Dustin Garrow – Exploring The Intricacies Of The Uranium Space

Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Conversation with Dustin Garrow, Managing Principle of Nuclear Fuel Associates.

It’s been an eventful few months for the uranium space. Back by popular demand, uranium-expert Dustin Garrow returns to the Crux Investor platform to discuss some intriguing areas and shed some light on some nebulous themes.

We start by discussing the Nuclear Fuel Working Group’s report, and what it could mean for the uranium industry, both domestically and internationally.

Then, we move into the fundamentals of uranium supply and demand, including Garrow’s personal projections for the uranium price.

It’s an incredibly interesting watch for uranium investors and generalists.

We discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

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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Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Dustin Garrow – Uranium Investors, term-contracts explained (Transcript)

Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Conversation with Dustin Garrow, Managing Principle of Nuclear Fuel Associates.

With a possible uranium renaissance finally on the cards, uranium investors will be clambering for all the content they can get their hands on. Well, this isn’t one they can afford to miss.

It’s been an extremely eventful few weeks for uranium. We had Cameco suspending its Cigar Lake uranium operation, Kazatomprom announcing impaired uranium production figures, and then the NFWG report. The report was tonally definitive: it’s time to restore America’s competitive nuclear advantage. However, there was a deficiency when it came to the specifics, particularly subsidisation figures and timescales, but it was just a policy document after all.

We were keen to gain some insight into the uranium space: Garrow was the man to ask. He’s a uranium market commentator and sits on a number of boards for uranium junior mining companies.

First things first, what is his take on the NFWG announcement? Was it what Garrow expected? Having been involved with the section 232 petition peripherally, Garrow is pragmatic about the working group outcome. While he appreciates the general message, he admits there was an expectation of many more specifics. He strikes a similar tone to Energy Fuels CEO, Mark Chalmers. This is a good first step and is just a policy document. He wants to see the DoE follow through with a robust, detailed plan to rebuild the American uranium industry; it’s the only away American uranium companies can compete internationally. Garrow also states that the timescale will be key: no commitment has been made beyond the 2021 budget, and American uranium players won’t be able to stick around forever. Worryingly, it looks like this plan will be a long time in the making.

Not only do uranium companies need to stick around and wait for the uranium price to elevate, they also have to wait for the entire American uranium infrastructure to wake up, including enrichment facilities. Garrow thinks uranium investors need to focus on the supply-demand fundamentals. The gap has never been bigger, and it seems likely this will be the final catalyst when the commercial market really starts to shift.

So, the U3O8 price has risen to US$33/lb. How will this price move in the short term? Garrow is aware there are numerous theories out there, but his instincts tell him that price discovery and the utility companies’ buying habits are like the chicken and the egg. Price discovery is driven by increasing demand from the utility companies, but Garrow thinks this demand is triggered by a rising spot price. Once the uranium spot price rises past a certain point, Garrow says this is a signal for utility companies to start buying again. Garrow thinks we’re still a little early, but remarks that several utility companies were making moves before COVID-19 in an effort to capture the long-term market. He’s hearing that some are in discussion with bigger American uranium producers about long-term contracts. These are exciting moments for uranium investors; best make sure you pick a winner! Garrow states there will never be a uranium mine built on the spot market, so keep that in mind when making investment decisions. Uranium investors need to pick winners and identify losers. Negotiating long-term contracts can be extremely complex and requires a specialist set of skills: skills that many uranium companies lack.

The general mood in the uranium space is optimistic. Uranium has been discussed in the highest levels of the White House, and there appears to be no doubt that the American government plans to follow through with its intentions. The government has also realised that the reactor space has become dominated by foreign powers. There are ZERO orders for U.S derived reactors in the foreign market. It’s very clear: it is time for the United States to catch up.

We discuss:

  1. Nuclear Fuel Report Announcement: Opinion and Expectations
  2. Time of Benefit to Uranium Miners: Anything to Look Forward to?
  3. Building the Reserve: What it Means for Producers
  4. Supply and Demand Fundamentals: A Singular Source of Clarity
  5. Price hits $30: Will it Hold, Rise or Drop Away?
  6. Cameco: Contracts, Terms and Delivering Results
  7. Identifying Winners and Losers: Knowledge of Putting Together Deals
  8. Mood in the Market: Optimism for the Future
  9. What Will Make Generalists Come Back to the Uranium Space?

CLICK HERE to watch the full interview.

Matthew Gordon: Dustin, how are you, Sir?

Dustin Garrow: I’m fine, considering the extended lockdown here in Colorado, but we’re up in Steamboat Springs, so it is not the worst place to be.

Matthew Gordon: No, it’s beautiful. Absolutely beautiful. And keeping yourself busy?

Dustin Garrow: Oh yes. I think, certainly with the improvement in the Uranium market, there’s been a lot of conference calls with investor groups that are either currently invested or are looking to come back in the space and they’ve seen the price go up some 40%. I see this morning it was, you know, above USD$33, and so it continues to improve. So, it gets a lot of attention.

Matthew Gordon: Yes. I mean, as a percentage, it has moved up significantly in the last two months for sure, after some period of flat-lining. But we spoke in September when you were in London for the WNA conference, we caught up there and talked about the marketplace and winners and losers and so forth. But a lot has happened since then. We have had a lot, we have got you know, the indeterminate shutdown at Cigar Lake. We have had KazAtomProm closed down for a 3-month period, or at least reduced their facility’s output. Namibia; Rossing, Husab affected, Australia -it looks like reduction in the numbers but may face closure depending on how they manage things. So, the market is sort of driving that supply-demand fundamentals story even further, even tighter to the cross point there.

We also had a fairly big announcement yesterday, and I do want to get your feedback and all of the above from the Department of Energy in the US about revitalising the nuclear energy complex there. So why don’t we start off with yesterday’s announcement first: it is short on detail, no numbers, no dates no sense of how money is going to be allocated, and I think the market was disappointed. If you look at the share price of some companies, I think they did drop pretty quickly after 12 o’clock. Was it what you expected?

Dustin Garrow: Well, I think, you know, having been kind of peripherally involved in the 232 process, which by the way, ended a year last July. And so, the Nuclear Fuel Working Group (NFWG) was an entirely new creation from the Trump administration. And I think with the 13 Federal Agencies involved, there’s always a little scepticism of how a group that large, representing such a diverse number of areas within the government are going to come together, which they did. But I think that there were some expectations of you know, more specific actions. I think they’ve laid out, obviously, there’s more direction. But I think as Mark Chalmers at Energy Fuels said, you know, this is the first comprehensive study of the US fuels cycle in decades. And so that’s an important first step. And the Secretary of Energy though made the comment that this is a roadmap. In other words, this will allow the government now to see their proposed to have a senior administration official oversee the ongoing process. I understand there’s even a call later today where the stakeholders, which would probably be producers, processors, certainly the utilities, NEI, will all have a chance, I think, to begin to discuss some of the details perhaps of how does this now get implemented.

And then I think one of the bigger issues though, Matt, is the length of time we’re dealing with. I mean, on the Uranium side, they talked about the Uranium reserve being put in place and it may be something that enhances the American assured fuel stockpile program, which was put in place actually back in 2012. And they put some numbers: 17Mlbs to 19Mlbs pounds beginning this year. But you can assume, is that a 10-year program, which they’ve talked about? Will there be some ramp up? Well, you know, again, those kinds of details are really lacking.

And the other that’s important is how do they allocate that? When they submitted their 2021 budget request, it said to keep at least 2 US Uranium mines in operation. Well, you know, first of all, that’s a pretty meagre domestic industry. You know, most of the projects are pretty small, in situ recovery mines, so do they actually mean specific mines? Companies? You know, what will be the annual volume?

The Secretary of Energy said yesterday, they don’t have a process for determining pricing, which is pretty important. I think the producers have told the government that they need, really, a long-term government commitment at reasonable prices, considering the production cost profile in the US. And it’s got to go on in order for it, allow them to raise capital to rehire people to, you know, again, restart their facilities. I think one of the issues, clearly, is they’ve stated that it’s only no commitment is made beyond the 2021 budget request. So right now, it’s a one-off situation. So anyway, yes, I think the market, the investment side was expecting more specifics, and they may come in time, but it may take a while.

Matthew Gordon: So yes, thanks for the answer. I think the thing that was missing as well was an indication of how it’s going to engage with the stakeholders. There’s a lot of stakeholders. There’s a lot of money to be deployed. There’s a lot of planning and economics to be worked out. The timeframe here is, or potentially, could take a long time to put together before anyone is in a position to make a decision about allocating budgets, and even then, it’s got to go through a congressional process of approval. Even though this is a bipartisan proposal, or recommendation, this is going to be a long time in the making. How do Uranium miners, because that’s what we’re here to talk about today, how do Uranium miners get an understanding or a sense of how they benefit and when?

Dustin Garrow: Well, again, I have been trying to make a determination of how the government is going to approach a newly created entity or activity. They may decide we have got to in put a lot of resources, we’ll have a lot of video conferencing. We will make decisions quickly. We’ll just have to have to wait and see. But you know, I think normally the government is very deliberate in how they do things. So again, it may take a while. And again, I think that one of the issues, there’s a lot of US producers, when you look across those that have existing facilities, those that have proposed developments that they’ve been working on for years. I mean, I don’t want to necessarily identify specific companies, but the list, as you point out, is fairly lengthy.  I just looked this morning at the in-situ recovery capability; if you look at all of the projects, existing, proposed, you know, it’s above 20Mlbs a year, which no one has, the most anyone has produced recently is below 5. So again, I think there will be a lot of stakeholders, as you say, involved, and it will be an interesting process.

Matthew Gordon: Okay. So, given the big thing we heard though was that the US government would be acquiring or servicing a Uranium reserve, you’ve talked about the 17Mlbs to 19Mlbs over a 10-year period. I mean, right now as it is today, I can think of a couple of companies that between them, they maybe could put together 1Mlbs today. They are also going to need to see the price recover to a point where it is economic for them to get their facilities back up and running. Of course, I’m referring to the 2 petitioners here in this instance, I know lots of people are throwing their hat in the ring about how quickly they get back into production, but they all need a price to be incentivised to do that. It’s nowhere near that at the moment. So, it is nice to see a spot price at USD$33/lbs but it’s going to be better for these companies to understand what the utilities are prepared to pay in terms of term contracts, however they’re structured. And we are going to talk about that later. So, that’s the only thing I’m seeing; building over reserve. What can it mean and what can investors interpret that as meaning for the companies that may be invested in US companies?

Dustin Garrow: So, what will happen on the project with the producers? Yes, I think that some have been preparing for the commercial market to improve to the point where they can be participants. But I think, as you know, it’s all about the timing and how long does it take? I mean, it’s like Fukushima, you know, Tim Gitzel at Cameco has said, he never thought 9-years later we would be where we are. Finally, the market is seemingly beginning to respond. So, I think that’s a, you know, a big factor for the US production industry, some have been able to benefit from long-term legacy Uranium contracts, which has kept their operations going. Those have pretty much run out, or they’ve moved the deliveries forward in negotiations with the customers to benefit now rather than over the next few years. There are a couple of producers with contracts that are still in place, but they’ve really dropped off. So, then the question becomes, what do you do now?

Do you keep, you know, they have to cut back, I mean, production now is at virtually zero, so you’ve got these several companies that have gone to bare minimums. There’s not really a, again they would have to rehire people, so it is how long do the investors want to be involved in kind of living off of very minor raisings? When will the market be there? Let’s put it that way; be it the government or the commercial market. So, I think that’s kind of, you know, it’s put them in a difficult position. Even waiting until October 1st, if the USD$150M is approved, you’ve still got another five months at least before there would be any funding available.

So, anyway, it’s a difficult position right now. And that includes conversion. I mean, the Metropolis Plant has been shut down for well more than a year. I think it’s approaching two years and you know, it’ll take a while for them to get back in operation. I see that they have put a date of 2022 on that. And I understand they are still shipping yellow cake off site. It’s being transferred to other converters to be toll converted so they meet their delivery commitments. But that’s a big deal; when you move yellow cake off site from a conversion plan. So, anyway, yes, it’s gotten down to where it’s at a difficult situation.

Matthew Gordon: This is a difficult situation, but I’m trying to work out where the power lies and I’m trying to, and again, help investors understand where the market dynamics are shifting to, because what we heard yesterday was the significant intent from the US government by the Department of Energy, that’s what I heard, but it’s going to take time. And it’s going to take time before they know how they are going to allocate budget and they’re not committing to anything beyond 2021. So, I think there are some immediate beneficiaries when the system starts working with whatever they construct starts working, for sure. And if they do start buying pounds this year, then again, there’s a couple of beneficiaries of that. But it seems to me that the power has shifted back to the market dynamic, which is the supply-demand fundamentals, which, you know, has been growing and has been accelerated with this COVID-19 situation we see here. The gap is huge. The demand-supply gap is huge like it’s never been before. And do you think that investors, companies, funds alike should be focused on that, knowing that the nuclear working group is, and you feel the working group is working towards solving something, but let’s focus on what things we know and what things we can control rather than relying on a government which is traditionally slow moving?

Dustin Garrow: Well, yes, I think that you know, as we are all aware now, with the COVID-19 effects on the Uranium market, and as you say, the supply side is really the issue. I mean, demand effects seem to be relatively modest. EDF will probably have the biggest impact. But you know, here in the US, the Department of Energy just put out their short-term energy outlook on April 7th. So they have attempted to include some COVID-19 effects on the economy. They see nuclear down less than 2% this year in total generation of electricity in the US.

China has said their nuclear plants are back. You know, I don’t think they ever reduced operations. South Africa is keeping a unit down a little longer than they thought, but it’s really the cutbacks on supply which could be the final catalyst on the commercial market side, which I think, the understanding of supply issues really came up with the WNA report in September, when they came out and said, in every scenario there’s a need for unspecified Uranium sources. And that was a way of trying to describe inventory in increased production at existing mines, whatever, to fill that gap. So, I think that we have had now, you know, more than 6-months of the industry realising that supply certainly was an issue.

Now we have had these cutbacks, you know, the general census production would be about 140Mlbs, 142Mlbs this year. Last year it was around 140Mlbs. If you’d start, depending on your assumptions of restarts of Cigar Lake and things like that, they are probably going to lose 20Mlbs, maybe 25Mlbs this year, if not more. So, you’re down 110Mlbs to 115Mlbs with Uranium requirements. If you look at WNA of, you know, around 180Mlbs, you have still got secondary supplies; 25Mlbs seems to be a number that people are agreeing on. So, like you said, that gap has really gotten substantial. And then the restarts, I think when the Kazakhs start to put in well fields, they have to put the Lixiviant to them.  So, there is a slow ramp up. But yes, I think that we may now be seeing the market finally being transitioned into one of deficit, of structural deficit. And so, there’s just got to be better contracts longer term, not just to restart the mines that are down: principally MacArthur and things in Kazakhstan, but for new mines. I mean there is a, I think an acknowledged need to build new production capacity beyond what’s in care and maintenance. And by, pick a date – you know, is it 2023, 2025? It looms large when it takes years to get these projects actually producing yellow cake, which is the ultimate, let’s say, need of the market.

But the movement of the spot price; one of the points that was brought up recently is when that gets closer or exceeds term prices, then the utilities can go into their managements and say it’s no longer USD$25 and low 30s, or really closer to USD$40/lbs. True long-term contracts have been kind of in that range. People haven’t really been signing them. But now spot, you know, that relationship has always been pretty close and that again has justified the term contracting. So, I think we may be moving into that new phase of the market.

Matthew Gordon: Yes, I think that’s interesting. We have heard CEO’s talk about submitting RFPs, but the numbers that they’re submitting not close to anywhere near close to what the utilities are wanting to see at the moment. But do you feel that the gap, where we are today at USD$33/lbs, and where most people are saying, well, most that I talk to, to be able to run this economically, some will get into production at USD$30/lbs, but they are not making much money. You want to make money, right? That’s the name of the game. So, do you think, how quickly do you see these markets move? You were around for the last cycle – you saw it explode. Do you think we’re in the same or similar market conditions to back then? Which would allow the price to move rapidly when it does start going, or we’re going to be stuck in the thirties for some time? In which case, it’s not going to move the dial for a lot of producers.

