Search Minerals (TSXv: SMY) – 10 Years: Anything To Show For It?

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Search Minerals Inc.
  • TSXv: SMY
  • Shares Outstanding: 230.7M
  • Share price CAD$0.05 (21.02.2020)
  • Market Cap: CA$10.4M

We recently sat down to interview Greg Andrews, President and CEO of rare earths company, Search Minerals (TSXV: SMY). He answered a lot of difficult questions. Investors will need to watch the video to decide if they think he answered them well…

We discussed several topics, including:

  1. Rare Earths? What Are They And What Are They Used For?
  2. Raised CAD$20M, worth CAD$10M. What Happened?
  3. Struggling To Fill A CAD$500,000 Private Placement: Has The Market Had Enough Of Search Minerals?

This is an important interview for investors to watch, especially for its educational exploration of critical rare earth elements (CREEs).

Company Website: http://www.searchminerals.ca/

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.

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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.


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.

Scared About Investing? Read this.

More Of The Upside, Less Of The Down.

People have been putting their hard-earned cash into junior mining companies for decades. What exactly do these companies do with your money? They throw it into a hole and hope something good comes out. But let me be clear, investors can make a lot of money investing in mining companies if you know what to look for and are clear about your investment strategy.

An aerial photo of one of the world's largest mining holes, the Mir Mine in Eastern Siberia.
The Mir Mine in Eastern Siberia; is some of your money inside?

This article is for those investors who may be less knowledgeable about mining and nervous of miscalculating the risks. I would also like to introduce you to a very interesting business model within the current electric vehicle (EV) thematic which removes a lot of these risks for investors. 

First, let’s talk about mining risk. There is an ever-present risk factor that is inseparable from junior mining investment, and it is every investor’s most loathed buzzword: uncertainty. ‘Indicated resource’ and then ‘inferred resource’ estimates from preliminary drilling can become the flimsy foundation for investment decisions. Forming the top of this wavering base is the decision-making capacity of a company’s management team; they may have a promising asset, but without mitigating risk effectively, and employing an astute business plan or the appropriate strategy to deliver that plan, the asset can become uneconomical. Not only is the potential value of investment opportunities nebulous, but this value might not even be extractable. 

The truth of the matter is all junior mining operations have an element of luck. We are dealing with resources that are hidden underground, with a list of risk factors that would make Evel Knievel wince. There are an innumerable number of things that can go wrong on a daily basis, and this is just on a company level: expand that logic to the wider financial market and the extent of risk becomes clear. The day to day role of junior mining management teams is to mitigate these risks in the best interests of their shareholders, but the reality is there is only so much influence they can have over an industry more akin to gambling than one might realise.

Junior mining companies have to sell us an idea that doesn’t necessarily require substantial evidence. Boards of directors and management teams are usually master salespeople who can coerce their way to funding they often don’t deserve. Unfortunately, this is the cold, hard reality of investing in junior mining companies; just as gamblers will head to the casino and get the fruit machines bleeping, people are always going to roll the dice and take a punt on a company they think can give them an exciting bang for their buck. Junior mining investment isn’t quite a casino of pure luck, but luck is of undeniable significance.

However, what if there was a better way? What if there was a way to gain exposure to much of the exciting upside of mining investment, but that steer away from geological risk and mining difficulties? The answer is in extracting value from materials and products that are already at surface. This provides a reliable, unequivocal inventory, and helps work towards the green energy sentiment sweeping the western world with all the ferocity of the awful Australian bushfires.

A screenshot of three dollar signs in a line.
More Money, Less Worry.

There is no doubt that mining is essential to provide the items we use in everyday life and no number of protesters outside mining conferences harassing mining executives is going to change that. The irony of these protesters filming themselves on phones made from mined materials, having travelled there on transportation made from mined materials, is not lost on me.

So, let’s get real. Mining is here to stay. If you want to talk about ethical mining, fine. Hold management accountable to those standards, fine. But if you go down this track, you need to go all the way. End to end.

I have previously spoken about true end-to-end green investing. We live in a time of disposable products. Many of these products contained mined materials which go to landfill and dumps. We then mine more materials out of the ground to make more products. It’s not just the ethical and environmental issues, commercially this doesn’t make sense. We are leaving billions of dollars of materials in dumps.

Mining ethically is one thing, but recovering value from end-of-life products is the, as yet, unanswered requirement for a fully functional and genuine green energy investment eco-system. A primary driver of the green energy narrative is the electric vehicle (EV) revolution. There has always been a contradiction when it comes to EV, because the very thing it seeks to positively effect, climate change, is only positively impacted at the front end of the process – less carbon emissions from the vehicles. If one is to analyse the process of battery and electric vehicle manufacture it is far from zero carbon neutral. In addition, the environmental challenges around battery disposal and destructive pyrometallurgic recycling techniques, mean the entire EV macro investment story becomes fatally flawed.

I recently wrote an article regarding an exciting solution to the cost and environmental ramifications of current pyrometallurgical norms. I explained how I discovered an Australian company, Neometals, who have a proprietary hydro-metallurgical battery recycling process which recovers +90% of materials (nickel, lithium, copper, cobalt, iron, aluminium, manganese). However, I didn’t fully explore the genius of their business plan, or how it relates to us investors.

Neometals is a company with value recovery at its core, and its plan will have the approval of the ‘green army’. Neometals signed a memorandum of understanding (MOU) with German-based private metal industry firm SMS Group to work jointly on the funding, research and evaluation of its lithium-ion battery recycling technology in October, 2019. If successful results are registered at the joint venture pilot plant, the companies will likely develop several fully operational battery recycling facilities.

Neometals’ market cap of AUS$103.44M bizarrely only equivalent to the company’s current cash reserves. They are equipped to make this happen technically and financially, and SGS brings all the contacts and cash to roll this out across Europe.

By partnering with a giant company like SMS Group, Neometals will secure contracts with vehicle manufacturers to provide large, stable quantities of feed-stock (scrap and end of life batteries) for their battery recycling plants. By establishing this robust supply, Neometals solidifies its dominance over traditional junior mining companies; there is nowhere near this level of certainty when mining underground resources.

In addition, Neometals will look to secure contracts to supply its >90% recovery of battery materials back into battery manufacturers. In my opinion, €5Bn SMS Group can confidently facilitate these arrangements, and can bankroll all aspects of the joint venture with confidence.

It is quite clear: by investing in Neometals, investors gain access to an undervalued, unique, proprietary solution that has the funding security investors wish for. The feedstock supply and market demand provide certainty, and the economics of the project provide junior mining upside but without the risks. The economics of the project also fit into the EV narrative in a way that junior miners have not yet been able to deliver on. By re-using surface-based material, Neometals reduces the costs, safety risks and environmental impacts associated with mining. The EV cycle now has an appropriate end, and it is an end that could make you a bucket full of cash.

The Neometals’ management team has pieced together an eco-system of people and partners. I am under no illusion; this team has a clear, solid plan for growth, with undeniable evidence of great success in the past. The company originally made their money with a lithium mining project, Mt Marion, in Australia, and timed their exit perfectly. They pocketed c.AU$140M, but more importantly returned c. AU$45M to shareholders. This is a team that clearly know what they are doing.

A picture of a 'risk-o-meter;' the risk is in the red zone: 'high.'
Why take a big risk when you can play it safer and still make big money?

In conclusion, let’s start getting smarter with our investments. While conventional mining is always going to have the potential to make us money, why not consider alternatives that can mitigate risk and still provide excitement?

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.

Luminex Resources (TSXv: LR) – Gold Miner with a Tight Shareholding Structure & Access to Cash (Transcript)

Interview with Marshall Koval, CEO of Luminex Resources, a Gold Explorer and Developer in Ecuador. Part of Ross Beaty’s Lumina Group, Luminex Resources has a very experienced management team with a track record of delivering returns to shareholders. They have quickly established deals with BHP, Anglo American and First Quantum. We discuss all of this and address retail investors’ needs in detail in this interview.

Interview Highlights:

  • Lumina Group Track Record and Highlights
  • Strategy, Model and Thinking for building a large Gold & Copper Producer in South America
  • Assets and JV’s: Breakdown and Commitments
  • Share price: Changes and Causes
  • Mining in Ecuador
  • Enhancing Liquidity: How are they Promoting this Gold Company?
  • Company Financials and Remuneration

Click here to watch the interview.


Marshall Koval: Luminex Resources was the company we spun out in 2018 and we’ve got a large portfolio of assets, earlier stage exploration in Ecuador.  A bit different than the Lumina Gold story which is a development project, but we’ve got large scale exploration properties for copper and gold as well, and then we’ve got some world class partners that we JV’d with to do some of the exploration and we’re doing a bit of work ourselves on our Condor project.

Matthew Gordon: So you’re referring of course to the Lumina Group.  Why don’t you tell us a bit about that?  There’s a bit of a track record. You’ve been making money for people.  I think you’ve raised – you told me last time – $175M and returned $1.5Bn to shareholders. 

Marshall Koval: Lumina Group was founded in 2003 by Ross Beaty who took a view on copper.  So went out and acquired a lot of world class assets and it was sort of an option play originally.  And as time went on, you control these projects, you have work commitments and basically the long and short was raised about $175 million, like you mentioned, and returned $1.5Bn to shareholders.

Matthew Gordon: Obviously with Ross Beaty’s involvement that gives you access to capital and reputation as well, plus you obviously have delivered as a management team.  With Luminex Resources, it’s a relatively small market cap right now.  It’s early days.  You’re also involved in Lumina Gold. Where are you spending most of your time?

Marshall Koval: Right now it’s been about a 50:50 split for me.  We’re advancing the Lumina Gold Cangrejos projects towards pre-feasibility studies.  So there’s a lot of technical, engineering work, fieldwork, so I’ve been working on that, but also I’ve been front and centre on all these deals with BHP, Anglo American, First Quantum, that we have joint ventures within Ecuador.  The combined amount of those deals is about $140M committed to copper exploration.  So we’ve been running 2018 and 2025.

Matthew Gordon:  Why have you spun out Luminex Resources from Luminex Gold?  They’re both gold companies.

Marshall Koval:  Basically, our philosophy is we’re an exploration development group.  We tend to try to acquire large scale projects like the Cangrejos project in Lumina Gold, and basically the idea is to add value, derisk these and move these on to somebody that would build the projects.  It’s basically the same model as Lumina Copper.

So what we had is when Ecuador opened up their concession system and granted new concessions, we acquired – even though we’re a gold company – quite a few copper early stage exploration projects.  So by spinning Luminex out, we have a core asset in the Condor project which has about 1.4Moz of gold in Indicated and 2.5Moz in Inferred.  But we also had these early stage copper exploration projects, so rather than going to the market and deluding our shareholders, we went and did JVs with three major companies to explore these copper assets.

Matthew Gordon: Let’s get into that because I can see Condor, Tarqui, Pegasus, and Orquideas.  Do you want to break those down?  I think what our audience is really interested in is what you’re thinking, what your strategy is.  What are your plans for these? 

Marshall Koval: So these copper assets. We’re pretty opportunistic.  We had a lot of information in Ecuador and when the concession system option came up, we acquired all these projects – Tarqui, Pegasus, Orquideas and Cascas.  And then we did initial work ourselves.  We have a team of over geologists in Ecuador, so we did a lot of the basic exploration work beyond what was already known about these projects.  And we advanced them to the point where we actually didn’t go out and solicit companies to do deals.  This was all inbound. 

The first deal we did was with First Quantum on Orquideas and Cascas.  Right now First Quantum is in the field.  We’re the operator in he project but working closely with First Quantum.  We’ve got five drill holes in and about 1500 metres of drilling, so far.  So that deal with First Quantum we had to spend $38.5M over five years to earn 51% and they can earn an additional 19% if there’s a discovery and they carry us to a production decision.

Matthew Gordon: So they can earn up to 70% subject to them paying up for that and obviously getting through to construction.  But what’s in it for you?  You’ll get 30% of what?

Marshall Koval: There are two deposits – the Orquideas which is being drilled out and that’s to the north and then the Cascas to the south.  These are large copper anomalies we’ve identified with geocam and geophysics and they’re about 5km x 2km / 3km wide – both of them.

So basically if there’s a major discovery – and these are straight copper projects, no gold.  Then we’ve got with Ross’ involvement in our group, if there’s a major discovery we can participate in the 30% if it gets to construction, or we have the option to sell out that portion.  There’s a lot of groups – a lot of them are Japanese companies like Sumitomo for instance, that would look at buying a 30% interest in a major copper mine. So it gives us leverage to the upside, is basically the idea with all these.

Matthew Gordon: So explain those numbers.  So First Quantum put in $38.5 Mover the next five years.  They get 51%.  Are you putting in any additional cash?

Marshall Koval: It’s a straight earn in JVs, so after they spend the $38.5M they earn the 51% in the JV company, and then if they advance it through pre-feas, feasibility study and construction, we’ll carry it for the 19%.  And then when you get to 70%, that’s where we would have to put our pro rata in.

Matthew Gordon: So that’s great optionality for you on that deal.  That was the first deal.  Let’s go to the second deal.

Marshall Koval: So Anglo American is a bit different approach.  So on the First Quantum deal it was two specific deposits that had been identified.  Anglo took a broader scale.  So the Pegasus A and B is our largest land position in Ecuador.  Let me just say this – we’re the second largest concession holder in Ecuador and the Pegasus A and B is the largest concession that we have.  So we have about 135,000 hectares of mineral concessions and Pegasus is about 65,000 hectares. 

So Anglo’s view is a bit different.  They’re looking at a broader regional district sort of scale.  There’s upper porphyry and some gold showings that we’ve identified in the area.  So Anglo’s approach is more systematic, broader regional scale exploration.  So the deal we have with Anglo is they have to spend $57.3M over seven years, earn 60%.  And they can earn an additional 10% if they carry us to a construction decision. So right now they’re in the process of a lot of field geochemical work, they’re getting ready to fly a geophysical over the entire land package to look at perspective terrain.  And so that’s basically the Anglo deal. We’re really excited to have both these – and BHP too as part of.

Matthew Gordon: One, access to capital, but two, these are names that people trust as well.   It lends some level of comfort to investors. So that’s a slightly earlier stage project but again because we’re talking about seven years for this earning period and then you’ve got BHP.

Marshall Koval: So BHP is a deal we just closed in the last month.  Basically BHP… So let me back up.  Anglo is the operator on the Anglo deal.  First Quantum , Luminex is the operator and on the Tarqui project, BHP is the operator.  Tarqu’s on the area of Mirador, which is a copper mine that’s in construction right now.  So it’s in that ugly prospective copper mill, and this is a small land package compared to the other ones.  We made a discovery out there and it looks pretty promising.  It’s some of the best copper terrain that we’ve found in Ecuador through the work that we’ve done. 

So the deal with BHP is they have to spend $42M over six years to earn 60% and after that they can earn an additional 10% by spending another $40M, and that should take you roughly through a feasibility study if there’s some discovery there.  So basically that’s the idea.  These are large targets, large anomalous areas that we found in the field.  They were putting off risk to these first class partners to advance these projects.

These leads us – our primary focus after these three partnerships is our Condor project.  Most of these assets are in south eastern Ecuador.  The only one that’s stuck in the central area is Anglo American.  You can see all of our holdings on Slide No 5.  You can see where these different properties are in the country. 

Let me just go back to Luminex.  We just announced high grade discovery at Condor.  And Condor’s interesting because it’s a large land package, the northern part of the property is a thermal gold deposit and the southern part is gold, copper porphyry and we just made a high grade discovery at the camp zone and we’ve drilled four holes into it now.  So that’s pretty exciting.  We put a couple of press releases out in the last month or two, and we can get some details on that lately.  Right now we have one drill at Condor and we’re drilling at Condor, but we think we made a significant discovery beyond the known resources that have been reported to date there.

Matthew Gordon: So these are all relatively early stage projects in the scheme of things, hence the market cap.  Your market cap is quite low.  I guess the BHP explains the bump in the share price this month.  You went from $0.70 to $0.90.  I think $0.92 today.  So these partnerships that you’ve created, how long did they take to actually come into fruition?

Marshall Koval: These are big companies and these are complicated deals because basically you’re structuring the earning agreement, royalty agreements, KV agreement, assuming that you have a producing property.  So there’s a lot of paper and there’s a lot of negotiations involved, but generally they’ve taken nine months to 12 months to go from initial interest to negotiation closing of properties.

I want to add one thing on the… It isn’t just these deals that have moved the share price recently.  I think the discovery we made at Condor at the camp zone has also helped move the share price as well.

Matthew Gordon: Being what? 

Marshall Koval: So basically what we announced were three drill holes in the camp zone area and to give you an idea – these are near surface out crops.  Then we drilled down to 200 / 300m.  To give an example, in the first drill hole we drilled we had a true width inter hole of 30m that was 4.77 per ounce per tonne gold.  The second hole we drilled was a similar sort of thing.  25m at 2.49 g/t and within that there was inter hole of 9.6m of 6g/t gold.  So if you look at the mineralisation there, it’s pretty wide zones and it’s got some similar aspects to mineralisation that we see up at Fruta del Norte.

We just announced a third hole and that had 25 metre true width of 4.5/tg gold.  So these are structures that out crop at the surface and we’ve been able to define them down to a depth of 200m / 300m.  So right now we’re drilling those and I think that this discovery has a lot of momentum that can potentially move the share price if we continue to have success there.

Matthew Gordon: How much of your market cap would you attribute to the deals you’ve done with First Quantum, Anglo and BHP versus your own project?  How do you break that down?

Marshall Koval: Obviously there’s optionality to the resources that we have.  We have rightly four million ounces of gold at Condor.  Again, it’s exploration stage, sort of advanced exploration, not development.  But I think it’s really hard to break it down, but I think if you look at – when we first announced a deal with BHP, the share price moved up to about 85 cents and then the market settled back down.  I think most of the run – the $0.70 to $0.92 – had more to do with the camp zone.  Maybe we’re seeing about half of our value from the Condor asset and maybe the other half from these JVs.  It’s a hard thing to pin down but that would be my guess.

Matthew Gordon: And any more deals coming through?

Marshall Koval: We need to get inbound interest and it’s kind of interesting.  I think what’s happened in Ecuador is – as we all know it’s …

Matthew Gordon: Tell us about Ecuador because it’s a relatively new mining jurisdiction.  It’s mostly agriculture.  So how have you been getting on?

