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.

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

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 (TSXv: GXU) – Are Uranium Stocks Correlated to the Stock Market or to the Energy Market?

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

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

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.


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Regrets About Writing the Section 232 Petition? More Pain to Come? We Chat to Uranium Guru Dustin Garrow

Would he do it again? How do the Utilities make decisions about Uranium spot price versus Uranium contract prices. And do the utilities hold the key to unlocking the Uranium spot market and how will sovereigns take control. Who survives, who dies?

Dustin Garrow helped write the Section 232 Petition, now on Donald Trump’s desk, so he knows more than most about Section 232. But what’s his view? And how do you build a Uranium business today? We talk to Dustin Garrow about the issues in the market. Why he is strong on US Uranium companies even though the US does not hold sway on the global stage any more? Find out on CRUX.

Click here to watch the interview.


Matthew Gordon: I just want to kind of set the scene here. You’ve been long in the Uranium market, you live and breathe it. It’s in your blood. And we’re taking advantage of you today to maybe help the listeners and followers of CruxInvestor.com understand what’s going on in the Uranium market at the moment. Would you agree there’s a general acceptance that the 232, which I think you helped draft if I’m not mistaken, with UREnergy and Energy Fuels. Do you think that that has in itself frozen the market? In terms of, utilities are nervous about making any kind of decision until the outcome of that is known. Is that, would that be a fair statement?

Dustin Garrow: Yeah I think that’s reasonable. And just for the listeners’ benefits. One of my clients is Energy Fuels, which was one of the two petitioners so I have a bit of confidentiality, I have to deal with. But yeah, utilities first of all felt that the administration was not likely to upset their nuclear fuel purchasing because some of their reactors are in very difficult electricity markets. And any increase in costs, certainly is not something they would like to see. But yeah, I was at a big conference in Miami in April and talked to a number of the fuel managers and they just said we really don’t know the best course of action here. And a couple of them actually said we really would like to get this behind us, whatever it is.

Matthew Gordon: I want to get onto that side of things because I think the market has discussed at length 232, and what may or may not be in it, you know, what may or may not come out of it. But I want you to talk to me about supply-demand. If we may start with the utilities. These are a bunch of smart guys. They’re actuaries in all but name. And they’re trying to make decisions based on multiple criteria. Can you give us some sort of insight into that decision making that they’ve got to go through in terms that risk mitigation, when they’re buying.

Dustin Garrow: Yeah absolutely. Just keep in mind, the nuclear fuel cycle, just by the nature of the industry, is quote ‘long-term’. So in other words, they have to buy fuel well in advance of when they will put it into their reactor, because it has to go through various processing steps, be fabricated, taken to the site. So you’ve got pretty much anywhere from a year to a year and a half. But they really start that planning well in advance. And so the fuel managers with their risk management groups at the utilities, are having to look well forward and as I mentioned earlier, they protect themselves usually through long-term contract.

Matthew Gordon: What is the long term? What’s the term of the contract here?

Dustin Garrow: So what I would say one today, we did have a US utility in the market not too long ago, in 2018. They were looking for delivery starting in 2020. They would go through 2024 and then they always appreciate a year or two of extension option. So normally they’re looking anywhere from 2-3yrs out and then for maybe 4-5yrs. It is interesting just as a side note, the Euratom Supply Agency just came out with their fuel report. And they said the average contract for their utilities was signed 9 years ago. So keep in mind these are very long-term planning horizons. And so when something like the 232 comes up, they… the proposal is they buy 25% of their requirements from newly produced US Uranium. So that’s a fairly large chunk of their Uranium requirements. So that’s what’s kind of frozen them, if you want, they wouldn’t say that, but it’s kind of hindered their planning, because they don’t know which road to take particularly for future longer-term contracts, not necessarily just spot buying.

Matthew Gordon: So the utilities are… they have a kind of can control on the spot price in the sense that until they start buying, people don’t really know where they stand. So can you just give us a little bit more insight into the sorts of things that are going through their heads. You met with some of them in April. I guess you speak to them regularly. It’s beyond 232, which is the American component to this. There’s a lot of the geographical mitigation of risk. They’re not gonna buy from one source. That would be problematic, I’m sure, or could be problematic, I’m sure.  What are the things that they’re looking for in their contracts?

Dustin Garrow: You know I guess if I have a speciality it’s long-term contracts. And what they want is a diversity of supply. You know they have to take that into account.

Matthew Gordon: What does that mean? What do you mean by diversity?

Dustin Garrow: What I mean is geographic region. So then they’re looking at political risk. They’re looking at transportation issues and technologies. In other words, you can mine Uranium underground mining, in fairly high risk environments like the Athabasca Basin, where they actually freeze the ore bodies or put in freeze curtains to hold water back. And the other is in situ recovery, where they drill well fields. And so that’s Kazakhstan, Uzbekistan. Conventional mines in Africa, there’s Namibia, Niger, Australia. So Uranium is mined globally. It’s not like some of the other fuels that if it’s a coal source, then you know you’re generally linked to something fairly close at hand. Uranium and Nuclear fuel is truly global. And so they have to take into account those sources and then as I said as they move into the fuel cycle, to conversion, enrichment of the Uranium and fabrication, there’s various facilities around the world. So where do they contract? Again under acceptable risk which then drives their, for example, strategic inventory. You know if you’re buying from a region that might be a bit more politically unsettling, you might want to carry more inventory. So it’s a pretty complex calculus they use. Now when I started the US, you usually bought from US suppliers. It was kind of a lot more simple, now it’s truly global.

Matthew Gordon: Yeah, absolutely, the US have kind of fallen by the wayside for whatever reason, for a multitude of different reasons. And we can get into where nuclear sits because obviously Uranium and nuclear sit side by side and it’s very emotional, emotive subject, as I’m sure you’re aware. But just sticking with the utilities just a little bit longer if we may. So the utilities It would be reasonable to say that they are controlling the spot price that moment until they know what’s going on. The spot price is driving the planning for the equities, the public companies that are producing this stuff. And today it’s a mid-$20s say. They need it to be $50+ to be economic. Anything between where we are today and $50 is a moot point. It doesn’t kind of shift the dial in any way. So what’s got to happen? What’s going to happen? Is it’s just 232?

Dustin Garrow: No I think 232 just was a complicating factor. In other words that the utilities were beginning to move into an era… I won’t get into the other parts of the fuel cycle, but their profits have been significantly depressed. So the utilities who looking forward, they’re seeing higher prices. And so they’re trying to come up with a good defensible strategy on how do you cover your future needs in the most economic, and under reasonable risk, parameters. And it’s not particularly easy at this point. So again 232 showed up and they said well this just kind of puts a little stop on what we’re doing. Because a number, and we’re looking at longer-term contracting, and then 232 came in.

Matthew Gordon: With hindsight would you have recommended to those two companies that they do submit the petition. Would you have done 232 with hindsight?

Dustin Garrow: As a producer? Yeah I think as you’re probably well aware, what was happening was these longer term contracts at higher prices. The US utilities paid an average of $39 a pound last year for over 40M pounds of deliveries, in an $24 average spot market. So that the longer-term contracts, which are characterised as legacy, were helping a lot of a number of the producers stay in business. But the utilities have been really hesitant to extend or even negotiate new long-term contracts. And so particularly in the case of the US, you were seeing the industry really… production last year was under a 1.5Mlbs. This year going to be well under 1Mlbs. And so the producers are really looking at a situation where they’re trying to keep the lights on. The other thing quickly to keep in mind the 232 is national security. So in the case of the United States, the Department of Defense starts to play a role because whatever their future needs are, have to be addressed by US origin fuel. You cannot use any Uranium conversion, enrichment from any other country

Matthew Gordon: So that bifurcation in the market does that mean there’s two sets of prices potentially, is the solution?

Dustin Garrow: I think it depends on the volume. In other words if it stays at 25%, then it’s going to be 10Mlbs to 12Mlbs pounds a year. So it becomes a fairly noticeable part. But if it’s somehow smaller President Trump say 6Mlbs to 8Mlbs pounds a year. Department of Defense may start buying some.

Matthew Gordon: Where’s the real cost in this? You know with weapons grade enriched Uranium, 90% enrichment. Where does the cost come? Is it at the Uranium getting it out of the hole stage or is it, you know, all in the enrichment phase, in which case the Uranium component’s, again, it’s irrelevant isn’t it?

Dustin Garrow: It depends on what you’re addressing. If it’s commercial grade Uranium for power reactors, it’s one thing. Uranium is a fairly significant part of that process. Now if you go into the military side, then it’s enrichment, because you’ve got it from its natural state to a very high enrichment.

Matthew Gordon: This kind of and I do promise to the listeners that we’re going get back to picking winners and losers in terms of… But I do want to talk about the strategy and who the winners are going to be with this arena in which we’re playing right now. Which is this space before companies can manufacture, produce Uranium profitably. You’ve got countries, and your friend Mark at Energy Fuels, I think he would argue that there’s a geopolitical story going on here with Russia, with China etc. And then there are obviously the public limited companies themselves who each have their own business models and business drivers and needs. And they’re all global players. Certainly the producers and the ones with cash, they’re global players. So who do you think is going to win? First of all can we talk about the China-Russia component. So what’s going on there? we’ve got these SMR’s which people are offering into places in Africa: we’ll build it, we will run it and we’ll have long term contracts with you. That helps countries like that. You’ve got all sorts of PPP models. How is China and Russia making it difficult for America to get back on to the platform?

Dustin Garrow: Well first of all let’s talk about the Russian side which is again very complicated, very long history. There is in fact the suspension agreement which affected the amount of Russian nuclear fuel that could be imported to the US which has been in place in various forms since 1992 or 1993 and it’s now being reviewed once again. What we’re seeing I think with China and Russia is some competition on a geopolitical front. In other words they’re very active in marketing export reactors now to do that as you point out they not only provide the reactor itself they provide the fuel they take it away. So if you approach a country such as South Africa or Saudi Arabia I know the Russians are talking to the Saudis right now. Once you put a reactor somewhere 60 to 80 year life. So it’s an interesting geopolitical issue which is quite complicated. But what happened with the Russians is they sold a lot of Uranium after the dissolution of the Soviet Union. And so right now the myth that the one part that is a challenge to them is Uranium. So that’s why they’re getting active again in Central Asia. They have their own Uranium production. They have a proposed mine in Tanzania. So the Russians actually I’ve heard are quote short Uranium for domestic uses for export reactors. And so they’re being much more cautious on some of their sales but they have a lot of enrichment capacity. So that’s what they’re selling into the U.S.. So that’s kind of the Russian story. Now the Chinese is different. They’ve been stockpiling Uranium to support their own program. But at times they do sell in this, like the United States but they’ve not been a big factor in the export market they’re producing in Namibia. They have domestic production. They have long-term contracts to buy in Australia and Canada. So they’re really more in a stockpiling mode to support their really significant growth in reactor build.

Matthew Gordon: But right okay, I mean that’s the component. So you’re saying there’s a business component to this but there’s also this geopolitical component which basically means control especially with 60-80 year contracts. You have control over that country’s energy needs and that’s a problem. That’s a problem for U.S. companies right.

Dustin Garrow: Yeah. I mean the U.S. companies first of all we had 2, we had more, we had a number of reactor manufacturers back in the 70s and 80s. And now we’ve got officially General Electric Hitachi and Westinghouse, Toshiba are still in the business. General Electric is kind of really wound down the reactor business. So we’re left with Westinghouse which is effectively controlled by the Japanese. So when you look at some of these projects you know the Russians and the Chinese will come in and not only do they offer the reactor and the ancillary services they will finance it so they will provide the necessary capital. So the U.S. you know Westinghouse has been at a real disadvantage in some of these countries. Now they’ve been successful in China. And you know because China wanted some of all of the technologies so they’ve done that. But yeah I mean you need EXIM bank financing so it’s much more complicated because Westinghouse is not a state owned entity like the exports of Russia and China.

Matthew Gordon: Yes I think, it’s an all-in solution, it’s a one packaged product. You go to the whoever is running the country and you say I can give you whatever 10%-20% of your energy needs like that.

Dustin Garrow: A big part of them yes. And I’ve heard that they’ll just send a bill, you know we’ll produce X amount of energy you pay your annual bill and we take care of everything else. So it would be attractive to some of the countries, to smaller countries in particular.

Matthew Gordon: I’ve seen that with hydroelectric in Asia as well it’s the same sort of packaged product that makes it a lot easier. You pay over a 40 year contract. So is there some degree of frustration with American companies that countries like France or Germany or Australia are kind of aren’t towing the sort of traditional party line of you know we’re going to side with the US here. Everyone’s got their own business interests at heart here. And you know that doesn’t necessarily help in terms of the Entente Cordiale. And we do see it in other areas and obviously with what’s going on in Iran at the moment as well so there’s… You know America was a powerhouse when they spoke people listened. But do you think that’s not happening anymore.

Dustin Garrow: Well that’s one of the topics it just came up actually quite recently that if you don’t have a robust nuclear industry domestically you really start to lose any leverage internationally. Let’s pick on South Korea which was successful in getting a four reactor package in the Emirates which they’re now, the reactors are starting to come on. But they have a phase out program in South Korea. Now it will go for many decades but it’s just like Japanese exports of nuclear technology or equipment. When you’re in, not a phase out, but let’s just say they continue to struggle to bring on more reactors you kind of lose that leverage where you’ve got the Russians and the Chinese the French to a more limited degree doing export reactors. They’ve got a lot more say than if well you know… we don’t have the products or the services or but you know listen to what we tell you.

Matthew Gordon: Yes it’s… I appreciate that it’s a difficult space and difficult time for some of the U.S. players at the moment. So if we may come on to the public companies the producers developers and explorers. now mining’s a tough space. Full stop. But mining Uranium, you’ve got that added emotive content all because of the association with nuclear. People in countries like Spain make things difficult for, I won’t mention names but we know who we’re talking about. You know and all over the world where this nuclear component is slightly misunderstood by some and others will tell you that it’s zero carbon and it’s the solution. Bill Gates putting in a $1Bn of his own money into this. You’ve got polarising views I guess is what I’m coming at. So how do the companies, main players being Kazatomprom, Cameco and then a kind of handful of others in production and then a bunch of explorers in the world. Let’s not forget this is mining because we always forget, we get so excited about talking about Uranium we forget it’s mining with its usual mining problems: finding it digging it out of the ground economically producing it selling it in a market which may or may not be receptive to it in terms of spot price. Can we start with Kazatomprom and Cameco. Are they influencing or controlling price at the moment. I think Cameco is trying to find 9M pounds to fulfil orders for this year alone. So what are they thinking?

Dustin Garrow: Actually much more than that. I think that you know and first of all lets focus on Cameco. Because they are a Western Company, a very large producer made up of two government organisations in the long past. You know I think what happened there, and certainly on the Cameco side, and it was a big surprise I think to the industry when they decided to put McArthur River on care and maintenance which was producing 18M pounds a year in a 150M-160M pound production scenario and say they’re going to buy and you know they’ve been very public to say we are trying to get the price up. So are they manipulating? No they’re basically just saying we’re going to retire available supply and even better because we have long-term contract commitments we’re going to become a buyer in the market. Now there is the, on the Kazakh side, there is a world nuclear fuel market meeting going on at Lisbon as we speak. And yesterday they made a presentation and part of the feedback I got was they said the price is too low. So I mean they’re publicly stating the price is too low. They’ve cut back production. You know what they had planned to do. These are two big producers that are attempting to, not manipulate, to try influence the price so they can stay in economic production because right now if you look at the spot price more than half the world production is uneconomic. Now fortunately for the utilities quite a bit of it is state owned be it China be it you know, Kazatomprom which is now kind of a split between public and private. So you know it’s pretty clear prices have to be higher in order for these… for production to go forward or restarts and certainly new mines which everyone pretty well recognises need to be built. There’s no question you need new capacity as older mines like Ranger in Australia. Rossing  looks like it may get a bit more life because it’s been purchased by the Chinese. $25 – That’s why again most of the producers have longer-term contracts at much higher pricing.

Matthew Gordon: Can I ask a question about this Dustin, because people want to draw parallels to the last uptick where companies like your former company Paladin, just shot to the stars. 10,000x return kind of numbers being thrown around. But the thing that also happened back then was you went from broadly 50 companies to 500 companies. People got excited. We’re gonna all have a Uranium company. But do you feel that this time because this dip in the price has gone on for so long. Do you think there’s scope for certain players, we won’t name names, to go and buy up some of these better Explorers/Developers. Some of the Australian companies I’m thinking of, with assets either in Australia, or Africa or elsewhere. There are some good projects which are quite short of cash. But just hoping this thing, the market changes soon. So how do they survive? Do they go… keep at trying to raise capital? I know there’s a bunch more Uranium funds out there. That’s the good news, like Yellowcake. But how do they keep going? How do they keep the lights on? Do they keep the lights on? Or do a couple of big guys come along and say we’ll just wrap things up now, while times are tough for them, because we know where the market’s going?

Dustin Garrow: I would like to think that some of the big mining companies would kind of re-emerge, and come in and as you say sweep up some of these good mines, that may be suffering financially. What we’re seeing though, is actually the opposite. The big mining companies like RioTinto, that have been in this business 40yrs are now exiting totally. And I’ve not heard of any interest, no matter what they think of where the price is going, of coming back into Uranium. BHP is a bit of a reluctant participant because they’ve got…

Matthew Gordon: Those are super companies. It’s too… this market is too small. Uranium market compared to Gold, compared to Iron Ore. It’s too small. They’re not going to do that. But there must be some mid-tiers with a bunch of cash, thinking this could be interesting?