Dustin Garrow: Well, I think, at this point there’s several opinions, of course: there are those that say, yes, the price will move up. The spot price will maybe move into the mid-thirties, it could stall out. We could see a new trading range kind of in the USD$32/lbs to USD$35/lbs area for a while. Then the utilities would say, well, you know, it just shows maybe there’s not as big of a supply issue looming. There are others saying USD$40/lbs by third quarter. USD$50/lbs by the end of the year. I think what triggers, particularly the term contracting, is both the level and the velocity, you know, that the price keeps moving up. Then the utilities reach a conclusion that well, this is now sending me a signal that supply is an issue in the future. And so, I think we’re still a little early, but I think we are more likely to see some of the utilities again, they started to come in the market before the COVID effect. A couple of the big US utilities distributed long-term requests for proposals, one in January, one in February, but they were really capturing the true long-term market. I mean delivery starting, you know, kind of $22/lbs to $24/lbs and going out to $28/lbs to $30/lbs. So, they were beyond the carry trade impact.

And, you know, as a couple of the market observers have said, they probably saw the best prices that may be offered under new term contracts for quite a while. But then they’ve kind of stepped back a bit with the COVID-19 effects, where they have had to handle all of that. And some of it is reloads. You know, again, spring and fall are big reload timeframes in the US, and the fuel groups get involved in that. Having worked in a fuel group in the past, you go out to the reactor do you do fuel start-up tests, and so that is a high priority. And you know, they’ve got a pretty full agenda right now of issues they have to get cleared. But I’m hearing that some are still in discussions with the bigger producers about long-term contracts. And again, Matt, that’s one thing that, you know, people tend not to focus on. If we went back 15-years and there’s a certain way you have to go about –

Matthew Gordon: Well, let’s get onto that. Let’s get onto that.

Dustin Garrow: I think the market fundamentals are moving in the right direction right now.

Matthew Gordon: Okay, well let’s get on to that. So, then let’s put it in a way that people are going to understand: so, Cameco has got orders to fill. Cameco is not producing any product at the moment, okay, it’s got orders to fill. It needs to find pounds in the market, and it has been able to cobble together pounds over the last year, put together with their own output, and you know, they’re hopefully making some money there. There’s not a lot of pounds out there now, but they just, they have these contracts in place. What happens if they cannot find the pounds that they need to fill the contracts? Do they just turn and go, sorry, can’t do it. We’ll have to wait until there’s something in the market, or we have to wait until we get into production. What are the punitive terms in a contract if you don’t deliver?

Dustin Garrow: Well, there are, you know, force majeure protections. Now, I don’t think MacArthur would qualify, but Cigar? I mean, it was shut down due to provincial health restrictions. So that to me is, if they had to trigger force majeure, they could do it there. But back on they’re making their deliveries, keep in mind they’ve got purchase agreements in place. I think they’ve got a couple certainly within Inki and as they made clear on their quarterly, they’re taking a disproportionate share of that production; meaning they’re taking pounds that were produced for KazAtomProm. So, I think that they’ve probably set up some agreements with probably, maybe the Kazakhs with others. Maybe the Uzbeks right now, that you don’t see in the spot market, but they are near-term purchases. So that’s one thing. It wouldn’t surprise me if they’ve gone to their customer base and some of them that said, hey, do you really need these pounds right now? What if we deliver them a year from now? That goes on. So, it affects the delivery commitment side. They’ve not really suggested that, but that’s what I would be doing.

And the other is loans. I mean, I think you know, again, Cameco is a pretty conservative company. Would I approach maybe utilities that are holding big inventories, which they don’t intend to sell but they don’t need for maybe several years? And there’s certainly one big region where that’s applicable and put in place contingent loans. You know, if we need to draw down this material, can we do it under this, these…? So, I think they’ve probably done some things on the procurement, acquisition side, more than just coming into the spot market to probably ensure that they’re going to meet their delivery commitments.

I mean, at the end of the day, it’s long-term delivery. Reliability is what carries the day in this industry. And even the Kazakhs have said, that is where they are continuing to progress that they want to be viewed as a long-term, reliable supplier. Well, to do that; you meet your delivery commitments. So, so I think that’s, you know, if you’d look at what Mike Campo will be doing, I think Orano is in a somewhat similar position. People kind of don’t talk about them. But in a normal year, if MacArthur was operating and Cigar, normally, they’d get about 20 million pounds out of Kazakhstan Canada and Missouri. Now, based upon some assumptions, they might lose 7Mlbs or 8Mlbs this year: with MacArthur, with the Cigar, with the cutbacks in Kazakhstan. And I think one of the telling issues there is, when they shut down McArthur and they borrowed one year’s worth of production share; 5.4Mlbs immediately from Cameco, it didn’t suggest to me they have a lot of available inventory. So again, when people say there are producers buying in the market, I assume that that’s both Cameco and Orano.

Matthew Gordon: So that’s just a sort of a mix on the market and off market acquisitions. And in a way it’s kind of a, I would just call it a structured finance really. Because you’re talking about borrowing under certain conditions with a view to either replace or pay at whatever structured finance rates you have agreed. So, it is much more complicated than I think most people appreciate, the way, the way that the product moves around the market.

Dustin Garrow Yes. There’s no question. And again, I just want to say, I’m speculating a bit on Cameco, but I know them again as a long-time conservative company and they want to meet their delivery commitments. So that’s what I’d be doing. I’d certainly be putting the loans in place. But yes, I think you’re right. I mean even in the spot market today, you step back and you say, well, the volume is 30Mlbs through mid to late April. And the question of course is where did those pounds come from? Well, I’m being told that actually some producers are selling. There are a couple that because of production cost structures are not as sensitive to backing out of the market, let’s put it that way. Some of the traders have been doing a bit but also the financial buyers, those that kind of showed up in a wave in 2018, they bought, there was speculated 10Mlbs, 12Mlbs, 15Mlbs.

I think that last year some of them may have managed those inventories a bit, sold some off. But what I’m being told is, is that then in the market, selling and buying; they’re acting more and more like traders. So, we see what’s called turn in the market, and that’s kind of reflected in that 30Mlbs. So, it’s not really 30Mlbs. It’s probably less than that, but we have had pounds transacted more than once by some of these. So, again, the market is, as you say, more complicated than it appears on the surface. But again, the financial buyers acting as traders, and it’s not all of them, but it’s enough to kind of kid more volume in the marketplace.

Matthew Gordon: Okay. We’re getting into an area which I love: which is where you work out how you make money. Okay. So, you have already started to describe the fact that term contracts can be extremely complex mechanisms, yes? You’re laughing because you know it. You know that they can be designed and cut in a number of different ways. So, park that, bear that in mind. It’s a complex thing. I have been trying to help people understand how to identify the types of companies, junior Uranium miners who have more of a chance of getting into production than others. So, we have looked at the fundamentals of the asset and the management team’s experience, their access to, or availability of cash to move this through, and the stage of development that they’re at. And they clearly the economics of what they’ve got. But the bit we very rarely talk about, it is that thing we talked about at the start, which was the complexity of putting deals together. Because even if you can economically get into production, you’ve then got to deal with and contend with putting these contracts together. Not everyone has those skills. So, what is your experience there? Is it simple or is it complex?

Dustin Garrow: What sounds like simple is pretty, pretty complex. Now, to make a couple of comments, I have listened to a number of the recent interviews with the CEO managing directors of development companies and I don’t hear a lot about the customers. In other words, it’s, well, term contracts are kind of the, we need to get those, but they focus a lot on optimisation; getting their costs down, which obviously you’d need to do. But I think that in one of your recent interviews, the managing director said the optimisation starts to get, the benefit gets smaller and smaller, and you know, term contracts aren’t something that come kind of later in the process. I’ll go on record; there will not be a Uranium mine built based on the spot market, ever. It has never been, and it won’t be in the future. It is too risky. Too specific on the customer base.

So, term contracts really, to me, trigger the development process. In other words, without term contracts, there are very few instances where you get financing, so you really can’t then get your capital in place to then start developing the mine. And you know, and I harken back to when we did the Paladin bankable contracts, those were a necessary part of the project moving forward. Without those, we wouldn’t have had the financing to do that.

Now again, I think one of the exceptions was the Berkeley energy agreement with the Middle Eastern sovereign wealth fund, which said, yes, term contracts would be nice, but they didn’t really require them. But everyone else is really going to look up, and you know, Cameco say MacArthur doesn’t restart without new term contracts. Converdyn: we will not restart Metropolis. So, it’s not just a nebulous concept.

Okay. So how do you go about it? First of all, new production centres, assuming a relatively balanced market, now, if it becomes a seller’s market, that’s going to change the dynamics. But the utilities will say, we’ll do a small contract, we’ll do 200,000lbs, 300,000lbs as a starter, and then if you develop the project, if you meet your delivery commitments, we’ll consider a larger commitment, because we can cover off with our flexibilities that we have gotten from our long-time reliable suppliers to cover if you don’t meet your delivery commitment.

So that’s another thing. I think there’s a sense that million pound contracts are just out there. Very few, if any. And they’re going to, again, the newer producers are going to have to see a suite of small volume agreements. Now, how do you go about that? Again, the utilities approached the market either on market, it’s called, which is an official written request or proposal, which they send out to their list of suppliers. So, in other words, even under that circumstance, you have to get on the supplier list, so you make sure you even see what they’re distributing.

But I went back 15-years and looked at term contracting and 70% of the volume was placed ‘off-market’. What does that mean? That is direct negotiations and it can be done by new producers. I did some of that with Paladin. And certainly, existing producers, you know, Cameco is in, talking to their, as they’ve said, their best and largest customers to extend their current contracts. So, you know, I think that that’s another issue that’s not fully appreciated. Is there going to be term contracting going on? Cameco – 36Mlbs? Well, there’s never been an announcement by a utility. Cameco only does it in the aggregate. So, a lot of the term contracting has been ‘off market’.

So, if you’re a new producer, you really can’t sit and wait for the phone to ring because it won’t ring. So, you’ve got to get out, and it is as important as optimising your project as talking to funding sources, but it’s actually engaging. When do you engage the utility industry, which ultimately will determine your future? And so, it’s complicated. And again, I won’t go into all the aspects of each contract. It’s more than price. People just think, well, I need USD$50/lbs, but there’s delivery, timing, delivery locations you know, quantity flexibilities, usually, you know, now even there’s 10%, 15% to the favour of the buyer. Extension options. The other thing too is that it has an impact on your working capital. If you look at Cameco’s delivery schedules, it’s skewed to the Q4 because they give their customers, in general, the right to call the delivery date. Now, if you’re a small new producer, if you do that, you’ve got to assume a pound you produce in January may not be delivered until December. So, you’re going to have to sit on that pound for months. And so that needs to be part of your economic calculation. Which some of them, I don’t think, take that into account, but you can negotiate better delivery terms if you’re a new guy. So that’s what I’m saying; you need to ICA marketing plan strategy, again, it is as important early on, is how are you going to construct and operate your asset?

Matthew Gordon: I think that that’s fascinating. It says to me that companies which are not talking about this, or not talking about their ability to do this, either don’t know or are nowhere down that process. It’s also interesting to me that, you know, in a buyer’s market and a seller’s market, the terms are going to be very different. The pricing and the structure of those terms, the securitisation capability of those terms will be reflected in the cost of your money as you’re talking to funders. Because if you’re a small company, new to the market, whatever your experience, you’re going to need a series of these small contracts to build, to add up to something that’s interesting to funder to allow you to complete your capex and get into production, because one small deal isn’t going to cut it. It is a fascinating, fascinating space and thank you for talking about it. And I’m sure there’s a lot more to it than that, but it’s a new thing that investors should be looking at and listening for from companies. I have not heard it. I have not heard that conversation from very many people. I can count on one hand how many people here have done it before and are capable of doing it.

Dustin Garrow: Well, Matt, what you hear is that, ‘we have met with’, or ‘we were in discussions with’, and I think that they’re just saying, ‘yes, I set up a meeting with six utilities during the WNA and we had a nice…’ Utilities generally want to meet because they want to see what is out there and what is realistic. But that is, you’re far away from negotiating a term contract or a SWU.

And just back on that comment you just made, when we put the bankable contracts in place for phase one at Langer, I think there were 4 or 5 utilities that we had got contracts with, and we actually had a couple of holes that needed to be filled in right at the last minute. But without that, the bank said, you know, you’ve got to meet these criteria on pricing volumes, delivery dates and all of that. So, I mean, it was a very specific set of criteria.

Matthew Gordon: Yes. It is a fascinating area to get into because there’s a few variables that you’ve talked about there, which could affect the economics in a meaningful way. The cost of money is important down there. The terms you negotiate with the utility in a buyer’s market can affect, especially when some of these guys are, you know, needing X dollars to start, to breakeven; worth considering and worth analysing.

Look, Dustin, thanks very much for running through with your experience of the term contracts market. I do appreciate it. To finish off, are you optimistic about coming back to the Nuclear Fuel Working Group (NFWG)? Are you optimistic that it’s a good thing for the US utility buyers and US nuclear complex as a whole?

Dustin Garrow Oh yes. I think that, again, it’s crucial that something is being done, that this has been looked at. And again, I think, Matt, to some of us who’ve had a long experience in the US, it’s at a very, very high level. I mean, Larry Kudlow has been involved. Bolton, before he left, was involved. So, I mean this isn’t just some low-level, a couple of departments are thinking about whatever. I mean it is at the highest levels in the White House. So, I think that there is a commitment to move forward to keep a viable US fuel cycle. I mean, we haven’t talked enrichment, but I think they realise we need to have domestic enrichment capabilities. And I think, you know, export reactors. I think the government has realised that the Russians, Chinese, to a lesser degree – Koreans, are dominating that market. And like they said, there are no orders for US-derived reactors in the foreign market. Zero. So, everything that’s going on in the middle East and India, you name it, there’s nothing on the order books for the US. So, there needs to be help somewhere if we’re going to reassert some kind of leadership role globally in the nuclear area.

Matthew Gordon: Yes, I think it’s fascinating. I think we’re obviously, you know, with generation four, or just new and innovative technologies as a whole, and supporting that and the ability to export, we’re kind of walking into the realms of, you know, corporate America here; as we said, maybe a subject for another day as to how they can get back at the table.

But you know, today I wanted to talk about Uranium miners. I think you’ve given us another big clue there as to what people should be looking for listening for when they’re trying to identify the right companies to get after.

So, you’re obviously very busy at the moment I suspect, but not running around the world. Lots of phone calls, Zoom calls. What’s the mood in the market at the moment?

Dustin Garrow: Well, as you know, I am Chief Commercial Officer for Yellow Cake. And so, there’s been a lot of interest in investing in a fund that holds the physical asset. But I would say in the last couple of weeks, based upon group calls and individual one-on-ones, I have probably talked to 30 different groups. And you know, it’s interesting, they ranged everywhere from continental Europe, London, Hong Kong, Singapore, so, I mean it’s pretty broad. Australia, a lot of interest, a lot of knowledge, which I think is important. There were groups that have come in, they’ve left, they’re coming back, but it’s not, you know, tell me the fundamentals of supply-demand. It’s more of, I understand that, but what are the nuances and what’s the timing? I mean, I’m forever asked when is, and now I can say, well, the price has gone up. Finally.

Matthew Gordon: That is fascinating. Again, that’s fascinating. We’re seeing the generalists, we’re getting inbound, you know, being asked for our views on this, not that they should do, but they do. And to see them interested for the first time in a long time is, well, I’m glad, obviously, very nice, but what do you think it’s going to take for them to actually step in and put some money in and sort of see where this is going? Because you know, for me, they talk about spot price. That makes that the most important thing. They go, you know, when’s this thing going to get to a point where these mining companies can get into operation? I don’t know.

