Conversation with Dustin Garrow, Uranium Market Commentator
The most insightful commentary for uranium investors. Garrow tells us when he thinks US utilities will be making decisions to buy uranium. He tells why. What precisely are they focused on? And what is the DoE focused on with its Nuclear Fuel Working Group report. What has been trying to distract them? And are politicians qualified to make decisions needed?
Old news of the week is that the US House Appropriations Committee has said that they will not approve the funding of the $150M uranium reserve. Also the delay in the decision on the Russian Suspension Agreement (RSA) seems to be holding up utilities decision making. What does this mean for relations with Russia? And does Russia care? Should it care? We discuss China and Russia want to control the market. Can the US compete and what are the barriers?
Wonderfully no holes barred conversation about the state of the uranium market. We discuss what it means for certain companies, both positive and negative. If you are a uranium investor you will be interested about what it could be mean for your equities investments.
- 2:49 – US House of Appropriation News: Inevitable Situation?
- 10:30 – Problems and Distractions: What Could Have Been Done Differently?
- 15:29 – The Senate: Only Hope for Juniors?
- 17:02 – Utilities as Market Driving Force: Importance of US Elections and RSA
- 27:05 – Tell the Time: What Happens in 2021? When Are We to See Long-Term Contracts?
- 31:14 – Quickness of Price Discovery: Impact on Big Name Uranium Companies
- 36:44 – When Can We Expect to See Price Discovery Movement?
- 39:47 – Preparing for the Boom: Who’s Going to Struggle?
- 41:20 – Lots of M&A in the Uranium Space: Opinions and Implications
- 44:19 – On Energy Fuels’ Mill: Rare Earths, Company Involvement, and Implications
CLICK HERE to watch the full interview.
Matthew Gordon: Dustin Garrow, how are you, sir?
Dustin Garrow: Good, Matt. How are you these days?
Matthew Gordon: Yes, good. Holding up, holding up. Did a bit of gardening on the weekend. I can barely move if I’m honest.
Dustin Garrow: You got to fix things up around the house.
Matthew Gordon: You do. I get my Saturday morning list of things to do. Do you still get that?
Dustin Garrow: Pretty much every weekend and even maybe in the afternoon before it rains here in the mountains.
Matthew Gordon: Oh boy, that’s a tough list, isn’t it? I’m sure it is, I’m sure it is getting longer. But we won’t talk about my gardening tips because that would be a very short conversation, but we will talk about a few things that have gone on in the world of Uranium since we last spoke. the most current of which was an announcement by the House Appropriations Committee not to fund the US Uranium reserve. There is USD$150M missing there. What was your take on that whole conversation, perhaps just remind people what exactly it involved?
Dustin Garrow: Well, when the Nuclear Fuel Working Group put the report out in April part of the focus certainly was to revitalise the US Uranium industry with a focus on the needs of the Department of Defence or unobligated Uranium. A lot of enthusiasm, the report was 5-months late. But they were talking about the USD$150M per year budget allocation or funding in order to set up a Uranium reserve. In other words, the government would step in. And they started to define it: they were saying to have at least two Uranium mines in operation, the USD$150M was in the physical 2021 budget, which is now being, let’s say, put together by the two houses of the Congress. And then there was in the next 10 years, another USD$150M a year for a planning document. In other words, it wouldn’t be approved, but it would be put in the 10-year forward projection. Now, that was to involve like 17Mlbs to 19Mlbs of procurement over that period. So close to 2Mlbs per year. The 2 houses of Congress, have their own versions of the budget. They start looking at all the requests, which the DOE had put a specific line item for the Uranium reserve in their budget request. But it was a little surprising when they put their quote report out, which is basically, the results of their review of the proposed budget. And they said, well, we are not going to fund that USD$150M because the DOE has failed to submit a plan on, well, what does this mean? How are you going to do it? How will the contracting be done?