Dustin Garrow: Yes. But I think they look at the… they’ve either looked at Uranium in the past, and maybe didn’t get involved. And then you had Fukushima and they say they think they’re lucky stars that they hadn’t gotten involved. But yeah you would think there would be some that would say, ‘hey this looks like a very interesting area’. Now I have done a number of investor road shows, for Yellowcake. And I say the investment community in general is very interested in Uranium. And there’s a lot of capital at the starting gate, but they’re saying, ‘232. Let’s see what the outcome is. When does the market move. How strongly does it move up’. And I think it’s to…

Matthew Gordon: But if that’s the bottleneck Dustin, but that’s the bottleneck. If 232 is the bottleneck, all they’re saying is timing. All we’re talking about is timing here. But they have to do some groundwork on basic due diligence on mining companies right. There are going be some good ones and some bad ones.

Dustin Garrow: I would like to say yes I’ve heard that there’s several you know mid-tier mining companies high credibility availability of capital that are doing that. I’ve not heard of a one. You know I think again we’re depending on which media you follow is, either a strong story or it’s going down as fast as you can. So I think that’s part of the problem. It’s a strange commodity. Like you say, the most regulated commodity in the world. The mine that’s proposed for Spain, I understand they have over 120 permits and licenses. You know it’s a gravel pit. It’s not iron ore. It’s really really challenging.

Matthew Gordon: Maybe it’s a discussion for another day in terms of what is the logic that’s going on there. Because that’s an excessive amount of permits by any standard. And I think it’s because it’s Uranium, nothing else.

Dustin Garrow: It’s radiation. And it’s Uranium. It’s not good no matter what. And so everybody in the certainly the government side, they want to make sure, be at local governments, state governments, federal governments. It’s the laundry list is almost endless.

Matthew Gordon: Your backside is covered.

Dustin Garrow: You have the ones with the Uranium in their blood. The one company that I worked for previously, was really set up to when the stars aligned really move forward quickly. The mine in Namibia was put together in a little over a year. And that’s a unique situation.

Matthew Gordon: But the thing that’s changed there. Obviously Fukushima happened, and again I’ve had all sorts of numbers thrown at me with that. But I think with Paladin… it was a massive marketing exercise. But the marketing exercise was to utilities, to get them to see that you’re a good company. You deliver what you say you deliver on time it would be there, because the biggest crime in the utilities space is not ordering and buying product to fill these large reactors. So is that the only difference. The fact that this black swan event Fukushima, and I get Chernobyl and Three Mile Island before that, and the safety numbers around that. But is that the only difference between when you were going around the world talking about Paladin and today? What do companies need to do to get people to be positive?

Dustin Garrow: Well I think you know obviously I lived through Three Mile Island and Chernobyl and all of that. I think what was unique about Fukushima was the Japanese were viewed as a gold standard. They were if you want to name a country, at 54 reactors and for that event to happen, which again took everybody by surprise, and then the aftermath was the shut down of that entire industry sector, and the length of time, like Gitzel at Cameco said nobody thought we’d be 8yrs later and we have 9 operating reactors. It’s been such a slow…. So then you had Germany immediately react. You had some of the Taiwan and we want to get out of this business because it’s unsafe. I think the fact that the tsunami created a situation no one had anticipated, you know cut off fuel to the diesel generator, all this.. we go into the ins and outs of Fukushima. That started everybody stepping back. So you know, you’re basically asking in the absence of Fukushima… well the industry would have I think continued to grow. There would have been… it would have been more orderly, in my mind. You’ve now lost that orderly progression throughout the fuel cycle. It’s not just Uranium, but let’s just look at Uranium. So low-price has caused a lot of capital destruction. Let’s put it that way. And a lot of kind of I think lack of interest.

Matthew Gordon: But do you think it’s also created new technologies? You know people are talking about new technologies within the space, not just the SMR, the small reactors, but the technology… the reactors will last 60yrs, 80yrs now, not 40 years. So that kind of view to safety has been enhanced. And you got people like I mentioned previously Bill Gates, espousing the virtues, and I think even one of Mike Alkin’s friends, Elon Musk would (that’s a private joke). You know, are talking about the virtues of carbon neutral nuclear base-load power. It makes sense. The smart guys are saying it makes sense. But you’ve got this nagging doubt. This historic slightly ageing view of the industry, which you guys are trying to overcome. And so it’s not just 232, and what it’ `s doing for utilities. But it’s that public perception for politicians, like the Germans who are re-viewing their nuclear stance, as the French have done in terms of delaying it. But does the industry need to work harder at the publicity side of things. I mean how do they get people over that hump?

Dustin Garrow: As I’ve mentioned, I’ve been in this business since the first Arab oil embargo, a long time. And because I think the industry was created by highly specialised engineers and utilities. The communication to the general public has not been  strong suit. Let me put it that way. And just leave us alone. We know how to do that, which was, when I got in this business around before 1980. The forecast for the United States was to have a 1,000 reactors. I’ve got that forecast from the Atomic Energy Commission. We got to 10% of that. But that was the thought. This was going to keep the meter. It’s complicated. Unfortunately it came out of the weapons side. And so there was always that uncertainty, I guess, or concern. And so then these events, accidents have just added to that. So going forward, that’s why when you look at the forecast of installed nuclear capacity, it isn’t a negative number. It’s like 1%-2%  growth. And thank goodness the Chinese… now keep in mind at the time of Fukushima, they had 13 reactors operating. Now 45. So this is a program that is on the fast track.  And it’s happening elsewhere, but not in the traditional markets.

Matthew Gordon: Just in terms of getting back to for our retail high net worth and family office investors. Let’s make this understandable for them. So it’s a very complicated arena. It’s a very emotional arena in which people are operating. You’ve got the fundamentals of mining, which you need to understand. You’ve got this Uranium / Nuclear relationship going on. And it’s going through a dip in the cycle. But if you are saying to me, that large companies are thinking twice about buying up equity, other public companies, small public companies, not just the BHP’s, but anyone you say you haven’t heard of anyone thinking of doing this. Why on earth would a retail investor buy into these shares at the moment? Because there’s a lot of noise. And I’ve looked back at videos from 2yrs, 18 months a year ago, and people were saying the same things then as they are now. So if I had 18 months ago invested in Cannabis, let’s say, and was now, I’ve reaped my rewards from that decision, and I was looking to invest in something. Why do you think Uranium is going to take off and when?

Dustin Garrow: Well I think let me reference one of the larger consulting companies in this industry, UX out of Atlanta. They say this demand is kind of behind the dyke. In other words, in the absence, let’s pick on 232, the utilities would have already been out in the term-markets, signing long-term contracts. Some of which would be with these smaller, newer, proposed producers. Now what happens there is, you get smaller volumes. In other words you get a 200,000lbs pa contract instead of 500,000lbs pa because you have to prove that you’re going to be able to deliver. And so the utilities, what they need is Yellowcake in the can. They don’t care what your share price is or anything else. They’ve got to have fuel. So I think what we’re seeing is, as you say, how did these guys survive? How do they hold their breath? Some were on the drip. They’re going to raise a little bit of capital. But then I think that any day we could have a 232 decision, and the utilities, that was my point about talking to the fuel managers, I want to get this behind me, because I need to cover my needs post 2020. In other words it’s not, tomorrow I need to buy 100lbs. They couldn’t care less about that. It’s need to cover 5Mlbs pa starting early 2020s. So what I think is going to happen, actually I think the situation is more attractive, because you don’t have 500 companies saying, ‘oh I can do this’. And I think the investor community has learned lessons. They’ve done their due diligence, and no longer they going, ‘gee who in the 500 are likely…’ You can whittle it down fairly quickly. And it has to do with status of the project. Location. Management. I think some of the companies that have brought in non-Uranium people, have found out that because it’s such a different commodity… and that’s another thing is availability of skilled professionals, management and even at the mill site… let’s put it at kind of the operating site. There is a real lack. And so you really have to step back and say, ‘Well OK let me look at this universe, and I can get rid of…’.  Now rising tide will lift all boats. I think if we start to see a $50 price then you can make some money. But in general, you’ve got to look at during the last uplift it was all Kazakhstan. It went from under 10Mlbs to over 50Mlbs. Because they had all these projects that the Soviet system had defined and were kind of ready to go. And the only other one was Paladin. I mean really when you look at it. Small ISR mines in Wyoming took 5-6yrs because of permitting because… and a key factor is term contracts. Just as another thing to look at. The Kazakh’s transact at the spot price. That’s their official transfer price. But in the West, there’s never been a Uranium project built based on the spot market. It’s always been always from contract.

Matthew Gordon: I hear you 100%. I’m going to make you call the timing on this. When’s it going to get over $50?

Dustin Garrow: Oh I’ve given up forecasting prices a long time ago. It should be higher at the end of the year.

Matthew Gordon: Oh you’re good. You’re good.

Dustin Garrow: I should point out there’s a big gap between kind of $25 and $50, which is really the incentive price. I think we could see a strong move, and then depends on who’s able to get into business, and so it’s going to be an interesting market over the next probably several years.

Matthew Gordon: Okay. Thanks very much for your time. I appreciate it. Lovely to talk to you as always and we’ll speak to you again real soon.

Dustin Garrow: We’ll probably talk right after 232.

Matthew Gordon: Yeah that’s right. Thanks very much.

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

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

Click here to watch the interview.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: There you go. Well done.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: OK I’m a buyer, good.

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

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

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

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

Brandon Munro: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Company page: https://www.bannermanresources.com.au/

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.

The Uranium Market Explained by Mike Alkin – Uranium Fund Manager, Sachem Cove Partners

Collusion, national security, Russia, crack cocaine, Nuclear power games, geopolitics, pollution, Section 232, uncovered demand, the Uranium thesis, 700lbs gorillas, the US Navy, investing strategies, spot prices, fundamentals, …. NO, not a Tom Clancy novel, just a chat with one of the world’s leading Uranium experts and gurus, Mike Alkin.

There is something for all levels of investor, as we take a walk around the world of Uranium. Breathtakingly simple when you listen to the guy who cracked the code….

Click here to watch the interview.


Matthew Gordon: Hello Mike, how are you?

Mike Alkin: Hello Matt, I’m good. How are you?

Matthew Gordon: Good to be speaking to you today. Where are you, New York?

Mike Alkin: I’m in New York, Long Island.

Matthew Gordon: Fantastic. Okay. Well we’re going to talk about all things Uranium today. You’re going teach me a thing or two.

Mike Alkin:  I’ll see what I can come up with.

Matthew Gordon: So we’re catering for all audiences today. There’s some very passionate, sophisticated Uranium followers, that been engaging with us on Twitter. Some very.. people who really care about this space. There is also some people new to this space. So excuse some of the question which is going to be quite basic in places. But I think there’s going be enough meat on the bones for a lot of people have been looking out for this conversation.

Mike Alkin: Great.

Matthew Gordon: You made a bit of a life choice a few years ago…. you’re an ex-Hedge Fund Manager. You made a bit of a life choice there. You decided that Uranium was the way forward. Do you want to tell us a little bit about how that started.

Mike Alkin: Yeah I was in the Hedge Fund business, Long / Short analyst, became a Partner over the years at a few different funds. Last one was a multi-billion dollar fund. And in 2015, my daughter became very very ill and we almost lost her.

Matthew Gordon: Sorry to hear that.

Mike Alkin: And so that was after a long career and a lot of travel and being a weekend dad. That kind of changed my view of things. And so I decided at that time that I, thank God she survived, and she was in the hospital for for quite some time. And she’s, I’m very happy to say today she’s still has a condition but she’s she’s thriving.

Matthew Gordon: Fantastic.

Mike Alkin: But we didn’t know at the time so I just thought I would kind of be dad. And after several months, it was clear that she was turning the corner and she was, and I was home, and I was taking the kids to school. When she went back to school and I was trying to make dinner and help out around the house and my wife said time out. The reason we’ve had a great +20yr marriage, is you’re always on the road, or you’re always working and it works out perfect.

Matthew Gordon: I know the feeling.

Mike Alkin: Stop encroaching on my territory here. So I did decide what I wanted to do wasn’t to go back and work at that grind and in the big firm I was at had morphed into a family office, or was morphing into a family office. And there were changes taking place there. I didn’t want to start a Long / Short. Hedge Fund. Because it’s a… the capital raising environment is difficult. And it’s I believe, it’s really hard to generate Alpha. Average returns when you’re a couple of guys and a Bloomberg terminal. Call it two guys and a Bloomberg. I feel as though that portion of the business is on the back nine if you will. The bigger funds have more assets and more resources, and everything else at their disposal. So I really was just home managing my own money. Picking my own stocks. And throughout my career, my first half of my career, I was a dedicated Short Seller. I dug deep in the weeds from a forensic standpoint, both in the field through the financial statements. And I would just look for for companies that were either just I thought overvalued, but had a catalyst to get there value realized that I thought it was worth. Or just bad companies bad guys, frauds but that was the first half of my career. So obviously as a short seller, you have a contrarian bent. And on the Long side, the firms I were at where deep value oriented, in the middle to latter part of my career, with great exposure to Natural Resources, oil and gas. I had exposure to that. So with time on my hands, one of the things is when you’re at a Fund, if you have a portfolio a segment of the portfolio you may have 20-30 investments. And you’re always in different industries, when you’re a generalist you’re always chasing your tail, working a lot, but you don’t really… you focus in on those top names, but you don’t have the time…  you understand as somebody who’s.

Matthew Gordon: Been there.

Mike Alkin: …Speaking to the choir right. Now for the first time in my life I have I had time. And so I was able to choose …and no performance pressures to perform day to day or week to week or month to month. So it was… what is interesting to me, and along the way, and somewhere along the way Uranium crossed my desk. I’m screening for new ideas. What’s been beaten up? What’s excessively priced? If I was looking for shorts. And I know myself, and Uranium crossed my desk. And I said..we looked at that in 2007. We looked at it in 2011 but at that we looked at it very, very briefly. We had a lot going on. In 2007, it had hit.. the price Uranium had gone from $9lbs a few years earlier to $137lbs. And we just had a lot of investments at the time. So we didn’t spend too much time, maybe less than a week. Concluded that it was complicated. The industry was very complicated so we moved on. 2011, after Fukushima the accident there, we did the same thing. And just said ‘you know what we can’t draw a conclusion’. So I had very, very faint familiarity with it. But what attracted me in the latter part of 2015, was this was an industry whose market cap at one time was exceeded $150Bn. The number of companies that were in the Uranium, or had the name attached to it, was over 500. And when I was looking at it, the market cap, when I started to look at the whole industry was some $5Bn. And the price of the commodity was down over 90% and the number of participants from an institutional standpoint were virtually non-existent. And so I thought well that’s that’s interesting. So that’s what piqued my curiosity. And then I started reaching out to people I know on the sell side, and I asked for models. Let me see what the industry looks like. And I started getting really dated models. And I thought huh. I’ve been doing this a long time now, a few decades and I can’t recall the time where I saw an industry that, looked like it was left for dead. That had declined this much. What I didn’t have was that knowledge of the growth drivers of Nuclear power. And that’s one of the things as a Westerner, living in the States or living, if you’re living in North America, or Western Europe. Nuclear Power is a four letter word. And so might my awareness of it was ‘it’s dying. It’s decreasing.’ I had more awareness of wind and solar because somewhere along the way as a Short Seller, I was looking at a component makers and other stuff. So I said ‘let me come at this through the eyes of a short seller. Let me prove the bear case.’ And the first thing I did was try and understand the growth drivers. And I wanted to understand the role of renewables, wind and solar.

Matthew Gordon: So, can I ask Mike. Had you been involved in energy, in any way as part of your previous portfolios.

Mike Alkin: So, randomly. But the firms I was at, two firms, both had dedicated Oil and Gas, energy. So as a partner I was always around it. So knowing what the drivers were. And then other Resources as well. But no, no expertise whatsoever. I still don’t. I’m not I laugh when people say the Uranium expert. I mean I think.

Matthew Gordon: And they do!

Mike Alkin: I think the greatest asset an investor can have is to be a generalist. Especially when you’re looking at deeply cyclical businesses. I’ll give you an example Matt. I won’t look at biotechnology companies for instance for me. There is no amount of knowledge I could learn that would make me able to understand what’s going on. Deep financial… companies that are big money center banks. They’re so opaque. Forget it. But in most other things, if you’re a reasonably bright person and you bring a clean slate to it. And you know what to look for. The drivers of supply and demand. It’s not that complicated. Now I will say that the Nuclear Fuel Cycle, by orders of magnitude, once I started diving into it was the most complicated industry I’d ever looked at it.

Matthew Gordon: But we’re going to get into that for sure.

Mike Alkin: Thankfully I didn’t need to be a Nuclear scientist because I would have bailed out right.

Matthew Gordon: So you’ve made the conscious decision, it’s a life changing event, for your… a life changing decision, you said right, ‘Uranium seems to be an opportunity for us, for whatever reason no one else is paying attention to it.’ So do you feel you kind of you got in the right time, you got in a bit early.