Dustin Garrow: But yes, Matt, a lot of them have gone beyond what’s the spot price doing today? What’s a spot price going to be in a month? They realise that this is a much more complicated industry, and what they’re asking me on, on the production side, are questions like management. In other words, I’m going to begin to invest not an asset, but do you think these guys are going to get this done or not? And so, I think, and that’s, you know, something we have talked about before is human resources, operational, technical, managerial marketing expertise in this business is becoming increasingly scarce. But I think that that’s why I guess I’m more optimistic is because, like I said, a number of…it’s the odd call when somebody says, ‘hey, I have got a clean sheet of paper. Tell me about nuclear and Uranium.’ It’s like, ‘Oh no, you know, I have been in and out, I have gotten done well, I have gotten burned, you know, and now I have got my list of critical criteria and it sort of goes beyond the spot price’. And a lot of them more and more are understanding the term market involvement and what that means. But yes, so I think that is what gives me optimism is the, let’s say, increased sophistication in the space of the investors. Because for years, as you know, decades we didn’t have it. There really wasn’t any investor group, you know, mines were built by big companies and so they were part of a big financing arena: the Rios, the Cameco’s and all of that.

 But now it is, you know, it’s much more interesting because of the financial guys and their analysis. I listen to what they say. You know, in the old days it was, they had no clue. And now it’s like, no, we have run the numbers, we have our model and here’s what we’re concluding. So, it shows that they’re putting the time, effort in, which I think is needed.

Matthew Gordon: Yes, I guess there is a better…we have had inbound calls from fund managers, hedge fund managers, and they talk about specific assets and they’re telling me why certain assets within a company, unnamed, well, I’m not going to name it, will never work. They won’t work at a hundred bucks. So yes, there’s some very detailed analysis out there, but these, unfortunately the market isn’t aware of that information because it’s not capable of doing that type of analysis. So, it is a, I guess all of us are learning all the time.

So, I shall let you go, Sir. I thank you very much for today, as ever, but let’s not leave it six months next time. That was ridiculous. I know things were quiet, but I suspect they’re going to be a lot busier over the next few weeks and months.

Dustin Garrow: I think so. And you know where I am. I’m not going anywhere.

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Homer Simpson, nuclear safety advisor for Springfield Nuclear Power Plant, holds a uranium rod while wearing protective gear.

Ur-Energy (TSX: URE, NYSE: URG) – Two Can Really Ease the Pain (Transcript)

Interview with a candid Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

Ur-Energy is one of the two companies that submitted the Section 232 Petition to the US government, Department of Energy. Klenda tells us why he felt it was the right thing to do at the time. And with an announcement expected this week, he expresses his hopes for the Nuclear Fuels Working Group decision.

Klenda is a forthright speaker and doesn’t shy away from the reality of the numbers in the market and for Ur-Energy. Klenda is clear about how long Ur-Energy can run before it needs to go to market and raise more capital. We discuss the implications of cost cutting, inventories and dwindling contracts for Ur-Energy.

Klenda also opens up about his peers and some of the barriers and hurdles that they will have to overcome.

Interview highlights:

  • 2:08 – Company Overview
  • 4:08 – Section 232: Drivers Leading to the Petition
  • 10:39, 25:06 – DOE Announcement: $150M Distributed How and For What?
  • 12:52 – Business Plan: Decisions, Cost Cutting Measures and 2019 Sales & Inventory
  • 18:06, 27:17 – Contracts vs Spot and the Likelihood for Junior Company Funding
  • 19:37 – Value Creation and Moving Forwards: Where Will UR-Energy sit in 2021?
  • 37:06 – Struggles Fuelling M&A Talks: A Look at the Unfolding Situation

Click here to watch the interview.


Matthew Gordon: You are one of the big names in this Uranium space, and we’ve been keen to talk to you. Here you are today. Jeff, could you start off and give us a 1-minute overview of the business so people can sort of put that in context then we’ll pick it up from there.

Jeff Klenda: You bet. Well, Ur-Energy, we started now, come the end of the month, we will mark 16-years since I and a couple of other guys founded this company. And I don’t mind telling you, we spent the first 7-9-years as a permitting and licensing story. We finally got our record of decision in October of 2012. We spent the next 9-months building out our processing plant. We you completed it on time and on budget, spent the next 2 months in commissioning, and we’ve been producing now since August of 2013; so for the last six and a half years, we’ve not only been producing but we’ve emerged as the lowest cost producer globally outside of Kazakhstan. I won’t go into the details as to why Kazakhstan is the lowest cost producer, but it sure helps when you devalue your currency by 90%. So anybody can look like an economic marvel when they can do that and still sell into the US market.

 But beyond that of course we were, I think forward looking; our board was, and so was I. Back in 2011 through 2015, we put contracts in place that we still have and are still delivering into to this day in 2020, and a couple into the next year and 2021. That’s given us consistent cashflow, but more importantly, it’s allowed us to navigate this minefield without blowing up our shareholders. And by that, I mean blowing up the cap structure. We’ve only raised USD$22M since Fukushima occurred, and that’ll be 9-years come next week. So, I think that that’s one of the strongest points about our company.

By the way, I am the largest shareholder in this company, unlike most, or virtually any of my peers. I’ve got USD$3.5M of my own money in this, so I am the gatekeeper. I hate issuing shares and we are a very shareholder friendly company.

Matthew Gordon: Thanks very much. Good summary. Can we kick off, there’s a lot of topics to discuss and you are well known for having a view on these things, strong views on these things. Can we just kind of kick off with the Section 232 petition? You’re one of one of the two companies that submitted that petition along with Energy Fuels with Mark Chalmers, who we have spoken to a few times on this program.  I’ve read the press releases; we are talking about adversarial behaviour in the market and security and so forth. I mean, what was the, what was your actual driver for that petition?

Jeff Klenda: Well, for me, the driver was that I met with Rick Perry in his offices along with the UPA, the Uranium Producers of America, and that was in July of 2017. Before we left the building, I decided that I would start the section 232. We actually did it, we made the decision before we ever hit the curb that morning.

Matthew Gordon:  Why do you say…what had been said in those meetings that riled you?

Jeff Klenda: What was said in the meeting was that Rick Perry acknowledged that when we were making the case that, look, we’re dying. And we were formerly the largest producer of Uranium on the planet back in the early 1980s, late 1970s, producing 43Mlbs, 44Mlbs a year, meeting all of our own personal needs. Unfortunately, that changed over the years and it really changed with the accelerated production coming out of Kazakhstan. We believe that it is very, very dangerous to become this reliant on Russia, Kazakhstan, and Uzbekistan, and so we filed a section 232 basically opposing that and suggesting that we needed to preserve the fuel cycle in the United States, and we thought that the best, most benign way to do that would be by simply imposing a quota, saying to the US utilities, you can go out there and you can buy whatever you want from whomever you please, but you have to buy a 20% to 25% from domestic producers. We’ve got to keep the fuel cycle alive. And Rick Perry agreed.

He used the term, ‘this is a national security issue’, no less than a half a dozen times in that meeting. And effectively said to me, bring me a 232 Petition because he wanted something that would bypass a deeply divided and extremely partisan Congress. Of course, everyone knows that characterises our extremely dysfunctional government here in the United States and give me something that I can put on the President’s desk. We did just that with the 232.

Now, unfortunately on July 12th of last year, we did not get the outcome that we had hoped for. But nonetheless, it gave birth to the working group, and we are we’ve seen positive outcomes from the working group. Obviously, the line item that went into Trump’s 2021 fiscal year budget; that’s a good start. But we are now waiting for what we are told is going to be immediate short-term relief to come out of the working group. That was as of last Monday. The Government functions on its own timeline, so we continue to wait.

Matthew Gordon: If you don’t mind, let me just finish off the 232 component. You have given lots of reasons that, I mean you genuinely believe that this is a security issue, not an economic one. So, what is to stop the US Government going and getting everything, they need from the Australians, the Africans?

Jeff Klenda, Well, the problem is that the general belief in this, this isn’t the first section 232, the first one was brought in 1988 because we had actually gotten down to the point where we were only providing 37.5% of our own needs, down from 100% less than a decade earlier. So, we found ourselves in a position back in 2017 where approximately 93% of our fuel needs were coming in from outside the United States. And the utilities would make the argument that, well, this is not a problem because of course, we can get all that we need from our good friends; the Canadians or the Australians or others around the world. Well, sadly, we all have come to believe and understand that that’s not true. Australia’s production is really basically down to whatever BHP produces there as a by-product. And the Canadians are only producing now out of one facility, at cigar Lake. They have shut down the largest production facility in the world because the economics simply do not support it and they don’t have long-term contracts to support it.

So the sort of harsh reality is, is that now, especially after there was no action taken on 232, we find ourselves in the just dangerous position of being 100% reliant on outside sources, foreign sources for all of our nuclear fuel, and yet it supplies 20% of our base loads. So while I am I am grateful that we have Donald Trump in the White House, because he is a supporter of nuclear, and it’s nice to have that for a change, we understand we were not the constituency of the Obama administration, I don’t want this to become political, but it’s nice to have a friendly in the White House for our industry, and I think that when he is saying now that we have become energy independent – well, yes, except for that 20% that nuclear counts for our base load, which we are 100% reliant on foreign powers for.

And sadly now, because of the closure of McArthur River, whereas before we were about 40% reliant on Russia, Kazakhstan and Uzbekistan, we are now well in excess of 50% reliant on those 3 countries. And keep in mind, this something that is imperative to understand and that is that the Russians actually control and own a significant portion of the Kazakh production. So when you take a look at this, this is not just, well, we are getting the bulk of it from Kazakhstan, and they are a market economy, they are a relative friendly and so we can rely on them; well, no; Vladimir Putin owns it. He controls it and he will dictate where that material goes and when. So, this is something that is not well-understood but we like to think that we have done a pretty good job of making the Department of Defence, Department of Commerce, and the Department of Energy well aware of this. So now, as we are facing a whole new battle with the Russian suspension agreement, these things are coming into play and the battle lines have been drawn.

Matthew Gordon: Like I said, before we started this interview, I think you suggested that perhaps there’s another conversation to be had there before we get drawn into the politics and geopolitics of this. So, let’s come on to the recent announcement: the USD$150M a year for the next 10-years. The statement, to me, and the subsequent articles, they seem vague; there’s no real clarity as to who that’s going to, where that’s going to, how its being divided up. It’s just a number that seems to have been plucked from the air.

Jeff Klenda: That’s correct.

Matthew Gordon: What do you know?

Jeff Klenda: Well, here’s the situation, we had the same questions, by the way, we were taken through the process. Right now what is happening is that there are appropriation companies on the Senate and on the House of Representative’s side; they are kicking this thing back and forth, and as you, here in this country, when appropriations are added to the budget, we just normally refer to it as ‘pork’, and the negotiations take the form of, ‘My pork is better than your pork, so my pork needs to stay in, your pork needs to come out.

What we have been told is that Congress is hoping to have a joint budget. Now, take that for what it is, by some time in April but no later than May. The problem is that we are now in an election year so Senators like Mitch McConnell and others high profile have said, we will not take that up, even when we have a budget we think we can move forward with we will not take up the real intense negotiations until after the elections.

So, to paint a bit of an, unfortunately, ugly picture here, if you can imagine, we get into the first week of November, whatever the outcome of the election is, now we are really going to start fighting over the budget. Now it is more, ‘my pork has to stay in, and your pork has to get out’ becomes much more strident, becomes much more intense. So that’s okay, the problem is that you’ve got the Thanksgiving break, which we’ll send them all home for five days, and what I think will happen then is that it’s going to be a knock-down and all bloody fight all the way up until the day before Christmas Eve, and they’ll come up with something last minute that everybody thinks they can live with, and mainly so that they can go home for Christmas. So sadly, that’s the way we do things in the United States.

Matthew Gordon: I think that’s fascinating. And I do want to get into your business model, your plan. You’re working and operating in a very complex but also difficult commercial environment right now, okay. And I’ve got to admire all of the CEOs who are having to do what they need to do to survive. Well, except for the ones who are perhaps being economical with the truth; not so much them, but there’s a great group of hardworking CEOs who are trying their best to do the best for shareholders. And I want to talk about what you are doing. I’ve read you’ve been through a cost cutting exercise, you’ve renegotiated payment terms and I suspect contracts, and that’s not easy. I’ve been in that situation myself. These are commercial and human decisions you’re making. I mean, can you talk people through some of the things that you’ve had to do over the past couple of years, two, 3-years to actually get to this point?

Jeff Klenda: Sure. Let’s keep it down to a manageable timeframe; 4-years ago I was just under 100 employees. Today I’m 30 and that represents 4 reductions in force and the last one was probably the most difficult of all. And that was because you’re starting to, when you get down to that low, you’re starting to cut into guys that have been with you for 8, 9, 10-years. That is extremely hard for people.

Matthew Gordon: That hurts, that hurts.

Jeff Klenda: So, what we did, most importantly, is that we have not waited for somebody to kick us in the behind and say, look, you guys need to cut costs. We have always been way out in front of that. We’ve always been very proactive on that. When everyone else decided, look, we’ve been slaughtered because we didn’t get what we wanted. Our shares have just, you know, cut by 40%, we’ve lost 40% of our value, we’ve got to get out there. We’ve got a market. We’ve got to try and get our share price back up. We didn’t do that. Frankly, I didn’t see much point. I didn’t think there was a very big audience. A lot of folks have just been burned because they had been speculating on what the outcome of 232 would be, so we decided to stay home, clean off our own front porch.

We went department by department. We engaged in cost cutting. That was extremely severe but very, very effective. We did a reduction in force where we took down into another 12 highly experienced, long time employees that came out as well. In addition to that, we restructured our debt with the state of Wyoming, our industrial revenue bond, where we now have gone from making a quarterly payment from USD$1.5M per year, a quarter to where it’s USD$178,000 per quarter, and for the next six quarters that will save us USD$7.8M. So, it’s been things like that that we’ve had to do, but we felt that it was critical.

Matthew Gordon: That’s, just to clarify, that’s deferred, right?

Jeff Klenda: We had it out on the runway.

Matthew Gordon:  You had it on the runway; i get it. But that money’s been deferred, it hasn’t been written off ..?

Jeff Klenda: That’s correct.

Matthew Gordon: Okay. So you’d need, you’re basically saying, we’ve got some revenue coming in, which is great, and I do want to talk about that in a second, but the cost cutting is, is the bit which is, it gets you the runway, to use your phrase, down the line, so that you are not going to shareholders and asking for more money to sit around doing nothing. Okay, let’s talk about the production then and once we’ve understood the revenues coming in and the cost, maybe we can have a useful discussion about what that looks like today. So, last year, 2019 look like what, in terms of sales?

Jeff Klenda:  Well, we had a good year last year and we just came out with our financials last Friday. We ended up delivering into the market 665,000 lbs Uranium at an average price of USD$48, USD$50, just under USD$49 p/lb. We chose to purchase more than 2/3rds of those pounds and we purchased them at an average cost of USD$26 in the marketplace. And so, we were able to effectively scrape the delta out of that between the shares that we were delivering into our contracts and then our purchase price in the marketplace. So, we actually had a quite good year. We did USD$32M in gross revenues. We ended up with gross profits of USD$12.2M. And unfortunately, most of that was wiped out because we no longer have the large scale contracts moving out into 2021, we had to now write down our inventories to a level to reflect current market prices, whereas before, as long as we could say to the auditors, well, I’ve got USD$48 contracts out there, these pounds have a value of USD$48, now I have to say they have a value of USD$25 because just like Cameco and others in the industry, we’re coming to the end of this contracting cycle and so we have limited contracts moving forward, both this year; when we’re going to deliver about 200,000lbs pounds at USD$42lbs, again with a purchase price of USD$26lbs. And next year, we go down to virtually nothing. It’s under 100,000lbs we have.

Matthew Gordon: Okay. Well firstly, I like the fact that you’re being honest about the inventory levels and what it represents on the balance sheet. Again, we interview too many companies who try to deceive.

Jeff Klenda: I’ve been accused of being too transparent.

