RNC Minerals (TSX:RNX) – Right back to where it should have been (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.34 (06.04.2020)
  • Market Cap: C$207M

Interview with Paul Huet, CEO of RNC Minerals (TSX:RNX)

COVID-19 has affected stock markets across the land. Very few have managed to emerge unscathed, and even the historic safe haven of gold investment has been hit, though the gold price has now recovered nicely and quantitative easing should drive it even hire.

So, RNC Minerals. An amazing operational turnaround in 2019 was lacking one thing: share price growth. RNC Minerals appeared on the cusp of growth, especially given the exciting exploration and optimisation plans in its 2020 guidance, but COVID-19 has heavily impacted the share price. Investor sentiment is low, and patient investors in RNC Minerals have been left feeling frustrated.

However, in this passionate interview, Huet cuts through the COVID-19 crisis, and explains in detail why RNC Minerals could still be a fantastic bet for investors. RNC Minerals released its Q4/19 results last week, and Huet was keen to emphasise the significance of them. What are the headlines?

• Gold Production: 26,874oz
• Adjusted Earnings: C$14M
• 2H/19 AISC Guidance BEATEN
• NO CHANGE to 2020 Guidance

The operational figures are mightily impressive; there is no way of getting away from that. However, the most encouraging fact of all for investors is that there is NO CHANGE to the 2020 guidance, despite the coronavirus outbreak. This is the clearest indication yet that RNC Minerals currently appears to be available at a steep discount on its true value.

Huet unpacked some of the results for us to provide further reasons to believe. RNC Minerals’ 2H/19 gold production figure of 51,090oz comfortably exceeds its own guidance (42,000-49,000oz). The Q4/19 AISC also defeated expectations: US$1,131, a 12% reduction of 1H/19. The company has reiterated the position in its 2020 guidance: 90,000-95,000oz gold in 2020 at an AISC ≈US$1000/oz, provided COVID-19 has no adverse impact on the company. It will be interesting to see how an ore sorter can further transform these economics and act as a catalyst.

Adjusted earnings of C$13.7M FOR Q4/19 are particularly impressive, especially when you consider the full-year earnings for 2019 are only C$15.9M. RNC Minerals managed to reinforce its balance sheet in 2019, holding a strong cash position of US$34.7 million, net of a US$3 million debt repayment, and working capital of US$26.5 million.

The real promise of share price explosion comes from exploration at the HGO open-pit production pipeline. Recent drilling has created mine life extensions of the Baloo and Fairplay North open pits. RNC Minerals has identified a number of areas at HGO for further exploration: the Aquarius Project, a newly interpreted 5km structure north of Trident, as well as potential open-pit expansions to both the Mousehollow and Hidden Secret projects.

In addition to optimising its Higginsville Mill, RNC Minerals is considering its royalty arrangement with Maverix Metals at Beta Hunt, which stands at 6% on gold and 1.5% on nickel. We have no doubt Huet will deal with this in due course and in the right manner.

RNC Minerals also filed the technical report for the maiden gold mineral reserve at Beta Hunt of 306,000 ounces (3.4 Mt at an average grade of 2.8 g/t) and has produced a revised feasibility study on the Dumont Nickel-Cobalt Project. RNC Minerals’ corporate strategy and business model looks strong. Huet’s leadership thus far has been equally strong. The company is moving into a clear growth phase, and there is very little to make us doubt they will deliver. Right now, a share price of c. C$0.30 looks like the market has lost its mind, and when that happens, its time for investors to think about acting.

We Discuss:

3:28 – 4th Quarter Numbers: What’s Been Achieved?
4:44 – 4 Areas of Advancing the Business: What’s Been Done so Far and What is Being Planned for the Future?
10:20 – Morgan Stanley Royalty: 5 New Exploration Targets; What Does That Mean for Investors?
14:28 – Stockpiling and Discussing the Ore Sorter
20:08 – Maverix: What’s Been Happening?
22:31 – Marketing at Present: Reaching Investors Through Digital Means
27:03 – Raises in 2020 and Purpose for the Money

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Paul, how are you doing sir?

Paul Huet: Hey Matt, how are you?

Matthew Gordon: Not bad, not bad. You are holed up at the house with the kids and the wife?

Paul Huet: Yes. So look,  it’s no surprise, I’ve been saying this for a long time. I’ve got a beautiful wife and six children, so you can imagine it’s a little stir crazy in the house, but we’re certainly getting through it and following the guidance from our leaders to make sure that we stay home and do our best to prevent any of this spread. But you can appreciate those young ones – they feel like there are bars on their rooms here, so they’re ready like Mike Tyson to fight their way out.

Matthew Gordon: Well, I know, I know. We’ve got them all at home as well, and with animals to boot, but we will get through this. Look, thanks for the call. We were really pleased to see your fourth-quarter numbers come out. And, you know, I’d like to talk to you about some of those numbers because I keep saying to people, this is one of the turnaround stories of last year. You know, when you kind of joined as CEO in, was it May/June last year? And also, I’d like to talk about what 2020 looks like if you don’t mind. If you can give us some idea of what the plan is, what the targets will be and what you’re hoping to achieve? So, but let’s kick off with the fourth quarter numbers – so you have got to be pleased?

Paul Huet: Yes, look, it’s hard not to be pleased. In fact, on several metrics, we did slightly better than we had anticipated. And I think the thing to remember here, Matt, is that a lot of these things that we’re doing are first time; it’s the first time the company has its own mill. It’s the first time the company ever put out guidance. It’s the first time we’re held accountable to numbers. You know, let’s just talk about our guidance: we outperformed our guidance by 2000oz, coming in at 51,000oz. A lot of these metrics that are normal for everyone where you seem to just go, well yes, well they should be doing, it’s normal, they are big steps because the company had never done it; putting together budgets, mill availabilities. You know, our mill came up significantly by almost 4%. So on metric after metric after metric, all these things together, they pay off. And look, the best report card we have is the Gold bars at the end of the stream and the cash in the bank. So nobody can deny cash in the bank and the Gold bars.

Matthew Gordon: But you’ve always talked about the four areas of business that you would look at. Now, clearly you’ve got to cut costs, and have you been doing that? I mean, how have you been doing that? What are the things that are working for you on just on that first one?

Paul Huet: Yes, and thanks for asking that question because I’ll tell you; what we look at is really – are our efforts working? Are the things we’re doing and our plans coming together as anticipated? And in our situation, we were very clear on identifying four main areas that we believed could cut our All In Sustaining Cost and get us to that target. We’re targeting USD$1,000 an ounce, which we will get to. So when you think about those four things, one of them was GNA; we realised GNA where it’s maybe at about USD$160 an ounce. There’s a lot of room for improvement and we have been working on that. We’ve been making some tremendous changes internally:  we’ve reduced the office significantly. That’s an area where we’ve made some huge changes. We talk about people; you can never underestimate the people. So we’ve repeated some of the metrics, but they’re worth mentioning, if you talk about putting the right people in place.

When I joined, you had two new GMs come, we brought in them guys and they had a network; they brought in about 87 people, and let me tell you something, how that is impacting us so much today. We talked about how our head over rate dropped from 87% down to around 16% to 18%, but one thing we didn’t mention when we were talking about that is the circle, or that network that these guys brought in, most of them were local. Graham was born in Norseman, which is just South of our operations. Those people that followed Graham were around the communities. So how does that help us today? We didn’t anticipate that before, it was reducing our costs because – fly-in, fly-out. We have a lot less people flying in, flying out. We are able to sustain and keep our operations, our mill running, our doors running because we don’t have such fly-in, fly-out, and the government is imposing a lot of strict metrics.

But by having Graham, we’ve said from day one, putting in the right team matters, and we’re seeing it matter so much today. It has helped us; our productivity rates have increased by 30% in the mine. Our efficiencies in the mill have come up from 93% all the way up to 97%. So look, every little step matters. These little thing matters and they add to the bottom line. I couldn’t be prouder.

 Look, we said we’d focus on two others – we said GNA people, top 20 vendors. We have been working long and hard with our top 20 vendors – that is paying off. We’re only able to do this because we’ve turned this ship around. These things are only able to be done because we now have consistent cash flow. We have a balance sheet, we have a strong Q; none of these things would have been possible had we not done all the steps and turned this company around.

The last thing we said we were going to focus on was Royalties. So those were our four picks. And what’s the best report card? Well look at what happened with Morgan Stanley; we’ve taken a Royalty that had been in place for almost 20 years, Matt. We’ve taken a Royalty that was 7%, down to 2% – what a change. We can’t ask for better results. This is phenomenal. We have since unlocked five, not one, not two, five, five new areas. I’ve never seen something so aggressive, so exciting in such a short time.

So when you think of those four things, what’s the report card? The trend, look at it. We started here, Matt, first half of the year, over USD$1,300 an ounce. Our first quarter running the mill, not all alone, we had to do some toll-milling in Q3, we dropped it to USD$1183. The second quarter that we have full production on our own, we dropped another USD$50 an ounce. And look, don’t ever underestimate what those bushfires and everything else, we were doing this while we were dealing with a global catastrophe ahead of this Covid 19, so hats off to the team here. I can’t be prouder to serve as CEO of this company. These guys are doing a good job and it is flowing into our numbers, into our reduction in costs, keeping our production. There’s a disconnect in the share price, but not a better buying opportunity. You’re going to find around anywhere.

Matthew Gordon: Well, that’s a very passionate riposte to the 2019 figures, I mean, the 2019 figures. I mean, genuinely I’m impressed with the turnaround, but I think, and I’ve not made a secret of that in the marketplace, I’ve been telling people that this was phenomenal. What you’ve done from the base you started with, to what you’ve done is phenomenal. I am interested though, because you have got to keep it going. You can’t rest on your laurels. I don’t for one second think you will because if you are as passionate with your staff as you are with this interview, I think that they know what you want out of this, which is to continue driving those costs down.

So can I just talk about, so Morgan Stanley – you’ve talked about how you’ve identified five exploration targets. What does that actually mean? So people are watching this and go, well, great, five exploration targets, but what is that actually going to convert into in terms of value to them or for you?

Paul Huet: So let’s break it down. All right, those five, let’s talk about the geophysics first. So if you look at the history of this asset, our mill, that mill was built for the Trident mine. The Trident deposit is right at the plant. It produced 1Moz, and based off memory, somebody would fact check this, but I’m certain it’s 9 to 10 grams. Somebody could fact check that for me, but 9 to 10 grams: 1Moz. After we renegotiated the Morgan Stanley Royalty, we spend approximately USD$100,000s on geophysics just North of where the plant was built. We discover a brand new trend 5kms in strike. This is a brand new, not one drill hole, this is completely virgin territory, wide open, but you can clearly see it in the geophysics; there is a structure there that resembles why that plant was built. So that’s one target and that’s for the future.

Now let’s talk, let’s bring home some stuff that are even closer to us. After renegotiating Morgan Stanley, we have some drill holes in Fairplay. We’re already mining Fairplay. How does that transfer into our people? When we had the bushfires in December and November, and we were dealing with that, we were very fortunate that our team was proactive getting reagents, and we also had a stockpile. When we bought the plant we burned it up. So what does Fairplay do? It adds another source. We’re not reliant on only two sources, today you have Baloo, Fairplay and Beta hunt. Those stockpiles that we had to burn up during the fire seasons are being replenished. We’re actually building the stuff out today. We have north of 45,000 diamonds now. That is extremely good, considering we don’t know the outcome of the future. None of us can predict what’s going to happen.

We’re really pleased that the Australian government have been good about mining, not shutting anything down, but having that stockpile surely will help us to get through anything, or overcome some of the things we have to do. So we’ve got a 5km strike, new geophysics, we’ve got Fairplay. We’re actually mining it. And you know, this Royalty has only been less than three months and we are already mining it in there. The other two are pipelines that will be mined into our mine. They’re actually, we’ve just built a new mine plant at Higginsville, or Western Australia – the whole district. These assets or projects: Mouse Hollow and Hidden Secret are now part of our pipeline, and they’re actually closer to the plant than Baloo. So it’s a very exciting pipeline. And the other one is Aquarius, it’s an underground target. We announced some of the intercepts over 600 gram over 200m, 250 gram over 1.9m. Extremely high grade, narrow vein, exactly what I’ve done my whole career. How much more exciting can that be for us? This is a pipeline of stuff that we have directly on our back door within a 50 km radius of our mill. And before I step off that, the paleo channels, I know I didn’t talk a lot about it, but those are also an area where we’re targeting, still unlocking that Royalty, removed handcuffs in a district that had been in jail for almost two decades too.

Matthew Gordon: Okay, so let me just…a lot of things there: Higginsville – you’ve already said the productivities from was 93%, 94% up to 97%. Great news. Okay. But with these stockpiles, how quickly can you replenish, or get back to where you were or what are your plans of, you know, how big do you build that stockpile whilst you’re doing everything else you need for prevention of any future catastrophe?

Paul Huet: So look, Matt, having a stockpile is very proactive in giving ourselves much needed insurance. The way to look at a stockpile is, these guys are being proactive and it’s insurance, but the size of the stockpile depends on the throughput. And in our case, having an 80, 000 to 100,000 ton stockpile is very beneficial because that’s about two and a half months of runway. With that being said though, we wouldn’t want to generate a stockpile of two to 300,000 tons, our next step should be, well, why don’t you put it through the mill. And it’ll flow into what I wanted to talk to you about; it’s the Oris orders. We had a team on the ground. They were there, they were working on it. We did the initial test results. Unfortunately because of the pandemic, they had to leave the site, but we did get some initial results. Initially we’re seeing anywhere from screening or scalping off 20% to 30%. That’s a big difference. Think of anytime, if you’re going to haul from any of our sources, it’s, you know, once we get this completed, if we can scalp off 20% of the tons instead of moving 100,000 tons at USD$7 a ton, running it through the mill at USD$$29 a ton, you’re going to do 80,000 tons instead of 100,000, but get the same amount of ounces, well then you’re really doing something smart here.

So I know it’s early. We didn’t complete the work, but we had started, we were excited about the initial results. It appears positive. Once we’re allowed and when we’re permitted, we will really step that up and follow through with it.

So back to your question, your question about stockpile, what’s the rate? In our case, 80,000 to 100,000 tons gives us that insurance that we want, that flexibility, so that if anything happens, we need to anticipate, and our risk register, obviously we have a number one risk which is potentially getting shut down by the government. We could potentially run the mill alone because you could run that plant with six or seven people in way different areas. So the a social distance would be simple. We’re anticipating the worst. Preparing for the worst, hoping for the best. Putting in these insurances will help us so that we wouldn’t have to deplete our cash. You know, we’re in a very unique position that, let’s face it, not a lot of juniors have the cash that we have. We ended the year strong. We were actually ready for this. None of us knew this was coming, there was nobody in the world. I’m 51 years old, I’ve never seen anything like it. You talk to somebody who is 80 years old, they’ve never seen anything like it. We were ready. We’re blessed that we have a strong balance sheet. We can get through this, we will get through this. Putting the stockpile just gives us that much more strength. Not having to burn up cash and making sure we’ve delivered.

We haven’t even changed our guidance. I’m looking, every day you look at any press release out there – everybody is changing their guidance because things are evolving. They’re so fluid. And that might happen to us. I’m not saying it’s not, don’t get me wrong here, but we haven’t yet. And that’s a reflection again on Graham, the team, us being prepared, readiness, having reagents there, having people that are local instead of fly-in, fly-out. So we’re running with about 80% of our people here that are being brought, taking care of the mill. We were the first company to hire a nurse to put her on staff at the airport, making sure people don’t come in with it. If anyone had anyone had any symptoms, we made sure we quarantine them. We are taking so many steps to be so proactive that help make sure we get through this, the health and safety of our employees, and that it doesn’t disrupt our business plan and it doesn’t harm us internally. So there’s a lot of things here that we’re doing to tick the boxes to make sure that that guidance remains in place and that we deliver.

We’re known for one thing; we could do a hundred things right, and then if we make one mistake, people won’t forget. We’re doing everything we can to prevent that and to be as proactive as we can, anticipate as much as we can. And we have a reputation of delivering. It won’t change in this company. That reputation I’ve had in my career will not change in RMC.

Matthew Gordon: Okay. I don’t doubt that, and again, you know, I’m hearing you loud and clear. I think there’s a lot of things that you said there which probably need, you know, exploring. And I know you’ve got to go, but you know, if you get a chance with your communications to clarify, what does going from 93%, 94% up to 97% mean in terms of dollar terms for you through the mill, when will you know – I know you’ve done some initial testing with the ore-sorter, 20% is big for you, 30% is obviously bigger. What does that mean for you in terms of throughput? in terms of reducing the AISC even further? You know, all these sorts of numbers. We as investors would like to understand what the impact is going to be on the bottom line.

But I think given, given the timeline, I want to finish off with a big question for you if I may, which is, you have seen the benefit of the negotiations with Morgan Stanley hitting your numbers in Q1. You have been in conversation with Mavericks, but it’s all quiet on the western front there. What’s happening? When will we know? And you know, when do you think we can start to see the benefits of that? Because they, I mean the Royalty that they have is, it’s one of the biggest in the world. I mean it’s, I’ve not seen a number like it. You obviously have entered discussions presumably to reduce that or come to as a different set of terms; have you gone anywhere?

Paul Huet: Yes, so let me just start by saying we’re not oblivious to it. We know that it’s a very large Royalty. We get that. We get that it’s our responsibility to do our very best to renegotiate this in some form or another. We have to be tactful in this situation where it has to be mutually beneficial for both companies. There has to be a plan. These things, this is not specific RNC, people do this. There are royalty companies that renegotiate things all the time. We are looking for solutions that are mutually beneficial to both companies. We haven’t gotten there yet, but we’re still in discussions, and that needs to progress. We need to continue on that path. Do I expect similar results to what we had with Morgan Stanley? No, I don’t. For someone to think, well he’s going to go from 7 down to 2, we have about a 7.5% rate now. And I’m not disclosing anything that everybody doesn’t know. People know it’s 7.5%, 6 plus 1.5%. It is big. We let go to 2% like Morgan Stanley, I’ve never ever said that. I don’t expect it to do that. I expect it can get a lot better than where it is today. And I’ll just close it there, Matt, because it is something that’s very important to us. I know it’s important to them as well, and I’m hopeful that we will find a mutually beneficial solution for both companies.

Matthew Gordon: Let’s finish up here, the world has slightly changed in the last few weeks. A lot of the conferences that you were going to go to and continue your marketing around the world, you know, they’re not happening. I think a lot more people are going online and I

think you’ll probably be doing a lot more marketing online with people like us. Which obviously is a real change, but I think for the mining sector as a whole, because there’s not some traditionally, you know, big marketing sector or vertical. How are you going to be able to reach the institutional investors the way that you used to without traveling around? Because we have talked in the past about trying to get that balance between retail and institutional investment into the company. How’s that going? Are you finding yourself restricted in any way?

Paul Huet: Yes. So let’s just look at some of the actuals; so I was looking at a report here just before the board meeting, we have actually added 15 new institutional names to our story. That’s pretty significant. 15 new institutions that were not shareholders before we started this turnaround. How do we meet them? It is very important that we, if I’m asking my people, Graham and everyone in Australia to go to work every day and be healthy and be safe, and I have to be willing as a CEO to serve them as well, and step out of my comfort zone and do whatever that is I have to do. Whether it’s pick up the phone and get on a video call. If that’s what we need to do, then by God we will do it. We are going to take those steps. We are going to think differently.

We’re coming up on a call here on April 1st, we will set up one-on-one meetings with people virtually. If people don’t have that ability, we’ll set up calls. We will not sit on our hands while we ask our other members of our team to go in there day in, day out and mine this ore and put it through the plant.

So for us, we just need to think differently, stay healthy. We can’t be arrogant and then get out there and get sick. None of us, me getting sick or any one of my executives getting sick is not a really good solution. So we’ve got to stay out and think differently. And we already are. You know, my senior vice president of corporate development and investor relations, he was on the call talking about several metrics of video conferencing, things we’re already doing and we’re going to be doing different.

Look, we just announced here last week, two of our research analysts have us in their top three pits of the year. So for 2020, one of them I think, I believe we’re number one pit for the year. The other one just announced a couple of days ago that were in their top three choices of Gold turnaround stories for the year.

We owe it to our shareholders to continue this story to continue, to deliver it, to continue to think differently, challenge ourselves, work outside of the box. Our share price will follow. You don’t have success operationally with people with ending Gold bars, ending treasury without that share price following at some point. There’s a disconnect today. It won’t be there forever. We will be rewarded for those long hours, the sacrifices and the efforts we put forward.

Matthew Gordon: Okay. You’ve been building up your, this is the final one, honestly, this time – you’ve been building up-

Paul Huet: You keep saying that.

Matthew Gordon: . I know, I know. I’m so bad.

Paul Huet: You’ve lost a lot of credibility.

Matthew Gordon: I’m the worst. I’m the worst. You have been building up your cash position. You have been producing free cash flow. I mean, that’s what I’m excited about for you guys, because you’ve said to me somewhere in this conversation, your guidance for 2020 is not being adjusted for bushfires, for Covid, for any reason. You haven’t taken the opportunity to say, I’m going to reduce my guidance here because you feel that you can deliver and continue to deliver consistently. That’s what I’ve heard. So that says to me, your free cash flow will continue to happen. You will continue to build a cash reserve, and that’s going to give you optionality to do some things. So I’ve got to ask two questions: one, are you going to be raising any money this year? To your knowledge today, is that in your thinking at the moment?

Paul Huet: Absolutely not. We have no reason to be raising money, and giving up our paper at these levels – it’s really not a very wise decision for me at all.

Matthew Gordon: Okay. And what do you do with this cash? You’re building cash but cash is just cash. Cash which creates value is more exciting to shareholders. So today, do you have any plans for that cash?

Paul Huet: Yes, so organic growth is really, really directly in front of us. We have five new areas that we’ve discovered. We are going to be following up because we have cash, we are able to follow up on those expiration opportunities and we are certainly doing that. This pipeline; Aquarius, if that turns into an underground line that could be double or triple the average grade of the Beta Hunt underground deposits. That’s extremely exciting growth. That’s what I’ve done my whole career, Matt, my whole career, starting off as a miner in Demond Ontario. I was drilling and blasting in those narrow veins so I know what it’s like. There’s tremendous opportunity in front of us and we have the flexibility and option to do something about it because of our cash position.

Matthew Gordon: Paul, thanks so much. I don’t know what time of the morning it is there, but you’re full of energy. I want whatever you’re drinking. Fantastic.

Paul Huet: Yes. Yes. That’s life in a house with six kids.

Matthew Gordon: You’ve probably been up for four hours. Well I hope you make it through this period that we’re in at the moment safely, with this pandemic that we’re all suffering. Great news about the company last year. Well done. I’m excited to see you keep delivering this year. Sounds like you’ve got some big things ahead of you. I hope they have an impact. I think, like a lot of people monitoring what on earth is keeping the share price down because there’s no reflection of the company that we’ve analysed and see in front of us. So keep it going.

Paul Huet: Before I sign off, I just wanted to say, I can’t remember the exact numbers so I won’t give a number, but I know that we are really pleased that our short position is almost like obsolete. It’s extremely, extremely low, which is very beneficial. And I don’t want to give you the exact numbers. Maybe you can research the market, one of my guys, but I know that they’ve been cut down to next to nothing. We looked at the top 30 short. We’re not even near anywhere near that, whereas before we would always be in the top 10. So in closing, RNC is in a different position. We’re very passionate about what we do. We’ll continue to deliver, we’ll make sure our people stay out there. And our shareholders, those that are with us that are continuing to buy, they will be rewarded. They’re not going to regret it. So onwards and upwards.

Matthew Gordon: Okay. Well thanks for your time and we’ll speak to you again. Cheers.

Paul Huet: Take care. Cheers.

Company Website: http://www.rncminerals.com/

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Ur-Energy (TSX: URE, NYSE: URG) – Two Can Really Ease the Pain (Transcript)

Interview with a candid Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

Ur-Energy is one of the two companies that submitted the Section 232 Petition to the US government, Department of Energy. Klenda tells us why he felt it was the right thing to do at the time. And with an announcement expected this week, he expresses his hopes for the Nuclear Fuels Working Group decision.

Klenda is a forthright speaker and doesn’t shy away from the reality of the numbers in the market and for Ur-Energy. Klenda is clear about how long Ur-Energy can run before it needs to go to market and raise more capital. We discuss the implications of cost cutting, inventories and dwindling contracts for Ur-Energy.

Klenda also opens up about his peers and some of the barriers and hurdles that they will have to overcome.

Interview highlights:

  • 2:08 – Company Overview
  • 4:08 – Section 232: Drivers Leading to the Petition
  • 10:39, 25:06 – DOE Announcement: $150M Distributed How and For What?
  • 12:52 – Business Plan: Decisions, Cost Cutting Measures and 2019 Sales & Inventory
  • 18:06, 27:17 – Contracts vs Spot and the Likelihood for Junior Company Funding
  • 19:37 – Value Creation and Moving Forwards: Where Will UR-Energy sit in 2021?
  • 37:06 – Struggles Fuelling M&A Talks: A Look at the Unfolding Situation

Click here to watch the interview.


Matthew Gordon: You are one of the big names in this Uranium space, and we’ve been keen to talk to you. Here you are today. Jeff, could you start off and give us a 1-minute overview of the business so people can sort of put that in context then we’ll pick it up from there.

Jeff Klenda: You bet. Well, Ur-Energy, we started now, come the end of the month, we will mark 16-years since I and a couple of other guys founded this company. And I don’t mind telling you, we spent the first 7-9-years as a permitting and licensing story. We finally got our record of decision in October of 2012. We spent the next 9-months building out our processing plant. We you completed it on time and on budget, spent the next 2 months in commissioning, and we’ve been producing now since August of 2013; so for the last six and a half years, we’ve not only been producing but we’ve emerged as the lowest cost producer globally outside of Kazakhstan. I won’t go into the details as to why Kazakhstan is the lowest cost producer, but it sure helps when you devalue your currency by 90%. So anybody can look like an economic marvel when they can do that and still sell into the US market.

 But beyond that of course we were, I think forward looking; our board was, and so was I. Back in 2011 through 2015, we put contracts in place that we still have and are still delivering into to this day in 2020, and a couple into the next year and 2021. That’s given us consistent cashflow, but more importantly, it’s allowed us to navigate this minefield without blowing up our shareholders. And by that, I mean blowing up the cap structure. We’ve only raised USD$22M since Fukushima occurred, and that’ll be 9-years come next week. So, I think that that’s one of the strongest points about our company.

By the way, I am the largest shareholder in this company, unlike most, or virtually any of my peers. I’ve got USD$3.5M of my own money in this, so I am the gatekeeper. I hate issuing shares and we are a very shareholder friendly company.

Matthew Gordon: Thanks very much. Good summary. Can we kick off, there’s a lot of topics to discuss and you are well known for having a view on these things, strong views on these things. Can we just kind of kick off with the Section 232 petition? You’re one of one of the two companies that submitted that petition along with Energy Fuels with Mark Chalmers, who we have spoken to a few times on this program.  I’ve read the press releases; we are talking about adversarial behaviour in the market and security and so forth. I mean, what was the, what was your actual driver for that petition?

Jeff Klenda: Well, for me, the driver was that I met with Rick Perry in his offices along with the UPA, the Uranium Producers of America, and that was in July of 2017. Before we left the building, I decided that I would start the section 232. We actually did it, we made the decision before we ever hit the curb that morning.

Matthew Gordon:  Why do you say…what had been said in those meetings that riled you?

Jeff Klenda: What was said in the meeting was that Rick Perry acknowledged that when we were making the case that, look, we’re dying. And we were formerly the largest producer of Uranium on the planet back in the early 1980s, late 1970s, producing 43Mlbs, 44Mlbs a year, meeting all of our own personal needs. Unfortunately, that changed over the years and it really changed with the accelerated production coming out of Kazakhstan. We believe that it is very, very dangerous to become this reliant on Russia, Kazakhstan, and Uzbekistan, and so we filed a section 232 basically opposing that and suggesting that we needed to preserve the fuel cycle in the United States, and we thought that the best, most benign way to do that would be by simply imposing a quota, saying to the US utilities, you can go out there and you can buy whatever you want from whomever you please, but you have to buy a 20% to 25% from domestic producers. We’ve got to keep the fuel cycle alive. And Rick Perry agreed.

He used the term, ‘this is a national security issue’, no less than a half a dozen times in that meeting. And effectively said to me, bring me a 232 Petition because he wanted something that would bypass a deeply divided and extremely partisan Congress. Of course, everyone knows that characterises our extremely dysfunctional government here in the United States and give me something that I can put on the President’s desk. We did just that with the 232.

Now, unfortunately on July 12th of last year, we did not get the outcome that we had hoped for. But nonetheless, it gave birth to the working group, and we are we’ve seen positive outcomes from the working group. Obviously, the line item that went into Trump’s 2021 fiscal year budget; that’s a good start. But we are now waiting for what we are told is going to be immediate short-term relief to come out of the working group. That was as of last Monday. The Government functions on its own timeline, so we continue to wait.

Matthew Gordon: If you don’t mind, let me just finish off the 232 component. You have given lots of reasons that, I mean you genuinely believe that this is a security issue, not an economic one. So, what is to stop the US Government going and getting everything, they need from the Australians, the Africans?

Jeff Klenda, Well, the problem is that the general belief in this, this isn’t the first section 232, the first one was brought in 1988 because we had actually gotten down to the point where we were only providing 37.5% of our own needs, down from 100% less than a decade earlier. So, we found ourselves in a position back in 2017 where approximately 93% of our fuel needs were coming in from outside the United States. And the utilities would make the argument that, well, this is not a problem because of course, we can get all that we need from our good friends; the Canadians or the Australians or others around the world. Well, sadly, we all have come to believe and understand that that’s not true. Australia’s production is really basically down to whatever BHP produces there as a by-product. And the Canadians are only producing now out of one facility, at cigar Lake. They have shut down the largest production facility in the world because the economics simply do not support it and they don’t have long-term contracts to support it.

