more than 10% of the production in the market.

So I think if you look at those two things in combination; the destocking has occurred to an extent now where there is genuine tension and all it requires is the utilities to decide that that destocking has gone far enough and now it’s time to be a genuine buyer of material to cover what they’re burning in their reactors. And from there, demand growth will take care of that as we continue to see supply deficits at a structural level.

Matthew Gordon: So, do you think that people perhaps got a little bit too excited a couple of weeks ago with Uranium equities. The spot price, you know, has seen a significant recovery over the past couple of months. It’s sitting at around what, USD$34/lbs today or yesterday? Do you think that that needs to move much more to give the market further impetus to kind of move forward, or are we going to sort of see it sitting around these levels for some time to come?

Brandon Munro: I don’t think people got too excited, necessarily ,because if you look at where equities are at the moment compared to not only the spot price in absolute terms, but the setup that we have got for the rest of the year, I still think they’re deeply undervalued. What I do think happened is that many investors started this little upturn with unrealistic expectations of what would happen in the very short term. And that’s been a recurring theme in our conversations, for example, and some of the others that you’ve had as well. The expectation that this was the boom, and some of the exaggerated numbers that we have seen in terms of the extent of the supply disruption, we have seen a few commentators either get their numbers wrong or describe them in the wrong way. That’s been caught onto by some retail investors and others who think that this is like an absolute catalyst, and it’s not that. It has not had an effect on spot.

So, I think what we have seen is a slowing in equity prices, partly because there’s been some great profits for anyone who bought the dip, and as they have seen the spot price growth slow, that has been an appropriate time for them to consider taking profits. And also, for those investors who bought with just totally unrealistic expectations of what the trajectory is really going to look to. And so, I think that the setup is very, very strong for fourth quarter this year, and there’s probably going to be a few plateaus in the spot price. It’s going to have a few more lurches. It’s going to come back. But on fundamentals; fourth quarter this year, probably leading in from third quarter, are going to look fantastic. And so, for patient investors who can sit and buy these little mini dips along the way, I think there’s going to be great times.

Matthew Gordon: Yes, I think that’s right. And we have sort of said that for the past 2 or 3 conversations in the past 2 or 3-weeks. I want to talk about something else that happened this week: Alexandria Ocasio-Cortez, she is a representative from Eastern New York, US Representative, very vocal. She is a very young dynamic Democrat. And she seems to know how to use social media to great effect. And she’s come out and said that she would consider, or she’s open to nuclear as part of the green solution, which I think is big. And then the other thing that happened at the same time was that you had 10 across party or bi-partisan senators also call for the extension to the Russian suspension agreement. So, there’s a lot of noise happening in nuclear and therefore Uranium this week in the US, so that is not going away because, and the reason I say that, I think a lot of people were slightly disappointed with the Nuclear Fuel Working Group report. I think others latched on to it and said it was the next great thing. So, it’s definitely, there’s a discussion going on. What’s your take with regards to what’s happening in the United States on the topic of nuclear at the moment?

Brandon Munro: First of all, with the bipartisan comments and call for not only the Russian suspension agreement to be extended or continued, but also to be enhanced and strengthened, I don’t really see that as big news. From my perspective anyway; I thought that was a quite natural next step. It has made news because of its links with the Nuclear Fuel Working Group report that the DOE released a few weeks ago. And when you look through the list of provocateurs there, you’ve got the usual suspects who’ve already been quite vocal: Lindsey Graham, Senator Barrasso, et cetera, et cetera. I don’t look at that list for example and say, ‘Oh my goodness, that person, that’s interesting.’ On the other hand, AAC, her comments really are quite a watershed moment I think. And that is big news that perhaps has been underreported or under-recognised.

And so, if we take a step back, she has represented the vocal radical left and has very demonstrably excluded nuclear from any consideration under the green new deal with a fair bit of support from Bernie Sanders when he was still running at the time. And so, the green new deal was seen as, because that exclusion was seen as a real threat to, well, a threat to the nuclear industry and a threat to logic really, and certainly a strong threat to the achievability of its objectives. How can you possibly exclude what still is by far the largest source of clean energy in the US, and represents 22% of the grid? Now she’s had reason to change that and it’d be really interesting to know if Biden’s influence there and having a more moderating influence has played a role in that. And her comments itself for anyone out there, they should go to it directly, not only did she say that the door is open to nuclear, but she also emphasised that it is a critical part of the discussion, which is about as close as you can get to a backflip there in terms of her policy. And emphasising, I think 3 times in her comments, that the door remains open. That’s from my read, very much about allowing nuclear to come back into that conversation and start the new green deal. And there’s been a number of lobbyists and even community groups and employee groups from nuclear reactors who have proposed an alternative green deal that just has a bit more reality and allows nuclear to play its role.

So, for me, that’s important. It’s important because it is moderating the Democratic position as they start to get closer to the election. It means that one of the most attractive, if we can put it that way, like the most appealing, is perhaps a better way of saying it, one of the most appealing voices on that far left end of the Democrat party is now relatively aligned with the moderate view that Biden’s got towards nuclear. But it also goes to the capturing, I think, a realistic perspective from the younger generation when it comes to looking at what nuclear can do. What we typically see is a progression along many lifetimes where people start somewhat radically socialist and they go through university and they wave flags and they do all of that sort of stuff and they tie-dye their shirts and whatever else it was that you and I did when we were there. And then as reality sets in in life and they realise the hard grind of raising a family and paying bills, they sort of move more moderate and potentially out to the right. So, this is good for assisting the part of the constituency who are still going through that experiment with liberal socialist ideals and had made those ideals synonymous with anti-nuclear. Because the other thing to bear in mind is that subsection of society, they haven’t grown up with the fear of the bomb. And when you talk to many young people, and the stats bear this out in terms of when they segment their surveys about support for nuclear power, in many cases it is a reliance on things that Greta Thunberg is saying, or the AOC is saying, and just wanting to fall into line with the cult or with the movement, if I can put it that way. So this is important, and it’s important for shifting the generalised voter base in favour of nuclear power, and going into the election in November, it is moves like these that will create a really strong positive foundation for nuclear in the struggling US market, regardless of who gets in.

Matthew Gordon: I think it’s a very interesting time. And I think timing has been really important because if you look at people like Bill Gates, he has been banging the drum for a few years now about nuclear, you’ve got the t-shirt-wearing Michael Schellenberg who has been telling this story for a long time now. And then you’ve got things like the Michael Moore film which came out – Planet of the Humans, which I don’t know if you’ve watched, but you should watch. You have? Okay. You know, it’s kind of interesting, the narrative is interesting in terms of things slightly anti-renewable and what the implications are for a nuclear, there’s a kind of realism about what it takes to put all of this, these energy requirements together. And then you’ve got someone you know, young and dynamic like AOC and You know, telling a story to a different audience in a different time. It seems to, That’s why it’s interesting, what your thoughts were. So, it seems interesting that now 10 senators are coming together across party, bi-partisan coming together and pushing the, you know, ‘Made in America’ story, protectionism, security and all of that kind of stuff. And then you’ve kind of got a very sort of liberal, you know, Michael Moore, AOC type approach to this. Nuclear is getting support from a lot of different sides in terms of age groups, you know, institutional versus the kind of social media type thing. So, it is a very interesting, interesting time in that people, I think would better understand what nuclear is capable of. And of course, not everyone’s going to buy it or love it, but certainly the fact that it’s been talked about is good and it’s healthy.

The other thing, so, again, it’s possibly worth coming back to and seeing how that story plays out and develops. But another little thing, I said this would be short, but we always have an interesting conversation, don’t we? I don’t know how we do it. There was an announcement with Energy Fuels this week, because they have, we have previously talked to them about Rare Earths, you know, and it seems to be sort of intertwined with Uranium in terms of the, you know, radioactive material, etc. High value, the security component, strategic, geopolitical importance of it, you know, China being a big consumer of it and processor and et cetera. So there’s is a lot of parallels here, but Energy Fuels announced this week that they had engaged with, I’m going to have to look at this because this is a name which I’m going to struggle with: it says Constantine Karayannopoulos, who for those who don’t know, originally sold MolyCorp for about USD$1.3Bn. He is very big in the sector. I think he then sort of bought out when Molycorp then subsequently went bust and they then bought out Neo from it. And that’s Neo, Linus and Mountain Pass. Those are the 3 big players in the Rare Earth space, so that alignment with a US based company, with a US facility is interesting to me because of the parallels with Uranium. And I’m wondering, you know, what’s going on there? What are your thoughts on Rare Earths as a strategic mineral like Uranium is for the United States? Is that an important move for them or is that just, this is what happens in this industry?

Brandon Munro: No, most definitely. I mean, the parallels are really interesting with Rare Earths. First of all, at a geopolitical level they have similar consequences to industry that Uranium does. So, the dominance, particularly in the heavy Rare Earth sector that China has, and China’s willingness to weaponize it as well. So, if you go back to 2010, you might recall that there was an incident where an illegal Chinese fishing vessel was seized by Japan. And in one of the most interesting, blatant weaponizations of trade, China basically said, send them back or we’re not going to let any of our REEs cross the border for your technology industry. So that’s a reminder for people in the Uranium sector, just how important geopolitics can be. And whilst the concentration of Uranium is not as concentrated as Rare Earth elements, it’s not that far off when you think that four countries produce 80% of the world’s Uranium and the top 8 produced 95% of the world’s Uranium. It’s certainly not Copper or Zinc or something else that’s distributed pretty much anywhere.

The other interesting parallel is that, as you’ve noted, there’s a very strong coexistence of Uranium and Thorium in most REE minerals. So, most REE players need to have a good awareness and some understanding of Uranium and Thorium and radionuclides and all of the risks associated with that. And we have seen a little bit of the uphill battles that we face in the Uranium sector leaking out into the REE sector, such as Linus’s problems in Malaysia with local communities not having enough to do on a Thursday night and banding together to oppose the plant there and so on. So, there is a natural nesting if you like, of Uranium and REEs and I think any strategy that’s designed to safely extract the Uranium out of REE minerals for beneficial use rather than expensive storage just has to make sense.

Matthew Gordon: Yes, I’m intrigued by it and I’m going to try and speak to the CEO, Mark Chalmers next week, but I’m intrigued. It’s just, it feels to me there’s a kind of critical minerals story, a USA critical mineral story building here because the importance of Uranium, the importance of these Rare Earths, etc. I kind of feel that the stars are aligning there, because they, again, they’ll have very similar support in DC, in terms of Senators, or even in Capitol Hill itself, because these are very similar problems that they’re trying to solve. So, but look, one for another day.

Brandon Munro:  There are further parallels as well that we’re thinking about very much in the context of what the Nuclear Fuel Working Group report is driving at. You might recall that basically China said to a number of technology companies, the only way we can assure you access to heavy rare earths is for you to produce in China. And there they were successful in implementing a significant shift of technology production out of the US, out of South Korea, to a degree out of Japan. And all of those countries that just didn’t have heavy Rare Earths were enormously vulnerable. And so, China has got form, and I don’t see any reason why that form of influence on industrial bases won’t be exerted from Uranium. But here’s the interesting catch: China, the boot is on the other foot for China when it comes to Uranium, because unlike REEs where they control 95% of the market, it’s almost precisely the opposite. That will be, over time, they’ll be capable of producing only about 5% of their own Uranium domestically, absent some big discoveries. So, it is just fascinating to look at where the parallels and where the analogues are between those two sectors, so we should come back to it.

Matthew Gordon: We should definitely come back to it because I think that the language, that weaponizing is starting to be seen more. I think the USA is starting to use that language on a lot of topics, not just in the mining space. And I think, you know, the geopolitical component is always fascinating. It’s always interesting. I am sure there is a great book to be written on it as well. But look, Brandon, thanks so much for catching up with us this week. We didn’t think there was much to talk about. We were wrong.

Brandon Munro: Yes. Well either we are very interesting, or I just waffle too much. We’ll let the viewers decide that

Matthew Gordon: None of the above. So, we’re not, none of them. No, it’s not that you’re not interesting and you don’t waffle. I really enjoy it. Okay, well, I better let you get back to your weekend. You’ve got to get home, see the wife and kids, enjoy yourself. Anything planned for the weekend? Fun stuff?

Brandon Munro: Just a quiet one here. I have got a fair bit of work to catch up on. It’s going to be rainy on Sunday, so I have told the kids they can watch a movie and I’ll disappear back into the office.

Matthew Gordon: Beautiful. Good man. Okay, well keep at it. We’ll speak to you next week and see how the world has changed then.

Brandon Munro: Great. Okay. All right. Enjoy your weekend. Cheers, Matt.

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Brandon Munro – Kazatomprom Moving Back Towards Production, Cameco Update, And A Look At SMRs

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (20.05.2020)
  • Market Cap: A$42M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

This week we talk about some intriguing topics. Does Kazakhstan’s easing of safety restrictions indicate uranium production is about to start back up?

Then we move into SMRs and the geopolitical race that surrounds them. We talk about examples of application on land and at sea.

We then move into Cameco’s announcement that it will be getting the Port Hope Uranium Conversion Facility back up and running. What could this mean for the uranium space and uranium investors?

Lastly, we cover UR Atom’s recent statement. A must watch for uranium investors and generalists alike.

We Discuss:

  1. Australia’s Successful Management of COVID-19
  2. Kazakhstan Easing Restrictions, Does That Mean a Re-Start of Uranium Production
  3. Russia’s Relationship with Kazakhstan and Possibilities of Influencing Uranium Producers
  4. SMRs: The Geopolitical Race, and the ARDP Report
  5. Conventional vs SMR: Costs, Locations, Infrastructure and People’s Perception
  6. Cameco’s Port Hope Announcement
  7. Selling at Market: What’s Happening with Equities?
  8. UR Atom’s Statements: Importance of Maintaining Inventories and Diversifying Supply

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Brandon Munro – Why are some uranium investors blaming Kazakhstan? (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (20.05.2020)
  • Market Cap: A$42M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

Kazakhstan is easing emergency restrictions in some towns but what does that mean for the resumption of production of uranium at KazAtomProm. Munro explains. Also, we discuss what pressure Kazatomprom may be under and from where? Plus, how is Russia coping?

The US Govt is trying to get their seat back at the uranium table, after years of neglect. Will SMR technology be their saviour, and if so how long will it take. This week saw a big announcement with regard to their ongoing Advanced Reactor Demonstration Programme. Big numbers being thrown around. Bigger the US Dept of Energy has indicated.

And what are the Chinese and Russian SMR technologies capable of? We talk about use cases and applications on land and on sea.

Cameco has restarted their Port Hope facility, which was expected by most, but some selling in the market means that perhaps not everyone was pleased with the news.

And, finally, a sober statement by the European Atomic group, EurAtom warns of lack of transport hubs to accept nuclear shipments, lack of investment in conversion facilities and a permanent reduction of uranium and withdrawal from uranium exploration. And commented on that utilities must diversify supply and continue to maintain appropriate 3-years of strategic inventory levels. We discuss what they mean.

We Discuss:

  1. Australia’s Successful Management of COVID-19
  2. Kazakhstan Easing Restrictions, Does That Mean a Re-Start of Uranium Production
  3. Russia’s Relationship with Kazakhstan and Possibilities of Influencing Uranium Producers
  4. SMRs: The Geopolitical Race, and the ARDP Report
  5. Conventional vs SMR: Costs, Locations, Infrastructure and People’s Perception
  6. Cameco’s Port Hope Announcement
  7. Selling at Market: What’s Happening with Equities?
  8. UR Atom’s Statements: Importance of Maintaining Inventories and Diversifying Supply

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Brandon. How are you doing, Sir?

Brandon Munro:  I’m well, thanks, Matt. What about yourself?

Matthew Gordon:  I’m good, but you look like you’re back in the office. Have you been allowed to?

Brandon Munro: Well, I am. Yes, things in Western Australia are going really, really well. We’re getting about one new case per week right now. So, we’ve decided to go back to the office and in fact, the government in Western Australia has told everyone to go back to work and has now made schooling compulsory again from next Monday. So, it’s nice to be back in the office.

Matthew Gordon: That’s fantastic. I hadn’t actually realised that. I spoke to my mother, like a good son should do, on, I think it was last Sunday, and she was saying, I didn’t realise this, but Australia’s had only around a 100 deaths across the board because of the policies that they have implemented. So, you have been managing this extremely well.  And, you know, because I do speak to a lot of Gold producers and others in Australia, and it seems to have gone quite well for you.

Brandon Munro: Well it has, in fairness, I think we’re assisted by just the way that we live in Australia. Western Australia is certainly benefiting from being very remote, and because of that remoteness we’re quite self-sufficient. So, closing the borders was for most people, just inconvenient: lots of loved ones being separated, you know, tragic stories, et cetera. A few businesses being affected by that. But in Perth, for so long, we’ve been such a long way from everywhere that it’s kind of normal. And where your mum is, I mean, Sydney and Melbourne, the States and new South Wales and Victoria, they have had a much greater concentration of COVID-19 cases and represented the majority of the fatalities as well. But they’re also bigger cities. They are denser cities. So, I think the combination of those two things and perhaps the really lovely warm weather that we’ve had has made the job a bit easier.

Matthew Gordon: It has. But we’ve got a nice segue here because Kazakhstan has ended the emergency and some restrictions as well, which obviously bodes well in terms of Uranium production. What is your take on that? Do you think they have come back too early? What do you know?

Brandon Munro: Well, based on the stats, the easing of restrictions seems appropriate. So, let’s just put to one side how solid those stats are for now. But Kazakhstan also benefits from being very low population density. Like Australia, it’s a very big country with a fairly small population. They do have more confined living, more European-style living, but they did lock down both in Nur-Sultan and Astana very, very early, and they closed their borders with China early. So, they took a number of measures that a former Soviet country can do quite easily in terms of the way that people are used to being regulated.

