Brandon Munro #18 – 3 Reasons Why Cameco Restarts Uranium Production Now (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN)

CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

Cameco’s quarterly call stuns market with some of its decisions. Have they lost the opportunity to drive the spot price up? We discuss the implications for investors and also for uranium juniors. We now wait for the KazAtomProm quarterly on 3rd August. We focus on the restart of Cigar Lake and reasons why they may have made those decisions and how it may affect partnerships elsewhere.

We Discuss:

  1. 2:53 – Opinions on Cameco’s Announcement
  2. 8:22 – Market Reaction: Implications on Utilities
  3. 9:57 – Reasons for Reopening Cigar Lake
  4. 13:23 – Buying at Spot Price: What’s Going On?
  5. 16:29 – Conversion Market Transition
  6. 18:06 – Final Thoughts

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro. How are you, sir?

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

Matthew Gordon: Good week, . A lot of new things happening here. So, we are rearranging the deck chairs a little bit. A few new people on board, so it’s all good. Looking forward to the weekend actually; a bit of good weather, barbecue, a bit of wine. It would be good to get the nice stuff out. That’s the plan.

Brandon Munro: You deserve it. You’ve been doing so much with your business, and just the responses and the comments that you’re getting are epic.  you can reach high on the shelf with this one for your barbecue.

Matthew Gordon: Very high, very high, Brandon.

Brandon Munro: And do you need to get that in writing from your wife, for permission?

Matthew Gordon: If you’re insinuating that I don’t wear the trousers around this house, you would be perfectly correct. Instead, let’s talk about what has happened in the world of Uranium this week. So, big thing of this week was the Cameco quarterly call – a lot discussed, but there was one topic at the top of everyone’s minds, and  the prices that we saw in the market afterwards would tell us that people had a strong view as to what the impact of that might be. I’m talking clearly about the restart of Cigar Lake. What was your take on that?

Brandon Munro First of all, for anyone who missed the call, Cameco have announced that they plan to restart mining at Cigar Lake. They believe they can initiate that fairly quickly. All of their staff are still on full pay so getting them back is really just a case of logistics and managing it all safely. They started that at the beginning of September. They would expect to be in production by mid-September for example, after doing a little bit of maintenance work after that period that it has been off. The market didn’t seem to like it very much. On the one hand that’s not surprising because the average Uranium punter would have preferred to see Cigar Lake off for a lot longer and a lot more pounds suppressed or sequestered from the market.  we just need to remember something: they initially announced that Cigar Lake would be temporarily suspended for four weeks and it’s going to be down for the best part of 6-months. It’s more than a Uranium investor could possibly ever have wished for at the beginning of the year. Some of the commentary being unduly critical of Cameco is just misplaced.

Matthew Gordon: There is frustration there, because this was seen by many as an opportunity to actually drive this price discovery in the marketplace.  it is born out of frustration, not necessarily anger at the management team, but just the perceived missed opportunity.  there’s a little bit of that. And they, as we saw a lot of red in the market yesterday with prices even Cameco was down as much as 17% yesterday. But it is a short-term reaction, possibly quite a good buying opportunity. But what else were they able to say about this restart? Because, it’s not just about restarting in September, it’s the rate at which they are able to do so – any thoughts on that?

Brandon Munro: The first thing is, they didn’t portray this as an absolute certainty. It’s a plan. It’s what they would like to do. It’s what they’re working towards doing, but it is still subject to it being safe to do so. And Tim Gitzell really emphasised that the safety of the employees, their families, the communities, and the country at large comes first. Interestingly, it’s also subject to some consultation with the community leaders in Northern Saskatchewan, and ordinarily you’d think, well, gee, that’s a bit of a lottery, what’s going to happen there? But Cameco is very measured with this type of thing and they’re quite conservative, so I don’t believe that you can jump to any great conclusions or expectations that that’s going to be a blocker. Unless Cameco felt very solid in their relationship with those parties and how they think they would react

I don’t really see that being a likely cause of a delay. Now in terms of how they’ll bring it back on, this is an underground mine. It’s quite conventional in general terms; it’s highly robotic, et cetera, et cetera, but it’s still an underground mine that is designed to be operated at full tilt. And full tilt, from their numbers, is exactly how they plan to do it. When you take their numbers and do a little bit of calculation, they’re looking to generate 5.6Mlbs between when they turn it back on and the end of the year. So that is running it at full steam. Probably working a little bit of stockpiles through to get a bit of a hit at the beginning as well.

The final thing that I’d say about it, that was quite interesting is Tim Gitzell flagged that there was a good chance it could impact 2021 production from Cigar Lake, and he pointed to defer development decisions. We can’t just assume that it’s going to be up to its 18Mlbs capacity next year. There’s a good chance that both in Kazakhstan, but also with this enormous Uranium mine in Canada, that we’ll see some a hangover into 2021 from this production disruption, assuming that they do manage to get it all started and operating effectively this year.

Matthew Gordon: Great point. I want to come back to what people infer from this, investors, retail investors infer from this. People selling off yesterday, they thought that there’s an opportunity for Cameco to sweep up any loose pounds in the marketplace. Likewise, with KazAtomProm, and that would give them the price discovery, which would then lead to hopefully some gains on the stock markets for them. So that was the big hope that even if they go full tilt from September, they’re not playing catch up on the lost pounds this year. But what do you think is going to be the reaction in the marketplace as far as utility buyers are concerned? Does this give utility buyers a bit more breathing room, or they don’t care? They are still focused on their own problems elsewhere.

Brandon Munro: It’s more of the latter. I don’t think you’ll see this significantly change the behaviour of utility buyers one way or another. Interestingly, one thing that it might well do is give utility buyers that little bit more incentive to be talking to Cameco. They now know that if they are contracting with Cameco, it’s coming from produced pounds, not purchased pounds, and there might be a little bit of that that came into Cameco’s thinking with the timing and the decision to restart. But as we’ve discussed a few times, the utilities are not in the discretionary mode where they’re waking up and deciding what do I choose to focus on today? They are fighting bush fires at the moment and this won’t really make a big difference to that. If anything, it’ll just give them that little bit more confidence that they know what’s going on. And that they don’t have too many moving parts in this whole equation at the moment.

Matthew Gordon: Let’s look at Cameco’s reasons for restarting now. Why do you think they made this announcement now?

Brandon Munro: They’re motivated by a few things.

The first one is, and we discussed this many times over the last few months, when you were posing some of the thoughts from the punters out there that Cameco would be making this move to try and force prices. I believe that Cameco makes their decisions for the right reasons. And I believe that this decision has been made by Cameco, primarily in the interests of the community, its employees, the country at large was pointed to. And you can take that on face value with Cameco – they are just that company.

The second reason is clearly financial. It’s costing them USD$8M to USD$10M a month in care & maintenance. They still have all of their employees on full pay, waiting to return to work. They haven’t been able to mitigate the expenses of this very well. And when you’ve got a plant and a mine like this that’s ready to spring back into action you need to keep everything oiled and looking shiny and that is an expensive process. They also pointed to the fact that they are buying now in the spot market well above the cost that they can produce. There’s a margin game to be had by introducing produced pounds rather than continuing to buy.

And the third reason, and I don’t have anything to go on here except perhaps a little bit of instinct, but I just wonder if they have got deep concerns about the reliability of production out of Kazakhstan? If you put yourself in Cameco’s situation, or imagine sitting on the board of Cameco right now from a governance point of view, and you would be asking the CEO, can you guarantee that by the end of this year, we will have primary produced pounds to sell in to our customer contracts, or is there a chance we will be entirely exposed to the market?

And number 1. it’s a joint venture, Inkai, so they are not the operator.

Number 2. it’s a long way away in Kazakhstan.

And number 3. as we’ve been talking about, things are not too rosy in Kazakhstan with its management of COVID.

I would expect part of their decision making may be, we need to have control of primary produced pounds as a fundamental risk management lever given that we are the second biggest player in this market and given that we’ve got such a large volume of pounds under contract. It’s those things. And when you start to think through those 3 different factors, I don’t think you can blame them for making a decision to not hold off pounds and try and force a little bit more inventory out of the market, et cetera, et cetera. It seems fairly clear to me that their decision-making is sound.

Matthew Gordon: I would agree with you about doing the right thing. I hadn’t appreciated the scale of the losses on a monthly basis. They have obviously done their numbers. They have worked out the arbitrage in producing, not producing, buying in the market, producing their own, etc, versus what they price may do going forward. Because they have done a few things which may inform that, such as the spot buying. The spot buying that they have done in Q1 v Q2. Maybe you want to elaborate on what’s been going on?

Brandon Munro: When you look at the numbers, they purchased roughly 4.5Mlbs in the first quarter in the spot market. And then with the disruption, they obviously realised that they needed to do some fairly serious risk mitigation and also chase some of the cheaper pounds before it started to form a new base or a new floor. In this quarter, it’s been effectively tripled: 14.5Mlbs or thereabouts. They have really got after it in the last quarter in the spot market and flagged that they will continue buying throughout the year, and if need be, they’ll start buying for 2021 deliveries as well. They’re indicating that they are prepared to use this big balance sheet they have got to build inventories if necessary. And I would expect the necessary means that production doesn’t return this year.

Matthew Gordon: Do you think that had any effect on the price gains on the spot market that we saw in early Q2/20, and was it enough to move the dial? And if so, what type of buying were they doing that it didn’t affect pricing in Q3/20?

Brandon Munro: That’s a good question, because we have talked about the plateau. And in fact, that was one of the analyst questions that was posed to Grant Isaac, what’s going on with this plateau? And it seems like there’s lots of people talking about it from his reaction. The buying that Cameco would have done initially would have been measured and careful, even though we saw a big spot price lurch, they would have been mitigating their own risks enough that they wouldn’t have wanted to sponsor that in any way, or to try and exacerbate that spot price lurch. There was a lot of volume done early, so that was early steps taken, and I’m sure Cameco was a large part of that. And the other thing is that there were many references made by Grant and even one by Tim, which was along the lines of, we felt very lucky to have accessed those pounds. When they were talking about buying pounds, either in the spot market or directly from other players, they reiterated that they were surprised at the pounds were available, that they were very fortunate to have been able to get those pounds and so on. And they’re not the type of company that that tries to gild the lily here or gold plate things.  what they’re trying to say is they didn’t expect those pounds to be so easily available and they’re pleased that they are, but they’re not sure that those pounds are going to be particularly available going forward.

Matthew Gordon: That’s informing the decision as to when they get back into production. They also talked about the conversion market transition, not saving the day, but certainly helping a lot. Is that something we can look to see more of going forward?

Brandon Munro: That division has certainly been profitable for them, which has helped them a lot to weather some of this and given them a lot more financial stability. Conversion is a complex topic, as we have talked about before, and they talked a lot about the arbitrage between Cameco-delivered pounds and Comerex, or US-delivered pounds. And the closure of Metropolis Works’ conversion facilities played a huge role in that. I didn’t get any clear indications from the call as to how they saw conversion playing out one way or another. What is clear is that utilities need to be bringing material all the way through the nuclear fuel cycle to generate demand for conversion. If they are still wearing off or working off their EUP, their enriched Uranium product and their advanced fabricated fuels, then they’re not going to be putting a lot of pressure on the conversion market. Cameco understand that stuff really well so they’re probably, they have got that part of the market measure and they’re thinking clearly about it.

Matthew Gordon: Your view of the quarterly call: measured as ever? I’m not sure it gave confidence to the marketplace, but have they have made the right decisions, for the right reasons?

Brandon Munro Yes. I’d say so. It was somewhat subdued compared to the last call if you had listened carefully to the tone. And again, that’s understandable. They would have known that the message wouldn’t have been well-appreciated by everybody. There would have been an element of reticence to delivering that message. And also, they are not coming off a quarter of growing Uranium prices like they were the last couple of quarters. So overall, not surprising. Somewhat subdued, but certainly not a trigger for the selloff that we’ve seen. I’d agree with you; for people who are accumulating Cameco, they would have been rubbing their hands with glee yesterday.

Matthew Gordon: It’s time to move into the Crux Investor club members section. I’m going to say, thank you very much for listening today. I hope you enjoyed Brandon’s views on the Cameco quarterly call and the interpretation that he has given us. We are not going to move and talk about a few other topics – quite interesting in terms of what is going on in the market, with our club members, so we’ll see you again next week.

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Bannerman Resources (ASX: BMN) – Uranium Player Reduces Scale and Transforms Value Proposition (Transcript)

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

Interview with Brandon Munro, CEO of Uranium Developer, Bannerman Resources (ASX:BMN)


Bannerman Resources is a uranium junior with a large uranium project in Namibia called Etango. The big sticking point for Etango has always been the large CAPEX: US$780M indicated in their DFS and the Africa factor.

However, today’s scoping study could well go some way towards changing that sentiment. The scale of the project has been much reduced; the CAPEX is now down to just US$254M. This is now a much more manageable project and their optionality around financing has been enhanced. Bannerman Resources now has the optionality to turn this uranium project into a reality in a variety of ways.

A new PFS and DFS are now on the horizon and should follow in around 18-months. Bannerman Resources could now be primed to time its entry into the next cycle perfectly.

We discuss:

  1. 2:36 – Company Overview
  2. 3:49 – Scoping Study Results: Why Did it Take So Long?
  3. 7:25 – What They Had vs What’s Possible Now: A Look at the Numbers
  4. 11:33 – 3.5M pounds vs 5 or 2: Discussions and Decisions
  5. 14:04 – Options for Financing it: Cost Drop to $65
  6. 21:13 – Middle East Becoming a Player in Uranium: Benefits and Concerns
  7. 23:17 – Still to Come: Speed, Process, Risks, Costs
  8. 32:03 – Market’s Reaction: Does Anyone Care, Should They?
  9. 34:39 – Mitigating Board Concerns and Issues
  10. 36:53 – Timing it Perfectly: How Do They Know?
  11. 39:58 – Sneak Peak to #19 of the Uranium Series with Brandon

CLICK HERE to watch the full interview.

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

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

Matthew Gordon: Saw the announcement this morning – some good numbers on there. But before we dive into that, can you just for people new coming into the Uranium space and looking at various Uranium stories, it might be worth giving a one-minute overview of your project. Then I want to talk in detail about your Scoping Studying numbers.

Brandon Munro: We are Bannerman Resources. We are listed on the ASX. Our project is the Etango project in Namibia. We’ve been focused on Uranium since 2006, and the project has been subjected all the way through Feasibility to a DFS and then even a pilot plant. But as we’re about to discuss, we’ve now gone back to the future in terms of a Scoping Study with the Etango 8 project. It has got environmental and social permitting. We love operating in Namibia and we are quite active in the nuclear sector as well, which helps us a lot when it comes to talking about how to understand this sector, how to market to it and how to build a project in an industry that can be quite complex.

Matthew Gordon: We’ve noticed you have a DFS from 2015. Huge CAPEX, and I think that was a problem for the marketplace. People thought this is too much money to raise, and there’s only going to be a few options available to you in terms of funding. I think that was a concern. You have addressed it with this new Scoping Study, well, I think that’s what you’re trying to do. So maybe if you could explain why you’ve changed things up a bit.

Brandon Munro: Yes. It was a problem for the market, for the stock exchange market, investor market. And we have, like all of our peers in this deep Uranium bear market, we have had a diminishing market capitalisation. And when you apply as typical metric against the capital costs, which in our 2015 DFS was USD$793M, you end up with an equation that requires some fairly significant financial steps to be taken. Now having said that, I would say in our defence that for this sector, for the Uranium sector and the nuclear energy sector, these are still relatively small numbers. You have got to remember that the number of reactors that our project could service at those numbers had a construction cost well north of USD$80Bn. But be that as it may, we are not servicing reactors at the moment. We are striving to add shareholder value. And for some time now, we have been looking at what we can do with this project to get an initial or a start-up scale with a much lower capital hurdle that gets us into business. And then depending on how the market progresses from there, we are in a position to either continue at that level for a long mine life, or we have got the option of adding another train and increasing the scale of our production to take advantage of a greater proportion of this enormous ore body that we’ve got at Etango in Namibia.