Matthew Gordon: Okay, that’s never a bad thing. Let’s talk about these contracts so that people understand them. Again, because there’s going to be a wide range of understanding here; there’s some guys who watch this thing who are wonderfully informed, and the others are coming new to it, looking at the macro story for Uranium and thinking, well maybe now’s the time, with prices as they are, to be getting in here. So, let’s try and describe the contract versus spot for those people, if you may.

Jeff Klenda: Absolutely. At the present time, spot price, let’s just call it USD$24.50. I think that that’s probably a good workable number, and while there are a number of reporting services in terms of pricing, I think that it would probably be a usable number of right around USD$31 to USD$32 now on term price. And typically, you’re going to have that kind of a delta between spot and term. Now what we’ve seen over the last several years is that we’ve seen kind of a reversal; it used to be 10-years ago that 90% of the material that was sold into the market was done so under term contracts. Of course, that’s no longer the case. You’ve seen the reports probably out of UX / TradeTech or others where now the vast majority, or the majority of the material that is being transacted is being transacted in the spot market. So sadly, that’s the situation we find ourselves in right now. And that does not lend itself to entering into any new contracts moving forward. Not for us, not for Cameco, not for anybody.

Matthew Gordon: Okay. So, break that down for me; you said obviously you’ve had a few contracts for 2018, 2019, you’ve got this 270,000lbs, which you said will be sold at your discretion. That means there’s no contracts against those and that’s more likely. Contracts typically are higher than spot price, again for the 40 and so you sold a quite significant average. Your average, your pounds were sold at about USD$60. You obviously bought in the market, you sold the delta, your average was somewhere in the 40s, so you had a good year last year, right?

Jeff Klenda: Very good year in the fourth quarter, yes.

Matthew Gordon: This year, with your 270,000lbs, that’s going to be somewhat different. So how much value are you attributing to that?

Jeff Klenda: Well, here’s the situation: the last time I gave a public presentation, I had one of our existing shareholders and say, ‘Hey, what kind of a year are you going to have in 2020?’, and I said, ‘Well, not trying to be evasive, but that depends. And what that depends on is if we sell our inventories and if we do at what price we sell them’. So, I think it’s important to understand that first of all, we do have solid cash coming into the year and we’ve got revenues from our many contracts. Those are enough to get us through to the remainder of the year. Now, once we get to the fourth quarter of 2020, the question will become, have we been able to sell our contracts? This is why we’re waiting for the most recent report that is due any time now. We were told it was going to be coming out on Monday or Tuesday. It’s Government – I don’t place much stock in that. I’ll believe it when I see it. I’ve been at this long enough to know what my government means by immediate is not necessarily what I mean by immediate, and what they mean by relief may not mean relief.

Matthew Gordon: Then I’ve got a small anecdote for you: I was working in Africa and when I was told by government officials it would be done now, they didn’t mean ‘now’; the phrase you’re looking for was, it will be done ‘now now’, which meant now. So, I have some sympathy.

Jeff Klenda: One of our Directors spend a lot of time in Africa and he said that the phrase in Africa is, ‘it can happen anytime from now.

Matthew Gordon: Right, sorry to interrupt, but yes, if we could just talk about contracts just a little bit longer here because you described earlier on in this interview, your scenario; what you think the scenario would be politically this year. There’s a lot of events which would possibly prevent Government from making any meaningful decisions. So, we’re looking towards the end of the year. I think that’s an honest appraisal. You’ve got enough money at the start of this year, and the end of some of these contracts to generate revenues to see you through to the end of the year. Plus, you’ll have your 270,000lbs at your discretion to do something with if you can get a contract or a spot price, which reflects your value, your desired value for that. Where does that put you in 2021?

Jeff Klenda: Well I think you’ve driven down to the heart of it now. It all comes down to the contracts and what we’re hoping for, and this is why when, if you were to watch, for example, Secretary Brouillette, when he was testifying in front of the Senate Energy Committee on Monday morning, we had Senator Barrasso in there peppering him with questions, asking him, well, when are we going to see this report? It’s critical to us because one of the things that we’ve been talking to these guys about is the fact that, look guys, it doesn’t do me any good if you help me two years from now. It doesn’t do me any good three years from now. I’m in a better position than anybody else in the industry, and I know that by the time I get into the second quarter of 2021, whether by that time I will have sold my inventories, I’ll need to raise money, most of the players in our industry have lived equity, race to equity race. That’s just how it is and they have done that ever since Fukushima.

We haven’t had to do that. We have only raised USD$22M since Fukushima; we have been very fortunate. But what we are hoping for, and what we have spoken to Kudlow about and what we have spoken to each of the members about the working group about; this is the fact that we need immediate relief. Now, what form might that take? Well, for the two producers, the two legitimate producers that remain: us and Energy Fuels, that immediate relief, we hope will take the form of the purchase of existing inventories. Does that solve all of our problems? No, but if you give me a higher price than spot price for the sale of those inventories, those are domestically produced pounds, they can be used to convert and enrich and become what is called, ‘unobligated material’.

That’s critical because if you’re going to use it for military purposes in any way, if our government is going to use it for their purposes, it needs to be an obligated material. So what we are hopeful of is that we will see something out of the working group that it will provide immediate relief in terms of purchasing our existing inventories and that will extend our runway and give us more time to see things like the line item in the budget for those contracts.

Matthew Gordon:  Right. Okay. Again, a lot of a lot of things in there. The question was what happens in 2021 and I think you’ve gone back to; well it depends if there are any meaningful announcements between now and then.

Jeff Klenda:  Well, our inventories are pretty good to go right on through to about 2H/21.

Matthew Gordon: Okay, fine, and that gives me a sense of what the margin, your expected margin is on the 270,000. Okay. Just on again, the USD$150M, this whole discussion and you know being, pressing the government. You said the government works on its own timeline and whatever it says doesn’t equate to a meaningful economics in any way. And so yes; until the money’s in the bank, it’s not in the bank. Right? So, what do you think you’re going to be able to persuade the government to buy from you at? Or what do you want, what price will you need for them to buy at? Because they’re taking guidance from you guys, aren’t they? They don’t really know this space.

Jeff Klenda: They’ve asked and we have provided this data to them, not only during Section 232, we provided a lot of data to the Department of Commerce, but even the working group itself, we have provided, we formed our own core working group and that included not only ourselves and Energy Fuels, but the conversion and the enrichment as well. And we presented our own white paper to the White House through Larry Kudlow, as chairman of the working group, to make our case. Now at what price they may purchase. That of course is the complete unknown. They, I think that if you talk to somebody like Tim Gitsel, over at Cameco, he has been quoted as stating, look, I wouldn’t even look at restarting production in the United States unless I could get somewhere around USD$$60lbs or greater. And so, I’m going to say that if that’s a number that’s good enough for them, that’s what’s good enough for me. But we have demonstrated that we can not only function well at USD$$60lbs, I think people have seen how we functioned at USD$50lbs.

One of our concerns quite candidly in this space, something that I don’t know if it is a bit indelicate for me to share, is that there are others out there that are not producers, and there are only two legitimate producers left in the United States. What representations they may make, and what contracts they might be willing to enter into, whether there’s a reasonable prospect for them to be able to deliver into those contracts is another matter. So, it’s a bit of a wild card for us.

Matthew Gordon: This is something that we talked about before with other CEOs. You’ve produced, you’ve sold to utilities, you sold into market. Tell me this, what do you think the chances of a utility sitting down with a Uranium junior whose pounds are in the ground and saying, I’ll give you something. I’ll give you a contract for something. Is that reality?

Jeff Klenda: I think that they may, but I think that they’re going to be very guarded. I think what they’re going to do in this, and look, I know all the utility buyers, I see them at all the conferences. We’ve done business with six of them when we had all of our contracts in place extending all the way out through the end of the decade, which by the way, in 2014/15, seemed like a long time. Okay. So 5-years went by quickly. But you know, when you talk to those guys, I think a couple of them said, well, you know, you guys haven’t produced yet so we won’t give you maybe the 200,000lbs that you’re asking for, but we’ll go 100,000lbs with you, or, we won’t give you the 300,000lbs you are asking for, we’ll go 150,000lbs. And you have to prove yourself. I mean, look, these guys have seen it all.

And one of the things you need to understand about the utilities is that the buyers are, they’re smart guys. They’ve been in the industry a long time. They’ve seen it all. They know all the players. I mean, the one thing about our industry is that the BS doesn’t go very far, and the reason being is because they know those projects as well as we know them ourselves. Not only are we getting to be a very small fraternity at this point of producers or prospective producers, but the utilities, they can look at a project and we can say, well, you know, we think we can produce this project, let’s call it Shirley Basin, and we think that we can have a cash cost thereof under USD$15lbs, and they’ll say, well yeah, but that’s in this area, in that area. But then by the time you get over into this area, don’t you expect a little higher cost by the time you get there?

Well, you wouldn’t expect them to know that much about your projects, but that’s their business; they’re supposed to. And so, I think that unfortunately, our industry is one that has survived on, I mean this has levity, I call it BS squared: blue sky times the other BS. And unfortunately, it’s been true. But I think that what’s happening here, and I think this is something else that your listeners should probably understand, while pounds in the ground may have meant something five years ago, we are rapidly entering a time where fundamentals are going to be pretty much all that matter. If you can’t demonstrate that you can produce, do it in a timely manner, do it efficiently, and remember something else; It’s not just about getting to that level. You’ve got to get there and got to stay there. That’s really tough.

I mean, you’ve got to get to 1Mlbs, and you’ve got to stay at 1Mlbs, come hell or high water, rain or shine, doesn’t matter, you got to stay there. And utilities when they’re giving you those contracts and trust me, they’re going to assess that. And so I think that you might be able to smoke them to a minimal extent, but not to a great extent. I think that, look, we’ve had utilities sit down with us recently and say, we know what you can do. We know what Cameco can do. We know what Energy Fuels can do. Anybody else? – we don’t know.

Matthew Gordon: It’s an interesting area for debate as well because again, we have spoken to a lot of Uranium juniors CEOs from all around the world, and you know, the management teams have varying degrees of ability and they are absolutely working hard. The tough bit here is walking into, not getting some fund to invest in your equity because they’re taking a bet on the Uranium space. But funding the capex to develop these things out. These are some pretty big numbers here, right?

Jeff Klenda: You’ve got to be the real deal.

Matthew Gordon: Yes.

Jeff Klenda: I think, I mean, look, I’ll tell you, for us personally, I mean we went to one of the big French lenders, right? I won’t designate who they are, but they said to us, look, you guys seem like you’ve got a great project here, great management team, but you’ve never produced before. You need to build this thing out. So they just told us quite candidly, we won’t fund you the first time around, but come to us the second time after you’ve been producing for four or five years and we’re all over it. And so we have those type of capital options open to us.

Matthew Gordon: But that’s the gap I’m concerned about in the marketplace with, you know, 50 players now, down from the heights back in the day, 500, 400 – 500 Uranium companies, but down to 50, more manageable. But I just feel that initial hurdle is the biggest hurdle. You know, of course I used to say the same phrase, we’ll give you the money after you’ve got it going. You know. Bankers offer you an umbrella when it’s a sunny, and I think it’s a little bit late then, you know.

So, some of these companies that we’ve spoken to can’t give us the answer to how they get that initial either cornerstone investor or institutional, from wherever to get this thing going. You know, getting a couple of small contracts is not going to be enough to get some of these banks to move because it’s too risky. It’s far too risky. So, do you see, how do you see these small companies enabling themselves to get funded? What do they need to say? What do they need to do?

Jeff Klenda: Well, unfortunately, first of all, I think that your numbers are a bit high; are there 50 companies out there? I would say there’s less than 50, and the vast majority of them are explorers, usually in Canada or Australia. When it comes to those that are actually capable of producing, that number gets down to a dozen or less. When it gets down to the number in the United States, that may actually have the capability of producing, and particularly for government purposes, say under the $150M line item in the budget, or something else that may come out of the working group or whatever the case might be. Well now that number gets still smaller, and unfortunately that is…

Matthew Gordon: What’s the number, Jeff?  Is it 2?

Jeff Klenda:  I think that there are potentially, and I say potentially, 4. And I think that, but now keep something in mind here; this is something that we, by the way recently received a request for information from the Department of Energy that we filled out. One of the things that we had to list in there as a caveat was, we’ll keep in mind this depends, because if the United States were to ramp up to expose production capability, you can’t do that without Uranium One coming back into production. And you can’t do it without Cameco coming back into production.

So, the question here becomes, what are we capable of producing? Well that depends on a couple of the foreign players that are right now on standby. And so, of the other guys -how did they get there? Well that’s, now you’re asking the question that every, frankly intelligent fund manager should be asking, look, you know as well as I do when you’re an issuer, I walked through a lot of portfolio manager’s doors and invariably the smart ones, the good ones anyway, ask you one question before you leave: what am I not asking? What am I missing? What am I overlooking here? What is the potential landmine you could trip on that could blow all this up for you? And what they’re not asking right now is what is your capex to get to any minimal reasonable level of production that you can sustain? And that is the question that’s not being asked.

And so what I’ve done, and what we’ve done as a company is what we’ve looked at everybody and we’ve looked at the players that we believe even have a reasonable shot of getting into production. How long it would take them to get there and we’ve just decided, okay, let’s come up with a number that we apply to everybody. Let’s call that a 2Mlbs per year run rate. Okay, 2Mlbs per year. What’s it going to cost for you to get there? Not just get there but sustain it. We know what that number is. It’s in our PowerPoint. It’s on our website. For us to get there, we can get to 1Mlbs, 1.25Mlbs per year, out of Lost Creek, I can do it for about USD$14M to USD$15M.

Shirley Basin is going to cost me about USD$25M because I have to build a satellite plant there.

So, for me that number is over a 2-year period of time. It’s about USD$40M. More than likely I would go out there, I would probably do debt financing against contracts. I won’t build out. Nobody’s going to build out without contracts and they simply will not. So, what we will do is that we can get there for about USD$40M. More than likely, at least half of that will be debt, and we would only be very selective.

Like I hate issuing shares. Everyone knows that about me. I’m very stingy when comes to that. And that’s what my shareholders like about me. I mean the last proxy, I got 99.6% of the vote. I’m not even sure Warren Buffett gets that, but they know that I don’t issue their shares willy nilly. I won’t.

So, I think that it comes down to it, I can do it for USD$40M. Now you pick a name, what’s that number for them? What’s their timeline to get to that 2Mlbs of sustainable production. So, I think that what we need to do here is, we need to change the dialogue a little bit in terms of let’s just assume, let’s just give you the benefit of the doubt and assume that you can get to this 2Mlbs per year. What’s your timeline? What’s your cost? More importantly, what’s your dilution to your shareholders in getting there? I know what mine is.

Matthew Gordon: That’s the name of the game. It’s the name of the game.

Jeff Klenda: At the end of the day, it’s the only thing that matters. Right?

Matthew Gordon: Absolutely. Well done. On that basis, some companies are going to struggle. Are you seeing, or have you had any discussions about mergers, JVs, acquisitions, asset sales? Possibly, but I can’t say, right?

Jeff Klenda: Well, in the last 5-years, we’ve had three offers for the company and of course none of them were adequate. They were all, I would classify as opportunistic. That’s fine; you would expect guys to do that. And that’s been other players in the space, and it’s been private equity. So you know, look, I mean, look, I’m a lean, clean machine. Everyone knows that I’m the lowest cost producer. I’ve got years of production ahead of me. If you’re going to make a grab for anybody in the space where you’re going to buy, well, we know who we are.

We have no illusions about that. So, for us, I think that yes, there’s always those ongoing conversations. There’s absolutely nothing imminent. And the problem is, is that over the last three, four years, as we have evaluated a number of these opportunities, the harsh reality is as well, this guy will sink me in about a year. If I merge with this guy, he’s won’t be quite as bad, he’ll sink me in about a year and a half. And this guy, he’ll sink me about two and a half years. So, but the one thing they all have in common is they’ll sink me. So, I can’t, for me it’s all about, you know, guys, I know what I can do. I know that I can sustain myself in a very difficult environment. We’ve demonstrated that and we’ve demonstrated we can do that without diluting our shareholders to oblivion. The only reason you’re interested in doing something with me is because you know, you can’t do that.

