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

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

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

Interview Highlights:

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

Click here to watch the full interview

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

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

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

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

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

Daniel Major: No. 

Matthew Gordon: No? 

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

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

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

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

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

Daniel Major: No.

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

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

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

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

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

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

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

Matthew Gordon: Does anyone? 

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

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

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

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

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

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

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

Matthew Gordon:  It’s guesswork?

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

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

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

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

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

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

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

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

Daniel Major: Yes.

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

Daniel Major: High-grade or whatever they are.

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

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

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

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

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

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

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

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

Matthew Gordon: So what have you done?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Did things go wrong?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Daniel Major: They’ll have to.

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: At a macro level?

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

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

Daniel Major: Correct, absolutely.

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

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

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

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

We discuss these topics and more: 

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

Click here to watch the interview.

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

Mike Alkin: There’s a lot to learn.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Which analysts? 

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

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

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

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

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

Matthew Gordon:  Yes, he did.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Is that free?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  And investors?

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  I know, it does.

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

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

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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Aura Energy (ASX: AEE, AIM: AURA) – Uranium Cash Flow to Support their World Class Vanadium Exploration (Transcript)

See our interview with Peter Reeve, Executive Chairman of Uranium & Vanadium Explorer, Aura Energy (ASX: AEE, AIM: AURA). Peter worked with Robert Friedland at Ivanhoe so he explains how the big company experience translates to the smaller junior side. He explains the thinking behind their Uranium and Vanadium strategy and how they intend to deliver growth for shareholders.

Interview highlights: 

  • Overview of the Company
  • Mentality and Company Strategy: Choosing Two Very Different Assets
  • Junior vs Big Company Mentality & Experience of the Team
  • Company Financials, Raising Money & Director Remuneration
  • Lack of Marketing: Reasons and Solutions going forward
  • Three Projects and strategy for them
  • Wishful thinking for the Vanadium Story?
  • Views on the Uranium and Vanadium Markets

Click here to watch the interview.

Matthew Gordon: Why don’t we kick off with a summary of the business and then we’ll get stuck into some questions.

Peter Reeve: Aura’s got three major parts to its business.  The first one is the Tiris Uranium project in Mauritania where we’ve just released the Feasibility Study.  We’ve got a Vanadium project called Haggan up in Sweden and we have some fantastic Gold and Base Metal and Battery Metal tenements for exploration down in Mauritania.  Quite a lot of work’s been done on those and that’s an interesting situation, a third off the rank, if you like, before two development projects.  We are focusing on getting cash flow out of Tiris, and with that cash flow help to build the other projects, but we’re also considering each one of these businesses to be essentially separate entities, so we’re trying to fund them separately.  So we do talk about an IPO separately for Haggan and we talk about some form of separate funding for the Gold, base and battery metal exploration. 

Matthew Gordon: What was the big idea when you put this together?  If I look at your track record, there’s some big names in there.  Big company experience, but this is a start-up.  So what are you looking to do?

Peter Reeve:  If I talk to the management team for a start, the majority of the management team and a couple of the Directors came from BHP Billiton.  In fact one of my Directors was my boss back in BHP Billiton when we were 30.   So we’re essentially from big companies and what big companies do really, really well is they do a lot of good, boring, technical stuff but they fail to capitalise on it all the time and commercialise it because big companies don’t have the financial imperative that little companies have. I left BHP Billiton and went out… I did a lot of things.  I became a fund manager, I went to a lot of other mining companies, did some big IPOs and then one of the Directors asked me to come back in.  The reason why I came back in after having run some large companies was because I believed and I still believe that these assets can deliver a very, very large company over time when we get those projects in cash flow.  So that’s probably the core thinking.  Very, very good technical people, very experienced technical people, but hand in hand probably as much commercial impetus as we needed to get these things driving. So what we want to do with the projects is we don’t want to trade shares on the stock market.  We don’t want to flip projects.  We want to cut the ribbon on production for our projects, but obviously it’s a Director’s decision.  If somebody else has a lot of money for projects, of course we’ll sell them, but what we really want to do, we believe the best way to get best value for shareholders, is by cash flow receipts.   You can do it by takeover, you can do it via other methods, but we believe cash flow receipts will ultimately give you the highest valuations.  So we want to get these things into production and make them very valuable for the shareholders.

Matthew Gordon:  That’s about what you want to do.  I’m more interested in the strategy.  You’ve selected Uranium.  You’ve selected Vanadium and Battery Metals.  They’re quite volatile, certainly in the case of Vanadium.  Uranium’s in a tricky position at the moment, but obviously people expecting that story to bear fruit, and Battery Metals, flavour of the month.   Why did you pick on those very different commodities in Mauritania and Sweden?  Two very different types of environments.  Was it a case of they were there or was it case of actually we specifically identified these commodities or these jurisdictions?

Peter Reeve:  Going back to the first comment I made about the fact that the company started and was based on highly technical people well before I joined, we had very, very intrepid geos.  They see rocks and mineralisation.  So it was 2007 / 2008 and they thought Uranium was a very good idea.  So they went and discovered Uranium in Mauritania.  A survey had been sitting there without any work, a radiometric survey without any overview of anybody external for five or six years.  Managed the expedition, went out into the desert and found the first Uranium out there. 

Similarly one of our Directors, had done some work in the Scandinavian countries as a younger geo, and knew that the alum shale ran into Sweden and eventually a long story short, that became a piece of ground they picked and cut the first Resource for Uranium and Vanadium. So the very nice thing again about our company, both those projects were virgin discoveries to us.  They haven’t cost us a lot of money.  We found them out of real geology, so we selected it.

The Swedish government about 18 months ago banned the Uranium mining, as you’re probably aware.   We had done a lot of study on Vanadium in the past.  The Vanadium price had been through low and so we put that in the background, but there are a lot of other metals in it.  When Uranium looked like it was going to be problematic in Sweden, we recut the Resource immediately on the Vanadium side.  Of course, the Vanadium price for a period of time looked sensational and frankly for good projects, it’s still okay now.  And so we recast that project, which we discovered in 2009 / 10.  We recast that as a Vanadium project with some by-product credits.

And then just to flick onto the Gold side of it. Slightly more complicated.  We had a parallel sister company called ‘Drake Resources.’  Drake Resources, under our principle geologist, had put together this Gold package in Mauritania.  Some years ago they raised $10M.  They spent $3M of that on the project and Neil Clifford, who’s my principle geo, conceived that project when he was principle geo for Drake and when Drake decided to do other things corporately, we quickly picked that project up.

So again, it goes back.  Every one of our projects is a technical genesis of our people over a long period of time and we rank our technical people very highly.  Neil Clifford, regardless, is probably one of the best geos in Australia and nobody knows his name.  He’s fantastic.  He found 20Moz of Gold in Australia.  Essentially found the Sun Rise deposit. Our technical people, have driven what we’ve done.

Matthew Gordon:  But to finish off with the strategy.  These projects have been identified and pegged by your technical team.  Was that all done before you arrived?

Peter Reeve:  Discoveries were done before I arrived here. The shift to Vanadium was done under my direction.  I sort of drove a fair bit of that.  The pickup of the Gold and Base Metals and Battery Metals was done under my time as well.

Matthew Gordon:  So on the Uranium project, would you have chosen to do that if you were starting today? 

Peter Reeve:  I’m still a believer in the Uranium price. Absolutely, definitely.  I do believe its something to do, but what I recognised really quickly was the Uranium price. You couldn’t guarantee anybody that the Uranium price was going to go up in the next 12 months, two years or three years, and that’s been right. So we quickly started to diversify.  So what you’re seeing, if you’re trying to get to where we are on strategy, is what we did decide to do, is don’t put our eggs in one basket.  Let’s broaden this out.  We started with pure Uranium.  We’ve not got Uranium, Vanadium, and we’ve got Gold, base and battery metal exploration.  We’ve broadened it right out.

Matthew Gordon:  Juniors have got lots of challenges, but you’re making sure that you’re mitigating that country risk. You talked about the team being technical.  I hear that loud and clear, a very technical team, a very good team, but what about all the other experience or skill sets required?  You guys have come from big companies.  Is there anyone in there who’s been used to running junior companies because it‘s got a whole bunch of different needs?

Peter Reeve:  Well, quite a few of us have been involved in junior companies.  Let’s just say we all came out of large companies, but five or six junior companies are mixed amongst all our experience.  Since 2006/ 2007 Bob Beeson, one of our Directors, junior mining companies.  Neil Clifford, our geologist has done a lot of consulting and worked in junior mining companies.  Will Goodall, our principle metallurgist.  I’ve probably worked now in something of the order of say, five or six junior mining companies.  I’ve been a Director of most of those, maybe investments from Ivanhoe into junior mining companies.  So we’ve got a lot of junior mining experience as well.  Nothing prepares you for a bad time in a junior mining company.  All the experience in the world you tend to run those things because the biggest bucking bull you’ll see in our rodeo is a cakewalk compared to a junior mining company in the sector.

Matthew Gordon:  So let’s talk about some of those things.  Let’s talk about finance first of all.  Obviously with the Ivanhoe you were associated with Robert Friedland.  He could open a lot of doors in terms of the finance, but how are you finding it now going from big boy stuff down to juniors and are some of those doors shut or just polite conversations? 

Peter Reeve:  Robert will go into his grave as one of the world’s best mining CEOs that’s probably set foot on the earth.  And I say that simply by the score card for the number of great operating projects that he will have to his name out there, still putting dirt through the mill.  Nobody at the top of Rio or BHP has done what he has done. 

Going with that, is Robert’s ability.  He’s got a magical offer bottle in his coat jacket and he pulls it out and he passes this little bottle and the investors just hand over money.  It’s fantastic. He’s got some magic about him where he raises money and he does it very, very well, and I haven’t got a clue how he does it.  As much as I sat next to him for five or six years, haven’t got a clue.

Matthew Gordon: So what are you going to do now?  How are you going to raise money?  How do you go about it?

Peter Reeve:  We’ve got to do it more incrementally.  We had a strategy to get the Gold and Base Metals moving through the DFS period for Tiris, but we couldn’t get those tenements granted quick enough for that strategy to come off.  We thought that would be a good strategy to sort of go parallel with that boring sort of development phase because we know investors and share prices go to sleep when you’re trying to develop a project.  But now we’re in a situation where with Tiris in particular, the strategy we are pursuing is export credit agency finance.  Not completely well known but I think perfect for what a junior mining development company does and that’s obviously where a sovereign nation lends the junior money and the quid pro for that is that buy the equipment for its project from that country.

Matthew Gordon:  So you’ve had to look at alternative financing, alternative structures to be able to get this going.  How are you funded now?  How much cash have you got today? 

Peter Reeve:  According to yesterday we’ve got $830,000 in the bank.  We are essentially equity funding all our projects via a corporate.  That’s how we’re doing it. We are looking at various deals.  The IPO for Haggan is another way to relieve Aura corporate from having to fund all their programmes.  If I could find – and we are looking for a royalty interest in the Gold and base metal part of the business in order to keep the funding off there.  So as I said initially, we’re trying to look at Aura at the moment as three distinct businesses and each need their distinct form of funding.

Matthew Gordon:  So is Aura potentially an incubator or a hold co for these assets, which may be spun out into their own vehicles?

Peter Reeve:  It’s not quite as direct as that as a strategy because if I was doing that I would have started the conversation and say, ”Hey, we’re a company incubator and we’re going to spin those things out.”  But you’re right.  It’s a correct pick up, that’s essentially what we’re trying to do.  We don’t want to keep on making shareholders who are here for our Uranium asset fund Vanadium when it might not be their flavour of the month.  We don’t necessarily think everybody’s interested in more primary exploration in Gold base metals and battery metals.  So if we can fund it separately we’ve got less criticism from shareholders.

Matthew Gordon:  So corporate, ie, your shareholders who have invested into Aura Energy are paying for this.  How do you Directors remunerate yourselves?  Are you on big salaries and big warrants, big options? 

Peter Reeve:  The Directors are just on moderate and normal Director’s salaries.  I’m on a salary that I’ve taken for quite a lot of time between cash and shares.  I’ve got performance rights.  It’s just a mix of the norm.

Matthew Gordon:  So your $800,000 is going to last you till when and what’s that being spent on?  Is that mostly G&A?

Peter Reeve:  Oh, no, it’s G&A.  We did a $2million financing, only about two and a half, three months ago, and we were very focused on putting all that money into getting the Tiris BFS finished.

Matthew Gordon:  And that’s been the bulk of the money that you’ve spent since then till now, is it?