So the sort of harsh reality is, is that now, especially after there was no action taken on 232, we find ourselves in the just dangerous position of being 100% reliant on outside sources, foreign sources for all of our nuclear fuel, and yet it supplies 20% of our base loads. So while I am I am grateful that we have Donald Trump in the White House, because he is a supporter of nuclear, and it’s nice to have that for a change, we understand we were not the constituency of the Obama administration, I don’t want this to become political, but it’s nice to have a friendly in the White House for our industry, and I think that when he is saying now that we have become energy independent – well, yes, except for that 20% that nuclear counts for our base load, which we are 100% reliant on foreign powers for.

And sadly now, because of the closure of McArthur River, whereas before we were about 40% reliant on Russia, Kazakhstan and Uzbekistan, we are now well in excess of 50% reliant on those 3 countries. And keep in mind, this something that is imperative to understand and that is that the Russians actually control and own a significant portion of the Kazakh production. So when you take a look at this, this is not just, well, we are getting the bulk of it from Kazakhstan, and they are a market economy, they are a relative friendly and so we can rely on them; well, no; Vladimir Putin owns it. He controls it and he will dictate where that material goes and when. So, this is something that is not well-understood but we like to think that we have done a pretty good job of making the Department of Defence, Department of Commerce, and the Department of Energy well aware of this. So now, as we are facing a whole new battle with the Russian suspension agreement, these things are coming into play and the battle lines have been drawn.

Matthew Gordon: Like I said, before we started this interview, I think you suggested that perhaps there’s another conversation to be had there before we get drawn into the politics and geopolitics of this. So, let’s come on to the recent announcement: the USD$150M a year for the next 10-years. The statement, to me, and the subsequent articles, they seem vague; there’s no real clarity as to who that’s going to, where that’s going to, how its being divided up. It’s just a number that seems to have been plucked from the air.

Jeff Klenda: That’s correct.

Matthew Gordon: What do you know?

Jeff Klenda: Well, here’s the situation, we had the same questions, by the way, we were taken through the process. Right now what is happening is that there are appropriation companies on the Senate and on the House of Representative’s side; they are kicking this thing back and forth, and as you, here in this country, when appropriations are added to the budget, we just normally refer to it as ‘pork’, and the negotiations take the form of, ‘My pork is better than your pork, so my pork needs to stay in, your pork needs to come out.

What we have been told is that Congress is hoping to have a joint budget. Now, take that for what it is, by some time in April but no later than May. The problem is that we are now in an election year so Senators like Mitch McConnell and others high profile have said, we will not take that up, even when we have a budget we think we can move forward with we will not take up the real intense negotiations until after the elections.

So, to paint a bit of an, unfortunately, ugly picture here, if you can imagine, we get into the first week of November, whatever the outcome of the election is, now we are really going to start fighting over the budget. Now it is more, ‘my pork has to stay in, and your pork has to get out’ becomes much more strident, becomes much more intense. So that’s okay, the problem is that you’ve got the Thanksgiving break, which we’ll send them all home for five days, and what I think will happen then is that it’s going to be a knock-down and all bloody fight all the way up until the day before Christmas Eve, and they’ll come up with something last minute that everybody thinks they can live with, and mainly so that they can go home for Christmas. So sadly, that’s the way we do things in the United States.

Matthew Gordon: I think that’s fascinating. And I do want to get into your business model, your plan. You’re working and operating in a very complex but also difficult commercial environment right now, okay. And I’ve got to admire all of the CEOs who are having to do what they need to do to survive. Well, except for the ones who are perhaps being economical with the truth; not so much them, but there’s a great group of hardworking CEOs who are trying their best to do the best for shareholders. And I want to talk about what you are doing. I’ve read you’ve been through a cost cutting exercise, you’ve renegotiated payment terms and I suspect contracts, and that’s not easy. I’ve been in that situation myself. These are commercial and human decisions you’re making. I mean, can you talk people through some of the things that you’ve had to do over the past couple of years, two, 3-years to actually get to this point?

Jeff Klenda: Sure. Let’s keep it down to a manageable timeframe; 4-years ago I was just under 100 employees. Today I’m 30 and that represents 4 reductions in force and the last one was probably the most difficult of all. And that was because you’re starting to, when you get down to that low, you’re starting to cut into guys that have been with you for 8, 9, 10-years. That is extremely hard for people.

Matthew Gordon: That hurts, that hurts.

Jeff Klenda: So, what we did, most importantly, is that we have not waited for somebody to kick us in the behind and say, look, you guys need to cut costs. We have always been way out in front of that. We’ve always been very proactive on that. When everyone else decided, look, we’ve been slaughtered because we didn’t get what we wanted. Our shares have just, you know, cut by 40%, we’ve lost 40% of our value, we’ve got to get out there. We’ve got a market. We’ve got to try and get our share price back up. We didn’t do that. Frankly, I didn’t see much point. I didn’t think there was a very big audience. A lot of folks have just been burned because they had been speculating on what the outcome of 232 would be, so we decided to stay home, clean off our own front porch.

We went department by department. We engaged in cost cutting. That was extremely severe but very, very effective. We did a reduction in force where we took down into another 12 highly experienced, long time employees that came out as well. In addition to that, we restructured our debt with the state of Wyoming, our industrial revenue bond, where we now have gone from making a quarterly payment from USD$1.5M per year, a quarter to where it’s USD$178,000 per quarter, and for the next six quarters that will save us USD$7.8M. So, it’s been things like that that we’ve had to do, but we felt that it was critical.

Matthew Gordon: That’s, just to clarify, that’s deferred, right?

Jeff Klenda: We had it out on the runway.

Matthew Gordon:  You had it on the runway; i get it. But that money’s been deferred, it hasn’t been written off ..?

Jeff Klenda: That’s correct.

Matthew Gordon: Okay. So you’d need, you’re basically saying, we’ve got some revenue coming in, which is great, and I do want to talk about that in a second, but the cost cutting is, is the bit which is, it gets you the runway, to use your phrase, down the line, so that you are not going to shareholders and asking for more money to sit around doing nothing. Okay, let’s talk about the production then and once we’ve understood the revenues coming in and the cost, maybe we can have a useful discussion about what that looks like today. So, last year, 2019 look like what, in terms of sales?

Jeff Klenda:  Well, we had a good year last year and we just came out with our financials last Friday. We ended up delivering into the market 665,000 lbs Uranium at an average price of USD$48, USD$50, just under USD$49 p/lb. We chose to purchase more than 2/3rds of those pounds and we purchased them at an average cost of USD$26 in the marketplace. And so, we were able to effectively scrape the delta out of that between the shares that we were delivering into our contracts and then our purchase price in the marketplace. So, we actually had a quite good year. We did USD$32M in gross revenues. We ended up with gross profits of USD$12.2M. And unfortunately, most of that was wiped out because we no longer have the large scale contracts moving out into 2021, we had to now write down our inventories to a level to reflect current market prices, whereas before, as long as we could say to the auditors, well, I’ve got USD$48 contracts out there, these pounds have a value of USD$48, now I have to say they have a value of USD$25 because just like Cameco and others in the industry, we’re coming to the end of this contracting cycle and so we have limited contracts moving forward, both this year; when we’re going to deliver about 200,000lbs pounds at USD$42lbs, again with a purchase price of USD$26lbs. And next year, we go down to virtually nothing. It’s under 100,000lbs we have.

Matthew Gordon: Okay. Well firstly, I like the fact that you’re being honest about the inventory levels and what it represents on the balance sheet. Again, we interview too many companies who try to deceive.

Jeff Klenda: I’ve been accused of being too transparent.

Matthew Gordon: Okay, that’s never a bad thing. Let’s talk about these contracts so that people understand them. Again, because there’s going to be a wide range of understanding here; there’s some guys who watch this thing who are wonderfully informed, and the others are coming new to it, looking at the macro story for Uranium and thinking, well maybe now’s the time, with prices as they are, to be getting in here. So, let’s try and describe the contract versus spot for those people, if you may.

Jeff Klenda: Absolutely. At the present time, spot price, let’s just call it USD$24.50. I think that that’s probably a good workable number, and while there are a number of reporting services in terms of pricing, I think that it would probably be a usable number of right around USD$31 to USD$32 now on term price. And typically, you’re going to have that kind of a delta between spot and term. Now what we’ve seen over the last several years is that we’ve seen kind of a reversal; it used to be 10-years ago that 90% of the material that was sold into the market was done so under term contracts. Of course, that’s no longer the case. You’ve seen the reports probably out of UX / TradeTech or others where now the vast majority, or the majority of the material that is being transacted is being transacted in the spot market. So sadly, that’s the situation we find ourselves in right now. And that does not lend itself to entering into any new contracts moving forward. Not for us, not for Cameco, not for anybody.

Matthew Gordon: Okay. So, break that down for me; you said obviously you’ve had a few contracts for 2018, 2019, you’ve got this 270,000lbs, which you said will be sold at your discretion. That means there’s no contracts against those and that’s more likely. Contracts typically are higher than spot price, again for the 40 and so you sold a quite significant average. Your average, your pounds were sold at about USD$60. You obviously bought in the market, you sold the delta, your average was somewhere in the 40s, so you had a good year last year, right?

Jeff Klenda: Very good year in the fourth quarter, yes.

Matthew Gordon: This year, with your 270,000lbs, that’s going to be somewhat different. So how much value are you attributing to that?

Jeff Klenda: Well, here’s the situation: the last time I gave a public presentation, I had one of our existing shareholders and say, ‘Hey, what kind of a year are you going to have in 2020?’, and I said, ‘Well, not trying to be evasive, but that depends. And what that depends on is if we sell our inventories and if we do at what price we sell them’. So, I think it’s important to understand that first of all, we do have solid cash coming into the year and we’ve got revenues from our many contracts. Those are enough to get us through to the remainder of the year. Now, once we get to the fourth quarter of 2020, the question will become, have we been able to sell our contracts? This is why we’re waiting for the most recent report that is due any time now. We were told it was going to be coming out on Monday or Tuesday. It’s Government – I don’t place much stock in that. I’ll believe it when I see it. I’ve been at this long enough to know what my government means by immediate is not necessarily what I mean by immediate, and what they mean by relief may not mean relief.

Matthew Gordon: Then I’ve got a small anecdote for you: I was working in Africa and when I was told by government officials it would be done now, they didn’t mean ‘now’; the phrase you’re looking for was, it will be done ‘now now’, which meant now. So, I have some sympathy.

Jeff Klenda: One of our Directors spend a lot of time in Africa and he said that the phrase in Africa is, ‘it can happen anytime from now.

Matthew Gordon: Right, sorry to interrupt, but yes, if we could just talk about contracts just a little bit longer here because you described earlier on in this interview, your scenario; what you think the scenario would be politically this year. There’s a lot of events which would possibly prevent Government from making any meaningful decisions. So, we’re looking towards the end of the year. I think that’s an honest appraisal. You’ve got enough money at the start of this year, and the end of some of these contracts to generate revenues to see you through to the end of the year. Plus, you’ll have your 270,000lbs at your discretion to do something with if you can get a contract or a spot price, which reflects your value, your desired value for that. Where does that put you in 2021?

Jeff Klenda: Well I think you’ve driven down to the heart of it now. It all comes down to the contracts and what we’re hoping for, and this is why when, if you were to watch, for example, Secretary Brouillette, when he was testifying in front of the Senate Energy Committee on Monday morning, we had Senator Barrasso in there peppering him with questions, asking him, well, when are we going to see this report? It’s critical to us because one of the things that we’ve been talking to these guys about is the fact that, look guys, it doesn’t do me any good if you help me two years from now. It doesn’t do me any good three years from now. I’m in a better position than anybody else in the industry, and I know that by the time I get into the second quarter of 2021, whether by that time I will have sold my inventories, I’ll need to raise money, most of the players in our industry have lived equity, race to equity race. That’s just how it is and they have done that ever since Fukushima.

We haven’t had to do that. We have only raised USD$22M since Fukushima; we have been very fortunate. But what we are hoping for, and what we have spoken to Kudlow about and what we have spoken to each of the members about the working group about; this is the fact that we need immediate relief. Now, what form might that take? Well, for the two producers, the two legitimate producers that remain: us and Energy Fuels, that immediate relief, we hope will take the form of the purchase of existing inventories. Does that solve all of our problems? No, but if you give me a higher price than spot price for the sale of those inventories, those are domestically produced pounds, they can be used to convert and enrich and become what is called, ‘unobligated material’.

That’s critical because if you’re going to use it for military purposes in any way, if our government is going to use it for their purposes, it needs to be an obligated material. So what we are hopeful of is that we will see something out of the working group that it will provide immediate relief in terms of purchasing our existing inventories and that will extend our runway and give us more time to see things like the line item in the budget for those contracts.

Matthew Gordon:  Right. Okay. Again, a lot of a lot of things in there. The question was what happens in 2021 and I think you’ve gone back to; well it depends if there are any meaningful announcements between now and then.

Jeff Klenda:  Well, our inventories are pretty good to go right on through to about 2H/21.

Matthew Gordon: Okay, fine, and that gives me a sense of what the margin, your expected margin is on the 270,000. Okay. Just on again, the USD$150M, this whole discussion and you know being, pressing the government. You said the government works on its own timeline and whatever it says doesn’t equate to a meaningful economics in any way. And so yes; until the money’s in the bank, it’s not in the bank. Right? So, what do you think you’re going to be able to persuade the government to buy from you at? Or what do you want, what price will you need for them to buy at? Because they’re taking guidance from you guys, aren’t they? They don’t really know this space.

Jeff Klenda: They’ve asked and we have provided this data to them, not only during Section 232, we provided a lot of data to the Department of Commerce, but even the working group itself, we have provided, we formed our own core working group and that included not only ourselves and Energy Fuels, but the conversion and the enrichment as well. And we presented our own white paper to the White House through Larry Kudlow, as chairman of the working group, to make our case. Now at what price they may purchase. That of course is the complete unknown. They, I think that if you talk to somebody like Tim Gitsel, over at Cameco, he has been quoted as stating, look, I wouldn’t even look at restarting production in the United States unless I could get somewhere around USD$$60lbs or greater. And so, I’m going to say that if that’s a number that’s good enough for them, that’s what’s good enough for me. But we have demonstrated that we can not only function well at USD$$60lbs, I think people have seen how we functioned at USD$50lbs.

One of our concerns quite candidly in this space, something that I don’t know if it is a bit indelicate for me to share, is that there are others out there that are not producers, and there are only two legitimate producers left in the United States. What representations they may make, and what contracts they might be willing to enter into, whether there’s a reasonable prospect for them to be able to deliver into those contracts is another matter. So, it’s a bit of a wild card for us.

Matthew Gordon: This is something that we talked about before with other CEOs. You’ve produced, you’ve sold to utilities, you sold into market. Tell me this, what do you think the chances of a utility sitting down with a Uranium junior whose pounds are in the ground and saying, I’ll give you something. I’ll give you a contract for something. Is that reality?

Jeff Klenda: I think that they may, but I think that they’re going to be very guarded. I think what they’re going to do in this, and look, I know all the utility buyers, I see them at all the conferences. We’ve done business with six of them when we had all of our contracts in place extending all the way out through the end of the decade, which by the way, in 2014/15, seemed like a long time. Okay. So 5-years went by quickly. But you know, when you talk to those guys, I think a couple of them said, well, you know, you guys haven’t produced yet so we won’t give you maybe the 200,000lbs that you’re asking for, but we’ll go 100,000lbs with you, or, we won’t give you the 300,000lbs you are asking for, we’ll go 150,000lbs. And you have to prove yourself. I mean, look, these guys have seen it all.

And one of the things you need to understand about the utilities is that the buyers are, they’re smart guys. They’ve been in the industry a long time. They’ve seen it all. They know all the players. I mean, the one thing about our industry is that the BS doesn’t go very far, and the reason being is because they know those projects as well as we know them ourselves. Not only are we getting to be a very small fraternity at this point of producers or prospective producers, but the utilities, they can look at a project and we can say, well, you know, we think we can produce this project, let’s call it Shirley Basin, and we think that we can have a cash cost thereof under USD$15lbs, and they’ll say, well yeah, but that’s in this area, in that area. But then by the time you get over into this area, don’t you expect a little higher cost by the time you get there?

Well, you wouldn’t expect them to know that much about your projects, but that’s their business; they’re supposed to. And so, I think that unfortunately, our industry is one that has survived on, I mean this has levity, I call it BS squared: blue sky times the other BS. And unfortunately, it’s been true. But I think that what’s happening here, and I think this is something else that your listeners should probably understand, while pounds in the ground may have meant something five years ago, we are rapidly entering a time where fundamentals are going to be pretty much all that matter. If you can’t demonstrate that you can produce, do it in a timely manner, do it efficiently, and remember something else; It’s not just about getting to that level. You’ve got to get there and got to stay there. That’s really tough.

I mean, you’ve got to get to 1Mlbs, and you’ve got to stay at 1Mlbs, come hell or high water, rain or shine, doesn’t matter, you got to stay there. And utilities when they’re giving you those contracts and trust me, they’re going to assess that. And so I think that you might be able to smoke them to a minimal extent, but not to a great extent. I think that, look, we’ve had utilities sit down with us recently and say, we know what you can do. We know what Cameco can do. We know what Energy Fuels can do. Anybody else? – we don’t know.

Matthew Gordon: It’s an interesting area for debate as well because again, we have spoken to a lot of Uranium juniors CEOs from all around the world, and you know, the management teams have varying degrees of ability and they are absolutely working hard. The tough bit here is walking into, not getting some fund to invest in your equity because they’re taking a bet on the Uranium space. But funding the capex to develop these things out. These are some pretty big numbers here, right?

Jeff Klenda: You’ve got to be the real deal.

Matthew Gordon: Yes.

Jeff Klenda: I think, I mean, look, I’ll tell you, for us personally, I mean we went to one of the big French lenders, right? I won’t designate who they are, but they said to us, look, you guys seem like you’ve got a great project here, great management team, but you’ve never produced before. You need to build this thing out. So they just told us quite candidly, we won’t fund you the first time around, but come to us the second time after you’ve been producing for four or five years and we’re all over it. And so we have those type of capital options open to us.

Matthew Gordon: But that’s the gap I’m concerned about in the marketplace with, you know, 50 players now, down from the heights back in the day, 500, 400 – 500 Uranium companies, but down to 50, more manageable. But I just feel that initial hurdle is the biggest hurdle. You know, of course I used to say the same phrase, we’ll give you the money after you’ve got it going. You know. Bankers offer you an umbrella when it’s a sunny, and I think it’s a little bit late then, you know.

So, some of these companies that we’ve spoken to can’t give us the answer to how they get that initial either cornerstone investor or institutional, from wherever to get this thing going. You know, getting a couple of small contracts is not going to be enough to get some of these banks to move because it’s too risky. It’s far too risky. So, do you see, how do you see these small companies enabling themselves to get funded? What do they need to say? What do they need to do?

Jeff Klenda: Well, unfortunately, first of all, I think that your numbers are a bit high; are there 50 companies out there? I would say there’s less than 50, and the vast majority of them are explorers, usually in Canada or Australia. When it comes to those that are actually capable of producing, that number gets down to a dozen or less. When it gets down to the number in the United States, that may actually have the capability of producing, and particularly for government purposes, say under the $150M line item in the budget, or something else that may come out of the working group or whatever the case might be. Well now that number gets still smaller, and unfortunately that is…

Matthew Gordon: What’s the number, Jeff?  Is it 2?

Jeff Klenda:  I think that there are potentially, and I say potentially, 4. And I think that, but now keep something in mind here; this is something that we, by the way recently received a request for information from the Department of Energy that we filled out. One of the things that we had to list in there as a caveat was, we’ll keep in mind this depends, because if the United States were to ramp up to expose production capability, you can’t do that without Uranium One coming back into production. And you can’t do it without Cameco coming back into production.

So, the question here becomes, what are we capable of producing? Well that depends on a couple of the foreign players that are right now on standby. And so, of the other guys -how did they get there? Well that’s, now you’re asking the question that every, frankly intelligent fund manager should be asking, look, you know as well as I do when you’re an issuer, I walked through a lot of portfolio manager’s doors and invariably the smart ones, the good ones anyway, ask you one question before you leave: what am I not asking? What am I missing? What am I overlooking here? What is the potential landmine you could trip on that could blow all this up for you? And what they’re not asking right now is what is your capex to get to any minimal reasonable level of production that you can sustain? And that is the question that’s not being asked.

And so what I’ve done, and what we’ve done as a company is what we’ve looked at everybody and we’ve looked at the players that we believe even have a reasonable shot of getting into production. How long it would take them to get there and we’ve just decided, okay, let’s come up with a number that we apply to everybody. Let’s call that a 2Mlbs per year run rate. Okay, 2Mlbs per year. What’s it going to cost for you to get there? Not just get there but sustain it. We know what that number is. It’s in our PowerPoint. It’s on our website. For us to get there, we can get to 1Mlbs, 1.25Mlbs per year, out of Lost Creek, I can do it for about USD$14M to USD$15M.

Shirley Basin is going to cost me about USD$25M because I have to build a satellite plant there.

So, for me that number is over a 2-year period of time. It’s about USD$40M. More than likely I would go out there, I would probably do debt financing against contracts. I won’t build out. Nobody’s going to build out without contracts and they simply will not. So, what we will do is that we can get there for about USD$40M. More than likely, at least half of that will be debt, and we would only be very selective.

Like I hate issuing shares. Everyone knows that about me. I’m very stingy when comes to that. And that’s what my shareholders like about me. I mean the last proxy, I got 99.6% of the vote. I’m not even sure Warren Buffett gets that, but they know that I don’t issue their shares willy nilly. I won’t.

So, I think that it comes down to it, I can do it for USD$40M. Now you pick a name, what’s that number for them? What’s their timeline to get to that 2Mlbs of sustainable production. So, I think that what we need to do here is, we need to change the dialogue a little bit in terms of let’s just assume, let’s just give you the benefit of the doubt and assume that you can get to this 2Mlbs per year. What’s your timeline? What’s your cost? More importantly, what’s your dilution to your shareholders in getting there? I know what mine is.

Matthew Gordon: That’s the name of the game. It’s the name of the game.

Jeff Klenda: At the end of the day, it’s the only thing that matters. Right?

Matthew Gordon: Absolutely. Well done. On that basis, some companies are going to struggle. Are you seeing, or have you had any discussions about mergers, JVs, acquisitions, asset sales? Possibly, but I can’t say, right?

Jeff Klenda: Well, in the last 5-years, we’ve had three offers for the company and of course none of them were adequate. They were all, I would classify as opportunistic. That’s fine; you would expect guys to do that. And that’s been other players in the space, and it’s been private equity. So you know, look, I mean, look, I’m a lean, clean machine. Everyone knows that I’m the lowest cost producer. I’ve got years of production ahead of me. If you’re going to make a grab for anybody in the space where you’re going to buy, well, we know who we are.

We have no illusions about that. So, for us, I think that yes, there’s always those ongoing conversations. There’s absolutely nothing imminent. And the problem is, is that over the last three, four years, as we have evaluated a number of these opportunities, the harsh reality is as well, this guy will sink me in about a year. If I merge with this guy, he’s won’t be quite as bad, he’ll sink me in about a year and a half. And this guy, he’ll sink me about two and a half years. So, but the one thing they all have in common is they’ll sink me. So, I can’t, for me it’s all about, you know, guys, I know what I can do. I know that I can sustain myself in a very difficult environment. We’ve demonstrated that and we’ve demonstrated we can do that without diluting our shareholders to oblivion. The only reason you’re interested in doing something with me is because you know, you can’t do that.

So, it’s the harsh reality of the market that we find ourselves in right now. But I like to believe that the fundamentals are actually turning, that I believe that the supply of fundamentals will begin to reassert themselves. We have a lot of new reactors starting up at a faster pace and they’re shutting down where we are. Technically we are a growth industry and, but the bottom line for us, and this is probably the most crucial to understand; is that our government, we put this thing in the national dialogue, we’ve put it on the national stage with 232 and with the working group. And the one thing that our government has been forced into it, they’ve been forced into an uncomfortable position. And that uncomfortable position is, is what are we willing to do to save the fuel cycle in the United States? Because if we don’t save the fuel cycle, we lose our seat at the table.

We’ve been the primary gatekeeper; we’ve been the primary deterrent to nuclear proliferation for the last 70 years since the beginning of the nuclear age. And what are we going to do? Countries like the Saudis, Russians are going to build their first few reactors. They’re going to build them out, they’re going to design them, they’re going to fuel them. They’ll re eventually decommission them and hey, we’ll buy and pay for the first 2 or 3.

We can’t say anything like that. The Saudis have said to our state department, well, why should we do business with you? You guys don’t even have a fuel cycle left – they are right. And so if we want to continue to be players in the game, and particularly if we want to continue to be that deterrent to the nuclear proliferation, I mean, look, the bad guys around the globe right now that are going rogue and causing a lot of trouble: whether it’s North Korea or Iran, Pakistan, or whomever, they didn’t get it from us. So, what are we going to do? We’re going to cede that seat at the table to the Russians and the Chinese? You can’t do that.

Matthew Gordon: It kind of feels like the Americans already have ceded that seat in reality, but hey, Jeff, that’s a conversation for another day. That’s a conversation for another day. Jeff, I want to say thank you very much for being so candid and refreshingly honest and straight forward about what you see is going on here. I’m interested in your timing.

Jeff Klenda: It’s funny; the utilities find my candour to be a bit off-putting. Thank you for appreciating that.

Matthew Gordon: Well I guess shareholders and buyers would have two different sets of goals. But we should catch them again and talk about that geopolitical component because that does, I think that’s fascinating.

Jeff Klenda: I’ll tell you when I’ll be willing to do that when I would feel like really getting in trouble with the utilities.

Matthew Gordon: Okay. We might have to defer then.

Jeff Klenda: Look there are a lot of positive things going on and I’ll leave your viewers with this thought: we tend to understate, we’re not overly promotional. In fact, we’ve been accused of being too transparent and not promotional enough. But the one thing I know for a fact is that I’ve given myself great runway. I wouldn’t trade positions with anybody else out there in the industry. And I know every other player intimately. I can run faster than anybody else. I can do it at lower-cost, and I can do it at less pain and dilution to my shareholders. There’s only one of us that gets to say that. That’s U-r Energy.

Matthew Gordon: Let’s finish on that note. Thank you very much for your time. Let’s stay in touch. Great to hear from you. I hope there’s some news. It looks like it won’t be necessarily be today, hopefully next week and I’d love to get your view on that when it does come out.

Jeff Klenda: Let’s do it. Yes. Once we get something from the working group, let’s hope that it’s something that’s positive, we’re hoping that it’s going to be, and doing another one of these on the heels of that would be quite instructive.

Matthew Gordon: Beautiful. Thanks for your time. Have a great weekend.

Jeff Klenda: We will. In our warm temperatures here. Thank you so much


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Western Uranium & Vanadium (CSE: WUC) – I Can See All Obstacles in My Way (Transcript)

Sunday Mine Complex

Candid interview with George Glasier, President & CEO of Uranium developer, Western Uranium & Vanadium (CSE: WUC).

Western Uranium & Vanadium is a relatively small junior miner, even amongst the few Uranium juniors it would be considered small. But it does have a very vocal and outspoken CEO at the helm in the shape of George Glasier. Glasier was one of the founders of US Uranium producer Energy Fuels back in the day. His new company, WUC, is focussed mainly on getting the Sunday Mine Complex back into production. They have 5 other projects of less consequence and certainly not in focus. We discuss how he hopes to do this in the current environment. And he talks openly in places about some of the challenges he is facing.

We don’t envy any of the Uranium CEOs at the moment. It’s a tough market. However, we expect them to do as they say and say as they do. All too many say what it takes. It’s important for shareholders to hold them to account.

The Sunday Complex, made up of 5 underground mines, is in Colorado. Previously owned and operated by Union Carbide and Denison Mines. WUC has been engaged in discussions since sept 2019 with the Colorado Division of Reclamation, Mining and Safety (CDRMS) over the renewal of the mining permits. Currently all permits are considered inactive. WUC believes it has now met the conditions set by the CDRMS and is set to attend a hearing on the 24th April 2020 to present its case. Glasier gives us his view on how that will go.

We also discuss their proprietary ablation technology, now called Kinetic Separation Technology. A lot of supporters of WUC see this revolutionary for the Uranium space, so we dig down in the commercial reality of what it is, if and when it can contribute revenue and what it is worth on the balance sheet. Again WUC is waiting on a decision about how this is categorised by CDRMS and what type of licence it will required. For now it is parked up.

We ask how he can calculate the economics with only a NI43-101, and more importantly how he hope to get funded to get the mines in to production. Glasier also gives us his view on how he thinks that works.

A big part of the economics will depend on the ability of WUC to process their ore. Glasier says that Energy Fuels White Mesa Mill is perfectly positioned to process the WUC ore and the companies have spoken. We wait to see the outcome of those discussions.

And finally we ask Glasier what he meant in an interview recently about the US Government buying Uranium ore from WUC.

Interview highlights:

  • 2:51 – PDAC Conference Observations
  • 3:42 – Company Overview
  • 4:47 – Licensing all 5 Mines: An Update. What Have They Been Spending Money On?
  • 11:35 – Colorado as a Mining Jurisdiction: Problems with Locals?
  • 14:22 – Studies Done and Further Plan of Actions: What’s to Come from Western Uranium?
  • 19:14, 52:48 – Getting Funded: What Can They Demonstrate to Potential Investors?
  • 29:42 – Market Dynamics: What Price do They Need to be Profitable?
  • 34:46 – The Mill: Promising Discussions with Energy Fuels and Other Companies?
  • 41:42 – Opinions on Timings & Talks with Utilities for Contracts
  • 47:52 – Vanadium and Uranium Cycles: How Will They Insert Themselves Meaningfully?
  • 55:47 – Kinetic Separation Technology: What is it? Looking at Costs & Testing Results
  • 1:11:08 – Drop in Share Price: What Can They do About it?
  • 1:14:51 – Large Shareholding by Management and Remuneration Principles

Click here to watch the interview.


Matthew Gordon: Fantastic. So you’re in PDAC at the moment, pounding the streets and manning the stand are you?