Mike Alkin: Yes so I started that the Sachem Cove Partners in June of 2018. Late 2015 is when I started peeling the onion back. And that was literally modeling out every Nuclear reactor on the planet. Because I felt the data was dated. And it was looking at every reactor. When it was built. When the license expired. When was a renewal in place. Was it going to happen. And I went country by country. And I looked at every country where Nuclear power is derived. And what is the political atmosphere. What is the atmosphere for growing it, shrinking it, or staying neutral. And what I what I did as I was trying to understand demand by building it from the ground up, was to go draconian. So if there was a country that was talking about closing, shutting it down or reducing dependency. That went into my numbers. And I did that and I looked at planned and future reactors. And it took only a very small portion of those because you don’t know what the future is going to hold. And then those reactors under construction. And I wanted to understand the role of Nuclear v Wind & Power. And when the power is growing, people tend to turn into a zero sum game. But I don’t believe it is. So when I did all of that, and that that took several, several months. Reactors under construction, existing reactors, a small portion of those planning & proposed by country, and closed down a lot of them. I concluded what this is actually a growth business. It’s a. It’s a 1%, 1.25%, 1.5%. And if I want to get a little goofy and bring in some of those other reactors, I could get 2.5%, 3%. When I did that, I said wait a second this is an industry, that’s come from market capitalization of over $150Bn to less than $5Bn. It’s 11-12% of the global electricity grid. It’s growing. There’s a disconnect here and there was only there was only really one major company that was Cameco, of any substance of market cap. And then I realized that this was the big thing for me. I have never in my career seen an industry that is critical to the infrastructure of certain countries in the world from an electricity standpoint, that basically had been left for dead by institutions. And that’s when I said let me really dive into the supply side. And as I dove in there. That’s when I start… this now where it was this was 2016. All of 2016, the latter part of 2015, is when I really devoted time to this. Never speaking publicly about it. And then the first time I ever spoke publicly, was in March or April of 2017. I’m on Real Vision TV.

Matthew Gordon: And what was the reaction?

Mike Alkin: It was it was good. It was it was well received. It was ‘oh Uranium’. Forgot about that. Yeah. And then I was asked to speak in another investment conference in the summer. And I kind of, I started to really would start, I think validate in my mind that there was something to the thesis, is here’s a guy who a year and a half ago couldn’t tell you  anything about Uranium. I’m not a mining engineer I’m not a geologist. I know that I know what to avoid in terms, and I know where to go find help for that stuff. But here I was I presented a thesis that was a little different. And they’re up on YouTube. People could look at them. And explain the industry and the fuel cycle. And you would have thought I reinvented the wheel. And I had Uranium companies reaching out to me. Asking me my view on the global macro of Uranium. I thought something is not right here. And so that was really then and now. What determines, it’s interesting that earlier question. I don’t think about it in terms of, especially as a private investor will now with a fund with a with my investors knowing that there is a longer term time horizon. I’d look at risk reward. You know the way I view this all Matt is. There are, I like to take a fewer swings at the ball the better, and so in this particular case, it’s all all I measure is a risk / reward. What is the amount of upside I have v the amount of downside? And if I take care of my downside, and that’s how I was taught in this business and that’s how I lived this business. If you focus on the downside, and where you could be wrong, and where you’re going to go if it’s wrong. If the fundamental work is right, the upside will take care of itself. So normally I’d look for 3 to 1, 4 to 1. I like that 3, 4 times up. So if something’s 10% down, you have 40% up. Right. For simple math for those who are just learning what that is. When I started looking at Uranium. It was orders of magnitude different. And I started looking at the downside, and I said ‘OK well I don’t think I have a brother I can. I think I can get my head around the downside. I’m very comfortable with what that downside is. I don’t care if it takes 1yr, 2yrs, 3 yrs because I can’t get that upside anywhere else’. And so that’s kind of how I think about it. Now at that time the price of Uranium was in the mid 20s probably, low to mid 20s. Today here we go, couple of years later it sits in the low mid 20s. The equities have had a little bit of a fit and start. So from a risk reward standpoint. I’m sitting thinking my goodness. And there have been a couple of things that have caused a little bit of a push out from the price realization standpoint.

Matthew Gordon: Well let me let me just come on to that. But here’s the bit where the followers and watchers of this video might… well the experts might feel this isn’t for them, but let’s do this for the people new to Uranium. Okay so let’s start with the basic. I want to look, as the way that you and I have done in our careers, you break down all the variables. You try and work out with each of those and then you come back together. So can we are really basic. What is Uranium. What types of Uranium is there? And what are the uses. Just just helicopter view stuff.

Mike Alkin: Yes. So Uranium is abundant in the earth getting it out of the Earth economically is different. So it comes out either one of two ways. 1.Conventional mining, which is open pit or underground. Or what’s called ISR, In-Situ Recovery. Some refer to is as ISL mining. And basically we all know what an open pit or underground mine looks like. If you think about ISR, it’s basically think about, what you would say when you see an oil or gas well being drilled. So you drill down. You put injection wells and you put a solution in, you separate the Uranium from the rock. You bring it up through pumps that are bringing it up. You process it. And those are the two methods. The ISR mining method is less upfront capital expense. But a relatively high on-going expense to maintain it. And you also have typically have decline rates that are fairly high. So that that’s the math. Now once it comes out of the ground, it gets processed and dry and dried into drums. And you’ll hear the term yellowcake. And it gets put into drums and it looks yellow. From there it then gets sent to a conversion facility where it’s turned into UF6, it’s a gas. From there it gets sent on to an enrichment facility. Where, for Nuclear power, when it comes out of the ground the energy content is 0.7%. To power a Nuclear power plant, it needs to be enriched to between 3% and 5%, and for a Nuclear weapon over 90%. And it goes through an enrichment plant. And then from there it gets sent off to a fabricator, where that enriched Uranium product DUP, is turned into very small pellets the size of my thumbnail, and if you stay with me that’s a pellet.

Matthew Gordon: Wow.

Mike Alkin: And you put a lot of pellets into the fuel rods

Matthew Gordon: Right. Interesting. There you go.

Mike Alkin: So from there it then gets sent to a Nuclear power plant, gets put into the reactor. Now the length of time for that to occur. Is 18 to 24 months. That’s right fuel cycle.

Matthew Gordon: So I say again just to take it to what people might understand of conventional mining terms. So they, in the sense that Gold comes out of the ground with different levels of grading for a lot of commodities or you find in different quantities here the same rules apply and I guess and then the enrichment process…

Mike Alkin: So. So where were the great matters is the economics of the mining. So the higher the grade the less rock got process.

Matthew Gordon: So the same rules apply. OK. Interesting.

Mike Alkin: And we can talk later, or whenever you want about, the geographical differences and grades and what not.

Matthew Gordon: When I think of Uranium I think of Kazakhstan, Canada, Australia. That’s the big ones. But you but you say it’s also everywhere but since the day the the three…

Mike Alkin: It’s everywhere in the world, but where it is there’s plenty. It’s getting it out economically that’s difficult.

Matthew Gordon: Right. Okay. So why don’t you tell us a little bit about the amount of Uranium there is in the world currently.

Mike Alkin: So I mean from a demand perspective, and you asked earlier about the uses. Most of the Uranium that comes out of the ground is in most of the demand comes from the civilian Nuclear power.

Matthew Gordon: Nuclear reactors as the public would know them as. Okay. And you talked about… that you’ve identified how many Reactors there are on the world currently? How many being built?  How many are in planning?

Mike Alkin: There’s 450, they call them operating reactors, but they’re not operating. From that number there were 54 in Japan, that went off-line after Fukushima meltdown. After you had the accident at Fukushima. 9 have since re-started. And then you’ve had starts and stops but along the way. So in the 420 ish range, that’s actually serving electricity to the grid. There are about today, there are about 55, 56 reactors under construction. Around the world. And there are hundreds of reactors in a planning and or a proposed stage.

Matthew Gordon: Okay. So that gives a sense of these numbers. And then you also mentioned earlier the fact that there used be a lot of Uranium companies that existed. And I guess with the peaks and troughs of the markets, and then the spot price coming in and out, and these black swan events of the Fukushima, Three Mile Island et cetera. These companies have increased and declined in equal measure. So today how many producers are there?

Mike Alkin: So if you think about the nature of the Natural Resource industry, especially the junior miners. When the price of Uranium went from $9 to $137, everyone wanted to become a Uranium miner. And then the cycle turns and they’re caught they’re stuck. So that’s a lot of those companies. So the kind of the way I think about that, there is state owned production countries. State owned. And then there’s private and public companies. So you have producers, near-term Producers and Exploration Companies. From a production standpoint, as you look around the world, 41% of all Uranium comes out of Kazakhstan. About half of that, from Kazakhstan roughly, comes from the state owned entity called KazAtomProm. KaxAtomProm, was if you go back to the mid 2000s, very early 2000s to mid 2000s, was a small player. And so was Kazakhstan. And they’ve expanded. They’ve massively expanded their reach. To now they’re the number one player in the world. Kazakhstan’s number one country in the world, KazAtomProm is also the largest one. Now they just floated 15% of the company to the public. In November, December of 2018. Then you get into your other producers. You would get into Orano which is the state owned French Nuclear giant. And they have production in various places. Niger is a big producing point for them. They also have joint ventures in Kazakhstan as well. The next one you get to is Cameco, in Canada, in Saskatoon Canada. Which has really been the leader in the space from from technological standpoint, they own two of the biggest mines in the world; McArthur River and Cigar Lake. And you know there are 20% producer. And the fascinating thing about this is as you start getting KazAtomProm and Cameco, just those two alone are over 40%. Kazakhstan, and the joint ventures in Kazakhstan, and Cameco are over 60% of production. So you have a very concentrated production base amongst your majors.

Matthew Gordon: Yeah. And I do want to talk about that in a minute in terms of their control in the market place and their influence in the market place, and we will come onto that when we get back into these sort of the meaty areas discussion. But just to continue this conversation with regards to understanding what the variables are. If you don’t mind. So there is the political, or geopolitical component to this, because it’s a very emotional, emotive subject. The psychology of it is definitely a key driver between the thinking of 10yrs, 20yrs, 30yrs ago and I do see that changing. Obviously influencers like Bill Gates, affecting people’s perception. And there’s a lot of work being done around that. So I mean if you don’t mind, can you give us your view on geo-political state of the market. You did touch on it with Cameco, KazAtomProm and Orano. How do you see that at the moment and how does it work?

Mike Alkin: So you know for decades the United States was the leader in Nuclear Power. Nuclear power and Nuclear weaponry. And it’s an important role to be at the table and a leader in the fuel cycle is because through the various agencies, you can, and technical and technology when you’re building reactors, you can play a role in non-proliferation because you have a seat at the table, and you can help dictate who gets what and where and so on and so forth. If you go back to the 80s, during the Cold War peak, the United States was consuming 45Mlbs, 50Mlbs a year of Uranium and producing in the 40Mlbs range. You fast forward to today the United States produces less 1Mlbs and consumes close to 50Mlbs. Geopolitically, it’s been a sea change over the last 15-20yrs. And what you see now is that the Russians and Chinese, and you have the Koreans, but the Russians and Chinese are dominating the Nuclear fuel cycle. And you think about Russia and energy and how they use their influence in natural gas let’s say on Western Europe. What they’ve done in the Nuclear Power space for them they should be commended because they’re using it to their advantage. You know the Nuclear Power’s growth story is not a developed world story. It’s a developing world story. And so  in the West it might be flat, it could slightly decline a little bit. You get a few come on the grid but it’s neutral. In the developing world is where all the growth is coming. And with the Russians and the Chinese have done is have vertically integrated the fuel cycle. And so if you are RosAtom the (Russian) state owned entity, or if you’re the Chinese, which has a couple of entities, they will go into these developing countries and they will say we will we will, most of these countries that are becoming more economically developed. They have to deal with coal and pollution and pollution kills 7M people a year. So what they will though say look we’ll bring you clean air will bring more people and scale onto the grid with Nuclear power. So we increase standards of living. And we will finance the reactor for you, we will build it for you, will provide the Uranium, the conversion, the enrichment, the fabrication, we will help operate it for you, will get you set up. Now they own you, in terms of that, on that regard. So you’re dependent on them. The West  has, and when you’re in China or Russia and you’re building a reactor. If it’s five or six years and it’s $6Bn, that’s what it is. A little bit here and there in the West, it’s twice as long, twice as much.

Matthew Gordon: So I do appreciate it. I mean I kind of read about this. The way that the Chinese and Russians coming in and you know they… they pay for everything. And they’re also know bartering nations that they can be paid and other mineral resource as well. So I did quite like that and with countries like Africa, where the GDP isn’t huge and the available cash is not huge. And this is a very, very attractive proposition but it also means that relationships get built. Which is not necessarily what America wants to see.

Mike Alkin: Correct.

Matthew Gordon: The whole geopolitical components is very, very important especially with this recent Section 232, in the marketplace, here I think the proposition there is that it was on the basis of national security. But do you think it is?

Mike Alkin: I do, purely as an American I do.

Matthew Gordon: Right. So talk about that because this is all intertwined, isn’t it.

Mike Alkin: Yeah it is. So the Americans have lost their seat at the head of the Nuclear industry. I do believe that. And in many ways. From building reactors, to enriching Uranium. Enrichment is so critical. Without enriched Uranium the reactors don’t work, unless it’s what’s called a Candy reactor up in Canada, where there is certain reactors that don’t need enrichment. But for the most part, it needs to be enriched. And in the United States there is no enrichment that is owned by the US. There is a plant in New Mexico owned by an English Dutch German conglomerate called Urenco. But the United States consumes 50Mlbs per year and most of it in the Nuclear reactors. The Navy is known as the Nuclear Navy. The Navy has been Nuclear powered submarines and carriers.

Matthew Gordon: It’s a huge number isn’t it?

Mike Alkin: Look like it’s hundreds. And it’s it’s critical to the Navy and they have reactors all over. They’re floating reactors. And then you know there’s other things that Nuclear is used for medicine and whatnot but most of its Nuclear power. But here’s a country who is 20% of its electric grid. So one out of five homes or businesses are powered by Nuclear power. And yet it imports 99% of its Uranium needs and and no substitute in a Nuclear power plant. You can’t substitute something else. It’s Uranium that’s your feedstock. And so what you see,  what winds up happening is is the production here is less than 1Mlbs, and they import the rest. Now we have our friends the Australians and the Canadians who are… we’re friendly. They’re our best best mates. But in any given year it could be from 30% to 40% to 50% to a little bit more that will come from what one would argue could be the Russian sphere of influence, Kazakhstan, Russia, Uzbekistan…

Matthew Gordon: Why is that problematic for you? Why is that not just open markets? What would it what is what does that what does American nervous of in that scenario?

Mike Alkin: So the Russians will easily use natural gas as a geopolitical weapon into Western Europe.

Matthew Gordon: We see that Nordgas 2 coming into Northern Europe.

Mike Alkin: Yeah exactly. And so you have something that’s so critical to your infrastructure and to your military, that. The Navy is what enables America to be America. It can be anywhere in the world. I believe that that the U.S. naval fleet is the size of the 10 next biggest naval fleets.

Matthew Gordon: It’s something as crazy as that.

Mike Alkin: It is something as crazy as that. And slow and it has become reliant upon it. Now there are stock of it. But that’s not forever. That’s going into the middle of the next decade.

Matthew Gordon: So you’re saying, even with the partners Australia, Canada with your Canadian friends. You’re saying that you don’t want to be beholden to them, or reliant on them, even…

Mike Alkin: It’s a matter.. it goes beyond friendship. And so if we look at really what it is and it’s you know the utilities will make the complaint that… and by the way I should preface this, I don’t care as an investor which way 232 comes out. It doesn’t matter.

Matthew Gordon: Right

Mike Alkin: But as an American I am inclined to want to see something happen. And here’s why. If we think about the production that comes out of Australia, and it comes down to economics. Australians have Olympic Dam. Which is Uranium is produced as a byproduct of copper production. So Uranium will come in or out depending on what Copper’s doing and how much they feel like investing in that. And then you have Four Mile, another mine down there which is a few million pounds a year. Now you move up to Canada, our great friends, a little bit to the north of us and they have one producing mine. Cigar Lake.

Matthew Gordon: MacArthur has been closed down right.

Mike Alkin: McArthur River is of 18Mlbs per year right. So what that’s saying is, and this is where I think the disconnect, when we can we’ll go to as much like the depth as you want to, is the economics of such are, well first off the the Canadians and the Australians. Now BHP will be more of a spot seller. But Four Mile will be a contract. Cameco has 150Mlbs of contracted future deliveries. Now they are producing out of a joint venture in Kazakhstan called the Inkai JV. They’ll get 4Mlbs a year from that. They’ve got Cigar Lake producing. And you know you get 18Mlbs and their portion of it. But then as you start to… that’s not a lot of pounds. And McArthur River is off-line because the economics are such where it does make sense for them to produce, the highest-grade Uranium mine in the world at prices that are or are not economically incentive. So yes we can say, hey Canada, Australia, the Russians let’s say make it up. The Russians have… and the Kazakhs are withholding Uranium. And by the way last year in the Duma (Russian parliament) and the first version of it didn’t… it was unclear how it’s come out, but the Duma gives gives the president the authority to on certain critical minerals to say not sending it in. Do you want to be at that….because what happens is the inventories will… the utilities will keep a couple of years of inventory around. Now if you start to exhaust those inventories, and all of a sudden it’s a two year fuel cycle, and the spot market as as we just saw from Cameco announcing on a conference call they couldn’t find 1Mlbs in the spot market. So now where do you go? Well well you’ve got India with a voracious appetite for Uranium. You’ve got China with a beyond a voracious appetite for Uranium. The world has a lot of people who want Uranium. And so maybe their production isn’t there, which it’s not now. All right you’ve got these two in Australia, and one in Canada. So we can’t just say, ‘oh we’ll trust them’, because the economics don’t make sense for them to be able to meet the demand of 50Mlbs. That’s that’s a lot of demand. That it’s a third of… that’s less more than a third but it’s a big amount.