Peter Reeve:  Yes, that’s right.  And also the work we’re doing on Haggan.  So we drilled for about three or four months in Haggan.  We’ve now been cutting the core, doing the assays because we’re trying to get a measure, an indicator Resource up for Haggan, a Resource estimate done, a mining plan done so we can release the scoping study very shortly.  So really all are corporate and that money we raised is really focused on getting the DFS done and that’s now ticked off.

Matthew Gordon:  So when do you need to go and raise more capital? 

Peter Reeve: I’m not going to answer that question in an interview because that’s a selective briefing so I’ve got to be very careful with stuff like that.  So we wouldn’t answer when we’re going to run out the money,  We wouldn’t answer when we’re going to raise money again.  We put it out in the quarterly yesterday.  We put out forecasts, the amounts of cash we’re going to spend over a period of time.  So people can make their own decisions on that. 

What we’re trying to do is make sure that every single bit of money we spend is ticking off some form of technical box in one of the projects. So really the money we raised recently was about the DFS and Haggan to that scoping study stage.  And out of that and no money on the Gold, out of that everything’s really got to flow.  Everything’s got to fund itself.  I’m not going to take any more money out of Aura Corporate to fund Haggan.  Not going to take any money out of Aura to fund the Gold and base battery metals.  We’ve got to find alternative sources of funds for that.

Matthew Gordon: You’ll find alternative funds for those two, but Tiris, you think with this export agency finance should also fund itself?  Everything’s fully funded.

Peter Reeve:  The export credit agency finance is a combined package for both Haggan and Tiris, but Haggan’s there’s a time lag so yes, it’s more focused on Tiris at the front end.

Matthew Gordon:  And then just to finish off on the team’s experience.  Uranium’s very different from Gold, Battery Metals, Vanadium.  What’s the relevant experience in the team in those commodities?

Peter Reeve:  Neil was a part of the discovery team for Tiris Uranium.  He‘s a geologist.  He found a fantastic Gold deposit as well.  So good geo’s can do both.  Tiris wasn’t particularly… It was sitting there essentially.  It was a very good survey. I’ve worked in Uranium in Australia 20 years ago. Will is a very, very good metallurgist across many disciplines.  He works for First Quantum.  He works for BHP, so yeah, we’ve got enough experience in the different areas, but what we do and we do it really well, we’ve got a great technical network.  We basically employ 60 year old people wherever we can because they’ve got the best experience and they come on per diom’s and they work for us for a period of time.  So if we need a Gold expert, a Vanadium expert, we go and find it.

Matthew Gordon:  But what about your commitment?  Are you sitting on any other Boards?  How do you spend your time?  How much time is spent on Aura?

Peter Reeve:  I’m full time, but I’m one other Board which I was on before I left. 

Matthew Gordon:  The other thing that I noticed from one of your previous interviews, you said, I think it was in November last year – “We haven’t spent enough on marketing steps, but we’re going to make positive changes.”  Think you’ve done that?

Peter Reeve:  Have we done enough on marketing?

Matthew Gordon:  You said in November that you were going to make positive step changes.

Peter Reeve:  Did I really? 

Matthew Gordon:    On film.

Peter Reeve:  I’ve been around long enough to know that when the Uranium price is sitting still at $24, $25 a pound, it’s pretty hard to go open market Uranium.  I would have said that and I do say that on the basis of commodities doing some good work.  Really at the moment the commodities aren’t doing good work.  Gold’s doing some good work.  Uranium’s not.  Vanadium’s not.  But we still believe in our projects. 

I’m a little bit of the mind where we’ve sort of tucked our baton under our arm for the last 200m, and in tucking our arm under, what I’m really saying is we’ve got all the technical steps done.  We’ve come across the finish line and now is the time to really get out and talk very broadly about getting the Tiris project understood out in the market.  But that said, again, I’ve done thousands of investor meetings in my time, you can imagine, with Robert and people like that, and I’m not going to get a super warm, “Oh yeah, come on, let’s have a talk about Uranium, it’s a fantastic commodity,” because at the moment it’s not.  But we also know the way Uranium moves, that if a few utilities decide to walk through the door at the wrong time, ie together at the same time and sign big long-term contracts, the Uranium price will pop and things will change within a week.

So my favourite saying in business is “Success is where preparation meets opportunity” and that’s what we’ve been trying to do.  We wanted to get prepared and we are so happy and relieved and getting these DFS materials completed and we’re so happy that it’s in such a great condition and it’s got such good stats, and it sits there as something we can now, if you like, park technically and now really push our mind towards the financing and getting out and marketing that completed document.  Being modestly hard to go out and market Tiris without a completed DFS.  Now we really can, nothing holds us back.

Matthew Gordon:  So that’s a long way of saying you’ve consciously decided not to do any marketing because you don’t think the market’s right.  Money’s tight, but now you will up your game in that department.  Is that what you’re saying?

Peter Reeve:  In November when I made that statement, we were looking at… if you go back then, you’ll probably see our presentation we were going to release the DFS probably in about February or March.  It was actually a February date, okay.  What happened was we came across, as you are meant to do in technical studies, we came across a clay issue within the ore and that affected the processing and that delayed the scoping study, much to the chagrin of our shareholders, but that delayed the study by another three or four months.  But it’s the same story.  I wanted to get the study done in February, then get out and market.  Now we’ve belied that by three or four months.

Matthew Gordon: In the interview I watched you were talking about a July release.  So I think it was slightly prior to that.  Let’s just finish off on that thought, which is around the importance of marketing, the importance of talking to the market because especially for juniors who need that liquidity, that increased volume of trading, that comes from retail.  I know with the Aussie market it’s a big retail market and I know you’re obviously listed on AIM as well.  Those are two very large retail markets.  So is your idea to do more promotion now?  Do you believe in it or are you just a technical team?

Peter Reeve:  I was a metallurgist originally, but I’m a very rusty metallurgist now, I like to say.  I did a dozen years out of my 35 in the field and I’ve been really pushing corporate finance since then.  I’ve done a huge amount of marketing.  I think I know how to do it. 

The issue, I suppose, around marketing for us has just been getting a really good sell of a story and I think we’re getting there with both of them.  We’ve made a change to our London broker as well.  We’ve taken on SP Angel, who’s very Resource focused and they are at the moment our joint broker and there’ll be another change coming up to put them more in the box seat for helping us.  So that’s one big change.

Matthew Gordon:  Have they produced any broker reports for you? 

Peter Reeve:  They are in the process of getting a broker report together because we only signed them up about eight or nine weeks ago.  Seven or eight weeks ago, whatever it was, quite recently.  It’s one of our announcements.  But they’ve put some quite good value reports out on us, a full research piece is in the pipeline. 

Matthew Gordon:  Again, just in summary. So you value promotion, the question was timing?

Peter Reeve:  We value promotion very much.  I learned it all the way back when I was a fund manager.  I said that western mining, I’d describe – which under Hugh Morgan was a company that essentially was a little shop front window with the blinds pulled down and we could never get the information out of them, and so that’s what made you really have to have your windows cleaned, your blinds up and your door open.  So now I’m a big believer in promotion.  I would never have been a part of Robert’s group had I not believed in promotion.  I really believe it.

Your only customers for Resource companies, I don’t care what size you are and what commodity you are, your only customers in the world are your shareholders.  We’re all in commodities. Commodities walk out the door.  The only customers we have are our shareholders.

Matthew Gordon:  Glad you said it.  Not many people recognise that. 

Peter Reeve:  It’s number one.  I mean, I’m not saying I always do it as best as I could. I’m sure I can do things better at different times, but I’m a serious believer in it.

Matthew Gordon:  The last presentation on your website is from March, it’s now August.  We’re getting an update on that soon, getting a broker report soon and you’re going to get into the market more?

Peter Reeve:  Yes, absolutely. 

Matthew Gordon:  Shall we talk about your projects?  Let’s start with Tiris.  Again, like to understand the thinking.  Everyone’s got different business models.  Yours is get into production first and then we’ll worry about building out the Resource.  Is that it?

Peter Reeve:  That’s a big part of it, absolutely.

Matthew Gordon:  Tell me more.

Peter Reeve:  We said to our shareholders on Tiris quite some ago – we’ve got a 52Mlbs Inferred Resource there.  We’ve just put basically 13Mlbs into mineable Reserve plus a little bit of inventory, but we’ve got a much bigger conversion to come from that.  But I said to them, “I haven’t got any interest in spending a lot of your precious money on pushing that Resource out to be 30Mlbs or 40Mlbs of Reserve when I can only spend 1Mlbs of it a year.” 

You think of Tiris as 52Mlbs Inferred, 13Mlbs in the reserve mining inventory for the DFS.  We have got a 1Mlbs per annum project call at the moment, 800lbs and something on average, but call it a one million pound per annum project in a production sense.  And we’ve already got some pretty interesting plans to look at expanding that to 3Mlbs per annum over time when we get more of that reserve conversion done.

Matthew Gordon:  So let’s understand where that sits in your strategy.  That’s not a big project.  It’s not particularly high-grade.  It’s Mauritania, with all that kind of risk, but it potentially gives you cash flow to focus on a project that you want to focus on, which is slightly further north, up in Sweden.  Is that right? 

Peter Reeve:  When it comes down to it, just on Tiris, we came out the other day and said that in Australian dollar terms we could make 27 million dollars per annum of after-tax cash flow.  Put that on a 10 to 20 times multiple, which are part of the cycle you’re in, and you can start seeing what a project with a good Uranium price and working could do.  So it will go some way to funding what you do on Haggan absolutely, but Haggan will then stand on its own for a proportion of…

Matthew Gordon:  Eventually it will stand on its own, but right now it’s not at that point.  Again, I’d love to understand junior mining management mentality.  That’s not a bad strategy.  Not the first time we’ve seen it.  It’s worked elsewhere.  Nothing wrong with it, not criticising it.  I just want to understand if that’s your thinking.

Peter Reeve:  That has been our thinking all the way all the way along.  However, at the moment we’re varying that a little bit by bringing in this concept of doing the IPO to fund Haggan in its own right.

One of the other issues with Haggan is that when the Swedish sun rises, we go to sleep.  That’s a pretty good analogy for what happens to projects like that.  I think unless you have a really well paid, engaged and active management team in Sweden, it’s difficult to make projects come alive.   A part of the Haggan IPO strategy is to get enough cash to set up a permanent management team who speak Swedish, who like pickled herrings, who do all the right stuff in Sweden to make projects get ahead and that’s really a part of where we are now.  We want the Swedish project to live in Swedish daylight hours, not try and make it live in Australian daylight hours.

Matthew Gordon:  We talk to management teams who think they can manage projects from the other side of the world.  It’s tougher.  It’s not impossible, it’s just a lot tougher and creates problems.

Peter Reeve:  Really hard.

Matthew Gordon:  So Tiris is in the Uranium space.  Uranium spot price is doing what it’s doing.  The utilities aren’t fully engaged yet.  I think you’ve got to buy into the macro story to get behind Uranium.  You talked about roughly 1Mlbs a year over a 15 year life of mine (LOM), but that depends on the price you can get in the market.  There’s a Resource and then there’s mineable ore and depending on the price that will determine the scale of this opportunity.  So what is your DFS telling you?

Peter Reeve:  In terms of the range of size of the project?

Matthew Gordon: Yes

Peter Reeve:  The conversion of Resource to reserve is very high and the reason is our deposit is, call it an evacuative surface deposit.  Average mine depth is about five metres.  So we aren’t looking at a pit wall which looks like a cone with the gem of a Gold deposit down the bottom and all that sort of thing.   We are in a really good situation where every piece of our ore is accessible, and I believe it’s the sort of operation that, you know, it’s one thing for us to devise us what we do in the DFS – and that’s a step you must go through for all sorts of reasons, the market, events, and Directors and everybody – but when we unleash our operating team on that project, they’re going to do it exactly the way they see the ore in the ground. 

My strong belief, and the geo’s strong belief, is that we will expand each of the Resources in the area now.  I mean, to get a reserve of course, they’ve got them off as nice square blocks because mine engineers like working in nice square blocks.  They don’t like shapes.  And so once we can start showing that there is shape to it and it does go a little deeper, it does go a little further, I think we’ll expand the Resource more than contract it.  A lot of it will convert to reserve or mineable, whatever we want to call it.  Mineable Resource.  And we still haven’t really started to do inspiration outside of the core discovery areas, and I think when we do that …

You know how it is.  You’ve got a plant built.  You’ve got a team there.  You ‘ve got everything set up. The marginal cost of then going out to get that extra bit of ore, which might just be a pot of 5Mlbs, three or four kilometres out, is a lot lower. 