George Glasier: Oh, that’s right. You know, I’ve been at PDAC for a few days it is, you know, one of the big conferences. Of course, you’ve been here before, so you know.

Matthew Gordon: I don’t miss it, George, I have to say. It’s quite a big one: there’s up to 30,000 people. I mean, what’s the turnout been like? Obviously with this Corona virus? I’ve heard a few reports.

George Glasier: It’s a bit lower. I think maybe the virus has kept a few people away. The companies are here, but maybe not quite the investor group. That’s what we’re seeing. We had a booth here and there was not quite the traffic as in past years.

Matthew Gordon:  I’m hearing that resounding message. But George, it’s the first time we’ve spoken to you guys, so thank you very much for that first of all. This is a story new to our investors, so I wonder if you can give us that 1-minute overview of the company and then we’ll pick it up from there?

George Glasier: Well, a quick overview of the company: of course, we’re a US resource holder with Uranium and Vanadium in the States of Utah and Colorado. Mine’s ready to go into production. The Sunday Mine complex was opened this last summer, it is virtually ready to go. Ore was stockpiled in the mines. Last week, we finished building three ore pads; got them at the complex so that we can take the ore and move it to the outside and then truck it off site when the market is right. So, we have a fairly large resource holding:  43-101s or JORC standards on a number of our resources. Investors can get onto our website and look at that. So, there’s a quick overview of the company.

Matthew Gordon: Beautiful. Beautiful. Actually, you touched upon something there, which was the ore pads; because I think there was a little bit of kerfuffle in the market at the beginning of the year when I think that the Colorado Department for Reclamation, Mining and Safety were talking to you about the licenses on all 5 mines under the Sunday Mine complex. So, what’s happened with that? I know there’s been a couple of press releases, but if you don’t mind running us through that?

George Glasier: If I can give you a background of what happened; and this started with the mine that we own called the Van 4 mine. The Van 4 we also… a mine we acquired from Energy Fuels when we acquired the Sunday mine complex, and at that time, the Van 4 was in the first of a 5-year temporary cessations, which was granted by the Department of the State. So, several years later, that first 5-years expired, we went in to extend it under the regulations of the State. You had two five-year temporary cessations, and if you didn’t go into mining activities, then you would have to reclaim the mine. So, we went in and applied for, and were granted this second 5-year extension by the board. What happened? The ‘antis’ sued the board, and at the District Court in Colorado that the board won, the District Court said, you have followed your regulations and the company, which was in this case, Western, had a right to apply for and be granted a second 5-year extension.

Well, the ‘antis’ took that to the Colorado Court of Appeal, and the Court of Appeal reversed that decision and said, we believe that the state statute really means that you have to have physical activity. Now, the Van 4 probably wasn’t operated until maybe in the last operation in 2000. So clearly it didn’t have physical activity – virtually anything. We did some maintenance on the surface, but we didn’t do anything leading towards mining at the Van 4. So that decision, you know, basically the District Court was reversed, and the District Court ordered they, the board to revoke the operating license of the Van 4 and put it into reclamation. So that was done…that was about a year, year and a half ago. So, knowing that other mines in the state of Colorado, not just the Sunday complex, are on temporary cessation, then the Sunday Mine is in that same status; we basically said, okay, we’re going to have physical activity, we’re going to go into the mining mode.

We opened the mine last Summer and we operated it and we actually produced ore because that satisfied it clearly in our mines, that 10-year period. The mine was last operated by Denison Mines in 2009 to 2010, and then it went into this period of temporary cessation. So, we meet the physical test, okay? But again, because of the decision of the courts, the Division now is looking at all mines that are in this temporary cessation status to decide if they have to, you know, basically go into reclamation.

So again, we’re probably the first test case where the Sunday Mine will have a hearing in April to determine what we’ve done and whether we’re in ‘active status’. And we believe we’ve done everything to comply with what they say is active status.

Now, they’re actually going through a rule-making to determine going forward what active status means. They don’t have good standards right now. Active status could be just about anything based on the current interpretation. So, they are going through a rulemaking to set that down and say this is active status, and that probably won’t be finished for a year. But that doesn’t apply. We contend this doesn’t apply to us. We can’t wait a year. I mean they’re going to do the hearing now. We are active under the standards as they’ve applied it in the past, and we will be actively pursuing that at this hearing in April. So, we believe the mines will be declared active.

Now, other mines in Colorado may not be; there’s a number of them that have not been physically active, not that we own them and those are subject, potentially to the same treatment of the Van 4.

Matthew Gordon: Right. Okay, so you’re claiming you’re active because you’re physically doing things in and around the mine and underground in terms of stockpiling ore?

George Glasier: We were prepared to take the mines out and ship ore. What happened is, we were just going to take it directly from the loaders, put it into the trucks and haul it off site. Well, the mine permit basically said, before you take ore out of the mines, you have to have ore pads, even if you don’t use them. So, they said, don’t take the ore out until you build the ore pads.

Matthew Gordon: Which you have just done?

George Glasier:  – So we are not prepared to take the ore out. But again, we’ve complied with their requirements right to the letter.

Matthew Gordon: Well let’s finish off on those, George. I mean, they asked you to do a couple of other things and I noticed in the press release, you say you have done those things. Well, run through what you have done, what you’ve spent money on.

George Glasier: What we had to do, there were three things, requirements: one, we want us to cover the low-grade stockpile, and that was done even before we opened the mine. So, we did that and they signed off on it – a great job. We opened the mine, we were mining ore, and they said, there’s two other things we want you to do: we want you to, you know, things went well – the upgrading of the storm drainage system, there was already a storm drainage system there, but it needed some upgrading and some repairs. So that was one of the requirements. We finished that about two months ago and announced that and they signed off on that. And the third requirement was the construction of the ore pads to the design that was already approved. So that was done by an independent contractor, certified by an independent engineer. That report was submitted last week to the State and they should sign off on that shortly and say, fine; the ore pads are constructed according to the design that’s been approved and in the permit.

Matthew Gordon: Right. So that answers the questions which they raised last September to you. So, you spent time when you received that letter in September, through until recently getting that done?

George Glasier: Right. And clearly what we did first, we did the storm drainage; that took a while and then under the license, or the permit procedure, you couldn’t build the ore pad if there was too much moisture or the ground was soaked. So, we were basically waiting for the right conditions, weather conditions, which we had this February to construct those ore pads. That’s why we didn’t do that first: simply because we didn’t have the right conditions. But now that is all finished.

Matthew Gordon: Okay, so you feel that you have done what they’ve asked, you’re walking, or confidently walking into this meeting in April expecting to be able to argue the case that you are an active mine again, on that basis. Yes? Okay. Now you mentioned the phrase, ‘antis’; what do you mean the ‘antis’? These are people who are anti-mining in Colorado. What are they doing?

George Glasier: Yes, we’re actively mining and we’re removing ore, we put ore in the mine, and we stockpiled it in the mine because it wouldn’t let us take it out. So there was actually ore that was mined stockpiled in the mine and waiting for the conditions to be satisfied. So, we’ve done a lot of things: we went in there, we did drilling, we did all kinds of activities, but we actually mined ore; if that’s not active, I’m not sure any mine would ever be active.

Matthew Gordon: Right. No. So I wasn’t saying active, I was referring to a phrase you used earlier, which was the ‘antis’ have been petitioning and affecting the behaviour of the Colorado Mining Division. So, you know, are you being affected by these anti-mining petitions? Is that what you were talking about?

George Glasier: Well, you know, they’ll be probably somebody at that hearing that will contest whether we were active – and that’s the point. And I’m not sure what their arguments will be under the existing rules and the way they’ve administered those, you know, I’m not sure what their argument would be. They may say, well, wait until the new rules come out. But we’re basically saying, you have to operate under your existing rules. And this is a hearing before the new rules, if whatever they are, are out. So again, we believe, and we believe the new rules also will be pretty broad. There’ll be a number of activities that constitute active mining, not just mining ore, because when you’re developing a mine, when you’re doing that, that’s certainly active. And that’s why I think they have to have a broad definition and we’ll see what comes out. And that’s what they’ve had in the past.

Matthew Gordon: Right. Okay. So they’re anti-mining but they’re using the argument that you have been inactive for that 10-year period. Therefore, that’s what they’re hanging their coat on, right?

George Glasier: When Energy Fuels bought the mine, they actually put in monitor wells. And so, there was activity there. It didn’t produce any ore, but they did things there more than just maintaining. And that’s the other argument that was done in 2012 and 2013 after Energy Fuels acquired the mines from Dennison. So there was activity during that 10-year period, and certainly activity during 2019.

Matthew Gordon: Okay. You’re feeling confident. You will continue to spend money between now and that hearing in April? Keeping the mine active. So, what are the things that you’re going to be doing between now and then and how much are you going to be spending doing those things?

George Glasier: Again? You know, we are probably already active without taking that ore and putting it on the ore pad. But again, that may be something we do: open up the mines and take the ore and put it on the ore pad. We do have some places that we could ship samples of that ore; if you recall, one of the reasons we opened this mine was because of the very high-grade Vanadium. Vanadium prices, you know, a year and a half ago were sky-high. So, we had planned to do this and pull the samples of that very high-grade Vanadium ore to ship to various potential processing plants. Well, as you know, the Vanadium price has fallen considerably and there’s still a few of them, let’s say shipping samples. But you know, with these conditions, there’s not quite the demand for Vanadium. But we’re assessing what to do; ship the samples, take a little bit of ore out, ship the samples off site. But right now, as you know, there’s really no place to go. The Uranium price is not high enough, and probably the Vanadium price is not going to justify shipping the order to a processing plant, either in the US or off-shore.

Matthew Gordon: Well, explain something to me George, because I just want to understand the process, because we’ve not talked to many companies who’ve gone into formerly producing mines and started them up. So just help me – so what studies have you done? Have you got a PEA?

George Glasier: We basically opened the mine because we knew what was in there and we wanted to confirm what was in the mine; that’s why we opened it this summer. And we spent 3, 3.5-months in there, you know, with our geologists, with our production people assessing the mine and saying, okay, this mine is ready for production. You know, a little bit of repair work was done, but mostly it was some development drilling, removing waste and ore production.

Matthew Gordon: So, all right. So, tell me, what do you now know about the mines? So obviously there’s a 43-101 which exists, this was told to you, I guess some information, there’s some historic data too. But what do you know today about what you’ve got under the ground?

George Glasier: Of course, the 43-101 that was done on the Sunday Mine complex was done on a small drill-out that Dennison mines completed back in 2009, just to determine, you know, a small drill-out. So, most of the Sunday Mine complex has never been explored. So that 43-101 which you can basically see on our website, you know, it shows that there’s about 3Mlbs of Uranium in that small drill-out. Well that’s why we knew that based on the historic operation, that when Union Carbide started this mine, it basically bypassed and did not take all the high-grade Vanadium ore where the grades of the Uranium were lower. And that’s why we went in primarily, because that is not part of that 43-101; that was not even assessed when Dennison did it because it was lower-grade Uranium but very high-grade Vanadium, and we reported that on press releases and then the market could go and look at that. But the grades of Vanadium are very high and that is the first ore we would start to mine. And that has still got Uranium but it’s not as high-grade as the drill-out and the potential for the rest of them.

Matthew Gordon: So let’s come back to these studies, just so I can understand the process, because I’m learning here. So the 43-101 one is old: it’s 2009. Would you look to upgrade that, or would you move straight to PEA? What is the sequence of events that you think you’ve got to go through?

George Glasier: We could obviously do a PEA on that particular drill-out. We could do a PEA now that we’ve opened the mine. We could do a PEA on the ore that was not included in that 43-101. So, the big issue is, okay, where are we going to process it? Mining costs are pretty simple. We could go through a PEA and tell you what it costs to pull the mine, the ore out of that mine. The issue is, you’re probably going to ask me is where are we going to process? Okay, and what is the processing cost? So, there’s really no way to complete a PEA and say we can get yellow cake in the X price, because it’s unknown. First of all, the only processing plant that’s really available is the Energy Fuels plant, it’s shut down now, they’re going to start up. There are going to be other ones starting up so what’s going, what’s going to be the status? So, if you did a PEA trying to do it on the full production cost, you would be stuck with the unknown of the process.

Matthew Gordon: I wasn’t really coming at it from…eventually we would have got on to asking you about that: where do you process it and so forth. And I think, you know, that’s a topic worth discussing. But just coming back to the study component, like as an ex-banker, I’m trying to understand, you know,  what do we know about, what do you know about what you’ve got today, which would allow me, if I was financing this thing, to be able to get it financed?  And usually, I’m a conventional banker, I would be looking at those studies, those economic studies to try and understand it. And traditionally that’s PEA, Pre-Feasibility Study (PFS), Definitive Feasibility Study (DFS). But you’re re-entering an old mine and I just want to know what’s going on in your head because you’ve got a plan here. Clearly, you’ve been doing this a long time. I just want you to kind of share with me or all of these viewers, what is that go forward plan if someone like me, in my old profession of banking, doesn’t have a measure by which I can say, hey George, I totally get what you’re doing. Here’s the money. So, you know, what, what is the go forward plan to get funding?

George Glasier: Okay, well this is a simple mine, we opened the mine with the same contractor that Denison had in there when Denison was producing, and that contractor was charging Denison so much per time to take the order and put it outside the mall. And of course, then you had to haul it to the mill and Denison was hauling it to the White Mesa Mill and processing it. So, the contractor cost, and while we weren’t producing ore, we were paying the contractor a fixed fee each month because we were doing a lot more than just producing ore. But if it goes into the ore production stage of this thing and it’s producing ore, then there’ll be a cost per ton, okay?  And that basically is our, almost our full cost. There are some administrative costs, there are a few of the supplies that we put into the mine, roof bolts, matting, things like that.

So, then we take that per ton cost of production and the cost that we will pay, and we’ve got a cost per ton of putting that ore outside of the mine. And that ore will have a certain amount of Uranium, a certain amount of Vanadium, okay? So, the content, mineral content of that ore will give you the value that you have in a ton of rock, and we know the cost of that.

Now we know that if we transport it to the White Mesa Mill, we know how far it is and we can get a bid from a trucker and tell you how much it costs to truck it there, which we already have pretty much that knowledge. So, then we could have to say, okay, what’s going on? What’s the arrangement to process it at the White Mesa Mill? And of course, you’ve interviewed Mark and talked to Mark Chalmers, and again, that White Mesa Mill is ready to go, but it doesn’t have enough ore, and there’s no doubt about it.

Matthew Gordon: It’s a big mill. It’s a big mill.

George Glasier: I was with the company that built that mill, and when we started that mill, we had 1Mt of ore stockpiled at the site. That processing plant takes at least 700,000t of ore, and so they don’t have the capacity to produce that in their current developed and permitted mines. So, what’s Mark going to do? You know, and again, you know he hesitates to say, because I don’t think his plans are firm, but again, I think what he’s going to do is say I’ll take ore from the independents, the other companies, because that helps them. It helps the independents and helps us. But it certainly gives him cash flow to fill up that mill. That mill is costing them a lot of money to sit there. And I’ll tell you, I think for the good of their shareholders, and I’m still a shareholder of Energy Fuels, they need to put that mill into full operation as soon as they can. And again, it’s going to be dependent on the price of both Uranium and Vanadium, but maybe that’s coming soon with the action of the US Government.

So, the key to determining the total cost and the value of the Sunday Mine ore coming out of there, is what kind of transaction can we make with Energy Fuels? And that’s the short term.

Matthew Gordon: Okay. Okay. So, I hear you on that one. Just let me come back; I want to do these steps to kind of really make sure I get it. Okay? So just coming back to how you guys get funding, I think in September you had USD$2.7M, you’re spending or thereabouts, you’re spending, I don’t know, you were spending USD$700, USD$750 per quarter up until then. So how much money have you got today and when are you going to need to go out and raise some capital?

George Glasier: We have in US, $1.5M in the bank, you can see our burn rate without operating the mines, is a little over USD$100,000 a month. So that’s, you know, we don’t need money right now. Now, if we open up the mine again, that takes cash. Obviously, we spent cash last summer with the contractor and that, we spent about USD$100,000 on the ore pads, and we had a contractor build those and those are not complete. Now we’ve got some costs, you know, that we’re going to, you know, a small amount of cost. We’re going to basically contest, or we’re going to go into this state with all of our guns just to say, this is an active mine. We’ve got a top litigating attorney on our side plus we’ve got consultants; that costs a little bit. So, we are spending a little bit outside of our normal expenditures of holding properties and the general and administrative. So, but unless we are operating the mines, we won’t need additional cash for some time. Now, if the market turns all of a sudden, we’re going to open those mines and it’s going to take some cash.

Matthew Gordon: Right. Okay. So, you’re moving forward but trying to conserve your money. I appreciate lawyers and so forth and this hearing on the 8th April is going to take a lot of time, effort and a bit more money. But if it’s found in your favour, you would then look to move to properly being active and opening up the mine – is that what you’re telling me?

George Glasier: You know, we could get that kind of ruling soon, or it could be maybe when the Government starts buying after that new budget comes out, you’ve read the same thing. It’s uncertain when something might happen, but it could happen very soon, or it could be a little bit longer. But you know President Trump has something in mine to help the US industry, and we’re prepared. That’s why we’ve got those mines ready to go, so that we can be one of the suppliers to whatever need is out there.

Matthew Gordon: Okay. You are taking care of business, as far as the administrative side of things: you’ve got to get the permissions to be able to get back in there. Okay, so let’s kind of park that if we may, I just need to get this answer to the original question which was, how does a company at your stage, without going through the process of economic studies, get financing? When you’re ready to switch on, who’s going to step in and finance you, even if it’s for USD$5M? Not necessarily to get into production, clearly, but to allow you to get things set up and ready to put yourself in the best position to get into production, should the Government ever give clarity on what’s happening with their Uranium and nuclear plants?

George Glasier: It doesn’t cost you anything really to get the mine going. Well, I’ve turned the metres back on; the electric meters, deposits of about USD$20,000, but again, it’s not much. So again, when we start to turn the mine on for production, we’ll have some kind of offtake contract at a price and we’ll basically debt finance that possibly; whether we’ll do a placement, you know, an equity placement. But again, we’ll have the economics laid out because we’ll know what we’re going to do with the ore. We’ll know what the price is. Now, Energy Fuels has talked, you know, through the market; they just told me today, they want USD$60 to USD$65.

Matthew Gordon: Yes, I’ve heard that.

George Glasier: It’s a pretty nice price. The Sunday Mine certainly can make money at that price. Now is the Government going to step up and buy at USD$60 or USD$65? We don’t know, but if they do, you can apply the economics and so can we and so can financial plan for investors to give us the money, which is not a lot of money, depends on what kind of arrangement we have with the mill. If it’s simply as Mark Chalmers has said, they might just buy ore, you know in the first Energy Fuels, which I was part of, we bought a lot of ore from the independents. We’d ship a truckload of ore and you get paid 30 days down the road. So that is not much financing for that because you just have to mine each day and ship ore and then you get paid.

Matthew Gordon: So, you think on the basis of the old 43-101, you can convince people that you know the scale of the ore available to you underground. You’re saying that that’s going to be good enough for financiers to say, okay, we understand how much ore they’re going to be able to mine?

George Glasier: Oh, of course. In fact, we can open up the mine and take a bit of ore and show them. That’s one thing, you know, they can go right in there and they can talk to the geologists, and see what development drilling we did. So, they can see that. And obviously we’re not going to go into full production just yet. You know, if the Government decides to buy 2Mlbs, you know, that’s going to be split, spread across a number of producers. So, we could probably produce half of that the first year, but we’re not going to, I don’t think we’re going to get that much. So, we’re going to go in and do some limited production to start with because I don’t think, if that’s the program we’re counting on, it’s USD$150M, that only buys you about 2Mlbs. So that’s not a lot of Uranium. We could easily produce a third or fourth of that.

Matthew Gordon: How much equipment, how much did you inherit when you bought the mine? I mean are you going to have to go out and buy a whole bunch of, spend a bunch of money on the capex here?

George Glasier: We will use the contractor, he’s already available to us. The contractor has all the equipment, so we don’t buy anything. We’ve got a little bit of mining equipment ourselves, but he will bring the equipment. He was mining for Dennison and he’s sitting there with nothing to do. He’s already committed to do the mine for us. So, there is no capital cost in the way of equipment.

Matthew Gordon: Okay. You need a good idea of what you’re going to be able to sell at to be able to work out what the contract looks like with him, because he is obviously going to make a margin. Right? Otherwise he takes it all. potentially. What do you think your number needs to be? Are you saying USD$60 – USD$65 as well?

“We speculate, we know by rumour what might be in there, but we don’t know for sure. And what, which ones are those many recommendations are they going to initiate it? We don’t know. Nobody knows.”

George Glasier: I think the Sunday Mine, certainly, you know, if you’ve got $65 Uranium and even current prices of USD$80, it makes sense at that, maybe even a lower price. The Sunday Mine has got very high-grade Vanadium, it’s probably the best Vanadium mine in North America. Maybe in the world it’s got 2% or 3% Vanadium, and the White Mesa Mill recovers Vanadium, so it’s got that additional value that drives the cost of Uranium down. I’m not going to give you a number yet, but again, I’d like to see if Energy Fuels can do USD$60 or USD$65 at that mine, I’d shut the market -why would I want to sell at USD$40 if the market, if their production, which they are going to be the biggest producer of this, there’s no doubt about it. And they’re going to set the price and they make, it’s no secret; they want USD$60 or USD$65. That’s what the US needs to survive. Some people say it is for the best, but you really need a price that can keep this industry alive.

Matthew Gordon: But you’re talking about a bifurcated market there, with the US selling at one price and the rest of the world selling at another. Right. And you think that’s realistic?

George Glasier: Yes, I think so. We’re waiting to see what the Government program is, if that’s the program we’re going to produce to. And nobody knows; I’ve even made a suggestion that they could simply stockpile ore. They don’t need to process it. The Government would be better off buying raw ore, stockpiling it. The Government doesn’t need yellow cake. It’s easy to turn the ore into yellow cake, you just have to have them know. If there was an emergency where the US needed it, they could do that and have a mill, a new mill built within a year. The US Government could do things like that. So maybe you can mine both U308, as well as ore, and they can get a lot more for their money by stockpiling ore.

Matthew Gordon: Well, I heard an interview you did with Scott at Proactive, where you suggested that that’s what the US Government might do – is start stockpiling ore. I mean, I assume he did mean ore, and not yellow cake? Would you just help me to understand it? Why would the Government take the risk on the recovery component? Do you think it’s just all about security? So therefore, it’s irrelevant what the delta on the risk is? Why would they do that?

George Glasier: Risk is that the Government said, we’ve got to process ore; they could turn around and build a processing plant or you know, get Energy Fuels to process it. It’s not the issue that they have to have yellow cake in the can. We’re not out of Uranium in the US. The problem is the mines are going to shut down if we don’t get some relief. And if the mines shut down, then it’s going to take years and huge amounts of money to bring them back. So, what they’re going to do is, they’re even going to invest now to keep the mining possibility there.

You know, the processing plants, you can build a new processing plant that’s just a structure with tanks and pumps and things like that. You know, obviously you’ve got to get permits, but the US Government, they declare an emergency, they would just do it, you know, I mean we’d done that before in an emergency.

I’m not saying they would buy just ore, but it could be a combination: stockpiling ore as well as buying yellow cake, but they could get a lot more for their money right now, obviously then… when they needed to spend the money down the road. And that way, give the miners what they need, you’ve acquired the ore and turned it into yellow cake when you need it, but you haven’t spent the full cost of acquiring yellow cake.

Matthew Gordon: Okay. But I agree that it potentially could be a saving if they’re prepared to take the risk on the recovery for it. So I think there’s something there. But you don’t know anything that we don’t with regards to the Government’s plan to buy ore versus U308?

George Glasier: I don’t know anything. It’s just a possibility. Nobody knows anything about what the plan will be. And the first thing is there’s only a proposed budget. There are no real dollars there yet. If there’s real dollars in one of the agencies, maybe the department of energy will set out the forum, the department of energy in the past bought all of the Uranium for the US – that’s how they got it there. They were good at it in the past. They haven’t done it for a long time, but it wouldn’t take long for the Department of Energy to develop a program to buy this material in whatever form it is, but they’ve got to have basically the money to do that. They say, okay, we’ve got the USD$150 million or whatever, right now it’s a proposed budget and there’s no cash there for the department to do it.

Matthew Gordon: Yes, I mean it’s really quite vague at the moment. And I’m looking forward to, hopefully, this week’s announcement from the department of energy, but can I talk about two more things? You mentioned one of them, which is the mill; you talked about doing deals there, which obviously makes sense. So where are you in that? Have you had discussions with, you’ve mentioned Energy Fuels, who we have spoken to, are there others that you’ve spoken to? How do you process what you’ve got?  I guess, and I know you said you’re not quite sure what the cost will be, but how do you go about finding out?

George Glasier: We’re constantly talking with Energy Fuels, here at PDAC, and again, I think once their plans firm up, then they can talk to us seriously about what they can do with our ore. But again, they’re in the same position; they don’t have a contract, they don’t have an off-take. So that Mill’s sitting there virtually ready to go, but without any ore to fill. And they produced a little, and now it’s down to their La Salle project. I think they moved 6,000t or 8,000t. That’s what? A few days of processing? And they are not going to run the mill for that period of time. They need to run that for a period of time. It’s expensive to start up and shut down. So, what happens? They’re going to have their plan. They’re going to wait until they get their contract and off-take, I suppose, that would be the logical thing to do.

They’re going to be one of the suppliers if the Government buys, or if the Government does something else, whatever might be announced in the next few days. I don’t know what that is. You know, if they’re going to announce they’ve got current funds to do something, maybe they do, they can pull it from other budgets. So maybe they could do something and say we’re going to contract for deliveries right away. You know, who knows what they’re going to do? You know, the working group had a lot of suggestions, a lot of recommendations. We haven’t seen that yet, but when that’s made public, those are the suggestions as to how to save this industry that went to the President, but you know, we speculate, we know by rumour what might be in there, but we don’t know for sure. And what, which ones are those many recommendations are they going to initiate it? We don’t know. Nobody knows.

Matthew Gordon: Yes, I agree with you. I don’t think anyone knows. And the language has been beautifully politick and unclear. But going back to the mill component, I get that both sides are going to have a different view of this one. You’re of the view: I’ve got ore, you’ve got a mill which is under-utilised. I can supply it into you, or not, because you have other options. Are there other options in the US? Where do you ship it to, for instance, I mean there’s a couple of other mills, I think?

George Glasier: Other options; obviously there are a couple of other mills in the United States. They’re not in the same condition Canyon Mill and Wyoming, and there’s the Shootering Mill in Utah, which neither one of them are quite ready for production but could be, when you take a look at it. If Energy Fuels wouldn’t take ore from the other, and there’s not just Western, there’s other companies who can produce ore. So, the other companies could do, you know, Enfield owns the mill, and I know they’ve got some mines that they want to put into production. So, there are other options. Now, I think that the quickest and the least costly is Energy Fuels, right? If they say, no, we’re not going to process anybody else’s ore, then if the economics are right, it will be done.

Matthew Gordon: It’s going to come down to, do both sides make money, clearly. And so you have spoken with them this week at PDAC, it’s probably too early to have discussions on, you know, what’s happening with the Nuclear Fuel Working Group anyway, but you think that they’re open to doing a deal with you if you can, if both sides can get the economics agreed?

George Glasier: I think if the right deal comes down, I think it’s good for both Western and Energy Fuels to make some kind of arrangement, whether it’s selling more or whether it’s toll milling. I think it makes sense from both companies standpoint economically to do something right now because you’ve got to take advantage of the price when it’s there, and Energy Fuels, if they’re going to bid on, you know, a 1.5Mlbs, they’re going to have to deliver it fairly soon, and where are they going to get it? They don’t have that production capacity right now. Now, given time, they can bring other projects on and they just did it and updated their PEA on Sheep Mountain Now, as you see that Sheep Mountain is in Wyoming and it’s almost fully permitted, maybe it’s fully permitted, but it’s not ready for production and I see the market cap to bring that into production is like on USD$150M.

“I think it’s good for both Western and Energy Fuels to make some kind of arrangement, whether it’s selling more or whether it’s toll milling. I think it makes sense from both companies standpoint economically to do something right now.”

You don’t bring them on if you’ve got a contract, you know for a million pounds, you do things that are right now and you buy ore, or you let others process at the mill, and you make money off of that. Energy Fuels can make a nice profit up from buying more ore – there’s no doubt about it. We did it in the past. You know, Dennison was buying ore when they were running the mill because they couldn’t fill it with their own. So, it just makes economic sense to open that mill to other people. But Energy Fuels makes money and everybody else does. And if Energy Fuels believes that they don’t want anybody else make money, it’s hurting their shareholders as much as it’s hurting mine or Enfield’s or anybody else’s. So, you know, at some point, you have got to look after the shareholders; that’s the key. You know, don’t worry about the competition.

There’s really not a competition in this industry. We all need about the same price. We all produce the same product. It’s not like we’re trying to compete. There is no market for any of us now, you know; USD$$25 nobody’s selling, right? So, I don’t think we’re competing against each other, even we’re not competing against the world, except the fact is we’re not selling Uranium at USD$25. And you know, you take a look at Cameco; Cameco is not selling Uranium at USD$25. So, you know, we don’t have to worry about the competition, we have to worry about the world market. The competition now is, is the Russians or the Kazakhs that are keeping that price down, and the oversupply in the market; that’s got to work itself out and then the price will go up. I think the Government action, no matter what the US Government does, it’s only temporary. We’ve got to have a world price that supports mining around the world: in Canada and Australia, the US.

