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

Interview with Dustin Garrow, uranium market commentator.

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

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

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

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

Matthew Gordon talks to Dustin Garrow, July 2020

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

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

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

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

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

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

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

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

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

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

Conversation with Dustin Garrow, Uranium Market Commentator

The most insightful commentary for uranium investors. Garrow tells us when he thinks US utilities will be making decisions to buy uranium. He tells why. What precisely are they focused on? And what is the DoE focused on with its Nuclear Fuel Working Group report. What has been trying to distract them? And are politicians qualified to make decisions needed?

Old news of the week is that the US House Appropriations Committee has said that they will not approve the funding of the $150M uranium reserve. Also the delay in the decision on the Russian Suspension Agreement (RSA) seems to be holding up utilities decision making. What does this mean for relations with Russia? And does Russia care? Should it care? We discuss China and Russia want to control the market. Can the US compete and what are the barriers?

Wonderfully no holes barred conversation about the state of the uranium market. We discuss what it means for certain companies, both positive and negative. If you are a uranium investor you will be interested about what it could be mean for your equities investments.

We Discuss:

  1. 2:49 – US House of Appropriation News: Inevitable Situation?
  2. 10:30 – Problems and Distractions: What Could Have Been Done Differently?
  3. 15:29 – The Senate: Only Hope for Juniors?
  4. 17:02 – Utilities as Market Driving Force: Importance of US Elections and RSA
  5. 27:05 – Tell the Time: What Happens in 2021? When Are We to See Long-Term Contracts?
  6. 31:14 – Quickness of Price Discovery: Impact on Big Name Uranium Companies
  7. 36:44 – When Can We Expect to See Price Discovery Movement?
  8. 39:47 – Preparing for the Boom: Who’s Going to Struggle?
  9. 41:20 – Lots of M&A in the Uranium Space: Opinions and Implications
  10. 44:19 – On Energy Fuels’ Mill: Rare Earths, Company Involvement, and Implications

CLICK HERE to watch the full interview.

Matthew Gordon: Dustin Garrow, how are you, sir?

Dustin Garrow: Good, Matt. How are you these days?

Matthew Gordon: Yes, good. Holding up, holding up. Did a bit of gardening on the weekend. I can barely move if I’m honest.

Dustin Garrow: You got to fix things up around the house.

Matthew Gordon: You do. I get my Saturday morning list of things to do. Do you still get that?

Dustin Garrow: Pretty much every weekend and even maybe in the afternoon before it rains here in the mountains.

Matthew Gordon: Oh boy, that’s a tough list, isn’t it? I’m sure it is, I’m sure it is getting longer. But we won’t talk about my gardening tips because that would be a very short conversation, but we will talk about a few things that have gone on in the world of Uranium since we last spoke.  the most current of which was an announcement by the House Appropriations Committee not to fund the US Uranium reserve. There is USD$150M missing there. What was your take on that whole conversation, perhaps just remind people what exactly it involved?

Dustin Garrow: Well, when the Nuclear Fuel Working Group put the report out in April part of the focus certainly was to revitalise the US Uranium industry with a focus on the needs of the Department of Defence or unobligated Uranium. A lot of enthusiasm, the report was 5-months late. But they were talking about the USD$150M per year budget allocation or funding in order to set up a Uranium reserve. In other words, the government would step in. And they started to define it: they were saying to have at least two Uranium mines in operation, the USD$150M was in the physical 2021 budget, which is now being, let’s say, put together by the two houses of the Congress. And then there was in the next 10 years, another USD$150M a year for a planning document. In other words, it wouldn’t be approved, but it would be put in the 10-year forward projection. Now, that was to involve like 17Mlbs to 19Mlbs of procurement over that period. So close to 2Mlbs per year. The 2 houses of Congress, have their own versions of the budget. They start looking at all the requests, which the DOE had put a specific line item for the Uranium reserve in their budget request. But it was a little surprising when they put their quote report out, which is basically, the results of their review of the proposed budget. And they said, well, we are not going to fund that USD$150M because the DOE has failed to submit a plan on, well, what does this mean? How are you going to do it? How will the contracting be done?

They’re also talking that it would be put into the assured fuel area, so then if there’s an upset in the market, utilities could draw on this inventory, theoretically, that was just to make it a little more attractive. But after 4-months of the DOE not putting that plan together, and so that’s what they’re saying is, 180-days following the enactment of the budget, which may be before October 1st, because again, our fiscal year starts October 1st. They’re to submit that plan. How will this work? How is it going to be authorised? The whole gambit of procurement of Uranium. Now, if that’s true, I mean, they’re not saying we will not ever fund this. They are saying we want to see what it means. 

180-days from late September puts us into next spring. And one of the questions then becomes, if they then decide the plan is acceptable, will there be budget available somewhere? Within the DOE there are various increases in some of the budgets, would they be able to cobble together the USD$150m?

But there are still a lot of unanswered questions. One is long-term contracts; as…I can’t open my mouth without saying long-term contracts. And the producers have made it clear: a 1-year purchase, it would have to be like inventory. And then there is no assurance that the program would extend beyond the first year. So how do you go out? And the producers are saying it’s 12 to 24-month ramp-up, depends on which type of producer. Because another issue is, do they sign contracts with companies that maybe are in the permitting phase? They don’t have existing facilities. Well, 4 or 5-years from now and they could maybe have built those facilities, but that may not have happened.

So again, there’s just a lot of unanswered questions, but that, to me, it was a bit of a curve ball thrown back at the producers after they’ve been working on this for so long.

Matthew Gordon: Wasn’t there an inevitability about this? Because we had the conversation way back when, during a lot of this processes, and obviously after the report came out and it was unclear then. And the questions you and I were discussing and answering was: how can these politicians, who perhaps don’t understand the full cycle, all of the moving parts, possibly put together a coherent plan in that tight, short a space of time and allocate it to the right place and give guidance as to what they were going to do? They couldn’t then, and in 4-months were they likely to be able to do enough to get it passed the House Appropriations Committee? Well, the answer is no, but what do you think they should have done? Could they have done better?

Dustin Garrow: Keep in mind, there have been meetings between the producers and the government representatives now literally for years. And it’s not like the government wasn’t aware of the issues. They were aware of the need for multi-year contracts. They’d asked the producers; what levels do you think you would need? There has been a lot of preliminary work done, but then, as you say, sitting down with the whiteboard and say, okay, how do we get from here to here? I would like to think it could be done fairly quickly.

 one of the things that, that was a red flag was back on like May 11th: the director of the Nuclear Energy Department at DOE said, well, within a year, they hope to have that procurement process clearly delineated. To me, that was, so they’re talking well into calendar 2021. And as the producers are really down to bare bones now. Production is, there is some… Energy Fuels said they will produce almost 200,000lbs this year, which would equal all of the production for the industry last year, but it’s alternate feeds. It is not new mined or anything like that.

Matthew Gordon: Well, let’s come on to the utility component in a second. I just want to stick with the government element here, if I may, just so I can understand it better. Hopefully some of the people at home can understand it a bit better, which is there’s a superficiality to the way that this has been gone about for the last 2-years, in terms of having been involved with government on this side of the pond. They listened to the headlines, but not necessarily, as you say, the whiteboard of how it actually gets done. There’s a lot of that going on. But one thing that has happened is they have recognised, and there is an intent, to try and do something for the nuclear fuel working cycle: the whole thing, all the moving parts. But there in possibly lies the problem. That they may have got distracted with 1 or 2 other shiny objects in the room, such as some of the technology side of things, the SMRs or research and development components, and which may seem a little bit more exciting. But in reality are also quite small widgets in the mix. Do you think there has been a little bit of that?

Dustin Garrow: Yes, the conference call that was at the end of May where the Secretary of Energy participated. It had all the right people; it had the policy people. They made all comments about the need…the DOE needed abundant Uranium supplies in the future. We are going to be immediately working on this, but then they got off on the research side, the SMRs, and certainly the funding side for export reactors. They have recognised that Russia and China are utilising the export reactor market, maybe for geopolitical reasons. And, one of the problems with the US is we couldn’t fund our reactor sales outside of the United States. They are diligently working on getting that change, which would then allow GE and Westinghouse to penetrate the export reactor market.

A lot of challenges, as you point out, and the Chinese and Russians have been at this now for years and years. And they offer not only the units, but the financing with extended repayment terms, if you want to call it that. I don’t know what the US financing would look like. And things like fuel – they say, we will bring the fuel, we will oversee operations, and then we’ll take spent fuel away. I’m not sure the US reactor vendors will be able to offer that. They’re going to be at a pretty noticeable disadvantage. And, maybe just on the economics: if I’m the Russians and the Chinese, I say, ‘okay, I’ll just undercut their price’.  

Matthew Gordon:  That is a really important point which should not be missed by anyone watching; 1. It is a small market. 2. The 2 powerhouses at the moment are the Russian government and the Chinese government. And the US is trying to compete with 2, albeit very large companies, but they are companies with their own restrictions. They have got other things which they are probably focused on as well. And the cost of money to them would perhaps make things less attractive. These barriers to entry, I don’t really see why GE or Westinghouse would want to come in and compete in this space. And it comes back to something you and I talked about 3-months ago, which was, do politicians and commercial enterprise; do they work? Do they work in the US? The wishes of a politician – does that matter, what they wish for?

Dustin Garrow: I’m not overly optimistic this whole project would work very well because it is the Russian and the Chinese governments, and they have other parts of their agenda, of which the nuclear reactors are just one component. And that, yes, it’s a nice idea, but I’m not sure how it, and maybe they’ll say, well, it will be SMRs well, but those are a way off. So that you would just have to wait and see. But what I find a little bit ironic is the whole Nuclear Fuel Working Group concept was triggered by the 232, which the 2 Uranium producers, Energy fuels and UR-energy initiated in January of 2018. So we are two and a half years later, and it’s all of a sudden, it has not been steamrolled, but they’ve  been lost in the discussions with these things like export reactors and on and on and on, to where they are not getting, what I can see at this point, not a lot of attention to get what they need done.

Matthew Gordon: That’s what I mean; it feels like a Pandora’s box where they have opened the lid and then everything has spilled out of it. If you start looking for other things that you can do. We said months ago, it’s a really big fix. And these big fixes take a lot of planning, effort, time, et cetera. And I just think it was unrealistic to expect this, but it’s been a bit of a shock to Uranium juniors, that the House Appropriations Committee has so quickly shut this down. Is there any hope in here? What about the Senate Appropriations? What are they doing?

Dustin Garrow: I’m not directly involved in all of this, but there continues to be optimism that the Senate version of the Appropriations Bill, I was told recently, continues to have the $150M in it. And they’ll get together for eventual mark-up, and maybe it gets retained.

Again, Senator Barrasso has been very supportive from Wyoming. And that was always a problem though, even when Menuchin was involved. It is a smaller State, not a lot of political clout, it’s not like the big States are weighing in here. It’s not an issue that they may view, I guess is that important. Uranium in Wyoming is a pretty critical part of their economy. So, yes.

Matthew Gordon: But as with all things political, you have got all sorts of groups who are vying for capital and you think you’re the most important person in the room, but that isn’t necessarily always the case, not always the case. Well, then it must come back down to, let’s move to move away from the political and government. Although that’s quite a big topic, I’d love to spend more time on it, and talk about market forces. Which, and by that I’m not talking about supply-demand. I’m talking about utilities. We have got a couple of big factors that there: you have got a US election and you have got the RSA agreement still not settled. And those things aren’t probably, in any likelihood, likely to be agreed or decided on by until the end of the year. In either order, as you were, what do you think is most important to utilities?

Dustin Garrow: Right now, the election is the election. Apparently Mr. Biden’s new green plan has a nod toward nuclear. It doesn’t sound like that will be, Oh, well, let’s shut down all the plants. And the other thing, and you will have seen is reporting: there was a big article this morning or editorial in the Wall Street Journal about it: bring back manufacturing to the United States. And that’s part of the Biden platform as well as being Trump’s since day one. In order to do that, you need power. There will be a less of an emphasis on, let’s get rid of not only coal, which is, we think nuclear struggles a bit in the US, but coal was almost in the dumper. But yes, the utilities are probably not as focused on the election side as the Russian Suspension Agreement, because I’m hearing that there is a broad spectrum of opinions. The utilities, through AHUC, the ad hoc utility committee are pushing really hard to have it expire basically, to where they, the Russians, which was the intent that by the end of 2020, which when the amendment was put in place was a long way off, and the long way off tends to eventually show up at your door. And now they are debating, there has been legislation drafted that would lower the limits. And the big thing though, that happened there was the Department of Commerce, back in middle of June, put out a report and basically said it was to review the compliance of TENEX. And the now, Centrex, former USEC their compliance with the procedures. And they were found to be in compliance. Yes, they shuffle the right pieces of paper around, but they concluded that, and it’s  interesting; it gets back to long-term contracts, there have been enrichment contracts being done for delivery post December of 2020 because they signed long-term enrichment contracts and they say those have been priced suppressive. So basically, Commerce took the position that unless the Russians are more aware of the effect they are having on the market, let’s put it that way, they said we should terminate the agreement and reinstate the underlying anti-dumping investigation, which is from back in the nineties, which would then put very high tariffs on Russian enrichment. Let’s just say there’s a whole…

And I’ve also heard that the Russians may say, hey, at 20% of the US, that’s about 3M SWU p/a, the global demand is like 52M, 53M, this is a very small part of the global enrichment market. Do we really want to put up with more, another 10 to 15-years of paperwork and auditing and on and on? Or maybe they’ll just say, Hey, okay, have at it, you guys keep us out of the market, buy from the Western enrichers at probably higher prices, and we will go and sell somewhere else. I’ve heard everything from, well, the extension of the existing agreement down to modifying it to all over the place.

Matthew Gordon: That was literally my next question: why the heck should the Russians care? It’s just nothing in dollar terms. So why bother?

Dustin Garrow: It is just the ability to penetrate the market. In other words, they’ve been held at that 20% level now for the last few years, and that was to go away. And they said, we want 30% or 40%, apparently publicly of the US market. Well then, all of a sudden, 40% of 15M SWU, 6 million, then it starts to get to be much bigger.

Matthew Gordon: But with the rest of the world opening up and developing and nuclear is to become such a big thing, the market is much bigger than back in the 1990s. There are more buyers. It gets the point, well, why fight this battle? Why bother? And let the market forces decide.

Dustin Garrow: When we are having a very anti-Russian view in the government here, as well as certainly anti-Chinese. So that they will look at all that and go, at some point we’ll walk. So, I would.

The point is, the utilities, just to get back to them, some of them have contracted forward for apparently more than the 20% in anticipation of that going away – the limit. They are then in a bit of a difficult position where say, as an individual utility, maybe you have committed to 40% of your enrichment from the Russians, well, what if that goes to zero? Then you have got to get in the queue with Urenco and Orano, basically the Western SWU providers. And if I’m a marketer at Urenco, I probably am not going to sell at a very low SWU price, particularly for new long-term contracts. So then when people say, well, why aren’t they looking at Uranium? Well, they’ve got that the SWU situation is really much more urgent, potentially.

Matthew Gordon: Let’s look at a few other things. A few data points. Because people like UXC, TradeTech, people like that, they have been putting out numbers every year. That gives a sense of where the utilities are at with their inventory levels. The US did it about 1-month ago. The Europeans have put out a summary report. They are fine for 2.5, 3-years, all of them. The utilities are in no rush to buy. At some point they will be, but do you feel they are in any rush to buy? Is it just, ‘oh, let’s just see where the RSA gets to, and then we’ll start making some decisions’, or actually, do they have a little bit more time on their hands?

Dustin Garrow: Like everyone, they have a list and here is my to do list and up top is Russian SWU and maybe in the middle somewhere is term Uranium contracts, who knows? So again, they’ve got somewhat limited staffing. I mean, the utility fuel groups are smaller than they were in the past. They say, well, and this is more immediate. I can’t just let this slide, the Russian SWU issue, but I can’t on Uranium. And  what they’re doing is they’re hearing from, Cameco, probably from KazAtomProm, maybe from Uranium One, and as you have probably seen, some of the smaller producers: Paladin made it clear that they’re going to be out talking term contracts, Vimy, a number of them. They are beginning to hear from a number of supply sources of Uranium.

