Energy Fuels (NYSE: UUUU) – Front Foot Planted, We Don’t Move Backwards (Transcript)

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

Energy Fuels made an announcement last week about a $16.6M Bought Deal, which closed on Thursday, some shareholders do not seem pleased. We ask Chalmers why he did it and why on those terms.

What does Chalmers know that we don’t about the DOE announcement? What are his use of proceeds? And what is his strategy? Is there M&A planned, yes or no? And how does he plan to monetise the White Mesa Mill? Insider buying in the market for UUUU has been heavy in the last couple of days.

Interview highlights:

  • 1:31 – News Release: Why Did They Do it?
  • 4:05 – DOE Announcement: Does Energy Fuels Know Something the Rest of Us Don’t?
  • 6:33 – Financial Position at Present and Valuations of Stock
  • 7:31 – Possibilities to Sell Vanadium
  • 9:04 – Use of Proceeds: M&A and Project Focus
  • 13:17 – White Mesa Mill: Are There Talks of Other Companies Using the Mill?
  • 15:02 – $150M for the Creation of Uranium Reserves: Conversations with Miners on Price

Click here to watch the interview.


Matthew Gordon: Hi Mark. How has your week been?

Mark Chalmers: Oh, it’s been busy, with closing the financing. It’s been a very busy week for us.

Matthew Gordon: Ok so I guess I’m going to ask you the same question you’ve been asked a lot since you put out the news release about a week ago, which is Why did you do it, and why those terms?

Mark Chalmers: Well Matt, you know, it was expensive money, but as I’ve said to you and multiple times, as I’ve said to shareholders, we want to be on the front foot rather than the  back foot. We’re very encouraged that the government has announced planning to buy Uranium again, it’s the first time they’ve been planning to buy it since 1983. So we want to be as ready as we can for that because we think we’re best position to capitalise on that. But the other thing that probably a number of people didn’t understand or realise is that we had a convertible debenture that matures at the end of 2020, and it became a current liability at the beginning of this year. So we wanted to be in the position that we can show that we had enough funds to cover that on our own terms and abilities; without having the convertible drive us, we wanted to be in a position to drive the convertible.

Matthew Gordon: Ok but did that convertible contribute towards Cantor Fitzgerald being able to negotiate quite tough terms now? I get the point that if you didn’t, your negotiation stance towards the end of the year was going to be pretty difficult, you know, I’ve been there myself. But were they pushing you hard now because they could?

Mark Chalmers: Well you know, it was our decision, we weren’t being pushed, we discussed it certainly at board level quite extensively, and we just decided that it was going to be better to go now and get the funds and be ready for the future. But you know, no one wants to go and get into financing that… and I want to say that it was a bought deal, it was straight common shares, no warrants, but no one wants to be in a financing that pushes the share price down like it did for us. But again, we believe that we’re in the strongest position of anyone else, and we think there’s other people who are going to go to market probably quite soon and we wanted to be there sooner than they were. And as I said, this announcement by the government to buy Uranium, no one is in a better position to capitalise on that than Energy Fuels.

Matthew Gordon: Lots of questions. And I’m going to throw these at you in no particular order. You keep saying the word ‘front foot’, what do you mean by that? Are you talking about being able to capitalise on the DOE announcement? In which case, what do you know that we don’t?

Mark Chalmers: I think the demand…You know, we haven’t heard the whole story yet out of the working group on terms of the whole three steps of Nuclear fuel cycle, so we’re still hopeful that there’s more to come here. But we want to be in a position that right now the government’s announced that this USD$150M for this strategic reserve, we want to be in a position to get the majority or at least a large share of that ahead of… there is going to be lots of competition for it. But no one has the history, the proven history in the facilities like we do. Ur-Energy are in a pretty good spot too because they are a proven producer, but we are in the best position to deliver into that initiative.

Matthew Gordon: Ok so you’re making a bet, you don’t know anything that the market doesn’t know? Just so I am clear.

Mark Chalmers: Correct. We have released everything we know about where we are in this process and where the government is in this process. But there have been statements through Secretary Brouillette, and others, that there should be additional information forthcoming on the Working Group’s findings in the next few weeks or so. But we’ve also been waiting a couple of years for information flow, and it’s been delay, delay, delay.

Matthew Gordon: Ok, so are you expecting more money to be mentioned in these future announcements? Or more confirmation on the USD$150M?

Mark Chalmers: Well you know, we think that Nuclear Fuel Working Group, and I’m speculating a bit here…agrees that they need to do something to re-establish the Nuclear fuel cycle, the front 3 steps through enrichment. So we believe that they’ve come up with findings, but I don’t know exactly what those findings are Matt. But we, as I’ve said, what we do know is what they have released and we want to be in the best position to capitalise on that than anyone else.

Matthew Gordon: Okay, and I want to talk about use of proceeds in a second but if you don’t mind, what is your position now? Because when we’ve talked in the past you’ve had about USD$40M between cash and inventory, you’ve topped it up with another USD$16.6M..what position are you in with regards to your cash today…I know you’ve got the convert coming through, but what does it look like today?

Mark Chalmers: You know, we’re going to announce our financials in March. But yeah, in the order of magnitudes that you’re talking about…in the USD$40’s, plus this capital raise, you’ve got the convert at the end of the year. We’ve got around USD$20M of that is inventory, about half in value is Uranium that we value at around USD$25lbs, and about half is Vanadium which we’re valuing at around USD$5lbs which incidentally is coming up a little bit…last I saw it was in the USD$7s, so we’re hoping to get another kick there.

Matthew Gordon: So you are not tempted to sell the Vanadium today? Because it has been as low as USD$3 and as high as USD$30…so what do you do?

Mark Chalmers: Well exactly. I’ve said to you that we’re trying to do the Carbide plan which is to have inventories that we can deploy when we want to deploy quickly. And a big part of our plan, our strategy is to have inventories available packaged, ready to go. And that’s another reason for financing, because if you had in the order of USD$40M of cash working capital, the convert becomes a current liability, then you’re down in the mid USD$20s or so, of which USD$20M was inventory. So we believe we’re going to get a bigger bounce out of that inventory at the right time. I understand that the average person who is a shareholder may not fully understand our motives, but we wanted to keep that inventory, because whatever the government purchases, assuming they purchase inventories, you could get a 2X or maybe even more than that in flexing up on the value.

Matthew Gordon: Ok so thanks for sharing your motives with us. I appreciate that and it makes sense. Can I talk about use of proceeds? There are two strands here; one I need to deal with. Are you going to use any of your current cash available to you, you closed yesterday, to do any M&A work? Are you going to buy any of your peers?

Mark Chalmers: You know, it’s always a possibility and I’m never going to say ‘no’ because that’s an absolute. It puts us in a stronger position to do the M&A, so I’m never going to say no but I’m not going to say yes either. How’s that?

Matthew Gordon: That is very politic of you. Let me ask you another way. Today are there any plans to do any acquisitions?

Mark Chalmers: Not at this point in time

Matthew Gordon: Got it. Second strand; you talk in your press release about use of proceeds, obviously focus on the ISR project, I assume because that could go into production soonest? Is that right? What’s the order of play because you talk about all four assets but ISR was number one.

Mark Chalmers: We’ve got quite a diversified set of assets, but there’s some work at Nichols Ranch, we’ve got some work in increasing the flow capacity at Nichols Ranch, we’ve got some drilling that needs to be done at Alta Mesa, you know, we’ve got other work that we’re still doing, design work on the Canyon mine, we’ve got the shafts sunk there but we’ve still got to put in some facilities around the shafts, so. I can tell you this much, we’re not going to spend all that money until we get a little more clarity on the outcome from the purchase program, but there are things with a longer lead time that we will put some money in so we are better ready than we are now, even though we’re as ready as anybody out there.

Matthew Gordon: Yes you said you were best placed within US companies to take advantage of that announcement, but you’re not ready to go today without spending some money to get everything up to speed? So what does that mean, how much money are we talking about?

Mark Chalmers: No look, we’re ready to go today on some of our assets, they are ready to go today. But there are a lot of different variables here that we don’t know in this government purchasing programme. For example, are they going to buy inventory? And I think they absolutely should, because otherwise we’re going from a colder start, not a cold start but a colder start to build up production. And the clarity on who’s going to be able to best capitalise on that, that all will drive how much investment is required at which site or sites. So there is some uncertainty about how that will be distributed, the government did say that they thought his purchasing program would basically go to 2 mines, or maybe a little more, but its not designed to go to 5 or 6 mines. It’s not. Now, there could be few more mines potentially around our White Mesa Mill. But it’s really our focus in my opinion on…and when they talk mine’s I believe they are talking production centres where you can actually make the yellowcake, so like White Mesa would be a mine in their terms and perhaps 1 or 2 other ISR facilities. So there is absolutely no need to build new facilities with this current demand as we know it today, it should be focused on existing proven facilities that have a history of delivery that are already constructed ready to go.

Matthew Gordon: Ok. White Mesa, it’s a huge facility and you were saying its been a long time since it got near, or was processing at full capacity. Long time.

Mark Chalmers: Its actually never produced at full capacity. It has a licensed capacity of about 8Mlbs, and the best it’s done is around 4 to 4.5Mlbs.

Matthew Gordon: You’re never going to be able to fill that. Are you having conversations…there was one other CEO who mentioned at a presentation he was doing, I don’t know whether it was a slip of the tongue or has been misinterpreted, but they talked about using your mill to process on their behalf? Have you had conversations with other Uranium companies on this topic?

Mark Chalmers: Not recently no. No one but us has the right to use White Mesa Mill right now. Does that change in time? Perhaps. But no one has line of sight to use White Mesa Mill. We do have some clean-up of an idled Uranium mine that is currently going into White Mesa through an agreement there. Once that material shows up at the site we’re stockpiling it, we have the right to process that at our own schedule and desires. But we have full ownership of the Uranium from that material. So yeah, no one has line of sight. A lot’s going to depend on how the implementation process goes with this initial purchasing, we’ll see where we go from there.

Matthew Gordon: Ok. On this USD$150M, because again, there’s been a lot of numbers floating around. We don’t know the price at which the government is going to have conversations with miners, do you know?

Mark Chalmers: Well noI don’t, other than the quantum of the USD$150M. But there is a fair amount of banter around, ‘oh its USD$50 or USD$45’. Well USD$45 or USD$50 is not enough, that is not a high enough price. That is not a sustainable price. And when people say they can make comfortable margins with USD$50 in the United States, they’re full of something but I don’t want to say to you…

Matthew Gordon: Smoke?

Mark Chalmers: …Exactly what they are full of. But we need prices that are well north of USD$50. I mean sure, if we get USD$50, we are in a position at least Energy Fuels is, where we have 500,000lbs or more of Uranium that could be monetized, and that’s certainly going to be a help, and we can run projects like Canyon. This doesn’t mean we can’t run some of our projects. But USD$50 isn’t a fair price, it should be north of USD$60 is a sustainable price. It annoys me when people say ‘all we need is USD$40 or USD$50’, and they are full of it. Like I said, we have projects we can mine before that but that is at the site, it does not include the full loadings of a public company to deliver any kind of sustainability. And I think the key thing is that this USD$150M is over 10 years, so we need a sustainable solution and outcome here, not to have a flash in the pan and have people not being able to make it because the prices are too low.

Matthew Gordon: Ok so having had those discussions, and I can hear its been a source of frustration with people speculating around the price, but let’s even say it was USD$75 just for the sake of argument, that’s 2Mlbs we’re talking about, its not a lot, and they still have to go out and…

Mark Chalmers: No, and again there’s a lot of moving parts here Matt that we don’t know exactly what they are right now. And as I said, we don’t know what follows, or if anything follows with the Working Group when they get into more details. But I’m speculating here a bit, I believe that this first announcement is not big enough for somebody like say Cameco to come back in and restart their operations. And if that’s the case, and I don’t know for a fact that it is, that makes more room for ourselves and people like Ur-Energy. I think I’ve told you this, that since 2004, 2 companies have mined 85% and produced 85% of Uranium produced in the United States, and it was Cameco and Energy Fuels. So the 2 of us have the longest history of production over anyone else. Now, there are a couple of projects like the Uranium One and Ur-Energy that didn’t produce back in 2004, they started in mid-way say 2008 or 2009, or 2011 or 2012 that also contributed a material amount of Uranium. But if you include those 4 companies, 97% of the Uranium produced since 2004 were 4 companies. So there aren’t a lot of us with any kind of track record of producing a material amount of new Uranium, and we are very confident that we have that track record. And because at the moment we know the demand is small-ish, there’s no question, it should only go to those who can prove that they can do it, and have those facilities ready to go without major major capital investment.

Matthew Gordon: Ok, you sound confident. If you hear anything from up on the Hill, Whitehouse or DOE please give us a call. I’d love to hear your thoughts on how this thing’s going to progress.

Mark Chalmers: You’ve got my number Matt, you know where I’m at, and I’m always happy to have a chat with you.


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

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

Best Foot Forward. I want a Clean Fight

What a week for Energy Fuels (NYSE: UUUU)

US Secretary, Dan Brouillette announced a package which signalled to many that the US Department of Energy has taken seriously the cry for help from the uranium miners and the Nuclear industry. A 10-year $150M pa budget which The Office of Nuclear Energy (ONE), which sits within the Department of Energy (DOE), is asking for to “re-establish the nation’s nuclear fuel supply chain through the domestic production and conversion of uranium.  Sounds positive in the best-case scenario, but more information is required.

But it seems to have set off another event which has started a passionate debate by Uranium investors on social media. Energy Fuels (TSX: EFR | NYSE American: UUUU) has issued a new release announcing a bought deal for $16.6M through Cantor Fitzgerald. It has not yet closed, but we would expect it to close within the next week.

This isn’t the first Uranium company to sortie into the market recently looking for capital. But it is one of the largest. So what is going on? We don’t know yet, but will request a call with the CEO, Mark Chalmers, when they close the Deal, as we won’t get much out of him before then.

So why would they raise money now with their shares so depressed, and at a discount? It doesn’t make sense. Or does it?

Firstly, it’s worth remembering that Energy Fuels has around USD$16M of unsecured, convertible debentures with annual interest-only payments of c.USD$1.4M and a maturity date of 31st December 2020. That effectively is a large liability on the balance sheet which we will see in their March 2020 Quarterly Statement, so they need to do something about that.

Energy Fuels is raising $16M. They owe $16M. So maybe they are going to pay off the convertible. That would make sense wouldn’t it. Except it doesn’t. The uranium market has been hard to read for the last 4 years, it’s not any easier today. If you are company spending cash to keep the lights on, you need cash to hand, and not keep getting the begging bowl out. The smart thing to do would be to refinance the convertible and keep as much of that cash available as possible.

Also, what you can’t do is wait for the market to turn and save you. That has been the downfall of many a company. The response to the DOE announcement was mixed. It hasn’t had the super-charged effect that uranium companies needed. Don’t get me wrong, it was more positive than negative, but some doubt around the detail remains. So, in our opinion, companies need to get on to the front foot. Be in control as best they can. In the of case Energy Fuels, the USD$16.6M bolsters their balance sheet to somewhere in the region of USD$55M – $60M. Remember this is made up of cash and working capital in the shape of inventory (uranium & vanadium). About 50% is inventory, not cash, but only semi-liquid. That said the price of vanadium is creeping up again, c.$7-$7.50 at the moment, the c.1.5Mlbs of Vanadium in Energy Fuels stores is starting to look attractive again. We don’t expect that to be sold anytime soon, but is currently an appreciating asset.

Remember the $16M convertible is due at the end of 2020.

This reminds me (it’s not an exact parallel, but enough of one) of the actions of another company that we follow closely, RNC Minerals (TSX: RNX). The new CEO, Paul Huet, did a bought deal in September 2019 for USD$18.5M, much to the chagrin of his large retail following. The share price was depressed and cry from the crowd was ‘no more dilution’. But that raise turned out to be the making of one of the turnaround stories of last year. It bolstered their balance sheet and allowed them to put things in place to take advantage of the turnaround in the gold price from September 2019. It was a bold move. It didn’t win him any fans initially, but now the mood is much changed. The company is consistently producing and adding to their cash balance.

That is gold and this is uranium, but investors banging the ‘10- 50 bagger uranium drum’, probably won’t be overly concerned about the cost of this money to Energy Fuels as they will be swimming in cash, they tell us, when the market turns. The more conservative of us, who buy the macro story driving the demand cycle, may have winced at the price paid by Energy Fuels, but here is my take.

