IsoEnergy (Uranium) – NexGen’s Baby Brother Taking Baby Steps

It’s hard to not to like Craig Parry, CEO of IsoEnergy. He’s a laid back Australian with a laconic drawl, who has been living in Canada for long enough to consider it home. He cut his teeth in the uranium mining space on the Board of NexGen, one of the better junior Uranium stories in what has otherwise been a spectacularly depressed mining vertical for the last few years. We’ve spoken to Parry a few times about his plans to develop IsoEnergy (TSX: ISO). He claims his plan is simple. Drill holes in a target rich environment and work out what you’ve got. In fact he was keen to labour that point in our interview .

This potentially leaves investors struggling to work out how IsoEnergy is different from all the other junior uranium miners saying exactly the same thing, but we’re not sure Parry is particularly phased by that. The reason for this is that he has a huge institutional following, not least of all a c.50% equity stake by NexGen, who continue to follow their money. Retail shareholders represent about 15%, but don’t seem that interested. Chatrooms and forums are all quiet. We found one lone retail commentator who, a bit like us, was wondering where everybody was. The thing about most junior miners is that retail investors are very good at holding the company Directors to account and constant questioning of decision making. Looks like IsoEnergy shareholders, like a lot of Uranium shareholders, are exhausted. Good news for the management team, not so good for liquidity and volume of trading.

For those of you new to Uranium equities as an investment thesis, and to keep it simple, here is the Uranium Demand / Supply story in a nutshell. Currently, nuclear energy is commercially the cheapest, Zero carbon energy source on the planet (1), end of lifeNuclear reactors apart. There are billions and billions of dollars of new, longer life nuclear reactors being built, large and small, in multiple jurisdictions, and they will all need uranium products as the basis of that energy production. WATCH our interview with Mike Alkin who nicely summarises the macro story or indeed any of our interviews on our YouTube channel . The Supply side is relatively complicated. The two main suppliers to the market Camaco (Canada) and KazAtomProm (Kazakhstan) have the highest-grade and largest-resource available, and even they have had to reduce production as the spot price has been between $20-$25 for the past couple of years, so they are losing money mining for uranium. Most Uranium producers need $50-$60 to mine economically, and obviously would prefer prices even higher than that. As I said, the issues on the supply is multifaceted and the subject for another article. It’s a small, $10Bn, market but evokes high emotion.

As a commodity and as an equity Uranium has been stagnant since Fukushima Daiichi in 2011. We all know it, and until the buyers, the Utility companies, come back into the market for new material, rather than relying on their stockpiles, not much is going to change. This interesting to note, but none of this is relevant to IsoEnergy yet as it is nowhere near a producing asset. That is easily 5-10 years away. And as an investor this is important to note, because the management need to tell us if and how they are going to make shareholders money in the next 5-10 years.

We were keen to know where Parry sees IsoEnergy in the Uranium cycle and indeed if there is a business plan. Not sure we got much clarity on either point and maybe they just don’t want to comment on the cycle as they don’t actually know what they have yet. Fair enough. What I do have a problem with is not being able to clearly articulate a business plan. What are investors buying in to? What exactly is this quite senior Board of Executives, who are well paid, planning to do with the business? Are they setting themselves up as the exploration arm of NexGen; is NexGen viewing them as purely an equity investment which they will cash in on when the need is there or time is right; or has IsoEnergy got plans to acquire more land packages in and around the Athabasca basin. What is the strategy and who is going to deliver and fund all of the above?

IsoEnergy recently raised around CAD$6.7M, of which CA$3.5 was flow-through dollars to support exploration programs for the “next six months.” The remaining CAD$3.2M “hard dollars” was provided mainly (CAD$2.9M) by NexGen Energy, a sizeable Uranium Development company also based in Vancouver. Is that long enough for price discovery in the market? We don’t think so. Both companies share some of the same board members and NexGen holds about 50% of the IsoEnergy. IsoEnergy has managed to raise capital “relatively” easily says Parry, which is of some comfort especially of you look at the institutional holders of the stock: something many uranium juniors struggle with, but it’s now a matter of what they actually do with it.

IsoEnergy has options. We ask Parry what he is going to focus on. Parry is confident of the quality of the asset, and claims their upcoming “aggressive” drill program is likely to provide positive results, thus growing the company. IsoEnergy’s assets are based in a prolific uranium region, in a highly stable mining region, but is this doesn’t mean it is going to work. A lot of hard work need between now and then.

One thing is for sure Parry seems quite relaxed. We’re not sure how to read that, but that is all we have to go on for now. Not enough data to analyse or do meaningful diligence on. For us this is a watch and see scenario. IsoEnergy is lucky the institutions seem to be valuing their Board members from NexGen and the company’s Athabasca basin focus. It is certainly not based on the amount of data gathered.


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

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

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

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

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

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

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

Interview Highlights:

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

Click here to watch the interview.

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: That’s great news.

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

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

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

Matthew Gordon: And these are generalists?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dustin Garrow: It will be difficult.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Interview Highlights:

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

Click here to watch the interview.

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

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

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

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

Matthew Gordon: And what’s the mood?

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

Matthew Gordon: But back to these investors.

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

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

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

Matthew Gordon: Like what?

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

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

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

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

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

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

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

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

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

Matthew Gordon: Partially westernised, surely?

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

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

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

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

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

Matthew Gordon: Solution to do what?

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

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

Mike Young: No man’s land.

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

Mike Young: We’re having those.

Matthew Gordon: So, tell us about those.

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

Matthew Gordon: Where have you gone to?

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

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

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

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

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

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

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

Matthew Gordon: And that’s your $55?

Mike Young: Yes.

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

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

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

Mike Young: There is a little bit.

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

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

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

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

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

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

Matthew Gordon: He’s right.

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

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

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

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

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

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

Mike Young: Scott Hyman.

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

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

Matthew Gordon: 50% of what?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Interview Highlights:

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

Click here to watch the interview.

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

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

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

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

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

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

Matthew Gordon: Why is that important?

Julian Tapp: I think actually their assumptions were wrong.

Matthew Gordon: That was a couple of years ago.

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

Matthew Gordon: What has been raised?

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

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

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

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

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

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

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

Matthew Gordon: Unconnected?

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

Matthew Gordon: Tell me.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Vicious circle.

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

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

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

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

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

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

Julian Tapp: Very well.

Matthew Gordon: Confident?

Julian Tapp: Well when the price gets up.

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

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

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

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

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

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

Click here to watch the full interview.

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Who from?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  What are you looking for?

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

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

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

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

Mark Chalmers: USD$3.7 billion in trust.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: What are you going to do? 

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

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

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

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

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

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

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

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

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

Matthew Gordon: How much cash have you got left?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Interview Highlights:

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

Click here to watch the full interview

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

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

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

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

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

Daniel Major: No. 

Matthew Gordon: No? 

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

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

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

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

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

Daniel Major: No.

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

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

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

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

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

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

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

Matthew Gordon: Does anyone? 

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

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

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

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

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

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

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

Matthew Gordon:  It’s guesswork?

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

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

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

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

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

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

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

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

Daniel Major: Yes.

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

Daniel Major: High-grade or whatever they are.

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

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

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

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

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

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

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

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

Matthew Gordon: So what have you done?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Did things go wrong?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Daniel Major: They’ll have to.

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: At a macro level?

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

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

Daniel Major: Correct, absolutely.

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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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Bannerman Resources (ASX: BMN) – How Relevant is the US Nuclear Industry? (Transcript)

Russia and China are leading the worlds Nuclear Energy space. How have they done it? Can the US claim it’s crown? We pose these questions and more to Brandon Munro, CEO of Bannerman Resources (ASX: BMN), the Namibian based Uranium exploration and development company.

Click here to watch the interview.