Marshall Koval: There’s been some historical mining, primarily for gold in areas like Zaruma and other parts of the country, but basically the country had a moratorium on new concessions being offered in 2008.  Basically they had punitive fiscal regimes, so that kind of shut the industry down and I think it hit the bottom basically in 2014 when Kinross decided to back out of the Fruta del Norte deal.  That was a world class gold project. 

I think what the government had was some budget of about $100 a barrel oil.  They’d primarily been oil producer with most of the economy besides agriculture.  And when that happened, when oil went down to $40M, $50M, in that range, it really blasted the economy of the country.  And Correa was the President of the time and he was actually the guy that shut down mining, and he realised that he needed to open mining back up because they needed foreign breadth investment, and that was the best opportunity to give it.

So if you fast forward, this was sort of 2014, things started opening up.  We were in the country around 2013 thinking things were going to get better, look at a lot of stuff, work with the government to tell them that they needed to improve their fiscal regime.  And so after the Kinross deal collapsed, Lundin Gold acquired Fruta del Norte and Lundin and several other companies pushed on the government to get a better fiscal regime.  So as we sit today, the fiscal regime is workable.

Matthew Gordon: What does that mean in terms of tax, royalties, etc?

Marshall Koval: Basically if you look at the effective tax rate in the region, a country like Chile has got the best fiscal regime and it’s 38% to 40% of the rents, if you like to call it that, of a project going to the government.  If you go up to Peru, it’s 45, in that range, and Ecuador’s up around the 50%.  So basically that change from… windfall tax is 70 per cent and a lot of other issues that Ecuador had, Ecuador was probably up in the mid-60s.  The fiscal changes that have been made, sort of made it so that major mining companies – guys like BHP, First Quantum, Anglo American, a lot of New Crest, a lot of other players, have come into the country and are comfortable enough with the fiscal regime to invest. 

Matthew Gordon: Can we just talk about shareholders, please?  I know you’ve mentioned Ross Beaty.  Obviously you’ve been working with him a long time, you guys have made a lot of money for yourselves, but also shareholders.  What’s the breakdown here for Luminex?  Who’s in it?

Marshall Koval: If you look at Page 6, that kind of gives you the stock info.

Matthew Gordon: Sure, but it doesn’t tell me who. 

Marshall Koval: If you look at management and insiders, we have about 24% of the company.  Ross has 15.4% himself.  I’ve got about 4% and the balance is the rest of the management team.  But also we have some institutions that have come into our last financing. 

Matthew Gordon: Who are they?

Marshall Koval: Mainly at the end of the US and also there were some in Dubai.  But basically what we have is a group of friends and family that have followed Ross in the group for quite a while.  So if you look at it from that perspective we pretty much know where probably about 50% of the stock is, is pretty close to the group.

Matthew Gordon: But the rest of it’s Canadian retail?

Marshall Koval: Canadian retail and US.  We just recently listed on the OTC.

Matthew Gordon: Has that made a difference?

Marshall Koval: We see a lot more activity in the US. The US has always been important.  Two of the funds that have come in pretty substantial ways in both Lumina Gold and Luminex are California based.  So that’s an important aspect for us. 

Matthew Gordon: You’ve got to move it up.  You need more volume, you need more liquidity, need more trading, hence OTC I guess, but what else are you doing to get this promoted?  I know when we spoke last about Lumina Gold, you were starting a process.  How are you doing that Luminex?

Marshall Koval: So Luminex, given that there’s about 50% that we know of that’s long-term investors with the group in the story, that doesn’t leave a lot of free float out in the market.  So one of the things we’re doing quite a bit is we’re marketing in Europe, the US and Canada and we’re targeting the retail investors.  I think that’s going to be an important aspect going forward.

Also we’ve seen some funds that we’re buying in the market.  We just completed a financing, and right now we have about $7.5M in cash on hand, so we’ve cash up pretty good to move things forwards.  We’re not out marketing, looking to raise money but we’re continuously… Scott Hicks and myself are continuously working with investors.  We have a large focus on retail investors now, so…

Matthew Gordon: When you say you’ve got a large focus on retail… What does that mean to you?  What are you doing?

Marshall Koval: Doing a lot of town halls. It’s kind of interesting and it’s mainly focused on retail investors.  We’ve got a pretty broad reach.  It’s not just the US, Canada, but we’re seeing investors in Europe participate in these.  We’ve had over a hundred people at a time, and so we’re reaching out continuously like that, we’re going to conferences.  We’re at the spot conference in Vancouver next week and we have a Blue Fair.  We’re really trying to get the story out as broadly as we can because I think we’re still in the early stages here.  Obviously every CEO you’re going to talk to is going to tell you that his stock’s undervalued but I think there’s real… even with the move up into the 90 cent range, we still have a $47M, $48M market in cap, and any one of these projects we have significant success on, will see a substantial move from this point.

Matthew Gordon: Where do you see the value coming in?  You’ve got some big names associated, they’re spending nearest down at $140M on some projects for you.  You’ll still be left with a reasonable chunk of the companies or the projects after that, but how much of this is Ross’ company and how much is the Board actually doing to making decisions?

I look at Anfield Gold.  Obviously that’s gone into Equinox along with a couple of other projects to create a super project, $800M market cap for Ross there and Equinox.  Lumina Gold is sitting at around $170M, $180M market cap today.  Luminex $35M, $40M. Okay.  So is it a case of you take these things through following a plan or, because of the nature of your business, explorer, developer, you’re a little bit more free flowing in that?  It’s a case of are there opportunities to maximise… How do you think about that?

Marshall Koval: I think the value drivers for us in Luminex is going to be exploration success, adding resources and making discoveries.  A good example of that would be the discovery of the camp zone.  It was never drilled. It’s right underneath our camp at Condor.  Geologists from several companies – I mean this project’s been around since the 80s – sampled over the area and we had one of our geologists see some interesting rocks in a road cut and started to focus on doing work.  He did sampling and trenching work.  So it was a brand new discovery.  The drilling was –  also I mentioned to you earlier – we have a discovery in there. Now given the size of it, you could have a potential for a million / two million ounce deposit.

Matthew Gordon: So it does create value, but I’m more interested in the decision making.  So Ross Beaty, big name and reputation.  He’s got access to capital, all that good stuff.  With Anfield, rather than grow it yourself, it was a question of “Well, we could or I can roll it into something over here.”  What do the shareholders of Anfield get out of the Equinox deal?”

Marshall Koval: I’m on the Board of Equinox with Ross and several other Board members.  That was the deal where we had the Curinga deposit and we had some other assets, and at the end of the day Curinga turned out to be a small project that will be a mine some day. But, you know, there’s a management issue.  It takes as much effort to manage a small operation like that as it does a big project.  So the idea there was Anfield was going to be the vehicle we used to build the gold production company.  That’s what Ross wanted to do.  But at the end of the day Ross put a deal together to form Equinox and we had about $50M in Anfield.  The idea there was to take the assets, the Arizona mine which was a brownfield site in Brazil and the Casa Mountain project in California, and advance those.  So Equinox became the vehicle instead of Anfield.  Today we’ve got two producing mines in Equinox.  We’ve got a third mine, Casa Mountain that’s going to be put into production soon. 

So that was the idea and that was the producing story. So if you go back to your question about the Board – we have a pretty sophisticated Board.  Myself and John Wright handle a lot of the technical aspects and John’s the ex-President of Pan American Silver.  He’s a technical guy.  He’s on the Board of Silver Crest and Aero Copper.  And Dave Farrell, for instance, he’s the capital markets guy.  He’s on the Board of Fortuna.  Don Shumka is on the Board.  He’s experienced audit committee guy.  He’s been on the Board of several large mining companies, and then we have Lyle Braaten who’s our attorney and he’s involved in government. 

So basically the mandate of the Board is ‘Let’s try to maximise the value that we have in these assets.  Let’s go out and explore.  Let’s find projects.  Let’s advance those projects.’  That’s measured, advancing these projects by derisking them and moving them along towards the development chain. 

So, if you look at the Condor project, for instance, with this recent discovery we’re planning on drilling 2300 metres here.  We’re having a second drill rig come to site and if that starts to pan out, then we start to look at this thing as a development project and put it on the path towards PEA.  So that’s where value will be created besides just outright discovery.

So then if you look at the copper portfolio, the BHP, the Anglo American and the First Quantum deals, that’s going to be large scale upper porphyry deposit discovery and given the prospective terrains, we think out of those deals you’ll see some sort of major discovery.  At least that’s what we’re hoping for.

Matthew Gordon: So how do you guys pay yourselves?  How do you remunerate yourselves? Incentivise yourselves?  You’ve only got 52 million shares here, so how does that work?

Marshall Koval: So when you look at it, the Board doesn’t get paid.  We get options.  The option grants are pretty modest.

Matthew Gordon: No salary?

Marshall Koval: Not for the Board, no.  Myself and the management team that run the company day to day get a salary, but if you look on Page 6 there, for instance, issued in outstanding shares, we’ve got 52 million after this last financing.  If you look at it on a fully diluted basis, it’s 55 million, and we don’t do warrants.  We’ll do a discount to market financing, so basically there’s not a lot of dilution and like I say we’re tied on options.  So really the upside in these financing… most of the management team participate in the financings and they have all the way through the various ones we’ve done – both in Lumina Gold…

Matthew Gordon: At market?

Marshall Koval: At market along with the other investors. 

Matthew Gordon: This is what fascinates me about some companies.  They just get it right. You don’t have many shares out.  What you’re saying is the cost of your money is cheaper than… You don’t need to do warrants, so you don’t do warrants.  You’ve got contacts. You’re talking to money from Dubai, talking to money from California.  You’ve got the institutions.  They all know Ross Beaty. They know your management team, so you’re not paying more than you need to.  This is really important for funding a company.

Marshall Koval: Let me take that to the next level because we have an anti-dilutive mine set and obviously when you’re an exploration group and you don’t have income from operations, you rely on the capital markets to finance it as you go.  But this last financing, we were over subscribed by more than $1.5M and we didn’t want to go there, so we cut it back.  Our philosophy is don’t go out to the markets and raise any more money that you need.  Given the success of the group and obviously with Ross’s leadership there, we have the ability to finance when we need to.  So we try to minimise shareholder dilution and, like I said earlier, management and Board members often take the financing and Ross is usually the lead order when we do financing. So that’s a pretty strong message to the market.  

Matthew Gordon: It’s a strong message to the market, and then top of that the types of deals that you’ve recently done with obviously First Quantum, Anglo and BHP in terms of funding projects and leaving yourself with a meaningful position at the end of it, that’s also great news for investors in terms of optionality. 

Fantastic on the money and the remuneration side of things.  You’ve talked to us about Ecuador and mining in Ecuador.  Do you think that the retail market understands the Ecuador story?  Most people don’t know it and if I’m looking at the chat rooms, forums, various social media, there’s not a lot of talk about you.  Why do you think that is?

Marshall Koval: So if you look at the Lumina copper story.  Ross took a view back in 2003 that copper at the time was $0.85.  It was going to go to two bucks, so he went out and he acquired ten really solid assets in mining friendly jurisdictions.  So in the initial days it was pretty quiet and they went on and acquired these projects.  We were in a building stage with both Lumina Gold and then we spun Luminex out, so we’ve grown in the investor market at  a bit under the radar as we consolidated things. 

Now we’ve consolidated our land position in Ecuador, the majors have come in and they have to do deals with groups like ourselves because all of the highly prospective properties in the country are in some junior ownership.  So basically what you have is a lot of these companies have to come to us.  So basically we’ve been quiet because we’ve been in the building stage.  Now the story’s changed.  We’ve got our position.  We’ve got the prospects.  We’ve got funding in place.  We put off a lot of exploration risk up in these major companies that are really good technically.  They can move our projects forward.  We can focus on Condor. 

We also have three other projects that are copper plays that we’re continuing to do primary stage exploration work.  We’re in a really good position to move forward and not dilute the shareholders.  If all these JVs go through and $140M is spent on these projects and there’s discoveries, we would have diluted the hell out of our company to raise that kind of company to do it ourselves.

Matthew Gordon: I think its smart.  Obviously mining copper, mining gold have similar skill sets.  You’ve got all the relevant skills set you need in house.  Can you give investors and retail investors, new investors, reasons that Ecuador is a good place to be and why you think the way that you’ve structured these deals is going to work?

Marshall Koval: Ecuador is the last unexplored, geologically significant terrain in Latin America and probably the world.  There hasn’t been a lot of systematic exploration in Ecuador because basically when the moratorium that happened in 2008, Ecuador set up the majority of the super cycle that we went through and basically it was shut down for business.  Now it’s open for business, from a political risk perspective I think the best indication that it’s a viable jurisdiction is that all these major mining companies have started to come into the country. 

There’s two mines that will put into production by the end of this year – Fruta Del Norte is one and then Mirador is the other.  Mirador is owned by Tongling Mining as the operator and a partner.  Mirador is a large copper porphyry deposit and Fruta Del Norte that Lundin Gold has is a large underground gold deposit.  The prospective nature of Ecuador has come to fruition with these projects being built and there’s a significant pipeline of discoveries in the country. The Cangrejos work that we’re doing has a real good project and there’s a lot of interest. 

So Ecuador is now a mining jurisdiction and there’s growing pains that go with it.  Both the government’s learning, communities, dealing with the communities.  We’re educating communities along the way. So that’s part of the story. But geologically it’s great exploration.  I’m an explorationist by training and I haven’t seen as much prospective ground anywhere else in the world that hasn’t been systematically explored. 

So then if you go for the reasons that it makes sense for Luminex within the country – we’ve got $140 million of non-diluted financing coming from our partners and we have four million ounces of gold on the books already at Condor, and we’ve made a major discovery at the camp zone.  And then like you were talking out before, we’ve got a management team that’s been there, done this before.  Our business strategy is to add value to these assets, not be the producer, move them onto somebody to put them into production and then exit. 

So if you look at the Lumina copper story, that’s what shareholders did really well when we exited these companies excessively.  So we’ve got the ability to finance.  We’ve got the technical team.  We’ve got a really strong in country team in Ecuador, so I think we’ll be successful in advancing these projects, and I’m really excited about the prospects in Ecuador.

Matthew Gordon: You need liquidity in the business.  You need a bit more turnover to drive this price up.  What type of investor are you looking for?

Marshall Koval: I think we’re looking for the investors that understand the high-risk nature in Luminex exploration.  I think they understand being patient, that discoveries will reward shareholders.  So I think we’re starting to see a positive goal move recently.  When we went into the country a lot, we’re looking at $1,100 or $1,200 goal.  We’re up in the $1,400 range now.  We haven’t seen junior equities like ourselves move up as much as the gold price recently as a general rule.  So I think we’re still at an early investment stage, but if a shareholder comes in and as we derisks these projects makes more discoveries, we should see upward movement in a positive build it price environment. Plus also we have the optionality on copper.

Matthew Gordon: Do you think liquidity and volume correlate with long term holders?

Marshall Koval:  If you look at the float at the stock, we do have a lot of long-term holders and that’s why you don’t see large volumes.  If we get three hundred thousand shares trading in a day, that’s pretty good.  So the liquidity issue is definitely something that puts a bit of a lid on the upward movement right now.  But positive news, we’re moving the stock and the more we reach out and get the story out to the broader retail base institutions, we should see things improve.

Matthew Gordon: You may have to consider issuing more stocks sooner?

Marshall Koval:  That’s the issue that we’re talking about earlier, that non-diluted mind set, but you’re right.


Company page: https://luminexresources.com/

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Energy Fuels (NYSE: UUUU) – Grabbing a Tiger by the Tail. Uranium Market Goes Wild (Transcript)

Mark Chalmers CEO of Energy Fuels tells us that the Section 232 Petition was an unwanted but necessary process. Speculation is abound as to what the The 90 day Working Group has been asked to do.

What exactly will be decided in 90 days? Will US Uranium production be used only for Department of Defence needs? What does “Domestic Uranium Production Concerns to be Addressed” mean?Plus just how many friends do Mark and Jeff have left in the Uranium community for submitting the Section 232 Petition and paralysing the contract buying market? Is Energy Fuels prepared? Will it use the White Mesa Mill to bend others to its will? Let’s see what Mark Chalmers has to say.

Click here to watch the full interview.


Matthew Gordon: Mark, we spoke back in April.  It feels like a long time ago, and a lot of things have happened, including the Section 232 Petition.  What’s your reaction to all of that?

Mark Chalmers:  I think that firstly when we thought that there was going to be a decision on 12th July, we were expecting a positive decision for good reason, and we didn’t get that immediate relief that we had hoped for, but we’re very encouraged with the fact that two new companies in Colorado, UR Energy and Energy Fuels, filed a petition that now is going in to a new review which is looking at the entire nuclear fuel cycle in the United States at the highest levels of government.  Probably the most extensive review done in three or four decades on the front to the back of the nuclear fuel cycle.

Matthew Gordon: We’re talking about the 90 day Working Group, which was announced in the Presidential Memorandum by Donald Trump.  It wasn’t what you wanted, but are you seeing that as a positive?

Mark Chalmers: Two small companies couldn’t tackle the whole nuclear fuel cycle.  It was too big for us, so we’ve focused mainly on the Uranium front end.  We certainly did mention that other portions of the fuel cycle were challenged.  There’s a number of positives here.  We thought we had line of sight to relief little lead within 24, 48 hours for good reason.

Some of the positives is the Secretary of Commerce said it was a national security issue.  The President agreed with that.  A remedy was put forward. We don’t know exactly what that is, but the report from Commerce will be public in this new review group that’s getting started as we speak.

Matthew Gordon: Donald Trump did say in June 2017, he announced an initiative to revive the nuclear sector.  And this memorandum does talk about nuclear fuel production rather than specifically Uranium.  There’s a lot of moving parts here.  It’s hard it’s deliberately hard for us to all interpret exactly what it means.  I think the language is vague, but let’s try and see what you read into some of this. I think everyone’s claiming a win here.  Everyone’s opinion has changed over time.  Lots of people are claiming wins here, but I want to understand what you think. 