And so, where we’re at at the moment is, they announced it at the beginning of the week that the state of emergency has been lifted and a few of the restrictions have been changed. It’s less like a European lockdown and moving towards being a little bit more like an Australian lockdown. You can go and shop for things other than food now, for example. People can go back to offices if they need to, but we aren’t seeing any return to industrial activities. There’s still a lockdown of the regions there, and the report from the government and the comments from the president seemed to indicate that they’ll be reviewing that on a region by region basis. And as your audience would know, the regions that host the majority of Kazakh Uranium production were some of the earliest effected by COVID-19. So, I don’t see it really meaning anything for Uranium production and the resumption of wellhead development by KazAtomProm yet. It’s something clearly to follow. I think there’s possibly had an impact on equities this week with the headlines seeming to indicate that things are getting back to normal. But talking to people in Kazakhstan, it’s still a long, long way from that. It is the beginning of normalcy, but there’s still many, many steps that need to take place.

Matthew Gordon: Okay. And because if I look at some of the commentary in the marketplace at the moment, there’s a lot of adversarial, negative commentary around Kazakhstan: their impact in the market, the way that KazAtomProm playing this out. I know we’ve had conversations, and you know, you’re a believer and I know you have first-hand conversations with them, but you’re a believer that they are doing what they’re doing for all the right reasons. So, you don’t see them coming back anytime soon? Or do you think that they are going to be under some pressure from wherever to get back into production soon? Because, you know, as we said last week, oil revenues are starting to get bid.

Brandon Munro: There will be some pressure on them to come back soon, and when you read the president’s comments, and as you know I’m fortunate to have an in-house translator of Russian, so when you read the nuance of the president’s comments, they are obviously, like most countries, looking for industrial activity to recommence as soon as possible, but they’re also looking for stability of their currency. They are hoping that any forms of foreign currency can help to offset the impact of oil. So, on the one hand, you might say, look, that will create some level of pressure for KazAtomProm to come back, but you do need to remember that compared to what oil does for Kazakh foreign reserves. Uranium is still a tiny little blip. It’s very important to Kazakh pride because they have got such a dominant position in the Uranium market, but when it comes to dollars and cents or tenge, for that matter, it’s just a small little corner that doesn’t even register double digits when it comes to foreign reserves. And I think they will be very careful. It’s a big logistical mobilisation exercise here. They’ll need to get 22,000 people back operating to get this wellhead development going and they won’t want false starts. They won’t want to half-mobilise and then have, say, a second infection rate come from over the border, for example, one of two borders which are presenting a risk for them. And I think in the context of them having a good commercial basis for a continued shutdown, buffering those negative consequences to their operating business, I can imagine that they will take their time and make sure that they get it right.

Matthew Gordon: Okay. So it is inconsequential – Uranium revenues are inconsequential to the sovereign wealth fund, to the country as a whole; point well-made and well taken. But it does have a huge impact in the Uranium market, equity specifically. So, people and funds I suspect are going to want to see KazAtomProm not producing for some time because it will start putting more and more pressure – these lost pounds in the market is going to put pressure on. So can you, how long can you see them holding out for?

Brandon Munro: That’s how long is a piece of string in this situation. I mean, we could put on a white board, three great reasons why they should try and rush production back and three great reasons why they should hold off. And probably three extra reasons why the government would want them to come back and hold off at the same time, so there just aren’t any real indicators. I mean, one thing we should bear in mind is that their closest neighbour, both geographically but also culturally, Russia, is now going through a peak COVID phase. Their fatality rate is remarkably low compared to similar countries and countries that have a similar way of living. But nonetheless, they have slipped into third place, I think in terms of the total number of confirmed COVID cases. So, you’d expect that would be weighing on the minds of decision-makers, both government and industry in Kazakhstan. And as we’ve seen in other countries, it’s only a matter of weeks before we know if those Russian numbers have peaked and are receding and everything’s back under control. So, if I was making a decision whether it was a for a Uranium project or anything else for that matter in Kazakhstan, I’d be thinking, well, let’s give ourselves another few weeks and just wait and see how things play off on our northern border.

Matthew Gordon: Well, just on Russia, they have had 250,000 confirmed cases, and the official number is 1% but the numbers in Moscow, which suggest they potentially could be 3 times that, we won’t know for a while. And I suspect that Mr Vladimir Putin is struggling a bit because he’s, you know, obviously looking at some kind of constitutional reform process at the moment, and COVID-19 has come along and interrupted this somewhat. And I, you know, I’ve seen a few pictures of him sort of staring blankly at a screen trying to bark out orders and get things moving. But he, you know, he’s been isolating as well. So, I just wonder how much pressure Russia is going to be able to exert on countries like Kazakhstan? That seems to be a much asked question. Do you think that is realistic?

Brandon Munro: Well, I guess the question is, pressure for what ends? Do you mean on Kazakh Uranium production and making sure that they can access that production?

Matthew Gordon: Yes.

Brandon Munro: Yes, interesting comment, and you might have picked that up from some of the comments made by Grant Isaac from Cameco during the week where he pointed to his view, which I share, which is that Russia doesn’t have the domestic Uranium production, either mined production or from treating tails through their enrichment program, to power the full extent of their nuclear export ambitions. And for them, I think they’d be looking across the border at Kazakhstan thinking, well that’s okay. You know, we’ve got a long history of cooperation here. We’ve got a lot of shared cultural values. We’ve got a deeply integrated economy where Kazakhstan is still very reliant on Russian capital and Russia as an export market for other goods and so on. So, if I was Russia, I wouldn’t be feeling particularly concerned.

To their south, however, you know, I think the big question is for China, they have been able to buy pretty much whatever they wanted out of Kazakhstan so far. But if the Russian export program continues in the vein that it has so far, I think China will have to really start asking itself questions about how long and how much of that Kazakh supply that will be available to them over the medium to longer term.

Matthew Gordon: Okay. Well, I think people can look at that, and we’ll put links below to some of the conversations we’ve had over the past couple of weeks with regards to supply-demand. But today I want to talk about something else, which we’ve not talked about, which is SMRs. SMRs, again, it is that geopolitical race; be that Russia and China have got their designs, they each have got their own unique designs; land-based and floating. It seems there are some very interesting options there. And also the US this week has announced, well, I think potentially, it’s been going a while, but this week they made a bit of an announcement off the back, I suspect of the Nuclear Fuel Working Group Announcement a month ago, which is their ARD program, which is their Advanced Reactor Demonstration Program. So maybe we should start with the Americans first, should we do that? ARDP – so what’s that all about?

Brandon Munro: So, I think it is off the back of the working group report, and in fact it was, that report was cited in the press release. So, what they have said is they’re making available USD$230M to try and ensure that there is an American SMR, small modular reactor, technology in commercial operation by 2027. They have allocated a proportion of that to fund programs that are able to get a reactor in operation in five to seven years, in commercial operation. So, if we take a step back, and we have talked about this, but probably not in the last 12-months, America was leading the way when it came to SMRs, they had multiple viable SMR technologies, not just a couple. And because of, I suppose, the industrial capital roots of how American technology is developed, there were lots of competing companies including some very high-profile ones such as Mr.

Gates, and they all had their different technologies, which were all competing, essentially, only against each other. The Canadians had a design, and there were a couple of other designs around, but it was really an American race.

Then what we saw was the Obama administration turning its back largely on nuclear and the relevance of nuclear technology and in favour of a number of different technologies, but predominantly looking to position America in the renewable race and electric vehicles and so on. It was only when Rick Perry came as Secretary of Energy under the Trump administration that we saw some serious revival of these programs. There’s been a number of small funding grants made available. In fact, there was one last week for, I think, USD$27M for some sort of a switch that I don’t even understand that does something clearly important because they’re putting USD$27M towards it. But that’s an example. There’s lots of this going on, but this is the biggest and the boldest and certainly the largest number that’s attached to it. And it has attached a timeframe, which is quite clearly a call to arms that they want to have nuclear SMR technology capable of domestic and international deployment before 2027. And that aligns very well with the various comments made by the Department of Energy, which were summarised in that working group documented a couple of weeks ago.

Matthew Gordon: So, this feels rather like a giant science fair. They’re trying to identify a technology which is obviously proprietary to the US itself, and presumably they will come down hard one technology or another, and there are people who will insert themselves into that food chain along the way. But USD$230M is not a lot in the context of things. It sounds like a lot because the Nuclear Fuel Working Group, you know, they talked about USD$150M a year, and we don’t know where that’s being allocated. Isn’t it time for the US to start joining up these programs? Start to, you know, do what I think the Nuclear Fuel Working Group, we’ll call it a policy document, because I think some people are branding it, a policy document that shows intent, isn’t it time they sort of brought all of these departments, agencies together, and consolidated their budgets because it’s just all a little bit piecemeal, isn’t it?

Brandon Munro: I think the government approach is really reasonably centralised. You have got the Officer of Nuclear Energy that sits within the Department of Energy, and it has been really the dominant supporter in all of this, and they have done a good job. You know, when you consider that they inherited a fairly stale agenda from a Democrat Administration, I think they’re doing a good job. But your point about, is the broader interests of US nuclear technology better served by 2 or 3 competitors who have pooled technologies and pooled resources, rather than having an array of competitors competing for intelligence, competing for technology, competing for markets, et cetera. You know, that’s a debate that’s even being had at a conventional scale nuclear reactor table. And really the Western world, if it’s got a legitimate chance of fully competing with Russia and China on conventional nuclear reactors, they’re going to need to get together and have a standardised nuclear reactor in exactly the same way that China only exports in markets one single reactor of a one gigabyte scale. That’s the one on one. There is also the cap 1,400 which has a larger scale that’s designed to compete with the bigger EPR that France makes.

But the issue is the cost of getting design approvals; even generic design approvals run into the billions in key markets. And the confusion and just the difficulty for regulators of choosing between all of these different designs means that it slows down the process and it makes even a procurement exercise very expensive for governments, and almost prohibitively expensive for private power concerns. So, Russia exports a single reactor design. China essentially exports a single reactor design in the one on one, and this –

Matthew Gordon: Okay. So let me ask, so Russia has been out there for some time, China has been at there for some time America, it looks like it’s just starting the process. How long is that process? When can America start to genuinely say, we’re back at the table, guys. We’ve got a solution here which we think we can commercialise and we’re going to start doing that.

Brandon Munro: I think it is going back to the table already. If you look at some of the technologies that have continued in the meantime, they have continued to maybe not prosper, but they’re certainly as private enterprises, continued to push forward. And we’re seeing that, for example, in Australia where the nuclear power debate is fully restricted to SMRs-only, for a couple of probably pretty good reasons. And there’s one SMR reactor that had the best chance of, I think capturing the debate here because its audio visuals were superior, and it was the most advanced. And so, they’re definitely a front runner, but there are others as well. And of course, Bill Gates has used his profile to capture the imagination for their particular product.

What was slowing the US down was predominantly the availability of sites. And they are addressing that. They don’t need money to the same extent to do that. And that’s not such a big issue for China and Russia. And for example, China has already selected a couple of sites for their Agile Dragons that they plan to do –

Matthew Gordon: Nimble Dragons.

Brandon Munro: Your dialogue of Chinese must be slightly different to mine, Matt.

Matthew Gordon:  Cantonese I’m going with, yes. Cantonese every time. But let’s talk about, I just want to remind people why SMRs are being considered as part of the future here. It’s going to come down to pricing, timing, mobility and tying into infrastructure. Why don’t we talk about some of those things? Pricing – conventional versus SMR.

Brandon Munro: Okay. So, first of all, they aren’t necessarily better value per megawatt of power produced. That’s something that remains to be seen. The hope is that they will be, because they can be produced in larger numbers and they can be produced in a factory. But the point is that they don’t require such a large absolute capital commitment. You don’t have to commit tens of billions of dollars to build a large scale efficient conventional plant. You can nibble away with hundreds of millions instead. And that will make them more competitive to, for example, renewables, that have been implemented in a smaller, more piecemeal fashion. But the factory production is really important here because it goes to several things that have slowed down conventional nuclear power. The biggest one is the perception of delays. There have been delays but they are mainly associated with first of a kind construction. And as we all know, the first motor vehicle of a new range takes several years to develop and once they’re in full production, they take a couple of days, and there’s been an element of that. There has also been a lot of lawfare that has slowed down the construction of conventional nuclear power plants. And also, just the availability of contractors that have got the skills and experience to construct what are still relatively unique and very, very large construction processes.

So, an SMR, the best of them are designed to be built in a factory, transported via conventional means to the site, and a relatively small amount of site works to be done. And that reduces, obviously the construction time risk. It reduces financing risk. It reduces the effectiveness of lawfare tactics by antinuclear campaigners. The fact that their footprint is so much smaller means that they can be built closer to urban centres. They’re less likely to evoke the emotions of interest groups and so forth. So that’s in itself a big advantage.

Matthew Gordon: Talk to me about that because you know, these are much smaller footprint projects true, and that the cost is significantly less, significantly less, but it still needs to be tied into an existing infrastructure. And you’ve just said these could be near or in urban centres. Do you think, emotionally, people are going to want a nuclear facility smack bang in the middle of their city?

Brandon Munro: It doesn’t need to be smack bang in the middle, but you don’t need a 50km exclusion ratio from one. Now, we know that you don’t need that from a well-placed, conventional nuclear power plant either, but it’s hard to convince the populace of that. There are many examples around the world where communities have asked for nuclear facilities to be placed near to them. Sometimes, like in Scandinavia, for as pragmatic reason as they don’t want to commute 50 kms, let alone build the power infrastructure for an unnecessary 50 km carriage of electricity. But just their scale, their design, their enhanced safety features and the fact that they’re totally different to the 1st and 2nd generation nuclear power plants that have had problems at Third Mile Island, Chernobyl, and of course, Fukushima.

So, but I tell you where their most interesting applications are; I think the best, most fervent case for SMRs is immediate, hand in glove, displacement of coal power generation. And that’s because you can pretty much match them up with your existing output of a moderate sized, coal-fired power station. And all of that electricity infrastructure’s all there. It doesn’t need to be rebuilt. It doesn’t need to be replaced. And in a manner of speaking, you could turn the coal station off one day and flick the switch on an SMR the next. And compare that to, let’s just say renewables for example, or hydro, or a large scale, power program that needs to be implemented; you just can’t use the existing grid infrastructure in the same productive way as you can by displacing coal with SMR nuclear.

Matthew Gordon: That’s interesting.

Brandon Munro: The other really interesting case is for remote applications. So, remote industrial applications such as mining centres, and Russia has one of those ear marked for its first land-based SMR. Remote towns, for example, certainly for military applications. So, the US is looking at not only small but mobile reactors so that they can establish a power system for their various campaigns. A highly localised power system that has all sorts of strategic advantages over other forms of power that they would use in that situation. And the big variety that we’ve got of SMRs in the pipeline, there are everything from tens of megawatts up to the sort of modularity that can achieve an entire gigawatt of power as it’s needed. So, there’s a new market for them. And when you look at remote applications that might otherwise be relying on, for example, diesel, there’s a very, very, very strong social, environmental and economic impetus for those types of solutions.

Matthew Gordon: Nice. It’s an absolutely fascinating space in terms of, well, I’m interested in how it will turn out, what those applications are. It’s, you know, they will package it according to the needs. They have got the ability to package it according to the needs. I was reading an article with regards to the RITM 2000, the Russian technology, which that kind of led on to this kind of floating power source. Now, that makes me nervous – ships at sea with nuclear power. Surely that’s a recipe for disaster. That sounds like a really good or bad Hollywood movie happening right there. So what are, because you touched upon it earlier; you said that they have enhanced safety features. So what are those enhanced safety features?

Brandon Munro: Okay. Well first of all, let me challenge your natural fear of floating nuclear reactors for a moment. Because we’ve had extensive nuclear reactors at sea since the advent of nuclear power, through predominantly Naval use. So, the Russians have maintained a fleet of nuclear-powered icebreakers as well because of their power requirements. And so, I think the US operates still 74 micro-reactors for their Navy. Russia doesn’t have quite so many, but they have got more diverse applications, and to my knowledge, and certainly to public record, there’s never been a single incident on any of those. Obviously, Naval ships had had other related incidents and they have had nuclear fuel on them but as far as we’re aware, of the world at large, that’s never created an issue at all. So, there is some precedent, very significant precedent for reactors operating safely at sea. And I could parrot some of the things that have been told to me by the technical experts about why flooding reactors are far safer, or have got simpler safety features to a land-based one, but I think what it comes down to is, it’s two things to do with safety and SMRs. The first one is the real safety features and they have had the opportunity to dramatically rethink all aspects of the production of nuclear power to craft the next generation of technologies here. And in that respect, they have eliminated to effectively zero the potential for accidents and the potential for radiological risks here. And everything that you can think of is included in these reactors. Now, in fairness, that’s the case with the Gen 3 reactors as well, they’re just at a larger scale. So that goes to the second point, which is the perception of safety, and in the nuclear sector to win the hearts and minds of some countries such as Australia, you really need to come out with something different, so, we aren’t talking about why Chernobyl could never happen in Australia, we finally can say that’s a completely different technology. You’re trying to liken a modern nuclear power plant to the Great Fire of London, for example. You know, it’s a dramatically different technology where a comparison just isn’t valid or fair. And whilst technically I can tell you that that’s true for a Gen-3 conventional nuclear reactor, it’s very hard to make that argument for someone who doesn’t spend a lot of time looking at the science of all of this.

Matthew Gordon: Okay. SMRs – very exciting. We’ll put some links in the commentary below and hopefully people can get into it. Get into the detail. Cameco, this week, I’m going to pat ourselves on our backs with regards to Port Hope – they made an announcement this week.

Brandon Munro: Yes. So, they’re returning Port Hope to full production. They want to be back at it fully by the 25th May. And I think what you’re referring to is that we both sort of deduced that as being quite likely from both the tone and the commentary of the Cameco quarterly results. If I remember correctly, we made the observation that the way that Cameco was talking about Port Hope and Blind River was very different to the, the words and the tone that they were using to talk about Cigar Lake, and we didn’t expect that that four weeks would carry on any further. And so, as it turns out, it hasn’t. And I think what we can glean from that is interesting for what it talks to their intentions behind Cigar Lake. First of all, the way that they described that shut down at Port Hope in the first place was very different. They were keen to get the message across that it was a pre-emptive move. It was to put it in their control. They didn’t want to be turning it on or turning it off. They used language like, ‘these industrial facilities don’t like being turned on and off, and particularly at short notice’. And they made a plan to bring forward some of the summer maintenance program that they otherwise would have had to undertake. So, right from the beginning the language was very different at Port Hope. And then the update that we had with the quarterly report was, the results, was also along those same lines compared with Cigar Lake where I think Tim Gitzil was, you know, genuinely quite upset about the outbreak that had happened at La Loche, which is a first nations community close to their operations in Saskatchewan where I think he said on the call there’d been 50 new cases reported in one day, and he acknowledged that they had employees from that community, and clearly they were all feeling that concern for that community. So, I don’t think Port Hope is any sort of indicator of what may or may not happen at Cigar Lake because they have been characterised very differently from the beginning.