Matthew Gordon:  Hello and welcome to our viewers on and also to our listeners on CruxCasts, our new podcast series. We’re going to be speaking in a second with Brandon Munro. He’s the CEO of Bannermann Resources. They’ve got a Uranium asset in Africa. We’re going to hear all about it now. Good morning. How are you sir? Or good afternoon. How are you sir?

Brandon Munro: Very well thanks man. Thanks a lot for the opportunity to come on.

Matthew Gordon: Well we’ve had a lot of people asking us to have you on the show so we’re delighted to be speaking to you. So I want to start off as I usually do and get you to do a two minute overview of the business for those people who perhaps haven’t heard the story before and then we’re going to get into some of the meat of the interview in a second.

Brandon Munro: Well Bannerman Resources is ASX listed. We’ve been exclusively focused in the Uranium space since 2006, when we started to develop our Etango Uranium project in Namibia in Africa, as you say. Etango is very unusual. It’s enormous. It’s 271Mlbs of Resource with a Reserve of 130Mlbs within that. So what that gives us is a minimum mine life (LOM) that’s 16yrs with quite exceptionally large production potential. On average 7.2Mlbs. It’s very advanced. We completed it first PFS 2012 and since then we’ve been using our time productively to undertake a 3yrs ‘demonstration plant’. So it’s that pilot stage and of course we’ve had the opportunity to engage in various marketing activities within the Nuclear sector.

Matthew Gordon: Thanks very much. Nice and concise. I thought we’d start first of all by getting your view of the market, before we get into your story. I’d love to go through your presentation and get into that because there are some things in there which I don’t understand. And I’d love your input on that. So let’s talk about the market first of all. So the the geopolitical situation, around Uranium, you have some very passionate people out there. It is very sensitive subject. The psychology and the psyche behind it is quite an emotive one. So tell me about who you think the main players are? And how that would impact on Bannerman going forward?

Brandon Munro: Well in a very broad sense, we are I believe on the cusp of a very broad policy realization that the clean Energy imperative is a must. There’s growing and irrefutable evidence that regardless of your belief on what the causation is, we need to address climate change and we need to address man’s contribution going forward to that. Now what’s happening just in the recent months is a recognition that renewables can’t provide the whole answer. So we had a few years of very optimistic projections on renewables. I’ve worked in the Renewable sector. So I feel like I’ve got a good understanding of how it works. And the truth is renewables do have to play a very important role in decarbonising our various economies, but they simply can’t provide the exclusive solution.

Matthew Gordon: Okay so just let me just interrupt there. So can you just define give me you’ve worked in both spaces can you articulate the difference in Renewable Energy and Nuclear which is positioning itself as a green Energy?

Brandon Munro: So I would divided along the lines of intermittent Renewable Energy sources, and baseload Renewable Energy sources. So of course we think commitment. It’s predominantly the various forms of Solar and off-shore / onshore Wind. And other technologies tidal et cetera just aren’t proven yet. And it’s a long way off before we really going to know if Wave, Tidal et cetera is going to play much of a role at all. And there is an urgency here which I think is driving Nuclear policy. The baseload sources of clean power are really only Nuclear. And of course Hydro. And what we’re seeing is a broad acceptance that Hydro comes with a very substantial, tangible cost. And that cost is both in the form of direct environmental damage that’s caused by dams and the rather significant legacy that we’ve seen but also social and geopolitical costs. When we look at some of the Hydro projects that are planned in Central and East Asia for example. Many in many instances those projects have implications for multiple countries downstream. And we’ve got some very unfortunate legacy examples of where poorly planned Hydro projects have had devastating environmental and social impacts. And so when I look at the Energy perspective, in a very broad sense, with this clean Energy imperative, there is a huge gap of what is currently being invested in Nuclear, and what needs to be, if as a society and a civilization, we have got any chance of arresting the current climate trajectory.

Matthew Gordon: So I mean would you… given Uranium will at some point become a depleted Resource, do you think Nuclear is an intermediary Energy baseload source for now, whilst people work out how to efficiently harness the Renewable side of things?

Brandon Munro: To an extent it is. But the filler is a multi-decade filler. So it’s not a solution just for the next five or 10 years, until storage comes in and saves all of the downsides and issues associated with intermittent renewables and the negative impact on grid stability. It is a multi-decade solution. And interestingly it’s multi-decade solution for itself. So if we start to project many decades forward, when we do start to see Uranium Resources around the world come under terminated pressure. There is a Resource sitting out there which benefits civilization in two different ways. And that is Nuclear waste. The technology does exist to extract further benefit and Energy out of Nuclear waste. That waste is very safely and securely stored, waiting for that day. And the piece of the puzzle that’s missing is, it just simply isn’t commercial to extract that Energy source from that Nuclear waste. So when you look at it that way, I don’t think it’s preposterous at all to talk about Nuclear Energy as becoming a Renewable form of Energy in the same way that bio-Energy works on maise fields waste or sugarcane waste to make Energy.

Matthew Gordon: That’s the first time I’ve heard that. That’s an interesting point. The Nuclear sector has been very good PR itself over the last 10yrs, 15 years. It’s come from a position where people would think, based on fear of the unknown and obviously as few blackswan events I think they’re called in this industry, people are very nervous about what it could mean to their safety. I mean how has this PR revolutionized the way that Nuclear has been positioned and how does that affect companies like you?

Brandon Munro: Well I would say that the industry is not very good at talking about itself at all. And the areas in which the Nuclear industry has made PR progress, has come almost exclusively from two forms. 1. The first form is at a very high level. The Nuclear industry has in just the last couple of years, successfully positioned itself at key policy making bodies. So the World Nuclear Association, now has a seat at the Clean Energy Ministerial. An incredibly important body, that will influence government policies around the globe at a time when those are factors that I mentioned before, in terms of clean Energy imperative and the downsides of intermittent renewables are coming into focus. 2. Now the second area where we are on a positive trajectory in the Nuclear industry, is actually caused by some very credible environmentalists, And a very good example is Michael Shellenberger. He’s an environmentalist who has dedicated his life to environmental causes. He was one of the original anti-nuclear campaigners, certainly a climate change activist. And several years ago he had a very deep dive, based on fact, based on economic reality, and based on an assumption that Energy growth would continue despite what people might wish it to be. And he came out of that deep dive with the irrefutable evidence that Nuclear power offered the ideal solution, over and above renewables. Now it’s people like Michael, and other people like James Hansen, who have that multi-decade credibility in the environmental space, where the if I call it, the moderates in our society are prepared to really listen carefully to what they’ve got to say, and maintain an open mind and a dialogue. There are of course still extremist groups on both sides of politics, but in particular on the environmental side. And I don’t think we’re ever going to win them across the Nuclear power, simply because they’ve got too much organizational and financial infrastructure that is tied to an anti-nuclear position. So those people are unwinnable. But for the vast majority of people who want to see a better world, and who are becoming open minded to the only way that we can achieve that, which is Nuclear power playing a role then I think we are starting to make progress in the PR game. And I just hope it continues and increases, because as a civilization we don’t have a lot of time to ponder over these matters.

Matthew Gordon: Interesting thought there. I mean do you think this is a PR issue. Technology advancements have also helped the cause.

Brandon Munro: So it’s entirely a PR issue. When you’ve spent as much time as I have amongst the Nuclear industry, and amongst the engineers, and the extremely clever people who operate in their little niches in this industry. When you’ve done what I have visited the world’s premier long-term high radioactive waste depositories, and just seen the extraordinarily levels that they’ve done to reduce the risks down to zero. And when you look at all of the facts, such as being compiled by Cambridge University (Should refer to Oxford University research . Brandon called us to correct this after the show & supply the actual paper) on Fukushima, and other examples in history where there’s been releases of radiation. It’s nothing but a PR issue, because those facts are absolute. Those risks have been reduced down to something that as a society sits well well below all other forms of Energy. And statistically Nuclear is still the safest form of Energy that we have ever used as a civilization.