Mark Chalmers: I think that the Department of Defence requires US produced Uranium by treaty.  I think that the memo itself indicates that the complete fuel cycle for defence and our power plants is challenged.  It’s broken.  We don’t have the ability to basically chase… We’ll deal with it in terms of a lot of infrastructure, but our ore infrastructure, but we do have ability to mine Uranium right now and run it on through conversion enrichment, and up into the more highly enriched products with our existing infrastructure.

Now with regard to the Department of Defence they have to purchase Uranium from the United States.  The utilities do not currently have to produce the Uranium from the United States and that’s the differential between it.  And as we know, 99% is being imported into the United States right now, but I think the key grabs from this review is, as we said, we started off with a focus on Uranium mining.  It’s now a larger focus.  The audience, the members of that Working Group are secretary level, Secretary of Defence, Secretary of Interiors, Secretary of Treasury State Department, NRC.  These are all the top of the tree.  It’s basically the President’s cabinets minus a few people like Homeland Security and Health and a few things like that. So it’s floated to the top here.  It wasn’t a no-no.  It was “No, we need more time.”  And I think that was a key element.  They needed more time.

Matthew Gordon: There are a lot of big names involved – Secretary of everything important that’s involved with this and that, but they’re involved in a nuclear fuel production review.  That’s the top line.  I think we’d all agree that there needs to be a lot of discussion around the reactors and subsidies that reactors are receiving.  Where does Uranium fit into that review?  Is it a big piece of this?  They talk about addressing concerns, they don’t talk about addressing US Uranium production in anything other than in relation to the Department of Defence supply.  So what’s your expectation of what this 90 day review’s going to give you versus the rest of the world?

Mark Chalmers: I think that the memorandum and the flavour is that it’s got to be a holistic review.  I think the other thing is that certainly we’re going to pull out where we can participate, is that again the United States consuming one third of the world’s Uranium products, at the front-end Uranium less than one per cent, but then we have conversion on standby.  We have foreknown enrichment. We don’t have ability to go to these higher ends, but at the same time – and this is the important thing that needs to be drawn out. Russia, China are building up their capacity which is well in excess of their requirements.  So here we are not being able to produce a per cent of our requirements, where our foes are going to be able to produce many times greater than they need, so that they can create a global business to take over the entire fuel cycle in the world, including the United States.  This is where the national security issue is very significant. 

There is a huge focus by the United States government on critical minerals which Uranium is one, and okay as a company we also produce Vanadium – which is a critical mineral – and so this is right up the alley of that initiative. So separate from the nuclear fuel cycle you have the critical minerals too.  So look, there’s no certainty on the outcome but we’ve certainly elevated it to a level that it really needs to be at. 

Matthew Gordon: But what do you want out of this review?  Do you want certainty around your position? Do you want certainty for the market?  Do you want to understand what it means for you financially?  What are the specifics around, what do you want from these guys?  They’ve had an initiative for the last two years, but I don’t know what they’ve been doing in the last tow years.  What will they do in 90 days which they didn’t know before?

Mark Chalmers: We’re still looking for that 10, 12 million pounds, up to 10 or 12 million pounds of production under contracts.  We’re not looking at Tirus.  Maybe you don’t call them quotas.  There’s other ways of doing that, but we want long term contracts.

Matthew Gordon:  Who from?

Mark Chalmers: Still a good position to ask for long term contracts.  We are not materially changing what we’re asking for in terms of the certainty and relief at the front end for the Uranium mining side of things.

Matthew Gordon: Who do you want these contracts from?  Do you want them from the Department of Defence or the utilities being made to buy from you?  What are you looking for?

Mark Chalmers: We want long term contracts from utilities, from he Department of Defence.  The Section 232 was a trade initiative. It was focused on trade.  Well now that we’re in this larger Working Group there are other potential fixes that aren’t trade related.  It doesn’t mean that the trade issue’s got to go completely off the table, but it opens up the opportunities on where this could go and how it could potentially be funded looking forward.

So it’s still early days. You’re right, 90 days goes by very quickly.  But we agree with the President’s decision.  Yes, sir, it’s painful, the shares got hit like they did, and not just our shares but everybody in the United States, but we actually agree with the decision and we think the President made the right decision by opening it up to the entire fuel cycle.

Matthew Gordon: At what point did you recognise what could happen?  You started a series of events.  I said to you way back then, I thought it was a really bold, big move for two small companies in this space to go for. But at what point did you recognise that actually this may not go the way you wanted it?  Was it literally the day the memorandum came out or did you know anything before then?

Mark Chalmers: I can’t say publicly but I had for good reason up until the last 24 to 48 hours that we had, very positive signals that we had a good chance of receiving relief of this material for us and the United States Uranium mining industry.  And as said, we had nothing to confirm that. Actually we didn’t have anything positive to confirm it until that memorandum came out.  There were rumours starting to fly.  They were not consistent with what we believed and were we were at, but when the rumours started to fly and people were saying, “Oh, I confirm this or I confirm that,” we didn’t know.  We did not know.  One thing that we do know, and as I said, this got into the White House.  I think that they basically run out of time when the topic of Uranium mining and the other parts of the fuel cycle started to convolute things in terms of really where they should be focused and what decisions they should make.

Matthew Gordon: So you made a statement to me the last time we spoke.  You said you’re a winner and you’re going to make this thing work.  I believe that you believe that and that’s great.  But do you think winners do everything and anything it takes to win?  And if you do, do you think the 232 is the right move for you then and do you still feel that now?

Mark Chalmers: If I had the opportunity to do it again, I would have done it again.  I think that 232 was the right step.  I think it’s right in line with… I said it many times that we will be aggressive but not reckless.  I think that from my perspective and again for good reason we got this thing very, very close to going across the line on our petition.  We’ve got the support of columners.  We’ve got this national security determination.   We knew it wasn’t going to be easy.  In hindsight it’s been more difficult than perhaps I had thought at the beginning of the process, but that’s life isn’t it? 

Matthew Gordon: I think the uncertainty is still there, but we can come to that in a minute.  Do you think you’ve made some enemies along the way?  Your share price has been hit.  Your US colleagues companies have been hit. Utilities weren’t for this move at all.  Who’s out there that’s friendly and who’s talking to you?

Mark Chalmers: I don’t have people that I consider enemies.  I think that the utilities, yeah, they didn’t agree with it.  Everybody has to vote their pocket book, and that includes the utilities.  I’d had a number of utilities tell me “Mark, t’s not personal.  We understand why you did what you did.”  And to this day, with all the number of shareholders I have talked to, yeah, sure, they saw the shares drop by 40% and so.  37% on the day.  No, I’m not happy with that.   No, they’re not happy with that, but I have not had an angry shareholder.

Now, after this video maybe somebody’s angry.  They want to come talk to me, and I welcome them to call me. I welcome them to call me.  I’m an approachable guy and I’m looking for big opportunities for our shareholders, not status quo.

Matthew Gordon: Do you think you’re going to be punished by utilities as a consequence of this?  I know you just said, “Look, it’s not personal,” but will that be reflected in terms of their buying behaviour with contracts going forward?

Mark Chalmers: Absolutely not. There’s a lot of rumours and as I said, when you look at the other Uranium producers in the world, you look at Canada, if you look at Australia – if they had the opportunity to take in a Section 232 route, I will bet you they would have taken that route themselves if they had that opportunity. 

Matthew Gordon: With regards to the narrative, I remember talking with you, I’ve talked to a lot of CEOs of other Uranium companies, talked to funds, talked to a couple of utilities – the narrative obviously knowing what we now know with regards to President Trump’s memorandum, the narrative’s changing.  Everyone’s claiming a win.  Everyone’s claiming that they called it right.   Who do you think actually called it right in all this?  I know you said it wasn’t the outcome that you wanted, but did you see anyone get this right?

Mark Chalmers: You’re right where a lot of people are saying, “Oh, it’s a win for me.”  Everyone says it’s a win and here we are still waiting another 90 days.  I think we’ve called it right because we brought to the attention of the government a fundamental flaw in our fuel cycle and in our national defence with the front end of the fuel cycle.  So I think that in the absence of us filing our Section 232, where would be today with regard to the focus on the fuel cycle?  I think we did what we needed to do.  As I said, I don’t regret doing what we did and there still is uncertainty – and even on the day, I said on the day the rumours start flying, I kept saying to people around me, “This is not consistent with President Trump.  It is not consistent for him to say, “”No, I’m not doing anything.”  So when the memorandum came out, I couldn’t accept that what was in that memorandum was consistent with what I would expect from President Trump and his administration that they would need to look at this in a more detailed way.

Matthew Gordon: He didn’t say no.  He didn’t say yes.  He just bought some time.  It’s part of a much bigger review.  Do you think that review is going to finish in 90 days or probably a bit less than that now?

Mark Chalmers: You’re right, it’s a large review.  All I can say is in the 232 process, they met all of their time constraints.  They were on the day on just about everything that they did.  Now this is a bigger group…

Matthew Gordon: With bigger collective problems, Mark.  You’ve got the utilities with a multitude of different energy sources as well as nuclear.  You’ve got the gas guys.  You’ve got big lobbyists who have been fighting the good fight and they’ve got to appease all of those people.  I guess there’s room for everyone.  It’s a question of who gets what slice of the pie. 

Mark Chalmers: I think we’ve got a tiger by the tail.  There’s no question.  But not all these things have to be solved in a day, and they can’t be solved in a day.  I think that the key things that they need to look at is a phasing of things.  You take further down in the enrichment cycle of the fuel chain.  You’re not going to solve that in a week or month or six months, but we do have things like the conversion and the Uranium mining that can be solved quicker because a lot of the infrastructure…  Well, the infrastructure, a lot of it is in place, a lot of the people are in place. 

Matthew Gordon: Who’s problem is that?  You’re saying they can look at that, but that’s the problem of the company, isn’t it? Why does the review become responsible for getting those companies up and running again?  They can’t affect price other than give uncertainty to utility companies to be able to put some contracts in place.  Is that the way it works?

Mark Chalmers: The one complication with the United States compared to Russia and China, is the US basically privatised the vast majority of the front end of the fuel cycle.  There is no nuclear fuel cycle in the world that doesn’t have government support in virtually every step of that fuel cycle, and that goes with the Russians and that goes with the Chinese.

I think what we have found that privatising the front end of the fuel cycle doesn’t work.  It’s that simple.  So the government has the ability to facilitate in different ways if they think it is a priority of national significance.  It is complicated, as I’ve said, because we’re now not just tied to the Section 232, there are other aspects of it.  If you look at it right now, many of the nuclear utilities have received and are receiving substantial support in the various states that they operate in, substantial support.  We’re talking 100, 150, 200 million dollars per year for two or three reactors. 

Matthew Gordon: That’s at a state level, not a federal level.  Is that right?

Mark Chalmers: That’s the state level.  Look, we’re not trying to unduly burden the fuel cycle with our costs, but I can tell you that when you look at what we asked for, what we’re asking for is very, very small in the scheme of the fuel cycle.  We’re small businesses.  It’s very small.

Matthew Gordon:  What are you looking for?

Mark Chalmers: All of this is taken out of context on what the true costs are.  Now the other thing that’s taken out of context with the true cost is what is the fair value of a pound of Uranium produced by westerners?  It’s not the current $25 per pound of the spot price.  That is a depressed what we call happier pound.  So there’s a lot of ways the maths can be distorted here.

Matthew Gordon: What are you after?  They can help you in different ways.  What are those ways that you would like them to help you with?  Is it around permitting and licencing or is it subsidies?

Mark Chalmers: The main thing we want is contracts.  This is where we haven’t changed our position.  We want contracts.  We want to buy American.  Certainly the Department of Defence has to buy US Uranium.  We’ve got government reactors.  There’re different ways that it can be incentivised.  In the case of our company, we’re unique.  We have Vanadium.  We also do recycling of low level products.  We do one to three reactors a year recycling and we also have been pursing clean up of a nation. 

Matthew Gordon: You’ve got a lot going on.

Mark Chalmers: USD$3.7 billion in trust.

Matthew Gordon: You’re at the front line.  With regards to whether it be state or federal level, subsidies or a bifurcated market or permitting made easier, what precisely do you need?  You’re a producer.  You’ve got a lot of moving parts, a lot of assets.  You’ve got explorers.  They’re all going to need different things because they’re at different stages of evolution.  You’re going to focus on your company. What is it that you want for you and what do you think explorers are going to need? 

Mark Chalmers: There’s a difference.  We have a lot of critical infrastructure that is constructed, that is manned, is operable.

Matthew Gordon: And it’s costing you money today, right?

Mark Chalmers: We need to get money into our coffers and that can happen in a variety of ways.  As I said, I prefer long term contracts.  It’s important to keep producing.  Uranium is a very unique commodity, the technical skills required to find it, to develop it, to process it, are rare to find and if we don’t get supporters to preserve and continue at some level, we will lose those skills.

Now, just for an example, even with the Department of Defence when it comes to things like submarines, aircraft, they continue to build at a certain level just to maintain critical infrastructure and the skills that are necessary for that infrastructure to operate efficiently.  Those are themes that could be followed. And as I said, the one distortion that happens is people assume that Uranium is going to be available forever for $25 a pound and that’s not the case.  Cameco will be gone and the Uranium production in Australia will largely be gone, perhaps with the exception of Olympic Dam.  We need a higher price.  So you’ve got to kind of differentiate between the state-owned enterprises and the western production.  Western production needs to be at $50 a pound or greater to continue. 

Matthew Gordon: But that is determined by the market usually, right? Are you saying that the Government needs to step in and affect price or pay the differential between whatever spot is. I know you want a contract, but you want a contract at +$50.  If the market isn’t at $50, how does the state or federal government help you?

Mark Chalmers: It’s probably a combination of things.  It could be a combination of the Government, it could be a combination of the utilities wearing some of that load.  They’re receiving subsidies as we speak.  We’re not asking for something that others aren’t already receiving here.  We know there’s a challenge, but you’ve got to get back to what I said before – we are the largest consumer in the world and we have zero capability right now.  Is that where we want to be? Now some people will say “I’m fine with that” and I say, “No I’m not fine with it” and I think the average person in DC understands this.

Matthew Gordon: 24 of 60 operating nuclear reactors in the US will struggle to cover their operating costs this time next year.  So they need help and they are getting help now, and you’re saying “I just want a piece of that”.

Mark Chalmers: Correct.  I talked about these state-owned enterprises in Russia and China.  If they didn’t have state support, would they be able to function from the beginning to the end of the fuel cycle and the answer is “no”. 

Matthew Gordon: I just want to ask you about your views about Cameco’s conference call press release last week.  What’s your read on what they had to say?  It hasn’t really moved the market; it hasn’t done anything for equities or buying, so what’s your take on it?

Mark Chalmers: I think my take on Cameco is that they’re challenged right now too and losing, or getting a very small settlement on this lawsuit that they had, it hurt them big time.  I think they’re just reiterating what I’m saying – that they need higher prices or they’re not going to restart. What they’re not saying is if their contracts roll off they’re looking at serious outcomes with Sagar Lake.  Sagar Lake has also got a finite life on it, so it doesn’t have 20 years of life. 

Look, I think Cameco is a great company and I know the management of Cameco.  I think they’re doing the right things and I respect them, and I always say that to anyone that asks me about the Uranium sector.  I say “you’ve got to own some Cameco”.  But, they’re also very challenged right now too, and I think that they recognise the importance of western world production.  I think they kind of suddenly talk about that and they recognise things like critical minerals and having those capabilities. 

So, I guess what I want to say is: they’re doing the right things, they’re challenged like everybody else but, in their benefit right now, they’ve got two things helping them – mainly their longer-term contracts and they’re also benefitting from the foreign exchange right now too.

Matthew Gordon:  We need to remember the macroeconomics for this industry, the Uranium industry, nothing’s changed.  It doesn’t matter Section 232 didn’t give you what you wanted.  It almost doesn’t matter what came out of the 90 day Working Group, because the fundamentals don’t change.  There’s a massive supply/demand gap and it’s getting bigger by the day.  Billions of dollars need spending on infrastructure, so I think people need to just remember that.

Mark Chalmers: I just want to say something else too.  That’s absolutely right and the fundamentals are what the fundamentals are, and everybody kind of over-focuses on Section 232.  I told our shareholders that, “Look, I asked for Section 232 because it is bigger than that.  But I understand why people did bias for Section 232 because it was looking…

Matthew Gordon: Everyone wants that catalyst moment. It’s Section 232, it’s their Working Group, it’s the WNA.  When you’re down, you reach for anything you can.  But I’d say people need to think just a little bit longer than that and it doesn’t matter if it takes another six months, another nine months, another 12 months – it’s coming and it’ll come quickly when it goes.

Let’s talk about your mill. You said the mill is something you can use to leverage your position as the US’s number one Uranium producer.  You think that people will have to come to you and there will be discussions to be had at that point.  Is it one of three potential working mills in the US?

Mark Chalmers: Well, look it’s the only operable, manned producing facility.  There are two other facilities, but both of them haven’t ran for like 40 years.  They’ve been partially reclaimed or, in some instances, people have taken a lot of equipment out, so they’re very dilapidated and not able to come online in quick order.

Matthew Gordon: So that’s good for you. But what does it mean for the other players in the US market?  Do you feel that some of them are in a slightly weaker position?  Are you looking at mergers?  Are you looking at takeovers or JVs? 

Mark Chalmers: The mill puts us in a strong position, particularly with the conventional miners, particularly if anybody wants to produce Vanadium or some of this recycle.  There was a phrase that was used 40 years ago and it says: “he who has the mill owns the district”.  Well, then there was something like 25 mills out the in the United States; well today there is one that operates and functions.  So, you could use that phrase 40 years ago, well you could certainly use it now when you’re the only one who can actually process Uranium today.

Matthew Gordon: What are you going to do? 

Mark Chalmers: The strategy is the same.  We need higher prices for conventional mining.  We’ll always give the main priority for that to be out mines, our ore.  We’re still producing Vanadium right now.  We’re actually shipping low grade ore from a mine that’s on standby in New Mexico right now.  So we’re actually doing some recycling of low grade ores from idle Uranium mines.  We’ll continue to use all those various arrows to improve our cash-flow optionality. 

And that is why that mill survived, because it has that ability to do these side businesses when the price of Uranium was low.  When it comes to others who want to use the mill, we’ll consider that on a case-by-case basis.  It is our facility, it’s probably worth $300-$400M if you replaced it.  We’ve got 70 or 80 people there right now working there.  We’re not going to do it for free. If we consider processing somebody’s ore, we want a fair margin on that and that is entirely reasonable.