Matthew Gordon: Yes. I was actually quite impressed with their quarterly call. It feels like a company in control. They know what they’re about and how they’re going to get there responsibly, genuinely responsibly. Because again, when we get this feedback, people try and read into perhaps too much, read into the intent. And we get a lot of commentary about KazAtomProm and Cameco controlling the market, controlling pricing in the market, which again, we’ve discussed at length on numerous occasions. I don’t think it could be further from the truth.

Brandon Munro: I agree. They are a responsible company that is doing things for the right reasons.

Matthew Gordon: Yes, absolutely. Now, a little bit of activity in the market this week – there was a bit of selling. There’s a few, I’m not quite sure why, some people said that it might be fund liquidating their position or taking advantage of the price in the market. Have you got any thoughts as to what happened?

Brandon Munro: As far as the equities are concerned, I don’t have a good feel for what’s happening. I’ve got a couple of wild theories, or rather not so wild theories. And if you look at the bounce that Uranium equities have had, they have oversold quite deeply but that was in common with just about all speculative resources stocks, particularly when I look at my watch lists across other commodities, even technology and so forth. But they did make quite a good recovery. I expect with a spot price that’s flattened now, it has come back a little bit. There’s probably some people who bought the dip and who are now taking profits and that doesn’t surprise me. We haven’t seen such big volumes, not in the stocks that I follow, anyway, that indicate a big level of fundamental selling or fund selling. Maybe you’re seeing it differently in some of the other stocks, but I haven’t seen anything that would indicate more than people just going, you know what? On 100% percent of my money in a few weeks, spot price has flattened, it has come off a few cents. Maybe I should just take some of those profits and see if we see more volatility.

Matthew Gordon: I think that’s right. I think that’s right. And that is what we did, you know, the price has levelled out again. I don’t know, I’m not seeing much movement anytime soon in that. And I think, you know, a few people called that: yourself, Dustin Garrow called that. Until something meaningful happens in the market, I don’t think this is going to move one way or the other anytime soon. But we shall see. We shall see – the great famous last words. I don’t want to talk about that with us today, but I do want to make, I just wouldn’t mind your observation on it – Euratom – they made a couple statements. I mean some were a bit obvious and some that surprised me. They talked about a lack of transport hubs, a lack of investment and permanent reduction. So, you know, those comments in the market, I mean, did you any of those surprising? Why did they bother giving that statement?

Brandon Munro: Yes, look, I mean, I didn’t find any of it surprising, perhaps I’m not the right person to ask. When I looked at the report, I think I deal with about half of those people through the World Nuclear Association Working Groups. So, all of these factors I’m quite close to because of what I’m doing there. But to put some of those things in a bit more context, so for the audience, this is basically a security of supply report that is produced each year. It’s not the inventory report that people are looking forward to. We’ve got a couple of weeks before that comes out, although it did make a broad-based comment on inventory where as I expected, and as most people would know in very broad terms, the average level of inventory held by EU utilities is 3-years of supply, and that’s been fairly consistently the case.

And in fact, Euratom imposes legal requirements to hold minimum levels of strategic inventory on its members. And so, the transport issue: they were identifying risks rather than problems that are here today, and so it needs to be looked at in that context. The transport risks, what they talked about is political interference with ports and transport routes to enable the carriage of nuclear infrastructure, whether it’s power, whether it’s waste, whether it’s components, whether it’s construction, et cetera, et cetera. This report was focused more on nuclear fuel, but there is some risk within the EU that interest groups, political or otherwise, they’ll start interfering with that. So I think it was quite appropriate that Euratom get that out in the open, put it in front of policymakers, warn them of the consequences, and they didn’t take the next step, which I think is to do a little bit of lobbying in favour of nuclear transport. I think there’s been 11,000 transportations of nuclear fuel without a single incident in the EU, so that’s pretty good going over a few decades, and a few more people should know that statistic. But I don’t see any present-day concern that that will stop reactors operating, but it’s an increasing challenge that they need to face up to.

Matthew Gordon: The one thing I did take note of in that, sorry to interrupt you, Brandon, was the average inventory levels in Europe of 3-years. And I couldn’t quite work out from the language use whether that was the case now, in which case, we’re looking at utilities sitting on 3-years’ worth of inventory, which is a big clue, or it is suggesting and making recommendations that that is the case.

Brandon Munro: They have traditionally held between 2 and 3 years of inventory. I guess we’ll know the answer to that. I’d have to go back to the report and have a place to look at it now that you raise that, we will know the answer to that in a couple of weeks’ time. It was the, you’re right, the comment was made in the context of holding strategic inventory is a key mitigation that all EU utilities must maintain both to disruptions, potential disruptions from transport that we’ve just talked about, but also, for the 2nd year now, they shone a light on disruption, future disruption of production, lack of investment, they talked specifically about the production of Uranium going offline and not coming back on again. So, there’s a degree of recognition there of the remarkable decay curve that we have in the world’s current Uranium production out there. So, that strong message coming through there was that European utilities would be very unwise to deplete their current levels of inventory. And it’s obviously a message for other utilities in the rest of the world as well. And that goes to what we’ve talked about before, which is whatever causes utilities to stop under buying and destocking their inventories will bring a fairly rapid price response in the Uranium market.

Matthew Gordon: Absolutely. And I think the one other point, and we’ll finish up on this, because I think you’re right – in a couple of weeks’ time, when there’s a bit more information in the market, we should come back into this. But the other thing they talked about, and I don’t think it’s going to be new news to utility buyers, is diversification of supply for, partially because of the reasons we’re talking about here, but also dependence on any one major supplier could be problematic for them, not just physically but geopolitically in this current environment.

Brandon Munro: And it’s worth reading up as well on this point because diversification of supply is one of those things that everyone’s been aware of. But not concerned by over the last few years until quite recently. And for utility buyers, it’s almost like, oh yes, we know we should be diversifying supply, but while prices are this cheap, we can probably stretch that rubber band a little bit. So, the importance of diversification has been a little bit lost in a low price environment, both from a sort of a bargain hunting perspective, I mean people who like a bargain will look past lots of flaws in something if they’re getting it at half or a third of the price that they paid recently. But equally, low prices indicate lots of availability of supply and you don’t feel the risks of an undiversified portfolio in the same way.

So, the language has really changed in this report. It’s recognising, without naming, the various geopolitical tensions that are going on in the marketplace and its timing, straight after the report of the working group, it probably would have been finalised and ready for publication before that report was released. But there’s been plenty in the lead up to the Department of Energy report that would give them the clues and the signals to what would potentially be coming, whether that’s Iran sanctions, the Russian suspension agreement or just an elevation of geopolitical language and rhetoric that’s creating potential supply disruptions here. So, all good, solid advice for European utilities and the utilities, the world over which ultimately will benefit Uranium production.

Matthew Gordon: Yes, and I think that the American producers will be banging that drum loud and clear too, because I think their argument is buying cheap is a kind of false sense of security. You know, it may be good now, but it’s causing them huge difficulties in the long run, potentially. Well, that’s a topic we should get into I think in a couple of weeks’ time. But Brandon, great weekly catch up and thanks for explaining it. I mean, I’m fascinated by this SMR. I’d love to talk to you more about that, the SMR technologies out there and how that plays out.

Brandon Munro: Yes, it’s a big topic. It’s an interesting topic. It’s a moving feast and it’s one of the real big opportunities in nuclear power for winning hearts and minds. And we didn’t even get on to talking about fast breeder reactors, which recycle their own fuel. So, we’ve got something up our sleeve for another slow week.

Matthew Gordon: So that sounds like, well, yes, I think we will have another few slow weeks so we can take advantage of that. Well thanks again. You had better get back to, you look like you’re at work. Is there anyone there or are you by yourself?

Brandon Munro: No, no. Everyone has knocked off, it is a Friday afternoon after all and it has gone five o’clock. I’ve still got a report to get to the board, so I’ll be here for a little bit, but I’m not complaining, it’s just so nice to be here in a quiet environment.

Matthew Gordon: I bet. A change is as good as a rest, right?  And what, I always ask you this on a Friday now, so what is your wine of choice going to be the evening?

Brandon Munro: Oh, you know what? I haven’t even thought about that, but I haven’t drunk any red this week. I’ve been quite busy and so the extent of my indulgence this week has been nicking a glass of white off my wife. So, I reckon, I have a decent 2011 Shiraz Malbec, produced in the geograph wine region of Western Australia by the most incredible people called Barrecas winery. Beautiful, beautiful people. It’s a husband and wife team. They do amazing things with wine and everything else. , I reckon I might phone ahead and ask my wife to just take the top of that for me and get it breathing

Matthew Gordon: Sounds good to me. Sounds good to me. Fantastic. I think I might go for the Lebanese tonight. I think I’ve got a cheeky 2001 Chateau Musar, I think it is got my name on it. It’s a bit early to be talking about that right now, so I may change my mind during the course of the day, but that’s what I’m planning.

Brandon Munro: Yes. Yes. You’ve got time on your side. If I’m going to get a bit of oxygen into that bottle, I’ve got to make a decision fairly soon.

Matthew Gordon: Well, I’ll let you go and do that. Brandon, thanks so much. We’ll speak to you next week.

Brandon Munro: Yes, great. Thanks, Matt.

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Bannerman Resources (ASX: BMN) – Can This Uranium Junior Get Financed?

The Bannerman Resources company logo
Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (18.05.2020)
  • Market Cap: A$39M

Crux Investor recently carried out a hard-hitting interview with Brandon Munro. He is the CEO of uranium developer, Bannerman Resources (ASX: BMN).

Throughout this uranium bear market, Munro has been an excellent source of uranium knowledge. However, it’s important to remember that he himself is CEO of a uranium junior, Bannerman Resources.

In this interview, we discuss Bannerman Resources. The company has an excellent flagship uranium project, Etango, in a prospective mining jurisdiction, Namibia, but the CAPEX is enormous. If Bannerman Resources can get financed, investors could be on to a uranium winner. Can it? Let’s unpack this…

We Discuss:

  1. Company Overview
  2. The Uranium Market: Supply & Demand Fundamentals
  3. Etango Project: What Have They Got?
  4. $800M to be Raised by a $40M Company: How? What is Plan B?
  5. Update on the DFS: Why it Won’t be Completed
  6. Geo-politic Tensions: Penalties for Partnering with Chinese Funds?
  7. Namibia as Jurisdiction and Potential of M&A
  8. Securing Partner Interest: Grades, Uranium & Share Price, and Contracts
  9. Cameco and Kazatomprom Leave Little Chance for Juniors: Opinions and Insight
  10. Team Experience and Track Record: Are They Prepared?
  11. Future Possibilities and Reasons for Optimism
  12. Timings for Progression and Means of Getting There
  13. Management as Shareholders: Still Buying?

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

Company Page: https://www.bannermanresources.com.au/

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 Bannerman Resources company logo

Brandon Munro – Uranium Expert Gives His Take On Kazatomprom’s Strategy In 2020

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (14.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

Brandon Munro will be a familiar face to YouTube.com/CruxInvestor viewers by now. His insights have been absolutely crucial in allowing us to better understand the uranium space. The clarity of his explanations have also allowed uranium generalists to feel much more comfortable with what can often be misconstrued as an investment minefield.

In this latest weekly update, Munro talks us through the strategies of uranium majors and how this will affect junior uranium companies getting into production. Our specific focus is on Kazakh-giant, Kazatomprom, the world’s largest uranium producer by far.

What hand will they play in this gigantic radioactive game of poker? We think they’ve got an ace up their sleeve…

We Discuss:

  1. Quiet Time for Uranium: An Overview of the Space
  2. Kazatomprom Won’t be Making Up Tonnage After COVID-19: Impact and Reasoning
  3. Partner Relations and Interaction
  4. Sovereign Wealth Fund: Assessing the Shareholder Relationship
  5. Benefits of Force Majeure: The Extraordinary Event Clause in Contracts
  6. Delivery Commitments and How They Will be Enforced
  7. Disruption to All Stages of Production: How Will This Affect the Market, Companies and Will it Leave a Lasting Imprint?
  8. Levers of Power: Possibility of Manipulating Uranium Spot Price
  9. Carry Trade to be Obsolete: Reinvention of Traders
  10. COVID-19’s Impact on Nuclear Energy Demand
  11. Timing on Change: What’s Next to Look Forward to?
  12. Announcement: Australian IMM Uranium Conference

CLICK HERE to watch the full interview.

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Brandon Munro – Kazatomprom’s Strategies for 2020 (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (14.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

Munro is back. What pearls of wisdom does he have to share for uranium investors this time around?

It’s been a week of calm, contemplation and reflection in the uranium space. Uranium investors have been able to take a breath after an extremely eventful period. Munro states he has a range of supply curtailments, with Kazatomprom announcing there will be at least at 10% disruption to 2020 uranium production, which is already operating at a significant deficit. As part of his work for Bannerman Resources, Munro has seen a slight relaxation in lockdown policies in Namibia. He is just starting to see the mines get back “into a semblance of normal production.” He believes Namibian uranium mines will struggle to hit their optimal numbers for several months, and this punches another big hole in the supply side of things given that Namibia is the fourth-largest uranium producer in the world. Cameco’s Cigar Lake is still down indefinitely.

One thing that has happened this week is Kazatomprom making a few statements. Let’s dive into them.

‘Kazatomprom will NOT attempt to make up the tonnage from COVID-19 production cuts once they return to full operation.’

This cements the uranium production volume decreasing by up to 4,000 tU. This is meaningful because is turns Kazatomprom’s supply deficit from a worry to a definitive concern for utility companies. These pounds aren’t coming back into the market. Sorry, uranium bears.

‘The production impact will affect each partner in different ways, which will vary over time.’

Kazatomprom’s disrupted production has created uncertainty in three dimensions: absolute volume, the impact of time on volume, and the impact on each partner and the relationship this has with their commitments. The immediate example that springs to mind is Cameco VS Orano VS Uranium One. If this supply disruption stretches out longer than 3 months many companies will come under immense pressure.

‘The disruption is a force majeure event under their sub-soil use contracts (ie Mining Licence).’

This takes away Kazatomprom’s ‘pinch point’ when it comes to reducing its production levels below the 20% corridor detailed in its mining licence. Kazatomprom has a big strategic advantage over uranium producers who rely on Kazakh JVs rather than a portfolio of assets e.g. Inkai – Kazakhstan (40% Cameco: 60% Kazatomprom).

‘KAP will honour its deliver commitments and will not use this as a force majeure event.’

This will support stability and will avoid utility companies getting caught short in the next 12 months. However, long-term it will allow pounds to continue to be depleted out of uranium inventories.

‘KAP holds sufficient inventory to meet “lost tonnage in the short term” but will, if necessary, purchase material in the market to meet deliveries.’

This is the leveraged impacts of further delays, and things are going to get interesting if the delay stretches beyond the current expectation of three months.

‘Production might be disrupted into 2021 as “ramping up the mines will be a well-planned process over several months.”‘

Connect the dots, uranium bulls. The picture should be becoming very clear now.

‘Exploration and development work will be delayed for some time.’

Kazatomprom has been underinvesting in exploration for a while now. This just further paints the picture of uranium supply falling even lower.

‘The carry trade is looking “increasingly obsolete.”‘

Cameco endorsed this comment earlier last week. It’s an arrow to the heart of utility companies and their purchasing habits. Producers aren’t accepting this any longer.

What did you make of Brandon Munro? Comment below: we will respond.

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

We Discuss:

  1. Quiet Time for Uranium: An Overview of the Space
  2. Kazatomprom Won’t be Making Up Tonnage After COVID-19: Impact and Reasoning
  3. Partner Relations and Interaction
  4. Sovereign Wealth Fund: Assessing the Shareholder Relationship
  5. Benefits of Force Majeure: The Extraordinary Event Clause in Contracts
  6. Delivery Commitments and How They Will be Enforced
  7. Disruption to All Stages of Production: How Will This Affect the Market, Companies and Will it Leave a Lasting Imprint?
  8. Levers of Power: Possibility of Manipulating Uranium Spot Price
  9. Carry Trade to be Absolete: Reinvention of Traders
  10. COVID-19’s Impact on Nuclear Energy Demand
  11. Timing on Change: What’s Next to Look Forward to?
  12. Announcement: Australian IMM Uranium Conference

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon, how are you doing, Sir?

Brandon Munro: I’m well. How are you, Matt?

Matthew Gordon: Very good. Been a long, long week, or it feels like a long week. Now, usually we have had a really good run of it for the past six weeks and this week has been quite boring by comparison. It’s still good but a bit boring by comparison.

Brandon Munro: I think we needed a breather, didn’t we? We needed to consolidate and think about all of these things that have happened in the Uranium sector, and this was the week to do it.

Matthew Gordon: Time to think and reflect and think about our attitude to the Uranium space. Well, the one thing that did happen this week; Kazatomprom made a few statements, and I want to talk to you about those. There’s some points they made which I think are quite important. What’s your overall view, first of all?

Brandon Munro: Where we’re at in the Uranium sector?

Matthew Gordon: Yes.

Brandon Munro: So, I think it’s still very positive. We have got a number of supply curtailments. So for any of the viewers joining us for the first time, we have had a range of supply curtailments, and even Kazatomprom acknowledged in their report that came out this week, that that’s going to be at least a 10% disruption to 2020 Uranium production, which according to my numbers is already working off quite a substantial deficit.