Matthew Gordon: Yeah. So many questions, so many questions but…

Mike Alkin: This is this national security manufacturing. It’s powering manufacturing facilities. . If in time of need where you needed to ramp up manufacturing. Who knows what the world will bring if you have a war and you have a 50 year grid that’s in peril That could be national security.

Matthew Gordon: So the few things there which in conjunction with (Section) 232. You’ve got utilities with contracts. You’ve got producers with contracts, long term contracts. There’s a bit which is kind of confusing me here, in the sense of 232. It was brought by I think Energy Fuels and UR Energy, put forward by them, not quite sure of the detail, as to what is being asked for or indeed what will be found by President Trump and his team. But it seems to me that it’s kind of frozen the market. The utilities are waiting to see what’s going to happen. Like for you, you just said ‘I don’t care as investor’, the announcement. Doesn’t effect you right. But for these guys, it’s a big deal because they’re committing to forward contracts at one price…

Mike Alkin: You see me you see me shaking my head right.

Matthew Gordon: Yeah right you feeling the same pain? Or same confusion as I say.

Mike Alkin: No, no I’ll tell you why. I have it …can I step back for a second an answer to that?

Matthew Gordon: It’s a big it’s a big question.

Mike Alkin: So one of the biggest surprises I have had in my journey in the last four years in the world of Uranium, is the lack of diversification and analysis in the actual Uranium market by all industry participants. There is a handful of industry observers, that opine with numbers. And some are handcuffed by what they can include in it. Others have their own reasons for putting out a high low and base case that you can drive an ocean liner through, which allows you to morph to wherever the market is. But one of the things that I think surprised me the most was in speaking with, many and I won’t name names but many Uranium mining companies was the reliance upon those entities for their numbers. And one of the things when I started diving in here and peeling it back and spending a year, year and a half in the light bulb went on. I went on and said these numbers are not economically driven. They’re project driven. But not economically driven. Some of these numbers on…

Matthew Gordon: What you mean by that? Tell me what you mean project….

Mike Alkin: Well so if you’re one of the entities because there was a great Uranium cartel, great book too called The Great Uranium Cartel in the 70s & 80s. It was front page news around the world and people went to jail over it. Hence if you if you go to one of these fuel conferences what you’ll see… a Uranium industry conference, you’ll see on the registration thing you’ll see a sign that says please do not talk commercial activities, do not talk terms. They’re afraid of price collusion. And so as the sausage is made, in one of these entities, the costs of these projects in the future, the cost, the commercial cost, to maintain a project that’s in production is counted in future production. And so but these companies outside of the State owned entities are… most of them are public companies. And at some point, when the cost to produce something is meaningfully below the cost that you can sell it, that is meaningfully higher than the cost at which you can sell it, you have to halt production.

Matthew Gordon: Yeah, claiming revenue going forward is in other industries. Other industries do it and they could do get caught out. So why were they allowed to do that.

Mike Alkin: Well it’s that it’s their method of forecasting because rather than wanting to be included they don’t want to be forecasting price forecasting costs and they rather not do that, because they don’t want to be perceived as colluding with the industry. With either side of industry. So here here’s today what it is. And then here all these projects that are on the drawing board. Let’s assume some of those come in, and all of these projects that are in production right now well they’re going to stay in production. Well that’s not the case. There’s many reasons why they’re going to come out, and economics is the biggest reason. And so as I started thinking about that, I started just working my way into the fuel cycle and talking to fuel buyers, CEOs. People in the industry who’ve been around for a long time are. Traders. Enrichers. What I realize is everyone’s using the same set of numbers. It’s a closed loop.

Matthew Gordon: Right. But they but they’ve all got their own business model, but they’re using the same data. Is that what you’re saying?

Mike Alkin: That’s what I’m telling you. I could count on one hand or guys that are doing their own numbers. In terms of public companies. In terms of the utilities. I haven’t found one.

Matthew Gordon: But I think this is my point. You know the industry, the utilities are frozen. They’re waiting for something to come out. They’re not in control of any aspect of this. I guess a slight segue way so I think it was a smart move to buy Energy Fuels or UR Energy.

Mike Alkin: Great question.

Matthew Gordon: It feels to me like a chess move.

Mike Alkin: I never knew it 232 was before it was announced in the middle of January 2018. Now in my presentation in June of 17, I talked about the US conundrum and how the Russians have the US and checkmate. But I didn’t know what that answer was. My view is very simple. So the US miners would tell you that the foreign imports, specifically the Kazakhstans, going to see the Chinese coming in and the Russians are all state subsidized and they don’t have the same mining methodology and they don’t put the same environmental standards. And so their costs are lower, but it doesn’t matter necessarily what the costs are, because the state will subsidize. And as a result it’s hurting them right. Now. That was never part of the thesis that I had, because my view is the world is in a deficit now and that deficit will continue to increase, and  in 2017 my thesis was, certain, project by project, certain projects can’t stay online. They will come out of the mix and that will lead to a deficit and that deficit will benefit all of the miners. Well I shouldn’t say all because many of them…not those with bullshit projects, because there are some of those in a junior mining world, that sell a good story. But those that with real projects, will benefit. Now when you look at the US my belief is if 232 came in the US government, if Trump said nothing, you get nothing. I believe there is a deficit in the world of Uranium right now that UR Energy and Energy Fuels. Will be fine.

Matthew Gordon: But undoubtedly, I know the Energy Fuels guy Mark because we spoke to him. They’re sitting on a lot of cash as well. That also helps with optionality. It gets the point I’m trying to get out just understand. Why they did it. Is it for for the good of US producers or is it for the good of those two companies only. As you say there’s a global deficit probably currently, and definitely coming. Everyone with cash, with a good asset will be fine. I get that, but do you think they specifically did this for their own benefit or for for US producers and developers.

Mike Alkin: So yeah. So you know, they’re the only ones who can answer that question. I can’t speak for them.

Matthew Gordon: I thought it was a great move. I thought it was a move that was very brave and very bold. I take my hat off for that but it has paralyzed the market.

Mike Alkin: It has. And it’s interesting because if we say it’s 25% make it up that’s what they say. Trump says sure. That’s 12Mlbs a year.

Matthew Gordon: You told me they produce one to two right now.

Mike Alkin: Less than one. So it’s going to take a while right. Cameco can do 3-4Mlbs, Energy Fuels but there will be others that would benefit from it. Now I also think… when I say from an American standpoint. I don’t, I can’t help that America put themselves in this position, on the whole Nuclear fuel cycle. Do I think that there should be more production in the United States, so that there’s less dependency on imports and those coming from those, who may not have the US best interest. Yes. So when you asked me earlier from an American’s perspective, I’d like to see us less dependent. But I do think the markets will get you there. Because I think the fundamental issue right now is the price of Uranium is simply too low. And when you go back to the start of the last cycle in 2003 when the price was $9 or $14 in today’s 2019 dollars. And it went up to $137 in the spot market at a peak, not the average price average price was about $88-$89 in 2007. That was driven by really Uncovered demand. Right. And if you go back and look in 2003 and 2004. Right, because most, historically, most of the industry has don… transactions are done through long-term contracts. It was at one time in the early 1980s it was 85%, 90% in the early 2000s 85%, 90%. Now it’s roughly 75% to 80%  but those are contracts that are 7yrs , 8yrs, 9yrs, 10yrs in length. And as utilities start to bring their inventory levels down. And it takes them a couple of years, and they start to have what’s called ‘Uncovered Demand’, not covered by contracts, what they then start to do is they start to Forward Contract, a couple of years ahead of time. Now if you look back at the last cycle, the similarities to this cycle are are stunning. If you look back in 2004, you had teens % of Uncovered Demand over the next year and then it went a little bit higher and then a little bit higher and then 4yrs on it was 80% to 100% of Uncovered Demand. Well you look here and you’re seeing the same trajectory where Uncovered Demand close to 20%  and then it gets close to 30% and then close to 50% over the next 3yrs, 4yrs, 5yrs. The utilities in the last cycle were contracting a few years before they had any Uncovered Demand. Fuel buyers of very smart people there. You know I think sometimes as an outsider in the industry sometimes, and I’m outspoken on it, sometimes I Fuel buyers will say ‘well you know think we don’t know we’re talking about’. On the contrary. The fuel buyers have played this cycle so wonderfully. I’ve said this I spoke to a group of 150 of them at the Nuclear Energy Institute in October. They played it beautifully and the miners did not.

Matthew Gordon: Well tell me about that. Why do you say they played it beautifully.

Mike Alkin: So these contracts are 7yrs, 8yrs, 9yrs, 10yrs. If you look at where the price was in 2003-2005, it starts going up people say, ‘What’s your price target on Uranium’. Well if you go back when when people were signing…when the price of Uranium was $137, they weren’t booking contracts at $137. A Uranium miner is, if they’re prudent they’re going to have a mix of fixed contracts, first market related contracts, maybe 40/60. 40 fixed, 60fixed. And as far as those prices are going up, they start locking in prices so that the price you realize over the long-term is is meaningfully lower, than what the actual spot prices. So what you start seeing is with these prices, the prices will start to accelerate ahead of time. Right, they start moving up ahead of time. And then what you see is you start it starts to feed off itself, because there’s not a fuel buyer on the planet that’s going to get fired for the price that he pays for Uranium. The fuel buyer will get fired if he doesn’t secure the supply of the Uranium for somewhere. And that is a very important distinction and I think history is so important to look at with any of these cycles.

Matthew Gordon: So explain that. So what I think what you’re what you’re saying there is that the Uranium itself as a percentage of the cost of running an energy operation. Is is not de minimus but it’s insignificant. The cost of shutting down would be the real cost.

Mike Alkin: Think about the a coal fired or natural gas fired power plant. The input, the fuel, the feedstock, coal or gas is 80% to 90%. If you think about a Nuclear reactor. What’s the biggest cost? Well it’s building a darn thing. And then and then it’s operating. The regulatory burden is immense. And so you could say how much of that regulatory burden is necessary. How much is really safety related criticality from safety criticality standpoint v just paperwork. But they are big expenses. When you start looking at the smallest expense at about 20%, is that the ‘front end fuel cycle’. Now what does that include? That’s Uranium, that’s conversion, that’s enrichment, that’s fabrication and that’s getting it into your reactor. Of that price, so about 40% ish of that, is Uranium. That’s what it is. So could it be 8%. And if Uranium is down in the toilet could it be 3%. 5% v 80% or 90% for the other. Now does it matter? Sure. In the US where it is, there is merchant markets. It’s a competitive market. Natural gas prices have been low. Wind and solar subsidized. Wind and solar have hurt it. But the overall cost worldwide to these reactors is single digits, for Uranium. Now for the front end to fuel cycle, it’s different, but that’s not the pound to pull it out of the ground. But now where you really see that, is in the contracting cycle. I’ll read you some numbers Matt. It’s quite stunning, when you were looking in 2003, when you had Uranium at $15 a long-term price, average long-term price of $11 and the spot price of $10. You saw 70Mlbs contracted. At in 2004, the average spot price of $18.60, and the average long-term price of $25, you had 90Mlbs. When it got up to $25. So now from from $10.20 to $20 up to $25. So we’ve gone up 2.5 times. Next year you saw 240Mlbs. And then to 225 to 215, as the price kept going up. So they were buying a third of what they were buying at the bottom, and loading the boat at the top. Why is that? Because they were worried about the security of supply. Now when you go back to the last cycle. There were 22 reactors under construction when it started. There was new mines, significant new mines, supply coming online, upwards of 20% of existing supply. And you fast forward to today. Those 55-56 reactors under construction. And with the exception of a potential in Spain for a few million pounds, the price of Uranium where it sits today, there is not a project on the planet that will get financed to do that. And you’re seeing production coming off-line.

Matthew Gordon: No. I seen that. I think that it’s well document. You’ve been very good at explaining to some of some of your pieces previously. The price is nowhere near where it needs to be. It’s nowhere there. But you think as the market develops, we’re going to see a rapid increase. I mean what’s your sense of timing for all of this, because I put my investor hat on, I want to know should I be piling in now or should I wait for 12 months, invest in some other stuff, and come back and see Uranium at the end of this year beginning of next.

Mike Alkin: If someone thinks that they that’s an individual decision. So what are they going to do? What’s the opportunity cost of their capital being flat.

Matthew Gordon: Exactly.

Mike Alkin: And what’s the upside if it works. And if it works. What’s…that goes all back to risk reward. I worry about my downside. What gets Uranium back to $10. I don’t know what it does. Another meltdown, God forbid, maybe! It’s $25 today just from the reactors under construction, and they use 3x the amount of fuel on the initial load. The demand is there. The supply isn’t there. In the primary market, the secondary supply isn’t there, but my worry every day, is what gets it back at $10, $12, $14, $15. So I got it knock the house down. Those are more outside events outside of my control that would do that. None of it’s in my control. But in terms of that, you can quantify. So now in terms of when does it turn? If we go back to the fourth quarter of 2017, now the Uncovered Demand a very important point I want to make here. I went back to saying 2003, 2004. You had virtually no Uncovered Demand. Very small, over the next couple of years by utilities but they started coming into the market and they’re contracting when 55, 70, 90, to 240. In the fourth quarter, as you start to get to 2020, you’re into the mid-ish high teens and then it gets into the $20s and it rapidly starts to accelerate of Uncovered Demand. In the fourth quarter of 17, you saw reasonable size request for proposals from the utilities the US utilities in the marketplace for Uranium. Now they have not really had sizable ‘price discovery’, for a while. And is it interesting thing that happened in the market that hadn’t really existed. 2012-2017. And that’s something called the carry trade that was introduced into the Uranium market.

Matthew Gordon: Tell me about that? What is that?

Mike Alkin: So if we go back to 2004-2005, as they’re ramping, and 2006, ramping these big contracts. What you start to see is those start to expire in 2013 and 2014 and 2015. Now in 2011 Fukushima had its accident, there was the accident there. Some of the big investment banks who have commodity trading desks. Very smart. They were working in an environment with 5000 year low interest rates. And they went to the utilities and said ‘Listen, as your contracts are rolling off. Don’t enter into long-term deals because we don’t know where the price Uranium is going to be. We’re not sure’. Right it’s it’s at this time it’s in the $40s and $50s and coming down. But we don’t know where it’s going to settle because you guys don’t have really a lot of Uncovered Demand. Japan is not coming back online like people had thought it would. The United States Department of Energy is selling Uranium or bartering Uranium to pay for the cleanup of two old gaseous diffusion plants. Let us use our balance sheet. We’ll charge you a fee and we’ll ‘carry it’. That’s the term ‘carry trade’. We’ll carry it and we’ll go out and buy it. So buy one two year deal with us. And we will hold it. And deliver it to you in the future. And all of a sudden the Utility is saying wait a second, we don’t have to lock into a 7yes, 8yrs, 10 yrs deal. We don’t have to buy market escalated price. We don’t know where it’s going. We can really reduce our risk. That became like ‘crack cocaine’ to utilities. Now the big guys who started it the banks aren’t in the commodities trading business anymore. But for many years, it was a very meaningful portion that created this lack of price discovery. Now, there’s always there’s contracting taking place but not… when you’re going from 70Mlbs to 200Mlbs that’s a difference in what you’re going to see.

Matthew Gordon: That’s interesting so you’re saying that lack of price discovery has had a meaningful impact in the marketplace.

Mike Alkin: Now there is price discovery, there’s always some long-term contracting taking. But as you look at the volumes. Let me tell you the volumes in the long-term volumes. You went from 240Mlbs in 2005 to 24Mlbs contracted in 2013, Nothing compared to what it had been. So it was it had fallen off a cliff. And the US you and the utilities are saying ‘well why should I, because I’ve got these carry trades’. As rates start to be as they come off the bottoms and then you start to see people trying to raise rates, there’s less of an appetite for that. And that’s that’s been much more muted. And so you’re not seeing that that occur as much.

Matthew Gordon: You have these kind of synthetic products out there affecting conventional behaviour, but what is that sort of come and gone in a very short space of time and so people don’t feel so strongly about those now. What’s happening now?

Mike Alkin: So now in the fourth quarter of 2017, you start to see some RFP’s. January 18th, I think it was 2018, maybe January 15th, I forget the exact date, you see that 232 petition filed. Well so what did that do? Now these contracts are not negotiated on a telephone call. They can take 3 months, 4 months, 7 months and they can take a long time. A lot of stuff that goes into it. Very smart people on both sides trying to figure out how to negotiate it. So now the US  utilities are saying wait a second, ‘Let’s step back. We don’t know what’s going to happen’. Now the US leads the charge. They’re the biggest out there. We don’t know from whom and how much, we’re going to be told now. That’s January of 18. Nobody knows at that point if the Department of Commerce will even pick up the investigation in July of 18 they said they would and they had 270 days, nine months. And in July they said we’ll will investigate, in April they made their recommendations. Now what that has done is it has created paralysis because the utilities in the US simply don’t know what they’re gonna be told they have to do. So when I say real price discovery, it’s that utility that’s going in to buy 5Mlbs a year every year for you know for 7-8yrs years. What’s he going to pay for that?

Matthew Gordon: And what are the conditions under which they have to pay?

Mike Alkin: And so what’s happening is spot market. And when you see that when you look at the the bought to consume, you know when you look at 2005 to 2012. The utilities were buying 136% of their needs. They were over buying. Over buying, over buying. From 2013 to 2018, they were buying 72% of their needs. So where’s that come from? Where’s the balance? Inventory draw down. And that’s where that’s come from. So now you have is you have a spot market that is tightened. And if you listen to the Cameco call, Cameco said, ‘we couldn’t find 1Mlbs’.

Matthew Gordon: Right now because they couldn’t find 1Mlbs or they couldn’t find 1Mlbs at the price they wanted?