They’re also talking that it would be put into the assured fuel area, so then if there’s an upset in the market, utilities could draw on this inventory, theoretically, that was just to make it a little more attractive. But after 4-months of the DOE not putting that plan together, and so that’s what they’re saying is, 180-days following the enactment of the budget, which may be before October 1st, because again, our fiscal year starts October 1st. They’re to submit that plan. How will this work? How is it going to be authorised? The whole gambit of procurement of Uranium. Now, if that’s true, I mean, they’re not saying we will not ever fund this. They are saying we want to see what it means.
180-days from late September puts us into next spring. And one of the questions then becomes, if they then decide the plan is acceptable, will there be budget available somewhere? Within the DOE there are various increases in some of the budgets, would they be able to cobble together the USD$150m?
But there are still a lot of unanswered questions. One is long-term contracts; as…I can’t open my mouth without saying long-term contracts. And the producers have made it clear: a 1-year purchase, it would have to be like inventory. And then there is no assurance that the program would extend beyond the first year. So how do you go out? And the producers are saying it’s 12 to 24-month ramp-up, depends on which type of producer. Because another issue is, do they sign contracts with companies that maybe are in the permitting phase? They don’t have existing facilities. Well, 4 or 5-years from now and they could maybe have built those facilities, but that may not have happened.
So again, there’s just a lot of unanswered questions, but that, to me, it was a bit of a curve ball thrown back at the producers after they’ve been working on this for so long.
Matthew Gordon: Wasn’t there an inevitability about this? Because we had the conversation way back when, during a lot of this processes, and obviously after the report came out and it was unclear then. And the questions you and I were discussing and answering was: how can these politicians, who perhaps don’t understand the full cycle, all of the moving parts, possibly put together a coherent plan in that tight, short a space of time and allocate it to the right place and give guidance as to what they were going to do? They couldn’t then, and in 4-months were they likely to be able to do enough to get it passed the House Appropriations Committee? Well, the answer is no, but what do you think they should have done? Could they have done better?
Dustin Garrow: Keep in mind, there have been meetings between the producers and the government representatives now literally for years. And it’s not like the government wasn’t aware of the issues. They were aware of the need for multi-year contracts. They’d asked the producers; what levels do you think you would need? There has been a lot of preliminary work done, but then, as you say, sitting down with the whiteboard and say, okay, how do we get from here to here? I would like to think it could be done fairly quickly.
one of the things that, that was a red flag was back on like May 11th: the director of the Nuclear Energy Department at DOE said, well, within a year, they hope to have that procurement process clearly delineated. To me, that was, so they’re talking well into calendar 2021. And as the producers are really down to bare bones now. Production is, there is some… Energy Fuels said they will produce almost 200,000lbs this year, which would equal all of the production for the industry last year, but it’s alternate feeds. It is not new mined or anything like that.
Matthew Gordon: Well, let’s come on to the utility component in a second. I just want to stick with the government element here, if I may, just so I can understand it better. Hopefully some of the people at home can understand it a bit better, which is there’s a superficiality to the way that this has been gone about for the last 2-years, in terms of having been involved with government on this side of the pond. They listened to the headlines, but not necessarily, as you say, the whiteboard of how it actually gets done. There’s a lot of that going on. But one thing that has happened is they have recognised, and there is an intent, to try and do something for the nuclear fuel working cycle: the whole thing, all the moving parts. But there in possibly lies the problem. That they may have got distracted with 1 or 2 other shiny objects in the room, such as some of the technology side of things, the SMRs or research and development components, and which may seem a little bit more exciting. But in reality are also quite small widgets in the mix. Do you think there has been a little bit of that?
Dustin Garrow: Yes, the conference call that was at the end of May where the Secretary of Energy participated. It had all the right people; it had the policy people. They made all comments about the need…the DOE needed abundant Uranium supplies in the future. We are going to be immediately working on this, but then they got off on the research side, the SMRs, and certainly the funding side for export reactors. They have recognised that Russia and China are utilising the export reactor market, maybe for geopolitical reasons. And, one of the problems with the US is we couldn’t fund our reactor sales outside of the United States. They are diligently working on getting that change, which would then allow GE and Westinghouse to penetrate the export reactor market.