Matthew Gordon: You have listened to the market, that’s clear, but why did it take so long? The DFS was from 2015. It’s 5-years later that you are now coming out with these smaller numbers. Why so slow?

Brandon Munro: Yes, that’s a fair comment. So there are a couple of things to think about: first of all, when the DFS was scoped out, so we did release our initial DFS in 2012, when that was scoped out, it was pre-Fukushima, and this sector was enjoying the nuclear renaissance, it was crying out for pounds. The 7.2Mlbs p/a average production rate for that large project was entirely appropriate and certainly a competitive advantage. Then the market took some time to react to Fukushima. It took some time to be obvious what the demand destruction had been there and for that recovery to take place. But also, we need to remember that there has been a number of technology enablers for us to be able to do what we’ve done here. Back in 2012, we didn’t have the nanofiltration and membrane options that we’ve managed to incorporate into this project. That has dramatically improved our recoveries and it has also improved our reagent usage and really decreased our acid use. We needed those wins to be able to dial back the project to a much smaller scale whilst maintaining robust economics. And look, the other thing that I’d just say about this is, there was a lot of scaling work done including projects that were underway when I came into this role in 2016, but it was only when we really dialled it back significantly that we stayed within a pit shell configuration that really dropped the stripping ratio down to a point where we could do what we’ve been able to do with this Scoping Study.

Matthew Gordon: Give us some of those other numbers. In terms of being able to do some comparables from what you had, which I assume is still an option, but you are parking it up in favour of this new Scoping Study, this new direction, but can you help us with the comparison of what you could do versus what you are now going to aim to do?

Brandon Munro: Sure. And look, let’s come back to that question about what the giant project is still for us and what options that gives us, because I really do think that that’s important for shareholders and investors to understand. First of all, on CAPEX: the 2015 DFS optimisation study came out with a CAPEX number of USD$793M. What we have here is a project that we’ve called Etango 8. We’ll be calling it Etango 8 from now on. And that refers to the throughput that’s going through the mill. The giant project was 20M tons p/a through the mill or the processing plant. Etango 8 is 8Mt p/a. In other words, we’re putting only 40% of the material through the mill that we would otherwise, but because we get a little bit of a kick in grade, we are operating for the first 50Mlbs in slightly higher grade, so we get a 20% kick. In actual fact, we operate at a 40% throughput, but we get about 50% of the production, so 3.5Mlbs p/a.

So, back to capital costs: USD$793M in 2015, we have now got half of the production, but we brought that capital all the way down to USD$254M as a pre-production capital number. And not only that, but the sustaining capital has been reduced dramatically by about USD$250M over the life of that mine. Our All In Sustaining Costs have come down significantly as well.

One thing that’s very important is, quite often with a big project like this, you can simply do a trade-off. You can trade your upfront capital for increased operating costs. And we’re very proud to say that we haven’t needed to do that. The cash costs have remained pretty much exactly where they were at circa USD$37/lbs. And the All in Sustaining Costs is just a smidge over USD$40/lbs. At the moment it is USD$40.90/lbs, which are very comparable with what we had back in 2015.

The total throughput, or the total proposed mine over the life of mine is 51M lbs. And that compares with 113Mlbs under the 2015 DFS. But of course, those pounds aren’t going anywhere so that is one of the things that just gives us so much optionality going forward once we see just how deep this market deficit is and what that ultimately does for pricing.

In terms of what our pinch points are, when we did the 2015 Optimisation Study, we assumed a price of USD$75/lbs. In this case, we have been able to assume a price of USD$65 p/lb and still end up with an attractive NPV. At that level it’s USD$212M. It’s still a very significant premium over our current market cap, which before we started trading today, sits at circa USD$30M. There’s still a lot of room for investors to enjoy our progress as we progress this project.

Matthew Gordon: I don’t want to get into a macro discussion with you, because, the price today is at USD$32/lbs or thereabouts. You are talking about USD$65/lbs. We’re a long way from that, but you and I on a weekly basis, talk about the macro coming. I’m going to park that for this conversation if I may, or maybe we’ll pick up on it on the end. Just to help me understand the decision-making that’s going on at board level, because it’s an optimisation process that you have gone through, and so why is it 3.5Mlbs you’ve settled on p/a versus 5Mlbs or 2Mlbs? What was the thinking? What was the discussion around that?

Brandon Munro: Well, initially we dropped the production throughput dramatically down to 5Mlbs. As I said, we had done previous exercises in testing reductions in throughputs down from 20Mlbs per annum, where we started in 2015, down to 15Mlbs and 10Mlbs, and by looking at things differently, we said, what if we stay within a very low strip ratio zone of the ore body, because our ore body does outcrop. We get a nice win in the early years. And we reduced it all the way down to 5Mt p/a and saw some very promising results there that gave us the confirmation that, yes, this is a viable alternative to invest further in. And then what we did is basically pitch our optimisation. We worked with AMEC Consultants, who are very, very talented mining engineers out of Namibia. They have done a lot of the work for Rossing and others, and they ran the different pit shells and optimise the NPV at 8Mt p/a. And from there, we just had to cross test against various tolerances such as what impact does that throughput have on external infrastructure, et cetera, et cetera. And we came back very comfortable that that was both the right economic number for the pit. It was the right economic number for water and power and other things that we were looking to get a win on by reducing our demand and also the perfect number for the market – 3.5Mlbs, I think is an ideal number for the market, as we can predict and understand it over the next 3, 4, 5-years.

Matthew Gordon: That’s another interesting point, and perhaps one for another day in terms of how you quantify how many lbs you’re going to be able to sell into market. We have looked and studied; some companies are predicting much higher numbers from scratch, having never produced before and getting that into market. So, as you say, I think that is a conversation for another day, but what I’m surprised you didn’t mention there was part of the factor being what you thought you could get financed, because with a lower CAPEX, I’m assuming you are opening up your options. People have always thought USD$800M – that has got to be the Chinese. That’s the only way you’re going to get financed. And they are looking to hear you talk about relationships with Chinese groups, which you have intimated, but at these sorts of levels, what other doors do you open?

Brandon Munro: Well you’re right: the Chinese option, if I can put it that way, certainly is very valid. I mean, we’ve talked at length about how China’s demand for Uranium going forward is absolutely voracious. Whether they are a financier, whether they are an offtake partner, whether they are a customer, whether they are a joint venture, all of those options still remain equally valid here. But as you point out, Matt, we do now have many other options. There are vertical integration-style options into a variety of different players that perhaps we couldn’t have achieved at 7.2Mlbs p/a because we were just too big to vertically integrate into a nuclear power business. Whereas now at 3.5Mlbs, that services say, 8 or 9 1Gw reactors per annum. There are many players who have a fleet of that size, or intentions, or plans to create a fleet of that size who could then look at us as being a large part of their solution for future security of supply, in whole or in part.

It also makes us attractive from a conventional financing perspective. At USD$65/lbs, we’ve got an IRR that’s in the 20s. Before, at 2015, we would hit 15% IRR at a USD$75/lbs price assumption. We have now got something that looks a lot more robust, not only in terms of the absolute amount of capital required if we would go to conventional financing, but also in terms of the returns that we can offer investors down that path. And because of the optionality that we’ve got with the bigger project, it opens a number of different strategic options for us to start looking at other assets, and when we start to see this whole sector move more into a consolidation phase, we have now effectively got two approaches to offer when it comes to a consolidation. We have got a 3.5Mlbs production project that’s got low CAPEX, relatively low CAPEX hurdles, environmentally approved, and all of that sitting in Namibia exactly where you’d want it, but there’s also still the giant that’s sitting there. It’s got a DFS, it’s got a pilot plant. No-one can take that away from us. All of the pounds of there; there are still 271M lbs Uranium sitting there in the resource, and we can now work up the 3.5Mlb project – Etango 8 through PFS, DFS, all the while keeping a very keen eye on the market. And if the market does what certainly I hope it will and most Uranium investors do well then that giant size project is still going to be very much a viable alternative, and it really comes down to what market sizing do we want to offer.

So I think that breadth of possibilities, including the lower hurdle to get into production with Etango 8 creates a, a multitude of opportunities for us: to build the project ourselves realistically, to conventionally finance it with offtake arrangements through to other arrangements, including consolidations, peer mergers, vertical integrations, soft debt, and financing. I really feel like we’ve now got all of that in front of us, and very much looking forward to seeing how the market plays out as to which of those are going to deliver the best shareholder value

Matthew Gordon: You have reduced the price of Uranium in your calculations from USD$75 to USD$65. Where has the confidence come from to do that?

Brandon Munro: Well, we’ve done that really just to demonstrate that the hurdles for getting into production are significantly decreased. It’s not about my level of confidence for this market by USD$10/lbs. It’s rather being able to demonstrate that we can produce a 20%+ IRR and a 200M-od NPV at USD$65/lbs. Of course, at USD$75/lbs it looks even better and at USD$80/lbs, we would probably start thinking about the bigger project because of the extreme leverage that we get from that. And look, USD$65/lbs is very consistent with many of the guests that I’ve seen you talking about. That seems to be a well-accepted number on the production side. And I can tell you, when you have closed-door discussions with utilities, you don’t get any eyebrow raising at USD$65 either. It is a distance from where we are at the moment, and you get people on Twitter, YouTube in private conversations, who might say, well, look, where are you going to be at USD$55/lbs? What happens? But what investors need to understand is that there is no single clearing price when it comes to term contracts. Utilities will operate within a band. They’ll have a whole portfolio of contracts, some of which will be below USD$55/lbs, some will be above USD$65/lbs, and they need that band to achieve enough fuel to go through their reactors. So this concept of us sitting at USD$55/lbs, for example, for some time well, that’ll be great for 60% of the market because Cameco can happily produce into that, and KazAtomProm can happily produce into that, but where is the other 40% of the market is going to come from as we start to see this this deep depletion of supply from 2024, 2025? So, we will be there. We will be there waiting for that. And if we do see a situation where it’s still USD$55/lbs, we know that we will have utilities banging down our door very soon after that, as they realise that that theoretical number of USD$55/lbs only fills their reactors with 60% of the fuel that they need. And at that point, because of the dynamics with nuclear fuel being still only a fairly small proportion of the cost of producing nuclear power, they will have to come to the market at whatever cost is required, because it’s not a very happy situation to run a reactor at only 60% of the fuel that it needs.

Matthew Gordon: That is a consistent story. We are hearing that number from the US Uranium producers. We are hearing that from the Canadians, we’re hearing that across the board. It will be interesting for me as an investor to see how quickly that price discovery comes. But yes, I buy your argument.

The Middle East is becoming a bit of a player now, and being in Africa, and we have seen in other sectors, groups in the Middle East coming down into Africa for like food security, food supply and other mineral resources. Is that a reasonable likelihood? Is that a conversation you could have, or does that put you at a disadvantage when talking to US utilities?

Brandon Munro: It certainly is an interesting part of the sector, for the Uranium sector generally, but also this type of financing. It’s well known that Middle Eastern groups have got very deep pockets. It’s also quite well understood that they are looking to transition away from a dependency on hydrocarbons. And we’ve seen that both through the Emirates program at Barraca, where the South Koreans have completed their first reactor and there, they’ll install 5.6Gw there at Baraca. We’ve also seen it in Saudi Arabia, for example, where they’ve announced plans to construct a nuclear fleet over the next decade, of 17 reactors. A lot of that’s driven by the desire to install nuclear power for desalination purposes, which of course, in that environment dramatically opens up a whole number of facets of their society in their industry.

So, what we can offer either to middle Eastern groups, as customers, to Middle Eastern groups as offtake partners, or potentially as financing solutions, is this capacity to deliver 3.5Mlbs, support 8, 9 reactors. Or if you look at it another way, it can support a reactive demand for 2.5M lbs plus slowly build-up inventory. That, with the African connection that you’ve just identified, I think is a very powerful option for us and something that will make those conversations quite interesting when it’s time to have them.

Matthew Gordon: This is just a Scoping Study. You need to do a PFS, you need to do a DFS. And if I follow your line of argument with regards to market recovering because the supply and demand story that we’ve talked about on numerous occasions, you’re going to need to get a move on. How quickly can you deliver that? What is the process that you are envisaging?

Brandon Munro: We have really got an advantage here, because we’ve beaten this path. We’ve constructed the broad highway, which is a DFS with all of that cost and expense and resources, and now we just need to lay a little bit of a one-lane next door to it with this Scoping Study. So really what that means in practice: if you look at the cost, the risk in terms of blow out of budget or timeframes to move from Scoping Study to PFS, and also where the technical risk or the failure risk lies, the key things are first of all, number 1- the risk associated with the ore body and the requirement for resource drilling. We don’t have that. We have drilled 360,000m into an Etango, so there’s no more drilling that’s going to be required.

The next big risk factor, particularly in a Uranium projects is metallurgy. Again, there’s nothing more that we can do in metallurgy. We have had a demo plant, a pilot plant operating for 3-years. And the final risk factors environmental. Normally at this point, you’ve completed your Scoping Study. You’re moving towards a PFS. It’s about starting to get your baseline together, starting to think about how you’re going to obtain environmental approvals. Now, we’ve got the environmental and social approvals already in place for a much bigger impact project, so that’s not an issue either. We feel that we can move through a PFS in a very quick timeframe for what is still a very big project at 3.5Mlbs. We think we can get that done in about nine months. And although we haven’t yet appointed the consultants that we want to use for the PFS, we think that we can get one done for very good value for such a big project.

We want to go with top shelf, high calibre consultants so that this outcome and this product very much sits alongside the high-quality technical work that’s already been done since 2006 at Etango. And we don’t see why we can’t get all of that done for AUD$1M. So that means that with our cash balance, we’re still in a very strong position here to move it forward. And to answer your question more directly, we’re ready to get on with it. We’re ready to get hopping here. We think that we can time this project perfectly for when the market is going to be crying out for 3.5Mlbs.

Matthew Gordon: Tell me a bit about that: so it’s going to be 9-months to deliver the PFS from when you appoint your consultants. You must have a view then as to when you think the market is going to recover, to be able to say, we’re going to time this perfectly, because after you do a PFS, you’ve got more studies to fund. How are you going to do that? Or are you going to leave that until further down the line to try and work out when you think the market will be a little bit better?

Brandon Munro: Yes, we have got 9-months of PFS, and we anticipate that a DFS would take about another 9-months. And realistically, you’re not going to be marketing with any certainty to utilities until you are towards the end of the DFS process. You can’t really commit to long-term contracts until you’ve got that level of certainty, even with all the advantages that we’ve got. I would say that’s the timeframe, and fast-forward 9 to 12-months from here with all the macro dynamics that we’ve been talking about and the huge gaping deficits that we’re seeing open up in this sector, that’ll be perfect timing, not only for making the decision to progress to DFS, but also in terms of having those conversations with utilities.

Matthew Gordon: You’ve got a PFS coming. It’s going to cost you around AUD$1M. And to do a DFS, what’s that going to cost you? How much cash have you got left today? And are you going to need to raise capital in the market to get that over the line?

Brandon Munro: Well, at the moment we closed 30 June with AUD$4.2M. So, obviously, if we spend, let’s call it $1M on the PFS, we’ve still got more than AUD$3M. For the last 12 months we burned through a smidge over $2M. We’re running at $500,000 per quarter cash burn, including the project work. We’ve been able to get the Scoping Study done and all of the other optimisation work, run the demonstration plant, complete the membrane test, work to a DFS level. We have been able to achieve all of that within a $500,000 per quarter cash burn. We’re pretty tight.