Mike Alkin: They would pay they couldn’t take delivery now.

Matthew Gordon: What does that mean, they couldn’t take delivery?

Mike Alkin: The Uranium market is a big swaps market.

Matthew Gordon: Yes, paper everywhere.

Mike Alkin: It paper right. And the swaps market is very, very very active. But now on the swaps market has dried up and you need actually take physical delivery. It becomes a different ballgame. It becomes harder to find. So they really they were not able to fill 1Mlbs of demand. Now I said these utility buyers are very smart people, and they played this cycle very, very well. And they really did. Now why? They stayed out of the market. They did the ‘carry trade’. They came into the market at the end of 2017. Some of them started request for proposals. They didn’t know what they’re going to do, they pulled out of the market. Well what’s been happening in the spot market? Average volumes over the last from 2001 40Mlbs a year. In 2018 it was 89Mlbs. Now there are those who would say ‘well all these financial players’. I can promise you, I am at all of these major Nuclear power conferences and I see the rosters, there’s three or four of us. So who the financial players?  Yellowcake, they bought 8Mlbs last year. Yeah UPC buys a little bit. A couple of family offices by a few hundred thousand pounds. These are people entering the market some traders. There’s trader activity taking place, but the spot market’s ramping up, because the utilities are bright people, and they know that that inventories are tightening. They know that Uncovered Demand is out there. And they need to start getting price discovery.

Matthew Gordon: So this is fascinating to me. I don’t know a lot of this. So it’s always interesting to listen to someone like you. But can we just talk about the impact of people like YellowCake and you could see in the marketplace, because again as an investor, I’ve got to make this call ,as to what I think the equities is doing. Should I be getting ETF, should I be buying physical?

Mike Alkin: Well the Uranium ETF is a calamity. It has. The assets have been cut in the middle of last year they decided to reconstitute ETF. And they went from 100% miners to 40% miners. And the rest Nuclear power players. They have a Gold company. They have Korean and Japanese … conglomerates in there it is nothing close to being a pure play. Now when they first announced that they had to go from 100 down to 40, there was a lot of selling. Of those equities to do that, into a market that junior miners don’t trade hardly. They’re very illiquid. So that that for several months, you saw big pressure on the equities. What global  ETF miscalculated was. Well a lot of people are going to want to own this, because it’s not a pure play. So you’ve literally seen the assets get cut in half, and every day we track that. And you see they… they have a withdrawal they got to sell those stocks. And so it’s been a very technical reason.

Matthew Gordon: But notice he didn’t discount the buying physical. Because the price moves, the price moves. You get an immediate reaction, immediate creation. So is that something that you guys look at with your fund?

Mike Alkin: Well so we can. We can. How do you play this right. So there’s the physical players and what you do when you own the physical, you take out the bullshit risk. Of some of the junior miners.

Matthew Gordon: Exactly. There is a direct correlation to value creation.

Mike Alkin: Yeah. And some of them not all, but but the junior mining business, I mean these business not all, and again it’s up to people to do their own homework and determine what’s what’s..,but some of them are in the business of raising equity all the time. And so you know you have to determine what’s a good project, what’s not. But so how do you play it? You can play it. I can. I can go buy physical and store it with my fund. You can buy UPC or Yellowcake which is a physical proxy. Now UPC will give you exposure to UF6, as well as you U308. And then the ETF is not not great. And that’s seen massive withdrawals. Now there is, I saw they’re putting together an index, of pure play miners. I haven’t seen the ETF surrounding that but you can see that. And then you and then you get into producers, near-term producers, and then exploration companies. And right now comprises your 50 or so companies.

Matthew Gordon: Ok. So there is a bit I really want to get into. So as a investor, I’m looking at the Uranium space. If I’m buying your story I’m going…there is a huge deficit here. It’s a tsunami of demand waiting to happen. But as you say there are good companies and not so good companies. What are the things? What are the components that you look for, when you look to identify a good company versus a bad company because for me in conventional mining, I know what those signs are. Is it any different in the Uranium space? You know there are 50 companies, at the moment you split them up. I’m not quite sure how it breaks down in terms of the early stage explorers et cetera. How do you break them down?

Mike Alkin: Well you know, it’s interesting. The market has helped do that, it’s culled out many of these companies over the years. There’s still a fair amount that’s out there right. So you start at the top, and especially in mining. Who’s done this before. Have they done a good job. Do they have a history of doing well? What did they do in the last cycle. Did they make money for shareholders? They’re very important. What’s quality of that? For me, and and tell I read a few hundred pages a day. For me there’s nothing like reading Annual Reports going back to the beginning of the last cycle, and all the way through. I’ve read every Cameco report you could think of. I’ve read all these juniors that are out there as far back as they go. You read them. You watch their presentations. YouTube is a fabulous tool. It marks what you’ve said. And so go back and look at the interviews, go back and look at the at the annual reports and what they’ve said in their management discussion and analysis. And just read it year after year and see how much has changed. Did they did they promise X and X never occurred, and now they’re promising Y and promising Z? You know the risk you run investing in these junior companies is, they’re kind of like biotech companies. Biotech serve as the outsourced R&D arm of pharma, if you will. Big Pharma. And 1 or 2 of them is going to, 10 of them are going to come up with something, but a lot don’. They’re really in the big business of issuing equity to keep funding R&D. Some of these junior miners just keep issuing equity diluting shareholders to keep drilling projects that are going nowhere.

Matthew Gordon: Right. So I mean at the moment it kind of sounds like Uranium just like any other commodity really, in the sense that you’re looking to the management to inform your decision making. And you,and I agree with you, you should look back over time and see if they keep their promises.

Mike Alkin: But you can’t just look at the management because they’re all so fit they’re all polished. They all tell a good story. You’ve got to look at their track record.

Matthew Gordon: Exactly. So it’s the same thing is that you look at the management team, you listen to what they say, have they delivered, have they delivered shareholder value before, have they deliver it a project like this, possibly even in this jurisdiction before? Is there anything kind of specific to Uranium, because you’ve not mentioned any technical component yet? But I suspect a lot of your diligence does involve looking at the company from the technical perspective.

Mike Alkin: So there is a big school wide school various schools of thoughts on this right. And I think you have to think about it in terms of second level thinking in terms of how the cycle plays out. So let’s take a a trot around the Uranium world.

Matthew Gordon: Fantastic.

Mike Alkin: Geographically. Let’s do a geographical trot around the globe right. So Kazakhstan is Kazakhstan and they have JV’s and you’re not going to have direct access to that. If you invest in Cameco you might. Right. But that’s through being a shareholder Cameco. But as you think about the world. So Kazakhstan, lower grade ISR our mining, pumping it out, quite a bit. As you get to the highest grade Uranium in the world. By orders of magnitude. Is the Athabasca basin in Canada, severe high-grade. You can get grades into the… you know the average grade around the world is 0.1- 0.2 you can get grades up there is as 20%, 30%, 40%  Uranium. So, meaningfully higher. Now on paper that is very attractive, because the higher the grade, the better the economics for the miner. Now so where’s that come into play? So the Athabasca basin is a big basin. There’s the East side of the basin, and the southwest side of the base. The newer discoveries have been in the Southwest side of the basin with some really wonderful deposits. And the East side is where you see the bigger more established ones, that are there, that have been around the MacArthur Rivers. Now but one has to ask themselves, is what is the market and when is the market going to pay up for those big juicy deposits that can go into production. The market has to ask and people have to ask itself when will they pay and who will pay. So to for someone to blindly say on any any company ‘Oh they’re up there. Oh they have this grade and therefore I’m going to buy the stock’, you can’t do that. Each company is different. Each management team is different. Then you have Explorers that are up there that haven’t found yet. I have access to geologists, mining engineers that that because, I don’t know either, I’m not a geologist or mining engineer. I’m smart enough to know people who do. And I can talk to, that can guide me and help me. That don’t work for the company. Because that’s where you go off the rails. So you have to ask yourself is, because what’s the goal of a junior miner? Most don’t want to go into production. They want to be taken out right. That’s how your going to see it. That’s the game. So when is the market going to pay? And you have to ask yourself, is there infrastructure? What’s the cost of this project going to be? What’s the appetite right now for large cost project? For somebody to buy their shares today? It might be different in 12 months, 6 months, 18 months. It might be meaningfully different. When this when the green shoots, that I see every day in the industry and start to pop through into the, I’m talking in the fuel cycle I mean, I see when you see it through price discovery that’s when psyche changes, sentiment changes, and then all of a sudden ‘are people going to pay for that stuff?’. Yes. As I look in the US in the US mining industry. Right there small companies. In the global landscape they don’t mean that much. Now some of them are materially mispriced, based upon who they are, and what they can produce. Now 232 is thrown a kink in that, only because you don’t know which way it’s going to do. And to the extent that the 232 petition did a disservice to some of the US companies. Because as you and I spoke about earlier, there’s I think there’s a shortage now there’s gonna be a shortage and they’ll get their fair share of it but it’s all good. But when a decision comes out from Trump, it will be treated as a binary event. Somebody is going to win, somebody’s gonna lose. But the grades in the US are low. The size of the projects are small. And so you just have to look at the individual companies, and look at it and now how do you get bagged? What people tend to do is there’s by the pounds in the ground game. So many companies go out and keep acquiring pounds. The market will look at it on an enterprise value per pound basis right. So EV per pound. Well if I have more pounds in the denominator. I’m going to bring down my valuation. So I look cheaper. The game some companies play as they buy bullshit pounds. They buy uneconomical pounds. And all of a sudden they trumpet how many pounds they have. So just to look at it on an EV per pound basis, you’re doing yourself a disservice as an investor. What you need to do is look at their core projects, and see what the cost to build is going to be? See what the internal rate of return is going to be?  What the cash flow from that’s going to be? What is the net asset value per share based on that? What is the cash flow multiple the market’s going to pay for that? Are there generating X, when they go into production, you have to ask yourself, they go into production at what price? You got to understand that. How much can they produce? And then you have to ask yourself what’s that cash flow stream worth? But just doing it on EV per pound of ground basis, you’re going to get run over because people are going to a lot of companies have bullshit pounds.

Matthew Gordon: And I think I understand that and I think I think that’s probably very similar to a lot of mining businesses. You know, you’ve got to look at those things and you’re coming on an analytical point of view. Are there other things which are more … Are they fully committed to have the licenses or comfortable with jurisdiction.

Mike Alkin: I mean yeah well so in Uranium… like many mines, like many mining industries but you know it could take you 15 to 20 years from exploration to actually having your mine there. And so it’s very important to understand and that’s a good point Matt, because as you look at the world of Uranium and the geo-political aspect that comes into play is very important. Because if we think about what we said earlier China and Russia, are really leading the Nuclear fuel cycle for the years to come. One of the things neither one of them have is much Uranium, indigenous Uranium. They don’t have it. They have a little, but not a lot. So they need to go out and acquire to be able to vertically integrate, the Uranium is a critical portion of that. So they’re need to go out and buy pounds. They need to buy projects. Now where can they not buy. They the Russians aren’t going anywhere in the West. No one’s allowing them to do that. You had the Uranium One deal years ago, but that’s done. And the Chinese could take a minority stake, but nobody is going to grant them full ownership of something. Just for geo-political purposes. So where can they go? And buy meaningful pounds? They can go into Africa. They can go to Niger. They can go to the Namibia. And they have and they buy. And people say.. investors might look at it really, sharp investors, and say ‘yeah gosh the grades they’re terrible, they’re low, there they’re expensive projects. It could be a few hundred million, $300M this whatever $700M’ if we got to mention the motivation of the buyer. The buyer needs pounds, the buyer being China, Russia, a Middle East sovereign wealth fund. The Middle East is growing like crazy. India needs a huge amount of pounds. And their State subsidized. So they don’t really necessarily care what the cost are pull it out of the ground is. They might pay to finance the mine, in return for an off-take agreement. So you got it. What’s the second level of this stuff. Not just who has the best highest-grade Uranium. It’s who is going to be the one that’s in play as this cycle unfolds. And then, what are those valuations? And how did they compared to where they’re trading now versus historically when they have been and what a reasonable buyer would pay for?

Matthew Gordon: Thank you. Thank you for that. So if I was the first to sum up the from an investor’s point of view. Obviously there’s the financial ratios whichever you choose to apply to the company and the geopolitical component is clearly important. And we’re talking today about equities. We’ve talked a little bit about physical, know manly equities. People are going to be saying you know where should I be buying? Should I be buying U.S. stock now? Should I be buying the Australian guys? Should I be buying developers with pounds in the ground? Should I be buying producers? I mean even today nothing’s really moving. But if they were to buy something for the future, where would you be pointing them or would advocate a portfolio approach. So everything starts with macro Uranium you get the best Uranium project in the world you get the best management team in the world who’s made money before the price Uranium doesn’t move Doesn’t matter. So in that case. If you believe the fundamentals for sure?

Mike Alkin: If you believe the fundamentals. Then, and you want certainty, and not certainty there’s no certainty, but if the fundamentals are right and then it works, the physical will go up. So how do you express that? You by physical, you buy UPC, you buy Yellowcake. That that’s that’s how you express that view. If you say OK I want to take on some more risk and have more exposure. To the operating leverage in a mining business when the price of the commodity goes up, your choice is our producer, near-term producer, exploration company.

Matthew Gordon: But you would definitely think about it a producer? For Uranium it’s it’s something which would deliver value.

Mike Alkin: Absolutely. I personally think the valuations and I don’t talk individual companies but along producers, near term and exploration. The valuations have been decimated. And there’s real value. Now it depends. So I see a lot of people ask me is, where’s the price going $150 $200. I have no idea. The market will determine that. And fear and greed will determine the price of Uranium, if history is any indication, last cycle, it went from $9 to $137. And again this important point I think, there are 22 reactors and new supply coming online. Now what curtailed that new supply. You know 2003-2004 McArthur River flooded, in 2005-2006 and 2006-2007 Cigar Lake had two floods. But now you go back to no supply coming online. Today you got to two and a quarter two and a half times. No reactors coming online. And no new supply on the horizon unless the price gets to $50 plus. So you say OK I think the backdrop is better. I also think the fuel buyers are smart people in 2017 they started to come into the market. Now they’re not going to stand up there ever and say ‘yeah no we’re good we’re going to price’. They’re going to fight tooth and nail for it. That’s their job. But that’s why it’s so important for lay it out. Lay out every year, the volumes, the spot prices, lay it out. What was the pounds bought, the draw downs, the bought to consume, and they’ve got to do the work. When you do that work what jumps out at you is saying history it doesn’t always repeat exactly, but it rhymes. And what you’ll see is as the price starts moving, they’ll start coming into the market so where. So for us internally, our projects, we go up from $55-$70 is the price we use. So where does it get there? Now the question is when does it start to get there? So 232 is going to come in theory by July 14th.

Matthew Gordon: Right.

Mike Alkin: And one way or the other it’s gonna be perceived as binary. Some stocks will go up, some will go down. Over time I think the market realize that there is a deficit. Now when will they realize that is when is when you start to see price discovery. So what happens. Because I’m on Twitter, I see sentiment and because I’m a public voice of Uranium. It comes at me all day long. I keep it off most of the day, and once in a while I’ll check in on it. But people are not focusing on the number one thing that is the most important thing that most people have the opportunity, is time arbitrage. Doesn’t matter if it’s this quarter or next quarter. And what’s happened is 232 is going to come. And people are going to say ‘holy cow today we didn’t see that contract come’ the day after 232. We didn’t see that the next day after. Everyone has to sit back and understand the utilities are going to say well what does this mean? How does that how does this get implemented? Now what they are doing now with the fuel buyers are doing now is they’re now talking to miners understanding what production capabilities are? They want to know. Right so they’re smart people. So over a period is it going to be a quarter, or two, you’re going to start to see that come… all of that was that was pent up in fourth quarter 2017. Those RFP’s come back and that’s when you start to see it over the next couple of quarters. So people ask where do I expect the price to go. Predicting the price of a commodity is a fool’s errand. Now in the price of Uranium, where do I know it has to go for production to come online? Well Cameco is not going to bring on mine unless they’ve lost their mind and I don’t think they have. You’re going to need to be north at $45. Cameco says on the call and I have huge respect for those guys they say on their conference call but don’t forget that there’s Tier 1 and Tier 2 assets that could come back on line, and your financial players who have it. Yes that could be at $45, $50, $55, $60… Now if you’re a Cameco and you’ve seen a billion dollars in cash flow get cut by two thirds over the downturn. Are you going to jump when you get the price to $45? Are you going to say, ‘OK. Sold to you. We’ll take it all.’ No. It’s not a market commercial behavior. You’re going to now have to make up for all that capital that’s disappeared and all the shareholder value that hasn’t been accreted. These aren’t unsophisticated players. Same thing with the Yellowcakes and the UPC’s., They’re not selling Uranium I don’t think at $30 $35. Once the market starts moving now it becomes a seller’s market, not a buyers market. And so that’s where I think you start to see it move. So I think when we think about, we sit around, my team and I think, it’s a ‘do you see at the end of the year. Can you see into the mid mid 30s. Yes sure.’ And that’s I think healthy. What do I use longer term? $55, $60, $70 Depending on the project, $70, Do I think you could see a spike? Don’t forget it spiked to $137. Well it depends what the market wants. You don’t need it to and that’s the thing about buying these equities and when the physical price Uranium is in the mid 20s which is where I started this journey.

Matthew Gordon: So you see just it just on only equities things, because I do want to get onto just one more topic, because it’s like there’s so much to cover here… we’ve said we will talk another day specifics. But just on the equities components. Do you think that there is still, even with this deficit coming up you know it should bode well for lots of people in the Uranium space, but do you think that there’s will still be some casualties in the equities space?