NexGen, you throw everybody in the pot and they go, well, there are diverse sources. We can debate when those sources are available, but if you are a fuel manager, you go, ‘hey, I can push that off until probably next year, but I can’t push off the Russian Suspension Agreement. I have to focus on that because management is going to be called every morning my phone is going to ring from upstairs. So that is what I have to focus on’. They’re not ignoring it totally, but  they are less concerned. They’ve got inventories. They don’t tend to hold inventories of enrichment because it is expensive as you get further down the fuel cycle. So yes, U308, UF6, we have got, as you say, the next 2, 3-years. The Europeans are pretty well covered to the mid-2020s. But I see by around 2025, 2026, their coverage starts to drop off significantly, but it’s like, well, it’s over the horizon of a bit so I’ll focus on the immediate.

Matthew Gordon: It’s the things that are happening in the market. Obviously, we heard a lot about Kazakhstan. The lockdown is affecting KazAtomProm, and they were on the show just over a week ago. And they were saying that they may have to come into the market. Cameco said, we may have to come into the market to top things up to fulfil our contracts. And they can do that until the end of this year. There’s another end of year moment. What happens next year? What happens in Q1/21 and Q2/21 for these companies? There’s not enough inventory on the market. Is there?

Dustin Garrow: Well, like you said, UXC said recently that during March, April when there was what, 36Mlbs transacted, the more mobile, lower-priced inventory was taken out of the market. And that is what we are seeing now; the volumes are down a bit, certainly. The price has held relatively stable. So to me, that’s a positive sign that all of a sudden the price didn’t go USD$34/lbs, $32/lbs, $30/lbs, dropping like the proverbial rock. And the other is the start-ups: people think like Cigar, well, they’d say, okay, we are going to start up Cigar, they flip a switch in Saskatoon, everybody is there, the mine…it’s going to take months and months and months.

And even in Kazakhstan, it was interesting; the head of KazAtomProm was interviewed by the local newspaper, Kazakhstan Pravda, which I thought was interesting. And he said, keep in mind, we have stopped all wellfield development. Our production is coming from existing wellfields. When they say it’s safe to go out and start ramping up, they have to start drilling wells. I mean, it’s going to take, so when you say, end of the year, is it a magic date? And then all of a sudden, January 2nd, everything is back to normal.  we are well into the middle of next year, even if the ramp up starts before the end of this year, until we are back to some semblance of normal in the production side. And that’s probably optimistic.

Matthew Gordon: That’s the production side, but to get people at Cameco, KazAtomProm and elsewhere, to press the go button, they need these long-term contracts. Now I’m saying it – long-term contracts. I know. I’m a convert. So yes. What does that mean? When does that need to happen? And when do you think it will happen?

Dustin Garrow:  To some degree, the restart of Cigar is not totally independent of that, but more so than McArthur. And we don’t even hear McArthur River anymore. It’s like, ‘he whose name we shall not…whatever.’ It’s just sitting there on idle, slow idle, off in the background. But yes, it is the term contracts.

Paladin and came out with a restart: page after page, the technical operational side. And then it said, and oh, by the way, this is all contingent on sufficiently priced quantity-wise term contracts. When do they start doing that? I mean, I could see that again, as we have talked, there’s a phase; we get Cameco and KazAtomProm, they are satisfied. They move aside. The next group comes in. We could be well into 2022 before some of the, particularly the newer producers, because utilities say, wait a minute. We have talked about the size of the contracts each year. And if you are a new producer and you need to go get the financing, turn dirt, build this, do that, they’ll say, well, we will take a chance, but we are not going to sign for 500,000lbs. There’s that ramp-up that they’re going to need.  it could be a long March for some of, even if they’re relatively close to being shovel ready.

Matthew Gordon: I agree with you. I’m in violent agreement with you and have been for several months, over how long it’s going to take some of these juniors to be in a position where they can get financed, let alone the process of getting into building a producing mine and all the other issues. But what does it mean for the big boys? What does it mean for the KazAtomProm who tell me that they’re always contracting? What does it mean for the Camecos of this world in terms of having those conversations? And Paladin, I guess. If they are setting a price, which is mid-fifties, mid-sixties, who knows? You wouldn’t want to be the utility buyer that goes first, when everyone else around you is buying in the mid-thirties or forties, you’ve pressed the button at $55. It is difficult scenario, isn’t it?

Dustin Garrow: And it has been, having talked to several of the fuel managers, it depends on what their coverage is, what their risk tolerance is, how diverse do they want their supply to be? Because let’s face it, right now the reliable long-term suppliers that have a proven record – that’s a pretty short list. So you have to put them in your portfolio and then say, okay, then as I get further up the curve, who do I contract with that is going to deliver. As we have talked, the utilities don’t care too much about your share price, your whatever, they need yellow cake in a can, the rest of it’s all interesting. Then they start looking at, can these guys get this done?

Look at the risks now in sub-Saharan Africa -I mean, there was just a big article I read somewhere that this is the easiest place to work, not to say, Niger – they can’t move forward, but it’s just another factor  the utilities have to take into account. So, you start whittling down that list and yes, who steps out and signs that first USD$50?  we are close.  some of the discussions are in the mid-40s. They’re not below USD$40/lbs. Looking at the TradeTech production costs indicator number at $44/lbs, that’s probably not a bad number, particularly for restarts.

Matthew Gordon: But is it enough for the Paladins of this world? Your Camecos, KazAtomProm – fine, because they are low-cost producers, but for everyone else?

Dustin Garrow: And looking at the market, I do advise some other production companies. There is that first tier of the Camecos and the Kazatomproms that will eat their fill. And then it’s the next tier. And who’s in that tier? Well, we could name the 5 or 6 companies that either have care & maintenance or are close to hopefully moving forward with financing, and then there’s the next tier. But as a utility, do you want to be the first guy at USD$50/lbs or the last guy at USD$70/lbs? That’s why they stampede. If we were to see the price go from reportedly, USD$38/lbs to $45/lbs to $50/lbs, they’ll go, uh-oh, I better get out there.

Matthew Gordon: But they have a threshold. What I am interested in is how the math works. Because your Tier-1, collectively your Tier-1 produce 60% of the market. Right?

Dustin Garrow:  Right.

Matthew Gordon: So that’s a big number. There’s also a very big number that’s not being supplied; your Tier-2 who need more than your mid-$40s are going to need to be incentivised. And then even they can’t fulfil 100% of the balance market. Some of the Tier-3 who are the near-term or potential near-term producers, are going to need to be incentivised. It must be a very quick run to that price discovery to allow the Tier-3 to actually get into some… at least be able to get funded, to be able to get into building their mine, to be able to get into production, et cetera. So that’s the interesting bit. I can see why Cameco and KazAtomProm might go early. They might say, ‘okay, well, we will contract some of this out at mid-forties, because they are making a lot of money at that rate, more than most would at $65’. And the Tier-2, I can see why they would maybe want $55 or $60. That’s what they’re telling us. What does that timeframe look like? How do we work out what we are looking at here?

Dustin Garrow: There is a presumption that the utilities just start filling up their portfolios to 100% of what they need, that isn’t going to be the case. They’ll get up and maybe they’ll swallow hard and sign that USD$60 final contract. And it leaves somewhat of a gap and they go, ‘I’ll take the risk’. There’s going to be enough production. These guys are going to come on. I’m going to not fill my book up out in the future. In other words, I’m okay. Like they are today. 2 to 3-years, then it’s a bit lower coverage. And then all of that needs to be taken into account when one looks at how do you put together your term contracts? So, yes, it’s not just going to be one day, but he’s ready to sign 100% of their needs for the next 20-years – it doesn’t work that way.

Matthew Gordon: That is fascinating, it will be a fascinating and very accelerated timeframe. But I don’t know when it starts. I know that when it starts it’s going to be good. Very exciting. But I don’t know when it starts. Do you?

Dustin Garrow: It is always about timing. Early this year, prior to COVID-19, this year looked like a year that the US utility were going to become quite a bit more accurate. People thought, well then, now 4th quarter. We are already middle of July, so is it 4th quarter? Do they just go – ‘this has been a horrible year. I’m going to work in the garden, and I’ll come out next year?’

There are no conferences. The only one that’s still hanging by its claws is Las Vegas. End of October. And I’m hearing the utilities are going, no, if you have a one-day deal, maybe in Washington, maybe I’ll come to it. It’s really at risk. Then you’re into well into next year before there’s even a chance to where the industry gets together. You’ve just participated in a virtual conference, and those are fine in the interim, but it doesn’t…

Matthew Gordon: It is not the same. When is that scheduled for, Las Vegas?

Dustin Garrow: It’s like right at the end of October, the 28th, 29th, something like that. It’s the NEI, the last day of the year thing.

Matthew Gordon: You’re saying that’s 2021? Just to be clear.

Dustin Garrow: No – this year. We get into 2021 and you are in the spring before the combined WNA NEI conference, April. So, we are probably 9-months before the industry ‘gets together’, if they do it then. Yes.

Matthew Gordon: And just remind people why that’s important. Why can’t they be picking up the phone with each other between now and then?

Dustin Garrow: Yes. I mean it’s not a crucial, but it is the place where as they say the coffee talk and the lunches and the…Very few people are traveling to visit the utilities now,  certainly Cameco must be, probably KazAtomProm, but to get on a plane, and some of them don’t have, say, US-based representation. Paladin’s representative is in the UK, so you’ve got to come across the Atlantic to meet with utilities. And we’ll just have to see. But none of it suggests a rapid ramp-up in term contracts. We could have more people in the market, but it’s still going to take a while.

Matthew Gordon: Well, that’s interesting. It’s in line with certainly where our conclusions have finished up, and we are thinking it is possibly Q3/21 next year.

Dustin Garrow: Well, as Grant Isaac of Cameco said on their last call, things have started to slow down. And he said, well, the market is strengthening, so that’s in their favour. So that’s okay. Then you’ve got, the first, the lower quartile guys are…

Matthew Gordon: Well, I guess that comes back to, if you don’t have the cash, you’re going to struggle. If you don’t have the ability to have a meaningful conversation with utilities when they are ready to have it, whether it be, say April, May next year, you are in trouble. And if you don’t know what you’re talking about, when you do talk to them, you’re in trouble. And if you have never produced before, you’re in a lot of trouble. It is an interesting time for some of the juniors who have been getting little bits of money in here and there but perhaps that may not be enough. But I keep beating that drum because it seems apparent to me, but perhaps I am wrong.

Dustin Garrow: And the other thing, Matt, and we have talked about it: you’ve got to be ready when the utility could come in the term market, because they sign these, it covers their needs out for maybe 5, 6, 7-years. You don’t start for a couple base of a, maybe 3, 4-years, whatever. If you’re not there, you’re not at the table. They don’t come out every year and do that. They tend to cover off and then they go off and do other things. They do their long-term contracting and then it might be 2, 3, 4-years before they’re back in the month.

Matthew Gordon: Last question. Are you ready for this? I know you advise a few companies. Are you at all nervous about some of these Australian companies coming and buying assets in Canada and the US?

Dustin Garrow: I thought it’s an interesting phenomenon. We are seeing a rush into the US market by at least 4 or 5-juniors out of Australia. And they are doing due diligence on properties and deposits primarily in the Colorado Plateau. It’s Colorado, Utah, and it’s traditional hard rock. With all of them saying they want a toll process at the one remaining operating mill, which is White Mesa. And, oh, we also want to participate in the Uranium reserve program. So apparently, they’ve had a really nice run-up in their share prices and caught, some of the US guys, maybe a little on their back foot a bit. And it’s like, oh, well, we’ll see what happens. But I’ve been surprised how many of them are around Utah, Colorado looking at properties. And, why not?  they are cheap.

Matthew Gordon: Why not? If you can do it dirt cheap, but  the questions we have been asking ourselves is, what are they buying? What are the assets? Because they will have been around for a long time, there will be some data on them and yet no one else has deigned them important enough to pick up. They are straight in, going to the US. And is this just a promote story back home? Or have these companies got a realistic chance of actually building mines?

Dustin Garrow: Well, keep in mind, we have, probably a derogatory term that’s mostly in the coal industry – ‘the dog hole’. And that’s what they are looking at. None of these mines, they’ve been around, like you say, back in the 1950s and 1960s, they were part of it; ore buying for whatever. And you go in and you dust them off. You are never going to produce more than a couple of hundred thousand pounds. That’s why, say, Energy Fuels has always had that cobbled together, a number of mines in the Colorado Plateau. It isn’t one big underground mine. Cigar Lake, that they’re producing, millions and millions of pounds. You’ve got to have a bunch of little mines operating in order to get the volume up. If you come in and get 2 or 3 of these things, I’m not sure the economics of it, how do you set up a US subsidiary to oversee your fairly minor holdings in the United States? Maybe they come and go; they come in and they look, yes, okay. Take it over a little bit. And 2, 3-years from now. White Mesa is processing rare earths, and there is no place to go.

Matthew Gordon: Well, let me ask about that: White Mesa Mill is obviously a huge facility and it is owned by Energy Fuels. And we are speaking to the CEO, Mark Chalmers this week, later this week anyway. Rare earths; it’s fairly up and down, fairly erratic sector. Extremely high margin if you time it right and if you capture a lot of the value. What do you think of that move by them?

Dustin Garrow: Stepping back, they are waiting and waiting on the Uranium market. Be it the government, be it the fundamentals, and to say, hey, we have got this facility and it’s in good condition. And if we can process the rare earth, which are now front burner in the US, then why not? Now, do they then turn their back on Uranium? I don’t think so, but it’s, hey, we are not just going to sit there and go down the road and atrophy down and shut the lights off. Rare earths are now…that mill is unbelievable. I’ve dealt with it since, basically since it was built a little after and they’ve used it, as up and down and Arizona high-grade ore, Colorado Plateau, alternate feeds. They’ve really looked at it as a flexible processing facility. And it’s.. thank God they have, because there would be no operating mills left.

Matthew Gordon: It is interesting. When we’d looked at it… and what people  think of when they hear that word mill is some old dusty thing in the middle of the desert somewhere. But this has got a very high-tech lab associated with it, you’ve got radioactive material going through there. It’s a fairly sophisticated thing. And yet it can be upgraded and updated, and it’s got 17 lines and so forth. So it has a lot of potential. One of the other amusing things to me is the number of CEOs who come on the show and say, ‘we are putting all our stuff through the White Mesa mill’, but according to the CEO, that’s news to him.

Dustin Garrow: Yes. Usually. Well, there you go – good luck.

Matthew Gordon: I will have to let Mark know on Wednesday that there’s some good news. You’ve got all these companies that are going to feed through.

Dustin Garrow: Yes, that’s right. He’s already aware of it.

Matthew Gordon: He’s aware of it. And he’s aware of the conversations or he’s signing contracts? What do ?

Dustin Garrow: They all put it out; if you read their literature, their PowerPoint slides it’s well, we are 100km from the only licensed mill and they do toll milling. Well, they don’t do a lot of toll milling…

Matthew Gordon: Are any contracts signed? Do people actually have agreements in place?

Dustin Garrow: No. I can’t imagine. They have had some toll milling agreements, but most.. all expired. So, because they never got the mines operating to do the toll milling.

Matthew Gordon: I’ll ask him later this week. Dustin, thanks so much. What a run through. As ever, crazy market. It is going to make a great movie or a film one day.

Dustin Garrow:  Yes, one of these days.

Matthew Gordon: Yes. It won’t be me writing it. Thank you again. We’ll speak to you again soon. I’m sure there will be more news next week or the week after.

Dustin Garrow: That’s right – once we get out of the summer, we’ll see.

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

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Little Things Matter, for Smart Investors – Ben Heard (on Nuclear) (Transcript)

Interview with Ben Heard, Founder of Bright New World. Nuclear’s new outlook.


What should uranium investors make of the new look nuclear’s role in energy provision?

An eco-modernist based in Adelaide, Australia, Heard grew up as an anti-nuclear advocate. However, as part of being a proponent for a carbon-neutral future, he quickly became aware that nuclear power is a necessity for our clean energy needs.

Heard talks us through how his own identity was transformed by education, how Nuclear SMRs and smart energy mixes are currently being implemented and can be further implemented in the future in countries around the world.

Finally, he talks about how exactly these modern technological advancements will be funded. What is the incentive?

What did you make of Ben Heard? What would you like us to ask him in our next interview? Comment below and we will respond.