You can extrapolate from that, that after deducting AUD1Ms for the PFS, we have still got more than a year of runway. And from there, we can look at what the market looks like and decide at what pace and, whether we are prepared to use existing cash reserves to fund a DFS, or if we need to go back to the market for that. But I think the key point is, we don’t need to raise anytime soon. We’re not under duress to raise in a flat market, as we’re seeing at the moment, and we’re going to be able to put out some good numbers before we need to think about using cash balances versus raising fresh equity to progress the project,

Matthew Gordon: Looking at this Scoping Study. It’s early stage. What I need to believe is that these are accurate as can be, and you’ll get more and more accurate the more work you do through the PFS and DFS. But, you are going to market with a pretty big claim here. How have you managed to, for instance, keep the capital cost and the operating cost down like this, because it seems to me the bulk tonnage operation, the economics should change?

Brandon Munro: So there’s a couple of things to say about that: the first one is it is a big change in capital. It’s $793M down to $254M. It’s a much greater than proportionate drop in capital, but there are some good reasons for that. First of all, of course, the throughput is 40%, not 50%. The output is 50% because we get a kick in grade, but the throughput is 40%. So immediately that’s going to reduce certain capital items. But the big win for us has been the capacity to move from owner mining, to contract mining. So that has reduced over USD$100M of pre-production capital because we don’t need to buy the fleet, and we have taken USD$250M out of sustaining capital over the life of mine because we don’t need to service and replace the fleet and so on. So that has punched a big hole in our CAPEX.

Another one is, because we were under the DFS operating at such a large scale, a number of the aspects of that scale required a special solution. The best example is the heap leaching. We had what’s called a racetrack heap leach system, which is used in enormous copper mines in South America and elsewhere in the world. But there’s quite a lot of kit involved for that. Now because it’s a much smaller throughput, we can go for a more conventional stacking of our heaps and that’s taken circa USD$80M out of the infrastructure bill that we have got.

There are a few other things that start to add up: because our power requirements are less, we don’t need to build a substation. We can just run a line from the existing power infrastructure that is around the corner. There are other things like that.

And then the final thing is that we have been working hard on this project since 2015, and there’s a number of smaller wins that we’ve had that just add up and accumulate. For example, what we released in the processing optimisation study in 2017, we’ve been working on the membrane study, so we’ve now moved from SX, solvent extraction, to iron exchange with nanofiltration. All of those things start to punch small holes in capital that then add up. When you start to run down the list of where we’ve had those capital wins, bearing in mind that we’ve punched a huge hole through switching from owner mining to contract mining, I think we have presented very credible numbers.

Matthew Gordon: How do you think the market is going to react to this story? Do you think the market cares?

Brandon Munro: I think it will care. I definitely think it will care. This is fantastic news for Bannerman. It might take a little bit of explaining. It might take some time for the market to fully react, but we need to look at what has happened here: Bannerman has been regarded as an out-of-the-money option on a very, very big project for quite some time. And now what we’ve done is we’ve retained all of the advantages of that very, very large-scale project and what it can offer strategically to multiple parties in this sector, and delivered in the Scoping Study phase an attractive developable project that still has significant size compared to our peers. It is still amongst the largest development projects out there that can produce within a few years in a jurisdiction where we’ve already got environmental and social permitting. and socially, politically, and environmentally, they are very comfortable with Uranium mining. I certainly think the market should care. We can have a chat in a couple of weeks’ time and just see how much it does, but I’m excited about this. And I’ll be very surprised if the market, with a bit of time to explain what we’re on about here, I’ll be very surprised if the market doesn’t get excited behind us as well.

Matthew Gordon: But it doesn’t have the sex and the sizzle of the Athabasca basin; it’s Africa. I think that’s something that’s thrown at you guys a lot. How do you respond to that?

Brandon Munro: We are going to be producing pounds before the Athabasca Basin, so you can have all the sex and the sizzle, but if you’re looking through a bulletproof window at that sexy, sizzling project, then it doesn’t do you any good.

Matthew Gordon: What do you mean by that?

Brandon Munro: Well, you need to be able to step through and produce pounds, environmentally, socially, and politically. And in Namibia, we can do that. We can do that. We need to get our studies done. We need to get our contracting and financing done. And then we’re away. Then we’re away. We’re not still doing environmental baselines. We’re not still waiting for environmental approvals and so on. I hope for my colleagues in Athabasca, that those things come quickly for them. The market is going to need them. I certainly don’t feel threatened by a bunch of production coming in from the Athabasca, but that is still a big process that needs to take place. I’m delighted to say that we do not have that ahead of us.

Matthew Gordon: You have got a pretty experienced board. It’s something we have talked about before, and it’s something I keep reminding investors about. What have been their concerns with this segue from large project to small project? What are the issues that they wanted to deal with and what are they issues that they still think lie ahead?

Brandon Munro: The biggest issue in terms of dealing with this is, I like to say that I’ve got a healthy degree of scepticism around the boardroom table. And really, truly that is the best board to have. It’s far from a group of ‘yes men’. I’d like to think that I have built the board’s confidence over time, but I get plenty of difficult questions from them. And that is ultimately the best approach to take. They’ve been sceptical about whether you can take a bulk tonnage project such as what we’ve got here, dramatically reduce its throughput and end up with better project economics. So that is what has pushed us through this process. I am pleased to say that we’ve proved it now to the board. So that is no longer a scepticism that we need to deal with, and there’s a lot of good reasons why we’ve been able to accomplish that, because of stripping ratios, slight increases in grade.

Going forward, I think the main challenge that the board sees is educating the market into understanding that this is an and/or. Markets often can only really like latch onto and think about one scale of project, and obviously, that’s what we’re going to be talking about for quite some time, because that’s what we’ve now got to explain to the market. But the board sees my challenge as reminding everybody that 20M ton of Etango producing 7.2Mlbs is still an enormously valuable asset for our company, even though all of the news flow and all of the focus and everything that we’re going to be talking about is at Etango 8 – the 8Mlbs a ton p/a project that’s producing 3.5lbs p/a.

Matthew Gordon: I want to go over some of these numbers. So 9-months for PFS, you’re going to skip the Feasibility, go straight to DFS. Let’s say that thing gets wrapped up in 2-years, 2-years to construction, so 4-years. So why do you say you are timing this perfectly? What makes you say that?

Brandon Munro: Because when you look at let’s use the WNA numbers, because as I’m very familiar with those. What we see from the WNA reference case and in particular, the uppercase, is you see supply depletion in this sector really start to bite from 2024 and in particular 2025. And this is all putting to one side, all of the supply disruption that we’ve seen because of COVID. Now, we are just ignoring that for now, but if you think about it: 2021, Ranger – one of the biggest Uranium mines, historically comes out of production in January, this coming January. COMINAK in Niger ceases production in 2021 as well. By 2024 and 2025, we’ve got that supply depletion exacerbating by certain Kazakh assets starting to deplete. And when WNA in their nuclear fuel report, start to model out that Uranium supply that can come back into the market, even after allowing for projects, including a Etango to get into production and start producing, even after allowing for all of the care and maintenance projects: McArthur River, obviously Cigar Lake coming back on. Langer Heinrich and others, there is still a big gaping supply gap opening up from 2024, 2025.

The events that we’ve had just now with COVID-related supply disruption, they are going to continue into 2021. They are going to have the effect of really tightening up remaining inventory and getting the attention of utilities. And I think, shifting this whole dynamic from where it’s been of complacency with cheap Kazak over-production being available for several years through to concern. And if we can time that inflection point from complacency to concern and be in front of utilities with a viable project that has relatively low hurdles to development. That’s why I say we can time this perfectly. We can be in front of utilities, presenting a solution to the extent of 3.5Mlbs exactly at the time when they are going to have to be thinking very, very hard about where they are going to get their lbs from 2024, 2025 onwards,

Matthew Gordon: It feels like you’ve been biding your time, waiting for the moment, and to get this study out now, it really is a different Bannerman from the last Bannerman that I spoke to. I will be interested to see the progress over the next few months. Certainly, when you commission the PFS and get that going, I think that’s going to be a real, real moment to truly get behind the economics that you’re purporting you should be able to achieve.

Brandon, thanks very much for that run through. I appreciate that. And we will catch up later this week to talk about the KazAtomProm quarterly as well, if you don’t mind. In summary, what was your take on it?

Brandon Munro: I think that the most important comments in that relatively short document was, first of all, KazAtomProm confirmed that they’ve entered the spot market. It has been something that’s been rumoured for a while. Now we know that that is the case, and we know that they are going to have to continue in the spot market. The other thing that they acknowledged that will start to get the attention of generalist investors in particular, is they acknowledged a severe impact on their production in the second half of this year. And that’s because, something that we’ve talked about a lot – the lag effect, and they said that that lag effect could continue as long as nine months from the disruption. So even once they are back in business, we’ve still got many more months of disruption coming out of Kazakhstan. So that’s now very much put 2021 under doubt. And remember it was only last week that Cameco started to raise the possibility of Cigar Lake production in 2021 being under guidance because of delays in doing some of the forward development work that they’d need to, to ensure that they are producing at 18Mlbs in 2021.

What we’ve got out of that is: they are not acknowledging any further delays to them getting into a return to production. They are emphasising that it’s going to be slow and cautious. They are already in the spot market, and this is going to be a supply disruption that’s going to keep giving to investors for quite some time.

Matthew Gordon: I’m looking forward to talking about that with you later this week. Congratulations on the Scoping Study and the numbers. I think that puts you in a very unique small group, a category which should get people’s attention. I look forward to seeing how people react as well. Thanks again. I’ll speak to you later this week.

Brandon Munro: Yes. Thanks very much. Thanks for all the good questions. Tough questions. I enjoyed it.

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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.

Bannerman Resources (ASX: BMN) – Putting Itself in Contention at the Head of the Uranium Pack

Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (05.08.2020)
  • Market Cap: A$39M

The brute scale of Bannerman Resources’ massive uranium resource was never in doubt. It is a homogenous, average-grade bulk resource in Namibia, itself a benign mining-friendly country on the South-West coast of Africa. Therein lay the problem for most investors: Bannerman’s 2015 Definitive Feasibility Study demanded a pre-production CAPEX of the best part of $800M.  Given the Aussie junior’s tiny EV and the huge volume of pounds that needed to find a home, Chinese nuclear utilities and their voracious future demand for uranium seemed to offer Bannerman’s best – and perhaps only – option, particularly because Africa remains a happy playground for large state-owned Chinese groups.

But things have changed today.

Bannerman’s CEO, Brandon Munro, is known as a seasoned and engaging individual, with an enquiring mind and ability to shine a light on what is often an opaque space. He is undoubtedly one of the most intelligent uranium commentators, and his insights are incisive, compelling and articulate in equal measure. However, Munro has now decided to shine white light on his own operations and to address market concerns with Bannerman Resources. Today’s announcement that Bannerman Resources has reconfigured their approach to get into production earlier and with a much-reduced CAPEX means that this project just made itself very attractive to a new raft of funders and investors. As we say here, the optionality just got brighter. We would argue Bannerman Resources is now in rarefied air, just one of a handful of uranium juniors with scale that can genuinely get into production within the next 3.5-4 years.

Matthew Gordon talks to Brandon Munro, August 2020

The decision to reduce the scale of a bulk-tonnage project would usually damage the economics, often beyond repair. But, in this case, it hasn’t, partly because advancements in processing technology have reduced reagent costs and also because the shape of the out-cropping Etango orebody facilitates a long mine life at low stripping ratios. The new scoping study has reduced the scale of Etango to a much more manageable and pragmatic level, which will ensure Etango has the optionality it needs to aid its journey towards production. The CAPEX has gone down to just US$254M, less than a third of the previous number. Whilst the annual production has also reduced, from 7.2Mlbs pa to 3.5Mlbs pa, it is still a very meaningful production profile than can only be matched this decade by a few players. The company will refer to Etango as “Etango-8” from now on (referring to the new 8Mt pa throughput to the mill) as a lucid indicator of the new value proposition on offer. In contrast, the throughput of the “giant project” was 20Mt pa. Etango-8 might only be 40% of that throughput, but because of the boost from a 20% higher grade profile, the company will produce 50% of the yellowcake over a relatively long mine life that can readily extend into Etango’s 271Mlb mineral resource.

Jurisdiction matters. So, what of the Africa factor? It doesn’t have the sex & sizzle of the Athabasca Basin. Munro is open in his support for all uranium miners, but he is also candid about the advantages of Etango-8 in relation to his Athabasca cousins. The Canadian projects undoubtedly have high-grades, but they also come with extremely long environmental baselines and permitting times – not to mention very large CAPEX requirement – resulting in finance-driven contracting thresholds that will impose a herculean task on their marketing teams.  We expect that Bannerman can move into production and be negotiating contract extensions long before the Athabasca plays can start to commit their production under contracts.  It’s hard to overstate the importance of timing in the uranium sector – not only because the sector’s famed volatility presents financing windows but also because arriving late to the contracting party reduces options for new entrants.

So timing, as always, is going to be critical in the uranium sector. Expectations around the macro are pregnant with expectation. Indications suggest that price discovery will come in mid-2021 as US utilities are pressured to sign long-term contracts and the big players continue to mop up loose inventory in the market. We should start to see price slowly move early 2021 before term-contracts and tight supply make the environment somewhat more competitive.

In their 2015 DFS, Bannerman Resources presumed a uranium price of US$75/lbs. In the new scenario, the company has been able to reduce this price assumption to US$65/lbs whilst maintaining an IRR above 20%. The post-tax NPV is still attractive at US$212M, admittedly a “significant premium” above the company’s current market cap. But the scale of the project is driven home hard if the original price assumption is applied; at US$75/lbs the Etango-8 post-tax NPV explodes to circa US$350M. The uranium spot price is just over US$32/lb today, so we’re still some way off what Bannerman Resources would need to be economically viable, but such is life for all uranium producers and juniors. The entire market is calling for a minimum of $60/lbs, and our off-the-record conversations with other uranium CEOs suggest the more realistic number required is $75/lbs.

The AISC now stands at US$40.90/lbs. Although only a modest improvement on what the company had back in 2015, it is commendable that Etango-8 did not trade-off the impressive capital reductions for higher operating costs. Total throughput for the LOM is now 51Mlbs compared to 113Mlbs under the 2015 DFS. Investors should remember that resource endowment isn’t going anywhere; those pounds are ready to provide optionality in the future. The giant-version of Etango retains environmental permits, a pilot plant, and a DFS – providing a highly leveraged option to uranium investors’ dreams coming true.

This strategy actually reminds us of a mining company in a completely different commodity class: gold. Rio2 is a Chilean gold miner, and CEO Alex Black reduced the resource of its flagship gold project by half. While the market didn’t appreciate the move at first, the booming share price now suggests that it was an incredibly smart one. Perhaps more companies need to think with agility and change the development playbook.

This image has an empty alt attribute; its file name is company-profile-ad-copy-1024x115.jpg

Rio2-like returns might be what investors now expect to see from Bannerman Resources. Munro is targeting an accelerated pathway towards construction, with a PFS and DFS targeted within the next 18 months. Many uranium investors had viewed Etango as too large to succeed, but now the company appears to be fit for purpose and primed to time its entry into the next cycle perfectly if all the rumblings about potential uranium price discovery prove to be correct. 

This has turned Bannerman Resources into a vastly more attractive uranium investment proposition, but there’s a lot of work left to do. If there’s one person we’re confident can accomplish these deliverables, it’s Brandon Munro.

Will Bannerman Resources be producing pounds before the Athabasca Basin? Comment your thoughts below and we will respond.

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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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.