Matthew Gordon: You can push that margin out because you know what it’s going to cost them to move it somewhere else? It’s easy maths, right?

Mark Chalmers: Yeah, there’s no place to move it to.  If somebody thinks “we’ll ship you some material and you can get a 10% margin on that and we can use the mill whenever we want to” – no, we’re not doing that.

Matthew Gordon: If investors buy into the macro story, then surely now is the time to go and talk about acquisitions?

Mark Chalmers: In the Section 232 process, with the remedy that we asked for, we were staying away from M&A activity because we were looking for an industry solution.  Not just a solution for UR Energy and Energy Fuels and we are trying to allow enough critical mass for there to be competition amongst the various fuel parties that remain in the United States.  Well, if we’re not going exactly that route and you’re more focused on critical infrastructure and what-not, that direction may change. 

So, we are not opposed to M&A activities if it makes sense and maybe a little less or so than perhaps when we in the actual Section 232 process.  But, I can’t stress, we were looking for an industry solution and a lot of other producers or producer wannabes were riding on our backs hoping we would get that across the line.  So, we’ll be open.

Matthew Gordon: Okay, but you don’t want competition though do you?

Mark Chalmers: Some level of competition is healthy.  We’re certainly not trying to come up with a monopoly. Some people said we’re monopolised by owning the mill, well we’re monopolised by owning the mill because we own it and we pay for it.  If somebody wants to go out and permit and construct a mill somewhere else in the United States, they’re free to do that.

Matthew Gordon: How much cash have you got left?

Mark Chalmers: I can’t say in complete accuracy, but we should have a $40M working capital.  We’re still in a strong position compared to our peers and that’s by choice.  We’re glad we have that position right now.

Matthew Gordon: When you told me you need to cash position, you want to have a cash position, it makes you feel in control, are you going to need to go and raise any more money any time soon?

Mark Chalmers: Well, look we don’t want to raise money at these prices, but it is important in this business to not get too close to the wire, and I think that a lot of people own us because of the fact that we don’t sail too close to the wind.  Particularly when you have the permanent facilities that we have.  They are expensive and you don’t want to get that close, because you can have an event like we saw with how the stock reacted on Section 232.  So, we’re going to try to maintain our strong position as much as possible.

Matthew Gordon:  Do you think your shares were inflated before the 232 announcement?  Do you think people were thinking this could go your way and you’re back down at the level you should be?

Mark Chalmers: Well, I mean that’s debateable.  Personally, I think that we got over-punished, but obviously people were in the shares because they thought there was going to be a positive outcome, the story was so strong.  So, I think if you look at right now, even after the 12th of July, a lot of the Uraniums have come off globally.  There were people who were in the stock, you know, they thought that we had line of sight to positive cashflow and profits.

Matthew Gordon:  What’s next – do you wait for these 90 days? What are you doing during that time – is it business as usual?

Mark Chalmers:  The focus is on what potentially can get us to cashflow quicker, faster inflection points, so we’re going to focus extensively on these working groups.  We’ll spend a lot of time in DC.  We’ll spend a lot of time working with the administration and these various groups that will be participating in, the working group. 

We’re still working on the Hill – we had very strong support on the Hill with Sarah Bruckto, Liz Cheney.  We had 50 Congressmen sign a letter in our support, they sent to the President.  We had 39 of our Native American employees that work at White Mason Mill, on their own initiative, wrote a letter to the President.  We’ll keep pushing every angle we can push but, at the same time, we’re going to be looking at our cost and our burn, and how to best manage our balance sheet to give ourselves plenty of runway here.

Matthew Gordon: You said earlier on, you don’t regret doing it, you would do this again, but has it been a distraction?

Mark Chalmers: It took a lot of our time but, as you pointed out, we’re trying to come up with an inflection point.  We’re trying to make our luck, we’re not trying to just sit on our seat.  There’s a lot of people there that all they’re focused on is just doing nothing and preserving their capital and that’s not making you luck, that’s just waiting. That’s just hope as a strategy. 

We will always try to make our luck and, Matt, as you know I’ve been involved in this business for over 40 years, I’ve produced Uranium all over the world.  Our assets are the best in the world for the size that we fit into in terms of these junior companies. I voted with my feet, I came back from Australia for this opportunity – I’ve no regrets that I did that either.  But it’s a tough business, it’s a tough business and if you’re not tough you shouldn’t be in it.

Matthew Gordon: Well, that’s a great point to finish on – that mining is not easy and it’s been particularly tough….

Mark Chalmers: The whole resource sector is challenged, there’s no question, and certainly with the Section 232 petition, we certainly got some attention on it from all sorts of angles.  As I said, it’s been a big challenge, but I can tell you I sleep well at night, I’m confident but, again, I will not be reckless.


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GoviEx Uranium (TSX-V: GXU) – Are Uranium Stocks Correlated to the Stock Market or to the Energy Market? (Transcript)

In the aftermath of the Trump Section 232 Petition announcement, the Uranium market continues to be in a period of uncertainty. Utilities still cannot plan for Uranium contracts. In the meantime, Uranium stocks dwindle to previously unseen levels.

We talk to Daniel Major, CEO of GoviEx Uranium, about his thoughts on the 90 Working Group, put together by Donald Trump. Is it just kicking the can down the road? Will the US Uranium companies benefit from this review. Have the experts been calling this wrong for 3 years or have they just got in early? Could investors have been investing in other things for the last 3 years and walked back into the Uranium market today?

Interview Highlights:

  • Section 232 and the Expected Result vs What Happened
  • Remit of the 90 day Working Group and the Likely Outcome
  • Investment Hacks: Uranium Companies Fall Under the General Rules of Mining
  • GoviEx Uranium and What They’ve Been Doing
  • Reporting and Managing Mine-able Ore for the Market
  • The Uranium Market, the Uncertainty Within it & the Stock Markets

Click here to watch the full interview


Matthew Gordon: Okay, 232, you are going to tell me you expected that result, are you?

Daniel Major: I wouldn’t say I’m that smart, but I’ve always tried to set out both sides of the camp here, and explain why I thought it would not succeed, that there was a bigger issue here.  I think ultimately that’s what’s played through.

The way it was announced – the Working Group, to me – there’s two ways of looking at this.  Is this just purely a can kicking exercise?  You know, couldn’t make a decision on 232.  Let’s kick the can down the road, but we dealt with 232, per se the documentation but we just kick the can down the road for 90 days.  I’ve got another 90 days to think about it and worry about it in the future. 

That isn’t my concern to a degree, that that’s effectively… That goes both ways. That could be, I’m kicking the can down so the miners feel they’re loved, but at the end of the day I’m going to dump half of it anyway – or, I’m kicking the can down because I wasn’t ready to make that decision.  I’m slightly surprised by the rounding argument that was put there because when 232 started, there was application by the miners but they very quickly turned it into a review of the nuclear sector.  So what he’s asking for is effectively what they did at the beginning anyway.  I think the Working Group, to me, is politics.

Matthew Gordon:  So do you think the formation of the Working Group has removed any uncertainty in the market? 

Daniel Major: No. 

Matthew Gordon: No? 

Daniel Major: Because you’ve still got 90 days to think about it.

Matthew Gordon: But if you look at the way it’s been positioned by some groups…

Daniel Major: Yes. Oh, they definitely have their views

(Check out our recent interview with Uranium fund manager Mike Alkin).

Matthew Gordon: Everyone’s right.  My interest is in what the 232 set out to do because it was a conversation around national security.  I think it’s been re-engineered to be a conversation around, “Well, we’ve started a negotiation or discussion around the nuclear industry, from which we (Uranium equities companies) will benefit in the US. So it’s a win-win.”  Are you a buyer?

Daniel Major: No.

Matthew Gordon: It seems to me there’s multiple conversations that could spin out of this. 

Daniel Major:  I think it’s slightly a can-kicking exercise because when you looked at the depositions that originally went in, they came from everywhere.  The nuclear industry, the mining industry, everybody had an opportunity because they expanded it away from just the production of Uranium, and they made it a bigger issue.  So from that point of view I do think it’s, “I need 90 days to think about this.” 

The way it was worded coming out, you could look at it and say, “Quotas are off the floor.  That’s already been taken away. The defensive side has been removed because that’s what he said.  That’s the one categorical element that came out, which is “We don’t see a security issue here.  Let’s get this away.”  Where that ends up at the end of this, I don’t think anyone has any context yet of what this Working Group’s going to throw up or why.  What you might see is trying to make it easier for the miners to go into production – and I’m not talking about price. I’m thinking permitting rules, those kind of things.  That might be where they go and say, “Things have got to be commercial still, but let’s make it easier for BPO filing, that kind of stuff.”

Matthew Gordon: Do you think it was clear what the remit of the Working Group was? 

Daniel Major: I haven’t seen one other than the Working Group which will be formed to relook at the nuclear industry and the supply of material to it. 

Matthew Gordon: So you think it could have been handled better?

Daniel Major:  Not knowing the detail of what they’re trying to achieve, very difficult.

Matthew Gordon: Does anyone? 

Daniel Major: I don’t think so. The US Uranium miners will welcome the Working Group. Not many other people are rushing to welcome the Working Group because no one else has an opinion on it.

Matthew Gordon: I disagree.  I think everyone’s got an opinion on it.  The problem is, is it speculative, is it hopeful, is it a matter of pride?

Daniel Major: I think it’s all speculative at the moment, to be honest, and that’s the way I’m looking at it.  Until I see some clearer direction coming from wherever it’s going to come from to tell us what’s going on, I think the only thing that I’m reading into the decision-making process is this concept of direct quotas for security is probably off the table. That seems to be the only thing that… I could even be wrong there, but that seems to be the only thing I can see at the moment that has a degree of uncertainty – which is that’s gone. 

Matthew Gordon: Trying to work out what a likely outcome could be is impossible because you don’t know what the remit is.  We don’t know the extent of this and there was a dialogue going on before 232 which seemed to omit quite a few pertinent factors like where the utilities companies sat in all this.  There was a lot of conversation around they need certainty, but no one talked about opposition to the 232 petition.

Daniel Major:  They all had to put documentation in.  So there were utilities putting in documentation to state their positioning on it, and they were one of the ones that were very ‘we don’t have an issue, guys.  We buy from Canada more than we buy from the Soviet States.  It’s not a big problem for us and there’s so many places we can buy Uranium from.’

People have always said, “it’s only four per cent of energy costs for nuclear or six per cent.’  But when you’re not making a lot of money, anything is a lot.  You’re squeezing your margins now.  You’ve already taken everything into account.

Utah now sign off their clean energy bill.  You cannot be providing financial support on the one side and then up the input costs on the other side.  It just doesn’t make any sense, and I think ultimately that was figured out. There’s not a lot more we can say on this.

Matthew Gordon:  It’s guesswork?

Daniel Major: Speculation all over the place.  We just watch.  All I hope is that it doesn’t drag out this problem, and particularly Cameco who said they were not going to be going to the market to buy their material until Section 232 was out of the way.  Well, it’s out of the way, but I’m not sure we’re seeing a lot of Cameco buying yet.  So maybe what this has done has also pushed them out further. 

Matthew Gordon: We’ve spoken to one utility and a couple of other players in the market who have said that this thing could go on for as long as 18 months. The Uranium space has got some unusual characteristics to it and there’s a lot of moving parts.  More so than any other commodity, so let’s hope we find out.

The fundamentals of mining still apply, and Uranium buyers, equities buyers, seem to forget that in conversations – it’s relatively convenient to talk about the macro picture, but there are going to be good companies and not so good companies, and that’s important to say.  Why don’t we talk about that? 

We call this investment hacking for our investor community.  With your investor hat on, I want you to describe the sorts of things that you look for in a company if you’re going to invest in the Uranium space right now.

Daniel Major: On your question, there’s nothing different to Uranium mining as there is to copper mining or gold mining, or any form of mining.  Mining is mining.  The only difference is our operators have to wear dose meters and they don’t.  And it’s a real pain to ass to do paperwork.  So I’ve even done pulp and paper in my life.  It’s the same as mining.  You crush a tree down.  You bleach it out and you produce a paper from it.  What’s the difference to putting gold in a mill, putting cyanide on it and producing a gold bar?  The process is the same.  At the end of the day, it comes down to the same things that we always have – what is the quality of the asset?  What is the jurisdiction?  What is the management and the cost?  Nothing is different when you look at companies.  I think the only things that you’re looking at is timeframes here. 

Nobody will dispute the Canadian projects that are currently sitting out there are probably the three best mining projects that are out there.  You can’t dispute Denisa who’s got 19 per cent grade in their deposit, that that is not a good deposit.  I mean, flipping hell!  But this comes down to timing and cash flow.  It’s a great deposit, but as I said, you keep the Ferrari parked in the garage for ten years, it’s a bit boring.  You want to get to the shops, you’ll take out the Ford Mondeo because you can use it to run around in. 

 Someone like ourselves we’ve got a great project, but it’s permitted and you can get going.  And that comes back to jurisdiction and understanding jurisdiction.  Canada is a safe place. 

Matthew Gordon: It is a safe place and I think even with Athabasca there are projects which are better than others.

Daniel Major: Yes.

Matthew Gordon: In terms of they’re shallower or deeper, etc…

Daniel Major: High-grade or whatever they are.

Matthew Gordon:  High-grade or they’re earlier stage, the stock is at a price which may lift more.  If you’re one of the big producers perhaps you don’t see those uplifts anymore.  So as an investor you need to pick what your investment thresholds are and make that decision.   I agree with you.  I think the ASIC is really, really important.  The management team’s ability to deliver is really important.  Encourage Uranium investors to look at the mining fundamentals before they leap in.  Not all comapnies are born equal.

 So with regards to that, are you saying because you’re permitted, you’re the best out of the rest outside of the Athabasca? 

Daniel Major: We have that one big advantage sitting there.  If I was looking at myself compared to everybody else, what is the one thing that has standing out against the rest is I’ve got a permitted project.  It’s ready to roll.  All it needs is an improved price. 

Matthew Gordon: But what are your grades?  It’s not just about permitted, it’s permitted, low-grade, low margin…

Daniel Major: You look at your project.  You go, “There’s my key factor that I’ve got.  Why has this project got real potential?”  And so therefore you go, “Well, I can do absolutely nothing and just hope for a really high Uranium price, but by the time I get a really high Uranium price, time has gone and everybody else… I’m losing my angle.  My advantage is being eked away.”

It’s a bit like IP.  IP lasts you for five years and then if you haven’t made your money it’s gone.

Matthew Gordon: Are you just saying that you’re so far down the track. You’ve got your DFS, you’re permitted. That gives you an advantage, but if that’s your only advantage….

Daniel Major:  That’s where I was going to. So, what we have to do and what GoviEx is completely fixated on. I’m completely fixated on, which is… Well, you either wait for this price or you do your damnedest to drop your cost and optimise your project, so you actually only need this price.  That is what you’ve got to do which is, “I have a first mover advantage,  I need to make sure that this company is turbo-charged to take that advantage when it happens.”

Matthew Gordon: So what have you done?

Daniel Major: So, we had continue… First thing I did when I started the FS, people say, “What are you starting?” was actually to take that opportunity and not bring in a cast of thousands, but to put a small team together that basically said “Look guys, there’s your PFS -what can we do to this project that substantially changes its costing?”  Firstly, let’s forget about 21 years of my life, because we know it’s there and it’s probably actually going to go for 50 years in the end. But this thing has got to pay for itself – it must pay its debt down within five years.  How do you change this project to pay its debt down in five years? 

So that’s why it was important to get Merriam in, the other part of Merriam that was missing – the six million pounds that are there in measured and indicated, because that meant the open pit was now longer than the debt period.  So the debt guys could do that.  So that basically simplifies the project that the only bit we look at is an open pit.

Matthew Gordon: So just simplify it for people – open pit means cheaper, right?

Daniel Major:  It’s cheaper, it’s simpler.  Banks understand it, it’s literally digging a hole in the ground.

Matthew Gordon: It’s less risk because it’s pretty much all at surface, because as soon as you go underground there’s uncertainty about where things are and the cost of actually getting at it.

Daniel Major:  It’s a more complex mining methodology, ramping up… digging with a truck and a shovel, pretty basic.

Matthew Gordon: Right, so that’s the first great thing which has happened, where you with other things?

Daniel Major:  So now we’re looking at contract mining, because I can cut out about $25 million of capital if I can get a contract miner in.  What we’re doing is trying to find that balance between operating costs and capital costs, because you’ve got to get a better or same return out of your project.  Because the contract miner’s going to want a higher operating cost, because he’s got to consider his profit margin and his amortisation of his mining equipment. So you’ve got to deal with that. 

So we’re out talking to, and getting quotes from, almost a dozen contract miners around.  That’s the big difference from when we did the PFS, because there was nobody who wanted to do contract mining in Niger.  Now there’s lots of people  more than comfortable to do it because Niger as a jurisdiction is becoming more and more appealing.

The other thing…and things like the plant was designed to be on top of the underground because that was the biggest mass, but we have to truck to it every time.  We’ve got to go 25 kilometres to get to the plant from the open pit, so why not just move it next to the open pit and start there?  There’s some longer-term benefits to that, and I won’t go into detail on that now, because we could talk for hours on that. 

The other big thing was to look at the plant and just say “Look guys, 50% of our costs, from an operating cost, and two-thirds of our capital are in the process plant”.  If we’re going to make savings on capital, it’s going to have to come out of the process plant, just by scale – that’s where it all sits – operating costs.  Very hard to change the mining costs a lot because, you know, it’s pretty basic.  Can you do anything really radical to the process costs to change it? 

Our biggest issues were new technology we were applying anyway, and we wanted to make sure it worked, or change it to get rid of it, to de-risk.  And we were using a fairly aggressive costing approach on Uranium recovery using solvent extraction.  It’s still built into a $24 cash cost, but it was still an aggressive way of doing it.  So, we basically sat down and broke that out and said: “what can we do to radically change that? What’s new, what haven’t we spotted before?” and that is what we’re doing.  So we’re now looking at gravity.

And some of these things come because of a result of what you’ve done before – you learn.  And you go “Well, we did this and this, and that changed, so now we have a better understanding of how material operates.”