If the announcement from the DOE is the first salvo, it is a positive one. Right now, there aren’t US uranium producers capable of suppling annually the 2Mlbs – 2.5Mlbs of domestic uranium that the DOE announcement claims it will buy from 2021. Is this a case of Chalmers wanting to get on the offense to be able to claim as much of the $150M as possible? We think so. Can he do it? Well that’s going to come down to timing, luck and planning. Only one of those he can control. But if he has timed this correctly, even us conservatives would expect to make money on Energy Fuels. It doesn’t necessarily mean I’m happy today about what this does to the share price, but then I wasn’t buying into the short-term thesis for Uranium. And to be clear we do not own shares in Energy Fuels today. But after the raise next week that may change.

We talk in one of our other articles here about Energy Fuels belief that given there are only a handful of US uranium companies capable of producing uranium today, they would expect to the be at the front of the queue. And Energy Fuels, with the only working uranium (and vanadium) mill in the US – White Mesa, probably think it deserves to be at the head of that queue. In the current market it would be hard to argue against that.

So whatever your take on the DOE announcement, the conversation just got a lot more interesting.

Your opinion that matters, so please leave a comment below.

Company Page: https://www.energyfuels.com/

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

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

Stranger Things

It’s been a strange year for the Nuclear industry. First, the long-awaited announcement by new Energy Secretary, Dan Brouillette, of Government financial support to the much beleaguered and depressed Uranium market gave food for thought, and early celebrations for some, this week.

Maybe the Energy Fuels (TSX: EFR | NYSE American: UUUU) and UR Energy’s (NYSE: URG | TSX: URE) Section 232 petition has finally had the effect originally envisaged. Could this be the beginning of something beautiful for North American uranium juniors; the first step in rekindling a once strong and seemingly lasting relationship. Or was it just watered down political speak, leading to more questions than answers?

The United States Nuclear Fuel Working Group (NFWG) made an announcement that they were recommending the allocation of USD$150M pa, starting 2021 through to 2030; 10-years and $1.5Bn, for the purchase of uranium to build a US uranium reserve. There are other discretionary funds available too, but it is less clear as to what those are allocated too. That’s the trouble with the word ‘discretionary’ when used by politicians.

In the scheme of things, that is not a lot of lbs compared to domestic consumption. The US consumes about 48Mlbs of uranium per year, not including military requirements. If we take this announcement at ‘face-value’, then this budget allocation could support sustainable domestic uranium production of about 2Mlbs – 2.5Mlbs per year (depending on the, as yet, unknown price mark agreed – that’s a whole other discussion).  However, if the US Government wants to have an industry capable of producing and supplying 5-10Mlbs per year, it’s going to take a lot more government intervention and money. 

There are less than a handful of US uranium companies capable of producing uranium today. And clearly those companies would expect to the be at the front of the queue. Energy Fuels with the only working uranium (and vanadium) mill in the US, White Mesa, probably think it deserves to be at the head of that queue. In the current market it would be hard to argue against that.

Energy Fuels and UR Energy may also be buoyed by a statement put out by The Office of Nuclear Energy, which sits within the US Department of Energy, asking for the $150M to set up a uranium reserve to further protect the nation’s energy security interests. The new program will help to re-establish the nation’s nuclear fuel supply-chain through the domestic production and conversion of uranium. The reserve is expected to support the operation of at least two U.S. uranium mines and will ensure there is a backup supply of uranium in the event of a significant market disruption that prevents entities from acquiring fuel. NE would begin the procurement process for the reserve in FY21.”

“…the United States uranium industry faces significant challenges in producing uranium domestically and that [sic] this is an issue of national security.”

US President, Donald Trump

At the very least it brings little more clarity to the July 12, 2019 statement, when the President determined that “…the United States uranium industry faces significant challenges in producing uranium domestically and that [sic] this is an issue of national security.” It would appear conversations were being had and budgets were being drawn up, albeit at the sedentary pace that politics moves at compared to the demanding equities markets. Will we ever know the detail of the who, the why and the how behind the negotiations? I doubt it, but uranium bulls have seen a chink of light and they like it. Chatrooms and social media is on fire. Lots of conversations, lots of ‘I told you so’, lots of hope and few fantastical scenarios too. This is the fun of equity investing. Like the WWE, it’s about entertainment and making money, but without the make-up.

Away from the dreaming and back to the guys doing the hard work. The questions domestic producers want the answer to is, ‘how much of this discretionary $150M is allocated to US producers and at what price’. This is unclear. Will it include US friendly countries such as Canada, or indeed Australia or Africa if they can get in to production. Both those seem dependent on Chinese funding so perhaps would be taken out of this equation. So that leaves the Canadians. Depending on where investors have placed their bets, the answer varies, but the truth is that it is still uncertain. More steps and more announcements are required to bring certainty and a change in sentiment to the market. We all hope that the previous sedentary pace picks up a knot or two this year.

“Nuclear energy is also critical to the Nation’s energy mix and the Budget supports an array of programs to advance nuclear energy technologies. This portfolio promotes revitalization of the domestic industry and the ability of domestic technologies to compete abroad. The Budget provides $1.2 billion for R&D and other important nuclear energy programs, including nearly $300 million for the construction of the Versatile Test reactor—a first of its kind fast reactor that would help the private sector develop and demonstrate new technologies.” Which budget they are referring to is again unclear, or at least unclear to us.

We gain some comfort from the DOE Undersecretary Mark Menezes, who commented on Monday that, “This is the beginning of a long process” to address the nuclear fuel cycle. “It won’t stop with the creation of the uranium reserve.” Let’s hope he means it. Actions, not words, gentlemen.

It’s time to address US strategic mineral requirements and initialize the rebuilding of America’s nuclear fuel cycle. Plain and simple, the US’s crumbling Nuclear reactors and facilities need more money too. More money than has been talked about today. How this is paid for and what role the government chooses is yet to be made clear.

We look forward to the release of more recommendations from the Nuclear Fuel Working Group (NFWG).

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

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

Energy Fuels US$16.6M Deal – What Does It Mean?

A wide photo of U.S President, Donald Trump, in a suit and red tie, making a speech.

Yesterday (February 13th 2020), Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, announced an agreement with Cantor Fitzgerald & Co; the ‘innovative global financial services firm‘ has agreed to purchase, on a bought deal basis, US$16.6 million of common shares of the Company at a price of US$1.47 per share. We’ve studied the business model of Energy Fuels before, but what does this latest development mean for Energy Fuels investors and the uranium space as a whole?

Price Discovery On The Horizon?

A man we’ve sat down a lot with recently is Energy Fuels CEO, Mark Chalmers. He has found himself in the Crux hot seat in January 2020, December 2019 and October 2019, and this is just some of our encounters with the uranium veteran. He’s been very transparent with us throughout this bear market and we hope to talk with him next week to get the inside take on this agreement. So, in the meantime, we only postulate as to why Energy Fuels has done this now; what could this mean for the company?

President Trump’s apparent commitment to replenishing uranium reserves and adjusting the American military’s uranium purchasing habits towards full coverage in 2021 has got commentators excited. It proposes a budget of US$150M per annum for the creation of a US uranium reserve, as the administration seeks to help struggling producers of the fuel for nuclear power reactors. What this means precisely in terms of who and where the uranium will be purchase is still unclear. Given the security argument has been used as the main thrust of most discussions, the US uranium producers hope that the entire budget is US only and would not include Canada, Australia, European and African uranium producers and other US-friendly jurisdictions. The one certainty is that it is eventually unlikely to include Kazakhstan and Russia.

In a recent interview with us, Bannerman Resources CEO, Brandon Munro, explained that a behavioral switch by the U.S government could be a catalyst for a uranium market sentiment switch and, therefore, price discovery. So, is Energy Fuels getting into position early and readying itself for action in the near future? The press release seems to suggest so, but we will need to dig deeper than that. Why a bought deal? Who is at the table? Why not use their current cash drawdown facility?

Is this US$150M budget for the creation of a uranium reserve the beginning of uranium price discovery? Do they see a 2-tier system being created? What have they heard that has made them pull the trigger now?

Our Maths:

Munro stated in our interview that the U₃O₈ sector has operated a 20Mlbs deficit in the last few years. His logic went something like this:

  1. The United States military fleet consumes c. 50Mlbs of uranium per annum.
  2. It has been underbuying for the last few years by around 20%, or 10Mlbs.
  3. If it chooses to change its policy from underbuying to full coverage, 10Mlbs of extra demand for U3O8 will result in the current U3O8 deficit being halved.

In all our previous interviews, the absolute minimum spot price uranium CEOs have stated they could produce at (with a very small margin, if any) would be US$50/lb.

Based on this figure, US$150M of investment equates to 3Mlbs total of U₃O₈; not exactly a lot, but it’s a start.

While this clearly won’t be as significant a deficit reduction as Munro speculated, could this decision create momentum and a sentiment shift as we edge towards the next uranium bull market? Could it combine with other industry movers to create great change? We look forward to asking Chalmers. If you have any questions or thoughts, leave them below in the comments, DM us on Twitter (@CruxInvestor) or leave us a message on one of our uranium video interviews on YouTube.

The Early Bird Catches The Worm?

The announcement has certainly caught the market by surprise. It would appear that Energy Fuels may be positioning itself to get producing as quickly as possible. Will it have caught some of its peers out, and will it be able to close the deal? It could be a really valuable weathervane as to what the generalist market is thinking.

In the press release, Energy Fuels states the US$16.6M deal will be used to fund various activities required to increase uranium and/or vanadium production in response to the President of the United States’ budget for the fiscal year of 2021. How does the use of proceeds differ from what was originally planned?

Energy Fuels appears to think this announcement is a big moment. What will Chalmers have to say?

What do you make of all this? Comment below! We want to hear your take.

Company Page: https://www.energyfuels.com/

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Small Uranium Companies May Need to Change Strategies to Survive – Dustin Garrow (Transcript)

Dustin Garrow, former Paladin Director, and industry advisor to Uranium companies, Uranium ETFs and Uranium Funds, was involved in writing the WNA Nuclear Fuel report, especially the uranium chapter. A lot of investors on social media are seeing the findings of the report as a signal for a recovery in the uranium price. We ask Dustin Garrow if this a realistic assumption.

Analysts say there needs to be production at higher price. This report says ‘yes there needs to be more investment in the fuel cycle and particularly uranium. So everyone is saying the same thing. The Demand forecast marginally positive. Dustin tell some of the factors for altering the data from companies to show a more realistic outlook.

Will some of the junior uranium companies fall off the cliff if the price discovery takes longer than hoped. How will their strategies need to change?

Certainty is still not here, but the mood is more positive. Dustin Garrow saw 10-12 investment groups which is more than have attended more many years. Not a lot of the US utilities. He talks about conversations with generalist investors. And also an update about the 90 Day Working Group.

The report has previously had a reputation of being vague. But a lot of hard work has gone in to making it a little bit more commercial. But still avoids talking about the economics! It doesn’t talk price. Surprised, we were. But it does now discuss long-term contracts and term market.

Did you know that the EU and US represents over 50% of the uranium requirements. 1.9 billion pounds of uranium, and 90% was on long-term contracts.

Interview Highlights:

  • WNA Expectations
  • WNA Fuel Report: What Will it Do For The Market?
  • Current Mood in The Market: When Will Price Discovery Happen?
  • Struggles of Raising Funds in The Junior Space
  • Investment Hacks: What Should You Look Out For Before Investing?
  • Buying Physical Uranium: What Should You Know?

Click here to watch the interview.


Matthew Gordon: It has. We, like you, have been trotting around, meeting people, interviewing people at the WNA Symposium London, getting a sense of what the mood is. What do you want to get out of it?

Dustin Garrow: I think an important part is the biannual market Fuel Report from the WNA. I happen to have been involved in the uranium chapter. And the initial reactions have been very positive from outside organizations and people. I think the report reflects more of the concern of some of the fuel cycle participants. And it goes not just to uranium, but also the conversion side. I think the industry perspective now is more in line with what I’ve been seeing, particularly in the uranium side, on the supply issues that are looming.

Matthew Gordon: The WNA Fuel Report comes out every two years. It has had a reputation of being just a little bit vague. It paints a broad picture. But this year, a lot of hard work has gone into it. And we’ve met some of the authors of that. You were involved as well. It’s just that little bit more commercial. It’s getting to where it needs to be. You were involved with the uranium component. What was the brief?

Dustin Garrow: I’ve been involved in the report for many series of it. It was originally designed as an internal communication document. It wasn’t nearly as critical as to how it was put together. And the other thing is you can’t talk economics, can’t talk prices for anti-competitive reasons. But then it became the industry position, as particularly more investor groups, began to look in the uranium side. So, there’s been that lengthy transition. Still can’t talk economics. But it now it addresses things like the need for long-term contracts. There is still a big hurdle at this point. A lot of companies are at the starting gate in various forms, but without the utilities committing to more than a 2-3 forward year agreement, they can’t raise financing. It’s now being recognized, the term-market, it’s role in this industry. I looked at the US and the EU deliveries since 2000. There’s really good data on both the regions, which represents more than 50% of uranium requirements. Over that period, they’ve taken delivery of 1.9Bn lbs of uranium and 91% was under long-term contracts. So, the idea that the utilities rely on the spot market just doesn’t reflect reality. They still buy about 20Mlbs a year in the spot.

Matthew Gordon: It talks about long-term contracts which is a really important part of the industry for sure, but it’s not giving any indication around price because it can’t be anti-competitive.

Dustin Garrow: So you say things like ‘adequate’. And that depends on the specific company. What’s adequate for a Cameco is not adequate for a new build project somewhere else. But it’s a crucial element in the progression of the production facilities.

Matthew Gordon: If I look at people like TradeTech or UXC, they can get into this. And I think is important for commercial reasons that they can get into this. They sell those reports into utilities funds etc. But these interviews are for the ordinary guy like me and you, who want to buy shares in equities. What does this report do for them? Does it give certainty to the marketplace so therefore, people start behaving in a different way and therefore the equities react?

Dustin Garrow: What’s important is a lot of the investment analysts have concluded that there is a need for more production and it will be at a higher price. It has to be because of the economics of the new production facilities. The WNA, without talking the economic side, is saying, y’es, there is a need for more investments in the fuel cycle and particularly uranium’. So now everyone is saying the same thing. Now the contrarian would say, ‘well, now it’s time to look over the other direction’. I think one thing that was brought out in the WNA Fuel Report is the demand forecast. Recently the WNA had a low-case which had demand eventually dropping off. Well, now even the low-case is a positive I think it’s 0.1% growth. But it’s not a drop off. So, across the three cases, the reference case is about 2% growth per year and the higher one is 3.5%

Matthew Gordon: How did that how did they marry this up with the supply case? Most companies will overstate, will be a little bit hopeful about what they’re going to be capable of doing, but they are restricted by a number of factors.

Dustin Garrow: I think what what’s another important thing is there’s more judgment being put into the WNA Fuel Report. In other words, you can take the public statements of all these companies and say, ‘well, his history suggests that it’s going to take longer, it’s going to be slower’, or whatever and more of that’s going in the report.

Matthew Gordon: That’s great news.

Dustin Garrow: So, it’s not like, ‘oh, no, you’ve got to say just public information’. So, there’s some judgment that goes into it from people…Frank Haney, who ran the working group. He’s retiring next year after 50 years in the industry. So, we have some long beards involved.

Matthew Gordon: So that’s the WNA Fuel Report. Generally, very positively received. It’s certainly an upgrade from where it’s been, a lot of hard work gone into it and a lot more realism. Let’s talk about mood. I’ve been speaking to people and I’d say the general mood is positive, without necessarily being certain. It’s better than it was 6 months ago when we first started discovering the world of uranium. I’ve had some fantastically wide-ranging views on when price discovery happens from 3 months through to 18 months. Now everyone’s got a different business model, and everyone has different needs. But the people sitting in the middle are thinking maybe it’s going to happen next year. What are you hearing?

Dustin Garrow: I thought it was interesting that at the WNA symposium I think there were ten or twelve investment groups represented. We’ve never had that before. We’ve had maybe 2 or 3.

Matthew Gordon: And these are generalists?