Mike Alkin: So that’s a great question. So my DNA is a short seller. That’s how I made my living for half my career and even the second half of my career, I was an aggressive short seller. In my fund. I don’t short anything. The reason I don’t is because when the cycle turns, what you typically see is the shittiest of the lot will move up enormously.

Matthew Gordon: But given you can’t determine, or you’re unwilling to determine I think sensibly, unwilling to determine the timing on this. There are gonna be companies running out of cash. Even if they’re sitting on reasonable assets.

Mike Alkin: I must say yeah but but if you get Uranium at $35 spot by year end.

Matthew Gordon: If they can make that long.

Mike Alkin: Well yeah. But you ask me saying I’m not one to determine, sure if it’s a $35 which I think it should be then or $34, $37 that will that sentiment change will will be enough.

Matthew Gordon: They could raise capital at that. It may be expensive capital, but they could raise it just to survive.

Mike Alkin: They’ve been doing it for 7yrs, 8yrs. And unfortunately retail has financed these stories.

Matthew Gordon: True.

Mike Alkin: They finance stories when the price of Uranium was $17. They finance stories on the price of Uranium was $19. What you don’t do in Australia and in the UK, they do here is they give the warrants. So they’ll give 5yrs warrants. Now that’s up to the individual shareholder determine. Now what I do see is a lot of people will say ‘you know what these guys are gonna have to go into production and they’re going to have to issue equity.’ Well they’re going to project finance these things. It’s going to be 80% debt, 20% equity and in your math, you have to do that math. And maybe it’s 70% /30%. Assume dilution and carry your numbers forward.

Matthew Gordon: Yeah well I’d be interesting to see what happens from now on Christmas, I guess because I think we our analysis suggests that this is gonna get a bit hairy for a few between now and then.

Mike Alkin: Hairy for what?

Matthew Gordon: For some of some of the juniors sitting on maybe with pounds on with pounds ground but with not a lot of cash, will they be able to make it through and will they be able to raise capital at the price that they…

Mike Alkin: Well yeah I have no opinion on that.

Matthew Gordon: No I understand.

Mike Alkin: But don’t forget if you’re a Canadian they get flow through financing. It’ll keep them afloat. The thing you see this cycle is where it really becomes a problem is, when you got Debt versus, not all,but most don’t have debt. So it’s just a matter of issuing equity telling a story and finding people who are willing to finance that story. Where it becomes… where you see companies get in mass wiped out, is when they’ve got interest payments to make and it can’t make them.

Matthew Gordon: For sure. It’s the same for a lot of commodities over the past few years. So I guess we will sort of sit back and see and perhaps it conversation we can get in to a little bit deeper next time. But can I start a question with regards to Nuclear. You power the Nuclear industry, literally. Do you think Nuclear is a transitional energy source? Do you think people are going to try and become green? They’re moving away from fossil fuel. They want to go green. Nuclear has positioned itself is a green clean energy and I think is doing a really good job of that. You’re still going to have some naysayers talk about a toxic waste and all sorts of issues that need to be dealt with. And those those may be real and meaningful issues that do need to be discussed. But in the meantime, it’s we’re talking about zero carbon energy from Nuclear. It’s getting a great job promoting itself. But will it survive? You’re talking about a depleting asset potentially, in terms is there’s enough of this to go around, and at some point it’s going to run out. So you know if it is a transitional energy, how long will it be around and is the money to be made.

Mike Alkin: You know in the last what 15yrs, it’s gone from 16% down to 11% of electricity generation. Wind and solar is taking some. Natural gas especially. You know I think the question is people need to ask, don’t forget 99 reactors in the United States, now over 100Gw of electricity. And what’s what’s hurt that here in the US. Well I would argue. Low interest rates, Fed experimental policy of easy money has created the shale boom. Which is God taken natural gas which at any point in time traded $6, $7, $8 per mcf, even went higher, down to $2.50. And if you look at the the shale plays, two thirds of them don’t make a dime, regardless of the price. Depletion rates are enormous. The ongoing capital expenditures to stay ahead of the depletion rates, are staggering. They’ve have hundreds of billion dollars in debt coming due in the next few years. In the latter part of the year, early part of this year, you’re seeing investors starting to step back a little bit from wanting to finance that. So one of the constants and givens, at least in the United States with this shale energy independence is that natural gas is going to stay low forever. It can be $2.50 natural gas. At $5 turns the economics upside down for Nuclear power plant. So but the recency bias of what’s happened because of stupid cheap easy money. For anyone to finance these things for the shale plays which are most of them were economic. And you’re starting to see activist investors come in and starting to demand production cuts right. So does that happen tomorrow? I don’t know. But so in terms of longer term. I’m not so sure that, and I’m not a natural gas expert but I’m a commonsense guy, and I am a capital markets guy, and I know that for a decade these companies just piss money down the drain. So I think that that’s an environment. Around the rest of the world. I think when solar grows, I don’t think it displaces Nuclear, because it doesn’t have the storage capabilities. We’re going to hear everyone say ‘oh storage costs coming down storage coming down’. Look what’s happened in Germany since since they’ve gone green. Hundreds of billions of dollars spent. Carbon emissions are up. Cost of electricity is up. It’s a complete shit show for them. And their neighbor France 75% Nuclear power has half the cost left electricity and are meeting all of their climate goals. And the growth you’re seeing in the Middle East, the growth you’re seeing in the developing world, I think it has its role. Does it go to 10%, 12%, 9%, I don’t know. I know for the purpose of any forecast period I could look at over a decade, I think it’s gonna be a critical part of the electricity generation in the world.

Matthew Gordon: Again I think I’m pretty one for another another time because I think that’s a really big topic. There’s lots of people coming on both sides very passionate about their position and I’d love to talk to you a little bit more about that one. So I want to finished with one big question for you, which is, is anyone making money in the Uranium space at the moment and how?

Mike Alkin: Well so Cameco is generating EBITDA. They’ve got some cash flow side from that. No you’d be hard pressed to find the real profits in the Uranium space. I mean is a lot of promise. But if you’re looking for profits, you’re in the wrong you shouldn’t be investing in this, right now. If you’re if you’re looking at returns on capital, if you’re looking at who’s generate profits at what is the, I think the bear market ended, but this is not the cycle of the investing.

Matthew Gordon: Ok. OK. That’s fair comment. I’m going to let you sign off by explaining… I saw this saw this piece you did, kind of comparing the Uranium space to the ‘Big Short’. I really liked that. I really like that. You know you’re where you’re explaining how the ‘subprime loan’ space and the ‘subprime bond’ spaces had no correlation, although they should have. That what you’re kind of saying that that’s what we’re going through at the moment. People should see what’s coming down the line and be optimistic.

Mike Alkin: There is a complete disconnect between the fundamentals that have dramatically improved over the last couple of years. 20% plus of world supplies come off-line. The secondary market which has been the 800lbs gorilla, of supply, under feeding. Whether it is …conferences I speak at, they’re there and stand up and say we are reducing the under feeding. So that has peaked and is coming down. Supply is coming down Uncovered Demand. Is right in front of your nose. And I went back and looked at a lot of bull cases in 2014 and 2013 and 2015. YouTube is wonderful. Like I said, You’ve got a carry trade. No long term Uncovered contracts and Uncovered demand. You’ve got the Japanese have not been bringing reactors online. It was a bull story. That Uncovered Demand is what drives this. Supplies inventories working down. 2013,2014,2015, they were coming off buying years of 250Mlbs 40 30 million pounds of inventory. What happens though is this is a closed loop world unlike anything I have ever seen. It is an opaque market. It is not followed by institutional investors, and I’m sorry to say retail investors while they’re very bright people, and whatever they do they’re great. I see some really smart ones do the numbers. They’ve they’ve kept many of these companies afloat by financing them. And but building the numbers out, rolling them out, and putting it the numbers in this industry are predicated, just kind of like a ratings agency, we make that correlation. But the rating agency says everything’s fine, it’s triple-A tranches, in Triple-A tranches. It’s all good right. It’s triple-A rated. The number makers here. The consensus makers here, bright people. I think that they’re either handcuffed in how they can forecast the numbers, or are so afraid to put their neck on the line, that they they put numbers out there that you can drive an ocean liner through, like I said. And which allows you to morph to wherever the market is at any given time. And that’s fine if you’re in the business of doing that. If you’re in the business of put your balls on the line and making money, you better do your own analysis and you better be right. Those those kooks in The Big Short. Those crazy guys who were trying to see what everyone else wasn’t seeing. They didn’t care what the rating agency said. They did their own work. And that’s kind of how we view it. I don’t care what consensus says. We’ve got our own work and we believe strongly. Now outside influences come in at 232. Comes in 232 is not part of our thesis. It still isn’t part of our thesis. Well you know it was at the time. All it does is take a little time for the pause in buying. Another thing I saw on Twitter somebody said ask me about the Orano strike. This could be a big deal.

Matthew Gordon: Yes. That was one.

Mike Alkin: Ok well. So what winds up happening is, people bring up ‘what’s the thesis on Uranium’. Global oversupply, leads to uneconomic pricing, leads to production cuts, leads to reduction in primary supply, secondary supply in a demand environment where Uncovered Demand is accelerating and contracting cycles going to start. That’s the thesis. Now 232 is noise. Somebody like I said. Whether Orano could settle the strike, at at at their mill. It’s not a strike. In May if they don’t. There could be a strike. Who knows? It doesn’t matter. Does it mean if a strike comes that yes that is good, because you could see 18Mlbs come off the market. That’s great. But what it sets up is this nobody knows how those labor negotiations are going to go. It’s not fundamental to the thesis of Uranium for it to move. What it does do is if the strike comes into… if there is no strike, it sets people up for disappointment that was unnecessary. So if it happens great, it’s a cherry on top. If it doesn’t. Who cares? That’s kind of how I view that. So yeah it’s like that

Matthew Gordon: Mike, that’s been fantastic. The reason we wanted to speak to you is because you have this view on the marketplace. You are doing your own analysis, you are giving us insight which wasn’t there before. You’re deeply respected by a lot of people in the marketplace. Thank you for the work which you share with us. There’s a lot we’ve talked about on a very superficial level. I’d love to deep dive into some of that with you again real soon I know market loves hearing what you have to say. And so do we. So thanks again for your time Mike.

Mike Alkin: Yeah Matt my pleasure.

Matthew Gordon: Thank you. Right. OK. We’ll speak to you again soon.


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Vimy Resources (ASX: VMY) – Uranium, Cartels, Fatigue, $75, Frustration, Converts & Equities vs. Spot

CRUX had the pleasure of speaking with Vimy Resources CEO Mike Young. He says that he feels in control because of what the Utilities told him. Find out what they said to him in this interview. He also talks about his view on what Section 232 will do for the contract market and his views on US energy security and Russia. Plus what Cameco is going to do about Energy Fuels and UR Energy.

Click here to watch the interview.


Matthew Gordon: Good morning Mike. How are you?

Mike Young: Good. Well good morning for you. Good afternoon for me.

Matthew Gordon: Of course of course of course. You’re in sunny Perth I guess for you.

Mike Young: It is indeed sunny today.

Matthew Gordon: Beautiful, beautiful. OK so Mike just to just set the scene for people, can you give us a two minute elevator pitch just to describe Vimy Resources please..

Mike Young: So we’re a Uranium development company. Development and Exploration. We have a big project called the Mulga Rock project in Western Australia. That has full environmental Federal and State Environmental permits. We’re currently working through the secondary approvals now so those you’re working permits and things like that. Mulga Rock does need a $55 contract price to work that will be a 3.5Mt pound a year operation and we hope to bring that into production in about 2022. So we’re looking at going through the contract cycle through this year. This county year and then getting into financing the first half of next calendar year and FID halfway through next year. The second project that we have it. You know there’s a lot of excitement about in the short term is the Alligator River project. That sits in what’s called the Alligator River Uranium province and that’s a really unexplored province because of Uranium politics and native title issues WA in Australia and Northern Territory. But Cameco who we bought the project from has done a great job of achieving granted tenure in some of the most prospective ground in the Alligator River area. Alligator River hosts Jabiluka which is a 380 million pound deposit and also the Ranger deposit which is being have been mined for 40 years. So it’s it’s a very in fact Geologically it’s identical to the Athabasca Basin. So we like to call it the Athabasca down under. So we have a development project which we can take into production and I might add that we do have a team of experienced people who have brought mines into production previously, including myself. And then we’ve got this really exciting Exploration ground up in the Northern Territory.

Matthew Gordon: And thanks for that summary. So just to set the scene again for people perhaps new to see the Uranium space and obviously Vimy. We want to talk about a conversation we had recently with one of the American players. This sort of alleged price fixing this kind of unofficial OPEC as it were. You’ve got KazAtomProm. you’ve got Cameco. You’ve got Russia. You’ve got China. You’ve got some fairly major players with vested interests in this space and highly incentivized to keep the pricing at a point where junior Explorers may find it difficult to come into production. I mean what are your views on that.

Mike Young: Well firstly I don’t think because KazAtomProm & Cameco lie awake at night worrying but Energy Fuels. They’re very small. They always will be. They’re not a major producer. They’re not sitting on massively large deposits like KazAtomProm and Cameco are. Camerco and KazAtomProm from are on record and in personal conversations with them at wanting to see a higher price. Cameco particularly, they’re a public company, and they would they would certainly like to see a higher price and increase their margins. We all know that the McArthur River mine shut because they cannot get long term contracts at a price that will sustain production there. And Tim Gitzel has said on several occasions that they won’t open it unless the price is sustainably higher. With KazAtomProm, I think because KazAtomProm is interesting because they have come from a former Soviet republic. They obviously started mining Uranium a long time ago. In fact Kyrgyzstan right next door is where a lot of the Uranium for their Nuclear weapons program came from. So a long history of Uranium mining. You know the early part of the century they started ramping up that mine and using situ leach mining. It’s interesting you know because everyone has this there’s this mythology that the mining in Kazakhstan is actually really cheap but we know that they were capitalizing their well development and it actually wasn’t that cheap. And we saw that in the IPO. In fact we’d been saying for several years that their costs were more like $20, mid $20s and that’s certainly been the case in the IPO. So KazAtomProm come from a former  Soviet republic where they measured output in terms of volume not necessarily value. They were just pumping out material whether it be lead pipes  or ball bearings. They didn’t act like a Western nation. So what’s been really interesting about KazAtomProm is they have gone through a huge transition largely through the efforts of Riaz Rizvi to take that to an IPO. And to do that they have had to basically Westernize the accounting system and I know they had a lot of consultants in there helping them with that actually establishing what their true all in sustaining costs (AISC) were. And we know that the role in sustaining costs are are as I say in the $20s. So now they’re going to start behaving. My view is they’ll start behaving more like a western style  company and they’ll start looking at value over volume. And they certainly would like to see that price higher as well. Because as we know the Kazakh material that they get from their joint ventures they have to sell at market prices and the only market is the spot market which I actually referred to as an arbitrage market.

Matthew Gordon: Okay. But the fundamental rules of supply and demand still work. You know we saw on in the last round that you know a huge number of companies started up some numbers quoted as high as 500 companies in the Uranium space. Clearly too many. Oversupply in the market. Prices have come back down. So you don’t feel that these larger producers have the need to almost regulate, OPEC’s style, the pricing to stop that kind of surge of new entrants into the market.

Mike Young: Well I worked in iron ore last year on an iron ore mine called BC Iron in which we took from first row hold the first ore and ship it under four years. And you know BHP and Rio and Vale were often accused of the same thing. Now you know these companies they obviously are price makers because the volumes are so high that they can affect price. Are they behaving as a cartel. Well no. If people have proof to the contrary then they should put that forward. But you know it’s a case of it’s a case of put up or shut up really. So these guys aren’t price makers now. They they probably would like to see the price higher and Tim Gitzel is on record saying that his actions speak louder than words because McArthur River shut.

Matthew Gordon: Right. But when you say they will the price higher. I mean is there is there a kind of cut off or they you know they want market forces applied and drive it up as high as it will go. Where is it stop?

Mike Young: I think what you’ll find is that there was a good bit of work done by David Sadowski when he was an analyst at Raymond James. He did a paper in November 2015. Now although it’s a bit out of date, it’s still a seminal bit of work and I would suggest your viewers actually look it up, it’s available on the Internet. And what it was was it was a paper on the incentive cost of new production and he had some very detailed. David, I know David very well, he’s someone you should have on your show in fact. And he he did a lot of work. Yes some very detailed models and what he did was he showed that at a $75 there is a massive plateau of of production that could come on and so that’s to me that’s that that’s the ceiling for anybody who has the capacity to manage the market. That’s the ceiling. Now obviously you want to get close to the ceiling because you bump your head so you know maybe dial that back $10 bucks you’re looking at $65 $60. Now of course those are the numbers I like because those are good numbers for us. But when you look at the fundamentals of new supply $75 does seem to bring in a lot of supply based on the work that David did. All right now obviously with five years time gap those numbers might change a bit but the shape of the curve will probably remain the same. Now I think I think both those companies have exhibited some an enormous discipline when they could have just flooded the market like BHP and Rio did in the last iron ore downturn. I think a lesson can be taken from the iron ore space where you had FMG come in as an upstart. A lot of junior’s, one of which I ran. And so at the level we’re playing, at the level that UR Energy and Energy Fuels are playing at, the big guys to worry so much, we’re on the margins. And the important thing for us is, as with any commodity, there is a cost curve. Now the problem with our business is no one really knows what that cost curve is. And with any commodity there’s a cost curve and provided you as a producer can come inside that cost curve, then your competitors are the high the high end producers in that cost curve and those are the guys I’m thinking about. So the guys who occupy the first and second quartile, who are the big producers, and this is the same as iron ore and other commodities, Nickel is a good one. I can’t worry about them right. The guys I need to target are the guys who are higher cost producers and I am. And so what I need to do is getting under them with my costs keep my costs down and remain competitive. So you know guys like us the third quartile is the sweet spot. Now a lot of juniors won’t tell you that. They’ll say “no no we are first quartile”. Well according to our price graph which we supply, most of the first quartile secondary supply and then the Olympic Dam. So it’s not a whole lot of room there. So you know we look at that third quartile because you’ve got some buffer but that’s where you want to be and that’s what we target.