A lot of challenges, as you point out, and the Chinese and Russians have been at this now for years and years. And they offer not only the units, but the financing with extended repayment terms, if you want to call it that. I don’t know what the US financing would look like. And things like fuel – they say, we will bring the fuel, we will oversee operations, and then we’ll take spent fuel away. I’m not sure the US reactor vendors will be able to offer that. They’re going to be at a pretty noticeable disadvantage. And, maybe just on the economics: if I’m the Russians and the Chinese, I say, ‘okay, I’ll just undercut their price’.
Matthew Gordon: That is a really important point which should not be missed by anyone watching; 1. It is a small market. 2. The 2 powerhouses at the moment are the Russian government and the Chinese government. And the US is trying to compete with 2, albeit very large companies, but they are companies with their own restrictions. They have got other things which they are probably focused on as well. And the cost of money to them would perhaps make things less attractive. These barriers to entry, I don’t really see why GE or Westinghouse would want to come in and compete in this space. And it comes back to something you and I talked about 3-months ago, which was, do politicians and commercial enterprise; do they work? Do they work in the US? The wishes of a politician – does that matter, what they wish for?
Dustin Garrow: I’m not overly optimistic this whole project would work very well because it is the Russian and the Chinese governments, and they have other parts of their agenda, of which the nuclear reactors are just one component. And that, yes, it’s a nice idea, but I’m not sure how it, and maybe they’ll say, well, it will be SMRs well, but those are a way off. So that you would just have to wait and see. But what I find a little bit ironic is the whole Nuclear Fuel Working Group concept was triggered by the 232, which the 2 Uranium producers, Energy fuels and UR-energy initiated in January of 2018. So we are two and a half years later, and it’s all of a sudden, it has not been steamrolled, but they’ve been lost in the discussions with these things like export reactors and on and on and on, to where they are not getting, what I can see at this point, not a lot of attention to get what they need done.
Matthew Gordon: That’s what I mean; it feels like a Pandora’s box where they have opened the lid and then everything has spilled out of it. If you start looking for other things that you can do. We said months ago, it’s a really big fix. And these big fixes take a lot of planning, effort, time, et cetera. And I just think it was unrealistic to expect this, but it’s been a bit of a shock to Uranium juniors, that the House Appropriations Committee has so quickly shut this down. Is there any hope in here? What about the Senate Appropriations? What are they doing?
Dustin Garrow: I’m not directly involved in all of this, but there continues to be optimism that the Senate version of the Appropriations Bill, I was told recently, continues to have the $150M in it. And they’ll get together for eventual mark-up, and maybe it gets retained.
Again, Senator Barrasso has been very supportive from Wyoming. And that was always a problem though, even when Menuchin was involved. It is a smaller State, not a lot of political clout, it’s not like the big States are weighing in here. It’s not an issue that they may view, I guess is that important. Uranium in Wyoming is a pretty critical part of their economy. So, yes.
Matthew Gordon: But as with all things political, you have got all sorts of groups who are vying for capital and you think you’re the most important person in the room, but that isn’t necessarily always the case, not always the case. Well, then it must come back down to, let’s move to move away from the political and government. Although that’s quite a big topic, I’d love to spend more time on it, and talk about market forces. Which, and by that I’m not talking about supply-demand. I’m talking about utilities. We have got a couple of big factors that there: you have got a US election and you have got the RSA agreement still not settled. And those things aren’t probably, in any likelihood, likely to be agreed or decided on by until the end of the year. In either order, as you were, what do you think is most important to utilities?