Dustin Garrow: These are these are the guys that are either going to buy physical or buy inequities. They’re the guys that are going to put the money up for the industry. And someone said last night at a dinner I attended… when you’ve been around in this business so long, you walk in a room and you sense the mood, and it is on that positive side by the producers, either real or those that plan to come into production. The meetings that I’ve had outside of this symposium had been very positive. It’s not, ‘oh, well, what about the Japanese? They’re never going to’…It’s more like, ‘I’m on board now. When is it going to happen?’. The Section 232 in the United States… we had the July 12th memorandum from the President, which some people interpreted as, he had no interest in helping the domestic industry. But if you read his statement, it was ‘at this time’. And now the 90 Day Working Group will come out with some kind of remedy. But it will be uranium conversion, enrichment and probably be pretty neutral regarding the utilities. What’s going to be their exposure? But the point being, it’s not going to affect the general market. It’ll be kind of played out in support of the US government. But I think some of the utilities, particularly in the US, have the big unfilled needs, are saying, ‘well, I still don’t know what’s going to come out’. We’ll have that answer by mid-October. And then I think that they’ll start making their procurement decisions.

Matthew Gordon: We’ve had similar conversations. I think quotas, tariffs, subsidies. No-one knows.

Dustin Garrow: I think that’s all off the table. There will be some form of government support just directly. It won’t limit imports of other origins or anything like that.

Matthew Gordon: Let’s step back and see what happens there. But I think that’s going to be very interesting, obviously, for the US uranium companies. One of yours, Energy Fuels, obviously waiting to see what’s happening there.

Dustin Garrow: I think that activity in the term-market is what’s going to help raise the spot price. So, it’s not going to be the spot price goes up and then there’s term activity. The utilities are already doing their due diligence. They’re contacting suppliers. How much have you got? What timeframe? What kind of pricing are you looking for? That’s a precursor for them coming out. And like one of the US utilities was just in the long-term market, 2021-2025… So, again, they’re starting the process that they’ve not been willing to do because of the price differentials for a number of years.

Matthew Gordon: So, you were at the Eight Capital dinner last night. What were you hearing? What were the questions that are being asked?

Dustin Garrow: Well, no one’s saying, ‘well, is the price going to drop?’. What are the factors that are going to move it up and when do we see those asserting themselves? Now, some of us, we are die hard optimists. We could start to see it before the end of the year. But I think by first quarter, keep in mind, there’s a big conference in Nashville at the end of October, where there’s only like 3 US utilities here. They’ll all be in Nashville; the producers will be there. I think there’ll be much more discussion because we’ll know what the working group recommendation is or outcome. So, we could see some of them will say, ‘well, I’m going to get out there now. I’m not going to wait’. And we could start to see an uptick in term-contracts.

Matthew Gordon: Based on your assertion that you think it’s pretty soon, a lot of companies are going to like that news. Not saying it’s going to happen, just that they’re going to like your view. If that doesn’t happen… we’ve been speaking to a few people and we’ve been interviewing a few people. So, we’ve got a broad sense of what’s happening with it with a junior uranium space. A lot of them are needing to raise capital to keep going. They may get to the end of the year, but that’s it. Do you feel that the funds or the institutions that you’re talking to are ready to have those conversations with these juniors or are they going to struggle?

Dustin Garrow: I think some, because they have a good business plan, good projects, they’ll be able to maybe live on the drip for a while. They’re not going to get that big multi $100M financing done without term-contracts. I think they may be optimistic on how long that takes. It’s not that the price goes up, the next day the phone rings and all the utilities sign big contracts and by the end of the week away you go. It can take months and months. And at some point, the Cameco’s enter the market. And at some point, you’re going to see a lot of activity once you get to a certain degree.

Matthew Gordon: That’s great saying that because I think if I look at the retail following that we’ve got within uranium. Very passionate, very optimistic and patient group of people, very knowledgeable too. But they shouldn’t expect an immediate pop in price. There’ll be a gradual escalation on price. Is that what you’re saying? That could be as well as long as 12 months before it gets to where it needs to be? When does it get to $50?

Dustin Garrow: Well the term-price at $30 we could see $40 very quickly, because I think that’s the next plateau. A bit of contracting by some, then another pop up to $50. Well, how long does that take? Are we dictated to by the utilities when they come on the market? So, yes, by some time. First half of next year should you see a lot of term-contracting activity. And it’ll affect the spot-price. I think we’re within a 6-month window.

Matthew Gordon: I’m going to go back to my institutional days. I’m looking at price, if it hits $40. Most of these companies are still under water at $50-$55. So, in a meaningful way, it doesn’t matter if it is $20 or $40, but for the funds, if they see contracts in place, they have security. They still have to take a guess on what the future holds. And that the company can get product to the utilities. They’re got to say this will get to $55. That’s only break even for some of these companies. Some these companies need to make more than that to be able to pay back anything they have borrowed. So, there’s still a lot of uncertainty in terms of ability to raise capital. Is there not, at this point?

Dustin Garrow: Yes. That’s why some of them are out meeting, a lot of meetings, a lot of discussions and preparation for them. Then you go out and you do your whatever amount of term-contracting. I think the financing is available, but with the right conditions.

Matthew Gordon. We’ve been meeting and talking to a lot of the funds and institutions, and they’re generalists who, as you say, are coming back in and having a look at what’s going on. They’re having to get back up to speed, to understand what’s happening in the market, and they’ve going to take a view on what the future looks like. But, yes, I think the money is there, under the right conditionas. But that is going to come down to 2 quite important things that I’ve discovered in the past 6 months, management teams who have produced uranium and got it into market. Not many of them, right? And then, of course, the basic fundamentals of mining, is this a good asset? Can you get it out of the ground, let alone get it into market?

Dustin Garrow: Well, as you know, we’re having more specific questions. In other words, will a rising tide lift all boats? I think some of the investors that have either been in the space or more sophisticated, whatever, are saying, well, now of this group of companies, where should I place my funds? I think probably the primary question that I’m getting back is, ‘I’m on board, I think it’s great, next year. But where do I place my funds?’ And part of it is, like you say, management teams, the experience. And that’s hard to come by these days. Very difficult. There’s just not many veterans left. And uranium is a unique commodity because of the political, social issues surrounding it.

Matthew Gordon: I’ve been calling it in the past few days ‘Mining +’. Mining’s hard enough. Then you have the uranium component, which is a political hot bed. And some of those geopolitical concerns. But without getting at the macro, we all agree that the general consensus is it’s positive, a huge infrastructure needs filling. But if we come back to the management team. There’s about 50-55 companies in the uranium space at the moment. As the market recovers, you’re going to have new entrants coming in. It’s hard to imagine that any of them are going to have relevant uranium experience.

Dustin Garrow: It will be difficult.

Matthew Gordon: So, again, for our Subscribers, that’s something that they need to consider when making an investment decision. A new story doesn’t necessarily equate to capital appreciation, because these new entrants are unlikely to get into production with new management teams with no experience. Not impossible, just unlikely.

Dustin Garrow: During the last uplift, there were like 400 / 500 companies. I was at PDAC and everybody was tacking up a sign. ‘We also do uranium’, on top of everything else. And geologists with some drill logs they were they were getting funded. I think this time around it will be more difficult, because the questions will be asked, ‘who is behind it?’, peal it to the next layer and. And who’s going to do this? I want names. And that’s going to be a difficult part of the equation for some of the companies to convince funds. And it goes into the term-contracting. The utilities will say, ‘I’ll do a 200,000lbs /300,000lbs contract. I’m not going to do 500,000lbs. I don’t know you guys. I don’t know your project. It’s not built. So, I’m going to be cautious’. So, that means junior companies have to even do more contracts than maybe an established producer, of which there aren’t many left.

Matthew Gordon: Yes. A few things going on there. If you don’t have anyone who’s produced or been involved with producing uranium before, as an investor, you’ve got to think twice because it’s complex. It is not just drilling holes in the ground, finding it, digging it. It’s not that simple. There’s what happens afterwards. The bit that you’ve got a huge track record on was, I’m not selling you by the way… I’m just referencing that you have huge experience in this, the contract side of things. That’s not easy because, time comes into this. There are buying cycles. Term-contracts are 5, 7 years, aren’t they?

Dustin Garrow: They come in cycles. And just as a quick side note, when we did the bankable contracts for Langer Heinrich, the banks laid out very specific requirements. How much volume? At what price? Over so many years. So, we had to then construct a contracting plan that met all those needs. And sometimes you have holes and the banks go ‘fill the hole before I’m going to press that release of funds’. So, there’s more to it than like I said, the phone rings and you pass around contracts and you’re done. Won’t happen that way. It’s not to say these other companies can’t be successful. It just may take a bit more time. They may have to be more flexible in contracting.

Matthew Gordon: I think the phrase I heard yesterday was that ‘they don’t know what they don’t know’.

Dustin Garrow: And it’ll come to their front door.

Matthew Gordon: And that takes time. And that takes money. And sometimes they can’t fix it. So, a lot of things to be cautious of as an investor in the uranium space, unless you get a team that’s been there, done it before. I think that’s important because a lot of people, generalists, I’m not talking about the wonderful uranium crowd that have been in there through thick and thin over the last two years. I’m talking about generalists coming back home when uranium does kickback, will need to understand that. It’s not a case of all boats float on a high tide. I fundamentally disagree with that statement. I think all boats float for a while. And then the inevitable happens, they sink. So that’s great if you get it on the way up. But if you’re if you’re left on the boat, you’re in trouble.

Dustin Garrow: TradeTech, one of the two long time industry consulting firms has just put out a study on production. And it goes beyond, ‘well, here are the costs’. They look at full cost because a new project’s not going to be built on cash costs only, but then they try to look at what are the impediments? What about the secondary licensing? What about the mine plans? What about contract? Have they gone out and approached the market? Are they ready to do that? So, it’s kind of a guideline, a cookbook, to look at and go, ‘well, you know, just because you’ve got the best technical project, you may not be in the first mover group. You may not veto the third’, because of where the projects located for a number of reasons. So, the industry is trying to help some of the consulting firms in that regard.

Matthew Gordon: But that’s fine for people like you and me. We can afford that report. I saw it yesterday. Great report. And we can interpret that and extrapolate what we want from that for retail, family office, high net worth. They’re not going pay for that report. They don’t have access to that. They’re going to have to trust the information that they’ve got access to. And that’s why I’m interested in talking to people like you, you’ve been around the block a few times. You’ve seen a few cycles, influencers who understand what’s going on in the uranium space. But it can also help bring to light some of these issues. What the company says and what the company is capable doing are sometimes polar opposites. They’re very far apart and that’s the difference between making money and losing money. And that’s important. This is investor’s money. That’s what I care about.

Dustin Garrow: I think money will be made in this space again. I think it will probably be on a more selective basis.

Matthew Gordon: Pick the right team. The right boat.

Dustin Garrow: Yes. And a lot of it’s the right team that can get things done.

Matthew Gordon: Are you seeing any good stories out there? Over the past 2-3 days and over the past six month I’ve heard different business models and I don’t mean physical or ETFs or equities. I just mean companies which are up or coming at it in a different way, which makes sense, or companies which have got all the fundamentals in place. What type of company would you invest in? Or advocate in investing in?

Dustin Garrow: I think you’ve hit the high points, those that can demonstrate some experience in the commodity and mining in general. That always helps. If they’re not totally cash starved at the moment, that’s a plus. It gives them a little more breathing room so they can go out and meet with utilities and lay the groundwork. And if it’s like, ‘well we can’t go out, we can’t talk to anybody, we don’t have any money’, then it’ll be tough for the utilities to put you on their supplier list. When they don’t see you and you may have the best widget, but they can’t see it. The utilities need yellow cake in the can. They aren’t that interested in your share price. They can’t stuff shares or certificates in their reactor. They want to make sure in 2023 on June 1st you’re going to deliver that 100,000lbs, because they work it into their fuel plan. So that’s what they’re after. And so it goes beyond just the investor side. You’ve got to convince the customers that you’ve got credibility, particularly with new projects. If you’re a new person on the block it’s it can be a challenge.

Matthew Gordon: I just talked about something which was buying physical uranium. There’s a company in the UK called Yellow Cake. You’ve got one in North America which is called Uranium Participation Corporation (UPC). How does that work? What is buying physical uranium?

Dustin Garrow: There’s really more than one model and I’ll talk UPC, Yellow Cake. They’re being characterized as sequesters of the uranium. UPC has held their inventory for 15 years. And Yellow Cake, the business model, as you know, I’m chief commercial officer for Yellow Cake. Is to accumulate that inventory at good acquisition cost. The current 9.4Mlbs we acquired at under $22. Buy it and hold it for an extended period, add to it when the stars are aligned correctly to where we go out and raise money, buy more. We’ve got the option with the Kazakhs. And it’s an investment that the investor can make up a bet on the market. In other words, ‘I think it’s going to keep going up. I will accumulate shares’. At some point they may say it’s $45-50, could come off. Then they’ll take a different decision. But it’s basically that store of value that they can make decisions on.

Matthew Gordon: And it’s based purely on the price of uranium spot that that day. ‘I bought it $25, it’s now at $40, I’m checking out’, because it just happens to be in the form of shares. You’re buying and selling physical product.

Dustin Garrow: But the material doesn’t like come in the market. Now there’s a different group, which there’s 6, 8, 10 investors that have bought physical. Now that means they hold the U308 at a conversion facility. They come in, they add to that when they think the price is going up. And at some point, I think when they say, ‘well, OK, I’ve doubled my money in six months and I’ll sell some of it off’. I think that happened earlier this year. So, that’s a different model.

Matthew Gordon: One is physically selling off, but that’s a group of institutional guys, presumably. The first one you described was there’s an inventory sitting there. So, you can you can buy shares in that. It will continue to sit there. And once you want to sell your share, you can sell it someone else. But the uranium still remains there. It’s not going into the market per se. It’s a security.

Dustin Garrow: Yes, it’s a lot easier than if you buy physical because then you get into the storage accounts. There’s fees, there’s all kinds of things. Not to say that’s a bad part of a three-legged stool, but it’s different. And I know the analysts are really struggling with ‘how do you model that?’. Cameco has mentioned it on their calls. But apparently late last year, that group bought 8-10Mlbs. Could have been more, could have been less. And I’m asked how and when will they sell? At what price? Some might sell at $35. They go, ‘hey, I bought it at $25 I’ll sell it’. That’s a great deal, I’ll go do something else. Others may say this thing’s rate going up quickly. I’ll hold to $50. They may sell at $35 and come back at $40. So, it’s a growing part of the spot market that to some degree you can’t model. It’s like, ‘well, how do we model this? We know what the utilities are going to do. We know the producer buying’. I contend you can’t model it. If it was one person you go, well, I can kind of figure out what they’re doing, but it’s now a diverse group all over the world. South America. Australia. North America.

Matthew Gordon: Right, so if I’m looking at something like Yellow Cake. You buy at $22. If the price goes down. There’s nothing you can do about that. So, the value of what you bought is less than what you paid for it. But your expectation by investors buying shares is that it’s going to go up. So, there’s no equity risk per se, it’s just purely on the products above the ground sitting in containers, Cameco’s facility or wherever it’s held. Whereas equities, a bit more exposure to all the risks below the ground and management decision making and availability of cash. So, it’s just a different risk profile.

Dustin Garrow: So, it allows you to participate in the uranium space by either Yellow Cake, UPC or physical. I understand one of the large banks that’s been involved in buying physical has been providing that service. You don’t have to get a supplier or storage agreement. We’ll do it under ours. So, there’s the entrepreneurial side of that, for a fee. So, then that takes some of the goodness out of it. And then it’s the equities. Everybody says, well I’m going to buy Cameco. Well yes. They’re a fundamental part of the business. But actually their upsides are limited by ceiling prices and defined price contracts. So, if the price goes to above $100, if you look at their sensitivity table, they start to hit a ceiling. Now, on the downside, they don’t go down below about $30. So, they’ve got a collar. And that’s part of their business model. I’m not sure everybody looks at that. They think, well, if the price goes to $200 it great but  in reality Cameco will hit their ceiling.

Matthew Gordon: It’s also not good because there will be a lot of entrants, new entrants in at that point.

Dustin Garrow: I mean but then the different strategy, different risk.

Matthew Gordon: So, to finish off because I know you’ve got places to be, you’re meeting lots of people today. You think uranium people should be looking at it, should be considering as part of their investment portfolio. General consensus is quite positive.