We Discuss:

  1. Ben’s Background: What’s an Eco-Modernist?
  2. Moment in Ben’s Life That Said “This Isn’t Right For Me, My Mindset Has to Change”
  3. Smart Energy Mixes: What’s Going to Trigger Development in the Energy Space?
  4. Research on Nuclear and SMR’s: The One That Can Do it All
  5. Funding it All: Who’s Responsible for Supporting Green, Renewable Energy?

CLICK HERE to watch the full interview.

Matthew Gordon: Ben, how are you doing, sir?

Ben Heard: I am really, really well here this evening, Matt. It is so good to be on the show.

Matthew Gordon: Well, look, thanks for joining us on a Friday night in Australia. I’m sure you’d rather have a cold one in your hand and be reading a good book, I would have thought?

Ben Heard: I have a few good books on the go. We’ll get to that later in the evening.

Matthew Gordon: Well look, Ben, we have been really keen to speak to you. We have been trying for a while to find a time which suited us both. So, one – thank you very much for agreeing to come on the show, and two – I’m excited for this because you’re going to talk to us about smart energy uses. So that’s the broad theme of this conversation. And we are also excited to be getting into a little bit more detail about SMRs, which is a topic that I think our viewers have been hearing a lot from us recently. I need you to describe, maybe give people a little bit of background about yourself, because you describe yourself as an eco-modernist. Let’s try and give people a sense of what you’ve been doing over the past few years. And what’s an ecomodernist?

Ben Heard: Yes, look, I’d be delighted. I mean, ecomodernist: it’s a place I have arrived at, probably in the last few years at the end of a fairly long journey. So, I would have described myself for a very long time as an environmentalist, and you know, that came about, I used to work in healthcare, so my undergraduate studies were in occupational therapy, and I worked in hospitals for some time. And then, just in the course of reading a couple of influential books I got very, very connected with environmental sustainability and very, very passionate about those challenges, and I went through a substantial professional redirect. I took a Master’s in sustainability at Monash University in my mid to late twenties. I found myself getting far better marks than they ever got in undergrad. I figured I was on a winning choice. And really, I eat up the content, you know, I really, really enjoyed thinking about the economics, the legal, or the technological and engineering challenges of environmental sustainability, which was tremendous and lots and lots of fun.

And from there, I was able to begin consulting with some major consulting houses in climate change and sustainability-related matters. A lot of stakeholder consultation and risk communication also. And this was all good to a point. And that point probably came when I had been doing climate change related work for quite a long time, and long enough to have done some quite large projects in climate change adaptation. You know, trying to think about how cities and settlements might adapt to the change that’s coming down the pipeline, as well as some work in the mitigation space; so how can we reduce the emissions to make that adaptation challenge more tractable? And unfortunately, what I was experiencing was a serious mismatch between the two. I was seeing a very large and significant problem here. And I was seeing a portfolio of solutions in the form of renewable energy, carbon neutrality processes, revegetation, and energy efficiency, which while laudable were just outgunned, just thoroughly outgunned.

And that was depressing to be brutally honest. It was actually very, very difficult to have gone on quite a journey, got to myself to a position, and then suddenly started thinking, I’m not really sure if we can do this. And doing work in particular on the emissions that would be associated with just one desalination plant in Australia. You know, one of the very earliest desalination plants, right in the height of drought, around about 2007. And the emissions that would come from that, because it was connected to the Victorian grid, which was running on lignite. You know, it was just so high. It started to get me acquainted with the scale of what we are talking about here. One thing led to another, and when I returned to my home city where I live now, Adelaide, I, for various circumstances, I began my own consultancy and I felt like I had the intellectual freedom to go back to something I’d rejected a long time ago, which was nuclear power and nuclear technology.

As an environmentalist, it felt like something of a package deal; that you sign up to several positions and points of view. And one of them is that you are rejecting nuclear technology. So that’s fine. I was signed up. Not a problem. I was antinuclear, without having ever thought terribly hard about it. And I spent a couple of years thinking really, really hard about it. And basically, I found that I had cornered myself and had to change my mind on that position. And with, you know, with the zeal of the converted, I decided I should probably start talking about that. I did, and I fundamentally haven’t stopped. That’s been an exciting journey: a lot of blogging, a lot of popular articles, the beginning of making some independent contributions, like a process we did called Zero Carbon Options, to try to bring some new thinking into the space.

I met a lot of great people, and that included a tap on the shoulder from a guy I was working with, Barry Brook at the university of Adelaide to say, you know, what about a PhD? How about you come and do that? So that became the next step. A couple of years ago, in 2018, I was awarded that PhD, and I was looking at bringing together, well, I was looking at first of all, establishing the need for nuclear power in that decarbonization challenge. And I guess really firming up with certainty that yes, that need is there. And if it is there, what’s the right blend of technologies that we might consider. And what are the conditions for considering different technologies to achieve a given outcome, which we might generally take for granted as energy being reliable, affordable, and also sufficiently clean to really seriously tackle climate change.

Now, at the end of all of that you get to something called ecomodernism. And what happened along the way is I came into contact with a lot of people who were thinking like I used to be thinking as an environmentalist, but fractionally different, you know, just pivoted in a slightly different direction. And one of those was the supervisor, and he was one of the co-authors of a document called The Ecomodernist Manifesto. I knew several of the authors of this document. It is a good document. And when I read it, it really spoke to me. And what seems to have happened is that a breakaway, I guess, of environmentalism has sprung up. And it is people who are very, very connected with a need to protect the natural world. Very, very attached to a world that has natural beauty in it: clean air, clean water, and a clean environment. Unlike the environmentalism that I was originally brought up on, it is a validly pro-technology, it is a validly pro-innovation. It has a very strong slant that our best chance of solving these challenges is that we will need to technologically innovate our way to solutions, and that states should play a strong role in funding innovation. If there is a good place for state-based money it is in that innovation gap.

Ecomodernism tends to be quite humanist, quite human-loving, which really suited me back to my roots, having been raised as a Catholic with a strong social justice ethic. Where environmentalism can have quite an undercurrent, or sometimes quite an overt misanthropy about it. Ecomodernism really rejects that very solidly. There really can’t be a trade-off between achieving these environmental goals and achieving the goals of furthering human potential, progressing human health and wellbeing. And indeed, if ever we do try to trade them off, the environment loses. And we really need to stop doing that. It tends to advocate very strongly for intensifying what we do. So, bring our impacts in to small areas. And a lot of that comes down to clean plentiful energy, because energy is such a great substitute. You know, if we have enough energy, we can substitute for a lot of services that were previously being provided by nature, and then leave nature alone.

So, whereas during my Masters of sustainability, we were thinking about things like pricing ecosystem services. You’ve probably had some idea of this, you know; let’s look at the value of that watershed in terms of providing clean water, we’ll put a price on it and then people won’t mess with it, right? Well, no, that’s not what happens actually. There’s a difference between putting a hypothetical price on something and getting people to pay for it. The other problem is, if you can demonstrate great value from liquidating it, it gets liquidated. And there’s, there’s more of an idea in ecomodernism that the better pathway is to make those areas redundant for our material wellbeing, and then they are free to be there for our spiritual and environmental wellbeing. So rather than pricing them, we make them valueless because we don’t need what they’re providing anymore for our material wellbeing. We used to call that notion ‘priceless’. It’s this interesting pivot between no value and priceless. So that is difference and, you know, the more I’ve gone down this route, the more I’ve realised, that is what I am. And it’s actually a different thing to an environmentalist. It’s an ecomodernist.

Matthew Gordon: Let’s talk about that for a bit, because I know we are here to talk about different energy mixes, and I do want to talk about SMR. But I quite like that because what you’ve done, how you’ve evolved, because when people talk about environmentalists, you know, from the sixties onward, it seemed a very, a fundamentalist type approach. You know, there was unthinkingly moving a certain direction and almost alienating in a way, the rest of society who didn’t like the extremism of thought of behaviour. I think there is a little bit of that, for sure. And I liked the evolving nature of the conversation over the, I think the past decade, you know, people like Michael Schellenberger, who has switched, segued, to be a pro-nuclear advocate in that time, and possibly even anti-renewable to a degree. It is fair to say that the conversation, the narrative has changed and evolved. But what was the moment for you? I know you touched upon it there, but what was the thought in that moment which said to you, something has got to change? Because the definition of insanity is repeating the same thing over and over with the same results. So where was that?

Ben Heard: Oh yes, gosh, you know, there were a number of them that worked on different bits of my psyche, you could say. One was, for example, was trying to implement a carbon neutrality project on a fairly modest piece of infrastructure in Melbourne. And when I could see the administrative and data verification burden that was actually reasonably required to make that claim, that helped me look at that and go, that’s not going to scale up. That’s too much work for too little difference to rely on stuff like that. That’s not going to scale up. Another very big one was being in charge of the spreadsheet for the greenhouse gas emissions of this desalination plant, and looking at it and then going and turning over and looking at the scale of the wind or the solar that we were looking at at that time, and just feeling quite gobsmacked by the scale of the difference there. You know, one single new piece of infrastructure was going to require so much new renewable energy just to break even on an emissions basis. And when I was looking at the adaptation, realising, oh, we are going to need to desalinate in Australia, you know, it’s coming. It can’t work that way.

 And then there was a very interesting moment, which was a behaviour, more of a behavioural moment actually, where I was probably pretty close to changing my position on nuclear power, which is probably the core of my ecomodernism – it was centred on the nuclear power issue. And I went to a debate at Adelaide University with Barry Brooke, who went on to become my PhD supervisor and friend and mentor. A gentleman called Tom Blees from the United States. He wrote a tremendous book called Prescription for the Planet, and a couple on the opposing side; an academic called Mark Diesendorf, an activist called David Noonan. And I’d been following Barry’s work very carefully, and I’d been following the climate science work very carefully and I had become very familiar with the rhetorical zigzags that people who wished to criticise climate science would take. I had become quite a good detective on going, oh, no, hang on. You’re not playing straight with this here. And then I saw the antinuclear activist replicate that exact behaviour in the forum. I saw a professor, which was Barry, and a very humble, and a very nice guy, Tom, who was playing a very straight bat with an audience. And then I saw a clear cherry pick piece of behaviour over here. And it was actually, it was a moment of identity where I went; I can’t identify, I don’t want to identify with that anymore. If that’s what that is, I don’t like it. And I reject it. And so, you know, it’s why I’m always very keen for people who are passionate about the same causes that I am, I ask them to always check their behaviour very, very carefully, because if we are interested in the task of persuasion, we must be appealing. You know, we must look like people that you would want to stand next to it. Our conduct is critical. And seeing that example writ large, that really got me quite over the line.

And then actually, the other thing was that night was learning about the integral faster reactor and fast breeder reactors and realising that we could recycle all of the nuclear waste. I thought maybe I might step over the line and change my mind. Instead, I triple jumped over it, you know. I just went, ‘Oh my God, I’m so pro-nuclear now. Because, you know, I didn’t realise this was available. And so that just was a, quite a divot on the mindset.

But you know, people are often asked for the lightning bolt moment. It’s not quite like that, but there are a number of memorable moments along the way, which is something else that’s worth keeping in mind if we are dealing with anybody. Give them time, it’s going to be an accumulation of experiences and knowledges that leads to a change in position, not a magic moment.

Matthew Gordon: You are pro-nuclear? I promise that we will talk about SMRs, for sure. And fast breeders and Newgen et cetera. I’m excited to talk about them. But you are also an advocate for smart energy mixes. And obviously, different geographies, different countries will have their own drivers there. In Australia, Spain, lots of solar I suspect. Off the coast of Scotland will have, you know, lots of wind. So there are lots of different ideas and solutions out there where, you know, I referenced Mike Shellenberger a second ago, pointing at the fallacy of renewable being entirely carbon free, because you have to dig stuff out of the ground to produce it and your do transport it around the world. And it, you know, it has the emotional connection with people believing that it’s all good stuff. But the reality is somewhat different. That’s not to say we shouldn’t do it. You’ve obviously had a good look and a rummage around renewables as part of your learning. What would you say to people in terms of, you know, how the world should be looking at this? because I think you have given us some clues there; this can’t be bottom up. This has to be top down.

Ben Heard: This isn’t going to come from decentralized small ball solutions at a household level, ultimately. Some of that can aggregate up and make an impressive contribution. But it’s far from what we require ultimately to get to where we are going.

I think you started with something that I would probably want to lead towards, which is that because of the differences in resource availability, geography and need, there are always going to be different energy sources that are going to have different merits in different places. And it is appropriate, legitimate, and just smart to have all of those options on the table at all times. And the challenge is to try to balance the need for optimisation, the optimal mix of solutions keeps changing because the technology keeps changing, the costs keep changing and the needs keep changing, with enough prescription and certainty to actually get things going on a decent amount of timeframe. What I’m generally interested in looking for is what is the no regrets, relatively ironclad level of prescription that we can have around in technology pathways, in different jurisdictions and in different places.

When I look at Australia, at the moment we operate a lot of coal. For a relatively small nation, we’ve got like 25 gigawatts of coal. And it’s going to go. It has to, unfortunately, or fortunately, however you look at it, it’s not to be replaced. It’s going to be retired. Is it going to be retired with 25Gw of things that behave in exactly the same way in the system? Maybe not. Maybe – but maybe not. But on the basis of my modelling, should we build at least 10? Yes, we should. So I’m really confident that that even if you take a country like Australia, which has an excellent solar resource and an excellent wind resource, and a lot of coastline, if your goal is a deeply decarbonized economy and a deeply decarbonized energy grid, there’s a virtually ironclad case for at least 10,000 megawatts of nuclear power in that mix. And that’s more than enough to get you started and plan and keep learning and see for the next cycle.

Now, when I talk about smart energy mixes, in my city a lot of houses here now have rooftop solar PV. Now, Adelaide is a sunny place, a very Mediterranean climate. It makes a lot of power, and that it is cheap electricity now. That’s good. One of the dumb things we did is that we used that solar PV to try to make high volumes of electricity. We faced them all north to get the largest quantity of power out of them that we could during the day. I keep stressing to everyone, we should have faced them west because that’s when the power peaks. We should have used the solar PV to create high-value electricity. The difference in the value of electricity on a stinking hot day in Adelaide, when everyone’s running their air conditioner between midday and between 5:00PM and 6:00 PM. And by the way, it keeps getting hotter until about 4:00PM or 5:00 PM here on those days. And then everyone’s come home. All the offices are still running. All the houses come and flick on their air conditioners. The difference in the wholesale price in our market can be thousands of dollars. The strain on the network is sky high at those times. And if all of those units were facing West, that’s when they’d be maxing out their production, and that should be an aid to the network and an aid to the grid. They would be lowering the demand on the distribution network, lowering the demand on the transmission network, lowering the demand on the generators, because they are producing power when we need it most. Whereas when they are north facing, they peak at midday and they are seriously waning by the time that that 4:00 PM to 6:00 PM period comes around.

That’s just what I mean by smart. That’s not pro or anti-solar, that’s just looking at how does the network work, and what is the best use of that technology in that need. Whereas what we are creating now is the same thing that they have in California: it is this duck curve factors – as that is waning, and the demand is peaking, you have got to ramp a long hard way to get up there. And so, unfortunately, what we are starting to see, and what I’ve seen in jurisdictions like Australia and particularly South Australia, where I live, Germany, California, is that those low costs, low energy cost renewables like wind and solar, are very attractive in the early stages of an energy transition because they’re able to append to a power distribution system and power creation distribution system that was built with a lot of redundancy as part of the design. And they profit off that redundancy because there’s enough of everything still there. It gets harder in a nonlinear way as that penetration goes up. And that’s where we must be smart about what we are doing with the right amount of everything used in the right way.

The beautiful thing about nuclear technology is that it can work pretty much everywhere, and it isn’t weather dependent. There’s probably a role for it in Australia. Is there going to be a role for onshore wind, offshore, wind, and solar, in getting us to that position?  Yes, I am virtually certain that there is. And certainly, the degree to which that brought their costs down over the last couple of decades has pulled that in really strongly. I am not as hard on that position as say, Mike is, and you know, he and I see certain things very, very similarly, and we see this one a little differently. He may yet be right. But you know, on the other hand, from a decarbonization perspective, nuclear, probably at the moment isn’t on the footing to actually go and deliver all of that right now. We are going to be getting more wind and solar I’d like to see us using it in a smart way. And to work out what that optimal mix is, if it’s going to be more nuclear, it’s going to need to be better nuclear. It’s going to need to be cheaper nuclear. It’s going to need to be nuclear that is easier to deliver. It’s going to need to be nuclear that that just makes it so much more of a no-brainer for investors, communities, governments, to bring onto their system. And that’s part of the challenge. So yes, I think wind and solar is going to have a big role everywhere.