Matthew Gordon: OK. I think there’s some some great points in there and you know it would be nice to even get a hold of some of that research, to help get that out into the marketplace. Because as you say with education, comes understanding for all matters. But let’s move on to an area where passions rise. So I’ve spoken to quite a few Uranium companies recently. We’ve got the US companies, it seems versus the world, where there are a few friendly folks and I think the U.S. would align themselves to in Australia, Canada et cetera. But I think the recent 232,  Section 232 UREnergy and Energy Fuels, used some pretty strong language around their PR. Adversarial type commentary and they position as a security issue. Now I have the pleasure of speaking with Mike Alkin yesterday. I really enjoyed that. You know he’s a big proponent a big advocate for that level positioning. It is a security issue for the United States. They did that very passionate about this. But I’ve also spent some people across the aisle, the phrase we use here. Who don’t necessarily see it that way. I mean where do you sit in all of this?

Brandon Munro: So I’d offer a slightly different perspective. I think it’s an incredibly important issue for the United States. It’s not a security issue, per say. It is a global relevance issue. Wasn’t that long ago that the United States led the world on all things Nuclear. And Westinghouse to this day is still built more reactors than any other reactor builder. And to see them take that mantle, and a couple of years ago to have their flagship industry in bankruptcy, speaks volumes to just how far both policy makers and industry in the United States have allowed this flagship industry to deteriorate. And it comes at a time when Russia has really asserted itself with justification as the world’s premier equipment supplier. And you have China who is moving very, very quickly and rapidly, and effectively on the heels of Russia, looking to assert itself as number one. And China’s got a very strong driver and that they’ve got an extremely strong domestic driver. And because of their clean air imperative and their requirement for baseload Energy and the cannibalization of their coal-based baseload that they need to achieve. But they’ve got an even bigger driver and that is the ‘Belt & Road Initiative’. And long term off-take agreements, and long term 18 year partnerships that come with the new Nuclear reactor, is exactly what China is looking to drive there. So you have two extremely motivated effective state controlled industries that have left the United States relegated behind, not only themselves, but also South Korea in this industry. So I think that is far bigger and far more important than the issue of whether or not the United States has got access to fresh Uranium to make tritium componentry of their weapons program. And so I think there’s a broader approach that the US needs to take to address all of those. And we’ve seen really in the last few months the first strong indications that they are in fact prepared to do that with the funding salvation package for vocal some of the innovative funding packages for Gen 4, and SMR reactors but also the rhetoric and I find that particularly interesting coming out of Secretary Perry and others.

Matthew Gordon: That’s really interesting. We’ve not heard that thinking before, certainly not with the interviews that I’ve done and we are new to this. So, can we get into that a bit, because you are saying that Russia, China. They have taken the lead were from it from America, from Westinghouse, and for whatever reason the United States kind of dropped the ball there a bit. Do you think that this 232 issue will save the US Uranium businesses? Or do you think it was a tactical move by the two companies involved? Obviously the knock on effects of being huge. We’ll get onto that in a second with regards to the utilities. Do you think that the market can recover its situation? Do you think it needs to recover its situation or should it focus on other ways of dealing with this?

Matthew Gordon:  So if you if you don’t mind, let’s dig into what you just said a little bit further.Okay so what you’re saying is Russia and China have taken the lead. America has dropped the ball. And they’ve kind of let things slip, for whatever whatever reason whatever the political reasons, internally, funding reasons, they’ve let the ball drop. Do you think necessarily that they need, this is a position they need to recover? You know isn’t this just a business like any other business, any other sector. Or would you think because of the nature of the commodity we’re talking about there’s a bit more emotion around this than that would be otherwise?

Brandon Munro: I don’t think it’s about emotion at all Matt, but I do think the geopolitical influence factor is extremely important here and runs strong through Nuclear. Whether they need to recover really depends on whether America’s entering a longer-term phase of looking in, or if it will return to looking outside its own borders, after we’ve had administration change, which might well be another several years away. The reason why it’s so important from a geopolitical perspective, is Energy security as your audience would know, is really one of the absolute hot topics when it comes to geopolitical tension at the moment. We tend to hear about trade, but we’ve seen in the relatively recent past how Russia has asserted itself on Energy security with some of its neighbors. We’ve seen a huge push by the US to become Energy independent. They’re getting very close with the hydrocarbon industry in particular but we don’t have to go back that far in Asia for example, to see the extraordinary lengths that Japan and others went to the Energy security. What is exceptional with Nuclear power is the capacity to buy, stockpile Uranium, in its various forms, and be 100% Energy secure within your own borders. So one of the calculations that I’m saying is Japan’s entire Nuclear requirements, before Fukushima, could be stored in a single warehouse, stored, protected, guarded. However you want to look at Energy security. It’s not about protecting a fleet of coal bearing ships that are coming in for countries that are really concerned about this. And it’s not about protecting trade access to hydrocarbon producing nations et cetera et cetera. So it offers us Energy security, but over and above that, it is a large scale industrial complex across many many different components, across many many different vendors of equipment. And to be able to spearhead as a sovereign nation an industry that can deliver infrastructure of the scale and complexity and longevity of Nuclear power plants. I think if America wants to remain one of the largest economies in the world throughout 21st century, it absolutely needs to play in this game. And when you start to look at some of the trajectories that I believe Nuclear power will experience because, of the fact as we’ve talked about, to remain outside of an Energy source that’s likely to comprise 20% of the growth going forward, for a large country like America. Just doesn’t make any sense whatsoever.

Matthew Gordon: And how much role do you think the fact that this huge Nuclear fleet as well. I mean the that seems a very important thing for them. These floating Nuclear reactors all around the world. Is that a larger part of the consideration?

Brandon Munro: Well it is with the current administration. So we’ve seen a lot of focus on technology and IP from the Trump administration. And there’s much of that that’s driving of course the trade tensions between the US and China right now. But where the next generation of Nuclear reactors, the so-called small modular reactors, play an important role, is as with the broader industry. America was streets ahead. They had the first regulated, or approved or authorized, SMR reactor. And have done almost nothing with it in the last 5yrs. And what we’ve seen is Japan and sorry,we’ve seen Japan but in particular China and Russia, catch up to that technology. Because China and Russia they can make available commercial scale pilots for all of these. Whether it’s floating reactors or other small modular reactors. The Trump administration has realized that they do have time to catch this issue. And so it’s seen a lot of spending come in and also a lot of talk just in the last year about expediting availability and permitting and approvals, so that they can get commercial scale SMR and Gen4 reactors into action. Now going back to my point about technology and IP. To be at the forefront it’s such an important new technology is very attractive to a country like the United States for various reasons but part they in largely because they need to maintain their competitiveness of their manufacturing industry and technology is the only way they’re going to be able to do that in the coming decades compared to a workforce like China.

Matthew Gordon: I think there’s a lot more to be discussed around the US competitive. I don’t want this to be a US centric interview. But just to finish off the geopolitics components. Obviously China Russia, Kazakhstan. Well in terms of proximity to where you’re based Africa, they all have their foot through the door and a lot of those countries already with other commodities obviously. Are you seeing or have you been approached by those types of players,  with regards to securing future production, or is that a conversation that has not been had and if it is a conversation that you’d be allowed to be having?