Matthew Gordon:  Yes, I agree. I agree with that. I think your competition in the US is also Natural Gas, not just other Uranium peer groups. Can we talk about like, thanks for that. Like, I guess there’s a whole bunch of unknowns in there. You know, you’re saying to me, if you can’t get some agreement with Energy Fuels, you’ve got options, you feel, right?  And you feel that the market is going to need to see a price of USD$60, USD$65 in the US, for people to be encouraged and incentivised to get back into production. If the market takes time to recover that, that, whether it be spot price, getting up to whatever it needs to do or your ability to put contracts in place, which typically get a slightly higher price than spot, and actually we haven’t really talked about that, have we? What does a company like you, which is re-entering old mines, need to do to be able to go and talk to utility companies? Because I think you mentioned one agreement from 2015 with the utility company, is that still an existence? What does that hold?

George Glasier: Well, it’s on track and still in existence and we have not delivered against it, you know, because they’ve deferred to delivery, simply because we said, Hey, at these prices we’re not going to open the mine. We could go out and buy the Uranium, but there would be probably very little margin, if any in it. So they’ve agreed they didn’t need the Uranium. They contracted with us. They are small quantities, and you know, we can’t give you the details of the contract as it is confidential, but we haven’t delivered into it or you would have seen that in our financial statements. And again, under the current market conditions, they’re probably out buying in the spot market. You know, there’s a lot of Uranium so they don’t need that Uranium we contracted for. So, and again, we’re not signing new contracts, we’re not even looking at new contracts because the US utilities are not prepared to pay the higher price. And I understand where they’re coming from. You know, when you can buy at USD$25, why sign a USD$60 contract? So again, I think long-term contracting will come, but we’re going to have to see that price move up. What is the term price is maybe in the low thirties now, but that’s still not enough for producers to sign term contracts?

Matthew Gordon: Forties I’m hearing; forties that’s the rumour. Who knows? Okay. So, then you’re early stage, right? You’re really kind of early days so you’re not in a position to be talking about signing contracts, even if the price was USD$60 today, you’ve got to move this project further along here; you’ve got to work out how much you can actually mine and get to surface first, so that that’s the process you’re going through at the moment. Is that correct?

George Glasier: Right, right, and until we have the economics there, you know, there’s no reason to talk to the utilities. I mean, at this point, we talked to them, we talked to the buyers, but again, the time is not right. You know, the prices are not right, and then maybe they won’t be in the next 2-years. But eventually they will be, you look at all the analysts out there and they said that there should be, there’s going to be a crossover between the supply and demand. When that happens, you’re going to see Uranium prices go up. How much they go up depends on… but the longer we wait, the higher that price has got to go because nobody’s doing anything. Nobody can get any money. You know, I’ve been here, talked to all the Uranium companies, juniors right here at this conference and everybody is just holding on.

They’re getting enough money, raising enough money to keep their assets, but they’re not developing, there’s not much exploration going on. I mean it’s just holding. Explorations are going on a little bit in Canada, obviously, you know, in Athabasca, they’re still doing exploration, because they’ve got special tax laws up here in Canada where they can get this flow-through money, and we don’t have that in the US, so we’re at a disadvantage, but we don’t need to explore – we’ve got plenty of resources already, you know, declined in US so, but you know, without companies developing, and we’ll take a look if you want to develop them, you know, the Sheep Mountain, look at their PEA: USD$150 million – Energy Fuels isn’t going to spend that unless they’ve got a contract and or insurance, you’re going to make a money on that. And so nothing is happening.

Matthew Gordon: No, I agree. I agree with you.  I like this bit of the discussion because you’re being realistic, and saying like, potentially, if the US Government don’t actually firm up on exactly what they’re going to do for us, this industry, this Uranium industry, as part of the bigger nuclear picture, if they don’t firm up on that and give us the prices towards USD$60, USD$65, maybe there’ll be price discovery in the market and maybe it doesn’t matter, but it’s going to take a couple of years for that process to run its course. You guys, you junior Uranium guys are running on vapour right now; all of you, because there’s no revenues, obviously. But hunkering down is the smartest thing to do – that’s what you’re telling me, right?

George Glasier: Yes. Well that’s right. And you know, I think the companies will hold on, they’ll have to cut their costs just like Energy Fuels did a major layoff, 60 days ago they took some steps, cut the cost, you know, companies are cutting their costs or trying to live off of the investments that they can get. But maybe they can last two years, but everybody’s going to have to cut back. And right now, there wasn’t much interest in the Uranium sector at this conference. You know, Gold -that was the big thing. But you know, if you went out to raise money, now there’ve been some small capital raises by the small companies, but nothing major. So again, this industry is holding on, barely, not just in the US but around the world, you know? And so again, we need to have a higher world price and I think that will come. Whether it goes to USD$60, I don’t know, it depends on where the production comes in to fill the demand and at what price? And again, Cameco; probably the best producer in the world, is going to take the majority of the contracts at whatever price they’re willing to do. And then the next year of production will come whether there’s some in Australia, some in the US, but again, if the Kazakhs and the Russians could put Uranium into the market at USD$25 for the next 20-years, it’s going to stay at $25.

Matthew Gordon: No, I don’t believe they want to do that either. What can you tell me, where do you think you get into this? How do you insert yourself into the cycle? Because like you say, you’ve talked in other interviews about being able to get ore to surface and let’s assume you can come up with some production agreement with Energy Fuels or another you think you can get into production quite soon, and you’re telling me in this interview, you think that you can put the numbers together in a way – it feels a kind of, a bit like, you know, back of an envelope; I’m going to do some quick numbers for you here – here’s what we think we can get. So, can you give me some money? It’s simpler. It’s simpler. Is that what you’re telling me?

George Glasier: Our mine is a two-commodity mine: Uranium and Vanadium; so, it’s not just dependent on Uranium.  To get the Vanadium price up into the USD$8 to $10, then we’ve got a Vanadium mine. So again, we’re not totally dependent on the price of Uranium, unlike virtually everybody else. Now, Energy Fuels has some Uranium and Vanadium. But take a look at the rest of the United States, the rest of the world, they’re dependent on Uranium. Maybe a few that have a little bit of Vanadium, but not high-grade Vanadium. So, we basically could be driven by the Vanadium market, which is a spot market, not a long-term market. We met with some of the analysts that cover some of them Vanadium and do some of the reports and get some idea of what they think’s going to happen with it. So again, we’ve got to be ready. Maybe it’s not your Uranium; maybe we turn this mine around to produce Vanadium.

“Nobody can get any money. You know, I’ve been here, talked to all the Uranium companies, juniors right here at this conference and everybody is just holding on.”

Matthew Gordon: But Vanadium has been traditionally quite volatile. And I see 90% of the Steel industry, and people talking about VRFB batteries and it’s coming. But you know, we saw the spike 18-months ago; back down to USD$3, whereas USD$7 today. It bounces around and it has been volatile. I mean, can you base a business solely off of that? Even with high-grade?

George Glasier: Well, you know, again, since we don’t have a large capital cost, if we basically said, okay, we could sell forward, even for 6-months or so, we could start to mine. Obviously, you have got to process some, there’s processing plants offshore, they can handle this. Okay, and that’s when the Uranium, or the Vanadium price went up. That’s why they all came to us. We could get them high grade Vanadium ore to be processed offshore. Of course, that was when the price was USD$20 or higher. If it doesn’t go way up, maybe that’s still not an option. Maybe, but we’re looking, we’re always talking to people. There’s a possibility of building a Vanadium processing plant in the United States which should recover Vanadium from these ores.

Matthew Gordon: Do you know what the scale of the operation could be? How much ore Vanadium have you got?

George Glasier: Well, you know, again, if you take a look at the small drill-out that was done, the resource of Uranium, the Vanadium resources is based on historic ratio of Uranium/Vanadium in the Sunday mine, which is about 6:1. So if you have got 3Mlbs of Uranium, you have got 18Mlbs of Vanadium. But again, we went in and when we looked at the mine, the Vanadium is actually higher than the 6:1 that Union Carbide historically produced. But again, we don’t report that, and we would just use that historic, which, you know, we have to be careful what we report to the market. Bear in mind, we’re also an SEC reporting company, not just in Canada. The Canadian rules are a little looser, the US rules are very tight. And so, what we report in the way of resources and that, have to be qualified.

And that question came up in our presentation, we call these historic resources, even though they’re compliant with Canadian and Australian standards, in the US you can’t say that. So again, we call them historic because apparently that’s what the US security law required. I can’t tell you that there’s 100Mlbs in the Sunday mine, but a lot of that mine hasn’t been mined and it hasn’t been explored. And again, how many pounds you need to start a new Vanadium plant? You know, this Sunday Mine’s not the only Vanadium/Uranium property; there’s other properties owned by other companies. There’s a lot of it in the area, and some are owned by Energy Fuels, some of them by Enfield, some owned by private companies. So, you know, it’s an area that there’s a lot of resources produced a lot in the past, and it can, at the right prices, produce a lot in the future: both Uranium and Vanadium.

Matthew Gordon: I guess it comes back to that question I asked earlier, which was, how do you get to the point where you can say, I think we can mine, you said USD$8 to USD$9 just now; if Vanadium gets to USD$8 to USD$ 9, that could be interesting for you. But how do you get that financed? I mean, what conversations do you need to have with either an investment bank, like I was part of, or a fund, or whoever? Strategic, I mean, what are the options on the table for you, really?

George Glasier: Some of the customers of the Vanadium financed the thing themselves, and I can’t give you the details, but if there’s a shortage of Vanadium, and actually, you know what the ones that cover this industry, they say there is not going to be any new production unless it gets up. Vanadium isn’t going to come into production anywhere near USD$8 or $10 or $12. It’s high cost, and it’s not going to come into production. So, you know, you’ve got Largo in South America, they can step up some production, but you don’t. And of course, then the by-product reduction of Vanadium, you know, from slags and so on, but that’s somewhat limited; how much more it’s tied to steel production. So again, where are you going to get, even if the demand for Vanadium just goes up, graduated like it has, without the battery, you know, adding anything to it. There’s got to be some shortages of Vanadium, maybe not in the next couple of years, but you know, there’s just not new production coming on. Because the prices are high. It’s not nearly the case as it is with Uranium.

Matthew Gordon: What’s the price you think it needs to get to, George? I mean, again, I’m trying; you’ve got high-grade Vanadium, which is great, but what price do you think it needs to get to before you can have discussions about even like funding something like that?

George Glasier: I think if we can get up into the USD$9 to $10, it looks very attractive from a plant and you know, the Sunday Mine standpoint of what, you know, when you look at the grades of the Vanadium, you know, 2% to 3% Vanadium; that starts to look pretty attractive at that price.

Matthew Gordon: You think you can make money at that point?

George Glasier: We can do an economic analysis, and we can do that if we need to do that. But again, financing may not be dependent on announcing an independent finance, we might be able to do it with the off take customer. But again, all those things are just possible. They’re not in place yet. I don’t want to represent that they are. But again, this is why, you know, we are holding ready for the Uranium or Vanadium, or one or the other, to move to a place where the mine makes economic sense.

Matthew Gordon: So I think that’s been clear: you are in position with both Uranium and Vanadium, waiting on price recovery, or discovery in the market to get to certain point. You know, you’re suggesting something USD$60, $65 Uranium; USD$9 to $10 for Vanadium, at which point you will do an economic study on either, or both to enable you to get financed. That makes sense. Okay. Thank you. One last thing, George, one last thing: this kind of got me excited because we have spoken to one other company about something similar and I was trying to understand it, which is the, it used to be called ablation, it’s now called kinetic separation technology – sounds much fancier. So, can you tell us what is it and what does it do?

George Glasier: The technology ablation, which we have kind of renamed kinetic separation because that kind of describes it; ablation is a medical term. The developers, or the people that developed this technology called it ablation. We acquired the technology, we went with that term, but you know, to better explain it, we just changed the name to kinetics.  And what this is, it’s a process for sandstone hosted minerals; that doesn’t mean that it is Uranium, Vanadium, it could be other minerals, they coat the sand. Okay? It’s very hard coating. And the way you remove that, you mine it, you dissolve it in an acid, okay? That dissolves all of the metals off of the sand. Well, kinetic separation takes this and does it without any chemicals. It does it with kinetic energy; by driving particles of the sand against each other at a very high velocity it releases that coating. And then what you simply do is, you screen off that sand, right? Like you would in a, you know, sand and gravel operation, and then the mineral is all contained in the fines and you basically have clean sand without mineral, that you can just leave at the mine site.

So, what you do, you reduce the amount of material that has to be processed. And the tests that have been done with the machines that we have, basically show that you can remove up to 90% of the mass and keep about 95% of the mineral. So, what happens; instead of shipping a hundred tons to the mill, you take in your mine 100t and you’ll ship 10t for process. And that’s where you are saving, and the environmental effect comes in, because the worst part of Uranium production is the milling: that creates the toxic waste. And mining doesn’t create toxic waste because we don’t use chemicals in the mine, but the mill uses chemicals and that’s why the milling process is expensive and the disposal of the waste from milling is expensive. So kinetic separation will reduce the amount of material you send to the mill, and that’s the advantage of it.

Well, we’ve proven it works now. It’s just the issue of getting it into production. And you know, you’ve read, there’s issues with it: we ran the process on our commercial machine in Colorado and of course we had a press release out about this and then the state of Colorado hired a guy said, well, we don’t know what this is all about. So, they went through a whole number of public meetings to try to determine if the department of health should get involved in licensing this lighter Uranium.

Well, after all these hearings, they couldn’t decide what it was. So, they went to the NRC, and the state of Colorado operates under the NRC rules. It’s an agreement State, but they went to the NRC and there was a staff member at the NRC who made a real quick, and as our lawyers say, unfunded or unfounded recommendation, well just consider it know, and that’s when the State came back and said, well we think, I guess it’s milling. We think that’s a faulty determination by the NRC and others. We haven’t gone back to the State because the State is relying on what the NRC says. So, what we’ve done is, it is no secret, we went to the NRC, the commission direct. We’ve talked to the staff, but we’re in front of the commission to decide what this process is. Is it milling or is it mining? And there’s a lot of precedents that say things that are done at the mines or mining.

Now this is nothing; it’s secondary blasting, and our position is, if you consider this milling, you better start regulating all mining as milling because we all blast with dynamite and this is secondary blasting done with basically air, okay? And so, it’s an interesting argument and it’s in front of the NRC now, when they’ll make a ruling on it, we don’t know. But again, we haven’t pressed it because the market right now wouldn’t justify it. So, as the price goes up, we’ll be closer to, I think to going to the NRC and saying we need a decision on this. They take their time, but it is in the process. So right now, we’re not doing anything. But there’s other options: even if it’s determined to need some kind of license, not necessarily a milling license. And I don’t need to go into the details of milling versus no, but again, even if it’s determined that you need a source material license, which is basically, to possess the Uranium, that’s easier to get. But we contend that’s not even needed because this is a mining process, it’s not a mill process.

Matthew Gordon: You’re just saying it’s admin:  it’s just a process you’ve got to go through. And even if it wasn’t a mining license or mining permit required for that, it’s just a process you’ve got to go through something that you feel you could get, but it’s time and it’s money, which you’re not going to invest now in today’s market, but at the right time you will step in. That’s what I’m hearing.

George Glasier: We’ve already invested quite a bit of money. The legal arguments have already been presented to the NRC on paper. A lengthy paper, a technical and a legal paper has been submitted to the NRC. So, we have spent the money through the attorneys in Washington DC, and the experts to do it. So, it’s already, most of the money has been spent on it, you know, so now it’s just a matter of the NRC actually taking the action to make a decision. And it takes a while, we’ve met with them several times and we’ll have follow-up meetings, but we believe that it’s a decision that doesn’t have to be made today but it should be made within the next year.

Matthew Gordon: So, you did say there that the ratio would be like a 10:1: if you put in 100t of ore, you might get 10t out. Right?

George Glasier: We’ve tested ore, there’s been more tested, not just in our mines, but other ores that have been tested extensively on this machine: ores from Africa and ores from around the United States. So, it’s not just for our ores, it could be used around the world to reduce production costs and to reduce the environmental impact of Uranium production. And most ore around the world are sandstone hosted ores.

Matthew Gordon: So, has that been all been done quite recently? Has it?

George Glasier: Yes. Within the last year or so. I mean, we haven’t touched anything more. We’ve had samples. We’ve actually tested some Iron ore, interestingly enough, you know, on that process and that’s not your Uranium, so we can use it. We could test Zinc. We had a drum of low-grade Iron ore out of Minnesota that we upgraded. Now again, there is a lot of light, low-grade iron ore in Minnesota. That’s not commercial. But again, we did a test on small quantity. Now, you know, iron ore is a huge quantity of material. Now whether it’s economic for these guys, you know, we tested it to show that this could work on upgrading low-grade iron ore. But again, you know, we’ve tested it on some Zinc. It works, which on other things, as long as they’re sandstone hosted. But again, we haven’t done any Uranium testing, simply because it hasn’t been necessary because we basically, we potentially could move the machines out of the State of Colorado; the State of Utah hasn’t ruled out what it is, neither has the State of Wyoming, but there’s no reason to do that yet. But the machines are in the State of Colorado. So the Colorado said, don’t do it until we decide what this is. And now they’ve decided maybe it’s milling and we’re not going to black run milling licenses because we don’t agree with it.

Matthew Gordon: So in your case, let me get this right; so this machine, this proprietary technology of yours has been used in the past and tested on sandstone to remove whichever commodities that you were testing for, but not Uranium yet and not anything in Colorado yet? Got it. Understood. Okay. Understood.

And again, once they make this ruling, is this kind of fairly cheap? In terms of how much cost it will add to your process, or are you going, well actually at a 10:1 ratio, that’s what, whatever it costs, it’s going to be fine?

George Glasier: It’s basically run by electricity. It’s a very small energy cost and it depends on how many machines are operated by one operator. So, it’s a couple of dollars a ton. It doesn’t cost very much. Now again, the machines that we have, that commercial machine was built to go into Sunday Mine, a small mine. So, you’ll need multiple machines because you know, it actually goes right into the mine. You can build them bigger; it wouldn’t fit into the mine. So, if you don’t operate outside the mine, you build a bigger one. But the one that we built is the size to go actually into the mine, operate in the mine, and put the waste material back into the mine. So, the cost of operation, if we build a bigger one would be less because one person can operate a small one or can operate a big one. So labour is one of the major costs, but it’s a matter of a few dollars per ton.

Matthew Gordon: And again, I guess you’re going to have to work at how many of these machines you’d need, where you locate them and how much ore you can put through them cause that’s what appear to be, you know the long pole in the tent, right?

George Glasier: Fortunately, for a small mining operation, you would need five of these. There’s 5 mines there; you would need 5 of them because you’ve got five different locations and you’d pick five smaller ones, or maybe you would just build one big one and bring the material out. But the advantage, why bring it to the surface, if you can process it underground? You just save hauling all that ore out the portals and you just back fill in the old stopes. Now, if you don’t have a mine, if it’s a newly developed mine, you don’t have anywhere to operate in the mine to start with. So what happens is, Sunday mine has been mined, so it can operate in Sunday mine easily. But you know, they can also operate on the surface and you could either take the waste back in to backfill the mine if you want to do it a little more cost or you could dispose it when on the surface. Again, you can build these things any size you want, but this one happens to be built to go in a mine the size of the Sunday mine.

Matthew Gordon: Okay, so this is your proprietary technology. Yes?

George Glasier: Patented technology. It’s under US patents. We have the rights to that. And it’s of course protected in countries that honour US patents: Canada, Australia. Yes. And it’s right there. And not only the technology, but the way you operate this thing. And so that’s so important because we’ve got the only operating machines, I’m not saying it couldn’t be duplicated. We shipped one of these to China. They could probably reverse engineer it and build one, no doubt about it. But the way you operate these things, it’s operated by computer technology and you know, quite frankly, you put this material into this machine and there’s a timing of these things; you’ve got to leave it in just the right amount of time or it’ll grind that sand to fines. And if you don’t leave it in long enough, it won’t remove all of them. So, it’s the operational issues also that are proprietary, and we’ve run it enough, so we understand it. And I’m not saying somebody couldn’t learn that, but you know, it’s going to take some time. And we’ve already done it. We’ve spent 5-years at this. We’re willing to, you know, let others use it under license. There are a number of times we’ve tested, it’s not ready to go because the economics are not there.

Matthew Gordon: But no one’s ready to go on Uranium. But you said it works for things other than Uranium. So, have you, are you looking at getting contracts or agreements in place with other miners, with other commodities, and start monetising this technology of yours?

George Glasier: No, I said we’ve tested other minerals. Again, case with the iron ore you know, it’s an issue that those are in massive quantities. Okay, and would take huge machines to do, and not the ones that we have. And for the economics again, it goes up and down. So again, nobody’s rushing in to say, I’ve got to have this machine because the economics of iron ore go up and down. And some of the other minerals we’ve tested, it’s the same thing; they’re small mines, we’ve tested from different locations. But nobody right now, the mineral market is not screaming for this because none of the commodities are high enough. You know, they go up and down. But again, you’ve got to find the right project. Some of the big mines you’d have to have great big equipment, but smaller mines, maybe it’s more economical; it doesn’t cost very much to build a small one. You know, they are pumps and pipes. Basically, what this, and the special patent and nozzle design.

Matthew Gordon: So, it sounds to me like you’re waiting until the market recovers for Uranium. You’re going to use it on your own project here. And I guess at that point, you may or may not receive phone calls from other Uranium juniors.

George Glasier: If we use kinetic separation on the Sunday Mine, you’re going to produce ore that has probably 30% to 40% Vanadium in it and 2% or 3% Uranium. And that is so high-grade; if you ship that to an existing processing plant like the White Mesa Mill, they would have to reduce the capacity because the back end of the White Mesa Mill couldn’t handle the output. So, I mean there’s also the issue of maybe you should build a new processing plant for really high-grade material somewhere. But again, if we’ve got that high grade material, we don’t have to build it in the US we build it anywhere in the world because transportation costs for a product of that value, is not the constraining issue; you could ship the material anywhere in the world because it’s such high value, once it’s upgraded. The economics; if you’ve got, you know, 30% or 40% Vanadium and 2% or 3% Uranium – that’s a lot of value and a ton of rock.

But again, you know, I’m not saying the White Mesa Mill couldn’t process this stuff; they could adjust the operation to process it, but logically we’ll probably just ship raw ore to the White Mesa Mill because that’s what it is, rather than this high-grade that they would probably have to blend down with their low-grade stuff, any way to put it through.

So again, economically we’re looking at just conventional mining, shipping the conventional work down the road. When the market goes back, kinetic separation is the way to go. And so that’s why again, we’re not pushing this through the NRC, because the decision can wait a while because the market is not there. And,  again, you would have to have a long-term contract or somebody that’s going to put in the money to say, I’m going to build this high-grade recovery plant.

Matthew Gordon: With regards to the, just on the money side of things, potentially this could go along, this could go on for another couple of years and you’ve got to hunkering down, you’re going to be fine hunkering down. I think you, like a lot of juniors, share price has been, you know, hit hard the last year. There’s not too much you can do about it, isn’t there?

George Glasier: Price goes up and down and it’s based on, I suppose how the investors are feeling about the market at any one time. We can come out with announcements, but we can’t guarantee the price. We can’t guarantee there’s going to be a contract or production next year. Now that’s the problem, you know, and the share prices: virtually everybody’s has gone down. You know, they’ve recovered a little bit, but the Uranium sector is down and yes, I wish, there was something I could do about it. You know, I’m a big shareholder of Western. I said on one interview, not long ago; if you want to make money in the Uranium industry in the next 30-days, you shouldn’t be in this industry. This is the longer term in any company, not just ours. You’ve got to take a longer view of Uranium, you know, a year or two. If you invest in this, expect profits and maybe nice profits with any of the companies, but it’s a year or two investment, not 30 days. Real profits are going to be made for the investors that can stay in for a while. And the industry is at a low point, so maybe it’s a good time to buy?

Matthew Gordon:  I think that’s been said by a few, I mean we’ve been talking to Uranium companies for about a year now, learning about the space. It’s a quite an opaque space. You know, people have been sitting on the Uranium thesis for the last three years and you know, still haven’t got it right, but they will be right one day; so, it’s good, it’s fine. But I’m always sort of intrigued by, you know, how companies react in a time like this. You know, today, now it’s Uranium and it was previously Gold, and you know, there’s lots of commodities go through their ups and downs. But for you guys, I guess you’re cutting back your G&A as much as you can. You’re only spending what you need to – that’s what you were telling me earlier?

George Glasier: We could cut back a little bit. We’ve got a lot of claims, a lot of properties, I suppose that’s one of our major costs: it’s holding the properties. We could cut back some of the, not the key assets and the we certainly wouldn’t cut back the Sunday, but we could cut that. We only got two and a half employees; the rest of the stuff we do with contractors, you know, so that’s the thing we don’t have, we could lay off all two and a half employees. You can’t do that. The two and a half employees that we have are the key people: myself, our CFO, Rob and a part-time operations guy. Okay. To take care of and maintain all this stuff. So our G&A is very, very low. Our capital, our money of holding this company as a public company is high because we have two jurisdictions, you know, our auditors have to audit to the US and the Canadian sides. They have to review our financials quarterly under US law, but Canadian, it’s only yearly. We’ve got additional costs because we’re a dual, you know, country, you know, reporting a company, and that’s a disadvantage. I don’t know what we can do about that. I keep talking to our attorneys and our accountants, but again, because we are under this jurisdiction, it costs more and you’d be surprised of our burn, how much is being public company. But we have to, I mean, we don’t have a choice. I don’t know how we can cut that other than become a private company. If this company could be taken private by a big cash investor and cash out to shareholders, you know, like the right price and shareholders are probably willing to do that, but we’ve got certain costs built into this thing a, little bit we can cut but a lot of it; the property holding cost and the cost of being a public company are pretty much fixed.

Matthew Gordon: I understand. And I noticed that you did mention that just there; you are a big shareholder. You’re sitting on something, there’s not that many shares out for a start, but you’re sitting on like…you’re sitting on about USD$4.7M, or something like that. Is that right?

George Glasier: About 5M shares.

Matthew Gordon: About 5M shares. So, yes, you’re into this. Have you been buying in the open market or is that what you did as part of the, when you did …rolling this into the shell originally? I mean, how have you done that? Acquired so much?

George Glasier: My shares, I got when we set up the company, we were a private company when we first set this up. I owned 50% of it to start with. And of course, I’ve been diluted when we brought in public shareholders and when we made acquisitions, like the black range acquisition, so you know, my ownership has gone down, obviously, simply because, you know, we’ve brought in, we became a public company, you know, we’ve issued, done private placements and we bought black range in a share transaction.

Matthew Gordon: And so obviously, that’s still a big chunk, like 5M out of out of 30M is significant, but that’s the case of being diluted down from whatever shares you issued yourself originally. Okay. Understood. And does that mean, do you pay yourself?  I know there’s only two and a half of you, presumably you’d do salaries and so forth, don’t you? Or do you just, you know, do stock options? How do you remunerate yourself?

George Glasier: Yes, I’ve got a few stock options. But now and I get a salary out of the company; that’s all public information, low as anybody in this industry with our resources. But I made an interview and I said, anybody else that wants to do this job for the same price who has got the qualifications – you can have it.


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Sunday Mine Complex

Serabi Gold (LSE: SRB) – Ready or Not At All, So Close Enough to Taste It (Transcript)

Interview with Michael Hodgson, CEO of Serabi Gold (LSE:SRB, TSX:SBI).

Off the back of yesterday’s press release, Mike spoke to us to give us a bit more colour on the details about the Public Hearing and the results of the first months test on the new ore sorter.

Interview highlights:

  • 1:30 – Public Hearing: A Positive Outcome
  • 3:43 – Ore Sorter: How Does it Work?
  • 9:56 – Focus for 2020: Exploration, Drilling and Building Value

Click here to watch the interview.


Matthew Gordon: Good. We saw the press release this morning, thought we’d try and catch you, and it sounds like we caught you at a good time, you’re off to Brazil tomorrow. So, why don’t we talk about the public hearing first of all which you told us about last time we spoke, but it seems to have gone well?

Mike Hodgson: Yes, yeah, I mean, you don’t get a definitive answer in the actual public hearing itself but you obviously… it could go very wrong on the day, so I mean if you have a positive public hearing in terms of like, everyone sits down and listens and all the stakeholders have the conversations and are all heard over 6-hours and there’s no… you know, it’s all done in a cordial manner, which is exactly what happened, you can’t have anything more.

So what we actually have there. It’s chaired by the State Environment Agency, called SEMAS, and they chaired it and all the various stakeholders had their say and we had pretty much overwhelming support, which was great. So they will now go away and digest all of those comments, people’s concerns, people’s wishes, people’s wants, and they will then make a recommendation to a governing body which is called KOHIMA. They’re the guys that actually, ultimately, either ratify it and take it to the board. So they’ll listen to all of the, as I say, all the comments and concerns and they’ll come back, hopefully, with an LP for us, we hope within the next sort of six to eight weeks. That’ll be a great result, we’ll be delighted to get it done so quickly.

Okay, it’s slipped a bit compared to what we hoped, but you’ll remember we had to live through all of those tailings dam problems of 2019 with Brumadinho and how that affected everybody in the mining industry in Brazil. We’ll obviously get the EIA resubmitted and the public hearing still early in 2020 and seemingly gone through in such a positive climate in a way. Yeah, I think we did a really… we’re very pleased. Very pleased.

Matthew Gordon: Well I guess you had the benefit of obviously Palito, existing business, running without any issues and you obviously had the support of the local community from that, so that all helps. And I think people mustn’t underestimate the importance of this, and we’ve certainly spoken to a few companies in the last couple of weeks who are suffering from not being able to get through the process, as it were.

Let’s talk about the ore sorter, because I’ve watched the video which kind of explains it all to me and we’ll put the link up above here now so people can go to that. Can you tell us the impact? You’ve been running it for the best part of a month and it seems to be delivering quite well. I’m looking at some numbers here, so you fed in 1,266 tonnes and you’ve identified 1,076 tonnes of waste, so that’s significant.

Mike Hodgson: Those numbers aren’t really terribly indicative. I put them in there because obviously we switched it on just over a month ago and we’ve been putting through some pretty miniscule tonnages, and we’re just playing around with it really, trying to find the sweet spot. And we’re using different types of ore. Some of the ore is actually sort of more massive sulphide ore. So really, I put those numbers in there to show people, hey, you know, it was a pile of rubbish, basically, sub-economic, very uneconomic material.