Dustin Garrow: Right now, the election is the election. Apparently Mr. Biden’s new green plan has a nod toward nuclear. It doesn’t sound like that will be, Oh, well, let’s shut down all the plants. And the other thing, and you will have seen is reporting: there was a big article this morning or editorial in the Wall Street Journal about it: bring back manufacturing to the United States. And that’s part of the Biden platform as well as being Trump’s since day one. In order to do that, you need power. There will be a less of an emphasis on, let’s get rid of not only coal, which is, we think nuclear struggles a bit in the US, but coal was almost in the dumper. But yes, the utilities are probably not as focused on the election side as the Russian Suspension Agreement, because I’m hearing that there is a broad spectrum of opinions. The utilities, through AHUC, the ad hoc utility committee are pushing really hard to have it expire basically, to where they, the Russians, which was the intent that by the end of 2020, which when the amendment was put in place was a long way off, and the long way off tends to eventually show up at your door. And now they are debating, there has been legislation drafted that would lower the limits. And the big thing though, that happened there was the Department of Commerce, back in middle of June, put out a report and basically said it was to review the compliance of TENEX. And the now, Centrex, former USEC their compliance with the procedures. And they were found to be in compliance. Yes, they shuffle the right pieces of paper around, but they concluded that, and it’s interesting; it gets back to long-term contracts, there have been enrichment contracts being done for delivery post December of 2020 because they signed long-term enrichment contracts and they say those have been priced suppressive. So basically, Commerce took the position that unless the Russians are more aware of the effect they are having on the market, let’s put it that way, they said we should terminate the agreement and reinstate the underlying anti-dumping investigation, which is from back in the nineties, which would then put very high tariffs on Russian enrichment. Let’s just say there’s a whole…
And I’ve also heard that the Russians may say, hey, at 20% of the US, that’s about 3M SWU p/a, the global demand is like 52M, 53M, this is a very small part of the global enrichment market. Do we really want to put up with more, another 10 to 15-years of paperwork and auditing and on and on? Or maybe they’ll just say, Hey, okay, have at it, you guys keep us out of the market, buy from the Western enrichers at probably higher prices, and we will go and sell somewhere else. I’ve heard everything from, well, the extension of the existing agreement down to modifying it to all over the place.
Matthew Gordon: That was literally my next question: why the heck should the Russians care? It’s just nothing in dollar terms. So why bother?
Dustin Garrow: It is just the ability to penetrate the market. In other words, they’ve been held at that 20% level now for the last few years, and that was to go away. And they said, we want 30% or 40%, apparently publicly of the US market. Well then, all of a sudden, 40% of 15M SWU, 6 million, then it starts to get to be much bigger.
Matthew Gordon: But with the rest of the world opening up and developing and nuclear is to become such a big thing, the market is much bigger than back in the 1990s. There are more buyers. It gets the point, well, why fight this battle? Why bother? And let the market forces decide.
Dustin Garrow: When we are having a very anti-Russian view in the government here, as well as certainly anti-Chinese. So that they will look at all that and go, at some point we’ll walk. So, I would.
The point is, the utilities, just to get back to them, some of them have contracted forward for apparently more than the 20% in anticipation of that going away – the limit. They are then in a bit of a difficult position where say, as an individual utility, maybe you have committed to 40% of your enrichment from the Russians, well, what if that goes to zero? Then you have got to get in the queue with Urenco and Orano, basically the Western SWU providers. And if I’m a marketer at Urenco, I probably am not going to sell at a very low SWU price, particularly for new long-term contracts. So then when people say, well, why aren’t they looking at Uranium? Well, they’ve got that the SWU situation is really much more urgent, potentially.
Matthew Gordon: Let’s look at a few other things. A few data points. Because people like UXC, TradeTech, people like that, they have been putting out numbers every year. That gives a sense of where the utilities are at with their inventory levels. The US did it about 1-month ago. The Europeans have put out a summary report. They are fine for 2.5, 3-years, all of them. The utilities are in no rush to buy. At some point they will be, but do you feel they are in any rush to buy? Is it just, ‘oh, let’s just see where the RSA gets to, and then we’ll start making some decisions’, or actually, do they have a little bit more time on their hands?
Dustin Garrow: Like everyone, they have a list and here is my to do list and up top is Russian SWU and maybe in the middle somewhere is term Uranium contracts, who knows? So again, they’ve got somewhat limited staffing. I mean, the utility fuel groups are smaller than they were in the past. They say, well, and this is more immediate. I can’t just let this slide, the Russian SWU issue, but I can’t on Uranium. And what they’re doing is they’re hearing from, Cameco, probably from KazAtomProm, maybe from Uranium One, and as you have probably seen, some of the smaller producers: Paladin made it clear that they’re going to be out talking term contracts, Vimy, a number of them. They are beginning to hear from a number of supply sources of Uranium.