Dustin Garrow: Yes. More and more people are looking. I did a roadshow in April with yellowcake and it was mostly North America. And certainly, we did Boston, New York, but out on the West Coast. Los Angeles. San Diego. So, we see a broader spectrum of interest. And I think it’s waiting on the Section 232 though, we don’t know what that kind of means. But once the green light goes, even if it’s a pale green. I think there’s going to be a lot of investment.

Matthew Gordon: People will be waiting until then, I think generalists are waiting till then, see what that outcome is, whatever it is, some degree of certainty about how to move forward.

Dustin Garrow: Figure out what does it mean and then the utilities will react so you’ll see that term market start to pick up.

Matthew Gordon: Dustin. Good to see you face to face here in London. Enjoy the rest of your time here. I think you’re diving on aeroplane tomorrow. We’ll catch up hopefully in October.

Vimy Resources (ASX: VMY) – Production in 2 Years with 2.9Mlbs! (Transcript)

Interview with Mike Young, CEO of Vimy Resources (ASX:VMY). Vimy is on a non-deal roadshow in London meeting investors and potential investors. They report that the mood in the market is good because the macro story is well understood.

Mike Young is great value entertainment but he also knows a lot and is very well connected. He does a very good job of explaining the short-term micro and how the financing in the space operates. As well as what is happening with the supply deficit.. Do both sides of the Demand/supply equation understand each other? Mikes doesn’t think so.

Vimy is doing a refresh on the cost-side and they have been talking to debt providers. How are the conversations going? How are they going to market to finance their project? Mike says they are looking for strategic partners, but where? And what does that look like?

Interview Highlights:

  • Mood at The WNA
  • Overview of Vimy Resources
  • DFS: Going to Market and Transport Costs
  • When Will Vimy Resources Go Into Production? When Will We See Contracts Being Signed?
  • Some Juniors Aren’t Going to Make It: Why and How is Vimy Different?
  • Message to Investors

Click here to watch the interview.


Matthew Gordon: You’re here at the WNA Symposium London. What are you here for?

Mike Young: We’re here for the World Nuclear Association Symposium. But we’ve also spent a couple of days on the road with Bacchus Capital.

Matthew Gordon: You’ve been talking to a few institutions, family offices about the potential of raising some money?

Mike Young: Well, it’s called a non-deal roadshow. So basically, what you’re doing is just introducing Vimy to these people in the event at some point the future you might raise money. What’s been good is that the calibre of people we’re seeing is high.

Matthew Gordon: And what’s the mood?

Mike Young: The mood is actually good. I think we’ve come out of a couple of years where the mood’s been bad. And what’s interesting is that the mood of the investors is quite independent of the WNA, because most of these people won’t be at the WNA. But the WNA itself is releasing the WNA Nuclear Fuel Report is the best one that’s come out in the last seven.

Matthew Gordon: But back to these investors.

Mike Young: These investors are people who understand the uranium macro story. Some of them already own uranium shares, and some of the people we saw have small uranium funds. We picked Bacchus Capital on purpose because they did the Yellow Cake float. So, they understand uranium.

Matthew Gordon: So, these investors that you’re seeing, they understood the macro situation, the supply / demand and the economics. What were most of the questions about?

Mike Young: When’s the price going to go up? The constant theme was when are you going to write a contract? They understand the uranium macro. But unless you live in the industry, you don’t understand the micro and there’s a lot of different micros that are pushing in different directions.

Matthew Gordon: Like what?

Mike Young: Well, for example, contracting. I think people expected the Section 232 petition decision to have some sort of effect on the spot price, like it would have in, say, gold, copper, nickel, where there’s a market in a speculative market and it just didn’t. The spot price is basically a reflection of the contracting that’s going on. There was just no contracting. Nobody wrote contracts the day after the Section 232 petition. Now, part of the reason was it was August and it was North America. I mean, the place closes down.

Matthew Gordon: Did you have to explain that to them? Or were they aware of what had been going on there?

Mike Young: A lot of the discussion revolved around exactly how the utilities operate. Why they’re taking their time. The timing and what our expectations were. And as we explained to them, the early contracts aren’t going to be much more than the current term price. And that’s because you’ve got lower cost producers. There’s definitely demand, and we know that open requirement has to be filled.

Matthew Gordon: Well, you say there’s definitely demand, but there’s still timing issues on that. There is no demand today.

Mike Young: No, they’re burning material they bought three years ago.

Matthew Gordon: Demand is coming. The demand story is understood. But did these investors understand that?

Mike Young: No. A lot don’t. A lot of investors are commodity investors. And I made the same assumptions when I started in this space that there’s more immediacy in most other commodities than there is in the uranium.

Matthew Gordon: There’s a lot more understanding of other commodities than uranium?

Mike Young: Correct. And uranium is more like LNG (liquefied natural gas), which are long term contracts. In fact, I was having a discussion in Perth with someone in government and I remember one of the policy advisers say, ‘hey, that sounds just like LNG’. And I went, ‘well, it’s kind of like LNG’. There’s a very small spot market and there’s this time lag. So, I think I think there’s a couple of things at play. People have uranium fatigue. I heard it all before. It’s going to come. It’s going to come. And this is what I mean about the micro. So, some of the things like Yellow Cake, for example, we’ve never seen that before, where a group comes in and buys that much uranium and sequesters it. It’s basically parked. Because they trade on net asset value. You’ve got KazAtomProm which is now Westernised, so two years ago they were behaving…

Matthew Gordon: Partially westernised, surely?

Mike Young: Well, but they still have they still have an accountability to their guidance. They never had before.

Matthew Gordon: Ok, let’s say that’s true.

Mike Young: Well, Riaz Rizvi who’s their chief commercial officer and does the marketing says that’s true. He says that we have to be careful now because we have a responsibility. But not only that, they have westernised their accounting. I mean, when Riaz went in there, they had old Soviet style accounts and they were just churning out the pounds. That’s how they measured it, they weren’t looking at margins. So that’s different. I think the utilities; their buying habits may change. They used to write these 10-year contracts. I think I think that may change. The contract cycles may come down lower. So, there’s a lot of a lot of different things that are interconnected, and some aren’t that are different this time. But the thing is, the Section 232 really focused everyone’s attention here or outside the industry on it, because it was got a lot of airplay. But in terms of the contracting cycle, what will happen over the next 18 months as they fill their forward requirements? The early bird will get the worm, right? The early contracts will get the cheaper prices and they’ll basically climb up the price curve. And because we sit in the third quartile, happily, we’ll be one of the people getting contracts as they creep up the curve and the price increases, because as they continue to write contracts, the lower price material will start to disappear. And as Julian will talk about, the long-term macro. There is a supply deficit. We can see it. We talk about investors not getting part of the or any market. What’s interesting is people in the uranium side don’t get investment side now. What people on the buy side of uranium are missing is just how long it takes to put new production into the marketplace. And that’s really fascinating that both sides don’t quite get the other.

Matthew Gordon: I want to talk about you. You’ve got a couple of assets, Mulga Rock etc. Where are you with those very quickly for people, because I want to talk about them.

Mike Young: Ok, Mulga Rock, DFS finished. We’re looking at a refresh. We want to try and get our capital costs down. Particularly on the mining fleet side. So, there’s S100M there of Australian mining fleet. And we think we’ve got a solution to that. So, we’re working with people on that.

Matthew Gordon: Solution to do what?

Mike Young: In the DFS, we assumed that we would manage and own the mining fleet. Now, that has inherent risk. It’s the cheapest option on paper. But if you have problems in your mining fleet or mining, then it becomes a more significant problem. Whereas you can you can put that risk onto an earthmoving contractor, but you pay a bit more. And it goes onto your operating side. So, things like that, you know, staffing levels, cost of people. 18 months ago, a mine manager was different price than he is today. Things like that. So, we’ve called it a refresh, if you will, that we’re doing that. There’s not much else to do on that. That’s just going to be market driven. So, you know, you get the contracts, you get the debt. We have talked to debt providers on this trip.

Matthew Gordon: This is what I want to talk about. I want to get into the numbers, because you’ve got a couple of good assets. You’re at DFS stage. You know what you’ve got you got a sense what you’ve got your refreshing that. But you’re in this waiting period, this twilight zone, like everyone.

Mike Young: No man’s land.

Matthew Gordon: You’ve now got a sense of the economics of this project. Have you made decisions about how you’re going to go to market? You’ve got lots of options. The DFS tells you a lot of stuff. It doesn’t necessarily mean you’ve got to follow that path as laid out because the market changes, prices change and financing will drive this, the type of financing you get can drive this. You’re having some debt conversations at some point and have some equity partner, strategic partner type conversations too.

Mike Young: We’re having those.

Matthew Gordon: So, tell us about those.

Mike Young: We have put feelers out there saying, if you would like to partner with us coming on as a JV partner.

Matthew Gordon: Where have you gone to?

Mike Young: Everywhere and anywhere you can imagine. China mainly. The US utilities don’t do that. That’s off the table. They just don’t take that risk. They tried it once. They took some shares, but they don’t do that sort of partnership. So, you know, China’s the main one for strategic partners. But we’ve basically started the process of just letting people know that if you’re looking for a strategic partnership, that could be a large equity group, it could be a PE fund. I mean, they do that in gold.

Matthew Gordon: Is this a case of I’m going to hand the keys over this is a strategic partner?

Mike Young: Yes. For example, you earn into 40% of the project through a sale on a fair evaluation and then you have 40% of the offtake.

Matthew Gordon: So where are you with these conversations??

Mike Young: We’re not that far down. In terms of pure debt, we did announce some time ago that we had SOC Gen doing some work for us. Nataxys is now upping their presence in Australia. They’ve just done a merge with a boutique advisement firm. They’re a French bank so they get uranium. We talk to Australian banks all the time. And then there’s some non-traditional style debt here in the city that we’ve said, look, this is our model. We have a minimum contract price. We’ve made it public. It’s fifty-five dollars. We need 55. That’s our floor. We get more. The study was done at 60. The feedback from the utilities is that your price expectations for 2023, when you would likely be in production, are realistic. That’s the feedback. Now, they’re not signing contracts today for that, but they do the maths as well. So, what we do with that is we say, here’s our financial model. Here’s the numbers that we’re inputting. This is the debt we need. And then we sort of flex, how much offtake will you have? Will it be 50%, 75%? And the answer is, well you tell me because you’re lending me the money, we need to know what they payback is. And they’re not things that are announceable. Anybody who understands the space would assume I’m having those conversations.

Matthew Gordon: So, help me understand a little bit of it technically around what DFS has got in it. I imagine it tells you what it’s going to take to get the uranium out of the ground in terms of cost in terms of cost, economics around that. Does it factor in transportation from port to end user? He’s nodding. He says yes. That’s the economics guy.

Mike Young: That’s right. So, he that you’re pointing at, Julian Tapp. He’s sitting way over there because his brain is too big. We couldn’t fit him at the table. So basically, the ownership transfer is at the converter. So, we deliver to the converter and then they take possession and pay us.

Matthew Gordon: And that’s your $55?

Mike Young: Yes.

Matthew Gordon: So how do you do that? Surely it depends where they are in the world and what the cost of getting there right?  Like, you can’t say it’s $55 if you’re selling to China. It’s going to be different price if you’re selling to…

Mike Young: There’s only three places it can go. And that’s France, Blind River Ontario, which it’s delivered at Halifax and then railed.

Matthew Gordon: There’s got to be some variation but not meaningful.

Mike Young: There is a little bit.

Matthew Gordon: I know you’re keeping a really tight ship. You’re not hiring people. You don’t need to hire now, you’ll hire them when you need them. If the price hits $55 and you can get some contracts in place and you can press the big green button, how quick are you to production?

Mike Young: Two years. FID to production is two years.

Matthew Gordon: Build and spitting out product at the other end?

Mike Young: Yeah. So, I think the first year 2.9Mlbs, in year one and then we ramp up to 3.5Mlbs by the end of year two.

Matthew Gordon: So that’s kind of quick into production, there’s no kind of ramp up stage?

Mike Young: To me It’s not. There is a ramp up but it’s because we pre-dig some of the pits and stockpile because the pits will become the tailings facilities. So as part of a build, we actually dig some of the pits and we have stockpiles sitting on the surface so that that assists with your ramp up. So, we’ve got the ore ready to go. So, two years to me, it seems really long, because when I ran that iron ore company, we went from our very first drill hole to ship in four years. Our previous COO, who’s still on our board, Tony Chamberlain, shook his head at me and said, this isn’t an iron ore mine.

Matthew Gordon: He’s right.

Mike Young: I know he is. But, you know, we have to build a camp. The plant’s relatively small. It’s a big mine. It’s 8KM long, 2.5KM across at its widest. We’ll mine it a strip mine. You know, since there’s a lot of dirt to move. But the plant itself is actually relatively small because the front end, we do beneficiation. We wash sand at of the ore, reduce the volume by 50% with no loss in uranium. And so suddenly you’re dealing with a relatively small amount of material.

Matthew Gordon: Relatively compared to a lot of people, two years is a short time just to let you know I haven’t heard anyone today say less. And for some of the juniors who are not producers, it’s three years. So, you’re ahead of the curve there, that’s actually something people should take note of. But what does that tell you in terms of timing for the conversations that you do need to have? I know you’re speaking to utilities, but you can have a different conversation with them today than you will maybe in a year’s time. They’re giving indications about what makes what makes sense to them. But at what point do you actually start talking about contracts?

Mike Young: We’ve been doing that for two years.

Matthew Gordon: No, I mean meaningfully talking about contracts.

Mike Young: Let me let me take you through the process. Let’s go back to our strategy. So, we had to think about where do we want to sell uranium? So, you look around the world, you go, ‘who are the five top countries using this stuff?’. Well, it’s the US, France, China, South Korea and Russia. So, of those five, Korea only buys at spot. And they have some pretty arduous contract requirements, so they’re gone. China and Russia, they’re sourcing their material from the stands. So, they’re not real unless you have a strategic partnership. You’re not going to be selling a lot of material there. And China’s probably going to buy on the spot anyway. So, to be frank, the two countries you want to be looking at are France and US. EDF fuel buyers have told us we’re only going to buy from people in production. So, now you’ve got the US. What’s interesting about that is they’re about 28% of the market. So that’s a big part of the market. So we’re going to do the US. Is there a market for our material? The way the US utilities manage their portfolios is they like to spread the risk and they actually layer cake it. They baseload it with a Cameco and then they’ll actually have these little tranches that are that are absolutely set for juniors from Australia. So, what we did, we went around to all utilities and we said, price being no object, what’s your requirement from Vimy?

Matthew Gordon: Who’s your guy in the states?

Mike Young: Scott Hyman.

Matthew Gordon: He’s full time? You have been thinking about this. You have been having these conversations. You’re readying yourselves.

Mike Young: Correct. And one of the things we’ve addressed previously is our DNA and our overheads. And what was interesting is that conversation came up. What’s your spend? What’s your burn rate? And what we did recently was we had an AGM where we voted. We got permission to do salary sacrifice. The reason for that is I wanted to buy shares in the company, but I don’t want to reward someone for selling them. And this keeps money in the Treasury. And some of our staff, some of our directors have gone to 50%. So that’s one way of saving money.

Matthew Gordon: 50% of what?

Mike Young: Of their salary, they actually receive in shares. So, we’ve done that as a way of saying to people, you can buy shares in the company, but the money stays in the company, which is a really good win-win. It’s a way of saving money. One of the things we had to look at was, how ready do we want to be? To answer your question, when can you push the big green button? You can’t downsize to a point where it’s going to take you two years just to person up again right before you press the button. You want to have your team ready. So, we that’s why we’ve got Scott on board. That’s why we’ve got Julian working part-time. Scott’s working part-time. So, we’ve sort of struck a balance. We downsized the office. We’ve done a lot of cost-cutting, cost savings. We’ve got the team ready to go because this is the sort of market that’ll flip very quickly. One day we’ve got a contract and they’ll cascade.

Matthew Gordon: It may well flip quickly, but the point at which it flips is undetermined at the moment. Today I’ve heard very different views as to where it’s going to go from people inside the industry. And you’d think they would have a bit more of an insight. What’s your take on when this thing starts to motor because some junior companies won’t be able to make it through to the end, because either they need to raise money and can do that, or, because investors are getting better at understanding of the fundamentals of uranium, perhaps that company had their moment in the sun when they could raise money, may not be able to do now.