Matthew Gordon: You did a “what if” exercise?

Daniel Major: Yeah, so as you go through, you go, “Well if that didn’t work, but we realised what the parameter was that was causing the reaction.  However, if we now apply that somewhere else, we get a radical change.”  So, we’re looking at a process where we’ll still do radiometric shorting because it’s good at clearing out.  We’ve got a big test going on in South Africa in the next month to just check that. 

Then we’ve looked at ablation which we were using before but, because ablation shrinks everything down to a small size, we did some dry ablation work.  We got dry ablation to work, but unfortunately it wasn’t scalable – we had too many little bits of equipment.  So, you need 14 rigs to make the thing work.

Matthew Gordon: Did things go wrong?

Daniel Major: But what we did realise is that gravity works.  I mean like there’s a massive SG, specific gravity, difference between the background material and the Uranium and that works.  So we tested that.  It has a benefit because we’re getting massive scale…we’re getting really small mass pull, so we’re coming down to less than … These are initial tests and we’ve got to prove them up, but the initial tests were showing only 20% of our material would be going through with 99.7% of the Uranium.  But the key was almost no Calcite.  And Calcite eats up acid, and acid is 10% of our operating costs.

Matthew Gordon:  Wow!  I didn’t appreciate that.

Daniel Major: So I can cut my acid costs down a lot, I’m going to save a lot on operating costs.  The other important thing is it looks like it simplifies the back-end of our plants as well to a much lower cost back-end, and smaller.  So, these are the things we’re kind of looking at to say “what can we do to radically change the project?”  Think outside the box, test it for low cost and then gradually scale it through. 

There’s another side to this, to my brain thinking, as well, which is – if I simplify the process, the piloting becomes easier as well.  So I’m trying to avoid some of my piloting because, if I can revert completely to industry standard, I can do things on very small batches and therefore save the amount of money I need to complete the FS.  So I’m trying to save not just on the project, but how much money do I need to complete the bankable?  

Matthew Gordon: I saw the press release, last week. There were some  very important people there.

Daniel Major: There were some important people there. We got the President of the country and some fairly big hitters from his Parliament into Arlot. The President hadn’t been there since 1970.  So it pulled him back to his roots.  We had a first stone-laying, which doesn’t mean we’re going to start construction today, and even the Mines Minister said it won’t start straight away, but it was just to really highlight that the Government is really getting on with things and we are. 

What happened in that agreement we did with the Government was we, in exchange for not paying back seven million Euros that we originally owed them from the acquisition, and we disputed about $6.6M of surface right taxes.  We said, “Look they’re not due because of various technical reasons.”  We agreed to convert that into a share in the project with the Government for a 10% stake.  The intention being that in the future we have the right to buy it back again so they get their cash back, because they didn’t want to actually want to put more equity into mining companies.

The other thing that was key to them…and the Government kept talking about one particular item – the President made one point repeatedly, which is he felt Niger had suffered from the injustices of the Uranium pricing in the past. The Government is looking for transparency and is looking for engagement.  And as long as you’re doing those, it wants to work and it wants to actively develop.

Matthew Gordon: Quite often they do love a photo op and it fills the papers and it’s just for the voters, and nothing actually happens.  So why was this significant that they came up and saw you?

Daniel Major:  Why was this significant – because of the agreements we signed with them.  That was the key thing, because it showed we are moving forward.  They could have gone hard on us and said No, pay up your money – you owe us this money, pay it”, and they went “ No, this is much more pragmatic, we want this company to build. Commonack is supposed to be closing, we want a new project, we want to work with you and get you to develop a mine”.  So it was very much….part of it was obviously politics, but part of it was actually stating “we are moving forward” and that is key. 

Matthew Gordon: So you’re keeping busy, you’re doing things – optimising, getting the ministry and the President of the country involved. But things are where they are today.  Things haven’t moved and we talked at the beginning of this interview about uncertainty still with the 90 day Working Group.  I think there will be for some time. How are you fixed in that – how long can this go on for you at this current rate? When do you need to see something move?

Daniel Major: We’ve gone for a long time in this process and it’s bought us time.  I mean, if we’d have had to do this back in 2013 when we did the PFS, that would have been the project we were building.  It’s given me time, ultimately, to get a better project together which will last for a lot longer.  This is the point I made in my speech – this is not just about producing a mine for now, this is one that can go for the next generation.  It’s a 50 year mine plus, and it needs to have the foundations to do that.  So, we can go for quite a lot longer but, getting back to the original comment, I don’t want to be waiting for this price, I want this price.  And at under three million pound per annum, we don’t make a lot of difference to the market.

Matthew Gordon: We’re getting into a discussion about mineable ore.  A lot of companies have put out big numbers, big numbers, but they’re not discussing mineable ore, i.e. what levels can they economically mine at today, next year, the year after? What do the numbers need to look like?

Daniel Major: If you look at today, there aren’t many people who can mine mineable ore today, but you’re looking at trying to pull together a project that one, would only be in production kind of two or three years from now, to start with.  Who knows what the final market will look like in two to three years?  This isn’t a restart, this is a new build.  And we’ve discussed this before – what I’m looking for is that momentum. 

The other thing I’m looking for is to be able to take a much more interesting project…we have a great project, but I want it to be super great because I can then go and start talking to the off takers way more aggressively, because they want certainty of supply.  And if I present now they’re going “Well hey mate, you’re going to need a much higher price so let’s wait”.  When we go in and say “Well, actually I can get away here. This is the contract I want, here’s my nice project – you can provide that greater fiscal security” and the banks.  So nothing really changes, but like everybody else, we need momentum. I mean you can’t move….

Matthew Gordon: You need momentum. The conversation is getting into how miners manage the numbers.  You’re talking about open pit for the first few years of this, get past the debt position and then, guess what, the costs will go up and I think other people take that attitude – let’s get the good stuff out of the ground, pay off the debt, get some cash flowing, you know, and that’s the way that they approach this. 

We’ve been looking at some studies with regards to mineable ore numbers at different levels, and obviously it starts small and builds up as you go up that curve, but at some point there’s an optimal number for the market….you want to sell for as much margin as possible, but there’s an optimal level for the market.  Where do you think that is?

Daniel Major: We talked about this before, when you asked me about…  I think it was in the very first interview we did and it was…. my benchmark for this project was to get below $45 Uranium as an incentive price That was the price.  And my rationale to that was Cameco, when they first closed everything down, said $50 was their number to restart McArthur River.  McArthur River coming back on is 18Mlbs, you know, it’s no small amount arriving and the Kazakhs, we know,  can take their material up. 

So, I think in the short to medium term my rationale has been – Cameco will restart when they’re comfortable that the market is right.  The one thing we haven’t seen is that buying, Cameco just upped the amount they need to buy by the end of the year by 7%.  That’s got to have an effect, no matter what happens this year, Cameco have got to meet those contracts so I think while we’re concerned about the 90Mlbs today, Cameco has got to be saying “well at some point we’ve got to pull the trigger,  we have got to be mining material”.

Matthew Gordon: So they’re the guys who are going to blink first in this process…

Daniel Major: They’ll have to.

Matthew Gordon: …and set off a series of events.  I guess everyone’s hoping that.

Daniel Major: Well, yes and I think they will.  What they didn’t like to be was the only guys in the market, but I think the reality is US utilities now can be a bit more comfortable because, yes there’s a Working Group, but there’s nothing defined – there’s no Section 232 thing going on, there’s a chat going on in the background.  But I think, more importantly, is that Cameco need to buy material to get what they need.

Matthew Gordon: We’ve talked about dealing with the oversupply in the market at the moment, eating that up, but you think it’s being eaten up at a rate which is unsustainable for very much longer.  So, you must therefore be able to put a timeline on this when you think it’s going to…?

Daniel Major: I think by the end of this year we’ll have seen that momentum kick into gear.  I think Cameco’s actions…unless something really aggressively comes out of the US Government, which I don’t expect it to occur.  If they’d have done something super aggressive, I think they would have already done it.  I think that demand pull for Cameco will start to move things.  We’ve seen inventories gradually coming down elsewhere – if you look at UXC’s numbers for US, Europe, they are dropping.  Then if you look from next year onwards, the uncovered contracts issue starts to become a much bigger problem, because at the moment they’re relatively well covered, Europe I think is covered next year, but even the EU came out, because not everybody is in the same place, so some utilities are well covered, some are less well covered, and they are starting to flag “guys – those of you who are less covered should probably start thinking about getting cover in”.  So I think, as you move into next year, that contract market’s going to become a bigger and bigger issue.

Matthew Gordon:  I’ve looked back at videos for the last two to three years – the great and the good in there quoting when it’s going to turn out, how much it’s going to turn by. And you could argue – you just got there early, we’re ahead of the crowd.  Or you could go “you got it wrong guys, for three years you got it wrong”, but we’re now at that point where everything’s there. 

Do you think Uranium is going to become less susceptible to the turns in the market, because of the nature of what it is going to be able to allow people to do with regards to energy?

Daniel Major:  I think it has the potential to do that.  Will it react directly to it? I think given that it has a single big driver behind it, then I would agree with you that it has that potential to do that.  And I think you and I… We all in various ways had all the right pieces, we were just all missing bits and pieces of it, which have had bigger effects than we have expected them to have.  Section 232 has had a far greater impact than anybody ever thought it was ever going to have.

Matthew Gordon:  It was a much bigger organic jigsaw puzzle than we realised and there’s a lot of people with vested interests and influence which had not been taken into account.  Not by the big funds, not by anyone in the market place and it’s kind of a reality check when these moments occur.  But what I’m more excited about is the fact that Uranium is getting to that point, despite the demand gap supply story is there, and the macro story is there, it’s going to get to that point where you can’t do without it, because there’s so much infrastructure being built now that, even say if there was a downturn, I’m not sure Uranium gets affected in perhaps the way it once would have?

Daniel Major:  No I don’t….look – again we’re predicting if you like…

Matthew Gordon: Sure, that’s the fun bit isn’t it?

Daniel Major: Not going to comment, I’ll probably get it completely wrong!  Look, the fundamentals that are all there – the tightness in the market, the fact that you’re going to have existing producing assets fading away.  You’ve got about a two per cent growth in demand going out there; you’re going to have longer protection to the US reactors, I think you’re going to see more life extensions coming through.  The fundamentals are all there for the Uranium market….

Matthew Gordon: At a macro level?

Daniel Major: At a macro level to be completely counter-cyclical if you had a falling market.  What will affect, obviously, was if the market’s going one way and is that having a dampening effect on where it could go? Or is it going to completely ignore that?  That’s going to be be your factor, which is a falling market – does it just put a brake on it?  It will still rise, but it will just rise at a slower right because the market’s not helping it.

Matthew Gordon:  So at a macro level, I think everyone is in violent agreement with each other.  At a micro level, my concern is still in terms of this investment hacking-type advice we’d like to give people is – look at the small stuff – look at the management team, look at the asset, look at the economics, the fundamentals, those things still apply. 

Daniel Major: Correct, absolutely.


Company page: www.goviex.com

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

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

Orezone Gold Corp (TSX-V: ORE) – Getting it Right in West Africa and Look at Imminent Re-rate (Transcript)

President and CEO of Orezone (TSX-V: ORE), Patrick Downey, is very optimistic about what they have and how they can drive this business going forward. The technical aspect has been de-risked significantly, they have lots of drill data, a much more simplified mine plan from the one they inherited, good jurisdiction to work in, a small CapEx, short time to production, and possible about to re-rate when the imminent debt component is finalised. One we have a lot of comfort with and take great interest in Orezone Gold.

A great West African gold story, with a very simple and effective approach to mining. The management team has a long track record of making shareholders money by creating meaningful mining businesses. They have increased their NPV by $140M since we last spoke to $360M.

Their project in Burkina Faso is surrounded by large Gold companies such as B2 Gold, West African Resources, Endeavour, Semafo. They also have large gold investment funds such as RCF, VanEck, Equinox and Sun Valley invested.

We discuss these topics and more:

  • Recent News and Updates: What caused the Share Price to Spike?
  • Simplification of Processes
  • The Management Team & Remuneration
  • Company Financials and CapEx
  • Will investors make money and what should they know?
  • Managing leaks in to the market
  • Debt and Remodelling the Drill Program

Click here to watch the interview.


Matthew Gordon: Hi Patrick, how are you?

Patrick Downey: Very well. How are you?

Matthew Gordon: Not bad. Now we saw each other back in May at the 121 Conference.

Matthew Gordon: And you were doing the rounds there.

Patrick Downey: That’s correct.

Matthew Gordon: One or two things have happened since then. Perhaps we should talk about those.

Patrick Downey: Yeah. I think when we talked at 121, we were just at about the final stages of our updated Feasibility Study. It came out actually better than we originally thought it would. We said in January that we were going to build a 1.2Mt Sulphide plant. It turned out that we were capable of building a 2.2Mt. A little extra capital but significantly better economics.

Matthew Gordon: Well we should talk about that because obviously your share price when we met was at $0.39. It’s now at $0.62, you’ve had a nice bump there. I’d love to take all the credit for that but I think it’s down to the Feasibility. So we better talk about it. So why don’t you give us the highlights there. Because the the NPV is changed significantly. Some great numbers in there.

Patrick Downey: So essentially, in 2018, the NPV was around $220M. What we did was we really planned this on the basis that we could build the Sulphide expansion from the cash flow of the first couple of years of oxide. The oxide in the first 2.5 years are really high cash flow because there’s really no pretty stripping, low strip-ratio. And it’s the highest-grade oxides right out front. So that’s a pretty simple circuit build. So we looked at the Sulphide. We expected to be able to build a 1.2Mt per annum plant there. But once the Reserves started coming together, it became pretty obvious to us that we were going to run out of oxides before we ran out of Sulphide, so we married the two flow sheets together to come up with a 2.2Mt per annum Sulphide circuit. So that comes in in year three, and it adds around about 700,000oz of recovered Gold. So we had about a 1Moz in the first of the oxides, we’re now at 1.7Moz. The margins, as we had in those ounces, are significantly better than the margins of the oxides at that time.

Matthew Gordon: So what’s the additional cost to you for doing that?

Patrick Downey: There’s a small resettlement program at the bottom end, which is an area right to the south. Including that we’re around about $65M. And we could have built this for significantly less, probably $10M or $12M less by integrating the Sulphide circuit into the oxide circuit. But we made the conscious decision to build a separate circuit so that we could operate the oxides fully independently from the Sulphide. So when you crushing Sulphide, grinding them, you’re not interfering with the oxide circuit. They only actually blend once you put them into the CIL circuit.

Matthew Gordon: So that’s getting a wee bit technical. Okay. You could have saved $10M to $12M, but you chose not to because you can keep them separate. That’s got to be an economic decision at some point. It’s not just about what you’re saving?

Patrick Downey: It’s an economic decision from an IRR or an NPV point. And also purely from an operational viewpoint. The oxides are no crushing. So you don’t have any of that. It’s very simple grinding. It’s significantly less cost. You add in a Sulphide mix there and you can have…we believed you could have operational issues going forward. So this just allowed us to completely separate that and make it a much simpler circuit.

Matthew Gordon: That sounds more like what the decision is based on, in terms of it is simpler. Because the IRR hasn’t moved much. You’ve moved 1.2%, you’ve gone from 42.6% to 43.8% so it’s not a significant shift but obviously the NPV, over $140M more. So it’s impressive. You used a phrase with me last time, what you bought was overly complicated and you’ve tried to simplify it. Would you say that’s the secret sauce?

Patrick Downey: That’s the way we want to keep it. We’ve always made this so that…really when you put in a Sulphide, a big SAG mill which we’ve got there, a Semi-Autogenous Grinding  mill, you do have periods of time of about a week where you have to do complete re-lining of that SAG. Your plant’s down. And that’s fine. But the way we’ve done this, when that’s happening, the oxides can continue running. We don’t interrupt them. It’s a very simple circuit in places like Africa that’s a real bonus. And we do it because the CapEx for the for the oxide is reasonable. And the CapEx for the Sulphide is very reasonable because we’re not adding CIL, we’re not adding tailings. We’re just adding a bolt on section. And that’s what that’s what really drives the the NPV.

Matthew Gordon: So again I want to talk about a few things. We can talk about the project as a whole, you’re in the right postcode. You’ve got B2Gold, West African Beso, Semafo. Everyone you need to be around to endorse, this is for people new to this story, you’re in the right place. You also talked us last time about de-risking and you spent a lot of time in terms of talking about the de-risking of the project. So why don’t you tell people some of those things. I’m trying to give them a sense of the type of management team that you are.

Patrick Downey: Well, we’re a very operational focused team. Generally when we look at a project, we look at it from ‘how will we will we operate and maintain this and make it simple’. We visited a lot of projects, not just Gold mining projects. For the oxide, we looked at it from the point of view of handling this sort of material. It’s fine grained, it’s got great properties in the sense that you don’t need to crush it, minimal grinding. But it’s Clay, it’s sticky in the rainy season, how do we get around that? So we designed the front end with a little bit more capital to allow us a simpler operation. We visited Nickel laterite projects, we visited Bauxite laterites. And we came up with some great ideas from those operations that we’ve been cooperated into this. On the Sulphides, we looked at it and said ‘well look, this has to be a crushing grinding circuit’. So if we blended in with the oxides, now we’re adding a level of complexity there that we don’t need to add to the oxides. We’re going to need it for the Sulphides. So we looked and said ‘how do we simplify this from an operational point of view’. So we made it totally separate. We can look after it. It’ll only ever deal with Sulphide rock. So when we have to maintain it and line the SAG mill etc. we don’t interfere with any other part of the operation. It can all be done with a small specialist crew that do not have to worry about getting back up in two days or things like that. And when we talked to our operating team about going forward, they loved that aspect of it. Doing this gives them that flexibility.

Matthew Gordon: I just want to point out, your AISC is low. You’re at about $730 you’ve talked about and I’m sure you will refine it over time. You’ve reduced technical risk, you’ve got…the thing that interests me is the small CapEx number. It is a relatively small CapEx number which I suspect you’re going to deal with using debt? You’ve said you’ve had some debt conversations? So how are they going? What’s happening?