We passed it through the ore sorter and we just pulled out 200t at, like, 7g/t and the rest of it is a big pile of waste, and that just shows what this thing can do. And the video shows it, that it’s going in, you know, it’s crushed material which is 80% waste rock and if you look at underground face, underground, if you just eyeball that you can see, well hello, 80% of that face there is waste and 20% of it is a band of ore. That’s exactly what the ore sorter does. When that thing’s all been crushed it can actually eliminate all that waste and just scavenge out that sort of high-grade band of the sulphides where the Gold sits, and that’s what it does.

So I think we can see straight away it’s a very… it’s great at just scavenging out the ore out of the waste. And we won’t put our best material through it because it’s not an exact science, there are always going to be losses. Like, you will get ore going into the waste system and you will get waste going into the ore system, but I think the best way of describing it is, it is a waste remover. That’s what it is, it’s a waste remover and it’s an ore scavenger.

So we are only really using it at the moment and will be only using it until we’ve got this absolutely nailed, we’ll only be using it on our lower grade ore development, which is where we’re just driving along the belt in its most diluted materials, that’s the material with all the waste rock in, and it’s great for just recovering the ore out of that material and not having to pass all that stuff through the process pond which up until now had been completely constipating our process plans with this material.

So if we get rid of that, first of all we save ourselves, just by getting rid of that material and going for 500 tonnes a day at 7g/t, 400t per day at, say, 9g/t, you’re going to save yourself about USD$1M a year at cost which means the payback on this machine is about 18 months. But, more importantly, what it will do is it will liberate 100t a day of free space, which we can then use again to add more high grade or make our little process plant produce, instead of 40,000 ounces, which it can do today, the same plant with the same size and through-put can do 50,000 ounces. That’s the beauty.

Matthew Gordon: That’s truly remarkable. But it doesn’t actually identify Gold per se, does it? Explain to people what it’s actually doing? They can watch it in the video but I thought it was interesting to…

Mike Hodgson: Very, very important, the distinction. When you look at that video you see that yellow shiny stuff, people I know would be very excited if that was a band of Gold. It’s not. That is a band of sulphides, mostly charcoal pyrites which is a copper sulphide and pyrites which is an iron sulphide. And all of our Gold is very fine-grained contained within those sulphides. So, our ore sorter has two metals that actually split differentiating between ore and waste. What you’re always after with any type of ore sorting, whether it be diamonds or, as we’re doing, Gold, or whatever, you need contra between your ore and your waste, dark contrast. So it won’t work terribly well on a disseminated ore body? On an ore body like ours, which is very sharp, it will. So, what it’s actually doing, you crush it down to about a quarter of an inch, half an inch, so you can see there, an inch to half an inch, and you pass it through either a colour sorter or an x-ray sorter. So, let’s take the colour sorter first. In our case as you’re dealing with video, pink-based and the rest is ore. So you can just simply say, right then, I want to collect anything that’s not pink and it will just literally identify any stone that’s not pink and throw it off on to different belts as you saw in the video and the pink, the granite, will just fall off the edge as waste. Alternatively, you can sort on atomic density which is where you use the x-ray sorter, so it’s a piece of equipment not dissimilar to what we have at airports, you pass through it, and it’s actually penetrating every stone on 1mm centres, so it’s hugely detailed. And there’s a 3D sample so every stone gets analysed for a percentage or its atomic density and, of course, the granite rocks are much less dense than the sulphides and the ore rocks so, again, there’s a big contrast in density between what is the ore and what is the granite. So, again, we can sort on x-ray as well. And, if we really want, we can’t do it at the same time but we can – we haven’t tried that yet – but what we can do, we can sort once on, say, density, save the pile, and then you can pass the pile again and sort on colour. So, the permutations are endless and we’re just at the beginning of this journey really. But we’ve just simply by sorting on x-ray. It seems to be brilliantly separating the waste and putting some more add to the waste. The closing shot of the video you see that little pile and the big pile. We pulled that little pile. That’s now a big pile and before it was just lost in that big pile.

Matthew Gordon: It’s amazing. We were talking to a lot of companies about bringing ore sorters in to improve their productivity and throughput. As you say, the savings are, or can be, immense. You had a great year last year in terms of the share price. Obviously, shareholders, the share register must be quite pleased with your performance. I know you’re excited obviously about the ore sorter here but you’re obviously more excited about bringing Coringa into production. You’re off to Brazil tomorrow you tell me, before we started the call. What are you going to do?

Mike Hodgson: Well, we’re closing in on our sort of three-year, we’re doing, we’re updating our mine plans and our resource estimations. So that’s basically what I’m going down there to actually sort of oversee, have a good look at that. We’ve got some exciting drilling going on at Sao Chico. I just to make sure we can as much of those results into this resource estimate we’ve just done There will be an update coming out too some very couple of intersections on the further step outs yet. That’s not probably get the results on, quite, even the official results, but certainly it’s looking very good. We’ve got some very nice-looking introspection, visual at this moment in time so I’m going to be looking at all of that.

Coringa, a year, well that’s obviously going on very well. We’re, as you know, we talked about this last time, we have Greenstone the convertible loan note coming in at the end of next month, and that will, of course, be the catalyst to us to start work at Coringa, start on the decline and getting on the ground. And, again, the exciting thing about that is getting underground, getting the bulk sample done or getting that earth moving, see how that responds to ore sorting as well. So, I’m completely sold on the whole thing. I mean I must admit when it was all, when we all talked about it, it was about two years ago the scary thing was it basically going to amount to USD$2M on something like this was you know… Well, I don’t want it just to be an ethical success. We really hope it works in earnest. I’m completely sold. I think it’s a paradigm shift in this part of the world with all of its sulphite hosted Gold deposits. It’s going to be terrific.

Matthew Gordon: I think that’s what the shareholders bought into last year when the share price was moving rapidly up having been stagnant for so long. A couple of million bucks and a payback of, as you said, less than a couple of years, 18 months to 24 months. Fantastic. But, also the ability to double your production and get up towards that wonderful 100,000 ounce a year number it has got to be in the crosshairs for you. I mean Coringa could get you up to 80,000 and with your exploration at Sao Chico you’ve got to be aiming higher, haven’t you?

Mike Hodgson: Yes definitely, I think the ease of mining at Sao Chico ore body, that’s why we put a lot of effort on exploration now. We obviously get a bigger bang for our buck with our exploration work that we do there. If we do get a bit of a tiger by the tail there and, at the same time, the space that we’re liberating by cleaning up the Palito ore creates more space to put through more Sao Chico ore, but we’re not dismissing the possibility of being able to sort the Sao Chico ore as well. It might be a different way of doing it, but we are beginning to get some pretty good results on that. So, it’s three deposits. Coringa, Sao Chico and Palito as being sortable in the end. We’re going to squeeze, I was always saying, my comment there, low-grades and tonnes cost, we’re always going to try and get the grade up as much as possible and not just chase scale but chase quality so we can actually get to, you know, 100,000 ounces with mining as high a grade as possible so we don’t actually have the enormous through points that a lot of 100,000 ounce producers have to have to get that level of production. That’s the name of the game.

Matthew Gordon: And that’s the focus for this year or, have you got more surprises on the horizon?

Mike Hodgson: I think if we get a nice big resource increase at Sao Chico and we get successful or we get on the ground at Coringa and we bring back a bulk sample and that works very well with the ore sorter and Palito’s achieving its 45,000oz, I’d be very happy with that outcome.

Matthew Gordon: Very good. Thanks very much. I appreciate you taking our call with regard to this morning’s press release. We were keen to speak to you because it was one of the stories, success stories, of last year, certainly in terms of share price, which is the name of the game after all. So, we’re kind of keen to see how you get on this year and see if you can repeat that success. Stay in touch.

Mike Hodgson: I will Matthew. 


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.

Pan African Resources (LSE: PAF) – Be-Be-Beating Hard Times, That is my Theme (Transcript)

Gold ore

Interview with Cobus Loots, CEO of Pan African Resources (LSE: PAF).

These guys get things done. Mining is never easy, mining in South Africa is far from easy, but the management team at gold producer, Pan African Resources, keep finding a way to get things done and are consistently hitting targets. Pan African is well on its way to becoming a mid-tier gold producer targeting 185,000oz per annum this year. Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

Pan African Resources has a share price of GB£0.125 and a market cap of GB£278M. It is listed on the LSE.

The key highlights from the update?

  • Pan African is on track to deliver the full-year production guidance of 185,000oz.
  • Group gold sales increased by 14.7% to 92,941oz (2018: 81,014oz).
  • The Evander 8 Shaft Pillar project development is progressing according to plan, with steady-state production planned from March 2020.

We like the tailings slant on the business. Green is very fashionable right now. Barberton Tailings Retreatment Plant produces a steady stream of gold, c. 25,000oz per annum, and the Shaft Pillar at Evander, an area of developmental focus in the near future for Pan African, could provide 20,000oz, rising to 30,000oz+ “in the years ahead.” Pan African is now mining more economically due to a strategy change: mining at the shaft rather than at deeper levels. The result is an intended sub-US$1,000 AISC for the Pillar project. Solid numbers, and in line with the rest of Pan African’s other operations. Elikhulu Tailings Retreatment Plant has had a mining feasibility study conducted that is now being independently vetted by a third party, with the view to expand it to a full feasibility study. Loots says it looks like c. 90,000oz per annum, with a 9-year life-of-mine, rising to 20 years with further resource modeling. By utilising existing infrastructure, Pan African can keep costs down and get things going quicker. This is still a little way off but could be a good addition to the portfolio.

In terms of dividends, Pan African recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world. Loots states that he wants to get back there. Let’s see how things turn out.

For now, it’s full speed ahead developing the projects, overcoming issues pertaining to jurisdiction, community and environment difficulties, and getting the share price where investors will no doubt want to see it.

Interview highlights:

  • 1:34 – Operational Update: Overview of Performance Results
  • 2:45 – Producing as Expected? A Run Through the Projects
  • 8:27 – AISC and Debt: What is the Current Position and What’s to Come?
  • 9:39 – Dividends: Keeping Them Going
  • 12:40 – Troubles in Jurisdiction and Community Issues: How Will They Ensure a Smooth Run of Operations?
  • 16:14 – What Should We Look Forward to from Pan African Resources?

Watch the interview here.


Matthew Gordon: Happy New Year. I haven’t spoken to you since before Christmas, so how are you?

Cobus Loots: Thanks, Matthew. We’re good. We’ve been busy as you might have seen from the operational update.

Matthew Gordon: We have, that’s why we called you. It seems like you have had a good last 6-months. You are on target to hit 185,000oz; that puts you very much in the mid-cap territory for sure. Are you pleased with your performance?

Cobus Loots:  Yes. We believe that, certainly the performance for the first 6-months provides a solid base for us to have a very good financial year. So Elikhulu performed very well, so we produced almost 30,000oz. We are well-positioned now actually for the next 6-months to increase that to go to almost 65,000oz for the full year so that is a great performance. Barberton was down slightly, mostly as a result of underground. But we have more flexibility now so we expect a much better 6-months, going forward from Barberton. And then also, and what I think is very positive, the work that we have done in the Evander 8 Shaft pillar. This project has gone from being a liability to actually now being poised to generate attractive cash flows going forward for the next 3-years.

Matthew Gordon: Okay. If you don’t mind, can we just break down that 185,000oz that you are going to be producing. You’ve got your existing Barberton and Elikhulu, both on the tailings and the mining front, and they are going as planned? The numbers are as targeted, first of all?

Cobus Loots: Well yes.Let’s start with Elikhulu first of all which we started last year: it’s a world class project. It is USD$130M that we put into the ground. It retreats old historic mining tailings, and it has a life of 12-years at present. And it is producing at an All In Sustaining Cost of USD$650 per oz or below. I think what’s more is that we are cleaning up legacy liabilities so it ticks the box in terms of ESG, looking after the environment, etc. So it’s a great project. It’s incredibly safe. We don’t have as many employees as what we would have had underground. So, we are very happy with the performance at Elikhulu, and as I said, we expect Elikhulu to do even better over the next 6-months.

And then the Barberton complex, which is also a world class tailings business, the BTRP, we do have about 20,000oz from the BTRP at Barberton and then 80,000oz at underground. So that gives us another 100,000oz per year, from Barberton. And then as I said, the Pillar, which is a project that we commissioned at the moment at Evander, that will give us 20,000oz which then actually becomes 30,000oz and more in the years ahead.

Matthew Gordon: Okay. And you actually refer to that as a former liability. Why was that?

Cobus Loots:  We curtailed operations at 8 Shaft, so we were mining 24 level, which was very deep. With a lot of infrastructure, a lot of logistics, a huge number of employees. So we curtailed that business about 2 years ago. We actually shut it down. And then the sort of question arose: what do we do with the remaining resource? We could have quite simply terminated operations at 8 Shaft, and that would have been the end. Instead, we said, let’s have a look at this Pillar project, let’s see what sort of Gold we can get out and over what sort of timeframe and at what margin, importantly. And that’s how the 8 Shaft pillar project has happened.

Matthew Gordon: Right. So basically, it was costing you a lot of money to get Gold out of the ground. It was becoming less and less profitable, having sunk a lot of money into the ground there as well. So you are now mining more economically as a result. That’s the point of what you have done?

Cobus Loots: Well, we are ceasing operations at the bottom levels which are very expensive and we are actually starting mining right at the shaft. So we have guided, we have anticipated that the all in sustaining costs of this Pillar project to be below USD$1000, which is very attractive. And that’s in-line with the rest of our operations.

Matthew Gordon: And Cobus, can I just ask you about Egoli, because you have obviously talked about the MFS, the mine Feasibility Study has been finalised now. Where are you at with that? What should we be excited about?

Cobus Loots: Yes. It has been a very interesting project from our perspective, as you said, the Mining Feasibility Study has been done. We are actually getting the study independently vetted by a third party and then they are expanding it to a full Feasibility Study, the results of which will be available pretty much at the same time as our interim financial results.

Matthew Gordon: Right.

Cobus Loots: And yes, circa 90,000oz per year, initially life of mine 9-years but if we model for the resources, it’s anywhere from 15 to 20-years.  At a fairly limited capital number for a project of this nature because of the fact that you are utilising existing infrastructure mostly: there is a processing plant, it’s operational on surface, we have the vertical shaft that’s all done. There are turns, certainly, currently, even a conservative Gold price to be attractive. So I think, you know, watch this space in terms of Egoli and our next steps when we release our interim results.

Matthew Gordon: Okay, when does that actually…how does that ramp up? How quickly does that ramp up?

Cobus Loots: You know, we haven’t yet pushed the button on development. The key is to finalise funding. And we what we have said to shareholders, we will not do the funding in any way that is dilutive. So we are looking at potentially bring in a stream or an equity investor of sorts. Certainly, the project has dig capacity in our view also. Once we are happy with the Feasibility Study and the fact that we can manage the risks, and it is a project that we need to be doing, from a pipeline perspective, we will finalise the funding and we will certainly add a time frame in terms of development.

Matthew Gordon: Okay. So the timing is not imminent? Because when I asked you earlier about, have you plans for adding debt for this year, you said, no. So, this is not a 2020 debt solution. You are saying that will come after that?

Cobus Loots: That’s right. The ramp-up period is three years, and most of the capital is spent in the later years. And if we potentially look to get in an equity investor, or some other form of finance, then that sort of takes off the burden, certainly from ourselves. But in terms of existing operations, certainly, we will be set in terms of debt, that holds true so we are not going to look to gear up the existing operations to fund a project like this. I think that it will stand on its own two feet.

Matthew Gordon: Okay. So you have been looking at the AISC and looking at ways of reducing it. I mean, I guess it is pretty standard: getting somewhere between USD$950 USD$1,000 is where you want to be, especially in today’s Gold price. So you are obviously throwing off a lot more cash, but you’ve also had to finance a lot of the development work with debt so what is the position on that at the moment?

Cobus Loots: Well, for 6-months to December, we have managed to de-gear the balance sheet and we have guided that in the year ahead, we should see a dramatic decrease in our gearing levels. You know, that’s a product of the Pillar coming into production, so we will be steadily instating the Pillar in March. It’s a product of Elikhulu performing at a steady state and the operations at Barberton performing. Certainly, what’s helping us also is the Gold price which is performing well in US dollars and even more so in South African Rand which is the currency that we look at.

Matthew Gordon: Yes. Okay. So, if I may just touch upon this here; a lot of mid cap and a lot of large companies, they tend to borrow money, then plough it back into the ground and kind of forget about shareholders. You issued your first dividend for a couple of years recently, what are your plans for keeping that going? Are you going to give back to long-holding shareholders in your company? Or is it the plan just to reinvest into the ground?

Cobus Loots: Well, if you look at our priorities in terms of how we apply capital, we need to continue to invest in our assets. But in the past, we have managed to do so, and then also pay an attractive dividend. Certainly, up to quite recently, we were one of the highest yielding Gold dividend shares in the world. And that’s where we’d like to get back to. And I think the operating environment in terms of the robustness of our assets and the performance, and then also the Gold price, should assist us in resuming even more attractive dividends in the future. Clearly, we have stalled some of the debt that we took on to fund Elikhulu, that’s still on the balance sheet, but as I said, we anticipate that number, in terms of the gearing levels, to come down quite dramatically in the year ahead.

Matthew Gordon: Any more plans for any more debt?

Cobus Loots: Well no, there’s no need for us to incur any more debt. Also, if you look at the sort of projects that we undertake now, one obviously looks at all the return metrics including internal rate of return, MPV etc, but payback is also very important for us, so how long does it take for us to get our money back and that’s where projects like Elikhulu where regionally, we were costing a payback of 4 years on a USD$130M odd, and at this Gold price, I actually expect the pay back to be sooner. So those are the sort of projects we like to do.

Matthew Gordon: Again, it’s just trying to understand the thinking of the management team here, because you’ve got options of paying it back in 4-years or paying it back quicker, paying dividends, you know, you have got the choice of what you do with that money. Some companies like to be completely debt-free as quickly as possible; others like to maintain some kind of leverage and utilise that spare cash elsewhere to develop and grow the business, where’s your head at?  

Cobus Loots: Well look, obviously, a mining company should not be over-geared and they should have a conservative level of debt. That’s really where I think we will end up in the next 6 months or so. It also doesn’t make sense for us to have no debt. In our view, it’s not efficient from a capital allocation perspective. We think that we can pay a significant, pretty much all of our debt in the next 12 to 18 months in resumed dividends so that one is not at the expense of the other.

Matthew Gordon: Okay. So dividends; they are still in the pipeline, your shareholders will still be receiving dividends as you continue to develop the business and grow the business – perfect. Can we talk about something else though? You did highlight them and I’ll give you credit for this; you don’t shirk or hide from this, you have talked about a couple of things: there have been some community issues which have affected productivity, and also, more recently, some power issues. I know mining is mining, and it is tough, but what has gone on there and will it reoccur?  

Cobus Loots: Yes, sure. I think we have demonstrated the ability to operate successfully in South Africa. We have had community unrest and that has affected, as you pointed out, the Barberton operations in the last 6 months. We had very serious power issues with ESCOM, our South African power and utilities, in December. On top of it, we also had probably the weakest December in terms of rainfall that I can recall for the last 20-years, so that will also have affected operations. So, you know, the bottom line is that one has to plan some level of disruption to your operations and you have to robust assets that can withstand these sorts of issues, and a management team that is proactive and can anticipate when they can and then deal accordingly.

So yes, South Africa gets quite a lot of bad press I think in terms of the operating environment, and a lot of it is justified, but as you said, most mining jurisdictions have their issues.

Matthew Gordon: They do, and like I say, I give you credit for not shirking away from it or ignoring it, but like I say, ESKOM for instance – what was the issue? Is it going to reoccur? Because I look at the, again, the information that you have provided, the prices have been going up and up, which affects your margins, but how do you engage with them? How do you have conversations that give you some sort of certainty about what the future looks like?

Cobus Loots: Well sure. ESKOM has been more of an issue at Evander, our underground business, and fortunately there, we have spare capacity so we can afford to turn off a mill for a couple of hours if there is what is termed, low-shedding: so where the grid is overloaded. So we do have that capacity but what I think also, the ESKOM situation is not going to become any easier overnight. We will continue to have power shortages in South Africa for at least the next 2-years. Barberton mines is less energy intensive so it is less affected. Elikhulu doesn’t use a lot of electricity so that is less affected. And fortunately, as I said, at Evander underground, we have some spare capacity so we can afford to reduce our underground consumption for a limited period. And recently, the Minister of Mines in South Africa has come out and said that they are in the process of deregulating the private power generation. At Evander, we are completing a Feasibility Study (FS) into our solar plant that will be able to look after pretty much all of Elikhulu during the daytime. And we expect that we will be able to, over time, expand that project also. So miners are being creative about finding solutions and I think that over the medium to longer-term, we will get those solutions implemented in a way that actually makes sense for shareholders.

Matthew Gordon: Interesting. You should talk to your neighbours over the road at Bushveld by the sounds of it.

Cobus Loots: Exactly.

Matthew Gordon: Okay. Well thanks for that update. It just sounds like business as usual for you. I appreciate you being quite direct about some of the issues that you miners face, but you are consistently hitting the numbers, or exceeding the numbers, despite those problems. So you always find a way. Do stay in touch and let us know how you get on. What are the next big things that we should be looking out for?

Cobus Loots: Well, we have our interim results now being released next week, on the 18th February and that will contain more detail on performance and what we expect for the remainder of the year. And yes, as I said, we are quite positive. We have laid a solid foundation, a good base to do well. So the Rand Gold price, is pretty much the highest it has ever been so that’s a good environment for us to operate in also.

Matthew Gordon: You see that continuing do you?

Cobus Loots: We sort of try focussing on those issues we can control, but it’s always nice to have tailwinds like the Gold price.

Matthew Gordon: Light a candle, for sure. Thanks again, speak real soon.

Cobus Loots: Thanks, Matthew. Speak soon.


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.

Gold ore

RNC Minerals (TSX: RNX)- Raise Up Your Mind, Hey, it’s Time To Shine (Transcript)

Interview with Paul Huet, CEO of RNC Minerals (TSX:RNX).

RNC Minerals was perhaps the turnaround story of 2019. Huet has steadied the ship, brought about a gold focus to the company and got RNC into production. A steady 8,000oz+ per month has changed the company and de-risked the operation, as the team look to move forward, get the share price up and probably restructure the CAD$32M of remaining debt. AISC steadily heading down. We expect to see it get below $1,000 later this year.

Despite a positive year on the production/revenue front, RNC has struggled to get the share price up. It sits at CAD$0.43, with a market cap of c.CAD$260M. Huet explained the market situation clearly: RNC’s 28% “option on nickel” at Dumont has been valued at zero, and he feels the company continues to be undervalued. We were curious as to Huet’s plans would be for 2020, but before you ask, he wasn’t prepared to talk about the royalty arrangement with Maverix Metals just yet as they are mid-discussion. He’s keeping his cards close to his chest. We do however expect to hear something by the end of Q1/20. However, it obvious to all the chess game that is afoot. The Maverix Royalty is a large 6% on Gold and 1.5% on Nickel. Forget the nickel for now. If we were RNC, we would do the bare minimum of mining at Beta Hunt. Why would you if the only company making money if Beta Hunt gets mined is Maverix? Beta Hunt must be 25-30% of Maverix income. But not if RNC reduces production, which, reading between the lines, seems to be what RNC is doing. The two need to agree, and agree quickly. Shareholders on both sides will benefit. Morgan Stanley, seem to have been pragmatic. Will Maverix be as pragmatic. Our interview with them, they talked that language.

Huet has been on a roadshow to both institutional and retail investors. RNC recently issued a 2020 guidance: 90-95,000oz per annum, excluding the often discussed coarse gold. This figure is also without taking into account an ore sorter, and possible plant engineering modifications to increase efficiency. Huet is running a tight ship, and we would expect these numbers to be almost guaranteed for 2020.

RNC will fund exploration out of cash flow. The debt is due in June, but can be delayed, or restructured on more favourable terms, given RNC’s current position in comparison to where it was 7 months ago. RNC will be looking at a c. CA$50M standby facility.

A gravity survey has revealed interesting anomalies at RNC’s two new exploration discoveries: Higginsville and Baloo. A recent high-density gravity survey has delineated a new geological structure at Higginsville: a 5km strike zone. The Paleo channel potential will be explored (these typically can result in slurry pumping to by-pass front end ore-sorting and crushing and go straight into the back-end of the plant). Potentially an additional transformative item. Long way to go though. Permitting at Baloo is reaching a more advanced stage.

There has been discussion about an ASX listing and roll-backs in the chat rooms and on social media, but Huet remains tight-lipped. RNC is getting more and more access to institutional shareholders, and that can only be a good thing.

They did what they said. There is a clear plan. Sit tight and watch this unfold.

Interview highlights:

  • Roadshow Experience and What They’re Doing it for
  • Release of Guidance: An Overview
  • Cash Position and Prioritising Spending
  • Options for Dealing with Debts and a Timeline for it
  • The Re-Negotiation of the Morgan Stanley Royalty: Plans for it
  • Building 24 months Worth of Ore
  • The Mill: A Good Purchase?
  • Lowering the AISC: What are They Doing?
  • RNC Minerals: A Potential Take-Over Target?
  • Specific Targets and Plan of Action for 1800km worth of Land
  • News on Dumont

Click here to watch the interview.


Paul Huet: Hey Matt, how are you?

Matthew Gordon:  Good. You have been on a roadshow.

Paul Huet: We have, we have been hitting up several places actually, 4 countries and 6 cities in the past couple of days in the last 2 weeks, so it has been very exciting.

We went to Canada first and then we went to the US, then Indaba, and finishing up in London. The purpose is really to just get out there and show people some of the changes we have done. You know, it has been 7 months now. I have been here for 7 months and we have managed to make a lot of changes: from shareholders to the board of directors, the executive team. We are now in production, we sustained about 8,000 oz per month for the first 6-months.. We are actually doing what we said we would do. We are keeping it simple and doing what we said we would do.  

Matthew Gordon: It is probably one of the turnaround stories of last year. You recently issued some guidance.

Paul Huet: 90,000 to 95,000 oz at 8,000 oz a month, it excludes our coarse Gold. And that’s something people should consider. It is our first year of total production and we are still fine tuning everything, if you want to call it that. We are still evaluating and assessing ore-sorters, that has certainly not gotten behind us. We are certainly evaluating engineering changes to the plant. We are looking at several things to upgrade, and how we can even increase throughputs, so there are opportunities there. But that range that we are putting in front of ourselves, it does exclude that coarse Gold.So don’t lose sight of that.

Matthew Gordon: You have also been producing cash.

You did raise a bit of cash to allow you to put things in place, but you are also still producing your positive cash flow. Can you talk to us about what are your priorities with regards to how you are going to spend that cash.

Paul Huet: As we announced, we ended the year with USD$35M in cash, so a huge, huge change. A huge shift. We used USD$3M of the USD$35M to pay down some of our debt, which was really important. That saved us almost USD$100,000 in the first quarter just in interest, so that’s important for us and for our shareholders.

We are going to spend USD$9M to USD$10M this year on Exploration this year. We have already started some of it. We have got a good detailed plan. We have just unlocked an area at Higginsville that has 1,800 Square kms.  We just announced the Fairplay open pit; that’s a brand-new area for is. It is 1km from our plant. We have pre-stripped that, we are actually starting to mine on that. That thing is only constrained by drilling. There’s no drilling around there. We did the original drilling here. So the initial grades from that pit looked to be as good as open pit at Baloo. We just got stage II permitted at Baloo. That second stage at Baloo was all drilling that we did ourselves as well. There were areas that we had discovered, that we discovered that geophysics had that gravity survey.

 What people have to remember is that this area hasn’t been explored in almost 2 decades. There has been some drilling; don’t get me wrong, but whenever there is a Royalty of 7% sitting on a project, that’s a huge burden for anybody so previous owners recognised that. Not a lot of people were willing to spend any money or effort in those areas, whereas after we had negotiated that Royalty, we’ve unlocked a huge jurisdiction.  We have opened up an area that was really gridlocked, it was landlocked for a long time under that Royalty. So, tremendous amount of upside for us to be drilling in those areas and that gravity survey just discovered a 5kms strike zone which is just north of our plant.

Matthew Gordon: I want to deal with the debt component. You have positive cash flowing, plus you have money some in the bank; USD$37M at the end of the year. You pay down USD$3M, saves you USD$100,000-ish per quarter, it was a lot of money. What was the balance off there between saying, let’s reduce that debt position or let’s get out there and drill?

Paul Huet: Yes sometimes. In our case, it made much more sense to pay off our debt. There’re often times that I’ve seen, even I’ve done actually, paid off debt with equity. We don’t want to do that to our shareholders in this case. We can repay our debt while we still have an aggressive drill campaign. We announced USD$10M, that’s the first USD$10M in this district in a very long time. That’s going to give us a lot of opportunity and our drill bit will drive our priorities. The next drilling will come from this. If we feel like we need more money for drilling, we will add money…

Matthew Gordon: What do you mean, you will add money?

Paul Huet: We will add money from our cashflow. Paying down our debt is really important. It is really something. We are looking at restructuring it as well.

Matthew Gordon: So let’s talk about the debt component. You have got your USD$37M, you have paid off USD$3M, you have got USD$34M left to pay. So most companies would look at that and say we can restructure this and pay a little bit less over a longer period of time, or we can pay it off or we can pay it down. What are the options that you are looking at for dealing with that debt? What’s the timeline?

Paul Huet: Yes, for us, our debt is due in June. We have an opportunity to extend that debt by 6 months, just by signing paperwork, or we have an opportunity to restructure that debt, which is something that we are strongly considering and something that we are working on. In fact, we have had a lot of interest from groups who I have worked with in the past who have serious interest in restructuring this debt at improved terms. Don’t be surprised if we pay down some more debt this quarter. It wouldn’t surprise me that we paid down some more. Everything has to be considered: as you talked about, we have to consider drilling, we have to consider everything and make sure we have that pipeline in front of ourselves and the amount of cash.