And we haven’t seen any of those curtailments really start to emerge in any substantive way. In Namibia we have seen a relaxation of a number of the different lockdown requirements, but we’re only just starting to see the mines get back into a semblance of normal production. So that’s right at the beginning of getting back into it, and I still believe that they’re going to struggle to hit their production targets for the next couple of months at least. So, there’s a fair hole in production that’s been punched into Namibia – the fourth largest Uranium producer in the world.

Cigar Lake is still down. And as we know, that’s going to be down for quite some time. And there’s been a number of outbreaks in nearby communities, one of which was even acknowledged on the Cameco earnings call last week. And so that’s really given a lot of reason for contemplation and created a pause in the thinking of many people who thought that perhaps Cigar Lake was going to come back on sooner rather than later. And there’s associated publicity around those very tragic outbreaks in those remote communities that neither have the infrastructure capacity to deal particularly well with this type of a crisis, and also have a large component of indigenous residents who are expected to be particularly susceptible to a virus like this. That has created a lot of publicity, which we’ll just again, give Cameco further reason to make sure that they put the health of their workers, their families and their communities first before any desire to bring that mine back on in a hurry. And then of course, in Kazakhstan, we have still got the production disruption wearing on, and speaking to colleagues in Kazakhstan during the week, everyone’s still working from home. So, as we stand at the moment, there’s no sign of that coming to an end.

Matthew Gordon: Well, let’s talk about Kazatomprom, because there’s some statements which were, I think you said, so carefully crafted; every word is important. And I’ve got 9 here for you to go through, and I think it’s worth doing that.

So, they said, ‘We will not make up the tonnage after COVID-19.’ What are the implications of that and why would they not do that?

Brandon Munro: Yes. So, for the listeners, these comments have come from an interview that Mr Pirmatov, the CEO of Kazatomprom, gave to UXC. And what’s great for everyone out there is that Kazatomprom have put it on their website. So, it’s in the public domain. It’s not just UXC subscribers who’ve got access to this information, and it is well worth a read, 2 or 3 times, because I think it does make a few very important statements. So yes, they have confirmed in the interview and they reiterated this point in their results that came out a couple of days ago that they will not seek to make up the lost production, and in their results, they also said that 2021 production will remain at 20% below their targeted production, which is the production that they commit to under their sub-sell or use contracts, which is the Kazakh equivalent of a mining license. So it’s important for two reasons: one is there was some thoughts amongst either hopeful people on the buy side of Uranium, or the more bearish commentators in this sector that ah, you know, so what, they go down a little bit, they’ll just bring all of that production straight back, and by the end of the year it’ll all be filled in and it’ll be back to normal. Well, they have absolutely made it clear that they won’t be doing that now.

What lies below that decision I find particularly interesting; on the one hand, it’s going to be tough for them at the best of times to get production back in, and they have got 22,000 people that they’re going to need to get back to work and get back to their wellhead development, plus contractors and so on. It’s no mean logistics feat working across a big country, diverse sites. It’s just a difficult thing at the best of times to get, once they’re able to, to get all of these mines back to production. And we’ll probably talk in a moment about it, but there’s a lag associated with in situ recovery mining. It’s not like an open pit mine where as soon as you start putting material through the processing plant, X days later you have got it coming out the other end as product, there’s quite a cycle involved in situ recovery.

But the other thing, apart from just the logistics and the difficulty of doing it is, I don’t think they would want to put those pounds back into the market. They have been committed to a market-centric approach and they have had to beat that drum for a few years because there was a lot of well-founded scepticism, I think you could say, about their market-centric approach as they started to tell the world that that’s what they were all about. Then they listed, then they started making commitments to the London Stock Exchange, which they have by and large kept, and they have stayed out of the spot market again, much to their scepticism of many people here. So, they have shown discipline on the sales side. They have shown a market-centric approach and they haven’t to date been able to reduce their production by any more than the 20% reduction. And that’s just a feature of the sub sole use contract regime in Kazakhstan.

They’re allowed to go within a corridor, either 20% above or 20% below what they say for each of those assets they’re going to produce over the life of mine. The moment they go outside of that corridor, they have effectively got to renegotiate those sub-sole use contracts with the government. And you know, it’s still quite a bureaucratic environment and nobody, even if you are 85% owned by the sovereign wealth fund of the country, you still just don’t want to go down that path. And the impression that I certainly have got over the last year or so, talking to executives at Kazatomprom is that they have gone to the minimum production that they can without going outside that corridor, but they wish they could do more. And now that wish has been granted.

Matthew Gordon: Okay, well, let’s talk about the partners who need the pounds which are produced by Kazatomprom, because this affects their bottom line, affects their ability to deliver against contracts. And then let’s talk about that sovereign wealth fund because they are all in a very difficult place at the moment. So, let’s start with the Camecos and Oranos of this world, please.

Brandon Munro: So, Kazakh production is very important to Cameco, Orano, and in particular Uranium one. It has become more important to Cameco and Orano as they have lost two other flagship assets: first of all, McArthur River, that Cameco put into care and maintenance almost two years ago. And Orano had a minority share in that asset as well and a minority right to production. And now of course with Cigar Lake being put into indeterminate care and maintenance, again, with Orano having a substantial minority share of production, Cameco has lost all of its primary production and what remains is its minority share in the Inkai joint venture, which is a 40% production share.

So as that production starts to deplete, Cameco will lose its last source of primary production, and we heard them talk about that last week on their call. And they have obviously got a strategy for that, which involves acquiring pounds in the market and from other sources.

Orano equally, they’re tapering down their production in Niger. They expect to close, it’s coming out next year and it’s already reduced production. So, they were counting on the pounds that they were getting out of Kazakhstan. And Uranium One is these days, almost entirely responsible to Kazakhstan for obtaining its pounds. So that puts them all in quite an awkward position. And it puts Kazatomprom in an advantage position because they have got a portfolio of assets. Some of them they own outright, most of them, they have joint ventured, including to CGN at Summers Bay. But, even though production will be reduced, they’ll still be getting production from, some level of production from all of those assets for at least the next few months.

So, the question becomes, they have adopted a market centric view, they have demonstrated the first level of that ‘market-centricity’, or whatever the word, is how market-centric do they become? How aggressive do they become with their competitors? Partners? Are they in a position to pull any leavers on their partners? And would they even contemplate doing that? And that’s something that’ll unfold over time. And those effects will very much depend on how long these assets are down for. Will they be down for the 3-months that Kazatomprom estimates? Will they come out of lockdown a little bit earlier and they’ll be able to retrieve some of that lost production? Or will it stay off for longer? And if it’s that scenario where it stays off for longer, I think we’ll really see some quite profound effects on the market.

Matthew Gordon: And the last bit of that question was, you have got the sovereign wealth fund there who has a different set of drivers and outside influences, which means that they probably have, for different reasons, they want to see pounds being produced.

Brandon Munro: Well now, that’s interesting. So yes, you’re absolutely right. They do have different drivers. So there’s still the 85% shareholder in Kazatomprom. Kazatomprom has been declaring extraordinary dividends in terms of total profit distribution. And one can only assume that that is to meet the requirements of its major shareholder. And those requirements, when you look at the impact that the current oil chaos has had on the overall levels of income through Kazakhstan and in particular their sovereign wealth fund, you would expect that that mouth has just become an awful lot hungrier to feed. But does that mean extra production? Now, ordinarily it would, but what’s interesting is if you look at this decision that Kazatomprom has made and you look at what it’s done to the spot price and you realise that their revenue is all according to spot, and you can see it from their results, very much tracks the spot price; their profitability has gone up. They’re going to lose by their own estimates, about 20% of annual production, but yet their margins have probably doubled, perhaps even more as a result of this.

So, this will be an interesting lesson in commercial reality and markets for their major shareholder who might not have been confronted with a situation where they can lose production and yet have their overall levels of profitability go up quite substantially.

Matthew Gordon: That’s interesting. Because, I think for people that don’t know, Kazakhstan is a huge oil and gas country – huge. And it’s very dependent on it, obviously with what’s going on at the moment it has been quite disruptive. And I just wondered if you had any thoughts or insight as to the types of conversations that could be had with a company which is semi-public? Well, partially public I should say.

Brandon Munro: Yes, look, I don’t think I’ve got anything that’s particularly insightful. I don’t know the people at KazNatSamruk. I’ve read a lot about them and there’s been quite a lot of comments about their privatisation plans and so on, but when it comes to how they’re going to react to this, it’ll just be interesting to see and follow.

Matthew Gordon: Okay. Now, they’re obviously using, or talking the language of treating this as a force majeure. What is the benefit of them doing? Does it matter what you label it?

Brandon Munro: So, force majeure, when it comes to their performance under their sub sole use contract, we should clarify that because they also made it very clear that they won’t be calling force majeure on their delivery contracts of Uranium to their customers. So, being a force majeure under the sub sole use contracts is important because any lost production as a result of this event does not count against them in terms of their commitment to deliver the production volumes under that mining contract, +/- 20%, as we have talked about. The secondary implication of that is that it’s a once off opportunity for them to decide or have a degree of control over exactly how many pounds they really wish to produce this year. And the decisions as to when to bring this production back on, as we have seen with Cameco, the decision to turn off, they might’ve had their hand forced by world events, and in particular of events within the country. But the decision to turn on, well, that’s going to turn on a whole bunch of different factors that are ultimately inside the control of the company. So, this is an opportunity for them to consider holding off a bit later than they might otherwise do and allowing the market to tighten further, allowing further inventory levels to fall, and perhaps testing really effectively how much mobile inventory there really is out there.

Matthew Gordon: It’s interesting. And they have also talked about being able to honour their existing contracts, and they’re in a lucky position to be able to do so. Do you think they’re going to be able to do that, and if so, how?

Brandon Munro: Yes, they will. I think they will. And the one piece of information that came out in their results this week is that they forecast, or they provided information on what their delivery commitments are. So, depending on the scheduling and the timing, it looks like that they will draw down their producer inventory by about 3,000t of U308, so, a significant draw on their inventory.

When they first flagged these disruptions, they noted that they had about 8Mlbs of producer inventory, which is a bit more than they really wanted. But they do target, like Cameco six to seven months of production. So, they look like they’re going to draw that down to about where they want it to. And that’s reminiscent, I suppose, of when Cameco initially put McArthur river onto 10-month care and maintenance, when they furloughed their workers and they decided that they’d work off inventories for a period of time, and they stated that they have got the capacity to draw further on those inventories.

Okay. But they talked about having sufficient inventories to meet short-term lost tonnage. But it comes back to that word I think Cameco used, which was ‘indeterminate,’ you know, how long can this go on for?

Brandon Munro: It’s easy to sit back and start looking at a situation in a country and estimate how long the first wave is going to go for. And we have been doing that in Australia for example, looking at Olympic Dam, you know, South Australia has had one new COVID-19 case in 10 days. So, they have been extremely effective. Western Australia hasn’t had a case in a week there. Those two States, which border each other in Western Australia have been very effective at flattening the curve. But it’s for the first phase, Australia can probably hold out by closing its borders and maybe opening them with our cousins in New Zealand, but we could hold out for quite some time by doing that. We are a reasonably sized, reasonably self-sufficient country. The question becomes, can Kazakhstan realistically do that? Which is going to be a lot harder. For a start, you don’t have hard borders in Kazakhstan like we do, as an Island continent in Australia, but also those routes of trade, particularly into China and Russia are extremely important for Kazakhstan.

So what none of these mines want is successive disruptions. They don’t want to reopen their production, and in the case of ISR, start building wellhead development, and then a few weeks later have to retract all of their workers, send them home again, reduce production down because there’s a second wave of infections. And that’s the big unknown in this whole equation, both for Kazatomprom but also for Cameco.

Matthew Gordon: Yes. I mean, yes, I agree with that but I guess what I am puzzled by is, like they’re talking about production being disrupted until 2021 in terms of, obviously what they know today and you know, you have, I think you have talked about implication of maybe you know as much as 20%. It’s hard to call that. It’s hard to sort of interpret what that could mean outside of Kazakhstan isn’t it? I mean, how certain can they be?

Brandon Munro: Well, like you say, I don’t think that can be certain at all. And the comment about 2021 is quite interesting. So on the UXC interview, Mr Pirmatov said that he avoided being specific on answering a question about what will the impact be beyond 2021 production, but what he did do is point out that the way that an in situ recovery mine works is that it’s the wellhead development that I’m doing this week that’s going to produce production in several weeks, to even months’ time from today, because you have got to first of all build injection wells and you have got to build extraction wells then you have got to link it all up. Then you have got to acidify the ore body, which takes quite some time depending on the permeability and how much organics are in the ore body, et cetera, et cetera. And only then can you start operating the extraction well in the middle to start sucking this pregnant acid out of the ore body and take it to the production plant.

So two implications: the first one is even though they made the decision a month ago, they’re probably only now starting to feel the production decrease because, as per my example, it was the wellhead development that they were doing a few months ago that’s giving them the production over the last few weeks, and it will be different for different assets. The bigger mines that can have much bigger wellhead configurations and a longer cycle in their wellhead development and planning, they will continue to produce at full production for longer. But equally, the second point that I wanted to make is, the wellhead development that they can do once the disruption stops and once they can get back to work, that will have a long lead time in terms of creating new production. And again, the bigger the asset and the bigger the wellhead configuration, the longer it’s going to take for that to then produce.

So, Kazatomprom will have a schedule as to how long that’s going to take, and presumably they’ll have some planning, and once this production goes past a certain date at least some of those assets will start losing production in 2021 simply because by 31 December 2020,  they won’t be up to full production. And I think what that also leads us to is the realisation that if we see that 3-month period go longer, then that’s going to have a disproportionate effect on both the number of pounds hitting the market, but also the mindset of nuclear fuel buyers around the world because the penny will then drop for them that not only are they losing production in real time, but they’re losing future production as well that is likely at that point to then stretch into 2021. And the timing of that I think will be quite interesting in terms of, presumably, if because Kazatomprom are still down in 4-months’ time, we’re unlikely to see Cigar Lake back at any time soon as well. So those pennies will probably drop pretty hard for some of the fuel buyers if we see ourselves in that scenario.

Matthew Gordon: Okay. And this point really got me, we’re talking about exploration & development being, I think the phrase they used was, you know, work would be delayed for some time. Again, whatever that means. There’s a few things that that touches upon: it touches upon, if there’s no exploration and development, it affects the future; you’re spending money today to find Uranium for tomorrow. Okay. But if you’re disrupting that or just not doing it, you’re also reducing your overhead. Do you think, again, coming back to the sovereign wealth fund, they’re under any pressure from them to reduce spend in this climate because they’re worried about the contributions coming from Kazatomprom?

Brandon Munro: The numbers would certainly suggest that they have been. The capital spend by Kazatomprom has tapered very significantly, like the rest of the industry, I might add over, the last 5 or 6 years. And those numbers are in the public domain. So, what they were spending last year on exploration and development was circa half of what they were a few years ago. The reasons one would only expect are a combination of a falling Uranium price together with the need for dividends from their sovereign wealth fund, major shareholder.

So, how we see that develop because of COVID-19? As I say, on the one hand, you might find that they’re more flushed with money because of higher margins. On the other hand, you might find that the sovereign wealth fund doesn’t fully understand the value of investing forward into exploration and development and says, well, that’s a rather nice windfall. That’ll be rather handy. Thank you. Because I’ve seen my oil revenue dropped by 80%. Okay. I’ll take it.

Matthew Gordon: I’m not surprised. But like Cameco, the language being used here, and I’m just looking through all of these statements, the language is one of a company, and we discussed this, you know, way back when, on the geopolitical front, et cetera, you know, can two companies control the pricing in the market? We talked about that a long, long time ago. Do you think the scenario has been created now by which they are going to try and pull all of the levers that they possibly can to affect the spot price?

Brandon Munro: I don’t know. I tell you what we can say; whether they knew it before or not, they’re suddenly had a bunch of levers thrust into their hands. Whether they’re prepared to use it and how they’re prepared to use it and whether they happen to use similar levers at the same time, I think that’s all up for debate and it’s probably not very useful to speculate on that right now. But the fact is, they do have some very impressive leaders and as you say, both Cameco and Kazatomprom had made it pretty clear in their own way that they’re in a position to turn these assets back on in a manner and in a timing that’s of their choosing. And that came out really clearly from Cameco. And I think with Kazatomprom you always need to read a bit more of the subtext. But that’s what we get out of that confirmation that this is a force majeure event under the sub or sole use contract. They can bring it on whenever, if they can keep this asset turned off for as long as they plausibly can maintain that this is in the best interest of the health of their workers, their families, their communities in the country.

Matthew Gordon: I get that, but it’s also, it just so happens the environment which has been created, it’s also going to be better for their bottom line if the spot price returns, and the one sure way of doing that is to kind of clean out the mobile inventory in the market place. We talked about mobile inventory last week and we’ll put a link to last week’s Cameco discussion below, and this article below. But it’s in both of their interests to engineer a scenario where the price discovery comes back quicker, and with these leavers at their disposal, they are in the best place to do it aren’t they?

Brandon Munro: Yes. And I think we need to be a little bit careful about talking about both of them together. One thing that I know for an absolute fact is they are both extremely careful not to be seen, or even perceived in any way whatsoever the acting together. And I’ve been in the room with the key executives and I’ve seen first-hand that they are extremely careful. So, I would be really confident ruling out any form of collusive behaviour and any form of cooperation or even communication about what might happen.

But if you look at them separately, each and both of these companies have got significant levers. There’s no doubt about that. But I would say that Kazatomprom’s levers are a lot stronger. And I’d say that for two reasons; one is that they have just got more of the market, of course. But the other one is that they can achieve that objective of holding production back, to push the market towards price discovery sooner, and at the same time, have the secondary effect of inflicting additional pain on their competitors who happen to be joint venture partners.

Now again, I want to stress, I don’t think their strategy is around trying to play a hard, competitive game here. I don’t think that would drive their behaviour in any way and I’m not suggesting that. However, that would be a secondary effect of either them having their hand forced into keeping this production off for longer, or then making an active decision to be rather slow to bring this production back. And as far as secondary effects go, well that’s not a bad one to have in your back pocket as a CEO of a dominant producer in a commodity.