NexGen, you throw everybody in the pot and they go, well, there are diverse sources. We can debate when those sources are available, but if you are a fuel manager, you go, ‘hey, I can push that off until probably next year, but I can’t push off the Russian Suspension Agreement. I have to focus on that because management is going to be called every morning my phone is going to ring from upstairs. So that is what I have to focus on’. They’re not ignoring it totally, but they are less concerned. They’ve got inventories. They don’t tend to hold inventories of enrichment because it is expensive as you get further down the fuel cycle. So yes, U308, UF6, we have got, as you say, the next 2, 3-years. The Europeans are pretty well covered to the mid-2020s. But I see by around 2025, 2026, their coverage starts to drop off significantly, but it’s like, well, it’s over the horizon of a bit so I’ll focus on the immediate.
Matthew Gordon: It’s the things that are happening in the market. Obviously, we heard a lot about Kazakhstan. The lockdown is affecting KazAtomProm, and they were on the show just over a week ago. And they were saying that they may have to come into the market. Cameco said, we may have to come into the market to top things up to fulfil our contracts. And they can do that until the end of this year. There’s another end of year moment. What happens next year? What happens in Q1/21 and Q2/21 for these companies? There’s not enough inventory on the market. Is there?
Dustin Garrow: Well, like you said, UXC said recently that during March, April when there was what, 36Mlbs transacted, the more mobile, lower-priced inventory was taken out of the market. And that is what we are seeing now; the volumes are down a bit, certainly. The price has held relatively stable. So to me, that’s a positive sign that all of a sudden the price didn’t go USD$34/lbs, $32/lbs, $30/lbs, dropping like the proverbial rock. And the other is the start-ups: people think like Cigar, well, they’d say, okay, we are going to start up Cigar, they flip a switch in Saskatoon, everybody is there, the mine…it’s going to take months and months and months.
And even in Kazakhstan, it was interesting; the head of KazAtomProm was interviewed by the local newspaper, Kazakhstan Pravda, which I thought was interesting. And he said, keep in mind, we have stopped all wellfield development. Our production is coming from existing wellfields. When they say it’s safe to go out and start ramping up, they have to start drilling wells. I mean, it’s going to take, so when you say, end of the year, is it a magic date? And then all of a sudden, January 2nd, everything is back to normal. we are well into the middle of next year, even if the ramp up starts before the end of this year, until we are back to some semblance of normal in the production side. And that’s probably optimistic.
Matthew Gordon: That’s the production side, but to get people at Cameco, KazAtomProm and elsewhere, to press the go button, they need these long-term contracts. Now I’m saying it – long-term contracts. I know. I’m a convert. So yes. What does that mean? When does that need to happen? And when do you think it will happen?
Dustin Garrow: To some degree, the restart of Cigar is not totally independent of that, but more so than McArthur. And we don’t even hear McArthur River anymore. It’s like, ‘he whose name we shall not…whatever.’ It’s just sitting there on idle, slow idle, off in the background. But yes, it is the term contracts.
Paladin and came out with a restart: page after page, the technical operational side. And then it said, and oh, by the way, this is all contingent on sufficiently priced quantity-wise term contracts. When do they start doing that? I mean, I could see that again, as we have talked, there’s a phase; we get Cameco and KazAtomProm, they are satisfied. They move aside. The next group comes in. We could be well into 2022 before some of the, particularly the newer producers, because utilities say, wait a minute. We have talked about the size of the contracts each year. And if you are a new producer and you need to go get the financing, turn dirt, build this, do that, they’ll say, well, we will take a chance, but we are not going to sign for 500,000lbs. There’s that ramp-up that they’re going to need. it could be a long March for some of, even if they’re relatively close to being shovel ready.