Brandon Munro: Well it’s a conversation that I won’t have at the moment. It would be foolish to have those types of conversations, as we are only just bottoming out of 8yrs bear market. But to answer your question about are we saying it absolutely we’re saying it. If you look at China for example, we saw CGN and acquire Extract Resources and Kalahari Minerals for $2.4Bn and then proceed to spend somewhere between $2-3Bn building the Husab Uranium Mine and continue to operate that mine, in circumstances where clearly it’s uneconomic at the current process. And so the fact that they’re prepared to continue pushing with that mine and producing rather than acquiring in the spot market, says a lot about their long=term ambitions and their long-term requirements to not only acquire production certainty moving forward, but acquire expertise and demonstrate that China is capable of building and running, what was one of only two multi-billion dollar resources developments in Africa in the last 10 years. And now the same can be said for Russia, that they acquired during the last boom the Mcuju River Project in Tanzania for over $1Bn. And they have very close relationships with the large scale production that we say in Kazakhstan. And Uranium One, which is a state identity, owned by the Russians, operates more joint ventures in Kazakhstan than any other company other than KazAtomProm. Of course and that extends beyond that. We have India who has finally started to achieve some genuine traction with their Nuclear program, after several years of false starts. They have an aggressive program to not only stockpile Uranium, but to start securing their own supply certainty. And South Korea has demonstrated in the UAE that they can build on time and efficiently reactors and they must be eyeing a significant export market to complement their other heavy industries, such as shipping and so forth. So there are multiple players that have a keen interest in securing large scale certainty and supply, and that’s what you have in Africa. The projects are much bigger. They tend to be higher on the cost curve, but they offer a unique form of security of supply. Because A) large nations have got greater geopolitical influence with African countries. I’m not saying that misuse that influence. In fact I’m staying quite the contrary. Most African countries benefit enormously from that investment. But they do have the influence to be able to secure and protect their own investments. But on top of that the role of interest groups, and the role of adversary Uranium mining in the Nuclear sector, they simply don’t get any real traction whatsoever in Africa. Because the development agenda is so strong, and governments in Africa been through that, whether it’s Uranium mining, other mining, all sorts of other activist groups. And they’ve learnt to put the interests of their citizens and their prosperity well ahead of whatever television screens might fill up within Europe or the US Central.

Matthew Gordon: I know Africa quite well. And I agree with what you just said as well. This is my segue into let’s talk about Bannerman while you’re here. Obviously we people understand Athabasca, the Australian Story, the Kazakh story. You mentioned that Africa is plentiful, Uranium plentiful in Africa, but slightly further the cost curve. So it’s a different sort of play. And I’d like to come on to that in the presentation. So if you don’t mind, I’m just gonna go through some of the pages from your Nov presentation, if we may. And if I can just just kick off with some of some questions around the financials. So back then you had AUS$7.7M. Is that pretty similar to now. Or have we burn through a bit of that?

Brandon Munro: It’s very similar. And we have a very tight cost control. We did do a little bit of drilling but that was only under 1,000m of RC. And the work that we’re doing on our project at the moment that I’m sure we’ll talk about is almost entirely done internally. So our cost controls tight and we’ve still got the lion’s share of $7M.

Matthew Gordon: Okay. Market cap $50M share price, circa $0.05 cents. Over a billion shares. That’s the standard Australian thing isn’t it? Why do Australians do that?

Brandon Munro: Well it’s the biggest thing is we don’t have a reason here not to do that. In the sense that, if you were to compare the Australian approach with the Canadian approach. Both come… companies on both exchanges. They operate the same way, in that they have a level of success hopefully. They issue more shares. They need to go to the next level of success with its feasibility studies etc. They issue more shares. That dynamic doesn’t differ at all and in fact in the last few years ASX has been far more bountiful for Resources investors and companies than in other exchanges. The difference is, investors in Australia they really hate consolidations or reverse share splits. They don’t like the effect that it has on their sense of value. They don’t like the effect that it definitely has on liquidity and there’s too many examples where companies might undertake a consolidation and someone pulls the shares out of the bottom drawer thinks that they’ve tripled and in fact the shares to where it is. They just go to a third as many. So there is no incentive and there’s a strong disincentive to consolidate registers. So we just don’t do it. And it doesn’t bother us. However what I’m learning here at the moment is it does bother North American investors a lot and they seem to think that somehow management must be horrendously negligent to allow a share count of a billion shares.

Matthew Gordon: There you go. Like I say the U.S. versus the world, again. For the second time. Okay. I’d like to get that. Talk to me about your share register. Then you’ve got well about 40% seems to be retail and you’ve got a couple of big names in there and the usual kind of high net worth (HNWI) etc to the board sitting on 8%. Your heavily Vested you continue to invest?

Brandon Munro: Myself, NO. I acquired a substantial position, at least from my own financial circumstances, when I came in as CEO. I do have 50%  of my packages paid in equity. That is performance weighted and it requires performance hurdles to be achieved. But there’s just too much going on in the sector for me to be in the market at the moment. We do have strong board participation, as you’ve noticed, but I think the other thing that is interesting about our register is despite being a microcap and still being at about $50M level. We’ve got very unusual levels of institutional support. So about 34% institutions, including those big names that you mentioned and a number of specialists Uranium funds, which of course makes me very proud, but I think also gives investors a lot of comfort.

Matthew Gordon: Yeah. Okay. And then we’ll see what sort of hurdle. I mean given the position of the marketplace not much is moving. What type of performance targets are you talking about?

Brandon Munro: And so our employee incentive plan that relates to all employees. it’s 50% judged on KPI performance and 50% judged on total shareholder return. So compare Bannerman against a basket of peers. We exclude, obviously, the more beta related companies but we don’t compare ourselves against the share price growth that you would get from a UPC or a Yellowcake or KazAtomProm or a Cameco or even some of the producers. So we are competing against companies that have got active in Exploration programs and so on, in the Uranium space. And only if we outperform those companies do we do we benefit from the EIP.

Matthew Gordon: So I guess not. Not much happening at the moment. No one’s doing anything really at the moment.

Brandon Munro: Compared to what it would be like in a couple of years, I’ll certainly agree with that.

Matthew Gordon: There you go. Okay fine. Well I’ll take that. We’ll get into the board in a second.  Well I think you spent a bit of time sort of describing the market in the presentation and had a lot of interviews recently, plus you’ve been quite good at describing that. The one page I did quite like was, and you just alluded to it, was the financial players in the space. You know you’ve got Tribeca on board. The UK’s got Yellowcake but there seems to be a few more of these types of funds starting up. I guess.. it indicates that people’s perception of where this market is going to go. Do you agree?

Brandon Munro: Absolutely. So it’s both being created by sentiment and reinforcing positives. And it is I think my deck sets out. If you go back only 12 months there are only two players in this space and that was UPC, who’s been around since the early stages of the last boom. They’ve done it raisings in their life and right something like CAD$645M. And Geigerounter Fund, based and listed in London, who invest in equities, including Bannerman. So just in the last 12 months the increasing sentiment behind the bottoming of the Uranium sector and the expectation of the bull market, has driven demand from contrarian and really early adopting smart money to fund these different groups. And you you mentioned Mike Alkin, who is an extraordinarily intelligent voice in this whole sector. So he runs SachemCove Partners Fund, which are disclosed as an investor in Bannerman I’m proud to say. L2 Capital out of Brazil. Tapping our family office money in Brazil with Marcello Lopez. I’m proud to say he’s disclosed that he’s Bannerman shareholder. I mentioned the Geigercounter Fund. Oclaner Asset Management out of Singapore. They’ve been having shareholders in their specialist Uranium fund. You talked about Tribeca as well, and there are those who haven’t voluntarily disclosed, and so I’m not I’m not privy to disclose that on their behalf. But I think the big news as well, is that we’ve just seen overnight, the first ETF that’s being formed to track the new scholastic pure play Uranium fund index. And I’m also very proud to say that Bannerman has made the cut for that. And we’re one of only 7 Australian listed companies, including some of the big ones like, ERA that are included in that index and therefore will be included in the ETF. So what all of these do, is they create new opportunities for capital to enter the market, that otherwise would either find the sector too small. So that entire scholastic index is only about $15Bn which includes Cameco, KazAtomProm, UPC and YellowCake. But it also provides other risk tolerant investors with the avenue to invest in the broader Uranium thematic which is very important. It was started by a positive turning sentiment but very much exacerbating the increased sentiment through the capacity to draw in new funds from unusual corners of the investment community and start deploying that directly into both physical commodity and also equities

Matthew Gordon: I did catch that earlier this week. So I think that is interesting because… here’s one for you. We’re talking about investment and seek in a companies such as yourself. Okay. This shows for retail investors, High net worths, family offices who perhaps are not as sophisticated as institutional, primarily because they can get access to information. So if you were one of those guys, I mean what type of exposure would you have to Uranium? You’ve got obviously equities, you’ve got physical, you go ETFs… getting a slightly better rep hopefully. I mean what would your, not advice but what would you do?