So, it’s the harsh reality of the market that we find ourselves in right now. But I like to believe that the fundamentals are actually turning, that I believe that the supply of fundamentals will begin to reassert themselves. We have a lot of new reactors starting up at a faster pace and they’re shutting down where we are. Technically we are a growth industry and, but the bottom line for us, and this is probably the most crucial to understand; is that our government, we put this thing in the national dialogue, we’ve put it on the national stage with 232 and with the working group. And the one thing that our government has been forced into it, they’ve been forced into an uncomfortable position. And that uncomfortable position is, is what are we willing to do to save the fuel cycle in the United States? Because if we don’t save the fuel cycle, we lose our seat at the table.

We’ve been the primary gatekeeper; we’ve been the primary deterrent to nuclear proliferation for the last 70 years since the beginning of the nuclear age. And what are we going to do? Countries like the Saudis, Russians are going to build their first few reactors. They’re going to build them out, they’re going to design them, they’re going to fuel them. They’ll re eventually decommission them and hey, we’ll buy and pay for the first 2 or 3.

We can’t say anything like that. The Saudis have said to our state department, well, why should we do business with you? You guys don’t even have a fuel cycle left – they are right. And so if we want to continue to be players in the game, and particularly if we want to continue to be that deterrent to the nuclear proliferation, I mean, look, the bad guys around the globe right now that are going rogue and causing a lot of trouble: whether it’s North Korea or Iran, Pakistan, or whomever, they didn’t get it from us. So, what are we going to do? We’re going to cede that seat at the table to the Russians and the Chinese? You can’t do that.

Matthew Gordon: It kind of feels like the Americans already have ceded that seat in reality, but hey, Jeff, that’s a conversation for another day. That’s a conversation for another day. Jeff, I want to say thank you very much for being so candid and refreshingly honest and straight forward about what you see is going on here. I’m interested in your timing.

Jeff Klenda: It’s funny; the utilities find my candour to be a bit off-putting. Thank you for appreciating that.

Matthew Gordon: Well I guess shareholders and buyers would have two different sets of goals. But we should catch them again and talk about that geopolitical component because that does, I think that’s fascinating.

Jeff Klenda: I’ll tell you when I’ll be willing to do that when I would feel like really getting in trouble with the utilities.

Matthew Gordon: Okay. We might have to defer then.

Jeff Klenda: Look there are a lot of positive things going on and I’ll leave your viewers with this thought: we tend to understate, we’re not overly promotional. In fact, we’ve been accused of being too transparent and not promotional enough. But the one thing I know for a fact is that I’ve given myself great runway. I wouldn’t trade positions with anybody else out there in the industry. And I know every other player intimately. I can run faster than anybody else. I can do it at lower-cost, and I can do it at less pain and dilution to my shareholders. There’s only one of us that gets to say that. That’s U-r Energy.

Matthew Gordon: Let’s finish on that note. Thank you very much for your time. Let’s stay in touch. Great to hear from you. I hope there’s some news. It looks like it won’t be necessarily be today, hopefully next week and I’d love to get your view on that when it does come out.

Jeff Klenda: Let’s do it. Yes. Once we get something from the working group, let’s hope that it’s something that’s positive, we’re hoping that it’s going to be, and doing another one of these on the heels of that would be quite instructive.

Matthew Gordon: Beautiful. Thanks for your time. Have a great weekend.

Jeff Klenda: We will. In our warm temperatures here. Thank you so much


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

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

Stranger Things

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

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

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

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

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

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

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

US President, Donald Trump

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

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

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

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

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

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

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

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

Energy Fuels (NYSE: UUUU) – Do you Hear What I Hear Ringing Through the Sky? (Transcript)

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

It’s a bloodbath for Uranium equities at the moment. There is no news from Washington and most Uranium CEO’s have gone quiet. So we called Mark to see what he knows.

Interview highlights:

  • Continuous Silence: What is Happening in the Uranium Market?
  • Delays for the Decision and Options Available
  • US & Iran: How the Situation Affects the Uranium Market
  • The Mill: How Old is it, What is the Cost of Maintaining it and Could it be Decommissioned in the Future?

Watch the interview here.


Matthew Gordon: We are operating in a bit of a void here. I’m looking at share prices of most of the Uranium players, North American, are being hammered. What do you know that we don’t?

Mark Chalmers: Well, I think that we have is, we have investors that are just tired of waiting. They have been waiting; when we started this 232 process 2 years ago and it just drags on and on and on. Look, I share the frustrations of investors, but just remember; for every share sold, there is  one purchased, even though the price of these shares has gone down and we have all been hammered. Not just in the United States but even in some of the global equities in Canada have been hammered as well too. It certainly doesn’t make me feel good when I see these shares slipping but as you know, our company and Ur-Energy started this process 2 years ago, but we are still making progress. We are still making great progress. I think that the Government gets it. I think they get it that we have to have a nuclear fuel cycle in the United States.

Matthew Gordon: Why do you say that they are making great progress or that the Government understands?

Mark Chalmers: I think that when the tack changed from the 232 process, which is more of a  trade-focussed initiative, to national security when it comes to producing Uranium and nuclear products, you know, focussed on the military’s requirements, the Government’s requirements,  we got rid of, effectively, all opposition that we know of when we made that shift. The utilities are not openly fighting us. We’ve got good support from NEI.  We’ve had many, many meetings, I wouldn’t want to count them up. Hundreds and hundreds of meetings with people in the Administration, people in Congress.

Matthew Gordon: You are meeting these important people up on The Hill, what are they saying?

Mark Chalmers: You know, I think that we have gone through a huge education process on how dependant we are for import products in the United States and I think that when we talk to them, they are shocked at how dependant we have become. The government inventories have been there for decades, but they are finite and they are diminishing. As long as we are the largest consumer in the world, is that where you want to be, and not have the capabilities to replace those inventories because Uranium nuclear fuel products for the military, has to be unobligated products by the treaty, so it basically has to be by treaty, mined, converted and enriched in the United States of America.

Matthew Gordon: Pompeo and Trump; do they understand the scale of the problem?

Mark Chalmers: Look, I haven’t met with Pompeo, I haven’t met with Trump but I believe they both understand the magnitude of the problem. I think the people surrounding them understand the problem. I think they are understanding they need to make a decision quickly because of this imbalance of our ability to produce these very specialised products for the US Government.

Matthew Gordon: 12 months ago they had this same problem, today it is more imperative. Given the nature of some of the politics in America at the moment; we have this impeachment hearing going on, we have got Iran waivers being discussed, another 60 day extension, is it possible to make a decision in that environment?

Mark Chalmers: Look, we think so. It’s certainly been harder to get to the top of the pile. Since the original working group deliberations and the report they prepared, it’s been really hard. Every time we thought we were getting closer, it kept getting delayed. Certainly, with our discussions with people in Congress and those in Administration, we say, ‘Look, we are out of time. We need to tell our shareholders what the outcome is with this review. They need to understand, we are getting hammered with our share price and we also need to send a clear message to the world of Uranium mining and these nuclear fuel products; including the Russians, the Chinese, the Kazakhs, that the United States of America is not going out of business, in this area, at the front end.

Matthew Gordon: What are the options on the table now? We’ve been reading about Government-buying programs of US Uranium.

Mark Chalmers: Look, we try not to make it guesswork because it’s better for us to provide some guidance here. I mean, the first thing we want is, we want the Government to come out and say that the Government is supporting the nuclear fuel cycle in the United States: mining, conversion and enrichment, at a level that at least provides some critical mass so that we have the capabilities to produce our basic requirements, not all our products, but we can flex up if required. So the number one is; we want to be able to show our shareholders and tell the world, or have the Government tell the world the conclusions that they have made through  both the working group and the Section 232 investigations.  That’s number 1.  Number 2 – we want to see, or we hope to see immediate demand for Uranium mining. Uranium mining is the most challenged first step of the process. We would like to see the Government starting to buy Uranium: like now, this year -2020, and onwards to make sure that the Uranium miners can sell their product at fair prices. Fair prices. So that we can get some cashflow re-established. 

These companies that are not producing now – zero cashflow, it’s not a real good outcome; it’s not sustainable for a long period of time. And then lastly, the plan, the plan that they announce, we do realise that some of this, or a big chunk of this is going to have to go through appropriations. The expensive part of the plan is really the enrichment. Uranium mining and conversion already have a lot of the infrastructure in place on the lesser side of this re-establishment of the fuel cycle.  when you start talking about building new enrichment plants, being able to make everything from 495, 235, all the way up into 90s 235, that’s going to start costing billions. Now, the Government was already planning to re-establish enrichment without, in the early days, without looking at the Uranium and the conversion steps.

Matthew Gordon: Interesting. 20% of US energy is produced by nuclear fusion. There have been a few plants that have come to end of life, and a few due to come to end of life. The utilities have got oil, they have got gas, they have got renewables; nuclear is part of that, but for them to invest billions of dollars into building, or upgrading new plants, must be a big part of the conversations that they are having with the Government too. So, the miners are just a small part of this, but it’s got to be joined up thinking.

Mark Chalmers: Yes. And I think that there was a lot of logic when the President came up with his working group. Now granted, the working group’s main focus was just these first three steps of the fuel cycle but certainly, the Government, or the Trump administration is certainly committed to keeping its mini nuclear power plants operating, going forward, for obvious reasons. I think that the Government, like the DOD and the DOE, are also getting increasingly optimistic about the micro reactors and the small modular reactors. You know, this new Haleu fuel which is 20% 235, is also becoming a product that the Government thinks they will need for the SMRs particularly. And then, lastly, space travel – you know, that’s coming back on to the horizon. Now that is not probably a large consumer, and takes some time out, but again,  I’ve said this to you many times, it is not time for the United States to not be in this business.

Matthew Gordon: What is your view on this Iranian waiver issue at the moment. It’s a real political hotbed. The Europeans don’t want it. I know there’s a lot of discussions internally between Pompeo and Mnuchin about it. They are in disagreement about it. Is that a big distraction for you?

Mark Chalmers: I think it helps us because I think it shows how sensitive and inter-related this fuel market is outside of the United States. Even this morning I was hearing that Trump and Pompeo were wanting these waivers to go away. I also heard, and I heard this on the radio, Fox News, that the utilities, they don’t want it to go away because they have such a dependency already on the former Soviet Union, Russians, for fuelling their reactors. So it is all interconnected. People talk about, we’ve got all of these stockpiles, we’ve got all of this Uranium. We don’t need it for another 5 years, 10 years so obviously, the business couldn’t ever be healthy, and I know that’s not the case. But then, if you start looking at when you remove or let these waivers expire, and it starts to create issues where Russia cannot import into the United States, or cut back on that, a lot of these utilities are going to start running out of fuel, like within a year and that is sure going to shock people. What happened to all of those inventories? Where are all those products? You know, we thought we had 5 to 10 years of those products available: we don’t.

Matthew Gordon: How much inventory is available to US ultilities today? What are they sitting on? A year? Two years? Three years?

Mark Chalmers: Look, the utilities: I understand they want the lowest cost fuel to keep nuclear as competitive as they can. We know that fuel is such a small part of nuclear generation, but nuclear generation is struggling. But, you know, Uranium is in all these different shapes and forms and you’ve got to make sure you keep those in to balance with what your requirements are.  I think that this just highlights the fact that the United States doesn’t have the ability now, you know, URAMCO is fore-owned, in New Mexico, and they can do enrichment there up to 495. But we do not have US-owned capacity for enrichment. We do have US-owned capacity for conversion but that is shut down right now. I think it just highlights the fact that you do not want to be overly-dependant on all of these other countries and you do not want to be in a position where you have to fight with  one or both of your arms tied behind your back the Iranians and with the relationships they have with the Russians.

Matthew Gordon: Can we just talk about your mill, White Mesa. You know, ‘he who controls the mill, controls the district. So people are saying, hang on, the mill that he has got has a huge capacity which you can’t possibly fill. How do you maintain this mill? What’s the cost of keeping this thing going? At what point do you decommission something like that? Or is it a case of, you just replace the bits; its ongoing maintenance as you start processing stuff through the plant, you just constantly upgrade.

Mark Chalmers: I think the mill was originally built to operate for like 20 years and now it has been around for over 40 years. There have been a couple of campaigns of modernisation, you know, with control systems and automation. We have replaced a lot of the tankage, we’ve built new tailing cells. There’s been an evolution in technology over the years. So the mill, even though it’s an older facility, is in very good, excellent condition considering its age. So it is unique; as we know, it’s the only one that is operable, licensed, fully-staffed right now. It has the Vanadium circuit, hey, Vanadium is starting to get a bit of life in it. The price of Vanadium is starting to go up. Granted, when it was USD$30, dropped to 5, up to 6, we never thought that would look good but we are hoping that the price of Vanadium continues to go up here this next year or two and we can capitalise on a fairly substantial inventory of Vanadium that we have at the mill. But no, it’s in good shape, as I said, it’s basically, largely staffed. We did lay off a number of people in the last week or the week or so ago. We shut down the Vanadium recovery process because of prices. But it’s in good shape and we are ready to go.

Matthew Gordon: You’ve let some people go, where they permanent staff or temporary staff?

Mark Chalmers: Yes, most of the people that I let go were temporary staff. When we have to spool up the mill, we try to keep a core group of full-time employees and then we spool up with temporary people where possible. It’s our ultimate objective though to offer as many fulltime jobs as we can in the region.

Matthew Gordon:  We’re days away from a decision, but we have heard that before a few times before.

Mark Chalmers: I can assure you, I will let you know and the rest of the world and we have put a lot of our skin and sweat and money, we have worn out, I don’t know how many pairs of shoes I’ve worn out walking the halls of Congress and DC. But we’re excited it is finally going to happen and I know there are the nay-sayers who say it is never going to happen, they don’t think it’s going to happen, but I think we have done a fantastic job when you look at our company, because we have been doing most of the lifting, Energy Fuels has been doing most of the lifting, probably 75% of lifting here. I think it’s remarkable that we have got this thing elevated to where this is at this point in time.


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

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

Energy Fuels: I need your clothes, your boots, and your uranium mill.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

If, like me, you are a budding investor, you likely spend hours each night scouring the internet for the latest and best opportunities to make money. From economic revolutions instigated by futuristic technology, to trade embargos plummeting the prices of certain commodities, the world of investment is a complex minefield, which incites fear and excitement in equal measure.

In recent days, a commodity that has captured my focus is uranium; certain American economic news regarding it has intrigued me, in addition to the international surge of attention towards climate change. Following national news coverage in the last few weeks, it has been impossible not to notice seething commuters warring with Extinction Rebellion protestors. What could possibly cause smartly dressed commuters to devolve into a primitive mob? The answer is the increasingly intense climate change debate.

A colour photo of a crowd of colourfully dressed Extinction Rebellion protestors holding a large green banner stating: 'REBEL FOR LIFE.'

This event was one of many occurring in England’s capital in recent months. Additionally, Greta Thunberg’s damning climate change speeches have navigated themselves into the centre of international discourse. An individual wouldn’t be nominated for the Nobel Peace Prize unless their cause was especially relevant.   

One of the key components of the raging debate is nuclear energy. Nuclear-based electricity production avoids carbon dioxide and other greenhouse gas emissions. However, it has been suggested radioactive gas can cause health issues to workers and individuals from communities surrounding power plants. Furthermore, the disposal of nuclear waste is an even more controversial subject, and if one so much as utters the words ‘nuclear weapons’ they can expect a flurry of opinions to be launched at them more explosively than the warheads in question.

One of the primary materials involved in nuclear energy production and military use is uranium. In the wake of a tsunami striking a nuclear power station on the shores of Fukishima, Japan, the energy sector held a review on reactor designs and safety procedures. The resulting financial and psychological tidal wave had a detrimental effect on the industry, one which it is only slowly recovering from. As a consequence, despite offering vastly lower energy costs, uranium seems to have reached a political and environmental impasse and demand has plummeted. When combined with a lingering sense of distrust generated by incidents in Chernobyl, Ukraine (1986) and 3 Mile Island, U.S.A. (1979), and its association with nuclear proliferation throughout much of the 20th century, I was beginning to view uranium as a commodity too contentious to consider investing.