Mike Young: That’s a really interesting question. And one of the things that Fuel Report does talk about is who is ready. Think of a Formula One race, who’s in grid, who’s in pole. And when you look at that, there’s not very many. And that’s our point of difference. That we have kept the guys on board ready to go. We’ve got no reserve. We’re going through those secondary approvals, the building permits, if you like. Those will be done well before we have all the contracts we need for the debt. My window is the next 18 months. We get contracts and we move into if FID towards the end of next year. That’s my working hypothesis.

Matthew Gordon: We’ve been asking people of the 55 old companies which are around. Do you think many will be around if this thing does go on another 12 months, let alone 18 months? What do you think?

Mike Young: I think some people will fall by the wayside, partly because they were in it for a speculation, not to build a long term mine. And we’re about building a mine and building long term value. When I ran BC Iron that was a $13M listing. And by the time I left, it was a $650M company and it got up to $800M before the iron price fell. We generated a lot of value and that was by getting into production, paying dividends. You just bring on a different class of shareholder. So, we’ve got some major shareholders in Andrew Forest, Sachem Cove, Mike Elkin, Paradise. They’re all there all long. They’re not in this to make a quick buck.

Matthew Gordon: What’s your message to existing shareholders?

Mike Young: Thank you for supporting us and continuing to support us. And we’ve always said this is a long story. And you know, the people that are in, they get that. We’d like to get some share appreciation along the way. That’s what Alligator River does for us. So that’s a shorter-term exploration play with a longer-term development play. So that was part of the reason we brought that in. Because I know through my experience that if you’re building a project, there’s two years of not a lot of news. Isn’t that sexy?

Matthew Gordon: But your point is, so existing shareholders, they’re in it for the long haul. It’s going to be fine. You may get a bump with Alligator River or not, depending on how the market reacts to what’s going on. And it is a question of waiting for this price discovery. That’s the only way you can affect share price, because the reality is it’s out of your control.

Mike Young: It’s existential. Absolutely. Thanks mate.

Matthew Gordon: Good to see you. We love talking to you every single time we speak to you, over here.

Mike Young: Well, hopefully it’ll be more because I hope we get some of these London groups to come in and that’ll give me an excuse to pop by.


Company website: https://www.vimyresources.com.au/

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Vimy Resources (ASX: VMY) – WNA Nuclear Fuel Report Contributor, Julian Tapp, Talks Price Manipulation (Transcript)

Chief Nuclear Officer and economist Julian Tapp of Uranium company Vimy Resources (ASX: VMY) did his own research in to the nuclear market and his findings told him that the WNA Report was inaccurate. So he got involved in putting this new and improved version out.

As an economist Julian loves getting in to the detail. He helps us understand what investors should be focused on. And who the winners and potential losers are. Can the 3 biggest players control pricing and effect the chances of juniors getting into production? Julian gives us his opinion. The pricing matrix is very delegate. Manipulation or markets?

If you believe the WNA Nuclear Fuel Report is an important catalyst you need to understand what is in this report. Julian tells us why the report is more commercial and has more rigour in the process of putting the information together.

Interview Highlights:

  • WNA Expectations and The WNA Nuclear Report Overview
  • What is The Importance of The WNA Nuclear Report? What Needs To Be Improved?
  • Big Nuclear Players Could Affect Prices, So Why Don’t They? What Does That Mean For Junior Players?
  • Winners vs Losers & How To Tell The Difference
  • Vimy Resources: Can They Affect The Share Price Before Prices Change?

Click here to watch the interview.


Matthew Gordon: You’ve been meeting and greeting lots of people, sort of finding out what’s the mood is.

Julian Tapp: Everybody turns up for the WNA Symposium. So, you just hang around, talk to people, find out what the views are.

Matthew Gordon: What do you think the general mood is, positive or negative?

Julian Tapp: I think there’s a certain amount of optimism. I know it might sound odd but the past the past few reports, every time the WNA Report has come out, the forecast has got worse.

Matthew Gordon: You’re talking about the WNA Fuel Report. You’ve been involved in it. What was your role in that?

Julian Tapp: Yes, I have. Well, it is quite interesting. Going back a couple of years, when we did the (Vimy) DFS, I actually built a model to forecast world demand for uranium on a reactor basis. When I finished I wondered how it compared to what the WNA had done. I looked at their model and we got similar answers in aggregate. But regionally, there were big differences and wondered how they got those numbers?

Matthew Gordon: Why is that important?

Julian Tapp: I think actually their assumptions were wrong.

Matthew Gordon: That was a couple of years ago.

Julian Tapp: If you look at the current one, you’ll see that the projections are more optimistic. They’ve been raised, particularly the lowest scenario.

Matthew Gordon: What has been raised?

Julian Tapp: The forecast capacity of nuclear reactors operating and getting uranium over the next 20 years.

Matthew Gordon: Got it. And why is it better?

Julian Tapp: A couple of prominent reasons. Firstly, the assumption used to be that the French were going to reduce their nuclear capacity to meet 50% of electricity target by 2025. So, although the previous Fuel Report didn’t have them getting there by 2025, they were trying. Everybody now recognized Emmanuel Macron (French President) had kicked the can down the road. It’s 2035, if you actually listen to what he says. It’s isn’t ever going to happen. So for the pessimistic forecasts they put out, that lower case scenario used to have them losing 20Gw capacity. And that’s now not forecast to happen. In America there was an expectation that nuclear reactors, when they reach the end of their license life or when they just won’t get extended. And again, we had a lot of discussion about this. I kept saying when it gets the end of its life, it doesn’t get an extension if it’s not safe. But please tell me who thinks these reactors aren’t going to be safe after 40 years? They’ll be perfectly safe. Well, same argument where they get 60 years. Will they be safe? Now, sometimes you have to spend money to upgrade them, to keep them going. And if the economics are not good, maybe you wouldn’t pay for that upgrading.

Matthew Gordon: Are they safe? Have there been any incidents?

Julian Tapp: None. There’s never been a nuclear accident that was related to the age of the plant.

Matthew Gordon: That’s semantics. So, have there been incidents? Deaths?

Julian Tapp: Not in recent times. It’s interesting you should also ask that question. Even Fukushima. A vast majority of deaths were nothing to do with it, it was all to do with the tsunami. Now you will see people walking around saying “oh, there’s been one reported death.” Not true. There was a guy who worked at TEPCO who went to the site. He was like a radiation inspector and he got lung cancer.

Matthew Gordon: Unconnected?

Julian Tapp: Well, when you look at the time between when he was exposed and when he got the lung cancer, it was like two years. Usually it’s ten years between being exposed to radiation and radiation he was exposed to wasn’t high enough to trigger that sort of reaction. A different subject to be talked about but nuclear reactors are incredibly safe. A horrible way to talk about it, but if you look at the fatalities or deaths per thousand terawatt hours produced. There was a comment about it in the WNA Nuclear Fuel Report that comes from Lancet in 2007. They said that nuclear is safer than any other form of power. 90 deaths per thousand terawatt hours. I looked to that number and asked where did they get a number that high from. Do you know how much electricity is produced a year by nuclear reactors?

Matthew Gordon: Tell me.

Julian Tapp: About 2,500 terawatt hours. If you’re getting 90 deaths per thousand. Where all these deaths are coming from? Sometimes it’s because they included Chernobyl in the numbers. But I went and found that Lancet article, found out where they got their data from. Traced it all back to a French report in 1991 that assumed that very low levels of radiation spread over a large population would kill a small percentage of those people. The science has moved on from there. That’s simply not true.

Matthew Gordon: Let’s not focus on that, because I think that there’s too many reference points required to have a in-depth conversation. So, let’s come back to why is the WNA Fuel Report important for the industry?

Julian Tapp: I think it’s important for the industry, because love it or loathe it, it’s a reference document that everybody has a copy of it. Financial community, utilities, everybody gets it.

Matthew Gordon: But why this year is it more important? Obviously there have been some changes. It’s a little bit more commercial. Is that fair to say? I don’t mean in the sense that it’s commercial telling you what that nuclear industry is going to do but it’s a little bit more commercial in the sense that it’s giving people in the industry more information about what’s going on.

Julian Tapp: And I would say more rigor in the analysis. Don’t get me wrong, when I say it’s a little bit more positive. Nobody sat down and said it needs to be a little bit more positive. The way the forecasts are done are, literally country by country, reactor by reactor. Which ones are going to be built, which ones you don’t think are going to be built. They just all added up. And that’s was the answer.

Matthew Gordon: It’s on everyone’s desk, on fund managers desks, institutional investors desks, all the utilities, everyone who sits on this thing. What’s it going to do for them? Is it going to change behaviour or is it just a kind of the broad sentiment and things are better? We know the macro story. It’s fine. We’ll just park that. I’ve got that. Read the summary and move on.

Julian Tapp: I think there are a number of things in it. The first thing is since the last fuel report, Cameco have closed McArthur River. They’ve also shut in Rabbit Lake. Langer Heinrich is closed so there’s a new category of what’s called’ ‘idle mines’. And you need to pull them out because traditionally when mines idled, they put them in a basket with reserve projects that might come back at some point in the future. You know, the dynamics are very different from an idle mind than they are for a reserve project. They might get to be developed some time in the future. And that the economics around them coming back are very different. Mostly idle mines are owned by producers, that have other producing assets. And roughly 80% of the market is controlled by three companies. And they’re the three companies that have shut production down because market prices are unsustainably low. People say “oh, well, they’ll turn on this mine when the price gets to a certain level” but when the price gets to that level they will have just seen the profit on their existing mine go up a lot and what they don’t want to do is turn back on supply and see the whole thing collapse again. So, they’ve got a completely different way of looking. And I’m not suggesting that they collude in any way, but it’s the nature of economics. You have an oligopoly and there would be a classic description oligopoly. They’re going to look at the other guy and see what he’s doing.

Matthew Gordon: We saw recently with KazAtomProm and Camecos’ announcements, the marketplace is a little bit of jousting and a little bit of kidology, etc. around what they were saying or what they weren’t saying. Early days when I was getting into the uranium space, trying to understand it, because it’s not like mining. It is mining, but it’s not mining. I was intrigued by this potential control of will it be duopolies or oligopolies. And how you use that to your advantage. New entrants can come in and ruin things for everyone. You’ve got a group of juniors who can’t get the money that they need right now. So maybe this is a chance to take out some of the competition and starve the market of the supply. You can start affecting pricing. Those three companies can affect pricing. I’m not saying it’s a good thing to do or that they’re doing it, but they could do that. Why wouldn’t you?

Julian Tapp: I would say to you what the dynamics will be. They will keep these mines shut, until the price gets to a level where they will make the decision as long as the others haven’t broken. Because being oligopolies, they’ll be watching each other.

Matthew Gordon: There are going to be smaller players who are significantly advanced. Vimy potentially is one, where you’re quick to production. It’s potentially two years from pressing go, assuming it’s fully funded, and getting into production. You could get back into the market before some these big boys could de-mothball some of these operations. Surely?

Julian Tapp: Their lead time would be not dissimilar to ours. They can get back into production two years. KazAtomProm much faster than that. They don’t want to because when the price starts to rise, they’d much rather price kept rising than they turned on production and killed the rally. What about the juniors? When they’re looking around, what they do not want to happen is a 10Mlbs or 15Mlbs a year mine to get started.

Matthew Gordon: Well, that’s my next point. We’ve been told by the past couple of days by some other juniors who are quite close production, that are three years to production. So, if you’re saying the big boys can get into production before them, they’ve got no chance. These juniors have got no chance of being funded, have they?

Julian Tapp: Well, I’m not going to throw stones. If you look at Vimy’s DFS, I haven’t changed my mind since I did the economics behind that. My conclusion was these guys will keep their production shuttered till about $60 a pound. And let’s not discuss whether that’s contract or spot price. Just roughly when they think that $60 is like the sustainable price, they’re going to say if it goes any higher, there’s going to be too many entrants into the market. And once they’ve started, they’ll keep going. So, my view was the price would get to $60, but not go any higher.

Matthew Gordon: That’s price manipulation isn’t it?

Julian Tapp: No, it’s not. It’s perfectly rational behaviour.

Matthew Gordon: Sure it is, someone’s controlling it.

Julian Tapp: One would say, I’m prepared to keep supply cut until it gets to a certain point. And it’s perfectly rational for me to say at, look, if it gets to $70, I don’t know. Some big project in Tanzania is go getting to launched. I don’t want that to happen. I’m going to make sure these guys don’t get the signal they want, when it gets to $60 I’m making a handsome margin now. I just don’t want anybody else coming in

Matthew Gordon: That’s my point. If I’m one of these junior companies and I’m trying to raise money. I’m talking to the institutions and they’re cognizance that this could happen. I’m not going to find institutional investors to give me the money I need, because it’s not in my control. The pricing is being controlled at $60 bucks, is what you’re saying.

Julian Tapp: Yes but bear in mind also that for somebody like Vimy, in order to get finance, we have to we have to be writing some contracts. We’re talking about long-term contracts. Once you’ve signed those long-term contracts.

Matthew Gordon: I want to be clear, I wasn’t talking about Vimy. I was talking about some companies that are in a similar position to you but have got a longer lead time, which I think potentially could cause problems. I want understand winners and losers and what the factors are around that.

Julian Tapp: Yes, the longer your lead time, the more problematic. It’s not just because idle production could get in. But when you have a very long lead time, it’s more problematic in being able to write contracts. So, we’re in a position where we want to write contracts with utilities and you’ve got to write the contract and then go into production. The longer that window into production is, the riskier you’re going to be perceived to be to them, and the less willing they’re going to be to write contracts with you.

Matthew Gordon: Vicious circle.

Julian Tapp: Being two years away from production, it’d be much better if we could be one year away. And two years is fine. Because most long-term contracts deliveries aren’t normally for a couple of years. So, we’re in that window now where we know utilities are looking for deliveries, 2021, 2022, sometimes even 2023 for the beginning date.

Matthew Gordon: Let’s come back to the report, because the question I asked was what is the commercial use of that when people buy that, read that. What are they thinking and doing? And what I’m hearing is the sentiment is positive, but it’s not going to give people necessarily the commercial data they need to make a decision and on its own. Do you think the WNA needs to rethink the way that the report is being constructed again? Are you happy with the structure of it?

Julian Tapp: No I am not. I don’t think it’s any surprise to anybody. Everybody would like to see some discussion around price. Price put into the dynamic. So anti-competitive guidelines, nobody wants to sit down and agree what the price is going to be, which is what the guidelines are designed to stop you doing. It doesn’t seem to me sensible that you can’t have a discussion with people about, let’s say, what happens if the price stays at today’s level for forever? It’s how people do it with things, economic forecasts they don’t know. Let’s just assume the exchange rate stays forever. What does it mean? You know what happens? What interest rate can I use? Well, let’s just leave it at that current level and see what the model says going forward. So, there’s no reason why they shouldn’t put a price in, say, today’s price, spot price $25, $30 a pound. Run that out for the next 20 years. What does that do? That shows a really interesting picture. Basically, supply goes over a cliff and never comes back. So I don’t know if there’s a higher price that would be sensible. Maybe $50, maybe $60, run assumption again but you’re still a bit short. And then that’s the message doesn’t really come across at the moment basically that there’s a problem coming.

Matthew Gordon: If I look at people like TradeTech and UXC, you see the data which they gather and they put together and reports that they put out compared to the WNA, it seems a bit more robust, a little bit more goes into it. And they do talk about price. They need to and they do it on a company, country, industry basis. WNA needs to up its game, it seems to me, if it’s it wants to be a kind of commercial venture? So, what I’m hearing and seeing, and it’s not just you, there’s other people I’ve spoken to about this one. This report needs to do more, doesn’t it?

Julian Tapp: I think there’s measures to try to see what extra can be injected into it for next time round. I mean, this was an improvement on last time. I think there are various people who would like to see some pricing brought into it some way. If you be smart, you don’t have to sit and agree what you think the price is going to be. I said to you, you could use different price decks to show the impact. And to get better understanding. So, what you got now in the forecast is this unspecified supply, and nobody makes a judgment on who’s going to come into it, because you can’t without some sort of price assumption. Some of those are sitting at $80 a pound.

Matthew Gordon: Well, let’s how it’s going to be received. We’ll know in the next couple of weeks what people what people are thinking and we can get that feedback. Just to finish off on Vimy, you’re working there with Mike. Things are going well?

Julian Tapp: Very well.

Matthew Gordon: Confident?

Julian Tapp: Well when the price gets up.

Matthew Gordon: Do you think there’s anything your company can affect to help with share price? Or do we just wait for the price?