Brandon Munro: I guess I’d say if I was running a family office?

Matthew Gordon: There you go. Well done.

Brandon Munro: And I didn’t have you or me to make Uranium picks? What I would probably do is heavily weight something like an ETF and then have a couple of serious Alpha picks outside of that. And whether it’s an ETF or whether I’m putting my money with someone like Mike Alkin, would really just come down to very finely balanced risk tolerance decisions. Someone like Mike Alkin, with these extraordinary sector knowledge, and amazing due diligence, and ability to think in detail at a helicopter view, I think that that offers in fact superior risk management to just taking in ETF which needs to invest by a robot. However, you’re never going to be criticized for buying IBM in the form of investing in an ETF. You just need to pick the macro. And then whatever happens in the ETF is what happens. So I think there is a role for all of those. But the point that I’d make though, is the moment you’re at any scale as a hedge fund or a family office or in high net worth, it becomes difficult to play in the Alpha space, because there just isn’t much value out there at the moment with the Uranium sector being on its knees.

Matthew Gordon: By Alpha you’re talking about the large producing companies, equities?

Brandon Munro: Well I guess that probably depends on your definition of Alpha. I’m talking multiple returns. And the sorts of returns that made some investors quite famous during the last boom.

Matthew Gordon: Sure sure. Okay we’ll let you know. Again without kind of going through a lot of old ground here. Would you agree that the 232 announcement kind of frozen the contract market because utilities are trying to work out what what side that’s going to fall on?

Brandon Munro: No question. For 18 months it’s done that. Because we saw the petition issued in January last year, and a long period of uncertainty before a decision was made to take up the investigation by the Department of Commerce. And what we’ve seen now, is because the decision is just around the corner potentially as little as days away but more likely several weeks away. It’s frozen all sorts of activity. The traders they don’t have any balance dates coming up. They need to be careful of closing positions, so they are under no requirements to buy. The producers. They’ve got the inventory cover to hold over this period, so they don’t need to buy to cover lost production. The utility certainly don’t need to buy, in the next few weeks. So we’ve really come to the sharp end of this uncertainty because the decision will be made and it will become public within the timeframe of almost every conceivable procurement decision in this market. And I think that’s why we’re seeing a drifting spot price. Because despite that overhang paralyzing the buying, there are still small pockets of owners of U308 that do for whatever reason need to sell. And when they’re selling into an illiquid buying market, that will of course put pressure on the price to where we see today.

Matthew Gordon: Right. Okay so. So the few things there. And again I don’t want to get into talking Bannerman here. So I’m I guess at the moment the price is is binary.It’s either going to be economic or it’s not. So it doesn’t matter whether it’s $18, $25, Well maybe $30 some people might be able to make it work. It doesn’t matter until the price moves and the price isn’t going to move until the utilities get certainty. That’s around 232. And to them it doesn’t matter which way it falls. They just need certainty. They just need to know what the moving parts are, to be able to make decisions about go forward contracts.

Brandon Munro: I certainly agree with that and it’s an interesting point because there is some perception amongst investors that it’s about picking winners and losers ahead of Section 232 results. I don’t buy that. Yes different results will potentially benefit some companies over others. And there are some scenarios which will actually be detrimental to certain companies, but for a company like Bannerman and in most companies out there the result cannot be negative. Because there’s been 18mths  of uncertainty that’s hung over the sector like a wet blanket, that has stopped all sorts of procurement decisions and all sorts of trading liquidity. And as a result of that just the sheer action of that uncertainty dissipating, will produce market activity for certainly everyone’s benefit on the Uranium side of the equation.

Matthew Gordon: I agree with that. And so talking of which. I want to…looking at your page 12 and your presentation when everyone can get that from your website. The questions I want you to answer will allow me to work out are you one of the companies that’s going to survive. So I think I agree with you. There will be lots of winners. But depending on how long the price takes to ramp up, there may be a few people that fall by the wayside because they may not be able to raise money cheaply or efficiently. That’s something that I guess there’s a lot of conversations going on and they don’t have the cash flow to survive another six months,let alone 12-18mths. So in here at some point, I’d like your view on where you think the spot price is going to go, and over what time line, because I think very few people can tell me that. I just wondered if you had an opinion?

Brandon Munro: Well I can tell you that but I do have an opinion.

Matthew Gordon: I ask myself. We wouldn’t hold you to it.

Brandon Munro: I’m one of those potentially foolish commentators out there who is prepared to offer an opinion. And I’ve done that, you might know, quite consistently over the last couple of years. And I think my foolishness is encouraged by the fact that I’ve got it right more than I’ve got it wrong. So what I foresee in terms of the spot price, is closing the year between $35 and $40. That is enough growth from where we are today, below $25 to get the attention of the more important sectors of the market, that are going to drive it in the following year, in 2020. It will shake away some of the perception that exists amongst utilities that we have another 3-4yrs of flatlining prices. And it’s that perception that it’s led to them relying on their dwindling inventory cover and also the ability to secure contracts in the future at what I presume would be similar pricing to today. But it’s probably a bit South of where many of the Uranium bulls are hoping to get to in that timeframe. And what I would say to support that prediction, is that we do have this situation where Cameco has almost entirely been out of the market this calendar year. They still have a native between 10-12Mlbs that they need to secure by the end of the year. I think if they saw the right circumstances I’d be happy to secure forward to some of their 2020 production. And it just makes for various reasons, it makes absolutely no sense for them to sit there as a buyer of last resort in the high 20s. However if they have the opportunity to be buying at the sort of prices we’re seeing now, they can make a good financial return. When you compare that to what they’d be then selling that into their contract portfolio for. And equally as we start to see an increasing momentum in the Uranium price, Cameco aren’t going to be averse to supporting that momentum because of what it means for the medium term growth of the value that they achieve from their contract portfolio. But Cameco aren’t going to do that into a debt market. That just would be naive. So we had Section 232 resolved. It will take a little bit of time for people to understand what that really means. By September, we have the World Nuclear Association Annual Symposium. And that’s very unique because you have a whole wide ranging number of people from all these little different niches of the industry, who don’t only talk to each other. And certainly don’t understand each other’s business, getting together and finding out what the hell’s going on. So that’s important both from a Uranium point of view, and having a wide discussion around what the resolution of Section 232 actually means. But also when you pull all of the little bits of news and all the snippets of developments from around the world together, it paints, as I said at the beginning, of very very positive picture of the immediate growth prospects for Nuclear. But many people in the industry they’re so hard at it doing whatever they do on a day to day basis, it takes something like World Nuclear Association Symposium for that to be surmised, and presented to them before they realize well it’s back to the good days. So it’s a combination of those factors in September, I think we’ll start to produce the environment that we need for confidence to come back initially into the spot market. Once we start seeing that momentum, I think it’s reasonable to expect Cameco and other producers to get behind that and if we say the $30 psychological barrier breached earlier in the year than later, then I certainly se that momentum continuing through $35 and if we see that psychological barrier breached before the WTI symposium, then I think we’re looking at the top… the upper end of the range that I’ve just articulated.