We understand what happens to projects once you get them there and we’re pretty excited about what that will look like, but yeah, I would be hoping one day we’re going to mine 75Mlbs of this thing at least.

Matthew Gordon:  It’s low tech, low CapEx, low OpEx. 

Peter Reeve:  It’s not just low CapEx, by the way.  It’s sensationally low cap ex.  You want to get the odds of marketing.  You go and look at any other junior mining company or any other Uranium hopeful at the moment, and their capitals are mostly measured in the hundreds of millions of dollars.   So to get something sub a hundred with the C1 cash cost of 25, and an all in sustaining cost under 30, there’s not many of us around.  That’s why I make this nice marketing line.  I say that this is currently one of the most compelling Uranium development projects in the world as we speak.  As small as it is, it’s one of the most compelling projects because of that capital and that op ex.

Matthew Gordon:  Let’s talk about Haggan.  You’ve previously said this is the most valuable asset in your portfolio currently.  Tell us why you say that.  You’ve done some drilling recently.  How are you moving that forward?

Peter Reeve:  There’s a lot of metal in that system, just for one.  As I said, the Vanadium concentration has been equivalent almost to the Uranium for a long period of time, probably even higher than the Uranium.  We had to make this change from Uranium because the Swedish government decided that nuclear in 2040’s going to fall out of their energy balance, so they don’t need Uranium.  There was a bit of political stuff going on as you can imagine as well.

But we were fortunate that we had done enough work, we understood enough.  We’ve done a lot of good drilling, so within two or three weeks of that all happening, we recapped the Resource into Vanadium and we had it ready to go.  So now we’ve got cut off grads for our Vanadium deposit and we found what we call a high-grade zone, but it would be better to call it a higher-grade zone.  And that’s a higher-grade zone of about 90Mt of 0.42 per cent of V205. 

But again we’re fortunate.  Alum shale largely comes to surface and so that Resource will be encapsulated in a pit that starts at about 20m from surface and finishes by about 90m.  So again, a very manageable operation. 

Before we were talking about a heap leach, a Uranium heap leach that was going to be 25Mt to 30Mt per annum.  We’re now talking about a project which is Aura Clubs, and about 2.7Mt per annum.  So quite a modest scale project.   We did the capital and operating estimates last year, so again we spent our $80,000 to get one of the independent engineering firms to do the capital and operating estimates for Haggan.  ASX will not let us release that until we have the measured and indicated Resource.  We cannot release that unfortunately with an inferred Resource.  So again, it’s where preparation leads to opportunity.

We’ve got a lot of internal numbers and the project looks very, very good.  We are quite aligned to the idea of the whole battery push, but we’ll sell our Vanadium to anybody who wants it.  But I think the battery push in Vanadium is pretty interesting and when we start to look at the scale of this project, without giving too much away because I’m not allowed to, we’ve contemplated at the moment a 7,500Mt per annum V205 project, that’s about five per cent of the world’s Vanadium.  We sized it because five per cent sounded like a pretty non-disruptive sort of thing to do, but we could double the size of that if we had the right market.  We can make our cash costs go through the floor, and there’s all sorts of interesting technical things that I sort of kind to allude to just at the moment.

There’s a few proprietary things that are pretty interesting about some by-products we’re playing with there which really help that, and make it a really commercially robust project as well.  But what I’m saying is accelerate all our Vanadium, where it’s fallen to, it’s clearly not as good as $33 Vanadium.  But we can make money out of $7-$8 Vanadium and we can make a lot of money out of $7-$8 Vanadium if we expand our project.

And therefore all that then goes back to what are you doing as far as your linkages?  Who are you talking to?  Who do you want to get into bed with?  And we’ve made no secret of the point that we are talking to battery manufacturers, we’re talking to people who can be a part of us in whatever way that is. 

Matthew Gordon:  But how real is that?  All Vanadium producers are talking the battery story.  90% of the market is rebar. That’s the reality and it’s early days in terms of the VRFB.  And again, we have this conversation a lot with Vanadium producers and talk the battery story because it sounds great to shareholders, but you’ve got to have the prerequisite skills in house or you’ve got to have the right partners on board, strategic partners with the right balance sheet to be able to do that.  You’re early stages, so is this wishful thinking or is this actually a reality of what you can do because you think the scale of this will allow you to do that?

Peter Reeve:  Well, so far I’ve had three sort of pretty serious full day conversations in three different locations in the world on this particular battery initiative that we’re talking about, and we’re taking it pretty seriously. 

The Vanadium battery market, and people know that they have a cap on the Vanadium price before they say it doesn’t really work.  I think there’s some really smart things you can do in terms of partnerships to ensure that goes on. 

Matthew Gordon:  You may be treating this seriously, but what does that actually mean?   Are you at latter stage discussions with people, or is it just a process you’re going through?

Peter Reeve:  There is a particular party who we are talking to in some detail.  I would still put it at the… it’s gone beyond the concept stage.  We’re talking how things could work.  We haven’t stayed in each other’s laps yet,  we haven’t gone… You know how these things move along progressively, but it’s quite serious.  We like the story.  I’d like to make it happen. 

There’s a chart that I have in my presentation for March which you might have read.  It’s a battery storage …  At the moment I think that chart says that there’s something in the order of 15Gw to 20Gw of storage capacity.  And in 11 years, they’re saying  now 2030, and they’re saying that might be 300Gw of storage.  Now if that chart isn’t even half wrong, if it’s two thirds wrong, if that was the beer market or the underwear market, you’d want to be in that sector.  So I would just say that if that’s storage graph is even a third right, then it’s not a bad market to be in.  

So I’m a big believer, whether it’s Vanadium Redox Flow Batteries (VRFB) or not, the flow batteries are the ones that do store power for a long period of time, and that’s what interests me.  So I’m a bit of a believer in it.

Matthew Gordon:  That’s the macro.  That’s got nothing to do with you right now.  You’re at the point where you’ve got a scoping study coming out later this month, potentially end of August. 

Peter Reeve:  Yes

Matthew Gordon:  So you’re going to have an idea of what you’ve got then and you’ve got to then work out how you move that forward.  So what are your hopes for between now and the end of year in terms of what you can do, in terms of understanding what you’ve got and then what are you going to do with it?

Peter Reeve:  To push you back a little back there, we found this project ten or eleven years ago.  We spent $20 million on it.  Yes, a lot of it went onto Uranium.  We spent a lot also on Vanadium.  So we really understand this project.   We do know Sweden pretty well, very well.  We know the region, we know the local people, so this is more than just a concept project.  This is a pretty serious thing. So I do believe the next step is do something where we start to get a tie up with some of these people.

Like I say, I would be equally happy to tie up with a steel producer who needs the Vanadium.   I’ve got some people who are interested in that.  They are less interested now that the Vanadium price has gone down, clearly because they don’t feel they need it.  But no, I want to move this to a corporate stage.  I do want to get the IPO done.  I do want to do something with the battery tie up if that’s possible, and I want to do that within a reasonably short period of time.

Matthew Gordon:  So just on the IPO you’re looking to IPO on ASX or AIM?

Peter Reeve:  Because of the waking up in Swedish daylight hours, it’s got to be European time.

Matthew Gordon:  So those are the two projects.  Can you quickly go through the Mauritian Gold, battery metals project?

Peter Reeve:  What we’ve got there is greenstone belts.  All of Kalgoorlie and you’ll notice similar stuff in Canada, is greenstone belt. This is really, really an unusual set of greenstone belts because the only discovery on this greenstone belt is Kinross’ Tazius mine at 21Moz deposit.  Greenstone belts are renowned for not having a single discovery and they are renowned for once you have one discovery and you find another, there’s a raft of different sizes.

Neil, our Geo, talks about something called Zipf’s Law.  Zipf’s Law is that you have a curve from a 20Moz deposit all the way down to a one million ounce and everything in between.  So when you do Zipf’s Law on the Kalgoorlie field, you see 30 or 40 different deposits of varying size.  We’ve got one on this field and it’s Tazius and it’s 20Moz.  

We got our tenements granted and we then did a deal with another party, so we have now tied up about half of that greenstone belt.  All but for one tenement we’ve tied up half the greenstone belt and Kinross has the other half.  We’ve hit mineralisation.  As I said, we bought this for $100,000 in a royalty, but previously Drake had spent $3 million on the greenstone belt, on these tenements.  So we’re not going in there cold and the guy who conceived it and did the work is now my principle geo.

We found mineralisation – what you’ve got to get is you’ve got to get systems size and you’ve got to get grade.  We’ve hit system size with a little bit of grade and we’ve hit grade with not much system size.  We’ve just got to get the two together, but we’re talking about one drill hole.  For the money we’ve spent we’ve drilled one drill hole for every 20sq.m so far.  We’ve got a lot more work to do. 

One of the more exciting parts of it – and the reason why I put on the battery metals, is we did a fence of drilling, 1.6km long.  Again, if you go through that presentation, it’s the bright pink slide.  It was equal holes.  They were about 6m-7m deep.  Pretty well every one of them hit near per cent nickel. So we assayed one in ten and we found Cobalt and the Cobalt was as high as 0.58%. So pretty exciting to get back and look at. 

Matthew Gordon:  So again, early stages but the potential there, greenstone belts in West Africa.  So let’s go a little bit more macro.  What’s your view on the Uranium market? When’s it going to turn?  Is it your area of expertise?  What do you know?

Peter Reeve:  I don’t know anything about the Uranium market at all with respect to how a Uranium market expert knows about the Uranium market, but I make it my job to talk to… We’ve got an off-take agreement for Uranium from a group in London and I talk to them quite often and I talk to other players in London on that.

Matthew Gordon:  That’s Yellowcake presumably?

Peter Reeve:  No, no, that’s a ETF.

Matthew Gordon:  So you’re relying on them but you kind of don’t care.  If the price is right, you’re going to get into production and you’ll start producing.

Peter Reeve:  The big thing at the moment with the market for me, it’s really simple.  I seriously don’t make a habit of trying to count how many reactors are getting built and how many pounds goes into each reactor.  I let other people with a digital mind do that sort of stuff.  What I am focusing on is this big concept  of what happened in 2005.  If you look at, there’s again a chart that I use. 2005 there was about 50 – or maybe it was 2004, there was 50Mlbs of long term contracting in place and with Finn by the next year they had put 250Mlbs of contracting in place.  And that lasted for seven or eight years.  It wasn’t a fluke. 

The current coverage in 2021 and 2022 for long term contracts is four and three per cent.  They will get nervous.  I don’t know when it’s going to be, but they will get nervous.  It doesn’t matter the cost they pay for this stuff, as you well know, but they definitely cant run out of it.  So at some stage they will move. Look, the February results of Cameco, I always read the Cameco stuff.  Their marketing stuff is brilliant.  They’re fantastic at it.  They’ve got teams and teams of people who are much smarter than me focused on it all day long – read their stuff.  They also know these comments about the utilities looking like they’re coming back to the table to start with the balance of doing long term contracting. 

So what happened in 2004, 2005 that leaned to that big explosion in price was seven or eight of the utilities all decided to squeeze through the door at once and of course… I always remember I asked one of the guys in London.  I said, “What happened with that?  What was the max price paid in that clique?” He thought it was about $138 a pound.  And I said, “Do you know the guy who did it?”  And he said, “Yeah, I do. I know him.”  I said, “What sort of guy is he?”  And he said, “Well, he’s a nuclear physicist.  He’s sitting there and he basically had a manila folder and said he needed this much Uranium, and on the day when his boss had walked down the corridor and said “How’s that contracting going?” and he said, “I haven’t got much.”  Well, you’ve got to fix that.  First to bid, first to bid, and kept on going.  So a nuclear physicist running a plant is also looking at nuclear… So these are the sort of things that might happen.  I’m a believer that it’s the utilities charging through the door at once which will give us the…

Matthew Gordon:  What is your outlook on the Vanadium market?

Peter Reeve:  Outlook on the Vanadium market is probably confused, but I would say that getting up to $33 there was clearly a lot of speculation, and I think falling back down to $7, I’d say there’s a lot of play.  Some of the people who need Vanadium, they have confided to me that I don’t think they think it’s going to stay down here, but it’s not going to race back up to $33 either.  We always thought somewhere in the $10 to $15 range was more likely for it to sit and that’s what I think it will go back to at some stage.  But I don’t expect to see, $20 or $25.

Matthew Gordon:  Can you summarise your thoughts on where Aura Energy is going and why you think new investors should be looking at Aura Energy. From what you’ve told me today there’s a lot of things that you’re going to be doing. 