Matthew Gordon: Indeed. And there’s one last group who perhaps it won’t be so happy; I think both Cameco and Kazatomprom separately have talked about carry trade and the fact that it may now be obsolete.

Brandon Munro: They have indeed. And the comments in this interview that your listeners can access now directly made about the carry trade reflect some of the discussions that you and I’ve had probably three weeks ago, actually. So for people inside the industry, it didn’t come as a particular surprise, but certainly for investors out there, it was an interesting confirmation of some of the points that you and I discussed. So, Kazatomprom said, in as many words, that the traders won’t have the bread and butter business of the carry trade available for them. As you and I discussed, it was for two reasons: one is that they have found it harder to get access to financiers who will carry the material out, given uncertainties at the moment. But the other one is to be able to carry pounds forward under the carry trade. They need to buy them in the here and now spot market and then finance them for a period of time, store them for a period of time and then deliver them to the utilities, at which point they get their fee.

So, that material just isn’t available. And to have, first of all, the CEO of the world’s largest Uranium producer telling, not only the traders but the traders customers, that they’re going to have a hard time finding material for the carry tray and then have Grant Isaak who’s the CFO of Cameco directly endorse those comments, refer to them and endorse them and confirm them on the call that Cameco had last week – that’s pretty telling. And the way that Mr Pirmatov talked about it is, he was saying that the traders are just simply going to have to reinvent themselves to be able to maintain relevance, and their role has been quite important in an oversupplied market; they have then had to find ways of making a buck off replacing and moving around excess material. And that’s not too hard when you have got an oversupplied market and a couple of producers who represent most of the bottom tier in terms of production costs, who are happy to just be selling, even though the spot price is continuing to fall. Now that we have moved from deficit into what looks to be serious and deep deficit, as a result of COVID-19, they won’t have that role to play, their relevance won’t be the same in the market, and they’ll either have to find much more innovative ways of producing product and producing trades or they’ll need to find another commodity, I suppose.

Matthew Gordon: Now, all of this is happening whilst there’s potentially a deficit in the market, there’s a lot less energy being used. But do we know anything about the numbers there? Is it meaningful? Is it too early to tell?

Brandon Munro: It’s certainly not going to lead to a deficit. We have seen, I think what you’re referring to some of the reports that are starting to put numbers on the demand side, so in other words, what impact has COVID-19 had on short term nuclear power demand? In the scheme of things, it still is nowhere near meaningful. But just to give you an idea, approximate numbers: ETF have said that their quarter production will be down about 15%. ETF is the nuclear utility in France, so they’re a special case; because they produce two thirds of France’s energy, they’re going to have quite a straight line, direct relationship between France’s overall energy demand and what they produce as nuclear power. And so that’s very much a reflection of the destruction of industrial energy demand while France has been in a lockdown.

It’s only one quarter but they have achieved that through rearranging outages and maintenance and so forth, so it may not have directly affected, or the impact on the full year might not be as big. And we are starting to see France come out of the lockdown, so open question as to how -15% is going to change over the remaining quarters of this year and obviously into next year.

But in other markets where nuclear power isn’t so dominant, the effects have been a lot less and that’s because nuclear power is a very natural source of energy during a crisis like this. For a start, all of the power is on site. So unlike, say, coal or natural gas, there is no supply chain that’s at risk. Secondly, the power is paid for because the nuclear fuel was bought and fabricated over the last couple of years. And thirdly, nuclear power plants have a tremendous output per body, per human worker at the plant. And they run like laboratories. They’re basically made for social distancing and they can reduce their workforce quite considerably through absenteeism or people shift changes, et cetera, et cetera, as a result of COVID-19, and still run at full production. So, they are a natural choice to just keep chugging along.

In the US, where they represent about a quarter of US energy output, we have seen them drop a couple of percentage points compared to an industrial demand that’s dropped significantly more.

We have got the first numbers now that we can play with and start to analyse, but I still think it doesn’t go anywhere near being meaningful in terms of a reduction in demand. And the most meaningful part of the sector is China; and they have confirmed that COVID-19 has not affected the construction schedule of any of their 14 reactors that they have got under construction. And neither has it affected the production output of any of their nuclear power plants. And in fact, that was a point that Kazatomprom was quite careful to make in their results this week.

Matthew Gordon: I think it was a great announcement. As you say, I think it’s nuanced, very nuanced compared to Cameco. But the thing has an undercurrent, which I think people may interpret, and maybe they’ll interpret it in different ways, but you know, for me, I think it feels like a good time for them at the moment, health and safety aside, I think it’s a good moment to maybe try and have an influence in the marketplace like Cameco are trying to do. But we shall see what goes on.

They are good people. These are good people. I used to be in the oil & gas business in Kazakhstan when I first went there in 2012, just after the London Olympics actually. I was on a plane full of very happy and jubilant Kazakhs who had won about 12 gold medals in wrestling, and I met some lovely people.

Brandon Munro: There weren’t any fond re-enactments in the aisles of the plane on the way back?

Matthew Gordon: Well, it is funny you should say that; there was, very late on, much alcohol had been drunk and a fracas broke out, and the cabin crew who would normally, I guess, launch themselves at these people, decided to stand back. So yes, that happened. A flight I couldn’t forget, so yes, but try tackling a heavyweight gold wrestling medallist – it wouldn’t work, would it?

Brandon Munro: Oh, the cheering when the plane landed successfully would have been bigger than normal then?

Matthew Gordon: Yes, It was, it was from where I was sitting. Well thanks. Thanks very much. It has been a quiet week, but still, nevertheless important, and moving forward, all the signs are moving forward. So, encouraging.

Brandon Munro: They are, they are. And although we have seen the spot price, take a little bit of a breather this week and hover at the USD$34/lbs mark, give or take 5 cents, that’s a natural thing to happen at this point. And what we haven’t seen is, we haven’t seen it retracting by USD$2 or USD$3, which in itself is a significant sign as to how much strength and momentum is behind this result of this production disruption and what it’s going to do for the spot price over the next couple of months.

Matthew Gordon: Right. Well, we won’t make predictions on price, but you think it’s fairly natural halt at the moment. And what’s it going to take to start seeing that price move again? And what’s your view on timing? Not necessarily the number, but when it starts to move again, because it’s had a big move? It has gone from effectively, USD$24/lbs to USD$34/lbs in a very short space of time, because people were excited about, you know, the Nuclear Fuel Working Group announcement, and I think that was sort of a let-down. Obviously COVID has done its thing, but has the reality of the situation dawned or do you think it’s much more organic than that. What’s the next step? What’s the next thing?

Brandon Munro: Yes, good question. Because there’s two realities that matter here: the first reality is the reality of the situation that we have been able to directly observe in terms of what’s happened with production disruption, and we’re only starting to understand what the reality that situation is because we don’t know how long these massive Uranium mines are going to be off for. So, there’s a small proportion of the reality of this situation is known at the moment and we’ll only know the full extent of it once both of them are turned back on.

But the other situation that’s so important here is people’s perception of how much mobile inventory is out there. And that’s the situational reality that will have the biggest effect on the spot price. And the reason why we have taken a pause here and said it just hasn’t been very much volume.

So, apparently what I’ve read is that there was about a million pounds of spot that Cameco moved through the market before making their earnings call last week. Probably, there hasn’t been much of that at all this week. The total pounds through the market last quarter was about 17Mlbs. That was on the whole quarter. And when you look at the average price, most of that material went through before the spot price started to move. So, we have seen it take off of still relatively small volumes, and we will know the first realities of that second situation, how much inventory is out there, only when we start to see decent volume on the buy side in the spot market.

So, to answer your question, what it’s going to take and when it could take? It’s just a question of when do we see motivated buyers enter the spot market? That’s, I think, when we’ll start to see the spot price shift again and start moving up again.

Matthew Gordon: Yes, I think that’s true. That’s the reality of it all. Well, look, we had better wrap it up there for the week. Oh, I had better put a small plugin for the Australian IMM Uranium conference in June.

Brandon Munro: I know, I saw you. You have got a plug there. Well done to the organisers. I think you’ll be great.

Matthew Gordon:  I don’t know about that, but it seems like a nice event. A few names there that people would recognise.

Brandon Munro: Yes, that’s right. So who’s on your panel? It’s a Treva Klingbiel

from TradeTech. We have got Mike Alkin?

Matthew Gordon: Yes, Mike. I’ll give you a bonus point if you get the third one.

Brandon Munro: So they have probably got a Uranium participant? It’s Australian? Could it be John Borshoff?

Matthew Gordon: You know, you know – teasing. Yes.., all three of them have got very different…it’s a great panel.

Brandon Munro: I am sure you will bring the best of those numbers out between Treva and Mike.

Matthew Gordon:  Yes, yes. And then we have got John, we have got John on the other side of the spectrum in terms of the business drivers. But yes, pretty, pretty intimidating panel there – and me. So we shall see how that goes.

Brandon Munro: I can’t imagine for a moment that any of that intimidation is going to be sent in your direction.

Matthew Gordon: Well, I will tell you the intimidating bit – it’s going to be happening between midnight and 2:30 AM in the morning for me, and I’m the last panel on. So, if I can restrict myself from having a glass of wine beforehand, it should be fine. It should be fine. If not, it’ll be at least fun.

Brandon Munro: You might have a little bit more empathy for me taking these late at night, weekly wrap-ups from Perth?

Matthew Gordon: Indeed. Well, I’ll let you go. Thanks very much, and we’ll speak to you next week.

Brandon Munro: Yes, great. Looking forward to it.

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Brandon Munro – The Latest Developments In The Game Of Chess That Is The Uranium Space

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (14.05.2020)
  • Market Cap: A$40M

Crux Investor recently checked in with Brandon Munro, CEO of Bannerman Resources (ASX: BMN), for our weekly uranium update.

Munro is a uranium expert and we have interviewed him throughout this uranium bear cycle; his insights have been incredibly useful for investors.

This week, Munro was keen to talk to us about the latest developments in the uranium space. We discussed the picture for uranium majors, Cameco, and Kazatomprom, and how this could affect uranium juniors trying to get into production.

This is a giant game of chess and not every uranium company will come out on top.

We Discuss:

  1. Cameco’s Conference Call: An Analysis of Terms and Opinions on Port Hope and Cigar Lake
  2. Cameco’s Approach to the Lack of Production for Existing Contracts
  3. A Chess Game: Cameco’s Strategy
  4. “What’s Important is Not the Size of Inventory, but its Mobility”: Impact on Traders
  5. Kazatomprom’s G. Pirmatov’s Opinions on the Market: An Overview
  6. Big Players Producing 40%, Who Supplies the Rest?
  7. Expected Movement in Price in Q4: Juniors in Waiting
  8. On Japanese Utilities and Perfumed Fuel

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

Company Page: https://www.bannermanresources.com.au/

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Energy Fuels (NYSE:UUUU) – Does The NFWG Report Change The Game?

The Energy Fuels company logo
Energy Fuels Inc.
  • NYSE: UUUU
  • Shares Outstanding: 118M
  • Share price US$1.50 (01.05.2020)
  • Market Cap: US$176M

Interview with Mark Chalmers, President & CEO of Energy Fuels (NYSE:UUUU).

Energy Fuels is America’s premier uranium producer, and Mark Chalmers was one of two CEOs who originally petitioned the U.S. government under section 232. That petition has led to this moment: the DoE’s NFWG report that carries recommendations for the U.S. government to restore America’s competitive nuclear energy advantage.

Chalmers is very pleased. Some investors have been disappointed by the lack of detail and specifics, but Chalmers is happy with the report considering it is merely a policy document with more to come.

Will the report help the American uranium space. Will it help uranium producer, Energy Fuels. Chalmers certainly thinks so. Uranium could be in for 2H/20.

We Discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Shareholder & Investor Concerns: Near-Term Impact
  3. Ur-Energy and Energy Fuels: Direct Beneficiaries or One of Many?
  4. $60 Uranium: The Process of Getting There
  5. Nuclear and Renewables on a Level Playing Field: Who Gets the Subsidies?
  6. Utilities: Time to Stop Being Used to Cheap
  7. The Future for Energy Fuels

If the uranium space is your kind of thing, why not read one of our recent uranium articles, or watch one of our latest uranium interviews?

Company Website: https://www.energyfuels.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 Energy Fuels company logo

Brandon Munro – Uranium: A Game of Chess, with Missing Pieces (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (14.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

Brandon Munro’s knowledge of the uranium space has been insightful in the last few weeks. He’s back this time to talk with us about the latest news in the uranium space. With the spot price knocking on the door of US$35/lbs, the psychological barrier for the price of uranium is being exposed.

What was Cameco’s President and CEO, Tim Gitzels’, reaction to the NFWG report? He was positive and struck a similar tone to most other American uranium CEOs. He thinks it is an honest look at how the US industry has fallen away. He’s happy to see the DoE’s demand for pounds sequestered, but he doesn’t want to see any form of preferential market availability afforded to players sitting ahead of McArthur River. During the Cameco conference call, there was a statement regarding uncommitted pounds of uranium. Specifically, COVID-19 has had a much greater impact on uranium companies who have been selling pounds now and expecting to pull them out of a mine several months from now. There could be uranium players likely to get caught short.

As for the Port Hope Canadian uranium conversion facility, it was stated during the call that Cameco took it offline for the right reasons, but they will bring it back up and running for different reasons. The implication appears to be Cameco took the facility down when it suited them, but they have accelerated some of their summer maintenance into this period, and there has been ‘no impact’ on this side of their business. The planned downtime has simply been brought forward. They appear confident that Port Hope will go back online shortly rather than into prolonged care and maintenance. This is exactly the opposite tone to the one they are striking for Cigar Lake. The discussion around Cigar Lake encompassed broader ESG decision-making issues, in addition to protecting employees, families, and the wider community. Cameco will only turn Cigar Lake back on when the company is confident it can run it safely and sustainably. Cameco’s balance sheet will be crucial to mitigating losses, which they think they can comfortably achieve. Cameco is clearly playing a 2 to 3-year game of chess, where they want to see destocking in the uranium industry no matter what.

Munro then touches on how the mobility of a company’s uranium inventory is more relevant than the size of it. This gives companies greater control over their business strategy: the mobility of inventory is inversely proportional to the uranium price.

What about Kazatomprom CEO, G. Pirmatov’s latest statement? In situ recovering mines, when you slow them down you continue pumping it them of the ISR project. Initially, companies can stop new development at these mines and continue to achieve recoveries. However, Kazatomprom is currently unable to carry out wellhead development. The better quality assets in Kazakhstan, that have a larger well configuration, have a longer runway they can survive at before they run out of product. This drilling inability affects their partners in very different ways: there is a ranking of impacts.

With big players supplying 40% of the world’s uranium, who is supplying the other 60%? Vertically integrated players? A large proportion is, such as Orano: vertically integrated with EDF. Munro looks at the ‘top 10,’ but outside of that, it looks a bit of a free for all.

When will there be uranium price discovery? Junior miners can only get financed with long-term contracts in place, though spot price is an excellent indicator for equity investors. The utility companies are not immune from their own COVID-19-induced issues. There is no appetite for long-term contract discussion yet: the utility companies are busy dealing with their own issues.

Munro then touches on Japanese utilities and perfumed fuel: a useful source of supply for Cameco after the shutdown of McArthur River? They’ve not been forthcoming.

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors.

We Discuss:

  1. 2:24 – Cameco’s Conference Call: An Analysis of Terms and Opinions on Port Hope (7:32) and Cigar Lake (9:32)
  2. 11:23 – Cameco’s Approach to the Lack of Production for Existing Contracts
  3. 12:55 – A Chess Game: Cameco’s Strategy
  4. 15:36 – “What’s Important is Not the Size of Inventory, but its Mobility”: Impact on Traders
  5. 20:42 – Kazatomprom’s G. Pirmatov’s Opinions on the Market: An Overview
  6. 23:16 – Big Players Producing 40%, Who Supplies the Rest?
  7. 25:11 – Expected Movement in Price in Q4: Juniors in Waiting
  8. 27:58 – On Japanese Utilities and Perfumed Fuel

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro, how are you, Sir?

Brandon Munro: I’m well, thanks Matt. How are you?

Matthew Gordon: Pretty good. Pretty good. Friday night. What a week? What a week?

Brandon Munro: Yes, it was another pretty interesting week. Yes. Action packed, you might say – seeing the spot price go through USD$34. So really knocking on the door now of USD$35, and now that’s less than a couple of weeks from when it pierced USD$30. So, we’ve very much seen the psychological barrier at play for a whole range of reasons, of course, to do with COVID-19 disruption. But you know, some big statements coming out of the two main players in the sector as well this week.

Matthew Gordon: That’s right. We had Cameco, we are actually just hot off the call with Cameco with Tim and Grant.  The other one is obviously Kazatomprom with Mr, Primatov as well, which we will talk about. So why don’t we dive into what we heard on the Cameco call because I thought there were a few interesting things. There’s the one which everyone wanted to hear about: what was their view on the US government’s Department of Energy announcement with the nuclear fuel working group this week, and it’s quite tame really. They just liked the tone.

Brandon Munro: They liked the tone, liked the way that that it’s talking about the bigger picture. It is lacking in details as, as we probably agree. And I think, as Tim Gitzel said, it’s an honest look at where the US has fallen away. So, nothing that we don’t really know. I think Cameco have always been quite well hedged in this whole affair; they’ve got US assets, they’ve got assets that could come back into production quite soon. And he did make the point that they are probably about a billion dollars down in terms of total investment into the US, so he seemed very comfortable about where it all has ended up and there was certainly the recognition on his part that he is happy to see the pound sequestered. He didn’t want to see any form of preferential market availability to those players sitting ahead of McArthur River, is what I got out of that.

Matthew Gordon: No, I thought the point you just made, I think it was the thing that stood out for me the most, actually. The other was a phrase that was used shortly afterwards, which was talking about uncommitted production. It struck me that there might be a, if not a couple of nervous individuals out there when that phrase was used. What’s your take?