When you look at Kenya, you know, they’ve done quite well with their hydro-geothermal resources. Why wouldn’t they? I mean, they have it. They have quite a good shallow hydrological geothermal resource. So that is a really smart way for Kenya to make power. Bring it in, bring it into the mix.

So I just, I’d like people to do their best to set their ideology aside, remain open to the evidence, look forward just in a medium-term way into the future and decide, well, what are our best steps with the reasonable time horizon that we’ve got, understanding that we need to take some action. And we are not going to be able to optimise perfectly, but what can we do that is relatively smart and no regrets and have gateways and keep reappraising as we move forward. Under that a framework, I see a strong future for all of those technologies. Ultimately, end game; if you make good enough nuclear, it can pretty much do everything, but we are not there yet

Matthew Gordon: Quite a few topics there. I am fascinated. I hope we can come back to them another day. You know, when we talked about bottom-up versus top-down and, you know, governments needing to open up to the possibility, or the possibilities, but they are also going to have to fund some of this. And some of it is going to be private, and it needs to be easy for private money to recoup their investments. There are existing infrastructures, which either need to be replaced, upgraded. There is energy storage; VRFB – is that going to come through in time to be able to, you know, in an economic way, whether it be for industry, for houses. Like I say, there are lots and lots of topics there. And I’m going to have to go back over this interview and just write these down because we should talk about those, but we are here today to talk about something which you know a lot about, which is nuclear and SMR – small modular reactors. I know you’ve been looking specifically at the US, UK and Canada. I think there’s a couple of other quite big players in the market who have, I think, taken the market: Russia with their own designs. And China has got its own designs too. But I’m interested in that ecosystem going forward. You’re going to talk to us about some of those specific delivery mechanisms. But in the background, you’ve also got this former powerhouse in the shape of the US – Westinghouse, I think, of old, who are trying to step back in and be a player again. So why don’t you tell us where you’ve been working, what you’ve been looking at with SMRs.

Ben Heard: Right. Yes, look, absolute pleasure. It was probably an ending point in my thesis was to start thinking about some of the more advanced nuclear technologies. In particular there, I was looking at some of the fast breeder reactors, which are small, but that that’s not necessarily the key characteristic there. Again, it goes back to context, and which economic context you’re looking at. There are a lot of middle income, fast-growing nations where very large nuclear has still got a really clear role, right? Fast growing economies, fast growing energy demand, strong state-driven markets standing up projects of many gigawatts of large plants-built side by side. It is still going to be an eminently achievable and probably very cost-effective thing. And to the extent that KEPCO has done that in the United Arab Emirates, we are going to see that in Turkey. We are going to see that in Egypt. We are going to keep seeing that in China. There is still a role for those big reactors, and there is so much energy out there in the world that needs to be made cleanly. They’re not going away.

Having said that, then you come to markets like mine, where A – we are very long and skinny grid. Connecting 1000 megawatts, 1200, or 1600 megawatts onto our grid is hard, hard work. And it’s very hard work in the developing world as well. Getting the political will to stand behind maybe a decade’s worth of USD$10 or $20 billion worth of project all at once – not actually that easy anymore. We used to do stuff called nation building in Australia. I wasn’t born at that point. Okay. So now we are at the point where we are pretty mature and it’s more about replacement and rejuvenation, like you said. So can that be nuclear? So, yes, it can, but it would need to be a different type of nuclear, and that is in small modular reactors.

I have been telling a bit of a story lately, and some discussion papers and some research, I’m currently in the midst of delivering some seminars to a mining major here in Australia who wants to know and understand more about these reactors. Nuclear began small. So only three years after it first made electricity and light bulbs, there were 25Mw power plants to submarines. And we’ve always had small nuclear reactors, and they have been for propulsion on the ocean. And there’s about 200 small reactors charging around in submarines, icebreakers and aircraft carriers. We have known how to do it. And then the first commercial prototype plants were about 250Mw units.

And then for the sake of economy of scale, they got a lot bigger a lot more quickly, up to about a thousand. And then heading to the biggest in the world is the 1600 megawatts in the single unit, which is the European pressurised reactor being built in the UK and a few other places around the world.

The law of the land there was economies of scale. That can work provided you build, you keep building, you build lots, you maintain a trained workforce, and you get extremely, extremely good at it. If you forget how to do it, if you lose your skill, if you lose your knowledge, you get a situation that happened in the United States: 20 to 25 years’ worth of a build hiatus trying to start again. It wasn’t that radical a design, and it ran into a lot of difficulties.

What if you go back to that smaller size? What happens if you go all the way back to where it began, with all of the experience of 50 years and the massive step ups in our ability to consider and use computational tools to solve different challenges? What would you do if you had a clean drawing board with a small reactor? What we are seeing now from companies like NuScale Power, General Electric Hitashi, and Rolls-Royce; those three in particular, they’re taking mature, very well-known fuel cycles. So, these three players are not innovating the fundamental fuel cycle that’s in the reactor. It is still pressurised water reactor or a boiling water reactor. But by shrinking it right back down they achieved a couple of things: first of all, it moves the nuclear reactor, or at least the nuclear part of the nuclear power plant away from a construction paradigm towards the manufacturing paradigm, which has served wind power and solar power so well, is to have a manufacturing-based paradigm where the product arrives and is installed.

You can have these reactor units assembled fully in a factory. Quality controlled. Shipped to site and installed in a really standardised way. It also turns out that when you shrink them down, you can overcome that economy of scale because you actually find yourself, little by little, actually eliminating, altogether eliminating several systems that were required to achieve certain outcomes in such a large core size. You can achieve passively what used to be achieved, actively. Things that required pumps, valves, motors, can now be done with convection. They can now just be done using natural forces. And so suddenly things are starting to get designed out. Then you need less structural concrete, less steel, fewer systems. And you are starting to end up with a lean, mean design. And then you are also only asking for USD$1Bn, which opens up the number of customers you can have for that product – a lot compared to asking for USD$6Bn to $10Bn. And you can ask for a billion dollars at a time, and if it works, you can do the next one. And so that’s where that small modular reactor paradigm excites me a lot, it makes me, I believe it’s going to make it commercially so much more achievable.

I’ve been monitoring this for probably 10 years, and it has accelerated greatly in the last two to three. And even the last six months have seen another real step up. And not only is the technology improving, but the context around the technology is changing greatly. You’ve mentioned the United States and the loss of their lead – it hasn’t gone unnoticed. And the USA is really quite openly backing small modular reactors technologies as a way of regaining that strategically. We now see things like the advanced reactor development program, to help that first build, just close that gap between the innovation and the commerciality. That is the exact right spot for the state money to reside. Things like the versatile fast test reactor. So more and more commercial companies can get their materials testing done for their advanced reactor designs. Opening up the US development bank for the first time ever, to actually fund zero carbon nuclear in developing nations on the back of now having what they feel is a suitable nuclear product to do so. And let’s be honest, in so doing, regain strategic influence and geopolitical influence that they have ceded.

This context is changing rapidly. The government of Canada has a strong strategic roadmap for small modular reactor technologies. The UK consortium, led by Rolls-Royce, is looking at developing 25 small modular reactors in the UK, and returning to that industrialisation of making and providing your own energy, where the UK has become increasingly reliant on Chinese money and Chinese knowledge in its energy development.

The context around it is just getting friendlier and friendlier. The regulatory agencies are realising that, particularly in the United States, that they were running a very prescriptive model, built around large light water reactors? And it was unfriendly to innovation. And this change started a few years ago, and now we are really seeing the fruits of it. If we take, for example, my friends at Oklo, who have designing something called the Aurora Powerhouse, they have achieved a dramatic reduction in what they think is going to be the regulatory time, by taking a different pathway through the regulatory agencies. The New Scale power station has provided an evidence base that their passive safety is so great that there is no requirement for an emergency planning zone. They brought a case of evidence to say, our emergency planning zone should be the site boundary. And the NRC has currently had, it is in consultation right now, that is a proposed rule change that these facilities do not require an emergency planning zone. That’s a dramatic de-risking of an energy project that can bring it right into the heart of an industrial precinct. That can raise confidence about having these facilities in more places.

We are seeing a regulatory response that I think had to come. I mean, part of what’s going on here is that we have had 30 years of failure in climate policy. You know, the IPCC effort is about 30-years old now, and it has not worked. Whatever we have been trying has failed. So back when the IPCC was born, about 80% of the world’s energy was fossil based, 30 years later, about 80% of the world’s energy is fossil based. We’ve grown the clean energy sources, but the overall energy consumption has gone along with it. And in emissions terms, things have just gotten dramatically worse. And something we haven’t been doing a lot of in that 30 years is innovating and building a whole lot more nuclear power. It has been a real gap.

We are seeing that emerge really strongly now. And then we have innovators like Terrestrial Energy from Canada with the Molten Salt reactor that takes it a step further. That device is atmospherically pressured. It’s doesn’t require any structural steel to contain it. There’s no energy trying to get out. You can’t have a meltdown when the fuel is already molten. The fuel and the coolant is the exact same thing, circulating passively in this device. It has a molten salt loop that can direct heat up to 5km away from the plant in molten salt. It is effectively a heat plant. And they are very open about this. If you want to generate electricity with it, generate electricity with it, because they’re sending out good 600 to 700 degrees centigrade heat, zero carbon. No other technology can do that. So if you want to make hydrogen with that, if you want to desalinate water with that, if you want to do beneficiation in minerals with that, if you want to make ammonia or other chemicals with that, or if you want to make electricity with that, or some combination of the both with cogeneration, you can.

And so these innovations are, I think, going to lead to, well, this goal that we ultimately need, which is someone who is quite, let’s imagine an ambivalent utility investor who is ambivalent about climate change, but whose job is the financial returns, clearly chooses the clean energy technology. That’s when you’ve won. And that’s what I feel, particularly in the more mature industrialised markets where we are already relatively saturated in energy, but we must transition ourselves off and onto something new, I think that that’s where small modular reactors are going to have a crucial role to play.

Matthew Gordon: Fascinating romp through the world of small modular reactors there. And interesting to hear about the different types of innovation coming through as well. Again, many, many topics, which we can probably come back to on another call, because each one deserves its own spot in the sunlight.

You talked about the way that these things get funded. And I always wonder, and certainly when we’ve been having conversations around nuclear, the way that governments allow funding to happen. Either the government has got to stump up with the money, in which case you need bipartisan agreement across the board. And in some countries, that’s a lot easier said than done because these are not small numbers. I agree with you, the SMRs makes it cheaper, but at the end of the day, the entire infrastructure, wherever the individual assets are, is still in the tens of billions of dollars. These are big decisions which need to be made. And I, you know, again, I come back to the US where these assets are owned by utilities, it is in private hands. Governments can lay the foundations in terms of funding. I think you referred there to funding some of these innovations coming through, and they can talk the language of wanting to be innovators in the market, and for the sole purpose of control, or at least the ability to exert some level of control geopolitically. Because energy is a must have, rather than, you know, something more frivolous. But it is a great bargaining tool.

Are you seeing, because you have looked at the US and Canada, are you seeing those types of conversations being driven politically or out of an actual need to sort out the basic energy infrastructure?

Ben Heard: Yes, so both, I mean, in the markets themselves, particularly in Australia where we are not yet allowed to use it, but we are well aware of the problems we are beginning to face. As well as in the United States and Canada, it’s still going to be predominantly private money through utilities, but government appears to be understanding that they’ve got to establish the conditions and the preconditions, and do that bridging to help steer those crucial industries towards the future that as government, they feel they should be stewarding toward, which fundamentally is a clean energy future. It seems very difficult for country that have liberalised their energy economies, to contemplate rolling that back to a more state-owned model. I haven’t seen anybody really put that up as anything more than a thought balloon. There doesn’t seem to be any appetite towards that at all.

But stepping in at those crucial moments where maybe an innovator has, you know, it might be 10, maybe they have got through their first 10-years, and they’ve innovated to a substantial point, but then they’re facing a real valley of death, but they’re sitting on a great product; that is an excellent place for government.

When you look more internationally and into other markets it is different. Yes, energy is the master enabler. It is not optional. Energy and water and food are not optional, and energy in particular, it is not the end in itself, you know, it’s what the people in the economy do with it. But if you haven’t got it, you can’t do much of anything at all. And when you look at the moral imperative and the environmental imperative and the economic imperative to see the reduction of poverty, which comes through the economic development process, and you understand that their emissions will count for just as much as ours. If you can see, if you have one eye and understand that will, you know, if this becomes a coal-driven process, we are in 10 kinds of trouble. That’s where making that fundamental enabler affordable is a role for funding.

Now, the fact that development banks have rejected nuclear for so long is a travesty. And even recently in the Asian infrastructure development banks, energy strategy for Asia locked out nuclear developments while funding, you know, best in class technology coal. How can we possibly get a climate change outcome under those types of conditions? So now in particular with nuclear power, a lot of it really just comes down to lowering the cost of capital. They still can pay for it, but the price of money is usually influential in nuclear, because even with small nuclear; you are right, it is still a large sum of money. And it’s a really long-lived asset, so you’re going to get value out of it for 60 or maybe 80-years. But if, yes, if you’ve got a discount rate that is any more than 5%, you know, anything beyond 30 years, any value is invisible in the numbers that you are looking at for the energy project. If you’ve got discount rates of 5%, 7%, 9%, 10%, 25-year economic lives, well, that’s fine for a wind project or a solar project, because guess what? Their technical life is probably 25-years. The technical life and the economic life are a pretty good match. When you get to the end of it, they are clapped out and they need to be replaced. They’ve copped a lot of impact from their exposure over time. Solar PV begins to degrade from day one, a little bit at a time, year on year. Wind turbines have to put up with a lot of stress and strain. They actually are on the way out at that point that a nuclear power station is just getting started.

So, all countries where their greatest asset would be a pool of young intelligent people who want to work and want to be out of poverty, they must have energy so that there can be something to be done with that. It must be clean. And the journey there is a journey of many generations. So simply providing low cost money is sometimes, yes, certainly when you fiddle around with the levelized cost of electricity, changing that discount rate is hugely influential. It still needs to be bought and paid for, but unless we lower the cost of money, we are cheapening the future. If we are looking at situations where they are matters of intergenerational equity and poverty, and they are matters of intergenerational equity in terms of dealing with climate change, that has to be acknowledged in the why we fund. And that for me is another, in my opinion, should be a relatively low-controversy space for government. That if you have an asset, now, I don’t care whether it is a nuclear asset or it’s another asset, but if you have an asset that can provide clean energy reliably for potentially the next 80 years, there should be cheap money to enable that because it’s going to have enormous societal value for that period of time. And that is something I am now finally, thankfully, beginning to see.

Now, China and Russia had been doing it for many years now. It is really dawning on a lot of countries.

Matthew Gordon: That is a really big conclusion to this conversation, because we’ve got to find a way to make nuclear energy affordable in comparison to all the other alternatives. It has got to be a non-discussion. And unfortunately, at the moment, I think, I’m looking back to the US here specifically, and possibly even France to a degree, and definitely Germany, where the reactors are of a certain age. There has got to be more investment. Can governments help by, say, making that money available? Can they make it available cheaply to reinvigorate those sectors? I think the answer is yes. It doesn’t necessarily need to come through actual cash. They could be in the way of, you know, tax breaks or similar, right? So there are lots of ways they can play with money on the spreadsheet, but the point is it has got to be a level playing field, and we have got to remove this language, which is something we talked about at the beginning of this conversation, which is it’s a, you know, this  competitive environment for energy. It should be all of the above – equal.

Ben Heard: I’ll have to caveat that; so, my position as an ecomodernist and somebody who started this whole journey on climate change, is no, I want it weighted against the fossil fuels. I do. Right? Or should I say, against the unabated fossil fuels. If you can put together a carbon capture in a storage project, I’m all for it, right. And that should be on the drawing board. But no, ideally, I want those policies weighted against the unabated fossil fuels. Ideally, in the end, I’d like to not need a policy environment where you get to the point where you simply wouldn’t bother to dig up any a better thing now. Yes, of course. That’s what I would ultimately want.

Matthew Gordon: Thank you for clarifying. I see exactly what you meant, but I didn’t say.