Patrick Downey: They are progressing very well. One of the aspects of adding the Sulphide to the  project is that you still only have to borrow the money in debt terms for the oxide project. But you’re adding significantly more ounces against that and you’re not having to go to increase your debt load for the Sulphide. So we believe that gives us much more debt carrying capacity on the front end. So it really, essentially reduces the amount of equity we would have to issue at the front end going forward. So that’s a very, very important part of this project. Even when we built this Sulphide project, we never go cash flow negative during that period of time. We’re still cash flow positive. So we can build the Sulphides out of cash flow and we can continue to pay the debt for the oxides right through that. And we have a longer mine life of which to amortise that debt against.

Matthew Gordon: Yeah some really, really interesting, what people call Catalyst moments, hopefully for you. And when we talked last you said once we get this debt in place, I think we’ll get a re-rate, because people will have some sort of level of comfort as to when we’re going to get into production. Do you think, the way the market’s going with obviously being Gold up and you’ve seen a bit of a bump since the Feasibility Study has come out, or maybe partially because Gold is up as well, we don’t know who’s going to take credit there entirely. Do you think you’re going to get this re-rate?

Patrick Downey: Yes. I think when we’re able to announce the quantum of debt that we can carry against the project, and that the project can pay back, then people will know what your equity piece will be and then they’ll know that it’s not one of those equity pieces that will end up crushing you. The NAV per share is is really badly affected.

Matthew Gordon: You’re about $0.2 on your EV/NAV ratio which is obviously quite low. You’d hope to be nearer $1, wouldn’t you?

Patrick Downey: Yeah. So what we want to do there, is go out and in generally August, September, probably September to get the story out more. Get people to recognise the story. I think hopefully we’ll be able to make a few moves to show people where things are going. And at that point we would essentially look at where we put the pin in on the debt at that stage. So the debt is proceeding very well. We’re going through the technical due diligence now. We would expect that to be complete sometime in late August, early September. And then at that point we’ll start to see what level of debt we can carry.

Matthew Gordon: Are you getting any pressure… obviously things are moving along and the share price that has taken a bump recently, going up which is great. Are you getting any pressure from people like RCF, who we talked about them a very technical partner and committed partner. But they came in at $0.80, they must have some degree of comfort as to where this is going. Probably long term players, maybe they were never worried. What are they talking to you about?

Patrick Downey: I would frankly say they really, really like our project. It is one of their key projects. They tell us. They’re a great supporter, we have been very communicative with them, we have monthly updated management meetings with them. They’ve been to the project, they’ve now seen the study. They’re now taking all of the technical data from the study to see what it means for them. But I can tell you, they would be more than happy to add to their ownership at this point. When we sat down with our RCF, and we knew each other from a long time before on other projects. When we sat down with them, had a program and a plan as to how we would execute and I think they’ve seen that we have absolutely executed to that plan. Which doesn’t always happen for various reasons, and that gives them that great degree of comfort.

Matthew Gordon: That’s interesting point, I’m sorry to segue off of your company because we’re here to talk about you and what you’ve done Patrick, but it’s an interesting point. We were talking to a bunch of investors around this component of how do you keep information, reports whether it be an FS or otherwise, secret. How do you stop leaks from happening? As a CEO, how do you manage that process? In my view is, there must between 10 and 100 people touching that before it comes public knowledge. What’s the process?

Patrick Downey: Well the engineers are generally very focused and doing the engineering. They’re not focused about leaks or telling people. And they’re not generally market minded really.

Matthew Gordon: I know that but it just, it gets out you know.

Patrick Downey: Well when we set out to do this, our technical group…internally we did a fair amount of work to figure out was this worthwhile going forward and doing. So we put out a press release in January that was very detailed in what we were doing and how we were going to do it and what we felt it was going to look like et cetera. And it was all based on on technical fact, that was already generally in the market. We weren’t telling anything that we were guessing at or whatever. And then when we walked through it with our shareholders, we generally…if you just give them ‘look we think things are going well, things are on track, we should have the study by Q2’. We think it allowed something in the region of $80M to $100M to our NAV. It obviously turned out to be better than that. And so you’re on track. Generally people can read. When you’re sitting in front of investors and they say ‘well when you when you talked about this a few weeks ago you were saying $80M to $100M, do you still think that?’. If you hesitate they’re going to go ‘oh that’s not good’. If you’re confident and say ‘well at this stage, yes I would believe that’, that’s what we’ve said in the public market. We have no reason to change it, so you keep it in that way. So there is a fine balance between keeping people continually informed, your disclosure and making sure that you’re not saying anything that’s not in the public market. We are generally very conservative about how we go about it, and we take a conservative viewpoint. We generally don’t actively market during the critical phases of the study. We only go out when we’re ready to talk about it as we’re going through it, but not when we’re in the critical phase. We do not market. We do not talk about it..

Matthew Gordon: Would you agree that sometimes in the market it perhaps doesn’t go that way? I appreciate how you manage it.

Patrick Downey: Oh yeah absolutely. There’s times when you go ‘well that wasn’t right or how come you said this’. So things do get leaked out but I would say from our point of view, we were very, very close. I mean even my directors, I kept them informed but until I knew where the numbers were almost absolutely right. It was only then that I said to the directors this is where I believe we’re going to be and we’re going to be ready to put the pin in it in two weeks.

Matthew Gordon: I appreciate that from you, we like your story and we like the way that you run a very tight ship. You’re one of the most active retirees I’ve ever met, as you said last time.

Patrick Downey: My wife says that as well!

Matthew Gordon: Because it touches on one of other subjects which we keep getting asked about, which is around salaries and remuneration and so forth. You guys have put your money where your mouth is and you’re remunerated along with the shareholders. So you are one of the few companies where you say we are aligned with our shareholders and mean it. We have been getting lots of questions about highly paid mining executives. But I think you don’t perhaps fall into that category, which is great. Let’s talk about one last thing if I may. You are going through a resettlement program at the moment, which we think is quite important obviously. Again another thing where you can cut costs, but you haven’t. Want to tell us about that?

Patrick Downey: No. And I think I really have to give a lot of praise or praises to the guys down there on the ground who have been running with it and doing all of the work in the background, they did a fantastic job. We approached this again in a very systematic manner. When you are building a mine, you are upsetting other people’s livelihoods. And generally you have to move and it’s very well controlled and managed in Burkina because there’s been a lot of mines built. But we went about it whereby, we didn’t go cheap on the houses, we got everybody to sign off. But one of the key things that we felt was like, these guys are signing off on drawings and maybe they don’t fully understand. Let’s build sample houses, it is going to cost us a little more. Let’s build sample houses in each village of the type of house we’re building, let the communities come inside, look at the finished product. Give us any changes or issues out there that they’re concerned with. We did that. We did have a couple of changes actually. It was around capturing water and stuff that they were going to use and they were extremely happy. That got out to the authorities in the sense that the mayor, the ministers; we had a wrap opening ceremony in May. Sort of unprecedented in that part of the world. We allowed for a thousand people to attend, three thousand people attended. That’s all of the communities. Everybody turned up. It was a fantastic day, a fantastic celebration. And it goes to show you the work that we’re doing, not just in building houses but in the livelihood restoration that we’re doing, the work that we’ve put into community programs, water, schools, restoration, all of those things. I got to say I’m extremely proud of that. I’m extremely proud of what the guys have done and how well it has been managed and executed on the ground.

Matthew Gordon: It’s very very important. It means a lot to people there for sure. OK. We are going to finish up. Can you tell me, you’ve extended the life of mine, 10 year life of mine. 133,000oz near 134,000oz over that period of time. You’ve done your FS, you are looking at the debt position at the moment. Will get into production. You are $130M market cap today. Something wrong with that picture. What should investors know?

Patrick Downey: Well I think that we had to little bit of the legacy of what occurred in the past, and we were getting out of that as we move forward here. I think also as they see us continuing to develop the project, the confidence level will come back to it. We are getting a lot more inquiries about the project and the company. The other key thing that I think will happen and it would be a catalyst here, we have been drilling reasonably quietly, but we decided that there was a model here that we should focus on particularly in what’s called the hanging wall of the project, the Maga Footwall zone is very continuous. That drilling was very successful, the modelling is coming up, it’s very exciting. Some of the grades that we have there are seven eight times the average grade of the deposit. It’s wide open at depth. So that’s going to be I think a very exciting catalysts going forward. We are going to put aside some money for that over the next year to do more drilling. And I think once that people understand what that means, drilling still gets people excited about a project. And it’s not just building it, it’s also showing that it’s got a long life and it’s got great upside. And so we’re just about to finalise that model and then we go to the board with a proposal to set aside a certain amount of money to drill it over the next 12 to 18 months. And I think that would be another big catalyst for us.

Matthew Gordon: In the short-term?

Patrick Downey: In the short-term, getting the debt in place and showing what the debt carrying capacity is. Maybe some other moves on the debt which we’ve got a lot of irons in the fire here that we’re looking at. That will reduce the level of equity that we have to put in. And as you rightly said, we are in there alongside our shareholders. We are big shareholders of this company. So NAV per share for us as employees and management is extremely important. It’s not building just for the sake of building a project. It’s building a profitable project that returns equity to the investors, and that’s what we’re looking at.

Matthew Gordon: Patrick, I appreciate your time today. It’s a great summary. Great to speak to you again. I think it’s a really, really strong project in West Africa. People should be looking at it. We look forward to speaking to you again soon sir.

Patrick Downey: Yeah. I hope the next time I speak to you, we will have double the share price again.

Matthew Gordon: That would be lovely. That would be lovely.

Patrick Downey: And I will give you credit!

Matthew Gordon: Finally, finally! Well thanks again for your time. We’ll speak to you soon.


Company page: https://orezone.com/

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

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

Bannerman Resources (ASX: BMN) – 5 Things You Need to Know About Section 232 (Transcript)

We interviewed Brandon Munro, CEO of Bannerman Resources (ASX: BMN), the Namibian Uranium explorer. He joins us to talk us through his recent article about the implications of Section 232 as well as the WNA Fuel Report and how it is put together.

Click here to watch the interview.


Matthew Gordon: Good morning Brandon, how are you?

Brandon Munro: Very well Matthew. Thanks for having me on again. I really enjoyed chatting.

Matthew Gordon: That was a great conversation I thought, a lot of people got a lot out of it. It’s good to be talking again. So, a few things have happened since we last talked. Why don’t you give us an update on the company? What’s Bannerman been doing?

Brandon Munro: Yeah well as many of your audience would know, Bannerman Resources has the Etango project in Namibia. It’s a very, very large project. 270Mlbs of U3O8. Namibia is a fantastic jurisdiction to be doing business in. Not only is it a great country for getting things done, it’s a lovely part of Africa, and I’ll in fact spend some time there with the family next week which we’re looking forward to. But it’s also a great Uranium mining jurisdiction. We’ve been mining Uranium there for 45 years, all of the infrastructure is in place. Everyone from the society to the government is very comfortable with Uranium. Very grateful for the contribution that Uranium has made to the country and for that reason we’re permitted. And we just don’t have many of the challenges that are particular to the commodity of Uranium, that are experienced in other jurisdictions. And so that’s our project it’s very advanced as you know, we completed the Definitive Feasibility Study (DFS) back in 2012. The main activity that’s going on the ground, is engineering, picking off aspects of that original DFS and some of the optimisation work done since then, that could do with a refresh. There’s a lot of technology that we looked at back in 2012 that existed but wasn’t sufficiently proven that we were prepared to affect what is a low risk profile of a project by introducing new things. Now obviously things have changed and things have happened and some of those technologies have fallen by the wayside and some of them are well and truly proven. And examples would be some of the nano technology that we’ve successfully deployed with our program. So we are working on that and because it’s such a massive project, an average of more than 7Mlbs per annum, even relatively small and incremental improvements do make a big difference. And we’re continuing that process until we get closer to a market that enables us to finance, at which point we will just draw all of those pieces together and update the DFS work that we’ve done.

Matthew Gordon: Well that’s a really nice segue actually. The old phrase would be, your shovel ready, ready to go. There’s some optimisation which you can look at in terms of the technologies. But the big elephant in the room that everyone’s been talking about and getting excited about, coming on the 13th or 14th of July this year is the announcement around the Section 232 petition. You have done a lovely ‘five things you need to know about a section 232’. You’ve kindly of agreed to talk us through that. I read and I love the simplicity of the way that you laid it out, but it was very intelligently laid out. So, can we run through those five things you need to know?

Brandon Munro: Yeah. Love too. And I enjoyed writing it so I’m glad you and a few others enjoyed reading it.

Matthew Gordon: It’s been really well received. But for those people who haven’t read it or perhaps not quite aware. So, UR-Energy and Energy Fuels, with some help from a couple of other people, have submitted this petition to the US government. Why don’t you tell us about that just very quickly, then we’ll get into the five key points?

Brandon Munro: So, they submitted a petition back in January 2018. And it took the whole market by surprise, including the utilities and those of us on the production side. And it came at a time when the market was starting to improve. Cameco had just announced a couple of months earlier that they were putting McArthur River on to temporary care and maintenance, and within weeks we saw Kazatomprom announce supply cuts. What we saw was a market that was already showing good solid green shoots of improvement, that was suddenly surprised by this action. And the petition had the effect that a lot of bids were withdrawn from the spot market. Whilst utilities and others, and traders, started to try and make sense of what the implications would be. And for a lot of people they, although they’d been a little bit of activity in Section 232 for Aluminium and Steel and so forth, for many, many people they really had to get on Google and start figuring out what this was all about. And we’d been obviously talking to utilities a lot. I’d been in the room with a bunch of them through WNA only a week before the announcement was made and they were actively preparing procurement strategies and procurement programs. In other words, that’s the key precursor to reigniting long-term contracting, and all of a sudden, they were all iced. No one was prepared to make a move until they knew what the implications were and what it actually meant. So that was a petition. Now the petition isn’t the investigation. The petition is simply a request or a petition that the Department of Commerce picks up the investigation. And it’s a bit unusual. The ones that are well known, Steel, Aluminium, autos; they’ve all been initiated by the Department of Commerce themselves with a bit of insistence from the White House. This one was a little bit different and what followed was another six months of uncertainty whilst we waited to know if the Department of Commerce was going to pick the thing up, ignore it, or do something totally different. And so that broke in July 2018. And at least at that point we knew, well something’s happening, and the statutory timeframes that exist under that Trade Expansion Act started to kick in. Fast forward almost 12 months as you say, the process is coming to the end because the Trump administration now needs to decide on whether they accept the Department of Commerce’s recommendation, that there are trade actions that threaten to impair national security. And if so, what actions if any will be taken. And as you say that’s 13th of July in the US, 14th of July for most of the rest of us.

Matthew Gordon: Why don’t we look at the five points that you’ve identified that people need to think about here. And the first thing is, what’s the likely outcome? That’s a big question.

Brandon Munro: The point that I’ll make is there is an array of outcomes here. And it’s impossible to say ‘this one’s more likely than that one. And this is the one that I think is going to happen’. And I know that some of my friends will start poking fun at me because I am a lawyer by background. But I promise you I’m not one of those lawyers who is too scared to ever make a prediction as you will remember from the last time I was on, I’m prepared to put myself out there if I believe something. In this case, there are so many outcomes. We’ve got an administration that has benefited in various sorts of negotiations by remaining unpredictable and has a history of approaching these things in a very unconventional way. And also, when you look at the merits of the case, I think you’ve got a very even hand between the utilities who are opposing the investigation and any remedies. And the proposition on which it’s been based, which is the US imports almost all of its Uranium, which opens it up for a potential impairment of national security.

Matthew Gordon: You said something which I think which we haven’t really been discussing with the Uranium companies. You’re saying that the utility companies are opposing the basis of the petition?

Brandon Munro: Yes, very strongly.

Matthew Gordon: And on what basis are they opposing it? What’s the problem that it will cause for them?

Brandon Munro:  The primary argument from the utilities is that any trade action, particularly the quota, and obviously a tariff that will increase their costs. And they obtain some economic analysis that they have on their website and that they’ve filed with the Department of Commerce during the process, which indicates somewhere between a $500M and $800M impost compared with what they can currently buy on the spot. Now there’s a few arguments that you might levy against that. For a start, they aren’t paying what they can currently buy on the spot, they are paying blended prices and that’s quite transparent and significantly above what they can buy on the spot at the moment. But the theories and the concern from them is that a 25% quota would create a marginal cost of at least $70/lbs in order to incentivise enough US production to meet that requirement. Now the argument with the utilities, which I think has been very intelligently and strategically made, is it’s a tipping point argument. So as many of your listeners would know, U3O8 as a component of nuclear fuel, is a very small part of the cost of producing nuclear power. The cost of Uranium is typically about 6% of the cost of producing nuclear power. The vast bulk is capital then followed by things like green tape, compliance; all of the necessary procedural matters that you have to have around it. And then followed by nuclear fuel of which Uranium is, the U3O8, is only a small proportion. So, 6% of the cost of American nuclear power is Uranium, compared with say gas or coal where it’s often up to about 80% of the cost. The cost of nuclear power and this is one of the beauties of it as an energy source, is its relatively price inelastic to the cost of Uranium. The utilities have had to frame up their argument as more of a tipping point argument. They can’t just say ‘oh you increase the cost of Uranium and we’re going to go out of business’. They have to point to vulnerable reactors in the merchant power markets, that are already under pressure largely because of renewable subsidies but also because of cheap gas. Perhaps there are only one or two reactors which make them less economic to run than a large power station with four or six reactors, and they basically said any further pressure might be the straw that breaks the camel’s back here. And President Trump, you will have the responsibility for job losses if we need to close any more plants. So that’s been the strength of the utilities argument and we need to caution Uranium investors that that can be a very strong argument when they are such a big employer.

Matthew Gordon: I can see that. But maybe we should discuss that later because I think it comes up in one of your points when you talk about the different scenarios. But to just finish off on this, the likely outcomes – you don’t think there is one because the unpredictability of Trump seems to be the key driver here. There’s not going to be any single outcome. But who can tell. What happens if there is a delay? What’s the impact of that? This 180-day component which the automotive industry took advantage of.