Peter Reeve:  Primarily start with what we’ve got in Tiris.  We’re putting together a very interesting chart just comparing the CapEx on our project, it’s C1 cash cost and the All In Sustaining cash Cost (ASIC) against our market cap.  There is no doubt about it.  We are the most undervalued of the junior mining companies in this Uranium space with a development project, with the low capital and with the low OpEx. 

For me, there’s three things.  The low CapEx means the project’s doable and the low OpEx means you’ll make cash flow and the low market cap means we’ve got room for the share price to go up.

So that’s a good enough reason for any shareholder.  If they can believe that we will deliver what we say we are, that’s a good enough reason for the shareholders to get in.  Then add on to it that if we do an IPO and we retain 70%-80% of that, we’ll get an independent counter attributed into our share price.  That’s number two.

And then number three, when we discover a 3Moz deposit on the greenstone belt in Mauritania, everybody will want to own our shares.  So that’s going to happen as well.

Matthew Gordon: I appreciate your time.  That was a great first introduction to your company.  I know the guys on Twitter are going to be really happy about the fact that we’ve spoken.  Please stay in touch.  Keep us up to date with how things are moving, perhaps later in Q4.  Thank you very much.

Peter Reeve:  Thanks for the time.

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Julian Tapp of Vimy Resources (ASX: VMY) – How is The WNA Fuel Report Put Together? (Transcript)

We spoke with economist and statistician Julian Tapp of Vimy Resources. He discusses with us the importance of the World Nuclear Association WNA Fuel Report which comes out in September at their London Symposium, which Julian worked on. What is in it that the market doesn’t already know? Why do companies and equity analysts see it as a catalyst moment for Uranium and Nuclear?

He also explains the politics of Uranium in Australia and the reasons why the market must – and might – be opening up to a nuclear future. How has he navigated the Appraisal process in a seemingly anti-nuclear environment? Why is the geo-politics of the Uranium market so difficult to predict? He also explains his reasoning behind his view of the US Section 232 positioning of Uranium as a Security issue. Many Fund Managers and Shareholders of Uranium equities will find what he has to say interesting from an economic point of view.

A different view on the market for sure.

Click here to watch the interview.

Matthew Gordon: Thanks for joining us today.  I just wanted to introduce a few more of the Vimy team to our audience and I had a good chat with Mike yesterday. Why don’t you give everyone a little bit of a background about what you’re doing at Vimy and perhaps even a bit of a background as to where you came from before that?

Julian Tapp: My background is I’m an economist by training.  Used to be a lecturer in Economics.  Moved into the private sector, worked in the automotive industry, worked in the oil industry.  My wife’s from Perth, so eventually we moved back to Perth and there aren’t many jobs except for in mining.  So I ended up getting a job in mining and I was very fortunate I got a job with a company called Fortescue Metals Group.  Went there to do financial modelling for them, pretty school got bagged into sorting out all of their problems and in the context of mining in Australia, approvals are a difficulty.  So I kind of became adept at solving problems where they needed to get approvals.

I worked for them for about nine years.  I left them and then Mike Young, who you know, approached me.  He’d had a look at this project, wanted to know whether he thought the approvals were doable in a timely manner, asked me to have a look at it.  I said, “Yeah. Uranium’s always difficult, but we can do these approvals.  I’m happy to come on board and help you get the approvals.”  I also said, “And by the way I’ve looked at the project.  The project looks quite good.  I’m not entirely sure what they think they’re doing because they’ve actually got a mineable deposit and they’re out exploring, trying to make it bigger.  But if you want to bring something into production, the way you get into production is to actually advance it, not make it bigger and bigger and bigger because it’s no closer to production.  The reason why Vimy’s not worth much money or EMA, as it was then called, is because it’s so far from production that people can’t see it getting there.  So if you want to get this project up, what you need to do is push forward with what you’ve got, not keep looking for more and more products.”  

So both of us came on board, and even that far out fairly soon we knew that there was likely to be a change of government at the next election and we knew that the new government would likely prohibit any further Uranium mining, and in fact we had some discussions with the then opposition, to say, “Look, we need to know what your policy is.”  They basically said, “Look, if you get your approvals, we’ll let you go ahead.” So we got the approvals just in time.

Matthew Gordon: I want to talk about the approvals process because if I look at the Australian politics in relation to nuclear energy since 1971, and the various changes of governments. The nuclear industry has never really known where it is stood.  You’ve had the Three Mine policy.  Obviously one of those mines closed down, so they had to open that up again.  It’s a very confusing environment in which to operate. How have you come in from Fortescue, which is iron ore… how have you gone about understanding the nuclear environment in Australia, to be able to effect approvals?

Julian Tapp: Let’s distinguish between the State and Federal.  At a Federal level, that was where the Three Mine policy sat.  That was introduced by the Hawke government, and look, you’ve got to understand the tenor of the times. The Cold War wasn’t over then.  Mining was associated with nuclear weapons in a way that made it very easy to get a ban up, and then that ban stayed in place basically until the Howard government came to power at a federal level.

Is there a risk that federally it will go back under a Labour government?  I don’t think so, and the reason is for a long time there were people like Martin Ferguson – who I had quite a lot of dealings with for iron ore – who viewed Uranium as something that Australia should be doing, the Industry Resources Minister in a Labour government.

But the icing on the cake was when, I think it was the Rudd -Gillard / Rudd government collectively between them authorised the export of Uranium to India, who was not a signatory of the non-proliferation treaty for the reason that they developed their own.

Now, once Labour had done that, it was almost impossible.  These were left wing, they’re not the right wing Labour people. They were the left wing Labour people who wanted to improve relations with India and who were prepared to say, “Yes, we’ll export Uranium to India.”  Within reason there’s no way back from that federally.

Completely different at the State level.  At the federal level, it’s easy to ban Uranium mining because the feds control the export. So if they don’t want you mining, all they’ve got to do is say, “You can’t export it.”  The Minister or signature and it’s over.

But mining’s always controlled at State level.  You’ve got this bizarre thing.  I think you can explore in Queensland but you can’t produce.  And now in West Australia, when the Labour government came in, they said, “Well, we said we’d the let the four mines through, so we’ve let them through but nobody else is coming through for the time being.”  And the way they’ve done that is effectively to say, “We won’t grant a mining lease with permission to mine for Uranium on it. That’s our policy, so now everybody knows you can’t get a Uranium mine up.  They’re entitled to sign a permit saying ‘you can’t get Uranium from this,’ so that’s the end of the story – for now, right? 

Do I think it will last and can we wait forever?  No. I think when the Uranium market recovers and mulder rock gets up, there’ll be a certain amount of, “Well, this is actually sensible.”  Remembering that the current Labour government at the State level got up on the promise of jobs and I think that’s absolutely crucial to understand why they support something like Vimy to the extent they do, because of the belief that will create jobs.

Matthew Gordon: But was that what you were majoring on?  You’ve managed the approvals process for Vimy.  You’ve looked at a lot of historical examples, but what were the challenges you faced in terms of getting the approval process through?

Julian Tapp: To be fair, we got the approvals under the previous government, which supported Uranium mining.  So the coalition government supported Uranium mining and understood the need to get the approvals through before the election.  To be completely clear, they did not hurry our approvals.  You don’t hurry approvals because if you’re seen to have done something that is regarded as hurrying it through, there’s a risk that it becomes legally challengeable.  So it took them quite a long time to do them and that was because they were going round dotting the I’s, and crossing the T’s to make sure that when the approvals were given, they were not subject to challenge. 

So one of my areas of expertise is actually reading through the regulations and understanding what you can and can’t do. It’s funny, it’s not what people think it is.  It’s not about beating up the environmental regulators to make them do what you want.  It’s going to them, “Hey, guys, what are your concerns?  Let me help you give me the permission that I need.  Tell me what I can do to help you.”  That’s much more effective than going in with a stick and saying, “I demand this now.” 

So it’s learning how to work with them and that may sound odd and it may sound straightforward to you, but you’d be surprised how many people think the way you get your approvals is to find some politician to beat up the environmentalists in their departments so that they give you what you want.  And that doesn’t work.  But what does work is going in and saying “Okay, so you’re concerned about this plant or that animal or radiation from here.  Here’s the evidence that there’s not going to be a problem.  Now if that doesn’t satisfy you, tell me what I need to do to satisfy you.”  And it’s quite a long process, but we had time.  We worked through it all.

Matthew Gordon: You said something earlier which I think is possibly the cause of this.  This misunderstanding about what Uranium, what nuclear is in today’s environment.  We talked about the Cold War and nuclear is weapons, but it’s not.  It’s a massive power source, clean energy power source.  I think the problem is education.  When you go through the approvals process and you’re talking to people about why you should be able to do what you want to do, these politicians are controlled by what the public thinks and there’s a lot of the public who still feel there’s some security issues around it, or there’s some environmental issues around it.  Perhaps not everyone understands the output of nuclear in terms of energy globally – and it’s not just an Australian thing, but Australia does seem to have an unusual relationship in terms of…it is polarising as a topic. Do you agree with that?  Is Australia confused…?

Julian Tapp: Somebody gave me this advice a couple of years ago when I was complaining to them about the opposition of some of the Labour to Uranium mining.  And it’s like, “Oh, actually there’s not that much opposition,”  so it depends what the age of the people you’re talking to.  There’s a cut off at about… it’s currently sitting at about 40 years old.  Anybody who’s older than that remembers the Cold War and all the other things, and so Uranium in inextricably linked in their minds to ‘Ban the Bomb’ and CND and all these things they supported. But once you get under that age, there’s a lot of them I’m seeing, going “Well, actually I care about climate change.  If this is part of the solution, then we shouldn’t be opposing it. Nuclear has to be part of the solution to climate change.”  Most of the arguments against nuclear are either based on fear arguments that aren’t true, or over egging what renewables can do.  I have no problem with renewables, but they cannot deliver 100% of dispatch-able power.  They just can’t, and people will tell you , Oh, yeah, well you can do it with batteries.”  If you’ve got a wind farm and you’ve got a massive battery next to it, what that can battery can do very effectively is smooth out variations in wind so that it can deliver a constant base low power.  When the wind’s blowing a bit hard it charges up, and when the wind’s blowing a little less hard, it’s helping boost power.

What they cannot deal with is these two days when the wind doesn’t blow.  On an average year you’ll probably get three days where there’s no wind blowing.  You’re kidding if you think you can have a battery farm big enough to deal with three days of no wind. 

So then the back up’s got to be gas, and by the way if it’s gas, it’s going to be an open cycle, and the carbon emissions from an open cycle gas are 700 grams per kilowatt hour roughly.  And so even if that’s only used 20% of the time, the wind mill’s just gone from 15, 14 grams per kilowatt hour up to about 150 once you’ve factored in the gas.  And so they’re in a completely different ballpark.  You’ve got nuclear down at sub five, and you’ve got the best wind farm in the world with gas back up, sitting up at 150. They’re just a complete difference. 

And that’s one of the things that people don’t seem to realise, that in some sense the use of intermittent renewables is locking in fossil fuels for the long term, and it partly explains why so many… like gas companies are so keen on renewables, because renewables have to have gas back up. 

Matthew Gordon: You’re in a working group at the World Nuclear Association, which touches upon this.  For people who want to understand a little bit more about Vimy… you’re an economist.   When you spoke with Mike you were talking strategy.  You were saying “Well, how do you create value here quickly?”  We need to get this closer to production than it is today.  So that’s a strategic input from an economist. You’ve gone through an approvals process as an economist.  Objection handling to get people to understand what it is that you’re trying to do and get those approvals done.  What are you doing today for Vimy?

Julian Tapp: Well, you’re aware that Vimy’s now working in the Northern Territory.  Short of giving some support in terms of what we’re doing in the Northern Territory, but most of my attention is still running through the rest of the secondary approvals.  It’s a dark art, primary approvals, secondary approvals and everything else there.

But basically speaking, to get your primary approvals, they get signed off by the Minister.  You get your mining lease, get your environmental approval.  Then subsequently, if you want to drill a hole and extract some water you need a licence to drill the hole and you need a licence to extract water.  The environmental impact of drilling that hole and pumping the water has been gone through and assessed under your public environmental review, but you’ve still got to get the licence from the Department of Water to drill and then you’ve got to get a licence to pump.  You basically have to drill the hole and you have to test the pump and make sure that the amount of water coming is what you thought and what you told the environmental regulator would happen.