Ben Heard: It is a minefield of a discussion.

Matthew Gordon: Brilliant discussion. It’s fascinating. I’ve loved every second of this, but there’s more to be talked about, which is great news. Ben, thanks very much for your time today. You are part of the Frazer-Nash group. That’s your company, but you’ve also –

Ben Heard: Frazer-Nash consultancy,

Matthew Gordon: Frazer-Nash Consultancy. People can look that up. I’m sure there’s some useful information there as well. But you are also part of the bright new world. You have got, what is the URL actually for the website people can go to?

Ben Heard: brightnewworld.org So there’s no .au for Australia. It’s just brightnewworld.org. One word. It is an ecomodernist nongovernmental organisation. You know, we established it because we wanted to offer people a home if they felt like they didn’t have an NGO that they could support, because they also felt adrift of the values of Greenpeace or Friends of the Earth. But they were still passionate about climate change, conservation, recycling, things that we are very into at Bright New World, but they needed a value set that they could subscribe to that was more pro-human and pro-technology, and avowedly optimistic in every stage, that’s what we started Bright New World for. So please check us out. We blog regularly, and we are particularly active on submission writing here in our Australian environment to achieve change. And we’ve actually had some real wins. I’m really proud of the organisation and its community. So please come and check us out.

Matthew Gordon: Do that. For intelligent data, to have an intelligent debate, for people who make their own minds up. Not just follow the herd. Definitely have a look at that.

Ben Heard: They can follow this herd.

Matthew Gordon: Oh my goodness. You have used that before.

Ben Heard: No, that just came to me, promise.

Matthew Gordon: Well that’s quite quick-witted. Okay. Only follow the Ben Heard, not the regular herd. Brilliant. Ben, thanks so much for your time. I really genuinely am looking forward to speaking to you again. You are so passionate about this topic, some great data points there for us to go away and maybe research and we’ll speak to you again soon.

Ben Heard: If anybody needs more on the small modular reactors, look me up. We are deep in it these days. And there’s a lot of exciting things to talk about there. I would love to speak again, Matt, let’s do it again.

Company Website: https://www.brightnewworld.org/

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.

Little Things Matter, for Smart Investors – Ben Heard (on Nuclear)

Interview with Ben Heard, Founder of Bright New World. Nuclear’s new outlook.

Ben Heard is an eco-modernist based in Adelaide, Australia. His constant focus is on answering the following question: how do societies deliver the ever-increasing amounts of energy needed in an intelligent, ethical and cost-effective way?

Throughout his childhood, Heard held an anti-nuclear viewpoint. His involvement in his local Catholic community, which was active within the Peace Movement, exposed him to plenty of anti-nuclear material. Moreover, Britain was testing nuclear weapons on aboriginal land at the time, further strengthening the anti-nuclear stance held by the Australian government and society.

Heard’s growing interest in environmental ethics led to regular donations to GreenPeace and further anti-nuclear information as a consequence. In fact, Heard was anti-nuclear throughout his 30s. His views were deeply ingrained after decades of indoctrination, and it was uncertain as to whether his views would ever change, even when presented with new data.

Matthew Gordon talks to Ben Heard, 3rd July 2020

Heard had been working in occupational therapy, but he changed lanes to a career better suited to his passion for environmental sustainability. He worked for the climate change team within an engineering company. As part of his role on the team, he worked towards solutions for climate change adaptation and impact mitigation. This sparked one of his most interesting questions: what does it mean to become carbon neutral? He posed this question to energy decision-makers in cities across Australia, helping them define their plans in a more environmentally-friendly fashion.

He even worked on a carbon-neutral desalination plant in the city of Victoria. National droughts have always posed a major issue for the Australian people. The entire society is extremely water-conscious and tries to restrict their consumption. However, desalinated water requires a large amount of energy to produce, and Heard’s calculations, as part of his more senior role, quickly produced an indelible argument: solar and wind power were inadequate for the plant’s carbon-neutral energy needs. This sparked his exploration of nuclear power as an energy solution.

In order to change someone’s stance on nuclear power, it is important to be gentle says Heard. He remarks that in his case it was a gradual transition, and it was one that required a change in identity rather than a mere change in mind. Nuclear power is so polarising within both political and environmental discourse that one if forced to reassess one’s position on all manner of topics.

Barry Brook’s ‘Brave New Climate’ blog was crucial in changing Ben’s identity. The blog made it apparent that believing in climate change and advocating nuclear energy were not mutually exclusive. Once he attended a pro-nuclear debate, it became clear that the articulate, fact-based positions were eminently more desirable than the cherry-picking ramblings of the anti-nuclear lobby.

A nuclear power station

In order to spark nuclear development in the energy space, change is going to have to come from the top down. Decentralised, small-bore solutions at a household level will be insufficient for what society ultimately requires to head towards a carbon-neutral society. The challenge is to balance the need to optimise constantly changing technology, prices and societal demands, with enough prescriptive certainty to actually get things moving. Fossil fuels will not be replaced in Australia. They will be retired. Within the future Australian renewable energy blend, there is a “virtually iron-clad argument for at least 10,000MW of nuclear power.” This is more than enough to get things started. Nuclear isn’t yet on the footing to deliver everything we need right now, but its ability to operate almost anywhere makes it an extremely useful potential solution.

There is still a role for large reactors and they are going nowhere, given the huge global energy requirements in major developed countries. However, for a smaller energy grid, like Australia, and in countries in the developing world, getting the political will to back a new, large, expensive infrastructure is far from easy. When nuclear power first started being operated commercially, it started off small before being ramped up. This can work if nuclear energy is a constant priority for a country. SMRs appear to move the nuclear reactor away from a construction paradigm and towards a manufacturing paradigm, which has already been extremely beneficial for wind and solar power. Moreover, the smaller scale allows the reactor units to overcome the ‘economies of scale’ requirement to achieve certain outcomes in such a large core size; pumps, valves and motors are bypassed by technology. It also means that manufacturers don’t need to request such large sums of money, making the funding process much more feasible. Many major governments are now looking at SMRs as a means of returning to domestic energy production after becoming so reliant on globalism. Canada and the United Kingdom are prime examples.

The funding for such developments in Australia will remain predominantly private through utilities. However, the government is beginning to understand that it must establish the conditions and do the bridging to help steer crucial industries towards the clean-energy future that it needs to be working towards.

What did you make of Ben Heard? What questions would you like us to ask him next time?

Company Website: https://www.brightnewworld.org/

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.

Parallels with Last Uranium Cycle Mean Consolidation – #12 Brandon Munro

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

Munro is back. What did we cover this week?

Matthew Gordon talks to Brandon Munro, 22nd June 2020.

New Entrants

Right now, there is a new wave of entrants into the uranium space. Uranium juniors now have a vastly enhanced ability to get financed. These companies have questionable levels of experience and uranium expertise, alongside assets that might not cut the mustard.

One important thing for investors to pay attention to is the current influx of names involved in the uranium space, particularly in Australia. We’re currently seeing some uranium “tragics” bringing product to the market. In addition, there are some big name promoters and brokers, who feature across the entire spectrum of commodities, that are positioning themselves firmly in the uranium space. They are putting their energy into backdoor listings and startups.

On the one hand, this paints the uranium market in a very good light; everyone is interested in uranium right now. However, this increased array of uranium choices carries with it an increased risk. Now, more than ever, investors need to determine how to exercise these new opportunities wisely.

An important component of these new entrants will be their promotional material.

A Necessary Evil

Some of the assets that companies are flouting as flagships right now don’t stack up. Moreover, the skillset needed to get the best out of these assets is extremely rare. If investors aren’t careful, they can be left with an unfinanceable asset in a dodgy mining jurisdiction with clueless leadership at the helm.

While over-promotion is always going to be quite distasteful, promoters themselves still have a critical role to play in the uranium renaissance. To spark price discovery, and to act as a catalyst for excitement in the space, uranium companies need to be rigorously communicating their story to the market. Many have been starved of capital for years, and the cost of capital means that some companies have no way forward. If uranium companies want to develop into stock winners for shareholders, they’ll need to whet the market’s appetite.

U.S. Initiatives For SMRs.

90% of current U.S. initiatives are focussed on the downstream; specifically, SMRs and the competitiveness of conventional reactors within the nuclear supply chain. It will be interesting to see what the government has up its sleeve for the front end in the coming weeks, as American uranium miners look on in anticipation. The current initiatives combined are only a drop in the ocean in a sector crying out for subsidisation. We’ll be delving into the details of SMRs in a coming interview and article.

Uranium Price Volatility Inbound?

As we approach the end of the quarter, Munro is predicting that volatility is around the corner for the uranium price. Right now, it is stagnant with low trading volume. This lack of volume means that single major players can have a large impact on the behaviour of the market. Kazatomprom’s and Cameco’s strategies are likely to become even more significant in the coming weeks. Both have spoken the language of de-stocking, but Kazatomprom’s track record may have investors believing otherwise.

Kazakhstan – Big News For Uranium Investors

Two of Kazakhstan’s senior members of government have contracted COVID-19. These individuals also happen to be integral to Kazakhstan’s uranium industry. What does this mean for the ‘3-month’ suspension of production for Kazatomprom?

For the first time, this is a clear indication that the chance of an extension is significant. Kazatomprom has already previously remarked that it has no intention make up any of the pounds lost from its existing shutdown, but an extension could further tighten the inventories of utilities, sparking a long-term uranium price rise. Uranium producers will be reluctant to return to normal operations whilst such events are unfolding.

Moreover, the health situation in general across the country is showing signs of deterioration. Kazakhstan will impose a two-day lockdown in the northern city of Kostanay and four nearby towns next weekend after a jump in fresh COVID-19 cases. While countries across the world are beginning to ease their lockdowns, Kazakhstan is in the midst of a second wave: a more protracted crisis, which is terrible for human life but favourable for increased uranium prices. There have been numerous new shutdowns and measures which will lead to a curtailment of all forms of activity by this weekend. This appears highly likely to be extended. Are you feeling bullish yet? The existing supply/demand deficit is growing larger by the day, as the missing pounds creep up. The only thing missing is a lack of clarity on how exactly this will impact the price of uranium equities.

The longer the shutdown goes on, the more recovery rates will fall for Kazakhstan’s uranium projects. The amount of deliverable uranium will be tapering rapidly, both for Kazatomprom and its JV partners. The market has not yet felt the crunch of the initial 3-month suspension, but it will be beginning to feel it now. Further shutdowns will have a cumulative effect. This will not cause contractual/commercial issues, but could also shift the sentiment of utility companies that, until now, have been biding their time.

What did you make of Brandon Munro this week? Which topics would you like us to cover next week? Comment below and we will respond.

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.

Dustin Garrow – Uranium Winners & Losers Easy to Pick (Transcript)

A conversation with Dustin Garrow, uranium market commentator.


Garrow is an expert on all things uranium. Still heavily involved in advising uranium company Boards, he has been in the Uranium space for +40-years and worked in all aspects of it. He draws parallels in the inner workings of how successful companies are built, and how they fail. It was a pleasure to hear his thoughts on the latest technical and commercial events within the uranium space.

The uranium market is finally looking up, and uranium mining companies are gearing up to make important moves. Uranium speculators need to keep their eyes peeled because things are starting to heat up in the uranium sector.

1. Not hearing the confident noises he expected from the Nuclear Fuel working Group’s recent talks. It’s all a bit long-term and no certainty about budgets until after the US elections in November 2020.

2. EurAtom – issue warnings to European utilities about inventories, buying, lack of investment and transportation.

3. The importance of inventory location and why discounting is dragging prices down.

4. What’s happening with delta between contract and spot? And what’s the impact?

5. What is carry trade’s role? And is it dead?

6. Winners and loser easily identified

A must watch for uranium investors and generalists alike! What did you make of Dustin Garrow? Comment below and we will respond.

We Discuss:

  1. Nuclear Fuel Working Group Conversation – All chat, no numbers?
  2. When is Cameco reopening?
  3. COVID-19’s effect on KazAtomProm
  4. The Death of Carry Trading
  5. Importance of Jurisdiction in Today’s Market
  6. Euratom Analysis of Nuclear Fuel Availability – What’s The Takeaway?
  7. How Many Millions of Uranium Lbs are Missing in The Market?
  8. Garrow’s Take on the EIA Uranium Marketing Annual Report
  9. What does The Refuelling Mean for Uranium Producers?
  10. Energy Fuels Moving into Rare Earths: Importance of the Decision
  11. Peninsula Energy’s A$40M Raise: Opinions on Raising Large Sums in Current Market
  12. Is the Uranium Market Excited Again? How Long Will It Last?
  13. Winners vs Losers: Making Better Uranium Investments
  14. The Difficulty of Short Term Loans in the Market

CLICK HERE to watch the full interview.

Matthew Gordon: How are you, Sir?

Dustin Garrow: Doing well these days, considering everything going on in the world.

Matthew Gordon: Beautiful. Are you getting out of the house? You are running around the countryside?

Dustin Garrow Yes, we were able to make a quick trip to Arizona and now we’re back. So, you know, as the US opens up, I think people are a bit more comfortable going out, but still wearing masks in most places and adhering to social distancing.

Matthew Gordon: So that’s where we like to hear. That’s what we like to hear. It has been a while since we spoke and, you know, things have been, the last few months have been a bit crazy in the world of Uranium. Lots of moving parts, lots to discuss, lots to understand as investors in the Uranium junior space. So, let’s talk about some of those things. I’d love your love view on them. Can we just start with the Nuclear Fuel Working Group? Now, there was a conversation last week, or maybe it was a couple of weeks ago now, where they had a few more players sitting around chatting about what could be. My take on it: there was a lot of chat, not a lot of numbers, and trying to understand from an American insider in the industry, what was your view of the outcome of that conversation?

Dustin Garrow: Well, Matt, I think, you know, as they like to point out, there’s the process, and I think this was in-keeping with what the government does. It did have all the major players: The Secretary of Energy, a couple of his senior people. You know, the producers were represented by Jon Indall of the Uranium producers of America, and they went through all of the recommendations of the report. Now, keep in mind that the working group kind of morphed from looking at the front end of the fuel cycle into now, things like small modular reactors, the export market for commercial reactors. So, you know, it’s broadened in its scope. Now, back on the Uranium side, they made it very clear that there was a need to keep a domestic industry in place. There was a need for more inventory being available, not immediately, but down the road. So, and they focused in on the USD$150M appropriations requests in the fiscal year, 2021 budget.

Now, the listeners need to realise that the 2021 budget would come into effect October 1st of this year, so we’re not that far away from it. There’s been no approvals given, but I know that the producers have been in some discussions about appropriations prior to that date, and I’m not sure where that stands, but it seemed to be on the call. That’s where the government was looking, was the 2021 budget. Now, as I think we’ve talked in the past, some of the challenges, I think it’s difficult for the producers to make firm commitments for, you know, restarts of production, rehiring people, when it’s only a one-year commitment. Now, they’ve also put it in the 10-year budget forecast, but that’s certainly subject to the next administration, be it under president Trump or someone else. So, I think there are some issues that need to be addressed there.

So yes, you know, they’ve got to put the process in place. The head of the Department of Nuclear Energy made the comment, we know by next year they will have the process, which should be all inclusive. And I think next year, probably referring to the early part of next year, and maybe what they’re doing is waiting to see if they get that 150 approved or appropriated and then move forward. I didn’t, you know, I got the sense there that they were still committed, certainly. That this was president Trump’s now marching orders for a lot of people in the government. So, I came away with a positive on the overall nuclear power side, but still some, as you say, unanswered questions, kind of, how quickly can they do it on the fuel cycle?

Matthew Gordon: Yes, I noticed that. It seems very unclear to me. I get that Trump is pushing; it’s an election year. Okay. I keep saying this in every interview – it’s election year, there has got to be some posturing and politicking over this, for sure. You can’t discount that as part of it. But I was looking for language that could give us clues, but instead it just got, to me, slightly more complicated because we’re talking about SMRs and getting the export business and competing back at the international stage again, and, you know, being number one. And all of those kind of big grandiose statements without the substance of anything more than, let’s wait and see if this USD$150M shows up once, and who is in power to be able to sign off on the USD$150M a year for the next 10-years conversation. Not that we know who that’s allocated to. So, I was, I guess, unreasonably looking for a little bit more guidance from them, a little bit more direction from them, which was not forthcoming.