Matthew Gordon: I agree with you. I’m in violent agreement with you and have been for several months, over how long it’s going to take some of these juniors to be in a position where they can get financed, let alone the process of getting into building a producing mine and all the other issues. But what does it mean for the big boys? What does it mean for the KazAtomProm who tell me that they’re always contracting? What does it mean for the Camecos of this world in terms of having those conversations? And Paladin, I guess. If they are setting a price, which is mid-fifties, mid-sixties, who knows? You wouldn’t want to be the utility buyer that goes first, when everyone else around you is buying in the mid-thirties or forties, you’ve pressed the button at $55. It is difficult scenario, isn’t it?
Dustin Garrow: And it has been, having talked to several of the fuel managers, it depends on what their coverage is, what their risk tolerance is, how diverse do they want their supply to be? Because let’s face it, right now the reliable long-term suppliers that have a proven record – that’s a pretty short list. So you have to put them in your portfolio and then say, okay, then as I get further up the curve, who do I contract with that is going to deliver. As we have talked, the utilities don’t care too much about your share price, your whatever, they need yellow cake in a can, the rest of it’s all interesting. Then they start looking at, can these guys get this done?
Look at the risks now in sub-Saharan Africa -I mean, there was just a big article I read somewhere that this is the easiest place to work, not to say, Niger – they can’t move forward, but it’s just another factor the utilities have to take into account. So, you start whittling down that list and yes, who steps out and signs that first USD$50? we are close. some of the discussions are in the mid-40s. They’re not below USD$40/lbs. Looking at the TradeTech production costs indicator number at $44/lbs, that’s probably not a bad number, particularly for restarts.
Matthew Gordon: But is it enough for the Paladins of this world? Your Camecos, KazAtomProm – fine, because they are low-cost producers, but for everyone else?
Dustin Garrow: And looking at the market, I do advise some other production companies. There is that first tier of the Camecos and the Kazatomproms that will eat their fill. And then it’s the next tier. And who’s in that tier? Well, we could name the 5 or 6 companies that either have care & maintenance or are close to hopefully moving forward with financing, and then there’s the next tier. But as a utility, do you want to be the first guy at USD$50/lbs or the last guy at USD$70/lbs? That’s why they stampede. If we were to see the price go from reportedly, USD$38/lbs to $45/lbs to $50/lbs, they’ll go, uh-oh, I better get out there.
Matthew Gordon: But they have a threshold. What I am interested in is how the math works. Because your Tier-1, collectively your Tier-1 produce 60% of the market. Right?
Dustin Garrow: Right.
Matthew Gordon: So that’s a big number. There’s also a very big number that’s not being supplied; your Tier-2 who need more than your mid-$40s are going to need to be incentivised. And then even they can’t fulfil 100% of the balance market. Some of the Tier-3 who are the near-term or potential near-term producers, are going to need to be incentivised. It must be a very quick run to that price discovery to allow the Tier-3 to actually get into some… at least be able to get funded, to be able to get into building their mine, to be able to get into production, et cetera. So that’s the interesting bit. I can see why Cameco and KazAtomProm might go early. They might say, ‘okay, well, we will contract some of this out at mid-forties, because they are making a lot of money at that rate, more than most would at $65’. And the Tier-2, I can see why they would maybe want $55 or $60. That’s what they’re telling us. What does that timeframe look like? How do we work out what we are looking at here?
Dustin Garrow: There is a presumption that the utilities just start filling up their portfolios to 100% of what they need, that isn’t going to be the case. They’ll get up and maybe they’ll swallow hard and sign that USD$60 final contract. And it leaves somewhat of a gap and they go, ‘I’ll take the risk’. There’s going to be enough production. These guys are going to come on. I’m going to not fill my book up out in the future. In other words, I’m okay. Like they are today. 2 to 3-years, then it’s a bit lower coverage. And then all of that needs to be taken into account when one looks at how do you put together your term contracts? So, yes, it’s not just going to be one day, but he’s ready to sign 100% of their needs for the next 20-years – it doesn’t work that way.
Matthew Gordon: That is fascinating, it will be a fascinating and very accelerated timeframe. But I don’t know when it starts. I know that when it starts it’s going to be good. Very exciting. But I don’t know when it starts. Do you?