Brandon Munro: Yes, so there is the possibility of a delay. It could be a temporary delay. Under the Act, the administration has to make a decision by the 13th of July but it can take another 15 days to implement the decision, whatever that means. There is also the possibility that you might see the administration taking a liberal view of the way that the act is drafted. Which means their obligation to report back to Congress is only 30 days after that. So, they might interpret it in such a way where they don’t have to announce their decision for as long as 45 days. As long as they’re implementing in the meantime. I think that’s fairly unlikely but we are dealing with an unpredictable administration here. The other possibility is that the administration says that our solution or our decision here is to engage in trade negotiations, which then gives them up to another six months. And that is as you say what happened in autos. And I note that the senior representative of the Kazakh government was at the White House just during the week. So that might be pure coincidence. It might be lobbying, or delivering some bad news on the part of the White House. But regardless of what it does, what it does do is give something of a preface for saying there will be trade negotiations and therefore we’d like to buy another six months. It is a possibility. Now what that means is it will certainly test the patience of Uranium investors. There’s no doubt about that. It’s been a long time for us waiting as investors for this to be resolved. It will put a lot of pressure on any Uranium companies that need to raise capital. It will be fine for a company like Bannerman. We’ve still got more than $6M in the bank and a very low burn, so we will sail through. We will be fine. It will probably even open up opportunities for us if we see other companies and their assets under distress. But it will test the patience.

Matthew Gordon: Well that’s a topic which I’ve discussed recently with quite a few Uranium companies. And we did bring it up when we spoke, in terms of junior companies have got so much cash. This potential delay or whatever the timeframe is, it is going to cause people to need to go and raise capital. And the thing is, for investors, they’re in this. I can’t see how investors get out of it, go play somewhere else and come back and come back in. Because no one knows when this thing is going to pop. And I think people are frightened of missing the party when it does. But at the same time, it is deeply frustrating. I’m being told by funds, I’m told by the companies that their investors are very frustrated by the whole process. I agree with you. But we know a couple of companies who’ve had to go and raise money and it’s expensive at this point. But you’re okay.

Brandon Munro: Oh, we’re fine. And what it will do in the medium-term, will be essentially positive. And the reason I say this is a three to six-month delay won’t be long enough that utilities need to change their strategy in the meantime. They will simply sit it out. That will further consume inventory, it will tighten things up in the market but it will put additional pressure on the spring, that is Uranium supply and demand. What it means is three years from now, there will be greater upside volatility on the Uranium price. And in the context of very significant pressure being there already because of the imminency of the US long term contracts rolling off and their need to re-contract. It certainly wouldn’t be all bad. It would just be a difficult period for some companies for the next six months.

Matthew Gordon: The whole thing about 232, people just want a decision one way or the other. It’s almost irrelevant what the decision is. Just decide – kind of like Brexit here actually. Give us a decision. We know where we are. We know how to make plans on that basis. Because there are stockpiles of Uranium, no one’s able to give me a number of what that what that looks like. But at some point, that’s running down clearly and there’s going to be, as you say, a gap in production if we’re not careful if this thing does keep going on for very much longer. The money, or cheap money, is not there to enable companies to get going.

Brandon Munro: Yeah. That’s right. And I think while we’re talking about all this we should emphasise, I don’t think a delay is a probable outcome. It’s one of the many outcomes and we’re going to have a much better idea about this in just over a week’s time. So it is well worth investors having it in the back of their mind and probably building their strategies around what happens if there is a delay. But as you say, any decision is positive because it enables the market to get on with it and creates certainty that hasn’t been there for 18 months.

Matthew Gordon: Let’s talk about the second thing that you mentioned in your document. Investors must have a balanced perspective. Now there’s a question I ask everyone. And I asked you, you gave us your opinion and it’s this fervour, America first doctrine on the one side and then it seems to be the rest of the world on the other. Whether people believe it’s a security issue or a commercial proposition, it’s divided the room. What’s your take? Remind everyone of what your take is on this.

Brandon Munro: I think there are sufficient grounds for the administration to find that their importation of nuclear fuel, whether it’s Uranium conversion, enrichment or fabrication; does threaten impair national security. However –

Matthew Gordon: What does that mean? What does national security mean?

Brandon Munro: Well it depends on the administration. If you look back over time since 1962 when this part of the Trade Expansion Act was introduced. There’s been three dozen different investigations of this nature and only a small proportion of those have actually found that the relevant trade practice threatens to impair national security. But we’ve had it in Steel, Aluminium and even autos. It seems the interpretation of that view is somewhat more concerned than what it has been in recent times. I mean if Mercedes Benz and Hyundai can impair national security by delivering pretty good motor cars, then I have no difficulty finding that a reliance on Kazakhstan for the world’s cheapest Uranium can impair the electricity source for one in five households. What it means? I’ve got no idea. But as a lawyer we use precedent the whole time, and I’ve got three very strong precedents to suggest that we have a situation to impair national security here. Now my take on it though, is that that’s not really the issue here. The issue here, as we discussed last time, is that the world’s biggest industrial economy is fast becoming a nobody when it comes to a technology driven power source that still powers more than a tenth of the world’s electricity, and is expected to grow with strong climate change fundamental policies behind it. How can the US even be in that situation? It wasn’t that long ago that they absolutely dominated the nuclear power industry. And they find themselves not producing any Uranium, not having any conversion capacity, having very little enrichment capacity that they can control and virtually building no reactors around the world. They’ve given ground not only to their Western arch rivals the French, and Électricité de France (EDF). But they’ve also given huge ground to Rosatom out of Russia, CNNC and CGN out of China and even South Korea. So they’ve been relegated outside the top five because essentially of government policy and stress on their domestic nuclear fleet for the reasons that we’ve described. So that for me is what needs to be solved here.

Matthew Gordon: A couple of quotes from you. You say that AHUG which is the American, what does it stand for again?

Brandon Munro: Ad Hoc Utilities Group.

Matthew Gordon: Okay. They have, as you say, cleverly positioned themselves as being vulnerable to Uranium prices. But the Uranium sector itself employs currently about 500 jobs. If it comes back, it may create 3000 jobs. It’s not on the register. It’s nothing. That’s just a medium sized company in the States. But the nuclear industry, about 100,000 jobs. If you say ‘I can buy Uranium anywhere in the world’, the nuclear industry jobs are safe. It’s not an issue. 500 jobs, you don’t have many lobbyists for 500 jobs. Is that part of the problem?

Brandon Munro: That’s part of the challenge for the petitioners and for US Uranium producers and developers. It’s a challenge in the context of an administration that’s been very jobs focused and prefers solutions that can be expressed succinctly and in relatively simple terms. So jobs, jobs, jobs, is a much easier argument to make than some of the more nuanced and equally valid arguments that are being made by the petitioners.

Matthew Gordon: Okay. Well I guess that’ll be answered in next couple of weeks. But let’s try and hypothesise what the possible outcomes could be. Because you talk in your document about quotas and tariffs, and I think five different scenarios or possible solutions, not necessarily one but maybe a bit of all five. But let’s start with domestic quotas.

Brandon Munro: The petitioners for your audience requested a 25% domestic quota. Now to put that in context, they would need to move from current production, which is a bit less than a million pounds per annum to between 12Mlbs and 14Mlbs per annum. The Uranium resources are there, but they’re certainly aren’t shovel ready projects that can turn that on quickly. It will take time, it will take an adjustment period. And as I pointed out, there was a leak from the Department of Commerce to Bloomberg that suggested a 5% initial tariff that escalates by 5% per year. Bloomberg didn’t go as far as reporting if it escalates all the way to 25% or not, but one might expect that it would. And that’s consistent with the general view which is that 12Mlbs to 14Mlbs couldn’t possibly come on in less than about five years. Now the thing is that these leaks are very rarely done by accident. It’s usually, and I dare say in this case, in order to test the waters a little bit amongst the key stakeholders. The leak gets out there and the Department of Commerce and the White House sits back and waits for the reaction.

Matthew Gordon: Which was?

Brandon Munro: Well from the point of view of the utilities, think about it. They’ve been hard at this for 18 months now. They’re almost at the end. They’re not going to give up now. They came back with what I understand was a very strong response to that, which served as a warning that ‘no you can’t test the waters with us on this because that won’t make us happy’. It’s a little bit like someone training for a marathon for 18 months, it’s race day, they’re out and they’ve been running hard for three or four hours and they’re 100 meters from the finishing line. That’s not the point to sit down and have a cup of tea. You’ve got a grit up and finish it. And that’s where we’re at with the utilities. I’m confident that that’s the message that’s come back to the Department of Commerce on that. And I think the domestic quota, apart from the time aspect and the capacity to adjust which was foreshadowed in that leak, there’s also a question of to whether it should be 25%, whether it should be 15%, perhaps even 10%. And it’s relevant because the marginal cost or incentive price that would be needed to push from say a 10% to a 25% is quite significant. There’s enough mid-cost assets in the US that could probably produce at a price of $55/lbs to satisfy 10%. But once you start going beyond that you’ve really got to offer a lot more than that to incentivise these smaller US projects. And the analysis that I cite in my article is that you need to get $70/lbs to start bringing on those extra projects.

Matthew Gordon: And we’re a long way from that. I can’t imagine too many people unhappy about that. Apart from the Canadians and Kazakhs who are producing a lot cheaper than that, which I guess we’ll talk about when we get into some geopolitics in a bit. People should go and take a look at this document and look at the diagram, the Red Cloud KS estimates which you referenced earlier. Let’s talk about quota with allies as an option.

Brandon Munro: So that could take two forms. It could be a quota. Call it 25%. That’s both domestic US production but also would allow for example Canada. So there has been some pre-emptive trade negotiations between the Trudeau administration and the Trump administration. There is an agreement that if there are trade actions on Uranium that adversely affect Canada, there will be a stall of the implementation of those while they are discussed. Canada would be a logical candidate for inclusion. There is a chance that Australia would lobby to be included as well as they were with Steel. And if the US objective here is to try and maintain open markets amongst nonaligned friendly nations, which you can read as non-CIS, non-Chinese nations, then it would be very logical to open the door to Africa as well. Namibia is the fourth largest producer of Uranium in the world and Niger is the fifth largest producer of Uranium.

Matthew Gordon: It’s an interesting one because it’s the equivalent of picking a team at school. You’ve got to work out who you want to be friends with and who you don’t. Because there’s a very clear divide between China and Russia making friends in Africa, where you are. The French, they’ve been there a long time. You’ve got 14 countries that speak French in Africa. And the US which tries to have some kind of influence. I think we spoke about this last time, it’s a waning influence in Africa for most things because Russia, China, the French have been putting money in there for a long time and it would be interesting to see how that turns out. Who gets picked for the team?

Brandon Munro: Well absolutely. Team Niger is very much dominated by France. The production is dominated by France of course, the mines majority owned by France. But also, as a sovereign nation, France is responsible for providing an enormous amount of bilateral support and security to enable those mines to carry on in Niger. And Uranium is important to a country like Namibia. But it is absolutely vital to a country like Niger. There are some companies that you’ve spoken to who are doing great work in Niger, but it’s not as open as a place like Namibia for example, which has Russian investment and has Chinese investment, it has Indian investment, it has Australian, Canadian, US, South African investment as well. So that’s the team that everyone wants to be on I’d like to say. But it’s certainly the team that you don’t want to pick a fight with in school because you could find yourself being squeezed right out, and that’s the conundrum that the US would face if it does start picking friends. You can either go up to Namibia and say come and play with us or it can punch Namibia in the nose and have them run off to the Chinese and the Russians.

Matthew Gordon: To keep the analogy going, it’s playground politics. There’s a lot more to it than just Uranium. There are other things at play here. So again, maybe one to look at. The next thing you talk about is tariffs. We’ve seen a lot of talk about tariffs in the market, obviously with Trump and China recently, North Korea et cetera. What’s your take on this as a possible option?

Brandon Munro: I think it’s possible. It doesn’t make much sense because the Kazakh production is so competitive compared to US production that it would need to be an enormous tariff to actually try and create some level of economic parity. But it’s easy.

Matthew Gordon: You quote a huge number in here. You say the tariff would need to be somewhere in excess of 200% to make economic sense. And clearly that’s insane.

Brandon Munro: If you look at the cost of Kazakh production compared to the marginal cost of US production, it is in the range of somewhere between 100% and 300% to start Making sense. A 20% tariff is not going to make Kazakh production uncompetitive at all. But it will irritate the utilities and it will irritate the miners as well. But a tariff is simple. It can be implemented quickly, it can be withdrawn quickly. And there’s another variation which is halfway between the quota and the tariff and that is a limitation. Much as what we have with the Russian suspension agreement on Kazakhstan and Uzbekistan and potentially Chinese production. So rather than saying these are the school boys and girls that I want on my team, it would be more saying ‘we can’t allow those people onto the playground’. That or ‘you’re not allowed to pick all of the best players in the one team, you can only have one good player on each team’. And so that would be the alternative which would be more constructive and it has got precedent. As I say, there’s the Russian suspension agreement, but also Youratom has quotas effectively, or has limitations on how much of the Youratom state member, the utilities in Europe, can import from any one supply source. And so that would be a constructive way of resolving the national security limitations although it wouldn’t actually help the petitioners as much as they get from a quota.

Matthew Gordon: I think that’s a particularly complicated solution. Again, let’s see what comes up. You talk next about a no trade action. Is that a reality?

Brandon Munro: I think it is. What I mean by that is no protectionist measures, but the opportunity to improve the health of either the nuclear power industry or the Uranium miners, through exercising the Section 232 powers in other ways. It could be as simple as cutting some of the green tape that exists. It might be creating a subsidies regime for nuclear power beyond the ZEC or Zero Emission Credits that are implemented in a number of states. It could be fixing some of the distortions in the renewable’s subsidy regime that particularly and unfairly hurts nuclear power. There’s a bunch of different things that could be done here and I sometimes wonder if at the heart of the utility’s strategy, it’s about drawing attention to this tipping point argument as a way to get the attention of the administration to some of their other grievances which are entirely appropriate grievances to air. And it would be great to see the administration actually tackle those. It would be very constructive for the industry and also it would be good for the health of the US nuclear power industry.

Matthew Gordon: It would but I guess there’s a lot of other things fighting for share of voice going on out there and no one really wants to get into this level of admin. That’s the difficulty here. Again, one to watch but it seems unlikely given the rhetoric at the moment but we’ll see. You talk about the Department of Defence procurement because clearly the heart of this, the emotional heart of this is the nuclear fleet and is there a bifurcation of the market necessary to deal with that.

Brandon Munro: Well this would be an extremely constructive outcome. It would address the concerns for national security in a very direct way. And if the Department of Defence was to sign a contract, over say 10 years for 4Mlbs, 5Mlbs or 6Mlbs per annum, it would top up its reserves of Uranium in a very appropriate way. It would draw out all of the concerns that the petition has happened at that level there would be enough to go around to the other immediate producers as well. It would keep the utilities happy because there’d be no trade action that levied against them. And most importantly, it would be a great thing for the Uranium sector because not only would we have certainty in a way that doesn’t create admin for other players, but also it creates a new demand source. There’s been a lot of talk that the Department of Defence is well provision for Uranium. But there are a few things that are happening at the moment that would see those stocks drawn down a lot faster. One of the ones that I point to in the article is the demand or request for HALEU (High-Assay Low Enriched Uranium) which is basically 20% Uranium rather than the 3% to 5% Uranium that is put into nuclear power plants. This Uranium is used for some of the new technology. Some of the Generation 4 technologies that Bill Gates is pushing and that has a lot of bipartisan support within the US Congress. I think that’s something we will see. We’ll see it develop, we’ll see the Department of Defence and the US government enabling their technology ventures to produce this new technology through that. And that brings forward quite rapidly the depletion date for these Department of Defence reserves. I’m still hopeful. Again, it’s not probable or likely but I’m hopeful that we would see action from the Department of Defence, and we do know that they’re engaged in the process.

Matthew Gordon: Well that’s interesting and probably one for another day, which is the technological advance in the space with people like Bill Gates putting his money where his mouth is and others. I think people putting a lot of store in that as part of the solution going forward as well. The final component to this is the quota for US controlled Uranium. What do you mean by that? Because again that feels like pick a team but we’re going to have a little bit more control.

Brandon Munro: I said this one’s probably a lot less likely. Partly because it hasn’t been mooted so far and partly because it’s very much in the nuanced range of outcomes here. But if I was President Trump, what I would do here is I would use this opportunity to expand the US influence around the world in direct competition with China, Russia, Middle East and other sovereign nations that have a big appetite for Uranium. And it goes back to the earlier comments that the US is losing its relevance in the nuclear power industry at a time when the playbook that Russia has been very successful with, and China is trying to compete with in the Belt and Road Initiative is to build nuclear power reactors on a build-own operate model. If you look at Turkey or Bangladesh for example, Rosatom goes in there and all that Bangladesh needs to provide is a site and the domestic country approvals. Rosatom finances, they build, they operate, they train the Bangladesh employees over time but very importantly what they do is they provide the nuclear fuel and take the waste away at the end. They just need an off-take and a site to be able to do that. It’s a tremendously valuable and persuasive method of building nuclear reactors, particularly amongst the developing world which is obviously China’s focus on Belt and Road. They’ve got an appetite for Uranium well beyond their own domestic borders and that is where the US could get completely squeezed out. They could become totally dependent on Kazakhstan and a small handful of commercial operators in Australia and Canada, if they don’t address this in some way. And the most powerful way that America addresses these types of things is using capitalism to its advantage. So if the administration was for example to say ‘we will create a quota, we will give privileged access to the world’s biggest nuclear fleet in the US but the way it works is it has to be American controlled Uranium, whether it comes from inside the borders of America or elsewhere’; that would enable public companies to have an additional competitive advantage which means they can go and compete with various Uranium assets versus the Chinese and the Russians, the Middle East and the Indians.

Matthew Gordon: So how does the US deal with this? Because that whole PPP model has been used by the Chinese, now by Russians and now French, for a long time. I’ve worked in Africa for a long time and you saw huge infrastructure projects being paid by these countries, in exchange for mineral rights, obviously, and now with Uranium being highly topical at the moment and say a very emotive topic at that. How did the US use their financial might, their financial control; the U.S. dollar, to affect that decision making because if they can’t supply alternative energy solutions, why shouldn’t Bangladesh, why shouldn’t the UAE, why shouldn’t these countries take up the offer of this zero-carbon energy source paid for, built by, run by competitors of the of the US?