Matthew Gordon: Thanks for that. That’s either very brave or very foolish. I’m not quite sure yet. Let’s find out.

Brandon Munro: Ask me on 1 January and I’ll tell you.

Matthew Gordon: Exactly. But that’s kind of interesting what you said about the end of the symposium. Because if I listen to some of the narratives in the marketplace, people are talking about… collusion is a terrible word to use in the moment.. but there’s people to about, price control, price fixers, price makers. People with alternative business models to the rest of the market. But you talking about a kind of collective set of discussions and decision making which will, once there’s some agreement as to the way forward, certainly after 232, the price will very quickly uptick to $35, $40 by the end of the year.

Brandon Munro: Yeah and I would describe it more as a collective consciousness. It’s a collective acceptance about where the Nuclear industry is going in both the short and medium term and therefore what that means for both buying decisions in the Uranium and Nuclear fuel cycle, but also producing decisions. And I’ve heard some of the commentary around manipulation or influence and so on. And you know what not Matt. I just don’t buy that. I’d say I’ve been in the room with Cameco, right to the most senior leadership. The same with KazAtomProm. I’ve spent a lot of time with those guys. They are exceptionally careful and respectful of anti-trust guidelines, and all of the negative information and implications that could come with that. So I think it’s a simplistic view to say that is is someone trying to be a puppet master here, and that in some way they either have an agenda to suppress prices, or to support process. The reality is Cameco needs to buy this stuff. It’s in their interest to buy the price up, because their contract portfolio is floating and 60% exposed to an increased spot price. And that’s all you need to know about it.

Matthew Gordon: Yeah. So no collusion. Okay listen let’s talk about this page 12 of yours. You talk about track record in the sector, so let’s get into that. I want to understand what you mean by ‘leveraged price’. We talk about the ‘strategic appeal’ of Bannerman. Obviously we can all see that this is an advanced asset. Your in DFS. You’ve got a pilot plant. And then some phrases which I want to understand. Low none financial risk etc.. So let’s start with a track record. Talk to me about the team. This has been going since 2006. What have you been doing? What have you achieved and what have you learned since 2006?

Brandon Munro: We’ve taken the Etango project through the initial ascertain of Resources, through scoping study, PFS, DFS, optimized DFS and a pilot plant. You’ve seen in that deck the heapleach demonstration plant. That’s enabled us to test at scale, the heap leach process. We were always very confident about metallurgy, but that’s not the same thing as financiers and others in the market, having that level of confidence. And until you’ve tested it at that sort of scale, it’s hard to win people over. And the reason why it’s hard, is we achieve 93% recovery in only 22 days, which is absolutely extraordinary. Along with some of the horror stories that you see in copper and other other minerals out there. So we needed that scale to demonstrate our confidence with that sort of results. Now what I would say, is throughout this process the company has been run by people, in particular my predecessor, Len Jabber, who were determined to build and operate the project. These are people who saw themselves standing on the edge of the mine and being accountable to the board for meeting targets and without putting too fine a point on it, that isn’t done throughout the industry whether it’s Uranium or other commodities. It means that the work being done meticulously. It’s been done very thoroughly. And it’s been done honestly as well.

Matthew Gordon: Okay so the team today, what’s their experience? I mean you’ve replaced Len and so was the current team look like? Are you guys capable of finishing this this project?

Brandon Munro: Well certainly not capable of finishing on our own. It’s a big project and we’ll need a lot of people to come in.

Matthew Gordon: Is that money? Or is that people?

Brandon Munro: Well it certainly both. You know to develop a big project like this will, we’ll need to be hiring extensively. And and hiring all sorts of expertise. But if you look at the governance, which I think is the most important thing, ranging from our Chairman Ronnie Beevor. He used to run Rothschild in the Asia-Pacific region. Mike Leech. He’s a non-executive director on the ASX, but also Chairman in country. He was the MDA of Rossing for many years and he was the CFO of Rossing for 15yrs before that. So it’s obviously extensive operating experience. But also extensive experience within the Nuclear sector, with marketing the product relationship with utilities. He’s been the Chamber of Mines President. He’s been the president of the Namibian Uranium Association et cetera et cetera. It’s a very deep country and Nuclear experience residing there. Clive Jones who was one of the founders of the company. He is a geologist. He’s been involved with a number of ASX listed companies. And Ian Burvill is an engineer who has quite a deep processing skill suite. And he adds enormous value as well. In terms of my experience. I’m a little bit unconventional you could say, I first of all studied quantitative economics at university and somehow found a more interesting path through law, and worked as an M&A lawyer for a number of years, including during the last Uranium boom which was a lot of fun. And from there I’ve been an executive in the Resources sector predominantly, a bit of infrastructure, for about the last 10yrs and I lived in Namibia for 5 or 6yrs. I’m still heavily involved in the Chamber of Mines and the Uranium Association. So I’ve got credible, I would say, country experience and relationships. And also what I do these days is spend a bit of time involved with the World Nuclear Association. And I’m currently on the co-chair of the demand subgroup which is the working group that determines all of the demand projections for Nuclear fuel, from here out to 2040, which will be published in the Nuclear Fuel Report in September, ahead of the symposium.

Matthew Gordon: Very good. Can I just ask you. Because not a lot people spend time on the assets or some of the other asset risks, like just jurisdictional risk around licenses promise et cetera. I mean I know Namibia through other commodities, but you know give us your view or at least tell the viewers and listeners you were you doing business in Namibia. What’s that like? What are the problems you encountered… because you’re 13 years into this thing or the company’s 13 years since this thing., what are the problems along the way and how have resolved those?

Brandon Munro: So I first moved to Namibia in 2009. And as I say I lived there for a number of years. And then I’ve been closely involved through that event for the last 3 or 4yrs after moving back to Australia. And Namibia is a fantastic operating environment, across a number of different dimensions. Just in terms of being there, and getting around, and getting people to work there and move there and visit there and so on. Africa is often regarded as ‘Africa for beginners’ Namibia is regarded as ‘Africa for beginners’ by the guidebooks. It’s a very easy place to live, to visit. Between Johannesburg and Vindhoek there’s 6 flights a day, a couple of flights a day to walk Walfish Bay, which is where our project is, and you can drive around the country very easily. It’s safe, secure. I never even had a car broken into when I lived there. So many many things like that that just make your existence seem to maybe a very simple. And I shouldn’t forget to mention that they’ve got very good and reasonable access to South African whites. There’s a few of my old buddies who would really criticise me not mentioning this.

Matthew Gordon: OK I’m a buyer, good.

Brandon Munro: And the have Windhoek larger. What more could you ask for?

Matthew Gordon: All the good stuff. But let’s get into the mines the Ministry of Mines. How do you engage with them? How do they help you? How do they hinder you?

Brandon Munro: These are people that I’ve known for a long time. The Minister of Mines and Energy, who is relatively new. He knows other people in our company and board members extremely well, over a long period of time. He was the Director of Planning in Namibia, which is a very complex and sophisticated position, that means he needs to have a holistic view of the entire sector. So very very intelligent person, very eloquent, and very supportive. And within the actual bureaucratic and technocratic aspects of the Ministry of Mines, you can’t be a big fish in a small pond, like Bannerman in a Etango are, without having everyone’s attention and support. So we were granted a ‘Mineral Deposit Retention Licence’, which is the ideal form of tenure for waiting patiently when there is a downturn. That was a strong form of support from the government. And we just had our EPL. There is an adjoining ‘Exclusive Prospecting Licence’, that has just been renewed within the minimum time frame involved. We’ve got all of our environmental permits supported by the Ministry of Mines and Energy, but issued by the Ministry of Environment and Tourism. And so… and I’ve got to say we’ve earnt that as well. We’ve earnt it through being transparent. Through being honest with government, through forming partnerships and also through really investing heavily in community programs, and making ourselves and invited guests that people want to stay,rather person who simply forces themselves in the door and sort of hangs around until you start talking dinner.