Energy Fuels (NYSE: UUUU) – Uranium Investors Looking to Critical Minerals Hub (Transcript)

Energy Fuels Inc
  • Shares Outstanding: 115M
  • Share price US$1.78 (01.05.2020)
  • Market Cap: US$205M

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

Energy Fuels is America’s leading producer of uranium and vanadium and is venturing into the rare earths space. All critical and strategic minerals in the US. So who owns the only processing plant in the US?

We caught up with Chalmers to get the latest on how he is re-shaping Energy Fuels into a tantalising value proposition by building a critical and strategic minerals hub at their wholly owned White Mesa Plant. There have apparently been plenty of catalyst moments within the uranium space over the last few months, predominantly surrounding the destruction of inventories and tightening of supply caused by COVID-19. But nothing has touched the sides. The US House of Appropriations Committee recent decision to block the funding of a US uranium reserve appears to be another minor setback for uranium bulls, but Chalmers doesn’t see it as a definitive “no.” He experts the topic will be revisited one the DoE can provide a little more clarity on how exactly the reserve would be implemented, at some point in the next 180-days.

Courtesy of its strengthened balance sheet, Energy Fuels has been able to redeem half of its C$20.86M convertible debenture loan, with the rest of it due at the end of this year. The company will avoid approximately US$350,000 in interest payments in 2020 as a consequence. Uranium juniors across the land are currently running up big debts to fund exploration programmes for assets that are as yet not proven economical. Energy Fuels seems keen to set itself apart as a logical option for new uranium speculators.

Their real key differentiator is their White Mesa Mill in Utah. The only remaining fully-operational conventional uranium mill in the US is coveted by many, but some investors have not yet recognised the full extent of its capabilities. It is able to process uranium, obviously, but it is also able to process vanadium and Rare Earths. Which, Chalmers argues will be crucial as America might see REEs as strategic commodities and is attempting to build a new global REE hub to rival the status quo of Chinese dominance. 5 companies have recently told us they will be using White Mesa Mill to process their uranium, but Chalmers says he has had no discussions and has signed no agreements with anyone. In fact, he has blunt message to uranium companies claiming that they will be tolling at White Mesa: STOP. Energy Fuels is likely to enjoy a monopoly over Northern American uranium juniors who face the choice to pay a toll fee to Energy Fuels’, or ship ore more expensively to South America. The competitive tension is palpable.

With consolidation in the industry becoming more likely, especially to make the utilities take producers more seriously, Energy Fuels could well be looking at M&A in the future. We challenge Chalmers on what exactly he could be looking for.

We Discuss:

  1. 3:50 – Opinions on the US House of Appropriations News
  2. 6:17 – In Control: What Have They Been Doing?
  3. 7:53 – Relationships with the Government: Agendas and Capitalization
  4. 12:12 – RSA Deadline: News and Views
  5. 16:22 – “Cheaper for Longer”: Utilities, Producers and Timings
  6. 22:37 – Paying Down Debts: Why Pay Early and What Happens at the End of the Year?
  7. 24:30 – Possibilities of Selling Inventory
  8. 26:30 – Get in Line for the Mill! Companies Allegedly Partnering with Energy Fuels
  9. 28:10 – ASX Junior M&A in the USA: Why Didn’t US Companies Pick Those Assets?
  10. 31:02 – Viewer’s Question: Any Plans to Buy Uranium?
  11. 34:47 – Rare Earth Possibilities: Discussions with Constantine Karayannopoulos

CLICK HERE to watch the full interview.

Matthew Gordon: Mark Chalmers, how are you doing, sir?

Mark Chalmers: Very good, Matt, how are you?

Matthew Gordon: I’m excellent. I haven’t spoken to you since we were at AUSIMM online virtual conference together. How did that go?

Mark Chalmers: It went really well, Matt, and I’ve mentioned to you that that’s an event that I’ve chaired for 15 consecutive years, and I was very pleased that we got it up this year. 15th year in a virtual format, and we had a very good attendance and some really excellent speakers.

Matthew Gordon: And that’s tough, going from an actual, in-person type conference to doing something virtual. But you had some amazing people on there. We have been watching back some of these sessions. It was a good session. So thank you for putting that on, first of all,

Mark Chalmers: My pleasure. And we tried to broaden it out a bit more this year with things like the small modular reactors. And that was popular, broadening that out a bit.

Matthew Gordon: Yes, definitely.  it’s quite good, we try to do it as well, which is trying to help educate people about Uranium. Because what we’re seeing now is a lot more well, new investors coming into the world of investing, but also generalist investors who perhaps haven’t considering Uranium before. All of them are asking questions, which it’s easy for people like yourself, or certainly even us to forget that people are coming into this new. All of this is good, good information. But we are not here to talk about AUSIMM. We are here to talk about Energy Fuels. I want to start specifically with the recent announcement by the US House of Appropriations to say no to the funding of the Uranium reserve. How do you feel about that?

Mark Chalmers: Well, look, it was something that we didn’t want to have him say no to, but it’s not like no-no. They zeroed it and they basically said they didn’t have enough information from the Department of Energy on how the program would be implemented. And the belief that DOE is trying to answer those questions as we speak. The DOE is also looking for other sources of funding the reserve. Secretary Brouillette has been out publicly saying that he has very strong support for the Uranium reserve. The Senate is behind it, or at least the Republicans in the Senate are behind it. So, it is a setback, but it really reflects on the differences between the Republican party in the United States and the Democrats. But we are making progress with the government bipartisan-wise, because of the dependency on Russia for Uranium products and in China. There is progress being made it just isn’t every day that you make a step forward, but we are making steps forward, more steps forward than backwards.

Matthew Gordon: Are you saying that the House turned that down purely on political reasons or did someone not do their homework and provide the information that had been requested?

Mark Chalmers: Yes, it is a combination of those things. We are certainly doing everything we can you to get it back into the House bill and ‘unzero’ it. But, these appropriations are like trading exercises between the both parties and different people’s interests, but we have very strong support in the Senate and the DOE and this increasing threat of Russia and China, particularly Russia for nuclear fuel products. So a lot of, or a number of Democrats are recognising that, but some of the Democrats are opposing it for other reasons and that’s politics

Matthew Gordon: That’s politics. So, talk to me about, so that’s not in your control, it was never in your control. It was something that you highlighted, but you have got to focus on things that are in your control. What are you doing that you can manage?

Mark Chalmers: Well, let’s look at a lot of the work we have done through the Section 232 process of the Nuclear Fuel Working Group, in the strong policy statement that the nuclear working group report that came out of the working group, that is still helping us on a lot of fronts, not just in appropriations, but also in some of the negotiations on the Russian Suspension Agreement. Basically, the Working Group said that it is a national security issue, receiving so much of our Uranium from imports and particularly from Russia, so that is helping us in other areas. And, we’re still pushing on all fronts: appropriations and our participation in the negotiation of the Russian suspension agreement. But we are managing the company on the company basis alone, not dependent on government support. We have seen some increases in Uranium prices over the last couple of months. They have flattened out lately. You’ve got to multitask in this business, if you don’t multitask you will not survive, but we are in very good position amongst our peers, and we are very excited about the future.

Matthew Gordon: Sticking with the government components, if we may, you have, over the past couple of years, been talking to people in DC, up on the Hill, as the phrase goes. Have you made relationships, or have you made useful relationships? And at what point do you start cashing in on those? Because at the moment they’re not giving you what you want.

Mark Chalmers: Yes. The cashing in is the difficult part. We certainly have the strong relationships in the push of the administration. There there’s some indirects here that we are cashing in on, and the Nuclear Fuel Working Group is one of them. Take the Russian Suspension agreement; that expires at the end of this year. And there are active negotiations on that front. But for example, one of the key issues with the Russian Suspension is that the Nuclear Fuel Working Group says that we’re overly dependent on Russia and state-owned enterprises. So that’s a very strong policy document, basically prepared by about half of the president’s cabinet. And, that’s something very powerful to use in those negotiations. It is not always completely clear to particularly, some of our investors, but we are punching above our weight in DC on a lot of these fronts. It is frustrating because it has taken a lot of time and we haven’t seen the money in hand yet, but it is getting through people’s minds that we are overly dependent on critical minerals, particularly Uranium, Vanadium and Rare Earths in the United States right now.

Matthew Gordon: The strategic minerals, the critical minerals component is really interesting to me. There are relationships that are being formed or have been formed, they are recognising this. But my view on this is, politicians – they always want something from you. They aren’t necessarily going to give you anything back. You’re making them, you’re giving them a topic that they can promote themselves and their own agendas on, but do you seriously think that Energy Fuels is going to be able to capitalise on this? For instance, you have been talking about Rare Earths recently, are you hearing things which make you think we need to lean a little bit towards Rare Earths, because those are the sorts of noises coming from the Hill?

Mark Chalmers: You’ve heard me say it many times that we are first and foremost a Uranium production company, but we do think that the Rare Earths sector fits very nicely in what we do, our core business, because we can recover the Uranium from a lot of these Rare Earths. A lot of our political supporters on the Uranium reserve and the nuclear fuel cycle are also the exact same supporters for reducing our dependency on China for Rare Earths. It all fits nicely together. And there is no company out there in the United States. None. Not one that has got the optionality, when you deal with these critical materials as Energy Fuels, with the mill and the Vanadium and the potential for us to be, we believe, commercially producing Rare Earth concentrate in the quite near term.

It’s a lot of these indirects. But that a lot of the people that have been supporting the Nuclear Working Group and the production of nuclear products in the United States, when they see that White Mesa Mill could have multiple uses in the critical area they’re delighted. They’re actually delighted to know that.

Matthew Gordon: For people who are new to this, you’re talking about the White Mesa Mill, which you control. And it’s the only mill in the district which actually can cope with Uranium, Vanadium and Rare Earths.

And before we skip away from the RSA, the Russian Suspension Agreement, the date is 31st of December, end of this year. A decision needs to be announced. or any time between now. Have you heard anything about what is being discussed? Are they going to come up with a decision anytime soon or are they going to leave it to the last minute? And if so, what type of deal do you think we are going to see as a result?

Mark Chalmers That’s the big question. Look, there is, and I can’t go into details because a number of people that are participating can only go into so much detail, but I can say this: there is a push by the government to reduce quantities of Uranium coming into the United States, where there is a push by the Russians and the utilities to increase the quantities of a Uranium coming into the United States. So those are completely, oppositely opposed. Okay. And that is a rub. And as I said earlier, the Nuclear Fuel Working Group report says that we shouldn’t be increasing or dependency on Russia. There was a preliminary administrative review that was completed a month or so ago by the Department of Commerce, and they basically said that the conclusion of this agreement, what has largely been  gained by some of these people that want more Uranium coming into the United States, and  that shook up the utilities and it should shake up the utilities and the Russians.

It is moving forward.  it is a high priority for the government.  it’s a high priority for all the stakeholders in those renegotiations and negotiations. But I will say: watch this space, because it is probably, well, without a doubt, getting the most attention, in my opinion right now in the, in the Uranium space globally. And  that the preliminary administrative review that said that even though the agreement that’s in place right now was, people were abiding by it, the fact that it was expiring and that a number of utilities and the Russians were over-contracting greater than the 20%, is creating some ripples in the water right now.

Matthew Gordon: You say watch this space. Do you mean watch this space in terms of timing? Do you think it’s imminent? Or watch this space because you think the terms will change.

Mark Chalmers: Well, look, the deadline is the end of this year, 31st of December, 2020, but the administrative review process is ongoing and it was supposed to, I believe, terminate in early August, and now that’s been extended by another couple months. It’s just very much in the works right now. And, the outcomes are not certain, but it is getting a lot of attention. And, there’s really 2 camps:  to reduce the quantities coming into the United States or increasing the quantities, and the Nuclear Fuel Working Group is basically saying it shouldn’t be increased. It should be extended or decreased. These are the kinds of things that indirectly are pieces to the puzzle, that we were very much drivers of, as Energy Fuels, and it is helping us right now on other fronts that are less transparent because of the nature of the negotiations.

Matthew Gordon: But it is now also apparent the battle you are fighting, because you’ve got an argument of national security; critical minerals to the US, being self-sufficient, which is one position. And the other position, where one of the parties in all of this was not aligned and that’s the utilities, taking a commercial decision, and you would argue short-sightedly, because they wanted the cheapest possible product. They want more of this, more and cheaper, for longer. So that was the battle that you were fighting. And these guys had big, deep pockets in terms of their lobbyists. That seems to me a big part of what was going on and all of this.

Mark Chalmers: We have very good relationships with many of the utilities and I’ve delivered Uranium to many of them for decades. But yes, the utilities are looking at cost and they are trying to manage their businesses as they have to. So, that for a small company like Energy Fuels, and the Uranium industry, because it’s not just Energy Fuels fighting this battle, but mainly Energy Fuels has taken the biggest position, in pushing it forward. We have, as I’ve always used that phrase of, we punched above our weight. These utilities are very significant organisations with multiples and multiples of billions of revenue per year. So that’s why I said, we’re going to keep pushing on all those fronts. We’re not going to give up. We are not going to give up. But at the same time, we’re going to manage our business based on the market fundamentals.

Matthew Gordon: Big discussion. Lots of unknowns: timing is, well we know that there is a stop date at the end of this year for the RSA, and that seems a big moment for utilities, as is the US election, and that’s another big moment. And I know that there’s a consensus that nuclear is part of the solution for both sides of the house, but the Democrats a little bit less so than the Republicans,  I’m hearing from you. So even the utilities will be wanting to understand what the outcome of that election is, but that then has an impact on timing because the dust doesn’t usually settle from a US election until February, March, and then maybe there’s a shakeup, even if the incumbents stay in. So, what does that do for timing around utilities’ decision-making, term contracts, et cetera, how do you feel about that?

Mark Chalmers: When you look at it, there’s a lot of uncertainty, and uncertainty is uncertainty. So we’re preparing ourselves for any eventuality. We did pay down half of our convertible debt and we’re looking at the other half on how to best address that. We’re increasing our inventories. But we do think that, there’s uncertainty, but that if there’s an administration change, they are talking more negatively about hydrocarbons than they are nuclear, and to a certain extent that is supportive of nuclear as being important to get to zero carbon emissions. So, I don’t want to speculate, over speculate here, Matt. But you’ve seen over time that we are a company that positions ourselves aggressively but not recklessly when it comes to the overall picture of the company and we will be the survivor or one of the survivors in this space because of the way we manage the company now and going forward.

Matthew Gordon: And so one last macro point. So you producers. You’re a producer, right? The largest in the US. The Cameco’s of this world, and even the Kazatomproms of this world; you have relationships with utilities all around the world, and you can’t bad mouth them. You’ve got relationships, professional relationships with these guys, but it’s been a deeply frustrating process for all producers for the last couple of years, has it not? To have this fight, this debate around pricing. You need a certain price to be able to get back into production and you need to be incentivised to do so. So, going back to the question, which is, what do you think the timing is for what utilities recognising that if they don’t push the button soon, you guys aren’t going to be able to get back into production and give them the pounds that they need when they want it?

Mark Chalmers: Yes, those are the trade-offs. And some of the utilities understand that and appreciate that. Some of the utilities don’t think that total dependence on the Russians is fine. Even companies like Cameco. Some think, ‘well, we’ll be totally dependent on our allies, and we have no Uranium production in Canada right now’. The production is dwindling in Australia with the shutdown of Ranger; well, it will be at the beginning of 2021. So, the Western world, that’s the clash. It really is the state-owned enterprises vs the Western world – that’s the clash. You need higher prices, substantially higher prices for the entire world, including the Western world to continue to survive in the Uranium industry. Some of the state-owned enterprises may be a little less so, even though a lot of them are not as a low-cost is people want to think. So that that’s the clash. Do you want a diverse supply chain, or do you just want to get all your products at state-owned prices? So, yes, that’s the uncertainty there.