Matthew Gordon: That’s kind of interesting, you know. You’re saying that they make the majors you’re too small for them to worry about at this point. I think you’re right. If you look at other commodities, you know the majors have played it a certain way. But isn’t there an opportunity for them if they get the pricing right, they make it very difficult for some of the smaller players to get off the mark, even if they’re sitting on great assets, with a lot of pounds under the ground. They’re going to run out of cash at some point and can be scooped up for huge discounts.

Mike Young: Yes that happened in the iron ore space. Absolutely. That’s always a that’s always a concern.

Matthew Gordon: But that’s the game.

Mike Young: Absolutely. And some quality assets there. You know if you sweat those guys and you pick them up for a song. You do two things you’ve picked up a quality assets cheaply. You’ve also sequested the production for the foreseeable future. But the key thing is let’s look at the demand side. So the demand right now is dominated by America. We know that they’ve just gone through a hiatus because of Section 232. I can I can honestly tell you that the world has Section 232 fatigue. Right. But let’s look at how they manage your contracts. So what do utilities do? as they do portfolio management. So what they’ll do is they’ll layer cake and they’ll have a base load. Pardon the pun. I’ll have baseload, from the Cameco, KazAtomProms, the bigger producers. They want, they want spread of supply. They want security of supply and they’d like to see geographic and country risk spread. And so we know from our discussions because we have a guy named Scott Hymann who works in the States and has worked with Cameco and worked with Dominion. We know how they layer cake contracts and we know we know that there is space for us in that portfolio management. So while Cameco and KazAtomProm may keep the price down the utilities don’t want to buy all the material from two users. So that’s why if you’re nimble like, and I learned this in iron ore, selling iron ore into a space that was dominated by BHP Rio and vale, that if you’re nimble enough and you can stay inside the cost curve, you’re going to find customers you can sell your material. Your margins aren’t going to be as high but when you’re a small company with lower overheads, you know and the key thing is and I might add that my philosophy is pay dividends as soon as possible, you actually return a lot of value to shareholders.

Matthew Gordon: Ok. That’s really interesting. See you’re saying that there is a niche for you in there. You’re saying at lower lower prices but utilities are looking for a bit of certainty and say so they think that …You think they’ll continue with long term contracts. That’s part of their buying philosophy going forward. Nothing’s changed there because I think there’s been a few hypotheses about the fact that why not stick with just spot price going forward. You Know given that given what pricing is done over the past few years.

Mike Young: That would actually be a good outcome because if you if you actually free the market up and it became a truly free market with a clearing house, and the spot price was a true spot price, and not an arbitrage floor price, you would see the cost of Uranium move towards the marginal cost of production. Which in an all in sustaining cost (AISC) basis is $55 to $60 dollars and on top of that if you have return on it on equity, you’ve got a higher price. I would love nothing more than to see a true Uranium market but we know that’s not going to happen. Part of that is because you know the fuel cycle takes 18  months to two years and they just want to have that material waiting to go into the reactor and know that it’s going to be you know in train. Steel mill shuts down it’s costly, Nuclear plant shuts down it’s really costly.

Matthew Gordon: Yeah. So I guess given the way that you are painting this picture, you think there’s a future for junior Uranium miners like yourself in this space.

Mike Young: I do and I think it’s the miners who are ready to go now that are the ones that are gonna benefit. So no doubt. I’ve been I’ve been as I said to you earlier I’m 58. I’ve been in the industry a long time. I’ve seen lots of booms and busts and it’s always the same cycle. Right. It’s the early movers you get the advantage. The early movers you do you know corporately they get taken out. They do mergers that you’re all the things that happens when you’re in the space it’s growing. And then you know everyone comes along and the next thing you know there’s there’s 110 Uranium miners but they’ve missed the boat. Right. And so it’s the guys we’re a very small group right.

Matthew Gordon: Yeah. You’re permitted. You’ve got some drilling done. You’ve got some line of sight as to what’s under the ground. So you feel things are still in your hands. This is not out of your hands, you’re in control.

Mike Young: Yeah I feel in control. We do a lot of research. We do, you know, Julian Tapp who works with us is on the supply demand working group with the WNBA. So we have a lot of well let’s call it inside information on supply demand dynamics and you know the fact that we have Scott Hyman working for us in the states gives us on the ground intel. You know he’s he’s connected to any ice connected to WNYC. So you know we we do have a lot of confidence. But as all all good managers you should have a plan B and Plan B is basically the Alligator River. And so we there’s a full definitive feasibility study completed on Mulga Rock. So that’s technically a risk waiting for the tide to rise. Alligator River while we in Australia aren’t allowed to release preliminary economic assessments we have said that it would work in this market. Right. That is a high grade deposit albeit at the moment small. We want to do more Exploration to discover other deposits train a satellite pit scenario, if you like, but the angle early deposit at 1.3% works today.

Matthew Gordon: Well let’s come back to the asset. We are going to talk about it in some detail in a minute. I want to get on to, again just in terms of the scene setting describing the arena in which we’re playing. We talked about a second ago Section 2332. The world is fatigued by that by the topic but the world still doesn’t quite understand what it means. It doesn’t understand what it means for US. players or other, let’s say, US friendly countries and indeed how the Uranium Uranium space is going to react to it. So what’s your views on the impact of 232? In fact how is it gonna be structured?

Mike Young: Well that’s anyone’s guess. I mean in the early days of the 232, in fact from a September last year in London WNA, we were meeting with one of the fuel buyers. And and he said you know we’ve run 100 different scenarios of what it could look like and then it goes to the president. So you know the inference was it could be anything right. It could be you have to get Uranium from the moon. Who knows right. But we think we’ve done a bit of work on this. Again Julian and I’ve sat down and thought about this pretty deeply. We don’t think it’ll be too. And David Talbot at Eight Capital put a good paper several weeks ago on what the tariffs would have to look like to incentivize production in the States. And I think he, I can’t remember that I have ADHD so remembering details and I don’t mix, but I think tariffs will plus 100% to about 150%. That’s what the tariff had to be to incentivize enough production in America. So I think that’s off the table. So then you look at it’s now a 25% quota which the petitioners are asking for, depending on who you ask, is not feasibly possible in the United States in the foreseeable future. They just don’t have the production ready to go. How much could they ramp up? I don’t know. They say they could ramp up very quickly. I’ve done a lot of permitting around the world and I know that permitting Uranium project takes a long time. It would take them a long time to get up to 25%. It would take a lot of new players and you would create a bi-furcating price market. You would have us price which would have to top $100 and then you have the rest of the world price. So I don’t think that’s gonna happen. But what what can happen I think is that you have countries specific tariffs. This is this is what we think is going to happen. So I’ll just say that I think the consensus is that the president will take the full 90 days to make his determination, not surprising. In university I was the same, I didn’t study till the last minute. We’re all the same. It’s human nature right. But he has to balance keeping a Nuclear industry which in the unregulated markets is marginal because of the price of gas and subsidized wind and solar. He has to balance that against having a fuel industry in the States if they want to have mines and downstream processing et cetera. So you’ve got to balance that. And so I think I think it’ll be a form of country specific tariffs. I mean if there is truly a national security issue.

Matthew Gordon: Well do you think there is?

Mike Young: No, I don’t think there is. I think if there were truly a national security issue then US producers buying their material on spot wouldn’t be buying it from Kazakhstan and et cetera. But the issue is if there was truly an issue, wouldn’t it be better to leave the ground until you need it. Maybe that’s the outcome. That’s not the outcome the petitioners want. I think the I think the national security issue was an afterthought. From after when the petition was actually put in.

Matthew Gordon: So do you think it’s do you think that’s disingenuous?

Mike Young: Yes, I actually yes. I actually believe that the petitioners were looking to catalyze discussions with the utilities and it was a scare tactic that got out of control.

Matthew Gordon: It certainly got everyone talking for sure. But I think there’s an expectation in the market certainly with US. investors or people invested in US. equities in the Uranium space, that this will see an immediate bump. Now the reality is whatever is determined, let’s say it’s positive, it’s still going to take the company, I’m told by the CEO, five six years for them to actually optimize that decision. Do you think that the US Uranium equities are going to see a bump or is it just business as usual and this is just been a discussion which has been put out there and people are going to crack on as normal.

Mike Young: No, no it’s had a fundamental effect on the market. And the reason is that the utilities basically they’re they’re contracting cycles became frozen and that was a word that they used often with us when we visited them. That we are our contracting is now frozen because no one’s going to sign a contract with the utilities saying well we’ll agree to this price but if 232 goes a certain way, we’re going to rip up the contract. So their view was there’s no point writing the contract. And you also have to remember that the utility spent an inordinate amount of time dealing with the petition. So we know we know that there were hundreds if not thousands of man hours spent on the petition the original submissions and the DOC questionnaire.

Matthew Gordon: But doing what? Time spent spending the time spent doing what? I mean how were they trying to influence that?

Mike Young: No, no actually writing submissions to the DOC questionnaire. I don’t know if you ever saw it. Thank God we’re not an American company because I would have had to hire 20 people. I know I know that the the number of man hours, I can’t disclose it because you know these these conversations are private, the number of man hours the utility spent just on the DOC questionnaire, were who were extraordinary. You know, I mean they really were full time on this issue you know. And instead I mean the DOC now has one of the best databases on Earth in terms of all the Utilities in America now, because the questionnaire is extraordinary. The depth they were asking in there you know. They’re asking to go back 10 years on your contracts. Now imagine a company like Exelon with 26 units. We want to see 10 years of contracts for 26 units. That’s 260 years of contracts that they have to go fish out of there… whatever they keep them in.

Matthew Gordon: Right. So they saying that the DOC I’m treating this seriously. It’s a serious consideration. But in the context of all the other energy suppliers out.

Mike Young: I’m sorry. I just… there was one other thing I want to add and I think you hinted on it. So once this is finished and I’m sorry it went off on a tangent, but as I said I’m ADHD, once this is finished the certainty will come back into the market. They’ll know what the playing field is. They can see into the future say it is a 25% quota. So that’s you know that’s what comes out. Well they’re going to know that in the next five years and maybe even 10 years they’re going to have to buy that Uranium somewhere else. And so that certainly will come back to the market. Now utilities have been inactive for almost 18 months. And they’re uncovered positions and 2021 and 2022 jumped by 30%. So they’ve got to get their skates on. And so I think what you’ll see is now that we have certainly on the playing field they’re going to start writing contracts again. Now my belief is that we are never going to see a spot price surge like we saw in 2007. I think what you’re going to see is that the spot price will be dragged up by the contracts.

Matthew Gordon: Right. Interesting.

Mike Young: That’s probably because the spot price as we know is an arbitrage market. We know that it’s not a true spot market in any sense of the word. So the spot market will always follow contracts. So if the spot players can get.. you know they’ll pay whatever it is to make a margin to sell it into a contract. So I think that’s what you’re gonna see certainly return. And my view is if certainty returns you’ll see contracts getting written and we know from Cameco who’s one of the lowest cost producer on the cost curve, we know that the price has to be higher.

Matthew Gordon: Right so to a degree is also controlled by what the where the end user chooses to buy their energy from. So that’s what the Utilities have got in the back of their mind.

Mike Young: You mean the customer, the guy turning his lights off and on in the house?

Matthew Gordon: Exactly

Mike Young: I think the issue is America. You know it is right now it’s the biggest market and China’s doing what they can to catch up by I think 2030 they’ll supersede America. France has announced that they’re going to push back their Nuclear shutdown for 10 years which is you know this is a typical politician kicking it down the road for another decision. The interesting thing is that we’re seeing in some American states now that non-emitting credits, zero emission credits are now being given to Nuclear power plants. So I think I think we’ll start seeing as the. Climate change Crisis, if you want to call it that, I’m a geologist but the crisis, the Scientology, as it consumes people’s psyches and they’re looking for answers, you’re seeing more and more people turning to Nuclear or saying well actually you know when we look at it scientifically it’s not nearly as dangerous as we thought. And it’s actually really efficient and we should be looking at Nuclear power. You’re looking at small modular reactors which I think in the next 10 years will be commercialized. And way down the track, you’re looking at Fusion. I think that’s a long way off. But I think what you’ll see is that is that Nuclear energy. The OECD countries will remain static, but in Non-OECD countries, you’re going to see a lot of growth. So I think people are you know people are worrying more about how that energy is being produced, than they are really about about the cost. I mean that’s obvious.

Matthew Gordon: That’s a big topic and perhaps we come back to that another another time because it’s a very emotive subject when we know this from the feedback we’ve had from our YouTube Subscribers and on Twitter. This whole clean energy versus toxic waste coming together. You know both sides are intransient.

Mike Young: Can I just say something. I really really love the fact that you put out there on Twitter that you’re going to interview me and people engage and ask questions. I just think that’s fantastic. And I love it. I love interacting with your with your Followers but also the Followers on Twitter. I just wanted to put that out there and… I lost my train of thought completely something. I know it was there was something on Twitter that I retweeted and it was an article on how much waste is actually out there ever.

Matthew Gordon: Is this the coke can one?

Mike Young: No. That’s that’s how much a person requires for an entire entire lifetime. It’s 370,000 tonnes of waste. Now that sounds like a lot but there’s about 20 million tons of solar panels in China alone that will become waste in about 20 years, leaving that aside. So that would fill a soccer pitch to about three meters high, 10 feet. That’s how much waste is there’s nothing. You know it’s not an issue but when you look into the spent fuel. And you look into safety. And you look into Nuclear power in terms of how much power delivers for how little fuel it uses, scientifically and not emotionally. Then you start to go… Mike Shellenberger is a great example. I mean, he was he was I don’t ever you know who Michael is but he’s a great blogger, ran for governor of California to highlight the fact that they were shutting down the Nuclear power plants. But he was… he’s a convert. And like all converts, very loud about it. He was a person who who environmentalist, very intelligent wanted wind and solar started looking into it and said Gosh these things just aren’t going to give us what we thought they would. We need to look at Nuclear. So that’s happening more and more you can you can actually wear a shirt saying I’m a Uranium miner down. You know people come up and ask you questions. And the biggest response they always say is “gosh I didn’t know that.”

Matthew Gordon: And it is fascinating. Let’s say yes it’s probably topic for another conversation ….

Mike Young: Let me grab something to say on set. So this is this is a great. This is a great gimmick that I came up with a couple of years ago. OK. So you can see how big this is right I(40cmx40cm ish cube). So if this was a piece of Nuclear fuel. Before it spreads in reactor, I actually could hold it this close without it being toxic but if you would weigh about three kilograms or about seven and a half pounds which is not very big. That would power about 150 Australian homes for a year. That would offset the use of 400 tons of coal, Now 400 tons of coal would be a million of those cubes. There would be a cube like that six metres high. And it would basically offset. In fact the amount of Uranium that Mulga Rock will produce, will help to offset the equivalent of 13% of Australia’s total CO2 emissions. So when you start looking at that and you start looking at it scientifically and unemotionally, you just go “What are we doing”. You know it’s 53% of America’s non-emitting power. It’s 20% of their electricity.

Matthew Gordon: If you’ve any information you want to share with us and we can get out there, heavily branded with them and of course, we’d like to see that. Well let’s get onto what everyone wants to hear about, which is Mulga Rock and Alligator River. And I’m sure that you want to talk about as well so why don’t you kick off with Mulga Rock and tell us a little bit about that and I’ll dip in with questions.

Mike Young: Oh go back there it’s history. It’s really interesting. We discovered it in 1970 by the Japanese. Completely blind deposit. What they did was they basically bulldozed a road through the Australian bush basically in the middle of nowhere for 160km. And they drill a hole and 4 kilometres and that’s how they hit it. Didn’t know it was there. They just knew that the geology was right. They then spent 20 years working on it. Due to political pressure back home. And corporation back home and political pressure in Australia. They quit. A gentleman named Mike Fewster is one of our shareholders picked it up and listed a company called Energy Minerals Australia in 2008. In 2013 I had left the iron ore company and was running. Mainly because all we were doing was making money and I was bored. So that was a great gig but we weren’t really doing a lot of business development. We were just know hugely successful from a corporate standpoint but not what I wanted to do. I love building mines. So I got involved, back then we recapitalized the company had big debt, needed money. Andrew Forrest came in and Andrew Forrest is a 38% shareholder of Fortescue Metals Group. It’s a $16Bn, $18Bn iron ore company. And then we renamed it to Vimy. And Vimy is a town in Northern France. Where in World War 1, the Canadians had a very successful battle and my great uncle was killed there. So it didn’t translate into anything bad in Korean, Japanese or Chinese which is something you always have to check. But we rebadged it. We man up, personed up. Got a really good CEO on board who then, and we started to pre-feasibility study (PFS) feasibility study which we released in January 2013. 15 year mine life (LOM). 3.5Mlbs of Uranium a year, average grade is about 770 PPM so 0.8% but we do plan to mine a higher-grade for the first five years. This is a large open pit. This is basically an old river channel 50m deep. The ore is basically just unconsolidated river sediment organic. We have no drilling & blast. Our mining costs are very cheap, we’re basically sand mining. We’re going to mine it like a strip mine. So we’ll start at one end of this old river channel, dig a hole and as we move forward, we’ll dump the waste behind us. It actually has a really low residual footprint. Because of that. We’re actually backfilling our pits and we’re really proud of that. The ore is then treated using acid leach and resin and we then extract Uranium and form yellowcake. And it’s a really technically simple process. During the DFS, we dug to 50m deep test pits. And we did that to assess, what I call the dig-ability of the overburden, because you’re mining costs are one of your big drivers for your OPEX. And then we took 100 tonnes of sample, took that back to Perth and put that through a pilot plant. Then the thoroughness of what we did can be highlighted by the fact that we have a bore field on-site which will provide water for the operation. We have more than enough for a 90 year operation. We actually trucked 2.5 tonnes of water from our bore field to the pilot plant in Perth to make sure that we were crossing every t, dotting every i. Because normally you just use tap water you know add some salt to it to make it look like that water. But we actually we literally trucked water from 800km from Perth in the middle of nowhere, to Perth so that the pilot plant just would have no questions, all answers.