Matthew Gordon: Ok. This has been plain sailing the whole time?

Brandon Munro: Yes.

Matthew Gordon: Great. Okay. Can we get on to price and leverage, and what you mean by that. Because you use some phrases in here which I just need to understand. So you’re you’re doing, on page 18, you’re doing the EV to Resource /Reserve valuation. I think that’s fairly industry standard. But you know we talk about grades and margins here. So Africa, Namibia specifically, what are the grades like in relation to the Athabasca, Australia, Kazakhstan. How’s that effect your numbers? You’re the economist.

Brandon Munro: They’re polar opposites to Athabasca. So Namibia is able to reliably operate Uranium mines that have amongst the lowest grades in the world. And there’s a couple of aspects to that. The first one is we’ve got ask yourself, why the country’s been able to do that for more than 40 years. And it’s because the other associated costs are very low. But also, the mineralogy and the consistency and the sheer volume and scale of these projects is very, very large. So they have the benefit of economies of scale. And it’s very difficult to compare with Kazakhstan and other ISR projects, because still, it’s the Hydro-mineralogy that’s the most important thing for ISR deposits. Grade comes a long second to permeability and consistency, when it comes to an ISR project. So it’s a little bit like apples and oranges to compare the two. So the other thing that I’d say about operating in Africa with a low grade deposit, is unlike Copper and Gold for example, you do start to have diminishing returns with grade in the Uranium space. And that’s because of the complexity that comes through the radio nucleotide side of things and the radioactivity and the various steps that take associated with that. So when you’ve got an open pit, large scale, lowish grade mine, and you have to be absolutely responsible about it, but you don’t have the cost in costs associated with dealing with the radioactivity that you do in say a high grade underground mining in the Athabasca basin. And that’s why McArthur River and Cigar Lake, I think that’s still got the highest value per tonne of any commodity for any industrial mine in the entire world. And yet they still just sit there at the top of the first quartile in our industry.

Matthew Gordon: Ok. I mean I guess it’s a much more technical answer than perhaps someone as limited as me would be capable of understanding, but at some point maybe if we can’t start next time we can get into into that. And I think if we look at page 33 on your presentation, you actually do a peer analysis for us. Because for me it’s about, if I’m going to invest in Uranium, I’m a believer in the Uranium story. You know you do I invest into? Who is most likely to be able to deliver profitability? It’s a pure numbers game for me. But it’s always interesting to understand technically, how the company… what the company has to overcome and its ability to be able to deliver against that. Perhaps we can just point out on Page 33 in a second. Certainly in relations to peer analysis. But let’s just go through the presentation. You talk about strategic appeal so Etango is the largest ‘unaligned’ Uranium project with a Feasibility Study so by ‘unaligned’ I assume no one’s forward bought any of your assets. They don’t any equity you are independent to some degree. So why do you make that analysis why is that sort of interesting?

Brandon Munro: I think it’s very interesting because what we do know really about any sector but particularly Uranium, is what follows the early stages of a recovery from bear to bull market is consolidation. And consolidation is particularly acute in the Uranium sector because of the security of supply dynamic and all of the imperatives that followed that. So if we look at the last Uranium boom. What we saw was all of the usual factors of commodity consolidation. We saw the majors trying to look bigger than each other. We saw the media trying to become majors. We saw companies with single or multiple commodity exposures looking to diversify into other exposures. But what you also have on top of that in Uranium is you have the role of the sovereigns. Predominantly sovereign countries wanting to secure their own Energy needs. But also sovereign supported integrated Nuclear power producers or vendors, looking to secure the Fuel going for it. And the non-aligned fact becomes so important. Because if you want to try and look forward and estimate who is going to be attractive when the consolidation range starts. In other words it has that strategic appeal, that will obtain a premium over the votes that are lifted by a common rising tide, that becomes extremely important. As does the scale of production, as does a long life nature of the asset, as does its position in Namibia. So that’s why I say that we’ve got exceptionally powerful strategic appeal with both the Etango and Bannerman.

Matthew Gordon: Well you don’t have any consideration as to whether you’re selling a US, Russian, China or other interests. This is this would just be a transaction which is about the economics?

Brandon Munro: Well we’ve in a position to look pretty much to anyone in the world. Or rather I’d put it that anyone in the world can look at us. And that’s the unique appeal that we’ve got being in Namibia. And if you want to, let’s take China because they’ve clearly got the most voracious appetite for Uranium and Uranium projects going forward. China’s going have a hard time investing in Australia because of the Foreign Investment Review Board. They’re gonna have a very hard time controlling anything in Canada because Ottawa doesn’t allow majority control by foreign companies in their Uranium sector. I think it’s pretty clear that they’d find it hard in the US at the moment with all of the geopolitical and nationalistic fervor that we’ve got going on there. You then look at Niger. Well Niger is so tightly protected and controlled by the French, that it would require a bilateral agreement with Paris to start stepping on those toes at any sort of scale. And then you run out of countries that have got any sort of relevance to the Uranium sector, given that KazAtomProm, necessarily by law controls all of the Uranium deposits in Kazakhstan. And the same can be said for India and the same can be said for Russia and South Korea and UAE. They can all come to Namibia. We have Russian companies in Namibia. We have Indian companies in Namibia. Clearly we have Chinese companies in Namibia, as well with Husab and Rossing. They’re in . Langer Heinrich. So it is unusual. It is unique and it’s both the asset is attractive to those groups and their balance sheets, but also that jurisdiction is really an open door, that doesn’t exist in many other parts of the world.

Matthew Gordon: That’s interesting. The next bit of your presentations talks about as an advance asset, and people go to page 26 of your presentations, get it from your website. There’s is a nice chart there says ‘your up there. You are as far as you can go with this project, without actually getting into production.’ So what’s next? Let’s say the market comes back online. Let’s say the price gets to $60 or whatever it gets to that’s economic for you to move forward with project. Is it focus on your one asset, one country, non-diversified risk approach? Or do you have to go out there and speak to or discover more? Or do you go an Orano and say ‘hey you guys my assets, why don’t JV? Or could we buy one of those off of you?’ What’s the future look like assuming those things are great in the spot market and contract market?

Brandon Munro: Well the future for Etango, because it’s so advanced,large and technically simple, would be to move forward as quickly as possible once we’ve had the price signal that we require. And the next steps on Etango we’ve been undertaking at DFS update for some time. And we’re making time our friend ther. The more time we’ve got before that price signal, the more work we can do and the better return on investment we can get for our internal resources that are being deployed there. But equally it doesn’t make sense to draw that process to a conclusion, go out to fresh procurement and produce a new DFS number until we’re ready to finance. Number one it could go stale if things take a little bit longer. But number two you get much better prices, and offers out of vendors, if they know you just around the corner that they’re in the running.

Matthew Gordon: I guess what I’m trying to weigh up, is I’m assuming the price comes back. I’m assuming you’re able to raise finance at a rate which you’re you’re happy with or both sides are happy with. You’re going to move into production and you can either eyes down focus on your one asset or now might be the time to start having conversations about future acquisitions, given where some companies are at. How you view certain assets and your experience in Africa. Is that any part of you thinking at the moment? Or do you want to just get get get step one done first?