You’ll have a whole series of those and they’re the secondary approvals.  Now the reason why we make the distinction between primary and secondary is primary approvals, he Minister can say, ”No, I don’t think so.”  When you come to secondary approvals it’s a bureaucrat who’s got a form and you have to satisfy that you meet the criteria and then the signs.  There’s no political decision or there shouldn’t be.

So we’re still going through all the secondary approvals and they take a lot of time.  That’s part of my job and then I’m also involved – well, I do some work with the WNA, and I do work on the political side because we still have to fight to get Uranium normalised in Australia.  A nuclear power station is prohibited under the EBBC act in Australia and it’s just kind of bizarre that we’re prepared to mine Uranium and send it to other countries, but we’re not allowed to build a nuclear power station here.

Matthew Gordon: It does sound a bit strange.  It’s a case of not in our back yard. 

Julian Tapp: And look, to be fair, I don’t think the set up of the grid here is such that at the moment there’s an opportunity to put a 1 gigawatt reactor anywhere.  Electricity demand is not growing and 1 gigawatt is quite large in the context of lots of individual grids, but modular nuclear reactors have to make a…. If Australia’s going to meet climate change obligations, reduce its carbon emissions and still keep its industry and still have cheap electricity, I think the small nuclear modular reactor’s got to part to play.

I don’t want to put a timeframe on it but I think the most important thing is we need the ban of nuclear removed.  The argument that nuclear shouldn’t be allowed in Australia because it’s not economic is a political argument. 

Matthew Gordon: It can’t be purely on the economics.  There’s got to be some sort of renewable component to it.

Julian Tapp: No, but those who oppose nuclear power… the gamut of the argument is it’s not economic.  Well, if it’s not economic, why are you banning it, because if you’re right, then you don’t need a ban because nobody’s ever going to build one.  So they say, “Oh, well, it’s not economic that apply government subsidies.”  Well, I’m happy for you to legalise it and write into law that you’re not allowed to subsidise it.  If the modular nuclear reactors work, they’re not going to need subsidising.

Matthew Gordon: I see your argument.

Julian Tapp: That actually brings me to another point because there’s a lot of misinformation about the cost of nuclear power.  So to give you an example, there’s an argument that you can’t build a nuclear power on time and on cost. 

And that is true in the US context and it’s true in particularly for modern reactors that have just been built in Europe – the ones in Finland, the ones in France.  But if you put your global hat on, and look at let’s say the Japanese Build Programme, when the Japanese starting building nuclear reactors in the 70s, it took them five years from first pore to commercial operation.  The same in the 70s, same in the 80s, same in the 90s and the last reactors to be built before they had current problems with Fukashima – five years.  No increase in the length of time

Look at Korea.  Same story. From when they first started building them to when they finished them – right through it took roughly five years to build a reactor.  It’s only in the US where it went from, believe it or not, the first Gen1 reactors took less than five years, they were about an average of four and a half years.  When they finally stopped starting any new ones, those last ones that were built, the last ones started in 1978 or whenever it was, took 12 years.  And actually if you want to know why, you can actually see a rise in environmental activism and changes in the regulations while they were constructing them meant they had to retrofit them.  And if you know anything about building, if you change the design halfway through the programme, you’re doomed. 

So I don’t believe this thesis.  And also if you look at the UAE. So the Koreans built four reactors in the UAE and people forget that it is actually a difficult hostile environment to do construction in.  It’s incredibly hot.  Remember you’re setting concrete and a whole load of things that are quite difficult to do in that environment without a decent water supply – because it’s in the middle of nowhere – and without a trained workforce.  So they’ve built those roughly on time and on budget.  They’ve had some commissioning problems, primarily because as I understand it, UAE wanted to run them themselves and yet hadn’t trained up the workforce necessary to take it over and now I think they’ve solved that by giving the contract back to the Koreans to run them for the first five years.

At a reasonable cost and on time, it can be done. The same thing is true in China, by the way.  The only time you’ll see an increase in the length of time it took the Chinese to build a reactor was just after Fukashimo because they suspended work on them for 18 months and then they had the debacle with the AP1000 where an American component failed halfway through the construction process.

And again this notion that it takes a long time to build one – Japan, Korea, China, roughly five years between pour and commercial operation.

Matthew Gordon: That’s certainly an interesting topic, an interesting debate and I guess you can back it up with numbers.   It just seems to me that there’s a lot of people with vested interests who do like this misinformation around the marketplace because it is very fragmented in terms of the way people perceive nuclear and therefore Uranium by association.   Which kind of leads onto your role at the WNA.  You’re in a working group there.  Do you want to tell us a little bit about what the working group is doing, not necessarily the detail?

Julian Tapp: So basically the WNA produce a fuel report every two years.  No sooner has one been published, then you start work on the next one.  At least for demand it’s a bottom up model, so you have a list of every country that’s got reactors, what you think the life of those reactors are, and then mechanisms to calculate the amount of Uranium that each reactor requires.  So it’s literally a bottom up process.  You build up demand for Uranium.  It wouldn’t come as any surprise to you that it’s a pretty stable outlook, and it’s not difficult to forecast because if you’ve got a reactor you know roughly how long it’s going to run for.  By the way, if you’ve got a reactor and you know what it’s capacity is, you know roughly how much Uranium it needs. 

The variance comes on retirements and on new builds.  It’s funny, there’s this misunderstanding – and it’s quite prevalent – that reactors run to the end of their licence.  I’ll come back to this but you see it everywhere.  Almost every study looking into the cost of nuclear, assumes that the nuclear reactor has a lifetime of 40 years.  So they all run with 40 years in their model, and so there tends to be a default, “Oh, well, when it gets to the end of its licence, it’s the end of its life.”  Well, every US reactor that hasn’t closed down for economic reasons, has had its lifetime extended to 60 years and now they’re extending them to 80 years. 

The misunderstanding was that when they gave the licence out initially, it wasn’t their estimate of the life of the plant, it was ‘this is how long we’re going to licence you for,’ but the nuclear operators said, “We need a licence of at last 40 years to recover the upfront capital costs so we want a licence for 40 years.”

A similar thing in France. So what happens in France is a reactor has a certain length of lifetime and every ten years the French say “Shut your reactor down, inspect it.  If it’s safe, you can run it for another ten years.”  Yet in all these countries people who are doing forecasts go, “Oh, well, let’s assume the reactor runs to the end of its licence lifetime.”  It’s like, “Well, no, that’s not the way they work.”

The odd thing is, even if a reactor is actually only breaking even, doesn’t mean to say you won’t keep running it as long as you can because you incur a cost when you close it down and you’d like to postpone that cost for as long as possible.  You have to be losing quite a lot of money before you’ll take the decision to close a reactor on economic grounds.

Matthew Gordon: Well, remediation etc, and also the capital cost of building a new one, it does make a difference sometimes, yeah.

Julian Tapp: So when we do the forecast for the WNA, you have a variety of views of how long these reactors are going to last for, and you have a working group and there are people from the nuclear utilities and there are miners and a whole load of people involved in coming to a discussion about that.  They tend to rely on whatever official government policy is. 

So in my opinion, the forecast in terms of the lifetime of reactors are very conservative, and in discussion, so it’s a consensus process, I say, “Well, yes, but they’re actually not… If the way the licensing works, they’re not going to have to close this reactor unless it’s unsafe.”  That’s what the licence is about, so are you telling me that when they do the inspection at the end of 40 years, the regulators going to say it’s unsafe, because unless you think that, then it won’t close after 40 years.  They’ll keep extending the lifetime.  It’s the same everywhere you look.

Matthew Gordon: If it’s by consensus, not everyone on the team has to agree with the assumptions or the figures, quite frankly, but there’s great store put on – especially this year – on the fuel report, because people need it to be positive.  They need it to reinforce the narrative which may change the way that the US behaves, the way the utilities behave – because there’s this very large supply demand gap.  I think people are seeing this as a huge catalyst. Do you think it is?

Julian Tapp: Do I think when the fuel report comes out, it will be a catalyst to change the view of the market?  No, it’s an incredibly conservative industry, and so the majority of views are very conservative and they’re reluctant to change.  That’s not a criticism of anybody.  You run a nuclear utility, you’re risk averse, and thank goodness, right ! 

I won’t discuss individual country’s per se.  We talked about this slightly earlier on, in France you’ve got this policy of Macron to shut the reactors down.  When he came to power he inherited Hollande’s policy which was to reduce nuclear to 50 per cent by 2025.  I’ve got to say actually I think it’s a misrepresentation indeed of what Hollande said because Hollande made that promise or purported promise when the view of electricity demand was that it was going to continue to grow in France. The promise was ‘Hey, we’re going to grow renewables and eventually nuclear will be down to 50 per cent because we’ve grown the generation capacity so much”  It wasn’t that we’re going to shut nuclear power plants to get the number down to 50 because that’s nonsensical if you’re worried about carbon emissions.  There’s no benefit to shutting an already constructed nuclear plant because it’s incurred a lot of its carbon emission costs, right?

That got morphed into “No, no, you promised to go to 50 per cent,” and then in the run up to Macron being elected, he basically got confronted into agreeing that he would adhere to the existing policy, and then as soon as he got into power it’s like, “Oh, well, look, I’m not going to do this if it’s going to increase carbon emissions.”  So he’s now kicked the decision down to 2035. 

In my opinion that’s a political fudge because he knows – and if you read the text of what he says, he’s quite clearly said “I’m not closing any of them unless it’s going to help reduce carbon emissions,”  which is my opinion is tantamount for him saying, “Actually guys, I’m not going to close any of them.”

In places like Germany, it’s an absolute disaster reducing your emissions if you want to close nuclear power plants. 

Matthew Gordon: That’s the thing that interests me about the way that the WNA puts these reports together. If it’s a consensus based, work group based, and they’re using quite conservative assumptions, is there a way that politics can interfere with economics.  You as an economist, you look at numbers and you interpret them because you’re basing it on fact.  With politics, it’s a bit grey in places, so how do you – or how does the WNA – put out a meaningful report other than purely indicative numbers?

Julian Tapp: France would be a good example because the default will be that we have to adopt whatever government policy is.  So you’ll now find a default position for the reference scenario in the context of France will be the number of reactors is going to go to 50 per cent of electricity generation by 2035.  So is the reference always what efficient government policy is?  No. I’ll give you an example. 

 China, for ages, had an official policy that they’d have 50 gigawatts of generating capacity by 2020.  There came a point where you realise it’s physically impossible for them to do that because when you look at the number they’ve got under construction, even if they all get completed in record time, you still don’t get to the 58, and nobody thinks that they can start and finish them in three years.   So when it becomes impossible, then you’re allowed to say, “No, look, I’m going to walk away from official policy.”  We had a debate. If we can’t all agree a number different from government policy, then the default is whatever the government policy is.

So similarly, I’ve proved to be wrong on that, when Germany first announced that they were going to close all their nuclear plant by 2022, I was like, “Are you kidding me, right?  They can’t do it.  It’s going to be madness.  They’ll be sucking power from Polish coal power plants.  I mean, why is that sensible?”  And then when I started talking to the Germans, they were like, “Oh, no we’re doing it.  We’re definitely doing it.”  Everybody I talked to said we’re doing it.  It’s like, “Okay, going to have to accept it for the time being.”  Even the optimistic forecast for Germany is that “No, everybody’s accepted that they’re going to close them all by 2022.”

Matthew Gordon:  But even that is under review at the moment in Germany.

Julian:  It depends what happens to Merkel and her replacement.  I think everybody thinks that can’t change, but now you’ve got actually industry chiefs saying, “No, this isn’t going to work.”   I don’t think people realise how much energy costs are embedded in things like making cars.  We all think, “Oh, well, cars.  How much electricity goes into them?”  Well, actually a lot.  And if your electricity costs are twice what they are anywhere else in the world, your cars are going to be ten per cent more expensive.

So German industry – and Germans have a very advanced industrial manufacturing base – relies on cheap electricity and that’s slowing being ebbing away from them.

Matthew Gordon: But isn’t this the big problem across Europe?  If you look at the costs of electricity over the last 30 years, it’s significantly more as a proportion of the average household spend than it was.  Industry going the same way, and some countries the rate of incline is ridiculous.  It’s too much.

Julian Tapp: It’s really interesting because when you look at places like France, because of their nuclear power they have traditionally had the cheapest electricity.  That’s beginning to be undermined by the fact that there’s a European electricity trading system. So as the Germans start getting rid of their nuclear power, they’re sucking it out of France.  The wholesale price goes up because there’s more demand, but then in the context of the French, they’ve had nuclear power for so long that the average person in France has an electric central heating system.  They have night storage heaters or underfloor heating, so they’ve kind of built their entire life around cheap electricity. Why would you have a gas boiler when you can get electricity heating for half the price?  They’re not going to be happy if the price for electricity starts to go up.