Matthew Gordon: Let’s talk about something you just mentioned, which is, obviously you’ve partly paid down the convertible which is due at the end of this year. You paid down some USD$10.4M, USD$10.3M. You have got the same  due at the end of the year. So why did you go early on the payment and what are you going to do about the end of the year payment?

Mark Chalmers: We wanted to show the market that we were managing that convertible debt, and that was about $10M Canadian. And we thought it was a prudent step to pay half of it. We are still looking at how to best address the other half. We have the ability to convert that into shares. And it’s like a 20-days VWAP at about a 5% discount at the end of the year, if we elect to do that or pay it off in cash. But, Matt, I’ve told you; having been in this business over 40-years, I’ve seen these companies get in trouble because of debt on a number of occasions. And that is an area that is close to my heart, to not get over-leveraged on debt. And at the same time, there are a number of the Uranium guys that are taking on more convertible debt, and we’re going the opposite direction, which is a differentiator. No one else that I know of in our space has actually been paying off debt. They have been taking on more debt as they go forward. So, watch it. We will pick our moment and we will address the debt no later than the end of the year, maybe sooner. But we want to make sure that we do it on our terms

Matthew Gordon: Is selling down some of your inventory a possibility? Because looking at the numbers, if you’ve got about USD$21M to USD$23M worth of Uranium, you’ve got about USD$8M to USD$9M of Vanadium. I know the prices are low, but if needs must, would you consider selling that down?

Mark Chalmers: Anything is possible. We like holding the inventory because we think the market is poised to reward us for having that inventory. By the end of this year, we’ll have in the order of close to 700,000lbs of inventory close. So, it’s our objective not to sell the inventory down until the prices are at higher levels. Yes, look, there’s a number of ways to address the debt, but we would really like to see the continued increases in Uranium and Vanadium prices, particularly Uranium prices to get a bigger lift out of the out of that inventory.

Matthew Gordon: Do you think it would be cheaper to refinance your debt rather than pay it off or sell off inventory? Because the upside on inventory could be more significant?

Mark Chalmers: The inventory we carry, it is the like, for Uranium, it is like USD$23/lbs, and currently price is around USD$33/lbs. That is how we carry it on our books for counting purposes. So, we’ve got about a $10/lbs lift you just on the Uranium price itself. That’s material to us. We think there is more upside for inventory than downside. You don’t get any money in your accounts, any more interest bearing on your account, so we’re pretty comfortable having this inventory that we can liquidate quite quickly if we need to when the time is right.

Matthew Gordon: But there’s some good news, Mark. I’ve solved your problem because I’ve spoken to, for cashflow, I have spoken to 5 companies who are going to be tolling through your mill, which is great news.

Mark Chalmers: Yes. That’s very interesting news because none of them have called us to ask us about that.

Matthew Gordon: Oh.

Mark Chalmers: It seems like every week I see another, press release or something that shows a picture of our mill and they didn’t even ask permission to use the picture of the mill. I need to clean this up because it is not right for people to just assume that they are going to have access to the mill, because they don’t have access to the mill. We have no milling agreements at this point in time. In the event that we do decide we’re going to give, we probably won’t give out a milling agreement, we will announce that, but for all of our investors or any investors in any of these other companies, no one has access to the mill except for Energy Fuels. So yes, it’s amazing how they all chime in and show pictures of the mill and how it’s close by, inferring that they have access to it, but they don’t.

Matthew Gordon: I just wanted to put that to you, because you’ve spoken to it least a couple of times before, you’ve been very clear with me, but we keep seeing it, and I just wanted to give you the chance to respond. And that’s the most direct you have been with us, so I do appreciate that as well. One more thing, if I may. The other thing that is happening is there is a lot of Australian ASX-listed juniors coming and picking up Uranium assets in the US, and they’re getting funded. They are raising money off the back of this. Why haven’t all of these Uranium assets in the US been picked up before?

Mark Chalmers: Well, there is a lot of Uranium assets in the United States and a lot of these properties that people are picking up, they’re not permitted. Now there may be 1 or 2 that are permitted, but a lot of them are not permitted. And over the last 20-years or so in our case, we’ve picked up… well, many of our projects are permitted, have a long-term production history and recent production histories, there’s only so much space in the market. Getting permits is very, very difficult. And there are other companies that do have some permitted assets. I don’t know. To pick up unpermitted assets, to not having access to the mill, very speculative investments. They have been raising money on it. And frankly, a lot of projects on the Colorado Plateau are of lesser risk and probably easier to get to market than a lot of these other Uranium deposits that some people are promoting outside of the United States. There’s a long production history in the US. So there’s different investment risks for different groups of investors. So, just, all I would say is people need to know what they are investing in. If they are comfortable with that, that’s fine. That’s their choice.

Matthew Gordon: It is always their choice. Why didn’t you pick them up?

Mark Chalmers: We don’t need any more assets. We have assets in about what?- 6 or 7 different States. Most of our assets are permitted. Most of them recently had been worked and the underground workings are in good shape. The mill has been operable. Nickel’s ranch has been operable. Alta Mesa. So, we don’t need to own the Western United States. It is costly and there’s a point where, it just makes absolutely no sense to have more assets.

Matthew Gordon: “Some questions sent in: wouldn’t it make sense for Energy Fuels to now step in as a buyer. They need ore at the White Mesa mill. They want Uranium, they want Vanadium. The Sunday mine complex is basically next door. This might be a fun ride going forward.” Any plans?

Mark Chalmers: I’m not going to say we are not going to buy Uranium in the future, because that’s the history of the district. But to put it in to perspective, over the last 10 or 15-years there have been times when we have had milling agreements and we have perhaps bought some ore from people, but it turned out to be just a very small percentage of the production that came out of White Mesa mill. And I don’t know the exact number, but probably in the order of maybe 10% of the production that came out of White Mesa came from other mine that were not owned by our company. So now look, that that can be variable, but the reason why we haven’t paid a lot of attention to this market is, 1) the prices are too low, and 2) historically other people may have, the aspirations of becoming producers, but very few can actually really contribute in a material way in the mill. Now, the price Uranium is USD$75/lbs or something like that, that could change to some extent, but we already have a number of mines ready to go, that we have operated within the last year. And these mines that were mined 30, 40-years ago, and nobody has mined them since; I hate to think of the condition they’re in.

Matthew Gordon: Is that a no?

Mark Chalmers: So, look, we still control the district with our White Mesa mill, 100% owned. And that’s because we have spent the money to keep it in good working order over all these years. Anyone who wants to build another mill, they can go out and get the permits and construct another mill for several hundred million dollars. That is always open to the realm of possibilities.

Matthew Gordon: So that a ‘no plans anytime soon to go and have a conversation around M&A with Western Uranium and Vanadium?’

Mark Chalmers: Well, it’s subject to change: if, for example, if the US government decided, or the price of Uranium increases to a level where it’s economic to have those discussions, I’m not saying we’re not going to have those discussions because if we can get material into the mill and that helps us, we’re not going to,why would we turn our head to that? We will not turn our head to that, but I’m just saying that right now we have no agreements with anyone. Still, no one should just assume they have access to the mill right now. They should not assume that. And, but things can change. And we are absolutely in the driver’s position with the mill. And the material from our projects will take first priority over anybody else’s material.

Matthew Gordon: Mark. Good catch up. Thank you very much for that.

Mark Chalmers: We didn’t talk much about the Rare Earths.

Matthew Gordon: Oh, yes. Sorry, you’re right. Let’s do it.

Mark Chalmers: It’s a great spot for us, Matt, and a huge differentiator. So we’re still advancing our efforts on the Rare Earths. I hope to have more news flow on that front in the coming months. It has by no means gone away. People that I know say, ‘Oh, they’ll never do anything there’. I tell them – they are full of baloney. We’re going to do things in the Rare Earths space. And, it is certainly getting a lot of attention, it certainly has by-partisan support, the Rare Earths and the dependency on China. So, all I can say is, watch this space. But we are advancing things, but we can only unveil things as we close them out. But we’re still testing material at White Mesa and we’re getting a lot of interest in it.

And so if you talk to people in the Rare Earth sector, those that know about what we are doing and our aspirations you’ll find that many of them will say that we are in a very unique spot here. Very unique spot. The market is recognising that right now.

Matthew Gordon: And I have got to ask you, only because I’m so pleased at the way I can pronounce this, which is, how our discussions with Constantine Karayannopoulos?

Mark Chalmers: Well Constantine is an advisor to us. He just recently went from non-executive chairman to CEO of Neo Performance Materials, that’s a company that he founded and developed back in what, 25-years ago? Constantine and I talk on a routine basis, and Brock O’Kelly, and so we’ve got a very good relationship with those 2 gentlemen, and both of them worked for Mountain Pass and Moly Corp. And if you saw, Mountain Pass Materials announced that they’re going to list a USD$1.5Bn Rare Earths company on the Mountain Pass deposit and operations. And that, that got some attention in the market, and that’s why that we’re not getting any differentiated value with our peers in the Uranium space, but then we have this. What I consider a very significant opportunity in the Rare Earth space and still be able to recover Uranium from those streams.

So, basically what we’re proposing to do is exactly what CNNC is doing in China right now; trading monocyte streams of material, recovering the Uranium and going through the stream of further downstream Rare Earth processing. And White Mesa is the only other facility that I know of in the world, outside of that facility that can do effectively the same thing in given some time. So, watch it, watch it. And I am extremely excited about this, and this is one of the best opportunities I’ve seen in my entire career in the Rare Earth space and how it blends in with Energy Fuels, so watch it.

Matthew Gordon: We will, we will watch it. We are excited by it. We have spoken to enough Rare Earth companies. We know the restrictions that they have around processing outside of China. So, I do get that. I’m eager to see what does happen over the next few months, this side of Christmas, hopefully, in terms of how you are moving that one forward and who you are having those conversations with. So, keep us up to date. Pick up the phone like you always do.

Mark Chalmers: We will keep you up to date. And as I have always said, yes, some exciting times ahead. It’s a tough business, but you have got to know how to navigate it. And I won’t say that I know exactly how to navigate it at all times, but after over 40-years in this business you got to be tough. You have got to be tenacious. And you have got to be aggressive, but not reckless.

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Brandon Munro #17 – US Utilities Want Russian Uranium (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN) CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

Based on questions that were sent in by viewers, it is clear that there are a lot of new investors coming into the uranium ecosystem. So Brandon and i cover a little bit of old ground but with new data. We start with the relationship between spot price and term-contract in today’s environment. We also look at the effect of supply and the effect on Russia v US tensions. Does Russia care about the Russian Suspension Agreement. Should they?

And we get his thoughts on the timing of the US utilities coming back in to the market to help drive equities. Are US uranium juniors without a cash buffer getting nervous.

We Discuss:

  1. 3:22 – How is Spot Price Determined
  2. 6:49 – Relationship Between Term Contracts and Spot Price
  3. 10:43 – Importance of Kazakhstan: How Long Can They Withhold Production
  4. 14:57 – Utilities Globally: How Do They Work?
  5. 19:49 – RSA: Why Should Russia Care About the US Market?

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro – how are you doing, sir?

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

Matthew Gordon: All good, well actually, I am not all good; my 12-year-old took me swimming for non-stop lengths of the pool, then made me tread water for 5-minutes, then made me do pull ups and I can barely move. I am incapacitated like the old man that I am, and I can’t sleep. So that’s me. Woe is me.

Brandon Munro: Oh, geez. That’s tough. Were you able to do the pull ups all on your own or did you need to get pushed a little bit?

Matthew Gordon: the problem was I did do them on my own and I’ve literally just ruined my back. That was 3-days ago. Too old. I’m too old. Let’s get into something I can manage, which is asking questions. It’s another week in the world of Uranium and this week we would change it up a bit. We have got loads questions coming in every week, which people want to put to you. We have put some down on paper at some broad headings. we might do some more next week because there’s a lot, even if we do consolidate them to broad headings. You’re ready for this? You’re okay?

Brandon Munro: Yes. Sounds exciting to me.

Matthew Gordon: I’m going to start with an easy one, which we have covered off in the early days, but there’s some people who don’t necessarily have time to go back through the series, but let’s just talk about an easy amuse-bouche for you, which is, ‘how is spot price determined?’

Brandon Munro: Okay, well that is a nice warmup one, isn’t it? The first thing to understand is that it is not like a clearing house spot price that we see in certain other metals. It is a reported spot price. So there’s a handful of reporters, and the best known of them are TradeTech and UX Consulting, and what they do is they basically keep their finger on the pulse in the best way that they can to understand who is buying what, in what volumes at what price. The first limitation is it’s not going through a clearing house or an exchange. There is some capacity for partial accuracy. And that has been improved. It’s been improved first of all, because there is a quoted futures exchange, which gives, a more accessible level of information to investors. And that’s a NYMEX futures exchange, which you can look up, say on bar

And then the other thing is we have seen the emergence of traders who are very transparent, such as Numerco. So well-worth looking up Numerco, following them on Twitter, and they have really had a positive impact on that level of transparency.

The second thing to understand about the spot market is it’s not an immediate delivery market. In fact, spot can be anything up to 12-months delivery and it’s still categorised that way. So that is much to the irritation of some of the larger producers, the Cameco’s, KazAtomProm’s, for example, who want to move this market to a more realistic, immediate delivery or short-term delivery market. The other thing to understand is, as investors we see the price, but it does differ depending on the delivery point. The spot, or the price that’s quoted for say two-week delivery at Cameco might be different to the price that’s quoted for 2-week delivery at COMERX, for example, or in the US. And we have seen that play a big role just recently because of a disruption in both conversion and Uranium coming out of COVID, we have seen a lack of storage capacity at COMMEREX in France, and so a very big swing between what is being paid for delivery in Cameco, the Blind River and COMEREX in France. Normally the location swaps in this sector have been very, very fine, but that’s now changed, temporarily, no doubt, but that’s a big swing and a big arbitrage if people are able to move material, move in the sense of the location swap at the moment. They are the key downsides of what we have got at the moment we spot. It’s lack of accurate transparency. It’s a multitude of different delivery forms and locations.

Matthew Gordon: For people coming into Uranium, investors coming into the Uranium space and looking at it as a potential investment, that’s the first thing they look at. They think of, like other commodities, you look at the spot price and that determines the market. Once you move slightly further up that knowledge curve, you start to appreciate that. And in fact, term contracting with long-term contracts have a more significant role to play. Let’s just try and understand, if you may, the relationship between spot and term-contracts.

Brandon Munro: Yes, very good question. Particularly for people coming new into the sector Traditionally, this business was done almost entirely on long-term contracts between the utilities and the big producers. And that situation continued well into 2004, 2005. And the spot market such as it was, was really used for settling, say, overproduction by a mine that couldn’t be delivered into contracts or sometimes buying back production if there was a disruption or for some reason they had oversold who got over called on the production limits in their contracts. Now what happened in the last Uranium boom is financial players came into the sector. There was a huge increase in volume generally, and that made the spot market fulfil a number of other functions, not just that form of settlement of overs & unders, under contracts.

Then what we saw after Fukushima was a sustained period of low contracting, relatively speaking, and much higher spot volumes. So, instead of spot accounting for say 5% to 10% of the movement of material in the market in some years it’s been as high as 50%. We have seen an increased role of traders; there’s the concept of churn in that spot market. It’s not necessarily one pound being pulled out of a mine and sold to a utility, but that pound can be churned many, many times to create additional volume. But what we have also seen is the emergence, in particular of Kazakh production, a fair of which went into the spot market until fairly recently. So that’s important to understand, as well as you’re taking a little bit of an introductory trip into this sector, the important news is Kazakhstan has stopped selling into spot. They haven’t sold into spot since, the beginning of 2018. So no longer is there that pressure. And if we now bring that right back to a contemporary setting, one of the impacts of the COVID disruption in Kazakhstan is that at least one of the, let’s call it major culprits who sell their mined material into the spot market, derive the majority of that material from their joint venture in Kazakhstan with KazAtomProm. So even though KazAtomProm, isn’t selling into spot, their joint venture partner was.