Brandon Munro: So I don’t think Matt that are mutually exclusive. And I think from where we’re at at the moment, we don’t have any investment decisions to make to continue Etango. going forward. All of the work being done as I said there’s a little bit of work to be done wrapping up the DFS update. But that’s something to be done for hundreds of thousands of dollars, not millions and a couple of months work. And then it’s in to financing, so that could be done either in conjunction with or it could be interrupted by, some sort of a consolidation activity. And what I think and I’m speaking really on behalf of the industry as a whole rather than Bannerman’s Board specifically here, but I think the Uranium sector needs consolidation. There are too many single asset companies who are promising the world to utilities, and the utilities and not miners. They’re not mining investors. They don’t have the sophistication to really say through all of these promises and rank and decide and evaluate who’s a real producer, who’s got a real asset and who doesn’t. So one of the problems that we face as an industry is they think there’s a world of supply of Uranium coming down the funnel at them. And people like you and me and those involved in the sector, know that that just ain’t the case. And consolidation is one of the things that will help to sort that problem out and help to create a more realistic picture of what supply is actually available.

Matthew Gordon: That’s interesting, because we look at the way the market has performed in terms in the past when prices are high you get lots and lots of Uranium companies. When it’s low they everyone so falls by the wayside and left with a few. When you saying with the 50 or so companies, I’m talking producers down to explorers at various stages. You say you think there’s still room for consolidation in there?

Brandon Munro: Most definitely. And it’s healthier for the Nuclear industry as well because you’re producing an awful lot of assets that can serve that over the next 50yrs, 60yrs, 70yrs rather than skyrocketing prices, bringing on another glut of production. And then here we go again.

Matthew Gordon: I would agree, I would agree. So tell me what you mean by, looking at Page 28, you have Bannerman has low-technical risk. I mean you could low risk because Uranium is low-technical risk? Are you saying that you specifically have low-technical risk.

Brandon Munro: Very much specifically. So we touched on grade before so we do operate with relatively low-grade. And that affects our economics. I would argue that it shouldn’t affect an investment decision. Your investment decisions should be based on economics potential returns and therefore risk grade is just one of many factors that comes into that economic decision and our DFS numbers. So the low-technical risk. It resides in several things. And I would define these, what are the risks that this project is unable to produce Uranium in the quantities it claims, when that Uranium is required. So if we run through the list. First of all, the ore body is incredibly consistent and simple. I’d call it boring. The mineralogy is almost entirely consistent throughout the entire deposit. And we get about 96% of the Uranium from the one single mineral. The volumes are vast. Some of the intersections are continuous over more than 280m, for example. And because of that the strip ratio is low. It outcrops and both the strip ratio and the internal dilation is very low. We can control that even further, through radiometric sorting on the trucks. But the more important things the metallurgy is very simple. We will adopt a heap leaching process. And as I mentioned, we’ve tested that extensively with our demonstration plant with very very good recoveries.

Matthew Gordon: Can I just say you mentioned something earlier. You said that you’re probably higher up the cost curve than some. So how does this low-technical risk, ease of operation, bulk tonnage operation, marry up with that higher cost. Is it just because of the grade?

Brandon Munro: Correct yeah. The grade pulling our cost up, and everything else is keeping it at a level that’s reasonable and at the level that keeps the economics robust.

Matthew Gordon: So you’re still going gonna make money. Because you’ve got volume of ore, you’re still make money, but it’s gonna be… I mean looking at your projected IRR around 15% at the moment. I’m sure you’ll optimize that at some point further down the line. Which could you say low end compared to some of the peers that you put yourself up against. But you do have a heck of a lot more Resource than most.

Brandon Munro: Well we do. It is a very big project. And so that gives us what I would say is more related to strategic appeal. Both to sovereigns, but also to utilities, both in the way that the asset would hold itself in a consolidated group. And one of the things that’s most important for Uranium mine is mine life (LOM). Both from a customer’s point of view. But when you think about how much investment of various types of resources is required to get a Uranium company and a Uranium project going, with environmental approvals, social approvals, all of the infrastructure required to export class seven ships et cetera et cetera. You don’t want to be doing that for only 10 years. You need to get a return on that distributed Resources output, over a long period of time. And we have that. There’s plenty of material under the pit that’s not included in the Resource. It just doesn’t make sense to drill that deep at the moment.

Matthew Gordon: Can I ask what what’s with regards to your DFS, what price is the Uranium in at? I can’t see it..  it probably is in your presentation I just can’t see it.

Brandon Munro: So initially for the first five years, we would produce at a cash cost of $33  which increases after 5yrs but the overall breakeven is $52 after paying off CapEx and so on. Sop we need to see a recovery in the sector before we would even contemplate financing this project.

Matthew Gordon: Okay understood. So I guess the two variables which you can’t quite control are grade, but you’ve got a sort of sense through your drilling of what what it currently is but usually it may improve and it may go down, but you can’t control that. And you can’t control price. What you do seem to have a lot of is ore, a large Reserve. And you’re ready ready to go. So help me understand, when we use a phrase here, you’ve got ‘substantial value backing’ by that you just mean data?

Brandon Munro: Yeah. Data that’s come at a cost of 360,000m of drilling for example. Whether you look at it from what’s been spent, we’ve spent about AUS$80M on the project, against market cap of $50M. We’ve extracted very good data for that. We’ve got a lot of Resources. We’ve got a lot of Reserves. So I want to talk in terms of those factors. Gives you good confidence as to what’s represented by that $50M market cap, as we stand today.

Matthew Gordon: Right. Okay. And given that, we mentioned earlier, I mean the price is important. It is important for everyone. But if the price comes back to where people want it to get to everyone’s making money. It’s just a question of how much. You told me you needed to get about $52 to be for your all in cost. You think it’s gonna get $35 $40 by the end of this year. So when do you.. asking you to put a pin in the map for me. When do you think it’s going to get to that point where Bannerman can start thinking about either raising the capital or getting into production?

Brandon Munro: So that will very much depend on the trajectory of long term contracting. What we would need to see is the established lower cost producers, most notably Cameco and KazAtomProm exhaust their contracting inventory. Which means that the utilities would need to then start outbidding each other for what is a fairly small amount of remaining current production, and start bidding into new production at. Now that’s not going to happen in 6mths, it probably won’t happen in 12mths. It could happen after that, if we say the top or trajectory that’s the more optimistic view on that. If it takes longer than it it will be driven by both that dynamic with existing consumers of Uranium, but also through stockpiling ahead of the Nuclear build programs that we’re seeing just around the corner in China and elsewhere.

Matthew Gordon: Okay. Given that timing you’ve outlined, you’ve got a very good share register. Some big names in there. What’s your burn rate at the moment? I mean how long can $7M get you through to before you need to go back to your shareholders and say ‘hey we just need a bit more, you can sort of see where this is going’, and be able to raise more capital?

Brandon Munro: Well that’s a good point. Thank you. We burning about half a million a quarter which includes a reasonable amount of spend on the asset itself. That last quarter included drilling and DFS update work. We still have potential to reduce that. And we could but we’re at that fine line between maintaining enough corporate infrastructure to be nimble and responsive, and able to react to changes in the market, and going down a path where you’d lose all of that in favor of greater cash longevity. So we still got at least a couple of years of runway, that we can extend if we saw a market behave in a way that’s different to what we expect.

Matthew Gordon: That’s fantastic. I think that has been a wonderful session Brandon and I can’t thank you enough. And some great thoughts in there. Great thoughts there. Well let’s stay in touch and so see how you get on. May even see you at the symposium. Grab a beer or wine. And perhaps maybe to watch you again in the next few months. So I think I’m ready for seeing you again.

Brandon Munro: Yeah terrific. Thanks a lot. And let me know if you want me to drop any of these links. I don’t know if you do follow up with your audience.

Matthew Gordon: We would love that so if you can afford those we’ll get those out. Everyone along with the rest of your stories. Appreciate it. Thanks for your time Brandon.

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