A colour photo of the dilapidated Ferris Wheel in Chernobyl's infamous abandoned playground.

However, after conducting my own research, I have concluded it is an area that can bring big returns to patient investors. The macro story is positive and encouraging. There are billions of USD being spent building new reactors across the world. New technologies mean small, more mobile reactors are being commissioned by countries who previously would have found themselves priced out. High profile individuals are vocal in their support, from Bill Gates to Elon Musk, and the vast scientific community adds additional endorsement to nuclear power being critical to the energy solution. Our current energy sources are not sufficient to cope with a rapidly increasing population and I feel nuclear power can be a green, affordable solution. 

…many of the world’s largest uranium mines are in care-and-maintenance mode.

The Uranium Cycle: I’ll be back.

Uranium is fundamental to the production of nuclear energy. However, current uranium spot prices remain far below what is economically viable to mine and produce ($23.90 as of 31/10/2019). Such market activity has depressed investment. Most of the (≈50) remaining uranium companies are struggling to stay afloat; many of the world’s largest uranium mines are in care-and-maintenance mode (1). These cold, hard facts lead prospective investors to one conclusion: why on earth would I want to invest in uranium? The answer remains the same as any other investment: it can make you money if you play your cards right.

I have studied numerous articles detailing different investment approaches to goods experiencing a low equity price. To me, the most attractive attitude towards uranium investment is the contrarian approach. After recognising where uranium is in its cycle, and the potential for an uptake in the future, this method seems prudent.

However, I can’t exactly go out and buy large quantities of uranium for myself; I wouldn’t want MI5 knocking on my door in the early hours of the morning. A wise investment will require choosing the right companies to invest in.

From an investor’s standpoint, there are 3 crucial elements a company requires to instil confidence in me, or any other investor. If any of these aspects are missing, I think the company is likely to falter and investment should be avoided. 

Investing in uranium: the secret recipe

The three ingredients are as follows:

  1. An experienced management team who have a proven track record for every process: mining, refinement and sale.
  2. Sufficient liquid assets to enable the company to survive until prices take an upturn.
  3. A genuine asset(s), not something purported to be an asset (such as a licence) that in reality is more restrictive to a company than beneficial.

Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, has all three, but, perhaps most interestingly of all, it has an ace up its sleeve that is likely to be a real game-changer.

An Experienced Management Team

Uranium is an incredibly complicated commodity to work with. From permits, licences, safety, legislation, regulation, transportation to refinement there are numerous difficulties, not to mention the difficulty of mining itself. The sale of uranium is also far from straightforward, because the buyers are utility companies with long buying cycles and complex purchase criteria. If a management team has not already been through this process from start to finish, they are learning on the job with my money.

A colour photo of Energy Fuels CEO, Mark Chalmers.
Energy Fuels CEO, Mark Chalmers

Energy Fuels has a management team with an impressive résumé. Their CEO/President Mark Chalmers has been involved in the uranium industry since 1976. His vast experience would impart confidence to most investors. As a company, Energy Fuels has been operating since the 70s, and has nearly 40 years of experience mining and refining uranium. I find Energy Fuel’s established industry-related relationships and experience with uranium production/sales impressive.

Sufficient Cash

The brutal nature of the current market has created a tough environment for uranium companies. Murmurs from funds surround the need for price discovery: the spot price for uranium will need to start increasing before they will invest meaningful cash into companies again. It seems clear to me that utility companies have complete control of the timescale of any potential uranium price uptake. In the meantime, if a company lacks the cash to maintain their facilities, they will not be able to survive.

Handily, Energy Fuels has $40-45 million to see them through until uranium prices rise.  In a recent interview with Crux investor, Chalmers expressed a reason for investors to be hopeful of a price increase in the near future.  Energy Fuels and Ur-Energy are hopeful their petition to the United States Government under section 232 and the subsequent announcement of a 90-day Working Group may bear fruit.   

If the group’s report is favourable to the nuclear industry, it is possible President Trump could subsidise U.S. uranium companies via tax breaks and other federal financial boosts, thus allowing prices to rise and profit to be made for investors who climb aboard while prices are still low. However, despite Chalmers stating he would be “shocked” if the government doesn’t rule favourably towards the uranium sector, the judgement currently resides in a realm of definitive uncertainty; the group’s report may not be completed this year as other events take centre stage on the U.S. political platform.

Genuine Assets

A company’s assets are an excellent indicator of if my hard-earned cash will be worthily invested. Energy Fuels have a portfolio they regard as ‘truly unique.’ (2). They have ‘more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer.’ Energy Fuel’s 100% ownership of numerous promising mines across Arizona, Utah, New Mexico and Wyoming gives them an excellent list of valuable assets.

Furthermore, in an interview with Crux Investor at the WNA, Chalmers explained the versatility of Energy Fuels. The company tries to ‘diversify,’ to ‘keep a strong balance sheet’ and ‘protect shareholders.’(3) The quantity of projects being undertaken by Energy Fuels helps reduce the risk of investment, as if one goes horribly wrong, there are plenty of alternative options to steady the ship.

The diversity of Energy Fuels is further exemplified by their status as the largest U.S vanadium producer. Vanadium has a variety of uses in engineering and redox flow batteries to name but a few. They also provide ‘low-cost environmental cleanup and uranium recycling services, including potential involvement in the EPA clean-up of Cold-War-era uranium mines.’ Investors can find their risk reduced because the company is clearly not a one-trick pony. Energy Fuels is not completely reliant on uranium.

The Game-Changer

When first mined, Uranium isn’t functional for nuclear energy or military use; it needs to be enriched to ≈20% for power and ≈85% for military use. The enrichment process requires the mined uranium ore to be processed in a mill. Energy Fuels own the only ‘fully-licensed and operating conventional uranium mill in the United States.’ (4). This means in the event of a uranium price increase they are the only company ready to go into production immediately. It also means that any competitor will be restricted at their leisure; companies will have to pay Energy Fuels for use of their mill, or face expensive shipping expenses to mills in foreign countries. Energy Fuels will also have control of the timescale of other companies’ uranium production. Chalmers has positioned the company strongly with an undeniable leg-up on the competition.

A photo of three nuclear cooling towers in action against the backdrop of a clear blue sky and a woodland area.

An Option I Could Seriously Consider

Upon conclusion of my research into the world of uranium companies, I have reached the conclusion Energy Fuels would be a potentially sensible investment. I don’t think any other American uranium producer comes close when the management team, business model, cash and bonus mill of Energy Fuels places them in such a commanding position. In the near future, I am likely to invest. I feel my money would be much better served waiting to grow with the sleeping giant of uranium than comatose in a bank account with less interest generated than a taxidermist’s dating profile.

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

  1. https://www.iaea.org/newscenter/news/uram-2018-ebb-and-flow-the-economics-of-uranium-mining
  2. http://www.energyfuels.com/
  3. https://youtu.be/uj1VG8V3igs
  4. http://www.energyfuels.com/white-mesa-mill

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

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

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

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

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

Click here to watch the full interview.


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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Who from?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  What are you looking for?

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

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

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

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

Mark Chalmers: USD$3.7 billion in trust.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: What are you going to do? 

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

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

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

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

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

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

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

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

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

Matthew Gordon: How much cash have you got left?

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

Interview Highlights:

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

Click here to watch the full interview


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

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

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

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

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

Daniel Major: No. 

Matthew Gordon: No? 

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

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

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

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

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

Daniel Major: No.

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

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

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

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

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

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

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

Matthew Gordon: Does anyone? 

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

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

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

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

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

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

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

Matthew Gordon:  It’s guesswork?

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

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

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

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

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

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

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

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

Daniel Major: Yes.

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

Daniel Major: High-grade or whatever they are.

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

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

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

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

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

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

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

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

Matthew Gordon: So what have you done?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Did things go wrong?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Daniel Major: They’ll have to.

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: At a macro level?

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

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

Daniel Major: Correct, absolutely.


Company page: www.goviex.com

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

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

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

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

We discuss these topics and more: 

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

Click here to watch the interview.


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

Mike Alkin: There’s a lot to learn.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Which analysts? 

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

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

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

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

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

Matthew Gordon:  Yes, he did.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  Is that free?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  And investors?

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon:  I know, it does.

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

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


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Anfield Energy (TSX-V: AEC) – A Deep Dive Into This Acquisitive Uranium Explorer’s Strategy (Transcript)

How do junior Uranium explorers survive in this environment and what do they spend their money on? Corey Dias, CEO of Anfield Energy (TSX-V: AEC) believes it is closer to production than any of the currently non-producing uranium companies. They are ready to take advantage for when the market turns. The majority of its Uranium assets are in the USA, both ISR and conventional hard rock Uranium. Their Initial focus is on the Wyoming ISR project and the nearest-term asset which is the Charlie project. Long- term focus is in Utah and Colorado with their conventional Uranium assets.

The topics covered:

  • Detailed strategy discussion.
  • Breakdown of assets and focus.
  • How is Anfield Energy spending its investors money.
  • Section 232 desires and outcomes & expectation of the Working Committee.
  • Price discovery.

Click here to watch the interview.


Matthew Gordon: We usually kick off with a 1-minute summary, so if you don’t mind, give us a 1-minute summary of Anfield Energy.

Corey Dias: Anfield is a company with the majority of its Uranium assets in the United States. We have both ISR assets and conventional hard rock assets. Our near-term focus is on the ISR space and those are the assets that we hold in Wyoming. We recently closed a transaction whereby we acquired what’s called the Charlie property. Charlie property is a near-term production opportunity for us. We had the opportunity to pair that with Uranium One’s existing facility, processing facility, in Wyoming through a resin processing agreement we signed a couple of years ago. So, our near-term focus is Wyoming and ISR. Our longer-term blue-sky focus is the conventional assets that we have in Utah and Colorado.

Matthew Gordon: Right. Okay, perfect. Perfect summary. So, tell us a bit about you. What’s your background? Why are you in the Uranium space?

Corey Dias: Well, I am. My background is actually in finance. I worked as a research analyst for a number of years, for a couple of banks in Canada and some smaller firms. I had the opportunity to move to the other side of the market, on the dark side, as they’d say, to put my money where my mouth is, basically. And the opportunity was given to me by one of our directors. I was running another company at the time. I came in back in 2013 to take the reins of the company. We started off in Copper and then decided that Uranium was a fantastic space to look at because it was unloved and really uncovered at the time. And we’ve been accumulating assets from that point on, from both small companies and large companies. We’ve been able to partner with some pretty significant players in the industry, including Uranium One the fourth largest Uranium producer in the world. And with Cotter Corporation, which is actually a subsidiary of General Atomics, a us weapons defence manufacturer in the U.S., which is a private multi-billion-dollar organisation.

Matthew Gordon: Why don’t we get some of the basic numbers out of the way? Give us the scale of what we’re looking at here in terms of market cap, cash flows…not cash flows, cash in the bank.

Corey Dias: Cash flows…

Matthew Gordon: You wish right!

Corey Dias: We’re not quite in the cash flows here at this point. Our market cap in Canadian dollars is roughly, call it $13M or $14M. Our path to financials or financing is obviously through the equity markets. And we recently closed a $3.7M financing.

Matthew Gordon: Yeah, I saw that. You are a small company, but you’ve got quite a few assets, quite a few moving parts here. Give us some sense of what the strategy, what the thinking is. What are you trying to build out here? Because cash is going to be the restrictor in all of this. The quality of the assets, you’ve got to assess that, work out what you got, what you want to work on, what you perhaps want to park or flip. What’s the thinking?

Corey Dias: So, as I mentioned, we’ve got kind of a two-pronged strategy here. First of all, we have these ISR assets, which are primarily in Wyoming. We’ve recently acquired the Charlie property, but we also acquired 24 other properties from Uranium One back in 2016. So, the plan, and those 24 projects had a historical Resource of about 30Mlbs. Our aim here is to focus first on Charlie and then create a pipeline of produce to follow on from Charlie, behind this resin processing agreement we have with Uranium One in order to create a long-term opportunity in Wyoming.

Matthew Gordon: Okay. Our focus is Wyoming. Great. Charlie, a new asset. Fantastic. 24 assets. That’s a lot of moving parts. Have you any sense of what you’ve got there, you know, outside of what the historic was. Have you spent money on it?

Corey Dias: We’ve spent money. We don’t focus on exploration per se. We look for assets which have a historic Resource, because all we have to do is go back and get an engineering firm to confirm what’s there already. It’s a lot cheaper to do that, to spend $25,000 to $50,000 on a report to confirm the historic Resource as opposed to going out and drilling and spending hundreds of thousands of dollars.

Matthew Gordon: And the math being, there’s what was there, this is what’s come out of the ground, there should be a number which is left behind. Is it as simple as that?

Corey Dias: Or if the historical Resource is a Resource that’s there at the time, it just hasn’t been confirmed through a third party. We get an engineering firm to come in, as a third party, to come and say, yes, the Resource you’ve acquired is actually what is stated there. It’s not about what’s been taken out of the ground yet. It’s actually somebody has done the work already. It just hasn’t been recognised by a third party or by the TSX Exchange, etc.

Matthew Gordon: But at some point, you are going to have to spend the money to actually do a proper 43-101, or more. Is that right?

Corey Dias: Right. And that’s the $25,000 to $50,000 as opposed to getting a greenfield property where you have to go out and start drilling, and spend hundreds of thousands of dollars in order to delineate a Resource. The Resource is there already. We’re just confirming the Resource. Somebody else have done all the work and drilling.

Matthew Gordon: Okay. It seems a nice, cheap way to get to a number which is recognised. So that’s one 43-101 for all 24 assets or?

Corey Dias: No. We do for each individual. So, we’ve completed three already. We’ve done one for Charlie. And we’re now working at a Preliminary Economic Assessment for Charlie.

Matthew Gordon: Right. So, you could be at $1M to do all of them is that right? If you did a simple report.

Corey Dias: Yeah. About $1M. It all depends. And some of the Resources are much easier to delineate or confirm than others. So, you know, we’ll probably won’t go through all 24. We’ll probably look for the best 10 to 12. And then from those, figure out which ones have the best economics in order to create that pipeline that would behind Charlie. So if we get another 10Mlbs, perhaps 15Mlbs pounds out of those 24 projects to sit behind Charlie’s 4Mlbs. We have an agreement in place with Uranium One to process 500,000lbs per year. So that could get us anywhere from 20 to 30 plus years.

Matthew Gordon: Okay. Interesting. Let’s get into Charlie. Tell us tell what precisely you’ve bought. What have you got there?

Corey Dias: Well, essentially, it’s a state lease. And the important idea behind Charlie is that it sits in between two of Uranium One’s existing mines. Uranium One is mined on either side and this property is actually part of the same trend. Uranium One had tried to acquire this asset and was unsuccessful, and actually had a conversation with us about the potential of picking up the asset. And so, we spent 26 months trying to acquire this asset from Cotter and finally closed it this year. The beautiful thing about this asset is that, you know, we’ve got all the infrastructure around because Uranium One has been right there, we understand the property because it’s been mined on either side. We know what’s there. We know how to mine it. And Uranium One’s actually going to partner with us in order to facilitate production.

Matthew Gordon: And why couldn’t they do that themselves? Why did they need you?

Corey Dias: Oh, it’s you know, it’s a very interesting industry when it comes to trying to get deals done. Sometimes a lot of the parties look at it as a zero-sum game. So, we have to win and you’re going to lose in the transaction. Whereas from our perspective, we’re talking about win win. And we always ask, our first question is, what do you need? And what would you like? In order to get this deal done. And it’s worked well for us. We’ve done it with Uranium One twice. And now we’ve done it Cotter? We seem to be doing something right. And I guess Uranium One recognise our ability to get deals done and assets to pursue it.

Matthew Gordon: Okay. And what’s the split between you? How are you sharing that?

Corey Dias: Well, we’re not sharing it, it’s our asset.