Matthew Gordon: Some companies would also look at things like standby facilities, because you mentioned something there that was quite an interesting point which people may have missed which was that you may be able to restructure your debt on better terms. Presumably, because the company is in a better financial position?

Paul Huet: And also, because we have had consistent, sustainable production. And another thing: a 2P reserve. That 2P reserve that we put out at Beta Hunt is very critical for lenders. So one of the things we are going to be doing is, when we restructure this debt, we will be looking at standby facilities.  I have had standby facilities in my life in my past, but putting together a USD$20M standby facility when you don’t need it, it’s the best way to get it. When you need it and your back’s up against the wall, you won’t get as good terms. For us, we will be looking at, potentially, a USD$50M facility where we take USD$30M and we restructure it. We have that. Whatever group comes with us comes across the finish line with us. Put in another USD$20M standby facility that we can use at our discretion, when it’s needed, that we can use for some consolidation, maybe for drilling. Whatever we need it for, it’s in place when we don’t need it.

Matthew Gordon: Yes, I think the truism in banking, when the sun is shining, the banks offer you umbrellas.

Paul Huet: Yes, exactly. We’ve all been through it.

Matthew Gordon: Can we just talk about Morgan Stanley? You renegotiated that Royalty with them. It has freed up this, this very large land package for you to go and Explore. What are your plans, because it is a big piece of land?

Paul Huet: Look, it’s a very large piece of land and we’ve actually started with our plan by the drilling from Fairplay. That was our number one priority.

Followed by the geophysics – the gravity study we did. We did not know that the gravity survey would unlock or show us that 5kms.

Matthew Gordon: What is a gravity survey, for the uninitiated?

Paul Huet: It’s a great Exploration tool for us. It’s an Exploration tool that allows us, targets us for drilling. That’s exactly what it does. It gives us some indications on where to drill. The thing that is exciting about this 5kms, from what we can see, and all of the historical information that we have, there are no drill holes in this thing. This thing just lit up in a gravity survey and there is not one drill hole in a structure that is quite similar to the structure that the mill was built for. The mill was built for the Trident mine. The Trident mine is just at the mill. That thing – we own it, that Trident mine is part of our land package now. Just north of it is where this 5kms strike is. And look, as a reminder; Beta Hunt is 4.5kms today, and Beta Hunt is constrained by land, not necessarily by geology.

Matthew Gordon: And you are going to throw how much money at that in 2020?

Paul Huet: We had other priorities that were much more advanced than this structure in 2020. And we are going to follow through with our plan.

But one thing I’m forcing our guys to do is follow through with our plan. This obviously changes things where we might require, we might introduce some holes into this, this year and change up this plan. Our goal has always been, from day 1 since I took over, to put 24 months of feed between Beta Hunt and Higginsville. We have stuck to that. We are going to stick to that and we had a different set of pipelines, Fairplay being one of them, the extension of Baloo being another one. So right now, we have the extension of Baloo that pushes us to the end of 2020 now. We’ve got Fairplay coming in. We will be drilling around Fairplay. There are other open pits that are more advanced, satellite targets that are more advanced than this unidentified 5kms strike. We haven’t even given it a name; it is so early – so you are right in saying that it is early stages.

Matthew Gordon: You have talked about getting 24-months of ore there to into the mill. That’s not something that exists today but you are building up towards this.

Paul Huet: That’s absolutely correct. And from both, so I am talking, about a series of open pits in front of us and from our Beta Hunt mine. The Beta Hunt mine is going to need some more waste development which we have planned this year. I think in dollars, top of my head, it’s about USD$6M in waste development. It’s all part of our budget. It’s all funded from the operations, right. It’s not coming out of treasury. In fact, treasury this year will continue to build up despite us having a very aggressive year in Exploration and waste development, some equipment purchases, some upgrades to the mill, looking at ore-sorters, we will continue to build up treasury.

Matthew Gordon: Do you keep Gold back on good months and then run it over into the next month if you need to, or does it all go into the mill straightaway?

Paul Huet: Yes. Our mine plan is what dictates it.

It’s not about hoarding the Gold, it’s about how we sequence the mine. It’s all about cross cuts during the retreat. Open pit: you end up mining where you are mining, so it’s all about our mine planning. We are trying to build up our mine plans to reflect what we have put out in the guidance. Our mine plans are a reflection of our guidance. We are doing our best to remain consistent. Consistency is good for us as well, right? It’s a lot better for us.

Matthew Gordon: And when you are having conversations about money?

Paul Huet: Yes.

Matthew Gordon: Have you had to spend any more money on the mill than you imagined? Do you still consider it to be a good purchase?

Paul Huet: Oh look, the mill was a steal. Hands down. I’ve had what, 13 mills approximately reported to me in the last two decades? You know, I built one almost from scratch, Esmeralda, it was this small thing that we had to almost rebuild. This thing here, this Higginsville plant, we have spent so far, probably about AUD$1.3M, AUD$1.4M on it.  A very, very small amount to make some major upgrades for ourselves and our mill has gone from a mill availability from about 86%, all the way up to about a 95%, and this is a real reflection on Graham and the team there. These guys are doing are doing PMs to the mill now, we are spending the right money on the mill. We are making sure everything gets properly treated in the plant and it is not neglected. The plant is not neglected. This is the artery and the heart and soul of our company. We’ve got two open pits and an underground mine feeding this plant and Doré coming out of it. We need to make sure it comes out on a weekly basis.

Matthew Gordon: And one of the reasons why you bought it was because you hoped you could reduce the AISC, I know you haven’t finished last year’s numbers and you are due to announce those towards the end of this quarter, but broadly, have you been able to do what you said, which was to drive the AISC down towards that $1,000 number.

Paul Huet: Yes. There’s no reason to doubt it’s not happening in 2020 and there’s no maybe – we will get there. We saw, when our first original numbers in the first half of the year were close to USD$1,300 per oz, Matt, AISC, Q3 was USD$1,183, so call it close to USD$1,200, so USD$100 reduction per oz. Q4 numbers aren’t out yet, finances are coming out soon, but that trend is currently continuing like we saw between the first half in Q3. So you will see, it’s certainly trending down again in Q4, as we expect it to. There’ll be no surprises, people will I think, we were happy, I think, once everything is finalised, we are not quite finalised. Things are trending in the right direction where they should be.

Matthew Gordon: So that says to me that you are going through this cost-cutting exercise across the organisation. I think you talked about Graham overhauling the operational side of things, and you have been elsewhere. Have you come across any major headaches that you have had to account for?

Paul Huet: No, no. Listen, this is mining, we are always going to have headaches, Matt, and there’s always surprises. The advantage we have between all our experiences, one way or another, we are going to overcome them. And because it is mining, sometimes you can drill and blast them and you can get through them. So we will go around it, above it, underneath it: we will get through the obstacles we have had to. There’s been nothing that’s been so bad that we didn’t anticipate it. We have had…we are very thorough in our risk register and we mitigate quite a few of the risks.

Matthew Gordon:  There have been a couple of reports about you guys being looked at as a takeover target.

Paul Huet: I think I would be very naïve to think that we are not in some people’s, or bankers’ slide decks. Anybody who is doing what we are doing and has a centralised jurisdiction, and unlocks so much value, I would be naïve to think that we are not going to be a take-up target. We’re not putting ourselves up for sale.

Matthew Gordon: That’s the next question.

Paul Huet: We are certainly not saying, ‘Hey look – we are up for sale.’ We believe we are going to drive value up for our shareholders and we give us another 6 months to a year, because we will create value in that share price for our shareholders. All we’ve got to do is to continue doing what we said we would do and continue to deliver.

Matthew Gordon: RNC has been looked at several over the last three to four years. Australian Gold miners, who are sitting on a lot of cash at the moment, because it’s been a good time for Australian Gold mines. Do you feel like RNC is a more of an attractive target should those conversations come round?

Paul Huet: There’s no doubt we are more of an attractive target. We have cash on our balance sheet now. We continue to reduce our debt. We are sustaining production consistently. There’s no doubt; we are much more attractive than we have ever been. We have, simply put, we have de-risked this thing.

Whereas, someone would have come in before and they would have said, ‘There’s so much risk in here: operationally, geology’. We have demonstrated through that 2P reserve, through renegotiation of the Royalty, through the consistent mill throughput, we have consistently de-risked this thing significantly.

Matthew Gordon: Can I just ask you about this 1,800 square kms of land package. Almost too hard to comprehend how big an area this is. But you’ve got lots of options in there. You have now got the availability of cash and you are producing free cashflow as well. Are you targeting any specific areas in there? And I ask this because you’ve got so many options elsewhere in the organisation. You’ve got to get focussed and you’ve got to help us understand what you think is important.

Paul Huet: Sure. So we have Baloo – we’ve just got the second permit to extend to Phase II that we talked about. We just did some recent drilling at Fairplay. We just did the pre-stripping; that’s very fresh and new.

If you look close to the plant, we have the Two Boys target there. We have the Poseidon South. We have the Graveyard, the Mitchell…Afratai, Challenger, and then more Paeleo channels. So look, on top of the 5kms, we have a series of areas that we are going to be targeting, and predominantly in 2020, we are going to be mining Baloo and Fairplay. plus the Beta Hunt, obviously.

You can see, and this is constrained too, so that 5kms strike that is directly North of us, will likely get holes in it. We have larger priorities. We have unlocked so much potential here.

Matthew Gordon: Everything is going great with the Gold side of the business. Dumont nickel. Any news?

Paul Huet: No update from the last one. We are still working alongside, with our partner, Waterton, to find the best strategy for us and for them. Look, the way I see it, for our RNC shareholders, we really have an option in Nickel. I firmly believe that. Nickel prices go up. I think it goes without saying, Matt, I think anyone will likely agree with me that presently, there’s no value in our share price on our Nickel asset. And that’s a positive thing. So whatever we can get done this year. Whatever synergies or strategy that we can come up with, with Waterton that makes sense, will create more value. There’s none right now so anything we can do will improve that share price.

We own 28%, Waterford own 72%. They are really driving the bus on this one. But the EV excitement is certainly not slowing down. Nickel had a really decent year in 2019, if it has a really decent year in 2020, there will be interest in our project. There’s no doubt about it.

Matthew Gordon: Thanks for coming through London and going out of your way to make time for us.


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Impact Silver (TSX-V: IPT) – When the Beat-Boom-Boom-Pat-Pat Like That (Transcript)

Interview with Fred Davidson, President & CEO of Impact Silver (TSX-V: IPT).

Silver is a famously volatile commodity, but hit it right and you can make money. We talk to Davidson, a long-time Silver miner, who talks us through the basics of the macro thesis. Correlation with Gold makes it slightly easier to gauge the temperature when it’s coming and when you are in it. What was less clear is how low it is here to stay.

Davidson has been with Impact Silver for 13 years and mined 9.5Moz. They are a primary Silver producer, at 95% of production skewed to Silver. Many Silver operators have come and gone but Impact Silver remains as a small but profitable producer.

We ask about growth, the options seem to be: 1. Keep producing, 2. Farm-out of one of their licenced areas, 3. M&A. Listen which he thinks is most likely. We want to know what is going to move the dial for shareholders.

They have $4M of cash, no debt, $55M of operating profits, and a market cap of only $46M. They own 2 mills. Only one is operating. And a concentrate sales agreement with Samsung. What does all this mean.

Interview highlights:

  • Company Overview
  • Silver Market: Drivers, Past Tendencies and Predictions
  • Volatility of the Silver Market: What Signs Should You be Aware Of?
  • Business Plan: Has it Changed Over the Years?
  • Scaling Up and Restrictions for Growth
  • Shareholder Returns and Timeline for Bringing Value
  • Cash Position: Will They be Going Back to Market in 2020?
  • Moments to Look Out for From Impact Silver

Click here to watch the interview.


Matthew Gordon: Hi Fred. This is the first time we’ve heard your story so why don’t you give us a 1 minute summary.

Fred Davidson: Impact Silver is basically operating in the second oldest mining district in Mexico. Cortez actually hit out here 500 years ago. We’ve been actively mining here ourselves for about 13 years. We have mined about 9.5Moz to date, at USD$175M with the revenue generated. And it’s just the start on a property that’s over 221km2. We’ve only exploited about 20% of the property. And we’re actively in production and with the current price of Silver, we’re starting to re-expand our production profile.

Matthew Gordon: I don’t know much about Silver. You’re the third Silver story that we’ve talked to. Give us your view of the Silver market. From what I’ve seen, it’s highly volatile and if you don’t know what you’re doing, that’s dangerous. So what’s it been doing and what do you predict it will do?

Fred Davidson: Predicting is more interesting. What it has been doing, it is a volatile animal. It’s regarded partially as a precious metal. It’s also regarded as an industrial metal. Solar panels, et cetera, all require Silver. A lot of the modern computers; disbursement et cetera, all requires Silver. And in fact, you’re in a country that used to have Sterling Silver as your backup for your pound.

So you run into those two things: 1. The precious metal, sort of the poor man’s precious metal, and 2. An industrial product. Traditionally, Silver has traded in the sort of 20:1 price ratio with Gold, and over the last 5, 10 years, it’s gone to the point where it’s getting probably in the area of about 90:1. So there’s a real disparity between the pricing and I think there’s an expectation that’s inelastic, which is stretched beyond its capability of holding its position.

The general market conception is that Silver is under-priced right now. It is controlled because it’s a very small market relative to Gold. It can be manipulated. Look at the Hunt family 40 years ago or so, where they moved it up to USD$40 to $50 in a matter of months, just personal financing. It is volatile. Now that volatility provides opportunity, obviously; somebody who can trade the metal does very well. Somebody who trades our stock does even better because our stock is highly leveraged to Silver. In 2016, we went from about USD$0.15 cents to about USD$1.20 in five months. So a very, very volatile product.

Our forecast going forward, as you can tell, I’m a bit of a Gold bug, but not to the extreme, we’ve seen it gradually strengthening over the last year and a half and it has been very positive heading through some of the volatility and setting a pattern for growth. We’re looking in the sort of USD$22 range over the next year and given the volatility of world events, it could easily exceed that.

Matthew Gordon: I think I want to treat this an educational process for our audience, which is retail investors, high net worth and family officers. It is volatile, but what are the drivers for this? People talk about Silver being closely aligned to Gold: when Gold does well, Silver tends to do well. What are the drivers for that?

Fred Davidson: That’s part of it. No question about it. They say it’s a poor man’s Gold, so you get places like India when you get to seasonal purchasing –

Matthew Gordon: Same as Gold. What are the big drivers to this? What do we need to understand? Because you used a phrase that was quite interesting: “for people who know how to trade Silver…”, it’s great, but for the great unwashed like me, I’m going to be the last man standing, aren’t I?

Fred Davidson: Well, you’d probably be the last guy in the door. Yes, you’re right, that’s the problem. And you’re the last guy out the door. We see it in one of the primary things, as there are very few primary Silver producers. We’re one of the unique animals; 90% to 95% of our product is Silver. What that means is, when you see a reduction in base metal production, you get a significant reduction in the supply of Silver. And like Gold, there’s probably more paper Silver being traded than there is actual Silver. When you get that reduction of supply, the demand doesn’t really change very much. In fact, that’s probably increasing with the concerns about the world with the physical demands for Silver in industrial products. The other part about Silver is, unlike Gold, in most cases Silver isn’t readily recoverable. So the secondary market for Silver, because it’s in minute quantities in your cell phone and what have you, isn’t generally recovered. You’re facing a deficit in supply and that deficit in supply plus an over-sale of Silver certificates that isn’t backed up with actual Silver is a classic short situation. I think that’s where most of us anticipate, although there’s volatility, the volatility is driving northward, not southward in this business.

Matthew Gordon: So if you look at your share price, you quoted some numbers there from 2016 . That was a heck of a ride; at the end of 2000, you went up from USD$0.20 cents all the way up to USD$1.20, but you came crashing back down again. Fairly unspectacular 2018. Same with 2019, until the middle of last year. So this thing moves in violent swings, there’s huge peaks and troughs. How does someone like me or retail investors spot the signs? Because you are saying, ‘the only way is up’, and maybe it is right now. But I don’t want to get left holding the baby here, Fred, so what other things do I need to be looking out for?

Fred Davidson: I think you have to look at continuity. Most of us look in the marketplace and we’ll say, okay, if I’m in this to speculate short-term, that is highly volatile, that’s dangerous stuff.  I don’t pretend to do that. I personally look at it and say, I see as a long-term trend and that’s actually what we did when we acquired this property 14 years ago. We thought Silver was under-priced badly and you go and we managed to get a property that the owner thought it was badly under-priced. We’ve been right. Now during that time, the volatility has been dramatic, but the trend over that period of time has been consistent and has been consistently upward. And I think that you are either a long-term player, believe in silver, pickup those companies or get involved with those companies that have demonstrated history, or alternatively, you run it short-term and you’d be a day trader, and I wouldn’t even try to be a day trader in this market.

Matthew Gordon: So you picked this thing up 13 years ago. What was the plan back then and has that changed or had to change, because of market conditions over that term?

Fred Davidson: Yes, during that time, we picked it up as an exploration project, but it had a history of production, and you look for elephants where there have been elephants. It had a small mill on it at the time. It allowed us to bootstrap ourselves. And that is over about 50% of all of our expenditures in the field have been financed through operations. So we have avoided, or reduced dilution. We then acquired a significant controlling position in two very large mineral concessions in Southern Mexico, in basically the silver belt. Taxco; They were the oldest. We were the second oldest district. We found over 5,000 old workings on this property to date and we still have a lot of exploration to do.

We found over 50 haciendas dating back…hacienda is actually a plant in the local jargon, dating back to the Spanish era. We looked at that. We looked at the mining that had been conducted in the past, and again, you look for elephants where there’s elephants. We thought Silver was a strong product that invariably would be covered; it has. We looked at a prospective ground, which has had a history of production, had a history of elephants. Even though we talk about the Spanish era, the Indians here mined well before that: Gold and Silver. And we then went in as quietly as we could and acquired as much ground as we could, to the point where it’s almost like a hand in a cookie jar; you just pick all the cookies out of it at once. And since then, it pretty well supported our premise that; A. We are capable of supporting ourselves, and B. We are capable of developing what could be an international level resource.

That’s our strategy going forward. We’ve had bumps, such as the price of Silver dropping off, or the crash in the market place, but we’ve been able to sustain our business where many of our peer group has disappeared in that period of time. And we’re still here and we are still growing. So yes, given there have been bumps, our strategy it is the right strategy. And going forward, if we see a solid Silver price, that strategy is going to get nothing but endorsed.

Matthew Gordon: Was there any data that came with these land packages?

Fred Davidson: We probably spent USD$5M or $6M accumulating a huge amount of data in a computer system, an AR system that we have developed that literally has layers of data going back 300 yrs, 400 yrs plus. In fact, in one mine we discovered from old references that were 250 yrs old. When we went out, there was an old Spanish mill and an old underground that they had been mining on.

Matthew Gordon: What does that data look like?

Fred Davidson:  Handwritten books, we’ve actually gone back into some archaeological studies. There’s historical production where the Spanish where talking about bringing 120 mules out of this area to go to Taxco, to the ore. Yes, there’s been a lot of research and we’ve had a team dedicated now for almost 10 years, outing it all together.

Matthew Gordon: That was the plan: tie up and buy up this land package, you are sitting on a district-wide package. But how do you move from Exploration into Development to Production? You are producing today, 9.5Moz. I’m looking at the market cap of $46M and I’m wondering how this thing get some scale to it? Or, does the nature of the commodity – Silver and the volatility of Silver, restrict you from doing that?

Fred Davidson: Well, on an operational basis, we have a number of targets that we move forward when there is loose change, basically. If we make a profit in a quarter, that profit doesn’t really go up because it gets reinvested in improving our knowledge or advancing one or two of the projects that we have at any one time.

But we are cash positive. The strategy going forward is, we have probably 4 or 5 projects in front of us: both Silver and Gold, that sensitive to the price of metal, sensitive to the cash I have in my jeans, we push and accelerate and you know, case in point is we have a volcanogenic massive sulphide.

Matthew Gordon: VMS – we love it.

Fred Davidson: Down in the south of us, we have got a resource there that would normally require the price of Silver at USD$22. Right now, we are working on metallurgical changes to the mining and milling which can substantially draw up that. That coordinated with an increase in the price of Silver, suddenly becomes a mine. And in fact, there are two other deposits nearby that if that becomes a mine, we would then spend the money to bring those deposits up to resource base too.

Matthew Gordon: A good business plan can make a company hugely successful. It can change the dynamic and the growth of the company. You have gone from Exploration into Production, but you are putting the money back into the ground all the time. Isn’t that part of the problem for shareholders? When you are talking to shareholders and saying, ‘trust us, this is a growth story’. How is this thing ever going to move from USD$46M to market cap, to double that? Shouldn’t you be looking to be giving something back to the market if you are producing all of this cash?

Fred Davidson: Yes. That’s one of the balances we do have to look at. There’s real value in the ground. For instance, we have a whole Gold district that we haven’t done any more than just exploration on. If we were to bring that into production, that would have a substantial impact upon the market cap in its own right. So it is one of those balances; you say, ‘Okay, we have this. Let’s go forward on it’. Alternatively, I don’t think many of my shareholders are looking for a dividend, they are looking for us to prove the underlying value of this property. I think we are very capable of doing that. We have had some ‘oopses’, but they have been fairly market-related. But what we have also done in our strategy is we have protected ourselves from the downside, that unlike a lot of my peer group from 10 years ago, we’re not selling marijuana right now. We’re still there. We’re still working on the project. And we are advancing that project.

Matthew Gordon: I get that building up a cash reserve is sensible: it makes sense to do that because it gives you options. But at the same time, we’d like to understand at what point you are going to start leveraging this? Being debt-free is fine – to a point, but you need to ramp this up. You have been 13 years at it, what’s the timeline look like for some of these VMS assets? What’s it going to cost you? When does the market start reacting to that? Can you give us a sense of how you are planning the road ahead?

Fred Davidson: Well that’s true, and we recognise that we have a property that is a Major’s property size. Part of the strategy is prioritising our targets and where we are going to spend our money, and then looking at other targets in the area and we referred our negotiation with one or two companies right now to come in and take on part of what we have got.

Spend their money on our projects.

Matthew Gordon: So we are talking about farm-ins.

Fred Davidson: Exactly.

Matthew Gordon: How far advanced are those conversations?

Fred Davidson: We are already negotiating price. In one case, they have done all the due diligence they feel is necessary. The other one is just initiating that, they have a expressed a strong interest. It is again, one of those projects that we have got that with a finite number of dollars on hand, we are saying, okay, in order of priority, as long as Silver keeps its current price, this one that we would happily have someone come in and spend some serious coin on. There are two ready at the moment: one is very serious. The other one is serious but probably without the number of resources as the first.

I’m hoping you’ll hear later this year that they have gone just beyond discussions, we intend to do something about this fairly quickly.

Matthew Gordon: That’s a nice addition to your strategy. So you are, in that case, a Project Developer – you bring partners in with cash, or an operating partner with cash, and you are also producing your own Silver as well, and producing your own cash. I’ll just come back to the share price again; there was some pressure put on it in December. There was a bit of an overhang. You had a lot of trading and a lot of selling. Was that something you knew was coming down the line?

Fred Davidson: There was a couple of groups that we knew had to get off their position for their own financial situation. I wouldn’t necessarily like to think there was a lot of selling – there was a lot of buying.Because the price did go up while that was happening as opposed to forcing the price down.We saw volumes. Well, I think it was 18M traded in December alone.

I think that the interesting fact is that normally, that would have driven your stock down pretty dramatically. It didn’t. And I suspect it is because people are starting to appreciate, A. What we have as a project, B. The go-forward strategy and C. The very fact that we are so highly leveraged to Silver, if they anticipate Silver going up $1, they can see us going up, percentage-wise, dramatically more. That has certainly happened in the past and I suspect if it continues the way it is going, it will happen in the future.

Matthew Gordon: Give me a break down of your share register. How much is institutional and how much is register and where in the world do they sit?

Fred Davidson: That’s a good question. We have been debating that one ourselves because, as you know, it is kind of hard to sort of dig through it. We found a lot of the smaller funds, the metal funds that are interested in precious metals are there. At any one time, they are probably talking 30%, 40% that Family Office Funds etc, that see us is a play on Silver. The reassurances to the downside are protected pretty well from our longevity and our production. And the upside is that we are highly leveraged to the price of Silver: Silver goes up a dollar, it goes right to our bottom line. We see a lot of those. We do have a fair retail crowd, that are again retailers in Silver themselves and then the insiders and what have you probably running at 10% to 12%, maybe even up to 15%. I’m not sure everybody tells me the truth.

Matthew Gordon: Are you still buying?

Fred Davidson: At the moment I’m stepping back because we keep on having news releases which puts me in a conflict situation. Every time we are interested in buying, there’s a blackout. For instance, the Veta Negra that came out, it sounds innocuous but it has got a lot of potential and I know more about it than we are allowed to disclose because we can only 43-101 results and I have been on the ground watching our non-43-101 team exploring that. So that is something that puts me in a heck of a conflict to be honest – it’s a pain in the butt because there’s real value here and I would like to be opportunistic myself.

Matthew Gordon: But you are smiling. There’s nothing you want to tell us, is there?

Fred Davidson: Nothing I can tell you.

Matthew Gordon: And how much cash are you sitting on today?

Fred Davidson: About USD$4M right now.

Matthew Gordon: And are you going to have to go back to market or is that sufficient for everything you have to do this year?

Fred Davidson: Well the plans we have for this year; I don’t rely on us going to market this year for our program. We are looking as well because, let’s face it, part of the game in Silver production or Gold production is size, and as some of the projects that are also out there, different locations, are of interest to us. They have been unable to raise money because the money the money that has been raised in the industry in the last year, is only going to the more sophisticated companies. There are a lot of Juniors that have taken the program on, after two or three years, they have not been able to raise money, except through their grandmother. It is opportunistic that we can take it in another project to take it to production very quickly.

Matthew Gordon: I’m not sure I understood that; you have got USD$4M, you are not going to raise any more money this year which suggests that you are doing nothing of scale. But you say that scale is important but the institutional money is going to sophisticated companies. So what are you?

Fred Davidson: Oh, I think we are a sophisticated company. People understand our expertise. People understand that it is not easy to make money and it is not easy to set up a mill. Start up production, operate a mine. And you find quite often that there is sort of two cultures here: there’s the geologist culture where they love to find something, then they come up to the edge, look over the cliff and say, ‘God, we’ve got to put it into production.’ That’s a whole different end. Those are the ones we look at, at being opportunistic from our point of view. The reason I brought that up, if something like that came along and had the right size and flavour, that might be a cause to go back to the market.

Matthew Gordon: There are three different models going on here: there is the produce it yourself which you are doing. You’ve got your own mill. You’ve got the farm-out option; and potential M&A, if you deem it appropriate to your strategy.

Fred Davidson: That’s right.

Matthew Gordon: What are the moments that are going to make a difference to your share price this year. You have told me about the VMS potential farm-out there, your production – are you planning to increase that or is that business as usual? Same rate?

Fred Davidson: We will be increasing it. We backed it off about a year and a half, two years ago because we mine from the underground for the most part. Certain mines have certain grades and certain cost of mining. When the price of Silver went down to $14, it was literally breaking even or lose a dollar, so we shut those down. We then produced from the other mines. Now, we haven’t abandoned those mines that are marginal at $14, as the price continues to rise or go up, we will bring them back into action. If we see the continued price that we are looking at right now: let’s say $17, $18, we are probably going to go back to where we were two years ago in terms of production, which is about a 25% increase.

Going forward, if we see a continued strength, then we may push forward and accelerate a couple of our more advanced targets.  Because you have to have money to do that, you have to be confident that the price of metal is stayingthere to justify that Capex that you are putting out in order to put that into production. Over this year, we see a 25% increase over last year and, barring dramatic changes in prices, a further increase next year.

Matthew Gordon: These are incremental changes to the plans. They are nothing significant, unless you deliver something on the M&A front. So what’s the problem?

What’s holding you back though? Is your grade the issue here? You have got varying grades here across a large area.

Fred Davidson: I think the problem we have got, at least has been in the last couple of years, is finite dollars that we could put back into the ground. The market gives people a market cap for discovering than sometimes, quite a bit more than production and there’s a story in the industry called, ‘Up on mystery and down on history.’ The mystery isn’t there because we are producers. The mystery isn’t there until I can wave my arms and say, ‘look, we’ve just hit a hole that is 100m long, running at this grade, market gets excited and you see strength enter the market price. That can ultimately take us the next year up on exploration alone. The price of Silver will also take us the next year up. You can easily see it double.

Matthew Gordon: What are you doing about it?

Fred Davidson: We are borrowing. We are spending money now. That’s why we raised the money in late last year. It takes time to initiate those programs, because again, we want to prioritise it – it’s not as if we have $50M in the bank, and in doing so, it’s going to be two-fold: 1. It is going to help production, 2. It is going to increase expectations as to the future. And that’s the program for doing right now on our own projects. Those other projects – I think the market will see as strikes because people are willing to spend a portion of money on our property. Going forward, it is going to be opportunistic, if there is an acquisition that makes sense, we will do that as well I suspect with the number of projects we are looking at, there’s a decent likelihood that we might do that as well.

Matthew Gordon: Fred, thank you so much for talking to us today.

Fred Davidson: Pleasure. Good talking to you.


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) – Do you Hear What I Hear Ringing Through the Sky? (Transcript)

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

It’s a bloodbath for Uranium equities at the moment. There is no news from Washington and most Uranium CEO’s have gone quiet. So we called Mark to see what he knows.

Interview highlights:

  • Continuous Silence: What is Happening in the Uranium Market?
  • Delays for the Decision and Options Available
  • US & Iran: How the Situation Affects the Uranium Market
  • The Mill: How Old is it, What is the Cost of Maintaining it and Could it be Decommissioned in the Future?

Watch the interview here.


Matthew Gordon: We are operating in a bit of a void here. I’m looking at share prices of most of the Uranium players, North American, are being hammered. What do you know that we don’t?