Dustin Garrow: Well, you have got to remember, Matt, I think the way it works here, probably the same as in the UK, it has got to be addressed at the highest levels. So, I think that’s why they had the Secretary of Energy involved to make the comments that, yes, we’re committed to do this. Then it trickles down in the bureaucracy where they say, hey, there’s the mandate. So now we’ll start working on more specifics, how do we get this done? The guys at the top tend not to be focused on the specifics of how we get this done. It’s just, we need to get it done.

Matthew Gordon: Absolutely. And, again, if I look back in the history of US energy and secretaries of energy, it’s usually a case of all of the above. And all of the above costs a lot of money and all of the above takes time to come in. So, I guess the clues weren’t there, hence my slight frustration. Because I’m looking to see how Uranium junior companies are able to benefit from this. But I guess we’ll wait to see what the next conversation brings us.

Can we talk about the news? Obviously, Cameco: I think that’s had been a big thing since we spoke. Cigar Lake is still shut down. I don’t think that looks like it’s opening anytime soon. We’re what? 2.5-months into the 3-month period, what are you hearing?

Dustin Garrow: Well, you know, originally it was three to four weeks, and then they extended that for the indeterminate.

Matthew Gordon: Of course, it was. Sorry, I was getting confused with Kazatomprom.

Dustin Garrow: Yes, well, the same language. And so right now on the Cigar Lake side, obviously they reopened the conversion facilities. I’m not picking up anything that suggests they’re now looking to reopen Cigar right away. And actually, on the call, Grant Isaac made the comment that, well, we want to, you know, have our new contract portfolio in place to reopen the two facilities. Now, maybe that was just a slip of the tongue, but I think, you know, those that said, early days, were looking maybe four to six months, they probably weren’t too far off. So, you know, I think that’s, and some of it obviously is COVID-19 oriented. I don’t think the province has opened up yet. So that’s kind of where we are. So, we’re continuing to lose that production in the overall picture. Let’s put it that way.

Matthew Gordon: Well, let’s bring that together. Let’s sandwich this conversation with KazAtomProm, who also in a recent article suggested that should COVID carry on as it is, and it seems like it will in-country, if news reports are to be believed, that they too may have to look to the market to fulfil their contracts. So, you’ve got two of the largest producers, the most powerful producers in this small world of Uranium that we were talking about, who are talking the language of needing their contract portfolios get to a certain place. And the fact that they’re going to have to come in and sweep up the remnants on the table, which seems to be doing the rounds at the moment, which in itself may drive prices. And we talked several months ago, and we’ve talked a couple of times about the ability of the two largest companies to do this. Now, I’m not saying that deliberately, there’s not some sort of cabal going on here. They’ve not come together and colluded in this, but you know, events have occurred, which means that they are making those sorts of noises. I mean, do you think that’s realistic? Do you think that will help the spot price?

Dustin Garrow Yes. Well, first of all, on the KazAtomProm front, I think, I know, as you know, on their last quarterly call, they made it very clear that they had no intention of kind of coming in the market, à la Cameco. They viewed it as being the reliable long-term supplier and not being seen as a trader. I think though they realise, Cameco obviously has a position as a reliable long-term supplier, and with the COVID-19 situation, I think they realise that perhaps with their draw down of inventory, with the lapse in production, Uranium One has announced that their production is down there. I think they have to look at, and they said, they look at all eventualities, they may have to cover some of their deliveries. Now, they have a trading arm that I think is in a perfect position to do that. It’s just that they have to say, well, we’re not going to draw our inventories down to an unacceptable level. Production is not going to ramp up as quickly as we had hoped. And so, they may have to do that, which obviously will help remove more available inventory in the market. I mean, they have, like you say, Cameco and KazAtomProm, I’m still hearing that perhaps Orano is doing some coverage out of the markets. You’ve got the big producers that could come out and pretty well vacuum up a lot of the excess inventory. So again, the market, you know, it has flattened, as we know. It is quiet right now, but you know, later in the year we could start to see that that strengthening again with more demand showing up.

Matthew Gordon: Well, let’s hope so, but that leads us nicely onto a comment, or certainly some discussions we’ve had with regards to carry trade. So, is the death nell of carry trade? Are they about to be wiped out? What’s your view?

Dustin Garrow Oh, you know, I think that what I’ve learned having spent time within a big trading organisation is that they can be pretty creative. Now, as I think I was quoted in one publication, you know, the traders tend to thrive on large available inventories. They love to mobilise that inventory, place it in the market, be it spot midterm, long-term, you name it. That’s kind of where they make their bones, as they say. Will it totally disappear? I’m not quite there yet. Now I know that for example, KazAtomProm has been very public and said they had signed multi-year sales agreements with some of the traders and they’ve terminated those. They will not supply traders. Now, some of the traders have gone into the Uzbeks and signed off offtake contracts. So you know, but it will be a source that the utilities can kind of, rely is not the right term, I think we’ll say, Hey, I’m going to cover all of my two to three year needs out in the future with carry trade contracts. I think the ability to do that will be lessened. And cost of money; I think, as we come out of the COVID situation, I’m being told that just like getting money for new Uranium production facilities, it’s probably going to be available, but it’s going to be higher cost. So, you know, depending on the spread between the price levels and you know, that margin can start to collapse we’ll just have to wait and see. Another imponderable. Again, if you are a nuclear fuel manager and you have that list of 10 issues, be it Russian suspension agreements or Iranian waivers, whatever, now it’s kind of carry trade should be on there somewhere. How does it fit in? And it may just change where it could be there, but not in the volumes we’ve seen in the past.

Matthew Gordon: Yes. I think another interesting thing is that they know how to be nimble and agile and segue, engineer, because they’re not going to wither on the vine quietly, they’re going to go kicking and screaming, aren’t they?

So, we talked about something, and again, related to the carry trade in a way; we talked about location being important, didn’t we? So, and the reasons for that is manifold, but again, just to remind people, what is your take on why location is more and more important in today’s market?

Dustin Garrow Well, you know, just for the listeners, the price reporters are coming out with price discounts. In other words, the USD$33/USD$25 let’s say today, is for delivery at Cameco. It has become the primary delivery location. I think it’s because Cameco when it buys, refers material there, for whatever reasons. Certainly ConverDyn, they have still not made any decisions about restarting. I think they’re taking deliveries of material, but I understand physically, material is being moved off site. So, it’s not viewed as attractive as Cameco. And Orano, I understand that they’re running up against storage limits. And so they’re not, for example, issuing or discussing new supplier agreements for non-consumers of conversion. So, I think just all of those factors put in place, and it’s just the cost of transport and the uncertainties; people just prefer material at Cameco. And so that’s why we’re seeing that discount, which, you know, has gotten to be pretty substantial. That’s 10%. That’s a number of dollars.

Matthew Gordon: That’s not to be ignored. No. So that is having a big impact on the marketplace. So generally, actually, we’ll finish on a couple of more things then I want to get an overall view. We will kind of skip through the market. So Euratom obviously put out a document, probably about three weeks ago now and they had two or three big conclusions. What was your takeaway from what they had to say? It seems to be, they were sort of admonishing the market somewhat.

Dustin Garrow: Well, keep in mind the Euratom supply agency, which I saw, they just had their 60th anniversary, plays a different role in the market. Let’s put it that way. If you are a Eurotom EU utility, all of your contracts have to be concurred by the supply agency. In other words, they have a responsibility to implement policy on things like diversification. And so, they have an advisory group made up of representatives from several of the utilities, from, I know Orano is on there, representing the suppliers. And so, they periodically come out with a report saying, ‘Hey, these are the 10 most important risks to the front end of the fuel cycle. And here are some of the recommended solutions, or what can the utilities do?’ Interesting: in the previous one, a lack of investment in new mines was the number one risk. That’s now dropped down to four. It’s still there, but this now is a transportation hub. So, the whole issue of moving Class 7 material globally has come up. It’s now the number one risk. But they’ve also got other Uranium-related risks on there: permanent reductions and output and exploration, not much grassroots exploration going on right now. But you know, they’re able to then recommend to the utilities. You know, don’t do single source, have multiple sources, have different forms of inventory. Now, which is interesting because as you know, as you go in inventory, as you go natural, you have UF6 enriched, UF6, or fabricated fuel, that has big economic implications, but they don’t really look at that. They say, well, you should be having material in all forms at different locations and all of that. So, I think now, the utilities generally adhere to those guidelines.

Now they’ve given exceptions, particularly for Eastern European utilities when they had come in the EU, they had large dependency on, for example, Russian fuel. Now they’re moving away from that gradually, but for example, they’re in violation; the EU policy is no more than 25% from a single source. So, I think that’s, it’s now to the US utilities to look at that and go, ‘Ooh, I better, you know, this is all good stuff. I should toe the line.’ I think they take it into account just like every, you know, they say, ‘Hey, it’s a big group, it’s 120-some reactors.’ So, this is their policy statement. So, you know, it’s just another bit of grist for the mill. But it has an economic component that’s not discussed in the report.

Matthew Gordon: Yes, that’s true. I think that one thing they also said was that you needed to have three years of inventory available to you at any one time. So little things like that, seemingly obvious stuff, but it needs saying, right? It seems.  Okay. So, all of those moving parts, so what does this mean? The market is short on production. Obviously, there has been a little drop in demand, obviously a little bit of drop in demand, it would seem. But what is missing? What was the number you were going to put on it? How many millions of pounds is missing in the market now?

Dustin Garrow: Well, I went back to the beginning of 2018. So, we’re talking 2.5-years, and that captures Langer shut down McArthur, and just running some numbers for this year, I came up with about 70Mlbs of, let’s call it lost production from the care and maintenance, the cutbacks in Kazakhstan. With the Kazakhs, it was off planned production, things like that. But just as a kind of a working number, you know, 70Mlbs. So, it’s half of what production was last year globally. So, it’s starting to become a very large number and that won’t be recaptured anytime soon. You know, even if MacArthur, Cigar, you know, come back at 18Mlbs each. Now MacArthur is licensed to go a bit above that, will they do that? That remains to be seen. But yes, the number I came up with was interestingly enough, right at 70Mlbs, since the beginning of 2018, has been taken out of the primary production.

Matthew Gordon: Because you describe it as lost as opposed to delayed. You think that should be in the ecosystem today, but both Cameco and KazAtomProm have said, we’re not going to play catch up. You know, they’ve got different price points, I guess, that they’ll be talking about, but nevertheless, they’re not going to play catch up and try to get those pounds back in the market. So, will the ecosystem be running on a little bit of vapour as a result? I mean, isn’t that kind of a little bit nerve-wracking for utilities?

Dustin Garrow: You know, as Cameco has put out on its calls, their program is designed for better transparency on the market. In other words, there’s a, as you know, a broad range of opinions on how much…yes, the overall inventory is a very large number. We know that to be at a billion pounds and a half. However, you want to classify Russian inventory and high-assayed depleted tails and all of that, but, you know, use a billion. Is that available? In other words, do we just not need to produce anything for years and years? And I think that’s part of the strategy, it is to say, okay, we’re going to go out there and we’re going to be persistently buying in the market. Now so far, I mean, look at April – 25Mlbs. So, you know, I think that was traders. It was maybe the financial guys. I’m hearing, there’s a couple of low-cost producers that are laying pounds into the spot market. I don’t want to point fingers, but you could probably figure out who they are. And so, it’s not just been, Oh, traders are, you know, flooding the market. It’s been several sources. And I think, again, if I’m a financial investor and I bought at USD$25, maybe even in January, and I can sell it at USD$33/lbs, I may take that USD$8/lbs for my half a million pounds and then say, well, if the market starts to move up again, I’ll move back in. So, I think we’re seeing, you know, again, quite a bit of different sourcing, but as the persistent pressure comes in, the utilities have backed out of the spot market from what I can tell. It doesn’t mean they’ve stopped buying that. They have other things they’re working on right now. And they seem to not be particularly concerned about availability.

Matthew Gordon: No, they’re not, they’re not.

Dustin Garrow: Because why buy at USD$33/lbs?

Matthew Gordon: Yes, big, big. Discuss. The EIA Uranium marketing annual report came out about two weeks ago. I think it stunned a few people, and I’m not sure why it was, but it did, because the numbers show that it’s like 3Mlbs less than the year before. It’s no big deal. They’re not running out anytime soon. It’s way more than people imagined. And I’ve heard various versions of just post-number justification about why that is. And you know, the fact that you have UF6 enriched and so forth being used instead of U308. And it all kind of like, you know, with hindsight, it is a great argument, but I think at the time, on the day it has done a few people, a lot of market commentators didn’t actually know what was going on. Couldn’t work it out. What was your take? Did you expect these numbers to come out? Because if you are a Uranium junior miner equities investor, you are slightly disappointed by that because it says, as you’ve just said to me, the utilities don’t seem particularly worried. They’ve got other stuff to do. They’ve got all of the above to look at: they’ve got their gas; they’ve got the renewables to worry about. So, they know they are good for a while, so what’s in it for us? What should we be thinking?

Dustin Garrow: Yes, I think it was a little surprising that the utility inventory went up a little bit. We’re talking rather than a decline and, you know, the utilities were more active in the spot last year, according to UX; they bought globally, you know, 22Mlbs, something like that. Now the unfilled requirement profile; the utilities entered into contracts for about 26Mlbs, when you average minimum, maximum. And when you look at the total unfilled requirements, as if by magic, they kind of dropped by 26Mlbs. So yes, they did some contracting, some of it further into the future. And I think that reflected as reported by Cameco, they’ve gone to some of their bigger, better utility customers and they’ve probably renegotiated, extended, whatever their contracts. So I mean, to me, all the pieces kind of fit, but then when you look again at unfilled requirements by 2024, which isn’t that far off, you know, more than 50% of the stated requirements from the utilities are yet to be contracted – 22Mlbs. And then in the year 2023, it’s 37%.  So that’s still a lot of material to be contracted for.

The question is always the timing. When do the utilities decide, hey..? Now, as we have talked, when I went to the NTI conference in January, a number of the utilities were saying, ‘Hey, I think the time is coming. I want to start talking about long-term contracts,’ and a couple of them entered the market but the rest of them have now kind of stepped back and said again, I’ve got other big issues looming, there seems to be material. So, but I do think there is, it has been reported; there are ongoing discussions between some suppliers and the bigger utilities but it’s just not at the level where you are seeing a lot of these contracts reported. And I think we may have to wait until fourth quarter. I mean, we’re almost at the end of the second quarter, and until we see a little clearer.

Just as a side note – it’s pretty interesting. The DOE information, Energy Information Administration just came out with an update on electricity in the US through 2022, or whatever. But this year they see electricity demand down 5.7% for the year, but nuclear shares, which have been 20%, goes to 22% because of a much lesser cutback. So, the point is, the plants are still operating. They’re being refuelled, there may be schedules that have had to be jockeyed around. I see TVA just finished its third refuelling. So again, the fuel groups have been, let’s say, distracted or prioritised away from, well, I need material in 2024, rather than I’ve got to get work on with the group that’s refuelling today. So, I think there’s part of all that. And again, the price – I’ve heard that some of the utilities are speculating, price will go mid-thirties, then the air clears and it drops back below USD$30/lbs. So, I really don’t see the need to go out and contract for a lot of material. But the need is still there. The reactors are operating. We’re yet to see the new EU numbers, which have come out in July.

Matthew Gordon: I think that that will be very tiny. That’s really interesting what you said there, because again, some of the reaction to the EIA marketing report, Uranium marketing report was that, don’t worry, there’s a whole bunch of reactors which need to be refuelled this year. That’s going to dramatically change the environment. Okay. It’ll be fine. Do you think that’s going to be big enough to make the utilities –

Dustin Garrow: No.

Matthew Gordon: No, Right. Okay. There we are. Good. Thank you.

Dustin Garrow: The reloads that are being loaded now were planned five years ago. I mean, people don’t understand; this isn’t coal, where you say, I need another few more tons. Having worked within a fuel group, an operations group at a utility, they’re planning several reloads out in the future because they have to have that material in the pipeline, enriched to the right level, fabricated bundles delivered. So, this is not a ‘just in time’ industry at all.

Matthew Gordon: Got it. I wanted to hear that, because just listening and reading some of that conversation, it just seemed, I always call it ‘pub talk’. You have got to speak to people in the know and who have been in the industry and sort of see it.

Dustin Garrow: It just so happened, I saw, what, about 90% of the US reactors are scheduled to be refuelled this year? Either spring or fall. Those are the refuelling windows. And so, you go, yes, it’s a lot of material, a lot of refuelling that’s going on, but this was planned forever ago.