It comes back to the whole context of Australia.  Australia has got industry built on cheap energy and if we continue down the path of a solution that’s expensive, it’s going to decimate what’s left of the industry.  It’s only here because it made sense to be here because of cheap electricity.

Matthew Gordon: The French are the world’s second largest consumer of nuclear energy at 63 megawatts.  So you’d think they should be highly literate in all things nuclear, but you’ve had this confusion around – I think what you were saying is that when Hollande was talking about reducing down to 50% of energy being produced by nuclear, he was saying, “Well, I’m assuming that the demand is going up and other forms of renewable would be contributing to that.”  So not necessarily a reduction in the amount of power, but as a percentage it would be less.

Julian Tapp: The thesis was that nuclear would be diluted by an increase in renewables, not that you had to close plants to bring about that outcome.  That’s why I don’t think Macron’s or his successor… You’re probably closer to the politics of Europe than I am.  The Germans have been not only determined to phase out their nuclear, they’re bullying everybody around them.  Part of the reason why the French are closing the two reactors at Fessingheim is because they’re right next to the German border.  The same thing, they’re bullying the Swiss.  Any nuclear reactors on any river border, the Germans want closed. 

Matthew Gordon: We need to understand though, that the general trend is up.  Just want to go a bit more macro.

Julian Tapp: Now that’s a really good point because one of the things I keep saying to people is, “Look, it’s very easy when you sit inside western Europe and America and you talk to each other and you say, “Oh, my God, nuclear’s time is kind of waning.” It’s like, “Well, actually that’s not true.” In Europe it’s about level. The UK are probably going to build some…

Now that’s a really good point because one of the things I keep saying to people is, “Look, it’s very easy when you sit inside western Europe and America and you talk to each other and you say, “Oh, my God, nuclear’s time is kind of waning.” It’s like, “Well, actually that’s not true.” In Europe it’s about level. The UK are probably going to build some…

Now that’s a really good point because one of the things I keep saying to people is, “Look, it’s very easy when you sit inside western Europe and America and you talk to each other and you say, “Oh, my God, nuclear’s time is kind of waning.” It’s like, “Well, actually that’s not true.” In Europe it’s about level. The UK are probably going to build some…

Matthew Gordon: I’m looking at the numbers.  From 2001 through to today, the numbers are about the same.  That’s 20 years, is it roughly the same?

Julian Tapp: Europe’s actually static.  It’s not going up but it’s not going down.  America, there will be some retirements, but I think long term people expect the US programme to come back but not in the next five years or anything like that.  They can’t get over their current problems they’ve had with the AP1000 disaster and bankruptcy and everything else like that.  But that’s not where the growth is and that’s not where anybody thought the growth was going to be.  I hate to say it’s China, but they’ve got a big problem and they can only sort it out with nuclear.  The best will in the world, solar panels in Beijing aren’t going to give them the electricity they need, and the place where it’s windy is up north and the power consumption is all in the south.  It doesn’t make any sense to set windmills up north and then put in 2000 km of grid to take it to areas.

A nuclear plant’s the easy solutions and there’s nothing wrong with their nuclear programme.  They have not had a problem.  Nuclear power plants in China get seven cents per kilowatt hour when they delver into the grid and roughly speaking it appears to cost them about five cents per kilowatt on a fully costed basis, capital cost recovery and everything else.  So the nuclear power plants make money in today’s market in China.  So it’s just a question of getting round to it, and they just will keep building them.

Matthew Gordon: You’ve been very candid about how the numbers are created for the Fuel Report and obviously people are waiting for it.

Julian Tapp: It’s released in September.

Matthew Gordon: So everyone’s looking forward to that. I think some people are hoping it’s a catalyst for change.  I think you’re suggesting is that these numbers… the report’s done over two years…  these numbers are not numbers.  So therefore is it really going to tell the industry anything it didn’t know? 

Julian Tapp: So that’s on the demand side.  The demand is pretty stable.  Supply side’s completely different.  Since they’ve done the last fuel report you’ve had MacArthur River shut originally for ten months, now indefinite. 

When you have these meetings you’re not allowed to discuss the price.  So you’re having to do forecasts of what you think’s going to happen on the supply side, but you don’t know what the price is going to be.  And it’s like “Well, if you tell me what the price is going to be, I can tell you which mine’s will come on roughly and when.  Hey, we’re not allowed to discuss the price.”  So they’ll have an assumption…

Matthew Gordon: Why would you not discuss the price as a key driver to the metrics?

Julian Tapp: It’s kind of anti-trust consideration.  They’re very concerned about you’ve got nuclear utilities sitting round the same room, should they discuss the price?  My view is they should, but they don’t.  So you’ll not see anything in the nuclear fuel report that says what the price is.  I’m quite happy to discuss the way it works, so they approach all the mining companies that will answer a questionnaire – “What do you think your production’s going to be over the next however many years?” and you fill it in.

They approached us and said, “Well, when do you think you’ll be in production and how much will you produce?”  And then they just add them all up.  Supply can be a bit optimistic because the mining companies put their chests up and say, “Hey, I’m going to be in production next year and I’m going to producing £5 million.”  And you go, “They can’t do that.” 

Matthew Gordon: Their economic drivers are different.  As a public company they need to project for their investors, which is not necessarily…  It’s a very hopeful case.  For a conservative organsation, which you said, using these very hopeful set of data points from miners on the supply side…

Julian Tapp: I should distinguish. There’s existing producers who give their production profile and then for the new ones they get adjusted to reflect their WNA, just applies the same blanket formula to the new mines.  They get delayed and they get scaled back in size to reflect the risk and the likely delays in development, and it’s quite interesting.  The mines are categorised under development, almost ready to go, planned, pipedream.  They’ve got different names for them and I’m not trying to be derogatory. 

This year they’ve introduced more definitive categorisation which said, so basically if you’ve drilled and found something but it’s not got to the point where there’s a jaw core or any kind of preliminary estimate that would be accepted by a Stock Exchange, that’s just a some time in the future project.

If you’ve drilled and you’ve found a deposit, it may or may not be economic but you can call it – in Australian terms it would be a resource but not a reserve.  And then you get into a higher category and then if you’ve got a preliminary feasibility study and a) it’s economic, that gets into a high category and when you’ve got all your approvals done, you’re sitting there ready to go. 

So they’ve introduced a bit more rigour around… but then the same blanket thing’s applied to it, so depending on what category you’re in, you assume that ‘Well, they’ve told us they’re going to be up in 2024, but we know it takes two years longer usually than miners claim.  So we’re going to add two years. They said they’re going to be at X, so we’re going to put them in at 80 per cent of X.

Matthew Gordon: But can you factor in the economics?  Julian, mining is mining, right?  Some mines are more economic than others.  So some are making margins and some are not and that’s going to affect their ability to raise money, to be able to deliver.  They may not be able to function at all. You’ve got to understand what the price is at.  So if the market… the big contract, whether it be spot, is at ten bucks lower than they economically mine at, at any point in time.  They’re not getting into production, as hopeful as their numbers are. 

Julian Tapp: There’s no economic viability.  Look, I wish they would talk about the price because then you could go to them and say, “Well, this guy’s done a preliminary economic study, but they’ve assumed a $70 price,” and so, yes, they’re telling you they’ll be in production in 2024, but that’s conditional on the price getting to $70 bucks by 2022 otherwise they won’t push the button.  They’re not allowed to make that decision and say, “Well, guess what? I don’t think it’s going to get to $70 bucks at least in nominal terms until 2030, so I’m going to push you out.” They just don’t do that. 

So I would say that to you that the supply side can be a bit optimistic to the extent that it relies on… it’s a process, but they do their best to try and trim back.  But now the problem is you’ve got MacArthur River that’s basically on indefinite suspension and you have the Kazakhs who have used their ability to easily control their production, reduce production compared to what was planned so everybody knows that can ramp up quite quickly, but nobody knows when they’re going to push the button and put it back up again.

This gets back to, if you like, the thesis that underpinned our whole price assumption in the DFS, which was we think the price is going to 60 because that’s the sweet point for a bunch of… sorry, and again I don’t wish to cast aspersions on anybody, but a bunch of oligopolists staring at each other, working out what they should do. Once you’ve cut production and the price goes up, you do not just turn the supply back on again because the price will drop again.  So you will let the price go up and you’ll stare at each other and then at some point the price will get to a level where you go, “Oh, my God, all these people are gong to come into production.”

So I think if you’re a rational… Fraser Nash equilibrium strikes me from my economics days, you’ll say, “No, no.  When the price gets to 60, I’m going to turn it on because what I do not want is some mega project in some African country to get started with £10 million of production and then once they’ve started, they come in – particularly if it’s Chinese, they’ll never turn the taps off again.  Rationally they want to manage the price, they want the price to be as high as possible because all the time they’ve got supply turned down and the price going up, they’d rather the price kept going up because you make much more money that way than you do by increasing your production.  But there comes a point where you go, “I don’t want these other guys coming into the market.” 

So we think the estimate was about 60 bucks. They’ll say, “Okay. We’ve had a lot of upside now, and if we let this go any further so it’s time to turn the taps on.”  The interesting thing is my assessment would be – and I can’t tell you exactly when that would be – but demand out of China is going to grow and other countries and I think the Middle East is silently developing and nobody’s really noticing it.  I think the Saudi’s will have a big programme.  Egypt’s building some with Russian help.  There are some reactors being built in Turkey.  You kind of think, “Actually, the rest of the Middle East will go, ‘Hang on a minute.  This is a good idea and we can have them, so we’re going to have them as well.”  There’ll be a sort of trigger effect after Egypt gets it and Turkey’s and Kuwait and others, they’ll all start saying, “Well, hang on a minute.  It makes sense to have a nuclear reactor on our land, and free up the oil or gas that we’re burning for export and hey, we can afford it.” 

Matthew Gordon: They can definitely afford it.

Julian Tapp: I think that’s an area to watch, but again it’s probably not in the next five years.  I think the Saudi’s will conduct a programme and they’ll try two to begin with, just to make sure they’re not making a big mistake.  Their programme is for 16 reactors or something.  They’d be made to let a contract for 16.  You want to let a contract for two, make sure the guys are doing the job properly and then let the rest.  So it’s coming.

Matthew Gordon: There’s a whole geopolitical component to this. I love what you’re saying about price control. You don’t want to go back to pre-Fukashima days when you’d 500 companies in the marketplace all competing and all going to be the next great big thing.  Mining doesn’t work like that. I’d love to talk about the influencers in the marketplace.  Not just the big companies, Cameco and Kazatomprom, but the way that Russia and China are going about selling programmes in the Middle East and how the US feels about this.

Julian Tapp: Oh yeah, well, and Belt Road. Again, I don’t think… It’s a subject beyond this. I don’t think people realise how much the Chinese are going to rely on nuclear as part of their armament – sorry to use the word – in terms of exporting Chinese… you know, trade routes, and they‘re doing in Pakistan.  For example, I think probably the first reactor is sub-Sahara and Africa will be in Kenya.  Why? Because that’s one of the end points of the Chinese Belt Road Initiative. 

Matthew Gordon: They’ve a lot going on in Kenya.

Julian Tapp: Reactors?

Matthew Gordon: Yes.

Julian Tapp: They have to import them and the Chinese are prepared to do that and probably on subsidised terms for the benefits it gives. 

Matthew Gordon: Not a lot of people are being open and honest about the way that the market is being managed. But let’s finish off today back on Vimy.

Julian Tapp: We haven’t talked about 232 either.

Matthew Gordon: People are a bit exhausted and apparently it’s happening in two weeks’ time anyway.

Julian Tapp: The deadline runs out. 

Matthew Gordon: People are talking about this 180 day extension as a possibility of coming in. 

Julian Tapp: So I would say to you – if you actually looked at what happened with the auto, effectively my understanding of it – and it’s quite technical – but Trump made a decision that has postponed implementing it.  So what he said is “Hey, I’m going to impose tariffs but I’m going to give you 180 days to negotiate to see if you can come up with a better solution.”  

The precedent in previous 232s, where the recommendation has been “Actually, you guys go and sort it out.”  So my recommendation is “Hey, here’s a big stick, but I’m not going to apply it just yet, because I’m sure you guys can work it out.”

Now the problem with nuclear is there are no parties to sort it out.

Matthew Gordon: It’s a very emotive subject, in the sense that the security issue comes through very loudly.  That’s the whole point of this 232.  It’s not just security around power.  It’s to do with weaponry, global nuclear power.