Dustin Garrow: It is always about timing. Early this year, prior to COVID-19, this year looked like a year that the US utility were going to become quite a bit more accurate. People thought, well then, now 4th quarter. We are already middle of July, so is it 4th quarter? Do they just go – ‘this has been a horrible year. I’m going to work in the garden, and I’ll come out next year?’
There are no conferences. The only one that’s still hanging by its claws is Las Vegas. End of October. And I’m hearing the utilities are going, no, if you have a one-day deal, maybe in Washington, maybe I’ll come to it. It’s really at risk. Then you’re into well into next year before there’s even a chance to where the industry gets together. You’ve just participated in a virtual conference, and those are fine in the interim, but it doesn’t…
Matthew Gordon: It is not the same. When is that scheduled for, Las Vegas?
Dustin Garrow: It’s like right at the end of October, the 28th, 29th, something like that. It’s the NEI, the last day of the year thing.
Matthew Gordon: You’re saying that’s 2021? Just to be clear.
Dustin Garrow: No – this year. We get into 2021 and you are in the spring before the combined WNA NEI conference, April. So, we are probably 9-months before the industry ‘gets together’, if they do it then. Yes.
Matthew Gordon: And just remind people why that’s important. Why can’t they be picking up the phone with each other between now and then?
Dustin Garrow: Yes. I mean it’s not a crucial, but it is the place where as they say the coffee talk and the lunches and the…Very few people are traveling to visit the utilities now, certainly Cameco must be, probably KazAtomProm, but to get on a plane, and some of them don’t have, say, US-based representation. Paladin’s representative is in the UK, so you’ve got to come across the Atlantic to meet with utilities. And we’ll just have to see. But none of it suggests a rapid ramp-up in term contracts. We could have more people in the market, but it’s still going to take a while.
Matthew Gordon: Well, that’s interesting. It’s in line with certainly where our conclusions have finished up, and we are thinking it is possibly Q3/21 next year.
Dustin Garrow: Well, as Grant Isaac of Cameco said on their last call, things have started to slow down. And he said, well, the market is strengthening, so that’s in their favour. So that’s okay. Then you’ve got, the first, the lower quartile guys are…
Matthew Gordon: Well, I guess that comes back to, if you don’t have the cash, you’re going to struggle. If you don’t have the ability to have a meaningful conversation with utilities when they are ready to have it, whether it be, say April, May next year, you are in trouble. And if you don’t know what you’re talking about, when you do talk to them, you’re in trouble. And if you have never produced before, you’re in a lot of trouble. It is an interesting time for some of the juniors who have been getting little bits of money in here and there but perhaps that may not be enough. But I keep beating that drum because it seems apparent to me, but perhaps I am wrong.
Dustin Garrow: And the other thing, Matt, and we have talked about it: you’ve got to be ready when the utility could come in the term market, because they sign these, it covers their needs out for maybe 5, 6, 7-years. You don’t start for a couple base of a, maybe 3, 4-years, whatever. If you’re not there, you’re not at the table. They don’t come out every year and do that. They tend to cover off and then they go off and do other things. They do their long-term contracting and then it might be 2, 3, 4-years before they’re back in the month.
Matthew Gordon: Last question. Are you ready for this? I know you advise a few companies. Are you at all nervous about some of these Australian companies coming and buying assets in Canada and the US?
Dustin Garrow: I thought it’s an interesting phenomenon. We are seeing a rush into the US market by at least 4 or 5-juniors out of Australia. And they are doing due diligence on properties and deposits primarily in the Colorado Plateau. It’s Colorado, Utah, and it’s traditional hard rock. With all of them saying they want a toll process at the one remaining operating mill, which is White Mesa. And, oh, we also want to participate in the Uranium reserve program. So apparently, they’ve had a really nice run-up in their share prices and caught, some of the US guys, maybe a little on their back foot a bit. And it’s like, oh, well, we’ll see what happens. But I’ve been surprised how many of them are around Utah, Colorado looking at properties. And, why not? they are cheap.