Matthew Gordon: Okay. So, what does that mean for Uranium producers? All of this refuelling is going on. It has been planned. They’re going to need to backfill, as it were, but looking at the numbers from the EIA, looking at UXC, looking at TradeTech numbers, it’s not going to affect share price for some time to come.

Dustin Garrow: It’s all, you know, and I think our last talk was on the term market. I think it’s when the utilities say, okay, I need to start contracting for 2023, 2024, which they’ll do maybe starting later this year. So, any kind of price implication, certainly for material on the production curve, you are going to see soon. So, in other words, at USD$31/lbs, USD$32/lbs, we’ll look at, okay. Trade Tech has a new index, the production cost index, where they’re just saying, this isn’t necessarily reflective of what people might offer. I’ve seen too many producers that go, ‘Oh, well, I’ll take this contract, which is a loss leader, but then I want to report, I’ve got a contract and then the investors will say, I’m real and I can do that anyway.’ What I think trade tech has done is modelled production and said, ‘Hey, for restarts and new production, the lowest is USD$44/lbs.’ And they’re putting it out there. They’re saying, this is what it costs. And I think that does not have a profit component. So, you can really bump that up to well into the high forties.

So that to me is a more important index than what somebody might be offering in a hybrid contract. You know, so that’s a point, we say, well, once the utilities go, ‘Hey, I’ve talked to the suppliers and I’m not going to see prices below USD$40/lbs, then I really probably am.’ And it helps though that the spot price moves up because then that gap starts to close, and the optics look better for the long-term contract at USD$45/lbs. So, I think a lot of the factors are beginning to help the whole idea of more term contract.

Matthew Gordon: So that’s the delta we should be looking for: the closing of that gap. I think that’s one for another day because I want to get into a contracts-only conversation with you, because it’s absolutely fascinating. So why don’t we segue onto something useful for Uranium equities investors? Okay. So, let’s just take a look at the market, and there are a few things that I’ve noticed. There’s a big move by one company which you know, well, which is Energy Fuels, and this discussion that they’re having in the market about rare earths, okay. So, they’re a Uranium company with Vanadium as well. So, we’ve just talked about the Uranium market and we kind of skipped through a lot of topics there. They do have this Uranium component. I think I heard something about the potential for another Section 232 for Vanadium. But again, let’s park that up for now. But rare earths -oh boy! That is exciting to me because rare earths can be processed at White Mesa. Their White Mesa Mill that they have, it’s a huge mill with many, many lines to it. So, do you know much about that? I mean, obviously I don’t think necessarily think they are segueing away from Uranium, but they’re giving themselves more options it seems. And as another strategic mineral in the US, just how important is this?

Dustin Garrow: From my understanding, I’m by no means a rare earth expert, but with the current discomfort with say, trade with China, I think there is a growing focus within the US that the rare earths industry needs to be, let’s call it more vibrant. Now, I know the White Mesa Mill really well. I worked for old Energy Fuels when the mill had just been built. And I think they’ve done a really good job of making a dedicated Uranium mill into a much more flexible facility. Obviously, it had Uranium, Vanadium to begin with, because of the Colorado plateau ores. When the market went south, they got into alternate feeds, which is effectively a waste processing disposal business, which they’re still doing. And they’ve been doing it now for 20, 25-years. And I know that looking at White Mesa for rare earths processing has been going on for a while internally, in other words, how can we make this even more flexible if the Uranium market does not respond? If the Department of Defence and DOE, that project doesn’t go as quickly or as large or as well to support us. So, I think, you know, it’s like some of the other companies. I know Uranium Energy has got, I think, Titanium they’re looking at. So, you know, it’s a good business strategy, if you can do it. I mean, if you are an ISR producer, it’s really tough to do more than produce Uranium out of your processing plant. But a traditional mill, you know, they they’re able to engineer it to do more. So, I think to me, it’s a plus. Now the question is, are they abandoning Uranium? Well, no, it’s still going to be, I think, their primary focus, but there’s going to be this, let’s call it secondary activity of where they may become a focal point for the production or processing of rare earths, which I know there’s a big mine in Texas. I haven’t, you know, I know there’s the one in California, but there’s probably several big deposits where they have gone, ‘Well, we don’t really want to build a mill, or we can’t, or whatever. And so maybe White Mesa is the answer.

In fact, we drove right by Blanding on the way to Arizona on our visit down there. And you go, ‘Yeah, there’s a big facility sitting out there in South-eastern Utah, that could be used for a number of minerals. So yes, I mean, I think it’s just a smart business strategy decision. Just don’t sit there and go, well, you know, Uranium’s tough and we’re just going to ride it out. And, you know, I think they need to look at other –

Matthew Gordon: Yes. What I liked about it was that there’s just this general mood on Capitol Hill about national security across a multitude of different commodities. And, you know, rare earths have a radioactive component to it. So, it’s not a case of, you know, do you want to pay for a mill? But can you get the licenses to process radioactive waste or material? And how long does that take? And not every state feels the same way about it. I don’t think the market has given the company credit for that yet. Certainly not on the share price, that’s for sure. But they’ve got one or two things to deliver between now and then, but I just thought that was an interesting one.

The other big one that stood out for me was an Australian company, but the assets are in the US, which is Peninsula Energy. They have just raised AUD$40M -that’s a big, big chunk of change. It’s an ISR project, obviously. I mean, have you heard much about what the plans are there? We had Wayne Heilli on the other day, actually, talking about Peninsula Energy’s project. Are you aware of it?

Dustin Garrow: Oh, well, yes. I mean, Peninsula, obviously, is moving forward with the new technology, which hadn’t been really utilised in Wyoming except back in the sixties or something. So, they’re not sitting still, they’re saying, ‘Hey, let’s try to meet the market somewhere in the middle on cost’. But, I’m not sure that they’re going to diversify at all. I mean, I see a Azarga now in parts of Wyoming on top of South Dakota, so they’re geographically… So like I said, there’s a number of diversification strategies and optimisation that’s going on in response to the market.

Matthew Gordon: Yes, well, there’s a lot of movement in the market. I think some people have taken advantage of the recent move in price to go and raise a few dollars to kind of keep the lights on and keep things chugging along. And there’s been, you know, small raises. But there’s been like, say AUD$80M is not insignificant. It is the same with NextGen – C$30M, sorry, not NextGen – it is Fission with USD$30 million about three, four weeks ago. Again, to try and move things along. So, do you think, do you feel that the market sentiment, because, I mean, you are in sitting in front of these funds, you are talking to these guys, is the conversation changing? Is it evolving? Are they getting excited again?

Dustin Garrow: Yes, I did a roadshow in January for one of the companies I work with, and maybe it was who we scheduled the meetings with, but there was a lot of enthusiasm then. And I think it’s still there. It’s been muted a little bit by COVID-19 on, what does that mean? How long is it going to last? What’s the role of nuclear going forward, you know, that kind of thing? But yes, I think there, from what I could tell, there is capital available, but you have got to have a really good story, which has gone beyond, well, I have a bunch of drill holes, but now they’re asking questions about what does the management look like? In other words, do they have the responsibility or the experience in the industry, and that’s becoming harder to acquire. Let’s put it that way.

I think there are a lot of companies now that have brought in executives just by necessity, from other commodities, some are financial guys. But to try to find, you know, those that have Uranium in their blood, one of my favourites of course, is John Borshoff, he and I still stand, but he’s like I am: he’s a Uranium bug or bull. But there’s fewer and fewer of those guys around, just because there hasn’t been the training ground, there hasn’t been… It’s just like they’re now saying we’ve got to train up more, part of that discussion with DOE, more professionals in the nuclear area. Well, you’ve got to demonstrate it’s where someone says, I want to spend 40 years in this industry. And I think that’s kind of where we’re coming with Uranium. One of the more disquieting aspects of it is, my concern is 10 years from now, do you have enough experience to operate Uranium facilities, which are different than anything else on the face of the planet? From a regulation standpoint, transportation – which is now a huge risk, you know, dealing with the governments on permitting. I know even Vimy, they have got federal permits, I guess, at the federal level, but they still, you know, they’re making it clear that they’ve got kind of secondary provincial state level permits that they still have to acquire. I mean, as you know, I worked for Berkeley Energia for a while, and I think they said with Salamanca, there was 120 permit licenses approvals that they had to have all current so everything kind of came together in that one core. And so, 120 for one 3Mlb p/a mine, which by the way, seemingly is, let’s say, struggling to say the least. So that to me is as big an issue as anything: it is human resources, how many Uranium geologists, how many Uranium process engineers, and they’re just not growing any. So that could be, I think, the next big challenge in the production side.

Matthew Gordon: It is interesting. I mean, we did talk about this, I think, again in second interview, we talked about human resource, and you know, my big takeaway from that was if you haven’t done it before, you are probably going to struggle. So as an investor, I’m looking for someone who has produced pounds, who has got them into the market, because as you say; one, you’ve got to work out how the hell to get it out of the ground economically, but then you’ve got to transport it, and that’s by road, store it at a port, get it on a boat, get it to where it needs to be. The logistics are complex, for sure. And I do appreciate what you are saying with regards to, there’s not just a CEO or a management team who have done it before, but the entire food chain of people, the operational management team. If you haven’t done it before, you possibly are slightly more likely to fall over than not.

Dustin Garrow: It is not impossible.

Matthew Gordon: It is not impossible, it’s just that little bit harder and fraught with regulation and so forth. But again, I want clues, I want some clues here from you, Dustin. I know it’s hard to suck these out of you, but we’re going to try, which is, in terms of the way the current market stands, like we get the big boys: we have talked about Cameco, we have talked about Orano, talked KazAtomProm, but there’s a kind of stable of smaller producers, mid-tier producers, and we’ve mentioned a couple there in terms of a UR-energy and Energy Fuels and obviously the guys in Namibia, but what else should we be looking for? Because I’ve already noticed a few new entrants into the marketplace. People who took something else completely different two months ago, they have just gone and bought licenses, Uranium licenses, because it seems to be becoming flavour of the month. We’re getting closer to the flavour of the month. Those guys make me nervous because they are segueing from one commodity to the next. But are there companies, or if you don’t want to name companies, are there clues as the types of companies in terms of what their structure is today that we should be looking to for investment purposes?

Dustin Garrow: Well, I think obviously as the price starts to move up, as you say, you get enthusiasts that come into the industry, and it just depends on what the investors are looking for. In other words, you know, it’s not been my area of speciality, but I’ve been around now, like 15-years dealing with the investors. There are some companies that are destined never to produce anything. That’s okay, but then don’t buy off on, ‘Oh, well we’re the next producer?’ Well, maybe not. I mean, and there there’s some negatives to be a producer; then you are really exposed to market price swings and all kinds of stuff. So I guess it’s, you know, the diversified portfolio, I think, you know, we do have the Paladins now the Lotus group with Kalikira that would that have existing facilities. Energy Fuels. The other guys in the US, Uranium Energy, Ur-energy, that obviously if you’ve got the facilities, you’ve made some kind of a commitment that you are probably going to try to move towards operation.

I think as you get further away from that, when you look at the USD$400M to build a facility somewhere, and the years it takes in Canada, the USD$1.2Bn or more, then it gets a little less, I don’t want to say certain, but I think there’s a whole new group of challenges where then you have to say, well, is this group ready to spend to raise that kind of money and then effectively invest it in building this facility?

You see, my experience goes back to Paladin. When we raised the money, everything was ready to go built the plant, built the phase one mine, you know, on budget, on schedule, but that was under a group where they all had experience in Uranium, and so it all worked well. I think there’s just a lot of other projects that didn’t quite go; let’s pick on Imouraren which was a big company building it and Tricopi, I mean, was a massive disaster. So it’s not, you know, you’ve got to try to weigh all of that and say, hey, maybe this group was successful elsewhere. It doesn’t say they can’t be successful in Uranium, but there’s just a lot of issues that they have to appreciate, rather than, oh, we’ll get this done in six months. No, I’d rather hear, we think we can get it done in a year and a half, but it could take us longer because… So, again, for investors in the space, it’s going to be really hard to bring on new production. I think.

You have got the existing facilities – fine, but you know, as we all know, in the last uplift outside of Kazakhstan, which was really operated by the Kazakhs, was Paladin, you know, and then a few small ISR projects in Wyoming, but that was it for all of the discussion and all of that. So yes, it’s a complex industry. I don’t want to name names. I could probably come up with a half a dozen where I’d say, yes, they’re probably going to accomplish more sooner than this other list. I think people can step back and see where that might be.

Matthew Gordon: Well, that that will be an interesting conversation, for sure. And I know that we feel the same way. We feel, but we don’t know 1/10th of what you know, so that is valuable data. But look, I think we have taken up a lot of your time, but can I just finish with one last question? I need to talk about a short-term loan, something that happened in the market recently, UPC – what’s going on there?

Dustin Garrow: Well, I thought it was kind of interesting, you know, UPC had done UF6 loans in the past that were covered, I think more than a year. The whole loan area can be really tricky. I got involved when I was with New Mexico Trading. Part of it is collateralisation, particularly in a rising market. If you mark to market and you have, let’s say, lent 1Mlbs to someone at USD$50, the price goes to USD$60/lbs, well, normally that’s secured with a letter of credit. So, then there has got to be adjustments. It can be just a big pain. For example, I think yellow cake has been asked, do they want to get it in the loan market? And, you know, the loan fees have been like 1% so it just wasn’t worth the grief. Well, I thought it was interesting that UPC announced that they’d done a half a million U308 loan which was going to yield a $100,000 pm for, I think like a 4-month period. So, they’re going to get USD$400,000 to lend to someone, and they said it was a secured loan. I think it might be just a location where someone needed half a million pounds, maybe at Cameco, and UPC was willing. Because if you annualise the interest rate, that’s pretty rich. So, someone seemed to be pretty anxious to get material which would be returned in a fairly short window. So, I just thought that was kind of an interesting activity that UPC got involved in. And they’re selling conversion. You probably saw that, which, what a great investment -you know, they probably bought it at, certainly below USD$5, and they are selling it for USD$20/lbs, so that’s not bad. But yes, so I thought the loan was interesting,

Matthew Gordon: It’s quite rich, quite rich. But I guess that is why you do it, right? Dustin – amazing. Thank you. I have, again, learned more about this market. And I’m glad you kind of cleared up a few things which were kind of troubling me from some other market commentators. I appreciate that. Hopefully things will pick up across the board.

Dustin Garrow: Let’s get together again, it may not be at WNA. There are people still optimistic that that will happen, but I’m not so sure.

Matthew Gordon: In September? No chance, no chance. Do you think Nashville will happen?

Dustin Garrow: Well, it’s Las Vegas.

Matthew Gordon: Las Vegas, sorry.

Dustin Garrow: Yes. At the end of October, although I’m hearing that there’s some pushback from, interestingly, the utilities. I don’t really want to go to Las Vegas. I’d rather have it maybe in Washington, shorter, you know, and all that. I mean, you can make the case that there will be no industry conferences this year. The one that’s in Australia that I know Mark Chalmers coordinates will obviously be virtual. So, it’d be kind of interesting, pretty interesting group of speakers, but it’s just, you don’t have that chance to interface. And I think part of that then hinders some of the, particularly term contracts. So, you know.

Matthew Gordon: Well, you said to me last September at the NWA in London, you said, decisions don’t get made until, it was Nashville last year. That’s probably why I got confused there. You said that decisions don’t get made until after October. That’s when people kind of get together, US utilities, they all kind of gather and conversations happen. So, if it’s not going to happen in Las Vegas this year, they’re not going to get together virtually, these are conversations that happen in corridors, aren’t they?

Dustin Garrow: Usually, or you do speed dating where you have a series of 30-minute meetings with fuel managers. That became kind of the normal MO. But right now, you know, it could slow down the contracting, particularly for term, because everybody kind of wants to sit down and get a feel for, is this really going to happen? And so, anyway, we’ll see.

So yes, I think, you know, two months from now, we might go, Whoa, look at where the market is. We really missed it. Or you go, Oh, you know, we’ll just have to wait and see.

Matthew Gordon: We’ll have to wait and see. Okay, well maybe no Las Vegas, that’s a different kind of speed dating they do there, isn’t it? From what I hear. So, we shall catch up again soon. There’s probably going to be something exciting happening the Uranium market. There always is. I loved your insight, as ever. Loved your insight, as ever. So, thanks so much, Dustin.