Julian Tapp:  I’m annoyed now at this because I lost a good bottle of red wine on this. 

There is no security issue.  I mean, I’m not sure what the right term for it is.  You have to really scrape around to find the security issue because in terms of a nuclear programme… I mean there’s just so much fuel siting around suitable for powering a naval fleet and in terms of their weaponry, I mean the big issue was  Tritium. I don’t know if you follow this, but Tritium’s an accelerator and a trigger for a nuclear weapon, but they’re actually downsizing their fleet of weapons and the Tritium ages over time.  What you do is you take the Tritium out.  You clean it up and put it back n again. On top of which the Tennessee Valley Authority make all the Tritium and it’s actually that facility is effectively a quasi-government owned one.

When the participants asked for measures to be taken, they asked for effectively a 25 per cent quota.  American’s have got to buy 25 per cent freshly mined Uranium.  Oh, and by the way, you should make Tennessee Valley Authority buy America.  Well, guess what?  If Tennessee Valley Authority was required to buy America, they alone consume more Uranium than the current owners could possibly produce in a central scenario.  All Trump has to do is say, “Okay, TVA, you’ve got to buy 100 per cent American, and that would keep America’s industry going.”

This notion that somehow the Kazakh’s are under the control of the Russians and there’s some big conspiracy to undermine US security, I mean the really bizarre about this is if there’s a military requirement at all for some future requirement for battlefield power sources from small modular reactors – and one of the problems is Australian Uranium, Canadian Uranium, Uranium from any country outside America, cannot be used for any military purpose.  I don’t mean it can’t be used for bombs.  Can’t be used for any military purpose, so if they’ve got a portable generator with a little Uranium power pack in it used by the military, can’t use anybody else’s Uranium.  It has to be domestically mined. 

But that’s a long time off in the future and what this 232 may do is it may extract the last remaining economic reserves of Uranium in America and put them into their reactors over the next ten years, and then when they need it for the military they’ve exhausted all their domestic sources.  It’s Alice through the Looking Glass World where they’re in danger of putting in place an initiative that’s actually going to destroy something that they should be keeping for when they need it.

Matthew Gordon: Let’s come back to Vimy though. Finish off on Vimy.  So you are still working with Vimy in terms of the approval process.  Junior companies do obviously … Well, junior companies which are not yet in production – and obviously Uranium is a very special case because not very many people are at the moment.  They all have their problems in terms of financing.  It’s not an area that I necessarily want to discuss with you around the financing but do you think that – and coming back to your original proposition with Mike in the early days, saying, “You need to get this thing as near to production as possible,”  do you think that they have done what you and Mike talked about all those years ago to put themselves in a position to be able to be a meaningful Uranium producer?

Julian Tapp: So we don’t have the secondary approvals.  That’s bureaucratic in time and the market hasn’t yet recovered, and we would expect… Well, I’m very sure that we will get them all before the end of – say the end of this year, all the secondary approvals.

To give an example of some idea of… It may sound odd to you, but the failure of a tailiings facility in Brazil, which has seen the iron ore market get super charged by the lack of supply out of Brazil.  That’s whittled through any mining operation that’s got a tailings facility, and so Vimy, we got 20 more questions than expected about our tailings facility – in peak tailings facility right?  It’s like, “Well, no, it can’t fail.  It can’t go anywhere.”  These tailings facilities are built in valleys where they put a 10metre earth wall across the valley and if it builds behind too much, the whole thing slides. It can’t go anywhere.

The question, “Well, what happens if there’s an earthquake?”  I don’t care.  The worse that can happen is that the sides fall in.  It doesn’t goes anywhere.  It’s on flat ground and there’s no population within 100 km.  Have you seen BHP in Rio putting out… Could the failure have potentially catastrophic consequences?  Yes, of course it could.  Any tailings facility, any work round the world, if it fails, ours couldn’t because you cannot come up with a scenario short of an asteroid smashing into it where tailings could get distributed.  But nevertheless, we’re still having to go through proving in great detail that our tailings can’t go anywhere.  And that’s the sort of thing we’re up against by people who don’t like Uranium mining. But at the end of the day we’ve passed the political test and it’s just a case of working through the bureaucratic approvals.  Sure, they can delay you, but they can’t delay you forever.  We just keep working away at them. 

And we have some political support.  The problem is right now they look at the Uranium market and go, “Woah, so you said you needed $50 a pound, and the market’s at $25 “and it’s like you try and explain the difference between the spot and the contract and contract’s higher than spot and look at the volatility’  Nobody believes you until the market goes and then there’ll be “Oh, my God,  yeah you were right.” Well, too late.

So we’re working hard to say to them, “No, look, don’t worry about that. We can see, we will be in production by 2022.  So lots of people will sign up to the price being high enough to energise us into production.  So please triaging me on the basis that you don’t think I need the approvals right now because I do.  And that’s the discussion we’re having with them, and we’re making progress.

Matthew Gordon: So when is the market going to go?

Julian Tapp: I would say to you when the 232 result comes out, there’ll be a bounce, but we’re far enough away from the $30 threshold for it not necessarily to bounce through that.

You’re going to say to me, why $30?  And I wish I had an answer for you.  The only answer I can give you is talk to the traders and the brokers and they believe it.  So I don’t know where it came from, but there’s this accepted mentality that it was a threshold at $30.  As soon as it goes through that threshold at $30, they’ll all go, “Oh, it’s gone through the threshold.” They’ll start moving.  So the fact that they think there’s a threshold at $30 has become a self-fulfilling prophecy.  Our concern will be when the 23 decision comes out, there’ll be a jump in price.  It’s under $25 at the moment.  It could conceivably go up to $2.50, $3 in a space of a very short period of time, drift up slightly and then everybody will go, “Oh, it’s still got to go through the $30 barrier. “  But the other sleeping giant is Cameco, shut their mine, they’re having to buy, they’re not picking up the material.  Something’s got to give and I think the pressure will gradually start to wind up. 

I can’t tell you when.  It may or may not go through $30.  If it doesn’t, I’ll hang around for a while, but ultimately it will squeeze through it and then when it does, I think you’ll find you’ll see a run up like we had from April through to November last year, where it went from $20 to $30 in the space of ten months.  Well, it will go through $30.  It will go from $30 to $40 in the space of ten months and when the spot price is at $40, utilities will be saying to us, “Hey, we’ll write contracts at the price you wanted, as long as we’re sure you’re going to be there. 

So we need to make sure that when that time comes, we can actually sign a contract knowing that we can get into production and deliver within two years.

Matthew Gordon: Julian, thank you very much.  I’ve really enjoyed that.  I enjoyed the economic lessons of this conversation.  I’d love to catch up with you again soon, and maybe get into just a couple of points rather than this general approach we’ve had today because that’s been fascinating.

Julian Tapp: My pleasure.

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Fission Uranium (TSX: FCU) – 121 London Mining Conference (Transcript)

Fission Uranium (TSX: FCU) CEO Dev Randhawa calls bullshit and discusses the issues in the market, most notably Section 232. The petition has killed the momentum in the market and he doesn’t think it is a security issue. He predicts $40 price for Uranium at the end of the year. But they will have to wait for the price change like everyone else.

Click here to watch the interview.

Matthew Gordon: I’m here today with Dev Randhawa, the CEO Fission Uranium. How are you Dev?

Dev Randhawa: Very good thanks.

Matthew Gordon: Good to see you. Fantastic so we’re here at the 121 conference. How are you finding that?

Dev Randhawa: Very good. Given the logistic nightmare London can be. You know I think we counted out today 16 meetings all in.

Matthew Gordon: Beautiful.

Dev Randhawa: Normally be like five or six.

Matthew Gordon: That would normally take 3-4 days wouldn’t it. So why don’t you kick off and give us a 2-3 minute summary of the business.

Dev Randhawa: Well sure. We’re in the Uranium exploration business right. And we look for where people don’t look. We use a contrarian approach. We’re the small guy. We’re David trying to beat Goliath. And only you can do that is to be ingenious, in terms of how you use your capital and your people. We’re in a business of finding Uranium in places other people haven’t looked, and we use different technologies. And we’ve been lucky so far. We’ve been lucky actually three times. You know we’ve been able to build three large companies. Have good people. But really the reason… there’s a reason for us to live, is that we need energy. Electrical energy with the electrical cars, with crypto currencies. They use as much entities of the country Macedonia, 50th largest country in the world. So they need energy. Hopefully we’ll seize SMR, small modular reactors, that will displace diesel. So you know countries like China may not care that there’s polar bears in Canada, but they do want clean cities. And they know nuclear power is the only renewable energy that has baseload. Meaning, you can use wind and sun, however you can’t count on it. And if you need a whole bunch of it at once, it’s just not possible the way it is right now. So we are the exploration business we and thankfully we’ve been quite successful three times so far.

Matthew Gordon: Fantastic. Thanks for that. We’ll come on to the renewable component and the positioning of the Uranium in the marketplace, or Nuclear in the marketplace. So give us some basic financials about the business.

Dev Randhawa: Sure. We were based in Saskatchewan Canada which is the middle of the country, where nobody lives, because it’s cold. Our project is about 140Mlbs, between Inferred and Indicated.   We made the discovery a number of years ago. It’s won every award. If it was a movie, we would have won every award at the Oscars. You know for project, people, you name it, because it’s a freak. The world has seen lots of deposits that surface that are big, but they’ve never seen something this big, at surface high-grade. That’s the key. High-grade. One thing all companies will tell you, is that grade is king. And if you got great grades, you can make a few mistakes. So this project has got a high-grade, close to surface and large. And I’d argue great jurisdiction of Saskatchewan Canada. So we’re lucky to have all…if you got to tick all the boxes we do that.

Matthew Gordon: Right okay. I think you sit in the top quartile with… compared to your peers. We’ve done analysis of Uranium companies.

Dev Randhawa: We’ve done a Pre-Feasibility and the last one just came out our production could be as low as $670 or $720, depending on open pit or deeper. So that is unheard of.

Matthew Gordon: But you’re also getting the ‘Canadian premium’ here, because we look at some of your African peers. I use the phrase loosely. Who have very similar numbers to you, but because they’re sitting in Niger, Angola etc..

Dev Randhawa: Yeah. The problems I see in Africa is grade and political risk. Canada doesn’t have political risk. But we’ve got the grades. The grades in Canada run the percentages. They talk about 0.01, 0.2 or 0.1 at best. Their grades are low. Now if Uranium goes to $100-$200, OK. We’re OK, but as long as it stays under $50, $70, we need high-grade.

Matthew Gordon: So they are different types of mining proposition. They’re bulk, low-grade. You’re high-grade. You’d argue you’ve got bulk.

Dev Randhawa: Yeah, we’ve got size. We are close to surface. Which is a huge advantage. If you look at the history the basin, every project that was shallow got mined out. I can name you major projects in the basin that were found, but they’re deep. Nobody can mine them. Because there’s the deeper you go, the higher the technical risk.

Matthew Gordon: Sure. And cost. But all of this is a moot point given the market at the moment. Uranium prices are mid $20s right.

Dev Randhawa: $24.50

Matthew Gordon: Right. Okay. What do they need to be for you to be able to get in production?

Dev Randhawa: Well I think all us.. if we are cash costs we’re $7…CapEx everything $17. You could make money but really when our project… permitted I think the price would look closer to $50 than they are $30. In my view. We’re talking 2025.

Matthew Gordon: Okay. So you’re… what stage are you at in terms of the permit?

Dev Randhawa: We just finished a Pre-Feasibility.

Matthew Gordon: And what’s the next stage for you.

Dev Randhawa: Well we’ve done the Bankable Feasibility for open pit. We’re going to another Pre-Feasibility  for underground. And at the end of next year we’ll have a full Feasibility report.

Matthew Gordon: And what was the cash position at the moment?

Dev Randhawa: We have a $20M. We will be raising money, but as you know there’s been an uncertainty in the spot market, because of I think all a petition 232. It has put risk. Everybody’s got their hands in the pocket suddenly the last 4-5mths. The US administration has 60 days to make a decision on the petition. The  petition basically is that a couple of companies in the US felt that the utility should be buying 25% Uranium from U.S companies, because most Uranium is being bought from Kazakhs. Kazakhs are a friend of Russia. You know the fear factor kicks in. We think Canada’s going to exempted from this, because we’re not… the whole purpose they said it was because Russia doesn’t like us. OK. Then actually name it… who else was there. They’re afraid that if Russia doesn’t like America, they’ll tell Kazakhs “don’t sell Uranium”. And then the lights all go out. Remember 20% of all the power the United States comes from nuclear.