Julian Tapp. Look, there’s not much more we can do with the Mulga Rock project that can affect the share price. So, we’re going through the final stages of getting all the secondary approvals ready. That’s not regarded as a job stopper so when we’ve got them I’m not expecting a big uplift. Oh, you’ve got secondary approvals. So, in Angelaly, Northern Territory stuff we found a big haystack. Bigger than we thought it was the haystack. We think there are some valuable needles in there, we’ll continue to look for them.

Matthew Gordon: Thank you for your time, sir. Really appreciate that insight into the WNA Fuel Report. Fascinating what’s happening in the industry at the moment. And I like speaking to an economist. You look at it differently from everyone else which really helps.


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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

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Uranium Investing Made Simple by Mike Alkin, Sachem Cove. Don’t Get Distracted by The Small Stuff (Transcript)

Uranium investors are a very passionate crowd but they sometimes focus too much on outcomes and not the fundamentals. You have to understand the Demand and Supply side for Uranium. And how price discovery and price elasticity is controlling market behaviour. Mike Alkin of Sachem Cove Partners explains all in our latest interview.

For those new to Uranium, Mike delves into the commodities backstory and how the fundamentals have got better. If you hold Uranium stocks this is a very comforting conversation.

We also discuss whether Energy Fuels and Ur-Energy should have submitted the Section 232 Petition. Would ‘price discovery’ have occurred? Where would the Uranium market be now without it? He tells us about his discussions with the US Department of Commerce. We ask him where he sits on the issue of subsidies for US nuclear reactors. Will there be relief? What is going to happen with the Presidential 90 Day Working Group? Are the utilities conflicted and are there too many issues to resolve in such a short space of time? The Uranium price needs to go to $70 but can it go higher? Sure. Does it need to? No. So what are the Fuel buyers thinking?

We discuss these topics and more: 

  • Section 232: What Happened and was it Necessary?
  • US Reactors, Regulations, Costs when compared to other Energy Sources
  • 90 Day Working Group
  • Investment Hacks and What Should you Look for in Companies?
  • The Growing Gap of Supply and Demand
  • Inelastic Nature of Price & Possible Catalyst Moments
  • Investor psyche
  • Cameco’s recent Conference Call

Click here to watch the interview.


Matthew Gordon:  You’ve got me into this world of Uranium and we’ve been on a journey of discovery and learning, talking to lots of influencers, lots of CEOs. Very exciting times right now.

Mike Alkin: There’s a lot to learn.

Matthew Gordon:  It’s way more complicated than any other commodity.  It just doesn’t work the same way.  I think the mining component does, but the rules around it don’t work the same way.

Mike Alkin:  Yeah, and the product, nuclear power, is complicated, it’s controversial and so you really have to drill down into the many different layers of supply and demand.

Matthew Gordon:  That’s why we want to spend a bit of time with you today, because it seems to us, our analysis is that this is a supply demand story. Some things have happened since we last spoke.  Obviously we were waiting for the Section 232 Petition announcement.  It’s happened.  Now we’ve got a Presidential memorandum.  So let’s talk about that.  So the Section Petition 232. Expectation is that the US equities, uranium companies, would benefit from some kind of quota.  I think they nearly got there, but not quite.  So why don’t you just tell people about what happened there?

Mike Alkin:  Yes.  So if you listen to my podcast or whenever I’ve spoken I also say Section 232 is noise.  So what was Section 232?  The US at one point, during the cold Cold War was producing nearly all of its Uranium consumption.  And fast forward to today and the US produces less than 1Mlbs of the 50Mlbs a year – ballpark numbers – it consumes. 

And nuclear power in the US is 20% of the electric grid, so it’s a very meaningful component.  US is the largest consumer of Uranium, the largest provider of nuclear power in the world and the thought was Section 232 is something that they were able to file a petition with the Department of Commerce hoping that they would make recommendations to the President that on the grounds of national security, he would instil quotas –  quotas is what they asked for – essentially saying their view was the Russians, the Kazakhs and the Uzbeks, former Soviet States, and Russia, controlled a reasonable amount of Uranium coming into the US, and we know how the Russians have, and do, use energy as a geopolitical weapon.  And so their view was please import quotas.  We want 25% of all Uranium bought from nuclear power plants in the US to come from US miners to save the industry. That was the view. 

Our view, as an American, ‘Do I want to be dependent on them?” No.  “Can I see the argument?” Yes.  But what we’ve long maintained is it doesn’t matter because if the miners would have held back and not filed the petition and looked at the big macro story, we think there’s a deficit and we think that’s only growing, and the price they need to go into production to incentivise new product as their contracts expired, the waterfall accelerates, they would have gotten their price.

So over the last 18 months, they filed it in January of ’18, the Department of Commerce picked it up in July, I think it was, of 2018 and in April the Department of Commerce recommended quotas.  Went to the President.  The President said, “Yeah, I’m not sure it’s a national security risk.”   He then instituted a 90 Day Working Group.  He said, “But we do have issues with the nuclear fuel cycle, the front end.  Let’s take a look at what we can do.”

So the market focused exclusively over the last 18 months on Section 232.  I learned early on that a) you don’t want to rely on the government for something and b) when the government says, “I’m here to help,”  you’re like, “Oh, my God.” And also, as you can see the growing groundswell of “Well, it’s a no-brainer,” and you saw that in the US stocks being put up.  You see something that’s so certain, it starts to already get priced in.

Now, in October, November of 2017, what you hadn’t had in this market since really Fukushima, was price discovery in the long-term market.  And in the world of Uranium, most of the transactions that are meaningful – the vast majority occur in the long-term market, five, seven, ten years type of contracting.  And spot has always been just a surplus disposal market or just a clearing mechanism. 

And because the miners during the last peak signed long term contracts with the utilities at $80-$120, much higher prices for long-term, they were covered by those contracts.  But those contracts were spurring them all off, so for years post-Fukushima you did not have significant price discovery, and that’s what markets need.  You had contracting taking place but not the sizeable contracting taking place.  That started to occur in the back half of 2017 and we saw that with some request proposals coming out from some of the bigger nuclear plants.

And then Section 232 was filed in January of ’18 and everything stopped.  And the reason it stopped is the US is the major buyer of Uranium.  They didn’t know from whom they were going to be mandated or required to buy their Uranium from, so it put a pause on, and price discovery – now you did see contracting taking place with other utilities around the world, but when the biggest one stops, most of them slow down and that’s what you saw.  So the big meaningful chunks of contracting you haven’t seen, if it were for Section 232, the fact that we think there’s a deficit in the market would have come to the fore because miners can’t sell Uranium at $25 or $35.  A few can.  100Mlbs a year roughly, 110Mlbs, 105Mlbs, that can be sold.  That didn’t solve your +200Mlbs of demand and growing, 1.5% a year.  And secondary supply can’t fill that gap.

So price discovery occurs when two people are sitting on either side of the table negotiating a price and at a much higher price.  And that was on course for 18 months. 

Matthew Gordon:  Obviously the two companies, which were Energy Fuels and UR Energy.  Do you think it was a tactical commercial decision for themselves, looking after themselves – and there’s nothing wrong with that- Or do you think that they were actually trying to do something for the benefit of all the US Uranium businesses? Forget the argument of security or whatever, you’re either for it or against it.  It doesn’t matter.  It never mattered really, but do you think it was a smart move?  The shares have been hit, they’ve paid the price.  Is it something that they should have done or could they have done it another way?

Mike Alkin:  It’s interesting.  They’re bright guys.  I think that you saw an industry that’s been pretty much brought to its knees in the US, and if you look at the data, almost all of the purchases – over 95% – come from outside the US.  As their contracts start to roll off, they start to get nervous because that’s been a trend that’s been continuing.  So I think they were trying to – and the pricing is higher in some of the rest of the world.  Not all, but I think they were getting nervous, and I think they said “As a matter of survival, we need to get some assistance here.  We need to get some help.  If the utilities don’t view 35%-50% depending on the year, Russian, Kazakh and Uzbek Uranium as a threat to their security, let’s force their hand.”

I do think had they stepped out of that, not filed the Section 232, that price discovery would have occurred, and where they need to be, contracts would be signed.  But it took on a life of its own, but all the while inventories were being drawn down, purchasing was being delayed and here we are.

So now the market says, “Oh, my God,” because it was a matter of their survival, but shoot them all, the US names.  Some of these were down 30%-50%, and at the end of the day our view is that there is a meaningful supply deficit that the rest of the market doesn’t really appreciate, and that’s fine.  That’s what makes markets.   In the next round of price discovery or this round of price discovery, a contracting cycle, as unfilled requirements keep accelerating, that will come to the fore.  And those who can produce in a reasonable period of time, that have been a reliable supplier or can bring production online, and provide utilities with security of supply, will be okay.

Matthew Gordon:  We’ve had a lot of people say, “Well, 232 isn’t dead.”  A lot of people say it is.  Where do you sit on that?

Mike Alkin:  So they have a Working Group, a 90 day working group and it’s a lot of the cabinet members.   Will the cabinet members themselves be included in this and involved?  Who knows? 

What I can say is I think from our time – we were a resource in part for the Department of Commerce while they were doing their investigation, just educating basic stuff and having no idea which way they were leaning one way or the other.  They reached out to us on a few occasions and we were happy to share our insights in the nuclear market, in the Uranium market.

Matthew Gordon:  When was that precisely?  I know there was an initiative from June 2017.  I don’t know what was happening there, but when were you involved?

Mike Alkin:  2019. Just entering, just questions on the general Uranium and nuclear power market. Just filling in blanks and stuff like that.  But no idea which way they were leaning one way or the other. 

So the recommendations came.  The point is they were thoughtful and working hard to understand the market and they had nine months to do that.  It was certainly watching a government entity really pull the onion back, said, “Okay, they’re trying to get their head around this.”  Where that goes, who knows?  You’ve got to remember a nuclear power lobby is significantly greater than the Uranium mining lobby, which has 400 jobs versus hundreds of thousands of jobs. 

Matthew Gordon:  We looked at the spend of the nuclear lobbyists versus Uranium lobbyists.  There is a phenomenal difference.  Easily X20.

Mike Alkin:  Interestingly, and I have always contended, and I will continue to contend, that if you look at the feed stock cost, Uranium, as a percentage of the operating cost of a nuclear power plant, it is diminimous versus the other choices, such as coal and natural gas.  For instance, if we look at 2018 in the United States at $32, $31, $32, per megawatt hour to operate one of these plants, a little less than six than fuel. But that fuel is Uranium conversion enrichment for the fuel cycle.  So a much smaller portion of that – less than half of that – is Uranium versus 75%-85% of the feed stock to operate the coal or power plant.

Matthew Gordon:  When you’re building a reactor, there’s a lot more regulation, control, safety concerns than a regular power station.  Say coal, for instance, because you feed the coal and you burn it.  It’s a much simpler process.  Clearly a Nuclear reactor is more complicated. It’s going to cost more. So there’s a lot of variables around these percentages, but where do you sit in this argument as to uranium being a diminimus amount, but as a percentage of US reactors’ margins, it’s significant.  Some of the reactors of them are getting subsidies and a lot more will need subsidies to continue to exist.  So where do you sit in this argument: it is diminimus or doubling the price is going to have an impact. 

Mike Alkin:  So you have reactors in the US that don’t make money.  You have merchant markets, you have regulated markets where one gets a rate increase by going to a public utility commission, one is in the open market.  It’s about half and half, the reactor counts.  So there’s low natural gas with them?  Yes.  Do subsidised wind and solar hurt them? Yes. And actually it’s something – and I don’t know – I have no idea, but as part of this Working Group, I would think that policy can be on the table with respect to subsidised wind and solar.  That wouldn’t surprise me, but don’t forget in the US, it’s doom and gloom is convention.  But we’ve seen Illinois just a few weeks ago, Ohio, New Jersey, Connecticut, New York all giving relief.  So these numbers that are out there for the number of reactors are really indescribable.  Yes, are some struggling? Absolutely.  But the States are coming in and recognising nuclear’s role in this because what do you have to replace it? 

We think the doom and gloom scenario, people attached to this recency bias – what’s happening is constant support.  You’re seeing now in the last couple of days, there was bi-partisan legislation introduced to extend licences.  And there’s a growing groundswell of support from nuclear power around the world, but also in the US – which is the largest consumer of nuclear power, but an industry that really over the bear market is very easy to say, “Oh, it’s dying.”  There’s relief along the way.

Matthew Gordon:  So the Working Group has been put together.  The Presidential memo is quite vague to some people, whilst others seem to be able to read a lot into it.  But what is clear is that it is focused around ‘nuclear fuel protection’.  The nuclear cycle clear requires Uranium. It also involves utilities who have other vested interests, which may be gas, may be coal, renewables, wind, solar, etc.  So there’s a lot of moving parts.  In 90 days, what’s going to happen?

Mike Alkin:  I just want to continue on a thought talking about challenges for the nuclear plants.  In the lead up to Section 232, we went through six quarters, 50 or 60 conference call transcripts.  Earnings calls of electric Utilities.  Now if your electric utility’s at great risk of the material cost of this Uranium, you would think that it would be a paramount question that would be asked on a conference call and brought up a lot by the electric utilities. This is if regulation is going to make it more challenging for you, a CEO of a public company is going to say, “It may not be my fault. That’s kind of how that works.”  We couldn’t find conference call where an analyst asked the question about Section 232. 

And then you go through the public filings and you saw one company mention Section 232 in a couple of sentences.  The day that the ruling came out that there are no quotas, the stocks of electric utilities didn’t budge.  So how critical is it?  Are there reactors? Yes.  Is it part of a grander scheme of a portfolio of assets that they have?  Yes.  Are they going to jump up and down and absolutely say, “It’s critical that this doesn’t happen?”  That’s their job. Yes. 

Matthew Gordon:  Which analysts? 

Mike Alkin:  They’re not retail junior mining investors. They’re investors who focus on cash flow and they’re professional investors.

Matthew Gordon:  You have, I think on many occasions, and I think it’s been accepted in the market there’s not a lot of analyst coverage with regards to Uranium.  Well, probably not even nuclear in a way because it’s not a very big market. Uranium’s a small market.  What, $10Bn? 

Mike Alkin:  Publicly traded market that is $10Bn.  $8Bn of which is two companies.

Matthew Gordon:  What do you think 90 days is going to spit out?  Speculative fun, what do we think?

Mike Alkin:  As Mike Young said, “Good and good-er.” 

Matthew Gordon:  Yes, he did.

Mike Alkin:  I don’t disagree. I can’t see a scenario where… So what happens?  Nothing happens. They do nothing.  Okay, well, it is where it is and it’s back to business, no price increases.  Price discovery occurs and if our work is right and we think there’s a deficit, there we go.

There is some relief because they’re supposedly looking at the whole front end of the fuel cycle and if they’re looking at the front end of the fuel cycle what you will see is that there’s conversion and enrichment.  US doesn’t own its own enrichment to commercially enrich.  Is that a sure fly cure right away for Uranium mines to happen?  Not really.  But it’s probably my guess is there’s probably this has raised awareness as to the importance of nuclear power and how can we help the nuclear power plants? And if you help the nuclear power plants, you’re probably by extension going to help the global Uranium industry because you see less reactors closing. 

And by the way, part of the thing about this – because you mentioned it’s a very small industry, very small market cap, not a lot of people looking at it – so the lines of happening is people look and took a mosaic of information.  “Oh, the US is in a tough nuclear power situation.”  That populates their thinking. Well, if you’re modelling this out, you’d better take a number of those reactors out.  So you have to come to a number.  It’s part of the mosaic, and you see this all the time in this sector because there’s so few institutional light bulbs on it, and the sell side with the exception of a couple – maybe a few, but I’ll say a couple – are modelling industry organisational numbers and forecasters out there, which we don’t put much weight on.

Matthew Gordon:  I want to talk about some investment hacks. What do you look for generally when you’re investing?  What should you be looking for?  I don’t want to talk about specific companies.  There’s money involved and money creates emotion and it’s ‘your money?’  And as a retail investor, you come at it very emotionally compared to institutions such as yourself, where it’s slightly colder, more rational analysis of a situation. We’ve had scenarios where we provide information and people look at it and depending if you’ve invested in that stock, you’ll interpret it one way, and someone who’s not in that stock and may be in another stock, they interpret exactly the same information in an entirely different way.  So the same data, two different outcomes and it’s interesting to see that coming through every single day.  I don’t know if you’ve seen that or observed that.