Dustin Garrow: You are quite welcome. And again, in this industry, hope springs eternal. So, we’ll see.

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.

#11. Brandon Munro – What is the Uranium Sector “crying out” for?

A weekly catch up with Brandon Munro, Uranium Market Commentator and CEO of Bannerman Resources (ASX:BMN).

It’s that time of the week again. Brandon Munro, Crux Investor, Uranium. Are you sitting comfortably?

There haven’t been any big catalysts or market-defining announcements this week, but is there anything uranium investors should be paying attention to? Of course there is.

Matthew Gordon talks to Brandon Munro, 18th June 2020

COVID-19’s Impact on Kazakhstan

New cases of coronavirus have reduced, but they are still significant: c. 250 new cases per day. To put that into some context, when Kazatomprom originally announced that it would be suspending wellhead development for an estimated 3-months, the country was only at 50 cases per day, 5 times less than now.

The big curiosity for uranium investors is how Kazatomprom’s strategy will play out. Will the uranium giant come back online early, or will there be a further delay? Such a delay would have a profound impact on investor sentiment within the uranium space and would massively tighten the pounds in the market.

The current guidance is that the originally quoted 3-months will remain accurate, but uranium investors need to keep their eyes peeled. With these sorts of case numbers, Kazatomprom would be more than justified to stay offline. In such an instance, Kazatomprom CEO, Galymzhan Pirmatov, has stated that Kazatomprom ‘could’ turn to the market for uranium pounds to fulfil its existing uranium supply contracts rather than increasing production. Buying in the open market could provide Kazatomprom with the certainty it needs to fulfil its supply obligations. Uranium bulls will be reading between the lines and hoping this, along with noises from Cameco about doing the same thing, drives price discovery. A likely second wave when Winter hits in October could cause further significant production disruption. When the market does move, it’ll move quickly.

The Namibian Uranium Sector

Casting our eye over to Namibia, Munro’s home from home with Bannerman Resources’ Etango Project, the country has locked down the Erongo Region, which is home to all the uranium projects in Namibia. The region is in lockdown for 14-days at this stage, but, importantly, Namibia has already classified mining as an essential service. There will be some minor disruption for the next few weeks, but Munro expects close to full uranium production to be achieved, though the real numbers will only be confirmed at the end of the year: these are utility-owned mines with no direct disclosure obligations in this regard.

Cameco & Kazatomprom

I’ve previously discussed how Cameco and Kazatomrpom appear to be singing from the same hymn sheet when it comes to uranium market destocking, though many speculators have disagreed with me, claiming Kazatomprom intends to continue producing to drive everyone else out of business. Munro himself thinks their strategies have no relation to one another and are largely independent of market conditions and mechanisms. These operational decisions will, for the time being, be made in a vacuum away from the market.

Australasia & COVID-19

We all know that the major Australasian countries have dealt with COVID-19 extremely effectively, aided in no small part by their low population densities. BHP’s Olympic Dam, the largest known single deposit of uranium in the world, hasn’t been affected in any significant manner. Uranium is a byproduct of this copper operation; thus, decisions aren’t necessarily uranium-focussed. The South Australian government has even announced that it will open its interstate borders on the 20th of July. Our European and American viewers/readers will be watching on with envy!

Paladin Energy

Another Australian uranium story regards Paladin Energy: the company has been removed from the ASX300. Does this mean uranium has lost its seat at the top table in Australia? It’s clearly a meaningful event; there is no longer a pure-play uranium company in the ASX300 that isn’t closing a mine. In fact, Munro claims that there is nothing “institutional-grade” left in Australia when it comes to uranium equities. However, from a more bullish standpoint, this removal could entice consolidations, as uranium companies vie for a spot in the ASX300. If an Australian uranium player is to re-emerge as an institutional grade investment, it will likely be given a lot of momentum and could spark interest and activity in the market. Mr Borshoff would agree and say ‘I told you so’.

“Crying Out For Consolidation”

It appears that mergers in the uranium space are almost guaranteed in the near future. Moreover, Munro believes that “this sector is crying out for consolidation.” The better projects need to consolidate to have any weight attributed to them by the utility companies. Right now, it’s far too cluttered with individual uranium vessels promising utility companies that they are their best bet for an eventual long-term supply contract a few years down the line. There are too many management teams and too many overheads for too few low-quality assets.

In addition, and most significantly, expertise is the rarest currency in the uranium sector. Experienced, knowledgeable minds are hard to come by, and every uranium company would have a hugely increased chance of success with one at the helm. These issues combine to create an environment where mergers are needed to rebalance the sector and reduce the risk profile of many uranium companies, many of which are run by people who have never produced and sold a pound of uranium before. Uranium is an idiosyncratic, complex sector that has complications at every stage. Do some uranium companies need to stop promoting pie in the sky dreams of production and get down to robust negotiations? And if yes, which companies do you see needing to come together?

What did you make of Brandon Munro this week? Comment below and we will respond.

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.

Dustin Garrow – Uranium Contracts Just Became Interesting

Interview with Dustin Garrow, uranium market commentator.

As an advisor for numerous uranium companies, Garrow knows a thing or two about the uranium space. We’ve spoken with him several times previously, and on each occasion, he’s helped us further unravel the complex and opaque story of uranium. In this interview, we cover a variety of intriguing topics.

Matthew Gordon talks to Dustin Garrow, 14th June 2020

We start by discussing the U.S. Department of Energy’s Nuclear Fuel Working Group report. There has been plenty of reaction in the uranium community, but it was just a policy framework document, and many uranium commentators don’t appreciate the lack of specific numbers or timescales. There was a conversation several weeks ago between several uranium players and the DoE, discussing potential outcomes. Garrow thinks it is clear that this is simply a necessary part of the process, and I’d happen to agree. The U.S. government has kept its cards close to its chest, and I can see no reason why they’d change that strategy on a whim. All the major players in the uranium space were involved in the conversation, such as the Secretary of Energy, several senior government officials, and a representative of all the major U.S. uranium producers. All of the report’s recommendations were reviewed. The companies have honed in on the US$150M of investment in the 2021 fiscal year budget. Handily, this budget would come into effect on October 1st, 2020. Uranium investors might see a major catalyst sooner rather than later, though there have not yet been any approvals given. A lot of the uranium companies seem to be holding fire until the US$150M is appropriated. It will be intriguing to see how this unfolds, especially in an election year.

We then discussed uranium powerhouse, Cameco. Cigar Lake remains down and has now been down for 2.5 months. The shutdown has been repeatedly extended, and a determination to bring about uranium destocking to drive spot price up is one motive for this. It is currently shut down indefinitely. The Port Hope uranium conversion facility has reopened. There is no indication whatsoever that Cameco intends to reopen Cigar Lake in the near future. Cameco appears to want its new contract portfolio in place before it reopens the mine. Both Cameco and Kazatomprom, the two largest uranium players globally, have indicated that they will purchase uranium from the open market to fulfil their existing uranium supply contracts. This looks like an effort to drive spot price up, and it could well be effective. The timescale all depends on just how much inventory these utility companies possess. It’s far from a united front for the two uranium giants, but they are definitely singing from the same hymn sheet.

Kazatomprom has already stated that the carry trade is becoming increasingly obsolete, having publicly repudiated several multi-year sales agreements with traders. Are carry traders about to be wiped out? Traders thrive off large available inventories; they focus on mobilising it and getting it into the market in any way possible: spot, mid-term, long-term, etc. While the carry trade is certainly going to take a major hit, I’m not quite sure it’s going to be extirpated just yet. Carry traders can be extremely creative, and utility companies may still make use of them in some way.

Jurisdiction is becoming increasingly important for uranium investors as we approach the new upcycle. There is a substantial discount on most uranium juniors right now, and jurisdiction plays a big part in this. Cameco’s material comes from a stable mining jurisdiction, and this appears to be eminently more desirable than any jurisdiction with so much as a hint of volatility.

Euratom released an analysis of nuclear fuel availability around 3 weeks ago. Lack of investment in new uranium mines has dropped down from number 1 to number 4 on the list of most pressing risks for utility companies. Transportation hubs are now the number 1 risk: moving class 7 (highly-radioactive) material globally. A lack of grassroots exploration consolidates these issues. Euratom is far from happy with the market.

The uranium space is missing around 70Mlbs of production from the various care & maintenance and cutbacks seen in the uranium space around the world. This is half of what total global uranium production was last year: it’s starting to become a very big number indeed, and these lbs won’t be recaptured anytime soon.

In terms of the EIA Uranium Marketing Annual Report, many junior uranium players have been very disappointed, because it indicates that the utility companies aren’t particularly worried and have bigger priorities right now than securing uranium contracts. It’s especially surprising that the utility uranium inventory actually increased slightly. Share prices don’t look like they are going to be affected for some time yet.

We’ve previously spoken about Energy Fuels’ foray into the rare earths space, courtesy of the companies renowned White Mesa Mill, Utah. Garrow thinks that there is a growing focus within the U.S. that the rare earths industry needs to be more “vibrant.” Since he worked alongside them many years ago, he thinks Energy Fuels has done an exceptional job of making a uranium-specific mill much more flexible. This is smart monetisation, and Energy Fuels could be part of a possible rare earths renaissance in the States. However, this is some way off yet.

We interviewed Peninsula Energy earlier this week. The company has just raised A$40M out of nowhere to pay back a debt held since 2016 and push their low-pH ISR solution forwards at its flagship project. Garrow says this technology has not been utilised in Wyoming since the 1960s. It looks like Peninsula Energy is trying to avoid staying still by meeting the market somewhere in the middle on cost. It doesn’t look like the company will diversify anytime soon.

The uranium market as a whole is gradually getting more excited, but this is still tentative. There is capital available, but uranium companies need a great, strong story. The project and management team need to be excellent to convince investors to take the leap. There is a lot less option money flying around. Marketing for uranium companies is more important now than ever. Many will not survive, and many wouldn’t even survive long-term if the market went to US$100/lb. Investors can get excited, but Garrow encourages them to scrutinise a company to the fullest extent before acquiring a position. His personal tip is for investors to consider focussing on companies that fit their own investment strategies and desired risk profiles. Some investors may not ever want to invest in a uranium producer, because they are very susceptible to the impacts of price swings. It is all a matter of personal taste. Investors have to be able to read between the lines and identify bullsh*t when they hear it because there’s likely to be an increased amount of that in the coming months.

Lastly, short-term loans are becoming increasingly tricky to negotiate for uranium companies. this is partly due to collateralisation in a rising market. The loan fees simply haven’t been worth the hassle of negotiating complex deals for certain lenders.

What did you make of Dustin Garrow? Comment below and we will respond.

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.

Uranium – Can America Reclaim Its Seat At Uranium’s Top Table?

Recent developments in the uranium space rose to a crescendo recently when the US Department of Energy’s NFWG report outlined some policies to help resurrect America’s competitive nuclear energy advantage.

As a consequence, uranium investors have been left pondering their own positions. A common question regards timescales: when will this document become an effective catalyst of the American uranium industries rise back to prominence? It has already had something of an impact, with uranium securities rallying and the spot price of uranium making a gradual but definitive comeback.

However, when will America be able to elucidate to the market with genuine confidence a commercially viable technological solution to the uranium production conundrum?

This topic was explored in-depth by Crux Investor’s very own uranium expert, Brandon Munro, in a recent interview with us.

Matthew Gordon interviews Brandon Munro, 15th May 2020

Reasserting Strategic Dominance

The case can certainly be made that America is heading back to the table already. While many of the technologies in the States have struggled to prosper commercially, they have continued to be pushed forward and developed as private enterprises.

This is exemplified by the current situation in Australia: the nuclear power debate is totally restricted to SMRs only for several good reasons. There is one SMR reactor that appears to have the greatest chance of capturing the SMR debate because its audiovisuals are superior and it is the most advanced. This is a clear frontrunner. There are other competitive reactors that require consideration too; Bill Gates has utilised his huge profile to capture some imagination from those involved in the debate for his particular reactor product.

The main thing that has been slowing down the growth of the US uranium industry is the lack of availability when it comes to reactor sites. However, the government is now addressing this; they do not require money to the same extent to do this. It’s also not such a big issue for China and Russia. China has already selected a couple of site for theirs.

I think it is going back to the table already. If you look at some of the technologies that have continued in the meantime, they have continued to maybe not prosper, but they’re certainly as private enterprises, continued to push forward. And we’re seeing that, for example, in Australia where the nuclear power debate is fully restricted to SMRs-only, for a couple of probably pretty good reasons. And there’s one SMR reactor that had the best chance of, I think capturing the debate here because its audio visuals were superior, and it was the most advanced. And so, they’re definitely a front runner, but there are others as well. And of course, Bill Gates has used his profile to capture the imagination for their particular product.

What was slowing the US down was predominantly the availability of sites. And they are addressing that. They don’t need money to the same extent to do that. And that’s not such a big issue for China and Russia. And for example, China has already selected a couple of sites for their reactors.

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.

NFWG’s Strategy – The End Of The DOE’s Bartering Of Uranium

Brandon Munro, Bannerman Resources CEO.

In the wake of the NFWG outcome, uranium commentators have been sent into a furore. There is a lack of specifics within the report, and this had led to speculation amongst uranium investors becoming rife and interpretation has been varied.

Green uranium reacting in a glass vial with a uranium symbol and a nuclear symbol next to it

To cut through any possible misapprehensions, Crux Investor recently spoke with Bannerman Resources (ASX: BMN) CEO, and uranium expert, Brandon Munro. He was able to help to clarify some confusion around the definitions for investors. In order to make intelligent investment decisions, investors need to be informed.

One of the report’s topics that has resulted in a lot of frantic chatter is the conclusion of the US Department of Energy’s bartering of uranium. The Department of Energy has on a variety of occasions engaged in transactions under which it bartered uranium to which it has title for goods or services. This policy has now ended, but what exactly does this mean for the uranium market?

Munro Responds

Munro acknowledges this is an important issue.

Some investors may already be confused about what exactly the barter entails, and Munro was keen to clear this up before moving on. He stated that the barter has essentially been derived from problems in the US Congress regarding funding the clean-up of the Portsmouth Gaseous Diffusion Plant (PORTS) located in Pike County, Ohio. This was an industrial site, not a nuclear weapon testing site, and the appropriations were blocked, rendering funding unachievable.

The solution the DoE came up with was bartering uranium. The DoE took the uranium it had the responsibility of cleaning up and sold it in to the open market, using the proceeds to pay off the contractors who were carrying out the clean-up operation. For investors who understand why the uranium price crashed like it did in the first place, alarm bells will be ringing…

uranium yellowcake
A photo of yellow cake uranium, a solid form of uranium oxide produced from uranium ore. Yellow cake must be processed further before it is made into nuclear fuel. Courtesy of Energy Fuels Inc.

This decision, in a market that was already very fragile at the time, was very destructive for the uranium space. The more pounds that were sold into the market, the lower the uranium price was driven. This lead to the DoE having to sell even more to bankroll the static clean-up bills, and there was still plenty of uranium to off-load. The pounds were priced inelastic: another problem.

At one point, the DoE’s sale of uranium was hitting as much as 5Mlbs pa. This secondary supply was clearly very unhelpful for uranium companies and investors hoping for price discovery and was potential a damaging move.

Whatever your views on the Trump administration, it appears the dying domestic uranium space is one issue they are addressing. The Trump administration suspended the bartering mid-fiscal year and then extended it for the next fiscal year. There were concerns from those within the uranium space that this bartering behaviour could make a comeback in the next fiscal year, but this is now completely off the table. Uranium investors may well be breathing a sigh of relief. Things could have looked much different under a potential Bernie Sanders presidency…

Munro claims the mechanisms to deploy this strategic shift are now insignificant, given that the DoE itself has put forward this policy in the document. He thinks this is a good thing and should avoid any complications bringing an end to uranium bartering. The secondary supply source will not come back, and the market has been provided with invaluable certainty. Uranium investors can now operate more confidently. Bartering will no longer cause millions of pounds of uranium oversupply.

We hope you enjoyed this first exploration of the details behind the NFWG report. We’ll be releasing several articles over the course of the next week that will cover other intricacies and definitions that uranium investors need to fully understand in order to make educated investment decisions. Until then, make sure you keep your Geiger counters switched on.

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.

Brandon Munro, Bannerman Resources CEO.