Brandon Munro: Well clearly from their perspective they should and they are. Rosatom, the Russians are building in almost a dozen jurisdictions around the world at the moment and they’re in advanced negotiations with another 10 countries. Everywhere from Bangladesh and Turkey through to Egypt and Kenya for example. It has been a very successful model particularly given the capital costs involved in nuclear. And it’s very attractive to Russia and China because it creates a bilateral umbilical cord that lasts over many, many decades. From the US point of view, my personal opinion is that the horse is well and truly bolted here, and it’s probably bolted for all of the West. Maybe with the exception of South Korea if they can sort out their own domestic quandary on nuclear power. But the US still has an opportunity with Gen 4 reactors and new technologies, small modular reactors for example, and that’s where the Bill Gates push with various reactor designs such as new scale. There’s still an opportunity there and also the US still has to protect a large nuclear fleet. The issue here is maintaining relevance on the one hand but also ensuring it doesn’t get totally squeezed out from the success of the Russian and Chinese reactor programs.

Matthew Gordon: But what are the levers that the US can pull here? Because typically it’s been using the US dollar. That that’s been a big lever, I’ve seen it work in South Sudan and other places across Africa where it’s a hard-hearted approach to it, but they get what they want as a result, the implied threat et cetera. But that’s not working anymore. Do they need to just say that’s a battle we can’t win? Security issue at home, that’s another topic but how do we remain relevant in Africa, the Middle East, the West with regards to energy? Do they need to go and own renewables or other forms of renewable? What do they need to do? What do you think these levers are?

Brandon Munro: Well there’s no easy answer at the moment for the US and as you know, we both really enjoy a good geopolitical discussion and your point about the US dollar is quite right. Whether it’s influence from crypto-currencies eroding their monopoly that the US dollar has had on cross-border financing. Or whether it’s the resilience that countries like Iran are needing to show, in order to get on with life when they’re deprived of US dollars and all of the financial centre around them. So over time we do see that mechanism decrease. The US still has a defence capability, the dominant defence capability in the world. At a time, whilst we are seeing China implement more assertive measures in South China Sea and so on, China doesn’t appear to be trying to challenge particularly the Navy but also the other defence capability of the US in a direct way.  One would expect that that is the US’ main avenue for trying to deploy energy influence. In which case it needs to do it amongst its direct allies. And that’s quite contradictory to a lot of the policy that we’re seeing from the Trump administration.

Matthew Gordon: But that’s tantamount to gunboat policy which the British employed in Hong Kong. Surely that is not a reasonable form of commercial economic expansion any more.

Brandon Munro: I would agree. So then where do they go and I guess that’s the point that you’re raising. One of the potential answers there is through technology ascendancy. As you know there’s a lot of commentators who believe that that’s really what’s behind the Trump position on the trade war with China, that they need to arrest the erosion of technology ascendancy. And that then does bring us back to the next generation nuclear power technologies, and the US still has a competitive advantage on the technology front although it’s losing a lot of that competitive advantage to Russia and China because of a regulatory perspective. They are bogged down and they need to accelerate that regulatory approval process and commercialisation before they lose that technology ascendancy.

Matthew Gordon: I agree with that. And for anyone listening to this has got some views on that one. Post them to the YouTube channel or on Twitter. We’re delighted to hear what people think about that. Fourth point, you’re talking about all outcomes strengthening the Uranium market. Now I think you and I are going to disagree here. Tell me your view.

Brandon Munro: My view, simply and then please challenge me on it, my view in simple terms is I’ve had a deep dive on all of the potential outcomes here and I can’t find one that doesn’t lead to a strengthening of the Uranium market. Even the outcomes that are neutral, possibly even negative on the face of it for the Uranium price, they’re totally overwhelmed by the resumption of certainty and the resumption of market activity as the nuclear power cycle. The nuclear fuel cycle can just get on with life after 18 months of uncertainty. So that’s the premise.

Matthew Gordon: The bit I agree about is I think it’s good for the market, clearly, as a whole. But you say in here that it’s a common perception that there will be winners and losers. You say well, actually there’s going to be no bad outcome for Uranium investors. At the end of the day, mining is mining. The market is the market. Things go wrong and people still need…that quote that People throw out you know ‘high tide raises all boats’. It’s true to a point but there are going to be companies who are better equipped than others. Investors still need to remember the basics or the fundamentals of investing. You’ve got to trust the team. You’ve got to believe that the asset is fundamentally a good one. Can it be economically mined and does it have a route to market and the people to know how to get into the market, because Uranium is a more complex commodity than Gold, than Copper, than Nickel because of the predominant buying cycles of contract. I think, Uranium more than others, people need to think who they put their money with. We’ve talked with some companies and I go ‘Oh we’re in the right postcode, it’s all fine’ for ‘we’ve done this before. It’ll be fine. And it’s never fine, there’s a lot of hard work you know mining is a tough business. I think my point is, investors please remember the fundamentals here and don’t get swept away by the euphoria of this this huge wave of enthusiasm for the Uranium space. So that’s why my answer slightly differs from you.

Brandon Munro: And I don’t think we’re disagreeing with each other here. My point is that from a Uranium market point of view the commodity market, it’s all positive. Now from an equities point of view, there’ll be differing effects on some of the players. Some of the players are already trading at a premium pricing in some of the expectation from 232. There are disappointing outcomes for those companies. Even as the Uranium price goes up, some companies will outperform others and they’ll see a flow of capital towards that performance which will impact other companies. And as you say, in any industry including Uranium they are pretenders out there and those pretenders will be found out as more people start to analyse the sector and as sentiment improves. I agree with everything that you just said. Perhaps I should have been a bit clearer that I’m talking about the commodity market. I can’t see a scenario where the commodity market doesn’t benefit. So if you are already positioned as an investor in a quality Uranium story and I would certainly advocate Bannerman as being one of those, if you position in a quality Uranium story, well things are about to get better as long as we see a decision and as long as it’s a clear decision that can be interpreted and understood.

Matthew Gordon: I had an interesting conversation with someone yesterday, a Uranium company and they were talking about ‘we’re in the right post code’ but they’ve just started, they’ve started exploration drilling and I think they will probably do quite well. But as happened in the last cycle, a lot of new companies and a lot of new entrants into the marketplace who didn’t make it. Some had good assets and some didn’t. But it’s a question of timing. You guys have got your DFS. You are shovel ready, ready to go. Just waiting on this uncertainty in the market. Let’s talk about your last point, which is the enduring legacy of the 232 petition. What do you think people will have learnt from this process and how can we use this positively going forward?

Brandon Munro: The first thing that’s happened on the positive front is it has created a lot of attention for the Uranium sector particularly in the US. It’s had people thinking about Uranium that probably haven’t given it any thought since the heady days of 2007. And we’re seeing that at a time when there is a lot more commentary on the sector. We’ve had people who are in a public sense quite new to it, yourself being a great example, putting a lot of effort and a lot of intellect and a lot of thought and analysis into the sector. And that’s been largely helped along by 232. In terms of a more enduring legacy, I think we’re seeing far more attention being put on geopolitical risk and geopolitical issues. I’ve said for a long time and I used to start some of my presentations with a Venn diagram that had supply demand and geopolitics, and that is a very particular and important aspect of the Uranium sector. You can’t just simply look at supply and demand. You have to look at geopolitics to be able to interpret not only the sector at a macro level, but also different stocks and different opportunities and different assets. You always need to pass a geopolitical filter over a Uranium asset and a Uranium company, to be able to value their prospects going forward. It’s been a helpful reminder for investors of that fact. I think it’s likely to ramp up the geopolitical stakes even further. And I’m of the view that we have a greater level of geopolitical tension in the world than we’ve had since the collapse of the Soviet Union. The difference back then was the major geopolitical event had a dampening effect on Uranium because it led to a flood of downed-blended Soviet era warheads through the Megatons to Megawatts program. Here we’ve got the opposite happening. We’ve got very high levels of geopolitical tension across a number of world stages, that will have the effect of ramping up supply uncertainties in supply risk to the nuclear power industry. And we’re only at the very beginning of understanding the implications of that. One of the points that I make in my article is it’s very easy to simply ignore those risks when prices are cheap. You can look past them, you can figure well this is perhaps just for the next few years, we just won’t worry about who are buying our Uranium for or how concentrated our book has become because ‘well at sub $30 this is just such a bargain’, in the same way that our suppose some shoppers will overlook quality if they’re buying something at a third of the price that they normally do, that’ll change. And as it changes, not only the utilities will become more focused on that but the sovereigns will become more focused on that. Uranium investors will become more focused on that. And all of those things that some of us in the sector have been saying for a number of years in terms of geopolitical positioning, will come to be. Investors with anything more than the very shortest of timeframes with an investment decision, really need to be looking at that because it will create winners and losers as this geopolitical risk plays out.

Matthew Gordon: Absolutely. You finish off with a line which says ‘will the US be a catalyst or a bystander in the next two weeks’. What’s your bet?

Brandon Munro: I do think catalyst. We’ve got an administration that has proved to be fearless on these issues. Happy to be unconventional. Happier to be unconventional you might say. And certainly, willing to enable chaos. Either deliberately or accidentally as an outcome from its decisions. And chaos is an outcome that we could well see from this. Chaos in itself will become a catalyst. The outcomes that might relegate the US to being a bystander are less likely than the ones that will either show leadership from the US and some of the reasons we’ve described or be some other form catalyst because the market gets thrown into relative chaos.

Matthew Gordon: Well it will be interesting to see who the winners are. Whether the US is a leader or whether they’re going to have to come up with an alternative plan. Let’s wait and see. Just to finish off, you’re involved with the WNA. You’re on one of the groups there. I think you are co-chair of the fuel report. Is that right?

Brandon Munro: Yeah that’s right. I’m co-chair of the demand group. I also sit on the Uranium supply group and I also sit on the secondary supply group. I’m involved in three committees, but my involvement is much greater in the nuclear demand group. For your listeners that’s a working group established in the WNA consisting of a bunch of utilities, some Uranium producers and other market participants including traders and so on, that is responsible for forecasting in articulating three demand scenarios for nuclear power and therefore Uranium. Between now and 2040.

Matthew Gordon: The WNA have got a symposium in London in September, they’re going to release the Biannual Fuel Report. Some people are seeing that, or I guess, hoping that that is yet another catalyst on top of the 232 announcement. So just gives us the outline of what is contained in the fuel report.

Brandon Munro: Yeah so last year’s report looks like this, it’s quite a thick document.

Matthew Gordon: Sorry does it come out annually or biannually?

Brandon Munro: Every second year. And it has chapters that deal with demand of course and various aspects of that. Secondary supply, primary Uranium supply, conversion, enrichment, fabrication and of course conclusions. It’s a very rigorous process. There’s a detailed model behind all of this. If there’s been a criticism that’s levied against the process, it’s because the restrictions on cartels and so forth mean that when a bunch of Uranium producers get in the same room and a bunch of utilities get in the same room, they can’t talk price. And in past years I think the industry is falling into the trap of stepping back too far from that line. And the whole concept of economics has fallen out of this report. So last year the conclusion was there’s plenty of Uranium. Sure, there is plenty of Uranium at $100/lbs but there is bugger all at $20/lbs as the price was when the report was released and I think that affected the credibility of it, particularly for the audiences that were more financially literate. This has been my first report that I’m sharing that committee and I think what we will see in the next report is a lot more focus on economics. It still won’t talk about price and it can’t talk about price. But there will be a lot more focus on economic paradigms. We’ve introduced for example, different supply scenarios. So not only demand scenarios but supply scenarios, so investors and others can look at it and say well, ‘if we don’t see a new economic paradigm with a recovering price, this is what we’re going to see’. And I think it’s just become a lot more relevant particularly to financial investors. It tended to be a bit more for policymakers and a bit more for industry participants and so on. But someone like yourself and your colleagues will be able to look at the next version and get a good sense of some of the burning issues such as secondary supply, where the demand is coming from. And I think it’ll be an enabler and it will be a slow burn catalyst for that reason.

Matthew Gordon: It sounds like it’s evolving. For someone like me, putting the price in there would be… I can understand why you haven’t, but putting the price in there or at least having a flexible model where you can look at the effects would be much more useful and that’s something that we would have to put in using your assumptions. You’re painting a picture of this Uranium arena in which we play. The demand side I kind of get, that information I imagine is very, very robust in the sense of how many reactors are there, how many are coming on, how many are being built, how many are going to come online, and all of the associated components there. It’s the supply side which makes me wonder about the detail here because you’re getting that from producers, developers, explorers and you’re forecasting these numbers. Certainly, for the public companies, they have to paint a rosy picture. Are the numbers accurate? How do you ensure the numbers are accurate? And clearly for them it does matter what the price is, so how do they give you those numbers without talking about price?

Brandon Munro: Well it will always require additional interpretation and you’re quite right, the demand numbers are fairly robust. Obviously as we get out plus $20 – $30, more judgment needs to be exercised and there is a natural conservatism in anybody but particularly amongst the types of players that we’ve got here. So even the upper scenario, I think it’s got a lot of room for out-performance. If we see policy changes and if we see China continuing in the way that I think it has to. But essentially, they’re reliable numbers, they’re robust. The methodology is very robust and very detailed behind it. You’re quite right when it comes to Uranium supply. The requirement for the report is to rely on either public information or to rely on the response from questionnaires that are sent to the different asset finders.

Matthew Gordon: That’s a good point you make. The reliance on public information, the age of that information and well quite frankly the efficacy of that information. Where has it come from? Are the sources robust? Who’s done it? Are they reliable? Do they know what they’re talking about? Etc. etc. So how do you validate all of this? There’s a lot of moving parts.

Brandon Munro: Essentially you can’t validate that when you’re in the position of the WNA because you can’t go out there and say we think that that asset is run by a bunch of scallywag promoters and we’re just not going to take their numbers. You and I know that that is the case with some companies, but it’s not the WNA’s position to do that. And equally there’s a lot of reasons why companies would fail to update certain information. It might not be in their interests to let the world know that they’ve got a technical challenge with something. There is a baseline robustness because most of the Uranium producers are publicly listed companies. If we take some of the outliers out, there is that credibility there are, the rigour of the JORC process and the NI 43-101 and so forth. You get a pretty good level of information. But when it comes to timing, when it comes to ability to produce in certain economic outcomes and prospects of getting approvals and so on, that’s where you’d certainly as the audience need to use your own judgment. The way that the report has quite appropriately considered all of this is they have basically said, ‘right we’re going to take all of this public information and put it into the one bucket. So here is the theoretical amount of production that could possibly come on. And then we’re going to make some assumptions about how much of that will realistically come on’. And they have concepts like reserve projects and concepts like unidentified supply. And I think given the constraints, that’s as well as you could possibly do and then it’ll be in a number of these debates where we sit around and we argue whether 65% is realistic in an upper-supply scenario, or whether it should be 45%, and what sort of delay should be allocated. There’s been a lot, and this is a new model and it’s a new way of doing things and a new methodology, that I think creates some level of realism to the whole picture. And then it’s also disclosed quite well so you could read it and you could say well ‘I’m looking at this array of different projects and I think 65% is still too optimistic’ or whatever your approach might be.

Matthew Gordon: It sounds like it’s evolved. A lot of moving parts and we’re going to have to say ‘well thanks for making us aware of all of these components, treat each one individually and make your own assumptions on each of those variables’ to come up with your own number. I suppose fund managers are going to find that a lot easier than a retail investor because they’ve got the necessary skills and ability to do that. And retail may not necessarily. It would be interesting to see what comes out. We should we shouldn’t prejudge. There was another report but UXC Forecast. Have you seen that?

Brandon Munro: I don’t subscribe to UXC but people tell me about their stuff quite often.

Matthew Gordon: Do they? What’s your take on what they’re producing versus what you’re producing.

Brandon Munro: As Bannerman or as WNA?

Matthew Gordon: Sorry, with your WNA hat on.

It’s different. So UXC is designed to provide price forecasts, which we don’t go near as WNA. They provide trade information. They have an agenda over time which is to represent the interests of utilities and that has become more generalised in recent years. But I believe that it’s still there, whereas the World Nuclear Association is designed to represent the entire fuel industry – the nuclear industry including the fuel industry, so buyers, producers, developers et cetera, et cetera. You get a very different type of information. The WNA information tends to be a lot more global and a lot more macro because it’s often drawn upon by policymakers. Whereas UXC information tends to be a lot more micro, because its individual utilities make decisions on their procurement processes for example.

Matthew Gordon: For utilities, they’re going to look at UXC for guidance. Do you think they’re going to find your report useful?

Brandon Munro: Most definitely. And I think the other point is even for investors, you might know everything that’s in the fuel report. I actually don’t think that will be common because it’s still very interesting. But you might know the bulk if you’re very well-informed and have your own views. But what you can do is you can read it and get an idea of what the industry thinks, and that’s so important with Uranium because sentiment still plays such a big role. It plays such a big role in the timing and intensity of utilities procurement decisions, it plays such big role in the downstream part of the industry. And you mentioned the symposium in September. I’m going to be there with a lot of interest following exactly that point. What does the industry think? What I think is relevant for our internal strategy, but it’s not so relevant for the development of the next 6 to 12 months. I want to see what everyone else is talking about, what they’ve been told. There’s been a huge amount of positive news in the nuclear industry, the nuclear power industry. And in many cases the people in the downstream part of the nuclear power industry. They’ve got very complicated jobs, they’re very clever people. They’ve got to concentrate really hard on that and they only pop their head up and talk to the broader industry once or twice a year. I think that will be a crucial point for everyone to start getting bombarded with all of these very positive news and be able to take stock and say, ‘gee, it’s been pretty hard since 2011 but we finally turned a corner’. That will be relevant because for the utilities, they won’t be so accepting of the UXC view of the world, which is this low price is just going to continue forever and demand curves will be flat and nuclear is a dying industry and all of these things that might be quite helpful in a price negotiation with the producer, but actually doesn’t help the overall health of the industry.

Matthew Gordon: That’s a great answer. Well let’s wrap it up there. I appreciate your time. Insightful as ever. For those watching, do have a look at Bannerman. It’s one of the better utility stories out there. Brandon, thanks again for your time. I look forward to seeing you in September hopefully, if we don’t speak before and go grab that beer, hopefully in the sunshine.

Brandon Munro: Yeah, yeah. September tends to be good. I enjoy the Indian Summers that you can manage to put on most years in London. Always great to chat. And always great to get such probing questions.


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