Brandon Munro: Yes, my ears pricked up with that phrase as well. So, for anyone who wasn’t on the call, they were talking about how the spot market works and the fact that, as we probably well know by now, it’s not really an instant delivery spot market. And in fact, trades can go through the spot market where they are sold for forward delivery as far out as 12-months. So, the comment was made about a disproportionate effect of these COVID-19 disruptions on those players in the spot market who have been selling uncommitted pounds. So, in other words, selling the pounds now and expecting to pull them out of a mine in two, three, maybe six months, maybe even nine months. So, I did sort of wonder if that’s maybe a little bit of a hint to everyone out there that it could be players who are likely to get caught short.

And bearing in mind that, particularly if we see the Kazakh disruption where on for a bit longer, because there’s a whole range of partners who are participating with Kazatomprom in that Kazakh production. It’s very cheap production as we know. It represents almost the entire bottom quartile of the cost curve, and it is players who obtained that sort of production who are in a position to be effectively selling forward into the spot market for delivery in three, six, nine months. So, that’s a very interesting dynamic that I think we will need to watch. And it’s another example of one of the virtuous cycles, upward cycles that we could see, particularly if Kazakh production stays off any longer than the three months that they have highlighted so far.

Matthew Gordon: I think that it is never a good practice in any vertical, not just Uranium, anywhere, to claim revenue forward; you’re going to get into difficulty in times of uncertainty. And, I mean this is only the second call I’ve listened to of Cameco, but I’m building a picture of a very conservative forward planning operation here; that’s certainly the language you heard with Grant when he was talking specifically around some of the numbers. So, I guess that’s comforting. And in times like this when they are planned, not necessarily for COVID-19, but a major disruption and you’ve got access to USD$2.2Bn, you can feel a little bit more comfortable.

Brandon Munro: Well, that’s true. And I would describe the tone as very confident but also very poised. They really didn’t come across as being rattled at all as a result of having both of their tier-one assets controlling joint venture in Canada but also a minority joint venture in Kazakhstan. They are both going down. And the would message that they were keen that everyone got was, hey, we’ve been planning for this since 2016 we’ve got this one and we can’t wait.

Matthew Gordon: I would agree with you on that one. If anything, I think they are almost enjoying it in a way, because if I remember, let’s talk about Port Hope; when people talked about Port Hope, a phrase they used was that they took it down under their own terms and they will put it back up under their own terms, which basically means that they’ve shut it down for the right reasons, but they will bring it back up for different reasons, but different reasons which they control.

Brandon Munro: Yes. And look, Port Hope, for everybody, that’s the conversion facility that they have in Canada. And what I got out of that is a very different tone when talking about Port Hope, the implication was, and this came out in the original press release as well, the implication was; we want to take this down when it suits us. These big industrial facilities, you don’t want to be told by the authorities that you’ve got three days to take this down. But it talked about the fact that they’ve accelerated some of their summer maintenance into this period and Grant Isaac confirmed, as much as he’s not giving guidance, he still confirmed that effectively there’s no impact on that fuel part of their business. So, clearly, they are thinking that Port Hope will come back up at the end of the four weeks and they are not expecting that to go into prolonged care and maintenance. So, a very confident tone about that, which was quite a different, and in a real contrast to the way that clearly they are thinking about Cigar Lake.

Matthew Gordon: I mean, ‘no impact’ – that’s a heck of a statement to the market. I mean, that’s the point of these calls – to make shareholders feel comfortable, but you’ve also got to deliver on those things. So, and part of the reason for that, I think, again, for people that weren’t on the calls, because there was planned downtime in the summer, and they are just saying, well we have effectively just brought that forward. So that, that I think makes sense to me. And I hope, you know, let’s see if they can deliver that.

Let’s talk about Cigar Lake, because again, the language around that one was equally confident.

Brandon Munro: Yes. So, lots of references, not only to the broader ESG decision-making around Cigar Lake, but protection of employees, families, community. That came through probably three times on the call, and they will only turn Cigar Lake back on when they are confident that they can continue to operate in that way. And a lot of backfilling in terms of; we’ve got the strategy that can cope with this staying off for a prolonged period of time. So, I didn’t see any messaging or any signposting of Cigar Lake coming on according to any particular timetable. They basically said, look, this will last as long as it lasts, but we are well prepared. We’ve got the balance sheet as you say, to ride it, and they pointed out that they’ve got some very effective mitigations for a scenario where they have to be paying over the odds in the spot price to fuel deliveries. And so, that’s what I got out of Cigar Lake. And also, an interesting, almost a throwaway comment towards the end; they highlighted a community from which they do draw employees and contractors apparently that in the last couple of days has just had a spike of 50 COVID-19 cases. So that isn’t going to all go well for Cigar Lake coming on in the near term, I wouldn’t have thought. That is exactly the sort of scenario that they are very worried about. And whilst there’s absolutely no implication that there was any connection between Cameco’s activities and that outbreak, that is nonetheless the type of thing that they are very concerned about.

Matthew Gordon: And what about the impact of lack of production with regards to delivering on the contracts, the existing contracts that they have?

Brandon Munro: Yes, it was an interesting one because there’s been a lot of speculation amongst analysts and even retail investors that they will seek to push their delivery profile around. They might call for force majeure, et cetera. What came through really clearly was that the only possible risk to deliveries might be on the timing. And then in question time, Grant Isaac came back and specified that it won’t be Cameco asking for delivery times to be moved around. Maybe some of their customers will, but it seems that they are getting a very strong sense from their customers that they need these pounds and they want these pounds, and Cameco is ready to deliver on those according to the original timeframes – so, no indication whatsoever that they will be wriggling out.

They talked a little bit about some of the mitigation measures that they might have if they really get backed into a corner on spot price, the capacity to borrow off customers who’ve got storage with them; that’s probably the most significant of that. But also talking about their own inventory, which suggested to me that perhaps they are thinking, well, let’s just leave that inventory as the final mitigation in case we really see a rocketing spot price and we don’t want to chase it through, you know, X plus Y. That’s when the inventory will come into play.

Matthew Gordon: Alright, so a bit of strategy here. Well, I thought it was a bit of strategy here. So, Grant again was talking about, it was their decision, I think that this control component came through a lot throughout the language of the whole call. But it was their decision to shut down at MacArthur Lake. It was their decision to shut down Cigar Lake and draw from inventory in the marketplace. It’s almost like they wanted to suck out these floating inventories from the market to help the market to drive the price. This was their contribution towards driving price, because as you say there’s a lot of sort of unknown, unwanted and inventory out there. There’s, you know, off book and on book buying. It is been a very hard space to judge, but this seemed like a deliberate decision by them to get back in control with regards to the price at which they could sell their own production, but they needed to kind of clear the table first. What was your take on that?

Brandon Munro: Yes, I agree with you. And there was two, maybe even three points where they had talked through their mitigation measures and they finished the statement with, ‘but that will lead to further destocking’. So, clearly their strategy is they don’t really mind how it happens, but they are playing a, let’s call it a one or maybe a 2 or 3-year game here where they want to see destocking out of this industry, no matter how it happens or where it comes from.

Matthew Gordon: Yes. So I am, because again, we are getting all sorts of people watching the show now that, you know, perhaps people who have not been in the Uranium space for the last 2, 3, 4-years, the price at which the spot price at the moment is, well, hitting the heights of USD$34/lbs, it was at USD$23/lbs 2-months ago, but if you are a producer with your pounds in the ground, you want to sell them for the most amount possible. If you can go into the market, buy at somewhere between USD$23/lbs and USD$34/lbs and sell against contracts, which you may have at much higher prices because the contracts were agreed, you know, a while ago, you know, whether it be five, six, seven years ago or longer, as we’ve heard for some companies. And you’re going to choose to do that rather than eat into what is valuable inventory of your own. So that’s the kind of thinking, I think, that Cameco are going through there. And a couple of other phrases which sort of, we talked about this last week, and I can see it is relevant to what we’ve just talked about, which is, so it’s not about the size of your inventory, but the mobility. What did he mean by that?

Brandon Munro: This sector has always operated off relatively large amounts of inventory compared to other energy sources and certainly compared to industrial metals for example; and that’s just a feature. That’s just what it is. So, the point that was being made is that there is volumes of inventory, and that’s just how it’s been for decades. The relevant question is not really how much inventory is there and how does that compare to 10-years ago or 20 -ears ago? The relevant question is how mobile is that inventory? What is the capacity of people to use their discretion to sell that inventory into, for example, the spot market, simply because they want to liquidate it, or they like the price that they are getting, or they are turning a trade, for example. So that’s the concept of mobility.

And what we discussed at length, I think it was on last week’s show, is a comment that Grant Isaac made, which is, ‘The mobility of inventory is inversely proportionate to price’. In other words, as price goes up, there is less material around because in this sector, people sell, generally speaking, most of the inventory that’s sold, is sold, not really to make immediate returns or because it’s traders are operating on principal positions and that sort of thing, in the past it’s been sold because the people who are holding that inventory don’t really feel that they need it right at that moment and they can buy it back in the future. So, the moment you’ve got a rising market, they rethink the idea of letting that out into the market because they think, well, gee, I might have to buy it back at USD$10/lbs more, not too far from now.

So that was the concept, and it came through in the context of him confirming that they’ve seen sellers retreating in the last few weeks. And there, I think Tim Gitzel said that Grant had been neck-deep in the spot market; so, clearly they’ve been quite active and that that had been the case. Whereas last year in 2019, in as many words, they said, well, look, you know, we were almost the only demand in the spot market in 2019 and most of the material coming out of the US wasn’t inventory, mobile inventory, but rather, these producers who were selling them committed production.

Matthew Gordon: A couple of points there: what do you think is going to happen to traders? How are they going to be affected in this environment?

Brandon Munro: So, we are already seeing that they are being negatively affected by two things, and for viewers, the main bread and butter that traders have been doing over the last several years has been the carry trade. And that’s been a function of there being too much material; it’s been an oversupplied market, and they’ve played a, you know, what’s been quite an effective role in this market to take loose pounds off the spot market, finance them sell them forward for delivery in say three years’ time where the utility locks in a price now, which is calculated as whatever the trader can pick up those pounds for today in the spot market, plus their cost of financing, plus their cost of storage, plus whatever margin they feel that they need to make it worthwhile. So, that’s been good money for the traders, and as long as they’ve got strong counter parties and they’ve got customers who are good for it in three years’ time, they are not wearing any real risk there and they are just gluing pieces together and making a nice little margin on the term.

Now, what’s happened very recently is first of all, they’ve lost a lot of access to those financing facilities so it’s much harder to finance competitively those carry trades. And that’s been a function of the sort of pandemic-induced financial crisis at a broader level. But also, what’s happened is that the material just isn’t available in the spot market so they can’t go to a utility and say, ‘Hey, do you want 300,000lbs in 2-years’ time?’ Because they can’t get 300,000lbs this week without seriously moving the market. So that’s where the traders are losing out.

You referred to the interview that was given by Mr. Pirmatov from Kazatomprom, and he made some very interesting comments in that, in that traders are going to have to reinvent themselves. They no longer have this little gravy train of the carry trade as the market tightens up. And those comments were directly endorsed by Cameco on this call so they are obviously thinking in the same way.

Matthew Gordon: Well, let’s get on to Mr. Pirmatov, okay. So he, in part, talked about the way that different mines were impacted in different ways, which therefore would, in fact, impact different partners in different ways because it’s the, you know, they do partner up, Cameco being one of them, so it’s a question of what that relationship is and what percentage of that JV, how it is proportioned. What’s your take on that call, quite frankly, because he, again, seemed quite conservative and considered in his approach to this too?

Brandon Munro: I’m not sure where he was going in terms of if there was any agenda in the way that he was answering that question, I think it was just a well-posed question that he was putting out there. And so, Mr. Pirmatov explained that in-situ recovery mines, when you slow them down, basically what you do is you continue pumping the pregnant acid back out of the ISR project, and, so initially you can stop new development at these mines and continue to get your recoveries. But what they can’t do in Kazakhstan at the moment is that they can’t do what’s called wellhead development. And with these mines, you need to constantly be putting in your injection wells and building up your extraction wells so that once you’ve finished this little pen, you can move to that one, then you can move to that one, then you can move to that one. That’s what they can’t do. And he was making the point that the better quality assets there, that are bigger, that have got their well configuration much larger, they’ve got a longer runway that they can survive at before they run out of permeability and they run out of extraction, and therefore, they run out of product. But to your point, he made the point that it does affect their partners in very distinct and different ways. And the fact that everyone’s down, there will be a ranking of impacts. But again, if those mines in Kazakhstan, if the wellhead development is suspended beyond the initial three months, it will start levelling everybody out, because even those who’ve got access to the best quality joint ventures will lose their production and a large proportion of their production as well.

Matthew Gordon: Okay. You’ve got 2 of the largest producers in the world also saying we are going to be able to deliver against our 2020 contracts. No one is going to miss out, and they are what, 40% of the market?

Brandon Munro: Yes, between them.

Matthew Gordon: Okay. So, what happens to the other 60%? I mean, who are the kind of main players there? You talked previously about vertically integrated players. How does that 60% breakdown?

Brandon Munro: Yes, so a large proportion is vertically integrated, because you’ve got Orano, and all of these groups, they do their own market activities and they’ve got trading divisions and nuclear fuel divisions and so forth. But essentially, Orano is vertically integrated with EDF. Essentially, CGN is vertically integrated, although they are quite active traders. You’ve got Uranium One and AtomRedMetZoloto, which is vertically integrated with Rosatom. Again, they do have trading activities and sales activities. So, and, of course, CNNC, who own the Rossing Uranium mine in Namibia are vertically integrated. So, a significant proportion of that balance is in that category. And then you’ve got BHP from Olympic Dam, and that’s a by-product, there are some other by-product productions around the world. And then I think you’re pretty much out of the top 10 in terms of producing mines around the world.

Matthew Gordon: Yes. So, it is interesting times in terms of supply, but those groups are saying we will continue supplying 2020 utilities, you know, that they work with will be supplied – no issues there. Are we still betting on Q4/20 this year before there’s a meaningful move in price or activity to allow junior Uranium miners to contemplate being financed or attracting finance?

Brandon Munro: I think so. And that came through from both the call and the interview during the week. The first principle is: junior miners can only get financed off long-term contracts. The spot price is fantastic for equity investors and you know, and for most of our audience, that’s probably what they are most interested in, but it’s term contracts that get projects financed. And on a couple of occasions during the Cameco call, they emphasised what we talked about over the last couple of weeks, which is that the utilities, they are not immune from their own challenges to do with COVID-19, and Cameco hasn’t sensed any real appetite amongst the utilities to obtain new term contracts at the moment. They need to resolve some of their own issues and steady their own ships before they start doing that. There was some commentary in some of the market commentators, the information services during the week that backed all of that up. It’s their own observations. It’s your conversations with traders and others. So, we know that the utilities are not in a rush to contract because they’ve got bigger fish to fry right now, and that suits Cameco as well; they are quite happy to allow this market to tense up a little bit more before they need to start committing themselves on a contract basis. So that all augurs quite well, I think, for Q4, and what we look like we might well see is that when that contracting does materialise, it’s going to be materialising off a much better spot price base than if they had the capacity to deal with it right now. So that’s potentially out there as a real big plus for equities investors in this space.

And the final comment I’d make there is, they did confirm that they haven’t seen any new RFPs, requests for proposals, which is the initial stage in term contract. They haven’t seen any new RFPs in the market since COVID-19 started.

Matthew Gordon: I love that: buy now while you can before the market gets too hot. Good selling, CEO, as you should. That’s your job. Just a couple more questions, actually, because there’s a little bit of a ripple in the market. We are kind of getting feedback about Japanese utilities selling into the market. So I know we spoke in the past about perfumed U308, and over the last five or so years, we are talking about 5Mlbs or so; so it is not a lot. Is that still happening?

Brandon Munro: I’m not aware of it and it didn’t come up on the call today, but in the last few calls Cameco have emphasised it. They’ve probed into Japan. They thought that that would be a potentially quite a useful source of material that they could buy in the market after they closed down McArthur river. And there’ve been at pains to point out that it hasn’t been forthcoming, or at least the utilities aren’t willing to sell to them. But I think it’s probably that it just hasn’t been forthcoming. There was a little bit of a kerfuffle about this towards the end of last year; there was like a survey done where one of the banks phones up the different Japanese utilities and asks them if they are planning on selling anything in the market. And my personal take on it is that they got the intern that day at JPOWER and that person said, ‘yes’. And then that made itself into a Bloomberg article and created this big news event that just wasn’t a thing.

The implication was that they were about to flood the market with all of the material that they don’t need. But you know, the reality is still the same for Japan. If you take the perfumed fuel bundles and put them to one side, because they are a special case and Japan still needs that material, they don’t need it this year and they don’t need it next year, but they will need that material and it doesn’t make any sense to them to sell it now and then buy it back at much higher prices once they’ve got their reactor fleet up and running.

The RB government is committed still to 20% to 22% of Japan’s energy coming from nuclear power, so they don’t want to have contrary messages coming out there that yes, we are really committed. We are absolutely going to make this happen. But in the meantime, we are flogging all of our Uranium at the bottom of the market.

Matthew Gordon: Interesting. It’s been an interesting time for Uranium at the moment, it’s been a delight talking to you every week and learning stuff. We’ve got a Chinese Uranium utility joining us on the show, which I’m excited about. So, we are going to learn about the Chinese Uranium space as well, coming up. So, we are looking forward to that. I’d love to talk to you about that because I know that you know, a thing or two.

Brandon Munro: I like talking as well

Matthew Gordon: And you like talking too, okay, so those 2 things – beautiful. Well, I think what another powerful week? I hope that next week has got some exciting news for the market, and we will see if what the price continues to do, albeit slowly, and maybe how people react to what’s going on this week.

I guess my big takeaway over the last 2-weeks has been the fact that this desperation for the nuclear fuel working group to, an expectation for it to come out with something substantive, has to some degree happened. You know, I think generally, a very positive move. I wonder if there’s going to be any more news this year before the election as to what they are going to do, or indeed, if the stakeholders are going to be invited into a process, or start a process. Time will tell, I guess.

Brandon Munro: Yes, I think it’s the latter. It’s how it has been done so far, and since, since the petition was launched really, and I sensed the implication of that in that some of the comments on today’s call as well; there was a suggestion that once the detail comes out, they will sit down and they will talk to them about it. So, I think that very quickly the Section 232 Nuclear Fuel Working Group, that will happily sit in the sort of, in the back seat until there’s real tangible news that we can work off.