Mark Chalmers: Well, I think that we have is, we have investors that are just tired of waiting. They have been waiting; when we started this 232 process 2 years ago and it just drags on and on and on. Look, I share the frustrations of investors, but just remember; for every share sold, there is  one purchased, even though the price of these shares has gone down and we have all been hammered. Not just in the United States but even in some of the global equities in Canada have been hammered as well too. It certainly doesn’t make me feel good when I see these shares slipping but as you know, our company and Ur-Energy started this process 2 years ago, but we are still making progress. We are still making great progress. I think that the Government gets it. I think they get it that we have to have a nuclear fuel cycle in the United States.

Matthew Gordon: Why do you say that they are making great progress or that the Government understands?

Mark Chalmers: I think that when the tack changed from the 232 process, which is more of a  trade-focussed initiative, to national security when it comes to producing Uranium and nuclear products, you know, focussed on the military’s requirements, the Government’s requirements,  we got rid of, effectively, all opposition that we know of when we made that shift. The utilities are not openly fighting us. We’ve got good support from NEI.  We’ve had many, many meetings, I wouldn’t want to count them up. Hundreds and hundreds of meetings with people in the Administration, people in Congress.

Matthew Gordon: You are meeting these important people up on The Hill, what are they saying?

Mark Chalmers: You know, I think that we have gone through a huge education process on how dependant we are for import products in the United States and I think that when we talk to them, they are shocked at how dependant we have become. The government inventories have been there for decades, but they are finite and they are diminishing. As long as we are the largest consumer in the world, is that where you want to be, and not have the capabilities to replace those inventories because Uranium nuclear fuel products for the military, has to be unobligated products by the treaty, so it basically has to be by treaty, mined, converted and enriched in the United States of America.

Matthew Gordon: Pompeo and Trump; do they understand the scale of the problem?

Mark Chalmers: Look, I haven’t met with Pompeo, I haven’t met with Trump but I believe they both understand the magnitude of the problem. I think the people surrounding them understand the problem. I think they are understanding they need to make a decision quickly because of this imbalance of our ability to produce these very specialised products for the US Government.

Matthew Gordon: 12 months ago they had this same problem, today it is more imperative. Given the nature of some of the politics in America at the moment; we have this impeachment hearing going on, we have got Iran waivers being discussed, another 60 day extension, is it possible to make a decision in that environment?

Mark Chalmers: Look, we think so. It’s certainly been harder to get to the top of the pile. Since the original working group deliberations and the report they prepared, it’s been really hard. Every time we thought we were getting closer, it kept getting delayed. Certainly, with our discussions with people in Congress and those in Administration, we say, ‘Look, we are out of time. We need to tell our shareholders what the outcome is with this review. They need to understand, we are getting hammered with our share price and we also need to send a clear message to the world of Uranium mining and these nuclear fuel products; including the Russians, the Chinese, the Kazakhs, that the United States of America is not going out of business, in this area, at the front end.

Matthew Gordon: What are the options on the table now? We’ve been reading about Government-buying programs of US Uranium.

Mark Chalmers: Look, we try not to make it guesswork because it’s better for us to provide some guidance here. I mean, the first thing we want is, we want the Government to come out and say that the Government is supporting the nuclear fuel cycle in the United States: mining, conversion and enrichment, at a level that at least provides some critical mass so that we have the capabilities to produce our basic requirements, not all our products, but we can flex up if required. So the number one is; we want to be able to show our shareholders and tell the world, or have the Government tell the world the conclusions that they have made through  both the working group and the Section 232 investigations.  That’s number 1.  Number 2 – we want to see, or we hope to see immediate demand for Uranium mining. Uranium mining is the most challenged first step of the process. We would like to see the Government starting to buy Uranium: like now, this year -2020, and onwards to make sure that the Uranium miners can sell their product at fair prices. Fair prices. So that we can get some cashflow re-established. 

These companies that are not producing now – zero cashflow, it’s not a real good outcome; it’s not sustainable for a long period of time. And then lastly, the plan, the plan that they announce, we do realise that some of this, or a big chunk of this is going to have to go through appropriations. The expensive part of the plan is really the enrichment. Uranium mining and conversion already have a lot of the infrastructure in place on the lesser side of this re-establishment of the fuel cycle.  when you start talking about building new enrichment plants, being able to make everything from 495, 235, all the way up into 90s 235, that’s going to start costing billions. Now, the Government was already planning to re-establish enrichment without, in the early days, without looking at the Uranium and the conversion steps.

Matthew Gordon: Interesting. 20% of US energy is produced by nuclear fusion. There have been a few plants that have come to end of life, and a few due to come to end of life. The utilities have got oil, they have got gas, they have got renewables; nuclear is part of that, but for them to invest billions of dollars into building, or upgrading new plants, must be a big part of the conversations that they are having with the Government too. So, the miners are just a small part of this, but it’s got to be joined up thinking.

Mark Chalmers: Yes. And I think that there was a lot of logic when the President came up with his working group. Now granted, the working group’s main focus was just these first three steps of the fuel cycle but certainly, the Government, or the Trump administration is certainly committed to keeping its mini nuclear power plants operating, going forward, for obvious reasons. I think that the Government, like the DOD and the DOE, are also getting increasingly optimistic about the micro reactors and the small modular reactors. You know, this new Haleu fuel which is 20% 235, is also becoming a product that the Government thinks they will need for the SMRs particularly. And then, lastly, space travel – you know, that’s coming back on to the horizon. Now that is not probably a large consumer, and takes some time out, but again,  I’ve said this to you many times, it is not time for the United States to not be in this business.

Matthew Gordon: What is your view on this Iranian waiver issue at the moment. It’s a real political hotbed. The Europeans don’t want it. I know there’s a lot of discussions internally between Pompeo and Mnuchin about it. They are in disagreement about it. Is that a big distraction for you?

Mark Chalmers: I think it helps us because I think it shows how sensitive and inter-related this fuel market is outside of the United States. Even this morning I was hearing that Trump and Pompeo were wanting these waivers to go away. I also heard, and I heard this on the radio, Fox News, that the utilities, they don’t want it to go away because they have such a dependency already on the former Soviet Union, Russians, for fuelling their reactors. So it is all interconnected. People talk about, we’ve got all of these stockpiles, we’ve got all of this Uranium. We don’t need it for another 5 years, 10 years so obviously, the business couldn’t ever be healthy, and I know that’s not the case. But then, if you start looking at when you remove or let these waivers expire, and it starts to create issues where Russia cannot import into the United States, or cut back on that, a lot of these utilities are going to start running out of fuel, like within a year and that is sure going to shock people. What happened to all of those inventories? Where are all those products? You know, we thought we had 5 to 10 years of those products available: we don’t.

Matthew Gordon: How much inventory is available to US ultilities today? What are they sitting on? A year? Two years? Three years?

Mark Chalmers: Look, the utilities: I understand they want the lowest cost fuel to keep nuclear as competitive as they can. We know that fuel is such a small part of nuclear generation, but nuclear generation is struggling. But, you know, Uranium is in all these different shapes and forms and you’ve got to make sure you keep those in to balance with what your requirements are.  I think that this just highlights the fact that the United States doesn’t have the ability now, you know, URAMCO is fore-owned, in New Mexico, and they can do enrichment there up to 495. But we do not have US-owned capacity for enrichment. We do have US-owned capacity for conversion but that is shut down right now. I think it just highlights the fact that you do not want to be overly-dependant on all of these other countries and you do not want to be in a position where you have to fight with  one or both of your arms tied behind your back the Iranians and with the relationships they have with the Russians.

Matthew Gordon: Can we just talk about your mill, White Mesa. You know, ‘he who controls the mill, controls the district. So people are saying, hang on, the mill that he has got has a huge capacity which you can’t possibly fill. How do you maintain this mill? What’s the cost of keeping this thing going? At what point do you decommission something like that? Or is it a case of, you just replace the bits; its ongoing maintenance as you start processing stuff through the plant, you just constantly upgrade.

Mark Chalmers: I think the mill was originally built to operate for like 20 years and now it has been around for over 40 years. There have been a couple of campaigns of modernisation, you know, with control systems and automation. We have replaced a lot of the tankage, we’ve built new tailing cells. There’s been an evolution in technology over the years. So the mill, even though it’s an older facility, is in very good, excellent condition considering its age. So it is unique; as we know, it’s the only one that is operable, licensed, fully-staffed right now. It has the Vanadium circuit, hey, Vanadium is starting to get a bit of life in it. The price of Vanadium is starting to go up. Granted, when it was USD$30, dropped to 5, up to 6, we never thought that would look good but we are hoping that the price of Vanadium continues to go up here this next year or two and we can capitalise on a fairly substantial inventory of Vanadium that we have at the mill. But no, it’s in good shape, as I said, it’s basically, largely staffed. We did lay off a number of people in the last week or the week or so ago. We shut down the Vanadium recovery process because of prices. But it’s in good shape and we are ready to go.

Matthew Gordon: You’ve let some people go, where they permanent staff or temporary staff?

Mark Chalmers: Yes, most of the people that I let go were temporary staff. When we have to spool up the mill, we try to keep a core group of full-time employees and then we spool up with temporary people where possible. It’s our ultimate objective though to offer as many fulltime jobs as we can in the region.

Matthew Gordon:  We’re days away from a decision, but we have heard that before a few times before.

Mark Chalmers: I can assure you, I will let you know and the rest of the world and we have put a lot of our skin and sweat and money, we have worn out, I don’t know how many pairs of shoes I’ve worn out walking the halls of Congress and DC. But we’re excited it is finally going to happen and I know there are the nay-sayers who say it is never going to happen, they don’t think it’s going to happen, but I think we have done a fantastic job when you look at our company, because we have been doing most of the lifting, Energy Fuels has been doing most of the lifting, probably 75% of lifting here. I think it’s remarkable that we have got this thing elevated to where this is at this point in time.


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. We provide paid for consultancy services for Energy Fuels. 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.

Wardell Armstrong – Every Grunt, Roar and Snort, Not a Tale I Distort (Transcript)

Interview with Mark Kenwright, Associate Director of Wardell Armstrong – the International Mining Consultants.

This is a first conversation with a very well respected mining consultant, with a view to open up to Retail shareholders how institutions view risk when making investments. Due Diligence is everything. Kenwright is honest and gets straight to the ‘crux’ on a variety of topics investors may find interesting.

Wardell Armstrong, founded in 1837, is an international consultancy firm providing engineering, environmental and mining services in the mining & minerals, infrastructure & utilities, and property & development sectors. Kenwright himself is a chartered professional FAusIMM CP(Geo), with over 24 year’s experience as a geology/exploration Manager.

Wardell Armstrong doesn’t build mines, but they provide studies and reports at various stages to help companies get mines constructed. Companies generally hire Wardell Armstrong to obtain a competent person’s report, scoping studies and due diligence studies and similar before conducting an IPO listing or investing into them. These reports can cost anyway from £50,000 to £150,000. The “bread and butter” services that Wardell Armstrong provides are scoping studies, desktop studies and due diligence for mining companies at a development stage. They are providing a much more detailed version of what Family Offices and HNWIs should be doing themselves.

We were interested in asking about the transparency and integrity of Wardell Armstrong: do clients influence their reports? Kenwright insists that while Wardell Armstrong can treat certain subjects delicately, everything must be disclosed as part of their publications. Nothing is held back and they have a legal obligation to ensure this is the case. If Wardell Armstrong doesn’t talk about something at the request of one of their clients, they have to disclose why. There is a table that very few investors seem to look at towards the end of these studies, that will inform them of things they need to know, yet often don’t.

Kenwright then touches on the IMO3 conference in London. The title this year is ‘Mining and the Electric Vehicle.’ Mining companies, regulators and academics will meet on the 29th-30th January to discuss issues, ideas, and solutions to problems in the mining world. Kenwright then talks about the Western Africa security situation. The Sahel has been suffering from increasingly widespread instances of terrorist attacks, and mining companies, such as SEMAFO, have suffered heavily at the hands of ISGS, Ansar ul-Islam, Boko Haram and al Qaeda amongst others. How has this impacted other mining companies and what is the outlook? Wardell Armstrong is well aware of this issue, courtesy of their standard practice of performing a risk assessment. Kenwright describes the deterioration of the situation in Burkina Faso as “shocking.” Kenwright has discussed the situation with senior security operatives in the region and they have coined the phrase “Kabulisation,” in relation to the similarities with Afghanistan, where security forces only have control of a very small area around the capital. Everything else is “bandit country.” We wonder if this will expand into other territories.

Kenwright explains there have been 650,000 Burkina Faso residents displaced; this has not received any mainstream exposure. He does, however, claim it is still possible to mine economically in the region. Kenwright takes a “life goes on” view, but can investors afford to be so confident?

Kenwright also touches on the outlook for the struggling lithium market, and provides some general investment advice, such as considering avoiding a management team that changes frequently.

Interview highlights:

  • An Overview of Wardell Armstrong and Their Services
  • Competent Person’s Report: Components and What Gets Looked Into
  • Client Influence: Reliability of Reports, Duration of Production and Price
  • The Situation in Africa: Effect on Companies and Investors. Should You Still Invest?
  • Lithium: Opinion on the Market
  • Research and Resources

Watch the interview here.


Matthew Gordon: I’ve been wanting to help investors understand institutional diligence. Wardell Armstrong is well-known to most of us in the industry. Why don’t we kick off and help people to understand what is Wardell Armstrong and what is their place in the market in relation to mining?

Mark Kenwright: The Wardell Armstrong Group has been going since 1837. We’ve got 13 offices in the UK, one in Moscow, one in Almaty in Kazakhstan. The Wardell Armstrong International, which is what I am part of, we focus on the mining, exploration, metallurgy, geology, social side of mining. Most, 95% of our work is all offshore: so in Africa, in the Middle East, in Russia, CIS countries. We have, interestingly because of the whole Lithium space, we have started to do more work, both here locally, on our doorstep in Cornwall but also in places like Spain and in other markets that have perhaps been a bit more active recently as they have been in Eastern Europe. We are involved from desktop studies, all the way through to due diligence, scoping studies, feasibility closure. We don’t build mines.

Matthew Gordon:  Mining is about risk mitigation, financing mining operations is about risk mitigation. You need to know what you are walking into. What is your typical brief from these companies when they hire you?

Mark Kenwright: Typically, we would get involved where a company would need a Competent Person’s report for listing, an IPO listing in London either on the main exchange or the AIM exchange, or in Australia, Canada or Hong Kong or wherever. So we do a fair bit of that CPR listing which involves all the disciplines, from geology and mining and everything else. But we also would go out and get involved in expert witness type work; so we would have to do a site visit. But then the bread and butter would be the scoping studies, desktop studies and due diligence where somebody, as an example, a few years ago, for a country, we had to do a due diligence on some mining assets because a company was going to give a loan to them, but they wanted an OFTEC agreement as part of that loan. So they want to ensure that the asset and the management and the plant and the mining and everything else can produce the metal that they want against that loan.

So we really bring a wide range of expertise. I personally have got 24 years’ experience. We have got a few youngsters but there’s a lot of grey-haired people here who have got 25, 30, 35+ years of experience. So I have worked all over the world: I’ve lived in Africa for 18 years, been back in the UK now for 7 years. So it is really bringing that depth of experience and that range of experience.

Matthew Gordon: When we’ve used companies like yourself in India, in South America, we were trying to protect our investment. We are trying to make sure we are not going to put money into a situation where we are going to lose it. And it’s a much more detailed analysis in diligence than perhaps most retail or family office or high net worths might go into, but when you are deploying USD$100m, you want to make sure that things are as they say they are. So, let’s talk about a Competent Person’s Report.

Mark Kenwright: Well, the basis for everything within a mining project is obviously the mineral resources so you would obviously have to check right from the start, and that means typically, having access to a data room. We would examine the drill hole data base and especially look at the overall mineral resource estimate and the quality assurance, quality control: the QAQC checks  which typically would involve standards, blanks and duplicates. And you would want to see a range of 5% to 10% insertion rates. If someone takes 100 samples from one drill hole, you would have an extra 5, 10 samples inserted at regular, or even irregular positions, to see if the lab is doing their job correctly. So you want to make sure that all those aspects are correct.

It starts with the mineral resource estimate. You would examine, briefly, the exploration history. You would examine all of their, typically, you would examine all of their standard operating procedures; so did they do what they say they would do? There’s nothing worse as a consultant, going on site and somebody says, ‘Yes, every tenth sample we insert a blank or a standard,’ and they don’t do that; they have just shot themselves in the foot there.  So, do what you say you are going to do. Me, as a consultant saying to our client, ‘Have you done what you said you were going to do?’

Now, I might disagree with what they have said they are going to do. I might say, no, you need to do every 10th sample, or 20th sample if they have done every 50th, or whatever their standard is, but their standard is their standard – so that’s the first thing you want to do.

The second thing is to obviously make sure that there is no fatal flaws. So yes, you could have a Gold project, obviously, but is the Gold wrapped up in arsenopyrite? Is it recoverable? When they did the mineral resource estimate, did they use the right search parameters? Did they do some basic geo-statistics? Did they log the core properly? They literally, physically log the core, or re-log the core and get a sample of those and make sure that what they are saying is, you know, a granite is a granite or whatever it is. And that is done in every department, as it were.

So, me as a geologist, my sort of expertise is in exploration and in project management, exploration in large programs, USD$30m exploration projects, large teams, so I know what to look for when someone says, yes, we have done X,Y and Z in geology. If we are getting called out and somebody is doing drilling, expanding the resource and they want someone to sign off on the mineral resources, I always want to be there within a day or two of them having started that drilling program. So again, to make sure when they are drilling, the drillers are doing what they are supposed to be doing and what the geologist at the drill site is doing what they are doing. So, it is really trying to make sure that, ideally, an excellent standard is met but at the very least, a good standard is met.

Matthew Gordon: What about all of the other things that you look at when you are trying to assess or diligence a project, in terms of the jurisdictional risk.

Mark Kenwright: Ordinarily, a company like Wardell wouldn’t do a legal due diligence but we would examine the mineral title documents. We would briefly look at the mining law within that jurisdiction to make sure that they are in compliance when they, if it’s an exploration project or a mining project, when the license terminates, is an example. Because one of the things that we discovered, in say, Russia, people had a mining ore reserve, past the date of their mineral license. So all those ore reserves had to in fact be discounted to zero because you don’t have the right, legally, to mine them. So you would do those sort of sense checks but you would also, obviously, examine the mining plan, the mine design, and a fairly detailed level, what parameters went into the pit optimisation of the underground ops? What was the Gold or commodity price?  What are the recovery factors, what are the mining costs? What are the G&A costs? What were the royalties? The taxes? So you do get quite granular in those things. You want to examine their financial model but typically, you also create your own financial model.  And you can, everybody is fighting to make the project as attractive as possible. You can get into some robust discussions about commodity prices or recoveries but as a consultant, we always have to err on the side of caution, as you said right at the start about the questions of the risk.

Matthew Gordon: Are you ever influenced by the company in the terms of the way that you write your reports?  Is there any reason to doubt the veracity of what you are saying?

Mark Kenwright: You can get into a situation where, as an example, a company says, we’ve got this one test that shows 80% recovery, but the overall test might show 65%. So you can disclose both of those figures but clearly, you have to, as a consultant and somebody who, remember, we have to take professional indemnity insurance as well as our brand, our name risk as well. So we as a company, again, always have to err on the side of caution. Now, there are ways and means you can skin a cat. There are ways and means you can write something perhaps more positive or less positive but we have to disclose the issues at hand.

With the JORC code 2012, the most recent version of that came out, there’s the Table 1 at the very end that very few people look at that within that, there’s the principle of; if not, why not? If you are not talking about something or if you didn’t do something, you have to disclose why. So that’s actually a very useful table for investors to look at. For any irregularity basically.

Matthew Gordon: Do companies have to disclose the Competent Person’s Report details as part of the exchange of regulations?

Mark Kenwright: Yes, whenever you list on the Stock Exchange, the CPR, the Competent Person’s Report is within those listing documents. In full detail, typically with appendices etc. Now, just one other point, and it’s a very valid point and I’d like to make a couple of points about the Competent Person’s Report, or even a feasibility report. There’s always a Competent Person in their field. I’m a competent person as a geologist, I’m not as a metallurgist or a mining engineer, you will typically have 6 or 7 or 10 competent persons, having compiled a competent person’s or a feasibility study. But you will typically have, and in our case, it is Doctor Phil Newall, who is the MD of Wardell, he would typically review all of those reports and be the overall lead person. But we personally have to take that responsibility. I am a fellow of the AusIMM, I am also a profession geologist. I am also on the list of registered consultants.

You will obviously get some requests for; don’t put this in, or do put that in. But at the end of the day, it’s taken me 24 years to get to the position I am at. I’m not going to lose my reputation or be disciplined by AusIMM or any other body to then lose that accreditation because it is quite difficult to get, you know. You have your own internal professionalism as well as the company. Now, having said all that, people can make mistakes.

There was a very interesting report done by the Ontario Stock Exchange or the Securities Commission, sorry, in 2013 where they examined 50 feasibility studies or reports, and I think 40% of them had fatal flaws. What they would consider to be fatal flaws.

Matthew Gordon: What’s a fatal flaw?

Mark Kenwright: Things that hadn’t been done. Now, they didn’t disclose who they were or what they were but the point is that even if it has the words NI 43-101 written on the report, written on it, or on the feasibility report, you still have to read it yourself and take a judgement, number one. The other point is about feasibility studies; you can get a negative result with a feasibility study. People think that, oh, it’s got a feasibility study – it’s a great project – it’s not always the case so you do have to take the time to read those. At the very least, I would say, if you’ve got limited time and you have got 15 reports to read, read the executive summary, read the conclusions and recommendations and skim through theJORC Table 1. Obviously, you should read all of them but –

Matthew Gordon: So that says to me, people, the information is there; do your homework. People like you have spent a lot of time, effort and experience in putting these reports together. The conclusions are quite easy to find if you want to find them. How much money do companies pay for a Competent Person’s report and how long do they take to put together?

Mark Kenwright: A Competent Person’s report, if it’s a single asset like a single Gold mine or project, could cost anywhere from £50,000 to a £150,000. It really depends on how much information there is, how much information you have to do. If somebody says, here’s a database, and here are some reports, we bought it off a project, then we have to do everything, then it is going to cost a fair amount of time, and it will take 4 to 6 months, maybe even 8 months. If a company says, we’ve got all this information we’ve built up ourselves, we just need you to review it, sign off on the mineral resource estimate, ore reserves and make sure you are happy and come to some conclusions, recommendations with metallurgy, as well as obviously, the very important environmental, social and all of the rest of it, that can be a lot shorter. But you know, to do a Competent Person’s Report,      especially if it’s listing on the Stock Exchange, where it can go backwards and forwards with the authorities, it’s a good 2,3,4,5 months.

Matthew Gordon: I kind of like the reassuringly expensive ones, because it suggests that more work has gone into it. We’ve been offered reports for as low as USD$25,000 which makes me nervous because that seems like a tick-box exercise and a signature.

Matthew Gordon: What is going on in Western Africa? There’s a lot of information about terrorist incursions in some countries. If we look at some of the presentations from SRK which suggests that the problems are just getting worse. Some countries along that Western Coast of Africa which are suffering; people are being relocated, people are dying and businesses are obviously being impacted. 

I refer to Semafo, before Christmas, the attack there: 37 dead, 60 injured. Talking about attacks in Mali; 70 soldiers killed, and one last week; 86 soldiers killed by ISGS (Islamic State Great Sahara).  It’s been coming for a while. I have been talking to a few CEOs recently, with interest in the area. They are nervous, of course, about what may come. I think it is important that people understand this. Is that an area that you have looked at, that you are aware of or have discussed as part of your work?

Mark Kenwright: Whenever we as Wardell Armstrong, and I’m sure other companies like ESSO, or whoever, whenever we go to anywhere really, we actually, for our insurers, have to do what we call a risk assessment. And part of that, one of the very basic, standard things you have to do is, you go to the FCO website and look at their coloured maps. And it is shocking, unfortunately, how quickly things have deteriorated in Burkina Faso. I have been to Burkina Faso four or five times. Completed 6 feasibility studies for a Nordgold subsidiary there. Since I have been going there, since 2013 I think it is, and when you go back and look at those maps where you have the FCO saying don’t go there – the red area – don’t go unless, you know, and then you have the orange area and green area where it is sort of safe.

I spoke to Joe Fifield from SRK, who is head of security at the Arab and Africa Conference, where I also presented there last year, and in discussions with him, I sort of coined the phrase, ‘the Kabulisation’ of Burkina Faso; because I’m sure you know, in Afghanistan, the security forces hold Kabul and maybe 150kms to 100kms around it and everything else is bandit country. There’s an element of that at Burkina Faso. Now, having said all of that, absolutely terrible, shocking attacks, both last year and more recently.  And the displacement of people: I think there have been 650,000 Burkina Faso people displaced. I mean, it is…you hardly hear about that unless you go looking for it or you live in that country, or you are involved in that space. But you can still operate, believe it or not, in those countries. IAMGOLD have got Essakane Mine in the North. They are able to operate.

Matthew Gordon: Why can they operate? If you are talking about this relocation of people, of these incursions, you’ve got deaths, not just of security and police and army, but in churches and schools. It sounds horrific, and if you don’t go looking for this, it’s not much talked about here in European press. But if you read the African press; it’s everywhere. So how do companies continue to work?

Mark Kenwright: See, it’s a little bit like, and I lived in Northern Ireland when I did my first degree, it’s a little bit like Northern Ireland; life goes on in lots of these places, with the exception of the very North of these places where people are scared and running for their lives, but there are these terrorist attacks, but they are infrequent. It’s not, I’m sure there are some that are every day or whatever, but the very big attacks that make the news are sporadic and infrequent, and unfortunately have a high impact, both in the loss of life and all the rest of it.  As I said, there’s Essakane who are operating, there’s also Nordgold who have still got a couple of mines, Bissa and Taparko, are still operating. You’ve got to get the security right. You’ve got to get the risk analysis right. When I have been, we will typically travel in two Land Cruisers, an armed guard in both, and no fanfare, no big convoys, so people don’t know, unless someone does a phone call, which obviously, thank God, hasn’t happened so far. So you have got to get that security analysis, risk and mitigation in place. Perhaps the worst thing about that, looking from the outside, I’ve not worked with Semafo and I don’t want to bad mouth them or anyone else, they were attacked twice in effectively the same place, lessons weren’t learned. Of course, I’m sure they have learned those lessons now. Going forward, you might have to, as an exploration geologist, you might have to travel with a bullet-proof Landcruiser, literally, USD$150,000. And there’s other areas;  I know a project, it’s not too far from Essakane, there’s a Gold project sitting there, but you can’t go and explore or work there for the moment because of the issues. So until things settle down, the Burkina Faso –

Matthew Gordon: So you think the big guys with revenues enough to pay for adequate security should be fine, could be fine? We hope?

Mark Kenwright: All three of those, yes.

Matthew Gordon: Is it going to be tough for exploration companies with limited budgets, to develop projects?

Mark Kenwright: There’s also that Canadian Geologist who was killed last year. I think he was killed 20kms, 25kms from the Essakane Mine, in a national park?

Matthew Gordon: Yes.

Mark Kenwright: That’s what I heard. And again, I don’t want to talk but yes, you have got to be careful. We at Wardell Armstrong, we will go to these places if we know the company and if they can demonstrate that they’ve got a track record and obviously, we are happy with their security. We have a standing rule: the first thing the Managing Director says to you is, if you are not confident, you won’t go.

I think you’ve got to look at the management of people. It’s interesting. You have probably heard of a guy called Danny Callow who is an ex-Glencore guy. He is with a big attractive-looking mining project in Mali. They have ground, I think in Burkina Faso and he has publicly stated that they won’t be going there until things settle down. So you’ve got to have management with that maturity and wisdom to really understand what they can and can’t do. Another really interesting thing about the quite understandable reaction to the Semafo attack, and also other attacks in the future, is contracting companies, I think was it ALS? The just called force majeure and walked away. So, you can have an asset, are you going to have all these people to run all of these things for you? All of these things, I’m sure, are doable but it will come at an extra cost. It will come with extra studies. You know, it used to be…even now, perhaps, security is almost like a throw away – oh yes, security, it is operated in whatever it is. I suspect very soon, that’s going to be a full section on its own within some of these studies.

Matthew Gordon: People need to walk into this with their eyes open, because it is their money at   risk.

Mark Kenwright: If I can just add one last thing, and we have talked about Semafo quite a bit, in their defence, and I’ve never spoken with the guys, I don’t know anything, they wouldn’t have operated in a vacuum either; The Burkina Faso Government, the security forces that were with them would have done, I’m sure, their own assessments, if there are fingers to be pointed, I’m sure thatit’s not just in one place. Let me put it that way.

Matthew Gordon: Does it affect operating businesses? Hopefully it doesn’t. What measures and what cost will those measures take to ensure continued operational success?

Mark Kenwright: As you said, this is a large area. I measured it on Google and it is about 4,000  kilometres by 600 to 1200 kms, and that whole region has its own sort of independence, nationalistic, political overtures as well which are part of the whole mix so its going to take a holistic approach to solve that.

Matthew Gordon:  What most people don’t realise about Africa; you have got these country boundaries but most countries are tribal. The tribal component should not be ignored. The religious component is obviously making a huge impact too. Economic rationale, and the disenfranchised youth. There are a lot of moving parts here and one needs to understand that country risk is more than just the geological risk but it’s, as you said, legal, mining code is critical, the political environment is important.

Mark Kenwright: That’s right.

Matthew Gordon: Mark, thank you very much for your time. I do appreciate it. Like I say, I am really excited to be talking with Wardell Armstrong, and your International Team specifically. Because, I think, as I say, if you can help us to identify what are those red flags?

Mark Kenwright: My pleasure. Hopefully I will see you at the Mining and Electric Vehicle Convention next week?

Matthew Gordon: You will, Sir, for sure.