Mike Alkin:  I observe it.  I’ve been doing this a long time.  I realised throughout the years that the maths usually doesn’t lie. The maths is not more complicated than 4th grade maths.  There may be a drop of algebra, you plug a number in here and there, but maths is the maths.  And what tends to happen is people are headline driven and price action driven.  I just don‘t care about short term price action, and short term doesn’t mean today – For us, for me, for Sachem Cove, it’s about risk reward.  What’s my potential upside versus my potential downside?  And to do that you can’t calculate that unless you look at it on a company by company basis.  In this case a macro Uranium, and you have to understand primary supply, secondary supply, inventory levels, unfulfilled contract needs.  If you don’t have that, I can understand why it’s easy to be scared because it’s headlines. 

I always say this – and I hate even hearing myself say it because I sound repetitive – but recency bias is an enormous driver of people’s actions when it comes to investing.  And it’s also when it comes to sell side analysts.  Sell side analysts they’re writing research.  There’s comfort in crowds, and when the market is down, people attach themselves to the most recent environment because if you go outside of that, now you’re alone.  You’re on an island and a lot of people aren’t comfortable there.

Matthew Gordon:  Some companies are better than others.  I’m not going to talk about specific companies.  Just in generalities, because I imagine Sachem Cove hasn’t just placed an equal dollar bet on each and every single Uranium company out there.  You don’t think like that.  No one should. So, let’s come back to the micro.  The fundamentals of mining don’t change, but what are the sorts of things that you look for in companies?  Are you a management guy? An asset guy?  Jurisdiction?  What are the things that you look for?

Mike Alkin:  I’m a short seller by nature.  That’s my vocation for many years and I still think like a short seller.  I’m a bullshit guy.  I look for bullshit.  I look for blow-hard management teams  and I look for bullshit management teams.  We do our work.  We do our analysis.  On the macro we do our analysis on a company and then we speak to companies.  We speak to them and we’re good note takers.  Then we speak to them again and we ask them the same questions.  If you’re a management team and you’re on the other side of a call with us, you’d think, “Didn’t these guys hear me last time?”  And then we talk to you again and we’re going to ask you the same question.  We want to see if you remembered how you answered it. That’s important to us. 

From a project standpoint we talk to consultants, we talk to engineers, we talk to geologists, we’re going to be above.  So it’s art, right?  There’s a bullshit detector.  The mining industry, I have on my computer desk – I’m not in that room right now, but I have on my desk ‘a mine is a hole in the ground with a liar standing next to it.’ Mark Twain.  And I always remember that. They’re in the business of raising capital to explore, develop and do whatever.  Are all of them full of shit? Absolutely not.  Are many? Probably.  So you have to determine that.  I don‘t say who I think it is.  That‘s not my place to say that.  Do companies go out and acquire during a bear market?  What do they need to do to survive?  There’s no revenue. What do they do?  They need to raise capital. So what do they do?  They need to make those glossy presentations, make us look as good as they can.  So what do they do?  The lower the cost a little bit, talk about the pounds that they have and then what else do they do?  They acquire companies by issuing stock and they play the pound in the ground game.  Look how many pounds we have?  The enterprise value divided by pound makes us look cheap.  And they delude shareholders.

Now, it doesn’t always mean – and you can’t take a broad brush. Every company’s different.  You have to know what you’re looking for.  So the management’s important, very much so, especially in the mining space.  Geography yes.  Some people have rules of thumb for how they think geographically.  We think geographically.  Obviously the jurisdiction has to be good.  It has to be a very good mining jurisdiction.  The rule of law apply – but what role does Uranium mining play to the economics of that government is also an important question to ask.  What’s the history been ? How long have they been mining there? Has there been any interruptions?  It requires questions and reading and then you need to think about where does the cycle play out?

So for the last 18 months, since Section 232, it’s become a US focused Uranium mining store in the global landscape.  Why? The US is insignificant in the terms of a global landscape, so you have to ask yourself how does this cycle play out?  Who are the buyers of these assets?  I can think of the Russians, I can think of the Chinese.  Why? Because they’re both building like crazy. The Russians are building reactors around the world.  The Chinese are not only building them like gangbusters internally, but they have plans to build along a built-in road initiative for others.  Who else is dependent now?  Who’s growing nuclear power?  India.  Who else is growing it?  The Middle East.  Well, what do all those have in common? Where can they probably not come in and buy a majority owned stake of a company?  Why not the US?  Can they buy minority stakes in Canadian companies?  We’ve seen that.  But where do they get big pounds fast?  Africa’s not a bad place.  And have they been mining Uranium there for decades?  Yes  So you have to look about what parts of Africa, what the project is. So we don’t take that broad brush approach, but the other thing we don’t do is we don’t deck the ranch on one or two stocks. 

And so you asked about investment hacks, right?  We’re going to that building site, right?  Whether we’re right or not, who knows.  If we have a huge feeling about something, really comfortable with it.  Is it going to be a 15% position?  Yeah.  Could it be 20%?  Now, if the cycle works and it grows, then its portfolio management in how to manage that size position but do we go out and put 50% in one position? Absolutely not.  Now from what I gather on Twitter just from reading stuff, some people got really hurt in the US in this past downturn.  I feel terrible for people if that happened to them but they need to understand … You have compassion for people, but you don’t put the ranch on something.  There are different geographies, there’s different stages because you have production, near term production, exploration and development.  Who’s going to go, ‘what’s the market going to pay for? Are they going to pay for pounds they can produce right away and at what stage will the market pay for that?”  That’s an important thing. 

People ask me all the time.  ‘How come you’re a short seller?  How can you short anything in Uranium?”  Sometimes in the cycle, some of the shittiest companies are going to rip your face off because people are going to dream a dream that they’re not dreaming in a bear market.  So I think people need to have a little bit of a diversification, and they have to understand what stage and what type of company they want…

Matthew Gordon:  I think a lot of the rules of general investing and investing in mining still apply.  A blended approach and you’ve got to understand what you’re getting into.  The things that stood out for me there though were you talk to the management team and then talk to the management team and then talk to them again.  Smart !  I think that’s really, really smart.  And then the final piece to that was where does that company sit in the Uranium market?  Where can they operate successfully? 

Mike Alkin:  In mining companies, you know in these big cycles, the good ones get taken out.  And who’s the buyer of that asset?  You’ve seen over the years, about 40 or 50 years, the utilities were involved, trying to vertically integrate at one point.  Then it was oil and gas companies.  When you look at libraries in the 70s, and 80s, they had a ton of them, and then that kind of gave way.

Now roll in the big mining companies you have right now.  Do they have an appetite for Uranium?  Not really.  Now it’s a leper and it’s so small for them, so who are the buyers of these assets?  And people then tend to look at projects and say, “Well, that’s a third quartile producer and they’ll never get in.”  A buyer of an asset that needs Uranium and can’t buy elsewhere and it  might be a state owned entity, doesn’t care what they’re pitting to produce that. The Husab mine in Namibia is a great example, owned by the Chinese, and produces nowhere near a name play capacity. Costs range anywhere 50 to 75+ dollars a pound.  They don’t care.  They need the Uranium. 

Matthew Gordon:  You’ve been an Uranium guy for what? Two and a half, three years?  Something like that?

Mike Alkin:  I think April of ’17 I said, “I see a bull market emerging.”  That was pre-Section 232 and at the time what I was saying was production cuts have to come.  There was an issue out there with Russia.  You’ve got to look at that.  The US has to figure something out and a host of things.  232 came.  You need price discovery and production cuts and that’s what we’re saying.  Nothing’s changed since then except you have price discovery put on the shelf.  Well, Section 232 came eight months later. 

Matthew Gordon:  I think a lot has happened for you since then.

Mike Alkin:  Well, a lot has changed. It’s much further supported than it was.

Matthew Gordon:  You’re much further down the line, as it were.  Your thesis still holds true.

Mike Alkin:  Unquestionably.  It’s stronger than I would have thought when we modelled it. 

Matthew Gordon:  We’ll start with demand because demand is a nice easy one.  It’s obvious. There’s billions of dollars being spent building reactors all around the world by lots of countries.  So those countries are buyers of nuclear, as a solution.  It’s a question of how much, not if.  It’s how much Uranium is going to be required?  Is that fair to say?

Mike Alkin:  Yeah, and it cycles peaks and troughs.  In 2004-ish when the cycle went from 10 bucks to 137, or by 2007, and I don’t believe it gets back there – but again that’s human emotion that drove it there.  People always ask me where it goes.  I don’t care where it goes. I know where it needs to go.  Where it needs to go to into production right, is 55Mlbs, 60Mlbs.  The rest is gravy, and that’s where everyone all of a sudden at 50Mlbs is sitting out, and you’re sitting in the pub having a pint and everyone’s saying, “We’ve been doing work on nuclear power and Uranium,” and they’ve already had a 5 x move, or a 4 x or 3 x, but back then there were 24 reactors under construction.  At that time, 24Mlbs.  Today’s there’s 54Mlbs.  And you’re breaking ground on new ones.

Matthew Gordon:  I keep asking people whether or not there are controls in the market.  I don’t mean geopolitical, Kazakhs versus Cameco, or Russia versus US.  I just mean we learnt a lot in the last cycle.  It went up and it shot down.  Black swan event admittedly was the cause of that, but do you think…?

Mike Alkin:  I think the price of the Uranium cycle because it peaked at $137.

Matthew Gordon:  Well, there’s a question.  Do you think $137 is a fair reflection of the market back then?

Mike Alkin:  No.  You’ve got to remember back then what you started to see was – again it’s a very tight physical market and you had 02 is 10.95.  Actually, good piece to see, UXC one of the industry consultants, on their website has some free information that they put out.  Samples of prior work.  And in 2007, I think it was their April ’16 piece, they put out a piece.  I have it somewhere.  There!  It was free.  We’re a subscriber to their services and pay a lot of money for it.

Matthew Gordon:  Is that free?

Mike Alkin:  Well, this was a sample of their free work.  April 16th 2007.  And they went back and did a survey at the time.  They talked in their April piece of 2007, that in 2003 the price of Uranium was about $10.50, $10.95, and there were some unfulfilled contract requirements on the part of the US utilities borrowed in 2006.  So three years forward.  And they went around and they asked and I think I’ll read it to you.

It says, “In June of 03”  – and again it’s free – I’m not breaching any copyrights.  It’s on their website… “ We were alarmed by the fact that uncovered requirements on the part of US utilities were so large in ’06, just three years away.  There seemed to be an impasse or perhaps a disinterest in contracting, was translated in this large uncovered position.”

Now that was about three years forward.  Three years forward it was about 30Mlbs of uncovered, unfilled..A little bit below that.  And no, I’m not giving this out to anyone on analysis.  But it’s a few million pounds less. But the point, they did a survey, a mid year price survey, and the survey showed that most of the respondents believed that the spot Uranium price would be in the $11, $11.50 range at the end of 03, and between $13 and $16 by ’08.  The vast majority of buyers bid for 2006 purchase three years forward.  $11.50 to $12 in that price survey.  That was $100 below where it finished.  It was over $110 in ’06. 

So you look at today, you say “Well, the unfilled requirements are similar.”  People will say, “Well, you know what?  There was less inventory back then.”  In 03 -04 time period you had 55Mlbs or 60Mlbs, in US I’m talking 60Mlbs.  Then you counted the suppliers and you add the suppliers in, all about 95-ish, 96Mlbs.  Today if you counted the utilities, at the end of 2018 they had 111Mlbs and they’re working off throughout the year with a half a year through, but the suppliers have a lot less.  So all in, the suppliers and utilities have about 130Mlbs versus 95Mlbs, 96Mlbs back then.  Now that’s less than a year. 

If you look at what the utilities have, at 111Mlbs, it’s a little over two years of Uranium in the US right now, which is right in historically where they’ll buy.  But there’s a very big difference.  So back in 2003, for the time frame, you had 24 reactors under construction.  Today, 55Mlbs, 56Mlbs.  Why does that matter?  On a new fuel world, a reactor, when they initially load it, consumes three times the amount of Uranium. 

Back in the last cycle, from 1993 to 2013, there was a programme known as Megatonnes to Megawatts.  Where the Americans were concerned after the Wall fell that the Russians would be deweaponising nuclear weapons, or not even deweaponising, just selling them out to the black market because they were broke.  So they incentivised them to down blend thousands of intercontinental ballistic missiles, nuclear missiles, and take that highly enriched Uranium and it would be consumed in the US.  That was as much as 20Mlbs a year.  That doesn’t exist right now. 

There was also a fuel buyer in ‘03 would look forward and see that Sagar Lake was coming online in the ’07 time period.  18 million pounds a year.  So they looked forward and at the time they had a never ending supply of HEU to LEU at 20Mlbs a year.  You had a big mammoth mine coming online.  You had much less reactors and you still were in a pretty reasonable surplus.  And they were forecasting deficits in ’06 – 07.

Today, you’ve had a 20% cut to supply.  Demand is accelerating very rapidly because of these new reactor constructions starts.  Since the last forecasting period of let’s say the World Nuclear Association or others… You’ve seen the French come out and say “You know what?  We’re not taking those 14 reactors offline in 2025.  It’s a 2035 thing.” It is accelerating.  China’s accelerating.  The US has had relief, but yet the unfilled requirements that were concerning people back in ’03, are back here now and even for levels not wash – meaning it’s deminimist.  That’s the set up you have.  And it’s maths.

Matthew Gordon:  I absolutely agree with that.  I think the timing for demand is more obvious.  It’s easier to see.  You look at how many reactors there are, how many are being built, how many are going to be built and the general mood in the marketplace allows you to put a number on that, right?  The supply side way more complicated.  The timing is not obvious.  I think some people are saying, “Well, this thing could go on another 12 months.  This uncertainty could go on another 12 months because someone’s got to blink first.  Someone’s got to go on this price. “ And the issues being – as I understand them – is you’ve got production which has stopped.  If you want to restart it, it takes a while to get things back up but no one’s going to do that unless it’s at the right price.  And even then it’s a question of we’ll pick that price.  It’s not just a question of we can cover our costs.  You need to make some margin.  In which case, how much margin? Then you’ve got existing explorers, developers who are at various stages of development who therefore are anywhere between five and ten years out from being able to produce.  And then you’ve got any new entrants into the market who may come along. That’s a potential ten year cycle there.  So the supply side may not be able to catch up with the demand side.  Is that again fair to say?

Mike Alkin:  That’s our bet.  I mean for now. 

Matthew Gordon:  There’s the maths conundrum, right?

Mike Alkin:  Yeah, I mean again we don’t give out our full numbers, if you want to talk in generalities… what you see a lot in this market is that pieces of a mosaic become the entire narrative.  We talked earlier about the US.  One of the things I hear often is “Well, the Kazakhs can sell all they want at $35, at $30 and $25.”  Because Kazaks 41% of the… Kazakhstan and Kazatamprom is half of that, but you have to put everything into a mathematical context.  At the all in sustaining cost (AISC) of below $20.  And people look only at the all in sustaining cost (AISC).  You have to understand how that sausage is made because other people report it all over the place, but then you have to just say, “Okay, now let’s go beyond the mine all in sustaining cost.”  What is the GNA to support that mine at the corporate level?  What is the interest expense to support that debt that they have?  Are there any obligations that they need from a dividend perspective?  I’m talking in general.  How much of that project requires further exploration cost?  And so what people do is they look at a cost and say, “Okay, that’s the cost. Well, a little bit of margin on there and that’s it.”  That’s not how it works.  There are other costs associated with it that increase that cost, but even if you assume that’s how it worked, put it in buckets, what’s below $20 per pound all in sustaining cost?  Last year was about 66Mlbs produced.  They can produce about 85Mlbs.  Let’s go in your 20Mlbs, 30Mlbs bucket.  Now you’re getting into the 20Mlbs-ish 25Mlbs million pounds ballpark.  But now that’s not incentive price.  That’s all in sustaining cost, that doesn’t include G&A, doesn’t include interest expense.  It doesn’t include all the other expenses associated with it.  Where can that get sold?  It’s sold in the $28, $30 range.  Okay, so now what?  You have 110Mlbs – 120Mlbs.  You’ve got demand of over 200Mlbs and growing every year. 