Matthew Gordon: Okay. Brandon, it’s time for you to go to have some red wine. I’m getting mine lined up.

Brandon Munro: It’s getting too late for that. Trying to catch the beginning of a Canadian day when you’re in Perth – that’s hard work.

Matthew Gordon: So what are you going for today? What’s the drink of choice?

Brandon Munro: I think I’ve just got time for a whiskey before I turn in.

Matthew Gordon: Oh, mate, I’m so sorry. I’m so sorry.

Brandon Munro: No, no. Well, you haven’t seen my whiskey collection. You don’t need to be!

Matthew Gordon: True. True. I have drunk whiskey with you, you do choose a good one.

Brandon Munro: Oh yes, that’s right. Yes. So, in fact, I’ve got some of the Lagavulin and the 16 year-old, which I think is what we had that night. So, I think for old time’s sake, I’ll go and find myself to a nip of that.

Matthew Gordon: You enjoy it. I’ll speak to you soon.

Brandon Munro: Yes. Great. Okay. Thanks, Matt.

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

Company Page: https://www.bannermanresources.com.au/

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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A photo of Bannerman Resources CEO, Brandon Munro.

Bannerman Resources (ASX: BMN) – Feeling like we could do right (Transcript)

The Bannerman Resources company logo
Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (06.05.2020)
  • Market Cap: A$43M

We recently had the pleasure of interviewing Brandon Munro. He is the CEO of uranium developer, Bannerman Resources (ASX: BMN).

Munro has been guiding us through the complexities of the rapidly changing uranium market, but today, we talk to him about his uranium company, Bannerman Resources.

Etango, their asset, is in Namibia. A country well versed in uranium mining with two of the world’s largest uranium companies, Rossing and Husab, operating there. Munro talks us through optimisation of the DFS, but also explains why he is in no hurry to complete it. Seems counterintuitive but his rationale is solid. We also address the most common question that detractors throw at the company: the CAPEX is just too big for them to be financed. He gives us his answer to that and also talks about contingency planning.

So can bannerman Resources get financed? And where do they do place themselves in this uranium cycle? They have a very experienced uranium management team which we like. They have enough cash to last a couple of years. It’s a large resource. If you buy into their ability to deliver the plan and raise cash, this is worth investigating. Munro oozes control. Are you a buyer?

We discuss:

  1. Company Overview
  2. The Uranium Market: Supply & Demand Fundamentals
  3. Etango Project: What Have They Got?
  4. $800M to be Raised by a $40M Company: How? What is Plan B?
  5. Update on the DFS: Why it Won’t be Completed
  6. Geo-politic Tensions: Penalties for Partnering with Chinese Funds?
  7. Namibia as Jurisdiction and Potential of M&A
  8. Securing Partner Interest: Grades, Uranium & Share Price, and Contracts
  9. Cameco and Kazatomprom Leave Little Chance for Juniors: Opinions and Insight
  10. Team Experience and Track Record: Are They Prepared?
  11. Future Possibilities and Reasons for Optimism
  12. Timings for Progression and Means of Getting There
  13. Management as Shareholders: Still Buying?

CLICK HERE to watch the full interview.

Matthew Gordon: Hello Brandon, how are you, Sir?

Brandon Munro: I’m well, thanks Matt. How are you?

Matthew Gordon: Not too bad. We haven’t spoken for ages.

Brandon Munro: Just like old friends.

Matthew Gordon: Hey, well, today we are not going to get your view of the world of Uranium. Today we are going to talk about Bannerman – much in demand. We have been asked by everyone. So, let’s do it. So, kick off, please. Give us that one-minute overview of what you have got at Bannerman and then we’ll get stuck into it.

Brandon Munro: So, Bannerman is Uranium focused. We have been in Namibia working on our Etango project since 2006. It is an enormous project. The total resource is 271Mlbs, and within that there’s a mining reserve of 130Mlbs. It is highly advanced, and we completed our DFS back in 2012, optimised it in 2015, again in 2017, and we have also got a three-year pilot plant through running our heap bleach demonstration plant to add to the advanced attributes of the project.

It is great being in Namibia. It is great having such a large project that’s advanced; it is got environmental and social permitting and also the credibility that we have within the nuclear sector and the Uranium sector counts heavily in our favour.

Matthew Gordon: Okay, thanks. Thanks for that. Now today, if you don’t mind, I want to feature on where you guys think you fit in the mix, okay? Because we have put great store by talking to the market and saying junior Uranium companies need to work out where they fit in this cycle and the next, and how they’re actually going to monetise them, what they’ve got for shareholders. Okay. But first, again, because for all types of audiences watching this, which is how it should be, there’s a lot of generalists moving into this space; I think it is worth going over the supply-demand component, albeit briefly because they can watch some of the other interviews we have done with yourself and people like Mike Alkin. So, can you just sort of give us a little overview about what’s happening in the market in terms of supply and demand?

Brandon Munro: Sure. So briefly, in terms of demand, there is steady growing demand within the Uranium sector, driven particularly by nuclear power plant growth in the far East, China, Russia, middle East, and the emerging world. And the absolute big driver of demand over the next two decades is China. So to put some numbers on that, the World Nuclear Association’s demand numbers are about between 2% per annum compound average growth rate, which is their reference case, up to 3.5% per annum compound average growth rate, which is their upper case scenario. And as many of your listeners would know, I’m reasonably familiar with those numbers because I chair the WNA committee that puts those numbers together. The big driver is China. And just to put the scale of their demand influence into some perspective here; by 2040, based on the upper case numbers, which is what I subscribe to when it comes to the China growth story, those upper case numbers point to China’s annual consumption of Uranium being more than all of the Uranium that was mined around the world last year. So, they will become an enormous player in this sector.

And 2040, for people who perhaps don’t follow the Uranium cycle, this cycle moves on a long bandwidth in the sense that reactors, they spend about five years in planning and permitting and about five years being built, and then they run for at the moment up to 80-years. So, when you’ve got a cycle length that long, 2040 is really just around the corner. China needs to be making its decisions in the next few years as to where it will source its Uranium by 2040. And if you subscribed to that number, like I do, that means astonishing implications for this sector, and who’s going to have the producible pounds that China can access by the time we get there.

 So, if we turn to supply, the Uranium sector today is very much a supply story. We have had oversupply since Fukushima in 2011, and that was because most of the world’s producers were happily producing into long-term contracts where the prices had been set during the last boom. So, when we saw a big drop off in demand, particularly in Japan, but also in Germany as a result of Fukushima, that 10% immediate hole in demand for Uranium did not receive a complimentary supply response. Those producers just happily kept producing into those contracts, and the utilities were keen to honour those contracts and they kept accepting deliveries. That produced a significant overhang in the market, which only started to be addressed three years ago. We have spent the last two years in quite a deep sector deficit, which has primarily been caused by the Kazakhs, which are the largest Uranium producers in the world, reducing their production by 20%. And also, because Cameco putting the McArthur River Uranium mine, giant Uranium mine, the largest one in the world into care and maintenance.

So last year we were running, by my modelling, about a 20Mlbs deficit and that’s on a total consumption annually of around 180M lbs. So that’s a big substantial deficit. Enter COVID-19, where we are seeing that deficit, by my numbers, doubling, most likely this year because we have seen various mine disruptions, and there’s been a lot of commentary on that that people can get from the other videos that you’ve done with myself and other Uranium market commentators.

So, you put those two together, you’ve got a very attractive demand profile that is distorted towards Chinese growth. And then you’ve got a supply side that creates what many, including myself, believe is a spectacular investment opportunity in the near term in Uranium.

Matthew Gordon: Fantastic. And we are going to answer, at the end of this interview, some more questions about China, so we’ll come back to that one. What I want to go into now is what have you got today? So, we have talked about your 271Mlbs project. So, let’s get into the asset itself, because where I want to get to, Brandon, is for you to tell me how this thing gets financed and the economics and so forth. But let’s remind people of what you have got first.

Brandon Munro: So, Etango is an open pit Uranium project. It is close to all of the infrastructure, including the mining town of Swakopmund. We are about 20km from China General Nuclear’s Husab Uranium mine, one of the largest in the world. And we are slightly further from the Rossing Uranium mine that CNNC recently purchased from Rio Tinto.

We are close to all of the infrastructure that you would want. We are not relying on third parties to build roads, highways, railways, pipeline ports, et cetera. And we are in Namibia, which has successfully exported Uranium for 45-years and remains the fourth largest Uranium producer in the world.

It is a low-grade bulk tonnage project that not only is very, very large from a resource point of view, but exceptionally large from a production point of view. The average over the mine of life is 7.2Mlbs. And to give you some comparatives, that is enough Uranium to service the requirements of 17 large-scale conventional nuclear reactors.

So, we are an asset that will assist the large-scale deployment of nuclear reactor fleets in a very significant way. Now, that’s very unusual, that scale, and it is really only Nexgen who can compete with that scale, and they’re obviously in a different league in terms of the scale that they are talking about delivering into at some point in the future. But what we do have that is very important for investors to understand, we have the potential for producible pounds into the next cycle. As this cycle heats up over the next three to five years, we have all of the long lead items in the bag already. We have environmental approval. We have the social impact assessment approved in Namibia. We have the infrastructure in place. Obviously, we have got the DFS and a 3-year pilot plant under our belt. All of those factors that traditionally in the Uranium sector take an enormous amount of time and risk are already there for Etango and for Bannerman. And so for an ASX listed company, we think that puts us in a very unique and special place.

Matthew Gordon: Okay. But I think that the problem the market sees with your project, and if I’m looking at your share price, it is going to bounce along at 4 cents for a long time. Since you know, the last 3-years or so, people just don’t get how you as a USD$40M market cap coming is going to get USD$800M of funding and where are you going to get it from?

Brandon Munro: And that’s a fair criticism if you believe that our only option is to go down a conventional financing route. Conventional financing route from where we stand today would look ugly and it would be very unlikely to deliver shareholder returns. And our board, and myself, we are acutely aware of that. And there are alternatives, particularly when you’ve got the scale and the strategic importance that we have. There’s obviously the potential to do joint ventures at an asset level. There’s a potential to obtain soft debt export financing type grants. To give you an idea of why we think those are realistic avenues to go down, that scale, as I mentioned, at full scale: 7.2M lbs per annum, that services 17 nuclear power reactors of one gigabyte scale. The capex to build those reactors is about USD$80Bn, assuming that the Chinese are building them efficiently. So that USD$800M is 1% of that. So, the concept of getting soft debt from one or more utilities, or sovereign debt, to ensure that their investment of USD$80Bn is fuelled over the long-term with money that they would receive back once it is in production; I don’t think that’s unrealistic. And I think those numbers have a relativity that really makes that a coherent path forward.

And of course, the vertical integration option is certainly a well-worn path in Africa for delivering exceptional shareholder returns. As we saw during the last boom with Extract Resources being taken out for USD$2.4Bn, Mantra being taken out for over USD$1Bn, cash, by sovereigns, because they’re in Africa.

Matthew Gordon: Okay. So if I may, sorry to interrupt, but Brandon, I mean, I kind of buy that vertical integration idea, but you’ve got to make it a reality and you’ve got to do it. You talked about soft debt there; I’d love to understand what that means. It is got to happen. And with the company at your scale, you’re going to have to do it in a way that shareholders actually benefit from this thing. And it is not just a deal for whomever comes in. Presumably, I think you’re indicating Chinese there. Have you got alternatives in case those numbers don’t work your way? Are there smaller, earlier-to-start type models that you’ve been looking at?

Brandon Munro: Yes, we do, and we have flagged in our quarterly report that we are looking at smaller scale operations where we can get into production at a smaller scale. Now, often what you see in bulk tonnage mines is they rely very heavily on economies of scale, and at 20Mtpa through the processing plant, Etango is a bulk tonnage operation, you won’t get away from that. Where we are very blessed though, is we have got an unusual ore body: apart from being very homogenous, very simple, very large, it outcrops, and about the first 50Mlbs have got a very, very low stripping ratio because of that. So that gives us quite a lot of flexibility to dial down our potential production. And what we hope is that by dialling it down to that level, the benefits that we get from reducing that stripping ratio, not only counterweigh whatever economies of scale that we give up, but we are hoping that that might produce an economic benefit as well. And clearly, that’s going to go very heavily to that headline capex number.

 So, what we would then have is two horses in this Uranium race. We have got an enormous battle Strider, which is capable of pulling even the heaviest of carriages, and then we have got a more sprightly thoroughbred that can run the shorter races a lot faster. And we don’t see one as being preferable to the other. They will just each of those potential projects, if the smaller scale works for us from a numbers point of view, each of those potential projects will suit a different market and different end-users with different levels of appetite. And once we have done that work and completed it, and on the assumption that the numbers come through in our favour, we expect that that will really position Bannerman in a very, very different way. And it certainly goes to the investor concerns that you’ve just highlighted.

Matthew Gordon: Okay. So, another one; these are the sort of questions that are coming in from subscribers and so forth. So, you’ve got a DFS. You originally came out in 2012, you optimised it in 2015 and then again in 2017. Are you done with that? I mean, obviously, you’ve got the smaller scale potential that you’re looking at. But with regards to the large-scale project, is the DFS complete now?

Brandon Munro: Well, with an enormous project like this, you never actually sit on a DFS. Well, assuming that you’re still a believer in Uranium and you’ve got a company that wants to produce, you don’t sit on a DFS like this. When it is this big, even small wins, small reagent wins can add millions to your NPV. And that’s what we have been doing. So, you’re right; the last optimisation study that we did on the DFS was 2017, that coincided with the completion of our three-year pilot plant program. We have just announced a membrane test work completed to a DFS level. That’s a big win for us because we save an enormous amount on acid, as an example, so acid is our biggest reagent, once we can put a number on that acid, and I’ll come to the DFS update in a moment, once we can put a number on that acid saving, we think that for the large scale project, that will be a tremendous boost to our NPV. And even the smaller reagent costs, like if we can recover 80% of the asset from the processing flow sheet, which those definitive level membrane test work has proven, that’s a big saving on neutralisation reagents. Neutralisation reagents might only be several cents in the pound, but that adds a chunk to NPV when you’re at this sort of scale.

Now, what we need to do at the end of all of that is to glue those pieces together via an updated DFS. And that’s the DFS update process that we have been undergoing for a long period of time now. And I just want to explain that that’s not a process that I’m in a hurry to draw to a conclusion.

Matthew Gordon: Why not?

Brandon Munro: Well, first of all, once we draw that to a conclusion, we lose the opportunity to continue optimising and working through the mid-priority level optimisation targets, and we are getting a huge return on investment at the moment because we can do most of that work in-house using our existing resources with a little bit of help can buy from consultants.

But the bigger issue is this: if we were to say, right, the market wants us to update the DFS, or we need the news flow, or you know, we think it’ll make our share price go up or something like that and we still see another 6-months or 12-months before the market turns significantly in our favour, we have now got a DFS update that’s immediately starting to go stale. But what’s even more relevant is when you’re going to procurement on a DFS and you’re asking suppliers of consumables or capital equipment to bid, if they don’t see that this project is about to be built, they feel like they’re negotiating against themselves. And the big engineering firms who are asking the questions, they’re just filing away their numbers to be compared against competitors. You’ve got to get them bidding with this procurement at the point where they think you’re about to start financing and construction, and they’ve got a chance of being selected as the providers of that equipment, that reagent, et cetera, et cetera. So, I’m not in a hurry to do those DFS update because I want the best numbers and numbers that are indicative of what we can build this project at. And if it means that I’m leaving quite a lot of value on the table at the moment, it hurts. It hurts to see the share price. It hurts to see some of the questions like you’re posing at the moment about capex and so on, but that’s still the best way of creating longer-term shareholder value, in my opinion.

Matthew Gordon: What’s your preference? The large-scale project, cause you think scale is your friend or do you think that you’d like to be able to get into production early on this outcropping part of the ore body?

Brandon Munro: Well, the nice thing is that I don’t need to choose between the children anytime soon, but really strictly, I can’t start expressing preferences until we have seen and published the numbers from the smallest scale project.

Matthew Gordon: But are you not nervous about raising USD$800M? Have you had conversations with, let’s say, the Chinese, because that seems to be what your PowerPoint is suggesting. The Chinese are the ones who are most likely to fund this aren’t they?

Brandon Munro: Well, by, for the reasons of demand growth that I described, you’d say so; there are three Chinese utilities, all of whom will have very significant Uranium demand requirements. One of those doesn’t have any owned production. The other two have mines in Namibia that they control and own. But in this game, you’ve also got the Russians, you’ve also got middle Eastern groups who are going to require that degree of production by then. You’ve got South Korea who are looking at an export strategy after successfully completing the BRACA project in UAE. Poland is looking at turning on six or seven reactors. So, there are a number of different groups, but yes, it is primarily the Chinese. When you look at –

Matthew Gordon: Have you had conversations?

Brandon Munro: No.

Matthew Gordon: Why not?

Brandon Munro: Number one, it is the wrong time in the cycle to do that, as you’d well known from your banking background, you don’t want to go knocking on the door when the perception is you’d be on your knees. But the second thing is that we are right down the road from these guys. I see them a couple of times a year at WNA events. We are still at the getting to know each other stage. So, we don’t need to open up those conversations and I wouldn’t want to at this point, in any case. Realistically, we still need more tension in this Uranium sector before we’d be able to test some of those financing alternatives that I described.

Matthew Gordon: Okay, so given the current tensions in the marketplace between the US, Russia, and China, do you think you would be penalised in any way by talking about buddying up to the Chinese?

Brandon Munro: Oh, well, I mean if we did so, it would depend on what buddying up means. But, I mean, look –

Matthew Gordon: I mean by taking their money.

Brandon Munro:  Well, if you sequence it with a degree of production control, yes, I think you probably would, it would all depend; it would all depend on what their, how much money they’re giving for what level of control. So, the soft debt model that I articulated, that would realistically involve providing say a 25% offtake. There would be no point providing all of the offtake in return for soft debt or you’re not generating any value. But I think to provide a USD$700M soft debt component, you’d still have to offer up something substantial, of course.