So what we’re likely to see coming out of COVID disruption is both an increased demand, particularly if KazAtomProm is forced into the spot market to compete with Cameco and other producers, but also a lot of the supply will be cut off at the needs because those parties who traditionally sold their joint venture material into the spot market can no longer do that.

So, term contracts, whilst there’s a low relative volume of term contracts at the moment, they are such an important part of the risk mitigation and supply security that utilities rely on in this business, that they will come back. Spot probably won’t go into the dormancy that it was in the 2000, but its relative position will reduce as the importance of term contracting increases.

Matthew Gordon: Let’s move further up that knowledge curve. We talked last week at length, and possibly the week before actually, about the importance of Kazakhstan and KazAtomProm to the Uranium market. Kazakhstan represents about 40% of production globally. KazAtomProm has 24% of that. They occupy almost the entire bottom quartile of the cost curve there. They are very, very important. People new coming into this, recognising that some of the questions we have had are how much longer can KazAtomProm hold off from getting into production; either forced or unforced, and how can they mitigate that?

Brandon Munro: Okay, so let’s be clear on what we’re talking about: KazAtomProm and Kazakh production is still continuing and that’s because before their 7th April announcement that they were needing to curtail activities, they’d already done wellhead development and acidified their in-situ recovery wells. The acid that they pumped in in January, February, March for example, is still producing Uranium today. It is starting to deplete. It’s becoming less potent, if we can put it that way, but nonetheless, they are still bringing solution up to the surface and extracting Uranium. What we’re really talking about here is not production per se, but their ability to start again with the drilling of these extraction wells and the pumping of the acid in so that they can allow it to acidify the ore and start bringing that solution up. And finally, the point to understand here is, there could be a gap where the current production from January, February, March acidification tapers off to such an extent that there is effectively a full, a significant or majority break in production.

To answer your question, you’re working in scenarios always with this type of thing. What cause KazAtomProm have said publicly is that they will start slowly to recommence wellhead development from the beginning of August. And now we are all waiting for their third August quarterly update, because in the meantime, and since they gave that guidance, the lockdowns in Kazakhstan have been extended and there’s an awful lot of commentary and news flow coming out of Kazakhstan that things will get extended again, but be that as it may let’s work with what’s in the public domain right now. That wellhead development will be slowly reinitiated from August. I read that, to me, that the most optimistic scenario we’re dealing with here is that they would spend, let’s say 4 to 6-weeks slowly mobilising, and the wellhead development itself, in the most optimistic scenario, would be running at full steam by, let’s say mid-September. That will then take some time, several weeks, and it’s not like they can play catch up across all of those different 13 mine sites. And then there’s a process of acidic acidification and in the optimistic scenario that would all take place before the winter sets in and then they would be back to normalised solution recovery by, let’s say November. And we would still see the dip in production because of that lag effect. And that dip would still carry on into 2021 to an extent. But you could probably realistically see them back to normal production levels by, let’s say the second quarter of 2021. That’s the most optimistic.

Matthew Gordon: Which answers the question that we were sent. That’s something that people are going to watch very, very closely: what will KazAtomProm do? What will Cameco do? The 2 big players in the marketplace.

Let’s move it forward. So, again, for all levels of ability watching this show, it is quite clear from the questions that are sent in, and we need to make sure that everyone is comfortable and learns with us. We’re all moving forward towards the same place. And the next question is around, now that we understand some of the players a lot of people are recognizing that US utilities are very important. They are important because they represent 25% of the world’s global demand for Uranium. And the question is: do different utilities from different countries have a propensity or a favouritism to go to certain countries. So, do the French utilities always look in Africa? Do the US utilities always favour Canada, for instance? How does it work when you are a utility buyer?

Brandon Munro: Well, the answer to that is one of those classic yes, and no answers: if we talk about the French, for example, Électricité de France is the world’s largest utility because it is responsible for a 75% of France’s total electricity demand. And so EDF have had a long-standing relationship in Niger, which has been effectively backed by the French government. It’s a bilateral relationship, not purely a commercial one. They have derived a large proportion of their Uranium from Niger, but they’re also in a joint venture in Kazakhstan. They have production coming of Canada in joint venture with Cameco. And because of their comfort in Niger, they have also been happy doing exploration and development work in Namibia, for example, as well as Australia and elsewhere.

And they have been rationalising in recent times, trying to reduce the expense of their Uranium business. And there were a couple of spectacular examples of that, but that’s a story to tell another day. Now, they do also have trading businesses. They do also buy and sell in the spot market and to contractors and with others and so on, but they are something of an outlier.

Then let’s look at China: the Chinese model is a lot closer to the Orano/EDF model. They are buying heavily in the market and they have been for quite a number of years, back all the way to 2006. They also have a strong preference to deal in Namibia, and that’s for a range of reasons that would include the preference that Western companies would have in Namibia. And also the fact that because of the extent of their investments in Namibia, they are obviously able to have a relationship with the local Namibian community and the Namibian government that gives them a lot of comfort.

And one Chinese utility, CNC has the Rossing Uranium mine, and a 25% interest in Langer-Heinrich, which is the Paladin energy mine that’s on care and maintenance, and the other Chinese utility CGN owns the Husab mine, that they paid USD$2.4Bn for from extract resources back in 2012. The 3rd Chinese nuclear utility, SPIC has not yet acquired a mine in Namibia, Africa or anywhere in the world.

They’re the 2 major outliers. Then you’ve got the US industry. And as you’ve said, they are important. They still comprise roughly 25% of Uranium demand around the world. What happened is back in the late seventies, early eighties, a few utilities clubbed together to buy mines and got their noses bruised and broken, doing that. US utilities buying mines and operating mines is not a very popular thing at the moment and it is a bit frowned upon. It’s all commercial relationships and they buy across the board. And that’s all publicly available. You can go to the EIA report that came out a couple of months ago. You can see that the US utilities buy from Canada. They buy from Australia, they buy from Namibia, they buy from Kazakhstan and they buy from Russia. And there is a propensity to buy it from closer allies, such as Canada and Australia, but there aren’t any explicit limits other than the Russian Suspension Agreement on how much Uranium they can buy from anyone else.

Matthew Gordon: Well, that leads nicely onto a topic we discussed last week and a few weeks ago as well, which is the RSA (Russian Suspension Agreement). We had Dustin Garrow on earlier this week. Very well-known character, a Uranium consultant to many in the industry. And he’s been around the block a few times and seen the highs and the lows. He was talking to us about the RSA agreement, that Russian Suspension agreement. And it’s a very important topic, which the US government is in the process of making some decisions on. And the expectation is that, well, you talked about this last week; the decision needs to be made before the end of the year because we’re not quite sure what will happen if they don’t.

He put a very interesting thought forward, which is, at the time that the Russian Suspension Agreement was put together, back in the 1990’s, it was a very different world. There were very different demands in terms of the volume of Uranium used. And that Russia felt the US market was a very important to get into, and obviously the US didn’t want them flooding the market either for a variety of reasons, national security being one of them. Dustin thought, or he put this forward, which was, why should Russia care now, in today’s environment, when there is a much bigger demand story, there are new markets why keep banging down the door of the US market?

Brandon Munro: Well, that is an interesting question. And Dustin is certainly the guy to come up with those questions, with have such a vast amount of experience in the industry, including back in the old days when there was a bifurcated market with Russian material and non-Russian material and what was allowed into the US and so on. He’s got some insights from those days that not many people have got anymore. Here’s the thing; first of all, the Rosatom group of companies are extremely effective in this industry. They build plants on time, on budget, all of the time. They are in every aspect of the nuclear fuel supply chain, and they do it well. And they pride themselves on their delivery. They would not want to be the instigators of any breach of supply. They wouldn’t call force majeure. They wouldn’t withdraw unilaterally or voluntarily, but Dustin’s question and comment probably goes more to the situation where they are not allowed into the market by US government or by negotiations between the US and Russia, and how would they react? And Dustin does make a good point in that for Rosatom to lose their access to the US market with their enrichment in particular, sure, it would be a shame for them, and it would affect them, but it wouldn’t be a disaster. Russia has got very significant demands on Uranium for both its domestic requirements, but also its export program. And if they were left in a hole with their capacity for enrichment or SWU, they could redirect that capacity at re-enriching tails and other forms of secondary supply that would still have a happy home in their Uranium requirements now and going forward. It wouldn’t be a disaster for them. It would have an impact, however, on US utilities and depending on how far you want to go down this in terms of geopolitical posturing and how much of a conspiratorial approach you want to take to this, it would have the effect of putting a splinter in the finger of the US nuclear fleet, because it would make their enrichment quite a bit more expensive. The utilities would then have to very quickly recover that enrichment from non-Russian sources and non-Chinese sources, and there isn’t an awful lot of that. It would have two effects on the Uranium market as well as increasing the utilities fuel costs and their efficiency of producing energy.

The first effect on the Uranium market is it would quite quickly absorb the excess capacity in the non-Russian enrichment sector, which means less underfeeding, which means less secondary supply of Uranium that can make it into the market. Now, the second effect that it would have is, let’s say that we saw spiralling SWU prices. SWU is a separative work unit, which is the way that enrichment is priced. A spiralling SWU price would create an incentive for not only underfeeding to stop, but if Uranium is still relatively cheap, what the US utilities could do is they could overfeed. In other words, they pay a lot less SWU and they buy a lot more U308 so that they can push a lot of U308 through at higher tails assays. And for people new to this, probably the best thing to do is to go back to some of our discussions where we really talk about the nuclear fuel process and the whole cycle as it relates to conversion and enrichment. But for everyone who’s not coming here for the first time, that could create a situation where we see increased demand from the US utilities, and in the timeframe that we’d be talking about, what that probably means is very accelerated draw down on existing inventory of U308 and UF6 to fill that gap. That will affect different utilities in different ways: the utilities who counting more heavily on Russian enrichment would find themselves needing to act more quickly and more decisively. And of course, for someone who might not have been concentrating as much, this is a speculative scenario that we are answering. This is a scenario where there isn’t an agreement reached. There isn’t an act of Congress that comes to a resolution where there is a limitation, and the existing currently suspended dumping investigation resumes with the imposition of some very serious tariffs onto the Russian industry, and they decide, look, that’s just not worth it. We’re going to withdraw

Matthew Gordon: That’s a very interesting scenario that you’ve described, because it would suggest it, one could argue that the US can’t do without some Russian supply. And if that is the case, , what is the number? Is that 20% number reasonable? Because, obviously, if the price goes up for utilities, it’s not significant in the scheme of the total investment in terms of a reactor, but it’s significant in terms of ongoing costs, given that the capital expenditure is a sunk cost now. And when they’re competing against gas and renewables, it’s meaningful to them. But the problem has been that some utilities are not sticking to that 20% number. Isn’t that just a case of, so why are we focusing on the Russians and not on the utility buyers who are not regulated or not sticking to that 20% number?

Brandon Munro: Well, it’s a global number. So, presumably, those utilities were looking to get out ahead of each other and speculatively scoop the cheap material away from each other. And I guess they’re just taking their chances on the extension of the Russian Suspension Agreement and their material being available to them.

Matthew Gordon: Can I just clarify the terminology: when you say global, you mean a global US utility number?

Brandon Munro:  I beg your pardon. Yes. It’s an aggregate number amongst –

Matthew Gordon: So, first come first served is the attitude?

Brandon Munro: Yes. But your point, what I take from that point that you make is, it’s not going to be a total disaster for the US utilities, but it will increase their costs and it will increase their cost quite significantly. They pay about 20% of their operating costs as the total nuclear fuel. Now, that’s your U308 through to your conversion, through to your enrichment, your fabrication and storage and so on. But enrichment at the moment is a relatively minor component of that. But if you saw a market suddenly rebalance because all of the Western enrichment capacity is removed by US utilities filling the gap and putting their finger in the dyke, well, then you’ll see proper price discovery and probably market prices in SWU, which will increase that little component that’s enrichment and possibly have a 3% or 4% increase in the cost of electricity delivery for many of those utilities.

Matthew Gordon: Brandon, we are going to switch over to the Crux Investor Club section for Crux Investor Club members. We have got 2 quite good stories, this week; quite insightful, and impactful in terms of investment decision-making. I’m going to do that. Thank you very much, everyone for watching the show this week.

Brandon Munro: It was quite fun answering all of those random questions. Normally with our weekly chat, we have got like a nice thread and I’ve had a bit of chance to think about it and so on. And so, yes, that’s fun.

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

Dustin Garrow #05 – Mid 2021 before Term-Contracts Start Being Signed

Interview with Dustin Garrow, uranium market commentator.

What did uranium-expert Garrow have to tell us about the world of uranium this week? The US House Appropriations Committee has stated that it will not approve the funding of the $150M uranium reserve, though some uranium bulls think this judgement will be revised once the DoE can answer some of the committee’s pressing questions about how exactly the reserve will be implemented. While there have been meetings between uranium producers and the government representatives for years, they’ve not been able to push this over the line. It’s clear the government was already aware of many of the issues plaguing the uranium sector, so this decision isn’t impulsive or surprising, though it is very disappointing for uranium juniors who are crying out for a light at the end of the tunnel.

A red flag on May 11th should have been a clear indication for uranium investors that this was how things would pan out: the Nuclear Energy Department at the DoE stated that “within a year they hope to have (their) procurement process clearly delineated.” It was clear the conversations were taking the judgement well into 2021.

Has technology and R&D been a distraction? The US government has been focussing a lot on research, SMRs, and funding export reactors of late, and this has potentially taken much-needed attention away from a potential uranium reserve. Garrow thinks a lot of these issues are geopolitical, with the US “diligently” trying to fund its reactor sales outside of the country and penetrate the export reactor market. Expect some more challenges yet from China and Russia. And a lot of under-cutting. Not sure too many commercial companies are willing to take the risk.

The uranium producers are absolutely down to their barebones, and while Energy Fuels has stated it will ‘produce’ c.200,000lbs of uranium this year (via recycling, alternate feeds, by-products, spot purchases, etc,) this comes from the reclamation services and not mining.

Matthew Gordon talks to Dustin Garrow, July 2020

The Senate version of the appropriations bill continues to provide hope to North American uranium players. There is optimism that this version of the bill still contains the US$150M reserve. He thinks this may well be retained come the end of the process.

The decision regarding the Russian Suspension Agreement (RSA) has been pushed down the road to December 2020, until after the US elections, at which point it is likely to be extended. Is this the utilities’ lobbyists at work? Nice cheap Russian uranium is the prize. But it will come at a cost to US uranium producers if not resolved. The election is just that: an election. Garrow doesn’t think it will make too much difference to the uranium sector whether the Democrats or Republicans claw their way into the Oval Office. Bringing back manufacturing into the US has been a Trump doctrine since day 1, but Biden is now onboard too.

There is a broad spectrum of opinions around the RSA. Through the Ad Hoc committee, the US producers are pushing hard to have the agreement expired so that the limits would be lowered albeit in a staggered manner. Utilities would argue that the current levels are ideal. Enrichment contracts have been signed recently for post-2020, and some of them have been contracted for more than the 20% in anticipation of the limit on Russian enrichment going away. These have been “price suppressive” according to the Department of Commerce. They have recommended the agreement should be lifted and the underlying antidumping investigation from the 90s should be reinstated, placing very high tariffs on Russian enrichment. On the other hand, the Russians might not want to put up with another 10-15 years of paperwork and auditing for what is, essentially, a very small part of the global enrichment market (3Mlbs/yr in America, c. 53Mlbs/yr globally). The Russians have been held at the 20% level since conception, and they have publicly sought a rise to 30-40%. If it doubles to 40% and 6Mlbs, Russia might start being interested again. At some level, commercially, it would make sense that the Russians walk away, especially considering the anti-Russian sentiment that is currently rife in the U.S. administration. On another level, they would lose a relatively cheap lever in off-book negotiations with the US govt.