Matthew Gordon: But there’s a relationship. How have you engaged with them?

Corey Dias: Well, they’re going to help us with well field development. Uranium One has all the skills. They will look at the ability to make money off of us through well field development. And they could potentially buy some of the pounds that we do end up creating at the site.

Matthew Gordon: Right. Okay. There’s an agreement in place there?

Corey Dias: Yeah, there’s an agreement in place for processing. We have to pay Uranium One to process the materials so there are making money on the property.

Shootaring Canyon Mill

Matthew Gordon: Okay. Talking of which, you’ve also got a mill. Shootaring Canyon?

Corey Dias: Shootaring Canyon.

Matthew Gordon: What is that?

Corey Dias: So actually, it’s one of only three licensed, permitted and constructed conventional Uranium mills in the U.S.

Matthew Gordon: Why is the word conventional important in there?

Corey Dias: Because it’s not an in-situ recovery. It’s a different type of recovery method. It’s a traditional type of mill. It can be used for Copper, Silver. It’s a hard rock underground milling facility, as opposed to processing for ISR is much more, it’s you’re basically shooting water into a well underground and sucking out the fluid and then separating the fluid.

Matthew Gordon: Right, and that was built when?

Corey Dias: That was built back in the early 1980s.

Matthew Gordon: 1980’s. And it ran for how long?

Corey Dias: It ran for four months.

Matthew Gordon: Okay. Talk me through that story.

Corey Dias: It ran long enough to justify final payment on the construction of the property. Then the Uranium prices fell. And nothing happened. The great thing about it only running for four months is that there’s not a lot of environmental liabilities there. So it’s the youngest mill of the three that are in existence the U.S. and it has very little, if any, environmental liability. It’s very clean.

Matthew Gordon: But it also hasn’t run. For a long time.

Corey Dias: It hasn’t run, but it has been staffed since it was built, because it has to be, because it is a Uranium facility.

Matthew Gordon: So, what were those staff doing? I mean, you can’t keep this thing in running order for 30 years.

Corey Dias: Yeah, you know, turning knobs and greasing areas where it needs to be greased and making sure that knobs turn. Making sure that there’s no seepage of anything. And it’s an old facility, and some of the parts have been removed because they haven’t been used but certainly, the building itself is still there. The conveyor belts need to be updated, but they’re still there. The control room looks like something out of Gene Roddenberry’s Star Trek from back in the 1970s, the coloured lights. But it’s still there. Everything turns on. There’s the ability to actually turn on lights but you can actually…there’s no running plant. You can’t turn on and run things all the way through the facility.

Matthew Gordon: Yeah. It’s like nearly 40 years old, right, it’s 35 years old or something like that. But how much money would need to be spent on it actually bring it up to speed. To actually work.

Corey Dias: You’d have to spend $25M to $30M.

Matthew Gordon: That’s $25M to $30M, which you don’t have right now. And obviously, the market being what it is, which we’ll talk about in a minute, you’re aren’t going to get that money anytime soon. There’s a point in the future where you’ve got the option of bringing this thing back on. How much did you pick it up for?

Corey Dias: Well, we bought that property. We bought a number of small mines and picked up some royalties for about $7.5M. And Uranium One had acquired the asset from a company called US Energy for about $100M.

Matthew Gordon: Right. Okay. But back then. When was that?

Corey Dias: That was 2007. 2008.

Matthew Gordon: Okay. Interesting. You’ve got all these various assets, so what’s the what’s the big idea here? You are a finance guy. You’re thinking of numbers. What are you putting together here? And why would investors get excited about that vision that you have? Tell us about it.

Corey Dias: Well, look, I think the important thing here is that ISR is the place where you want to be at a lower price environment when it comes to Uranium. We have and we’ve established a complex there in Wyoming. So, we have properties that we bought. We have the Charlie asset, which is a near-term production opportunity. We have a resin processing agreement in place in Wyoming, which means that we don’t have to build our own facility, which is a time killer and a cost killer. So we’re saving both time and the cost of building our own facility in Wyoming in order to get to production. So there’s a near-term opportunity there.

Matthew Gordon: When you say near-term, it’s all kind of relevant again because the market conditions. But near-term being you’re as near as anyone else is, that’s what you’re saying? But right now, we don’t know when that is.

Corey Dias: Well, look, I think of all the non-producers, we are closer to production than any of them. Other producers that are obviously in production, they have facilities in place, they can produce whenever they like. But anyone who is a non-producer in the U.S., we are further ahead.

Matthew Gordon: Yeah. Okay. Understood. Right. And the blue sky?

Corey Dias: Blue sky. Part of the transaction that we completed with Cotter Corporation included what were called the West Slope Properties. These are nine mines that are in Colorado, number of leases…the Department of Energy leases. We picked those up. They hold 11Mlbs of Uranium and 53Mlbs of Vanadium.

Matthew Gordon: Okay. You’ve got the Vanadium play here. Again, tricky space, variable pricing, etc. But, you know, how do you work out the economics around Vanadium? Given the market, or have you done any work on that?

Corey Dias: We have. We’ve done a little bit of work. I would say we’re very familiar with the battery sector. Actually, as an analyst, I used to cover Clean Tech. So I understand the battery and renewables.

Matthew Gordon: VRFB. Yeah.

Corey Dias: Yeah, so I understand the renewable space quite well. So that’s another opportunity. We can actually strap on a Vanadium circuit to our mill in order to produce at our mill, at some point in the future. So that gives us some optionality. There’s also another mill. The only running conventional mill in the U.S., which has a Vanadium circuit attached to it. There’s an opportunity for us to potentially partner with someone to extract Vanadium.

Matthew Gordon: Have you any sense of what the Vanadium price needs to be for you to to be able to do that.

Corey Dias: I think the Vanadium price, I think it’s around $7 or $8 right now and probably in and around this range, perhaps $10 is probably where we’d like it to be for us to go forward on that.

Matthew Gordon: Okay. But it’s not core focus. But maybe at some point if the price is right, you may be in the raise the capital to put that circuit in. Okay.

Corey Dias: Absolutely. And I think, an important part too, the conventional mill that we have, we have about 7Mlbs of Resource that came along with it, that you go through that mill. This acquisition of West Slope properties actually allows us to create a longer life for the mill potentially, with 11Mlbs of Uranium. We’ve got a 1Mlbs per year facility. So we’re talking about 18 years roughly right of mill life.

Matthew Gordon: Okay, so there’s another nine assets. You’ve got 24…How many assets are you sitting on in total? What’s that number?

Corey Dias: About 34.

Matthew Gordon: 34. Okay, 34. And you’re going through them all trying to work out what’s meaningful, commercial. However, you are defining that and you’re going to work out what to focus on because there’s limited funds- I know just raised another $3.7M and you’ve got to work out what to focus on. What is the focus? What is the use of the $3.7M? What’s that going on?

Corey Dias: Sure. I think that, you know, as I mentioned, our focus is on the ISR properties. The hard rock, the things in Colorado, Utah, Shootaring Canyon mill. Those are all things which are not our near-term focus. Our focus is Wyoming and our primary focus is Charlie. All of our focus is going to be on Charlie. and moving that forward. And that’ll be helped, you know, through our partnership with Uranium One.

Matthew Gordon: Totally. So how does that break down, though? I mean, is it literally all going on? You’ve got some G&A to cover. You’ve got a whole bunch of costs to cover. How much of it’s actually going on the assets and discovery around those assets?

Corey Dias: Well, yeah. I guess there are a couple of things. When we acquired the West Slope properties, there was some reclamation bonds associated with it. We had to spend…we’re using some of the funds that we’ve raised to cover off or to replace the existing reclamation bond. So, you know, we’re probably looking at $500,000 to focus, to use on Charlie in the near-term. So that, including the Preliminary Economic Assessment I mentioned. Some early well field development work that needs to be done and probably a little bit of permitting and licensing. So that’s the near-term focus.

Matthew Gordon: So that’s $500,000. What does the other $3M go on?

Corey Dias: There’s some that’s going to be G&A. And then, they are about $2.5M worth of reclamation bonds that are associated with the West Slope properties.

Matthew Gordon: Oh wow. $2.5M on reclamation bonds, wow. Okay. And that’s something obviously you’ve got to do. You can’t not do it, but you don’t necessarily see $2.5M worth of value. But if you didn’t, there would be a problem. Is that the kind of issue with it?

Corey Dias: Yes. The properties all have reclamation bonds. The state forces you to put money up in order to cover the cost of reclaiming the land should you not move forward with the project or just something happened to your company. They don’t want to be responsible for taking a mine and returning it to fallow field. They want the owners of the property or the lessees of the property to do that.

Matthew Gordon: Yes. I mean, it’s pretty tough on a junior isn’t it. I appreciate there’s a lot of moving parts here and everyone wants a slice of it. But you guys are…we talked about, you aren’t cash flowing. You have to raise equity, expensive dilutive equity every year. If I look at last year, $5.8M in cost. But you’re like $2.5M on G&A. Stock based compensation, $1.9M, which is a chunk of change right. And then gain or loss…well, gain on the exchange rate. In terms of your junior miners’ available cash, you’ve got some big choices to make as to where you spend that. On this $3.6M, you’re going to spend $500,000 developing Charlie, you’ve got the PEA you mentioned, are you going to move that PEA to a PFS?

Corey Dias: No. We’re going to keep it at a PEA. The issue with creating a PFS or a Feasibility Study in the Uranium space is that usually you have to tie it to a long-term contract. In order for us, is always a challenge to get a contract especially in the current environment. Our aim is, you can go forward into production just using a PEA. And I think that’s our plan.

Matthew Gordon: Let’s come back to G&A and your strategy because I imagine they’re intertwined. Your strategy, you’ve got a lot of optionality. Thirty-five different assets. You are working out what’s there, what’s good, what’s not. And that’s taking a lot of time, I guess a lot of bought in consultancy and services. Is that $2.5M…I mean, how does that breakdown? Is that a lot of bought in costs for consultants to tell you what you have? Is that the problem?

Corey Dias: Some of it is, but some of it is, like for example, the share-based compensation are options. They’re not shares. It’s not a cash component that would have to come back into the company in order to get more shares. We do have consultants in place because we have a very small team. Essentially, I’m here and I have a part time CFO. Everybody else comes in as necessary. When it comes to some projects, when we’re trying to close on, for example, the Cotter Corporation transaction. We need, external lawyers to come in to help us with putting together the agreements and things like that. There are some costs associated, but it doesn’t…the times when it ramps up are usually the times when we are looking to close a significant transaction.

Matthew Gordon: Right. Well, at $1.7M, nearly $1.8M of the $2.5M on the G&A was consulting fees paid by the company. Is that all around the M&A type stuff, or the deals? That’s what you’re saying, okay.

Corey Dias: I mean, we are basically an M&A company.

Matthew Gordon: Yeah. Well, that’s what I wanted to understand about your strategy. You are an M&A company. Are you an incubator? Are you saying ‘we’re never going to get into production here? It’s a case of I need to find out what’s good, then maybe someone comes along and partners, JV’s, whatever’. What type of company are you? When investors are looking at you, what are they buying into?

Corey Dias: Well, look, I think there are a couple of things. I think our aim is to get into production. I think we’ve gone a long way around trying to get to an asset that can get into production. We started off in 2015 buying the conventional assets from Uranium One, but the market at the time was actually much stronger than it is today. I think everyone had the expectation that the market would continue to move north and then it didn’t. When we saw that the market was softening and realising the differentials between the cost of producing in an ISR environment versus a hard rock environment, we realised that it would take a very long time for us to get to the point where the hard rock assets are viable. So that’s when we started looking at ISR, because that’s the only place in the nearer-term, you get the opportunity to get into production. We picked up the asset from Uranium One to start moving forward in that direction. Obviously, there’s still a cost associated with trying to get those assets in production. We started looking around to see if there’s anything that’s closer to production status than what we had in our portfolio. And Uranium One facilitated that process by introducing us to Cotter and saying, you know, this would be a perfect asset given where it sits, given the cost to actually move material from this mine to the satellite plant and finally into the final processing plant, given its location, its proximity to our assets. We started off with hard rock, high cost, and we’ve moved all our way, moved way down into ISR near-term production. We’ve kind of gone backwards.

Matthew Gordon: But you said at the beginning, we’re an M&A company and I think that’s what you are today. It is what you are today.

Corey Dias: Absolutely. Look, we’re in a low-price environment and there are assets for sale. In a high price environment, we probably wouldn’t have been able to buy any of this.

Matthew Gordon: Right. People are buying into your ability to do deals, identify deals, which potentially have value. And for you to very quickly and cheaply discount the ones which perhaps don’t meet the required levels that you’re seeking, and for you to then be able to develop those and get into production at some point. And with the mill, you’re looking at being able to have an infrastructure to look at that whole chain. Okay. I just wanted to understand what you were today. That’s okay. One thing that stood out, investor relations – $500,000 last year. What were you promoting? Because that’s a lot of investor relations!

Corey Dias: It is, we have a lot of assets. We have a lot to talk about. We’ve got Vanadium to talk about. We’ve got ISR. We’ve got hard rock. We’ve got a lot of different things that we can focus on and depending on where the market is, we’ve put out news releases on Vanadium because our Utah assets have Vanadium in them. Now we’ve got Colorado, which has significant Uranium. So, you know, we’ve got different ways to skin the cat. Depending where the market is at the time, we will spend our time focusing on one area than another.

Matthew Gordon: So that’s the thing, I’m always intrigued with the junior company mentality. So, I’m looking to you for help here. You’ve not got a lot of cash. You’ve got a skill set. You know, your position, your M&A. You told me you were M&A. You’ve got a lot of optionality, but you must know what’s going to work, and what’s not going to work. I mean, for instance, spending time in Vanadium and the environment which Vanadium sat at, certainly in the last half of last year, that wasn’t necessarily where I would have thought you’d spend your time talking to people. When you’re doing investor relations, what does that involve? Are you traveling the world to have conversations with institutional investors? What does it actually mean?

Corey Dias: Yeah, look, we do spend a lot of time traveling and meeting with investors because it’s…the interesting thing about Uranium space is that it is more of an education at this point. It’s not a well-known space. When people have very little knowledge, it’s usually pretty negative or at least the perception is negative. So, we’re spending a lot of our time trying to overcome that negativity and really explain why is this space actually important. You know, it’s not all Chernobyl. There are real viable businesses which have run for a long, long time. And there’s been no risk.

Matthew Gordon: But that’s not your job. There’re some big guys with some big pockets. We’ve spoken to a few recently. They’ve got tens of millions in their back pocket. Isn’t that their job? You don’t need to do that do you?

Corey Dias: It is their job. But you still have to educate because not everybody is going to be in the same…Not everyone gets access to Cameco. Right. They need to understand from smaller companies. They can get a lot more information from us than they can get from Tim Gitzel over at Cameco. They don’t have access.  You need to talk to others in the space to really get a better understanding and really be able to dig into, you know, what exactly are you try to achieve here. And why.

Matthew Gordon: Ok. Well, let’s finish off in terms of the company bit. Where do you sit in the market? Where do you position yourself in the market when you’re going and doing this world tour of meeting institutions, where are you positioning yourself? And why should new investors looking at you, watching this video today, why should they be looking at you vs., you know, the next guy?

Corey Dias: Well, look, I think as I mentioned, we’re probably now the next company to get the production assuming the Uranium price moves in the direction that we all hope. We’ve got an asset which has been coveted by not only us but other parties in the sector because of, first of all, its proximity to infrastructure. The potential partnership with a significantly large producer in order to move that asset forward. I think that is key. The fact that we do have these relationships are very unique in the sector. Most of the juniors are off on an island, but we’ve managed to build relationships to the point where we can collaborate not only on this asset, but on other projects going forward. I think that’s very important. We have that path to production, which is near-term. And look, that path to production has been validated by our conversations and meetings with utilities. Utilities are looking at us, especially before 232, maybe the conversation might be a bit different now because 232 didn’t quite go the way we’d hoped. But the conversations were very much about looking to secure pounds going forward from junior players, including us. And we were part of that package. I think that’s an important point too, we have a path to production that’s been recognised by the ultimate buyers.