But as we have seen with their model in other parts of the world, I don’t think that would then lock us out from selling Uranium contracts into anywhere else in the world.

Matthew Gordon: Not even in the US?

Brandon Munro: No, I don’t see why. I don’t see why. If you look at Rossing, they sold to China at the same time they were selling to the US. Husab has contracts into US utilities even though that is fully owned by the Chinese, they have to sell 25% of their Uranium onto the open market. And CGN have been very active trading. So maybe with a US-owned utility, and there’s only two of them, it might be an issue, but the other utilities are happy to buy on the open market. And for them it is going to come down to terms and price and seeing a big brother behind you would probably count in your favour because it just demonstrates financial strength.

Matthew Gordon: So, Brandon, tell me about Namibia. You know, what is the Namibian government doing? Obviously, it has got a track record of Uranium mining, but as a jurisdiction that’s investible, you know, if I look at North America, you know, North American investors, they look at Africa with some trepidation because they’re not quite sure about the mining code there and the ability to mine with that impediment. So, what has your experience been?

Brandon Munro: I think the first thing to understand is that Africa is a very big place, as you well know, but not everyone who is looking at it from a Canadian or a US perspective might really understand. So to compare Namibia with some of the African countries that have produced good films, is a little bit like comparing Canada with Nicaragua, or compare Canada with El Salvador, or you know, it is that type of comparison that just doesn’t follow. But specifically, on Namibia, it is a very, very good operating environment. And I believe that I’m qualified to say that, apart from being involved in Namibian companies for a decade, I lived there for more than five years with my wife and young children. It is very safe. In all of that time we didn’t even have a car broken into, let alone any issues. It is very secure. It is politically stable, very low population density, second only to Mongolia in the world. And so that relieves it of a lot of the challenges that much of Africa faces. And you only need to go to the Fraser Institute rankings to realise that Namibia is right up there with Botswana as being in a league of their own in Africa. And that helps in terms of foreign investment. It helps in terms of operating on the ground in Namibia. And then what you can do is, you can impose an overlay, which is Uranium operability.

And I can’t emphasise this enough; if you’re developing a project, the jurisdiction and the infrastructure and the capacity to export your product is enormously important because you’re not only relying on what you control within the mine gate, you’re relying on the external infrastructure too, but also government infrastructure. Exporting Uranium requires an entire government department, to not only be set up and functioning in a country, but interacting with the IAEA in Vienna and various other agencies. And that can’t be turned on overnight, particularly in developing countries that often lack capability. So, the fact that that’s been ongoing throughout Namibia’s 45-year history of exporting Uranium is vitally important.

The other final point I’d make is, socially, what a pleasure working for a Uranium company in Namibia; most of Swakopmund where I lived initially and where, which is the closest town to us, most of Swakopmund was built off the back of Uranium. People appreciate it. They don’t see it as some zeitgeists or some problematic commodity in the same way that you get in many parts of the world. There isn’t that political backlash there. It just doesn’t exist in Namibia, which I obviously find confronting sometimes in my hometown of Perth, in Australia and elsewhere that you go. So Namibia is really in a class of its own, and I’ve said this before and I’ll say it again and I’ll put my reputation behind it: Namibia is the best operating environment for developing a Uranium mine on the planet when you take all of that into account. It is not perfect. No jurisdiction is. But in terms of getting a Uranium mine to market and getting your product out and getting it financed and getting political and community support, it is the best jurisdiction on the planet.

Matthew Gordon: There’s a few companies operating in Namibia, there’s a lot of chat at the moment about roll-ups, and M&A, are you open to that?

Brandon Munro: I think you’d be a negligent CEO if you weren’t. If that’s the route that delivers the best result for shareholders, then there’s really only two reasons that would get in the way: ego or negligence. And neither of those are a problem for me or my board for that matter. So, we were open to anything that makes sense and delivers shareholder value.

Matthew Gordon: Are you in discussion at the moment?

Brandon Munro: No.

Matthew Gordon: Let’s talk about grade. It is a low-grade bulk operation – nothing wrong with that. But obviously, you’ve got to be very efficient in terms of the way that you process this and you’re going through that with the DFS in terms of various optimisations, I get that. Okay. But how do you make money? How do you drive share price? Because at the moment, it is a waiting game; you are waiting for the price of Uranium to recover. What does it need to get to, and what types of contracts, term contracts will you need in place to be able to get this thing, one financed, and two, therefore running and off the ground? Because you talked about a 3-year timeline, which is great, but it doesn’t factor in the financing component.

Brandon Munro: So, I’ll have to talk through the 2015 numbers. And so, for someone who’s joining the video at this timestamp, please go back and listen to everything I’ve said about improvements that we have made since then. But using the 2015 numbers, we have got a breakeven of USD$52. And at USD$75/lb, we have an attractive NPV of USD$419M for our project. That is post-tax NPV. So, at USD$75, we make great money. At USD$51/lbs, we don’t break even based on those numbers. And this starts to look like a really good project from say, USD$65. Where it really shoots the lights out, because of its pure scale and the degree of leverage we have got is if you build into your model assumptions of a long-term Uranium price of above USD$75./lbs And quite frankly, if you’re a Uranium investor and you’re not working to that scenario, then you know, perhaps you either misunderstand what the dynamics are in this sector, or you’re just in there for a short-term trade, because that’s why I’m in Uranium and I think most of the people who are on my register, that’s why they’re in Uranium as well.

Matthew Gordon: Okay. I had a question thrown at me yesterday from, again, there’s a lot of people coming into this who have not been through, you know, the last three, four years and they’re just coming out at new. So, they’re saying, well, Cameco and KazAtomProm, surely they’ll just turn the volume up and they will start producing to meet the world’s needs, right? It is fine. So, people like you have got no chance. You don’t have a place at the table. And you are as likely to be taken out by those two players as anything else. I mean, how do you answer that question?

Brandon Munro: Firstly, fair enough; with someone coming into this sector to look at the numbers and come to that sort of a conclusion that the idled mines can simply fill in the production. There’s one really important thing for any Uranium investor to understand, particularly those folks who are coming to this story for the first time, and that is that there is a very substantial level of depletion of mine-produced Uranium that is starting from next year that becomes critical by 2025, and an enormous challenge for buyers of Uranium by 2030. And if you want to see those numbers, probably the best place to go to is the latest Bannerman presentation that you can get from our website because we do set out the curve there.

But just to put some of those depletions into context, we have got the Cigar Lake mine, the largest currently operating mine in the world. That is due to run out of reserves by 2027. There are mines in Niger which are being closed from next year. You’ve got the Ranger Mine, which has been an enormous producer over many years, closing next year. You’ve got numerous smaller mines closing over that period and you’ve got Kazakh production, which is in situ recovery, which tends to have a longer tail as those mines grow longer in the tooth. And so, you’re seeing depletion on that timeframe of most of those Kazakh mines just because of the nature of in-situ recovery and the way that their production profile tapers over time.

So yes, there is the capacity, obviously, for some of these idled minds to come on at prices before Bannerman gets into the race. But the point is that this sector needs Etango from 2025 because of all of these other mines that have run out of ore and the level of production depletion. And like you said at the beginning, you know, Etango fits into the mix. We are going to need all of the producible pounds in this sector, particularly when you recognise that many of the projects out there won’t be capable of producing pounds in that timeframe.

Matthew Gordon: Okay. We have always talked about the need for an experienced management team, and I don’t mean in the sense, in the normal mining sense, I’m talking about Uranium is mining, but it is mining plus, we call it; which means that it is got its own peculiarities. It is got its own quirks and it has got a series of quite complex and regulated activities too. We are dealing with radioactive matter here after all. So, what’s your team got? What’s the relevant experience here? Have you put Uranium mines into operation before? Do you know how to sell product into the market? Can you get deals done?

Brandon Munro: Yes, look, I certainly agree with you, mate, and I like the word ‘mining plus’, but I’d call it, ‘mining plus plus plus plus plus’, because you’ve got the social aspect, you’ve got the political aspect, you’ve got the radiological aspect, you’ve got the environmental aspect, you’ve got the interest group aspect and you’ve got a very complex market to add to all of that. So, to answer your question, absolutely. And we are very privileged like that because there is only a small talent pool to go around in the Uranium sector. It is been a bear market for a decade. And it wasn’t particularly cool before that either. So many of the people in this sector are advanced in experience if we can put it that way and falling away. Many of the people that I met when I joined the sector back in 2009 just aren’t around anymore. They’re not working anymore.

So, as many of your audience would know, I’ve got a profile in the nuclear sector and I understand the market and the dynamics quite well, but that’s not the same as operating and building mines, of course. Our chairman in Namibia and our non-executive director is Mike Leech, so he was the managing director of the Rossing Uranium mine when that was the largest Uranium mine in the world. For 15-years before that, he was the CFO at that mine, responsible for contracting and all of the other aspects of interacting with the Uranium market that you would expect in Namibia. Our managing director in Namibia is Werna Ewald. He was mining manager at Rossing and he has also been very involved at a leadership level in the Chamber of Mines of Namibia. Born Namibian, very, very well regarded. He obviously understands this precise style of mining very, very well.

Dustin Garrow, who has been on your show; quite successfully, judging from all the Twitter comments, Dustin is our strategic marketing consultant. Not only has he been in the nuclear industry forever and knows everybody, but he sold Uranium from Namibia for Paladin for many years. Any of the nuances of selling Namibian Uranium into the world market, including some of your questions that you answered before, he is all over. He’s across all of that, and obviously a fantastic person to have as part of the team.

And so that’s the Uranium specific experience and we certainly believe that that gives us enough experience at the senior level to then be able to infill the middle management and other operating jobs that we would need to do. Particularly given that Namibia has got a long history in Uranium and there’s plenty of very capable and well-experienced folk that you can draw from there before you even need to start looking at ex-pats, et cetera.

Matthew Gordon: Okay, so that does answer that one. That’s quite a good summary, actually. Come back to this price component. Okay. Because there’s something that it is just niggling away here. If you are, or do have conversations with Chinese utilities who need to, you know, they need a lot of pounds, given the numbers that you were mentioning there. They have a very different set of needs from the company and the shareholders, in the sense that you’ve got to work out how to capture value and not just give it away because you know, the utility just wants the pounds. They couldn’t care less what your share price is, right? So, they could step in today and secure it all. But that’s not good for you. It is not good for shareholders. So, your conversations and your timing is really, really important. But needing USD$52/lbs to break even when you look at USD$33/lbs today seems a long, long way away, and getting to USD$75/lbs, it feels even further away. So, what does the next 12-months look like for you at Bannerman and what do you need to happen in that timeframe?

Brandon Munro: Yes, great question. And I think you can look at that from two perspectives: from the inside of Bannerman, I can answer that and then I can attempt answer that from the perspective of an investor as well. Inside Bannerman we have got our work cut out for us. We don’t run a big team, we keep our overheads low. There is plenty of value addition that we have got lined up for the next 12-months. And so, from managing a team and managing a project and adding value to that project, I’m quite comfortable if that’s how long we have got, because there’s a lot that we can do in terms of NPV accretion, et cetera, et cetera. So, I’m not worried from an internal perspective.

From an external perspective, and how investors would look at this, there’s something that you sometimes see amongst retail investors on Twitter and elsewhere, which is that they look at the gap as you have between USD$33/lbs and USD$52/lbs or USD$75/lbs and they seem to think that this is a binary question: Bannerman is worth X today at USD$33/lbs and it is worth 100 X at USD$75/lbs. So, I might wait until we are at, you know, until we can see USD$75/lbs on the writing on the wall before I’d want to step into a stock like that. But the reality is it doesn’t work like that. We are a heavily leveraged play. And if you look at any of the other sectors where big leverage companies have emerged from that transition from a bear market into a bull market, they’ve revalued at every single step; every transition between X and Y. And that’s what we will see with Bannerman.

And so, and that’s, if you look at our register, we have obviously got a very large component of specialist Uranium funds. Now, they’re in their own category because they are strong believers in the thematic and the fact that there’s, as we stand, 22% of our register is in the hands of those funds, just demonstrates that they don’t have a problem with USD$75/lbs, but we have also got about another 20% of generalist resources institutions on our register.

So, a retail-investors should ask themselves, why those guys there? And they’re there because they see Bannerman as a series of stacked options, leveraged options to the Uranium price. They know that as Uranium price goes from USD$30/lbs to USD$35/lbs, we see a leveraged effect in Bannerman share price because of our scale and the fact that we can deliver producible pounds into the next cycle. Same from USD$35/lbs to USD$40/lbs. Same from USD$40/lbs to USD$45/lbs and so forth.

And for many of the institutions on our register, they treat them as stepped options. As it goes to USD$35/lbs, some of those institutions will say, right, do I rewrite that option by holding or do I cash that option in? Because I’ve now seen Bannerman share price double, for example, and therefore I’m going to cash that option out and take it off the table? And retail investors, I think, can include Bannerman in their portfolio in a very similar way. And you know, if they’re holding on a multi-year, multi-bagger for when we do get to USD$75/lbs, then that’s fantastic. I look forward to seeing them at the party when we do get there.

Matthew Gordon: Okay, so you’re talking about being a leveraged play, and can you just give me your definition of what you mean by that?

Brandon Munro:  Yes, so it is a conventional definition of a leveraged place. So, you’ve got very, very large production capability that exacerbates and multiplies the movements in value compared with the movement in value of the underlying commodity.

Matthew Gordon: Okay. So, basically, people need to believe that this thing will get into production. And I think there are companies that we have interviewed that won’t. So, people need to believe that you’ve got the capability and the knowledge and will be able to get the finance to be able to get this thing into production to be able to accrete value up that, those steps as you’ve described. And you feel you’re will?

Brandon Munro: Yes. Well, I guess we haven’t talked about financing capability. We are a lean team with a lean board, but our chairman, Ronnie Beevor, he’s an investment banker, ran Rothschild in Australia Pacific for many years. You know, this was his bread and butter even at this scale for many years. Ian Burvill is also on our board. Ian was a partner of Resource Capital Funds, still the largest PE resources, PE firm in the world. Ian worked for Rothschild before then so there isn’t anything about financing that between them, Ian and Ronnie don’t understand. And whilst I wasn’t a project finance lawyer because of the corporate and the M&A background that I’ve got, I interacted a lot with that. So, I think I understand the process relatively well, at least well enough to be able to set out a strategy for that.

Matthew Gordon: Okay. I look forward to sort of seeing what you actually do over the next 12-months because I think that the Uranium space has gone through some rapid movements recently, but it needs to move more for people to believe that this thing’s going to happen anytime soon. I mean, have you got a view on when you think you’re going to start to be able to have meaningful conversations in the context that you’ve described earlier? In a way that you feel a bit more in control, because the share price perhaps wouldn’t allow you to have a strong and robust conversation with a funder now, but at what point do you think you will be able to have those conversations?

Brandon Munro: So, in terms of the timeframe, as we have discussed on other occasions on the show, that’s a bit of a difficult one because all of the feedback that I’m getting is that utilities are really quite restricted at the moment with COVID-19 measures, whether it is working from home or dealing with some of the onsite challenges that they’re got at their reactors. So even as we see Uranium start to knock on the door of USD$35/lbs that’s not in itself going to be a trigger for long-term contracting because the buyers have got bigger fish to fry right now. And if they have to focus on their key priorities as Uranium goes through USD$35/lbs to USD$40/lbs well, so be it, from their perspective.

I still think that we are talking about end of this calendar year before we see substantive contracting take place. And I think that will benefit Bannerman and other Uranium companies because by then we will have a spot price that creates a more realistic base from which to achieve long-term contracting premiums from.

The other way to look at this, which isn’t so much a timing point of view, but is more of a price point of view, is that our project starts to look really interesting to a number of parties once they can see USD$50/lbs, USD$55/lbs, clearly. It doesn’t mean we need to have that price. It just needs to be that they can see that this sector has now emerged from the long-term bear market. They don’t need to see USD$136/lbs like we saw during the last boom. They don’t need to see term contracting at USD$95/lbs as we saw during the last boom. They need to see this price pushing through USD$50/lbs to USD$55/lbs, and at that point, the sovereign groups or the utilities or the groups that are looking at vertical integrations, they will start weighing up on the one hand, the relative simplicity of being a buyer of Uranium through long-term contracts at, let’s say USD$55/lbs versus the security of being an owner in some form of production at a similar price.

There are pros and cons on both sides of course. But that for me is an inflection point where Bannerman becomes a lot more interesting to those types of groups. And you asked me when I would start talking to those sorts of groups, for me that would be a clear marker that we have got sufficient tension in the market that I know that they’d want to be talking to me, but at that point that’s when I’d be interested in opening a discussion with them.

Matthew Gordon: Have you got enough cash to get you there?

Brandon Munro: Depends on the timeframe. We certainly have got enough cash to get through that first PR estimation. So, we have got USD$4.5M, based on our typical burn rate, that’s about eight quarters, so 2-years.

So, we have got enough money to see this calendar year out, next calendar year, and if we needed to go a bit further, we could. So, if we find ourselves not seeing conditions improve within that timeframe, well, it probably speaks bigger things about the market and something’s gone wrong somewhere. So, I would say we have, we have got the cash that we need to see that cycle through.

Matthew Gordon: Have you been buying shares?

Brandon Munro: Well, we talked about the project work that we have been doing, so I am out. It is a blackout period for Bannerman. And let me just tell you, the last shares that I bought on market last year were at about where the share price is now. So, I’ve been pulling my hair out, seeing sort of a global financial crisis type numbers on our share price and not being able to participate. But good luck to around who did, all of those supporters who got in there at USD$0.02 cents who have now seen a healthy return. Good on them.

Matthew Gordon: Right Brandon, I think that’s a great summary. We haven’t spoken for a long time about Bannerman. You’ve got something interesting happening. I hope that market does recover for you guys because I think Uranium has been battered. But I think people are excited again.

Brandon Munro: Yes. For good reason, for real good reasons. So, all those excited folks out there – many of you have waited a long time. Enjoy it because I think it is going to be a wild ride from here.

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

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