There is not enough inventory in the market right now because the more mobile, lower-priced inventory is being depleted, and COVID-19 has massively impaired production, especially for KazAtomProm’s partners. The volumes are down but the price has held relatively stable, which Garrow thinks is a positive sign. What a lot of uranium investors don’t realise is how long a process restarting production is; it is not just a case of flipping a switch. For example, KazAtomProm has completely halted its well-field development programme. Its production is coming from existing well-fields. Once it is safe to go out and mine uranium, Garrow expects it to be into the middle of 2021, even if the ramp-up starts before the end of 2020, until we are back to some semblance of supply normality.

In order to press the restart button, long-term contracts will be needed. Which makes Cameco’s decision to restart Cigar Lake intriguing. Have they negotiated term-contracts with utilities? If so what are the terms and when will the market find out. That would set the cat amongst the pigeons. For everyone else though, everything appears to be contingent on contracts next yet signed, and the solution could eventually take a phased approach: if KazAtomProm and Cameco are satisfied and start ramping up, then the producers that are one step down the ladder. We could be well into 2022 before some of the newer want to be producers get a shot; even if their projects are close to shovel-ready, there is plenty of work to do regarding financing the CAPEX, the multitude of licences and operational to knowhow put in to action.

There is only one nuclear conference this year which is “hanging by its claws” in Las Vegas at the end of October 2020, and while 2020 had originally looked like a year when utilities would be much more active, it could well take until well into next year for any kind of meaningful market engagement. Very few people are travelling to visit the utilities right now, and these sorts of deals simply aren’t going to be carved out over the phone. It doesn’t look like there is going to be a rapid take up in term-contracts. It could be very gradual, and Q3/21 is the date we’ve heard be earmarked by many experts. Uranium price discovery may start slowly this year but getting to levels which uranium juniors need for commercial decision making is some way off yet.

There has been a surge of M&A in the space recently, as North American uranium miners target Energy Fuels’ White Mesa Mill to toll their uranium. Garrow states that uranium companies need multiple mines to get anywhere near the volume needed to be a player that interests the utilities. And as for the assets that are being bought up, Garrow just sighs. And when Garrow sighs, investors should too!

What did you make of Dustin Garrow? What questions would you like us to ask him in the future?

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.

Energy Fuels (NYSE: UUUU) – Old Timers said, “You Own the Mill, You Own the District”

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

Energy Fuels is America’s leading producer of uranium. The company’s portfolio is unique within the North American uranium space, with more production capacity, licensed mines, licensed processing facilities, and in-ground uranium resources than any other US uranium producer. While it is small on a global scale compared to other companies, it remains a significant player.

Chalmers is quick to point out that they are focussed on uranium. That said, the cash flow opportunities available to them are not reliant on mining uranium. The company offers up some diversity of revenue in the form of vanadium production, uranium recycling/clean-up operations and REE processing (rare earths); more on that later.

We’ve spoken with Chalmers on many occasions and the uranium picture has become more and more bullish each time. There have been numerous catalyst moments in recent months, predominantly revolving around the destruction of uranium inventories and the tightening of production generated by COVID-19 lockdowns the world over. We were interested to hear what Energy Fuels’ latest update would entail.

Matthew Gordon talks to Mark Chalmers, July 2020

Let’s start with the commercial side of things. After a year spent strengthening its balance sheet, Energy Fuels has told holders of its floating rate convertible unsecured subordinated debentures that it will be redeeming 50% of the C$20.86M total. The remainder is due at the end of this year and the company will need to address this. Chalmers discusses the options available to them in the interview. This is a smart, decisive move that will allow the company to avoid c. US$350,000 in interest payments for the rest of 2020. This decision sets Energy Fuels apart massively from most other uranium juniors who are currently running up debts to fund exploration programmes or to keep the lights on whilst the market lurches from one catalyst to the next. Instead, Energy Fuels is on the front foot, logically and systemically managing its cash position as it prepares for the uranium renaissance, whenever that may begin.

The US House of Appropriations Committee recently took the decision to block the funding of a US$150M US uranium reserve. This is a setback for North American uranium bulls after several months of positive news, but Chalmers is pragmatic; he is anything but surprised. Moreover, he doesn’t see this decision as definitive. It seems likely that the topic will be revisited once the US Department of Energy can provide more clarity about how exactly the reserve would be implemented at some point in the next 180 days, about 90 days after the US Elections take place. Chalmers is under the impression that the DoE is hard at work to address these questions right now.

Let’s get back to what I mentioned earlier: vanadium and rare earths. This is when the White Mesa Mill, Utah, serves as a real trump card. The only remaining fully-operational conventional uranium mill in the US is the subject of much discussion, but some investors may not yet have recognised the full extent of its capabilities. It is licensed to process uranium, but it is also able to process vanadium and rare earths. Uranium, vanadium and rare earths are all potentially strategic commodities on the critical minerals list for the United States, and this can only be a good thing. Now, the question is can the US govt help? If the Section 232 fiasco is anything to go off, advancing their own agenda through partnerships would see them retain control of their own destiny.

In fact, based on what we are hearing, America is aiming to build a new US-based global REE hub to rival the status quote of Chinese dominance. Supporting a cause that could rival a monopoly is usually something to be quite excited about… Energy Fuels has recently been actively pursuing the rare earths processing capabilities of the business as it looks to further monetise the White Mesa Mill, driving capital into the company’s bottom line. What partnerships with Constantine Karayannopoulos and Neo Performance materials do for them? It feels like a new Mountain Pass in the making.

A total of 5 uranium juniors have told us in recent interviews that they will be using White Mesa Mill to process their uranium. However, Chalmers hasn’t heard even the faintest whisper from any of them, and he’d quite like them to stop making such claims. This exemplifies exactly what we have been saying about the White Mesa Mill all along: it gives Energy Fuels a monopoly over other North American uranium juniors. Uranium juniors face the choice to pay a toll fee, at Energy Fuels’ leisure, or ship ore more expensively to South America. It’s an incredibly competitive situation and it is clear that Energy Fuels holds all of the cards.

We recently discussed an intriguing topic with Brandon Munro and John Borshoff. As this deep uranium bear market has dragged on year after year, expertise has been attracted away from the industry. This means there is a shortage of technically-proficient, experienced uranium minds out there. Projects will struggle to get into this production without expertise. Moreover, with a flood of new entrants, there are currently too many uranium companies for too few high-quality projects. As a consequence, the utilities aren’t taking uranium producers seriously yet. Consolidation is absolutely necessary to swing the struggle back in favour of the producers, and Energy Fuels could be an excellent candidate for this. It has a dominant position and is surrounded by many uranium minnows. It could well look at M&A in the future and appears to be the best-positioned North American uranium junior to hoover up some smaller players.

What did you make of Energy Fuels and Mark Chalmers? Comment beow and we will respond.

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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.

Brandon Munro #1 – Uranium Investors Need to Believe to Macro (Rewind to January)

We like checking in with Brandon Munro. He is a uranium market commentator and the CEO of Bannerman Resources (ASX: BMN). His insights into the uranium space are both compelling and revealing.

In January, after an incredibly disappointing 2019 for uranium, investor sentiment was at an all-time low. The Section 232 petition had failed to bear any tangible fruit, equities were tumbling away, and price discovery seemed an eternity away. Munro’s message to investors at the time was clear: believe in the uranium macro story, and look a little deeper. In hindsight, the mechanisms that were at work in January were accelerated by COVID-19, and they have led us to the more bullish sentiment we are seeing amongst the uranium community today.

Matthew Gordon talks to Brandon Munro, January 2020

The macro story for uranium is now better understood and for good reason. It is widely accepted that the world’s growing energy consumption necessitates a nuclear energy infrastructure. Fossil fuels are not as inefficient, and renewable energy is expensive and not entirely as green as initial publicity led us to believe or quite frankly our intuition suggests to us. Nuclear power is a (more) green solution to the energy needs of tomorrow. A global increase in the construction of nuclear power plants is evidence that the powers that be are fully aware of this. As of today, there are c. 440 nuclear power reactors operating in 30 countries (plus Taiwan), with a combined capacity of about 400GWe. In 2018 these over 10% of the world’s electricity. Moreover, around 55 reactors are under construction internationally, primarily in Asia, and there are big plans for Russia too. Further capacity has been added via nuclear plant upgrades, and plant lifetime extension programmes have been popular, especially in the US.

So, if investors are willing to accept this and put their faith behind the uranium macro story, it’s time to dig into the details.

Back in January, plenty was happening behind the curtain in a deep bear market. Industry insiders were claiming that UF6 reserves, held by utility companies, were all but gone. They also claimed the enriched uranium product (EUP) conversion price had risen by 400%, arguing that the price of uranium enrichment had risen from US$30 to a more sizable US$50. These are just some of the moving parts that were at play when we spoke, and they have continued to feature prominently in the discussions of the uranium investment community 7-months later. As the utilities’ reserves of EUP and UF6 have become substantially completely depleted, it has negatively impacted their optionality. The idea was that utilities would now need to look at their uranium supply chain with a greater sense of urgency, because without UF6 and EUP, long-term planning, and therefore contracts, would become a necessity.

Even with the significantly longer runway that utilities require to plug U3O8 in rather than UF6 or EUP, this hasn’t quite happened yet. While COVID-19 has been great for tightening inventories and restriction uranium supply into the market, exposing the supply-demand deficit, it has also thrown up all manner of problems for the utilities. As a consequence, long-term uranium contract discussions are currently a very low priority; they have much more urgent matters to attend to. It’s natural for uranium investors to feel frustrated at what appears to be another false dawn, but when looking more deeply at the fundamentals, like Munro did in this interview, and believing in the uranium macro story, there are still plenty of causes for optimism.

Munro dismisses the idea that U3O8 would return to its c. US$150/lb peak, and this is something we’ve heard consistently from some uranium brainiacs we’ve interviewed in the months since this interview. Specifically, Munro projected a sharp peak of US$90/lb, followed by a retreat to a sustainable US$50-60/lb. There simply isn’t the hype surrounding the nuclear space that was present 15-years ago, and it is unlikely this will ever return. The sentiment is still tarnished by nuclear disasters and the seething rants of purported environmentalists, and this is far from an easy reputation to shift.

Uranium investor requires patience and intellectual curiosity. Watch or listen to this uranium series with Brandon Munro and understand the space, the limitations, the opportunities and work out which companies will do better than others. Timing is everything. Gentlemen, start your engines.

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Dustin Garrow #05 – Investors Want to Know When US Utilities buy Uranium (Transcript)

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.

We Discuss:

  1. 2:49 – US House of Appropriation News: Inevitable Situation?
  2. 10:30 – Problems and Distractions: What Could Have Been Done Differently?
  3. 15:29 – The Senate: Only Hope for Juniors?
  4. 17:02 – Utilities as Market Driving Force: Importance of US Elections and RSA
  5. 27:05 – Tell the Time: What Happens in 2021? When Are We to See Long-Term Contracts?
  6. 31:14 – Quickness of Price Discovery: Impact on Big Name Uranium Companies
  7. 36:44 – When Can We Expect to See Price Discovery Movement?
  8. 39:47 – Preparing for the Boom: Who’s Going to Struggle?
  9. 41:20 – Lots of M&A in the Uranium Space: Opinions and Implications
  10. 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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Brandon Munro #16 – No to US Uranium Reserve Fund (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN) CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

It’s been a big week for uranium investors. The US House of Appropriation has blocked the idea of funding of the ‘US uranium reserve.’ What is the right of reply? What does this mean for US uranium equities? How should uranium investors interpret this information? We will be asking some of the main players this week how they intend to respond. Brandon gives us a precursor to what happens next.

We then take a look at the supply market in general, with news of the latest lockdown extension in Kazakhstan, with the world’s largest uranium producer, KazAtomProm, extending its initial 3-month production reduction by a further month. Cameco and the other uranium majors are following suit.

We Discuss:

  1. 3:05 – US House of Appropriation News: What Happens Next?
  2. 10:50 – Geopolitics of Nuclear Energy: Should Politicians Be Involved?
  3. 13:18 – Impact on Retail Investors: Looking for Catalysts and Getting Deflated
  4. 15:34 – Kazakhstan’s Extension of Lock-down Continues: The Impact on Market
  5. 18:12 – Your Questions Asked: What if COVID-19 Continues for Another Year, What Could the Impact Be?
  6. 24:24 – COVID-19’s Impact on Investors: Blue Sky Opportunities
  7. 27:29 – US & Russian Suspension Agreement Debates and Potential Results

CLICK HERE to watch the full interview.

Matthew Gordan: Brandon Munro. How are you, sir?

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

Matthew Gordon: Good. Feels like a long week if I’m honest. But we have got to get on with this. We have got another exciting week of Uranium conversation, we discussed some pretty big things this week. We are going to discuss some of them in this forum, and then we’re going to go and talk about some quite interesting stuff in the Crux Club for a moment, won’t we? Looking forward to it.

Brandon Munro: Looking forward to it.

Matthew Gordon: Let’s start off with the big one. People started talking about it last night, but they haven’t really got into the detail of it. The US House of Appropriations Committee have come up with something which is probably not too good news for the Uranium juniors in the US. What did you make of it?

Brandon Munro: Yes, I think it could be pretty discouraging for some of those companies that have really pushed the Section 232 process, and were hoping to obtain shorter term benefits. For the viewers out there, the House Appropriations Committee, whose job it is to take the recommended budget proposals, mark them up, and then submit them to Congress for approval. And that’s for the budget commencing in October 2020. They jettisoned, really, the proposed US Uranium fund. So if we go back for a moment to the report that came out of the Nuclear Fuel Working Group, which came out of the Section 232 investigation all those months ago, the report recommended a USD$150M per annum Uranium reserves that would acquire between 17Mlbs and 19Mlbs over about 10-years, and also convert a proportion of those so that the US could improve and enhance its stockpiling capability.

At the moment, the US Department of Energy maintains only enough strategic reserves for about seven reactor refills reloads. And that was seen as not enough. Now what has happened is that the House Appropriations Committee said, nope, we’re not going to fund that. We’re not going to approve that. And they cited a lack of detail, in fact, from the Department of Energy over that. They basically said, we’re not too sure about the justification for this Uranium reserve. And in fact, we didn’t really get our questions answered on how it would be implemented, et cetera, et cetera. So, a bit of a discouraging setback for many of those US producers, but of course, for the broader market it is just really a blip.

Matthew Gordon: Does it surprise you? Was this a shock to you?

Brandon Munro: No, and in fact, you and I were talking about it, if it wasn’t last week, it was the week before, where we were saying the DOE really seems to have its head space in nuclear technologies, particularly SMRs and advanced reactor technology. When you look at where the money is going, most of the funding has gone to R&D for those different technologies. They can see how it can more directly benefit the US industrial complex. They did appear to be quite slow in getting their head around the nuclear fuel cycle during Section 232. And my impression, and we talked about this as well, was that the reserve looked a little bit like throwing a bone to the US mining industry. Quite an attractive bone if it had come off, of course, and if that had been spread amongst only two or three of the miners, so it doesn’t really surprise me to see this, given how distracted DOE has been and where its focus has been.

Matthew Gordon: Given that, what’s the timing on all of this? What happens next?

Brandon Munro: The Committee itself basically told DOE to go home and do its homework. What they asked for was they directed that the Department of Energy needs to come back with a plan, including costings, within 180-days of the Act passing. They want them to tell the House Committee how they are going to go about procuring, converting, storing. They want information on the legal processes that allow them to do this type of thing, and all of the associated costings to that within 180-days. Now, that is obviously half a year from now. And presumably what would happen from there is that that then gets tipped into next year’s budget appropriations process. My take on this and my read is that unless the Republicans pull a rabbit out of the hat in the Senate during this appropriations process, we’re now looking at that money potentially being available from October 2021. It is a long way off, and there is a long period of lobbying that is going to be required to see this one through from here.