Matthew Gordon: Why not? If you can do it dirt cheap, but the questions we have been asking ourselves is, what are they buying? What are the assets? Because they will have been around for a long time, there will be some data on them and yet no one else has deigned them important enough to pick up. They are straight in, going to the US. And is this just a promote story back home? Or have these companies got a realistic chance of actually building mines?
Dustin Garrow: Well, keep in mind, we have, probably a derogatory term that’s mostly in the coal industry – ‘the dog hole’. And that’s what they are looking at. None of these mines, they’ve been around, like you say, back in the 1950s and 1960s, they were part of it; ore buying for whatever. And you go in and you dust them off. You are never going to produce more than a couple of hundred thousand pounds. That’s why, say, Energy Fuels has always had that cobbled together, a number of mines in the Colorado Plateau. It isn’t one big underground mine. Cigar Lake, that they’re producing, millions and millions of pounds. You’ve got to have a bunch of little mines operating in order to get the volume up. If you come in and get 2 or 3 of these things, I’m not sure the economics of it, how do you set up a US subsidiary to oversee your fairly minor holdings in the United States? Maybe they come and go; they come in and they look, yes, okay. Take it over a little bit. And 2, 3-years from now. White Mesa is processing rare earths, and there is no place to go.
Matthew Gordon: Well, let me ask about that: White Mesa Mill is obviously a huge facility and it is owned by Energy Fuels. And we are speaking to the CEO, Mark Chalmers this week, later this week anyway. Rare earths; it’s fairly up and down, fairly erratic sector. Extremely high margin if you time it right and if you capture a lot of the value. What do you think of that move by them?
Dustin Garrow: Stepping back, they are waiting and waiting on the Uranium market. Be it the government, be it the fundamentals, and to say, hey, we have got this facility and it’s in good condition. And if we can process the rare earth, which are now front burner in the US, then why not? Now, do they then turn their back on Uranium? I don’t think so, but it’s, hey, we are not just going to sit there and go down the road and atrophy down and shut the lights off. Rare earths are now…that mill is unbelievable. I’ve dealt with it since, basically since it was built a little after and they’ve used it, as up and down and Arizona high-grade ore, Colorado Plateau, alternate feeds. They’ve really looked at it as a flexible processing facility. And it’s.. thank God they have, because there would be no operating mills left.
Matthew Gordon: It is interesting. When we’d looked at it… and what people think of when they hear that word mill is some old dusty thing in the middle of the desert somewhere. But this has got a very high-tech lab associated with it, you’ve got radioactive material going through there. It’s a fairly sophisticated thing. And yet it can be upgraded and updated, and it’s got 17 lines and so forth. So it has a lot of potential. One of the other amusing things to me is the number of CEOs who come on the show and say, ‘we are putting all our stuff through the White Mesa mill’, but according to the CEO, that’s news to him.
Dustin Garrow: Yes. Usually. Well, there you go – good luck.
Matthew Gordon: I will have to let Mark know on Wednesday that there’s some good news. You’ve got all these companies that are going to feed through.
Dustin Garrow: Yes, that’s right. He’s already aware of it.
Matthew Gordon: He’s aware of it. And he’s aware of the conversations or he’s signing contracts? What do ?
Dustin Garrow: They all put it out; if you read their literature, their PowerPoint slides it’s well, we are 100km from the only licensed mill and they do toll milling. Well, they don’t do a lot of toll milling…
Matthew Gordon: Are any contracts signed? Do people actually have agreements in place?
Dustin Garrow: No. I can’t imagine. They have had some toll milling agreements, but most.. all expired. So, because they never got the mines operating to do the toll milling.
Matthew Gordon: I’ll ask him later this week. Dustin, thanks so much. What a run through. As ever, crazy market. It is going to make a great movie or a film one day.
Dustin Garrow: Yes, one of these days.
Matthew Gordon: Yes. It won’t be me writing it. Thank you again. We’ll speak to you again soon. I’m sure there will be more news next week or the week after.
Dustin Garrow: That’s right – once we get out of the summer, we’ll see.
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