Matthew Gordon: So you’ve a DFS, you’ve got a NPV here of $500M, at $60. You need that $60. Obviously today it’s not at that. So you need something to change in the marketplace obviously to monetize that, not not least of all getting some cash into the company presumably. And that’s not going to happen again until the price moves. So I mean what is what’s the position with regards to Mulga Rock at the moment. Is it just kind of sitting around and waiting for something to change or do you continue to drill. I mean how are you managing managing things?

Mike Young: So we’ve got all the technical work is done. We’ll obviously have to go back to the DFS at some point in the next year and actually reset some of the assumptions on on costs. Cost of people. Costs and equipment. I don’t think… the costs haven’t blown out in any huge amount in Western Australia in terms of a mining boom. You know we think that the DFS is pretty valid but we need to to validate it. So we’ll certainly do that this year but I wouldn’t think those numbers would change too much. So the plan for us is this is a marketing led financing. So we need to get contracts which then lead to debt which then leads to equity. So we need to have the contracts first and that’s where a lot of our effort has gone. The section 232…Section 232 It’s been a double edged sword because, yes it has caused a lot of consternation but it’s actually pulled that rubber band back a bit.

Matthew Gordon: Meaning?

Mike Young: Meaning, if the utilities had been running contracts normally Section 232 didn’t happen. There was no hiatus in the contracting market. I think what would have happened is that a lot of marginal producers would have written, not loss making contracts, but marginal contracts to just keep going until the price went up. Whereas I think by having this hiatus, there’ll be a little bit more urgency on the buy side and I think what you’ll see is that… I think you’ll see a relaxing of what people want to pay to get that security of supply because the hiatus is actually caused some people to go by the wayside.

Matthew Gordon: That’s well that’s it that’s an interesting thought if you think that people will relax that those thresholds. You know I’m an ex-banker you know we needed a certainty on lots of different moving parts before we would consider investing into something. Mulga Rock is at that point where if you’ve done the DFS, you’re pretty much ready to go?

Mike Young: We’re working through what I call the secondary permits. So you need your mine closure plan, mine management plan. Those are those are like getting a permit house. You just go through an exercise with the government we’re currently doing that.

Matthew Gordon: It’s a  known process and I know the Australian Government at the moment isn’t necessarily pro-Nuclear but it’s letting in mine. Yeah?

Mike Young: Both sides. So so we’re about to have a federal election in May. The odds are now that the Labor Party will win but they have a policy that allows Uranium mining. So that’s not an issue. The State Government had already said that we are allowed to proceed because we’ve got all the permits that the State Government provides so they’ve said that we can move forward.

Matthew Gordon: Right. And so that’s not going to affect your secondary permits or licenses at all?

Mike Young: No, no, no it can’t. In fact it can’t. And that’s a good question because the government…when they read into Parliament their Uranium policy they made it quite clear that they could use that secondary process to frustrate our  operation and they haven’t been.

Matthew Gordon: So that brings us back to the economics here. So you know you’re going to at some point… you’ve got some cash in the bank at the moment.  How much should be how much are you sitting on?

Mike Young: We’ve got $2.4M in the bank and we’ll probably spend a million over the next quarter.

Matthew Gordon: Right and say that’ll see you through. I don’t what was the timeline?

Mike Young: The next financial year.

Matthew Gordon: Right. Okay. So that gets you through the next financial year. So there’s a lot of things I’ve got to move in the marketplace for you to be able to raise additional capital to get this thing into production. Not least of all the spot price and then it’s a question of you know how cheap or how expensive that money is. Yeah. But you’re ready to go. Obviously looking at secondary permits and from what you said earlier that also puts you in a very good position compared to a lot of the the juniors out there. Not everyone has the permits or even DFS is in place for people to be able to make the economic assessment. So you’re feeling quietly confident you can get through to the point where you think the market will move.

Mike Young: Yes well yes absolutely. And you know I’ve run junior companies. I’ve been associated with juniors for a long time and you know you do have to go out and tap the market down again. We have very supportive shareholders so the last time we do to raise both are our 10% shareholder in Paradise and 14% shareholder in Forest Family Investments, they both followed their money. So you know we have very good support from our brokers. So we need to raise money to keep the lights on if you like. That’s not a problem. So we. That’s not an issue. Now the question is you know we get asked a lot, “How does a company that’s capitalized at $30M raise that much money?”. Well there’s two answers that. 1.One is, if the market recovers to the point where we can make this work, then you’re going to have growth in your equity side. Your market capital grow. 2. And the second thing is that when you look at this project from a technical standpoint, how quite simple it is. The low technical risk of this project and you look at where a lot of commentators think the price is going to go in terms of the spot price or the consensus price forecast, if you like. It does take us up to where we need to be. So you’ve got to remember that it’s a two year build. So say, we go into financial investment decision in 2020 and we decide mid 2020 that yes we’re going to we’re gonna go on this, we’ve got financing, we’re going to go. It’s mid 2022 to before you’re producing. Now by mid 2022, the general consensus is that is that the median consensus price is around $51 and if you add the normal margin to that you would see historically on a $50 price, it’s up around $62. So those are just prices and that’s stuff we’d like to get into the market. We’ve got a lot of information on this stuff we want to get out there. But I think and that’s $62 would be a great price. $55 would work for us. $62 would be fantastic. So it’s going to be market led and as I say, it’ll be market made by us getting the contracts. We’ve done a lot of work with banks. We know what our floor price needs to be. And so that’s the trick. So get the contracts at the price that will allow the debt and that allow the equity. You know it’s hard work. It’s not, I’m not saying you know I don’t, I’m not delusional. I don’t think this is going to be easy. But I do believe that if the prices get where we need them to be, we will make it work. And we have built mines before. So that bit of it once the financing is done, that bit of it’ll be, ironically, it’ll be the easy bit.

Matthew Gordon: I understand that and I think people should appreciate the fact that you have done this before, albeit in a different space there things, there are cycles and they run they play the same way generally. You touched upon your shareholders. Obviously the Forest Family is very well known. Paradise Investment, I’ve not heard of them. Are they an Aussie outfit.

Mike Young: Yeah they’re based in Sydney. So run by you be a fund run by David Paradise. They they run, I think they basically do high net worth money. Very successful, they’ve had they’ve had very good yields, good returns. They’re..what’s the best way… a smart conservative is probably the best way. They actually like the Uranium space. They have a few investments in Uranium. They also invest in BC Iron and did very well out of that. So they and I have a history so they’re you know they’re backing, I guess, they’re backing the jockey as well as the horse.

Matthew Gordon: What about Michael Fewster?

Mike Young: So Michael was he’s a geologist. He is the founder of the company. So he’s been in since the beginning. Slowly diluted down. But Michael you know he very strongly likes the Uranium space. I mean he’s, this is his baby if you like. And there’s nothing I’m going to enjoy better than than handing Michael the scissors to cut the ribbon at the opening ceremony. Michael deserves to be there for that.

Matthew Gordon: So how much money is actually gone into the company then from the start. Well not from the start, the latest incarnation.

Mike Young: Okay. So since I got involved. It would be around $43M give or take. The DFS was about $30M, on time, on budget. I might say including two just bits. So we have we’ve had in my time I think it’s around that much.

Matthew Gordon: Right. And then I would say market cap is what it is today. I didn’t look to be quite honest says $37.3M on the presentations. Yeah, there or thereabouts. Let’s be generous and say it’s a dollar for dollar at the moment, all right.  Because it’s all price lead. The commodity prices is going to determine that it will come back as the spot price changes. What are you what do your shareholders nervous about? What are the things they talk to you about at the shareholder meetings? Certainly the larger ones.

Mike Young: They talk to me about the the government approvals. That’s always an issue. They ask about the federal government with the election coming up. We’ve made it pretty clear, there is there is a condition in our public environmental review that we can we initiate substantive works by December 21 2019, I think it is which we expect to do. So we you know we expect being on current plans, we’ll be well into construction by that point. That’s a condition of the PER that the Minister can you can roll it over to another five years if he wants. You know, there’s environmental activism. There’s groups who don’t want us to do this. It’s frustrating personally because I think when you look at clean energy this is one of the cleanest. But you know we deal with that. It’s mainly the price. Section 232 of course has been on everyone’s lips last year. And you know a lot of them are asking the question you saw on Twitter. So those are those are those that was actually a really great exercise to see people asking questions.

Matthew Gordon: Yeah I think it was and we need to thank a lot of people for the contributions. Like I say it’s a very emotive subject. It put a polarizing in a way. Your shareholders are passing on the fact that the price will come back and it’s just a question of when, not if, so they’re fully supportive financially.

Mike Young: I think I think there are also some of them will be we’ll be betting that the Alligator River Project also has some good results to tell me.

Matthew Gordon: Tell me about it. We did. We should come back to that so tell me about Alligator River.

Mike Young: So Alligator River as I said in my opening is basically a geological province in the Northern Territory of Australia. Part of it is covered by Kakadu National Parks and that’s obviously off limits. Cameco, who we brought the project from has done a great job of amassing a large tenement block over 80km long. If you were to put this tenement block and  put it on top of the Athabasca base and you would see that’s quite a large land position. It’s sitting on some very prospective geology. The geology is very similar to the Athabasca basin. That’s on conformity style Uranium deposits. And we have all the styles. We have Ranger style which would be like the basement style deposits that you have in the Athabasca. We’ve got the McArthur River style. Cigar Lake style. Those all exist. We can see the structures. The thing that’s happened is because of Uranium politics in Australia. There was three mines Uranium policy in Australia for a long time. And because of that we had three operating mines. Nobody was doing Uranium Exploration. So this area, while Exploration in the 80s, 90s was going gangbusters in the Athabasca Basin. Nothing was happening in the Alligator River Province. So we’re basically sitting on a piece of ground that’s as prospective as anything and the Athabasca basin has not been explored since 1980. That’s what we’re sitting on and that’s the value proposition right. So we’ve basically done some preliminary work. We’ve identified some walkup targets once called Suchwow and Sheba. And the other ones called Anulaalee. Those are smaller high-grade targets. And we’ve also got targets that look like Jabiluka and Ranger called Condor and South Blank and those are our next generation projects. We have what Donald Rumsfeld once called a target rich environment. So you know we have a lot of work to do and a lot of partner to come in and help us with this. You can easily spend $15M a year up there generating targets world cost targets. So you know there’s a lot of work to do. We’ve got a good team, experienced team. One of the geologists came across from Cameco. Penny Sinclair working with us doing a great job. General Manager of geology is Xavier Moreau has been in Uranium, I think before he’s born, frankly. But he loves Uranium. So you know we’ve got a really dedicated team and we’re looking forward..

Matthew Gordon: Does it frustrate you that that’s not getting valued? You’re not getting the reflective value that you think is there?

Mike Young: I think we’ve got… I think we’ve got people watching us because of it. I think there are people going “OK I can see a catalyst a short term catalyst”. You know the problem when you develop a project is that you go through the initial phase..bit  like being married you know you go through the honeymoon period it’s all great.

Matthew Gordon: I don’t what you’re talking about…

Mike Young: You know.. you got it and then that’s about a rock project right. That’s ready for an anniversary party or something. But you know Anugulaalee is the thing that’s going to really generate short term news. So you’ve got exponential thing which is the Uranium market you know the thing that we can control is know Mulga Rock we continue the permitting process but I Angulaalee is to go up and drill some of these targets right.

Matthew Gordon: I mean you said that people are watching you and you used the phrase short term there. But yeah have you been approached by people or is it just too difficult in this market for people other people other than… unless they’ve got cash, like a Cameco, is anyone approaching say discuss ‘Well why don’t we look at that project for you do some kind of joint venture.’

Mike Young: I’m trying to remember if I disclose this or not. I think …we have to disclose that. Could release this year the ASX so that would be good. I think we have talked to parties are interested parties and certainly I’ve got a good reception at PDAC. And you know there are there are people who work in Canada who know this part of the world and you know we’ve expressed interest.So we’re kind we’re pulling all the levers if you like.

Matthew Gordon: So are they would they be strategic investors or strategic partnerships who perhaps want to operate or are you looking at all the above?

Mike Young: All of the above. Yeah absolutely

Matthew Gordon: Okay okay. So I mean I asked a question a second ago about valuation. I mean how do how are you valuing your assets? Obviously you’ve got the assets under the ground. What else have you got on the books which you think is undervalued?

Mike Young: Those are the two…those are our projects. Oh actually that’s funny. We have we have a base metal project which is directly North of Mulga Rock. And what’s interesting about Mulga Rock. Mulga Rock East. Mulga Rock West. Nothing complicated. Mulga Rock East is full of base metals. We did look at extracting them but they.. the problem is they economically, they don’t stack up because base metal prices are on a completely different cycle to Uranium. So you might end up subsidizing base metal production one year and making money the next. So it doesn’t really work. But Mulga Rock West of that any base metals and we started to think why this was. And we started to do some really good geology and we discovered that the provenance for the metals that we’re trapped in this river channel at Mulga Rock East, is to the Northeast and there’s this large long lived sedimentary channel. Which is prospecting for Proasoric based metal deposits like McArthur River in Queensland. Like Mt.Isa Sullivan in Canada. Yet it’s completely covered and blind and no one’s done any work there. So what we’ve done is we’ve actually put that into a separate vehicle. It’s a wholly owned vehicle called Vello Resources and we want to the that our corporate leaders are bringing in a joint venture partner. We don’t want to get sidelined into base metals from Uranium. We are a Uranium company but we do have this asset. It’s a huge ground holding that’s sitting on this is unexplored ground. That’s prospective for Sullivan’s style. You know Mount Isa style base metal deposits. Broken Hill style base metal deposits. So you know that’s a big target for us. And so we we want to move that. We want to get some value for our shareholders. Why put that into a separate vehicle. You want to make sure that we don’t conflate the two.. the two metals but we do we do want to see general value from that. So we’re looking opportunities for that project as well. That clearly doesn’t have a lot of value in terms of valuation on the company. But I think by putting it into a separate vehicle and having someone concentrate on you know what’s essentially a new province, totally under unexplored. That could generate a lot of upside.

Matthew Gordon: Right. Thanks. I appreciate the… this is just the first time we’ve we’ve met in full time our viewers will have possibly heard the story so thanks for going through that. Can you give me five reasons why you think investors should be considering Vimy as an investment proposition.

Mike Young: Right now at our current valuation compared to some of our peers, in terms of an upturn in Uranium market, I think at the current market cap we have had some good growth in the last couple of months. We’ve slowly crept up but I still think that there’s a lot of value left. You’ve basically got a team of people who want to build mine. So we’re not about mining the market. You know we’re all people who’ve built mines. I love nothing more than a mine opening. You know, it’s a great feeling kind of ribbon at a mine you’ve built and provided several hundred jobs. It’s a great feeling. And so you’ve got people who are serious about getting into production.  The fact that we now have a pipeline of projects. I think that’s important both for the long term and short term, Mulga Rock, as I said that needs time to rise. I’ve made my state my position clear on where I think Uranium price is going. As I say it’s not technically difficult. So you do have Uranium mines around the world which do have technical difficulties. This is not one of them. We have some good shareholders. You know we’ve got very strong backing generally have been in there for a long time to support us. We have great brokers who are supporting us as well. So you know we’ve got that that foundation put aside But I think you know it’s one thing I love most about this industry and Vimy, Uranium is different. Even I like to say this isn’t the same as any other commodity. It is emotion. You’re right it is. And the people working here working on Uranium for a long time 1981 my first summer job underground at Uranium city Saskatchewan. So it’s in my blood. It’s in the blood of the GM it’s in the blood of everyone who works here. And you know that’s important to have passion and vision. And I think that’s what we have now. I’m not saying our peers don’t but when you look around there’s very few of our peers have actually built mines. And so you’ve got a dedicated team of people who can do this and people always talk about a ‘can do’ attitude. What we’re a ‘has done’ and it’s right. So I think that’s important. You know, we know the risks of bringing a mine into production yet we still have confidence that we can do this fantasy.

Matthew Gordon: I think that I think that’s a great summary and a great way to finish this interview Mike thanks very much for your time. I really enjoyed listening to you being very frank and honest about 232 and what’s going on out there.

Mike Young: Bit too honest I think. It’s actually I put it out there before

Matthew Gordon: Mike look, we look forward to catching up with you again soon and hearing more about the story.

Mike Young: And I’ll see you in London for that Beer.

Matthew Gordon: Wonderful. You’re on.


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

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