Now you have secondary supplies.  Then you get into what’s in the $30 dollar cost, +$30 – $40 cost?  Now you start to get into some of the bigger mines, but then in that category you have other mines that are expiring.  You have other mines that are aged.  You have further exploration costs to get done.  So you start to look at that, and people could do the work.  We’re not going to lay it out for them, but now you start to get into that, are you starting to get into the 150 range, 140 range?  But that’s the cost.  So when we look at this, we say, “Okay, well, the spot price of $25 and the long term contracting price were simply unsustainable.  That long term contracting price is not where deals are being struck today.  There’s a methodology to that by a reporting organisation that if deals are being struck with a four handle, but there’s a potential bid out there with a three handle, that’s where it stays.

Cameco didn’t add 25Mlbs in the first quarter and a little bit more in the second quarter to their order book at long term prices.  That’s not why they shut MacArthur River.  And those are off market.  Those aren’t requests for proposals.  Those are off market negotiations, meaning utility calls supplier.  Supplier, they go back and forth.

Matthew Gordon:  So this is why it’s complicated for retail investors and perhaps why they need to listen to people like yourselves who have done the work because it’s hard to get information.  You can get that information, you can pay for the reports, you can construct models…

Mike Alkin:  We construct our own models and use the reports we buy to benchmark.  It’s the assumptions that go into reports.  A lot of the sell side reports are just replications of those models because there are very few Uranium mining analysts on the sell side. They’re covering other things.

Matthew Gordon:  This interview is for people who perhaps aren’t so sophisticated in terms of investing, who are knowledgeable about Uranium specifically.  This is to paint a big picture as to what’s been going on and project out and say what does the world look like?  So that’s why it’s important to understand the demand side is a big tick as far as funds like yourself are concerned.  On the supply side it’s a question of timing.  It’s not a question of if. 

Mike Alkin:  It’s a question of price discovery.

Matthew Gordon:  If you don’t mind, Mike, can we just spend a little bit of time just talking about the price… Well, the inelastic nature of price in this commodity, because it’s unlike any other that I’ve seen. 

Mike Alkin:  Utility buyers will pay what they need to pay when they need Uranium.  A fuel buyer will not get fired if he pays $10 or $50 or $80 or $100.  He will get fired – or she, I don’t mean to be gender specific, but he or she will get fired if they don’t have fabricated fuel rods ready to go into those reactors. 

 Now, the incentives of fuel buyers are not to be heroes.  They are to pay what their peers are paying and so a fuel buyer doesn’t get fired because he paid $80.  He does get fired if he doesn’t have fuel.  And so that security of supply, there is no substitute.  There’s nothing to substitute that, and when you start to get into issues now where there’s a demand picture and a supply picture and supply has been cut dramatically, and the projects that are on care or maintenance require much higher pricing to come online, and even it doesn’t fill the gap. That means new projects need to come online.

New projects, many of them, have been put on the shelf.  Many of them require prices, most of them – almost all of them – with a five handle.  The bigger ones that are out there that have many big pounds, that could come with let’s say – there’s only a couple of them at lower pounds, those are years in the future.  It’s a 2yrs fuel cycle.  By the time you order to the time you’re going to get it, it’s a couple of years.  So now people say, “Wow, Oh my God, there’s inventories out there.”  And there’s numbers between 1.4 to 1.8.   We’re in the middle, middle towards the lower-end of that range. 

But what you see is when you do those inventories, there’s government stockpiles, there’s many types of inventories, and you have to look at how much can I access when I really need it?  We think that’s somewhere 50Mlbs, 60Mlbs, maybe a little bit more.   I saw a try backer recently said, 75Mlbs.  We’re talking a quarter of the year of supply and the utilities globally, when you back out China from those equations, have two and a quarter years.  You’re all at historical levels.  So now where does that new production that’s required come?  Where does that production come from?  It comes from the mines and they need…  Some of them are over a billion dollars.  In a bear market nobody is financing those mines to get built, so you need prices to go higher.

Matthew Gordon:  What’s going to start it?  I know there’s a need, but there’s got to be a moment…

Mike Alkin:  If I give you with some prospective investors, I’ll show them a screenshot.  I’ll show my model.  It goes on forever.  Now it’s got 22 tabs and it’s got everything you could possibly think of.  You can have that discussion and at the end sometimes somebody will say – and you’ll show them the deficits that we have, and a couple of my friends who are other fund managers that I’m comfortable with sharing some work.  They’ll say, “So what starts it?”  Price discovery starts it.  Section 232 was not made up.  It caused the largest pool of fuel buyers in the world to step aside.  It caused a cascading effect from then.  There was some contracting being done and people will look and say, “Well, somebody’s selling pricing at $32.  So what? Who cares?  Now you do need more of those to get done off market with a four handle, so the price reporters can’t point to that $32 and say, “Well, some got done at $32.”  You need more of those, and if you’re in the fuel cycle, you know those discussions are occurring.  When that changes overnight, the psyche changes overnight. But during 232 those discussions by the people that matter, weren’t happening because if I’m a fuel buyer…

People think 232 came on whatever day it was, on a Monday officially, I think.  On Tuesday we’re going to see the spot price of Uranium go parabolic.  That’s so nonsensical and so not how it works and so unrealistic.

Matthew Gordon:  Human psyche does come into it.  There were people just looking… It comes back to that emotional investment psyche where you need something to be true.  You want it to be true, but you need it to be true to justify your decision making.  There’s been a lot of catalyst moments put up.  232 is one.  I think some people putting the Working Group up as a catalyst moment.

Mike Alkin:  But the 232 came two weeks ago.  It cleared.  On God’s green earth is no one going in at a utility in July and August…We’re talking electric utilities.  We’re not talking large tech companies who’s motto is ‘Move fast and break things.’  We’re talking electric utilities where they’ve had 18 months of uncertainty.  They now have to digest what it is.  They now have to step back and say, “Okay, let’s plan now what we now.”  And by the way, a contract negotiation takes month. No back and forth.  So to the investor that’s freaked out because it didn‘t move right away, I’m sorry to say they’ve got to get more in the weeds done.

Matthew Gordon:  Absolutely, but you could say the same with the Working Group.  People sitting back and expecting something miraculous with the Uranium industry from the Working Group…

Mike Alkin:  Well, you shouldn’t expect miracles when you’re investing.  I can’t hold people’s hands.  What are you hoping for? If you understand, like we believe, and again, we could be wrong.  That’s what makes markets, but we believe when price discovery in mass occurs and our signs are telling us  – Cameco’s not signing contracts with a three handle.  It’s a four handle.  Other discussions are taking place.  Eventually the long term price on a reported basis will move up.  Then from that point you’re fine.  If you anticipated that 232 is going to come and something’s going to happen like that overnight, it doesn’t work that way. 

Matthew Gordon:  I think we’re in violent agreement. The macro story is good, the fundamentals of the maths is there in terms of that macro picture, supply demand picture.  There’s been a few events which we’ve discussed today – 232, the Working Group.  My opinion of the Working Group is a whatever moment. 

Mike Alkin:  What are they going to do?  They’re not going to go back and say, “Oh, by the way…”  The Working Group has no… What can they do?  We’re going to make it tougher for the…Their astute miners, they respect the global landscape.

Matthew Gordon:  There’s lots of things that will come out of that which probably will affect Uranium positively internationally.   We’ll see what it does nationally. 

Mike Alkin:  Whatever it does, doesn’t change the amount of supply, primary and secondary, or demand.

Matthew Gordon:  What’s your big message to investors in Uranium? Some people have got hurt recently. Stay with it?

Mike Alkin:  From the time of inception of the fund, from the time of inception of analysing it, the fundamentals for us have never been better. You pinch yourself.  What we ask ourselves is – this is really important and it doesn’t mean anyone has to subscribe to this.  This is how we subscribe to it.  It’s risk reward.  So if it means we’re sitting on down money or up a little bit for a period of time… Now nobody anticipated 232, but what you don’t know with 232 was, was it going to be nine months or six months?  You don’t know how long it was going to take, so you had to be in it to be there.

I come at this thesis, we come at this thesis at Sachem Cove, from a ‘how does Uranium go lower from here?’  That’s how we think about the world, and what gets it lower? If we take care of our down side, the up side takes care of itself. We don’t come at it saying, “Uranium‘s going to the moon.  It’s going to $130.”  I have no idea.  Where I think we believe that Uranium has to go is $55 – $65, in that range.  Could it get to $80?  But what happens, Matt, and you know this from being around markets, people also assume as soon as it gets to $40, contracts are signed like crazy.   If I just saw – and I’m a producer – and the price of Uranium just moved 40% to get to that cost that I need it to be, I’m going to step out of the market.  I’d sign a little bit but I’m not going to fill up my entire mine order book.  Psychology, right?  Now it becomes a seller’s market.  Now I’m the seller and I want to be able to get my price.  And then the fear takes over.

The other thing you saw last cycle – and this is important for people to understand.  From end of ’02 pricing went from ten bucks to 137.  Who knows?  I have no idea.  What I do know is what started to move it much higher was, as you started getting into the $50- $70s, you saw the hedge funds come in and buy a lot.  And they started storing the physical Uranium.  And then a global financial crisis came in ’08 and people’s funds melted down.   Now if I’m a hedge fund that’s not a Uranium specialist – and most weren’t – and you’re owning physical Uranium and you’re getting withdrawals of you fund  – because good funds had withdrawals across the board – if that’s what’s happening, get me out of this.  What is this?  Call the analyst in and say “Go out my Uranium.” And then that brings it down, and then it settled around Fukushima about $73 a pound. 

Now, by the way, if the physical price of a commodity moves from $25 to $75 and doubles or triples, just a gearing in the equities, they’re going to go up multiples of that.  That’s our view.   So if we subscribe a hundred timers that are out there, I see on Twitter, is 50 bagger or a hundred bagger?  Come on.

Matthew Gordon:  Do you think Cameco’s call last week and the subsequent press release – you’re talking about the psyche here – was that a little bit of gamesmanship?

Mike Alkin:  I like the guys there like Tim, like Grant.  They’re professional, they’re sharp guys.  You see a lot of criticism on Twitter or in different places about the projects and whatever it might be.  We’ve gone back and looked at conference calls years and years and years.  There are times when we get a little frustrated with them because we think that they can exert more leverage than they do and we think they’re very polite, really professional. Some countries say, “Guys, shape the trend in utilities because this is a big deal.”  They’re very balanced, but this call was the most forceful I think they’ve seen them.  Now the market – again, not a lot of people dive deep into this fuel cycle.  When they’re talking about surplus disposal in the spot market, they’re calling out a couple of producers, but again what does that mean?  That doesn’t mean surplus in the market.  They’re saying in the spot market, which is a thinly traded market, that is prone to people playing games with.  When they’re calling out financial people, games are played in that end of the market.

Matthew Gordon:  Obviously there’s some coded messages there for different people in the market.  Kazatomprom may have interpreted it one way.  I think traders, as you say, are in a very thinly trading space.  They have the ability to affect pricing in the spot market because they have a different model from anyone else, right?

Mike Alkin:  Sure, but there’s the physical traders and then there’s hedge funds.  The market is so thin and so small.  If you don’t see the forest for the trees and you’re thinking now a physical trader is going to… Cameco needs to come into the market.  Let me go buy some pounds.  Cameco said we need to buy pounds.  I’m going to go buy some pounds and then I’m going to go to them and say, “If you don’t buy from us, we’re going to sell it.”  Cameco’s view is ‘Screw you.  You’re not going to dictate what I’m going to do.  We’ll buy them when we need to buy them, but not on your schedule.”  And so message sent there.  What happens you see the price of Uranium go from $23, $24.  It goes up to $29.  Cameco’s got to come in and buy.  It’s a Japanese year end and if people are familiar with the Uranium trading market, there are Japanese traders that are big in this market, and it’s a year end.  They don’t want to be stuck with inventory on the balance sheet at year end, and they can easily go to Cameco and say “We’re out, if you don’t buy from us.”  Cameco will be like, “So what?”  Cameco’s not making business for tomorrow and they’re not going to be held hostage by people, so message sent. 

They’re looking out a few years.  They’re looking out.  They have their own supply demand numbers.  In fact, they have to.  They’re not looking at industry experts, consultants where the market is.  They’re messaging other bigger producers and they’re not going to give their strategy on a conference call that helps them in planning strategy sessions.  So they have different constituents they’re talking to.

Matthew Gordon:  And investors?

Mike Alkin:  Of course, investors.   It’s an earning call, so it’s a very tough balancing act.  But from our perspective, it was the best call and I actually sent them an email and I said, “Listen, from my perspective… and we do own a little bit of Cameco…  And I always say this, “If you think we own something, it could be a 1 per cent position or 10 – I don’t’ say that –  I always say, “Don’t buy because we own it.  I sent an email saying, “You know, I thought you guys were very forceful on the call. At least from this investor’s perspective I think I understood what you guys were saying.” 

If you don’t live in the nuclear fuel market and you can hear that, you might think, Oh, my gosh, there’s excess. It’s flooded.”  It couldn’t be from our view, and again we could be wrong.  Couldn’t be further from the truth. 

Matthew Gordon:  Different people read different things into it.  I’m looking forward to the next six months.

Mike Alkin:  In this industry I think more than any I’ve ever seen, and I’ve analysed a lot of industries, growing bear markets and growing bull markets, but growing bear markets all these management teams do is beat up each other’s projects.  All they do is talk shit about everyone else’s projects. And if they spent more time focusing on the macro Uranium than they do whose project is better. Why? Because they’re all looking to raise capital or position themselves to.  And most of them are going to wake up one day and go, “Oh, we didn’t need to do that.”

Matthew Gordon:  That’s fascinating because we’ve spoken to a bunch of different companies on video, off video, and some of them are struggling a little bit for cash and they’re having to raise money and it’s expensive money right now because their shares are where they are and the market is on hold. And then there’s some companies who are quite close to doing everything that they can do.  They’ve spent their money and they just need to hang on in there till the market turns.  So they’ve all got slightly different drivers.  What I thought was interesting was that the companies which are quite close to putting the numbers together, they’re going to have to work out at what point do they try and enter the market?  At what point do you come in, do you take that cash? You can go to the banks and take the cash today if you can find someone to give you the mostly debt.  Or you wait a little bit and you wait for that price discovery to determine is now the moment because it’s best for my shareholders?

Mike Alkin:  A good number are headline readers too when it comes to the macro Uranium.  They don’t themselves now.  That for me and team has been one of the biggest eye openers.  Some do.  Some really endeavour to understand the macro market, but many are just reading headline stuff and what consensus stuff is, and making decisions off of that.  That goes into our calculus of whether or not we want to be a part of something like that.

We do it much less now, but early on did we finance a few through some pipes.  Private investment, public equities, you get a 5yrs warrant and we give a little bit of cash for a project we thought was okay.  Maybe not great, but we thought had potential.  It’s a sliver of our fund and so, yeah, okay because if the warrants work, it’s okay.  But it’s a very, very small portion of what we do.

But the more you spend time here, the more you realise you need to be very selective and understand what these management teams know about not only their projects, but when they need to go to market.

Matthew Gordon:  This is what I was getting at with these investment hacks. What are the buttons they need to press that get you to go, “Yes.”   If someone’s willing to take a pipe investment, I’m slightly nervous about the project.  They’ve got limited options or less options.  The ones that you’re willing to invest in says a lot about the company to me, for sure.

Mike Alkin:  We’ll do a little and you get a warrant.  You build a little bit of a warrant bank.  If the work is right and the cycle turns, some of these things have good returns. You say, “Okay,” but that’s a very small portion.

Matthew Gordon:  But from your side it’s absolutely worth it, but like I say from the company’s perspective that’s a different story.

Mike Alkin:  The one thing that you know, you said you’d do this for the retail investor.  I don’t.  I see a lot of commentary on Twitter and a lot of people are very passionate.  I speak to a couple of them offline, but you get the sense that it’s the ranch mentality on things and this happens overnight and to the moon.  These are long cycles.  You have ups and downs and people get impatient and, like you said, it’s personal, it’s their money.  But spread it out a little.  We don’t spread it out too much, but one or two companies… I always say this, I half joke – “even if you love the greatest in the world and I think it had 10 bag potential, is it going to be half my fund?” No.  Why? Because I don’t know if the CEO is with the secretary and you’re going to wake up one day and the stock’s down 50% and shit like that happens. 

Matthew Gordon:  I know, it does.

Mike Alkin:  You do the best you can, but you don’t know what goes on behind closed doors.  So you’ve got to put some risk management in there.

Matthew Gordon:  Totally agree with that.  Mike, great place to end.  Thank you for your time. 


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