Matthew Gordon: If I’m a US Uranium junior I’m going to be pretty pissed, because someone has dropped the ball here. They haven’t done the homework. They haven’t put in the hard yards to actually provide the information which was asked for. And, quite rightly, the Committee has said, no.

Brandon Munro: Well, I don’t know where the breakdown has occurred. I honestly, I’ve got no idea. And there’s a number of people who come on your show who probably would have some good insights as to that. It would definitely be disappointing for Uranium juniors or Uranium producers who are eyeing off this potential source of demand. The opportunity to contract directly with the US government would be very attractive to them. I would look at it a bit more holistically though; which is the market is going to do the heavy lifting here anyway. By the time this all gets sorted out the numbers that they told the DOE that they would need in order to effectively resume production, the market is going to navigate and gravitate to those numbers anyway. I will be astonished if in 2 or 3-years’ time, we are not above USD$60/lbs, USD$65/lbs on a term contracting basis. It might be that when we finally get there, and the US finally starts procuring this material from US production, the market has solved the problem for them in any case. And we now look back at all of these delays and this great long process that has certainly put a wet blanket and a damper on a lot of the utility activity, we will look back at all of this and say, well, what was that for?

Matthew Gordon: I agree with you, but we have had conversations, probably back in the early days, where we were trying to explain to people the importance of US utilities, because it is such a big market. But the reality is that it is 25% of the market. And, the market will, well, we said at the time, it will have to sort itself out. It looks like it is probably is going to have to do that. It is going to have to find its own pricing in the market because it is not getting much help from the US politicians at the moment.

Brandon Munro: Yes, and look, I think some would justifiably ask the question, whether it is the US politician’s role to be helping in that instance. And that is a whole different discussion that really comes into what, philosophically, is the right level of government intervention and so forth. And there is a broad range of views on that, of course. But you’re quite right: we know what supply and demand needs to do, and if utilities want to buy diverse supply from anyone except, say, the Kazakhs and the Russians, for example, well, they are going to have to be prepared to spend a proportion of their portfolio of contracts at those prices and above over the coming years.

Matthew Gordon: But it does come back to this whole geopolitical component around energy, around Uranium and nuclear energy. We are going to chat in the Club member’s club about Nord Stream 2, but it is just a real reminder that, , whether politicians should or should not get involved with decision-making like this, they are because we have got various sanctions: Russian sanctions, we have got Iran sanctions. And, the US’s allies are even feeling a little bit ostracised about the way that the American politicians are approaching this at the moment, especially around Iran, for sure. It is hard to separate the politics, politicians’ activities, and the utilities decision-making in this environment, and in an election year too, so it is as complicated as ever. But, coming back to my point, the US junior Uranium companies are going to find this a little bit hard to swallow.

Brandon Munro: Well, you are absolutely right on the political and geopolitical implications. And this is in the counter argument to the one that I referred to a moment ago, which is that nuclear energy is inextricably linked to geopolitics. And even in the US free-market environment. In Russia and China, it is entirely absorbed into the political apparatus and the political industrial geopolitical apparatus in those countries. And as came through really clearly in the Working Group report from the Department of Energy is that the US has dropped the ball on that. The counter argument is this is a special form of energy, as we’ve always said, it is so closely integrated into geopolitical ambitions of the world’s major players, that it should be integrated into the political process as well. So that’s the counter argument, and the one that incidentally I favour. And we have talked so much about the role of geopolitics, and you can’t really understand the Uranium sector unless you have got a reasonable grasp of geopolitics. And as we have talked many times on the show, that is where we tend to navigate when we’re looking at the bigger picture of this.

Matthew Gordon: What is interesting to me about what you have said earlier is that this announcement, and obviously it is not going to faze utilities, but for investors, retail investors particularly, looking forward to these large catalyst moments over and over for the last couple of years, since Section 232 started, this will be a huge disappointment because it is a huge inertia yet again when they are looking for salvation in spot price and rising support from the US government. And to see that the short-term impacts won’t be there. There won’t be any movement in Uranium equities off the back of this, but your view is that it doesn’t matter. The market will sort itself out.

Brandon Munro: It doesn’t matter for most of the sector. So, when I look at my Twitter account, and some of the responses that I’ve had to this news, it has largely been comments like, ‘Oh my God, the whole sector is going to be done down’. And it is like, no, it won’t be the whole sector. It is a handful of companies who stood to benefit from this. We need to be really clear that for 90% of Uranium juniors out there, those exposed to Africa, those exposed to Canada, those exposed to Australia and elsewhere, this makes very little difference. Sure, it would have been nice to have another source of demand coming in there, it is always nice to have a government buying material out there that others can’t buy. But it is not even the same as the effect that, take the Ranger mine coming off stream that ERA is closing – that is far more impactful on the market than what the source of demand is. We just need to put that in perspective. I don’t want to downplay the disappointment for the key players here. But by the same token it doesn’t really make much difference to the broader industry here.

Matthew Gordon: That is true in terms of pounds out of the ground. It doesn’t really add up to a lot in the scheme of things; That is what you are saying. Let’s talk about Kazakhstan. Kazakhstan, we heard last week, and we interviewed KazAtomProm last week and we heard from the horse’s mouth, but this extension to the lockdown period, it really is big. They are handling things really well. They are handling things, as per Cameco… they are doing the right things for the right reasons, but the impact on that could be significant because there is no end in sight.

Brandon Munro: That’s right. We have seen the 2-week extension extended by another 2-weeks. And to us, and we talked about this on the show 2-weeks ago, I think it was, that was very apparent that that was going to be the case. The Ministry of Health’s own numbers in terms of the number of daily pneumonias by the end of August, the number of beds that would be required, they pointed very, very directly at 4-weeks of necessary lockdown, assuming an improving trajectory. Now, we haven’t seen that improving trajectory and yet there were those numbers that were still presumably valid projections. So that’s now been extended, I think KazAtomProm would have been forming a very similar view to what you and I formed a couple of weeks ago. They would have expected those lockdown restrictions to carry on.

Now, how much longer do they carry on? Well, that is anyone’s guess. I mean, in Australia at the moment in Victoria, they had 100 cases a day and they slapped a six-week lockdown onto the city of Melbourne, which is 5M people. And we’ve seen a far escalating problem compared to that in Kazakhstan and its neighbours. There is no end in sight. Obviously, there will have to be an end at some point, but is it 2 more weeks? Is it 4 more weeks? Is it 6 more weeks? Very hard to judge, and I think it’ll be very interesting now to tune in on the 3rd August when KazAtomProm has their quarterly results, because now they are obviously under some pressure to address production guidance. But equally they’ve also got now a change in circumstances; they have got this extension of two weeks, so they have the justification now to address production guidance in a different way. I’m very interested to see what they come out with on 3rd August,

Matthew Gordon: Someone sent in a question, which was (I had absolutely no idea, I couldn’t even begin to come up with an answer for), which was: what happens if this COVID situation carries on for another year? And before we get some vaccination solution here, what does that do for these producers? Because obviously, utilities have between 2 to 3-years’ worth of inventory in reserve for situations like this. They don’t want to run out. But these companies, the longer they are offline, the longer it is going to take to get online. The question was this: can those companies come up with a protocol which allows workers to get back in? And given the size of some of these, like KazAtomProm has about 20,000 workers, obviously not all of them are essential workers, they are not all in the field as it were, but how do we, as the world, how do we get back into production on these Uranium sites, these Uranium assets without endangering lives?

Brandon Munro: It is an interesting question, isn’t it? Because the scenario in which the world is still grappling with COVID in a year’s time without a vaccine; that’s a very realistic scenario. Most of the medical information that I’ve seen on a vaccine, is that we are looking at least that timeframe before a vaccine is developed and is safe and available to the public. And then there’s a whole lot of questions about affordability. There are questions about what are the attendant risks with the vaccine. This is a scenario that I have very firmly in front of my planning from the Bannerman point of view and so forth. But having said that, I don’t think it is realistic to expect that these big production centres will remain offline for that long, even if we’re seeing an escalated issue at a societal level. And there’s a few reasons why I’d say that. The first one is that we learn, we get better. The mining industry is incredibly adaptable. It probably adapts as well as any other industry, perhaps including military. It comes up with various techniques. Now that doesn’t mean that, if we’re talking about Kazakhstan, just for argument’s sake, it doesn’t mean that they’re going to be back at 100% production necessarily, but over time they would work out how they can do that.

The other thing is that, let’s say, again with Kazakhstan, that it continues to really battle COVID over that period of time, there is going to become a proportion of the workforce that develops immunity through having recovered from COVID. So, in addition to whatever other mitigating workforce steps implemented by KazAtomProm, they are going to be able to draw on people who won’t get sick. But the other thing is, what we’re talking about here is, both in KazAtomProm and Cameco situation, and some of the other companies that have been affected in other commodities, we are largely talking about preventative measures. Companies that are making tough, difficult decisions to prevent adverse circumstance answers, not only for their own workers and their families, but for the society at large, particularly in Cameco’s situation who are very keen to preserve or to avoid any contribution to the difficulties in Northern Saskatchewan. The society’s tolerance for those preventative measures will wane over time. We are seeing it wane already in the US in many different ways at a societal level. So over time, the balance will move more towards getting production and getting dollars in the door. The question becomes, in that scenario, while we’re playing this one out and role playing it out, where does that balance kick in? Because for a country like Kazakhstan, we have said it before: Kazakhstan is incredibly important to Uranium, but Uranium isn’t that important to Kazakhstan. , 20,000 employees across the country there isn’t massive compared to other hard rock commodities, such as Copper and Gold, and it is very, very small compared to oil and gas. The government, the society, the communities, we will see them accept that risk sooner, particularly in hydrocarbons and other forms of industry, than they will with Uranium. Would that be six months would have been nine months? That’s very hard to guess, but I think the idea that Uranium could be shut down for a year is unrealistic.

Matthew Gordon:  It is also quite interesting in terms of the supply story. Again, we’re going to have some old ground here, but this new data allows us to do that. The longer the current situation goes on, the less supply there is in the market, the less pounds there are on the market, and there is this undertone we’re getting from Cameco and KazAtomProm about sweeping up pounds in the spot market. It is really good news. I have got to bring this back to investors; it is good news for investors in Uranium companies. And the longer this goes on, the better is for the Tier-3, I’m calling them. I’ve got my Tier-1 producers like KazAtomProm and Cameco and the like, and then the Tier-2 are people that have formerly produced, and the Tier-3 is coming through. The longer this goes on, it is better for those Tier-3s, and lower, in terms of, there will be more need for them. There will be huge pressure on price the longer this goes on. And that can only be good for investors too. What’s your take on it from that angle? Because we talked in the past about the possibility of, if this goes on for a long time, people without cash are going to struggle, but at the same time, it is fantastic news for the supply side of the market. So how do you weigh those things up as an investor?

Brandon Munro: I absolutely agree. What we’re seeing here is the drawdown of inventory, necessarily by utilities and others, while the supply deficit widens. And that will carry on to the end of the year and even into next year because of the existing structural supply deficit, but also the guidance that’s coming out of KazAtomProm now seems pretty clear, to me, that it is going to affect 2021 production as well as 2020, as it takes time for them to reassess their wells and develop new wellheads and so forth. But here’s the rub: the more disruption that we see and the longer we take for a market to rebalance, the more volatile it is going to be. So if, for example, at the end of 2018 we had seen a market rebalance, we had seen a series of term contracts written, we had seen price discovery, and we had seen the utilities meet their requirements out to 2026, 2027, 2028, and so forth. We would have seen prices go up, no question. That was absolutely necessary to preserve existing production, let alone to incentivise new production.

But if the steps had been taken back then, it probably would have brought on enough new production at that price to avoid serious supply scarcity. But here we are two years later and that hasn’t happened, and the deficit has only got worse. And now we’ve got a serious supply disruption taking place right now. So that means upward volatility. That is great news for all producers, really, particularly good news for some of the, you used the term Tier-3 and Tier-4 producers, who can get into business. But it also becomes very important to understand as an investor; are you investing in a company that can produce producible pounds during that volatility period? Because if we go through a huge amount of volatility, like we did in 2006, 2007, and then the market settles down again by 2030, and your investment is only looking at that timeframe to get back into production, it will see some benefit, no question. Its cost of capital will go down, but it won’t be putting money in the bank as a result of selling pounds into those volatile price events.

Matthew Gordon: I think it needs some careful thinking about where you place your bets, depending on what your strategy. We have talked about it a lot before. We will talk about it again. But for the sake of today’s conversation, I do want to talk about utilities. We understand from last week’s conversation why utilities are inactive. You explained that. You articulated that last week. In terms of this Russian suspension agreement, it is just worth getting into in a bit detail about what the debate is. What is the US wrestling with. What are these politicians who are affecting the price of Uranium and the nuclear industry? What are they wrestling with?

Brandon Munro: I think we need to remember that there is a debate – sure. And there’s a lot of grandstanding and there’s a lot of political posturing and that’s what we read about because it comes out in the media. But what we’re actually talking about here is a negotiation; this is a negotiation between the US and Russia, where the US is seeking to get Russia to agree to the restrictions, and in return, Russia is seeking to get the US to agree, to allow it, to sell its Uranium, but in particular it is enrichment services, without forms of trade restrictions such as tariffs. I saw some commentary out of, it was Energy Fuels, and their view is that if there isn’t an agreement, that the resulting position will be the suspension of the trade action falls away, which we’ve said before. And they are saying that the result would be that tariffs would come in at 115%. So very, very significant tariff on Russian enrichment and Russian Uranium supply until the trade action can be re-established and resolved.

I am just repeating what I’ve seen there. I haven’t gone into the detail to understand that, and it might be that they have got access that I don’t. But of course, if that is the result, you can imagine why the utilities are just so nervous about this; because they could see those tariffs imposed on their existing contractual obligations with Russia, and unless they’ve got some a force majeure or other option to get out of it, that is going to make them pretty nervous about the cost that they will be paying for their nuclear fuel. So that is what is at stake. And there are various provisions where, for example, the US could unilaterally withdraw, giving a certain amount of notice. We’re hearing that perhaps they are playing tough with Russia, or attempting to, let’s just see how all of that plays out. But the word coming out from the US that I’m hearing is that this thing is still a long way from being resolved. We are likely to have a resolution in December, perhaps even late December. And so that gives viewers an idea of why the utilities are so distracted from what we are seeing.

Matthew Gordon: What happens if we don’t come up with something in December? Can they extend the negotiations, or does the resolution come into effect?

Brandon Munro: The resolution comes into effect. There’s no automatic extension. Effectively, what happens is that the 1998, I think it was, when the initial action, the trade action was brought, it was a dumping action that was brought, that’s the action that was suspended and why this whole thing is called the Russian suspension agreement -so that suspends that action. The status quo at that time of that action would then kick in. I’ve read from commentary from Energy Fuels that that involves 115% tariff that would be automatically applied on anything caught by that action, which is Russian Uranium and Russian enrichment services.

Matthew Gordon: We are now going to switch to the Crux investor Club. So thank you very much, everyone for watching this. I hope you enjoyed this week’s show with Brandon. We are now going to segue over to the Crux Investor Club members where we are going to talk a little bit more about the geopolitical component and the impact on investors. So for instance, what’s happening in Iran; there has been an explosion. We’re going to talk about what’s going on, and should we be worried? We are going to talk about Russia a little bit more, with Nord Stream 2. And, how that potentially influences what is going on in the nuclear Uranium space, especially for investors. Thanks very much for watching.

Brandon Munro: Thanks to everyone out there who is supporting us.

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