Matthew Gordon: But don’t the rules, the basic rules of mining still apply? You need to be able to mine, not just get into production. Just because it’s Uranium doesn’t make it hallowed ground. The basic rules of mining apply. You’ve got to be able to mine commercially, economically. The numbers need to stack up. Obviously, I’m talking to someone in the Athabasca Basin, they’re going to tell me that they’ve got it made. Whoever they are, the grades are high. Your grades are not so high. They’re a lot lower. But you’re looking, I guess, at the Uranium One guys and saying, well, there’s a nice comp, they are either side of me. That gives me a sense of, for Charlie, where we sit. You’re not there yet with your 24 assets plus 9 assets. You’ve still got to work that out? And right now, you’re a finance guy running a company, where’s the technical team that’s going to help you deliver this?

Corey Dias: If you look at my board, we have over 120 years of Uranium experience. One of our board members actually did the Feasibility Study for Charlie. So he is intimately familiar with the project we have.

Matthew Gordon: Who’s that?

Corey Dias: Steve Lunsford.

Matthew Gordon: Okay. So, Steve, tell us about him.

Corey Dias: Steve Lunsford has been, he’s a local Wyoming guy. He’s been in the business for 40 years, worked for Cameco Resources, which it acquired Power Resources, which owned the asset in the past. He is very familiar with Wyoming, familiar with ISR, intimately familiar with Charlie. He is our go to person on that.

Matthew Gordon: Right. And John Eckersley, who has just joined. He’s been advising you prior to that, though?

Corey Dias: He has been. John is an attorney. He’s worked with junior companies for a number of years and spent a lot of time going through our contracts. Any kind of NDAs that we have to put together, he helps us with that.

Matthew Gordon: And does inform us that there’s going to be more M&A?

Corey Dias: Well, you can interpret it that way. You could. I think that’s probably a good way to look at it. Yes.

Matthew Gordon: Okay. That’s good. Now, let’s talk about this last week.

Corey Dias: Sure.

Matthew Gordon: You ready? Have you got the energy to talk about this last week?

Corey Dias: Yes. Yeah, it’s been a rough week.

Matthew Gordon: It’s ever been a rough week. It’s been a rough week for U.S. companies. Now you’re sitting with U.S. assets. You had a little hit as well. And you used a phrase just now, ‘232 didn’t go the way we hoped’.

Corey Dias: Correct.

Matthew Gordon: Right. I’m guessing which camp you’re in.

Corey Dias: Well, of course, we are in the loser’s camp.

Matthew Gordon: Run us through that, obviously on the run up 232, everyone’s very, very excited about what Trump was going to do. Polarising views. Very, very passionate community, the Uranium community and Nuclear community. Your view was you hoped that there would be some kind of…What? What were you hoping for? What was a good outcome for you?

Corey Dias: I think the outcome that the producers were hoping for, at least the junior producers was, U.S. based producers, was a quota- 25%. You are you compelling the U.S. utilities to buy 25% of its needs from U.S. producers?

Matthew Gordon: But that wasn’t ever realistic, was it? I mean, you can’t go from zero to hundred miles an hour that quickly. What would that of looked like?

Corey Dias: It wouldn’t have been zero to 25%, it would have been a staged step up to 25%. Because certainly, there’s no way to produce 25% of its needs today.

Matthew Gordon: No.

Corey Dias: It would take some time.

Matthew Gordon: Were you buying the security argument? Which bit of the argument were you buying into or do you think it was a conversation that needed to happen? Where were you sitting?

Corey Dias: Well, I think it’s clear that the national security risk is significant. You know, you’ve got Russia, Uzbekistan, Kazakhstan controlling 40% of the market. And we’ve seen what Russia’s done in the past with natural gas over in Europe, turning off the spigot- there’s a big risk. The U.S. uses, you know, is the largest consumer of Uranium today and imports over 95% of its needs. So, if there’s any disruption to that supply, that’s a significant risk to 25% of your power in the United States. There is a national security risk. It was looked at a number of years ago when it came to oil. You had OPEC running and controlling everything. And there was a risk in the U.S. that you wouldn’t be able to receive the oil you needed. The market turned around and focused internally. So now the U.S is an oil exporter.

Matthew Gordon: Remind me about your shareholding. Who are the main major owners of the company?

Corey Dias: The major owners?

Matthew Gordon: Well, major shareholders.

Corey Dias: Yeah. The Cotter Corporation is a significant holder. And that was part of the transaction we closed with Cotter. They became a shareholder because we provided them with shares of our company as part of the compensation for consideration.

Matthew Gordon: And they sit on how much?

Corey Dias: They hold about 11.5M shares.

Matthew Gordon: Okay. And who are the other biggies?

Corey Dias: The other one of note would be a company called Radio Fuels, which is a private Uranium company with assets in Canada. And they wanted exposure to U.S. assets and so they participated in our last financing. Those are the two major ones.

Matthew Gordon: Fantastic. Sorry for that segue. With 232, you think you believe and still believe it is a security issue? Trump disagrees. We move to a 90-day working group. What are your hopes for that?

Corey Dias: Right. Just to clarify. Trump agrees with the national security risk. He doesn’t agree with the quota.

Matthew Gordon: Okay. You didn’t get what you wanted because he didn’t…yeah. Okay. He agrees, but he doesn’t agree. So, what is the 90-day working group going to do for you?

Corey Dias: That’s the big question.

Matthew Gordon: What do you want them to do?

Corey Dias: Well, I’d like them to put the quota in place, but that’s not going to happen. I think at this point, what is more likely is that there might be potential of incentives be provided for the utilities to buy American. I don’t know how significant those incentives would be, whether it’s subsidies or something like that. Perhaps there might be monies available to Uranium producers in order to facilitate production. Whether there are subsidies available to us, or cheap money for us to move assets forward to production? There will be small measures. But I don’t see them being nearly as significant as what it would’ve done for producers.

Matthew Gordon: Right. So again, possibly we’re in another period of uncertainty. Utilities aren’t necessarily going to move forward until they know what’s going on after this working group. And then there’s a period of evaluation. The Uranium equities companies need to get on, don’t they? They’re reliant on the spot price. They’re reliant on hopefully the contract market coming back online at some point, or some line of sight to when it’s going to come back on. But this 90-day working committee, this working group, is to look at the Nuclear industry as a whole, the holistic view of it. And in there, you’ve got the…The reactors are owned by the utilities generally in the U.S? Is that right?

Corey Dias: Yes, that’s right.

Matthew Gordon: Right. And so, they’re sitting there with their mix of presumably still Coal, gas, renewable energy portfolios. Nuclear is just part of that mix. So I guess they’re slightly conflicted in some sense. I mean, they were arguing against the 232.

Corey Dias: That’s right. They were arguing against it because of the potential increasing costs to the utilities when it came to Uranium inputs. But, you know, I think it’s important to note that a lot of the utilities are working on contracts, which were signed a number of years ago, at significantly higher prices then where we sit today. Contracts in that era between the $50 and the $80 a pound. So, you know, an increase to $40 to $50 is not outside of what has been the usual practice in terms of what has been paid. I think there is a little bit of panic and screaming, which was not entirely justified.

Matthew Gordon: Maybe. I mean, there’s a lot of moving parts and a lot of influencers, a lot of people with vested interests in this, obviously. And, ultimately, the utilities don’t necessarily want to pass on the cost to their customers. Or they don’t want their customers to have to stomach the cost of subsidies at a local level. If it’s a security issue, that’s a federal issue. Right? There’s a lot of arguments to be had here. But the bigger picture around Nuclear, it’s not just about the Uranium equity play. There’s the enrichment component, there’s no enrichment facility in the U.S. anymore. There’s a lot of things that need to be discussed. So therefore, are you worried that your bit of a it is going to get parked to one side and you’re going to continue in this vacuum of uncertainty until all of this resolved. It’s a pretty big picture that needs to be looked at.

Corey Dias: It is. But I guess, you’ve got a 90-day window in which to look at it. I’m not sure.

Matthew Gordon: Well what are they going to do in 90 days? Aren’t they just going to say ‘there’s a lot of things we need to look at and we need to kind of create some more secondary working groups to look at each of those components?’. This thing could run on.

Corey Dias: It could. But I think the reality of the market, I think what’s going to happen now, because we’ve had this delay in purchasing, there is a deficit in the marketplace. When it comes to supply and demand. As much as other parties would argue otherwise, it’s clear that there is a supply demand. But I think once now the utilities start to reengage and start to look at whether they’re doing contracting, or they’re going back to the spot market, they’ll realise that the pounds aren’t there. They will have to find a way to get those pounds. And those pounds will not be available at $25 unfortunately in terms of the long-term contract. Whether it is Cameco, whether it’s Kazatomprom. Kazatomprom has now put itself in an interesting position, because for a long time it was a state company, who was not public. And now, its aim as a public company is to show high price contracts to its investors, in order to show they’ll be a profit going forward.

Matthew Gordon: It’s an interesting thing, but it’s a question of who’s going to blink first. It’s going to be, who’s going to be the first guy to go. Is it going to be from supply side or the demand side? Because no one wants to go to have that chat with the boss and say, ‘hey, spot prices at let’s say $25 today, but I’ve got an opportunity to buy it at $50. But on a long-term contract’. No one’s going to do that right?

Corey Dias: No because utilities aren’t incentivised that way. Utilities are incentivised on a quarterly basis. So, you don’t want to be the guy who… it’s like whack a mole. You don’t want to be the guy whose head is above at $50 when everybody else is $25. You want to be in the lowest quartile. Your compensation is based on being in the lowest quartile. It doesn’t fit.

Matthew Gordon: So, who’s going to blink first? It doesn’t fit. But who’s going to be the guy that says, you know what? I’ll take this one for the team.

Corey Dias: Well, that’s a good question. I don’t know who the first guy will be. I mean, I think it’s that’s the challenge. But there will be a first guy because Cameco is not coming back online at $25. Kazatomprom will have a difficult time convincing its investors that it is good sense to sign a contract at $25. So, the price will have to move in order for contracts to start being signed. As much as the utilities are now…what it has now done, is basically turn into a global market. Now, they would’ve been forced to buy U.S. at $50 or $40, whatever the price would have been. But now it’s going to be a global price at those terms, a global market at those terms. There won’t be any more more contracts signed in the near-term, certainly not at $25. I think that the price will be probably +$40 before contracts are signed.

Matthew Gordon: I guess the issue is that there’s no one, not even Kazatomprom, not Cameco, that can on their own, fill that supply demand gap. It’s vast.

Corey Dias: They could probably fill it, but not at this price. It’s all price. Right. You know, Cameco does not make money at $25. Cameco has a long number of long-term contracts in place, probably in the $70 and the $60, that’s it is fulfilling now, but it’s fulfilling those through purchases in the spot market. So even if the utilities want to go into the spot market, they’re competing against Cameco. Cameco is buying old material that’s going into the market. There’ll be no spot market available for the utilities. Then the utilities have to turn to contracts and then nobody signing contracts at $25. They’re going to have to keep pushing that number up higher and higher in to get to the point where somebody on the supply side steps in and says, ‘okay, we’ll do it at $40 or $50’. At $25, it can’t stay here and it won’t stay here because there’s no material available here.

Matthew Gordon: Yeah. It’s such a big discussion around the supply demand curves. You’re a finance guy, an ex-analyst like me. The thing that interests me is there’s got to be a point in that curve where the big guys go, ‘well, we’re happy to keep the margins low enough, for this period of time, because that means we’ll have no new entrants, a lot of these guys was sitting on big assets, won’t be able to raise the cash. We can go pick up some cheap cash and we’ll make hay further down the line because we’ll own some of the better nearer-production assets. There is that thought in my head with regards to, do the big guys think like that? The geopolitics of it all, does it work like that? But I guess one for another day. One which is for today and we’ll finish off on this, is your small company, $13M, $14M Canadian. You just raised a bit of cash. We’ve spoken to a few new entrants into the marketplace and there will be more. If the market goes the way you need it to in the way you want it to go, there will be new entrants into the marketplace. It’s just the way these things work. There’ll be a lot of noise. You’ve got a little bit of a head start, your nearest-term production compared to the rest of the non-producers. Are you concerned about these new people coming into the marketplace and stealing your thunder?

Corey Dias: Absolutely not. As I said, we’ve been able to pick up some pretty decent assets which have near-term opportunity. And our aim is not just out here to promote, we’re here to get into production. As I said, Charlie, having a relation with Uranium One. Having something in place, moves us further ahead of a number of players in the sector. I think that the Shootaring Canyon mill, there won’t be another mill built anytime soon. And obviously with the refurbishment costs, seems, it sounds significant, but when you’ve put in the context of the cost of building a new mill, and the timeframe to build a new mill, and getting over Nimbyism, Not In My Backyard, it’s going to be a big challenge for anybody else to get a mill built. I’m not sure if you know that Western Uranium last year lost his license in Colorado. It had a licensed, had an actual reactive materials license, which, you know, the state pulled away. This shows you how unique these things are and how tough it is to keep them. But the interesting thing about that one is that it wasn’t tied to a facility. So, to get a license on your own without a facility is going to be a challenge. From our perspective, we are feeling very comfortable that we’ve got something of unique value.

Matthew Gordon: But aren’t you going to see some quite big because you haven’t enough money to get into production yet? You’ve got to go and raise some money. Okay. The assets, you’re not quite sure what you’re going to be able to do with these assets yet. And when you are sure, you are going to have to go to raise a stack of money. So today, the bulk of the value of your market cap or enterprise value, whichever one you look at, is the mill and the license for that mill to operate that mill presumably. No one’s giving you value for the assets that you’ve got on the books today. They’re not worth a lot.

Corey Dias: Well, look, I think the way that we have been valued is actually, the ISR Wyoming assets are getting value. I don’t think we are getting any value for the mill.

Matthew Gordon: You don’t think you are?

Corey Dias: I don’t think we are getting any value for our conventional assets as all.

Matthew Gordon: Okay.

Corey Dias: No. We don’t think we are. We think that anybody who’s investing in our story today is focused on Wyoming. They’re like, ‘it’s interesting. What does it cost to get to production? Conventional production, $60. Well, you know, where are we today? $25. Where’s the term price? $35′. Zero value there. I think everything is because everyone who is in production right now is actually in the ISR space. The fact that we have assets in the ISR space is giving us some value. But if we didn’t have these ISR properties, I don’t think we’d have a market cap where we are today.

Matthew Gordon: Well, it’s kind of insignificant. Whether you’re $13M or $30M, you’re no nearer at production and the spot market’s doing what it’s doing. And until contract comes on board, you may as well be worth zero. It’s the same net effect, right? Which is why it intrigues me, the mill intrigues me as a USP, as a differentiator for you when things come good, you would expect to see significant re-rate. Not just because the production or the potential economic assets, but because of what you can then do. Is that part of what you would argue to new people looking at you? That you’ve got a whole bunch of zero-rated or zero-value assets. So therefore, when the clock starts ticking, you’re going to get more of an uplift than others?

Corey Dias: Absolutely. I think that it’s a significant differentiator because, when the market does move in the direction that we all hope it does, we have an asset which is very unique in that sector, which we could turn on right now to give us +1Mlbs production.

Matthew Gordon: And then you need to come up with a solution of ‘where do I get the money? How do I keep dilution down?’ You know, all of that good stuff which finance guys go to bed thinking about. Corey I’ve really enjoyed our chat. That’s a fantastic run through on Anfield Energy. It’s nice to hear the story about where you sit in the marketplace. You’ve clearly got a thought in your mind. You’ve got a bunch of stuff to do. And you’ve got a lot of assets to look at and work your way through. I hope that the market is kind to you. I hope the Uranium market sees a change sometime soon. I’ll be interesting to see how the utility guys react and what time frame they react in. Because obviously you guys need that.

Corey Dias: Absolutely. Absolutely. Well, thank you for your time. I appreciate you having us on. And I love the questions. I think your questions are relevant and insightful. Thanks again.


Company page: https://anfieldenergy.com/

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