Matthew Gordon: Yep. Absolutely understood. So if we’re talking about Energy Fuels and UR Energy there.  Do you think that was a tactical move from them, for the US businesses, US Uranium business as a whole, or for them as individual companies?

Dev Randhawa: I think anybody in the States. But you know in my view I get why they did it. I don’t think it was a wise move. I think it killed the momentum of the spot price. The spot prices was moving up wonderfully from $18 to $30. And I think it would’ve gone higher and the uncertainty, because uncertainty cannot be monetised in any shape or form. You don’t know what it really means. When you can’t do that people assume the worst, so everybody… all the utilities have backed off.

Matthew Gordon: Yeah. So just to explain to everyone, so the utility companies are waiting to see what the judgement is on the Section 232.

Dev Randhawa: Right, how much do they have to buy from the US and Canada. We don’t know. Worst case is, Trump administration says, ‘12.5Mlbs to 50Mlbs must be bought from US producers. That’s the worst case. So best case is you have to own 12.5Mlbs but you can buy from Canada. So we don’t know what that number looks like. But the part that nobody gets is, right now America produces 700,000lbs.

Matthew Gordon: Less than 1Mlbs.

Dev Randhawa: And they use 50Mlbs right. It’s kind of a… So how are they going to get to 12.5Mlbs?

Matthew Gordon: Well I mean there’s a big question. How are they going to get there quickly? That’s a question. What the detail of that Section 232 announcement will be is another unknown. So the utility companies have a lot of… still will have a lot of uncertainty.

Dev Randhawa: Absolutely.

Matthew Gordon: And that’s going to take time. So at what point do you think that certainty or clarity actually arrives?

Dev Randhawa: Well I think it will actually be pretty… Once they lay down the ruling. The ruling will be whatever it is. That’s one thing. But sure enough you’re right, I don’t know how… I’m interested in seeing how they’re going to have… What are they going to give a tariff and saying OK, any non-Canadian, non-US, there’s a tariff for 200%. Maybe they do that for certain percentages. Who knows what it looks like. All I care is – get the rules out. It’s like when financial statements come out a company, and they say, ‘we’re not sure about it’, the auditor says. Stock goes down so far. As soon as they put out the result, stock goes back up. So right now, I’ve spoken to people who are involved in the buying and selling of Uranium, and they’re saying, ‘there is a lot of doubt in their mind. Once this is cleared up it’s going, it’s going past $30 to $40’. That’s the near point.

Matthew Gordon: This year?

Dev Randhawa: Absolutely.

Matthew Gordon: So Cameco recently couldn’t fulfil a 1Mlbs contract. 300.000lbs, that’s what I heard…or something like that.

Dev Randhawa: That’s all they could get.

Matthew Gordon: So what happened?

Dev Randhawa: Well because I think at that price the volumes aren’t there. The only people that can really sell there, who can make money at those prices? Not many.

Matthew Gordon: Kazakhs?

Dev Randhawa: Kazakhs can, but you’ve got to remember, they’re contracted out. They have behave like big boys now. In the past they were private and they’re…

Matthew Gordon: Well they’ve listed 10% of their business here in London right? Is that what you’re referring to?

Dev Randhawa: Yeah, KazAtomProm. They have, now they are a public company, and they have to have discipline. So that’s why Cameco shut down MacArthur, because they said, ‘We can’t make money here. We can’t keep stockpiling’. So I think KazAtomProm, both of them, are , what do you need in a bad market: supply to drop and demand to go up, eat up the overhang and then it goes up. Till that happens, nothing can go up.

Matthew Gordon: Right. So just finish off on 232, because I know you’ve probably talked about it more than you want to this year. Do you think the Americans shot themselves in the foot by actually going for it. Because it certainly paralysed the market.

Dev Randhawa: Absolutely. In my view, I think they killed their own momentum. I called the two guys out. I think it’s called I think corporate begging.

Matthew Gordon: So was it a security issue or not?

Dev Randhawa: No, it’s complete bullshit. And if Jeff was here, I’d say “it’s bullshit guys”. Look you can’t produce 11Mlbs, you can’t even produce 12.5Mlbs. I think that they reached for 12.5Mlbs thinking they might get 6Mlbs. Right? That’s what I think. Because if you talk to Dave Talbot is an analyst. He thinks the most they can produce right…. is look… this is not like the deal that was cut on Friday between Canada and America on aluminium and steel. Right away the plant’s ready to go. We’re talking about… You have to put an injection wells. You have to get permits from States. That’s not that easy. So even if Trump says OK, well you have to buy so much from America and so much from Canada.

Matthew Gordon: How do you make that work?

Dev Randhawa: And what’s the price? Because I’ve heard Cameco say, in public, that they have the best assets in the United States, and they’re no good until $70. So what he’s going to do is force utilities to buy it at $70? Or the government is going to make up the difference?  Come on.

Matthew Gordon: Well if you look what’s going on in Argentina, they are overpaying. They’re paying more in the spot. So maybe. But who knows? Who knows Dev?

Dev Randhawa: You know at the end of day, for me, we need the uncertainty out of the way, so that the Spot price can behave naturally. We have a natural… This is not natural right now. You know when yellowcake went out to get money last year, lots of money flooded in. This year they got the money, but it was tough, I heard. Because everything’s going like, ‘I have got to find out what 232 looks like’.

Matthew Gordon: But there are a lot more Uranium funds in the marketplace now than there were 2 years ago right. Well what are people seeing?

Dev Randhawa: Well because the generalist funds are seeing the same thing they saw in 2003 and 2004, when Uranium went from $7 to $140. They’re seeing supply dropping, demand going crazy. I mean just look at some of the announcements lately: France who had declared, ‘oh we’re going to cut back Uranium for nuclear power’, or pushing it out a little bit. That’s the 10yrs.

Matthew Gordon: That’s the next Parliament’s problem.

Dev Randhawa: Let’s kick it down the road. They make all promises… the sad part is the average guy doesn’t want to do homework. They listen to the media bites, ‘oh they wanna cut back nuclear,that sounds fantastic’. Then they get into power and go OK if we cut back nuclear, how do we keep our lights on? Oh shoot, we don’t know how to do that. Same in Germany. They’re worried about blackouts now. I mean unfortunately it’s part of the myth of using words, words seem to matter too much today, actions don’t. And so people just look for these little sound bites, and it makes me feel good. I want to vote for them. And and politicians know that. They know what works. They know bullshit works. So they sell lies to people. ‘Oh yeah. We all need. We’re just going to have more sun and more wind and our cars….’ I actually think there are some people who think you can take the plug for your electric car. Put it in the air and we’ll get we’ll get some… I do believe that. OK. If you see some of the people… people are just naive. But you know what investors who really make money, are the ones who do their homework and who really… I believe there’s a massive opportunity for the next 60 days here. I believe Uranium prices will stay soft, but as we get closer and get some clarity, they will move.

Matthew Gordon: So, earlier on you said $30-$45 at the end of this year, when does it get up to the $50 number?

Dev Randhawa: You know once it gets on that roll, I think $50 is… it because I’ve heard Cameco will never say when they’re turning the MacArthur back on. But I’ve heard from other people say they can’t turn it on until $50.

Matthew Gordon: Got it. Okay. And just one more generic point, we need to get back to your business. That’s the important thing here right. Is with regards to the way that nuclear, and, therefore, Uranium has positioned itself as a zero carbon, renewable business and it’s done that in the last few years. You got supporters from all over.

Dev Randhawa: Even the guys who started Greenpeace. And it’s funny. Look every energy business has an issue. Oil, gas, coal. They’re obvious. Renewables got a problem. I mean despite almost a $1Trn gone into renewables, it’s gone from 1% to 1.5%. That’s all that’s gone up, as part of the mix.

Matthew Gordon: It’s like nuclear the most efficient way of getting base load perhaps secure. And that’s 20% of America… on average is about what around the world?

Dev Randhawa: Depends on the country to country. We’ve got France with 80% but I’m guessing…if you only get 500 reactors I don’t know how to work out.

Matthew Gordon: Yeah I’ve heard something, 11 -15% okay.

Dev Randhawa: I think it depends a lot… I guess you could measure a number of people or countries.

Matthew Gordon: So let’s get back to you. So you’re here at the 121. Great conference, great organisers and lots of investors here. Why are you doing it? You’re a TSX company. Why are you here?

Dev Randhawa: We have shareholders here, JP Morgan owns 10% of our company. Other people do. What I like about British investors is they’re agnostic. They have a unique ability in this country to look at a business and say that’s risky, discount it here. That’s not risky you discount it here. And so whereas you never see people in Canada talking about Africa. It’s amazing how much risk you can tolerate here. They know how to discount it. And also I do think when you look at the last Uranium market, the first movers were London. If you go back the very first show I ever did for Strathmore, with Jamie Strauss, was here doing a show. You know it took another six months back in Toronto before people turned on, ‘oh I better buy some Uranium stocks’. Then they took over and went crazy.

Matthew Gordon: So are you talking about institutional? Are you talking about retail?

Dev Randhawa: Institutional.

Matthew Gordon: Institutional, guys like J.P. Morgan here. Okay. And how much of your register is institutional versus retail?

Dev Randhawa: Well if you think of the Chinese government as institutional, I would say about 40%-50%.

Matthew Gordon: Right. OK, that’s impressive and only one or two phone calls to make there.

Dev Randhawa: That’s not too bad. See the big ones we have dinner with the big shareholder on this Friday night.

Matthew Gordon: Fantastic. Fantastic. I won’t call you Saturday morning. But tell me in terms of driving liquidity and additional volume, that’s important to a junior miner. Okay so you’re a big company, but you’re still classed as a junior. What’s your message to those those audiences? Where’s the upside for new people wanting to come in?

Dev Randhawa: Sure. Well first of all like, I think general investment principles come into play. I think there’s people smarter than me that will say, different ways of saying it, but I like the way Rick Rule says it. He goes look you’re a contrarian in life, or you’re a victim. I mean you’ve got to think against what everybody’s doing. Secondly, you rather bet on something when it will happen versus if. You know there’s going to be… we know Uranium has to move up. And it has to because as long as the world cost of Uranium is $50-$60 and you’ve got not enough production, you’ve got… the price of Uranium has to go up. So that’s common sense stuff. I mean Warren Buffett says ‘when there is fear in the streets be greedy, and be greedy and people are fearful’, Like the same idea. And so… but the math has to make sense. The math has to make sense. Right now you need 195Mlbs Uranium a year. You’re only producing 135Mlbs. That’s the math.

Matthew Gordon: Yeah I think we spoke last week to Mike Alkin, from Sachemcove..

Dev Randhawa: A great guy.

Matthew Gordon: A great guy very knowledgeable.

Dev Randhawa: Much smarter than me.

Matthew Gordon: He’s much smarter must people all right?

Dev Randhawa: He’s a really good guy. I mean I know how to hire, I know how to hire smart people and help build teams and go get the money. And you know my job is to listen to the money people, and have them respect the technical. Have the technical people respect the money people. Because if you raise the money you make milestones, you can raise more money, and that money gives you… it’s a bicycle. And Mike Alkin they study it all day long. And we’re lucky to have him as a shareholder.

Matthew Gordon: Fantastic. I think that’s an endorsement itself. Let’s finish off because we’re running out of time here. Tell me what’s your message to new shareholders coming through? Why should they buy your shares?

Dev Randhawa: Well first of all I think Uranium is a great place to be. And the tides always lift every boat up. But I think you want to bet on a team that’s done it before. You know we did it in Strathmore. We did it at Fission Energy. So it’s the third time we’ve been able to find something nobody else did, and able to bring an Asian partner in. We’re owned by the smartest people in nuclear business which is CGN. They’re the smartest by far, in my view. Because they can build mines. They procure it. They build reactors. They do it all. So nobody else does that anymore. So they are very bright. They’ve chosen us. And I think we’re unique in that our deposit is one of a kind. It’s a once in a lifetime project will come through like this, where it’s big. It’s high-grade and 50m  of surface. It’s a project I know that can be open pit or underground. There’s nothing like it. So it’s a one off. It’s not my… our technical team found it. And so it’s it’s a one off unique situation.

Matthew Gordon: Brilliant. I think that’s it. Dev lovely to see you as always

Dev Randhawa: Thank you.

Matthew Gordon: Next time you’re in London, we’ll…

Dev Randhawa: We’ll have a pint instead…

Matthew Gordon: Have a pint. How about that? Thanks again.

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

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