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Brandon Munro – When the Needle Starts Clickin’ it’s Where I’m Gonna Dig (Transcript)

uranium yellowcake

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

Munro gives us a detailed response to the question, ‘Last year was another uranium trainwreck. What is happening?’ Uranium investors are desperate for some good news; it’s been all too long since they heard any. However, Munro explains in this interview that beneath a surface of squalor lie plenty of reasons for investors to feel a little more chirpy. However, there are also some reasons investors need to stay grounded.

If investors buy into the uranium macro story, they simply need to keep their faith. Munro argues all the uranium market requires is a sentiment shift in order for investors to begin seeing results. However, there are a few more substantial pieces of verifiable information; there are signs of things moving behind the scenes, and indications spot price could decide to awake from its prolonged slumber. Industry insiders claim UF6 reserves, held by utility companies, are all but gone. EUP conversion price has risen by 400%, unbeknownst to many investors. The price of uranium enrichment has also risen from US$30 to a more sizable US$50.

The information presented by Munro is positive for investors, but let’s stay calm and pragmatic. Nothing has changed just yet. Additionally, Munro, like many industry experts, explains uranium is very unlikely to reach the US$150/lb peaks of the previous cycle. Instead, a sharp peak of US$90/lb is seen as more feasible, followed by a fall back to a stable and consistent US$50-60/lb. There is no nuclear renaissance hype in the present day to drive prices to their previous highs.

Munro also touches on some issues that have been doing the rounds in the Crux community as of late, specifically the Sahel terror situation and the disastrous impact it is having on some mining companies.

Bannerman Resources itself hasn’t seen a great deal of share price movement this year, but Munro claims it is primed for growth in an imminent bull market, given its strong, experienced management team and solid portfolio of assets in favourable jurisdictions.

Interview highlights:

  • Difficult 2019, What’s to Come in 2020?
  • Uranium Inventories: A Historical Overview & Problems Arising
  • Markers for Investors: When is the Market Going to Recover?
  • Joint Comprehensive Plan of Action: What’s Changing in the Geopolitical World?
  • How will Political Turmoil Affect the Uranium Market?
  • Return of the Peaks: How Quickly Could it Happen and is it Outright Possible?
  • Future for Uranium Juniors
  • A Look into Bannerman: Importance of a Seasoned Team and a Mining-Friendly Jurisdiction

Click here to watch the full interview.


Matthew Gordon: Hi Brandon. We last met at the World Nuclear Association event in London where you sit on a couple of committees.

Brandon Munro: I sit on a working group that is producing the next nuclear fuel report. It was released in September, in 2019, so we have now started kicking off with the 2021 report. So I am involved in three of the working groups and I chair the working group that determines the demand projections for nuclear fuel projections out to 2030.

Matthew Gordon: You have had a few meetings in London this week, a few working group sessions this week, you kindly agreed to come and tell us a little bit about what you are discussing. So, last year – difficult year. Another difficult year for Uranium. I’m not quite sure anyone knows what’s going on. Do you?

Brandon Munro: I can hopefully share a couple of insights with you: what we have got is an extraordinary situation where the visual part of the market, which of course is the spot price and the non-existence of any real term volume.  There is no real price discovery, but the extent to which this exists in the spot market, we’ve got something that just looks dull, boring, disappointing and that’s had a corresponding effect on most equities.  It has been carnage out there for the last year for many, many companies. But what we can see taking place under that visual surface veneer, I think is very positive for the sector.

Matthew Gordon: Let’s look at a few of those moving parts:  behind the curtain, because people talk about the macro story. There is billions and billions of dollars of nuclear reactor infrastructure being built across the world, in multiple jurisdictions and countries. And people focus on Germany, reigning things back, the French did, now they are not. But there is more to it than that in terms of that infrastructure build out, but I don’t want to talk about that today because I think that is well covered. Can we talk about the inventory side of things because I think you have talked in the past about different piles of U308 and UF6 and EUP, what is happening there?

Brandon Munro: What we are seeing is inventory tightening.

Matthew Gordon: What does tightening mean?

Brandon Munro: The sector always exists with a lot of inventory. That’s been the case for the last 30-years. It is not helpful to look at the absolute total amount of inventory that is calculated throughout the sector.  You need to understand where that inventory is held. Inventory that is held by the Russian government or the US government or Chinese stockpiles, that is kind of interesting, but it doesn’t dictate anything in the market, because that material is just locked up for strategic purposes.  The relevant part for investors and the price, is mobile inventory; what inventory is available either to supress demand or to be sold into the bid when price goes up. Because that is what is interesting to an investor; is that going to suppress a price rise?

Matthew Gordon: Absolutely.

Brandon Munro: And what we have seen there is a tightening. In U308, we have seen tightening, largely because if the deficit that we have got at the moment. So even after allowing for secondary supplies, we have run a 20Mlbs deficit for the last couple of years. So that is being drawn down, predominantly by utilities underbuying. But what I find fascinating, as you mentioned, you have got three forms of Uranium in the nuclear fuel cycle. And for the listeners, you have got: U308, which is the mined concentrate. That has been subjected to conversion and conversion is a service that is applied to the U308, that the utility pays for, that turns U308 from a powder, or yellowcake, into a gas; Uranium Hexafluoride. And that is still a homogenous commodity because it is just UF6. From there you get enrichment, again, typically a service paid for by the utility where the Uranium that they have bought off a mine, then goes to enrichment, to the specifications required for their particular type of reactor technology.

In the old days, that’s how it worked. The utilities would buy the Uranium and they would pay for the conversion service, they would pay for the enrichment service. But what’s happened since Fukushima, when we had reactors come down, particularly in Germany and Japan, is inventory started to build up, not only in U308 but also in UF6 and in EUP; the enriched Uranium product. And that has been a problem for our market because you have a substitute ability between those three forms of nuclear power. And not only can the utilities arbitrage between those three forms; if they don’t like the price they are getting in U308, then they can go to UF6 or EUP. But they can also ignore the time criticality of planning before in the old days, they would have to have bought their U308, two years before they needed it, because it takes a lot of time to transport and move through that cycle.

Now, if they sort of mess up on the planning, well that’s okay because there was UF6 available that they could buy one year out from when they needed it, or EUP which they can buy 6 months out from when they need it.

And that has contributed to the utilities being able to hold off on re-starting the contract cycle.

Back to what’s relevant today and why I am saying that the sector in the market is tightening in a very favourable way. First of all, UF6 has tightened almost entirely. So I have just been to a room with people who plan in this sector, and what happened, as you know, a couple of years ago, Covidien put the Metropolis conversion facility into care & maintenance, and cleverly, they bought all of the UF6 they could find. All of the mobile inventory they could find in the form of UF6, they bought up.  And they did that because they had conversion contracts. And when they closed the doors on Metropolis, they would have to continue delivering into those. So UF6 is very tight. Even so much so that a few months ago, we saw Uranium Participation Corp. swap out their UF6 for U308 and take advantage of that arbitrage.

We’ve also seen a tightening in enrichment and that has been exacerbated by geopolitical concerns around Iran sanction waivers, and maybe we can come back to that. Se we are seeing a UP tightening: U308, we are also seeing tightening but not to the same extent, hence why we have got $25 Uranium, or $24.50 Uranium.  But if you look at what happens when those markets tighten, UF6, in the time frame I have described, that has gone up 400%, spot conversions. So conversion is the price of the service, so the difference between what you pay for UF6 and what you pay for U308. 400%. And that has been a wake-up for the utilities because many of them forgot that those sorts of increases are possible.

Matthew Gordon: So that tells us something. What about the enrichment component? Has that gone up?

Brandon Munro: Yes, also. Not to the same extent but it has gone up from mid-thirties, so it is measured as USD per, the SWU price, the Separative Work Unit, gone up from mid-thirties to about USD$50. So, that is also a healthy increase.

Matthew Gordon: This is what you mean by ‘behind the curtains,’ there are things going on which are indicative of a movement, or the need for a movement, relatively soon. So, why weren’t these conversations happening at the beginning of 2019? Because the numbers were starting to move in 2019, but they haven’t had an effect on spot, obviously there aren’t that many contracts being written, so how do you work out where the threshold is? Where is that critical threshold that these numbers need to get to. Where are the markers for investors to actually know when this market is going to go? It feels like not too many people know what’s going on in the Uranium space at the moment.

Brandon Munro: I’ll tell you all that it needs, because, as you know, I’ve been in meetings in London for the last couple of weeks and I get asked the same question: what’s the catalyst?

You only need a sentiment switch for this market to tighten. And that sentiment switch can come from anything, so if we use the examples now of UF6 and enrichment; in UF6, when sentiment was low, Covidien were able to buy all the UF6 that they needed to buy, and they did that. The moment the price started to go up, the mobile inventory disappeared.  And that is a fact in this market; there is an inverse relationship between the mobility of inventory and the price; as the price goes up, inventory disappears. And we even saw that, talking to some of the traders as I have over the last couple of weeks. We even saw that in November, October, November when we started to see a bit of an increase in the Uranium price, it went up by 8% in a couple of weeks, and the inventory, the availability of U308 vanished. It only started to come back when the price softened again and the various parties who had it to sell figured that there was no time value in money at that point.

Matthew Gordon: Sentiment of utility buyers?

Brandon Munro: Correct

Matthew Gordon: Nothing to do with retail, nothing to do with institutional buying?  

Brandon Munro: So let me try to explain that a bit further and put some numbers on it.

So, maybe sentiment is a little bit wishy-washy, but what we are really talking about is their view of the medium-term price and what effect that is going to have on their immediate actions, okay. So, some numbers: we are running a 20Mlbs deficit in the U308 sector at the moment, after taking into account secondary suppliers.

So, to put some numbers on that: 2016, the sector was knocking out about 160Mlbs of U308 production. Mined production. That’s now come down 25Mlbs because of care & maintenance in McArthur River, the Kazakhs producing and various other supply disruption that has taken place in the sector. Secondary supplies – all of the various forms: running at about 25Mlbs against a reactor burn up of 180Mlbs. Rough numbers. So, so far, there isn’t enough demand at the U308 level to put pressure on the price. So what we know, is that there is about, instead of 180Mlbs worth of demand, because that’s the amount that’s being burnt up each year, it’s about 160Mlbs of demand. Caused by two things: preferential buying of UF6 and EUP over U308 and utilities wearing down their inventories. So 20Mlbs, if I now translate that into numbers in the US for example, in rough terms, the US nuclear fleet consumes about 50Mlbs of Uranium and they have been underbuying in the last few years by about 20% – so 10Mlbs per annum.  All they need to do is make a decision that they are going to change their policy from under-buying to full coverage, and that’s 10Mlbs. That’s a dramatic effect on that 20Mlbs deficit. Or we could see financial plays into the marker again. In 2018, about 10Mlbs was taken out of the market by Yellowcake and UPC topping up. Again, that’s a 10Mlbs swing. A swing like that, particularly if it goes up to 180Mlbs and starts to expose that supply and demand deficit in U308, that’s enough to generate a very sharp price response which will then have secondary effects in terms of secondary buying.

Matthew Gordon: Do you think that there will be a financial impact from players like Yellowcake in the market? Yellowcake have got their own issues at the moment. I don’t see any generalist funds wanting to back it – another team buying up Uranium at the moment, are you aware of any?

Brandon Munro: Yes. But it’s private. We are aware of Family Offices clubbing together. We are aware of banks and hedge funds. But it is not the same model as Yellowcake. Yellowcake is a buy created market instrument with liquidity and hold into the long term. So the other buying in the financial market that we are starting to see is not a sequestration of that Uranium in the way that UPC and Yellowcake is.

Matthew Gordon: It is such a small market; it’s a USD$10Bn market, it’s nothing so the big institutions – it would surprise me if they were to create teams to take advantage of the Uranium space.

Brandon Munro: Yes. And look; let’s face it; investor sentiment is desolate at the moment in Uranium, so for generalists to get involved in the commodity, we are going to need a movement in price. I don’t think we are going see a change in investor sentiment until we see a change in price. I don’t think there is enough potentiality visible in the market for investor sentiment to change price.

Matthew Gordon: Talk to me about the JCPOA please.

Brandon Munro: So Joint Co-operative Plan of Action.

Matthew Gordon: Who are all of the parties involved in that?

Brandon Munro: So it is Iran on the one hand and then you have the UK, France, Russia, China and the US; so they are the co-operative parties. Put in place in 2015 because as you know, Iran was showing signs of building a military nuclear program. The plan was designed to hold off sanctions on Iran in return for Iran complying with certain obligations. Predominantly they were obligations of maintenance and monitoring, unfettered monitoring of their facilities and obligations designed to go further than non-proliferation obligations that go further than everyone else, to put a big spacer between Iran defaulting on its obligations and having the capacity to produce military grade Uranium.

Matthew Gordon: Before Christmas, things started getting more complicated; the US pulled out, plus the actions of a couple of weeks ago by the US, further complicated relationships with Iran. So, can you talk to us about your view on the US and European, well, generally European and allied with Russia as well and how you see that going forward.

Brandon Munro: It’s good to step back a little bit to try and work your way through the detail in the complications here. So, the JCPOA was set up, one of the first things that the Trump administration did was to withdraw. And they did that in a way that withdrew unilaterally. There was a diplomatic scramble by the other co-operative parties to try and keep the agreement on foot.  And what that enabled the Trump administration to do was to re-establish a whole range of sanctions on Iran that were being held off because of their commitment to the JCPOA: oil sales, access to the US financial markets etc.  But what they didn’t do, they didn’t allow those sanctions to extend to the provision of services and fuel to the US nuclear industry. And there was this thing created called the ‘Sanctions Waiver’. And the sanctions waiver needs to be re-evaluated every 90 days. So every 90 days, the Trump administration sits down and decides if they are going to give another 90 day waiver or, are we going to withdraw the sanctions waiver? Importantly for the sector and for the utilities and for listeners, the next sanctions waiver consideration date is 31st January.

Now, what happened, November 15th, Mike Pompeo announces that the Trump administration is withdrawing the waivers in respect of Fordow enrichment facility that was being used initially under the JCPOA to create medical isotopes but one of the progressive breaches of the agreement, the JCPOA that Iran announced, was enrichment of civilian grade Uranium rather than just for medical isotopes. Now, Fordow is a tailor-made facility for the electorate in the US, built into a mountain, real James Bind stuff. Clearly it was set up to produce military grade enrichment; when you look at the configuration of the cascades and that sort of thing, so it is an ideal target for the Trump administration to show that they are really serious about this.  December 15th coming up, the utilities become very concerned because no-one was particularly clear who was involved in the Fordow facility and when the waiver gets lifted on December 15th, it could have been mayhem. Now, to understand why the utilities are concerned, half of the enrichment services provided to US utilities comes from Russia; some of it directly from TFEL and TENEX and some of it is effectively resold by other enrichment providers. And the excess capacity in the Western world of enrichment, isn’t enough to fill that gap. Not only that, but RosAtom, as the Russian nuclear giant, it is involved in absolutely every aspect of the civilian nuclear power cycle. As it turned out, TFEL withdrew from its involvement in the Fordow plant because it was providing assistance with its medical isotopes and according to them, any civilian enrichment creates contamination which makes that program impossible. So that one sort of washed over: December 15th came and went and all was okay. So now we fast forward to what you were talking about with the huge escalation of tensions in Iran – a month before the next sanctions waiver. So, there is a lot of concern from US utilities, but also European utilities that if that sanctions waiver, or the entire deal falls over, the Russian nuclear providers are going to have to make a decision; do they back Iran and continue to support Iran? And be restricted from providing a whole range of services.

Matthew Gordon: It’s not just the Russians here; you’ve got the Brits, the French, the Germans, there’s a lot of superpowers in the G7 who are involved in this. G7 plus Russia. They don’t agree with the American stance and position – certainly not what happened two weeks ago. And I think there has been a lot of posturing going on, and I don’t want to get this into a political conversation, I want this to be about Uranium, but the reason why Europe hasn’t followed the US is that they think the Iran deal is a good deal.

Brandon Munro: Correct.

Matthew Gordon: It’s working and I think a lot of people in the US think it’s working, but it’s rather unfortunate timing, because again, there is the perception, but the perception is that in an election year, going to war has traditionally been quite a good vote-winner. So, you know, that whole mess has been slightly discredited with the timing, but what impact is that going to have, if any, I’m going to bring it back to investment, okay – is what’s going on in Iran going to have an impact on the ability for equities, Uranium equities to move forward, or is this something that is actually going to be another negative impact, another negative event in the world of Uranium equities? 

Brandon Munro: Let me just clarify one thing before I answer that question, yesterday, so until very recently, all of the other parties, ex-US, were declaring their support for the deal and doing their upmost to keep the deal on.

Matthew Gordon: Thanks for giving me an update, good,

Brandon Munro: Just yesterday, they invoked the dispute clause under the JCPOA.  Article 36.

Matthew Gordon: What does that mean?

Brandon Munro: That basically means that there is a 14-day dispute resolution and what Boris Johnson has said is that he would like to see a new deal which he aptly named the ‘Trump Deal’.  So, I think what they have realised is that they need to try and get Iran to come back to the negotiating table and renegotiate the whole JCPOA.

Matthew Gordon: So that is hot off the press.

Brandon Munro: Hot of the press. Which helps to contain or to eliminate the sanctions exposure of the other countries.

So how that unfolds; we have got absolutely no idea. And what effect that has on the sanctions waiver that is considered on the 31st, if such a thing still exists – so that has created a new layer of uncertainty. Now to go back to your question, it’s a difficult outcome to pick because it depends, let’s just ignore the dispute that has been called for the moment, it depends on Russia’s reaction. I think they are so dominant in the nuclear sector and it is such a profitable, effective business for them that they would throw Iran under the bus, but you can’t put a significant probability on that because it is so wrapped up in Russian foreign policy which has been extremely successful in the Middle East.

Matthew Gordon: It has. Most people don’t understand that.

Brandon Munro: That would then, so if they were sanctioned, if Rosatom as a whole were sanctioned, that would lead to a period of chaos in the nuclear supply chain, because they are so pervasive in everything, particularly what the traders are doing; much of the supply of U308 these days is coming from carry trades and so forth that the traders are involved in, but they often have so many chains of custody with those supply chains that most of the time you have got Uranium 1 in there or Rosatom in there somewhere, and there’s a chance that it could invalidate all of those. As well as the effect on enrichment.

Matthew Gordon: Why is the US taking a risk on this? It is a no-size industry, it is negligible compared to oil. Obviously, Iran is sitting on a lot of oil, again, this is a conversation for another day, 50 million barrels discovered last year, new barrels discovered last year, and this sector, geopolitically is the messiest thing I have ever seen in any investment class because it is a very emotive topic, why? Why are people so wound up about it? Investors get wound up about it. Countries get wound up about it.

Brandon Munro: Gets you and me pretty excited.

Matthew Gordon: I’m excited because I think there are some great opportunities. I think there are some great companies just sitting here waiting for people to just get back to doing business and stuff.  For sure. Again, maybe we should talk about that, it is another big topic that, that’s another geopolitical component that I know we did talk about way back.

Brandon Munro: You asked me what effect this is going to have for equities. So, there is a period of, if it unfolds that way, there is a period of confusion and chaos and hard to know what equities would do. Into the medium term though, it is going to be beneficial for U308 and beneficial for equities. Number one: it is an important reminder to the buyers in the sector, the utilities that geopolitics does matter and geopolitical risk does play a role. So they can’t just hoover up all the material from Kazakhstan that they want, at whatever price they want, they must have a diversity of supply which leads to a stacking in the price that they pay for Uranium.

Matthew Gordon: Because the supply chain may break further down the line, they need to get certainty.

Brandon Munro: Yes.

Number two: if we see a break in the chain of custody amongst all of these trades, then it is going to push the utilities back into dealing directly with producers which in the medium term is a good thing for transparency in the U308 price and it is also going to lead to more price discovery. Whilst the traders argue that they play a very important role in ensuring the efficient operation of the markets and so on, where we are at the moment is that they are playing a role in suppressing price discovery through the various instruments that they have got.

So positive in the medium term, unknown in the short term. But with any unknow, we could see a very sharp price reaction in U308 which would be extremely positive in the short term.

Matthew Gordon: I think people would have argued that at the beginning of 2019 too, wouldn’t they? So what lends you to feel that it is more the case today than it was a year ago?

Brandon Munro: Because we are talking about the scenario where we have sanction waivers lifted and we have chaos in the sector.

Matthew Gordon: We get a lot of commentary from retail investors, family officers, fund managers, CEOs of Uranium Juniors and they are talking about a return to the peaks of $130, $140 Uranium, sitting at $25 today, I’d love your view on that one. But the other thing they talk about is the speed at which that returns, the speed at which the share price returns and it’s a hockey stick, of course. Those are great stories. I don’t believe them. But they are great stories. What’s your position? Do you think we are going to see a repeat of the last cycle? Honestly?

Brandon Munro: Yes. I don’t think it’s realistic to expect a repeat of that degree of volatility.

Matthew Gordon: Why?

Brandon Munro: Well, when you look back at that volatility and I was in the sector at the time but I was working as an M and A lawyer, so we are on the M and A side; take-over defences and so forth and I can remember, there was a lot of commentary about Uranium going to $200. And it was a great unknown. The extent of reactor builds was an unknown. Obviously an up-side unknown; there was a nuclear renaissance, there was a huge amount going on. It was a demand story in those days. And when there’s enough people saying Uranium could go to $200, as it sails through $100, it still feels like a viable buy to keep buying it up.

And we still had some other dynamics in terms of Chinese being very early in their procurement cycle, they had big plans which are now back on track, but back then they were significant. Those dynamics don’t exist at the moment. Instead of being a demand story, what we’ve got today is a supply story. A lack of supply story and a lack of incentivisation. I do believe there will be volatility and I think the opportunity for this market to slowly balance out at the right price, I think that opportunity has slowly been dissipating over the last 12 to 24 months.

We would need price signals today, and really over the last 12 months, to incentivise enough new production to create a balanced market. So an overshoot is certainly likely but I don’t see it being likely that we will see an overshoot $120, $130, $136 that we saw last time. It shouldn’t be part of an investor’s plans.

Matthew Gordon: Lots of companies talking about the need for a $50, $55 spot. Just to be able to break even. Then you have got to incentivise to actually make some money, because that’s the name of the game  

Brandon Munro: Yes.

Matthew Gordon: Whatever that number is: $65, $70. It feels like today, a long way away.

Brandon Munro: It feels like it.

Matthew Gordon: But it may go quickly. So you were saying that it may quickly go up to those sorts of numbers but then the controls in place or moderation in the market, or a little bit more savvy investment strategy now compared to then, will temper that growth point? Or are you saying that this is a slow and steady growth there? Again, because we have seen some numbers from various analysts which suggests that this may hit $40 by the end of next year. Which obviously doesn’t do anything for anyone. So what’s your thoughts?

Brandon Munro: Yes, that’s right; $40 doesn’t do anything for the sector.

Matthew Gordon: It might as well be $25.

Brandon Munro: Correct – but that is exactly the point; in terms of fixing the supply disruption that we have got today but coming down the barrel particularly when Kazakh production starts to taper off, it could be $25, it could be $15, it could be $40. It doesn’t incentivise anybody.

Matthew Gordon: The Kazakhs have just announced that they have over-produced by 4%.

Brandon Munro: The Deputy Minister, are you referring to that announcement?

Matthew Gordon: Yes. They don’t seem to be following their own guidelines, are they?

Brandon Munro: I don’t know.

Matthew Gordon: Okay.

Brandon Munro: There’s a number of statements; I did ask Kazatomprom that question over the last couple of days and they didn’t know either.

Matthew Gordon: So where does that leave the rest of us?

Brandon Munro: What we’ve got, we have this situation where we need a significant escalation in the uranium price to even start to put new projects into the game, and as you say; is it going to be enough for them to get financed and constructed and built? So the ranges that you are talking about – I’ve got no problem with Uranium prices getting there and staying there. And I think there is capacity for an over-shoot. I just don’t see $136.

Matthew Gordon: What do you see?

Brandon Munro: I can see an overshoot to $90.

Matthew Gordon: Okay, sustained?

Brandon Munro: By definition it is an overshoot, so not sustained.

Matthew Gordon: Because at the beginning of this conversation, you talked about some of the controls in place and some of the people who can control the market to a degree. And I have asked this question continuously over time and people say it’s impossible for any big players to control the market. That may or not be the case, personally I think it is in the interests of people like Kazatomprom, like Camaco, not to let the market go too crazy because no one wants 500 entrants in the market place like last time round. At the same time, we have had conversations with CEOs, talking about roll ups and consolidations and so forth, listened to Rick Rule saying there are perhaps 6 to 10 players who will run in the market. There are 50 today. So obviously, people are expecting a lot of change in the structure of Uranium producers. What’s your take on what the horizon will look like? How do you see the junior mining space playing out? Because there are like 5 biggish boys and then there’s a bunch of others.

Brandon Munro: Well, if we talk about capacity of the market, volatility and capacity to overshoot.  I think for an investor, they have to be saying, is there investment in the category of producible pounds in the next   cycle, or is it something that could come on in the cycle afterwards. Because if we do see an overshoot, it’s only the companies that are in a position to benefit from that overshoot that are going to produce a superior result. Sure, there might be a little bit of a bubble amongst all Uranium companies with an equity’s response, but at the end of the day, particularly for institutions and investors who need liquidity, if it is not producible pounds, then in a sense, whatever the price is doing in the next cycle is irrelevant. Perhaps it will help their cost of capital which might mean that they are diluted a little bit less, but you’ve got to be able to produce pounds into the next cycle.  As you know well, there are very few companies in that small universe of Uranium investment that can do that.

Matthew Gordon: To me, that is some big red flags across the market. People need to understand what good looks like and what not so good looks like. Previously we have talked about teams who have produced and sold into market. We think that is really important because it is a lot more complicated than other sectors. We have talked about the need for the asset to be of a scale; scale is really, really important here and to be able to mine economically because again, the basic rules of mining still apply. Companies with a sense of what the economics looks like. This gives you some cues as to whether to invest in them or not.

But, you guys for instance? What’s your team’s structure? Have you got people on board who have been there and done it before, in a cycle?

Brandon Munro: Absolutely.

Matthew Gordon: You have? Okay.

Brandon Munro: And for us, that has been extremely important. So if you look at who we’ve got in the team. So in Namibia, our chairman is Mike Leech. He was the Managing Director of the Rossing mine at a time when it was the largest Uranium mine in the world. But before that, he was for the last 15 years, he was CFO so he was involved in all of the marketing and contracting and knew everything about that, to do with Rossing, which was a dominant player.

Matthew Gordon: Let’s take that; you say that, when you go and have conversations, sorry for swinging it back to Bannerman and I’m putting you on the spot here a bit, but I want people to understand the mindset of the junior miner board, okay. You’ve got an experienced team, when you are talking to – whether it be funds, I know that you have a lot of talks with people in China because the scale of your project would suggest that that is probably where you are leaning but I’m sure you can tell us another time. What are they looking for? Is that an important factor to them? I certainly think that it is, but do they?

Brandon Munro: Absolutely. Because as you say, you say; Uranium mining is a little different and I know there’s a lot of understatement in that.

Matthew Gordon: Yes.

Brandon Munro: It’s critically different. You need two things at a senior level: you need that understanding of Uranium; there’s people who have done it before, but you also need to know the country.

Matthew Gordon: Okay.

Brandon Munro: So we’ve got Mike Leech; so in terms of knowing the country, former President of the Chamber of Mines in Namibia and former Chairman of the Namibian Uranium Association, the list goes in. In my opinion, he is one of the most senior mining executives in the country.

Matthew Gordon: So Namibia is known for mining. What is the main mining output?

Brandon Munro: Uranium and Diamonds. It does have Gold, it does have Copper, Lead, etc. Mining is extremely important to Namibia. It’s a big chunk of its GDP and the majority of its foreign earnings and Uranium is half of that equation.

Matthew Gordon: So it is important that you get into production and generating cash and employing people.

Brandon Munro: And it’s not just Mike, our Manging Director in-country, Verner Evault, he was our manager at Rossing, he was born Namibian, very well known in-country. Very great reputation. Dustin Garrow is our marketing advisor.

Matthew Gordon: We have interviewed him a couple of times.

Brandon Munro: Dustin sold Namibian Uranium for Paladin, he obviously knows Namibian Uranium because he has been in the industry for more than 40 years. But, he knows Namibian Uranium, he knows exactly what needs to be done to get it out of the country. We are not going to have a mishap in our first shipment and all of that stuff that can go wrong in that sector.

Matthew Gordon: I had forgotten he was involved with you guys. We like him a lot. He just talks common sense. I encourage people to watch the interview with Dustin.

Brandon Munro: And as you know, I lived in Namibia myself for more than five years so I know the set up in Namibia.

Matthew Gordon: There’s a lot of things going on in Namibia like unemployment is quite high. You sort of look at what’s happening in various other countries in Africa, is Namibia a really benign environment or should people be worried about the jurisdiction?

Brandon Munro: From a living their point of view, it’s entirely benign. I lived there with my family, with my four kids for more than five years and I never even had my car broken into. I’d liken it to living in large parts of Australia.  Good infrastructure. Very strong development agenda, as you know, because of unemployment and fiscal reasons, etc, etc. But the other thing is, because the country is largely built off diamonds and then Uranium, there’s a very strong not only acceptance of Uranium but respect for Uranium. You go into Swakopmund, which is the coastal town near our project and half of the infrastructure has been built by Rossing. People remember, appreciate and value that. And that is so different to so many different Uranium mining jurisdictions. Even the little NGOs, the interest groups that we have got there that oppose nuclear power and oppose  and Uranium mining, we let them have their voice, I’ve been in debates with people there; it’s all very respectful but they don’t get any traction with local people because people value and are appreciative of what Uranium mining has done for the whole country.

Matthew Gordon: You are going to come back and tell us the Bannerman story properly.

Brandon Munro: Okay. I’d love to do that.

Matthew Gordon: In the next couple of weeks, probably online when you are back in Oz. It’s good to see you over here. Really is – it’s always good to see you over here. Perhaps you can share some of your WNA conversations with us as well, when we talk.

Brandon Munro: Great. It’s always good to catch up. Thanks for making the time.

Matthew Gordon: I appreciate it. See you soon.


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